Preliminary results
Associated British Foods PLC
08 November 2005
Associated British Foods plc preliminary results for year ended 17 September
2005
Earnings up 14% and over £1.5bn invested for future growth
Highlights
• Adjusted earnings per share up 14% to 53.0p **
• Adjusted operating profit up 18% to £565m*
• Group sales up 9% to £5,622m
• Adjusted profit before tax up 12% to £590m **
• Dividends per share up 10% to 18.0p
• Investment in acquisitions and capital expenditure of over £1.5bn
• Net cash funds of £224m
• Operating profit up 13% to £487m. Profit before tax down 3% to £479m
and basic earnings per share down 3% to 42.2p after £47m provision to close
Littlewoods business
George Weston, Chief Executive of Associated British Foods, said:
'To deliver a 14% growth in earnings in such a competitive environment is very
encouraging and reflects the contribution from our acquisitions and further
progress in a number of our key growth platforms, such as international hot
beverages, US branded grocery and Primark, which had an outstanding performance.
We have also laid firm foundations for long-term growth with over £1.5bn
invested in acquisitions and capital expenditure.'
* before amortisation of goodwill.
** before profits less losses on the sale of businesses and fixed assets,
provision for loss on termination of an operation and amortisation of
goodwill.
All figures stated after profits less losses on the sale of businesses
and fixed assets, provision for loss on termination of an operation 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
George Weston, Chief Executive Geoff Lancaster, Head of External Affairs
John Bason, Finance Director Mobile: 07860 562 659
Tel: 020 7638 9571
Jonathan Clare/Chris Barrie/Sara Batchelor, Citigate Dewe Rogerson
Tel: 020 7638 9571
After 1500
John Bason, Finance Director
Tel: 020 7399 6500
Notes to Editors
1. Associated British Foods is a diversified international food,
ingredients and retail group with sales of £5.6 billion and over 42,000
employees in 41 countries.
Our aim is to achieve strong, sustainable leadership positions in markets that
offer potential for profitable growth. We look to achieve this through a
combination of growth of existing businesses, acquisition of complementary new
businesses and achievement of high levels of operating efficiency.
2. We have achieved a compound annual growth of 13% in adjusted
operating profit from 2000 to 2005. The delivery of this strong profit growth
has been driven by investment in both existing businesses and acquisitions in
areas of our core expertise.
2000 2001 2002 2003 2004 2005 CAGR
Adjusted operating profit £m 299 320 369 427 478 565 +13%
Adjusted eps p 34.1 37.2 39.1 41.3 46.6 53.0 + 9%
3. ABF has strong positions in the markets in which it operates:
International hot beverages Twinings is the world's leader in speciality teas and infusions. It has
manufacturing in Europe and China and celebrates 300 years of trading next
year. Ovaltine is the largest producer of malt based beverages in Europe,
Thailand, Philippines and China.
North America Grocery We have built up a strong portfolio of famous grocery brands in the Americas.
Mazola is the leading corn oil in the US and Capullo the leading premium
canola oil in Mexico. We have strong positions also in herbs & spices,
sauces, corn syrup, starch and yeast.
Primark Primark is a major value clothing retail group employing 12,000 people. It
operates 122 stores in the UK and Ireland, and trades as Penneys in Ireland.
British Sugar British Sugar is Europe's most efficient producer and the sole processor of
the UK sugar beet crop. It has adapted to the structural changes in world
sugar production and has strong manufacturing positions in Poland and China.
AB Mauri This business has a global presence in bakers' yeast with 45 plants in 24
countries. It is market leader in the US, South America and Asia and number
three in Europe. It is also the technology leader in bakery ingredients with
17 factories around the world.
4. We are investing strongly in the future growth of the group. The
total expenditure in the year of over £1.5bn comprises acquisitions, less
disposals, of £733m, a significant number of new stores for Primark, £628m, and
capital expenditure in the existing businesses of £182m.
ASSOCIATED BRITISH FOODS plc
PRELIMINARY ANNOUNCEMENT
FOR THE YEAR ENDED 17 SEPTEMBER 2005
CHAIRMAN'S STATEMENT
There have been major developments in the group over the past year. Substantial
investment has been made to strengthen our established businesses and to add new
ones, the main benefits of which will be realised over the coming two years.
There has been a satisfactory advance in overall trading results with adjusted
operating profit improving by 18% on the year before and adjusted earnings,
reflecting lower net investment income, ahead by 14%. However, some of our
businesses have faced a tough trading environment.
Our expenditure on acquisitions and fixed assets was over £1.5bn. The two main
areas of investment were in the international yeast and bakery ingredients
business and in a significant number of new stores for Primark. While much of
the benefit of the AB Mauri investment, made on 30 September 2004, was seen in
the year, there is more to come. The major part of the investment in Primark
was to acquire stores from the Allders and Littlewoods chains. The first of
these opened as a Primark a few weeks ago and the roll-out of the rest of the 47
stores will continue progressively over the next 15 months. By early 2007
Primark will be trading from some 4 million square feet compared to 2.3 million
a year ago. The contribution from the new stores will only then be fully
realised. In the case of Littlewoods, we acquired the whole of the business,
identified 41 stores to be traded as Primark and are disposing of the remaining
stores. At the time of writing, agreement on sale had been reached on over half
of the remaining stores.
Another major development was the publication by the European Commission of
proposals for the reform of the European sugar regime. The thrust of the
proposals will be to reduce productive capacity in the EU, eliminate subsidised
exports and reduce support prices. Our UK sugar production is highly efficient
and we expect British Sugar to continue to be a strong force in the European
markets, although an adverse impact on profit can be expected particularly from
2007/8 onwards.
The consequence of these major developments is a shift in the source of our
sales and profits both by type of business and geographically. This is already
apparent from the segmental analysis of our business where there has been a
further reduction in the proportion of group profits derived from EU sugar and a
broadening of the contribution from overseas. We expect this trend to continue.
The larger part of the satisfactory advance in trading results came from
acquisitions. Of this the main contributor was the yeast and bakery ingredients
business which is bedding down well under our ownership. Over-capacity in the
important North American market and a sharp rise in the cost of molasses, a key
ingredient, held back the results from the bakers' yeast operations but
appropriate management action has been taken and we expect much better results
as the current year progresses. The US herbs & spices business and the Capullo
oil brand in Mexico both exceeded our expectations and contributed to the
development of our portfolio of grocery brands in the Americas.
