Results to 16/09/00 - Part 1

Associated British Foods PLC 8 November 2000 Part 1 Associated British Foods reshapes for growth Preliminary results for year ended 16 September 2000 Highlights * Worldwide sales up 2% to £4,414 million * Operating profit up 4% to £340 million * * Exceptional charge of £130 million, of which £12 million is a cash cost, for rationalisation of manufacturing and processing facilities * Investment income reduced from £84 million to £61 million following payment of special dividend in May 1999 * Profit before tax reduced from £389 million to £383 million * * Adjusted earnings per share up 8% at 34.1p * * Dividends per share up 5% to 11.25p * £981 million cash *before exceptional items and amortisation of goodwill Peter Jackson, Chief Executive of Associated British Foods, said: 'During the year we took firm action towards achieving our twin goals of sustainable real profits growth and long term cash generation. The combination of a reshaped group and our financial strength positions us well to develop our existing businesses as well as new areas for growth.' For further information please contact: Until 1500 only Peter Jackson, Chief Executive John Bason, Finance Director Geoff Lancaster, Head of External Affairs Tel: 020 7638 9571 After 1500 only John Bason, Finance Director Tel: 020 7589 6363 Jonathan Clare/Andrew Cornelius, Citigate Dewe Rogerson Tel: 020 7638 9571 CHAIRMAN'S STATEMENT I am pleased to be able to report that before exceptional charges and amortisation of goodwill, group profit at the operating level has once again recorded positive growth at £340 million compared with £326 million in 1999, an increase of 4 per cent over last year. This increase was achieved despite a combination of adverse economic factors which intensified throughout the year. The continued strengthening of the pound sterling, against nearly all predictions, resulted in a profit impact on the contribution from British Sugar of no less than £19 million. The UK agricultural sector continued to suffer from the worst economic conditions for many years. As the largest operator in the UK agribusiness sector we have not been immune from these pressures. Against this background, and an environment of flat, or declining, prices and margins in food retailing and manufacturing, to have recorded this increase in operating profit shows the resilience of our operations. In reporting to shareholders last year, I indicated that a rigorous review of the group's operations was underway. As a result, exceptional items totalling £130 million, of which £12 million is a cash cost, have been charged against the profit for the year. These charges arise from decisions taken to dispose of, close or restructure a number of our manufacturing and processing operations, both in the UK and overseas. Following the payment of the special dividend of £448 million to shareholders in May 1999, investment income was budgeted at a lower level in the current year. In the event, investment income of £61 million, although lower than the previous year by some £23 million, was ahead of our budgets despite the additional impact of lower average interest rates. Group profit before tax, after the charge for exceptional items, was £247 million. At the post-tax level, earnings per share declined from 21.4p to 17.5p but, adjusting for exceptional items and amortisation of goodwill, increased by 8 per cent to 34.1p. Our operating companies, for the most part, performed strongly and, in a number of instances, produced sharply improved results. Despite the impact of the strong pound and the general depression affecting UK farming, like-for-like profits in our agricultural processing businesses were marginally ahead of the previous year. The principal factors contributing to this increase were improved returns from UK flour milling and our sugar operations in China. In ingredients and oils, both SPI Polyols and Rohm Enzyme delivered excellent results and Abitec, in the UK and US, also produced further like-for-like double digit growth. In grocery, although ongoing rationalisation costs and continued price pressures reduced the contribution from UK baking, other companies, notably Ryvita and Westmill Foods, significantly increased underlying profits. Primark, our retail textile business, achieved a 19 per cent increase in operating profit and continued to gain increased recognition and share in its highly competitive marketplace. There was a welcome improvement in the contribution from our Australasian companies driven by significantly improved profits in milling and baking and a contraction in the level of spend on new IT systems. I referred earlier to the business review undertaken which has resulted in the significant exceptional charge this year. Both in the UK and overseas, our manufacturing and processing operations have been facing increasingly severe price competition and margin contraction, arising from surplus capacity in many of the basic food industries in which our companies are involved. As stated above, the agricultural sector in this country confronted depressed markets, a situation exacerbated by an over-valued pound sterling. With these pressures showing no signs of abating, it is essential to focus only on those activities where we have a competitive advantage and sufficient scale to make a significant contribution to our twin objectives of sustainable real profit growth and generation of long term free cash flow. The strategic review of our UK and overseas manufacturing activities has resulted in the decision to dispose of, close, or restructure those areas of our business which have not been meeting these criteria. During the year we sold our UK own label ice-cream