ANNUAL REPORT AND ACCOUNTS 2019 Grocery
Contents
Strategic report 1 Financial headlines 2 Our businesses at a glance Read more 4 Chairman’s statement page 12 6 Chief Executive’s statement 8 Group business model and strategy 10 Key performance indicators 12 Operating review 12 Grocery Sugar 22 Sugar 30 Agriculture 34 Ingredients 40 Retail 50 Financial review 53 Responsibility 62 Principal risks and uncertainties 67 Viability statement Governance Read more 68 Board of directors page 22 70 Corporate governance 83 Remuneration report 107 Directors’ report 110 Statement of directors’ responsibilities Agriculture 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 Read more 131 Accounting estimates page 30 and judgements 132 Notes forming part of the financial statements 176 Company financial statements Ingredients 183 Progress report 184 Company directory
Read more page 34 Retail
Read more page 00
Read more page 40 Well-loved ABOUT household brands ASSOCIATED 9/10 BRITISH UK households use FOODS our brands
Our purpose is to provide safe, nutritious, affordable food and clothing that is great value for money.
A leader in our markets
Grocery Retail Our grocery brands occupy leading Primark is the largest clothing, positions in markets across the footwear and accessories globe. In the UK, nine out of ten retailer in the UK, and also has a households use our brands. significant store portfolio in ten European countries and in the US. 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 Acting responsibly A global presence
Respecting everyone’s dignity 52 countries operated Acting with integrity in worldwide 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 Strategic report
Associated British FINANCIAL Foods is a diversifi ed HEADLINES international food, ingredients and retail group with sales of £15.8bn, 138,000 employees and Group revenue operations in 52 £15.8bn countries across Actual +2% Europe, southern Constant currency: +2% Africa, the Americas,
Adjusted operating profit Adjusted profit before tax Asia and Australia. £1,421m £1,406m Actual +1% Up 2% Constant currency: +1%
Adjusted earnings per share Dividends per share 137.5p 46.35p Up 2% Up 3%
Gross investment Net cash £837m £936m
Operating profit Profit before tax £1,282m £1,173m Down 5% Down 8%
Basic earnings per share 111.1p Down 13% 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 Our businesses at a glance
A DIVERSE GROUP OF BUSINESSES
Grocery 100 Twinings and Ovaltine Household food enjoyed in over 100 countries brands enjoyed all over the world 16,000 employees Read more page 12 Sugar 24 plants worldwide A world-leading sugar business focused on excellence 34,000 employees Read more page 22 Agriculture 65 countries worldwide Products and services for the agri-food industry 3,000 employees Read more page 30 Ingredients 52 plants in production Yeast, bakery and for AB Mauri specialty ingredients supplied globally 7,000 employees Read more page 34 Retail 373 stores Quality fashion at value-for-money prices 78,000 employees Read more page 40
2 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
Revenue 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 £3,521m over 100 countries. through retail and foodservice channels. 2018: £3,420m Capullo is a premium canola oil in Mexico. Europe and international Our portfolio includes Mazzetti Australia Adjusted operating profit balsamic vinegars, Jordans and Dorset Ham, bacon and smallgoods under the cereals, Ryvita, Kingsmill, Patak’s and Don and KRC brands. Tip Top Bakeries £380m Blue Dragon, Silver Spoon and produce a range of well-known breads 2018: £335m Billington’s sugars. and baked goods. Yumi’s produces hommus, vegetable dips and snacks.
Revenue 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 £1,608m sugar annually. Azucarera in Spain in six countries. Typical annual sugar 2018: £1,730m produces beet sugar from three factories production is 1.7 million tonnes. and also refines sugar from cane raws. China Adjusted operating profit We operate two beet sugar factories in the north east of China, with annual £26m sugar production capacity of over 2018: £123m 180,000 tonnes.
Revenue AB Agri It supplies compound animal feed, feed AB Agri produces animal feed, nutrition- enzymes, specialised feed ingredients £1,385m 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, 2018: £1,350m operates all along the food, drink and processors and retailers. It also buys biofuel industry supply chains. grain from farmers and supplies crop Adjusted operating profit inputs through its joint venture arable £42m operation, Frontier Agriculture. 2018: £59m
Revenue 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 £1,515m industrial and artisanal bakers and the non-food applications. 2018: £1,459m foodservice and wholesale channels. It is It manufactures and markets enzymes, a technology leader in bread improvers, specialty lipids, yeast extracts, extruded dough conditioners and bakery mixes. Adjusted operating profit ingredients, pharmaceutical excipients and antacids worldwide with £136m manufacturing facilities in Europe, 2018: £143m America and India.
Revenue 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 £7,792m Spain, Portugal, Germany, the items that best reflect each season’s key 2018: £7,477m Netherlands, Belgium, Austria, France, fashion trends. Primark’s range includes Italy, Slovenia and the US. womenswear, lingerie, childrenswear, menswear, footwear, accessories, Adjusted operating profit It offers customers quality, up-to-the- hosiery, beauty and homeware. £913m minute fashion at value-for-money prices. 2018: £843m
Annual Report and Accounts 2019 Associated British Foods plc 3 Chairman’s statement
The resilience of the group was demonstrated this year.
Michael McLintock Chairman
It is a testament to the schemes between the 2017 and 2018 of sugar and the end of the EU sugar year ends. The group’s adjusted regime. Following the subsequent breadth of the group effective tax rate of 21.5% was in line reduction in EU sugar supply, sugar that profi t growth was with last year. Adjusted earnings per prices have increased and we look share increased by 2% to 137.5p. forward to a material increase in our achieved in a year Sugar profit in the coming year. This year Primark celebrated the 50th where the effects of a anniversary of the opening of its first We continued to invest for the long store, and I am pleased to report another term, with a gross investment of radical change in the year of strong progress and notable £837m comprising capital expenditure European sugar market achievements. The expansion in selling of £737m and acquisitions of £100m. space included Birmingham High Street, The capital expenditure for Primark fully impacted our a showcase for our entire product range was driven by investment in selling and innovative in-store experiences, and space expansion, supply chain and businesses. our first move into eastern Europe with infrastructure. Investments in our food the opening of a store in Slovenia. Our businesses focused on capacity In a period when our ongoing sugar stores in the US performed very well expansion and projects to drive further businesses experienced a significant and we have announced four further operational efficiencies. drop in profits, the resilience of the stores to open in the near future. In September 2018 we were delighted group was demonstrated by an increase Primark again demonstrated its track to acquire Yumi’s, an Australian in the profits of our non-sugar activities, record for operational excellence with producer of premium chilled dips and mainly driven by strong performances further improvements in buying and snacks, and, on 6 September 2019, from Grocery and Primark. Revenues stock management. were 2% higher than last year at Anthony’s Goods, a California-based £15.8bn and adjusted operating profit Adjusted operating profit at Grocery online marketer and blender of speciality was 1% ahead at £1,421m. There was well ahead of last year. The margin baking ingredients. We also signed an was a minimal effect from currency improvement was broad-based, with agreement to form a yeast and bakery translation and so revenue and profit excellent performances from our ingredients joint venture in China with increases were broadly the same at businesses in Australia and the US, Wilmar International. The joint venture constant currency. Net finance expense Acetum, which was acquired last year, will see us build a major new low-cost was much lower than last year following and Twinings Ovaltine on an underlying yeast plant in the north east of China the maturity of a portion of the group’s basis. Profit was down substantially at and will combine AB Mauri’s existing private placement notes and other AB Sugar, mainly due to the effect of activities and technical expertise in financial income was higher as a a further decline in EU sugar prices last China with Wilmar’s extensive sales consequence of an increase in the year. This decline resulted from a and distribution capability. surplus of our defined benefit pension coincidence of a regional oversupply
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Our businesses have always IFRS 16 Leases We have set aimed to make a lasting positive The group will adopt the new contribution to society and our 2019 accounting standard IFRS 16 Leases out our four Responsibility Report, Living our from the coming financial year. This is values, details the actions we are a significant accounting change for the taking to invest in our people, support group and will bring lease liabilities of group-wide society, strengthen supply chains £3.6bn on to the balance sheet, and respect our environment. To predominantly relating to Primark’s values this see how we make a difference, leasehold stores. Under our chosen please download Living our values, transition option, the results for the year. at www.abf.co.uk/responsibility. 2019 financial year will not be restated. However, we have set out the pro forma Remuneration effects on our financial results this year, This year we have undertaken a www.abf.co.uk/responsibility and on the key metrics for Primark, in review of the group’s executive reward the Financial review. arrangements which has included consultation with some of the group’s Outlook largest shareholders. As a result, a In the coming year, AB Sugar will number of changes are proposed to our benefit materially from the increase remuneration policy to further improve seen this year in EU sugar prices and alignment with shareholder interests from further cost reduction. We expect and these are set out in the another year of strong profit and margin Remuneration Report. growth in Grocery, with Twinings Ovaltine in particular benefiting from The board a more efficient tea supply chain. In September 2018 we welcomed Graham Allan to the board as a non- Primark will continue to expand its executive director. I want to thank selling space next year, with the most Graham for also leading this year’s stores being added in France and internal evaluation of the board and its Spain. Looking further ahead, Primark We delivered a stronger operating cash committees. Javier Ferrán stood down has a strong pipeline of good quality flow this year and the closing net cash at our Annual General Meeting in sites. We expect cost reductions in position of £936m, before the adoption December 2018 and my last statement both the cost of goods and overheads of IFRS 16 from the coming year, recorded my thanks to Javier. Ruth during the year, but the weakness of compared to £614m at last year end. Cairnie took on the responsibilities of sterling during this financial year will The group has the financial strength to Senior Independent Director. Richard result in a margin decline for Primark invest in all its businesses and to Reid was appointed as designated in the first half. The sterling exchange continue to pursue value accretive non-executive director for engagement rate is currently very volatile but, at acquisition opportunities. with the workforce. current exchange rates, we expect margin in the second half to be in line Statutory operating profit for the year Employees with the same period this year and was 5% down at £1,282m after taking These results are a tribute to the margin for the full year to be only a into account exceptional charges of ongoing dedication and commitment small reduction on that achieved this £79m. Losses on sale and closure of of our 138,000 employees during the year. Margin comparisons are on a businesses increased to £94m this year past year. Operating in 52 countries, lease-adjusted basis. and as a result, the statutory profit some of which are challenging markets, before tax reduced by 8% to £1,173m they have delivered operational Our businesses have completed all and basic earnings per share reduced by improvements which have underpinned practical preparations for Brexit and 13% to 111.1p. the increased profit and cash generation contingency plans are in place should that we report today. I would like to our businesses experience some Corporate responsibility thank all of our employees for their disruption at the time of exit. At Associated British Foods, our valuable contribution, determination purpose is to provide safe, nutritious, Taking these factors into account, at to succeed and in bringing our values affordable food and clothing that is great this early stage, we expect progress, on to life every day. value for money. We are committed to both a reported and an IFRS 16 adjusted being a good neighbour and supporting Dividends basis, in adjusted earnings per share for the communities where we operate. I am pleased to report that a final the group for the coming year. dividend of 34.3p is proposed to be paid This year we have, for the first time, Michael McLintock on 10 January 2020, to shareholders on set out our four group-wide values: Chairman the register on 13 December 2019. acting with integrity, respecting Together with the interim dividend of everyone’s dignity, progressing through 12.05p paid on 5 July 2019, this will collaboration and pursuing with rigour. make a total of 46.35p for the year, an These values provide clarity and increase of 3%. guidance across all our businesses for employees, customers, suppliers and shareholders alike.
Annual Report and Accounts 2019 Associated British Foods plc 5 Chief Executive’s statement
The group made further progress this year.
