Associated British Foods Annual Report 2014

FY2014 Annual Report · Associated British Foods

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VALUE TOGETHER

ANNUAL REPORT AND ACCOUNTS 2014

Introduction
Financial highlights

VALUE TOGETHER

Associated British Foods is a diversified international food, ingredients and
retail group with sales of £12.9bn, 118,000 employees and operations in 47
countries across Europe, southern Africa, the Americas, Asia and Australia.

At the heart of the way we operate is a principle of ‘value together’ – the
benefit that the group gains from each of the businesses being part of the
larger organisation. This is manifest in how the corporate centre provides
support to its operations and in the advantages that individual businesses
gain from collaboration with each other.

Our businesses benefit from working alongside other group operations in
related markets – allowing them to share knowledge, skills and best practice.
The model also allows them, for example, to make joint investments, which
would otherwise deliver insufficient returns. The businesses also work with
each other to provide practical support such as making introductions in new
countries and markets, hiring and developing people, providing back-office
services and sharing office space, to name but a few.

FINANCIAL HIGHLIGHTS

Group revenue
£12.9bn
Actual: -3%
Constant currency: +1%

Adjusted operating profit*
£1,163m
Actual: -1%
Constant currency: +2%

Adjusted profit before tax**
£1,105m
Up 2%

Adjusted earnings per share**
104.1p
Up 6%

Dividends per share
34.0p
Up 6%

Net capital investment
£691m

Net debt reduced to
£446m

Operating profit
£1,080m
Down 1%

Profit before tax
£1,020m
Up 18%

Basic earnings per share
96.5p
Up 30%

* Before amortisation of non-operating intangibles, and profits less losses on disposal of non-current assets.

** Before amortisation of non-operating intangibles, profits less losses on disposal of non-current assets, and profits less losses on the sale

and closure of businesses.

All adjustments to profit measures are shown on the face of the consolidated income statement.

Constant currency is derived by translating the 2013 results at 2014 average exchange rates.

What were the highlights
of the year?
u Chief Executive’s statement page 6

What drove margin
improvement in Grocery?
u Grocery page 12

What was the impact
of falling sugar prices?
u Sugar page 18

How did AB Agri
achieve record profits?
u Agriculture page 23

How is Ingredients
achieving its turnaround?
u Ingredients page 26

Where is Primark
headed next?
u Retail page 30

How well are we
performing against our
business principles?
u Corporate responsibility page 40

Introduction
Contents

CONTENTS

Introduction
IFC Financial highlights
2 Our businesses at a glance

Strategic report
4 Chairman’s statement
6 Chief Executive’s statement
8 Group business model and strategy
10 Business strategies
12 Operating review
36 Financial review
40 Corporate responsibility
46 Principal risks and uncertainties

Governance
50 Board of directors
52 Corporate governance
64 Remuneration report
80 Directors’ report
83 Statement of directors’ responsibilities
84 Independent auditors’ report

Financial statements
86 Consolidated income statement
87 Consolidated statement of
comprehensive income
88
Consolidated balance sheet
89 Consolidated cash flow statement
90 Consolidated statement of changes

in equity

91 Significant accounting policies
96
96 Notes forming part of the financial

Accounting estimates and judgements

statements

131 Company financial statements
136 Progress report
136 Company directory

Our PLC website is available on multiple
platforms from mobile devices to laptops.
For a more interactive report, go online at

abf.co.uk/ar2014

For an in-depth look at our sustainable
approach to business refer to the Associated
British Foods Corporate Responsibility
Report 2013, with updates for 2014,
which are available at

abf.co.uk/responsibility

Associated British Foods Annual Report and Accounts 2014

Introduction
Our businesses at a glance

The group operates through five strategic
business segments: Sugar, Agriculture,
Retail, Grocery and Ingredients.

OUR
BUSINESSES
AT A GLANCE

GROCERY

Revenue
£3,337m 2013: £3,568m

Adjusted operating profit
£269m 2013: £224m

Adjusted operating
profit margin
8.1% 2013: 6.3%

Return on average
capital employed
20.8% 2013: 16.9%

International
Twinings and Ovaltine are our global
hot beverage brands.

Europe
Silver Spoon and Billington’s sugars,
Jordans cereals, Ryvita, Kingsmill,
Patak’s and Blue Dragon.

The Americas
Mazola is the leader in corn oil in the
US. Capullo is a premium canola oil in
Mexico. Tone’s, Spice Islands and
Durkee are US herbs and spices brands.

Australia
Ham, bacon and smallgoods under
Don and KRC brands. Tip Top Bakeries
produce a range of well-known breads
and baked goods.

u Grocery page 12

Associated British Foods Annual Report and Accounts 2014

SUGAR

Revenue
£2,083m 2013: £2,677m

Adjusted operating profit
£189m 2013: £434m

Adjusted operating
profit margin
9.1% 2013: 16.2%

Return on average
capital employed
10.5% 2013: 23.3%

Sugar, Europe
Our UK beet sugar factories produce
over one million tonnes of sugar annually.
Azucarera in Spain typically produces over
400,000 tonnes of beet sugar each year
and has a cane refining capacity of a
further 400,000 tonnes.

Sugar, China
We operate five cane sugar mills in
Guangxi Province and four beet sugar
factories in the north east of the country.
Continuous investment has raised annual
sugar capacity to over 900,000 tonnes.

Sugar, Southern Africa
Illovo is Africa’s largest sugar producer
with agricultural and production facilities
in six countries. Annual sugar production
is 1.7 million tonnes.

u Sugar page 18

Introduction
Our businesses at a glance

RETAIL

Revenue
£4,950m 2013: £4,273m

Adjusted operating profit
£662m 2013: £513m

Adjusted operating
profit margin
13.4% 2013: 12.0%

Return on average
capital employed
33.2% 2013: 26.0%

Primark
Primark is a major retail group employing
54,000 people. It operates stores in the
UK, Republic of Ireland, Spain, Portugal,
Germany, the Netherlands, Belgium,
Austria and France.

It offers customers quality, up-to-the-
minute fashion at value-for-money prices.

Buying and merchandising teams in
Dublin (Republic of Ireland) and Reading
(UK) travel internationally to source and
buy fashion items that best reflect each
season’s key fashion trends. Primark’s
range includes womenswear, lingerie,
childrenswear, menswear, footwear,
accessories, hosiery and homeware.

u Retail page 30

AGRICULTURE

Revenue
£1,312m 2013: £1,410m

Adjusted operating profit
£50m 2013: £47m

Adjusted operating
profit margin
3.8% 2013: 3.3%

Return on average
capital employed
17.3% 2013: 16.4%

AB Agri operates at the heart of the
agricultural industry with activities that
stretch from field to fork. Its unique
breadth and experience enable it to
add value all along the food, drink and
biofuel industry supply chains.

AB Agri supplies products and services
to farmers, feed and food manufacturers,
processors and retailers. It also buys grain
from farmers and supplies crop inputs
through its joint venture arable operation,
Frontier Agriculture.

We employ over 2,000 people in the
UK and China and market products in
more than 65 countries worldwide.

u Agriculture page 23

INGREDIENTS

Revenue
£1,261m 2013: £1,360m

Adjusted operating profit
£41m 2013: £5m

Adjusted operating
profit margin
3.3% 2013: 0.4%

Return on average
capital employed
5.8% 2013: 0.6%

Yeast and bakery ingredients
AB Mauri operates globally in yeast and
bakery ingredient production with 54
plants in 26 countries supplying plant
and artisanal bakers and the foodservice
and wholesale channels. It is a 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 manufactures and
markets enzymes, lipids, yeast extracts
and cereal specialities worldwide with
manufacturing facilities in Europe
and the US.

u Ingredients page 26

Associated British Foods Annual Report and Accounts 2014

Introduction
Chairman’s statement

I am pleased to report growth of
6% in adjusted earnings per share
for the financial year.

CHAIRMAN’S
STATEMENT

I am pleased to report growth of
6% in adjusted earnings per share
for the financial year. Significant
progress was achieved in operating
profit by Grocery, Agriculture,
Ingredients and Primark, all of
which substantially outperformed
last year. Much lower sugar prices
in the EU held back the group’s
profit growth, although operationally
Sugar performed well. Earnings
also benefited from the strength
of the group’s balance sheet and
effective cash management which
resulted in a much lower interest
charge than last year.

The financial year was characterised by
price deflation in many food commodities
and a strengthening of sterling against our
major trading currencies. The impact of
this is evident in the lower revenues of our
food businesses and, in this context, the
profit growth in Grocery, Agriculture and
Ingredients is all the more impressive.
Grocery margin advanced with strong
performances from Twinings Ovaltine
and ACH Foods in the US and Mexico,
and a further recovery in the bakery and
meat businesses of George Weston
Foods in Australia. Our yeast and bakery
ingredients business, AB Mauri, is
achieving a strong turnaround from

the challenges of recent years with the
promise of further improvement to come.
AB Agri achieved another record result.

Primark had another magnificent year,
increasing profit by 30% at constant
currency and adding a net 1.2 million sq ft
of selling space taking our total estate to
over 10 million sq ft at the financial year
end. Our highly successful entry into
France this year brings the number of
countries in which Primark operates
to nine. Primark has now developed
experience in establishing the brand
in new markets and has achieved
considerable trading success in each
of them. We recently announced that
the next new market would be in the
north-east of the US, with the first stores
expected to open late in 2015 and with
up to ten stores by the end of 2016.

The results of our sugar operations reflect
a major fall in EU sugar prices and a very
low world sugar price. Looking back to
2011/12, a shortage of sugar available for
sale in the EU and relatively high world
prices at the time drove EU prices to
very high levels which clearly benefited
our Sugar profit in that year. This was
exceptional. Since then more sugar has
become available, sugar stocks in the EU
have risen, the European Commission

Associated British Foods Annual Report and Accounts 2014

has confirmed the abolition of sugar
quotas from October 2017, and world
sugar prices have declined dramatically.
We have seen increased competition as
European producers position themselves
for a post-quota market. This has driven a
fall in prices which we expect to continue
in 2015. We anticipate restructuring in
the European sugar industry and, as the
high stock levels are liquidated, we expect
to see volatility in market prices. This
structural change is painful, but AB Sugar
has risen to challenges of this nature
before, and does so this time with a
programme of continuous performance
improvement. We are one of the most
efficient producers in the EU and will
continue to take the neccessary action to
ensure that we are well placed to operate
in the post-quota environment.

We have a good track record of investing
for the long term and this year was no
exception with net capital investment of
£691m, up from £600m last year. The
higher level of capital expenditure was
driven by a larger number of new Primark
stores opened, or still to open but in the
process of fit-out, during the year. The
five-year investment programme at Allied
Bakeries to create a state-of-the-art
baking capability across the UK is now
substantially complete and ensures the
reliable supply of high quality bread to our
customers. This programme also sets a
new benchmark for standards of food
safety in the bakery sector and has
enhanced safety in our workplace.

Cash flow was again stronger than the
previous year driven by a working capital
inflow more than offsetting the increase
in net capital investment. Net debt at the
year end was £358m lower than last
year at £446m. With the group’s cash
generating ability, the lower net debt
and the committed borrowing facilities
available, we have the capacity to
meet our growth ambitions for the
foreseeable future.

Introduction
Chairman’s statement

decline in adjusted operating profit for the
group but the impact on earnings will be
mitigated by much lower tax and interest
charges. We therefore see limited
opportunity to grow adjusted earnings per
share in the new financial year. With the
strength of the group’s balance sheet and
strong cash generation, we have every
reason to be confident of further progress
for the group thereafter.

Charles Sinclair
Chairman

Ingredients, and have become part
of everyday business at AB Sugar.
Together with the excellent performances
from Agriculture and Primark these
results are a tribute to the dedication
and commitment of our employees.

Dividends
I am pleased to report that a final dividend
of 24.3p is proposed, to be paid on
9 January 2015 to shareholders on the
register on 12 December 2014. Together
with the interim dividend of 9.7p paid on
4 July 2014, this will make a total of 34.0p
for the year, an increase of 6%.

Outlook
In the coming year, we expect Primark’s
expansion to continue and Grocery,
Ingredients and Agriculture to make
further progress. With the continuing
fall in EU sugar prices and volatility in the
world sugar price we expect a further
large reduction in profit from AB Sugar
but this will put much of the effect of the
structural changes in EU prices behind us.
At this early stage we expect a marginal

Corporate responsibility
Last year we published a comprehensive
Corporate Responsibility Report which
outlined the close alignment between
our values and good business practice,
and highlighted our commitment to
improving productivity and reducing
waste. This report was well received by
all of our stakeholders and updates are
now available to reflect the achievements
of the last 12 months. The report is
available online at www.abf.co.uk/
responsibility. Of particular note is the
further progress Primark has made in its
ethical trade programme with an enlarged
team of specialists, now located in seven
countries, which is critical to supporting
sustainable improvements within supplier
factories. As a responsible business,
AB Sugar is actively contributing to the
debate about the role that sugar can play
as part of a healthy, balanced diet, with
its Making Sense of Sugar campaign.
The board remains committed to the
highest ethical standards across
the group.

The board
The Senior Independent Director,
Tim Clarke, was appointed to the board
in 2004 and, in accordance with the
UK Corporate Governance Code,
having completed nine years’ service,
his independence must be confirmed
annually by the rest of the board.
This having been done, we are delighted
that Tim has agreed to continue as a
member of the board and as the Senior
Independent Director.

Three other independent directors will
complete nine years on the board in 2015
and 2016. To avoid the possibility of a
significant loss of experience in a short
period we have temporarily expanded
the board. Ruth Cairnie was appointed
as an independent non-executive director
with effect from 1 May 2014. Ruth was
recently Executive Vice President Strategy
& Planning at Royal Dutch Shell plc where
she had also held a number of senior
commercial roles gaining experience
in European and emerging markets.
We very much look forward to Ruth’s
participation in the board’s deliberations.

Employees
I would like to thank all our employees
for their contribution to the group’s
success in the past year. Operational
improvements have underpinned the
increased profitability in Grocery and

Introduction
Chief Executive’s statement

The delivery of an adjusted operating profit
for the group in line with last year reflects
the considerable achievement of all of our
businesses in a year when EU sugar prices
declined substantially.

CHIEF EXECUTIVE’S
STATEMENT

The delivery of an adjusted operating
profit for the group in line with last
year reflects the considerable
achievement of all of our businesses
in a year when EU sugar prices
declined substantially.

in revenues achieved by our food
businesses in recent years has not been
sustained this year. It is against this
background that I am pleased with the
profit and margin improvements delivered
by Agriculture, Grocery and Ingredients.

This financial year saw sterling strengthen
against all of our major trading currencies
and particularly those in emerging
markets. Group revenue declined by
3% to £12.9bn but, at constant currency,
actually increased by 1%. Adjusted
operating profit was 1% lower at £1,163m
but increased by 2% at constant currency.
Currency movements have had a
significant impact on our business
segments this year and in order to
understand the underlying operating
performance of each of them, we have
referred to the year-on-year changes at
constant currency.

A key influence on this year’s
performance has been the impact on
our food businesses of price deflation
in some of our major commodities.
The prices of wheat, barley, corn oil and
rice all fell during the year. World sugar
prices have also fallen and, as discussed
elsewhere in this report, we are in the
midst of a structural change in EU sugar
prices. As a consequence the growth

Operationally, AB Sugar had an excellent
year with good factory performances
and further substantial cost reductions
from the performance improvement
programmes which are well embedded
in each of the businesses. We expect
EU prices to fall further during the
coming year, but remain confident that
our well invested sugar assets position
us amongst the world’s lowest-cost
sugar producers.

At Primark, a strong store opening
programme, excellent buying, and higher
sales densities in our new stores, all
came together to drive revenues to
within a fraction of £5bn with a further
improvement in margin. As well as
expanding in our more established UK
market we also opened large stores in a
number of major cities across Europe,
including Lisbon, Madrid, Berlin, Cologne,
Dusseldorf and Vienna. This year saw the
opening of our first stores in France, firstly
in Marseille quickly followed by Dijon and
then three stores in the suburbs of Paris.

Associated British Foods Annual Report and Accounts 2014

We were delighted by the success of
these French stores, both for the size of
the crowds on opening days, which were
overwhelming, but more importantly for
the tremendous customer enthusiasm for
Primark, in very different cities, which was
sustained throughout the rest of the year.

Primark’s response to the Rana Plaza
disaster in Bangladesh in 2013 has been
extensive. In addition to the payment of
compensation to the victims and their
families, Primark was a founding signatory
to the Accord on Fire and Building Safety
in Bangladesh. This Accord is a contract
between over 150 apparel brands and
retailers, international and local trade
unions and NGOs, which are committed
to carrying out factory inspections
and improving working conditions in
the Bangladesh garment industry.
Primark carried out building surveys
in Bangladesh to assess the structural
integrity of all of the 80 factories from
which we source garments. These
structural assessments will be extended
to other countries shortly.

Grocery made very good progress with
profit and margin well ahead of last year.
Twinings Ovaltine had another excellent
year, both in the UK and overseas, and
trading was much improved at ACH Foods
in the US and Mexico. The recovery in
profitability at George Weston Foods in
Australia was well established this year.
AB Agri deserves credit for the further
development of the business, particularly
for the strides made by AB Vista as it
extends its global customer reach.
Profit in Ingredients recovered strongly
this year as the new management team
at AB Mauri, our yeast and bakery
ingredients business, made significant
progress in reducing the cost base,
restructuring operations and integrating
the newly acquired European bakery
ingredients business.

Our businesses are encouraged to
take advantage of the technical skills,
geographical presence, capabilities and
experience that are available elsewhere
in the group, in the development of their
own operations. The Operating Review
showcases some examples of our
success in leveraging the benefits of
being part of a larger group, an illustration
of which was the collaboration between
our enzymes, cereal extrusion and
Agri businesses to deliver the new
cereal extrusions factory at Evansville
in the US which would not have been
achieved by any of the individual
businesses on their own.

Summary
Looking ahead to the next few years
we see excellent prospects for Primark
and further development of Grocery,
Ingredients and Agriculture. We expect
a further large reduction in profit for AB
Sugar during 2014/15 and some volatility
in the medium term with the reduction of
excess stocks and as the sugar industry
restructures. By the end of our 2015
financial year much of the structural
change in EU prices will be behind us and
we have every reason to be confident of
further progress for the group thereafter.

George Weston
Chief Executive

Associated British Foods Annual Report and Accounts 2014

Strategic report
Group business model and strategy

Associated British Foods is a diversified group of
food, ingredients and retail businesses selling into
more than 100 countries worldwide and with
operations in 47 countries across Europe, southern
Africa, the Americas, Asia and Australia.

Our range of activities is broad in product,
technology and market scope. Our portfolio
of businesses comprises sizeable operations
that achieve good revenue and profit growth;
mature, cash-generative operations; and smaller
enterprises that afford exciting growth potential.

In our markets, we aim to achieve strong and
sustainable positions through a combination of
organic growth, acquisition of complementary
new businesses and achievement of high levels
of operating efficiency. We provide high-quality,
value-for-money food and clothing that are
central to people’s lives.

10 year adjusted earnings per share growth (pence)

8% compound annual growth

110

100

GROUP BUSINESS
MODEL AND
STRATEGY

Associated British Foods Annual Report and Accounts 2014

Strategic report
Group business model and strategy

STRATEGY

The corporate centre agrees strategy
and budgets with the businesses and
monitors their performance closely.

The group balance sheet is managed
to ensure long-term financial stability,
regardless of the state of capital markets,
and capital funding is made available to all
of our businesses where returns meet or
exceed clearly defined criteria. The centre
provides selected services where the
scale of its operations enables a more
cost-effective or efficient delivery, where
expertise that might not be available at
a business level can be retained by the
group, or where the provision of such
services would otherwise distract
business executives. Such services
include investor relations, pensions,
insurance, tax and treasury management,
where specialist expertise is brought
together in one place for the benefit of
the group as a whole. The centre also
co-ordinates selected value-added
capabilities to support the businesses
in their local markets such as talent
management and development,
procurement, and the sharing of best
practice in, for example, health and
safety or engineering risk management.
We operate to high ethical standards as
an organisation and expect the same of
our employees. We encourage an open
and honest culture in all our dealings and
ensure that our core values are fully
implemented throughout the group.

u Business strategies page 10

ORGANIC GROWTH

Organic growth is achieved
through investment in marketing,
in the development of existing
and new products and technologies
and in targeted capital expenditure
to improve efficiency and
expand capacity.

We are committed to innovation,
the continuous pursuit of improvement
and the maintenance of our efficient
manufacturing capability.

We aim to operate in a sustainable,
ethical, efficient and safe manner.
We have a strong culture of continuing
operational improvement and focus
on delivering exceptional quality and
customer service. The group takes a
long-term approach to investment and
is committed to increasing shareholder
value through sound commercial,
responsible and sustainable business
decisions that deliver steady growth
in earnings and dividends.

Acquisitions are made to complement
existing business activities and to
exploit opportunities in adjacent
markets or geographies.

THE
CORPORATE
CENTRE

BUSINESS STRUCTURE

Our businesses are organised so that
they are close to the markets and
customers that they serve.

They are managed as five business
segments that bring together common
industry expertise, operational capability
and market intelligence. Operational
decisions are made locally because, in
our experience, they are most successful
when made by the people who have
the best understanding of their markets
and who have to implement them.
The corporate centre aims to provide a
framework in which our business leaders
have the freedom and decision-making
authority to pursue opportunities with
entrepreneurial flair. The centre is small
and uses short lines of communication to
ensure prompt, incisive and unambiguous
decision-making. It seeks to ensure that
business activities are appropriately
monitored and supported.

u Operating review page 12

Associated British Foods Annual Report and Accounts 2014

Strategic report
Business strategies

Providing our business leaders with the freedom
and decision-making authority to pursue
opportunities with entrepreneurial flair.

SUGAR

A world-leading sugar business
focused on excellence.

AB Sugar is an advanced manufacturer
and has a simple vision to be a
world-leading sugar business. We must
remain cost competitive whilst exceeding
the demanding and diverse needs of our
customers, and we must grow sustainably.

AB Sugar aims to achieve growth
through excellence in agriculture and
operations including the application of
new technologies and the further
expansion of co-product opportunities.
We seek to ensure cost leadership in our
various regional supply chains through:
engagement with growers to ensure
optimum beet/cane growing whilst
providing fair returns to growers; continual
improvement in operating performance
by maintaining a well-invested asset base;
and by seeking out best practice to
optimise product quality and the
efficiency of the conversion process.

BUSINESS STRATEGIES

GROCERY

An enviable portfolio of leading
food brands.

Each of our Grocery businesses pursues
an independent strategy, appropriate to
its particular market position and stage
of development. As examples, Jordans
Ryvita is focused on developing its brands
in its core markets, whilst AB World
Foods has had considerable success
extending its reach into new and
emerging markets.

All of these businesses are committed
to the consistent development of their
brands, and consumer research is
conducted locally and internationally
to establish consumer needs and ensure
appropriately targeted investment.
Our production facilities are well
maintained and we take a long-term
approach to capital investment,
recognising the merits of building for
the future. Acquisitions are undertaken
when opportunities are presented to
either strengthen or complement
existing businesses.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Business strategies

RETAIL

Up-to-the-minute fashion at
amazing prices.

Primark offers great value for money
which it achieves by: incurring no
advertising costs, instead relying on its
customers ‘doing the talking’ about its
products; buying in vast quantities and
passing on the cost savings to customers;
keeping overheads to a minimum but
investing in state-of-the-art logistics to
enable its stores to replenish stocks
quickly; and by not compromising its
high quality standards, rigorously testing
products at the various stages
of production.

In the world of fashion it is critical that
once a style is seen on the fashion show
catwalk it reaches the stores as quickly
as possible. It can take as little as six
weeks from initial design concept to
being available on shelf, and merchandise
is sourced from all corners of the globe.
Although Primark does not own the
companies or factories that produce
its merchandise, it recognises its
responsibility to the workers in those
factories, and to its customers, to
ensure that its products are made in
good working conditions.

AGRICULTURE

Driving value for businesses along
the food supply chain.

As a unique community of leading
agricultural businesses, AB Agri
consistently strives to improve the
sustainability of food production.
We work in partnership with customers
to deliver precision food production by
optimising resources, thereby enabling
the production of more food with a lower
environmental impact. AB Agri operates
through individual, entrepreneurial
businesses empowered to grow their
interests independently, and through
a strong network of contacts across
the entire food supply chain.

Organic growth is achieved through
innovative product development and
through extending the business’s
already broad geographic reach into
new territories. Using the diverse
breadth of products, services and
people within the AB Agri community,
the business develops bespoke solutions
specifically tailored to its customers’
needs. Extending this into new
geographies and into new areas that are
adjacent to its core capabilities affords
further growth opportunities. AB Agri
will continue its successful strategy
of seeking to make complementary
acquisitions to strengthen its portfolio
of businesses and its technical capability.
It will also continue to collaborate with
other businesses in the ABF group to
harness new contacts and technologies.

INGREDIENTS

Technology and innovation to meet
customer needs.

Our Ingredients businesses are dedicated
to understanding the key requirements
of their customers and their end-use
markets in order to ensure a relevant
supply of ingredients, systems,
products and technology that create
value. They develop partnership
relationships with customers to achieve
a genuine understanding of their
products, formulations, equipment and
processes and the market environment in
which the products are sold. They aim to
grow by providing outstanding customer
service backed by a high level of
investment in technology, innovation,
research and development.

Each business has its own business
model that determines an appropriate
balance of emphasis across the full range
of potential sources of competitive
advantage: innovative and distinctive
products; an efficient and proprietary set
of production processes; and compelling
customer propositions comprising a blend
of product performance and customer-
specific services.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Operating review
Grocery

GROCERY

Revenue
£3,337m
2013*: £3,568m
Actual fx: -6%
Constant fx: -1%

Adjusted operating profit
£269m
2013*: £224m
Actual fx: +20%
Constant fx: +24%

Adjusted operating
profit margin
8.1%
2013*: 6.3%

Return on average
capital employed
20.8%
2013*: 16.9%

* Restated

Grocery comprises consumer-facing businesses that manufacture
and market a variety of well-known brands both nationally and
internationally.

Twinings Ovaltine has the broadest geographical reach, selling
premium teas and malted beverages in more than 100 countries.
AB World Foods focuses on the creation and development of
world flavours and its Patak’s and Blue Dragon branded products
are sold internationally. Westmill Foods specialises in supplying
UK restaurants and wholesalers with high-quality ethnic foods
including rice, spices, sauces, oils, flour and noodles under
brands such as Rajah, Lucky Boat and Elephant.

Jordans and Ryvita operates in the better-for-you cereal and
savoury biscuits categories in the UK but with increasing
international presence. Jordans has a heritage of using traditional
methods in the production of its wholegrain cereals and cereal
bars. Ryvita has built a strong reputation in healthy snacking and
is the UK category leader in crispbreads. Allied Bakeries produces
a range of bakery products under the Kingsmill, Sunblest,
Allinson and Burgen brands, with flour and semolina produced
by sister company, Allied Mills. Speedibake specialises in
own-label baked goods for retail and foodservice customers.
Silver Spoon and Billington’s are our two retail sugar brands
in the UK, complemented by a range of dessert toppings and
syrups under the Askeys and Crusha brands.

In Australia, Tip Top is one of the country’s most recognised
brands, with an extensive range of bread and baked goods and
George Weston Foods also manufactures a variety of bacon, ham
and meat products including the Don and KR Castlemaine brands.
In North America, ACH Foods includes within its range of branded
products, Mazola, the leading corn oil in the US, Capullo, a
premium canola oil in Mexico and a collection of herbs, spices
and corn-derived products.

Associated British Foods Annual Report and Accounts 2014

ICONIC BRANDS

We have developed an enviable portfolio
of leading grocery brands that reflect the
wonderful tastes of food from a diversity
of cultures. Together they play a central
role in helping to feed millions of people
around the world.

abf.co.uk

COLLABORATIVE
DISTRIBUTION

As our global reach
expands it is important
that our distribution
capability keeps pace,
without compromising
customer satisfaction.
In some countries that
means collaboration with
other group companies.
For example, Ryvita is
distributed by George
Weston Foods in
Australia and Twinings
is distributed by
ACH Foods in Mexico.

abf.co.uk

Strategic report
Operating review
Grocery

Grocery operating profit increased by
24% at constant currency with George
Weston Foods in Australia, ACH Foods
in the US and Twinings Ovaltine all
well ahead of last year. Revenues
were level with last year at constant
currency and were held back by lower
food commodity prices.

Twinings Ovaltine delivered strong
revenue growth in tea with record market
shares achieved in each of its four largest
markets. Growth was achieved in all
categories in the UK led by excellent
progress in green teas and infusions, and
we remain the fastest growing tea brand
in the US. Ovaltine again performed well
in its developing markets, particularly
Brazil, where the brand was supported
by a new advertising campaign, in south
east Asia, and in Nigeria where our
new Ovaltine packing plant is now
fully operational. Tea manufacturing
conversion costs were lower than last
year with the benefit of higher volumes,
further improvements in operating
efficiency at the factory in Poland and
more high-speed packing equipment
at Andover.

At Allied Bakeries, revenues and profit
were ahead of last year with higher
branded sales and an increase in market
share. Successful new products this year
included Kingsmill Great White, a white
bread with as much fibre as a wholemeal
loaf, which was launched in February
supported by an in-store marketing
campaign and television advertising.
New re-sealable packaging with a
refreshed design drove further growth
of Kingsmill wraps, and towards the end
of the year we launched Sandwich Thins
which are proving very popular. Following
its relaunch last year, the Allinson brand
received further national advertising

support this year and achieved further
growth. The five-year capital investment
programme to upgrade our UK bakeries
is almost at an end with completion of
the modernisation of the Glasgow
bakery during the year and the installation
of a new bread plant in Stevenage
which is due to be commissioned in
November. The proposed closure of
the Orpington bakery was announced
in August with employee consultation
nearing conclusion.

Silver Spoon’s revenue and profitability
was well below last year reflecting an
especially competitive year for the UK
packed sugar market which saw the
loss of a number of granulated sugar
contracts. This was mitigated in part
by a reduction in overheads at the Bury
packaging plant. New product launches
resulted in Truvia growing its share of the
stevia sweeteners market and, in the
home baking sector, Allinson maintained
its position as the leading bread flour
brand following last year’s relaunch.

Revenue and profit at Jordans and Ryvita
were ahead of last year with good growth
in our international business, particularly
in France, Canada and Australia. The new
Ryvita Thins line at the Poole factory
yielded improvements in production
efficiency and product quality, enabling
supply to keep pace with substantially
increased demand. On 20 October, after
clearance from the Competition and
Markets Authority, we completed the
acquisition of Dorset Cereals. This
premium brand, with particular strength
in the growing Muesli sector, will
complement our existing Jordans cereals
and Ryvita crispbread brands. We intend
to maintain Dorset Cereals’ existing
production facility in Poundbury, Dorset.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Operating review
Grocery

AB World Foods achieved revenue
growth in the UK for Patak’s and Blue
Dragon which are, respectively, the
largest Indian and Oriental ambient food
brands. Both brands also performed well
internationally, particularly in Canada
where social media campaigns to
coincide with ethnic festivals proved to be
an effective way of promoting awareness
of the product range. The core brands of
Westmill Foods, Lucky Boat noodles and
Elephant Atta flour, both achieved further
growth and, towards the end of the year,
we relaunched the Rajah spice brand with
new packaging, advertising support and
in-store trial.

George Weston Foods in Australia
achieved a major improvement in
performance with higher bread prices,
increased meat volumes, the delivery
of a number of cost reduction initiatives
and improved commodity procurement.
In a challenging retail and competitor
environment, Tip Top successfully
implemented bread price rises in the first
half of the year which, together with an
increase in the proportion of higher
margin products sold and further
productivity improvements, led to a
higher operating profit for the bakery

business. Factory productivity was also
better at Don KRC which contributed to
better meat yields and a reduction in
labour costs. Enhanced product quality
and improved customer service levels
resulted in a number of new contracts
being secured and an increase in
market share. The opening of the new
meat factory in Castlemaine enabled
the closure of our factory near Perth in
Western Australia and the redevelopment
of the substantial site. Good progress
has been made with the preparation of
this site for housing development and
a number of lots were sold this year.

Sales at ACH were ahead of last year,
largely the result of increased demand for
Mazola with positive consumer reaction
to a plant sterols advertising campaign
highlighting the cholesterol-lowering
benefits of corn oil. In our Flavours
business, volume increases were
secured in barbecue and grilling spices
with a very successful marketing
campaign, ‘Grilling with the Greats’, in
association with Major League Baseball.
Capullo, our premium oil brand in Mexico,
increased its market share which,
together with the benefit of lower input
costs, drove profit ahead of last year.

RYVITA THINS

When we launched Ryvita Thins in
April 2008, they were a new concept
in savoury flatbread biscuits. They were
designed for dipping.

They have helped to create an entirely
new product category in UK
supermarkets, which is now worth
almost £20m a year and is growing at
6% year-on-year. Ryvita Thins continue
to lead the way with year-on-year volume
growth at four times the rate of the
flatbreads category.

Ryvita Thins are already available in
four flavours, with more to come, and
account for over half of the category’s
sales. Well over two million households
are now buying Ryvita Thins each year.

The five-year investment programme
at Allied Bakeries to create a state-of-
the-art baking capability across the
UK is now substantially complete
and ensures the reliable supply of
high-quality bread to our customers.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Operating review
Grocery

GREAT WHITE

MAZOLA

TWININGS

A soft, tasty, quality white loaf with as
much fibre as wholemeal.

Fibre is good for you – and most of us
don’t get enough of it.

The European dietary reference value for
adults is 25g a day. Yet 7 out of 10 men
and 9 out of 10 women in the UK don’t
manage that.

So, Allied Bakeries has developed
Kingsmill Great White – a quality white
loaf, as soft and tasty as our top
selling Kingsmill Soft White, but
with the added benefit of having the
same amount of fibre as wholemeal.
A bread with no compromise.

Simply changing from two slices of white
bread to Kingsmill Great White could
increase your fibre intake by 3g a day.

And consumers like it. Backed by a strong
TV campaign and in-store support,
Kingsmill Great White gained an 8%
share of all standard white bread sales
in the UK in its first three months.

Corn oil. Good or bad?

Research carried out for Mazola in
the US sought to challenge consumers’
perceptions that olive oil – a premium
priced product – is the ‘healthiest oil’.
It isn’t.

Natural plant sterols, can and do lower
cholesterol. Corn oil has more of these
sterols than other cooking oils, and four
times more than olive oil.

The core market for the Mazola brand
in the US is the Hispanic community.
A marketing plan based on this science,
and executed in the second half of 2014
in Spanish and English, has driven growth
in the overall corn oil segment, along
with Mazola’s market share and its
consumption in non-Hispanic regions.

We weren’t the first tea brand into the
US K-cup market. But we are now the
market leader.

Having tested the water in the away-from-
home channel starting in 2005, we
targeted the grocery channel aggressively
in 2011, offering 21 different varieties
(from Rooibos to Pumpkin Spice) in the
K-cup format. American tea drinkers
like having multiple tea products in
their pantry. We supported this with
a multi-million dollar investment in
advertising and product sampling
together with a programme to educate
the US retail trade in how to optimise
K-cup sales.

It worked!

Associated British Foods Annual Report and Accounts 2014

Strategic report
Operating review
Sugar

SUGAR

Revenue
£2,083m
2013: £2,677m
Actual fx: -22%
Constant fx: -17%

Adjusted operating profit
£189m
2013: £434m
Actual fx: -56%
Constant fx: -54%

Adjusted operating
profit margin
9.1%
2013: 16.2%

Return on average
capital employed
10.5%
2013: 23.3%

AB Sugar is a leading multinational in the expanding international
markets for sugar and sugar-derived co-products. In the EU,
Azucarera is the major producer in Iberia and British Sugar is the
sole processor of the UK sugar beet crop and is Europe’s most
efficient processor. Illovo Sugar, in which the group has a 51%
stake, is the largest sugar processor in Africa and is one of the
world’s foremost low-cost producers. We also have substantial
businesses in China producing cane sugar in the south and beet
sugar in the north-east. The group currently operates 31 plants
in ten countries and has the capacity to produce over 5 million
tonnes of sugar and 600 million litres of ethanol annually. We also
have the capacity to generate power sufficient to meet most of
our internal needs and, in a number of locations, we export
power into the local grid.

As a consumer of a large quantity of agricultural inputs, we have
a number of programmes to maximise crop yields whilst also
minimising the usage of herbicides, pesticides and water.
This applies equally to our out-grower estates, funded jointly
with our growers, as well as our own farms. We seek to ensure
the early transfer of technology and best practice across AB Sugar.
We are a significant employer in each of our countries of
operation, some of which are among the most impoverished in
the world. AB Sugar seeks to ensure the wellbeing of all its
employees, their families and the wider community and in the
developing countries we provide more wide-ranging social support
including the provision of hospitals, schooling, housing and healthy
living programmes.

Associated British Foods Annual Report and Accounts 2014

TECHNICAL EXPERTISE

From the development
of ever more efficient
sugar production across
the group, to helping
customers in the
formulation of their
products, we work hard
to apply the learnings
and innovations from each
of our sugar businesses
for their mutual benefit
and development.

abf.co.uk

Strategic report
Operating review
Sugar

Revenue and adjusted operating
profit for AB Sugar were substantially
lower than last year driven by
declining sugar prices, lower volumes
and adverse currency translation.
The price and volume effects were
predominantly seen in Europe where
prices were driven down by increased
market competition as our
competitors seek to establish new
market positions ahead of the
removal of quotas in 2017, and by a
desire to reduce quota stock levels
across the EU which have been higher
than normal. The world sugar price,
which has more of an impact on EU
exports and our Chinese business,
was low, and fell further, throughout
the year but we consider this to be
unsustainable given that it is
markedly below the global average
cost of production.

Our sugar businesses have been
actively engaged in performance
improvement programmes for a number
of years. All businesses have undertaken
a review of overheads, substantial
reductions have already been delivered
and the programmes are continuing.

These are aimed at extending our cost
leadership in all regions to ensure that
AB Sugar is well positioned as a globally
competitive producer.

British Sugar produced 1.32 million
tonnes of sugar compared with
1.15 million tonnes last year. Good
growing conditions extended into the
mild winter resulting in higher beet yields
and sugar content than last year. All UK
factories performed well with further
progress achieved in performance
improvement initiatives and in health,
safety and environmental metrics.

The crop for the 2014/15 campaign
has benefited from excellent growing
conditions, with every indication that it
will be much larger than that processed
in the previous year. The new campaign
has started well with production ahead
of schedule and with our Newark and
Wissington factories already exceeding
daily beet throughput records. This larger
crop will provide the opportunity to
confirm our ability to process the higher
volumes that we expect to become
the norm in a post-quota environment.

Operationally, AB Sugar had an excellent
year with good factory performance
and further substantial cost reductions
from the performance improvement
programmes which are well embedded
in each of our businesses.

Associated British Foods Annual Report and Accounts 2014

The beet price payable to growers for
the 2014/15 crop was agreed in summer
2013, at a substantial increase over the
price for the year under review, and at an
increased cost to British Sugar of some
£30m. Negotiations for delivered beet
costs for the 2015/16 campaign have now
been concluded with a reduction of some
20% on the previous year. This will make
a major contribution to ensuring a more
sustainable UK beet sugar industry
reflective of the new commercial
environment for EU sugar.

In Spain, sugar beet volumes were lower
than last year with a larger crop area in the
south not compensating for a reduction
in the area planted in the north due to
waterlogged fields during the spring. As a
consequence, total beet sugar production
was 338,000 tonnes, down from 405,000
tonnes in the previous year. 200,000
tonnes of imported raw sugar was refined
at Guadalete and a further 59,000 tonnes
was co-refined at the northern beet plants
supplementing the beet sugar production
and minimising logistics costs to market.

Contract negotiations with our EU
customers for the 2014/15 marketing year
are proving to be as challenging as last
year. There are high stocks of sugar in the
EU, competition continues to be intense
and both of these factors have continued
to drive EU prices downward. In response
to this difficult commercial environment
we have undertaken a review of our cost
base and a provision of £22m for the cost
of overhead reduction has been charged
to adjusted operating profit this year.

After a complex commissioning process,
production volumes at the Vivergo
biofuels plant increased significantly this
year. Although inclusion levels of ethanol
in gasoline continued to rise in the EU
year-on-year, gasoline consumption has
fallen which has led to lower prices.
Vivergo sustained a loss this year but
further enhancements to the plant in the
new financial year will improve reliability

Strategic report
Operating review
Sugar

and throughputs are expected to meet or
exceed rated capacity. Combined with
lower wheat prices the profitability of
Vivergo is therefore expected to improve.

Profit at Illovo saw some reduction this
year. Sugar production of 1.70 million
tonnes this financial year compared with
1.87 million tonnes last year, primarily as
a result of lower production in Zambia
and Swaziland where the phasing of the
campaign is slightly later than last year.
Domestic pricing increased in line with
local inflation with the exception of
Tanzania and South Africa which were
affected by low-cost imports. However,
import tariffs have now been introduced
in South Africa which has resulted in
some improvement in local pricing.
The profitability of exports of raw sugar to
the EU market under preferential import
arrangements was adversely affected
by the lower pricing in that market.
Co-product contribution, which is of
growing importance to Illovo, increased
this year with the successful operation
of the new potable alcohol distillery
in Tanzania.

