A
s
s
o
c
i
a
t
e
d
B
r
i
t
i
s
h
F
o
o
d
s
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
9
ANNUAL
REPORT
AND
ACCOUNTS
2019
Grocery
Sugar
Contents
Financial headlines
Strategic report
1
2 Our businesses at a glance
4 Chairman’s statement
6 Chief Executive’s statement
8 Group business model and strategy
10 Key performance indicators
12
Operating review
12 Grocery
22 Sugar
30 Agriculture
34 Ingredients
40 Retail
50 Financial review
53 Responsibility
62 Principal risks and uncertainties
67 Viability statement
Agriculture
Ingredients
Governance
68 Board of directors
70 Corporate governance
83 Remuneration report
107 Directors’ report
110 Statement of directors’ responsibilities
111 I ndependent auditor’s report
Financial statements
119 Consolidated income statement
120 Consolidated statement of
comprehensive income
121 Consolidated balance sheet
122 Consolidated cash flow statement
123 Consolidated statement of changes
in equity
124 Significant accounting policies
131 Accounting estimates
and judgements
132 Notes forming part of the
financial statements
176 Company financial statements
183 Progress report
184 Company directory
Read more
page 12
Read more
page 22
Read more
page 30
Retail
Read more
page 34
Read more
page 00
Read more
page 40
Well-loved
household brands
9/10
UK households use
our brands
Retail
Primark is the largest clothing,
footwear and accessories
retailer in the UK, and also has a
significant store portfolio in ten
European countries and in the US.
ABOUT
ASSOCIATED
BRITISH
FOODS
Our purpose is to
provide safe, nutritious,
affordable food and
clothing that is great
value for money.
A leader in our markets
Grocery
Our grocery brands occupy leading
positions in markets across the
globe. In the UK, nine out of ten
households use our brands.
Sugar
AB Sugar is one of the largest
sugar producers in the world. Illovo
is the largest sugar producer in
Africa and British Sugar is the sole
processor of the UK sugar beet crop.
Agriculture
AB Agri is the UK’s largest
agri-food company and a
leader in nutrition, science
and technological innovation
in animal feed.
Ingredients
Our Ingredients business
is a leader in yeast, bakery
ingredients and specialty
ingredients for the food, feed
and pharmaceutical industries.
Read more
page 2
A global presence
52
countries operated
in worldwide
Acting responsibly
Respecting everyone’s
dignity
Acting with integrity
Progressing through
collaboration
Pursuing with rigour
Read more about our values and how we make
a difference in our 2019 Responsibility Report
www.abf.co.uk/responsibility
An entrepreneurial
spirit
138,000
people worldwide
Read more about our people
www.abf.co.uk/responsibility
FINANCIAL
HEADLINES
Group revenue
£15.8bn
Actual +2%
Constant currency: +2%
Adjusted operating profit
Adjusted profit before tax
£1,421m
Actual +1%
Constant currency: +1%
£1,406m
Up 2%
Adjusted earnings
per share
137.5p
Up 2%
Dividends per share
46.35p
Up 3%
Gross investment
Net cash
£837m
£936m
Operating profit
Profit before tax
£1,282m
Down 5%
£1,173m
Down 8%
Basic earnings per share
111.1p
Down 13%
Associated British
Foods is a diversified
international food,
ingredients and retail
group with sales of
£15.8bn, 138,000
employees and
operations in 52
countries across
Europe, southern
Africa, the Americas,
Asia and Australia.
Review of the year online:
www.abf.co.uk/ar2019
Adjusted operating profit is stated before the amortisation of non-operating intangibles, profits less losses on disposal of non-current assets, transaction costs, amortisation
of acquired inventory fair value adjustments and exceptional items. These items, together with profits less losses on the sale and closure of businesses, are excluded from
adjusted profit before tax and adjusted earnings per share. References to operating profit in the Operating review are based on this adjusted operating profit measure.
Constant currency figures are derived by translating the 2018 results at 2019 average exchange rates, except for countries where consumer price inflation has escalated to
extreme levels, in which case actual rates are used.
References to underlying profit for Twinings Ovaltine and Grocery exclude a £12m charge in 2019 in respect of the closure of the Twinings tea factory in Jinqiao, China.
Annual Report and Accounts 2019
Associated British Foods plc
1
Strategic report Our businesses at a glance
A DIVERSE GROUP
OF BUSINESSES
Grocery
Household food
brands enjoyed all
over the world
Read more page 12
Sugar
A world-leading
sugar business
focused on excellence
Read more page 22
Agriculture
Products and services
for the agri-food
industry
Read more page 30
Ingredients
Yeast, bakery and
specialty ingredients
supplied globally
Read more page 34
Retail
Quality fashion
at value-for-money
prices
Read more page 40
100
Twinings and Ovaltine
enjoyed in over 100 countries
16,000
employees
24
plants worldwide
34,000
employees
65
countries worldwide
3,000
employees
52
plants in production
for AB Mauri
7,000
employees
373
stores
78,000
employees
Twinings and Ovaltine
The Americas
Twinings and Ovaltine are our leading
In the US, Mazola is the leader in corn oil
global hot beverage brands enjoyed in
and we sell a range of baking brands
over 100 countries.
Europe and international
Our portfolio includes Mazzetti
through retail and foodservice channels.
Capullo is a premium canola oil in Mexico.
Australia
balsamic vinegars, Jordans and Dorset
Ham, bacon and smallgoods under the
cereals, Ryvita, Kingsmill, Patak’s and
Don and KRC brands. Tip Top Bakeries
Blue Dragon, Silver Spoon and
Billington’s sugars.
produce a range of well-known breads
and baked goods. Yumi’s produces
hommus, vegetable dips and snacks.
Europe
Southern Africa
Our UK beet sugar factories typically
Illovo is Africa’s largest sugar producer
produce well over 1 million tonnes of
with agricultural and production facilities
sugar annually. Azucarera in Spain
in six countries. Typical annual sugar
produces beet sugar from three factories
production is 1.7 million tonnes.
and also refines sugar from cane raws.
China
We operate two beet sugar factories
in the north east of China, with annual
sugar production capacity of over
180,000 tonnes.
AB Agri
It supplies compound animal feed, feed
AB Agri produces animal feed, nutrition-
enzymes, specialised feed ingredients
and technology-based products and
and a range of value-add services to
services for the agri-food industry. It
farmers, feed and food manufacturers,
operates all along the food, drink and
processors and retailers. It also buys
biofuel industry supply chains.
grain from farmers and supplies crop
inputs through its joint venture arable
operation, Frontier Agriculture.
Yeast and bakery ingredients
Specialty ingredients
AB Mauri operates globally in yeast and
ABF Ingredients produces value-added
bakery ingredients production, supplying
products and services for food and
industrial and artisanal bakers and the
non-food applications.
Adjusted operating profit
foodservice and wholesale channels. It is
a technology leader in bread improvers,
dough conditioners and bakery mixes.
It manufactures and markets enzymes,
specialty lipids, yeast extracts, extruded
ingredients, pharmaceutical excipients
and antacids worldwide with
manufacturing facilities in Europe,
America and India.
Primark
Buying and merchandising teams in
Primark is a major retail group operating
Dublin (Republic of Ireland) travel
stores in the UK, Republic of Ireland,
internationally to source and buy fashion
Spain, Portugal, Germany, the
items that best reflect each season’s key
Netherlands, Belgium, Austria, France,
fashion trends. Primark’s range includes
Italy, Slovenia and the US.
It offers customers quality, up-to-the-
minute fashion at value-for-money prices.
womenswear, lingerie, childrenswear,
menswear, footwear, accessories,
hosiery, beauty and homeware.
Revenue
£3,521m
2018: £3,420m
Adjusted operating profit
£380m
2018: £335m
Revenue
£1,608m
2018: £1,730m
Adjusted operating profit
£26m
2018: £123m
Revenue
£1,385m
2018: £1,350m
Adjusted operating profit
£42m
2018: £59m
Revenue
£1,515m
2018: £1,459m
£136m
2018: £143m
Revenue
£7,792m
2018: £7,477m
Adjusted operating profit
£913m
2018: £843m
2
Associated British Foods plc
Annual Report and Accounts 2019
Grocery
Household food
brands enjoyed all
over the world
Read more page 12
Sugar
A world-leading
sugar business
focused on excellence
Read more page 22
Agriculture
Products and services
for the agri-food
industry
Read more page 30
Ingredients
Yeast, bakery and
specialty ingredients
supplied globally
Read more page 34
Retail
Quality fashion
at value-for-money
prices
Read more page 40
100
Twinings and Ovaltine
enjoyed in over 100 countries
16,000
employees
24
plants worldwide
34,000
employees
65
countries worldwide
3,000
employees
52
plants in production
for AB Mauri
7,000
employees
373
stores
78,000
employees
Revenue
£3,521m
2018: £3,420m
Adjusted operating profit
£380m
2018: £335m
Revenue
£1,608m
2018: £1,730m
Adjusted operating profit
£26m
2018: £123m
Revenue
£1,385m
2018: £1,350m
Adjusted operating profit
£42m
2018: £59m
Revenue
£1,515m
2018: £1,459m
Adjusted operating profit
£136m
2018: £143m
Revenue
£7,792m
2018: £7,477m
Adjusted operating profit
£913m
2018: £843m
Twinings and Ovaltine
Twinings and Ovaltine are our leading
global hot beverage brands enjoyed in
over 100 countries.
Europe and international
Our portfolio includes Mazzetti
balsamic vinegars, Jordans and Dorset
cereals, Ryvita, Kingsmill, Patak’s and
Blue Dragon, Silver Spoon and
Billington’s sugars.
Europe
Our UK beet sugar factories typically
produce well over 1 million tonnes of
sugar annually. Azucarera in Spain
produces beet sugar from three factories
and also refines sugar from cane raws.
AB Agri
AB Agri produces animal feed, nutrition-
and technology-based products and
services for the agri-food industry. It
operates all along the food, drink and
biofuel industry supply chains.
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. Yumi’s produces
hommus, vegetable dips and snacks.
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 China, with annual
sugar production capacity of over
180,000 tonnes.
It supplies compound animal feed, feed
enzymes, specialised feed ingredients
and a range of value-add 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.
Yeast and bakery ingredients
AB Mauri operates globally in yeast and
bakery ingredients production, supplying
industrial and artisanal bakers and the
foodservice and wholesale channels. It is
a technology leader in bread improvers,
dough conditioners and bakery mixes.
Specialty ingredients
ABF Ingredients produces value-added
products and services for food and
non-food applications.
It manufactures and markets enzymes,
specialty lipids, yeast extracts, extruded
ingredients, pharmaceutical excipients
and antacids worldwide with
manufacturing facilities in Europe,
America and India.
Primark
Primark is a major retail group operating
stores in the UK, Republic of Ireland,
Spain, Portugal, Germany, the
Netherlands, Belgium, Austria, France,
Italy, Slovenia 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) 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.
Annual Report and Accounts 2019
Associated British Foods plc
3
Strategic report Chairman’s statement
The resilience
of the group was
demonstrated
this year.
Michael McLintock
Chairman
It is a testament to the
breadth of the group
that profit growth was
achieved in a year
where the effects of a
radical change in the
European sugar market
fully impacted our
businesses.
In a period when our ongoing sugar
businesses experienced a significant
drop in profits, the resilience of the
group was demonstrated by an increase
in the profits of our non-sugar activities,
mainly driven by strong performances
from Grocery and Primark. Revenues
were 2% higher than last year at
£15.8bn and adjusted operating profit
was 1% ahead at £1,421m. There
was a minimal effect from currency
translation and so revenue and profit
increases were broadly the same at
constant currency. Net finance expense
was much lower than last year following
the maturity of a portion of the group’s
private placement notes and other
financial income was higher as a
consequence of an increase in the
surplus of our defined benefit pension
schemes between the 2017 and 2018
year ends. The group’s adjusted
effective tax rate of 21.5% was in line
with last year. Adjusted earnings per
share increased by 2% to 137.5p.
This year Primark celebrated the 50th
anniversary of the opening of its first
store, and I am pleased to report another
year of strong progress and notable
achievements. The expansion in selling
space included Birmingham High Street,
a showcase for our entire product range
and innovative in-store experiences, and
our first move into eastern Europe with
the opening of a store in Slovenia. Our
stores in the US performed very well
and we have announced four further
stores to open in the near future.
Primark again demonstrated its track
record for operational excellence with
further improvements in buying and
stock management.
Adjusted operating profit at Grocery
was well ahead of last year. The margin
improvement was broad-based, with
excellent performances from our
businesses in Australia and the US,
Acetum, which was acquired last year,
and Twinings Ovaltine on an underlying
basis. Profit was down substantially at
AB Sugar, mainly due to the effect of
a further decline in EU sugar prices last
year. This decline resulted from a
coincidence of a regional oversupply
of sugar and the end of the EU sugar
regime. Following the subsequent
reduction in EU sugar supply, sugar
prices have increased and we look
forward to a material increase in our
Sugar profit in the coming year.
We continued to invest for the long
term, with a gross investment of
£837m comprising capital expenditure
of £737m and acquisitions of £100m.
The capital expenditure for Primark
was driven by investment in selling
space expansion, supply chain and
infrastructure. Investments in our food
businesses focused on capacity
expansion and projects to drive further
operational efficiencies.
In September 2018 we were delighted
to acquire Yumi’s, an Australian
producer of premium chilled dips and
snacks, and, on 6 September 2019,
Anthony’s Goods, a California-based
online marketer and blender of speciality
baking ingredients. We also signed an
agreement to form a yeast and bakery
ingredients joint venture in China with
Wilmar International. The joint venture
will see us build a major new low-cost
yeast plant in the north east of China
and will combine AB Mauri’s existing
activities and technical expertise in
China with Wilmar’s extensive sales
and distribution capability.
4
Associated British Foods plc
Annual Report and Accounts 2019
We have set
out our four
group-wide
values this
year.
www.abf.co.uk/responsibility
We delivered a stronger operating cash
flow this year and the closing net cash
position of £936m, before the adoption
of IFRS 16 from the coming year,
compared to £614m at last year end.
The group has the financial strength to
invest in all its businesses and to
continue to pursue value accretive
acquisition opportunities.
Statutory operating profit for the year
was 5% down at £1,282m after taking
into account exceptional charges of
£79m. Losses on sale and closure of
businesses increased to £94m this year
and as a result, the statutory profit
before tax reduced by 8% to £1,173m
and basic earnings per share reduced by
13% to 111.1p.
Corporate responsibility
At Associated British Foods, our
purpose is to provide safe, nutritious,
affordable food and clothing that is great
value for money. We are committed to
being a good neighbour and supporting
the communities where we operate.
This year we have, for the first time,
set out our four group-wide values:
acting with integrity, respecting
everyone’s dignity, progressing through
collaboration and pursuing with rigour.
These values provide clarity and
guidance across all our businesses
for employees, customers, suppliers
and shareholders alike.
Our businesses have always
aimed to make a lasting positive
contribution to society and our 2019
Responsibility Report, Living our
values, details the actions we are
taking to invest in our people, support
society, strengthen supply chains
and respect our environment. To
see how we make a difference,
please download Living our values,
at www.abf.co.uk/responsibility.
Remuneration
This year we have undertaken a
review of the group’s executive reward
arrangements which has included
consultation with some of the group’s
largest shareholders. As a result, a
number of changes are proposed to our
remuneration policy to further improve
alignment with shareholder interests
and these are set out in the
Remuneration Report.
The board
In September 2018 we welcomed
Graham Allan to the board as a non-
executive director. I want to thank
Graham for also leading this year’s
internal evaluation of the board and its
committees. Javier Ferrán stood down
at our Annual General Meeting in
December 2018 and my last statement
recorded my thanks to Javier. Ruth
Cairnie took on the responsibilities of
Senior Independent Director. Richard
Reid was appointed as designated
non-executive director for engagement
with the workforce.
Employees
These results are a tribute to the
ongoing dedication and commitment
of our 138,000 employees during the
past year. Operating in 52 countries,
some of which are challenging markets,
they have delivered operational
improvements which have underpinned
the increased profit and cash generation
that we report today. I would like to
thank all of our employees for their
valuable contribution, determination
to succeed and in bringing our values
to life every day.
Dividends
I am pleased to report that a final
dividend of 34.3p is proposed to be paid
on 10 January 2020, to shareholders on
the register on 13 December 2019.
Together with the interim dividend of
12.05p paid on 5 July 2019, this will
make a total of 46.35p for the year, an
increase of 3%.
IFRS 16 Leases
The group will adopt the new
accounting standard IFRS 16 Leases
from the coming financial year. This is
a significant accounting change for the
group and will bring lease liabilities of
£3.6bn on to the balance sheet,
predominantly relating to Primark’s
leasehold stores. Under our chosen
transition option, the results for the
2019 financial year will not be restated.
However, we have set out the pro forma
effects on our financial results this year,
and on the key metrics for Primark, in
the Financial review.
Outlook
In the coming year, AB Sugar will
benefit materially from the increase
seen this year in EU sugar prices and
from further cost reduction. We expect
another year of strong profit and margin
growth in Grocery, with Twinings
Ovaltine in particular benefiting from
a more efficient tea supply chain.
Primark will continue to expand its
selling space next year, with the most
stores being added in France and
Spain. Looking further ahead, Primark
has a strong pipeline of good quality
sites. We expect cost reductions in
both the cost of goods and overheads
during the year, but the weakness of
sterling during this financial year will
result in a margin decline for Primark
in the first half. The sterling exchange
rate is currently very volatile but, at
current exchange rates, we expect
margin in the second half to be in line
with the same period this year and
margin for the full year to be only a
small reduction on that achieved this
year. Margin comparisons are on a
lease-adjusted basis.
Our businesses have completed all
practical preparations for Brexit and
contingency plans are in place should
our businesses experience some
disruption at the time of exit.
Taking these factors into account, at
this early stage, we expect progress, on
both a reported and an IFRS 16 adjusted
basis, in adjusted earnings per share for
the group for the coming year.
Michael McLintock
Chairman
Annual Report and Accounts 2019
Associated British Foods plc
5
Strategic report Chief Executive’s statement
The group made
further progress
this year.
George Weston
Chief Executive
The group made
further progress this
year. Group revenue
increased by 2% to
£15.8bn and adjusted
operating profit of
£1,421m was 1%
higher than last year,
at constant currency.
Our Grocery businesses enjoyed a
successful year, with strong underlying
profit growth of 14% after adjusting for
the £12m cost for the closure of the
Twinings tea factory in China. George
Weston Foods in Australia, ACH in the
US and Acetum all delivered particularly
impressive margin improvements
through better procurement and cost
reduction. We continued to invest in our
manufacturing capability and the new
facilities commissioned for Ryvita and
for noodle production will increase
capacity and product innovation. At
Allied Bakeries we are committed to
reducing the operating losses this
coming year, with a programme of cost
reductions. These follow the closure of
the Cardiff bakery at the end of the
financial year. We continued to develop
our presence in the faster growing
segments of the grocery market and
see much potential from our recent
acquisitions of Yumi’s in Australia and
Anthony’s Goods in the US.
Primark marked its 50th anniversary by
delivering an 8% increase in profit.
14 new stores were added across the
UK and continental Europe in the year,
including our largest ever store, in
Birmingham. Looking forward, France,
Italy, Spain, eastern Europe and the US
provide the most significant prospects
for further growth. Our buying team
delivered a further improvement in
margin, driven by exciting on-trend
ranges, better buying and reduced
markdowns. We continued to put the
customer at the heart of our digital
campaigns, with our social media
channels now boasting 20m followers,
up from 13m last year. We successfully
collaborated with high profile influencers
with whom we launched special
collections throughout the year,
generating further social media reach.
We achieved another year of substantial
market share growth in the UK. The
group’s like-for-like sales decline of
2% was significantly affected by
weak trading in Germany where we
have been taking action to address
performance. A new managing director
is in role and is leading a number of
initiatives which include targeted local
marketing campaigns.
Profit at AB Sugar was well down on the
prior year, as expected, due to lower EU
sugar prices and a poor crop in China.
With our ongoing focus on performance
improvement and cost reduction,
improving EU sugar prices and the
continued strength of Illovo we look
forward to an improvement in the profit
and return on capital employed for our
sugar business in the coming year.
AB Agri experienced a difficult year,
with the loss of co-products following
the closure of the Vivergo bioethanol
plant last year, lower UK feed margins
and a smaller sugar beet crop. Our
Ingredients business was impacted by
the challenging economic environment
6
Associated British Foods plc
Annual Report and Accounts 2019
in Argentina and this year’s result
includes a hyperinflationary accounting
charge for the first time.
Brexit
The group’s business model, wherever
possible, aligns food production with
the end market for the product while
Primark operates largely discrete supply
chains for its stores in each of the UK,
US and EU27. The group therefore
undertakes relatively little cross-border
trading between the UK and the rest of
the EU and consequently we do not
expect Brexit to have a significant effect
on the group’s results. Nevertheless,
we have evaluated the forms that Brexit
could take and our businesses have
completed all practical preparations and
have contingency plans in place should
they experience some disruption at the
time of exit.
Arthur Ryan
Arthur Ryan, the founder of Primark,
passed away in July this year after a
short illness. My grandfather and uncle
recruited Arthur to run Penneys in 1969
with only one store in Dublin. He went
on to build a phenomenal world-class
retailer, making fashion accessible to all,
and his legacy looms large as one of the
great giants of retailing. We will all miss
his larger-than-life presence, his sharp
wit and his friendship.
George Weston
Chief Executive
Primark marked its 50th
anniversary this year.
Read about Primark’s
160,000 sq ft new
store in Birmingham
page 46
Annual Report and Accounts 2019
Associated British Foods plc
7
Strategic report Group business model and strategy
A DIVERSIFIED
INTERNATIONAL GROUP
Our purpose
At Associated British Foods we believe our purpose is
to provide safe, nutritious, affordable food and clothing
that is great value for money.
Business structure
Our businesses are organised so that they are close
to the markets and customers they serve.
Grocery
Sugar
Agriculture
Ingredients
Retail
Strategy
The corporate centre agrees strategy and budgets with
the businesses and monitors their performance closely.
Grocery
strategy
page 13
Sugar
strategy
page 23
Agriculture
strategy
page 31
Ingredients
strategy
page 35
Retail
strategy
page 41
Organic growth
Organic growth is achieved through
investment in marketing, in the
development of existing and new
products and technologies, and in
targeted capital expenditure to improve
efficiency and expand capacity.
Operating review
page 12
Our values
Our values are a common thread that ties
all of our businesses together.
Respect
Integrity
Collaboration
Rigour
Responsibility
page 53
8
Associated British Foods plc
Annual Report and Accounts 2019
Business structure
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 ensures that business activities are appropriately monitored
and supported.
Strategy
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.
Organic growth
We are committed to innovation, the continuous pursuit
of improvement and the maintenance of our efficient
manufacturing capability.
The group takes a long-term approach to investment and is
committed to increasing shareholder value through sound
commercial, responsible and sustainable business decisions
that deliver steady growth in earnings and dividends. 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.
Acquisitions are made to complement existing business
activities and to exploit opportunities in adjacent markets
or geographies.
Our values and culture
We pride ourselves on 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 environment.
We live and breathe our values through the work we do every
day. We have articulated a set of four values that reflect the
way we conduct ourselves in every business across the
group. These values are:
• Respecting everyone’s dignity: We strive to protect the
dignity of everyone within and beyond our operations.
• Acting with integrity: We proudly promote and protect
a culture of trust, fairness and accountability that puts
ethics first. From farms and factories right through to our
boardroom we are committed to embedding integrity into
every action.
• Progressing through collaboration: We work with others
to leverage our global expertise for local good.
• Pursuing with rigour: From the products we make, to the
way we preserve the resources we rely on, we are always
learning and incorporating better practices.
Our values can be seen in action, for example, in our work in
investing in the health and safety of our colleagues, promoting
diversity, or in respecting human rights through our supply
chain programmes. Numerous business-specific examples of
such activities are highlighted throughout this report and also
in our 2019 Responsibility Report.
Our Company’s values are lived out best when they
encourage our employees to feel supported to bring their
values and passions to work. It is also in the many acts of
decency, kindness and neighbourliness that take place across
our business every day that our values are truly found.
Responsibility: People
page 55
Annual Report and Accounts 2019
Associated British Foods plc
9
Strategic report Key performance indicators
MEASURING OUR
PERFORMANCE
Financial
Adjusted operating profit (£m)
Adjusted profit before tax (£m)
Net cash/(debt) (£m)
2019
2018
2017
2016
2015
1,421
1,404
1,363
1,118
1,082
2019
2018
2017
2016
2015
1,406
1,373
1,310
2019
2018
2017
936
614
673
1,071
1,024
2016
(315)
2015
(194)
Adjusted profit and earnings measures are used to provide a consistent indicator of underlying
performance year-on-year and are aligned with incentive targets.
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.
Group revenue (£bn)
Gross investment (£m)
Cash generation (£m)
2019
2018
2017
2016
2015
15.8
15.6
15.4
13.4
12.8
2019
2018
2017
2016
2015
837
1,165
945
1,066
675
2019
2018
2017
2016
2015
1,509
1,430
1,641
1,310
1,175
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.
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.
Adjusted EPS (pence)
Dividend per share (pence)
Return on capital employed (%)
2019
2018
2017
2016
2015
137.5
134.9
127.1
106.2
101.5
2019
2018
2017
2016
2015
46.35
45.00
41.00
36.75
35.00
2019
2018
2017
2016
2015
19.3
20.1
20.5
18.1
17.6
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 expressed as a
percentage return on the average capital
employed in the business throughout the year.
Adjusted operating profit is stated before the amortisation of non-operating intangibles, profits less losses
on disposal of non-current assets, transaction costs, amortisation of acquired inventory fair value
adjustments and exceptional items. These items, together with profits less losses on the sale and closure
of businesses, are excluded from adjusted profit before tax and adjusted earnings per share.
10
Associated British Foods plc
Annual Report and Accounts 2019
We use key performance indicators (KPIs) to measure our
progress in delivering the successful implementation of our
strategy and to monitor performance.
Non-financial
Number of employees
Tonnes of sugar produced (m)
2019
2018
2017
2016
2015
138,097
137,014
132,590
129,916
124,036
2019
2018
2017
2016
2015
3.443
3.681
3.410
3.080
4.339
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 scale and development
of the group’s sugar operations.
Number of countries of
operation (Primark)
Primark selling space (sq ft 000)
2019
2018
2017
2016
2015
12
11
11
11
10
2019
2018
2017
2016
2015
15,642
14,805
13,862
12,342
11,155
The number of countries and the retail selling space from which Primark operates are measures of
the breadth, scale and growth of the business.
Reportable injury rate (%)
Gender balance in workforce
– all employees (%)
2019
2018
2017
2016
2015
0.54
0.63
0.59
0.47
0.48
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.
2019
2018
2017
2016
2015
Men
Women
52
51
48
48
48
48
49
52
52
52
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.
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.
Annual Report and Accounts 2019
Associated British Foods plc
11
Strategic report Operating review | Grocery
ABOUT
GROCERY
Grocery comprises consumer-facing
businesses that manufacture and market a
variety of well-known household brands both
nationally and internationally.
Twinings Ovaltine
The largest of our grocery businesses,
Twinings and Ovaltine have broad
geographical reach. Twinings has been a
major tea business since 1706 and now
sells premium teas and infusions in
more than 100 countries. Ovaltine
malted beverages and snacks are
consumed throughout the day in
countries across the globe.
Acetum
Acquired in 2017, Acetum is the leading
Italian producer of Balsamic Vinegar of
Modena. It sells vinegars, condiments
and glazes across the globe, trading
under the Mazzetti brand.
AB World Foods
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
Westmill Foods specialises in high-
quality ethnic foods including rice,
spices, sauces, oils, flour and noodles
sold under brands such as Rajah,
Lucky Boat, Tolly Boy and Elephant.
Jordans Dorset Ryvita
Jordans Dorset 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
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,
such as muffins and doughnuts, for
retail and foodservice customers.
George Weston Foods, Australia
George Weston Foods is one of
Australia and New Zealand’s largest
food manufacturers. Tip Top is one of
the most recognised brands in Australia
with an extensive range of bread
and baked goods. The Don and KR
Castlemaine brands manufacture
a variety of bacon, ham and meat
products. Yumi’s produces hommus,
vegetable dips and snacks and is the
leader in the Australian market.
ACH Foods, North America
ACH Foods includes within its range of
branded products Mazola, the leading
corn oil in the US, Capullo, a premium
canola oil in Mexico and renowned
baking brands such as Fleischmann’s
yeast, Karo corn syrup and Argo
corn starch.
Silver Spoon
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.
Sports Nutrition
HIGH5 and Reflex Nutrition are brands
in the sports nutrition sector producing
protein supplements, recovery gels and
drinks in the UK and sold internationally.
12
Associated British Foods plc
Annual Report and Accounts 2019
100
Twinings and Ovaltine
enjoyed in 100 countries
16,000
employees
Grocery
strategy
Each of our Grocery businesses
pursues an independent strategy
appropriate to its particular
market position and stage of
development. Twinings, Ovaltine,
Acetum, Jordans Dorset Ryvita
and AB World Foods have had
considerable success extending
their reach into new and emerging
markets, whilst some are focused
on developing brands in their core
domestic 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.
Annual Report and Accounts 2019
Associated British Foods plc
13
Strategic report Grocery | Operating performance
HOUSEHOLD FOOD
BRANDS ENJOYED
ALL OVER THE WORLD
Revenue
£3,521m
2018: £3,420m
Actual fx: +3%
Constant fx: +2%
Adjusted operating profit
£380m
2018: £335m
Actual fx: +13%
Constant fx: +10%
Adjusted operating
profit margin
10.8%
2018: 9.8%
Return on average
capital employed
27.4%
2018: 25.9%
Grocery revenues were 2% ahead of last
year at constant currency and growth in
adjusted operating profit was excellent
at 10%. This year’s result included a
£12m one-time cost for the closure of
the Twinings tea factory in China.
Adjusting for this, operating profit was
up 14% at constant currency. Margin, at
10.8%, improved significantly again this
year with major improvements delivered
by George Weston Foods in Australia,
ACH in the US, Acetum and Twinings
Ovaltine, on an underlying basis.
Twinings delivered good revenue
growth and benefited from the success
of Cold Infuse teas in their launch
markets of the UK and Australia. During
the summer, distribution began in the
US while the range was extended with
new flavours and Kids Cold Infuse. The
development of our herbal teas range
included new launches in Australia and
France and good growth from
Superblends in the UK. Ovaltine sales
growth was supported by another year
of success of new product launches
in Switzerland and good growth in
Thailand, China and Myanmar. Following
the transfer of tea production from
Jinqiao, China to our existing site in
Swarzedz, Poland during the first
half, new supply routings have been
established and are functioning well.
At Allied Bakeries revenues progressed
this year following price increases
agreed with a number of customers.
As previously advised, the termination
of our largest private label bread
contract will lead to a volume loss in our
next financial year. As a consequence,
the carrying value of the assets in this
business was no longer supported by
our forecasts of its discounted future
cash flows and a non-cash impairment
charge of £65m has been recognised
as an exceptional item in the income
statement. We have taken steps to
reduce our capacity and closed our
Cardiff bakery at the end of the year.
During the coming year we will
implement cost reductions in a number
of operational areas to further reduce
the losses in this business.
Jordans, Dorset Cereals and Ryvita
delivered an improved manufacturing
capability, with the commissioning of
the new Ryvita bakery in Bardney,
Lincolnshire, and the transfer of muesli
production to a state-of-the-art facility
in Poole, Dorset. Margin declined due
to higher raw materials costs. Silver
Spoon expanded distribution in the
UK, winning a sugar contract with a
major retailer.
AB World Foods enjoyed a record year
with strong growth in both the UK and
internationally. Sales at Blue Dragon
were driven by an expanded range
of meal kits while Patak’s grew sales
of pappadums and continued to enjoy
success with paste pots. Westmill
relaunched its Rajah spice range and
commissioned a further noodle
production line at its factory in
Manchester, although rice margins
fell in a highly competitive market.
14
Annual Report and Accounts 2019
In action
Poole, Dorset
Bardney, Lincolnshire
Biggleswade,
Bedfordshire
FUELLING
GROWTH
Over the past three years Jordans Dorset Ryvita
has made major improvements to its supply chain
in the UK to improve efficiency and facilitate further
international growth.
• Finally, in 2019 we announced our
investment in a new cereal bar
production facility in Biggleswade,
Bedfordshire. Jordans was the first
company to launch a cereal bar
in the UK in 1981 and this new
production line will improve
efficiency and enable innovative
new product recipes.
This investment comes on the back
of significant international sales
growth for the business, which
requires a more flexible supply chain
capable of making different products
for multiple markets. International
sales now account for approximately
half of our overall output, with key
countries including France, Canada
and Australia and recent entry into
Brazil and Germany.
The programme has included the
consolidation of the businesses’
production footprint, together with
investment in new state-of-the-art
equipment for cereal bars, muesli
and crispbread. The focus has been
on building core manufacturing
capability in the principal production
sites in Bedfordshire, Lincolnshire
and Dorset.
• In 2018, we moved muesli
manufacturing operations into
a purpose-built facility in Poole,
Dorset. This new facility allowed
for increased production volume
while being closer to port facilities
to simplify export sales.
• At the same time the business has
opened a new production facility
in Bardney, Lincolnshire to produce
Ryvita crispbread. The new factory,
built on a former British Sugar site,
is using the latest machinery to
produce Ryvita products using less
energy and generating less waste.
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
15
15
At Acetum, our leading balsamic vinegar producer, margins improved significantly as grape must prices returned to lower levels than the exceptionally high level that followed the poor grape harvest in 2017. During the year investment was made to support the market entry of the Mazzetti brand in the UK. Operating profit for our grocery businesses in North America was well ahead of last year. ACH performed strongly, with excellent margin improvement driven by lower oil commodity costs, further market share gains in Mazola corn oil and improved trading in syrup and baking products in Mexico. On 6 September 2019 we completed the acquisition of Anthony’s Goods, a California-based blender and online marketer of speciality baking ingredients. This acquisition will complement ACH’s leading position in cooking and baking brands in North America and will provide a presence in the emerging, fast-growth market of premium organic foods.George Weston Foods in Australia delivered excellent margin and operating profit growth. Tip Top achieved strong sales in packaged bread and realised improved margins driven by operational efficiencies, while the Don meat business significantly increased operating profit and benefited from favourable commodities management. In September 2018 we acquired Yumi’s, a producer and marketer of premium chilled dips and snacks. Sales grew strongly, a new range of lentil and pulses dips were well received, and the business became the market leader in the chilled dips category in Australia during the year.Strategic report Grocery | In action
16
Associated British Foods plc
Annual Report and Accounts 2019
Strategic report
SUPER
Twinings has tapped
into the growing desire
for products that both
taste good and do
you good, with the
successful UK launch
of Superblends green
teas and infusions.
1m
UK households purchased
the brand in first 12 months
The new range is made with
botanicals, natural flavours and
‘super’ ingredients to support
everyday wellbeing. Leading medical
herbalist Pamela Spence advised
Twinings on how best to select and
combine key ingredients, working
with our master blenders to carefully
craft each blend. The flavours
combine familiar favourites with
delicious twists, such as mango and
pineapple with ginseng root and
added vitamin B6.
Championing wellbeing
We developed Superblends in
response to the increasing demand
for convenient food and drink
products that support a healthy
lifestyle. The brand is positioned as
the champion of consumers’
everyday wellbeing. Its strapline ‘Here
for you’ emphasises Superblends’
core promise of ‘a helping hand to
keep you feeling great’ and product
names refer to positive states, such as
Sleep or Glow, or to their superfood
ingredients, like turmeric or beetroot.
Our launch marketing complemented
this nurturing stance, with Twinings
collaborating with health and wellness
influencers to provide consumers tips
for mental resilience, from practising
mindfulness to taking time out.
The first seven Superblends flavours
were launched in February 2018, with
four additional products following
successfully in spring 2019. In the
first 12 months, one million UK
households purchased the brand.
The new range again demonstrates
Twinings’ ability to extend beyond
its traditional black tea heritage and
develop innovations that appeal to
new, often younger audiences. The
three-centuries-old brand, which is
already the UK market leader in
infusions and green tea, is now
looking to further expand the
Superblends portfolio.
Annual Report and Accounts 2019
Associated British Foods plc
17
Grocery | In action
MAKING LIVES BETTER
AT THE SOURCE
Twinings’ ‘Sourced with Care’ programmes
have helped more than one-third of a million
people in our supplier communities enjoy
better lives.
The initiative focuses on three pillars:
improving life opportunities by
empowering women and young
people through health and education;
improving living standards with
better living conditions; and boosting
livelihoods by protecting workers’
rights and improving incomes.
Kenyan tea farmer Josefine.
Mother-of-seven Josefine trained
as a HERhealth peer educator, via
Sourced with Care. Having learnt
about essential health issues such
as nutrition, family planning,
sexually transmitted infections
and non-communicable diseases,
Josefine now spreads the word
among the female colleagues in her
tea garden, helping to reduce levels
of sickness and maternal mortality.
By 2023, in partnership with the
non-profit organisation Business for
Social Responsibility, we aim to
reach all 75,000 of our suppliers’
female farmers in Kenya via the
HERhealth programme, and to
provide 50,000 women in Kenya,
Malawi and India with access to
essential health services.
Lalita, an Assam tea plucker.
Women working in Assam often
have poor latrine facilities, offering
very limited privacy and becoming
unhygienic during the rainy season.
Through Sourced with Care we
provided Lalita and her student
daughter Dipti with a robust new
bathroom and toilet, affording them
privacy, dignity and security. Lalita’s
toilet is one of around 2,000 we have
installed in suppliers’ plantations in
Assam and Darjeeling.
Sasi, a Sri Lankan trade union leader.
Sasi is one of many to have benefited
from our introduction, in partnership
with the international development
agency CARE International, of
community development forums
(CDFs). With industrial relations
sometimes strained in the Sri Lankan
tea sector, CDFs provide a space for
workers and leaders to meet, debate
issues and share information.
Sasi recently drew on the problem-
solving tactics he’d learnt at his
CDF to diffuse a dispute which had
brought his factory to a standstill.
He says: “The employer-employee
relationship on this estate has
improved tremendously thanks to
the CDF. I completely changed after
receiving training on communication,
leadership and gender. Now I know
how to communicate effectively with
peers and managers.”
As a responsible business and
a founder of the Ethical Tea
Partnership, Twinings is driving
positive change in the industry.
However, we cannot do it alone.
Partnership is central to the
establishment and sustainability
of an ethical supply chain and we
work closely with NGOs, producers,
packers, retailers and industry bodies.
18
Associated British Foods plc
Meet
Lalita
Assam tea plucker
Annual Report and Accounts 2019
GETTING
FIBRE FIT
Health consciousness
is a major driver of
food purchases in the
UK. Ryvita has long
been associated with
a healthy, low calorie,
fibre-rich diet.
According to the NHS, fibre helps
reduce the risk of heart disease, type 2
diabetes, stroke and bowel cancer.
Certain types of fibre can also help
support gut health, but nine out of
ten of us aren’t eating the 30g of daily
fibre that the UK Government
recommends.
To address this, Ryvita partnered with
celebrity TV presenter Davina McCall
to launch an online quiz that helped
people assess their own fibre intake,
together with the #30in30 Challenge
which provides hints and tips on how
to increase daily fibre intake by 5g.
People who signed up received a
newsletter twice a week along with
#Fibrehacks from Ryvita and selected
expert partners.
Since launch in March 2019, over
43,000 people have taken the online
quiz and over 15,000 have signed up
to the #30in30 Challenge. A great
example of how an established British
brand is engaging people to help
improve their health and wellbeing.
FROM
BARREL
TO
BASKET
In 2017 we acquired
Acetum, the world’s
leading producer
of Balsamic Vinegar
of Modena.
The major brand of the business is
‘Mazzetti’, which bears the family
name of Cesare Mazzetti, one of
the founders of the business.
Already the brand leader in Germany,
Australia and Holland, Acetum
launched the Mazzetti brand into
the UK during 2019. Three versions
of this premium vinegar were sold
in retail stores in the UK, supported
by advertising that appeared
extensively on the London
Underground and poster sites
throughout May and June this year.
The products are currently available
in Sainsbury’s and Waitrose as well
as on the Ocado website. They have
also been featured in a number of
leading UK food publications
including BBC Good Food, Good
Housekeeping and The London
Evening Standard newspaper.
Meet
Josefine
Kenyan tea farmer
Annual Report and Accounts 2019
Associated British Foods plc
19
Strategic report Grocery | In action
FRESHER
FLAVOURS
20
Consumer demand for healthy foods
is accelerating growth at our Australian
chilled dips and snacks business,Yumi’s.
Yumi’s, which supplies major
retailers and foodservice customers
with traditional hommus, vegetable
dips, falafels and vegetable bites,
was acquired by George Weston
Foods in September 2018.
Because the dips are made to Jewish
kosher standards they are dairy
and gluten free and include few,
if any, additives.
Meeting evolving trends
Its enviable compound sales growth
rate of 20% over the past three years
reflects the evolution in Australia of
at-home entertaining, the trend for
healthier eating, the popularity of
Mediterranean-style foods, and
declining meat consumption.
Yumi’s was founded in 1989 by
Michael and Benjamin ‘Yumi’
Friedman who have remained with
the business since it joined our
family last year. It initially started out
as a fish shop serving Melbourne’s
Jewish community but soon
expanded its range. The team has
grown to about 170 people, all
passionate about their products.
Australian-grown chick peas and
‘fresh-from-farm’ vegetables, like
beetroot and capsicum, are cooked
and roasted on site and then
generously added to hommus to
flavour classic dip varieties.
Traditional Jewish family recipes
for classic dips handed down from
‘Aunty Chumy’, and for mayonnaise
and fish dips courtesy of ‘Grandfather
Hershel’, are still used today,
ensuring authenticity and quality.
The team at Yumi’s is continually
looking for opportunities to bring
innovation to the category and takes
pride in partnering with retailers to
develop a great pipeline of new
vegetable flavours. New products
are first trialled and then rotated in
store to meet customer desire for
taste, adventure and variety.
Premium innovations
In February 2019, Yumi’s released
a new premium pulse dips range
which has been very well received.
The idea behind these dips was to
create something on-trend (with
lentils, peas and beans being very
popular), that could attract a higher
price, and would still deliver to the
brand’s kosher requirements.
Yumi’s has also recently delivered
new products in the exciting
snacking consumer segment. These
products, such as a ‘snack pack’
containing hommus and crackers,
work well both as healthy and tasty
school lunchbox alternatives and
‘on the go’ snacks.
The business relies extensively on
social media to drive awareness and
has an active and loyal following on
Facebook and Instagram.
Annual Report and Accounts 2019
Associated British Foods plc
21
Strategic report Operating review | Sugar
ABOUT
SUGAR
Europe
AB Sugar is a leading producer of sugar and
sugar-derived co-products in southern Africa,
the UK, Spain and north east China.
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 changing
needs of 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.
We employ 34,000 people and
operate 24 plants in ten countries
with the capacity to produce some
4.5 million tonnes of sugar annually.
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 beet sugar
crop. Illovo Sugar is the biggest sugar
processor in Africa, operating in the
growing markets of South Africa,
Zambia, Mozambique, Malawi,
Eswatini and Tanzania. We also have
a beet sugar business in north east
China which is cost-competitive with
cane sugar production.
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.
China
22
Associated British Foods plc
Annual Report and Accounts 2019
Africa
24
plants worldwide
4.5m
tonnes of annual sugar
production capacity
34,000
employees
Sugar
strategy
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 our business.
Annual Report and Accounts 2019
Associated British Foods plc
23
Strategic report Sugar | Operating performance
Revenue
£1,608m
2018: £1,730m
Actual fx: -7%
Constant fx: -5%
Adjusted operating profit
£26m
2018: £123m
Actual fx: -79%
Constant fx: -78%
Adjusted operating
profit margin
1.6%
2018: 7.1%
Return on average
capital employed
1.6%
2018: 7.5%
A WORLD-LEADING
SUGAR BUSINESS FOCUSED
ON EXCELLENCE
AB Sugar revenues were 5% down
on last year at constant currency and
adjusted operating profit was well
down. The profit decline for the year
reflects the first half performance. Profit
in the second half was ahead of both
expectation and last year. EU sugar
prices were much lower this year
and impacted our UK and Spanish
businesses while a poor crop reduced
production and sales volumes in China.
Our African sugar business, Illovo,
delivered another successful year.
Our sugar businesses are focused on
reducing their cost of sugar production.
Further significant cost reductions were
delivered this year, through ongoing
performance improvement programmes
which target efficiencies in all areas of
the business.
EU stock levels tightened during
2018/19 as a consequence of lower
sugar production in the last campaign.
Indications are that EU sugar production
for 2019/20 will remain at this lower
level following a further reduction
in the crop area which will largely
offset improved beet yields. As a
consequence, stocks are forecast
to remain low which should provide
further support to EU sugar prices
which increased this year.
In the UK, sugar production in 2018/19
of 1.15 million tonnes compared to
1.37 million tonnes last year when
beet yields achieved record levels.
Production in 2019/20 is expected to be
marginally higher than this year, with an
improvement in beet yield following
favourable weather conditions more
than offsetting the reduction in crop
area. Good early progress has been
made in the processing of beet at our
four UK factories. The majority of sales
for 2019/20 are now contracted and the
benefit of higher EU sugar prices will
result in a significant improvement in
the operating result.
In Spain, production from beet was
260,000 tonnes this year, lower than
last year due to adverse weather in the
south impacting sugar content of the
beet. This shortfall was compensated
by increased production from the
refining of cane raws at Guadalete
which produced 170,000 tonnes. These
factors, combined with low EU sugar
prices, resulted in our Spanish business
making a substantial loss this year.
Contracting of beet volumes with
growers for the 2019/20 campaign was
substantially completed at reduced
prices from the previous year and this
led to our contracted crop area reducing
by one third, mainly in the north. Beet
sugar production for 2019/20 is
expected to be some 205,000 tonnes,
with the benefit of an improvement in
beet yield. This will be supplemented
with over 200,000 tonnes from raws
refining. We expect a significantly
improved operating result for Spain in
the next financial year driven by higher
sales prices, the lower beet costs and
cost reductions.
24
Associated British Foods plc
Annual Report and Accounts 2019
Sugar production at Illovo increased
slightly to 1.73 million tonnes this year,
driven by further improvements in
cane yields. Profit was in line with
expectations, with particularly strong
performances in Eswatini and Zambia
offsetting weaker results in Malawi and
South Africa. The 2019/20 season is
progressing well, with sugar production
in line with expectations, and we expect
another strong performance from Illovo
next year.
In China, sugar production of 149,000
tonnes was well down on last year as
very poor quality beet, following a
period of adverse weather, hampered
production and sugar extraction at our
two factories. As a result of the lower
production and low domestic sugar
prices the business produced a
significant loss. Looking ahead to next
year we expect the operating result to
improve significantly. The new crop is
well established, some recovery in
beet quality is expected and grower
payments will be increasingly linked
to the sugar content of their beet.
At Germains, our seed treatment and
enhancement business, UK sales
volumes declined mainly as a result of
the ban on neonicotinoids as a seed
treatment from this year. However,
sales to the European and US
horticulture markets continued to
increase and benefited from new
product development. Production
capacity was increased at its facility
in Gilroy, California.
In action
SHARING THE RISK
WITH GROWERS
AB Sugar continues to work with sugar beet
growers in Spain and China to ensure that sugar
remains a sustainable crop for them and us.
We have a long history of
partnering with our growers to
transform the sugar beet industry.
In Spain we have assisted growers
with contracted services, with crop
agronomy expertise and with
flexible payment schemes. This
has enabled them to improve
productivity and made sugar beet a
more attractive crop. And in China
our service-based partnership with
growers has led to a rise in
mechanised land from 2% to 78%
over ten years and has doubled
sugar beet volume.
Sharing risk and reward
In Spain and China, as sugar prices
have fallen, the prices we have
paid to growers for sugar beet
have become unsustainable.
Therefore, this year we took the
difficult decision to renegotiate
our contracts with growers in
both markets.
In Spain, Azucarera has reduced
beet prices for the 2019/20
campaign by 20%, after ending
the previous five-year contract
12 months early. In negotiating
the new arrangements, we held
face-to-face talks with 85% of
growers, their unions, all key
regional and national agriculture
ministers and officials to explain
the change. We believe the more
realistic terms will provide a
sustainable platform for our
growers and ourselves. We
are engaging with our newly-
contracted Spanish growers
however, unfortunately, others
have chosen not to supply beet
to us for the 2019/20 campaign.
In China, poor weather conditions
in this year’s campaign impacted
the quality of beet, reducing the
level of sugar that could be
extracted. We are therefore phasing
in a quality control system, in
line with that used in our other
countries, whereby payments to
growers will reflect the sugar
content of beet provided. A third of
our growers will come under the
new system this year. To facilitate
the change, we have invested
£1 million in quality testing
equipment at our two Chinese
factories. Additionally, the headline
beet price has been reduced by 10%.
Mutual benefits
Our track record of working in
partnership with our growers has
benefited us all. We believe that
sharing the risk now will again
deliver mutual benefits, as it will
allow both us and our growers to
remain competitive and successful
over the long term and build on what
we have achieved together so far.
Annual Report and Accounts 2019
Associated British Foods plc
25
Strategic report
Sugar | In action
IN SUGAR
AB Sugar has achieved
a growing number
of industry firsts as
we strive to become
the world’s leading
sugar business.
In 2019, we partnered with WaterAid
and the University of Cambridge’s
Centre for Industrial Sustainability to
seek new ways of reducing irrigation
water loss in sugar and beyond. The
Innovate Irrigation Challenge was an
exciting opportunity to ask individuals
and teams from all backgrounds and
regions to submit ideas to help stop
water losses in irrigation, with the
winning idea announced in October
2019. The idea was unanimously
chosen by a panel of prestigious judges
and focuses on a smart irrigation
system that will provide real-time data
to estate managers and smallhold
farmers to make informed decisions on
water usage and irrigation schedules.
30%
we are committed to
reducing our end-to-end
supply chain, water and
CO2 footprints by 30%
by 2030.
26
Associated British Foods plc
Annual Report and Accounts 2019
The supplier of choice
In another sector first, we published
an interactive global sourcing map
showing where we grow sugar, where
we source from, and where we export
to. By sharing such ‘field to fork’ details
so transparently stakeholders can
see that our products are traceable,
sustainable and safe. We also built
upon the Company’s Modern Slavery
and Human Trafficking Statement
with the AB Sugar Modern Slavery
Statement, which more closely reflects
our substantial international footprint
in agriculture and manufacturing.
We created a modern slavery video
animation to raise awareness, and give
a concise explanation of, the different
types of modern slavery in the context
of our business and industry.
AB Sugar’s 2030 aspirations, and our
other industry-leading actions, represent
further progress in our journey to
becoming the sugar supplier of choice,
to our long-term competitive success,
and meeting the growing demand for
companies to act responsibly.
Setting ambitious commitments
We continue to evolve to stay ahead
in our changing industry. In 2018 we
became the first sugar business to
publish group-wide sustainability
commitments for 2030. These outline
our ambition to further improve our
performance, and that of our supply
chain, and are in line with the UN’s
Sustainable Development Goals.
The 2030 commitments build on our
sustainability framework, ‘Global Mind,
Local Champions’, and its three pillars –
building rural communities, consuming
resources responsibly, and creating
thriving and healthy communities.
They point to how, by 2030, we will:
• build vibrant, diverse value chains
that increase the prosperity of our
communities;
• reduce our water and carbon dioxide
footprints in our end-to-end supply
chain by 30% and ensure all our
plastic packaging is reusable,
recyclable, biodegradable or
compostable; and
• provide access to objective scientific
advice on sugar, diet and health to
over 25 million people around the
world. This pledge extends our UK
campaign, ‘Making Sense of Sugar’,
which we launched in 2014, to help
people make informed choices about
what they consume by educating
them on the role sugar can play in
the diet.
In 2018 we
became the first
sugar business to
publish group-wide
sustainability
commitments
for 2030.
Annual Report and Accounts 2019
Associated British Foods plc
27
Strategic report Sugar | In action
DELIVERING A
COMPETITIVE EDGE
AB Sugar is taking
further bold steps
to strengthen our
competitiveness
in a challenging
marketplace.
As a consequence of policy reforms
and abolition of quotas within the EU
in 2017, the global sugar market has
changed substantially creating both
opportunities and challenges. As a
result, current low world sugar prices
and intense competition combined have
squeezed producers’ margins, requiring
them to reinvent their skills, behaviours
and capabilities.
Increasing competitiveness
and developing capabilities
We began preparing for this much
tougher commercial market long before
our peers to deliver substantial benefits
through our performance improvement
programme (PIP); focusing on improving
processes, investing our capital wisely
and increasing revenue generation.
In addition, we recognised that we
would need to do things differently in
today’s marketplace, beyond reducing
costs, by strengthening capabilities
across the group. We are, for instance,
equipping commercial teams with the
tools to navigate this environment,
including systems to assess and
manage risk as we begin to use
financial hedging to offset price volatility.
Also, our management teams are
increasingly drawn from both within
our sector and externally, to give us the
right mix of skills, experience and fresh
thinking to thrive.
We are evolving our business model
to suit this new sugar market. For
example, Illovo Sugar Africa has moved
its commercial focus away from bulk
sales into the EU to more domestic
sales direct to retail consumers. This
has required us to adapt our product,
branding, formats, channels and
logistics as well as address the
operating model to further improve
efficiency, reduce overheads and
increase profits. In Europe, we are
building on recent progress in making
our factories more efficient. In Spain,
Azucarera will continue to automate its
sites and in the UK, we will consolidate
improvements to our factories,
warehousing and logistics.
28
Associated British Foods plc
Annual Report and Accounts 2019
Wissington, Cambridgeshire with
a non-psychoactive variety of the
cannabis plant used in epilepsy drugs.
In Spain Azucarera launched its
Betalia brand, which includes
products for animal feed, agriculture
and industrial uses.
Meeting changing needs
Since launch, our PIP continues to
go from strength to strength. The
programme is embedded in AB Sugar’s
DNA, with a high profile across the
business and a three-year pipeline of
future projects. It will remain central to
our efforts to anticipate and meet the
fresh challenges and opportunities that
will inevitably arise, as our industry
continues to evolve and new
technologies emerge.
Investing in innovation
We continue to invest a significant slice
of our cost savings back into higher-
return capital projects. In 2019 we
injected £32 million into the business,
from backing new product development
within Germains, our seed technology
business, to increasing daily factory
throughput in our factories in China. We
continue to invest time and money in
our growers’ businesses and are now
using learnings from China to improve
farmers’ methods and yields in Africa.
Reducing waste, growing revenue
In addition to our core products made
from sugar beet or cane, we also sell a
range of co-products from the advanced
manufacturing process, ranging from
molasses to ethanol, and much more.
To maximise this income stream, as
part of our PIP, we systematically
reassess our co-products and facilities.
In 2017, for example, we replaced
the production of tomatoes at
British Sugar’s horticultural site in
Annual Report and Accounts 2019
Associated British Foods plc
29
Strategic report Operating review | Agriculture
ABOUT
AGRICULTURE
AB Agri is a leading international agricultural
business operating across the agri-food industry,
producing and marketing animal feed, nutrition-
and technology-based products and services.