George Weston Chief Executive
The group made Our Grocery businesses enjoyed a markdowns. We continued to put the successful year, with strong underlying customer at the heart of our digital further progress this profit growth of 14% after adjusting for campaigns, with our social media year. Group revenue the £12m cost for the closure of the channels now boasting 20m followers, Twinings tea factory in China. George up from 13m last year. We successfully increased by 2% to Weston Foods in Australia, ACH in the collaborated with high profile influencers US and Acetum all delivered particularly with whom we launched special £15.8bn and adjusted impressive margin improvements collections throughout the year, operating profi t of through better procurement and cost generating further social media reach. reduction. We continued to invest in our We achieved another year of substantial £1,421m was 1% manufacturing capability and the new market share growth in the UK. The facilities commissioned for Ryvita and group’s like-for-like sales decline of higher than last year, for noodle production will increase 2% was significantly affected by at constant currency. capacity and product innovation. At weak trading in Germany where we Allied Bakeries we are committed to have been taking action to address reducing the operating losses this performance. A new managing director coming year, with a programme of cost is in role and is leading a number of reductions. These follow the closure of initiatives which include targeted local the Cardiff bakery at the end of the marketing campaigns. financial year. We continued to develop Profit at AB Sugar was well down on the our presence in the faster growing prior year, as expected, due to lower EU segments of the grocery market and sugar prices and a poor crop in China. see much potential from our recent With our ongoing focus on performance acquisitions of Yumi’s in Australia and improvement and cost reduction, Anthony’s Goods in the US. improving EU sugar prices and the Primark marked its 50th anniversary by continued strength of Illovo we look delivering an 8% increase in profit. forward to an improvement in the profit 14 new stores were added across the and return on capital employed for our UK and continental Europe in the year, sugar business in the coming year. including our largest ever store, in AB Agri experienced a difficult year, Birmingham. Looking forward, France, with the loss of co-products following Italy, Spain, eastern Europe and the US the closure of the Vivergo bioethanol provide the most significant prospects plant last year, lower UK feed margins for further growth. Our buying team and a smaller sugar beet crop. Our delivered a further improvement in Ingredients business was impacted by margin, driven by exciting on-trend the challenging economic environment ranges, better buying and reduced
6 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
in Argentina and this year’s result includes a hyperinflationary accounting charge for the first time. Brexit Primark marked its 50th The group’s business model, wherever possible, aligns food production with anniversary this year. 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 Read about Primark’s wit and his friendship. 160,000 sq ft new store in Birmingham George Weston page 46 Chief Executive
Annual Report and Accounts 2019 Associated British Foods plc 7 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 Sugar Agriculture Ingredients Retail strategy strategy strategy strategy strategy page 13 page 23 page 31 page 35 page 41
Organic growth Our values Organic growth is achieved through Our values are a common thread that ties investment in marketing, in the all of our businesses together. development of existing and new Respect products and technologies, and in Integrity targeted capital expenditure to improve effi ciency and expand capacity. Collaboration Rigour Operating review Responsibility page 12 page 53
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Business structure Our values and culture The group is managed as five business segments that bring We pride ourselves on being a first-class employer and we together common industry expertise, operational capability work actively to develop capability and create opportunities and market intelligence. Operational decisions are made for employee progression. As a result, people tend to stay locally because, in our experience, they are most successful with the group for a long time and build exciting careers. when made by the people who have the best understanding Whether through formal training and apprenticeships, of their markets and who have to implement them. cross-fertilisation of skills between roles or mentoring, we encourage and support everybody to thrive at work. The corporate centre aims to provide a framework in which our business leaders have the freedom and decision-making Being part of Associated British Foods means being part of authority to pursue opportunities with entrepreneurial flair. a community that respects human rights and celebrates The centre is small and uses short lines of communication to diversity. We recognise the United Nations Guiding Principles ensure prompt, incisive and unambiguous decision-making. on Business and Human Rights and aim to adhere to the core It ensures that business activities are appropriately monitored ILO conventions and all relevant laws relating to working and supported. conditions and environment. We live and breathe our values through the work we do every Strategy day. We have articulated a set of four values that reflect the The group balance sheet is managed to ensure long-term way we conduct ourselves in every business across the financial stability, regardless of the state of capital markets, group. These values are: and capital funding is made available to all of our businesses • Respecting everyone’s dignity: We strive to protect the where returns meet or exceed clearly-defined criteria. The dignity of everyone within and beyond our operations. centre provides selected services where the scale of its operations enables a more cost-effective or efficient delivery, • Acting with integrity: We proudly promote and protect where expertise that might not be available at a business level a culture of trust, fairness and accountability that puts can be retained by the group, or where the provision of such ethics first. From farms and factories right through to our services would otherwise distract business executives. boardroom we are committed to embedding integrity into every action. Such services include investor relations, pensions, insurance, legal support, tax and treasury management, where specialist • Progressing through collaboration: We work with others expertise is brought together in one place for the benefit of to leverage our global expertise for local good. the group as a whole. The centre also co-ordinates selected • Pursuing with rigour: From the products we make, to the value-added capabilities to support the businesses in their way we preserve the resources we rely on, we are always local markets such as talent management and development, learning and incorporating better practices. procurement, and the sharing of best practice in, for example, health and safety or engineering risk management. We Our values can be seen in action, for example, in our work in operate to high ethical standards as an organisation and investing in the health and safety of our colleagues, promoting expect the same of our employees. We encourage an open diversity, or in respecting human rights through our supply and honest culture in all our dealings and ensure that our core chain programmes. Numerous business-specific examples of values are fully implemented throughout the group. such activities are highlighted throughout this report and also in our 2019 Responsibility Report. Organic growth Our Company’s values are lived out best when they encourage our employees to feel supported to bring their We are committed to innovation, the continuous pursuit values and passions to work. It is also in the many acts of of improvement and the maintenance of our efficient decency, kindness and neighbourliness that take place across manufacturing capability. our business every day that our values are truly found. 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 Responsibility: People aim to operate in a sustainable, ethical, efficient and safe page 55 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.
Annual Report and Accounts 2019 Associated British Foods plc 9 Key performance indicators
MEASURING OUR PERFORMANCE
Financial
Adjusted operating profit (£m) Adjusted profit before tax (£m) Net cash/(debt) (£m)
2019 1,421 2019 1,406 2019 936
2018 1,404 2018 1,373 2018 614
2017 1,363 2017 1,310 2017 673
2016 1,118 2016 1,071 2016 (315)
2015 1,082 2015 1,024 2015 (194)
Adjusted profit and earnings measures are used to provide a consistent indicator of underlying Cash and cash equivalents less loans and other performance year-on-year and are aligned with incentive targets. 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 15.8 2019 837 2019 1,509
2018 15.6 2018 1,165 2018 1,430
2017 15.4 2017 945 2017 1,641
2016 13.4 2016 1,066 2016 1,310
2015 12.8 2015 675 2015 1,175
Monitoring of revenue provides a measure of A measure of the commitment to the Net cash generated from operating activities business growth. Constant currency long-term development of the business is monitored to ensure that profitability is comparisons are also used to provide greater through expenditure on property, plant and converted into cash for future investment clarity of underlying performance. equipment, intangible assets, biological and as a return to shareholders. assets and the acquisition of new businesses or minority interests in existing operations.
Adjusted EPS (pence) Dividend per share (pence) Return on capital employed (%)
2019 137.5 2019 46.35 2019 19.3
2018 134.9 2018 45.00 2018 20.1
2017 127.1 2017 41.00 2017 20.5
2016 106.2 2016 36.75 2016 18.1
2015 101.5 2015 35.00 2015 17.6
The group’s organic growth objective aims to deliver steady growth in earnings and dividends over Adjusted operating profit expressed as a the long term. Adjusted earnings per share is a key management incentive measure. 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.
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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 138,097 2019 3.443
2018 137,014 2018 3.681
2017 132,590 2017 3.410
2016 129,916 2016 3.080
2015 124,036 2015 4.339
A measure of the scale and growth of the A measure of the scale and development group – the average number of people of the group’s sugar operations. employed during the financial year with a contract of employment, whether full-time, part-time, contractor or seasonal worker.
Number of countries of Primark selling space (sq ft 000) operation (Primark)
2019 15,642 2019 12 2018 14,805 2018 11 2017 13,862 2017 11 2016 12,342 2016 11 2015 11,155 2015 10
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 0.54 2019 52 48 2018 0.63 2018 51 49 2017 0.59 2017 48 52 2016 0.47 2016 48 52 2015 0.48 2015 48 52 A measure of the group’s management of the Men health and safety of its workforce – the number Women of injuries resulting from an accident arising out of, or in connection with, work activities that A measure of the gender balance of all were required to be reported to external employees in the group with a contract of regulatory authorities, divided by the average employment, whether full-time, part-time, number of employees. 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 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 Allied Bakeries The largest of our grocery businesses, Allied Bakeries produces a range of Twinings and Ovaltine have broad bakery products under the Kingsmill, geographical reach. Twinings has been a Sunblest, Allinson and Burgen brands, major tea business since 1706 and now with flour and semolina produced by sells premium teas and infusions in sister company, Allied Mills. Speedibake more than 100 countries. Ovaltine specialises in own-label baked goods, malted beverages and snacks are such as muffins and doughnuts, for consumed throughout the day in retail and foodservice customers. countries across the globe. George Weston Foods, Australia Acetum George Weston Foods is one of Acquired in 2017, Acetum is the leading Australia and New Zealand’s largest Italian producer of Balsamic Vinegar of food manufacturers. Tip Top is one of Modena. It sells vinegars, condiments the most recognised brands in Australia and glazes across the globe, trading with an extensive range of bread under the Mazzetti brand. and baked goods. The Don and KR Castlemaine brands manufacture AB World Foods a variety of bacon, ham and meat AB World Foods focuses on the products. Yumi’s produces hommus, creation and development of world vegetable dips and snacks and is the flavours and its Patak’s and Blue leader in the Australian market. Dragon branded products are sold internationally. ACH Foods, North America ACH Foods includes within its range of Westmill Foods branded products Mazola, the leading Westmill Foods specialises in high- corn oil in the US, Capullo, a premium quality ethnic foods including rice, canola oil in Mexico and renowned spices, sauces, oils, flour and noodles baking brands such as Fleischmann’s sold under brands such as Rajah, yeast, Karo corn syrup and Argo Lucky Boat, Tolly Boy and Elephant. corn starch. Jordans Dorset Ryvita Silver Spoon Jordans Dorset Ryvita operate in the Silver Spoon and Billington’s are better-for-you cereal and savoury our two retail sugar brands in the UK, biscuits categories with increasing complemented by a range of dessert international presence. Jordans has a toppings and syrups under the Askeys heritage of using traditional methods in and Crusha brands. the production of its wholegrain cereals and cereal bars. Dorset’s award-winning Sports Nutrition muesli and granolas are renowned for HIGH5 and Reflex Nutrition are brands the quality of their natural ingredients. in the sports nutrition sector producing Ryvita has a strong reputation in healthy protein supplements, recovery gels and snacking and is the UK category leader drinks in the UK and sold internationally. in crispbreads.
12 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
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 Grocery | Operating performance
HOUSEHOLD FOOD BRANDS ENJOYED ALL OVER THE WORLD
Revenue Grocery revenues were 2% ahead of last Jinqiao, China to our existing site in year at constant currency and growth in Swarzedz, Poland during the first £3,521m adjusted operating profit was excellent half, new supply routings have been at 10%. This year’s result included a established and are functioning well. 2018: £3,420m £12m one-time cost for the closure of At Allied Bakeries revenues progressed Actual fx: +3% the Twinings tea factory in China. this year following price increases Constant fx: +2% Adjusting for this, operating profit was agreed with a number of customers. up 14% at constant currency. Margin, at As previously advised, the termination 10.8%, improved significantly again this of our largest private label bread Adjusted operating profit year with major improvements delivered contract will lead to a volume loss in our by George Weston Foods in Australia, next financial year. As a consequence, ACH in the US, Acetum and Twinings £380m the carrying value of the assets in this Ovaltine, on an underlying basis. 2018: £335m business was no longer supported by Twinings delivered good revenue our forecasts of its discounted future Actual fx: +13% growth and benefited from the success cash flows and a non-cash impairment Constant fx: +10% of Cold Infuse teas in their launch charge of £65m has been recognised markets of the UK and Australia. During as an exceptional item in the income the summer, distribution began in the statement. We have taken steps to Adjusted operating US while the range was extended with reduce our capacity and closed our profit margin new flavours and Kids Cold Infuse. The Cardiff bakery at the end of the year. development of our herbal teas range During the coming year we will 10.8% included new launches in Australia and implement cost reductions in a number 2018: 9.8% France and good growth from of operational areas to further reduce Superblends in the UK. Ovaltine sales the losses in this business. growth was supported by another year Jordans, Dorset Cereals and Ryvita Return on average of success of new product launches delivered an improved manufacturing capital employed in Switzerland and good growth in capability, with the commissioning of Thailand, China and Myanmar. Following the new Ryvita bakery in Bardney, the transfer of tea production from 27.4% Lincolnshire, and the transfer of muesli 2018: 25.9% 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 Strategic report In action
Poole, Dorset
At Acetuum,m ouru leadingg balsas mim c vineegar producer, marginns imimprrovedd signnificcantlt y as grapepe must prp iccess Bardney, Lincolnshire rer turnr ede to loower lelevels thahan thhe exxcepttioonally hih ghh levele thaat fof llowo eded thhe pop orr graapee hara vests in 202 171 . Duurir ngg the year invese tmmenent waw s mam de to sus pport tht e markr etet entryr of the Mazzz ete tii brarand in ththe UKK.