manufacturing company and wheat starch operations. In both instances, we have released capital which was earning inadequate returns. Since the year end we have sold Burton's, our UK biscuit and confectionery company. The biscuit market in the UK suffers from over-capacity and negligible growth and, given the relative weakness of Burton's competitive position, the decision was taken to exit this market. The sale proceeds of £130 million will generate an exceptional profit and the cash will be redeployed in those sectors of our activities targeted for further long term growth. We have also sold our UK industrial fats business which, as a marginal player in a commodity industry, did not fit with the group's longer-term objectives. The exceptional charges of £130 million allow for restructuring by disposal or closure of manufacturing and processing activities in this country, the US and the Far East. The major portion of this charge relates to the write down of redundant or over-valued fixed assets. The related cash costs will not be material to the group and completion of the restructuring programme will result in improved profitability and the release of surplus capital. We have continued with our conservative treatment of charges for ongoing reorganisation and closure. During the year we absorbed against operating profits an additional £26 million in respect of closures and redundancies in our existing businesses in the drive for improved efficiencies. Once again the group generated a positive cash flow after capital expenditure and investment in acquisitions net of disposals across the group. Acquisitions cost £78 million and were partially offset by £54 million of proceeds from the sale of our UK ice-cream and wheat starch operations. The net result for the year was an inflow of funds of £116 million. The group's record of investment in its existing operations has been consistent and significant. In the past ten years, the operating companies have invested over £2.2 billion in new fixed capital expenditure. This policy of investing in modern equipment will continue given the unrelenting pressures to achieve operating efficiencies. However, capital investment for its own sake is not a virtue and therefore the review, evaluation and monitoring of such expenditures will be further tightened to ensure that future fixed capital expenditure generates value added return and is directed to those areas of our business which are targeted for growth. Capital expenditure in the past year of £182 million was £77 million below 1999. Much of the focus in the past year has been on the rationalisation and restructuring of our existing businesses, but we have not been deflected from the equally important requirement to develop our core activities. In pursuit of this policy, we have invested in acquiring businesses which will strengthen our market presence by expanding product category or geographical spread. In particular we have invested further in the added value food and healthcare ingredient market in the US with the acquisition of the polyols business of Lonza which, combined with our SPI business, makes us the number two supplier in the US polyols market. In Europe we acquired Rohm Enzyme which is already performing ahead of expectations and is set to become a leading supplier of enzymes to food, industrial and animal feeds markets throughout the world. We have continued to invest in the development of Primark and during the past year opened our 100th store. Once again this division recorded double digit growth in sales and profits reflecting the steady expansion of the store base in recent years. Since the year end we have acquired a further six stores from C & A which, together with a number of other new sites in the pipeline, will provide further development in the next two years. Although Primark has achieved remarkable growth in sales, profit and market share there are still great opportunities available as we expand into major conurbations where we have hitherto had no presence. We operate in an environment where competitive pressures are no longer domestic, but global, where excess capacity is endemic, and where low inflation is moving towards price deflation. If we are to prosper and grow in such a world, we must focus on those areas of our business which have strong market positions and where, by competitive efficiency, we can make real profit improvement. We are taking major steps to improve the focus of our traditional businesses. We are giving equally urgent attention to the development of newer, less commoditised, technologies in the provision of food and healthcare ingredients. We have increased the pace of our investment in these sectors and the rate of development will be accelerated by acquisitions. These will be targeted in areas which will bring wider but related formulation and process skills, significant market presence and able management. The strong positive cash flow from our operations and the inherent strength of the group's balance sheet provide us with the resources to achieve these objectives. The impact of change is rarely comfortable, but the management of this company is committed to embracing the process to drive the company forward into its next growth phase. Board changes In May it was announced that Garry Weston was retiring as Chairman because of his continuing poor health and that I was appointed Chairman. George Weston was appointed Deputy Chairman and continues as Chief Executive of Allied Bakeries. As previously announced, Trevor Shaw retired in December 1999 from his full time executive role as company secretary with responsibility for legal matters. In May 2000 he retired as a director of the company. Dividends The directors