TIDMABF
RNS Number : 2301S
Associated British Foods PLC
05 November 2019
For release 5 November 2019
Associated British Foods plc
Annual Results Announcement
Year ended 14 September 2019
For release 5 November 2019
Associated British Foods plc results for 52 weeks ended 14
september 2019
A resilient performance
Financial Headlines
Actual Constant currency
* Group revenue GBP15.8bn +2% +2%
* Adjusted operating profit GBP1,421m +1% +1%
* Adjusted profit before tax GBP1,406m +2%
-- Adjusted earnings
per share 137.5p +2%
* Dividends per share 46.35p +3%
* Gross investment GBP837m
* Net cash GBP936m
* Statutory operating profit GBP1,282m -5%
* Statutory profit before tax GBP1,173m -8%
* Basic earnings per share 111.1p -13%
Statutory operating profit down 5% to GBP1,282m mainly as a result
of an exceptional charge of GBP79m included in this year's income
statement. This year includes a greater loss on closure of businesses,
and so statutory profit before tax was down 8% to GBP1,173m and
basic earnings per share were down 13% to 111.1p.
George Weston, Chief Executive of Associated British Foods,
said:
"The group delivered a resilient performance this year, with
strong profit growth from Grocery and Primark which more than
offset the profit decline in Sugar. We continued to pursue the
opportunities to grow our businesses with a gross investment of
over GBP800m. Next year the group is well-positioned for further
progress, with the continued expansion of Primark, a material
improvement in our Sugar profit and strong profit growth in
Grocery."
Adjusted operating profit is stated before the amortisation of
non-operating intangibles, profits less losses on disposal of
non-current assets, transaction costs, amortisation of acquired
inventory fair value adjustments and exceptional items. These
items, together with profits less losses on the sale and closure of
businesses, are excluded from adjusted profit before tax and
adjusted earnings per share. References to operating profit in the
Operating Review are based on this adjusted operating profit
measure.
Constant currency figures are derived by translating the 2018
results at 2019 average exchange rates, except for countries where
consumer price inflation has escalated to extreme levels, in which
case actual rates are used.
References to underlying profit for Twinings Ovaltine and
Grocery exclude a GBP12m charge in 2019 in respect of the closure
of the Twinings tea factory in Jinqiao, China.
For further information please contact:
Until 15.00 only
Associated British Foods:
John Bason, Finance Director
Catherine Hicks, Corporate Affairs Director
Tel: 020 7638 9571
Citigate Dewe Rogerson:
Chris Barrie, Jos Bieneman
Tel: 020 7638 9571
After 15.00
John Bason, Finance Director
Catherine Hicks, Corporate Affairs Director
Tel: 020 7399 6500
Notes to Editors
Associated British Foods is a diversified international food,
ingredients and retail group with sales of GBP15.8bn and 138,000
employees in 52 countries. It has significant businesses in Europe,
southern Africa, the Americas, Asia and Australia.
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.
For release 5 November 2019
Annual Results Announcement
For the 52 weeks ended 14 September 2019
CHAIRMAN'S STATEMENT
It is a testament to the breadth of the group that profit growth
was achieved in a year where the effects of a radical change in the
European sugar market fully impacted our businesses. In a period
when our ongoing sugar businesses experienced a significant drop in
profits, the resilience of the group was demonstrated by an
increase in the profits of our non-sugar activities, mainly driven
by strong performances from Grocery and Primark. Revenues were 2%
higher than last year at GBP15.8bn and adjusted operating profit
was 1% ahead at GBP1,421m. There was a minimal effect from currency
translation and so revenue and profit increases were broadly the
same at constant currency. Net finance expense was much lower than
last year following the maturity of a portion of the group's
private placement notes and other financial income was higher as a
consequence of an increase in the surplus of our defined benefit
pension schemes between the 2017 and 2018 year ends. The group's
adjusted effective tax rate of 21.5% was in line with last year.
Adjusted earnings per share increased by 2% to 137.5p.
This year Primark celebrated the 50(th) anniversary of the
opening of its first store, and I am pleased to report another year
of strong progress and notable achievements. The expansion in
selling space included Birmingham High Street, a showcase for our
entire product range and innovative in-store experiences, and our
first move into eastern Europe with the opening of a store in
Slovenia. Our stores in the US performed very well and we have
announced four further stores to open in the near future. Primark
again demonstrated its track record for operational excellence with
further improvements in buying and stock management.
Adjusted operating profit at Grocery was well ahead of last
year. The margin improvement was broad-based, with excellent
performances from our businesses in Australia and the US, Acetum,
which was acquired last year, and Twinings Ovaltine on an
underlying basis. Profit was down substantially at AB Sugar, mainly
due to the effect of a further decline in EU sugar prices last
year. This decline resulted from a coincidence of a regional
oversupply of sugar and the end of the EU sugar regime. Following
the subsequent reduction in EU sugar supply, sugar prices have
increased and we look forward to a material increase in our Sugar
profit in the coming year.
We continued to invest for the long term, with a gross
investment of GBP837m comprising capital expenditure of GBP737m and
acquisitions of GBP100m. The capital expenditure for Primark was
driven by investment in selling space expansion, supply chain and
infrastructure. Investments in our food businesses focused on
capacity expansion and projects to drive further operational
efficiencies.
In September 2018 we were delighted to acquire Yumi's, an
Australian producer of premium chilled dips and snacks, and, on 6
September 2019, Anthony's Goods, a California-based online marketer
and blender of speciality baking ingredients. We also signed an
agreement to form a yeast and bakery ingredients joint venture in
China with Wilmar International. The joint venture will see us
build a major new low-cost yeast plant in the north east of China
and will combine AB Mauri's existing activities and technical
expertise in China with Wilmar's extensive sales and distribution
capability.
We delivered a stronger operating cash flow this year and the
closing net cash position of GBP936m, before the adoption of IFRS
16 from the coming year, compared to GBP614m at last year end. The
group has the financial strength to invest in all its businesses
and to continue to pursue value accretive acquisition
opportunities.
Statutory operating profit for the year was 5% down at GBP1,282m
after taking into account exceptional charges of GBP79m. Losses on
sale and closure of businesses increased to GBP94m this year and as
a result, the statutory profit before tax reduced by 8% to
GBP1,173m and basic earnings per share reduced by 13% to
111.1p.
Corporate responsibility
At Associated British Foods, our purpose is to provide safe,
nutritious, affordable food and clothing that is great value for
money. We are committed to being a good neighbour and supporting
the communities where we operate.
This year we have, for the first time, set out our four
group-wide values: acting with integrity, respecting everyone's
dignity, progressing through collaboration and pursuing with
rigour. These values provide clarity and guidance across all our
businesses for employees, customers, suppliers and shareholders
alike.
Our businesses have always aimed to make a lasting positive
contribution to society and our 2019 Responsibility Report, Living
our values, details the actions we are taking to invest in our
people, support society, strengthen supply chains and respect our
environment. To see how we make a difference, please download
Living our values, at www.abf.co.uk/responsibility
Remuneration
This year we have undertaken a review of the group's executive
reward arrangements which has included consultation with some of
the group's largest shareholders. As a result, a number of changes
are proposed to our remuneration policy to further improve
alignment with shareholder interests and these are set out in the
Remuneration Report.
The board
In September 2018 we welcomed Graham Allan to the board as a
non-executive director. I want to thank Graham for also leading
this year's internal evaluation of the board and its committees.
Javier Ferrán stood down at our Annual General Meeting in December
2018 and my last statement recorded my thanks to Javier. Ruth
Cairnie took on the responsibilities of Senior Independent
Director. Richard Reid was appointed as designated non-executive
director for engagement with the workforce.
Employees
These results are a tribute to the ongoing dedication and
commitment of our 138,000 employees during the past year. Operating
in 52 countries, some of which are challenging markets, they have
delivered operational improvements which have underpinned the
increased profit and cash generation that we report today. I would
like to thank all of our employees for their valuable contribution,
determination to succeed and in bringing our values to life every
day.
Dividends
I am pleased to report that a final dividend of 34.3p is
proposed to be paid on 10 January 2020, to shareholders on the
register on 13 December 2019. Together with the interim dividend of
12.05p paid on 5 July 2019, this will make a total of 46.35p for
the year, an increase of 3%.
IFRS 16 Leases
The group will adopt the new accounting standard IFRS 16 Leases
from the coming financial year. This is a significant accounting
change for the group and will bring lease liabilities of GBP3.6bn
on to the balance sheet, predominantly relating to Primark's
leasehold stores. Under our chosen transition option, the results
for the 2019 financial year will not be restated. However, we have
set out the pro forma effects on our financial results this year,
and on the key metrics for Primark, in the Financial review.
Outlook
In the coming year, AB Sugar will benefit materially from the
increase seen this year in EU sugar prices and from further cost
reduction. We expect another year of strong profit and margin
growth in Grocery, with Twinings Ovaltine in particular benefiting
from a more efficient tea supply chain.
Primark will continue to expand its selling space next year,
with the most stores being added in France and Spain. Looking
further ahead, Primark has a strong pipeline of good quality sites.
We expect cost reductions in both the cost of goods and overheads
during the year, but the weakness of sterling during this financial
year will result in a margin decline for Primark in the first half.
The sterling exchange rate is currently very volatile but, at
current exchange rates, we now expect margin in the second half to
be in line with the same period this year and margin for the full
year to be only a small reduction on that achieved this year.
Margin comparisons are on a lease-adjusted basis.
Our businesses have completed all practical preparations for
Brexit and contingency plans are in place should our businesses
experience some disruption at the time of exit.
Taking these factors into account, at this early stage, we
expect progress, on both a reported and an IFRS 16 adjusted basis,
in adjusted earnings per share for the group for the coming
year.
Michael McLintock
Chairman
Chief executive's statement
The group made further progress this year. Group revenue
increased by 2% to GBP15.8bn and adjusted operating profit of
GBP1,421m was 1% higher than last year, at constant currency.
Our Grocery businesses enjoyed a successful year, with strong
underlying profit growth of 14% after adjusting for the GBP12m cost
for the closure of the Twinings tea factory in China. George Weston
Foods in Australia, ACH in the US and Acetum all delivered
particularly impressive margin improvements through better
procurement and cost reduction. We continued to invest in our
manufacturing capability and the new facilities commissioned for
Ryvita and for noodle production will increase capacity and product
innovation. At Allied Bakeries we are committed to reducing the
operating losses this coming year, with a programme of cost
reductions. These follow the closure of the Cardiff bakery at the
end of the financial year. We continued to develop our presence in
the faster growing segments of the grocery market and see much
potential from our recent acquisitions of Yumi's in Australia and
Anthony's Goods in the US.
Primark marked its 50(th) anniversary by delivering an 8%
increase in profit. 14 new stores were added across the UK and
continental Europe in the year, including our largest ever store,
in Birmingham. Looking forward, France, Italy, Spain, eastern
Europe and the US provide the most significant prospects for
further growth. Our buying team delivered a further improvement in
margin, driven by exciting on-trend ranges, better buying and
reduced markdowns. We continued to put the customer at the heart of
our digital campaigns, with our social media channels now boasting
20m followers, up from 13m last year. We successfully collaborated
with high profile influencers with whom we launched special
collections throughout the year, generating further social media
reach. We achieved another year of substantial market share growth
in the UK. The group's like-for-like sales decline of 2% was
significantly affected by weak trading in Germany where we have
been taking action to address performance. A new managing director
is in role and is leading a number of initiatives which include
targeted local marketing campaigns.
Profit at AB Sugar was well down on the prior year, as expected,
due to lower EU sugar prices and a poor crop in China. With our
ongoing focus on performance improvement and cost reduction,
improving EU sugar prices and the continued strength of Illovo we
look forward to an improvement in the profit and return on capital
employed for our sugar business in the coming year.
AB Agri experienced a difficult year, with the loss of
co-products following the closure of the Vivergo bioethanol plant
last year, lower UK feed margins and a smaller sugar beet crop. Our
Ingredients business was impacted by the challenging economic
environment in Argentina and this year's result includes a
hyperinflationary accounting charge for the first time.
Brexit
The group's business model, wherever possible, aligns food
production with the end market for the product while Primark
operates largely discrete supply chains for its stores in each of
the UK, US and EU27. The group therefore undertakes relatively
little cross-border trading between the UK and the rest of the EU
and consequently we do not expect Brexit to have a significant
effect on the group's results. Nevertheless, we have evaluated the
forms that Brexit could take and our businesses have completed all
practical preparations and have contingency plans in place should
they experience some disruption at the time of exit.
Arthur Ryan
Arthur Ryan, the founder of Primark, passed away in July this
year after a short illness. My grandfather and uncle recruited
Arthur to run Penneys in 1969 with only one store in Dublin. He
went on to build a phenomenal world-class retailer, making fashion
accessible to all, and his legacy looms large as one of the great
giants of retailing. We will all miss his larger-than-life
presence, his sharp wit and his friendship.
OPERATING REVIEW
Grocery
Actual Constant
2019 2018 fx fx
Revenue GBPm 3,521 3,420 +3% +2%
=================================== ===== ===== ====== ========
Adjusted operating profit GBPm 380 335 +13% +10%
=================================== ===== ===== ====== ========
Adjusted operating profit margin 10.8% 9.8%
=================================== ===== ===== ====== ========
Return on average capital employed 27.4% 25.9%
=================================== ===== ===== ====== ========
Grocery revenues were 2% ahead of last year at constant currency
and growth in adjusted operating profit was excellent at 10%. This
year's result included a GBP12m one-time cost for the closure of
the Twinings tea factory in China. Adjusting for this, operating
profit was up 14% at constant currency. Margin, at 10.8%, improved
significantly again this year with major improvements delivered by
George Weston Foods in Australia, ACH in the US, Acetum and
Twinings Ovaltine, on an underlying basis.
Twinings delivered good revenue growth and benefited from the
success of Cold Infuse teas in their launch markets of the UK and
Australia. During the summer, distribution began in the US while
the range was extended with new flavours and Kids Cold Infuse. The
development of our herbal teas range included new launches in
Australia and France and good growth from Superblends in the UK.
Ovaltine sales growth was supported by another year of success of
new product launches in Switzerland and good growth in Thailand,
China and Myanmar. Following the transfer of tea production from
Jinqiao, China to our existing site in Swarzedz, Poland during the
first half, new supply routings have been established and are
functioning well.