Operatting profo it foro our grocery Biggleswade, bub sinesses in NoNorth Amere ica was Bedfordshire well ahead of last yeaar. ACH perfformed sttronggly, with excellent margin improveemementn drir ven byy lowo ere oil commodo ity coc stts,s furrthher markek t share gains in Mazolo a coc rn oil and immprovedd traadid ngn in sysyruup and bab kik ng FUELLING prp odduccts in Meexicoc . OnO 6 Sepe tet mbm er 2019 we compm leetet d thhe accquq isisittioon off GROWTH Annthono y’y s Gooodds, a Cala ifforrnin a-a bases d bllended r and ononlil ne markek teer ofo sppeciaalil tyy baka ing inngrg eddientts.s Thih s accquisi ititioon willl commplp ememene t ACA H’H s Over the past three years Jordans Dorset Ryvita leadinng poosititionon in cocookkining anand babakik ngn has made major improvements to its supply chain brrands in NoNortth Ammerericca annd wiwilll prp ovidde a prpresesene cee in tht e ememere gigingng, in the UK to improve effi ciency and facilitate further faf sts -ggroowtw h mam rkket of prpremmiuium international growth. orrgaanin c fofoododss. GeG orrgege Wesestoon FoFoodo s iinn Ausustrrala iaia The programme has included the • Finally, in 2019 we announced our deliivev reed exxcelll enent maargginn andn consolidation of the businesses’ investment in a new cereal bar opo ere atating prp ofo itt gror wtwth.h Tipi Topp production footprint, together with production facility in Biggleswade, aca hih evvedd strt onng saalees inn pacackakageged investment in new state-of-the-art Bedfordshire. Jordans was the first brb eae d and realisi ede impm rooveed marginns equipment for cereal bars, muesli company to launch a cereal bar drivenen by operrattionanal efffif ciennciiese , and crispbread. The focus has been in the UK in 1981 and this new whhile tht e Don meat business on building core manufacturing production line will improve sisigng ificcana tly inncrreaases d opere atting capability in the principal production efficiency and enable innovative prp ofitt and bennefe itteded froom faf vourabblee sites in Bedfordshire, Lincolnshire new product recipes. coc mmmodities mam nageemem nt. In and Dorset. This investment comes on the back Septemmber 2001818 we acquirrede Yumumi’s,s • In 2018, we moved muesli of significant international sales a prp oducerr and mara keteter of preemim umu manufacturing operations into growth for the business, which chilled ddipsp andd snanacks.s Saleses grew a purpose-built facility in Poole, requires a more flexible supply chain stror ngglyy, a neew raangnge of lenentil annd Dorset. This new facility allowed capable of making different products pupulsseses dipps wew ree welell reeceeivveded, annd for increased production volume for multiple markets. International ththe busis neesss beccama e thhe mamarkketet while being closer to port facilities sales now account for approximately leleadderer in ththe chc ili leed did ps catteggory inn to simplify export sales. half of our overall output, with key AuAuststrar lia duuriingg theh yeae r.r countries including France, Canada • At the same time the business has and Australia and recent entry into opened a new production facility Brazil and Germany. 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 15 Grocery | In action
MAKING YOU
16 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
FEEL SUPER
The new range is made with Twinings has tapped botanicals, natural flavours and into the growing desire ‘super’ ingredients to support everyday wellbeing. Leading medical for products that both herbalist Pamela Spence advised taste good and do Twinings on how best to select and combine key ingredients, working you good, with the with our master blenders to carefully craft each blend. The flavours successful UK launch combine familiar favourites with of Superblends green delicious twists, such as mango and pineapple with ginseng root and teas and infusions. 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 1m first 12 months, one million UK UK households purchased households purchased the brand. the brand in first 12 months 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: privacy, dignity and security. Lalita’s improving life opportunities by toilet is one of around 2,000 we have empowering women and young installed in suppliers’ plantations in people through health and education; Assam and Darjeeling. improving living standards with Sasi, a Sri Lankan trade union leader. better living conditions; and boosting Sasi is one of many to have benefited livelihoods by protecting workers’ from our introduction, in partnership rights and improving incomes. with the international development Kenyan tea farmer Josefine. agency CARE International, of Mother-of-seven Josefine trained community development forums as a HERhealth peer educator, via (CDFs). With industrial relations Sourced with Care. Having learnt sometimes strained in the Sri Lankan about essential health issues such tea sector, CDFs provide a space for as nutrition, family planning, workers and leaders to meet, debate sexually transmitted infections issues and share information. and non-communicable diseases, Sasi recently drew on the problem- Josefine now spreads the word solving tactics he’d learnt at his among the female colleagues in her CDF to diffuse a dispute which had tea garden, helping to reduce levels brought his factory to a standstill. of sickness and maternal mortality. He says: “The employer-employee By 2023, in partnership with the relationship on this estate has non-profit organisation Business for improved tremendously thanks to Social Responsibility, we aim to the CDF. I completely changed after reach all 75,000 of our suppliers’ receiving training on communication, female farmers in Kenya via the leadership and gender. Now I know HERhealth programme, and to how to communicate effectively with provide 50,000 women in Kenya, peers and managers.” Malawi and India with access to As a responsible business and essential health services. a founder of the Ethical Tea Lalita, an Assam tea plucker. Partnership, Twinings is driving Women working in Assam often positive change in the industry. have poor latrine facilities, offering However, we cannot do it alone. very limited privacy and becoming Partnership is central to the unhygienic during the rainy season. establishment and sustainability Through Sourced with Care we of an ethical supply chain and we provided Lalita and her student work closely with NGOs, producers, daughter Dipti with a robust new packers, retailers and industry bodies. bathroom and toilet, affording them Meet Lalita Assam tea plucker
18 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
GETTING FROM FIBRE FIT BARREL TO Health consciousness is a major driver of BASKET food purchases in the In 2017 we acquired UK. Ryvita has long Acetum, the world’s been associated with leading producer a healthy, low calorie, of Balsamic Vinegar fi bre-rich diet. of Modena.
According to the NHS, fibre helps The major brand of the business is reduce the risk of heart disease, type 2 ‘Mazzetti’, which bears the family diabetes, stroke and bowel cancer. name of Cesare Mazzetti, one of Certain types of fibre can also help the founders of the business. support gut health, but nine out of ten of us aren’t eating the 30g of daily Already the brand leader in Germany, Meet fibre that the UK Government Australia and Holland, Acetum recommends. launched the Mazzetti brand into the UK during 2019. Three versions To address this, Ryvita partnered with of this premium vinegar were sold celebrity TV presenter Davina McCall in retail stores in the UK, supported Josefine to launch an online quiz that helped by advertising that appeared people assess their own fibre intake, extensively on the London Kenyan tea farmer together with the #30in30 Challenge Underground and poster sites which provides hints and tips on how throughout May and June this year. to increase daily fibre intake by 5g. The products are currently available People who signed up received a in Sainsbury’s and Waitrose as well newsletter twice a week along with as on the Ocado website. They have #Fibrehacks from Ryvita and selected also been featured in a number of expert partners. leading UK food publications Since launch in March 2019, over including BBC Good Food, Good 43,000 people have taken the online Housekeeping and The London quiz and over 15,000 have signed up Evening Standard newspaper. to the #30in30 Challenge. A great example of how an established British brand is engaging people to help improve their health and wellbeing.
Annual Report and Accounts 2019 Associated British Foods plc 19 Grocery | In action
FRESH THINKING FRESHER FLAVOURS
20 Strategic report
Consumer demand for healthy foods is accelerating growth at our Australian chilled dips and snacks business,Yumi’s. Yumi’s, which supplies major Because the dips are made to Jewish retailers and foodservice customers kosher standards they are dairy with traditional hommus, vegetable and gluten free and include few, dips, falafels and vegetable bites, if any, additives. was acquired by George Weston The team at Yumi’s is continually Foods in September 2018. looking for opportunities to bring Meeting evolving trends innovation to the category and takes Its enviable compound sales growth pride in partnering with retailers to rate of 20% over the past three years develop a great pipeline of new reflects the evolution in Australia of vegetable flavours. New products at-home entertaining, the trend for are first trialled and then rotated in healthier eating, the popularity of store to meet customer desire for Mediterranean-style foods, and taste, adventure and variety. declining meat consumption. Premium innovations Yumi’s was founded in 1989 by In February 2019, Yumi’s released Michael and Benjamin ‘Yumi’ a new premium pulse dips range Friedman who have remained with which has been very well received. the business since it joined our The idea behind these dips was to family last year. It initially started out create something on-trend (with as a fish shop serving Melbourne’s lentils, peas and beans being very Jewish community but soon popular), that could attract a higher expanded its range. The team has price, and would still deliver to the grown to about 170 people, all brand’s kosher requirements. passionate about their products. Yumi’s has also recently delivered Australian-grown chick peas and new products in the exciting ‘fresh-from-farm’ vegetables, like snacking consumer segment. These beetroot and capsicum, are cooked products, such as a ‘snack pack’ and roasted on site and then containing hommus and crackers, generously added to hommus to work well both as healthy and tasty flavour classic dip varieties. school lunchbox alternatives and Traditional Jewish family recipes ‘on the go’ snacks. for classic dips handed down from The business relies extensively on ‘Aunty Chumy’, and for mayonnaise social media to drive awareness and and fish dips courtesy of ‘Grandfather has an active and loyal following on Hershel’, are still used today, Facebook and Instagram. ensuring authenticity and quality.
Annual Report and Accounts 2019 Associated British Foods plc 21 Operating review | Sugar Europe ABOUT SUGAR
AB Sugar is a leading producer of sugar and sugar-derived co-products in southern Africa, the UK, Spain and north east China.
We employ 34,000 people and As a global business, we operate in operate 24 plants in ten countries a diverse and continually changing with the capacity to produce some environment with many opportunities 4.5 million tonnes of sugar annually. and challenges. Although we have a Our products are sold into industry global portfolio, we operate with a sectors including food and drink, local heart, working together to do pharmaceutical, industrial, agricultural, what is right for the location and market. power and energy. As we evolve to meet the changing needs of customers, growers and In the EU, Azucarera is the largest others, it is our role to ensure we use producer in Iberia and British Sugar is resources responsibly, build strong the sole processor of the UK beet sugar rural economies and ensure thriving crop. Illovo Sugar is the biggest sugar healthy communities. China processor in Africa, operating in the growing markets of South Africa, By drawing upon everything we Zambia, Mozambique, Malawi, have learnt over many decades as Eswatini and Tanzania. We also have a sugar producer, we continue to a beet sugar business in north east embrace innovation and strive to China which is cost-competitive with create more from less by working cane sugar production. collaboratively across our group and with our stakeholders. 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.
22 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
24 plants worldwide
4.5m tonnes of annual sugar production capacity
34,000 employees
Africa 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 Sugar | Operating performance
A WORLD-LEADING SUGAR BUSINESS FOCUSED ON EXCELLENCE
Revenue AB Sugar revenues were 5% down favourable weather conditions more on last year at constant currency and than offsetting the reduction in crop £1,608m adjusted operating profit was well area. Good early progress has been down. The profit decline for the year made in the processing of beet at our 2018: £1,730m reflects the first half performance. Profit four UK factories. The majority of sales Actual fx: -7% in the second half was ahead of both for 2019/20 are now contracted and the Constant fx: -5% expectation and last year. EU sugar benefit of higher EU sugar prices will prices were much lower this year result in a significant improvement in and impacted our UK and Spanish the operating result. Adjusted operating profit businesses while a poor crop reduced In Spain, production from beet was production and sales volumes in China. 260,000 tonnes this year, lower than Our African sugar business, Illovo, £26m last year due to adverse weather in the delivered another successful year. 2018: £123m south impacting sugar content of the Our sugar businesses are focused on beet. This shortfall was compensated Actual fx: -79% reducing their cost of sugar production. by increased production from the Constant fx: -78% Further significant cost reductions were refining of cane raws at Guadalete delivered this year, through ongoing which produced 170,000 tonnes. These performance improvement programmes factors, combined with low EU sugar Adjusted operating which target efficiencies in all areas of prices, resulted in our Spanish business profit margin the business. making a substantial loss this year. Contracting of beet volumes with EU stock levels tightened during 1.6% growers for the 2019/20 campaign was 2018/19 as a consequence of lower 2018: 7.1% substantially completed at reduced sugar production in the last campaign. prices from the previous year and this Indications are that EU sugar production led to our contracted crop area reducing for 2019/20 will remain at this lower Return on average by one third, mainly in the north. Beet level following a further reduction capital employed sugar production for 2019/20 is in the crop area which will largely expected to be some 205,000 tonnes, offset improved beet yields. As a with the benefit of an improvement in 1.6% consequence, stocks are forecast beet yield. This will be supplemented 2018: 7.5% to remain low which should provide with over 200,000 tonnes from raws further support to EU sugar prices refining. We expect a significantly which increased this year. improved operating result for Spain in In the UK, sugar production in 2018/19 the next financial year driven by higher of 1.15 million tonnes compared to sales prices, the lower beet costs and 1.37 million tonnes last year when cost reductions. 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
24 Associated British Foods plc Annual Report and Accounts 2019 Strategic report In action
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 SHARING THE RISK another strong performance from Illovo next year. WITH GROWERS In China, sugar production of 149,000 tonnes was well down on last year as AB Sugar continues to work with sugar beet very poor quality beet, following a growers in Spain and China to ensure that sugar period of adverse weather, hampered production and sugar extraction at our remains a sustainable crop for them and us. two factories. As a result of the lower production and low domestic sugar We have a long history of sustainable platform for our prices the business produced a partnering with our growers to growers and ourselves. We significant loss. Looking ahead to next transform the sugar beet industry. are engaging with our newly- year we expect the operating result to In Spain we have assisted growers contracted Spanish growers improve significantly. The new crop is with contracted services, with crop however, unfortunately, others well established, some recovery in agronomy expertise and with have chosen not to supply beet beet quality is expected and grower flexible payment schemes. This to us for the 2019/20 campaign. payments will be increasingly linked has enabled them to improve to the sugar content of their beet. In China, poor weather conditions productivity and made sugar beet a in this year’s campaign impacted At Germains, our seed treatment and more attractive crop. And in China the quality of beet, reducing the enhancement business, UK sales our service-based partnership with level of sugar that could be volumes declined mainly as a result of growers has led to a rise in extracted. We are therefore phasing the ban on neonicotinoids as a seed mechanised land from 2% to 78% in a quality control system, in treatment from this year. However, over ten years and has doubled line with that used in our other sales to the European and US sugar beet volume. countries, whereby payments to horticulture markets continued to Sharing risk and reward growers will reflect the sugar increase and benefited from new In Spain and China, as sugar prices content of beet provided. A third of product development. Production have fallen, the prices we have our growers will come under the capacity was increased at its facility paid to growers for sugar beet new system this year. To facilitate in Gilroy, California. have become unsustainable. the change, we have invested Therefore, this year we took the £1 million in quality testing difficult decision to renegotiate equipment at our two Chinese our contracts with growers in factories. Additionally, the headline both markets. beet price has been reduced by 10%. In Spain, Azucarera has reduced Mutual benefits beet prices for the 2019/20 Our track record of working in campaign by 20%, after ending partnership with our growers has the previous five-year contract benefited us all. We believe that 12 months early. In negotiating sharing the risk now will again the new arrangements, we held deliver mutual benefits, as it will face-to-face talks with 85% of allow both us and our growers to growers, their unions, all key remain competitive and successful regional and national agriculture over the long term and build on what ministers and officials to explain we have achieved together so far. the change. We believe the more realistic terms will provide a
Annual Report and Accounts 2019 Associated British Foods plc 25 Sugar | In action
LEADING THE WAY IN SUGAR
In 2019, we partnered with WaterAid AB Sugar has achieved and the University of Cambridge’s a growing number Centre for Industrial Sustainability to seek new ways of reducing irrigation of industry fi rsts as water loss in sugar and beyond. The we strive to become Innovate Irrigation Challenge was an exciting opportunity to ask individuals the world’s leading and teams from all backgrounds and regions to submit ideas to help stop sugar business. water losses in irrigation, with the winning idea announced in October 30% 2019. The idea was unanimously we are committed to chosen by a panel of prestigious judges reducing our end-to-end and focuses on a smart irrigation supply chain, water and system that will provide real-time data CO2 footprints by 30% to estate managers and smallhold by 2030. farmers to make informed decisions on water usage and irrigation schedules.
