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AnnuAl RepoRt And Accounts
A look at ABF’s brand portfolio
Primark’s expansion across Europe gathers pace
FARMING IN
HARMONY WITH
THE COUNTRYSIDE
AB AGRI’S WINNING FORMULA
IN VOLATILE TIMES
YEAST:
A BEGINNER’S
GUIDE TO THE
MAGIC INGREDIENT
WHAT IS IT AND HOW IS IT MADE?
Associated British Foods plc
Weston centre
10 Grosvenor street
london W1K 4QY
t 020 7399 6500
F 020 7399 6580
For an accessible version of the
Annual Report and Accounts
please visit www.abf.co.uk
Highlights 2008
£8.2bn
up 21%
£664m
up 7%
Group revenue
Adjusted operating profit*
£632m
up 3%
54.9p
up 4%
Adjusted profit before tax**
Adjusted earnings per share**
20.25p
up 4%
Dividends per share
£710m
Net investment in capital
expenditure and acquisitions
£791m
£554m
level
Net debt
Operating profit
£527m
up 4%
45.2p
down 3%
Profit before tax
Basic earnings per share
Business highlights
· KR Castlemaine acquired in Australia –
meat and dairy reorganisation announced
· Patak’s and Blue Dragon integration complete
· Jordans merged with Ryvita
· Beet sugar business built in north east China
· Zambian sugar expansion well under way
· Primark expansion in Spain
* before amortisation of non-operating intangibles, profits less losses on the sale of
PP&E and exceptional items
** before amortisation of non-operating intangibles, profits less losses on the sale of
PP&E, profits less losses on the sale and closure of businesses and exceptional items
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.
Design & Production
35 communications
Photography
Igor emmerich
louisa parry
Graham shearer
Print
this report has been printed on revive
50:50 silk paper.
this paper is made from pre and post
consumer waste and virgin wood fibre,
independently certified in accordance
with the Fsc (Forest stewardship
council). It is manufactured at a
mill that is certified to Iso14001
environmental management standards.
the pulp is bleached using an
elemental chlorine free (ecF) process.
the inks used are all vegetable oil based.
printed at st Ives Westerham press ltd,
Iso14001, Fsc certified and
carbonneutral®
Associated British Foods plc
Registered office Weston centre
10 Grosvenor street london W1K 4QY
company registered in england,
number 293262
Company secretary
paul lister
Registrars and transfer office
equiniti (formerly lloyds tsB Registrars)
Aspect House
spencer Road
lancing Bn99 6dA
Auditors
KpMG Audit plc chartered Accountants
Bankers
Barclays Bank plc
lloyds tsB Bank plc
the Royal Bank of scotland plc
Brokers
credit suisse
one cabot square london e14 4QJ
panmure Gordon & co
Moorgate Hall
155 Moorgate london ec2M 6XB
Timetable
Interim dividend paid
3 July 2008
Final dividend to be paid
9 January 2009
Annual general meeting
5 december 2008
Interim results to be announced
21 April 2009
Website
www.abf.co.uk
Associated British Foods is a diversified
international food, ingredients and retail
group with global sales of £8.2bn, and
96,000 employees in 44 countries.
Our aim is to achieve strong, sustainable
leadership positions in markets that offer
potential for profitable growth.
We look to achieve this through a combination
of growth of existing businesses, acquisition of
complementary new businesses and achievement
of high levels of operating efficiency.
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Contents
Business review
Our business in action
Financial statements
IFC Highlights 2008
2 Group at a glance
4 Chairman’s statement
6 Operating review
16 Financial review
18 Board of directors
20 Directors’ report
22 Corporate governance
30 Remuneration report
34 Statement of directors’
responsibilities in respect
of the annual report and
the financial statements
35 Independent auditors’ report
36 Corporate citizenship
40 Farming in harmony with
48 Consolidated financial
the countryside
Denis Chamberlain
reports on ABF’s efforts
to balance biodiversity
and large-scale farming
statements
48 Income statement
49 Balance sheet
50 Cash flow statement
52 Significant accounting
42 We are now open
policies
Maureen Hinton examines
58 Notes to the financial
statements
102 Company financial
statements
108 Progress report
IBC Company directory
Primark’s expansion
across Europe
44 Products people love
Richard Clarke looks at
the growth of ABF’s
brand portfolio
46 Yeast: a beginner’s guide
to the magic ingredient
The essential, if little
known, ingredient.
Associated British Foods Annual Report and Accounts 2008 // 1
Group at a glance
The group operates through
strategic business segments:
Sugar & Agriculture; Retail;
Grocery and Ingredients.
Retail
Primark
Primark is a major value retail group
employing over 25,500 people.
It operates stores in the UK, Ireland
and Spain.
Targeted at the fashion conscious
under 35s, Primark offers customers
high-quality merchandise at value
for money prices, backed by its
service promise. Primark prides itself
on its loyal customer base.
Buying and merchandising teams in
Reading (UK) and Dublin (Republic
of Ireland) travel internationally to
source and buy up-to-the-minute
fashion items that best reflect each
season’s key fashion trends. Primark’s
range of departments includes
womenswear, lingerie, childrenswear,
menswear, footwear, accessories,
hosiery and homeware.
£1,933m
Revenue
£233m
Adjusted
operating profit
24%
% of total
revenue
£2,134m
Revenue
£186m
Adjusted
operating profit
26%
% of total
revenue
Sugar & Agriculture
Sugar, Europe
British Sugar’s UK beet sugar factories
produce over one million tonnes of sugar
annually. Its factory in Poland is that
country’s largest, producing more than
200,000 tonnes of sugar annually.
Sugar, China
We have majority interests in four cane
sugar factories in Guangxi Province and
12 beet sugar operations in the north east
of the country. Continuous investment
has raised annual sugar production to
more than 750,000 tonnes.
Sugar, southern Africa
Illovo is Africa’s largest sugar producer
with agricultural and production
facilities in six countries. Annual sugar
output is 1.8 million tonnes produced
from 5.5 million tonnes of sugar cane.
Agriculture
AB Agri sells animal feeds and feed
micro-ingredients to farmers and
purchases grain and oilseeds from
them. It has facilities in the UK and
China and markets products in over
40 countries worldwide.
2 // Associated British Foods Annual Report and Accounts 2008
Grocery
Hot beverages and sugar
and sweeteners
Twinings and Ovaltine comprise
our global hot beverages business.
We are market leaders in UK sugar
with Silver Spoon and Billington’s.
Vegetable oils
In the US, Mazola is the leader in
premium corn oil. In Mexico, Capullo
leads the premium canola oil sector.
Bread, baked goods and cereals
We produce Jordans cereals in the UK
and leading bakery brands, Kingsmill,
Ryvita, Tip Top and Noble Rise in the
UK and Australia.
World Foods
World Foods comprises our authentic
pan-Asian food brands, Patak’s and
Blue Dragon.
Herbs and spices
We are a leading US producer of herbs
and spices through the Tone’s, Spice
Islands and Durkee brands.
Meat and dairy
In Australia we supply sausages,
hams, salami and dairy products
under strong regional brands.
£3,254m
Revenue
£194m
Adjusted
operating profit
40%
% of total
revenue
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£842m
Revenue
£75m
Adjusted
operating profit
10%
% of total
revenue
Ingredients
Yeast and bakery ingredients
AB Mauri operates globally in yeast
and bakery ingredient production
with 43 plants in 28 countries,
supplying plant and artisanal bakers
and the foodservice and wholesale
channels. It is the technology
leader in bread improvers, dough
conditioners and bakery mixes.
Speciality ingredients
ABF Ingredients focuses on high-
value ingredients for food and
non-food applications. It is an
international supplier to plant and
artisanal bakers and the foodservice
and wholesale channels.
The group has strong market
positions in cereal specialities,
enzymes, extruded ingredients,
lactose, lipids, flours, yeast
extracts and whey protein isolates
and concentrates.
Associated British Foods Annual Report and Accounts 2008 // 3
Chairman’s statement
The year saw steadily worsening economic conditions with sharp rises in
input costs, particularly raw materials and energy, and falling consumer
confidence. In these circumstances the group delivered good results and
adjusted operating profit increased by 7%. If the results of the businesses
which were affected by EU sugar regime change are excluded, profits were
ahead by 18%, an excellent achievement.
Considerable further investment was made during the year, particularly
in the expansion of our sugar interests in China and Africa and in Primark’s
retail space, and also in our grocery and ingredients businesses. Additional
investment and higher working capital, together with higher interest rates,
resulted in a substantial increase in interest payable. Adjusted profit before
tax rose by 3% and, with a slightly lower rate of tax than last year, adjusted
earnings per share increased by 4%.
This year’s result includes a net exceptional charge of £46m arising
from major restructuring initiatives. This comprises a provision for the
rationalisation of our Australian meat business, following the acquisition
of KR Castlemaine at the end of March, less a net gain on the renunciation
of sugar quota in the UK and Poland.
Revenue grew by 21% to £8.2bn driven, in good part, by our ability to
recover rising input costs, but also by volume increases reflecting our past
capital investment, acquisitions and favourable currency translation.
The year has seen further development for the sugar businesses. In Europe
the transition to the new EU sugar regime is largely over and there is now
the prospect of reasonable equilibrium in a market where consumption will
exceed domestic production. In China, development plans for the north
east have been taken forward and major phased expansion will take place
over the next few years. These plans will lead to the development of
factory operations and are expected to achieve marked improvements in
agricultural performance in the region. Illovo has also extended capacity
through various projects and has well-developed plans for further increases
in the next few years. Across the three major regions in which the group
operates, sugar production in the year amounted to some 3.85 million
tonnes and will be substantially increased over the next few years. The
joint venture with BP and DuPont has commenced construction of the
bioethanol plant in Hull and is on schedule for commissioning in 2010.
The profits of the European sugar businesses fell sharply in the year, caused
by an increase in the restructuring levy and the temporary reduction of
quota, and the results in China were adversely affected by lower prices
after an exceptional crop. By contrast, Illovo’s results were very good.
Primark achieved strong growth in both sales and profits. Like-for-like sales
growth was very satisfactory in a marketplace which, as a whole, became
progressively tighter during the year. Selling space was expanded further,
although not at the exceptional rate of the previous year. In the increasingly
difficult economic environment, Primark is well placed to compete.
Expansion is continuing in the UK, Ireland and on the Continent, where the
results of the Spanish stores have been very encouraging. Another major
UK distribution centre was opened recently and we have strengthened
management further in light of the significant expansion of the business.
The group’s grocery businesses made excellent progress in the year,
delivering substantially higher profits against a background of sharply rising
commodity costs. In most cases, successful steps were taken to adjust sales
prices, although there was a lag in the ability of the US oils business to
recover, fully, quite exceptional rises. Twinings and Ovaltine made advances
both in major established markets and other markets where there is much
scope for development. There was strong improvement in the performance
of Allied Bakeries following the very successful relaunch of Kingsmill in
2007. The integration of the World Foods businesses, Patak’s and Blue
Dragon, proceeded well and good sales growth was achieved by both
brands. It was also pleasing to move forward with the merger of Ryvita
and Jordans where we now have a 62% stake. Our grocery businesses are
a major strength of the group.
SuGAR PROduCTIOn In THE YEAR
AMOunTEd TO SOME 3.85 MIllIOn
TOnnES.
Among our other businesses, AB Agri had an exceptional year. While part
of the success was due to its ability to operate well in extremely volatile
commodity markets, long-term improvements in fundamentals played
a major role. The ingredients businesses posted sound growth in
difficult conditions.
Net capital expenditure and investment in new businesses net of disposals
amounted to £710m. Over £500m was incurred to expand plant capacity
and on new Primark stores. Major acquisitions in the year included beet
sugar factories in north east China, the KR Castlemaine meat business in
Australia, which is being integrated with our existing meat business, and
further expansion of our European yeast operations.
4 // Associated British Foods Annual Report and Accounts 2008
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The recent and planned capital
investment positions the group
well for the longer term.
Working capital at the financial year end was some £340m higher than
last year end driven, in part, by the acquisitions in the year but mainly
as a consequence of the rises in input prices referred to throughout this
statement. This much higher working capital was one of the major reasons
for the increase of £480m in year end net debt to £791m, the other major
contributors being acquisition spend net of disposal proceeds, and higher
capital expenditure. Although the group was well within its borrowing
facilities at year end, we have secured additional borrowing capacity since
the year end in anticipation of further investment.
nET CAPITAl ExPEndITuRE And
InVESTMEnT In nEW BuSInESSES
nET OF dISPOSAlS AMOunTEd
TO £710M.
The group is becoming increasingly involved with developing countries,
both through ownership of local manufacturing operations and through
sourcing from local, third-party manufacturers. The value of economic
growth to developing countries of both local operations and third-party
sourcing is generally accepted. In our own manufacturing operations we are
the employers of the local workforce. As a consequence, we are able to set
employment standards and agree benefits directly with the workforce. As
an example, in several countries in southern Africa, Illovo provides housing,
education, healthcare, infrastructure and other benefits for employees and
their dependants. Where we source from third-party manufacturers, the
position is different as the group does not have an employer/employee
relationship. This is particularly the case for Primark which, with other
major European and US retailers, sources large quantities of goods from
developing countries. Primark sets contractual requirements with suppliers
for workplace standards and monitors their application. It is, however, much
more difficult to ensure the required standards are consistently observed
where Primark is not the employer. As a group, we are committed to high
standards in the supply chain and will continue to work to achieve them.
Board changes
I reported a year ago that Lord MacGregor and Mike Alexander would retire
as directors on 7 December 2007 and paid tribute, at that time, to their
contributions to the board.
On 1 October 2008 Charles Sinclair was appointed to the board as an
independent non-executive director. Until 30 September 2008, Mr Sinclair
was chief executive of Daily Mail & General Trust. He is also a non-
executive director of SVG Capital Plc. I am confident Charles will make
a valuable contribution to the board’s work.
Employees
The group now employs 96,000 people in 44 countries. Their skills,
ingenuity and hard work, often in very demanding conditions, deliver the
results covered in this report. When I visit our operations in the UK and
abroad, I am always impressed by the ability and enthusiasm of the people
who work in the group. I am grateful to them all for their continued efforts
over the past year.
dividends
A final dividend of 13.5p is proposed, to be paid on 9 January 2009 to
shareholders on the register on 5 December 2008. Together with the
interim dividend of 6.75p paid on 3 July 2008, this will make a total of
20.25p for the year, an increase of 4%.
Outlook
The economies in which the group operates face extremely testing
conditions. There is also very great uncertainty about how these conditions
will develop over the coming year. The group’s businesses will not be
immune to a worsening economic climate. However, by virtue of the nature,
range and market position of the group’s businesses we are well placed to
face this demanding environment. We expect to maintain capital investment
at planned levels in spite of the economic outlook. We anticipate some
progress in operating profits over the coming year but little change in net
earnings due to additional interest expense. I am confident that the recent
and planned capital investment positions the group well for the longer term.
Martin Adamson
Chairman
Associated British Foods Annual Report and Accounts 2008 // 5
Operating review
OPERATING PROFIT BY GEOGRAPHY
UK
Americas
24%
Asia Pacific
Europe, Middle East
& Africa
14%
47%
15%
OPERATING PROFIT BY SECTOR
11%
22%
Agriculture
Sugar
28%
5%
34%
Retail
Grocery
Ingredients
6 // Associated British Foods Annual Report and Accounts 2008
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These good results demonstrate
the resilience of the group when
faced with a number of challenges.
Group revenue increased by 21% to £8.2bn and adjusted operating profit
increased by 7% to £664m. These good results again demonstrate the
resilience of the group when faced with a number of challenges, most
notably the continuing impact of EU sugar regime reform, the pressure
on consumer spending in many parts of the world and sharply higher
commodity costs.
Our sugar operations performed well. The businesses in Europe are now
emerging from the restructuring that has taken place over recent years in
response to regime reform and will benefit from greater stability in their
operations and certainty in their markets. Illovo has gone from strength to
strength and has continued to build its capability, and our business in China
has taken on an entirely different shape with the creation of a new beet
sugar business in the north east.
Agriculture had a quite extraordinary year and demonstrated its agility
by responding quickly to an extremely volatile market. It has developed
its customer and supplier relationships with its strong market position
providing confidence in difficult economic conditions.
The excellent increases in sales and profit at Primark are the result of good
like-for-like sales growth and the substantial investment in retail selling
space in recent years. They are also a testament to its continued success in
delivering the latest fashions, manufactured to good quality and ethically
sourced, at affordable prices.
Our grocery businesses grew strongly last year with profits up 27%. The
substantial improvement at Allied Bakeries was enormously encouraging
and Twinings Ovaltine, Westmill and milling and baking in Australia all
delivered excellent results.
Our commitment to the group’s expansion and development is underlined
by the continuing strong investment in capital expenditure and acquisitions
in all businesses, most notably in sugar and Primark. We have embarked upon
a number of important projects that will see several hundred million pounds
invested over a two or three year timeframe that will change the scale of
our operations, notably in sugar production in southern Africa, particularly
Zambia, and north east China, in meat and dairy in Australia, enzymes in
Finland, yeast and yeast extracts in China, biofuels in the UK and further new
stores for Primark.
There have been a number of significant developments in the grocery
business over the last few years, which have strengthened the portfolio
considerably. The acquisition of Patak’s and its integration this year with
Blue Dragon created a major retail ethnic foods business with a strong UK
presence and potential for expansion elsewhere in Europe. The completion
of the Jordans merger with Ryvita has produced a strong player in the
growing ‘better for you’ category and in Australia, the acquisition of
KR Castlemaine and the plans for its integration with our existing operation
there has created a market-leading business. Since the year end we have
announced the creation of a packaged oil joint venture with Archer Daniels
Midland in the US and this new entity has exciting prospects for growth,
particularly in the foodservice sector. The ACH business that remains will
be more brand focused and consumer orientated.
Sugar & Agriculture
sugar: Revenue £1,267m
(2007, £1,151m)
Adjusted operating profit £153m
(2007, £199m)
Sugar profit was substantially lower than last year
reflecting the further effects of EU sugar regime reform
on our UK and Polish operations which amounted to
£50m. Furthermore, profits were reduced in China with
lower sugar prices as a result of a record crop despite
earlier fears of the effects of frost damage to the cane
in the south. Illovo continued to trade well with higher
volumes and the benefit of higher domestic and world
sugar prices.
Profit in the UK and Poland was impacted by an increase in the restructuring
levy per tonne from 1126 last year to 1174 and an increase in the temporary
quota reduction from 152,000 tonnes to 191,000 tonnes. The UK campaign
was successful but profit was also lower as a result of higher energy costs
and a smaller crop of 1.05 million tonnes of sugar which was affected by
the heavy mid-summer rains in 2007. A number of projects have been
successfully implemented in the UK which improve energy efficiency at our
factories and underpin the new manufacturing configuration following the
closure of York and Allscott. Poland had an exceptionally good campaign
with production of 227,000 tonnes and new operating records set at
Glinojeck. The strengthening of the euro benefited the profitability of the
UK business with some offset from the strength of the zloty against the
euro on the Polish business.
The European Commission has confirmed that a total of 5.65 million tonnes
of quota for sugar, inulin and isoglucose has been permanently renounced
Associated British Foods Annual Report and Accounts 2008 // 7
Operating review
Explaining the business »
From beet to bowl:
The beet sugar production process
We all take it for granted, but do we all know where it comes
from and how it makes its way into our sugar bowls?
limestone sugar beet river water fuel
unloading
and storage
sampling
weighing
lime
cleaning
slicing
diffusion
milk of
lime tank
clarify
and filter
filter
dry
screen
and mix
wash and
screen
pelleting
screen
and
pack
steam
treated water
low temp heat
power
station
co2
ferment
and distil
horticulture
electricity
grade
and
pack
evaporation
filter
thick juice
storage
crystallisation
silos
resin
separation
topsoil stones animal feed lime sugar products betaine bioethanol tomatoes electricity
stage one – beet processing
Sugar beet is washed in large rotary
drums. Stones and soil are caught
for later use. Clean beet enters the
factory, and is sliced into thin slices
called ‘cossettes’.
Sugar is extracted from the beet by
diffusion. This process takes place in
a large vessel and is often described
as being akin to brewing tea in a
teapot. The cossettes are mixed with
hot water at around 70°C and the
sugar simply passes from the plant
cells into the water.
The vegetable material left behind is
pressed to extract as much remaining
sugar and water as possible and, after
the addition of molasses, is dried to
produce animal feed. The liquid
resulting from the diffusion process is
dark in colour and is called raw juice.
stage two – purification
and concentration
stage three – crystallisation
and storage
The juice is passed through a
purification stage called carbonatation.
Juice is mixed with milk of lime and
carbon dioxide gas. The carbon dioxide
and the milk of lime re-combine to
produce calcium carbonate which
precipitates out, removing most of
the impurities from the juice.
The pale yellow juice which remains
is called thin juice and while much
purer it is still relatively low in sugar
content. It passes to the next stage
of the process – evaporation – where
water is boiled off in a series of
evaporator vessels to increase the
solids content of the juice from 16%
in thin juice to 65% as thick juice.
The concentrated juice passes
through filters, after which it is ready
for the final stage of the process.
The crystallisation process takes place
in vacuum pans which boil the juice.
When the juice reaches the correct
concentration it is ‘seeded’ with tiny
sugar crystals which provide the
nucleus for larger crystals to grow.
When the crystals reach the required
size the process is stopped and the
resultant mixture of crystal sugar
and syrup – known as massecuite –
is spun in centrifuges to separate the
sugar from the ‘mother liquor’. The
sugar crystals are washed and, after
drying and cooling, are conveyed to
storage silos.
co-products
Nothing is wasted during production.
Stones removed during beet cleaning
are used in civil engineering, while
soil is graded and conditioned and
marketed as TopSoil for use by
landscapers, architects and farmers.
Lime used in the purification process
is sold under the LimeX brand for
soil conditioning.
At Wissington factory, the Combined
Heat and Power (CHP) plant exports
enough electricity to the grid to
power a large town. The hot water
and carbon dioxide from the CHP
boiler is utilised to propagate over
70 million tomatoes each year.
Bioethanol is also produced by the
fermentation of sugar followed by
distillation to produce a pure alcohol.
Close integration with the sugar
factory yields savings in excess of
60% in CO2 emissions compared
to petrol.
Finally, betaine is produced, a
valuable animal feed supplement.
8 // Associated British Foods Annual Report and Accounts 2008
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across the EU, virtually achieving its targeted reduction of six million tonnes
in EU sugar production. Almost all of this reduction is effective from October
2008 and, given that Least Developed Countries (LDC) tariff-free imports
will not flow into the EU until October 2009 in any significant quantity,
there is an expectation that the coming year will see the EU market in
deficit. The final changes of reform to sugar reference price, levies, beet
prices and access for LDC will become effective in October 2009 and have
already been announced. No further changes are expected until the next
review of the regime which is scheduled to be effective from October 2015.
British Sugar received confirmation during the year that its application
to renounce permanently 206,000 tonnes of UK and Polish sugar quota
had been accepted. The resulting EU quota for these businesses is now
1.21 million tonnes. The income statement includes an exceptional credit of
£25m comprising compensation receivable from the EU less factory closure
costs and the write-off of the unamortised cost of quota purchased in 2006.
Wissington has been fully operational in the production of bioethanol from
beet sugar for over a year. Yields were ahead of expectation and the price of
ethanol in Europe firmed during the year. Vivergo, our joint venture with BP
and DuPont, is building a world-scale bioethanol plant that will use wheat
as its feedstock. Full planning consent has now been granted for the site at
Hull and construction has commenced. Engineering contracts for the major
plant items have been placed and it is anticipated that the site will be
commissioned during 2010.
This year has seen noteworthy development in our sugar business in China.
Our cane sugar crop in the south exceeded earlier expectations, we built a
significant business in beet sugar in the north east and the combined crop
yielded 755,000 tonnes of sugar. However, profit was held back by much
lower sugar prices. National production of sugar in China increased from
12 million tonnes in 2006/7 to 14.9 million tonnes in 2007/8 and so,
despite strong growth in demand, which was up 8% year-on-year, and even
government measures to remove volume, sugar prices fell sharply in the
second half of the year. Construction of the Jinchengjiang mill in Guangxi is
well underway and is due to be completed by the end of this calendar year.
We have created a business in north east China comprising 11 beet
sugar factories operating in Heilongjiang, Hebei and Inner Mongolia. The
business was formed by the acquisition of factories that were previously
independently owned and operated and which have been combined into a
single, co-ordinated entity, ideally positioned to supply the important Beijing
and Harbin markets. At the year end we held a 51% shareholding in the
business which has since been increased to 65%. A five-year development
plan for the factories and for the advancement of beet growing technology
in the region is in place, the first part of which will be completed in
December 2008 with the expansion of Qianqi and Yi’an factories. In addition
a joint venture, BoCheng, has been created which operates the factory at
Beifeng in Heilongjiang province. The businesses have established strong
links with both local and provincial government and are investing in
technical colleges to support this long-term development programme.
WE HAVE CREATEd A BEET SuGAR
BuSInESS In nORTH EAST CHInA
WHICH IS IdEAllY POSITIOnEd TO
SuPPlY THE IMPORTAnT BEIjInG
And HARBIn MARkETS.
Profit at Illovo grew strongly and the crop increased to 1.82 million tonnes
of sugar. Strengthening world sugar prices, which favourably impact world
sugar sales out of South Africa, higher downstream product prices and
a favourable rand/US dollar exchange rate all benefited the performance
in the year. Strong domestic revenues and higher sales to neighbouring
markets also had a favourable impact on the results in Malawi and Zambia
and offset a difficult start-up at the Nakambala mill in Zambia following
completion of the first phase of its expansion.
This initial phase involved the development of additional irrigated cane by
private growers and an increase in milling capacity. The final phase of the
expansion programme is currently underway which will greatly increase the
power generation capability as well as extend milling capacity further and
develop additional acreage of irrigated cane. On completion we will have
almost doubled sugar production at Nakambala. Smaller expansion
schemes in Malawi and Tanzania have also been completed with strong
performances from both countries.
Germains, our seed coating business, performed well. Its seed priming
technology is now firmly established with the European and US beet
sugar industries as providing a yield advantage over unprimed variants.
agriculture: Revenue £867m
(2007, £645m)
Adjusted operating profit £33m
(2007, £18m)
AB Agri, our agriculture business, had a very strong year
during which the combination of its trading skills, market
knowledge and customer relationships enabled it to
outperform a market characterised by extremely volatile
raw material prices. European grain prices doubled during
the first half of the year and low grain stocks worldwide,
unpredicted weather events and heavy trading in the
commodity markets resulted in unprecedented levels of
daily price volatility. Stronger feed prices were sufficient
to offset higher raw material and energy costs, lower
volumes of molassed sugar beet feed and increased
production costs in our ruminant feeds business.
Frontier is our grain supply joint venture. It has a strong balance sheet,
access to working capital and superior market knowledge which
differentiate it from its competitors. Through its leading market position,
unique centralised operating structure and national trading system, it was
ideally placed to manage the extreme price volatility during the year on
behalf of its grain customers and farmer suppliers. Moreover, higher cereal
and oilseed prices encouraged an increase in UK sowings resulting in a more
buoyant market for Frontier’s fertilisers, seed varieties and crop protection
products. As expected, the business has now concluded an agreement
to supply Vivergo with over one million tonnes of feed wheat for its
bioethanol facility.
We are establishing an increasingly international presence in the high
technology, high added-value feeds market which specialises in micro-feed
ingredients that enhance nutrient absorption and provide a better return for
farmers. Sales of feed enzymes by AB Vista were particularly buoyant with
several new products launched and a doubling of the number of countries
served over the last two years. New sales offices in the US, Mexico, India
and China were established during the year.
Our feeds business in China was relatively untouched by the widely
reported natural disasters that occurred there. We achieved strong sales
growth in each of the species markets that we supply. Our mill building
programme is continuing and on completion will deliver a 20% increase
in production capacity.
Associated British Foods Annual Report and Accounts 2008 // 9
Operating review
Explaining the business »
Primark:
The story so far
The remarkable story of Primark’s success goes all the way back
to 1969, with the first store opening in Dublin. Now, with new
store openings across Europe, we take a look at the key factors
that played a part in getting the brand to where it is today.
5stores in dublin
Where it all began, 1969
1. the early years: At the end of the sixties, Penneys commenced business
in Dublin and within its first year of trading had opened five stores with
turnover of around £1m. By 1973, Ireland had 18 stores and the company
started trading in the UK…
2. rapid growth across the uk and
ireland: By 1984, sales had grown to £86m
from 44 stores equally split across the UK and
Ireland. Over the next ten years, the number
of stores increased by 50%…
…and sales rose by over
240%
3. 1995 – a milestone year: The strategic
acquisition of the BHS One-Up discount chain
added 16 sizeable stores to its UK business,
primarily in the Greater London area. Within
a year these new outlets had increased sales
in the UK by 40%…
4. new millennium heralds further acquisition: The turn of the
century saw the acquisitions of 11 stores from the Co-op, and the purchase
of the same number of outlets from C&A. Expansion continued in 2005
with the acquisition of the total Littlewoods estate. After the subsequent
refurbishment programme was complete, an additional 41 stores were
opened by 2007…
6. european expansion:
Primark’s successful foray into
Spain has demonstrated that the
Primark value proposition travels
well. The next countries to enjoy
the Primark experience will be
the Netherlands and Germany.
5. spain: With expansion in Ireland and
the UK continuing apace, May 2006 saw
the opening of a ‘test’ store in a brand new
continental European market. Primark
Tiendas opened at the Plenilunio shopping
mall near Madrid’s International Airport and
was an instant hit. Further stores followed
and currently there are nine, with more in
the pipeline…
10 // Associated British Foods Annual Report and Accounts 2008
Total sales at the end of
2008:£1.9bn
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AB Agri is taking a central role in a number of schemes to promote
sustainable agricultural practice. The first Carbon Trust accredited,
greenhouse gas reduction model for dairy farms was launched to
Sainsbury’s dairy suppliers and our WildCare scheme on biodiversity,
which we operate in conjunction with Waitrose, was awarded the Green
Apple Award for ‘Environmental Best Practice’.
performed well. We opened new stores in Jerez, Bilbao, Oviedo and
Zaragoza and a further three stores in Madrid, bringing our total there to
four. Our arrival in Spain gathered momentum this year and began to enjoy
the same critical acclaim from the retail trade that we have experienced
in the UK and Ireland, culminating in the receipt of our first major Spanish
award, ‘Best Shopping Centre Retailer 2008’.
Retail
Revenue £1,933m
(2007, £1,602m)
Adjusted operating profit £233m
(2007, £200m)
Primark achieved excellent growth in sales and profit
again this year. Sales increased by 21% as a result of
growth in retail selling space and like-for-like sales
growth of 4% for the full year. This organic growth was
remarkably strong given the already reported weak
trading in April when poor weather this year contrasted
with warm weather and the benefit of Easter trading in
the comparative period last year. This performance was
against a background of declining consumer confidence
which highlights both the continued growth of the value
clothing sector’s share of the retail market and Primark’s
ability to thrive in difficult economic circumstances.
Profit increased by 17% to £233m but operating profit margin reduced from
12.5% to 12.1%. Although gross margins were broadly the same, overheads
were impacted by higher distribution costs, including the cost of supporting
the new stores in Spain, and higher occupancy costs driven by increased
depreciation. As a consequence of recent and anticipated further
expansion, we opened another major distribution centre at Thrapston,
Northamptonshire, at the end of the financial year, increasing our UK
capacity by some 50%.
We opened 12 stores during the year; seven in Spain, one in the Republic of
Ireland and four in the UK; but we also closed the smaller store in Brighton
to bring the total to 181 stores at the year end. Retail selling space
increased by 13% over the period to 5.4 million sq ft.
(Prima High St Fashion Awards)
by Primark this year including
• UK Retailer of the year
9 The number of prestigious awards won
(lk Today High St Fashion Awards)
(Property Week Retail Awards)
• Best Town Centre Retailer
• Best Value
In Ireland we carried out two major store refits, extended our Galway store
and opened a new store in Cork. In the UK, we opened a third floor at our
largest store in Manchester, increasing selling space to 136,000 sq ft, and
extended sales floors in Nottingham and Newcastle. We opened new stores
in Ealing, Basingstoke and Brighton and, following the compulsory purchase
of our old store, made a return to Derby, one of the first cities in the UK to
enjoy the Primark experience when it arrived in 1974. Our Spanish stores
We expect to add at least a further four stores in Spain in the coming year
and have announced plans to open test stores to explore the potential in
the Netherlands and Germany, the first of which is expected to open early
in 2009. There are still great opportunities for growth in the UK and Ireland
where the pipeline of new stores is strong and plans are already in place
to open stores in Cambridge, Corby, Edinburgh and High Wycombe in the
coming year.
During the year we ceased to trade with three suppliers in the Tirupur
garment producing area of India. This area is a major production centre
for the world’s garment retailers and has experienced rapid expansion and
development in recent years. It has therefore become a major centre for
wealth creation and employment and Primark spent some £100m last year
in the region. Buying from developing countries is an important catalyst
for their social and economic development. However, there are additional
complexities when sourcing products from developing economies.
All our suppliers are required to comply with a strict code of conduct which
lays down, amongst other things, minimum standards of health and safety,
welfare, human rights and wages that we are prepared to accept in relation
to the treatment of their employees. We employ our own in-region ethical
managers as well as third-party auditors to check that our suppliers meet
their contractual obligations and that proper standards are being maintained.
Where we find shortcomings we work closely with suppliers to remedy the
deficiencies and, in this way, seek to play our part in the general improvement
of working conditions. The three suppliers, whose contracts were not renewed
during the year, were engaged with us in such an improvement programme
when it came to light that these suppliers were subcontracting without
Primark’s knowledge. Our own extensive investigations concluded that the
breach of trust in this case was so serious as to make further attempts at
remediation impossible. Our presence in the garment industries of the
developing world is a force for good but we are acutely aware of our
responsibility to ensure that all activity within our supply chain meets
acceptable ethical standards. We are dedicated to working towards this
goal with all stakeholders: suppliers, governments – regional and national
– and Non-Governmental Organisations (see www.ethicalprimark.com for
more information).
new store openings:
uk: Basingstoke, Brighton –
relocation, Derby, Ealing
Ireland: Cork
Spain: Madrid (Islazul, Parque
Corredor, Xanadu), Bilbao, Jerez,
Oviedo, Zaragoza
Associated British Foods Annual Report and Accounts 2008 // 11
Operating review
Explaining the business »
Strategic investment:
A great uk brand portfolio
ABF has continually built upon its focused portfolio
of UK brands to deliver a strong grocery offering…
Ovaltine’s traditional products are
largely unchanged from their original
recipes but are now consumed in a
far broader way throughout the day…
ovomaltine.com
For nearly 300 years, Twinings has been
using its blending expertise to create a wide
range of high quality teas enjoyed in over
100 countries across the world…
twinings.com
Silver Spoon is the number one
supplier to the UK retail sugar and
sweetener market and a major sugar
supplier to the foodservice market…
silverspoon.co.uk
Blue Dragon offers authentic
ingredients for customers to create
delicious dishes from China,
Thailand, Japan and Vietnam…
gcosta.co.uk
Patak’s is recognised as authentic Indian food
that is quick to prepare. Its cooking sauces, curry
pastes, chutneys, pickles, breads and pappadums
make it easy to prepare authentic Indian dishes
at home… pataks.co.uk
Jordans specialises in natural
wholegrain foods with minimal
processing. It launched the UK’s first
cereal bar and also makes breakfast
cereals… jordanscereals.co.uk
From the creation of its first
crispbread in the 1930s, Ryvita
has continually grown its range of
wholegrain foods made from rye…
ryvita.co.uk
Kingsmill’s relaunched bread range
features standard and premium products
to satisfy every family’s needs…
alliedbakeries.co.uk
Dr Thomas Allinson set up his first flour mill
in 1892. He was passionate about natural
products, a tradition we have kept alive to
this day in our wholemeal flour and bread…
allinsonbread.com & bakingmad.com
12 // Associated British Foods Annual Report and Accounts 2008
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Grocery
Revenue £3,254m
(2007, £2,605m)
Adjusted operating profit £194m
(2007, £153m)
Revenue for the year increased 25% on last year. This
was driven through a combination of acquisitions, price
increases to recover commodity cost inflation and
volume growth. Profit was ahead 27% as a result of the
substantial improvement at Allied Bakeries and good
growth from Twinings Ovaltine, Westmill and milling
and baking in Australia.