have declared a second interim dividend of 7.0p per share (1999 - 6.5p) which will be paid on 19 February 2001 to shareholders registered at the close of business on 2 February 2001. This makes a total dividend for the year of 11.25p, an increase of 5 per cent on the previous year excluding the special dividend payment. Employees I have referred to the pressures of operating in adverse conditions at home and overseas. Our employees everywhere are rising to meet these constant challenges and I take this opportunity to thank them for their great contributions. Harry Bailey Chairman CHIEF EXECUTIVE'S REPORT Sales for the group increased 2% to £4,414 million and operating profit, before exceptional items and amortisation of goodwill, increased 4% to £340 million. This result included excellent performances from a number of businesses and served to emphasise the strength and depth of the group's operations. During the year we faced a number of specific difficulties: the effect of the weakening of the euro on the sugar support price, volatility in the pig market, continuing difficulties in our UK wheat starch operations as well as operational issues in our US commodity vegetable oil processing business. This report highlights how each of these has been, or is being, addressed. Our twin goals for the future are sustainable growth and strong cash flow. We have assessed each of our businesses against these objectives. Where we believe a positive contribution can be achieved, we will invest or restructure as necessary. In other cases, we will look to realise value though disposal. Our review highlighted the need for significant restructuring in certain businesses. Action is already being taken in Allied Bakeries and Allied Mills to rationalise their cost base. British Sugar has announced a major appraisal of its manufacturing assets and ACH in the US has announced its intention to move away from commodity oil processing to focus fully on its value added business. The exceptional charges of £130 million charged against profits in the year, of which £12 million was a cash cost, allow for restructuring by disposal or closure of manufacturing and processing facilities across the group. In addition £26 million was charged in the year in respect of costs for closures and redundancies in our businesses. During the year we sold our UK own label ice-cream and wheat starch businesses. Since the year end we have sold Burton's, our UK biscuit and confectionery business, Rowallan, our industrial fats business, and have also agreed to the phased sale of our UK 'pig breeding to abattoir' operations. These businesses were sold because they could not contribute to our long term goals. Our group now consists of a breadth of businesses each with the potential to meet our demanding requirements. We will not however achieve our objectives solely by organic growth. A strong emphasis on the acquisition of new businesses is crucial to the future, whether it is to consolidate existing positions, expand from positions of strength or to take the group into new areas. These areas will have been researched and will create the new platforms necessary for growth. Some of these moves will inevitably be significant but the timing and size of any transaction will, as always, be determined solely by the best interests of shareholders. In order to unlock the full potential in our business, three new organisational groupings have been established in the UK with effect from the beginning of the new financial year: * Primary food brings together the large scale processing businesses in sugar and UK milling as well as international seed processing. * Agriculture combines, for the first time, all the UK and Chinese animal feeds businesses as well as arable merchanting. * Five of our UK consumer products businesses have been brought together in a single organisational group. Allied Bakeries remains separate to provide the management focus needed for the restructuring task it faces. These groupings sit alongside our other businesses: George Weston Foods in Australia, Primark, Allied Glass Containers and the businesses, ACH, SPI and Abitec which comprise ingredients and oils. I believe that the concentration of expertise provided by these changes and the synergies that will be created give us the focus we need to achieve our objectives. PRIMARY FOOD AND AGRICULTURE Primary food focuses on the large scale processing of agricultural crops into major ingredients for the food industry. It operates Europe's most efficient sugar facilities as well as being one of Europe's biggest flour producers. It also has significant sugar operations in Poland and China. British Sugar performed well during the year, processing 1.55 million tonnes of sugar representing the second largest crop in history. All factories achieved high levels of efficiency and the new combined heat and power plant (CHP) at the Bury factory, following the similar investment at Wissington in 1998, has delivered its first full year's contribution. Sales have remained strong at British Sugar and this year's large crop has largely offset a ten year low in world sugar prices. Institutional sugar prices, quoted in euros, are fundamental to the profitability of British Sugar. The further weakening of the euro caused the effective sugar support price in the UK to fall by 8% during the year. This had an adverse profit effect on British Sugar of £19 million, but was partially offset by better production efficiencies. As anticipated, the European Commission reduced the UK beet sugar production quota by 2%. This quota reduction was smaller than we expected and the net financial effect on British Sugar will not be significant. The pressure on margins arising