WorldReginfo - 4aa9e961-7187-463d-853b-cdef76c17115 - WorldReginfo Annual Report and Accounts 2017 A VERY PRODUCTIVE YEAR Associated British Foods plc Annual Report and Accounts 2017 CONTENTS STRATEGIC REPORT Associated British Foods is a diversified IFC Financial headlines 02 Our businesses at a glance international food, ingredients and retail 04 Chairman’s statement group with sales of £15.4bn, 133,000 06 Chief Executive’s statement 08 Group business model employees and operations in 50 countries and strategy 10 Key performance indicators across Europe, southern Africa, the 12 Business strategies 14 Operating review Americas, Asia and Australia. 14 Grocery 22 Sugar Our purpose is to provide safe, nutritious, 30 Agriculture 36 Ingredients affordable food and clothing that is great 40 Retail 48 Financial review value for money. 50 Corporate responsibility 54 Principal risks and uncertainties 59 Viability statement FINANCIAL HEADLINES Group revenue Adjusted operating profit GOVERNANCE 60 Board of directors £15.4bn £1,363m 62 Corporate governance 75 Remuneration report Actual: +15% Constant currency: +6% Actual: +22% Constant currency: +13% 94 Directors’ report Adjusted profit before tax Adjusted earnings per share 98 Statement of directors’ responsibilities 99 Independent auditor’s report £1,310m 127.1p Up 22% Up 20% FINANCIAL STATEMENTS Dividends per share Gross investment 107 Consolidated income statement 108 Consolidated statement of comprehensive income 109 Consolidated balance sheet 41.0p £945m 110 Consolidated cash flow statement Up 12% 111 Consolidated statement of changes in equity Net cash 112 Significant accounting policies 116 Accounting estimates and judgements £673m 117 Notes forming part of the financial statements 158 Company financial statements IBC Progress report Operating profit Profit before tax IBC Company directory £1,336m £1,576m REVIEW OF THE YEAR ONLINE: Up 21% Up 51% Basic earnings per share WWW.ABF.CO.UK/AR2017 151.6p Up 47% Adjusted operating profit is stated before the amortisation of non-operating intangibles, transaction costs and profits less losses on disposal of non-current assets. 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. WorldReginfo - 4aa9e961-7187-463d-853b-cdef76c17115 01 CHAMPIONING reportStrategic OUR GROCERY BRANDS 14 READ MORE ON GROCERY BUILDING THE WORLD’S LEADING SUGAR BUSINESS 22 READ MORE ON SUGAR PIONEERING NEW TECHNIQUES IN AGRICULTURE 30 READ MORE ON AGRICULTURE INNOVATING HIGH-QUALITY INGREDIENTS FOR OUR CUSTOMERS 36 READ MORE ON INGREDIENTS EXCITING FASHION AND BEAUTY IN RETAIL 40 READ MORE ON RETAIL Associated British Foods plc Annual Report and Accounts 2017 WorldReginfo - 4aa9e961-7187-463d-853b-cdef76c17115 02 OUR BUSINESSES AT A GLANCE GROCERY SUGAR MADE GOOD PROFIT PROGRESS RECOVERED INTERNATIONALLY STRONGLY Revenue Revenue OUR £3,381m 2016: £3,097m £2,174m 2016: £1,636m DIVERSIFIED Adjusted operating profit Adjusted operating profit £303m 2016: £294m £223m 2016: £35m BUSINESS International Europe Twinings and Ovaltine are our Our UK beet sugar factories typically global hot beverage brands. produce well over one million tonnes of sugar annually. Azucarera in Spain Europe produces over 400,000 tonnes of beet The group operates Silver Spoon and Billington’s sugars, sugar each year and has a cane refining through five strategic Jordans and Dorset cereals, Ryvita, capacity of a further 400,000 tonnes. business segments Kingsmill, Patak’s and Blue Dragon. Southern Africa The Americas Illovo is Africa’s largest sugar producer In the US, Mazola is the leader in with agricultural and production corn oil and we sell a range of baking facilities in six countries. Typical annual brands through retail and food service sugar production is 1.7 million tonnes. channels. Capullo is a premium canola oil in Mexico. China We operate two beet sugar factories Australia in the north east of the country, with Ham, bacon and smallgoods under annual sugar production capacity Don and KRC brands. Tip Top Bakeries of over 180,000 tonnes. produce a range of well-known breads and baked goods. SUGAR GROCERY Associated British Foods plc Annual Report and Accounts 2017 WorldReginfo - 4aa9e961-7187-463d-853b-cdef76c17115 AGRICULTURE INGREDIENTS RETAIL 03 ACHIEVED FURTHER INCREASED ITS GOOD REVENUE IMPROVED MARKET PRESENCE reportStrategic GROWTH PROFITABILITY WITH 30 NEW STORES Revenue Revenue Revenue £1,203m 2016: £1,084m £1,493m 2016: £1,294m £7,053m 2016: £5,949m Adjusted operating profit Adjusted operating profit Adjusted operating profit £50m 2016: £58m £125m 2016: £93m £735m 2016: £689m AB Agri operates at the heart of the Yeast and bakery ingredients Primark agricultural industry. Its unique breadth AB Mauri