Commodity cost inflation has been a feature for all of our grocery
businesses this year. Some had seen costs rise at the end of summer last
year and had already begun pricing negotiations with customers. Twinings
Ovaltine experienced increases in barley and dairy costs, substantial
increases in wheat costs affected our bakery businesses in the UK and
Australia, and very strong demand for vegetable oils saw the price of corn,
soy and canola oils rise sharply in the US. Commodity price increases
continued into this financial year together with steeply rising energy costs.
Our businesses reacted quickly to recover these costs by raising prices
although price increases at ACH in the US were delayed until after the high
demand period running up to Christmas.
Twinings Ovaltine had another very good year with revenue up 17% on last
year. Twinings in the UK benefited from the continued growth of Everyday
Tea and a strong performance in green teas. Our flavoured infusions range
was relaunched containing only natural ingredients which is a unique
position in the market. In the US, Twinings was the fastest growing tea
brand, supported by the national rollout of our successful regional media
campaign. In Australia, we launched Simply Twinings, our everyday offering
in that market, and sales and market share increased following television
advertising featuring Nigella Lawson.
Sales of Ovaltine increased 12% this year with growth across the range of
powder, ready-to-drink and brand extensions. Growth in the North ASEAN
region was led by another excellent performance in Thailand where we
strengthened our number one position. Ready-to-drink and the successful
launch of Ovomaltine crunchy biscuits drove strong sales growth of the
brand in Switzerland.
Good progress was made in improving access to certain key markets. We
established a new joint venture in Japan, signed new distribution agreements
in Indonesia and established new and more-targeted routes to market in
Russia (Twinings) and Brazil (Ovaltine). Supply chain efficiencies were achieved
during the year. The Ovaltine factory in Manila was closed and production was
transferred to existing factories in Thailand and China where we have made
significant investments in increased capacity. The tea packing plant in Belfast
was also closed with production consolidated into our UK facilities.
The merger of Ryvita and Jordans was completed on 29 August 2008.
We have a 62% interest in the combined entity and integration of these
businesses is now underway. Ryvita’s sales were driven by a strong
performance in UK crispbread with continued growth of premium variants,
pricing to recover raw material inflation and marketing support. New product
launches included flatbreads, branded Ryvita Thins, and baked wholegrain
savoury snacks, Ryvita Limbos. Significant work has been undertaken on
a major relaunch of the Jordans brand including new packaging formats,
formulations and increased marketing support. This is being rolled out in
the UK this autumn.
The performance of Allied Bakeries improved significantly year-on-year.
Bread volumes increased with a strong focus on quality, availability and
customer service. After several years of volume decline, the UK bread
market has now stabilised and following its successful relaunch in 2007,
the Kingsmill brand continued to gain market share. A strong advertising
campaign focused on the core range and drove the portfolio, most notably
in Great Everyday White and 50/50, a white bread with wholemeal flour.
We launched new premium Kingsmill products under the ‘Seeds and Oats’
range. Allinson benefited from its national relaunch with new products and
packaging and advertising support.
AB World Foods delivered encouraging growth in its Blue Dragon and
Patak’s brands both in the UK and international markets, particularly
Australia and Russia. Market share increased in pastes and sauces in glass,
and stir fry and dipping sauces. Meena’s, a premium Indian sauce range,
was launched this summer and is performing well at this early stage. The
integration of Blue Dragon and Patak’s was successfully achieved during the
year. The combined business now operates with a single UK distribution
system, a common IT platform and a unified sales force. The Blue Dragon
factory in Poland was commissioned and production was transferred from
the factories in Wales that were then closed.
Profit at Westmill Foods increased despite significant rises in the cost of
edible oils, rice, flour and spices. These higher costs were successfully
recovered whilst maintaining volume growth in the key brands with Green
Dragon, Tolly Boy rice and Lucky Boat noodles performing particularly well.
Refined sugar volumes increased significantly at Silver Spoon but profits
declined reflecting the lower margins in the very competitive UK retail
sugar market. Good growth was achieved in our Fairtrade business with a
highlight being the conversion of Sainsbury’s own label sugar to Fairtrade in
partnership with Illovo. Fairtrade proceeds benefited farmers’ co-operatives
in Malawi and Zambia. The Billington’s brand of unrefined sugars also
experienced strong growth.
At ACH in the US, the Mazola vegetable oil brand experienced some volume
decline following sharp price increases to recover higher corn oil costs.
The baking brands, Argo, Karo and Fleischmann’s, and gourmet spices, Spice
Islands, Weber Grill and Tone’s all delivered volume growth supported by
increased marketing. In Mexico, Capullo performed well with volumes held
despite price increases.
THE GROuP’S GROCERY BuSInESSES
MAdE ExCEllEnT PROGRESS In THE
YEAR dElIVERInG SuBSTAnTIAllY
HIGHER PROFITS AGAInST A
BACkGROund OF SHARPlY RISInG
COMMOdITY COSTS.
On 28 October 2008 we announced the creation of Stratas Foods,
a joint venture with Archer Daniels Midland Company (‘ADM’) for the
manufacture, marketing and distribution of packaged oil products in the
US and Canada. ABF and ADM will each hold a 50% share in the joint
venture which will be headquartered in Memphis, Tennessee. ABF will
contribute US$38m of assets from the ACH oils business, primarily in the
form of trademarks, whilst ADM will contribute packaging equipment at
four of its facilities in the US.
Associated British Foods Annual Report and Accounts 2008 // 13
Operating review
Explaining the business »
The magic ingredient:
The yeast production process
The essential ingredient in the production of so many of our
day-to-day products. But how is it made?
stage one
stage two
stage three
stage four
frozen
vial
beet
molasses
cane
molasses
flash
steriliser
sterile
mash tank
seed
fermenter
semi-seed
fermenter
filter
press
yeast
storage
growth
tube
pre-pure
culture
tank
pure culture
fermenter
commercial
fermenter
semi-seed
fermenter
semi-seed
yeast
storage
separation
washing
yeast
cooler
packaging
palletiser
yeast cooler
distribution
stage one – molasses and
raw material preparation
Yeast production takes approximately
five days from start to finish and
begins with the energy source for
yeast growth – sugar. Beet and cane
molasses are commonly used
because the sugars present in
molasses are readily fermentable.
Yeast also needs minerals, vitamins
and salts for growth, which are often
added to the molasses prior to flash
sterilisation which produces the
mash or wort used to feed the yeast
as it grows.
stage two – culture or
seed yeast preparation
Yeast production starts with a pure
culture tube or frozen vial of the
appropriate yeast strain. This yeast
serves as the inoculum for the
pre-pure culture tank where seed
is grown under sterile conditions
before being transferred to a larger
pure culture fermenter. From the
pure culture vessel, the grown
cells are transferred to a series
of progressively larger seed and
semi-seed fermenters. These later
stages are conducted as fed-batch
fermentations where the yeast
is fed molasses, phosphoric acid,
ammonia and minerals.
stage three – fermentation
and harvesting
At the end of the semi-seed
fermentation, the spent molasses
are removed and the yeast is washed
with cold water and held in a storage
tank at 34 degrees Fahrenheit
(1 degree Celsius) before it inoculates
the commercial fermentation tanks.
These commercial fermenters are up
to 50,000 gallons in size and are the
final step in the fermentation process.
Following addition of the seed
yeast, aeration, cooling and nutrient
additions are started to begin a
15–20 hour fermentation. At the
beginning of the fermentation, the
liquid seed yeast and additional
water may occupy only about one
third to one half of the fermenter
volume. Constant additions of
nutrients during the course of
fermentation bring the fermenter to
its final volume. The rate of nutrient
addition increases throughout the
fermentation and by the end of the
process the number of yeast cells
will have increased by between
five and eight times. During
fermentation the temperature
is kept at approximately 86 degrees
Fahrenheit (30 degrees Celsius) and
the pH in the range of 4.5–5.5.
stage four – filtration
and packaging
At the end of fermentation, the
resultant broth is separated, washed
with water and re-centrifuged to
yield a yeast cream, which is then
cooled to about 45 degrees
Fahrenheit (7 degrees Celsius).
Cream yeast can be loaded directly
into tankers for delivery direct to
customers or can be pumped to a
plate and frame filter press and
dewatered to a cake-like consistency,
which is crumbled into pieces and
refrigerated. Bags of yeast can then
be distributed to customers in
refrigerated trucks.
14 // Associated British Foods Annual Report and Accounts 2008
Stratas Foods will serve the foodservice, speciality food ingredient and retail
private label bottled oil markets. It is expected to produce 2.5 billion lbs of
oil in its first full year of operation with revenue of some US$1.4bn. Its broad
portfolio of products includes vegetable oil, shortening, margarine and pan
spray and its foodservice brands include Whirl and Frymax. The joint venture
combines the strengths of two leaders in the packaged oils industry. It will
build on the sales and marketing expertise of ACH, and the origination and
processing capabilities of ADM. It will offer an integrated supply chain,
exceptional processing capabilities and industry-leading product development.
The remaining ACH business will focus on its retail consumer brands. Brands
are now expected to account for virtually all of ACH’s revenue compared to
only half before the formation of the joint venture.
Our Australian grocery business delivered strong sales growth with
significantly improved performances from milling, baking and bakery
ingredients. In baking, price increases were successfully achieved in
November 2007 and July 2008. Noble Rise bread was relaunched with
five new variants under the slogan ‘Take a stand against the Bland’ and
Burgen was upgraded to facilitate a stronger health claim backed by the
‘Biggest Loser’ campaign. Manufacturing efficiences will be achieved
with the announced closures of the Canberra and Orange bakeries in
New South Wales.
The acquisition of KR Castlemaine, a leading meat and smallgoods
manufacturer, was completed at the end of March. It is located in a large,
modern facility at Castlemaine, 70 miles northwest of Melbourne. We have
announced the proposed rationalisation of our meat business for which an
exceptional provision has been included in the income statement. This will
allow the closure of our existing factories in Perth and Melbourne in 2009
and 2010 and the transfer of production to the newly acquired, low-cost
factory at Castlemaine which will be expanded to accommodate the higher
volume. The combined business will be the market leader in smallgoods
in Australia and will double the size of our existing business with sales of
over £300m.
Ingredients
Revenue £842m
(2007, £698m)
Adjusted operating profit £75m
(2007, £71m)
Revenue increased by 21% driven by organic growth
in the yeast business and the acquisition of the Gilde
Bakery Ingredients business in Italy. There was sustained
upward pressure on energy costs and key raw material
prices, notably molasses and phosphates. Some cost
recovery was achieved through price increases, but
was inadequate in the very competitive milk proteins
business. Profit margins fell as a result.
Good profit progress was made across the world in yeast and bakery
ingredients with good volume growth in South America and China. Brazil
had an exceptional year. We continued to grow our bakery ingredients
businesses, both through craft bakery and industrial channels. In particular,
we have been able to exploit our proprietary enzyme technology and
continue to build strong partnerships with the world’s largest bakeries.
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In October 2007 we acquired, from Gilde Bakery Ingredients, their sales
and distribution operations in France and Benelux and the Italian business,
including the Casteggio wet and dry yeast plant. The sales and distribution
operations have been successfully integrated and we have been able to
deliver significant cost savings at the Italian plant. Since the year end the
European Commission has approved the completion of the acquisition of
a 50% shareholding in the Uniferm yeast and bakery ingredients business
in Germany.
In BAkERY InGREdIEnTS WE
COnTInuEd TO SHARE TECHnOlOGY
ACROSS THE GROuP And HAVE
STARTEd TO SEE THE BEnEFIT In OuR
GlOBAl ACCOunTS.
The expansion of the Chinese yeast plant in Harbin has progressed well.
This expansion is to meet increasing domestic demand and to provide a low
cost base for the supply of dry yeast globally. A new yeast extracts plant
is also being constructed alongside the yeast plant to provide additional
capacity now that the existing German plant is fully utilised. We have seen
the continuation of the trend towards tighter environmental controls
around the world and have been investing to upgrade our facilities to keep
pace with changing regulatory requirements.
At ABF Ingredients, enzyme profits grew strongly with sales to the food
and beverage and animal feeds markets performing particularly well.
The increased demand for enzymes has led to further investment to
expand capacity at our plant in Finland by some 40%. This is due to be
commissioned early next summer. Profitability declined at our speciality
protein business in the US with an inability to fully recover milk and dairy
commodity price increases in a very competitive market. Since the year
end we have announced the decision to close the loss-making milk protein
factory in Norfolk, Nebraska, and the remaining business will concentrate
on the production of whey proteins at Juda, Wisconsin. The sale of Abitec,
our small, UK-based, emulsifier business, was completed in August.
George Weston
Chief Executive
Associated British Foods Annual Report and Accounts 2008 // 15
Financial review
Group performance
Group revenue increased by 21% to £8,235m. This substantial increase was
driven mainly by the continued growth at Primark and price rises across
our other businesses to recover the major increases in commodity costs.
Volume growth and the benefit of acquisitions and the translation effect
of the weakening of sterling also contributed. At constant currency, and
excluding the benefit of acquisitions, revenue increased by 13%.
Operating profit, adjusted to exclude exceptional items, the amortisation
of non-operating intangibles and profits on the sale of property, plant and
equipment, increased by 7% to £664m. This was achieved in the face of
a number of challenges. The impact of the changes in the EU sugar regime
was £56m and higher commodity prices added some £390m to our cost
base. At constant currency, and excluding the benefit of acquisitions and
EU sugar regime changes, adjusted profit increased by 12%.
The disposal of properties, plant and equipment resulted in a profit of
£10m. A net profit of £5m, including goodwill written off of £21m, arose
on the sale of businesses including the yeast business in Germany, which
was sold as a condition of acquiring the German yeast business of Gilde
Bakery Ingredients, our UK-based emulsifier business and a small animal
feeds business in Northern Ireland.
Finance expense less finance income of £53m compares with a charge of
£35m last year. This year-on-year increase resulted from the continued
significant level of capital investment to develop opportunities in our
existing businesses, many of which are of a long-term nature, the
acquisition of new businesses and the impact of much higher commodity
prices on working capital. Other financial income of £21m was primarily
net pensions financing income, being the expected return on assets in the
group’s pension schemes less the charge on pension scheme liabilities.
Profit before tax increased from £508m to £527m. This year’s result
includes an exceptional charge of £46m arising from major restructuring
initiatives. The permanent renunciation of sugar quota for the UK and
Poland agreed with the European Commission was 206,000 tonnes.
Compensation receivable for this renunciation, net of the write-off of
the unamortised cost of quota purchased in 2006 and provision for the
associated factory closure costs, resulted in a gain of £25m. We have also
provided for the proposed rationalisation of our Australian meat business
following the acquisition of KR Castlemaine at the end of March. Adjusted
to exclude these exceptional items, the amortisation of non-operating
intangibles and profits and losses on the sale of businesses and fixed assets,
profit before tax increased 3% from £613m to £632m.
Taxation
The tax charge of £136m included an underlying charge of £154m, an
effective tax rate of 24.4% on the adjusted profit before tax. This was
slightly lower than last year’s 25.0% as a result of the mix of profits in
different tax jurisdictions.
The net tax credit of £23m on the exceptional items described above has
also been treated as exceptional in the income statement together with
a tax charge of £17m to reflect the increase in the group’s deferred tax
liability following a change of tax law in the UK Finance Act 2008 which
will phase out Industrial Buildings Allowances.
The overall tax charge for the year benefited from a £21m (2007 – £30m)
credit for tax relief on the amortisation of non-operating intangible assets
and goodwill arising from asset acquisitions. A tax charge of £9m was
incurred on the profits arising on the sale of businesses and fixed assets.
Earnings and dividends
Earnings attributable to equity shareholders of £357m were £12m lower
than last year and the weighted average number of shares in issue remained
at 790 million. Earnings per ordinary share fell by 3% from 46.7p to 45.2p.
A more consistent measure of performance is provided by the adjusted
earnings per share which excludes exceptional items, profits on the sale
of businesses and property, plant and equipment and the amortisation of
non-operating intangibles net of any tax benefit. Adjusted earnings per
share increased by 4% from 52.9p to 54.9p.
The interim dividend was increased by 4% to 6.75p and a final dividend has
been proposed at 13.5p which represents an overall increase of 4% for the
year. In accordance with IFRS, no accrual has been made in these accounts
for the proposed dividend which is expected to cost £107m and will be
charged next year. The dividend is covered 2.7 times on an adjusted basis.
Balance sheet
Non-current assets increased by £652m to £5,371m including £3,110m
of property, plant and equipment. The increase was driven by acquisitions
which added £209m and capital expenditure of £502m. Working capital
increased by £340m primarily due to considerably higher inventory values
as a result of the substantial increases in commodity costs. Net borrowings
at the year end were £480m higher than last year at £791m.
A currency gain of £302m arose on the translation into sterling of the
group’s foreign currency denominated net assets. This resulted from the
fact that sterling was weaker against all major currencies at the end of this
year than at the end of the previous year. The group’s net assets increased
by £380m to £4,844m.
16 // Associated British Foods Annual Report and Accounts 2008
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We continue to invest strongly in
the future growth of the group with
a net £710m spent on property,
plant and equipment, intangibles
and acquisitions during the year.
Return on capital employed for the group fell from 18.8% to 16.6%. This
is largely a consequence of the substantial level of investment made this
year in expenditure, on a number of long-term capital projects which have
yet to yield a return but also the lower profitability of the European sugar
businesses. Return on capital employed is defined as operating profit
before exceptional items and the amortisation of non-operating intangibles
expressed as a percentage of average capital employed for the year.
Cash flow
Net cash flow from operating activities was £553m compared with
£696m last year. This reduction mainly reflects an adverse working capital
movement year-on-year of £165m moving from an inflow of £55m last
year to an outflow of £110m this year, the major driver being the increase
in commodity prices.
We continue to invest strongly in the future growth of the group with
a net £710m spent on property, plant and equipment, intangibles and
acquisitions during the year. £70m was spent on intangible assets of
which £49m related to the purchase of sugar quota negotiated in 2006.
Capital expenditure amounted to £502m of which £152m was spent on
the acquisition of new stores and the refitting of existing Primark stores.
Elsewhere, expenditure was incurred in developing our sugar interests
in China and southern Africa, and building or upgrading manufacturing
facilities across the group including capacity expansion at the enzymes
plant in Finland and yeast and yeast extract production in China.
£224m was spent on acquisitions including beet sugar factories in north east
China, the European assets of Gilde Bakery Ingredients, the KR Castlemaine
meat business in Australia and a number of small businesses to complement
our Agriculture operations. £59m was realised on business disposals,
primarily the German yeast business, resulting in a net cash outflow on
acquisitions and disposals of £165m.
Financing
Cash and cash equivalents totalled £348m at the year end and were
managed during the year by a central treasury department, operating
under strictly controlled guidelines, which also arranges term bank finance
for acquisitions and to meet short-term working capital requirements,
particularly for the sugar beet and wheat harvests.
At the year end the group had total committed banking facilities amounting
to £1,107m of which £888m was drawn down. £715m of these facilities
expire in October 2011 with the remainder maturing in 2013 and 2015. In
anticipation of further investment and to accommodate the seasonal build
of working capital at the half year, further committed facilities were secured
shortly after the year end. A £320m syndicated loan, expiring in October
2011, has been provided by members of our existing banking group resulting
in headroom on total committed facilities of £539m in addition to available
cash resources. The group also had access, at the year end, to £584m of
uncommitted credit lines under which £246m was drawn.
Pensions
Pensions are accounted for in accordance with IAS 19 – employee benefits.
The total pension expense for the year was £62m compared with £71m
last year.
On an IAS 19 basis, the net surplus (employee benefit assets less liabilities)
in the group’s defined benefit pension schemes reduced from £276m last
year to £61m this year mainly as a result of an increase in scheme liabilities
as a consequence of higher forecast inflation, and an adjustment to the
mortality assumptions to reflect experience to date and further
improvements in life expectancy of scheme members.
Following the merger of the British Sugar and Associated British Foods
pension schemes in April 2006, the Company agreed with the Pension
Trustees to make two payments of £14.5m to eliminate the funding deficit,
at that date, in the British Sugar section of the newly merged scheme.
The second payment was made in October 2007. Total contributions to
defined benefit plans in the year amounted to £54m (2007 – £61m).
For defined contribution schemes the charge for the year is equal to the
contributions made which amounted to £26m (2007 – £24m).
Financial reporting standards and accounting policies
IFRS 7 – Financial instruments: disclosures, has been adopted this year.
No other changes to financial reporting standards have a material impact
on the group accounts.
Post balance sheet events
On 28 October 2008 we announced the creation of Stratas Foods, a joint
venture with Archer Daniels Midland Company (‘ADM’) for the manufacture,
marketing and distribution of packaged oil products in the US and Canada.
ABF and ADM will each hold a 50% share in the joint venture, which will be
headquartered in Memphis, Tennessee.
ABF will contribute US$38m of assets from the ACH oils business, primarily
in the form of trademarks, whilst ADM will contribute packaging equipment
at four of its facilities in the US. The business contributed by ABF generated
operating profit of US$20m in the year ended 15 September 2007.
john Bason
Finance director
Associated British Foods Annual Report and Accounts 2008 // 17
Board of directors
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18 // Associated British Foods Annual Report and Accounts 2008
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01 Martin G Adamson
Non-executive director (age 69)
Appointed a director on 11 October 1999 and Chairman on 5 December
2002. He was a senior partner of KPMG and a member of that firm’s board
until 1996. He is a member of the Institute of Chartered Accountants
of Scotland.
06 WG Galen Weston OC
Non-executive director (age 68)
A director since 1964, he is chairman and president of George Weston
Limited, Canada. He is also chairman of Selfridges & Co. Limited, a
non-executive director of Wittington Investments Limited and a trustee
of the Garfield Weston Foundation.
07 Timothy Clarke
Senior independent non-executive director (age 51)
Appointed a director on 3 November 2004, he has been chief executive of
Mitchells & Butlers plc since the demerger from Six Continents PLC in 2003.
He joined Bass PLC in 1990 having previously been a partner of Panmure
Gordon & Co.
08 Javier Ferrán
Independent non-executive director (age 52)
Appointed a director on 1 November 2006, he spent his earlier career with
Bacardi Group, his last position being president and chief executive officer.
He is currently a partner at Lion Capital LLP, a London-based private
equity firm.
09 Charles Sinclair
Independent non-executive director (age 60)
Appointed a director on 1 October 2008, he is a non-executive director
of SVG Capital plc. He was chief executive of Daily Mail and General
Trust plc from 1989 until he retired from that role and the board on
30 September 2008.
02 George G Weston
Executive director (age 44)
George Weston is Chief Executive. He is a graduate of New College Oxford
and has an MBA from Harvard Business School. In his former roles as
Managing Director of Westmill Foods, Allied Bakeries and George Weston
Foods Ltd (Australia) he has been a member of the ABF board since 1999.
He took up his current appointment in April 2005. He is also a non-executive
director of Wittington Investments Limited and a trustee of the Garfield
Weston Foundation.
03 John G Bason
Executive director (age 51)
Appointed Finance Director in May 1999, he was previously the finance
director of Bunzl plc and is a member of the Institute of Chartered
Accountants in England and Wales.
04 Peter Smith
Independent non-executive director (age 62)
Appointed a director on 28 February 2007, he is chairman of Savills plc and
Templeton Emerging Markets Investment Trust plc, and a non-executive
director of NM Rothschild & Sons Limited and The Equitable Life Assurance
Society. Formerly, he was senior partner at PricewaterhouseCoopers (PwC)
and served for two years as chairman of Coopers & Lybrand International
and as a member of the global leadership team of PwC and chairman of
RAC plc.
05 Lord Jay of Ewelme GCMG
Independent non-executive director (age 62)
Appointed a director on 1 November 2006, he was British Ambassador to
France from 1996 to 2001 and Permanent Under Secretary at the Foreign
& Commonwealth Office from 2002 to 2006. He is a non-executive director
of Candover Investments plc, Valeo, the French-based automobile parts
company and of Credit Agricole, the French-based international banking
group. He has been an independent member of the House of Lords since
2006 and is Chairman of the House of Lords Appointments Commission.
Associated British Foods Annual Report and Accounts 2008 // 19
Directors’ report
for the year ended 13 September 2008
The directors submit to the members their seventy-third annual report
together with the audited financial statements of Associated British
Foods plc (the ‘Company’) for the 52 weeks ended 13 September 2008.
Business review
The information that fulfils the requirements of the business review, as
required by Section 234 ZZB of the Companies Act 1985, and which should
be treated as forming part of this report by reference are included in the
following sections of the annual report:
• Chairman’s statement on pages 4 and 5.
• Group at a glance on pages 2 and 3.
• Operating review on pages 6 to 15, which includes a review of the external
environment, key strategic aims and performance measures.
• Principal risks and uncertainties are described on pages 27 to 29.
• Details of the principal operating subsidiaries are set out on page 99.
• Financial review on pages 16 and 17.
• Corporate citizenship on pages 36 and 37.
Principal activities
The activities of the group principally concern the processing and
manufacture of food worldwide and textile retailing in the UK and
continental Europe. Comments on the development of the business
during the period under review and on the future outlook are contained
within the Chairman’s statement on pages 4 and 5 and the Operating
review on pages 6 to 15.
The Company is the holding company for the Associated British Foods
group (‘the group’). Details of the principal operating subsidiaries are set
out on page 99.
The audited financial statements of the group and Company appear on
pages 48 to 107.
Results and dividends
The consolidated income statement is on page 48. Profit for the financial
year attributable to equity shareholders amounted to £357m.
The directors recommend a final dividend of 13.5p per ordinary share, to
be paid, if approved, on 9 January 2009 which, together with the interim
dividend of 6.75p per share paid in July, amounts to 20.25p for the year.
Dividends are detailed on page 63.
Research and development
Innovative use of existing and emerging technologies will continue to be
crucial to the successful development of new products and processes for
the group.
The Company has a major technical centre in the UK at the Allied
Technical Centre. Facilities also exist at ACH Food Companies in the
US, Weston Technologies and AB Mauri in Australia and AB Enzymes in
Germany. These centres support the technical resources of the trading
divisions in the search for new technology and in monitoring and
maintaining high standards of quality and food safety.
Charitable and political donations
Contributions to charitable organisations by the group during the year
totalled £1.6m (2007 – £1.6m). No political donations were made during
the year.
Financial instruments
Details of the group’s use of financial instruments, together with
information on our risk objectives and policies and our exposure to price
risks, credit risks, liquidity risks and interest rate risks, can be found in note
25 on pages 84 to 96.
20 // Associated British Foods Annual Report and Accounts 2008
Payments to suppliers
The Company has no trade creditors but has a group policy on payment
of suppliers set out in its Business Principles which states that the
group settles its bills promptly, being a signatory to the Better Payment
Practice Code.
Employees
Employees are the Company’s most crucial resource, and it therefore abides
by the following principles:
• Equal opportunities – it is committed to offering equal opportunities to
all people in their recruitment, training and career development, having
regard for their particular aptitudes and abilities. Full and fair consideration
is given to applicants with disabilities and every effort is made to give
employees who become disabled whilst employed by the Company an
opportunity for retraining.
• Health and safety – health and safety are considered as equal in importance
to that of any other function of the Company and its business objectives.
The policy and a full global report is available on the Company’s website
at www.abf.co.uk
• Harassment – the Company will not tolerate sexual, mental or physical
harassment in the workplace. It expects incidents of harassment to be
reported to the appropriate human resources director.
• Human rights – managers must take account of the core International
Labour Organisation labour conventions and strive to observe the UN
Declaration on Human Rights, by respecting the dignity and human
rights of its employees and in particular as stated below:
‘Universal respect for an observance of human rights and fundamental
freedoms for all without discrimination as to race, sex, language or religion’.
It remunerates fairly with respect to skills, performance, its peers and
local conditions.
• Communication – the Company will brief employees and their
representatives on all relevant matters on a regular basis.
• Security – the security of our staff and customers is paramount and the
Company will at all times take the necessary steps to minimise risks to
their safety.
Property, plant & equipment
The group’s property, plant & equipment are included in the financial
statements at depreciated historic cost. The properties are employed in
the business and many of them were acquired when market values were
substantially lower than at present. The directors consider that a surplus
over book value exists, but have not quantified the excess.
Substantial shareholding and controlling interest
Details of a controlling interest in the shares of the Company are given
in note 30 on page 99.
Other than as noted above, so far as is known, no other person holds or
is beneficially interested in a disclosable interest in the Company.
Power to issue shares
At the last annual general meeting, held on 7 December 2007, authority
was given to the directors to allot unissued relevant securities in the
Company up to a maximum of an amount equivalent to one third of the
shares in issue at any time up to 6 December 2012. No such shares have
been issued. The directors propose to renew this authority at the annual
general meeting to be held on 5 December 2008 for a further period of
five years.
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A further special resolution passed at that meeting granted authority to the
directors to allot equity securities in the Company for cash, without regard to
the pre-emption provisions of the Companies Act 1985. This authority expires
on the date of the annual general meeting to be held on 5 December 2008
and the directors will seek to renew this authority for the following year.
Appointment of directors
The Company’s Articles of Association (the ‘Articles’) give the directors
power to appoint and replace directors. Under the terms of reference of the
Nomination committee, any appointment must be recommended by the
Nomination committee for approval by the board of directors. The Articles
also require directors to retire and submit themselves for election at the
first annual general meeting following appointment and all directors who
held office at the time of the two preceding annual general meetings, to
submit themselves for re-election.
Articles of Association
The Articles themselves may be amended by special resolution of
the shareholders.
Power of the directors
The directors are responsible for managing the business of the Company
and may exercise all the powers of the Company subject to the provisions
of relevant statutes, to any directions given by special resolution and to the
Company’s Memorandum and Articles. The Articles, for example, contain
specific provisions and restrictions concerning the Company’s power to
borrow money. Powers relating to the issuing of shares are also included in
the Articles and such authorities are renewed by shareholders at the annual
general meeting each year. Power to purchase the Company’s own shares is
also provided in the Articles subject to statutory provisions. The directors
have no existing authority to purchase the Company’s own shares.
Significant agreements
The group has a number of borrowing facilities provided by various banking
groups. These facility agreements generally include change of control
provisions which, in the event of a change in ownership of the Company,
could result in renegotiation or withdrawal of these facilities. The most
significant of these agreements are the US$1.2bn syndicated loan facility
which was signed on 12 October 2006 and under which £469m was drawn
down at the year end and the £120m Finance Contract from the European
Investment Bank which was signed on 5 December 2007 and under which
£120m was drawn down at the year end. Since the year end, the Company
has negotiated a multicurrency £320m syndicated loan facility with a term
of three years. It will be used for general corporate purposes. The new
facility has been provided by the Company’s existing bank group.
There are a number of other agreements that take effect, alter or terminate
upon a change of control of the Company following a takeover bid, such as
commercial contracts and joint venture agreements. None is considered
to be significant in terms of their potential impact on the business of the
group as a whole.
Further information
Further information that fulfils the requirements of section 992 of the
Companies Act 2006 and which should be treated as forming part of
this report by reference are included in the following sections of the
annual report:
• details of the structure of the Company’s share capital and the rights
attached to the Company’s shares set out on pages 78 and 79; and
the Company’s auditors are aware of that information. For these purposes,
relevant audit information means information needed by the Company’s
auditors in connection with the preparation of their report on page 35.
Auditors
In accordance with Section 489 of the Companies Act 2006, a resolution
for the re-appointment of KPMG Audit Plc as auditors of the Company is
to be proposed at the forthcoming annual general meeting.
Directors
The names of the persons who were directors of the Company during the
financial year and as at 4 November 2008 appear on pages 18 and 19, other
than Lord MacGregor and Mike Alexander who each retired from the board
at the end of the annual general meeting on 7 December 2007.
Charles Sinclair was appointed as a non-executive director on 1 October
2008 and, in accordance with the Articles, will be standing for election at
the annual general meeting to be held on Friday, 5 December 2008.
Also in accordance with the Articles and the Combined Code on Corporate
Governance, Galen Weston, who has served for more than nine years,
Martin Adamson, John Bason and George Weston retire from the board.
These directors, being eligible, offer themselves for re-election at the annual
general meeting.
Three directors of operating subsidiaries, benefited from qualifying third-
party indemnity provisions provided by the Company’s wholly owned
subsidiary, ABF Investments plc, during the financial year and at the date
of this report.
Non-beneficial interests
The following two directors of the Company at the end of the year had
non-beneficial interests:
Galen Weston and George Weston are trustees of a trust, in which they
have no beneficial interests, which at 13 September 2008 held 683,073
ordinary shares of 50p (2007 – 683,073) in Wittington Investments Limited.
Subsequent changes
The interests shown above remained the same at 4 November 2008.
Directors’ responsibility statement
• The financial statements, prepared in accordance with International
Financial Reporting Standards as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit for the Company
and the undertakings included in the consolidation taken as a whole; and
• Pursuant to Disclosure and Transparency Rules Chapter 4, the following
sections of the Company’s annual report contain 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:
1. The Chairman’s statement on pages 4 and 5
2. Operating review on pages 6 to 15 which includes a review of the
external environment, key strategic aims and performance measures
3. Financial review on pages 16 and 17
4. Directors’ report ‘Research and Development’
5. Directors’ report ‘Financial Instruments’
6. Directors’ report ‘Property, plant and equipment’, and
7. Directors’ report ‘Power of directors’
• details of the employee share schemes set out on pages 82 and 83.
On behalf of the board
Disclosure of information to auditors
The directors who held office at the date of approval of this Directors’
report confirm that, so far as they are each aware, there is no relevant
audit information of which the Company’s auditors are unaware; and each
director has taken all the steps that he ought to have taken as a director to
make himself aware of any relevant audit information and to establish that
Martin Adamson
Chairman
4 November 2008
George Weston
Chief Executive
John Bason
Finance Director
Associated British Foods Annual Report and Accounts 2008 // 21
Corporate governance
The board remains committed to maintaining high standards of corporate
governance throughout the group, which it believes are vital to its business
integrity and successful long-term performance. The board recognises that
corporate governance is not an end in itself but an important means to
an end.
The Listing Rules of the Financial Services Authority require UK listed
companies to report on the manner in which they apply the Combined
Code on Corporate Governance (the ‘Combined Code’). The board
recognises that the Combined Code represents best practice and this
report, together with the Remuneration report, sets out how the Company
applies the principles of this Combined Code which deal with directors,
directors’ remuneration, relations with, and accountability to, shareholders,
and the audit of the Company.
The board believes that any system which is adopted must also reflect
necessary standards of governance for Associated British Foods plc and its
corporate social responsibilities and believes that the systems in place meet
those requirements.
Statement of compliance
The board considers that the Company has complied fully with the
provisions set out in Section 1 of the Combined Code throughout the year,
with the following exceptions set out in the table below:
Combined Code Provisions
B.2.1 – The Chairman should not
chair the Remuneration committee
Status
Martin Adamson is both Chairman
and chair of the Remuneration
committee.
A.4.4 – The terms and conditions of
appointment of non-executive
directors should be made available
for inspection
Galen Weston has not entered into
a formal letter of appointment.
The board of directors
Role and responsibilities
All members of the board take collective responsibility for the business and
management of the Company. The board met formally nine times during
the year. The individual attendance by directors is detailed on page 23.
There is a formal schedule of matters reserved to the board for decision,
which includes the approval of:
• annual and interim results and interim management statements;
• the Company’s strategic and operating plans;
• annual budget;
• appointments to the board and as company secretary;
• treasury policies;
• dividend policy;
• amendments to the Company’s pension scheme;
• larger capital expenditure, acquisitions, disposals and investment
proposals; and
• the overall system of internal control and risk management.
Certain specific responsibilities are delegated to the board committees,
notably the Audit, Remuneration and Nomination committees, which operate
within clearly defined terms of reference, reporting regularly to the board.
Composition
The board currently comprises the non-executive Chairman Martin
Adamson, the Chief Executive George Weston, the Finance Director
John Bason and five non-executive directors who are independent of
management and have no relationships which would materially interfere
with the exercise of their independent judgement. The board also
includes Galen Weston, a non-executive director, who is not regarded as
independent in view of his relationship with Wittington Investments Ltd.
22 // Associated British Foods Annual Report and Accounts 2008
Explanation
The board of Associated British Foods plc does not accept this
recommendation as it considers that Martin Adamson, due to his
experience, is best suited to chair this committee. The Combined Code
now recognises that the Chairman can be a member of the Remuneration
committee. No director has any involvement in the determination of his
own remuneration.