The outstanding feature among our longer standing businesses was the excellent
performance of Primark. The clothing market is always fiercely competitive and
in the past year there has been evidence of price deflation in the UK leading to
little, if any, overall growth in the market. Primark, however, achieved
substantial like-for-like sales growth and, with the addition of some new space,
grew sales by 17% and operating profit by 30%.
Elsewhere in the group there were good performances in UK grocery, British Sugar
Overseas and agriculture. However, there were lower profits at British Sugar in
the UK and our Australian bakery businesses, where market conditions were
difficult. The results of all the businesses are covered in detail in the chief
executive's review and the review of operations which follow.
In concluding my comments on trading performance, I should highlight the
progress at Twinings as it approaches its 300th anniversary. Even after the
investment in a major restructuring of its worldwide production facilities and
much increased advertising and promotion spend, it showed good growth. It is
well set for its next century.
As well as the major investments described above, expenditure to maintain and
enhance the efficiency of our plants and other fixed assets has continued at
high levels. The group is strongly cash generative and net cash funds total
£224m at the year end even after over £1.5bn of investment. The group's
financial position remains strong and is fully capable of supporting further
investment in our businesses.
Triennial valuations of the group's major UK pension schemes have been carried
out in the past year. The valuations take account of both increased life
expectancy, based on the latest predictions available to the group's actuaries,
and current bond yields. Following the valuations, annual contributions have
been increased and arrangements made to clear, over the next two years, the
small actuarial deficit using our funding assumptions. However, using the FRS
17 assumptions, there was a net surplus at the end of the financial year which
is reflected in these accounts.
Board Changes
On 3 November 2004 Tim Clarke was appointed to the Board. Mr Clarke is chief
executive of Mitchells & Butlers plc and was previously chief executive of Six
Continents PLC prior to the demerger of Mitchells & Butlers.
Peter Jackson decided to retire as chief executive and as a director with effect
from 31 March 2005. He had been chief executive since 1999 having joined the
Board in 1992. He was managing director of British Sugar for some years before
it was acquired by ABF. In his time as chief executive great progress was made
in operating performance and in the strategic development of the group. Peter's
contribution over this period has been critical to our success and has been
greatly valued by his colleagues. We wish him the very best for the future.
George Weston was appointed chief executive as successor to Peter Jackson.
Employees
The group now employs some 42,000 people in 41 countries. It is their efforts
and enterprise in demanding conditions which have produced the results of the
past year. On behalf of shareholders I wish to thank them for all their hard
work and the progress which they have delivered.
Outlook
Most of our businesses are experiencing sharp increases in energy and related
input costs and we can be certain that competition for our businesses will be
robust. They are nevertheless well placed to meet these challenges. Primark has
continued to trade well and there is a programme to open significant additional
retail selling space in the first half of the current year. Alternative
arrangements have been made quickly to continue supply of stock following the
recent fire at Primark's main UK warehouse, although some limited disruption can
be anticipated. We expect further overall progress in group results in the
coming year.
The roll-out of new Primark stores converted from Littlewoods will occur
progressively from spring 2006 until early 2007 and returns will build
gradually. As a consequence, the reduction in net investment income will result
in relatively modest growth in earnings next year while the benefits of our
investment will only be more fully realised in the following year.
The Board is confident that the benefits from the significant investments made
this past year will be delivered over the next two years.
Dividends
The directors propose a final dividend of 12.0p which, together with the interim
of 6.0p already paid, makes a total of 18.0p for the year, an increase of 10%.
The proposed final dividend will be paid on 13 January 2006 to shareholders on
the register on 2 December 2005. The directors intend to maintain a policy of
increasing dividends in line with medium-term earnings growth.
Martin Adamson
Chairman
CHIEF EXECUTIVE'S REVIEW
These strong results are the consequence of the success of Primark, good
progress in most of our other existing businesses, and satisfactory
contributions from our recent acquisitions.
Primark has had a great year in which it not only produced excellent sales and
profit growth in a difficult high street trading environment, but also acquired
new stores from Allders and Littlewoods that will increase its retail selling
space by 60%. None of these new stores had commenced trading by the end of the
financial year. It enjoyed enthusiastic and deserved attention in the fashion
and national press, all of which helped cement this remarkable business in the
consciousness of clothes shoppers in the UK and Ireland.
British Sugar faced difficult market conditions in both the UK and Poland as a
consequence of over-supply of sugar, following the accession of new member
states to the EU. Operationally the company performed extremely well achieving
record production at Wissington and a consistently good performance from the
whole business. Of equal importance was the continuing improvement in its
health and safety performance. The manufacturing cost base of British Sugar is
already the lowest in the EU and, with further investment in both the UK and
Poland, it will become lower still. This reality, together with our belief that
the market for sugar in Europe post-reform will be in balance, gives us
confidence that our European sugar operations have a profitable future. Our
sugar business in China recorded its highest ever profit as prices firmed and
good factory performance improved extraction rates from a smaller crop than last
year.
Our agriculture business in the UK made good progress in an enduringly
difficult market. The combination of our grain trading business with that of
Cargill in a new joint venture in which we have a 50% interest is expected to
deliver enhanced performance through the provision of a more comprehensive range
of products and services. Our business in China performed extremely well,
producing and selling 30% more feed than last year and delivering strong profit
growth.
Our bakery businesses in the UK and Australia both had difficult years.
However, in the UK, the imminent relaunch of our premium brand, Kingsmill Gold,
and significant improvements to our supply chain give us confidence for the
future. In Australia, our new bakery at Chullora in Sydney is now complete and
contributing to a much lower cost base. This is a magnificent asset that will
benefit our company for years to come.
Our other grocery businesses all made good progress. The Twinings and Ovaltine
brands both had an excellent year of sales and profit growth, and Ryvita made
similar progress, growing the market and successfully launching new products.
The Billington's range of specialist retail sugars contributed to the
development of the Silver Spoon business, and Westmill Foods recovered well from
last year's disappointments. In North America, ACH successfully integrated the
newly acquired consumer yeast and herbs & spices businesses, both of which
performed ahead of expectations.