At Allied Bakeries revenues progressed this year following price
increases agreed with a number of customers. As previously advised,
the termination of our largest private label bread contract will
lead to a volume loss in our next financial year. As a consequence,
the carrying value of the assets in this business was no longer
supported by our forecasts of its discounted future cash flows and
a non-cash impairment charge of GBP65m has been recognised as an
exceptional item in the income statement. We have taken steps to
reduce our capacity and closed our Cardiff bakery at the end of the
year. During the coming year we will implement cost reductions in a
number of operational areas to further reduce the losses in this
business.
Jordans, Dorset Cereals and Ryvita delivered an improved
manufacturing capability, with the commissioning of the new Ryvita
bakery in Bardney, Lincolnshire, and the transfer of muesli
production to a state-of-the-art facility in Poole, Dorset. Margin
declined due to higher raw materials costs. Silver Spoon expanded
distribution in the UK, winning a sugar contract with a major
retailer.
AB World Foods enjoyed a record year with strong growth in both
the UK and internationally. Sales at Blue Dragon were driven by an
expanded range of meal kits while Patak's grew sales of pappadums
and continued to enjoy success with paste pots. Westmill relaunched
its Rajah spice range and commissioned a further noodle production
line at its factory in Manchester, although rice margins fell in a
highly competitive market.
At Acetum, our leading balsamic vinegar producer, margins
improved significantly as grape must prices returned to lower
levels than the exceptionally high level that followed the poor
grape harvest in 2017. During the year investment was made to
support the market entry of the Mazzetti brand in the UK.
Operating profit for our grocery businesses in North America was
well ahead of last year. ACH performed strongly, with excellent
margin improvement driven by lower oil commodity costs, further
market share gains in Mazola corn oil and improved trading in syrup
and baking products in Mexico. On 6 September 2019 we completed the
acquisition of Anthony's Goods, a California-based blender and
online marketer of speciality baking ingredients. This acquisition
will complement ACH's leading position in cooking and baking brands
in North America and will provide a presence in the emerging,
fast-growth market of premium organic foods.
George Weston Foods in Australia delivered excellent margin and
operating profit growth. Tip Top achieved strong sales in packaged
bread and realised improved margins driven by operational
efficiencies, while the Don meat business significantly increased
operating profit and benefited from favourable commodities
management. In September 2018 we acquired Yumi's, a producer and
marketer of premium chilled dips and snacks. Sales grew strongly, a
new range of lentil and pulses dips were well received, and the
business became the market leader in the chilled dips category in
Australia during the year.
Sugar
Actual Constant
Ongoing businesses 2019 2018 fx fx
Revenue GBPm 1,608 1,730 -7% -5%
=================================== ===== ===== ====== ========
Adjusted operating profit GBPm 26 123 -79% -78%
=================================== ===== ===== ====== ========
Adjusted operating profit margin 1.6% 7.1%
=================================== ===== ===== ====== ========
Return on average capital employed 1.6% 7.5%
=================================== ===== ===== ====== ========
AB Sugar revenues were 5% down on last year at constant currency
and adjusted operating profit was well down. The profit decline for
the year reflects the first half performance. Profit in the second
half was ahead of both expectation and last year. EU sugar prices
were much lower this year and impacted our UK and Spanish
businesses while a poor crop reduced production and sales volumes
in China. Our African sugar business, Illovo, delivered another
successful year.
Our sugar businesses are focused on reducing their cost of sugar
production. Further significant cost reductions were delivered this
year, through ongoing performance improvement programmes which
target efficiencies in all areas of the business.
EU stock levels tightened during 2018/19 as a consequence of
lower sugar production in the last campaign. Indications are that
EU sugar production for 2019/20 will remain at this lower level
following a further reduction in the crop area which will largely
offset improved beet yields. As a consequence, stocks are forecast
to remain low which should provide further support to EU sugar
prices which increased this year.
In the UK, sugar production in 2018/19 of 1.15 million tonnes
compared to 1.37 million tonnes last year when beet yields achieved
record levels. Production in 2019/20 is expected to be marginally
higher than this year, with an improvement in beet yield following
favourable weather conditions more than offsetting the reduction in
crop area. Good early progress has been made in the processing of
beet at our four UK factories. The majority of sales for 2019/20
are now contracted and the benefit of higher EU sugar prices will
result in a significant improvement in the operating result.
In Spain, production from beet was 260,000 tonnes this year,
lower than last year due to adverse weather in the south impacting
sugar content of the beet. This shortfall was compensated by
increased production from the refining of cane raws at Guadalete
which produced 170,000 tonnes. These factors, combined with low EU
sugar prices, resulted in our Spanish business making a substantial
loss this year. Contracting of beet volumes with growers for the
2019/20 campaign was substantially completed at reduced prices from
the previous year and this led to our contracted crop area reducing
by one third, mainly in the north. Beet sugar production for
2019/20 is expected to be some 205,000 tonnes, with the benefit of
an improvement in beet yield. This will be supplemented with over
200,000 tonnes from raws refining. We expect a significantly
improved operating result for Spain in the next financial year
driven by higher sales prices, the lower beet costs and cost
reductions.
Sugar production at Illovo increased slightly to 1.73 million
tonnes this year, driven by further improvements in cane yields.
Profit was in line with expectations, with particularly strong
performances in Eswatini and Zambia offsetting weaker results in
Malawi and South Africa. The 2019/20 season is progressing well,
with sugar production in line with expectations, and we expect
another strong performance from Illovo next year.
In China, sugar production of 149,000 tonnes was well down on
last year as very poor quality beet, following a period of adverse
weather, hampered production and sugar extraction at our two
factories. As a result of the lower production and low domestic
sugar prices the business produced a significant loss. Looking
ahead to next year we expect the operating result to improve
significantly. The new crop is well established, some recovery in
beet quality is expected and grower payments will be increasingly
linked to the sugar content of their beet.
At Germains, our seed treatment and enhancement business, UK
sales volumes declined mainly as a result of the ban on
neonicotinoids as a seed treatment from this year. However, sales
to the European and US horticulture markets continued to increase
and benefited from new product development. Production capacity was
increased at its facility in Gilroy, California.
Agriculture
Actual Constant
Ongoing businesses 2019 2018 fx fx
Revenue GBPm 1,385 1,350 +3% +2%
=================================== ===== ===== ====== ========
Adjusted operating profit GBPm 42 59 -29% -30%
=================================== ===== ===== ====== ========
Adjusted operating profit margin 3.0% 4.4%
=================================== ===== ===== ====== ========
Return on average capital employed 10.7% 15.7%
=================================== ===== ===== ====== ========
AB Agri revenues were 2% ahead of last year at constant
currency, driven by higher feed sales in the UK and China where
higher feed prices reflected increased raw material costs. Adjusted
operating profit, however, was down 30% mainly due to the loss of
high margin co-products from the Vivergo bioethanol plant, which
was closed last autumn, and lower margins on UK animal feed.
Compound feed volumes in the UK increased due to higher demand
in the pig and poultry sectors. The margin decline reflected an
under-recovery of energy and distribution costs and lower sales of
sugar beet feed to the dairy sector, following the reduction in the
beet crop size. Overheads will be reduced as a consequence and a
restructuring charge has been taken this year. Although our Chinese
feed business also increased sales, margin declined.
Speciality Nutrition, our premix and starter feed business,
successfully commissioned a new factory at Fradley Park,
Staffordshire and acquired a small starter feed business in Poland.
Profits were lower than last year which benefited from unusually
high vitamin prices. Sales and profit at AB Vista were in line with
last year and reflected an increasingly competitive phytase enzyme
market. We are encouraged by the launch of Signis, our innovative
animal digestion aid.
Ingredients
Actual Constant
Ongoing businesses 2019 2018 fx fx
Revenue GBPm 1,515 1,459 +4% +4%
=================================== ===== ===== ====== ========
Adjusted operating profit GBPm 136 143 -5% -6%
=================================== ===== ===== ====== ========
Adjusted operating profit margin 9.0% 9.8%
=================================== ===== ===== ====== ========
Return on average capital employed 15.9% 18.1%
=================================== ===== ===== ====== ========
Ingredients revenues were 4% ahead of last year at constant
currency. Adjusted operating profit, however, declined by 6% at
constant currency, which was driven by a significant fall in the
result for AB Mauri Argentina as a result of a challenging economy,
increased competition, and the adoption of hyperinflationary
accounting under IAS 29.
AB Mauri sales increased but profits were reduced mainly as a
result of the Argentina operations. Trading in North America was
strong driven by product innovation in bakery ingredients and the
increase in yeast prices to recover higher input costs. Trading was
also ahead in Brazil where we continued to benefit from the growth
of industrial bakeries. We continued to invest in technology and
product innovation and a new bakery toppings facility in
Pederneiras, Brazil, a bakery ingredients factory in Dongguan,
China and an extended technology centre in St Louis, US were opened
during the year.
In August we signed an agreement to form a yeast and bakery
ingredients joint venture in China with Wilmar International. This
will combine our existing activities in China and technical
expertise with their extensive sales and distribution capability.
Completion is subject to the receipt of regulatory approvals. The
joint venture will build a major yeast plant to be co-located with
Wilmar's food processing plant in north east China. During the year
we also acquired Italmill, a supplier of specialist bakery
ingredients from a well-invested facility in the north of
Italy.
At ABF Ingredients, the enzymes business continued to grow its
sales to the bakery and other food markets. SPI Pharma delivered
sales growth in pharmaceutical excipients and industrial catalysts.
Ohly, our yeast extracts and seasoning powders business, made good
progress in the food and health markets and improved margins
through cost reduction. PGPI, our US protein extrusion business,
delivered strong sales growth of plant protein crisps and took
further share in the expanding US market for nutrition bars and
healthier snacks, cereals and baked items.
Retail
Actual Constant
2019 2018 fx fx
Revenue GBPm 7,792 7,477 +4% +4%
=================================== ===== ===== ====== ========
Adjusted operating profit GBPm 913 843 +8% +8%
=================================== ===== ===== ====== ========
Adjusted operating profit margin 11.7% 11.3%
=================================== ===== ===== ====== ========
Return on average capital employed 28.9% 28.2%
=================================== ===== ===== ====== ========
Sales at Primark were 4.2% ahead of last year at actual exchange
rates and 4.1% ahead at constant currency, driven by increased
selling space partially offset by a 2.0% decline in like-for-like
sales. Operating profit margin increased to 11.7% from 11.3% and,
as a consequence, adjusted operating profit was 8% ahead.
Primark performed well in the UK as we continued to deliver a
significant gain in market share, with sales growth of 2.5% driven
by a strong contribution from new selling space. Like-for-like
sales declined by 1.0% but outperformed a weak total clothing,
footwear and accessories market which includes online. We have been
encouraged by our customers' reaction to our new store in
Birmingham High Street which showcases our new food and beverage
and beauty services in addition to our full product range.
Sales in the Eurozone were 4.8% ahead of last year at constant
currency, with excellent sales growth in Spain and France and
strong performances in Italy and Belgium. Over the year selling
space increased by 8% and the contributions from our new stores in
Bordeaux, Seville and Ljubljana exceeded our expectations.
Like-for-like sales fell by 2.9%, driven by a weak performance in
Germany where a new managing director is now in role and is leading
a number of initiatives which include targeted local marketing
campaigns and the reduction of selling space in some stores.
Excluding Germany, like-for-like sales in the Eurozone fell by 1.1%
but we note an improving trend which delivered positive
like-for-like sales in the final quarter. Full year like-for-like
sales growth was achieved in Spain, Portugal, France and Italy.
Our US business delivered strong sales growth which, coupled
with lower operating costs, resulted in a significantly reduced US
operating loss. The sales increase was driven by like-for-like
growth and excellent trading at the Brooklyn store, which opened
last summer. The selling space reduction in three stores has
successfully established a profitable contribution in each store.
The positive reception by US consumers to Primark, combined with
our profitable store model, gives us confidence for further
expansion in the US market. Two further US stores will open in the
new financial year, at American Dream, the retail and entertainment
complex in New Jersey which will now open in spring 2020, and
Sawgrass Mills, Florida in summer 2020. We have now signed the
lease for a new store in Fashion District, Philadelphia and, as
previously advised, have exchanged contracts on a store in State
Street, Chicago.
We were particularly pleased to have reached a milestone 20
million followers across all our social media channels, driven by a
combination of exciting product ranges, innovative social media
campaigns and customer-focused celebrity collaborations. We believe
our engaging content across these social platforms attracts
substantial customer numbers to our stores.
During the second half, Primark's buying, merchandising, design,
sourcing and quality functions, previously located in Reading and
Dublin, were consolidated in Dublin. This will further enable one
global product range for our customers, the delivery of
efficiencies and support our expansion into international
markets.
The first half operating margin of 11.7% was well ahead of the
same period last year of 9.8%, driven by a weaker US dollar on
contracted purchases, better buying and tight stock management.
Margin in the second half exceeded our expectations at 11.7%. This
was lower than the second half in the prior year, with the effect
of a stronger US dollar on purchases substantially offset by a low
level of markdowns and better buying.
The strengthening of the US dollar during this year has
increased the cost of goods for the first half of next year which
will result in a margin decline in the first half. The sterling
exchange rate is currently extremely volatile and affects the cost
of goods for the second half next year. We anticipate achieving
significant mitigation from reduced materials prices, the
favourable effect of exchange rates in sourcing countries, better
buying and a programme to reduce operating costs. At current
exchange rates, our expectation for the full year margin next year
has improved to be only a small reduction on that achieved this
year.
Retail selling space increased by a gross 0.9 million sq ft this
year, with 14 new store openings. Four stores were added in the UK,
three in Germany, two in Spain, two in France and one each in
Belgium, the Netherlands and our first store in Slovenia. We
relocated to new premises in Birmingham High Street which, at
160,000 sq ft, became our largest store. The smaller of our two
stores in Oviedo, Spain, was closed and the size of our store in
the King of Prussia mall in Pennsylvania was reduced. This brings
the total estate to 373 stores trading from 15.6 million sq ft
compared to 14.8 million sq ft a year ago.