This is due to his relationship with the Company’s ultimate holding
company, Wittington Investments Limited, of which he is a director and
shareholder. Galen Weston receives no fees for performing his role as a
non-executive director and Associated British Foods plc does not reimburse
him for any expenses incurred by him in that role. In accordance with the
Combined Code, he is subject to annual re-election.
The board considers that the non-executive directors provide a solid
foundation for good corporate governance for the group and ensure that
no individual or group dominates the board’s decision-making.
Details of the full board are set out on pages 18 and 19.
Chairman and Chief Executive
The roles of the Chairman and the Chief Executive are separately held and
the division of their responsibilities is clearly established, set out in writing,
and agreed by the board. The Chairman, Martin Adamson, is responsible
for the running and leadership of the board. The Chief Executive, George
Weston, is responsible for leading and managing the business within the
authorities delegated by the board.
Senior independent director
Tim Clarke is the recognised senior independent director.
Re-election
Under the Articles, all directors seek election at their first annual general
meeting and one third of the directors must retire by rotation each year,
subject to the requirement that each director seeks re-election every three
years. Furthermore, in accordance with the Combined Code, each non-
executive director who has served for more than nine years is required to
stand for annual re-election. Accordingly, in addition to Charles Sinclair who
is seeking election, Galen Weston, Martin Adamson, John Bason and George
Weston will be required to seek re-election at the forthcoming annual
general meeting.
Induction and continuing professional development
On joining the board, directors are given background documents describing
the Company and its activities and are provided with an appropriate
induction programme. The Company offers major shareholders the
opportunity to meet new non-executive directors. Site visits were arranged
during the year for the newly appointed independent non-executive
directors to meet the senior management teams at major business units.
Ongoing training is provided as necessary.
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Information flow
Board and committee papers are circulated to members in advance of
the meetings. In addition to formal meetings, the Chairman and Chief
Executive maintain regular contact with all directors. The Chairman also
holds informal meetings with non-executive directors, without any of the
executives being present, to discuss any issues affecting the group.
To keep the non-executive directors informed of events throughout the
group between board meetings, regular management updates are sent
to each director. This seeks to ensure that the non-executive directors
are always kept fully informed of the latest issues affecting the group.
Location of board meetings
Board meetings occasionally take place at the offices of the group’s
businesses. This further enables non-executive directors to develop their
knowledge of the group and to consult with management and other
employees. Non-executive directors may also make additional visits to
our overseas businesses through the year.
Senior executives below board level are invited, when appropriate, to attend
board meetings and to make presentations on the results and strategies of
their business units.
Independent professional advice
The board has adopted a procedure whereby directors may, in pursuit
of their duties and where they judge it necessary, take independent
professional advice on any matter at the Company’s expense.
Company Secretary
Directors have direct access to the advice and services of the Company
Secretary who is responsible for ensuring that board procedures
are followed.
Attendance at meetings
The attendance by individual directors at board and committee meetings
during the year ended 13 September 2008 was as follows:
Directors are generally provided with the papers for board and committee
meetings a week in advance. This enables any director who is unable to
attend to provide comments to the Chairman, the chairman of the relevant
committee or the Company Secretary, who will then relay these comments
to the relevant meeting.
Board committees
Membership of the three key committees was refreshed in January 2008.
Current membership of each committee is detailed below.
Nomination committee
Current members: Martin Adamson, Tim Clarke, Javier Ferrán, Lord Jay,
Charles Sinclair, Peter Smith.
Chairman: Martin Adamson.
Further details of the Nomination committee can be found on page 24.
Audit committee
Current members: Tim Clarke, Lord Jay, Charles Sinclair, Peter Smith.
Chairman: Peter Smith.
Further details of the Audit committee can be found on page 25.
Remuneration committee
Current members: Martin Adamson, Tim Clarke, Javier Ferrán, Lord Jay,
Charles Sinclair, Peter Smith.
Chairman: Martin Adamson.
Details of the Remuneration committee and its policies can be found on
pages 30 to 33.
The terms of reference of the Nomination committee, the Audit committee
and the Remuneration committee are available on request and from
www.abf.co.uk
Directors
Martin Adamson
George Weston
John Bason
Lord MacGregor (1)
Mike Alexander (1)
Tim Clarke
Lord Jay
Javier Ferrán
Peter Smith
Galen Weston
Nomination
committee
Audit
committee
Remuneration
committee
Full board
meeting
Possible
4
–
–
–
–
4
4
4
4
–
Actual
4
–
–
–
–
4
4
4
4
–
Possible
–
–
–
1
1
3
3
–
3
–
Actual
–
–
–
1
1
3
3
–
3
–
Possible
3
–
–
1
1
2
2
3
3
–
Actual
3
–
–
1
1
2
2
3
3
–
Possible
9
9
9
3
3
9
9
9
9
9
Actual
9
9
9
3
3
9
9
8
9
3
(1) Lord MacGregor and Mike Alexander retired as directors on 7 December 2007.
Associated British Foods Annual Report and Accounts 2008 // 23
Corporate governance continued
Board evaluation
In the final financial quarter the senior independent director led the
annual process which enabled the board to evaluate the effectiveness of
its performance. This involved an individual discussion between Tim Clarke
and each director based upon designated areas and topics. All input was
treated as strictly confidential and was not attributed to any individual
board member. The results of this exercise were subsequently reviewed
by the board. The performance of the Chairman was also appraised at a
meeting of the non-executive directors chaired by the senior independent
director and taking into account the views of the executive directors.
The process in 2008 confirmed that all directors continued to contribute
effectively and with proper commitment, including of time, to their roles.
Relations with shareholders
The Company is committed to increasing shareholder value, and
communicates its achievements and prospects to its shareholders in
an accurate and timely manner. Apart from the annual general meeting,
the Company communicates with its shareholders by way of the annual
report and accounts and the half-yearly report. Significant matters relating
to the trading or development of the business are disseminated to the
market by way of Stock Exchange announcements. The Company also
holds meetings with its major institutional shareholders to discuss the
Company’s operations.
The senior independent director is available to shareholders in the
event that communication with the Chairman, Chief Executive or
Finance Director has failed to resolve concerns or where such contact
is inappropriate.
The annual general meeting takes place in London. Formal notification is
sent to shareholders approximately one month in advance and in any event
at least 20 working days before the meeting. The annual general meeting
gives shareholders an opportunity to hear about the general development
of the business and to ask questions of the Chairman and, through him, the
chairmen of the key committees and other directors. The practice has been
for a short film to be shown at the meeting explaining a particular area of
the group’s business.
Accountability and audit
The board is required by the Combined Code to present a balanced and
understandable assessment of the Company’s position and prospects.
In relation to this requirement, reference is made to the statement of
directors’ responsibilities for preparing the financial statements set out
on page 34 of this annual report and accounts.
The independent auditors’ report on page 35 includes a statement by the
auditors about their reporting responsibilities. The board recognises that
its responsibility to present a balanced and understandable assessment
extends to interim and other price-sensitive public reports, reports to
regulators, and information required to be presented by law.
Going concern
After making due enquiries, the directors have a reasonable expectation
that the group has adequate resources to continue in operation for the
foreseeable future. For this reason they continue to adopt the going
concern basis for preparing the financial statements on pages 48 to 107
of this annual report and accounts.
Procedures to deal with directors’ conflicts of interest
The Company has procedures in place to deal with the situation where
a director has a conflict of interest. As part of the new company law regime
introduced by the Companies Act 2006 (the ‘2006 Act’), these procedures
have been revised and the Company will be seeking shareholder approval
to amend its Articles of Association to include provisions for dealing with
directors’ conflicts of interest. As part of this process, the members of the
board will endeavour to:
• consider each conflict situation separately on its particular facts;
• consider the conflict situation in conjunction with the rest of his duties
under the 2006 Act;
• keep records and board minutes as to authorisations granted by directors
and the scope of any approvals given; and
• regularly review conflict authorisation.
Report of the Nomination committee
Composition of the Nomination committee
The members of the Nomination committee who held office during the
year and at the date of this report are:
Martin Adamson (Chairman)
Tim Clarke
Javier Ferrán
Lord Jay
Lord MacGregor (until December 2007)
Charles Sinclair (from November 2008)
Peter Smith (from January 2008)
Executive directors may be invited to attend as appropriate.
The Nomination committee leads the process for board appointments
making recommendations to the board.
The Chairman does not chair the Nomination committee when it is
dealing with the appointment of his successor. In these circumstances the
committee is chaired by a non-executive director elected by the remaining
members. The committee met four times during the year.
Duties
The Nomination committee is responsible for identifying and nominating,
for the approval of the board, candidates to fill board vacancies as and
when they arise. Before an appointment is made, the committee evaluates
the balance of skills, knowledge and experience on the board and, in the
light of this evaluation, prepares a description of the role and capabilities
required for a particular appointment.
Candidates from a wide range of backgrounds are considered. The
Nomination committee normally uses external advisors to facilitate
searches for potential candidates.
The time required from a non-executive director is reviewed annually.
The annual board evaluation is used to assess whether the non-executive
director is spending sufficient time to fulfil his duties.
The Nomination committee gives full consideration to succession
planning in the course of its work, taking into account the challenges
and opportunities facing the Company and what skills and expertise are
therefore needed on the board and from senior management in the future.
24 // Associated British Foods Annual Report and Accounts 2008
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The Nomination committee reviews the structure, size and composition
(including the skills, knowledge and experience) of the board and, if
appropriate, makes recommendations for changes to the board. In this
respect, the committee has regard to the results of the annual board
evaluation. The committee keeps under review the leadership needs of
the organisation, both executive and non-executive, with a view to
ensuring the continued ability of the organisation to compete efficiently
in the marketplace. The committee makes recommendations regarding
the membership of the Audit committee in consultation with the Audit
committee chairman.
Activities
The Nomination committee makes recommendations to the board
on succession for executive directors, the re-appointment of any non-
executive directors at the conclusion of their specified term of office,
any matter relating to the continuation in office of any director at any
time and the appointment of any director to executive or other office.
External recruitment consultants Odgers Ray & Berndtson, the global
executive search firm, conducted a thorough search and identified a
number of high quality candidates in connection with the most recent
non-executive director appointment.
The Nomination committee recommended the appointment of
Charles Sinclair to the board and he became a non-executive director
on 1 October 2008.
Corporate website
The terms of reference of the Nomination committee, which set out
its role and the authority delegated to it by the board, are available for
inspection at the Company’s registered office and can be viewed on the
Company’s website.
The formal letters of appointment of non-executive directors are also
available for inspection at the Company’s registered office.
Report of the Audit committee
Summary of the role of the Audit committee
The Audit committee is responsible for maintaining an appropriate
relationship with the group’s external auditors and for reviewing the
Company’s internal audit resources, internal financial controls and the
audit process. It aids the board in seeking to ensure that the financial and
non-financial information supplied to shareholders presents a balanced
assessment of the Company’s position.
The Audit committee reviews the objectivity and independence of the
external auditors and also considers the scope of their work and fees paid
for audit and non-audit services.
The Audit committee has unrestricted access to Company documents and
information, as well as to employees of the Company and the external
auditors. Members of the committee may, in pursuit of their duties, take
independent professional advice on any matter at the Company’s expense.
The committee chairman reports the outcome of meetings to the board.
Composition of the Audit committee
The members of the Audit committee who held office during the year and
at the date of this report are:
Peter Smith (Chairman)
Mike Alexander (until December 2007)
Tim Clarke
Lord Jay
Lord MacGregor (until December 2007)
Charles Sinclair (from November 2008)
Membership of the Audit committee is determined by the board, on the
recommendation of the Nomination committee and in consultation with
the committee chairman, from amongst the independent, non-executive
directors of the Company. Its terms of reference are set by the board and
are modelled closely on the provisions of the Combined Code.
Appointments are for a period of three years after which they are subject
to annual review, extendable by additional three-year periods so long as
members continue to be independent. The Audit committee is comprised
of a minimum of three independent non-executive directors at any time
and currently comprises four members. Two members constitute a quorum.
The Audit committee structure requires the inclusion of one financially
qualified member (as recognised by the Consultative Committee of
Accountancy Bodies). Currently the committee chairman fulfils this
requirement. All committee members are expected to be financially literate.
The board expects Audit committee members to have an understanding
of the following areas:
• the principles of, and developments in, financial reporting including
the applicable accounting standards and statements of
recommended practice;
• key aspects of the Company’s operations including corporate policies and
the group’s internal control environment;
• matters which may influence the presentation of accounts and key figures;
• the principles of, and developments in, company law, sector-specific laws
and other relevant corporate legislation;
• the role of internal and external auditing and risk management; and
• the regulatory framework for the group’s businesses.
Meetings
The Audit committee meets at least three times each year and has an
agenda linked to events in the group’s financial calendar. The committee
invites the Group Finance Director, Group Financial Controller, Director of
Financial Control and senior representatives of the external auditors to
attend all of its meetings in full, although it reserves the right to request
any of these individuals to withdraw. Other senior managers are invited
to present such reports as are required for the committee to discharge
its duties.
Overview of the actions taken by the Audit committee to discharge
its duties
In order to fulfil its terms of reference, the Audit committee receives and
reviews presentations and reports from the group’s senior management,
consulting as necessary with the external auditors.
During the year, the Audit committee formally reviewed draft half-yearly and
annual reports and associated announcements. These reviews considered:
• the accounting principles, policies and practices adopted in the group’s
financial statements and proposed changes to them;
• significant accounting issues and areas of judgement and complexity;
• litigation and contingent liabilities affecting the group; and
• potential tax contingencies and the group’s compliance with statutory
tax obligations.
Associated British Foods Annual Report and Accounts 2008 // 25
Corporate governance continued
The Audit committee is required to assist the board to fulfil its
responsibilities relating to the adequacy and effectiveness of the control
environment and the group’s compliance with the Combined Code. To fulfil
these duties, the committee reviewed:
• the external auditors’ management letters and audit highlights
memoranda;
The Audit committee has recommended to the board that the external
auditors are re-appointed.
Internal audit function
The Audit committee is required to assist the board to fulfil its
responsibilities relating to the adequacy of the resourcing and plans
of internal audit. To fulfil these duties, the committee reviewed:
• internal audit reports on key audit areas and significant deficiencies in the
• internal audit’s terms of reference, reporting lines and access to the
financial control environment;
committee and all members of the board;
• reports on the systems of internal financial controls and risk
• internal audit’s plans and its achievement of the planned activity;
management; and
• reports on frauds perpetrated against the group.
The Audit committee is responsible for the development, implementation
and monitoring of policies and procedures on the use of the auditor for
non-audit services in accordance with professional and regulatory
requirements. These policies are kept under review to meet the objective
of ensuring that the group benefits in a cost-effective manner from the
cumulative knowledge and experience of its auditor whilst also ensuring
that the auditor maintains the necessary degree of independence and
objectivity. Consequently, any non-audit work to be undertaken by
the auditor in excess of £300,000 is required to be authorised by the
Chairman of the Audit committee and the Group Finance Director prior
to commencement. Individual assignments less than £300,000 are
approved by the Group Finance Director.
The Audit committee has formally reviewed the independence of its
auditors. KPMG Audit Plc have provided a letter confirming that they
believe they remain independent within the meaning of the regulations
on this matter and their professional standards.
To fulfil its responsibility regarding the independence of the external
auditors, the Audit committee reviewed:
• changes in external audit executives in the audit plan for the current year;
• a report from the external auditors describing their arrangements to
identify, report and manage any conflicts of interest; and
• the extent of non-audit services provided by the external auditors.
To assess the effectiveness of the external auditors, the committee
reviewed:
• the external auditors’ fulfilment of the agreed audit plan and variations
from it; and
• reports highlighting the major issues that arose during the course of
the audit.
To fulfil its responsibility for oversight of the external audit process, the
Audit committee reviewed:
• the terms, areas of responsibility, associated duties and scope of the
audit as set out in the external auditors’ engagement letter for the
forthcoming year;
• the external auditors’ overall work plan for the forthcoming year;
• the external auditors’ fee proposal;
• the major issues that arose during the course of the audit and
their resolution;
• key accounting and audit judgements;
• the levels of errors identified during the audit; and
• recommendations made by the external auditors in their management
letters and the adequacy of management’s response.
26 // Associated British Foods Annual Report and Accounts 2008
• the results of key audits and other significant findings, the adequacy
of management’s response and the timeliness of resolution;
• statistics on staff numbers, qualifications and experience and timeliness
of reporting;
• the level and nature of non-audit activity performed by internal audit; and
• the changes since the last annual assessment in the nature and extent
of significant risks and the group’s ability to respond to changes in its
business and the external environment.
The group’s ‘whistleblowing’ policy contains arrangements for the Company
Secretary to receive, in confidence, complaints on accounting, risk issues,
internal controls, auditing issues and related matters for reporting to the
Audit committee as appropriate.
The group’s anti-fraud policy has been communicated to all employees and
states that all employees have a responsibility for fraud prevention and
detection. Any suspicion of fraud should be reported immediately and will
be investigated vigorously.
The Audit committee holds private meetings with the external auditors
after each committee meeting, and with the Director of Financial Control
as appropriate but at least annually, to review key issues within their
spheres of interest and responsibility.
The chairman of the Audit committee will be present at the annual general
meeting to answer questions on this report, matters within the scope of
the committee’s responsibilities and any significant matters brought to
the committee’s attention by the external auditors.
The full terms of reference of the Audit committee are available on the
Company’s website: www.abf.co.uk
Internal control
The board acknowledges its responsibilities for the group’s system of
internal control to facilitate the identification, assessment and management
of risk, the protection of shareholders’ investments and the group’s assets.
The directors recognise that they are responsible for providing a return to
shareholders, which is consistent with the responsible assessment and
mitigation of risks.
Effective controls ensure that the group is not exposed to avoidable risk,
that proper accounting records have been maintained and that the
financial information used within the business and for publication is reliable.
The dynamics of the group and the environment within which it operates
are continually evolving together with its exposure to risk. The system
is designed to manage rather than eliminate the risk of assets being
unprotected and to guard against their unauthorised use and the failure to
achieve business objectives. Internal controls can only provide reasonable
and not absolute assurance against material misstatement or loss.
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The directors confirm that there is an ongoing process for identifying,
evaluating and managing the risks faced by the group and the operational
effectiveness of the related controls, which has been in place for the year
under review and up to the date of approval of the annual report and
accounts. They also confirm that they have regularly reviewed the system
of internal controls utilising the review process set out below.
Standards
There are guidelines on the minimum groupwide requirements for health
and safety and environmental standards. There are also guidelines on the
minimum level of internal control that each of the divisions should exercise
over specified processes. Each business has developed and documented
policies and procedures to comply with the minimum control standards
established, including procedures for monitoring compliance and taking
corrective action. The board of each business is required to confirm
bi-annually that it has complied with these policies and procedures.
High level controls
All operations prepare annual operating plans and budgets which are
updated regularly. Performance against budget is monitored at operational
level and centrally, with variances being reported promptly. The cash
position at group and operational level is monitored constantly and
variances from expected levels are investigated thoroughly.
Clearly defined guidelines have been established for capital expenditure
and investment decisions. These include the preparation of budgets,
appraisal and review procedures and delegated authority levels.
Internal audit
The group’s businesses employ internal auditors (both employees and
resources provided by Ernst & Young where appropriate) with skills and
experience relevant to the operation of each business. All of the internal
audit activities are co-ordinated centrally by the group’s Director of
Financial Control, who is accountable to the Audit committee.
All group businesses are required to comply with the group’s financial control
framework that sets out minimum control standards. A key function of the
group’s internal audit resources is to undertake audits to ensure compliance
with the financial control framework and make recommendations for
improvement in controls where appropriate. Internal audit also conducts
regular reviews to ensure that risk management procedures and controls are
adhered to. The Audit committee receives regular reports on the results of
internal audit’s work and monitors the status of recommendations arising.
The committee reviews annually the adequacy, qualifications and experience
of the group’s internal audit resources and the nature and scope of internal
audit activity in the overall context of the group’s risk management system
set out below. The Director of Financial Control meets with the chairman of
the committee as appropriate but at least annually, without the presence of
executive management, and has direct access to the Chairman of the board.
Risk management review
The group’s risk management process seeks to enable the early identification,
evaluation and effective management of the key risks facing the businesses at
operational level and to operate internal controls, which adequately mitigate
these risks. The key risks and internal control procedures are reviewed by
group personnel together with internal audit activities. Each business is
responsible for regularly assessing its risk management activities to ensure
good practice in all areas. Compliance with group requirements is monitored
six monthly, and these assessments are formally reviewed by group personnel
at least annually. The Audit committee receives reports on internal financial
control issues from management and from the external auditors and regularly
reports to the board for the purposes of the board’s annual review.
The principal corporate risks as identified by each business and noted by the
board are currently:
1. Food safety
The group derives over 55% of its turnover from the production and sale of
food and has a positive role to play in contributing to the quality of people’s
lives by providing wholesome and nutritious foods, food ingredients and
animal feedstuffs. Sugar, tea, flour, bread, cereals, meat and dairy products
are part of people’s daily lives all over the world and the group plays an
important part in making sure these are produced efficiently and to a
high quality.
To manage food safety risks, sites operate food safety systems which are
regularly reviewed to ensure they remain effective, including compliance
with all regulatory requirements for hygiene and food safety. Food products
are made to high standards regardless of where they are manufactured.
Food safety is always put before economic considerations.
2. Supply chain labour standards
Those businesses with global supply chains are at greater risk of controversy
relating to breaches, by suppliers, of the International Labour Organisation
core labour standards. Since the group uses extensive global supply chains,
it takes all reasonable steps to mitigate the risk of damage to its reputation
in the case of any breaches by striving to ensure that it does not buy from
factories with poor working conditions. Examples of such steps include:
• Primark has been working within its supply chains for several years prior
to making its commitment public by joining the Ethical Trading Initiative
(ETI) (www.ethicaltrade.org) in May 2006.
Primark defined its Ethical Trade Strategy in 2006 and in 2008 entered
the second phase of its implementation which will ensure that factories
making 80% of all purchases are assessed.
Audits are conducted by Primark’s own regionally-based Ethical Managers
and third-party specialist auditors. 38% of its initial audits to date have
been unannounced and the rest take place within a pre-agreed window.
Over 135,000 workers employed in suppliers’ factories have had their
working conditions assessed, and improved where necessary.
After the initial audit, Primark’s Ethical Managers work with suppliers to
support them through remediation. Training is offered to suppliers and
their garment makers on particular issues and best practice, at regular
intervals. Follow-up audits are conducted after three months from the
initial audit. Over the last year Primark achieved a 75% improvement
rate on the first re-inspection.
Primark has to report on its activity annually to the ETI and has had
encouraging feedback on its latest annual report.
Many of Primark’s suppliers also manufacture for its competitors. People
working in these factories are paid the same weekly wage irrespective of
the customer on whose behalf they are working.
All new suppliers are risk assessed prior to the supplying of their initial
orders to Primark.
Primark recognises that shared learning and collaboration is one of the
most successful ways to achieve sustained positive progression with its
suppliers’ factories. Primark participates in the ETI – Supported National
Homeworkers Group in India and is one of the founder members of the
Wages Group.
• AB Agri is involved in WildCare, a wildlife habitat scheme for dairy
farms supplying Waitrose’s Select Farm milk. Working with Dairy Crest,
the Wildlife Trusts and the Waitrose Select Farm milk pool, the scheme
encourages farmers to develop and protect habitat suitable for wildlife.
AB Agri employs auditors to carry out annual audits to monitor the
species found on participating farms, paying particular attention to
those highlighted in the relevant county Biodiversity Action Plans.
These specialist auditors then develop action plans to help farmers
improve habitats.
Associated British Foods Annual Report and Accounts 2008 // 27
Corporate governance continued
• Twinings is a member of the Ethical Tea Partnership which requires
its suppliers and subcontractors to meet the International Labour
Organisation core labour standards, respecting an observance of human
rights and fundamental freedoms without discrimination as to race, sex,
language or religion.
• Illovo, British Sugar and Allied Bakeries operate a comprehensive set of
policies and standards to cover all aspects of their operations, including
supply chain labour standards. Performance is measured on a regular basis
by means of self-assessments and audits by independent consultants.
Many businesses within the group do not rely upon third parties to source
their products. However, those that do have ethical sourcing policies in line
with the group’s Corporate Citizenship principles and the requirements of
their customers.
3. Competition rules
The penalties for failing to comply with the 1998 Competition Act,
the 2003 Enterprise Act, relevant EU law and all relevant competition
legislation are recognised as risks to be managed. Clear policy direction,
which includes compulsory awareness training and close support from
the in-house legal department, has reduced the likelihood of the group
breaching these regulations.
4. Environment
The group recognises the impact that its businesses have on the
environment. Therefore, as a minimum, it aims to comply with current
applicable legislation of the countries in which it operates and its operations
are conducted with a view to ensuring that:
• emissions to air, releases to water and land filling of solid wastes do
not cause unacceptable environmental impacts and do not offend
the community;
• significant plant and process changes are assessed and positively
authorised in advance to prevent adverse environmental impacts;
• energy is used efficiently and consumption is monitored;
• natural resources are used efficiently;
• raw material waste is minimised;
• solid waste is reduced, reused or recycled where practicable;
• the amount of packaging used for group products is minimised,
consistent with requirements for food safety and product protection;
• products are transported efficiently to minimise fuel usage, consistent
with customers’ demands, production arrangements and vehicle
fleet operations;
• accidents are prevented so far as is reasonably practical; and
• effective emergency response procedures are in place to minimise the
impact of foreseeable incidents.
Particular attention is given to recently acquired businesses to ensure
that they operate in accordance with the standards expected.
The principal environmental risk is the use of energy and the resultant
emissions of carbon dioxide, a gas involved in climate change. The efficient
use of energy is a major element of our environmental policy. Indeed, all
sites which are subject to the EU’s Pollution Prevention and Control regime
are also under a statutory requirement to minimise energy consumption
by use of best available techniques.
Manufacturing operations in the UK participate in the UK Government’s
Climate Change Agreement Scheme in which energy intensive businesses
receive an 80% discount from the Climate Change Levy in return for
meeting energy efficiency or carbon saving targets. The sugar sites in the
UK and Poland participate in the EU Emissions Trading Scheme. These
schemes allow the sites to reduce energy consumption and therefore
reduce emissions of carbon dioxide cost-effectively.
In addition to the consumption of energy the group generates surplus
electricity from highly efficient Combined Heat and Power (CHP) schemes
and sells this electricity to other companies. All UK CHP schemes
participate in the UK Government’s CHP quality assurance scheme and
qualify for a full exemption from the UK’s Climate Change Levy.
Carbon dioxide is emitted both directly from the combustion of fossil fuels
at the group’s sites to create steam, heat and electricity, and indirectly by
the power stations from which the group buys its electricity. The use of
bagasse (sugar cane fibre, which is a renewable resource and hence carbon
neutral) as a fuel in the cane factories eliminates the need to use coal and
other fossil fuels to provide energy to our boilers.
Other significant environmental risks include handling and disposal of
waste and the treatment of waste water. The principal legal risk is regulatory
action against the group for non-compliance with licence conditions and
statutory requirements. All the group’s businesses have named accountable
senior executives and responsible managers and the management of the
physical and legal risks, for which they employ specialists, is included in their
annual objectives.
The group employs Environmental Resources Management Limited (ERM)
to continue its rolling programme of audits of the management of
environmental risks at a representative range of group companies. The sites
audited are selected on the basis of materiality with regard to the range of
issues as well as the contribution to the health, safety and environment
performance of the group as a whole. ERM also carry out a sample data
verification process on the group’s data to check completeness and accuracy.
Each year the board reviews the verified results and provides strategic
direction. Businesses are required to develop action plans as appropriate
and progress is monitored by the group health and safety manager.
The group publishes details of its environmental performance in a separate
report on its website: www.abf.co.uk/csr
5. Health and safety
The group is committed to providing a safe and healthy workplace in line
with local regulations to protect all employees, visitors and the public
insofar as they come into contact with foreseeable work hazards. The group
considers health and safety as equal in importance to that of any other of
its functions and its business objectives. It requires its businesses to build
a culture of sustained improvement.
People’s health and safety at work is a prime responsibility for all those who
manage and supervise. All employees and those working on behalf of the
group have a responsibility for the health and safety of themselves and
others who may be affected by their actions. The group ensures that they
are well informed, appropriately trained and are consulted on matters
affecting their health and safety.
The principal health and safety risks relate to the potential for serious
injuries, fatal accidents and regulatory action for non-compliance with
statutory requirements.
28 // Associated British Foods Annual Report and Accounts 2008
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As with environmental risks, all the group’s businesses have named
accountable senior executives who employ specialists to manage these risks,
and the management of these risks forms part of their annual objectives.
The group employs ERM to audit a representative sample of its operations
to understand how companies manage their risks and to verify the data.
Businesses are required to develop action plans as appropriate and progress
is monitored by the group health and safety manager.
The group publishes details of its safety performance in a separate report
on its website: www.abf.co.uk/csr
10. Regulatory and political environment
The group is subject to a wide variety of regulations in the different
countries in which it operates because of the diverse nature of its
businesses. It may also be affected by political developments in the
countries in which it operates. It considers these uncertainties in the
external environment when developing strategy and reviewing
performance, remaining vigilant to future changes. The group engages
with governmental and non-governmental organisations to ensure the
views of its stakeholders are represented and tries to anticipate and
contribute to important changes in public policy wherever it operates.
6. People
The group’s performance targets require it to have the right calibre of
people at all levels. It must compete to obtain capable recruits for the
businesses, and then train them in the skills and competencies that are
needed to deliver profitable growth. At a time of substantial change in
the businesses, there is a particular focus on creating alignment and
energetic leadership.
7. Financial and commodity risks
Treasury operations are conducted within a framework of board-approved
policies and guidelines to manage the group’s financial and commodity
risks. Financial risks essentially arise through exposure to foreign currencies,
interest rates, counterparty credit and borrowing facilities. Commodity risks
arise from the procurement of raw materials and the exposure to changes
in market prices. Liquidity risk arises from the availability of internal and
external funding to enable the group to meet its financial obligations as and
when they fall due.
Details of the group’s accounting and risk management policies with respect
to financial instruments and the associated quantitative and qualitative
disclosures are set out in note 25 on page 84.
8. Taxation risks
Tax benefits are not recognised unless it is probable that the position taken
is sustainable. Management reviews each material tax benefit to assess
whether a provision should be taken against full recognition of the benefit
on the basis of potential settlement through negotiation and/or litigation.
Any interest and penalties on tax liabilities are provided for in the tax charge.
The group operates internationally and is subject to tax in many different
jurisdictions. As a consequence, the group is routinely subject to tax audit
and local enquiries which, by their very nature, can take a considerable period
to conclude. Provision is made for known issues based on management’s
interpretation of country specific tax law and the likely outcome.
9. Loss of a major site
The group operates from many key sites the loss of which, for example
as a result of fire, would present significant operational difficulties. Our
operations have business continuity plans in place to manage the impact
of such an event and group insurance programmes to mitigate the
financial consequences.
Associated British Foods Annual Report and Accounts 2008 // 29
Remuneration report
1. Introduction
This report sets out the policy and disclosures on directors’ remuneration
as required by the Directors Remuneration Report Regulations 2002
(‘the Regulations’) contained in schedule 7A of the Companies Act 1985.
In accordance with the Regulations, a resolution to approve this report will
be proposed at the forthcoming annual general meeting of the Company.
The vote will have advisory status in respect of the remuneration policy and
overall remuneration packages and will not be specific to individual levels of
remuneration. KPMG Audit plc has audited the report to the extent required
by the Companies Act, being the sections entitled ‘Directors’ remuneration’,
‘Long-term incentives’, ‘Directors’ pensions’ and ‘Directors’ share options’.
2. The Remuneration committee
The Remuneration committee is responsible to the board for determining
the remuneration policy for executive directors, together with the specific
terms and conditions of employment of each individual director, and for
reviewing the overall policy for executive remuneration.
Committee composition
The Remuneration committee currently consists of six non-executive
directors. The members of the committee during the year were:
Martin Adamson (Chairman)
Mike Alexander (until December 2007)
Tim Clarke (from January 2008)
Javier Ferrán
Lord Jay (from January 2008)
Lord MacGregor (until December 2007)
Charles Sinclair (from November 2008)
Peter Smith
Consultants
The committee has retained Towers Perrin to provide independent market
information and remuneration advice on an ongoing basis. Towers Perrin
does not provide any other consulting services to the Company.
In addition to Towers Perrin, the following people provided material advice
or services to the committee during the year:
George Weston, Chief Executive
Des Pullen, Group Human Resources Director
The HR Director and Towers Perrin provided support and liaison throughout
the year.
3. Directors’ remuneration policy
The ongoing remuneration policy of the Company aims to:
• provide alignment between remuneration and the Company’s business
objectives;
• attract and retain high calibre executive directors;
• motivate executive directors to achieve challenging performance levels;
• recognise both individual and corporate achievement; and
• align executive rewards with shareholder value.
The total remuneration of executive directors comprises base salary, annual
and long-term incentives, pension provisions and other benefits.
Following a detailed review of the total remuneration package of executive
directors and other senior executives in 2006, it was agreed that a
substantial element of executive compensation should be ‘at risk’ in order
to reward and drive increased performance, reflect the market trend and
to align better the interests of executives with those of shareholders. The
proportion of maximum variable pay, in the form of annual performance
bonus and long-term incentives, compared to base salary has increased over
the past few years, and now stands at around 2:1 for executive directors.
Base salary
Base salaries are reviewed in relation to median market data for comparable
companies in terms of size, market sector and complexity. Other
30 // Associated British Foods Annual Report and Accounts 2008
considerations are individual experience, performance and scope of
responsibility. Base salaries are normally reviewed on an annual basis
or following a significant change in responsibilities.
Annual performance bonus
Executive directors and other senior executives are eligible to participate
in an annual cash-based bonus scheme with payments based on the
achievement of stretching financial targets and personal performance
against individual short and medium-term objectives. Adjusted operating
profit and working capital financial targets are set by the Remuneration
committee at the beginning of each financial year.
Incentive plans are due to be reviewed during the 2008/9 financial year,
but recent pay positioning has shown that, in spite of the improvements
introduced in 2006, the market has continued to enhance incentives available
to senior executives such that the Company is well behind the desired market
position in both annual and long term plans. The Remuneration committee
has therefore agreed, that for 2008/9, the maximum incentive opportunity
for executive directors will be increased to 150% of base salary, with an
expected value of around 78% for ‘on target’ performance.
Long-term incentives
The Associated British Foods Executive Share Incentive Plan 2003 (‘the
Share Incentive Plan’) was established following shareholder approval at the
2003 annual general meeting. Under this scheme, long-term awards are
made in the form of a conditional allocation of shares which are released if,
and to the extent that, performance targets are satisfied over a specified
three-year period.
The first allocations to executive directors and other senior executives were
made in December 2003. The maximum face value of the allocation for
executive directors was 150% of base salary, with no expectation of further
allocations being made during that three-year performance period.
As a result of the detailed review of total remuneration undertaken in 2006,
revised incentive plan arrangements were introduced in September 2006,
and it was agreed that executive directors should be granted an annual
allocation of conditional shares thus creating a series of overlapping
three-year performance periods.
The first allocation under the new arrangements was made in November
2006, and the second allocation in November 2007. Both these allocations
were to a maximum face value of 125% of base salary, and relate to
three-year performance periods, September 2006 to September 2009
and September 2007 to September 2010 respectively.
Performance under this long-term share plan will be measured against
a range of 5% to 11% compound annual growth in adjusted earnings per
share. Adjusted earnings per share was chosen as the measure for long-term
incentives as it is transparent and easily understood both by participants
and shareholders.
As the first of the new three-year, long-term incentive plans will not mature
until December 2009, arrangements were put in place to cover the gap in
competitive remuneration for the two interim years, 2006/7 and 2007/8.
The Remuneration committee set interim adjusted earnings per share targets
for 2006/7 and 2007/8 which are milestones towards the adjusted earnings
per share target set for 2009. The 2006/7 adjusted earnings per share result
was measured against the 2006/7 interim target and the first of the two
arrangements settled in cash in December 2007. The 2007/8 adjusted earnings
per share result has been measured against the target set in September 2006
and this arrangement will be settled in cash in December 2008.
In line with the policy outlined above, it has been agreed that the third
allocation of conditional shares under the new arrangements, to a
maximum face value of 125% of base salary, will be made on or after
21 November 2008. The committee has reviewed the performance criteria
and has determined that this allocation will again be measured against
compound annual growth in adjusted earnings per share, in the range of
5% to 11% at the end of the performance period in September 2011.