Our existing ingredients businesses underwent a year of change and
consolidation. SPI's food polyols business returned to a more normal level of
profitability after benefiting from spectacular growth last year, driven by the
high consumer demand for low carbohydrate products. During the year we
integrated our existing bakery ingredients business with our newly acquired
bakers' yeast business, AB Mauri, and we consolidated the yeast extracts
operation with the rest of our ingredients business. This reorganisation has
been successful.
Our bakers' yeast business delivered a poor performance in the large US market
which masked the very good progress made elsewhere. The problems in the US will
not be cured overnight but we have already made good progress and expect to be
able to report better results next year.
This has been a year of very significant change for the group. The purchase of
the yeast business has extended our international reach and we now have a truly
global coverage with commercial operations in 41 countries around the world.
These include substantial businesses throughout Latin America, excellent
ingredient distribution capability in India and real critical mass in China
where we now employ over 7,000 people. We now have significantly more options
for further development.
After years of remarking that Primark's growth was constrained by the limited
availability of new sites, we were presented this year with exceptional
opportunities, firstly with the closure of Allders and then the sale of
Littlewoods. Clearly we have a very real challenge to refit and staff 47
substantial stores and 1.5 million square feet of additional selling space.
However, when that is successfully accomplished Primark will not only be an even
more important part of the group, but will also be a very significant force in
clothes retailing in the UK and Ireland.
Although final agreement on reform of the EU sugar regime is not yet agreed, we
are already beginning to see the consequences of that reform as businesses
within Europe position themselves for the post-reform years. We have spent
several years preparing ourselves for a future where sugar represents a smaller
proportion of our portfolio. That future is now upon us.
The Chairman has mentioned the contribution our people make to our success and I
echo his thanks. We make a valuable economic and social contribution to every
community where we are present and I am pleased that we are able to publish,
this year, our initial global health, safety and environment report. I am proud
and thankful to be part of a company in which so many amazing people, all around
the world, work every day to produce and sell safe, high quality and good value
products.
George Weston
Chief Executive
GROCERY
2005 2004
Sales £m 2,608 2,446
Operating profit £m 188 160
Our international grocery businesses grew sales by 7% to £2,608m and profit by
18% to £188m. These increases were driven by the contribution from
acquisitions: the US herbs & spices business, Fleischmann yeast in the US, a
full year benefit of Capullo in Mexico and Billington's sugar in the UK. In
addition, there was strong growth from Twinings and Ovaltine. However, profits
were held back by reduced margins in the Australian bakery business which
experienced tough competitive pressure.
Our North American grocery business, ACH, significantly increased its scale with
the acquisitions of the herbs & spices and Fleischmann consumer yeast business
in the US. Sales, marketing and the supply chain of these businesses have been
fully integrated with our existing branded grocery businesses and are now
headquartered in a new office in Chicago. Both of these acquisitions have
exceeded our expectation in their first year. Mazola improved its margins with
lower soy and corn oil prices and focused marketing helped to increase volumes
by 2% over last year. In Mexico, the sales, marketing and distribution
infrastructure was established to support Capullo, the premium canola oil brand,
and the brand improved its market share in the second half of the year. The
Karo syrup brand in Mexico was also acquired. Capullo has been successfully
launched in the US and marketed to the Hispanic population.
Our global hot beverages brands, Twinings and Ovaltine, achieved strong sales
and profit growth supported by a significant investment in brand marketing and
new products over the last two years. This included double digit growth for
Twinings in the UK and US and for Ovaltine in its three key Asian markets:
China, Thailand and the Philippines. In the UK, Twinings launched its 'Everyday
' tea aimed at the premium mainstream segment of the market and it has been very
well received by both the trade and consumers. The UK range was relaunched with
new packaging with groupings of Classics, Light Classics, Aromatics and
flavoured teas designed for better accessibility for the consumer. A major
rationalisation of the tea supply chain is underway which will significantly
reduce the manufacturing cost base. Tea blending and packing will concentrate
on four sites with the closure of plants in France and the US and the
establishment of a new factory in Shanghai, which has been commissioned. A
rationalisation charge of £7m has been included in these accounts.
Silver Spoon, the only UK brand to offer the full range of sweetening solutions,
maintained its position as brand leader. Light granulated sugar is the leader
in its category and continued to grow. Billington's, the UK's leading supplier
of unrefined cane sugars, grew strongly this year and has now been fully
integrated and the benefits realised.
Good volume and profit growth was achieved by Ryvita. It is the UK's leading
crispbread brand and its innovation has driven growth in the cracker and
crispbread market as consumers seek new and healthier snack foods. A premium
wholeseed crispbread range was launched in June featuring two varieties: pumpkin
seed and sunflower seed. Ryvita continued to develop its wider positioning as a
healthy eating snack brand with the establishment of Ryvita Minis which saw
strong growth in the year supported by television advertising and the launch of
new flavours.
In Australia, margins in the bread business were reduced as a result of
continued competitive pressure in the market and the commissioning costs of the
new bakery in west Sydney. This new bakery not only replaces the Fairfield
bakery which was destroyed by fire in 2002 and the Chatswood bakery but also
provides additional capacity to supply the New South Wales market. Two bread
lines and one roll line are now operational and we expect the final phase of
commissioning, which comprises packing and distribution, to be completed by the
end of the year. We expect the improved efficiencies to flow from the beginning
of 2006. Improvements in meat and dairy operating performance were held back by
lower volumes to the major retailers.
Allied Bakeries in the UK was affected by lower than expected pricing and
volumes although Kingsmill branded volumes increased.
There was further progress in our ethnic foods business with a strong increase
in sales of the Blue Dragon brand both in the UK and overseas. For the first
time the brand was supported by television advertising in the UK which proved to
be successful.
Westmill Foods delivered strong profit growth. Its ethnic brands in rice, flour
and noodles grew in both volume and margin and the new plant in Manchester is
performing well. Pride Oils was acquired in the latter part of the year. Pride
is a leading brand of edible oils which is sold to ethnic wholesalers and its
addition strengthens our existing competence and expertise in this sector.