Year ended Year ended
14 September 15 September
2019 2018
=================== ===================
sq ft sq ft
# of stores 000 # of stores 000
UK 189 7,449 185 7,125
Spain 46 1,850 45 1,764
Germany 30 1,830 27 1,686
Republic of Ireland 37 1,085 37 1,087
Netherlands 20 971 19 902
France 15 776 13 649
US 9 470 9 507
Portugal 10 348 10 348
Belgium 7 372 6 292
Austria 5 242 5 242
Italy 4 203 4 203
Slovenia 1 46 - -
==================== =========== ====== =========== ======
373 15,642 360 14,805
==================== =========== ====== =========== ======
New store openings:
UK Spain Belgium The Netherlands
Bruxelles Chaussée
Hastings Torre Sevilla D'Ixelles Utrecht
Bluewater Almeria
Belfast Donegall
Place
Milton Keynes Germany Relocations:
France Berlin Zoom Harrow
Slovenia Toulouse Wuppertal Birmingham High Street
Ljubljana Bordeaux Bonn Newtownabbey
In the next financial year, we are planning to add a net 1
million sq ft of additional selling space, weighted mainly to the
second half. We expect to open 19 new stores together with a number
of relocations and extensions, while selling space will be reduced
at a small number of German stores. France and Spain will see the
most space added, and the major new stores will include Paris
Plaisir, Lens and Calais Cité Europe in France, Milan Fiordaliso in
Italy, Barcelona Plaza de Cataluña and Seville Lagoh in Spain and
Trafford Centre in the UK. Our first store in Poland will open in
Warsaw in the spring, taking Primark to its thirteenth country.
George Weston
Chief Executive
FINANCIAL REVIEW
Group performance
Group revenue increased by 2% to GBP15.8bn and adjusted
operating profit was 1% higher at GBP1,421m. In calculating
adjusted operating profit, the amortisation charge on non-operating
intangibles, profits or losses on disposal of non-current assets,
transaction costs, amortisation of acquired inventory fair value
adjustments and exceptional items are excluded.
The income statement includes exceptional items of GBP79m this
year. Following the termination of our largest private label bread
contract in December 2018, the carrying value of the assets of the
Allied Bakeries business was no longer supported by our forecasts
of its discounted future cash flows and a non-cash impairment
charge of GBP65m has been recognised. Following a High Court ruling
regarding the equalisation of Guaranteed Minimum Pensions in
October 2018, a pension service cost of GBP14m has been taken for
members of the company's defined benefit pension scheme for service
between 1990 and 1997. On an unadjusted basis, operating profit was
5% lower than last year at GBP1,282m.
The weakening of sterling this year, particularly against the US
dollar, resulted in a translation benefit of GBP9m. The movement in
the US dollar exchange rate has a transactional effect on Primark's
largely dollar-denominated purchases but taken for the year as a
whole the effect was broadly neutral, with a favourable effect in
the first half offsetting a negative effect in the second half.
Next year we expect the weakness of sterling during this
financial year to have a negative transactional effect on the
Primark margin in the first half but, at current exchange rates, a
minimal effect in the second half.
Net finance expense reduced from last year following the
maturity of $310m of private placement senior notes in March and
lower debt in high interest markets. The increase in other
financial income reflected the increase in the surplus of our
defined benefit pension schemes between the 2017 and 2018 year
ends.
Losses on disposal of businesses were GBP94m, higher than last
year, and mainly comprised an impairment charge to the assets of AB
Mauri's businesses in China which are affected by the formation of
the proposed joint venture with Wilmar International, described in
further detail below. Taking this into account, statutory profit
before tax was down 8% to GBP1,173m. On our adjusted basis, which
excludes these items, profit before tax rose by 2% to
GBP1,406m.
Acquisitions and disposals
In September 2018 we acquired Yumi's, an Australian producer of
premium chilled dips and snacks. AB Agri acquired a small
manufacturer of piglet starter feed based in Poland. Our
Ingredients business disposed of its underutilised torula yeast
facility in Hutchinson, Minnesota and acquired Italmill, a supplier
of specialist bakery ingredients based in the north of Italy. On 6
September 2019 ACH in the US acquired Anthony's Goods, a
California-based blender and online marketer of speciality baking
ingredients.
In August we signed an agreement to form a yeast and bakery
ingredients joint venture in China with Wilmar International, with
completion subject to regulatory approval. The joint venture will
see us build a major new low-cost yeast plant in the north east of
China and will combine AB Mauri's existing commercial activities
and technical expertise in China with Wilmar's extensive sales and
distribution capability. As a consequence, a non-cash impairment
charge of GBP88m against AB Mauri's assets in China has been
included in losses on closure of businesses in the income
statement.
Taxation
We recognise the importance of complying fully with all
applicable tax laws as well as paying and collecting the right
amount of tax in every country in which the group operates. Our
board-adopted tax strategy is based on seven tax principles that
are embedded in the financial and non-financial processes and
controls of the group. This tax strategy is available on the
group's website at:
www.abf.co.uk/documents/pdfs/policies/abf_tax_strategy.pdf.
This year's tax charge on the adjusted profit before tax was
GBP302m at an effective rate of 21.5% (2018 - 21.3%). We expect
next year's adjusted effective tax rate to increase slightly from
this level.
The total tax charge for the year of GBP277m benefited from a
credit of GBP25m (2018 - GBP35m) for tax relief on the amortisation
on non-operating intangible assets, amortisation of acquired
inventory fair value adjustments, profits on disposal of
non-current assets, losses on disposal of businesses and
exceptional items.
Earnings and dividends
Earnings attributable to equity shareholders in the current year
were GBP878m and the weighted average number of shares in issue
during the year, which is used to calculate earnings per share, was
790 million (2018 - 790 million). Given the loss on closure of
businesses and exceptional items charged this year, earnings per
ordinary share were 13% lower than last year at 111.1p. Adjusted
earnings per share, which provides a more consistent measure of
trading performance, increased by 2% from 134.9p to 137.5p.
The interim dividend was increased by 3% to 12.05p and a final
dividend has been proposed at 34.3p which represents an overall
increase of 3% for the year. The proposed final dividend is
expected to cost GBP271m and will be charged next year. Dividend
cover, on an adjusted basis, remained at 3.0 times.
Balance sheet
Non-current assets of GBP8.2bn were GBP0.2bn lower than last
year driven by a decrease in employee benefits assets as the
surplus in the UK defined benefit pension scheme declined. The
investment in property, plant and equipment and intangible assets
was in line with last year, with capital expenditure and
acquisitions made in the year offset by depreciation and
impairments.
Average working capital as a percentage of sales increased from
7.2% last year to 7.8% this year, while working capital at the year
end was also higher than last year due principally to higher
inventories at Primark. Net cash at the year end was GBP936m
compared with net cash at the end of last year of GBP614m
reflecting the strong operating cash flow in the year.
The group's net assets increased by GBP0.3bn to GBP9.6bn. Return
on capital employed for the group which is calculated by expressing
adjusted operating profit as a percentage of the average capital
employed for the year, was lower this year at 19.3% compared with
20.1% last year, mainly driven by the reduction in the return on
capital at AB Sugar.
Cash flow
Net cash inflow from operating activities increased slightly to
GBP1,509m. Capital expenditure reduced compared to the prior year
with lower spend at Primark this year reflecting the planned later
phasing of next year's store openings and the consequent timing of
store fit out costs, while lower spend in the food businesses
followed the recent completion of some major capital projects.
GBP12m was realised from the sale of property, plant and equipment.
The net cash outlay on acquisitions was GBP100m, including debt
assumed, and related principally to the acquisitions of Yumi's and
Anthony's Goods.
Tax paid in the year amounted to GBP269m. Generally in the UK,
50% of the corporation tax due in respect of an accounting period
is payable in that period with the remaining 50% being paid in the
following accounting period. Changes made by HMRC which come into
effect next year will result in all of the tax due for a financial
year being paid in that financial year. Accordingly, the group's
tax cash outflow in 2020 will be higher than 2019.
Financing
The financing of the group is managed by a central treasury
department. The group has total committed borrowing facilities
amounting to GBP1.6bn, which comprise: GBP0.3bn of US private
placement notes maturing between 2021 and 2024, with an average
fixed rate coupon of 4.4%; GBP1.2bn provided under a syndicated,
revolving credit facility which matures in July 2021; and GBP0.1bn
of local committed facilities in Africa. At the year end, GBP412m
was drawn down under these committed facilities. The group also had
access to GBP564m of uncommitted credit lines under which GBP162m
was drawn at the year end. Cash and cash equivalents totalled
GBP1.5bn at the year end.
Pensions
The group's defined benefit pension schemes were in surplus by
GBP33m at the year end compared with a surplus last year of
GBP435m. The UK scheme accounts for 91% of the group's gross
pension assets. The decline in long-term UK bond yields during the
year, which are used to value defined benefit pension obligations
for accounting purposes, had a material impact on the discounted
value of pension liabilities. The lower pension surplus will result
in reduced interest income next year in respect of defined benefit
pensions, and is reported in other financial income.
The most recent triennial valuation of the UK scheme was
undertaken as at 5 April 2017 which determined a surplus of GBP176m
on a funding basis. As a result there is no requirement to agree a
recovery plan with the trustees.
The charge for the year for the group's defined contribution
schemes, which was equal to the contributions made, amounted to
GBP80m (2018 - GBP77m). This compared with the cash contribution to
the defined benefit schemes of GBP50m (2018 - GBP39m).
New accounting standards
The accounting policies applied during this financial year, and
details of the impact of adoption of new accounting standards in
future financial years, are set out in the Significant accounting
policies.
During this financial year we adopted IFRS 9 Financial
Instruments and IFRS 15 Revenue from Contracts with Customers with
no material impact arising on adoption. On transition, comparatives
were not restated. Under IFRS 15, Grocery revenues would have
reduced by GBP31m last year as certain payments to customers which
were previously expensed as incurred would instead have been
deducted from revenue. This reduction represents 0.9% of revenue in
the Grocery segment and would have had the effect of increasing
Grocery operating margin by 8 basis points last year. This had no
effect on the timing or amount of operating profit.
IFRS 16 Leases
The group will adopt IFRS 16 Leases in the 2020 financial year,
which is the most significant accounting change for our group for
many years. It affects many aspects of the group's financial
statements, including operating profit, earnings per share and net
debt, as well as return on capital employed.
The effects of adopting IFRS 16 at our transition date of 15
September 2019 are set out in the Significant accounting policies
section. We will recognise lease liabilities at transition of
GBP3.6bn and right-of-use assets of GBP3.1bn.
The vast majority of the lease liabilities relate to Primark's
leasehold store estate. The effect on our food businesses, where
many of our properties are owned under freeholds, is much less
significant.
We will transition using the 'modified retrospective' approach,
under which the comparative period is not restated. We have set out
below our estimates of selected 2019 financial information, on a
pro forma IFRS 16 basis, in order to illustrate the effects on the
income statement and key metrics for Primark.
Effects on the group financial statements and metrics:
-- The balance sheet would have shown net debt of GBP2.7bn.
Gearing (expressed as debt as a proportion of debt plus equity)
-- would have been 31% at the balance sheet date.
Adjusted operating profit would have increased by GBP64m, with
-- rental expense replaced by depreciation of right-of-use assets.
Interest expense would have increased by GBP90m of interest charged
-- on lease liabilities.
-- Interest cover would have been 14 times.
-- Adjusted profit before tax would have reduced by GBP26m.
Adjusted earnings per share would have reduced by 2% from 137.5p
-- to 134.8p.
There is no change to overall net cash flows and while this is a
significant change in financial reporting, our business model
remains unchanged and our balance sheet remains robust.
Effects on Primark metrics:
-- Primark's margin would have increased from 11.7% to 12.5% due
to higher adjusted operating profit, with store rental expense
replaced with a depreciation charge on right-of-use assets.
-- Primark's return on capital employed would have decreased from
29% to 15%, as right-of-use assets are now included in capital
employed.
John Bason
Finance Director
The annual report and accounts is available at www.abf.co.uk and
will be despatched to shareholders on 7 November 2019. The annual
general meeting will be held at Congress Centre, 28 Great Russell
Street, London, WC1B 3LS at 11am on Friday, 6 December 2019.
Risk Management
Our approach to risk management
The delivery of our strategic objectives and the sustainable
growth (or long-term shareholder value) of our business, is
dependent on effective risk management. We regularly face business
uncertainties and it is through a structured approach to risk
management that we are able to mitigate and manage these risks and
embrace opportunities when they arise. The diversified nature of
our operations, geographical reach, assets and currencies are
important factors in mitigating the risk of a material threat to
the group's sustainable growth and long-term shareholder value.
However, as with any business, risks and uncertainties are inherent
in our business activities. These risks may have a financial,
operational or reputational impact.
The board is accountable for effective risk management, for
agreeing the principal risks facing the group and ensuring they are
successfully managed. The board undertakes an annual assessment of
the principal risks, including those that would threaten the
business model, future performance, solvency or liquidity. The
board also monitors the group's exposure to risks as part of the
performance reviews conducted at each board meeting. Financial
risks are specifically reviewed by the Audit committee.
Each year, the Audit committee on behalf of the board reviews
the effectiveness of the group's approach to risk management
including the internal control procedures and resources devoted to
them.
Our decentralised business model empowers the management of our
businesses to identify, evaluate and manage the risks they face, on
a timely basis, to ensure compliance with relevant legislation, our
business principles and group policies.
Our businesses perform risk assessments which consider
materiality, risk controls and specific local risks relevant to the
markets in which they operate. The collated risks from each
business are shared with the respective divisional chief executives
who present their divisional risks to the group executive.
The group's Director of Financial Control receives the risk
assessments on an annual basis and, with the Group Finance
Director, reviews and challenges them with the divisional chief
executives, on an individual basis. These discussions are wide
ranging and consider operational, environmental and other external
risks. These risks and their impact on business performance are
reported during the year and are considered as part of the monthly
management review process.
Group functional heads including Legal, Treasury, Tax, IT,
Pensions, HR, Procurement and Insurance also provide input to this
process, sharing with the Director of Financial Control their view
of key risks and what activities are in place or planned to
mitigate them. A combination of these perspectives with the
business risk assessments creates a consolidated view of the
group's risk profile. A summary of these risk assessments is then
shared and discussed with the Group Finance Director and Chief
Executive at least annually.
The Director of Financial Control holds meetings with each of
the non-executive directors seeking their feedback on the reviews
performed and discussing the key risks and mitigating activities.