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Other benefits
Executive directors are also entitled to the provision of a fully expensed company car, private medical insurance, life assurance, home and mobile telephone
costs and the reimbursement of reasonable business expenses. The taxable value of these benefits is included in the table of directors’ remuneration below.
The executive directors’ interests in shares under the Share Incentive Plan are as follows:
George Weston
John Bason
Market price
at date
of award
890.1p
905.85p
890.1p
905.85p
Award date
21.11.06
21.11.07
21.11.06
21.11.07
End of
performance
period
12.09.09
18.09.10
12.09.09
18.09.10
Vesting
date
21.11.09
21.11.10
21.11.09
21.11.10
Shares Market price
at date of
vesting
–
–
–
–
vested during
the year
–
–
–
–
Conditional
allocations
of shares as
at 15.09.07
94,793
–
68,812
–
Conditional
allocations
of shares as
at 13.09.08
94,793
103,494
68,812
71,618
Value
vested
–
–
–
–
4. Directors’ remuneration
Executive directors’ salaries were reviewed on 1 December 2007 in accordance with normal policy. George Weston’s salary was increased by 10% to
£825,000 and John Bason’s salary was increased by 6.2% to £550,000. Executive directors’ salaries will next be subject to review on 1 December 2008.
Non-executive directors
Martin Adamson
Galen Weston
Lord MacGregor
Mike Alexander
Tim Clarke
Lord Jay
Javier Ferrán
Peter Smith
Jeff Harris (retired 2007)
Executive directors
George Weston
John Bason
For the year to 13 September 2008
Salary
or fees
£000
266
–
12
10
59
52
52
61
–
Bonuses
£000
Benefits
£000
–
–
–
–
–
–
–
–
–
–
– –
–
–
–
–
–
–
–
2008
Total
£000
266
–
12
10
59
52
52
61
–
2007
Total
£000
239
53
46
46
40
40
29
33
788
523
1,823
925
623
1,548
14
21
35
1,727
1,167
3,406
1,696
1,195
3,417
5. Directors’ pensions
The Remuneration committee aims to ensure that retirement benefits are in line with best practice standards adopted by major companies in Continental
Europe and the United Kingdom.
In accordance with this policy, executive directors are covered by final salary, defined benefit arrangements and can retire at their normal retirement age
with retirement benefits broadly equivalent to two thirds of final pensionable salary. The Company pension schemes are HMRC approved but the executive
directors also have entitlements under employer-financed arrangements which are unregistered.
Directors’ pension disclosure for year ended 13 September 2008
The table below shows the defined benefit pension entitlements from the Associated British Foods Pension Scheme (‘the ABF Scheme’) and employer-financed
arrangements where appropriate, of executive directors of Associated British Foods plc who were members of the ABF Scheme during the year ended
13 September 2008.
Pension entitlements and corresponding transfer values increased as follows during the year:
Increase
in accrued
pension
£000 pa
(A)
49
23
Increase
in accrued
pension net
of inflation
£000 pa
(B)
39
18
Total
accrued
pension
at 13.09.08
£000 pa
(C)
263
137
Director’s
contributions
during period
£000
(D)
17
17
Value of
net increase
in accrual
over period
£000
(E)
319
225
Value of
accrued
pension
at 13.09.08
£000
(F)
2,290
1,865
Value of
accrued
pension
at 15.09.07
£000
(G)
1,465
1,299
Total change
in value
during period
£000
(H)
808
549
George Weston
John Bason
See notes overleaf.
Associated British Foods Annual Report and Accounts 2008 // 31
Remuneration report continued
5. Directors’ pensions continued
Notes:
1. Pension accruals (A) and (C) are the amounts which would be paid annually on retirement based on service to the end of year or earlier retirement.
2. The pension values (E), (F) and (G) are transfer values calculated in accordance with version 9.3 of guidance note GN11 issued by the Board of
Actuarial Standards.
3. The value of net increase in pension (E) represents the incremental value to the director of his pension benefits during the year, resulting from additional
service and increases in salary. It is based on the increase in accrued pension net of inflation (B) after deducting the director’s contribution during the
year (D).
4. The change in the transfer value (H) includes the effect of fluctuations in the transfer value due to factors beyond the control of the Company and
directors, such as stock market movements. The director’s contributions during the year (D) are excluded from this value.
5. Both directors opted out of the ABF scheme on 5 April 2006 and since then have earned benefits in the Employer Financed Retirement Benefit Scheme
(EFRBS). The figures shown represent the aggregate of benefits in the ABF scheme and the EFRBS.
6. Voluntary contributions paid by directors and resulting benefits are not shown.
7. Pension benefits include a 50% spouse’s pension. Pensions are guaranteed to increase in payment in line with RPI, limited each year to 5% for service
accrued to 31 December 2007. The service accrued from that date will only attract pension increases in payment of RPI capped at 2.5%. Additional
discretionary increases to pensions in payment have been granted in the past.
6. Directors’ share options
There are two schemes under which both HMRC approved and unapproved options may be granted:
• The Associated British Foods plc 1994 Share Option Scheme (‘the 1994 Scheme’) requires options granted to be held for five years before they become
exercisable, at which point they are not subject to any performance criteria; and
• The Associated British Foods 2000 Executive Share Option Scheme (‘the 2000 Scheme’), under which options granted become exercisable by participants
after an initial three-year performance period, to the extent that performance criteria have been satisfied. Performance criteria are based on robust levels
of business performance over the period.
It has been agreed that share option awards will not form part of the normal ongoing remuneration package for executives, although the Remuneration
committee reserves the right to grant share options on a very selective basis.
The number of share options held by the directors under the 1994 Scheme and the 2000 Scheme were as follows:
George Weston
John Bason
Options as
at 15.09.07
15,000*
22,500**
Lapsed
in year
–
–
Exercised
during year
15,000
–
Options as
at 13.09.08
–
22,500
50,000**
50,000*
50,000*
–
–
–
–
–
–
50,000
50,000
50,000
Earliest
normal
exercise
date
28.04.03
17.01.04
17.01.04
07.12.06
09.12.07
Exercise
price
561.5p
484p
484p
497p
564p
Expiry
date
27.04.08
16.01.11
16.01.11
06.12.11
08.12.12
Exercise
date
23.04.08
–
Price on
exercise
878.5p
–
–
–
–
–
–
–
* granted under the 1994 Scheme.
**granted under the 2000 Scheme.
The gain made on exercise of share options was £47,550.
At close of business on 12 September 2008, the last trading day before the end of the financial year, the market value of the Company’s ordinary shares
was 789p. During the previous 12 months the price ranged from 716.5p to 925p.
32 // Associated British Foods Annual Report and Accounts 2008
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7. Performance review
The performance graph illustrates the performance of the Company over
the past five years in terms of total shareholder return compared with that
of the companies comprising the FTSE 100 index. This index has been
selected because it represents a cross-section of leading UK companies.
year on year TSR – ABF v FTSE 100 (2003 = 100)
9. Directors’ beneficial interests
The directors of the Company as at 13 September 2008 had the following
beneficial interests in the shares and debentures of the Company, its
holding company and fellow subsidiary undertakings.
As at
13 September
2008
As at
15 September
2007
200
180
160
140
120
100
80
ABF
FTSE 100
2003
2004
2005
2006
2007
2008
8. Directors’ service contracts
It is the Company’s policy that all executive directors have rolling contracts
with 12 month notice periods. The Company’s Articles of Association
require that all directors retire from office at every third annual general
meeting. Details of the contracts of service of directors who served during
the year ended 13 September 2008 are set out below:
Martin Adamson
George Weston
John Bason
Lord MacGregor*
Mike Alexander*
Tim Clarke
Lord Jay
Javier Ferrán
Peter Smith
Date of
appointment
11.10.99
19.04.99
04.05.99
09.12.94
16.01.02
03.11.04
01.11.06
01.11.06
28.02.07
Notice
Notice
Effective date
period from
period from
of current
director
Company
contract
11.12.02
6 months
6 months
01.06.05 12 months 12 months
16.03.99 12 months 12 months
6 months
6 months
16.11.99
6 months
6 months
16.01.02
6 months
6 months
03.11.04
6 months
6 months
01.11.06
6 months
6 months
01.11.06
6 months
6 months
28.02.07
* Mike Alexander and Lord MacGregor retired as non-executive directors
on 7 December 2007.
The board has not considered it appropriate to enter into a formal letter
of appointment with Galen Weston in view of his relationship with the
ultimate holding company of Associated British Foods plc, Wittington
Investments Limited. He receives no fees for performing his role as a
non-executive director and Associated British Foods plc does not reimburse
him for any expenses incurred by him in that role.
The committee takes the view that the entitlement of the executive
directors to the security of 12 months notice of termination of employment
is in line with the practice of many comparable companies.
The Remuneration committee’s aim is always to deal fairly with cases
of termination whilst taking a robust line in minimising any compensation.
The Remuneration committee has given due consideration to the
recommendations contained in the Combined Code regarding inclusion
of explicit provisions in directors’ service contracts for compensation
commitments in the event of early termination. The committee will
continue to keep under review its current practice, which is not to
include such provisions in order to enable it to respond appropriately
to particular circumstances.
5,862
3,188,783
Martin Adamson
Associated British Foods plc, ordinary shares of 515/22p 50,000
George Weston
Wittington Investments Limited,
ordinary shares of 50p
Associated British Foods plc,
ordinary shares of 515/22p
John Bason
Associated British Foods plc, ordinary shares of 515/22p 16,880
Galen Weston
Wittington Investments Limited,
ordinary shares of 50p
Associated British Foods plc,
ordinary shares of 515/22p
Tim Clarke
Associated British Foods plc, ordinary shares of 515/22p 4,000
Lord Jay
Associated British Foods plc, ordinary shares of 515/22p
Javier Ferrán
Associated British Foods plc, ordinary shares of 515/22p
Peter Smith
Associated British Foods plc, ordinary shares of 515/22p 2,000 –
5,672,560
37,953
500 –
100 –
50,000
5,862
3,173,783
16,577
37,953
5,672,560
4,000
In addition to the above, George Weston and John Bason were allocated a
conditional grant of shares under the Share Incentive Plan, details of which
are shown on page 31.
The interests shown above remained the same as at 4 November 2008.
10. Non-executive directors
The board reviews non-executive directors’ fees periodically in the light
of fees payable in comparable companies and the importance attached to the
retention and attraction of high-calibre individuals as non-executive directors.
Fees are paid on a per annum basis and are not varied for the number of days
worked. The chairman of the Audit committee and the senior independent
director are paid an additional fee. Non-executive directors do not participate
in the Company’s annual or long-term incentive plans and take no part in any
discussion or decision concerning their own fees.
Adjustments were made to the fees in December 2007 following a period
of two years in which the fees had remained unchanged. The next review
will take place in December 2009.
11. Executive directors serving as non-executive directors
The Remuneration committee has determined that executive directors
serving as non-executive directors of other companies may retain any
fees earned.
During the year, George Weston served as a non-executive director of
Wittington Investments Limited, for which he received no compensation.
12. Compliance statement
In compliance with the UK Directors’ Remuneration Report Regulations
2002, the auditable part of the Remuneration report comprises directors’
remuneration on page 31, directors’ pensions on pages 31 and 32, directors’
share options on page 32 and directors’ beneficial interests on page 33.
Paul Lister
Company Secretary
4 November 2008
Associated British Foods Annual Report and Accounts 2008 // 33
Statement of directors’ responsibilities in respect of the annual report and the financial statements
The directors are responsible for preparing the annual report and the group
and parent company financial statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare group and parent company
financial statements for each financial year. Under that law they are
required to prepare the group financial statements in accordance with IFRSs
as adopted by the EU and applicable law and have elected to prepare the
parent company financial statements in accordance with UK Accounting
Standards and applicable law (UK Generally Accepted Accounting Practice).
The directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
parent company and enable them to ensure that its financial statements
comply with the Companies Act 1985. They have general responsibility for
taking such steps as are reasonably open to them to safeguard the assets
of the group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for
preparing a directors’ report, directors’ remuneration report and corporate
governance statement that comply with that law and those regulations.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
The group financial statements are required by law and IFRSs as adopted
by the EU to present fairly the financial position and the performance of
the group; the Companies Act 1985 provides in relation to such financial
statements that references in the relevant part of that Act to financial
statements giving a true and fair view are references to their achieving
a fair presentation.
The parent company financial statements are required by law to give a true
and fair view of the state of affairs of the parent company and of the profit
or loss of the parent company for that period. In preparing each of the group
and parent company financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• for the group financial statements, state whether they have been prepared
in accordance with IFRSs as adopted by the EU;
• for the parent company financial statements, state whether applicable
UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the parent company financial
statements; and
• prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the group and the parent company
will continue in business.
34 // Associated British Foods Annual Report and Accounts 2008
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Independent auditors’ report to the members of Associated British Foods plc
We have audited the group and parent company financial statements (the
‘financial statements’) of Associated British Foods plc for the year ended
13 September 2008 which comprise the consolidated income statement,
the consolidated and parent company balance sheets, the consolidated
cash flow statement, the consolidated statement of recognised income
and expense, the parent company reconciliation of movements in equity
shareholders’ funds, and the related notes. These financial statements have
been prepared under the accounting policies set out therein. We have also
audited the information in the Remuneration report that is described as
having been audited.
Basis of audit opinion
We conducted our audit in accordance with International Standards
on Auditing (UK and Ireland) issued by the Auditing Practices Board.
An audit includes examination, on a test basis, of evidence relevant to
the amounts and disclosures in the financial statements and the part of
the Remuneration report to be audited. It also includes an assessment
of the significant estimates and judgments made by the directors in the
preparation of the financial statements, and of whether the accounting
policies are appropriate to the group’s and Company’s circumstances,
consistently applied and adequately disclosed.
This report is made solely to the Company’s members, as a body, in
accordance with section 235 of the Companies Act 1985. Our audit work
has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditors’ report and
for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this report, or
for the opinions we have formed.
We planned and performed our audit so as to obtain all the information
and explanations which we considered necessary in order to provide us
with sufficient evidence to give reasonable assurance that the financial
statements and the part of the Remuneration report to be audited are free
from material misstatement, whether caused by fraud or other irregularity
or error. In forming our opinion we also evaluated the overall adequacy of
the presentation of information in the financial statements and the part
of the Remuneration report to be audited.
Opinion
In our opinion:
• the consolidated financial statements give a true and fair view, in
accordance with IFRSs as adopted by the EU, of the state of the group’s
affairs as at 13 September 2008 and of its profit for the year then ended;
• the consolidated financial statements have been properly prepared
in accordance with the Companies Act 1985 and Article 4 of the
IAS Regulation;
• the parent company financial statements give a true and fair view, in
accordance with UK Generally Accepted Accounting Practice, of the
state of the parent company’s affairs as at 13 September 2008;
• the parent company financial statements and the part of the
Remuneration report to be audited have been properly prepared in
accordance with the Companies Act 1985; and
• the information given in the Directors’ report is consistent with the
financial statements.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
8 Salisbury Square
London
EC4Y 8BB
4 November 2008
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the annual report and the group
financial statements in accordance with applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the EU, and for
preparing the parent company financial statements and the directors’
remuneration report in accordance with applicable law and UK Accounting
Standards (UK Generally Accepted Accounting Practice) are set out in the
statement of directors’ responsibilities on page 34.
Our responsibility is to audit the financial statements and the part of the
directors’ remuneration report to be audited in accordance with relevant
legal and regulatory requirements and International Standards on Auditing
(UK and Ireland).
We report to you our opinion as to whether the financial statements give a
true and fair view and whether the financial statements and the part of the
directors’ remuneration report to be audited have been properly prepared
in accordance with the Companies Act 1985 and, as regards the group
financial statements, Article 4 of the IAS Regulation. We also report to
you whether in our opinion the information given in the Directors’ report
is consistent with the financial statements. The information given in the
Directors’ report includes that specific information that is cross referred
from the Business review section of the Directors’ report.
In addition we report to you if, in our opinion, the Company has not kept
proper accounting records, if we have not received all the information and
explanations we require for our audit, or if information specified by law
regarding directors’ remuneration and other transactions is not disclosed.
We review whether the corporate governance statement reflects the
Company’s compliance with the nine provisions of the 2006 Combined
Code specified for our review by the Listing Rules of the Financial Services
Authority, and we report if it does not. We are not required to consider
whether the board’s statements on internal control cover all risks and
controls, or form an opinion on the effectiveness of the group’s corporate
governance procedures or its risk and control procedures.
We read the other information contained in the annual report and consider
whether it is consistent with the audited financial statements. We consider
the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements.
Our responsibilities do not extend to any other information.
Associated British Foods Annual Report and Accounts 2008 // 35
Corporate citizenship
The Associated British Foods business principles are an
essential part of our business. They form part of our long-
term strategy and their application across the group is under
constant review. For more information about them and the
case studies below, go online at www.abf.co.uk/csr
40%
The reduction in the average road
miles travelled by the Ryvita
delivery vehicles in the past year
reducing food miles and vehicle
emissions at ryvita
Ryvita buys over 25,000 tonnes of
rye from more than 100 growers
throughout the UK. The average
distance from farm to factory used
to be 167 road miles, as only 6% of
the rye was sourced within a 60-mile
radius of the factories. This resulted in
high transport costs and caused the
vehicles to use a significant amount of
fuel. This year Ryvita set its suppliers
the challenge of growing rye nearer to
its factories. The result has been a
40% reduction in the average road
miles travelled by its delivery vehicles.
approved: under the kyoto protocol
Mauri La-Nga is a joint venture company in Vietnam
producing fresh and dry yeast and bakery ingredients.
The company recently invested US$5.6m to upgrade
its waste treatment facilities, which will both improve
the standard of the waste water discharged and reduce
greenhouse gas emissions. As a result, the project
qualifies as a Clean Development Mechanism project
under the Kyoto Protocol.
reducing waste disposal costs and
generating income
Ryvita’s Stockport facility used to have seven different
waste contractors and was spending £69,000 on waste
disposal each year, with no revenue from any waste.
However, this year, waste sent to landfill has been
reduced by 96%; waste costs have been reduced from
£69,000 to £20,000. In addition, Ryvita has been
recycling some materials and has commenced selling
these, producing income of £40,000.
“ The benefits delivered have
surpassed all our expectations.
We were able to convert a waste
management cost into a by-product
revenue stream. We have reduced
our waste sent to landfill by some
96%, dramatically reduced
transport costs, and we receive
income from food products, card,
plastic and metal. Only 0.9% of our
waste goes to landfill – and we are
working on that last 0.9%! ”
Terry Reynolds, General Manager, Ryvita Stockport.
illovo health: a case study
The Illovo Sugar Group provides medical care to its
employees and their dependants either through 28 on-site
clinics and four hospitals or through subsidised medical
insurance. Its facilities are staffed by 18 doctors, 150
nurses and 135 auxiliary personnel and serve 30,000
employees and 70,000 dependants. During 2008
approximately 550,000 visits were paid by patients to
these facilities. The medical services are free to all
employees not covered by medical aid (the vast majority)
and this includes the dependants of permanent employees.
www.illovosugargroup.com
reducing energy requirements in china
Over the last two years, BSO China has reduced, by
around 25%, the amount of water used to create the
steam needed to extract sugar from its sugar cane.
Moreover, the cane crushing and extraction stages
have been improved to give drier bagasse, so
that less bagasse is needed to power its boilers.
This, combined with better control systems and
operator training, has led to a 10% reduction in
energy requirements over the past two years and
an increase in its sales of bagasse to paper mills.
A new sugar cane factory, which is currently under
construction, has incorporated these
improvements into its design.
25%
The reduction made by BSO China in the amount of
water used to extract sugar over the past two years
36 // Associated British Foods Annual Report and Accounts 2008
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How Corporate Responsibility is managed
The organisational structure of Associated British Foods is highly
decentralised and so the responsibility for managing environmental, social
and ethical issues rests with the management of each operating business.
However, as a minimum, all businesses must comply with our Business
Principles, which can be found online at www.abf.co.uk/csr. These Business
Principles include the group’s Health and Safety and Environmental Policies
for which the Group Human Resources Director has overall responsibility.
He reports to the Chief Executive and is supported directly by a Group
Safety & Environment Manager who also works with the Director of Legal
Services on these principles and compliance issues.
Our businesses devise procedures appropriate to and compliant with local
laws, cultures and operating conditions. Every business has an accountable
board director and a senior manager who are responsible for safety and
environmental matters.
The board reviews the safety and environmental performance of the
businesses quarterly and annually respectively, as well as reviewing the
outcome of any external assurance processes. It assesses the sophistication
of the businesses’ risk management and safety cultures, considers levels of
resources and agrees actions for the coming year. Businesses are required
to develop and implement action plans as appropriate, and progress is
monitored by the Group Safety & Environment Manager.
In focus – climate change
We recognise that carbon dioxide emitted by human activities alters the
earth’s climatic system leading to global warming. Climate change and the
associated regulation of carbon emissions will have implications for our
businesses, particularly the direct impact on crop yields and the imposition
of penalties associated with the emission of carbon dioxide.
We closely measure our consumption of all forms of energy and seek
opportunities to:
• reduce our use of natural resources;
• reduce emissions of carbon dioxide and other pollutants; and
• reduce our operating costs and thereby improve our profitability.
The scale of our global operations means that the purchase of energy is
of strategic importance to the group. Energy procurement specialists are
employed within the businesses to monitor fuel and energy prices closely
and use their market expertise to mitigate the risk of market movements
and minimise costs.
In 2008 the group emitted, or caused to be emitted, 3.6 million tonnes
of carbon dioxide. 51% of our total energy use is from renewable sources,
principally bagasse, the residue from sugar cane, and is up 6% from
last year.
Achievements in 2008
• we reduced the rate of reportable injuries by 20%
• the proportion of energy used from renewable sources increased by 6%
to 51%
• we invested in excess of £22m to help reduce our environmental impact
• the number of factories certified to ISO 14001 environmental
management system (or equivalent) increased from 28 to 38
Primark has recruited a number of in-region ethical managers and has
carried out 322 audits over the past year of which 146 were follow-up
visits. All the factories belonging to its top 50 suppliers (accounting for 50%
of turnover value) and all suppliers in Bangladesh have been audited. These
audits have been conducted in ten supplying countries and have achieved
an average remediation rate of approximately 75%.
Performance in 2008
During 2008 our environmental impact worsened due to the acquisition of
12 beet sugar factories in northern China and organic growth throughout
the group. We are investing heavily to make these factories energy efficient.
Indeed we continue to seek opportunities to improve further throughout
the group and we aim to reduce substantially our environmental impact.
KPI summary table
OuR 2008 REPORT ENTITLED
‘A RESPONSIBLE APPROACH
TO SAFETy, HEALTH & THE
ENVIRONMENT’ CONTAINS
FuLL DETAILS OF OuR HEALTH,
SAFETy AND ENVIRONMENTAL
PERFORMANCE TOGETHER WITH
DETAILED CASE STuDIES.
WWW.ABF.CO.uK/CSR
Energy Consumption (GWh)
Energy from Renewable Sources (%)
CO2 emissions (million tonnes)
CO2 emissions per tonne of product (kg)
Water use (million tonnes)
Waste production (thousand tonnes)
Reportable Injury Rate (% employees
reporting an injury)
2008
25,403
51%
3.6
215
156
355
2007
21,162
48%
3.1
205
155
329
Change
+20%
+6%
+16%
+5%
+0.6%
+8%
0.8%
1.0%
–20%
Associated British Foods Annual Report and Accounts 2008 // 37
our business
in action:
42
WE ARE NOW
OPEN/
OSCAILTE/
ABIERTO/
GEOPEND»
MAUREEN HINTON
LOOKS AT PRIMARK’S
EUROPEAN EXPANSION
AND CONCLUDES THAT
VALUE TRAVELS
40
FARMING IN HARMONY
WITH THE COUNTRYSIDE
DENIS CHAMBERLAIN EXAMINES
AB AGRI’S APPROACH TO BUSINESS
AND THE ENVIRONMENT
40
42
38 // Associated British Foods Annual Report and Accounts 2008
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We asked industry experts to
comment on the shape of our
business and what’s in store
for 2009...
44
46
PRODUCTS
people love
Richard Clarke says
ABF’s acquisitions of
grocery brands have
enabled it to build
strong market positions
in growing categories
46
Yeast:
a BeGINNeR’s
GUIDe tO the
maGIc INGReDIeNt
BUT WHAT IS IT?
HOW IS IT MADE?
AND HOW IS IT USED
AROUND THE WORLD?
Associated British Foods Annual Report and Accounts 2008 // 39
Our business in action
Sugar & Agriculture »
40 // Associated British Foods Annual Report and Accounts 2008
AB AGRI: FARMING
IN HARMONY WITH
THE COUNTRYSIDE
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Former Editor of Farmers Weekly, Denis Chamberlain, examines
AB Agri’s approach to business and concludes that success in
modern agricultural business requires partnership not only
with customers but the environment as well.
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Over recent years AB Agri has developed a strategy focusing on
provision of technology throughout the food supply chain and
increasing its international presence. AB Agri’s success in this year
of extreme volatility is testimony to that strategy.
The complex food and animal feed chains in which the business operates
have been made more volatile by dramatic increases in the price of cereals
and oilseeds, burgeoning energy costs and the ongoing challenge of working
with growing crops and livestock in an unpredictable climate.
Cereal production, central to so much of the business’s UK operation, is a case
in point. In the past 15 months the price of wheat has swung violently, up to
200% over the period. Frontier’s leading market position, unique centralised
trading structure and trading systems meant it was ideally placed to manage
price volatility on behalf of its grain customers and farmer suppliers.
For a company determined to add value to the operations of its trading
partners, AB Agri has had to draw on all its skills and experience in buying,
feed formulation, logistics and technical services. The result has been
continued growth and stable trading relations. Helping customers to manage
their risk throughout the supply chain has been important in building
relationships and differentiating AB Agri from its competitors.
In today’s food industry it is no longer enough to focus on the immediate
customer or supplier. Consumers are demanding that the whole chain is
traceable from field to supermarket, is environmentally sound, cares for
its countryside and focuses on good animal welfare.
AB Agri has been developing supply chains to anticipate customers’ desire
for assured and traceable sources for products, foresight which has made
it better able to meet the modern challenge and add genuine value.
Waitrose customers can purchase WildCare milk from farms focused on
bio-diversity. This scheme, developed by AB Agri, has recently been granted
the Green Apple award for environmental best practice. Earlier this year,
the business launched the UK’s first Carbon Trust accredited model. This
will help to reduce the overall greenhouse gas emissions from the dairy
farms that supply milk to Sainsbury’s. The model measures current practice
on each farm and recommends areas for improvement such as reducing
usage of artificial fertilisers by the judicious use of organic manure and
reducing electricity usage by switching to modern ice bank plate coolers
to chill milk. This ‘measure-reduce-measure’ approach is expected to deliver
benefits beyond year one.
The future will be equally challenging, but recent acquisitions will strengthen
the product and service offering in livestock feed and the provision of
micro-ingredients to other businesses in the food chain both in the UK and
overseas. This, together with a history of investing in people who can deliver
quality service, should keep AB Agri ahead of the game.
Associated British Foods Annual Report and Accounts 2008 // 41
Our business in action
Retail »
WE ARE NOW
OPEN/
OSCAILTE/
ABIERTO/
GEOPEND»
Primark’s expansion across
Europe gathers pace this year
with new store openings in Spain
and the prospect of further
countries to come.
Maureen Hinton, Retail Analyst
with Verdict, examines the
success and comes to the
conclusion that value travels.
42 // Associated British Foods Annual Report and Accounts 2008
C lothing expenditure in the
expanded EU is worth
some 1300bn and offers
major development
opportunities, particularly
for retailers from mature markets
where growth is slowing and costs
are rising. However, UK retailers
have lagged behind their European
counterparts in exploiting these
opportunities. To be successful they
need to have a proposition that
not only stands out from existing
operators, but one that appeals to
differing national tastes.
In this respect Primark has a distinct
advantage. It differs from the typical
clothing or value model in running
a very-low price fashion proposition
from large, bright, contemporary
stores in prime retail locations. Also,
its core target market of up to 35
year olds has the twin advantages
of an insatiable appetite for fashion
and lower financial exposure to
the vagaries of the economic
environment particularly for
teenagers and the early twenties.
Furthermore, due to the influence
of global media and the internet,
young fashion is now international
and less prone to regional tastes.
Expansion into fast growing
international clothing markets
becomes even more attractive as
potential for growth in the UK slows
and becomes more dependent on
taking share from competitors.
The influence of value retailers has
caused a downward shift in price
across the whole market which
combined with substantial growth
in retail space, has meant that UK
clothing shoppers are saturated
with choice as well as good value.
However, with their disposable
income shrinking, consumers are
becoming more selective in their
spending. Only a handful of large
operators with scale economies
can run a high volume/low price
proposition and survive in the
UK under these conditions.
Moreover, on the Continent,
although discounters are well
established, they are still primarily
centred around a low-price family
offer in low-cost locations and the
value sector is at an earlier stage
of development than the UK.
Despite the difficult retail
environment in the UK,
opportunities still exist for Primark.
Even now there are prime locations
without a major Primark store, and
there are more sales opportunities
from an expanding product range.
However, long-term sustainable
growth must come from
international expansion.
That said, European expansion is not
going to be achieved unchallenged.
Competitors, having watched
Primark turn former department
stores in the UK into major shopping
destinations, will be keen to defend
their business in continental Europe,
particularly given Primark’s success
in Spain, and its stated intention of
opening stores in the Netherlands
and Germany.
Other retailers in the larger EU
markets may have wide experience
of European retail markets, but they
are not used to running a low-cost,
high-volume proposition. Primark is.
On the other hand Primark lacks
experience of running an
international operation, but the
recruitment this year of a number
of key senior executives with just
such experience will accelerate the
learning process. Primark has a lot
to play for.
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Shot on location
in Madrid, Spain.
Associated British Foods Annual Report and Accounts 2008 // 43
Associated British Foods Annual Report and Accounts 2008 // 43
Our business in action
Grocery »
Having an extensive brand portfolio is one thing, but buying the right brands that
complement each other is quite another. ABF’s trick has been to create market
positions through strategic buying says food writer, Richard Clarke.
There’s no shortage of evidence that when it
comes to developing its growing portfolio
of brands, ABF’s Grocery group has created
a winning formula. By developing business
units focused on specific market sectors,
ABF is successfully leveraging the full potential of its
brands while creating the conditions for an effective
acquisition strategy.
As with any successful strategy, ABF’s growth ambitions
are not being realised by a one size fits all approach
but by the systematic application of a set of principles
that are successfully creating a diverse yet coherent
collection of businesses.
Ethnic food wholesaler Westmill, was bought by ABF in
1993, and has seen its sales rocket from £45 million 15
years ago to £170 million today thanks to a track record
of canny acquisitions – most recently a parcel of brands
from Heinz. This focused approach has helped Westmill
transform itself from a small regional flour miller
operating in the private label bidding war to a leading
supplier of ethnic ingredients to the foodservice sector.
ABF built on the success of Westmill in ethnic foods with
the purchases of Oriental food brand Blue Dragon in
2003 and, with much public interest, premium Indian
food range Patak’s in 2007. Integrating these businesses
and creating AB World Foods has enabled ABF to pack a
much bigger punch in the vibrant ethnic foods category.
A selective approach to acquisitions also enables ABF
to leverage category access and expertise. Take the
purchase of Billington’s in 2004. ABF already owned
Silver Spoon, the UK’s leading retail refined sugar brand,
but adding Billington’s range of unrefined cane sugars to
44 // Associated British Foods Annual Report and Accounts 2008
its portfolio meant it was able to tap into the growing
market for premium sugar.
Billington’s has enjoyed double-digit growth for the past
four years, a sure sign of its value as a brand in its own
right, but the deal has also given ABF the ability to offer
retail buyers a one-stop shop for a full range of sugar
products, which has also benefited sales of Silver Spoon.
ABF takes a global approach to maximising growth,
actively seeking out new opportunities in markets ripe
for development. And here, too, its acquisition strategy
is fundamental.
In Thailand, for example, ABF has doubled sales of its
Twinings tea brand following the purchase of the
Ovaltine hot drinks business in 2002. Exploiting
Ovaltine’s considerable strength in Thailand – which
is the world’s biggest market for Ovaltine – was key
to this achievement.
Although in most cases ABF acquires a business outright,
it isn’t afraid of taking a more creative approach to
portfolio growth – as demonstrated by the formation
of the Jordans & Ryvita Company.
In this landmark deal, sealed in June this year, Jordans
was combined with Ryvita in one business, owned
jointly by ABF and Jordans’ founders, Bill and David
Jordan. Both Ryvita and Jordans boast a compelling
healthy-eating proposition and ethical credentials.
In combination, they present an opportunity for
significant value growth by tapping into key trends
in today’s grocery market for healthier, low-fat and
wholegrain foods.
Natural Partners
The Jordan family has been
milling grains at Holme Mill in
Bedfordshire for five generations.
“ I was only 21 when my
brother, David and I started
selling natural, wholegrain
breakfast cereal and I had
that wonderful confidence
of youth. People were just
becoming interested in
where their food came from
and what it contained,”
says Bill Jordan.
Bill and David’s approach to
business has always been shaped
by an unwavering commitment to
traditional values. Quality is of
primary importance as well as
a deeply held belief in protecting
the environment.
“ We have built lasting
relationships with our
growers who are producing
the very best ingredients,”
says Bill.
Conservation Grade farming,
which Jordans promotes, involves
growers committing to taking 10%
of their land out of food production
and using it to create sustainable
wildlife habitats. Fifty-one farmers
in the scheme are paid a premium
to grow high quality grains for
Jordans on approximately 60,000
acres of land.
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Associated British Foods Annual Report and Accounts 2008 // 45
Associated British Foods Annual Report and Accounts 2008 // 45
Our business in action
Ingredients »
46 // Associated British Foods Annual Report and Accounts 2008
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Yeast:
a BeGINNeR’s
GUIDe tO the
maGIc INGReDIeNt
It’s the essentIal IngredIent In the essentIals we
eat and drInk, bread, beer, wIne, not to mentIon
the pharmaceutIcal products that rely on It.
but what Is It and how Is It made?
Y east is an essential ingredient
in the production of bread and
other bakery products, pizza
dough bases, beer, wine and
other foodstuffs. Yeast is a living
micro-organism belonging to
the fungi family and no other
ingredient, natural or artificial,
can match the functions it performs in food and beverage
production. Yeast is therefore a plant, according to the
biologists, and is capable of reproducing itself. A piece
of yeast consists of minute cells, with walls composed
of cellulose, and an interior of living matter called
protoplasm. You can feed it with a solution of sugar to
make it grow, or it can be ‘killed’ by ‘starvation’ or heat.
The primary function of yeast is to supply carbon dioxide
gas which inflates the dough during proving and the early
stages of bread making. The dough is aerated by the
action of the yeast. The little cells ferment the dough,
and produce tiny bubbles of CO2 inside it. As a result,
when the dough is baked, it produces a light and airy
loaf; when you examine it you can see all the tiny holes
formed by the gas, so that it looks rather like a sponge.
There are three main types of bakers’ yeast. Liquid yeast,
compressed yeast (collectively referred to as ‘fresh’ or
‘wet’ yeast), and dry yeast. All three types are made in a
sequential production process. Initially, a small quantity
of yeast is used to seed successively larger batches of
growing yeast through a fermentation process using a
feedstock of molasses, which is obtained as a by-product
of sugar production. After fermentation, a separation
process progressively extracts excess water to produce
liquid yeast (also known as ‘cream yeast’). Liquid yeast
can then be processed further into compressed yeast by
filtration and extrusion. In the final step, compressed
yeast may be dried in a two-stage drying process.
Fresh yeast is supplied in a number of different formats,
depending on the strain of yeast used and to meet
customer preferences. These may be because of
traditional national preferences for different types of
bread. Fresh yeast is mainly sold for bread baking, with
small or medium-sized bakeries traditionally preferring
to use compressed yeast.
Liquid yeast is a form of fresh yeast and is essentially
the raw product from the manufacturing process. It has
a shelf life of around three weeks if refrigerated. Some
large food manufacturing customers with high-volume,
automated operations use specialised installation systems
to receive the liquid yeast, distributed by refrigerated
tanker, directly from the manufacturing facility.
Liquid yeast is also sold in smaller quantities and
in a stabilised format for use by medium and smaller-
sized bakeries.
