Associated British Foods Annual Report 2018

FY2018 Annual Report · Associated British Foods

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Annual Report and Accounts

CONTENTS

Associated British Foods is a diversified
international food, ingredients and retail
group with sales of £15.6bn, 137,000
employees and operations in 50 countries
across Europe, southern Africa, the Americas,
Asia and Australia.
Our purpose is to provide safe, nutritious,
affordable food and clothing that is great
value for money.

GOVERNANCE
66 Board of directors
68 Corporate governance
80 Remuneration report
100 Directors’ report
103 Statement of directors’

responsibilities

104 Independent auditor’s report

FINANCIAL STATEMENTS
111 Consolidated income statement
112 Consolidated statement of
comprehensive income
113 Consolidated balance sheet
114 Consolidated cash flow statement
115 Consolidated statement of changes

in equity

116 Significant accounting policies
122 Accounting estimates
and judgements

123 Notes forming part of the
financial statements

165 Company financial statements
172 Progress report
IBC Company directory

STRATEGIC REPORT
IFC Financial headlines
02 Our businesses at a glance
04 Chairman’s statement
06 Chief Executive’s statement
Group business model
08
and strategy

10 Key performance indicators
12 Business strategies
14 Operating review

14 Grocery
22 Sugar
30 Agriculture
36 Ingredients
42 Retail

50 Financial review
52 Corporate responsibility
60 Principal risks and uncertainties
65 Viability statement

REVIEW OF THE YEAR ONLINE:

www.abf.co.uk/ar2018

FINANCIAL HEADLINES

Group revenue

£15.6bn

Actual: +1%
Constant currency: +3%

Adjusted operating profit

£1,404m

Actual: +3%
Constant currency: +5%

Adjusted profit before tax

£1,373m Up 5%

Adjusted earnings per share

134.9p Up 6%

Dividends per share

45.0p Up 10%

Gross investment

£1,165m

Net cash

£614m

Operating profit

£1,344m Up 1%

Profit before tax

£1,279m Down 19%

Basic earnings per share

127.5p Down 16%

Adjusted operating profit is stated before
the amortisation of non-operating intangibles,
profits less losses on disposal of non-current
assets, transaction costs and amortisation
of acquired inventory fair value adjustments.
These items, together with profits less losses
on the sale and closure of businesses, are
excluded from adjusted profit before tax
and adjusted earnings per share. Constant
currency is derived by translating the 2017
results at 2018 average exchange rates.

WELCOME

...to the Associated British Foods Annual Report
and Accounts. Read about what our diverse
businesses have been up to in the past year.

A world-leading
sugar business
focused on
excellence

22 SUGAR

Providing innovative,
high-quality
ingredients globally

36 INGREDIENTS

Everyday food products
enjoyed all over the world

GROCERY

Adding value
by improving the
sustainability of
food production

30 AGRICULTURE

Quality, up-to-the-minute
designs at value-for-
money prices

42 RETAIL

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 201802

OUR BUSINESSES
AT A GLANCE

GROCERY
GLOBAL GROWTH
FOR OUR BRANDS

SUGAR
CHANGE IN THE
EU SUGAR REGIME

Revenue

£3,420m 2017: £3,381m

£1,730m 2017: £2,034m

Adjusted operating profit

£335m 2017: £303m

Adjusted operating profit

£123m 2017: £249m

International
Twinings and Ovaltine are our
global hot beverage brands. Mazzetti
is a leading balsamic vinegar brand.

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

The Americas
In the US, Mazola is the leader in
corn oil and we sell a range of baking
brands through retail and foodservice
channels. Capullo is a premium
canola oil in Mexico.

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

Europe
Our UK beet sugar factories typically
produce well over 1 million tonnes of
sugar annually. Azucarera in Spain
produces over 400,000 tonnes
of beet sugar each year and has a
cane refining capacity of a further
400,000 tonnes.

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

China
We operate two beet sugar factories
in the north east of the country, with
annual sugar production capacity
of over 180,000 tonnes.

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Associated British Foods plcAnnual Report and Accounts 2018

AGRICULTURE
REVENUE
WELL AHEAD

INGREDIENTS
SUBSTANTIAL
PROFIT GROWTH,
INTERNATIONALLY

RETAIL
EXPANSION
CONTINUES APACE

Revenue

£1,350m 2017: £1,191m

Revenue

£1,467m 2017: £1,492m

£7,477m 2017: £7,053m

Adjusted operating profit

£59m 2017: £50m

Adjusted operating profit

£143m 2017: £126m

Adjusted operating profit

£843m 2017: £735m

AB Agri operates at the heart of the
agricultural industry. 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.

The business employs 2,400 people
around the world and markets products
in more than 65 countries.

Yeast and bakery ingredients
AB Mauri operates globally in yeast
and bakery ingredients production with
52 plants in 25 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.

Primark
Primark is a major retail group employing
75,000 people. It operates stores in
the UK, Republic of Ireland, Spain,
Portugal, Germany, the Netherlands,
Belgium, Austria, France, Italy and
the US.

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, beauty
and homeware.

Associated British Foods plc

Annual Report and Accounts 2018

Strategic report04

CHAIRMAN’S STATEMENT

WE CONTINUED TO INVEST FOR
THE FUTURE OF OUR BUSINESSES

Michael McLintock
Chairman

Although the group’s working capital
increased this year, which included
an increase in sugar stocks, operating
cash inflow remained strong. After the
purchase of Acetum, the closing net cash
position was £614m which was slightly
lower than last year end.

Statutory operating profit for the period
was £1,344m, up 1% on last year. Last
year included the benefit of a one-time
profit on the sale of businesses, namely
the group’s US herbs and spices
business and south China cane sugar
operations. Taking this into account,
statutory profit before tax was down
19% at £1,279m and basic earnings per
share down 16% to 127.5p.

This is my first annual report to
shareholders having succeeded
Charles Sinclair as Chairman in April
and I am pleased to report a year of
progress for the group with revenues
1% higher than last year at £15.6bn
and adjusted operating profit ahead
3% at £1,404m. At constant currency,
revenue was 3% ahead and adjusted
operating profit was 5% ahead. Net
finance expense was lower than last
year following favourable interest
rate movements, and the group’s
effective tax rate reduced from 22.4%
last year to 21.3% this year, benefiting
from the reduction in the US federal
corporate tax rate. Adjusted earnings
per share increased by 6% to 134.9p.

We continued to invest for the future of
our businesses with a gross investment
of £1,165m. Capital expenditure in our
existing businesses reached £868m,
driven by selling space expansion in
Primark, and spend to increase capacity
and enhance efficiency in our food
businesses. We acquired Acetum, the
leading producer of high-quality balsamic
vinegar from Modena, Italy, in October
2017 for £284m on a debt-free basis.

Primark, Grocery, Ingredients and
Agriculture each had very successful
and profitable years, delivering significant
increases in adjusted operating profit
at constant currency which, combined,
were 15% ahead of last year. The end of
the EU sugar regime has been expected
for some years now and the decline in
operating profit for AB Sugar this year
was primarily a consequence of the
transition to a deregulated EU sugar
market, which is now much more
competitive. The strength and breadth
of the group enabled us to absorb a
major reduction in profit at AB Sugar
and still achieve progress in profit for
the group overall.

This year Primark delivered its most
significant profit growth in recent years.
Expansion continued apace with the
opening of a net 15 stores across eight
countries. Our merchandise assortment
was well received all year, stock levels
were tightly managed and, with
improved exchange rates for purchasing,
profit margin improved. Primark has the
potential for growth in all of its existing
markets, and the opening of Birmingham
Pavilions next year, at 160,000 sq ft, will
make it our largest store. In the medium
term our plans to add further stores in
the US, and to enter a number of
markets in central and eastern Europe,
should support our current rate of selling
space expansion.

Associated British Foods plcAnnual Report and Accounts 2018Corporate responsibility
Our purpose is to provide safe, nutritious,
affordable food and clothing that is great
value for money. In doing these things
well, we know we are doing good every
day and contributing to making millions
of people’s lives better.

Our approach to corporate responsibility
is not dictated from the centre. Instead,
our individual businesses are empowered
to identify what their priorities are and
how to make improvements, year-on-
year. We have experts working within
each business who guide the policies,
processes and practices that allow them
to operate responsibly and ethically over
the long term.

Our standalone Corporate Responsibility
Update details the activities undertaken
by each of our businesses and can be
found on our website at:

www.abf.co.uk/responsibility

Remuneration
Ruth Cairnie was appointed Chair of the
Remuneration committee in April this
year, recognising feedback from many of
our investors that this role should be held
by an independent non-executive director
rather than the Company Chairman.
Ruth has recently contacted our largest
shareholders to request their feedback
on our remuneration approach as we
prepare for our review of executive
remuneration policy in 2019, where
we also will take account of changes
to the UK Corporate Governance Code.

The board
In September we welcomed Graham
Allan to the board as an independent
non-executive director and we look
forward to working with him. Graham
was formerly the Group Chief Executive
of Dairy Farm International Holdings
Limited and President and Chief
Executive Officer at Yum! Restaurants
International. He became a member of
the Audit and Remuneration committees
on appointment.

After 12 years as a director on our board,
Javier Ferrán has decided to stand
down at the forthcoming annual general
meeting. Accordingly, he will not be
seeking re-election as a director. Javier
has provided outstanding guidance and
support throughout his time on the
board, and his contribution has been
greatly valued. On behalf of the board,
I would like to thank him for his time
and commitment throughout these
years. He will be missed. Ruth Cairnie
will take on the responsibilities of
Senior Independent Director.

Tim Clarke retired as a director on
30 November 2017 after 13 years on
the board. Charles Sinclair has already
described the tremendous value of Tim’s
contribution in last year’s annual report.

Charles Sinclair retired as Chairman
of the Company on 11 April 2018,
and I paid tribute to his exceptional
contribution to the group in our interim
results announcement in April. On
becoming Chairman, I succeeded
Charles as Chairman of the Nomination
committee and have stepped down
from the Audit committee.

Employees
I would like to thank all our employees
for their contribution to the group’s
success in the past year. These results
are a testament to the resourcefulness
of our employees who, often operating in
difficult market conditions, have shown
unwavering dedication and commitment.

Dividends
I am pleased to report that a final
dividend of 33.3p is proposed to be paid
on 11 January 2019, to shareholders
on the register on 14 December 2018.
Together with the interim dividend
of 11.7p paid on 6 July 2018, this
will make a total of 45.0p for the year,
an increase of 10%. We expect to
continue our existing progressive
dividend policy and maintain a
comfortable level of cover.

Outlook
We plan to continue to invest in
opportunities to expand our businesses,
especially in Primark, Twinings Ovaltine
and Ingredients. Primark’s selling space
expansion will continue and, if margins
are in line with the current year, we
expect an increase in Retail profit.
In Grocery we expect an improvement
in profit from a margin increase in our
Australian and UK businesses and a full
year contribution from Acetum. The profit
at AB Sugar will be significantly lower,
reflecting the full year effect of the
current level of EU sugar prices which
will represent a further reduction on the
average prices achieved this year.

At current exchange rates we expect no
material translation or transactional effect
on profit but the sterling exchange rate
can be expected to be volatile given a
period of intense Brexit negotiations.

Taking these factors into account, at this
early stage, we expect adjusted earnings
per share for the group for the coming
year to be in line with this year.

Michael McLintock
Chairman

REVIEW OUR CORPORATE
RESPONSIBILITY UPDATE ONLINE:

www.abf.co.uk/responsibility

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 201806

CHIEF EXECUTIVE’S STATEMENT

ANOTHER YEAR OF
PROGRESS FOR THE GROUP

George Weston
Chief Executive

Gross investment this year
reached nearly £1.2bn as we
pursued opportunities to develop
our businesses through expansion
of capacity and lowering of costs
through efficiency. Strong profit
performances were delivered by each
of Primark, Grocery, Agriculture and
Ingredients and these more than
offset the profit decline in Sugar.
At constant currency, group revenue
increased by 3% to £15.6bn and
adjusted operating profit of £1,404m
was 5% higher than last year.

In Grocery the largest profit contributor
is Twinings Ovaltine and this business
increased its profit significantly. George
Weston Foods in Australia continued
to improve its margin through cost
reduction and successful new products
and Acetum made a meaningful first year
contribution. Allied Bakeries made an
unacceptable loss, the cost of wheat
rose significantly this summer, and we
are working to mitigate this loss through
cost savings and price discussions with
our customers.

Improvement in Ingredients continued
this year with a 23% increase in profit
and margin reached 9.7%. Since 2015
profit has nearly doubled.

The world market sugar price reduced
this year and, following the end of the EU
sugar regime in October 2017, European
prices fell significantly during the
transition to a deregulated market. For
some time we have been preparing for
this new world of lower and more volatile
sugar prices. AB Sugar has delivered,
and we expect it to continue to deliver,
significant cost reduction across all of its
businesses in the pursuit of sustainable
low-cost production. The focus at British
Sugar is to enhance its lowest-cost
status amongst EU producers and we
would expect it to deliver a shareholder
return on its assets over the medium
term. Our management in Spain will be
addressing the unsustainably high-cost
dynamics of the business over the
coming year. Illovo is the largest
producer of sugar in Africa and delivered
another highly profitable result while
continuing to develop its domestic
and regional sales.

Primark delivered strong growth in
profit, driven by sales 5% ahead and an
increase in margin from 10.4% to 11.3%.
Like-for-like sales declined by 2.1%.
We continued to develop our consumer
offering. The performance in the UK
was striking with a significant increase
in our share of the total clothing market.
However, unseasonable weather in
three distinct periods during the year
held like-for-like sales back, especially
in the Eurozone.

Workplace health and safety
Our priority is to safeguard the safety and
wellbeing of all our employees and those
who work with us. I am saddened to
report four fatalities this year which all
arose from vehicle or traffic accidents.
Our immediate response was to support
the families and co-workers affected,
and we have thoroughly investigated
the circumstances of these events.
We have improved our processes and
safeguards over many years, and health
and safety will remain a key focus for all
of our operations.

Associated British Foods plcAnnual Report and Accounts 2018Withdrawal of the UK from the EU
The consequences for the group of the
UK’s decision to leave the EU should
be seen in the context of the diversity
of our operations and geographical
footprint, combined with a business
model that has discrete Primark supply
chains for the UK and Eurozone and
which, wherever possible, aligns food
production with the end markets for
our products. Changes in legislation
and trade agreements could provide
significant opportunities for the food
industry to replace imported food and
build export markets and, for UK
agricultural policy particularly, they
have the potential to benefit our group.
We continue to engage at all levels
with a number of UK Government
departments to ensure that the full
range of opportunities and risks,
as they affect us, are recognised.

In common with many other businesses,
we share a concern about the risk of
abrupt changes to the UK’s customs
procedures. We therefore welcome
the Government’s intention to have
a transition period beyond March 2019
in which to implement the necessary
systems and processes.

While we continue to regard the
possibility of the UK leaving the EU
in March 2019 without any form of
transition period as highly unlikely, those
businesses that might expect to see
some disruption in these circumstances
are making the preparations necessary
to ensure this disruption is minimised.
We do not expect these preparations
to materially impact the financial
performance of the group.

George Weston
Chief Executive

STORIES FROM ACROSS THE GROUP

GROCERY
An Italian tradition.
Bottled.

SUGAR
10 years of
transformation

AGRICULTURE
Driving food sustainability
through data

INGREDIENTS
Half proved,
wholesome taste

RETAIL
Soaring high on
social media

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 201808

GROUP BUSINESS MODEL
AND STRATEGY

BUSINESS STRUCTURE

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

AT A GLANCE

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

BUSINESS STRATEGIES

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.

OPERATING REVIEW

We believe that an ethical
business is primarily built by
its people, not through codes
of practice or words on a page.

CORPORATE
RESPONSIBILITY

STRATEGY

ORGANIC GROWTH

OUR PEOPLE

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Associated British Foods plcAnnual Report and Accounts 2018

The group is 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.

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, legal support,
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.

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

value through sound commercial,
responsible and sustainable business
decisions that deliver steady growth
in earnings and dividends.

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

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

We pride ourselves in being a
first-class employer and we work
actively to develop capability and create
opportunities for employee progression.
As a result, people tend to stay with the
group for a long time and build exciting
careers. Whether through formal training
and apprenticeships, cross-fertilisation
of skills between roles, or mentoring,
we encourage and support everybody
to thrive at work.

Being part of Associated British Foods
means being part of a community that
respects human rights and celebrates
diversity. We recognise the United Nations
Guiding Principles on Business and Human
Rights and aim to adhere to the core ILO
conventions and all relevant laws relating
to working conditions and employment.
We strive to promote diversity and
generate new and equal opportunities, a
good example being our Gender Diversity
Task Force which has a clear and simple
goal: ‘No Barriers to Talent’.

The task force aims to optimise talent
by embedding practices into our core
processes that enable women to
develop on an equal footing to their
male colleagues. We invest in our
people to ensure they are equipped to
deliver and excel at work, with a key
focus on training and development
across the group. Business-specific
examples of such activities are
highlighted throughout this report and
also in our 2016 Corporate Responsibility
Report and the 2018 update.

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 201810

KEY PERFORMANCE INDICATORS

We use key performance
indicators (KPIs) to measure
our progress in delivering the
successful implementation
of our strategy and to
monitor performance.

FINANCIAL

Adjusted operating profit
(£m)

Adjusted profit before tax
(£m)

3
6
1
1

2
8
0
1

3
6
3
8 1
1
1
1

4
0
4
1

5
0
1
1

4
2
0
1

0
1
3
1 1
7
0
1

3
7
3
1

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

Adjusted profit and earnings measures are used to provide a consistent indicator of underlying
performance year-on-year and are aligned with incentive targets.

Group revenue
(£bn)

Gross investment
(£m)

4
.
5
4 1
.
3
1

6
.
5
1

9
.
2
1

8
.
2
1

6
6
0
,
1

5
6
1
,
5 1
4
9

6
1
7

5
7
6

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

Monitoring of revenue provides a measure
of business growth. Constant currency
comparisons are also used to provide
greater clarity of underlying performance.

A measure of the commitment to the
long-term development of the business
through expenditure on property, plant and
equipment, intangible assets, biological assets
and the acquisition of new businesses or
minority interests in existing operations.

Adjusted EPS
(pence)

Dividend per share
(pence)

9
.
4
3
1

1
.
7
2
2 1
.
6
0
1

1
.
4
0
1

5
.
1
0
1

0
0
.
5
4

0
0
.
1
4

0
0
.
4
3

0
0
.
5
3

5
7
.
6
3

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

The group’s organic growth objective aims to deliver steady growth in earnings and dividends
over the long term. Adjusted earnings per share is a key management incentive measure.

Adjusted operating profit is stated before the amortisation of non-operating intangibles,
profits less losses on disposal of non-current assets, transaction costs and amortisation of
acquired inventory fair value adjustments. These items, together with profits less losses on
the sale and closure of businesses, are excluded from adjusted profit before tax and adjusted
earnings per share.

R
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Associated British Foods plcAnnual Report and Accounts 2018

Return on capital employed
(%)

Cash generation
(£m)

Net cash/(debt)
(£m)

9
8
1

6
7
1

5
0
1 2
8
1

1
0
2

9
3
4
1

5
7
1
1

1
4
6
0 1
1
3
1

0
3
4
1

3
7
6

4
1
6

)
6
4
4
(

)
4
9
1
(

)
5
1
3
(

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

Adjusted operating profit expressed as a
percentage return on the average capital
employed in the business throughout
the year.

Net cash generated from operating activities
is monitored to ensure that profitability is
converted into cash for future investment
and as a return to shareholders.

Cash and cash equivalents less loans and other
borrowings. This measure is used to monitor
the group’s liquidity and capital structure and,
where relevant, to calculate ratios associated
with the group’s bank covenants.

NON-FINANCIAL

Number of employees

9
0
2
,
8
1
1

6
3
0
,
4
2
1

6
1
9
,
9
2
1

0
9
5
,
2
3
1

4
1
0
,
7
3
1

Reportable Injury rate
(%)

Gender balance in workforce
– all employees (%)

3
6
.
0

9
5
.
0

5
5

2
5

9
4

8
4
.
0 0
4
.
0

7
4
.
0

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

A measure of the scale and growth of the
group – the average number of people
employed during the financial year with a
contract of employment, whether full-time,
part-time, contractor or seasonal worker.

A measure of the group’s management of the
health and safety of its workforce – the number
of injuries resulting from an accident arising out
of, or in connection with, work activities that
were required to be reported to external
regulatory authorities, divided by the average
number of employees.

Men
Women

A measure of the gender balance of all
employees in the group with a contract of
employment, whether full-time, part-time,
contractor or seasonal worker.

5
4

8
4

1
5

Number of countries
of operation (Primark)

Primark selling space
(sq ft 000)

Tonnes of sugar produced
(m)

1
1

0
1

2
4
3
,
2
1

5
5
1
,
1
1

6
2
2
,
0
1

5
0
8
,
4
1

2
6
8
,
3
1

7
9
2
.
4

9
3
3
.
4

1
8
6
.
3

0
1
4
.
3

0
8
0
.
3

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

The number of countries and the retail selling space from which Primark operates are measures
of the breadth, scale and growth of the business.

A measure of the scale and development
of the group’s sugar operations.

Each business develops KPIs that are relevant to its operations. These are regularly monitored
and, in the case of adjusted operating profit and return on capital employed, are variously used as
local management incentive measures. Additional performance measures, both financial and
non-financial, are detailed by business segment in the operating review and in the Corporate
Governance Update.

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 201812

BUSINESS STRATEGIES

Five business segments
that bring together
common industry expertise,
operational capability and
market intelligence.

Despite their diversity, each
of our businesses has at its
heart the core principle that
the group produces safe,
nutritious, affordable food
and clothing that is great
value for money.

R
U
O
G
N
I
R
E
W
O
P
M
E

S
E
S
S
E
N
I
S
U
B

Operating review, Grocery
page 14

01
GROCERY

02
SUGAR

Each of our Grocery businesses pursues
an independent strategy, appropriate to
its particular market position and stage
of development. Some are focused on
developing brands in their core markets,
whilst Jordans, Dorset and AB World
Foods for example have had
considerable success extending their
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.

AB Sugar is one of the world’s largest
and most diverse sugar producers and
has a simple vision to be the world’s
leading sugar business.

Whilst sugar is at the heart of what
we do, the sugar production process
provides opportunities to do more
than simply manufacture an ingredient.
We are an innovative and advanced
manufacturer, producing a wide range of
sugar and co-products. Additionally, we
are an energy and power supplier and,
as part of the wider agri-business value
chain, we are an important contributor
to the economy across all our locations.

Our success has been built on continued
development and innovation to meet the
changing needs of our customers, to
improve our operations and to work with
our growers to ensure sustainable,
efficient, agricultural production. We
seek to drive continuous improvement in
everything we do and are committed to
developing our people to build capability
and capacity across all our locations for
the future.

Operating review,
Sugar
page 22

Associated British Foods plcAnnual Report and Accounts 2018

04
INGREDIENTS

Operating review,
Retail
page 42

05
RETAIL

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.

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 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.

Operating review,
Ingredients
page 36

Operating review,
Agriculture
page 30

03
AGRICULTURE

AB Agri is a unique group of leading
agricultural businesses operating across
the entire food supply chain. It has a
detailed understanding of agriculture’s
importance in our changing world and
the ambition to drive ever greater
production efficiency has been the
core philosophy for over 30 years.
AB Agri operates through individual,
entrepreneurial businesses empowered
to grow their interests independently,
and through a strong network of
contacts across the entire supply chain.

Organic growth is achieved through
innovative product development and by
extending the business’s already broad
geographic reach into new territories
and new areas adjacent to its core
capabilities. Using the diverse breadth
of products, services and people within
the AB Agri community, the business
develops bespoke solutions tailored to
its customers’ needs. 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.

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 201814

GROCERY

1
0

ABOUT GROCERY
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 high-
quality ethnic foods including rice,
spices, sauces, oils, flour and noodles
sold under brands such as Rajah,
Lucky Boat and Elephant.

Jordans, Dorset and Ryvita operate
in the better-for-you cereal and savoury
biscuits categories with increasing
international presence. Jordans has a
heritage of using traditional methods in
the production of its wholegrain cereals
and cereal bars. Dorset’s award-winning
muesli and granolas are renowned for
the quality of their natural ingredients.
Ryvita has 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. HIGH5 and Reflex
Nutrition are brands in the sports
nutrition sector.

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. ACH Foods
includes within its range of branded
products, Mazola, the leading corn oil
in the US, and Capullo, a premium canola
oil in Mexico. Acetum, acquired in 2017
and trading under the Mazzetti brand,
is the leading Italian producer of Balsamic
Vinegar of Modena.

AN ITALIAN TRADITION.
BOTTLED.

See page 18 to read more

Annual Report and Accounts 2018

Associated British Foods plc15

Associated British Foods plcStrategic report – operating reviewAnnual Report and Accounts 201816

GROCERY

ONGOING BUSINESSES

REVENUE

£3,420m

2017: £3,381m

Actual fx: +1%
Constant fx: +4%

ADJUSTED OPERATING
PROFIT

£335m

2017: £303m

Actual fx: +11%
Constant fx: +14%

ADJUSTED OPERATING
PROFIT MARGIN

9.8%

2017: 9.0%

RETURN ON AVERAGE
CAPITAL EMPLOYED

25.9%

2017: 24.7%

EVERYDAY FOOD PRODUCTS ENJOYED
ALL OVER THE WORLD

Grocery revenues were ahead of

last year and adjusted operating

profit was well ahead, driven by
strong growth in Twinings Ovaltine,
improved margin at George Weston
Foods in Australia and the first year
of contribution from Acetum.

Twinings Ovaltine made excellent
progress in profit. Ovaltine revenue
growth was especially strong, led by
the brand’s largest markets: Thailand,
where growth was achieved in both
ready-to-drink and powder products
and Switzerland, due to the success
of new product launches and
increased distribution. In addition,
good sales growth was achieved
in other markets, including China,
Brazil, Nigeria and Vietnam. Twinings
benefited from new launches in the
herbal tea segment in the UK, US,
Australia and Italy and the launch
of a new concept of Cold Infuse teas
in the UK and Australia in the last
quarter. Much progress has been
made in recent years in reducing
the operating costs of the Twinings
tea supply chain, and we have
announced that production at the
Jinqiao, China site will cease in early
2019, with consolidation into our
existing site in Poland.

At Allied Bakeries losses remained
unacceptable, although some
progress has been made with cost
reduction programmes and price
increases. Against a background
of a continued increase in the
market share of private label bread,
investments in the Kingsmill and
Allinson’s brands have included
new product launches for Super
Seeds and premium craft loaves.
Speedibake opened an expanded
doughnut facility in the year and
continued its focus on cost control.
Wheat prices increased significantly
over the summer as a consequence
of a reduction in global production.
The impact of this on our costs will
be reflected in our ongoing
discussions with our customers.

Silver Spoon enjoyed increased sales
in ice cream accompaniments in the
extended period of warm weather
over the summer, and increased
sales of the Billington’s premium
sugar brand through the Baking
Mad website.

Jordans has continued to drive
international expansion, delivering
strong revenue growth in Australia,
New Zealand, Canada and Brazil.
In a challenging UK crispbread
market, with a large shift towards
private label, Ryvita launched a
range of protein-enhanced variants.
A new production facility was
opened at Bardney providing
additional crispbread capacity
and improved efficiency.

At AB World Foods, Patak’s
continued to deliver market share
growth following the launch of paste
pots, endorsed by Jamie Oliver,
while Blue Dragon extended
international sales growth in Canada,
Scandinavia and Australia. Westmill
Foods’ premium market-leading atta
flour, Elephant, was successfully
relaunched with a strong brand
presence during Ramadan, while
continued strong demand for
noodles will be met by an
expanded production facility
in Manchester, investment in
which is well underway.

In our sports nutrition businesses,
the HIGH5 hydration brand was
relaunched during the year with sales
driven through event sponsorship,
while our protein brand, Reflex,
continued to drive sales in eastern
Europe and the Middle East.

Acetum, the Modena-based balsamic
vinegar business acquired last
October, is progressing well.
We have focused on continued
international expansion, further
development of the Mazzetti brand,
and on price increases to cover
inflation of grape must prices
following a poor European grape
harvest in 2017.

Associated British Foods plcAnnual Report and Accounts 2018Y
T
I
L
I
B
I
S
N
O
P
S
E
R
E
T
A
R
O
P
R
O
C

A taste of
business for
graduates

Find out more at
www.abf.co.uk/responsibility

The scheme gives you a real role with real responsibility
designed to challenge you and give you the opportunity
to show what you’re capable of. I now have a range of new
skills, broad business understanding and a
wide internal network.”

Natasha Newman, AB World Foods trainee

From day one, Grocery graduate
trainees get a true taste of
the business.

The Grocery group graduate
programme was launched in 2006
to employ, develop and retain high-
calibre individuals with leadership
potential. It takes on around 25 recruits
every year across seven functions,
with each function having a scheme
tailored to its priorities. Natasha’s
18-month supply chain scheme
included roles as a manufacturing
team leader, project commissioning
manager, purchasing planner and
health and safety advisor. Graduates
in HR, by comparison, have two
12-month placements in different
businesses, one in a head office
environment, another in manufacturing.
By involving such different placements
across diverse Grocery businesses,
participants experience a broad
learning journey and maximise their
development opportunities.

ACH performed well with favourable
oil margins and the Heart Healthy
advertising campaign increasing
consumer demand for Mazola corn
oil, resulting in share gains, while
distribution was also expanded in
Walmart, Sam’s Club and other retail
chains. The increased contribution
from this was partially offset by
higher freight costs.

At George Weston Foods in Australia,
Tip Top grew margin and operating
profit primarily through ongoing
cost reduction, strong sales of Thins
and price increases on its branded
bread range: The One, Sunblest and
Abbotts. The Don KRC meat business
significantly improved operating
profit through improvements in
factory performance, and also
launched the nitrite-free All Naturals
ham and bacon range.

On 17 September 2018 we completed
the acquisition of Yumi’s Quality
Foods, an Australian manufacturer
of chilled dips and snacks. Yumi’s
was founded by the Friedman
brothers Benjamin (Yumi) and his
brother Michael, both of whom
will remain in the business, and
specialises in dairy- and gluten-free
dips, aioli, vegetarian snacks,
mayonnaise and smoked fish
for everyday consumption and
entertaining. In the year ended
30 June 2018 the business generated
sales of A$51m.

Twinings has again used masterful
innovation to extend its customer base,
and the opportunities for drinking great
tea, with the launch of the UK’s first
cold water infusion.

CHANGING THE WAY
WE DRINK WATER

Cold Infuse is available in six delicious
natural flavours, from Rose Lemonade
to Coconut and Pineapple. Supporting
the trend for drinking more water –
particularly on the move – consumers
just drop a Cold Infuse bag into their
water bottle, shake it, wait for five
minutes, and then enjoy. It is aimed
at health conscious 22- to 45-year-
olds, so extending the brand’s core,
older demographic.

The product’s UK launch, Twinings’
biggest for five years, was supported
by a major advertising campaign,
including engaging billboards, social
and digital media, ads on London
Underground, sampling, and in-store
tasting. A similarly high-profile
introduction in Australia followed.

Cold Infuse was developed in a two-year
collaboration between Twinings’ UK and
Australia teams, with extensive qualitative
and quantitative consumer research into
all aspects of the product – from flavours
to packaging format and design.

22-45

Aimed at health conscious
22- to 45-year-olds

Associated British Foods plc

Annual Report and Accounts 2018Strategic report – operating review18
18

GROCERY

In October 2017 we completed the acquisition
of Acetum S.p.A, the leading Italian producer of
‘Balsamic Vinegar of Modena’.

Founded by Cesare Mazzetti and Marco
Bombarda, who remain as directors of
the business, Acetum operates five
high-quality manufacturing sites in the
Emilia Romagna region, employing 150
people. It is the global leader in balsamic
vinegar, and one of the world’s leading
producers of speciality vinegars for retail.
The Mazzetti brand is present in many
global markets, and is brand leader in
Germany, Australia and Holland. ABF
plans to build on this success by utilising
its extensive global footprint to support
the growth of the business and its
products in other international markets.

“ ABF has a great reputation for
nurturing family businesses
and I look forward to working
together in the future and
sharing our expertise.”

Cesare Mazzetti, Founder

A PASSION FOR QUALITY

Traditional balsamic vinegar production
in Italy can be traced back to the
Romans, and it is now produced only in
the Modena region to a ‘Denominazione
d’Origine Protetta’ (or DOP) standard.
This super premium vinegar is made
only of grape must that is aged for a
minimum of 12 years in a succession
of seven decreasing sized barrels, each
one made of a different wood (called a
‘battaria’). The volumes which can be
produced are very small, and the retail
price correspondingly high (over £100
for 100ml).

Acetum is one of the biggest producers
of this ‘Tradizionale’ vinegar, as well
as the balsamic with which most
consumers in Europe and the US are
familiar, which is made from a blend of
grape must and wine vinegar in varying
proportions. Balsamic vinegar production
of this type has been granted official
European Protected Geographical
Indication (PGI) status due to its unique
manufacturing tradition and provenance.
It has a number of characteristics that
align closely with modern consumer
preferences, being derived from natural
sources, with a long heritage and rich
provenance.

Associated British Foods plcAnnual Report and Accounts 201819

Mazola, the leading corn oil brand, is
growing market share in the US market by
driving awareness of corn oil’s superior
contribution to heart health.

HEARTFELT GROWTH

TRANSFORMING PERCEPTIONS

Mazola has successfully showcased
the study findings, which were published
in respected scientific journals, to
transform perceptions of corn oil. Using
an integrated media campaign it has
raised consumer understanding of the
health benefits of corn oil, which had
often been considered less beneficial
than the Mediterranean diet-staple,
olive oil.

The century-old brand is particularly
targeting health-focused consumers,
while continuing to maintain its strong,
long-established bonds with the wider
Hispanic community. This year’s
awareness-raising programme has
included promotional activity in city
centre shopping areas, sponsorship of
a popular health TV show, and a strong
social, digital, and TV media presence.

Mazola led a 2.1% annual increase in
corn oil consumption from 2014 to 2017,
reversing a previous decline. This
impressive growth far outstripped that
of soy bean, canola and olive oils and,
with Mazola representing 10% of the
US cooking oils market, bodes well for
the brand’s expansion in the future.

The turnaround in demand for corn oil
followed an ACH-backed clinical study
into the comparative impact of corn oil
and extra virgin olive oil in lowering ‘bad’
cholesterol. Researchers found corn oil
reduced low-density lipoprotein (LDL)
cholesterol by almost 11%, against just
3.5% for olive oil, when consumed
by a group of healthy men and women
over a three-week period. Overall,
study participants experienced an 8.2%
decrease in total cholesterol with corn
oil compared to just 1.8% with olive oil.
The significant differences in response
reflect, in part, the much higher level of
naturally-occurring – and cholesterol-
lowering – plant sterols in corn oil,
compared with olive oil.

11%

Researchers found
corn oil reduced
LDL cholesterol by
almost 11%

Associated British Foods plcAnnual Report and Accounts 2018Strategic report – operating review20

GROCERY

Leading bakery brand Tip Top has redefined
the bread market in Australia with a trio of
innovations defined by consumer insight.

Associated British Foods plc

A SLICE OF BREAD HEAVEN

In a mature bread market, the business
has re-engaged consumers, thereby
driving significant sales and profit
growth. In particular, in October 2014,
Tip Top created an online Bakery
Conversations community to build its
understanding of consumer motivations
and behaviours. It then worked with this
3,000-strong community to support
innovation, test products, and evaluate
marketing campaigns.

Associated British Foods plcAnnual Report and Accounts 201821
21

CONSUMER INSIGHTS

Tip Top used learnings from its consumer
community to develop the Abbott’s
Village Bakery gluten-free range,
available in soy & linseed, rustic white
and mixed seeds variants. The range has
been a huge hit since its October 2016
launch with many consumers – whether
gluten intolerant or just keen to reduce
their gluten intake – reporting that it
tastes just like regular bread. After only
eight months, Abbott’s Village Bakery
became the leading gluten-free brand,
capturing 30% market share as
consumers gave its soft large slices a
59% edge over competitor lines. The
product is now delivering profitable
growth for Tip Top and retailers by
bringing consumers back to bread.

Tip Top also drew on insights from
the Bakery Conversations community
to transform its core Abbott’s Village
Bakery premium range. With feedback
showing that consumers crave new
and different tastes and textures in
bread, in mid-2018 Tip Top introduced
its Sensations range. With creative
recipes like pumpkin, sunflower
seeds & caramelised onion, toasted
soy, chickpea & quinoa, and sundried
tomato & basil, Sensations has
captivated consumers and driven
incremental purchases. At a significant
premium to the core Abbott’s Village
Bakery range, Sensations is also
delivering value growth for the category
and brand.

30%

market share captured by
the leading gluten-free brand,
Abbott’s Village Bakery

THE BEST THING
SINCE SLICED BREAD

In another innovative move, in 2017
Tip Top launched a new soft bread
format, Sandwich Thins, which are
available in 99-calorie, six-slice packs.
Thins are presented as a lunchtime
alternative to ‘toast, top or fill’ and
are proving particularly popular for
schoolchildren’s lunchboxes. Thins
are driving the growth in the sandwich
alternatives segment and attracting
more new shoppers than leading wraps
brands. All three Thins variants – original,
wholemeal and lightly seeded – are in
the top four for penetration in the
segment. Tip Top will extend the
Sandwich Thins concept this autumn
with an Abbott’s Village Bakery-
branded line.

By successfully focusing on health,
convenience and premiumisation,
Tip Top has delivered new ways to
excite consumers about bread, grow
the category, and deliver strong value
for the business.

Associated British Foods plc

Annual Report and Accounts 2018

Associated British Foods plcStrategic report – operating review22

SUGAR

2
0

ABOUT SUGAR
AB Sugar is a leading producer of
sugar and sugar-derived co-products
in southern Africa, the UK, Spain, and
north east China. We operate 24 plants
in ten countries with the capacity to
produce some 4.5 million tonnes of
sugar annually and are a significant
employer. Our products are sold into
industry sectors including food and drink,
pharmaceutical, industrial, agricultural,
power and energy.

In the EU, Azucarera is the largest
producer in Iberia and British Sugar is
the sole processor of the UK sugar beet
crop. Illovo Sugar is the biggest sugar
processor in Africa and in June 2016,
ABF acquired full ownership putting both
AB Sugar and Illovo Sugar into a stronger
position to navigate the complex sugar
landscape whilst capitalising on Africa’s
growth markets. We have a beet sugar
business in north China that has achieved
a strong record of performance
improvement in agriculture and
production efficiencies, resulting in sugar
beet production being cost-competitive
with that of cane.

Our success has been built on
continued development and innovation
to meet the changing priorities of our
customers, to continually improve our
operations and to work with our growers
to ensure sustainable, efficient
agricultural production.

As a global business, we operate in
a diverse and continually changing
environment with many opportunities and
challenges. Although we have a global
portfolio, we operate with a local heart,
working together to do what is right for
the location and market. As we evolve
to meet the world’s changing needs –
customers, growers and others – it is
our role to ensure we use resources
responsibly, build strong rural economies
and ensure thriving healthy communities.

By drawing upon everything we have
learnt over many decades as a sugar
producer, we continue to embrace
innovation and strive to create more from
less by working collaboratively across our
group and with our stakeholders.

10 YEARS OF
TRANSFORMATION

See page 25 to read more

Annual Report and Accounts 2018

Associated British Foods plc23

Associated British Foods plcStrategic report – operating reviewAnnual Report and Accounts 201824

SUGAR

ONGOING BUSINESSES

REVENUE

£1,730m

2017: £2,034m

Actual fx: -15%
Constant fx: -13%

ADJUSTED OPERATING
PROFIT

£123m

2017: £249m

Actual fx: -51%
Constant fx: -49%

ADJUSTED OPERATING
PROFIT MARGIN

7.1%

2017: 12.2%

RETURN ON AVERAGE
CAPITAL EMPLOYED

7.5%

2017: 15.7%

A WORLD-LEADING SUGAR BUSINESS
FOCUSED ON EXCELLENCE

In the UK, sugar production
increased considerably to 1.37
million tonnes reflecting record beet
yields and an increase in crop area.
The latest sugar production estimate
for 2018/19 is a reduction to some
1.05 million tonnes as a consequence
of late drilling this spring followed by
the unusually dry summer. British
Sugar stocks are expected to decline
next year as a result.

Looking to the financial year 2019/20,
a reduction in beet price has been
agreed with our farmers and we
expect sugar production to be
affected by a lower crop area to be
planted in spring 2019. NFU Sugar
and British Sugar are disappointed
by the UK Government’s decision to
reject the emergency application for
the use of neonicotinoids as a seed
treatment from next year. We believe
that this decision is ill-founded and
disproportionate.

In Spain, beet sugar production
is expected to be slightly ahead
of last year at 0.4 million tonnes.
The Guadelete refinery operated
for a much-reduced period this year,
with sales supported by stocks
carried forward from the previous
season. Despite a good operating
performance, at current sugar
prices our Spanish business is
expected to make a substantial
loss in our next financial year.
Management will be addressing
the unsustainably high cost base
in this new sugar environment.

Revenue and adjusted operating

profit for ongoing businesses at

AB Sugar were substantially lower
than the previous year due primarily
to lower EU prices which adversely
affected our UK and Spanish
businesses. Our African business,
Illovo, had another successful year
and continued to be highly profitable.
We have shut down operations at
the Vivergo bioethanol plant and the
operating losses of this business are
shown separately under businesses
disposed in the segmental analysis.

We remained focused on delivering
significant cost reduction across
all of our businesses through our
ongoing performance improvement
programme, and efficiencies
continued to be identified in
production and procurement.

The global supply of sugar has
moved into surplus and the world
market sugar price reduced this year.
The EU sugar regime ended in
October 2017 with the consequent
removal of sales quotas. This
structural change increased the
supply of sugar in the EU market
and prices were expected to fall
as a result. EU prices have actually
fallen faster and more significantly
than expected as a consequence
of substantially higher EU sugar
production in 2017/18, following
an increase in crop area and higher
than average beet yields. In our next
financial year we will see the full year
effect of the current level of EU sugar
prices, which will represent a further
reduction on those prices achieved
this year. The effect of these lower
prices on our UK and Spanish
businesses will be only partially
offset by continuing performance
improvement initiatives and, in line
with previous guidance, the profit at
AB Sugar will be significantly lower
than that achieved this year.

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Building online
communities
across AB Sugar

Find out more at
www.abf.co.uk/responsibility

Since the first communities were
established in 2012, the number of
regular employee users has grown
to 2,000, representing a staggering
21,000 years of combined experience,
with a 25% increase in the past year
alone. This year saw 2,000 posts,
3,000 replies and 190,000 page views.

2,000

regular employee users

190,000

page views

Employees from across AB Sugar’s
operations are developing their
skills and knowledge by sharing
challenges, solutions and successes
via online communities.

These communities – part of a
programme of initiatives driving
collaboration across AB Sugar’s five
businesses – create teams of people in
related roles and functions. For example,
a chemical engineer in one part of the
business could answer a technical query
posted earlier by a colleague whom they
had never met on another continent.
As well as enabling online colleague
interaction, the sites also help employees
develop through more structured means,
such as webinars and the facilitation of
face-to-face meetings.

Sugar production at Illovo
increased to 1.7 million tonnes
from 1.64 million tonnes last year.
Favourable weather conditions,
improved irrigation and crop
management more than offset
lower yields in Zambia. Illovo
remained focused on building
domestic and regional sales.
The consumer offering was
developed further in a number
of markets, with investment in the
local brand and the introduction
of pack sizes at affordable prices
for our consumers.

In China, our two factories at
Zhangbei and Qianqi completed
an excellent campaign, producing
166,000 tonnes of sugar. Major
success in further mechanising
agricultural operations and the
adoption of better beet storage
methods improved beet quality
and delivered a much higher
operating profit for the year.
The crop area for the 2018/19
campaign remains in line with
expectations but lower sugar
prices are expected to reduce
the operating profit next year.

We have shut down operations
at the Vivergo bioethanol plant
in Hull. The current market
conditions, particularly high wheat
costs and low bioethanol prices,
made the operation uneconomic
and we do not see these
conditions improving for the
foreseeable future. A charge has
been included in the loss on
closure of businesses line in the
income statement, as set out in
note 21, and the operating losses
are separately disclosed under
businesses disposed in the
segmental analysis.

Germains, our seed treatment
and enhancement business,
continued to develop new
products, particularly in the US,
where expansion of the plant at
Gilroy, California, is progressing
as planned.

AB Sugar China has transformed the
efficiency and sustainability of the sugar
beet industry in China by putting a strong
partnership with growers at the heart
of its strategy.

TRANSFORMING CHINA’S
SUGAR BEET INDUSTRY

2017/18 proved to be a milestone for AB
Sugar China with beet yields higher than
ever, an unprecedented number of
growers renewing their contracts with
the business, and grower satisfaction
reaching peak levels.

The picture was very different when the
businesses were acquired 11 years ago.
In 2007, grower commitment to sugar
beet was weak because of the appeal of
other more lucrative crops. Yields were
low, with minimal mechanisation, poor
skills and an agricultural labour force
becoming more scarce with migration
to the cities.

Annual Report and Accounts 2018

Associated British Foods plcStrategic report – operating review26

SUGAR

TRANSFORMING
AGRICULTURE

Mechanisation has been a key element
in developing growers’ performance.
A decade ago, limited resources, lower
yields and productivity for sugar beet
relative to some other crops, and a
perception that small plots, then very
common, did not require mechanisation
resulted in many growers being unwilling
to invest in sugar beet machinery.
AB Sugar China stepped in to subsidise
mechanisation, investing time, expertise
and finance in sourcing and developing
equipment that suited the size and nature
of local growers. This pump-priming
helped to vastly increase efficiency,
resolve labour shortages and enable
land consolidation.

AB Sugar China has transformed its
approach to the growers. This cultural
change, set out in the 2011 Grower
Centric Agriculture Strategy, is rooted
in a commitment to understanding
growers’ needs and helping them
develop their output and skills. In doing
so, both the grower and processor
benefit from the increased profitability
of the crop.

BUILDING INSIGHTS

The most fundamental early insight was
that traditional farming methods were not
sustainable for growers or processors.
Based on this understanding, growers
were given help to improve their
approach and output. To free growers
from the insecurity of fluctuating prices
and so encourage them to become sugar
beet growers, the business introduced
guaranteed purchase prices. To help
growers develop their skills and approach
we now support them at each stage
of the process. We help them choose
the right type and amount of fertiliser
for managing soil health and methods
for controlling disease. With high
smartphone penetration, such
expertise is increasingly communicated
digitally via WeChat, the dominant
social media platform in China. Loyalty
programmes offer further benefits
such as weekly account manager
visits and free technical guides.

Annual Report and Accounts 2018

Associated British Foods plc27

A transformative decade for AB Sugar China

Crop area

Sugar beet volume

2008/09

Sugar beet yield
per hectare

2008/09

Mechanised
growing area

2008/09

21,793
hectares

0.56
million tonnes

25.7 tonnes

2017/18

25,333
hectares

1.25
million tonnes

49.3
tonnes

78%

LOOKING AHEAD

Far left: A centre pivot used to irrigate sugar crops
Below: A Chinese farmer showcasing the benefit
of mechanisation

In its next decade, AB Sugar China
intends to hit further stretching targets,
from cutting the cost of sucrose per tonne
to reducing its wider environmental
footprint. Its achievements to date, from
aligning the competitiveness of sugar
beet with that of sugar cane, to
encouraging growers to remain on the
land, put it in a good position to succeed.

Understanding and supporting growers
is a priority at all levels of the business.
Senior Chinese management regularly
visit growers and teams follow a
service-based approach, in contrast to
the more traditional transactional style,
working in partnership with growers,
business-wide.

In generating grower insights, the
business also calls on expertise from
outside the company. In December 2017,
external researchers carried out a
qualitative study of growers’ perceptions
of AB Sugar China. While they found
generally high levels of satisfaction,
some areas of improvement, such as
how sugar beet is transported post-
harvest, were identified and are now
being addressed.

Associated British Foods plc

Annual Report and Accounts 2018Strategic report – operating review28

SUGAR

A PASSION FOR QUALITY

The reform of the EU sugar industry,
completed in October 2017, creates both
opportunities and challenges for British
Sugar. The lifting of production quotas
and minimum beet prices opens up new
opportunities for the business to grow
domestically and export on the global
stage. British Sugar currently supplies
roughly 50% of the UK sugar market, with
the rest being served in equal proportion
by imported beet sugar and imported
cane sugar, which is then refined in the
UK. However, competition is increasing in
all geographies – domestic, European and
international – and to succeed in these
volatile commodity markets,
competitiveness is key.

British Sugar has been preparing for
this tough new environment for more
than a decade.

The business has consistently invested
in its operations to drive efficiency
improvements, reduce energy costs
and emissions, and improve operational
flexibility. It has consistently invested
capital over this time to make its
factories in Bury St Edmunds, Cantley,
Newark and Wissington as efficient and
productive as possible.

25%

yield improvements
in the past ten years

British beet sugar production is already
highly efficient and a sustained focus on
research and development and targeted
initiatives has resulted in compound yield
improvements of 25% over the past ten
years. British Sugar is now one of the
world’s lowest cost sugar beet
processors. It is further honing its
packaging, warehousing and logistics
operations to ensure they deliver the
quality and flexibility of service and
formats that UK and international
customers want, now and in the future.

British Sugar is further
strengthening its supply chain
to boost its competitiveness,
as the industry transitions from
regulation to liberalisation.

FLEXIBLE OPERATIONS

British Sugar has created a flexible
factory operating model by assigning
dedicated roles to each of its four sugar
production plants with, for example,
Bury St Edmunds, in Suffolk, focusing
on retail customers, while Newark,
in Nottinghamshire, specialises in
bulk deliveries for food and drink
manufacturing while being able to
flex these roles if required. This centre
of excellence approach enables each
factory to develop its specialisms, while
being able to work closely together to
deliver an integrated customer service.