26 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
Setting ambitious commitments The supplier of choice We continue to evolve to stay ahead In another sector first, we published in our changing industry. In 2018 we an interactive global sourcing map became the first sugar business to showing where we grow sugar, where publish group-wide sustainability we source from, and where we export commitments for 2030. These outline to. By sharing such ‘field to fork’ details our ambition to further improve our so transparently stakeholders can performance, and that of our supply see that our products are traceable, chain, and are in line with the UN’s sustainable and safe. We also built Sustainable Development Goals. upon the Company’s Modern Slavery and Human Trafficking Statement The 2030 commitments build on our with the AB Sugar Modern Slavery sustainability framework, ‘Global Mind, Statement, which more closely reflects Local Champions’, and its three pillars – our substantial international footprint building rural communities, consuming in agriculture and manufacturing. resources responsibly, and creating We created a modern slavery video thriving and healthy communities. animation to raise awareness, and give They point to how, by 2030, we will: a concise explanation of, the different • build vibrant, diverse value chains types of modern slavery in the context that increase the prosperity of our of our business and industry. communities; AB Sugar’s 2030 aspirations, and our • reduce our water and carbon dioxide other industry-leading actions, represent footprints in our end-to-end supply further progress in our journey to chain by 30% and ensure all our becoming the sugar supplier of choice, plastic packaging is reusable, to our long-term competitive success, recyclable, biodegradable or and meeting the growing demand for compostable; and companies to act responsibly. • 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 Sugar | In action
DELIVERING A COMPETITIVE EDGE
As a consequence of policy reforms including systems to assess and AB Sugar is taking and abolition of quotas within the EU manage risk as we begin to use further bold steps in 2017, the global sugar market has financial hedging to offset price volatility. changed substantially creating both Also, our management teams are to strengthen our opportunities and challenges. As a increasingly drawn from both within competitiveness result, current low world sugar prices our sector and externally, to give us the and intense competition combined have right mix of skills, experience and fresh in a challenging squeezed producers’ margins, requiring thinking to thrive. them to reinvent their skills, behaviours We are evolving our business model marketplace. and capabilities. to suit this new sugar market. For Increasing competitiveness example, Illovo Sugar Africa has moved and developing capabilities its commercial focus away from bulk We began preparing for this much sales into the EU to more domestic tougher commercial market long before sales direct to retail consumers. This our peers to deliver substantial benefits has required us to adapt our product, through our performance improvement branding, formats, channels and programme (PIP); focusing on improving logistics as well as address the processes, investing our capital wisely operating model to further improve and increasing revenue generation. efficiency, reduce overheads and increase profits. In Europe, we are In addition, we recognised that we building on recent progress in making would need to do things differently in our factories more efficient. In Spain, today’s marketplace, beyond reducing Azucarera will continue to automate its costs, by strengthening capabilities sites and in the UK, we will consolidate across the group. We are, for instance, improvements to our factories, equipping commercial teams with the warehousing and logistics. tools to navigate this environment,
28 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
Investing in innovation Wissington, Cambridgeshire with We continue to invest a significant slice a non-psychoactive variety of the of our cost savings back into higher- cannabis plant used in epilepsy drugs. return capital projects. In 2019 we In Spain Azucarera launched its injected £32 million into the business, Betalia brand, which includes from backing new product development products for animal feed, agriculture within Germains, our seed technology and industrial uses. business, to increasing daily factory Meeting changing needs throughput in our factories in China. We Since launch, our PIP continues to continue to invest time and money in go from strength to strength. The our growers’ businesses and are now programme is embedded in AB Sugar’s using learnings from China to improve DNA, with a high profile across the farmers’ methods and yields in Africa. business and a three-year pipeline of Reducing waste, growing revenue future projects. It will remain central to In addition to our core products made our efforts to anticipate and meet the from sugar beet or cane, we also sell a fresh challenges and opportunities that range of co-products from the advanced will inevitably arise, as our industry manufacturing process, ranging from continues to evolve and new molasses to ethanol, and much more. technologies emerge. 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 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 productivity and performance, agriculture’s importance in the global developing tailored feeds and new food supply chain, our philosophy is to feeding regimes to improve help change it for the better; influencing performance for every customer. and improving food production, so that Co-product innovation and marketing everyone can eat nutritious food that is AB Agri is the UK’s largest and most produced safely and responsibly. progressive marketer of food, drink Across the agricultural supply chain, our and energy co-products, having products, data insight and technological pioneered the industry for over 30 years. innovation enable our customers to Co-products are a secondary product produce and process high yielding, safe stream created during the manufacture and nutritious food in a responsible way, of food, drink and bio-fuels. They are using fewer chemicals and antibiotics, usually cereal or plant-based residues safeguarding natural resources, and from industries such as brewing, creating less waste and lower distilling and sugar production. emissions. Employing over 3,000 Supply chain, data and technology people around the world we market solutions products in 65 countries and continue With 20 years of expertise, our data and to grow our global operations. Our core technology platforms deliver targeted capabilities include: insight that create continuous Specialised feed ingredients improvement for agricultural supply and mixtures chains in over 60 countries. We work A major investor in research and exclusively with major food processors, development of specialty feed retailers and directly with farmers, ingredients and mixtures, we provide enabling them to: highly specialised advice around • increase productivity and yields; procurement and formulation for livestock • improve animal health and husbandry; feeds and pet foods as well as global and manufacturing expertise. We market • deploy robust quality assurance and pioneering feed ingredients: additive Corporate Responsibility (CR) products, high-quality, bespoke, vitamin programmes. and mineral pre-mixes, starter feeds, Commodity risk management and micro-ingredients developed using We are the UK’s leading grain trading a world-class expertise in feed enzymes, and crop inputs (seed, crop protection nutrition and product formulation. and fertiliser products, agronomy and Compound feed precision farming advice) company We are a major international through Frontier Agriculture, our joint manufacturer and supplier of pig, poultry venture with Cargill plc, providing and dairy feeds with 36 production sites customers with in-depth insight into in the UK, continental Europe and China. global commodity markets. We work closely with major processors and producers to benchmark
30 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategicStrategic REPORT Report 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 Agriculture | Operating performance
PRODUCTS AND SERVICES FOR THE AGRI-FOOD INDUSTRY
Revenue AB Agri revenues were 2% ahead Speciality Nutrition, our premix and of last year at constant currency, driven starter feed business, successfully £1,385m by higher feed sales in the UK and China commissioned a new factory at Fradley where higher feed prices reflected Park, Staffordshire and acquired a 2018: £1,350m increased raw material costs. Adjusted small starter feed business in Poland. operating profit, however, was down Profits were lower than last year which Actual fx: +3% 30% mainly due to the loss of high benefited from unusually high vitamin Constant fx: +2% margin co-products from the Vivergo prices. Sales and profit at AB Vista were bioethanol plant, which was closed last in line with last year and reflected an Adjusted operating profit autumn, and lower margins on UK increasingly competitive phytase animal feed. enzyme market. We are encouraged by the launch of Signis, our innovative Compound feed volumes in the £42m animal digestion aid. 2018: £59m UK increased due to higher demand in the pig and poultry sectors. The margin Actual fx: -29% decline reflected an under-recovery of Constant fx: -30% energy and distribution costs and lower sales of sugar beet feed to the dairy sector, following the reduction in the Adjusted operating beet crop size. Overheads will be profit margin reduced as a consequence and a restructuring charge has been taken 3.0% this year. Although our Chinese feed 2018: 4.4% business also increased sales, margin declined.