Compressed yeast is made by processing liquid yeast
over a rotary vacuum filter drum where the dehydrated
yeast is moved from the filter drum by a knife blade with
the resulting crumbled yeast conveyed to the packaging
operation. It is extruded into blocks, wrapped in wax
paper and refrigerated until distribution. These blocks
are distributed in cartons. Customers require a cool
room in which to store the compressed yeast which
has a shelf life of up to six weeks, if refrigerated.
Dry yeast is characterised by a dry matter percentage
above 95%. As such it has a shelf life of around two years
and can therefore be safely supplied on a worldwide basis.
Producers in less developed countries are more likely to
use dry yeast and, correspondingly, little dry yeast is sold
within the EU except for domestic use by home bakers.
ABF estimates that around 75% of the world’s dry yeast
consumption is in Africa, Middle East, Asia and Russia
due to the scarcity of refrigerated transport or storage
and relative remoteness of the customer from the source
of production.
The stuff of life: bread and wine
Associated British Foods Annual Report and Accounts 2008 // 47
Consolidated income statement
for the year ended 13 September 2008
continuing operations
revenue
Operating costs before exceptional items
Exceptional items
Share of profit after tax from joint ventures and associates
Profits less losses on sale of property, plant & equipment
operating profit
Adjusted operating profit
Profits less losses on sale of property, plant & equipment
Amortisation of non-operating intangibles
Exceptional items
Profits less losses on sale of businesses
profit before interest
Finance income
Finance expense
Other financial income
profit before taxation
Adjusted profit before taxation
Profits less losses on sale of property, plant & equipment
Amortisation of non-operating intangibles
Exceptional items
Profits less losses on sale of businesses
Taxation – UK (excluding tax on exceptional items)
– UK (on exceptional items)
– Overseas (excluding tax on exceptional items)
– Overseas (on exceptional items)
profit for the period
attributable to
Equity shareholders
Minority interests
profit for the period
Basic and diluted earnings per ordinary share (pence)
Dividends per share paid and proposed for the year (pence)
1Refer to accounting policy on page 53.
48 // Associated British Foods Annual Report and Accounts 2008
Note
11
22
Before
exceptional
items
2008
£m
8,235
(7,660)
–
575
15
10
600
Exceptional
items1
2008
£m
–
–
(46)
(46)
–
–
(46)
664
10
(74)
–
5
605
21
(74)
21
573
632
10
(74)
–
5
(50)
–
(92)
–
(142)
431
397
34
431
–
–
–
(46)
–
(46)
–
–
–
(46)
–
–
–
(46)
–
–
(14)
–
20
6
(40)
(40)
–
(40)
Total
2008
£m
8,235
(7,660)
(46)
529
15
10 8
554
664
10 8
(74)
(46) –
5
559
21
(74)
21
527
632
10 8
(74)
(46) –
5
(50)
(14) –
(92)
20 –
(136)
391
2007
£m
6,800
(6,262)
–
538
10
556
622
(74)
(39)
517
20
(55)
26
508
613
(74)
(39)
(46)
(62)
(108)
400
357
34
391
45.2
20.25
369
31
400
46.7
19.50
1
2
2
1
8
4
4
4
5
7
6
Consolidated balance sheet
at 13 September 2008
non-current assets
Intangible assets
Property, plant & equipment
Biological assets
Investments in joint ventures
Investments in associates
Employee benefits assets
Deferred tax assets
Other receivables
total non-current assets
current assets
Assets classified as held for sale
Inventories
Biological assets
Trade and other receivables
Other financial assets
Cash and cash equivalents
total current assets
total assets
current liabilities
Liabilities classified as held for sale
Interest-bearing loans and overdrafts
Trade and other payables
Other financial liabilities
Income tax
Provisions
total current liabilities
non-current liabilities
Interest-bearing loans
Provisions
Deferred tax liabilities
Employee benefits liabilities
total non-current liabilities
total liabilities
net assets
equity
Issued capital
Other reserves
Translation reserve
Hedging reserve
Retained earnings
Minority interests
total equity
Note
8
9
10
11
11
12
13
14
15
16
10
14
25
17
15 –
18
19
25
20
18
20
13
12
21
21
21
21
21
21
2008
£m
1,815
3,110
66
75
23
106
101
75 2
5,371
19
1,042
80
1,228
63
348
2,780
8,151
(278)
(1,365)
(25)
(89)
(85)
(1,842)
(870)
(101)
(449)
(45)
(1,465)
(3,307)
4,844
47
173
221
25
4,088
4,554
290
4,844
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
2007
£m
1,570
2,642
48
46
33
308
70
4,719
48
765
53
967
17
411
2,261
6,980
(7)
(125)
(1,167)
(26)
(82)
(36)
(1,443)
(598)
(14)
(430)
(31)
(1,073)
(2,516)
4,464
47
173
(49)
(1)
4,074
4,244
220
4,464
The financial statements on pages 48 to 101 were approved by the board of directors on 4 November 2008 and were signed on its behalf by:
Martin Adamson, Chairman and John Bason, Director.
Associated British Foods Annual Report and Accounts 2008 // 49
Consolidated cash flow statement
for the year ended 13 September 2008
cash flow from operating activities
Profit before taxation
Profits less losses on sale of property, plant & equipment
Profits less losses on sale of businesses
Exceptional items
Finance income
Finance expense
Other financial income
Share of profit from joint ventures and associates
Amortisation
Depreciation
Change in the fair value of biological assets
Share-based payment expense
Pension costs less contributions
Increase in inventories
Increase in receivables
Increase in payables
Purchases less sales of current biological assets
Decrease in provisions
Cash generated from operations
Income taxes paid
net cash from operating activities
cash flows from investing activities
Dividends received from joint ventures
Dividends received from associates
Purchase of property, plant & equipment
Purchase of intangibles
Purchase of non-current biological assets
Sale of property, plant & equipment
Purchase of subsidiaries, joint ventures and associates
Sale of subsidiaries, joint ventures and associates
Purchase of minority interests
Purchase of other investments
Interest received
net cash from investing activities
cash flows from financing activities
Dividends paid to minorities
Dividends paid to shareholders
Interest paid
(Increase)/decrease in other current investments
Financing:
Increase/(decrease) in short-term loans
Increase in long-term loans
Movements from changes in own shares held
net cash from financing activities
net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of movements in foreign exchange
cash and cash equivalents at the end of the period
50 // Associated British Foods Annual Report and Accounts 2008
5
1
1
2008
£m
527
(10)
(5)
46 –
(21)
74
(21)
(15)
76
234
(84)
6
(18)
(103)
(156)
149
(9) –
(6)
663
(110)
553
1
2
(502)
(70)
(3) –
30
(211)
59
(10) –
(3) –
19
(689)
(21)
(156)
(74)
(7)
59
182
(3)
(20)
(156)
349
17 2
210
2007
£m
508
(8)
39
(20)
55
(26)
(10)
79
214
(59)
(14)
(38)
(58)
151
(17)
802
(106)
696
(420)
(7)
30
(150)
58
20
(466)
(26)
(150)
(58)
52
(307)
417
(9)
(81)
149
198
349
Consolidated statement of recognised income and expense
for the year ended 13 September 2008
Actuarial (losses)/gains on defined benefit schemes
Deferred tax associated with defined benefit schemes
Effect of movements in foreign exchange
Net (loss)/gain on hedge of net investment in foreign subsidiaries
Deferred tax associated with movements in foreign exchange
Movement in cash flow hedging position
Deferred tax associated with movement in cash flow hedging position
Share of recognised income and expense of joint ventures and associates
Net gain/(loss) recognised directly in equity
Profit for the period
total recognised income and expense for the period
attributable to:
Equity shareholders
Minority interests
2008
£m
(254)
71
360
(58) 4
(3) –
34 7
(7)
(1) –
142
391
533
466
67
533
2007
£m
110
(25)
(32)
(2)
62
400
462
439
23
462
F
i
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a
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m
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s
Associated British Foods Annual Report and Accounts 2008 // 51
Significant accounting policies
for the year ended 13 September 2008
Associated British Foods plc (‘the Company’) is a company domiciled in the United Kingdom. The consolidated financial statements of the Company for the year
ended 13 September 2008 comprise those of the Company and its subsidiaries (together referred to as ‘the group’) and the group’s interest in associates and
jointly controlled entities.
The financial statements were authorised for issue by the directors on 4 November 2008.
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’).
The Company has elected to prepare its parent company financial statements under UK Generally Accepted Accounting Principles. These are presented on pages
102 to 107.
Basis of preparation
The financial statements are presented in sterling, rounded to the nearest million. They are prepared on the historical cost basis except that biological assets and
certain financial instruments are stated at their fair value. Assets classified as held for sale are stated at the lower of carrying amount and fair value less costs to sell.
The preparation of financial statements under Adopted IFRS requires management to make judgements, estimates and assumptions about the reported amounts of
assets and liabilities, income and expenses and the disclosure of contingent assets and liabilities. The estimates and associated assumptions are based on experience.
Actual results may differ from these estimates. Judgements made by management in the application of Adopted IFRS that have a significant effect on the financial
statements, and estimates with a significant risk of material adjustment next year, are discussed in note 31.
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 accounting policies set out below have been applied to all periods presented.
Details of new accounting standards which came into force in the year are set out at the end of this note. None of them required restatement of primary statements
in comparative periods, nor had any significant impact on the group’s consolidated results or financial position. The adoption of IFRS 7 – Financial instruments:
disclosure and presentation required the restatement and expansion of disclosures for financial instruments.
The financial statements of the group are prepared for the 52 weeks ended 13 September 2008, except that, to avoid delay in the preparation of the consolidated
financial statements, the results of certain subsidiaries are included up to 31 August 2008. The results of Illovo are included for the period to 30 September 2008
in line with Illovo’s local reporting date. Adjustments are made as appropriate for significant transactions or events occurring between 31 August and 30 September.
Basis of consolidation
The consolidated financial statements include the results of the Company and all of its subsidiaries from the date that control commences to the date that control
ceases. The consolidated financial statements also include the group’s share of the after-tax results of its jointly controlled entities and associates on an equity-
accounted basis from the point at which joint control or significant influence respectively commences, to the date that it ceases.
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
Jointly controlled entities are those entities over whose activities the group has joint control, typically established by contractual agreement.
Associates are those entities in which the group has significant influence, but not control, over the financial and operating policies.
Business combinations
On the acquisition of a business or an interest in a joint venture or associate, fair values are attributed to the identifiable assets, liabilities and contingent liabilities
acquired, reflecting conditions at the date of acquisition. Adjustments to fair values include those made to bring accounting policies into line with those of the group.
Provisional fair values subsequently finalised are adjusted by restatement of the comparative period in which the acquisition occurred.
Revenue
Revenue represents the net invoiced value of goods delivered to customers, excluding sales taxes. Revenue is recognised when the risks and rewards of the underlying
products have been substantially transferred to the customer. Revenue is stated net of price discounts, certain promotional activities and similar items.
Borrowing costs
Borrowing costs are accounted for on an accruals basis in the income statement using the effective interest method.
52 // Associated British Foods Annual Report and Accounts 2008
Exceptional items
Exceptional items are defined as items of income and expenditure which are material and unusual in nature and which are considered to be of such significance that
they require separate disclosure on the face of the income statement in accordance with IAS 1.
Foreign currencies
In individual companies, transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities in foreign
currencies are translated at the rate prevailing at the balance sheet date. Any resulting differences are taken to the income statement.
On consolidation, assets and liabilities of foreign operations that are denominated in foreign currencies are translated into sterling at the rate of exchange at the
balance sheet date. Income and expense items are translated into sterling at weighted average rates of exchange other than substantial transactions, which are
translated at the rate of exchange on the date of the transaction.
Differences arising from the retranslation of opening net assets of group companies, together with differences arising from the restatement of the net results of group
companies from average or actual rates to rates at the balance sheet date, are taken to the translation reserve.
Pensions and other post-employment benefits
The group’s principal pension funds are defined benefit plans. In addition the group has defined contribution plans and other unfunded post-employment liabilities.
For defined benefit plans, the amount charged in the income statement is the cost of benefits accruing to employees over the year, plus any benefit improvements
granted to members by the group during the year. It also includes a credit equivalent to the group’s expected return on pension plan assets over the year, offset by
a charge equal to the expected interest on plan liabilities over the year. For each of the group’s plans, the difference between the market value of assets and the
present value of liabilities is disclosed as an asset or liability in the consolidated balance sheet. Any related deferred tax (to the extent it is recoverable) is disclosed
separately in the consolidated balance sheet. Any actuarial gains or losses are recognised immediately in the statement of recognised income and expense. Surpluses
on defined benefit plans are recognised only to the extent that they are recoverable. Movements in irrecoverable surpluses are recognised immediately as an actuarial
gain or loss in the statement of recognised income and expense.
F
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Contributions payable by the group in respect of defined contribution plans are charged to operating profit as incurred. Other unfunded post-employment liabilities
are accounted for in the same way as defined benefit pension plans.
Share-based payments: employee benefits
The Share Incentive Plan allows executives to receive allocations of shares to be distributed subject to attainment of certain financial performance criteria and typically
after a three-year performance period. The fair value of the shares to be awarded is recognised as an employee expense with a corresponding increase in equity. The
fair value is measured at grant date and spread over the period during which the executives become unconditionally entitled to the shares. The fair value of the shares
allocated is measured taking into account the terms and conditions under which the shares were allocated. The amount recognised as an expense is adjusted to reflect
the actual number of shares that vest.
The Share Option Scheme (1994) and Executive Share Option Scheme (2000) allow executives to acquire shares of the Company. The fair value of options granted
is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the
executives become unconditionally entitled to the options. The fair value of the options granted is measured using a binomial lattice model, taking into account the
terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest
except where forfeiture is only due to share prices not achieving the threshold for vesting.
Income tax
Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates
to items taken directly to reserves.
Current tax is the tax expected to be payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, together
with any adjustment to tax payable in respect of previous years.
Associated British Foods Annual Report and Accounts 2008 // 53
Significant accounting policies continued
for the year ended 13 September 2008
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill,
the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than those acquired in a business combination, and differences
relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax
assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.
Financial assets and liabilities
Financial assets and financial liabilities, except for certain non-current other receivables, other current investments and derivative financial instruments, are measured
initially at fair value, plus directly attributable transaction costs, and thereafter at amortised cost. Certain non-current other receivables comprise available-for-sale
investments which are measured at market prices where available. Where quoted market prices in an active market are not available, and where fair value cannot
be reliably measured, unquoted equity instruments are measured at cost less impairment. Other current investments (classified under other financial assets) are
designated as ‘at fair value through profit and loss’ because they are managed and their performance is evaluated on a fair value basis in accordance with the group’s risk
management and investment strategy.
Cash and cash equivalents
Cash and cash equivalents comprise bank and cash balances, call deposits and short-term investments with original maturities of three months or less. Bank overdrafts
that are repayable on demand and form an integral part of the group’s cash management are included as a component of cash and cash equivalents for the purposes
of the cash flow statement.
Derivative financial instruments
Derivative financial instruments are used to manage the group’s economic exposure to financial and commodity risks. The principal instruments used are forward
foreign exchange contracts, futures, swaps or options (the ‘hedging instrument’). The group does not use derivative financial instruments for speculative purposes.
Derivative financial instruments are recognised in the balance sheet, within other financial assets and liabilities, at fair value at the date a derivative contract is entered
into, and are subsequently remeasured to fair value at each balance sheet date. Fair value is based on market rates or calculated using either discounted cash flow or
option pricing models consistently applied for similar types of instrument. These calculations take into consideration management’s best estimates and assumptions
based on market-related data at the balance sheet date.
The gain or loss on subsequent fair value measurement is recognised in the income statement unless the derivative qualifies for hedge accounting, when recognition
of any resultant gain or loss depends on the nature of the item being hedged.
The purpose of hedge accounting is to mitigate the impact on the group’s income statement of changes in foreign exchange or interest rates and commodity prices,
by matching the impact of the hedged risk and the hedging instrument in the income statement.
Hedge accounting is applied to derivatives that are expected to be effective in offsetting the changes in cash flows of highly probable forecast transactions
(the ‘hedged item’). To qualify for hedge accounting, the hedging relationship must meet several conditions with respect to documentation, probability of occurrence,
hedge effectiveness and reliability of measurement. At inception of the transaction, the group documents the relationship between hedging instruments and hedged
items, as well as the risk management objective and strategy for undertaking various hedging transactions. This includes linking all derivatives designated as hedges
to specific firm commitments or forecast transactions. The group also documents its assessment, both at inception and at least quarterly thereafter, as to whether the
derivatives that are used in hedging transactions have been, and are likely to continue to be, highly effective.
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a highly probable forecast transaction, the effective part of the gain
or loss on the derivative financial instrument is recognised in equity in the hedging reserve. The ineffective part of the gain or loss is recognised immediately within
operating profit in the income statement.
When the forecast transaction results in the recognition of a non-financial asset or liability, the associated cumulative gains and losses previously recognised in equity
are included in the initial measurement of the cost of the asset or liability. Otherwise, gains and losses previously recognised in equity are removed and recognised
in the income statement at the same time as the hedged transaction. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated,
exercised or no longer qualifies for hedge accounting. At that time, for forecast transactions, any cumulative gain or loss on the hedging instrument recognised in
equity is retained in equity until the forecast transaction occurs. Gains or losses on hedging instruments that relate to an underlying exposure that no longer exists
are taken directly to the income statement.
54 // Associated British Foods Annual Report and Accounts 2008
Hedges of the group’s net investment in foreign operations take the form of borrowings in the currency of the investment’s net assets.
The group economically hedges foreign currency exposure on recognised monetary assets and liabilities but does not normally seek hedge accounting under IAS 39.
Any derivatives that the group holds to hedge this exposure are classified as ‘held for trading’ within other financial assets and liabilities. Changes in the fair value of
such derivatives and the foreign exchange gains and losses arising on the related monetary items are recognised within operating profit in the income statement.
Embedded derivatives
Derivatives that are embedded in other financial instruments or other non-financial host contracts are treated as separate derivatives when their risk and characteristics
are not closely related to those of the host contract and the host contract is not carried at fair value. As at 13 September 2008, no material embedded derivatives had
been identified.
Intangible assets other than goodwill
Non-operating intangible assets are intangible assets that arise on business combinations and typically include intellectual property, brands, customer relationships
and grower agreements.
Operating intangible assets are intangible assets acquired in the ordinary course of business and typically include software costs and expenditure in relation to the
purchase of additional sugar quota.
Intangible assets other than goodwill that have a finite life are stated at cost less accumulated amortisation and impairment charges. Intangible assets other than
goodwill that do not have a finite life are stated at cost less impairment charges and are subject to an annual impairment test.
Amortisation is charged to the income statement within operating costs on a straight-line basis over the estimated useful lives of intangible assets from the date they
are available for use. The estimated useful lives are generally deemed to be no longer than:
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Customer relationships
Grower agreements
Technology and brands
up to 5 years
up to 10 years
up to 15 years
Goodwill
All business combinations are accounted for by applying the acquisition method. In respect of business acquisitions that have occurred since 3 September 2004,
goodwill represents the excess of the purchase consideration over the fair value of the net identifiable assets acquired, including separately identified intangible assets.
In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, represented by the net book value recorded under previous GAAP.
The classification and accounting treatment of business combinations that occurred prior to 3 September 2004 was not reconsidered on transition to IFRS.
Certain commercial assets associated with the acquisition of a business are not capable of being recognised in the acquisition balance sheet. In such circumstances,
goodwill is recognised, which may include, but is not necessarily limited to, workforce assets and the benefits of expected future synergies.
Goodwill is not amortised but is subject to an annual impairment test.
Research and development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised as an expense in the
income statement as incurred.
Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and
processes, is capitalised if the product or process is technically and commercially feasible and the group has sufficient resources to complete development. The
expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in
the income statement as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment charges.
Impairment
The carrying amounts of the group’s intangible assets and property, plant & equipment are reviewed at each balance sheet date to determine whether there is any
indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill and intangibles without a finite life, the recoverable
amount is estimated at each balance sheet date.
An impairment charge is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment charges are
recognised in the income statement within operating costs.
Impairment charges recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to a cash-generating
unit (or group of units) and then to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis.
Associated British Foods Annual Report and Accounts 2008 // 55
Significant accounting policies continued
for the year ended 13 September 2008
Calculation of recoverable amount
The recoverable amount of assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Reversals of impairment
An impairment charge in respect of goodwill is not subsequently reversed. In respect of other assets, an impairment charge is reversed if there has been a change in the
estimates used to determine recoverable amount. An impairment charge is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation, if no impairment charge had been recognised.
Property, plant & equipment
Items of property, plant & equipment are stated at cost less accumulated depreciation and impairment charges.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant & equipment sufficient to reduce
them to their estimated residual value. Land is not depreciated. The estimated useful lives are generally deemed to be no longer than:
Freehold buildings
Plant & equipment, fixtures and fittings
– sugar factories, yeast plants and mills
– other operations
Vehicles
66 years
20 years
12 years
10 years
Leases
A lease is defined as an agreement whereby the lessor conveys to the lessee, in return for a payment or a series of payments, the right to use a specific asset for an
agreed period of time.
Where the group is a lessee and has substantially all the risks and rewards of ownership of an asset, the arrangement is considered a finance lease. Finance leases are
recognised as assets of the group within property, plant & equipment at the inception of the lease at the lower of fair value and the present value of the minimum
lease payments. Depreciation on leased assets is charged to the income statement on the same basis as owned assets. Payments made under finance leases are
apportioned between capital repayments and interest expense charged to the income statement. Other leases where the group is a lessee are treated as operating
leases. Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. The benefit of lease
incentives is recognised in the income statement on a straight-line basis over the life of the lease.
Where the group is a lessor and has transferred substantially all the risks and rewards of ownership of an asset to a lessee, the arrangement is considered a finance
lease. For finance leases, capital amounts due from lessees are recognised as financial assets of the group within trade and other receivables at the inception of the
lease at the amount of the net investment in the lease after making provision for bad and doubtful debts. Payments received under finance leases are apportioned
between capital repayments and interest income credited to the income statement. Other leases where the group is a lessor are treated as operating leases. For
operating leases, the asset is capitalised within property, plant & equipment and depreciated over its useful economic life. Payments received under operating leases
are recognised in the income statement on a straight-line basis over the term of the lease.
Biological assets
Cane roots and growing cane are stated at fair value determined on the following bases:
Cane roots – the escalated average cost, using appropriate inflation-related indices, of each year of planting adjusted for the remaining expected life. Expected useful
lives are currently ten years in South Africa, seven years in Zambia and eight years in each of the other countries of operation.
Growing cane – the estimated sucrose content valued at the estimated sucrose price for the following season, less the estimated costs for harvesting and transport.
When harvested, growing cane is transferred to inventory at fair value less costs to sell.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost includes raw materials, direct labour and expenses, an appropriate proportion of production
and other overheads, but not borrowing costs. Cost is calculated on a first-in first-out basis.
56 // Associated British Foods Annual Report and Accounts 2008
New accounting policies
The following standard issued by the International Accounting Standards Board (‘IASB’) is effective for the first time in the current financial year and has been adopted
by the group with no significant impact on its consolidated results or financial position:
IFRS 7 – Financial instruments: disclosures (effective for annual periods beginning on or after 1 January 2007).
This standard contains new regulations concerning the disclosure of financial instruments. IFRS 7 replaces and augments the disclosure requirements of IAS 32 – Financial
instruments: disclosure and presentation and must be applied to reporting periods that commence on or after 1 January 2007. The impact of IFRS 7 on the group’s
financial instruments has not been material, except in respect of the restatement and expansion of financial instruments disclosures.
The following standards and interpretations issued by the IASB or the International Financial Reporting Interpretations Committee (‘IFRIC’) have not yet been endorsed
by the EU (except for IFRS 8) and have not yet been adopted by the group:
Amendment to IFRS 3 – Business combinations and IAS 27 – Consolidated and separate financial statements (effective prospectively for annual periods beginning on
or after 1 July 2009). These revised standards implement substantial revisions in the application of acquisition accounting, notably with respect to the treatment of
acquisition costs, step and partial acquisitions, minority interests and contingent consideration. The group is currently assessing the impact of these revised standards
on its financial statements.
IFRS 8 – Operating segments (effective for annual periods beginning on or after 1 January 2009).
This standard contains requirements for the disclosure of information about an entity’s operating segments and also about the entity’s products and services, the
geographical areas in which it operates, and its major customers. The standard is concerned only with disclosure and replaces IAS 14 – Segment reporting. The group
is currently assessing the impact of this standard on its financial statements, but it is not expected to be material.
Amendment to IAS 23 – Borrowing costs (effective for annual periods beginning on or after 1 January 2009).
The amendment to IAS 23 generally eliminates the option to expense as incurred borrowing costs attributable to the acquisition, construction or production of
a qualifying asset, and instead requires the capitalisation of such borrowing costs as part of the cost of specific assets. The group is currently assessing the impact
of the amendment on the results and net assets of the group.
IFRIC 14 – IAS 19: The limit on a defined benefit asset, minimum funding requirements and their interaction (effective for annual periods beginning on or after
1 January 2008).
The IFRIC makes it generally more difficult to recognise defined benefit pension surpluses (and the related deferred tax liabilities) on the balance sheet. The impact
of this interpretation on the group’s financial statements is not expected to be material.
IFRIC 16 – Hedges of a net investment in a foreign operation (effective for annual periods beginning on or after 1 October 2008).
The IFRIC clarifies certain aspects of IAS 39 with respect to hedge accounting. The impact of this interpretation on the group’s financial statements is not expected
to be material.
The group does not consider that any other standards or interpretations issued by the IASB or the IFRIC, either applicable in the current year or not yet applicable,
have, or will have, a significant impact on the consolidated financial statements.
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
Associated British Foods Annual Report and Accounts 2008 // 57
Notes forming part of the financial statements
for the year ended 13 September 2008
1. Segmental analysis
Segment reporting is presented in respect of the group’s business and geographical segments. The primary format, business segments, is based on the group’s
management and internal reporting structure and combines businesses with common characteristics. Inter-segment pricing is determined on an arm’s length basis.
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 benefit balances and current and deferred tax balances. Segment capital expenditure
is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one year.
Business segments
The group is comprised of the following business segments:
Grocery
Sugar
Agriculture
Ingredients
Retail
The manufacture of grocery products, including hot beverages, sugar & sweeteners, vegetable oils, bread & baked goods, cereals, ethnic foods,
herbs & spices and meat & dairy products which are sold to retail, wholesale and foodservice businesses.
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.
The manufacture of animal feeds and the provision of other products for the agriculture sector.
The manufacture of bakers’ yeast, bakery ingredients, speciality proteins, enzymes, lipids and yeast extracts.
Buying and merchandising value clothing and accessories through the Primark and Penneys retail chains.
Geographical segments
The secondary format presents the revenues, profits and assets for the following geographical segments:
United Kingdom
Europe, Middle East & Africa
The Americas
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.
Revenue
Adjusted operating profit
business segments
Grocery
Sugar
Agriculture
Ingredients
Retail
Central
Businesses disposed:
Grocery
Agriculture
Ingredients
geographical segments
United Kingdom
Europe, Middle East & Africa
The Americas
Asia Pacific
Businesses disposed:
United Kingdom
Europe, Middle East & Africa
The Americas
58 // Associated British Foods Annual Report and Accounts 2008
–
–
–
2008
£m
3,254
1,267
867
842
1,933
–
2007
£m
2,605
1,151
645
698
1,602
8,163
6,701
–
42 1
50 3
99 4
2007
£m
153
199
18
71
200
(26)
615
2008
£m
194
153
33
75
233
(28)
660
–
–
7
7
6,800
664
622
254
155
113
93
615
3,176
1,219
1,142
1,164
6,701
40 2
39 2
20 –
99 4
309
159
102
90
660
1
3
3
7
6,800
664
622
7
42
30
72
8,235
3,766
1,489
1,312
1,596
8,163
42
30
72
8,235
1. Segmental analysis – for the year ended 13 September 2008
Business segments
Revenue from continuing businesses
Businesses disposed
Internal revenue
Revenue from external customers
Adjusted operating profit from continuing businesses
Businesses disposed
Adjusted operating profit
Exceptional items
Amortisation of non-operating intangibles
Profits less losses on sale of property,
plant & equipment
Profits less losses on sale of businesses
Profit before finance income, finance expense,
other financial income and taxation
Finance income
Finance expense
Other financial income
Taxation
profit for the period
Segment assets (excluding investments in
associates and joint ventures)
Investments in associates and joint ventures
segment assets
Cash and cash equivalents
Employee benefits assets
Deferred tax assets
Other current investments
segment liabilities
Interest-bearing loans and overdrafts
Income tax
Deferred tax liabilities
Employee benefits liabilities
net assets
Capital additions
Depreciation
Impairment of PP&E
Amortisation
Geographical segments
Revenue from external customers
Segment assets
Capital additions
Depreciation
Impairment of PP&E
Amortisation
Grocery
£m
3,267
–
(13)
3,254
194
–
194
(61)
(22)
2
–
Sugar
£m
1,359
–
(92)
1,267
Agriculture
£m
870
42
(3)
909
Ingredients
£m
879
35
(42)
872
153
–
153
25
(24)
1
–
33
1
34
–
–
–
1
35
75
3
78
(10)
(28)
4
4
48
Retail
£m
1,933
–
–
1,933
233
–
233
–
–
3
–
236
113
155
113
155
35
48
236
2,415
12
2,427
2,072
31
2,103
213
40
253
1,146
15
1,161
1,628
–
1,628
(525)
(404)
(89)
(149)
(266)
1,902
1,699
164
1,012
1,362
90
81
17
24
194
55
2
24
10
7
–
–
54
27
3
28
140
64
–
–
Central
£m
–
–
–
–
Eliminations
£m
(145)
(5)
150
–
(28)
–
(28)
–
–
–
–
(28)
21
(74)
21
(136)
(196)
15
–
15
348
106
101
9
(143)
(1,148)
(89)
(449)
(45)
(1,295)
6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
United
Kingdom
£m
3,808
3,334
129
131
–
10
Europe,
Middle East
& Africa
£m
1,519
1,947
243
40
2
32
The
Americas
£m
1,312
1,090
29
22
3
24
Asia
Pacific
£m
1,596
1,216
93
41
17
10
Eliminations
£m
–
–
–
–
–
–
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
Total
£m
8,163
72
–
8,235
660
4
664
(46)
(74)
10
5
559
21
(74)
21
(136)
391
7,489
98
7,587
348
106
101
9
(1,576)
(1,148)
(89)
(449)
(45)
4,844
494
234
22
76
Total
£m
8,235
7,587
494
234
22
76
Associated British Foods Annual Report and Accounts 2008 // 59
Notes forming part of the financial statements continued
for the year ended 13 September 2008
1. Segmental analysis – for the year ended 15 September 2007
Business segments
Grocery
£m
2,616
7
(11)
2,612
153
–
153
(14)
–
7
Sugar
£m
1,250
–
(99)
1,151
Agriculture
£m
647
42
(2)
687
Ingredients
£m
741
54
(47)
748
199
–
199
(32)
–
–
18
–
18
–
–
1
19
71
7
78
(28)
–
(40)
10
Retail
£m
1,602
–
–
1,602
200
–
200
–
8
(7)
201
146
167
146
167
19
10
201
1,949
25
1,974
1,609
10
1,619
172
31
203
924
13
937
1,436
–
1,436
(391)
(427)
(56)
(119)
(217)
1,583
1,192
147
818
1,219
85
75
14
113
52
37
6
7
–
44
24
28
139
56
–
Central
£m
–
–
–
–
Eliminations
£m
(155)
(4)
159
–
(26)
–
(26)
–
–
–
(26)
20
(55)
26
(108)
(143)
21
–
21
411
308
70
1
(35)
(723)
(82)
(434)
(32)
(495)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
United
Kingdom
£m
3,216
2,858
230
124
10
Europe,
Middle East
& Africa
£m
1,258
1,601
79
33
39
The
Americas
£m
1,162
905
37
23
25
Asia
Pacific
£m
1,164
826
41
34
5
Eliminations
£m
–
–
–
–
–
Total
£m
6,701
99
–
6,800
615
7
622
(74)
8
(39)
517
20
(55)
26
(108)
400
6,111
79
6,190
411
308
70
1
(1,245)
(723)
(82)
(434)
(32)
4,464
387
214
79
Total
£m
6,800
6,190
387
214
79
Revenue from continuing businesses
Businesses disposed
Internal revenue
Revenue from external customers
Adjusted operating profit from continuing businesses
Businesses disposed
Adjusted operating profit
Amortisation of non-operating intangibles
Profits less losses on sale of property,
plant & equipment
Profits less losses on sale of businesses
Profit before finance income, finance expense,
other financial income and taxation
Finance income
Finance expense
Other financial income
Taxation
profit for the period
Segment assets (excluding investments in
associates and joint ventures)
Investments in associates and joint ventures
segment assets
Cash and cash equivalents
Employee benefits assets
Deferred tax assets
Other current investments
segment liabilities
Interest-bearing loans and overdrafts
Income tax
Deferred tax liabilities
Employee benefits liabilities
net assets
Capital additions
Depreciation
Amortisation
Geographical segments
Revenue from external customers
Segment assets
Capital additions
Depreciation
Amortisation
60 // Associated British Foods Annual Report and Accounts 2008
2. Operating costs and gross profit
operating costs
Cost of sales (including amortisation of intangibles)
Distribution costs
Administration expenses
operating costs are stated after charging/(crediting):
Employee benefits expense
Amortisation of non-operating intangibles
Amortisation of operating intangibles
Depreciation of owned property, plant & equipment
Operating lease payments under property leases
Operating lease payments for hire of plant & equipment
Other operating income
Research and development expenditure
Fair value gains on financial assets and liabilities held for trading
Fair value losses on financial assets and liabilities held for trading
Foreign exchange gains on operating activities
Foreign exchange losses on operating activities
1Refer to accounting policy on page 53.
Before
exceptional
items
2008
£m
Exceptional
items1
2008
£m
Note
6,281
908
471
7,660
46
–
–
46
3
8
8
9
Total
2008
£m
6,327
908
471
7,706
1,122
74
2 5
234
70
7 6
(12)
21
(25)
24
(22)
16
Total
2007
£m
5,058
807
397
6,262
1,002
74
214
63
(19)
16
(21)
20
(9)
10
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
An exceptional credit of £25m arose in British Sugar following acceptance of its application to renounce permanently 206,000 tonnes of UK and Polish sugar quota.
The credit comprises compensation receivable less factory closure costs and the write-off of the unamortised cost of quota purchased in 2006.
An exceptional charge of £71m has been made for the costs of business restructuring, principally the Australian meat and dairy business following the acquisition of
KR Castlemaine. These costs mainly comprise severance costs, impairment of property, plant & equipment (see note 9) and other closure costs. A tax credit of £23m
arises on the above exceptional items. Following a change in tax law in the UK Finance Act 2008, Industrial Buildings Allowances are to be phased out. An exceptional
tax charge of £17m reflects the consequential increase in the group’s deferred tax liability.
auditors’ remuneration
fees payable to the company’s auditors and its associates in respect of the audit
Group audit of the Company’s financial statements
Audit of the Company’s subsidiaries pursuant to legislation
Total audit remuneration
fees payable to the company’s auditors and its associates in respect of non-audit related services
Other services pursuant to legislation
Tax services
Information technology services
Due diligence
All other services
Total non-audit related remuneration
fees payable to the company’s auditors and its associates in respect of the group’s pension schemes
Audit of the pension schemes
2008
£m
2007
£m
0.6
3.4
4.0
0.3
2.3
0.2
1.3
0.2
4.3
0.1
0.1
0.5
3.1
3.6
0.3
1.2
0.5
1.0
0.3
3.3
0.1
0.1
Associated British Foods Annual Report and Accounts 2008 // 61
Notes forming part of the financial statements continued
for the year ended 13 September 2008
3. Employees
average number of employees
United Kingdom
Europe, Middle East & Africa
The Americas
Asia Pacific
employee benefits expense
Wages and salaries
Social security contributions
Contributions to defined contribution schemes
Charge for defined benefit schemes
Equity-settled share-based payment schemes
Details of directors’ remuneration, share options and pension entitlements are shown in the Remuneration report on pages 30 to 33.