Once all non-executive directors have been consulted, a board
report is prepared summarising the full process and providing an
assessment of the status of risk management across the group. The
key risks, mitigating controls and relevant policies are summarised
and the board confirms the group's principal risks. These are the
risks which could prevent Associated British Foods from delivering
its strategic objectives. This report also details when formal
updates relating to the key risks will be provided to the board
throughout the year.
Key areas of focus this year
Effective risk management processes and internal controls
We continued to seek improvements in our risk management
processes to ensure the quality and integrity of information and
the ability to respond swiftly to direct risks. During the year,
the Audit committee on behalf of the board conducted reviews on the
effectiveness of the group's risk management processes and internal
controls in accordance with the UK Corporate Governance Code. Our
approach to risk management and systems of internal control is in
line with the recommendations in the Financial Reporting Council's
(FRC) revised guidance 'Risk management, internal control and
related financial and business reporting' (the Risk Guidance). The
board is satisfied that internal controls were properly reviewed
and key risks are being appropriately identified and managed.
Brexit
Following the referendum decision in 2016, the group established
an EU Exit Steering Committee which consists of a small dedicated
team which worked with all the businesses to assess the risks and
opportunities arising from the UK's decision to leave the EU. The
group's business model, under which Primark operates largely
discrete supply chains for its stores in each of the UK, US and
EU27 and food production is, wherever possible, aligned with the
end market, means that the group undertakes relatively little
cross-border trading between the UK and the rest of the EU. We
therefore quickly came to the conclusion that the overall impact of
Brexit on the group was relatively minor.
We recognise that the current political situation makes the
final outcome of the negotiations between the UK and the EU
uncertain. While we would prefer a negotiated exit, we are prepared
for any of the potential outcomes.
In particular, over the last year the group and the individual
businesses have taken reasonable steps to mitigate where possible
the impacts of leaving the EU without a transitional agreement. The
key risks identified, and the actions taken, are as follows:
-- Imports to the UK. The UK government has indicated the tariffs
that will be applied to imports in the absence of a transitional
agreement and we expect these to have a net positive impact on
the group. All necessary registrations have been completed. Where
goods are imported into the UK by third parties on behalf of
the businesses, assurances have been sought that these will be
available when required.
-- Disruption to EU-UK logistics. In the absence of a withdrawal
agreement, there is a risk of delays and disruption to the flow
of goods between the UK and the EU in both directions. The businesses
that could potentially be impacted by this have reviewed their
exposure and where appropriate have increased inventory levels
to partially mitigate the risk. The ability to do this is constrained
by warehouse availability and the shelf life of the goods.
-- Data. Where necessary, the businesses have agreed Standard Contractual
Terms to enable certain personal data to be transferred from
the EU to the UK.
-- People. The businesses have publicised the UK government's Settled
Status Scheme and where appropriate have assisted employees with
the application process.
Our principal risks and uncertainties
The directors have carried out an assessment of the principal
risks facing Associated British Foods, including those that would
threaten its business model, future performance, solvency or
liquidity. Outlined below are the group's principal risks and
uncertainties and the key mitigating activities in place to address
them. These are the principal risks of the group as a whole and are
not in any order of priority.
Associated British Foods is exposed to a variety of other risks
related to a range of issues such as human resources and talent,
community relations, the regulatory environment and competition.
These are managed as part of the risk process and a number of these
are referred to in our 2019 Responsibility Report. Here, we report
the principal risks which we believe are likely to have the
greatest current or near-term impact on our strategic and
operational plans and reputation. They are grouped into external
risks, which may occur in the markets or environment in which we
operate, and operational risks, which are related to internal
activity linked to our own operations and internal controls.
The 'Changes since 2018' describe our experience and activity
over the last year.
Principal risks and uncertainties
External risks
Risk Context and potential
trend impact Mitigation Changes since 2018
------ ------------------------------- -------------------------------- -------------------------------
r Movement in exchange rates
------ --------------------------------------------------------------------------------------------------
Associated British Our businesses which Sterling weakened against
Foods is a multinational are impacted by exchange some of our major trading
group with operations rate volatility and currencies this year,
and transactions in currency depreciation resulting in a gain
many currencies. constantly review their on translation this
Changes in exchange currency-related exposures. year of GBP9m.
rates give rise to Board-approved policies Primark covers its currency
transactional exposures require businesses exposure on purchases
within the businesses to hedge all transactional of merchandise denominated
and to translation currency exposures in foreign currencies
exposures when the and long-term supply at the time of placing
assets, liabilities or purchase contracts orders, with an average
and results of overseas which give rise to tenor of Primark's hedging
entities are translated currency exposures, activity of between
into sterling upon using foreign exchange 3 and 4 months. There
consolidation. forward contracts. was a minimal transactional
Cash balances and borrowings effect from changes
are largely maintained in the US dollar exchange
in the functional currency rate on Primark's largely
of the local operations. dollar denominated purchases
Cross-currency swaps for the year in aggregate.
are used to align borrowings In the last quarter
with the underlying of the financial year
currencies of the group's there has been a greater
net assets (refer to level of volatility
note 25 to the financial in sterling exchange
statements for more rates against our major
information). trading currencies.
------ ------------------------------- -------------------------------- -------------------------------
vw Fluctuations in commodity and energy prices
------ --------------------------------------------------------------------------------------------------
Changes in commodity The group purchases Lower sugar prices had
and energy prices can a wide range of commodities another negative impact
have a material impact in the ordinary course on the profitability
on the group's operating of business. of our businesses in
results, asset values We constantly monitor the UK, Spain and China
and cash flows. the markets in which this year. However,
we operate and manage spot EU prices increased
certain of these exposures during the second half
with exchange traded and should have a positive
contracts and hedging impact on profitability
instruments. next year.
The commercial implications The price of UK wheat,
of commodity price a key commodity for
movements are continuously our UK bakery business,
assessed and, where returned to more normal
appropriate, are reflected levels following a significant
in the pricing of our increase in 2018.
products.
------ ------------------------------- -------------------------------- -------------------------------
r Operating in global markets
------ --------------------------------------------------------------------------------------------------
Associated British Our approach to risk In June 2019, Primark
Foods operates in 52 management incorporates opened its first store
countries with sales potential short-term in Slovenia.
and supply chains in market volatility and High inflation in Argentina
many more, so we are evaluates longer-term adversely affected our
exposed to global market socio-economic and yeast and bakery ingredients
forces; fluctuations political scenarios. business based there.
in national economies; The group's financial
societal unrest and control framework and
geopolitical uncertainty; board-adopted tax and
a range of consumer treasury policies require
trends; evolving legislation all businesses to comply
and changes made by fully with relevant
our competitors. local laws.
Failure to recognise Provision is made for
and respond to any known issues based
of these factors could on management's interpretation
directly impact the of country-specific
profitability of our tax law, EU cases and
operations. investigations on tax
Entering new markets rulings and their likely
is a risk to any business. outcomes.
By their nature socio-political
events are largely
unpredictable. Nonetheless
our businesses have
detailed contingency
plans which include
site-level emergency
responses and improved
security for employees.
We engage with governments,
local regulators and
community organisations
to contribute to, and
anticipate, important
changes in public policy.
Following declines
in the world and EU
sugar prices in 2018,
AB Sugar continues
to reduce its cost
base through its performance
improvement programme.
We conduct rigorous
due diligence when
entering, or commencing
business activities
in, new markets.
------ ------------------------------- -------------------------------- -------------------------------
vw Health and nutrition
-------- ------------------------------------------------------------------------------------------------
Failure to adapt to Consumer preferences Our businesses continue
changing consumer and market trends are to review their products
health choices or monitored continually. and to partner with
to address nutrition Recipes are regularly others to enable a swift
concerns in the formulation reviewed and reformulated and innovative response
of our products could to improve the nutritional to changing consumer
result in a loss of value of our products. needs.
consumer base and All of our grocery Our Sugar and Grocery
impact business performance. products are labelled businesses have supported
with nutritional information. healthy eating campaigns
We develop partnerships again this year to help
with other organisations consumers make informed
to promote healthy choices about their
options. food.
We continue to invest
in new product design.
-------- ----------------------------- -------------------------------- -------------------------------
Operational risks
Risk Context and potential
trend impact Mitigation Changes since 2018
------ ------------------------------ ---------------------------------- ----------------------------------------
vw Workplace health and
safety
------ ------------------------------ ---------------------------------- ----------------------------------------
Many of our operations, Safety continues to be During the year there
by their nature, have the number one priority has been a 19% reduction
the potential for loss for our businesses. The in our employee Lost
of life or workplace chief executives of each Time Injury rate to
injuries to employees, business, who lead by 0.65%. Our businesses
contractors and visitors. example, are accountable conduct thorough root
for the safety performance cause analyses to learn
of their business. from accidents and implement
Our Health and Safety safety changes.
Policy and Practices The safety performance
are firmly embedded in of the group is reported
each business, supporting in the 2019 Responsibility
a strong ethos of workplace Report at www.abf.co.uk/responsibility.
safety.
We have a continuous
safety audit programme
to verify implementation
of safety management
and support a culture
of continuous improvement.
Best practice safety
and occupational health
guidance is shared across
the businesses, co-ordinated
from the corporate centre,
to supplement the delivery
of their own programmes.
------ ------------------------------ ---------------------------------- ----------------------------------------
vw Product safety and quality
------ ------------------------------------------------------------------------------------------------------------
As a leading food manufacturer Product safety is put We did not have any
and retailer, it is before economic considerations. major product recalls.
vital that we manage We operate strict food Businesses have continued
the safety and quality safety and traceability to define and refine
of our products throughout policies within an organisational KPIs in this area.
the supply chain. culture of hygiene and
product safety to ensure
consistently high standards
in our operations and
in the sourcing and handling
of raw materials and
garments.
Food quality and safety
audits are conducted
across all our manufacturing
sites, by independent
third parties and customers,
and a due diligence programme
is in place to ensure
the safety of our retail
products.
Our sites comply with
international food safety
and quality management
standards and our businesses
conduct regular mock
product incident exercises.
------ ------------------------------ ---------------------------------- ----------------------------------------
vw Our use of natural resources and managing our environmental impact
------------------------------------------------------------------------------------------------------------------
Our businesses rely on a secure supply of natural We continuously seek ways to The environmental
resources, some of which are vulnerable improve the efficiency of performance of the group is
to external factors such as natural disasters and our operations, use reported in the 2019
climate change. Our material environmental technologies and Responsibility Report at
impacts are energy use and resultant greenhouse gas techniques to reduce our use www.abf.co.uk/responsibility
emissions, water use, waste generation of natural resources and .
and packaging. adapt operations to climate We annually report our
In our assessment of climate-related business risks, change in approach to climate change,
we recognise that the cumulative impacts order to contribute water and deforestation risk
of changes in weather and water availability could positively to local via CDP at
affect our operations at a group level. environments and minimise www.cdp.net. .
The diversified nature of Associated British Foods impact. Our businesses are
means that mitigation or adaptation strategies Our businesses aim to be a continuously seeking ways to
are considered and implemented by individual good neighbour within their reduce their impact on the
businesses and divisions. local communities. One environment.
Our operations generate a range of emissions such as aspect of this We look for ways to
dust, waste water and waste which, if is the monitoring and progressively reduce our
not controlled, could pose a risk to the environment management of noise, greenhouse gas (GHG)
and local communities. particle and odour emissions and reduce our
pollution. contribution to climate
change.
AB Sugar, Primark and AB
Agri businesses have each
set commitments for their
own operations
and supply chain to improve
sustainability performance.
------------------------------------------------------ ---------------------------- ----------------------------
vw Our supply chain and ethical business practices
------------------------------------------------------------------------------------------------------------------
As an international business with suppliers and Our Supplier Code of Conduct We have developed a
representatives the world over, people with is designed to ensure company-wide online training
whom we deal and in particular our suppliers and suppliers, representatives module about modern slavery
our representatives must live up to our values and all with to help accelerate
and standards and share that responsibility. whom we deal, adhere to our awareness-raising and give
We therefore work with them to ensure values and standards. businesses the tools to
reliability and to help them meet our standards The full Code is available train people.
of product at In addition to Primark and
quality and safety, acceptable working www.abf.co.uk/supplier_code_ Twinings, AB Sugar has
conditions, financial stability, ethics and of_conduct. produced an interactive
technical Suppliers are expected to sourcing map that
competence. sign and abide by this Code. outlines where AB Sugar
Potential supply chain and ethical business Adherence to the Code is grows, sources and exports
practice risks include: verified through our sugar:
-- supply chain weaknesses such as poor supplier audit system with www.absugar.com/sourcing-map
conditions for the workforce; our procurement and .
-- unacceptable and unethical behaviour operational teams Primark has been working to
including bribery, corruption and slavery risk; establishing strong working strengthen its policies
-- impact on reliability of supply and relationships with suppliers relating to human rights and
businesscontinuity due to unforeseen incidents to help them meet modern slavery
e.g. our standards. and has published a revised
natural disasters; and All businesses are required supplier code of conduct and
* long-term sustainability of key suppliers. to comply with the group's made public its human rights
Business Principles policy.
including its Anti-Bribery Our Modern Slavery and Human
and Corruption Policy. Trafficking Statement 2019
and the steps we take to try
to ensure
that any forms of modern
slavery are not present
within our own operations or
supply chain
are reported in detail in
the 2019 Responsibility
Report at
www.abf.co.uk/responsibility
.
------------------------------------------------------ ---------------------------- ----------------------------
vw Breaches of IT and information security
------------------------------------------------------------------------------------------------------------------
To meet customer, consumer and supplier needs, our IT In parallel to developing There is an ongoing
infrastructure needs to be flexible, our technology systems, we programme of investment in
reliable and secure to allow us to interact through invest in developing the IT both technology and people
technology. capabilities to enhance our
Our delivery of efficient and effective operations is of our people across our cyber-security
enhanced by the use of relevant technologies businesses. capabilities.
and the sharing of information. We are therefore We monitor and address any During the year we have
subject to potential cyber-threats such as cyber-threats and suspicious reviewed IT disaster
computer viruses and the loss or theft of data. IT activity. recovery plans across the
There is the potential for disruption to operations We have established businesses.
from data centre failures, IT malfunctions processes, group IT security We are refreshing IT
or external cyber-attacks. policies and technologies, Security policies and we
all of which are have made further investment
subject to regular internal in people, processes
audit. and technology to detect,
Access to sensitive data is respond and recover from
restricted and closely disruptive cyber-threats.
monitored.