Return on average capital employed 10.7% 2018: 15.7%
32 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategic REPORT report In action
GROWING TARGET INTERNATIONALLY ZERO
connected intelligence that bridges With its products the gap between people, data and As a leading agri-food and services already technology in agriculture. More solutions provider, recently, we announced Kilkenny, available in 65 Ireland as the location of a new AB Agri wants to countries, AB Agri Technology Centre for Intellync. ensure responsible Due to open in late 2020, this new is embarking on an Technology Centre will develop new production for its generations of technology solutions ambitious international that improve farm performance customers across growth strategy to and drive continuous improvement the agri-food industry across agricultural supply become a leading and chains globally. and strengthen its infl uential force in the We aim to expand our global leadership in feed operations through the creation of global agri-food sector. operational hubs in our key overseas product quality and markets. These hubs will enable health and safety. With a growing global population AB Agri to roll out its products and estimated to require up to 70% technology platforms, grow sales To drive this, AB Agri has launched more food by 2050, and climate and market share in new countries. change and extreme weather ‘Target Zero’. This programme conditions adversely impacting food In south east Asia we have set up promotes and focuses on the production, the agri-food industry a commercial entity to serve business’ existing zero harm policy, is facing significant challenges. Vietnam. In central and eastern to ensure no harm comes to To help address this, AB Agri is Europe, our acquisition in 2019 of its people, products and the developing better technologies a specialist baby animal nutrition environments in which it operates. and exploiting the applications business and production plant AB Agri has established a set of clear of data and digitalisation, which in Poland will accelerate the Target Zero values and a leadership will improve the productivity and establishment of an AB Agri hub development programme in efficiency of its global supply from which to grow new business. accordance with these, which have chains, and the production of food. This builds on our existing presence been rolled out across the group. in the region with our neonates At the start of 2019, AB Agri nutrition business, AB Neo, This commitment to Target Zero established a new entity, Intellync, in the Czech Republic and goes beyond employees, sites, which brought together our existing demonstrates a belief in the future operations and logistics. Its remit businesses AB Sustain and Agridata. of livestock farming in Poland and spans the breadth of AB Agri’s Intellync’s goal is to deliver the surrounding countries. 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 Operating review | Ingredients
ABOUT INGREDIENTS
Our Ingredients businesses supply yeast, bakery and specialty ingredients to food and non-food manufacturers. AB Mauri • AB Enzymes is an industrial biotech AB Mauri has a global presence in company specialising in enzymes. bakers’ yeast with significant market Their applications include bakery and positions in the Americas, Europe and other foods and beverage segments, Asia. It is a technology leader in bakery animal feed, technical and detergent ingredients, supplying bread improvers, markets; dough conditioners and bakery mixes • ABITEC supplies specialty lipids and to industrial and craft bakers across surfactants for the pharmaceutical, the globe. nutritional and specialty chemical The business employs experts who industries; have extensive knowledge and • Ohly produces a range of yeast understanding of the yeast and bakery extracts and culinary seasoning ingredients business, the equipment, powders specially developed to the processes and the raw material. In enhance the taste of customer’s addition to bakers’ yeast, AB Mauri also food recipes; supplies yeast products to producers of alcoholic beverages and bioethanol. • PGP International produces specialty flours and extruded ingredients for ABF Ingredients use in a wide range of nutritional ABF Ingredients is a specialty products such as health bars; and ingredients world leader, offering innovative, differentiated and value- • SPI Pharma develops and supplies added products and services to the pharmaceutical excipients and food, nutrition, pharmaceutical, animal antacids for global pharmaceutical feed and industrial sectors. Its producers. 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:
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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 35 Associated British Foods plc 35 Ingredients | Operating performance
YEAST, BAKERY AND SPECIALTY INGREDIENTS SUPPLIED GLOBALLY
Revenue Revenue Ingredients revenues were 4% ahead In August we signed an agreement of last year at constant currency. to form a yeast and bakery ingredients £1,515m £3,521mAdjusted operating profit, however, joint venture in China with Wilmar declined by 6% at constant currency, International. This will combine our 2018: £1,459m 2018: £3,420m which was driven by a significant fall existing activities in China and technical Actual fx: +3%in the result for AB Mauri Argentina expertise with their extensive sales and Actual fx: +4% Constant fx: +2%as a result of a challenging economy, distribution capability. Completion is Constant fx: +4% increased competition, and the adoption subject to the receipt of regulatory of hyperinflationary accounting approvals. The joint venture will build a Adjusted operating profit Adjusted operatingunder IAS profit 29. major yeast plant to be co-located with Wilmar’s food processing plant in north AB Mauri sales increased but east China. During the year we also £136m £380mprofits were reduced mainly as a acquired Italmill, a supplier of specialist 2018: £143m 2018: £335m result of the Argentina operations. bakery ingredients from a well-invested Trading in North America was strong Actual fx: +13% facility in the north of Italy. Actual fx: -5% driven by product innovation in bakery Constant fx: +10% Constant fx: -6% ingredients and the increase in yeast At ABF Ingredients, the enzymes prices to recover higher input costs. business continued to grow its sales Trading was also ahead in Brazil to the bakery and other food markets. Adjusted operating Adjusted operating where we continued to benefit from SPI Pharma delivered sales growth in profit margin profit margin the growth of industrial bakeries. pharmaceutical excipients and industrial We continued to invest in technology catalysts. Ohly, our yeast extracts and 9.0% 10.8% and product innovation and a new seasoning powders business, made 2018: 9.8% 2018: 9.8% bakery toppings facility in Pederneiras, good progress in the food and health Brazil, a bakery ingredients factory in markets and improved margins through Dongguan, China and an extended cost reduction. PGPI, our US protein Return on average Return on averagetechnology centre in St Louis, US extrusion business, delivered strong capital employed capital employedwere opened during the year. sales growth of plant protein crisps and took further share in the expanding US 15.9% 27.4% market for nutrition bars and healthier snacks, cereals and baked items. 2018: 18.1% 2018: 25.9%
36 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategic REPORT report In action
OLD TRADITIONS NEW INNOVATIONS
Scrocchiarella®: innovating ‘Baking’ the future In May 2019, AB Mauri through tradition “Italmill’s success is founded in acquired Italmill, a Italmill anticipated the Italian the expertise and dedication of its consumer’s growing preference for people. Handing over this valuable leading player in the healthy, high quality, snacking and heritage to ABF will ensure the Italian bakery on-the-go food with Scrocchiarella continuation of the nurturing mixes and par-baked frozen bases environment that preserves and ingredients industry. for an authentic Roman Pizza. develops our talents, and creates additional value for the future”, Scrocchiarella is made from a unique Italmill began in 1901 as Molini commented Filippo Ferrario, the combination of selected traditional Besozzi Marzoli, and by 1911 the previous owner who continues as flours, sourdough and natural company had built one of the most a director of the business. ingredients. The key ingredient is advanced milling plants in Italy. sourdough, which gives the final Building on ABF’s solid track record Italmill developed over the years product a crunchy crust, open crumb of successful acquisitions, we plan to into a successful, fourth generation structure, superior flavour and a unlock the growth potential of Italmill family-owned and managed bakery memorable aroma. in international markets, building ingredients company based in value through the combination of northern Italy. Since launching the traditional Italmill’s product portfolio and recipe, the Scrocchiarella range has Italmill’s heritage of tradition and AB Mauri’s technological expertise been enriched with whole wheat, innovation brings to AB Mauri a and commercial reach. seeds and Venus black rice. wealth of expertise in sourdough, pizza and pastry mixes, flour mixes and frozen technologies.
Annual Report and Accounts 2019 Associated British Foods plc 37 Ingredients | In action
THE INGREDIENTS OF CHANGE
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Ohly, our yeast-based specialty products business, is reshaping its food ingredients range in response to changing consumer demands.
Ohly produces flavour • Meat alternatives: low- or no-meat enhancements, such as yeast diets are now mainstream as more extracts and seasoning powders, people change their eating habits which are used to enrich the taste for reasons of health, principles or in a wide variety of leading food taste. The knock-on interest in products. In evolving our offering, meaty-tasting and functional selected focus areas for product ingredients presents a significant development are: opportunity for natural yeast- based ingredients. • Salt reduction: consumers increasingly understand the impact Market-driven on health of using too much salt Two non-food market segments also and want products that contain present significant opportunity for less salt but still taste great. We Ohly – biotechnology and animal have developed a toolbox of health. In biotech, customers ingredients that allow food demand higher productivity, and our producers to reinforce the taste scientific ability to select the right profile of their recipes by using our nutrient combination delivers this. natural yeast-derived ingredients. In animal health, farmers are seeking These ingredients often also to reduce the use of antibiotics and deliver distinct taste experiences our understanding of yeast cell like umami or roasted notes; structures allows us to provide ingredients with proven immune • Authentic, ethnic flavours: the stimulation effect, reducing the need rising popularity of once-niche for antibiotics in the first place. regional flavours is creating global customer demand for exciting The pace of change across different seasonings, a field where our markets requires Ohly to change too. PRODRY® culinary powders excel. And that’s what the team has kicked Ohly uses its product and off, with the establishment of formulation expertise to turn liquid dedicated teams to focus on these or viscous products like mustard specific market segments. into dry powders that continue to deliver the authentic flavour into a dry application such as snacks; and
Annual Report and Accounts 2019 Associated British Foods plc 39 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 and the US. 2006 saw Primark’s first 78,000 people in the UK, Republic foray into continental Europe with the of Ireland, Spain, Portugal, Germany, opening of a store in Madrid and it the Netherlands, Belgium, Austria, now operates from 15.6 million sq ft France, Italy, Slovenia and the US. of selling space across 12 countries. It was founded fifty years ago in the With a unique combination Republic of Ireland where it continues of the latest fashion and lean to trade as Penneys. operations, Primark offers customers Primark’s organic growth has been quality, up-to-the-minute fashion mainly achieved through increased at value-for-money prices. Buying selling space. Investment in buying, and merchandising teams travel merchandising and our success in internationally to source and buy constantly refreshing its stores ensures garments that best reflect each they remain exciting places to shop. season’s key fashion trends. Primark’s The increase in selling space has been range includes womenswear, driven by capital investment in freehold lingerie, childrenswear, menswear, and leasehold properties as they have footwear, accessories, hosiery, become available, first on the high beauty and homeware. streets of the UK and Ireland, and more recently on the high streets and in the shopping centres of continental Europe
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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 Retail | Operating performance
QUALITY FASHION AT VALUE-FOR-MONEY PRICES
Revenue Sales at Primark were 4.2% ahead of contributions from our new stores last year at actual exchange rates and in Bordeaux, Seville and Ljubljana £7,792m 4.1% ahead at constant currency, driven exceeded our expectations. Like-for-like by increased selling space partially sales fell by 2.9%, driven by a weak 2018: £7,477m offset by a 2.0% decline in like-for-like performance in Germany where a new Actual fx: +4% sales. Operating profit margin increased managing director is now in role and is Constant fx: +4% to 11.7% from 11.3% and, as a leading a number of initiatives which consequence, adjusted operating profit include targeted local marketing was 8% ahead. campaigns and the reduction of selling Adjusted operating profit space in some stores. Excluding Primark performed well in the UK as we Germany, like-for-like sales in the continued to deliver a significant gain in Eurozone fell by 1.1% but we note an £913m market share, with sales growth of improving trend which delivered positive 2018: £843m 2.5% driven by a strong contribution like-for-like sales in the final quarter. from new selling space. Like-for-like Actual fx: +8% Full year like-for-like sales growth was sales declined by 1.0% but outperformed Constant fx: +8% achieved in Spain, Portugal, France a weak total clothing, footwear and and Italy. accessories market which includes online. We have been encouraged by Our US business delivered strong Adjusted operating our customers’ reaction to our new sales growth which, coupled with profit margin store in Birmingham High Street which lower operating costs, resulted in a showcases our new food and beverage significantly reduced US operating 11.7% and beauty services in addition to our loss. The sales increase was driven by 2018: 11.3% full product range. like-for-like growth and excellent trading at the Brooklyn store, which opened last Sales in the Eurozone were 4.8% ahead summer. The selling space reduction in of last year at constant currency, with Return on average three stores has successfully established excellent sales growth in Spain and capital employed a profitable contribution in each store. France and strong performances in Italy The positive reception by US consumers and Belgium. Over the year selling to Primark, combined with our profitable 28.9% space increased by 8% and the store model, gives us confidence for 2018: 28.2%
Year ended 14 September 2019 Year ended 15 September 2018 # of stores sq ft 000 # of stores sq ft 000 UK 189 7,449 185 7,125 Spain 46 1,850 45 1,764 Germany 30 1,830 27 1,686 Republic of Ireland 37 1,085 37 1,087 Netherlands 20 971 19 902 France 15 776 13 649 US 9470 9507 Portugal 10 348 10 348 Belgium 7372 6292 Austria 5242 5242 Italy 4203 4203 Slovenia 146 –– Total 373 15,642 360 14,805
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further expansion in the US market. Retail selling space increased by Two further US stores will open in the a gross 0.9 million sq ft this year, new financial year, at American Dream, with 14 new store openings. Four the retail and entertainment complex in stores were added in the UK, three New Jersey which will now open in in Germany, two in Spain, two in New store openings: spring 2020, and Sawgrass Mills, Florida France and one each in Belgium, UK: Hastings, Bluewater, Belfast in summer 2020. We have now signed the Netherlands and our first store Donegall Place, Milton Keynes the lease for a new store in Fashion in Slovenia. We relocated to new Spain: Torre Sevilla, Almeria District, Philadelphia and, as previously premises in Birmingham High Street Belgium: Bruxelles Chaussée advised, have exchanged contracts on which, at 160,000 sq ft, became D’Ixelles a store in State Street, Chicago. our largest store. The smaller of The Netherlands: Utrecht our two stores in Oviedo, Spain, We were particularly pleased to have Slovenia: Ljubljana was closed and the size of our reached a milestone 20 million followers France: Toulouse, Bordeaux store in the King of Prussia mall in across all our social media channels, Germany: Berlin Zoom, Pennsylvania was reduced. This brings driven by a combination of exciting Wuppertal, Bonn the total estate to 373 stores trading product ranges, innovative social media from 15.6 million sq ft compared to campaigns and customer-focused Relocations: 14.8 million sq ft a year ago. celebrity collaborations. We believe UK: Harrow, Birmingham High our engaging content across these In the next financial year, we are Street, Newtownabbey social platforms attracts substantial planning to add a net 1 million sq ft customer numbers to our stores. of additional selling space, weighted mainly to the second half. We expect During the second half, Primark’s to open 19 new stores together with a buying, merchandising, design, number of relocations and extensions, sourcing and quality functions, while selling space will be reduced at a previously located in Reading and small number of German stores. France Dublin, were consolidated in Dublin. and Spain will see the most space This will further enable one global added, and the major new stores will product range for our customers, the include Paris Plaisir, Lens and Calais delivery of efficiencies and support our Cité Europe in France, Milan Fiordaliso expansion into international markets. in Italy, Barcelona Plaza de Cataluña The first half operating margin of and Seville Lagoh in Spain and Trafford 11.7% was well ahead of the same Centre in the UK. Our first store period last year of 9.8%, driven by in Poland will open in Warsaw in a weaker US dollar on contracted the spring, taking Primark to its purchases, better buying and tight thirteenth country. 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 Retail | In action
Sunglasses Part of the Kem Ibiza photo shoot
RISE OF THE
Yellow dress Part of the Stacey Soloman collection
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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 INFLUENCER We carefully select the influencers with whom we collaborate. They need Celebrity partnerships to be genuine Primark advocates that consumers can relate to easily, and are delivering stellar whose lives complement our brand and returns for Primark. 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, Ninja Water Bottle including 650 social media posts that Part of the Ninja reached 50 million people. Her second collection 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.