In China, profitability has improved
with the implementation of a number
of overhead reduction and efficiency
initiatives. In the south, excellent growing
conditions and a higher sugar content in
the cane resulted in an increase in sugar
production from 500,000 tonnes last year
to 560,000 tonnes this year. However,
flooding in Heilongjiang province led to
a reduction in beet supplied to our
factories which resulted in much lower
sugar production in the north, at 116,000
tonnes. The campaigns at Qianqi and
Zhangbei were excellent with good
factory throughput and a high sugar
content in the beet following our success
in working with the growers over a
number of years. A significant level
of imports and increased domestic
production resulted in very low domestic
prices throughout the year.

AB SUGAR CHINA TRANSFORMATION

KILOMBERO DISTILLERY

Building a distillery in a remote part of
Tanzania has its challenges. The nearest
source of building materials was an eight-
hour drive away, plant and machinery had
to be imported from India and complex
cultural considerations had to be taken
into account. But the distillery was
delivered on time, on budget, and with
an exceptional safety record.

The distillery is a significant downstream
addition to our operations employing a
highly integrated approach to
manufacturing which transforms all of
our raw materials into sustainable
products and extends our sugar and
non-sugar product range – in this
instance by meeting the increasing
regional demand from local breweries
for potable alcohol.

IRISH TANKER DELIVERIES

Since April, all of British Sugar’s deliveries
in Ireland have been made by their brand
new road tanker fleet using scheduled
ferries, rather than by container shipment.

Not only is this more suitable for our
customers, but it also increases flexibility
and reduces delivery times from three
weeks to four days. And with larger
load sizes, the number of journeys
required has shrunk by more than
15%, thus reducing both environmental
considerations and cost whilst improving
customer service.

A project was initiated in July 2013 to
support the transformation of our existing
sugar business in China into a more agile
and cost-effective operation able to
compete effectively in the local economy,
whilst holding firm to our principles of
improving standards of environmental
and safety governance.

Across China, we have four beet and
five cane sugar factories receiving raw
material from over 100,000 farmers.

Integral to the project has been the
structured focus on developing farming
practices to improve the agricultural
effectiveness of our grower base as
well as a rigorous drive to reduce overall
costs and enhance processing efficiency.
This has been delivered through a careful
scrutiny of activities and the
re-engineering of processes.

We have benchmarked our factory
performances and transferred best-
practice across our other operations in the
UK, Spain and Africa, as well as reducing
our overall costs in China by over 20%.

The three-year project is due to complete
within the next year, by which time we
will have improved annual profitability
in China by some £40m.

Associated British Foods Annual Report and Accounts 2014

ENSURING QUALITY

We work from field to fork, continuing to
develop innovative ways to help farmers
maintain their crop and livestock yields and
to provide an assured source of consistently
high quality animal feeds.

abf.co.uk

Strategic report
Operating review
Agriculture

AGRICULTURE

AB Agri is a major business in UK agriculture and is increasingly
operating on a global scale. It supplies feed and technology-based
products and services to farmers, feed and food manufacturers,
processors and retailers. It also buys grain from UK farmers and
supplies them with agronomy advice and crop inputs through its
joint venture, Frontier Agriculture.

Revenue
£1,312m
2013: £1,410m
Actual fx: -7%
Constant fx: -6%

Adjusted operating profit
£50m
2013: £47m
Actual fx: +6%
Constant fx: +11%

Adjusted operating
profit margin
3.8%
2013: 3.3%

Return on average
capital employed
17.3%
2013: 16.4%

Operating across the agricultural supply chain, AB Agri
manufactures high-performance compound feeds, provides
world-leading analytical services, nutritional advice and poultry
marketing services for customers. It provides a value-added
service to food, drink and bioethanol companies internationally,
by marketing their co-products as animal feed, which in turn helps
to reduce the costs of production for its farming customer base.
Working globally it supplies the livestock and pet industries with
premixes, enzymes and other technical ingredients and plays a key
role in delivering supply chain integrity for retailers and processors.

AB Agri’s operations comprise:

• AB Connect – a feed supply business serving the UK’s food

and farming community;

• AB Vista – an international supplier of world-leading feed

ingredients and technical services;

• Speciality Nutrition – a supplier of high-quality, bespoke,

vitamin/mineral premixes, starter feed and micro-ingredients,
with world-class nutrition and formulation expertise;

• AB Sustain – a specialist in designing, developing and

delivering bespoke sustainable agricultural supply chain
solutions for clients;

• AB Agri China – a high-performance feed manufacturer for the
ruminant, pig and poultry sectors, a co-product marketing and
feed additives business and an industrial services business
working with large-scale processors to optimise the food
supply chain; and

• Frontier Agriculture – a joint venture which is the UK’s leading

crop inputs and grain marketing organisation.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Operating review
Agriculture

AB Agri deserves credit for the further
development of the business, particularly
for the strides made by AB Vista as it
extends its global reach.

AB Agri had another excellent year
with adjusted operating profit 11%
ahead of last year at constant
currency. The decline in revenue
reflected lower wheat and other
commodity costs. However, cash
margins in UK feed were maintained
and the profit growth was delivered
by the higher margin businesses.

The wet winter in the UK, particularly in
the West Country, adversely impacted
livestock farming but excellent forage
growing conditions during a dry spring
and summer, as well as a softening
commodity market, led to a period of
more stable prices and increased
confidence amongst farmers. UK feed
volumes remained resilient. Oversupply
in the UK poultry market depressed prices
during the summer but the market is now
beginning to stabilise.

Strong growth was achieved by AB Vista
driven by the success of Quantum Blue,
its phytase feed enzyme, notably in Latin
America and the Middle East but also in
the EU where it was launched recently
following its approval by the European
Food Safety Authority. The new

Associated British Foods Annual Report and Accounts 2014

granulation facility at Evansville, Indiana,
is operating successfully providing
additional capacity to meet the increasing
demand for these enzymes.

Good commercial and procurement
management drove a strong performance
at Speciality Nutrition, our UK pre-mix and
starter feeds business. Expansion and
modernisation of its plant at Rugeley
enabled the business to meet increasingly
stringent customer demands for high
quality pre-mixes. AB Sustain’s
responsible sourcing programme
achieved growth during the year and
this programme has now been extended
into overseas markets.

AB Agri China maintained margins
through good procurement and a
favourable product mix. Consumer
demand for meat in China continues to
grow with a particular need to ensure
reliable and high-quality sources. As meat
production in China therefore transitions
from small, family-run concerns towards
large-scale commercial operations, there
is increasing demand for high-quality feed
supplied by modern, efficient feed mills.
Construction and commissioning of our
new feed mill at Zhenlai was completed
to plan in August and good progress is
being made with construction of a mill
at Rudong, both of which will supply
these large, integrated meat processors.

Profit at Frontier was ahead of last year.
Fine weather during the planting seasons
saw strong demand for cereal and rape
seed and the growing conditions of a mild
winter and warm spring drove demand
for crop inputs such as fungicides.
Encouragingly, the warm dry summer
resulted in an early wheat harvest of
excellent yield and quality.

Strategic report
Operating review
Agriculture

AB AGRI CHINA

FRONTIER

EFFECTIVE PROCUREMENT

In 2014, AB Agri China invested £10m
in building two new, highly automated,
feed mills with bulk feed capability, one
in Zhenlai in the north of the country and
the other near Shanghai.

The northern mill has fully segregated
monogastric and ruminant feed lines with
a capacity of 180,000 tonnes, while the
southern mill is designed to produce up
to 240,000 tonnes of poultry feed for a
leading global meat processor.

These investments not only show our
confidence in the future of AB Agri China,
but also our ability to work with major
customers to help them develop their
businesses and at the same time increase
our revenues.

Drones are the latest tool being used by
SOYL, the precision farming division of
Frontier, to help farmers get the best
possible output from every hectare.

The SOYLsight service uses an
unmanned aerial vehicle, or drone, to
map fields, enabling growers to look at
crops under different wavelengths of
light, revealing aspects of crop growth
that could not previously be measured.
Controlled by GPS systems, it flies
remotely over areas of fields or trials,
and can monitor crop health, identify
weeds, count plants and estimate yields.

Performance improvement initiatives
being undertaken across the group
include improving procurement
effectiveness through rigorous category
management and the use of structured
supplier engagement tools, many of
which are now e-enabled.

Where goods and services are sourced
from competitive markets, modern
technologies such as electronic tendering
and auction tools are increasingly being
employed to ensure we achieve the best
value for money. Further benefits have
been achieved in the procurement of
chemicals, packaging, IT, telecoms,
maintenance and logistics by the
businesses working with one another
to improve their negotiating position,
develop supplier relationships or take
advantage of synergies that would
otherwise not be available.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Operating review
Ingredients

INGREDIENTS

Ingredients comprises a number of businesses that supply a range
of ingredients to food and non-food manufacturers. Together they
employ 8,000 people in more than 70 plants in 26 countries.

AB Mauri has a global presence in bakers’ yeast with significant
market positions in the Americas, Europe and Asia, and is a
technology leader in, and supplier of, bread improvers, dough
conditioners and bakery mixes. The business employs experts
who have an unrivalled knowledge and understanding of the yeast
and bakery ingredients business, the equipment, the processes
and the raw materials.

ABF Ingredients comprises a range of businesses focusing on
high-value ingredients for both food and non-food applications.
It has established strong market positions in enzymes, lipids,
yeast extracts and cereal specialties. It has manufacturing
facilities in Europe and the US.

SPI Pharma is a leader in custom formulation solutions for
pharmaceutical and nutraceutical manufacturers in more than
50 countries. It manufactures and markets antacids, excipients
and drug delivery systems for tablets and specialises in drug
development services. It collaborates with customers to deliver
value-added and cost-effective solutions to their problems.

Revenue
£1,261m
2013*: £1,360m
Actual fx: -7%
Constant fx: +4%

Adjusted operating profit
£41m
2013*: £5m

Adjusted operating
profit margin
3.3%
2013*: 0.4%

Return on average
capital employed
5.8%
2013*: 0.6%

* Restated

Associated British Foods Annual Report and Accounts 2014

SUPPORTING BUSINESSES

Much of our business is large scale
and highly mechanised but we are
also committed to supporting
small businesses and artisan
bakeries that provide an invaluable
service in their communities.

abf.co.uk

Strategic report
Operating review
Ingredients

made in baking enzymes with several
new products launched during the year
and, following a series of successful trials
in the pulp and paper industry, a number
of mills have converted to the use of
enzymes to reduce costs and lessen
their environmental impact. The next
phase of expansion at the enzymes
manufacturing facility in Finland is under
way. The closure of the yeast extracts
plant in China, for which provision was
made last year end, was well managed
and profit benefited from the transfer of
production to lower cost facilities
elsewhere in the group. The new cereal
extrusions factory in the US, at Evansville,
Indiana, is now in production, providing
increased capacity to meet the growing
demand both for extruded cereal products
and AB Vista’s granulated feed products.

In view of the complementary product
portfolios and common customer base,
the Australian and New Zealand yeast
and bakery ingredients businesses of
AB Mauri have been integrated with the
flour milling business of George Weston
Foods in Australia. This will reduce
overheads and allow the combined
business to bring its technologies to
market more effectively. Reflecting this
change, the results of the Australian
milling business, which were previously
included within the Grocery segment,
are now included within the Ingredients
segment. The comparative results for
2013 have been restated resulting in
£272m of sales and £4m of operating
profit being transferred from Grocery
to Ingredients.

Ingredients’ revenues were 4% ahead
of last year at constant currency but
with most of these businesses being
located overseas, the strengthening
of sterling resulted in a decline of 7%
at actual rates. Profit recovery was
substantial, driven by much stronger
trading from AB Mauri and the benefit
from the non-recurrence of last year’s
restructuring and accelerated
depreciation charges.

AB Mauri made progress in all of its
regions and in both yeast and bakery
ingredients. Good revenue growth was
achieved in South America where, in a
very competitive market, cost inflation
was either recovered through pricing or
offset by improvements in efficiency.
Higher volumes and a focus on business
development drove growth in North
America and the new yeast factory in
Mexico is now supplying the markets
of North and Central America. In China,

the site of our Meishan yeast factory
in Guangzhou City is to be redeveloped
by the local government, the factory
has been closed and provision for the
small associated cost has been made.
Customer requirements will be met
from our other factories in China.

In January, AB Mauri completed the
acquisition of a small bakery ingredients
business operating across western
Europe which offers craft and industrial
customers a range of high-quality
bakery ingredients. Its integration with
our existing operations will broaden
our product offering and our ability to
respond to customer needs in a number
of key markets.

At ABF Ingredients, good growth was
achieved in extruded cereals in the US
and in speciality ingredients which
provide enhanced functionality when
incorporated into pharmaceutical
formulations. Further progress was

AB Mauri achieved a strong turnaround
from the challenges of recent years
with the promise of further
improvement to come.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Operating review
Ingredients

ABITEC

AB ENZYMES

PGP INTERNATIONAL

ABITEC manufactures a wide range
of functional excipients for the
pharmaceutical industry. These
excipients are critical components in
drug formulations and are used in
various dosage forms including soft-gel
capsules and transdermal products.
As drug technology advances, so must
the delivery systems that enable the
body to absorb the active ingredients.
The manufacturing processes to produce
these excipients must meet the exacting
standards of the international
pharmaceutical industry.

ABITEC has world-class technical,
scientific, regulatory, and manufacturing
expertise. To position the business to be
able to assist pharmaceutical customers
in their delivery of the next generation
of drug formulations, we have embarked
on a three-year project to expand and
upgrade our manufacturing facility at
Janesville, Wisconsin. Foundations have
been laid for the factory extension and
the new facility will enhance our
capabilities and keep the business
at the forefront of technology.

Our enzymes are used in a variety of
ways by a range of different industries:
in baking they are used to improve
texture, extend shelf-life and replace
emulsifiers; and in beverages and food
specialities they are used to improve
yields in the processing of fruits, grains
and proteins. In the pulp and paper
industry more and more mills have
recognised the economic and
environmental benefits of using enzymes
in their manufacturing process by
reducing the use of chemicals in the
production process. In the field of
detergents, enzymes have been
developed to reduce colour fading when
washing garments. Most recently we
have developed enzymes for the farming
industry that enhance the absorption by
livestock of the nutrients in animal feed,
and Quantum Blue has become our most
successful new product for many years.

The development of a new specialty
ingredients production unit in the US,
at Evansville, Indiana, shows the value
of collaboration.

Cereals ingredients specialist PGP
International was running out of capacity
at its two existing locations and identified
a need for an additional site in the
Mid-West, US. Animal feed supplement
producer AB Vista, needed another
co-packer as it too was running out of
granulation capacity for its flagship
product, Quantum Blue. Neither business
could justify the capital investment for
a stand-alone facility but by coming
together they were able to prepare a
business case for sharing one facility
between them that made economic
and good business sense.

By working closely together, the new site
was up and running – and selling product
– within 14 months.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Operating review
Retail

RETAIL

Revenue
£4,950m
2013: £4,273m
Actual fx: +16%
Constant fx: +17%

Adjusted operating profit
£662m
2013*: £513m
Actual fx: +29%
Constant fx: +30%

Adjusted operating
profit margin
13.4%
2013*: 12.0%

Return on average
capital employed
33.2%
2013*: 26.0%

* Restated

Primark is one of the largest clothing retailers in Europe. It has
278 stores and employs 54,000 people in the UK, Republic of
Ireland, Spain, Portugal, Germany, the Netherlands, Belgium,
Austria and France. It was founded in June 1969 in the Republic
of Ireland where it continues to trade as Penneys.

Primark’s organic growth has been achieved through a
combination of like-for-like growth and increasing selling
space. The like-for-like growth reflects investment in buying,
merchandising and our success in constantly refreshing the stores
to ensure they remain exciting places to shop. The increase in
selling space has been driven by capital investment in freehold
and leasehold properties as they have become available, first on
the high streets of the UK and Ireland, and more recently on the
high streets and in the shopping centres of continental Europe.
2006 saw Primark’s first foray into continental Europe with the
opening of a store in Madrid and it now operates from more than
10 million sq ft of selling space across nine countries.

With a unique combination of the latest fashion and lean
operations, Primark offers customers quality, up-to-the-minute
designs at value-for-money prices. Buying and merchandising
teams travel internationally to source and buy garments that best
reflect each season’s key fashion trends. Primark’s range includes
womenswear, lingerie, childrenswear, menswear, footwear,
accessories, hosiery and homeware.

Associated British Foods Annual Report and Accounts 2014

STYLE TRAVELS

ABF has supported the development of
an international fashion brand – now as
popular in continental Europe as it is in
the UK and Ireland. We have leveraged
our local market insights and relationships
to help Primark continue its international
development.

abf.co.uk

SETTING TRENDS

We aim to spot future trends and bring
them to market quickly and affordably.
This doesn’t just apply to high fashion
but increasingly to menswear,
childrenswear, accessories, sportswear
and even homeware.

abf.co.uk

Strategic report
Operating review
Retail

Sales at Primark were 17% ahead
of last year at constant currency.
This excellent result was driven by
an increase in retail selling space,
like-for-like sales growth of 4%, and
superior sales densities in the new
stores. The year was characterised
by success for our autumn/winter and
spring/summer ranges. Sales over the
Christmas period were excellent and
were boosted in the third quarter by
warm weather, especially in the
spring and early summer. We began
trading in France in December last
year and sales across all five stores
have been exceptional. Eight years
on from our initial entry into Iberia,
this year’s like-for-like growth
achieved by our Spanish stores
was particularly strong.

The adjusted operating profit margin in
the first half was higher than last year
reflecting the benefit of warehouse and
distribution efficiencies and lower freight
rates. These benefits continued in the
second half and, with strong trading over
the summer resulting in a lower level of
markdowns, the margin for the full year
reached 13.4%. This lower level of
markdowns was a consequence of
a strengthening of our buying and
merchandising teams and the success
of our seasonal range.

In the immediate aftermath of last year’s
collapse of Rana Plaza in Bangladesh,
Primark committed to meeting its
responsibilities in full and to paying
long-term compensation to the workers
employed by its supplier or their
dependants. We began making these
long-term payments in March 2014 and,
throughout the process, we have
provided broadly-based support. Primark
also paid short-term aid to the families of
all the workers employed at Rana Plaza,
most of whom were making clothes

for its competitors. Primark’s total
commitment amounts to US$12m, of
which US$7m was provided in last year’s
results and US$5m has been charged
this year.

The safety of the staff employed by our
suppliers is a high priority. We have now
undertaken structural assessments of all
of our supplier factories in Bangladesh.
We further strengthened our in-country
teams of ethical trading specialists who
are critical in supporting sustainable
improvements within supplier factories,
and providing greater visibility across the
supply chain. We conducted 2,058 audits
in the last calendar year, and ethical trade
training continues to be provided to every
new Primark employee. We intend to
extend our programme of structural
assessments to include factories
producing for us outside Bangladesh.

The pace of selling space expansion
quickened further this year with the gross
addition of 1.4 million sq ft. We relocated
three stores, extended three stores and
opened in 25 new locations. It is perhaps
worth putting this growth into context –
in the year 2000 when we opened our
100th store after 31 years of trading, the
entire estate was just 1.4 million sq ft and
now, 14 years later, the estate is seven
times larger. This year saw the entry of
Primark into France where we now have
five stores: Marseille, Dijon and three in
the suburbs of Paris. We closed seven
smaller stores, primarily where larger,
better located, premises became
available in the same city, resulting in a
net increase in selling space of 1.2 million
sq ft. This brings our total estate to
278 stores and 10.2 million sq ft at the
financial year end.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Operating review
Retail

Responding to the increasing scale of
our business in continental Europe, we
doubled the size of our warehouse in
Torija, Spain this summer and the
Mönchengladbach warehouse in
Germany, which services the stores in
northern Europe, is being extended by
60% and will become fully operational
early in 2015.

We have a very strong pipeline of new
stores in Europe extending over a number
of years. We have already opened five
new stores since the year end: one in
Portugal, two in the Netherlands and two
in Germany, with a further five scheduled
to open before Christmas including a
relocation in Northampton to a store more
than three times the size. We expect the
increase in selling space for the financial
year to be a little less than 1.0 million sq ft,
to be followed in the autumn of 2015 by a
strong programme of European openings.

We have announced that, after extensive
research, we have decided to take
Primark to consumers in the north-east
of the US. We have chosen stores which
are located close to areas of high urban

SPORTS AND LEISURE

density and which benefit from high levels
of existing customer footfall. Our strategy
is to generate interest in, and awareness
of, the Primark brand. A lease for some
70,000 sq ft of selling space at
Downtown Crossing in the heart of
Boston, Massachusetts was signed in
April and we expect this store to open in
late 2015. We have subsequently signed
the lease of a further seven stores in this
region including an 80,000 sq ft store in
the King of Prussia shopping mall in
Pennsylvania, one of the busiest in the
US. We intend that all eight stores will be
trading from 0.5 million sq ft by late 2016.
These stores will be supported by leased
warehousing.

Sportswear is one of the biggest growth
areas of the business.

The introduction of more technical fabrics
and products means that we now offer a
credible sports range that stands up well
against the competition. At the same time
we are maintaining our credentials for
fashionable street-wear alternatives and
core workout ranges at low entry price
points – extending the offering across all
departments with co-ordinated ranges
consisting of matching clothing, footwear,
accessories, underwear and hosiery.

Following the success of the ladies’
and men’s ranges, we have turned our
attention to childrenswear for Autumn/
Winter 2015.

We have a very strong pipeline of new stores
in Europe… and, after extensive research,
we have decided to take the Primark concept
to consumers in the north-east of the US.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Operating review
Retail

Store expansion by region

September 2013
Change in year
September 2014

Iberia

Northern Continental
Europe

Republic of
Ireland

sq ft
000
5,760
280
6,040
+5%

stores
161
3
164

sq ft
000
1,330
240
1,570
+18%

stores
41
6
47

sq ft
000
880
680
1,560
+77%

stores
17
13
30

sq ft
000
1,030
–
1,030
–

stores
38
(1)
37

Total

sq ft
000
9,000
1,200
10,200
+13%

stores
257
21
278

PRIMARK.COM

BACK OF HOUSE

NEW STORE OPENINGS:

Spain
Albacete
Cartagena
Fuengirola
Huelva
Logrono
Madrid – Plenilunio
Roquetas de Mar
Tenerife

Germany
Berlin
– Alexanderplatz
Cologne
Dusseldorf

Portugal
Lisbon

Austria
Vienna

France
Dijon
Marseille
Paris – Creteil SC
Paris – O’Parinor
Paris – VLG Quartz

UK
Bath
Canterbury
Cardiff
Crawley
Leeds – Trinity
Warrington

The Netherlands
Eindhoven
Enschede
Nijmegen
Zoetermeer

RELOCATIONS OR CLOSURES:

Spain
La Coruna
Madrid – Plenilunio
Zaragoza

UK
Cardiff
Crawley
Leytonstone

Republic of Ireland
Dundalk

Primark.com was launched in October
2013 and has since been rolled out in local
languages to each of our countries of
operation. The site now reaches almost
one million people and is a showcase for
the brand, its price message and its
fashion credentials. The innovative
Primania section, which makes heroes
of our customers, receives 300,000
visits every week.

Along with the fashion messages, we
have introduced a new ‘Our Ethics’ area
to Primark.com which tackles some of
the more common questions asked of
the brand, its sourcing and supply chain
in clear, bite-sized info graphics.

We have also embraced social media – the
environment that many of our customers
live and breathe – sharing campaign
imagery and videos with a fan base of
over four million followers, generating
huge engagement and awareness.

Over the past three years we have
transformed our customer-facing store
design but our own ‘Back of House’
working environment had stood still.

It’s typical in retail to think: ‘Why invest
in Back of House? It won’t make any
money’. But we don’t believe that’s
true. In fact we know it isn’t.

Following a pilot in our Leeds Trinity
store in December 2013, we are
now investing in creating a motivating
work environment.

And the effect has been dramatic. Scores
in staff feedback surveys are up to 24%
higher on areas like ‘Communication’ and
‘Teamwork’ compared with the Primark
average. The impact has also improved
productivity. For example:

• wi-fi throughout has made it easier for
key tasks to be carried out ‘on-the-go’;

• paid absence levels are markedly lower;

and

• the new open-plan Back of House

environment means more efficiency
and collaboration, with staff briefings
and inductions taking a third less time
– meaning more time on the shop floor.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Financial review

FINANCIAL REVIEW

Group performance
Group revenue increased by 1% at
constant exchange rates, but the
strengthening of sterling against our
major trading currencies, particularly
in the second half of the year, resulted
in a decline in revenues of 3% at actual
rates, to £12.9bn. Adjusted operating
profit of £1,163m was 2% ahead of last
year at constant rates but 1% lower at
actual rates. In calculating adjusted
operating profit, the amortisation
charge on non-operating intangibles
and any profits or losses on disposal
of non-current assets are excluded.
On an unadjusted basis, operating
profit was 1% below last year at
£1,080m. Comparative results for 2013
have been restated for the effects of
adopting the revised accounting
standard for employee benefits,
details of which are provided under
‘Pensions’ on page 39.

During the year we merged the activities
of AB Mauri’s Australian and New Zealand
yeast and bakery ingredients businesses
with the flour milling business of George
Weston Foods in Australia. The results of
the Australian milling business, which
were previously included within the
Grocery segment, are now included

Associated British Foods Annual Report and Accounts 2014

within the Ingredients segment.
The comparative results for 2013 have
been restated resulting in £272m of
sales and £4m of operating profit being
transferred from Grocery to Ingredients.

The income statement benefited from
the non-recurrence of last year’s loss
of £128m on the sale or closure of
businesses in our Ingredients and
Sugar segments.

Finance expense less finance income
of £58m compared with a net charge of
£87m last year. This reduction reflected
the retirement of expensive long-term
debt, including the redemption of British
Sugar’s £150m 10¾% debenture on
4 July 2013 and the repayment of £194m
of private placement notes, $120m of
which was repaid mid way through last
year and $194m was repaid this year. The
average level of debt also benefited from
another strong cash flow performance.

Profit before tax increased from £868m
to £1,020m. On an adjusted basis, where
the amortisation of non-operating
intangible assets and any profits or losses
on the sale of non-current assets and
on the sale and closure of businesses
are excluded, profit before tax increased
by 2% to £1,105m.

Taxation
We recognise the importance of
complying fully with all applicable tax
laws as well as paying and collecting the
right amount of tax in every country in
which the group operates. We have had
a board-adopted tax policy for many years
which is based on seven tax principles
that are embedded in the financial and
non-financial processes and controls of
the group. Our tax principles are included
in the appendix to our Corporate
Responsibility Report.

The tax charge for the year of £237m
included an underlying charge of £257m
at an effective rate of 23.3%

Strategic report
Financial review

Return on capital employed for
the group increased further this
year to 18.9%.

(2013 – 24.2%) on the adjusted profit
before tax. The reduction in the effective
rate is a result of the mix of profits earned
in different tax jurisdictions and the
reduction in the UK corporation tax rate
from 23% to 21% with effect from
1 April 2014. A further reduction in the UK
rate to 20% is due to take effect on 1 April
2015. The legislation to effect these rate
changes was enacted before the prior
year balance sheet date and as deferred
tax is measured at the rates that are
expected to apply in the periods when
the underlying timing differences reverse,
opening and closing UK deferred tax
balances have both been calculated
using a rate of 20%.

The overall tax charge for the year
benefited from a £21m (2013 – £29m)
credit for tax relief on the amortisation
of non-operating intangible assets
and goodwill arising from previous
acquisitions.

Earnings and dividends
Earnings attributable to equity
shareholders were £762m, £177m higher
than last year, and the weighted average
number of shares in issue during the year
used to calculate earnings per share was
790 million (2013 – 790 million). Earnings
per ordinary share were 30% higher
than last year at 96.5p with the absence
of losses on sales and closure of
businesses. Adjusted earnings per share,
which provides a more consistent
measure of trading performance,
increased by 6% from 98.1p to 104.1p.

The interim dividend was increased
by 4% to 9.7p and a final dividend
has been proposed at 24.3p which
represents an overall increase of 6%
for the year. The proposed dividend is
expected to cost £192m and will be
charged next year. Dividend cover, on an
adjusted basis, is just over three times.

Strategic report
Financial review

We continued to invest in the future
growth of the group with net capital
investment of £691m during the year.

Balance sheet
Non-current assets of £6.8bn were
similar to last year. Intangible assets
were £114m lower, mainly reflecting
the amortisation charge for the year
and foreign exchange translation losses.
Property, plant and equipment increased
by £113m with capital expenditure in the
year running ahead of depreciation.

Working capital at the year end was
£164m lower than last year reflecting
lower food commodity prices and the
benefit of management action to reduce
the average level of working capital
throughout the year. When expressed as
a percentage of sales, this also showed
further improvement. Net borrowings at
the year end were £358m lower than last
year at £446m as a consequence of the
very strong cash flow.

A currency loss of £250m arose on the
translation into sterling of the group’s
foreign currency denominated net assets.
The group’s net assets increased by
£234m to £6,753m.

Return on capital employed (ROCE) for
the group increased further this year
to 18.9%, up from last year’s restated

return of 18.4%. All businesses with
the exception of Sugar delivered an
improvement through higher profits,
with the average level of capital employed
in the business little changed from last
year. ROCE is calculated by expressing
adjusted operating profit as a percentage
of the average capital employed for
the year.

Cash flow
Net cash flow from operating activities
was very strong again this year, increasing
from £1,276m to £1,439m with a working
capital inflow of £100m compared to last
year’s outflow of £97m.

We continued to invest in the future
growth of the group and the £691m
spent on property, plant and equipment
and intangibles net of disposals during
the year was an increase on last year’s
investment of £600m. Primark spent
£378m on the acquisition of new stores,
the fit-out of new and existing stores and
warehousing. Expenditure in the food
businesses was lower than last year but
major projects included further
investment in the modernisation of our
UK bakeries, new tea packing machines

Associated British Foods Annual Report and Accounts 2014

in Twinings’ three factories, two animal
feed mills in China and the redevelopment
of a former bakery site in Western
Australia including ground works and
utilities in preparation for its sale for
housing development.

Financing
The financing of the group is managed by
a central treasury department. The group
has total committed borrowing facilities
amounting to £2.2bn, which comprise:
£579m of US private placement notes
maturing between 2016 and 2024; £1.2bn
provided under a newly negotiated
syndicated, revolving credit facility which
matures in July 2019 with an option to
extend by two years; a £120m loan from
the European Investment Bank maturing
in January 2015 and £328m of local
committed facilities in Africa and Spain.
During the financial year we repaid, from
existing cash resources, US$194m of
private placement notes. At the year end,
£821m was drawn down under these
committed facilities. The group also had
access to £644m of uncommitted credit
lines under which £132m was drawn at
the year end. Cash and cash equivalents
totalled £519m at the year end.

The financial strength and flexibility of
the group is enhanced by diversifying
our sources of funding and having
certainty of finance over a long period.
The strength and breadth of the 12 banks
in the syndicate reflect the scale and
international presence of the group and
during the renegotiation this year we
included another European bank in the
syndicate to reflect the increasing
activities of the group in continental
Europe through Primark’s expansion.
The average fixed interest coupon on
the private placement notes is 5.1%.

Strategic report
Financial review

The accounting standard under which the
group’s pension schemes are accounted,
IAS 19 Employee benefits, has been
revised, and the new provisions were
adopted by the group with effect from
15 September 2013. The comparative
results for the financial year 2013 have
been restated as a prior year adjustment,
the effect of which was to reduce the
reported operating profit by £5m to
reflect a change in the treatment of
administration costs, and to increase
other financial expenses by £3m due to
the replacement of the expected rate of
return on assets with the discount rate.
There was little difference between the
expected rates of return on assets and the
discount rates in the group’s schemes in
2013 hence the small adjustment.

John Bason
Finance Director

Total committed
borrowing facilities (£m)
Diversified sources of
term funding

Data to be
supplied

1 Banking syndicate
2 Private placement
3 EIB
4 Africa & Spain

£m
1,200
579
120
328
2,227

54%
26%
5%
15%

Pensions
Pension liabilities in the group’s defined
benefit pension schemes exceeded
employee benefit assets at the year
end by £43m compared with last year’s
restated deficit of £15m. The UK scheme
accounts for 91% of the group’s total
pension assets and the increase in the
market value of these assets during the
year was slightly more than the increase
in the present value of scheme liabilities.
Total contributions to defined benefit
plans in the year amounted to £41m
(2013 – £69m), the lower amount
reflecting the end of the £30m p.a. deficit
contributions that were paid in each of the
last five years. A triennial valuation of the
UK scheme was undertaken as at 5 April
2014, which was agreed by the trustees
after the group’s year end, and revealed
a surplus of £78m. As a result there is
no requirement to agree a recovery plan
with the trustees.

On 1 October 2012 new legislation
came into effect which required all
eligible UK employees to be automatically
enrolled into a qualifying pension scheme.
We embraced this new legislation by
providing an attractive scheme with
employer contribution rates in excess
of the statutory minimum and we saw
a high take-up.

The charge for the year for the group’s
defined contribution schemes, which
is equal to the contributions made,
amounted to £76m (2013 – £66m)
and this is the first year that defined
contribution costs have exceeded the
cash contributions made to the defined
benefit schemes reflecting the changing
shape of pension provision in the group.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Corporate responsibility

All our businesses share a common set of
principles. These principles ensure that people,
the environment and our communities are at
the heart of how we operate.

CORPORATE
RESPONSIBILITY

All our businesses share a common
set of principles: we strive to ensure
that our environmental impact and
use of resources are minimised; we
seek to provide a safe place of work
for all of our people; we want to be
welcomed as good neighbours by the
communities in which we operate;
and we take seriously the need to
consider the health of our customers,
our staff and the communities of
which we are part. These principles
are underpinned by the Company’s
overriding tenet of: Encouraging
Ethical Business.

These principles ensure that people, the
environment and our communities are at
the heart of how we operate. We express
this commitment to Corporate
Responsibility (CR) in four areas:

• responsible stewardship of

our environment;

• being responsible for our people;

• being a responsible neighbour; and

• being responsible for promoting

good health.

Further information can be found in the
Associated British Foods CR Update 2014
and 2013 CR Report at www.abf.co.uk/
responsibility.

Our greenhouse gas emissions
This year, for the first time, we report
on the total greenhouse gas emissions
from those activities for which we are
directly responsible, which includes the
operational and agricultural impacts of
our businesses for the 12-month reporting
period. This also includes greenhouse
gas emissions for entities where we do
not have full ownership but have financial
control, joint ventures and associates
where we do not have a majority
shareholding but do have either joint
control or significant influence.

Our total greenhouse gas emissions
amounted to 9,656,000 tonnes of carbon
dioxide equivalent (CO2e) of which 73%
is contributed by our sugar businesses.
This is due to the extensive use of energy
in our processing of sugar and transport
use, as well as the generation of
emissions from its agricultural activities.
Of the 7,025,000 tonnes of emissions
that AB Sugar produces, two-thirds
comes from the combustion of renewable
sugar cane biomass which is generally
regarded as carbon neutral.

We developed detailed reporting guidance
including estimation methodologies,
assumptions and calculation
methodologies, which are aligned with
ISO 14064/1, the Greenhouse Gas

Associated British Foods Annual Report and Accounts 2014

Protocol and the World Business Council
for Sustainable Development.

We engaged KPMG LLP to provide
limited assurance on our greenhouse
gas performance data as described in
the table opposite.

KPMG LLP used the International
Standard on Assurance Engagements
(‘ISAE’) 3410: ‘Assurance Engagements
on Greenhouse Gas Statements’ to assure
the selected greenhouse gas performance
data and issued an unqualified opinion.
Their full assurance opinion is available at
www.abf.co.uk/responsibility/assurance/
our-approach/2014-updates.

In order to form their opinion, KPMG LLP
performed a range of procedures which
included interviews with management,
examination of reporting processes and
documentation, and testing of selected
data from various sites, businesses and
at group level. A summary of the work
they performed is included within their
assurance opinion.

Non-financial performance information,
and greenhouse gas quantification in
particular, is inherently more subjective
than financial information. It is important
to read the selected environmental
performance data contained within this
report in the context of KPMG LLP’s
full limited assurance opinion and
our reporting definitions available
at www.abf.co.uk/responsibility/
our_policies_and_appendices.

Fatal injuries
Our first priority is to keep our people safe
at work making sure that they return
home as fit and well as they were when
they came to work. We regret very deeply
the six work-related fatalities of
employees and contractors during the
reporting year. In Africa, four employees
were killed: one was crushed when the
cane seed vehicle he was driving came
off the road; another died while preparing
for cane harvest; a third died in a shallow

Strategic report
Corporate responsibility

Associated British Foods’ total greenhouse gas emissions in 2014
For the year ended 31 July 2014 we emitted, in tonnes of carbon dioxide equivalent
(CO2e) the following greenhouse gases:

Combustion of fuel and operation of facilities
Purchased electricity and steam
Total emissions
Emission intensity

8,642,000 tonnes
1,014,000 tonnes
9,656,000 tonnes
746 tonnes per £1m of revenue

Our greenhouse gas emissions can be further analysed by source of emission which
helps us to make our operations ever more energy efficient:

Source of emissions
Use of energy within our factories and stores
Operation of our owned and contracted vehicles
Our manufacturing processes
From directly controlled agricultural activities
Sugar and other divisions
Sugar
Other

Tonnes

% of total

7,918,000
935,000
622,000
181,000

7,025,000
2,631,000

82%
10%
6%
2%

73%
27%

Associated British Foods Annual Report and Accounts 2014

excavation; and a fourth was killed when
entangled in moving machinery above
head height. A security contractor died in
Africa having been the victim of violent
criminal assault by an unconnected third
party. In China, a contractor driver died
after falling off the vehicle he was loading.

We recognise that many of our
businesses operate in high hazard
environments, such as with heavy
machinery, large transport and freight
vehicles, confined spaces and working
at height. Whenever there is a death or
near miss on our sites or linked to our
operations, we alert all our businesses
and re-emphasise the importance of
safe working conditions.

These accidents were fully investigated
by our internal safety specialists,
our directors and senior managers
and external regulatory authorities.
All work-related deaths are reported to
the Associated British Foods board and
local management are held to account for
the cause and remedial action at their site.

Our approach to risk management is
designed to ensure that the risks are
assessed, the relevant precautions and
work procedures are implemented, and
that there is strong supervision. It is a key
principle that all managers are responsible
for the safety of their workforce and for
ensuring a safe working environment.
Each factory and business has safety
managers to advise and facilitate.
These principles and resources are
embedded throughout our businesses.

Gender and diversity
In our 2013 CR Report, we shared our
determination to welcome, promote
and develop women across all of our
businesses. We have two women and
seven men on the Company’s board and
overall 30% of all managers are women.
We are committed to increasing this
number in the coming years. To this
end we have put in place a number of
programmes and groups to support

Strategic report
Corporate responsibility

Gender metrics

Total

Sugar
Grocery
Ingredients
Agriculture
Retail
Central
Total

employees*

Men Women
5,842
37,487 31,645
5,274
17,133 11,859
1,662
5,430
7,092
502
1,598
2,100
54,136 14,567 39,569
105
118,209 65,255 52,954

261

156

Percentage
of women in
workforce
16%
31%
23%
24%
73%
40%
45%

Number
of senior
management

roles**
227
868
490
241
123
57
2,006

Number of
women in
senior
management
roles
33
307
132
57
46
18
593

Percentage
of senior
management
who are
women
15%
35%
27%
24%
37%
32%
30%

* Full-time, part-time and seasonal/contractors.
** Includes directorships of subsidiary undertakings.

female employees and help them
overcome any barriers they may face
in the workforce.

We have now held nine meetings of the
Women’s Business Education Forum,
a network and learning group for
high-potential and senior women. More
than 150 women have attended these
events, giving them the opportunity to
network with one another, build their
business understanding, and grow their
confidence in aspiring to leadership roles.

One of the biggest challenges that our
female employees face is returning to
work after having children. AB Sugar,
Twinings Ovaltine and our UK Grocery
businesses have introduced maternity
coaching and support to help women
manage this important transition in the
context of their professional lives.

Another aspect of promoting diversity
in the workplace is attracting young
women into our businesses. In the UK,
British Sugar and AB Agri are corporate
members of Women in Science &
Engineering, which builds relationships
with schools, universities and educational
groups. We are developing a Schools
Liaison Programme to help build a
pipeline of female leaders for the future.

Our commitment to human rights
We believe that being responsible
towards all our stakeholders is
fundamental to our responsibility as a
business. Our commitment to respect
human rights is founded in a strong ethos
of workplace safety and employee
wellbeing, and is supported by our
commitment to ensure compliance with
the UN Declaration on Human Rights.
Our commitment spans our duty to be
responsible for our people, to be a
responsible neighbour and also to be
responsible stewards of our environment.