Robust disaster recovery
plans are in place for
business-critical
applications.
Technical security controls
are in place over key IT
platforms with the Chief
Information
Security Officer (CISO)
tasked with identifying and
responding to potential
security risks.
------------------------------------------------------ ---------------------------- ----------------------------
CAUTIONARY STATEMENTS
This report contains forward-looking statements. These have been
made by the directors in good faith based on the information
available to them up to the time of their approval of this report.
The directors can give no assurance that these expectations will
prove to have been correct. Due to the inherent uncertainties,
including both economic and business risk factors, underlying such
forward-looking information, actual results may differ materially
from those expressed or implied by these forward-looking
statements. The directors undertake no obligation to update any
forward-looking statements whether as a result of new information,
future events or otherwise.
Directors' responsibilities in respect of the financial
statements
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as a whole; and
-- the Strategic report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they
face.
We consider the annual report and financial statements, taken as
a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
The contents of this announcement, including the responsibility
statement above, have been extracted from the annual report and
accounts for the 52 weeks ended 14 September 2019 which may be
found at www.abf.co.uk and will be despatched to shareholders on 7
November 2019. Accordingly this responsibility statement makes
reference to the financial statements of the Company and the group
and to the relevant narrative appearing in that annual report and
accounts rather than the contents of this announcement.
On behalf of the board
Michael McLintock George Weston John Bason
Chairman Chief Executive Finance Director
5 November 2019
CONSOLIDATED INCOME STATEMENT
For the 52 weeks ended 14 September 2019
2019 2018
Continuing operations Note GBPm GBPm
Revenue 1 15,824 15,574
Operating costs before exceptional items (14,524) (14,290)
Exceptional items 2 (79) -
1,221 1,284
Share of profit after tax from joint ventures and
associates 57 54
Profits less losses on disposal of non-current assets 4 6
------------------------------------------------------ ---- -------- --------
Operating profit 1,282 1,344
Adjusted operating profit 1 1,421 1,404
Profits less losses on disposal of non-current assets 4 6
Amortisation of non-operating intangibles (47) (41)
Acquired inventory fair value adjustments (15) (23)
Transaction costs (2) (2)
Exceptional items (79) -
------------------------------------------------------ ---- -------- --------
Profits less losses on sale and closure of businesses 6 (94) (34)
------------------------------------------------------ ---- -------- --------
Profit before interest 1,188 1,310
Finance income 15 15
Finance expense (42) (50)
Other financial income 12 4
------------------------------------------------------ ---- -------- --------
Profit before taxation 1,173 1,279
Adjusted profit before taxation 1,406 1,373
Profits less losses on disposal of non-current assets 4 6
Amortisation of non-operating intangibles (47) (41)
Acquired inventory fair value adjustments (15) (23)
Transaction costs (2) (2)
Exceptional items (79) -
Profits less losses on sale and closure of businesses (94) (34)
------------------------------------------------------ ---- -------- --------
Taxation - UK (excluding tax on exceptional items) (75) (105)
- UK (on exceptional items) 12 -
- Overseas (214) (152)
------------------------------------------------------ ---- -------- --------
3 (277) (257)
------------------------------------------------------ ---- -------- --------
Profit for the period 896 1,022
------------------------------------------------------ ---- -------- --------
Attributable to
Equity shareholders 878 1,007
Non-controlling interests 18 15
------------------------------------------------------ ---- -------- --------
Profit for the period 896 1,022
------------------------------------------------------ ---- -------- --------
Basic and diluted earnings per ordinary share (pence) 4 111.1 127.5
Dividends per share paid and proposed for the period
(pence) 5 46.35 45.0
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 52 weeks ended 14 September 2019
2019 2018
GBPm GBPm
Profit for the period recognised in the income statement 896 1,022
Other comprehensive income
Remeasurements of defined benefit schemes (407) 310
Deferred tax associated with defined benefit schemes 68 (53)
Current tax associated with defined benefit schemes 2 -
Items that will not be reclassified to profit or loss (337) 257
Effect of movements in foreign exchange 43 (85)
Net gain/(loss) on hedge of net investment in foreign
subsidiaries 3 (10)
Deferred tax associated with movements in foreign exchange - 1
Reclassification adjustment for movements in foreign
exchange on subsidiaries disposed (3) -
Movement in cash flow hedging position (29) 55
Deferred tax associated with movement in cash flow hedging
position 7 (12)
Share of other comprehensive income of joint ventures
and associates 4 -
Effect of hyperinflationary economies 38 -
Deferred tax associated with hyperinflationary economies (2) -
Items that are or may be subsequently reclassified to
profit or loss 61 (51)
Other comprehensive income for the period (276) 206
----------------------------------------------------------- ----- -----
Total comprehensive income for the period 620 1,228
----------------------------------------------------------- ----- -----
Attributable to
Equity shareholders 601 1,215
Non-controlling interests 19 13
----------------------------------------------------------- ----- -----
Total comprehensive income for the period 620 1,228
----------------------------------------------------------- ----- -----
CONSOLIDATED BALANCE SHEET
At 14 September 2019
2019 2018
GBPm GBPm
Non-current assets
Intangible assets 1,681 1,632
Property, plant and equipment 5,769 5,747
Investments in joint ventures 225 219
Investments in associates 50 47
Employee benefits assets 228 579
Deferred tax assets 160 133
Other receivables 51 50
-------------------------------------------------- ------- -------
Total non-current assets 8,164 8,407
-------------------------------------------------- ------- -------
Current assets
Assets classified as held for sale 43 -
Inventories 2,386 2,187
Biological assets 84 84
Trade and other receivables 1,436 1,436
Derivative assets 99 132
Current asset investments 29 30
Income tax 24 54
Cash and cash equivalents 1,495 1,362
-------------------------------------------------- ------- -------
Total current assets 5,596 5,285
-------------------------------------------------- ------- -------
Total assets 13,760 13,692
-------------------------------------------------- ------- -------
Current liabilities
Liabilities classified as held for sale (6) -
Loans and overdrafts (227) (419)
Trade and other payables (2,556) (2,529)
Derivative liabilities (52) (52)
Income tax (163) (160)
Provisions (64) (88)
-------------------------------------------------- ------- -------
Total current liabilities (3,068) (3,248)
-------------------------------------------------- ------- -------
Non-current liabilities
Loans (361) (359)
Other payables (271) (269)
Provisions (54) (52)
Deferred tax liabilities (261) (324)
Employee benefits liabilities (195) (144)
-------------------------------------------------- ------- -------
Total non-current liabilities (1,142) (1,148)
-------------------------------------------------- ------- -------
Total liabilities (4,210) (4,396)
-------------------------------------------------- ------- -------
Net assets 9,550 9,296
-------------------------------------------------- ------- -------
Equity
Issued capital 45 45
Other reserves 175 175
Translation reserve 409 363
Hedging reserve (9) 13
Retained earnings 8,832 8,615
-------------------------------------------------- ------- -------
Total equity attributable to equity shareholders 9,452 9,211
-------------------------------------------------- ------- -------
Non-controlling interests 98 85
-------------------------------------------------- ------- -------
Total equity 9,550 9,296
-------------------------------------------------- ------- -------
CONSOLIDATED CASH FLOW STATEMENT
For the 52 weeks ended 14 September 2019
2019 2018
GBPm GBPm
Cash flow from operating activities
Profit before taxation 1,173 1,279
Profits less losses on disposal of non-current
assets (4) (6)
Profits less losses on sale and closure of businesses 94 34
Transaction costs 2 2
Finance income (15) (15)
Finance expense 42 50
Other financial income (12) (4)
Share of profit after tax from joint ventures
and associates (57) (54)
Amortisation 68 65
Depreciation 544 509
Exceptional items 79 -
Acquired inventory fair value adjustments 15 23
Effect of hyperinflationary economies 6 -
Net change in the fair value of current biological
assets - 5
Share-based payment expense 22 19
Pension costs less contributions (10) 4
Increase in inventories (202) (35)
Decrease/(increase) in receivables 18 (99)
Increase/(decrease) in payables 44 (19)
Purchases less sales of current biological assets (1) (1)
Decrease in provisions (28) (30)
-------------------------------------------------------------- ----- -------
Cash generated from operations 1,778 1,727
Income taxes paid (269) (297)
-------------------------------------------------------------- ----- -------
Net cash from operating activities 1,509 1,430
-------------------------------------------------------------- ----- -------
Cash flows from investing activities
Dividends received from joint ventures and associates 52 42
Purchase of property, plant and equipment (680) (787)
Purchase of intangibles (57) (81)
Sale of property, plant and equipment 12 23
Purchase of subsidiaries, joint ventures and associates (84) (208)
Sale of subsidiaries, joint ventures and associates 6 1
Interest received 20 10
-------------------------------------------------------------- ----- -------
Net cash from investing activities (731) (1,000)
-------------------------------------------------------------- ----- -------
Cash flows from financing activities
Dividends paid to non-controlling interests (4) (4)
Dividends paid to equity shareholders (358) (327)
Interest paid (43) (50)
Decrease in short-term loans (263) (111)
Increase in long-term loans 2 19
Decrease/(increase) in current asset investments 1 (30)
Purchase of shares in subsidiary undertaking from
non-controlling interests (1) (1)
Sale of shares in subsidiary undertakings to non-controlling
interests - 1
Movements from changes in own shares held (25) (30)
-------------------------------------------------------------- ----- -------
Net cash from financing activities (691) (533)
-------------------------------------------------------------- ----- -------
Net increase/(decrease) in cash and cash equivalents 87 (103)
Cash and cash equivalents at the beginning of
the period 1,271 1,386
Effect of movements in foreign exchange - (12)
-------------------------------------------------------------- ----- -------
Cash and cash equivalents at the end of the period 1,358 1,271
-------------------------------------------------------------- ----- -------
CONSOLIDATED STATEMENT of changes in equity
For the 52 weeks ended 14 September 2019
Attributable to equity shareholders
============================================================
Non-
Issued Other Translation Hedging Retained controlling Total
capital reserves reserve reserve earnings Total interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance as at 16 September
2017 45 175 456 (31) 7,694 8,339 73 8,412
Total comprehensive income
Profit for the period
recognised
in the income statement - - - - 1,007 1,007 15 1,022
Remeasurements of defined
benefit
schemes - - - - 310 310 - 310
Deferred tax associated
with defined
benefit schemes - - - - (53) (53) - (53)
=========================== ==== ======== ========= =========== ======== ========= ===== ============ =======
Items that will not be
reclassified
to profit or loss - - - - 257 257 - 257
Effect of movements in
foreign
exchange - - (83) - - (83) (2) (85)
Net loss on hedge of net
investment
in foreign subsidiaries - - (10) - - (10) - (10)
Deferred tax associated
with movements
in foreign exchange - - 1 - - 1 - 1
Movement in cash flow
hedging
position - - (1) 56 - 55 - 55
Deferred tax associated
with movement
in cash flow hedging
position - - - (12) - (12) - (12)
=========================== ==== ======== ========= =========== ======== ========= ===== ============ =======
Items that are or may be
subsequently
reclassified to
profit or loss - - (93) 44 - (49) (2) (51)
=========================== ==== ======== ========= =========== ======== ========= ===== ============ =======
Other comprehensive income - - (93) 44 257 208 (2) 206
=========================== ==== ======== ========= =========== ======== ========= ===== ============ =======
Total comprehensive income - - (93) 44 1,264 1,215 13 1,228
=========================== ==== ======== ========= =========== ======== ========= ===== ============ =======
Transactions with owners
Dividends paid to equity
shareholders 5 - - - - (327) (327) - (327)
Net movement in own shares
held - - - - (11) (11) - (11)
Deferred tax associated
with share-based
payments - - - - (1) (1) - (1)
Dividends paid to
non-controlling
interests - - - - - - (5) (5)
Acquisition and disposal of
non-controlling
interests - - - - (4) (4) 4 -
=========================== ==== -------- --------- ----------- -------- --------- ----- ------------ -------
Total transactions with
owners - - - - (343) (343) (1) (344)
=========================== ==== -------- --------- ----------- -------- --------- ----- ------------ -------
Balance as at 15 September
2018 45 175 363 13 8,615 9,211 85 9,296
--------------------------- ---- -------- --------- ----------- -------- --------- ----- ------------ -------
Total comprehensive income
Profit for the period
recognised
in the income statement - - - - 878 878 18 896
Remeasurements of defined
benefit
schemes - - - - (407) (407) - (407)
Deferred tax associated
with defined
benefit schemes - - - - 68 68 - 68
Current tax associated with
defined
benefit schemes - - - - 2 2 - 2
Items that will not be
reclassified
to profit or loss - - - - (337) (337) - (337)
Effect of movements in
foreign
exchange - - 42 - - 42 1 43
Net gain on hedge of net
investment
in foreign subsidiaries - - 3 - - 3 - 3
Movements in foreign
exchange
on businesses disposed - - (3) - - (3) - (3)
Movement in cash flow
hedging
position - - - (29) - (29) - (29)
Deferred tax associated
with movement
in cash flow hedging
position - - - 7 - 7 - 7
Share of other
comprehensive income
of joint ventures and
associates - - 4 - - 4 - 4
Effect of hyperinflationary
economies - - - - 38 38 - 38
Deferred tax associated
with hyperinflationary
economy - - - - (2) (2) - (2)
Items that are or may be
subsequently
reclassified to
profit or loss - - 46 (22) 36 60 1 61
Other comprehensive income - - 46 (22) (301) (277) 1 (276)
--------------------------- ---- -------- --------- ----------- -------- --------- ----- ------------ -------
Total comprehensive income - - 46 (22) 577 601 19 620
--------------------------- ---- -------- --------- ----------- -------- --------- ----- ------------ -------
Transactions with owners
Dividends paid to equity
shareholders 5 - - - - (358) (358) - (358)
Net movement in own shares
held - - - - (3) (3) - (3)
Dividends paid to
non-controlling
interests - - - - - - (4) (4)
Acquisition and disposal of
non-controlling
interests - - - - 1 1 (2) (1)
--------------------------- ---- -------- --------- ----------- -------- --------- ----- ------------ -------
Total transactions with
owners - - - - (360) (360) (6) (366)
--------------------------- ---- -------- --------- ----------- -------- --------- ----- ------------ -------
Balance as at 14 September
2019 45 175 409 (9) 8,832 9,452 98 9,550
--------------------------- ---- -------- --------- ----------- -------- --------- ----- ------------ -------
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT
For the 52 weeks ended 14 September 2019
1. Operating segments
The group has five operating segments, as described below. These
are the group's operating divisions, based on the management and
internal reporting structure, which combine businesses with common
characteristics, primarily in respect of the type of products
offered by each business, but also the production processes
involved and the manner of the distribution and sale of goods. The
board is the chief operating decision-maker.