PRIMARY FOOD & AGRICULTURE
2005 2004
Sales £m 1,541 1,672
Operating profit £m 187 189
Sales fell by 8% to £1,541m and profit fell by 1% to £187m. As expected there
was a decline in profit at British Sugar in the UK but this was virtually offset
by a strong increase in profit from our overseas sugar operations in Poland and
particularly China and from our animal feeds businesses. Sales declined
primarily as a result of the sale of the UK arable business to Frontier, the
joint venture established with Cargill.
In the UK, British Sugar had another good campaign with 1.39 million tonnes of
sugar produced. The crop proved to be high yielding and the UK performance was
second in the European league for agricultural efficiency. Commercially there
were further improvements in its product range and service performance.
However, profit declined as a result of the over-supply of sugar in the EU this
year and higher energy prices.
The EU saw the accession of ten new member states in May 2004, which at the
point of entry also became members of the European sugar regime. In
anticipation of the associated increase in sugar prices in the new member states
it is now clear that sugar stocks were increased. There were no temporary quota
cuts to maintain the balance between supply and demand within the EU in 2004/5.
The consequent surplus of quota sugar severely pressured prices in many member
states and led to lower value of exports of excess sugar onto the world market.
The Commission has sought to rectify this imbalance in the coming year by
invoking a temporary quota cut of 1.8 million tonnes across the EU and our share
of this is 91,000 tonnes in the UK and Poland combined.
British Sugar Overseas improved its performance substantially over the previous
year.
The full year benefits of accession came through in Poland albeit to a lesser
extent than anticipated due to the impact of the over-supply of sugar in the EU
and the strength of the zloty relative to the euro. Operational performance was
strong and good progress was made in the first phase of a two-year capital
development programme to bring standards of efficiency and product quality at
the Glinojeck sugar factory up to the standards of the best in Europe.
Our sugar business in China had its best year yet, driven by strong market
conditions and consistent plant operations. Crop volumes were again lower due
to adverse weather conditions but good factory performance improved extraction
rates and restricted the overall decrease in sugar production. Prices continued
to rise during the year as the market reacted to the smaller crop and increased
consumption of sugar and there was an improvement in margins. Trading
relationships continue to be built with major industrial customers in China who
demand high quality and consistent service levels.
Draft detailed proposals for the reform of the EU sugar regime were tabled to
the European Parliament and Council of Ministers in June 2005. We welcome the
inclusion of a restructuring scheme which proposes to establish a fund, by levy
on the industry lasting three years, to provide compensation to processors
wishing to relinquish quota to the Commission. By this mechanism, the
Commission expects to achieve the necessary industry restructuring without
mandatory quota cuts. However, a more significant cut in the sugar reference
price is proposed with a bigger associated cut in beet prices. Much debate and
negotiation will be forthcoming before a final resolution is concluded. We
expect some volatility in pricing over the next few years but our best estimate
of the effect of these proposals will be a reduction in operating profit from
our sugar operations by some £40m per annum in the long run.
British Sugar is now well prepared to deal with the outcome of reform. The
improvements at Glinojeck in Poland are underway and the installation of the
UK's first bioethanol plant is expected to be complete by late 2006.
Commercially a number of new products targeted at specific customers have been
introduced and there have been investments in retail sugars in Poland. Work is
underway to examine ways of reducing the cost base even further. We believe
that these steps strengthen British Sugar's leadership position ahead of reform.
ABNA, our agriculture group, delivered its best ever result despite a difficult
market for its UK pig and poultry feeds.
The animal feeds business in China delivered a strong performance. This
success followed the buyout of our joint venture partners, expansion into new
regions by leasing mills, and a strong demand for our products as a result of a
government and industry drive to improve food safety.
In the UK, pig and poultry feeds faced a very difficult year due to
manufacturing over-capacity and much higher energy costs which affected both
production and distribution. Strong market shares were achieved. The British
Standards Institute's ISO International Environmental Standard was obtained at
all ten feed mills in the UK, which will help to reduce compliance costs
significantly within the framework of the new Integrated Pollution and
Prevention Control regulations. Good performances were delivered by the food
ingredients and co-product divisions.
In April we completed the sale of Allied Grain to a new joint venture with
Cargill which will trade as Frontier. The joint venture is a major purchaser
and supplier of cereals and oil seeds in the UK and is also a leading supplier
of seed and fertiliser to the UK farming community. The creation of Frontier
will provide a more comprehensive range of products and services to customers
across the UK.
INGREDIENTS
2005 2004
Sales £m 603 294
Operating profit £m 72 36
The acquisition of the international bakers' yeast and ingredients business and
a strong performance from enzymes led to a doubling of sales and profit to £603m
and £72m respectively.
Following the acquisition, a new organisation, AB Mauri, was established and the
group's existing bakery ingredients operations were integrated with those
acquired. A development team was created to ensure the transfer of best
practice and technology between all of the international businesses. Bakery
ingredients was strengthened during the year with the acquisition of a business
specialising in enzyme applications technology. It brings a strong innovation
and development capability in enzyme functionality research and a team well
placed to commercialise high value bakery ingredients, initially in the large US
plant bakery market and thereafter worldwide.
The profit of AB Mauri is lower than we expected at the time of acquisition. As
previously reported, higher molasses, energy and distribution costs have
affected the business. In many countries, increased prices have recovered this
increase in input costs but, in North America and Turkey, we were unable to pass
on these costs because of significant over-capacity in these markets. Growth
was achieved in the South American and Eastern Asian markets, particularly
China. Rationalisation of factories in India and Brazil cost £2m and the
benefit of this will be realised next year.
Investment this year included the opening of a new factory in western China in
Xinjiang and expansion in two further plants in China, one in India and another
in Vietnam is underway. The relocation of the factory in New Zealand is also in
progress.
The newly acquired yeast extracts business performed ahead of expectations.
Further development is expected following the strengthening of management and a
greater focus on research and development. Shortly after the year end we
acquired a leading US manufacturer of whey protein concentrates and isolates.
It targets the fast growing protein speciality market where key customer
applications are nutritional, particularly dietary supplements and sport
nutrition. Its expertise in people, products and technology complement the
existing capabilities of the yeast extracts business.
Speciality lipids delivered a solid sales performance with medium chain
triglyceride sales in the US achieving their highest level. In the US, the food
polyol business saw good recovery in the second half of the year following the
reduced market demand for polyols in low carbohydrate foods earlier in the year.