Protecting the lives we touch is important
to us. This means doing everything we
can to respect the human rights of all our
employees and workers involved in the
supply of products and services in our
global supply chain. As a matter of good
practice, we risk-assess the impact that
our operations may have on the protection
and respect of human rights. We ensure
a greater focus on operations under the
jurisdiction of governments that have a
lesser commitment to the protection of
human rights.

As part of our commitment in this area
Primark will, by the end of 2014, have
agreed and adopted a publically available
human rights policy. Associated British

Associated British Foods Annual Report and Accounts 2014

Foods is working towards having a full
policy in place by the end of 2015.

A fuller explanation of our approach to
respecting human rights and providing
remedy where necessary can be found
at www.abf.co.uk/responsibility.

Responsible stewardship
of our environment
The aspects of our operations that have
the greatest direct environmental impact
are those related to: our use of energy
and the resultant emission of greenhouse
gases; the abstraction of water; and the
generation and disposal of liquid and
solid wastes. Our global policy and
approach to managing our environmental
impacts is to improve the efficient use
of natural resources and to minimise any
negative impact on the environment.
In 2014, our sites received 627 visits
from the environmental regulator which
is similar to the number of visits last year,
and most of which were routine.

Energy use
In 2014, our absolute use of energy was
25,416 GWh compared to 23,316 GWh
in 2013.

The year-on-year increase of 9% can
largely be explained by the reporting,
for the first time, of the additional energy
use included in the scope of greenhouse
gas reporting. For example, we are now
reporting energy used in our agricultural
operations whereas previously we
reported only energy used in our
factories, offices and stores.

We are pleased to report that 54% of
our energy is derived from renewable
sources. This is a 3% increase since
last year and demonstrates how our
businesses continue to explore reducing
dependency on fossil fuels and cut
resultant emissions. The majority of
our renewable energy comes from the
burning of sugar cane fibre once the sugar
has been extracted; this makes our on-site
energy production and use of by-products

Strategic report
Corporate responsibility

We are pleased to report that 54% of our
energy is derived from renewable sources.
This is a 3% increase since last year.

Type of energy used in 2014 (%)

5 6

1 Renewable fuels
2 Natural gas
3 Solid fuels
4 Electricity
5 Imported steam
6 Liquid fuels

54%
27%
8%
7%
2%
2%

a very efficient closed system. Across
Illovo, 93% of all energy consumed is
sourced from renewable sources.

Water usage and disposal of
waste water
Since 2010, we have made extensive
investments in developing our operational
management and reporting of water. The
majority of our businesses have robust
measurement and reporting systems in
place. A number have implemented
water efficiency programmes with the
management of water quantity and
quality as priorities. Illovo in Africa has
prepared a five-year strategic water
management plan this year. A new
methodology has been implemented
for calculating the water footprint of each
site to quantify consumption of surface
water, groundwater and rain.

We believe more work is required
to accurately measure our global
water footprint and to be confident
that data provides a fair representation
of our activities.

This year, over £6m was invested in
improving the management of effluent
and other waste water. This includes £5m
invested by our yeast business (AB Mauri)
in new, expanded or improved effluent
treatment plants in South America
and China.

Waste
In 2014 we generated 175,000 tonnes
of hazardous and non-hazardous waste
which more than halves our previous
year’s generation of such waste. This
significant reduction is due to the closure,
last year, of three beet sugar factories in
China whose soil and various filter
residues were deemed to be waste
under Chinese legislation. In addition our
businesses have continued to work hard
to find uses for what would otherwise
be deemed as waste and sent to landfill.
We have increased our recycled or reused
waste this year by 10% to 942,000

tonnes, thereby diverting more material
from increasingly scarce landfill sites.

Our high recycling rate is the positive
outcome of focused attention by our
businesses on improving their waste
segregation and disposal management.
This includes a range of site specific
activities such as engaging with new
waste management contractors and
improving waste segregation to allow
for targeted reuse. Our waste recycling
results in a wide range of applications
including: environmental restoration
and landscaping; soil pH treatment and
fertiliser; the production of paper; and
energy generation. We also recycle a
number of by-products including plastic,
paper and cardboard, metal, glass, mud
and ash.

Packaging
The quantity of packaging used in our
products since 2013 has been reduced
by 3% from 238,000 tonnes to 230,000
tonnes. This continues a long-term
downward trend in packaging use
since 2008.

Responsible sourcing of palm oil
Over recent years, we have increased
our focus on ethical procurement,
adapting to emerging customer
expectations and our own improved
understanding of the environmental
impacts potentially associated with our
products. Ultimately, we strive for a
global farming system and environment
that is sustainable.

In 2013, we reported that all our grocery
businesses were committed to the
responsible sourcing of palm oil and,
by 2015, will use only RSPO certified
palm products.

We have strengthened this commitment
and are now working towards all of our
businesses being 100% compliant in
sourcing only RSPO certified sustainable
palm oil products.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Corporate responsibility

Since 2008 we have been able to report a
downward trend in the total Lost Time Injuries
to our employees each year.

Reportable injuries
(reportable according to the differing laws
of each country)

551

514

445

443

372

2010

2011

2012

2013

2014

Reportable injury rate

0.70%

0.61%

0.51%

0.49%

0.40%

2010

2011

2012

2013

2014

These facts demonstrate the continued
importance of investing in the strong
safety culture of our business.

Safety fines
During 2014, four sites received fines
totalling £31,000 for breaches of safety
regulations which is a reduction of 29%
from 2013. All businesses are required
to report to the group when and how
remedial actions are implemented.

Being a responsible neighbour
A good business takes seriously its
responsibility to treat the people who live
close to its operations with respect and in
a neighbourly manner. We seek to be
welcomed around the world as a positive
contributor to the life of the community.

Illovo Socio-Economic and Human
Capital Impact
In 2013 Illovo, having identified
community collaboration as a key
strategic priority, invited sustainability
experts Corporate Citizenship to conduct
two research projects on its operations
in southern Africa. One area of research
focused on human capital and the role
the business has in supporting the skills,
health and education levels of local
communities. The other research project
focused on the socio-economic impact
of the business.

This research revealed that Illovo
contributed an estimated £1bn to
African economies last year which is
equivalent to about 50% of the GDP of
Malawi. As well as directly employing
29,000 people, it supports the livelihoods
of more than 400,000 people. It also
contributed £10.8m in social benefits
to employees and neighbouring
communities, including healthcare,
education, housing and other projects.

Being responsible for our people
A business priority is to safeguard the
wellbeing, development and safety of
our people and those who work with us.
We put significant effort into ensuring that
our businesses are safe places to work
and aim to offer our people the support
most suitable for their role. During 2014,
we invested £32m in ensuring the safety
of our equipment and improving working
conditions for our people.

Health and safety
Providing safe and healthy working
conditions are of paramount importance.
We try very hard to reduce injuries in
every location and have a clear
requirement for continuous improvement.
During 2014 we received 425 visits from
safety regulatory authorities, fewer than
the 509 visits we received last year.
The regulator visits were mainly routine
but also included accident investigations.
We ensure that any findings from
regulators are acted upon immediately.

Injuries to our employees
This is the fifth consecutive year that we
have reported a reduction in reportable
injuries. In 2014 reportable injuries have
fallen by a further 16%.

The percentage of employees having
a reportable injury has reduced from
0.49% of our total workforce in 2013
to 0.40% in 2014.

Since 2008, we have been able to report
a downward trend in the total Lost Time
Injuries to our employees each year. In
2014, these totalled 537 which was 6%
lower than last year and 45% lower than
2008. This equates to a reduction of 3%
in the number of employee days lost due
to Lost Time Injuries compared with last
year. In total, 386 of our sites did not have
a Lost Time Injury. For our reporting
purposes, a Lost Time Injury arises out of
or in connection with ABF work activities
and results in the employee being absent
from work for at least one day, or shift,
within 12 months of the accident.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Corporate responsibility

community level when attempting to
limit the spread of a disease. This benefits
our workforce, but also their families
and neighbours.

In southern Africa, malaria is a persistent
threat and Ilovo Sugar has invested in
an integrated malaria control strategy.
In Mozambique, Ilovo Sugar is working
with the government to expand its
programme of home spraying into the
local community. In one community in
Mozambique, this resulted in a 62% drop
in recorded cases of malaria in a year.

Twinings Ovaltine works with three
international NGOs, UNICEF, Save
the Children and Mercy Corps, on
programmes designed to improve the
health of workers and wider communities.
All three partnerships continue to deliver
positive results.

In India, Twinings Ovaltine’s collaboration
with UNICEF and local tea producers in
Assam is aimed at improving the lives of
7,000 women living with family members
who work on tea gardens. The project
was launched in 2011 and, by March
2014, anaemia levels in adolescent girls
living on tea estates had been reduced by
13% and the proportion of girls who are
chronically malnourished had been
reduced by a third. Twinings Ovaltine is
continuing to work with UNICEF in this
region, evolving this project to protect
34,000 girls in 63 tea gardens by 2017.

Helping Mexican craft bakers thrive
AB Mauri wanted to both understand
its customers and help them succeed
so it set about analysing the craft bakery
sector in Mexico. It found that there was a
wide range of barriers to success, from a
lack of knowledge to a lack of willingness
to adapt to new market conditions. It also
found that small bakers were uncertain
about how to secure new funding and
invest wisely. A multi-year initiative,
Project Lighthouse, aims to redevelop 100
craft bakeries around Mexico. AB Mauri
has committed to being a supportive
partner with credible experience and
knowledge to help these bakers thrive.
The first store to benefit from the project
has seen revenues increase by 40% with
queues forming at busy times.

Being responsible for promoting
good health
Promoting good health is a principle
our businesses put into action every
day. At the most direct level, this means
striving for the highest standards on
food safety and improving the nutritional
content of our food and ingredients.
Where we have less control, we aim to
use our influence to improve the health
of the people around us by implementing
employee wellbeing programmes and
supporting the health of workers in
developing countries.

Making our products even better
We continue to explore ways in which
to improve the nutritional content of our
products, particularly by adding nutrients
or reducing the proportion of fat and
sugar. Maintaining great tasting products
is a crucial part of this reformulation
activity: we want to help people eat better
while still enjoying the products they love.

balance of its portfolio over time.
They have reformulated the Original
Crunchy bar which now contains
23% less fat, 24% less sugar and
62% less saturated fat.

We can also improve the nutritional value
of a product by adding to it. In March
2014, Allied Milling and Baking launched
Kingsmill Great White in the UK which has
the same amount of fibre as wholemeal
bread. See page 17 for more information.

Helping our people to be healthy
In addition to considering the health
benefits of our products, many of our
businesses have programmes in place
to help staff stay fit and well. These
initiatives help to improve health, boost
morale and lower staff absence, making
them good for business as well as for
our teams.

AB Sugar signed the UK government’s
Public Health Responsibility Deal pledge
on physical activity and introduced a
new ‘Future Fit’ programme for staff;
Speedibake devoted a week in August
2014 to events and presentations;
and George Weston Foods has
introduced a new training module
on Health and Wellbeing.

In September 2013, Azucarera signed
the Luxembourg Declaration on
Workplace Health Promotion, signalling
the company’s commitment to
improving the health of their employees
and promoting wellbeing at work. Since
then, Azucarera has implemented a
number of health campaigns including
offering vaccines and monitoring the risk
factors of cardiovascular disease (such as
weight gain and elevated blood pressure)
in its workers.

Jordans Ryvita has sought guidance
from leading academics to create a
science-based nutrition strategy
supported by targets to improve the
composition of its products and the

Promoting good health in
communities
For our businesses in developing
countries, health challenges are
sometimes best addressed at the

Associated British Foods Annual Report and Accounts 2014

Strategic report
Principal risks and uncertainties

Our decentralised business model empowers
the boards and management of our businesses
to identify, evaluate and manage the risks they
face on a timely basis.

PRINCIPAL RISKS
AND UNCERTAINTIES

procedures and controls are put in place
to mitigate risks and all employees are
provided with appropriate information,
training and supervision. Further details
of our risk mitigation activities can be
found in our Corporate Responsibility
Report at www.abf.co.uk/responsibility.

The board reviews annually the material
financial and non-financial risks facing
our businesses and, on a rolling cycle
basis, reviews the effectiveness of
the risk management process and the
resources that our individual businesses
devote to them. The principal risks
currently identified by our businesses
and reviewed by the board are detailed
on the following pages.

Each business is responsible for its own
risk management assessment which is
reported to the group’s Director of
Financial Control annually. Our
decentralised business model empowers
the boards and management of our
businesses to identify, evaluate and
manage the risks they face on a timely
basis. Key risks and internal control
procedures are reviewed at group level
by the board.

We require all businesses to implement
appropriate levels of risk management
to ensure compliance with all relevant
legislation, our group health, safety and
environment policies, our overriding
business principles and group policies
relating to them, taking into account
business needs and local circumstances.

Each business is responsible for regularly
assessing its health, safety and
environmental risks with managers,
operators, contracting companies and
specialist staff working together to
identify hazards. Appropriate operational

Associated British Foods Annual Report and Accounts 2014

Strategic report
Principal risks and uncertainties

PEOPLE

Issue

Product safety

Health and
nutrition

Workplace
health and
safety

Management
succession

Risk

Mitigation

Reputational damage
caused by food hygiene or
product safety incidents.

Non-compliance with
regulatory requirements.

Public concerns over
materials used in packaging
and ingredients in products.

Food safety is put before economic considerations.

Our businesses employ quality control specialists and operate strict policies to ensure
consistently high standards are maintained in our operations and in the sourcing and
handling of raw materials.

Food safety systems are regularly reviewed for efficacy and legal compliance.

We participate in independent food health and safety audits. Quality and food safety
audits are undertaken at our manufacturing sites.

Documented and tested product recall procedures are embedded in all our businesses
and are regularly reviewed.

We proactively monitor the regulatory and legislative environment as well as emerging
scientific research.

Health concerns over fat,
salt and calorie content
of foods.

Responding correctly
to the spectrum of food
poverty and malnutrition
versus obesity.

Inappropriate advertising
to children.

Recipes are regularly reviewed and reformulation is conducted to improve the
nutritional value of products, with a focus on reducing fat, salt and calorie content
where possible.

Our UK Grocery group has signed the UK government’s ‘Public Health Responsibility
Deal’ and associated pledges to reduce salt, remove trans fats and promote healthy
eating and lifestyle options.

All of our grocery products are labelled with nutritional information.

Our UK Grocery portfolio contains only a small number of products specifically intended
for children. These products are marketed responsibly, following accepted codes of
practice and within the parameters of a clear, operational business policy.

We are looking further to continue programmes related to health and nutrition, and to
develop partnerships to help educate people about health and nutrition.

Potential for fatal accidents
and serious injuries to
employees, contractors
and visitors.

Loss of healthy workforce
and supply chain due to
diseases such as HIV/AIDS,
TB and malaria in high-risk
countries.

Group Health and Safety Policy and practices are embedded with a strong ethos of
workplace safety across the group. We maintain a programme of audits to verify
implementation and support continuous improvement.

Accountable senior executives and specialists are appointed.

We provide health and safety training and continue to share guidance and best practice
with our businesses.

We have extended the internal and external auditing of health, safety and management
reporting.

We continue to invest in health and safety management.

Failure to plan for succession
to key roles could lead to a
lack of management
continuity and suboptimal
operational or financial
performance.

Each business has a succession plan which is reviewed with group management twice
a year, and with the board annually.

Development of our senior managers is co-ordinated by the Group HR Director and the
Head of Executive Development.

A small number of executive search companies have been briefed to introduce us to
talented executives from other companies who could add value to the group.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Principal risks and uncertainties

PEOPLE

Issue

Suppliers and
supply chain
reliability

Ethical business
practices

Risk

Mitigation

Damage to brands
caused by supply chain
weakness, e.g. poor
conditions for workers.

Problems with supply
reliability caused by
natural disasters and
other incidents.

Understanding the
sustainability and
responsible business
practices of our suppliers.

Unacceptable business
practices which contravene
our business principles.

Reputational damage
through the irresponsible
business practices of
individuals.

Penalties imposed through
bribery, corruption or unfair
competition.

Maintain programme of supplier audits where appropriate. Extensive audit programme
for labour standards of suppliers.

We have introduced a Supplier Code of Conduct which is being implemented across
all our businesses, tailored to their requirements.

We continue to work, in partnership with suppliers and NGOs, to improve working
conditions, e.g. via training.

Continued focus on worker safety and safe working conditions. We have built up an
intensive programme of ethical audits in Primark’s supply chain.

Primark has maintained its classification as a leader, by the Ethical Trade Initiative,
and we are mapping second tier suppliers (subcontractors).

The Grocery division conducts independent reviews of the environmental and ethical
risks in their supply chain to increase understanding.

External communication and transparency on the management of our supply chain
in Primark and Grocery has been enhanced.

Business continuity and disaster recovery plans are regularly reviewed.

All businesses are signed up to the group’s Business Principles and Anti-Bribery and
Corruption Policy.

A programme of training and compliance has been implemented for all employees.

Appointment of anti-bribery and corruption specialists.

Businesses work co-operatively to ensure visibility of reputational risk within supply
chains and draw upon best practice management expertise across the group including
Primark and Twinings.

ENVIRONMENT

Issue

Risk

Mitigation

Environment
management
including climate
change

Water use and
availability

Long-term increase in
energy prices.

Physical threats to
operations from climate
change, e.g. flooding.

Climate change impact
altering growth rates of raw
materials we use.

Increasing cost to operations
to adapt to climate change
and mitigate impact.

Negative impact on the
environment and the
communities which
depend on land used by
our operations.

Securing access to sources
of water and maintaining
water availability for all.

Ensuring good practices
in sharing and managing
water supplies with local
communities.

Operating in water
stress areas.

Compliance with the group’s Environment Policy and annual reporting of
environmental impact.

Best available techniques are employed to reduce energy consumption – statutory
requirement for all sites subject to the EU’s Pollution Prevention and Control regime.

Agricultural raw materials are sourced from a wide range of geographical locations
and suppliers.

We have a continued focus on reducing our environmental impact and implementing
changes to our operations to maximise opportunities such as recycling more waste
and using more renewable sources of fuel.

We have implemented infrastructural protections against weather-related risks
such as floods.

Greenhouse gas emissions are measured and reported annually and are subject
to assurance by KPMG LLP.

Substantial investment is made to improve environmental risk management, with
a focus on energy efficiency when investing in new capital projects.

Water-intensive sites in areas of water stress identified, and efforts focused on water
efficiencies in these areas.

Investing heavily in the quality of our water usage data to enable improved
measurement and management of water use and water quality.

Investment in irrigation systems.

Look to build long-term partnerships to address water issues at a local level.

Finalise the standardised approach to water measurement across the group so that
we can target investment and build an effective water stewardship.

Associated British Foods Annual Report and Accounts 2014

Strategic report
Principal risks and uncertainties

FINANCIAL AND REGULATORY

Issue

Risk

Mitigation

Competition rules

Financial, currency
and commodity risks

Penalties for failing to comply with the 1998
Competition Act, the 2003 Enterprise Act,
relevant EU law and all relevant competition
legislation.

Loss sustained as a result of failure of internal
controls or fraud, and exposure to foreign
currencies, interest rates, counterparty credit
risk, liquidity risk, and changes in market prices
especially for energy and commodities.

Clear policy direction and close support from specialist in-house
legal department.

Compulsory awareness training.

Adherence to the group’s financial control framework and
anti-fraud policy.

Treasury operations are conducted within a framework of
board-approved policies and guidelines.

Sufficient funding is maintained by way of external loans and
committed bank facilities, which are renewed or extended
on a timely basis, having regard to the group’s projected
funding needs.

Financial transactions are dealt through financial institutions with
a credit rating of A or better. Details of the group’s accounting
and risk management policies with respect to financial
instruments and associated quantitative and qualitative
disclosures are set out in note 24 on pages 118 to 127.

Tax compliance

Failure to comply with local tax law resulting in
underpayment of tax and exposure to related
interest and penalties.

The group has a financial control framework and a board adopted
tax policy requiring all businesses to comply fully with all relevant
local tax law.

IT security breach

Data loss or theft.

Business disruption.

Provision is made for known issues based on management’s
interpretation of country-specific tax law and the likely outcome.
Any interest and penalties on tax issues are provided for in the
tax charge.

Group IT Security policies and procedures are rolled out across
the businesses.

Employee awareness campaigns are undertaken to highlight key
activities to minimise IT security risks.

Technical security controls are in place over key IT platforms.

Head of IT Security is tasked with identifying security risks and
working with the businesses to implement mitigating controls.

Internal audit reviews of compliance with policies and procedures
are undertaken.

Loss of a major site

The loss of one of our key sites could present
significant operational difficulties.

Our businesses have in place business continuity plans to
manage the impact of such an event and group insurance
programmes to mitigate the financial consequences.

Regulatory and
political

Failure to recognise political or cultural
differences in the many countries in which we
operate could directly impact the success of
our operations.

Proposals to end sugar quotas in 2017.

We remain vigilant to future changes and the risk presented by
operating in emerging markets.

We engage with governments and NGOs to ensure the views
of our stakeholders are represented and we try to anticipate,
and contribute to, important changes in public policy.

Major capital
projects and
acquisitions

Risk of overspending initial cost estimates,
overrunning construction timelines and failure
to meet design specifications.

Our financial control requirements are consistently applied
wherever we operate.

All major projects are managed by dedicated teams who work
in close liaison with business management.

Project plans are reviewed and approved by group management
and, for larger projects, by the board. Updates on progress are
provided throughout the project.

On behalf of the board.

Charles Sinclair
Chairman

George Weston
Chief Executive

John Bason
Finance Director

Associated British Foods Annual Report and Accounts 2014

Governance
Board of directors

BOARD OF DIRECTORS

Charles Sinclair
Chairman (age 66)
Charles was appointed a non-executive
director in October 2008 and as Chairman
in April 2009. With wide business experience
of both the UK and overseas, his executive
career was latterly with Daily Mail and
General Trust plc, where he was chief
executive from 1989 until he retired from
that role and the board in September 2008.

Committee membership: Chairman of the
Nomination and Remuneration committees.

George G Weston
Chief Executive (age 50)
George was appointed to the board in 1999
and took up his current appointment as Chief
Executive in April 2005. In his former roles at
Associated British Foods, he was Managing
Director of Westmill Foods, Allied Bakeries
and George Weston Foods Limited (Australia).

Other appointments: He is a non-executive
director of Wittington Investments Limited and
a trustee of the Garfield Weston Foundation.

Emma Adamo
Non-executive director (age 51)
Emma was appointed as a director in
December 2011. She was educated at
Stanford University and INSEAD in France.

Other appointments: She is a director of
Wittington Investments Limited, and of the
W Garfield Weston Foundation in Canada.

John Bason
Finance Director (age 57)
John was appointed as 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.

Other appointments: He is a non-executive
director of Compass Group PLC, a trustee
of Voluntary Service Overseas and deputy
chairman of the charity FareShare.

Associated British Foods Annual Report and Accounts 2014

Ruth Cairnie
Independent non-executive director
(age 60)
Ruth was appointed a director in May 2014.
She has extensive overseas experience
including international marketing and supply
chain. Ruth was formerly Executive Vice
President Strategy & Planning at Royal Dutch
Shell Plc. This role followed a number of
senior international roles within Shell, including
Vice President of their Global Commercial
Fuels business. She is a physicist by
qualification.

Other appointments: She is a non-executive
director of Keller Group plc and of Rolls-Royce
Holdings plc.

Committee membership: Member of the Audit and
Remuneration committees.

Lord Jay of Ewelme GCMG
Independent non-executive director
(age 68)
Lord Jay was appointed a director in November
2006 and has broad experience of government
and international business. During his career in
public service he was British Ambassador to
France from 1996 to 2001 and Permanent
Under Secretary at the Foreign &
Commonwealth Office from 2002 to 2006.

Other appointments: He is a non-executive
director of Candover Investments plc, Valeo
(the French-based automobile parts company)
and of Electricité de France. He has been an
independent member of the House of Lords
since 2006. He is also chairman of the British
Library Advisory Council.

Committee membership: Member of the Audit,
Nomination and Remuneration committees.

Governance
Board of directors

Timothy Clarke
Independent non-executive director
(age 57)
Tim was appointed a director in November
2004 and has been Senior Independent
Director since December 2007. Tim has
extensive experience of retailing. Until 2009,
he was chief executive of Mitchells &
Butlers plc, following its demerger from
Six Continents PLC where he also held the
position of chief executive. Previously he
had been a partner of Panmure Gordon & Co
before joining Bass PLC in 1990.

Other appointments: He is a non-executive
director of two pub and brewing companies,
Hall & Woodhouse Limited, and Timothy Taylor
& Company Limited, and also Triple Point VCT
2011 PLC.

Committee membership: Member of the
Nomination and Remuneration committees.

Peter Smith
Independent non-executive director
(age 68)
Peter was appointed a director in
February 2007 and brings broad experience
of international financial matters.
Formerly, he was senior partner at
PricewaterhouseCoopers (PwC) in the UK.
He served for two years as chairman of
Coopers & Lybrand International and as a
member of the global leadership team of
PwC. He was also chairman of RAC plc and
a non-executive director of Safeway plc.

Other appointments: He is chairman of
Savills plc and Templeton Emerging Markets
Investment Trust plc, and a member of the
supervisory board of Paris Orléans SCA. He is
also chairman of the Land Restoration Trust.

Committee membership: Chairman of the Audit
committee and a member of the Nomination and
Remuneration committees.

Javier Ferrán
Independent non-executive director
(age 58)
Javier was appointed a director in November
2006. He spent the earlier part of his career
with Bacardi Group, where latterly he served
as president and chief executive officer.
He has in-depth knowledge of consumer
brands on an international basis and of
international financing.

Other appointments: He is currently a partner
at Lion Capital LLP, a London-based private
equity firm.

Committee membership: Member of the Audit,
Nomination and Remuneration committees.

Associated British Foods Annual Report and Accounts 2014

Governance
Corporate governance

CORPORATE GOVERNANCE

Dear shareholder
Maintaining and promoting a high standard of corporate governance remains fundamental to the board’s ability to discharge its duties
to shareholders and it is central to my role as Chairman of Associated British Foods.

As I have already highlighted in my Chairman’s statement on page 5, in May, we were delighted to welcome Ruth Cairnie to the
board as an independent non-executive director. Ruth brings a wealth of strategic and international experience and her appointment
broadens the range of perspectives on the board. The formal, rigorous process by which Ruth was appointed is described in the
Nomination committee report on page 59.

I believe that Associated British Foods already benefits from a strong, cohesive board. However we will continue to assess and refresh
the composition of the board to maintain an appropriate balance and diversity of skills and experience and to ensure that it evolves in
line with the group’s needs.

After a successful externally facilitated board evaluation carried out in 2012, we undertook evaluations internally both last year and in
the year under review. In last year’s report we set out a number of key points identified for action and I have monitored the progress in
implementing these actions during the year. On page 55, we report on the progress made and provide a description of the process we
used in this year’s evaluation exercise, along with a summary of the key findings.

At this year’s annual general meeting, all the directors will stand for election or re-election. During the year under review, the Financial
Conduct Authority introduced changes to the listing regime which focused on companies such as Associated British Foods with a
controlling shareholder. One of the new requirements arising out of these enhanced regulations is that our independent non-executive
directors will be subject to a dual vote by shareholders at the annual general meeting to be held in December. As set out in the
Explanatory notes accompanying the Notice of AGM, this means that each resolution to elect or re-elect an independent non-executive
director must be approved by both a majority vote of all shareholders and a majority vote of the Company’s independent shareholders.

In the following pages, we outline our approach to governance and I hope that we are able to demonstrate clearly how our corporate
governance practices support our strategy to create sustainable, long-term growth for shareholders. We will continue to keep our
corporate governance practices under review, particularly in light of the updated version of the UK Corporate Governance Code
published in September this year, which first applies to companies with financial years beginning on or after 1 October 2014. We
welcome questions or comments from shareholders either via our website www.abf.co.uk or in person at the annual general meeting.

Charles Sinclair
Chairman

Compliance with the UK Corporate
Governance Code
As a premium listed company on the
London Stock Exchange, the Company
is reporting in accordance with the UK
Corporate Governance Code published in
September 2012 (the ‘Code’) which sets
out standards of good practice in relation
to board leadership and effectiveness,
remuneration, accountability and relations

with shareholders. The Code is published
by the UK Financial Reporting Council
(‘FRC’) and a copy of the Code is available
from the FRC website (www.frc.org.uk).

The board considers that the Company
has, throughout the year ended 13
September 2014, applied the main
principles and complied with the
provisions set out in the Code, with
the following exception:

Code provision

Status

Explanation

D.2.1 – The
Chairman should
not chair the
Remuneration
committee

Charles Sinclair is
both Chairman of
the Company and
chairman of the
Remuneration
committee.

The board of Associated British Foods plc
considers that Charles Sinclair, due to
his experience, is best suited to chair
this committee. No director has any
involvement in the determination of his
own remuneration. The board believes
that the Company has maintained
robust governance while at the same
time benefiting from having Charles
Sinclair as the chairman of the
Remuneration committee.

Leadership
The board
The board is collectively responsible to
the Company’s shareholders for the
direction and oversight of the Company to
ensure its long-term success. The board
met regularly throughout the year to
approve the group’s strategic objectives,
to lead the group within a framework of
effective controls which enable risk to be
assessed and managed and to ensure
that sufficient resources are available to
meet the objectives set.

The board has agreed the specific
business and governance matters which
are reserved for its decision to help it
discharge these responsibilities and
oversee control of the Company’s affairs.
This schedule of matters reserved for
the board’s approval includes:

• annual business strategy and

objectives, budget and forecasts;

• monitoring delivery of the group’s
business strategy and objectives;

Associated British Foods Annual Report and Accounts 2014

Governance
Corporate governance

• changes to the Company’s capital,
management or control structures;

• dividend policy and dividend

recommendation;

• tax and treasury policies;

• trading statements, interim results,

interim management statements, final
results, annual report and accounts;

• the overall system of internal control

and risk management;

• major capital projects, corporate actions

or related actions and investment;

• communications policy including

procedures for the release of price
sensitive information;

• changes to the structure, size and

composition of the board;

• appointment of directors and the

Company Secretary; and

• material changes to pension plans or
the introduction of new schemes.

Certain specific responsibilities are
delegated to the board committees,
notably the Audit, Remuneration and
Nomination committees, which operate
within clearly defined terms of reference,
and report regularly to the board. For
further details, please see ‘Board
committees’ section below.

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 to ensure that
no-one has unfettered powers of
decision. The Chairman, Charles Sinclair,
is responsible for the operation and
leadership of the board, ensuring its
effectiveness and setting its agenda.
The Chief Executive, George Weston,
is responsible for leading and managing
the group’s business within the
authorities delegated by the board and
the implementation of board strategy
and policy.

Senior Independent Director
Tim Clarke is the Company’s recognised
Senior Independent Director. The role of
the Senior Independent Director is to act
as a sounding board for the Chairman and
to serve as an intermediary for other
directors where necessary. He is also
available to shareholders should a need
arise to convey concerns to the board
which they have been unable to convey

through the Chairman or through the
executive directors. During the year, led
by the Senior Independent Director, the
non-executive directors met once without
the presence of the Chairman to appraise
his performance.

The non-executive directors
In addition to their responsibilities for
strategy and business results, the
non-executive directors play a key role
in providing a solid foundation for good
corporate governance and ensure that
no individual or group dominates the
board’s decision-making. They each
occupy, or have occupied, senior
positions in industry or public life, bringing
a valuable external view to the board’s
deliberations through their experience
and insight from other sectors enabling
them to contribute significantly to board
decision-making. The formal letters of
appointment of non-executive directors
are available for inspection at the
Company’s registered office.

Election and re-election of directors
In accordance with the Code’s
recommendations, all directors will be
proposed for election or re-election at
the 2014 annual general meeting to be
held in December.

Board meetings
The board held eight meetings during the
year. Periodically, board meetings take
place overseas and, during the year
under review, one of the meetings was
held in Marseille. The board visited the
Primark store in Marseille providing the
non-executive directors in particular
with the opportunity to meet local
management and other employees.

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. Papers for board and
committee meetings are generally
provided to directors a week in advance.

The attendance of the directors at board
and committee meetings during the year
to 13 September 2014 is shown in the
table below.

Board committees
The board has established three principal
board committees, to which it has
delegated certain of its responsibilities.
These are the Audit committee, the
Nomination committee, and the
Remuneration committee. The
membership, responsibilities
and activities of these committees
are described later in this corporate
governance report and, in the case of
the Remuneration committee, in the
Remuneration report on page 78.
Membership of these committees is
reviewed annually. Minutes of committee
meetings are made available to all
directors on a timely basis.

The chairman of each of the Audit,
Nomination and Remuneration
committees intend to be present at
the annual general meeting to answer
questions on the work of their
respective committees.

The full written terms of reference for
the Nomination, Audit and Remuneration
committees are available on the
Company’s website (www.abf.co.uk)
and hard copies are available on request.

Directors’ insurance
The Company has in place appropriate
directors’ and officers’ liability insurance
cover in respect of legal action against its
executive and non-executive directors,
amongst others.

Charles Sinclair
George Weston
John Bason
Emma Adamo
Ruth Cairnie1
Tim Clarke
Javier Ferrán2
Lord Jay
Peter Smith

Board

Audit
committee

Nomination
committee

Remuneration
committee

8/8
8/8
8/8
8/8
3/3
8/8
7/8
8/8
8/8

–
–
–
–
2/2
–
5/5
5/5
5/5

1/1
–
–
–
–
1/1
0/1
1/1
1/1

6/6
–
–
–
3/3
6/6
6/6
6/6
6/6

Ruth Cairnie was appointed as a director, and as a member of the Audit and Remuneration committees,
with effect from 1 May 2014.
Javier Ferrán was unable to attend a board meeting and Nomination committee meeting because of
other business and personal commitments. However, he reviewed the relevant papers and provided
comments as appropriate to the Chairman.

Associated British Foods Annual Report and Accounts 2014

Governance
Corporate governance

The work of the board during the year
During the financial year, key activities of
the board included:

Strategy
• Annual discussion focusing on strategy.

• Expansion of Primark into the US

including visits to the Boston area by
a number of directors.

Governance and risk
• Approving the Company’s full year and

interim results.

• Recommending the 2013 final dividend

and approving the 2014 interim
dividend.

• Annual review of the material financial

and non-financial risks facing the
group’s businesses.

• Receiving both regular divisional food

safety updates and an annual
groupwide update.

• Participating in the annual board

performance evaluation and receiving
a report on the evaluation.

• Receiving regular updates on

regulatory matters.

• Confirming directors’ independence.

Performance monitoring
• Receiving regular reports to the board

from the Chief Executive.

• Receiving, on a rolling 18-month basis,

senior management presentations
from each of the group’s business
areas.

• Approving the group budget for the

2014/15 financial year.

• Undertaking an annual impairment
review of goodwill and property,
plant and equipment.

• Receiving regular feedback on
directors’ meetings held with
institutional investors.

• Receiving reports from the Audit

committee chairman.

Corporate responsibility
• Approving the Corporate Responsibility

Report 2013 and 2014 updates.

• Receiving regular management reports

on health, safety and environment
issues.

• Receiving an update on Primark

ethical sourcing.

People
• Appointment of Ruth Cairnie as an
independent non-executive director.

• Receiving and considering updates
on senior management succession
planning and people activities.

Various
• Approving updated terms of reference

for the Audit committee and the
Remuneration committee.

• Undertaking appropriate preparations
for the holding of the annual general
meeting and, subsequently, discussing
issues arising from that meeting.

Effectiveness
Board composition
At the date of this report, the board
comprises nine directors:

Chairman
Charles Sinclair

Executive directors
George Weston (Chief Executive)
John Bason (Finance Director)

Non-executive directors
Emma Adamo
Ruth Cairnie
Tim Clarke
Javier Ferrán
Lord Jay
Peter Smith

Ruth Cairnie was appointed as a
non-executive director with effect from
1 May 2014.

Emma Adamo is not considered as
independent by the board in view of her
relationship with Wittington Investments
Limited, the Company’s majority
shareholder. She was appointed in
December 2011 to represent this
shareholding on the board of the
Company. The board considers that the
other five non-executive directors are
independent in character and judgement
and that they are each free from any
business or other relationships which
would materially interfere with the
exercise of their independent judgement.

The board continues to keep Tim Clarke’s
independence under review, being
mindful that the Code requires that, if a
director has served on the board for more
than nine years, the board should state its
reasons why it considers the director,
notwithstanding his or her length of
service, to be independent. Having given
the matter careful consideration, the
board is satisfied that Tim Clarke
continues to demonstrate the qualities
of independence in carrying out his role
as a non-executive director and Senior
Independent Director, supporting the
team in an objective and independent
manner. Tim will retain his role as Senior
Independent Director and will offer
himself for re-election at this year’s annual
general meeting. The board will continue
to keep his independence under review.

Biographical and related information
about the directors is set out on pages
50 and 51.

Appointments to the board
There is a formal, rigorous and
transparent procedure for the
appointment of new directors to the
board. Details are available in the
Nomination committee report set out
on page 58 which also provides details
of the committee’s role and activities.

Commitment
The letters of appointment for the
Chairman and the non-executive directors
set out the expected time commitment
required of them and are available for
inspection by any person during normal
business hours at the Company’s
registered office and at the annual general
meeting. Other significant commitments
of the Chairman and non-executive
directors are disclosed on appointment
and require approval thereafter.

Board development
The Chairman, with the support of the
Company Secretary, is responsible for
the induction of new directors and the
continuing development of directors.

Associated British Foods Annual Report and Accounts 2014

Governance
Corporate governance

Board induction – Ruth Cairnie
Ruth Cairnie joined the board as a
non-executive director on 1 May 2014 and
undertook a formal, tailored programme
of induction facilitated by the Chairman
and the Company Secretary.

The purpose of the induction programme
was to familiarise Ruth with the way
the group operates through its five
strategic business segments and
with its governance arrangements.
The programme took into account
Ruth’s experience and business
perspectives and the committees on
which she is to serve. New directors are
encouraged to accelerate their knowledge
of the group by visiting a number of its
businesses and operations.

Key elements of the induction
programme and site visits undertaken by
Ruth following her appointment to date
are set out below:

Board and governance
• Legal and regulatory duties of a UK

listed company director.

• The board and committee structure,
schedule of matters reserved to the
board for its decision and committee
terms of reference.

• Restrictions and process for dealing

in the Company’s shares.

• Procedure for dealing with board

conflicts.

• The group’s approach to corporate

responsibility and diversity.

Management meetings
and site visits
• Visit to Twinings’ site at Andover and
attending budget review meeting.

• Attending budget review meetings

for AB Mauri, AB Ingredients,
AB Sugar and George Weston Foods.

• AB Vista site visit, including meetings

with senior management.

• Visit to AB Agri, including meetings

with members of the senior
management team.

• AB Sugar site visit and meetings with

senior management.

• Audit committee briefing with the

Group Financial Controller.

• Remuneration committee briefing

with the Group HR Director and Head
of Reward.

• Visit to George Weston Foods in
Australia including meetings with
senior management and site visits
to Castlemaine and Chullora.

Training and development
The board is kept up-to-date on legal,
regulatory and governance matters
through regular papers from the Company
Secretary and by presentations from
internal and external advisers. During
the year, the board received updates on
developments in narrative reporting and
executive remuneration reporting, the
impact of the UK and EU reviews of the
audit market and other corporate
governance developments.

Information flow
The Company Secretary manages the
provision of information to the board at
appropriate times in consultation with the
Chairman and Chief Executive. 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, if this is thought
necessary. Regular management
updates are sent to directors to keep
the non-executive directors informed
of events throughout the group between
board meetings and to ensure that they
are kept fully advised of the latest issues
affecting the group.

Board performance evaluation
An evaluation to assess the performance
of the board as a whole, its committees
and that of the individual directors is
conducted annually, with the aim of
improving the effectiveness of the board
and its members and the performance of
the group.

This year’s review, which took place in the
final quarter of the financial year, was led
by one of the independent non-executive
directors, Lord Jay, together with
non-executive director, Emma Adamo.

Process
A discussion guide was prepared and
circulated to each director and the
Company Secretary. This included the
following topics, which formed the
agenda around which each discussion
was framed:

• risk management and governance –
including the expanded role of the
board in reviewing certain risk and
governance issues such as food
safety, project management,
environmental responsibility, health
and safety, ethics and supply chain
and management succession;

• board structure, organisation and

dynamics – covering the combination
of skills, experience, knowledge and
diversity (including gender diversity),
the clarity of leadership given to the
organisation’s purpose, direction and
values, how well the board works as
a unitary body, the individual and
collective contribution of all members
to the working of the board;

• board efficiency and effectiveness –
considering whether agendas are
appropriately focused on strategy,
performance, value creation and
accountability, the quality of divisional
presentations, the adequacy of time
devoted to exchange of views and
discussion before key decisions are
taken, the content of board papers
on investment decisions including
the rigour with which assumptions
have been tested, leadership by the
Chairman, and the quality of strategic
review and debate;

• business performance – including the
level and quality of reporting measures
on business performance, the trading
updates provided to the board by the
Chief Executive and whether these
provide an appropriate degree of insight
into the key opportunities and
challenges facing the group;

• people issues – covering management
development and succession planning,
the board’s exposure to senior
divisional management, the group’s
ability to attract sufficient talent to
meet the group’s needs, and
remuneration strategy;

• board committees – considering
whether each key committee is
working effectively, addressing the
key issues and being effectively
chaired, assessing whether the quality
and clarity of information provided and
depth of debate is in each case
satisfactory and whether committee
activities are reported back to the board
in appropriate detail; and

• key issues for 2014 – both strategic

and operational.