The business is simplifying and
automating operating processes at the
four factories to reduce costs and further
improve efficiency. Such investment
is, among other advances, enabling
the production of a wider variety of
packaging formats to meet diverse and
changing customer preferences; three
locations now provide 50kg bags of
sugar, for example, whereas they were
previously produced at just one. This
expansion in capability increases the
attractiveness of British Sugar’s
offering in the world market, where the
50kg format is in particular demand.
In another move to develop its
international customer base, British
Sugar is developing its site at Cantley,
near the Norfolk coast, as its key export
hub given its proximity to Felixstowe.

British Sugar has
transformed its
logistics operations

50kg

bags of sugar provided
at three locations

Associated British Foods plcAnnual Report and Accounts 201829

Above and right:
British Sugar’s
Wissington warehouse
production plant

AUTOMATED WAREHOUSING

In another significant investment, British
Sugar is fully automating the warehouse
at its Wissington sugar production plant
in Norfolk, one of Europe’s largest sugar
factories. This will see intelligent
software automatically programming the
movement of pallets in and out of the
warehouse based on customer orders
and the production schedule, enabling
a swift response to changing customer
needs and supporting future growth. To
further reduce the need for, and costs of,
additional warehousing, British Sugar is
also planning to increase its own storage
capacity. In the meantime, faster
lorry-loading times have eased pressure
on storage space.

TRANSFORMING LOGISTICS

WINNING IN THE MARKET

In recognition of the central role that
efficient delivery plays in customer
satisfaction, and the significant cost of
haulage, British Sugar is transforming its
logistics operations. The business has
strengthened the size and expertise of its
logistics team, is working with its haulier
partners to extend logistics operations,
and is developing its understanding of
customer delivery preferences to ensure
it meets their needs.

British Sugar’s supply chain improvement
programme drew on best practice from
within and outside the business, and on
insights into the development of the
global sugar industry. It involved close
collaboration between the business’s
commercial and operations teams; an
integrated approach that underpins
British Sugar’s core strategy of winning
in the market by always exceeding
customer expectations and providing
the products and service they want.

One year on from the full liberalisation of
the beet sugar industry, the programme
has helped British Sugar achieve another
significant step towards its goal of
becoming the firm supplier of choice
for its customers.

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Strategic report – operating review30

AGRICULTURE

3
0

ABOUT AGRICULTURE
AB Agri occupies a position across the
agri-food supply chain. Its focus is to add
value and deliver profit for partners all
along that chain by improving the
sustainability of food production. This
is achieved by investing in research
and development, driving the use of
technology and exploring how data can
deliver insight and enable improvements.
A top three player in almost all the
markets in which it operates, it
continues to expand its global footprint
and is rapidly becoming a major
international agri-business. AB Agri’s
core capabilities include:

Specialised feed ingredients
Offering pioneering feed ingredients,
additive products and technical services
to the global animal feed industry as well
as high-quality, bespoke, vitamin/mineral
premixes, starter feeds and micro-
ingredients developed through world-class
expertise in nutrition and product
formulation.

Co-product innovation and marketing
The UK’s largest and most progressive
marketer of food, drink and energy
industry co-products.

Finished feed manufacture
A major international manufacturer and
supplier of pig, poultry and dairy feeds,
with 28 production sites in the UK,
continental Europe and China. We work
closely with major processors and
producers to benchmark productivity and
performance and develop tailored feeds
and new feeding regimes to improve
performance for every customer.

Supply chain solutions
Working exclusively with major brands
and retailers for more than 15 years, we
create value through the implementation
of continuous improvement
programmes, working across food,
agriculture and natural resource supply
chains in over 65 countries.

Commodity risk management
Providing customers with in-depth
insight on global commodity markets,
we are also the UK’s leading grain trading
and crop inputs company through
Frontier Agriculture, our joint venture
with Cargill plc.

Annual Report and Accounts 2018

Associated British Foods plc31

DRIVING FOOD
SUSTAINABILITY
THROUGH DATA

See page 34 to read more

Associated British Foods plc

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Strategic report – operating review32

AGRICULTURE

ONGOING BUSINESSES

REVENUE

£1,350m

2017: £1,191m

Actual fx: +13%
Constant fx: +14%

ADJUSTED OPERATING
PROFIT

£59m

2017: £50m

Actual fx: +18%
Constant fx: +23%

ADJUSTED OPERATING
PROFIT MARGIN

4.4%

2017: 4.2%

RETURN ON AVERAGE
CAPITAL EMPLOYED

15.7%

2017: 14.3%

ADDING VALUE BY IMPROVING THE
SUSTAINABILITY OF FOOD PRODUCTION

AB Agri revenues were well ahead

of last year, with growth in all
businesses, and with a consequent
increase in operating profit.

In the UK, compound feed and
premix sales grew significantly and
the large sugar beet crop increased
the availability of co-products which
provided more volume for Trident
Feeds. Higher vitamin costs drove an
increase in feed prices. A new premix
factory at Fradley Park, Staffordshire,
opened at the end of the financial
year. Operating profit at Frontier was
held back by limited grain trading
opportunities following a smaller
UK wheat crop, while its crop
inputs business delivered a record
performance with high demand
during the growing season in
spring and early summer.

AB Vista continued to build
international sales and share in the
feed enzyme market and is now
a leader in the phytase segment.
Sales in the ruminant segment and
in North America showed good
growth but were held back by a
reduced demand by the Vietnamese
pig industry.

Starter feed exports to continental
Europe by our Primary Diets
business in the UK grew strongly,
especially to Poland, Germany,
Denmark and Italy. Agrokorn, our
Danish speciality protein business
acquired in 2016, continued to grow.
Our compound feed business in
China had another good year and
entered the new markets of sheep
and duck feed. Our flaked maize plant
in Rudong and a new premix mill
were both completed during the year.

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State-of-the-art
safety

Find out more at
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Premier Nutrition’s state-of-the-art
Staffordshire factory puts safety
firmly to the fore.

The AB Agri business’s new Fradley Park
facility incorporates the latest technology
and industrial design to ensure product
and operator safety. The automated
production line is system-driven,
reducing the need for manual handling
with, for example, pallets being stacked
automatically rather than by hand. Safe
movement of staff and visitors is a
priority, with a pedestrian-free delivery
yard, forklift truck thoroughfares and a
separate charging area.

To further ensure product safety, the
factory is built to food industry standards.
This includes separate dirty and clean
changing areas, a full kitchen/eating
suite, and personal protective equipment
storage facilities. There is also seamless
traceability, with barcode technology
monitoring all movement – from the arrival
of raw materials to product despatch.

Before the factory’s July 2018 opening,
Premier Nutrition conducted more than
3,500 tests to ensure it met its high
health and safety, product safety and
environmental standards.

3,500

tests to ensure it met its
health and safety, product
safety and environmental
standards

Our Fradley
Park facility
in Staffordshire

Our agriculture businesses
continue to develop efficient
ways that benefit our customers.

EMPOWERING WASTE

Amur, AB Agri’s anaerobic digestion business,
turns food waste into renewable energy.
Anaerobic digestion is the breakdown of
organic matter without oxygen to produce
flammable gases. These gases can be burned
in an engine to produce heat and electricity, or
cleaned up and used in the same way as natural
gas, to heat our homes and cook our food.

Amur’s Yorkshire-based anaerobic digestion
plant was launched in November 2016 and
constitutes a key element of AB Agri’s
commitment to being a circular business:
it now converts 52,000 tonnes of food waste
each year into 35,000 MWh of bio-methane
gas for the local grid. The residue from this
process goes back onto fields as fertiliser,
completing the full cycle.

52,000

tonnes of food
waste can be
converted into
35,000 MWh
of methane gas

Amur has also turned its expertise into
a business model: it provides product
innovation, testing and consulting services,
helping the UK anaerobic digestion industry
to grow and develop. In particular, Amur
helps its customers improve the performance
of their facilities, by optimising gas yields and
supplying consistent feedstock that drives
industry standards. Running its own plant and
test laboratories gives Amur credibility and
understanding of its customers’ needs. It also
enables the business to trial and test innovative
products such as feedstock, of which Amur
sells 39,000 tonnes each year to third-party
sites generating an estimated additional
27,000 MWh of bio-methane.

Associated British Foods plc

Annual Report and Accounts 2018

Strategic report – operating review34

AGRICULTURE

AB Agri is helping customers across the
agri-food supply chain to deliver business
improvements with the smart use of
new technology.

UNLOCKING THE VALUE OF DATA

From farm to fork, AB Agri is using its
advanced technology and rich data to
boost performance for its agri-food
customers. One such example is SOYL
precision farming, part of AB Agri’s
Frontier Agriculture business. SOYL uses
innovative software, robust data, expert
advice and technical support to help
farmers improve crop production.

Currently, only one-third of land in the UK
used to grow cereals applies precision
technology to indicate where, and in
what measure, inputs such as seeds and
fertiliser need to be applied – despite
clear evidence of both value creation for
farmers, and of the more responsible use
of resources which result. To help unlock
this value, SOYL has mapped 1 million
hectares of land and is using the resulting

data to provide insight. Case studies
show that applying nitrogen fertilisers
variably to wheat crops, based on SOYL’s
satellite imagery, can deliver a typical
yield improvement of between 4%
and 7%. For a farm with 100 hectares
of wheat yielding 8 tonnes/hectare,
a switch to variable rate nitrogen fertiliser
application could generate an uplift in
sales of up to £10,000 per annum.

SOYL is increasingly putting such insight
into farmers’ hands, via apps and other
digital products. For example, growers
can see their precision farming data live
via a web-based data management tool,
monitor issues via a field scouting app
and directly transfer variable rate
application maps to, and execute them
from, a tractor cab.

4% –7%

typical yield improvement based
on SOYL satellite imagery

Associated British Foods plcAnnual Report and Accounts 201835

MAKING LIGHT WORK

Another of AB Agri’s innovative
businesses, Aunir, part of the AB Vista
business, uses light – specifically near
infrared (NIR) analysis – to test the
nutritional, chemical and physical
properties of ingredients and products.

NIR technology offers many benefits
over traditional analytical methods. It
requires little or no sample preparation,
is chemical-free, and provides reliable
and precise results in seconds, thus
enabling customers to make quick
decisions. It is widely used for quality
control in animal feed but Aunir has
taken its application to new heights.
Its cutting-edge technology, extensive
online databases and processing power
enable it to perform complex analysis
that can help make the whole agri-food
supply chain more efficient.

Its services include helping customers:

• check the quality of feed ingredients
online against a database of more
than 4 million data points;

• measure the nutrient and energy

content of forage, to establish what
livestock eat; and

• assess animal performance, and allow
the feed to be balanced to optimise
animal production while reducing
nutrient losses into the environment.

Aunir has made NIR technology even
more user-friendly by offering portable
‘NIR4’ devices. These handheld tools
enable farmers to quickly and cheaply
test the quality of animal feed on-farm
and, if necessary, immediately balance
its nutrient base, without needing to
revert to a laboratory.

350,000

samples analysed to create in excess
of 4 million data points

DRIVING FOOD SUSTAINABILITY

By investing in research and
development, driving the use of new
technology and using data to deliver
insight, AB Agri companies like SOYL
and Aunir are delivering sustainable food
production, adding value and delivering
profit for partners across the global
agri-food supply chain.

Digital products seamlessly connect farmers
with information about their land

Associated British Foods plcStrategic report – operating reviewAnnual Report and Accounts 201836

INGREDIENTS

4
0

ABOUT INGREDIENTS
Ingredients comprises a number
of businesses that supply a range
of ingredients to food and non-food
manufacturers, which together
employ 8,000 people.

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
extensive knowledge and understanding
of the yeast and bakery ingredients
business, the equipment, the
processes and the raw material.

ABF Ingredients operates a global
footprint with production facilities in
Europe, the Americas and India and
customers in more than 50 countries.
It comprises businesses focusing on
high-value ingredients for food, feed,
pharmaceutical and industrial
applications: AB Enzymes; Abitec
(specialty lipids and surfactants); Ohly
(yeast extracts and seasoning powders);
PGP International (extruded ingredients
and specialty rice flours); and SPI Pharma
(pharmaceutical excipients and antacids).

HALF PROVED,
WHOLESOME TASTE

See page 39 to read more

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Associated British Foods plc

Annual Report and Accounts 2018

Associated British Foods plcStrategic report – operating reviewAnnual Report and Accounts 201838

INGREDIENTS

ONGOING BUSINESSES

REVENUE

£1,467m

2017: £1,492m

Actual fx: -2%
Constant fx: +6%

ADJUSTED OPERATING
PROFIT

£143m

2017: £126m

Actual fx: +13%
Constant fx: +23%

ADJUSTED OPERATING
PROFIT MARGIN

9.7%

2017: 8.4%

RETURN ON AVERAGE
CAPITAL EMPLOYED

18.1%

2017: 15.4%

PROVIDING INNOVATIVE, HIGH-QUALITY
INGREDIENTS GLOBALLY

ABF Ingredients delivered an
outstanding performance with
another year of strong profit growth.
Gross profit margins improved in
all five businesses as a result of a
favourable product mix, with sales
managed towards markets with
higher margins. In our enzymes
businesses, innovative products
serving the bakery, pulp and paper
and detergents markets delivered
the sales growth. The increase
in enzyme production capacity at
the Rajamäki site in Finland was
utilised as planned to satisfy the
growth in customer demand.

Abitec, our speciality lipids business
in North America, continued to
perform well. SPI Pharma sustained
its growth in excipients and drug
delivery solutions driven by the
ongoing expansion in the market
for pharmaceutical reformulations.
Our US protein extrusion business,
PGP International, continued to
develop its sales of protein crisps
which are used in the rapidly
expanding health bar and
gluten-free segments in the US.

At constant currency, Ingredients’

revenues were 6% ahead of
last year. Adjusted operating profit
was well ahead of last year again,
delivering a further increase
in margin.

AB Mauri delivered another year
of sustained growth, in both yeast
and bakery ingredients, through
continued improvements in
operational performance. Significant
progress was made in our multi-year
investment programme aimed at
developing our capabilities in bakery
ingredients technology. The goal
of this investment is to provide the
baker with optimal solutions for their
present and future product needs.

North America benefited from cost
reductions in yeast manufacturing,
sustained growth in bakery
ingredients and a full year of
ownership of the Speciality Blending
business acquired in 2017. Our Latin
American businesses have grown
despite ongoing economic difficulties
and competitive pressures. The
operation in Argentina opened
its new bakery ingredients plant
in Lanus in the year. Trading
performance in EMEA continued to
be strong and further investments
were made in research and
development. In June 2018 the
acquisition was completed of
Holgran, a supplier of malted
grains, and Fleming Howden,
an Edinburgh-based blender and
distributor of bakery ingredients.

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Recognising great
safety performance

Find out more at
www.abf.co.uk/responsibility

• PGP International, which was

recognised for its ‘buddy safety
system’, which sees each new starter
wearing a red strip on their hard hat so
that everyone knows they need safety
guidance. They are buddied up with a
more experienced operator who wears
a yellow strip on their hat and coaches
them on day-to-day tasks.

Innovative safety initiatives are
being shared across ABF Ingredients,
following a programme spanning
all of its businesses.

The Safety Recognition Programme,
which aims to acknowledge, encourage
and share best practice, was launched
simultaneously by the CEOs of ABF
Ingredients’ five businesses in August
2017. Locations were asked to submit
schemes showing solid evidence
of sustainable health and safety
improvements which could be replicated
in all businesses. Safety forms part
of our People section in the corporate
responsibility logo illustrated opposite.

Six different sites were recognised
by the senior leadership team. The
winners, who each made donations
to local charities, included:

• the ABITEC site in Janesville, USA,
which has had no Lost Time Injuries
for four years due to a strong safety
culture that is fully embraced by all
team members; and

We are enabling artisanal bakers
in Brazil to offer a wider choice
of products more conveniently
and easily.

THE PROOF OF A GREAT LOAF

THE BREAD SOMMELIER

AB Mauri Brazil’s Panesse range
of pre-proved bread products has
captured a loyal retail and consumer
base and a trio of food quality awards –
just 18 months after launch.

Panesse’s superior quality ingredients
deliver a thin, crunchy crust and a
delicious, aerated crumb. As well as
tasting great, due to the product’s
40-hour fermentation process, it is
very easy to digest.

The premium brand targets both the
craft baker and the consumer, with
the combined promise of convenience
and quality. Bakers can buy chilled
Panesse dough, which they bake on
their premises and sell in branded
wrappers. Consumers, meanwhile,
can purchase frozen part-baked loaves
in supermarkets to finish at home.

Panesse, which has been launched
initially in São Paulo, is helping AB Mauri
Brazil raise the bar of the bread category
– as evidenced by its brand slogan ‘the
bread sommelier’. Further testimony
to its superiority has come from the
International Taste & Quality Institute
which, in April 2018, presented ‘Superior
taste awards’ to three Panesse products.
Whole Grain won the highest possible
score – three golden stars – and was
judged as having ‘exceptional taste’.
The Traditional and Grain variants
received two stars and were assessed
as having ‘remarkable taste’.

Panesse was developed over three years
in a collaboration between AB Mauri’s
global research and technology centre in
Made, the Netherlands, and its Brazilian
team. It is another example of the track
record of the business in supplying
innovative and high-quality products
to artisanal bakers.

Associated British Foods plcAnnual Report and Accounts 2018Strategic report – operating review40

INGREDIENTS

Rising demand for healthy
foods, and strong innovation,
has delivered significant
growth for PGP International
(PGPI), one of the ABF
Ingredients businesses.

THE INGREDIENTS
FOR GROWTH

California-based PGPI is a leading
manufacturer of extruded protein and
grain crisps, and of rice and rice flour
products. Its ingredients are used by
major food companies in the US and
beyond in granola, energy and nutrition
bars, snacks, confectionery, baked foods,
and speciality cereals.

EXTRUDED CRISPS

PGPI makes its extruded crisps from
soy, pea and rice protein, as well as
from quinoa, sorghum and a number
of ancient grains. Packed with nutritional
ingredients, the crisps come in various
sizes, densities and textures, tailored
to customer needs. Innovation is
constant, with our highly skilled product
development teams working closely
with customers to explore and create
new processes to develop new, and
enhance existing, recipes.

Our protein crisp sales have grown
significantly to satisfy the increased
demand for plant-based protein due to
the potential health benefits.

Associated British Foods plcAnnual Report and Accounts 2018RICE PRODUCTS

PGPI offers a wide variety of rice flours
and meals – including certified organic
and GMO-free lines – made from
different types of rice in many particle
sizes. Its gluten-free rice flour products
are used largely in bakery mixes, cereals
and healthy snacks.

Sales of PGPI rice products have
experienced significant growth, driven
by the growing demand for gluten-free
products. This demand extends beyond
those consumers with a gluten
intolerance, with many people now
turning to gluten-free products because
they consider them healthier and more
natural. The business is recognised by
the Gluten Free Certification Organisation,
with its products containing half the
already low level of gluten allowed by
the US Food and Drug Administration.

VERSATILITY

The versatility of these products also
increases their attraction. Its pea protein
crisps can, for example, be used in
nutrition bars, incorporated into clusters
or simply added to breakfast cereals.
And while their high-protein, energy-
boosting effects make them an ideal
ingredient for nutrition foods, their light
flavour means they are versatile enough
to incorporate in confectionery and
desserts. PGPI’s rice flour products are
similarly versatile; its glutinous (sweet)
short grain rice flour, for instance, is a
strong stabiliser and thickener, survives
freeze-thawing processes, and breakage
during packaging.

Such versatility, along with PGPI’s
innovation strengths and the rising
interest in healthy food, has helped PGPI
to achieve three years of positive growth.

Associated British Foods plcAnnual Report and Accounts 2018Strategic report – operating reviewSOARING HIGH ON
SOCIAL MEDIA

See page 48 to read more

RETAIL

5
0

ABOUT RETAIL
Primark is one of the largest clothing
retailers in Europe. It has 360 stores
and employs over 75,000 people in the
UK, Republic of Ireland, Spain, Portugal,
Germany, the Netherlands, Belgium,
Austria, France, Italy and the US.
It was founded in June 1969 in the
Republic of Ireland where it continues
to trade as Penneys.

Primark’s organic growth has been
mainly achieved through increased
selling space. Investment in buying,
merchandising and our success in
constantly refreshing our stores ensures
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
and the US. 2006 saw Primark’s first
foray into continental Europe with the
opening of a store in Madrid and it now
operates from 14.8 million sq ft of selling
space across 11 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, beauty and homeware.

Casual summer
by Lucy, Will
and James

Bought from London,
Oxford Street

GIVE ‘EM PRIMARKS!

Annual Report and Accounts 2018

Associated British Foods plc43

Associated British Foods plcStrategic report – operating reviewAnnual Report and Accounts 201844

RETAIL

05
£7,477m

REVENUE

2017: £7,053m

Actual fx: +6%
Constant fx: +5%

ADJUSTED OPERATING
PROFIT

£843m

2017: £735m

Actual fx: +15%
Constant fx: +13%

ADJUSTED OPERATING
PROFIT MARGIN

11.3%

2017: 10.4%

RETURN ON AVERAGE
CAPITAL EMPLOYED

28.2%

2017: 27.3%

QUALITY, UP-TO-THE-MINUTE DESIGNS AT
VALUE-FOR-MONEY PRICES

Sales at Primark were 6% ahead of

last year at actual exchange rates
and 5.2% ahead at constant currency,
driven by increased selling space
offset by a 2.1% decline in like-for-like
sales. Operating profit margin
increased to 11.3% from 10.4%
and, as a consequence, adjusted
operating profit was 13% ahead
at constant currency.

Primark performed particularly well
in the UK: sales were 5.3% ahead of
last year, like-for-like sales growth for
the full year was 1.2% and our share
of the total clothing market increased
significantly. This was achieved in a
market which declined year-on-year.
Like-for-like growth was strong in
the first half of the year and was
marginally down in the second half
in a much weaker market and which
compared to an exceptionally strong
second half last year. Sell-through of
the summer range was strong, and,
as a result, markdowns were lower
than expected. Early trading of
our new autumn/winter range has
been encouraging.

Our store in central Belfast was
sadly destroyed by fire in August.
The safety and well-being of our
customers, colleagues and
construction team was the most
important consideration, and all were
evacuated safely and quickly. Our
store is housed in an iconic building
which is much loved by the people of
Belfast. We will shortly re-establish a
trading presence in Belfast with the
opening of a store in Commonwealth

House and are committed to working
with the authorities to restore Bank
Buildings over the longer term. The
full replacement cost of the building
and resulting business interruption
is insured.

Sales in the Eurozone were 4.7%
ahead of last year at constant
currency and like-for-like sales fell
by 4.7%. Sales growth was achieved
in Spain, Portugal and Germany
and was especially strong in France,
Belgium and Italy. Adjusting for
cannibalisation from new store
openings, we estimate that the
like-for-like decline was 3.6%. This
decline was driven by unseasonable
weather during three distinct periods
this year, especially in northern
Europe, and by soft trading in a
weak German market.

We are very pleased with our US
performance in the second half of this
year. Our ninth store, which opened
in Brooklyn in July, has been trading
very strongly. Our existing stores
delivered like-for-like growth in the
second half including those stores
with reduced selling space, at Freehold
and Danbury, with a consequent
benefit to store profitability. We have
signed agreements for two further
stores: American Dream, New Jersey
is planned to open in 2019 and
Sawgrass Mills, Florida in 2020.
We are working on adding further
stores in the medium term in the
eastern region of the US which
would be serviced from our
existing US warehouse.

UK
Spain
Germany
Republic of Ireland
Netherlands
France
US
Portugal
Belgium
Austria
Italy

Year ended 15 September 2018

Year ended 16 September 2017

# of stores
185
45
27
37
19
13
9
10
6
5
4
360

sq ft 000
7,125
1,764
1,686
1,087
902
649
507
348
292
242
203
14,805

# of stores
182
44
22
37
18
11
8
9
5
5
4
345

sq ft 000
6,835
1,675
1,401
1,083
849
562
485
300
227
242
203
13,862

Associated British Foods plcAnnual Report and Accounts 2018Y
T
I
L
I
B
I
S
N
O
P
S
E
R
E
T
A
R
O
P
R
O
C

Growing
Talent

Find out more at
www.abf.co.uk/responsibility

1,500

leaders attended Primark’s
Effective Conversations
learning workshop from
across the business

Primark’s success reflects the
ambition, innovation and hard work
of its people – and its continued
investment in developing their skills.

In 2018, the business introduced the
Make Your Primark process. This aims
to ensure all employees understand
their priorities, how they contribute to
business success, and that managers
can effectively structure performance
and personal development conversations
with employees.

As part of Make Your Primark, managers
have three structured conversations
with individuals every year. In the first,
they agree a set of goals that reflect
the needs of both the business
and competency-based employee
development objectives. In the second,
they review progress towards these
goals. In the third, they acknowledge
and celebrate goal achievement. To help
managers approach such conversations
effectively, Primark delivered an Effective
Conversations learning workshop for
more than 1,500 leaders from across
the business.

In the next financial year, we are
planning to add over 1 million sq ft
of net additional selling space.
Germany, France, Spain and the
UK will see the most space added
and overall, we will add a net 15
new stores. We will move to new
premises at Birmingham Pavilions
which, at 160,000 sq ft, will
become our largest store in the
whole estate. We have already
opened large new stores in Berlin
in Germany; Toulouse in France;
and Seville and Almeria in Spain.
Other large new stores to open
later in the year will be: Bordeaux
in France; Brussels in Belgium;
Utrecht in the Netherlands; and
Milton Keynes in the UK.

Our first store in Slovenia will
open in 2019 in Ljubljana, taking
Primark to its twelfth country.
We are planning to enter a
number of other markets in
central and eastern Europe
over the coming years, and
have signed the lease for our
first store in Poland, Warsaw.

NEW STORE OPENINGS

UK: Charlton, Staines, Burnley,
Westfield – London

Spain: Valencia

Portugal: Algarve

France: Le Havre, Metz

Belgium: Antwerp

The Netherlands: Tilburg

Germany: Bielefeld, Münster,
Stuttgart Königstraße, Munich PEP,
Ingolstadt

US: Brooklyn

RELOCATIONS

UK: Oxford, Rotherham, Grimsby,
Kingston, Norwich

Spain: Islazul Madrid

Social media continues to underpin
Primark’s loyal fashion following
with total followers growing to
nearly 13 million, up from 10 million
last year. Primark’s social media
channels aim to inspire, and enable
its followers to keep up-to-date on
all the latest products, create wish
lists, receive styling advice, and
upload outfit posts to Primania.

Operating profit margin in the
second half of the year was well
ahead of the first half, and last year,
and was driven by the benefit of
the weakening of the US dollar
exchange rate on purchases and
by better buying. Following a very
successful sell through of our
summer ranges the level of
markdowns in the second half
was lower than expected, although
above the unusually low level in
the comparative period last year.
These factors together drove the
improvement in full year margin
from 10.4% to 11.3%.

Looking ahead to next year, forward
exchange contracts have been
secured against all merchandise
in the first half, and the weaker
US dollar exchange rate for these
contracts will deliver a higher first
half margin compared to the first
half of this year. Assuming that
purchases for the spring/summer
range are secured at current
exchange rates we would expect a
lower second half margin. The full
year operating margin in Primark at
this stage is expected to be broadly
in line with this year. However,
the exchange rate applicable to
purchases in the second half will
be sensitive to sterling exchange
rate volatility which is likely to
arise given a period of intense
Brexit negotiations.

Retail selling space increased by
a net 0.9 million sq ft this year with
15 net new stores. This brings the
total estate to 360 stores, trading
from 14.8 million sq ft which
compared to 13.9 million sq ft a year
ago. Selling space increased by a
gross 1 million sq ft with 16 new
stores added; five stores were added
in Germany; four in the UK; two
in France and one each in Portugal,
Belgium, Spain, the Netherlands and
the US. A small store at Lisnagelvin,
Londonderry, in Northern Ireland
was closed and selling space in the
US stores in Freehold and Danbury
was reduced.

Associated British Foods plc

Annual Report and Accounts 2018Strategic report – operating review
46

RETAIL

Superheroes, dastardly villains
and boy wizards have flown from
the screen to the high street,
thanks to Primark’s unbeatable
range of licensed products.

EXPONENTIAL GROWTH

The business sells a huge range of
licensed products, covering global brands
such as Warner Bros, Disney and Marvel;
major TV series, such as Love Island and
Game Of Thrones; classic superbands,
such as the Beatles and the Rolling
Stones; and leading computer games.

Licensed products make a huge
contribution to Primark’s success –
one that has grown exponentially over
the past five years. They feature across
all store categories. Although other
retailers sell products under similar
licences, Primark’s competitive prices,
innovative designs and swift translation
of concepts from screen to store, give
it a particular edge.

This year’s 90th birthday of Mickey
Mouse, for example, has inspired a
winning collection of products across
the store. A House of Mouse homeware
range extends from fairy lights and mugs
to stationery and lamps (all with very
large ears), while #Mickey90 adorns
children’s, men’s and women’s fashion
and accessories ranges. Meanwhile,
other beloved Disney characters, such
as the Aristocats and Bambi, were the
stars of a hugely popular 2018 spring
fashion collection.

Mickey Mouse celebrated
his 90th birthday this year

Annual Report and Accounts 2018

Associated British Foods plc47

UNIQUE EXPERIENCES

The brand’s commitment to developing
a unique experience around its licensed
products is a further draw: the recently
opened store near Disneyland Paris, at
Val d’Europe, for example, has a magical
department for all things Disney – from
princess ball gowns to cosy nightwear.

Fans of Harry Potter, meanwhile,
can enter the boy wizard’s world at
Primark stores in Boston, Dublin,
Madrid, Antwerp and Oxford Street
East, London. White owls carry letters
overhead against a night sky; Gryffindor,
Ravenclaw, Slytherin and Hufflepuff
house flags are suspended from the
ceiling; trunks and suitcases are stacked
in every corner; and there are more
Harry Potter-themed clothes, bags, soft
furnishings and shoes than you could
shake a wand at. Customers are kept
spellbound online: Primark’s website
features a ‘store safari’ video tour of
the Oxford Street East Potter area; a
Facebook video reveals how to achieve
a Harry Potter bedroom makeover, and
Instagram clips capture the wizarding
clothing range.

A SHOPPING DESTINATION

By building on the existing allure of
much-loved characters with novel online
and physical shopping experiences,
innovative must-have products and
competitive prices, Primark’s licensed
products are helping to make the store
even more of a shopping destination.

Associated British Foods plc

Annual Report and Accounts 2018

Strategic report – operating review48

RETAIL

B R O O K LY N

CUSTOMER-FOCUSED CONTENT

Primark puts the customer at the heart
of all its digital content. Reflecting
insights from customer research, the
language and tone are friendly and
informal, subjects extend beyond
Primark products to include broader
lifestyle interests, from health to
celebrity, and the varied formats cover
everything from video city guides to
beauty tutorials.

In spring 2018 social media played a
huge part in creating excitement ahead
of the opening of Primark’s ninth US
store, in Brooklyn, New York. Customers
were invited to a pop-up shop on Long
Island, where they could model and be
photographed wearing Primark products.
The customer portraits were then posted
and shared across social media and used
in in-store advertising in the Brooklyn
Primark. The campaign was widely
covered in mainstream media.

One of our many customer
influencers who helped
generate a social media
buzz around the opening
of Brooklyn Primark

113M

Primark’s engaging digital
sites are attracting huge
customer numbers to the
brand’s physical stores.

Two million people visit the brand’s
website every week and, in the UK,
Primark is among the top ten most-
visited fashion retailer sites. The brand
has also built up a community of nearly
13 million on its social media sites
including Facebook and Instagram. Such
high visitor levels are particularly striking
given the fact that, unlike many retail
brands, Primark does not sell online.

Annual Report and Accounts 2018

Associated British Foods plc49

SOCIAL MEDIA IMPACT

Primark’s social media leadership is
delivering clear results in the physical
as well as virtual worlds.

Online fitness guru,
Alice Liveing, who
co-created our recent
activewear range

another move to extend user
engagement, in late 2018, as part of
an increased focus on video channels,
Primark extended its practice of replying
to Facebook and Twitter posts to include
Instagram too.

1,000

key influencers have partnered
with Primark

Mainstream media have celebrated
Primark’s championing of body
diversity in their campaigns

INFLUENCER PARTNERSHIPS

Primark partners with around 1,000
key influencers, who help promote
the brand’s products on their own
online channels. These include both
nationally- and internationally-renowned
celebrities and individuals with a more
local or niche following. Sponsored
product collaborations with celebrities
– such as a recent activewear range
developed with online fitness guru,
Alice Liveing – also generate significant
social media coverage.

To extend this online community,
Primark encourages customers to
share and tag the brand in their
photos and images. For example,
following the Brooklyn customer
photo shoot, people who posted
their favourite, PrimarkUSA-tagged
shot on Instagram, had the chance
of featuring in a campaign photo. In

Associated British Foods plcAnnual Report and Accounts 2018Strategic report – operating review50

FINANCIAL REVIEW

STRONG PROFIT PERFORMANCES
WERE DELIVERED BY EACH
OF PRIMARK, GROCERY,
AGRICULTURE AND
INGREDIENTS

John Bason
Finance Director

Group performance
Group revenue increased by 1% to
£15.6bn and adjusted operating profit
was 3% higher at £1,404m. In calculating
adjusted operating profit, the
amortisation charge on non-operating
intangibles, profits or losses on disposal
of non-current assets, transaction costs
and amortisation of acquired inventory
fair value adjustments are excluded. The
acquired inventory fair value adjustments
arose on balsamic vinegar inventory at
Acetum: in accordance with accounting
standards, inventory on hand at
acquisition was recorded at fair value,
some £69m more than the book value.
This fair value adjustment is charged to
the income statement as the related
inventory is sold, with a charge of £23m
in the year. On an unadjusted basis,
operating profit was 1% higher than last
year at £1,344m.

With over 60% of the group’s operating
profit earned outside the UK, the
strengthening of sterling against most
of our trading currencies, other than
the euro, resulted in a loss on translation
this year of £22m. US dollar weakness
against the euro had a favourable
transactional effect on Primark’s
largely dollar-denominated purchases,
particularly in the second half. The
movement in sterling across the year
resulted in a negative transactional
effect in the first half moving to a
favourable effect in the second half.

Next year we expect no material
translation benefit at current exchange
rates. The weaker US dollar exchange
rate will have a favourable transactional
effect on Primark’s margin in the first half
and, assuming current exchange rates
continue, we would expect a lower
margin in the second half. However, the
exchange rate applicable to purchases in
the second half will be sensitive to the
sterling exchange rate volatility which is
likely to arise given a period of intense
Brexit negotiations.

Net financing costs reduced from last
year, following favourable interest rate
movements affecting non-sterling
denominated borrowings in southern
Africa and an increase in yields on our
cash deposits. Last year included
the benefit of a profit on the sale of
businesses and, taking this into account,
statutory profit before tax was down
19% to £1,279m. On our adjusted basis,
which excludes these items, profit before
tax rose by 5% to £1,373m.

Acquisitions and disposals
In October 2017 we acquired Acetum
S.p.A, the leading Italian producer of
Balsamic Vinegar of Modena for a net
consideration of £284m including debt
assumed. In June 2018 our UK
Ingredients business acquired Holgran,
a supplier of malted grains, and Fleming
Howden, an Edinburgh-based blender
and distributor of bakery ingredients.

AB Agri acquired a small aerial survey
and informatics company based in
the UK.

In October 2018 we shut down
operations at Vivergo, AB Sugar’s
bioethanol plant in Hull. A charge has
been included for this in the loss
on closure of businesses line in the
income statement.

Taxation
We recognise the importance of
complying fully with all applicable tax
laws as well as paying and collecting the
right amount of tax in every country in
which the group operates. Our board-
adopted tax strategy is based on seven
tax principles that are embedded in the
financial and non-financial processes and
controls of the group. This tax strategy
is available on the group’s website at:

www.abf.co.uk/documents/pdfs/
policies/abf_tax_strategy.pdf

This year’s tax charge of £257m included
a charge of £292m at an effective rate
of 21.3% (2017 – 22.4%) on the adjusted
profit before tax. The lower effective
tax rate in the year is primarily due to
the reduction in the US federal corporate
tax rate from 35% to 21% with effect
from 1 January 2018. The current and
deferred impact reduced the group’s
effective tax rate by 1% in the financial
year. We expect next year’s effective
tax rate for the group to be similar to
the current year.

Associated British Foods plcAnnual Report and Accounts 201851

The total tax charge for the year
benefited from a credit of £35m (2017 –
£15m) for tax relief on the amortisation
on non-operating intangible assets,
amortisation of fair value adjustments
on acquired inventory and goodwill
arising from business combinations.
The credit this year included £18m on
the remeasurement of the group’s US
goodwill deferred tax liability following
the US tax reform. Last year the total tax
charge included a charge of £87m arising
on the disposal of businesses.

Earnings and dividends
Earnings attributable to equity
shareholders in the current year were
£1,007m and the weighted average
number of shares in issue during the
year, which is used to calculate earnings
per share, was 790 million (2017 – 790
million). Given the substantial profit on
sale of businesses last year, earnings per
ordinary share were 16% lower than last
year at 127.5p. Adjusted earnings per
share, which provides a more consistent
measure of trading performance,
increased by 6% from 127.1p to 134.9p.

The interim dividend was increased by
3% to 11.7p and a final dividend has been
proposed at 33.3p which represents an
overall increase of 10% for the year. The
proposed final dividend is expected to
cost £263m and will be charged next
year. Dividend cover, on an adjusted
basis, reduced to 3.0 times.

Balance sheet
Non-current assets of £8.4bn were
£0.8bn higher than last year driven
by capital expenditure ahead of
depreciation, the acquisition of Acetum
and an increase in employee benefits
assets as the UK defined benefit pension
scheme moved further into surplus.

Average working capital as a percentage
of sales increased from 6.5% last year to
7.2% this year, while working capital at
the year end was also higher than last
year, due principally to higher inventory
levels and lower sales at AB Sugar.
Net cash at the year end was £614m
compared with net cash at the end
of last year of £673m reflecting net
cash generated during the year less
the purchase of Acetum, including
debt acquired.

The group’s net assets increased by
£0.9bn to £9.3bn. Return on capital
employed for the group, which is
calculated by expressing adjusted
operating profit as a percentage of the
average capital employed for the year,
was lower this year at 20.1% compared
with 20.5% last year. The reduction

in the return at AB Sugar more than
offset increases in Retail, Grocery,
Ingredients and Agriculture.

Cash flow
Net cash inflow from operating activities
declined to £1,430m with a working
capital outflow of £153m this year
compared to last year’s inflow of £126m.
Gross capital expenditure was in line
with last year and amounted to £868m.
Primark spent £434m of this which
mainly comprised the fit-out of new and
existing stores. Expenditure in the food
businesses remained at a similar level
to last year. £23m was realised from the
sale of property, plant and equipment.
The net cash outlay on acquisitions was
£297m, including debt assumed, and
related principally to the acquisition
of Acetum.

Tax paid in the year amounted to £297m,
a reduction from £356m in the previous
year which included £92m arising on
business disposals.

Financing
The financing of the group is managed by
a central treasury department. The group
has total committed borrowing facilities
amounting to £1.9bn, which comprise:
£0.6bn of US private placement notes
maturing between 2019 and 2024, with
an average fixed rate coupon of 4.6%;
£1.2bn provided under a syndicated,
revolving credit facility which matures in
July 2021; and £0.1bn of local committed
facilities in Africa. At the year end,
£639m was drawn down under these
committed facilities. The group also had
access to £524m of uncommitted credit
lines under which £125m was drawn at
the year end. Cash and cash equivalents
totalled £1.4bn at the year end.

Pensions
The group’s defined benefit pension
schemes were in surplus by £435m at
the year end compared with a surplus
last year of £126m. The UK scheme
accounts for 91% of the group’s gross
pension assets and this year’s surplus
of £530m compared with a surplus of
£233m last year. The major drivers of
the year-on-year improvement were the
increase in long-term bond yields, which
are used to value defined benefit pension
obligations for accounting purposes, and
superior investment returns.

The most recent triennial valuation of
the UK scheme was undertaken as at
5 April 2017 which determined a surplus
of £176m on a funding basis. As a result
there is no requirement to agree a
recovery plan with the trustees.

The charge for the year for the group’s
defined contribution schemes, which
was equal to the contributions made,
amounted to £77m (2017 – £79m).
This compared with the cash contribution
to the defined benefit schemes of £39m
(2017 – £36m).

New accounting standards
The accounting policies during this
financial year, and details of the impact
of the adoption of new accounting
standards in future financial years, are set
out in the Significant Accounting Policies.

During the next financial year the
group will adopt two new accounting
standards: IFRS 9 Financial Instruments
and IFRS 15 Revenue from Contracts
with Customers. We have completed
our review of the requirements of these
standards compared to our current
accounting policies and have concluded
that no material impact will arise on
adoption. Grocery revenue will reduce
by some £30m next year as certain
payments to customers which were
previously expensed as incurred are
instead deducted from revenue. This
will have the effect of increasing
Grocery operating margin by
approximately 10 basis points. There
will be no impact on the timing or
amount of operating profit. On transition,
comparatives will not be restated.

IFRS 16 Leases will take effect from our
2020 financial year. This will be the most
significant accounting change for our
group in many years. It will affect many
aspects of the group accounts, including
operating profit, earnings per share and
net debt, as well as return on capital
employed. It will not change overall cash
flows, nor the economic effect of the
leases to which the group is party.
We plan to transition using the modified
retrospective approach, in line with the
majority of other major listed international
groups. On transition, comparatives will
not be restated. We will provide an
update on our progress in our 2019
interim report, followed by fuller details
of the expected impact on the group’s
results and financial position in the 2019
annual report.

John Bason
Finance Director

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 201852

CORPORATE RESPONSIBILITY

Our purpose is to provide
safe, nutritious, affordable
food and clothing that is
great value for money. In
doing these things well, we
know we are doing good
every day by contributing to
making millions of people’s
lives better.

O
D
E
W
W
O
H

S
S
E
N
I
S
U
B

Associated British Foods started out
as a bakery business in 1935. A great
deal has changed in that time but what
has remained constant is the essence
of Associated British Foods. By this
we mean the ethical way in which
we operate.

We believe we have a duty of care in the
way we do business, including: how we
employ people and develop careers;
ethical and environmental standards in
our many supply chains; health and
safety; appropriate funding of pensions;
and to conserve and where possible
enhance the environments in which
we operate.

We aim to match our high moral
expectations with the autonomy that we
give to each business and the individuals
employed within them. Of course, there
are some requirements common to all
businesses, such as ensuring that our
people stay safe at work, but the best
and most ethical course of action will
differ according to particular markets
or businesses. We recognise that the
people best placed to make a decision
are those who understand the local
circumstances and will apply our
ethical mindset.

This year, for instance, our Sugar
business has set a series of
commitments for how it will continually
improve its sustainability performance
by 2030. These include a commitment
to reduce its end-to-end supply chain
water and CO2 footprints by 30% and
another to ensure all its plastic packaging
is reusable, recyclable, biodegradable
or compostable.

While they all operate differently, our
businesses have common areas of

interest: in their individual way, they each
aim to make a positive difference to
people’s lives and to reduce their impact
on our environment.

We publish a full corporate responsibility
report every three years, most recently
in 2016. To read this, and our 2017 and
2018 updates, please visit our website:

www.abf.co.uk/responsibility/
cr_downloads

ENGAGING WITH
EXTERNAL
STAKEHOLDERS

As a diversified international food,
ingredients and retail group with
137,000 employees and operations in
50 countries across Europe, southern
Africa, the Americas, Asia and
Australia we take our responsibilities
to wider society seriously.

We aim to clearly communicate
the positive impact of our business,
as well as explain our approach to
addressing both global and local social
and environmental challenges. The chief
executive of each of our businesses is
required to submit an annual risk survey
identifying all relevant risk. To inform this
process, we engage with a large number
of external stakeholders, some at a
group level and some at the level of
our individual businesses, depending
on the subject in focus.

Overleaf we provide a number of
examples of these engagements
focused at a group level.

Non-financial reporting information
statement
The Companies Act 2006 requires the
Company to disclose certain non-
financial reporting information within
the annual report and accounts.
Accordingly, the disclosures required in
the Company’s Non-financial
information statement can be found on
the following pages in the Strategic
report (or are incorporated into the
Strategic report by reference for these
purposes from the pages noted):

• Information on our Anti-bribery
and Corruption Policy (page 58)

• Information on our Whistleblowing
Policy (page 58 and page 78 in
the Audit committee report)

• Information on our approach to

human rights (page 59)

• Information on social matters

(page 59)*

• Information on our Environment

Policy (page 54)*

• Information on our employees

(page 56)

• Information on diversity (page 57
and page 75 in the Nomination
committee report)

* Further information on these can also be found
in the 2018 Corporate Responsibility Update.

Associated British Foods plcAnnual Report and Accounts 2018

Environment, Social and Governance
(ESG) assessments
With an increase in investor interest in
ESG-related issues, we are engaging
more than ever with both individual
investors and investor-related ESG
research agencies on these topics. We
strive to strike the right balance between
communicating around areas of specific
interest to these stakeholders, and
clearly representing the range of complex
issues a company such as ours
addresses every day. We work hard to
engage with both investors and ESG
research agencies to explain when our
information does not fit neatly into a
survey or standard question set.

Environment
Every year we share our performance in
addressing climate change, water and
deforestation risk via CDP, and request
that our reports are publicly available on
their website, www.cdp.net, as well as
our own.

This enables external stakeholders –
particularly investors – to review our
response to these areas of environmental
impact and how we are managing the risks
or opportunities associated with changes
in the availability of natural resources.

Human rights
We engage with a number of
organisations on issues around human
rights, including the Corporate Human
Rights Benchmark (CHRB) and
KnowTheChain. We recognise the
importance of these initiatives in
providing comparable assessments of
business progress, and we continue to
address the challenge of effectively
reflecting the complexity of our diverse
business within these assessments.

People
We pride ourselves on being a first-
class employer and we work actively
to develop capability and create
opportunities for employee progression.
We devote hundreds of thousands of
hours in training our people, as well as
millions of pounds to keep them safe.
We were pleased to be one of 34
responding companies to the pilot phase
of the Workforce Disclosure Initiative and
have now submitted our response to the
second survey.

Social
We engage with a wide range of NGOs
on social matters, primarily at the level
of our individual businesses due to the
often local and subject-specific nature of
these engagements. We have outlined
many of these engagements in our
Corporate Responsibility Update,
primarily focused within the Our Supply
Chain and Our Neighbours sections.

50%

of the ENERGY we used
came from renewable
fuel sources

43,600 people
in OUR SUPPLY CHAIN

have been helped by
health initiatives
we’ve funded

We DONATED FOOD
that provided over

2.6 million
meals to people
in need

82%of our waste was
RECYCLED

Our online
NUTRITION EDUCATION
CAMPAIGNS received over

270,000 views

We provided OUR PEOPLE
with 1,686,384
hours of
training
in the last year

We provided over 14,000
hours of training
for our SUPPLIERS
and their workers

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 2018

CORPORATE RESPONSIBILITY

ENVIRONMENT

We manage and measure our
environmental performance across
a range of issues with a particular
focus on the impacts of our energy
use and resultant greenhouse gas
(GHG) emissions, our water use and
the generation and disposal of waste.
We are responding to changes in the
natural environment, particularly
variable weather patterns, to
safeguard the availability of raw
materials for all users.

Our board reviews the group and
divisional environmental performance
and plans annually. In parallel, our group
risk management process incorporates
environmental risks and opportunities;
where potentially major risks are
identified, these are raised to the board
throughout the year via the group’s
risk procedures.

As a minimum, our businesses comply
with current environmental legislation
of the countries in which they operate.
However, our global Environment Policy,
which was updated in 2016, places the
expectation on our businesses that they
minimise any negative impacts and
continuously consider and implement
activities, voluntary commitments and
internationally recognised management
systems to reduce environmental risks.

The responsibility for achieving
compliance with this policy is devolved
to the chief executive officer of each
of our businesses. Environmental
specialists work at the local level to
identify opportunities for short- and
long-term solutions to changes in the
climate and the availability of natural
resources which may impact
their direct operations and suppliers.

Each year, we provide an update on our
environmental performance at the group
and divisional level. We also disclose our
approach towards climate change, water
and deforestation risk via investor-led
indices such as CDP, a not-for-profit
global disclosure system for
environmental management. Further
detail and examples from our businesses
of managing their environmental impact,
can be found in our 2018 Corporate
Responsibility Update. This, our full
Environment Policy and CDP reports,
can be found on our website:

www.abf.co.uk/responsibility

We engaged Ernst & Young to provide limited
assurance over the reliability of 14 KPIs for the
year ended 31 July 2018. These are marked
with the symbol Δ in these pages.

Acting on climate change
Climate change is a major global
challenge, with shifting weather patterns
having the potential to threaten food
security, increase costs, and change
consumption habits putting pressure on
natural resources.

As a group with global reach, Associated
British Foods’ businesses have an
important role to play in supporting the
transition to a low-carbon economy
where global warming is limited to less
than two degrees Celsius. We can have
an impact by investing in renewable fuel
sources and other initiatives at the local
level which mitigate our contribution to
climate change through our factories,
warehouses, transport networks, stores,
offices and agricultural activities.

businesses are considering ways of
adapting to different scenarios, which
may have fundamental impacts on their
ways of working.

Greenhouse gas emissions
Overall, our scope 1, 2 and 3 GHG
emissions this year are 4.97 million tonnes
of CO2e which is a 2% decrease on
the 5.06 million tonnes CO2e generated
last year. Scope 1 emissions are from
energy we generate, owned transport,
agriculture, on-site waste water
treatment and air conditioning. Also
included are the emissions from our
production processes such as bread
baking, fermentation to make yeast
and ethanol production. Scope 1
emissions account for 65% of our
total in-scope emissions.

Our businesses also collaborate with
their customers, suppliers and others in
their value chain to find solutions to
shared climate issues such as irregular
weather patterns and security of water
supply. In addition, as our understanding
of the potential medium- and long-term
impacts of climate change on our
operating models is increasing, our

We also report our emissions classified
as ‘out of scope’ which are CO2
emissions resulting from the use of
renewable fuels. As these are considered
to be net zero or carbon neutral, they are
reported separately. Our Sugar division
contributes just over 99% of the group’s
out of scope emissions from the use
of bagasse and other renewable fuels.