The pharma ingredients business performed well with strong growth in sales of
polyol excipients and antacids.
Growth in enzyme sales has been led by the bakery and feed sectors and
geographically the strongest areas for growth have been Asia Pacific and Eastern
Europe. The sale of enzymes to AB Mauri has developed in line with our
acquisition model.
RETAIL
2005 2004
Sales £m 1,006 858
Operating profit £m 140 108
Primark, our value clothing retailer, has recorded another excellent
performance. Profits increased 30% on sales ahead of last year by 17% which is
all the more remarkable given the difficult trading environment this year on the
UK high street.
Like-for-like sales for the year increased by 9% and were particularly strong in
the second half. Sales further benefited from the additional retail selling
space from new store openings and extensions to existing stores. The
improvement in margin reflects better purchasing and favourable currency
exchange rates.
Consumer awareness of the value of the Primark offering has dramatically
increased this year. This has been reflected in the extensive coverage given to
Primark in local and national press and fashion magazines.
A Primark opening has become something of an event and during the year new
stores opened in Sunderland, Lincoln, Leeds, Kingston on Thames, Dundrum and
Mullingar. We continued to develop more selling space at existing stores with
extensions opening in Watford, Wrexham, Wakefield, Gloucester, Belfast, Drogheda
and Cork. Four stores were closed following relocations to larger stores or as
a result of a compulsory purchase order. By the year end we were trading from
122 stores and 2.5 million square feet of retail selling space in the UK and
Republic of Ireland.
The store opening programme for the first half of the new financial year will
add 0.3 million square feet and includes most of the stores acquired from
Allders in the first half of the year. Leicester and Lakeside Thurrock have
already opened and other new stores will open in Dundalk, Bromley, Hull, Cardiff
and Oxford. Extensions will be made to a number of locations, most notably a
doubling of the space at Hammersmith.
On 1 November 2005 the main warehouse which supplies Primark in the UK was
destroyed by a fire. The management team responded well and, working with
suppliers and our logistics provider, alternative arrangements were quickly made
to continue the supply of stock to the UK stores. The business in Ireland was
unaffected since it is supplied by a separate warehouse.
In July we completed the acquisition of Littlewoods stores which comprised an
estate of 120 premises. This was a unique opportunity to acquire a portfolio of
large stores in attractive high street locations. We intend to close the
Littlewoods business in early January 2006 and its trading to date has been in
line with our expectation at the time of acquisition. A provision of £47m has
been made in these accounts for the full business closure costs.
We intend to refurbish and refit 41 of these stores as Primark adding a further
1.2 million square feet of selling space from spring 2006 until early 2007. The
capital expenditure is expected to be some £250m bringing the total investment,
net of disposals, to some £500m and the operating profit return is expected to
exceed the group's pre-tax cost of capital in the first full year of trading.
Of the remaining 79 stores, agreement has already been reached to sell over half
with completion agreed for early 2006. Negotiations to dispose of the remaining
stores continue and there has been a high degree of interest in the sale
process.
This investment programme will result in a 60% increase in the selling space of
Primark from 2.5 million square feet today to over 4 million square feet at the
beginning of 2007. We believe that there will be opportunities to expand the
estate further.
FINANCE DIRECTOR'S REPORT
GROUP PERFORMANCE
Group sales increased by 9% to £5,622m and operating profit, before the
amortisation of goodwill, increased by 18% to £565m.
The significant increase in operating profit mainly reflected the acquisition of
the international yeast and bakery ingredients business and the US herbs &
spices business at the beginning of the year and an outstanding performance from
Primark. Good progress was made by many of our businesses, particularly
international hot beverages, British Sugar Overseas and agriculture but our
overall result was held back by profit declines at British Sugar in the UK and
our bakery business in Australia.
The disposal of properties no longer required by the group resulted in a profit
on disposal of fixed assets of £20m which compares with £8m last year. A loss
of £6m on the disposal of two agriculture businesses during the year was
principally due to the charging to the profit and loss account of goodwill
previously written off to reserves on the original acquisitions.
Investment income less interest payable reduced from £36m to £15m following the
substantial cash outflow on acquisitions during the period, over £660m of which
was incurred at the beginning of the year. Other financial income, which
represents the return on the group's defined benefit pension scheme assets less
the interest on scheme liabilities, amounted to £10m.
Profit before tax fell from £494m to £479m reflecting a provision of £47m for
the costs of closing the Littlewoods business, a £32m increase in the goodwill
amortisation charge arising on recent acquisitions, and the net profit on the
sale of fixed assets and businesses. Adjusted to exclude these items, profit
before tax increased 12% from £525m to £590m.
TAXATION
The tax charge of £139m included an underlying charge of £165m, at an effective
tax rate of 28.0% on the adjusted profit before tax described above. The
effective tax rate has been reduced as a result of an increase in the profits
subject to a lower tax rate. The overall tax charge for the year benefited from
a £15m (2004 - £9m) credit for tax relief on the amortisation of goodwill
arising from recent asset acquisitions. This credit, together with the tax
effect of the other exceptional items, has been excluded from the calculation of
adjusted earnings per share.
EARNINGS AND DIVIDENDS
Earnings reduced by £9m to £333m and the weighted average number of shares in
issue remained constant at 789 million. Earnings per ordinary share therefore
fell by 3% from 43.3p to 42.2p. A more consistent measure of performance is
provided by the adjusted earnings per share which excludes the provision for the
closure of Littlewoods, profits on the sale of businesses and fixed assets and
the amortisation of goodwill net of any tax benefit. Adjusted earnings per
share increased by 14% from 46.6p to 53.0p.
The interim dividend was increased by 14% to 6.0p and a final dividend has been
proposed at 12.0p which represents an overall increase of 10% for the year.
Dividends will cost a total of £142m and £191m will be transferred to reserves.
The dividend is covered, on an adjusted basis, 2.9 times.