Lord Jay and Emma Adamo undertook a
confidential, unattributable interview with
each director, the Company Secretary and
each other based on the discussion guide.
Following the meetings, Lord Jay and
Emma Adamo produced a written report,
which was discussed with the Chairman

Associated British Foods Annual Report and Accounts 2014

2015 evaluation
In accordance with the Code requirement
that the annual performance evaluation
should be conducted by an external
facilitator at least every three years, the
board intends to appoint an external
facilitator to lead the 2015 evaluation.

Conflicts of interest procedure
The Company has procedures in place to
deal with the situation where a director
has a conflict of interest. As part of this
process, the board:

• considers each conflict situation
separately on its particular facts;

• considers the conflict situation in
conjunction with the rest of the
conflicted director’s duties under
the 2006 Act;

• keeps records and board minutes as to
authorisations granted by directors and
the scope of any approvals given; and

• regularly reviews conflict authorisation.

The board has complied with these
procedures during the year.

Governance
Corporate governance

and the Chief Executive before being sent
to board members and discussed at the
following board meeting.

A list of recommended action points
arising from the 2013 evaluation was
implemented under the direction of the
Chairman and included the actions set
out in the table below.

Objective

Board impact
The agenda was shaped to give
sufficient prominence to certain key
business issues identified during the
2013 evaluation, namely the expansion
of Primark, the development of the
food portfolio, the implications of EU
sugar regime reform, and enhancing
the performance of Ingredients
and George Weston Foods.

Corporate responsibility
Regular, additional time was made
available on the board agenda to
address the further development of
the groupwide CR agenda, the
implications for each business division
and the associated communication
challenges.

Risk management
The board increased its focus
on certain key risks arising from
competitive, regulatory, health or
CR issues in each business division.

Major investments
Information was provided to the board
in the area of key market demand
and competitive dynamics when a
major investment or proposal is
under consideration.

Based on the responses and results from
the 2014 evaluation, it was the directors’
overall view that the board was cohesive
and was continuing to work effectively
as a unitary body with a good balance of
support, challenge and mutual trust. It
was also their view overall that the board
committees continued to function
efficiently and effectively. Each of the
directors was considered to be making
a valuable contribution and with proper
commitment, including of time, to their
respective roles.

A list of recommended action points
arising from this year’s evaluation is being
implemented under the direction of the
Chairman and examples of actions
identified are set out in the table below.

Objective

Board impact
An increased focus by the board at
each board meeting on Primark,
including fuller details of Primark’s
performance metrics and the
progress of its expansion into the US.

Particular board focus to be given to
the Sugar division as further EU sugar
regime reforms approach.

More structured discussion at the
board after each divisional presentation
to consider the performance of the
division and to allow comparison with
the performance of other operations
within the group.

Divisional presentations to the board
to provide increased level of
information on key competitors
and market demand.

Regular discussions to take place
between board members individually,
and separately, with the Chairman and
the Chief Executive.

The board to consider whether the
board evaluation exercise, when
not carried out by an external
consultant, should regularly be
carried out, in rotation, by two
non-executive directors.

Risk management
The handling of risk to continue to be
a priority for the Audit committee and
the board with each business division
encouraged to cover risk routinely in
their presentations to the board.

Corporate responsibility
The annual report to the board on the
environment to be separated from the
report on health and safety, given the
growing importance of environmental
issues to the group.

Remuneration Committee
The chairmanship of the Remuneration
committee to be kept under review.

Associated British Foods Annual Report and Accounts 2014

Effective controls ensure that the group’s
exposure to avoidable risk is minimised,
that proper accounting records are
maintained, that the financial information
used within the business is reliable and
that the consolidated accounts
preparation and financial reporting
processes comply with all relevant
regulatory reporting requirements.
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.

The directors confirm that there is a
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
twice yearly that it has complied with
these policies and procedures.

Accountability
Financial and business reporting
The board is required by the Code to
present a fair, 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 83 of this
annual report and accounts. The board
recognises that its responsibility to
present a fair, balanced and
understandable assessment extends
to interim and other price-sensitive
public reports, reports to regulators, and
information required to be presented
by statutory requests.

Business model
A description of the Company’s business
model for sustainable growth is set out in
the group business model and strategy
section on pages 8 and 9 and in the
business strategies section on pages
10 and 11. These sections provide an
explanation of the basis on which the
group generates value and preserves it
over the long term and its strategy for
delivering its objectives.

Going concern
After making enquiries the directors
have a reasonable expectation that the
Company and the group have adequate
resources to continue in operational
existence for the foreseeable future.
Accordingly, and consistent with the
guidance contained in the document
titled ‘Going Concern and Liquidity
Risk: Guidance for Directors of UK
Companies 2009’ published by the
FRC, they continue to adopt the going
concern basis in preparing the annual
financial statements.

Internal control and risk management
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.

Governance
Corporate governance

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.

Financial reporting
Detailed management accounts are
prepared every four weeks, consolidated
in a single system and reviewed by senior
management and the board. They include
a comprehensive set of financial reports
and key performance indicators covering
commercial, operational, environmental
and people issues. Performance against
budgets and forecasts is discussed
regularly at board meetings and at
meetings between operational and
group management. The adequacy and
suitability of key performance indicators
is reviewed regularly. All chief executives
and finance directors of the group’s
operations are asked to sign an annual
confirmation that their business has
complied with the Group Accounting
Manual in the preparation of consolidated
financial statements and specifically to
confirm the adequacy and accuracy of
accounting provisions.

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

Associated British Foods Annual Report and Accounts 2014

Governance
Corporate governance

also conducts regular reviews to ensure
that risk management procedures and
controls are observed. 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.
The Director of Financial Control meets
with the chairman of the Audit committee
as appropriate but at least annually,
without the presence of executive
management, and has direct access
to the Chairman of the board.

Remuneration
A separate Remuneration report is set out
on pages 64 to 79 and provides details of
our remuneration policy and how it has
been implemented, together with the
activities of the Remuneration committee.

Articles of association and
share capital
Information in relation to share capital,
the appointment and powers of directors,
the issue and buy back of shares, and
significant interests in share capital is
set out in the Directors’ report
on pages 80 and 81.

Relations with shareholders
Engaging with shareholders
The board works to engage effectively
with the Company’s shareholders so
that both its objectives and those of
shareholders are understood.

The Company announces its
achievements and prospects to
shareholders by way of interim
management statements, the interim
results and annual report and accounts.
Significant matters relating to the trading
or development of the business are
disseminated to the market by way of
Stock Exchange announcements and
by press release and postings on the
Company’s website.

The board continues to promote effective
engagement with its shareholders and,
on behalf of the board, the Chairman,
Chief Executive and Finance Director have
met institutional shareholders and
financial analysts on a regular basis
throughout the year to discuss the
Company’s business strategy and current
performance. At each board meeting,
the directors are briefed on shareholder
meetings that have taken place and on
the feedback received.

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 Company Secretary acts as a focal
point for communications on matters
of corporate governance and corporate
responsibility.

Annual general meeting (AGM)
The AGM will be held on Friday,
5 December 2014 at 11.00 am at the
Congress Centre in London. The board
views the AGM as a valuable opportunity
to communicate with private shareholders
in particular, for whom it provides the
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. At this year’s AGM, the film
focuses on Associated British Foods as
a Company that nurtures and develops
businesses of all sizes. The film looks
at three ABF businesses: AB Vista,
Twinings US and AB World Foods which
were small ten years ago and which
have transformed over that time into
significant operations, operating across
many markets.

The Notice of AGM, which sets out in
full the resolutions for consideration by
shareholders together with explanatory
notes, has been sent to shareholders and
is also available on the Investors section of
the Company’s website (www.abf.co.uk).

Nomination committee report

Members
During the year and at the date
of this report:

Charles Sinclair (Chairman)
Tim Clarke
Javier Ferrán
Lord Jay
Peter Smith

Key duties
In accordance with its terms of
reference, the Nomination committee’s
key duties include:

• leading the process for board
appointments and making
recommendations to the board;

• regularly reviewing the board structure,
size and composition (including the
skills, knowledge, independence,
experience and diversity),
recommending any changes;

• considering plans for orderly

succession for appointments to the
board and to senior management,
to maintain an appropriate balance
of skills and experience within the
Company and to ensure progressive
refreshment of the board;

• keeping under review the leadership

needs of the group, both executive and
non-executive, to ensure the continued
ability of the group organisation to
compete efficiently in the marketplace;
and

• before any appointment is made by the
board, evaluating the skills, knowledge,
experience, independence and
diversity on the board and, in light of
this evaluation, preparing a description
of the role and capabilities required
for a particular appointment.

Governance
The Nomination committee comprises a
minimum of three members at any time,
a majority of whom are independent
non-executive directors. A quorum
consists of two members being either
two independent non-executive directors
or one independent non-executive
director and the Chairman.

Executive directors, members of senior
management and other parties may be
invited to attend meetings as appropriate.

The Chairman does not chair the
Nomination committee when it is dealing
with the appointment of his successor.

Associated British Foods Annual Report and Accounts 2014

Governance
Corporate governance

Following a rigorous process of interviews
and assessments and, on the
recommendation of the Nomination
committee, the board approved the
appointment of Ruth Cairnie with effect
from 1 May 2014.

Diversity policy at board level
As a board, we recognise that diversity is
key for introducing different perspectives
into board debate and decision-making.
A genuinely diverse board comprises
individuals with a range of personal
attributes, perspectives, skills, experience
and backgrounds, as well as representing
differences in nationality, race and gender.

While gender remains an important
aspect of creating an optimal board in
terms of balance and composition, it
remains the board’s policy to make new
appointments based on merit. Candidates
for future board appointments will be
considered from the widest possible pool,
although we will continue to ask any
executive search agencies engaged to
ensure that half of the candidates they
put forward for consideration are women.

Re-election of non-executive
directors
The committee reviewed the results
of the annual board performance
evaluation that related to the
composition of the board and the time
needed to fulfil the roles of Chairman,
Senior Independent Director and
non-executive director. It was satisfied
that all members of the board are
devoting sufficient time to their duties.

The committee considered the
re-election of directors prior to their
recommended approval by shareholders
at the annual general meeting. The
non-executive directors who have been
on the board for more than six years were
subject to particularly rigorous review.

Performance review
The performance of the committee was
evaluated as part of the annual board
performance evaluation and it was found
to be operating effectively.

Audit committee report

Members
During the year and at the date
of this report:

Peter Smith (Chairman)
Lord Jay
Javier Ferrán
Ruth Cairnie (from 1 May 2014).

Key duties
In accordance with its terms of
reference, the Audit committee’s key
duties include:

• monitoring the integrity of the

group’s financial statements and any
formal announcements relating to
the Company’s performance,
reviewing significant financial
reporting judgements contained
in them before their submission
to the board for approval;

• at the request of the board, reviewing
the content of the annual report and
accounts and advising whether, taken
as a whole, it is fair, balanced and
understandable and provides the
information necessary for shareholders
to assess the Company’s performance,
business model and strategy;

• reviewing the group’s internal financial
controls, including the policies and
overall process for assessing
established systems of internal
financial control and timeliness and
effectiveness of corrective action
taken by management;

• overseeing the group’s arrangements
for the prevention and detection of
fraud, and whistleblowing;

• monitoring and reviewing the role and
effectiveness of the group’s internal
audit function in the context of the
group’s overall financial risk
management system; and

• overseeing the relationship with the
group’s external auditors, including
reviewing and monitoring their
objectivity and independence, agreeing
the scope of their work and fees paid
to them for audit, and agreeing the
policy in relation to the provision of
non-audit services.

Associated British Foods Annual Report and Accounts 2014

In these circumstances the committee
is chaired by an independent
non-executive director elected by
the remaining members.

The committee may take independent
professional advice on any matters
covered by its terms of reference at
the Company’s expense.

The committee chairman reports the
outcome of meetings to the board.

The full terms of reference of the
Nomination committee, can be viewed
on the Investors section of the
Company’s website (www.abf.co.uk).

Board appointments process
The process for making new
appointments is led by the Chairman.
Where appropriate, external consultants
are engaged to conduct a search for
potential candidates, who are considered
on the basis of their skills, experience
and fit with the range of skills of the
other members of the board. The
Nomination committee has procedures
for appointing a non-executive or an
executive director and these are set
out in its terms of reference.

Meetings
The committee met once during the year
under review.

Committee activities during the year
Appointment of new independent
non-executive director
Both the Nomination committee and the
board are committed to the principle that
appointments to the board should be
made on the basis of merit.

During the year and with the progressive
refreshing of the board in mind, the
Chairman led the process for the
appointment of a new independent
non-executive director.

The services of external executive search
consulting firm, Spencer Stuart, were
retained to help identify potential
candidates. Spencer Stuart is
independent, with no other connection
with the Company, and is a signatory to
the ‘Voluntary Code of Conduct for
Executive Search Firms’ on gender
diversity and best practice.

Potential candidates were considered
on the basis of their skills and
experience in the context of the range
of skills and experience of the existing
board as a whole.

Governance
Corporate governance

Governance
The Audit committee comprises a
minimum of three members, all of whom
are independent non-executive directors
of the Company. Two members
constitute a quorum. Appointments are
for a period of three years after which
they are subject to annual review,
extendable by two further three-year
periods so long as members continue
to be independent.

The committee structure requires the
inclusion of one financially qualified
member (as recognised by the
Consultative Committee of Accountancy
Bodies) with recent and relevant financial
experience. Currently, the committee
chairman fulfils this requirement. All
committee members are expected to
be financially literate and 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.

The committee invites the Group Finance
Director, Group Financial Controller,
Director of Financial Control and senior
representatives of the external auditors
to attend 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.

During the year, the committee held four
meetings with the external auditors
without any executive members of the
board being present.

The committee has unrestricted access
to Company documents and information,
as well as to employees of the Company
and the external auditors.

The committee may take independent
professional advice on any matters
covered by its terms of reference at the
Company’s expense.

The committee chairman reports the
outcome of meetings to the board.

The committee’s effectiveness is
reviewed on an annual basis as part of the
board’s performance evaluation process.

The terms of reference of the Audit
committee were reviewed and updated
during the year and can be viewed on the
Investors section of the Company’s
website (www.abf.co.uk).

Meetings
The Audit committee met five times
during the year including an additional
meeting to consider tendering of the
external audit. The committee agenda
are linked to events in the group’s
financial calendar.

Activities during the year
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.

Monitoring the integrity of reported
financial information
Ensuring the integrity of the financial
statements and associated
announcements is a fundamental
responsibility of the Audit committee.

During the year it formally reviewed the
group’s interim and annual reports and the
interim management statements, issued
for the first and third quarters. These
reviews considered:

• the accounting principles, policies

and practices adopted in the group’s
financial statements, any proposed
changes to them, and the adequacy
of their disclosure in the annual report;

• important accounting issues, areas of
complexity and the actions, estimates
and judgements of management in
relation to financial reporting;

• any significant adjustments to financial

reporting arising from the audit;

• litigation and contingent liabilities

affecting the group; and

• potential tax contingencies, compliance
with statutory tax obligations and the
group’s tax policy.

Associated British Foods Annual Report and Accounts 2014

Governance
Corporate governance

Significant accounting issues considered by the Audit committee in relation to the group’s financial statements
In the preparation of these financial statements a number of areas required the exercise of management judgement or a degree of
estimation. Set out below are the areas considered by the Audit committee to be the most significant accounting issues, of which
impairment and tax provisions were the most material, together with details of how the committee concluded that such judgements
and estimates were appropriate.

Significant accounting issue

Audit committee assurance

Impairment of goodwill, tangible
and intangible assets
Assessment for impairment involves
comparing the book value of an asset
with its recoverable amount (being the
higher of value in use and 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 cash flows and the discount
rate involve a significant degree of
estimation uncertainty.

Biological assets
The valuation of growing sugar cane
requires management to estimate:

• the sucrose content in the cane and the

expected cane and sucrose yields for the
following season taking into account
weather conditions, harvesting
programmes, and an assessment of the
maturity of the cane at the balance sheet
date; and

• the sucrose price, which depends on the
markets to which the forthcoming crop is
likely to be sold, the probable domestic
and export prices, and related foreign
currency exchange rates.

Post-retirement benefits
Valuation of the group’s pension schemes
and post-retirement medical benefit
schemes require various subjective
judgements to be made including mortality
assumptions, discount rates and general
inflation, salary inflation, and the rate of
increase for pensions in payment and those
in deferment.

The committee considered the reasonableness of cash flow projections which were based
on the most recent budget approved by the board and reflected management’s expectations
of sales growth, operating costs and margins based on past experience and external sources
of information. Long-term growth rates for periods not covered by the annual budget were
challenged to ensure they were appropriate for the products, industries and countries in
which the relevant cash generating units operate. The committee also reviewed the key
assumptions made in deriving these projections: discount rates, growth rates, and expected
changes in production and sales volumes, selling prices and direct costs. Refer to note 8 to
the financial statements for more details of these assumptions.

The committee was satisfied that the discount rate assumptions appropriately reflected
current market assessments of the time value of money and the risks associated with the
particular assets. The other assumptions were all considered to be reasonable.

The external auditor explained the results of their own review of the estimate of value in use,
including their challenge of management’s underlying cash flow projections as well as the
long-term growth assumptions and discount rates. On the basis of their audit work, and
their challenge of the key assumptions, the external auditor concurred that no impairments
were required.

The sugar business has a good track record of calculating reliable estimates and any
significant over or under-estimation becomes apparent in subsequent profit realisation.

Actual results were reviewed for consistency of measurement in the light of profit budgets
and forecasts and the actual results of prior periods. The committee was satisfied that
appropriate assumptions had been made and consistently applied. As biological assets
represent just 2% of total assets and 3% of net assets, material misstatement of the financial
statements was considered highly unlikely.

Actuarial valuations of the group’s pension schemes are undertaken every three years by
independent qualified actuaries who also provide advice to management on the assumptions
to be used, in intervening years, to update those valuations. Details of the assumptions made
in the current and previous two years are disclosed in note 12 to the financial statements
together with the bases on which those assumptions have been made.

The committee reviewed the assumptions by comparison with externally derived data and also
considered the adequacy of disclosures in respect of the sensitivity of the surplus/deficit to
changes in these key assumptions.

The principal accounting policy change in 2014 was the adoption of International Accounting
Standard 19 relating to Employee Benefits. In particular, the committee reviewed the impact
that this change had on pension liability disclosures and the resultant requirement to restate
earnings per share for 2013 to ensure that a meaningful comparison could be made with
2014 earnings. Further details of the accounting policy change can be found on page 95.

Tax provisions
The level of current and deferred tax
recognised in the financial statements
is dependent on subjective judgements
as to the outcome of decisions by tax
authorities in various jurisdictions around
the world and the ability of the group to use
tax losses within the time limits imposed
by the various tax authorities. See also Tax
compliance on page 49.

The committee annually reviews the company’s principles for managing tax risks.

The committee reviewed and challenged the provisions recorded at the balance sheet date and
management confirmed that they represent their best estimate of the likely financial exposure
faced by the Group.

The external auditor explained to the committee the work they had conducted during the year,
including how their audit procedures were focused on those provisions requiring the highest
degree of judgement. The committee discussed with both management and the external
auditor the key judgements which had been made. It was satisfied that the judgements were
reasonable and that, accordingly, the provision amounts recorded were appropriate.

Associated British Foods Annual Report and Accounts 2014

Governance
Corporate governance

Typically, the committee is required to
approve the use of the external auditors
to provide: accounting advice and training;
employee benefit plan audits; corporate
responsibility, IT and other assurance
services; due diligence in respect of
acquisitions and disposals; certain
specified tax services including tax
compliance, tax planning and related
implementation advice; and certain other
services when it is in the best interests
of the Company to do so and they can be
undertaken without jeopardising auditor
independence. No individually significant
non-audit assignments that would require
disclosure were undertaken in the
financial year.

The Company has a policy that any
recruits hired directly from the external
auditors must be pre-approved by the
Group HR Director, and the Group Finance
Director or Group Financial Controller,
with the chairman of the Audit committee
being consulted as appropriate.

The Audit committee has formally
reviewed the independence of its
auditors. KPMG LLP has provided
a letter confirming that it believes
it remains independent within the
meaning of the regulations on this
matter and in accordance with their
professional standards.

To fulfil its responsibility to ensure 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.

Consideration is also given by the Audit
committee to the need to include the
risk of the withdrawal of the external
auditors from the market in its risk
evaluation and planning.

Misstatements
Management reported to the committee
that they were not aware of any material
or immaterial misstatements made
intentionally to achieve a particular
presentation. The auditors reported to the
committee the misstatements that they
had found in the course of their work.
After due consideration the committee
concurred with management that no
adjustments were required.

Internal financial control and risk
management
The committee is required to assist the
board to fulfil its responsibilities relating
to the adequacy and effectiveness of
the control environment, controls over
financial reporting and the group’s
compliance with the UK Corporate
Governance Code. To fulfil these duties,
the committee reviewed:

• the external auditors’ management
letters and their Audit committee
memoranda;

• internal audit reports on key audit areas

and significant deficiencies in the
financial control environment;

• reports on the systems of internal

financial controls and risk management;

• reports on fraud perpetrated against

the group; and

• the group’s approach to IT, cyber
security and whistleblowing.

Internal audit
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’s reporting lines and
access to the committee and all
members of the board;

• internal audit’s plans and its

achievement of the planned activity;

• 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

• changes since the last annual

assessment in the nature and extent
of significant financial risks and the
group’s ability to respond to changes
in its business and the external
environment.

Whistleblowing and fraud
The group’s ‘whistleblowing’ policy
contains arrangements for an
independent external service provider
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 Audit committee
reviewed reports from internal audit
and the external service provider and
the actions arising therefrom.

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 reviewed all instances of fraud
perpetrated against the company and the
action taken by management both to
pursue the perpetrators and to prevent
recurrences.

External audit
Auditor independence
The Audit committee is responsible for
the development, implementation and
monitoring of policies and procedures
on the use of the external auditors 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 auditors whilst also
ensuring that the auditors maintain the
necessary degree of independence and
objectivity. Consequently, any non-audit
work to be undertaken by the auditor in
excess of £300,000 requires
authorisation by the chairman of the Audit
committee and the Group Finance
Director prior to its commencement.
Individual assignments less than
£300,000 are approved by the Group
Finance Director. The aggregate
expenditure with the group auditors
is reviewed by the Audit committee.

Associated British Foods Annual Report and Accounts 2014

Governance
Corporate governance

Auditor effectiveness
To assess the effectiveness of the
external auditors, the committee
reviewed:

• the external auditors’ fulfilment of the

agreed audit plan and variations from it;

• reports highlighting the major issues

that arose during the course of the audit;

• feedback from the businesses

evaluating the performance of each
assigned audit team; and

• a report from the Audit Quality Review

Team of the Financial Reporting
Council (FRC).

Richard Pinckard was appointed as KPMG
lead audit partner for the financial year
ended September 2012 and would
ordinarily be expected to continue as
lead audit partner until the conclusion
of the 2016 audit. Upon his appointment
Mr Pinckard undertook a detailed review
of the external audit arrangements across
the group including a review of senior
audit executives, and he presented his
findings and recommendations to the
Audit committee. As part of the normal
partner rotation arrangements, no
changes were necessary in the current
year but one divisional audit executive
was changed.

The Audit committee holds private
meetings with the external auditors
after each committee meeting to review
key issues within their sphere of interest
and responsibility.

The Audit committee is satisfied with the
auditors’ effectiveness and independence
and has recommended to the board that
KPMG LLP be reappointed as the
Company’s external auditor for 2014/15.

KPMG LLP, or one of its predecessor
firms, have been reappointed annually by
shareholders as auditor to the Company
since its incorporation in 1935. Whilst the
Company has kept the effectiveness of
the relationship under review, no formal
tender of the audit process has been
carried out since the original appointment.
Mindful of the requirements of the UK
Corporate Governance Code that the
audit should be put out to tender every
ten years, and the UK Competition &
Market Authority’s Order requiring
mandatory audit tendering at ten-year
intervals which comes into force in 2015,
the Company has notified KPMG LLP of
its intention to put the audit out to tender
during 2015, with a view to a new firm
being appointed to audit the financial
statements for the year ending
17 September 2016.

The total fees paid to KPMG LLP for the
year ended 13 September 2014 were
£9.1m of which £3.2m related to
non-audit work. Further details are
provided in note 2 to the financial
statements.

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 level of errors identified during the

audit; and

• recommendations made by the

external auditors in their management
letters and the adequacy of
management’s response.

Auditor appointment
Although KPMG LLP or its predecessor
firms have been the Company’s auditor
for many years, the firm periodically
changes its audit partners at a group,
divisional and country level, in accordance
with professional and regulatory
standards, in order to protect
independence and objectivity and provide
fresh challenge to the business. Such
changes are carefully planned to ensure
that the Company benefits from
continuity of staffing without incurring
undue risk or inefficiency.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

REMUNERATION REPORT

Annual statement by the Remuneration Committee Chairman
2013/14 performance and incentive outcomes
Associated British Foods is a group of businesses that trade all over the world. These businesses are expected to grow profitably in
the long term, but are subject to short-term pressures which prevent this from time to time.

The group has achieved strong growth in earnings for a number of years and the growth in shareholder return over the last five years
in particular has been well above that achieved by the constituents of the FTSE 100 index as shown on page 76. Vesting under
our Long-Term Incentive Plan (LTIP) for the period from 2011–14 reflects the growth of the business since September 2011.
The committee is satisfied that this level of vesting represents a fair level of reward for executives for their contribution to the
growth in value of the Company.

The committee must ensure that targets are stretching but they must also be realistic and, where necessary, reflect the challenges
faced by the business in order to encourage executives to strive for great performance. In my statement last year as chairman of the
Remuneration committee, I noted that one of our larger businesses, European Sugar, would come under pressure in the years leading
up to reform of the EU sugar regime in 2017. 2014 proved to be a challenging year for this business and the effects of the fall in EU
sugar prices are expected to be a further influence on the group’s overall performance in the short term.

When setting short-term incentive targets for 2013/14 the committee was mindful of the expected pressure on sugar prices and the
consequences for the group’s results. During the course of the year, the committee adjusted the target range for the short-term
incentive down by £10m to reflect unbudgeted costs for restructuring the sugar business to ensure that we are better positioned for
the future. This cost would otherwise have been included in the budget for 2014/15 and been included in the incentive target range for
that year. It was in the best long-term interests of the business for this restructuring to be commenced in, and reflected in
performance targets for, the 2013/14 financial year.

We are satisfied that pay outcomes for the financial year 2013/14 reflect overall business performance. With the exception of Sugar,
adjusted operating profit increased in all divisions. AB Agri achieved another record result; Grocery made very good progress with
profit and margin well ahead of last year; Ingredients is achieving a strong turnaround from the challenges of recent years; and Primark
had another excellent year and is well positioned to maintain its growth momentum. This performance resulted in a short-term
incentive payment slightly above on-target for the financial element of the plan.

For our long-term incentive plan for 2014–17, the committee has determined that the current earnings per share target range remains
appropriate, particularly given the significant challenges facing the sugar business over that timeframe.

Directors’ remuneration at Associated British Foods
The committee’s approach to remuneration is that it should be kept as simple as possible. We believe that our current policy is well
aligned to the business strategy and to growing long-term shareholder value. We seek to ensure that remuneration directly reflects
individual accountability for business results and that pay is managed fairly, prioritising long-term profit development over short-term
results. Our framework for executive remuneration is based on our guiding principles, including a belief in ‘line of sight’ and ‘doing the
right thing’.

As previously disclosed, in December 2012, the committee reduced vesting on the LTIP from 100% to 97.5% to reflect an asset
impairment charge relating to Don KRC. Property development deals relating to a Don KRC site, which are not included in the annual
operating profit calculation, mean that the committee now feels it is appropriate to return to the executive directors some, but not all,
of the previously reduced value. The Committee has therefore determined to exercise its discretion to increase the personal element
of the incentive payment by 2.4% of salary for George Weston and 2.45% of salary for John Bason.

During the year, the committee determined that a mandatory two-year holding period would apply for shares vesting under the
LTIP to executive directors for allocations made after the 2014 AGM if and when the remuneration policy set out in this report is
formally approved.

Having introduced clawback and malus to the long-term incentive plan approved by shareholders in December 2013, the committee
determined that the same approach should be applied to the short-term incentive plan. The committee also agreed that executives
should now formally acknowledge the committee’s powers of discretion, clawback and malus as a condition of participation in the
group’s incentive schemes.

Your feedback and what we have planned for 2014/15
As Chairman of the board, I invite the larger institutional shareholders each year to discuss their views on the group’s strategy,
governance and remuneration. Those who have taken up the invitation this year have expressed confidence with the way the group
has managed remuneration, and discussion has again been characterised by informed enquiry and open debate.

Remuneration is one of those subjects on which every shareholder has a point of view. I hope that our principles of clarity, relative
simplicity, accountability and fairness help to explain what the committee does.

We are not planning any changes to remuneration policy or its implementation in the new financial year. I am happy to discuss
any remuneration matters that help us shape our policy and practice, at any time.

Charles Sinclair
Remuneration Committee Chairman

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Remuneration policy
The policy for executive directors, set out below, will apply from the date of the 2014 AGM (subject to approval). The provisions of the
last remuneration policy, as presented in last year’s Remuneration report will continue to apply for unvested share awards until such
time as all long-term incentive awards granted under that policy have vested.

The committee will consider the approved remuneration policy annually to ensure that it remains aligned with the Company’s
strategic objectives. If the committee determines that amendments to the policy are needed, it will first discuss the proposals with
shareholders before seeking their approval at a general meeting. However, it is intended that the policy set out below will apply for
three years from the 2014 AGM and the Company therefore next expects to seek shareholder approval for its remuneration policy
at the 2017 AGM.

Executive directors’ reward potential – illustration of remuneration policy 2014/15

George Weston (£000)

John Bason (£000)

6,000

5,000

4,000

3,000

2,000

1,000

6,000

5,000

4,000

3,000

2,000

1,000

Minimum

Threshold

On-target

Maximum

Minimum

Threshold

On-target

Maximum

Fixed elements

Annual variable element
(STIP)

Long-term variable element
(LTIP)

Fixed elements

Annual variable element
(STIP)

Long-term variable element
(LTIP)

Notes:
1

Fixed elements for George Weston comprise salary of £998,000, benefits of £15,000 and pension of £569,000 and applies to minimum, threshold,
on-target and maximum performance.
Fixed elements for John Bason comprise salary of £649,000, benefits of £18,000 and pension of £464,000 and applies to minimum, threshold,
on-target and maximum performance.

3 Annual variable element – bonus is calculated on base salary at the end of the financial year.
4 Long-term variable element – value is calculated on base salary at the date of allocation and excludes share price movement.
5 Minimum – No STIP or LTIP payment for failure to achieve threshold performance.
6

Threshold – STIP of 12% of base salary (12% of base salary for threshold financial performance and 0% for failure to achieve threshold personal performance).
LTIP vesting at 10% of maximum (i.e. an allocation of 20% of grant date base salary) following achievement of threshold performance targets.
On target – STIP of 78.3% of base salary (65% for target financial performance and 13.3% for target personal performance).
LTIP vesting at 50% of maximum (i.e. an allocation of 100% of grant date base salary) for target performance.
Maximum – STIP of 150% of base salary (130% for maximum financial performance and 20% for achieving maximum personal performance).
LTIP vesting at 100% of maximum (i.e. an allocation of 200% of grant date base salary).

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

FUTURE REMUNERATION POLICY FOR EXECUTIVE DIRECTORS

Element and purpose

Operation and link to business strategy

Maximum opportunity

Base salary (100% cash)

To provide core reward for
the role, recognising
responsibility for setting
and delivering the strategy.

Benefits (excluding relocation)

To provide a competitive and
cost-effective benefits package
appropriate to role.

Base salaries are normally reviewed on an annual basis or following
a significant change in responsibilities. Factors taken into account
include market pay movements, the level of increases awarded to
UK employees across the group and the impact of any increase on
the total remuneration package.

Increases will usually be
limited to those available for
other UK employees. In line
with other employees, if
there is a significant change
in role responsibility,
increases will reflect this.

Benefits are restricted to typical UK market levels for executive
directors and include, but are not limited to, death in service payment,
permanent health insurance, company car plus private fuel, family
healthcare and, where relevant, fees to maintain professional
memberships. Executives are provided with the technology they
require to carry out their roles efficiently and effectively.

The cost of these benefits is
not expected to exceed 10%
of salary but is dependent on
factors, such as insurance
premium rates, that can vary.

Short-Term Incentive Plan (STIP) (100% cash)

To encourage and reward the
attainment of challenging
financial targets and the
achievement of personal
performance objectives
over a one-year period.

150% of base salary:

• 130% based on financial

results; and

• 20% on personal
performance.

Performance measures
Group financial performance is assessed against prime financial
measures, such as adjusted operating profit and working capital,
used across the group on a day-to-day basis to drive and
monitor performance.

The personal element of the STIP is calculated as a percentage of
base salary on achieving certain personal targets set by the Company
Chairman for the Chief Executive or by the Chief Executive for the
Finance Director.

Target setting
Budget performance is set as the ‘on-target’ performance level at the
start of each financial year. The committee sets a range around target
to incentivise delivery of truly stretching performance.

Individual personal objectives are also set each year. These may be
specific short-term goals or milestones towards medium or long-term
objectives, but are closely aligned to the overall strategy of the group.
Following the end of the financial year, the Chairman reviews the
performance of the Chief Executive against these objectives and
makes a recommendation to the Remuneration committee about the
appropriate level of payout for the personal element. Similarly, the
Chief Executive makes a recommendation to the Remuneration
committee regarding the Finance Director following an assessment
of his performance.

Discretion, clawback and malus
In specific circumstances the Remuneration committee retains
discretion, including in relation to malus and, from 2014-15 onwards,
clawback, as set out in the notes that follow this table.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

FUTURE REMUNERATION POLICY FOR EXECUTIVE DIRECTORS

Element and purpose

Operation and link to business strategy

Maximum opportunity

Long-Term Incentive Plan (LTIP)

200% of base salary at
allocation on achievement
of maximum vesting.

To reward long-term business
growth, promote executive
retention and align the interests
of executives and shareholders.

Executive directors are eligible to participate in the Associated British
Foods Long-Term Incentive Plan (the LTIP). Annual allocations of
conditional shares vest over a three-year period, subject to agreed
performance targets being satisfied. LTIPs are granted over shares
to the value of 200% of salary. For maximum performance 100%
of the shares vest, for target performance 50% vest, for threshold
performance 10% vest and below threshold level awards lapse.

A mandatory two-year holding period will apply for any shares
allocated under the LTIP from the 2014 AGM onwards, if this policy
is approved by shareholders.

Performance measures
Group performance is measured against an absolute range of
compound annual growth in adjusted earnings per share (eps).

This measure was chosen because it:

• reflects the group’s objective of sustained long-term

earnings growth;

• is a measure which is well understood both by participants

and shareholders;

• is a published figure with limited adjustments; and

• encompasses the diverse nature of the group.

An absolute, rather than a relative measure is used,
as the group is a global business for which UK
inflation factors are of limited impact.

Other financial measures have been considered, but found
to be unhelpful or inappropriate.

Target setting
Targets are set by the committee at the beginning of each three-year
performance period, taking into account the state of the markets in
which the group operates as well as the scale of investments made
in the pursuit of long-term growth. In determining a fair but stretching
target, the committee also considers:

• the results of the long-term incentive plan to date;

• market expectations and internal forecasts for the next few years;

and

• advice from its appointed remuneration advisors.

Discretion, clawback and malus
When the Company introduced the new LTIP, approved by
shareholders in 2013, malus and clawback were introduced into the
plan rules. In specific circumstances the Remuneration committee
retains discretion in relation to the plan. Further information can be
found in the notes to this table.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

FUTURE REMUNERATION POLICY FOR EXECUTIVE DIRECTORS

Element and purpose

Operation and link to business strategy

Maximum opportunity

Long-Term Incentive Plan continued

Shareholding requirement

To demonstrate commitment
to, and align personal interests
with, the success of the
Company and its shareholders.

Pension

To provide a competitive
retirement benefit in line
with best practice standards
adopted by major companies
in the United Kingdom and
continental Europe.

Previous plan
Conditional shares already allocated for 2011–14, 2012–15 and
2013–16 will vest, or not, under the terms of the Executive Share
Incentive Plan 2003. These allocations were subject to earnings
per share performance targets and, in contrast to the new plan,
do not have clawback in place.

Executive directors are required to build and maintain a shareholding
in the Company to a value at least equal to their pre-tax base salary.

Shareholding of 100%
of salary.

In order to achieve this target, executives are required to retain at
least 50% of the post-tax value of any shares vesting each year and
then to manage their shareholding in such a way as to continue to
meet the requirement.

For directors entitled to
benefits under the
Company’s defined benefit
pension scheme and/or
EFRBS, a retirement benefit
target of around two-thirds
of final pensionable salary
is payable at normal
retirement age.

For directors entitled to
defined contribution pension
arrangements, executives
may receive Company
contributions (or cash
equivalent) up to a maximum
of 25% of base salary.

Defined benefit pension arrangements –
closed to new members
The current executive directors are members of the Company’s
HMRC approved defined benefit pension scheme, which closed to
new entrants in October 2002. Both executive directors opted out
of the scheme on 5 April 2006, but retain their accrued benefits up
to that date. The scheme is designed to provide retirement benefits
of around two-thirds of final pensionable salary at age 65 (62 for
John Bason).

The current executive directors have, since 5 April 2006, earned
benefits in an Employer-Financed Retirement Benefit Scheme
(EFRBS). The EFRBS is unregistered, but is designed to broadly
mirror the provisions of the defined benefit pension scheme by
providing retirement benefits of around two-thirds of final
pensionable salary at normal retirement age.

Defined contribution pension arrangements
Future executive directors, who are not already entitled to defined
benefit pension arrangements at the time of appointment, would
benefit from an HMRC approved defined contribution arrangement,
with a Company contribution of 25% of base salary.

Cash alternative
Where a UK-based pension arrangement is not possible, or is not
tax efficient, a cash supplement equivalent to the normal pension
contribution may be paid in lieu of pension contributions.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Notes to the Remuneration policy table
Target-setting and commercial sensitivity
The committee selected the performance conditions shown in the preceding table because these are the key measures used by
the executive directors to manage the business. The performance targets are set by the committee annually taking into account
the views of their advisors and management.

The committee is of the opinion that performance targets for the annual bonus are commercially sensitive and that it would be
detrimental to the interests of the Company to disclose them before the start of the financial year. Achievement against financial
targets will be disclosed after the end of the relevant financial year in that year’s Remuneration report.

Discretion, malus and clawback
The committee may, at any time within two years of the vesting date of an LTIP award (under the new plan) or payment of an STIP
award, determine that clawback shall apply if the committee determines that performance outcomes were misstated; an erroneous
calculation was made in assessing the extent to which performance targets were met; or the participant is found to have committed,
at any time prior to vesting/payment, including prior to grant, an act or omission which justifies, or, in the opinion of the Remuneration
committee, would have justified, summary dismissal.

As a condition of participating in the STIP and LTIP from the 2014/15 financial year onwards, all participants will be required to agree
that the committee may cause any STIP or LTIP award in which they participate to lapse (in whole or in part) and may operate
clawback under any share scheme or bonus scheme in which they participate operated by a group company and may operate
clawback by reducing any amounts payable to the participant and/or by requiring the participant to immediately transfer shares
or cash back to the Company.

The committee will apply discretion, where necessary and by exception, to ensure that there are no unintended consequences
from the operation of the remuneration policy. The committee has a robust set of principles that it applies to ensure that the
outcome is consistent with business performance and aligned with shareholder interests. Any material exercises of discretion by
the committee in relation to the STIP and LTIP will be in line with scheme rules or other applicable contractual documentation and
will be fully disclosed and explained in the relevant year’s report on the implementation of remuneration policy and will not exceed
scheme maxima.

Remuneration for other employees compared with that of executive directors
First line reports to the Chief Executive and other senior executives are rewarded broadly within the same overall remuneration policy
as executive directors, in order to ensure fairness and common purpose across the group. In general, other executives therefore
participate in incentive arrangements similar to those of the executive directors, but with lower levels of potential payout. The
proportion of variable pay to base salary for first line executives is around 1.2 to 1 for ‘on-target’ performance and 2.25 to 1 for
maximum performance. The Remuneration committee regularly reviews the reward package for other groups of senior executives
below board level to ensure that they remain at a level sufficient to attract and retain high-calibre individuals.