Our greenhouse gas emissions

2018 emissions
(000 tCO2e)

2017 emissions
(000 tCO2e)

Scope 1 –combustion of fuel and operation
of facilities

Scope 1 – generation and use of renewables

Scope 1 Total
Scope 2 – emissions from purchased electricity,
heat or steam (location method)
Scope 3 – indirect emissions from use of
third-party transport

Total emissions
(Scopes 1, 2 & 3)

Out of scope emissions

3,159
69

3,228

925

813

4,966
3,711

3,152
65

3,217

1,026

814

5,057
3,652

Emission intensity (Scope 1 and 2)

266 tonnes per
£1m of revenue

276 tonnes per
£1m of revenue

Emissions are calculated in alignment with the WRI/WBCSD GHG Protocol Corporate Accounting and
Reporting Standard Revised and have been calculated using carbon conversion factors published by
BEIS in August 2018, other internationally recognised sources and bespoke factors based on laboratory
calculations at selected locations. This includes all activities where we have operational control. Location
based renewable energy has been calculated in accordance with the March 2015 WRI/WBCSD GHG
Scope 2 Guidance on procured renewable energy. We are unable to report a market-based emission this
year but will look to do so in the future. For 2017 and 2018, Scope 3 emissions are our third-party transport
emissions only. See ‘Our CR Reporting Guidance 2018’ for more detail.

Our greenhouse gas emissions by division

2018 emissions (000 tCO2e)

2017 emissions (000 tCO2e)

Sugar

Other

Sugar

Other

Total emissions
(Scopes 1, 2 & 3)

Out of scope emissions

2,785
3,711

2,181
0.24

2,869
3,651

2,188
0.29

Associated British Foods plcAnnual Report and Accounts 201855

Packaging
The quantity of packaging used for the
containment, protection and safety of our
products this year was 256,000 tonnes Δ.
This is a 6% increase from 2017. During
the year we have increased the number
of sites and acquired a new business
which have contributed to this increased
packaging figure. A number of our
businesses have also adapted their
product mix this year in response to
consumer demand and this has, in part,
led to an increase in packaging materials
used. For example, market requirements
for smaller bags of food and ingredients
to reduce food waste and costs have
resulted in increased packaging for some
of our businesses. However, our
businesses are making progress in
finding alternative packaging materials
which weigh less or require less bulk.

Quantity of packaging used
(000 tonnes)

2014

2015

2016

2017

2018 ∆

230

238

248

243

256

Environmental compliance
In 2018, we received 64 environmental
complaints about our operations, 16
fewer than last year. We also received
four environmental fines Δ totalling
£33,000 Δ. These were due to the
treatment of waste water, management
of on-site waste, gas emissions and dust
control. The sites have addressed the
issues and liaised with the local
authorities and regulators to ensure
standards are met consistently.

Scope 1, 2 and 3 GHG emissions
(000 tonnes CO2e)

2014

2015

2016

2017

2018

5,242

5,629

5,258

5,057

4,966

Energy use
In 2018, our absolute use of energy
was 23,200 GWh Δ, which is slightly
less than the 23,300 GWh we used in
2017. Our Sugar businesses consumed
82% of the group’s energy this year.

Some of our sites are deemed ‘energy
positive’ which means that they have the
ability to generate energy on-site which
is surplus to their needs. When this
happens, they export it to the national
grid or other organisations. In 2018, we
exported 825 GWh of energy which is a
3% reduction compared with last year.
Over 790 GWh of our exported energy,
96% of the total, was electricity
generated mainly by our sugar and yeast
factories in CHP plants which create
steam and electricity. In fact, our British
Sugar sites contributed 84% of the total
exported electricity. Of our total exported
energy, 4% was biogas generated by
AB Agri’s UK anaerobic digestion plant
which operated for its first full year
throughout 2018.

Energy consumption (GWh) and
proportion from renewable sources

Our businesses continue to invest in
initiatives to reduce water abstraction per
tonne of product and reuse water in our
operations. This year, over 228 million m3
of water has been reused by our
operations which is a 13% increase
compared with last year.

Water abstracted (million m3)

2014

2015

2016

2017

2018 ∆

1,200

925*

800

811

837

* Data restated. Please see ‘Our CR Reporting

Guidance 2018’ for more detail.

Waste management
We have generated over 770,000 tonnes
Δ of waste this year. Last year, we
reported 1.2 million tonnes of waste but
have since identified an error in this
figure. This was due to double-counting
the recycled and non-hazardous waste
generated by our sugar factories in China
and, on adjustment, we should have
reported 1 million tonnes in 2017 for
the group. This means there has been
a 23% decrease compared with 2017.
Hazardous and non-hazardous waste
sent for disposal decreased by 15%
and recycled waste decreased by 24%
this year to 631,000 tonnes Δ. As a
proportion of the total amount, waste
which was recycled, recovered or had
another beneficial use was 82% of our
total waste.

2014

2015

2016

2017

2018 ∆

25,400

54%

25,000

50%

Waste disposed (000 tonnes)
and proportion recycled

22,800

23,300

23,200

49%

50%

2014

2015

2016

2017

2018 ∆

1,100

84%

862*

1,000

1,000*

770

78%

83%

82%

* Data restated. Please see ‘Our CR Reporting

Guidance 2018’ for more detail.

Water usage
In 2018, we abstracted just over
837 million m3 Δ of water for our use.
This is a 3% increase compared with
2017. With improved weather conditions
for most of our agricultural sites,
increased levels of water were available
to irrigate crops. However, some of our
businesses have again experienced
water challenges this year including
continued drought, floods and irregular
rainfall. Illovo’s water use accounts for
96% of the group’s total water during
the year.

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 2018
56

CORPORATE RESPONSIBILITY

PEOPLE

Our priority is to safeguard the safety
and wellbeing of all our employees
and those who work with us.

We also want our employees to have
opportunities to grow and progress
as part of an enjoyable career. While
our approach to human resource
management is decentralised,
with flexibility given to each of the
businesses, as a group we abide by
the following principles:

• we are committed to providing a safe
and healthy workplace to protect all
employees, contractors and visitors
from foreseeable work hazards and
reach zero-harm;

• we are committed to offering equal

opportunities in recruitment, training,
career development and promotion to
all people, whatever their disability,
sex, age, race, religion or sexual
orientation. We also proactively
support our people when they are
pregnant or new parents;

• 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 that of other employees;

• sexual, mental or physical harassment
in the workplace will not be tolerated.
It is expected that incidents of
harassment are reported to the
appropriate human resources director;

• 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
is provided systematically to
employees; and

• 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.

View all Company policies at:

www.abf.co.uk/responsibility

Number of employees

2014

2015

2016

2017

2018

118,209

124,036

129,916

132,590

137,014

Safety
Loss of life in our operations is entirely
unacceptable and we are deeply
saddened to report four fatalities Δ
this year. Two contractors in our cane
operations in Malawi were fatally injured
by moving vehicles in two separate
incidents. An employee was involved
in an accident while travelling
on his motorbike in our Zambian cane
estate. An employee in New Zealand
was also involved in a traffic accident
on a public road.

Our first priority was to support their
families and co-workers. Following all
the tragic events, we have thoroughly
investigated the causes so that we learn
from what happened; implementing new
corrective and preventative processes
where needed.

As well as sharing the investigations
with all people at the sites, our health
and safety managers have shared the
findings with their colleagues across
the group so that we all reinvigorate
our focus to work with no loss of life.

Our approach to safety
Within each business, we have safety-
conscious leaders who create a safe
working culture. They are supported
by formal safety committees at all our
sites; management and employee
representatives work together to identify
and solve significant safety and ill-health
issues and to further promote a strong
safety culture for employees and on-site
contractors. Over the year, innovative
approaches, such as the use of internal
social media or safety awards, have been
implemented to continuously engage
employees in safe working practices.

Each business manages their safety
programmes to suit their type of
operation which ranges from labour-
intensive agricultural operations
employing seasonal workers to
pharmaceutical laboratories with highly
skilled employees. However, all
businesses must comply with the
group’s Health and Safety Policy and

annually report to Associated British
Foods’ board their performance and
progress on safety indicators. Where
serious incidents occur, or performance
does not improve, our business level
chief executive officers and safety
management are required to implement
action plans to address these issues.

The Health and Safety Policy
is available on our website at
www.abf.co.uk/responsibility. Below,
we share information from the last
financial year on our safety performance.
Further detail, including examples of
safety programmes, can be found in the
2018 Corporate Responsibility Update.

Injuries to employees and contractors
This year, 73% of our factories and
stores achieved a year’s operation
without any Reportable Injuries and 63%
did not have a Lost Time Injury. During
2018, we recorded 833 Lost Time
Injuries to employees Δ which is an 8%
increase compared with last year. The
number of injuries equates to a Lost
Time Injury rate of 0.80%. There was
an increase in the Reportable Injuries to
employees, from 594 in 2017 to 663 this
year, which equates to 0.63% of our
employees having a Reportable Injury.
The board of Associated British Foods
receives regular updates on the business
level safety trends and ensures the chief
executive officers of each business are
accountable when improvements in
performance are required.

Reportable Injury Rate

2014

2015

2016

2017

2018

0.40%

0.48%

0.47%

0.59%

0.63%

Health and safety fines
During 2018, we received four safety
fines Δ totalling £4,000 Δ for breaches
of safety regulations. This is a 33%
reduction on the number of fines
received last year and a 95% decrease
on the associated costs. All the
businesses involved are required to
report to the Associated British
Foods’ Safety and Environment
Manager when and how remedial
actions are implemented.

Associated British Foods plcAnnual Report and Accounts 201857

Investing in safety
Our businesses invested over £30m
in safety risk management over the last
12 months. This includes investments
in improving working in confined spaces
and at height, fire risk assessments and
equipment upgrades, dust monitoring
and air quality, improvements to lighting
and safety signage and emergency first
aid training.

Our goals remain to eliminate fatalities
and continuously improve our safety
performance.

Promoting diversity
We recognise that diversity is essential
for introducing different perspectives into
debate and decision-making. For details
on diversity as it relates to the board of
the Company, please see page 75.

Looking beyond the board to the group’s
wider workforce, we recognise that true
diversity can only be achieved when the
entire workforce is committed to
delivering it. Given the decentralised
nature of the group, policies to promote
diversity in the workforce are developed
and implemented locally within each of
the businesses. However, there are a
number of ongoing initiatives across
Associated British Foods which aim
to promote diversity:

• a groupwide gender diversity

task force includes representation
from across the businesses and has,
as one of its principal objectives,
the aim of ensuring that there are no
barriers preventing talented people
from succeeding;

• senior and high-potential women are
invited to join the Women’s Business
Forum, which meets several times
a year providing a chance for
networking, learning and support
for personal career development;

• the group’s Two-way Mentoring

Programme aims to grow the talent
pipeline by matching high-potential
women and more, nominated by their
business units, with senior leaders
around the group who support their
career development and broaden their
business experience. In return the
senior leaders have the opportunity
to learn about another business or
function, understand the perspectives
of women working within them and
develop their own listening and
coaching skills; and

• managers being trained in

‘unconscious bias’, which aims to build
awareness and challenge commonly-
held myths around diversity.

Gender balance in workforce

2014

2015

2016

2017

2018

45%
30%

48%
31%

48%
32%

48%
33%

51%
35%

Women (all employees)
Men (all employees)

Women (senior management)
Men (senior management)

55%
70%

52%
69%

52%
68%

52%
67%

49%
65%

Gender Pay Gap reporting
This year, for the second time, we have
chosen to report on the gender pay gap
that relates to our total employee
population in Great Britain as at 5 April
2018. Please note that more than half of
our workforce is employed outside Great
Britain and is therefore not included in
this analysis. In addition, and as required
by the UK Equality Act 2010 (Gender Pay
Gap Information) Regulations 2017,
we submit data for our relevant legal
entities to the UK Government through
their website.

The situation remains largely unchanged
since last year: at the mean, women’s
hourly pay rate is 32% lower than that of
men; and women’s mean bonus pay rate
is 51% lower than men’s.

Overall, the gender balance of
Associated British Foods is fairly equal,
with women making up 51% of our total
global workforce. However, like most
companies, women are less well
represented at the top – they hold three
quarters of the roles in the lowest paid
quartile yet only just over a third of the
roles in the upper pay quartile. This is
partly influenced by the fact that we have
a large number of retail staff on relatively
low pay and a higher proportion of these
are women.

Gender balance at the top of the group
changes slowly because we have a
stable senior team, who are mostly men,
with long tenure. This also means that
more men than women receive a bonus.

Gender metrics
Associated British Foods plc board directors are not included in the table below. We currently have two women and seven men
on the Company’s board.

Grocery

Sugar

Agri

Ingredients

Retail

Central

TOTAL

Total
employees*

Men in
workforce

Women in
workforce

16,882

32,542

2,388

6,770

78,016

416

11,312

27,421

1,719

5,058

21,300

250

5,570

5,121

669

1,712

56,716

166

137,014

67,060

69,954

Percentage
of workforce
who are
women

Number
of senior
management

roles**

Number
of men
in senior
management
roles

Number
of women
in senior
management
roles

Percentage
of senior
management
who are
women

33%

16%

28%

25%

73%

40%

51%

900

198

327

548

261

566

143

209

403

136

2,289

1,495

334

118

145

125

794

37%

28%

36%

26%

48%

31%

35%

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

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 2018
58

CORPORATE RESPONSIBILITY

PEOPLE CONTINUED

Gender Pay Gap reporting

At the mean, women’s hourly
pay rate is

At the median, women’s hourly
pay rate is

At the mean, women’s bonus
pay rate is

At the median, women’s
bonus pay rate is

32.3%

lower
than that of men

31.3%

lower
than that of men

50.6%

lower
than that of men

48.1%

higher
than that of men

17.6% of men received

a bonus

5.5% of women received

a bonus

Proportion of men and women in each pay quartile

Upper pay quartile

Upper middle pay quartile

Lower middle pay quartile

Lower pay quartile

Male
64.3%
Female 35.7%

Male
46.4%
Female 53.6%

Male
18.8%
Female 81.2%

Male
26.0%
Female 74.0%

Gender pay and bonus gaps are calculated by comparing the mean (average) and median (central value in the data list) measures for women to that of men and
identifying the percentage difference between the two.

The presence of these senior men in
the bonus pool has a distorting effect on
the mean bonus gap. The median bonus
demonstrates a gap in favour of women.
This difference also reflects the varying
composition of bonuses across our
different businesses.

Across our businesses, we are investing
in programmes that will help to close
this gap (see previous section) and
acknowledge that this will take time to
achieve. In 2017 and 2018, 23% of the
people who report to members of our
executive committee were women,
data we have shared with the Hampton-
Alexander report.

Anti-Bribery and Corruption Policy
We are committed to maintaining the
highest standards of ethics and
compliance with all relevant laws
wherever we do business. Compliance
with anti-bribery and anti-corruption
laws is an essential part of this.

We maintain a robust compliance system
which is designed to respect both the
spirit and the letter of anti-bribery and
corruption laws, and anyone who
represents us is required to do the same.

Our Anti-Bribery and Corruption Policy
and related procedures apply to all our
people. They set out the behaviours and
principles required and contain guidance
on issues such as engaging new
suppliers and other third parties, and the
giving and receiving of gifts, hospitality
and entertainment.

To ensure the effective implementation of
our policy and procedures, each business
has its own designated Anti-Bribery
and Corruption Officer and we have
monitoring systems in place at various
levels within the group including global
risk assessments. In addition, all relevant
employees are required to complete an
e-learning course on the subject when
they join the Company and at regular
intervals thereafter, and those who work
in higher risk roles are also required to
attend regular face-to-face training.
We encourage our people to report
any concerns that they may have
and a confidential and independent
whistleblowing service is in place
to facilitate this.

A copy of the group’s Anti-Bribery
and Corruption Policy is available at:

www.abf.co.uk/responsibility

Whistleblowing Policy
Effective and honest communication is
essential if malpractice and wrongdoing
are to be dealt with effectively.
Our Whistleblowing Policy provides
guidelines for people who feel they
need to raise certain issues in confidence.
It is designed to protect those raising a
genuine concern, in line with the Public
Interest Disclosure Act 1998 or other
jurisdictional legislation.

We have a whistleblowing telephone
hotline in place, managed by Expolink,
which can be used by our people, or
others, wherever they work in the
world. Any calls made to the hotline are
disseminated to the senior management
team responsible for investigating issues
raised. A thorough investigation is then
undertaken and any remedial action
agreed as necessary.

A copy of the group’s Whistleblowing
Policy is available at:

www.abf.co.uk/responsibility

Associated British Foods plcAnnual Report and Accounts 201859

HUMAN RIGHTS AND SOCIAL

The group’s intention has always
been to do the right thing for our
people and the wider community.
Examples of how this works in
practice can be found in the 2018
Corporate Responsibility Update.

Human rights
We provide opportunities that promote
human rights and dignity every day
through the employment we create,
both directly and indirectly in our global
supply chains, and through the positive
contribution our products make
to people’s lives.

We engage and collaborate with a broad
range of interested and concerned
stakeholder groups, seeking to remain
sensitive to the risks of adverse human
rights impacts resulting from our
products, services and operations. While
respecting all human rights throughout
the business, including those relating to
working conditions and employment, we
know we must focus our efforts where
we have the greatest potential or actual

Case study: Twinings’ work to
assess risks to human rights
The scope and size of Twinings’
Social Impact Team has grown
year-on-year, allowing the business
to devote more resources to assessing
working conditions associated with
the supply of high-profile and high-
risk commodities.

The team recently worked with a
global sustainability organisation to
undertake a human rights assessment
of its whole operations and supply
chain. They worked with human rights
experts to map Twinings’ value chain
against every human rights risk (as
defined in the International Bill of
Rights) and consider how each group
could be negatively impacted. This
was complemented and enhanced
with a thorough document review
and interviews to explore how human
rights risks manifest in specific areas
of the value chain.

Over the coming year, Twinings
will review and integrate the
recommendations in the report to
attempt to mitigate the salient risks
identified. In addition, it continues
to address these issues through its
Sourced with Care programme
which aims to improve the quality
of life in the communities from which
it sources.

impact. Last year, in alignment with the
United Nations Guiding Principles on
Business and Human Rights (UNGPs) we
shared detail of our activities to respect
human rights through our operations,
supply chain and business relationships.

Our approach to human rights is set out
in our groupwide Modern Slavery and
Human Trafficking Statement and is
primarily led by our Supplier Code of
Conduct and Whistleblowing Policy.

This year, we are pleased that more
of our businesses have produced
independent statements in accordance
with the UK Modern Slavery Act.
Furthermore, many of them are openly
engaging with a range of stakeholders on
issues relating to human rights. You can
find links to all of these statements via
the Responsibility pages of our website:

www.abf.co.uk/responsibility

Many of our businesses have engaged
in activities that align with the

Case study: Increased transparency
at Primark
As it does not own any factories,
Primark’s suppliers manufacture
products on its behalf. Primark is very
selective about who it works with and,
to ensure its products meet its high
ethical and environmental expectations,
every factory that supplies to it must
commit to meeting internationally
recognised standards before the
business places an order.

This year, it published information
about the factories which manufacture
products for Primark on its website. The
factories featured on Primark’s Global
Sourcing Map are Primark’s suppliers’
production sites which represent over
95% of Primark products for sale in
Primark stores. A factory is detailed
on the Map only after it has produced
products for Primark for a year and
has become an established supplier.
The Global Sourcing Map includes
information about suppliers’ factories
in the 28 countries from which Primark
sources product and includes details
of individual factory names, addresses
as well as the number of workers
and gender split of the workforce.

You can find the map via this link:

www.primark.com/en/
our-ethics/people-production/
global-sourcing-map

internationally recognised framework
of the UNGPs:

• Policy: AB Agri published a human

rights policy outlining its commitment
to respecting human rights. Primark
updated its supplier code of conduct
to encompass more stringent criteria
surrounding human rights.

• Due diligence: Twinings has sought
to understand the actual and potential
human rights risks throughout the
value chain and our Sugar businesses
conducted due diligence to understand
the different risks across their various
operations (see case studies).

• Remedy: Over the last few years,

Primark has been working to review,
revise and improve its approach
to remedy and the grievance
mechanisms it has to offer.

Case study: Understanding
risks of modern slavery in our
Sugar businesses
Our Sugar businesses have
undertaken a mapping exercise
to identify the potential modern
slavery risks. This is a consequence
of previous mapping and risk
identification processes working
with experts, customers and local
stakeholders. The mapping identified
areas in each business’s value chain
which have potential risks:

• British Sugar – Bought-in products;

• Azucarera – Purchasing of raw cane
sugar for its refinery in Guadalete;

• Illovo Sugar Africa – Services
supplied to our growers; and

• AB Sugar China – Services supplied

to our growers.

In addition to their readiness to work
with stakeholders and communities,
they will give additional focus to these
potential risk areas above, working with
the individual businesses in the region
and continue to update our knowledge
through risk mapping to reflect
emerging challenges in the future.

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 201860

PRINCIPAL RISKS AND UNCERTAINTIES

Our approach to risk management
The delivery of our strategic
objectives and the sustainable growth (or
long-term shareholder value) of our
business, is dependent on effective
risk management. We regularly
face business uncertainties and it is
through a structured approach to
risk management that we are able to
mitigate and manage these risks, and
embrace opportunities when they arise.

The diversified nature of our operations,
geographical reach, assets and
currencies are important factors in
mitigating the risk of a material threat
to the group’s sustainable growth
and long-term shareholder value.
However, as with any business, risks
and uncertainties are inherent in our
business activities. These risks may
have a financial, operational or
reputational impact. Our structured and
robust approach to risk management
means we are able to mitigate and
manage these risks and maximise
opportunities when they arise.

The board is accountable for effective
risk management; agreeing the principal
risks facing the group and ensuring they
are successfully managed. The board
undertakes an annual assessment of
the principal risks, including those that
would threaten the business model,
future performance, solvency or liquidity.
The board also monitors the group’s
exposure to risks as part of the
performance reviews conducted at
each board meeting. Financial risks are
specifically reviewed by the Audit
committee.

Each year, the Audit committee on behalf
of the board reviews the effectiveness of
the group’s approach to risk
management including the internal
control procedures and resources
devoted to them.

Our decentralised business model
empowers the management of our
businesses to identify, evaluate and
manage the risks they face, on a timely
basis, to ensure compliance with relevant
legislation, our business principles and
group policies.

Our businesses perform risk
assessments which consider
materiality, risk controls and specific local
risks relevant to the markets in which
they operate. The collated risks from
each business are shared with the
respective divisional chief executives
who present their divisional risks to
the group executive.

The group’s Director of Financial
Control receives the risk assessments
on an annual basis and, with the
Group Finance Director, reviews and
challenges them with the divisional chief
executives. These risks and their impact
on business performance are reported
during the year and are considered as
part of the monthly management review
process.

Group functional heads including
Legal, Treasury, Tax, IT, Pensions, HR,
Procurement and Insurance also provide
input to this process, sharing with the
Director of Financial Control their view of
key risks and what activities are in place
or planned to mitigate them.
A combination of these perspectives
with the business risk assessments
create a consolidated view of the group’s
risk profile. A summary of these risk
assessments is then shared and
discussed with the Group Finance
Director and Chief Executive at least
annually.

The Director of Financial Control
holds meetings with each of the
non-executive directors seeking their
feedback on the reviews performed and
discussing the key risks and mitigating
activities. Once all non-executive
directors have been consulted, a board
report is prepared summarising the full
process and providing an assessment
of the status of risk management across
the group. The key risks, mitigating
controls and relevant policies are
summarised and the board confirms
the group’s principal risks. These
are the risks which could prevent
Associated British Foods from delivering
its strategic objectives. This report also
details when formal updates relating
to the key risks will be provided to
the board throughout the year.

Key areas of focus this year
Effective risk management processes
and internal controls
We continued to seek improvements
in our risk management processes
to ensure the quality and integrity of
information and the ability to respond
swiftly to direct risks. During the year,
the Audit committee on behalf of
the board conducted reviews on
the effectiveness of the group’s risk
management processes and internal
controls in accordance with the UK
Corporate Governance Code.

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Associated British Foods plcAnnual Report and Accounts 2018

Our approach to risk management and
systems of internal control is in line with
the recommendations in the Financial
Reporting Council’s (FRC) revised
guidance ‘Risk management, internal
control and related financial and business
reporting’ (the Risk Guidance). The board
is satisfied that internal controls were
properly reviewed and key risks are being
appropriately identified and managed.

Brexit
In 2016, we identified the UK’s decision
to leave the European Union as having
had some immediate impact on our
results as a consequence of the effect
on currency markets.

As the UK Government continues its
negotiations, uncertainty remains as to
the extent to which our operations and
financial performance will be affected in
the longer term. At a group and business

level, we have continued to prepare for
changes in legislation, trade agreements
and working practices in order to take
advantage of the changing commercial
landscape and to mitigate risk.

We have contributed to government-led
consultations on the potential changes
and their likely impact on businesses and
markets to help inform the exit strategy.

Our principal risks and uncertainties
The directors have carried out a robust
assessment of the principal risks facing
Associated British Foods, including those
that would threaten its business model,
future performance, solvency or liquidity.
Outlined below are the group’s principal
risks and uncertainties and the key
mitigating activities in place to address
them. These are the principal risks of
the group as a whole and are not in any
order of priority.

Associated British Foods is exposed to
a variety of other risks related to a range
of issues such as human resources
and talent, community relations, the
regulatory environment and competition.
These are managed as part of the risk
process and, a number of these are
referred to in our 2018 Corporate
Responsibility Update. Here, we report
the principal risks which we believe
are likely to have the greatest current
or near-term impact on our strategic
and operational plans and reputation.

They are grouped into external risks,
which may occur in the markets or
environment in which we operate,
and operational risks, which are related
to internal activity linked to our own
operations and internal controls.

The ‘Changes since 2017’ describe our
experience and activity over the last year.

EXTERNAL RISKS

RISK TREND
UNCHANGED
MOVEMENT IN EXCHANGE
RATES AND INFLATION

Context and potential impact
Associated British Foods is a
multinational group with operations
and transactions in many currencies.

Changes in exchange rates give rise to
transactional exposures within the
businesses and to translation exposures
when the assets, liabilities and results
of overseas entities are translated into
sterling upon consolidation.

UNCHANGED
FLUCTUATIONS IN COMMODITY
AND ENERGY PRICES

Context and potential impact
Changes in commodity and energy
prices can have a material impact on the
group’s operating results, asset values
and cash flows.

MITIGATION

CHANGES SINCE 2017

Our businesses which are impacted
by exchange rate volatility and currency
depreciation constantly review their
currency-related exposures.

Board-approved policies require businesses to
hedge all transactional currency exposures and
long-term supply or purchase contracts which
give rise to currency exposures, using foreign
exchange forward contracts.

Cash balances and borrowings are largely
maintained in the functional currency of the
local operations.

Cross-currency swaps are used to align
borrowings with the underlying currencies of
the group’s net assets (refer to note 24 to the
financial statements for more information).

Sterling has strengthened against most
of our major trading currencies this year,
other than the euro, resulting in a loss
on translation this year of £22m.

Although Primark covers its currency
exposure on purchases of merchandise
denominated in foreign currencies when
orders are placed, this hedging activity
typically covers a period of only six
months. US dollar weakness against the
euro has had a favourable transactional
effect on Primark’s largely dollar
denominated purchases, particularly
in the second half.

We constantly monitor the markets in which
we operate and manage certain of these
exposures with exchange traded contracts
and hedging instruments.

The commercial implications of commodity price
movements are continuously assessed and,
where appropriate, are reflected in the pricing
of our products.

We operate a diverse portfolio of commodities
across a number of geographies.

EU and world sugar prices were lower
than last year which had a negative
effect on Sugar profitability.

Wheat prices have increased
significantly during the year in the UK.
Failure to recover these increases would
adversely affect the future profitability
of our bakery businesses.

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 2018

PRINCIPAL RISKS AND UNCERTAINTIES

EXTERNAL RISKS CONTINUED

RISK TREND
INCREASED
OPERATING IN
GLOBAL MARKETS

Context and potential impact
Associated British Foods operates in
50 countries with sales and supply
chains in many more, so we are exposed
to global market forces; fluctuations in
national economies; societal unrest and
geopolitical uncertainty; a range of
consumer trends; evolving legislation
and changes made by our competitors.

Failure to recognise and respond to any
of these factors could directly impact
the profitability of our operations.

Entering new markets is a risk to
any business.

This risk category is a consolidation of
risks which were disclosed separately
last year.

UNCHANGED
HEALTH AND NUTRITION

Context and potential impact
Failure to adapt to changing consumer
health choices or to address nutrition
concerns in the formulation of our
products could result in a loss of
consumer base and impact business
performance.

We act responsibly across the spectrum
of food poverty and malnutrition
to obesity.

MITIGATION

CHANGES SINCE 2017

Our approach to risk management incorporates
potential short-term market volatility and
evaluates longer-term socio-economic and
political scenarios.

The group’s financial control framework and
board-adopted tax and treasury policies require
all businesses to comply fully with relevant
local laws.

Provision is made for known issues based on
management’s interpretation of country-specific
tax law, EU cases and investigations on tax
rulings and their likely outcomes.

By their nature socio-political events are largely
unpredictable. Nonetheless our businesses
have detailed contingency plans which include
site-level emergency responses and improved
security for employees.

We engage with governments, local regulators
and community organisations to contribute
to, and anticipate, important changes in
public policy.

We conduct rigorous due diligence when
entering, or commencing business activities
in new markets.

Consumer preferences and market trends are
monitored continually.

Recipes are regularly reviewed and reformulated
to improve the nutritional value of our products.

All of our grocery products are labelled with
nutritional information.

We develop partnerships with other
organisations to promote healthy options.

Following the abolition of EU sugar
quotas from October 2017, AB Sugar
continues to reduce its cost base
through its performance improvement
programme.

We acquired a leading Italian producer
of balsamic vinegar during the year, after
thorough due diligence was undertaken.

We reviewed and updated contingency
plans across our businesses.

Our businesses continue to review
their products and to partner with
others to enable a swift and innovative
response to changing consumer needs.
Our Sugar and Grocery businesses have
supported healthy eating campaigns
again this year to help consumers make
informed choices about their food.

A number of our products have
undergone reformulation this year
to provide consumers with
healthier choices.

Associated British Foods plcAnnual Report and Accounts 2018

OPERATIONAL RISKS

RISK TREND
UNCHANGED
WORKPLACE HEALTH
AND SAFETY

Context and potential impact
Many of our operations, by their nature,
have the potential for loss of life or
workplace injuries to employees,
contractors and visitors.

UNCHANGED
PRODUCT SAFETY
AND QUALITY

Context and potential impact
As a leading food manufacturer and
retailer, it is vital that we manage the
safety and quality of our products
throughout the supply chain.

UNCHANGED
OUR USE OF NATURAL
RESOURCES AND MANAGING
OUR ENVIRONMENTAL IMPACT

Context and potential impact
Our businesses rely on a secure
supply of natural resources some of
which are vulnerable to external factors
such as natural disasters and climate
change. Our material environmental
impacts are energy use and resultant
greenhouse gas emissions,
water use and waste generation.

Our operations generate a range of
emissions such as dust, waste water
and waste which, if not controlled,
could lead to a risk to the environment
and local communities.

MITIGATION

CHANGES SINCE 2017

During the year there has been a 5%
increase in our employee Lost Time
Injury rate to 0.80%. Our businesses
conduct thorough root cause analyses
to learn from accidents and implement
safety changes.

The safety performance of the group,
with updates by division, is reported in
the 2018 Corporate Responsibility
Update at www.abf.co.uk/responsibility.

We did not have any major product recalls.

Businesses have continued to define
and refine KPIs in this area.

Safety continues to be the number one priority
for our businesses. The chief executives of each
business, who lead by example, are accountable
for the safety performance of their business.

Our Health and Safety Policy and practices are
firmly embedded in each business, supporting
a strong ethos of workplace safety.

We have a continuous safety audit programme
to verify implementation of safety management
and support a culture of continuous
improvement.

Best practice safety and occupational health
guidance is shared across the businesses,
co-ordinated from the corporate centre,
to supplement the delivery of their
own programmes.

Product safety is put before economic
considerations.

We operate strict food safety and traceability
policies within an organisational culture of
hygiene and product safety to ensure
consistently high standards in our operations
and in the sourcing and handling of raw
materials and garments.

Food quality and safety audits are conducted
across all our manufacturing sites, by
independent third parties and customers, and a
due diligence programme to ensure the safety
of our retail products.

Our sites comply with international food safety
and quality management standards and conduct
regular mock product incident exercises.

We continuously seek ways to improve the
efficiency of our operations, use technologies
and techniques to reduce our use of natural
resources and adapt operations to climate
change in order to positively contribute to local
environments and minimise impact.

We monitor developments and engage with
governmental bodies on climate change; we limit
reliance on certain resources such as fossil fuels
and respond to changes such as carbon pricing
and energy supply.

Our businesses aim to be a good neighbour
within their local communities. One aspect of
this is the monitoring and management of noise,
particle and odour pollution.

The environmental performance of
the group, with updates by division,
is reported in the 2018 Corporate
Responsibility Update at www.abf.co.uk/
responsibility.

We annually report our approach to
climate change, water and deforestation
risk via CDP at www.cdp.net.

Our UK Grocery business has signed the
UK Plastics PACT 2025. There is an
ongoing initiative to explore the possibility
of using alternative packaging materials.

Our Sugar business sets commitments
for its own operations and supply chain
to improve sustainability performance
by 2030.

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 2018

PRINCIPAL RISKS AND UNCERTAINTIES

OPERATIONAL RISKS CONTINUED

MITIGATION

CHANGES SINCE 2017

Our Supplier Code of Conduct is designed
to ensure suppliers, representatives and all
with whom we deal, adhere to our values
and standards.

The full Code is available at www.abf.co.uk/
supplier_code_of_conduct.

Suppliers are expected to sign and abide by
this Code.

Adherence to the Code is verified through our
supplier audit system with our procurement and
operational teams establishing strong working
relationships with suppliers to help them meet
our standards.

All businesses are required to comply with
the group’s Business Principles including its
Anti-Bribery and Corruption Policy.

Primark launched a training course on
Forced Labour and Modern Slavery
for suppliers.

Primark have a current initiative to
identify ways to make it easier, for
anyone affected by these issues,
to raise a grievance and to ensure that
it is addressed appropriately.

Primark conducted a review of global
grievance systems and industry codes
of conduct to help them consider ways
to make it easier for anyone affected to
raise grievances and ensure that these
are addressed effectively.

Our Modern Slavery and Human
Trafficking Statement 2018 and the
steps we take to try to ensure that any
forms of modern slavery are not present
within our own operations or supply
chain are reported in detail in the 2018
Corporate Responsibility Update at
www.abf.co.uk/responsibility.

Primark and Twinings published
sourcing maps.

In parallel to developing our technology systems,
we invest in developing the IT capabilities of our
people across our businesses.

We monitor and address any cyber-threats and
suspicious IT activity.

We have established processes, group IT
security policies and technologies in place, all
of which are subject to regular internal audit.

Access to sensitive data is restricted and
closely monitored.

Robust disaster recovery plans are in place for
business-critical applications.

Technical security controls are in place over
key IT platforms with the Chief Information
Security Officer (CISO) tasked with identifying
and responding to potential security risks.

During the year we have appointed
a CISO.

We have adopted the Cyber Security
Framework from the US National
Institute of Science and Technology
(NIST) to describe and measure the
capabilities required for cyber resilience.

There is an ongoing programme
of investment in both technology
and people to enhance our cyber-
security capabilities.

An extensive programme of work was
completed to ensure that we comply
with the requirements of GDPR.

RISK TREND
UNCHANGED
OUR SUPPLY CHAIN AND
ETHICAL BUSINESS PRACTICES

Context and potential impact
Our suppliers are essential to the
successful operation of the group.

We therefore work with them to ensure
reliability and to help them meet our
standards of product quality and safety,
financial stability, ethics, technical
competence and people safety.

Potential supply chain and ethical
business practice risks include:

• reputational damage through supply

chain weaknesses e.g. poor conditions
for workers;

• unacceptable and unethical behaviour

including bribery, corruption and
slavery risk;

• impact on reliability of supply and

business continuity due to unforeseen
incidents e.g. natural disasters; and

• long-term sustainability of key

suppliers.

INCREASED
BREACHES OF IT AND
INFORMATION SECURITY

Context and potential impact
To meet customer, consumer and
supplier needs, our IT infrastructure
needs to be flexible, reliable and
secure to allow us to interact
through technology.

Our delivery of efficient and effective
operations is enhanced by the use of
relevant technologies and the sharing of
information. We are therefore subject to
potential cyber-threats such as computer
viruses and the loss or theft of data.

There is the potential for disruption to
operations from data centre failures, IT
malfunctions or external cyber-attacks.

During the year regulatory requirements
were enhanced, across Europe, with the
enactment of the General Data
Protection Regulation (GDPR) 2018.

Associated British Foods plcAnnual Report and Accounts 2018

VIABILITY STATEMENT

Even in a worst case scenario, with risks
modelled to materialise simultaneously
and for a sustained period, the likelihood
of the group having insufficient resources
to meet its financial obligations is remote.
Based on this assessment, the directors
confirm that they have a reasonable
expectation that the Company will be
able to continue in operation and meet
its liabilities as they fall due over the
three-year period to 18 September 2021.

On behalf of the board.

Michael McLintock
Chairman

George Weston
Chief Executive

John Bason
Finance Director

The directors have determined that the
most appropriate period over which
to assess the Company’s viability,
in accordance with the UK Corporate
Governance Code, is three years. This
is consistent with the group’s business
model which devolves operational
decision-making to the businesses, each
of which sets a strategic planning time
horizon appropriate to its activities which
are typically of three years duration.
The directors also considered the diverse
nature of the group’s activities and the
degree to which the businesses change
and evolve in the relatively short term.

The directors considered the group’s
profitability, cash flows and key financial
ratios over this period and the potential
impact that the Principal Risks and
Uncertainties set out on pages 60 to 64
could have on the solvency or liquidity
of the group. Sensitivity analysis
was applied to these metrics and the
projected cash flows were stress
tested against a range of scenarios.

The directors considered the level of
performance that would cause the group
to breach its debt covenants, the financial
implications of making any strategic
acquisitions and a variety of factors
that have the potential to reduce profit
substantially. These included the rate
and success of Primark’s expansion;
actions which could damage the
group’s reputation for the long term;
and macroeconomic influences such
as fluctuations in world currency and
commodity markets and the implications
of the UK’s withdrawal from the EU.

Such is the diversity of the group, with
operations across 50 countries and sales
in more than 100, that none of the
principal risks or uncertainties individually
is considered likely to have a material
impact on the group’s profitability or
extensive cash resources. Furthermore,
the group’s business model means that
no significant reliance is placed on any
one group of customers or suppliers and
its diversity reduces the risk that issues
affecting a particular sector will have a
material impact on the group as a whole.

At 15 September 2018, £1.2bn of
committed borrowing facilities available
to the group were undrawn and the
directors are of the opinion that
substantial further funding could be
secured, at relatively short notice, should
the need arise. The revolving credit
facility is not due for renewal until July
2021 and over £300m of the private
placement funding matures beyond
the period under consideration.

The group has a sound track record of
delivering strong cash flows, with well
in excess of £1bn of operating cash being
generated in each of the last eight years.
This has been more than sufficient to
fund expansionary capital investment
and, specifically, has enabled the
development of Primark in continental
Europe and the US. The group’s cash
flows have supported 8% compound
annual growth in the dividend over the
last ten years.

Associated British Foods plcStrategic reportStrategic reportAnnual Report and Accounts 201866

BOARD OF DIRECTORS

Michael McLintock
Chairman (age 57)

N R

George Weston
Chief Executive (age 54)

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.

Michael was appointed a director in November
2017 and Chairman in April 2018. He was
formerly chief executive of M&G, retiring in
2016, having joined the company in 1992 and
being appointed chief executive in 1997. In 1999
he oversaw the sale of M&G to Prudential plc
where he served as an executive director from
2000 until 2016. Previously he held roles in
investment management at Morgan Grenfell
and in corporate finance at Morgan Grenfell
and Barings.

He has in-depth knowledge of the financial sector
and proven experience of growing businesses.

Other appointments:
He is a Trustee of the Grosvenor Estate, the
non-executive Chairman of Grosvenor Group
Limited, a special advisor to Neptune Investment
Management, a member of the advisory board
of Bestport Private Equity Limited and a member
of the Takeover Appeal Board.

Emma Adamo
Non-executive director (age 55)

Wolfhart Hauser
N A R
Independent non-executive director (age 68)

Emma was appointed 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.

Wolfhart was appointed a director in January
2015. Starting his career with various research
activities, he went on to establish and lead a
broad range of successful international service
industry businesses. He was chief executive
of Intertek Group plc for ten years until he
retired from that role and the board in May 2015.
He was previously chief executive officer and
president of TÜV Süddeutschland AG for four
years and chief executive officer of TÜV
Product Services for ten years.

Other appointments:
He is executive chairman of FirstGroup plc
and Senior Independent Director of RELX PLC.

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Associated British Foods plcAnnual Report and Accounts 2018

John Bason
Finance Director (age 61)

N R
Javier Ferrán
Independent non-executive director (age 62)

N A R
Ruth Cairnie
Independent non-executive director (age 64)

John was appointed as Finance Director in May
1999. He has extensive international business
experience and an in-depth knowledge of the
industry. 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 the Senior Independent Director of
Compass Group PLC and chairman of the
charity FareShare.

Javier was appointed a director in November
2006 and has been Senior Independent Director
since November 2017. Javier will retire as a
director of the Company on 7 December 2018.
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 in international financing.

Other appointments:
He is a partner at Lion Capital LLP, a London-based
private equity firm. He is also chairman of Diageo
plc and a non-executive director of Coca-Cola
European Partners plc.

Ruth was appointed a director in May 2014.
She has extensive overseas experience including
international marketing and supply chain
management. 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.

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

Board committees key

N Nomination committee

A Audit committee

R Remuneration committee

Committee Chair

N A R
Richard Reid
Independent non-executive director (age 62)

Graham Allan
A R
Independent non-executive director (age 63)

Richard was appointed a director in April 2016.
He was formerly a partner at KPMG LLP, having
joined the firm in 1980. From 2008, Richard
served as London Chairman at KPMG until he
retired from that role and KPMG in September
2015. Previously, Richard was KPMG’s UK
chairman of the High Growth Markets group
and chairman of the firm’s Consumer and
Industrial Markets group.

Other appointments:
He is chairman of National Heart and Lung
Institute Foundation, deputy chairman of Berry
Bros & Rudd, a Trustee of the Eden Project and
a senior advisor to Bank of China UK.

Graham was appointed a director in September
2018. Graham was formerly the Group Chief
Executive of Dairy Farm International Holdings
Limited, a pan-Asian retailer and a subsidiary
of Jardine Matheson, until August 2017 after
serving for five years with the Group. Prior
to joining Dairy Farm, he was President and
Chief Executive Officer at Yum! Restaurants
International and was responsible for global
brands KFC, Pizza Hut and Taco Bell in all
markets except the US and China. Since 1989,
Graham has held various senior positions in
multinational food and beverage companies with
operations across the globe and has lived and
worked in Australia, Asia, the US and Europe.

Other appointments:
He is the Senior Independent Director of Intertek
Group plc and a board member of IKANO Pte Ltd.

Associated British Foods plcAnnual Report and Accounts 2018Governance68
68

CORPORATE GOVERNANCE

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 April 2016 (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.

Since 11 April 2018, the board considers
that the Company has applied the main
principles and complied in full with the
provisions set out in the Code, with the
following exception prior to that date:

Code provision

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

Explanation

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

Status
Until his resignation from the board,
Charles Sinclair was both Chairman of the
Company and Chairman of the Remuneration
committee. On 11 April 2018, Michael
McLintock was appointed as Chairman of the
Company and Ruth Cairnie was appointed as
Chair of the Remuneration committee.

DEAR SHAREHOLDERS

I am pleased to present my first Associated British Foods corporate governance report
since my appointment as Chairman.

Firstly, I would like to thank my predecessor, Charles Sinclair, for the support he
provided to me as non-executive director prior to my appointment as Chairman
on 11 April 2018. Charles was a great believer in strong governance and a focus
on ethics, whilst encouraging management to take a long-term view and to invest
in the future. I look forward to continuing along this path as our businesses grow.

The board is aware of the forthcoming changes to the UK Corporate Governance
Code which will apply to companies with financial year ends beginning on or after
1 January 2019 and we intend to review this in advance of our 2019 annual report.
Over the last few months, the board and committees have reviewed their activities
to take into consideration these upcoming changes and we have already started to
take action; for example, we have enhanced our remuneration reporting which is
further detailed in the Remuneration report on page 80.

As Chairman, my role is to manage the board to ensure that it operates effectively.
In line with our plans to continue refreshing the board, we were delighted to welcome
Graham Allan as an independent non-executive director in September 2018. Graham
brings a wealth of experience from prior executive roles within various multinational
retail, food and beverage businesses. As I also mentioned earlier in this annual report,
Javier Ferrán will retire from the board in December 2018 and will be succeeded in the
role of Senior Independent Director by Ruth Cairnie.

We are continuing to make good progress with a number of actions identified
in our external board evaluation led by Lintstock Limited in 2017. Additionally, earlier
this year, with the assistance of the Head of Secretariat, we undertook an internal
evaluation of the board and its committees. Overall, the results concluded our board
and committees are functioning well. Further information on this is provided on
pages 71 and 72.

Associated British Foods is an organisation built upon sound ethical foundations
with a strong culture, known internally as the ‘Essence of Associated British Foods’.
The board is aware of its important role in helping to foster the group’s culture and
values. An important aspect of this, as a leading food and retail business, is our wider
corporate responsibility. Much good work is carried out by our colleagues throughout
the group which has a positive impact on the communities in which we operate and
protects human rights and vulnerable people in our supply chains. I am encouraging
the executive directors and senior management to talk more about the constructive
role that we play, remembering that we can never be complacent. This is an
important factor in protecting and delivering sustainable long-term value for all of
our stakeholders, including our shareholders. We believe that, by combining great
value products with doing the right thing for our people, we do good every day. Our
Corporate Responsibility Report and supporting Update Reports highlight the ethical
ways in which each of our businesses work. These publications are available on the
Company’s website, www.abf.co.uk, and highlights of what we have done during
2018 can be found on pages 52 to 59.

Employee engagement is another topic to which the board attaches importance.
Associated British Foods operates a decentralised model, comprised of a large
number of distinct businesses with employees located throughout the world.
Engaging with these employees on a group basis can be logistically challenging.
Local management do a very good job of engaging with their employees and
keeping them apprised of relevant issues within their businesses. At the group level,
management are continually looking to find ways to improve communication links
with the businesses. I am working on this with the executive directors and senior
management and I will report further on this in my 2019 governance statement.

Michael McLintock
Chairman

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69

Leadership
The board
The board of directors 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.

There are a number of matters which
are specifically reserved for the board’s
approval. These are set out in a clearly
defined schedule and include: matters
relating to the group’s strategic plan;
approving the annual business strategy
and objectives; the nature and extent
of principal risks to be taken to achieve
the strategic objectives; changes relating
to structure and capital; approval of
trading statements, interim results,
final results and annual report; declaring
interim dividends and recommending
final dividends; the group’s policies
and systems of internal control and risk
management; approving capital projects,
acquisitions and disposals valued at over
£30m; provision of adequate succession
planning; approving major group policies
and matters relating to the compliance
with the terms of the Relationship
Agreement between the Company
and its controlling shareholders dated
14 November 2014. The schedule of
matters reserved is available to view on
the corporate governance section of the
Company’s website: www.abf.co.uk.

Certain specific responsibilities are
delegated to the board committees,
being 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 the ‘Board
committees’ section on page 74.

Authority for the operational management
of the group’s business has been
delegated to the Chief Executive for
execution or further delegation by him
for the effective day-to-day running and
management of the group. The chief
executive of each business within the
group has authority for that business and
reports directly to the Chief Executive.

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 is responsible
for the operation and leadership of the
board, ensuring its effectiveness and
setting its agenda. The Chief Executive
is responsible for leading and managing
the group’s business within a set of
authorities delegated by the board and
for the implementation of board strategy
and policy.

Senior Independent Director
The purpose of this role is to act as a
sounding board for the Chairman and
to serve as an intermediary for other
directors where necessary. The Senior
Independent Director 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.

The non-executive directors
The non-executive directors, in addition
to their responsibilities for strategy
and business results, 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, bringing valuable
external perspective 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
currently in office, with the exception
of Javier Ferrán, will be proposed for
election or re-election, as appropriate, at
the 2018 AGM to be held in December.

Board meetings
The board held nine meetings during
the financial year. Periodically, board
meetings are held away from the
corporate centre in London. As part
of the board’s engagement with
employees, the February meeting was
held in Birmingham and the board visited
the Allied Bakeries premises in West
Bromwich, where the board met local
management and were given a tour
of the factory. At that time, the board
also visited the Primark Pavilions
redevelopment site in Birmingham.

In May, the board met Primark’s
management team in New York.
They visited Primark stores in Brooklyn
and New Jersey, meeting with the
employees and reviewing the operations
for each store.

The attendance of the directors at
board and committee meetings during
the year is shown in the table below.
If a director is unable to participate in
a meeting either in person or remotely,
the Chairman will solicit their views on
key items of business in advance of the
relevant meeting and share these with
the meeting so that they are able to
contribute to the debate.

Charles Sinclair1
Michael McLintock2
George Weston
John Bason
Emma Adamo
Graham Allan3
Ruth Cairnie
Tim Clarke4
Javier Ferrán
Wolfhart Hauser
Richard Reid

Board
5/5
9/9
9/9
9/9
9/9
–
9/9
2/2
9/9
9/9
9/9

Audit
committee
–
2/2
–
–
–
–
4/4
–
–
4/4
4/4

Nomination
committee
1/1
3/3
–
–
–
–
3/3
–
3/3
3/3
1/1

Remuneration
committee
2/2
4/4
–
–
–
–
4/4
1/1
4/4
4/4
4/4

1 Charles Sinclair retired from the board on 11 April 2018.
2 Michael McLintock was appointed to the board on 1 November 2017.
3 Graham Allan joined the board on 5 September 2018.
4 Tim Clarke retired from the board on 30 November 2017.

All of the above attended those meetings that they were eligible to attend.