operates globally in yeast Primark is a major retail group and experience enable it to add value and bakery ingredients production with employing 73,000 people. It operates all along the food, drink and biofuel 50 plants in 25 countries supplying stores in the UK, Republic of Ireland, industry supply chains. plant and artisanal bakers and the Spain, Portugal, Germany, the foodservice and wholesale channels. Netherlands, Belgium, Austria, AB Agri supplies products and It is a technology leader in bread France, Italy and the US. services to farmers, feed and food improvers, dough conditioners and manufacturers, processors and It offers customers quality, bakery mixes. retailers. It also buys grain from up-to-the-minute fashion at farmers and supplies crop inputs Speciality ingredients value-for-money prices. through its joint venture arable ABF Ingredients focuses on high-value Buying and merchandising teams operation, Frontier Agriculture. ingredients for food and non-food in Dublin (Republic of Ireland) and applications. It manufactures and The business employs 2,400 people Reading (UK) travel internationally markets enzymes, lipids, yeast around the world and markets products to source and buy fashion items extracts and cereal specialities in more than 65 countries. that best reflect each season’s worldwide with manufacturing key fashion trends. Primark’s range facilities in Europe and the US. includes womenswear, lingerie, childrenswear, menswear, footwear, accessories, hosiery, beauty and homeware. AGRICULTURE RETAIL INGREDIENTS Associated British Foods plc Annual Report and Accounts 2017 WorldReginfo - 4aa9e961-7187-463d-853b-cdef76c17115 04 CHAIRMAN’S STATEMENT Group revenue of £15.4bn was 15% ahead of last year and adjusted operating profit of £1,363m was 22% ahead. Given the economic and currency uncertainties a year ago, these results demonstrate the benefit EXCELLENT PROGRESS of our international diversity and the strong underlying performance of our businesses. I am therefore very pleased to report excellent progress THIS YEAR WITH this year with adjusted earnings per share up 20% to 127.1 pence. Gross investment was again significant ADJUSTED EARNINGS this year at £945m. This comprised £866m of capital expenditure and operating intangible assets, driven by a higher level of investment by Primark PER SHARE UP 20% with expenditure in all its countries of operation, and £79m on business CHARLES SINCLAIR, CHAIRMAN acquisitions. This year we delivered a particularly impressive cash flow which emphasises the group’s ability to convert profitability into cash. We also realised proceeds, net of costs and tax, of over £500m from two business disposals. Together these resulted in last year’s net debt of £315m becoming a net cash balance of £673m this year end. As anticipated, we delivered a strong recovery in sugar profits this year. This was a consequence of the recent structural changes made to AB Sugar, the considerable benefit derived from performance improvement over a number of years and an increase in EU sugar prices. Moving to full ownership of Illovo last year has proved to be a positive step with an increase in profit which benefited from an acceleration of its commercial development and performance improvement. We believe that we are well placed to take advantage of the removal of sugar quotas in the EU arising from the reform of the sugar regime, and to meet the challenges including the recent fall in EU sugar prices. Further cost reduction drove the continued recovery of the yeast and bakery ingredients business while excellence in execution was the driver of the strong performance from speciality ingredients. Together they increased adjusted operating profit by 34% this year. Associated British Foods plc Annual Report and Accounts 2017 WorldReginfo - 4aa9e961-7187-463d-853b-cdef76c17115 05 Good progress was made by Twinings Remuneration “ We are a responsible business” reportStrategic Ovaltine, ACH in the US and George As noted in the Remuneration report Weston Foods in Australia, but Grocery we revised our remuneration policy results were held back by the trading last year to align it more closely with environment faced by the UK bakeries. our business strategy. In particular, Since the year end we have completed an additional earnings per share the acquisition of Acetum S.p.A., measure was introduced into the long a producer of high-quality balsamic term incentive plan that is designed vinegar from Modena, Italy. We look to take into account volatility in world forward to the opportunity of developing and European sugar prices. Although further this fine business, using incentive payments under this additional our existing capability in selling