Inter-segment pricing is determined on an arm's length basis.
Segment result is adjusted operating profit, as shown on the face
of the consolidated income statement. Segment assets comprise all
non-current assets except employee benefits assets and deferred tax
assets, and all current assets except cash and cash equivalents,
current asset investments and income tax assets. Segment
liabilities comprise trade and other payables, derivative
liabilities and provisions.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. Unallocated items comprise mainly corporate
assets and expenses, cash, borrowings, employee benefits balances
and current and deferred tax balances. Segment non-current asset
additions are the total cost incurred during the period to acquire
segment assets that are expected to be used for more than one year,
comprising property, plant and equipment, operating intangibles and
biological assets. Businesses disposed are shown separately and
comparatives have been re-presented for businesses sold or closed
during the year.
The group is comprised of the following operating segments:
Grocery The manufacture of grocery products, including hot beverages,
sugar & sweeteners, vegetable oils, balsamic vinegars, bread
& baked goods, cereals, ethnic foods, and meat products, which
are sold to retail, wholesale and foodservice businesses.
Sugar The growing and processing of sugar beet and sugar cane for
sale to industrial users and to Silver Spoon, which is included
in the Grocery segment.
Agriculture The manufacture of animal feeds and the provision of other
products and services for the agriculture sector.
Ingredients The manufacture of bakers' yeast, bakery ingredients, enzymes,
lipids, yeast extracts and cereal specialities.
Retail Buying and merchandising value clothing and accessories through
the Primark and Penneys retail chains.
Geographical information
In addition to the required disclosure for operating segments,
disclosure is also given of certain geographical information
about
the group's operations, based on the geographical groupings:
United Kingdom; Europe & Africa; The Americas; and Asia
Pacific.
Revenues are shown by reference to the geographical location of
customers. Profits are shown by reference to the geographical
location of the businesses. Segment assets are based on the
geographical location of the assets.
Adjusted
Revenue operating profit
-------------- -------------------
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
Operating segments
Grocery 3,521 3,420 380 335
Sugar 1,608 1,730 26 123
Agriculture 1,385 1,350 42 59
Ingredients 1,515 1,459 136 143
Retail 7,792 7,477 913 843
Central - - (76) (64)
------------------------- ------ ------ --------- --------
15,821 15,436 1,421 1,439
Businesses disposed:
Sugar - 128 - (34)
Agriculture - 1 - (1)
Ingredients 3 9 - -
========================= ====== ====== ========= ========
15,824 15,574 1,421 1,404
------------------------- ------ ------ --------- --------
Geographical information
United Kingdom 5,971 5,863 476 557
Europe & Africa 5,992 5,851 589 528
The Americas 1,609 1,525 237 206
Asia Pacific 2,249 2,197 119 148
------------------------- ------ ------ --------- --------
15,821 15,436 1,421 1,439
Businesses disposed:
United Kingdom - 66 - (34)
Europe & Africa - 62 - -
The Americas 3 9 - -
Asia Pacific - 1 - (1)
========================= ====== ====== ========= ========
15,824 15,574 1,421 1,404
------------------------- ------ ------ --------- --------
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
1. Operating segments for the 52 weeks ended 14 September
2019
Grocery Sugar Agriculture Ingredients Retail Central Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue from continuing businesses 3,525 1,667 1,388 1,690 7,792 (241) 15,821
Internal revenue (4) (59) (3) (175) - 241 -
--------------------------------------- ----- ----- ----------- ----------- ------- ------- -------
External revenue from continuing
businesses 3,521 1,608 1,385 1,515 7,792 - 15,821
Businesses disposed - - - 3 - - 3
--------------------------------------- ----- ----- ----------- ----------- ------- ------- -------
Revenue from external customers 3,521 1,608 1,385 1,518 7,792 - 15,824
--------------------------------------- ----- ----- ----------- ----------- ------- ------- -------
Adjusted operating profit before
joint ventures and associates 347 26 30 122 913 (76) 1,362
Share of profit after tax from
joint ventures and associates 33 - 12 14 - - 59
Adjusted operating profit 380 26 42 136 913 (76) 1,421
Profits less losses on disposal
of non-current assets 3 - 1 - - - 4
Amortisation of non-operating
intangibles (40) - (2) (5) - - (47)
Acquired inventory fair value
adjustments (15) - - - - - (15)
Transaction costs (1) - - (1) - - (2)
Exceptional items (65) - - - - (14) (79)
Profits less losses on sale and
closure of businesses 4 - (3) (95) - - (94)
--------------------------------------- ----- ----- ----------- ----------- ------- ------- -------
Profit before interest 266 26 38 35 913 (90) 1,188
Finance income 15 15
Finance expense (42) (42)
Other financial income 12 12
Taxation (277) (277)
--------------------------------------- ----- ----- ----------- ----------- ------- ------- -------
Profit for the period 266 26 38 35 913 (382) 896
--------------------------------------- ----- ----- ----------- ----------- ------- ------- -------
Segment assets (excluding joint
ventures and associates) 2,732 2,083 408 1,422 4,775 129 11,549
Investments in joint ventures
and associates 45 26 135 69 - - 275
----------------------------------- --------- ----- ----------- ----------- ------- ------- -------
Segment assets 2,777 2,109 543 1,491 4,775 129 11,824
Cash and cash equivalents 1,495 1,495
Current asset investments 29 29
Income tax 24 24
Deferred tax assets 160 160
Employee benefits assets 228 228
Segment liabilities (540) (388) (137) (278) (1,476) (184) (3,003)
Loans and overdrafts (588) (588)
Income tax (163) (163)
Deferred tax liabilities (261) (261)
Employee benefits liabilities (195) (195)
----------------------------------- --------- ----- ----------- ----------- ------- ------- -------
Net assets 2,237 1,721 406 1,213 3,299 674 9,550
----------------------------------- --------- ----- ----------- ----------- ------- ------- -------
Non-current asset additions 132 98 14 93 382 13 732
----------------------------------- --------- ----- ----------- ----------- ------- ------- -------
Depreciation (96) (79) (12) (51) (303) (3) (544)
----------------------------------- --------- ----- ----------- ----------- ------- ------- -------
Amortisation (53) (2) (3) (7) (2) (1) (68)
----------------------------------- --------- ----- ----------- ----------- ------- ------- -------
Impairment of goodwill on sale
and closure of businesses - - (3) (56) - - (59)
----------------------------------- --------- ----- ----------- ----------- ------- ------- -------
Impairment of property, plant
and equipment on sale and closure
of businesses - - - (32) - - (32)
----------------------------------- --------- ----- ----------- ----------- ------- ------- -------
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
1. Operating segments for the 52 weeks ended 14 September 2019
continued
United Europe The Asia
Kingdom & Africa Americas Pacific Total
Geographical information GBPm GBPm GBPm GBPm GBPm
Revenue from external customers 5,971 5,992 1,612 2,249 15,824
--------------------------------------------------- ------ --------- --------- -------- ------
Segment assets 4,406 4,842 1,194 1,382 11,824
--------------------------------------------------- ------ --------- --------- -------- ------
Non-current asset additions 255 345 57 75 732
--------------------------------------------------- ------ --------- --------- -------- ------
Depreciation (191) (247) (45) (61) (544)
--------------------------------------------------- ------ --------- --------- -------- ------
Amortisation (41) (16) (4) (7) (68)
--------------------------------------------------- ------ --------- --------- -------- ------
Acquired inventory fair value adjustments - (15) - - (15)
--------------------------------------------------- ------ --------- --------- -------- ------
Impairment of goodwill on sale and
closure of businesses (3) - - (56) (59)
--------------------------------------------------- ------ --------- --------- -------- ------
Impairment of property, plant and
equipment on sale and closure of businesses - - - (32) (32)
--------------------------------------------------- ------ --------- --------- -------- ------
Transaction costs - (1) (1) - (2)
--------------------------------------------------- ------ --------- --------- -------- ------
Exceptional items (79) - - - (79)
--------------------------------------------------- ------ --------- --------- -------- ------
Segment disclosures given above are stated before
reclassification of assets and liabilities classified as held for
sale.
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
1. Operating segments for the 52 weeks ended 15 September
2018
Grocery Sugar Agriculture Ingredients Retail Central Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue from continuing businesses 3,423 1,821 1,354 1,640 7,477 (279) 15,436
Internal revenue (3) (91) (4) (181) - 279 -
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
External revenue from continuing
businesses 3,420 1,730 1,350 1,459 7,477 - 15,436
Businesses disposed - 128 1 9 - - 138
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
Revenue from external customers 3,420 1,858 1,351 1,468 7,477 - 15,574
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
Adjusted operating profit before
joint ventures and associates 306 121 47 129 843 (64) 1,382
Share of profit after tax from
joint ventures and associates 29 2 12 14 - - 57
Businesses disposed - (34) (1) - - - (35)
Adjusted operating profit 335 89 58 143 843 (64) 1,404
Profits less losses on disposal
of non-current assets 4 2 - - - - 6
Amortisation of non-operating
intangibles (36) - (1) (4) - - (41)
Acquired inventory fair value
adjustments (23) - - - - - (23)
Transaction costs (1) - - (1) - - (2)
Profits less losses on sale and
closure of businesses - (11) 1 (2) - (22) (34)
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
Profit before interest 279 80 58 136 843 (86) 1,310
Finance income 15 15
Finance expense (50) (50)
Other financial income 4 4
Taxation (257) (257)
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
Profit for the period 279 80 58 136 843 (374) 1,022
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
Segment assets (excluding joint
ventures and associates) 2,702 2,090 414 1,396 4,556 110 11,268
Investments in joint ventures
and associates 41 25 134 66 - - 266
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
Segment assets 2,743 2,115 548 1,462 4,556 110 11,534
Cash and cash equivalents 1,362 1,362
Current asset investments 30 30
Income tax 54 54
Deferred tax assets 133 133
Employee benefits assets 579 579
Segment liabilities (530) (429) (140) (275) (1,382) (234) (2,990)
Loans and overdrafts (778) (778)
Income tax (160) (160)
Deferred tax liabilities (324) (324)
Employee benefits liabilities (144) (144)
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
Net assets 2,213 1,686 408 1,187 3,174 628 9,296
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
Non-current asset additions 148 141 19 63 533 12 916
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
Depreciation (99) (81) (13) (49) (264) (3) (509)
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
Amortisation (48) (4) (1) (6) (5) (1) (65)
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
Impairment of property, plant
and equipment on sale and closure
of businesses - (14) - - - - (14)
----------------------------------- ------- ----------- ----------- ----------- ------- ------- ------------
United Europe The Asia
Kingdom & Africa Americas Pacific Total
Geographical information GBPm GBPm GBPm GBPm GBPm
Revenue from external customers 5,929 5,913 1,534 2,198 15,574
----------------------------------------------- ---- -------- --------- --------- -------- ------
Segment assets 4,460 4,610 1,079 1,385 11,534
----------------------------------------------- ---- -------- --------- --------- -------- ------
Non-current asset additions 418 375 57 66 916
----------------------------------------------- ---- -------- --------- --------- -------- ------
Depreciation (204) (202) (43) (60) (509)
----------------------------------------------- ---- -------- --------- --------- -------- ------
Amortisation (36) (17) (6) (6) (65)
----------------------------------------------- ---- -------- --------- --------- -------- ------
Acquired inventory fair value adjustments - (23) - - (23)
----------------------------------------------- ---- -------- --------- --------- -------- ------
Impairment of property, plant and equipment
on sale and closure of businesses (14) - - - (14)
----------------------------------------------- ---- -------- --------- --------- -------- ------
Transaction costs (1) - - (1) (2)
----------------------------------------------- ---- -------- --------- --------- -------- ------
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
2. Exceptional items
Guaranteed Minimum Pensions
The Guaranteed Minimum Pension (GMP) is the minimum pension
which a UK occupational pension scheme must provide for those
employees who were contracted out of the State Earnings-Related
Pensions Scheme between 6 April 1978 and 5 April 1997.
On 26 October 2018, the High Court of Justice of England and
Wales ruled that GMPs must be equalised in respect of retirement
ages for men and women for all pensionable service after 17 May
1990. This affects the group's UK defined benefit scheme and the
ruling set out a number of methodologies that could be used to
calculate the impact. The group has adopted method C2 to identify
its best estimate of the additional liabilities. These are charged
as a past service cost in the income statement with subsequent
changes accounted for in other comprehensive income. The past
service cost is treated as an exceptional item since the
liabilities relate to employee service between 1990 and 1997 and
they have no link to current business performance.
The increase in liabilities is estimated at GBP14m, assessed
using market conditions at the date of the ruling as required by
IAS 19.
Impairment
In the 2018 Annual Report, it was noted that low bread prices
and strong continuing competition in the UK bakery market had led
to an operating loss at Allied Bakeries and the consequent need for
an assessment of impairment. Headroom at that time was GBP113m on a
cash-generating unit (CGU) carrying value of GBP243m.
In December 2018, subsequent to the publication of the 2018
Annual Report, Allied Bakeries received notice of the termination
of its largest private label manufacturing contract. This is
expected to result in a significant reduction in bread volumes from
late in the 2019 calendar year, with limited opportunity to
mitigate this volume loss in the short term.
As set out in previous annual reports, the board has been
concerned about the worsening trend in the performance of Allied
Bakeries and the difficulty in recovering cost increases in a
highly competitive market. In light of the termination of the
private label contract mentioned above, management is considering
courses of action to return the business to profitability.
Of the methodologies available to calculate the impairment, the
group has applied the "fair value less costs of disposal" approach
to identify its best estimate of the impairment. The key
assumptions used in this assessment are similar to those in
previous year end impairment assessments - bread volumes, bread
prices and long-term growth in the market, as well as logistical
and other savings from restructuring. The discount rate used was
10.9%.