Associated British Foods plcAnnual Report and Accounts 2018Governance

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CORPORATE GOVERNANCE

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

Strategy

 conducting regular strategy update sessions in board meetings;
 holding an annual ‘away-day’ focused on strategy; and
 receiving a strategy update from the Chief Executive and Director of Business Development.

Acquisitions/disposals

 approving the acquisition of Yumi’s Quality Foods Pty Limited; and
 receiving regular updates on acquisitions and disposals.

Financial and Operational Performance

 receiving regular reports to the board from the Chief Executive;
 receiving, on a rolling basis, senior management presentations from each of the group

business areas;

 approving the group budget for the 2018/19 financial year;
 approving the Company’s full year and interim results;
 recommending the 2017 final dividend and approving the 2018 interim dividend; and
 approving new banking mandate and other various treasury-related matters.

Governance and risk

 annual review of the material financial and non-financial risks facing the group’s

businesses;

 scenario planning discussion of possible business effects of any political changes within

the UK;

 half yearly review of progress in implementing actions arising from the 2017 board

evaluation;

 participating in the 2018 annual board performance evaluation and considering the report

received on the review;

 receiving regular updates on corporate governance and regulatory matters;
 receiving reports from the board committee chairs;
 confirming directors’ independence and conflicts of interest;
 reviewing and approving gender pay reporting and Modern Slavery Statement; and
 undertaking appropriate preparations for the holding of the annual general meeting

including considering and approving an ‘outlook’ statement and subsequently, discussing
issues arising from the annual general meeting.

Corporate responsibility

 approving the Corporate Responsibility Update 2018;
 receiving regular management reports and an annual presentation on health, safety and

environmental issues; and

 receiving updates on Primark ethical sourcing.

Investor Relations and other Stakeholder Engagement

 receiving reports on investor relations activities and regular feedback on directors’

meetings held with institutional investors.

People

 appointment of Michael McLintock as Chairman;
 appointment of Ruth Cairnie as Chair of the Remuneration committee;
 appointment of Graham Allan as an independent non-executive director;
 reviewing and approving share allocations for senior management and non-executive

director/committee chair fees; and

 receiving updates on and considering senior succession planning and people activities

with presentation from the Group HR Director.

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 of
the meetings.

Board committees
The board has established three
principal board committees, to
which it has delegated certain of
its responsibilities. These are the
Audit, Nomination and Remuneration
committees. 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
which starts on page 80. Membership of
these committees is reviewed annually.
Minutes of committee meetings are
made available to all directors on a
timely basis.

The Chairs of the Audit, Nomination
and Remuneration committees were
present at the 2017 AGM and intend
to be present at this year’s AGM to
answer questions on the work of their
respective committees.

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

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

Chairman
Michael McLintock

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

Non-executive directors
Emma Adamo
Graham Allan
Ruth Cairnie
Javier Ferrán
Wolfhart Hauser
Richard Reid

Associated British Foods plcAnnual Report and Accounts 2018

71
71

Board independence
Emma Adamo is not considered by
the board to be independent 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 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.

Although the Company has always
deemed Richard Reid to be independent,
as at the date of the 2018 AGM Richard
Reid will also be fully independent
in accordance with the Code, as the
relationship between the Company
and KPMG LLP, of which Richard
was formerly a partner, will have
ended over three years ago (KPMG LLP
ceased to be the Company’s auditor
in November 2015).

As at the date of this report, the
board comprises the Chairman, Chief
Executive, Finance Director and six
non-executive directors. Biographical
and related information about the
directors is set out on pages 66 and 67.

Appointments to the board
There is a formal and transparent
procedure for the appointment of
new directors to the board. Details are
available in the Nomination committee
report on page 75 which also provides
details of the committee’s 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 AGM.
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.

Board induction
The Company provides all non-executive
directors with a tailored and thorough
programme of induction, which is
facilitated by the Chairman and the
Company Secretary and which takes
account of prior experience and business
perspectives and the committees
on which he or she serves. Michael
McLintock, who joined the board in
November 2017, met with senior
management across the business
as part of his induction. He visited
Primark’s head office and local Primark
stores in Dublin; visited the British
Sugar site at Wissington; participated
in a supply chain overview at Primark’s
warehouse in Islip and visited Illovo’s
sugar sites in Malawi, Tanzania and
Eswatini. Together with the board,
Michael also visited the Allied Bakeries
premises in West Bromwich and some
of the Primark stores in the US.

Graham Allan is also undergoing an
induction programme which we will
report on in our 2019 annual report.

Training and development
The Chairman has overall responsibility
for ensuring that the directors receive
suitable training to enable them to carry
out their duties and is supported in this
by the Company Secretary. Directors
are also encouraged personally to identify
any additional training requirements
that would assist them in carrying out
their role. Training is provided in briefing
papers, such as the regular update
from the Company Secretary as part
of the board pack ahead of each
meeting covering developments in legal,
regulatory and governance matters, and
by way of presentations and meetings
with senior executives or other external
sources. During the year, there was also
training on competition compliance and
dawn raid procedures.

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 holds
informal meetings with non-executive
directors, without any of the executives
being present, to discuss issues affecting
the group, when appropriate. 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 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 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.

Progress from 2017 evaluation
During the year, the Chairman oversaw
the implementation and progression of
various recommendations arising from
the 2017 external evaluation, which
included the actions set out in the
table below:

Progress on 2017 objectives

Succession planning
Focus on succession planning for the board
continued. When Charles Sinclair retired,
Michael McLintock was appointed as
Chairman of the Company and Ruth Cairnie
as Chair of the Remuneration committee.

Graham Allan was appointed as an
independent non-executive director
in September 2018. Javier Ferrán will
retire from the board in December 2018
and Ruth Cairnie will be appointed as
the Senior Independent Director.

The board will continue to discuss
succession planning in an open manner.

Retail business
Additional time in board meetings was
given to the retail business, with directors
discussing key projects, challenges and
opportunities facing the retail business.
Regular board time is now set aside to
discuss the retail business in full.

Risk management
Board meetings continue to receive detailed
papers on the ongoing risk management
process that affect the business on a daily
basis. This enables the board to gain a
better understanding of the issues facing
the business and to modify the Company’s
approach accordingly.

2018 evaluation
Following the external review carried
out in 2017, this year the board returned
to an internal performance evaluation.
The review was carried out during the
third quarter of the financial year and
was managed by the Chairman with the
assistance of the Head of Secretariat.

The 2018 review involved each board
member and the Company Secretary.
Each individual met with the Chairman
and Head of Secretariat to discuss various
topics. Questionnaires had been sent

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72

CORPORATE GOVERNANCE

to each of the participants in advance of
the meeting to enable them to consider
the topics before the meeting. The topics
covered included the following:

• The board – composition, expertise,
dynamics, management of meetings,
support, focus, strategy, risk
management and internal control,
succession planning, corporate
responsibility, and priorities for change;

• Audit, Nomination and

Remuneration committees – time
management, composition, processes
and support, leadership, work
and effectiveness of each of the
committees during the year and
priorities for change; and

• Individual directors – assessment

of individual contributions and
opportunities for personal development.

A written report was prepared and
sent to board members. It was then
discussed at the September board
meeting. Given that Michael McLintock
had only been appointed as Chairman
of the Company in April 2018, the
non-executive directors did not meet to
evaluate his performance as Chairman
as it was too early in his tenure. A full
evaluation of the Chairman’s performance
will be undertaken in 2019.

Recommended actions, listed below,
arising from this year’s evaluation are
being implemented under the direction
of the Chairman.

Priorities for change identified from the
2018 evaluation

People
• To keep under review the board

succession plan

• To gain a better understanding of

the emerging talent and succession
planning within the group
• To further engage with the

wider workforce

Corporate responsibility
• To further promote the corporate

responsibility work that the group is doing

• To ensure that corporate responsibility
priorities are included within business
presentations to the board

Meeting processes
• To ensure that board papers are available
earlier and introduce a hard backstop
date by which the board papers must be
uploaded to the online board pack system

• To ensure that meetings run to time,
yet allow for full discussion of the
matters being considered

Overall, it was concluded that the board
and its committees were continuing
to function well. There was mutual
trust between the executives and
non-executives with a good balance
of challenge and support. Each director
was considered to be making a valuable
contribution and demonstrating proper
commitment, including time, to their
respective roles.

12 months from the date of approval
of these annual financial statements.
Accordingly, and consistent with the
guidance contained in the document
titled ‘Guidance on Risk Management,
Internal Control and Related Financial
and Business Reporting’ published by
the FRC in 2014, they continue to adopt
the going concern basis in preparing the
annual financial statements.

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:

The Code requires the directors to
assess and report on the prospects
of the group over a longer period. This
longer term viability statement is set
out on page 65.

• 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 Companies Act 2006;

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

• regularly reviews conflict authorisation.

Accountability
Financial and business reporting
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.

We consider 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 Company’s
position and performance, business
model and strategy.

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
12 and 13. 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 and viability
After making enquiries the directors
have a reasonable expectation that the
Company and the group have adequate
resources to continue in operational
existence for a period of at least

Risk management and internal control
The board acknowledges its overall
responsibility for monitoring the group’s
risk management and internal control
systems 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.

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.
They also confirm that they have regularly
monitored the effectiveness of the
risk management and internal control
systems (which cover all material
controls including financial, operational
and compliance 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.

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High level controls
All businesses 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
business 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 major accounting firms other
than the firm involved in the audit of the
group) 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
Financial Controller, who is accountable
to the Audit committee.

All group businesses are required
to comply with the group’s financial
control framework that sets out
minimum control standards. A key
function of the group’s internal audit
resources is to undertake audits to
ensure compliance with the financial
control framework and make
recommendations for improvement
in controls where appropriate. Internal

audit also conducts regular reviews to
ensure that risk management procedures
and controls are 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 group’s Financial Controller
meets with the Chair of the Audit
committee as appropriate but at least
quarterly, without the presence of
executive management, and has direct
access to the Chairman of the board.

Assessment of principal risks
The directors confirm that, during the
year, the board has carried out a robust
assessment of the principal risks facing
the group, including those that could
threaten its business model, future
performance, solvency or liquidity.
A description of the principal risks
and how they are being managed and
mitigated is set out on pages 60 to 64.

Annual review of the effectiveness of
the systems
During the year, the board reviewed
the effectiveness of the group’s systems
of risk management and internal control
processes embracing all material
systems, including financial, operational
and compliance controls, to ensure that
they remain robust. The review covered
the financial year to 15 September 2018
and the period to the date of approval of
this annual report. The review included:

 the annual risk management review,
a comprehensive process identifying
the key external and operational risks
facing the group and the controls and
activities in place to mitigate them, the
findings of which are discussed with
each member of the board individually
(refer to the risk management section
on page 60 for details of the process
undertaken); and

 the annual assessment of internal

control, which, following consideration
by the Audit committee, provided
assurance to the board around the
control environment and processes
in place around the group, specifically
those relating to internal financial control.

The board evaluated the effectiveness
of the management’s processes
for monitoring and reviewing risk

management and internal control.
No significant failings or weaknesses
were identified by the review and the
board is satisfied that, where areas of
improvement were identified, processes
are in place to ensure that remedial
action is taken and progress monitored.
The board confirmed that it was satisfied
that the systems and processes were
functioning effectively and complied
with the requirements of the Code.

Remuneration
A separate Remuneration report is
set out on pages 80 to 99 which
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
100 to 102.

Relations with shareholders
Individual shareholders
We have a number of individual
shareholders. All are invited to the
annual general meeting, have access
to our website and receive electronic
communications. We have a
dedicated in-house team to manage
communications with our shareholders,
making sure we respond directly, as
appropriate, to any matters regarding
their shareholdings. We also have a
dedicated team at Equiniti (our share
registrar) which also looks after their
needs. To improve security and efficiency
of communications and to reduce the
amount of paper we use, our default
method of communications with
shareholders is e-communications.
We also encourage the direct payment
of dividends into bank or building
society accounts.

Institutional shareholders
During the year, the board has
maintained an active programme of
engagement with institutional investors,
the purpose of which is both to develop
shareholders’ understanding of the
Company’s strategy, operations and
performance and to provide the board
with an awareness of the views of
significant shareholders. At each board
meeting, the directors are briefed on
shareholder meetings that have taken
place and on feedback received, including
any significant concerns raised.

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Relations with shareholders continued
Here are some of the ways in which we engage with our shareholders:

Annual general meeting

The AGM provides an opportunity for directors to engage with shareholders,
answer their questions and to meet them informally. The 2018 AGM will be held on
Friday 7 December 2018 at 11.00 am at the Congress Centre in London. We encourage
those who cannot attend to vote by proxy on all resolutions put forward. All votes are
taken by a poll. In 2017, voting levels at the AGM were over 80% of the Company’s
issued share capital.

Annual report

We publish a full annual report and accounts each year which contains a strategic report,
corporate responsibility report, governance section and financial statements. The annual
report is available in paper format and on our website: www.abf.co.uk.

Corporate responsibility

We publish a corporate responsibility report every three years with an update report
each year in between. The Company Secretary acts as a focal point for communications
on matters of corporate responsibility. During the year, the Company responded to
requests for meetings, telephone meetings or written information from both existing
and potential shareholders and research bodies on a broad range of environmental,
social and governance risk matters including matters related to climate change, water
and greenhouse gas risk management, supply chain management, animal welfare,
sustainable agriculture, human rights, gender balance and human capital development.

Meetings

The Chairman issues an invitation each year to the Company’s largest institutional
shareholders to hear their views and discuss any issues or concerns. During the year,
the Chairman held meetings with a number of institutional shareholders and discussed
a range of topics including the Company’s strategy and approach to governance and
remuneration-related matters.

On the day of the announcement of the interim and final results, the Company’s
largest shareholders, together with financial analysts, are invited to a presentation with a
question and answer session by the Chief Executive and Finance Director, with webcast
presentations of the results available for all shareholders through the Company’s website.
Following the results, the executive team hold one-to-one and group meetings with
institutional shareholders and potential investors. These views are then reported back to
the board as a whole at the nearest following board meeting to ensure that they are aware
of what the Company’s largest shareholders are concerned with, or not as the case may be.

Press releases

We issue press releases for all substantive news relating to Associated British Foods.
You can find these on our website: www.abf.co.uk.

Results announcements

We release a full set of financial and operational results at the interim and full year stage.
We release trading statements at the first and third quarter stages with reduced disclosure,
whilst still providing sufficient detail to allow investors to model and value our business.

Website (www.abf.co.uk)

Our website is regularly updated and contains a comprehensive range of information
on our Company. There is a section dedicated to investors which includes our investor
calendar, financial results, presentations, press releases and contact details. The area
dedicated to individual shareholders is an essential communication method. It includes
information on shareholder news, administrative services and contact information.

Board committees

NOMINATION COMMITTEE REPORT

Members

At the date of this report, the following
are members of the committee:

Michael McLintock (Chairman)
Ruth Cairnie
Javier Ferrán
Richard Reid
Wolfhart Hauser

Charles Sinclair was Chairman of the
committee until he retired from the
board in April 2018 and was replaced
by Michael McLintock. Richard Reid
was appointed a member in July 2018
with the other members serving
throughout the year.

Meetings

The committee met three times during
the year under review.

Primary responsibilities

In accordance with its terms of
reference, the Nomination committee’s
primary responsibilities include:

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

 regularly reviewing the board

structure, size and composition
(including skills, knowledge,
independence, experience and
diversity), recommending any
necessary 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
organisation competes efficiently
in the marketplace; and

 being responsible for identifying
and nominating, for the approval
of the board, candidates to fill board
vacancies as and when they arise.

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Board appointments process
The process for making new
appointments is led by the Chairman.
Where appropriate, external, independent
consultants are engaged to conduct
a search for potential candidates, who
are considered on the basis of their
skills, experience and fit with the existing
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.

Diversity
As a board, we recognise that diversity
is essential for introducing different
perspectives into board debate and
decision-making and that this is a
wider issue than just gender and
ethnicity. We believe that members
of the board should collectively possess
a diverse range of skills, expertise,
industry knowledge, business and
other experience necessary for the
effective oversight of the group.

Accordingly, the board has decided
not to set any measurable objectives
in relation to diversity. The Nomination
committee considers diversity as one
of many factors when recommending
new appointments to the board, although
gender and ethnicity remain important
factors. Accordingly, it is our policy to ask
any executive search agencies engaged
to ensure that half of the candidates they
put forward for consideration are women.

For details of diversity as it applies to
the group’s wider workforce, please
see page 57.

Committee activities during the year
Succession planning
The committee reviewed the succession
plan for Charles Sinclair who retired as
Chairman of the Company on 11 April
2018. After due consideration and
discussion, Michael McLintock was
recommended to the board to replace
Charles as Chairman of the Company.
Ruth Cairnie was recommended
to replace Charles as Chair of the
Remuneration committee. Both
recommendations were approved
by the board as a whole.

Upon the retirement of Javier Ferrán
as a director on 7 December 2018,
Ruth Cairnie will replace him as the
Senior Independent Director.

Appointment of a new independent
non-executive director
During the year, the Chairman led the
process for the appointment of a new
non-executive director as part of the
progressive refreshing of the board.

Spencer Stuart, an external executive
search and leadership consulting firm,
was engaged to help identify potential
candidates. Spencer Stuart is
independent of the Company, with no
other connection to it. The firm is also
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 held within the existing
board as a whole.

Following a rigorous process of
interviews and assessments and, on
the recommendations of the Nomination
committee, the board approved the
appointment of Graham Allan with
effect from 5 September 2018.

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 evaluation
The committee’s effectiveness was
reviewed as part of the board’s
performance evaluation process which
was carried out during the final quarter
of the year under review. This evaluation
concluded that the committee was
continuing to function effectively.

Governance
Members of the Nomination committee
are appointed by the board from
amongst the directors of the Company,
in consultation with the Chairman. The
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.

Only members of the committee have
the right to attend committee meetings.
Other individuals such as the
Chief Executive, members of senior
management, Group HR Director and
external advisors may be invited to attend
meetings as and when appropriate.

The Chairman did not chair the
Nomination committee when it
was dealing with the appointment of
his successor. 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 terms of reference of the
Nomination committee are available
on the Investors section of the
Company’s website: www.abf.co.uk.

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AUDIT COMMITTEE REPORT

Members

During the year and as at the date
of this report, members and Chair of
the committee have been as follows:

Richard Reid (Chairman)
Graham Allan (from September 2018)
Ruth Cairnie
Wolfhart Hauser
Michael McLintock (from November 2017
to April 2018*)

* On appointment as Chairman of the Company,
Michael McLintock stood down as a member
of the Audit committee.

Primary responsibilities

In accordance with its terms of reference,
the Audit committee’s primary
responsibilities include:

Financial reporting
 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;

 informing the board of the outcome
of the group’s external audit and
explaining how it contributed to
the integrity of financial reporting;

 reviewing and challenging, where
necessary, the consistency of, and
changes to, accounting and treasury
policies; whether the group has
followed appropriate accounting
policies and made appropriate
estimates and judgements; the
clarity and completeness of disclosure;
significant adjustments resulting
from the audit; the going concern
assumption, the viability statement, and
compliance with auditing standards;

Narrative reporting
 at the board’s request, reviewing

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

 where requested by the board,

assisting in relation to the board’s
assessment of the principal risks
facing the Company and the prospects
of the Company for the purposes
of disclosures required in the annual
report and accounts;

Internal financial controls
 reviewing the effectiveness of 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;

Whistleblowing and fraud
 overseeing the group’s policies,

procedures and controls for preventing
bribery, identifying money laundering,
and the group’s arrangements for
whistleblowing;

Internal audit
 monitoring and reviewing the

effectiveness and independence of the
group’s internal audit function in the
context of the group’s overall financial
risk management system;

 considering and approving the remit

of the internal audit function, ensuring
it has adequate resources and
appropriate access to information
to enable it to perform its function
effectively; and

External audit
 overseeing the relationship with the
group’s external auditor, including
reporting to the board each year
whether it considers the audit contract
should be put out to tender, adhering
to any legal requirements for tendering
or rotation of the audit services
contract as appropriate, reviewing
and monitoring the external auditor’s
objectivity and independence, agreeing
the scope of their work and fees
paid to them for audit, assessing the
effectiveness of the audit process,
and agreeing the policy in relation
to the provision of non-audit services.

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.

The committee structure requires the
inclusion of at least one member with
recent and relevant financial experience
and competence in accounting or
auditing (or both). The committee
Chairman fulfilled this requirement
during the year. 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 as a whole has
competence relevant to the sectors
in which the group operates.

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

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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 was
reviewed during the final quarter of
the year as part of the board’s annual
performance evaluation. A description
of how the evaluation was conducted
is set out on page 71 of the corporate
governance report.

The terms of reference of the Audit
committee can be viewed on the
Investors section of the Company’s
website: www.abf.co.uk.

Meetings
The Audit committee met four times
during the year. The committee’s
agenda is 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 auditor.

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,
including the associated pre-close period
trading updates, and the trading updates
issued for the first and third quarters.
These reviews considered:

 the description of performance
to ensure it was fair, balanced
and understandable;

 the accounting principles, policies

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

 important accounting issues or areas of
complexity, the actions, estimates and
judgements of management in relation
to financial reporting and in particular
the assumptions underlying the going
concern and viability statements;

 any significant adjustments to financial

reporting arising from the audit;

 litigation and contingent liabilities

affecting the group; and

 tax contingencies, compliance

with statutory tax obligations and
the group’s tax policy.

Significant accounting issues
considered by the Audit
committee in relation to the
group’s financial statements
A key responsibility of the committee
is to consider the significant areas of
complexity, management judgement
and estimation that have been applied
in the preparation of the financial
statements. The committee has, with
support from Ernst & Young as external
auditor, reviewed the suitability of the
accounting policies which have been
adopted and whether management
has made appropriate estimates
and judgements.

Set out below are the significant areas
of accounting judgement or management
estimation and a description of how
the committee concluded that such
judgements and estimates were
appropriate. These are divided between
those that could have a material impact
on the financial statements and those
that are less likely to have a material
impact but nevertheless, by their
nature, required a degree of estimation.

Areas of significant accounting judgement
and estimation material to the group
financial statements

Audit committee assurance

Impairment of goodwill, intangible
and tangible 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.

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 and challenged 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. The committee also considered the adequacy
of the disclosures in respect of the key assumptions and sensitivities. Refer to notes 8
and 9 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 key assumptions were all considered to be reasonable.

The external auditor undertook an independent audit of the estimate of value-in-use,
including a challenge of management’s underlying cash flow projections, long-term
growth assumptions and discount rates. On the basis of their audit work, and their
challenge of the key assumptions and associated sensitivities, they concurred with
management that no impairments were required.

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Areas of significant accounting judgement
and estimation material to the group
financial statements

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 reference to taxation
on page 50.

Other accounting areas requiring
management judgement or estimation

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, general and
salary inflation, and the rate of increase
for pensions in payment and those
in deferment.

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 external auditor
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 these
misstatements were not material and
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
reports;

 internal audit reports on key audit

areas and any significant deficiencies
in the financial control environment;

 reports on the systems of internal

financial control and risk management;

 reports on fraud perpetrated against

the group;

Audit committee assurance

The committee reviews the Company’s tax policy and principles for managing tax
risks annually.

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.

Audit committee assurance

Actuarial valuations of the group’s pension scheme obligations are undertaken every three
years by independent qualified actuaries who also provide advice to management on the
assumptions to be used in preparing the accounting valuations each year. Details of the
assumptions made in the current and previous year are disclosed in note 11 of 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
or deficit to changes in these key assumptions.

 changes since the last annual

assessment of the 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. Further details
on the policy can be found on page 58.

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.

 the group’s approach to anti-bribery
and corruption, and whistleblowing;

 the group’s approach to IT and

cybersecurity; and

 reports on significant systems

implementations.

Internal audit
The Audit committee is required to assist
the board in fulfilling its responsibilities
for ensuring the capability of the internal
audit function and the adequacy of its
resourcing and plans. It reviews annually
internal audit’s Guidelines and Operating
Standards that outline the function’s
unrestricted scope, its purpose and
responsibilities to ensure they are
appropriate for the Company’s needs.

To fulfil its 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 their resolution;

 statistics on staff numbers,

qualifications and experience and
timeliness of reporting;

 the nature and extent of non-audit

activity performed by internal audit; and

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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 auditor for
non-audit services, in accordance with
professional and regulatory requirements.
These policies are kept under review to
meet the objective of ensuring that the
group benefits in a cost-effective manner
from the cumulative knowledge and
experience of its auditor whilst also
ensuring that the auditor maintains the
necessary degree of independence and
objectivity. The committee’s policy on
the use of the external auditor to provide
non-audit services is in accordance with
applicable laws and takes into account
the relevant ethical guidance for auditors.
Any non-audit work to be undertaken
by the auditor requires authorisation by
the Group Finance Director and the Audit
committee prior to its commencement.
The committee also ensures that fees
incurred, or to be incurred, for non-audit
services, both individually and in
aggregate, do not exceed any limits in
applicable law and take into account the
relevant ethical guidance for auditors.

The committee is required to approve
the use of the external auditor to provide:
accounting advice and training; corporate
responsibility and other assurance
services; financial due diligence in
respect of acquisitions and disposals;
and will consider other services
when it is in the best interests of the
Company to do so, provided they can be
undertaken without jeopardising auditor
independence. Tax services including
tax compliance, tax planning and related
implementation advice may not be
undertaken by the external auditor.
The aggregate expenditure with the
group auditor is reviewed by the Audit
committee. No individually significant
non-audit assignments that would
require disclosure were undertaken
in the financial year.

The Company has a policy that any
partners, directors or senior managers
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 auditor.
Ernst & Young LLP has provided a letter
confirming that it believes it remained
independent throughout the year, within
the meaning of the regulations on this
matter and in accordance with their
professional standards.

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
auditor’s engagement letter;

To fulfil its responsibility to ensure the
independence of the external auditor,
the Audit committee reviewed:

 the overall work plan and fee proposal;

 the major issues that arose during the
course of the audit and their resolution;

 a report from the external auditor

 key accounting and audit judgements;

describing arrangements to identify,
report and manage any conflicts of
interest, and policies and procedures
for maintaining independence and
monitoring compliance with relevant
requirements; and

 the extent of non-audit services
provided by the external auditor.

The total fees paid to Ernst & Young LLP
for the year ended 15 September 2018
were £7.6m of which £0.6m related to
non-audit work. Further details are
provided in note 2 to the financial
statements.

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.

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

 the external auditor’s 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 on Ernst & Young LLP, as a
firm, from the Audit Quality Review
Team of the Financial Reporting
Council (‘FRC’).

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 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
The Audit committee reviews annually
the appointment of the auditor, taking
into account the auditor’s effectiveness
and independence, and makes a
recommendation to the board
accordingly. Any decision to open the
external audit to tender is taken on the
recommendation of the Audit committee.

In accordance with the requirements
of the UK Corporate Governance
Code and other changes to the EU
and UK regulatory framework, the Audit
committee undertook a comprehensive
competitive tender for the external
audit during 2015 and the appointment
of Ernst & Young LLP to replace the
Company’s previous auditors was
approved by shareholders at the 2015
AGM. Ernst & Young LLP's first audit
was for the 2016 financial year and
they have been reappointed as auditor
at each subsequent AGM. The Audit
committee is satisfied with the auditor’s
effectiveness and independence and
has recommended to the board that
Ernst & Young LLP be reappointed
as the Company’s external auditor for
2018/19. The Company has no current
retendering plans.

Compliance with the CMA Order
The Company confirms that, during
the period under review, it has complied
with the provisions of The Statutory
Audit Services for Large Companies
Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014.

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REMUNERATION REPORT
Annual statement by the Remuneration committee Chair

I am pleased to present the directors’
Remuneration report for the year
ended 15 September 2018, my first
since being appointed committee
Chair in April 2018.

Priorities in 2018
The committee has spent time this
year reflecting on the implications
of changes to the UK Corporate
Governance Code, and to the
guidance issued by investors, for
our remuneration practices. In light
of this we have determined to make
our retrospective disclosure of the
Short Term Incentive Plan (STIP)
performance ranges 12 months from
the end of the performance period
rather than 24 months later as has
been our practice to date. In this
report we have therefore disclosed the
ranges that applied for both 2015/16
and 2016/17. We have also increased
the information that we provide about
personal performance and how this is
assessed, to help investors understand
our approach in more detail.

We recognise societal concerns
about levels of executive remuneration
and the requirement to disclose the
ratio between the Chief Executive’s
remuneration and that of other
UK employees, for financial years
commencing on or after 1 January
2019. We currently expect to calculate
pay ratios using the data that we
collate to meet our Gender Pay
reporting obligations. This will require
some changes to our collation and
storage approach so we are not
currently able to make this comparison
accurately and are therefore not
disclosing pay ratios in this report.

During the year we consulted our largest
shareholders on John Bason’s contract
and pension arrangements and on our
approach to incentive outcomes under
the 2015-18 Long Term Incentive Plan
(LTIP). We appreciate the thoughtful and
constructive feedback received and I have
outlined below the conclusions that we
arrived at, having reflected on this input.

This year the committee has needed
to consider our approach to John Bason’s
contract expiry. When John entered
into his current employment contract
19 years ago, it was envisaged that he
would retire on his 62nd birthday. Hence
his contract was written with a rolling
12-month notice period and a termination
date in April 2019. We greatly value
John’s experience and insight and wish
him to continue in his role; we therefore
need to issue John with a new contract
and have needed to confirm his future
remuneration arrangements.

The committee has concluded that all
elements of the existing package should
remain unchanged except for pension.
On pension, we have concluded that
John’s entitlement to future defined
benefit accruals under the Employer
Funded Retirement Benefit Scheme
(EFRBS) will cease from his 62nd
birthday. Instead, John will be treated
in line with our existing company policy
for newly-appointed senior executives,
which specifies a defined contribution
(DC) pension contribution of 25%
of salary, or cash equivalent. This
cash contribution is considerably less
costly to the Company than John’s
EFRBS accrual.

We are conscious that the UK
Corporate Governance Code expects
companies to align executive pension
contributions with those of other
employees. We intend to review
this aspect of our remuneration
policy in 2019.

2017/18 performance and
incentive outcomes
When the targets were set for the
2017/18 STIP we did not anticipate
the extent of decline in EU sugar
prices during the year. While the
margin in Primark was better than
expected and performance was strong
in the other businesses, the challenge
in sugar resulted in overall profit below
the on-target level. Good working
capital performance compared with
plan brought the overall STIP financial
outcome up to 48.54% of maximum.
As usual, we considered whether
any discretion should be applied
and concluded that this outcome
was a fair reflection of performance.

At 134.9p, the 2017/18 adjusted
earnings per share (EPS) is above the
level set for maximum vesting of the
2015-18 LTIP award. The Remuneration
committee has considered whether this
maximum vesting is supported by the
strength of performance over the three-
year performance period, and also in the
context of shareholder experience over
the period.

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Priorities for 2019
A review of our executive remuneration
policy, taking into account the changes
to the UK Corporate Governance Code,
will be a focus for the work of the
committee in 2019. At last year’s AGM
we received a 96.91% vote in favour of
our Remuneration report and, in the
past, have received strong votes in
favour of our remuneration policy.
I would like personally to thank our
investors for their constructive input
and voting support to date. I will be
actively engaging with our largest
investors to seek their input on our
policy review and welcome the
views of all our shareholders on this
important topic. We want to continue
to shape our remuneration policy
so that it incentivises the senior
teams across our business to drive
a strong long-term performance for
our investors.

Ruth Cairnie
Remuneration committee Chair

When the awards were allocated,
we expected 2015/16 to be very
challenging and anticipated a decline
in EPS for that year. This was factored
into the target ranges for the 2015-18
LTIP. These expectations for market
conditions were well-founded but
mitigated by strong management
action, especially in respect of Primark
buying. Over the LTIP performance
period as a whole, EPS has grown
by 9.95% CAGR and strong strategic
progress has been made, with
highlights including restructuring and
substantial cost reductions in sugar,
strong and sustainable growth in
Twinings and Ingredients, and further
development of Primark to a truly
international footprint with strong
capability to grow profitably through
changeable market conditions.

In November 2015, when these LTIP
allocations were made, our share price
was £34.62 but it is now considerably
lower. The committee has considered
carefully whether this share price
movement should affect vesting
outcomes, to align with the experience
of shareholders. As detailed on page
95, our conclusion is not to apply any
discretion to the number of shares
vesting, taking into account the
substantial impact of the share price
movement on our executive directors
personally, and for consistency given
previous years when vesting levels
were low or zero but share price
performance had been very strong,
without any adjustments having
been made.

2018/19 salaries
Our salary increases this year for the
wider employee population in ABF in
the UK have typically been between
2% and 3% of salary. However, taking
all aspects of remuneration into account,
the committee has decided that the
executive directors will not receive
salary increases this year.

2018/19 STIP and 2018-21
LTIP performance ranges
The performance range for 2018/19
incentives has been set with an
expectation of further growth for Primark
and progress in Grocery, Agriculture and
Ingredients, but against a background
of very low world and EU sugar prices.
We are also mindful of the prospect
of significant volatility in sterling
exchange rates, which would affect the
translation of overseas profits and have
a transactional effect on margins in
Primark and other businesses over
the year. The performance range,
which we believe represents a good
level of stretch, will be disclosed in the
directors’ Remuneration report for 2020.

When setting the 2018-21 LTIP targets,
the committee has considered the
challenges and growth opportunities
across the group. We believe that the
performance ranges detailed on page
99 are stretching and reflect significant
strategic progress across the businesses;
achieving the on-target level of
performance would represent a good
performance for our shareholders by
the executive directors.

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REMUNERATION REPORT

This report
This report sets out:

 the remuneration policy that applies to executive and non-executive directors;

 how the policy, approved in 2016, was implemented in 2017/18;

 the amounts earned by our executive and non-executive directors in the year; and

 how we expect to implement the remuneration policy in 2018/19.

The committee Chair’s letter, this introduction and the annual implementation report on directors’ remuneration (set out on pages
92 to 99) will be subject to an advisory vote at the 2018 AGM.

Compliance
Where information in this report has been audited by Ernst & Young LLP it has been clearly indicated. The report has been
prepared in line with the requirements of The Large and Medium-sized Companies Regulations, the recommendations of the
UK Corporate Governance Code (April 2016) and the requirements of the UKLA Listing Rules.

Role of the Remuneration committee
The committee is responsible to the board for determining:

 the remuneration policy for the executive directors and the Chairman, considering remuneration trends across the Company;

 the specific terms and conditions of employment of each individual executive director;

 the overall policy for remuneration of the Chief Executive’s first and second line reports;

 the design and monitoring of the operation of any Company share plans;

 stretching incentive targets for executive directors to encourage enhanced performance;

 an approach that fairly and responsibly rewards contribution to the Company’s long-term success; and

 other provisions of the executive directors’ service agreements and ensuring that contractual terms and payments made

on termination 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 last updated in
September 2015. They are available on request from the Company Secretary’s office or at
www.abf.co.uk/investorrelations/corporate_governance.

Members of the Remuneration committee
In the financial year and as at the date of this report, members and Chair of the committee have been as follows:

Role on committee

Independence

Year of appointment

Meetings attended

Charles Sinclair1
Ruth Cairnie2
Tim Clarke3
Javier Ferrán
Wolfhart Hauser
Richard Reid
Michael McLintock4
Graham Allan5

Chair until 11 April 2018
Chair from 11 April 2018
Member
Member
Member
Member
Member
Member

Chairman
Independent Director
Senior Independent Director
Senior Independent Director
Independent Director
Independent Director
Chairman
Independent Director

2008
2014
2004
2006
2015
2016
2017
2018

2
4
1
4
4
4
4
0

1 The former Chairman was appointed Chair of the Remuneration committee until the end of his tenure as he had the greatest prior experience of executive reward

of any of the non-executive directors. The Chairman retired from the Board on 11 April 2018.

2 Ruth Cairnie was appointed Chair of the Remuneration committee from 11 April 2018.
3 Tim Clarke retired from the board on 30 November 2017.
4 Michael McLintock was appointed Chairman of Associated British Foods on 11 April 2018. He remains a member of the Remuneration committee.
5 Graham Allan was appointed on 5 September 2018.

George Weston (Chief Executive), Des Pullen (Group HR Director) and Julie Withnall (Group Head of Reward) attended all of
the meetings of the committee. No individual was present when their own remuneration was being considered.

Remuneration committee advisors and fees
Following a competitive tender in 2003, Willis Towers Watson (WTW, then Towers Perrin) was selected to provide independent
advice to the committee. The committee has retained WTW in this role because it values the robust data and continuity of
advice provided over the long term. The committee remains satisfied that the advice from WTW is independent, thoughtful
and challenging and so has not put this out to tender. The committee will keep this position under review.

WTW is a member of the Remuneration Consultants Group and adheres to its code in relation to executive remuneration
consulting. The only other advice that WTW provides to the Company is in survey provision, job evaluation and remuneration
benchmarking. The fees paid to WTW for committee assistance over the past financial year totalled £84,487.

Herbert Smith Freehills LLP provides the company with legal advice. Advice from Herbert Smith Freehills is made available
to the committee, where it relates to matters within its remit.

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Remuneration principles
Our remuneration approach reflects our portfolio model, our market positioning for executive remuneration and our
remuneration principles.

Alignment, accountability
and doing the right thing

Our board is accountable for ensuring that the portfolio that we operate is the right one to
deliver optimal returns to shareholders and for ascertaining that the businesses are well run.

Line of sight

Clarity and simplicity

Our remuneration policy aims to align executive rewards with shareholder value creation.

We aim to align remuneration and business objectives through performance measures to
which individuals have line of sight.

We believe that executive pay should be clear and simple for participants to understand.
The best way to achieve this is through alignment with business performance.

Fairness

Total remuneration should fairly reflect the performance delivered and efforts made by executives.

Alignment to strategy
Our remuneration structure is directly aligned with our strategic goals so that pay supports what we are trying to achieve.

Strong balance
sheet and investments
We manage our balance
sheet to deliver long-
term financial stability.
We ensure capital
funding is available to
all of our businesses
where returns meet or
exceed defined criteria.

The robust management
of the balance sheet
ensures that we are
able to deliver a strong
performance.

The LTIP EPS and
ROCE targets hold
executives to account
for the performance
outcomes of their
investment decisions.

Role of corporate centre
The corporate centre
provides selected
services and value
adding capabilities
to the businesses.

Retention of the
individuals with these
key skills at the centre
is critical to our success.

STIP and LTIP
performance measures
under the policy should
ensure that outcomes
are linked with
successful performance
outcomes resulting from
management effort.

Operating model

The corporate centre
agrees strategy and
budgets with our
businesses and closely
monitors performance.
Operational decisions
are made locally.
The corporate centre
creates the framework
for leaders to have
freedom in decision-
making and ensures
activities are supported
and monitored.

The STIP personal
targets for executive
directors are aligned with
the above. The return on
capital employed (ROCE)
and EPS measures on
the LTIP will be achieved
if the divisions deliver on
their strategies.

Do the right thing
We manage the
business for the
long term.

Organic growth
We look for long-term
opportunities to invest
in the business.

In the short term we
may make decisions that
reduce profit or increase
working capital. This
impacts STIP outcomes.

The deferred awards
provide a powerful
incentive to ensure
that decisions in the
short term will deliver
long-term value through
share price growth.

We will disclose the
STIP performance range
12 months from the end
of the performance year.

We are committed to
increasing shareholder
value through sound
commercial
responsibility and
sustainable business
decisions that deliver
steady growth in
earnings and dividends.

The STIP deferred
awards and LTIP shares
will benefit from a
dividend equivalent,
paid at vesting. This
gives closer TSR
alignment. The number
of shares vesting will
reflect the outcomes of
the decisions made in
the performance period.

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REMUNERATION REPORT

Remuneration structures at a glance
The table below outlines the remuneration structure that will apply in 2018/19. Further details are set out in the directors’
remuneration policy and annual implementation report.

Remuneration element

Detail

Base salary

2019 salaries will be unchanged from 2018 salaries and are as follows:

 Chief Executive £1,090,000; and
 Finance Director £720,000.

Pension

Existing executive directors have benefits under the Company’s defined benefit (DB) scheme and/or
Employer Financed Retirement Benefit Scheme (EFRBS), which deliver a retirement benefit target
of around two-thirds of final pensionable pay at normal retirement age.

Future executive directors, who are not already entitled to DB pension arrangements at the time of
appointment, will benefit from a defined contribution arrangement, with a Company contribution of
25% of base salary or a cash equivalent.

Cash STIP

Maximum cash STIP 150% of salary:

 20% of salary based on personal performance linked to strategic goals; and
 130% of salary based on financial performance (currently adjusted operating profit with a working

capital multiplier).

Deferred award (shares)

Maximum deferred award 50% of salary:

 based on the same financial targets as the cash STIP financial element;
 shares vest three years after grant;
 a dividend equivalent payment is made, pro rata to the number of shares vesting, at the release date;

and

 following release, and the payment of any taxes due, at least 50% of net shares must be held until

the shareholding requirement is met.

Awards are settled using shares purchased in the market.

LTIP

Maximum LTIP award 200% of salary:

 awards made annually;
 target vesting is half of maximum and threshold vesting is 10% of maximum;
 a portion (40% for the 2018 allocation) of the shares vests based on performance against a group

adjusted EPS range with a three-year average group ROCE moderator;

 a portion (60% for the 2018 allocation) of the shares vest based on performance against an adjusted
EPS range with a three-year average ROCE moderator. For this portion of the award the Sugar profit
will be removed from both measures and, for the EPS measure, interest and tax attributable to
Sugar will be removed on a pre-defined basis;

 a dividend equivalent payment is made, pro rata to the number of shares vesting, at the release date;
 the committee will retain discretion to ensure that outcomes under the plan are consistent with
overall performance and to ensure that the element with Sugar performance removed does not
lead to unintended consequences;

 the LTIP performance range for 2018–21 is shown on page 99; and
 following release, and the payment of any taxes due, at least 50% of net shares must be held until

the shareholding requirement is met.

Awards are settled using shares purchased in the market.

There is a shareholding requirement of 250% of salary for the Chief Executive and Finance Director,
to be met using beneficially-owned shares. Conditional share awards, including deferred awards,
do not count towards this limit as shown on page 96. Shares that have vested and are subject to
a holding period do count towards this limit.

Shareholding requirement

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Illustration of incentive model
The chart below shows the approach that we apply to incentives.

Performance and release timing

% of base

Yr 1

Yr 2

Yr 3

Yr 4

Yr 5

Cash STIP –
Personal objectives

Cash STIP – Financial
Adjusted operating proﬁt x
working capital modiﬁer
(0.8 to 1.2x)2

20%

130%

Performance

Cash payment (subject to malus/clawback)

Performance

Cash payment (subject to malus/clawback)

Deferred award (shares) –
Financial
As above2

Performance

Deferral

Absolute TSR alignment

50%

LTIP – Adjusted EPS excluding
Sugar x moderator based
on three-year average ROCE
excluding Sugar (0.8 to 1x)

120%1

Performance
Vests at end of year 3

Absolute TSR alignment

LTIP – Adjusted EPS x moderator
based on three-year average
group ROCE (0.8 to 1x)

80%1

Performance
Vests at end of year 3

Absolute TSR alignment

Shareholding
requirement

Absolute TSR alignment

250%

Release of shares (subject to malus/clawback)

Holding

Release of
shares (subject
to malus/
clawback)

1 Weighting shown applies for 2018–21 but may change each year.
2 The performance range that applied to cash STIP and deferred award (shares) will be disclosed at the end of year two.

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REMUNERATION REPORT

REMUNERATION POLICY FOR EXECUTIVE DIRECTORS

This report sets out our remuneration policy, which applied from the close of the AGM on 9 December 2016. The committee
intends to review the remuneration policy in 2019. For unvested share awards only, the provisions of the remuneration policy
presented in the 2015 Remuneration report will continue to apply until such time as all long-term incentive awards granted
under those policies have vested or lapsed.

BASE SALARY
(100% CASH)

Element and purpose
To provide core reward
for the role, recognising
responsibility for setting
and delivering the strategy.
BENEFITS (EXCLUDING
RELOCATION AND PENSION)

Element and purpose
To provide a competitive
and cost-effective benefits
package appropriate to
the role.
PENSION

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

CASH SHORT TERM
INCENTIVE PLAN (STIP)

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

Operation and link to business strategy
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. If there is a significant change in
role scope, remuneration will be adjusted to reflect this.

Maximum opportunity
Increases will be aligned with
those available for other UK
employees.

Operation and link to business strategy
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.

Maximum opportunity
The cost of benefits is not
expected to exceed 10% of
salary but is dependent on
factors that can vary.

Operation and link to business strategy
Defined benefit (DB) pension arrangements – closed to
new members
The current executive directors are members of the Company’s
DB pension scheme. The scheme is designed to provide retirement
benefits of around two-thirds of final pensionable pay at age 65
(62 for John Bason). Both executive directors opted out of the
scheme on 5 April 2006, but retain their accrued benefits. Since
then they have earned benefits in an EFRBS. The EFRBS is designed
broadly to mirror the provisions of the DB pension scheme.

Defined contribution pension arrangements
Future executive directors, who are not already entitled to DB
pension arrangements at the time of appointment, will benefit from
a 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.

Operation and link to business strategy
Performance measures and target-setting
Group financial performance is assessed against prime financial and
strategic measures used across the group on a day-to-day basis to
drive and monitor performance.

The personal element of the STIP is based on personal targets
aligned to our strategic goals.

The on-target performance level is set at the start of each financial
year and is at or around the budgeted level of performance,
considering any early re-forecasts. The committee then sets a range
around the target to incentivise delivery of stretching performance.

Retrospective disclosure of targets
Achievement against financial targets will be disclosed after the
end of the relevant financial year in that year’s Remuneration report
and the performance range that applied to financial targets will be
disclosed at the end of the following year.

Discretion, clawback and malus
Please refer to the notes that follow this table.

Maximum opportunity
For directors entitled to benefits
under the DB scheme and/or
EFRBS, a retirement benefit
target of circa two-thirds of final
pensionable pay is payable at
normal retirement age.

Otherwise, executives may
receive Company contributions
(or cash equivalent) up to a
maximum of 25% of base salary.

Maximum opportunity
STIP cash of 150% of base salary.

In exceptional circumstances,
such as the appointment of a
new Chief Executive, this could
be increased to 200% of base
salary to correct any shortfall
against market. Any increase
would consider adjustments in
other elements of the package
to ensure that the total was
not excessive.

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Maximum opportunity
Shares worth 50% of base
salary at allocation.

In exceptional circumstances,
such as the appointment of a
new Chief Executive, this could
be increased to 100% of base
salary to correct any shortfall
against market. Any increase
would consider adjustments in
other elements of the package
to ensure that the total was
not excessive.

At maximum, 100% of the
allocated shares vest; at target
50% vest; at threshold 10%
vest; and below threshold
awards lapse.

Maximum opportunity
200% of base salary at allocation.

In exceptional circumstances,
such as the appointment of a
new Chief Executive, this could
be increased to 300% of base
salary to correct any shortfall
against market. Any increase
would consider adjustments in
other elements of the package
to ensure that the total was
not excessive.

At maximum, 100% of the
allocated shares vest; at target
50% vest; at threshold 10%
vest; and below threshold
awards lapse.

DEFERRED AWARDS
(SHARES)

Element and purpose
To encourage and reward
the attainment of challenging
financial targets.

To facilitate the operation
of malus and clawback.

To align the interests of
executives and shareholders.

To promote executive
retention.

Operation and link to business strategy
Performance measures and target-setting
Annual allocations of conditional shares vest based on performance
in year one and a further service period of two years. The
performance measures and targets are the same as for the
financial element of the cash STIP.

Vesting period
Shares vest following the announcement of results three years
after the start of the relevant STIP performance period.

Calculation of outcomes, discretion, clawback and malus
As for the financial element of the cash STIP.

Dividend equivalents
A cash or shares dividend equivalent payment will be made,
pro rata to the number of shares vesting, at the release date.

Operation and link to business strategy

Performance measures and target-setting
% of award
Measure
Proportions
to be set
annually

A – Growth in adjusted EPS. The calculated
outcome may then be moderated downwards
to reflect ROCE performance.

B – Growth in adjusted EPS with the adjusted
operating profit, tax and interest of Sugar
removed. The calculated outcome may then
be moderated downwards to reflect ROCE
performance with the profit and average
capital employed of Sugar removed.

These measures reflect our strategy and take into account
feedback from investors. They are well understood both by
participants and shareholders and reduce the impact of sugar
price volatility on long-term growth-based incentive outcomes.

Targets are set for each allocation, taking into account the shape
of the portfolio, market expectations and internal forecasts for
the next few years, and the scale of investments made.

Vesting period
Annual allocations of conditional shares will be free of restrictions
after a five-year period, comprising a three-year performance
period and a two-year holding period for the net of tax award.

Discretion, clawback and malus
Please refer to the notes that follow this table.

Dividend equivalents
A cash or shares dividend equivalent payment will be made,
pro rata to the number of shares vesting, at the release date.

LONG TERM INCENTIVE
PLAN (LTIP)

Element and purpose
To reward long-term
business growth.

To align the interests of
executives and shareholders.

To promote executive
retention.

SHAREHOLDING
REQUIREMENT

Element and purpose
To demonstrate commitment
to the success of the
Company and to align
executives’ interests
with those of shareholders
we require executives to
build up a significant level
of shareholding.

Operation and link to business strategy
This is not part of our formal remuneration policy. Details of our current requirement are provided in
our annual implementation report on page 96.

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REMUNERATION REPORT

REMUNERATION POLICY FOR EXECUTIVE DIRECTORS CONTINUED

NON-EXECUTIVE
DIRECTORS’ FEES

Element and purpose
To attract and retain a high-
calibre Chairman and non-
executives by providing a
competitive core reward
for the role.

Operation and link to business strategy
Non-executives
The Chairman and executive directors review non-executive directors’ fees every other year in the light
of fees payable in comparable companies and by reference to the time commitment, responsibility and
technical skills required to make a valuable contribution to an effective board. Fees are paid in cash on
a quarterly 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 concerning their own fees.

The Senior Independent Director and committee Chairmen are each paid an additional fee to reflect
their extra responsibilities and greater time commitment. As the Chair of the Nomination committee
is currently the Company Chairman, no fee is paid for this role at present.

Chairman
The Remuneration committee reviews the Chairman’s fees, which are paid monthly in cash. No other
benefits are paid to the Chairman.