With a detailed understanding of
agriculture’s importance in the global
food supply chain, our philosophy is to
help change it for the better; influencing
and improving food production, so that
everyone can eat nutritious food that is
produced safely and responsibly.
Across the agricultural supply chain, our
products, data insight and technological
innovation enable our customers to
produce and process high yielding, safe
and nutritious food in a responsible way,
using fewer chemicals and antibiotics,
safeguarding natural resources, and
creating less waste and lower
emissions. Employing over 3,000
people around the world we market
products in 65 countries and continue
to grow our global operations. Our core
capabilities include:
Specialised feed ingredients
and mixtures
A major investor in research and
development of specialty feed
ingredients and mixtures, we provide
highly specialised advice around
procurement and formulation for livestock
feeds and pet foods as well as global
manufacturing expertise. We market
pioneering feed ingredients: additive
products, high-quality, bespoke, vitamin
and mineral pre-mixes, starter feeds,
and micro-ingredients developed using
a world-class expertise in feed enzymes,
nutrition and product formulation.
Compound feed
We are a major international
manufacturer and supplier of pig, poultry
and dairy feeds with 36 production sites
in the UK, continental Europe and China.
We work closely with major processors
and producers to benchmark
productivity and performance,
developing tailored feeds and new
feeding regimes to improve
performance for every customer.
Co-product innovation and marketing
AB Agri is the UK’s largest and most
progressive marketer of food, drink
and energy co-products, having
pioneered the industry for over 30 years.
Co-products are a secondary product
stream created during the manufacture
of food, drink and bio-fuels. They are
usually cereal or plant-based residues
from industries such as brewing,
distilling and sugar production.
Supply chain, data and technology
solutions
With 20 years of expertise, our data and
technology platforms deliver targeted
insight that create continuous
improvement for agricultural supply
chains in over 60 countries. We work
exclusively with major food processors,
retailers and directly with farmers,
enabling them to:
• increase productivity and yields;
• improve animal health and husbandry;
and
• deploy robust quality assurance and
Corporate Responsibility (CR)
programmes.
Commodity risk management
We are the UK’s leading grain trading
and crop inputs (seed, crop protection
and fertiliser products, agronomy and
precision farming advice) company
through Frontier Agriculture, our joint
venture with Cargill plc, providing
customers with in-depth insight into
global commodity markets.
30
Associated British Foods plc
Annual Report and Accounts 2019
Strategic Report
65
we market products
in 65 countries
3,000
employees
Agriculture
strategy
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.
Annual Report and Accounts 2019
Associated British Foods plc
31
STRATEGIC REPORT STRATEGIC REPORT Strategic report Agriculture | Operating performance
PRODUCTS AND
SERVICES FOR THE
AGRI-FOOD INDUSTRY
Speciality Nutrition, our premix and
starter feed business, successfully
commissioned a new factory at Fradley
Park, Staffordshire and acquired a
small starter feed business in Poland.
Profits were lower than last year which
benefited from unusually high vitamin
prices. Sales and profit at AB Vista were
in line with last year and reflected an
increasingly competitive phytase
enzyme market. We are encouraged
by the launch of Signis, our innovative
animal digestion aid.
AB Agri revenues were 2% ahead
of last year at constant currency, driven
by higher feed sales in the UK and China
where higher feed prices reflected
increased raw material costs. Adjusted
operating profit, however, was down
30% mainly due to the loss of high
margin co-products from the Vivergo
bioethanol plant, which was closed last
autumn, and lower margins on UK
animal feed.
Compound feed volumes in the
UK increased due to higher demand in
the pig and poultry sectors. The margin
decline reflected an under-recovery of
energy and distribution costs and lower
sales of sugar beet feed to the dairy
sector, following the reduction in the
beet crop size. Overheads will be
reduced as a consequence and a
restructuring charge has been taken
this year. Although our Chinese feed
business also increased sales,
margin declined.
Revenue
£1,385m
2018: £1,350m
Actual fx: +3%
Constant fx: +2%
Adjusted operating profit
£42m
2018: £59m
Actual fx: -29%
Constant fx: -30%
Adjusted operating
profit margin
3.0%
2018: 4.4%
Return on average
capital employed
10.7%
2018: 15.7%
32
Associated British Foods plc
Annual Report and Accounts 2019
In action
GROWING
INTERNATIONALLY
TARGET
ZERO
With its products
and services already
available in 65
countries, AB Agri
is embarking on an
ambitious international
growth strategy to
become a leading and
influential force in the
global agri-food sector.
With a growing global population
estimated to require up to 70%
more food by 2050, and climate
change and extreme weather
conditions adversely impacting food
production, the agri-food industry
is facing significant challenges.
To help address this, AB Agri is
developing better technologies
and exploiting the applications
of data and digitalisation, which
will improve the productivity and
efficiency of its global supply
chains, and the production of food.
At the start of 2019, AB Agri
established a new entity, Intellync,
which brought together our existing
businesses AB Sustain and Agridata.
Intellync’s goal is to deliver
connected intelligence that bridges
the gap between people, data and
technology in agriculture. More
recently, we announced Kilkenny,
Ireland as the location of a new
Technology Centre for Intellync.
Due to open in late 2020, this new
Technology Centre will develop new
generations of technology solutions
that improve farm performance
and drive continuous improvement
across agricultural supply
chains globally.
We aim to expand our global
operations through the creation of
operational hubs in our key overseas
markets. These hubs will enable
AB Agri to roll out its products and
technology platforms, grow sales
and market share in new countries.
In south east Asia we have set up
a commercial entity to serve
Vietnam. In central and eastern
Europe, our acquisition in 2019 of
a specialist baby animal nutrition
business and production plant
in Poland will accelerate the
establishment of an AB Agri hub
from which to grow new business.
This builds on our existing presence
in the region with our neonates
nutrition business, AB Neo,
in the Czech Republic and
demonstrates a belief in the future
of livestock farming in Poland and
the surrounding countries.
As a leading agri-food
solutions provider,
AB Agri wants to
ensure responsible
production for its
customers across
the agri-food industry
and strengthen its
leadership in feed
product quality and
health and safety.
To drive this, AB Agri has launched
‘Target Zero’. This programme
promotes and focuses on the
business’ existing zero harm policy,
to ensure no harm comes to
its people, products and the
environments in which it operates.
AB Agri has established a set of clear
Target Zero values and a leadership
development programme in
accordance with these, which have
been rolled out across the group.
This commitment to Target Zero
goes beyond employees, sites,
operations and logistics. Its remit
spans the breadth of AB Agri’s
influence, to its hauliers, contractors,
third-parties and suppliers across the
world. One example of this is the
haulier safety day that AB Agri
recently led, which was held for all
hauliers working on behalf of its
businesses, with a theme of Target
Zero and focused on the importance
of transport safety.
Instrumental to the project’s success
so far has been the formation of a
global supply-chain community in
identifying collaborative best
practices. This is particularly
important for AB Agri’s ambitious
international growth plans, by
helping to build consistency and
pace of improvement throughout its
operations when integrating newly
acquired international businesses.
Annual Report and Accounts 2019
Associated British Foods plc
33
STRATEGIC REPORT STRATEGIC REPORT Strategic report Operating review | Ingredients
ABOUT
INGREDIENTS
Our Ingredients businesses supply yeast,
bakery and specialty ingredients to food
and non-food manufacturers.
AB Mauri
AB Mauri has a global presence in
bakers’ yeast with significant market
positions in the Americas, Europe and
Asia. It is a technology leader in bakery
ingredients, supplying bread improvers,
dough conditioners and bakery mixes
to industrial and craft bakers across
the globe.
• AB Enzymes is an industrial biotech
company specialising in enzymes.
Their applications include bakery and
other foods and beverage segments,
animal feed, technical and detergent
markets;
• ABITEC supplies specialty lipids and
surfactants for the pharmaceutical,
nutritional and specialty chemical
industries;
• Ohly produces a range of yeast
extracts and culinary seasoning
powders specially developed to
enhance the taste of customer’s
food recipes;
• PGP International produces specialty
flours and extruded ingredients for
use in a wide range of nutritional
products such as health bars; and
• SPI Pharma develops and supplies
pharmaceutical excipients and
antacids for global pharmaceutical
producers.
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. In
addition to bakers’ yeast, AB Mauri also
supplies yeast products to producers
of alcoholic beverages and bioethanol.
ABF Ingredients
ABF Ingredients is a specialty
ingredients world leader, offering
innovative, differentiated and value-
added products and services to the
food, nutrition, pharmaceutical, animal
feed and industrial sectors. Its
ingredients are an essential part of
products that are equally likely to be
found in the kitchen and medicine
cabinet as in the laboratory. It comprises
a group of companies operating
worldwide under their own identities,
serving customers in more than 50
countries from production facilities in
Europe, the Americas and India:
34
Associated British Foods plc
Annual Report and Accounts 2019
Strategic Report
52
plants in production
for AB Mauri
7,000
employees
Ingredients
strategy
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
strategic 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.
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
35
35
STRATEGIC REPORT STRATEGIC REPORT Strategic report Ingredients | Operating performance
YEAST, BAKERY AND
SPECIALTY INGREDIENTS
SUPPLIED GLOBALLY
Revenue
£1,515m
2018: £1,459m
Actual fx: +4%
Constant fx: +4%
Adjusted operating profit
£136m
2018: £143m
Actual fx: -5%
Constant fx: -6%
Adjusted operating
profit margin
9.0%
2018: 9.8%
Return on average
capital employed
15.9%
2018: 18.1%
Revenue
2018: £3,420m
£3,521m
Ingredients revenues were 4% ahead
of last year at constant currency.
Adjusted operating profit, however,
declined by 6% at constant currency,
which was driven by a significant fall
in the result for AB Mauri Argentina
as a result of a challenging economy,
increased competition, and the adoption
of hyperinflationary accounting
under IAS 29.
Adjusted operating profit
Actual fx: +3%
Constant fx: +2%
AB Mauri sales increased but
profits were reduced mainly as a
result of the Argentina operations.
Trading in North America was strong
driven by product innovation in bakery
ingredients and the increase in yeast
prices to recover higher input costs.
Trading was also ahead in Brazil
where we continued to benefit from
the growth of industrial bakeries.
We continued to invest in technology
and product innovation and a new
bakery toppings facility in Pederneiras,
Brazil, a bakery ingredients factory in
Dongguan, China and an extended
technology centre in St Louis, US
were opened during the year.
£380m
2018: £335m
Actual fx: +13%
Constant fx: +10%
Adjusted operating
profit margin
10.8%
2018: 9.8%
Return on average
capital employed
27.4%
2018: 25.9%
In August we signed an agreement
to form a yeast and bakery ingredients
joint venture in China with Wilmar
International. This will combine our
existing activities in China and technical
expertise with their extensive sales and
distribution capability. Completion is
subject to the receipt of regulatory
approvals. The joint venture will build a
major yeast plant to be co-located with
Wilmar’s food processing plant in north
east China. During the year we also
acquired Italmill, a supplier of specialist
bakery ingredients from a well-invested
facility in the north of Italy.
At ABF Ingredients, the enzymes
business continued to grow its sales
to the bakery and other food markets.
SPI Pharma delivered sales growth in
pharmaceutical excipients and industrial
catalysts. Ohly, our yeast extracts and
seasoning powders business, made
good progress in the food and health
markets and improved margins through
cost reduction. PGPI, our US protein
extrusion business, delivered strong
sales growth of plant protein crisps and
took further share in the expanding US
market for nutrition bars and healthier
snacks, cereals and baked items.
36
Associated British Foods plc
Annual Report and Accounts 2019
In action
OLD TRADITIONS
NEW INNOVATIONS
In May 2019, AB Mauri
acquired Italmill, a
leading player in the
Italian bakery
ingredients industry.
Scrocchiarella®: innovating
through tradition
Italmill anticipated the Italian
consumer’s growing preference for
healthy, high quality, snacking and
on-the-go food with Scrocchiarella
mixes and par-baked frozen bases
for an authentic Roman Pizza.
Italmill began in 1901 as Molini
Besozzi Marzoli, and by 1911 the
company had built one of the most
advanced milling plants in Italy.
Italmill developed over the years
into a successful, fourth generation
family-owned and managed bakery
ingredients company based in
northern Italy.
Italmill’s heritage of tradition and
innovation brings to AB Mauri a
wealth of expertise in sourdough,
pizza and pastry mixes, flour mixes
and frozen technologies.
Scrocchiarella is made from a unique
combination of selected traditional
flours, sourdough and natural
ingredients. The key ingredient is
sourdough, which gives the final
product a crunchy crust, open crumb
structure, superior flavour and a
memorable aroma.
Since launching the traditional
recipe, the Scrocchiarella range has
been enriched with whole wheat,
seeds and Venus black rice.
‘Baking’ the future
“Italmill’s success is founded in
the expertise and dedication of its
people. Handing over this valuable
heritage to ABF will ensure the
continuation of the nurturing
environment that preserves and
develops our talents, and creates
additional value for the future”,
commented Filippo Ferrario, the
previous owner who continues as
a director of the business.
Building on ABF’s solid track record
of successful acquisitions, we plan to
unlock the growth potential of Italmill
in international markets, building
value through the combination of
Italmill’s product portfolio and
AB Mauri’s technological expertise
and commercial reach.
Annual Report and Accounts 2019
Associated British Foods plc
37
STRATEGIC REPORT STRATEGIC REPORT Strategic report Ingredients | In action
CHANGE
38
Associated British Foods plc
Annual Report and Accounts 2019
Ohly, our yeast-based specialty products
business, is reshaping its food ingredients range
in response to changing consumer demands.
Ohly produces flavour
enhancements, such as yeast
extracts and seasoning powders,
which are used to enrich the taste
in a wide variety of leading food
products. In evolving our offering,
selected focus areas for product
development are:
• Salt reduction: consumers
increasingly understand the impact
on health of using too much salt
and want products that contain
less salt but still taste great. We
have developed a toolbox of
ingredients that allow food
producers to reinforce the taste
profile of their recipes by using our
natural yeast-derived ingredients.
These ingredients often also
deliver distinct taste experiences
like umami or roasted notes;
• Authentic, ethnic flavours: the
rising popularity of once-niche
regional flavours is creating global
customer demand for exciting
seasonings, a field where our
PRODRY® culinary powders excel.
Ohly uses its product and
formulation expertise to turn liquid
or viscous products like mustard
into dry powders that continue to
deliver the authentic flavour into a
dry application such as snacks; and
• Meat alternatives: low- or no-meat
diets are now mainstream as more
people change their eating habits
for reasons of health, principles or
taste. The knock-on interest in
meaty-tasting and functional
ingredients presents a significant
opportunity for natural yeast-
based ingredients.
Market-driven
Two non-food market segments also
present significant opportunity for
Ohly – biotechnology and animal
health. In biotech, customers
demand higher productivity, and our
scientific ability to select the right
nutrient combination delivers this.
In animal health, farmers are seeking
to reduce the use of antibiotics and
our understanding of yeast cell
structures allows us to provide
ingredients with proven immune
stimulation effect, reducing the need
for antibiotics in the first place.
The pace of change across different
markets requires Ohly to change too.
And that’s what the team has kicked
off, with the establishment of
dedicated teams to focus on these
specific market segments.
Annual Report and Accounts 2019
Associated British Foods plc
39
STRATEGIC REPORT STRATEGIC REPORT Strategic report Operating review | Retail
ABOUT
RETAIL
Primark is one of the largest clothing retailers
in Europe and 2019 marks its 50th year.
It has 373 stores and employs
78,000 people in the UK, Republic
of Ireland, Spain, Portugal, Germany,
the Netherlands, Belgium, Austria,
France, Italy, Slovenia and the US.
It was founded fifty years ago 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 its 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 15.6 million sq ft
of selling space across 12 countries.
With a unique combination
of the latest fashion and lean
operations, Primark offers customers
quality, up-to-the-minute fashion
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.
40
Associated British Foods plc
Annual Report and Accounts 2019
373
stores
78,000
employees
12
countries
Retail
strategy
Primark offers great value for
money which it achieves by:
incurring minimal 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.
Annual Report and Accounts 2019
Associated British Foods plc
41
STRATEGIC REPORT STRATEGIC REPORT Strategic report
Retail | Operating performance
Revenue
£7,792m
2018: £7,477m
Actual fx: +4%
Constant fx: +4%
Adjusted operating profit
£913m
2018: £843m
Actual fx: +8%
Constant fx: +8%
Adjusted operating
profit margin
11.7%
2018: 11.3%
Return on average
capital employed
28.9%
2018: 28.2%
QUALITY FASHION AT
VALUE-FOR-MONEY PRICES
Sales at Primark were 4.2% ahead of
last year at actual exchange rates and
4.1% ahead at constant currency, driven
by increased selling space partially
offset by a 2.0% decline in like-for-like
sales. Operating profit margin increased
to 11.7% from 11.3% and, as a
consequence, adjusted operating profit
was 8% ahead.
Primark performed well in the UK as we
continued to deliver a significant gain in
market share, with sales growth of
2.5% driven by a strong contribution
from new selling space. Like-for-like
sales declined by 1.0% but outperformed
a weak total clothing, footwear and
accessories market which includes
online. We have been encouraged by
our customers’ reaction to our new
store in Birmingham High Street which
showcases our new food and beverage
and beauty services in addition to our
full product range.
Sales in the Eurozone were 4.8% ahead
of last year at constant currency, with
excellent sales growth in Spain and
France and strong performances in Italy
and Belgium. Over the year selling
space increased by 8% and the
contributions from our new stores
in Bordeaux, Seville and Ljubljana
exceeded our expectations. Like-for-like
sales fell by 2.9%, driven by a weak
performance in Germany where a new
managing director is now in role and is
leading a number of initiatives which
include targeted local marketing
campaigns and the reduction of selling
space in some stores. Excluding
Germany, like-for-like sales in the
Eurozone fell by 1.1% but we note an
improving trend which delivered positive
like-for-like sales in the final quarter.
Full year like-for-like sales growth was
achieved in Spain, Portugal, France
and Italy.
Our US business delivered strong
sales growth which, coupled with
lower operating costs, resulted in a
significantly reduced US operating
loss. The sales increase was driven by
like-for-like growth and excellent trading
at the Brooklyn store, which opened last
summer. The selling space reduction in
three stores has successfully established
a profitable contribution in each store.
The positive reception by US consumers
to Primark, combined with our profitable
store model, gives us confidence for
Year ended 14 September 2019
Year ended 15 September 2018
# of stores
sq ft 000
# of stores
sq ft 000
UK
Spain
Germany
Republic of Ireland
Netherlands
France
US
Portugal
Belgium
Austria
Italy
Slovenia
Total
189
46
30
37
20
15
9
10
7
5
4
1
373
7,449
1,850
1,830
1,085
971
776
470
348
372
242
203
46
15,642
185
45
27
37
19
13
9
10
6
5
4
–
360
7,125
1,764
1,686
1,087
902
649
507
348
292
242
203
–
14,805
42
Associated British Foods plc
Annual Report and Accounts 2019
Strategic report
Strategic Report
New store openings:
UK: Hastings, Bluewater, Belfast
Donegall Place, Milton Keynes
Spain: Torre Sevilla, Almeria
Belgium: Bruxelles Chaussée
D’Ixelles
The Netherlands: Utrecht
Slovenia: Ljubljana
France: Toulouse, Bordeaux
Germany: Berlin Zoom,
Wuppertal, Bonn
Relocations:
UK: Harrow, Birmingham High
Street, Newtownabbey
Retail selling space increased by
a gross 0.9 million sq ft this year,
with 14 new store openings. Four
stores were added in the UK, three
in Germany, two in Spain, two in
France and one each in Belgium,
the Netherlands and our first store
in Slovenia. We relocated to new
premises in Birmingham High Street
which, at 160,000 sq ft, became
our largest store. The smaller of
our two stores in Oviedo, Spain,
was closed and the size of our
store in the King of Prussia mall in
Pennsylvania was reduced. This brings
the total estate to 373 stores trading
from 15.6 million sq ft compared to
14.8 million sq ft a year ago.
In the next financial year, we are
planning to add a net 1 million sq ft
of additional selling space, weighted
mainly to the second half. We expect
to open 19 new stores together with a
number of relocations and extensions,
while selling space will be reduced at a
small number of German stores. France
and Spain will see the most space
added, and the major new stores will
include Paris Plaisir, Lens and Calais
Cité Europe in France, Milan Fiordaliso
in Italy, Barcelona Plaza de Cataluña
and Seville Lagoh in Spain and Trafford
Centre in the UK. Our first store
in Poland will open in Warsaw in
the spring, taking Primark to its
thirteenth country.
further expansion in the US market.
Two further US stores will open in the
new financial year, at American Dream,
the retail and entertainment complex in
New Jersey which will now open in
spring 2020, and Sawgrass Mills, Florida
in summer 2020. We have now signed
the lease for a new store in Fashion
District, Philadelphia and, as previously
advised, have exchanged contracts on
a store in State Street, Chicago.
We were particularly pleased to have
reached a milestone 20 million followers
across all our social media channels,
driven by a combination of exciting
product ranges, innovative social media
campaigns and customer-focused
celebrity collaborations. We believe
our engaging content across these
social platforms attracts substantial
customer numbers to our stores.
During the second half, Primark’s
buying, merchandising, design,
sourcing and quality functions,
previously located in Reading and
Dublin, were consolidated in Dublin.
This will further enable one global
product range for our customers, the
delivery of efficiencies and support our
expansion into international markets.
The first half operating margin of
11.7% was well ahead of the same
period last year of 9.8%, driven by
a weaker US dollar on contracted
purchases, better buying and tight
stock management. Margin in the
second half exceeded our expectations
at 11.7%. This was lower than the
second half in the prior year, with the
effect of a stronger US dollar on
purchases substantially offset by a low
level of markdowns and better buying.
The strengthening of the US dollar
during this year has increased the cost
of goods for the first half of next year
which will result in a margin decline in
the first half. The sterling exchange
rate is currently extremely volatile and
affects the cost of goods for the second
half next year. We anticipate achieving
significant mitigation from reduced
materials prices, the favourable effect
of exchange rates in sourcing countries,
better buying and a programme to
reduce operating costs. At current
exchange rates, our expectation for the
full year margin next year has improved
to be only a small reduction on that
achieved this year.
Annual Report and Accounts 2019
Associated British Foods plc
43
STRATEGIC REPORT Retail | In action
Sunglasses
Part of the Kem Ibiza
photo shoot
Yellow dress
Part of the Stacey
Soloman collection
44
Associated British Foods plc
Annual Report and Accounts 2019
Celebrity partnerships
Primark has a strong track record of
teaming up with stars to develop and
publicise co-branded ranges. In line with
our strategy, we focus on high-profile
influencers linked to a wide range of
consumer passions – notably, health
and beauty, video gaming, TV and
music. This means we not only launch
great products that appeal to all sections
of society but we also connect with our
partners’ huge fan bases. This has a
significant impact on Primark media
coverage and sales.
Love Island winner Kem Cetinay,
for example, launched his inaugural
Primark range – a 16-piece holiday
collection – in May. The Primark Man x
Kem photo shoot in Ibiza made media
headlines, with the combined Instagram
reach of Kem and his two celebrity
travelling companions topping 10 million.
And when one of our influencers,
Ninja – a US video game player with
22 million followers – posted an image
of himself wearing a Primark Fortnite
gaming t-shirt he earned an
extraordinary 498,000 likes.
Strong fan-bases
We carefully select the influencers
with whom we collaborate. They need
to be genuine Primark advocates that
consumers can relate to easily, and
whose lives complement our brand and
reputation. They must also have strong
credibility with an existing base of
engaged followers.
Stacey Solomon is widely admired and
respected for her talent and down-to-
earth approach. The singer and TV
personality’s first Primark range was
a sell-out with wide media coverage,
including 650 social media posts that
reached 50 million people. Her second
range reached stores in October 2019.
We are now expanding Primark’s
network of influencers to ensure we
cover all our target audiences and
markets. Our choice of Kem as
Primark’s first male brand ambassador
supports our strategy of expanding our
base among young men. And we are
building on our strong body of UK
influencers through further range
collaborations with popular bloggers
in Spain, Germany and Austria.
INFLUENCER
Celebrity partnerships
are delivering stellar
returns for Primark.
Ninja Water Bottle
Part of the Ninja
collection
Annual Report and Accounts 2019
Associated British Foods plc
45
STRATEGIC REPORT STRATEGIC REPORT Strategic report Retail | In action
160,000 sq ft
size of Birmingham High Street store
46
Associated British Foods plc
Strategic report
DESTINATION
SHOPPING
Primark’s stunning
new Birmingham store
builds on the brand’s
reputation as the
shopping destination of
choice by offering all
you could want for a
great day out.
New experiences in store
Birmingham High Street, the UK’s
187th and the world’s biggest
Primark, offers an outstanding range
of fashion, beauty and homewear
over five floors. However, the 160,000
sq ft city centre location offers much
more than phenomenal shopping.
As research shows that consumers
increasingly prioritise shared
‘experiences’ over physical
purchases, and with the high street
facing a fierce challenge from online
retailers, this store provides a bundle
of fun things to do and share.
As well as shopping, consumers
can get their hair cut, play interactive
games in the Primark Café with
Disney – one of four very different
dining locations – enjoy a manicure,
have a wet shave, print bespoke
t-shirts and have a magical time in
Hogwarts Wizarding World. And
after that they can recharge
themselves, and their phones, in
one of the comfortable seating
areas, complete with free wifi and
water fountains.
Homage to home
In paying homage to Birmingham,
the store also helps consumers feel
at home. At the entrance, a large
Primark-blue sign proclaims
‘Welcome Brum’ and, against a
stylish interior that refers both to
the city’s industrial heritage and
contemporary design, word graphics
spell out the essence of Birmingham,
as voiced in local vox pops.
Elements of the new store’s rich
offering are being woven into other
Primark locations. For example, like
Birmingham High Street, further
selected stores will get branded
Primark cafés, beauty parlours,
Disney baby shops and lighter,
brighter, airier changing rooms.
We have long aimed to make Primark
stores must-visit destinations. By
blending great experiences with
unbeatable shopping, we continue
to buck the trend and deliver rising
sales on the high street.
Annual Report and Accounts 2019
Associated British Foods plc
47
STRATEGIC REPORT Retail | In action
DRIVING
FORWARD
SUSTAINABLE
COTTON
This year Primark
announced a fivefold
expansion of its
Sustainable Cotton
Programme, with a
commitment to train
160,000 independent
cotton farmers in
sustainable farming
methods across three
of its key sourcing
countries by the end
of 2022.
The programme’s expansion
comes amidst growing demand from
customers for sustainable cotton
products. Primark first introduced
sustainably sourced cotton into one
of its most popular product lines –
women’s pyjamas – under its Primark
Cares initiative in 2017. More than 14
million pairs of pyjamas have since been
sold, in addition to more than three
million pairs of jeans, and six million
duvet covers and towels made with
sustainable cotton tracked through
the programme at no extra cost to the
customer. The expansion into China and
increased farmer numbers will enable
Primark to move one step closer to its
long-term ambition of using 100%
sustainably sourced cotton across its
entire product range.
This significant extension broadens
the programme into China for the first
time, in addition to enrolling thousands
more farmers into the three-year training
programme in India and Pakistan.
This marks an important part of the
retailer’s ongoing commitment to
minimising its impact on the
environment, improving livelihoods and
bringing more sustainably-sourced
cotton to customers at affordable prices.
Primark started this programme in
2013 in India, working with agricultural
experts CottonConnect and local
partners to train female farmers to use
less water and chemicals. By starting
at the very beginning of the supply
chain, the cotton can be directly
traced from cotton farm through
manufacture to delivery to Primark’s
stores. This gives the retailer and its
customers complete confidence in
the source of the sustainable cotton
used, its environmentally friendly
credentials, and the positive impact
on farmers’ livelihoods.
48
Associated British Foods plc
Annual Report and Accounts 2019
We have been working
with Primark since this
programme was first
launched in 2013. Not only
are we materially changing
the lives of farmers and
their families in rural cotton
communities, but by working
closely with Primark and
their supply chain partners
we have been able to trace
the cotton all the way from
the farm into products
– a challenging but important
step towards increased
supply chain transparency.
Alison Ward,
CEO at CottonConnect
Annual Report and Accounts 2019
Associated British Foods plc
49
STRATEGIC REPORT STRATEGIC REPORT Strategic report Financial review
Our business model
remains unchanged
and our balance sheet
remains robust on the
adoption of IFRS 16
next year.
John Bason
Finance Director
Group performance
Group revenue increased by 2%
to £15.8bn and adjusted operating
profit was 1% higher at £1,421m. In
calculating adjusted operating profit, the
amortisation charge on non-operating
intangibles, profits or losses on disposal
of non-current assets, transaction costs,
amortisation of acquired inventory fair
value adjustments and exceptional
items are excluded.
The weakening of sterling this year,
particularly against the US dollar,
resulted in a translation benefit of
£9m. The movement in the US dollar
exchange rate has a transactional effect
on Primark’s largely dollar-denominated
purchases but taken for the year as a
whole the effect was broadly neutral,
with a favourable effect in the first half
offsetting a negative effect in the
second half.
The income statement includes
exceptional items of £79m this year.
Following the termination of our
largest private label bread contract in
December 2018, the carrying value
of the assets of the Allied Bakeries
business was no longer supported by
our forecasts of its discounted future
cash flows and a non-cash impairment
charge of £65m has been recognised.
Following a High Court ruling regarding
the equalisation of Guaranteed
Minimum Pensions in October 2018,
a pension service cost of £14m
has been taken for members of the
company’s defined benefit pension
scheme for service between 1990
and 1997. On an unadjusted basis,
operating profit was 5% lower than
last year at £1,282m.
Next year we expect the weakness of
sterling during this financial year to have
a negative transactional effect on the
Primark margin in the first half but, at
current exchange rates, a minimal effect
in the second half.
Net finance expense reduced from last
year following the maturity of $310m of
private placement senior notes in March
and lower debt in high interest markets.
The increase in other financial income
reflected the increase in the surplus of
our defined benefit pension schemes
between the 2017 and 2018 year ends.
Losses on disposal of businesses were
£94m, higher than last year, and mainly
comprised an impairment charge to the
assets of AB Mauri’s businesses in
China which are affected by the
formation of the proposed joint venture
with Wilmar International, described in
further detail below. Taking this into
account, statutory profit before tax was
down 8% to £1,173m. On our adjusted
basis, which excludes these items, profit
before tax rose by 2% to £1,406m.
Acquisitions and disposals
In September 2018 we acquired Yumi’s,
an Australian producer of premium chilled
dips and snacks. AB Agri acquired a small
manufacturer of piglet starter feed based
in Poland. Our Ingredients business
disposed of its underutilised torula yeast
facility in Hutchinson, Minnesota and
acquired Italmill, a supplier of specialist
bakery ingredients based in the north of
Italy. On 6 September 2019 ACH in the
US acquired Anthony’s Goods, a
California-based blender and online
marketer of speciality baking ingredients.
In August we signed an agreement
to form a yeast and bakery ingredients
joint venture in China with Wilmar
International, with completion subject to
regulatory approval. The joint venture will
see us build a major new low-cost yeast
plant in the north east of China and will
combine AB Mauri’s existing commercial
activities and technical expertise in
China with Wilmar’s extensive sales and
distribution capability. As a consequence,
50
Associated British Foods plc
Annual Report and Accounts 2019
a non-cash impairment charge of £88m
against AB Mauri’s assets in China has
been included in losses on closure of
businesses in the income statement.
Taxation
We recognise the importance of
complying fully with all applicable tax
laws as well as paying and collecting the
right amount of tax in every country in
which the group operates. Our board-
adopted tax strategy is based on seven
tax principles that are embedded in the
financial and non-financial processes
and controls of the group. This tax
strategy is available on the group’s
website at: www.abf.co.uk/documents/
pdfs/policies/abf_tax_strategy.pdf.
This year’s tax charge on the adjusted
profit before tax was £302m at an
effective rate of 21.5% (2018 – 21.3%).
We expect next year’s adjusted
effective tax rate to increase slightly
from this level.
The total tax charge for the year of
£277m benefited from a credit of
£25m (2018 – £35m) for tax relief on
the amortisation on non-operating
intangible assets, amortisation
of acquired inventory fair value
adjustments, profits on disposal of
non-current assets, losses on disposal
of businesses and exceptional items.
Earnings and dividends
Earnings attributable to equity
shareholders in the current year were
£878m and the weighted average
number of shares in issue during the
year, which is used to calculate earnings
per share, was 790 million (2018 – 790
million). Given the loss on closure of
businesses and exceptional items
charged this year, earnings per ordinary
share were 13% lower than last year at
111.1p. Adjusted earnings per share,
which provides a more consistent
measure of trading performance,
increased by 2% from 134.9p to 137.5p.
The interim dividend was increased
by 3% to 12.05p and a final dividend
has been proposed at 34.3p which
represents an overall increase of 3%
for the year. The proposed final dividend
is expected to cost £271m and will
be charged next year. Dividend cover,
on an adjusted basis, remained at
3.0 times.
Balance sheet
Non-current assets of £8.2bn were
£0.2bn lower than last year driven by
a decrease in employee benefits
assets as the surplus in the UK defined
benefit pension scheme declined.
The investment in property, plant and
equipment and intangible assets
was in line with last year, with capital
expenditure and acquisitions made
in the year offset by depreciation
and impairments.
Average working capital as a percentage
of sales increased from 7.2% last year
to 7.8% this year, while working capital
at the year end was also higher than last
year due principally to higher inventories
at Primark. Net cash at the year end
was £936m compared with net cash
at the end of last year of £614m
reflecting the strong operating cash
flow in the year.
The group’s net assets increased by
£0.3bn to £9.6bn. Return on capital
employed for the group which is
calculated by expressing adjusted
operating profit as a percentage of the
average capital employed for the year,
was lower this year at 19.3% compared
with 20.1% last year, mainly driven by
the reduction in the return on capital at
AB Sugar.
Cash flow
Net cash inflow from operating activities
increased slightly to £1,509m. Capital
expenditure reduced compared to the
prior year with lower spend at Primark
this year reflecting the planned later
phasing of next year’s store openings
and the consequent timing of store fit
out costs, while lower spend in the
food businesses followed the recent
completion of some major capital
projects. £12m was realised from the
sale of property, plant and equipment.
The net cash outlay on acquisitions was
£100m, including debt assumed, and
related principally to the acquisitions of
Yumi’s and Anthony’s Goods.
Tax paid in the year amounted to
£269m. Generally in the UK, 50% of
the corporation tax due in respect of an
accounting period is payable in that
period with the remaining 50% being
paid in the following accounting period.
Changes made by HMRC which come
into effect next year will result in all of
the tax due for a financial year being
paid in that financial year. Accordingly,
the group’s tax cash outflow in 2020
will be higher than 2019.
Financing
The financing of the group is managed
by a central treasury department. The
group has total committed borrowing
facilities amounting to £1.6bn, which
comprise: £0.3bn of US private
placement notes maturing between
2021 and 2024, with an average fixed
rate coupon of 4.4%; £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, £412m was
drawn down under these committed
facilities. The group also had access to
£564m of uncommitted credit lines
under which £162m was drawn at the
year end. Cash and cash equivalents
totalled £1.5bn at the year end.
Pensions
The group’s defined benefit pension
schemes were in surplus by £33m at
the year end compared with a surplus
last year of £435m. The UK scheme
accounts for 91% of the group’s gross
pension assets. The decline in long-term
UK bond yields during the year, which
are used to value defined benefit
pension obligations for accounting
purposes, had a material impact on the
discounted value of pension liabilities.
The lower pension surplus will result in
reduced interest income next year in
respect of defined benefit pensions, and
is reported in other financial income.
The most recent triennial valuation of
the UK scheme was undertaken as at
5 April 2017 which determined a surplus
of £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 £80m (2018 – £77m). This
compared with the cash contribution to
the defined benefit schemes of £50m
(2018 – £39m).
Annual Report and Accounts 2019
Associated British Foods plc
51
Strategic report Financial review
New accounting standards
The accounting policies applied
during this financial year, and details
of the impact of adoption of new
accounting standards in future financial
years, are set out in the Significant
accounting policies.
During this financial year we adopted
IFRS 9 Financial Instruments and
IFRS 15 Revenue from Contracts with
Customers with no material impact
arising on adoption. On transition,
comparatives were not restated. Under
IFRS 15, Grocery revenues would have
reduced by £31m last year as certain
payments to customers which were
previously expensed as incurred would
instead have been deducted from
revenue. This reduction represents
0.9% of revenue in the Grocery
segment and would have had the effect
of increasing Grocery operating margin
by 8 basis points last year. This had
no effect on the timing or amount of
operating profit.
IFRS 16 Leases
The group will adopt IFRS 16 Leases
in the 2020 financial year, which is the
most significant accounting change for
our group for many years. It affects
many aspects of the group’s financial
statements, including operating profit,
earnings per share and net debt, as well
as return on capital employed.
The effects of adopting IFRS 16 at our
transition date of 15 September 2019
are set out in the Significant accounting
policies section. We will recognise lease
liabilities at transition of £3.6bn and
right-of-use assets of £3.1bn.
The vast majority of the lease liabilities
relate to Primark’s leasehold store
estate. The effect on our food
businesses, where many of our
properties are owned under freeholds,
is much less significant.
We will transition using the ‘modified
retrospective’ approach, under which
the comparative period is not restated.
We have set out below our estimates of
selected 2019 financial information, on
a pro forma IFRS 16 basis, in order to
illustrate the effects on the income
statement and key metrics for Primark.
Effects on the group financial
statements and metrics:
• The balance sheet would have shown
net debt of £2.7bn.
• Gearing (expressed as debt as a
proportion of debt plus equity) would
have been 31% at the balance sheet
date.
• Adjusted operating profit would have
increased by £64m, with rental
expense replaced by depreciation
of right-of-use assets.
• Interest expense would have
increased by £90m of interest
charged on lease liabilities.
• Interest cover would have been
14 times.
• Adjusted profit before tax would
have reduced by £26m.
• Adjusted earnings per share would
have reduced by 2% from 137.5p
to 134.8p.
There is no change to overall net cash
flows and while this is a significant
change in financial reporting, our
business model remains unchanged
and our balance sheet remains robust.
Effects on Primark metrics:
• Primark’s margin would have
increased from 11.7% to 12.5% due
to higher adjusted operating profit,
with store rental expense replaced
with a depreciation charge on
right-of-use assets.
• Primark’s return on capital employed
would have decreased from 29% to
15%, as right-of-use assets are now
included in capital employed.
John Bason
Finance Director
52
Associated British Foods plc
Annual Report and Accounts 2019
Responsibility
LIVING
OUR VALUES
A great deal has changed since we were
established more than 80 years ago, but
one thing has remained constant: our
commitment to operating responsibly and
ethically at all times.
Our purpose is to provide safe,
affordable food and clothing that offers
great value for money. In doing these
things well, we know we are doing
good every day by helping to make
millions of people’s lives better.
RESPECTING EVERYONE’S
Dignity
ACTING WITH
Integrity
Our values
We live and breathe our
values through the work we
do every day. They guide our
everyday behaviour and help
us to articulate how we deliver
long-term benefits for our people,
suppliers, neighbours, customers
and the environment.
We have – for the first time – set
out a group-level articulation
of the values expressed by our
individual businesses. These
are not new values recently
discovered, but the underlying
threads which run through
every interaction at Associated
British Foods and its businesses.
These do not replace each
business’ own values, but rather
consolidate and summarise the
most common themes found
across the group. We developed
them by distilling how our
own businesses describe and
implement their values. By
collating the values from 22 of our
own businesses, we were able to
use language that is reflective of
our businesses’ own words.
Respecting everyone’s dignity
We strive to protect the dignity
of everyone within and beyond
our operations so that the people
who make our products feel safe,
respected and included.
Acting with integrity
We proudly promote and protect
a culture of trust, fairness and
accountability that puts ethics first.
From farms and factories right
through to our boardroom, we are
committed to embedding integrity
into every action.
Progressing through collaboration
We work with others to leverage
our global expertise for local
good. Through collaboration
with our stakeholders, including
non-governmental organisations
(NGOs), we’re working to create
safer, fairer working environments
and promoting thriving, resilient
communities.
Pursuing with rigour
From the products we make, to
the way we preserve the resources
we rely on and support the people
we work with, we are always
learning and incorporating better
practices. Across our businesses,
we are partnering with industry
experts to help us work towards the
highest standards.
PROGRESSING THROUGH
Collaboration
PURSUING WITH
Rigour
Annual Report and Accounts 2019
Associated British Foods plc
53
Strategic report Responsibility | Reporting and stakeholders
REPORTING AND
STAKEHOLDERS
Non-Financial Reporting
Requirements
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 employees
(pages 55 and 56)
• Information on diversity
(pages 56 and 57)
• Information on our Anti-bribery
and Corruption Policy (page 57)
• Information on our Whistleblowing
Policy (page 57)
• Information on our approach to
human rights (page 58)
• Information on social matters
(pages 58 and 59)
• Information on our Environment
Policy (pages 60 and 61)
* Further information on these
can also be found in the 2019
Responsibility Report
Further Responsibility and
ESG Disclosures
In recent years we have published a
full corporate responsibility report
every three years with annual updates.
This year our responsibility report has
evolved into two separate documents.
The first is a responsibility report Living
our values which provides an overview
of our operations and material impact:
investing in our people; supporting
society and strengthening our supply
chain; and respecting the environment.
The second is an environmental, social
and governance, ESG Appendix that
provides a greater depth of data to
complement the responsibility report
and provide an ‘at a glance’ for our
recent historical non-financial
performance.
There is also further information
on our website at www.abf.co.uk/
responsibility. Here you can find our
previous corporate responsibility reports
and updates, our Modern Slavery and
Human Trafficking Statement, our 2019
Responsibility Report and our 2019
ESG Appendix.
Engaging with external stakeholders
Our scale employing 138,000 people
and with operations in 52 countries
across the world mean that our activities
matter to many people. Our reporting is
intended to provide our wide range of
stakeholders with an accurate picture of
our approach to addressing both social
and environmental challenges.
Our businesses routinely engage with
customers, relevant regulators and
industry bodies. At a group level we also
engage with a variety of stakeholders
through a range of methods. Some of
these are noted below.
Environment, Social and Governance
(ESG) assessments
Investor interest in ESG-related issues is
growing. We are engaging more than
ever with both individual investors and
investor-related ESG research agencies.
Despite publishing and providing
accurate and wide ranging data we
find that with both investors and ESG
research agencies, we are regularly
explaining that our business model does
not fit neatly into a survey or standard
question set. As such, our first ever ESG
Appendix is published in response to
these increasing requests for performance
data and is an example of the growing
importance of providing a wide range of
publicly available ESG data.
Environment
Every year we share our performance
in addressing climate change, water and
deforestation risks via CDP, and request
that our reports are publicly available on
their website, www.cdp.net, as well as
our own.
Human rights
We engage with a number of
organisations on issues around human
rights, including the Corporate Human
Rights Benchmark and KnowTheChain.
People
We devote hundreds of thousands of
hours to 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 third 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
responsibility report, Living our values.
Review Living our values online:
www.abf.co.uk/responsibility
We engaged EY to provide limited assurance
over the reliability of 15 environment and safety
key performance indicators (KPIs) for the year
ended 31 July 2019. These are marked with the
symbol ∆ in these pages.
54
Associated British Foods plc
Annual Report and Accounts 2019
Responsibility | Our people
INVESTING IN
OUR PEOPLE
We prioritise the safety and well being of all
our employees and those who work with us.
We also want them to have every opportunity to
develop and progress. As a diverse, decentralised
organisation, our businesses operate in different
global contexts, so they are given the flexibility
to manage these issues at a local level.
Our safety performance this year
Loss of life as a result of our activities
is unacceptable. This year there were
no work-related fatalities ∆. However,
we recognise that there are areas of
high safety risk in our businesses and
we continuously work towards our goal
of zero-harm in our workplaces and
activities. Our goals remain to eliminate
fatalities and continuously improve our
safety performance.
Whilst we offer our businesses
significant autonomy when it comes
to our people, we have a clear set of
principles that are common to all:
• we provide a safe and healthy
workplace;
• we offer equal opportunities in
recruitment, career development
and promotion whatever their sex,
age, race, religion or sexual
orientation;
• we proactively support employees
when pregnant or as new parents;
• we give full and fair consideration
to applicants with disabilities; the
training, career development and
promotion of disabled persons should,
as far as possible, be the same as that
of other employees;
• we do not tolerate sexual, mental or
physical harassment in the workplace;
• we brief and engage with our
employees on a regular basis to
create a common understanding of
the financial performance of the group
and we seek our employees’ views to
take them into account in decision
making;
• we will take all steps necessary to
minimise the risks to our staff and
customers’ safety.
Safety
The health and safety of our employees,
contractors and those affected by our
activities is a priority. All our businesses
invest in programmes that drive
continuous improvements in processes
and standards for health and safety.
We also encourage and empower our
people to report and address concerns
so that everyone feels safe and secure
in their place of work.
Our approach to safety
All our businesses must comply with
Associated British Foods’ Health and
Safety (H&S) Policy (www.abf.co.uk/
responsibility). We pursue this with
rigour across the group, and many
businesses supplement the group policy
with additional policies of their own. Our
businesses also have tailored action
plans to reduce the risk of injuries and
incidents in their own operations.
We have many safety programmes in
place to encourage our people to take
responsibility for keeping themselves
and their colleagues safe. We deliver a
wide range of training on high-risk areas
to ensure our people are equipped with
robust safety knowledge.
Number of employees
Reportable Injury Rate
2019
2018
2017
2016
2015
138,097
137,014
132,590
129,916
124,036
2019
2018
2017
2016
2015
0.54%
0.63%
0.59%
0.47%
0.48%
This year, 76% of our factories
and stores achieved a year’s operation
without any Reportable Injuries and
67% did not have a Lost Time
Injury (LTI).
In 2019, LTIs among employees
decreased by 18% from 833 last year
to 682 ∆. This equates to an LTI rate of
0.65% of our people experiencing an
injury that resulted in time off work.
For contractors, the LTI rate for the
year was 0.19%. There was also a 14%
decrease in Reportable Injuries to
employees from 663 in 2018 to 573
this year. This equates to 0.54% of our
employees having a Reportable Injury.
A healthy workforce extends beyond
just managing health and safety
risks. Our holistic approach includes
programmes and initiatives that
proactively help employees to maintain
and improve their overall wellbeing.
Sound mental health is an essential part
of this, and we continue to invest in
programmes that raise awareness and
provide practical assistance to
our people.
Health and safety fines
During 2019, we received six safety
fines ∆ with a cost of £34,000 ∆ which
fell within the reporting year. All the
businesses involved are required to
report to Associated British Foods’
Safety and Environment Manager on
when and how remedial actions are
implemented.
Annual Report and Accounts 2019
Associated British Foods plc
55
Strategic report Responsibility | Our people
Gender metrics
Associated British Foods plc board directors are not included in the table below. We currently have two women and six men on
the Company’s board.
Grocery
Sugar
Agri
Ingredients
Retail
Central
Total
Total
employees*
Men in
workforce
Women in
workforce
17,059
33,619
2,525
6,664
77,787
443
138,097
11,400
28,103
1,810
4,942
20,289
269
66,813
5,659
5,516
715
1,722
57,498
174
71,284
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%
26%
74%
39%
52%
750
334
343
576
302
55
443
242
211
425
155
38
2,360
1,514
307
92
132
151
147
17
846
41%
28%
38%
26%
49%
31%
36%
* Full-time, part-time and seasonal/contractors.
** Includes directorships of subsidiary undertakings.
Investing in safety
Our businesses invested over £29m 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.
Product Safety
Maintaining food safety and quality
is a core part of our work, both across
the Group and within our individual
businesses. Each of our businesses
has clear policies, procedures and
the identification of individuals with
responsibility for food safety as part of
its Quality Management System. These
systems are audited annually. For more
information see page 31 of the
responsibility report.
Promoting Diversity
Diversity is key to our culture, gives us
a competitive edge and is one of the
ways we live our values every day.
We strive to create diverse inclusive
working environments in which
everyone’s dignity is respected and
people are valued regardless of ethnicity
or race, religion, gender, age, nationality,
sexual orientation or disability.
For details on diversity as it relates to
the board of the Company, please see
page 78.
policies that foster diversity in
the workforce are developed and
delivered locally. However we do also
operate initiatives across Associated
British Foods to promote diversity and
these include:
• a groupwide gender diversity task
force which aims to ensure that there
are no barriers to prevent talented
people from succeeding within the
Company;
• senior and high-potential women are
invited to join ‘Women in ABF’, which
meets three times a year providing
a chance for networking, learning
and support for personal career
development. The group currently
has over 500 members;
• a Two-Way Mentoring Programme
aims to grow the talent pipeline by
matching high-potential women 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.
The board is only one small part of our
total business and our commitment
to promoting diversity extends across
the entire workforce. Given our
decentralised business model, many
Gender pay gap reporting
This year, for the third 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
2019. 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. A number of our
businesses, such as Primark, AB Agri
and British Sugar, publish their own
gender pay gap reports online and they
can be found here:
Online gender pay gap reports*
www.primark.com/en/uk-gender-pay-
report
www.abagri.com/responsibility/
our-policies/gender-pay-report
www.britishsugar.co.uk/perch/
resources/18037-digital-gender-pay2pp-
a4revhr.pdf
* Please note 2019 data will be uploaded in advance
of 5 April 2020
In the main, the situation remains
unchanged since last year: at the
median, women’s hourly pay rate is
28% lower than that of men; and
women’s median bonus pay rate is
95.9% higher than men.
Overall, the gender balance of
Associated British Foods is fairly equal,
with women making up 52% of our total
global workforce. However, 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
56
Associated British Foods plc
Annual Report and Accounts 2019
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 currently
mostly men. 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.
Our senior management population is
becoming more gender balanced year
on year which demonstrates the
success of our various initiatives to
achieve no barrier to talent. In 2017 and
2018, 23% of the people who report to
members of our executive committee
were women; in 2019 this figure was
24%, data we have shared with the
Hampton-Alexander Review.
We recognise that our approach
means we are unlikely to meet the
2020 expectations of the Hampton-
Alexander Review. We believe our
approach is right for our decentralised
structure and will continue to deliver an
increasingly balanced senior team.
Anti-bribery and corruption policy
Our values commit us to acting with
integrity, meaning that compliance
with relevant legislation is a given
and we hold ourselves to higher
ethical standards. 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.
Our approach to governance is to
respect not simply the letter but also
the spirit of our policy and act always
with integrity. 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
provide a confidential and independent
whistleblowing service managed by
Expolink (see following section) 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 wrongdoing is to be dealt
with effectively. Our value of pursuing
with rigour includes those engaged in
malpractice and we are serious in
wanting to hear from colleagues about
such examples.
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
remediation agreed.
A copy of the group’s
Whistleblowing Policy is available at:
www.abf.co.uk/responsibility
Gender balance:
women in the
global workforce
Share of workforce
by gender
All employees
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
34.2%
lower
than that of men
28.0%
lower
than that of men
38.2%
lower
than that of men
95.9%
higher
than that of men
20.9% of men received
a bonus
6.3% of women received
a bonus
Men
48.0%
Women 52.0%
Proportion of men and women in each pay quartile
Upper
Upper middle
Lower middle
Lower
Senior
management
Men
64.0%
Women 36.0%
Men
67.3%
Women 32.7%
Men
45.3%
Women 54.7%
Men
19.3%
Women 80.7%
Men
26%
Women 74%
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.
Annual Report and Accounts 2019
Associated British Foods plc
57
Strategic report
Responsibility | Society and supply chains
SUPPORTING SOCIETY
AND STRENGTHENING
OUR SUPPLY CHAINS
Our scale and range of operations mean that our impact
on society is sizeable. This impact is amplified through
our supply chains and we take our responsibilities to use
our influence with suppliers seriously.
Our values drive us to place a
considerable importance on the
wellbeing of the communities we
operate in, the people we rely on in
our supply chains and the consumers
who buy our products.
Progressing through collaboration
means leveraging our global expertise
for local good. This collaboration can
be seen clearly in our supply chains
and local communities. Our work to
respect human rights is informed
by internationally recognised good
practice, such as the United Nations
Guiding Principles on Business and
Human Rights, and enhanced through
a range of policies, due diligence and
remedy processes.
In every market we always seek to
give our consumers the best possible
tasting food products. We are also
mindful that individual choice can
become bewildering and higher rates
of obesity in some of our key markets
point towards a need for governments,
consumers and business to act together
to help promote healthy diets and
lifestyles. We are doing this through
health education, improved product
labelling and reformulation.
Respecting Human Rights
In recent years there has been a growth
in legislation and reporting requirements
on businesses’ responsibility to respect
human rights. We have welcomed this
trend towards mandating greater
disclosure about human rights impacts.
Motivated by our company values, we
have consistently sought to provide our
stakeholders with relevant information
about the work being undertaken across
our businesses to promote and respect
human rights.
Our Modern Slavery Statement
can be found at www.abf.co.uk/
modern_slavery. A number of our
businesses have also produced
independent statements in accordance
with the UK Modern Slavery Act
and links to these can be found at
www.abf.co.uk/responsibility
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. As a group we work
to respect human rights of all the
people with whom we interact.
Whether they are direct employees,
temporary workers or those in our
supply chain, we know we can play
a role in enhancing their lives.
be tackled most effectively by those
who best understand the local context.
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.
This year, we are pleased many of our
businesses have engaged in activities
that align with the internationally
recognised framework of the United
Nations Guiding Principles on Business
and Human Rights (UNGPs):
• Policy: As a group we have a suite
of policies that set the standards and
create mechanisms to respect human
rights – this includes our Supplier
Code of Conduct, Whistleblowing
Policy and business-specific human
rights policies (e.g. AB Agri).
• 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.
• 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.
In line with the decentralised nature of
our company, human rights are primarily
managed by individual businesses. This
also enables the most salient rights to
For further information see pages
24–28 of our 2019 Responsibility Report
with additional information provided in
the ESG Appendix.
58
Associated British Foods plc
Annual Report and Accounts 2019
3,319
audits of supplier factories
by Primark in 2018.
Raising awareness and training
This year, in collaboration with Twinings,
we developed a new online ethical
training toolkit, the first module
of which is designed to raise awareness
of modern slavery. The course seeks
to educate our people about modern
slavery and forced labour, providing
real-life examples and highlighting the
importance of managing known
business risks. The course also outlines
how those operating in our supply chain
can help to keep it free from modern
slavery and human trafficking. This
course was made available to all our
businesses and, in the six months since
it was launched, has been completed by
more than 700 employees.
Where risks of modern slavery are high,
we ask our suppliers to conduct their
own Modern Slavery training. For
instance, some of the agencies that
provide us with temporary labour have
conducted training internally at
our request.
In addition to this centralised training,
a number of our businesses have
created tailored training to raise
awareness. For instance:
• Westmill provided Modern Slavery
training to 91% of those employees
whose role involves recruitment or
procurement;
• AB Agri trained its transport
managers, commercial teams and
delivery drivers (who visit more than
a thousand farms across the UK
every year) to recognise the signs of
modern slavery and forced labour;
Promoting health and wellness
As a company that is proud to sell a
range of food items and ingredients,
we take seriously our responsibility to
promote healthy diets and lifestyles.