This assessment resulted in a shortfall of GBP65m compared to
the CGU carrying value at the time of the assessment of GBP243m. A
charge for this has been included as an exceptional item in the
income statement and has been allocated to the property, plant and
equipment of the business. There is no goodwill associated with
Allied Bakeries.
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
3. Income tax expense
52 weeks 52 weeks
ended ended
14 September 15 September
2019 2018
GBPm GBPm
Current tax expense
UK - corporation tax at 19% (2018 - 19%) 80 82
Overseas - corporation tax 229 200
UK - (over)/under provided in prior periods (5) 8
Overseas - over provided in prior periods (1) (28)
============================================================= ============= =============
303 262
Deferred tax expense
UK deferred tax (7) -
Overseas deferred tax (11) (19)
UK - (over)/under provided in prior periods (5) 15
Overseas - over provided in prior periods (3) (1)
============================================================= ============= =============
(26) (5)
============================================================= ============= =============
Total income tax expense in income statement 277 257
============================================================= ============= =============
Reconciliation of effective tax rate
Profit before taxation 1,173 1,279
Less share of profit after tax from joint ventures and
associates (57) (54)
============================================================= ============= =============
Profit before taxation excluding share of profit after
tax from joint ventures and associates 1,116 1,225
============================================================= ============= =============
Nominal tax charge at UK corporation tax rate of 19%
(2018 - 19%) 212 233
Effect of higher and lower tax rates on overseas earnings 14 29
Effect of changes in tax rates on income statement (1) (16)
Expenses not deductible for tax purposes 37 33
Disposal of assets covered by tax exemptions or unrecognised
capital losses 17 (15)
Deferred tax not recognised 12 (1)
Adjustments in respect of prior periods (14) (6)
============================================================= ============= =============
277 257
============================================================= ============= =============
Income tax recognised directly in equity
Deferred tax associated with defined benefit schemes (68) 53
Current tax associated with defined benefit schemes (2) -
Deferred tax associated with share-based payments - 1
Deferred tax associated with movement in cash flow hedging
position (7) 12
Deferred tax associated with movements in foreign exchange - (1)
Deferred tax associated with hyperinflationary economies 2 -
============================================================= ============= =============
(75) 65
============================================================= ============= =============
The UK corporation tax rate of 19% (2018 - 19%) will be reduced
to 17% effective from 1 April 2020. The legislation to effect these
rate changes had been enacted before the balance sheet date.
Accordingly, UK deferred tax has been calculated using these rates
as appropriate.
In April 2019 the European Commission published its decision on
the Group Financing Exemption in the UK's controlled foreign
company legislation. The Commission found that the UK law did not
comply with EU State Aid rules in certain circumstances. The group
has arrangements that may be impacted by this decision as might
other UK-based multinational groups that had financing arrangements
in line with the UK's legislation in force at the time. The UK
Government has lodged an appeal against this decision. We have
calculated our maximum potential liability to be GBP26m however we
do not consider that any provision is required in respect of this
amount based on our current assessment of the issue. We will
continue to consider the impact of the Commission's decision on the
group and the potential requirement to record a provision.
4. Earnings per share
The calculation of basic earnings per share at 14 September 2019
was based on the net profit attributable to equity shareholders
of GBP878m (2018 - GBP1,007m), and a weighted average number of
shares outstanding during the year of 790 million (2018 - 790
million). The calculation of the weighted average number of shares
excludes the shares held by the Employee Share Ownership Plan Trust
on which the dividends are being waived.
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
4. Earnings per share (continued)
Adjusted earnings per ordinary share, which exclude the impact
of profits less losses on disposal of non-current assets and the
sale and closure of businesses, amortisation of acquired inventory
fair value adjustments, transaction costs, amortisation of
non-operating intangibles, exceptional items and any 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 incentives. The diluted, weighted
average number of shares is 790 million (2018 - 790 million). There
is no difference between basic and diluted earnings.
52 weeks 52 weeks
ended ended
14 September 15 September
2019 2018
pence pence
Adjusted earnings per share 137.5 134.9
Disposal of non-current assets 0.5 0.8
Sale and closure of businesses (11.9) (4.3)
Acquired inventory fair value adjustments (1.9) (2.9)
Transaction costs (0.3) (0.3)
Exceptional items (10.0) -
Tax effect on above adjustments 1.9 0.8
Amortisation of non-operating intangibles (6.0) (5.2)
Tax credit on non-operating intangibles amortisation
and goodwill 1.3 3.7
Earnings per ordinary share 111.1 127.5
===================================================== ============= =============
5. Dividends
2019 2018
pence pence 2019 2018
per share per share GBPm GBPm
2017 final - 29.65 - 234
2018 interim - 11.70 - 93
2018 final 33.30 - 263 -
2019 interim 12.05 - 95 -
============= ========== ========== ===== =====
45.35 41.35 358 327
============= ========== ========== ===== =====
The 2019 interim dividend was declared on 24 April 2019 and paid
on 5 July 2019. The 2019 final dividend of 34.3p, total value of
GBP271m, will be paid on 10 January 2020 to shareholders on the
register on 13 December 2019.
Dividends relating to the period were 46.35p per share totalling
GBP366m (2018 - 45.0p per share totalling GBP356m).
6. Acquisitions and disposals
Acquisitions
2019
On 17 September 2018 the group's Grocery business completed the
acquisition of 100% of Yumi's Quality Foods, a chilled food
manufacturer in Australia, and on 6 September the Grocery business
completed the acquisition of Anthony's Goods, a California-based
blender and online marketer of speciality baking ingredients. These
acquisitions will continue to develop our presence in the faster
growing segments of the grocery market. The group also acquired a
small manufacturer of piglet starter feed in Poland as part of the
Agriculture business and as part of the Ingredients business,
acquired Italmill, an Italian bakery ingredients producer.
The acquisitions had the following effect on the group's assets
and liabilities:
Pre-acquisition Recognised
carrying values on
values acquisition
GBPm GBPm
Net assets
Intangible assets - 56
Property, plant and equipment 20 20
Other receivables (non-current) 2 2
Inventories 7 7
Trade and other receivables 14 14
Cash and cash equivalents 2 2
Trade and other payables (11) (11)
Loans (15) (15)
Taxation (1) (8)
Employee benefit liabilities (1) (1)
----------------------------------------------------- ------------------- --------------
Net identifiable assets and liabilities 17 66
Goodwill 30
Total consideration 96
===================================================== ========== ============ =========
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
6. Acquisitions and disposals (continued)
Recognised
values
on acquisition
GBPm
Satisfied by
Cash consideration 85
Deferred consideration 11
--------------------------------------------------------------- ---------------
96
--------------------------------------------------------------- ---------------
Net cash
Cash consideration 85
Cash and cash equivalents acquired (2)
Deferred consideration paid in respect of previous acquisition 1
--------------------------------------------------------------- ---------------
84
--------------------------------------------------------------- ---------------
Pre-acquisition carrying amounts were the same as recognised
values on acquisition apart from GBP56m of non-operating intangible
assets in respect of brands and customer relationships, which were
recognised together with related deferred tax of GBP7m. The cash
outflow of GBP84m on the purchase of subsidiaries, joint ventures
and associates in the cash flow statement comprises cash
consideration of GBP85m for these acquisitions less cash acquired
with the businesses of GBP2m and GBP1m payment of deferred
consideration in respect of prior year acquisitions.
The acquisitions have contributed aggregate revenues of GBP42m
and operating profit of GBP4m to the group's result for the period
from the date of acquisition to 14 September 2019.
2018
On 12 October 2017, the group's Grocery business completed the
acquisition of 100% of Acetum S.p.A, the leading Italian producer
of Balsamic Vinegar of Modena for a net consideration of GBP284m
including debt assumed of GBP89m and deferred consideration of
GBP2m. The group also acquired a small aerial survey and
informatics company as part of the UK Agriculture business, and as
part of the UK Ingredients business, acquired Holgran, a supplier
of malted grains, and Fleming Howden, an Edinburgh-based blender
and distributor of bakery ingredients. These acquisitions
contributed revenue of GBP83m and operating profit of GBP11m to the
group's results for the period from date of acquisition to 15
September 2018.
Recognised values on
acquisition
------------------------
Pre-acquisition
carrying Acetum
values GBPm Other Total
GBPm GBPm GBPm
Net assets
Intangible assets - 95 10 105
Property, plant and equipment 41 42 1 43
Inventories 28 95 2 97
Trade and other receivables 28 23 5 28
Cash and cash equivalents 11 11 -- 11
Trade and other payables (31) (26) (5) (31)
Loans (89) (89) - (89)
Taxation 6 (40) (2) (42)
---------------------------------------- --------------- --------- ------ -----
Net identifiable assets and liabilities (6) 111 11 122
Goodwill 95 5 100
Total consideration 206 16 222
======================================== =============== ========= ====== =====
Satisfied by
Cash consideration 218
Deferred consideration 4
======================================== =============== ========= ====== =====
222
======================================== =============== ========= ====== =====
Net cash
Cash consideration 218
Cash and cash equivalents acquired (11)
Deferred consideration paid 1
======================================== =============== ========= ====== =====
208
======================================== =============== ========= ====== =====
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
6. Acquisitions and disposals (continued)
Pre-acquisition carrying amounts were the same as recognised
values on acquisition apart from GBP105m of non-operating
intangible assets in respect of brands and customer relationships,
a GBP69m upward fair value adjustment on inventories and a GBP2m
upward revaluation of land and buildings, which were recognised
together with related deferred tax of GBP48m. The cash outflow of
GBP208m on the purchase of subsidiaries, joint ventures and
associates in the cash flow statement comprises cash consideration
of GBP218m for these acquisitions less cash acquired with the
businesses of GBP11m and GBP1m payment of deferred consideration in
respect of prior year acquisitions.
Disposals
2019
In the current year the group disposed of its torula facility
and associated torula whole cell business in Hutchinson, Minnesota,
reported within the US and Ingredients segments. Cash proceeds
amounted to GBP5m, net assets disposed were GBP5m and the
associated goodwill was GBP8m. Provisions for transaction and
associated restructuring costs were GBP2m, with a gain of GBP3m on
recycling foreign exchange differences. The pre-tax loss on
disposal was GBP7m.
In August we signed an agreement to form a yeast and bakery
ingredients joint venture in China with Wilmar International, with
completion subject to regulatory approval. The joint venture will
see us build a major new low-cost yeast plant in the north east of
China and will combine AB Mauri's existing commercial activities
and technical expertise in China with Wilmar's extensive sales and
distribution capability. As a consequence, a non-cash impairment
charge of GBP88m has been included in the loss on closure of
businesses, comprising GBP56m of goodwill and GBP32m of property,
plant and equipment.
GBP4m of warranty and restructuring provisions relating to
disposals made in previous years are no longer required and were
released to sale and closure of business during the year in Grocery
(The Americas). In the Agriculture segment, goodwill with a
carrying value of GBP3m was written off on sale and closure of a
small business in the UK.
2018
In October 2018 the group shut down operations at Vivergo, AB
Sugar's bioethanol plant in Hull. A charge of GBP51m was included
for this in the loss on closure of businesses line in the income
statement. The group also completed the buy-out of the remaining
5.5% minority interest in Vivergo. This resulted in the recognition
of a gain of GBP23m (in the Sugar and UK segments) arising from the
extinguishment of the associated shareholder loan and interest,
which was recognised in sale and closure of businesses in line with
the original transaction in 2015.
GBP18m of warranty and restructuring provisions relating to
disposals made in previous years were no longer required and were
released to sale and closure of business. These comprised GBP17m in
Sugar (Asia Pacific) and GBP1m in Ingredients (Europe &
Africa).
The group also charged a GBP24m onerous lease provision to sale
and closure of business (in the Central and UK segments) against
rental guarantees given on property leases assigned to third
parties that the group expects to be required to honour.
7. Analysis of net cash
At At
15 September Non-cash Exchange 14 September
2018 Cash flow Acquisitions items adjustments 2019
GBPm GBPm GBPm GBPm GBPm GBPm
Cash at bank and in hand,
cash
equivalents and overdrafts 1,271 87 - - - 1,358
Current asset investments 30 (1) - - - 29
Short-term loans (328) 263 (15) (10) - (90)
Long-term loans (359) (2) - 10 (10) (361)
============================ ============= ========= ============ ======== ============ =============
614 347 (15) - (10) 936
============================ ============= ========= ============ ======== ============ =============
8. Related party transactions
The group has a controlling shareholder relationship with its
parent company, Wittington Investments Limited, with the trustees
of the Garfield Weston Foundation and with certain other
individuals who hold shares in the Company. The group has a related
party relationship with its associates and joint ventures and with
its directors. In the course of normal operations, related party
transactions entered into by the group have been contracted on an
arm's length basis.
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
8. Related party transactions (continued)
Material transactions and year end balances with related parties
were as follows:
Sub 2019 2018
note GBP000 GBP000
Charges to Wittington Investments Limited in respect of services
provided by the Company and
its subsidiary undertakings 1,143 1,045
Dividends paid by Associated British Foods and received in
a beneficial capacity by:
(i) trustees of the Garfield Weston Foundation and their close
family 1 12,083 11,685
(ii) directors of Wittington Investments Limited who are not
trustees of the Foundation and their
close family 5,941 3,071
(iii) directors of the Company who are not trustees of the
Foundation and are not directors of Wittington Investments
Limited 82 62
Sales to fellow subsidiary undertakings on normal trading
terms 2 75 48
Sales to companies with common key management personnel on
normal trading terms 3 16,014 16,043
Commissions paid to companies with common key management personnel
on normal trading terms 3 1,103 1,215
Amounts due from companies with common key management personnel 3 1,880 1,887
Sales to joint ventures on normal trading terms 12,744 14,186
Sales to associates on normal trading terms 31,174 39,822
Purchases from joint ventures on normal trading terms 380,176 395,279
Purchases from associates on normal trading terms 15,739 14,577
Amounts due from joint ventures 46,102 48,775
Amounts due from associates 2,620 3,771
Amounts due to joint ventures 27,962 40,715
Amounts due to associates 1,282 857
=================================================================== ===== ======= =======
1. The Garfield Weston Foundation ('the Foundation') is an
English charitable trust, established in 1958 by the late W.