Shareholding
We encourage our non-executive directors to build up a shareholding of at least 100% of their
annual fee.

Expenses
We reimburse reasonable expenses incurred in travelling on behalf of the business. As HMRC regards
travel to the head office as a benefit in kind, by exception, where these are claimed, we pay any tax
due on such expenses on a grossed-up basis.

Notes to the remuneration policy table
Malus and clawback
The committee may, at any time within two years of an LTIP vesting or STIP being paid, determine that clawback shall apply if the
committee determines that performance outcomes were misstated or an erroneous calculation was made in assessing the extent
to which performance targets were met. LTIP and STIP payments can be clawed back if the participant is found at any time prior
to vesting/payment, including prior to grant, to have committed an act or omission which, in the opinion of the committee, would
have justified summary dismissal.

As a condition of participating in the STIP and LTIP, all participants are 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/or operate clawback under any LTIP or STIP in which they
participate; and/or reduce any amounts otherwise payable to them; and/or require the participant to immediately transfer shares
or cash back to the Company.

Discretion
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 applies a robust set of principles to ensure that incentive outcomes
are 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 annual implementation report.

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

How pay and conditions of employees were considered when setting the directors’ remuneration policy
The group is geographically dispersed and therefore subject to very different pay markets. As a result, it is difficult to make sensible
comparisons with all employees across the group and the salaries of executive directors are therefore reviewed in line with the
group’s UK employees.

As outlined in the policy table, the committee limits the range of salary increases for executive directors to the range of increases
available to UK-based employees unless there has been a change of role.

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 other employees and
conversely in years of lower performance it may be proportionately less.

The structure and principles of incentives are consistent further down the organisation. The committee is provided with data on
the remuneration structure for two tiers of senior management below the executive directors 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.

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The Company did not consult with employees in 2016 when drafting this remuneration policy. We will consider the requirements
of the new UK Corporate Governance Code when we review our remuneration policy in 2019.

Statement of consideration of shareholders’ views
The committee chair is available to discuss with shareholders any remuneration matters to help shape our policy and practice.
Each year we invite our larger institutional shareholders to share their views on the group’s remuneration, strategy and governance.
The feedback received and our response is detailed in the letter at the start of this report.

Approach to recruitment remuneration

Area

Overall

Policy and operation

As we may need to recruit future executive directors from outside the UK or from companies with
more aggressive incentive policies than our own, the arrangements below are intended to provide
the necessary flexibility to recruit the right individuals.

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.

The rationale for the package offered will be explained in the subsequent annual implementation report.

We apply the same policy for new joiners as for existing executive directors.

Base salary

Base salary would be set at an appropriate level to recruit the best candidate, based on their skills,
experience and current remuneration, taking into account market data and internal salary relativities.

Relocation

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

Buy-out awards

 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.

In addition to normal incentive awards, buy-out awards may be made to reflect value forfeited through
an individual leaving their current employer. If a buy-out award is required, the committee would aim
to reflect the nature, timing and value of awards foregone in any replacement awards. Awards may be
made in cash or shares. Where performance conditions applied to a forfeited award, they will be applied
to the replacement award.

In establishing the appropriate value of any buy-out, the committee would also have regard to the
value of the other elements of the new remuneration package. The committee would aim to minimise
the cost to the Company, however, buy-out awards are not subject to a formal maximum. Any awards
would be broadly no more valuable than those being replaced.

Where possible, we would specify that 50% of any vested buy-out awards should be retained until the
shareholding requirement is met.

Other elements

Benefits, pension, cash STIP, deferred awards, LTIP and shareholding requirements will operate in line
with the remuneration policy.

Non-executives

Fees would be in line with the remuneration policy.

We would not pay to relocate a non-executive director to the head office location.

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REMUNERATION REPORT

Service contracts and policy on payment for loss of office

Provision

Policy and operation

Notice period

12 months’ notice by either the director or the Company.* 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 have been amended, as described in the policy table, without reissuing contracts.

Non-compete

During employment and for 12 months thereafter.

Executive
directors –
contractual
termination
payments

Resignation
No payments on departure, even if, by mutual agreement, the notice period is cut short.

Departure not in the case of resignation
Service contracts allow for the Company to terminate employment by paying the director in lieu of some or all of
their notice period. The Company may determine that such a payment 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 and
would reduce monthly instalments to take account of amounts received from alternative employment.

In limited circumstances, the Company may permit an executive director to work for us as a contractor or employee
after the end of their notice period for a limited period to ensure an effective hand-over and/or to allow time for a
successor to be appointed.

Settlement agreement
The committee may agree payments it considers reasonable in settlement of legal claims. This may include an
entitlement to compensation in respect of their statutory rights under employment protection legislation in the UK or
in other jurisdictions. The committee may also include in such payments reasonable reimbursement of professional
fees in connection with such agreements.

In this, or the above scenario, the committee may make reasonable payments in respect of outplacement and may
also agree to provide other ancillary or non-material benefits in connection with departure (including for a defined
period after departure) not exceeding a value of £5,000 in aggregate.

Relocation
support

Good leaver**
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.

Leaver due to resignation/misconduct/poor performance
No payment would be made.

STIP

Good leaver**
The committee will consider making a payment pro rata for time and performance, 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. This is consistent with the approach for other STIP participants.

Resignation
If an executive director ceases to be employed before, or is under notice when, full year results are published,
no award will be made.

Leaver due to misconduct/poor performance
No payment will be made.

LTIP and deferred
awards (shares)

Good leaver**
Where the performance condition on deferred awards has already been achieved and the award is subject to a
service condition, it will vest at the usual vesting date. For other allocations, the committee will decide the extent
to which they vest having regard to the extent to which any performance condition is satisfied and, unless the
committee determines otherwise, pro-rating to reflect the period from the start of the performance period until
the date of cessation. Such awards will vest on the normal vesting date or at such other date as the committee
determines. In the case of death, vesting may be accelerated. Awards or portions of awards that do not vest
will lapse.

Leaver due to resignation/misconduct/poor performance
All conditional awards lapse.

Change of control of the Company
In the event of a change of control, all unvested awards under the LTIP would vest, subject to the committee taking
into account the extent that any performance conditions attached to the relevant awards have been achieved and,
unless the committee determines otherwise, the proportion of the performance period worked by the director prior
to the change of control. For deferred awards, all will vest on the event of a change of control.

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Provision

Policy and operation

Non-executive
directors –
contractual
termination
payments

Appointment is for three years unless terminated by either party on six months’ notice. Continuation of the
appointment is contingent on satisfactory performance and re-election at annual general meetings. Non-executive
directors are typically expected to serve two three-year terms, although the board may invite them to serve for
an additional period.

Our 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 election or 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.

* John Bason’s employment contract was subject to 12 months’ notice but specified a retirement date of age 62, as reflected in his EFRBS opportunity. As we wish

to continue his employment beyond April 2019, he will be issued with a new employment contract when his old one terminates. The terms of employment will remain
the same except that he will be treated as a new appointment for pension purposes consistent with how we would treat other new executive directors.

** Good leavers are those leaving because of ill health/injury/disability/death, redundancy, retirement or because their employing company is being transferred outside the

group or for any other reason determined by the committee.

Executive directors’ reward potential

George Weston (£000)

John Bason (£000)

6,000

5,000

4,000

3,000

2,000

1,000

37.9%

9.5%

28.4%

30.2%

7.5%
23.7%

3.0%

12.1%

77.7%

7.3%

100%

38.6%

24.2%

6,000

5,000

4,000

3,000

2,000

1,000

2.6%

100%

80.4%

10.6%
6.4%

28.2%

7.0%
22.1%

42.7%

36.2%

9.1%

27.2%

27.5%

Minimum

Threshold

On-target

Maximum

Minimum

Threshold

On-target

Maximum

Fixed elements

Annual variable element
(deferred awards)

Annual variable element
(cash STIP)

Long-term variable element
(LTIP)

Fixed elements

Annual variable element
(deferred awards)

Annual variable element
(cash STIP)

Long-term variable element
(LTIP)

Notes 2018/19 Policy
1 Fixed elements for George Weston comprise salary (net of pension-related salary sacrifice) of £1,065,835, benefits of £16,191 and pension of £309,442 and applies

to minimum, threshold, on-target and maximum performance.

2 Fixed elements for John Bason comprise salary (net of pension-related salary sacrifice) of £706,935, benefits of £22,979 and EFRBS pension to April 2019 then a cash

allowance in lieu of DC pension contributions of £361,667 and applies to minimum, threshold, on-target and maximum performance.

3 Cash STIP is calculated on base salary at the end of the financial year and both the deferred awards and LTIP share values are calculated on base salary at the date

of allocation and exclude share price movement and dividend equivalents.

4 Minimum: No cash STIP, deferred awards or LTIP vesting for not achieving threshold performance.
5 Threshold: Cash STIP of 12% of base salary (12% of base salary for threshold financial performance and 0% for not achieving threshold personal performance).
Deferred awards vesting at 10% of maximum (i.e. 5% of grant date base salary). LTIP vesting at 10% of maximum (i.e. 20% of grant date base salary) following
achievement of threshold performance targets.

6 On-target: Cash STIP of 78.33% of base salary (65% for target financial performance and 13.33% for target personal performance). Deferred awards vesting at 50%

of maximum (i.e. 25% of grant date base salary). LTIP vesting at 50% of maximum (i.e. 100% of grant date base salary).

7 Maximum: Cash STIP of 150% of base salary (130% for maximum financial performance and 20% for achieving maximum personal performance). Deferred awards

vesting at 100% of maximum (i.e. 50% of grant date base salary). LTIP vesting at 100% of maximum (i.e. 200% of grant date base salary).

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REMUNERATION REPORT

Annual implementation report on directors’ remuneration
This report sets out the elements of remuneration paid to directors in respect of the financial year 2017/18. The notes to the single
figure table provide further detail on 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 2018 AGM.

Single total figure of remuneration – (audited information)

Executive directors
George Weston
John Bason
Non-executive directors
Charles Sinclair
Tim Clarke9
Javier Ferrán10
Emma Adamo
Ruth Cairnie11
Wolfhart Hauser
Richard Reid
Michael McLintock12
Graham Allan13

Salary or fees

Taxable benefits

Pensions5

STIP 6

LTIP7,8

Single
total figure

£000

20181

20171

2018

£000

2017

£000

2018

£000

2017

£000

2018

£000

2017

£000

2018

£000

2017

£000

2018

£000

2017

1,060 1,042
678

692

162
233

16
18

247
337

609 1,039 2,179 1,464 1,003 3,826 4,849
661 2,714 3,298
506
964

698 1,435

238
19
90
74
83
74
95
209
2

405
95
74
74
74
74
94
–
–

14
–
–
–
–
–
–
–
–

239
19
90
74
83
74
95
209
2

406
95
74
74
74
74
94
–
–

1 For executive directors, the salary in the year is not the same as a weighted average of the headline salaries, since salary actually paid is reduced for pension-

related salary sacrifices. The benefit of these salary sacrifices is captured in the increase in pension entitlements for which a remuneration value is shown in the
pensions column.

2 The value of George Weston’s benefits comprised £14,161 taken in cash and £2,031 taxed as benefits-in-kind.
3 The value of John Bason’s benefits comprised £14,161 taken in cash and £8,819 taxed as benefits-in-kind.
4 The value of Charles Sinclair’s benefits was taxed as a benefit-in-kind.
5 While the nature of pension benefits has not changed during the year, the pensions number for remuneration purposes has reduced. This year’s amount is lower

than last year due to an increase in the Consumer Prices Index to 3% at the start of this year from 1% at the start of last year. This increase in inflation reduces the
year-on-year impact of changes in accrued pension benefits.

6 Comprises the annual bonus, which is paid in December in respect of the preceding financial year, and the value of deferred share awards calculated based on the

average mid-market closing price over the last quarter of the financial year. For 2016/17 the relevant share price was 3060.82p and for 2017/18 it was 2465.31p. These
shares are subject to a two-year deferral period. For George Weston this comprises a cash element of £832,760 and a deferred award value of £206,544. For John
Bason this comprises a cash element of £562,320 and a deferred award value of £136,036.

7 51.02% of the shares under the LTIP for 2014–17 vested in November 2017 at a share price of 3042.96. George Weston received 32,969 shares and John Bason
received 21,716 shares. As required by UK regulations, the value disclosed for this award in 2017 was estimated using the average mid-market closing price over
the last quarter of the 2016/17 financial year of 3060.82p. This figure has now been recalculated for the actual share price on the vesting date.

8 100% of the shares under the LTIP for 2015–18 will vest in November 2018. George Weston will receive 59,388 shares and John Bason will receive 39,110 shares.
As required by UK regulations, the vesting value under the LTIP for 2015–18 has been estimated using the average mid-market closing price over the last quarter of
the 2017/18 financial year of 2465.31p. Vesting will be on 23 November 2018 and a figure recalculated for the actual share price on that date will be presented in the
2019 report.

9 Tim Clarke retired from the Board on 30 November 2017.
10 Javier Ferrán was made Senior Independent Director with effect from 30 November 2017 and was paid an additional fee from that date, consistent with our

remuneration policy.

11 Ruth Cairnie was made Chair of the Remuneration committee with effect from 11 April 2018 and was paid a committee Chair fee from that date, consistent with

our remuneration policy.

12 Michael McLintock joined the Board on 1 November 2017 as a non-executive director. He was made company Chairman on 11 April 2018 and was paid a Chairman

fee, consistent with the fee previously paid to Charles Sinclair, from that date, consistent with our remuneration policy.

13 Graham Allan joined the Board on 5 September 2018 as a non-executive director.

Additional notes to the single total figure of remuneration – executive directors (audited information)
Single total figure – base salary
Executive directors’ salaries were reviewed on 1 December 2017 in accordance with normal policy and the percentage increase
was somewhat less than the average increases for the Company’s UK-based employees.

George Weston
John Bason

Dec 2016
£1,072,000
£706,000

Increase in Dec 2017
1.7%
2.0%

Dec 2017
£1,090,000
£720,000

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

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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 EFRBS.

George Weston
In this financial year George Weston had an overall benefit promise of 1/45th of final pensionable pay for each year of
pensionable service up to 5 April 2016 and 1/50th of final remuneration for each year of pensionable service thereafter,
subject to a maximum of two-thirds of final pensionable pay. He 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. His pension
benefits are payable from age 65. There is no additional benefit entitlement for members if they take early retirement. His
accrued pension at 15 September 2018 was £614,038.

John Bason
In this financial year John Bason had an overall benefit promise at age 62 of two-thirds of final pensionable pay, less an allowance
for retained benefits from his previous employment. He 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. His pension benefits
are payable from age 62. There is no additional benefit entitlement for members if they take early retirement. His accrued pension
at 15 September 2018 was £397,182.

Short Term Incentive Plan – 2017/18
The table below shows outcomes against the specific measures in the year.

Measures

Achievements against performance measures

Threshold 15% salary

Target 65% salary

Maximum 108.3% salary

A – Adjusted operating proﬁt

15.0

Threshold x 0.8

52.59%

Target x 1

B – Working capital as % of revenue

0.8

108.3%

108.3

Maximum x 1.2

1.2x

108.3

Threshold 12% salary

Target 65% salary

Maximum 130% salary

A x B – Total ﬁnancial

Threshold 0% salary

63.1%

130%

130

Target 13.3% salary

Maximum 20% salary

C – Personal – George Weston

C – Personal – John Bason

Threshold 12% salary

Target 78.3% salary

Maximum 150% salary

13.3%

15%

(A x B) + C – Total STIP – George Weston

(A x B) + C – Total STIP – John Bason

76.4%

78.1%

150

Our financial performance showed progress, with adjusted operating profit 3% ahead of last year but slightly below target. All of
our business divisions with the exception of Sugar delivered a strong performance. Group performance, however, was affected by
the impact of low sugar prices. Working capital was well managed over the year taking into account the expected increase in sugar
stocks. In combination, these outcomes resulted in the 2017/18 STIP outcome shown above.

Following a review of personal performance against specific objectives for the 2017/18 financial year, the committee determined that
George Weston will receive 13.3% of salary for the individual element of the annual bonus for performance that was on target against
set objectives with most of our businesses performing well and a continued strong business response to the risks and opportunities
that Brexit represents. John Bason will receive 15% of base salary for the individual element of the annual bonus, reflecting delivery
of objectives, robust oversight of key IT projects and work on acquisitions. Personal objectives set for each of the executive directors
were closely aligned to the overall strategy of the group but additional details will not be disclosed because of commercial sensitivity.
Additional detail on personal performance outcomes for this financial year will be disclosed in November 2019.

Retrospective disclosure of STIP performance range
We will disclose the target ranges that applied to 2017/18 STIP in November 2019. This timing is deemed appropriate as when
we do disclose the performance target ranges that applied, we wish to be able to add any commentary that will help investors to
understand the performance outcomes. In some cases, this is not appropriate immediately following the end of the performance
year as the information remains commercially sensitive. For these reasons, we believe that this delayed disclosure is appropriate
and in shareholders’ interests.

In the past we delayed disclosure by 24 months; we have now decided to reduce this to 12 months and we are therefore now
disclosing the ranges that applied in both 2015/16 and in 2016/17.

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REMUNERATION REPORT

STIP performance range 2015/16
The table below details the financial performance ranges that applied in 2015/16 and the calculated outcome.

A = Adjusted operating profit £m
STIP earned for this level of profit performance (as % of salary)
B = Working capital as a % of sales
Working capital modifier for this level of performance
A x B = STIP financial element (as % of salary)
Personal element (as % of salary)
George Weston
John Bason
Total STIP (as % of salary)
George Weston
John Bason

Threshold
940
15%
16.68
0.8
12%

0%
0%

12%
12%

Target
1,000
65%
15.60
1.0
65%

13.3%
13.3%

78.3%
78.3%

Maximum
1,060
108.3%
14.52
1.2
130%

2015/16 STIP
Outcome
1,117.56
108.3%
15.19
1.0759
116.56%

20%
20%

13.61%
20%

150%
150%

130.17%
136.56%

At the start of 2015/16, as detailed in our annual report that year, we and the market expected a modest decline in EPS with
devaluation of the euro against the US dollar presenting a major challenge for Primark margins. This was reflected in the targets
for adjusted operating profit as shown above. As explained in our remuneration report in 2016, our actual performance was
better than expected, with Primark limiting the expected profit impact of euro weakness through outstanding buying, AB Sugar
responding to its challenging market with structural changes and substantial cost reductions, and there was also a strong profit
increase in Ingredients.

Personal performance is assessed against targets set in four key areas. Some of the key achievements in each of these areas
were as follows:

Divisional financial and
operational objectives

Good performance from all businesses

Cost reduction in Sugar was accelerated

Primark opened in two new markets

Development and delivery of strategies,
including special projects and transactions

Restructuring of the Sugar portfolio with a move to full ownership of Illovo in Africa in the
year and the disposal of the south China Sugar business announced soon after year end.

The disposal of the US Spices business was also announced early in the following
financial year

People and organisation

Significant changes in senior leadership, in particular in Ingredients and GWF

Continued focus on diversity and inclusion across the businesses

Developing long-term business health

A comprehensive strategic review of the European sugar industry post-regulation
was completed

Decisive action taken to commence work on the implications of Brexit

After a detailed assessment of performance against objectives, the calculated outcome of personal performance for the
Chief Executive was just above on-target at 13.61%. The outcome for the Finance Director was at maximum, reflecting, in
particular, a very strong delivery on a number of important transactions. This resulted in a bonus payment of 130.17% of salary
out of a maximum 150% of salary for the Chief Executive and 136.56% of salary out of a maximum of 150% of salary for the
Finance Director.

STIP performance range 2016/17
The table below details the financial performance ranges that applied in 2016/17 and the calculated outcome.

Threshold
1,175.4
15%
16.21
0.8
12%

0%
0%

12%
12%

Target
1,237.2
65%
15.15
1.0
65%

13.3%
13.3%

78.3%
78.3%

Maximum
1,299.0
108.3%
14.09
1.2
130%

2016/17 STIP
Outcome
1,361.23
108.3%
12.11
1.2
130%

20%
20%

14.93%
15%

150%
150%

144.93%
145%

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95

The STIP targets for 2016/17 anticipated the benefits of growth in Primark selling space, higher sugar prices and further progress
in Grocery, Ingredients and Agriculture. The significant devaluation of sterling was expected to provide benefits from the translation
of overseas profits but challenges to Primark margins. Our performance was strong, with Primark in particular delivering stronger
profit growth than expected and Sugar benefiting from its continued cost reduction programmes. Working capital was also well
managed throughout the year. This is reflected in the 2016/17 STIP outcome, where both of the financial performance measures
were achieved at maximum as defined under the plan.

Key achievements in the four key areas for personal performance assessment were as follows:

Divisional financial and
operational objectives

Particularly strong Primark trading in core markets

Good profit delivery from Sugar business

Further improvement in the Ingredients businesses

Development and delivery of strategies,
including special projects and transactions

Effective full integration of Illovo into the Sugar business

Disposal of the Spices business completed and subsequent restructuring of our
US Grocery business

People and organisation

Leadership transition in ACH delivered

Successful transitions in Primark leadership positions

GWF moved to a new operating model, with significant people changes

Developing long-term business health

Brexit steering group effective, helpful engagement with government and industry bodies

The updated Corporate Responsibility report was launched and well received

Further progress was made in health and safety

Taking into account a detailed assessment of performance against objectives, the calculated outcome of personal performance
for the Chief Executive was slightly above on-target at 14.93% and for the Finance Director was 15.0%. This resulted in a
bonus payment of 144.93% of salary out of a maximum 150% of salary for the Chief Executive and 145% of salary out of
a maximum of 150% of salary for the Finance Director.

LTIP – 2015–18
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.

In November 2015, when awards were allocated under the 2015-18 tranche of the LTIP, we expected 2015/16 to be very
challenging. The devaluation of the euro against the US dollar presented a major challenge for Primark margins and this was
set out, in some detail, in the presentation of our interim results in April 2015. In November 2015 we therefore wrote to our
shareholders to explain how we intended to address this in our LTIP performance ranges and received clear support for our
approach, including a 91.09% vote in favour of the Remuneration report at the 2015 AGM.

In the event, adjusted operating profit for 2015/16 was 3% ahead and earnings per share 5% ahead of the prior year. As detailed
on page 94, under the STIP disclosure, these results were achieved by Primark limiting the expected profit impact of euro weakness
through outstanding buying, AB Sugar responding to its challenging market with structural changes and substantial cost reductions,
and there was also a strong profit increase in Ingredients. Looking back, we consider that our expectations for market conditions in
2015/16 were well-founded and sensibly taken into account in the target setting for the 2015/16 STIP and 2015-18 LTIP.

For the 2015–18 cycle, after a technical adjustment in 2017 for a change in the way that sugar cane roots are accounted for, which
made the targets no harder or easier to achieve, the adjusted EPS performance range to be achieved in 2017/18 was 111.95p for
threshold vesting, 118.42p for target vesting and 125.08p for maximum vesting. The outcome for adjusted EPS in 2017/18 of
134.9p, equivalent to a CAGR over the performance period of 9.95%, leads to vesting at maximum level.

The committee has considered whether this level of vesting is a fair reflection of performance over the period. We are satisfied
that the strong strategic progress over the period is supportive of the vesting outcome, with highlights including the restructuring
and substantial cost reductions in Sugar, strong and sustainable growth in Twinings and Ingredients, and further development
of Primark to a truly international footprint with strong capability to grow profitably through changeable market conditions.

In November 2015, when these LTIP allocations were made, our share price was £34.62 but, over the performance period, the share
price has fallen. The committee has also considered whether the calculated vesting outcome aligns sufficiently with the experience
of shareholders in these circumstances. The fall in share price means that the value of shares now vesting (as shown in the table
on page 92) represents 142% of the 2015 salary for the executive directors, or 71% of the maximum value (200% of salary).
Our executives also both hold a significant number of shares, well ahead of our minimum shareholding requirement, and so they
have been significantly personally affected by the share price movement. The committee has assessed that there has therefore
been sufficient alignment with shareholders. The committee has also noted that in 2015 and 2016, the vesting of LTIP shares was
very low (18.54% and 0% of the shares allocated respectively) when the share price had increased over these performance periods.

Reflecting on all of the above, the committee determined that the number of shares vesting should be based on the calculated
outcome, which is at maximum, resulting in all allocated shares vesting.

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REMUNERATION REPORT

Scheme interests (audited information)
The table below details the conditional share interests awarded to the executive directors in respect of the LTIP and deferred share
awards. The awards made were in line with the existing remuneration policy. LTIP awards are subject to performance conditions
over the vesting period; the value of deferred STIP shares is calculated by reference to the achievement of the STIP performance
conditions for the award.

Maximum award

Shares vesting

Deferred Awards

Scheme
name
LTIP

% of
Award and Vesting
date
salary
23/11/15 – 23/11/18 200%

Face value
at grant
£000

Market
price
at grant
2,056 3462.0p

End of
performance

period Maximum
59,388

15/09/18

Target
(50% of
maximum)
29,694

Threshold
(10% of
maximum)
5,939

Shares
lapsed for
performance

Shares
subject to
service
condition

Executive
directors
George
Weston

Deferred
Awards

John
Bason

LTIP

Deferred
Awards

12/12/16 – 25/11/19 200%
20/11/17 – 20/11/20 200%
12/12/16 – 25/11/19 50%

2,144 2625.0p
2,144 3076.2p
536 2625.0p

14/09/19
12/09/20
16/09/17

81,676
69,696
20,419

40,838
34,848

8,168
6,970

20/11/17 – 20/11/20 50%
23/11/15 – 23/11/18 200%

536 3076.2p
1,354 3462.0p

15/09/18
15/09/18

17,424
39,110

12/12/16 – 25/11/19 200%
20/11/17 – 20/11/20 200%
12/12/16 – 25/11/19 50%

1,412 2625.0p
1,412 3076.2p
353 2625.0p

14/09/19
12/09/20
16/09/17

53,790
45,901
13,448

20/11/17 – 20/11/20 50%

353 3076.2p

15/09/18

11,475

19,555

3,911

26,895
22,951

5,379
4,590

– 20,419

9,046

8,378

– 13,448

5,957

5,518

Notes to table:
 The same value applied in 2016 and 2017 because the 2016 allocations were made after AGM approval and salary review in December 2016. The same salary

applied in 2017.

 There is a further two-year holding period in place for the net of tax LTIP shares after vesting.
 Deferred awards allocated in 2017 were subject to the same financial performance measures as the 2017/18 STIP with vesting in November 2020, subject to

continued service.

 The share price used to determine the number of shares in allocations is the average of the closing share prices on the five trading days immediately preceding

the award date.

 All awards are settled using shares bought in the market.

Executive directors’ shareholding requirements (audited information)
The executive directors are required to build up a beneficially-owned shareholding of 250% of salary. This requirement has been
met. The interests below remained the same at 31 October 2018.

Executive directors
George Weston2
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

Beneficial
15 September
2018

Beneficial as
% of salary1

LTIP
15 September
2018

Deferred
Awards
15 September
2018

Total
15 September
2018

Total
16 September
2017

n/a
250% of
salary

250% of
salary

2,660

n/a

2,660

3,579,362

7,343%

210,760

37,843

3,827,965

3,788,039

134,165

417%

138,801

25,193

297,889

281,162

1 Calculated using share price as at 15 September 2018 of 2236p and base salary as at 15 September 2018.
2 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 15 September 2018.

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Non-executive directors’ shareholding and share interests (audited information)
Non-executive directors are encouraged to hold shares to a value equal to their annual fees. The following shareholdings
are ordinary shares of Associated British Foods plc unless stated otherwise. The interests below remained the same at
31 October 2018.

Javier Ferrán
Emma Adamo1

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

Ruth Cairnie
Wolfhart Hauser
Richard Reid
Michael McLintock3
Graham Allan4

Total
15 September
2018
2,400

Total
16 September
2017
2,400

2018 total
holding as a % of
annual fee2
56%

1,322
504,465
3,000
3,918
3,347
15,000
–

1,322
504,465
3,000
3,918
3,347
–
–

n/a
15,243%
71%
118%
101%
82%
–

1 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 15 September 2018.

2 Calculated using share price as at 15 September 2018 of 2236p and fee rate as at 15 September 2018.
3 Michael McLintock was appointed a non-executive director on 1 November 2017 and Chairman on 11 April 2018.
4 Graham Allan was appointed a non-executive director on 5 September 2018.

Payments to past directors (audited information)
No payments were made to past directors in the year.

Payments for loss of office (audited information)
No payments were made for loss of office in the year.

TSR performance and Chief Executive’s pay
The performance graph below illustrates the performance of the Company over the nine years from September 2009 to
September 2018, 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 summary of the total remuneration of the Chief Executive over the same period.
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 in the applicable UK directors’ reporting regulations.

t
n
e
m
t
s
e
v
n

0
0
1
£

a
c
i
t
e
h
t
o
p
y
h
a

f
o

e
u
a
V

500

450

400

350

300

250

200

150

100

ABF
£365

FTSE 100
£232

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Source: DataStream Return Index

Single total figure of
remuneration (£000)
3,886
Annual variable element (£000) 1,266
Potential maximum annual
variable element (£000)
Annual variable element
(% of maximum)
Long-term variable element –
shares vesting as % of
maximum

99.12%

96.68%

1,310

3,182
438

3,859
864

5,832
1,219

7,470
894

3,056
686

3,133
1,368

4,849
2,179

3,826
1,039

1,373

1,425

1,466

1,503

1,542

1,577

2,144

2,180

31.91%

60.63%

83.15%

59.49%

44.46%

86.75% 101.63%1

47.66%

83.80%

97.42%

85.00% 100.00%

18.54%

51.02%

100%

1 The potential maximum annual variable element for 2016/17 is less than the annual variable element because the deferred awards included in the former are valued at
the start of the year and the deferred awards included in the latter are valued at the average mid-market closing price over the last quarter of the 2016/17 financial year,
by which time the share price had increased.

At close of business on 14 September 2018, the last trading day before the end of the financial year, the market value of
the Company’s ordinary shares was 2236p. During the previous 12 months, the market value ranged from 2227p to 3371p.

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REMUNERATION REPORT

Percentage change in remuneration of the Chief Executive
Between 2017 and 2018, the increase in the Chief Executive’s salary was 1.68% and the average increase for our UK employees
was 2.0% to 2.5%.

The Chief Executive’s total remuneration this year was 21% lower than last year, reflecting a lower bonus outcome than in the
prior year. We believe that it is appropriate that the remuneration of our directors should be closely aligned to the underlying
performance of the Company, which means their remuneration will be much more variable than that of other employees,
depending on performance outcomes compared with targets.

The overall increase in expenditure on reward for all employees was 4.8%. This number is based on aggregate data presented in
the table below, which include increases in headcount. In a decentralised group of our size, to separate the increase in expenditure
on incentives and taxable benefits is neither practical nor worthwhile.

Executive directors serving as non-executive directors
During the year, George Weston served as a non-executive director of Wittington Investments Limited, for which he received
no compensation.

John Bason is senior independent director and Chairman of the audit committee of Compass Group PLC, for which he received a
fee of £121,083 in the 2017/18 financial year. He also served as Chairman of the charity FareShare, but received no compensation
in respect of this role.

Relative importance of spend on pay
A year-on-year comparison of the relative importance of pay with significant distributions to shareholders and others is shown below.

Expenditure
Pay spend for the group
Dividends relating to the period
Taxes paid

2018
£m
2,668
356
297

2017
£m
2,546
324
2641

Change
%
4.8%
9.9%
12.5%

1 Excludes £92m taxes paid in respect of business disposals during the prior year.

Implementation of policy 2018/19
Base salary
Executive directors’ salaries are subject to review on 1 December 2018 as shown in the table below.

George Weston
John Bason

Dec 2017
£1,090,000
£720,000

Increase in Dec
2018
0%
0%

Increase in Dec
2018
£0
£0

Dec 2018
£1,090,000
£720,000

Benefits and pensions
John Bason entered into his current employment contract with the Company in 1999. At that time, it was envisaged that he would
retire no later than age 62 and the contract therefore included a termination date of 24 April 2019. As a result, the EFRBS pension
provision within John Bason’s employment contract also runs to that date. He will be offered a new employment contract from
that date and his remuneration will remain unchanged except for his pension. His EFRBS accrual will cease on his 62nd birthday
and he will be treated as a new joiner under our remuneration policy for pension purposes with effect from 24 April 2019. In
accordance with that policy he will receive a cash alternative to DC pension contributions. This approach is more cost effective
for the Company than continuing EFRBS provision to his actual retirement date.

All other benefits remain unchanged.

Cash STIP 2018/19
The cash STIP will be operated in line with the remuneration policy.

Maximum
On-target (budget)
Threshold
Below threshold

Payout based on
operating profit
only
108.33%
65.00%
15.00%
0.00%

Modification
to payout based
on average
working capital
x1.2
x1.0
x0.8
x0.8

Overall financial
payout
130.00%
65.00%
12.00%
0.00%

Personal
element
20.00%
13.33%
0.00%
0.00%

Total bonus
150.00%
78.33%
12.00%
0.00%

The targets used for our 2018/19 STIP are commercially sensitive and will be disclosed in the 2020 annual report. Achievement
against financial targets will be disclosed in our 2019 Remuneration report as we have done in this report for 2017/18.

Deferred awards (shares) – 2018/19 awards (vesting in 2021)
The STIP deferred share award element will be operated in line with the remuneration policy. Performance will be measured
using the financial performance target range that applies to the cash STIP.

Associated British Foods plcAnnual Report and Accounts 2018

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99

Maximum
On-target
Threshold

Vesting based on
operating profit only as %
of shares allocated
83.33%
50.00%
12.50%

Modification to payout
based on average
working capital
x1.2
x1.0
x0.8

Below threshold

0.00%

x0.8

Overall vesting as
% of shares allocated

100.00% Shares vest following a further two-year

50.00%
10.00%

0.00%

deferral period.

No further performance conditions apply
but shares will lapse if the individual
resigns from the Company.

LTIP 2018-21
The LTIP will be operated in line with the remuneration policy. The performance targets that will apply are set out below.

Shares vesting as % of award
Adjustment to % of shares vesting
Adjusted EPS range in 2020/21 (p)
Three-year average ROCE range (%)
Adjusted EPS range without Sugar in 2020/21 (p)
Three-year average ROCE range without Sugar (%)

Primary measure

Modifier

Threshold
10%

Target
50%

Maximum
100%

Threshold

Maximum

40% of award

60% of award

156

149

170

162

184

178

80%

100%

12%

15%

13.5%

16.5%

When setting the above ranges, the committee conducted an analysis of the growth potential and challenges facing each of the
divisions over the performance period. These ranges were then tested to ensure that they were sufficiently stretching. The ROCE
modifier was introduced to ensure that investors’ interests are protected from poor investments. The performance ranges reflect this.

Service contracts

Executive directors
George Weston
John Bason
Non-executive directors
Michael McLintock
Javier Ferrán
Emma Adamo
Ruth Cairnie
Wolfhart Hauser
Richard Reid
Graham Allan

Date of appointment

appointment Notice from Company

Notice from individual

Date of current
contract/letter of

Unexpired period
of service contract

19/04/99
04/05/99

01/11/17
01/11/06
09/12/11
01/05/14
14/01/15
14/04/16
05/09/18

01/06/05
16/03/99

11/04/18
01/11/06
09/12/11
11/04/18
14/01/15
13/04/16
05/09/18

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

* On appointment John Bason’s contract was written as a rolling contract with a retirement date of 24 April 2019. With effect from that date he will be offered a

new/amended contract that will run indefinitely, in line with other Associated British Food employment contracts. John’s remuneration will be unchanged because
of this with the exception of his pension. Rather than extending John’s participation in the EFRBS to his actual retirement, his EFRBS accrual will cease on his 62nd
birthday and he will be treated as a new joiner under our remuneration policy for pension purposes with effect from 24 April 2019. He will receive a cash alternative
to DC pension contributions. This approach is more cost effective for the Company than continuing EFRBS provision.

Copies of service contracts are available for inspection at the Company’s head office.

Non-executive directors’ fees for 2017/18

Chairman
Senior Independent Director
Committee Chair (Audit and Remuneration committees)
Director

Dec 2017
£410,000
£95,000
£95,000
£74,000

Increase in
Dec 2018
–
–
–
–

Dec 2018
£410,000
£95,000
£95,000
£74,000

The above fees were reviewed in 2018 and it was determined that no changes would be made this year.

Statement on shareholder voting
At the last AGM in December 2017 the voting results on resolution 2, to receive and approve the Remuneration report for the
year ended 16 September 2017, were as follows: the percentage ‘for’ was 96.91% and the percentage ‘against’ was 3.09%.

At the AGM in December 2016, the voting result on resolution 3, to receive and approve the remuneration policy were as follows:
the percentage ‘for’ was 97.19% and the percentage ‘against’ was 2.81%.

By order of the board

Paul Lister
Company Secretary
6 November 2018

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100

DIRECTORS’ REPORT

Introduction
The directors of Associated British
Foods plc present their report for the
52 weeks ended 15 September 2018,
in accordance with section 415 of the
Companies Act 2006. The UKLA’s
Disclosure Guidance 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 page 103 and
the following cross-referenced material,
is incorporated into this Directors’ report:

 likely future developments in the

group’s business (pages 14 to 49);

 greenhouse gas emissions (page 54);

 the board of directors (pages 66 and 67);

 information on our employees

(page 56); and

 corporate governance report

(pages 68 to 79).

Results and dividends
The consolidated income statement is
on page 111. Profit for the financial year
attributable to equity shareholders
amounted to £1,007m.

The directors recommend a final dividend
of 33.3p per ordinary share to be paid,
subject to shareholder approval, on
11 January 2019. Together with the
interim dividend of 11.7p per share
paid on 6 July 2018, this amounts
to 45.0p for the year. Dividends are
detailed on page 128.

Directors
The names of the persons who were
directors of the Company during the
financial year and as at 6 November
2018 appear on pages 66 and 67.

Appointment of directors
The Company’s articles of association
(the ‘Articles’) give directors the 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 Code. Details
of unexpired terms of directors’
service contracts are set out in the
Remuneration report on page 99.

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. 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’ 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.

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.

The directors of a subsidiary company
that acts as trustee of a pension scheme
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 persons
closely associated) in the share capital
of the Company, including any interests
under the long term incentive plan and
any deferred awards, are set out in the
Remuneration report on pages 96 and 97.

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
(12) Shareholder
waiver of dividends
(13) Shareholder waiver
of future dividends
(14) Board statement
on relationship
agreement with
controlling shareholder

Location in
annual report
Note 22 on
page 144
Note 22 on
page 144
Directors’ report
on page 100

Paragraphs (1), (2), (4), (5), (6), (7), (8), (9),
(10) and (11) of Listing Rule 9.8.4R are
not applicable.

Relationship agreement
with controlling shareholders
Any person who exercises or controls,
on their own or together with any person
with whom they are acting in concert,
30% or more of the votes able to be
cast at general meetings of a company
are known as a ‘controlling shareholder’
under the Listing Rules. The Listing
Rules require companies with controlling
shareholders to enter into an agreement
which is intended to ensure that the
controlling shareholders comply with
certain independence provisions in the
Listing Rules and which must contain
undertakings that:

 transactions and arrangements with
the controlling shareholder (and/or
any of its associates) will be conducted
at arm’s length and on normal
commercial terms;

 neither the controlling shareholder

nor any of its associates will take any
action that would have the effect of
preventing the listed company from
complying with its obligations under
the Listing Rules; and

 neither the controlling shareholder

nor any of its associates will
propose or procure the proposal
of a shareholder resolution which is
intended or appears to be intended
to circumvent the proper application
of the Listing Rules.

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101

Wittington Investments Limited
(‘Wittington’) and, through their control
of Wittington, the trustees of the Garfield
Weston Foundation (the ’Foundation’) are
controlling shareholders of the Company.
Certain other individuals, including certain
members of the Weston family who hold
shares in the Company (and including
two of the Company’s directors, George
Weston and Emma Adamo) are, under
the Listing Rules, treated as acting in
concert with Wittington and the trustees
of the Foundation and are therefore also
treated as controlling shareholders of
the Company. Wittington, the trustees
of the Foundation and these individuals
together comprise the controlling
shareholders of the Company and,
at 15 September 2018, had a combined
interest in approximately 59.15% of
the Company’s voting rights.

The board confirms that, in accordance
with the Listing Rules, on 14 November
2014 the Company entered into a
relationship agreement with Wittington
and the trustees of the Foundation
containing the required undertakings
(the ‘Relationship Agreement’). Under
the terms of the Relationship Agreement,
Wittington has agreed to procure
compliance with the undertakings by
the other individuals who are treated as
controlling shareholders (the ‘Non-signing
Controlling Shareholders’). The board
confirms that, during the period
under review:

• the Company has complied with

the independence provisions included
in the Relationship Agreement;

• so far as the Company is aware,

the independence provisions included
in the Relationship Agreement have
been complied with by the controlling
shareholders and their associates; and

• so far as the Company is aware,

the procurement obligation included
in the Relationship Agreement
as regards compliance with the
independence provisions by the
Non-signing Controlling Shareholders
and their associates, has been
complied with by Wittington.

Shareholder
The Capital Group Companies, Inc.

Major interests in shares
As at 15 September 2018, the Company
had received formal notification,
under the Disclosure Guidance and
Transparency Rules, of the material
interest in its shares as shown above.

The Company was notified on
19 October 2018 that The Capital
Group Companies, Inc. had decreased
its shareholding to 39,523,864 shares,
which is 4.99% of the issued share
capital and voting rights of the Company.

Details of the Company’s controlling
shareholders for the purpose of the Listing
Rules who, as at 15 September 2018,
had a combined interest in approximately
59.15% of the voting rights in the
Company’s ordinary shares are set
out in the previous column.

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
141. The Company has one class of
share capital: ordinary shares of 515/22p.
The rights and obligations attaching to
these shares are governed by English
law and the Company’s Articles.

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 holding
or transfer of the ordinary shares other
than the standard restrictions for an
English incorporated company set out
in article 32 of the Company’s Articles.

Authority to issue shares
At the last AGM, held on 8 December
2017, 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 7 December 2018.
No such shares have been issued.
The directors propose to renew this
authority at the 2018 AGM for the
forthcoming year.

Number
of ordinary
shares
78,284,198

% of
issued
share
capital

Date of
notification
of interest
9.88 15 May 2017

A further special resolution passed at
the 2017 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 in certain
circumstances. This authority also expires
on the date of the 2018 AGM and the
directors will seek to renew this authority
for the forthcoming 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.

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,
maturing in July 2021, which was
undrawn at the year end. In the
event of a change in ownership
of the Company, the lenders
may request cancellation of the
commitment and repayment of
any outstanding amounts;

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102

DIRECTORS’ REPORT

• £573m of private placement notes
in issue to institutional investors.
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; and

• cross currency swaps in place totalling
$400m to swap a proportion of private
placement debt denominated in
US dollars to euros.

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
During the year, the Company did not
make any political donations or incur any
political expenditure (within the ordinary
meaning of those words) in the UK or
EU. However, under the wider definition
of Part 14 of the Companies Act 2006,
a subsidiary of the Company did incur
political expenditure to the approximate
value of £5,000 during the year.

Financial risk management
Details of the group’s use of financial
instruments, together with information
on our risk objectives and policies,
including the policy for hedging each
major type of forecasted transaction
for which hedge accounting is used,
and our exposure to price, credit, liquidity,
cash flow and interest rate risks, can be
found in note 24 on pages 145 to 154.

Auditor
Resolutions for the reappointment
of Ernst & Young LLP as auditor of
the Company and to authorise the
Audit committee to determine its
remuneration are to be proposed
at the forthcoming AGM.

Annual general meeting
The AGM will be held on 7 December
2018 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. All resolutions for which
notice has been given will be decided
on a poll.

On behalf of the board

Paul Lister
Company Secretary
6 November 2018

Associated British Foods plc
Registered office:
Weston Centre
10 Grosvenor Street
London
W1K 4QY
Company No. 293262

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 in Australia, 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 15 September 2018
and the date of this report and that
require disclosure are described in
note 11 on page 134 and note 21
on page 142.

Disclosure of information to auditor
Each of the directors who held office
at the date of approval of this Directors’
report confirms that:

• so far as each director is aware,

there is no relevant audit information
of which the Company’s auditor
is unaware; and

• each director has taken all the

reasonable steps that they ought
to have taken as a director to make
themself aware of any relevant audit
information and to establish that
the Company’s auditor is aware
of that information.

For these purposes, relevant audit
information means information needed
by the Company’s auditor in connection
with the preparation of its report on
pages 104 to 110.

Associated British Foods plcAnnual Report and Accounts 2018

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

103
103

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, including FRS 101
Reduced Disclosure Framework.

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 or 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.

Responsibility statement of
the directors in respect of the
annual report
We confirm that to the best of
our knowledge:

 the financial statements, prepared

in accordance with the applicable set
of accounting standards, give a true
and fair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken
as a whole; and

 the Strategic report includes a fair
review of the development and
performance of the business and
the position of the Company and
the undertakings included in the
consolidation taken as whole, together
with a description of the principal
risks and uncertainties that they face.

On behalf of the board

Michael McLintock
Chairman

George Weston
Chief Executive

John Bason
Finance Director

6 November 2018

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104

INDEPENDENT AUDITOR’S REPORT
to the members of Associated British Foods plc

Opinion
In our opinion:

• Associated British Foods plc’s group financial statements and parent company financial statements (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 15 September 2018 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 (IFRSs as adopted by the EU);

• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted

Accounting Practice; 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.

We have audited the financial statements of Associated British Foods plc, which comprise:

Group
Consolidated balance sheet as at 15 September 2018
Consolidated income statement for the 52 weeks then ended
Consolidated statement of comprehensive income for the 52 weeks
then ended
Consolidated statement of changes in equity for the 52 weeks then ended
Consolidated cash flow statement for the 52 weeks then ended
Related notes 1 to 28 to the financial statements, including a summary
of significant accounting policies

Parent company
Balance sheet as at 15 September 2018
Statement of changes in equity for the 52 weeks then ended
Related notes 1 to 10 to the financial statements, including
a summary of significant accounting policies

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the EU.
The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable
law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 101
‘Reduced Disclosure Framework’.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report below. We are independent of the group and parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report and accounts, in relation to which the
ISAs (UK) require us to report to you whether we have anything material to add or draw attention to:

• the disclosures in the annual report and accounts, set out on pages 60 to 64, that describe the principal risks and explain

how they are being managed or mitigated;

• the directors’ confirmation, set out on page 73 in the annual report and accounts, that they have carried out a robust assessment
of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency
or liquidity;

• the directors’ statement, set out on page 72 in the financial statements, about whether they considered it appropriate to adopt

the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability
to continue to do so over a period of at least 12 months from the date of approval of the financial statements;

• whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule

9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or

• the directors’ explanation, set out on page 65 in the annual report and accounts, as to how they have assessed the prospects
of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as
to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they
fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.

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105

Overview of our audit approach
Key audit matters

• Assessment of the carrying value of goodwill,
other intangible assets and property, plant
and equipment
• Tax provisions
• Revenue recognition, including the risk of

management override

Audit scope

Materiality

• We performed an audit of the complete

• We used a group materiality of £64m,

which represents 5% of profit before taxation.

financial information of 132 components and
audit procedures on specific balances for a
further 48 components.

• The components where we performed full or
specific audit procedures accounted for 91%
of profit before taxation, 89% of revenue and
88% of total assets.

Our key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Key observations
communicated to
the Audit committee

We agree with
management’s conclusion
that no impairments are
required at the year end,
based on the results of our
work. Of the group’s assets,
the portion relating to the
Allied Bakeries business
remains very sensitive
to reasonably possible
changes in key assumptions.
Management describes
these sensitivities
appropriately in the property,
plant and equipment
note to the group financial
statements, in accordance
with IAS 36. Similar
disclosures have also
been made for Azucarera,
AB Mauri and Australian
meat businesses given
their levels of sensitivities.

Risk

Our response to the risk

Assessment of the carrying value of goodwill,
other intangible assets and property, plant
and equipment (£7,379m, 2017 – £6,884m)
The group has a significant value of goodwill, other
intangible assets and property, plant and equipment
that has arisen from acquisitions and capital
investments. The UK Bakeries (£243m), AB Mauri
(£697m) and Australian meat (£146m) businesses
have all operated in challenging trading environments
in recent years.

The UK Bakeries and Australian meat businesses
operate in environments of significant retailer
pressure on price and competitor activity. AB Mauri’s
profitability has been impacted by competitive pricing
pressures in some of its businesses compounded
by macroeconomic conditions, including high inflation
rates and currency devaluations.

In 2018, lower European sugar prices contributed
to a significant reduction in profitability at Azucarera
(£317m). Given this change and the challenging
outlook, we also focused on this business in
our audit.

There is a risk that these cash generating units
(‘CGUs’) may not achieve the anticipated business
performance to support their carrying value, leading
to an impairment charge that has not been
recognised by management.

Significant judgement is required in forecasting
the future cash flows of each CGU, together with
the rate at which they are discounted.

Refer to the Audit committee report (page 77);
accounting policies (page 119); accounting
estimates and judgements (page 122); and
notes 8 and 9 to the consolidated financial
statements (pages 130 and 133).

We understood the methodology applied by management
in performing its impairment test for each of the relevant
CGUs and walked through the controls over the process.

For all CGUs we calculated the degree to which the key
inputs and assumptions would need to fluctuate before an
impairment was triggered and considered the likelihood of
this occurring. We performed our own sensitivities on the
group’s forecasts and determined whether adequate
headroom remained.

For CGUs where there were indicators of impairment or
low levels of headroom, including the four CGUs described,
we performed detailed testing to critically assess and
corroborate the key inputs to the valuations, including:

• analysing the historical accuracy of budgets to actual
results to determine whether forecast cash flows are
reliable based on past experience;

• for certain CGUs, visiting factories and analysing historical
data to better understand the operations and to assess
the ability to achieve forecast volume growth, operational
improvements and production yields;

• for certain CGUs, challenging management’s ability
to achieve both price and volume increases through
understanding and corroborating the status of customer
negotiations and analysing the impact and exposure
to changes in commodity costs;

• for certain CGUs, performing current market and historical
analysis to corroborate future price assumptions with
support from our valuation specialists;

• in conjunction with our valuation specialists, corroborating
the discount rate used by obtaining the underlying data
used in the calculation and benchmarking it against market
data and comparable organisations; and

• validating the growth rates assumed by comparing them

to economic and industry forecasts.