from currency movements and the expected review by the European Union of the sugar regime has led British Sugar to announce a fundamental appraisal of its cost base which, when completed, will leave the business well placed to cope with such pressures. In April, British Sugar concluded a long running negotiation with the National Farmer's Union which agrees the sugar beet supply contract on behalf of the 8,500 beet growers. The contract, known as the Interprofessional Agreement, had remained fundamentally unchanged since 1983 and agreement on its reform has been welcomed by both parties. Hailed as the most progressive sugar beet supply contract in Europe, the new arrangements, which are effective for the next five years, give a firm base from which to take the industry forward. In Poland, the sugar factories performed well by increasing extraction and reducing costs against a background of improving market prices. During the year we announced the acquisition of four additional factories from a consortium of the Polish agri-processing group, Rolimpex, and Danish company, Danisco, which will significantly strengthen our presence in Poland. We are currently awaiting regulatory approval to complete the transaction. In China, our factories contended with the worst crop damage from frost for over 25 years but profits improved as higher sugar market prices compensated for the loss of volume. Boqing became the first sugar factory in Asia to be accredited with the quality mark ISO9002. Since the year end the Huaiyuan sugar mill was acquired increasing our Chinese production capacity to a critical mass of more than 225,000 tonnes. An acquisition in the US this year by Germain's, our seed enhancement business, has given it access to new coating and polymer technology and has expanded growth opportunities particularly in South America and Australia. To reflect the breadth of its operations, Germain's has been renamed Germain's Technology Group. Research and development has been relocated to a new purpose built facility at King's Lynn. Allied Mills, our flour milling operation and one of the UK's largest producers, achieved a good performance this year in a very competitive market by successfully utilising gristing techniques to counteract the poor quality crop. The business completed the latest phase of its investment programme with the opening of its new flour and semolina mills in Tilbury as well as the technically advanced heat treatment and cake flour production systems at the Corby mill. The Ipswich and Crayford mills were closed and Rochford was mothballed during the year to complete the current programme of facilities restructuring. Trading conditions in the UK starch market have been difficult. We did not believe that ABR, our starch and glucose operation in Corby, was well positioned to prosper in this market. Accordingly in September 2000 we sold the business to Roquette Freres whose core activities lie in the starch industry. This move was in the best interests of ABR and allows the group to focus on those businesses that maximise shareholder value. The businesses comprising the Agriculture group operate at the heart of the agricultural industry with leading market positions in UK seed, grain and animal feeds as well as having a significant position in the Chinese animal feeds market. Allied Grain, the UK's leading grain trader, performed to expectation despite the lower crop yields from the UK harvest in 1999 and 2000. It continued to strengthen its position in the market by establishing a joint venture with Agrovista, the UK arm of the world's largest agrochemical distributor. This will give access to the UK's largest commercial crop trials network as well as handling Agrovista's seed, fertiliser and grain requirements. John K King, the specialist agricultural business supplying seeds and buy-back contracts for crops, continued to perform strongly. It has opened its first overseas office, in the US, and has also entered the herb trading market. The Lincoln oil extraction plant, acquired last year, has already substantially increased its output and sales. ABN and Fishers, our animal feeds businesses, performed much better during the year with Fishers recording a particularly strong profit recovery from last year's disappointing results. Particular highlights were the integration of the six animal feeds mills acquired from Dalgety at the beginning of the year, the achievement of significant cost savings in all parts of the business and increased share in the pig, poultry and dairy feeds sectors. Despite a slowdown in development of the feeds market in China this year, there are encouraging prospects with the demand for quality food increasing and continuing government support for ABN's system of safe, healthy pigmeat production. For a number of years, ABN has been a major breeder and processor of pigs but its operating results have suffered from high volatility in pig prices. Subsequent to the year end we announced the phased sale of this business to Dalehead Foods with ABN continuing to supply feeds on a long term basis. INGREDIENTS AND OILS Ingredients is a growth area for the group and we continue to focus on applying our technical skills in producing functional ingredients from natural products. These are used in an ever widening variety of applications by the food industry as well as growth areas such as personal care and pharmaceuticals. Abitec, a leader in ingredients for food, pharmaceutical and personal care products, performed well throughout the year, particularly in the US in personal care lotions and other industrial markets. We continued our investment programme during the year and projects completed include a new laboratory and office