Associated British Foods is geographically dispersed and therefore subject to very different pay markets, so it is difficult to make
sensible comparisons with all employees across the group. The salaries of executive directors are reviewed in line with UK employees
of Associated British Foods. In December 2013, when the target salary increase for employees in the UK was between c.2.0% and
c.3.0%, the Chief Executive received a salary increase of 2.56%.

In order to drive and reward performance, and to align better the interests of executives and shareholders, the executive directors
have a greater proportion of their total reward package at risk than other employees. This means that in years of very good
performance, the Chief Executive’s package increases proportionately more than that of most other employees and conversely in
years of lower performance it may decrease. However, the structure and principles of incentives are consistent further down the
organisation including:

• the belief that employees should be encouraged to do the right thing for the long-term benefit and success of the organisation;

• the belief that individuals should have line of sight to their performance targets; and

• the belief in combining profit and return measures with personal measures in the STIP.

The committee operates share-based long-term incentives for approximately 150 senior individuals across the Company.

Executive directors serving as non-executive directors
To encourage self-development and allow external insight and practice, the committee has determined that, with the consent of the
Chairman and CEO, executive directors may serve as non-executive directors of other companies in an individual capacity and will
retain any fees earned.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Remuneration policy – consideration of employment conditions elsewhere in the Company
How pay and conditions of employees were taken into account when setting directors’ remuneration policy
The committee considered the salary increases proposed for the employee population generally and other changes to the
remuneration policy within the Company when reviewing executive salaries at its September and October meetings. As outlined
in the policy table, the committee typically limits the range of increases for executive directors to the range of increases available
to employees unless there has been a change of role.

The design of incentives is broadly consistent across the group. The committee is provided with data on the remuneration structure
for senior management in the two tiers below executive director and uses this information to work with the Company to ensure
consistency of approach. In addition, the committee approves all share-based LTIP awards across the group.

Consideration of employees’ views
In setting the remuneration policy, the committee seeks to act in the best interests of the Company. Whilst the views of employees
are not explicitly sought, employees are able to feed back their opinions through employee opinion surveys or directly to the
Company’s management.

Remuneration policy – executive director contracts, recruitment, retention and loss of office
Recruitment arrangements – all executive directors
As we may need to recruit future executive directors from outside the UK or from companies with more aggressive incentive policies
than our own, and as our long-term incentive plans do not give us significant headroom to make awards to new joiners above the
levels set out in the policy table, the arrangements below are intended to give us the flexibility to recruit the right individuals should
we need to.

Core package – in line with remuneration policy table on pages 66 to 68
Salary – Based on a combination of market information, internal relativities and individual experience

Benefits – In line with remuneration policy

Pension – Defined contribution pension or cash alternative to pension in line with policy

STIP – Pro rata in year of recruitment. Part of STIP may be guaranteed to reduce the need for additional cash payments
to hire new joiners.

LTIP – Prorated grant for the year of recruitment. A mandatory two-year holding period will apply for any shares vesting
under the LTIP for any newly appointed executive directors from 1 September 2014 onwards.

Buy-out arrangements – in addition to remuneration policy table on pages 66 to 68
The committee may, when it considers this to be in the best interest of the Company, make a one-off award of additional cash and/or
shares to replace incentives foregone from a previous company. The committee would seek validation of the value of incentives
foregone, including the nature, time horizon and performance requirements attaching to that remuneration. Additional awards will
not exceed the committee’s advisors’ calculation of the value of the original awards. If possible, additional incentive awards will be
tied to group performance targets.

Other elements – in addition to remuneration policy table on pages 66 to 68
The committee may, when it considers this to be in the best interest of the Company, make a one-off additional award of cash and/or
shares as an incentive to join. This may, for example, be necessary if recruiting an individual from overseas. If possible, additional
incentive awards will be tied to group performance targets.

Total maximum additional incentive value will not exceed 200% of salary.

Internal appointments
For internal appointments, awards in respect of the prior role may be allowed to vest according to the terms of the scheme,
adjusted as relevant to take account of the new appointment. In addition, ongoing prior remuneration obligations may continue.

Relocation
If a new executive director needs to relocate, the Company may pay:

• actual relocation costs and other reasonable expenses relating to moving house;

• disturbance allowance of up to 5% of salary, some of which may be tax-free for qualifying expenditure;

• school fees for dependent children where there are cultural or language considerations;

• medical costs for the overseas family, where relevant;

• one business class return fare per annum each for the executive, his/her partner and dependent children in order

to maintain family or other links where an executive is recruited from outside the UK;

• reasonable fees and taxes for buying and/or selling a family home and/or appropriate rental costs; and

• any tax due, grossed up, on any relocation related payments listed above.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Service contracts and payments for loss of office
It is the Company’s policy that executive directors have rolling contracts with 12-month notice periods. This is in accordance
with the UK Corporate Governance Code and contracts are available for inspection at the Company’s offices. Contracts and service
agreements are not reissued when base salaries or fees are changed. Pension arrangements for both the current executive directors
have been amended, as described in the policy table, without reissuing their contracts.

The executive directors’ service contracts allow for the Company to terminate the employment by paying the director in lieu of some
or all of his notice period. The Company may determine that a payment in lieu of notice is made in monthly instalments or as a lump
sum. A payment in lieu of notice will comprise the salary, benefits and pension provision that the director would otherwise have
received during the relevant period. The Company is committed to the principle of mitigation. If the committee determines that a
payment in lieu of notice will be paid in monthly payments, it would reduce the instalments to take account of amounts received from
alternative employment.

In addition, the executive director may be entitled to a payment in respect of his statutory rights. The committee may also determine
that a contribution will be made to the director’s legal fees in connection with his termination and may agree to make reasonable
payments to him in respect of outplacement. In limited circumstances, in addition to making a full payment in lieu of notice, the
Company may permit an executive director to stay employed after the announcement of his departure for a limited period to ensure
an effective hand-over and/or to allow time for a successor to be appointed. It would be open to the Company to consider terminating
an executive director’s service agreement in breach (i.e. not to make a payment to him in lieu of notice) and instead to make a payment
of damages to him which compensates him for the loss he will suffer as a result of the termination of his contract, taking into account
his duty to mitigate his loss.

There is no automatic entitlement to accrued STIP/LTIP awards on termination; the approach to determining whether or not a payment
might be made is set out in the table below. Pro-rated STIP and LTIP awards will not usually take account of notice periods, but the
committee retains the discretion to determine that they will. The committee would not expect to do so in the case of poor performance.

Reason for
termination

Salary and
contractual
benefits

Good leaver including:

• ill health/injury/

Paid up to date of
termination or death.

The committee has
discretion to pay in
lieu of notice as set
out above.

disability

• redundancy

• retirement

• employing company
or undertaking being
transferred outside
the group

• other reason

determined by the
committee

• death

Resignation

Paid up to
termination date.

Gross misconduct

Paid up to
termination date.

STIP

LTIP

Repatriation

The committee will
consider making a pro rata
payment for the financial
year in which the
termination/death took
place.

Any agreed payment will
be made in the December
following the year end.

In the case of death,
payment may be
accelerated.

If an executive director
ceases to be employed
before/is under notice
when full year results are
published, no award will
be made unless the
committee determines
otherwise. The
committee has never
previously determined
otherwise.

No award will be made.

The committee will consider
allowing awards due to vest in
relation to the financial year of
termination to vest. Other awards
lapse unless the committee uses its
discretion to allow them to vest.
The committee has never
previously done this.

If an executive was
recruited from
overseas and
relocated to the UK
at the start of his/
her employment,
his/her repatriation
may be paid.

Vesting will take place on the
usual vesting date, subject to
performance conditions unless the
committee determines that the
award should vest earlier pro rata,
in which case the committee may
determine whether the executive’s
notice period will be taken into
account in any pro rating.

All conditional share awards will be
cancelled unless the committee
determines otherwise. The
committee has never previously
determined otherwise.

Not paid.

All conditional share awards will
be cancelled.

Not paid.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Remuneration policy for non-executive directors
Summary of remuneration policy for non-executive directors
Non-executive directors’ fees are reviewed 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. Non-executive directors receive no other benefits and take no part in any discussion or
decision concerning their own fees.

The Remuneration committee (under the chairmanship of the Senior Independent Director) reviews the Chairman’s fees.
In addition to his fee, the Chairman also receives private medical insurance for himself and his spouse.

Element

Purpose

Operation

Chairman

Fees

To attract and retain a high-calibre
chairman by providing a competitive
core reward for the role.

The Chairman is paid a single fee for all his responsibilities.

The level of this fee is reviewed every other year by the committee (in the absence
of the Chairman) and the executive directors in the light of fees payable in
comparable companies.

Fees are paid in cash on a monthly basis.

Benefits

To provide market competitive benefits.

Private medical insurance (for Chairman and spouse).

Other non-executive directors

Fees

To attract and retain high-calibre
non-executive directors by offering
market competitive fees.

Fees are paid on a per annum basis and are not varied for the number of days worked.

The Chairman and executive directors review non-executive directors’ fees every
other year in the light of fees payable in comparable companies.

The Senior Independent Director and chairman of the Audit committee are paid an
additional fee to reflect their extra responsibilities.

Fees, paid in cash on a quarterly basis, were last reviewed on 3 September 2014.

Non-executive directors’ terms of appointment
It is the Company’s policy that all non-executive directors are subject to specified terms of appointment. Appointment is for an initial
term of three years unless terminated by either party on six months’ notice. Continuation of the contract of appointment is contingent
on satisfactory performance and re-election at forthcoming annual general meetings. Non-executive directors are typically expected
to serve two three-year terms, although the board may invite a non-executive director to serve for an additional period.

The Company’s Articles of Association require that all directors retire from office if they have not retired at either of the preceding two
annual general meetings. In any event, at this year’s annual general meeting, all directors are standing for re-election in compliance
with the UK Corporate Governance Code.

Where an individual retires at the annual general meeting and does not stand for re-election, they are not paid in lieu of notice.

Approach to recruitment for non-executive directors
The approach to fees outlined above would apply to new non-executive directors.

We would not pay to relocate a non-executive director to the head office location but would reimburse reasonable expenses incurred
in travelling on behalf of the business. In the first year, such expenses may be higher than usual as part of the individual’s induction
into the business.

Remuneration policy – statement of consideration of shareholders views
Each year the chairman of the committee invites our larger institutional shareholders to discuss with him their views on the group’s
remuneration, strategy and governance.

Ahead of the 2013 AGM, we received feedback from some investors who did not feel that our earnings per share targets were
sufficiently stretching. The committee robustly reviews targets each year, with detailed input from our advisors and from the
Company. We have satisfied ourselves, in the context of the challenges facing the sugar business, that the targets that we set for
the LTIP in 2013 for the period from 2013–2016 and those proposed for the period from 2014–2017 are indeed challenging and that
delivering this level of performance will represent a good performance by the executive directors on behalf of shareholders.

We are not planning any changes of remuneration policy in the current year and expect to implement the policy set out in the following
report in the same manner as we have in the past. The committee chairman remains happy to discuss any remuneration matters at
any time to help shape our policy and practice.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Annual report on directors’ remuneration
The annual report on directors’ remuneration sets out the elements of remuneration paid to directors in the financial year 2013/14.
The notes to the single figure table provide further detail, including measures and outcomes for 2013/14, where relevant, for each
of the elements that make up the total single figure of remuneration in respect of each of the executive directors.

This report is subject to an advisory vote at the 2014 AGM.

Single total figure of remuneration – executive directors (audited information)

Executive directors

George Weston
John Bason
Non-executive directors
Charles Sinclair
Tim Clarke
Lord Jay
Javier Ferrán
Peter Smith
Emma Adamo
Ruth Cairnie

Salary or fees
£000

£000

Taxable benefits
£000
£000

2014

2013

2014

2013

973
633

349
82
65
65
82
65
24

948
617

3461
811
641
641
811
641
–

15
18

14
–
–
–
–
–
–

14
16

1
–
–
–
–
–
–

Pensions
£000

Annual bonus6
£000

£000

2013

2014

2013

£000

2014

Long-term

incentive7,8
£000

Single total
figure9
£000

£000

2013

2014

2013

5185
3835

894
582

1,219
808

4,816
3,169

3,133
2,103

7,155
4,775

5,832
3,927

£000

2014

457
373

350
82
65
65
82
65
24

347
81
64
64
81
64

–10

The value shown reflects the split across the year from the previous fee rate to the revised rates of £65,000 for non-executive directors and £350,000
for the Chairman.

2 The value of George Weston’s benefits comprised £12,964 taken in cash and £1,540 taxed as benefits-in-kind.
3 The value of John Bason’s benefits comprised £12,964 taken in cash and £4,991 taxed as benefits-in-kind.
4 The value of Charles Sinclair’s benefits reflects the provision of health care benefits, which are taxed as a benefit-in-kind.
5

2013 pensions values for George Weston and John Bason have been adjusted from £520,000 and £377,000 respectively to reflect current reporting
requirements to report based on CPI indexation over the year to September in the tax year prior to the date of the Company’s year end. These calculations
previously used the CPI inflation over the Company year in question.

6 The annual bonus is paid in December in respect of the preceding financial year. None of the incentive is subject to deferral.
7

As required by the regulations, vesting under the long-term incentive plan for 2010–2013 has been recalculated to update last year’s estimates using the
actual share price of 2271.4962p that applied on vesting. Information relating to performance targets, weightings and outcomes can be found on page 73
of the 2013 annual report.
Vesting under the long-term incentive plan for 2011–2014 has been estimated using the average mid-market closing price over the last quarter of the 2013/14
financial year (13 June to 13 September 2014) of 2890.94p. Vesting will be on 24 November 2014 and a figure recalculated for the actual share price on that date
will be presented in the 2015 Remuneration report. Information relating to performance targets, weightings and outcomes can be found on page 74.

9 The single total figure for 2013 has been updated to reflect the LTIP adjustment noted in 8 above.
10 Ruth Cairnie joined the board on 1 May 2014.

Additional notes to the single total figure of remuneration – executive directors (audited information)
This section sets out supporting information for the single total figure columns. In particular, it provides information on the extent to
which performance conditions have been satisfied for the STIP and LTIP.

Single total figure – base salary
Executive directors’ salaries were reviewed on 1 December 2013 in accordance with normal policy and were increased in line with
average increases for the company’s UK-based employees.

George Weston
John Bason

Dec 2012

977,000
643,000

Increase in Dec 2013

2.56%
2.64%

Dec 2013

1,002,000
660,000

Single total figure – benefits
The taxable values of a fully expensed company car, private medical insurance, life assurance and an annual medical check-up are
included in the table of directors’ remuneration.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Pensions
Both directors opted out of the Associated British Foods Pension Scheme, a defined benefit scheme, on 5 April 2006, and since then
have earned benefits in an Employer-Financed Retirement Benefit Scheme (EFRBS).

George G Weston
The director has an overall benefit promise of a minimum of 2/3rds of Final Pay or 1/45th of Final Pensionable Earnings for each year of
Pensionable Service. The director opted out of the Associated British Foods Pension Scheme on 5 April 2006, and has a deferred benefit
in the Scheme; the balance of the promise is provided under an EFRBS. The directors’ benefits are payable from age 65. There is no
additional benefit entitlement for the members if they take early retirement. The pension accrued by the director at 13 September 2014
was £477,363.

John G Bason
The director has an overall benefit promise of a minimum of 2 ∕3rds of Final Pay or 1/45th of Final Pensionable Earnings for each year of
Pensionable Service, less an allowance for the directors’ retained benefits from previous employment. The director opted out of the
Associated British Foods Pension Scheme on 5 April 2006, and has a deferred benefit in the Scheme; the balance of the promise is
provided under an EFRBS. The directors’ benefits are payable from age 62. There is no additional benefit entitlement for the members
if they take early retirement. The pension accrued by the director at 13 September 2014 was £284,064.

Short-term incentive plan – 2013/14
In December 2014 there will be a payout of 70.74% of salary to executive directors in respect of the financial element of the annual
bonus for the 2013/14 financial year (72.86% of salary based on adjusted operating profit performance multiplied by 0.9709 in respect
of average working capital performance). This reflects the performance of the group with adjusted operating profit slightly ahead of
target and working capital as a percentage of sales just below target.

Adjusted operating profit
Average working capital as a percentage of sales

Actual

£1,163m

14.56%

Below bonus
threshold

Below target

Target

Above target

Maximum

The committee applied its discretion to reduce the incentive range downwards by £10m at cut-in, target and maximum this year.
As outlined in the section on discretion, the committee has a robust process that it applies when considering whether or not any
adjustment to incentive targets is appropriate. In light of the challenge in the sugar business, the Company made the decision to
significantly restructure this business in the current year, which had a £22m impact on reported operating profit. As this cost was
not included in the budget, and therefore incentive targets for the year, the committee agreed to an adjustment to incentive targets
of £10m in recognition of the fact that accelerating this action to restructure the business was in the best interests of Company
performance and of shareholders in the long term.

Following a review of personal performance against specific objectives for the 2013/14 financial year, the committee determined
that George Weston will receive 16.1% of salary in relation to strong performance against set objectives, cost base reductions and
continuous improvement in the sugar business, continuing the international roll-out of Primark and increasing internationalisation of
the grocery businesses. In addition, there has been good progress on succession planning, both for the board and divisional
leadership teams. John Bason will receive 15% of base salary for the individual element of the annual bonus, reflecting overall
performance that is ahead of expectations with all objectives having been attained and good performance delivered on acquisitions,
IT projects, refinancing and pension funding. Personal objectives set for each of the executive directors were closely aligned to the
overall strategy of the group and will not be disclosed because of commercial sensitivity.

In addition to the above percentages, the committee has determined to increase the personal element of the incentive payment by
a further 2.4% for George Weston and 2.45% for John Bason for the reasons detailed in the Remuneration Committee chairman’s
statement on page 64.

Long-term incentive plan – 2011– 2014
The performance measures for each three-year LTIP cycle are set by the committee. Awards are made annually, at the discretion
of the committee, and eligible executives receive shares at the end of the performance period, subject to achievement of the
performance measures. For the 2011–2014 cycle the threshold level of compound earnings per share growth was 5% per annum
with on target at 8% and maximum at 11%. The actual earnings per share growth over the period was more than 12% compound
per annum. In November 2014 executive directors will therefore receive 100% of the conditional shares allocated in 2011 –
George Weston will receive 166,606 shares and John Bason 109,614 shares. No further deferral will be applied to these shares,
as outlined in the remuneration policy.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Grant policy for share plans
Conditional share awards are granted each year in the last 10 days of November, following announcement of the Company’s results.
In addition, further awards are made, following approval by the committee, between the end of November and 1 June each year to
new starters or newly promoted individuals who are eligible to participate. The share price used to determine the number of shares
in an allocation is the average of the closing share prices on the five trading days immediately preceding the award date.

Until the AGM on 6 December 2013, awards were made under the Associated British Foods Executive Share Incentive Plan 2003.
Since then, awards have been made under the Associated British Foods Long-Term Incentive Plan. All awards are settled using
shares bought in the market.

Scheme interests awarded in 2013/14 (audited information)
The table below details the conditional share interests awarded to the executive directors. The awards made were in line with our
normal policy and are subject to performance conditions over the vesting period.

Maximum award

Shares vesting

Executive director

George Weston
John Bason

Award date Vesting date

% salary

Face value

Market price
at grant

25/11/13
25/11/13

25/11/16
25/11/16

200%
200%

£1,954,000
£1,286,000

2321.2p
2321.2p

Target
(50% of
maximum)

Threshold
(10% of
maximum)

42,090
27,701

8,418
5,540

Maximum

84,181
55,402

Below
threshold
(0% of
maximum)

0
0

The committee determined that performance for this award should be measured against an absolute range of 5% to 11% compound
annual growth in adjusted earnings per share. The committee believes that the range remains achievable but stretching over the next
three-year period. In setting this target, the committee has taken into account:

• the volatility present in many of the markets in which the group operates;

• the scale of investments made in the pursuit of long-term growth;

• the results of the long-term incentive to date;

• market expectations;

• internal forecasts for the next few years; and

• advice from their appointed remuneration advisors.

As outlined in the remuneration policy, following vesting there will be no further holding period in place for these shares other than
as detailed in the share ownership requirements section.

Executive directors’ shareholding requirements and share interests (audited information)
The executive directors are required to build up a beneficially owned shareholding of 100% of salary. No share option awards from
earlier years are outstanding.

Beneficial
13 September
2014

Beneficial
as
% of salary1

2
Conditional
13 September
2014

Total
13 September
2014

Total as at
14 September
2013

Executive directors
George Weston3
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

Holding
requirement

n/a
100% of
salary

100% of
salary

2,446]

n/a

2,446

3,460,8824

9053%

383,339

3,844,221

3,845,908

112,724

448%

252,221

364,945

387,459

1 Calculated using share price as at 12 September 2014 of £26.21.
2 These awards, detailed in the preceding and following tables are conditional allocations under the long-term incentive plans described in the policy section.
3

George Weston is a director of Wittington Investments Limited which, together with its subsidiary, Howard Investments Limited, held 431,515,108 ordinary
shares in Associated British Foods plc as at 13 September 2014.
The increase in George Weston’s holding of Associated British Foods plc shares, as at 13 September 2014, arises in part from a release of shares under the
LTIP on 25 November 2013 and in part from an in-depth exercise that has been carried out to comply with the new controlling shareholder requirements.

5 The interests above remained the same at 4 November 2014.

In addition to the interests awarded in the year, the executive directors have the following conditional interests in ABF shares.

George Weston

Share incentive plan

Scheme name

John Bason

Share incentive plan

Dates of award
and vesting

23.11.11 – 24.11.14
23.11.12 – 23.11.15
23.11.11 – 24.11.14

23.11.12 – 23.11.15

Market price

at award Maximum (shares)

Face value
(£000)

End of performance
period

1098.4p
1433.4p
1098.4p

1433.4p

166,606
132,552
109,614

87,205

1,830
1,900
1,204

1,250

13.09.14
12.09.15
13.09.14

12.09.15

1 For each of the above tranches, performance is against an absolute range of 5% to 11% compound annual growth in adjusted earnings per share.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Non-executive directors’ shareholding requirements and share interests (audited information)
There is no shareholding requirement for non-executive directors. The following shareholdings are ordinary shares of
Associated British Foods plc unless stated otherwise.

Charles Sinclair
Tim Clarke
Lord Jay
Javier Ferrán
Peter Smith
Emma Adamo1

Wittington Investments Limited,
ordinary shares of 50p
Associated British Foods plc,
ordinary shares of 515/22p

Ruth Cairnie2

Beneficial
13 September 2014

Beneficial
14 September 2013

Total
13 September 2014

Total
14 September 2013

12,760
4,000
1,000
2,400
2,000

1,322

504,465
–

12,760
4,000
1,000
2,400
2,000

1,322

504,465
–

12,760
4,000
1,000
2,400
2,000

1,322

504,465
–

12,760
4,000
1,000
2,400
2,000

1,322

504,465
–

Emma Adamo is a director of Wittington Investments Limited which, together with its subsidiary, Howard Investments Limited, held 431,515,108 ordinary shares
in Associated British Foods plc as at 13 September 2014. Emma Adamo’s interest in Associated British Foods plc shares as at 14 September 2013, has been
re-stated to include 38,231 shares held by her husband.

2 Ruth Cairnie was appointed a director on 1 May 2014.

Payments to past directors (audited information)
No payments were made to past directors in 2013/14.

Payments for loss of office (audited information)
No payments were made for loss of office in 2013/14.

TSR performance and Chief Executive’s pay
The performance graph below illustrates the performance of the Company over the past five years from September 2009 to
September 2014, 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.

In addition, the table below the graph provides a five-year summary of the total remuneration of the Chief Executive over the same
period showing a breakdown of each of the elements of variable pay within the total remuneration figure. For the purpose of
calculating the value of the remuneration of the Chief Executive, data has been collated on a basis consistent with the ‘single figure’
methodology as defined by the Department for Business, Innovation and Skills.

450

400

350

300

250

200

150

100

2009

2010

Total remuneration
(single figure, £000)
Annual variable pay (£000)
Potential maximum annual
variable pay (£000)
Annual variable pay
(% of maximum)
Long-term variable pay – shares
vesting as % of maximum

3,886
1,266

1,310

97%

ABF

FTSE 100

2014

7,155
894

1,503

59%

2011

3,182
438

1,373

32%

2012

3,859
864

1,425

61%

2013

5,832
1,219

1,466

83%

99.12%

83.80%

97.42%

85.00%

100.00%

At close of business on 12 September 2014, the last trading day before the end of the financial year, the market value of the
Company’s ordinary shares was 2621p. During the previous 12 months, the market value ranged from 1822p to 3125p.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Percentage change in remuneration of the Chief Executive
Between 2013 and 2014, the increase in the Chief Executive’s salary was 2.64% and the average increase in salaries for our UK
employees was 2–3%. The total increase in reward for the Chief Executive was 22.65%, reflecting full vesting on the LTIP and the
increase in the share price over the last year. The overall increase in spend on reward for all of our employees was 3%. These numbers
are based on aggregate data presented on page 101 as it is very difficult, in a decentralised group of the Company’s size, to separate
the increase in spend on incentives and benefits.

Executive directors serving as non-executive director
During the year, George Weston served as a non-executive director of Wittington Investments Limited, for which he received no
compensation.

John Bason is a non-executive director and chairman of the audit committee of Compass Group PLC, for which he received a total fee
of £103,000 in the 2013/14 financial year. He also served as a trustee of Voluntary Service Overseas and as deputy chairman of the
charity FareShare, but received no compensation in respect of either of these roles.

Relative importance of spend on pay
A year-on-year comparison of the relative importance of pay and significant income distributions to shareholders and others is
shown below.

Expenditure

Pay spend for the group

Dividends relating to the period

Income taxes paid

2014
£m
2,006
269
246

2013
£m

1,9481

253

252

% Change

–2%

Pay spend for the group for 2013 has been adjusted to reflect the new accounting standard on pensions.

Implementation of policy 2014/15
We do not intend to implement our policy differently in 2014/15 than in 2013/14.

Base salary
Executive directors’ salaries are subject to review on 1 December 2014 and will be increased as shown in the table below.

George Weston
John Bason

Benefits and pension
No change to current operation.

Dec 2013

1,002,000
660,000

Increase in
Dec 2014

26,000
17,000

Dec 2014

1,028,000
677,000

Short-Term Incentive Plan – 2014/15
The STIP will be operated in 2014/15 in line with the remuneration policy and with previous Company practice on implementation.

Maximum
On-target (budget)
Threshold
Below threshold

Payout based
on operating
profit only

Modification to
payout based
on average
working capital

108.3%
65.0%
15.0%
0.0%

x1.2
x1.0
x0.8
x0.8

Overall
financial
payout

130%
65%
12%
0.0%

Personal
element

20.0%
13.3%
0.0%
0.0%

Total bonus

150.0%
78.3%
12.0%
0.0%

As detailed in our remuneration policy, we believe that the detailed targets used for our short-term incentive plan are commercially
sensitive. We believe that our targets are set at a stretching level and will disclose achievement against them retrospectively in our
2015 Remuneration report as we have done for 2013/14. As the committee has the right to claw back awards under the STIP, we will
ask participants to confirm their acceptance of the terms of the award to ensure that they have understood this.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Long-Term Incentive Plan – 2014–17
The LTIP will be operated in line with the remuneration policy and with the continuing Company grant policy (see page 67). As the
committee has the right to claw back awards under the LTIP, we will ask participants to confirm their acceptance of the terms of
the award to ensure that they have understood this.

Service contracts

Executive directors
George Weston
John Bason
Non-executive directors
Charles Sinclair
Tim Clarke
Lord Jay
Javier Ferrán
Peter Smith
Emma Adamo
Ruth Cairnie

Date of appointment

Date of current contract/
letter of appointment

Notice from Company

Notice from individual

Unexpired period of
service contract

19.04.99
04.05.99

01.10.08
03.11.04
01.11.06
01.11.06
28.02.07
09.12.11
01.05.14

01.06.05
16.03.99

21.04.09
03.11.04
01.11.06
01.11.06
28.02.07
09.12.11
01.05.14

12 months
12 months

6 months
6 months
6 months
6 months
6 months
6 months
6 months

12 months
12 months

Rolling contract
Rolling contract

6 months
6 months
6 months
6 months
6 months
6 months
6 months

Rolling contract
Rolling contract
Rolling contract
Rolling contract
Rolling contract
Rolling contract
Rolling contract

Non-executive directors’ fees for 2014/15

Chairman
Senior Independent Director
Chairman of Audit committee
Director

Dec 2013

£350,000
£82,500
£82,500
£65,000

Increase in
Dec 2014

£40,000
£10,000
£10,000
£7,500

Dec 2014

£390,000
£92,500
£92,500
£72,500

The non-executive directors’ fees were last revised in December 2012. Since then the group has grown in scale and complexity and
corporate governance responsibilities have increased. The fee levels proposed for December 2014 are consistent with market rates.

Annual report on remuneration – governance
Remuneration committee
The committee comprises the following members, all of whom are independent non-executive directors:

Name

Charles Sinclair
Tim Clarke
Lord Jay
Peter Smith
Javier Ferrán
Ruth Cairnie

Role on committee

Independence

Year of appointment

Meetings attended
(total of 6)

Chairman
Member
Member
Member
Member
Member

Chairman
Senior Independent Director
Independent Director
Independent Director
Independent Director
Independent Director

2008
2004
2006
2007
2006
2014

6
6
6
6
6
31

1 Ruth Cairnie attended all meetings from her date of joining.

All committee members, George Weston (Chief Executive) and Des Pullen (Group HR Director) attended all six of the meetings of the
committee and Julie Withnall (Group Head of Reward) attended all except the June meeting. No individual was present when their
own remuneration was being considered.

Remuneration committee advisors and fees
Following a competitive tender in 2003, Towers Watson (then Towers Perrin) was selected to provide independent market information
and remuneration advice to the Remuneration committee. The committee has retained Towers Watson in this role because it values
the robust data provided and continuity of advice over the long term. The committee remains satisfied that the advice from Towers
Watson is independent, thoughtful and challenging.

Towers Watson is a member of the Remuneration Consultants Group and adheres to its code in relation to executive remuneration
consulting. The only other advice that Towers Watson provides to the Company is in survey provision and remuneration
benchmarking. The fees paid to Towers Watson for committee assistance over the past financial year totalled £80,151.

Associated British Foods Annual Report and Accounts 2014

Governance
Remuneration report

Role of the committee
The Remuneration committee is responsible to the board for determining:

• the remuneration policy for the executive directors and Chairman taking into account remuneration trends across the Company;

• the specific terms and conditions of employment of each individual director;

• the overall policy for remuneration for the Chief Executive’s first and second line reports;

• the design and monitoring of the operation of any Company share plans;

• stretching incentive targets to encourage enhanced performance;

• an approach that rewards fairly and responsibly contribution to the Company’s long-term success; and

• other provisions of the executive directors’ service agreements and ensuring that contractual terms on termination,
and payments made, are fair to the individual and the Company and that failure is not rewarded and loss is mitigated.

The committee’s remit is set out in detail in its terms of reference, which are reviewed regularly and were updated in July 2014.
They are available on the website at www.abf.co.uk/investorrelations under corporate governance/board committees, or from
the Company Secretary’s office on request.

Remuneration principles
The overall remuneration policy of the Company aims to:

• provide alignment between remuneration and the Company’s business objectives;

• align executive rewards with shareholder value;

• attract and retain high-calibre executive directors;

• motivate executive directors to achieve challenging performance levels and reward them for so doing;

• recognise both individual and group achievement; and

• reflect the diversity of the group’s interests.

Statement on shareholder voting
At the last AGM in December 2013 the voting results on the remuneration resolution ‘To receive and approve the Remuneration
report for the year ended 14 September 2013’ were as follows:

(i)
(ii)
(iii)

the total number of votes cast in relation to the resolution was 656,638,825: 643,199,668 ‘for’ and 13,439,157 ‘against’
the percentage ‘for’ was 97.95% and the percentage ‘against’ was 2.05%
the number of abstentions was 1,405,427

Compliance statement
The Remuneration committee has made major changes to the structure and content of the 2014 Remuneration report in recognition
of the government’s new reporting requirements set out in the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013.

The Policy section of this report will be subject to a binding vote at the forthcoming annual general meeting of the Company.
It is our intention that this policy will be reviewed annually. However, we expect this policy to apply for three years and will seek
shareholder approval before making any changes to the policy.

The Annual Implementation section of this report will be subject to an advisory vote 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 LLP has audited the report to the extent required by the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008.

By order of the board

Paul Lister
Company Secretary

4 November 2014

Associated British Foods Annual Report and Accounts 2014

Governance
Directors’ report

DIRECTORS’ REPORT

Introduction
The directors of Associated British Foods
plc (the ‘Company’) present their report
for the year ended 13 September 2014,
in accordance with section 415 of the
Companies Act 2006. The UKLA’s
Disclosure and Transparency Rules and
Listing Rules also require the Company
to make certain disclosures, some of
which have been included in other
appropriate sections of the annual
report and accounts.

The information set out on pages 1 to 3
and 83 and, in particular, the following
cross-referenced material, is incorporated
into this Directors’ report:

• likely future developments in the
group’s business (pages 4 to 49);

• greenhouse gas emissions

(pages 40 and 41); and

• the Board of directors and the
Corporate governance report
(pages 50 to 63).

Results and dividends
The consolidated income statement is
on page 86. Profit for the financial year
attributable to equity shareholders
amounted to £762m.

The directors recommend a final dividend
of 24.3p per ordinary share to be paid,
subject to shareholder approval, on
9 January 2015. Together with the interim
dividend of 9.7p per share paid on 4 July
2014, this amounts to 34.0p for the year.
Dividends are detailed on page 102.

Directors
The names of the persons who were
directors of the Company during the
financial year and as at 4 November
2014 appear on pages 50 and 51.
All the directors are standing for
election or re-election at this year’s
AGM in December.

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. A person who is not
recommended by the directors may
only be appointed as a director where
details of that director have been provided
at least seven and not more than 35 days
prior to the relevant meeting by at least
two members of the Company. The
Articles require directors to retire and
submit themselves for election at the
first AGM following appointment and all
directors who held office at the time of
the two preceding AGMs and, in any
event, not less than one third of the
relevant directors (excluding those
directors who retire other than by
rotation), to submit themselves for
re-election. The Articles notwithstanding,
all directors will stand for election or
re-election at the AGM this year in
compliance with the UK Corporate
Governance Code. Details of unexpired
terms of directors’ service contracts is
set out in the Remuneration report on
page 78.

Power of 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 Articles. The Articles, for
example, contain specific provisions and
restrictions concerning the Company’s
power to borrow money. As indicated
above, powers relating to the issuing of
shares are also included in the Articles
and such authorities are renewed by
shareholders at the AGM each year.

Directors’ indemnities
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.

One director benefited from a qualifying
pension scheme indemnity provision
during the financial year and at the
date of this report.

Directors’ share interests
Details regarding the share interests of
the directors and their connected persons
in the share capital of the Company,
including any interests under the
long-term incentive plan, are set out in the
Remuneration report on pages 75 and 76.

Employees
During the year under review, the group
employed an average of 118,209 people
worldwide (2013: 112,652) of whom
41,942 (2013: 40,071) were employed in
the UK. The group abides by the following
principles, recognising that people are its
most crucial resource:

• equal opportunities – the group is

committed to offering equal
opportunities in recruitment, training,
career development and promotion
to all people, including those with
disabilities, having regard for their
particular aptitudes and abilities.
As a matter of policy, 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 group
an opportunity for retraining and for
continuation in employment. It is group
policy that the training, career
development and promotion of disabled
persons should, as far as possible, be
the same as those of other employees;

• health and safety – health and safety

are considered as equal in importance
to that of any other function of the
group and its business objectives.
The health and safety policy is
available on the Company’s website
at www.abf.co.uk;

• harrassment – sexual, mental or

physical harassment in the workplace
will not be tolerated. It is expected
that incidents of harassment to be
reported to the appropriate human
resources director;

• human rights – managers must take

account of the core International Labour
Organization labour conventions and
strive to observe the UN Universal
Declaration of Human Rights, by
respecting the dignity and human rights
of group employees and in particular as
stated below:

Associated British Foods Annual Report and Accounts 2014

Governance
Directors’ report

Authority to issue shares
At the last annual general meeting
(‘AGM’), held on 6 December 2013,
authority was given to the directors to
allot unissued relevant securities in the
Company up to a maximum of an amount
equivalent to two-thirds of the shares in
issue (of which one-third must be offered
by way of rights issue). This authority
expires on the date of this year’s AGM to
be held on 5 December 2014. No such
shares have been issued. The directors
propose to renew this authority at the
2014 AGM for the following year.

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 2006. This authority also expires on
the date of the 2014 AGM and the
directors will seek to renew this authority
for the following year.

Authority to purchase own shares
The Companies Act 2006 empowers
the Company to purchase its own shares
subject to the necessary shareholder
approval. The Company has no existing
authority to purchase its own shares.

Amendment to Company’s articles
of association
Any amendments to the Articles may be
made in accordance with the provisions
of the Companies Act 2006 by way of
special resolution of the shareholders.

“Universal respect for an observance of
human rights and fundamental freedoms
for all without discrimination as to race,
sex, language or religion.”

The group remunerates fairly with
respect to skills, performance, its peers
and local conditions;

• communication – employees and

their representatives are briefed and
consulted on all relevant matters on
a regular basis in order to take their
views into account with regard to
decision-making and to achieve a
common awareness of all the financial
and economic factors affecting the
performance of the group. Information
relevant to the employees will be
provided systematically to employees;
and

• security – the security of our staff and
customers is paramount and the group
will, at all times, take the necessary
steps to minimise risks to their safety.

Employees are provided with information
on the performance of their local business
and their involvement is encouraged in a
variety of ways, such as through
engagement surveys.

The group encourages an open culture
in all its dealings between employees
and people with whom it comes into
contact. Effective and honest
communication is essential if malpractice
and wrongdoing are to be dealt with
effectively. The group’s whistleblowing
procedure sets out guidelines for
individuals who feel they need to raise
certain issues in confidence with the
Company or their own business.
Every effort is made to protect the
confidentiality of those who raise
concerns, and employees may come
forward without fear for their position.

Controlling interest
Details of a controlling interest in the
shares of the Company are given in
note 28 on page 129.

Disclosures required under
Listing Rule 9.8.4R
The following table is included to meet
the requirements of Listing Rule section
9.8.4R. The information required to be
disclosed by that section, where
applicable to the Company, can be located
in the annual report and accounts at the
references set out below.

Information required
Amount of interest
capitalised
Dividend waiver

Location in annual report

Note 9 on page 106
Note 22 on page 117

Major interests in shares
As at 31 October 2014, the Company had
received formal notification, under the
Disclosure and Transparency Rules, of the
following material interest in its shares:

Number
of ordinary
shares

% of
issued
share
capital

Date of
notification
of interest

55,452,249

7.0044

21
January
2014

Shareholder
The Capital
Group
Companies,
Inc.

Share capital
Details of the Company’s share capital
and the rights attached to the Company’s
shares are set out in note 20 on page 115.
The Company has one class of share
capital: ordinary shares of 515/22p. The
rights and obligations attaching to these
shares are governed by UK law and the
Company’s articles of association.

No shareholder holds securities carrying
special rights with regard to the control of
the Company. There are no restrictions on
voting rights.

There are no restrictions on the transfer
of ordinary shares other than the
standard restrictions for a UK-quoted
company set out in article 32 of the
Company’s Articles.

Associated British Foods Annual Report and Accounts 2014

Auditors
In accordance with Section 489 of the
Companies Act 2006, a resolution for the
reappointment of KPMG LLP as auditors
of the Company is to be proposed at the
forthcoming AGM.

Annual general meeting
The AGM will be held on 5 December
2014 at 11.00 am at Congress Centre,
28 Great Russell Street, London
WC1B 3LS. Details of the resolutions
to be proposed are set out in a separate
Notice of meeting which accompanies
this report for shareholders receiving hard
copy documents and which is available at
www.abf.co.uk for those who elected to
receive documents electronically. At the
2014 AGM, all voting will be by polls using
electronic handsets.

On behalf of the board

Paul Lister
Company Secretary

4 November 2014

Associated British Foods plc
Registered office:
Weston Centre
10 Grosvenor Street
London W1K 4QY

Company No. 293262

Governance
Directors’ report

Significant agreements –
change of control
The group has contractual arrangements
with many parties including directors,
employees, customers, suppliers and
banking groups. The following
arrangements are considered to be
significant in terms of their potential
impact on the business of the group as
a whole and could alter or terminate on
a change of control of the Company:

• 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 their renegotiation or
withdrawal. The most significant of
these are the £1.2bn syndicated loan
facility signed on 15 July 2014 and
a £120m loan from the European
Investment Bank signed on
5 December 2007 which was
fully drawn down at the year end.
There were no drawdowns at the
year end under the £1.2bn facility.
The syndicated loan facility for
£1.15bn signed on 13 July 2010
was cancelled upon executing the
£1.2bn syndicated facility.