We assessed the disclosures in notes 8 and 9 against the
requirements of IAS 36 Impairment of Assets, in particular
in respect of the requirement to disclose further sensitivities
for CGUs where a reasonably possible change in a key
assumption would cause an impairment.

For the AB Mauri CGU, the audit procedures performed to
address this risk were performed by the group audit team.
The Australian meat, UK Bakeries and Azucarera goodwill,
operating intangible assets and property, plant and equipment
were subject to full scope audit procedures by the respective
component teams, and reviewed by the group team.

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106

INDEPENDENT AUDITOR’S REPORT

Key observations
communicated to
the Audit committee

We consider the amounts
provided to be within an
acceptable range in the
context of the group’s
overall tax exposures
and our materiality.

Based on the procedures
performed, including
those in respect of trade
deductions and rebates in
the Grocery segment, we
did not identify any evidence
of material misstatement
in the revenue recognised
in the year.

Risk

Tax provisions (included within the income
tax liability of £160m, 2017 – £170m)
The global nature of the group’s operations results in
complexities in the payment of and accounting for tax.

Management applies judgement in assessing
tax exposures in each jurisdiction, many of which
require interpretation of local tax laws.

Notably for 2018, the US Tax Cuts and Jobs Act
was signed into law. The Act is a significant
change to US tax law raising complex accounting
implications and judgements.

Our response to the risk

We understood:

• the group’s process for determining the completeness

and measurement of provisions for tax;

• the methodology for the calculation of the tax charge; and
• management’s controls over tax reporting.

The group audit team, including tax specialists, evaluated
the tax positions taken by management in each significant
jurisdiction in the context of local tax law, correspondence
with tax authorities and the status of any tax audits. Our
work utilised additional support from country tax specialists
in Australia, China, Germany, Ireland, Spain and the US.

Given this judgement, there is a risk that tax
provisions are misstated.

We assessed the group’s analysis and supporting calculations
of the impact of US tax reform for compliance with the Act.

Refer to the Audit committee report (page 78);
accounting policies (page 118); accounting estimates
and judgements (page 122); and note 5 to the
consolidated financial statements (page 128).

We assessed the group’s transfer pricing judgements,
considering the way in which we observed the group’s
businesses operating and the correspondence and
agreements reached with tax authorities.

Revenue recognition, including the risk
of management override (£15,574m,
2017 – £15,357m)
There continues to be pressure on the group to
meet expectations and targets. Management reward
and incentive schemes based on achieving profit
targets may also place pressure to manipulate
revenue recognition.

The majority of the group’s sales arrangements are
generally straightforward, being on a point of sale
basis and requiring little judgement to be exercised.
However, in the Grocery segment, management
estimates the level of trade promotions and rebates
to be applied to its sales to customers, adding a level
of judgement to revenue recognition. Approximately
3% (2017 – 3%) of the group’s gross revenue is
subject to such arrangements.

There is a risk that management may override
controls to intentionally misstate revenue
transactions, either through the judgements made
in estimating rebates in the Grocery segment or
by recording fictitious revenue transactions across
the business.

Refer to the accounting policies (page 117); and
note 1 to the consolidated financial statements
(pages 123 to 125).

We understood each business’s revenue recognition policies
and how they are applied, including the relevant controls, and
tested controls over revenue recognition where appropriate.

We discussed key contractual arrangements with
management and obtained relevant documentation, including
in respect of rebate and returns arrangements. Where rebate
arrangements existed, on a sample basis we obtained third-
party confirmations or performed appropriate alternative
procedures, including review of contracts and recalculation
of rebates. We also performed hindsight analysis over
changes to prior period rebate estimates to challenge the
assumptions made, including assessing the estimates for
evidence of management bias.

For a number of businesses, including Primark, as part of our
overall revenue recognition testing we used data analysis tools
on 100% of revenue transactions in the year to test the
correlation of revenue to cash receipts to verify the occurrence
of revenue. This provided us with a high level of assurance over
£12.3bn (79%) (2017 – £10.8bn (71%)) of revenue recognised
by the group. For those in-scope businesses where we did not
use data analysis tools, we performed appropriate alternative
procedures over revenue recognition.

We performed cut-off testing for a sample of revenue
transactions around the period end date, to check that they
were recognised in the appropriate period.

We performed other audit procedures specifically designed to
address the risk of management override of controls including
journal entry testing, applying particular focus to the timing of
revenue transactions.

We assessed the disclosures against the requirements of
IAS 18 Revenue, in particular in respect of the requirement
to disclose rebate and returns arrangements.

We reviewed the group’s IFRS 15 impact assessment
and related disclosures for completeness and compliance
with IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors.

We performed full and specific scope audit procedures
over this risk area in 92 locations, which covered 89%
of the group’s revenue.

The key audit matters set out in the table above are consistent with those reported in 2017, with the exception of the removal
of ‘Changes in finance systems and processes, including the capitalisation of system implementation costs’ following the Oracle
Financials system implementation in Primark in 2017. The risk associated with this particular aspect of the system implementation
is no longer relevant in 2018.

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Involvement with component teams

In establishing our overall approach to
the group audit, we determined the type
of work that needed to be undertaken
at each of the components, as the group
audit team, or by component auditors
from other EY global network firms
or by other auditors operating under
our instruction. Of the 132 full scope
components, audit procedures were
performed on 80 of these directly by the
group audit team and 52 by component
audit teams. For the 48 specific scope
components, where the work was
performed by component auditors,
we determined the appropriate level of
involvement to enable us to determine
that sufficient audit evidence had been
obtained as a basis for our opinion on
the group as a whole.

During the period the Senior Statutory
Auditor or other members of the group
audit team visited 37 full and specific
components in Argentina, Australia,
Brazil, China, Finland, Ireland, Italy,
the UK, the US, Spain and South Africa.

These visits involved meeting with
our component team to discuss and
direct its audit approach, reviewing
and understanding the significant
audit findings in response to the risk
areas including asset impairment, tax
provisions and revenue recognition,
holding meetings with local
management, undertaking factory
tours and obtaining updates on IT
systems implementations and local
regulatory matters including tax,
pensions and legal. The group audit
team interacted regularly with the
component teams where appropriate
during various stages of the audit,
reviewed key working papers and were
responsible for the scope and direction
of the audit process. This, together with
the additional procedures performed
at group level, gave us appropriate
evidence for our opinion on the
group financial statements.

The scope of our audit
Tailoring the scope

Our assessment of audit risk, our evaluation of materiality
and our allocation of performance materiality determine
our audit scope for each entity within the group. Taken
together, this enables us to form an opinion on the
consolidated financial statements. We take into account
the level of revenue and profit before taxation, risk profile
(including country risk, controls and internal audit findings
and the extent of changes in management, systems and
processes and the business environment) and other known
factors when assessing the level of work to be performed
at each entity.

In assessing the risk of material misstatement to the group
financial statements and to achieve adequate quantitative
coverage of significant accounts in the financial statements,
of the 644 reporting components of the group, we selected
180 components, which represent the principal business
units within the group.

Of the 180 components selected, we performed an audit
of the complete financial information of 132 components
(‘full scope components’) which were selected based
on their size or risk characteristics. For the remaining
48 components (‘specific scope components’), we
performed audit procedures on specific accounts within
those components that we considered had the potential
for the greatest impact on the significant accounts in the
financial statements either because of the size of these
accounts or their risk profile.

The reporting components where we performed full
and specific scope procedures accounted for 90% of the
group’s profit before taxation (2017 – 92%), 90% of the
group’s revenue (2017 – 89%) and 89% of the group’s
total assets (2017 – 86%). For the current period, the full
scope components contributed 74% of the group’s profit
before taxation (2017 – 82%), 79% of the group’s revenue
(2017 – 80%) and 79% of the group’s total assets
(2017 – 75%). The specific scope components contributed
16% of the group’s profit before taxation (2017 – 11%),
11% of the group’s revenue (2017 – 9%) and 10% of the
group’s total assets (2017 – 11%). The audit scope of these
components may not have included testing of all significant
accounts of the component but will have contributed to
the coverage of significant accounts tested for the group.

Of the remaining 464 components (2017 – 421) that
together represent 10% of the group’s profit before taxation
(2017 – 7%), none are individually greater than 1% of the
group’s profit before taxation. For these components, we
performed other procedures, including analytical review,
testing of consolidation journals and intercompany
eliminations and foreign currency translation recalculations
to respond to any potential risks of material misstatement
to the group financial statements.

The charts illustrate the coverage obtained from the work
performed by our audit teams.

Profit before taxation

Full scope components
Speciﬁc scope components
Other procedures

74%
16%
10%

Revenue

Full scope components
Speciﬁc scope components
Other procedures

79%
11%
10%

Total assets

Full scope components
Speciﬁc scope components
Other procedures

79%
10%
11%

Associated British Foods plcAnnual Report and Accounts 2018Governance

108
108

INDEPENDENT AUDITOR’S REPORT

Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.

Materiality – ‘The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected
to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature
and extent of our audit procedures.’

We determined materiality for the group to be £64m, which is 5% of profit before taxation. We believe that profit before taxation
provides us with the most relevant performance measure to the stakeholders of the group. In 2017, we used a materiality level
of £60m, based on 5% of normalised profit before taxation, which was profit before taxation adjusted for £293m of profits less
losses on sale and closure of businesses. In 2017, this normalised profit before taxation provided the most relevant performance
measure, as the profits less losses on sale and closure of businesses were non-recurring and not related to the ongoing trading
of the group. There are no equivalent items in 2018.

Performance materiality – ‘The application of materiality at the individual account or balance level. It is set at an amount to reduce
to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.’

On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement
was that performance materiality was 75% of our planning materiality, namely £48m (2017 – 75% of planning materiality,
being £45m).

Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts
is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is
based on the relative scale and risk of the component to the group as a whole and our assessment of the risk of misstatement
at that component. In the current period, the range of performance materiality allocated to components was £1m to £22m
(2017 – £1m to £20m).

Reporting threshold – ‘An amount below which identified misstatements are considered as being clearly trivial.’

We agreed with the Audit committee that we would report to them all uncorrected audit differences in excess of £1m
(2017 – £1m), which is 2% of planning materiality, as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in
light of other relevant qualitative considerations in forming our opinion.

Other information
The other information comprises the information included in the annual report and accounts set out on pages 1 to 103,
other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information.

Our opinion on the financial statements does not cover the other information and, accordingly, except to the extent otherwise
explicitly stated in this report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements,
we are required to determine whether there is a material misstatement in the financial statements or a material misstatement
of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the
other information, we are required to report that fact.

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items
meet the following conditions:

 Fair, balanced and understandable, set out on page 103 – the statement given by the directors that they consider the

annual report and accounts 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, is materially inconsistent with our knowledge
obtained in the audit; or

Associated British Foods plcAnnual Report and Accounts 2018

109
109

 Audit committee reporting, set out on pages 76 to 79 – the section describing the work of the Audit committee does not

appropriately address matters communicated by us to the Audit committee; or

 Directors’ statement of compliance with the UK Corporate Governance Code, set out on page 68 – the parts of the

directors’ statement required under the Listing Rules relating to the company’s compliance with the UK Corporate Governance
Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose
a departure from a relevant provision of the UK Corporate Governance Code.

Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

 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; and

 the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the strategic report or the directors’ report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us 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 directors’ 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.

Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, set out on page 103, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group and company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the group or the company or to cease operations, or has no realistic alternative
but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.

The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial
statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement
due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected
fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both
those charged with governance of the entity and management.

Our approach was as follows:

 We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the
most significant frameworks which are directly relevant to specific assertions in the financial statements are those that relate
to the reporting framework (IFRS, FRS 101, the Companies Act 2006 and UK Corporate Governance Code) and the relevant
tax compliance regulations in the jurisdictions in which the group operates. In addition, we concluded that there are certain
significant laws and regulations which may have an effect on the determination of the amounts and disclosures in the financial
statements being the Listing Rules of the UK Listing Authority, and those laws and regulations relating to health and safety,
employee matters, food standards and food safety.

Associated British Foods plcAnnual Report and Accounts 2018Governance

110
110

INDEPENDENT AUDITOR’S REPORT

 We understood how the group is complying with those frameworks by making enquiries of management, internal audit, those

responsible for legal and compliance procedures and the company secretary. We corroborated our enquiries through our review
of board minutes, papers provided to the Audit committee and correspondence received from regulatory bodies.

 We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur,
by meeting with management from various parts of the business to understand where it considered there was susceptibility
to fraud. We also considered performance targets and their influence on efforts made by management to manage earnings
or influence the perceptions of analysts. We considered the programs and controls that the group has established to address
risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those programs and
controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk.
These procedures included testing manual journals and were designed to provide reasonable assurance that the financial
statements were free from fraud or error.

 Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations

identified in the paragraphs above. Our procedures involved: journal entry testing, with a focus on manual consolidation journals
and journals indicating large or unusual transactions based on our understanding of the business; enquiries of legal counsel,
group management, internal audit, divisional management and all full and specific scope management; and focused testing,
as referred to in the key audit matters section above.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters we are required to address
 Following the recommendation of the Audit committee, we were appointed as auditor by the shareholders and signed an

engagement letter on 13 April 2018. We were appointed by the company at the AGM on 8 December 2017 to audit the financial
statements for the 52 weeks ending 15 September 2018 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments is three years, from the 53 weeks ended 17 September 2016
until the 52 weeks ended 15 September 2018.

 The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the company and we remain

independent of the group and the company in conducting the audit.

 The audit opinion is consistent with the additional report to the Audit committee.

Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.

Andrew Walton (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor

London

6 November 2018

Associated British Foods plcAnnual Report and Accounts 2018

CONSOLIDATED INCOME STATEMENT
for the 52 weeks ended 15 September 2018

111
111

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
Acquired inventory fair value adjustments
Transaction costs

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
Acquired inventory fair value adjustments
Transaction costs
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

2018
£m

15,574
(14,290)
1,284
54
6
1,344

2017
£m
15,357
(14,090)
1,267
63
6
1,336

8
2
2

4
4
4

8
2
2
21

7
6

1,404
6
(41)
(23)
(2)

(34)
1,310
15
(50)
4
1,279

1,373
6
(41)
(23)
(2)
(34)

(105)
(152)
(257)
1,022

1,007
15
1,022

127.5
45.0

1,363
6
(28)
–
(5)

293
1,629
9
(59)
(3)
1,576

1,310
6
(28)
–
(5)
293

(62)
(303)
(365)
1,211

1,198
13
1,211

151.6
41.0

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

112
112

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the 52 weeks ended 15 September 2018

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 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
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

2018
£m

1,022

2017
£m

1,211

310
(53)
257

(85)
(10)
1
–
–
55
(12)
(51)

206

438
(77)
361

61
(9)
(2)
(1)
(28)
(8)
–
13

374

1,228

1,585

1,215
13
1,228

1,573
12
1,585

Associated British Foods plcAnnual Report and Accounts 2018

CONSOLIDATED BALANCE SHEET
at 15 September 2018

113
113

Non-current assets
Intangible assets
Property, plant and equipment
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
Current asset investments
Income tax
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
Other payables
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

8
9
10
10
11
12
13

14
15
13
24
23

17
18
24

17
18
19
12
11

20
20
20
20

2018
£m

1,632
5,747
219
47
579
133
50
8,407

2,187
84
1,436
132
30
54
1,362
5,285
13,692

(419)
(2,529)
(52)
(160)
(88)
(3,248)

(359)
(269)
(52)
(324)
(144)
(1,148)
(4,396)
9,296

45
175
363
13
8,615
9,211
85
9,296

2017
£m

1,414
5,470
210
44
285
143
54
7,620

2,101
90
1,342
79
–
28
1,550
5,190
12,810

(265)
(2,500)
(113)
(170)
(105)
(3,153)

(612)
(216)
(27)
(231)
(159)
(1,245)
(4,398)
8,412

45
175
456
(31)
7,694
8,339
73
8,412

The financial statements on pages 111 to 164 were approved by the board of directors on 6 November 2018 and were signed on
its behalf by:

Michael McLintock
Chairman

John Bason
Finance Director

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

114
114

CONSOLIDATED CASH FLOW STATEMENT
for the 52 weeks ended 15 September 2018

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
Transaction costs
Finance income
Finance expense
Other financial (income)/expense
Share of profit after tax from joint ventures and associates
Amortisation
Depreciation
Acquired inventory fair value adjustments
Net change in the fair value of current biological assets
Share-based payment expense
Pension costs less contributions
Increase in inventories
Increase in receivables
(Decrease)/increase in payables
Purchases less sales of current biological assets
Decrease in provisions
Cash generated from operations
Income taxes paid
Net cash from operating activities

Cash flows from investing activities
Dividends received from joint ventures and associates
Purchase of property, plant and equipment
Purchase of intangibles
Sale of property, plant and equipment
Purchase of subsidiaries, joint ventures and associates
Sale of subsidiaries, joint ventures and associates
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
(Decrease)/increase in short-term loans
Increase/(decrease) in long-term loans
Increase in current asset investments
Purchase of shares in subsidiary undertaking from non-controlling interests
Sale of shares in subsidiary undertakings to non-controlling interests
Movements from changes in own shares held
Net cash from financing activities

Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of movements in foreign exchange
Cash and cash equivalents at the end of the period

2018
£m

2017
£m

1,279
(6)
34
2
(15)
50
(4)
(54)
65
509
23
5
19
4
(35)
(99)
(19)
(1)
(30)
1,727
(297)
1,430

42
(787)
(81)
23
(208)
1
10
(1,000)

(4)
(327)
(50)
(111)
19
(30)
(1)
1
(30)
(533)

(103)
1,386
(12)
1,271

1,576
(6)
(293)
3
(9)
59
3
(63)
57
514
–
–
21
12
(40)
(2)
168
(2)
(1)
1,997
(356)
1,641

69
(823)
(43)
49
(79)
452
8
(367)

(4)
(299)
(59)
49
(9)
–
(3)
–
(10)
(335)

939
462
(15)
1,386

Associated British Foods plcAnnual Report and Accounts 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the 52 weeks ended 15 September 2018

115
115

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
equity
£m

175

433

(22) 6,423 7,054

68 7,122

Balance as at 17 September 2016
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

on subsidiaries disposed

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
Deferred tax associated with share-based payments
Current tax associated with share-based payments
Dividends paid to non-controlling interests
Acquisition and disposal of non-controlling interests
Total transactions with owners
Balance as at 16 September 2017

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 loss on hedge of net investment in foreign subsidiaries
Deferred tax associated with movements in foreign exchange
Movement in cash flow hedging position
Deferred tax associated with movement in cash flow

hedging position

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
Deferred tax associated with share-based payments
Dividends paid to non-controlling interests
Acquisition and disposal of non-controlling interests
Total transactions with owners
Balance as at 15 September 2018

–

–
–
–

–
–
–
–

–
–

–
–
–

–
–
–
–
–
–
–
45

–

–
–
–

–
–
–
–

–

–
–
–

–
–
–
–
–
–
45

–

–
–
–

–
–
–
–

–
–

–
–
–

–
–
–
–
–
–
–
175

–

–
–
–

–
–
–
–

–

–
–
–

–
–
–
–
–
–
175

–

–
–
–

63
(9)
(2)
(1)

(28)
–

23
23
23

–
–
–
–
–
–
–
456

–

–
–
–

(83)
(10)
1
(1)

–

–
–
–

–
–
–
–

–
(9)

1,198 1,198

13 1,211

438
(77)
361

–
–
–
–

–
–

438
(77)
361

63
(9)
(2)
(1)

(28)
(9)

–
–
–

(2)
–
–
–

–
1

438
(77)
361

61
(9)
(2)
(1)

(28)
(8)

14
–
(9)
(9)
375
361
(9) 1,559 1,573

13
(1)
(1)
374
12 1,585

–
–
–
–
–
–
–

(299)
(299)
11
11
1
1
(1)
(1)
–
–
–
–
(288)
(288)
(31) 7,694 8,339

(299)
–
11
–
1
–
(1)
–
(4)
(4)
(3)
(3)
(7)
(295)
73 8,412

1,007 1,007

15 1,022

–

–
–
–

–
–
–
56

310
(53)
257

–
–
–
–

–

(83)
(10)
1
55

(12)

–

(12)

(93)
(93)
(93)

–
–
–
–
–
–
363

44
44
44

–
–
–
–
–
–
13

–
257

(49)
208
1,264 1,215

(327)
(11)
(1)
–
(4)
(343)

(327)
(11)
(1)
–
(4)
(343)
8,615 9,211

–
–
–

(2)
–
–
–

310
(53)
257

(85)
(10)
1
55

–

(12)

(51)
(2)
(2)
206
13 1,228

(327)
–
(11)
–
(1)
–
(5)
(5)
–
4
(344)
(1)
85 9,296

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

116

SIGNIFICANT ACCOUNTING POLICIES
for the 52 weeks ended 15 September 2018

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 15 September
2018 comprise those of the Company
and its subsidiaries (together referred to
as ‘the group’) and the group’s interest
in joint ventures and associates.

The consolidated financial statements
were authorised for issue by the directors
on 6 November 2018.

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 Financial Reporting Standard 101
Reduced Disclosure Framework. These
are presented on pages 165 to 171.

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
current biological assets and certain
financial instruments are stated at fair
value. Assets classified as held for
sale are stated at the lower of carrying
amount and fair value less costs to sell.

The 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 122.

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
15 September 2018 (2017 – 52 weeks
ended 16 September 2017). 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 each year. Adjustments
are made as appropriate for significant
transactions or events occurring between
15 September and these other balance
sheet dates.

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 49. The financial position
of the group, its cash flows, liquidity
position and borrowing facilities are
described in the Financial review on
pages 50 and 51. In addition, the Principal
risks and uncertainties on pages 60 to 64
and note 24 on pages 145 to 154 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.

Subsidiaries are entities controlled by
the Company. Control exists when the
Company has the power, directly or
indirectly, to direct the activities of an
entity so as to significantly affect the
returns of that entity.

Changes in the group’s ownership
interest in a subsidiary that do not result
in a loss of control are accounted for
within equity.

All the group’s joint arrangements are
joint ventures, which are 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, being
the power to participate in the financial
and operating policy decisions of the
entity, but which does not amount to
control or joint control.

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.

Control, joint control and significant
influence are generally assessed by
reference to equity shareholdings and
voting rights.

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.

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.

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117

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 transaction 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 value of sales
made to customers after deduction of
discounts, sales taxes and a provision for
returns. 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.

In the food businesses, revenue from
the sale of goods is generally recognised
on dispatch or delivery to customers,
dependent on shipping terms. Discounts
and returns are provided for as a
reduction to revenue when sales are
recorded, based on management’s best
estimate of the amount required to meet
claims by customers, taking into account
contractual and legal obligations,
historical trends and past experience.

In the retail business, revenue from
the sale of goods is recognised when
the customer purchases goods in store.
Returns are provided for as a reduction
to revenue when sales are recorded,
based on management’s best estimate
of the amount required to meet claims by
customers, taking into account historical
trends and past experience.

Borrowing costs
Borrowing costs are accounted for
using the effective interest method.
The group capitalises borrowing costs
directly attributable to the acquisition,
construction or production of qualifying

items of property, plant and equipment
as part of their cost. 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.

Adjusted profit and earnings
measures
Adjusted operating profit is stated before
amortisation of non-operating intangibles,
transaction costs, amortisation of fair
value adjustments made to acquired
inventory and profits less losses on
disposal of non-current assets. Adjusted
profit before tax is stated before
amortisation of non-operating intangibles,
transaction costs, amortisation of fair
value adjustments made to acquired
inventory, profits less losses on disposal
of non-current assets and profits less
losses on sale and closure of businesses.
Both measures are shown on the face
of the income statement.

Adjusted earnings and adjusted earnings
per share are shown in the notes and
are stated before amortisation of non-
operating intangibles, transaction costs,
amortisation of fair value adjustments
made to acquired inventory, profits less
losses on disposal of non-current assets
and profits less losses on sale and
closure of businesses together with
the related tax effect.

Items as defined above which arise in
the group’s joint ventures and associates
are also treated as adjusting items for
the purposes of adjusted operating profit
and adjusted profit before tax. These
items are identified in the relevant notes.

Constant currency
Constant currency is derived by
translating the prior year results at
current year average exchange rates.

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
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 group’s pension arrangements
comprise defined benefit plans, 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 remeasurements 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 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.

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118
118

SIGNIFICANT ACCOUNTING POLICIES
for the 52 weeks ended 15 September 2018

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 equity.

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 non-current
other 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 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.
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 10 years
Grower agreements – up to 10 years

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119

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.

Current biological assets
Current biological assets are measured
at fair value less costs to sell.

The basis of valuation for growing cane
is estimated sucrose content valued at
estimated sucrose price for the following
season, less estimated costs for
harvesting and transport.

When harvested, growing cane is
transferred to inventory at fair value
less costs to sell.

Inventories
Inventories are stated at the lower
of cost and net realisable value. Cost
includes raw materials, direct labour and
expenses and an appropriate proportion
of production and other overheads,
calculated on a first-in first-out basis.

Inventories for the retail businesses
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 retail
inventories are finished goods.

Inventories recorded on the acquisition
of a business are recognised at fair value.
The book value of such inventories is
charged to adjusted operating profit as
they are sold or used. Any fair value
uplift, if significant, is charged below
operating profit as the inventories are
sold or used.

New accounting policies
The following accounting standards
and amendments were adopted during
the year and had no significant impact on
the group:

 Amendments to IAS 12 Recognition

of Deferred Tax Assets for
Unrealised Losses

 Amendments to IAS 7 Disclosures

Initiative

 Annual Improvements to IFRS

Standards 2014 – 2016

Goodwill
Goodwill is defined under ‘Business
combinations’ on page 117. 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 least annually.

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, estimated future cash flows
are discounted to 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, 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:

up to 66 years

Freehold buildings
Plant and equipment, fixtures and fittings
– sugar factories,
yeast plants,
mills and bakeries

– other operations
Vehicles
Sugar cane roots

up to 20 years
up to 12 years
up to 10 years
up to 10 years

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
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.

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120

SIGNIFICANT ACCOUNTING POLICIES
for the 52 weeks ended 15 September 2018

The group is assessing the impact of the
following standards, interpretations and
amendments that are not yet effective.
Where already endorsed by the EU,
these changes will be adopted on the
effective dates noted. Where not yet
endorsed by the EU, the adoption date
is less certain:

 Amendments to References to

the Conceptual Framework in IFRS
Standards effective 2021 financial
year (not yet endorsed by the EU)

 Annual Improvements to IFRS

Standards 2014 – 2016 effective
2019 financial year

 IFRS 9 Financial Instruments:

Classification and Measurement
effective 2019 financial year

 IFRS 15 Revenue from Contracts
with Customers effective 2019
financial year

 Clarifications to IFRS 15 Revenue from
Contracts with Customers effective
2019 financial year

 IFRS 16 Leases effective 2020

financial year

 IFRS 17 Insurance Contracts effective
2022 financial year (not yet endorsed
by the EU)

 IFRIC 22 Foreign Currency
Transactions and Advance
Consideration effective 2019
financial year

 IFRIC 23 Uncertainty over Income
Tax Treatments effective 2020
financial year (endorsed by the
EU October 2018)

 Amendments to IFRS 2 Classification
and Measurement of Share-based
Payment Transactions effective 2019
financial year

 Amendments to IFRS 3 Definition

of a Business effective 2021 financial
year (published October 2018, not yet
endorsed by the EU)

 Amendments to IFRS 4 Applying
IFRS 9 Financial Instruments with
IFRS 4 Insurance Contracts effective
2019 financial year

 Amendments to IFRS 9 Prepayment

Features with Negative Compensation
effective 2020 financial year

 Amendments to IAS 19 Plan
Amendment, Curtailment or
Settlement effective 2020 financial
year (not yet endorsed by the EU)

 Amendments to IAS 28 Long-term
Interests in Associates and Joint
Ventures effective 2020 financial
year (not yet endorsed by the EU)

 Annual Improvements to IFRS

Standards 2015 – 2017 effective
2020 financial year (not yet endorsed
by the EU)

The three new standards with the most
significant potential effect on the group’s
financial statements are IFRS 9, IFRS 15
and IFRS 16, further details of which are
set out below. The impact of the other
standards effective in 2019 and beyond
have not yet been fully assessed.

IFRS 9 Financial Instruments:
Classification and Measurement
IFRS 9 replaces IAS 39 Financial
Instruments: Recognition and
Measurement. It includes requirements
for recognition and measurement,
impairment, derecognition and general
hedge accounting.

The standard introduces changes to
three key areas:

 new requirements for the classification

and measurement of financial
instruments;

 a new impairment model based on

expected credit losses for recognising
provisions (compared to IAS 39, which
used an incurred loss model); and

 simplified hedge accounting through
closer alignment with an entity’s risk
management methodology.

Financial assets are classified using
a principles-based approach in three
measurement categories: amortised
cost, fair value through other
comprehensive income or fair value
through profit or loss. Classification is
performed on initial recognition of the
asset based on the characteristics
of the asset and the local business
model. The vast majority of the group’s
financial assets are currently recorded
at amortised cost and this will continue
to be the case.

For financial liabilities, there are
no significant classification and
measurement changes compared
to IAS 39.

The new principles for hedge accounting
provide a more flexible framework for
hedge accounting which is better aligned

with the economic decision-making of
the group. This should result in the group
being able to achieve hedge accounting
on a wider range of transactions than
under IAS 39. The IAS 39 effectiveness
test has been replaced with the
‘economic relationship’ principle.
Retrospective assessment of hedge
effectiveness is no longer necessary.
IFRS 9 also requires additional
disclosures concerning risk management
and the effects of hedge accounting.

The group has completed a groupwide
impact assessment across these
three key areas, supported by external
resource, involving each of the
group’s businesses. As a result of this
assessment, the group has concluded
that the adoption of IFRS 9 will not
have a significant impact on either the
group’s results or financial position.

IFRS 9 applies retrospectively to all
periods presented, but with substantial
transition provisions to consider,
including not being required to restate
comparative information.

The group will adopt IFRS 9 on
16 September 2018 and apply it for
the first time in the 2019 financial
year, without restating comparative
information. The group does not
expect to record a significant transition
in opening retained earnings.

IFRS 15 Revenue from Contracts
with Customers
IFRS 15 establishes a principles-based
approach to recognising revenue only
when performance obligations are
satisfied and control of the related goods
or services is transferred. It addresses
items such as the nature, amount,
timing and uncertainty of revenue and
cash flows arising from contracts with
customers. IFRS 15 replaces IAS 18
and other related requirements.

IFRS 15 applies a five-step approach
to the timing of revenue recognition
and applies to all contracts with
customers except those in the
scope of other standards.

Step 1

Identify the contract(s) with

a customer

Step 2

Identify the performance

obligations in the contract

Step 3 Determine the transaction price
Step 4 Allocate the transaction price to
the performance obligations
in the contract

Step 5 Recognise revenue when

(or as) the entity satisfies
a performance obligation

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121

The group has completed a groupwide
impact assessment, utilising external
resource to support local management
where necessary. The assessment
included areas that required additional
specific consideration, including
rights of return and principal vs agent
considerations. The group’s revenue
recognition processes are generally
straightforward, with recognition of
revenue at the point of sale and little
significant judgement required in
determining the timing of transfer
of control.

The impact assessment concluded that
IFRS 15 would result in no change
to the timing of revenue or the timing
or amount of profit recognised. The
only impact on the amount of revenue
recognised was some £30m of operating
expenses which under IFRS 15 will be
deducted from revenue.

The group will adopt IFRS 15 on
16 September 2018 and apply it for
the first time in the 2019 financial year.
IFRS 15 will be adopted retrospectively
without the requirement to restate
comparative information. IFRS 15 will
have no impact on the group’s reported
profits. No cumulative adjustment to
recognise the impact of applying IFRS 15
as at 16 September 2018 is required.

IFRS 16 Leases
IFRS 16 introduces a new model for the
identification of leases and accounting for
lessors and lessees. It replaces IAS 17
Leases and other related requirements.
The group will adopt IFRS 16 on
15 September 2019 and apply it for the
first time in the 2020 financial year.

IFRS 16 distinguishes leases from
service contracts on the basis of control
of an identified asset. For lessees,
it removes the previous accounting
distinction between (off-balance sheet)
operating leases and (on-balance sheet)
finance leases and introduces a single
model recognising a lease liability and
corresponding right-of-use asset for all
leases except for short-term leases and
leases of low-value assets.

For lessors, IFRS 16 substantially retains
existing accounting requirements and
continues to require classification of
leases either as operating or finance
in nature.

The group has engaged external experts
to support its implementation project
and established a steering committee
to oversee its governance, which
reports regularly to the Audit committee.
During the current period, the group
performed a detailed groupwide impact
assessment which identified that most
existing operating lease arrangements
meet the revised definition of a lease.

The group has made progress in a
number of project areas, including
identification of leases and areas of
complexity or judgement, collation of
lease data, identification of changes to
systems and processes for internal and
external reporting, and the development
of initial estimates for discount rates.

IFRS 16 permits a choice of transitional
approaches: a fully retrospective
approach with an adjustment made
to the opening retained earnings of
the comparative period; or a modified
retrospective approach where the
cumulative effect of initial application
is recognised at the date of initial
application without restating
prior periods.

The age, size and complexity of the
group’s lease portfolio means that it
would either be impossible or extremely
costly and difficult to collate sufficient
information to apply the fully
retrospective approach. The group
has therefore determined to adopt
the modified retrospective approach.

The group will provide a further update
in the 2019 interim results and annual
report, when indicative details of the
impact on opening retained earnings
will be provided. The first results
published under IFRS 16 will be
the 2020 interim results.

Impact on the group’s results
and financial position
The impact of IFRS 16 on the
group’s results and financial position
is dependent on completion of the
work areas described above, and on the
facts and circumstances at the time of
transition. It will not include restatement
of prior periods. For these reasons, it is
not yet practicable to determine a reliable
estimate of the precise impact on the
group, but the impact is expected to
be significant.

Lease liabilities are measured initially
at the present value of lease payments
yet to be paid, subsequently adjusted
for interest and lease payments as well
as a number of other changes to lease
provisions. Lease liabilities will be
included in net debt.

Right-of-use assets are measured
initially at cost (including the value of
the lease liability) and subsequently at
cost less accumulated depreciation and
any impairment losses, adjusted for
any remeasurement of the lease liability.
Right-of-use assets will be reported
as non-current assets.

There is no change to overall cash
flows. Operating lease payments were
previously presented as operating cash
flows and finance lease payments were
allocated between payments of principal
and interest within financing cash flows.
Under IFRS 16, lease payments are
split between payments of principal
and interest, presented as financing
cash flows.

Operating lease expenses previously
charged to operating profit will be
replaced by depreciation of right-of-
use assets (within operating profit) and
interest cost (within finance expense).
Although the aggregate income
statement impact of each lease over its
life will not change, the generally straight-
line profile of operating lease expenses
will be more front-loaded under IFRS
16 because of the interest on the
lease liability.

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

122

SIGNIFICANT ACCOUNTING POLICIES
for the 52 weeks ended 15 September 2018

IFRS 16 will affect a number of financial statement captions and ratios, including the following:

Item
Earnings

Operating profit/
operating margin

Comment
Based on our impact assessment, the group expects a marginal impact on earnings, it is not yet possible

to predict reliably what this might be. There will be a consequent impact on dividend cover.

Operating profit and operating margin are expected to increase significantly as operating lease expenses

are replaced by depreciation of right-of-use assets.

Finance expense

Finance expense is expected to increase significantly as a result of the interest cost on lease liabilities.

Taxation

Taxation will change in line with the changes in profit before tax.

Interest cover will therefore reduce.

Non-current assets

Non-current assets will increase very significantly as the right-of-use assets are recorded alongside property,

plant and equipment.

Net debt

Net debt will increase very significantly as lease liabilities are recorded within current and non-current

Return on capital
employed

liabilities. Gearing ratios will therefore increase. The reconciliation of net debt will include more non-cash
items as new leases are entered into.

The return on capital employed will reduce as a result of the changes to operating profit and non-current

assets. It is not yet possible to predict reliably what this might be.

Cash flow statement

There is no overall impact on cash flow, but classifications of cash flows will change, as set out above.

The group will reassess its incentive arrangements to align targets with the new accounting requirements.

IFRS 16 is expected to have the most significant impact on the Retail segment given the number of significant store leases
to which Primark is a party.

For finance leases where the group is a lessee, the group expects no significant impact.

The group’s current leasing disclosures are given in note 25 of this annual report.

ACCOUNTING ESTIMATES AND JUDGEMENTS
for the 52 weeks ended 15 September 2018

In applying the accounting policies
detailed on pages 116 to 122,
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 asset of £435m
being recognised as at 15 September
2018. The size of this net asset 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 11.

Biological assets
In valuing growing cane, estimating
sucrose content requires management
to assess expected cane and sucrose
yields for the following season
considering weather conditions and
harvesting programmes. Estimating
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 15.

Taxation
The group makes provision for open
tax issues including, in a number of
jurisdictions, routine tax audits which
are by nature complex and can
take a number of years to resolve.
Provisions are based on management’s
interpretation of tax law in each country
and ongoing monitoring of the outcome
of EU cases and investigations on tax
rulings, and reflect the best estimate
of the liability. The group believes it
has made adequate provision for
such matters.

Associated British Foods plcAnnual Report and Accounts 2018

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

123
123123

1. Operating segments
The group has five operating segments,
as described below. These are the
group’s operating divisions, based on
the management and internal reporting
structure, which combine businesses
with common characteristics, primarily
in respect of the type of products offered
by each business, but also the production
processes involved and the manner
of the distribution and sale of goods.
The board is the chief operating
decision-maker.

Inter-segment pricing is determined on
an arm’s length basis. Segment result is
adjusted operating profit, as shown on the
face of the consolidated income statement.
Segment assets comprise all non-current
assets except employee benefits assets
and deferred tax assets, and all current
assets except cash and cash equivalents,
current asset investments and income
tax assets. Segment liabilities comprise
trade and other payables, derivative
liabilities and provisions.

Segment results, assets and liabilities
include items directly attributable to
a segment as well as those that can
be allocated on a reasonable basis.
Unallocated items comprise mainly
corporate assets and expenses, cash,
borrowings, employee benefits balances
and current and deferred tax balances.
Segment non-current asset additions
are the total cost incurred during the
period to acquire segment assets that
are expected to be used for more than
one year, comprising property, plant
and equipment, operating intangibles
and biological assets.

Businesses disposed are shown
separately and comparatives have
been re-presented for businesses
sold or closed during the year.

The group is comprised of the following
operating segments:

Grocery
The manufacture of grocery products,
including hot beverages, sugar &
sweeteners, vegetable oils, balsamic
vinegars, bread & baked goods, cereals,
ethnic foods, and meat products,
which are sold to retail, wholesale
and foodservice businesses.

Sugar
The growing and processing of sugar
beet and sugar cane for sale to industrial
users and to Silver Spoon, which is
included in the Grocery segment.

Agriculture
The manufacture of animal feeds and
the provision of other products and
services for the agriculture sector.

Ingredients
The manufacture of bakers’ yeast,
bakery ingredients, enzymes, lipids,
yeast extracts and cereal specialities.

Retail
Buying and merchandising value clothing
and accessories through the Primark
and Penneys retail chains.

Geographical information
In addition to the required disclosure for operating segments, disclosure is also given of certain geographical information about
the group’s operations, based on the geographical groupings: United Kingdom; Europe & Africa; The Americas; and Asia Pacific.

Revenues are shown by reference to the geographical location of customers. Profits are shown by reference to the geographical
location of the businesses. Segment assets are based on the geographical location of the assets.

Operating segments
Grocery
Sugar
Agriculture
Ingredients
Retail
Central

Businesses disposed:
Grocery
Sugar
Agriculture
Ingredients

Geographical information
United Kingdom
Europe & Africa
The Americas
Asia Pacific

Businesses disposed:
United Kingdom
Europe & Africa
The Americas
Asia Pacific

Revenue

2018
£m

Adjusted
operating profit

2017
£m

2018
£m

2017
£m

3,420
1,730
1,350
1,467
7,477
–
15,444

–
128
1
1
15,574

5,863
5,851
1,533
2,197
15,444

66
62
1
1
15,574

3,381
2,034
1,191
1,492
7,053
–
15,151

53
140
12
1
15,357

5,622
5,805
1,538
2,186
15,151

80
60
53
13
15,357

335
123
59
143
843
(64)
1,439

–
(34)
(1)
–
1,404

557
528
206
148
1,439

(34)
–
–
(1)
1,404

303
249
50
126
735
(75)
1,388

5
(29)
–
(1)
1,363

530
555
189
114
1,388

(26)
–
5
(4)
1,363

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

124
124

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

1. Operating segments continued
For the 52 weeks ended 15 September 2018

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
Acquired inventory fair value adjustments
Transaction costs
Profits less losses on sale and closure of businesses
Profit before interest
Finance income
Finance expense
Other financial income
Taxation
Profit for the period

Segment assets (excluding joint ventures and associates)
Investments in joint ventures and associates
Segment assets
Cash and cash equivalents
Current asset investments
Income tax
Deferred tax assets
Employee benefits assets
Segment liabilities
Loans and overdrafts
Income tax
Deferred tax liabilities
Employee benefits liabilities
Net assets

Grocery
£m

Sugar
£m

Agriculture
£m

Ingredients
£m

3,423
(3)
3,420
–
3,420

1,821
(91)
1,730
128
1,858

1,354
(4)
1,350
1
1,351

1,648
(181)
1,467
1
1,468

306
29
–
335
4
(36)
(23)
(1)
–
279

121
2
(34)
89
2
–
–
–
(11)
80

47
12
(1)
58
–
(1)
–
–
1
58

129
14
–
143
–
(4)
–
(1)
(2)
136

Retail
£m

7,477
–
7,477
–
7,477

843
–
–
843
–
–
–
–
–
843

279

2,702
41
2,743

2,090
25
2,115

414
134
548

136

843

1,396
66
1,462

4,556
–
4,556

(530)

(429)

(140)

(275)

(1,382)

2,213

1,686

408

1,187

3,174

Central
£m

(279)
279
–
–
–

(64)
–
–
(64)
–
–
–
–
(22)
(86)
15
(50)
4
(257)
(374)

110
–
110
1,362
30
54
133
579
(234)
(778)
(160)
(324)
(144)
628

Total
£m

15,444
–
15,444
130
15,574

1,382
57
(35)
1,404
6
(41)
(23)
(2)
(34)
1,310
15
(50)
4
(257)
1,022

11,268
266
11,534
1,362
30
54
133
579
(2,990)
(778)
(160)
(324)
(144)
9,296

Non-current asset additions
Depreciation
Amortisation
Impairment of property, plant and equipment on sale and

closure of businesses

148
(99)
(48)

141
(81)
(4)

19
(13)
(1)

–

(14)

–

63
(49)
(6)

–

533
(264)
(5)

12
(3)
(1)

916
(509)
(65)

–

(14)

Geographical information

Revenue from external customers
Segment assets
Non-current asset additions
Depreciation
Amortisation
Acquired inventory fair value adjustments
Impairment of property, plant and equipment on sale and closure

of businesses
Transaction costs

United
Kingdom
£m

Europe
& Africa
£m

The
Americas
£m

Asia
Pacific
£m

2,198
1,385
66
(60)
(6)
–

Total
£m

15,574
11,534
916
(509)
(65)
(23)

5,913
4,610
375
(202)
(17)
(23)

1,534
1,079
57
(43)
(6)
–

–
–

–
(1)

(14)
(2)

5,929
4,460
418
(204)
(36)
–

(14)
(1)

Associated British Foods plcAnnual Report and Accounts 2018

1. Operating segments continued
For the 52 weeks ended 16 September 2017

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
Transaction costs
Profits less losses on sale and closure of businesses
Profit before interest
Finance income
Finance expense
Other financial 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
Income tax
Deferred tax assets
Employee benefits assets
Segment liabilities
Loans and overdrafts
Income tax
Deferred tax liabilities
Employee benefits liabilities
Net assets

Grocery
£m

Sugar
£m

Agriculture
£m

Ingredients
£m

3,384
(3)
3,381
53
3,434

2,113
(79)
2,034
140
2,174

1,195
(4)
1,191
12
1,203

1,673
(181)
1,492
1
1,493

Retail
£m

7,053
–
7,053
–
7,053

264
39
5
308
17
(25)
(4)
110
406

246
3
(29)
220
–
(1)
–
183
402

37
13
–
50
–
(1)
–
–
49

113
13
(1)
125
–
(1)
(1)
–
123

735
–
–
735
(6)
–
–
–
729

406

402

2,349
36
2,385

2,079
23
2,102

371
131
502

123

729

1,416
64
1,480

4,245
–
4,245

(515)

(480)

(112)

(273)

(1,382)

1,870

1,622

390

1,207

2,863

Non-current asset additions
Depreciation
Amortisation
Impairment of property, plant and equipment on sale and

closure of businesses

140
(116)
(43)

100
(84)
(4)

(2)

–

27
(11)
(2)

–

78
(52)
(4)

–

519
(248)
(3)

–

Geographical information

Revenue from external customers
Segment assets
Non-current asset additions
Depreciation
Amortisation
Impairment of property, plant and equipment on sale and closure

of businesses
Transaction costs

United
Kingdom
£m

Europe
& Africa
£m

The
Americas
£m

5,702
4,199
290
(189)
(33)

5,865
4,123
407
(190)
(8)

1,591
1,077
89
(54)
(5)

–
(1)

(2)
(3)

–
–

(2)
(5)

125
125125

Central
£m

(267)
267
–
–
–

(75)
–
–
(75)
(5)
–
–
–
(80)
9
(59)
(3)
(365)
(498)

90
–
90
1,550
28
143
285
(199)
(877)
(170)
(231)
(159)
460

3
(3)
(1)

–

Asia
Pacific
£m

2,199
1,405
81
(81)
(11)

Total
£m

15,151
–
15,151
206
15,357

1,320
68
(25)
1,363
6
(28)
(5)
293
1,629
9
(59)
(3)
(365)
1,211

10,550
254
10,804
1,550
28
143
285
(2,961)
(877)
(170)
(231)
(159)
8,412

867
(514)
(57)

(2)

Total
£m

15,357
10,804
867
(514)
(57)

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

126
126

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

2. Operating costs

Operating costs
Cost of sales (including amortisation of intangibles)
Distribution costs
Administration expenses

Operating costs are stated after charging/(crediting):
Employee benefits expense
Amortisation of non-operating intangibles
Amortisation of operating intangibles
Acquired inventory fair value adjustments
Profits less losses on disposal of non-current assets
Depreciation of property, plant and equipment
Transaction costs
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

Note

2018
£m

2017
£m

11,990
1,356
944
14,290

11,751
1,385
954
14,090

3
8
8

2,668
38
27
23
(6)
509
2
294
15
(18)
26
(23)
17
(45)
57

2,546
25
32
–
(6)
514
3
261
14
(19)
37
(10)
18
(62)
70

Transaction costs of £2m and amortisation of non-operating intangibles of £41m (2017 – £5m and £28m) shown as adjusting
items in the income statement, include £nil and £3m respectively (2017 – £2m and £3m respectively) incurred by joint ventures,
in addition to the amounts shown above.

Auditor's 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
All other services
Total non-audit related remuneration

2018
£m

2017
£m

0.8
6.8
7.6

0.4
0.2
0.6

0.7
5.6
6.3

0.3
0.2
0.5

Associated British Foods plcAnnual Report and Accounts 2018

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

127
127127

2018

2017

48,712
70,074
5,686
12,542
137,014

46,299
67,081
5,694
13,516
132,590

Note

£m

11
11
22

2,243
286
77
43
19
2,668

2,137
261
79
48
21
2,546

Details of directors’ remuneration, share incentives and pension entitlements are shown in the Remuneration report on pages 80
to 99.

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

Other financial income/(expense)
Interest income on employee benefit scheme assets
Interest charge on employee benefit scheme liabilities
Interest charge on irrecoverable surplus
Net financial income/(expense) from employee benefit schemes
Net foreign exchange gains on financing activities
Total other financial income/(expense)

Note

2018
£m

2017
£m

15
15

(27)
(21)
(1)
(1)
(50)

107
(103)
(1)
3
1
4

9
9

(29)
(27)
(1)
(2)
(59)

98
(103)
(1)
(6)
3
(3)

11
11
11

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

128
128

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

5. Income tax expense

Current tax expense
UK – corporation tax at 19% (2017 – 19.54%)
Overseas – corporation tax
UK – under/(over) provided in prior periods
Overseas – over provided in prior periods

Deferred tax expense
UK deferred tax
Overseas deferred tax
UK – under provided in prior periods
Overseas – over provided in prior periods

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 19% (2017 – 19.54%)
Effect of higher and lower 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
Deferred tax associated with share-based payments
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

2018
£m

82
200
8
(28)
262

–
(19)
15
(1)
(5)
257

1,279
(54)
1,225
233
29
(16)
33
(15)
(1)
(6)
257

53
1
–
12
(1)
–
65

2017
£m

82
297
(12)
(9)
358

(10)
17
2
(2)
7
365

1,576
(63)
1,513
296
39
–
24
9
18
(21)
365

77
(1)
1
–
2
1
80

The UK corporation tax rate was reduced from 20% to 19% with effect from 1 April 2017, with a further reduction to 17%
effective from 1 April 2020. The legislation to effect these rate changes had been enacted before the balance sheet date.
Accordingly, UK deferred tax has been calculated using these rates as appropriate.

In October 2017 the European Commission published its preliminary findings on the Group Financing Exemption in the UK’s
controlled foreign company legislation. The Commission has expressed doubts as to whether the exemption is compliant with EU
State Aid rules. The group may be affected by the final outcome of the Commission’s review, as will other UK-based multinational
groups that have financing arrangements in line with the UK’s current legislation. We have calculated our maximum potential
liability to be some £22m if the European Commission’s review concludes that the Group Financing Exemption represents
unlawful state aid and there are no successful appeals against the position. Having analysed the exemption in the context of
both the broader UK corporate tax system and the specific controlled foreign company rules, we consider that no provision is
required at this time. We will continue to consider this position as the Commission’s review develops.

Deferred taxation balances are analysed in note 12.