Annual Report and Accounts 2019 Associated British Foods plc 45 Retail | In action
160,000 sq ft size of Birmingham High Street store
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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. Homage to home In paying homage to Birmingham, As well as shopping, consumers the store also helps consumers feel can get their hair cut, play interactive at home. At the entrance, a large games in the Primark Café with Primark-blue sign proclaims Disney – one of four very different ‘Welcome Brum’ and, against a dining locations – enjoy a manicure, stylish interior that refers both to have a wet shave, print bespoke the city’s industrial heritage and t-shirts and have a magical time in contemporary design, word graphics Hogwarts Wizarding World. And spell out the essence of Birmingham, after that they can recharge as voiced in local vox pops. themselves, and their phones, in one of the comfortable seating Elements of the new store’s rich areas, complete with free wifi and offering are being woven into other water fountains. 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 Retail | In action
DRIVING FORWARD SUSTAINABLE COTTON
This year Primark This significant extension broadens The programme’s expansion the programme into China for the first comes amidst growing demand from announced a fi vefold time, in addition to enrolling thousands customers for sustainable cotton expansion of its more farmers into the three-year training products. Primark first introduced programme in India and Pakistan. sustainably sourced cotton into one Sustainable Cotton This marks an important part of the of its most popular product lines – retailer’s ongoing commitment to women’s pyjamas – under its Primark Programme, with a minimising its impact on the Cares initiative in 2017. More than 14 commitment to train environment, improving livelihoods and million pairs of pyjamas have since been bringing more sustainably-sourced sold, in addition to more than three 160,000 independent cotton to customers at affordable prices. million pairs of jeans, and six million duvet covers and towels made with Primark started this programme in cotton farmers in sustainable cotton tracked through 2013 in India, working with agricultural the programme at no extra cost to the sustainable farming experts CottonConnect and local customer. The expansion into China and partners to train female farmers to use methods across three increased farmer numbers will enable less water and chemicals. By starting Primark to move one step closer to its of its key sourcing at the very beginning of the supply long-term ambition of using 100% chain, the cotton can be directly sustainably sourced cotton across its countries by the end traced from cotton farm through entire product range. of 2022. 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.
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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 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 The weakening of sterling this year, with Wilmar International, described in Group revenue increased by 2% particularly against the US dollar, further detail below. Taking this into to £15.8bn and adjusted operating resulted in a translation benefit of account, statutory profit before tax was profit was 1% higher at £1,421m. In £9m. The movement in the US dollar down 8% to £1,173m. On our adjusted calculating adjusted operating profit, the exchange rate has a transactional effect basis, which excludes these items, profit amortisation charge on non-operating on Primark’s largely dollar-denominated before tax rose by 2% to £1,406m. intangibles, profits or losses on disposal purchases but taken for the year as a Acquisitions and disposals of non-current assets, transaction costs, whole the effect was broadly neutral, In September 2018 we acquired Yumi’s, amortisation of acquired inventory fair with a favourable effect in the first half an Australian producer of premium chilled value adjustments and exceptional offsetting a negative effect in the dips and snacks. AB Agri acquired a small items are excluded. second half. manufacturer of piglet starter feed based The income statement includes Next year we expect the weakness of in Poland. Our Ingredients business exceptional items of £79m this year. sterling during this financial year to have disposed of its underutilised torula yeast Following the termination of our a negative transactional effect on the facility in Hutchinson, Minnesota and largest private label bread contract in Primark margin in the first half but, at acquired Italmill, a supplier of specialist December 2018, the carrying value current exchange rates, a minimal effect bakery ingredients based in the north of of the assets of the Allied Bakeries in the second half. Italy. On 6 September 2019 ACH in the business was no longer supported by US acquired Anthony’s Goods, a Net finance expense reduced from last our forecasts of its discounted future California-based blender and online year following the maturity of $310m of cash flows and a non-cash impairment marketer of speciality baking ingredients. private placement senior notes in March charge of £65m has been recognised. and lower debt in high interest markets. In August we signed an agreement Following a High Court ruling regarding The increase in other financial income to form a yeast and bakery ingredients the equalisation of Guaranteed reflected the increase in the surplus of joint venture in China with Wilmar Minimum Pensions in October 2018, our defined benefit pension schemes International, with completion subject to a pension service cost of £14m between the 2017 and 2018 year ends. regulatory approval. The joint venture will has been taken for members of the see us build a major new low-cost yeast company’s defined benefit pension Losses on disposal of businesses were plant in the north east of China and will scheme for service between 1990 £94m, higher than last year, and mainly combine AB Mauri’s existing commercial and 1997. On an unadjusted basis, comprised an impairment charge to the activities and technical expertise in operating profit was 5% lower than assets of AB Mauri’s businesses in China with Wilmar’s extensive sales and last year at £1,282m. China which are affected by the distribution capability. As a consequence, formation of the proposed joint venture
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a non-cash impairment charge of £88m Balance sheet paid in the following accounting period. against AB Mauri’s assets in China has Non-current assets of £8.2bn were Changes made by HMRC which come been included in losses on closure of £0.2bn lower than last year driven by into effect next year will result in all of businesses in the income statement. a decrease in employee benefits the tax due for a financial year being assets as the surplus in the UK defined paid in that financial year. Accordingly, Taxation benefit pension scheme declined. the group’s tax cash outflow in 2020 We recognise the importance of The investment in property, plant and will be higher than 2019. complying fully with all applicable tax equipment and intangible assets laws as well as paying and collecting the Financing was in line with last year, with capital right amount of tax in every country in The financing of the group is managed expenditure and acquisitions made which the group operates. Our board- by a central treasury department. The in the year offset by depreciation adopted tax strategy is based on seven group has total committed borrowing and impairments. tax principles that are embedded in the facilities amounting to £1.6bn, which financial and non-financial processes Average working capital as a percentage comprise: £0.3bn of US private and controls of the group. This tax of sales increased from 7.2% last year placement notes maturing between strategy is available on the group’s to 7.8% this year, while working capital 2021 and 2024, with an average fixed website at: www.abf.co.uk/documents/ at the year end was also higher than last rate coupon of 4.4%; £1.2bn provided pdfs/policies/abf_tax_strategy.pdf. year due principally to higher inventories under a syndicated, revolving credit at Primark. Net cash at the year end facility which matures in July 2021; and This year’s tax charge on the adjusted was £936m compared with net cash £0.1bn of local committed facilities in profit before tax was £302m at an at the end of last year of £614m Africa. At the year end, £412m was effective rate of 21.5% (2018 – 21.3%). reflecting the strong operating cash drawn down under these committed We expect next year’s adjusted flow in the year. facilities. The group also had access to effective tax rate to increase slightly £564m of uncommitted credit lines from this level. The group’s net assets increased by under which £162m was drawn at the £0.3bn to £9.6bn. Return on capital The total tax charge for the year of year end. Cash and cash equivalents employed for the group which is £277m benefited from a credit of totalled £1.5bn at the year end. calculated by expressing adjusted £25m (2018 – £35m) for tax relief on operating profit as a percentage of the Pensions the amortisation on non-operating average capital employed for the year, The group’s defined benefit pension intangible assets, amortisation was lower this year at 19.3% compared schemes were in surplus by £33m at of acquired inventory fair value with 20.1% last year, mainly driven by the year end compared with a surplus adjustments, profits on disposal of the reduction in the return on capital at last year of £435m. The UK scheme non-current assets, losses on disposal AB Sugar. accounts for 91% of the group’s gross of businesses and exceptional items. pension assets. The decline in long-term Cash flow Earnings and dividends UK bond yields during the year, which Net cash inflow from operating activities Earnings attributable to equity are used to value defined benefit increased slightly to £1,509m. Capital shareholders in the current year were pension obligations for accounting expenditure reduced compared to the £878m and the weighted average purposes, had a material impact on the prior year with lower spend at Primark number of shares in issue during the discounted value of pension liabilities. this year reflecting the planned later year, which is used to calculate earnings The lower pension surplus will result in phasing of next year’s store openings per share, was 790 million (2018 – 790 reduced interest income next year in and the consequent timing of store fit million). Given the loss on closure of respect of defined benefit pensions, and out costs, while lower spend in the businesses and exceptional items is reported in other financial income. food businesses followed the recent charged this year, earnings per ordinary completion of some major capital The most recent triennial valuation of share were 13% lower than last year at projects. £12m was realised from the the UK scheme was undertaken as at 111.1p. Adjusted earnings per share, sale of property, plant and equipment. 5 April 2017 which determined a surplus which provides a more consistent The net cash outlay on acquisitions was of £176m on a funding basis. As a result measure of trading performance, £100m, including debt assumed, and there is no requirement to agree a increased by 2% from 134.9p to 137.5p. related principally to the acquisitions of recovery plan with the trustees. The interim dividend was increased Yumi’s and Anthony’s Goods. The charge for the year for the group’s by 3% to 12.05p and a final dividend Tax paid in the year amounted to defined contribution schemes, which has been proposed at 34.3p which £269m. Generally in the UK, 50% of was equal to the contributions made, represents an overall increase of 3% the corporation tax due in respect of an amounted to £80m (2018 – £77m). This for the year. The proposed final dividend accounting period is payable in that compared with the cash contribution to is expected to cost £271m and will period with the remaining 50% being the defined benefit schemes of £50m be charged next year. Dividend cover, (2018 – £39m). on an adjusted basis, remained at 3.0 times.
Annual Report and Accounts 2019 Associated British Foods plc 51 Financial review
New accounting standards The vast majority of the lease liabilities There is no change to overall net cash The accounting policies applied relate to Primark’s leasehold store flows and while this is a significant during this financial year, and details estate. The effect on our food change in financial reporting, our of the impact of adoption of new businesses, where many of our business model remains unchanged accounting standards in future financial properties are owned under freeholds, and our balance sheet remains robust. years, are set out in the Significant is much less significant. Effects on Primark metrics: accounting policies. We will transition using the ‘modified • Primark’s margin would have During this financial year we adopted retrospective’ approach, under which increased from 11.7% to 12.5% due IFRS 9 Financial Instruments and the comparative period is not restated. to higher adjusted operating profit, IFRS 15 Revenue from Contracts with We have set out below our estimates of with store rental expense replaced Customers with no material impact selected 2019 financial information, on with a depreciation charge on arising on adoption. On transition, a pro forma IFRS 16 basis, in order to right-of-use assets. comparatives were not restated. Under illustrate the effects on the income IFRS 15, Grocery revenues would have statement and key metrics for Primark. • Primark’s return on capital employed reduced by £31m last year as certain would have decreased from 29% to Effects on the group financial payments to customers which were 15%, as right-of-use assets are now statements and metrics: previously expensed as incurred would included in capital employed. instead have been deducted from • The balance sheet would have shown John Bason revenue. This reduction represents net debt of £2.7bn. 0.9% of revenue in the Grocery Finance Director segment and would have had the effect • Gearing (expressed as debt as a of increasing Grocery operating margin proportion of debt plus equity) would by 8 basis points last year. This had have been 31% at the balance sheet no effect on the timing or amount of date. operating profit. • Adjusted operating profit would have IFRS 16 Leases increased by £64m, with rental The group will adopt IFRS 16 Leases expense replaced by depreciation in the 2020 financial year, which is the of right-of-use assets. most significant accounting change for • Interest expense would have our group for many years. It affects increased by £90m of interest many aspects of the group’s financial charged on lease liabilities. statements, including operating profit, earnings per share and net debt, as well • Interest cover would have been as return on capital employed. 14 times. The effects of adopting IFRS 16 at our • Adjusted profit before tax would transition date of 15 September 2019 have reduced by £26m. are set out in the Significant accounting • Adjusted earnings per share would policies section. We will recognise lease have reduced by 2% from 137.5p liabilities at transition of £3.6bn and to 134.8p. right-of-use assets of £3.1bn.
52 Associated British Foods plc Annual Report and Accounts 2019 Strategic report Responsibility
LIVING OUR VALUES
RESPECTING EVERYONE’S A great deal has changed since we were established more than 80 years ago, but Dignity 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.