complex in Janesville, US. In Europe, Rohm Enzyme exceeded expectations in its first year of ownership and is proving an important technological link between group companies with its range of natural biological catalysts for food and personal care applications. AB Ingredients achieved strong growth particularly in confectionery toppings and fillings which helped to accelerate the move to higher margin business and reduce dependence on the difficult plant bakery market. ACH Food Companies (formerly known as AC Humko), our Memphis based oils and ingredients business, is working hard to improve profitability following the settlement of the strike at its largest oil processing plant at Champaign, Illinois. Early action to tackle operational problems at the Greenville rice mill has led to significantly improved profits from the rice business. Since the year end a long term supply contract with Archer Daniels Midland Company, a fully integrated soybean crusher and refiner, was announced. ACH has taken the strategic decision to phase out refining and bleaching of vegetable oils at Champaign, from early 2001, and to focus on the marketing, development and manufacture of high value, specialised shortening and oil products. As a result of this contract, ACH will now concentrate on the marketing and selling of high volume, commodity oils through both foodservice and retail channels. Since the year end negotiations have been concluded with Procter & Gamble for the acquisition of its branded foodservice oil business which will be integrated into ACH's existing private label business after completion of the transaction in January 2001. The closure of the oil and shortening plant in Columbus, Ohio was announced in August 2000 with completion expected in Spring 2001. In November 1999, Pacific Grain Products was acquired. This business is a leading grain based ingredient manufacturer, located in Woodland California, and produces rice flour and flour blends, extruded particulates and other speciality food ingredients. Its contribution since acquisition has been ahead of expectations. SPI polyols, our business acquired in 1998, continues to produce strong results in a market characterised by robust demand. During the year it acquired the polyol business of Lonza in the US creating the number two supplier in that market. Lonza complements SPI's existing range of speciality polyols and gives access to a wider customer base. The former Lonza plant in Mapleton, Illinois produces both liquid and crystalline sorbitol and a range of other products which, as ingredients in sugar free products, replace the bulking function normally carried out by sugar. The company also produces tablet grade crystalline sorbitol which offers new opportunities for SPI Pharma, the pharmaceutical ingredients division of SPI. SPI Pharma is building its capabilities to service the pharmaceutical industry with highly engineered ingredients designed to improve finished dosage performance for the consumer yet be more cost effective to produce. GROCERY Price and margin pressure continued in the UK bread industry during the year. Allied Bakeries responded by further streamlining its business with the closure of its bakeries in Aberdeen, Lytham, Ipswich and Coleraine during the year. The Kingsmill brand was strengthened in the premium bread sector with the successful launch of Tasty Wholemeal and Tasty Crust. Branded bread has grown from 58% to 63% of Allied Bakeries' volume and Kingsmill remains the leading UK bread brand. Innovative product development is a key focus for us and during the year we introduced organic product ranges including a partially baked product for use in retailer in-store bakeries. Speedibake, our specialist frozen bakery business, has faced difficult trading conditions in a very competitive market. However during the year Speedibake has developed its business through increased rates of product innovation and by establishing category partnerships with leading multiple retailers. Twinings in the UK performed well during the year, growing its business and returning record profits. This was achieved by the continued growth of established products as well as new product introductions such as additions to the herb tea and organic tea ranges. Overseas, Twinings acquired a long established food distributor in Sweden together with its previous distributor there. These will be integrated with existing operations in Norway and Denmark to form a unified food and drink distribution business across Scandinavia. Profits were maintained in the US and new easy-opening packaging was successfully launched in the Australian market. Silver Spoon, our retail sugar business, successfully increased its share in the UK tabletop sugar market through a strong product and service offering to the major supermarkets and other trade customers. Silver Spoon has become the only supplier that can offer a full range of natural and calorie reduced products with the launch earlier in the year of 'Nothing Comes Closer To Sugar'. Another successful extension of the Treat range has been flavoured dessert toppings. Enhanced service levels and reduced production costs will result from capital investment in new packaging equipment at Bury. Ryvita achieved substantial underlying profit growth compared to last year. Sales of traditional crispbread increased both in the UK market and for export. Extruded crispbread saw rapid growth in private label with a major share gain in the French market. Organic Allinson crackerbread was launched during the year following organic supplier accreditation being granted to our Stockport factory. All the major UK supermarkets have listed the product and it is already being exported to