4. Interest and other finance income and expense
finance income
Interest income on financial assets not at fair value through profit or loss:
– cash and cash equivalents
– unwinding of discount on receivables
Total finance income
finance expense
Interest expense on financial liabilities not at fair value through profit or loss:
– bank loans and overdrafts
– all other borrowings
– finance leases
– other payables
Total finance expense
other financial income
Expected return on employee benefit scheme assets
Interest charge on employee benefit scheme liabilities
Net financial income in respect of employee benefit schemes
Net foreign exchange (losses)/gains on financing activities
Total other financial income
62 // Associated British Foods Annual Report and Accounts 2008
Note
12
12
23 5
3
2008
2007
30,840
40,137
4,358
20,481
95,816
£m
977
78
26
36
6
29,102
37,084
4,328
14,122
84,636
£m
862
63
24
47
1,122
1,002
2008
£m
2007
£m
18
–
21
(53)
(16)
(1)
(4)
(74)
149
(126)
23
(2)
21
20
20
(36)
(16)
(1)
(2)
(55)
138
(113)
25
1
26
5. Income tax expense
current tax expense
UK – corporation tax at 29.1% (2007 – 30%)
Overseas – corporation tax
Under/(over)-provided in prior years
deferred tax expense
UK deferred tax
Overseas deferred tax
Under-provided in prior years
total income tax expense in income statement
reconciliation of effective tax rate
Profit before taxation
Less share of profit from joint ventures and associates
profit before taxation excluding share of profit from joint ventures and associates
Nominal tax charge at UK corporation tax rate of 29.1% (2007 – 30%)
Lower tax rates on overseas earnings
Expenses not deductible for tax purposes
Utilisation of losses
Deferred tax not recognised
Abolition of UK Industrial Buildings Allowances
Adjustments in respect of prior periods
2
income tax recognised directly in equity
Deferred tax associated with actuarial gains and losses on defined benefit schemes
Deferred tax associated with movement in cash flow hedging position
Deferred tax associated with movements in foreign exchange
Deferred taxation balances are analysed in note 13.
Note
2
1
3
3
7
3
6. Dividends
2006 final
2007 interim
2007 final
2008 interim
–
–
2008
pence
per share
13.00 –
6.75 –
19.75
2007
pence
per share
12.50 –
6.50 –
19.00
2008
£m
41
73
116
28
(9)
5
136
527
(15)
512
149
(38)
12 7
(10) –
–
17 –
136
(71)
2
1
(61)
2008
£m
103 –
53 –
156
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
2007
£m
37
71
(7)
101
14
(12)
108
508
(10)
498
149
(46)
(2)
108
25
28
2007
£m
99
51
150
The 2008 interim dividend was declared on 22 April 2008 and paid on 3 July 2008. The 2008 final dividend of 13.50p, total value of £107m, will be paid on 9 January
2009 to shareholders on the register on 5 December 2008.
Dividends relating to the period were 20.25p per share totalling £160m (2007 – 19.50p per share totalling £154m).
Associated British Foods Annual Report and Accounts 2008 // 63
Notes forming part of the financial statements continued
for the year ended 13 September 2008
7. Earnings per share
The calculation of basic earnings per share at 13 September 2008 was based on the net profit attributable to equity shareholders of £357m (2007 – £369m),
and a weighted average number of shares outstanding during the year of 790 million (2007 – 790 million). The calculation of the weighted average number of
shares excludes the shares held by the Employee Share Option Scheme on which the dividends are being waived.
Adjusted earnings per ordinary share, which exclude the impact of profits less losses on the sale of property, plant & equipment and businesses, amortisation of
non-operating intangibles, exceptional items and the associated tax credits, is shown to provide clarity on the underlying performance of the group.
The diluted earnings per share calculation takes into account the dilutive effect of share options. The diluted, weighted average number of shares is 790 million
(2007 – 790 million). There is no difference between basic and diluted earnings.
adjusted profit for the period
Profits less losses on sale of property, plant & equipment
Profits less losses on sale of businesses
Exceptional items
Exceptional tax item and tax effect on above
Amortisation of non-operating intangibles
Tax credit on non-operating intangibles amortisation and goodwill
Minority share of amortisation of non-operating intangibles net of tax
profit for the period attributable to equity shareholders
adjusted earnings per share
Sale of property, plant & equipment
Sale of businesses
Exceptional items
Exceptional tax item and tax effect on above
Amortisation of non-operating intangibles
Tax credit on non-operating intangibles amortisation and goodwill
Minority share of amortisation of non-operating intangibles net of tax
earnings per ordinary share
5
2008
£m
434
10 8
(46) –
(3)
(74)
21
10
357
2008
pence
54.9
1.3
0.6
(5.8) –
(0.4)
(9.4)
2.7
1.3
45.2
2007
£m
418
(39)
15
(74)
30
11
369
2007
pence
52.9
1.0
(4.9)
1.9
(9.4)
3.8
1.4
46.7
64 // Associated British Foods Annual Report and Accounts 2008
8. Intangible assets
cost
At 16 September 2006
Acquired through business combinations
Other acquisitions – externally purchased
Businesses disposed
Other disposals
Transferred to assets classified as held for sale
Effect of movements in foreign exchange
at 15 september 2007
Acquired through business combinations
Other acquisitions – externally purchased
Other disposals
Transferred to assets classified as held for sale
Effect of movements in foreign exchange
at 13 september 2008
amortisation and impairment
At 16 September 2006
Amortisation for the year
Businesses disposed
Transferred to assets classified as held for sale
at 15 september 2007
Amortisation for the year
Impairment
Other disposals
Effect of movements in foreign exchange
at 13 september 2008
net book value
At 16 September 2006
At 15 September 2007
at 13 september 2008
Goodwill
£m
Technology
£m
Brands
£m
Non-operating
Customer
relationships
£m
Grower
agreements
£m
Operating
Other
£m
Other
£m
1,013
67
–
(27)
–
(18)
(12)
1,023
128
–
–
(11)
85
1,225
–
–
–
–
–
–
5
–
–
5
1,013
1,023
1,220
199
–
–
–
–
(15)
(1)
183
7
–
–
–
27
217
29
20
–
(3)
46
21
–
–
9
76
170
137
141
157
69
–
(6)
–
(1)
(2)
217
67
–
–
–
16
300
24
19
(3)
–
40
23
–
–
6
69
133
177
231
56
6
–
–
–
–
(1)
61
10
–
–
–
4
75
12
12
–
–
24
15
–
–
–
39
44
37
36
161
–
–
–
–
–
(7)
154
–
–
–
–
–
154
–
16
–
–
16
15
–
–
–
31
161
138
123
10
(2)
–
–
–
–
(1)
7
–
–
–
–
–
7
–
7
–
–
7
–
–
–
–
7
10
–
–
11
–
55
–
(4)
–
1
63
17
36
(53)
–
3
66
–
5
–
–
5
2
–
(5)
–
2
11
58
64
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
Total
£m
1,607
140
55
(33)
(4)
(34)
(23)
1,708
229
36
(53)
(11)
135
2,044
65
79
(3)
(3)
138
76
5
(5)
15
229
1,542
1,570
1,815
Amortisation charges and impairment charges are recognised within operating costs in the income statement.
£11m of intangible assets are included within assets classified as held for sale (2007 – £31m) (see note 15).
Associated British Foods Annual Report and Accounts 2008 // 65
Notes forming part of the financial statements continued
for the year ended 13 September 2008
8. Intangible assets continued
Impairment
Goodwill
As at 13 September 2008, the consolidated balance sheet included goodwill of £1,220m. Goodwill is allocated to the group’s cash-generating units, or groups of cash-
generating units, that are expected to benefit from the synergies of the business combination that gave rise to the goodwill, as follows:
cash-generating unit (cgu) or group of cgus
ACH
AB Mauri
Twinings/Ovaltine
Capullo
Illovo
Patak’s
Northern China Sugar
Other*
Primary reporting segment
Grocery
Ingredients
Grocery
Grocery
Sugar
Grocery
Sugar
Various
2008
£m
225
297
119
58
143
58
56 –
264
1,220
2007
£m
200
222
119
58
143
58
223
1,023
*The amount of goodwill allocated to each CGU or group of CGUs is not individually significant.
A CGU, or group of CGUs, to which goodwill has been allocated must be assessed for impairment annually and whenever there is an indication of impairment.
There have been no indications of impairment relating to the CGUs or groups of CGUs to which goodwill has been allocated and, accordingly, the disclosures that
follow relate to the impairment test that is required to be conducted on an annual basis:
• The carrying value of goodwill has been assessed with reference to value in use to perpetuity reflecting the projected cash flows of each of the CGUs or group of
CGUs based on the most recent budget. Growth rates for the period not covered by the budget are based on a range of growth rates that reflect the products,
industries and countries in which the relevant CGU or group of CGUs operate.
• The key assumptions on which the cash flow projections for the most recent budget are based relate to discount rates, growth rates and expected changes in selling
prices and direct costs.
• The cash flow projections have been discounted using a range of rates based on the group’s pre-tax weighted average cost of capital. The rates used vary between
8% and 11%.
• The growth rates applied in the value in use calculations for goodwill allocated to each of the CGUs or groups of CGUs that is significant to the total carrying
amount of goodwill were in a range between 0% and 2.5%.
• Changes in selling price and direct costs are based on past results and expectations of future changes in the market.
66 // Associated British Foods Annual Report and Accounts 2008
9. Property, plant & equipment
cost
At 16 September 2006
Acquired through business combinations
Other acquisitions
Businesses disposed
Other disposals
Transfer to assets classified as held for sale
Transfers from assets under construction
Effect of movements in foreign exchange
at 15 september 2007
Acquired through business combinations
Other acquisitions
Businesses disposed
Other disposals
Transfer to assets classified as held for sale
Transfers from assets under construction
Effect of movements in foreign exchange
at 13 september 2008
depreciation and impairment
At 16 September 2006
Depreciation for the year
Businesses disposed
Other disposals
Transfer to assets classified as held for sale
Effect of movements in foreign exchange
at 15 september 2007
Depreciation for the year
Impairment
Businesses disposed
Other disposals
Effect of movements in foreign exchange
at 13 september 2008
net book value
At 16 September 2006
At 15 September 2007
At 13 September 2008
Net book value of finance lease assets
Land and buildings at net book value comprise:
– Freehold
– Long leasehold
– Short leasehold
Land and
buildings
£m
Plant and
machinery
£m
Fixtures and Assets under
construction
£m
fittings
£m
1,284
12
37
(5)
(8)
(11)
16
3
1,328
57
91
(3)
(10)
(4)
23
71
1,553
213
29
(1)
(8)
(3)
1
231
30
2
(1)
–
13
275
1,071
1,097
1,278
1,810
16
117
(28)
(62)
(7)
78
3
1,927
36
115
(28)
(50)
(4)
85
127
2,208
975
128
(16)
(49)
(3)
3
1,038
138
20
(24)
(40)
60
1,192
835
889
1,016
669
–
135
(3)
(34)
–
3
1
771
1
93
(1)
(16)
–
3
21
872
173
57
(3)
(34)
–
–
193
66
–
(1)
(12)
6
252
496
578
620
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
Total
£m
3,840
28
387
(36)
(104)
(18)
–
7
4,104
108
494
(32)
(76)
(8)
–
239
4,829
1,361
214
(20)
(91)
(6)
4
1,462
234
22
(26)
(52)
79
1,719
2,479
2,642
3,110
2007
£m
14
874
153
70
1,097
151
77
–
98
–
–
–
(97)
–
78
14
195
–
–
–
(111)
20
196
–
–
–
–
–
–
–
–
–
–
–
–
–
77
78
196
2008
£m
14
976
214
88
1,278
229
Capital expenditure commitments – contracted but not provided for
£8m of property, plant & equipment is included within assets classified as held for sale (2007 – £14m) (see note 15).
Impairment
The impairment of property, plant & equipment principally relates to a restructuring of the Australian meat and dairy business, following the acquisition of
KR Castlemaine, the cost of which has been recorded as an exceptional item within operating costs in the income statement, and is included in the Grocery segment.
Associated British Foods Annual Report and Accounts 2008 // 67
Notes forming part of the financial statements continued
for the year ended 13 September 2008
10. Biological assets
At 16 September 2006
Harvested cane transferred to inventory
Purchases
Sales
Changes in fair value
Effect of movements in foreign exchange
at 15 september 2007
Acquired through business combinations
Harvested cane transferred to inventory
Purchases
Sales
Changes in fair value
Effect of movements in foreign exchange
at 13 september 2008
cane roots
area under cane as at the end of the period (hectares):
South Africa
Malawi
Zambia
Swaziland
Tanzania
Mozambique
Current
Non-current
Growing
cane
£m
Other
£m
Total
£m
51
(48)
–
–
54
(4)
53
–
(65)
10
–
66
12
76
–
–
–
–
–
–
–
2
(9)
1
(2)
12
–
4
51
(48)
–
–
54
(4)
53
2
(74)
11
(2)
78
12
80
Cane
roots
£m
46
–
2
(1)
5
(4)
48
–
–
3
–
6
9
66
2008
2007
9,669
20,446
14,466
8,172
8,515
5,235
66,503
9,624
18,903
11,050
7,950
8,224
5,263
61,014
growing cane
The following assumptions have been used in the determination of the estimated sucrose tonnage at 13 September 2008:
Expected area to harvest (hectares)
Estimated yield (tonnes cane/hectare)
Average maturity of cane
South Africa
6,498
73.0
62.0%
Malawi
19,501
110.2
66.7%
Zambia
14,234
138.0
66.7%
Swaziland
7,808
103.3
66.7%
Tanzania Mozambique
5,147
90.6
66.7%
8,260
81.3
50.0%
The following assumptions were used in the determination of the estimated sucrose tonnage at 15 September 2007:
Expected area to harvest (hectares)
Estimated yield (tonnes cane/hectare)
Average maturity of cane
South Africa
6,310
72.0
57.0%
Malawi
18,325
106.9
66.7%
Zambia
10,897
115.0
66.7%
Swaziland
7,574
101.2
66.7%
Tanzania Mozambique
5,147
91.1
66.7%
7,776
81.1
50.0%
68 // Associated British Foods Annual Report and Accounts 2008
11. Investments in joint ventures and associates
At 16 September 2006
Acquisitions
Profit for the period
Dividends received
Disposals
Transfer to subsidiary
Effect of movements in foreign exchange
at 15 september 2007
Acquisitions
Profit for the period
Dividends received
Transfer to subsidiary
Other reserves movements
Effect of movements in foreign exchange
at 13 september 2008
Joint ventures
Associates
Shares
£m
40
4
6
(1)
(7)
(1)
–
41
18
10
(1)
–
(1)
2
69
Goodwill
£m
14
–
–
–
(8)
–
(1)
5
1
–
–
–
–
–
6
Total
£m
54
4
6
(1)
(15)
(1)
(1)
46
19
10
(1)
–
(1)
2
75
Shares
£m
15
8
4
(2)
–
–
–
25
–
5
(1)
(7)
(1)
2
23
Goodwill
£m
–
8
–
–
–
–
–
8
–
–
–
(8)
–
–
–
Details of principal joint ventures and associates are listed in note 30.
Included in the consolidated financial statements are the following items that represent the group’s share of the assets, liabilities and profit of joint ventures
and associates:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Goodwill
Net assets
Revenue
Expenses
Taxation
Profit for the period
–
6
Joint ventures
Associates
2008
£m
30
154
(115)
–
5
75
576
(562)
(4)
10 6
2007
£m
18
124
(101)
–
46
365
(357)
(2)
5
2008
£m
13
55
(44)
(1)
23
27
(19)
(3)
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
Total
£m
15
16
4
(2)
–
–
–
33
–
5
(1)
(15)
(1)
2
23
2007
£m
17
88
(77)
(3)
8
33
14
(9)
(1)
4
Associated British Foods Annual Report and Accounts 2008 // 69
Notes forming part of the financial statements continued
for the year ended 13 September 2008
12. Employee entitlements
The group operates pension schemes, the majority of which are of the defined benefit type. The group also operates a small number of unfunded overseas post-
retirement medical benefit schemes.
UK schemes
The group’s principal UK defined benefit pension schemes are funded schemes and are closed to new members, with defined contribution arrangements in place for
other employees. The pension costs in the UK for the defined benefit schemes are assessed in accordance with the advice of independent qualified actuaries using
the projected unit method. For defined contribution schemes, the pension costs are the contributions payable.
Actuarial gains and losses arising over the financial year are recognised immediately in the statement of recognised income and expense, and are reflected in the
balance sheet at 13 September 2008. Past service cost is recognised immediately to the extent that the benefits have already vested.
The last actuarial valuations of the British Sugar Pension Scheme and the Associated British Foods Pension Scheme were carried out as at 1 October 2004 and 5 April
2005 respectively. At the valuation dates the total market value of the assets of these schemes was £1,869m and represented 97% of the benefits that had accrued
to members after allowing for expected future increases in earnings.
On 6 April 2006, the British Sugar Pension Scheme was merged into the Associated British Foods Pension Scheme. Their respective funding positions were recalculated
at that point and the group agreed to make two payments of £14.5m, the first in October 2006 and the second in October 2007, to eliminate the deficit at 6 April
2006 in the British Sugar section of the newly merged scheme.
The triennial actuarial valuation for the merged scheme as at 5 April 2008 is currently in process.
Overseas schemes
The group also operates defined benefit pension schemes in Australia and New Zealand, the United States, Canada, the Republic of Ireland, Switzerland,
Germany, France, Italy, the Philippines, Thailand, South Africa and Zambia. These schemes are primarily funded schemes. The charge for the year is based on
recommendations by qualified actuaries. Unfunded post-retirement medical benefit schemes are accounted for as for defined benefit pension schemes. For defined
contribution schemes, the pension costs are the contributions payable.
Assumptions
The financial assumptions used to value the UK pension schemes under IAS 19, together with the expected long-term rates of return on assets, are:
Discount rate
Inflation
Rate of increase in salaries
Rate of increase for pensions in payment
Rate of increase for pensions in deferment (where provided)
2008
%
6.00
3.70
5.20
3.50
3.70
2007
%
5.80
3.30
4.80
3.10
3.30
2006
%
5.10
3.00
4.50
2.80
3.00
The mortality assumptions used to value the UK pension schemes are derived from the PA92 generational mortality tables with medium cohort improvements,
as published by the Institute of Actuaries. These mortality assumptions take account of experience to date, and assumptions for further improvements in life
expectancy of scheme members.
Examples of the resulting life expectancies are as follows:
life expectancy from age 65 (in years)
Member aged 65 in 2008
Member aged 65 in 2028
2008
2007 and 2006
Male
20.7
22.5
Female
22.6
24.1
Male
19.3
20.3
Female
22.1
23.0
The other demographic assumptions have been set having regard to the latest trends in scheme experience and other relevant data. The assumptions are reviewed and
updated as necessary as part of the periodic actuarial valuation of the pension schemes.
For the overseas schemes, regionally appropriate assumptions have been used where recommended by local actuaries.
70 // Associated British Foods Annual Report and Accounts 2008
12. Employee entitlements continued
Balance sheet
The expected rates of return and market values of the assets of the principal schemes were as follows:
uk schemes
Expected long-term rates of return:
Equities
Government bonds
Non-government bonds
Property
Other
Total market value of assets
Present value of scheme liabilities
Aggregate net surplus of the plan
Irrecoverable surplus (a)
Net pension asset
Unfunded liability included in the present value of scheme liabilities above
2008
%
7.70
4.70
6.00
6.20
5.00
2008
£m
752
643
694
90
23
2,202
(2,117)
85
–
85
(8)
2007
%
7.30
4.30
5.80
5.80
5.80
2007
£m
826
684
622
106
18
2,256
(1,972)
284
–
284
(6)
2006
%
7.30
4.30
5.10
5.80
4.80
2006
£m
806
481
728
86
90
2,191
(2,040)
151
–
151
(5)
The sensitivities regarding the principal assumptions used to measure scheme liabilities at 13 September 2008 are:
Discount rate
Inflation
Rate of increase in salaries
Rate of mortality
Change in assumption
decrease/increase by 0.5%
increase/decrease by 0.5%
increase/decrease by 0.5%
reduce by one year
Impact on scheme liabilities
increase/decrease by 8.2%
increase/decrease by 8.7%
increase/decrease by 1.7%
increase by 2.7%
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
overseas schemes
Expected long-term rates of return:
Equities
Government bonds
Non-government bonds
Property
Other
Total market value of assets
Present value of scheme liabilities
Aggregate net surplus of the plans
Irrecoverable surplus (a)
Net pension liability
Unfunded liability included in the present value of scheme liabilities above
2008
%
8.89
6.88
4.03
6.42
6.08
2006
%
8.65
5.70
4.00
6.00
3.85
2007
%
8.44
6.41
3.65
6.04
9.37
2008
£m
108
49
37
5
23
222
(211)
11
(35)
(24)
(22)
2007
£m
109
51
33
6
19
218
(192)
26
(34)
(8)
(25)
2006
£m
122
27
25
5
23
202
(190)
12
(36)
(24)
(19)
(a) The surplus in the plans is only recoverable to the extent that the group can benefit from either refunds formally agreed or future contribution reductions.
The expected rate of return on plan assets was determined, based on actuarial advice, by a process that takes the long-term rate of return on government bonds
available at the balance sheet date and with a similar maturity to the scheme liabilities, and applies to these rates suitable risk premia that take account of historic
market returns and current market long-term expectations for each asset class.
The UK schemes’ net pension asset of £85m (2007 – £284m) less the overseas schemes’ net pension liability of £24m (2007 – £8m) totals £61m (2007 – £276m).
This equates to the employee benefits asset of £106m (2007 – £308m) and liability of £45m (2007 – £31m) shown on the face of the consolidated balance sheet,
together with no employee benefits liability (2007 – £1m) included within liabilities classified as held for sale.
Associated British Foods Annual Report and Accounts 2008 // 71
Notes forming part of the financial statements continued
for the year ended 13 September 2008
12. Employee entitlements continued
Income statement
The charge to the income statement comprises:
Charged to operating profit:
Defined benefit plans
Current service cost
Past service cost
Gain on curtailment
Defined contribution plans
Total operating cost
Reported in other finance income:
Expected return on assets
Interest charge on liabilities
Net financial income from employee benefit schemes
Net impact on the income statement (before tax)
1
2008
£m
2007
£m
(35)
(2)
1
(26)
(62)
149
(126)
23
(39)
(44)
(4)
(24)
(71)
138
(113)
25
(46)
The actual return on scheme assets was a loss of £21m (2007 – gain of £118m).
Cash flow
Group cash flow in respect of employee benefits schemes comprises contributions paid to funded plans and benefits paid in respect of unfunded plans. In 2008,
the benefits paid in respect of unfunded plans was nil (2007 – nil). Company contributions to funded defined benefit plans are subject to periodic review. In 2008,
contributions to funded defined benefit plans amounted to £54m (2007 – £61m). Contributions to defined contribution plans amounted to £26m (2007 – £24m).
Total contributions to funded plans and benefit payments by the group in respect of unfunded plans are currently expected to be approximately £45m in 2009
(2008 – £58m).
Statement of recognised income and expense
Amounts recognised in the statement of recognised income and expense:
Actual return less expected return on pension scheme assets
Experience gains and losses arising on the scheme liabilities
Changes in assumptions underlying the present value of the scheme liabilities
Change in unrecognised surplus
Net actuarial (loss)/gain recognised in the statement of recognised income and expense (before tax)
2008
£m
(170)
61
(144)
(253)
(1)
(254)
2007
£m
(20)
(32)
160
108
2
110
Cumulative actuarial losses from 19 September 2004 reported in the statement of recognised income and expense are £108m (2007 – cumulative gains of £146m).
72 // Associated British Foods Annual Report and Accounts 2008
12. Employee entitlements continued
Reconciliation of change in assets and liabilities
Asset/(liability) at beginning of year
Current service cost
Employee contributions
Acquired through business combinations
Businesses disposed
Employer contributions
Benefit payments
Past service cost
Gain on curtailments
Financial income
Financial expenses
Actuarial gain/(loss)
Effect of movements in foreign exchange
Asset/(liability) at end of year
–
–
–
–
–
–
2008
Assets
£m
2,474
–
10 9
–
54
(113)
–
–
149
–
(170)
20
2,424
2007
Assets
£m
2,393
(1) 1
61 –
(104)
1
138 –
(20)
(2)
2,474
2008
Liabilities
£m
(2,164)
(35)
(10)
(2) –
2
–
113
(2)
1
–
(126)
(84)
(20)
(2,328)
2007
Liabilities
£m
(2,230)
(44)
(9) –
1
104 –
(4)
1
(113)
128
1 –
(2,164)
2008
Net
£m
310
(35)
–
(2) –
1
54
–
(2)
1
149
(126)
(254)
96
2007
Net
£m
163
(44)
61
(4)
138
(113)
108
(1)
310
history of experience gains and losses
Difference between the expected and actual return on scheme assets
– amount (£m)
– percentage of scheme assets
Experience gains and losses on scheme liabilities
– amount (£m)
– percentage of scheme liabilities
Total amount included in statement of recognised income and expense
– amount (£m)
– percentage of scheme liabilities
2008
2007
2006
2005
(170)
7.0%
61
2.6%
(253)
10.9%
(20)
0.8%
(32)
1.5%
108
5.0%
75
3.1%
4
0.2%
49
2.2%
155
7.1%
77
3.7%
(7)
0.3%
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
Associated British Foods Annual Report and Accounts 2008 // 73
Notes forming part of the financial statements continued
for the year ended 13 September 2008
13. Deferred tax assets and liabilities
At 16 September 2006
Amount charged to the income statement
Amount charged to the statement of recognised income and expense
Acquired through business combinations
Businesses disposed
Effect of change in tax rate:
– income statement
– equity
Transfer to assets and liabilities classified as held for sale
Effect of movements in foreign exchange
at 15 september 2007
Amount charged to the income statement
Amount charged to the statement of recognised income and expense
Acquired through business combinations
Effect of change in tax rate:
– income statement
Effect of movements in foreign exchange
at 13 september 2008
Foreign
exchange
commodity
financial
assets and
liabilities
£m
(2)
–
2
–
–
Tax value of
Other carry-forward
losses
recognised
£m
(34)
(3)
–
–
–
temporary
differences
£m
25
29
–
–
–
Intangible
assets
£m
99
(9)
–
21
(2)
Employee
benefits
£m
45
10
31
–
–
Property
plant and
equipment
£m
183
(12)
–
(1)
–
(8)
–
–
(2)
160
32
–
–
(1)
5
196
(6)
–
(4)
(1)
98
(7)
–
24
–
6
121
(1)
(5)
–
–
80
11
(71)
–
–
1
21
–
–
–
–
–
–
7
–
–
(1)
6
–
–
–
(2)
52
(11)
3
(2)
–
2
44
7
–
–
–
(30)
(4)
–
–
–
(6)
(40)
Total
£m
316
15
33
20
(2)
(8)
(5)
(4)
(5)
360
21
(61)
22
(1)
7
348
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
2008
£m
(101)
449
348
2007
£m
(70)
430
360
No deferred tax liabilities (2007 – £4m) are included in liabilities classified as held for sale (see note 15).
The recoverability of deferred tax assets is supported by the expected level of future profits in the countries concerned. Other deferred tax assets totalling £6m
(2007 – £3m) have not been recognised on the basis that their future economic benefit is uncertain.
In addition, there are temporary differences of £1,460m (2007 – £1,024m) relating to investments in subsidiaries. No deferred tax has been provided in respect
of these differences, since the timing of the reversals can be controlled and it is probable that the temporary differences will not reverse in the future.
74 // Associated British Foods Annual Report and Accounts 2008
14. Trade and other receivables
non-current – other receivables
Loans and receivables
Other non-current investments
current – trade and other receivables
Trade receivables
Other receivables
Accrued income
Prepayments and other non-financial receivables
2008
£m
2007
£m
55 –
20 2
75
827
131
34
992
236
1,228
2
618
90
25
733
234
967
No trade and other receivables (2007 – £2m) are included within assets held for sale (see note 15).
The directors consider that the carrying amount of receivables approximates fair value.
For details of credit risk exposure on trade and other receivables, see note 25.
15. Assets and liabilities classified as held for sale
As at 13 September 2008, £11m of goodwill and £8m of property, plant & equipment was classified as held for sale. The goodwill is included within the Grocery
and the Americas segments. The property, plant & equipment is included within the Sugar and Europe, Middle East and Africa segments. The proceeds of disposal
are expected to exceed the carrying value of the assets to be disposed, and accordingly no impairment losses were recognised upon classification as held for sale.
In the prior year, the primary disposal group was the existing German yeast business (shown in the Ingredients and Europe, Middle East & Africa segments), disposal
of which was completed on 31 March 2008. The disposal group comprised assets of £42m and liabilities of £7m. The remaining £6m of assets classified as held for
sale were mainly items of property, plant & equipment within the Grocery, Sugar, Ingredients and Agriculture business segments, and the United Kingdom, Europe,
Middle East & Africa and the Americas geographic segments.
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
assets classified as held for sale
Intangible assets
Property, plant & equipment
Inventories
Trade and other receivables
liabilities classified as held for sale
Trade and other payables
Deferred tax
Employee benefits liability
2008
£m
2007
£m
11
1
2
19
2
4
1
31
14
48
7
8
–
–
–
–
–
–
Associated British Foods Annual Report and Accounts 2008 // 75
Notes forming part of the financial statements continued
for the year ended 13 September 2008
16. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods held for resale
Write down of inventories
No inventories (2007 – £1m) are included within assets classified as held for sale (see note 15).
17. Cash and cash equivalents
cash
Cash at bank and in hand
Cash equivalents
Cash and cash equivalents
reconciliation to the cash flow statement
Bank overdrafts
Cash and cash equivalents in the cash flow statement
2008
£m
325
15
702
1,042
(39)
2008
£m
326
22
348
(138)
210
2007
£m
207
10
548
765
(47)
2007
£m
336
75
411
(62)
349
Note
25
18
Cash at bank and in hand generally earns interest at rates based on the daily bank deposit rate.
Cash equivalents generally comprise:
(i) deposits placed on money markets for periods up to three months which earn interest at the respective short-term deposit rate; and
(ii) funds invested with fund managers that have a maturity of less than or equal to three months and are at fixed rates.
The carrying amount of cash and cash equivalents approximates fair value.
76 // Associated British Foods Annual Report and Accounts 2008
18. Interest-bearing loans and overdrafts
current loans and overdrafts
Secured bank loans
Unsecured bank loans and overdrafts
Finance lease liabilities
non-current loans
Secured redeemable debenture stock 2013
Secured bank loans
Unsecured bank loans
Finance lease liabilities
103/4% secured redeemable debenture stock 2013 (GBP)
Secured bank loans
– GBP floating rate
– USD floating rate
– EUR fixed rate
– RMB floating rate
– RMB fixed rate
– Other floating rate
– Other fixed rate
Unsecured bank loans and overdrafts
– Bank overdrafts
– GBP floating rate
– USD floating rate
– USD fixed rate
– EUR floating rate
– EUR fixed rate
– ZAR floating rate
– Other floating rate
– Other fixed rate
Finance lease liabilities (fixed rate)
Note
2008
£m
2007
£m
26 1
26
25
1
1
6
1
3
2
24 4
253
1
278
150
113
594
13
870
1,148
2008
£m
150
8
13
14 –
–
57 –
45 4
138
148 –
195
285
3
50
25 2
–
14
1,148
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
120
125
150
20
415
13
598
723
2007
£m
150
11
1
62
167
9
248
44
14
723
Secured bank loans comprise amounts borrowed from commercial banks and are secured by floating charges over the assets of subsidiaries.
Bank overdrafts generally bear interest at floating rates.
Associated British Foods Annual Report and Accounts 2008 // 77
Notes forming part of the financial statements continued
for the year ended 13 September 2008
19. Trade and other payables
Trade payables
Accruals
Deferred income and other non-financial payables
For payables with a remaining life of less than one year, the carrying amount is deemed to reflect the fair value.
No trade and other payables (2007 – £2m) are included within liabilities classified as held for sale (see note 15).
2008
£m
570
664
1,234
131
1,365
2007
£m
405
675
1,080
87
1,167
20. Provisions
At 15 September 2007
Created
Acquired through business combinations
Utilised
Released
Effect of movements in foreign exchange
at 13 september 2008
Current
Non-current
Deferred
Restructuring consideration
£m
4
105
–
(6)
–
2
105
£m
24
50
2
(18)
–
–
58
52
6
58
15
90
105
Other
£m
22
7
–
(4)
(2)
–
23
18
5
23
Total
£m
50
162
2
(28)
(2)
2
186
85
101
186
Provisions include financial liabilities of £174m (2007 – £40m) (see note 25).
Restructuring
Restructuring provisions relate to the cash costs, including redundancy, associated with the group’s announced reorganisation plans, of which the majority will be
utilised in 2008/9.
Other
Other provisions mainly comprise potential warranty claims arising from the disposal of businesses. The extent and timing of the utilisation of these provisions is more
uncertain given the period of the relevant warranties.
21. Total equity
Reconciliation of movement in capital and reserves
At 16 September 2006
Total recognised income and expense for the period
Dividends paid to shareholders
Net increase in own shares held
Minority interests acquired/disposed
Dividends paid to minorities
at 15 september 2007
Total recognised income and expense for the period
Dividends paid to shareholders
Net decrease in own shares held
Minority interests acquired/disposed
Dividends paid to minorities
Changes in fair value of minority interests on acquisition
at 13 september 2008
78 // Associated British Foods Annual Report and Accounts 2008
Share
capital
£m
47
–
–
–
–
–
47
–
–
–
–
–
–
47
Attributable to equity shareholders
Other
reserves
£m
173
–
–
–
–
–
173
–
–
–
–
–
–
173
Translation
reserve
£m
(29)
(20)
–
–
–
–
(49)
270
–
–
–
–
–
221
Hedging
reserve
£m
(6)
5
–
–
–
–
(1)
26
–
–
–
–
–
25
Retained
earnings
£m
3,773
454
(150)
(3)
–
–
4,074
170
(156)
3
–
–
(3)
4,088
Total
£m
3,958
439
(150)
(3)
–
–
4,244
466
(156)
3
–
–
(3)
4,554
Minority
interests
£m
224
23
–
–
(1)
(26)
220
67
–
–
24
(21)
–
290
Total
equity
£m
4,182
462
(150)
(3)
(1)
(26)
4,464
533
(156)
3
24
(21)
(3)
4,844
21. Total equity continued
Share capital
authorised
At 15 September 2007 and 13 September 2008
issued and fully paid
At 15 September 2007 and 13 September 2008
Deferred
shares of
£1 each
’000
Ordinary
shares of
515⁄22p
each
’000
2,000
1,054,950
2,000
791,674
Nominal
value
£m
62
47
The deferred shares became redeemable on 1 August 1997. The amount payable by the Company on redemption is the amount paid up on the deferred shares.
Redemption is at the sole discretion of the Company.
Deferred shares carry no voting rights and have no rights to dividends or other income distributions. In the event of a winding-up, repayment in respect of the deferred
shares ranks after repayment of amounts paid up on the ordinary shares of the Company. The deferred shares are entitled to repayment of amounts paid up, but have
no entitlement to any surplus.
Other reserves
The other reserves arose from the cancellation of £173m of share premium account by the Company in 1993 and is non-distributable.
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations, as well as from the
translation of liabilities that hedge the group’s net investment in foreign subsidiaries.
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
Associated British Foods Annual Report and Accounts 2008 // 79
Notes forming part of the financial statements continued
for the year ended 13 September 2008
22. Acquisitions and disposals
Acquisitions
During the year, the group completed the merger of Ryvita and Jordans and the acquisition of certain of the European assets of Gilde Bakery Ingredients,
11 beet sugar factories in north east China and the KR Castlemaine meat and smallgoods business in Australia. The group also completed a number of other
small acquisitions. Costs associated with these acquisitions are included within cash consideration.
The acquisitions had the following effect on the group’s assets and liabilities:
2008
net assets
Intangible assets
Property, plant & equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Overdrafts
Interest-bearing loans and borrowings
Taxation
Employee benefits
Provisions
Net identifiable assets and liabilities
Goodwill on acquisitions
Minority interests acquired
Total consideration
satisfied by
Cash consideration
Deferred consideration
Interests in subsidiaries
Interest in associate
net cash
Cash consideration
Cash/overdraft acquired
Cash consideration in respect of prior year acquisitions
Pre-acquisition
carrying
amounts
£m
Note
Recognised
values on
acquisition
£m
8
9
8
20
142
54
40
4
(49)
(1)
(32)
(1)
(2)
(2)
173
12
101
108
56
40
4
(49)
(1)
(32)
(21)
(2)
(2)
202
128
(5)
325
189
97
24
15
189
(3)
6
192
There were no material differences between pre-acquisition carrying amounts and amounts recognised on acquisition, which include fair value adjustments
to the assets and liabilities acquired, with the exception of £81m of intangibles recognised, a £34m downward adjustment to property, plant & equipment, a £20m
adjustment to deferred tax and a £2m revaluation of inventories.