BALANCE SHEET
Fixed assets increased by £1,235m to £3,287m due to the additional tangible
assets and goodwill arising on acquisitions in the year, the acquisition of the
Littlewoods stores and, with a much higher investment in Primark, a level of
capital expenditure significantly higher than depreciation. Our interest in
joint ventures increased by £24m almost all of which relates to the cost of
acquisition of our interest in Frontier Agriculture Limited. On 4 April 2005 we
contributed our Allied Grain business to a joint venture with Cargill PLC who
contributed their UK grain trading operations. Both parties have a 50% interest
in the new business. The transaction has been accounted for as a part disposal
of our original investment and the acquisition of 50% of the Banks Cargill
Agriculture operation. The segmental analysis includes the sales of Allied
Grain up to the date of disposal. Sales of the joint venture thereafter are
excluded from group turnover.
Net cash funds, being current asset investments and cash at bank less short-term
borrowings and loans, were £1,034m lower than last year at £224m. Working
capital, including tax and dividend accruals, increased by £56m.
Pension assets, which are the net of the market value of the assets and
liabilities, net of tax, of the group's defined benefit pension schemes, fell by
£7m but remain in surplus at £51m.
The group's net assets increased by £229m to £3,725m.
A currency gain of £29m arose on the translation into sterling of the group's
non-sterling net assets. This largely resulted from a strengthening of the
Australian dollar against sterling year on year.
Although operating profit increased substantially, the high level of investment
made this year in acquisitions and capital expenditure has resulted in a small
decline in return on capital employed for the group from 24.4% to 24.0%. Return
on capital employed is defined as operating profit before the amortisation of
goodwill expressed as a percentage of average capital employed for the year.
CASH FLOW
Net cash flow from operating activities was £647m compared to £631m last year.
The increase in operating profit before goodwill amortisation and deprecation
contributed £110m of additional cash generation which was partly offset by an
adverse working capital movement year on year of £69m and an increased level of
pension contributions.
Capital expenditure during the year was £403m of which £221m was spent on the
acquisition of new stores and the refitting of existing Primark stores. The
balance was used principally to upgrade, modernise and expand existing
manufacturing facilities including investment in new factories in Australia and
China. In addition to the expenditure on new Primark stores included within
capital expenditure, a further £407m is included in acquisitions in respect of
the purchase of the Littlewoods business. £657m was spent on the AB Mauri
acquisition and a further £66m was spent on the acquisitions of smaller
businesses to complement our grocery and ingredients operations together with
the buyout of a number of minority interests in our Polish sugar businesses.
£18m was contributed for the shares in the Frontier joint venture and £8m was
realised on the disposal of small businesses resulting in a net cash outflow on
acquisitions and disposals of £1,140m.
TREASURY POLICY AND CONTROLS
The group's cash and current asset investments totalled £1,198m at the year end
including £660m 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-/A1 for long
and short-term paper respectively, 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 for acquisitions and to meet short-term working capital requirements
particularly for the sugar beet and wheat harvests.
A number of the group's businesses are exposed to changes in exchange rates on
sales and purchases made in foreign currencies and to changes in commodity
prices. British Sugar is exposed to movements in the euro exchange rate on the
price of sugar in the UK and Poland, Primark sources garments from overseas
primarily in US dollars and many businesses purchase raw materials in foreign
currencies largely US dollar denominated.
Significant cross-border transactions are covered by forward purchases and sales
of foreign currency, or foreign currency options as appropriate. The majority
of the group's commodity exposures are managed through forward purchase
contracts with only very limited use being made of options. All derivative
transactions are tightly controlled within set limits and speculative trading is
not undertaken. The group does not hedge the translation effect of exchange
rate movements on the profit and loss account. 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.
FINANCIAL REPORTING STANDARDS AND ACCOUNTING POLICIES
There have been no changes in accounting policies during the year.
International Financial Reporting Standards (IFRS) will be adopted for the year
ending 16 September 2006, the impact of which was described in our accounts for
2004. The principal differences identified were accounting for financial
instruments, intangible assets and deferred tax although the impact on adjusted
earnings per share is not expected to be material. The form and content of our
financial statements will also be different under IFRS. Our 2005 results, net
assets and cash flows, restated in accordance with IFRS, will be published in
December 2005.
POST BALANCE SHEET EVENT
On 1 November 2005 the main warehouse which supplied Primark in the UK was
destroyed by fire. The group is fully insured for the consequent stock loss and
business interruption. The warehouse was owned by a third party.
John Bason
Finance Director
The annual report and accounts will be available on 10 November 2005 and the
annual general meeting will be held at The Royal College of Surgeons, London at
11am on Friday, 9 December 2005.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 17 September 2005
Continuing
Ongoing Acquisitions Total Total
2005 2005 2005 2004
£m £m £m £m
Note
Turnover of the group including its share of 5,341 433 5,774
joint ventures 5,181
Less share of turnover of joint ventures (140) (12) (152) (16)
Group turnover 1 5,201 421 5,622 5,165
Operating costs (4,749) (396) (5,145) (4,744)
Group operating profit 452 25 477 421
Share of operating results of: joint ventures 2 2 4 8
6 - 6 3
associates
Total operating profit 1 460 27 487 432
Operating profit before 506 59 565 478
amortisation of goodwill
Amortisation of goodwill (46) (32) (78) (46)
Profits less losses on sale of fixed assets 20 8
Profits less losses on sale of businesses (6) 7
Provision for loss on termination of an operation (47) -
Investment income 49 59
Profit on ordinary activities before interest 503 506
Interest payable (34) (23)
Other financial income 10 11
Profit on ordinary activities before taxation 479 494
Adjusted profit before taxation 590 525
Profits less losses on sale of 20 8
fixed assets
Profits less losses on sale of (6) 7
businesses
Provision for loss on termination 2 (47) -
of an operation
Amortisation of goodwill (78) (46)
Tax on profit on ordinary activities 3 (139) (146)
Profit on ordinary activities after taxation 340 348
Minority interests - equity (7) (6)
Profit for the financial year 333 342
Dividends 4 (142) (129)
Transfer to reserves 191 213
Basic and diluted earnings per ordinary share 5 42.2p 43.3p
Adjusted earnings per ordinary share 5 53.0p 46.6p
The results of acquisitions shown separately above are those of both the US
herbs & spices business (sales and operating profit: £97m and £12m) and the
international yeast and bakery ingredients business (sales and operating profit:
£324m and £47m) which were acquired from Burns Philp and which were negotiated
concurrently. The acquisition of herbs & spices completed on 3 September 2004.