• in addition to these bank facilities,

in March 2009 the Company issued
US$610m of private placement notes
to institutional investors and, in
December 2011 and March 2012, the
Company issued a further US$626m of
private placement notes. In accordance
with the scheduled maturities,
US$194m of these notes were repaid
in March 2014. In the event of a change
in ownership of the Company, the
Company is obliged to make an offer of
immediate repayment to the remaining
note holders.

There are no agreements between the
Company and its directors or employees
providing for compensation for loss of
office or employment that occurs as a
result of a takeover bid.

Political donations
The Company did not make any political
donations during the year.

Financial risk management
Details of the group’s use of financial
instruments, together with information
on our risk objectives and policies and our
exposure to price, credit, liquidity, cash
flow and interest rate risks, can be found
in note 24 on pages 118 to 127.

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 the Netherlands, 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.

Branches
The Company, through various
subsidiaries, has established branches in
a number of different countries in which
the group operates.

Post-balance sheet events
Significant events affecting the group that
have arisen between 13 September 2014
and the date of this report and that require
disclosure are described in note 29 on
page 130.

Disclosure of information to auditors
Each of the directors who held office at
the date of approval of this Directors’
report confirm that:

• so far as he/she is aware, there is no

relevant audit information of which the
Company’s auditors are unaware; and

• each director has taken all the

reasonable steps that he/she ought
to have taken as a director to make
himself/herself aware of any relevant
audit information and to establish that
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
pages 84 and 85.

Associated British Foods Annual Report and Accounts 2014

Governance
Statement of directors’ responsibilities

Directors’ responsibility statement
We, the directors of the Company,
confirm that to the best of our knowledge:

• the financial statements prepared
in accordance with the applicable
accounting standards, give a true
and fair view of the assets, liabilities,
financial position and profit of the
Company and the undertakings
included in the consolidation taken
as a whole; and

• the Strategic report includes a fair
review of the development and
performance of the business and the
position of the group, together with
a description of the principal risks
and uncertainties that it faces.

On behalf of the board

Charles Sinclair
Chairman

George Weston
Chief Executive

John Bason
Finance Director

4 November 2014

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

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.

Under company law the directors must
not approve the financial statements
unless they are satisfied that they give
a true and fair view of the state of affairs
of the group and parent company and
of their profit and loss 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.

The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
company’s transactions and 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 2006. 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 Strategic Report, Directors’
Report, Remuneration Report and
Corporate Governance Statement
that complies 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.

Fair, balanced and understandable
The board considers that the Company’s
Annual Report and Accounts 2014,
taken as a whole, is fair, balanced and
understandable and provides information
necessary for shareholders to assess the
Company’s performance, business model
and strategy.

Associated British Foods Annual Report and Accounts 2014

Governance
Independent auditors’ report

INDEPENDENT AUDITORS’ REPORT

Opinions and conclusions arising
from our audit
1. Our opinion on the financial
statements is unmodified
We have audited the financial statements
of Associated British Foods plc for the
52 week period ended 13 September
2014 set out on pages 86 to 135.
In our opinion:

• the financial statements give a true and
fair view of the state of the group’s and
of the parent company’s affairs as at
13 September 2014 and of the group’s
profit for the 52 weeks then ended;

• the group financial statements have

been properly prepared in accordance
with International Financial Reporting
Standards as adopted by the
European Union;

• the parent company financial

statements have been properly
prepared in accordance with
UK Accounting Standards; and

• the financial statements have been
prepared in accordance with the
requirements of the Companies Act
2006; and, as regards the group
financial statements, Article 4 of
the IAS Regulation.

2. Our assessment of risks of
material misstatement
In arriving at our audit opinion above on
the financial statements, the risks that
had the greatest effect on our audit and
the key procedures we applied to
address them are set out below. Those
procedures were designed in the context
of the financial statements as a whole
and, consequently, we do not express
any opinion on these individual risks.

Carrying value of AB Mauri ($1,078m),
North China Sugar (£185m) and the
Australian meat business (A$286m)
Refer to pages 61 (Audit committee
Report), 96 (accounting policy) and
104 to 106 (financial disclosures).

Tax provisioning (included within
income tax creditor of £193m)
Refer to pages 61 (Audit committee
Report), 96 (accounting policy) and 102
(financial disclosures).

The risk

AB Mauri, North China Sugar and the
Australian meat business have all
experienced difficult trading
environments in recent years.

AB Mauri has seen increased
competitive pressure through pricing
in some of its businesses around the
world. The profitability of North China
Sugar has suffered from low world
sugar prices. The Australian meat
business has seen continuing retailer
price competition, competitor activity
and operational challenges.

In light of these trading challenges,
there is a risk that the group’s significant
capitalised goodwill, other intangibles
and property, plant and equipment
balances may not be recoverable.

Due to the inherent uncertainty involved
in forecasting and discounting future
cash flows which are the basis of the
assessment of recoverability, this is one
of the key judgemental areas upon
which our audit is focused.

Our response

Our audit procedures included, among
others, testing the principles and
mathematical integrity of the group’s
discounted cash flow models for each
cash generating unit (CGU).

We compared the group’s assumptions
to externally derived data as well as our
own assessments in relation to key
assumptions such as projected economic
growth, operational improvements in
agriculture, cost inflation, margin
improvement initiatives, selling prices,
volumes and discount rates, as well as
performing break-even analysis on the
assumptions. We compared the sum of
the discounted cash flows to the group’s
market capitalisation to assess the
reasonableness of those cash flows.

We tested the sensitivity of the
impairment calculations to changes in the
key assumptions used by the directors.

We also assessed whether the group’s
disclosures relating to the sensitivity
of the outcome of the impairment
assessment to changes in key
assumptions properly reflected the
risks inherent in the valuation of
goodwill, other intangibles and property,
plant and equipment.

The risk

Tax provisioning requires the directors
to make judgements and estimates in
relation to tax issues and exposures.
This is one of the key judgemental
areas upon which our audit is focused
due to the group operating in a number
of tax jurisdictions, the complexities of
transfer pricing and other international
tax legislation and the time taken for
tax matters to be agreed with tax
authorities.

Our response

Our audit procedures included, among
others, using our own tax specialists to
assist us in assessing and challenging
the assumptions and judgements made
by the directors; checking the accuracy
of the computation of local income tax
amounts; and assessment of specific
local tax issues. In assessing the
directors’ assumptions, we have
used both our own tax specialists’
knowledge of recent tax cases and,
where available, information on recent
tax settlements.

We also considered the adequacy of
the group’s disclosures in respect of
tax and uncertain tax positions.

3. Our application of materiality and an
overview of the scope of our audit
The materiality for the group financial
statements as a whole was set at £50m.
This has been determined with reference
to a benchmark of group profit before
taxation, which we consider to be one of
the principal considerations for members
of the company in assessing the financial
performance of the group. Materiality
represents 4.9% of group profit before tax
and 4.5% after adjusting for non-trading
items as disclosed on the face of the
income statement.

We agreed with the Audit committee to
report to it all uncorrected misstatements
we identified through our audit with a value
in excess of £1m for income statement
items, in addition to other audit
misstatements we believed warranted
reporting on qualitative grounds.

Audits for group reporting purposes were
performed by component auditors in 60
locations with key reporting components

Associated British Foods Annual Report and Accounts 2014

Governance
Independent auditors’ report

Under the Listing Rules we are required
to review:

• the directors’ statement, set out on

page 57, in relation to going concern;
and

• the part of the Corporate governance
statement on page 52 relating to
the company’s compliance with
the nine provisions of the 2010 UK
Corporate Governance Code
specified for our review.

We have nothing to report in respect of
the above responsibilities.

Scope of report and responsibilities
As explained more fully in the Statement
of directors’ responsibilities set out on
page 83, the directors are responsible for
the preparation of the financial statements
and for being satisfied that they give a
true and fair view. A description of the
scope of an audit of financial statements
is provided on the Financial Reporting
Council’s website at www.frc.org.uk/
auditscopeukprivate. This report is made
solely to the company’s members as a
body and is subject to important
explanations and disclaimers regarding
our responsibilities, published on our
website at www.kpmg.com/uk/
auditscopeukco2013a, which are
incorporated into this report as if set out
in full and should be read to provide an
understanding of the purpose of this
report, the work we have undertaken
and the basis of our opinions.

Richard Pinckard
(Senior Statutory Auditor)
for and on behalf of KPMG LLP,
Statutory Auditor

Chartered Accountants
15 Canada Square
London
E14 5GL

4 November 2014

being in the following countries: United
Kingdom, Ireland, US, Spain, Malawi,
Thailand, South Africa, Germany,
Australia, Zambia, Argentina and China.
These group procedures covered 88%
of total group revenue; 89% of total group
profits and losses that made up the
group’s profit before taxation; and 94%
of total group assets. The remaining 12%
of revenue, 11% of group profit before
tax and 6% of total group assets
is represented by 262 reporting
components around the world. Whilst
none of these individual 262 reporting
components represented more than
1.6% of revenue, profit before tax or
total group assets we considered the
aggregate risk from these components
when performing our audit planning and
during our final analytical procedures over
the group financial statements. Local
statutory audits are performed over
some of these components, but generally
these are completed at different times
during the year.

The audits undertaken for group
reporting purposes at all key reporting
components of the group were
performed to local materiality levels.
These local materiality levels were set
individually at each component and
agreed with the group audit team and
ranged from £2,000 to £34m.

Detailed instructions were sent to all
the auditors in these locations. These
instructions covered the significant
areas that should be addressed by the
component auditors (which included the
relevant risks of material misstatement
detailed above) and set out the
information required to be reported back
to the group audit team. In addition to
those components audited directly by
the group audit team, members of the
group audit team visited China, Germany,
Ireland, Mexico, Spain, South Africa and
the US. Telephone meetings were also
held with the auditors at those locations
and the majority of the other locations
that were not physically visited.

4. Our opinion on other matters
prescribed by the Companies Act
2006 is unmodified
In our opinion:

• the part of the Remuneration report

to be audited has been properly
prepared in accordance with the
Companies Act 2006; and

• the information given in the Strategic

report and the Directors’ report for the
financial year for which the financial
statements are prepared is consistent
with the financial statements.

5. We have nothing to report in
respect of the matters on which we
are required to report by exception
Under International Standards on Auditing
(UK and Ireland) we are required to report
to you if, based on the knowledge we
acquired during our audit, we have
identified other information in the annual
report that contains a material
inconsistency with either that knowledge
or the financial statements, a material
misstatement of fact, or that is otherwise
misleading.

In particular, we are required to report to
you if:

• we have identified material

inconsistencies between the
knowledge we acquired during our
audit and the directors’ statement that
they consider that the annual report and
financial statements taken as a whole is
fair, balanced and understandable and
provides the information necessary for
shareholders to assess the group’s
performance, business model and
strategy; or

• the Governance section of the annual

report describing the work of the Audit
committee does not appropriately
address matters communicated by
us to the Audit committee.

Under the Companies Act 2006 we are
required to report to you if, in our opinion:

• adequate accounting records have not
been kept by the parent company, or
returns adequate for our audit have not
been received from branches not
visited by us; or

• the parent company financial

statements and the part of the
Remuneration report to be audited
are not in agreement with the
accounting records and returns; or

• certain disclosures of directors’

remuneration specified by law are
not made; or

• we have not received all the information

and explanations we require for
our audit.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Consolidated income statement

CONSOLIDATED INCOME STATEMENT

for the 52 weeks ended 13 September 2014

Continuing operations
Revenue
Operating costs

Share of profit after tax from joint ventures and associates
Profits less losses on disposal of non-current assets
Operating profit

Adjusted operating profit
Profits less losses on disposal of non-current assets
Amortisation of non-operating intangibles

Profits less losses on sale and closure of businesses
Profit before interest
Finance income
Finance expense
Other financial income/(expense)
Profit before taxation

Adjusted profit before taxation
Profits less losses on disposal of non-current assets
Amortisation of non-operating intangibles
Profits less losses on sale and closure of businesses

Taxation – UK

– Overseas

Profit for the period

Attributable to
Equity shareholders
Non-controlling interests
Profit for the period

Basic and diluted earnings per ordinary share (pence)
Dividends per share paid and proposed for the period (pence)

Note

1
2

2014

£m
12,943
(11,865)
1,078
13
(11)
1,080

2013
(restated)
£m
13,315
(12,240)
1,075
13
–
1,088

4
4
4

8
21

7
6

1,163
(11)
(72)

(2)
1,078
15
(73)
–
1,020

1,105
(11)
(72)
(2)

(117)
(120)
(237)
783

762
21
783

96.5
34.0

1,180
–
(92)

(128)
960
13
(100)
(5)
868

1,088
–
(92)
(128)

(111)
(129)
(240)
628

585
43
628

74.0
32.0

Associated British Foods Annual Report and Accounts 2014

Financial statements
Consolidated statement of comprehensive income

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the 52 weeks ended 13 September 2014

Profit for the period recognised in the income statement

Other comprehensive income

Remeasurements of defined benefit schemes
Deferred tax associated with defined benefit schemes
Items that will not be reclassified to profit or loss

Effect of movements in foreign exchange
Net gain/(loss) on hedge of net investment in foreign subsidiaries
Deferred tax associated with movements in foreign exchange
Current tax associated with movements in foreign exchange
Reclassification adjustment for movements in foreign exchange on subsidiaries disposed
Movement in cash flow hedging position
Deferred tax associated with movement in cash flow hedging position
Share of other comprehensive income of joint ventures and associates
Items that are or may be subsequently reclassified to profit or loss

Other comprehensive income for the period

Total comprehensive income for the period

Attributable to
Equity shareholders
Non-controlling interests
Total comprehensive income for the period

2014

£m
783

(25)
3
(22)

(275)
25
–
2
–
55
(11)
(5)
(209)

(231)

552

580
(28)
552

2013
(restated)
£m
628

33
(7)
26

(114)
(20)
2
–
7
6
(2)
–
(121)

(95)

533

527
6
533

Associated British Foods Annual Report and Accounts 2014

Financial statements
Consolidated balance sheet

CONSOLIDATED BALANCE SHEET

at 13 September 2014

Non-current assets
Intangible assets
Property, plant and equipment
Biological assets
Investments in joint ventures
Investments in associates
Employee benefits assets
Deferred tax assets
Other receivables
Total non-current assets

Current assets
Inventories
Biological assets
Trade and other receivables
Derivative assets
Cash and cash equivalents
Total current assets
Total assets

Current liabilities
Loans and overdrafts
Trade and other payables
Derivative liabilities
Income tax
Provisions
Total current liabilities

Non-current liabilities
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
Total equity attributable to equity shareholders
Non-controlling interests
Total equity

Note

2014

£m

2013
(restated)
£m

2012
(restated)
£m

8
9
10
11
11
12
13
14

15
10
14
24
16

17
18
24

17
19
13
12

20
20
20
20

1,467
4,665
96
180
32
90
152
164
6,846

1,631
109
1,293
74
519
3,626
10,472

(358)
(2,046)
(15)
(193)
(72)
(2,684)

(607)
(29)
(266)
(133)
(1,035)
(3,719)
6,753

45
175
238
29
5,950
6,437
316
6,753

1,581
4,552
97
182
36
81
273
148
6,950

1,581
112
1,342
27
362
3,424
10,374

(394)
(1,881)
(38)
(166)
(47)
(2,526)

(772)
(30)
(431)
(96)
(1,329)
(3,855)
6,519

45
175
440
(13)
5,508
6,155
364
6,519

1,769
4,541
89
174
40
45
189
151
6,998

1,500
109
1,236
33
391
3,269
10,267

(538)
(1,752)
(50)
(150)
(98)
(2,588)

(914)
(38)
(373)
(112)
(1,437)
(4,025)
6,242

45
175
532
(17)
5,120
5,855
387
6,242

The financial statements on pages 86 to 130 were approved by the board of directors on 4 November 2014 and were signed on its
behalf by:

Charles Sinclair
Chairman

John Bason
Director

Associated British Foods Annual Report and Accounts 2014

CONSOLIDATED CASH FLOW STATEMENT

for the 52 weeks ended 13 September 2014

Cash flow from operating activities
Profit before taxation
Profits less losses on disposal of non-current assets
Profits less losses on sale and closure of businesses
Finance income
Finance expense
Other financial expense
Share of profit after tax from joint ventures and associates
Amortisation
Depreciation
Impairment of property, plant and equipment
Impairment of operating intangibles
Impairment of goodwill
Net change in the fair value of biological assets
Share-based payment expense
Pension costs less contributions
Increase in inventories
Decrease/(increase) in receivables
Increase in payables
Purchases less sales of current biological assets
Increase in provisions
Cash generated from operations
Income taxes paid
Net cash from operating activities

Cash flows from investing activities
Dividends received from joint ventures and associates
Purchase of property, plant and equipment
Purchase of intangibles
Purchase of non-current biological assets
Sale of property, plant and equipment
Purchase of subsidiaries, joint ventures and associates
Sale of subsidiaries, joint ventures and associates
Loans to joint ventures
Purchase of non-controlling interests
Interest received
Net cash from investing activities

Cash flows from financing activities
Dividends paid to non-controlling interests
Dividends paid to equity shareholders
Interest paid
Financing:
Decrease in short-term loans
Decrease in long-term loans
Sale of shares in subsidiary undertakings to non-controlling interests
Movements from changes in own shares held
Net cash from financing activities

Net increase/(decrease) 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

Financial statements
Consolidated cash flow statement

2014

£m

1,020
11
2
(15)
73
–
(13)
94
402
–
–
–
(21)
15
7
(119)
19
200
(3)
13
1,685
(246)
1,439

17
(676)
(32)
–
17
(8)
15
(15)
–
10
(672)

(21)
(256)
(77)

(158)
(10)
1
(59)
(580)

187
243
(31)
399

2013
(restated)
£m

868
–
128
(13)
100
5
(13)
130
405
27
4
10
(26)
15
(24)
(112)
(158)
173
(2)
11
1,528
(252)
1,276

11
(593)
(22)
(1)
15
(75)
35
(4)
(1)
10
(625)

(29)
(232)
(107)

(258)
(23)
1
(10)
(658)

(7)
245
5
243

Associated British Foods Annual Report and Accounts 2014

Financial statements
Consolidated statement of changes in equity

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the 52 weeks ended 13 September 2014

Balance as at 15 September 2012 (restated, see page 95)

175

532

(17)

5,120

5,855

387

Attributable to equity shareholders

Issued
capital
£m

Other
reserves
£m

Translation
reserve
£m

Hedging
reserve
£m

Retained
earnings
£m

Note

Non-
controlling
interests
£m

Total
£m

Total comprehensive income
Profit for the period recognised in the income

statement (restated)

Remeasurements of defined benefit schemes (restated)
Deferred tax associated with defined benefit schemes

(restated)

Items that will not be reclassified to profit or loss

Effect of movements in foreign exchange
Net loss on hedge of net investment in foreign

subsidiaries

Deferred tax associated with movements in foreign

exchange

Reclassification adjustment for movements in foreign

exchange on subsidiaries disposed
Movement in cash flow hedging position
Deferred tax associated with movement in cash flow

hedging position

Items that are or may be subsequently reclassified to

profit or loss

Other comprehensive income

Total comprehensive income

Transactions with owners
Dividends paid to equity shareholders
Net movement in own shares held
Dividends paid to non-controlling interests
Total transactions with owners
Balance as at 14 September 2013

Total comprehensive income
Profit for the period recognised in the income statement

Remeasurements of defined benefit schemes
Deferred tax associated with defined benefit schemes
Items that will not be reclassified to profit or loss

Effect of movements in foreign exchange
Net gain on hedge of net investment in foreign subsidiaries
Current 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 other comprehensive income of joint ventures

and associates

Items that are or may be subsequently reclassified to

profit or loss

Other comprehensive income

Total comprehensive income

Transactions with owners
Dividends paid to equity shareholders
Net movement in own shares held
Current tax associated with share-based payments
Dividends paid to non-controlling interests
Acquisition of non-controlling interests
Total transactions with owners
Balance as at 13 September 2014

Associated British Foods Annual Report and Accounts 2014

–

–
–

–

–
–

–

–
–
–
–
45

–

–
–
–

–
–

–

–
–
–
–
–
–
45

–

–
–

–

–
–

–

–
–
–
–
175

–

–
–
–

–
–

–

–
–
–
–
–
–
175

–

–
–

(86)

(13)

–

7
–

–

(92)

–
–
–
–
440

–

–
–
–

(224)
25

2
–

–

(5)

(202)

–
–
–
–
–
–
238

–

–
–

–

–
6

(2)

–
–
–
–
(13)

–

–
–
–

–
–

–
53

(11)

–

–
–
–
–
–
–
29

Total
equity
£m

6,242

628

(7)
26

(2)

–
(2)

(28)

(114)

(7)

(20)

–

–
–

–

(35)

(37)

–
–
(29)
(29)
364

7
6

(2)

(121)

(95)

533

(232)
5
(29)
(256)
6,519

585

(7)
28

–

–
–

–

615

(232)
5
–
(227)
5,508

585

(7)
28

(86)

(13)

7
6

(2)

(86)

(58)

527

(232)
5
–
(227)
6,155

762

783

(25)
3
(22)

–
–

–

(22)

740

(256)
(44)
2
–
–
(298)
5,950

(25)
3
(22)

(224)
25

2
53

(11)

(5)

(160)

(182)

580

(256)
(44)
2
–
–
(298)
6,437

–
–
–

(51)
–

–
2

–

(49)

(28)

–
–
–
(21)
1
(20)
316

(25)
3
(22)

(275)
25

2
55

(11)

(5)

(209)

(231)

552

(256)
(44)
2
(21)
1
(318)
6,753

SIGNIFICANT ACCOUNTING POLICIES

for the 52 weeks ended 13 September 2014

Associated British Foods plc (‘the
Company’) is a company domiciled in
the United Kingdom. The consolidated
financial statements of the Company for
the 52 weeks ended 13 September 2014
comprise those of the Company and its
subsidiaries (together referred to as ‘the
group’) and the group’s interest in
associates and joint ventures.

The financial statements were
authorised for issue by the directors on
4 November 2014.

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
Practice. These are presented on pages
131 to 135.

Basis of preparation
The going concern basis has been
applied in these accounts. The
consolidated 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 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 Accounting
estimates and judgements detailed on
page 96.

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,
except where detailed otherwise.

Details of new accounting standards
which came into force in the year are
set out at the end of this note.

The consolidated financial statements of
the group are prepared to the Saturday
nearest to 15 September. Accordingly,
these financial statements have been
prepared for the 52 weeks ended
13 September 2014. To avoid delay in
the preparation of the consolidated
financial statements, the results of
certain subsidiaries, joint ventures and
associates are included up to 31 August
2014. The results of Illovo are included
for the period to 30 September 2014 in
line with Illovo’s local reporting date.
Adjustments are made as appropriate
for significant transactions or events
occurring between 13 September and
30 September.

The group’s business activities, together
with the factors likely to affect its future
development, performance and position
are set out in the Strategic report on
pages 6 to 35. The financial position
of the group, its cash flows, liquidity
position and borrowing facilities are
described in the Financial review on
pages 36 to 39. In addition, the Principal
risks and uncertainties on pages 46 to 49
and note 24 on pages 118 to 127 provide
details of the group’s policy on managing
its financial and commodity risks.

The group has considerable financial
resources, good access to debt markets,
a diverse range of businesses and a wide
geographic spread. It is therefore well
placed to manage business risks
successfully.

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,
other comprehensive income and net
assets of its joint ventures 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.

Financial statements
Significant accounting policies

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.

Changes in the group’s ownership
interest in a subsidiary that do not result
in a loss of control are accounted for
within equity.

Joint ventures are those entities over
whose activities the group has joint control,
typically established by contractual
agreement and requiring the venturers’
unanimous consent for strategic financial
and operating decisions.

Associates are those entities in which
the group has significant influence, but
not control, over the financial and
operating policies.

Where the group’s share of losses
exceeds its interest in a joint venture or
associate, the carrying amount is reduced
to zero and recognition of further losses
is discontinued except to the extent that
the group has incurred legal or constructive
obligations or made payments on behalf
of an investee.

Business combinations
On the acquisition of a business, 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 are finalised within
12 months of the business combination
date and, where significant, are adjusted
by restatement of the comparative period
in which the acquisition occurred.
Non-controlling interests are measured
at the proportionate share of the net
identifiable assets acquired.

For business combinations executed
before 3 September 2004, goodwill
is included on the basis of its deemed
cost, represented by the net book value
recorded under previous GAAP.

For business combinations executed in
periods ending on or before 12 September
2009, goodwill arising on a business
combination was the excess of the
carrying amount of any existing equity
interest plus the fair value of consideration
payable for the additional stake over the
fair value of the share of net identifiable

Associated British Foods Annual Report and Accounts 2014

Financial statements
Significant accounting policies

SIGNIFICANT ACCOUNTING POLICIES

for the 52 weeks ended 13 September 2014

assets and liabilities acquired (including
separately identified intangible assets),
net of non-controlling interests. Total
consideration included acquisition costs.
Contingent consideration was measured
at fair value at the date of the business
combination. Subsequent changes to
contingent consideration other than
settlements are accounted for as
adjustments to goodwill.

For business combinations executed
on or after 13 September 2009, existing
equity interests in the acquiree are
remeasured to fair value as at the date
of the business combination, with any
resulting gain or loss taken to the
income statement.

Goodwill arising on a business
combination is the excess of the
remeasured carrying amount of any
existing equity interest plus the fair value
of consideration payable for the additional
stake over the fair value of the share of
net identifiable assets and liabilities
acquired (including separately identified
intangible assets), net of non-controlling
interests. Total consideration does not
include acquisition costs, which are
expensed as incurred.

Contingent consideration is measured
at fair value at the date of the business
combination, classified as a liability or
equity (usually as a liability), and
subsequently accounted for in line with
that classification. Changes in contingent
consideration classified as a liability
resulting other than from the finalisation
of provisional fair values are accounted
for in the income statement.

Revenue
Revenue represents the invoiced value of
sales made to customers after deduction
of discounts and sales taxes. Discounts
include sales rebates, price discounts,
customer incentives, certain promotional
activities and similar items. Revenue
does not include sales between group
companies. Revenue is recognised when
the risks and rewards of the underlying
products have been substantially
transferred to the customer and when
it can be measured reliably.

Revenue from the sale of goods is
generally recognised on dispatch or
delivery to customers, dependent
on shipping terms. Discounts are
provided for as a reduction to revenue

at the time a sale is recorded, based
on management’s best estimate of
the amount required to meet claims
by customers.

Borrowing costs
Borrowing costs are accounted for using
the effective interest method. For qualifying
items of property, plant and equipment
where the commencement date for
capitalisation was on or after 13 September
2009, the group capitalises borrowing
costs directly attributable to the acquisition,
construction or production of those
qualifying assets as part of their cost.
The group previously expensed all
borrowing costs as incurred. Interest
capitalised is taxed under current or
deferred tax as appropriate.

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.

Adjusted profit and
earnings measures
Adjusted operating profit is stated
before amortisation of non-operating
intangibles, profits less losses on disposal
of non-current assets and exceptional
items. Adjusted profit before tax is stated
before amortisation of non-operating
intangibles, profits less losses on
disposal of non-current assets, profits
less losses on sale and closure of
businesses and exceptional items.
Both measures are shown on the face
of the income statement.

Adjusted earnings per share is shown in
the notes and is stated before amortisation
of non-operating intangibles, profits less
losses on disposal of non-current assets,
profits less losses on sale and closure
of businesses and exceptional items
together with the related tax effect.

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.

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 rates to rates
at the balance sheet date, are taken to
the translation reserve in equity.

Pensions and other post-
employment benefits
The impact of applying the revised
IAS 19 Employee Benefits is set out
on page 95.

The group’s principal pension schemes
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
net interest expense or income calculated
by applying the liability discount rate to
the net pension asset or liability. For each
plan, the difference between market
value of assets and present value of
liabilities is disclosed as an asset or
liability in the balance sheet.

Any related deferred tax (to the extent
recoverable) is disclosed separately in
the balance sheet. Remeasurements
are recognised immediately in other
comprehensive income. Surpluses
are recognised only to the extent that
they are recoverable. Movements in
irrecoverable surpluses are recognised
immediately as remeasurement in other
comprehensive income.

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
The fair value of share awards at grant date
is recognised as an employee expense
with a corresponding increase in equity,
spread over the period during which

Associated British Foods Annual Report and Accounts 2014

Financial statements
Significant accounting policies

the employees become unconditionally
entitled to the shares. The amount
recognised is adjusted to reflect expected
and actual levels of vesting except where
the failure to vest is as a result of not
meeting a market condition.

Income tax
Income tax on 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 other
comprehensive income.

Current tax is the tax expected to be
payable on taxable income for the year,
using tax rates enacted or substantively
enacted during the period, together with
any adjustment to tax payable in respect
of previous years.

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: initial recognition of
goodwill; initial recognition of assets or
liabilities affecting 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.

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 other non-current investments
and derivatives, are measured initially
at fair value, plus directly attributable
transaction costs, and thereafter at
amortised cost. Other non-current
investments (classified under other
non-current receivables) comprise

available-for-sale investments 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.

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 purpose of
the cash flow statement.

Derivatives
Derivatives are used to manage the
group’s economic exposure to financial
and commodity risks. The principal
instruments used are foreign exchange
and commodity contracts, futures, swaps
or options (the ‘hedging instrument’).
The group does not use derivatives for
speculative purposes.

Derivatives are recognised in the
balance sheet, at fair value, based on
market prices or rates, or calculated
using either discounted cash flow or
option pricing models.

Changes in the value of derivatives are
recognised in the income statement
unless they qualify for hedge accounting,
when recognition of any change in fair
value 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.

Changes in the value of derivatives
used as hedges of future cash flows are
recognised through other comprehensive
income in the hedging reserve, with
any ineffective portion recognised
immediately within operating profit in
the income statement.

When the future cash flow results in the
recognition of a non-financial asset or
liability, the gains and losses previously
recognised in the hedging reserve are
included in the initial measurement of

that asset or liability. Otherwise, gains
and losses previously recognised in the
hedging reserve are 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, any cumulative gain or loss on
the hedging instrument recognised in
the hedging reserve is retained in the
hedging reserve until the forecast
transaction occurs. Gains or losses
on hedging instruments relating to
an underlying exposure that no longer
exists are taken to the income statement.

Hedges of the group’s net investment in
foreign operations principally comprise
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
derivative 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.

Intangible assets other
than goodwill
Non-operating intangible assets are
intangible assets that arise on business
combinations and typically include
technology, brands, customer
relationships and grower agreements.
Operating intangible assets are acquired
in the ordinary course of business and
typically include computer software, land
use rights and emissions trading licences.

Intangible assets other than goodwill
are stated at cost less accumulated
amortisation and impairment charges.

Amortisation is charged to the income
statement 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:

Technology and brands – up to 15 years
Customer relationships – up to 5 years
Grower agreements – up to 10 years

Associated British Foods Annual Report and Accounts 2014

Financial statements
Significant accounting policies

SIGNIFICANT ACCOUNTING POLICIES

for the 52 weeks ended 13 September 2014

Goodwill
Goodwill is defined under ‘Business
combinations’ on pages 91 and 92.
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 review.

Research and development
Research expenditure is expensed as
incurred. Development expenditure is
capitalised if the product or process is
technically and commercially feasible
but is otherwise expensed 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 and
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
in the income statement whenever
the carrying amount of an asset or its
cash-generating unit (CGU) exceeds
its recoverable amount.

Impairment charges recognised in respect
of CGUs are allocated first to reduce the
carrying amount of any goodwill allocated
to that CGU and then to reduce the
carrying amount of the other assets
in the unit on a pro rata basis.

Calculation of recoverable amount
The recoverable amount of assets is the
greater of their fair value less costs to sell
and their 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 CGU to which the
asset belongs.

Reversals of impairment
An impairment charge in respect of
goodwill is not subsequently reversed.
For other assets, an impairment charge
is reversed if there has been a change
in the estimates used to determine the
recoverable amount, but only to the
extent that the new 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 and equipment
Items of property, plant and 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 and equipment sufficient
to reduce them to estimated residual
value. Land is not depreciated. Estimated
useful lives are generally deemed to be
no longer than:

Freehold buildings
Plant and equipment, fixtures
and fittings
– sugar factories, yeast plants,

66 years

leases. Payments made under operating
leases are recognised in the income
statement on a straight-line basis over
the term of the lease, as is the benefit
of lease incentives.

Where the group is a lessor under an
operating lease, the asset is capitalised
within property, plant and 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
Biological assets are measured at fair
value less costs to sell. Cane roots and
growing cane are stated at fair value on
the following bases:

Cane roots – escalated average cost,
using appropriate inflation-related indices,
of each year of planting adjusted for
remaining expected life, currently ten
years in South Africa, nine years in
Swaziland, seven years in Zambia and
eight years elsewhere.

Growing cane – estimated sucrose
content valued at estimated sucrose price
for the following season, less estimated
costs for harvesting and transport.

mills and bakeries

– other operations
Vehicles

20 years
12 years
10 years

When harvested, growing cane is
transferred to inventory at fair value
less costs to sell.

Leases
A lease is 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 and
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

The fair value of cane roots and growing
cane is determined using inputs that are
unobservable, using the best information
available in the circumstances for using
the cane roots and the growing cane,
and therefore fall into the level 3 fair
value category.

Inventories
Inventories are stated at the lower of
cost and net realisable value. Cost
includes raw materials, direct labour and
expenses and an appropriate proportion
of production and other overheads,
calculated on a first-in first-out basis.

Inventories for Primark are valued at
the lower of cost and net realisable value
using the retail method, calculated on
the basis of selling price less appropriate
trading margin. All Primark inventories
are finished goods.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Significant accounting policies

New accounting policies
The revised IAS 19 Employee Benefits
is applied for the first time in 2014 and
makes changes to measurement and
disclosure requirements for defined
benefit post-employment arrangements.
The expected return on plan assets and
the interest charge on scheme liabilities
have been replaced by net interest
expense or income calculated by
applying the liability discount rate to the
net pension asset or liability. Scheme
administration costs are expensed as
incurred and the reserve for scheme
expenses, which was previously
included in scheme liabilities, has
been removed. IAS 19 service cost is
charged to operating profit and pension
financing costs are charged to other
financial expense.

The new standard is applied for the first
time in the 2014 financial year, but with
retrospective effect from the 2012
balance sheet date. The impact of all
changes is reflected in retained earnings
in equity and is wholly attributable to
equity shareholders.

The £95m net pension liability in the
2012 balance sheet has been replaced by
a net liability of £67m, and net deferred
tax liabilities of £177m increased by £7m
to £184m.

In 2013, the impact was an increase of
£5m in service cost and an increase of
£3m in net pension finance costs. The
taxation charge decreased by £2m.
Remeasurements in 2013 of £24m have
been replaced with remeasurements of
£33m and the deferred tax associated
with remeasurements of defined benefit
schemes increased by £2m, from £5m
to £7m. The £44m net pension liability
in the 2013 balance sheet has been
replaced by a net liability of £15m, and
net deferred tax liabilities of £151m
increased by £7m to £158m.

2013 basic earnings per share decreased
0.8p from 74.8p to 74.0p, and adjusted
earnings per share decreased 0.8p from
98.9p to 98.1p.

The group has adopted the following
new and amended IFRSs and IFRIC
interpretations with no material impact
(all effective from 15 September 2013):

• Certain elements of Annual

Improvements to IFRSs 2009–2011;

• Amendments to IFRS 7 Financial
Instruments: Disclosures; and

• IFRS 13 Fair Value Measurement
(effective prospectively from the
2014 financial year).

The group is also assessing the impact
of the following revised standards and
interpretations or amendments that
are not yet effective. Where already
endorsed by the EU, these changes will
be adopted on the effective dates noted.
Where not yet endorsed by the EU, the
adoption date is less certain. The impact
of these standards is currently under
review (all effective from 14 September
2014 unless otherwise stated):

• Certain elements of Annual

Improvements to IFRSs 2010–2012,
2011–2013 and 2012–2014 (effective
2017 financial year);

• IFRS 9 Financial Instruments:

Classification and Measurement
effective 2019 financial year (not yet
endorsed by the EU);

• IFRS 10 Consolidated Financial

Statements effective 2015 financial
year;

• IFRS 11 Joint Arrangements effective

2015 financial year;

• IFRS 12 Disclosure of Interests in

Other Entities effective 2015 financial
year;

• IFRS 15 Revenue from Contracts with
Customers effective 2018 financial
year (not yet endorsed by the EU);

• Amendments to IAS 16 Property,
Plant and Equipment and IAS 41
Agriculture effective 2017 financial
year, which changes the accounting
requirements for bearer plants (cane
roots, in the case of the group) (not
yet endorsed by the EU); and

• IAS 28 Investments in Associates
and Joint Ventures effective 2015
financial year.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Accounting estimates and judgements/Notes forming part of the financial statements

ACCOUNTING ESTIMATES AND JUDGEMENTS

for the 52 weeks ended 13 September 2014

In applying the accounting policies
detailed on pages 91 to 95, management
has made estimates in a number of areas
and the actual outcome may differ from
those calculated. Key sources of
estimation uncertainty at the balance
sheet date with the potential for material
adjustment to the carrying value of
assets and liabilities within the next
financial year are set out below.

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.

Assessment for impairment involves
comparing the book value of an asset
with its recoverable amount (being the
higher of value in use and 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 cash flows and the discount
rate involve a significant degree of
estimation uncertainty.

The realisation of deferred tax assets is
dependent on the generation of sufficient
future taxable profits. The group
recognises deferred tax assets to the
extent that it is considered probable that
sufficient taxable profits will be available
in the future. Deferred tax assets are
reduced to the extent that it is no longer
considered probable that the related tax
benefit will be realised.

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 a net liability of £43m
being recognised as at 13 September
2014. The size of this net liability is
sensitive to the market value of the
assets held by the schemes, to the
discount rate used in assessing 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.

Biological assets
Cane roots valuation 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.

For the growing cane valuation, estimated
sucrose content requires management to
assess expected cane and sucrose yields
for the following season considering
weather conditions and harvesting
programmes; estimated sucrose price
requires management to assess into
which markets the forthcoming crop will
be sold and assess domestic and export
prices as well as related foreign currency
exchange rates. The carrying value of
growing cane is disclosed in note 10.

Taxation
The level of current and deferred tax
recognised is dependent on subjective
judgements as to the outcome of
decisions by tax authorities in various
jurisdictions around the world.

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

1. Operating segments
The group has five operating segments,
as described below. These are the
group’s operating divisions, based on the
management and internal reporting
structure, which combine businesses
with common characteristics. The board
is the chief operating decision-maker.

Inter-segment pricing is determined on
an arm’s length basis. Segment result is
adjusted operating profit, as shown on
the face of the consolidated income
statement. Segment assets comprise all
non-current assets except employee
benefits assets and deferred tax assets,
and all current assets except cash and
cash equivalents. Segment liabilities
comprise trade and other payables,
derivative liabilities and provisions.
Segment results, assets and liabilities
include items directly attributable to a
segment as well as those that can be
allocated on a reasonable basis.
Unallocated items comprise mainly

corporate assets and expenses, cash,
borrowings, employee benefits balances
and current and deferred tax balances.
Segment non-current asset additions are
the total cost incurred during the period to
acquire segment assets that are expected
to be used for more than one year,
comprising property, plant and
equipment, operating intangibles and
biological assets.

The group is comprised of the following
operating segments:

Grocery
The manufacture of grocery products,
including hot beverages, sugar &
sweeteners, vegetable oils, bread &
baked goods, cereals, ethnic foods,
herbs & spices, and meat products,
which are sold to retail, wholesale
and foodservice businesses.

Sugar
The growing and processing of sugar
beet and sugar cane for sale to industrial
users and to Silver Spoon, which is
included in the grocery segment.

Agriculture
The manufacture of animal feeds and the
provision of other products and services
for the agriculture sector.

Ingredients
The manufacture of bakers’ yeast, bakery
ingredients, enzymes, lipids, yeast
extracts and cereal specialities.

Retail
Buying and merchandising value clothing
and accessories through the Primark and
Penneys retail chains.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

1. Operating segments continued
Geographical information
In addition to the required disclosure for operating segments, disclosure is also given of certain geographical information about the
group’s operations, based on the geographical groupings: United Kingdom; Europe & Africa; The Americas; and Asia Pacific.

Revenues are shown by reference to the geographical location of customers. Profits are shown by reference to the geographical
location of the businesses. Segment assets are based on the geographical location of the assets.

Operating segments
Grocery
Sugar
Agriculture
Ingredients
Retail
Central

Businesses disposed:
Grocery
Ingredients

Geographical information
United Kingdom
Europe & Africa
The Americas
Asia Pacific

Businesses disposed:
The Americas
Asia Pacific

Revenue

2014

£m

3,337
2,083
1,312
1,261
4,950
–
12,943

–
–
12,943

5,631
3,924
1,211
2,177
12,943

–
–
12,943

2013

£m

3,568
2,677
1,410
1,360
4,273
–
13,288

–
27
13,315

5,728
3,790
1,282
2,488
13,288

27
–
13,315

Adjusted
operating profit

2014

£m

2013
(restated)
£m

269
189
50
41
662
(49)
1,162

1
–
1,163

602
393
127
40
1,162

–
1
1,163

224
434
47
5
513
(51)
1,172

2
6
1,180

710
386
103
(27)
1,172

6
2
1,180

The comparative results for 2013 have been restated for the adoption of IAS 19 Revised Employee Benefits. See New Accounting
Policies on page 95 for further details.