ACTING WITH Integrity
Our values Respecting everyone’s dignity We strive to protect the dignity We live and breathe our of everyone within and beyond values through the work we our operations so that the people do every day. They guide our who make our products feel safe, everyday behaviour and help respected and included. us to articulate how we deliver Acting with integrity long-term benefits for our people, We proudly promote and protect suppliers, neighbours, customers a culture of trust, fairness and and the environment. accountability that puts ethics first. We have – for the first time – set From farms and factories right through to our boardroom, we are out a group-level articulation PROGRESSING THROUGH of the values expressed by our committed to embedding integrity individual businesses. These into every action. are not new values recently Progressing through collaboration discovered, but the underlying We work with others to leverage threads which run through our global expertise for local Coll aboration every interaction at Associated good. Through collaboration British Foods and its businesses. with our stakeholders, including non-governmental organisations These do not replace each (NGOs), we’re working to create business’ own values, but rather safer, fairer working environments consolidate and summarise the and promoting thriving, resilient most common themes found communities. across the group. We developed them by distilling how our Pursuing with rigour own businesses describe and From the products we make, to implement their values. By the way we preserve the resources collating the values from 22 of our we rely on and support the people own businesses, we were able to we work with, we are always use language that is reflective of learning and incorporating better PURSUING WITH our businesses’ own words. practices. Across our businesses, we are partnering with industry experts to help us work towards the highest standards. Rigour
Annual Report and Accounts 2019 Associated British Foods plc 53 Responsibility | Reporting and stakeholders
REPORTING AND STAKEHOLDERS
Non-Financial Reporting There is also further information Human rights Requirements on our website at www.abf.co.uk/ We engage with a number of The Companies Act 2006 requires the responsibility. Here you can find our organisations on issues around human Company to disclose certain non- previous corporate responsibility reports rights, including the Corporate Human financial reporting information within the and updates, our Modern Slavery and Rights Benchmark and KnowTheChain. annual report and accounts. Accordingly, Human Trafficking Statement, our 2019 People the disclosures required in the Responsibility Report and our 2019 We devote hundreds of thousands of Company’s non-financial information ESG Appendix. hours to training our people, as well as statement can be found on the following Engaging with external stakeholders millions of pounds to keep them safe. pages in the Strategic report (or are Our scale employing 138,000 people We were pleased to be one of 34 incorporated into the Strategic report by and with operations in 52 countries responding companies to the pilot reference for these purposes from the across the world mean that our activities phase of the Workforce Disclosure pages noted): matter to many people. Our reporting is Initiative and have now submitted • Information on our employees intended to provide our wide range of our response to the third survey. (pages 55 and 56) stakeholders with an accurate picture of Social our approach to addressing both social • Information on diversity We engage with a wide range of NGOs and environmental challenges. (pages 56 and 57) on social matters, primarily at the level Our businesses routinely engage with of our individual businesses due to the • Information on our Anti-bribery customers, relevant regulators and often local and subject-specific nature of and Corruption Policy (page 57) industry bodies. At a group level we also these engagements. We have outlined • Information on our Whistleblowing engage with a variety of stakeholders many of these engagements in our Policy (page 57) through a range of methods. Some of responsibility report, Living our values. these are noted below. • Information on our approach to human rights (page 58) Environment, Social and Governance (ESG) assessments • Information on social matters Investor interest in ESG-related issues is (pages 58 and 59) growing. We are engaging more than • Information on our Environment ever with both individual investors and Policy (pages 60 and 61) investor-related ESG research agencies. Despite publishing and providing * Further information on these accurate and wide ranging data we can also be found in the 2019 find that with both investors and ESG Responsibility Report research agencies, we are regularly Further Responsibility and explaining that our business model does Review Living our values online: ESG Disclosures not fit neatly into a survey or standard www.abf.co.uk/responsibility In recent years we have published a question set. As such, our first ever ESG full corporate responsibility report Appendix is published in response to these increasing requests for performance every three years with annual updates. We engaged EY to provide limited assurance This year our responsibility report has data and is an example of the growing over the reliability of 15 environment and safety evolved into two separate documents. importance of providing a wide range of key performance indicators (KPIs) for the year publicly available ESG data. ended 31 July 2019. These are marked with the The first is a responsibility report Living symbol Δ in these pages. our values which provides an overview Environment of our operations and material impact: Every year we share our performance investing in our people; supporting in addressing climate change, water and society and strengthening our supply deforestation risks via CDP, and request chain; and respecting the environment. that our reports are publicly available on The second is an environmental, social their website, www.cdp.net, as well as and governance, ESG Appendix that our own. provides a greater depth of data to complement the responsibility report and provide an ‘at a glance’ for our recent historical non-financial performance.
54 Associated British Foods plc Annual Report and Accounts 2019 Strategic report Responsibility | Our people
INVESTING IN OUR PEOPLE
We prioritise the safety and well being of all Our safety performance this year Loss of life as a result of our activities our employees and those who work with us. is unacceptable. This year there were We also want them to have every opportunity to no work-related fatalities Δ. However, we recognise that there are areas of develop and progress. As a diverse, decentralised high safety risk in our businesses and we continuously work towards our goal organisation, our businesses operate in different of zero-harm in our workplaces and global contexts, so they are given the fl exibility activities. Our goals remain to eliminate fatalities and continuously improve our to manage these issues at a local level. safety performance. This year, 76% of our factories Whilst we offer our businesses Safety and stores achieved a year’s operation significant autonomy when it comes The health and safety of our employees, without any Reportable Injuries and to our people, we have a clear set of contractors and those affected by our 67% did not have a Lost Time principles that are common to all: activities is a priority. All our businesses Injury (LTI). invest in programmes that drive • we provide a safe and healthy continuous improvements in processes In 2019, LTIs among employees workplace; and standards for health and safety. decreased by 18% from 833 last year • we offer equal opportunities in We also encourage and empower our to 682 Δ. This equates to an LTI rate of recruitment, career development people to report and address concerns 0.65% of our people experiencing an and promotion whatever their sex, so that everyone feels safe and secure injury that resulted in time off work. age, race, religion or sexual in their place of work. For contractors, the LTI rate for the orientation; year was 0.19%. There was also a 14% Our approach to safety decrease in Reportable Injuries to • we proactively support employees All our businesses must comply with employees from 663 in 2018 to 573 when pregnant or as new parents; Associated British Foods’ Health and this year. This equates to 0.54% of our Safety (H&S) Policy (www.abf.co.uk/ employees having a Reportable Injury. • we give full and fair consideration responsibility). We pursue this with to applicants with disabilities; the rigour across the group, and many A healthy workforce extends beyond training, career development and businesses supplement the group policy just managing health and safety promotion of disabled persons should, with additional policies of their own. Our risks. Our holistic approach includes as far as possible, be the same as that businesses also have tailored action programmes and initiatives that of other employees; plans to reduce the risk of injuries and proactively help employees to maintain • we do not tolerate sexual, mental or incidents in their own operations. and improve their overall wellbeing. Sound mental health is an essential part physical harassment in the workplace; We have many safety programmes in of this, and we continue to invest in place to encourage our people to take • we brief and engage with our programmes that raise awareness and responsibility for keeping themselves employees on a regular basis to provide practical assistance to and their colleagues safe. We deliver a create a common understanding of our people. the financial performance of the group wide range of training on high-risk areas and we seek our employees’ views to to ensure our people are equipped with Health and safety fines take them into account in decision robust safety knowledge. During 2019, we received six safety making; fines Δ with a cost of £34,000 Δ which fell within the reporting year. All the • we will take all steps necessary to businesses involved are required to minimise the risks to our staff and report to Associated British Foods’ customers’ safety. Safety and Environment Manager on when and how remedial actions are implemented. Number of employees Reportable Injury Rate
2019 138,097 2019 0.54% 2018 137,014 2018 0.63% 2017 132,590 2017 0.59% 2016 129,916 2016 0.47% 2015 124,036 2015 0.48%
Annual Report and Accounts 2019 Associated British Foods plc 55 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.
Number Number Percentage Percentage Number of men of women of senior of workforce of senior in senior in senior management Total Men in Women in who are management management management who are employees* workforce workforce women roles** roles roles women Grocery 17,059 11,400 5,659 33% 750 443 307 41% Sugar 33,619 28,103 5,516 16% 334 242 92 28% Agri 2,525 1,810 715 28% 343 211 132 38% Ingredients 6,664 4,942 1,722 26% 576 425 151 26% Retail 77,787 20,289 57,498 74% 302 155 147 49% Central 443 269 174 39% 55 38 17 31% Total 138,097 66,813 71,284 52% 2,360 1,514 846 36%
* Full-time, part-time and seasonal/contractors. ** Includes directorships of subsidiary undertakings.
Investing in safety policies that foster diversity in 2019. Please note that more than half Our businesses invested over £29m in the workforce are developed and of our workforce is employed outside safety risk management over the last delivered locally. However we do also Great Britain and is therefore not 12 months. This includes investments in operate initiatives across Associated included in this analysis. improving working in confined spaces British Foods to promote diversity and In addition, and as required by the UK and at height, fire risk assessments and these include: Equality Act 2010 (Gender Pay Gap equipment upgrades, dust monitoring • a groupwide gender diversity task Information) Regulations 2017, we and air quality, improvements to lighting force which aims to ensure that there submit data for our relevant legal and safety signage and emergency first are no barriers to prevent talented entities to the UK Government through aid training. people from succeeding within the their website. A number of our Product Safety Company; businesses, such as Primark, AB Agri Maintaining food safety and quality and British Sugar, publish their own • senior and high-potential women are is a core part of our work, both across gender pay gap reports online and they invited to join ‘Women in ABF’, which the Group and within our individual can be found here: meets three times a year providing businesses. Each of our businesses a chance for networking, learning Online gender pay gap reports* has clear policies, procedures and and support for personal career www.primark.com/en/uk-gender-pay- the identification of individuals with development. The group currently report responsibility for food safety as part of has over 500 members; its Quality Management System. These www.abagri.com/responsibility/ systems are audited annually. For more • a Two-Way Mentoring Programme our-policies/gender-pay-report information see page 31 of the aims to grow the talent pipeline by www.britishsugar.co.uk/perch/ responsibility report. matching high-potential women with resources/18037-digital-gender-pay2pp- senior leaders around the group who Promoting Diversity a4revhr.pdf support their career development and Diversity is key to our culture, gives us broaden their business experience. * Please note 2019 data will be uploaded in advance a competitive edge and is one of the In return the senior leaders have the of 5 April 2020 ways we live our values every day. opportunity to learn about another In the main, the situation remains We strive to create diverse inclusive business or function, understand the unchanged since last year: at the working environments in which perspectives of women working median, women’s hourly pay rate is everyone’s dignity is respected and within them and develop their own 28% lower than that of men; and people are valued regardless of ethnicity listening and coaching skills; and women’s median bonus pay rate is or race, religion, gender, age, nationality, • managers being trained in 95.9% higher than men. sexual orientation or disability. ‘unconscious bias’, which aims Overall, the gender balance of For details on diversity as it relates to to build awareness and challenge Associated British Foods is fairly equal, the board of the Company, please see commonly-held myths around with women making up 52% of our total page 78. diversity. global workforce. However, women are The board is only one small part of our Gender pay gap reporting less well represented at the top – they total business and our commitment This year, for the third time, we have hold three quarters of the roles in the to promoting diversity extends across chosen to report on the gender pay gap lowest paid quartile yet only just over the entire workforce. Given our that relates to our total employee a third of the roles in the upper pay decentralised business model, many population in Great Britain as at 5 April quartile. This is partly influenced by the
56 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
fact that we have a large number of and we hold ourselves to higher A copy of the group’s Anti-Bribery retail staff on relatively low pay and a ethical standards. Our Anti-Bribery and Corruption Policy is available at: higher proportion of these are women. and Corruption Policy and related www.abf.co.uk/responsibility procedures apply to all our people. Gender balance at the top of the group Whistleblowing Policy They set out the behaviours and changes slowly because we have a Effective and honest communication principles required and contain guidance stable senior team, who are currently is essential if wrongdoing is to be dealt on issues such as engaging new mostly men. The presence of these with effectively. Our value of pursuing suppliers and other third parties, and the senior men in the bonus pool has a with rigour includes those engaged in giving and receiving of gifts, hospitality distorting effect on the mean bonus malpractice and we are serious in and entertainment. gap. The median bonus demonstrates a wanting to hear from colleagues about gap in favour of women. This difference Our approach to governance is to such examples. also reflects the varying composition of respect not simply the letter but also Our Whistleblowing Policy provides bonuses across our different businesses. the spirit of our policy and act always guidelines for people who feel they with integrity. To ensure the effective Our senior management population is need to raise certain issues in implementation of our policy and becoming more gender balanced year confidence. It is designed to protect procedures, each business has its on year which demonstrates the those raising a genuine concern, own designated Anti-Bribery and success of our various initiatives to in line with the Public Interest Corruption Officer and we have achieve no barrier to talent. In 2017 and Disclosure Act 1998 or other monitoring systems in place at various 2018, 23% of the people who report to jurisdictional legislation. levels within the group including global members of our executive committee risk assessments. In addition, all We have a whistleblowing telephone were women; in 2019 this figure was relevant employees are required to hotline in place, managed by Expolink, 24%, data we have shared with the complete an e-learning course on the which can be used by our people, or Hampton-Alexander Review. subject when they join the Company others, wherever they work in the We recognise that our approach and at regular intervals thereafter, and world. Any calls made to the hotline means we are unlikely to meet the those who work in higher risk roles are are disseminated to the senior 2020 expectations of the Hampton- also required to attend regular face-to- management team responsible for Alexander Review. We believe our face training. investigating issues raised. A thorough approach is right for our decentralised investigation is then undertaken and any We encourage our people to report structure and will continue to deliver an remediation agreed. any concerns that they may have and increasingly balanced senior team. provide a confidential and independent A copy of the group’s Anti-bribery and corruption policy whistleblowing service managed by Whistleblowing Policy is available at: Our values commit us to acting with Expolink (see following section) to www.abf.co.uk/responsibility integrity, meaning that compliance facilitate this. with relevant legislation is a given
Gender balance: Gender Pay Gap reporting women in the At the mean, women’s At the median, women’s At the mean, women’s At the median, women’s global workforce hourly pay rate is hourly pay rate is bonus pay rate is bonus pay rate is Share of workforce by gender 34.2% 28.0% 38.2% 95.9% lower lower lower higher than that of men than that of men than that of men than that of men All employees of men received of women received 20.9% a bonus 6.3% a bonus Men 48.0% Proportion of men and women in each pay quartile Women 52.0% Upper Upper middle Lower middle Lower
Senior management
Men 64.0% Men 67.3% Men 45.3% Men 19.3% Men 26% Women 36.0% Women 32.7% Women 54.7% Women 80.7% 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 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 amplifi ed through our supply chains and we take our responsibilities to use our infl uence with suppliers seriously.