Belgium. Westmill Foods achieved significant improvement in profit this year with increased sales volumes and improved margins in the rice and noodle businesses. Continuing investment in new plant has strengthened our position as a leading supplier of staple ethnic foods. The sale of our own label ice-cream manufacturing business was completed in May following regulatory approval. Since the year end we have sold Burton's, our UK biscuit and sugar confectionery business, and Rowallan, our industrial margarines and bakery fats business. The sale of each of these businesses reflects our strategy to develop the portfolio in areas which present the best opportunities for us to take a market leading position. RETAIL & PACKAGING Our retail textile business, represented by Primark in the UK and Penneys in Ireland, again achieved excellent results with sales up 18% and profits up 19% on last year. Our value for money formula has continued to prove extremely popular in the high street and like-for- like sales grew by 10% over last year. During the year we opened our 100th store following the opening of the stores acquired last year from the Co-op. New stores were opened in Hereford, Reading, Barnstaple, Basildon, Hemel Hempstead, Wrexham, Stevenage, Lisburn, Hammersmith, Romford, Taunton and Wigan. Following these new openings our total retail sales area has increased to nearly 1.5 million square feet and our stores now employ a total of over 6,200 people throughout the UK and Ireland. Following the closure of four smaller stores the total at the year end was 96. The average size of our stores has consistently increased over the years and the Hammersmith and Reading stores have nearly 30,000 square feet of retail space each. During the year the UK operations and buying functions were combined and moved to the refurbished premises in Reading where buying, administration, operations and personnel are now located. After the year end we announced that six new stores have been acquired from C&A. The purchase of a number of further sites is currently being negotiated. Our glass packaging businesses, Lax & Shaw and Gregg & Company, have now merged and trade under the Allied Glass Containers name. They achieved an increased share in an oversupplied market helped by capital investments across the business which resulted in higher productivity and improved product quality. The recent programme of modernisation at both plants, Knottingly and Leeds, is now complete and the combined strengths of the two companies in the food and liquor sectors will provide a solid platform for growth and improved margins. AUSTRALIA & NEW ZEALAND George Weston Foods, our major food processor in Australia and New Zealand, achieved much improved results. Sales in local currency increased by 10% and profits increased by £10 million to £27 million. This improvement reflected improved trading, the acquisition of the Don Smallgoods business and a reduction in the costs associated with upgrading its information technology. The consumer products divisions sharpened their marketing during the year with a more innovative and market-focused approach to their products. The baking division launched Noble Rise, a premium bread range developed in Queensland, and Ruby's Home Bake, Australia's first branded consumer par-bake bread range. A number of brands were successfully relaunched including Tip Top and Golden. The biscuit and cake division improved profits over last year. The biscuit range was relaunched with packaging emphasising the Weston's brand and was supported by a major marketing campaign and benefited, together with a number of other products, from its successful association as an Official Provider to the Sydney 2000 Olympic Games. It enabled the company not only to showcase these products but also to reward staff with tickets to events for outstanding contribution to the business. The milling division experienced strong domestic and export sales. Capital was invested in the reconditioning of plant and equipment in Queensland and the commissioning of a new flour mill in Port Adelaide. The meat and dairy division performed well despite increased input costs. Don's has met expectation since acquisition in October 1999 and the integration of its operations with Chapman's is on schedule with the transfer of meat processing from Nairne, South Australia to Melbourne. The upgraded group information technology system is now operational and the focus will be to maximise the benefit from this. Peter Jackson Chief Executive FINANCE DIRECTOR'S REPORT GROUP PERFORMANCE Sales for the group including its share of joint ventures increased by 2%, or £106 million, to £4,414 million. Sales were not materially affected by currency translation. Operating profit before exceptional items and the amortisation of goodwill increased by 4%, or £14 million, to £340 million. The most significant impact of currency movements compared to last year was in British Sugar where the weakening of the euro reduced the sugar support price and reduced profits by £19 million. In addition, the effect of currency on the translation of our overseas results reduced profits by a further £4 million. The exceptional operating charge of £130 million reflects the results of a review of the group's activities undertaken during the year. The group has now embarked upon a programme to dispose of, close or restructure a number of its manufacturing and processing facilities worldwide. The charge comprises £118 million write down of fixed asset carrying values and, where a constructive obligation has been created, provision has been made for an estimate of the associated cash costs, including redundancy, amounting to £12 million. During the year the group