During the year, the activities of AB Mauri’s yeast and bakery ingredients businesses in Australia and New Zealand were merged
with the flour milling business of George Weston Foods. The results of the flour milling business, which were previously included
within the Grocery segment, are now included in the Ingredients segment. The comparative results for 2013 have been reclassified,
resulting in £272m of revenue and £4m of adjusted operating profit being transferred from Grocery to Ingredients. Segment assets
and liabilities have also been restated in this respect.

Disposed businesses comprise the disposal during the year of the group’s interest in a US associate in the Ingredients segment, and
an associated Australian royalty stream in the Grocery segment, together with the prior year disposal of the group’s US whey protein
business in the Ingredients segment.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

1. Operating segments continued
For the 52 weeks ended 13 September 2014

Revenue from continuing businesses
Internal revenue
External revenue from continuing businesses
Businesses disposed
Revenue from external customers

Adjusted operating profit before joint ventures and associates
Share of profit after tax from joint ventures and associates
Businesses disposed
Adjusted operating profit
Profits less losses on disposal of non-current assets
Amortisation of non-operating intangibles
Profits less losses on sale and closure of businesses
Profit before interest
Finance income
Finance expense
Taxation
Profit for the period

Segment assets (excluding joint ventures and associates)
Investments in joint ventures and associates
Segment assets
Cash and cash equivalents
Deferred tax assets
Employee benefits assets
Segment liabilities
Loans and overdrafts
Income tax
Deferred tax liabilities
Employee benefits liabilities
Net assets

Non-current asset additions
Depreciation
Amortisation
Impairment of goodwill on closure of business

Geographical information
Revenue from external customers
Segment assets
Non-current asset additions
Depreciation
Amortisation
Impairment of goodwill on closure of business

Grocery
£m
3,344
(7)
3,337
–
3,337

Sugar
£m
2,164
(81)
2,083
–
2,083

Agriculture
£m
1,312
–
1,312
–
1,312

Ingredients
£m
1,423
(162)
1,261
–
1,261

254
15
1
270
6
(50)
–
226

215
(26)
–
189
–
(17)
–
172

36
14
–
50
1
(3)
–
48

31
10
–
41
–
(2)
(2)
37

Retail
£m
4,950
–
4,950
–
4,950

662
–
–
662
(14)
–
–
648

226

172

2,431
38
2,469

2,327
13
2,340

312
113
425

648

1,266
48
1,314

2,948
–
2,948

(495)

(385)

(125)

(251)

(784)

1,974

1,955

300

1,063

2,164

153
96
64
–

103
80
20
–

28
7
6
–

65
44
4
4

394
171
–
–

Central
£m
(250)
250
–
–
–

Total
£m
12,943
–
12,943
–
12,943

(49)
–
–
(49)
(4)
–
–
(53)
15
(73)
(237)
(348)

215
–
215
519
152
90
(122)
(965)
(193)
(266)
(133)
(703)

1
4
–
–

1,149
13
1
1,163
(11)
(72)
(2)
1,078
15
(73)
(237)
783

9,499
212
9,711
519
152
90
(2,162)
(965)
(193)
(266)
(133)
6,753

744
402
94
4

United
Kingdom
£m
5,631
3,951
279
184
22
–

Europe
& Africa
£m
3,924
3,220
351
122
19
–

The
Americas
£m
1,211
968
34
27
43
–

Asia
Pacific
£m
2,177
1,572
80
69
10
4

Total
£m
12,943
9,711
744
402
94
4

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

1. Operating segments continued
For the 52 weeks ended 14 September 2013 (restated)

Revenue from continuing businesses
Internal revenue
External revenue from continuing businesses
Businesses disposed
Revenue from external customers

Adjusted operating profit before joint ventures and associates
Share of profit after tax from joint ventures and associates
Businesses disposed
Adjusted operating profit
Amortisation of non-operating intangibles
Profits less losses on sale and closure of businesses
Profit before interest
Finance income
Finance expense
Other financial expense
Taxation
Profit for the period

Non-current asset additions
Depreciation
Amortisation
Impairment of property, plant and equipment
Impairment of operating intangibles
Impairment of goodwill
Impairment of property, plant and equipment on closure

of business

Impairment of goodwill on sale of business

Geographical information
Revenue from external customers
Segment assets
Non-current asset additions
Depreciation
Amortisation
Impairment of property, plant and equipment
Impairment of operating intangibles
Impairment of goodwill
Impairment of property, plant and equipment on closure

of business

Impairment of goodwill on sale of business

Grocery
£m
3,576
(8)
3,568
–
3,568

Sugar
£m
2,808
(131)
2,677
–
2,677

Agriculture
£m
1,410
–
1,410
–
1,410

Ingredients
£m
1,544
(184)
1,360
27
1,387

216
8
2
226
(19)
–
207

449
(15)

–

434
(21)
(15)
398

35
12
–
47
(1)
–
46

(3)
8
6
11
(51)
(113)
(153)

Retail
£m
4,273
–
4,273
–
4,273

513
–
–
513
–
–
513

207

398

2,510
33
2,543

2,432
34
2,466

319
99
418

(153)

513

1,315
52
1,367

2,677
–
2,677

(496)

(398)

(121)

(250)

(619)

2,047

2,068

297

1,117

2,058

158
102
36
–
–
–

–
–

158
86
37
8
4
10

3
14

10
7
3
–
–
–

–
–

77
55
54
19
–
–

74
–

220
151
–
–
–
–

–
–

United
Kingdom
£m
5,728
3,863
260
177
35
–
–
–

Europe
& Africa
£m
3,790
3,096
209
102
26
19
–
–

The
Americas
£m
1,309
1,022
51
28
39
–
–
–

–
–

Central
£m
(323)
323
–
–
–

Total
£m
13,288
–
13,288
27
13,315

(51)
–
–
(51)
–
–
(51)
13
(100)
(5)
(240)
(383)

187
–
187
362
273
81
(112)
(1,166)
(166)
(431)
(96)
(1,068)

6
4
–
–
–
–

–
–

Asia
Pacific
£m
2,488
1,677
109
98
30
8
4
10

77
14

1,159
13
8
1,180
(92)
(128)
960
13
(100)
(5)
(240)
628

9,440
218
9,658
362
273
81
(1,996)
(1,166)
(166)
(431)
(96)
6,519

629
405
130
27
4
10

77
14

Total
£m
13,315
9,658
629
405
130
27
4
10

77
14

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

2. Operating costs

Operating costs
Cost of sales (including amortisation of intangibles)
Distribution costs
Administration expenses

100

Operating costs are stated after charging/(crediting):
Employee benefits expense
Amortisation of non-operating intangibles
Amortisation of operating intangibles
Profits less losses on disposal of non-current assets
Depreciation of owned property, plant and equipment
Impairment of property, plant and equipment
Impairment of operating intangibles
Impairment of goodwill
Operating lease payments under property leases
Operating lease payments for hire of plant and 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

Auditors’ remuneration
Fees payable to the Company’s auditor and its associates

in respect of the audit

Group audit of these financial statements
Audit of the Company’s subsidiaries’ financial statements
Total audit remuneration

Fees payable to the Company’s auditor and its associates in respect

of non-audit related services
Audit-related assurance services
Tax compliance services
Tax advisory services
Information technology services
All other services
Total non-audit related remuneration

Fees payable to the Company’s auditor and its associates in respect

of the group’s pension schemes

Audit of the pension schemes

Note

2014

£m

2013
(restated)
£m

9,793
1,271
801
11,865

10,095
1,314
831
12,240

3
8
8

9
9
8
8

2,006
72
22
11
402
–
–
–
175
14
(19)
38
(12)
5
(33)
43

2014
£m

0.6
5.2
5.8

0.3
0.7
1.3
0.1
0.8
3.2

0.1
0.1

1,948
92
38
–
405
27
4
10
155
14
(22)
25
(14)
15
(30)
31

2013
£m

0.6
5.3
5.9

0.3
0.6
1.2
0.1
0.6
2.8

0.2
0.2

Associated British Foods Annual Report and Accounts 2014

3. Employees

Average number of employees
United Kingdom
Europe & 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

Financial statements
Notes forming part of the financial statements

2014

2013

41,942
54,852
4,210
17,205
118,209

40,071
49,247
4,036
19,298
112,652

Note

£m

£m
(restated)

12
12
22

1,672
194
76
49
15
2,006

1,640
180
66
47
15
1,948

101

Details of directors’ remuneration, share options and pension entitlements are shown in the Remuneration report on pages 64 to 79.

4. Interest and other financial income and expense

Finance income
Cash and cash equivalents

Finance expense
Bank loans and overdrafts
All other borrowings
Finance leases
Other payables
Unwinding of discount on provisions

Other financial income/(expense)
Expected return on employee benefit scheme assets
Interest charge on employee benefit scheme liabilities
Net financial income from employee benefit schemes
Net foreign exchange losses on financing activities
Total other financial expense

Note

12
12

2014

£m

15
15

(39)
(32)
(1)
(1)
–
(73)

148
(148)
–
–
–

2013
(restated)
£m

13
13

(42)
(54)
(1)
(2)
(1)
(100)

135
(137)
(2)
(3)
(5)

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

5. Income tax expense

Current tax expense
UK – corporation tax at 22.1% (2013 – 23.5%)
Overseas – corporation tax
UK – under/(over) provided in prior periods
Overseas – overprovided in prior periods

Deferred tax expense
UK deferred tax
Overseas deferred tax
UK – overprovided in prior periods
Overseas – overprovided in prior periods

102

Total income tax expense in income statement

Reconciliation of effective tax rate
Profit before taxation
Less share of profit after tax from joint ventures and associates
Profit before taxation excluding share of profit after tax

from joint ventures and associates

Nominal tax charge at UK corporation tax rate of 22.1% (2013 – 23.5%)
Different tax rates on overseas earnings
Effect of changes in tax rates on income statement
Expenses not deductible for tax purposes
Disposal of assets covered by tax exemptions or unrecognised capital losses
Deferred tax not recognised
Adjustments in respect of prior periods

Income tax recognised directly in equity
Deferred tax associated with defined benefit schemes
Current tax associated with share-based payments
Deferred tax associated with movement in cash flow hedging position
Deferred tax associated with movements in foreign exchange
Current tax associated with movements in foreign exchange

2014

£m

137
148
3
(2)
286

(17)
(19)
(6)
(7)
(49)
237

1,020
(13)

1,007
222
(11)
4
25
2
7
(12)
237

(3)
(2)
11
–
(2)
4

2013
(restated)
£m

143
145
(9)
(10)
269

(23)
2
–
(8)
(29)
240

868
(13)

855
201
(15)
(19)
24
39
37
(27)
240

7
–
2
(2)
–
7

Following the enactment of legislation by the UK government prior to 14 September 2013 to reduce the corporation tax rate to 20%
with effect from 1 April 2015, UK deferred tax has been calculated using a rate of 20%. The impact of this change was a reduction
of £18m in the deferred tax charge for the year ended 14 September 2013.

Deferred taxation balances are analysed in note 13.

6. Dividends

2012 final
2013 interim
2013 final
2014 interim

2014
pence
per share
–
–
22.65
9.70
32.35

2013
pence
per share
20.00
9.35
–
–
29.35

2014
£m
–
–
179
77
256

2013
£m
158
74
–
–
232

The 2014 interim dividend was declared on 23 April 2014 and paid on 4 July 2014. The 2014 final dividend of 24.3 pence,
total value of £192m, will be paid on 9 January 2015 to shareholders on the register on 12 December 2014.

Dividends relating to the period were 34.0 pence per share totalling £269m (2013 – 32.0 pence per share totalling £253m).

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

7. Earnings per share
The calculation of basic earnings per share at 13 September 2014 was based on the net profit attributable to equity shareholders
of £762m (2013 – £585m), and a weighted average number of shares outstanding during the year of 790 million (2013 – 790 million).
The calculation of the weighted average number of shares excludes the shares held by the Employee Share Ownership Plan Trust
on which the dividends are being waived.

Adjusted earnings per ordinary share, which exclude the impact of profits less losses on disposal of non-current assets and the sale
and closure of businesses, amortisation of non-operating intangibles and any associated tax credits, is shown to provide clarity on
the underlying performance of the group.

The diluted earnings per share calculation takes into account the dilutive effect of share incentives. The diluted, weighted average
number of shares is 790 million (2013 – 790 million). There is no difference between basic and diluted earnings.

Adjusted profit for the period
Disposal of non-current assets
Sale and closure of businesses
Tax effect on above adjustments
Amortisation of non-operating intangibles
Tax credit on non-operating intangibles amortisation and goodwill
Non-controlling interests’ share of amortisation of non-operating intangibles net of tax
Profit for the period attributable to equity shareholders

Adjusted earnings per share
Disposal of non-current assets
Sale and closure of businesses
Tax effect on above adjustments
Amortisation of non-operating intangibles
Tax credit on non-operating intangibles amortisation and goodwill
Non-controlling interests’ share of amortisation of non-operating intangibles net of tax
Earnings per ordinary share

103

2014

£m
822
(11)
(2)
(1)
(72)
21
5
762

2014

pence
104.1
(1.4)
(0.3)
(0.1)
(9.1)
2.7
0.6
96.5

2013
(restated)
£m
775
–
(128)
(6)
(92)
29
7
585

2013
(restated)
pence
98.1
–
(16.2)
(0.8)
(11.7)
3.7
0.9
74.0

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

104

8. Intangible assets

Cost
At 15 September 2012
Acquisitions – externally purchased
Acquired through previous business

combinations

Reversal of deferred consideration
Businesses disposed
Other disposals
Effect of movements in foreign exchange

At 14 September 2013
Acquisitions – externally purchased
Acquired through business combinations
Other disposals
Effect of movements in foreign exchange
At 13 September 2014

Amortisation and impairment
At 15 September 2012
Amortisation for the year
Impairment
Impairment on sale of business
Disposals
Effect of movements in foreign exchange
At 14 September 2013
Amortisation for the year
Impairment on closure of business
Other disposals
Effect of movements in foreign exchange
At 13 September 2014
Net book value
At 15 September 2012
At 14 September 2013
At 13 September 2014

Goodwill
£m

Technology
£m

Brands
£m

Non-operating

Operating

Customer
relationships
£m

Grower
agreements
£m

Other
£m

1,320
–

2
(7)
(27)
–
(22)

1,266
–
–
–
(43)
1,223

5
–
10
14
–
–
29
–
4
–
–
33

1,315
1,237
1,190

235
–

–
–
–
–
(8)

227
–
–
–
(32)
195

187
50
–
–
–
(10)
227
–
–
–
(32)
195

48
–
–

373
–

–
–
–
–
(3)

370
–
–
–
(8)
362

189
23
–
–
–
(4)
208
52
–
–
(5)
255

184
162
107

104
–

–
–
–
–
(2)

102
–
4
–
(9)
97

94
4
–
–
–
(2)
96
7
–
–
(10)
93

10
6
4

166
–

–
–
–
–
(26)

140
–
–
–
(17)
123

100
15
–
–
–
(17)
98
13
–
–
(12)
99

66
42
24

8
–

–
–
–
–
(1)

7
–
–
–
(1)
6

8
–
–
–
–
(1)
7
–
–
–
(1)
6

–
–
–

210
40

–
–
–
(21)
(4)

225
42
–
(12)
(7)
248

64
38
4
–
(13)
(2)
91
22
–
(3)
(4)
106

146
134
142

Total
£m

2,416
40

2
(7)
(27)
(21)
(66)

2,337
42
4
(12)
(117)
2,254

647
130
14
14
(13)
(36)
756
94
4
(3)
(64)
787

1,769
1,581
1,467

Impairment
As at 13 September 2014, the consolidated balance sheet included goodwill of £1,190m (2013 – £1,237m). Goodwill is allocated to
the group’s cash-generating units (CGUs), or groups of CGUs, that are expected to benefit from the synergies of the business
combination that gave rise to the goodwill, as follows:

CGU or group of CGUs
ACH
AB Mauri
Twinings Ovaltine
Capullo
Illovo
AB World Foods
North China Sugar
Other (not individually significant)

Primary reporting segment
Grocery
Ingredients
Grocery
Grocery
Sugar
Grocery
Sugar
Various

Discount rate
13.9%
12.7%
10.0%
15.7%
14.0%
11.4%
12.0%
Various

2014
£m
236
291
119
58
121
78
45
242
1,190

2013
£m
241
341
119
58
137
78
46
217
1,237

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

8. Intangible assets continued
A CGU, or group of CGUs, to which goodwill has been allocated must be assessed for impairment annually, or more frequently if
events or circumstances indicate that the carrying amount may not be recoverable.

The carrying value of goodwill is assessed by reference to its value in use to perpetuity reflecting the projected cash flows of each
of the CGUs or group of CGUs. These projections are based on the most recent budget, which has been approved by the board and
reflects management’s expectations of sales growth, operating costs and margin, based on past experience and external sources
of information. Long-term growth rates for periods not covered by the annual budget reflect the products, industries and countries
in which the relevant CGU, or group of CGUs, operate.

For some recently acquired intangible assets, management expects to achieve growth over the next three to five years in excess
of the long-term growth rates for the applicable country or region. In these circumstances, budgeted cash flows are extended,
generally to between three and five years, using specific growth assumptions and taking into account the specific business risks.

The key assumptions on which the cash flow projections for the most recent annual budget are based relate to discount rates,
growth rates and expected changes in volumes, selling prices and direct costs.

The cash flow projections have been discounted using the group’s pre-tax weighted average cost of capital adjusted for country,
industry and market risk. The rates used were between 10.0% and 15.7% (2013 – between 9.1% and 13.8%).

105

The growth rates to perpetuity beyond the initial budgeted cash flows, applied in the value in use calculations for goodwill allocated
to each of the CGUs or groups of CGUs that are significant to the total carrying amount of goodwill, were in a range between 0%
and 5%, consistent with the inflation factors included in the discount rates applied (2013 – between 0% and 3.5%).

Changes in volumes, selling prices and direct costs are based on past results and expectations of future changes in the market.

Sensitivity to changes in key assumptions
Impairment testing is dependent on management’s estimates and judgements, particularly as they relate to the forecasting of future
cash flows, the discount rates selected and expected long-term growth rates. Each of the group’s CGUs had significant headroom
under the annual impairment review with the exception of AB Mauri and the North China sugar business.

Notwithstanding a substantial improvement in profit in the current year, AB Mauri has continued to experience competitive pressure
in a number of markets around the world. Management has reviewed detailed forecasts for this business for a period of ten years
to reflect the time required for completion of the dry yeast production strategy, and has concluded that the assets are not impaired.
Key drivers of the forecast improvement in performance include improved reach and competitiveness in the global dry yeast market
from the new yeast factory in Mexico, implementation of a number of margin improvement initiatives, particularly in cost reduction,
and continuing growth in the global bakery ingredients business. Headroom was $306m on a CGU carrying value of $1,078m
(2013 – headroom of $103m on a CGU carrying value of $1,195m). The discount rate used was 12.7% (2013 – 11.5%) and would
have to increase to more than 15.0% (2013 – 12.1%) before value in use fell below the CGU carrying value. Estimates of long-term
growth rates beyond the forecast periods were 2.5%–3% (2013 – 2.5%–3%) per annum dependent on location.

In North China Sugar, profitability has suffered as a result of low sugar prices and lower volume due to flooding. Current forecasts
for the North China Sugar business continue to support the carrying value of the assets, but the achievement of these forecasts
depends on the continuation of significant improvements already underway in a variety of operational parameters, including
agricultural yields, factory volumes and sugar prices. Management has reviewed detailed forecasts for this business taking those
issues into account for a period of ten years due to the nature and complexity of agricultural improvements and has concluded that
no impairment is required. Headroom was £43m on a CGU carrying value of £185m (2013 – £2m headroom on a CGU carrying
value of £221m). The discount rate used was 12.0% (2013 – 13.0%). The estimate of long-term growth beyond the forecast period
was 2% per annum (2013 – 2% per annum).

For all goodwill other than AB Mauri and North China Sugar, management has concluded that no reasonably possible change in key
assumptions on which it has determined value in use would cause carrying values to materially exceed value in use.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

106

9. Property, plant and equipment

Cost
At 15 September 2012
Acquisitions – externally purchased
Interest capitalised
Businesses disposed
Other disposals
Transfers from assets under construction
Effect of movements in foreign exchange
At 14 September 2013
Acquisitions – externally purchased
Acquired through business combinations
Other disposals
Transfers from assets under construction
Effect of movements in foreign exchange
At 13 September 2014

Depreciation and impairment
At 15 September 2012
Depreciation for the year
Impairment
Impairment on closure of business
Businesses disposed
Other disposals
Effect of movements in foreign exchange
At 14 September 2013
Depreciation for the year
Other disposals
Effect of movements in foreign exchange
At 13 September 2014
Net book value
At 15 September 2012
At 14 September 2013
At 13 September 2014

Net book value of finance lease assets
Land and buildings at net book value comprise:
– freehold
– long leasehold
– short leasehold

Capital expenditure commitments – contracted but not provided for

Land and
buildings
£m

Plant and
machinery
£m

Fixtures and
fittings
£m

Assets under
construction
£m

2,176
102
–
(1)
(8)
49
(20)
2,298
103
1
(7)
28
(79)
2,344

425
53
8
30
(1)
(5)
(8)
502
49
(2)
(29)
520

1,751
1,796
1,824

3,173
125
–
(12)
(132)
229
(97)
3,286
127
1
(91)
111
(159)
3,275

1,591
209
19
47
(5)
(116)
(57)
1,688
189
(56)
(94)
1,727

1,582
1,598
1,548

1,453
176
–
–
(20)
7
14
1,630
324
–
(61)
3
(40)
1,856

495
143
–
–
–
(19)
3
622
164
(61)
(13)
712

958
1,008
1,144

250
181
4
–
–
(285)
–
150
148
–
–
(142)
(7)
149

–
–
–
–
–
–
–
–
–
–
–
–

250
150
149

2014
£m
10

1,399
322
103
1,824
324

Total
£m

7,052
584
4
(13)
(160)
–
(103)
7,364
702
2
(159)
–
(285)
7,624

2,511
405
27
77
(6)
(140)
(62)
2,812
402
(119)
(136)
2,959

4,541
4,552
4,665

2013
£m
11

1,388
313
95
1,796
215

Impairment
The impairment assessments undertaken for goodwill in respect of AB Mauri and North China Sugar were consistent with those
undertaken to assess property, plant and equipment for impairment. See note 8 for further details.

An impairment of A$150m (£98m) was recorded in 2012 in the Australian meat business. Although good progress was made in the
current year to reduce the factory cost base and improve efficiency, continuing retailer price competition and slower than forecast
recovery in production volumes held back the rate of improvement. Following a detailed assessment, management has concluded
that the carrying value of the assets in the meat business is not further impaired. Headroom was A$26m on a CGU carrying value of
A$286m. The discount rate used was 10.5% (2013 – 10.5%). Estimates of long-term growth rates beyond the forecast periods were
2.0% (2013 – 2.0%) per annum.

Associated British Foods Annual Report and Accounts 2014

10. Biological assets

At 15 September 2012
Transferred to inventory
Purchases
Changes in fair value
Effect of movements in foreign exchange
At 14 September 2013
Transferred to inventory
Purchases
Changes in fair value
Effect of movements in foreign exchange
At 13 September 2014

Cane roots
Area under cane as at the end of the period (hectares)
South Africa
Malawi
Zambia
Swaziland
Tanzania
Mozambique

Financial statements
Notes forming part of the financial statements

Current

Non-current

Growing
cane
£m
101
(112)
–
124
(10)
103
(72)
–
80
(15)
96

Other
£m
8
(23)
2
22
–
9
(25)
3
26
–
13

Total
£m
109
(135)
2
146
(10)
112
(97)
3
106
(15)
109

Cane
roots
£m
89
–
1
15
(8)
97
–
–
12
(13)
96

107

2014

2013

8,176
19,908
16,994
8,646
9,643
6,176
69,543

8,729
20,031
16,848
8,646
9,565
5,900
69,719

Growing cane
The following assumptions have been used in the determination of the estimated sucrose tonnage at 13 September 2014:
South Africa
4,499
69.5
57.0%

Expected area to harvest (hectares)
Estimated yield (tonnes cane/hectare)
Average maturity of cane

Swaziland
8,383
97.2
66.7%

Zambia
16,686
118.8
67.3%

Malawi
19,401
106.1
66.7%

Tanzania Mozambique
5,966
87.5
66.7%

9,676
84.2
50.0%

The following assumptions were used in the determination of the estimated sucrose tonnage at 14 September 2013:

Expected area to harvest (hectares)
Estimated yield (tonnes cane/hectare)
Average maturity of cane

South Africa
5,210
72.4
56.0%

Malawi
19,504
105.3
66.7%

Zambia
16,370
118.3
66.7%

Swaziland
8,144
102.3
66.7%

Tanzania Mozambique
5,752
93.2
66.7%

9,565
81.0
50.0%

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

11. Investments in joint ventures and associates

Joint ventures

Associates

At 15 September 2012
Acquisitions
Profit for the period
Dividends received
Effect of movements in foreign exchange
At 14 September 2013
Acquisitions
Disposals
Profit for the period
Dividends received
Effect of movements in foreign exchange
At 13 September 2014

108

Shares
£m
156
2
10
(6)
2
164
5
–
8
(13)
(1)
163

Goodwill
£m
18
–
–
–
–
18
–
–
–
–
(1)
17

Total
£m
174
2
10
(6)
2
182
5
–
8
(13)
(2)
180

Shares
£m
39
–
3
(5)
(2)
35
–
(2)
5
(4)
(3)
31

Goodwill
£m
1
–
–
–
–
1
–
–
–
–
–
1

Total
£m
40
–
3
(5)
(2)
36
–
(2)
5
(4)
(3)
32

Details of principal joint ventures and associates are listed in note 28.

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:

Joint ventures

Associates

Non-current assets
Current assets
Current liabilities
Non-current liabilities
Goodwill
Net assets

Revenue
Expenses
Taxation
Profit for the period

2014
£m
230
301
(198)
(170)
17
180

1,260
(1,252)
–
8

2013
£m
241
275
(179)
(173)
18
182

1,322
(1,311)
(1)
10

2014
£m
16
128
(111)
(2)
1
32

81
(74)
(2)
5

2013
£m
18
135
(116)
(2)
1
36

88
(82)
(3)
3

12. Employee entitlements
The group operates a number of defined benefit and defined contribution retirement benefit schemes in the UK and overseas.
The defined benefit schemes expose the group to a variety of actuarial risks including demographic assumptions such as mortality
and financial assumptions such as discount rate, inflation risk and market (investment) risk. The group is not exposed to any unusual,
entity-specific or scheme specific risks. All schemes comply with local legislative requirements.

The impact of applying the revised version of IAS 19 Employee Benefits for the first time is set out in New Accounting Policies
on page 95.

UK defined benefit scheme
The group’s principal UK defined benefit scheme is the Associated British Foods Pension Scheme, which is a funded final salary
scheme that is closed to new members. Defined contribution arrangements are in place for other employees. The UK defined
benefit schemes represent 91% (2013 – 91%) of the group’s defined benefit plan assets and 89% (2013 – 89%) of the defined
benefit scheme liabilities. The Scheme is governed by a trustee board which is independent of the group and which agrees a
schedule of contributions with the Company each time a formal funding valuation is performed.

The previous triennial funding valuation of the Scheme was carried out as at 5 April 2011, using the current unit method. The market
value of plan assets was £2,559m, representing 101% of members’ accrued benefits after allowing for expected future salary
increases. By agreement with the trustees, the Company agreed to eliminate the deficit identified at the time of the 2008 triennial
funding valuation with five annual payments of £30m totalling £150m. Although the Scheme was in surplus at the time of the 2011
valuation, the Company made the final two payments in March 2012 and March 2013. The most recent triennial funding valuation
of the Scheme was carried out as at 5 April 2014, was agreed by the trustees after the group’s year end and revealed a surplus of
£78m. There will be no material increase in funding requirements.

The Scheme’s assets are managed using a risk controlled investment strategy, which includes a liability-driven investment policy which
seeks to match, where appropriate, the profile of the liabilities. This includes the use of derivative instruments to hedge inflation, interest
and foreign exchange risks. The Scheme utilises both market and solvency triggers to develop the level of hedges in place. To date, the
Scheme is fully hedged for 30% of inflation sensitivity and 24% of interest rate risk. It is intended to hedge 80% of total exposure.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

12. Employee entitlements continued
The Scheme is forbidden by the trust deed from holding direct investments in the equity of the Company, although it is possible that
the Scheme may hold indirect interests through investments in some equity funds. The Scheme owns the freehold of an office
building in London which is leased to the group at an open market rent. The fair value of this building is £6m (2013 – £5m).

Overseas defined benefit schemes
The group also operates defined benefit retirement schemes in a number of overseas businesses, which are primarily funded final
salary schemes, as well as a small number of unfunded post-retirement medical benefit schemes, which are accounted for in the
same way as defined benefit retirement schemes.

Defined contribution schemes
The group operates a number of defined contribution schemes for which the charge was £38m in the UK and £38m overseas,
totalling £76m (2013 – UK £27m, overseas £39m, total £66m).

Actuarial assumptions
The principal actuarial assumptions for the group’s defined benefit schemes at the year end were:

109

Discount rate
Inflation
Rate of increase in salaries
Rate of increase for pensions in payment
Rate of increase for pensions in deferment (where provided)

2014
UK
%
4.1
3.4
3.9
3.2
2.9

2014
Overseas
%
1.5 – 15.7
0.8 – 9.2
0.5 – 10.7
1.2 – 6.3
1.2 – 6.3

2013
UK
%
4.7
3.5
4.5
3.3
3.0

2013
Overseas
%
2.3 – 14.0
0.0 – 10.0
0.5 – 11.8
1.6 – 8.8
0.5 – 8.8

The mortality assumptions used to value the UK defined benefit schemes are derived from the S2 (2013 – S1NA generational)
mortality tables with improvements in line with the 2013 (2013 – 2009) projection model prepared by the Continuous Mortality
Investigation of the UK actuarial profession, with no rating for males (2013 – no rating) and a +0.7 year rating down for females
(2013 – +0.2 year rating up), both with a long-term trend of 1.5% (2013 – 1.5%). 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 in the UK defined benefit schemes are as follows:

Life expectancy from age 65 (in years)
Member aged 65 in 2014 (2013)
Member aged 65 in 2034 (2033)

2014

2013

Male
22.7
24.8

Female
25.2
27.6

Male
22.7
25.0

Female
24.8
27.2

Other demographic assumptions for the UK defined benefit schemes are 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 funding
valuation of the schemes.

For the overseas schemes, regionally appropriate assumptions for mortality, financial and demographic factors have been used.

A sensitivity analysis on the principal assumptions used to measure UK defined benefit scheme liabilities at 13 September 2014 is:

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 9.5%
increase/decrease by 8.7%
increase/decrease by 1.5%
increase by 2.8%

A sensitivity to the rate of increase in pensions in payment and pensions in deferment is represented by the inflation sensitivity, as all
pensions increases and deferred revaluations are linked to inflation.

The sensitivity analysis above has been determined based on reasonably possible changes in the respective assumptions occurring
at the end of the period and may not be representative of the actual change. It is based on a change in the specific assumption while
holding all other assumptions constant. When calculating the sensitivities, the same method used to calculate scheme liabilities
recognised in the balance sheet has been applied. The method and assumptions used in preparing the sensitivity analysis have not
changed since the prior year.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

12. Employee entitlements continued
Balance sheet

Equities
Government bonds
Corporate and other bonds
Property
Cash and other assets
Plan assets
Scheme liabilities
Aggregate net deficit
Irrecoverable surplus (a)
Net pension asset/(liability)

Analysed as
Schemes in surplus
Schemes in deficit

110

Unfunded liability included in the present value of scheme liabilities above

2014

Overseas
£m
146
41
55
6
59
307
(396)
(89)
(12)
(101)

UK
£m
1,243
543
628
229
535
3,178
(3,120)
58
–
58

Total
£m
1,389
584
683
235
594
3,485
(3,516)
(31)
(12)
(43)

2013 (restated)

UK
£m
1,133
849
527
163
260
2,932
(2,878)
54
–
54

Overseas
£m
137
36
66
4
58
301
(358)
(57)
(12)
(69)

87
(29)
58

(29)

3
(104)
(101)

90
(133)
(43)

(48)

(77)

77
(23)
54

(23)

4
(73)
(69)

(44)

Total
£m
1,270
885
593
167
318
3,233
(3,236)
(3)
(12)
(15)

81
(96)
(15)

(67)

(a) The surpluses in the plans are only recoverable to the extent that the group can benefit from either refunds formally agreed or

from future contribution reductions.

Corporate and other bonds relating to UK schemes of £628m includes £46m (2013 – £4m) of assets whose valuation is not derived
from quoted market prices. The valuation for all other equity assets, government bonds, corporate and other bonds is derived from
quoted market prices. The carrying value of UK property assets is based on a 31 March market valuation, adjusted for purchases,
disposals and price indexation between the valuation and the balance sheet dates.

For financial reporting in the group’s accounts, liabilities are assessed by actuaries using the projected unit method. The accounting
value is different from the result obtained using the funding basis, mainly due to different assumptions used to project scheme
liabilities.

The defined benefit scheme liabilities comprise 33% (2013 – 31%) in respect of active participants, 20% (2013 – 19%) for deferred
participants and 47% (2013 – 50%) for pensioners.

The weighted average duration of the defined benefit scheme liabilities at the end of the year is 18 years (UK schemes – 18 years
and overseas schemes – 19 years).

Income statement
The charge to the income statement for employee benefit schemes comprises:

2014

£m

2013

(restated)

£m

(48)
(1)
(76)
(125)

–
(125)

(47)
–
(66)
(113)

(2)
(115)

Charged to operating profit:
Defined benefit schemes
Current service cost
Past service cost

Defined contribution schemes
Total operating cost
Reported in other financial income/(expense):
Net interest income/(expense) on the net pension asset/(liability)
Net impact on profit before tax

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

12. Employee entitlements continued
Cash flow
Group cash flow in respect of employee benefits schemes comprises contributions paid to funded schemes of £41m
(2013 – £69m) and benefits paid in respect of unfunded plans of £nil (2013 – £nil). Contributions to funded defined benefit
plans are subject to periodic review. Contributions to defined contribution plans amounted to £76m (2013 – £66m).

Total contributions to funded plans and benefit payments by the group in respect of unfunded plans in 2015 are currently expected
to be approximately £29m in the UK and £8m overseas, totalling £37m (2014 – UK £31m, overseas £11m, totalling £42m).

Other comprehensive income
Remeasurements of the net asset/liability recognised in other comprehensive income are as follows:

Return on plan assets excluding amounts included in net interest in the income statement
Actuarial gains/(losses) arising from changes in financial assumptions
Actuarial gains/(losses) arising from changes in demographic assumptions
Experience gains/(losses) on scheme liabilities
Change in unrecognised surplus
Remeasurements of the net pension asset/(liability)

Reconciliation of change in assets and liabilities

2014
assets

£m
3,233
–
10
41
(138)
(2)
–
148
211
–

–
–
–
(18)
3,485

2013
assets
(restated)
£m
3,003
–
9
69
(132)
–
–
135
156
–

–
–
–
(7)
3,233

2014
liabilities

£m
(3,236)
(48)
(10)
–
138
2
(1)
(148)
–
(262)

5
21
(1)
24
(3,516)

2013
liabilities
(restated)
£m
(3,062)
(47)
(9)
–
132
–
–
(137)
–
(113)

–
(4)
–
4
(3,236)

At beginning of year
Current service cost
Employee contributions
Employer contributions
Benefit payments
Settlements
Past service cost
Interest income/(expense)
Return on plan assets less interest income
Actuarial gains/(losses) arising from changes in financial assumptions
Actuarial gains/(losses) arising from changes in demographic

assumptions

Actuarial gains/(losses) arising from experience on scheme liabilities
Acquisitions
Effect of movements in foreign exchange
At end of year

Reconciliation of change in irrecoverable surplus

At beginning of year
Change recognised in other comprehensive income
Effect of movements in foreign exchange
At end of year

111

2014

£m
211
(262)
5
21
–
(25)

2014
net

£m
(3)
(48)
–
41
–
–
(1)
–
211
(262)

5
21
(1)
6
(31)

2014
£m
(12)
–
–
(12)

2013

(restated)

£m
156
(113)
–
(4)
(6)
33

2013
net
(restated)
£m
(59)
(47)
–
69
–
–
–
(2)
156
(113)

–
(4)
–
(3)
(3)

2013
£m
(8)
(6)
2
(12)

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

13. Deferred tax assets and liabilities

At 15 September 2012 (restated)
Amount charged/(credited) to the income statement
Amount charged/(credited) to other comprehensive income
Effect of changes in tax rates on income statement
Effect of movements in foreign exchange
At 14 September 2013
Amount charged/(credited) to the income statement
Amount charged/(credited) to other comprehensive income
Acquired through business combinations
Effect of changes in tax rates on income statement
Effect of movements in foreign exchange
At 13 September 2014

112

Property,
plant and
equipment
£m
179
(21)
–
(12)
(2)
144
(6)
–
–
5
(5)
138

Intangible
assets
£m
95
2
–
(2)
(3)
92
(6)
–
1
–
(1)
86

Employee
benefits
£m
(19)
4
7
–
–
(8)
(5)
(3)
–
–
–
(16)

Financial
assets and
liabilities
£m
(4)
–
2
–
–
(2)
–
11
–
–
–
9

Other
temporary
differences
£m
33
(12)
(2)
(3)
(3)
13
(42)
–
–
1
(2)
(30)

Tax value of
carry-forward
losses
£m
(100)
17
–
(2)
4
(81)
6
–
–
(2)
4
(73)

Total
£m
184
(10)
7
(19)
(4)
158
(53)
8
1
4
(4)
114

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

2014
£m
(152)
266
114

2013
£m
(273)
431
158

The recoverability of deferred tax assets is supported by the expected level of future profits in the countries concerned.
Other deferred tax assets totalling £88m (2013 – £82m) have not been recognised on the basis that their future economic
benefit is uncertain.

In addition, there are temporary differences of £2,122m (2013 – £2,514m) 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.

Associated British Foods Annual Report and Accounts 2014

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

Financial statements
Notes forming part of the financial statements

2014
£m

160
4
164

973
122
31
1,126
167
1,293

2013
£m

144
4
148

1,033
126
24
1,183
159
1,342

113

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 24.

Trade and other receivables include £14m (2013 – £15m) in respect of finance lease receivables, with £11m in non-current loans
and receivables and £3m in current other receivables (2013 – £12m in non-current loans and receivables and £3m in current other
receivables). Minimum lease payments receivable are £3m within one year and £11m between one and five years (2013 – £4m
within one year, £12m between one and five years).

The finance lease receivables relate to property, plant and equipment leased to a joint venture of the group (see note 27).

15. Inventories

Raw materials and consumables
Work in progress
Finished goods and goods held for resale

Write down of inventories

2014
£m
334
23
1,274
1,631
(78)

2013
£m
348
29
1,204
1,581
(78)

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

16. 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

Note

2014
£m

231
288
519

(120)
399

2013
£m

231
131
362

(119)
243

Cash at bank and in hand generally earns interest at rates based on the daily bank deposit rate.

114

Cash equivalents generally comprise:

(i)

deposits placed on money markets for periods up to three months which earn interest at a 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.

17. Loans and overdrafts

Current loans and overdrafts
Secured loans
Unsecured loans and overdrafts

Non-current loans
Secured loans
Unsecured loans
Finance leases

Secured loans
– USD floating rate
– USD fixed rate
– EUR floating rate
– Other floating rate
Unsecured loans and overdrafts
– Bank overdrafts
– GBP floating rate
– GBP fixed rate
– USD floating rate
– USD fixed rate
– EUR floating rate
– EUR fixed rate
– RMB floating rate
– RMB fixed rate
– Other floating rate
– Other fixed rate
Finance leases (fixed rate)

Note

2014
£m

2
356
358

14
581
12
607
965

2014
£m

–
–
–
16

120
113
159
29
421
29
–
58
–
7
1
12
965

2013
£m

51
343
394

44
716
12
772
1,166

2013
£m

9
1
21
64

119
123
160
4
531
34
17
57
7
5
2
12
1,166

Secured 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 2014

Financial statements
Notes forming part of the financial statements

18. 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, carrying amount is deemed to reflect fair value.