Goodwill arising on the acquisitions is attributable to the anticipated profitability from the sale of the group’s existing products in new markets, and the anticipated future
technological and operational synergies from the combinations.
The acquisitions in aggregate contributed revenue of £221m and profit before tax of £nil for the periods between the dates of acquisition and 13 September 2008.
Aggregate contributions to revenue and profit before tax had the acquisitions occurred at the beginning of the period have not been disclosed, as appropriately consolidated
financial information prepared under Adopted IFRS is not available.
80 // Associated British Foods Annual Report and Accounts 2008
22. Acquisitions and disposals continued
Acquisition of W. Jordan & Son (Silo) Limited ‘Jordans’
The merger of Ryvita and Jordans was completed on 29 August 2008. The acquired company contributed no net profit to the consolidated net profit for the year.
The contribution to consolidated revenues and net profit had the acquisition occurred at the beginning of the year has not been disclosed, as it would be impractical
to determine these amounts. This is because (i) as a privately-held group, Jordans prepared its consolidated financial statements under United Kingdom accounting
standards, which are substantively different to Adopted IFRS; (ii) Jordans had a different year end to the group (29 February); and (iii) the last available consolidated
financial statements are for the year ended 29 February 2008, all of which is insufficient to determine accurately the fair value adjustments that would have been
made to the balance sheet one year ago.
A summary of Jordans’ reported results for its most recent full year are shown below:
income statement for the year ended 29 february 2008
Revenue
Cost of sales
Gross profit
Distribution expenses
Administrative expenses
Operating profit
Interest payable
Profit before taxation
Taxation
Profit after taxation
£m
86
(60)
26
(14)
(5)
7
–
7
(2)
5
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
2007
During 2007 the group purchased Patak’s, completed a number of small acquisitions and disposed of its interests in a number of small businesses. The acquisitions had
the following effect on the group’s assets and liabilities:
Pre-acquisition
carrying
amounts
£m
Note
Recognised
values on
acquisition
£m
net assets
Intangible assets
Property, plant & equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Overdrafts
Interest-bearing loans and borrowings
Taxation
Net identifiable assets and liabilities
Goodwill on acquisitions
Minority interests acquired
Total consideration
satisfied by
Cash consideration
Cash consideration in respect of prior year acquisitions
Deferred consideration
Interest in joint venture
net cash
Cash consideration
Cash/overdraft acquired
1
30
11
13
7
(24)
(6)
(11)
1
22
8
73
28
11
13
7
(24)
(6)
(11)
(20)
71
67
1
139
132
1
5
1
133
(1)
132
There were no material differences between pre-acquisition carrying amounts and amounts recognised on acquisition, which include fair value adjustments to the
assets and liabilities acquired, with the exception of £72m of intangibles recognised, a £2m downward adjustment to property, plant & equipment and a £21m
adjustment to deferred tax.
Associated British Foods Annual Report and Accounts 2008 // 81
Notes forming part of the financial statements continued
for the year ended 13 September 2008
22. Acquisitions and disposals continued
Disposals
During the year, the group disposed of its existing German yeast business, a small UK-based emulsifier business and its interests in a number of other small businesses.
Costs associated with these disposals are included within cash consideration.
The disposals had the following effect on the group’s assets and liabilities:
net assets
Intangible assets
Property, plant & equipment
Investments in joint ventures and associates
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Interest-bearing loans and borrowings
Intercompany receivables/(payables)
Taxation
Employee benefits
Net identifiable assets and liabilities
Goodwill disposed
Recycle of effect of movements in foreign exchange
Provisions created
Profit/(loss) on disposal
Total consideration
satisfied by
Cash consideration
net cash
Cash consideration
Cash disposed
Carrying
values
2008
£m
Carrying
values
2007
£m
15 3
17
8
(3)
3
(5)
(1)
32
21
2
59
59
59
59
24
15
16
15
(10)
(5)
(3)
(1)
65
27
11
(39)
66
66
66
(8)
58
–
3
5
–
–
1
1
–
5
–
23. Share-based payments
The group had the following equity-settled share-based payment plans in operation during the period:
Associated British Foods plc 1994 Share Option Scheme (‘the 1994 Scheme’)
This scheme was established by the Company in 1994. Under the terms of the 1994 Scheme, options to purchase ordinary shares in the Company were granted to
selected qualifying employees over the ten years from November 1994. The options must be held for five years before they become exercisable. The exercise of options
is not subject to specified performance criteria.
Associated British Foods 2000 Executive Share Option Scheme (‘the 2000 Scheme’)
This scheme was approved and adopted by the Company at the annual general meeting held on 15 December 2000. Under the terms of the 2000 Scheme,
options to purchase ordinary shares in the Company may be granted to selected employees over the ten years from 15 December 2000. The options must be held for
three years before they become exercisable. The exercise of an option under this scheme will, in accordance with institutional shareholder guidelines, be conditional
on the achievement of performance criteria which are based on growth in the group’s profits.
Associated British Foods Executive Share Incentive Plan 2003 (‘the Share Incentive Plan’)
The Share Incentive Plan was approved and adopted by the Company at the annual general meeting held on 5 December 2003. It takes the form of conditional
allocations of shares which will be released if, and to the extent that, certain performance targets are satisfied over a three-year performance period.
Further information regarding the operation of the above plans can be found on pages 30 to 32 of the Remuneration report.
82 // Associated British Foods Annual Report and Accounts 2008
23. Share-based payments continued
Details of the group’s equity-settled share-based payment plans are as follows:
2008
the 1994 Scheme
the 2000 Scheme
the Share Incentive Plan
2007
the 1994 Scheme
the 2000 Scheme
the Share Incentive Plan
2008
the 1994 Scheme
the 2000 Scheme
2007
the 1994 Scheme
the 2000 Scheme
Outstanding
at the
beginning
of the year
pence
538.01
484.00
540.38
497.95
Balance
outstanding
at the
beginning
of the year
Granted/
awarded
Exercised
Vested
Balance
outstanding
at the end
of the year
Options
exercisable
at the end
of the year
Expired/
lapsed
512,110
187,500
1,895,475
–
–
1,828,504
569,610
226,500
902,937
–
–
1,694,890
(317,110)
(10,000)
–
(57,500)
(19,500)
–
–
–
–
(15,000)
–
(132,194)
180,000
177,500
3,591,785
–
–
(441,120)
–
(19,500)
(261,232)
512,110
187,500
1,895,475
180,000
177,500
N/a
422,110
187,500
N/a
Weighted average exercise price of options
Granted
pence
Exercised
pence
Forfeited
pence
Outstanding
at the end
of the year
pence
Expired
pence
Exercisable
at the end
of the year
pence
Range of
exercise
prices for
options
outstanding
Weighted
average
remaining
contractual
life of
outstanding
at the end options at the
of the year end of the year
years
pence
–
–
–
–
541.16
484.00
561.50
565.00
–
–
–
–
561.50
–
–
565.00
530.50
484.00
538.01
484.00
530.50
484.00
497–564
484.00
532.47
484.00
497–564
484.00
3.8
2.3
2.8
3.3
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
The weighted average market price for share options exercised during the year was 876 pence (2007 – 883 pence).
Ordinary shares already issued and subject to option under the 1994 Scheme and the 2000 Scheme, or subject to allocation under the Share Incentive Plan, are held
in a separate trust. The trust is funded by the Company. At 13 September 2008 the trust held 2,102,133 (2007 – 1,929,243) ordinary shares of the Company.
Fair values
The weighted average fair values for the 1994 Scheme and the 2000 Scheme were determined using a binomial lattice model (for share options) or by taking the
market price of the shares at the time of grant and discounting for the fact that dividends are not paid during the vesting period (for conditional allocations of shares).
The weighted average fair value of the shares awarded under the Share Incentive Plan during the year was 837 pence (2007 – 825 pence) and the weighted average
share price was 900 pence (2007 – 887 pence). The dividend yield used was 2.5%.
No options were granted under the 1994 Scheme or the 2000 Scheme in either 2007 or 2008.
In accordance with the transitional provisions of IFRS 1, the group has recognised an expense in respect of all grants under these plans made after 7 November 2002
and unvested at 18 September 2004. The group recognised a total equity-settled share-based payment expense of £5m (2007 – £6m).
24. Analysis of net debt
Cash at bank and in hand, cash equivalents and overdrafts
Short-term borrowings
Other current investments
Loans over one year
At
15 September
2007
£m
349
(63)
1
(598)
(311)
Cash flow
£m
(156)
(59)
7
(182)
(390)
Acquisitions/
disposals
£m
–
(8)
–
(24)
(32)
At
Exchange 13 September
2008
£m
210
(140)
9
(870)
(791)
adjustments
£m
17
(10)
1
(66)
(58)
Cash and cash equivalents comprise cash balances, call deposits and investments with original maturities of three months or less. Bank overdrafts that are repayable on
demand and form an integral part of the group’s cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement.
Associated British Foods Annual Report and Accounts 2008 // 83
Notes forming part of the financial statements continued
for the year ended 13 September 2008
25. Financial instruments
a) Carrying amount and fair values of financial assets and liabilities
financial assets
Cash and cash equivalents
loans and receivables:
Trade and other receivables
Other non-current receivables
at fair value through profit or loss:
Other current investments
Derivative financial assets not designated in a cash flow hedging relationship:
– currency derivatives
– commodity derivatives
designated cash flow hedging relationships:
Derivative financial assets designated and effective as cash flow hedging instruments:
– currency derivatives
– commodity derivatives
total financial assets
financial liabilities
financial liabilities at amortised cost:
Trade and other payables
Secured redeemable debenture stock
Secured bank loans
Unsecured bank loans and overdrafts
Finance leases
Provisions
at fair value through profit or loss:
Derivative financial liabilities not designated in a cash flow hedging relationship:
– currency derivatives
– commodity derivatives
– interest rate derivatives
designated cash flow hedging relationships:
Derivative financial liabilities designated and effective as cash flow hedging instruments:
– currency derivatives
– commodity derivatives
total financial liabilities
net financial liabilities
2008
Carrying
amount
£m
Fair value
£m
2007
Carrying
amount
£m
Fair value
£m
348
992
75
9
2
1
348
992
75
2
411
735
2
1
8
1
411
735
2
1
8
1
33
18
1,478
33
18
1,478
1
6
1,165
1
6
1,165
(1,234)
(150)
(137)
(847)
(14)
(174)
(1,234)
(176)
(141)
(847)
(12)
(174)
–
(1)
(1)
(1)
(1)
(10)
(13)
(2,581)
(1,103)
(10)
(13)
(2,609)
(1,131)
(1,082)
(150)
(24)
(535)
(14)
(40)
(16)
–
(1)
(6)
(3)
(1,871)
(706)
(1,082)
(169)
(24)
(535)
(12)
(40)
(16)
–
(1)
(6)
(3)
(1,888)
(723)
9
1
–
The financial instruments shown above include no trade and other receivables (2007 – £2m) and no trade and other payables (2007 – £2m) that are classified as held
for sale at year end.
Other financial assets on the face of the balance sheet comprise other current investments and derivative assets shown above. Other financial liabilities comprise
derivative liabilities shown above.
84 // Associated British Foods Annual Report and Accounts 2008
25. Financial instruments continued
The methods and assumptions used to estimate fair values of financial assets and liabilities are as follows:
1. Cash and cash equivalents have been stated at their book values due to their short maturities or otherwise immediate or short-term access and realisability.
2. Other non-current investments (recorded within other non-current receivables) comprise minority shareholdings held primarily in privately owned, unquoted
companies, where there is no active market available to value them. Where the fair value of the equity instruments cannot be reliably measured, they are recorded
at cost. Where shareholdings are held in publicly quoted companies, bid price is used to estimate fair value.
3. The fair values of finance lease receivables and other long-term receivables have been estimated by discounting expected future cash flows.
4. The fair values of trade receivables, other receivables and accrued income have been stated at their book values due to their short maturities.
5. Other current investments primarily comprise debt securities and time deposits, which are stated at fair value, based on cost (for instruments similar in nature
to cash and cash equivalents) or on current market prices.
6. The fair value of derivatives is determined either by reference to third party valuations (usually from a bank), or by reference to readily observable market prices.
The group’s derivatives primarily cover a period of no more than 12 months from the balance sheet date, and information derived from an active market is
therefore almost always available to assist with the valuation of derivatives.
7. The fair values of trade payables, other payables and accruals have been stated at their book values due to their short maturities.
8. The fair values of all bank loans, overdrafts and debenture stock have been calculated using the present value of estimated future cash flows.
9. The fair values of finance lease creditors have been estimated by discounting expected cash flows.
10. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present
value where the effect is material. Consequently, the fair value has been presented as book value.
b) Derivative financial instruments
The carrying amount of derivative financial instruments at the reporting date set out below is classified as current on the face of the balance sheet. An analysis
of derivatives that are designated in a formal hedging relationship, and those that are not, is shown above.
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Currency derivatives
Commodity derivatives
Interest rate derivatives
2008
2007
Contractual/
notional
amounts
£m
957
181
97
Contractual/
notional
amounts
£m
398
89
85
Assets
£m
35
19
–
54
Liabilities
£m
(10)
(14)
(1)
(25)
Assets
£m
9
7
–
16
Liabilities
£m
(22)
(3)
(1)
(26)
c) Cash flow hedging reserve movements
The following table indicates the cash flow hedging reserve balance at 13 September 2008 and the periods in which the cash flows are expected to occur. The periods
in which the cash flows are expected to impact profit or loss are materially the same.
Within six months
Between six months and one year
Between one and two years
Unrecognised (losses)/gains
Currency
derivatives
£m
(23)
–
(1)
(24)
2008
Commodity
derivatives
£m
1
(2)
–
(1)
Total
£m
(22)
(2)
(1)
(25)
Currency
derivatives
£m
3
–
–
3
2007
Commodity
derivatives
£m
(2)
–
–
(2)
Total
£m
1
–
–
1
Associated British Foods Annual Report and Accounts 2008 // 85
Notes forming part of the financial statements continued
for the year ended 13 September 2008
25. Financial instruments continued
The following table identifies the movements in the cash flow hedging reserve during the year, including where gains and losses have been recognised in the
income statement.
Opening balance
Gains/(losses) recognised in the hedging reserve
Gains/(losses) arising in previous years that reversed
Amount removed from the hedging reserve and included within the income
statement due to settlement of contracts – recognised in:
– revenue
– cost of sales
Amount removed from the hedging reserve and included within a
non-financial asset due to settlement of contracts – recognised in:
– inventory
Deferred tax associated with movement in the hedging reserve
Effect of movements in foreign exchange
Closing balance
Currency
derivatives
£m
3
(1)
(1)
2008
Commodity
derivatives
£m
(2)
(9)
1
(26)
3
(7)
7
(2)
(24)
1
–
5
–
3
(1)
Currency
derivatives
£m
3
11
–
2007
Commodity
derivatives
£m
3
9
–
(3)
–
(8)
–
–
3
–
(16)
–
2
–
(2)
Total
£m
1
(10)
–
(25)
3
(2)
7
1
(25)
Total
£m
6
20
–
(3)
(16)
(8)
2
–
1
d) Financial risk identification and management
The group is exposed to the following financial risks from its use of financial instruments:
• market risk;
• credit risk; and
• liquidity risk.
The group’s financial risk management process seeks to enable the early identification, evaluation and effective management of key risks facing the business.
Risk management policies and systems have been established and are reviewed regularly to reflect changes in market conditions and the group’s activities.
The group, through its standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their
roles and obligations.
The group sources and sells products and manufactures goods in a wide variety of locations around the world. These operations expose the group to potentially
significant price volatility in the financial and commodity markets. Trading and risk management teams have been established in the group’s major businesses to
manage this exposure by entering into a range of products, including physical and financial forward contracts, futures, and, where appropriate, options. These teams
work closely with group Treasury and report regularly to executive management.
Treasury operations and commodity procurement are conducted within a clearly defined framework of board-approved policies and guidelines to manage the group’s
financial and commodity risks. Treasury works closely with the group’s procurement teams to manage commodity risks. Treasury policy seeks to ensure that adequate
financial resources are available to the group at all times, for the management and development of the group’s businesses, whilst effectively managing its market risk
and credit risk. The group’s risk management policy explicitly forbids the use of financial or commodity derivatives (outside its risk management framework of
mitigating financial and commodity risks) for speculative purposes.
86 // Associated British Foods Annual Report and Accounts 2008
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25. Financial instruments continued
e) Foreign currency translation
The group presents its financial statements in sterling. As a result of its diverse worldwide operations, the group is exposed to foreign currency translation risk where
overseas operations have a functional currency other than sterling. Changes in foreign currency exchange rates impact the translation into sterling of both the income
statement and net assets of these foreign operations.
Where appropriate, the group finances its operations by borrowing locally in the functional currency of its operations. This reduces net asset values reported in
functional currencies other than sterling, thereby reducing the economic exposure to fluctuations in foreign currency exchange rates on translation.
The group also finances its operations by obtaining funding at group level through external borrowings, and where they are not in sterling, these borrowings are
designated as net investment hedges. This enables gains and losses arising on retranslation of these foreign currency borrowings to be charged to equity, providing
a partial offset in equity against the gains and losses arising on translation of the net assets of foreign operations.
The group does not actively hedge the translation impact of foreign exchange rate movements on the income statement (other than via the partial economic hedge
arising from the servicing costs on non-sterling borrowings), nor does it use derivatives to hedge its net investments in foreign operations.
The group also designates certain of its intercompany loan arrangements as quasi-equity for the purposes of IAS 21. The effect of the designation is that any foreign
exchange volatility arising within the borrowing entity and/or the lending entity is accounted for directly within equity.
The group has foreign currency borrowings that have been designated as hedges of its net investment in foreign operations in Euros and US dollars. The value of these
financial liabilities used as hedging instruments at the balance sheet date was:
Euro
US dollar
2008
£m
285
190
475
2007
£m
248
167
415
The foreign exchange loss of £58m (2007 – £4m gain) on retranslation of these loans has been taken to the translation reserve on consolidation.
f) Market risk
Market risk is the risk of movements in the fair value of future cash flows of a financial instrument or forecast transaction as underlying market prices change.
The group is exposed to changes in the market price of commodities, interest rates and foreign exchange rates. These risks are known as ‘transaction’ (or recognised)
exposures and ‘economic’ (or forecast) exposures.
(i) Commodity price risk
Commodity price risk arises from the procurement of raw materials and the consequent exposure to changes in market prices.
The group purchases a wide range of commodities in the ordinary course of business. Exposure to changes in the market price of certain of these commodities
including wheat, edible oils, soya beans, meat and dairy, sugar raws, cocoa, rice, tea and energy is managed through the use of forward physical contracts and hedging
instruments, including futures and options contracts, primarily to convert floating or indexed prices to fixed prices. The use of such contracts to hedge commodity
exposures is governed by the group’s risk management policies and is continually monitored by group treasury. Commodity derivatives also provide a way to meet
customers’ pricing requirements whilst achieving a price structure consistent with the group’s overall pricing strategy.
Some of the group’s commodity derivatives are treated as ‘own use’ contracts, which are outside the scope of IAS 39, since they are both entered into, and continue
to be held, for the purposes of the group’s ordinary operations, and are not net settled (the group takes physical delivery of the commodity concerned). Own use
contracts do not require accounting entries until the commodity purchase actually crystallises. Certain other commodity derivatives are accounted for as cash flow
hedges where the forecast transaction is highly probable and the hedge is assessed as effective. The group obtains hedge accounting for the majority of these contracts.
Some commodity derivatives are not eligible for treatment as ‘own use’ contracts and are not contracts for which the strict requirements of hedge accounting under
IAS 39 are able to be satisfied. This occurs typically where the group does not take physical delivery of the commodity concerned. While such commodity derivatives
are used only where the business believes they provide an economic hedge of an underlying exposure, formal hedge accounting may not be possible for reasons
including: where the derivatives are in respect of a similar but different commodity to that being hedged; where exchange-traded derivatives are used that are not
sufficiently close in all respects (for example quality attributes) to the business requirement; or where the exchange used is foreign to the business. Where hedge
accounting for commodity derivatives within the scope of IAS 39 is not available, the instruments are classified as held for trading and are marked to market through
the income statement.
The majority of the group’s forward physical contracts and commodity derivatives have original maturities of less than one year.
Associated British Foods Annual Report and Accounts 2008 // 87
Notes forming part of the financial statements continued
for the year ended 13 September 2008
25. Financial instruments continued
Sensitivity analysis
The following sensitivity analysis shows the impact on the group’s results and the group’s equity of changes in commodity market prices as a result of entering
into financial instruments (including derivatives). The only financial assets and liabilities expected to show any sensitivity in this respect are commodity derivatives.
The sensitivity chosen is a 20% increase in the forward curves for various commodity prices as if they had occurred on 13 September 2008. For as long as the group
continues to make limited use of options, a 20% decrease in forward prices would produce a broadly equal and opposite impact on profit and equity to that shown.
The movement of forward price curves by 20% is considered to be a reasonable approximation of how much markets might typically move, on average, over any
given year, notwithstanding that the increases in some commodity prices during the past year have been significantly greater than this.
The sensitivity analysis addresses the impact on year end financial assets and liabilities, and is not an estimate of what profit might have been if commodity prices
had been uniformly different throughout the year.
The following assumptions have been applied in the calculation of these sensitivities, which are presented before taxation and minority interests:
• all qualifying cash flow hedges at 13 September 2008 will continue to be fully effective in achieving cash flow hedge accounting; and
• commodity contracts that qualify for the ‘own use’ treatment continue to do so. This sensitivity therefore has no impact for these contracts.
20% increase in commodity prices
(ii) Interest rate risk
Interest rate risk comprises two primary elements:
Impact on
profit for
the year
2008
+/- £m
4
Impact on
total equity
2008
+/- £m
20
Impact on
profit for
the year
2007
+/- £m
3
Impact on
total equity
2007
+/- £m
5
• interest price risk results from financial instruments bearing fixed interest rates. Changes in floating interest rates therefore affect the fair value of these fixed rate
financial instruments; and
• interest cash flow risk results from financial instruments bearing floating rates. Changes in floating interest rates affect cash flows on interest receivable or payable.
The group’s policy is to maintain floating rate debt for the majority of its bank finance, although it periodically assesses its position with respect to interest price and
cash flow risk and interest rate swaps are sometimes entered into in more volatile markets.
At 13 September 2008, £222m (19%) (2007 – £181m and 25%) of total debt was subject to fixed rates of interest. A majority of the group’s fixed rate debt is
accounted for by the £150m 103/4% secured redeemable debenture stock 2013.
Floating rate debt comprises bank borrowings bearing interest rates fixed in advance, for various time periods up to 12 months, by reference to official market rates
(eg LIBOR).
Sensitivity analysis
Applying a 100 basis point parallel increase in the interest rate yield curve as if it had occurred on 13 September 2008 results in no impact on profit for the year or
total equity (2007 – no impact on profit or total equity). The following assumptions have been applied in the calculation of this sensitivity, which is presented before
taxation and minority interests:
• the impact of this sensitivity has only been recorded for changes in the fair value of derivative financial instruments which have their fair value gains and losses
recorded within the financial statements, assets available for sale, and other current investments, as the group does not designate any other financial asset at fair
value through profit or loss and these are the only significant financial instruments whose carrying amounts change as a result of changes in interest rates. All other
financial instruments are carried at amortised cost;
• no impact is recorded in respect of changes in interest rates on employee benefits (including pensions), or discount rates applied to financial instruments to record
them at present value; and
• all qualifying cash flow hedges at 13 September 2008 will continue to be fully effective in achieving cash flow hedge accounting.
88 // Associated British Foods Annual Report and Accounts 2008
25. Financial instruments continued
A second sensitivity analysis calculates the impact on profitability of a 100 basis point increase in interest rates on floating rate interest-bearing loans and overdrafts,
and on cash and cash equivalents balances on which variable rates of interest are earned. The year end cash balance is deducted from the year end floating rate loans
and overdrafts balance. This net floating rate borrowing figure is multiplied by 1%. In 2008, this equated to an interest expense of £6m before taxation and minority
interests (2007 – £1m).
(iii) Foreign currency risk
The group conducts business worldwide and consequently in many foreign currencies. As a result, it is exposed to movements in foreign currency exchange rates which
affect the group’s transaction costs. The group also publishes its financial statements in sterling and is therefore exposed to movements in foreign exchange rates on
the translation of the results and underlying net assets of its foreign operations into sterling.
Translation risk is discussed in section e) above.
Transaction risk
Currency transaction exposure occurs where a business makes sales and purchases in a currency other than its functional currency. It also arises where monetary assets
and liabilities of a business are not denominated in its functional currency, and where dividends or surplus funds are remitted from overseas. The group’s policy is to
match transaction exposures wherever possible, and to hedge actual exposures and firm commitments as soon as they occur by using forward foreign currency
contracts. All foreign currency instruments contracted with non-group entities to manage transaction exposures are undertaken by group treasury or, where foreign
currency controls restrict group treasury acting on behalf of subsidiaries, under the guidance of group treasury. Identification of transaction exposures is the
responsibility of each business.
The group uses derivatives (principally forward foreign currency contracts and time options) to hedge its exposure to movements in exchange rates on its foreign
currency trade receivables and payables. The group does not seek formal fair value hedge accounting for such transaction hedges. Instead, such derivatives are classified
as held for trading and marked to market through the income statement. This offsets the income statement impact of the retranslation of the foreign currency trade
receivables and payables.
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Economic (forecast) risk
The group also uses forward foreign currency contracts to hedge its exposure to movements in exchange rates on its highly probable forecast foreign currency sales
and purchases on a rolling 12 month basis. The group does not formally define the proportion of highly probable forecast sales and purchases to hedge, but agrees an
appropriate percentage on an individual basis with each business by reference to the group’s risk management policies and prevailing market conditions. The group
documents currency derivatives used to hedge its forecast transactions as cash flow hedges. To the extent that cash flow hedges are effective, gains and losses are
deferred in equity until the forecast transaction occurs, at which point the gains and losses are recycled either to the income statement or to the non-financial
asset acquired.
The majority of the group’s currency derivatives have original maturities of less than one year.
The group’s most significant currency transaction exposures are:
• sugar prices in British Sugar UK and Poland to movements in the sterling/euro and Polish zloty/euro exchange rates respectively;
• sugar prices in Illovo to movements in the South African rand/US dollar/euro exchange rates; and
• sourcing for Primark – costs are denominated in a number of currencies, predominantly sterling, euros and US dollars.
Elsewhere, a number of businesses make sales and purchase a variety of raw materials in foreign currencies (primarily US dollars and euros), giving rise to transaction
exposures. In all other material respects, businesses tend to operate in their functional currencies and, as a result, further transaction exposure to foreign currency
exchange rate movements is modest.
The EU sugar restructuring scheme has modified the way in which the price of sugar beet is set in sterling for the UK and in Polish zlotys for Poland, resulting in
changes to the net euro currency exposure of British Sugar in the UK and Poland. The group manages these currency exposures within its risk management framework
to mitigate the effect of any changes to its currency exposure profile.
Associated British Foods Annual Report and Accounts 2008 // 89
Notes forming part of the financial statements continued
for the year ended 13 September 2008
25. Financial instruments continued
The analysis of the group’s foreign currency exposure to financial assets and liabilities by currency of denomination is as follows:
Sterling
£m
US dollar
£m
2008
Euro
£m
17
85
52
–
154
(179)
(1)
(287)
(1)
–
(468)
51
(344)
(293)
Other
£m
8
8
–
–
16
(5)
(44)
–
–
–
(49)
28
(16)
12
Total
£m
52
109
53
1
215
(262)
(45)
(477)
(1)
(1)
(786)
549
(370)
179
24
15
1
1
41
(77)
–
(190)
–
(1)
(268)
448
(10)
438
3
1
–
–
4
(1)
–
–
–
–
(1)
22
–
22
25
211
(607)
(21)
(392)
Sterling
£m
US dollar
£m
2007
Euro
£m
Other
£m
Total
£m
11
1
–
–
12
–
–
–
–
–
20
–
20
32
24
9
1
1
35
(58)
(11)
(176)
(1)
(246)
315
(8)
307
7
31
–
–
38
(212)
(1)
(251)
–
(464)
26
(1)
25
96
(401)
3
6
–
–
9
(4)
–
–
–
(4)
15
(18)
(3)
2
45
47
1
1
94
(274)
(12)
(427)
(1)
(714)
376
(27)
349
(271)
financial assets
Cash and cash equivalents
Trade and other receivables
Other non-current receivables
Non-currency derivatives
financial liabilities
Trade and other payables
Secured bank loans
Unsecured bank loans and overdrafts
Provisions
Non-currency derivatives
currency derivatives
Gross amounts receivable
Gross amounts payable
financial assets
Cash and cash equivalents
Trade and other receivables
Other non-current receivables
Non-currency derivatives
financial liabilities
Trade and other payables
Secured bank loans
Unsecured bank loans and overdrafts
Non-currency derivatives
currency derivatives
Gross amounts receivable
Gross amounts payable
90 // Associated British Foods Annual Report and Accounts 2008
25. Financial instruments continued
The following significant exchange rates applied during the year:
US dollar
Euro
Rand
Renminbi
Australian dollar
Average rate
Closing rate
2008
1.98
1.32
14.67
14.13
2.18
2007
1.96
1.48
14.15
15.19
2.44
2008
1.79
1.26
14.34
12.28
2.18
2007
2.01
1.45
14.35
15.09
2.38
Sensitivity analysis
The following sensitivity analysis illustrates the impact that a 10% strengthening of the group’s operating currencies against local functional currencies would have
had on profit and equity. The analysis covers currency translation exposures at year end on businesses’ financial assets and liabilities that are not denominated in the
functional currencies of those businesses. A similar but opposite impact would be felt on both profit and equity if the group’s main operating currencies weakened
against local functional currencies by a similar amount.
The following assumption has been applied in the calculation of this sensitivity, which is presented before taxation and minority interests:
• the exposure to foreign exchange gains and losses on translating the financial statements of subsidiaries into sterling is not included in this sensitivity analysis,
as there is no impact on the income statement, and the gains and losses are recorded directly in the translation reserve in equity (see below for a separate sensitivity).
10% strengthening against other currencies of
Sterling
US dollar
Euro
Other
Impact on
profit for
the year
2008
+/- £m
–
(4)
1
(3)
Impact on
total equity
2008
+/- £m
(2)
(55)
(6)
(3)
Impact on
profit for
the year
2007
+/- £m
1
(8)
(18)
1
Impact on
total equity
2007
+/- £m
3
(39)
(43)
1
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A second sensitivity analysis calculates the impact on the group’s profit before tax if the average rates used to translate the results of the group’s foreign operations
into sterling were adjusted to show a 10% strengthening of sterling. A similar but opposite impact would be felt on profit before tax if sterling weakened against the
other currencies by a similar amount.
10% strengthening of sterling against
US dollar
Euro
Rand
Renminbi
Australian dollar
Impact on
profit for
the year
2008
+/- £m
(3)
(7)
(5)
(2)
Impact on
profit for
the year
2007
+/- £m
(2)
(4)
(4)
(3)
(3)
2
Associated British Foods Annual Report and Accounts 2008 // 91
Notes forming part of the financial statements continued
for the year ended 13 September 2008
25. Financial instruments continued
g) Credit risk
Credit risk is the risk that counterparties to financial instruments do not perform according to the terms of the contract or instrument. The group’s businesses are
exposed to counterparty credit risk when dealing with customers, and from certain financing activities.
The immediate credit exposure of financial instruments is represented by those financial instruments that have a net positive fair value by counterparty at
13 September 2008. The group considers its maximum exposure to credit risk to be:
Cash and cash equivalents
Loans and receivables (refer to note 25a)
Financial assets at fair value through profit and loss
– other current investments
– derivative financial assets
Designated cash flow hedging relationships
– derivative financial assets
2008
£m
348
1,067
2007
£m
411
737
9
3
1
9
51 7
1,478
1,165
The majority of cash balances and short-term deposits are held with strong investment grade banks or financial institutions.
As at 13 September 2008, there were no significant financial guarantees or third-party obligations that increased the credit risk of the financial assets set out above.
Although the group has seen no direct evidence of changes to the credit risk of its counterparties, the current focus on financial liquidity in all international markets
has introduced increased financial volatility. The group uses market knowledge, changes in credit ratings and other techniques to identify significant changes to the
financial profile of its counterparties.
Trade and other receivables
Concentrations of credit risk are limited as a result of the group’s large and diverse customer base. The group has established a credit policy applied by each business
under which the credit status of each new customer is reviewed before credit is advanced. This includes external credit evaluations where possible and in some cases
bank references. Credit limits are established for all significant or high risk customers, which represent the maximum amount permitted to be outstanding without
requiring additional approval from the appropriate level of management. Outstanding debts are continually monitored by each business. Credit limits are reviewed on
a regular basis, and at least annually. Customers that fail to meet the group’s benchmark creditworthiness may only transact with the group on a prepayment basis.
Aggregate exposures are monitored at group level.
Many of the group’s customers have been transacting with the group for many years and the incidence of bad debts has been low. Where appropriate, goods are sold
subject to retention of title so that, in the event of non-payment, the group may have a secured claim. The group does not typically require collateral in respect of
trade and other receivables.
The group provides for impairment of financial assets including trade and other receivables based on known events, and makes a collective provision for losses yet to
be identified, based on historical data. The majority of the provision comprises specific amounts.
92 // Associated British Foods Annual Report and Accounts 2008
25. Financial instruments continued
The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region of origin was:
UK
Europe, Middle East & Africa
The Americas
Asia Pacific
Trade receivables can be analysed as follows:
Not overdue
Up to 1 month past due
Between 1 and 2 months past due
Between 2 and 3 months past due
More than 3 months past due
Provision for doubtful debts
At 13 September 2008
Based on past experience, the group believes that no impairment allowance is necessary in respect of trade receivables that are not past due.
Trade and other receivables are stated net of the following provision for irrecoverable amounts:
Opening balance
Amounts provided for during the year
Amounts released during the year
Amounts utilised during the year
Acquisitions/(disposals)
Effect of movements in foreign exchange
Closing balance
No trade and other receivables (2007 – none) were written off directly to the income statement in the year.
The directors consider that the carrying amount of trade and other receivables approximates fair value.
1
2008
£m
407
181
169
235
992
2008
Gross
£m
659
122
34
18
37
(43)
827
2008
£m
34
11
(1)
(3)
–
1 –
43
2007
£m
309
132
120
174
735
2007
Gross
£m
472
110
18
8
44
(34)
618
2007
£m
37
7
(6)
(4)
34
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Associated British Foods Annual Report and Accounts 2008 // 93
Notes forming part of the financial statements continued
for the year ended 13 September 2008
25. Financial instruments continued
Cash, cash equivalents and other current investments
Banking relationships are generally limited to those banks that are members of the core relationship group. These banks are selected for their credit status, global reach
and their ability to meet the businesses’ day-to-day banking requirements. The credit ratings of these institutions are monitored on a continuing basis. In locations
where the core relationship banking group cannot be used, operating procedures including choice of bank, opening of bank accounts and repatriation of funds must be
agreed with group Treasury. The group has not recorded impairments against cash, cash equivalents or other current investments, nor have any recoverability issues
been identified with such balances. Such items are typically recoverable on demand or in line with normal banking arrangements.
Other financial assets
Other non-current investments are typically equity investments with no fixed maturity or recoverability date. No impairment issues have been identified with respect
to other non-current investments.
Since derivative assets are recorded at fair value, either through profit and loss, for those not in a designated cash flow hedging relationship, or otherwise through the
hedging reserve, no impairment issues have been identified.
h) Liquidity risk
Liquidity risk is the risk that the group will encounter difficulty in meeting its obligations associated with its financial liabilities as they fall due. Group Treasury is
responsible for monitoring and managing liquidity and ensures that the group has sufficient headroom in its committed facilities to meet unforeseen or abnormal
requirements. The group also has access to uncommitted facilities to assist with short-term funding requirements.
Available headroom is monitored via the use of detailed cash flow forecasts prepared by each business, which are reviewed at least quarterly, or more often, as
required. Actual results are compared to budget and forecast each period, and variances investigated and explained. Particular focus is given to management of
working capital.