We do this in three main ways:
• AB Sugar created a video to raise
• Education: We help educate
awareness of the potential for modern
slavery in its supply chain and to
provide staff with advice on how to
act on concerns, such as contacting
independent whistleblowing hotlines.
It is currently exploring how the video
can also be shared with its suppliers.
Priority commodities
Our businesses purchase a significant
variety of different commodities to
make the food and clothing items we
sell. Our businesses have identified a
range of priority commodities among
them that they will focus on sourcing
responsibly.
For example, Primark has identified
cotton as a focus commodity. Primark’s
Sustainable Cotton Programme
provides growers in India, Pakistan
and China with training in sustainable
farming methods, helping them to
increase productivity and improve
their livelihoods; see page 26 of the
responsibility report for further
information.
consumers by running campaigns
that provide them with accurate
information about aspects of their
diet like fibre and sugar. Two such
examples are Jordans Dorset
Ryvita’s programme FibreFit
(see 2019 Responsibility Report page
31) and AB Sugar’s Making Sense of
Sugar campaign (see 2019
Responsibility Report page 29).
• Product labelling: Our businesses
provide clear product labelling and in
many cases this includes the addition
of enhanced nutritional information.
One example is the Tip Top brand that
features clear front-of-pack nutritional
information aligned with a national
public health campaign in Australia
called ‘A Grain of Truth’ (see 2019
Responsibility Report page 29).
• Reformulation: As a business
operating in a range of food and
ingredient sectors, we have an
opportunity to reformulate both
finished products and ingredients.
Allied Bakeries is a business offering
reformulated products with greater
fibre content and more vitamins and
minerals (see 2019 Responsibility
Report page 30). Ohly, an ingredients
business, has developed baker’s
yeast that enables bakeries to achieve
a great tasting product with lower
salt (see 2019 Responsibility Report
page 30).
Annual Report and Accounts 2019
Associated British Foods plc
59
Strategic report Responsibility | Environment
RESPECTING THE
ENVIRONMENT
At a group and business level, we remain
committed to seeking sustainable solutions
to environmental challenges.
We are focused on building resource
efficiencies into all our operations.
We strive to use raw materials and
ingredients efficiently and responsibly,
create less waste and recycle more of
the waste we do generate.
Acting on climate change
Increasingly unpredictable and severe
weather events are already affecting
food security, consumption habits and
the availability of natural resources.
Our ambition to reduce our overall
environmental footprint therefore
includes business-led commitments
to reduce GHG emissions, recognising
the Paris Climate Agreement which
aims to limit global temperature rises
to no more than 2 degrees Celsius
by the end of the century. Working
collaboratively with partners, we want
our operations and supply chain to
withstand the challenges of the
changing climate while taking advantage
of new opportunities including product
innovation and increased efficiencies.
Our businesses have a role to play in
the transition to a low carbon economy
by increasing the efficiency of our
buildings, operations, logistics and
agricultural activities, by using
renewable energy where feasible and
by investing in new technologies.
Our energy-intensive businesses, and
those reliant on secure crop supplies,
have initiatives to manage their impacts
and adapt to changes and have thus
set goals to reduce their emissions.
For example:
• AB Sugar has made an industry-
leading commitment to reduce its
end-to-end supply chain CO2 footprint
by 30% by 2030;
• Illovo Sugar is committed to reducing
GHG emissions by 10.7% by 2020,
compared with 2010; and
• AB Agri has an aspiration to reduce
its operational energy footprint by
20% between 2014 and 2024.
We use the Task Force on Climate-
related Financial Disclosure’s (TCFD)
recommendations to inform our
approach on climate action and related
disclosures. This year, we conducted
our first high-level climate risk
assessment considering the impact of
2°C global warming on our businesses
in the short to medium term.
We publish more detail on our
climate-related governance and risk
management through CDP’s report
at www.cdp.net and on pages 62
to 66 of this report.
Our total emissions (scopes 1, 2 and 3)
have decreased again this year. For
2019, we report a 4% decrease
compared with last year to 4.75 million
tonnes CO2e ∆.
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.
Reducing our energy use
As energy generation is our primary
source of GHG emissions, all our
businesses are working hard to improve
energy efficiency on a continuous basis,
as well as via investment projects.
In addition, the price volatility of the
energy we purchase means that
rigorous energy management is a key
operational focus.
In 2019, our total energy use was
23,565 GWh ∆, a 2% increase on 2018.
Our sugar businesses consumed 82%
of the group’s total, or 19,238 GWh.
Our greenhouse gas emissions
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
2019 emissions ∆
(000 tCO2e)
2018 emissions
(000 tCO2e)
3,087
75
3,162
831
753
4,746
3,962
3,159
69
3,228
925
813
4,966
3,711
Emission intensity (Scope 1 and 2)
252 tonnes per
£1m of revenue
266 tonnes per
£1m of revenue
We report our GHG inventory using the GHG Protocol Corporate Accounting and Reporting Standard Revised
edition as our framework for calculations and disclosure. We use carbon conversion factors published by the
Department for Business, Energy and Industrial Strategy (BEIS) in August 2019, other internationally recognised
sources and bespoke factors based on laboratory calculations at selected locations. This includes all activities
where we have operational control. Scope 2 location-based emissions have been calculated in accordance with
the GHG Protocol Scope 2 Guidance on procured renewable energy. For 2018 and 2019, scope 3 emissions are
our third-party transport emissions only. See our ESG Appendix for more detail.
60
Associated British Foods plc
Annual Report and Accounts 2019
Business initiatives
AB Sugar
Illovo Sugar
AB Agri
Scope 1, 2 and 3 GHG emissions
(000 tonnes CO2e)
30%
reduction
in CO2 footprint
by 2030
10.7%
reduction
in GHG emissions
by 2020
20%
reduction
in energy footprint
by 2024
2019 ∆
2018
2017
2016
2015
4,746
4,966
5,057
5,258
5,629
Packaging and plastics
Packaging is essential for containing
and protecting our products during
transit and on the shelf, and we remain
committed to initiatives that improve
recyclability and recycling rates, reduce
volume and weight and avoid waste. In
2019, Associated British Foods used
258,800 tonnes ∆ of packaging. This
1% increase compared with last year
was largely due to an increase in
production at specific sites.
Opportunities to use innovative,
bio-based materials are limited, not
least due to the strict regulations
governing the materials that can be
used in contact with food, but we
continue to explore potential new
packaging solutions. We believe that
all stakeholders need to work together
to create the recycling infrastructure
needed for a truly circular economy for
plastics and welcome initiatives which
encourage this development.
Energy consumption (GWh) and
proportion from renewable sources
2019 ∆
2018
2017
2016
2015
23,600
23,200
23,300
22,800
52%
50%
49%
49%
25,000
50%
Water abstracted (million m3)
2019 ∆
2018
2017
2016
2015
880
837
811
800
925
Waste disposed (000 tonnes)
and proportion recycled
Our UK Grocery businesses signed the
UK Plastics Pact in 2018, through which
they have committed to ensure 100%
of their plastic packaging is reusable,
recyclable or compostable and averages
30% recycled content by 2025.
2019 ∆
2018
2017
2016
2015
632
770
80%
82%
1,000
83%
1,000
78%
862
78%
Environmental compliance
This year we received 14 environmental
fines ∆ with a cost of £118,000 ∆ which
fell within the reporting year. These
were largely due to the treatment of
waste water, management of on-site
waste, gas emissions and odour control.
The sites have addressed the issues
and liaised with the local authorities and
regulators to ensure standards are met.
Quantity of packaging used
(000 tonnes)
2019 ∆
2018
2017
2016
2015
259
256
243
248
238
In 2019, we exported 971 GWh of
energy, which is an 18% increase
compared with last year. Some of our
sites generate energy on-site and
when this is surplus to their needs, they
export it to the national grid or other
organisations.
We also continuously explore how we
can better use renewable energy. Of
the total energy we used this year, 52%
or 12,211 GWh ∆, came from renewable
sources. This equates to a 6% increase
in the amount of renewable energy
generated and used on site compared
with last year. Most of this energy
(92%) came from bagasse – the residual
fibre left after sugar is extracted from
sugar cane – from our operations in
southern Africa. We also use on-site
anaerobic digesters (AD) to generate
biogas from our own waste streams,
such as British Sugar’s AD plant in
Suffolk and AB Agri’s facility in
Yorkshire. This year biogas accounted
for 2% of the total renewable fuels used
on site.
Water management
Our businesses invest in initiatives
to reduce water abstraction per
tonne of product and increase their
ability to reuse water for cleaning or
cooling equipment or for irrigation
before returning it to the environment.
By reusing water, we reduce the
amount which is abstracted in the first
place. In 2019, we abstracted 880
million m3 ∆ of water which is a 5%
increase compared with last year. Of the
total water abstracted, 19% was reused
within our operations before finally
returning it to the watercourse.
Managing waste
We look for positive ways to
use the waste we create, through
reuse and recycling or by creating
by-products such as energy, soil or
animal feed. This year we generated
631,800 tonnes ∆ which is an 18%
decrease compared with last year.
Of the total generated, 80% was
recycled, recovered or had a
beneficial use.
Annual Report and Accounts 2019
Associated British Foods plc
61
Strategic report
Principal risks and uncertainties
EFFECTIVE RISK
MANAGEMENT
Our approach to risk management
The delivery of our strategic objectives
and the sustainable growth (or long-
term shareholder value) of our business,
is dependent on effective risk
management. We regularly face
business uncertainties and it is through
a structured approach to risk management
that we are able to mitigate and manage
these risks and embrace opportunities
when they arise. The diversified nature
of our operations, geographical reach,
assets and currencies are important
factors in mitigating the risk of a material
threat to the group’s sustainable growth
and long-term shareholder value.
However, as with any business, risks
and uncertainties are inherent in our
business activities. These risks may
have a financial, operational or
reputational impact.
The board is accountable for effective
risk management, for agreeing the
principal risks facing the group and
ensuring they are successfully managed.
The board undertakes an annual
assessment of the principal risks,
including those that would threaten the
business model, future performance,
solvency or liquidity. The board also
monitors the group’s exposure to risks
as part of the performance reviews
conducted at each board meeting.
Financial risks are specifically reviewed
by the Audit committee.
Each year, the Audit committee on
behalf of the board reviews the
effectiveness of the group’s approach
to risk management including the
internal control procedures and
resources devoted to them.
Our decentralised business model
empowers the management of our
businesses to identify, evaluate and
manage the risks they face, on a timely
basis, to ensure compliance with
relevant legislation, our business
principles and group policies.
Our businesses perform risk assessments
which consider materiality, risk controls
and specific local risks relevant to the
markets in which they operate. The
collated risks from each business are
shared with the respective divisional chief
executives who present their divisional
risks to the group executive.
The group’s Director of Financial Control
receives the risk assessments on an
annual basis and, with the Group
Finance Director, reviews and
challenges them with the divisional
chief executives, on an individual basis.
These discussions are wide ranging and
consider operational, environmental and
other external risks. These risks and
their impact on business performance
are reported during the year and are
considered as part of the monthly
management review process.
Group functional heads including Legal,
Treasury, Tax, IT, Pensions, HR,
Procurement and Insurance also provide
input to this process, sharing with the
Director of Financial Control their view of
key risks and what activities are in place or
planned to mitigate them. A combination
of these perspectives with the business
risk assessments creates a consolidated
view of the group’s risk profile. A
summary of these risk assessments
is then shared and discussed with the
Group Finance Director and Chief
Executive at least annually.
The Director of Financial Control
holds meetings with each of the
non-executive directors seeking their
feedback on the reviews performed and
discussing the key risks and mitigating
activities. Once all non-executive
directors have been consulted, a board
report is prepared summarising the full
process and providing an assessment
of the status of risk management across
the group. The key risks, mitigating
controls and relevant policies are
summarised and the board confirms the
group’s principal risks. These are the
risks which could prevent Associated
British Foods from delivering its
strategic objectives. This report also
details when formal updates relating
to the key risks will be provided to the
board throughout the year.
Key areas of focus this year
Effective risk management processes
and internal controls
We continued to seek improvements in
our risk management processes to
ensure the quality and integrity of
information and the ability to respond
swiftly to direct risks. During the year,
the Audit committee on behalf of the
board conducted reviews on the
effectiveness of the group’s risk
management processes and internal
controls in accordance with the UK
Corporate Governance Code. Our
approach to risk management and
systems of internal control is in line with
the recommendations in the Financial
Reporting Council’s (FRC) revised
guidance ‘Risk management, internal
control and related financial and
business reporting’ (the Risk Guidance).
The board is satisfied that internal
controls were properly reviewed and
key risks are being appropriately
identified and managed.
Brexit
Following the referendum decision in
2016, the group established an EU Exit
Steering Committee which consists of
a small dedicated team which worked
with all the businesses to assess the
risks and opportunities arising from the
UK’s decision to leave the EU. The
group’s business model, under which
Primark operates largely discrete supply
chains for its stores in each of the UK,
US and EU27 and food production is,
wherever possible, aligned with the
end market, means that the group
undertakes relatively little cross-border
trading between the UK and the rest of
the EU. We therefore quickly came to
the conclusion that the overall impact of
Brexit on the group was relatively minor.
We recognise that the current political
situation makes the final outcome of the
negotiations between the UK and the
EU uncertain. While we would prefer
a negotiated exit, we are prepared for
any of the potential outcomes.
In particular, over the last year the group
and the individual businesses have
taken reasonable steps to mitigate
where possible the impacts of leaving
the EU without a transitional agreement.
The key risks identified, and the actions
taken are as follows:
• Imports to the UK. The UK
government has indicated the tariffs
that will be applied to imports in the
absence of a transitional agreement
and we expect these to have a net
positive impact on the group. All
necessary registrations have been
completed. Where goods are
imported into the UK by third parties
62
Associated British Foods plc
Annual Report and Accounts 2019
on behalf of the businesses,
assurances have been sought that
these will be available when required.
• Disruption to EU-UK logistics.
In the absence of a withdrawal
agreement, there is a risk of delays
and disruption to the flow of goods
between the UK and the EU in both
directions. The businesses that could
potentially be impacted by this have
reviewed their exposure and where
appropriate have increased inventory
levels to partially mitigate the risk.
The ability to do this is constrained by
warehouse availability and the shelf
life of the goods.
• Data. Where necessary, the
• People. The businesses have
publicised the UK government’s
Settled Status Scheme and where
appropriate have assisted employees
with the application process.
Our principal risks and uncertainties
The directors have carried out an
assessment of the principal risks facing
Associated British Foods, including
those that would threaten its business
model, future performance, solvency or
liquidity. Outlined below are the group’s
principal risks and uncertainties and the
key mitigating activities in place to
address them. These are the principal
risks of the group as a whole and are
not in any order of priority.
businesses have agreed Standard
Contractual Terms to enable certain
personal data to be transferred from
the EU to the UK.
Associated British Foods is exposed
to a variety of other risks related to
a range of issues such as human
resources and talent, community
relations, the regulatory environment
and competition. These are managed
as part of the risk process and a number
of these are referred to in our 2019
Responsibility Report. Here, we report
the principal risks which we believe are
likely to have the greatest current or
near-term impact on our strategic and
operational plans and reputation.
They are grouped into external risks,
which may occur in the markets or
environment in which we operate, and
operational risks, which are related to
internal activity linked to our own
operations and internal controls.
The ‘Changes since 2018’ describe
our experience and activity over the
last year.
External risks
Risk trend
Mitigation
Changes since 2018
Increased
Movement in
exchange rates
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.
Our businesses which are impacted by
exchange rate volatility and currency
depreciation constantly review their
currency-related exposures.
Sterling weakened against some of our
major trading currencies this year,
resulting in a gain on translation this year
of £9m.
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 25
to the financial statements for more
information).
The group purchases a wide range
of commodities in the ordinary course
of business.
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.
Primark covers its currency exposure on
purchases of merchandise denominated
in foreign currencies at the time of
placing orders, with an average tenor of
Primark’s hedging activity of between
3 and 4 months. There was a minimal
transactional effect from changes in the
US dollar exchange rate on Primark’s
largely dollar denominated purchases for
the year in aggregate.
In the last quarter of the financial year
there has been a greater level of volatility
in sterling exchange rates against our
major trading currencies.
Lower sugar prices had another
negative impact on the profitability of our
businesses in the UK, Spain and China this
year. However, spot EU prices increased
during the second half and should have a
positive impact on profitability next year.
The price of UK wheat, a key commodity
for our UK bakery business, returned to
more normal levels following a significant
increase in 2018.
Annual Report and Accounts 2019
Associated British Foods plc
63
Strategic report Principal risks and uncertainties
External risks continued
Risk trend
Mitigation
Changes since 2018
Increased
Operating in global
markets
Context and potential impact
Associated British Foods operates in 52
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.
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.
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.
Following declines in the world and EU
sugar prices in 2018, AB Sugar continues
to reduce its cost base through its
performance improvement programme.
We conduct rigorous due diligence when
entering, or commencing business
activities in, new markets.
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.
In June 2019, Primark opened its first
store in Slovenia.
High inflation in Argentina adversely
affected our yeast and bakery ingredients
business based there.
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.
We continue to invest in new product
design.
64
Associated British Foods plc
Annual Report and Accounts 2019
Operational risks
Risk trend
Mitigation
Changes since 2018
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
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.
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 is in place to ensure the
safety of our retail products.
Our sites comply with international
food safety and quality management
standards and our businesses conduct
regular mock product incident exercises.
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, 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 there has been a 19%
reduction in our employee Lost Time
Injury rate to 0.65%. Our businesses
conduct thorough root cause analyses
to learn from accidents and implement
safety changes.
The safety performance of the group is
reported in the 2019 Responsibility Report
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.
There is an ongoing programme of
investment in both technology and people
to enhance our cyber-security capabilities.
During the year we have reviewed IT
disaster recovery plans across the
businesses.
We are refreshing IT Security policies
and we have made further investment
in people, processes and technology
to detect, respond and recover from
disruptive cyber-threats.
Annual Report and Accounts 2019
Associated British Foods plc
65
Strategic report Principal risks and uncertainties
Operational risks continued
Risk trend
Mitigation
Changes since 2018
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
contribute positively to local environments
and minimise impact.
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 is reported in the 2019 Responsibility
Report 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 businesses are continuously seeking
ways to reduce their impact on the
environment.
We look for ways to progressively reduce
our greenhouse gas (GHG) emissions and
reduce our contribution to climate change.
AB Sugar, Primark and AB Agri businesses
have each set commitments for their own
operations and supply chain to improve
sustainability performance.
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.
We have developed a company-wide
online training module about modern
slavery to help accelerate awareness-
raising and give businesses the tools
to train people.
In addition to Primark and Twinings,
AB Sugar has produced an interactive
sourcing map that outlines where
AB Sugar grows, sources and exports
sugar: www.absugar.com/sourcing-map
Primark has been working to strengthen
its policies relating to human rights and
modern slavery and has published a
revised supplier code of conduct and
made public its human rights policy.
Our Modern Slavery and Human
Trafficking Statement 2019 and the steps
we take to try to ensure that any forms
of modern slavery are not present within
our own operations or supply chain
are reported in detail in the 2019
Responsibility Report at www.abf.co.uk/
responsibility.
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, waste generation
and packaging.
In our assessment of climate-related
business risks, we recognise that the
cumulative impacts of changes in weather
and water availability could affect operations
at a group level. The diversified nature
of Associated British Foods means that
mitigation or adaptation strategies are
considered and implemented by individual
businesses and divisions.
Our operations generate a range of
emissions such as dust, waste water and
waste which, if not controlled, could pose a
risk to the environment and local communities.
Unchanged
Our supply chain
and ethical business
practices
Context and potential impact
As an international business with suppliers
and representatives the world over, people
with whom we deal and in particular our
suppliers and our representatives must live
up to our values and standards and share
that responsibility.
We therefore work with them to ensure
reliability and to help them meet our
standards of product quality and safety,
acceptable working conditions, financial
stability, ethics and technical competence.
Potential supply chain and ethical business
practice risks include:
• supply chain weaknesses such as poor
conditions for the workforce;
• 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.
66
Associated British Foods plc
Annual Report and Accounts 2019
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 17 September 2022.
On behalf of the board.
Michael McLintock
Chairman
George Weston
Chief Executive
John Bason
Finance Director
Viability statement
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 62 to 66
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 macro-economic
influences such as fluctuations in
commodity markets and the possible
implications of a no-deal Brexit.
Such is the diversity of the group,
with operations across 52 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 14 September 2019, £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 £80m 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.
Annual Report and Accounts 2019
Associated British Foods plc
67
Strategic report Board of Directors
1
2
N R
1. Michael McLintock
Chairman
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 been
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.
Other appointments:
Trustee of the Grosvenor Estate
Non-executive Chairman of Grosvenor
Group Limited
Member of the advisory board of
Bestport Private Equity Limited
Member of the advisory board
of Spencer Stuart
Member of the Takeover Appeal Board
2. George Weston
Chief Executive
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:
Non-executive director of Wittington
Investments Limited
Trustee of the Garfield Weston
Foundation
Trustee of the British Museum
3. John Bason
Finance Director
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:
Senior Independent Director of
Compass Group PLC
Chairman of the charity FareShare
3
4
4. Wolfhart Hauser
N A R
Independent non-executive
director
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. He has also held other
directorship roles, including as a
non-executive director of Logica plc
from 2007 to 2012 and Chair of
FirstGroup plc for four years from 2015
to July 2019.
Other appointments:
Senior Independent Director of
RELX PLC
Board committees key
N Nomination committee
A Audit committee
R Remuneration committee
Committee Chair
68
Associated British Foods plc
Annual Report and Accounts 2019
6
5
Governance
7
8
6. Emma Adamo
Non-executive director
R
8. Ruth Cairnie
N A R
Independent non-executive
director
Ruth was appointed a director in May
2014 and has been Senior Independent
Director since 7 December 2018. 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 its Global
Commercial Fuels business. Ruth has
also held a number of non-executive
directorships including on the boards of
Keller Group plc and ContourGlobal plc.
Other appointments
Director and Chair of Babcock
International Group PLC
Non-executive director of Rolls-Royce
Holdings plc (until 31 December 2019)
Industry chair of POWERful Women
5. Richard Reid
N A R
Independent non-executive
director
Richard was appointed a director in
April 2016. He was formerly a partner
at KPMG LLP (‘KPMG’), 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:
Chairman of National Heart and Lung
Institute Foundation
Deputy Chairman of Berry Bros & Rudd
Senior Advisor to Bank of China UK
Emma was appointed a director in
December 2011. She was educated
at Stanford University and has an MBA
from INSEAD in France.
Other appointments:
Director of Wittington
Investments Limited
Deputy Chair of the W. Garfield
Weston Foundation in Canada
7. Graham Allan
RA
Independent non-executive
director
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 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:
Senior Independent Director of Intertek
Group plc
Chairman of Bata International, a
privately owned wholesaler and retailer
Member, Business Council of IKANO
Pte Ltd
Board member of Kuwait Food
Company Americana KSCC
Annual Report and Accounts 2019
Associated British Foods plc
69
Strategic report
Corporate governance
In this section
Corporate governance
pages 70–82
Directors’ report
pages 107–109
Remuneration report
pages 83–106
Statement of directors’
responsibilities
page 110
Independent
auditor’s report
pages 111–118
Dear fellow shareholders
I am pleased to present the Associated
British Foods plc corporate governance
report for the year ended 14 September
2019. In my first report last year, I looked
forward to continuing along the path
of strong governance with a focus on
ethics, whilst encouraging management
to take a long-term view and to invest
in the future as our businesses grew.
I believe that we have made and
continue to make good progress
along that path.
As Chairman, my role is to get the
best out of the board. This involves
ensuring that, whilst the businesses
are run through an appropriate and
sound executive team, issues are
raised and properly discussed around
the board table.
This has been a year of consolidating
on the existing board and building on
the changes that were made last year.
Ruth Cairnie was appointed to the role
of Senior Independent Director in late
2018. During the course of the year,
with the assistance of the Head
of Secretariat, we undertook an
internal evaluation of the board and its
committees. As has been our custom,
this was led by the most recently
appointed independent non-executive
director, in this case Graham Allan,
who joined us in September 2018.
Overall, the results concluded that our
board and committees are regarded as
highly effective in providing oversight
of the Company and its governance,
as well as supporting appropriate
growth plans. Further information
on this is provided on page 74.
You will note that, at this year’s
annual general meeting (‘AGM’), we
will be seeking approval for proposed
changes to our remuneration policy.
Further details on this can be found on
pages 91 to 96 of this annual report.
As I have mentioned before, Associated
British Foods is an organisation built
upon sound ethical foundations with
a strong culture. This is embodied in
the values we seek to live by, namely:
respecting everyone’s dignity; acting
with integrity; progressing through
collaboration; and pursuing with rigour.
We discuss these in further detail in
the Responsibility section of this annual
report at pages 53 to 61 and also in
more detail in our 2019 Responsibility
Report which highlights the way each
of our businesses work bearing these
values in mind. This new report is
available on the Company’s website
at www.abf.co.uk/responsibility.
Last year I mentioned that management
at a group level are continually looking
to find ways to improve communication
links with the businesses. With this
in mind, and also taking into account
impending changes to corporate
governance, I’m pleased to report
that Richard Reid was appointed as
designated non-executive director
for engagement with the workforce.
Richard has already made good progress
ascertaining the level of engagement
already in place, as well as reinforcing
the employee engagement processes
both with the heads of each division
when joining me at the CEO conference
in April 2019 as well as with the HR
directors of the businesses at their
conference over the summer. I look
forward to reporting further progress
on this in my corporate governance
statement next year.
Michael McLintock
Chairman
Compliance with the UK
Corporate Governance Code
As a premium listed company on the
London Stock Exchange, the Company
is reporting in accordance with
the UK Corporate Governance Code
published in April 2016 (the ‘2016 Code’)
which sets out standards of good
practice in relation to board leadership
and effectiveness, remuneration,
accountability and relations with
shareholders. The Code is published
by the UK Financial Reporting Council
(‘FRC’) and a copy of the Code is
available from the FRC website:
www.frc.org.uk.
The board has received regular
updates on the 2018 UK Corporate
Governance Code (the ‘2018 Code’)
and the changes which this introduces.
The 2018 Code applies to companies
with financial years beginning on or after
1 January 2019. We will therefore report
in accordance with the 2018 Code
in our annual report for the year ending
12 September 2020.
The board has already started a
programme to implement the changes
suggested in the 2018 Code. For
example, the board has recently
appointed Richard Reid as designated
non-executive director for engagement
with the workforce.
The board considers that the
Company has, throughout the year
ended 14 September 2019, applied
the main principles and complied in
full with the provisions set out in the
2016 Code.
70
70
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Corporate governance
In this section
Corporate governance
Directors’ report
pages 70–82
pages 107–109
Remuneration report
Statement of directors’
pages 83–106
responsibilities
page 110
Independent
auditor’s report
pages 111–118
Dear fellow shareholders
You will note that, at this year’s
Compliance with the UK
I am pleased to present the Associated
annual general meeting (‘AGM’), we
Corporate Governance Code
British Foods plc corporate governance
will be seeking approval for proposed
As a premium listed company on the
report for the year ended 14 September
changes to our remuneration policy.
London Stock Exchange, the Company
2019. In my first report last year, I looked
Further details on this can be found on
is reporting in accordance with
forward to continuing along the path
pages 91 to 96 of this annual report.
the UK Corporate Governance Code
of strong governance with a focus on
ethics, whilst encouraging management
to take a long-term view and to invest
in the future as our businesses grew.
I believe that we have made and
continue to make good progress
along that path.
As Chairman, my role is to get the
best out of the board. This involves
As I have mentioned before, Associated
British Foods is an organisation built
upon sound ethical foundations with
a strong culture. This is embodied in
the values we seek to live by, namely:
respecting everyone’s dignity; acting
with integrity; progressing through
collaboration; and pursuing with rigour.
We discuss these in further detail in
ensuring that, whilst the businesses
the Responsibility section of this annual
published in April 2016 (the ‘2016 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.
are run through an appropriate and
sound executive team, issues are
report at pages 53 to 61 and also in
The board has received regular
more detail in our 2019 Responsibility
updates on the 2018 UK Corporate
raised and properly discussed around
Report which highlights the way each
Governance Code (the ‘2018 Code’)
the board table.
This has been a year of consolidating
on the existing board and building on
the changes that were made last year.
of our businesses work bearing these
and the changes which this introduces.
values in mind. This new report is
The 2018 Code applies to companies
available on the Company’s website
with financial years beginning on or after
at www.abf.co.uk/responsibility.
1 January 2019. We will therefore report
Ruth Cairnie was appointed to the role
Last year I mentioned that management
of Senior Independent Director in late
at a group level are continually looking
2018. During the course of the year,
to find ways to improve communication
in accordance with the 2018 Code
in our annual report for the year ending
12 September 2020.
with the assistance of the Head
of Secretariat, we undertook an
links with the businesses. With this
The board has already started a
in mind, and also taking into account
programme to implement the changes
internal evaluation of the board and its
impending changes to corporate
committees. As has been our custom,
governance, I’m pleased to report
suggested in the 2018 Code. For
example, the board has recently
this was led by the most recently
that Richard Reid was appointed as
appointed Richard Reid as designated
appointed independent non-executive
designated non-executive director
non-executive director for engagement
director, in this case Graham Allan,
who joined us in September 2018.
for engagement with the workforce.
with the workforce.
Richard has already made good progress
Overall, the results concluded that our
ascertaining the level of engagement
board and committees are regarded as
already in place, as well as reinforcing
highly effective in providing oversight
the employee engagement processes
of the Company and its governance,
both with the heads of each division
as well as supporting appropriate
growth plans. Further information
on this is provided on page 74.
The board considers that the
Company has, throughout the year
ended 14 September 2019, applied
the main principles and complied in
full with the provisions set out in the
2016 Code.
when joining me at the CEO conference
in April 2019 as well as with the HR
directors of the businesses at their
conference over the summer. I look
forward to reporting further progress
on this in my corporate governance
statement next year.
Michael McLintock
Chairman
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 (which was
amended and restated by agreement
dated 29 March 2019). 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 starting on
page 77.
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 which, taken
together, cover a broad range of
jurisdictions, bringing valuable external
perspective to the board’s deliberations
through their experience and insight
from different sectors and geographies.
This enables them to contribute
significantly to board decision-making,
whilst the small size of the board
is conducive to open and candid
discussions. The formal letters of
appointment of non-executive directors
are available for inspection at the
Company’s registered office.
Re-election of directors
In accordance with the Code’s
recommendations, all directors
currently in office will be proposed
for re-election at the 2019 AGM
to be held in December.
Board meetings
The board held eight 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 April meeting was held
at the Primark Birmingham store, which
included a tour of the store and meeting
with employees. The May meeting
was held at the Primark office in Dublin.
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.
Michael McLintock
George Weston
John Bason
Emma Adamo
Graham Allan
Ruth Cairnie
Wolfhart Hauser
Richard Reid
Javier Ferrán1
1 Javier Ferrán retired from the board on 7 December 2018
Board
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
1/1
Audit
committee
–
–
–
–
4/4
4/4
4/4
4/4
–
Nomination
committee
1/1
–
–
–
–
1/1
1/1
1/1
–
Remuneration
committee
8/8
–
–
–
8/8
8/8
8/8
8/8
1/1
All of the above attended those meetings that they were eligible to attend.
70
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
71
71
Governance
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 entry into a yeast and bakery ingredients joint venture with Wilmar
International in China, subject to regulatory clearances;
• approving the acquisition of Anthony’s Goods; and
• receiving regular updates on proposed 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 2019/20 financial year;
• approving the Company’s full year and interim results;
• recommending the 2018 final dividend and approving the 2019 interim dividend; and
• approving banking mandate updates and various other 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 2018 board
evaluation;
• participating in the 2019 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 enhanced reporting on responsibility;
• 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; and
• receiving reports from the designated non-executive director for engagement with the
workforce.
People
• appointment of Ruth Cairnie as Senior Independent Director;
• receiving a presentation on workforce engagement from the Group HR Director;
• appointment of Richard Reid as designated non-executive director for engagement
with the workforce; and
• reviewing and approving share allocations for senior management and non-executive
director/committee chair fees.
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 83. 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 2018 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
Wolfhart Hauser
Richard Reid
72
72
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Corporate governance
The work of the board during the year
During the financial year, key activities of the board included:
• 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
Strategy
Development.
Acquisitions/disposals
• approving the entry into a yeast and bakery ingredients joint venture with Wilmar
International in China, subject to regulatory clearances;
• approving the acquisition of Anthony’s Goods; and
• receiving regular updates on proposed 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 2019/20 financial year;
• approving the Company’s full year and interim results;
• recommending the 2018 final dividend and approving the 2019 interim dividend; and
• approving banking mandate updates and various other treasury-related matters.
Governance and risk
businesses;
within the UK;
evaluation;
• annual review of the material financial and non-financial risks facing the group’s
• scenario planning discussion of possible business effects of any political changes
• half yearly review of progress in implementing actions arising from the 2018 board
• participating in the 2019 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;
• 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.
• receiving regular management reports and an annual presentation on health, safety and
Corporate responsibility
• approving the enhanced reporting on responsibility;
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; and
• receiving reports from the designated non-executive director for engagement with the
workforce.
People
• appointment of Ruth Cairnie as Senior Independent Director;
• receiving a presentation on workforce engagement from the Group HR Director;
• appointment of Richard Reid as designated non-executive director for engagement
• reviewing and approving share allocations for senior management and non-executive
with the workforce; and
director/committee chair fees.
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 83. 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 2018 AGM and intend
to be present at this year’s AGM to
answer questions on the work of
their respective committees.
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
Wolfhart Hauser
Richard Reid
• reviewing and approving gender pay reporting and Modern Slavery Statement; and
The written terms of reference for the
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. Graham Allan,
who joined the board in September
2018, met with senior management
across the business as part of his
induction. With the Chairman, he visited:
AB Enzymes’ site in Rajamaki, Finland;
AB Vista in Marlborough; and Twinings
in Andover. With Ruth Cairnie and
members of the Primark Ethical team,
Graham visited community projects,
suppliers and factories in Coimbatore,
India. Graham also visited: Primark’s
office in Dublin; Illovo Sugar in Durban,
South Africa; and the Wissington sugar
factory and Riverside Glasshouse, also
visiting local sugar beet fields.
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.
The Chief Executive encourages other
board members to visit operations either
with him, with other directors or on
their own. During the year, Ruth Cairnie
visited tea estates in Sri Lanka which
supply tea to Twinings and two factories
which supply products to Primark.
Richard Reid, in his capacity of Chair
of the Audit committee, regularly visits
Primark in Dublin for meetings with
finance and internal audit teams. The
Chairman visited AB World Foods in
Leigh, meeting with local management
and getting an overview of the business.
The Chairman and Chief Executive
together visited: the Primark Gran Via
store in Madrid, meeting with local
and senior management teams; and
Azucarera factories in La Baneza and
Benavente, meeting with local senior
management. The Chairman and
Richard Reid each attended the
ABF CEO conference and the
Chairman also attended the Illovo
Leadership Conference.
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 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.
The board considered Richard Reid’s
independence by reference to the
relevant provisions of the UK Corporate
Governance Code and concluded that he
is independent notwithstanding his past
relationship with KPMG, which was
formerly the group’s auditor. It has now
been four years since KPMG ceased to
be the Company’s auditor in November
2015, following a competitive tender for
the external audit. Richard was formerly
a partner at KPMG, retiring from that role
in September 2015. He had no personal
engagement with any business within
the Associated British Foods group
during the four years prior to his
appointment by the Company in
April 2016.
As at the date of this report, the
board comprises the Chairman,
Chief Executive, Finance Director and
five non-executive directors. Biographical
and related information about the
directors is set out on pages 68 and 69.
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 77 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.
72
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
73
73
Governance
Corporate governance
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 2018 evaluation
During the year, the Chairman oversaw
the implementation and progression of
various recommendations arising from
the 2018 evaluation, which included
the actions set out below:
Progress on 2018 objectives
People
The board has kept under review the board
succession plan as well as succession to
key roles within the broader group, both at
the corporate centre and in the businesses.
In terms of engagement with the
workforce, good progress has been made,
with Richard Reid having been appointed
as designated non-executive director for
engagement with the workforce and
having met with divisional CEOs to
reinforce this process, as well as with
HR directors. The board continues
to discuss succession planning and
workforce engagement in an open manner.
Corporate responsibility
Businesses have been required to include
corporate responsibility priorities within
their presentations to the board. A new
format of responsibility report has been
produced this year aimed at better
promoting the work that has been done
and is continuing to be done by the group.
Meeting processes
Following up on the recommendations
from previous years, board members are
generally content with the timing and
content of board and committee papers
which are provided through the online
board pack system.
Board meetings are considered to be
conducted with efficiency and in a manner
which underwrites a collaborative yet
appropriately challenging spirit.
2019 evaluation
This year the board undertook a further
internal performance evaluation. The
review was carried out during June and
July of 2019 and was managed by
Graham Allan, the most recently
appointed independent non-executive
director, with the assistance of the
Head of Secretariat.
The 2019 review involved each board
member as well as the Company
Secretary, the CEO of UK Grocery, the
Group HR Director, the Head of Reward
and the Lead Audit Partner of our
external auditor. Each individual met
with Graham Allan and the Head of
Secretariat to discuss various topics.
A discussion framework had been sent
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 (including Committee
meetings) – composition, tone and
dynamics of meetings, rotation
of topics, process for recruitment,
diversity, skills and experience
• Employees and organisation –
workforce engagement
(bearing in mind the 2018 Code),
succession planning, visibility
of organisation strength
• Responsibility/Environmental,
Social and Governance (ESG) –
progress and communication
of activities
• Governance – effectiveness of
the board and committees, visibility
and management of key risks,
on-boarding, ongoing maintenance
of skills, training
• Individual directors – effectiveness
of the Chairman and Senior
Independent Director (bearing in
mind that they have only been in
place for a relatively short period)
A written report was prepared and
sent to board members in advance
of the September board meeting.
The recommended actions, listed below,
arising from this year’s evaluation are
being implemented under the direction
of the Chairman.
Priorities identified from the 2019 evaluation
Board composition
• To continue to emphasise generalist
skills in board recruitment
• Gender and racial diversity to be factors
in board searches
Workforce engagement and organisation
• To monitor and remain open to additional
steps on workforce engagement
• To have more in-depth discussions
about succession around the group
as part of the annual board agenda
• Board directors to have oral briefings
from the Group HR Director on specific
succession issues on request and prior
to any visits to businesses
Board/Committee agendas
• To ensure additional time on individual
business unit strategy issues (if required)
• To ensure board members are fully
briefed of key developments between
board meetings
Responsibility/ESG
• To sustain momentum on progress
and communication of activities
Governance
• To continue to monitor co-ordination
of IT across divisions
Overall, it was concluded that the board
and its committees were regarded as
highly effective in providing oversight
of the Company and its governance, as
well as supporting appropriate growth
plans. 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.
74
74
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Corporate governance
Board performance evaluation
2019 evaluation
A written report was prepared and
An evaluation to assess the performance
This year the board undertook a further
sent to board members in advance
of the board as a whole, its committees
internal performance evaluation. The
of the September board meeting.
and the individual directors is conducted
review was carried out during June and
The recommended actions, listed below,
annually with the aim of improving
the effectiveness of the board and
its members and the performance
of the group.
Progress from 2018 evaluation
July of 2019 and was managed by
arising from this year’s evaluation are
Graham Allan, the most recently
being implemented under the direction
appointed independent non-executive
of the Chairman.
director, with the assistance of the
Head of Secretariat.
During the year, the Chairman oversaw
The 2019 review involved each board
the implementation and progression of
member as well as the Company
various recommendations arising from
Secretary, the CEO of UK Grocery, the
the 2018 evaluation, which included
Group HR Director, the Head of Reward
the actions set out below:
Progress on 2018 objectives
People
The board has kept under review the board
succession plan as well as succession to
key roles within the broader group, both at
the corporate centre and in the businesses.
In terms of engagement with the
workforce, good progress has been made,
with Richard Reid having been appointed
as designated non-executive director for
engagement with the workforce and
having met with divisional CEOs to
reinforce this process, as well as with
HR directors. The board continues
to discuss succession planning and
workforce engagement in an open manner.
Corporate responsibility
Businesses have been required to include
corporate responsibility priorities within
their presentations to the board. A new
format of responsibility report has been
produced this year aimed at better
promoting the work that has been done
and is continuing to be done by the group.
Meeting processes
Following up on the recommendations
from previous years, board members are
generally content with the timing and
content of board and committee papers
which are provided through the online
board pack system.
Board meetings are considered to be
conducted with efficiency and in a manner
which underwrites a collaborative yet
appropriately challenging spirit.
and the Lead Audit Partner of our
external auditor. Each individual met
with Graham Allan and the Head of
Secretariat to discuss various topics.
A discussion framework had been sent
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 (including Committee
meetings) – composition, tone and
dynamics of meetings, rotation
of topics, process for recruitment,
diversity, skills and experience
• Employees and organisation –
workforce engagement
(bearing in mind the 2018 Code),
succession planning, visibility
of organisation strength
• Responsibility/Environmental,
Social and Governance (ESG) –
progress and communication
of activities
• Governance – effectiveness of
the board and committees, visibility
and management of key risks,
on-boarding, ongoing maintenance
of skills, training
• Individual directors – effectiveness
of the Chairman and Senior
Independent Director (bearing in
mind that they have only been in
place for a relatively short period)
Priorities identified from the 2019 evaluation
Board composition
• To continue to emphasise generalist
skills in board recruitment
• Gender and racial diversity to be factors
in board searches
Workforce engagement and organisation
• To monitor and remain open to additional
steps on workforce engagement
• To have more in-depth discussions
about succession around the group
as part of the annual board agenda
• Board directors to have oral briefings
from the Group HR Director on specific
succession issues on request and prior
to any visits to businesses
Board/Committee agendas
• To ensure additional time on individual
business unit strategy issues (if required)
• To ensure board members are fully
briefed of key developments between
board meetings
Responsibility/ESG
• To sustain momentum on progress
and communication of activities
Governance
• To continue to monitor co-ordination
of IT across divisions
Overall, it was concluded that the board
and its committees were regarded as
highly effective in providing oversight
of the Company and its governance, as
well as supporting appropriate growth
plans. 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.
Conflicts of interest procedure
The Company has procedures in place
to deal with the situation where a
director has a conflict of interest.
As part of this process, the board:
• considers each conflict situation
separately on its particular facts;
• considers the conflict situation in
conjunction with the rest of the
conflicted director’s duties under
the 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, are fair, balanced and
understandable and provide the
information necessary for shareholders
to assess the Company’s position and
performance, business model and
strategy. The Company produced
a paper in this respect, which was
presented to the Audit committee.
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 strategy sections
of the operating review on pages 12
to 49. 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
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.
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 67.
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
and 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
group-wide 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.
High level controls
All businesses prepare annual operating
plans and budgets which are updated
regularly. Performance against budget
is monitored at business unit 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.
74
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
75
75
Governance
Corporate governance
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 (except where expressly
permitted by the Audit committee))
with skills and experience relevant to
the operation of each business. All of the
internal audit activities are co-ordinated
centrally by the group’s Director of
Financial Control, who is accountable
to the Audit committee.
All group businesses are required to
comply with the group’s financial control
framework that sets out minimum
control standards. A key function of the
group’s internal audit resources is to
undertake audits to ensure compliance
with the financial control framework
and make recommendations for
improvement in controls where
appropriate. Internal audit also conducts
regular reviews to ensure that risk
management procedures and controls
are 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 Director of Financial
Control 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
thorough assessment of the principal
risks facing the group, including those
that could threaten its business model,
future performance, solvency or
liquidity, together with emerging risks.
A description of the principal risks and
how they are being managed and
mitigated is set out on pages 62 to 66.
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 14 September 2019
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 pages 62 to 66 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 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 2016 Code.
Remuneration
A separate Remuneration report is set
out on pages 83 to 106 which provides
details of our remuneration policy and
how it has been implemented, together
with the activities of the Remuneration
committee and proposed changes to
the remuneration policy.
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 107 to 109.
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 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.
76
76
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Corporate governance
Financial reporting
The group’s Director of Financial
The board confirmed that it was satisfied
Detailed management accounts are
Control meets with the Chair of the
that the systems and processes were
prepared every four weeks, consolidated
Audit committee as appropriate but at
functioning effectively and complied
in a single system and reviewed by
least quarterly, without the presence of
with the requirements of the 2016 Code.
senior management and the board.
executive management, and has direct
They include a comprehensive set of
access to the Chairman of the board.
Remuneration
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 (except where expressly
permitted by the Audit committee))
with skills and experience relevant to
the operation of each business. All of the
internal audit activities are co-ordinated
centrally by the group’s Director of
Financial Control, who is accountable
to the Audit committee.
All group businesses are required to
comply with the group’s financial control
framework that sets out minimum
control standards. A key function of the
group’s internal audit resources is to
undertake audits to ensure compliance
with the financial control framework
and make recommendations for
improvement in controls where
appropriate. Internal audit also conducts
regular reviews to ensure that risk
management procedures and controls
are 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.
Assessment of principal risks
A separate Remuneration report is set
out on pages 83 to 106 which provides
The directors confirm that, during
details of our remuneration policy and
the year, the board has carried out a
how it has been implemented, together
thorough assessment of the principal
with the activities of the Remuneration
risks facing the group, including those
committee and proposed changes to
that could threaten its business model,
the remuneration policy.
future performance, solvency or
liquidity, together with emerging risks.
A description of the principal risks and
how they are being managed and
mitigated is set out on pages 62 to 66.
Articles of association and share
capital
Information in relation to share capital,
the appointment and powers of
directors, the issue and buy back of
Annual review of the effectiveness
shares and significant interests in share
of the systems
capital is set out in the Directors’ report
During the year, the board reviewed the
on pages 107 to 109.
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 14 September 2019
and the period to the date of approval of
this annual report. The review included:
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,
• the annual risk management review,
making sure we respond directly, as
a comprehensive process identifying
appropriate, to any matters regarding
the key external and operational risks
their shareholdings. We also have a
facing the group and the controls and
dedicated team at Equiniti (our share
activities in place to mitigate them, the
registrar) which looks after their needs.
findings of which are discussed with
To improve security and efficiency of
each member of the board individually
communications and to reduce the
(refer to the risk management section
amount of paper we use, our default
on pages 62 to 66 for details of the
method of communications with
process undertaken); and
• the annual assessment of internal
shareholders is e-communications.
We also encourage the direct payment
control, which, following consideration
of dividends into bank or building
by the Audit committee, provided
society accounts.
assurance to the board around
the control environment and
processes in place around the group,
specifically those relating to internal
financial control.
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
The board evaluated the effectiveness
shareholders’ understanding of the
of 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
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
improvement were identified, processes
taken place and on feedback received,
are in place to ensure that remedial
including any significant concerns raised.
action is taken and progress monitored.
Relations with shareholders continued
Here are some of the ways in which we engage with our shareholders:
Board committees
Annual general meeting
The AGM provides an opportunity for directors to engage with shareholders, answer
their questions and to meet them informally. The 2019 AGM will be held on Friday
6 December 2019 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 2018, 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,
responsibility section, governance section and financial statements. The annual report is
available in paper format and on our website: www.abf.co.uk.
Responsibility/ESG
We publish a 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, employee welfare, 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 (taking into account proposed changes to the
remuneration policy).
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.
Nomination committee report
Members
At the date of this report, the following
are members of the committee:
Michael McLintock (Chair)
Ruth Cairnie
Richard Reid
Wolfhart Hauser
All members served on the
committee throughout the year.
Meetings
The committee met once 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.
76
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
77
77
Governance
Diversity
As a board, we recognise that diversity
is important 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 and are a factor
in searches for new candidates, as
identified in our priorities for 2019.
It continues to be our policy to ask any
executive search agencies engaged
to ensure that half of the candidates
they put forward for consideration
are women.
We recognise that our approach of not
setting a target, but instead focussing
on initiatives to achieve no barriers
to talent, means that we are unlikely
to meet the 2020 expectations of the
Hampton-Alexander Review. However,
we believe that our approach is right
for the decentralised structure of our
broader business and will continue to
deliver a strong, stable and increasingly
balanced senior team.
For details of diversity as it applies to
the group’s wider workforce, please
see pages 56 and 57.
Corporate governance
Committee activities during the year
Succession planning
Given the relatively recent changes to
the board with the appointment of the
current Chairman in April 2018, the
appointment of Graham Allan as a new
independent non-executive director in
September 2018 and the appointment
of Ruth Cairnie as Senior Independent
Director in late 2018, the focus this year
has been on consolidating existing board
responsibilities. Priorities identified for
2019 include continuing to emphasise
generalist skills in board recruitment
and continuing to factor in gender
and racial diversity.
As noted in last year’s report, the
Company engaged Spencer Stuart,
an external executive search and
leadership consulting firm and a
signatory to the ‘Voluntary Code of
Conduct for Executive Search Firms’
on gender diversity and best practice,
to help identify potential candidates
as part of a process of progressive
refreshment of the board. That process
resulted in Graham Allan joining the
board with effect from 5 September
2018. In March 2019, the Chairman
joined the advisory board of Spencer
Stuart. Spencer Stuart is otherwise
independent of the Company.
Re-election of non-executive directors
The committee members 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. Wolfhart
Hauser, independent non-executive
director of the Company, stepped down
from the role of Chair of FirstGroup plc
with effect from 25 July 2019. Ruth
Cairnie, Senior Independent Director of
the Company, was appointed Chair of
Babcock International Group PLC in July
2019. Ruth stepped down from the
board of ContourGlobal plc with effect
from 30 September 2019 and it has
also been announced that Ruth will
be stepping down from the board
of Rolls-Royce Holdings plc on
31 December 2019.
The committee members considered
the re-election of directors prior to their
recommended approval by shareholders
at the annual general meeting.
Performance evaluation
The committee’s effectiveness
was reviewed as part of the board’s
performance evaluation process which
was carried out during June and July
of 2019. 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 advisers may
be invited to attend meetings as
and when appropriate.
The committee may take independent
professional advice on any matters
covered by its terms of reference at
the Company’s expense.
The committee Chair 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.
Board appointments process
The process for making new
appointments is led by the Chair.
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.
78
78
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Corporate governance
Committee activities during the year
Performance evaluation
Diversity
Succession planning
The committee’s effectiveness
As a board, we recognise that diversity
Given the relatively recent changes to
was reviewed as part of the board’s
is important for introducing different
the board with the appointment of the
performance evaluation process which
perspectives into board debate and
current Chairman in April 2018, the
was carried out during June and July
decision-making and that this is a wider
appointment of Graham Allan as a new
of 2019. This evaluation concluded
issue than just gender and ethnicity.
independent non-executive director in
that the committee was continuing
September 2018 and the appointment
to function effectively.
of Ruth Cairnie as Senior Independent
Director in late 2018, the focus this year
has been on consolidating existing board
responsibilities. Priorities identified for
2019 include continuing to emphasise
generalist skills in board recruitment
and continuing to factor in gender
and racial diversity.
Governance
Members of the Nomination committee
are appointed by the board from
amongst the directors of the Company,
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.
in consultation with the Chairman.
Accordingly, the board has decided
The committee comprises a minimum
not to set any measurable objectives
of three members at any time, a majority
in relation to diversity. The Nomination
of whom are independent non-executive
committee considers diversity as one
As noted in last year’s report, the
directors. A quorum consists of two
of many factors when recommending
Company engaged Spencer Stuart,
members being either two independent
new appointments to the board,
an external executive search and
leadership consulting firm and a
non-executive directors or one
although gender and ethnicity remain
independent non-executive director
important factors and are a factor
signatory to the ‘Voluntary Code of
and the Chairman.
in searches for new candidates, as
identified in our priorities for 2019.
It continues to be our policy to ask any
executive search agencies engaged
to ensure that half of the candidates
they put forward for consideration
are women.
We recognise that our approach of not
setting a target, but instead focussing
on initiatives to achieve no barriers
to talent, means that we are unlikely
to meet the 2020 expectations of the
Hampton-Alexander Review. However,
we believe that our approach is right
for the decentralised structure of our
broader business and will continue to
deliver a strong, stable and increasingly
balanced senior team.
For details of diversity as it applies to
the group’s wider workforce, please
see pages 56 and 57.
Conduct for Executive Search Firms’
on gender diversity and best practice,
to help identify potential candidates
as part of a process of progressive
refreshment of the board. That process
resulted in Graham Allan joining the
board with effect from 5 September
2018. In March 2019, the Chairman
joined the advisory board of Spencer
Stuart. Spencer Stuart is otherwise
independent of the Company.
Re-election of non-executive directors
The committee members 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. Wolfhart
Hauser, independent non-executive
director of the Company, stepped down
from the role of Chair of FirstGroup plc
with effect from 25 July 2019. Ruth
Cairnie, Senior Independent Director of
the Company, was appointed Chair of
Babcock International Group PLC in July
2019. Ruth stepped down from the
board of ContourGlobal plc with effect
from 30 September 2019 and it has
also been announced that Ruth will
be stepping down from the board
of Rolls-Royce Holdings plc on
31 December 2019.
The committee members considered
the re-election of directors prior to their
recommended approval by shareholders
at the annual general meeting.
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 advisers may
be invited to attend meetings as
and when appropriate.
The committee may take independent
professional advice on any matters
covered by its terms of reference at
the Company’s expense.
The committee Chair 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.
Board appointments process
The process for making new
appointments is led by the Chair.
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.
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.
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 (Chair)
Graham Allan
Ruth Cairnie
Wolfhart Hauser
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 accounting 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;
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 Chair fulfilled the
requirement that there must be at least
one member with recent and relevant
financial experience and competence in
accounting or auditing (or both) during
the year. In addition, the committee as
a whole has competence in the sectors
in which the Company operates. 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.
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.
78
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
79
79
Governance
Corporate governance
The committee’s effectiveness was
reviewed during the second half 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 74 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.
Areas of significant accounting judgement
and estimation material to the group
financial statements
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.
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 51.
During the year it formally reviewed
the group’s interim and annual reports.
These reviews considered:
• the description of performance in the
annual report 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. This included
preparation for the adoption of IFRS
16 Leases from the next financial
year and the disclosures in this
year’s interim and annual reports;
• 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; 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 LLP (‘EY’)
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.
Audit committee assurance
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 and
fair value less costs to sell, 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 considered that the £65m impairment charge to the tangible fixed assets of Allied
Bakeries was appropriately recognised and that no further impairments were required.
The committee reviews the Company’s tax policy and principles for managing
tax risks annually.
The committee reviewed and challenged the provisions recorded and the contingent
liabilities disclosed at the balance sheet date and management confirmed that they
represent their best estimate of the 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.
80
80
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
The committee’s effectiveness was
During the year it formally reviewed
Significant accounting issues
reviewed during the second half of
the group’s interim and annual reports.
considered by the Audit
the year as part of the board’s annual
These reviews considered:
Corporate governance
performance evaluation. A description
of how the evaluation was conducted
is set out on page 74 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.
• the description of performance in the
annual report 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. This included
preparation for the adoption of IFRS
16 Leases from the next financial
year and the disclosures in this
year’s interim and annual reports;
• 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; and
• tax contingencies, compliance
with statutory tax obligations and
the group’s tax policy.