6. Dividends

2016 final
2017 interim
2017 final
2018 interim

2018
pence
per share

2017
pence
per share

–
–
29.65
11.70
41.35

26.45
11.35
–
–
37.80

2018
£m

–
–
234
93
327

2017
£m

209
90
–
–
299

The 2018 interim dividend was declared on 17 April 2018 and paid on 6 July 2018. The 2018 final dividend of 33.3p, total value of
£263m, will be paid on 11 January 2019 to shareholders on the register on 14 December 2018.

Dividends relating to the period were 45.0p per share totalling £356m (2017 – 41.0p per share totalling £324m).

Associated British Foods plcAnnual Report and Accounts 2018

129
129129

7. Earnings per share
The calculation of basic earnings per share at 15 September 2018 was based on the net profit attributable to equity shareholders
of £1,007m (2017 – £1,198m), and a weighted average number of shares outstanding during the year of 790 million (2017 – 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 acquired inventory fair value adjustments, transaction costs, amortisation of
non-operating intangibles and any associated tax credits, is shown to provide clarity on the underlying performance of the group.

Transaction costs of £2m and amortisation of non-operating intangibles of £41m (2017 – £5m and £28m) shown as adjusting
items below include £nil and £3m respectively (2017 – £2m and £3m respectively) incurred by joint ventures.

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 (2017 – 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
Acquired inventory fair value adjustments
Transaction costs
Tax effect on above adjustments
Amortisation of non-operating intangibles
Tax credit on non-operating intangibles amortisation and goodwill
Profit for the period attributable to equity shareholders

Adjusted earnings per share
Disposal of non-current assets
Sale and closure of businesses
Acquired inventory fair value adjustments
Transaction costs
Tax effect on above adjustments
Amortisation of non-operating intangibles
Tax credit on non-operating intangibles amortisation and goodwill
Earnings per ordinary share

2018
£m

1,066
6
(34)
(23)
(2)
6
(41)
29
1,007

2018
pence

134.9
0.8
(4.3)
(2.9)
(0.3)
0.8
(5.2)
3.7
127.5

2017
£m

1,004
6
293
–
(5)
(87)
(28)
15
1,198

2017
pence

127.1
0.8
37.0
–
(0.6)
(11.0)
(3.5)
1.8
151.6

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

130
130

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

8. Intangible assets

Cost
At 17 September 2016
Acquisitions – externally purchased
Acquired through business combinations
Disposal of businesses
Other disposals
Effect of movements in foreign exchange
At 16 September 2017
Acquisitions – externally purchased
Acquired through business combinations
Disposal of businesses
Other disposals
Effect of movements in foreign exchange
At 15 September 2018

Amortisation and impairment
At 17 September 2016
Amortisation for the year
Disposal of businesses
Other disposals
Effect of movements in foreign exchange
At 16 September 2017
Amortisation for the year
Other disposals
Effect of movements in foreign exchange
At 15 September 2018
Net book value
At 17 September 2016
At 16 September 2017
At 15 September 2018

Non-operating

Operating

Goodwill
£m

Technology
£m

Brands
£m

Customer
relationships
£m

Grower
agreements
£m

Other
£m

Total
£m

1,137
–
19
(5)
–
9
1,160
–
100
(2)
–
(19)
1,239

35
–
(5)
–
(1)
29
–
–
–
29

1,102
1,131
1,210

208
–
–
–
–
1
209
–
–
–
–
(5)
204

208
–
–
–
1
209
–
–
(5)
204

–
–
–

384
–
4
–
–
–
388
–
5
–
–
–
393

278
19
–
–
–
297
19
–
–
316

106
91
77

109
–
46
–
–
1
156
–
100
–
–
4
260

101
6
–
–
3
110
19
–
(3)
126

8
46
134

118
–
–
–
–
6
124
–
–
–
–
(10)
114

118
–
–
–
6
124
–
–
(10)
114

–
–
–

6
–
–
–
–
–
6
–
–
–
–
–
6

6
–
–
–
–
6
–
–
–
6

–
–
–

303
50
–
–
(12)
3
344
98
–
–
(9)
(4)
429

171
32
–
(5)
–
198
27
(3)
(4)
218

132
146
211

2,265
50
69
(5)
(12)
20
2,387
98
205
(2)
(9)
(34)
2,645

917
57
(5)
(5)
9
973
65
(3)
(22)
1,013

1,348
1,414
1,632

Amortisation of non-operating intangibles of £41m (2017 – £28m) shown as an adjusting item in the income statement includes
£3m (2017 – £3m) incurred by joint ventures in addition to the amounts shown above.

Impairment
As at 15 September 2018, the consolidated balance sheet included goodwill of £1,210m (2017 – £1,131m). 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

Acetum
ACH
AB Mauri
Twinings Ovaltine
Capullo
Illovo
AB World Foods
Other (not individually significant)

Primary reporting segment Discount rate

Grocery
Grocery
Ingredients
Grocery
Grocery
Sugar
Grocery
Various

n/a
11.5%
13.2%
10.7%
14.5%
18.7%
11.7%
Various

2018
£m

94
177
320
119
48
110
78
264
1,210

2017
£m

–
170
330
119
49
120
78
265
1,131

Associated British Foods plcAnnual Report and Accounts 2018

131
131

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 in the most recent annual budget on which the cash flow projections 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 9.7% and 18.7% (2017 – between 10.2% and 20.1%).

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 4%, consistent with the inflation factors included in the discount rates applied (2017 – between 0% and 4%).

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.

Structural changes to the EU sugar regime in October 2017, which removed sales quotas, combined with a reduction in the world
sugar price during the year have created challenging trading conditions for Azucarera. Accordingly, management has undertaken
an impairment review. Detailed forecasts for a period of five years to reflect the time required for completion of the business plan
were prepared and management concluded that the assets were not impaired. Key assumptions included the recovery of sugar
prices in the long term, cost reduction and the discount rate. Headroom was €68m on a CGU carrying value of €360m. The
discount rate used was 12% and would have to increase to 14% before value in use fell below the CGU carrying value. Estimates
of long-term growth rates beyond the forecast periods were 2% per annum. A sensitivity of plus or minus 1% applied to sugar
and beet prices impacts headroom by plus or minus 16%.

Notwithstanding a further substantial improvement in profit in the current year, AB Mauri continued to experience competitive
pricing pressure in a number of markets around the world as well as challenging macroeconomic conditions in some markets,
including high inflation rates and currency devaluations. Accordingly, management has again undertaken an impairment review.
Detailed forecasts for a period of five years to reflect the time required for completion of the business plan were prepared and
management concluded that the assets were not impaired. Key drivers of the forecast improvement in performance include
achievement of price increases in high inflation environments, improved reach and competitiveness in the global dry yeast market,
implementation of a number of margin improvement initiatives, particularly in cost reduction, and continuing growth in the global
bakery ingredients business. Headroom was $400m on a CGU carrying value of $946m (2017 – headroom of $340m on a CGU
carrying value of $954m). The geographic diversity and varying local economic environments of AB Mauri’s operations mean
that the critical assumptions underlying the detailed forecasts used in the impairment model are wide-ranging. It is therefore
impractical to provide meaningful sensitivities to these assumptions other than the discount rate. The discount rate used was
13.2% (2017 – 13.5%) and would have to increase to more than 17% (2017 – 19%) before value in use fell below the CGU
carrying value. Estimates of long-term growth rates beyond the forecast periods were 2%– 3% (2017 – 2%–3%) per annum
dependent on location.

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

132
132

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

9. Property, plant and equipment

Cost
At 17 September 2016
Acquisitions – externally purchased
Acquired through business combinations
Other disposals
Transfers from assets under construction
Effect of movements in foreign exchange
At 16 September 2017
Acquisitions – externally purchased
Acquired through business combinations
Other disposals
Transfers from assets under construction
Effect of movements in foreign exchange
At 15 September 2018

Depreciation and impairment
At 17 September 2016
Depreciation for the year
Impairment on disposal of business
Other disposals
Effect of movements in foreign exchange
At 16 September 2017
Depreciation for the year
Impairment on closure of business
Other disposals
Effect of movements in foreign exchange
At 15 September 2018
Net book value
At 17 September 2016
At 16 September 2017
At 15 September 2018

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

Sugar cane
roots
£m

2,410
119
6
(43)
23
25
2,540
112
24
(10)
23
(24)
2,665

558
51
2
(15)
5
601
48
–
(8)
(4)
637

1,852
1,939
2,028

3,538
81
3
(36)
153
27
3,766
46
13
(57)
144
(70)
3,842

2,068
217
–
(40)
15
2,260
198
14
(49)
(28)
2,395

1,470
1,506
1,447

2,665
392
–
(118)
25
36
3,000
413
–
(25)
9
24
3,421

1,080
239
–
(100)
13
1,232
255
–
(23)
2
1,466

1,585
1,768
1,955

204
213
–
–
(201)
2
218
235
6
–
(176)
(7)
276

–
–
–
–
–
–
–
–
–
–
–

204
218
276

Total
£m

8,877
817
9
(205)
–
90
9,588
818
43
(93)
–
(79)
10,277

3,732
514
2
(163)
33
4,118
509
14
(81)
(30)
4,530

5,145
5,470
5,747

2017
£m

1,542
318
79
1,939
583

60
12
–
(8)
–
–
64
12
–
(1)
–
(2)
73

26
7
–
(8)
–
25
8
–
(1)
–
32

34
39
41

2018
£m

1,619
334
75
2,028
625

Associated British Foods plcAnnual Report and Accounts 2018

133
133

9. Property, plant and equipment continued
Impairment
The methodology used to assess property, plant and equipment for impairment is the same as that described for impairment
assessments of goodwill. See note 8 for further details.

An impairment of A$150m (£98m) was recorded in 2012 in the Australian meat business. Further progress was made in the
current year with further reduction in manufacturing costs, efficiency improvement and a general focus on cost reduction across
the business. 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$41m on a CGU carrying value of A$248m (2017 – headroom of A$38m on a
CGU carrying value of A$270m). The discount rate used was 11.1% (2017 – 10.5%). Estimates of long-term growth rates beyond
the forecast periods were 2.0% (2017 – 2.0%) per annum. A sensitivity of plus or minus 1% applied to the discount rate impacts
headroom by plus or minus A$31m.

Low bread prices and strong continuing competition in the UK bakery sector led to a loss at Allied Bakeries and resulted in the
need for an assessment of impairment. Headroom was £113m on a CGU carrying value of £243m (2017 – headroom of £87m on
a CGU carrying value of £260m). The discount rate used was 10.4% (2017 – 10.2%). Estimates of long-term growth rates beyond
the forecast periods were 0.4% per annum. A sensitivity of plus or minus 1% applied to bread prices impacts headroom by plus or
minus £30m. A sensitivity of plus or minus 1% applied to bread volumes impacts headroom by plus or minus £12m.

10. Investments in joint ventures and associates

At 17 September 2016
Profit for the period
Dividends received
At 16 September 2017
Profit for the period
Dividends received
At 15 September 2018

Joint ventures
£m
221
53
(64)
210
45
(36)
219

Associates
£m
39
10
(5)
44
9
(6)
47

Details of 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:

Non-current assets
Current assets
Current liabilities
Non-current liabilities
Goodwill
Net assets

Revenue

Profit for the period

Joint ventures

Associates

2018
£m

148
405
(280)
(73)
19
219

2017
£m
146
364
(237)
(81)
18
210

1,443

1,450

2018
£m

20
223
(193)
(4)
1
47

689

2017
£m

22
187
(161)
(5)
1
44

629

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

134
134

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

11. 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.

UK defined benefit scheme
The group’s principal UK defined benefit scheme is the Associated British Foods Pension Scheme (the ‘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% (2017 – 91%) of the group’s defined benefit scheme assets and 88%
(2017 – 89%) of 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 most recent triennial funding valuation of the Scheme was carried out as at 5 April 2017, using the current unit method, and
revealed a surplus of £176m. The market value of the Scheme assets was £3,789m, representing 105% of members' accrued
benefits after allowing for expected future salary increases.

The Scheme’s assets are managed using a risk-controlled investment strategy, which includes a liability-driven investment
policy that 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 71% of inflation sensitivity and 29% of interest rate risk. It is intended to hedge
80% of total exposure.

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 Guaranteed Minimum Pension (GMP) is the minimum pension which a UK occupational pension scheme must provide for
those employees who were contracted out of the State Earnings-Related Pension Scheme between 6 April 1978 and 5 April 1997.

On 26 October 2018, the UK High Court ruled that GMPs must be equalised for inequalities in retirement ages between men
and women for all service after 17 May 1990. The ruling outlined a number of potential approaches to achieve the equalisation
of GMPs. The ruling may be subject to appeal but if it stands, it is probable that the Scheme will be required to record
additional liabilities.

The Company is working with the Scheme trustees to determine the potential cost. At this early stage, it is not possible to provide
a reliable estimate of that cost because of the number of potential approaches, the long time period and the likely number of
individuals affected.

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 £37m in the UK and £40m overseas,
totalling £77m (2017 – UK £35m, overseas £44m, totalling £79m).

Actuarial assumptions
The principal actuarial assumptions for the group’s defined benefit schemes at the year end were:

Discount rate
Inflation
Rate of increase in salaries
Rate of increase for pensions in payment
Rate of increase for pensions in deferment (where provided)

2018
UK
%

2.9
2.3-3.3
3.3-4.3
2.1-3.1
2.3

2018
Overseas
%

1.0-11.3
0-11.9
0-13.0
0-5.6
0-2.0

2017
UK
%

2.7
2.3–3.3
3.3–4.3
2.1–3.1
2.3

2017
Overseas
%

0.7–16.5
0–9.5
0–12.0
0–5.7
0–2.0

The UK inflation assumption includes assumptions on both the Retail Price Index and Consumer Price Index measures of inflation
on the basis that the gap between the two measures is expected to remain stable in the long term.

Associated British Foods plcAnnual Report and Accounts 2018

135
135

11. Employee entitlements continued
The mortality assumptions used to value the UK defined benefit schemes in both years are derived from the S2 mortality tables
with improvements in line with the 2016 projection model (2017 – 2015 projection model) prepared by the Continuous Mortality
Investigation of the UK actuarial profession, with a +0.5-year rating up for males and a +0.3-year rating down for females
(2017 – no rating for males and a +0.7-year rating down for females), both with a long-term trend of 1.5% (2017 – 1.25%).
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 2018 (2017)
Member aged 65 in 2038 (2037)

2018

Male

21.9
23.7

Female
24.5
26.4

2017

Male

22.3
24.0

Female

24.9
26.8

An allowance has been made for cash commutation in line with emerging scheme experience. 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 15 September 2018 is:

Discount rate
Inflation
Rate of real increase in salaries
Rate of mortality

Change in assumption

Impact on scheme liabilities

decrease/increase by 0.5%
increase/decrease by 0.5%
increase/decrease by 0.5%
reduce by one year

increase by 9.1%/decrease by 8.0%
increase by 5.7%/decrease by 6.2%
increase/decrease by 1.5%
increase by 3.5%

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.

Balance sheet

Equities
Government bonds
Corporate and other bonds
Property
Cash and other assets
Scheme assets
Scheme liabilities
Aggregate net surplus/(deficit)
Irrecoverable surplus*
Net pension asset/(liability)

Analysed as
Schemes in surplus
Schemes in deficit

2018

UK
£m

Overseas
£m

1,355
530
393
343
1,093
3,714
(3,184)
530
–
530

571
(41)
530

180
47
58
21
62
368
(446)
(78)
(17)
(95)

8
(103)
(95)

2017

UK
£m

Overseas
£m

Total
£m
1,535
577
451
364
1,155
4,082
(3,630)
452
(17)
435

1,225
988
562
323
597
3,695
(3,462)
233
–
233

579
(144)
435

277
(44)
233

Total
£m

1,391
1,034
626
342
653
4,046
(3,910)
136
(10)
126

285
(159)
126

166
46
64
19
56
351
(448)
(97)
(10)
(107)

8
(115)
(107)

Unfunded liability included in the present

value of scheme liabilities above

(41)

(56)

(97)

(44)

(56)

(100)

* 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.

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

136
136

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

11. Employee entitlements continued
Corporate and other bonds relating to UK schemes of £393m (2017 – £562m) include £13m (2017 – £55m) 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. Cash
and other assets contains £401m (2017 – £312m) of assets whose valuation is not derived from quoted market prices.

For financial reporting in the group’s financial statements, 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 27% (2017 – 26%) in respect of active participants, 20% (2017 – 22%) for deferred
participants and 53% (2017 – 52%) for pensioners.

The weighted average duration of the defined benefit scheme liabilities at the end of the year is 18 years for both UK and overseas
schemes (2017 – 18 years for both UK and overseas schemes).

Income statement
The charge to the income statement for employee benefit schemes comprises:

Charged to operating profit:
Defined benefit schemes
Current service cost
Past service cost – curtailment gain

Defined contribution schemes
Total operating cost
Reported in other financial income/(expense):
Net interest income/(expense) on the net pension asset
Interest charge on irrecoverable surplus
Net impact on profit before tax

2018
£m

2017
£m

(44)
1
(77)
(120)

4
(1)
(117)

(48)
–
(79)
(127)

(5)
(1)
(133)

Cash flow
Group cash flow in respect of employee benefits schemes comprises contributions paid to funded schemes of £37m
(2017 – £35m) and benefits paid in respect of unfunded schemes of £2m (2017 – £1m). Contributions to funded defined benefit
schemes are subject to periodic review. Contributions to defined contribution schemes amounted to £77m (2017 – £79m).

Total contributions to funded schemes and benefit payments by the group in respect of unfunded schemes in 2019 are currently
expected to be approximately £32m in the UK and £9m overseas, totalling £41m (2017 – UK £31m, overseas £11m, totalling £42m).

Other comprehensive income
Remeasurements of the net asset recognised in other comprehensive income are as follows:

Return on scheme assets excluding amounts included in net interest in the income statement
Actuarial gains arising from changes in financial assumptions
Actuarial gains arising from changes in demographic assumptions
Experience gains on scheme liabilities
Change in unrecognised surplus
Remeasurements of the net pension asset

2018
£m

113
135
49
21
(8)
310

2017
£m

135
55
2
243
3
438

The primary reason for the significant experience gains in the prior year was the latest scheme membership information gathered
during the 2017 triennial valuation, which identified that there had been more exits from the scheme than expected over the
preceding three years.

Associated British Foods plcAnnual Report and Accounts 2018

11. Employee entitlements continued
Reconciliation of change in assets and liabilities

At beginning of year
Current service cost
Employee contributions
Employer contributions
Benefit payments
Past service cost – curtailment gain
Interest income/(expense)
Return on scheme assets less interest income
Actuarial gains arising from changes in financial assumptions
Actuarial gains arising from changes in demographic assumptions
Experience gains on scheme liabilities
Businesses disposed
Effect of movements in foreign exchange
At end of year

Reconciliation of change in irrecoverable surplus

2018
assets
£m

4,046
–
9
37
(230)
–
107
113
–
–
–
–
–
4,082

2017
assets
£m

2018
liabilities
£m

2017
liabilities
£m

3,992
–
10
35
(204)
–
98
135
–
–
–
(25)
5
4,046

(3,910)
(44)
(9)
–
232
1
(103)
–
135
49
21
–
(2)
(3,630)

(4,284)
(48)
(10)
–
205
–
(103)
–
55
2
243
39
(9)
(3,910)

At beginning of year
Change recognised in other comprehensive income
Interest charge on irrecoverable surplus
Effect of movements in foreign exchange
At end of year

12. Deferred tax assets and liabilities

At 17 September 2016
Amount charged/(credited) to the income statement
Amount charged to equity
Acquired through business combinations
Effect of changes in tax rates on income statement
Effect of changes in tax rate on equity
Effect of movements in foreign exchange
At 16 September 2017
Amount charged/(credited) to the income statement
Amount charged/(credited) to equity
Acquired through business combinations
Effect of changes in tax rates on income statement
Effect of movements in foreign exchange
At 15 September 2018

Property,
plant and
equipment
£m

Intangible
assets
£m

Employee
benefits
£m

Financial
assets and
liabilities
£m

Other
temporary
differences
£m

Tax value of
carry-forward
losses
£m

88
52
–
1
(3)
–
(5)
133
27
–
1
(9)
(1)
151

77
(1)
–
7
–
–
3
86
(3)
–
23
(18)
1
89

(58)
(3)
73
–
–
3
1
16
–
54
–
–
–
70

(6)
–
–
–
–
–
(1)
(7)
–
12
–
–
–
5

(54)
(47)
2
–
(1)
–
(2)
(102)
(17)
(1)
16
11
1
(92)

(47)
7
–
–
3
–
(1)
(38)
4
–
–
–
2
(32)

2018
net
£m

136
(44)
–
37
2
1
4
113
135
49
21
–
(2)
452

2018
£m

(10)
(8)
(1)
2
(17)

137
137

2017
net
£m

(292)
(48)
–
35
1
–
(5)
135
55
2
243
14
(4)
136

2017
£m

(11)
3
(1)
(1)
(10)

Total
£m

–
8
75
8
(1)
3
(5)
88
11
65
40
(16)
3
191

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

138
138

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

12. Deferred tax assets and liabilities continued
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

2018
£m

(133)
324
191

2017
£m

(143)
231
88

The recoverability of deferred tax assets is supported by the expected level of future profits in the countries concerned. Other
deferred tax assets totalling £101m (2017 – £97m) have not been recognised on the basis that their future economic benefit
is uncertain.

In addition, there are temporary differences of £3,327m (2017 – £2,995m) 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.

13. 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

2018
£m

46
4
50

1,074
147
20
1,241
195
1,436

2017
£m

50
4
54

1,035
116
14
1,165
177
1,342

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 £47m (2017 – £48m) in respect of finance lease receivables, with £42m in non-current
loans and receivables and £5m in current other receivables (2017 – £45m in non-current loans and receivables and £3m in current
other receivables). Minimum lease payments receivable are £5m within one year, £20m between one and five years and £25m
in more than five years (2017 – £3m within one year, £15m between one and five years and £36m in more than five years).

The finance lease receivables relate to property, plant and equipment leased to a joint venture of the group (see note 27).

Associated British Foods plcAnnual Report and Accounts 2018

14. Inventories

Raw materials and consumables
Work in progress
Finished goods and goods held for resale

Write-down of inventories

15. Biological assets

At 17 September 2016
Transferred to inventory
Purchases
Changes in fair value
Effect of movements in foreign exchange
At 16 September 2017
Transferred to inventory
Purchases
Changes in fair value
Effect of movements in foreign exchange
At 15 September 2018

139
139

2018
£m

361
87
1,739
2,187
(107)

Other
£m

8
(14)
2
17
–
13
(18)
1
12
–
8

2017
£m

352
22
1,727
2,101
(119)

Total
£m

86
(118)
2
118
2
90
(93)
1
88
(2)
84

Growing
cane
£m

78
(104)
–
101
2
77
(75)
–
76
(2)
76

Growing cane
The fair value of growing cane is determined using inputs that are unobservable, using the best information available in the
circumstances for valuing the growing cane, and therefore falls into the level 3 category of fair value measurement. The following
assumptions were used in the determination of the estimated sucrose tonnage at 15 September 2018:

Expected area to harvest (hectares)
Estimated yield (tonnes cane/hectare)
Average maturity of growing cane

South Africa

Malawi

Zambia

Eswatini

Tanzania Mozambique

6,517
69.0
46.4%

18,363
97.7
68.2%

15,848
119.0
65.7%

8,609
102.1
67.7%

9,426
74.8
46.2%

5,875
82.1
71.6%

The following assumptions were used in the determination of the estimated sucrose tonnage at 16 September 2017:

Expected area to harvest (hectares)
Estimated yield (tonnes cane/hectare)
Average maturity of growing cane

6,475
68.8
46.4%

19,802
91.0
68.2%

15,999
118.6
65.7%

8,588
96.7
67.7%

9,678
70.3
46.2%

6,091
81.0
71.6%

A 1% change in the unobservable inputs could increase or decrease the fair value of growing cane as follows:

South Africa

Malawi

Zambia

Eswatini

Tanzania Mozambique

Estimated sucrose content
Estimated sucrose price

2018

+1%
£m

1.1
1.4

-1%
£m
(1.1)
(1.4)

2017

+1%
£m

1.1
1.5

-1%
£m

(1.1)
(1.5)

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

140
140

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

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

2018
£m

2017
£m

658
704
1,362

(91)
1,271

797
753
1,550

(164)
1,386

Cash at bank and in hand generally earns interest at rates based on the daily bank deposit rate.

Cash equivalents generally comprise deposits placed on money markets for periods of up to three months which earn interest at
a short-term deposit rate; and 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
Finance leases

Non-current loans
Secured loans
Unsecured loans
Finance leases

Secured loans
– Other floating rate
– Other fixed rate

Unsecured loans and overdrafts
– Bank overdrafts
– GBP fixed rate
– USD floating rate
– USD fixed rate
– EUR floating rate
– EUR fixed rate
– Other floating rate
– Other fixed rate
Finance leases (fixed rate)

Note

2018
£m

10
408
1
419

10
336
13

359
778

2018
£m

20
–

91
147
30
428
23
3
21
1
14
778

2017
£m

18
246
1
265

22
577
13

612
877

2017
£m

33
7

164
164
37
413
35
–
9
1
14
877

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 plcAnnual Report and Accounts 2018

18. Trade and other payables

Current – trade and other payables
Trade payables
Accruals

Deferred income and other non-financial payables

Non-current – other payables
Accruals

For payables with a remaining life of less than one year, carrying amount is deemed to reflect fair value.

19. Provisions

At 16 September 2017
Created
Acquired through business combinations
Utilised
Released
Effect of movements in foreign exchange
At 15 September 2018

Current
Non-current

Restructuring
£m

Deferred
consideration
£m

68
66
–
(36)
(7)
–
91

57
34
91

6
4
–
(1)
–
–
9

2
7
9

141
141

2018
£m

1,164
1,020
2,184
345
2,529

2017
£m

1,236
982
2,218
282
2,500

269

216

Other
£m

58
5
3
(8)
(18)
–
40

29
11
40

Total
£m

132
75
3
(45)
(25)
–
140

88
52
140

Financial liabilities within provisions comprised deferred consideration in both years (see note 24).

Restructuring
Restructuring provisions include onerous leases and the cash costs, including redundancy, associated with the group’s announced
reorganisation plans.

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
At 16 September 2017 and 15 September 2018, the Company’s issued and fully paid share capital comprised 791,674,183 ordinary
shares of 515⁄22p, each carrying one vote per share. Total nominal value was £45m.

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 2 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 plcAnnual Report and Accounts 2018Financial statements

142
142

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

21. Acquisitions and disposals
Acquisitions
2018
On 12 October 2017, the group’s Grocery business completed the acquisition of 100% of Acetum S.p.A, the leading Italian producer
of Balsamic Vinegar of Modena for a net consideration of £284m including debt assumed of £89m and deferred consideration of
£2m. The group also acquired a small aerial survey and informatics company as part of the UK Agriculture business, and as part of
the UK Ingredients business, acquired Holgran, a supplier of malted grains, and Fleming Howden, an Edinburgh-based blender and
distributor of bakery ingredients. These acquisitions have contributed revenue of £83m and operating profit of £11m to the group’s
results for the period from date of acquisition to 15 September 2018.

The acquisitions had the following effect on the group’s assets and liabilities:

Net assets
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loans
Taxation
Net identifiable assets and liabilities
Goodwill
Total consideration

Satisfied by
Cash consideration
Deferred consideration

Net cash
Cash consideration
Cash and cash equivalents acquired
Deferred consideration paid

Recognised values on acquisition

Pre-acquisition
carrying values
£m

Acetum
£m

Other
£m

–
41
28
28
11
(31)
(89)
6
(6)

95
42
95
23
11
(26)
(89)
(40)
111
95
206

10
1
2
5
–
(5)
–
(2)
11
5
16

Total
£m

105
43
97
28
11
(31)
(89)
(42)
122
100
222

Recognised
values on
acquisition
£m

218
4
222

218
(11)
1
208

Pre-acquisition carrying amounts were the same as recognised values on acquisition apart from £105m of non-operating intangible
assets in respect of brand and customer relationships, a £69m upward fair value adjustment on inventories and a £2m upward
revaluation of land and buildings, which were recognised together with related deferred tax of £48m. The cash outflow of
£208m on the purchase of subsidiaries, joint ventures and associates in the cash flow statement comprises cash consideration
of £218m for these acquisitions less cash acquired with the businesses of £11m and £1m payment of deferred consideration
in respect of prior year acquisitions.

After the year end, on 17 September 2018 the group completed the acquisition of 100% of Yumi’s Quality Foods, a chilled
food manufacturer in Australia. In the year ended 30 June 2018, the business generated net sales of A$51m and profit after tax
of A$4m. Given the timing of the acquisition after the group’s financial year end and its proximity to the date of approval of the
group’s financial statements, completion of the initial accounting for the acquisition has not yet been undertaken. Consequently,
the disclosures relating to goodwill, acquired intangibles, and the fair values of other assets and liabilities acquired have not been
made. These disclosures will be provided in the condensed consolidated interim financial statements for the 24 weeks ending
2 March 2019.

2017
Last year the group acquired two small Grocery businesses in the UK and an Ingredients business in the US. Total consideration
was £85m, comprising cash of £83m and deferred consideration of £2m. Net assets acquired comprised intangible assets of
£69m, cash of £5m and other operating assets and liabilities of £11m. The cash outflow of £79m on the purchase of subsidiaries,
joint ventures and associates in the cash flow statement comprises cash consideration of £83m less cash acquired with the
businesses of £5m and £1m of deferred consideration paid in respect of prior year acquisitions.

Associated British Foods plcAnnual Report and Accounts 2018

143
143

21. Acquisitions and disposals continued
Disposals
2018
In October 2018 the group shut down operations at Vivergo, AB Sugar’s bioethanol plant in Hull. A charge of £51m has been
included for this in the loss on closure of businesses line in the income statement. During the year the group also completed the
buy-out of the remaining 5.5% minority interest in Vivergo. This resulted in the recognition of a gain of £23m (in the Sugar and UK
segments) arising from the extinguishment of the associated shareholder loan and interest, which has been recognised in sale and
closure of businesses in line with the original transaction in 2015.

£18m of warranty and restructuring provisions relating to disposals made in previous years are no longer required and were
released to sale and closure of business during the year. These comprised £17m in Sugar (Asia Pacific) and £1m in Ingredients
(Europe & Africa).

The group also charged a £24m onerous lease provision to sale and closure of business (in the Central and UK segments)
against rental guarantees given on property leases assigned to third parties that the group expects to be required to honour.

2017
The group disposed of its US herbs and spices business, reported within the Grocery segment. Cash proceeds amounted to
£294m, net assets disposed were £26m and the associated goodwill was £124m. Provisions for transaction and associated
restructuring costs were £33m, with a loss of £1m on recycling foreign exchange differences. The pre-tax gain on disposal was
£110m. The group also disposed of its south China cane sugar operations for cash proceeds of £194m. The purchaser also assumed
£103m of debt resulting in total proceeds of £297m. Net assets disposed were £120m. Provisions for transaction and associated
restructuring costs were £24m, offset by a gain of £29m on recycling of foreign exchange differences and £1m of non-controlling
interests. The pre-tax gain on disposal was £183m.

The cash inflow of £452m on the sale of subsidiaries, joint ventures and associates in the cash flow statement comprises
cash proceeds of £488m less cash disposed with the businesses of £26m and £10m of transaction costs.

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

144
144

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

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, with the last grant
of allocations made in November 2013. The last allocations made under the Share Incentive Plan either vested or lapsed during
the year and it is now closed.

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 are released if, and to the extent that, performance targets are satisfied, typically over
a three-year performance period.

Associated British Foods 2016 Long Term Incentive Plan (‘the 2016 LTIP’)
The 2016 LTIP was approved and adopted by the Company at the annual general meeting held on 9 December 2016. 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.

Further information regarding the operation of the above plans can be found in the Remuneration report on pages 80 to 99.

Total conditional allocations under the group’s equity-settled share-based payment plans are as follows:

2018
2017

Balance
outstanding at
the beginning
of the year

Granted/
awarded

Vested

Expired/
lapsed

Balance
outstanding
at the end
of the year

3,094,724
2,680,947

1,630,180
1,661,230

(506,293)
(331,341)

(543,241)
(916,112)

3,675,370
3,094,724

Employee Share Ownership Plan Trust
Shares subject to allocation under the group’s equity-settled share-based payment plans are held in a separate Employee
Share Ownership Plan Trust 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 15 September 2018 the
Trust held 2,225,705 (2017 – 1,531,998) ordinary shares of the Company. The market value of these shares at the year end was
£50m (2017 – £48m). The Trust has waived its right to dividends. Movements in the year were releases of 506,293 shares
and purchases of 1,200,000 shares (2017 – releases of 331,341 shares and purchases of 350,000 shares).

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 2,800p (2017 – 2,449p) and the weighted average share price was 3,010p
(2017 – 2,633p). The dividend yield used was 2.5% (2017 – 2.5%).

23. Analysis of net cash

Cash at bank and in hand, cash equivalents

and overdrafts

Current asset investments
Short-term loans
Long-term loans

At
16 September
2017
£m

Cash flow
£m

Acquisitions
£m

Non-cash
items
£m

Exchange
adjustments
£m

At
15 September
2018
£m

1,386
–
(101)
(612)
673

(103)
30
111
(19)
19

–
–
(89)
–
(89)

–
–
(251)
268
17

(12)
–
2
4
(6)

1,271
30
(328)
(359)
614

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 £91m 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.

Current asset investments comprise term deposits and short-term investments with original maturities of greater than three
months but less than one year.

Associated British Foods plcAnnual Report and Accounts 2018

24. Financial instruments
a) Carrying amount and fair values of financial assets and liabilities

Financial assets
Cash and cash equivalents
Current asset investments
Loans and receivables
Trade and other receivables
Other non-current receivables
At fair value through profit or loss
Derivative assets not designated in a cash flow hedging relationship:
– currency derivatives
– commodity 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 2018 – £782m; 2017 – £867m)
Finance leases (fair value 2018 – £19m; 2017 – £19m)
Deferred consideration
At fair value through profit or loss
Derivative liabilities not designated in a cash flow hedging relationship:
– currency derivatives
– commodity derivatives
Designated net investment hedging relationships
Derivative liabilities designated as net investment hedging instruments:
– currency 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.

145
145

2018
£m

1,362
30

1,241
50

20
3

73
36
2,815

2017
£m

1,550
–

1,165
54

2
2

68
7
2,848

(2,453)
(20)
(744)
(14)
(9)

(2,434)
(40)
(823)
(14)
(6)

(3)
(3)

(32)
(2)

(30)

(27)

(10)
(6)
(3,292)
(477)

(48)
(4)
(3,430)
(582)

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

146
146

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

24. Financial instruments continued
The methods and assumptions used to estimate fair values of financial assets and liabilities are as follows:

Financial asset/liability

Fair value determination

Cash and cash equivalents, current asset
investments, trade receivables, other
receivables and accrued income, trade
payables, other payables and accruals

Other non-current investments (recorded
within other non-current receivables)

Fair values have been stated at book values due to short maturities or otherwise
immediate or short-term access and realisability.

These comprise minority shareholdings 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.

Other non-current receivables, loans and
overdrafts and finance leases

Fair values for these level 2 financial instruments have been estimated
by discounting expected future cash flows (see below).

Derivatives

Deferred consideration

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.

Deferred consideration is measured at the directors’ best estimate of the
expenditure required to settle the obligation at the balance sheet date, discounted
to present value where material. Fair value is therefore 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.

2018

2017

Contractual/
notional
amounts
£m

Level 1
£m

Level 2
£m

1,356
190
1,546

1,267
106
1,373

–
–
–

93
39
132

(43)
(9)
(52)

Contractual/
notional
amounts
£m

Total
£m

93
39
132

(43)
(9)
(52)

817
104
921

1,819
100
1,919

Level 1
£m

Level 2
£m

–
–
–

–
(1)
(1)

70
9
79

(107)
(5)
(112)

Total
£m

70
9
79

(107)
(6)
(113)

Financial assets
Currency derivatives
Commodity derivatives

Financial liabilities
Currency derivatives
Commodity derivatives

Associated British Foods plcAnnual Report and Accounts 2018

147
147

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/expense
Amount removed from the hedging reserve and

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

2018

Currency
derivatives
£m

Commodity
derivatives
£m

32
(89)

6
–
11

40
6
6

(3)
2
1
5
1
6

(2)
(32)

–
12
1

(5)
6
(20)

(15)
(2)
(1)
(2)
–
(20)

Total
£m
30
(121)

6
12
12

35
12
(14)

(18)
–
–
3
1
(14)

2017

Currency
derivatives
£m

Commodity
derivatives
£m

16
75

(20)
(2)
(11)

(24)
(2)
32

24
3
1
3
1
32

6
3

(7)
2
–

(8)
2
(2)

–
(2)
–
–
–
(2)

Total
£m

22
78

(27)
–
(11)

(32)
–
30

24
1
1
3
1
30

Of the closing balance of £(14)m, £(13)m is attributable to equity shareholders and £(1)m to non-controlling interests (2017 – £31m
is attributable to equity shareholders and £(1)m to non-controlling interests). Of the net movement in the year of £(44)m, £(44)m
is attributable to equity shareholders and £nil to non-controlling interests (2017 – £9m attributable to equity shareholders and
£(1)m to non-controlling interests).

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.

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

148
148

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

24. Financial instruments continued
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.

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.

At year end, the group had $160m of borrowings (2017 – $160m) that were designated as hedges of its net investment in foreign
operations in US dollars.

A net foreign exchange loss of £6m (2017 – gain of £3m) on retranslation of these loans has been taken to the translation reserve
on consolidation, all of which was attributable to equity shareholders. 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, all of which was attributable to equity shareholders (2017 – £12m debited 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 forward contracts are classified 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. Where
possible commodity derivatives are accounted for as cash flow hedges, but there are some commodity derivatives for which
the strict requirements of hedge accounting cannot be satisfied. 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.

Associated British Foods plcAnnual Report and Accounts 2018

149
149

24. Financial instruments continued
(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.

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 15 September 2018, £593m (76%) (2017 – £599m and 68%) of total debt was subject to fixed rates of interest, the majority
of which is the US private placement loans of £573m (2017 – £558m).

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.

(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 148.

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.

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

150
150

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

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
Finance leases
Deferred consideration

Currency derivatives
Gross amounts receivable
Gross amounts payable

The following major exchange rates applied during the year:

US dollar
Euro
Rand
Renminbi
Australian dollar

Sterling
£m

US dollar
£m

2
–
2

(15)
–
(15)

69
(3)
66

240
45
285

(368)
(428)
(796)

1,642
(94)
1,548

1,037

Sterling
£m

US dollar
£m

–
1
1

(22)
–
–
–
(22)

73
(3)
70

253
24
277

(396)
(413)
–
(1)
(810)

1,694
(105)
1,589

1,056

2018

Euro
£m

21
72
93

(45)
(1)
(46)

130
(474)
(344)

(297)

2017

Euro
£m

235
85
320

(41)
(2)
–
–
(43)

85
(501)
(416)

(139)

Other
£m

36
14
50

(9)
–
(9)

166
(54)
112

153

Other
£m

40
13
53

(10)
–
(1)
–
(11)

168
(61)
107

Total
£m

299
131
430

(437)
(429)
(866)

2,007
(625)
1,382

946

Total
£m

528
123
651

(469)
(415)
(1)
(1)
(886)

2,020
(670)
1,350

149

1,115

Average rate

Closing rate

2018

1.35
1.13
17.52
8.79
1.76

2017
1.27
1.15
16.96
8.63
1.67

2018

1.31
1.12
19.46
8.97
1.82

2017

1.36
1.14
17.87
8.90
1.70

Associated British Foods plcAnnual Report and Accounts 2018

151
151

24. Financial instruments continued
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.

10% strengthening against other currencies of

Sterling
US dollar
Euro
Other

2018
impact on
profit for
the year
£m

2018
impact on
total equity
£m

2017
impact on
profit for
the year
£m

2017
impact on
total equity
£m

1
11
5
8

7
110
(29)
17

–
5
6
10

6
118
(19)
16

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

2018
impact on
profit for
the year
£m

2017
impact on
profit for
the year
£m

(14)
(31)
(1)
(2)
(3)

(24)
(35)
(2)
(20)
(4)

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 15 September 2018. The group considers its maximum exposure to credit risk to be:

Cash and cash equivalents
Current asset investments
Loans and receivables
Derivative assets at fair value through profit and loss
Derivative assets in designated cash flow hedging relationships

Note

24a

2018
£m

1,362
30
1,291
23
109
2,815

2017
£m

1,550
–
1,219
4
75
2,848

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.

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

152
152

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

24. Financial instruments continued
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.

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 one month past due
Between one and two months past due
Between two and three months past due
More than three months past due
Provision for doubtful debts

2018
£m

466
302
168
305
1,241

2018
£m

950
90
18
9
30
(23)
1,074

2017
£m

418
287
163
297
1,165

2017
£m

893
107
20
8
32
(25)
1,035

Based on past experience, the group believes that no impairment allowance is necessary in respect of trade receivables that are
not past due.

Trade 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
Amounts acquired through business combinations
Effect of movements in foreign exchange
Closing balance

2018
£m

2017
£m

25
6
(4)
(4)
1
(1)
23

25
5
(2)
(3)
–
–
25

No trade receivables were written off directly to the income statement in either 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.

Associated British Foods plcAnnual Report and Accounts 2018

153
153

24. Financial instruments continued
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 154.

The following table analyses the contractual undiscounted cash flows relating to financial liabilities at the balance sheet date
and compares them to carrying amounts:

Non-derivative financial liabilities
Trade and other payables
Secured loans
Unsecured loans and overdrafts
Finance leases
Deferred consideration
Derivative financial liabilities
– Currency derivatives (net payments)
– Commodity derivatives (net payments)
Total financial liabilities

Note

18
17
17
25
19

Note

18
17
17
25
19

Due
between
6 months
and 1 year
£m

Due
between
1 and 2
years
£m

Due within
6 months
£m

2018

Due
between
2 and 5
years
£m

Due after
5 years
£m

Contracted
amount
£m

Carrying
amount
£m

(2,157)
(5)
(195)
(1)
–

(4)
(8)
(2,370)

(28)
(5)
(202)
(1)
(1)

(2)
–
(239)

(21)
(10)
(15)
(1)
(2)

–
(1)
(50)

(65)
–
(285)
(3)
(4)

–
–
(357)

(182)
–
(80)
(35)
(2)

–
–
(299)

(2,453)
(20)
(777)
(41)
(9)

(6)
(9)
(3,315)

(2,453)
(20)
(744)
(14)
(9)

(43)
(9)
(3,292)

Due
between
6 months
and 1 year
£m

Due
between
1 and 2
years
£m

Due within
6 months
£m

(2,198)
(13)
(173)
(1)
–

(69)
(2)
(2,456)

(20)
(5)
(60)
(1)
(2)

(8)
(3)
(99)

(15)
(11)
(254)
(2)
(1)

–
(1)
(284)

2017

Due
between
2 and 5
years
£m

(52)
(11)
(289)
(2)
(3)

–
–
(357)

Due after
5 years
£m

Contracted
amount
£m

Carrying
amount
£m

(149)
–
(97)
(36)
–

–
–
(282)

(2,434)
(40)
(873)
(42)
(6)

(77)
(6)
(3,478)

(2,434)
(40)
(823)
(14)
(6)

(107)
(6)
(3,430)

The above tables do not include forecast data for liabilities which may be incurred in the future but which were not contracted at
15 September 2018.

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.

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

154
154

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

24. Financial instruments continued
i) Borrowing facilities
The group has substantial borrowing facilities available to it. The undrawn committed facilities available at 15 September 2018,
in respect of which all conditions precedent have been met, amounted to £1,249m (2017 – £1,232m):

£1.2bn syndicated facility
US private placement
Illovo
Other

Facility
£m

1,200
573
113
2
1,888

2018

Drawn
£m

–
573
66
–
639

Uncommitted facilities available at 15 September 2018 were:

Money market lines
Illovo
Azucarera
China banking
Other

2018

Facility
£m

Drawn
£m

100
179
80
6
159
524

–
62
22
–
41
125

Undrawn
£m
1,200
–
47
2
1,249

Undrawn
£m
100
117
58
6
118
399

Facility
£m

1,200
558
117
17
1,892

2017

Drawn
£m

Undrawn
£m

–
558
85
17
660

1,200
–
32
–
1,232

2017

Facility
£m

Drawn
£m

Undrawn
£m

100
177
93
37
208
615

–
74
33
–
97
204

100
103
60
37
111
411

In addition to the above facilities there are also £73m (2017 – £520m) of undrawn and available credit lines for the purposes
of issuing letters of credit and guarantees in the normal course of business.

The group also has £14m (2017 – £14m) 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.

The group has a £1.2bn syndicated facility which matures in July 2021. In addition to the bank debt, the Company has £573m
of private placement notes in issue to institutional investors in the US and Europe. At 15 September 2018, these had an average
remaining duration of 2.5 years and an average fixed coupon of 4.6%. The other significant core committed debt facilities comprise
local committed facilities in Illovo.

Uncommitted bank borrowing facilities are normally reaffirmed by the banks annually, although they can theoretically be withdrawn
at any time.

Refer to note 9 for details of the group’s capital commitments and to note 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 51.

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 incentive plans. 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.

Associated British Foods plcAnnual Report and Accounts 2018

155
155

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 £7m (2017 – £8m) 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 £45m (2017 – £48m).

Under the terms of the lease agreements, no contingent rents are payable.

The future minimum lease payments under operating leases are as follows:

Within one year
Between one and five years
After five years

Finance leases
Finance lease liabilities are payable as follows:

Within one year
Between one and five years
After five years

2018
land and
buildings
£m

2018
plant and
equipment
£m

315
1,280
2,989
4,584

12
18
–
30

2018
total
£m

327
1,298
2,989
4,614

2017
land and
buildings
£m

283
1,173
2,959
4,415

2017
plant and
equipment
£m

12
16
–
28

2017
total
£m

295
1,189
2,959
4,443

2018
minimum
lease
payments
£m

2
4
35
41

2018
interest
£m

2018
principal
£m

1
3
23
27

1
1
12
14

2017
minimum
lease
payments
£m

2
4
36
42

2017
interest
£m

2017
principal
£m

1
3
24
28

1
1
12
14

26. Contingencies
Litigation and other proceedings against companies in the group are not considered material in the context of these financial
statements.

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 15 September 2018, group companies have provided guarantees in the ordinary course of business amounting to £1,661m
(2017 – £1,866m).

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

156
156

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

27. Related parties
The group has a controlling shareholder relationship with its parent company, Wittington Investments Limited, with the trustees
of the Garfield Weston Foundation and with certain other individuals who hold shares in the Company. Further details of the
controlling shareholder relationship are included in note 28. The group 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

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 and their

trustees of the Garfield Weston Foundation and their close family

close family

(iii) directors of the Company who are not trustees of the Foundation and are not directors of

Wittington Investments Limited

(iv) members of the Weston family employed within the Associated British Foods group
Sales to fellow subsidiary undertakings 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

2018
£000

2017
£000

2
3
4
5
5
5

1,045

992

11,685

10,675

3,071

2,799

62
–
48
16,043
1,215
1,887
14,186
39,822
395,279
14,577
48,775
3,771
40,715
857

62
2
46
14,790
1,391
1,938
16,615
23,112
400,242
16,128
49,649
2,451
37,154
1,100

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 15 September 2018 was the beneficial owner of
683,073 shares (2017 – 683,073 shares) in Wittington Investments Limited representing 79.2% (2017 – 79.2%) of that
company’s issued share capital and is, therefore, the Company’s ultimate controlling party. At 15 September 2018 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 66 and 67. Their interests, including family interests, in the Company and its
subsidiary undertakings are given on pages 96 and 97. Key management personnel are considered to be the directors,
and their remuneration is disclosed within the Remuneration report on page 92.

3. Members of the Weston family who are employed by the group and are not directors of the Company or Wittington

Investments Limited and are not trustees of the Foundation.

4. The fellow subsidiary undertakings are Fortnum and Mason plc and Heal & Son Limited.
5. The companies with common key management personnel are the George Weston Limited group, in Canada, and Selfridges

& Co. Limited.

Amounts due from joint ventures include £47m (2017 – £48m) of finance lease receivables (see note 13). The remainder of the
balance is trading balances. All but £5m (2017 – £3m) of the finance lease receivables are non-current.

Associated British Foods plcAnnual Report and Accounts 2018

157
157

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
(‘Wittington’), 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 15 September 2018 Wittington, together with its subsidiary, Howard Investments Limited, held 431,515,108 ordinary shares
(2017 – 431,515,108) representing in aggregate 54.5% (2017 – 54.5%) of the total issued ordinary share capital of
Associated British Foods plc.

Wittington, and, through their control of Wittington, the trustees of the Garfield Weston Foundation (‘the Foundation’) are
controlling shareholders of the Company. Certain other individuals, including certain members of the Weston family who hold
shares in the Company (and including two of the Company’s directors, George Weston and Emma Adamo) are, under the
Listing Rules, treated as acting in concert with Wittington and the trustees of the Foundation and are therefore also treated
as controlling shareholders of the Company. Wittington, the trustees of the Foundation and these individuals together comprise
the controlling shareholders of the Company and, at 15 September 2018, have a combined interest in approximately 59.15%
(2017 – 59.15%) of the Company’s voting rights. Information on the relationship agreement between the Company and its
controlling shareholders is set out on page 100 of the Directors’ report.

Subsidiary undertakings
A list of the group’s subsidiaries as at 15 September 2018 is given below. The entire share capital of subsidiaries is held
within the group except where the group’s ownership percentages are shown. These percentages give the group’s ultimate
interest and therefore allow for the occasional situation where subsidiaries are owned by partly-owned intermediate subsidiaries.
Where subsidiaries have different classes of shares, this is largely for historical reasons and the effective percentage
holdings given represent both the group’s voting rights and equity holding. Shares in ABF Investments plc are held directly
by Associated British Foods plc. All other holdings in subsidiaries are owned by members of the Associated British Foods plc
group. All subsidiaries are consolidated in the group’s financial statements.