Details of the group’s borrowing facilities are given in section i).
The following table analyses the contractual undiscounted cash flows relating to financial liabilities at the balance sheet date and compares them to carrying amounts:
Due between
2008
Due within
6 months
£m
Note
6 months Due between Due between
2 and 5 years
£m
1 and 2 years
£m
and 1 year
£m
Due after
5 years
£m
Contracted
amount
£m
Carrying
amount
£m
non-derivative financial liabilities
Trade and other payables
Secured redeemable debenture stock
Secured bank loans
Unsecured bank loans and overdrafts
Finance lease liabilities
Provisions
derivative financial liabilities
– Currency derivatives (net payments)
– Commodity derivatives (net payments)
– Interest rate derivatives (net payments)
total financial liabilities
19
18
18
18
26
20
(1,181)
(8)
(17)
(243)
(1)
(32)
(3)
7
(3)
(1,481)
(53)
(8)
(7)
(10)
–
(43)
(9)
14
(3)
(119)
–
(16)
(60)
(3)
(1)
(14)
(1)
7
1
(87)
–
(198)
(53)
(470)
(3)
(84)
–
–
–
(808)
–
–
–
(121)
(42)
(1)
–
–
–
(164)
(1,234)
(230)
(137)
(847)
(47)
(174)
(13)
28
(5)
(2,659)
(1,234)
(150)
(137)
(847)
(14)
(174)
(10)
(14)
(1)
(2,581)
94 // Associated British Foods Annual Report and Accounts 2008
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25. Financial instruments continued
non-derivative financial liabilities
Trade and other payables
Secured redeemable debenture stock
Secured bank loans
Unsecured bank loans and overdrafts
Finance lease liabilities
Provisions
derivative financial liabilities
– Currency derivatives (net payments)
– Commodity derivatives (net payments)
– Interest rate derivatives (net payments)
total financial liabilities
Due between
2007
Due within
6 months
£m
Note
19
18
18
18
26
20
(1,036)
(8)
(2)
(119)
(1)
(15)
(1)
7
(2)
(1,177)
6 months Due between Due between
2 and 5 years
£m
1 and 2 years
£m
and 1 year
£m
(46)
(8)
(2)
(1)
(1)
(11)
(2)
1
(3)
(73)
–
(16)
(3)
–
(1)
(7)
–
–
(6)
(33)
–
(49)
(15)
(415)
(3)
(6)
–
–
1
(487)
Due after
5 years
£m
Contracted
amount
£m
Carrying
amount
£m
–
(166)
(2)
–
(42)
(1)
–
–
–
(211)
(1,082)
(247)
(24)
(535)
(48)
(40)
(3)
8
(10)
(1,981)
(1,082)
(150)
(24)
(535)
(14)
(40)
(22)
(3)
(1)
(1,871)
The above tables do not include forecast data for liabilities which may be incurred in the future but which were not contracted at 13 September 2008.
The principal reasons for differences between carrying values and contractual undiscounted cash flows are coupon payments on the secured redeemable debenture
stock to which the group is already committed, future interest payments on the group’s finance leases, and cash flows on derivative financial instruments which are not
aligned with their fair value.
i) Borrowing facilities
The group has substantial borrowing facilities available to it. The undrawn committed facilities available at 13 September 2008 in respect of which all conditions
precedent have been met amounted to £219m (2007 – £269m):
US$1.2bn syndicated facility
British Sugar secured redeemable debenture stock
European Investment Bank
Zambia sugar facilities
Other
Uncommitted facilities available at 13 September 2008 were:
Money market lines
Illovo facilities
Other
Facility
£m
671
150
120
101
65
1,107
Facility
£m
160
186
238
584
2008
Drawn
£m
469
150
120
101
48
888
2008
Drawn
£m
28
63
155
246
Undrawn
£m
202
–
–
–
17
219
Undrawn
£m
132
123
83
338
Facility
£m
598
150
–
–
108
856
Facility
£m
160
187
109
456
2007
Drawn
£m
412
150
–
–
25
587
2007
Drawn
£m
–
65
71
136
Undrawn
£m
186
–
–
–
83
269
Undrawn
£m
160
122
38
320
In addition to the above facilities there are also £93m (2007 – £89m) of undrawn and available credit lines for the purposes of issuing letters of credit and guarantees
in the normal course of business.
The group also has £14m (2007 – £14m) of finance lease liabilities which are not included in the tables above, but which are included in the group’s interest-bearing
loans and overdrafts in note 18.
Since the year end, the Company has negotiated an additional committed three-year £320m borrowing facility with its existing banking group. The new facility will
be used for general corporate purposes.
Uncommitted bank borrowing facilities are normally reaffirmed by the banks annually, although they can theoretically be withdrawn at any time.
Refer to note 9 for details of the group’s capital commitments and to note 27 for a summary of the group’s guarantees. An assessment of the group’s current liquidity
position is given in the ‘Financial review’ section of the annual report on page 17.
Associated British Foods Annual Report and Accounts 2008 // 95
Notes forming part of the financial statements continued
for the year ended 13 September 2008
25. Financial instruments continued
j) Capital management
The capital structure of the group is presented in the balance sheet. Note 21 provides details on equity and note 18 on loans and overdrafts. Short and medium-term
funding requirements are provided by a variety of loan and overdraft facilities, both committed and uncommitted, with a range of counterparties and maturities.
Longer term funding is sourced from a combination of these facilities and committed syndicated loan facilities.
The board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to enable successful future development of the
business. The board monitors return on capital by division and determines the overall level of dividends payable to shareholders.
From time to time, the group purchases its own shares in the market. The shares are purchased to satisfy awards under the group’s share option scheme and long-term
incentive plan. Once purchased, shares are not sold back into the market. The group does not have a defined share buy-back plan.
There were no changes to the group’s approach to capital management during the year. Neither the company nor any of its subsidiaries are subject to externally
imposed capital requirements.
26. Lease commitments
Operating leases
The group acts as a lessee, lessor and sub-lessor for both land and buildings and plant & machinery under operating leases.
Sublease receipts of £3m (2007 – £3m) were recognised in the income statement in the period, the majority relating to operating leases. The total of future minimum
sublease receipts expected to be received is £29m (2007 – £18m).
Under the terms of the lease agreements, no contingent rents are payable.
The future minimum lease payments under operating leases are as follows:
Within one year
Between one and five years
After five years
Finance leases
Finance lease liabilities are payable as follows:
Within one year
Between one and five years
After five years
2008
£m
87
308
1,130
1,525
2007
£m
62
216
932
1,210
Minimum
lease
payments
2008
£m
1
3
42
47
4
Interest
2008
£m
–
1
30
33
Principal
2008
£m
1
12
14
Minimum
lease
payments
2007
£m
2
4
42
48
Interest
2007
£m
1
3
30
34
Principal
2007
£m
1
1
12
14
96 // Associated British Foods Annual Report and Accounts 2008
27. Contingencies
Litigation and other proceedings against companies in the group are not considered material in the context of these financial statements.
The group has not adopted the amendments to IAS 39 in relation to financial guarantee contracts which apply for periods commencing on or after 1 January 2006.
Where group companies enter into financial guarantee contracts to guarantee the indebtedness of other group companies, the group considers these to be insurance
arrangements and accounts for them as such in accordance with IFRS 4. In this respect, the guarantee contract is treated as a contingent liability until such time as it
becomes probable that the relevant group company issuing the guarantee will be required to make a payment under the guarantee.
As at 13 September 2008, group companies have provided guarantees in the ordinary course of business amounting to £196m (2007 – £177m).
28. Related parties
The group has a controlling related party relationship with its parent company, which is also its ultimate parent company (see note 30). The group also has
a related party relationship with its associates and joint ventures (see note 11) 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.
Material transactions and year end balances with related parties were as follows:
Charges to Wittington Investments Limited in respect of services provided by the Company
and its subsidiary undertakings
Dividends paid by ABF and received in a beneficial capacity by:
(i) Trustees of the Garfield Weston Foundation
(ii) Directors of Wittington Investments Limited who are not trustees of the Foundation
(iii) Directors of the Company who are not trustees of the Foundation and are not
directors of Wittington Investments Limited
(iv) a member of the Weston family employed within the ABF group
Sales to fellow subsidiary undertakings on normal trading terms
Sales to a company with common key management personnel
Amounts due from fellow subsidiary undertakings on normal trading terms
Amounts due from a company with common key management personnel
Sales to joint ventures and associates on normal trading terms
Purchases from joint ventures and associates on normal trading terms
Amounts due from joint ventures and associates
Amounts due to joint ventures and associates
Sub note
2008
£’000
2007
£’000
271
162
6,063
780
15
576
2,438
3,551
872
332
25,087
78,929
13,270
4,438
5,220
753
13
553
2,382
3,120
602
411
39,908
56,451
1,907
4,560
1
2
3
4
5
4
5
6
6
6
6
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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 13 September 2008 held 683,073 shares (2007 – 683,073 shares) in Wittington Investments Limited representing
79.2% (2007 – 79.2%) of that company’s issued share capital and is, therefore, the Company’s ultimate controlling party. At 13 September 2008 trustees
of the Foundation comprised two children and two grandchildren of the late W Garfield Weston and five children of the late Garry H Weston.
2. Details of the directors are given on pages 18 and 19. Their beneficial interests, including family interests, in the Company and its subsidiary undertakings
are given on page 33. Key management personnel are considered to be the directors, and their remuneration is disclosed within the Remuneration report
on page 31.
3. A member of the Weston family who is employed by the group and is not a director of the Company or Wittington Investments Limited and is not a Trustee
of the Foundation.
4. The fellow subsidiary undertaking is Fortnum and Mason plc.
5. The company with common key management personnel is George Weston Limited, in Canada.
6. Details of the group’s principal joint ventures and associates are set out in note 30.
Associated British Foods Annual Report and Accounts 2008 // 97
Notes forming part of the financial statements continued
for the year ended 13 September 2008
29. Subsequent events
On 28 October 2008 the group announced the creation of Stratas Foods, a joint venture with Archer Daniels Midland Company (‘ADM’) for the manufacture,
marketing and distribution of packaged oil products in the US and Canada. ABF and ADM will each hold a 50% share in the joint venture, which will be
headquartered in Memphis, Tennessee.
ABF will contribute US$38m of assets from the ACH oils business, primarily in the form of trademarks, whilst ADM will contribute packaging equipment at four
of its facilities in the US. The business contributed by ABF generated operating profit of US$20m in the year ended 15 September 2007.
98 // Associated British Foods Annual Report and Accounts 2008
30. Group entities
Control of the group
The largest group in which the results of the Company are consolidated is that headed by Wittington Investments Limited, the accounts of which are available
at Companies House, Crown Way, Cardiff, CF14 3UZ. It is the ultimate holding company, is incorporated in Great Britain and is registered in England.
At 13 September 2008 Wittington Investments Limited together with its subsidiary, Howard Investments Limited, held 431,515,108 ordinary shares
(2007 – 431,515,108) representing in aggregate 54.5% (2007 – 54.5%) of the total issued ordinary share capital of Associated British Foods plc.
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Significant subsidiaries
A list of the group’s significant subsidiaries is given below. The entire share capital of the companies listed is held within the group except where percentages are shown.
These percentages give the group’s ultimate interest and therefore allow for the situation where subsidiaries are owned by partly owned intermediate subsidiaries.
manufacturing activities
AB Agri Limited
AB Brasil Industria e comercio de Alimentos LTDA
AB Enzymes GmbH
AB Enzymes Oy
ABF Grain Products Limited
AB Food & Beverages Australia Pty Ltd
AB Food & Beverages Philippines, Inc.
AB Food & Beverages (Thailand) Limited
AB Mauri Food, S.A.
AB Mauri India (Private) Limited
Abitec Corporation
ABNA (Shanghai) Feed Co., Ltd
AB World Foods Limited
ACH Food Companies, Inc.
Alimentos Capullo.S.de R.L.de C.V.
Anzchem Pty Limited
British Sugar (Overseas) Limited
British Sugar plc
BSO Polska S.A. (98%)
Calsa de Colombia S.A.S.
Cereform Limited
Compania Argentina de Levaduras S.A.I.C
Food Investments Limited
Foods International S.A.S.
G. Costa and Company Limited
George Weston Foods Limited
George Weston Foods (NZ) Limited
Germain’s (Ireland) Limited
Germain’s Technology Group NA Inc.
Germain’s Technology Group Polska Sp. z.o.o.
Guangxi Bo Hua Food Co., Ltd (71%)
Guangxi Boqing Food Co., Ltd (60%)
Guangxi Boxuan Food Co., Ltd (70%)
Harbin Mauri Yeast Co., Ltd (85%)
Hebei Mauri Food Co., Ltd
Illovo Sugar Limited (51%)
Illovo Sugar (Malawi) Limited (39%)
country of incorporation
UK
Brazil
Germany
Finland
UK
Australia
Philippines
Thailand
Spain
India
US
China
UK
US
Mexico
Australia
UK
UK
Poland
Colombia
UK
Argentina
UK
France
UK
Australia
New Zealand
Republic of Ireland
US
Poland
China
China
China
China
China
South Africa
Malawi
manufacturing activities
Innovative Cereal Systems LLC.
Jacksons of Piccadilly Limited
Kilombero Sugar Company Limited (28%)
Liaoning Liaohe Aimin Feed Co., Ltd
Liaoning Liaohe Yingpeng Feed Co., Ltd
Maragra Acucar SARL (38%)
Mauri Fermentos, SA
Mauri Lanka (Private) Limited
Mauri La-Nga Fermentation Co., Ltd (66%)
Mauri Maya Sanayi A.S.
Mauri Products Limited
Nambarrie Tea Company Limited
Patak’s Breads Limited
Premier Nutrition Products Limited
R. Twining & Co., Ltd
R. Twining and Company Limited
Serrol Ingredients Pty Limited
Shanghai AB Food & Beverages Co., Ltd
SPI Pharma S.A.S.
SPI Pharma Inc.
The Billington Food Group Limited
The Ryvita Company Limited (62%)
Twinings North America Inc.
Ubombo Sugar Limited (31%)
Wander AG
W. Jordan & Son (Silo) Limited (62%)
Yeast Products Company (60%)
Zambia Sugar plc (46%)
retailing activities
Primark
Primark Stores Limited
Primark Tiendas S.L.U.
investment and other activities
ABF European Holdings & Co SNC
ABF Investments plc
Talisman Guernsey Limited
country of incorporation
US
UK
Tanzania
China
China
Mozambique
Portugal
Sri Lanka
Vietnam
Turkey
UK
UK
UK
UK
US
UK
Australia
China
France
US
UK
UK
US
Swaziland
Switzerland
UK
Republic of Ireland
Zambia
Republic of Ireland
UK
Spain
Luxembourg
UK
Guernsey, Channel Islands
The group’s interest in subsidiaries are all equity investments.
British Sugar (Overseas) Limited operates subsidiaries and joint ventures in Europe and Asia. Other than this company, each subsidiary operates mainly in its country
of incorporation.
Associated British Foods Annual Report and Accounts 2008 // 99
Notes forming part of the financial statements continued
for the year ended 13 September 2008
30. Group entities continued
Interest in joint ventures and associates
A list of the group’s significant interests in joint ventures and associates is given below:
Australasian Lupin Processing Pty Ltd
C. Czarnikow Limited
Chiltern Bakeries Limited
Frontier Agriculture Limited
Harper-Love Adhesives Corporation
Levaduras Collico S.A.
Murray Bridge Bacon Pty Ltd
New Food Coatings Pty Ltd
Qingdao Xinghua Cereal Oil & Foodstuff Co., Ltd
Roal Oy
Vivergo Fuels Limited
Country of
incorporation
Australia
UK
UK
UK
US
Chile
Australia
Australia
China
Finland
UK
Issued ordinary
share capital
Total
A$560,000
£1,000,000
£100
£36,001,000
US$912,200
CLP1,834,390,000
A$11,040,200
A$150,000
CNY24,844,000
c3,196,000
£48,712,000
Group %
50
43
44
50
50
50
20
50
30
50
45
There is no significant loan capital in any of the joint ventures or associates. Each joint venture and associate carries out manufacturing and food processing activities
and operates mainly in its country of incorporation.
The companies listed herein are those subsidiaries, joint ventures and associates whose results or financial position, in the opinion of the directors, principally affected
the figures shown in these annual accounts as a list of all group companies would result in information of excessive length being given. A full list of subsidiaries will
be annexed to the next annual return of Associated British Foods plc delivered to the Registrar of Companies.
31. Accounting estimates and judgements
Key sources of estimation uncertainty
In applying the accounting policies detailed on pages 52 to 57, management has made appropriate estimates in many areas and the actual outcome may differ from
those calculated. The key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing material adjustment to the carrying value
of assets and liabilities within the next financial year are:
Forecasts and discount rates
The carrying values of a number of items on the balance sheet are dependent on estimates of future cash flows arising from the group’s operations which, in some
circumstances, are discounted to arrive at a net present value:
• The carrying value of goodwill must be assessed for impairment at least annually and also when there is an indication that it may be impaired. This assessment
involves comparing the book value of goodwill with its recoverable amount (being the higher of its value in use and its fair value less costs to sell). Value in use
is determined with reference to projected future cash flows discounted at an appropriate rate. Both the projected future cash flows and the discount rate applied
involve a significant degree of estimation uncertainty.
• The realisation of deferred tax assets recognised in the balance sheet is dependent on the generation of sufficient future taxable profits in the jurisdictions in which
the deferred tax assets arise. The group recognises deferred tax assets when it is more likely than not that they will be recovered, based on an assessment of the
likelihood of there being sufficient taxable profits in the future.
Post-retirement benefits
The group’s defined benefit pension schemes and similar arrangements are assessed annually in accordance with IAS 19. The accounting valuation, which has been
assessed using assumptions determined with independent actuarial advice, resulted in an asset of £106m and a liability of £45m being recognised as at 13 September
2008. The size of these assets and liabilities is sensitive to the market value of the assets held by the schemes, to the discount rate used in assessing actuarial liabilities,
to the actuarial assumptions which include price inflation, rates of pension and salary increases, mortality and other demographic assumptions and to the level of
contributions. Further details are included in note 12.
Provisions
As described in the accounting policies on pages 52 to 57, provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation
at the balance sheet date. These estimates are made taking into account a range of possible outcomes.
100 // Associated British Foods Annual Report and Accounts 2008
31. Accounting estimates and judgements continued
Property, plant & equipment residual values and useful lives
These assets are written down to their estimated residual values over their anticipated useful lives using the straight-line basis. Management reviews residual values
annually considering market conditions and projected disposal values. In assessing useful lives, maintenance programmes and technological innovations are
considered. The carrying value of property, plant & equipment is disclosed in note 9.
Biological assets
Cane roots valuation – the escalated average cost of planting cane roots is adjusted for the remaining expected life. This requires an estimation by management
of the average number of ratoons expected from the crop. The carrying value of cane roots is disclosed in note 10.
Growing cane valuation – growing cane is valued using the estimated sucrose content at the estimated sucrose price for the following season, less the estimated costs
for harvesting and transport. The estimated sucrose content requires management to assess the expected cane and sucrose yields for the following season considering
weather conditions and harvesting programmes. In assessing the estimated sucrose price, management is required to assess into which markets the forthcoming crop
will be sold and assess domestic and export prices as well as the related foreign currency exchange rates. The carrying value of growing cane is disclosed in note 10.
Cash flow hedge accounting
The group enters into various types of hedging or forward contacts for the buying and selling of currencies and commodities. The contracts often fall within the
scope of IAS 39 and accordingly have to be marked to market. Where appropriate, these contracts are accounted for as cash flow hedges, which allows, to the extent
the hedges are effective, the change in values of the derivatives to be deferred in equity. In order to achieve and maintain cash flow hedge accounting, it is necessary
for the group to determine, at inception and on an ongoing basis, whether a forecast transaction is highly probable and whether the hedge is effective. This requires
both subjective and objective measures of determination.
Exceptional items
The directors consider that items of income or expense which are material by virtue of their nature and amount should be disclosed separately if the financial
statements are to fairly present the financial position and financial performance of the entity. The directors label these items collectively as ‘exceptional items’.
Determining which transactions are to be considered exceptional in nature is often a subjective matter. However, circumstances that the directors believe would
give rise to exceptional items for separate disclosure might include major business restructurings, impairments and reversals of impairments.
All exceptional items are included in the appropriate income statement line item to which they relate. In addition, for clarity, separate disclosure is made of all
exceptional items in one column on the face of the income statement, with additional explanation in the notes.
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Taxation
The income tax expense recorded in the income statement is dependent on the tax rates in effect at the balance sheet date, unless new tax rates have been enacted
or substantively enacted.
The level of current and deferred tax recognised is also dependent on subjective judgements as to the outcome of decisions to be made by the tax authorities in the
various tax jurisdictions around the world in which the group operates. It is necessary to consider the extent to which deferred tax assets should be recognised based
on an assessment of the extent to which they are regarded as recoverable.
Fair values on acquisition
The group is required to bring acquired assets and liabilities on to the consolidated balance sheet at their fair value. Items of plant and equipment and the associated
property interests often have long operating lives, hence determination of the fair values can require a significant degree of judgement. Acquisitions often also result
in significant intangible benefits being brought into the group, some of which qualify for recognition as intangible assets. Other such benefits do not meet the
recognition requirements of accounting standards and form part of goodwill. Significant judgement can be required in the assessment and valuation of these
intangible assets, often with reference to internal data and models. Professional valuers are engaged where it is deemed appropriate to do so. Fair values on major
acquisitions are disclosed in note 22.
Associated British Foods Annual Report and Accounts 2008 // 101
Company balance sheet
at 13 September 2008
fixed assets
Intangible assets
Investments in subsidiaries
current assets
Debtors
– due within one year
– due after one year
Current asset investments
Cash at bank and in hand
creditors: amounts falling due within one year
Bank loans and overdrafts – unsecured
Other creditors
Provisions
net current assets
total assets less current liabilities
creditors: amounts falling due after one year
Bank loans – unsecured
Amounts owed to subsidiaries
net assets excluding pension liability
Net pension liability
net assets
capital and reserves
Called up share capital
Profit and loss reserve including pension reserve
equity shareholders’ funds
Note
2008
£m
44
444
488
2,239
1,372
4
–
4
2007
£m
49
434
483
2,203
1,199
41
3,615
3,447
(34)
(1,067)
(2)
(1,103)
2,512
3,000
(589)
(2,119)
(2,708)
292
(6)
286
47
239
286
(1)
(1,310)
–
(1,311)
2,136
2,619
(412)
(1,887)
(2,299)
320
(4)
316
47
269
316
1
2
3
3
4
5
6
5
7
7
The financial statements on pages 102 to 107 were approved by the board of directors on 4 November 2008 and were signed on its behalf by:
Martin Adamson, Chairman and John Bason, Director.
102 // Associated British Foods Annual Report and Accounts 2008
Reconciliation of movements in equity shareholders’ funds
for the year ended 13 September 2008
Profit for the financial year
Net decrease/(increase) in own shares held
Dividends
net reduction in equity shareholders’ funds
Opening equity shareholders’ funds
closing equity shareholders’ funds
8
2008
£m
118
(156)
(30)
316
286
2007
£m
118
(8)
(150)
(40)
356
316
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Associated British Foods Annual Report and Accounts 2008 // 103
Accounting policies
for the year ended 13 September 2008
Basis of preparation
The financial statements are presented in sterling, rounded to the nearest million. They are prepared under the historical cost convention, except that derivative
financial instruments are stated at their fair value, and in accordance with applicable United Kingdom accounting standards (UK GAAP) and the Companies Act 1985.
As permitted by s230(4) of the Companies Act 1985, a separate profit and loss account for the Company has not been included in these financial statements. As permitted
by FRS 1, no cash flow statement for the Company has been included on the grounds that the group includes the Company in its own published consolidated financial
statements. As permitted by FRS 8, no related party disclosures for the Company have been included.
The Company has taken advantage of the exemption in FRS 25, Financial Instruments: Disclosure and Presentation, not to prepare a note to the financial statements
relating to financial instruments as the information is available in the published financial statements of the group.
Intangible assets – goodwill
Intangible assets consist of goodwill arising on acquisitions since 17 September 1998, being the excess of the fair value of the purchase consideration of new
subsidiaries over the fair value of net assets acquired. Goodwill is capitalised in accordance with FRS 10 and amortised over its useful life, not exceeding 20 years.
Goodwill previously written off against reserves has not been reinstated.
Investments in subsidiaries
Investments in subsidiaries are reported at cost less any provision for impairment.
Financial instruments
All financial assets and financial liabilities are measured initially at fair value, plus directly attributable transaction costs, and thereafter at amortised cost.
Pensions and other post-employment benefits
The Company operates defined contribution and defined benefit pension schemes. Contributions to the defined contribution scheme are charged to the profit and
loss account as they become payable. The principal defined benefit scheme is a multi-employer scheme and the Company is unable to identify its share of underlying
assets and liabilities on a consistent and reasonable basis. Hence, contributions to this scheme are accounted for as if they were contributions to a defined contribution
scheme. The Company has one small unfunded defined benefit scheme which it accounts for in accordance with FRS 17 using the advice of professional actuaries. The
amount charged to the profit and loss account is the cost of benefits accruing to employees over the year, plus any benefit improvements granted to members during
the year. It also includes a charge equal to the expected interest on plan liabilities over the year. The present value of plan liabilities is disclosed as a liability on the
balance sheet net of any related deferred tax.
Share-based payments
The Share Incentive Plan allows employees of the Company to receive allocations of shares to be distributed subject to attainment of certain financial performance
criteria and typically after a three-year performance period. The fair value of the shares to be awarded is recognised as an employee expense with a corresponding
increase in reserves. The fair value is measured at grant date and spread over the period during which the executives become unconditionally entitled to the shares.
The fair value of the shares allocated is measured taking into account the terms and conditions under which the shares were allocated. The amount recognised as an
expense is adjusted to reflect the actual number of shares that vest.
Where the Company grants allocations of shares to employees of its subsidiaries, these are accounted for on the same basis as for allocations to employees of the
Company, except that the fair value is recognised as an increase to investment in subsidiaries with a corresponding increase in reserves.
The Share Option Scheme (1994) and Executive Share Option Scheme (2000) allow executives to acquire shares of the Company. The fair value of options granted
is recognised as an employee expense with a corresponding increase in reserves. The fair value is measured at grant date and spread over the period during which the
executives become unconditionally entitled to the options. The fair value of the options granted is measured using a binomial lattice model, taking into account the
terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest
except where forfeiture is only due to share prices not achieving the threshold for vesting.
Shares in the Company are held in a separate trust and are shown at cost as a deduction in arriving at equity shareholders’ funds.
104 // Associated British Foods Annual Report and Accounts 2008
Notes to the Company financial statements
for the year ended 13 September 2008
1. Intangible assets – goodwill
cost
At 15 September 2007 and 13 September 2008
amortisation
At 15 September 2007
Provided during the year
At 13 September 2008
net book value
Net book value at 15 September 2007
Net book value at 13 September 2008
2. Investments in subsidiaries
At 15 September 2007
Additions
At 13 September 2008
Additions relate to allocations of shares under the Share Incentive Plan to employees of the Company’s subsidiaries.
There were no provisions for impairment in either year.
3. Debtors
amounts falling due within one year
Amounts owed by subsidiaries
Other debtors
Corporation tax recoverable
amounts falling due after one year
Amounts owed by subsidiaries
The directors consider that the carrying amount of debtors approximates their fair value.
4. Current asset investments
cost
Unlisted investments
Current asset investments comprise interest-bearing instruments and deposits. Market and redemption values are equal to cost.
£m
71
22
5
27
49
44
£m
434
10
444
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
2008
£m
2007
£m
2,208
2,175
5
7
26
2,239
21
2,203
1,372
1,199
2008
£m
–
2007
£m
41
Associated British Foods Annual Report and Accounts 2008 // 105
Notes to the Company financial statements continued
for the year ended 13 September 2008
5. Other creditors
amounts falling due within one year
Other taxation and social security
Accruals and deferred income
Amounts owed to subsidiaries
amounts falling due after one year
Amounts owed to subsidiaries
The directors consider that the carrying amount of creditors approximates their fair value.
6. Provisions
At 15 September 2007
Created
At 13 September 2008
1
2008
£m
2007
£m
1
16
1,050
1,067
14
1,295
1,310
2,119
1,887
–
2
£m
2
The restructuring provision relates to the cash costs, including redundancy, associated with the Company’s reorganisation plans and is expected to be utilised in 2008/9.
7. Capital and reserves
authorised
At 15 September 2007 and 13 September 2008
issued and fully paid
At 15 September 2007 and 13 September 2008
Deferred
shares of
£1 each
’000
Ordinary
shares of
515⁄22p
each
’000
2,000
1,054,950
2,000
791,674
Nominal
value
£m
62
47
The deferred shares became redeemable on 1 August 1997. The amount payable by the Company on redemption is the amount paid up on the deferred shares.
Redemption is at the sole discretion of the Company.
Deferred shares carry no voting rights and have no rights to dividends or other income distributions. In the event of a winding-up, repayment in respect of the deferred
shares ranks after repayment of amounts paid up on the ordinary shares of the Company. The deferred shares are entitled to repayment of amounts paid up, but have
no entitlement to any surplus.
At 15 September 2007
Net movement in own shares held
Profit for the year
Dividends
At 13 September 2008
Share capital
£m
47
–
–
–
47
Profit and
loss reserve
£m
269
8
118
(156)
239
Total
£m
316
8
118
(156)
286
Dividends
Details of dividends paid and proposed are provided in note 6 to the consolidated financial statements.
Own shares held reserve and share-based payments
Ordinary shares already issued and subject to option under the Associated British Foods 1994 Share Option Scheme and the Executive Share Option Scheme 2000,
or subject to allocation under the Associated British Foods plc Executive Share Incentive Plan 2003, are held in a separate trust. The trust is funded by the Company.
At 13 September 2008, the trust held 2,102,133 (2007 – 1,929,243) ordinary shares of the Company. The market value of these shares at the year end was £17m
(2007 – £15m). The trust has waived its right to dividends. Refer to note 23 of the consolidated financial statements for further information on the group and
Company’s share-based payment plans.
106 // Associated British Foods Annual Report and Accounts 2008
8. Contingent liabilities
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group, the Company considers these to
be insurance arrangements and accounts for them as such. The guarantee contract is treated as a contingent liability until such time as it becomes probable that the
Company will be required to make a payment under the guarantee.
The Company has no outstanding guarantees provided in the ordinary course of business as at 13 September 2008 (2007 – £nil).
9. Other information
Emoluments of directors
The remuneration of the directors of the Company is shown in the Remuneration report for the group on pages 31 and 32.
Employees
The Company had an average of 91 employees in 2008 (2007 – 87).
employee benefits expense
Wages and salaries
Social security contributions
Contributions to defined contribution schemes
Charge for defined benefit schemes
2007
£m
11
2008
£m
12
2
–
1
2
1
1
16
14
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
The Company is a member of the Associated British Foods Pension Scheme, providing benefits based on final pensionable pay. Prior to 6 April 2006 some of the
employees of the Company were members of the British Sugar Pension Scheme. On 6 April 2006, the British Sugar Pension Scheme was merged with the Associated
British Foods Pension Scheme. Because the Company is unable to identify its share of the scheme’s assets and liabilities on a consistent basis, as permitted by FRS 17,
the scheme is accounted for by the Company as if it were a defined contribution scheme.
On 30 September 2002 the Scheme was closed to new members, with defined contribution arrangements introduced for these members. For the defined contribution
scheme, the pension costs are the contributions payable.
The last actuarial valuations of the Associated British Foods Pension Scheme and the British Sugar Pension Scheme were carried out as at 5 April 2005 and 1 October
2004 respectively. At the valuation dates the total market value of the assets of the Schemes was £1,869m and represented 97% of the benefits that had accrued to
members after allowing for expected future increases in earnings.
The particulars of the actuarial valuation of the Scheme are contained in note 12 in the consolidated financial statements. There is no material difference in the
valuation methodologies under IAS 19 and FRS 17.
Auditors’ fees
Note 2 to the consolidated financial statements of the group provides details of the remuneration of the Company’s auditors on a group basis.
Associated British Foods Annual Report and Accounts 2008 // 107
Progress report
Saturday nearest to 15 September
Revenue
Adjusted operating profit
Exceptional items
Amortisation of non-operating intangibles
Profits less losses on sale of property, plant & equipment
Profits less losses on sale of businesses
Provision for loss on termination of an operation
Finance income
Finance expense
Other financial income
Profit before taxation
Income tax expense
Profit after taxation
Minority interests
Profit for the period
Basic and diluted earnings per ordinary share (pence)
Adjusted earning per share (pence)
Dividends per share (pence)
The results pre-2005 have not been restated for IFRS.
2004
£m
5,165
478
–
(46)
8
7
–
59
(23)
11
494
(146)
348
(6)
342
43.3
46.6
16.4
2005
£m
5,622
555
–
(25)
20
(1)
(47)
49
(34)
10
527
(141)
386
–
386
48.0
52.5
18.0
2006
£m
5,996
561
(97)
(41)
10
(4)
(8)
32
(46)
12
419
(111)
308
–
308
38.1
50.9
18.75
2007
£m
6,800
622
–
(74)
8
(39) 5
– –
20
(55)
26
508
(108)
400
– –
400
46.7
52.9
19.5
2008
£m
8,235
664
(46)
(74)
10
21
(74)
21
527
(136)
391
391
45.2
54.9
20.25
108 // Associated British Foods Annual Report and Accounts 2008
Highlights 2008
£8.2bn
up 21%
£664m
up 7%
Group revenue
Adjusted operating profit*
£632m
up 3%
54.9p
up 4%
Adjusted profit before tax**
Adjusted earnings per share**
20.25p
up 4%
Dividends per share
£710m
Net investment in capital
expenditure and acquisitions
£791m
£554m
level
Net debt
Operating profit
£527m
up 4%
45.2p
down 3%
Profit before tax
Basic earnings per share
Business highlights
· KR Castlemaine acquired in Australia –
meat and dairy reorganisation announced
· Patak’s and Blue Dragon integration complete
· Jordans merged with Ryvita
· Beet sugar business built in north east China
· Zambian sugar expansion well under way
· Primark expansion in Spain
* before amortisation of non-operating intangibles, profits less losses on the sale of
PP&E and exceptional items
** before amortisation of non-operating intangibles, profits less losses on the sale of
PP&E, profits less losses on the sale and closure of businesses and exceptional items
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.
Design & Production
35 communications
Photography
Igor emmerich
louisa parry
Graham shearer
Print
this report has been printed on revive
50:50 silk paper.
this paper is made from pre and post
consumer waste and virgin wood fibre,
independently certified in accordance
with the Fsc (Forest stewardship
council). It is manufactured at a
mill that is certified to Iso14001
environmental management standards.
the pulp is bleached using an
elemental chlorine free (ecF) process.
the inks used are all vegetable oil based.
printed at st Ives Westerham press ltd,
Iso14001, Fsc certified and
carbonneutral®
Associated British Foods plc
Registered office Weston centre
10 Grosvenor street london W1K 4QY
company registered in england,
number 293262
Company secretary
paul lister
Registrars and transfer office
equiniti (formerly lloyds tsB Registrars)
Aspect House
spencer Road
lancing Bn99 6dA
Auditors
KpMG Audit plc chartered Accountants
Bankers
Barclays Bank plc
lloyds tsB Bank plc
the Royal Bank of scotland plc
Brokers
credit suisse
one cabot square london e14 4QJ
panmure Gordon & co
Moorgate Hall
155 Moorgate london ec2M 6XB
Timetable
Interim dividend paid
3 July 2008
Final dividend to be paid
9 January 2009
Annual general meeting
5 december 2008
Interim results to be announced
21 April 2009
Website
www.abf.co.uk
A
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8
AnnuAl RepoRt And Accounts
A look at ABF’s brand portfolio
Primark’s expansion across Europe gathers pace
FARMING IN
HARMONY WITH
THE COUNTRYSIDE
AB AGRI’S WINNING FORMULA
IN VOLATILE TIMES
YEAST:
A BEGINNER’S
GUIDE TO THE
MAGIC INGREDIENT
WHAT IS IT AND HOW IS IT MADE?
Associated British Foods plc
Weston centre
10 Grosvenor street
london W1K 4QY
t 020 7399 6500
F 020 7399 6580
For an accessible version of the
Annual Report and Accounts
please visit www.abf.co.uk