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 LLP (‘EY’)
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
The committee considered the reasonableness of cash flow projections which were
and tangible assets
based on the most recent budget approved by the board and reflected management’s
Assessment for impairment involves
expectations of sales growth, operating costs and margins based on past experience
comparing the book value of an asset with
and external sources of information. Long-term growth rates for periods not covered
its recoverable amount, being the higher
by the annual budget were challenged to ensure they were appropriate for the products,
of value in use and fair value less costs
to sell. Value in use is determined with
industries and countries in which the relevant cash generating units operate. The
committee also reviewed and challenged the key assumptions made in deriving these
reference to projected future cash flows
projections: discount rates, growth rates, and expected changes in production and sales
discounted at an appropriate rate. Both
volumes, selling prices and direct costs. The committee also considered the adequacy
the cash flows and the discount rate
of the disclosures in respect of the key assumptions and sensitivities. Refer to notes 8
involve a significant degree of
estimation uncertainty.
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 and
fair value less costs to sell, 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 considered that the £65m impairment charge to the tangible fixed assets of Allied
Bakeries was appropriately recognised and that no further impairments were required.
Tax provisions
The committee reviews the Company’s tax policy and principles for managing
The level of current and deferred tax
tax risks annually.
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 51.
The committee reviewed and challenged the provisions recorded and the contingent
liabilities disclosed at the balance sheet date and management confirmed that they
represent their best estimate of the 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.
Areas of significant accounting judgement
and estimation material to the group
financial statements
Leases
The group will adopt IFRS 16 Leases
from the next financial year and the
effects of transition to this new accounting
standard are set out in the Significant
Accounting Policies. Judgement is required
in determining the term of each lease,
the discount rate used to value the lease
liabilities and right-of-use assets disclosed
and in identifying lease arrangements
under the scope of IFRS 16.
Audit committee assurance
The committee received updates from management outlining the effect of the new standard,
including the judgements and key assumptions used in the estimation of the impact.
The committee reviewed the judgement applied in identifying lease arrangements and the
reasonableness of lease terms determined by management including their assessments
of options to terminate and extend leases. The committee was satisfied that the discount
rate assumptions appropriately reflected current market assessments of the incremental
borrowing rate for each of the group’s subsidiaries in respect of their lease commitments.
The external auditor undertook an assessment of management’s assumptions, using
independent experts, and considered that the transition disclosure in respect of the
adoption of IFRS 16 from the next financial year was appropriate.
Other accounting areas requiring
management judgement or estimation
Audit committee assurance
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.
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.
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;
• internal audit’s evaluation of the group’s
readiness for a ‘no deal’ Brexit;
• an assessment of business
continuity plans in place in the
group’s businesses;
• reports on fraud perpetrated
against the group;
• 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.
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; and
• changes in internal audit personnel to
ensure appropriate resourcing, skills
and experience are put in place.
The Chair of the committee met
with the Director of Financial Control
regularly during the year to monitor
the effectiveness of the internal
audit function, receiving updates
on audit progress and statistics on
outstanding issues.
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 actions arising therefrom.
Further details on the policy can be
found on page 57.
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.
80
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
81
81
Governance
Corporate governance
Remuneration report
Annual statement by the Remuneration committee Chair
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 except in very exceptional
circumstances where specialist
knowledge is required. 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 auditor
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 the
external auditor. EY has reported to
the committee 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 to ensure the
independence of the external auditor,
the Audit committee reviewed:
• a report from the external auditor
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 EY for the 52
weeks ended 14 September 2019 were
£8.6m of which £0.8m related to non-
audit work. Further details are provided
in note 2 to the financial statements.
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
via questionnaires evaluating the
performance of each assigned audit
team, planning, challenge and
interaction with the business; and
• a report on EY, as a firm, from
the Audit Quality Review Team
(‘AQRT’) 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.
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;
• the overall work plan and fee proposal;
• the major issues that arose during
the course of the audit and their
resolution;
• key accounting and audit judgements;
• the level of errors identified during
the audit; and
• recommendations made by the
external auditors in their management
letters and the adequacy of
management’s response.
FRC Audit Quality Review of the
Company’s 2018 audit by EY
During the year, the Audit Quality
Review Team from the FRC undertook
a review of EY’s audit of the Group’s
2018 financial statements. At the time
of writing the AQRT had yet to conclude
this review. Indicative recommendations
for improvement included impairment
testing, including how EY evidenced
they had challenged management’s
assumptions and evidenced their
involvement in and oversight of the
work of component audit teams.
The Audit committee discussed the
indicative review findings with EY,
reviewed EY’s proposed actions to
address these findings and is satisfied
that these changes were implemented
for the 2019 audit.
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.
The Company’s current external auditor,
EY, was first appointed at the Annual
General Meeting in December 2015,
with effect from 2016, following the
conclusion of a competitive tender
process. The Audit committee is satisfied
with the auditor’s effectiveness and
independence and has recommended to
the board that EY be reappointed as the
Company’s external auditor for 2019/20.
The Company has no current retendering
plans, but keeps such plans under
review in light of the applicable legal
and regulatory framework.
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.
In this section
The remuneration
How the policy,
How we expect to
policy that applies to
approved in 2016, was
implement the
executive and non-
executive directors
pages 91–96
implemented in 2018/19
remuneration policy
pages 97–104
in 2019/20
pages 104–106
The committee Chair’s letter and the annual implementation report on directors’ remuneration
will be subject to an advisory vote at the 2019 AGM. The remuneration policy will be subject
to a binding vote at the 2019 AGM.
2019 has been a busy year for
the Remuneration committee
as we have been reviewing our
remuneration policy.
No change to the overall quantum of
LTIP – Context
reward is proposed, as we remain
The diverse businesses in our portfolio
mindful of the broader debate about
need to deliver different performance
executive pay and inequality in society.
outcomes in order to support the
In this letter I have summarised the
thinking behind our policy review and
have set out the key features of the new
policy we are proposing. More details,
including the process we followed,
are provided on the following pages.
I then present our key decisions in
implementing our current remuneration
policy in 2018/19 and decisions so far
regarding 2019/20. Further information
on these topics can be found in the
implementation report.
Executive remuneration policy review
In 2016 we introduced a number of
important changes to our remuneration
policy, including a new design of the
Long Term Incentive Plan (LTIP)
measures to reflect the strategy
of holding a portfolio of diverse
businesses and the very different nature
of our Sugar business. On balance,
we believe that our current policy
works well. Nonetheless, we have used
the opportunity of this policy review to
take an even more fundamental look
at the LTIP structure and its linkage to
how we want to drive the businesses.
The other main focus of our review
has been the recent changes in the
corporate governance environment.
As a result, the substantive changes
that we are proposing to the policy are:
• a reduction in pension contribution
rates for new executive directors
to align with other UK employees;
• the introduction of a post-employment
shareholding requirement; and
• a new approach to LTIP
performance targets.
Pension contributions
We welcome the new expectation for
pension contributions for executives
to be in line with those for the broader
employee population, as raised by a
overall strategy. In reviewing the
design of our LTIP, we have sought
to create a very strong linkage to
these desired outcomes:
• incentivise growth in all our non-Sugar
number of investors and now reflected
businesses; and
in the UK Corporate Governance Code.
We believe this is the right thing to
do and are proposing to align pension
• ensure executives are focussed on
delivering an acceptable return across
the cycle from the Sugar business.
contributions or cash allowances
for future directors with the wider
UK workforce.
Fairness and taking a long-term view
are key principles for us when running
the business and when making
The LTIP should not reward executives
if high sugar prices drive spikes in
profitability. If shareholders benefit from
increases in the share price driven by
sugar price volatility, executives will
share in this as a result of having
remuneration decisions. Considering the
significant shareholdings themselves.
contributions for our current executive
directors, we believe that it is important
to honour our contractual commitments
as an organisation, and we are therefore
not planning to make changes to their
current pension arrangements as part of
this year’s remuneration policy review.
This is consistent with the approach we
took across our UK employee population
when closing our defined benefit
pension to new members, and when
defined contribution rates were changed.
Shareholding requirements
We have a shareholding culture amongst
our senior leadership team, driven by
a sense of ownership of the business
rather than shareholding rules. Our
executive directors currently have
shareholdings considerably above
the minimum requirements set in our
remuneration policy, as do many other
senior executives. Reflecting the new
corporate governance expectations, we
are proposing to introduce a post-leaving
holding requirement that demonstrates
our commitment, and that of our
executives, to good corporate
governance and the long term.
LTIP – Performance measures
Group adjusted earnings per share (EPS)
is an important performance measure
for our growth businesses. However,
it is not an appropriate measure for a
cyclical business such as Sugar. We
are therefore proposing that the first
measure of performance in the LTIP is
adjusted EPS growth in the non-Sugar
businesses over the three-year
performance period. This adjusted EPS
measure is used in our current LTIP.
We believe executives should be
accountable for the performance
of their investment decisions. The
second proposed measure is therefore
a modifier, based on the three-year
average adjusted return on capital
employed (ROCE) in the non-Sugar
businesses. This measure is a
downward only modifier of up to
20% of the calculated incentive and
is intended to act as a safety net
by placing a focus on returns; the
performance range is set accordingly.
82
82
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
83
How the policy,
approved in 2016, was
implemented in 2018/19
pages 97–104
The remuneration
policy that applies to
executive and non-
executive directors
pages 91–96
How we expect to
implement the
remuneration policy
in 2019/20
pages 104–106
Remuneration report
Annual statement by the Remuneration committee Chair
In this section
Corporate governance
External audit
Auditor independence
The Audit committee has formally
reviewed the independence of the
• the major issues that arose during
the course of the audit and their
The Audit committee is responsible
external auditor. EY has reported to
resolution;
for the development, implementation
the committee confirming that it
and monitoring of policies and
believes it remained independent
procedures on the use of the external
throughout the year, within the
auditor for non-audit services, in
accordance with professional and
meaning of the regulations on this
matter and in accordance with their
regulatory requirements. These policies
professional standards.
• key accounting and audit judgements;
• the level of errors identified during
the audit; and
• recommendations made by the
external auditors in their management
letters and the adequacy of
management’s response.
FRC Audit Quality Review of the
Company’s 2018 audit by EY
During the year, the Audit Quality
Review Team from the FRC undertook
a review of EY’s audit of the Group’s
2018 financial statements. At the time
of writing the AQRT had yet to conclude
this review. Indicative recommendations
for improvement included impairment
testing, including how EY evidenced
they had challenged management’s
assumptions and evidenced their
involvement in and oversight of the
To fulfil its responsibility to ensure the
independence of the external auditor,
the Audit committee reviewed:
• a report from the external auditor
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 EY for the 52
weeks ended 14 September 2019 were
work of component audit teams.
£8.6m of which £0.8m related to non-
audit work. Further details are provided
in note 2 to the financial statements.
Auditor effectiveness
To assess the effectiveness of
The Audit committee discussed the
indicative review findings with EY,
reviewed EY’s proposed actions to
address these findings and is satisfied
that these changes were implemented
the external auditors, the committee
for the 2019 audit.
• the external auditor’s fulfilment of
the agreed audit plan and variations
Auditor appointment
The Audit committee reviews annually
the appointment of the auditor, taking
into account the auditor’s effectiveness
• reports highlighting the major issues
that arose during the course of
and independence, and makes a
recommendation to the board
reviewed:
from it;
the audit;
• feedback from the businesses
via questionnaires evaluating the
performance of each assigned audit
team, planning, challenge and
interaction with the business; and
• a report on EY, as a firm, from
the Audit Quality Review Team
(‘AQRT’) 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.
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;
• the overall work plan and fee proposal;
accordingly. Any decision to open the
external audit to tender is taken on the
recommendation of the Audit committee.
The Company’s current external auditor,
EY, was first appointed at the Annual
General Meeting in December 2015,
with effect from 2016, following the
conclusion of a competitive tender
process. The Audit committee is satisfied
with the auditor’s effectiveness and
independence and has recommended to
the board that EY be reappointed as the
Company’s external auditor for 2019/20.
The Company has no current retendering
plans, but keeps such plans under
review in light of the applicable legal
and regulatory framework.
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.
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 except in very exceptional
circumstances where specialist
knowledge is required. 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 auditor
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.
2019 has been a busy year for
the Remuneration committee
as we have been reviewing our
remuneration policy.
In this letter I have summarised the
thinking behind our policy review and
have set out the key features of the new
policy we are proposing. More details,
including the process we followed,
are provided on the following pages.
I then present our key decisions in
implementing our current remuneration
policy in 2018/19 and decisions so far
regarding 2019/20. Further information
on these topics can be found in the
implementation report.
Executive remuneration policy review
In 2016 we introduced a number of
important changes to our remuneration
policy, including a new design of the
Long Term Incentive Plan (LTIP)
measures to reflect the strategy
of holding a portfolio of diverse
businesses and the very different nature
of our Sugar business. On balance,
we believe that our current policy
works well. Nonetheless, we have used
the opportunity of this policy review to
take an even more fundamental look
at the LTIP structure and its linkage to
how we want to drive the businesses.
The other main focus of our review
has been the recent changes in the
corporate governance environment.
As a result, the substantive changes
that we are proposing to the policy are:
• a reduction in pension contribution
rates for new executive directors
to align with other UK employees;
• the introduction of a post-employment
shareholding requirement; and
• a new approach to LTIP
performance targets.
The committee Chair’s letter and the annual implementation report on directors’ remuneration
will be subject to an advisory vote at the 2019 AGM. The remuneration policy will be subject
to a binding vote at the 2019 AGM.
No change to the overall quantum of
reward is proposed, as we remain
mindful of the broader debate about
executive pay and inequality in society.
Pension contributions
We welcome the new expectation for
pension contributions for executives
to be in line with those for the broader
employee population, as raised by a
number of investors and now reflected
in the UK Corporate Governance Code.
We believe this is the right thing to
do and are proposing to align pension
contributions or cash allowances
for future directors with the wider
UK workforce.
Fairness and taking a long-term view
are key principles for us when running
the business and when making
remuneration decisions. Considering the
contributions for our current executive
directors, we believe that it is important
to honour our contractual commitments
as an organisation, and we are therefore
not planning to make changes to their
current pension arrangements as part of
this year’s remuneration policy review.
This is consistent with the approach we
took across our UK employee population
when closing our defined benefit
pension to new members, and when
defined contribution rates were changed.
Shareholding requirements
We have a shareholding culture amongst
our senior leadership team, driven by
a sense of ownership of the business
rather than shareholding rules. Our
executive directors currently have
shareholdings considerably above
the minimum requirements set in our
remuneration policy, as do many other
senior executives. Reflecting the new
corporate governance expectations, we
are proposing to introduce a post-leaving
holding requirement that demonstrates
our commitment, and that of our
executives, to good corporate
governance and the long term.
LTIP – Context
The diverse businesses in our portfolio
need to deliver different performance
outcomes in order to support the
overall strategy. In reviewing the
design of our LTIP, we have sought
to create a very strong linkage to
these desired outcomes:
• incentivise growth in all our non-Sugar
businesses; and
• ensure executives are focussed on
delivering an acceptable return across
the cycle from the Sugar business.
The LTIP should not reward executives
if high sugar prices drive spikes in
profitability. If shareholders benefit from
increases in the share price driven by
sugar price volatility, executives will
share in this as a result of having
significant shareholdings themselves.
LTIP – Performance measures
Group adjusted earnings per share (EPS)
is an important performance measure
for our growth businesses. However,
it is not an appropriate measure for a
cyclical business such as Sugar. We
are therefore proposing that the first
measure of performance in the LTIP is
adjusted EPS growth in the non-Sugar
businesses over the three-year
performance period. This adjusted EPS
measure is used in our current LTIP.
We believe executives should be
accountable for the performance
of their investment decisions. The
second proposed measure is therefore
a modifier, based on the three-year
average adjusted return on capital
employed (ROCE) in the non-Sugar
businesses. This measure is a
downward only modifier of up to
20% of the calculated incentive and
is intended to act as a safety net
by placing a focus on returns; the
performance range is set accordingly.
82
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
83
83
Governance
Remuneration report
The first and second measures
described above for our new LTIP model
form 60% of our current LTIP model and
are familiar to our executives. Our new
proposal is to introduce a third measure
which is a further modifier that penalises
executives if returns from the Sugar
business are not acceptable. This
measure is based on adjusted return
on average capital employed in the
Sugar business, with the book value of
goodwill added to the denominator so
that any investment in Sugar is reflected.
The modifier may reduce the calculated
incentive outcome by up to a further
20% of the previously calculated
amount. The scale of this adjustment
reflects the relative size of Sugar in the
group portfolio.
In the 2019-22 LTIP cycle, the adjusted
average Sugar return will be calculated
over the three years of the LTIP
performance period. For future cycles
we will lengthen the averaging period
to include past performance so that
eventually the average is calculated over
five or more years. This will reduce the
impact of peaks and troughs in sugar
price and reflects our position that this
business must deliver an acceptable
return to investors and generate cash
over the sugar cycle. Our current focus
is to drive Sugar returns up to acceptable
levels, following a period of low sugar
pricing caused by the European sugar
regime change. We are therefore
proposing that in the initial 2019-22
cycle, no adjustment be made if
average returns are above 8% but
that executives are penalised for lower
returns, with the full reduction applying
if average returns are at or below 5%.
This takes into account the fact that our
European sugar businesses may still be
affected by the effects of regime change
at the start of the performance period.
A return at the bottom of this range
is broadly in line with shareholder
expectations for 2019/20. Executives
will need to drive improved performance
if they are to avoid the downwards
modifier being applied to vesting
in 2022.
This year we have recognised an
impairment charge of £65m in respect
of our UK bakeries following the loss
of a key contract. This has been
charged ‘below the line’ of adjusted
operating profit and does not impact
incentive outcomes.
Consistent with past practice however,
we have used discretion to reduce the
number of shares vesting for the small
number of executives, including the
executive directors, involved in the
original investment decision to which the
impairment relates. The reduction has
been set at 15% of the pre-adjustment
vesting amount.
Discretion has been applied to reduce
the LTIP rather than the STIP as
investment decisions are long-term,
multi-year choices.
These LTIP awards were allocated at
a share price of £26.25. Share prices
have since fallen, so the committee has
considered whether any adjustment
to the vesting outcome should be
considered. In some previous cycles
our share price rose significantly while
the number of shares vesting was low
due to stretching EPS targets. In these
cases, no adjustments were made to
increase vesting and so for consistency
of approach, no adjustment is being
made this time. Our executive directors
have very significant shareholdings so
they have experienced the share price
decline directly through its impact on
their personal wealth.
We believe that the calculated vesting
outcome, following the application of
discretion as detailed above, is fair and
in line with our tradition of reasonable
and conservative levels of reward.
Over time we would expect the bottom
of the performance range to move up as
we include more years in the averaging
of returns and move beyond the impact
of regime change. Furthermore, in our
next policy review in 2022, we expect
to determine whether the modifier
could apply both upwards and
downwards with a more stretching
performance range.
We believe that this new approach
is well aligned with our strategy and
operating model and is in investors’
interests. It addresses concerns we had
heard from some shareholders, that the
current model allows for part of the
LTIP to be earned regardless of the
Sugar performance. In the new model,
all of the outcome includes the impact
of Sugar.
I am delighted that when we
consulted our largest shareholders,
they were very supportive of our
proposals.
Remuneration in 2018/19
LTIP 2016-19
This is the first vesting under the LTIP
measures that we introduced in 2016.
For the 60% of the LTIP that is
measured with the impact of Sugar
removed, the performance outcome
was 70.89% of maximum. Over the
performance period the Retail, Grocery
and Ingredients businesses performed
well against a backdrop of Brexit
uncertainty, consequent volatility in
foreign exchange rates and a challenging
environment on the high street.
For the 40% of the LTIP measured
on adjusted group EPS and ROCE,
the performance outcome was 61.68%.
The performance of the non-Sugar
businesses was as described above,
while Sugar performance over the
three years was impacted by reform
of the European sugar regime and low
world sugar prices.
84
84
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
The first and second measures
Over time we would expect the bottom
This year we have recognised an
described above for our new LTIP model
of the performance range to move up as
impairment charge of £65m in respect
form 60% of our current LTIP model and
we include more years in the averaging
of our UK bakeries following the loss
are familiar to our executives. Our new
of returns and move beyond the impact
of a key contract. This has been
proposal is to introduce a third measure
of regime change. Furthermore, in our
charged ‘below the line’ of adjusted
which is a further modifier that penalises
next policy review in 2022, we expect
operating profit and does not impact
executives if returns from the Sugar
to determine whether the modifier
incentive outcomes.
business are not acceptable. This
could apply both upwards and
measure is based on adjusted return
downwards with a more stretching
on average capital employed in the
performance range.
Consistent with past practice however,
we have used discretion to reduce the
number of shares vesting for the small
In the 2019-22 LTIP cycle, the adjusted
of Sugar.
Sugar business, with the book value of
goodwill added to the denominator so
that any investment in Sugar is reflected.
The modifier may reduce the calculated
incentive outcome by up to a further
20% of the previously calculated
amount. The scale of this adjustment
reflects the relative size of Sugar in the
group portfolio.
average Sugar return will be calculated
over the three years of the LTIP
performance period. For future cycles
we will lengthen the averaging period
to include past performance so that
eventually the average is calculated over
five or more years. This will reduce the
impact of peaks and troughs in sugar
price and reflects our position that this
business must deliver an acceptable
return to investors and generate cash
over the sugar cycle. Our current focus
is to drive Sugar returns up to acceptable
levels, following a period of low sugar
pricing caused by the European sugar
regime change. We are therefore
proposing that in the initial 2019-22
cycle, no adjustment be made if
average returns are above 8% but
that executives are penalised for lower
returns, with the full reduction applying
if average returns are at or below 5%.
This takes into account the fact that our
European sugar businesses may still be
affected by the effects of regime change
at the start of the performance period.
A return at the bottom of this range
is broadly in line with shareholder
expectations for 2019/20. Executives
will need to drive improved performance
if they are to avoid the downwards
modifier being applied to vesting
in 2022.
We believe that this new approach
number of executives, including the
is well aligned with our strategy and
executive directors, involved in the
operating model and is in investors’
original investment decision to which the
interests. It addresses concerns we had
impairment relates. The reduction has
heard from some shareholders, that the
been set at 15% of the pre-adjustment
current model allows for part of the
vesting amount.
LTIP to be earned regardless of the
Sugar performance. In the new model,
all of the outcome includes the impact
I am delighted that when we
consulted our largest shareholders,
they were very supportive of our
proposals.
Remuneration in 2018/19
LTIP 2016-19
This is the first vesting under the LTIP
measures that we introduced in 2016.
For the 60% of the LTIP that is
Discretion has been applied to reduce
the LTIP rather than the STIP as
investment decisions are long-term,
multi-year choices.
These LTIP awards were allocated at
a share price of £26.25. Share prices
have since fallen, so the committee has
considered whether any adjustment
to the vesting outcome should be
considered. In some previous cycles
our share price rose significantly while
the number of shares vesting was low
due to stretching EPS targets. In these
cases, no adjustments were made to
measured with the impact of Sugar
increase vesting and so for consistency
removed, the performance outcome
of approach, no adjustment is being
was 70.89% of maximum. Over the
made this time. Our executive directors
performance period the Retail, Grocery
have very significant shareholdings so
and Ingredients businesses performed
they have experienced the share price
well against a backdrop of Brexit
decline directly through its impact on
uncertainty, consequent volatility in
their personal wealth.
foreign exchange rates and a challenging
environment on the high street.
We believe that the calculated vesting
outcome, following the application of
For the 40% of the LTIP measured
discretion as detailed above, is fair and
on adjusted group EPS and ROCE,
in line with our tradition of reasonable
the performance outcome was 61.68%.
and conservative levels of reward.
The performance of the non-Sugar
businesses was as described above,
while Sugar performance over the
three years was impacted by reform
of the European sugar regime and low
world sugar prices.
Taking all of the above into account,
the financial STIP outcome is 74.13%
of maximum which the committee
considers to be an appropriate reflection
of performance in a challenging year.
Salaries
In December 2018, we did not increase
the salaries of our executive directors.
Remuneration in 2019/20
LTIP 2019-22
Subject to our new remuneration policy
being approved, we will make LTIP
allocations for the 2019-22 performance
period in December 2019 with
performance subject to the proposed
new performance measures.
IFRS 16
IFRS 16 will impact outcomes under
the LTIP in 2020 and 2021 as the EPS
and ROCE targets were set without
the impact of this change to lease
accounting being taken into account.
Incentive performance ranges will
be adjusted to ensure that the LTIP
outcomes remain no harder or easier to
achieve than they would have been on
the old accounting basis. The revised
performance ranges will be disclosed
in the 2020 Remuneration report.
STIP 2019/20
The personal performance element
of the STIP will be modified to focus
on in-year execution of multi-year
priorities related to environmental,
social and governance (ESG)
measures/business health as well as
to business performance. This change
was welcomed by our shareholders
in consultation.
Salaries
This year, with increases for our wider
UK workforce typically in the range
of 2%-3.5%, we have decided not to
increase salaries for the executive
directors. This reflects our conservative
approach on remuneration.
The committee has chosen voluntarily to
disclose our CEO pay ratio for 2018/19
on page 103.
Lastly, as you will see, we have taken
this opportunity to review the format
of this Remuneration report. We hope
that the additional tables and narrative
will add clarity for readers
of the report.
Ruth Cairnie
Remuneration committee Chair
Short Term Incentive Plan (STIP)
2018/19
STIP targets for 2018/19 were set taking
into account the projected substantial
decline in profitability of the Sugar
business driven by global and European
prices. This reduction was offset by
setting challenging growth targets for
Retail and Grocery.
Achievement of the budget was seen
as very challenging throughout the year,
but the final profit outcome was a little
ahead of budget, driven by the strong
growth in Primark and our international
grocery businesses. Primark
performance was a result of better
buying and lower mark-downs, leading
to margins above expectations. In our
international grocery businesses, we
were delighted with new product
development. Whilst at a much lower
profit than the previous year, AB Sugar
was marginally ahead of budget with
tight cost control and strong measures
taken in our Spanish business to reduce
beet prices.
In light of the impairment taken at
half year, as described above, the
committee has applied discretion to
adjust the STIP target upwards by the
depreciation benefit in the second half
arising from this impairment.
We also adjusted the STIP and LTIP
ranges to take into consideration
the accounting charge for Argentina
hyperinflation that was included in
reported numbers but not in the original
performance targets. This adjustment
made the targets no harder or easier to
achieve than was originally intended.
84
Associated British Foods plc
Annual Report and Accounts 2019
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
85
85
Governance
Remuneration report
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 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.
The committee’s terms of reference are being reviewed in late 2019 to ensure that they are compliant with latest corporate
governance requirements and once approved will be available at the link above.
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:
Ruth Cairnie1
Javier Ferrán1
Wolfhart Hauser
Richard Reid
Michael McLintock
Graham Allan2
Role on committee
Chair
Member
Member
Member
Member
Member
Year of appointment
Independence
Senior Independent Director 2014
Senior Independent Director 2006
2015
Independent Director
2016
Independent Director
2017
Chairman
2018
Independent Director
Meetings attended
8
1
8
8
8
8
1 Javier Ferrán retired from the Board on 7 December 2018 and Ruth Cairnie was appointed Senior Independent Director from that date.
2 Graham Allan was appointed on 5 September 2018.
George Weston (Chief Executive), Des Pullen (Group HR Director) and Julie Withnall (Group Head of Reward) attend the
meetings of the committee. No individual is present when their own remuneration is considered.
Remuneration principles
Our remuneration approach needs to enable us to attract and retain top executive talent to promote the strategic and financial
performance of the business. The remuneration principles, shown below, remain unchanged, and have informed our decision-
making in relation to the proposed changes to our remuneration policy.
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. Our
remuneration policy aims to
align executive rewards with
shareholder value creation.
Line of sight
We aim to align
remuneration and business
objectives through
performance measures
to which individuals have
line of sight.
Clarity and simplicity
We believe that executive
pay should be clear and
simple for participants
to understand.
Fairness
Total remuneration should
fairly reflect the performance
delivered and efforts made
by executives.
The best way to achieve this
is through alignment with
business performance.
Policy review
When reviewing our policy, the committee considered a wide range of options. At one extreme we considered whether a shift
to a remuneration model focussed on fixed pay and long-term share awards without performance conditions could be a helpful
simplification. We also looked at whether a price adjustment mechanism, such as those used in other commodity businesses,
might be appropriate for the LTIP. The debate was thorough and robust, and we believe that the proposals set out in the
committee Chair’s statement and in the following disclosure represent the most appropriate solution for the business.
86
86
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
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 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.
The committee’s terms of reference are being reviewed in late 2019 to ensure that they are compliant with latest corporate
governance requirements and once approved will be available at the link above.
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
Ruth Cairnie1
Javier Ferrán1
Wolfhart Hauser
Richard Reid
Michael McLintock
Graham Allan2
Chair
Member
Member
Member
Member
Member
Senior Independent Director 2014
Senior Independent Director 2006
Independent Director
Independent Director
Chairman
Independent Director
2015
2016
2017
2018
8
1
8
8
8
8
1 Javier Ferrán retired from the Board on 7 December 2018 and Ruth Cairnie was appointed Senior Independent Director from that date.
2 Graham Allan was appointed on 5 September 2018.
George Weston (Chief Executive), Des Pullen (Group HR Director) and Julie Withnall (Group Head of Reward) attend the
meetings of the committee. No individual is present when their own remuneration is considered.
Remuneration principles
Our remuneration approach needs to enable us to attract and retain top executive talent to promote the strategic and financial
performance of the business. The remuneration principles, shown below, remain unchanged, and have informed our decision-
making in relation to the proposed changes to our remuneration policy.
Alignment, accountability
and doing the right thing
Line of sight
We aim to align
Clarity and simplicity
Fairness
We believe that executive
Total remuneration should
Our board is accountable for
remuneration and business
pay should be clear and
ensuring that the portfolio
objectives through
simple for participants
fairly reflect the performance
delivered and efforts made
that we operate is the right
performance measures
to understand.
by executives.
to which individuals have
line of sight.
The best way to achieve this
is through alignment with
business performance.
one to deliver optimal
returns to shareholders
and for ascertaining that the
businesses are well run. Our
remuneration policy aims to
align executive rewards with
shareholder value creation.
Policy review
When reviewing our policy, the committee considered a wide range of options. At one extreme we considered whether a shift
to a remuneration model focussed on fixed pay and long-term share awards without performance conditions could be a helpful
simplification. We also looked at whether a price adjustment mechanism, such as those used in other commodity businesses,
might be appropriate for the LTIP. The debate was thorough and robust, and we believe that the proposals set out in the
committee Chair’s statement and in the following disclosure represent the most appropriate solution for the business.
We operate a portfolio approach to our businesses, to which we remain committed. The role of the divisions in the portfolio
is reviewed regularly. Since we put our current remuneration policy in place in 2016, the following important changes have
taken place:
• our non-Sugar businesses have continued to grow;
• European regime reform has impacted performance in our Sugar division; and
• the overall shape of the group has changed with Primark becoming a relatively larger part of the whole and Sugar becoming
relatively smaller (less than 20% of the whole).
With the changes in the European sugar regime, we have considered the role of AB Sugar in the portfolio and continue to
believe that this business will deliver an acceptable return to investors and generate cash over the sugar cycle.
Recent history has reinforced the case for a bespoke approach to our remuneration package, reflecting the different nature of
the Sugar business. In the early stages of this review we consulted several of our largest shareholders. Their feedback included:
• recognition of our conservative approach to incentive quantum and operation of discretion;
• support for our choice of metrics (adjusted operating profit, working capital, adjusted EPS and adjusted ROCE);
• recognition of the challenge of designing an LTIP for a diverse organisation;
• some challenge from a few of our shareholders on the current LTIP approach, particularly the fact that part excluded Sugar
performance when, as investors, they can only invest in the business as a whole; and
• some support for the current approach of measuring LTIP performance partly based on the group as a whole and partly based
on the group excluding Sugar.
Our workforce remuneration practices vary widely across the organisation. Each divisional chief executive is responsible
to the Board for running his/her business well and reporting to the Board on how they engage the people in their businesses.
Within our review we consulted the HR directors from our divisions as representatives of the employees in their areas of the
organisation. We sought to understand views on the alignment of reward and culture in the organisation. Their feedback included:
• confirmation that our remuneration principles are right and resonate across our diverse portfolio of businesses;
• confirmation of the importance of pay for performance and of flexibility in reward models across the divisions to support
different business models and market practices;
• confirmation of the importance of shares in long-term incentives to align our business leaders’ interests with those
of shareholders;
• support for our line of sight principle that ensures that targets are meaningful to participants; and
• confirmation that our approach to discretion and flexibility is well aligned with our culture and focuses on ‘doing the right thing’.
In line with the UK Corporate Governance Code, the following factors, which align well with our principles, were also considered:
• clarity and simplicity – we believe that our new policy proposals provide transparency for executives and investors about what
performance we are looking for across our portfolio;
• risk – we note the reputational and other risks that can result from excessive rewards and believe that our robust target-setting
and long history of applying discretion to calculated outcomes reflects this. Over the years, we have applied discretion
occasionally to increase incentive outcomes when the situation merits it (as we did in 2017) as well as to decrease payments
(as we are doing this year);
• predictability and proportionality – we believe that the link between individual awards, the delivery of strategy and the long-
term performance of the company is clearly explained in this report and that our approach ensures proportionate pay
outcomes that do not reward poor performance; and
• alignment to culture – we want our executives to make decisions for the long-term performance and health of the business.
This informs our approach to target setting, operation of discretion and personal performance measures.
86
Associated British Foods plc
Annual Report and Accounts 2019
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
87
87
Governance
Remuneration report
Proposed changes to Directors’ Remuneration Policy and to Shareholding Requirements
Revised policy
Rationale
Fixed Pay
Pension
Variable Pay
LTIP – Up to
200% of salary
No changes to pension provision for incumbent
executives, whose current arrangements reflect
market practice and pensions practice elsewhere
in the group at the time that their employment
contracts were put in place.
Pension contributions and/or cash allowance for new
executive directors aligned with contribution rates at
the time of appointment for other UK-based
employees. This would currently cap company
contributions at 10% of salary.
Conditional share awards with performance
measured on:
• 200% of salary – Group EPS with the impact of
Sugar removed
• Modified 80%-100% – by Group ROCE with the
impact of Sugar removed
• Modified a further 80%-100% – by Sugar ROCE with
the book value of goodwill added to the denominator
Shareholding
requirement –
250% of salary
(beneficially-
owned)
Conditional awards do not count. Shares that have
vested and are subject to a holding period
do count. At least 50% of net shares vested under
STIP and LTIP must be held until the shareholding
requirement is met.
Executive directors will be required to retain, for two
years post leaving the Company, a holding of shares
at a level equal to the lower of the shareholding
requirement or their actual shareholding on departure.
Further investor feedback
The group has a wide variety of pension arrangements
and a strong history of honouring commitments we
make to individuals at appointment. For example,
our defined benefit (DB) pension scheme remains open
to future accrual for members that joined the group
before it closed. We believe it is right to honour the
pensions offered to incumbent executive directors
when they signed their employment contracts.
We recognise that going forward it is right for the rate
of pension contribution for new joiners at the top of the
organisation to align with what is offered to our wider
UK population.
We felt that the LTIP structure and performance
measures could be improved to create an even
stronger alignment with our strategy and performance
drivers. The reasoning is detailed in the committee
Chair’s statement.
We have not changed the LTIP quantum, the
requirement for executive directors to hold net vested
LTIP shares for two years from the vesting date or
the scope of discretion available to the Committee.
Both of our current executives have holdings
considerably in excess of our required holding level. This
reflects the culture of the group and the commitment
of our leaders to the long-term stewardship of the
business. In light of this, we have not increased the
level of holding required of our executives.
Recognising corporate governance requirements, we
have introduced a post-departure holding requirement
that is in line with Investment Association (IA) guidance.
Further to our initial shareholder discussions, we engaged with a broader group of shareholders and with proxy agencies to seek
their feedback on the revised remuneration policy outlined above. We have listened closely to their feedback, which is
summarised below.
• There was recognition that we had listened to shareholder concerns and thought about how to make the LTIP targets
meaningful. The strong consensus was that the new approach is better than the current model which was already an
improvement on the pre-2016 approach.
• There was appreciation for the proposed pension changes for new joiners. The feedback on our approach for existing
executives was mixed. Most investors recognised that unlike many organisations we have a strong track record of honouring
our pensions commitments, as detailed in the table above, and that this integrity is part of our culture and is important to us.
We appreciated the supportive yet challenging approach from our investors and will keep this matter under consideration.
• There was also appreciation for our decision to adopt the IA guidelines in relation to post-employment shareholding. Some of
our investors challenged the current level of shareholding requirement for our executives. We have discussed this feedback
as a committee. As an organisation we are driven by values and principles. Many of our executives have shareholdings that
are in excess of any requirement because they want to invest in the Company, share in its success and demonstrate their
commitment to the organisation. We view this as a strength. We feel that the current level of holding requirement remains
appropriate and we are confident that our long-serving executives will continue to show their commitment to the Company
by holding shares. As we know that this is an area of concern for investors, we will keep this position under review.
• In addition to these policy changes, we consulted investors on a proposed change of focus for the personal performance
element of STIP to encompass both drivers of long-term business performance and business health. This approach was
supported by investors.
88
88
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
Proposed changes to Directors’ Remuneration Policy and to Shareholding Requirements
Revised policy
Rationale
Fixed Pay
Pension
Variable Pay
LTIP – Up to
200% of salary
Shareholding
requirement –
250% of salary
(beneficially-
owned)
No changes to pension provision for incumbent
The group has a wide variety of pension arrangements
executives, whose current arrangements reflect
and a strong history of honouring commitments we
market practice and pensions practice elsewhere
make to individuals at appointment. For example,
in the group at the time that their employment
our defined benefit (DB) pension scheme remains open
contracts were put in place.
Pension contributions and/or cash allowance for new
executive directors aligned with contribution rates at
the time of appointment for other UK-based
to future accrual for members that joined the group
before it closed. We believe it is right to honour the
pensions offered to incumbent executive directors
when they signed their employment contracts.
employees. This would currently cap company
We recognise that going forward it is right for the rate
contributions at 10% of salary.
of pension contribution for new joiners at the top of the
organisation to align with what is offered to our wider
UK population.
Conditional share awards with performance
measured on:
• 200% of salary – Group EPS with the impact of
Sugar removed
• Modified 80%-100% – by Group ROCE with the
impact of Sugar removed
• Modified a further 80%-100% – by Sugar ROCE with
the book value of goodwill added to the denominator
We felt that the LTIP structure and performance
measures could be improved to create an even
stronger alignment with our strategy and performance
drivers. The reasoning is detailed in the committee
Chair’s statement.
We have not changed the LTIP quantum, the
requirement for executive directors to hold net vested
LTIP shares for two years from the vesting date or
the scope of discretion available to the Committee.
Conditional awards do not count. Shares that have
Both of our current executives have holdings
vested and are subject to a holding period
considerably in excess of our required holding level. This
do count. At least 50% of net shares vested under
reflects the culture of the group and the commitment
STIP and LTIP must be held until the shareholding
of our leaders to the long-term stewardship of the
requirement is met.
Executive directors will be required to retain, for two
business. In light of this, we have not increased the
level of holding required of our executives.
years post leaving the Company, a holding of shares
Recognising corporate governance requirements, we
at a level equal to the lower of the shareholding
have introduced a post-departure holding requirement
requirement or their actual shareholding on departure.
that is in line with Investment Association (IA) guidance.
Further investor feedback
summarised below.
Further to our initial shareholder discussions, we engaged with a broader group of shareholders and with proxy agencies to seek
their feedback on the revised remuneration policy outlined above. We have listened closely to their feedback, which is
• There was recognition that we had listened to shareholder concerns and thought about how to make the LTIP targets
meaningful. The strong consensus was that the new approach is better than the current model which was already an
improvement on the pre-2016 approach.
• There was appreciation for the proposed pension changes for new joiners. The feedback on our approach for existing
executives was mixed. Most investors recognised that unlike many organisations we have a strong track record of honouring
our pensions commitments, as detailed in the table above, and that this integrity is part of our culture and is important to us.
We appreciated the supportive yet challenging approach from our investors and will keep this matter under consideration.
• There was also appreciation for our decision to adopt the IA guidelines in relation to post-employment shareholding. Some of
our investors challenged the current level of shareholding requirement for our executives. We have discussed this feedback
as a committee. As an organisation we are driven by values and principles. Many of our executives have shareholdings that
are in excess of any requirement because they want to invest in the Company, share in its success and demonstrate their
commitment to the organisation. We view this as a strength. We feel that the current level of holding requirement remains
appropriate and we are confident that our long-serving executives will continue to show their commitment to the Company
by holding shares. As we know that this is an area of concern for investors, we will keep this position under review.
• In addition to these policy changes, we consulted investors on a proposed change of focus for the personal performance
element of STIP to encompass both drivers of long-term business performance and business health. This approach was
supported by investors.
Remuneration structures at a glance
The table below outlines the remuneration structure that will apply in 2019/20, subject to approval of the new remuneration policy.
Remuneration element
Purpose
Proposed implementation in 2019/20 (subject
to approval of new remuneration policy)
Fixed Pay
Base salary
Pension
Benefits
Provides core reward for the role.
Enables the Company to attract
and retain executives of the calibre
required to deliver our strategy.
In December 2019, salaries will not be increased.
Provides a competitive
retirement benefit.
George Weston will accrue benefits under the
Company’s DB scheme and/or EFRBS.
Provides a competitive and cost-
effective benefits package appropriate
to the role.
John Bason will have a pension allowance of 25%
of salary.
No changes to benefits offered are anticipated in
the year.
Variable Pay
STIP – Up to 200% of salary
in cash and shares
Encourages and rewards attainment
of challenging performance targets
over a one-year period.
Up to 20% of salary in cash based on personal
performance objectives linked to key long-term business
performance and business health goals.
LTIP – Up to
200% of salary
Shares element facilitates operation
of malus and clawback, aligns
the interests of executives
and shareholders and promotes
executive retention.
Rewards long-term business growth,
facilitates the operation of malus and
clawback, aligns the interests of
executives and shareholders and
promotes executive retention.
Shareholding requirement
Fees for non-executive
directors and the Chairman
To demonstrate commitment to
the Company’s success and align
executives’ and shareholders’ interests.
To attract and retain a high-calibre
Chairman and non-executives by
providing a competitive core reward
for the role.
Up to 180% of salary based on financial performance
(currently adjusted operating profit with a working capital
multiplier), up to 130% of salary in cash and up to 50%
of salary in shares.
Conditional share awards will be allocated on or after
9 December using the new performance measures,
subject to the policy being approved.
• The LTIP targets for 2019–22 are shown on page 105.
• A two-year post-vesting holding period applies to net
of tax shares.
A shareholding requirement of 250% of salary,
as detailed on the previous page.
In December 2019, the fees will remain unchanged.
88
Associated British Foods plc
Annual Report and Accounts 2019
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
89
89
Governance
Remuneration report
Illustration of incentive model
The chart below shows the approach that we are planning to apply to incentives in 2019/20, subject to shareholder approval
of our new remuneration policy.
Performance
measures
% of
base
2019/20
2020/21
2021/22
2022/23
2023/24
Incentives performance and release timing
Personal
STIP
Objectives
Financial
STIP
Adjusted operating
profit x working
capital modifier
LTIP
Adjusted EPS excluding
Sugar x moderator based
on three-year average
ROCE excluding Sugar x
moderator based on
three-year average
Sugar returns
20%
Performance
Cash payment (subject to malus and clawback)
130% Performance
Cash payment (subject to malus and clawback)
50%
Performance
Deferral
Absolute TSR alignment on shares – granted at start
of performance period
Paid in shares. Release of shares
(subject to malus and clawback)
200%
Performance
Vests at end of year three
Holding
Absolute TSR alignment on shares – granted at start of performance period
Release of
shares (subject
to malus and
clawback)
Shareholding
requirement
250% Absolute TSR alignment
90
90
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
The chart below shows the approach that we are planning to apply to incentives in 2019/20, subject to shareholder approval
Illustration of incentive model
of our new remuneration policy.
Remuneration policy for executive directors
This report sets out our remuneration policy which will apply, subject to approval, from the close of the AGM on 6 December
2019. For unvested share awards only, the provisions of the remuneration policy presented in the 2016 Remuneration report
will continue to apply until such time as all long-term incentive awards granted under that policy have vested or lapsed.
Operation and link to business strategy
Maximum opportunity
Base salary
(100% cash)
Benefits (excluding
relocation)
Pension
Short term
incentive
plan (STIP)
Base salaries are normally reviewed on an annual basis. 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.
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.
Defined benefit (DB) pension arrangements – closed to
new members
The current executive directors were 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.
Both executive directors opted out of the scheme on 5 April 2006
but retain their accrued benefits. Since then the Chief Executive
has earned benefits in an EFRBS. The Finance Director accrued
benefits in an EFRBS until April 2019. The EFRBS is designed
broadly to mirror the DB scheme.
Defined contribution pension arrangements/cash alternative
Since April 2019 the Finance Director has received a cash pension
allowance of 25% of salary, in lieu of a DC contribution.
Future executive directors, who are not already entitled to DB
pension arrangements at the time of appointment, will benefit from
a defined contribution arrangement.
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.
Increases will be aligned with the
range of increases available for other
UK employees.
The cost of benefits is capped
at 10% of salary.
For the Chief Executive, a retirement
benefit target of circa two-thirds of
final pensionable pay is payable at
normal retirement age.
For the Finance Director the
maximum company contribution
(or cash equivalent) is 25% of salary.
Future executives may receive
Company contributions (or cash
equivalent) up to a maximum rate
aligned to that for other employees,
currently 10% of base salary.
Performance measures and target-setting
Group financial performance targets can apply to up to the full
amount of the STIP and are assessed against prime financial and
strategic measures used across the group to drive performance.
Personal performance measures can apply to up to 20% of the
STIP and are based on personal targets aligned to key business
health and business performance goals.
The on-target performance level is set at the start of each financial
year considering budgeted performance and any early re-forecasts.
A range is set around the target to incentivise delivery of stretching
performance.
Annual allocations of conditional shares vest based on performance
in year one and a further service period of two years. Shares vest
three years after the start of the relevant STIP performance period.
A cash or shares dividend equivalent payment is made, pro rata to
the number of shares vesting, at the release date.
STIP cash of 150% of base salary
and STIP shares of 50% of base
salary.
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.
90
Associated British Foods plc
Annual Report and Accounts 2019
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
91
91
Governance
Remuneration report
Operation and link to business strategy
Maximum opportunity
Short term
incentive
plan (STIP)
continued
Retrospective disclosure of targets
Achievement against targets will be disclosed at the end of the
financial year in that year’s Remuneration report and further detail,
including the performance range that applied to financial targets,
will be disclosed one year later.
Discretion, clawback and malus
Please refer to the notes that follow this table.
Long term
incentive plan (LTIP)
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 average ROCE performance over three years with the profit
and average capital employed of Sugar removed.
The calculated outcome may then be further moderated downwards
to reflect average Sugar ROCE performance with the book value
of goodwill added to the denominator over three or more years.
These measures reflect our strategy and feedback from investors.
They are well understood both by participants and shareholders.
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.
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.
Shareholding
requirement
Executives are required to build a holding of beneficially owned
shares in the company.
Conditional awards under our incentive plans do not count towards
this limit.
Shares that have vested and are subject to a holding period do count.
At least 50% of net shares vested under STIP and LTIP must be
held until the shareholding requirement is met.
During employment
250% of salary to be held in the
form of shares.
Post-employment
Executive directors will be required
to retain, for two years post leaving
the Company, a holding of shares
at a level equal to the lower of the
shareholding requirement or their
actual shareholding on departure.
Non-executive
directors’ fees
The Chairman and executive directors review non-executive directors’ fees in 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
except for the Chairman whose fee is paid monthly 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.
We pay additional fees to reflect extra duties and time commitments, including to the Senior Independent
Director, committee Chairs and individuals taking on other projects and responsibilities at the request
of the Company. 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. 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, we pay any tax due on such expenses on
a grossed-up basis.
92
92
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
Operation and link to business strategy
Maximum opportunity
Short term
incentive
plan (STIP)
continued
Retrospective disclosure of targets
Achievement against targets will be disclosed at the end of the
financial year in that year’s Remuneration report and further detail,
including the performance range that applied to financial targets,
will be disclosed one year later.
Discretion, clawback and malus
Please refer to the notes that follow this table.
Long term
Growth in adjusted EPS with the adjusted operating profit, tax and
200% of base salary at allocation.
incentive plan (LTIP)
interest of Sugar removed.
In exceptional circumstances,
The calculated outcome may then be moderated downwards to
such as the appointment of a new
reflect average ROCE performance over three years with the profit
Chief Executive, this could be
and average capital employed of Sugar removed.
The calculated outcome may then be further moderated downwards
to reflect average Sugar ROCE performance with the book value
of goodwill added to the denominator over three or more years.
These measures reflect our strategy and feedback from investors.
They are well understood both by participants and shareholders.
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.
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.
Shareholding
requirement
shares in the company.
Executives are required to build a holding of beneficially owned
During employment
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.
Conditional awards under our incentive plans do not count towards
this limit.
Shares that have vested and are subject to a holding period do count.
At least 50% of net shares vested under STIP and LTIP must be
held until the shareholding requirement is met.
250% of salary to be held in the
form of shares.
Post-employment
Executive directors will be required
to retain, for two years post leaving
the Company, a holding of shares
at a level equal to the lower of the
shareholding requirement or their
actual shareholding on departure.
Non-executive
directors’ fees
The Chairman and executive directors review non-executive directors’ fees in 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
except for the Chairman whose fee is paid monthly 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.
We pay additional fees to reflect extra duties and time commitments, including to the Senior Independent
Director, committee Chairs and individuals taking on other projects and responsibilities at the request
of the Company. As the Chair of the Nomination committee is currently the Company Chairman, no fee
is paid for this role at present.
The Remuneration committee reviews the Chairman’s fees. No other benefits are paid to the Chairman.
We encourage our non-executive directors to build up a shareholding of at least 100% of their annual fee.
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, we pay any tax due on such expenses on
Chairman
Shareholding
Expenses
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 immediately to 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.
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, including temporary
accommodation if required;
• 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;
• reasonable fees for consultancy advice related to relocation, including, but not limited to, school/home
finding advice and support with tax returns as required;
• tax equalisation costs for an agreed period; 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 required, the committee would aim to reflect the nature, timing
and value of awards foregone in any replacement award, taking into account the performance conditions
achieved/likely to be achieved and the proportion remaining of the performance period. Awards may be made
in cash or shares.
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 at least 50% of any vested buy-out awards should be retained until the
shareholding requirement is met.
Other elements
Benefits, pension, STIP, 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.
92
Associated British Foods plc
Annual Report and Accounts 2019
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
93
93
Governance
Remuneration report
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. However, the Remuneration committee is mindful of our reward
practices across the group when setting and implementing the remuneration policy for the executive directors. We have
engaged with our divisional HR Directors when reviewing executive remuneration policy but have not consulted employees.
The structure and principles of incentives further down the organisation are consistent with the approach taken for the Chief
Executive and Finance Director. 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.
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. We believe that this is the right model for our business
and drives an appropriate performance focus. Salary increases for executive directors are limited to the range of increases
available to UK-based employees except in a change of role.
Statement of consideration of shareholders’ views
The committee Chair is available to discuss any remuneration matters with shareholders, 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 committee Chair’s statement and the policy review
section at the start of this 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.
Service contracts and policy on payment for loss of office
Provision
Notice period
Policy and operation
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.
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.
By exception, 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 reasonable payments 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.
The committee may make payments in respect of outplacement and/or provide other ancillary
or non-material benefits linked with departure (including for a defined period after departure) not
exceeding £10,000 in aggregate for those leaving the business under an agreement or for other
reasons excluding resignation.
Relocation
support
Good leaver*
If an executive was 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 is made.
94
94
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
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. However, the Remuneration committee is mindful of our reward
practices across the group when setting and implementing the remuneration policy for the executive directors. We have
engaged with our divisional HR Directors when reviewing executive remuneration policy but have not consulted employees.
The structure and principles of incentives further down the organisation are consistent with the approach taken for the Chief
Executive and Finance Director. 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.
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. We believe that this is the right model for our business
and drives an appropriate performance focus. Salary increases for executive directors are limited to the range of increases
available to UK-based employees except in a change of role.
Statement of consideration of shareholders’ views
The committee Chair is available to discuss any remuneration matters with shareholders, 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 committee Chair’s statement and the policy review
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,
section at the start of this report.
Executive directors serving as non-executive directors
retaining any fees earned.
Service contracts and policy on payment for loss of office
Provision
Notice period
Policy and operation
are changed.
Non-compete
During employment and for 12 months thereafter.
Executive directors –
Resignation
contractual
termination payments
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
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.
By exception, 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 reasonable payments 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.
The committee may make payments in respect of outplacement and/or provide other ancillary
or non-material benefits linked with departure (including for a defined period after departure) not
exceeding £10,000 in aggregate for those leaving the business under an agreement or for other
reasons excluding resignation.
Relocation
support
Good leaver*
be paid.
If an executive was relocated to the UK at the start of his/her employment, his/her repatriation may
Leaver due to resignation/misconduct/poor performance
No payment is made.
Provision
STIP cash
LTIP and STIP
shares
Policy and operation
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 STIP is paid.
Leaver due to misconduct/poor performance
No payment is made.
Good leaver*
Where the performance condition on STIP shares 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 considering 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 STIP shares, all will vest on the event
of a change of control.
Non-executive
directors – contractual
termination payments
Appointment is for three years unless terminated by either party on six months’ notice. Continuation
of appointment depends on performance and re-election. Non-executive directors typically serve two
or three three-year terms.
Our Articles of Association require directors to retire from office if they have not retired at either of the
preceding two annual general meetings. 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
does not stand for re-election, they are not paid in lieu of notice.
* 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.
94
Associated British Foods plc
Annual Report and Accounts 2019
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
95
95
Governance
Remuneration report
Executive directors’ reward potential
George Weston (£000)
John Bason (£000)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
15.9%
31.9%
8.0%
23.9%
6,000
5,000
4,000
3,000
2,000
30.2%
7.6%
23.7%
8.1%
7.6%
100%
3.2%
81.1%
38.5%
20.3%
1,000
100%
8.1%
7.6%
3.2%
81.1%
15.9%
31.9%
8.0%
23.9%
20.3%
30.2%
7.6%
23.7%
38.5%
Minimum
Threshold
On-target
Maximum
0
Minimum
Threshold
On-target
Maximum
Fixed elements
Annual variable
element (cash STIP)
Annual variable
element (share STIP)
Long-term variable
element (LTIP)
Long-term variable
element (LTIP) –
50% share price
increment
Fixed elements
Annual variable
element (cash STIP)
Annual variable
element (share STIP)
Long-term variable
element (LTIP)
Long-term variable
element (LTIP) –
50% share price
increment
Notes 2019/20 Policy
1 Fixed elements for George Weston comprise salary (net of pension-related salary sacrifice) of £1,065,205 benefits of £16,250 and pension of £308,756 and applies
to minimum, threshold, on-target and maximum performance.
2 Fixed elements for John Bason comprise salary of £720,000 benefits of £20,467 and a cash allowance in lieu of DC pension contributions of £180,000 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 6.4% of maximum (i.e. 20% x 80% x 80% of grant date base salary)
following achievement of the threshold EPS performance target modified downwards twice for returns at the bottom of the performance range.