The acquisition of yeast and bakery ingredients completed on 30 September 2004.
The group has no discontinued operations within the meaning of the Financial
Reporting Standards during either 2005 or 2004.
CONSOLIDATED BALANCE SHEET
at 17 September 2005
2005 2004
£m £m
Fixed assets
Intangible assets - 1,035 593
goodwill
Tangible assets 2,252 1,459
3,287 2,052
Interest in net assets of - joint ventures 36 12
- associates 15 11
Other investments - 1
Total fixed asset 51 24
investments
3,338 2,076
Current assets
Stocks 558 496
Debtors 719 600
Investments 901 1,547
Cash at bank and in hand 297 136
2,475 2,779
Creditors amounts falling due within one year
Short-term borrowings (447) (68)
Other creditors (958) (829)
(1,405) (897)
Net current assets 1,070 1,882
Total assets less current liabilities 4,408 3,958
Creditors amounts falling due after one year
Loans (527) (357)
Other creditors (4) (8)
(531) (365)
Provision for liabilities and charges (203) (155)
Net assets excluding pension assets and liabilities 3,674 3,438
Pension assets 68 58
Pension liabilities (17) -
Net assets 3,725 3,496
Capital and reserves
Called up share capital 47 47
Revaluation reserve 3 3
Other reserves 173 173
Profit and loss reserve including pension reserve 3,473 3,246
Equity shareholders' 3,696 3,469
funds
Minority interests in subsidiary undertakings - 29 27
equity
3,725 3,496
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 17 September 2005
2005 2004
Note £m £m
Cash flow from operating activities 6 647 631
Dividends from joint ventures 2 4
Dividends from associates 2 2
Return on investments and servicing of finance
Investment income 54 55
Interest paid (29) (23)
Dividends paid to minorities (4) (1)
21 31
Taxation (132) (128)
Capital expenditure and financial investment
Purchase of tangible fixed assets (403) (223)
Sale of tangible fixed assets 39 29
Loan repayment from joint venture 51 -
(313) (194)
Acquisitions and disposals
Purchase of subsidiary undertakings (1,130) (229)
(Purchase)/sale of joint ventures and associates (18) 1
Sale of subsidiary undertakings 8 24
(1,140) (204)
Equity dividends paid (135) (119)
Net cash inflow before use of liquid funds and financing (1,048) 23
Management of liquid resources 649 (18)
Financing
Borrowings due within one year - repayment of loans (111) (97)
- increase in loans 476 81
Borrowings due after one year - repayment of loans (205) (6)
- increase in loans 375 2
Increase/(decrease) in bank borrowings 9 (6)
Inflow from reduction in/(increase in cost of) 7 (2)
own shares held
551 (28)
Increase/ (decrease) in cash 152 (23)
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 17 September 2005
2005 2004
£m £m
Profit for the financial year 333 342
Actuarial (losses) / gains on net pension assets (7) 43
Deferred tax associated with net pension assets - (13)
Currency translation differences on foreign 29 (75)
currency net assets
Tax on currency translation differences (1) 1
Total recognised gains and losses relating to the 354 298
year
CONSOLIDATED STATEMENT OF HISTORICAL COST PROFITS
for the year ended 17 September 2005
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 year ended 17 September 2005
2005 2004
£m £m
Opening shareholders' funds 3,469 3,304
Profit for the financial year 333 342
Dividends (142) (129)
Goodwill written back 7 (3)
Net decrease/(increase) in own shares held 8 (1)
Other recognised gains and losses relating to the 21 (44)
year
Closing shareholders' funds 3,696 3,469
NOTES TO THE PRELIMINARY ANNOUNCEMENT
for the year ended 17 September 2005
1. Segmental analysis
Group turnover Operating profit Capital employed
2005 2004 2005 2004 2005 2004
£m £m £m £m £m £m
Analysis by business
Grocery 2,608 2,446 188 160 835 765
Primary food & agriculture 1,541 1,672 187 189 672 686
Ingredients 603 294 72 36 335 125
Retail 1,006 858 140 108 515 338
Inter company sales (147) (165) - - - -
Central costs / capital employed - - (22) (19) 342 (24)
5,611 5,105 565 474 2,699 1,890
Businesses disposed:
Grocery - 22 - 1 - 2
Primary food & agriculture 11 38 - 3 - 4
5,622 5,165 565 478 2,699 1,896
Amortisation of goodwill - - (78) (46) - -
5,622 5,165 487 432 2,699 1,896
Analysis by geography (by origin and
destination)
United Kingdom 2,979 2,942 316 298 1,707 1,165
Rest of Europe 652 526 71 59 268 191
The Americas 1,104 865 108 66 328 255
Australia, Asia & Rest of World 959 834 70 51 396 279
Inter company sales (83) (62) - - - -
5,611 5,105 565 474 2,699 1,890
Businesses disposed:
United Kingdom 11 41 - - - 4
Rest of Europe - 5 - - - 2
Australia, Asia & Rest of - 14 - 4 - -
World
5,622 5,165 565 478 2,699 1,896
Amortisation of goodwill - - (78) (46) - -
5,622 5,165 487 432 2,699 1,896
Turnover and operating profit of the businesses acquired from Burns Philp are
included in the grocery and ingredients segments and amount to £114m and £319m
respectively in sales and £22m and £37m respectively in operating profit.
Turnover for primary food & agriculture in 2005 includes sales of £171m by the
Allied Grain business up to the point of its disposal to Frontier Agriculture
Limited, a joint venture in which the group has a 50% interest. Sales made by
the joint venture thereafter are not consolidated.
The amortisation of goodwill arises in primary food & agriculture £1m (2004 -
£2m), ingredients £35m (2004 - £6m) and grocery £42m (2004 - £38m). By
geography, the charge arises in the United Kingdom £10m (2004 - £11m), Rest of
Europe £21m (2004 - £8m), the Americas £37m (2004 - £23m) and Australia, Asia &
Rest of World £10m (2004 - £4m).
Capital employed comprises tangible fixed assets, interests in joint ventures
and associates, current assets (excluding deferred tax, cash and investments),
creditors (excluding borrowings, tax and dividends), and provisions for
liabilities and charges excluding deferred tax. A reconciliation of capital
employed to net assets together with an analysis of goodwill by segment is shown
below.