disposed of its low margin UK own label ice- cream and wheat starch businesses. The net proceeds from the disposals covered their net asset values resulting in no significant impact on the profit and loss account. Investment income decreased from £84 million in 1999 to £61million this year. This mainly reflects the lower funds available for investment following the payment of the special dividend at a cost of £448 million on 14 May 1999 but also the lower average interest rate this year compared to 1999. Profit before tax reduced from £300 million to £247 million as a result of the higher level of exceptional charges in 2000 and the lower investment income. TAXATION The tax charge of £111 million represents an effective tax rate of 29.0% (1999 - 29.6%) on the profits from underlying operations. No tax relief is available on the exceptional items and amortisation of goodwill. EARNINGS AND DIVIDENDS After the effect of the exceptional charges and lower investment income, earnings decreased by £46 million to £138 million. The weighted average number of shares in issue decreased from 860 million to 789 million as a result of the share consolidation that took place on 7 May 1999. Earnings per ordinary share decreased from 21.4p to 17.5p. However, after adjusting for exceptional items and amortisation of goodwill, earnings per share increased by 8% from 31.7p to 34.1p. The first interim dividend of 4.25p and a second interim dividend of 7.0p will produce an increase of 5% for the year. Dividends will cost a total of £89 million. Dividend cover, after adjusting for exceptional items and amortisation of goodwill, is 3.0 times (1999 - 2.9 times). £49 million will be transferred to reserves. BALANCE SHEET Net cash funds, being current asset investments and cash at bank less short term borrowings and loans, increased by £110 million to £981 million reflecting the cash generated by the group in the year. Fixed assets marginally declined by £20 million to £1,647 million with additions from capital expenditure and acquisitions being more than offset by depreciation, disposals and the asset write down of £118 million included in the exceptional charge. Working capital, being stocks and debtors less other creditors and provisions was virtually unchanged. As a consequence the group's net assets increased by £88 million to £2,841 million. A currency gain of £50 million arose on the translation into sterling of the group's non-sterling net assets principally relating to the group's net assets in the US. CASH FLOW Net cash flow from operating activities was £445 million, a £25 million increase on last year. Capital expenditure during the year was £182 million and has been used principally to upgrade, modernise and expand existing manufacturing facilities and also for investment in new Primark stores. The acquisition spend during the year was £78 million and the more significant purchases were Rohm Enzyme in Germany and the Lonza polyol business in the US. Disposals proceeds were £54 million for the UK ice-cream and wheat starch businesses. POST BALANCE SHEET EVENTS On 27 October 2000, the group announced the sale of Burton's, the UK biscuit and sugar confectionery business, realising proceeds of £130 million. The net assets of the business were approximately £87 million at the time of sale and the operating profit was £10 million, £7 million after rationalisation costs, in the year to September 2000. Other disposals announced were the sale of Rowallan, an industrial fats business, and the pig business of ABN. A small loss will be reported on the sale of these businesses but the effect is expected to be earnings enhancing. On 6 November 2000, negotiations were concluded for the acquisition of the branded foodservice oil business from Procter & Gamble by ACH in the US, with completion scheduled for January 2001. Annual sales of this business in its last financial year were $127 million. FINANCIAL REPORTING STANDARDS AND ACCOUNTING POLICIES FRS15 - 'tangible fixed assets' and FRS16 - 'current tax' have been adopted in the current year's financial statements. There have been no other changes to the group's accounting policies from the previous year. John Bason Finance Director The annual report and accounts will be available on 15 November 2000 and the annual general meeting will be held at The Park Lane Hotel, London at 11am on Friday 15 December 2000. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 16 September 2000 Continuing operations before exceptional Exceptional items items Total Note £m £m £m Turnover of the group including its share of joint ventures 4,414 - 4,414 Less share of turnover of joint ventures (8) - (8) ________ ________ ________ Group turnover 1 4,406 - 4,406 Operating costs (4,079) (130) (4,209) ________ ________ ________ Group operating profit 327 (130) 197 Share of operating results of: - joint ventures 3 - 3 - associates 4 - 4 ________ ________ ________ Total operating profit 1 334 (130) 204 Operating profit before exceptional items and amortisation of goodwill 340 - 340 Exceptional items 1 - (130) (130) Amortisation of goodwill (6) - (6) Profits less losses on sale of properties 8 - 8 Investment income 61 - 61 ________ ________ ________ Profit on ordinary activities before interest 403 (130) 273 Interest payable (26) - (26) ________ ________ ________ Profit on ordinary activities before taxation 377 (130) 247 Tax on profit on ordinary activities 2 (111) - (111) ________ ________ ________ Profit on ordinary activities after taxation 266 (130) 136 Minority interests - equity (3) 5 2 ________ ________ ________ Profit for the financial year 263 (125) 138 Dividends - interim 3 (89) - (89) - special interim - - - ________ ________ ________ Transfer