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).
96
96
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
Executive directors’ reward potential
1 Fixed elements for George Weston comprise salary (net of pension-related salary sacrifice) of £1,065,205 benefits of £16,250 and pension of £308,756 and applies
2 Fixed elements for John Bason comprise salary of £720,000 benefits of £20,467 and a cash allowance in lieu of DC pension contributions of £180,000 and applies
Notes 2019/20 Policy
to minimum, threshold, on-target and maximum performance.
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 6.4% of maximum (i.e. 20% x 80% x 80% of grant date base salary)
following achievement of the threshold EPS performance target modified downwards twice for returns at the bottom of the performance range.
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).
Annual implementation report on directors’
remuneration – single total figure (audited)
• Sets out the elements of remuneration paid to directors in respect of the financial year 2018/19.
• Sets out performance outcomes for the financial year 2018/19
• Sets out the performance range that applied for the STIP in 2017/18
• Details how we expect to implement the remuneration policy in 2019/20.
This report is subject to an advisory vote at the 2019 AGM.
Single total figure of remuneration for executive directors
Fixed Pay
Variable Pay
Total Single Figure of Remuneration
Base salary1
Benefits2
Pension3,4
Total Fixed Pay
STIP (inc Deferred Shares)5
LTIP6,7
Total Variable Pay
George Weston
John Bason
2019
£’000s
1,063
16
309
1,388
1,599
1,159
2,758
4,146
2018
£’000s
1,060
16
247
1,323
1,039
1,481
2,520
3,843
2019
£’000s
703
91
211
1,005
1,062
763
1,825
2,830
2018
£’000s
692
23
337
1,052
698
976
1,674
2,726
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 row.
2 The value of George Weston’s benefits comprised £14,161 taken in cash and £2,090 taxed as benefits-in-kind and the value of John Bason’s benefits comprised
a pension cash allowance of £70,409, £14,161 taken in cash and £6,306 taxed as benefits-in-kind.
3 While the nature of George Weston’s pension benefits has not changed during the year, the pensions number for the purposes of this disclosure has increased.
This year’s amount is higher than last year due to a reduction in the Consumer Price Index to 2.4% at the start of this year from 3% at the start of last year.
4 John Bason’s pension benefits continued on the same basis as last year until 24 April 2019. Further accrual under the EFRBS ceased at that date. Since that date
he has been paid a pension cash allowance of 25% of salary, which is reported in this table as a taxable benefit.
5 The STIP values shown include a cash amount, which is paid in December in respect of the preceding financial year, and the value of deferred share awards that
are based on performance over the relevant financial year. The shares value is calculated based on the average mid-market closing price over the last quarter of the
financial year. For 2017/18 the relevant share price was 2465.31p and for 2018/19 it was 2359.23p. The shares in these awards are subject to a two-year deferral
period and remain conditional. For George Weston the amount shown for 2019 comprises a cash element of £1,195,403 and a deferred award value of £378,656
plus £1.245 per share dividend equivalent payment of £25,422. For John Bason this comprises a cash element of £794,664 and a deferred award value of £250,126
plus £1.245 per share dividend equivalent payment of £16,743.
6 67.21% of the shares under the LTIP for 2016–19 would normally vest in November 2019. After a reduction of 15% of the calculated vesting amount the actual
vesting is 57.13% of the award. George Weston will receive 46,661 shares and John Bason will receive 30,730 shares. As required by UK regulations, the vesting
value for 2016–19 has been estimated using the mid-market closing price over the last quarter of 2018/19 of 2359.23p. Vesting will be on 25 November 2019 and a
figure recalculated for the share price on that date will be presented in the 2020 report. This value also includes the value of a cash payment in lieu of dividends paid
on the vested shares over the performance period of £1.245 per share. The dividend equivalent values included in the numbers are £58,093 for George Weston and
£38,259 for John Bason.
7 100% of the shares under the LTIP for 2015–18 vested in November 2018 at a share price of 2494.509p. George Weston received 59,388 shares and John Bason
received 39,110 shares. As required by UK regulations, the value disclosed for this award in 2018 was estimated using the average mid-market closing price over the
last quarter of the 2017/18 financial year of 2465.31p. This figure has now been recalculated for the actual share price on the vesting date.
This section, which provides more information on executive directors’ salaries and benefits in the last year, forms part of the
annual implementation report on directors’ remuneration, which is subject to an advisory vote at the 2019 AGM.
Single total figure – base salary
Executive directors’ salaries were reviewed on 1 December 2018 and the Remuneration committee determined that they should
remain unchanged from salaries in the previous year.
George Weston
John Bason
Dec 2017
£1,090,000
£720,000
Increase in
Dec 2018
0%
0%
Dec 2018
£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.
Pensions
Both directors opted out of the Associated British Foods Pension Scheme, a defined benefit scheme, on 5 April 2006. Since
then George Weston has earned benefits in an Employer Funded Retirement Benefit Scheme (EFRBS). From 5 April 2006 until
24 April 2019, John Bason also earned benefits in an EFRBS. On 24 April 2019 his EFRBS entitlement ceased and, as disclosed
in our 2018 annual report, his previous contract of employment with the Company ended. As such, on 24 April 2019, John Bason
entered into a new contract of employment with the Company and, consistent with other new joiners at executive level under
the 2016 remuneration policy, was offered participation in our defined contribution scheme or a cash alternative payment. We
consulted our largest shareholders in late 2018 and they were supportive of this approach, which was significantly more cost
effective for the Company than extending the previous contract and EFRBS membership.
96
Associated British Foods plc
Annual Report and Accounts 2019
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
97
97
Governance
Remuneration report
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 pensionable pay for each year of pensionable service thereafter,
subject to a maximum of 2/3rds 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 14 September 2019 was £644,247.
John Bason
In the period to 24 April 2019, John Bason had an overall benefit promise at age 62 of 2/3rds 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 was provided under an EFRBS.
His pension benefits were payable from age 62. There is no additional benefit entitlement for members if they take early
retirement. His accrued pension at 24 April 2019 was £413,300.
From 24 April 2019 onwards John Bason has been in receipt of a cash allowance in lieu of pension contributions of 25%
of salary.
Short Term Incentive Plan – 2018/19 – Cash and Shares
The committee felt that the budget for 2018/19 was a very demanding one, reflecting, in particular, the expected further
weakness in world and European sugar prices and the fact that the resulting decline in Sugar profitability was to be offset by
significant growth in the other businesses. As expected, Sugar profit was well below the previous year but slightly ahead of
the target set due to strong mitigation actions through an ongoing focus on cost reduction. In the event, financial performance
in the year was ahead of target driven by strong performance in Primark and the international grocery businesses.
Primark delivered margins above expectations as a result of better buying and lower mark-downs. There was also good
growth in Spain, France and Italy. We have continued to learn from our experience in retail in the US and there has been
a focus on strengthening our performance in Germany by optimising our cost base, listening to customer feedback and better
communicating our ethics to our customers there.
Our grocery businesses delivered a profit improvement of 10% at constant currency and launched some exciting new products
in the year. However, we lost our largest UK own label bread contract with a major retailer. As a result, and as noted in the
committee Chair’s statement, we recognised a £65m impairment charge at the half year in respect of the UK bakeries.
Consequently, the depreciation that would otherwise have been charged on these assets in the second half of the year did not
arise, which benefited adjusted operating profit and was not reflected in the budget for the year. We have therefore adjusted
the STIP target by the same amount as this depreciation upside so that executives do not enjoy a windfall benefit from this.
The table below shows outcomes against the specific measures in the year. We will disclose the target ranges that applied
to the 2018/19 STIP in November 2020.
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
B – Working capital as % of revenue
0.8
80.31%
Target x 1
108.3%
108.3
Maximum x 1.2
1.2x
120.0
Threshold 12% salary
Target 65% salary
Maximum 130% salary
A x B – Total financial
12
Threshold 0% salary
96.37%
130%
130
Target 13.3% salary
Maximum 20% salary
C – Personal – George Weston
C – Personal – John Bason
0
Threshold 12% salary
Target 78.3% salary
Maximum 150% salary
20
13.3%
14%
(A x B) + C – Total STIP – George Weston
(A x B) + C – Total STIP – John Bason
12
109.67%
110.37%
150
98
98
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
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 pensionable pay for each year of pensionable service thereafter,
subject to a maximum of 2/3rds 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 14 September 2019 was £644,247.
In the period to 24 April 2019, John Bason had an overall benefit promise at age 62 of 2/3rds 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 was provided under an EFRBS.
His pension benefits were payable from age 62. There is no additional benefit entitlement for members if they take early
retirement. His accrued pension at 24 April 2019 was £413,300.
From 24 April 2019 onwards John Bason has been in receipt of a cash allowance in lieu of pension contributions of 25%
John Bason
of salary.
Short Term Incentive Plan – 2018/19 – Cash and Shares
The committee felt that the budget for 2018/19 was a very demanding one, reflecting, in particular, the expected further
weakness in world and European sugar prices and the fact that the resulting decline in Sugar profitability was to be offset by
significant growth in the other businesses. As expected, Sugar profit was well below the previous year but slightly ahead of
the target set due to strong mitigation actions through an ongoing focus on cost reduction. In the event, financial performance
in the year was ahead of target driven by strong performance in Primark and the international grocery businesses.
Primark delivered margins above expectations as a result of better buying and lower mark-downs. There was also good
growth in Spain, France and Italy. We have continued to learn from our experience in retail in the US and there has been
a focus on strengthening our performance in Germany by optimising our cost base, listening to customer feedback and better
communicating our ethics to our customers there.
Our grocery businesses delivered a profit improvement of 10% at constant currency and launched some exciting new products
in the year. However, we lost our largest UK own label bread contract with a major retailer. As a result, and as noted in the
committee Chair’s statement, we recognised a £65m impairment charge at the half year in respect of the UK bakeries.
Consequently, the depreciation that would otherwise have been charged on these assets in the second half of the year did not
arise, which benefited adjusted operating profit and was not reflected in the budget for the year. We have therefore adjusted
the STIP target by the same amount as this depreciation upside so that executives do not enjoy a windfall benefit from this.
The table below shows outcomes against the specific measures in the year. We will disclose the target ranges that applied
to the 2018/19 STIP in November 2020.
The individual performance ratings for both executive directors were around on-target. For the Finance Director, in particular, this
reflected a significant focus on a higher volume of M&A activity, much of which remains commercially confidential at this time.
As outlined above, this was a year where focus was put on improving performance in some key areas of our business. Whilst
progress has been made, for example in Primark Germany and in Allied Bakeries, driving through the implementation of
performance improvement plans remains a focus for the coming year.
This was also a year where we progressed our commitment to the ESG agenda, identifying for each operating division the
key priorities for them to address and developing our methodology for assessing progress in this area. We have published a
new responsibility report this year, which showcases the steps that we are taking. We have also appointed a non-executive
director, Richard Reid, to take a lead on ensuring that the board hears the employee voice and good progress has been made
in developing methodologies to support this. We will provide more detailed disclosure in relation to the STIP performance range
and personal performance objectives that applied for the executive directors for 2018/19 in next year’s annual report.
Whilst we recognise that it is helpful for investors to have sight of the performance range in place to be able to determine
whether the STIP range was set at a stretching level, we believe that making this disclosure a year after the end of the financial
year enables us to share more information that might remain commercially confidential immediately after year end. We trust that
the narrative and graphics above enable investors to gain a broad understanding of how performance was positioned against
the range.
In keeping with this approach, the following section is a disclosure of performance outcomes in 2017/18 against the performance
range that was in place in that financial year.
Short Term Incentive Plan – 2017/18 – Cash
The table below details the financial performance ranges that applied in 2017/18 and the calculated outcome for the cash
element of STIP.
A = Adjusted Operating Profit £m
STIP for this level of profit (as % of salary)
B = Working Capital as a % of sales
Working Capital modifier
Threshold
1,351
15%
15.73
0.8
Cash Element
Target
1,421
65%
14.73
1.0
Maximum
1,491
108.3%
2017/18 STIP
Outcome
1,403.62
52.59%
13.73
1.2
13.29
1.2
A x B = STIP financial element (as % of salary)
12%
65%
130%
63.1%
Personal element (as % of salary)
Total STIP Cash (as % of salary)
George Weston
John Bason
George Weston
John Bason
0%
0%
12%
12%
13.3%
13.3%
78.3%
78.3%
20%
20%
150%
150%
13.3%
15%
76.4%
78.1%
The STIP targets for 2017/18 anticipated the benefits of growth in Primark selling space, lower sugar prices and further progress
in Grocery, Ingredients and Agriculture. When the targets were set 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 good in the other businesses, the
impact of sugar prices resulted in overall adjusted operating profit below the on-target level. Good working capital performance
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.
98
Associated British Foods plc
Annual Report and Accounts 2019
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
99
99
Governance
Remuneration report
Key achievements on personal performance were as shown below. With our operating model, some of the key deliverables are
shared between the Chief Executive and Finance Director while others are individual:
Divisional financial and
operational objectives
Development and delivery of
strategies, including special
projects and transactions
People and organisation
Developing long-term
business health
John Bason
George Weston
Good financial performance across most of our businesses though Sugar profit was impacted by adverse
world and EU sugar prices.
Primark saw strong trading in key markets.
The repositioning of Ingredients continued.
Good work on a number of potential acquisitions in the year with the Acetum acquisition completed
and integrated well.
Strong learning from early retail experience in the USA, right-sizing certain stores and establishing
a strong foundation for future growth.
Change of leadership of the Agriculture division
and ongoing strengthening of recently formed
teams in the US grocery business and in the
Ingredients business.
Ongoing strong engagement with government and
industry bodies as part of our Brexit preparations.
Identification of key mitigation strategies for
implementation ahead of March 2019.
Ongoing strong engagement with government and
industry bodies as part of our Brexit preparations.
Identification of key mitigation strategies for
implementation ahead of March 2019.
Strengthening of the central finance team,
including a review of the team structure and
appointments into key roles.
Further improvements in health and safety,
particularly in our Ingredients and Australian
businesses.
IT security improved.
Taking into account a detailed assessment of performance against these objectives, the calculated outcome of personal
performance for the CEO was on-target at 13.3% and for the Finance Director was 15%. This resulted in a bonus payment
of 76.4% of salary out of a maximum 130% of salary for the Chief Executive and 78.1% of salary for the Finance Director.
LTIP – 2016 –19
The share allocation in 2016 was the first made under the remuneration policy that was approved in 2016. When the 2016 –19
performance range was set in 2016, we were in a period of uncertainty following the Brexit vote. We anticipated foreign
exchange rate volatility over the performance period and this is reflected in the EPS performance range that was set.
This period has seen strong performance across most of our portfolio, particularly in Retail, Ingredients and international grocery.
As a result, vesting of the LTIP element with the impact of Sugar removed is above target. The poorer outcome for the EPS
measure including Sugar reflects the challenging environment following the end of the EU sugar regime in 2017. Low European
sugar prices, reflecting the end of the regime and a regional over-supply, has reduced group profits.
40% of award – Group
60% of award – Group
without Sugar
2016–19 EPS1
ROCE modifier2
Total Group element
2016–19 EPS1
ROCE modifier2
Total Group without Sugar element
Calculated vesting % of maximum allocation
Discretionary adjustment (15% of calculated outcome)
Total vesting as a % of maximum allocation
Cut In
115.06p
12%
114.06p
13.5%
Target Maximum
152.06p
–
133.06p
15%
Outcome
137.5p
20.0%
132.06p
16.5%
151.06p
–
140.0p
24.0%
Implications
24.675%
X100%
24.675%
42.535%
X100%
42.535%
67.21%
(10.08)%
57.13%
1 The EPS range was reduced by 0.94p to reflect an accounting adjustment for the treatment of hyperinflation in Argentina. This adjustment made the performance
range no easier or harder to achieve than the range originally set and recognised a change in treatment of the numbers included in the EPS for the year.
2 The ROCE measure is defined as the three-year average of annual average return on capital employed.
As shown above and discussed in the committee Chair’s statement, the committee has applied its discretion this year to reduce
the calculated vesting outcome downwards by 15% of the pre-adjustment vesting amount in recognition of an impairment that
was recognised below the line of operating profit in the course of the year. We believe that this is an appropriate response to this
situation.
These LTIP awards were allocated at a price of £26.25. As noted in the committee Chair’s statement at the start of this report,
our executive directors have very significant shareholdings and their personal wealth has been impacted by the change in share
price over the performance period. We do not believe it is appropriate to adjust the number of shares vesting to reflect this share
price movement.
100
100
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
Key achievements on personal performance were as shown below. With our operating model, some of the key deliverables are
shared between the Chief Executive and Finance Director while others are individual:
George Weston
John Bason
Good financial performance across most of our businesses though Sugar profit was impacted by adverse
Divisional financial and
operational objectives
world and EU sugar prices.
Primark saw strong trading in key markets.
The repositioning of Ingredients continued.
Development and delivery of
Good work on a number of potential acquisitions in the year with the Acetum acquisition completed
strategies, including special
and integrated well.
projects and transactions
Strong learning from early retail experience in the USA, right-sizing certain stores and establishing
People and organisation
Change of leadership of the Agriculture division
Strengthening of the central finance team,
a strong foundation for future growth.
and ongoing strengthening of recently formed
including a review of the team structure and
teams in the US grocery business and in the
appointments into key roles.
Ingredients business.
Developing long-term
Ongoing strong engagement with government and
Ongoing strong engagement with government and
business health
industry bodies as part of our Brexit preparations.
industry bodies as part of our Brexit preparations.
Identification of key mitigation strategies for
Identification of key mitigation strategies for
implementation ahead of March 2019.
implementation ahead of March 2019.
Further improvements in health and safety,
particularly in our Ingredients and Australian
businesses.
IT security improved.
Taking into account a detailed assessment of performance against these objectives, the calculated outcome of personal
performance for the CEO was on-target at 13.3% and for the Finance Director was 15%. This resulted in a bonus payment
of 76.4% of salary out of a maximum 130% of salary for the Chief Executive and 78.1% of salary for the Finance Director.
LTIP – 2016 –19
The share allocation in 2016 was the first made under the remuneration policy that was approved in 2016. When the 2016 –19
performance range was set in 2016, we were in a period of uncertainty following the Brexit vote. We anticipated foreign
exchange rate volatility over the performance period and this is reflected in the EPS performance range that was set.
This period has seen strong performance across most of our portfolio, particularly in Retail, Ingredients and international grocery.
As a result, vesting of the LTIP element with the impact of Sugar removed is above target. The poorer outcome for the EPS
measure including Sugar reflects the challenging environment following the end of the EU sugar regime in 2017. Low European
sugar prices, reflecting the end of the regime and a regional over-supply, has reduced group profits.
40% of award – Group
2016–19 EPS1
ROCE modifier2
Total Group element
60% of award – Group
2016–19 EPS1
without Sugar
ROCE modifier2
Total Group without Sugar element
Calculated vesting % of maximum allocation
Discretionary adjustment (15% of calculated outcome)
Total vesting as a % of maximum allocation
Cut In
Target Maximum
Outcome
Implications
115.06p
133.06p
152.06p
12%
15%
114.06p
13.5%
132.06p
16.5%
151.06p
137.5p
20.0%
140.0p
24.0%
–
–
24.675%
X100%
24.675%
42.535%
X100%
42.535%
67.21%
(10.08)%
57.13%
1 The EPS range was reduced by 0.94p to reflect an accounting adjustment for the treatment of hyperinflation in Argentina. This adjustment made the performance
range no easier or harder to achieve than the range originally set and recognised a change in treatment of the numbers included in the EPS for the year.
2 The ROCE measure is defined as the three-year average of annual average return on capital employed.
As shown above and discussed in the committee Chair’s statement, the committee has applied its discretion this year to reduce
the calculated vesting outcome downwards by 15% of the pre-adjustment vesting amount in recognition of an impairment that
was recognised below the line of operating profit in the course of the year. We believe that this is an appropriate response to this
These LTIP awards were allocated at a price of £26.25. As noted in the committee Chair’s statement at the start of this report,
our executive directors have very significant shareholdings and their personal wealth has been impacted by the change in share
price over the performance period. We do not believe it is appropriate to adjust the number of shares vesting to reflect this share
situation.
price movement.
Scheme interests (audited information)
The tables below detail the conditional share interests awarded to the executive directors in respect of the LTIP and STIP.
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.
Long Term Incentive Plan
Executive
directors
George
Weston
John
Bason
Scheme
name
LTIP1
LTIP1
Award date
12/12/16
20/11/17
19/11/18
12/12/16
20/11/17
19/11/18
Maximum award
Shares vesting
% of
salary
200%
200%
200%
200%
200%
200%
Face value
at grant
£000
2,144
2,144
2,180
1,412
1,412
1,440
Market price
at grant2
2625.0p
3076.2p
2517.2p
2625.0p
3076.2p
2517.2p
End of
performance
period Maximum
81,676
69,696
86,604
53,790
45,901
57,206
14/09/19
12/09/20
18/09/21
14/09/19
12/09/20
18/09/21
Target
(50% of
maximum)
40,838
34,848
43,302
26,895
22,951
28,603
Threshold
(10% of
maximum) Release date
25/11/19
20/11/20
19/11/21
25/11/19
20/11/20
19/11/21
8,168
6,970
8,660
5,379
4,590
5,721
1 A further two-year holding period is in place for the net of tax LTIP shares after vesting.
2 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.
Short Term Incentive Plan – shares
Executive
directors
George
Weston
Scheme
name
Deferred
Awards
John Bason Deferred
Awards
Award date
12/12/16
20/11/17
19/11/18
12/12/16
20/11/17
19/11/18
Maximum award
Deferred awards
% of
salary
50%
50%
50%
50%
50%
50%
Face value
at grant
£000
536
536
545
353
353
360
Market price
at grant1
2625.0p
3076.2p
2517.2p
2625.0p
3076.2p
2517.2p
End of
performance
period
16/09/17
15/09/18
14/09/19
16/09/17
15/09/18
14/09/19
Maximum
shares
20,419
17,424
21,651
13,448
11,475
14,302
Shares
lapsed for
performance
0
9,046
5,601
0
5,957
3,700
Shares
subject to
service
condition Release date
25/11/19
20,419
20/11/20
8,378
19/11/21
16,050
25/11/19
13,448
20/11/20
5,518
19/11/21
10,602
1 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.
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 30 October 2019.
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
14 September
2019
Beneficial as
% of salary1
LTIP awards
subject to
performance
condition
14 September
2019
Deferred
awards
subject to
service
condition
14 September
2019
Total
14 September
2019
Total
15 September
2018
n/a
250% of
2,660
n/a
n/a
n/a
2,660
2,660
salary 3,610,753
7,761%
237,976
59,494
3,908,223 3,827,965
250% of
salary
157,446
512%
156,897
39,225
353,568
297,889
1 Calculated using share price as at 13 September 2019 of 2343p and base salary as at 14 September 2019.
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 14 September 2019.
100
Associated British Foods plc
Annual Report and Accounts 2019
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
101
101
Governance
Remuneration report
Non-executive directors’ fees (audited information)
Non-executive directors
Michael McLintock1
Javier Ferrán2
Ruth Cairnie3
Richard Reid4
Emma Adamo
Wolfhart Hauser
Graham Allan5
Charles Sinclair6
Tim Clarke7
Fees
Total Fixed Pay
Total Variable Pay
Single total figure
£000
2019
409
22
111
111
74
74
74
–
–
£000
2018
209
90
83
95
74
74
2
238
19
£000
2019
409
22
111
111
74
74
74
–
–
£000
2018
209
90
83
95
74
74
2
238
19
£000
2019
–
–
–
–
–
–
–
–
–
£000
2018
–
–
–
–
–
–
–
–
–
£000
2019
409
22
111
111
74
74
74
–
–
£000
2018
209
90
83
95
74
74
2
238
19
1 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, from that date, consistent with our remuneration policy.
2 Javier Ferrán stepped down as a director on 7 December 2018.
3 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. She was made
Senior Independent Director on 7 December 2018 and was paid an additional fee from that date.
4 Richard Reid was given responsibility for representing the voice of our employees to the board with effect from 7 December 2018. In recognition of the additional
time commitment that this entails, which we estimate to be consistent with that of chairing a committee, an additional fee was paid to Richard from that date,
consistent with our remuneration policy.
5 Graham Allan joined the board on 5 September 2018 as a non-executive director.
6 Charles Sinclair retired from the board on 11 April 2018.
7 Tim Clarke retired from the board on 30 November 2017.
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
30 October 2019.
Michael McLintock1
Ruth Cairnie
Richard Reid
Emma Adamo2
Total
14 September 2019
15,000
5,223
3,347
Total
15 September 2018
15,000
3,000
3,347
2019 total holding
as a % of annual fee4
86%
105%
68%
Wittington Investments Limited, ordinary shares of 50p
Associated British Foods plc, ordinary shares of 515/22p
Wolfhart Hauser
Graham Allan3
1,322
504,465
3,918
3,000
1,322
504,465
3,918
Nil
N/A
15,972%
124%
95%
1 Michael McLintock was appointed a non-executive director on 1 November 2017 and Chairman on 11 April 2018.
2 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 14 September 2019.
3 Graham Allan was appointed a non-executive director on 5 September 2018.
4 Calculated using share price as at 13 September 2019 of 2343p and fee rate as at 14 September 2019.
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.
102
102
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
Non-executive directors’ fees (audited information)
Non-executive directors
Michael McLintock1
Javier Ferrán2
Ruth Cairnie3
Richard Reid4
Emma Adamo
Wolfhart Hauser
Graham Allan5
Charles Sinclair6
Tim Clarke7
Fees
Total Fixed Pay
Total Variable Pay
Single total figure
£000
2019
£000
2018
£000
2019
409
22
111
111
74
74
74
–
–
£000
2018
209
90
83
95
74
74
2
238
19
£000
2019
409
22
111
111
74
74
74
–
–
£000
2018
209
90
83
95
74
74
2
238
19
–
–
–
–
–
–
–
–
–
£000
2019
409
22
111
111
74
74
74
–
–
£000
2018
209
90
83
95
74
74
2
238
19
–
–
–
–
–
–
–
–
–
1 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, from that date, consistent with our remuneration policy.
2 Javier Ferrán stepped down as a director on 7 December 2018.
3 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. She was made
Senior Independent Director on 7 December 2018 and was paid an additional fee from that date.
4 Richard Reid was given responsibility for representing the voice of our employees to the board with effect from 7 December 2018. In recognition of the additional
time commitment that this entails, which we estimate to be consistent with that of chairing a committee, an additional fee was paid to Richard from that date,
consistent with our remuneration policy.
5 Graham Allan joined the board on 5 September 2018 as a non-executive director.
6 Charles Sinclair retired from the board on 11 April 2018.
7 Tim Clarke retired from the board on 30 November 2017.
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
30 October 2019.
Michael McLintock1
Ruth Cairnie
Richard Reid
Emma Adamo2
Wolfhart Hauser
Graham Allan3
Wittington Investments Limited, ordinary shares of 50p
Associated British Foods plc, ordinary shares of 515/22p
14 September 2019
15 September 2018
2019 total holding
as a % of annual fee4
Total
15,000
5,223
3,347
1,322
504,465
3,918
3,000
Total
15,000
3,000
3,347
1,322
504,465
3,918
Nil
86%
105%
68%
N/A
15,972%
124%
95%
1 Michael McLintock was appointed a non-executive director on 1 November 2017 and Chairman on 11 April 2018.
2 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 14 September 2019.
3 Graham Allan was appointed a non-executive director on 5 September 2018.
4 Calculated using share price as at 13 September 2019 of 2343p and fee rate as at 14 September 2019.
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 ten years from September 2009 to
September 2019, 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
i
0
0
1
£
l
a
c
i
t
e
h
t
o
p
y
h
a
f
o
e
u
a
V
l
500
450
400
350
300
250
200
150
100
50
0
ABF
£356
FTSE 100
£236
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: DataStream Return Index
Single total figure remuneration
(£000)
Annual variable element (£000)
Potential maximum annual
variable element (£000)
Annual variable element
(% of maximum)
Long-term variable element –
shares vesting as % of maximum
3,886
1,266
3,182
438
3,859
864
5,832
1,219
7,470
894
3,056
686
3,133
1,368
4,849
2,179
3,843
1,039
4,146
1,599
1,310
1,373
1,425
1,466
1,503
1,542
1,577
2,144
2,180
2,180
96.68% 31.91% 60.63% 83.15% 59.49% 44.46% 86.75% 101.63%1 47.66% 73.35%
99.12% 83.80% 97.42% 85.00% 100.00% 18.54%
0% 51.02% 100.00% 57.13%
1
In the annual variable element, shares are valued at the average mid-market closing price over the last quarter of the financial year. In the potential maximum annual
variable element STIP shares are valued at the start of the year. If the share price increases over the year and performance against targets is strong, the actual
payment may appear to be above maximum. We do not allow more than the maximum number of shares to vest.
At close of business on 13 September 2019, the last trading day before the end of the financial year, the market value of the
Company’s ordinary shares was 2343p. During the previous 12 months, the market value ranged from 2041p to 2638p.
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 a non-executive director and chairman of the audit committee of Compass Group PLC, for which he received a fee
of £138,650 in the 2018/19 financial year. He also served as chairman of the charity FareShare but received no compensation
in respect of this role.
Executive pay in the context of the group’s wider pay practices, dividends and taxes paid
CEO Pay Ratio
Ratio of CEO pay to employee pay
Methodology
used
2018/19 Option B
Year
Lower
quartile Median Upper Quartile
169:1
253:1
238:1
The Company has chosen to disclose the above pay ratio data a year earlier than it is required to under the regulations. Our pay
ratio will vary significantly year-to-year due to the high proportion of variable pay in the Chief Executive’s total reward.
We have chosen to use Option B of the available methodologies to calculate the CEO pay ratio. This methodology is based on
the data collected as part of gender pay reporting. Given the complexity of our de-centralised group, which operates multiple
HR information systems, Option B enabled us accurately to identify the hourly rates at each quartile of our Great Britain
employees from the 5 April 2019 snapshot used in gender pay reporting. From these hourly rates, it is possible to identify the
individuals at each rate and calculate the average quartile (as each quartile point represents multiple individuals) single figure of
total remuneration. Where relevant we have pro-rated the data for individuals to reflect full-time equivalent remuneration as the
CEO role is a full-time role and we needed to compare like with like. Please note that gender pay data is not collected for
Northern Ireland, so this data is not for the whole UK population.
102
Associated British Foods plc
Annual Report and Accounts 2019
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
103
103
Governance
Remuneration report
The above data is particularly informed by the pay and reward policies for our colleagues in Primark. As our businesses are
diverse and are run in a decentralised manner, each operates their own approach to remuneration, within guidelines from the
group. The pay ratio for our non-retail employees would be lower than the pay ratios shown in the table above as we have a
greater number of specialised roles that require specific skills and training. Market pay levels for such roles are higher than for
less skilled roles.
Percentage change in remuneration of the Chief Executive
We operate a diverse portfolio of businesses in 52 countries across the world. Our businesses operate close to local markets
and under local consumer and employment brands. Within an umbrella expectation that our organisations treat our employees
fairly and pay them competitively, we give our businesses considerable flexibility to determine remuneration approaches that are
appropriate for their business and that align with their individual organisational and local cultures. This means that in some parts
of our organisation remuneration is more focused on fixed pay whilst in others, such as in France, all employees participate in
profit sharing or other incentive arrangements.
Across our operating divisions and businesses, the most senior roles participate in a similar reward model to that used for the
executive directors. Our business leadership teams understand and can explain to employees across the group how our
remuneration approach works.
In December 2018, the increase in the Chief Executive’s salary was 0% and the average increase for our UK employees was
2%−3%. The CEO’s total remuneration this year was 7.9% higher than last year, reflecting good performance in our non-Sugar
business. 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 3%. This number is based on aggregate data presented
in the table below, which include increases in headcount, as it is neither practical nor worthwhile, in a decentralised group of our
size, to separate the increase in expenditure on incentives and taxable benefits.
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
2019
£m
2,758
366
269
2018
£m
2,668
356
297
Change
%
3%
3%
-9%
Implementation of policy 2019/20
Base salary
Executive directors’ salaries are subject to review on 1 December 2019. The committee has determined not to increase salaries
this year.
George Weston
John Bason
Dec 2018
£1,090,000
£720,000
Increase in
Dec 2019 %
0%
0%
Increase in
Dec 2019 £
Dec 2019
£0 £1,090,000
£0
£720,000
Benefits and pensions
We do not currently anticipate any changes being made to benefits and pensions for executives in 2019/20.
104
104
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
The above data is particularly informed by the pay and reward policies for our colleagues in Primark. As our businesses are
diverse and are run in a decentralised manner, each operates their own approach to remuneration, within guidelines from the
group. The pay ratio for our non-retail employees would be lower than the pay ratios shown in the table above as we have a
greater number of specialised roles that require specific skills and training. Market pay levels for such roles are higher than for
less skilled roles.
Percentage change in remuneration of the Chief Executive
We operate a diverse portfolio of businesses in 52 countries across the world. Our businesses operate close to local markets
and under local consumer and employment brands. Within an umbrella expectation that our organisations treat our employees
fairly and pay them competitively, we give our businesses considerable flexibility to determine remuneration approaches that are
appropriate for their business and that align with their individual organisational and local cultures. This means that in some parts
of our organisation remuneration is more focused on fixed pay whilst in others, such as in France, all employees participate in
profit sharing or other incentive arrangements.
Across our operating divisions and businesses, the most senior roles participate in a similar reward model to that used for the
executive directors. Our business leadership teams understand and can explain to employees across the group how our
remuneration approach works.
In December 2018, the increase in the Chief Executive’s salary was 0% and the average increase for our UK employees was
2%−3%. The CEO’s total remuneration this year was 7.9% higher than last year, reflecting good performance in our non-Sugar
business. 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 3%. This number is based on aggregate data presented
in the table below, which include increases in headcount, as it is neither practical nor worthwhile, in a decentralised group of our
size, to separate the increase in expenditure on incentives and taxable benefits.
A year-on-year comparison of the relative importance of pay with significant distributions to shareholders and others is
Relative importance of spend on pay
shown below.
Expenditure
Pay spend for the group
Dividends relating to the period
Taxes paid
Implementation of policy 2019/20
Base salary
this year.
George Weston
John Bason
Benefits and pensions
Executive directors’ salaries are subject to review on 1 December 2019. The committee has determined not to increase salaries
2019
£m
2,758
366
269
2018
£m
2,668
356
297
Change
%
3%
3%
-9%
Increase in
Dec 2018
Dec 2019 %
Increase in
Dec 2019 £
£1,090,000
£720,000
0%
0%
Dec 2019
£0 £1,090,000
£0
£720,000
We do not currently anticipate any changes being made to benefits and pensions for executives in 2019/20.
STIP 2019/20 – Cash and Shares
If approved by shareholders, the STIP will be operated in line with the revised remuneration policy.
For 2019/20, up to 50% of salary can be earned under the shares element of the STIP, and up to 150% of salary can be earned
under the cash element. The STIP shares are allocated at the start of the financial year and lapse at the end of the year to the
extent to which performance conditions have not been met. The balance of the shares remain conditional, subject to the
executive remaining with the company, for a further two years and will vest in 2022.
The split between financial and personal performance measures will be as shown in the table below.
Shares Element – Allocation date value
of shares as % of salary
Cash Element – Opportunity as a % of salary
Based on
operating
profit only
41.67%
25%
6.25%
0%
Modification
based
on average
working capital
x1.2
x1.0
x0.8
x0.8
Overall shares
element
50%
25%
5%
0%
Based on
operating profit
only
108.33%
65.00%
15.00%
0.00%
Modification
based
on average
working capital
x1.2
x1.0
x0.8
x0.8
Overall
financial
element
130.00%
65.00%
12.00%
0.00%
Personal
element
20.00%
13.33%
0.00%
0.00%
Overall cash
element
150.00%
78.33%
12.00%
0.00%
Maximum
On-target (budget)
Threshold
Below threshold
The targets used for our 2019/20 STIP will be disclosed in the 2021 annual report. Achievement against financial targets will
be disclosed in our 2020 Remuneration report.
LTIP – 2019/20 awards (vesting in 2022)
If approved by shareholders, the LTIP will be operated in line with the revised remuneration policy with the performance
targets below.
Group EPS without Sugar in FY2021/22
Modifier – Average Group ROCE
without Sugar over 3 years
Modifier – Average Sugar
ROCE1 over 3 years
Threshold
Target
Maximum
Threshold
Maximum
Threshold
Maximum
A - Shares vesting as %
of award
B - Modifier that then applies
Performance Range
10%
50%
100%
159p
173p
188p
1 The Sugar ROCE measure has the book value of goodwill added to the denominator.
80%
10%
100%
12%
80%
5%
100%
8%
The earnings per share performance range is set on an IFRS 16 basis and is intended to be stretching. 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.
As detailed in our remuneration policy section, the Group ROCE without Sugar modifier is set at a level that is intended to guard
against poor investment decisions. It is not set at a level that is intended to drive growth in returns and acts only as a downward
modifier to the calculated incentive outcomes.
As detailed in the Remuneration committee Chair’s statement, the Sugar return range is set to be stretching in the current
context of low world sugar prices and the relatively recent end of the European sugar regime in 2017. The bottom end of this
return range is broadly in line with market expectations of performance in the first year of the performance cycle. This modifier
acts only as a downward modifier to the calculated incentive outcomes and with this performance range, the executive directors
will need to improve returns to avoid the LTIP based on EPS being reduced.
Service contracts
Executive directors
George Weston
John Bason
Non-executive directors
Michael McLintock
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
09/12/11
01/05/14
14/01/15
14/04/16
05/09/18
01/06/05
24/04/19
11/04/18
09/12/11
11/04/18
14/01/15
13/04/16
05/09/18
12 months
12 months
12 months
12 months
Rolling contract
Rolling contract
6 months
6 months
6 months
6 months
6 months
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
Copies of service contracts are available for inspection at the Company’s head office.
104
Associated British Foods plc
Annual Report and Accounts 2019
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
105
105
Governance
Remuneration report
Non-executive directors’ fees
Chairman
Additional fee for Senior Independent Director responsibilities
Additional fee for committee Chair (Audit/Remuneration only)
Additional fee for responsibility for employee voice
(equivalent time commitment to committee Chair)1
Director
Dec 2018
£410,000
£21,000
£21,000
£21,000
£74,000
Increase in
Dec 2019
£0
£0
£0
£0
£0
Dec 2019
£410,000
£21,000
£21,000
£21,000
£74,000
1 Note that additional fees reflect the additional time commitment and responsibilities taken on by an individual at the request of the Company.
The above fees were reviewed in 2019 and it was determined that the increases above were appropriate to reflect the scope
and responsibilities of these roles.
Statement on shareholder voting
At the last AGM in December 2018 the voting results on resolution 2, to receive and approve the Remuneration report for the
year ended 15 September 2018, were as follows: the percentage ‘for’ was 96.25% and the percentage ‘against’ was 3.75%.
At the AGM in December 2017, the voting result on resolution 2, to receive and approve the Remuneration policy were as
follows: the percentage ‘for’ was 96.91% and the percentage ‘against’ was 3.09%.
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 (as amended), the
recommendations of the UK Corporate Governance Code (April 2016) and the requirements of the UKLA Listing Rules.
Remuneration committee advisers 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 £77,630.
Herbert Smith Freehills LLP provide the Company with legal advice. Advice from Herbert Smith Freehills is made available
to the committee, where it relates to matters within its remit.
By order of the board
Paul Lister
Company Secretary
5 November 2019
106
106
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Remuneration report
Non-executive directors’ fees
Chairman
Director
Additional fee for Senior Independent Director responsibilities
Additional fee for committee Chair (Audit/Remuneration only)
Additional fee for responsibility for employee voice
(equivalent time commitment to committee Chair)1
and responsibilities of these roles.
Statement on shareholder voting
Dec 2018
£410,000
£21,000
£21,000
£21,000
£74,000
Increase in
Dec 2019
£0
£0
£0
£0
£0
Dec 2019
£410,000
£21,000
£21,000
£21,000
£74,000
1 Note that additional fees reflect the additional time commitment and responsibilities taken on by an individual at the request of the Company.
The above fees were reviewed in 2019 and it was determined that the increases above were appropriate to reflect the scope
At the last AGM in December 2018 the voting results on resolution 2, to receive and approve the Remuneration report for the
year ended 15 September 2018, were as follows: the percentage ‘for’ was 96.25% and the percentage ‘against’ was 3.75%.
At the AGM in December 2017, the voting result on resolution 2, to receive and approve the Remuneration policy were as
follows: the percentage ‘for’ was 96.91% and the percentage ‘against’ was 3.09%.
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 (as amended), the
recommendations of the UK Corporate Governance Code (April 2016) and the requirements of the UKLA Listing Rules.
Remuneration committee advisers 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 £77,630.
Herbert Smith Freehills LLP provide the Company with legal advice. Advice from Herbert Smith Freehills is made available
to the committee, where it relates to matters within its remit.
By order of the board
Paul Lister
Company Secretary
5 November 2019
Directors’ report
Introduction
The directors of Associated British
Foods plc present their report for the
52 weeks ended 14 September 2019,
in accordance with section 415 of the
Companies Act 2006. The Financial
Conduct Authority’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 110
and the following cross-referenced
material, is incorporated into this
Directors’ report:
• likely future developments in the
group’s business (pages 12 to 49);
• greenhouse gas emissions (page 60);
• the board of directors (pages 68
and 69);
• information on our employees
(page 56); and
• corporate governance report
(pages 70 to 82).
Results and dividends
The consolidated income statement is
on page 119. Profit for the financial year
attributable to equity shareholders
amounted to £878m.
The directors recommend a final
dividend of 34.3p per ordinary share to
be paid, subject to shareholder approval,
on 10 January 2020. Together with the
interim dividend of 12.05p per share paid
on 5 July 2019, this amounts to 46.35p
for the year. Dividends are detailed
on page 137.
Directors
The names of the persons who were
directors of the Company during the
financial year and as at 5 November
2019 appear on pages 68 and 69.
Javier Ferrán retired as a director of
the Company on 7 December 2018.
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 re-election at the AGM this year
in compliance with the 2018 Code.
Details of unexpired terms of directors’
service contracts are set out in the
Remuneration report on page 105.
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’ indemnities and insurance
One director 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.
Also, 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.
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’ 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 101
and 102.
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 23 on
page 153
Note 23 on
page 153
Directors’ report
on pages 107
and 108
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.
106
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
107
107
Governance
Major interests in shares
As at 14 September 2019, the Company
had received formal notification,
under the Disclosure Guidance and
Transparency Rules, of the following
material interest in shares:
The Company was notified on 19
October 2018 that The Capital Group
Companies, Inc. had a shareholding of
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 14 September
2019, had a combined interest in
approximately 59.53% 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 21
on page 150. 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 7 December
2018, 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 6 December 2019. No such shares
have been issued.
The directors propose to renew this
authority at the 2019 AGM for the
forthcoming year. A further special
resolution passed at the 2018 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 2019 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.
Directors’ report
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
14 September 2019, had a combined
interest in approximately 59.53%
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’ as amended
and restated on 29 March 2019).
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.
Annual Report and Accounts 2019
108
Associated British Foods plc
Associated British Foods plc
108
Annual Report and Accounts 2019
Wittington Investments Limited
(‘Wittington’) and, through their
Major interests in shares
Authority to issue shares
As at 14 September 2019, the Company
At the last AGM, held on 7 December
control of Wittington, the trustees
had received formal notification,
2018, authority was given to the
of the Garfield Weston Foundation
under the Disclosure Guidance and
directors to allot unissued relevant
(the ’Foundation’) are controlling
Transparency Rules, of the following
securities in the Company up to a
shareholders of the Company. Certain
material interest in shares:
treated as controlling shareholders of the
Listing Rules who, as at 14 September
‘Relationship Agreement’ as amended
Company’s Articles.
The Company was notified on 19
October 2018 that The Capital Group
Companies, Inc. had a shareholding of
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
2019, had a combined interest in
approximately 59.53% 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 21
on page 150. 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
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.
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 6 December 2019. No such shares
have been issued.
The directors propose to renew this
authority at the 2019 AGM for the
forthcoming year. A further special
resolution passed at the 2018 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 2019 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.
Directors’ report
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
Company. Wittington, the trustees of
the Foundation and these individuals
together comprise the controlling
shareholders of the Company and, at
14 September 2019, had a combined
interest in approximately 59.53%
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
and restated on 29 March 2019).
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.
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 6 December
2019 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
5 November 2019
Associated British Foods plc
Registered office:
Weston Centre
10 Grosvenor Street
London
W1K 4QY
Company No. 293262
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;
• £346m (approximate sterling
equivalent) 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
$300m 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 £3,500 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 25 on pages 154 to 164.
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 USA, 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.
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 111 to 118.
Annual Report and Accounts 2019
Associated British Foods plc
108
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
107
109
Governance
Statement of directors’ responsibilities
Statement of directors’
responsibilities in respect of the
annual report and the financial
statements
The directors are responsible for
preparing the annual report and the
group and parent company financial
statements in accordance with
applicable law and regulations.
Company law requires the directors
to prepare group and parent company
financial statements for each financial
year. Under that law they are required to
prepare the group financial statements
in accordance with IFRSs as adopted
by the EU and applicable law and
have elected to prepare the parent
company financial statements in
accordance with UK Accounting
Standards, 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
5 November 2019
Annual Report and Accounts 2019
110
Associated British Foods plc
Associated British Foods plc
108
Annual Report and Accounts 2019
Statement of directors’ responsibilities
year. Under that law they are required to
The directors are responsible for keeping
as a whole; and
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
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
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
Responsibility statement of
statements, state whether applicable
the directors in respect of the
UK Accounting Standards have been
annual report
followed, subject to any material
We confirm that to the best of our
departures disclosed and explained
knowledge:
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 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
adequate accounting records that are
• the Strategic report includes a fair
sufficient to show and explain the parent
review of the development and
company’s transactions and disclose
performance of the business and
with reasonable accuracy at any time the
the position of the Company and
financial position of the parent company
the undertakings included in the
and enable them to ensure that its
consolidation taken as whole,
financial statements comply with the
together with a description of the
Companies Act 2006. They have general
principal risks and uncertainties
that they face.
On behalf of the board
Michael McLintock
Chairman
George Weston
Chief Executive
John Bason
Finance Director
5 November 2019
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
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.
parent company financial statements,
preparing a Strategic report, Directors’
Annual Report and Accounts 2019
Associated British Foods plc
108
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 14 September 2019 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
Parent company
Consolidated balance sheet as at 14 September 2019
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 29 to the financial statements, including a summary
of significant accounting policies
Balance sheet as at 14 September 2019
Statement of changes in equity for the 52 weeks then ended
Related notes 1 to 10 of the financial statements,
including a summary of significant accounting policies
The financial reporting framework that has been applied in the preparation of the group financial statements 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, including FRS 101 “Reduced Disclosure
Framework” (United Kingdom Generally Accepted Accounting Practice).
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 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 62 to 66, that describe the principal risks and explain how
they are being managed or mitigated;
• the directors’ confirmation, set out on page 76 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 75 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 67 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.
Overview of our audit approach
Key audit matters
Audit scope
Materiality
• 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
• Disclosure of impact of adoption of
IFRS 16 Leases
Annual Report and Accounts 2019
Annual Report and Accounts 2019
• We performed an audit of the complete
financial information of 130 components
and audit procedures on specific balances
for a further 44 components.
• The components where we performed
full or specific audit procedures accounted
for 88% of profit before taxation, 89% of
revenue and 88% of total assets.
• We used a group materiality of
£66m, which represents 5% of profit
before taxation, adjusted for exceptional
items and certain significant profits less
losses on sale and closure of businesses.
Associated British Foods plc
Associated British Foods plc
111
111
Governance
Independent Auditor’s Report
to the members of Associated British Foods plc
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 concluded that the
£65 million impairment
charge to the property,
plant and equipment of UK
Bakeries, recorded in the
first half of the year, was
appropriately recognised
and that no further
impairments were required.
For other CGUs, we
concluded that no
impairments were required
at the year end, based on
the results of our work.
Of the group’s assets, the
portion relating to the AB
Mauri, Azucarera, Australian
meat, UK Bakeries and
China Sugar businesses
remains very sensitive
to reasonably possible
changes in key
assumptions. Management
describes these sensitivities
appropriately in the
intangible assets and
property, plant and
equipment notes to the
group financial statements,
in accordance with IAS 36.
Risk
Our response to the risk
Assessment of the carrying value
of goodwill, other intangible assets
and property, plant and equipment
(£7,450 million, 2018: £7,379 million)
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 AB Mauri (£654 million),
Azucarera (£273 million), Australian meat
(£170 million), UK Bakeries (£137 million)
and China Sugar (£81 million) businesses all
operate in challenging trading environments.
AB Mauri’s profitability has been impacted by
competitive pricing pressures in some of its
businesses compounded by macro-economic
conditions, including high inflation rates and
currency devaluation.
Low sugar prices contributed to a significant
reduction in profitability at Azucarera and,
combined with poorer crop quality,
in China Sugar.
The Australian meat and UK Bakeries
businesses operate in environments of
significant retailer pressure on price and
competitor activity.
There is a risk that these cash generating units
(‘CGUs’) may not achieve the anticipated
business performance to support their carrying
value, or that the estimated fair value of the
CGUs may not support their carrying value.
This could lead 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,
or in estimating a CGU’s fair value less costs
of disposal.
Refer to the Audit committee report (page 80);
accounting policies (page 127); accounting
estimates and judgements (page 131); and
notes 8 and 9 to the consolidated financial
statements (pages 139 to 142).
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 CGUs where there were indicators of impairment or low
levels of headroom, including the five 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 AB Mauri and Australian meat, 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 Azucarera and China Sugar, performing current market
and historical analysis to assess future sugar price and cost
assumptions, with support from our valuation specialists
on future sugar prices;
• for UK Bakeries, where the recoverable amount is based on
fair value less costs of disposal, considering the evidence
available as to whether the recoverable amount represents
an appropriate estimate of a market participant’s valuation
of the CGU and whether the impairment of £65 million
recognised in the year was appropriate;
• in conjunction with our valuation specialists, assessing 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.
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, for Azucarera and China Sugar, performed our
own independent assessment of future sugar price, beet cost
and area assumptions. We then determined whether adequate
headroom remained using these sensitivities and our
independent assessment.
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, Azucarera and China Sugar
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.
112
112
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Independent Auditor’s Report
to the members of Associated British Foods plc
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.
Risk
Our response to the risk
Key observations
communicated to
the Audit committee
charge to the property,
plant and equipment of UK
Bakeries, recorded in the
first half of the year, was
appropriately recognised
and that no further
For other CGUs, we
concluded that no
impairments were required
at the year end, based on
the results of our work.
Assessment of the carrying value
of goodwill, other intangible assets
and property, plant and equipment
(£7,450 million, 2018: £7,379 million)
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 AB Mauri (£654 million),
Azucarera (£273 million), Australian meat
(£170 million), UK Bakeries (£137 million)
We understood the methodology applied by management in
We concluded that the
performing its impairment test for each of the relevant CGUs
£65 million impairment
and walked through the controls over the process.
For CGUs where there were indicators of impairment or low
levels of headroom, including the five 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
impairments were required.
to determine whether forecast cash flows are reliable based
and China Sugar (£81 million) businesses all
on past experience;
operate in challenging trading environments.
• for AB Mauri and Australian meat, visiting factories and
AB Mauri’s profitability has been impacted by
competitive pricing pressures in some of its
businesses compounded by macro-economic
conditions, including high inflation rates and
currency devaluation.
analysing historical data to better understand the operations
and to assess the ability to achieve forecast volume growth,
operational improvements and production yields;
• for Azucarera and China Sugar, performing current market
Of the group’s assets, the
and historical analysis to assess future sugar price and cost
portion relating to the AB
assumptions, with support from our valuation specialists
Mauri, Azucarera, Australian
Low sugar prices contributed to a significant
on future sugar prices;
meat, UK Bakeries and
reduction in profitability at Azucarera and,
• for UK Bakeries, where the recoverable amount is based on
China Sugar businesses
combined with poorer crop quality,
fair value less costs of disposal, considering the evidence
remains very sensitive
in China Sugar.
The Australian meat and UK Bakeries
businesses operate in environments of
significant retailer pressure on price and
competitor activity.
available as to whether the recoverable amount represents
to reasonably possible
an appropriate estimate of a market participant’s valuation
changes in key
of the CGU and whether the impairment of £65 million
recognised in the year was appropriate;
assumptions. Management
describes these sensitivities
• in conjunction with our valuation specialists, assessing the
appropriately in the
discount rate used by obtaining the underlying data used
intangible assets and
There is a risk that these cash generating units
in the calculation and benchmarking it against market data
property, plant and
equipment notes to the
group financial statements,
in accordance with IAS 36.
(‘CGUs’) may not achieve the anticipated
and comparable organisations; and
business performance to support their carrying
• validating the growth rates assumed by comparing them
value, or that the estimated fair value of the
CGUs may not support their carrying value.
This could lead to an impairment charge that
has not been recognised by management.
to economic and industry forecasts.
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
Significant judgement is required in forecasting
occurring. We performed our own sensitivities on the group’s
the future cash flows of each CGU, together
forecasts and, for Azucarera and China Sugar, performed our
with the rate at which they are discounted,
own independent assessment of future sugar price, beet cost
or in estimating a CGU’s fair value less costs
and area assumptions. We then determined whether adequate
of disposal.
Refer to the Audit committee report (page 80);
headroom remained using these sensitivities and our
independent assessment.
accounting policies (page 127); accounting
We assessed the disclosures in notes 8 and 9 against the
estimates and judgements (page 131); and
requirements of IAS 36 Impairment of Assets, in particular
notes 8 and 9 to the consolidated financial
in respect of the requirement to disclose further sensitivities
statements (pages 139 to 142).
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, Azucarera and China Sugar
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.
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.
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 £163m, 2018: £160m)
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.
Given this judgement, there is a risk that tax
provisions are misstated.
Refer to the Audit committee report (page 80);
accounting policies (page 126); accounting
estimates and judgements (page 131); and
note 5 to the consolidated financial statements
(page 137).
Revenue recognition, including the risk of
management override (£15,824m, 2018:
£15,574m)
There continues to be pressure on the group to
meet expectations and targets. Management
reward and incentive schemes, based on
achieving profit targets and working capital as a
percentage of revenue 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% (2018:
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 125); and
note 1 to the consolidated financial statements
(pages 132 to 134).
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, Germany, Ireland, Spain and the USA.
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.
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 £13.6 billion (86%) (2018: £12.3 billion (79%)) 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
IFRS 15 Revenue from contracts with customers, in particular
in respect of the requirements to disclosure rebate and returns
arrangements and the impact of the first year of adoption.
We performed full and specific scope audit procedures
over this risk area in 93 locations, which covered 89% of the
group’s revenue.
The audit procedures performed to address this risk were
performed by component teams and reviewed by the
group team.
112
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
113
113
Governance
Key observations
communicated to
the Audit committee
We are satisfied that the
estimated impact of IFRS
16 has been disclosed
appropriately in the financial
statements and the
judgements applied by
management are in
accordance with IFRS 16.