19. Provisions

At 14 September 2013
Acquisitions – business combinations
Created
Utilised
Released
Effect of movements in foreign exchange

At 13 September 2014

Current
Non-current

Restructuring
£m
35
4
35
(11)
(1)
(1)

47
14
61

Deferred
consideration
£m
3
–
1
(1)
–
(1)
2

1
1
2

2014
£m
910
883
1,793
253
2,046

Other
£m
39
–
9
(5)
(4)
(1)

24
14
38

2013
£m
903
753
1,656
225
1,881

Total
£m
77
4
45
(17)
(5)
(3)

101

72
29
101

115

Provisions were all financial liabilities in both years (see note 24).

Restructuring
Restructuring provisions relate to the cash costs, including redundancy, associated with the group’s announced reorganisation plans,
of which a majority will be utilised in 2014/15.

Deferred consideration
Deferred consideration comprises estimates of amounts due to the previous owners of businesses acquired by the group which are
often linked to performance or other conditions.

Other
Other provisions mainly comprise litigation claims and warranty claims arising from the sale and closure of businesses. The extent
and timing of the utilisation of these provisions is more uncertain given the nature of the claims and the period of the warranties.

20. Share capital and reserves
Share capital

Issued and fully paid
At 14 September 2013 and 13 September 2014

Ordinary
shares of
515⁄ 22p
each
000

Nominal
value
£m

791,674

At 13 September 2014, the Company’s issued share capital comprised 791,674,183 ordinary shares of 515⁄ 22p each, carrying one
vote per share.

Other reserves
£173m of other reserves arose from the cancellation of share premium account by the Company in 1993. The remaining £2m
arose in 2010 as a transfer to capital redemption reserve following redemption of two million £1 deferred shares at par. Both are
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.

Hedging reserve
The hedging reserve comprises all changes in the value of derivatives to the extent that they are effective cash flow hedges, net
of amounts recycled from the hedging reserve on occurrence of the hedged transaction or when the hedged transaction is no
longer expected to occur.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

21. Acquisitions and disposals
2014
During 2014, the group acquired a bakery ingredients business in western Europe and a small animal feed specialist in the UK,
which had the following effect on the group’s assets and liabilities:

116

Net assets
Non-operating intangibles
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loans
Provisions
Employee benefits liabilities
Taxation
Net assets and liabilities and total consideration

Satisfied by
Cash consideration
Deferred consideration

Net cash
Cash consideration
Cash and cash equivalents acquired

Note

8
9

23
19
12

Recognised
values on
acquisition
£m

4
2
4
11
5
(8)
(4)
(4)
(1)
(1)
8

7
1

7
(5)
2

Pre-acquisition carrying amounts were the same as recognised values on acquisition apart from a £4m non-operating intangible
recognised in respect of customer relationships. The acquisitions in aggregate contributed revenue of £27m and adjusted profit
before tax of £1m for the period between the dates of acquisition and 13 September 2014. Aggregate contributions to revenue
and adjusted profit before tax had the acquisitions occurred at the beginning of the period have not been disclosed, as appropriate
financial information prepared under Adopted IFRS is not available.

The net cash of £2m in the acquisition table above differs by £6m from the cash outflow of £8m on the purchase of subsidiaries,
joint ventures and associates shown in the cash flow statement. This difference relates to a £5m investment in an existing joint
venture and £1m of deferred consideration paid in respect of prior year acquisitions.

During the year, the group disposed of its interest in a US associate in the Ingredients segment for a profit of £7m. Cash
consideration was £12m, deferred consideration was £1m, share of net assets disposed was £2m and provisions made were
£4m. In addition, a charge of £9m was made in the Ingredients segment in China and India for restructuring costs associated
with business closures, including a £4m impairment of goodwill.

2013
During 2013, the group completed no new business combinations. Cash flow on purchase of subsidiaries, joint ventures and
associates of £75m comprised £71m of deferred consideration in respect of previous business combinations, a £2m investment
in a joint venture and a £2m adjustment to goodwill for a previous acquisition. Goodwill and deferred consideration were both
reduced by £7m in respect of deferred consideration for previous acquisitions no longer payable.

Loss on sale and closure of businesses of £128m comprised £113m for disposals and closures in the Ingredients segment and
£15m for the loss on disposal of the sugar business in Chifeng, north China. Included within the amount charged in the Ingredients
segment was a loss of £26m in respect of the disposal of our US whey protein operation. Cash consideration for the US disposal
was £20m, tangible assets disposed amounted to £8m and goodwill disposed was £27m. Provisions made were £4m
and foreign exchange differences recycled from equity were £7m. A charge of £72m was made to write down the carrying value
of certain Ingredients assets in China and to provide for restructuring costs, and a charge of £13m to write down the value of yeast
plants in India. Cash flow on sale of subsidiaries, joint ventures and associates of £35m comprised £20m in respect of the US whey
protein business and £15m of deferred consideration received for previous disposals.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

22. Share-based payments
The group had the following principal equity-settled share-based payment plans in operation during the period:

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 are released if, and to the extent that, performance targets are satisfied,
typically over a three-year performance period. The Share Incentive Plan expired in December 2013. The last grant of allocations
under the Share Incentive Plan was made in November 2013. Conditional shares allocated under the Share Incentive Plan will vest
under the terms of the Share Incentive Plan.

Associated British Foods Long-Term Incentive Plan (‘the LTIP’)
The LTIP was approved and adopted by the Company at the annual general meeting held on 6 December 2013. It takes the form
of conditional allocations of shares which will be released if, and to the extent that, performance targets are satisfied, typically over
a three-year performance period.

117

Further information regarding the operation of the above plans can be found in the Remuneration report on pages 64 to 79.

Total conditional allocations under the group’s equity-settled share-based payment plans are as follows:

2014
2013

Balance
outstanding at
the beginning
of the year
5,013,465
5,175,939

Granted/
awarded
1,177,056
2,067,195

Vested
(932,626)
(1,273,950)

Expired/
lapsed
(892,554)
(955,719)

Balance
outstanding
at the end
of the year
4,365,341
5,013,465

Employee Share Ownership Plan Trust
Ordinary shares subject to allocation under the group’s equity-settled share-based payment plans are held in a separate Employee
Share Ownership Plan Trust. The Trust is funded by the Company. Voting rights attached to shares held by the Trust are exercisable
by the trustee, who is entitled to consider any recommendation made by a committee of the Company. At 13 September 2014 the
Trust held 3,062,447 (2013 – 1,995,073) ordinary shares of the Company. The market value of these shares at the year end was
£80m (2013 – £36m). The Trust has waived its right to dividends. Movements in the year were releases of 932,626 and purchases
of 2,000,000 (2013 – releases of 1,273,950 and purchases of 500,000).

Fair values
The weighted average fair value of conditional grants made was determined 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. The weighted average fair value of the
conditional shares allocated during the year was 2,226 pence (2013 – 1,345 pence) and the weighted average share price was
2,393 pence (2013 – 1,446 pence). The dividend yield used was 2.5%.

23. Analysis of net debt

Cash at bank and in hand, cash equivalents

and overdrafts
Short-term loans
Long-term loans

At
14 September
2013
£m

Cash flow
£m

Acquisitions
£m

Non-cash
items
£m

Exchange
adjustments
£m

At
13 September
2014
£m

243
(275)
(772)
(804)

187
158
10
355

–
(4)
–
(4)

–
(124)
124
–

(31)
7
31
7

399
(238)
(607)
(446)

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 of £120m form an integral part of the group’s cash
management and 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 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

118

24. 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 (fair value 2014 – £137m; 2013 – £143m)
At fair value through profit or loss
Derivative assets not designated in a cash flow hedging relationship:
– currency derivatives
Designated net investment hedging relationships
Derivative assets designated as net investment hedging instruments:
– currency derivatives
Designated cash flow hedging relationships
Derivative 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 loans
Unsecured loans and overdrafts (fair value 2014 – £999m; 2013 – £1,153m)
Finance leases (fair value 2014 – £17m; 2013 – £16m)
Provisions
At fair value through profit or loss
Derivative liabilities not designated in a cash flow hedging relationship:
– currency derivatives
– commodity derivatives
Designated cash flow hedging relationships
Derivative liabilities designated and effective as cash flow hedging instruments:
– currency derivatives
– commodity derivatives
Total financial liabilities
Net financial liabilities

Except where stated, carrying amount is equal to fair value.

2014
£m

519

1,126
164

50
14
1,883

(1,793)
(16)
(937)
(12)
(101)

2013
£m

362

1,183
148

11
9
1,720

(1,656)
(95)
(1,059)
(12)
(77)

(3)
(1)

(4)
–

(3)
(8)
(2,874)
(991)

(33)
(1)
(2,937)
(1,217)

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

24. Financial instruments continued
The methods and assumptions used to estimate fair values of financial assets and liabilities are as follows:
Financial asset/liability
Cash and cash equivalents
Trade receivables, other receivables and accrued income
Trade payables, other payables and accruals

Fair value determination
Fair values have been stated at book values due to short maturities or
otherwise immediate or short-term access and realisability.

Other non-current investments (recorded within other
non-current receivables)

Other non-current receivables
Loans and overdrafts
Finance leases

Derivatives

Provisions

These 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.

119

Fair values for these level 2 financial instruments have been estimated
by discounting expected future cash flows (see below).

Fair values are typically 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 almost always available to assist with the valuation of derivatives.

These 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,
fair value is equivalent to book value.

Valuation of financial instruments carried at fair value
Financial instruments carried at fair value in the balance sheet comprise other non-current investments and derivatives. The group
classifies these financial instruments using a fair value hierarchy that reflects the relative significance of both objective evidence and
subjective judgements on the inputs used in making the fair value measurements:

• Level 1: financial instruments are valued using observable inputs that reflect unadjusted quoted market prices in an active

market for identical instruments. An example of an item in this category is a widely traded equity instrument with a normal
quoted market price.

• Level 2: financial instruments are valued using techniques based on observable inputs, either directly (i.e. market prices and
rates) or indirectly (i.e. derived from market prices and rates). An example of an item in this category is a currency derivative,
where forward exchange rates and yield curve data, which are observable in the market, are used to derive fair value.

• Level 3: financial instruments are valued using techniques involving significant unobservable inputs.

b) Derivatives
All derivatives are classified as current on the face of the balance sheet. The table below analyses the carrying amount of derivatives
and their contractual/notional amounts, together with an analysis of derivatives by the level in the fair value hierarchy into which their
fair value measurement method is categorised.

2014

2013

Financial assets
Currency derivatives
Commodity derivatives

Financial liabilities
Currency derivatives
Commodity derivatives

Contractual/
notional
amounts
£m

1,805
178
1,983

402
113
515

Level 1
£m

Level 2
£m

Total
£m

–
9
9

–
(2)
(2)

60
5
65

(6)
(7)
(13)

60
14
74

(6)
(9)
(15)

Contractual/
notional
amounts
£m

783
264
1,047

1,450
22
1,472

Level 1
£m

Level 2
£m

–
6
6

–
–
–

18
3
21

(37)
(1)
(38)

Total
£m

18
9
27

(37)
(1)
(38)

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

24. Financial instruments continued
c) Cash flow hedging reserve
The following table identifies the movements in the cash flow hedging reserve during the year, 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.

Opening balance
Losses/(gains) recognised in the hedging reserve
Amount removed from the hedging reserve and

included in the income statement:

– revenue
– cost of sales
– other financial income
Amount removed from the hedging reserve and

120

included in a non-financial asset:

– inventory
Deferred tax
Closing balance
Cash flows are expected to occur:
– within six months
– between six months and one year
– between one and two years
– between two and five years
– after five years

Currency
derivatives
£m
16
46

2014

Commodity
derivatives
£m
(6)
(1)

8
–
11

(124)
13
(30)

(27)
(7)
–
1
3
(30)

–
(8)
–

13
(2)
(4)

(4)
–
–
–
–
(4)

Currency
derivatives
£m
14
26

2013

Commodity
derivatives
£m
–
(5)

1
(2)
–

(22)
(1)
16

15
3
(2)
–
–
16

–
(1)
–

(3)
3
(6)

(6)
–
–
–
–
(6)

Total
£m
10
45

8
(8)
11

(111)
11
(34)

(31)
(7)
–
1
3
(34)

Total
£m
14
21

1
(3)
–

(25)
2
10

9
3
(2)
–
–
10

Of the closing balance of £(34)m, £(29)m is attributable to equity shareholders and £(5)m to non-controlling interests (2013 – £13m
attributable to equity shareholders and £(3)m to non-controlling interests). Of the net movements in the year of £(44)m, £(42)m is
attributable to equity shareholders and £(2)m to non-controlling interests (2013 – £(4)m wholly attributable to equity shareholders).

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 many 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.

e) Foreign currency translation
The group presents its financial statements in sterling. As a result of its 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.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

24. Financial instruments continued
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 may be designated as net investment hedges. This enables gains and losses arising on retranslation of
these foreign currency borrowings to be charged to other comprehensive income, 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).

The group 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 other comprehensive income.

121

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

2014
£m

–
174
174

2013
£m

17
532
549

A net foreign exchange gain of £29m (2013 – loss of £26m) on retranslation of these loans has been taken to the translation reserve
on consolidation, all of which was attributable to equity shareholders (2013 – £19m loss attributable to equity shareholders and £7m
loss to non-controlling interests). The group also held currency forwards and cross currency swaps that have been designated as
hedges of its net investments in Australian dollars and euros, whose change in fair value of £4m has been debited to the translation
reserve (2013 – £6m credited to the translation reserve).

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, 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, since they are both entered into, and continue to
be held, for the purposes of the group’s ordinary operations, and 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, but some are not eligible for treatment as ‘own use’ contracts and are not
contracts for which the strict requirements of hedge accounting can be satisfied. This occurs typically where the group does not
take physical delivery of the commodity concerned. Such commodity derivatives are used only where the business believes they
provide an economic hedge of an underlying exposure. These 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.

The group does not have significant sensitivities in respect of the accounting for its on-balance sheet commodity contracts.

(ii) Interest rate risk
Interest rate risk comprises two primary elements:

• 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.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

24. Financial instruments continued
The group’s policy is to maintain floating rate debt for a significant proportion of its bank finance, although it periodically assesses
its position with respect to interest price and cash flow risk.

At 13 September 2014, £593m (61%) (2013 – £730m and 63%) of total debt was subject to fixed rates of interest. Following the
redemption in July 2013 of the £150m secured redeemable debenture stock, the majority of the group’s fixed rate debt is the
US private placement loans of £579m (2013 – £710m).

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 (e.g. LIBOR).

The group does not have significant sensitivities to the impact of interest rates on derivative valuations, nor to the impact of interest
rates on floating rate borrowings.

122

(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) on page 120.

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 its guidance. 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.

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 to movements in the sterling/euro exchange rate;

• 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.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

24. Financial instruments continued
The analysis of the group’s foreign currency exposure to financial assets and liabilities by currency of denomination is as follows:

Financial assets
Cash and cash equivalents
Trade and other receivables

Financial liabilities
Trade and other payables
Unsecured loans and overdrafts

Currency derivatives
Gross amounts receivable
Gross amounts payable

Financial assets
Cash and cash equivalents
Trade and other receivables

Financial liabilities
Trade and other payables
Unsecured loans and overdrafts

Currency derivatives
Gross amounts receivable
Gross amounts payable

The following significant exchange rates applied during the year:

US dollar
Euro
Rand
Renminbi
Australian dollar

8
–
8

(25)
(9)
(34)

63
(1)
62

7
–
7

(5)
(11)
(16)

41
(47)
(6)

(15)

Sterling
£m

US dollar
£m

2014

Euro
£m

12
23
35

(186)
(420)
(606)

1,377
(126)
1,251

1
52
53

(31)
(1)
(32)

35
(660)
(625)

Other
£m

14
9
23

(12)
(1)
(13)

168
(110)
58

Total
£m

35
84
119

(254)
(431)
(685)

1,643
(897)
746

123

Sterling
£m

US dollar
£m

680

(604)

180

2013

Euro
£m

4
46
50

(27)
(17)
(44)

134
(537)
(403)

Other
£m

6
12
18

(10)
(2)
(12)

131
(103)
28

Total
£m

30
83
113

(251)
(563)
(814)

1,428
(814)
614

13
25
38

(209)
(533)
(742)

1,122
(127)
995

291

(397)

(87)

Average rate

Closing rate

2014
1.66
1.22
17.43
10.18
1.80

2013
1.56
1.19
14.37
9.68
1.56

2014
1.62
1.25
17.86
9.96
1.80

2013
1.59
1.19
15.76
9.71
1.72

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 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). This sensitivity is presented before taxation and
non-controlling interests.

Associated British Foods Annual Report and Accounts 2014

124

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

24. Financial instruments continued

10% strengthening against other currencies of
Sterling
US dollar
Euro
Other

2014
impact on
profit for
the year
£m
(1)
3
1
1

2014
impact on
total equity
£m
3
74
(61)
3

2013
impact on
profit for
the year
£m
(1)
(5)
1
1

2013
impact on
total equity
£m
(1)
44
(54)
(3)

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

2014
impact on
profit for
the year
£m
(6)
(22)
(1)
3
(2)

2013
impact on
profit for
the year
£m
(6)
(18)
(2)
16
1

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 2014. The group considers its maximum exposure to credit risk to be:

Cash and cash equivalents
Loans and receivables (see note 24a)
Derivative assets at fair value through profit and loss
Derivative assets in designated net investment hedging relationships
Derivative assets in designated cash flow hedging relationships

2014
£m
519
1,290
8
2
64
1,883

2013
£m
362
1,331
1
6
20
1,720

The majority of cash balances and short-term deposits are held with strong investment-grade banks or financial institutions.

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 an established
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.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

24. 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 & 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

2014
£m
415
239
154
318
1,126

2014
£m
826
125
21
8
29
(36)
973

2013
£m
460
234
149
340
1,183

2013
£m
894
126
15
6
27
(35)
1,033

125

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
Effect of movements in foreign exchange
Closing balance

2014
£m
35
5
(4)
(3)
4
(1)
36

2013
£m
37
7
(5)
(3)
–
(1)
35

No trade and other receivables (2013 – 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.

Cash and cash equivalents
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 or cash equivalents, 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 or net investment 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) on page 126.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

24. Financial instruments continued
The following table analyses the contractual undiscounted cash flows relating to financial liabilities at the balance sheet date and
compares them to carrying amounts:

126

Non-derivative financial liabilities
Trade and other payables
Secured loans
Unsecured loans and overdrafts
Finance leases
Provisions
Derivative financial liabilities
– Currency derivatives (net payments)
– Commodity derivatives (net payments)
Total financial liabilities

Due within
6 months
£m

Note

Due
between
6 months
and 1 year
£m

Due
between
1 and 2
years
£m

18
17
17
25
19

Note

18
17
17
25
19

(1,784)
(2)
(360)
(1)
(51)

(5)
(32)
(2,235)

(9)
–
(29)
–
(20)

(1)
(8)
(67)

–
(2)
(103)
(1)
(15)

–
(1)
(122)

Due
between
6 months
and 1 year
£m

Due
between
1 and 2
years
£m

Due within
6 months
£m

(1,649)
(39)
(345)
(1)
(42)

(20)
(10)
(2,106)

(7)
(12)
(28)
–
(5)

(18)
(4)
(74)

–
(37)
(157)
(1)
(6)

–
(3)
(204)

2014

Due
between
2 and 5
years
£m

–
(12)
(280)
(2)
(1)

–
–
(295)

2013

Due
between
2 and 5
years
£m

–
(7)
(165)
(2)
(24)

–
–
(198)

Due after
5 years
£m

Contracted
amount
£m

Carrying
amount
£m

–
–
(333)
(38)
(14)

–
–
(385)

(1,793)
(16)
(1,105)
(42)
(101)

(6)
(41)
(3,104)

(1,793)
(16)
(937)
(12)
(101)

(6)
(9)
(2,874)

Due after
5 years
£m

Contracted
amount
£m

Carrying
amount
£m

–
–
(557)
(38)
–

–
–
(595)

(1,656)
(95)
(1,252)
(42)
(77)

(38)
(17)
(3,177)

(1,656)
(95)
(1,059)
(12)
(77)

(37)
(1)
(2,937)

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 2014.

The principal reasons for differences between carrying values and contractual undiscounted cash flows are coupon payments on
the fixed rate debt 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 2014,
in respect of which all conditions precedent have been met, amounted to £1,406m (2013 – £1,364m):

£1.2bn syndicated facility
£1.15bn syndicated facility
US private placement
European Investment Bank
Illovo
Azucarera
Other

Facility
£m
1,200
–
579
120
198
130
–
2,227

2014

Drawn
£m
–
–
579
120
93
29
–
821

Undrawn
£m
1,200
–
–
–
105
101
–
1,406

Facility
£m
–
1,150
710
120
228
149
1
2,358

2013

Drawn
£m
–
–
710
120
130
34
–
994

Undrawn
£m
–
1,150
–
–
98
115
1
1,364

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

24. Financial instruments continued
Uncommitted facilities available at 13 September 2014 were:

Money market lines
Illovo
China banking
Other

Facility
£m
100
65
362
117
644

2014

Drawn
£m
–
41
57
34
132

Undrawn
£m
100
24
305
83
512

Facility
£m
100
90
452
131
773

2013

Drawn
£m
–
50
59
51
160

Undrawn
£m
100
40
393
80
613

In addition to the above facilities there are also £225m (2013 – £406m) 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 £12m (2013 – £12m) of finance lease liabilities which are not included in the tables above, but which are included
in the group’s loans and overdrafts in note 17.

During the year, the £1.15bn syndicated facility which was due to mature in July 2015 was replaced by a comparable £1.2bn
syndicated facility which matures in July 2019 with an option to extend for two years. In addition to the bank debt, the Company
has £579m of private placement notes in issue to institutional investors in the US and Europe. At 13 September 2014, these had
an average remaining duration of 5.7 years and an average fixed coupon of 5.1%. The other significant core committed debt facilities
comprise a £120m EIB loan (maturing 2015), as well as local committed facilities in Illovo and Azucarera.

Uncommitted bank borrowing facilities are normally reaffirmed by the banks annually, although they can theoretically be withdrawn
at any time.

127

Refer to note 9 for details of the group’s capital commitments and to note 26 for a summary of the group’s guarantees.
An assessment of the group’s current liquidity position is given in the Financial review on page 38.

j) Capital management
The capital structure of the group is presented in the balance sheet. The statement of changes in equity provides details on equity
and note 17 provides details of 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, the private placement notes 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 trustee of the Employee Share Ownership Plan Trust purchases the Company’s shares in the market to
satisfy awards under the group’s 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.

25. Lease commitments
Operating leases
The group acts as a lessee, lessor and sub-lessor for land and buildings, and plant and machinery, under operating leases.

Rental receipts of £8m (2013 – £7m) were recognised in the income statement in the period relating to operating leases.
The total of future minimum rental receipts expected to be received is £61m (2013 – £66m).

Under the terms of the lease agreements, no contingent rents are payable.

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

25. Lease commitments continued
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:

128

Within one year
Between one and five years
After five years

2014
land and
buildings
£m
189
780
2,342
3,311

2014
plant and
equipment
£m
11
26
2
39

2014
total
£m
200
806
2,344
3,350

2014
minimum
lease
payments
£m
1
3
38
42

2014
interest
£m
1
2
27
30

2014
principal
£m
–
1
11
12

2013
land and
buildings
£m
163
646
2,037
2,846

2013
minimum
lease
payments
£m
1
3
38
42

2013
plant and
equipment
£m
11
24
3
38

2013
total
£m
174
670
2,040
2,884

2013
interest
£m
1
2
27
30

2013
principal
£m
–
1
11
12

26. Contingencies
Litigation and other proceedings against companies in the group are not considered material in the context of these financial statements.

The group has 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 has elected to account 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 2014, group companies have provided guarantees in the ordinary course of business amounting to £916m
(2013 – £777m).

27. Related parties
The group has a controlling related party relationship with its parent company, Wittington Investments Limited, which is also its
ultimate parent company (see note 28). The group also has a related party relationship with its associates and joint ventures (see
note 28) 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

trustees of the Garfield Weston Foundation

Dividends paid by Associated British Foods and received in a beneficial capacity by:
(i)
(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 Associated British Foods group
Sales to a fellow subsidiary undertaking on normal trading terms
Sales to companies with common key management personnel on normal trading terms
Commissions paid to companies with common key management personnel on normal trading terms
Amounts due from companies with common key management personnel
Sales to joint ventures on normal trading terms
Sales to associates on normal trading terms
Purchases from joint ventures on normal trading terms
Purchases from associates on normal trading terms
Amounts due from joint ventures
Amounts due from associates
Amounts due to joint ventures
Amounts due to associates

Sub note

2
3
4
5
5
5
6
6
6
6
6
6
6
6

2014
£000

403

9,125
1,442

43
952
93
12,459
1,418
1,456
21,337
30,248
372,496
16,266
182,254
3,274
33,095
6,640

2013
£000

338

8,277
1,297

30
864
2
16,538
787
2,227
18,488
19,460
397,449
20,805
163,170
1,790
30,806
1,059

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

27. Related parties continued
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 2014 was the beneficial owner of 683,073 shares
(2013 – 683,073 shares) in Wittington Investments Limited representing 79.2% (2013 – 79.2%) of that company’s issued share
capital and is, therefore, the Company’s ultimate controlling party. At 13 September 2014 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 50 and 51. Their interests, including family interests, in the Company and its subsidiary

undertakings are given on pages 75 and 76. Key management personnel are considered to be the directors, and their
remuneration is disclosed within the Remuneration report on page 73.

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 companies with common key management personnel are the George Weston Limited group, in Canada, and Selfridges

129

& Co. Limited.

6. Details of the group’s principal joint ventures and associates are set out in note 28.

Amounts due from joint ventures comprise £14m (2013 – £15m) of finance lease receivables (see note 14) and £145m (2013 – £130m)
of loan receivables. The remainder of the balance is trading balances. The loan receivables are all non-current (2013 – all non-current),
and all but £3m (2013 – £3m) of the finance lease receivables are non-current.

28. 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 2014 Wittington Investments Limited together with its subsidiary, Howard Investments Limited, held 431,515,108
ordinary shares (2013 – 431,515,108) representing in aggregate 54.5% (2013 – 54.5%) of the total issued ordinary share capital of
Associated British Foods plc.

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 Azucarera Iberia, S.L. Sociedad Unipersonal
AB Brasil Indústria e Comércio de Alimentos Ltda
AB Calsa S.A. de C.V.
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 (Harbin) Food Ingredients Company Limited
AB Mauri (Canada) Limited
AB Mauri Food Inc.
AB Mauri Food, S.A.
AB Mauri India (Private) Limited
AB Mauri Italy S.p.A.
AB Mauri Malaysia Sdn. Bhd. (52%)
AB Mauri Portugal, SA (96%)
AB Mauri Vietnam Ltd (66%)
AB World Foods Limited

Country of
incorporation

UK
Spain
Brazil
Mexico
Germany
Finland
UK
Australia
Philippines
Thailand
China
Canada
US
Spain
India
Italy
Malaysia
Portugal
Vietnam
UK

Manufacturing activities
Abitec Corporation
ABNA Feed (Liaoning) Co., Ltd
ABNA (Shanghai) Feed Co., Ltd
ACH Food Companies, Inc.
ACH Foods Mexico, S.de R.L.de C.V.
Anzchem Pty Limited
Bo Tian Sugar Industry Company Limited
British Sugar plc
Cereform Limited
Compañia 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 (UK) Limited
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%)

Country of
incorporation

US
China
China
US
Mexico
Australia
China
UK
UK
Argentina
UK
France
UK
Australia
New Zealand
UK
China
China
China
China

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes forming part of the financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

28. Group entities continued

Manufacturing activities
Hebei Mauri Food Co., Ltd
Illovo Sugar Limited (51%)
Illovo Sugar (Malawi) Limited (39%)
Jacksons of Piccadilly Limited
Kilombero Sugar Company Limited (28%)
Maragra Aćucar SARL (46%)
Mauri Maya Sanayi A.S.
Mauri Products Limited
PGP International, Inc.
Premier Nutrition Products Limited
R. Twining and Company Limited
Shanghai AB Food & Beverages Co., Ltd
SPI Pharma Inc.
The Billington Food Group Limited
The Jordans & Ryvita Company Limited
Twinings North America Inc.
Ubombo Sugar Limited (31%)
Wander AG
Zambia Sugar plc (42%)

130

Country of
incorporation

China
South Africa
Malawi
UK
Tanzania
Mozambique
Turkey
UK
US
UK
UK
China
US
UK
UK
US
Swaziland
Switzerland
Zambia

Retailing activities
Lojas Primark Portugal-Exploracao, Gestao e
Administracao de Espacos Comerciais S.A.

Primark
Primark Austria Ltd & Co.KG
Primark Deutschland GmbH
Primark France SAS
Primark Mode Ltd & Co.KG
Primark Netherlands BV
Primark NV
Primark Stores Limited
Primark Tiendas S.L.U.

Country of
incorporation

Portugal
Republic of Ireland
Austria
Germany
France
Germany
Netherlands
Belgium
UK
Spain

Investment and other activities
A.B. Exploration Limited
A.B.F. Holdings Limited
ABF Investments plc
ABF Overseas Limited
ABF (UK) Limited
Talisman Guernsey Limited

UK
UK
UK
UK
UK
Guernsey, Channel Islands

The group’s interest in subsidiaries are all equity investments.

Interest in joint ventures and associates
A list of the group’s significant interests in joint ventures and associates is given below:

Joint ventures
Levaduras Collico S.A.
Roal Oy
Qingdao Xinghua Cereal Oil & Foodstuff Co., Ltd
Frontier Agriculture Limited
Vivergo Fuels Limited
Stratas Foods LLC
Uniferm GmbH & Co. KG
Associates
C. Czarnikow Limited
New Food Coatings Pty Ltd
Murray Bridge Bacon Pty Ltd
Gledhow Sugar Company (Pty) Limited

Country of
incorporation

Group %

Chile
Finland
China
UK
UK
US
Germany

UK
Australia
Australia
South Africa

50
50
25
50
47
50
50

43
50
20
30

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.

29. Subsequent events
At the end of May, the group exchanged contracts to acquire 100% of Dorset Cereals, subject to clearance by the Competition
and Markets Authority in the UK, which was received on 6 October 2014. The acquisition was completed on 20 October 2014
for net consideration of £60m. The premium brand, with particular strength in the growing Muesli sector, will complement the
group’s existing Jordans cereals and Ryvita crispbread brands. Since the acquisition was only completed shortly before the
approval of these financial statements, the initial accounting for the acquisition has not yet been finalised, but will be included
in the group’s 2015 interim results.

Since year end, Primark has signed the lease of seven stores in the north-east United States.

Associated British Foods Annual Report and Accounts 2014

COMPANY BALANCE SHEET

at 13 September 2014

Fixed assets
Intangible assets
Investments in subsidiaries

Current assets
Debtors
– due within one year
– due after one year
Derivative assets
Cash at bank and in hand

Creditors: amounts falling due within one year
Bank loans and overdrafts – unsecured
Other creditors

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
Issued share capital
Capital redemption reserve
Hedging reserve
Profit and loss reserve
Equity shareholders’ funds

Financial statements
Company balance sheet/
Reconciliation of movements in equity shareholders’ funds

131

Note

1
2

3
3

5
5

2014
£m

14
658
672

4,863
376
3
299
5,541

(134)
(2,981)
(3,115)
2,426
3,098

(574)
(318)
(892)
2,206
(22)
2,184

45
2
(4)
2,141
2,184

2013
£m

19
647
666

3,656
923
–
160
4,739

(154)
(2,940)
(3,094)
1,645
2,311

(706)
(1,188)
(1,894)
417
(17)
400

45
2
–
353
400

The financial statements on pages 131 to 135 were approved by the board of directors on 4 November 2014 and were signed on
its behalf by:

Charles Sinclair
Chairman

John Bason
Director

RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS’ FUNDS

for the 52 weeks ended 13 September 2014

Profit for the financial year
Net movement in own shares held
Remeasurement of defined benefit pension scheme
Deferred tax associated with defined benefit pension scheme
Movement in cash flow hedging position
Dividends
Net increase in equity shareholders’ funds
Opening equity shareholders’ funds
Closing equity shareholders’ funds

2014
£m
2,092
(44)
(5)
1
(4)
(256)
1,784
400
2,184

2013
£m
263
5
–
–
–
(232)
36
364
400

Associated British Foods Annual Report and Accounts 2014

Financial statements
Accounting policies

ACCOUNTING POLICIES

for the 52 weeks ended 13 September 2014

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 2006.

As permitted by section 408(4) of the Companies Act 2006, 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 in respect of transactions with wholly owned subsidiaries 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.

132

Intangible assets – goodwill
Intangible assets comprise goodwill arising on acquisitions since 17 September 1998, being the excess of the fair value of
the purchase consideration of businesses 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. 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 Company’s equity-settled share-based payment plans take the form of conditional allocations of shares to employees
which are released if, and to the extent that, performance targets are satisfied, typically after a three-year performance period.
The fair value of the conditional allocations 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 conditional allocations 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
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.

Shares in the Company are held in a separate trust and are deducted in arriving at equity shareholders’ funds.

Derivatives
Derivatives are used to manage the Company’s economic exposure to financial risks. The principal instruments used are foreign
exchange contracts and swaps (the 'hedging instrument').

Derivatives are recognised in the balance sheet, at fair value, based on market prices or rates, or calculated using either
discounted cash flow or option pricing models.

Changes in the value of derivatives are recognised in the income statement unless they qualify for hedge accounting, when
recognition of any change in fair value depends on the nature of the item being hedged.

Associated British Foods Annual Report and Accounts 2014

NOTES TO THE COMPANY FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

Financial statements
Notes to the Company financial statements

1. Intangible assets – goodwill

Cost
At 14 September 2013 and 13 September 2014
Amortisation
At 14 September 2013
Provided during the year
At 13 September 2014
Net book value
Net book value at 14 September 2013
Net book value at 13 September 2014

2. Investments in subsidiaries

At 14 September 2013
Additions
At 13 September 2014

£m

52
5
57

19
14

£m
647
11
658

133

The additions relate to the allocation of shares under equity-settled share-based payment plans 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. 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.

2014
£m

4,820
5
38
4,863

2013
£m

3,635
5
16
3,656

376

923

2014
£m

1
53
2,927
2,981

2013
£m

1
49
2,890
2,940

318

1,188

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes to the Company financial statements

NOTES TO THE COMPANY FINANCIAL STATEMENTS

for the 52 weeks ended 13 September 2014

5. Capital and reserves

Issued and fully paid
At 14 September 2013 and 13 September 2014

Ordinary
shares of
515⁄22p
each
000

Nominal
value
£m

791,674

At 13 September 2014, the Company’s issued share capital comprised 791,674,183 ordinary shares of 515/22p each, carrying one vote
per share.

134

At 14 September 2013
Profit for the year
Net movement in own shares held
Remeasurement of defined benefit pension scheme, net of tax
Movement in cash flow hedging position
Dividends
At 13 September 2014

Share capital
£m
45
–
–
–
–
–
45

Capital
redemption
reserve
£m
2
–
–
–
–
–
2

Hedging
reserve
£m
–
–
–
–
(4)
–
(4)

Profit and
loss reserve
£m
353
2,092
(44)
(4)
–
(256)
2,141

Total
£m
400
2,092
(44)
(4)
(4)
(256)
2,184

Capital redemption reserve
The non-distributable capital redemption reserve arose following redemption of two million £1 deferred shares at par in 2010.

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 subject to allocation under the Company’s equity-settled share-based payment plans are held in a separate
Employee Share Ownership Plan Trust. The Trust is funded by the Company. Voting rights attached to shares held by the Trust
are exercisable by the trustee, who is entitled to consider any recommendation made by a committee of the Company.
At 13 September 2014, the Trust held 3,062,447 (2013 – 1,995,073) ordinary shares of the Company. The market value of these
shares at the year end was £80m (2013 – £36m). The Trust has waived its right to dividends. Refer to note 22 of the consolidated
financial statements for further information on the group and Company’s equity-settled share-based payment plans.

Hedging reserve
The hedging reserve comprises all changes in the value of derivatives to the extent that they are effective cash flow hedges, net of
amounts recycled from the hedging reserve on occurrence of the hedged transaction or when the hedged transaction is no longer
expected to occur.

6. 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 provided £109m of guarantees in the ordinary course of business as at 13 September 2014 (2013 – £117m).

Associated British Foods Annual Report and Accounts 2014

Financial statements
Notes to the Company financial statements

7. Related parties
The Company has a controlling related party relationship with its parent company, Wittington Investments Limited, which is also its
ultimate parent company. The Company also has a related party relationship with its subsidiaries, associates and joint ventures and
directors. In the course of normal operations, related party transactions entered into by the Company have been contracted on an
arm’s length basis.

Material transactions and year end balances with related parties (excluding wholly owned subsidiaries) were as follows:
2014
£000
403
40

Charges to Wittington Investments Limited in respect of services provided by the Company
Charges to a fellow subsidiary
Dividends paid by the Company and received in a beneficial capacity by:
(i)
(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

trustees of the Garfield Weston Foundation

Sub note

(iv) a member of the Weston family employed within the Associated British Foods group
Charges to non-wholly owned subsidiaries
Interest income earned from non-wholly owned subsidiaries
Interest paid to non-wholly owned subsidiaries
Amounts due from non-wholly owned subsidiaries
Amounts due to non-wholly owned subsidiaries

135

2013
£000
338
–

8,277
1,297

30
864
1,212
1,417
202
17,009
–

1
1

1
1
2
2
2
2
2

9,125
1,442

43
952
92
361
–
3,454
9

1. Details of the nature of the relationships with these bodies are set out in note 27 of the consolidated financial statements.
2. Details of the Company’s subsidiaries, joint ventures and associates are set out in note 28 of the consolidated

financial statements.

8. Other information
Emoluments of directors
The remuneration of the directors of the Company is shown in the Remuneration report for the group on page 73.

Employees
The Company had an average of 135 employees in 2014 (2013 – 122).

The Company is a member of the Associated British Foods Pension Scheme, which is a funded final salary scheme that is closed
to new members. Defined contribution arrangements are in place for other employees. For the defined contribution scheme, the
pension costs are the contributions payable. 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.

The last triennial funding valuation of the Scheme was carried out as at 5 April 2011. The market value of plan assets was £2,559m,
representing 101% of members’ accrued benefits after allowing for expected future salary increases. The most recent triennial
funding valuation of the Scheme was carried out as at 5 April 2014, was agreed by the trustees after the year end and revealed
a surplus of £78m.

Further details 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 2014

Financial statements
Progress report/Company directory

PROGRESS REPORT

Saturday nearest to 15 September

Revenue
Adjusted operating profit
Exceptional items
Amortisation of non-operating intangibles
Profits less losses on disposal of non-current assets
Profits less losses on sale and closure of businesses
Finance income
Finance expense
Other financial income/(expense)
Profit before taxation
Taxation
Profit for the period

Basic and diluted earnings per ordinary share (pence)
Adjusted earnings per share (pence)
Dividends per share (pence)

136

COMPANY DIRECTORY

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
Aspect House
Spencer Road
Lancing BN99 6DA

Auditors
KPMG LLP Chartered Accountants

Bankers
Barclays Bank PLC
Lloyds Banking Group plc
The Royal Bank of Scotland plc

Associated British Foods Annual Report and Accounts 2014

2010
£m
10,167
909
–
(81)
(9)
28
12
(88)
(8)
763
(194)
569

69.3
72.2
23.8

2011
£m
11,065
920
–
(83)
5
–
9
(101)
7
757
(180)
577

68.7
74.0
24.75

2012
£m
12,252
1,077
(98)
(100)
(6)
(9)
9
(114)
2
761
(178)
583

70.3
87.2
28.5

2013
£m
13,315
1,180
–
(92)
–
(128)
13
(100)
(5)
868
(240)
628

74.0
96.5
32.0

2014
£m
12,943
1,163
–
(72)
(11)
(2)
15
(73)
–
1,020
(237)
783

96.5
104.1
34.0

Brokers
Credit Suisse Securities (Europe) Limited
One Cabot Square
London E14 4QJ

Barclays Bank PLC
5 North Colonnade
Canary Wharf
London E14 4BB

Timetable
Interim dividend paid
4 July 2014

Final dividend to be paid
9 January 2015

Annual general meeting
5 December 2014

Interim results to be announced
21 April 2015

Website
www.abf.co.uk

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 and production

Print
Printed by Park Communications on FSC® certified paper.

Park is EMAS certified; its Environmental Management System is certified
to ISO 14001. 100% of the inks used are vegetable oil based, 95% of press
chemicals are recycled for further use and, on average, 99% of any waste
associated with this production will be recycled.

This document is printed on Revive 50 White Silk; a paper containing 50%
recycled fibre and 50% virgin fibre sourced from well-managed, responsible,
FSC® certified forests. The pulp used in this product is bleached using an
Elemental Chlorine Free (ECF) process.

The unavoidable carbon emissions generated during the manufacture and
delivery of this document have been reduced to net zero through a verified
carbon offsetting project.

Associated British Foods plc
Weston Centre
10 Grosvenor Street
London
W1K 4QY

Tel + 44 (0) 20 7399 6500
Fax + 44 (0) 20 7399 6580

For an accessible version
of the Annual Report
and Accounts please visit
www.abf.co.uk