Reconciliation to Net Assets 2005 2004
£m £m
Capital employed 2,699 1,896
Goodwill 1,035 593
Other investments - 1
Current asset investments 901 1,547
Cash 297 136
Borrowings (974) (425)
Tax (117) (114)
Dividends (95) (88)
Deferred tax (72) (108)
Pension asset 51 58
Net assets 3,725 3,496
Goodwill shown in the above reconciliation arises in primary food & agriculture
£26m (2004 - £19m), ingredients £517m (2004 - £50m) and grocery £492m (2004 -
£524m). By geography, the goodwill arises in the United Kingdom £93m (2004 -
£83m), Rest of Europe £321m (2004 - £152m), the Americas £470m (2004 - £346m)
and Australia, Asia & Rest of World £151m (2004 - £12m).
2. Provision for loss on termination of an operation
On 30 July 2005 the entire issued share capital of Littlewoods Stores Limited,
St James's Street Properties Limited and Littlewoods Stores Holdings Limited ('
Littlewoods') was acquired. The group intends to close the Littlewoods
business by mid January 2006. Provision of £47m has been made in these accounts
for the costs associated with the termination of this business. The tax effect
of these costs reduces the group's tax charge by £11m. 41 of the stores
acquired are expected to be retained and will be refitted and trade as Primark.
The remaining stores will be sold.
2005 2004
£m £m
3. Tax on profit on ordinary activities
The charge for the year comprises:
UK corporation tax at 30% (2004 - 30%) 84 94
Overseas income and corporation tax 48 30
Joint ventures and associates 3 2
Current tax charge 135 126
UK deferred tax (5) 7
Overseas deferred tax 9 13
Total tax charge 139 146
Add back:
Tax credit on goodwill amortisation 15 9
Tax credit/(charge) on exceptional items 11 (4)
Underlying tax charge 165 151
4. Dividends
First interim dividend of 6.00p per share 47 41
(2004 - 5.25p)
Proposed final dividend of 12.00p per share (2004 - 95 88
11.15p)
142 129
The first interim dividend was paid on 4 July 2005. The proposed final dividend will be paid on 13
January 2006.
2005 2004
£m £m
5. Earnings per ordinary share
Adjusted profit for the financial year 418 368
Profits less losses on sale of fixed assets 20 8
Profits less losses on sale of businesses (6) 7
Provision for loss on termination of an (47) -
operation
Tax effect on above 11 (4)
Amortisation of goodwill (78) (46)
Tax credit on goodwill amortisation 15 9
Profit for the financial year attributable 333 342
to shareholders
Adjusted earnings per ordinary share 53.0p 46.6p
Earnings per ordinary share on:
- sale of fixed assets 2.5p 1.0p
- sale of businesses (0.8p) 0.9p
- provision for loss on termination (5.9p) -
of an operation
- tax effect on above 1.4p (0.5p)
adjustments
- amortisation of goodwill (9.9p) (5.8p)
- tax credit on goodwill 1.9p 1.1p
amortisation
Earnings per ordinary share 42.2p 43.3p
The weighted average number of ordinary shares in issue during the year was 789
million (2004 - 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 sale of businesses and fixed assets, provision for loss on
termination of an operation, goodwill amortisation and the associated tax
credits, is shown to provide clarity on the underlying performance of the group.
The diluted earnings per share calculation takes into account the dilutive
effect of share options. The diluted, weighted average number of shares is 789
million (2004 - 789 million).
2005 2004
£m £m
6. Reconciliation of operating profit to cash
flow from operating activities
Group operating profit 477 421
Amortisation of goodwill 78 46
Depreciation 161 139
(Increase)/decrease in working capital
- stocks (33) 30
- debtors (20) (39)
- creditors (9) 16
Other provisions - 4
Pension cost less contributions (8) 13
Other movement in own shares held reserve 1 1
Net cash from operating activities 647 631
2005 2004
7. Reconciliation of net cash flow to movement in net £m £m
funds
Increase/ (decrease) in cash 152 (23)
Management of liquid resources (649) 18
Net (increase)/decrease in borrowings (544) 26
Change in net funds resulting from cash (1,041) 21
flows
Effect of currency changes 11 8
On acquisition of subsidiary undertakings (4) (9)
Movement in net funds (1,034) 20
Opening net funds 1,258 1,238
Closing net funds 224 1,258
8. Analysis of net funds
At Cash Exchange At
Acquisition adjustments
18 flow £m 17
September of September
2004 £m subsidiary
undertakings 2005
£m
£m £m
Cash at bank and in hand 136 152 - 9 297
Short-term borrowings (68) (374) (4) (1) (447)
Investments 1,547 (649) 1 2 901
Loans over one year (357) (170) (1) 1 (527)
1,258 (1,041) (4) 11 224
9. Other information
The financial information set out above does not constitute the group's statutory financial statements for
the years ended 17 September 2005 and 18 September 2004, but is derived from them. The 2004 financial
statements have been filed with the Registrar of Companies whereas those for 2005 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 17
September 2005, except that, to avoid delay in the preparation of the
consolidated financial statements, those of the Australian, New Zealand, China,
Poland and the North and South American subsidiary undertakings are made up to
31 August 2005.
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
capitalised 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 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. Goodwill arising on the acquisition of joint
ventures and associates is included in the carrying value of the investments.
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, machinery, 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 sales taxes. Revenue is recognised when the risks and
rewards of the underlying products and services have been substantially
transferred to the customer.
Pension and post-retirement benefits
In accordance with 'FRS 17 - Retirement Benefits', the operating and financing
costs of pension and post-retirement schemes are recognised separately in the
profit and loss account. Service costs are systematically spread over the
service lives of the employees and financing costs are recognised in the period
in which they arise. The costs of past service benefit enhancements,
settlements and curtailments are also recognised in the period in which they
arise.
The difference between actual and expected returns on assets during the year,
including changes in actuarial assumptions, are recognised in the statement of
total recognised gains and losses.
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
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.
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 55 minutes ago Pearson
- 1 hour ago DXS International plc
- 1 hour ago British American Tobacco
- 1 hour ago Netcall
- 1 hour ago Zigup