Independent Auditor’s Report
to the members of Associated British Foods plc
Risk
Our response to the risk
Disclosure of impact of adoption of
IFRS 16 Leases
The group has a high value and volume
of leases, with the majority of lease value
represented by retail property leases held
by Primark. The estimation of the impact
of the adoption of IFRS 16 Leases is complex
and requires a number of judgements,
the most significant of which relate to:
• determination of the lease term;
• determination of the incremental borrowing
rate (‘IBR’) where the interest rate in the
lease cannot be readily determined; and
• identification of lease arrangements within
the scope of IFRS 16.
The diversity of ABF’s global operations
increases the risk of lease data used to estimate
the transition adjustment being inaccurate and
incomplete. There is also a risk of incorrect
calculation of accounting entries being recorded
in the model used by management.
Refer to the audit committee report (page 81)
and accounting policies (page 130).
We evaluated the design and implementation of key controls
used in estimating and disclosing the impact of adoption
of IFRS 16.
We performed the following audit procedures, with a particular
focus on Primark’s retail property leases, given that the
majority of the lease value is represented by this business:
• considered the accounting judgements applied by
management for compliance with IFRS 16, with particular
reference to assumptions on lease term;
• understood and walked through management’s model
used to estimate the right-of-use asset and lease liability
disclosures;
• tested a sample of leases by corroborating key data inputs
to underlying source data (original lease agreements, side
agreements, calculations prepared by management) to
verify the accuracy of those data inputs;
• for the same sample we independently recalculated the
opening right-of-use asset and lease liability, testing the
arithmetical accuracy and integrity of management’s
model; and
• with input from our treasury specialists, we tested the
methodology used to determine the IBRs with reference
to lease terms, country risk and credit ratings.
We tested the completeness of the disclosures by comparing
the IFRS 16 lease population with the group’s current
operating lease population. We also evaluated management’s
judgements around significant service arrangements which
may constitute a lease under IFRS 16.
The audit procedures were designed and led by the group
audit team, with support from component teams whose work
was reviewed by the group audit team.
The key audit matters set out in the table above are consistent with those reported in 2018, with the exception of the addition
of ‘Disclosure of impact of adoption of IFRS 16 Leases’ ahead of the adoption of this new accounting standard in 2020.
114
114
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Independent Auditor’s Report
to the members of Associated British Foods plc
Risk
Our response to the risk
Disclosure of impact of adoption of
We evaluated the design and implementation of key controls
We are satisfied that the
IFRS 16 Leases
used in estimating and disclosing the impact of adoption
estimated impact of IFRS
The group has a high value and volume
of IFRS 16.
Key observations
communicated to
the Audit committee
16 has been disclosed
appropriately in the financial
statements and the
judgements applied by
management are in
• considered the accounting judgements applied by
accordance with IFRS 16.
of leases, with the majority of lease value
represented by retail property leases held
by Primark. The estimation of the impact
of the adoption of IFRS 16 Leases is complex
and requires a number of judgements,
the most significant of which relate to:
• determination of the lease term;
• determination of the incremental borrowing
rate (‘IBR’) where the interest rate in the
lease cannot be readily determined; and
• identification of lease arrangements within
the scope of IFRS 16.
We performed the following audit procedures, with a particular
focus on Primark’s retail property leases, given that the
majority of the lease value is represented by this business:
management for compliance with IFRS 16, with particular
reference to assumptions on lease term;
• understood and walked through management’s model
used to estimate the right-of-use asset and lease liability
disclosures;
• tested a sample of leases by corroborating key data inputs
to underlying source data (original lease agreements, side
agreements, calculations prepared by management) to
The diversity of ABF’s global operations
verify the accuracy of those data inputs;
increases the risk of lease data used to estimate
• for the same sample we independently recalculated the
the transition adjustment being inaccurate and
opening right-of-use asset and lease liability, testing the
incomplete. There is also a risk of incorrect
arithmetical accuracy and integrity of management’s
calculation of accounting entries being recorded
model; and
in the model used by management.
Refer to the audit committee report (page 81)
and accounting policies (page 130).
• with input from our treasury specialists, we tested the
methodology used to determine the IBRs with reference
to lease terms, country risk and credit ratings.
We tested the completeness of the disclosures by comparing
the IFRS 16 lease population with the group’s current
operating lease population. We also evaluated management’s
judgements around significant service arrangements which
may constitute a lease under IFRS 16.
The audit procedures were designed and led by the group
audit team, with support from component teams whose work
was reviewed by the group audit team.
The key audit matters set out in the table above are consistent with those reported in 2018, with the exception of the addition
of ‘Disclosure of impact of adoption of IFRS 16 Leases’ ahead of the adoption of this new accounting standard in 2020.
The scope of our audit
The scope of our audit
Tailoring the scope
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality
Our assessment of audit risk, our evaluation of materiality
and our allocation of performance materiality determine
and our allocation of performance materiality determine
our audit scope for each entity within the group. Taken
our audit scope for each entity within the group. Taken
together, this enables us to form an opinion on the
together, this enables us to form an opinion on the
consolidated financial statements. We take into account
consolidated financial statements. We take into account
the level of revenue and profit before taxation, risk profile
the level of revenue and profit before taxation, risk profile
(including country risk, controls and internal audit findings
(including country risk, controls and internal audit findings
and the extent of changes in management, systems and
and the extent of changes in management, systems and
processes and the business environment) and other known
processes and the business environment) and other known
factors when assessing the level of work to be performed
factors when assessing the level of work to be performed
at each entity.
at each entity.
In assessing the risk of material misstatement to the group
In assessing the risk of material misstatement to the group
financial statements and to achieve adequate quantitative
financial statements and to achieve adequate quantitative
coverage of significant accounts in the financial statements,
coverage of significant accounts in the financial statements,
of the 634 reporting components of the group, we selected
of the 634 reporting components of the group, we selected
174 components, which represent the principal business
174 components, which represent the principal business
units within the group.
units within the group.
Of the 174 components selected, we performed an audit
Of the 174 components selected, we performed an audit
of the complete financial information of 130 components
of the complete financial information of 130 components
(‘full scope components’) which were selected based
(‘full scope components’) which were selected based
on their size or risk characteristics. For the remaining
on their size or risk characteristics. For the remaining
44 components (‘specific scope components’), we
44 components (‘specific scope components’), we
performed audit procedures on specific accounts within that
performed audit procedures on specific accounts within that
component that we considered had the potential for the
component that we considered had the potential for the
greatest impact on the significant accounts in the financial
greatest impact on the significant accounts in the financial
statements either because of the size of these accounts
statements either because of the size of these accounts
or their risk profile.
or their risk profile.
The reporting components where we performed full and
The reporting components where we performed full and
specific scope procedures accounted for 88% of the group’s
specific scope procedures accounted for 88% of the group’s
profit before taxation (2018: 90%), 89% of the group’s
profit before taxation (2018: 90%), 89% of the group’s
revenue (2018: 90%) and 90% of the group’s total assets
revenue (2018: 90%) and 90% of the group’s total assets
(2018: 89%). For the current period, the full scope
(2018: 89%). For the current period, the full scope
components contributed 67% of the group’s profit before
components contributed 67% of the group’s profit before
taxation (2018: 74%), 78% of the group’s revenue (2018:
taxation (2018: 74%), 78% of the group’s revenue (2018:
79%) and 78% of the group’s total assets (2018: 79%).
79%) and 78% of the group’s total assets (2018: 79%).
The specific scope components contributed 21% of the
The specific scope components contributed 21% of the
group’s profit before taxation (2018: 16%), 11% of the
group’s profit before taxation (2018: 16%), 11% of the
group’s revenue (2018: 11%) and 12% of the group’s total
group’s revenue (2018: 11%) and 12% of the group’s total
assets (2018: 10%). The audit scope of these components
assets (2018: 10%). The audit scope of these components
may not have included testing of all significant accounts of
may not have included testing of all significant accounts of
the component but will have contributed to the coverage
the component but will have contributed to the coverage
of significant accounts tested for the group.
of significant accounts tested for the group.
Of the remaining 460 components (2018: 464) that together
Of the remaining 460 components (2018: 464) that together
represent 12% of the group’s profit before taxation (2018:
represent 12% of the group’s profit before taxation (2018:
10%), none are individually greater than 1% of the group’s
10%), none are individually greater than 1% of the group’s
profit before taxation. For these components, we performed
profit before taxation. For these components, we performed
other procedures, including analytical review, testing of
other procedures, including analytical review, testing of
consolidation journals and intercompany eliminations and
consolidation journals and intercompany eliminations and
foreign currency translation recalculations to respond to
foreign currency translation recalculations to respond to
any potential risks of material misstatement to the group
any potential risks of material misstatement to the group
financial statements.
financial statements.
The charts illustrate the coverage obtained from the work
The charts illustrate the coverage obtained from the work
performed by our audit teams.
performed by our audit teams.
Profit before taxation
Full scope components
Specific scope components
Other procedures
67%
21%
12%
Revenue
Full scope components
Specific scope components
Other procedures
78%
11%
11%
Total assets
Full scope components
Specific scope components
Other procedures
78%
12%
10%
Involvement with component teams
Involvement with component teams
In establishing our overall approach
In establishing our overall approach
to the group audit, we determined
to the group audit, we determined
the type of work that needed to
the type of work that needed to
be undertaken at each of the
be undertaken at each of the
components, as the group audit team,
components, as the group audit team,
or by component auditors from other
or by component auditors from other
EY global network firms or by other
EY global network firms or by other
auditors operating under our
auditors operating under our
instruction. Of the 130 full scope
instruction. Of the 130 full scope
components, audit procedures were
components, audit procedures were
performed on 71 of these directly
performed on 71 of these directly
by the group audit team and 59 by
by the group audit team and 59 by
component audit teams. For the
component audit teams. For the
44 specific scope components,
44 specific scope components,
where the work was performed by
where the work was performed by
component auditors, we determined
component auditors, we determined
the appropriate level of involvement to
the appropriate level of involvement to
enable us to determine that sufficient
enable us to determine that sufficient
audit evidence had been obtained as
audit evidence had been obtained as
a basis for our opinion on the group
a basis for our opinion on the group
as a whole.
as a whole.
During the period the Senior Statutory
During the period the Senior Statutory
Auditor or other members of the
Auditor or other members of the
group audit team visited 34 full and
group audit team visited 34 full and
specific components in Australia,
specific components in Australia,
China, Ireland, Italy, India, Mexico,
China, Ireland, Italy, India, Mexico,
New Zealand, South Africa, Spain,
New Zealand, South Africa, Spain,
Thailand, the UK and the US.
Thailand, the UK and the US.
These visits involved meeting with
These visits involved meeting with
our component team to discuss and
our component team to discuss and
direct its audit approach, reviewing
direct its audit approach, reviewing
key working papers and understanding
key working papers and understanding
the significant audit findings in
the significant audit findings in
response to the risk areas including
response to the risk areas including
asset impairment, tax provisions and
asset impairment, tax provisions and
revenue recognition, holding meetings
revenue recognition, holding meetings
with local management, undertaking
with local management, undertaking
factory tours and obtaining updates on
factory tours and obtaining updates on
IT systems implementations and local
IT systems implementations and local
regulatory matters including tax,
regulatory matters including tax,
pensions and legal. The group audit
pensions and legal. The group audit
team interacted regularly with the
team interacted regularly with the
component teams where appropriate
component teams where appropriate
during various stages of the audit,
during various stages of the audit,
reviewed key working papers and
reviewed key working papers and
were responsible for the scope
were responsible for the scope
and direction of the audit process.
and direction of the audit process.
This, together with the additional
This, together with the additional
procedures performed at group level,
procedures performed at group level,
gave us appropriate evidence
gave us appropriate evidence
for our opinion on the group
for our opinion on the group
financial statements.
financial statements.
114
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
Associated British Foods plc
115
115
115
Governance
Independent Auditor’s Report
Independent Auditor’s Report
to the members of Associated British Foods plc
to the members of Associated British Foods plc
Our application of materiality
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements
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.
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
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
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.’
determining the nature and extent of our audit procedures.’
We determined materiality for the group to be £66 million (2018: £64 million), which is 5% of profit before taxation adjusted
We determined materiality for the group to be £66 million (2018: £64 million), which is 5% of profit before taxation adjusted
for exceptional items and certain significant profits less losses on sale and closure of businesses. Exceptional items were
for exceptional items and certain significant profits less losses on sale and closure of businesses. Exceptional items were
£65 million of impairment charges and £14 million of Guaranteed Minimum Pension charges. The significant profits less losses
£65 million of impairment charges and £14 million of Guaranteed Minimum Pension charges. The significant profits less losses
on sale and closure of businesses result from AB Mauri signing an agreement to form a yeast and bakery ingredients joint
on sale and closure of businesses result from AB Mauri signing an agreement to form a yeast and bakery ingredients joint
venture in China with Wilmar International. As a consequence, the businesses have been classified as a disposal group and a
venture in China with Wilmar International. As a consequence, the businesses have been classified as a disposal group and a
loss of £88 million was recorded. We consider that this basis for assessing materiality provides the most relevant performance
loss of £88 million was recorded. We consider that this basis for assessing materiality provides the most relevant performance
measure to the stakeholders of the group, as exceptional items and certain significant profits less losses on sale and closure
measure to the stakeholders of the group, as exceptional items and certain significant profits less losses on sale and closure
of businesses were non-recurring, sufficiently material and not related to the ongoing trading of the group. There were no
of businesses were non-recurring, sufficiently material and not related to the ongoing trading of the group. There were no
equivalent items in 2018.
equivalent items in 2018.
Performance materiality – ‘The application of materiality at the individual account or balance level. It is set at an amount
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
to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality.’
exceeds materiality.’
On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement
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 £49 million (2018: 75% of planning materiality,
was that performance materiality was 75% of our planning materiality, namely £49 million (2018: 75% of planning materiality,
being £48 million).
being £48 million).
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts
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
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
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 £1 million to
at that component. In the current period, the range of performance materiality allocated to components was £1 million to
£27 million (2018: £1 million to £22 million).
£27 million (2018: £1 million to £22 million).
Reporting threshold – ‘An amount below which identified misstatements are considered as being clearly trivial.’
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 £1 million
We agreed with the Audit committee that we would report to them all uncorrected audit differences in excess of £1 million
(2018: £1 million), which is 2% of planning materiality, as well as differences below that threshold that, in our view, warranted
(2018: £1 million), which is 2% of planning materiality, as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light
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.
of other relevant qualitative considerations in forming our opinion.
Other information
Other information
The other information comprises the information included in the annual report and accounts set out on pages 1 to 110, other
The other information comprises the information included in the annual report and accounts set out on pages 1 to 110, other
than the financial statements and our auditor’s report thereon. The directors are responsible for the other information.
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
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.
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,
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
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
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
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. 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.
misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
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
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
other information and to report as uncorrected material misstatements of the other information where we conclude that those
items meet the following conditions:
items meet the following conditions:
• Fair, balanced and understandable, set out on page 110 – the statement given by the directors that they consider the
• Fair, balanced and understandable, set out on page 110 – 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
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
shareholders to assess the group’s performance, business model and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
obtained in the audit; or
• Audit committee reporting, set out on pages 79 to 82 – the section describing the work of the Audit committee does not
• Audit committee reporting, set out on pages 79 to 82 – the section describing the work of the Audit committee does not
appropriately address matters communicated by us to the Audit committee; or
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 70 – the parts of
• Directors’ statement of compliance with the UK Corporate Governance Code, set out on page 70 – the parts of
the directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate
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)
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.
do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
116
116
116
Associated British Foods plc
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Independent Auditor’s Report
Independent Auditor’s Report
to the members of Associated British Foods plc
to the members of Associated British Foods plc
equivalent items in 2018.
equivalent items in 2018.
exceeds materiality.’
exceeds materiality.’
being £48 million).
being £48 million).
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements
Our application of materiality
Our application of materiality
on the audit and in forming our audit opinion.
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
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
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.’
determining the nature and extent of our audit procedures.’
We determined materiality for the group to be £66 million (2018: £64 million), which is 5% of profit before taxation adjusted
We determined materiality for the group to be £66 million (2018: £64 million), which is 5% of profit before taxation adjusted
for exceptional items and certain significant profits less losses on sale and closure of businesses. Exceptional items were
for exceptional items and certain significant profits less losses on sale and closure of businesses. Exceptional items were
£65 million of impairment charges and £14 million of Guaranteed Minimum Pension charges. The significant profits less losses
£65 million of impairment charges and £14 million of Guaranteed Minimum Pension charges. The significant profits less losses
on sale and closure of businesses result from AB Mauri signing an agreement to form a yeast and bakery ingredients joint
on sale and closure of businesses result from AB Mauri signing an agreement to form a yeast and bakery ingredients joint
venture in China with Wilmar International. As a consequence, the businesses have been classified as a disposal group and a
venture in China with Wilmar International. As a consequence, the businesses have been classified as a disposal group and a
loss of £88 million was recorded. We consider that this basis for assessing materiality provides the most relevant performance
loss of £88 million was recorded. We consider that this basis for assessing materiality provides the most relevant performance
measure to the stakeholders of the group, as exceptional items and certain significant profits less losses on sale and closure
measure to the stakeholders of the group, as exceptional items and certain significant profits less losses on sale and closure
of businesses were non-recurring, sufficiently material and not related to the ongoing trading of the group. There were no
of businesses were non-recurring, sufficiently material and not related to the ongoing trading of the group. There were no
Performance materiality – ‘The application of materiality at the individual account or balance level. It is set at an amount
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
to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements
On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement
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 £49 million (2018: 75% of planning materiality,
was that performance materiality was 75% of our planning materiality, namely £49 million (2018: 75% of planning materiality,
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts
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
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
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 £1 million to
at that component. In the current period, the range of performance materiality allocated to components was £1 million to
£27 million (2018: £1 million to £22 million).
£27 million (2018: £1 million to £22 million).
Reporting threshold – ‘An amount below which identified misstatements are considered as being clearly trivial.’
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 £1 million
We agreed with the Audit committee that we would report to them all uncorrected audit differences in excess of £1 million
(2018: £1 million), which is 2% of planning materiality, as well as differences below that threshold that, in our view, warranted
(2018: £1 million), which is 2% of planning materiality, as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light
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.
of other relevant qualitative considerations in forming our opinion.
Other information
Other information
The other information comprises the information included in the annual report and accounts set out on pages 1 to 110, other
The other information comprises the information included in the annual report and accounts set out on pages 1 to 110, other
than the financial statements and our auditor’s report thereon. The directors are responsible for the other information.
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
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.
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,
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
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
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
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. 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.
misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
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
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
other information and to report as uncorrected material misstatements of the other information where we conclude that those
items meet the following conditions:
items meet the following conditions:
• Fair, balanced and understandable, set out on page 110 – the statement given by the directors that they consider the
• Fair, balanced and understandable, set out on page 110 – 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
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
shareholders to assess the group’s performance, business model and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
obtained in the audit; or
• Audit committee reporting, set out on pages 79 to 82 – the section describing the work of the Audit committee does not
• Audit committee reporting, set out on pages 79 to 82 – the section describing the work of the Audit committee does not
appropriately address matters communicated by us to the Audit committee; or
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 70 – the parts of
• Directors’ statement of compliance with the UK Corporate Governance Code, set out on page 70 – the parts of
the directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate
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)
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.
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 110, 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 the directors either intend to liquidate the group or the Company or to cease operations, or have 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 (IFRSs as adopted by the EU, United Kingdom Generally Accepted Accounting Practice, the
Companies Act 2006 and the UK Corporate Governance Code) and the relevant tax laws and 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.
• 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.
116
116
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
117
117
Governance
Independent Auditor’s Report
Independent Auditor’s Report
to the members of Associated British Foods plc
to the members of Associated British Foods plc
• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur,
• 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
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
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
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
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.
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
These procedures included testing manual journals and were designed to provide reasonable assurance that the financial
statements were free from fraud or error.
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
• 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
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
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
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.
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
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.
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
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
• Following the recommendation of the Audit committee, we were appointed as auditor by the shareholders and signed an
engagement letter on 16 April 2019. We were appointed by the Company at the AGM on 7 December 2018 to audit the
engagement letter on 16 April 2019. We were appointed by the Company at the AGM on 7 December 2018 to audit the
financial statements for the 52 weeks ending 14 September 2019 and subsequent financial periods. The period of total
financial statements for the 52 weeks ending 14 September 2019 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and reappointments is four years, from the 53 weeks ended
uninterrupted engagement including previous renewals and reappointments is four years, from the 53 weeks ended
17 September 2016 until the 52 weeks ended 14 September 2019.
17 September 2016 until the 52 weeks ended 14 September 2019.
• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the Company and we
• 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.
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.
• The audit opinion is consistent with the additional report to the Audit committee.
Use of our report
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
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
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
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
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.
report, or for the opinions we have formed.
Andrew Walton (Senior Statutory Auditor)
Andrew Walton (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
London
5 November 2019
5 November 2019
118
118
118
Associated British Foods plc
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Consolidated income statement
for the 52 weeks ended 14 September 2019
Continuing operations
Revenue
Operating costs before exceptional items
Exceptional items
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
Exceptional items
Profits less losses on sale and closure of businesses
Profit before interest
Finance income
Finance expense
Other financial income
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
Exceptional items
Profits less losses on sale and closure of businesses
Taxation – UK (excluding tax on exceptional items)
– UK (on exceptional items)
– 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
2
10
2019
£m
15,824
(14,524)
(79)
1,221
57
4
1,282
2018
£m
15,574
(14,290)
–
1,284
54
6
1,344
1
8
2
2
2
22
4
4
4
8
2
2
2
22
5
7
6
1,421
4
(47)
(15)
(2)
(79)
(94)
1,188
15
(42)
12
1,173
1,406
4
(47)
(15)
(2)
(79)
(94)
(75)
12
(214)
(277)
896
878
18
896
111.1
46.35
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
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
119
119
Financial statements
Consolidated statement of comprehensive income
for the 52 weeks ended 14 September 2019
Profit for the period recognised in the income statement
Other comprehensive income
Remeasurements of defined benefit schemes
Deferred tax associated with defined benefit schemes
Current tax associated with defined benefit schemes
Items that will not be reclassified to profit or loss
Effect of movements in foreign exchange
Net gain/(loss) on hedge of net investment in foreign subsidiaries
Deferred tax associated with movements in foreign exchange
Reclassification adjustment for movements in foreign exchange on subsidiaries disposed
Movement in cash flow hedging position
Deferred tax associated with movement in cash flow hedging position
Share of other comprehensive income of joint ventures and associates
Effect of hyperinflationary economies
Deferred tax associated with hyperinflationary economies
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
2019
£m
896
(407)
68
2
(337)
43
3
–
(3)
(29)
7
4
38
(2)
61
2018
£m
1,022
310
(53)
–
257
(85)
(10)
1
–
55
(12)
–
–
–
(51)
(276)
206
620
1,228
601
19
620
1,215
13
1,228
120
120
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Consolidated statement of comprehensive income
for the 52 weeks ended 14 September 2019
Consolidated balance sheet
at 14 September 2019
Profit for the period recognised in the income statement
Other comprehensive income
Remeasurements of defined benefit schemes
Deferred tax associated with defined benefit schemes
Current tax associated with defined benefit schemes
Items that will not be reclassified to profit or loss
Effect of movements in foreign exchange
Net gain/(loss) on hedge of net investment in foreign subsidiaries
Deferred tax associated with movements in foreign exchange
Reclassification adjustment for movements in foreign exchange on subsidiaries disposed
Movement in cash flow hedging position
Deferred tax associated with movement in cash flow hedging position
Share of other comprehensive income of joint ventures and associates
Effect of hyperinflationary economies
Deferred tax associated with hyperinflationary economies
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
2019
£m
896
(407)
68
2
(337)
43
3
–
(3)
(29)
7
4
38
(2)
61
(276)
2018
£m
1,022
310
(53)
–
257
(85)
(10)
55
(12)
1
–
–
–
–
(51)
206
620
1,228
601
19
620
1,215
13
1,228
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
Assets classified as held for sale
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
Liabilities classified as held for sale
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
16
13
25
24
17
14
18
19
25
20
18
19
20
12
11
21
21
21
21
2019
£m
1,681
5,769
225
50
228
160
51
8,164
43
2,386
84
1,436
99
29
24
1,495
5,596
13,760
(6)
(227)
(2,556)
(52)
(163)
(64)
(3,068)
(361)
(271)
(54)
(261)
(195)
(1,142)
(4,210)
9,550
45
175
409
(9)
8,832
9,452
98
9,550
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
The financial statements on pages 119 to 175 were approved by the board of directors on 5 November 2019 and were signed
on its behalf by:
Michael McLintock
Chairman
John Bason
Finance Director
120
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
121
121
Financial statements
Consolidated cash flow statement
for the 52 weeks ended 14 September 2019
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
Share of profit after tax from joint ventures and associates
Amortisation
Depreciation
Exceptional items
Acquired inventory fair value adjustments
Effect of hyperinflationary economies
Net change in the fair value of current biological assets
Share-based payment expense
Pension costs less contributions
Increase in inventories
Decrease/(increase) in receivables
Increase/(decrease) 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 in short-term loans
Increase in long-term loans
Decrease/(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 increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of movements in foreign exchange
Cash and cash equivalents at the end of the period
2019
£m
2018
£m
1,173
(4)
94
2
(15)
42
(12)
(57)
68
544
79
15
6
–
22
(10)
(202)
18
44
(1)
(28)
1,778
(269)
1,509
52
(680)
(57)
12
(84)
6
20
(731)
(4)
(358)
(43)
(263)
2
1
(1)
–
(25)
(691)
87
1,271
–
1,358
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
122
122
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Consolidated cash flow statement
for the 52 weeks ended 14 September 2019
Consolidated statement of changes in equity
for the 52 weeks ended 14 September 2019
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
Amortisation
Depreciation
Exceptional items
Share of profit after tax from joint ventures and associates
Acquired inventory fair value adjustments
Effect of hyperinflationary economies
Net change in the fair value of current biological assets
Share-based payment expense
Pension costs less contributions
Increase in inventories
Decrease/(increase) in receivables
Increase/(decrease) 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 in short-term loans
Increase in long-term loans
Decrease/(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 increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of movements in foreign exchange
Cash and cash equivalents at the end of the period
2019
£m
2018
£m
1,173
1,279
(4)
94
2
(15)
42
(12)
(57)
68
544
79
15
6
–
22
(10)
(202)
18
44
(1)
(28)
1,778
(269)
1,509
52
(680)
(57)
12
(84)
6
20
(4)
(358)
(43)
(263)
2
1
(1)
–
(25)
(691)
87
1,271
–
1,358
(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
(4)
(327)
(50)
(111)
19
(30)
(1)
1
(30)
(533)
(103)
1,386
(12)
1,271
(731)
(1,000)
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
Total comprehensive income
Profit for the period recognised in the income statement
Remeasurements of defined benefit schemes
Deferred tax associated with defined benefit schemes
Current tax associated with defined benefit schemes
Items that will not be reclassified to profit or loss
Effect of movements in foreign exchange
Net gain on hedge of net investment in foreign subsidiaries
Movements in foreign exchange on businesses disposed
Movement in cash flow hedging position
Deferred tax associated with movement in cash flow
hedging position
Share of other comprehensive income of joint ventures
and associates
Effect of hyperinflationary economies
Deferred tax associated with hyperinflationary economies
Items that are or may be subsequently reclassified to
profit or loss
Other comprehensive income
Total comprehensive income
Transactions with owners
Dividends paid to equity shareholders
Net movement in own shares held
Dividends paid to non-controlling interests
Acquisition and disposal of non-controlling interests
Total transactions with owners
Balance as at 14 September 2019
Attributable to equity shareholders
Note
Issued
capital
£m
45
Other
reserves
£m
175
Translation
reserve
£m
456
Retained
Hedging
earnings
reserve
Total
£m
£m
£m
(31) 7,694 8,339
Non-
Total
controlling
equity
interests
£m
£m
73 8,412
6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
45
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
175
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(83)
(10)
1
(1)
–
–
–
–
–
–
–
56
–
(12)
1,007 1,007
15 1,022
310
(53)
257
310
(53)
257
–
–
–
–
–
(83)
(10)
1
55
(12)
–
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
878
878
18
896
(407)
68
2
(337)
(407)
68
2
(337)
–
–
–
–
–
–
38
(2)
42
3
(3)
(29)
7
4
38
(2)
–
–
–
–
1
–
–
–
–
–
–
–
(407)
68
2
(337)
43
3
(3)
(29)
7
4
38
(2)
44
44
44
–
–
–
–
–
–
13
–
–
–
–
–
–
–
–
(29)
7
–
–
–
(22)
(22)
(22)
36
(301)
577
60
(277)
601
1
1
19
61
(276)
620
(93)
(93)
(93)
–
–
–
–
–
–
363
–
–
–
–
–
42
3
(3)
–
–
4
–
–
46
46
46
6
–
–
–
–
–
45
–
–
–
–
–
175
–
–
–
–
–
409
(358)
(358)
–
(3)
(3)
–
–
–
–
1
1
–
–
(360)
(360)
(9) 8,832 9,452
(358)
–
(3)
–
(4)
(4)
(1)
(2)
(6)
(366)
98 9,550
122
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
123
123
Financial statements
Significant accounting policies
for the 52 weeks ended 14 September 2019
Associated British Foods plc (‘the
Company’) is a company domiciled in
the United Kingdom. The consolidated
financial statements of the Company
for the 52 weeks ended 14 September
2019 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 5 November 2019.
The consolidated financial statements
have been prepared and approved by the
directors in accordance with International
Financial Reporting Standards as adopted
by the EU (‘Adopted IFRS’).
The Company has elected to prepare
its parent company financial statements
under Financial Reporting Standard 101
Reduced Disclosure Framework. These
are presented on pages 176 to 182.
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 131.
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 14 September 2019 (2018 – 52
weeks ended 15 September 2018).
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 14 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 1 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 to 52. In addition, the Principal
risks and uncertainties on pages 62 to
66 and note 25 on pages 154 to 166
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 affect significantly 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.
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
124
124
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Significant accounting policies
for the 52 weeks ended 14 September 2019
Associated British Foods plc (‘the
Details of new accounting standards
Changes in the group’s ownership
Company’) is a company domiciled in
which came into force in the year are
interest in a subsidiary that do not result
the United Kingdom. The consolidated
set out at the end of this note.
in a loss of control are accounted for
financial statements of the Company
for the 52 weeks ended 14 September
2019 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
of the group are prepared to the
Saturday nearest to 15 September.
within equity.
All the group’s joint arrangements are
joint ventures, which are entities over
Accordingly, these financial statements
whose activities the group has joint
have been prepared for the 52 weeks
control, typically established by
ended 14 September 2019 (2018 – 52
contractual agreement and requiring
The consolidated financial statements
weeks ended 15 September 2018).
the venturers’ unanimous consent for
were authorised for issue by the
directors on 5 November 2019.
To avoid delay in the preparation of the
strategic financial and operating
consolidated financial statements,
decisions.
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 176 to 182.
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 131.
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.
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 14 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 1 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 to 52. In addition, the Principal
risks and uncertainties on pages 62 to
66 and note 25 on pages 154 to 166
provide details of the group’s policy
on managing its financial and
commodity risks.
The group has considerable financial
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
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 affect significantly the
returns of that entity.
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
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
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
resources, good access to debt markets,
assets, liabilities and contingent liabilities
commences, to the date that it ceases.
income statement.
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.
In the 2018 financial year, 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 2019 financial year, revenue is
recognised when performance
obligations are satisfied, goods are
delivered to customers and control of
goods is transferred to the buyer.
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 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, profits less
losses on disposal of non-current assets
and exceptional items. 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, exceptional items 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,
exceptional items 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,
except for countries where consumer
price inflation (CPI) has escalated to
extreme levels, in which case actual
exchange rates are used. There are
currently two countries where the group
has operations which are experiencing
extreme levels of CPI – Argentina
and Venezuela.
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.
124
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
125
125
Financial statements
Significant accounting policies
for the 52 weeks ended 14 September 2019
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 liabilities are
recognised in the group’s balance sheet
when the group becomes a party to the
contractual provision of the instrument.
Trade and other receivables
Trade and other receivables are recorded
initially at fair value and subsequently
measured at amortised cost. This
generally results in their recognition at
nominal value less an allowance for
any doubtful debts. The allowance for
doubtful debts was recognised under an
‘incurred loss’ model until 15 September
2018 and therefore it was dependent
upon the existence of an impairment
event. From 16 September 2018, the
allowance for doubtful debts is
recognised based on management’s
expectation of losses without regard
to whether an impairment trigger
happened or not (an “expected
credit loss” model).
Other non-current receivables
Other non-current receivables mainly
comprise finance lease receivables
due from a joint venture and minority
shareholdings in private companies.
Finance lease receivables are accounted
for in the same way as trade and other
receivables. Shareholdings in private
companies are classified as “fair value
through other comprehensive income”.
They are initially measured at fair
value, including directly attributable
transaction costs.
Gains or losses arising from changes
in fair value are recognised in other
comprehensive income until the
asset is disposed of, at which time
the cumulative gain or loss previously
recognised in other comprehensive
income is included directly in retained
earnings and is not recycled to the
income statement.
Until 15 September 2018, equity
investments that did not have a quoted
market price in an active market and
whose fair value could not be reliably
measured by other means were held at
cost. From 16 September 2018, all
equity investments must be measured
at fair value under IFRS 9.
Bank and other borrowings
Interest-bearing bank loans and
overdrafts are initially recorded at fair
value, which equals the proceeds
received, net of direct issue costs. They
are subsequently held at amortised cost.
Finance charges, including premiums
payable on settlement or redemption
and direct issue costs, are accounted for
using an effective interest rate method
and are added to the carrying amount
of the instrument to the extent that
they are not settled in the period in
which they arise.
Other borrowings are initially measured
at fair value net of direct issue costs and
are subsequently held at amortised cost
unless the loan is designated in a hedge
relationship, in which case hedge
accounting treatment will apply.
Trade payables
Trade payables are recorded initially at
fair value and subsequently measured at
amortised cost. Generally, this results in
their recognition at their nominal value.
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 financial instruments
and hedging
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.
At the inception of a hedging
relationship, the hedging instrument
and the hedged item are documented,
along with the risk management
objectives and strategy for undertaking
various hedge transactions and
prospective effectiveness testing
is performed.
During the life of the hedging
relationship, prospective effectiveness
testing is performed (previously,
both prospective and retrospective
tests were required) to ensure the
instrument remains an effective
hedge of the transaction.
Changes in the value of derivatives
used as hedges of future cash
flows are recognised through other
comprehensive income in the
hedging reserve.
126
126
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Significant accounting policies
for the 52 weeks ended 14 September 2019
Income tax
recognised based on management’s
Cash and cash equivalents
Income tax on profit or loss for the
expectation of losses without regard
Cash and cash equivalents comprise
period comprises current and deferred
to whether an impairment trigger
bank and cash balances, call deposits
tax. Income tax is recognised in the
happened or not (an “expected
and short-term investments with original
income statement except to the extent
credit loss” model).
that it relates to items taken directly
to equity.
Other non-current receivables
Other non-current receivables mainly
Current tax is the tax expected to be
comprise finance lease receivables
payable on taxable income for the year,
due from a joint venture and minority
using tax rates enacted or substantively
shareholdings in private companies.
enacted during the period, together with
Finance lease receivables are accounted
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.
any adjustment to tax payable in respect
for in the same way as trade and other
Derivatives financial instruments
of previous years.
receivables. Shareholdings in private
and hedging
amounts used for taxation purposes.
Gains or losses arising from changes
in fair value are recognised in other
comprehensive income until the
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
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
companies are classified as “fair value
Derivatives are used to manage the
through other comprehensive income”.
group’s economic exposure to financial
They are initially measured at fair
and commodity risks. The principal
value, including directly attributable
instruments used are foreign exchange
transaction costs.
and commodity contracts, futures,
swaps or options (the ‘hedging
instrument’). The group does not use
derivatives for speculative purposes.
asset is disposed of, at which time
Derivatives are recognised in the balance
the cumulative gain or loss previously
sheet at fair value, based on market
recognised in other comprehensive
prices or rates, or calculated using
income is included directly in retained
either discounted cash flow or option
earnings and is not recycled to the
pricing models.
income statement.
probably not reverse in the foreseeable
Until 15 September 2018, equity
future. The amount of deferred tax
provided is based on the expected
investments that did not have a quoted
unless they qualify for hedge accounting,
market price in an active market and
when recognition of any change in fair
manner of realisation or settlement
whose fair value could not be reliably
value depends on the nature of the item
of the carrying amount of assets and
measured by other means were held at
being hedged.
Changes in the value of derivatives are
recognised in the income statement
liabilities, using tax rates enacted or
cost. From 16 September 2018, all
substantively enacted at the balance
equity investments must be measured
sheet date.
at fair value under IFRS 9.
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
A deferred tax asset is recognised
Bank and other borrowings
only to the extent that it is probable that
Interest-bearing bank loans and
prices, by matching the impact of the
future taxable profits will be available
overdrafts are initially recorded at fair
hedged risk and the hedging instrument
against which the asset can be utilised.
value, which equals the proceeds
in the income statement.
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 liabilities are
recognised in the group’s balance sheet
when the group becomes a party to the
contractual provision of the instrument.
Trade and other receivables
Trade and other receivables are recorded
initially at fair value and subsequently
measured at amortised cost. This
generally results in their recognition at
nominal value less an allowance for
any doubtful debts. The allowance for
doubtful debts was recognised under an
‘incurred loss’ model until 15 September
2018 and therefore it was dependent
upon the existence of an impairment
event. From 16 September 2018, the
allowance for doubtful debts is
received, net of direct issue costs. They
are subsequently held at amortised cost.
Finance charges, including premiums
payable on settlement or redemption
and direct issue costs, are accounted for
using an effective interest rate method
and are added to the carrying amount
of the instrument to the extent that
they are not settled in the period in
which they arise.
Other borrowings are initially measured
at fair value net of direct issue costs and
are subsequently held at amortised cost
unless the loan is designated in a hedge
relationship, in which case hedge
accounting treatment will apply.
Trade payables
Trade payables are recorded initially at
fair value and subsequently measured at
amortised cost. Generally, this results in
their recognition at their nominal value.
At the inception of a hedging
relationship, the hedging instrument
and the hedged item are documented,
along with the risk management
objectives and strategy for undertaking
various hedge transactions and
prospective effectiveness testing
is performed.
During the life of the hedging
relationship, prospective effectiveness
testing is performed (previously,
both prospective and retrospective
tests were required) to ensure the
instrument remains an effective
hedge of the transaction.
Changes in the value of derivatives
used as hedges of future cash
flows are recognised through other
comprehensive income in the
hedging reserve.
From 16 September 2018, the element
of the change in fair value which relates
to the currency spread is recognised in
the cost of hedging reserve, with
the remaining change in fair value
recognised in the hedging reserve
(in the period before 16 September
2018, the entire change in fair value was
recognised in the hedging reserve) and
any ineffective portion is recognised
immediately in the income statement.
When the future cash flow results in the
recognition of a non-financial asset or
liability, then at the time the asset or
liability is recognised, the related gains
and losses previously recognised in the
hedging reserve are included in the initial
measurement of that asset or liability.
For hedges that do not result in the
recognition of an asset or a liability,
amounts recorded in the hedging
reserve are recognised in the income
statement in the same period in which
the hedged item affects profit or loss.
Hedges of the group’s net investment in
foreign operations principally comprise
borrowings in the currency of the
investment’s net assets.
Changes in the fair value of derivative or
non-derivative financial instruments that
are designated and effective as hedges
of net investments are recognised
in other comprehensive income in
the net investment hedging reserve.
Any ineffective portion is recognised
immediately in the income statement.
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.
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
‘fair value through profit and loss’ 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
Goodwill
Goodwill is defined under ‘Business
combinations’ on page 124. 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 economic lives of
items of property, plant and equipment
sufficient to reduce them to estimated
residual value. Land is not depreciated.
Estimated useful economic lives are
generally deemed to be no longer than:
Freehold buildings
up to 66 years
Plant and equipment, fixtures and fittings
up to 20 years
– sugar factories,
yeast plants,
mills and bakeries
– other operations
Vehicles
Sugar cane roots
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.
126
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
127
127
Financial statements
Significant accounting policies
for the 52 weeks ended 14 September 2019
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.
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.
Hyperinflation
The Argentinian economy was
designated hyperinflationary from
1 July 2018. The group concluded this
had an insignificant impact for the 2018
financial year but has applied IAS 29
Financial Reporting in Hyperinflationary
Economies to its Argentinian operations
from the beginning of the 2019
financial year. IAS 29 requires that
hyperinflationary adjustments are
reflected from the start of the reporting
period in which it is applied. For the
group’s Argentinian operations this is
1 September 2018. In accordance
with IAS 21 The Effects of Changes
in Foreign Exchange Rates, the
comparative figures for 2018 have
not been modified. The adjustments
required by IAS 29 are set out below.
• Adjustment of historical cost non-
monetary assets and liabilities from
their date of initial recognition to the
balance sheet date to reflect the
changes in purchasing power of the
currency caused by inflation, according
to the official indices published by
the Federación Argentina de
Consejos Profesionales de Ciencias
Económicas (FACPCE).
• Adjustment of the components of
the income statement and cash flow
statement for the inflation index since
their generation, with a balancing
entry in the income statement and a
reconciling item in the cash flow
statement, respectively.
• Adjustment of the income statement
to reflect the impact of inflation on
holding monetary assets and liabilities
in local currency.
• The financial statements of the
group’s Argentinian operations have
been translated into sterling at the
closing exchange rate at 14
September 2019 (ARS69.99:£1).
• The cumulative impact corresponding
to previous years has been reflected
in other comprehensive income in
the period.
The FACPCE index was 155.1034
at 31 August 2018 and 239.6077 at
31 August 2019. The inflation index
for the year is therefore 1.5448.
The Venezuelan economy has been
designated hyperinflationary for a
number of years, but the impact on the
group’s results remains immaterial.
New accounting policies
The following accounting standards
and amendments were adopted
during the year and had no significant
impact on the group, except as further
described below:
• IFRS 9 Financial Instruments:
Classification and Measurement
• IFRS 15 Revenue from Contracts
with Customers
• Clarifications to IFRS 15 Revenue
from Contracts with Customers
• IFRIC 22 Foreign Currency
Transactions and Advance
Consideration
• Amendments to IFRS 2 Classification
and Measurement of Share-based
Payment Transactions
• Amendments to IFRS 4 Applying IFRS
9 Financial Instruments with IFRS 4
Insurance Contracts
• Annual Improvements to IFRS
Standards 2014 – 2016
The two most significant new standards
are IFRS 9 and IFRS 15, further details of
which are set out below.
IFRS 9 Financial Instruments
IFRS 9 replaces IAS 39 Financial
Instruments: Recognition and
Measurement. It includes requirements
for recognition and measurement,
impairment, derecognition and general
hedge accounting.
The standard introduces changes to
three key areas:
• new requirements for the
classification and measurement
of financial instruments;
• a new impairment model based on
expected credit losses for recognising
provisions (compared to IAS 39, which
used an incurred loss model); and
• simplified hedge accounting through
closer alignment with an entity’s risk
management methodology.
Financial assets are classified using a
principles-based approach in three
measurement categories: amortised
cost, fair value through other
comprehensive income or fair value
through profit or loss. Classification is
performed on initial recognition of the
asset based on the characteristics of
the asset and the local business model.
The vast majority of the group’s financial
assets were previously recorded at
amortised cost and this continues to
be the case.
128
128
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Significant accounting policies
for the 52 weeks ended 14 September 2019
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.
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.
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.
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,
Hyperinflation
The Argentinian economy was
designated hyperinflationary from
1 July 2018. The group concluded this
had an insignificant impact for the 2018
financial year but has applied IAS 29
Financial Reporting in Hyperinflationary
Economies to its Argentinian operations
from the beginning of the 2019
financial year. IAS 29 requires that
hyperinflationary adjustments are
reflected from the start of the reporting
period in which it is applied. For the
group’s Argentinian operations this is
1 September 2018. In accordance
with IAS 21 The Effects of Changes
in Foreign Exchange Rates, the
comparative figures for 2018 have
not been modified. The adjustments
required by IAS 29 are set out below.
• Adjustment of historical cost non-
monetary assets and liabilities from
their date of initial recognition to the
balance sheet date to reflect the
changes in purchasing power of the
currency caused by inflation, according
to the official indices published by
the Federación Argentina de
Consejos Profesionales de Ciencias
• Adjustment of the components of
the income statement and cash flow
statement for the inflation index since
their generation, with a balancing
entry in the income statement and a
The following accounting standards
and amendments were adopted
during the year and had no significant
impact on the group, except as further
described below:
• IFRS 9 Financial Instruments:
Classification and Measurement
• IFRS 15 Revenue from Contracts
with Customers
• Clarifications to IFRS 15 Revenue
from Contracts with Customers
• IFRIC 22 Foreign Currency
Transactions and Advance
Consideration
• Amendments to IFRS 2 Classification
and Measurement of Share-based
Payment Transactions
• Amendments to IFRS 4 Applying IFRS
9 Financial Instruments with IFRS 4
Insurance Contracts
• Annual Improvements to IFRS
Standards 2014 – 2016
The two most significant new standards
are IFRS 9 and IFRS 15, further details of
which are set out below.
IFRS 9 Financial Instruments
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:
reconciling item in the cash flow
• new requirements for the
statement, respectively.
classification and measurement
• Adjustment of the income statement
of financial instruments;
to reflect the impact of inflation on
• a new impairment model based on
holding monetary assets and liabilities
expected credit losses for recognising
in local currency.
• The financial statements of the
provisions (compared to IAS 39, which
used an incurred loss model); and
group’s Argentinian operations have
• simplified hedge accounting through
been translated into sterling at the
closer alignment with an entity’s risk
closing exchange rate at 14
September 2019 (ARS69.99:£1).
• The cumulative impact corresponding
to previous years has been reflected
The FACPCE index was 155.1034
at 31 August 2018 and 239.6077 at
31 August 2019. The inflation index
for the year is therefore 1.5448.
The Venezuelan economy has been
designated hyperinflationary for a
number of years, but the impact on the
group’s results remains immaterial.
management methodology.
Financial assets are classified using a
principles-based approach in three
measurement categories: amortised
cost, fair value through other
comprehensive income or fair value
through profit or loss. Classification is
performed on initial recognition of the
asset based on the characteristics of
the asset and the local business model.
The vast majority of the group’s financial
assets were previously recorded at
amortised cost and this continues to
be the case.
Current biological assets
at fair value less costs to sell.
Current biological assets are measured
Económicas (FACPCE).
Inventories for the retail businesses
in other comprehensive income in
are valued at the lower of cost and net
the period.
Where the group is a lessee and has
is charged below operating profit as
New accounting policies
substantially all the risks and rewards of
the inventories are sold or used.
For financial liabilities, there are no
significant classification and measurement
changes compared to IAS 39.
Step 1
Step 2
The new principles for hedge accounting
provide a more flexible framework
which is better aligned with the
economic decision-making of the group.
This should result in the group being
able to achieve hedge accounting in the
future on a wider range of transactions
than was possible under IAS 39. The IAS
39 effectiveness test has been replaced
with the ‘economic relationship’
principle. Retrospective assessment
of hedge effectiveness is no longer
necessary. IFRS 9 also requires additional
disclosures concerning risk management
and the effects of hedge accounting.
The group previously completed a
groupwide impact assessment across
these three key areas, supported by
external resource, involving each of the
group’s businesses. As a result of this
assessment, the group concluded that
the adoption of IFRS 9 would not have
a significant impact on either the group’s
results or financial position.
IFRS 9 applies retrospectively, but
with substantial transition provisions,
including not being required to restate
comparative information.
The group adopted IFRS 9 on 16
September 2018 and has applied it for
the first time in the 2019 financial year,
without restating comparative information.
No cumulative adjustment to recognise
the impact of applying IFRS 9 as at 16
September 2018 was required.
Further details on the implementation
of IFRS 9 are given in note 25 k).
IFRS 15 Revenue from Contracts
with Customers
IFRS 15 establishes a principles-based
approach to recognising revenue only
when performance obligations are
satisfied and control of the related
goods or services is transferred. It
addresses items such as the nature,
amount, timing and uncertainty of
revenue and cash flows arising from
contracts with customers. IFRS 15
replaces IAS 18 Revenue and other
related requirements.
IFRS 15 applies a five-step approach
to the timing of revenue recognition
and applies to all contracts with
customers except those in the scope
of other standards.
Identify the contract(s) with
a customer
Identify the performance
obligations in the contract
Step 3 Determine the transaction price
Step 4 Allocate the transaction price to
the performance obligations in
the contract
Step 5 Recognise revenue when
(or as) the entity satisfies a
performance obligation
The group previously completed
a groupwide impact assessment,
utilising external resource to support
local management where necessary.
The assessment included areas
that required additional specific
consideration, including rights of return
and principal vs agent considerations.
The group’s revenue recognition
processes are generally straightforward,
with recognition of revenue at the point
of sale and little significant judgement
required in determining the timing
of transfer of control.
The impact assessment concluded
that IFRS 15 would result in no change
to the timing of revenue or the timing
or amount of profit recognised. The
only effect on the amount of revenue
recognised was £31m of operating
expenses in the prior year which
under IFRS 15 are now deducted
from revenue.
The group adopted IFRS 15 on 16
September 2018 and has applied it for
the first time in the 2019 financial year.
IFRS 15 was adopted retrospectively
without the requirement to restate
comparative information. IFRS 15 had no
impact on the group’s reported profits.
No cumulative adjustment to recognise
the impact of applying IFRS 15 as at 16
September 2018 was required.
The group is assessing the impact of the
following standards, interpretations and
amendments that are not yet effective.
Where already endorsed by the EU,
these changes will be adopted on the
effective dates noted. Where not yet
endorsed by the EU, the adoption date
is less certain:
• IFRS 16 Leases effective 2020
financial year
• IFRS 17 Insurance Contracts effective
2022 financial year (not yet endorsed
by the EU)
• IFRIC 23 Uncertainty over Income
Tax Treatments effective 2020
financial year
• Amendments to IFRS 3 Definition
of a Business effective 2021 financial
year (not yet endorsed by the EU)
• Amendments to IFRS 9 Prepayment
Features with Negative Compensation
effective 2020 financial year
• Amendments to IAS 1 Presentation
of Financial Statements effective 2021
financial year (not yet endorsed by
the EU)
• Amendments to IAS 8 Accounting
Policies, Changes in Accounting
Estimates and Errors effective 2021
financial year (not yet endorsed by
the EU)
• Amendments to IAS 19 Plan
Amendment, Curtailment or
Settlement effective 2020
financial year
• Amendments to IAS 28 Long-term
Interests in Associates and Joint
Ventures effective 2020 financial year
• Amendments to References to the
Conceptual Framework in IFRS
Standards effective 2021 financial
year (not yet endorsed by the EU)
• Annual Improvements to IFRS
Standards 2015 – 2017 effective
2020 financial year
The new standard with the most
significant effect on the group’s
financial statements is IFRS 16, further
details of which are set out below. The
impact of the other standards effective
in 2020 and beyond have not yet been
fully assessed.
IFRS 16 Leases
IFRS 16 introduces a new model
for the identification of leases and
accounting for lessors and lessees.
It replaces IAS 17 Leases and other
related requirements. The group
adopted IFRS 16 on 15 September 2019
and will apply it for the first time in the
2020 financial year.
IFRS 16 distinguishes leases from
service contracts on the basis of control
of an identified asset. For lessees,
it removes the previous accounting
distinction between (off-balance sheet)
operating leases and (on-balance sheet)
finance leases and introduces a single
model recognising a lease liability and
corresponding right-of-use asset for all
leases except for short-term leases and
leases of low-value assets.
For lessors, IFRS 16 substantially
retains existing accounting requirements
and continues to require classification
of leases either as operating or finance
in nature.
128
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
129
129
Financial statements
Significant accounting policies
for the 52 weeks ended 14 September 2019
Accounting estimates and judgements
for the 52 weeks ended 14 September 2019
In applying the accounting policies
Post-retirement benefits
Biological assets
detailed on pages 124 to 130,
The group’s defined benefit pension
In valuing growing cane, estimating
management has made estimates in a
schemes and similar arrangements are
sucrose content requires management
number of areas and the actual outcome
assessed annually in accordance with
to assess expected cane and sucrose
may differ from those calculated. Key
IAS 19. The accounting valuation, which
yields for the following season
sources of estimation uncertainty at the
has been assessed using assumptions
considering weather conditions and
balance sheet date, with the potential for
determined with independent actuarial
harvesting programmes. Estimating
material adjustment to the carrying value
advice, resulted in a net asset of £33m
sucrose price requires management
of assets and liabilities within the next
being recognised as at 14 September
to assess into which markets the
2019. The size of this net asset is
sensitive to the market value of the
assets held by the schemes, to the
forthcoming crop will be sold and assess
domestic and export prices as well as
related foreign currency exchange rates.
discount rate used in assessing liabilities,
The carrying value of growing cane is
to the actuarial assumptions (which
disclosed in note 16.
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.
Adoption of IFRS 16 Leases
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.
The group has a significant volume
Provisions are based on management’s
of high value leases, especially in the
interpretation of tax law in each country
Retail segment. Adoption of IFRS 16
and ongoing monitoring of the outcome
has required management to make a
of EU cases and investigations on tax
number of judgements and estimates.
rulings, and reflect the best estimate
These include the identification of lease
of the liability. The group believes it
arrangements required to be capitalised,
has made adequate provision for
consistent and reasonable assessment
such matters.
of the accounting lease term, and the
derivation of appropriate discount rates
to apply to gross lease obligations.
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.
The group engaged external experts to
support its implementation project and
established a steering committee to
oversee its governance, which reported
to the Audit committee. During the
current period, the group largely
completed its implementation project.
IFRS 16 permits a choice of transitional
approaches: a fully retrospective approach
with an adjustment made to the opening
retained earnings of the comparative
period; or a modified retrospective
approach where the cumulative effect
of initial application is recognised at the
date of initial application without restating
prior periods.
The age, size and complexity of the
group’s lease portfolio means that it
would either be impossible or extremely
costly and difficult to collate sufficient
information to apply the fully
retrospective approach. The group
has therefore determined to adopt
the modified retrospective approach.
The first results published under IFRS 16
will be the 2020 interim results.
Impact on the group’s results and
financial position
The impact of IFRS 16 on the group’s
results and financial position is
significant.
Lease liabilities are measured initially at
the present value of lease payments yet
to be paid, subsequently adjusted for
interest and lease payments as well
as a number of other changes to lease
provisions. Lease liabilities are included
in net debt.
Right-of-use assets are measured initially
at cost (including the value of the lease
liability) and subsequently at cost less
accumulated depreciation and any
impairment losses, adjusted for any
remeasurement of the lease liability.
Right-of-use assets are reported as
non-current assets.
There is no change to overall cash
flows. Operating lease payments were
previously presented as operating cash
flows and finance lease payments were
allocated between payments of principal
and interest within financing cash flows.
Under IFRS 16, lease payments are
split between payments of principal
and interest, presented as financing
cash flows.
Operating lease expenses previously
charged to operating profit will be
replaced by depreciation of right-of-use
assets (within operating profit) and
interest cost (within finance expense).
Although the aggregate income
statement impact of each lease over
its life will not change, the generally
straight-line profile of operating lease
expense will be more front-loaded under
IFRS 16 because of the interest charge
on the lease liability.