% effective holding
if not 100%

Subsidiary undertakings
United Kingdom
Weston Centre, 10 Grosvenor Street, London,
W1K 4QY
A.B. Exploration Limited
A.B.F. Holdings Limited
A.B.F. Nominees Limited
A.B.F. Properties Limited
AB Agri Limited
AB Foods Australia Limited
AB Ingredients Limited
AB Mauri (UK) Limited
AB Mauri Europe Limited
AB Sugar China Holdings Limited
AB Sugar China Limited
AB Sugar China North Limited
AB Sugar Limited
AB Technology Limited
AB World Foods (Holdings) Limited
AB World Foods Limited
ABF (No. 1) Limited
ABF (No. 2) Limited
ABF (No. 3) Limited
ABF BRL Finance Ltd
ABF Europe Finance Limited
ABF European Holdings Limited
ABF Finance Limited
ABF Food Tech Investments Limited
ABF Funding
ABF Grain Products Limited
ABF Green Park Limited
ABF Grocery Limited
ABF HK Finance Limited
ABF Ingredients Limited
ABF Investments plc
ABF Japan Limited
ABF MXN Finance Limited
ABF Overseas Limited
ABF PM Limited

% effective holding
if not 100%

Subsidiary undertakings
ABF UK Finance Limited
ABF US Holdings Limited
ABN (Overseas) Limited
ABNA Feed Company Limited
ABNA Limited
Agrilines Limited
Allied Bakeries Limited
Allied Grain (Scotland) Limited
Allied Grain (South) Limited
Allied Grain (Southern) Limited
Allied Grain Limited
Allied Mills Limited
Allied Technical Centre Limited
Allinson Limited
Associated British Foods Pension Trustees Limited
Atrium 100 Properties Limited
Atrium 100 Stores Holdings Limited
Atrium 100 Stores Limited
B.E. International Foods Limited
Banbury Agriculture Limited
British Sugar (Overseas) Limited
British Sugar plc
BSO (China) Limited
Cereal Industries Limited
Cereform Limited
Davjon Food Limited
Dorset Cereals Limited
Eastbow Securities Limited
Elsenham Quality Foods Limited
Fishers Feeds Limited
Fishers Seeds & Grain Limited
Food Investments Limited
G. Costa (Holdings) Limited
G. Costa and Company Limited
Germain’s (U.K.) Limited
H 5 Limited
Illovo Sugar Africa Holdings Limited

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

158
158

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

28. Group entities continued

Subsidiary undertakings
Jacksons of Piccadilly Limited (strike off application

% effective holding
if not 100%

submitted October 2018)
John K. King & Sons Limited
Kingsgate Food Ingredients Limited
LeafTC Limited
Mauri Products Limited
Mitra Sugar Limited
Mountsfield Park Finance Limited
Nere Properties Limited
Nutrition Trading (International) Limited
Nutrition Trading Limited
Patak (Spices) Limited
Patak Food Limited
Patak’s Breads Limited
Patak’s Foods 2008 Limited
Premier Nutrition Products Limited
Pride Oils Public Limited Company
Primark (U.K.) Limited
Primark Austria Limited
Primark Mode Limited
Primark Pension Administration Services Limited
Primark Stores Limited
Primary Diets Limited
Primary Nutrition Limited
Pro-Active Nutrition Limited
R. Twining and Company Limited
Reflex Nutrition Limited
Roses Nutrition Ltd
Seedcote Systems Limited
Serpentine Securities Limited
Sizzlers Limited
Sizzles Limited
Spectrum Aviation Limited
Speedibake Limited
Sunblest Bakeries Limited
The Bakery School Limited
The Billington Food Group Limited
The Home Grown Sugar Company Limited
The Jordans & Ryvita Company Limited
The Natural Sweetness Company Limited
The Roadmap Company Limited
The Silver Spoon Company Limited
The Weston Biscuit Company Limited
Tip Top Bakeries Limited
Trident Feeds Limited
Twining Crosfield & Co. Limited
Vivergo Fuels Limited
W. Jordan & Son (Silo) Limited
W. Jordan (Cereals) Limited
Wereham Gravel Company Limited (The)
Westmill Foods Limited
Weston Foods Limited
Weston Research Laboratories Limited
Worldwing Investments Limited
1 College Place North, Belfast, BT1 6BG,
United Kingdom
James Neill, Limited
Unit 4, 211 Castle Road, Randalstown,
Co. Antrim, BT41 2EB
Jordan Bros. (N.I.) Limited
Nutrition Services (International) Limited
Vistavet Limited
180 Glentanar Road, Glasgow, G22 7UP
ABN (Scotland) Limited

% effective holding
if not 100%

Subsidiary undertakings
Miller Samuel LLP, RWF House,
5 Renfield Street, Glasgow, G2 5EZ
Korway Foods Limited
Korway Holdings Limited
Patak’s Chilled Foods Limited
Patak’s Frozen Foods Limited
Argentina
Mariscal Antonio José de Sucre 632 – 2nd Floor,
Buenos Aires 1428, Argentina
AB Mauri Hispanoamerica S.A.
Surgras S.A.
Av. Raul Alfonsin, Monte Chingolo,
Buenos Aires 3145, Argentina
Compañía Argentina De Levaduras S.A.I.C.
Australia
Level 1, Building A, 11 Talavera Road,
North Ryde, NSW 2113, Australia
AB Mauri Overseas Holdings Limited
AB Mauri Pakistan Pty Limited
AB Mauri ROW Holdings Pty Limited
AB Mauri South America Pty Limited
AB Mauri South West Asia Pty Limited
AB Mauri Technology & Development Pty Limited
AB Mauri Technology Pty Limited
AB World Foods Pty Ltd
Anzchem Pty Limited
Food Investments Pty. Limited
George Weston Foods Limited
Indonesian Yeast Company Pty Limited
Mauri Fermentation Brazil Pty Limited
Mauri Fermentation Chile Pty Limited
Mauri Fermentation China Pty Limited
Mauri Fermentation India Pty Limited
Mauri Fermentation Indonesia Pty Limited
Mauri Fermentation Malaysia Pty Limited
Mauri Fermentation Philippines Pty Limited
Mauri Fermentation Vietnam Pty Limited
Mauri Yeast Australia Pty Limited
N&C Enterprises Pty Ltd
NB Love Industries Pty Ltd
Serrol Ingredients Pty Limited
The Jordans and Ryvita Company Australia Pty Ltd
35-37 South Corporate Avenue, Rowville,
VIC 3178, Australia
AB Food & Beverages Australia Pty. Limited
170 South Gippsland Highway, Dandenong,
VIC 3175, Australia
ABF Wynyard Park Limited Partnership
Austria
Schottenring 19, 1010 Wien, Austria
Primark Austria Ltd & Co KG
Bangladesh
Level 13 Shanta Western Tower Bir Uttam Mir
Shawkat Road 186 Tejgaon I/A Dhaka 1208
Twinings Ovaltine Bangladesh Limited
Belgium
Industriepark 2, 9820 Merelbeke, Belgium
AB Mauri Belgium NV
Boulevard Raymond Poincare 07/113,
4020 Liege, Belgium
Primark SA
Brazil
Avenida Tietê, L-233 Barranca do Rio Tietê,
City of Pederneiras, State of Sao Paulo,
CEP 17.280-000, Brazil
AB Brasil Indústria e Comércio de Alimentos Ltda

Associated British Foods plcAnnual Report and Accounts 2018

159
159

% effective holding
if not 100%

90%

92%

% effective holding
if not 100%

90%

28. Group entities continued

Subsidiary undertakings
Alameda Madeira 328, 20th Floor, Room 2005,
Alphaville – Barueri, Sao Paulo 06454-010, Brazil
AB Enzimas Brasil Comercial Ltda
Rua Cardeal Arcoverde. 1641 9th Floor,
Sao Paulo, 05407002, Brazil
AB Vista Brasil Comércio De Alimentação

Animal Ltda

Canada
Blake, Cassels & Graydon LLP, 199 Bay Street,
Suite 4000, Toronto, Ontario M5L 1A9, Canada
AB Mauri (Canada) Limited
Chile
Miraflores Street No. 222, 28 Floor, Santiago,
Chile
Calsa Chile Inversiones Limitada
China
No. 1 Tongcheng Street, A Cheng District,
Harbin, Heilongjiang Province, China
AB (Harbin) Food Ingredients Company Limited
Harbin Mauri Yeast Co., Ltd.
Zhenlai Economic Development District,
Baicheng City, Jilin Province, China
AB Agri Animal Nutrition (Jilin) Co., Ltd
North Huang He Road, Rudong
New Economic Development Zone,
Nantong City, Jiangsu Province, China
AB Agri Animal Nutrition (Nantong) Co., Ltd
AB Agri Animal Nutrition (Rudong) Co., Ltd.
Chuangxin Road, Tonggu Industry Zone,
Sandu Town, Tongge County, Jiangxi Province,
China
AB Agri Pumeixin Tech (Jiangxi) Co. Ltd.
No. 889 West Yan An Road, Changning District,
Shanghai, 200050, China
AB Enzymes Trading (Shanghai) Co., Ltd
ABNA Management (Shanghai) Co., Ltd.
ABNA Trading (Shanghai) Co., Ltd
29/F Changning Raffles Tower 2, No. 1189
Changning Road, Changning District, Shanghai,
200051, China
Associated British Foods Holdings (China) Co., Ltd
British Sugar Consulting Services (Shanghai) Co Ltd
Suite 1908, Fosun International Center, No. 237
Chaoyangbei Road, Beijing, Chaoyang District, China
AB Mauri (Beijing) Food Sales and
Marketing Company Limited

Xinsha Industrial Zone, Machong Town,
Dongguan, Guangdong Province, China
AB Mauri Food (Dongguan) Co., Ltd.
1151 Siping Road, Yangpu District, Shanghai
200092, China
AB Mauri Foods (Shanghai) Company Limited
South Ge XinDaDao, West WuZiGou, Wuhan,
DongXHu District 430040, China
AB Tip Top (Wuhan) Baking Co Ltd
Building T3-4, No. 5001, Huadong Road,
Shanghai Jinqiao Export Processing Zone (SA),
Customs Supervised Area, Pudong New Area,
Shanghai 201201, China
ABF Twinings Beverages (Shanghai) Limited
868 Yongpu Road, Pujiang Town,
Minhang District, Shanghai 201112, China
ABNA (Shanghai) Feed Co., Ltd.
14 Juhai Road, Jinghai Development Zone,
Tianjin, China
ABNA (Tianjin) Feed Co, Ltd

Subsidiary undertakings
Shu Shan Modern Industrial Zone of Shou
County, Huainan City, Anhui Province, China
ABNA Feed (Anhui) Co., Ltd.
145 Xincheng Road, Tengao Economic
Development Zone, Anshan, Liaoning 114225,
China
ABNA Feed (Liaoning) Co., Ltd.
17 Xiangyang Street, Tu Township,
Chayouqianqui, Inner Mongolia, China
Botian Sugar Industry (Chayou Qianqi) Co., Ltd.
No. 1 Botian Road, Economic Development
Zone, Zhangbei County, Zhangjiakou City, Hebei
Province, China
Botian Sugar Industry (Zhangbei) Co., Ltd.
Development Zone Administration Tower,
No. 368 Changjiang Road, Nangang District,
Haibin, Hieilongjiang Province, China
Botian Sugar Industry Co., Ltd.
1 Industrial North Street, Zhangjiakou, Zhangbei
County, Hebei, China
Hebei Mauri Food Co., Ltd.
Meishan Industrial Estate, Huangge Town,
Nansha District, Guangzhou City, Guangdong
Province, China
Meishan Mauri Yeast Co., Ltd. (in liquidation)
Panyu Mauri Food Co., Ltd.
8 Lancun Road, Economic and Technical
Development Zone, Minhang, Shanghai 200245,
China
Shanghai AB Food & Beverages Co., Ltd
Jie Liang Zi,Huo Cheug, Yi Li, Xinjiang, China
Xinjiang Mauri Food Co., Ltd.
No. 68-1, Shuanglong Road, Fushan District,
Yantai City, Shandong Province, China
Yantai Mauri Yeast Co., Ltd.
Colombia
Cra 35# 34A-64, Palmira, Valle, Colombia
Fleischmann Foods S.A.
Czech Republic
Nádražní 523, Czech Republic
Bodit Tachov s.r.o.
Denmark
Skjernvej 42,Trøstrup, 6920 Videbæk, Denmark
Agro Korn A/S
Ecuador
Medardo Ángel Silva 13 y Panamá, Manzana 12,
El Recreo, Eloy Alfaro, Durán, Guayas, Ecuador
AB Calsa S.A.
Finland
Tykkimäentie 15b (PO Box 26), Rajamäki,
FI-05200, Finland
AB Enzymes Oy
Tykkimäentie 15b (PO Box 57), Rajamäki,
FI-05201, Finland
Enzymes Leasing Finland Oy
France
40/42, avenue Georges Pompidou, 69003,
à Lyon, France
AB Mauri France SAS
5 Boulevard de l'Oise, Immeuble Le Rond Point,
95000 Cergy Pontoise, Cédex, France
Foods International S.A.S.
52 rue de la Victoire, TMF Pole, 75009,
Paris, France
Primark France SAS

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

160
160

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

% effective holding
if not 100%

28. Group entities continued

Subsidiary undertakings
Chemin du Vallon du maire, 13240,
Septemes les Vallons, France
SPI Pharma SAS
Germany
Feldbergstrasse 78, 64293, Darmstadt, Germany
AB Enzymes GmbH
Wandsbeker Zollstrasse 59,22041,
Hamburg, Germany
ABF Deutschland Holdings GmbH
Ohly GmbH
Ohly Grundbesitz GmbH
Rheinische Presshefe- und Spritwerke GmbH
Kennedyplatz 2, 45127, Essen, Germany
Primark Mode Ltd. & Co. KG
Primark Property GmbH
Marie-Kahle-Allee 2, D-53113, Bonn, Germany
Westmill Foods Europe GmbH
Guernsey
Maison Trinity, Trinity Square,
St. Peter Port, GY1 1AT, Guernsey
Talisman Guernsey Limited
Hong Kong
7/F DCH Building, 20 Kai Cheung Road,
Kowloon Bay, Kowloon, Hong Kong
Associated British Foods Asia Pacific

Holdings Limited

India
#218 & #219, Bommasandra – Jigani Link Road,
Anekal Taluk, Bangalore, 560105, India
AB Mauri India (Private) Limited
First Floor, Regent Sunny Side, 80 Ft Road,
8th Block, Koramangala Bengaluru, Karnataka,
560030, India
SPI Specialties Pharma Private Limited
8, Acharya Jagadish Chandra Bose Road,
Kolkata, 700017, India
Twinings Private Limited
Indonesia
Wisma GKBI Lt.39, Suite 3901, No.28 Jl. Jend,
Sudirman, Jakarta , Indonesia
PT AB Food & Beverages Indonesia
Ireland
47 Mary Street, Dublin 1, Ireland
Abdale Finance Limited
Primark Holdings
Primark Pension Trustees Limited
Proofex Products Company Unlimited Company

(in liquidation)

Vistavet (Ireland) Limited
Yeast Products Company Unlimited Company

(in liquidation)

Arthur Ryan House, 22-24 Parnell Street,
Dublin 1, Ireland
Primark Limited
Italy
Via Milano 42, 27045, Casteggio, (Pavia), Italy
AB Mauri Italy S.p.A.
ABF Italy Holdings S.r.l.
Primark Italy S.r.l.
Via Montanara 22/24, 40051, Castelnuovo
Rangone (MO), Italy
Acetaia di Modena S.r.l
Via Rizzotto 46, 41126, Modena (MO), Italy
Acetaia Fini Modena S.r.l.

% effective holding
if not 100%

50%

76%
76%

52%

70%

73%

90%

Subsidiary undertakings
Via Sandro Pertini 440, 401314, Cavezzo
(MO), Italy
Acetum S.p.A.
Via Allende 9/D, 41032, Cavezzo (MO), Italy
Antica Acetaia Simonini S.r.l.
Piazza degli Affari 2, 20123, Milan, Italy
Lauro Sessantacinque S.p.A
Japan
2-5-1 Atago, Minato-ku, Tokyo, Japan
Twinings Japan Co Ltd
Jersey
CTV House, La Pouquelaye, St Helier,
JE2 3TP, Jersey
Bonuit Investments Limited
44 Esplanade, St Helier, JE4 9WG, Jersey
Parkstone (Jersey) Limited (in liquidation)
Luxembourg
16, Avenue Pasteur, Luxembourg,
L-2310, Luxembourg
AB Foods Luxembourg S.à r.l. (in liquidation)
9 Allee Scheffer, Luxembourg, L2520,
Luxembourg
ABF European Holdings & Co SNC
Malawi
Illovo House, Churchill Road, Limbe, Malawi
Dwangwa Sugar Corporation Limited
Illovo Sugar (Malawi) plc
Malawi Sugar Limited
Malaysia
No 118, Jalan Pudu, 1st Floor,
55100 Kuala Lumpur, Malaysia
AB Mauri Malaysia Sdn. Bhd.
Malta
57 St. Christopher Street, Valletta,
VLT1462, Malta
Relax Limited
Mauritius
10th Floor, Standard Chartered Tower,
19 Cybercity, Ebene, Mauritius
Illovo Group Financing Services Limited
Illovo Group Holdings Limited
Illovo Group Marketing Services Limited
Kilombero Holdings Limited
Sucoma Holdings Limited
Mexico
Paseo de la Reforma No 2620, Edificio Reforma
Plus, piso 8, 803, 804 y 803, Col. Lomas Atlas,
DF 11950, Mexico
AB CALSA S.A. de C.V.
AB CALSA SERVICIOS, S. DE R.L. DE C.V.
Prol. Paseo de la Reforma 1015, Torre A, Piso 14
Santa Fe, Distrito Federal 01376, Mexico
ACH Foods Mexico, S. de R.L. de C.V.
Servicios Alimentos Capullo, S. de R.L. de C.V.
Mozambique
KM75 EN1, Maçiana, Distrito de Manhiça,
Provincia de Maputo, Mozambique
Maragra Açucar, S.A.
Netherlands
Mijlweg 77, 3316 BE, Dordrecht, Netherlands
AB Mauri Netherlands B.V.
Luna ArenA, Herikerbergweg 238, 1101 CM,
Amsterdam Zuidoost, Netherlands
AB Mauri Netherlands European Holdings B.V.
Foods International Holding B.V.
Primark Fashion B.V.

Associated British Foods plcAnnual Report and Accounts 2018

% effective holding
if not 100%

60%

99%

96%

28. Group entities continued

Subsidiary undertakings
Primark Netherlands B.V.
Primark Stil B.V.
7122 JS Aalten, Dinxperlosestraatweg 122,
Netherlands
Germains Seed Technology B.V.
Brieltjenspolder 16, 4921 PJ Made, Netherlands
Mauri Technology B.V.
Dalsteindreef 141, Diemen, 1112XJ, Netherlands
Westmill Foods Europe B.V.
New Zealand
73-105 Great South Road, Otahuhu, Auckland,
New Zealand
Allied Foods (NZ) Ltd
Building 3, Level 2, 666 Great South Road,
Ellerslie, Auckland 1051, New Zealand
Anzchem NZ Limited
Level 1, 95 Manakau Road, Newmarket,
Auckland, New Zealand
George Weston Foods (NZ) Limited
1 Simsey Place, Te Rapa, Hamilton, 3200, New
Zealand
New Zealand Food Industries Limited
Nigeria
23 Oba Akinjobi Street, GRA, Ikeja, Lagos,
Nigeria
Twinings Ovaltine Nigeria Limited
Pakistan
21KM Ferozepur Road, 2k KM Hadyara Drain,
Lahore, Pakistan
AB Mauri Pakistan (PRIVATE) Limited
Peru
Av. Argentina No. 1227, Callao, Peru
Calsa Perú S.A.C.
Philippines
86 E Rodriguez Jr. Ave., Ugong Norte, QC,1604,
Pasig City, Metro Manila, Philippines
AB Food & Beverages Philippines, Inc.
1201-1202 Prime Land Building, Market Street,
Madrigal Business Park, Ayala Alabang,
Muntinlupa,1770, Philippines
AB Mauri Philippines, Inc.
Poland
Przemysłowa 2, 67-100 Nowa Sól, Lubuskie,
Poland
AB Foods Polska Spólka z ograniczona

odpowiedzialnoscia (AB Foods Polska SP.
z o.o.)

ul. Rabowicka 29/31, 62-020, Swarzędz – Jasin,
Poland
R. Twining and Company Sp. z o. o.
Portugal
Avenida Salvador Allende, n.º 99, Lisboa Oeiras,
Julião da Barra, Paço de Arcos e Caxias,
2770-157, Paco de Arcos, Portugal
AB Mauri Portugal, S.A.
Praça Marquês de Pombal, 1-8°, 1250 – 160
Lisbon, Portugal
Lojas Primark Portugal – Exploracao, Gestao e
Administracao de Espacos Comerciais S.A.

Rwanda
Kacyiru, Gasabo, Umujyi wa Kigali, Rwanda
Illovo Sugar (Kigali) Limited
Singapore
80 Robinson Road, #02-00, 068898 Singapore
AB Mauri Investments (Asia) Pte Ltd

Subsidiary undertakings
112 Robinson Road, #05-01, 068902 Singapore
AB Vista Asia Pte. Limited
Slovakia
Dvorakovo nabrezie 4, Bratislava 811 02,
Slovakia
Primark Slovakia s.r.o.
Slovenia
Cesta v Mestni log 88A, Ljubljana 1000, Slovenia
Primark Trgovine, trgovsko podjetje, d.o.o.
South Africa
1 Nokwe Avenue, Ridgeside, Umhlanga Rocks,
Kwazulu Natal, 4320, South Africa
Carabello Trading and Investments 20 Limited
CGS Investments (Pty) Limited
East African Supply (Pty) Limited
Glendale Sugar (Pty) Ltd
Illovo Distributors (Pty) Limited
Illovo Sugar (South Africa) Proprietary Limited
Illovo Sugar Africa Proprietary Limited
Illprop (Pty) Limited
Lacsa (Pty) Limited
Noodsberg Sugar Company (Pty) Ltd
Reynolds Brothers (Pty) Ltd
S.A. Sugar Distributors (Pty) Limited
Smithchem (Pty) Limited
Umzimkulu Sugar Company (Pty) Ltd
Spain
Avenida de Manoteras 46 bis,
Edificio Delta Norte, 28050, Madrid, Spain
AB Azucarera Iberia, S.L. Sociedad Unipersonal
AB Mauri Food, S.A
AB Mauri Spain, S.L.U.
AB Vista Iberia, S.L.
Nueva Comercial Azucarera, S.A. (in liquidation)
Levadura 5, Villarrubia 14710, Cordoba, Spain
ABF Iberia Holding S.L.
C/ Escultor Coomonte Bl. 2, Entreplanta,
Benavente, Zamora, Spain
Agroteo S.A.
Calle Comunidad do Murcia, Parcela LIE-1-03,
Plataforma Logistica de Fraga, 22520, Huesca,
Spain
Alternative Swine Nutrition, S.L.
Avienda Virgen de Montserrat, 44 Castelloli,
08719, Barcelona, Spain
Germains Seed Technology, S.A.
Plaza Pablo Ruiz Picasso S/N, Torre Picasso,
Planta 37, Madrid, Spain
Illovo Sugar Espana, S.L.
Gran Via, 32 5o 28013, Madrid, Spain
Primark Tiendas, S.L.U.
8, 2 Calle Via Servicio I, 2 CP, 19190 Torija,
Guadalajara, Spain
Primark Logistica, S.L. Sociedad Unipersonal
Sri Lanka
124 Templers Road, Mount Lavinia, Sri Lanka
AB Mauri Lanka (Private) Limited
Eswatini
Ubombo Sugar Limited, Old Main Road,
Big Bend, Eswatini
Bar Circle Ranch Limited
Illovo Swaziland Limited
Moyeni Ranch Limited
Ubombo Sugar Limited

161
161

% effective holding
if not 100%

70%

88%

53%

60%
60%
60%
60%

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

162
162

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

28. Group entities continued

Subsidiary undertakings
Switzerland
Fabrikstrasse 10, CH-3176, Neuenegg,
Switzerland
Wander AG
Taiwan
5F, No. 217, Sec 3, Nanking E Rd, Taipei City,
104, Taiwan (R.O.C.)
AB Food and Beverages Taiwan, Inc.
Tanzania
C/o Kilombero Sugar Company, Msolwa Mill
Office, Kidatu, Kilombero District, Tanzania
Illovo Distillers (Tanzania) Limited
Illovo Tanzania Limited
Kilombero Sugar Company Limited
Thailand
11th Floor, 2535 Sukhumvit Road, Kwaeng
Bangchak, Khet Prakhanong, Bangkok, 10260,
Thailand
AB Food & Beverages (Thailand) Ltd.
ABF Holdings (Thailand) Ltd.
1 Empire Tower, 24th Floor, Unit 2412-2413,
South Sathorn Road, Yannawa, Sathorn,
Bangkok, 10120, Thailand
AB World Foods Asia Ltd
229/110 Moo 1, Teparak Road,
T. Bangsaothong, A. Bangsaothong,
Samutprakarn, 10540, Thailand
Jasol Asia Pacific Limited
Turkey
Aksakal Mahallesi, Kavakpinari, Kume Evleri
No. 5, Bandirma- Balikesir, 10245, Turkey
Mauri Maya Sanayi A.S.
United Arab Emirates
Office 604ª, Jafza LOB 15, Jebel Ali Freezone,
Dubai, PO BOX 17620, United Arab Emirates
AB Mauri Middle East FZE
United States
CT Corporation System, 818 West Seventh
Street, Suite 930, Los Angeles CA 90017,
United States
AB Mauri Food Inc.
CT Corporation System, 1200 South Pine Island
Road, Plantation FL 33324, United States
AB Vista, Inc.
The Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street, Wilmington
DE 19801, United States
AB Enzymes, Inc.
ABF North America Corp.
ABF North America Holdings, Inc.
Abitec Corporation
ACH Food Companies, Inc.

% effective holding
if not 100%

80%

55%

Subsidiary undertakings
ACH Jupiter LLC
B.V. ABF Delaware, Inc.
Germains Seed Technology, Inc.
PGP International, Inc.
Primark US Corp.
SPI Pharma, Inc.
SPI Polyols, LLC
Twinings North America, Inc.
155 Federal Street, Suite 700, Boston MA 02110,
United States
Primark GCM LLC
158 River Road, Unit B, Clifton, NJ 07014,
United States
Balsamic Express LLC
158 River Road, Unit A, Clifton, NJ 07014,
United States
Modena Fine Foods, Inc.
Uruguay
Cno. Carlos Antonio Lopez 7547,
Montevideo, Uruguay
Levadura Uruguaya S.A.
Venezuela
Av. Rio Caura, Torre Humboldt, Piso 16,
Of. 16-12. Urb. Prados del Este, Caracas,
Estado Miranda, Bolivarian Republic of
Venezuela
Alimentos Fleischmann, C.A.,
Oficinas Once 3 (N° 11-3) y Once 4 (N° 11-4),
Torre Mayupan, Centro Comercial San Luis,
Av.Principal Urbanización San Luis, cruce con
Calle Comercio, Caracas, Bolivarian Republic
of Venezuela
Compañía de Alimentos Latinoamericana

de Venezuela (CALSA) S.A.

Vietnam
Unit 2, 100 Nguyen Thi Minh Khai Street,
Ward 6, District 3, Ho Choi Minh City, Vietnam
AB Agri Vietnam Company Limited
Km 102, Highway 20, La Nga Commune –
Dinh Quan District, Dong Nai Province, Vietnam
AB Mauri Vietnam Limited
Zambia
Nakambala Estates, Plot No. 118a
Lubombo Road, Off Great North Road, Zambia
Illovo Sugar (Zambia) Limited
Nanga Farms PLC
Tukunka Agricultural Limited
Zambia Sugar plc

% effective holding
if not 100%

66%

65%
75%
75%

Lusaka Stock Exchange (LuSE) regulations require all listed companies in Zambia to have a minimum of 25% of their shares held
by public investors to constitute a free float. As a result, Illovo Sugar was required to reduce its shareholding in Zambia Sugar plc
by 6.6%. Effective 26 September 2014, 5.1% of the shares were sold to local Zambian institutional investors. Further, as agreed
with the LuSE, the remaining 1.5% were offered and sold to a local Zambian institutional investor on 5 December 2017. The
shareholding for Illovo Sugar at 15 September 2018 was 75% of the total shareholding.

The results and balance sheet of Primark Mode Ltd. & Co. KG are included in these financial statements and these financial
statements will be filed in Germany. As a consequence, Primark Mode Ltd. & Co. KG is exempt from the requirement to file
its own financial statements under section 264b HGB.

Associated British Foods plcAnnual Report and Accounts 2018

163
163

28. Group entities continued
Associated British Foods plc has irrevocably guaranteed all commitments entered into by each of the Irish incorporated
subsidiary undertakings listed below, including amounts shown as liabilities in the statutory financial statements of these
companies, in respect of the financial year ended 15 September 2018. As a consequence, these subsidiary undertakings may
qualify for the exemption under section 357 of the Companies Act 2014 (Ireland) from the provisions of sections 347 and 348
of that Act.

Abdale Finance Limited
Primark Limited
Primark Holdings
Primark Pension Trustees Limited

Joint ventures
A list of the group’s joint ventures as at 15 September 2018 is given below. All joint ventures are included in the group’s financial
statements using the equity method of accounting.

Joint ventures

% holding

Joint ventures

% holding

United Kingdom
Weston Centre, 10 Grosvenor Street, London,
W1K 4QY
Frontier Agriculture Limited

Boothmans (Agriculture) Limited
Forward Agronomy Limited
G F P (Agriculture) Limited
GH Grain Limited
GH2 Limited
Grain Harvesters Limited
Nomix Limited
North Wold Agronomy Limited
Phoenix Agronomy Limited
SOYL Limited
The Agronomy Partnership Limited

Fine Lady Bakeries Ltd, Southam Road, Banbury,
Oxfordshire, OX16 2RE
Chiltern Bakeries Limited
Berth 36, Test Road, Eastern Docks, Southampton,
Hampshire, SO14 3GG

Southampton Grain Terminal Limited
Kingseat, Newmacher, Aberdeenshire,
AB21 0UE, Scotland

Grampian Crop Services Limited
Lothian Crop Specialists Limited

1st Floor Offices, 10 Hereford Road, Abergavenny,
Monmouthshire, NP7 5P

Brian Lewis Agriculture Limited

47, Beaumount Seymour & Co, Butt Road, Colchester,
Essex CO3 3BZ

Anglia Grain Holdings Limited

Riverside, Wissington Road, Nayland, Colchester,
Essex, CO6 4LT

Anglia Grain Services Limited

Unit 8, Burnside Business Park, Burnside Road, Market
Brayton, TF9 3UX

B.C.W (Agriculture) Limited

Witham St Hughs, Lincoln, LN6 9TN

Nomix Enviro Limited

Australia
Level 1, Building A, 11 Talavera Road, North Ryde
NSW 2113, Australia
Fortnum & Masons Pty Limited

Chile
Ave. Balmaceda 3500, Valdivia, Chile
Levaduras Collico S.A.

50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%

44%

25%

50%
50%

50%

33%

50%

China
1828 Tiejueshan Road, Huangdao District, Qingdao,
Shandong Province, China
Qingdao Xinghua Cereal Oil and Foodstuff Co., Ltd

Finland
Tykkimäentie 15b (PO Box 57), Rajamäki,
FIN-05201, Finland
Roal Oy

France
59, Chemin du Moulin, 695701, Carron, Dardilly, France
Synchronis

Germany
Brede 4, 59368, Werne, Germany
UNIFERM GmbH & Co. KG
INA Nahrmittel GmbH
UNIFERM Verwaltungs GmbH
Brede 8, 59368, Werne, Germany
UNILOG GmbH
Poland
ul. Wybieg, nr 5, lok 9, miesjsc, KOD 61-315, Poznan,
Poland
Uniferm Polska Sp Z.o.o

South Africa
1 Nokwe Avenue, Ridgeside, Umhlanga Rocks,
Kwazulu Natal 4320, South Africa
Glendale Distilling Company

Spain
C/ Raimundo Fernández, Villaverde 28, Madrid, Spain
Compañía de Melazas, S.A.

United States
C T Corporation System, 2 North Jackson Street, Suite
605, Montgomery AL 36104, United States
SOC Land Acquisition Company, LLC
Supreme Oil Company-South, LLC

The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington DE 19801,
United States
Stratas Foods LLC

Stratas Receivables I LLC
Supreme Oil Company LLC

Supreme Oil Company IC-DISC, Inc.
Supreme Oil Central, Inc.

25%

50%

50%
50%
50%

50%

50%
50%

50%
50%
50%
50%
50%

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

164
164

NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

28. Group entities continued
Associates
A list of the group’s associates as at 15 September 2018 is given below. All associates are included in the group’s financial
statements using the equity method of accounting.

Associates

United Kingdom
6th Floor 10 Bloomsbury Way, London, England,
WC1A 2SL
Bakers Basco Limited
Paternoster House, 65 St. Paul's Churchyard,
London, EC4M 8AB
C. Czarnikow Limited

Czarnikow Group Limited

C. Czarnikow Sugar Futures Limited
C. Czarnikow Sugar Limited
Sugarworld Limited

Vernon House, 40 New North Road, Huddersfield, West
Yorkshire, HD1 5LS
Proper Nutty Limited
Australia
283 Flagstaff Road, Brinkley SA 5253, Australia
Big Pork River Pty Ltd
Lot 12, Flagstaff Road, Murray Bridge SA 5253, Australia
Murray Bridge Bacon Pty Ltd
32 Davis Road, Wetherill Park, Sydney NSW 2164,
Australia
New Food Coatings Pty Ltd
Brazil
Rua Fidêncio Ramos, 308, cj64, Torre A, Vila Olímpia, São
Paulo, SP, Brasil, Cep 04551-010

Czarnikow Brasil Ltda

China
Room 17A01, 232 Zhong Shan 6th Road, Guangzhou,
China, 510180

C. Czarnikow Sugar (Guangzhou) Company Limited

India
House No. 1-8-373/A, Chiran Fort Lane, Begumpet,
Hyderabad, 500003, India

C. Czarnikow Sugar (India) Private Limited

Indonesia
Komplex Puri Mutiara Blok A21-22, JL. Griya Utama,
Sunter Agung, Jakarta, 14350, Indonesia
PT Indo Fermex

P.T. Jaya Fermex

PT Sama Indah
Israel
3 Golda Meir St. Ness Ziona, 74-036, Israel

Sucarim (Czarnikow Israel Sugar Trading) Ltd

8th Galgalay haplada, Herzlia, Israel

Sucris Limited

Italy
Piazza Borromeo 14, 20123 Milano, Italia

Czarnikow Italia Srl

%
holding

Associates

%
holding

Kenya
I & M Bank House, Second Ngong Avenue,
P.O. Box 10517, Nairobi 00100, Kenya

20%

C. Czarnikow Sugar (East Africa) Limited

Mauritius
No 5 President John Kennedy Street, Port Louis,
Mauritius
Sukpak Limited

Mexico
Descartes #54 Int. 101, Col. Nueva Anzures Ciudad de
Mexico, 11590, Mexico

C. Czarnikow Sugar (Mexico), S.A. de C.V.
Czarnikow Servicios de Personales, S.A. de C.V.

New Zealand
c/o KPMG, 18 Viaduct Harbour Avenue, Maritime
Square, Auckland, New Zealand

New Food Coatings (New Zealand) Ltd

Philippines
Unit A 103 Excellence Avenue, Carmelray
Industrial Park 1, Canlubang, Calamba, Laguna, Philippines

New Food Coatings (Philippines) Inc.

Singapore
3 Phillip Street, #14-01 Royal Group Building, Singapore
048693

C. Czarnikow Sugar Pte. Limited

South Africa
1 Gledhow Mill Road, Gledhow, Kwadukuza, 4450, South
Africa
Gledhow Sugar Company (Pty) Limited

Tanzania
7th Floor Amani Place, Ohio Street, PO Box 38568,
Dar-es-Salaam, Tanzania

Czarnikow Tanzania Limited

Msolwa Mill Office, Kidatau, Tanzania
Kilombero Sugar Distributors Limited

Thailand
909 Moo 15, Teparak Road, Tambol Bangsaothong, King
Amphur Bangsaothong, Samutprakarn, Thailand
Newly Wed Foods (Trading) Limited
Newly Weds Foods (Thailand) Ltd
20th Floor, UBC II Building, 591 Sukhumvit Road, North
Klongton, Wattana, Bangkok 10110 Thailand

Czarnikow Thailand Limited

United States
333 SE 2nd Avenue, Suite 2860, Miami, FL 33131, USA

C. Czarnikow Sugar Inc.

43%
43%
43%
43%
43%

40%

20%

50%

43%

49%
49%
49%

43%

21%

43%

30%

43%
43%

50%

43%

30%

43%

20%

25%
50%

43%

Associated British Foods plcAnnual Report and Accounts 2018

COMPANY BALANCE SHEET
at 15 September 2018

165
165

Fixed assets
Intangible assets
Investments in subsidiaries

Current assets
Debtors
– due within one year
– due after one year
Employee benefits assets – due after one year
Derivative assets
Cash and cash equivalents

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
Employee benefits liabilities
Deferred tax liabilities

Net assets

Capital and reserves
Issued capital
Capital redemption reserve
Hedging reserve
Profit and loss reserve
Equity shareholders’ funds

Note

1
2

3
3
4

6
4
5

7
7
7
7

2018
£m

18
688
706

3,629
232
571
60
822
5,314

(241)
(2,606)
(2,847)
2,467
3,173

(335)
(210)
(41)
(79)
(665)
2,508

45
2
(9)
2,470
2,508

2017
£m

19
676
695

4,166
187
277
52
997
5,679

–
(2,898)
(2,898)
2,781
3,476

(557)
(174)
(44)
(33)
(808)
2,668

45
2
(5)
2,626
2,668

The Company’s loss for the 52 weeks ended 15 September 2018 was £62m (52 weeks ended 16 September 2017 – £73m).

The financial statements on pages 165 to 171 were approved by the board of directors on 6 November 2018 and were signed
on its behalf by:

Michael McLintock
Chairman

John Bason
Finance Director

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

166
166

COMPANY STATEMENT OF CHANGES IN EQUITY
for the 52 weeks ended 15 September 2018

Balance as at 17 September 2016

Total comprehensive income
Loss for the period recognised in the income statement

Remeasurement of defined benefit schemes
Deferred tax associated with defined benefit schemes
Movement in cash flow hedging position
Other comprehensive income
Total comprehensive income

Transactions with owners
Dividends paid to equity shareholders
Net movement in own shares held
Deferred tax associated with share-based payments
Total transactions with owners
Balance as at 16 September 2017

Total comprehensive income
Loss for the period recognised in the income statement

Remeasurement of defined benefit schemes
Deferred tax associated with defined benefit schemes
Movement in cash flow hedging position
Other comprehensive income
Total comprehensive income

Share
capital
£m

Capital
redemption
reserve
£m

Hedging
reserve
£m

Profit
and loss
reserve
£m

Total
£m

(3)

2,671

2,715

–

–
–
–
–
–

–
–
–
–
45

–

–
–
–
–
–

–
–
–
–
45

–

–
–
–
–
–

–
–
–
–
2

–

–
–
–
–
–

–
–
–
–
2

–

–
–
(2)
(2)
(2)

–
–
–
–
(5)

–

–
–
(4)
(4)
(4)

–
–
–
–
(9)

(73)

384
(66)
–
318
245

(299)
11
(2)
(290)
2,626

(62)

293
(49)
1
245
183

(327)
(11)
(1)
(339)
2,470

(73)

384
(66)
(2)
316
243

(299)
11
(2)
(290)
2,668

(62)

293
(49)
(3)
241
179

(327)
(11)
(1)
(339)
2,508

Associated British Foods plcAnnual Report and Accounts 2018

ACCOUNTING POLICIES
for the 52 weeks ended 15 September 2018

167
167

Basis of preparation
The financial statements are presented in sterling, rounded to the nearest million. They are prepared under the historical cost basis,
except that derivative financial instruments are stated at their fair value, and in accordance with Financial Reporting Standard 101
Reduced Disclosure Framework (FRS 101) and the Companies Act 2006.

As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation
to share-based payments, financial instruments, capital management, presentation of comparative information in respect of certain
assets, presentation of a cash flow statement, standards not yet effective, impairment of assets and certain related party
transactions. Where required, equivalent disclosures are given in the consolidated financial statements.

As permitted by section 408(4) of the Companies Act 2006, a separate income statement and statement of comprehensive
income for the Company has not been included in these financial statements. The principal accounting policies adopted are
described below. They have all been applied consistently to all years presented.

Intangible assets
Intangible assets comprise goodwill arising on business combinations and operating intangibles. Goodwill is defined under
‘Business combinations’ on page 116 of the consolidated financial statements. The Companies Act 2006 requires goodwill to be
amortised on a systematic basis over its useful economic life. Under FRS 101 goodwill is not amortised, but is instead reviewed
for impairment on an annual basis or whenever there are indicators of impairment. The Company is therefore invoking a ‘true and
fair view override’ to overcome the requirement to amortise goodwill in the Companies Act 2006. Had the Company amortised
goodwill, a period of three years would have been chosen as its useful life from the date of transition. The loss for the year
would have been £4m higher had goodwill been amortised in the year.

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 economic lives of intangible assets from the
date they are available for use. The estimated useful lives are generally deemed to be no longer than five years.

Investments in subsidiaries
Investments in subsidiaries are stated at cost less any provision for impairment.

Financial assets and liabilities
Financial assets and financial liabilities, except for derivatives, are measured initially at fair value, plus directly attributable transaction
costs, and thereafter at amortised cost.

Derivatives
Derivatives are used to manage the Company’s economic exposure to financial risks. The principal instruments used are foreign
exchange contracts and swaps. 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.

Pensions and other post-employment benefits
The Company operates one defined contribution and two defined benefit pension schemes. The Company is the principal
employer of the Associated British Foods Pension Scheme, which is a funded final salary scheme that is closed to new members,
as well as a small unfunded final salary scheme. For the defined benefit schemes, 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
Company 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. 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. Contributions payable by the group in respect of defined contribution plans are charged to operating profit
as incurred.

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

168
168

COMPANY STATEMENT OF CHANGES IN EQUITY
for the 52 weeks ended 15 September 2018

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 equity.

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, using tax rates enacted or substantively enacted at the balance
sheet date, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes.

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.

Share-based payments
The fair value of the share awards at grant date is recognised as an employee expense with a corresponding increase in equity,
spread over the period during which 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.

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 equity.

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.

Associated British Foods plcAnnual Report and Accounts 2018

NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

169
169

1. Intangible assets

Cost
At 16 September 2017 and 15 September 2018

Amortisation
At 16 September 2017
Amortisation
At 15 September 2018

Net book value
At 16 September 2017
At 15 September 2018

2. Investments in subsidiaries

At 16 September 2017
Additions
At 15 September 2018

Goodwill
£m

Operating
intangibles
£m

–
–
–

14
14

(2)
(1)
(3)

5
4

Total
£m

(2)
(1)
(3)

19
18

£m
676
12
688

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. Employee entitlements

Reconciliation of changes in assets and liabilities
At beginning of year
Current service cost
Employee contributions
Employer contributions
Benefit payments
Past service cost
Interest income/(expense)
Return on scheme assets less interest income
Actuarial gains arising from changes in financial

assumptions

Actuarial gains arising from changes in demographic

assumptions

Experience gains on scheme liabilities
At end of year

2018
assets
£m

3,695
–
7
28
(214)
–
96
102

2017
assets
£m

2018
liabilities
£m

2017
liabilities
£m

3,639
–
8
25
(183)
–
87
119

(3,462)
(32)
(7)
–
214
1
(89)
–

(3,777)
(35)
(8)
–
184
–
(91)
–

–

129

–
–
3,714

–
–
3,695

49
13
(3,184)

–
244
(3,462)

2018
£m

3,592
18
19
3,629

2017
£m

4,115
10
41
4,166

232

187

2018
net
£m

233
(32)
–
28
–
1
7
102

129

49
13
530

2017
net
£m

(138)
(35)
–
25
1
–
(4)
119

–
244
233

The net pension asset of £530m comprises a funded scheme with a surplus of £571m and an unfunded scheme with a deficit
of £41m.

Further details of the Associated British Foods Pension Scheme are contained in note 11 of the consolidated financial statements.

Associated British Foods plcAnnual Report and Accounts 2018Financial statements

170
170

NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the 52 weeks ended 15 September 2018

5. Deferred tax assets and liabilities

At 16 September 2017
Amount (credited)/charged to the income statement
Amount (credited)/charged to equity
At 15 September 2018

6. 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

Employee
benefits
£m

Share-based
payments
£m

(40)
(1)
(49)
(90)

3
–
(1)
2

Other
£m

4
4
1
9

2018
£m

1
68
2,537
2,606

Total
£m

(33)
3
(49)
(79)

2017
£m

1
65
2,832
2,898

210

174

The directors consider that the carrying amount of creditors approximates their fair value.

7. Capital and reserves
Share capital
At 16 September 2017 and 15 September 2018, the Company’s issued and fully paid share capital comprised 791,674,183 ordinary
shares of 515⁄22p, each carrying one vote per share. Total nominal value was £45m.

Capital redemption reserve
The non-distributable capital redemption reserve arose following redemption of 2 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.

Share-based payments
Details of the Company’s equity-settled share-based payment plans are provided in note 22 to the consolidated financial statements.

8. Contingent liabilities
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group,
the Company considers these to be insurance arrangements and accounts for them as such. The guarantee contract is treated
as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under
the guarantee.

The Company had provided £802m of guarantees in the ordinary course of business as at 15 September 2018 (2017 – £857m).

Associated British Foods plcAnnual Report and Accounts 2018

171
171

9. Related parties
The Company has a controlling shareholder relationship with its parent company, Wittington Investments Limited, with the
trustees of the Garfield Weston Foundation and with certain other individuals who hold shares in the Company. Further details of
the controlling shareholder relationship are included in note 28 to the consolidated financial statements. The Company 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:

Charges to Wittington Investments Limited in respect of services provided by the Company
Dividends paid by the Company and received in a beneficial capacity by:
trustees of the Garfield Weston Foundation and their close family
(i)
(ii) directors of Wittington Investments Limited who are not trustees of the Foundation

and their close family

(iii) directors of the Company who are not trustees of the Foundation and are not directors of

Wittington Investments Limited

(iv) members of the Weston family employed within the Associated British Foods group
Charges to fellow subsidiary undertakings
Charges to non-wholly owned subsidiaries
Charges to joint ventures
Interest income earned from non-wholly owned subsidiaries
Amounts due from non-wholly owned subsidiaries

Sub note

1
1
2
2
2
2
2

2018
£000

1,045

2017
£000

992

11,685

10,675

3,071

2,799

62
–
43
1,902
40
165
95,104

62
2
–
282
–
123
52,193

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.

10. Other information
Emoluments of directors
The remuneration of the directors of the Company is shown in the Remuneration report for the group on page 92.

Employees
The Company had an average of 185 employees in 2018 (2017 – 169).

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 plcAnnual Report and Accounts 2018Financial statements

172

PROGRESS REPORT
Saturday nearest to 15 September 2018

Revenue
Adjusted operating profit
Exceptional items
Transaction costs
Amortisation of non-operating intangibles
Acquired inventory fair value adjustments
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)/income
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)

2014
£m

12,943
1,163
–
–
(72)
–
(11)
(2)
15
(73)
–
1,020
(237)
783

96.5
104.1
34.0

2015
£m

12,800
1,082
(98)
–
(55)
–
8
(172)
8
(61)
(5)
707
(191)
516

66.8
101.5
35.0

2016
£m

13,399
1,118
–
(5)
(21)
–
11
(14)
6
(56)
3
1,042
(221)
821

103.4
106.2
36.75

2017
£m

15,357
1,363
–
(5)
(28)
–
6
293
9
(59)
(3)
1,576
(365)
1,211

151.6
127.1
41.0

2018
£m

15,574
1,404
–
(2)
(41)
(23)
6
(34)
15
(50)
4
1,279
(257)
1,022

127.5
134.9
45.0

Figures from 2015 onwards reflect the amendments to IAS 41 Agriculture and IAS 16 Property, Plant and Equipment.

Associated British Foods plcAnnual Report and Accounts 2018

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

Registrar
Equiniti
Aspect House
Spencer Road
Lancing BN99 6DA

Auditor
Ernst & Young LLP Chartered Accountants

Bankers
Barclays Bank PLC
Lloyds Banking Group plc
The Royal Bank of Scotland plc

Brokers
Credit Suisse Securities (Europe) Limited
One Cabot Square
London E14 4QJ

Barclays Bank PLC
5 The North Colonnade
Canary Wharf
London E14 4BB

Timetable
Interim dividend paid
6 July 2018

Final dividend to be paid
11 January 2019

Annual general meeting
7 December 2018

Interim results to be announced
24 April 2019

Website
www.abf.co.uk

Warning about share fraud
From time to time, companies, their subsidiary companies, and shareholders can be the subject of investment scams.
The perpetrators obtain lists of shareholders or subsidiaries and make unsolicited phone calls or correspondence concerning
investment matters. They may offer to sell worthless or high risk shares and may offer to buy your current shareholdings at an
unrealistic price. They will often also inform you of untrue scenarios to make you think that you need to sell your shares or to
justify an offer that seems too good to be true. These operations are commonly known as ‘boiler rooms’.

Shareholders are advised to be very wary of any offers of unsolicited advice, discounted shares, premium prices for shares they
own or unsolicited investment opportunities. If you receive any such unsolicited calls, correspondence or investment advice:

 ensure you get the correct name of the person and firm;

 check that the firm is on the Financial Conduct Authority (FCA) Register to ensure they are authorised at

www.register.fsa.org.uk;

 use the details on the FCA Register to contact the firm;

 call the FCA Consumer Helpline (0800 111 6768) if there are no contact details in the Register or you are told they are out of

date; and

 if you feel uncomfortable with the call or the calls persist, simply hang up.

Forward-looking statements
This report contains forward-looking statements. These have been made by the directors in good faith based on the information
available to them up to the time of their approval of this report. The directors can give no assurance that these expectations
will prove to have been correct. Due to the inherent uncertainties, including both economic and business risk factors underlying
such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking
statements. The directors undertake no obligation to update any forward-looking statements whether as a result of new
information, future events or otherwise.

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 our website

www.abf.co.uk

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