to/(from) reserves 174 (125) 49 ======== ======== ======== Basic and diluted earnings per ordinary share 33.3p (15.8)p 17.5p Earnings per ordinary share before amortisation of goodwill 34.1p (15.8)p 18.3p For the year ended 18 September 1999 Continuing operations before exceptional Execptional items items Total Note £m £m £m Turnover of the group including its share of joint ventures 4,308 - 4,308 Less share of turnover of joint ventures (9) - (9) ________ ________ ________ Group turnover 1 4,299 - 4,299 Operating costs (3,982) (84) (4,066) ________ ________ ________ Group operating profit 317 (84) 233 Share of operating results of: - joint ventures 2 - 2 - associates 2 - 2 ________ ________ ________ Total operating profit 1 321 (84) 237 Operating profit before exceptional items and amortisation of goodwill 326 - 326 Exceptional items 1 - (84) (84) Amortisation of goodwill (5) - (5) Profits less losses on sale of properties 4 - 4 Investment income 84 - 84 ________ ________ ________ Profit on ordinary activities before interest 409 (84) 325 Interest payable (25) - (25) ________ ________ ________ Profit on ordinary activities before taxation 384 (84) 300 Tax on profit on ordinary activities 2 (115) - (115) ________ ________ ________ Profit on ordinary activities after taxation 269 (84) 185 Minority interests - equity (1) - (1) ________ ________ ________ Profit for the financial year 268 (84) 184 Dividends - interim 3 (85) - (85) - special interim (448) - (448) ________ ________ ________ Transfer to/(from) reserves (265) (84) (349) ======== ======== ======== Basic and diluted earnings per ordinary share 31.1p (9.7)p 21.4p Earnings per ordinary share before amortisation of goodwill 31.7p (9.7)p 22.0p The group has made no material acquisitions nor discontinued any operations within the meaning of the Financial Reporting Standards during either 2000 or 1999. CONSOLIDATED BALANCE SHEET As at As at 16 September 200018 September 1999 £m £m Fixed assets Intangible assets - goodwill 151 108 Tangible assets 1,459 1,528 -------- -------- 1,610 1,636 -------- -------- Interest in net assets of - joint ventures 12 7 - associates 11 8 Other investments 14 16 -------- -------- Total fixed asset investments 37 31 -------- -------- 1,647 1,667 -------- -------- Current assets Stocks 496 464 Debtors 526 491 Investments 1,133 1,030 Cash at bank and in hand 65 51 -------- -------- 2,220 2,036 -------- -------- Creditors: amounts falling due within one year Short term borrowings (57) (53) Other creditors (735) (680) -------- -------- (792) (733) -------- -------- Net current assets 1,428 1,303 -------- -------- Total assets less current liabilities 3,075 2,970 -------- -------- Creditors: amounts falling due after one year Loans (160) (157) Other creditors (11) (10) -------- -------- (171) (167) -------- -------- Provisions for liabilities and charges (63) (50) -------- -------- 2,841 2,753 ======== ======== Capital and reserves Called up share capital 47 47 Revaluation reserve 3 3 Other reserves 173 173 Profit and loss account 2,540 2,451 -------- -------- Equity shareholders' funds 2,763 2,674 Minority interests in subsidiary undertakings - equity 78 79 -------- -------- 2,841 2,753 ======== ======== CONSOLIDATED CASH FLOW STATEMENT For the For the year ended year ended 16 September 18 September 2000 1999 Note £m £m Cash flow from operating activities 4 445 420 -------- -------- Dividends from joint ventures 2 1 -------- -------- Dividends from associates 1 2 -------- -------- Return on investments and servicing of finance Dividends and other investment income 51 90 Interest paid (26) (24) Dividends paid to minorities (2) (2) -------- -------- 23 64 -------- -------- Taxation (106) (120) -------- -------- Capital expenditure and financial investment Purchase of tangible fixed assets (182) (259) Sale of tangible fixed assets 32 16 Purchase of equity investments (7) (1) Sale of equity investments 17 10 Purchase of own shares - (1) -------- -------- (140) (235) -------- -------- Acquisitions and disposals Purchase of new subsidiary undertakings (73) (153) Purchase of joint ventures and associates (5) (3) Sale of subsidiary undertakings 54 - -------- -------- (24) (156) -------- -------- Equity dividends paid (85) (538) -------- -------- Net cash inflow/(outflow) before use of liquid funds and financing 116 (562) ======== ======== Management of liquid funds 104 (541) Financing (1) (1) Increase/(decrease) in cash 13 (20) -------- -------- 5 116 (562) ======== ======== CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the For the year ended year ended 16 September 18 September 2000 1999 £m £m Profit for the financial year 138 184 Currency translation differences on foreign currency net assets 50 26 Tax on currency translation differences (12) - -------- -------- Total recognised gains and losses 176 210 ======== ======== CONSOLIDATED STATEMENT OF HISTORICAL COST PROFITS There is no material difference between the group results as reported and on an unmodified historical cost basis. Accordingly no note of historical cost profits and losses has been prepared. RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS For the For the year ended year ended 16 September 18 September 2000 1999 £m £m Profit for the financial year 138 184 Dividends -interim (89) (85) -special interim - (448) -------- -------- Transfer to/(from) reserves 49 (349) Other recognised gains and losses relating to the year 38 26 Goodwill written back 2 - -------- -------- Net increase/(decrease) in shareholders' funds 89 (323) Opening shareholders' funds 2,674 2,997 -------- -------- Closing shareholders' funds 2,763 2,674 ======== ======== MORE TO FOLLOW

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