The changes set out below to the group’s assets and liabilities will be recorded from the transition date of 15 September 2019
in the 2020 financial year. The change will be charged against opening equity, firstly in the 2020 interim report and subsequently
in the 2020 annual report.
Non-current assets (recognition of right-of-use assets, partially offset by reclassifications from property, plant and
equipment)
Net current assets (primarily removal of lease incentives from accruals)
Net debt
Deferred tax
Impact on net assets
IFRS 16 affects a number of other financial statement captions and ratios, including the following:
Transition adjustment
£bn
3.1
0.2
(3.6)
0.1
(0.2)
Item
Earnings
Operating profit/
operating margin
Finance expense
Taxation
Net debt
Comment
Based on our impact assessment, the group expects a marginal impact on earnings. There will be a
consequent marginal impact on dividend cover.
Operating profit and operating margin are expected to increase significantly as operating lease expenses
are replaced by the depreciation of right-of-use assets.
Finance expense is expected to increase significantly as a result of the interest cost on lease liabilities.
Interest cover will therefore reduce.
Taxation will change in line with the changes in profit before tax.
Net debt will increase very significantly as lease liabilities are recorded within current and non-current
liabilities. Gearing ratios will therefore increase. The reconciliation of net debt will include more non-cash
items as new leases are entered into.
Return on capital employed The return on capital employed will reduce as a result of the changes to operating profit and non-current
Cash flow statement
assets.
There is no overall impact on cash flow, but classifications of cash flows will change, as set out above.
The group will reassess its incentive arrangements to align targets with the new accounting requirements.
IFRS 16 has the most significant impact on the Retail segment given the number of significant store leases to which Primark
is a party.
The group’s current leasing disclosures are given in note 26 of this annual report.
130
130
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
131
Significant accounting policies
for the 52 weeks ended 14 September 2019
Accounting estimates and judgements
for the 52 weeks ended 14 September 2019
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 £33m
being recognised as at 14 September
2019. 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.
Adoption of IFRS 16 Leases
The group has a significant volume
of high value leases, especially in the
Retail segment. Adoption of IFRS 16
has required management to make a
number of judgements and estimates.
These include the identification of lease
arrangements required to be capitalised,
consistent and reasonable assessment
of the accounting lease term, and the
derivation of appropriate discount rates
to apply to gross lease obligations.
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 16.
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.
In applying the accounting policies
detailed on pages 124 to 130,
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.
The group engaged external experts to
The first results published under IFRS 16
There is no change to overall cash
support its implementation project and
will be the 2020 interim results.
Lease liabilities are measured initially at
the present value of lease payments yet
cash flows.
established a steering committee to
oversee its governance, which reported
to the Audit committee. During the
current period, the group largely
completed its implementation project.
IFRS 16 permits a choice of transitional
approaches: a fully retrospective approach
with an adjustment made to the opening
retained earnings of the comparative
period; or a modified retrospective
approach where the cumulative effect
of initial application is recognised at the
date of initial application without restating
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.
Impact on the group’s results and
financial position
The impact of IFRS 16 on the group’s
results and financial position is
significant.
to be paid, subsequently adjusted for
interest and lease payments as well
as a number of other changes to lease
provisions. Lease liabilities are included
in net debt.
at cost (including the value of the lease
liability) and subsequently at cost less
accumulated depreciation and any
impairment losses, adjusted for any
remeasurement of the lease liability.
Right-of-use assets are reported as
non-current assets.
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
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).
statement impact of each lease over
its life will not change, the generally
straight-line profile of operating lease
expense will be more front-loaded under
IFRS 16 because of the interest charge
on the lease liability.
prior periods.
Right-of-use assets are measured initially
Although the aggregate income
The changes set out below to the group’s assets and liabilities will be recorded from the transition date of 15 September 2019
in the 2020 financial year. The change will be charged against opening equity, firstly in the 2020 interim report and subsequently
in the 2020 annual report.
Transition adjustment
£bn
3.1
0.2
(3.6)
0.1
(0.2)
Non-current assets (recognition of right-of-use assets, partially offset by reclassifications from property, plant and
Net current assets (primarily removal of lease incentives from accruals)
equipment)
Net debt
Deferred tax
Impact on net assets
Item
Earnings
Operating profit/
operating margin
Taxation
Net debt
IFRS 16 affects a number of other financial statement captions and ratios, including the following:
Comment
Based on our impact assessment, the group expects a marginal impact on earnings. There will be a
consequent marginal impact on dividend cover.
Operating profit and operating margin are expected to increase significantly as operating lease expenses
are replaced by the depreciation of right-of-use assets.
Finance expense
Finance expense is expected to increase significantly as a result of the interest cost on lease liabilities.
Interest cover will therefore reduce.
Taxation will change in line with the changes in profit before tax.
Net debt will increase very significantly as lease liabilities are recorded within current and non-current
liabilities. Gearing ratios will therefore increase. The reconciliation of net debt will include more non-cash
Return on capital employed The return on capital employed will reduce as a result of the changes to operating profit and non-current
items as new leases are entered into.
assets.
Cash flow statement
There is no overall impact on cash flow, but classifications of cash flows will change, as set out above.
The group will reassess its incentive arrangements to align targets with the new accounting requirements.
IFRS 16 has the most significant impact on the Retail segment given the number of significant store leases to which Primark
is a party.
The group’s current leasing disclosures are given in note 26 of this annual report.
130
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
131
131
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
1. Operating segments
The group has five operating segments,
as described below. These are the
group’s operating divisions, based on
the management and internal reporting
structure, which combine businesses
with common characteristics, primarily
in respect of the type of products
offered by each business, but also the
production processes involved and the
manner of the distribution and sale of
goods. The board is the chief operating
decision-maker.
Inter-segment pricing is determined on
an arm’s length basis. Segment result
is adjusted operating profit, as shown
on the face of the consolidated income
statement. Segment assets comprise
all non-current assets except employee
benefits assets and deferred tax assets,
and all current assets except cash
and cash equivalents, current asset
investments and income tax assets.
Segment liabilities comprise trade and
other payables, derivative liabilities
and provisions.
Segment results, assets and liabilities
include items directly attributable to
a segment as well as those that can
be allocated on a reasonable basis.
Unallocated items comprise mainly
corporate assets and expenses, cash,
borrowings, employee benefits balances
and current and deferred tax balances.
Segment non-current asset additions
are the total cost incurred during the
period to acquire segment assets that
are expected to be used for more than
one year, comprising property, plant
and equipment, operating intangibles
and biological assets.
Businesses disposed are shown
separately and comparatives have
been re-presented for businesses
sold or closed during the year.
The group is comprised of the following
operating segments:
Grocery
The manufacture of grocery products,
including hot beverages, sugar &
sweeteners, vegetable oils, balsamic
vinegars, bread & baked goods, cereals,
ethnic foods, and meat products,
which are sold to retail, wholesale
and foodservice businesses.
Sugar
The growing and processing of sugar
beet and sugar cane for sale to industrial
users and to Silver Spoon, which is
included in the Grocery segment.
Agriculture
The manufacture of animal feeds and
the provision of other products and
services for the agriculture sector.
Ingredients
The manufacture of bakers’ yeast,
bakery ingredients, enzymes, lipids,
yeast extracts and cereal specialities.
Retail
Buying and merchandising value clothing
and accessories through the Primark
and Penneys retail chains.
Geographical information
In addition to the required disclosure for operating segments, disclosure is also given of certain geographical information about
the group’s operations, based on the geographical groupings: United Kingdom; Europe & Africa; The Americas; and Asia Pacific.
Revenues are shown by reference to the geographical location of customers. Profits are shown by reference to the geographical
location of the businesses. Segment assets are based on the geographical location of the assets.
Operating segments
Grocery
Sugar
Agriculture
Ingredients
Retail
Central
Businesses disposed:
Sugar
Agriculture
Ingredients
Geographical information
United Kingdom
Europe & Africa
The Americas
Asia Pacific
Businesses disposed:
United Kingdom
Europe & Africa
The Americas
Asia Pacific
Revenue
2019
£m
Adjusted
operating profit
2018
£m
2019
£m
2018
£m
3,521
1,608
1,385
1,515
7,792
–
15,821
–
–
3
15,824
5,971
5,992
1,609
2,249
15,821
–
–
3
–
15,824
3,420
1,730
1,350
1,459
7,477
–
15,436
128
1
9
15,574
5,863
5,851
1,525
2,197
15,436
66
62
9
1
15,574
380
26
42
136
913
(76)
1,421
–
–
–
1,421
476
589
237
119
1,421
–
–
–
–
1,421
335
123
59
143
843
(64)
1,439
(34)
(1)
–
1,404
557
528
206
148
1,439
(34)
–
–
(1)
1,404
132
132
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
1. Operating segments
Segment results, assets and liabilities
Grocery
The group has five operating segments,
include items directly attributable to
The manufacture of grocery products,
as described below. These are the
a segment as well as those that can
including hot beverages, sugar &
group’s operating divisions, based on
be allocated on a reasonable basis.
sweeteners, vegetable oils, balsamic
the management and internal reporting
Unallocated items comprise mainly
vinegars, bread & baked goods, cereals,
structure, which combine businesses
corporate assets and expenses, cash,
ethnic foods, and meat products,
with common characteristics, primarily
borrowings, employee benefits balances
which are sold to retail, wholesale
in respect of the type of products
and current and deferred tax balances.
and foodservice businesses.
offered by each business, but also the
Segment non-current asset additions
production processes involved and the
are the total cost incurred during the
manner of the distribution and sale of
period to acquire segment assets that
goods. The board is the chief operating
are expected to be used for more than
decision-maker.
Inter-segment pricing is determined on
an arm’s length basis. Segment result
one year, comprising property, plant
and equipment, operating intangibles
and biological assets.
is adjusted operating profit, as shown
Businesses disposed are shown
on the face of the consolidated income
separately and comparatives have
statement. Segment assets comprise
been re-presented for businesses
all non-current assets except employee
sold or closed during the year.
The group is comprised of the following
operating segments:
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.
Geographical information
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.
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
Sugar
Agriculture
Ingredients
Businesses disposed:
Geographical information
United Kingdom
Europe & Africa
The Americas
Asia Pacific
Businesses disposed:
United Kingdom
Europe & Africa
The Americas
Asia Pacific
15,821
15,436
1,421
Revenue
2019
£m
3,521
1,608
1,385
1,515
7,792
–
–
–
3
–
–
3
–
5,971
5,992
1,609
2,249
15,821
2018
£m
3,420
1,730
1,350
1,459
7,477
–
128
1
9
5,863
5,851
1,525
2,197
66
62
9
1
Adjusted
operating profit
2019
£m
380
26
42
136
913
(76)
476
589
237
119
–
–
–
–
–
–
–
2018
£m
335
123
59
143
843
(64)
1,439
(34)
(1)
–
557
528
206
148
(34)
–
–
(1)
15,824
15,574
1,421
1,404
15,436
1,421
1,439
15,824
15,574
1,421
1,404
1. Operating segments continued
For the 52 weeks ended 14 September 2019
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
Adjusted operating profit
Profits less losses on disposal of non-current assets
Amortisation of non-operating intangibles
Acquired inventory fair value adjustments
Transaction costs
Exceptional items
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
3,525
(4)
3,521
–
3,521
1,667
(59)
1,608
–
1,608
1,388
(3)
1,385
–
1,385
1,690
(175)
1,515
3
1,518
347
33
380
3
(40)
(15)
(1)
(65)
4
266
26
–
26
–
–
–
–
–
–
26
30
12
42
1
(2)
–
–
–
(3)
38
122
14
136
–
(5)
–
(1)
–
(95)
35
Retail
£m
7,792
–
7,792
–
7,792
913
–
913
–
–
–
–
–
–
913
266
26
2,732
45
2,777
2,083
26
2,109
38
408
135
543
35
913
1,422
69
1,491
4,775
–
4,775
(540)
(388)
(137)
(278)
(1,476)
2,237
1,721
406
1,213
3,299
Central
£m
(241)
241
–
–
–
(76)
–
(76)
–
–
–
–
(14)
–
(90)
15
(42)
12
(277)
(382)
129
–
129
1,495
29
24
160
228
(184)
(588)
(163)
(261)
(195)
674
13
(3)
(1)
–
Total
£m
15,821
–
15,821
3
15,824
1,362
59
1,421
4
(47)
(15)
(2)
(79)
(94)
1,188
15
(42)
12
(277)
896
11,549
275
11,824
1,495
29
24
160
228
(3,003)
(588)
(163)
(261)
(195)
9,550
732
(544)
(68)
(59)
Non-current asset additions
Depreciation
Amortisation
Impairment of goodwill on sale and closure of businesses
Impairment of property, plant and equipment on sale and
closure of businesses
132
(96)
(53)
–
–
98
(79)
(2)
–
–
14
(12)
(3)
(3)
–
93
(51)
(7)
(56)
(32)
382
(303)
(2)
–
–
–
(32)
Geographical information
Revenue from external customers
Segment assets
Non-current asset additions
Depreciation
Amortisation
Acquired inventory fair value adjustments
Impairment of goodwill on sale and closure of businesses
Impairment of property, plant and equipment on sale and closure
of businesses
Transaction costs
Exceptional items
United
Kingdom
£m
Europe
& Africa
£m
The
Americas
£m
5,971
4,406
255
(191)
(41)
–
(3)
–
–
(79)
5,992
4,842
345
(247)
(16)
(15)
–
–
(1)
–
1,612
1,194
57
(45)
(4)
–
–
–
(1)
–
Asia
Pacific
£m
2,249
1,382
75
(61)
(7)
–
(56)
(32)
–
–
Total
£m
15,824
11,824
732
(544)
(68)
(15)
(59)
(32)
(2)
(79)
Segment disclosures given above are stated before reclassification of assets and liabilities classified as held for sale
(see note 14).
132
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
133
133
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
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
1,640
(181)
1,459
9
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
80
2,702
41
2,743
2,090
25
2,115
58
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
15,436
–
15,436
138
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)
134
134
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
Segment assets (excluding joint ventures and associates)
Investments in joint ventures and associates
2,702
41
2,743
2,090
25
2,115
1,396
66
1,462
4,556
–
4,556
110
11,268
–
110
1,362
266
11,534
1,362
279
80
136
843
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
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
Non-current asset additions
Depreciation
Amortisation
Impairment of property, plant and equipment on sale
and closure of businesses
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
Grocery
£m
Sugar
Agriculture
Ingredients
£m
£m
£m
3,423
(3)
3,420
–
3,420
1,821
(91)
1,730
128
1,858
1,354
1,350
(4)
1
1,640
(181)
1,459
9
1,351
1,468
7,477
Retail
£m
7,477
7,477
Central
£m
(279)
279
306
29
–
335
4
(36)
(23)
(1)
–
279
121
2
(34)
89
2
–
–
–
(11)
80
47
12
(1)
58
–
(1)
–
–
1
58
58
414
134
548
–
–
–
–
–
–
–
–
–
129
14
–
143
–
(4)
–
(1)
(2)
843
(64)
1,382
843
(64)
1,404
136
843
1,310
Total
£m
15,436
–
15,436
138
15,574
57
(35)
6
(41)
(23)
(2)
(34)
15
(50)
4
(257)
1,022
30
54
133
579
(2,990)
(778)
(160)
(324)
(144)
9,296
916
(509)
(65)
–
–
–
–
–
–
–
–
–
(22)
(86)
15
(50)
4
(257)
(374)
30
54
133
579
(234)
(778)
(160)
(324)
(144)
628
12
(3)
(1)
(530)
(429)
(140)
(275)
(1,382)
2,213
1,686
408
1,187
3,174
148
(99)
(48)
141
(81)
(4)
19
(13)
(1)
533
(264)
(5)
63
(49)
(6)
–
–
(14)
–
–
–
(14)
United
Kingdom
£m
Europe
& Africa
£m
Americas
The
£m
5,929
4,460
418
(204)
(36)
–
(14)
(1)
5,913
4,610
375
(202)
(17)
(23)
–
–
1,534
1,079
57
(43)
(6)
–
–
–
Asia
Pacific
£m
2,198
1,385
66
(60)
(6)
–
–
(1)
Total
£m
15,574
11,534
916
(509)
(65)
(23)
(14)
(2)
2. Operating costs
Operating costs
Cost of sales (including amortisation of intangibles)
Distribution costs
Administration expenses
Exceptional items
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
Effect of hyperinflationary economies
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
2019
£m
2018
£m
12,187
1,356
981
79
14,603
11,990
1,356
944
–
14,290
3
8
8
9
2,758
45
23
15
(4)
544
2
6
310
20
(18)
30
(11)
12
(46)
47
2,668
38
27
23
(6)
509
2
–
294
15
(18)
26
(23)
17
(45)
57
Transaction costs of £2m and amortisation of non-operating intangibles of £47m (2018 – £2m and £41m) shown as adjusting
items in the income statement, include £nil and £2m respectively (2018 – £nil and £3m respectively) incurred by joint ventures,
in addition to the amounts shown above.
Exceptional items
Guaranteed Minimum Pensions
The Guaranteed Minimum Pension (GMP) is the minimum pension which a UK occupational pension scheme must provide
for those employees who were contracted out of the State Earnings-Related Pensions Scheme between 6 April 1978 and
5 April 1997.
On 26 October 2018, the High Court of Justice of England and Wales ruled that GMPs must be equalised in respect of
retirement ages for men and women for all pensionable service after 17 May 1990. This affects the group’s UK defined benefit
scheme and the ruling set out a number of methodologies that could be used to calculate the impact. The group has adopted
method C2 to identify its best estimate of the additional liabilities. These are charged as a past service cost in the income
statement with subsequent changes accounted for in other comprehensive income. The past service cost is treated as an
exceptional item since the liabilities relate to employee service between 1990 and 1997 and they have no link to current
business performance.
The increase in liabilities is estimated at £14m, assessed using market conditions at the date of the ruling as required by IAS 19.
Impairment
In the 2018 Annual Report, it was noted that low bread prices and strong continuing competition in the UK bakery market had led
to an operating loss at Allied Bakeries and the consequent need for an assessment of impairment. Headroom at that time was
£113m on a cash-generating unit (CGU) carrying value of £243m.
In December 2018, subsequent to the publication of the 2018 Annual Report, Allied Bakeries received notice of the termination
of its largest private label manufacturing contract. This is expected to result in a significant reduction in bread volumes from late
in the 2019 calendar year, with limited opportunity to mitigate this volume loss in the short term.
As set out in previous annual reports, the board has been concerned about the worsening trend in the performance of Allied
Bakeries and the difficulty in recovering cost increases in a highly competitive market. In light of the termination of the private
label contract mentioned above, management is considering courses of action to return the business to profitability.
Of the methodologies available to calculate the impairment, the group has applied the “fair value less costs of disposal”
approach to identify its best estimate of the impairment. The key assumptions used in this assessment are similar to those
in previous year end impairment assessments – bread volumes, bread prices and long-term growth in the market, as well as
logistical and other savings from restructuring. The discount rate used was 10.9%.
This assessment resulted in a shortfall of £65m compared to the CGU carrying value of £243m. A charge for this has been
included as an exceptional item in the income statement and has been allocated to the property, plant and equipment of the
business. There is no goodwill associated with Allied Bakeries.
134
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
135
135
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
2. Operating costs continued
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
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
2019
£m
2018
£m
1.3
6.5
7.8
0.4
0.4
0.8
0.8
6.8
7.6
0.4
0.2
0.6
2019
2018
48,011
71,922
5,640
12,524
138,097
48,712
70,074
5,686
12,542
137,014
Note
£m
£m
11
11
23
2,298
304
80
54
22
2,758
2,243
286
77
43
19
2,668
Details of directors’ remuneration, share incentives and pension entitlements are shown in the Remuneration report on pages
83 to 106.
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 from employee benefit schemes
Net foreign exchange (losses)/gains on financing activities
Total other financial income
Note
2019
£m
2018
£m
15
15
(24)
(16)
(1)
(1)
(42)
116
(102)
(1)
13
(1)
12
15
15
(27)
(21)
(1)
(1)
(50)
107
(103)
(1)
3
1
4
11
11
11
136
136
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
2. Operating costs continued
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
Average number of employees
3. 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
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 from employee benefit schemes
Net foreign exchange (losses)/gains on financing activities
Total other financial income
Note
£m
£m
2019
£m
2018
£m
1.3
6.5
7.8
0.4
0.4
0.8
0.8
6.8
7.6
0.4
0.2
0.6
2019
2018
48,011
71,922
5,640
12,524
48,712
70,074
5,686
12,542
138,097
137,014
2,298
304
80
54
22
2,243
286
77
43
19
2,758
2,668
15
15
(24)
(16)
(1)
(1)
(42)
116
(102)
(1)
13
(1)
12
15
15
(27)
(21)
(1)
(1)
(50)
107
(103)
(1)
3
1
4
11
11
23
11
11
11
Details of directors’ remuneration, share incentives and pension entitlements are shown in the Remuneration report on pages
83 to 106.
4. Interest and other financial income and expense
Note
2019
£m
2018
£m
5. Income tax expense
Current tax expense
UK – corporation tax at 19% (2018 – 19%)
Overseas – corporation tax
UK – (over)/under provided in prior periods
Overseas – over provided in prior periods
Deferred tax expense
UK deferred tax
Overseas deferred tax
UK – (over)/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% (2018 – 19%)
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
Current tax associated with defined benefit schemes
Deferred tax associated with share-based payments
Deferred tax associated with movement in cash flow hedging position
Deferred tax associated with movements in foreign exchange
Deferred tax associated with hyperinflationary economies
2019
£m
2018
£m
80
229
(5)
(1)
303
(7)
(11)
(5)
(3)
(26)
277
1,173
(57)
1,116
212
14
(1)
37
17
12
(14)
277
(68)
(2)
–
(7)
–
2
(75)
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
The UK corporation tax rate of 19% (2018 –19%) will be reduced to 17% effective from 1 April 2020. The legislation to effect
these rate changes had been enacted before the balance sheet date. Accordingly, UK deferred tax has been calculated using
these rates as appropriate.
In April 2019 the European Commission published its decision on the Group Financing Exemption in the UK’s controlled foreign
company legislation. The Commission found that the UK law did not comply with EU State Aid rules in certain circumstances.
The group has arrangements that may be impacted by this decision as might other UK-based multinational groups that had
financing arrangements in line with the UK’s legislation in force at the time. The UK Government has lodged an appeal against
this decision. We have calculated our maximum potential liability to be £26m however we do not consider that any provision
is required in respect of this amount based on our current assessment of the issue. We will continue to consider the impact
of the Commission’s decision on the group and the potential requirement to record a provision.
Deferred taxation balances are analysed in note 12.
6. Dividends
2017 final
2018 interim
2018 final
2019 interim
2019
pence
per share
2018
pence
per share
–
–
33.30
12.05
45.35
29.65
11.70
–
–
41.35
2019
£m
–
–
263
95
358
2018
£m
234
93
–
–
327
The 2019 interim dividend was declared on 24 April 2019 and paid on 5 July 2019. The 2019 final dividend of 34.3p, total value
of £271m, will be paid on 10 January 2020 to shareholders on the register on 13 December 2019.
Dividends relating to the period were 46.35p per share totalling £366m (2018 – 45.0p per share totalling £356m).
136
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
137
137
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
7. Earnings per share
The calculation of basic earnings per share at 14 September 2019 was based on the net profit attributable to equity shareholders
of £878m (2018 – £1,007m), and a weighted average number of shares outstanding during the year of 790 million (2018 – 790
million). The calculation of the weighted average number of shares excludes the shares held by the Employee Share Ownership
Plan Trust on which the dividends are being waived.
Adjusted earnings per ordinary share, which exclude the impact of profits less losses on disposal of non-current assets and
the sale and closure of businesses, amortisation of acquired inventory fair value adjustments, transaction costs, amortisation
of non-operating intangibles, exceptional items and any associated tax credits, is shown to provide clarity on the underlying
performance of the group.
Transaction costs of £2m and amortisation of non-operating intangibles of £47m (2018 – £2m and £41m) shown as adjusting
items below include £nil and £2m respectively (2018 – £nil 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 (2018 – 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
Exceptional items
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
Exceptional items
Tax effect on above adjustments
Amortisation of non-operating intangibles
Tax credit on non-operating intangibles amortisation and goodwill
Earnings per ordinary share
2019
£m
1,086
4
(94)
(15)
(2)
(79)
15
(47)
10
878
2019
pence
137.5
0.5
(11.9)
(1.9)
(0.3)
(10.0)
1.9
(6.0)
1.3
111.1
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
138
138
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
7. Earnings per share
The calculation of basic earnings per share at 14 September 2019 was based on the net profit attributable to equity shareholders
of £878m (2018 – £1,007m), and a weighted average number of shares outstanding during the year of 790 million (2018 – 790
million). The calculation of the weighted average number of shares excludes the shares held by the Employee Share Ownership
Plan Trust on which the dividends are being waived.
Adjusted earnings per ordinary share, which exclude the impact of profits less losses on disposal of non-current assets and
the sale and closure of businesses, amortisation of acquired inventory fair value adjustments, transaction costs, amortisation
of non-operating intangibles, exceptional items and any associated tax credits, is shown to provide clarity on the underlying
performance of the group.
Transaction costs of £2m and amortisation of non-operating intangibles of £47m (2018 – £2m and £41m) shown as adjusting
items below include £nil and £2m respectively (2018 – £nil 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 (2018 – 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
Exceptional items
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
Exceptional items
Tax effect on above adjustments
Amortisation of non-operating intangibles
Tax credit on non-operating intangibles amortisation and goodwill
Earnings per ordinary share
2019
£m
1,086
4
(94)
(15)
(2)
(79)
15
(47)
10
878
2019
pence
137.5
0.5
(11.9)
(1.9)
(0.3)
(10.0)
1.9
(6.0)
1.3
111.1
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
8. Intangible assets
Non-operating
Operating
Goodwill
£m
Technology
£m
Brands
£m
Customer
relationships
£m
Grower
agreements
£m
Other
£m
Other
£m
Total
£m
Cost
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
Acquisitions – externally purchased
Acquired through business combinations
Disposal of businesses
Other disposals
Transfer to assets classified as held for sale
Effect of hyperinflationary economies
Effect of movements in foreign exchange
At 14 September 2019
Amortisation and impairment
At 16 September 2017
Amortisation for the year
Other disposals
Effect of movements in foreign exchange
At 15 September 2018
Amortisation for the year
Impairment on sale and closure of business
Other disposals
Effect of movements in foreign exchange
At 14 September 2019
Net book value
At 16 September 2017
At 15 September 2018
At 14 September 2019
1,160
–
100
(2)
–
(19)
1,239
–
30
(8)
–
–
11
21
1,293
29
–
–
–
29
–
59
–
2
90
1,131
1,210
1,203
209
–
–
–
–
(5)
204
–
–
–
–
–
–
3
207
209
–
–
(5)
204
–
–
–
3
207
–
–
–
388
–
5
–
–
–
393
–
39
–
–
–
–
5
437
297
19
–
–
316
21
–
–
4
341
91
77
96
156
–
100
–
–
4
260
–
17
–
–
–
–
3
280
110
19
–
(3)
126
24
–
–
3
153
46
134
127
124
–
–
–
–
(10)
114
–
–
–
–
–
–
8
122
124
–
–
(10)
114
–
–
–
8
122
–
–
–
6
–
–
–
–
–
6
–
–
–
–
–
–
–
6
6
–
–
–
6
–
–
–
–
6
–
–
–
344
98
–
–
(9)
(4)
429
75
–
–
(14)
(2)
–
4
492
198
27
(3)
(4)
218
23
–
(6)
2
237
146
211
255
2,387
98
205
(2)
(9)
(34)
2,645
75
86
(8)
(14)
(2)
11
44
2,837
973
65
(3)
(22)
1,013
68
59
(6)
22
1,156
1,414
1,632
1,681
Amortisation of non-operating intangibles of £47m (2018 – £41m) shown as an adjusting item in the income statement includes
£2m (2018 – £3m) incurred by joint ventures in addition to the amounts shown above.
Impairment
As at 14 September 2019, the consolidated balance sheet included goodwill of £1,203m (2018 – £1,210m). 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
Azucarera
Illovo
AB World Foods
Other (not individually significant)
Primary reporting segment Discount rate
Grocery
Grocery
Ingredients
Grocery
Sugar
Sugar
Grocery
Various
13.0%
11.5%
12.9%
10.9%
11.7%
22.2%
11.1%
Various
2019
£m
94
186
281
119
24
117
78
304
1,203
2018
£m
94
177
320
119
24
110
78
288
1,210
138
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
139
139
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
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 9.2% and 22.2% (2018 – between 9.7% and 18.7%).
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 6%, consistent with the inflation factors included in the discount rates applied (2018 – 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 headroom
under the annual impairment review.
Conditions were difficult for Azucarera during the year as the EU sugar market continued to adjust to the consequences of the
end of the EU sugar regime in 2017, when sugar sales quotas were removed. World market sugar prices continued to be low.
Reduced beet prices have been contracted with growers for the 2019/20 campaign, which led to a reduction in contracted beet
crop area. Management has again undertaken an impairment review. Detailed forecasts for a period of five years were prepared,
to reflect the time required for implementation of the business plan, and management concluded that the assets are not
impaired. Headroom was €14m on a CGU carrying value of €307m (2018 – headroom of €68m on a CGU carrying value of
€360m). Estimates of long-term growth rates beyond the forecast periods were 2% (2018 – 2%). The CGU carrying value is
sensitive to assumptions around sugar prices, recovery of beet crop area and discount rate. Applying sensitivities to these
assumptions, a sensitivity of plus or minus 1% applied to sugar prices impacts headroom by plus or minus €9m; a change
of 5% on long-term beet crop area increases or decreases the headroom by €25m; and increasing the discount rate used
of 11.7% (2018 – 12%) to 12.1% causes value in use to fall below the CGU carrying value.
AB Mauri continues 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 $361m on a CGU carrying
value of $815m (2018 – headroom of $400m on a CGU carrying value of $946m). 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 12.9% (2018 – 13.2%) and would have to increase to more than 16.8%
(2018 – 17%) before value in use fell below the CGU carrying value. Estimates of long-term growth rates beyond the forecast
periods were 2–3% (2018 – 2–3%) per annum dependent on location.
140
140
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
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 9.2% and 22.2% (2018 – between 9.7% and 18.7%).
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 6%, consistent with the inflation factors included in the discount rates applied (2018 – 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 headroom
under the annual impairment review.
Conditions were difficult for Azucarera during the year as the EU sugar market continued to adjust to the consequences of the
end of the EU sugar regime in 2017, when sugar sales quotas were removed. World market sugar prices continued to be low.
Reduced beet prices have been contracted with growers for the 2019/20 campaign, which led to a reduction in contracted beet
crop area. Management has again undertaken an impairment review. Detailed forecasts for a period of five years were prepared,
to reflect the time required for implementation of the business plan, and management concluded that the assets are not
impaired. Headroom was €14m on a CGU carrying value of €307m (2018 – headroom of €68m on a CGU carrying value of
€360m). Estimates of long-term growth rates beyond the forecast periods were 2% (2018 – 2%). The CGU carrying value is
sensitive to assumptions around sugar prices, recovery of beet crop area and discount rate. Applying sensitivities to these
assumptions, a sensitivity of plus or minus 1% applied to sugar prices impacts headroom by plus or minus €9m; a change
of 5% on long-term beet crop area increases or decreases the headroom by €25m; and increasing the discount rate used
of 11.7% (2018 – 12%) to 12.1% causes value in use to fall below the CGU carrying value.
AB Mauri continues 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 $361m on a CGU carrying
value of $815m (2018 – headroom of $400m on a CGU carrying value of $946m). 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 12.9% (2018 – 13.2%) and would have to increase to more than 16.8%
(2018 – 17%) before value in use fell below the CGU carrying value. Estimates of long-term growth rates beyond the forecast
periods were 2–3% (2018 – 2–3%) per annum dependent on location.
8. Intangible assets continued
9. Property, plant and equipment
Land and
buildings
£m
Plant and
machinery
£m
Fixtures and
fittings
£m
Assets under
construction
£m
Sugar cane
roots
£m
2,540
112
24
(10)
23
(24)
2,665
58
7
(2)
(9)
52
(17)
–
5
2,759
601
48
–
(8)
(4)
637
46
3
11
(1)
(7)
(4)
5
690
1,939
2,028
2,069
3,766
46
13
(57)
144
(70)
3,842
47
13
(20)
(66)
148
(37)
7
33
3,967
2,260
198
14
(49)
(28)
2,395
194
59
19
(17)
(60)
(22)
17
2,585
1,506
1,447
1,382
3,000
413
–
(25)
9
24
3,421
326
–
–
(6)
27
(1)
–
10
3,777
1,232
255
–
(23)
2
1,466
296
3
2
–
(6)
–
7
1,768
1,768
1,955
2,009
218
235
6
–
(176)
(7)
276
212
–
–
–
(227)
–
–
1
262
–
–
–
–
–
–
–
–
–
–
–
–
–
–
218
276
262
Cost
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
Acquisitions – externally purchased
Acquired through business combinations
Businesses disposed
Other disposals
Transfers from assets under construction
Transfer to assets classified as held for sale
Effect of hyperinflationary economies
Effect of movements in foreign exchange
At 14 September 2019
Depreciation and impairment
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
Depreciation for the year
Impairment
Impairment on sale and closure of business
Businesses disposed
Other disposals
Transfer to assets classified as held for sale
Effect of movements in foreign exchange
At 14 September 2019
Net book value
At 16 September 2017
At 15 September 2018
At 14 September 2019
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 at net book value classified as held for sale comprise £13m of freehold.
64
12
–
(1)
–
(2)
73
14
–
–
–
–
–
–
–
87
25
8
–
(1)
–
32
8
–
–
–
–
–
–
40
39
41
47
2019
£m
12
1,673
111
285
2,069
469
Total
£m
9,588
818
43
(93)
–
(79)
10,277
657
20
(22)
(81)
–
(55)
7
49
10,852
4,118
509
14
(81)
(30)
4,530
544
65
32
(18)
(73)
(26)
29
5,083
5,470
5,747
5,769
2018
£m
12
1,619
121
288
2,028
625
The net book value of short and long leasehold land and buildings has been re-analysed in the current year. Prior year balances
have been re-presented in line with this change.
140
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
141
141
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
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.
In 2018 low bread prices and strong continuing competition in the UK bakery market led to an operating loss at Allied
Bakeries and the consequent need for an assessment of impairment. In December 2018, Allied Bakeries received notice of
the termination of its largest private label manufacturing contract. This is expected to result in a significant reduction in bread
volumes from late in the 2019 calendar year, with limited opportunity to mitigate this volume loss in the short term. Accordingly,
a detailed impairment assessment was performed in the first half of 2019.
Of the methodologies available to calculate the impairment, the group applied the “fair value less costs of disposal” approach
to identify its best estimate of the impairment. This method uses inputs that are unobservable, using the best information
available in the circumstances for valuing the CGU, and therefore falls into the level 3 category of fair value measurement. The key
assumptions used in this assessment were bread volumes, bread prices and long-term growth in the market, discount rates, as
well as logistical and other savings from restructuring. The discount rate used was 10.9%. This assessment resulted in a shortfall
of £65m compared to the CGU carrying value. A charge for this has been included as an exceptional item in the income statement
and has been allocated to the property, plant and equipment of the business. There is no goodwill associated with Allied Bakeries.
At year end, management assessed whether the assumptions under the “fair value less costs of disposal” model were still
appropriate and concluded that they were, as was the charge of £65m. Headroom was £9m on a CGU carrying value of £160m
(2018 – headroom of £113m on a CGU carrying value of £243m). Estimates of long-term growth rate 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
£12m. A sensitivity of plus or minus 1% applied to bread volumes impacts headroom by plus or minus £8m.
A poor beet crop together with low domestic sugar prices led to a loss in AB Sugar China and resulted in the need for an
assessment of impairment. There is no goodwill associated with AB Sugar China. Detailed forecasts for a period of five years
were prepared, to reflect the time required for implementation of the business plan, and management concluded that the assets
were not impaired. Headroom was £14m on a CGU carrying value of £81m. Estimates of long-term growth rates beyond the
forecast periods were 2%. The discount rate used was 11.9% and would have to increase to 13.3% before the value in use
fell below the carrying value. Key assumptions include the Chinese domestic sugar sales price, beet purchase price and beet
volume, with a recovery in beet quality with grower payments being increasingly linked to the sugar content of beet. Applying
sensitivities to these assumptions, a sensitivity of plus or minus 2% in the sugar sales price impacts headroom by plus or minus
£14m; a sensitivity of plus or minus 5% on beet price would impact headroom by plus or minus £22m; and a change of 1% on
long term beet crop area increases or decreases the headroom by £10m.
An impairment of A$150m (£98m) was recorded in 2012 in the Australian meat business. Further progress was made in the
current year with lower procurement costs, price increase in food service 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$120m on a CGU carrying value of A$304m (2018 – headroom of A$41m
on a CGU carrying value of A$248m). The discount rate used was 10.4% (2018 – 11.1%). Estimates of long-term growth rates
beyond the forecast periods were 2.0% (2018 – 2.0%) per annum. A sensitivity of plus or minus 1% applied to the discount rate
impacts headroom by plus or minus A$63m.
10. Investments in joint ventures and associates
At 16 September 2017
Profit for the period
Dividends received
At 15 September 2018
Profit for the period
Dividends received
Effect of movements in foreign exchange
At 14 September 2019
Joint ventures
£m
210
45
(36)
219
49
(45)
2
225
Associates
£m
44
9
(6)
47
8
(7)
2
50
Details of joint ventures and associates are listed in note 29.
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
2019
£m
149
383
(259)
(67)
19
225
2018
£m
148
405
(280)
(73)
19
219
1,507
1,443
49
45
2019
£m
22
188
(157)
(4)
1
50
589
8
2018
£m
20
223
(193)
(4)
1
47
689
9
142
142
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
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.
In 2018 low bread prices and strong continuing competition in the UK bakery market led to an operating loss at Allied
Bakeries and the consequent need for an assessment of impairment. In December 2018, Allied Bakeries received notice of
the termination of its largest private label manufacturing contract. This is expected to result in a significant reduction in bread
volumes from late in the 2019 calendar year, with limited opportunity to mitigate this volume loss in the short term. Accordingly,
a detailed impairment assessment was performed in the first half of 2019.
Of the methodologies available to calculate the impairment, the group applied the “fair value less costs of disposal” approach
to identify its best estimate of the impairment. This method uses inputs that are unobservable, using the best information
available in the circumstances for valuing the CGU, and therefore falls into the level 3 category of fair value measurement. The key
assumptions used in this assessment were bread volumes, bread prices and long-term growth in the market, discount rates, as
well as logistical and other savings from restructuring. The discount rate used was 10.9%. This assessment resulted in a shortfall
of £65m compared to the CGU carrying value. A charge for this has been included as an exceptional item in the income statement
and has been allocated to the property, plant and equipment of the business. There is no goodwill associated with Allied Bakeries.
At year end, management assessed whether the assumptions under the “fair value less costs of disposal” model were still
appropriate and concluded that they were, as was the charge of £65m. Headroom was £9m on a CGU carrying value of £160m
(2018 – headroom of £113m on a CGU carrying value of £243m). Estimates of long-term growth rate 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
£12m. A sensitivity of plus or minus 1% applied to bread volumes impacts headroom by plus or minus £8m.
A poor beet crop together with low domestic sugar prices led to a loss in AB Sugar China and resulted in the need for an
assessment of impairment. There is no goodwill associated with AB Sugar China. Detailed forecasts for a period of five years
were prepared, to reflect the time required for implementation of the business plan, and management concluded that the assets
were not impaired. Headroom was £14m on a CGU carrying value of £81m. Estimates of long-term growth rates beyond the
forecast periods were 2%. The discount rate used was 11.9% and would have to increase to 13.3% before the value in use
fell below the carrying value. Key assumptions include the Chinese domestic sugar sales price, beet purchase price and beet
volume, with a recovery in beet quality with grower payments being increasingly linked to the sugar content of beet. Applying
sensitivities to these assumptions, a sensitivity of plus or minus 2% in the sugar sales price impacts headroom by plus or minus
£14m; a sensitivity of plus or minus 5% on beet price would impact headroom by plus or minus £22m; and a change of 1% on
long term beet crop area increases or decreases the headroom by £10m.
An impairment of A$150m (£98m) was recorded in 2012 in the Australian meat business. Further progress was made in the
current year with lower procurement costs, price increase in food service 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$120m on a CGU carrying value of A$304m (2018 – headroom of A$41m
on a CGU carrying value of A$248m). The discount rate used was 10.4% (2018 – 11.1%). Estimates of long-term growth rates
beyond the forecast periods were 2.0% (2018 – 2.0%) per annum. A sensitivity of plus or minus 1% applied to the discount rate
impacts headroom by plus or minus A$63m.
10. Investments in joint ventures and associates
Joint ventures
Associates
Effect of movements in foreign exchange
At 14 September 2019
Details of joint ventures and associates are listed in note 29.
Included in the consolidated financial statements are the following items that represent the group’s share of the assets, liabilities
and profit of joint ventures and associates:
Joint ventures
Associates
£m
210
45
(36)
219
49
(45)
2
225
2019
£m
22
188
(157)
(4)
1
50
589
8
£m
44
9
(6)
47
8
(7)
2
50
2018
£m
20
223
(193)
(4)
1
47
689
9
2019
£m
149
383
(259)
(67)
19
225
2018
£m
148
405
(280)
(73)
19
219
1,507
1,443
49
45
At 16 September 2017
Profit for the period
Dividends received
At 15 September 2018
Profit for the period
Dividends received
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Goodwill
Net assets
Revenue
Profit for the period
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% (2018 – 91%) of the group’s defined benefit scheme assets and 87%
(2018 – 88%) 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 High Court of Justice of England and Wales ruled that GMPs must be equalised in respect of
retirement ages for men and women for all pensionable service after 17 May 1990. This affects the group’s UK defined benefit
scheme and the ruling set out a number of methodologies that could be used to calculate the impact. The group has adopted
method C2 to identify its best estimate of the additional liabilities. These are charged as a past service cost in the income
statement with subsequent changes accounted for in other comprehensive income. The past service cost is treated as an
exceptional item since the liabilities relate to employee service between 1990 and 1997 and they have no link to current
business performance.
The increase in liabilities is estimated at £14m, assessed using market conditions at the date of the ruling as required by IAS 19.
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 £39m in the UK and £41m overseas,
totalling £80m (2018 – UK £37m, overseas £40m, totalling £77m).
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)
2019
UK
%
2.0
2.3-3.3
3.3-4.3
2.1-3.1
2.3
2019
Overseas
%
0.1-13.7
0-15.0
0-20.0
0-28.0
0-2.0
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
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.
142
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
143
Associated British Foods plc
Associated British Foods plc
143
Annual Report and Accounts 2019
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
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 2017 projection model (2018 – 2016 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
(2018 – +0.5-year rating up for males and a +0.3-year rating down for females), both with a long-term trend of 1.5% (2018 –
1.5%). These mortality assumptions take account of experience to date, and assumptions for further improvements in life
expectancy of scheme members. Examples of the resulting life expectancies in the UK defined benefit schemes are as follows:
Life expectancy from age 65 (in years)
Member aged 65 in 2019 (2018)
Member aged 65 in 2039 (2038)
2019
Male
21.8
23.5
Female
24.5
26.3
2018
Male
21.9
23.7
Female
24.5
26.4
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 14 September 2019 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 9.5%/decrease by 8.4%
increase by 7.0%/decrease by 6.4%
increase/decrease by 1.5%
increase by 3.9%
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
2019
UK
£m
Overseas
£m
1,346
693
433
350
1,000
3,822
(3,640)
182
–
182
220
(38)
182
180
51
67
23
63
384
(524)
(140)
(9)
(149)
8
(157)
(149)
2018
UK
£m
Overseas
£m
Total
£m
1,526
744
500
373
1,063
4,206
(4,164)
42
(9)
33
1,355
530
393
343
1,093
3,714
(3,184)
530
–
530
228
(195)
33
571
(41)
530
Total
£m
1,535
577
451
364
1,155
4,082
(3,630)
452
(17)
435
579
(144)
435
180
47
58
21
62
368
(446)
(78)
(17)
(95)
8
(103)
(95)
Unfunded liability included in the present
value of scheme liabilities above
(38)
(67)
(105)
(41)
(56)
(97)
* The surpluses in the plans are only recoverable to the extent that the group can benefit from either refunds formally agreed or from future contribution reductions.
Corporate and other bonds relating to UK schemes of £433m (2018 – £393m) include £nil (2018 – £13m) 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 £514m (2018 – £401m) 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.
144
144
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
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 2017 projection model (2018 – 2016 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
(2018 – +0.5-year rating up for males and a +0.3-year rating down for females), both with a long-term trend of 1.5% (2018 –
1.5%). These mortality assumptions take account of experience to date, and assumptions for further improvements in life
expectancy of scheme members. Examples of the resulting life expectancies in the UK defined benefit schemes are as follows:
Life expectancy from age 65 (in years)
Member aged 65 in 2019 (2018)
Member aged 65 in 2039 (2038)
2019
Male
21.8
23.5
Female
24.5
26.3
2018
Male
21.9
23.7
Female
24.5
26.4
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 14 September 2019 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 by 9.5%/decrease by 8.4%
increase/decrease by 0.5%
increase by 7.0%/decrease by 6.4%
increase/decrease by 0.5%
increase/decrease by 1.5%
reduce by one year
increase by 3.9%
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
2019
Overseas
2018
Overseas
UK
£m
1,346
693
433
350
1,000
3,822
(3,640)
182
–
182
220
(38)
182
£m
180
51
67
23
63
384
(524)
(140)
(9)
(149)
8
(157)
(149)
Total
£m
1,526
744
500
373
1,063
4,206
(4,164)
42
(9)
33
UK
£m
1,355
530
393
343
1,093
3,714
(3,184)
530
–
530
228
(195)
33
571
(41)
530
£m
180
47
58
21
62
368
(446)
(78)
(17)
(95)
8
(103)
(95)
Total
£m
1,535
577
451
364
1,155
4,082
(3,630)
452
(17)
435
579
(144)
435
Unfunded liability included in the present
value of scheme liabilities above
(38)
(67)
(105)
(41)
(56)
(97)
* The surpluses in the plans are only recoverable to the extent that the group can benefit from either refunds formally agreed or from future contribution reductions.
Corporate and other bonds relating to UK schemes of £433m (2018 – £393m) include £nil (2018 – £13m) 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 £514m (2018 – £401m) 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.
11. Employee entitlements continued
The defined benefit scheme liabilities comprise 30% (2018 – 27%) in respect of active participants, 21% (2018 – 20%) for
deferred participants and 49% (2018 – 53%) 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 (2018 – 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
Defined contribution schemes
Total operating cost
Reported in other financial income/(expense):
Net interest income on the net pension asset
Interest charge on irrecoverable surplus
Net impact on profit before tax
2019
£m
2018
£m
(41)
(13)
(80)
(134)
14
(1)
(121)
(44)
1
(77)
(120)
4
(1)
(117)
Cash flow
Group cash flow in respect of employee benefits schemes comprises contributions paid to funded schemes of £36m
(2018 – £37m) and benefits paid in respect of unfunded schemes of £14m (2018 – £2m). Contributions to funded defined benefit
schemes are subject to periodic review. Contributions to defined contribution schemes amounted to £80m (2018 – £77m).
Total contributions to funded schemes and benefit payments by the group in respect of unfunded schemes in 2020 are currently
expected to be approximately £30m in the UK and £10m overseas, totalling £40m (2018 – UK £32m, overseas £9m, totalling £41m).
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 (losses)/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
Reconciliation of change 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 (losses)/gains arising from changes in financial assumptions
Actuarial gains arising from changes in demographic assumptions
Experience gains on scheme liabilities
Businesses acquired
Effect of movements in foreign exchange
At end of year
2019
assets
£m
4,082
–
9
50
(179)
–
116
119
–
–
–
–
9
4,206
2018
assets
£m
2019
liabilities
£m
2018
liabilities
£m
4,046
–
9
37
(230)
–
107
113
–
–
–
–
–
4,082
(3,630)
(41)
(9)
–
179
(13)
(102)
–
(585)
28
20
(1)
(10)
(4,164)
(3,910)
(44)
(9)
–
232
1
(103)
–
135
49
21
–
(2)
(3,630)
2019
£m
119
(585)
28
20
11
(407)
2019
net
£m
452
(41)
–
50
–
(13)
14
119
(585)
28
20
(1)
(1)
42
2018
£m
113
135
49
21
(8)
310
2018
net
£m
136
(44)
–
37
2
1
4
113
135
49
21
–
(2)
452
144
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
145
145
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
11. Employee entitlements continued
Reconciliation of change in irrecoverable surplus
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 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
Amount credited to the income statement
Amount credited to equity
Acquired through business combinations
Effect of changes in tax rates on income statement
Effect of hyperinflationary economies taken
to operating profit
Effect of hyperinflationary economies taken to other
comprehensive income
Effect of movements in foreign exchange
At 14 September 2019
2019
£m
2018
£m
(17)
11
(1)
(2)
(9)
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
133
27
–
1
(9)
(1)
151
(16)
–
–
1
1
2
3
142
86
(3)
–
23
(18)
1
89
(3)
–
7
–
–
–
2
95
16
–
54
–
–
–
70
(1)
(68)
–
–
–
–
(1)
–
(7)
–
12
–
–
–
5
–
(7)
–
–
–
–
–
(2)
(102)
(17)
(1)
16
11
1
(92)
(4)
–
–
(2)
–
–
(2)
(100)
(38)
4
–
–
–
2
(32)
(2)
–
–
–
–
–
–
(34)
(10)
(8)
(1)
2
(17)
Total
£m
88
11
65
40
(16)
3
191
(26)
(75)
7
(1)
1
2
2
101
Certain deferred tax assets and liabilities have been offset in the table above. The following is the analysis of the deferred tax
balances (after offset) for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
2019
£m
(160)
261
101
2018
£m
(133)
324
191
The recoverability of deferred tax assets is supported by the expected level of future profits in the countries concerned. Other
deferred tax assets totalling £95m (2018 – £101m) have not been recognised on the basis that their future economic benefit
is not probable.
In addition, there are temporary differences of £3,136m (2018 – £3,327m) 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 foreseeable future.
146
146
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
11. Employee entitlements continued
Reconciliation of change in irrecoverable surplus
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 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
Amount credited to the income statement
Amount credited to equity
Acquired through business combinations
Effect of changes in tax rates on income statement
Effect of hyperinflationary economies taken
to operating profit
Effect of hyperinflationary economies taken to other
comprehensive income
Effect of movements in foreign exchange
At 14 September 2019
Property,
plant and
equipment
Intangible
Employee
assets and
temporary
carry-forward
Financial
Other
Tax value of
benefits
liabilities
differences
assets
£m
£m
133
27
–
1
(9)
(1)
151
(16)
–
–
1
1
2
3
86
(3)
–
23
(18)
1
89
(3)
–
7
–
–
–
2
£m
16
–
54
–
–
–
70
(1)
(68)
–
–
–
–
(1)
–
£m
(7)
–
12
(7)
–
–
–
5
–
–
–
–
–
–
£m
(102)
(17)
(1)
16
11
1
(92)
(4)
–
–
(2)
–
–
(2)
2019
£m
2018
£m
(17)
11
(1)
(2)
(9)
losses
£m
(38)
(32)
(2)
4
–
–
–
2
–
–
–
–
–
–
2019
£m
(160)
261
101
(10)
(8)
(1)
2
(17)
Total
£m
88
11
65
40
(16)
3
191
(26)
(75)
7
(1)
1
2
2
2018
£m
(133)
324
191
Certain deferred tax assets and liabilities have been offset in the table above. The following is the analysis of the deferred tax
balances (after offset) for financial reporting purposes:
142
95
(2)
(100)
(34)
101
Deferred tax assets
Deferred tax liabilities
is not probable.
The recoverability of deferred tax assets is supported by the expected level of future profits in the countries concerned. Other
deferred tax assets totalling £95m (2018 – £101m) have not been recognised on the basis that their future economic benefit
In addition, there are temporary differences of £3,136m (2018 – £3,327m) 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 foreseeable 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
2019
£m
44
7
51
1,080
150
14
1,244
192
1,436
2018
£m
46
4
50
1,074
147
20
1,241
195
1,436
In addition to the amounts disclosed above, there are £6m of trade and other receivables classified as assets held for sale
(see note 14).
The directors consider that the carrying amount of receivables approximates fair value.
For details of credit risk exposure on trade and other receivables, see note 25.
Trade and other receivables include £44m (2018 – £47m) in respect of finance lease receivables, with £39m in non-current
loans and receivables and £5m in current other receivables (2018 – £42m in non-current loans and receivables and £5m in
current other receivables). Minimum lease payments receivable are £5m within one year, £18m between one and five years
and £21m in more than five years (2018 – £5m within one year, £20m between one and five years and £25m 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 28).
14. Assets and liabilities classified as held for sale
In the summer we signed an agreement to form a yeast and bakery ingredients joint venture in China with Wilmar International,
with completion subject to regulatory approval. The joint venture will see us build a major new low-cost yeast plant in the
north east of China and will combine AB Mauri’s existing commercial activities and technical expertise in China with Wilmar’s
extensive sales and distribution capability. As a consequence, the businesses have been classified as a disposal group at year
end. It does not qualify as a discontinued operation.
Assets classified as held for sale
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Liabilities classified as held for sale
Trade and other payables
15. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods held for resale
Write-down of inventories
2019
£m
2
29
6
6
43
6
6
2018
£m
361
87
1,739
2,187
(107)
2019
£m
387
69
1,930
2,386
(115)
In addition to the amounts disclosed above, there are £6m of inventories classified as assets held for sale (see note 14).
146
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
147
147
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
16. Biological assets
At 16 September 2017
Transferred to inventory
Purchases
Changes in fair value
Effect of movements in foreign exchange
At 15 September 2018
Transferred to inventory
Purchases
Changes in fair value
Effect of movements in foreign exchange
At 14 September 2019
Growing
cane
£m
Other
£m
Total
£m
77
(75)
–
76
(2)
76
(65)
–
70
(1)
80
13
(18)
1
12
–
8
(14)
1
9
–
4
90
(93)
1
88
(2)
84
(79)
1
79
(1)
84
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 14 September 2019:
South Africa
Malawi
Zambia
Eswatini
Tanzania Mozambique
Expected area to harvest (hectares)
Estimated yield (tonnes cane/hectare)
Average maturity of growing cane
7,401
67.8
49.9%
18,545
105.0
67.4%
15,843
121.9
65.7%
8,704
101.6
67.0%
9,307
74.9
46.2%
5,724
83.0
71.6%
The following assumptions were used in the determination of the estimated sucrose tonnage at 15 September 2018:
South Africa
Malawi
Zambia
Eswatini
Tanzania Mozambique
Expected area to harvest (hectares)
Estimated yield (tonnes cane/hectare)
Average maturity of growing cane
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%
A 1% change in the unobservable inputs could increase or decrease the fair value of growing cane as follows:
Estimated sucrose content
Estimated sucrose price
17. Cash and cash equivalents
Cash
Cash at bank and in hand
Cash equivalents
Cash and cash equivalents
Reconciliation to the cash flow statement
Bank overdrafts
Cash and cash equivalents in the cash flow statement
2019
+1%
£m
1.1
1.4
-1%
£m
(1.1)
(1.4)
2018
+1%
£m
1.1
1.4
-1%
£m
(1.1)
(1.4)
Note
2019
£m
2018
£m
25
18
643
852
1,495
(137)
1,358
658
704
1,362
(91)
1,271
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.