Garfield Weston. The Foundation has no direct interest in the
Company, but as at 14 September 2019 was the beneficial owner of
683,073 shares (2018 - 683,073 shares) in Wittington Investments
Limited representing 79.2% (2018 - 79.2%) of that company's issued
share capital and is, therefore, the Company's ultimate controlling
party. At 14 September 2019 trustees of the Foundation comprised
four grandchildren of the late W. Garfield Weston and five children
of the late Garry H. Weston.
2. The fellow subsidiary undertakings are Fortnum and Mason plc and Heal & Son Limited.
3. The companies with common key management personnel are the
George Weston Limited group, in Canada, and Selfridges & Co.
Limited.
Amounts due from joint ventures include GBP44m (2018 - GBP47m)
of finance lease receivables. The remainder of the balance is
trading balances. All but GBP5m (2018 - GBP5m) of the finance lease
receivables are non-current.
9. Other information
The financial information set out above does not constitute the
Company's statutory accounts for the 52 weeks ended 14 September
2019, or the 52 weeks ended 15 September 2018. Statutory accounts
for 2018 have been delivered to the Registrar of Companies and
those for 2019 will be delivered following the Company's annual
general meeting. The auditors have reported on those accounts.
Their reports were (i) unqualified, (ii) did not include references
to any matters to which the auditors drew attention by way of
emphasis without qualifying their reports and (iii) did not contain
a statement under section 498(2) or (3) of the Companies Act 2006
in respect of the accounts.
10. Basis of preparation
Associated British Foods plc ('the Company') is a company
domiciled in the United Kingdom. The consolidated financial
statements of the Company for the 52 weeks ended 14 September 2019
(2018 - 52 weeks ended 15 September 2018) comprise those of the
Company and its subsidiaries (together referred to as 'the group')
and the group's interests in joint ventures and associates.
The consolidated financial statements were authorised for issue
by the directors on 5 November 2019.
The consolidated financial statements have been prepared and
approved by the directors in accordance with International
Financial Reporting Standards as adopted by the EU ('Adopted
IFRS'). Under adopted IFRS, management is required to make
judgements, estimates and assumptions about the reported amounts of
assets and liabilities, income and expense and the disclosure of
contingent assets and liabilities. The estimates and associated
assumptions are based on experience. Actual results may differ from
these estimates. The estimates and underlying assumptions are
reviewed on a regular basis. Revisions to accounting estimates are
recognised from the period in which the estimates are revised.
The consolidated financial statements are presented in sterling,
rounded to the nearest million. They are prepared on the historical
cost basis except that current biological assets and certain
financial instruments are stated at fair value. Assets classified
as held for sale are stated at the lower of carrying amount and
fair value less costs to sell.
The consolidated financial statements of the group are prepared
to the Saturday nearest to 15 September. Accordingly, these
financial statements have been prepared for the 52 weeks ended 14
September 2019. To avoid delay in the preparation of the
consolidated financial statements, the results of certain
subsidiaries, joint ventures and associates are included up to 31
August 2019. Adjustments are made as appropriate for signicant
transactions or events occurring between 14 September and these
other balance sheet dates.
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
11. New accounting policies
The following accounting standards and amendments were adopted
during the year and had no significant impact on the group other
than IFRS 9 Financial Instruments and IFRS 15 Revenue from
Contracts with Customers:
-- IFRIC 22 Foreign Currency Transactions and Advance Consideration
-- Amendments to IFRS 2 Classification and Measurement of Share-based
Payment Transactions
-- Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with
IFRS 4 Insurance Contracts
-- Annual Improvements to IFRS 2014 - 2016
IFRS 9 Financial Instruments: Classification and Measurement
IFRS 9 replaces IAS 39 Financial Instruments: Recognition and
Measurement. It includes requirements for recognition and
measurement, impairment, derecognition and general hedge
accounting. The standard introduces changes to three key areas:
-- new requirements for the classification and measurement of financial
instruments;
-- a new impairment model based on expected credit losses for recognising
provisions (compared to IAS 39, which used an incurred loss model);
and
-- simplified hedge accounting through closer alignment with an entity's
risk management methodology.
Financial assets are classified using a principles-based
approach in three measurement categories: amortised cost, fair
value through other comprehensive income or fair value through
profit or loss. Classification is performed on initial recognition
of the asset based on the characteristics of the asset and the
local business model. The vast majority of the group's financial
assets were previously recorded at amortised cost and this
continues to be the case.
For financial liabilities, there are no significant
classification and measurement changes compared to IAS 39.
The new principles for hedge accounting provide a more flexible
framework which is better aligned with the economic decision-making
of the group. This will result in the group being able to achieve
hedge accounting in the future on a wider range of transactions
than was possible under IAS 39. The IAS 39 effectiveness test has
been replaced with the 'economic relationship' principle.
Retrospective assessment of hedge effectiveness is no longer
necessary. IFRS 9 also requires additional disclosures concerning
risk management and the effects of hedge accounting.
The group previously completed a groupwide impact assessment
across these three key areas, supported by external resource,
involving each of the group's businesses. As a result of this
assessment, the group concluded that the adoption of IFRS 9 would
not have a significant impact on either the group's results or
financial position.
IFRS 9 applies retrospectively, but with substantial transition
provisions, including not being required to restate comparative
information. The group adopted IFRS 9 on 16 September 2018 and has
applied it for the first time in the 2019 financial year, without
restating comparative information. No cumulative adjustment to
recognise the impact of applying IFRS 9 as at 16 September 2018 was
required.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a principles-based approach to recognising
revenue only when performance obligations are satisfied and control
of the related goods or services is transferred. It addresses items
such as the nature, amount, timing and uncertainty of revenue and
cash flows arising from contracts with customers. IFRS 15 replaces
IAS 18 Revenue and other related requirements.
IFRS 15 applies a five-step approach to the timing of revenue
recognition and applies to all contracts with customers except
those in the scope of other standards.
Step 1 Identify the contract(s) with a customer
Step 2 Identify the performance obligations in the contract
Step 3 Determine the transaction price
Step 4 Allocate the transaction price to the performance
obligations in the contract
Step 5 Recognise revenue when (or as) the entity satisfies a
performance obligation
The group previously completed a groupwide impact assessment,
utilising external resource to support local management where
necessary. The assessment included areas that required additional
specific consideration, including rights of return and principal vs
agent considerations. The group's revenue recognition processes are
generally straightforward, with recognition of revenue at the point
of sale and little significant judgement required in determining
the timing of transfer of control.
The impact assessment concluded that IFRS 15 would result in no
change to the timing of revenue or the timing or amount of profit
recognised. The only impact on the amount of revenue recognised was
GBP31m of operating expenses in the prior year which under IFRS 15
are now deducted from revenue.
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
11. New accounting policies (continued)
The group adopted IFRS 15 on 16 September 2018 and has applied
it for the first time in the 2019 financial year. IFRS 15 was
adopted retrospectively without the requirement to restate
comparative information. IFRS 15 had no impact on the group's
reported profits. No cumulative adjustment to recognise the impact
of applying IFRS 15 as at 16 September 2018 was required.
The group is assessing the impact of the following standards,
interpretations and amendments that are not yet effective. Where
already endorsed by the EU, these changes will be adopted on the
effective dates noted. Where not yet endorsed by the EU, the
adoption date is less certain:
-- IFRS 16 Leases effective 2020 financial year
-- IFRS 17 Insurance Contracts effective 2022 financial year (not
yet endorsed by the EU)
-- IFRIC 23 Uncertainty over Income Tax Treatments effective 2020
financial year
-- Amendments to IFRS 3 Definition of a Business effective 2021 financial
year (not yet endorsed by the EU)
-- Amendments to IFRS 9 Prepayment Features with Negative Compensation
effective 2020 financial year
-- Amendments to IAS 1 and IAS 8 Definition of Material effective
2021 financial year (not yet endorsed by the EU)
-- Amendments to IAS 19 Plan Amendment, Curtailment or Settlement
effective 2020 financial year
-- Amendments to IAS 28 Long-term Interests in Associates and Joint
Ventures effective 2020 financial year
-- Amendments to References to the Conceptual Framework in IFRS Standards
effective 2021 financial year (not yet endorsed by the EU)
-- Annual Improvements to IFRS Standards 2015 - 2017 effective 2020
financial year
The new standard with the most significant effect on the group's
financial statements is IFRS 16, further details of which are set
out below. The impact of the other standards effective in 2020 and
beyond have not yet been fully assessed.
IFRS 16 Leases
IFRS 16 introduces a new model for the identification of leases
and accounting for lessors and lessees. It replaces IAS 17 Leases
and other related requirements. The group adopted IFRS 16 on 15
September 2019 and will apply it for the first time in the 2020
financial year.
IFRS 16 distinguishes leases from service contracts on the basis
of control of an identified asset. For lessees, it removes the
previous accounting distinction between (off-balance sheet)
operating leases and (on-balance sheet) finance leases and
introduces a single model recognising a lease liability and
corresponding right-of-use asset for all leases except for
short-term leases and leases of low-value assets.
For lessors, IFRS 16 substantially retains existing accounting
requirements and continues to require classification of leases
either as operating or finance in nature.
The group engaged external experts to support its implementation
project and established a steering committee to oversee its
governance, which reported to the Audit committee. During the
current period, the group largely completed its implementation
project.
IFRS 16 permits a choice of transitional approaches: a fully
retrospective approach with an adjustment made to the opening
retained earnings of the comparative period; or a modified
retrospective approach where the cumulative effect of initial
application is recognised at the date of initial application
without restating prior periods.
The age, size and complexity of the group's lease portfolio
means that it would either be impossible or extremely costly and
difficult to collate sufficient information to apply the fully
retrospective approach. The group has therefore determined to adopt
the modified retrospective approach.
The first results published under IFRS 16 will be the 2020
interim results.
Impact on the group's results and financial position
The impact of IFRS 16 on the group's results and financial
position is significant.
Lease liabilities are measured initially at the present value of
lease payments yet to be paid, subsequently adjusted for interest
and lease payments as well as a number of other changes to lease
provisions. Lease liabilities are included in net debt.
Right-of-use assets are measured initially at cost (including
the value of the lease liability) and subsequently at cost less
accumulated depreciation and any impairment losses, adjusted for
any remeasurement of the lease liability. Right-of-use assets are
reported as non-current assets.
There is no change to overall cash flows. Operating lease
payments were previously presented as operating cash flows and
finance lease payments were allocated between payments of principal
and interest within financing cash flows. Under IFRS 16, lease
payments are split between payments of principal and interest,
presented as financing cash flows.
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT continued
For the 52 weeks ended 14 September 2019
11. New accounting policies (continued)
Operating lease expenses previously charged to operating profit
will be replaced by depreciation of right-of-use assets (within
operating profit) and interest cost (within finance expense).
Although the aggregate income statement impact of each lease over
its life will not change, the generally straight-line profile of
operating lease expense will be more front-loaded under IFRS 16
because of the interest charge on the lease liability.
The changes set out below to the group's assets and liabilities
will be recorded from the transition date of 15 September 2019 in
the 2020 financial year. The change will be charged against opening
equity, firstly in the 2020 interim report and subsequently in the
2020 annual report.
Transition
adjustment
GBPbn
Non-current assets (recognition of right-of-use assets,
partially offset by reclassifications from property, plant
and equipment) 3.1
Net current assets (primarily removal of lease incentives
from accruals 0.2
Net debt (3.6)
Deferred tax 0.1
------------------------------------------------------------- -----------
Impact on net assets (0.2)
------------------------------------------------------------- -----------
IFRS 16 affects a number of other financial statement captions
and ratios, including the following:
Item Comment
=================== ==============================================================
Earnings Based on our impact assessment, the group expects a
marginal impact on earnings. There will be a consequent
marginal impact on dividend cover.
=================== ==============================================================
Operating profit/ Operating profit and operating margin are expected to
operating margin increase significantly as operating lease expenses
are replaced by the depreciation of right-of-use assets.
=================== ==============================================================
Finance expense Finance expense is expected to increase significantly
as a result of the interest cost on lease liabilities.
Interest cover will therefore reduce.
=================== ==============================================================
Taxation Taxation will change in line with the changes in profit
before tax.
=================== ==============================================================
Net debt Net debt will increase very significantly as lease liabilities
are recorded within current and non-current liabilities.
Gearing ratios will therefore increase. The reconciliation
of net debt will include more non-cash items as new
leases are entered into.
=================== ==============================================================
Return on capital The return on capital employed will reduce as a result
employed of the changes to operating profit and non-current assets.
=================== ==============================================================
Cash flow statement There is no overall impact on cash flow, but classifications
of cash flows will change, as set out above.
=================== ==============================================================
The group will reassess its incentive arrangements to align
targets with the new accounting requirements.
IFRS 16 has the most significant impact on the Retail segment
given the number of significant store leases to which Primark is a
party.
Hyperinflation
The Argentinian economy was designated hyperinflationary from 1
July 2018. The group concluded this had an insignificant impact for
the 2018 financial year but has applied IAS 29 Financial Reporting
in Hyperinflationary Economies to its Argentinian operations from
the beginning of the 2019 financial year. IAS 29 requires that
hyperinflationary adjustments are reflected from the start of the
reporting period in which it is applied. For the group's
Argentinian operations this is 1 September 2018. In accordance with
IAS 21 The Effects of Changes in Foreign Exchange Rates, the
comparative figures for 2018 have not been modified. The
adjustments required by IAS 29 are set out below.
-- Adjustment of historical cost non-monetary assets and liabilities
from their date of initial recognition to the balance sheet date
to reflect the changes in purchasing power of the currency caused
by inflation, according to the official indices published by the
Federación Argentina de Consejos Profesionales de Ciencias Económicas
(FACPCE).
-- Adjustment of the components of the income statement and cash
flow statement for the inflation index since their generation, with
a balancing entry in the income statement and a reconciling item
in the cash flow statement, respectively.
-- Adjustment of the income statement to reflect the impact of inflation
on holding monetary assets and liabilities in local currency.
-- The financial statements of the group's Argentinian operations
have been translated into sterling at the closing exchange rate at
14 September 2019 (ARS69.99:GBP1).
-- The cumulative impact corresponding to previous years has been
reflected in other comprehensive income in the period.
-- The FACPCE index was 155.1034 at 31 August 2018 and 239.6077 at
31 August 2019. The inflation index for the year is therefore 1.5448.
The Venezuelan economy has been designated hyperinflationary for
a number of years, but the impact on the group's results remains
immaterial.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFLALFLSIIA
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November 05, 2019 02:00 ET (07:00 GMT)
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