148
148
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
16. Biological assets
At 16 September 2017
Transferred to inventory
Purchases
Changes in fair value
At 15 September 2018
Transferred to inventory
Purchases
Changes in fair value
Effect of movements in foreign exchange
Effect of movements in foreign exchange
At 14 September 2019
Growing cane
Growing
cane
£m
Other
£m
Total
£m
77
(75)
–
76
(2)
76
(65)
–
70
(1)
80
13
(18)
1
12
(14)
–
8
1
9
–
4
90
(93)
1
88
(2)
84
(79)
1
79
(1)
84
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 14 September 2019:
South Africa
Malawi
Zambia
Eswatini
Tanzania Mozambique
Expected area to harvest (hectares)
Estimated yield (tonnes cane/hectare)
Average maturity of growing cane
7,401
67.8
49.9%
18,545
105.0
67.4%
15,843
121.9
65.7%
8,704
101.6
67.0%
9,307
74.9
46.2%
5,724
83.0
71.6%
The following assumptions were used in the determination of the estimated sucrose tonnage at 15 September 2018:
South Africa
Malawi
Zambia
Eswatini
Tanzania Mozambique
Expected area to harvest (hectares)
Estimated yield (tonnes cane/hectare)
Average maturity of growing cane
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%
A 1% change in the unobservable inputs could increase or decrease the fair value of growing cane as follows:
Estimated sucrose content
Estimated sucrose price
17. Cash and cash equivalents
Cash
Cash at bank and in hand
Cash equivalents
Cash and cash equivalents
Reconciliation to the cash flow statement
Bank overdrafts
Cash and cash equivalents in the cash flow statement
2019
+1%
£m
1.1
1.4
-1%
£m
(1.1)
(1.4)
2018
+1%
£m
1.1
1.4
-1%
£m
(1.1)
(1.4)
Note
2019
£m
2018
£m
25
18
643
852
1,495
(137)
1,358
658
704
1,362
(91)
1,271
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.
18. 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
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
2019
£m
2018
£m
9
217
1
227
1
347
13
361
588
10
408
1
419
10
336
13
359
778
26
26
25
Note
2019
£m
2018
£m
10
20
17
137
104
29
241
29
–
23
1
14
588
91
147
30
428
23
3
21
1
14
778
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.
19. Trade and other payables
Current – trade and other payables
Trade payables
Accruals
Deferred income and other non-financial payables
Non-current – other payables
Accruals
2019
£m
1,153
1,023
2,176
380
2,556
2018
£m
1,164
1,020
2,184
345
2,529
271
269
In addition to the amounts disclosed above, there are £6m of trade and other payables classified as liabilities held for sale
(see note 14).
For payables with a remaining life of less than one year, carrying amount is deemed to reflect fair value.
148
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
149
149
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
20. Provisions
At 15 September 2018
Created
Utilised
Released
Effect of movements in foreign exchange
At 14 September 2019
Current
Non-current
Restructuring
£m
Deferred
consideration
£m
91
28
(44)
(1)
–
74
45
29
74
9
11
(1)
(1)
–
18
1
17
18
Other
£m
40
6
(5)
(16)
1
26
18
8
26
Total
£m
140
45
(50)
(18)
1
118
64
54
118
Financial liabilities within provisions comprised deferred consideration in both years (see note 25).
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.
21. Share capital and reserves
Share capital
At 15 September 2018 and 14 September 2019, 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.
150
150
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
Restructuring
consideration
Deferred
£m
91
28
(44)
(1)
–
74
45
29
74
£m
9
11
(1)
(1)
–
18
1
17
18
Other
£m
40
6
(5)
(16)
1
26
18
8
26
Total
£m
140
45
(50)
(18)
1
118
64
54
118
20. Provisions
At 15 September 2018
Created
Utilised
Released
Effect of movements in foreign exchange
At 14 September 2019
Current
Non-current
Restructuring
reorganisation plans.
Deferred consideration
are often linked to performance or other conditions.
Other
of the warranties.
21. Share capital and reserves
Share capital
Financial liabilities within provisions comprised deferred consideration in both years (see note 25).
Restructuring provisions include onerous leases and the cash costs, including redundancy, associated with the group’s announced
Deferred consideration comprises estimates of amounts due to the previous owners of businesses acquired by the group which
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
Other reserves
non-distributable.
Translation reserve
Hedging reserve
At 15 September 2018 and 14 September 2019, 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.
£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
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.
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.
22. Acquisitions and disposals
Acquisitions
2019
On 17 September 2018 the group’s Grocery business completed the acquisition of 100% of Yumi’s Quality Foods, a chilled food
manufacturer in Australia, and on 6 September 2019 the Grocery business completed the acquisition of Anthony’s Goods, a
California-based blender and online marketer of speciality baking ingredients. These acquisitions will continue to develop our
presence in the faster growing segments of the grocery market. The group also acquired a small manufacturer of piglet starter
feed in Poland as part of the Agriculture business and as part of the Ingredients business, acquired Italmill an Italian bakery
ingredients producer.
The acquisitions had the following effect on the group’s assets and liabilities:
Net assets
Intangible assets
Property, plant and equipment
Other receivables (non-current)
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loans
Taxation
Employee benefit liabilities
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 in respect of previous acquisition
Pre-acquisition
carrying values
£m
Recognised
values on
acquisition
£m
–
20
2
7
14
2
(11)
(15)
(1)
(1)
17
56
20
2
7
14
2
(11)
(15)
(8)
(1)
66
30
96
Recognised
values on
acquisition
£m
85
11
96
85
(2)
1
84
Pre-acquisition carrying amounts were the same as recognised values on acquisition apart from £56m of non-operating intangible
assets in respect of brands and customer relationships, which were recognised together with related deferred tax of £7m.
The cash outflow of £84m on the purchase of subsidiaries, joint ventures and associates in the cash flow statement comprises
cash consideration of £85m for these acquisitions less cash acquired with the businesses of £2m and £1m payment of deferred
consideration in respect of previous acquisitions.
The acquisitions have contributed aggregate revenues of £42m and operating profit of £4m to the group’s result for the period
from the date of acquisition to 14 September 2019.
2018
On 12 October 2017, the group’s Grocery business completed the acquisition of 100% of Acetum S.p.A, the leading Italian producer
of Balsamic Vinegar of Modena for a net consideration of £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 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.
150
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
151
151
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
22. Acquisitions and disposals continued
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
Pre-acquisition
carrying values
£m
Recognised values on acquisition
Acetum
£m
Other
£m
Total
£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
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 brands 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.
Disposals
2019
In the current year the group disposed of its torula facility and associated torula whole cell business in Hutchinson, Minnesota,
reported within the US and Ingredients segments. Cash proceeds amounted to £5m, net assets disposed were £5m and the
associated goodwill was £8m. Provisions for transaction and associated restructuring costs were £2m, with a gain of £3m
on recycling foreign exchange differences. The pre-tax loss on disposal was £7m.
In August we signed an agreement to form a yeast and bakery ingredients joint venture in China with Wilmar International,
with completion subject to regulatory approval. The joint venture will see us build a major new low-cost yeast plant in the
north east of China and will combine AB Mauri’s existing commercial activities and technical expertise in China with Wilmar’s
extensive sales and distribution capability. As a consequence, a non-cash impairment charge of £88m has been included in the
loss on closure of businesses, comprising £56m of goodwill and £32m of property, plant and equipment.
£4m of warranty and restructuring provisions relating to disposals made in previous years are no longer required and were
released to sale and closure of businesses during the year in Grocery (The Americas). In the Agriculture segment, goodwill with
a carrying value of £3m was written off on sale and closure of a small business in the UK.
2018
In October 2018 the group shut down operations at Vivergo, AB Sugar’s bioethanol plant in Hull. A charge of £51m was included
for this in the loss on closure of businesses line in the income statement. The group also completed the buy-out of the remaining
5.5% minority interest in Vivergo. This resulted in the recognition of a gain of £23m (in the Sugar and UK segments) arising from
the extinguishment of the associated shareholder loan and interest, which was recognised in sale and closure of businesses
in line with the original transaction in 2015.
£18m of warranty and restructuring provisions relating to disposals made in previous years were no longer required and were
released to sale and closure of business. These comprised £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.
152
152
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
22. Acquisitions and disposals continued
The acquisitions had the following effect on the group’s assets and liabilities:
Pre-acquisition
carrying values
£m
Recognised values on acquisition
Acetum
£m
Other
£m
Total
£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
105
43
97
28
11
(31)
(89)
(42)
122
100
222
218
4
222
218
(11)
1
208
Recognised
values on
acquisition
£m
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
in respect of prior year acquisitions.
Disposals
2019
Pre-acquisition carrying amounts were the same as recognised values on acquisition apart from £105m of non-operating intangible
assets in respect of brands 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 the current year the group disposed of its torula facility and associated torula whole cell business in Hutchinson, Minnesota,
reported within the US and Ingredients segments. Cash proceeds amounted to £5m, net assets disposed were £5m and the
associated goodwill was £8m. Provisions for transaction and associated restructuring costs were £2m, with a gain of £3m
on recycling foreign exchange differences. The pre-tax loss on disposal was £7m.
In August we signed an agreement to form a yeast and bakery ingredients joint venture in China with Wilmar International,
with completion subject to regulatory approval. The joint venture will see us build a major new low-cost yeast plant in the
north east of China and will combine AB Mauri’s existing commercial activities and technical expertise in China with Wilmar’s
extensive sales and distribution capability. As a consequence, a non-cash impairment charge of £88m has been included in the
loss on closure of businesses, comprising £56m of goodwill and £32m of property, plant and equipment.
£4m of warranty and restructuring provisions relating to disposals made in previous years are no longer required and were
released to sale and closure of businesses during the year in Grocery (The Americas). In the Agriculture segment, goodwill with
a carrying value of £3m was written off on sale and closure of a small business in the UK.
2018
In October 2018 the group shut down operations at Vivergo, AB Sugar’s bioethanol plant in Hull. A charge of £51m was included
for this in the loss on closure of businesses line in the income statement. The group also completed the buy-out of the remaining
5.5% minority interest in Vivergo. This resulted in the recognition of a gain of £23m (in the Sugar and UK segments) arising from
the extinguishment of the associated shareholder loan and interest, which was recognised in sale and closure of businesses
in line with the original transaction in 2015.
£18m of warranty and restructuring provisions relating to disposals made in previous years were no longer required and were
released to sale and closure of business. These comprised £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.
23. Share-based payments
The group had the following principal equity-settled share-based payment plans in operation during the period:
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 vesting 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 vesting period.
Associated British Foods Short Term Incentive Plan (‘the 2016 STIP’)
The 2016 STIP was approved and adopted by the Board on 2 November 2016. It takes the form of conditional allocations of
shares which are released at the end of a three-year vesting period if, and to the extent that, performance targets are satisfied,
over a one-year performance period.
Further information regarding the operation of the above plans can be found in the Remuneration report on pages 83 to 106.
Total conditional allocations under the group’s equity-settled share-based payment plans are as follows:
2019
2018
Balance
outstanding at
the beginning
of the year
Granted/
awarded
Vested
Expired/
lapsed
Balance
outstanding
at the end
of the year
3,675,370
3,094,724
1,922,795
1,630,180
(475,947)
(506,293)
(461,551)
(543,241)
4,660,667
3,675,370
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 14 September 2019 the Trust held
2,781,914 (2018 – 2,225,705) ordinary shares of the Company. The market value of these shares at the year end was £65m
(2018 – £50m). The Trust has waived its right to dividends. Movements in the year were releases of 475,947 shares and
purchases of 1,032,156 shares (2018 – releases of 506,293 shares and purchases of 1,200,000 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 2,335p (2018 – 2,800p) and the weighted average share price was 2,511p
(2018 – 3,010p). The dividend yield used was 2.5% (2018 – 2.5%).
24. Analysis of net cash
Cash at bank and in hand, cash equivalents
and overdrafts
Current asset investments
Short-term loans
Long-term loans
At
15 September
2018
£m
Cash flow
£m
Acquisitions
£m
Non-cash
items
£m
Exchange
adjustments
£m
At
14 September
2019
£m
1,271
30
(328)
(359)
614
87
(1)
263
(2)
347
–
–
(15)
–
(15)
–
–
(10)
10
–
–
–
–
(10)
(10)
1,358
29
(90)
(361)
936
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 £137m 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.
152
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
153
153
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
25. Financial instruments
Financial instruments include £5m of trade and other receivables and £5m of trade and other payables which are classified as
held for sale, see note 14. All disclosures in this note are given gross, before the held for sale reclassification is made.
a) Carrying amount and fair values of financial assets and liabilities
Financial assets
Financial assets at amortised cost
Cash and cash equivalents
Current asset investments
Trade and other receivables
Other non-current receivables
At fair value through other comprehensive income
Investments
At fair value through profit or loss
Derivative assets not designated in a cash flow hedging relationship:
– currency derivatives (excluding cross-currency swaps)
– commodity derivatives
Designated cash flow hedging relationships
Derivative assets designated and effective as cash flow hedging instruments:
– currency derivatives (excluding cross-currency swaps)
– cross-currency swaps
– commodity derivatives
Total financial assets
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables
Secured loans
Unsecured loans and overdrafts (fair value 2019 – £599m; 2018 – £782m)
Finance leases (fair value 2019 – £20m; 2018 – £19m)
Deferred consideration
At fair value through profit or loss
Derivative liabilities not designated in a cash flow hedging relationship:
– currency derivatives (excluding cross-currency swaps)
– commodity derivatives
Designated net investment hedging relationships
Derivative liabilities designated as net investment hedging instruments:
– cross-currency swaps
Designated cash flow hedging relationships
Derivative liabilities designated and effective as cash flow hedging instruments:
– currency derivatives (excluding cross-currency swaps)
– commodity derivatives
Total financial liabilities
Net financial liabilities
2019
£m
2018
£m
1,495
29
1,249
44
7
12
–
17
64
6
2,923
1,362
30
1,241
46
4
20
3
13
60
36
2,815
(2,452)
(10)
(564)
(14)
(18)
(2,453)
(20)
(744)
(14)
(9)
(2)
(1)
(3)
(3)
(23)
(30)
(18)
(8)
(3,110)
(187)
(10)
(6)
(3,292)
(477)
Except where stated, carrying amount is equal to fair value. 2018 balances have been re-presented on a consistent basis with
the 2019 classification.
154
154
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
25. Financial instruments continued
Valuation of financial instruments carried at fair value
Financial instruments carried at fair value on the balance sheet comprise 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.
Financial assets
Currency derivatives (excluding cross-currency swaps)
Cross-currency swaps
Commodity derivatives
Financial liabilities
Currency derivatives (excluding cross-currency swaps)
Cross-currency swaps
Commodity derivatives
2019
2018
Contractual/
notional
amounts
£m
Level 1
£m
Level 2
£m
Total
£m
Contractual/
notional
amounts
£m
Level 1
£m
Level 2
£m
Total
£m
1,268
271
149
1,688
905
214
103
1,222
–
–
1
1
–
–
–
–
29
64
5
98
(20)
(23)
(9)
(52)
29
64
6
99
(20)
(23)
(9)
(52)
1,011
345
190
1,546
980
287
106
1,373
–
–
–
–
–
–
–
–
33
60
39
132
(13)
(30)
(9)
(52)
33
60
39
132
(13)
(30)
(9)
(52)
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
155
155
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
25. 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.
2019
2018
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
Currency
derivatives
(excluding
cross-
currency)
£m
(3)
(54)
(1)
–
–
60
(1)
1
(1)
2
–
–
–
1
Cross-
currency
swaps
£m
Commodity
derivatives
£m
9
(20)
Total
£m
(14)
(22)
33
(43)
–
–
12
–
2
1
–
–
1
–
–
1
–
(3)
–
4
(8)
6
5
1
–
–
–
6
(1)
(3)
12
64
(7)
8
4
3
1
–
–
8
Currency
derivatives
(excluding
cross-
currency)
£m
Cross-
currency
swaps
£m
27
(83)
6
–
–
40
7
(3)
(3)
1
(1)
–
–
(3)
5
(6)
–
–
11
–
(1)
9
–
1
2
5
1
9
Commodity
derivatives
£m
(2)
Total
£m
30
(32)
(121)
–
12
1
(5)
6
(20)
(15)
(2)
(1)
(2)
–
(20)
6
12
12
35
12
(14)
(18)
–
–
3
1
(14)
Of the closing balance of £8m, £9m is attributable to equity shareholders and £(1)m to non-controlling interests (2018 – £(14)m,
£(13)m is attributable to equity shareholders and £(1)m to non-controlling interests). Of the net movement in the year
of £22m, £22m is attributable to equity shareholders and £nil to non-controlling interests (2018 – £(44)m, £(44)m is attributable
to equity shareholders and £nil to non-controlling interests).
The balance remaining in the commodity cash flow hedge reserve from hedging relationships for which hedge accounting is no
longer applied is £2m.
156
156
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
25. Financial instruments continued
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, swaps, and, where appropriate, options. These teams work closely with group
Treasury and report regularly to executive management.
Treasury operations and commodity procurement and hedging are conducted within a clearly defined framework of board-
approved policies and guidelines to manage the group’s financial and commodity risks. Treasury works closely with the group’s
procurement teams to manage commodity risks. Treasury policy seeks to ensure that adequate financial resources are available
to the group at all times, for the management and development of the group’s businesses, whilst effectively managing its
market risk and credit risk. The group’s risk management policy explicitly forbids the use of financial or commodity derivatives
(outside its risk management framework of mitigating financial and commodity risks) for speculative purposes.
e) Foreign currency translation
The group presents its financial statements in sterling. As a result of its worldwide operations, the group is exposed to foreign
currency translation risk where overseas operations have a functional currency other than sterling. Changes in foreign currency
exchange rates impact the translation into sterling of both the income statement and net assets of these foreign operations.
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. At year end, the group had $nil of borrowings
(2018 – $160m) that were designated as hedges of its net investment in foreign operations in US dollars.
The group also holds cross-currency interest rate swaps to hedge its fixed rate non-sterling debt. These are reported as cash
flow hedges and net investment hedges. The change in fair value of the hedging instrument, to the degree effective, is retained
in other comprehensive income. Under IFRS 9, the currency basis on the cross-currency swaps is excluded from the hedge
designation and recognised in other comprehensive income – cost of hedging. The value of the currency basis is not material.
Effectiveness is measured using the hypothetical derivative approach. The hypothetical derivative is based on the critical terms
of the debt and therefore the only ineffectiveness that may arise is in relation to credit risk. Credit risk is monitored regularly
and is not a significant factor in the hedge relationship.
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.
A net foreign exchange gain of £1m (2018 – loss of £6m) 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 £2m has been credited to the translation reserve, all of which was attributable to equity shareholders (2018 – £4m has
been debited to the translation reserve).
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
157
157
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
25. Financial instruments continued
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, lean hog, soya beans, sugar raws, cocoa, rice, tea and energy
is managed through the use of forward physical contracts and hedging instruments, including futures, swaps and options
primarily to convert floating 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 entered into, and
continue to be held, for the purposes of the group’s ordinary operations. In this instance 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 (with a one to one hedge ratio), 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 maturities of less than one year.
The group’s sensitivities in respect of the accounting commodity derivatives for a +/- 20% movement in underlying commodity
prices is £28m and (£23m) respectively.
(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 14 September 2019, £360m (61%) (2018 – £593m and 76%) of total debt was subject to fixed rates of interest, the majority
of which is the US private placement loans of £345m (2018 – £573m).
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 157.
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.
158
158
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
25. Financial instruments continued
Economic (forecast) risk
The group principally 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
designates currency derivatives used to hedge its highly probable forecast transactions as cash flow hedges. Under IFRS 9, the
spot component is designated in the hedging relationship and forward points and currency basis are excluded and recognised
in other comprehensive income – cost of hedging. The cost of hedging value during the period and at the balance sheet date
was not material. The economic relationship is based on critical terms and a one-to-one hedge ratio. 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 sales in British Sugar to movements in the sterling/euro exchange rate;
• meat purchases in George Weston Foods, predominantly Australian dollar/US dollar exchange rate; 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.
The below table illustrates the effects of hedge accounting on the consolidated statement of financial position and consolidated
income statement by disclosing separately by risk category, and each type of hedge, the details of the associated hedging
instrument and hedged item.
2019
Contract
Notional
£m
Carrying
Amount assets/
(liabilities)
£m
Farthest
maturity
date
£m
Hedge Ratio
£m
1,482
209
(1) Sep-20
(4) Aug-20
100%
100%
–
Aug-21
64 Mar-24
Sep-21
–
100%
100%
100%
Change in fair
value of hedging
instrument
used to
determine
hedge
ineffectiveness
£m
Change in
fair value of
hedge item
used to
determine
hedge
effectiveness
£m
(3)
(8)
–
20
(3)
3
8
–
(20)
3
Current
Designated cash flow hedging relationships
– currency derivatives (excluding cross-currency swaps)
– commodity derivatives
Non-current
Designated cash flow hedging relationships
– currency derivatives (excluding cross-currency swaps)
– cross-currency swaps
– commodity derivatives
Designated net investment hedging relationships
– currency derivatives (cross-currency swaps)
79
271
16
214
(23) Mar-24
100%
–
–
Hedging relationships are typically based on a one-to-one hedge ratio. The economic relationship between the hedged item
and the hedging instrument is analysed on an ongoing basis. Sources of possible ineffectiveness include changes in forecast
transactions as a result of timing or value or, in certain cases, different indices linked to the hedged item and the hedging
instrument. As at 14 September 2019, FX forwards designated as cash flow hedges equal to £1,561m were outstanding.
These are largely in relation to purchases of USD (£896m) and sales of EUR (£248m) with varying maturities up to August 2021.
Weighted average hedge rates for these contracts are GBPUSD: 1.239, EURUSD: 1.122 and GBPEUR: 1.113. Weighted average
hedge rates for the cross-currency swaps are GBPUSD: 1.699 and GBPEUR: 1.262. Commodity derivatives designated as cash
flow hedges related to a range of underlying hedged items, with varying maturities out to September 2021.
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
159
159
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
25. Financial instruments continued
The analysis of the group’s foreign currency exposure to financial assets and liabilities by currency of denomination is as follows:
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Trade and other payables
Unsecured loans and overdrafts
Currency derivatives
Gross amounts receivable
Gross amounts payable
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Trade and other payables
Unsecured loans and overdrafts
Currency derivatives
Gross amounts receivable
Gross amounts payable
2019
Sterling
£m
US dollar
£m
Euro
£m
Other
£m
1
–
1
(17)
–
(17)
74
(4)
70
54
87
43
130
(525)
(241)
(766)
1,578
(119)
1,459
823
26
63
89
(40)
–
(40)
129
(537)
(408)
(359)
42
16
58
(12)
–
(12)
154
(63)
91
137
2018
Sterling
£m
US dollar
£m
Euro
£m
Other
£m
2
–
2
(15)
–
(15)
69
(3)
66
53
240
45
285
(368)
(428)
(796)
1,642
(94)
1,548
1,037
21
72
93
(45)
(1)
(46)
130
(474)
(344)
(297)
36
14
50
(9)
–
(9)
166
(54)
112
153
The following major exchange rates applied during the year:
US dollar
Euro
Rand
Renminbi
Australian dollar
Average rate
Closing rate
2019
1.28
1.13
18.32
8.78
1.81
2018
1.35
1.13
17.52
8.79
1.76
2019
1.25
1.12
18.08
8.82
1.81
Total
£m
156
122
278
(594)
(241)
(835)
1,935
(723)
1,212
655
Total
£m
299
131
430
(437)
(429)
(866)
2,007
(625)
1,382
946
2018
1.31
1.12
19.46
8.97
1.82
The following sensitivity analysis illustrates the impact that a 10% strengthening of the group’s transactional 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.
160
160
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
25. Financial instruments continued
Sensitivity analysis
10% strengthening against other currencies of
Sterling
US dollar
Euro
Other
2019
impact on
profit for
the year
£m
2019
impact on
total equity
£m
2018
impact on
profit for
the year
£m
2018
impact on
total equity
£m
–
23
7
3
6
96
(35)
18
1
11
5
8
7
110
(29)
17
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
2019
impact on
profit for
the year
£m
2018
impact on
profit for
the year
£m
(17)
(37)
–
10
(4)
(14)
(31)
(1)
(2)
(3)
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 14 September 2019. The group considers its maximum exposure to credit risk to be:
Cash and cash equivalents
Current asset investments
Trade and other receivables
Other non-current receivables
Investments
Derivative assets at fair value through profit and loss
Derivative assets in designated cash flow hedging relationships
2019
£m
1,495
29
1,249
44
7
12
64
2,900
2018
£m
1,362
30
1,241
46
4
23
109
2,815
The significant 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 metrics to identify significant changes to the financial
profile of its counterparties.
Counterparty risk profile and management
The table below analyses the group’s current asset investments, cash equivalents and derivative assets by credit exposure:
Standard & Poors rating
A+
AA-
A
A-
BBB+
BB-
As at 14 September 2019
Current asset
investments
£m
–
27
–
–
2
–
29
Cash
equivalents
£m
–
35
11
–
–
12
58
Derivatives
Currency
derivative
assets
£m
–
4
–
10
–
–
14
Cross-currency
swaps
£m
21
–
20
–
–
–
41
Total
£m
21
66
31
10
2
12
142
Cash of £643m and cash equivalents of £794m have been excluded from this analysis as they are available on demand.
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
161
161
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
25. Financial instruments continued
Trade and other receivables
Significant concentrations of credit risk are very 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.
To measure expected credit losses, gross trade receivables are assessed regularly by each business locally with reference to
considerations such as the current status of the relationship with the customer, the geographical location of each customer,
and days past due (where applicable).
Expected losses are determined based on the historical experience of write-offs compared to the level of trade receivables.
These historical loss expectations are adjusted for current and forward-looking information where it is identified to be significant.
The group considers factors such as national economic outlooks and bankruptcy rates of the countries in which its goods are
sold to be the most relevant factors. Where the impact of these is assessed as significant, the historical loss expectations are
amended accordingly.
The group considers credit risk to have significantly increased for debts aged 180 days or over and expects these debts to be
provided for in full. Where the group holds insurance or has a legal right of offset with debtors who are also creditors, the loss
expectation is applied only to the extent of the uninsured or net exposure.
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there may be no reasonable
expectation of recovery may include the failure of the debtor to engage in a payment plan, and failure to make contractual payments
within 180 days past due.
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
Expected loss provision
Trade receivables are stated net of the following expected loss provision:
Opening balance
Increase charged to the income statement
Amounts released
Amounts written off
Amounts acquired through business combinations
Effect of movements in foreign exchange
Closing balance
2019
£m
425
340
175
309
1,249
2019
£m
965
82
16
8
37
(24)
1,084
2018
£m
466
302
168
305
1,241
2018
£m
950
90
18
9
30
(23)
1,074
2019
£m
2018
£m
23
7
(3)
(3)
–
–
24
25
6
(4)
(4)
1
(1)
23
No trade receivables were written off directly to the income statement in either year.
162
162
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
25. Financial instruments continued
The geographical and business line complexity of the group, combined with the fact that expected loss assessments are all
performed locally, means that it is not practicable to present further analysis of expected losses.
In relation to other receivables not forming part of trade receivables, a similar approach has been taken to assess expected
losses. No significant expected loss has been identified.
The directors consider that the carrying amount of trade and other receivables approximates fair value.
In the prior year, the impairment of trade and other receivables was assessed on an incurred loss model basis. Individual
receivables that were considered to be uncollectable were written off by reducing the carrying value directly. Individual
receivables were assessed to determine if there was evidence of impairment, and losses were recognised in a separate
provision for impairment. The group considered the following to be indicators of evidence of impairment:
• significant financial difficulties of the debtor;
• probability that the debtor would enter bankruptcy; and
• default of late payments, the extent to which they were overdue being determined on a case-by-case basis with reference to
the knowledge and communication with the debtor and their relationship with the business.
The group has a long history of a low level of bad debts. This, coupled with the geographical spread of the group’s operations
and its large and diverse customer base, means that IFRS 9 was not expected to result in a significant change to the group’s
trade and other receivables.
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.
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 164.
The following table analyses the contractual undiscounted cash flows relating to financial liabilities at the balance sheet date
and compares them to carrying amounts:
Note
19
18
18
26
20
Non-derivative financial liabilities
Trade and other payables
Secured loans
Unsecured loans and overdrafts
Finance leases
Deferred consideration
Derivative financial liabilities
– Currency derivatives (excluding cross-
currency swaps) (net payments)
– Commodity derivatives (net payments)
Total financial liabilities
Due
between
6 months
and 1 year
£m
Due
between
1 and 2
years
£m
Due within
6 months
£m
2019
Due
between
2 and 5
years
£m
Due after
5 years
£m
Contracted
amount
£m
Carrying
amount
£m
(2,074)
(5)
(187)
(1)
–
(10)
(8)
(2,285)
(100)
(4)
(43)
(1)
(1)
(4)
(1)
(154)
(27)
–
(38)
(1)
–
(1)
–
(67)
(80)
(1)
(328)
(2)
(15)
–
–
(426)
(171)
–
–
(35)
(2)
–
–
(208)
(2,452)
(10)
(596)
(40)
(18)
(2,452)
(10)
(564)
(14)
(18)
(15)
(9)
(3,140)
(20)
(9)
(3,087)
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
163
163
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
25. Financial instruments continued
Non-derivative financial liabilities
Trade and other payables
Secured loans
Unsecured loans and overdrafts
Finance leases
Deferred consideration
Derivative financial liabilities
Currency derivatives (excluding cross-
currency swaps) (net payments)
Commodity derivatives (net payments)
Total financial liabilities
Note
19
18
18
26
20
Due
between
6 months
and 1 year
£m
Due
between
1 and 2
years
£m
Due within
6 months
£m
(2,157)
(5)
(195)
(1)
–
(4)
(8)
(2,370)
(28)
(5)
(202)
(1)
(1)
(2)
–
(239)
(21)
(10)
(15)
(1)
(2)
–
(1)
(50)
2018
Due
between
2 and 5
years
£m
(65)
–
(285)
(3)
(4)
–
–
(357)
Due after
5 years
£m
Contracted
amount
£m
Carrying
amount
£m
(182)
–
(80)
(35)
(2)
–
–
(299)
(2,453)
(20)
(777)
(41)
(9)
(2,453)
(20)
(744)
(14)
(9)
(6)
(9)
(3,315)
(13)
(9)
(3,262)
The above tables do not include forecast data for liabilities which may be incurred in the future but which were not contracted
at 14 September 2019.
The principal reasons for differences between carrying values and contractual undiscounted cash flows are coupon payments
on the fixed rate debt to which the group is already committed, future interest payments on the group’s finance leases, and cash
flows on derivative financial instruments which are not aligned with their fair value.
i) Borrowing facilities
The group has substantial borrowing facilities available to it. The undrawn committed facilities available at 14 September 2019,
in respect of which all conditions precedent have been met, amounted to £1,235m (2018 – £1,249m):
£1.2bn syndicated facility
US private placement
Illovo
Other
Facility
£m
1,200
345
98
4
1,647
2019
Drawn
£m
–
345
65
2
412
Uncommitted facilities available at 14 September 2019 were:
Money market lines
Illovo
Azucarera
China banking
Other
2019
Facility
£m
Drawn
£m
100
206
66
40
153
565
–
90
29
–
43
162
Undrawn
£m
1,200
–
33
2
1,235
Undrawn
£m
100
116
37
40
110
403
Facility
£m
1,200
573
113
2
1,888
2018
Drawn
£m
Undrawn
£m
–
573
66
–
639
1,200
–
47
2
1,249
2018
Facility
£m
Drawn
£m
Undrawn
£m
100
179
80
6
159
524
–
62
22
–
41
125
100
117
58
6
118
399
In addition to the above facilities there are also £75m (2018 – £73m) 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 (2018 – £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 18.
The group has a £1.2bn syndicated facility which matures in July 2021. In addition to the bank debt, the Company has £345m
of private placement notes in issue to institutional investors in the US and Europe. At 14 September 2019, these had an average
remaining duration of 2.7 years and an average fixed coupon of 4.4%. 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 27 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.
164
164
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
25. Financial instruments continued
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 18 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.
k) Implementation of IFRS 9 Financial Instruments
IFRS 9 was adopted using the modified transition approach without restating comparative information. No reclassifications
or adjustments were required in the opening balance sheet on 16 September 2018.
The adoption of IFRS 9 resulted in changes to the group’s accounting policies in the three key areas of classification and
measurement, impairment and hedge accounting.
Classification and measurement
As of 16 September 2018, the group assessed which business models apply to each category of its financial assets and
classified them into the three categories defined by IFRS 9: amortised cost, fair value through other comprehensive income
(FVOCI) and fair value through profit or loss (FVPL). All assets previously classified as amortised cost retained this classification.
All assets previously classified as available for sale were irrevocably designated as FVOCI, whereby any gains or losses
on eventual disposal are included directly in retained earnings and are not recycled to the income statement. All assets
previously classified as loans and receivables were classified as amortised cost. All assets previously classified as FVPL
retained this classification.
There were no changes in classification of financial liabilities.
This can be summarised as follows:
Non-current financial assets
Investments (recorded within other non-
current receivables)
Other non-current receivables
Current financial assets
Cash and cash equivalents
Current asset investments
Trade and other receivables
Derivatives not designated in a hedging
relationship
Derivatives designated in a hedging
relationship
Current financial liabilities
Trade and other payables
Loans and other financial liabilities
Derivatives not designated in a
hedging relationship
Derivatives designated in a hedging
relationship
Non-current financial liabilities
Trade and other payables
Loans and other financial liabilities
Original classification under IAS 39
New classification under IFRS 9
Available for sale
FVOCI
Amortised cost
Amortised cost
Amortised cost
Amortised cost
FVPL
Amortised cost
Amortised cost
Amortised cost
Amortised cost
FVPL
FVPL but with gains and losses recorded
in the hedging reserve when effective
FVPL but with gains and losses recorded
in the hedging reserve when effective
Amortised cost
Amortised cost
FVPL
Amortised cost
Amortised cost
FVPL
FVPL but with gains and losses recorded
in the hedging reserve when effective
FVPL but with gains and losses recorded
in the hedging reserve when effective
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
165
165
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
25. Financial instruments continued
Impairment
The group holds the following types of financial assets subject to IFRS 9’s new expected credit loss model:
• Other non-current receivables
• Trade receivables
• Other receivables
The group revised its impairment methodology under IFRS 9 for each of these classes of assets. The group applies the IFRS 9
simplified approach to measuring expected credit losses which uses a lifetime expected credit loss allowance for all trade
receivables. There were no adjustments required in the opening balance sheet as at 16 September 2018. Further information
is given earlier in this note.
Hedge accounting
The new principles for hedge accounting provide a more flexible framework which is better aligned with the economic decision-
making of the group. All hedge relationships were regarded as continuing hedge relationships, as all which were designated
hedges under IAS 39 as at 15 September 2018 met the criteria for hedge accounting under IFRS 9 as the group’s risk
management strategies and hedge documentation were aligned to the new standard.
Under IAS 39, the group included the currency basis within the hedge relationship. On transition, IFRS 9 allows the choice to
separate aspects of the costs of hedging from the designation within a hedge relationship as part of the hedging instrument.
Similarly under IFRS 9 in relation to cross-currency swaps, the currency basis is excluded from the hedge designation and
recognised in the cost of hedging reserve. The balance in the cost of hedging reserve was not significant as at 16 September
2018 or at 14 September 2019.
26. Lease commitments
Operating leases
The group acts as a lessee, lessor and sub-lessor for land and buildings, and plant and machinery, under operating leases.
Rental receipts of £8m (2018 – £7m) were recognised in the income statement in the period relating to operating leases.
The total of future minimum rental receipts expected to be received is £50m (2018 – £45m).
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
2019
land and
buildings
£m
2019
plant and
equipment
£m
342
1,423
3,401
5,166
19
27
1
47
2019
total
£m
361
1,450
3,402
5,213
2018
land and
buildings
£m
315
1,280
2,989
4,584
2018
plant and
equipment
£m
12
18
–
30
2018
total
£m
327
1,298
2,989
4,614
2019
minimum
lease
payments
£m
2
4
34
40
2019
interest
£m
2019
principal
£m
1
3
22
26
1
1
12
14
2018
minimum
lease
payments
£m
2
4
35
41
2018
interest
£m
2018
principal
£m
1
3
23
27
1
1
12
14
166
166
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
27. 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 14 September 2019, group companies have provided guarantees in the ordinary course of business amounting to £1,902m
(2018 – £1,661m).
28. 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 29. The group has a related party relationship with its associates and joint
ventures (see note 29) 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
trustees of the Garfield Weston Foundation and their close family
their close family
(iii) directors of the Company who are not trustees of the Foundation and are not directors of
Wittington Investments Limited
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
2019
£000
2018
£000
1
2
3
4
4
4
1,143
1,045
12,083
11,685
5,941
3,071
82
75
16,014
1,103
1,880
12,744
31,174
380,176
15,739
46,102
2,620
27,962
1,282
62
48
16,043
1,215
1,887
14,186
39,822
395,279
14,577
48,775
3,771
40,715
857
1. The Garfield Weston Foundation (‘the Foundation’) is an English charitable trust, established in 1958 by the late W. Garfield
Weston. The Foundation has no direct interest in the Company, but as at 14 September 2019 was the beneficial owner
of 683,073 shares (2018 – 683,073 shares) in Wittington Investments Limited representing 79.2% (2018 – 79.2%) of that
company’s issued share capital and is, therefore, the Company’s ultimate controlling party. At 14 September 2019 trustees
of the Foundation comprised four grandchildren of the late W. Garfield Weston and five children of the late Garry H. Weston.
2. Details of the directors are given on pages 68 and 69. Their interests, including family interests, in the Company and its
subsidiary undertakings are given on pages 101 and 102. Key management personnel are considered to be the directors,
and their remuneration is disclosed within the Remuneration report on pages 83 to 106.
3. The fellow subsidiary undertakings are Fortnum and Mason plc and Heal & Son Limited.
4. 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 £44m (2018 – £47m) of finance lease receivables (see note 13). The remainder of the
balance is trading balances. All but £5m (2018 – £5m) of the finance lease receivables are non-current.
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
167
167
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
29. 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 14 September 2019 Wittington, together with its subsidiary, Howard Investments Limited, held 431,515,108 ordinary
shares (2018 – 431,515,108) representing in aggregate 54.5% (2018 – 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 14 September 2019, have a combined interest in approximately 59.53%
(2018 – 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 107 of the Directors’ report.
Subsidiary undertakings
A list of the group’s subsidiaries as at 14 September 2019 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.
Subsidiary undertakings
United Kingdom
Weston Centre, 10 Grosvenor Street, London,
W1K 4QY, United Kingdom
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 China 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%
% 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
John K. King & Sons Limited
Kingsgate Food Ingredients Limited
168
168
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
% effective holding
if not 100%
% effective holding
if not 100%
29. Group entities continued
Subsidiary undertakings
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
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 Biscuit Company Limited (The)
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, United Kingdom
Jordan Bros. (N.I.) Limited
Nutrition Services (International) Limited
Vistavet Limited
180 Glentanar Road, Glasgow, G22 7UP, United
Kingdom
ABN (Scotland) Limited
Miller Samuel LLP, RWF House,
5 Renfield Street, Glasgow, G2 5EZ, United
Kingdom
Korway Foods Limited
Korway Holdings Limited
Patak’s Chilled Foods Limited
Patak’s Frozen Foods Limited
Subsidiary undertakings
Argentina
Mariscal Antonio José de Sucre 632 – 2nd
Floor, Buenos Aires 1428, Argentina
AB Mauri Hispanoamerica S.A.
Surgras S.A (in liquidation)
Av. Raul Alfonsin, Monte Chingolo,
Buenos Aires 3145, Argentina
Compañía Argentina De Levaduras S.A.I.C.
Australia
Building A, Level 2, 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
Dagan Trading Pty Ltd
Food Investments Pty. Limited
George Weston Foods (Victoria) Pty Ltd
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
Yumi's Quality Foods 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,
Bangladesh
Twinings Ovaltine Bangladesh Limited
Belgium
Industriepark 2d, 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
Alameda Madeira 328, 20th Floor, Room 2005,
Alphaville – Barueri, Sao Paulo 06454-010, Brazil
AB Enzimas Brasil Comercial Ltda
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
169
169
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
% effective holding
if not 100%
90%
29. Group entities continued
Subsidiary undertakings
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.
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, Tonggu 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
Room 2906 29/F Changning Raffles Tower 2,
No. 1189 Changning Road, Changning District,
Shanghai, 200051, China
Associated British Foods Holdings (China) Co., Ltd
Suite 702, 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.
Building 1, 35 Chi Feng 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
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.
% effective holding
if not 100%
90%
92%
60%
60%
60%
60%
Subsidiary undertakings
17 Xiangyang Street, Tu Township, Chayou
Qianqi , 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 Province, 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.
Karolinská 661/4, Karlín, 186 00 Praha 8, Czech
Republic
Primark Prodejny 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
ABCALSA S.A.
Eswatini
Ubombo Sugar Limited, Old Main Road,
Big Bend, Eswatini
Bar Circle Ranch Limited
Illovo Swaziland Limited
Moyeni Ranch Limited
Ubombo Sugar Limited
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
75 Square Haussmann, 75008, Paris, France
ABFI France SAS
5 Boulevard de l'Oise, Immeuble Le Rond Point,
95000 Cergy Pontoise, Cédex, France
Foods International S.A.S.
170
170
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
% effective holding
if not 100%
29. Group entities continued
Subsidiary undertakings
3/5 Rue Saint-Georges, 75009, Paris, France
Primark France SAS
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
Dorey Court, Admiral Park, St. Peter Port,
GY1 2HT, 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 (in liquidation)
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)
1 Stokes Place, St. Stephen’s Green, Dublin 2,
Ireland
Allied Mills Ireland Limited
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
Subsidiary undertakings
Via Rizzotto 46, 41126, Modena (MO), Italy
Acetaia Fini Modena S.r.l.
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.
Via Ettore Bugatti 11, 20142, Milan, Italy
Italmill S.p.A
Japan
36F Atago Green Hills Mori Tower, 2-5-1 Atago,
Minato-ku, Tokyo 105-6236, Japan
Twinings Japan Co Ltd
Jersey
CTV House, La Pouquelaye, St Helier,
JE2 3TP, Jersey
Bonuit Investments Limited
Luxembourg
9 Allee Scheffer, Luxembourg, L2520,
Luxembourg
ABF European Holdings & Co SNC (in liquidation)
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.
Av. Prolongacion Paseo de la Reforma No.
1015, Torre "A", piso 14 Col., Santa Fe,
Cuajimalpa, Ciudad de México, 05348, 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.
Primark Netherlands B.V.
Primark Stil B.V.
% effective holding
if not 100%
50%
76%
76%
52%
70%
73%
90%
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
171
171
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
29. Group entities continued
Subsidiary undertakings
Weena 505, 3013AL Rotterdam, Netherlands
AB Vista Europe B.V.
7122 JS Aalten, Dinxperlosestraatweg 122,
Netherlands
Germains Seed Technology B.V.
Brieltjenspolder 16, 4921 PJ Made, Netherlands
Mauri Technology B.V.
Stadhuisstrat 3, 5038XZ, Tilburg, Netherlands
Primark Austria B.V.
Primark Germany B.V.
Dalsteindreef 141, Diemen, 1112XJ,
Netherlands
Westmill Foods Europe B.V.
New Zealand
Building 3, Level 2, 666 Great South Road,
Ellerslie, Auckland 1051, New Zealand
Allied Foods (NZ) Ltd
Anzchem NZ Limited
George Weston Foods (NZ) Limited
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
Primark Sklepy spolka z ograniczona
odpowiedzialnoscia (Primark Sklepy sp. z.o.o)
R. Twining and Company Spółka z ograniczona
odpowiedzialnoscia (R. Twining and Company
Sp. z o. o.)
ul. Główna 3A, Bruszczewo, 64-030, migiel,
Poland
AB Agri Polska spolka z organiczona
odpowiedzialnoscia (AB Agri Polska 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.
% effective holding
if not 100%
60%
99%
96%
% effective holding
if not 100%
Subsidiary undertakings
Rwanda
Shop number E002B, 1st Floor, CHIC Building, Nyarugenge
District, Nyarugenge Sector, Kigali City, Rwanda
Illovo Sugar (Kigali) Limited
Singapore
80 Robinson Road, #02-00, 068898 Singapore
AB Mauri Investments (Asia) Pte Ltd
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
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.
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
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.
70%
53%
172
172
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
29. Group entities continued
% effective holding
if not 100%
80%
55%
Subsidiary undertakings
Tanzania
Msolwa Mill Office, Kidatau, 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.
The Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street, Wilmington
DE 19801, United States
AB Enzymes, Inc.
AB Vista, Inc.
AB World Foods US, Inc.
ABF North America Corp.
ABF North America Holdings, Inc.
Abitec Corporation
ACH Food Companies, Inc.
ACH Jupiter LLC
B.V. ABF Delaware, Inc.
Germains Seed Technology, Inc.
PGP International, Inc.
Primark US Corp.
SPI Pharma, Inc.
Subsidiary undertakings
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.
2590 Pioneer Avenue, Suite D, Vista, CA 92081
PennyPacker, LLC
18757 Burbank Blvd., Suite 212, Tarzana, CA
91356
Prosecco Source, LLC
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%
80%
66%
75%
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 14 September 2019 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 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 14 September 2019. 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
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
173
173
Financial statements
Notes forming part of the financial statements
for the 52 weeks ended 14 September 2019
29. Group entities continued
Joint ventures
A list of the group’s joint ventures as at 14 September 2019 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, United Kingdom
Frontier Agriculture Limited
Boothmans (Agriculture) Limited
Forward Agronomy Limited
G F P (Agriculture) Limited
GH Grain Limited
Grain Harvesters Limited
Intracrop 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, United Kingdom
Chiltern Bakeries Limited
Berth 36, Test Road, Eastern Docks, Southampton,
Hampshire, SO14 3GG, United Kingdom
Southampton Grain Terminal Limited
Kingseat, Newmacher, Aberdeenshire,
AB21 0UE, Scotland, United Kingdom
Euroagkem Limited
Lothian Crop Specialists Limited
1st Floor Offices, 10 Hereford Road, Abergavenny,
Monmouthshire, NP7 5P, United Kingdom
Brian Lewis Agriculture Limited
47, Beaumount Seymour & Co, Butt Road, Colchester,
Essex CO3 3BZ, United Kingdom
Anglia Grain Holdings Limited
Riverside, Wissington Road, Nayland, Colchester,
Essex, CO6 4LT, United Kingdom
Anglia Grain Services Limited
Unit 8, Burnside Business Park, Burnside Road, Market
Brayton, TF9 3UX, United Kingdom
B.C.W (Agriculture) Limited
Witham St Hughs, Lincoln, LN6 9TN, United Kingdom
Nomix Enviro Limited
Australia
Building A, Level 2, 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%
50%
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%
50%
50%
50%
50%
174
174
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
29. Group entities continued
Associates
A list of the group’s associates as at 14 September 2019 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, United Kingdom
Bakers Basco Limited
Paternoster House, 65 St. Paul's Churchyard,
London, EC4M 8AB, United Kingdom
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, United Kingdom
Proper Nutty Limited
Australia
283 Flagstaff Road, Brinkley SA 5253, Australia
Big Pork River Pty Ltd
Murray Bridge Bacon Pty Ltd
32 Davis Road, Wetherill Park, Sydney NSW 2164,
Australia
New Food Coatings Pty Ltd
Bahrain
Suite No. 1959 Diplomatic Commercial Office, Tower B,
Building No. 1565, Road 1722, Diplomatic Area/Manama
317, Bahrain
Czarnikow Supply Chain Sales for Food & Beverage
Ingredients Bahrain S.P.C.
Brazil
Rua Fidêncio Ramos, 308, cj64, Torre A, Vila Olímpia,
São Paulo, SP, Cep 04551-010, Brasil
Czarnikow Brasil Ltda
China
Room 17A01, 232 Zhong Shan 6th Road, Guangzhou
City, Guangdong Province, 510180, China
C. Czarnikow Sugar (Guangzhou) Company Ltd
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
%
holding
Associates
%
holding
43%
43%
30%
Italy
Piazza Borromeo 14, 20123 Milano, Italia
Czarnikow Italia Srl
Kenya
I & M Bank House, Second Ngong Avenue,
P.O. Box 10517, Nairobi 00100, Kenya
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 (Mexico), S.A. de C.V.
43%
43%
New Zealand
c/o KPMG, 18 Viaduct Harbour Avenue, Maritime
Square, Auckland, New Zealand
New Food Coatings (New Zealand) Limited
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 Weds Foods (Thailand) Ltd
Newly Wed Foods (Trading) Limited
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.
50%
50%
43%
30%
43%
20%
50%
50%
43%
43%
20%
43%
43%
43%
43%
43%
40%
20%
20%
50%
43%
43%
43%
43%
49%
49%
49%
43%
21%
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
175
175
Financial statements
Company balance sheet
at 14 September 2019
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
6
4
5
7
7
7
7
2019
£m
19
703
722
2,858
151
220
64
931
4,224
(3)
(2,466)
(2,469)
1,755
2,477
(346)
(252)
(38)
(21)
(657)
1,820
45
2
2
1,771
1,820
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
The Company’s loss for the 52 weeks ended 14 September 2019 was £36m (52 weeks ended 15 September 2018 was £62m).
The financial statements on pages 176 to 182 were approved by the board of directors on 5 November 2019 and were signed
on its behalf by:
Michael McLintock
Chairman
John Bason
Finance Director
176
176
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Company statement of changes in equity
for the 52 weeks ended 14 September 2019
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/(loss)
Total comprehensive income/(loss)
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 15 September 2018
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/(loss)
Total comprehensive income/(loss)
Transactions with owners
Dividends paid to equity shareholders
Net movement in own shares held
Total transactions with owners
Balance as at 14 September 2019
Share
capital
£m
45
–
–
–
–
–
–
–
–
–
–
45
–
–
–
–
–
–
–
–
–
45
Capital
redemption
reserve
£m
Hedging
reserve
£m
Profit
and loss
reserve
£m
Total
£m
2
–
–
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
–
–
2
(5)
2,626
2,668
–
–
–
(4)
(4)
(4)
–
–
–
–
(9)
–
–
–
11
11
11
–
–
–
2
(62)
293
(49)
1
245
183
(327)
(11)
(1)
(339)
2,470
(36)
(361)
59
–
(302)
(338)
(358)
(3)
(361)
1,771
(62)
293
(49)
(3)
241
179
(327)
(11)
(1)
(339)
2,508
(36)
(361)
59
11
(291)
(327)
(358)
(3)
(361)
1,820
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
177
177
Financial statements
Accounting policies
for the 52 weeks ended 14 September 2019
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 124 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 no different as the goodwill would already have been fully amortised.
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.
178
178
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
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.
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
179
179
Financial statements
Notes to the company financial statements
for the 52 weeks ended 14 September 2019
1. Intangible assets
Cost
At 15 September 2018
Acquisitions
At 14 September 2019
Amortisation
At 15 September 2018
Amortisation
At 14 September 2019
Net book value
At 15 September 2018
At 14 September 2019
2. Investments in subsidiaries
At 15 September 2018
Additions
At 14 September 2019
Goodwill
£m
Operating
intangibles
£m
Total
£m
14
–
14
–
–
–
14
14
7
2
9
(3)
(1)
(4)
4
5
21
2
23
(3)
(1)
(4)
18
19
£m
688
15
703
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
2019
£m
2,800
13
45
2,858
2018
£m
3,592
18
19
3,629
151
232
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 (losses)/gains arising from changes in
financial assumptions
Actuarial gains arising from changes in demographic
assumptions
Experience gains on scheme liabilities
At end of year
2019
assets
£m
3,714
–
7
41
(160)
–
104
116
2018
assets
£m
2019
liabilities
£m
2018
liabilities
£m
3,695
–
7
28
(214)
–
96
102
(3,184)
(30)
(7)
–
160
(14)
(89)
–
(3,462)
(32)
(7)
–
214
1
(89)
–
2019
net
£m
530
(30)
–
41
–
(14)
15
116
–
–
(507)
129
(507)
–
–
3,822
–
–
3,714
23
8
(3,640)
49
13
(3,184)
23
8
182
2018
net
£m
233
(32)
–
28
–
1
7
102
129
49
13
530
The net pension asset of £182m comprises a funded scheme with a surplus of £220m and an unfunded scheme with a deficit
of £38m.
Further details of the Associated British Foods Pension Scheme are contained in note 11 of the consolidated financial statements.
180
180
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
5. Deferred tax assets and liabilities
At 15 September 2018
Amount charged to the income statement
Amount charged/(credited) to equity
At 14 September 2019
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
(90)
–
59
(31)
2
1
–
3
Other
£m
9
–
(2)
7
2019
£m
1
66
2,399
2,466
Total
£m
(79)
1
57
(21)
2018
£m
1
68
2,537
2,606
252
210
The directors consider that the carrying amount of creditors approximates their fair value.
7. Capital and reserves
Share capital
At 15 September 2018 and 14 September 2019, 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 23 to the consolidated financial
statements.
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.
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 £888m of guarantees in the ordinary course of business as at 14 September 2019 (2018 – £802m).
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Associated British Foods plc
Associated British Foods plc
181
181
Financial statements
Notes to the company financial statements
for the 52 weeks ended 14 September 2019
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 29 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:
(i)
trustees of the Garfield Weston Foundation and their close family
(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
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
1
2
2
2
2
2
2019
£000
1,143
2018
£000
1,045
12,083
11,685
5,941
3,071
82
35
251
–
203
3,734
62
43
1,902
40
165
3,507
1. Details of the nature of the relationships with these bodies are set out in note 28 of the consolidated financial statements.
2. Details of the Company’s subsidiaries, joint ventures and associates are set out in note 29 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 page102.
Employees
The Company had an average of 197 employees in 2019 (2018 – 185).
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.
182
182
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Progress report
Saturday nearest to 15 September
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)
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
2019
£m
15,824
1,421
(79)
(2)
(47)
(15)
4
(94)
15
(42)
12
1,173
(277)
896
111.1
137.5
46.35
Annual Report and Accounts 2019
183
Associated British Foods plc
Associated British Foods plc
183
Annual Report and Accounts 2019
Financial statements
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
Timetable
Interim dividend paid
5 July 2019
Final dividend to be paid
10 January 2020
Annual general meeting
6 December 2019
Interim results to be announced
21 April 2020
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.
184
184
Associated British Foods plc
Associated British Foods plc
Annual Report and Accounts 2019
Annual Report and Accounts 2019
Design and production
This document is printed on
Nautilus SuperWhite using vegetable
oil-based inks. Made in Austria, the
stocks comprise 100% de-inked
post-consumer waste. Pulps used
are totally chlorine-free.
The Forest Stewardship Council® (FSC®)
is dedicated to the promotion of
responsible forest management
worldwide. The forest-based material
in this product is recycled and the FSC®
label on this product ensures responsible
use of the world’s forest resources.
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