Our values drive us to place a Respecting Human Rights be tackled most effectively by those considerable importance on the In recent years there has been a growth who best understand the local context. wellbeing of the communities we in legislation and reporting requirements We engage and collaborate with a broad operate in, the people we rely on in on businesses’ responsibility to respect range of interested and concerned our supply chains and the consumers human rights. We have welcomed this stakeholder groups, seeking to remain who buy our products. trend towards mandating greater sensitive to the risks of adverse human disclosure about human rights impacts. rights impacts resulting from our Progressing through collaboration Motivated by our company values, we products, services and operations. means leveraging our global expertise have consistently sought to provide our for local good. This collaboration can This year, we are pleased many of our stakeholders with relevant information be seen clearly in our supply chains businesses have engaged in activities about the work being undertaken across and local communities. Our work to that align with the internationally our businesses to promote and respect respect human rights is informed recognised framework of the United human rights. by internationally recognised good Nations Guiding Principles on Business practice, such as the United Nations Our Modern Slavery Statement and Human Rights (UNGPs): Guiding Principles on Business and can be found at www.abf.co.uk/ • Policy: As a group we have a suite Human Rights, and enhanced through modern_slavery. A number of our of policies that set the standards and a range of policies, due diligence and businesses have also produced create mechanisms to respect human remedy processes. independent statements in accordance rights – this includes our Supplier with the UK Modern Slavery Act In every market we always seek to Code of Conduct, Whistleblowing and links to these can be found at give our consumers the best possible Policy and business-specific human www.abf.co.uk/responsibility tasting food products. We are also rights policies (e.g. AB Agri). mindful that individual choice can We provide opportunities that promote • Due diligence: Twinings has sought become bewildering and higher rates human rights and dignity every day to understand the actual and potential of obesity in some of our key markets through the employment we create, human rights risks throughout the point towards a need for governments, both directly and indirectly in our global value chain and our Sugar businesses consumers and business to act together supply chains, and through the positive conducted due diligence to to help promote healthy diets and contribution our products make to understand the different risks across lifestyles. We are doing this through people’s lives. As a group we work their various operations. health education, improved product to respect human rights of all the labelling and reformulation. people with whom we interact. • Remedy: Over the last few years, Whether they are direct employees, Primark has been working to review, temporary workers or those in our revise and improve its approach to supply chain, we know we can play remedy and the grievance a role in enhancing their lives. mechanisms it has to offer. In line with the decentralised nature of For further information see pages our company, human rights are primarily 24–28 of our 2019 Responsibility Report managed by individual businesses. This with additional information provided in also enables the most salient rights to the ESG Appendix.
58 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
3,319 audits of supplier factories by Primark in 2018.
Raising awareness and training • AB Agri trained its transport Promoting health and wellness This year, in collaboration with Twinings, managers, commercial teams and As a company that is proud to sell a we developed a new online ethical delivery drivers (who visit more than range of food items and ingredients, training toolkit, the first module a thousand farms across the UK we take seriously our responsibility to of which is designed to raise awareness every year) to recognise the signs of promote healthy diets and lifestyles. of modern slavery. The course seeks modern slavery and forced labour; We do this in three main ways: to educate our people about modern • AB Sugar created a video to raise • Education: We help educate slavery and forced labour, providing awareness of the potential for modern consumers by running campaigns real-life examples and highlighting the slavery in its supply chain and to that provide them with accurate importance of managing known provide staff with advice on how to information about aspects of their business risks. The course also outlines act on concerns, such as contacting diet like fibre and sugar. Two such how those operating in our supply chain independent whistleblowing hotlines. examples are Jordans Dorset can help to keep it free from modern It is currently exploring how the video Ryvita’s programme FibreFit slavery and human trafficking. This can also be shared with its suppliers. (see 2019 Responsibility Report page course was made available to all our 31) and AB Sugar’s Making Sense of businesses and, in the six months since Priority commodities Sugar campaign (see 2019 it was launched, has been completed by Our businesses purchase a significant Responsibility Report page 29). more than 700 employees. variety of different commodities to make the food and clothing items we • Product labelling: Our businesses Where risks of modern slavery are high, sell. Our businesses have identified a provide clear product labelling and in we ask our suppliers to conduct their range of priority commodities among many cases this includes the addition own Modern Slavery training. For them that they will focus on sourcing of enhanced nutritional information. instance, some of the agencies that responsibly. One example is the Tip Top brand that provide us with temporary labour have features clear front-of-pack nutritional conducted training internally at For example, Primark has identified information aligned with a national our request. cotton as a focus commodity. Primark’s public health campaign in Australia Sustainable Cotton Programme In addition to this centralised training, called ‘A Grain of Truth’ (see 2019 provides growers in India, Pakistan a number of our businesses have Responsibility Report page 29). and China with training in sustainable created tailored training to raise farming methods, helping them to • Reformulation: As a business awareness. For instance: increase productivity and improve operating in a range of food and • Westmill provided Modern Slavery their livelihoods; see page 26 of the ingredient sectors, we have an training to 91% of those employees responsibility report for further opportunity to reformulate both whose role involves recruitment or information. finished products and ingredients. procurement; 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 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 We use the Task Force on Climate- We also report our emissions classified efficiencies into all our operations. related Financial Disclosure’s (TCFD) as ‘out of scope’, which are CO2 We strive to use raw materials and recommendations to inform our emissions resulting from the use of ingredients efficiently and responsibly, approach on climate action and related renewable fuels. As these are create less waste and recycle more of disclosures. This year, we conducted considered to be net zero or carbon the waste we do generate. our first high-level climate risk neutral, they are reported separately. assessment considering the impact of Acting on climate change Reducing our energy use 2°C global warming on our businesses Increasingly unpredictable and severe As energy generation is our primary in the short to medium term. weather events are already affecting source of GHG emissions, all our food security, consumption habits and We publish more detail on our businesses are working hard to improve the availability of natural resources. climate-related governance and risk energy efficiency on a continuous basis, management through CDP’s report as well as via investment projects. Our ambition to reduce our overall at www.cdp.net and on pages 62 In addition, the price volatility of the environmental footprint therefore to 66 of this report. energy we purchase means that includes business-led commitments rigorous energy management is a key to reduce GHG emissions, recognising Our total emissions (scopes 1, 2 and 3) operational focus. the Paris Climate Agreement which have decreased again this year. For aims to limit global temperature rises 2019, we report a 4% decrease In 2019, our total energy use was to no more than 2 degrees Celsius compared with last year to 4.75 million 23,565 GWh Δ, a 2% increase on 2018. by the end of the century. Working tonnes CO2e Δ. Our sugar businesses consumed 82% collaboratively with partners, we want of the group’s total, or 19,238 GWh. 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 greenhouse gas emissions Our businesses have a role to play in the transition to a low carbon economy 2019 emissions Δ 2018 emissions by increasing the efficiency of our (000 tCO2e) (000 tCO2e) buildings, operations, logistics and Scope 1 – combustion of fuel and operation agricultural activities, by using of facilities 3,087 3,159 renewable energy where feasible and Scope 1 – generation and use of by investing in new technologies. renewables 75 69 Our energy-intensive businesses, and Scope 1 Total 3,162 3,228 those reliant on secure crop supplies, Scope 2 – emissions from purchased have initiatives to manage their impacts electricity, heat or steam (location method) 831 925 and adapt to changes and have thus Scope 3 – indirect emissions from use of set goals to reduce their emissions. third-party transport 753 813 For example: Total emissions • AB Sugar has made an industry- (Scopes 1, 2 & 3) 4,746 4,966 leading commitment to reduce its Out of scope emissions 3,962 3,711 end-to-end supply chain CO2 footprint by 30% by 2030; 252 tonnes per 266 tonnes per • Illovo Sugar is committed to reducing Emission intensity (Scope 1 and 2) £1m of revenue £1m of revenue GHG emissions by 10.7% by 2020, compared with 2010; and 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 • AB Agri has an aspiration to reduce 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 its operational energy footprint by where we have operational control. Scope 2 location-based emissions have been calculated in accordance with 20% between 2014 and 2024. 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 Strategic report
Business initiatives Scope 1, 2 and 3 GHG emissions (000 tonnes CO e) AB Sugar Illovo Sugar AB Agri 2
2019 Δ 4,746 30% 10.7% 20% 2018 4,966 reduction reduction reduction 2017 5,057 in CO2 footprint in GHG emissions in energy footprint 2016 5,258 by 2030 by 2020 by 2024 2015 5,629
In 2019, we exported 971 GWh of Packaging and plastics energy, which is an 18% increase Packaging is essential for containing Energy consumption (GWh) and compared with last year. Some of our and protecting our products during proportion from renewable sources sites generate energy on-site and transit and on the shelf, and we remain when this is surplus to their needs, they committed to initiatives that improve 2019 Δ 23,600 52% export it to the national grid or other recyclability and recycling rates, reduce 2018 23,200 50% organisations. volume and weight and avoid waste. In 2017 23,300 49% 2019, Associated British Foods used We also continuously explore how we 2016 22,800 49% 258,800 tonnes Δ of packaging. This can better use renewable energy. Of 2015 25,000 50% 1% increase compared with last year the total energy we used this year, 52% was largely due to an increase in or 12,211 GWh Δ, came from renewable production at specific sites. sources. This equates to a 6% increase Water abstracted (million m3) in the amount of renewable energy Opportunities to use innovative, generated and used on site compared bio-based materials are limited, not 2019 Δ 880 with last year. Most of this energy least due to the strict regulations 2018 837 (92%) came from bagasse – the residual governing the materials that can be fibre left after sugar is extracted from used in contact with food, but we 2017 811 sugar cane – from our operations in continue to explore potential new 2016 800 southern Africa. We also use on-site packaging solutions. We believe that 2015 925 anaerobic digesters (AD) to generate all stakeholders need to work together biogas from our own waste streams, to create the recycling infrastructure such as British Sugar’s AD plant in needed for a truly circular economy for Waste disposed (000 tonnes) Suffolk and AB Agri’s facility in plastics and welcome initiatives which and proportion recycled Yorkshire. This year biogas accounted encourage this development. for 2% of the total renewable fuels used Our UK Grocery businesses signed the 2019 Δ 632 80% on site. UK Plastics Pact in 2018, through which 2018 770 82% Water management they have committed to ensure 100% 2017 1,000 83% Our businesses invest in initiatives of their plastic packaging is reusable, 2016 1,000 78% to reduce water abstraction per recyclable or compostable and averages tonne of product and increase their 30% recycled content by 2025. 2015 862 78% ability to reuse water for cleaning or cooling equipment or for irrigation Environmental compliance before returning it to the environment. This year we received 14 environmental Quantity of packaging used By reusing water, we reduce the fines Δ with a cost of £118,000 Δ which (000 tonnes) amount which is abstracted in the first fell within the reporting year. These were largely due to the treatment of place. In 2019, we abstracted 880 2019 Δ 259 3 waste water, management of on-site million m Δ of water which is a 5% 2018 256 waste, gas emissions and odour control. increase compared with last year. Of the 2017 243 total water abstracted, 19% was reused The sites have addressed the issues 2016 248 within our operations before finally and liaised with the local authorities and returning it to the watercourse. regulators to ensure standards are met. 2015 238 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 Δ 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 Principal risks and uncertainties
EFFECTIVE RISK MANAGEMENT
Our approach to risk management The group’s Director of Financial Control effectiveness of the group’s risk The delivery of our strategic objectives receives the risk assessments on an management processes and internal and the sustainable growth (or long- annual basis and, with the Group controls in accordance with the UK term shareholder value) of our business, Finance Director, reviews and Corporate Governance Code. Our is dependent on effective risk challenges them with the divisional approach to risk management and management. We regularly face chief executives, on an individual basis. systems of internal control is in line with business uncertainties and it is through These discussions are wide ranging and the recommendations in the Financial a structured approach to risk management consider operational, environmental and Reporting Council’s (FRC) revised that we are able to mitigate and manage other external risks. These risks and guidance ‘Risk management, internal these risks and embrace opportunities their impact on business performance control and related financial and when they arise. The diversified nature are reported during the year and are business reporting’ (the Risk Guidance). of our operations, geographical reach, considered as part of the monthly The board is satisfied that internal assets and currencies are important management review process. controls were properly reviewed and factors in mitigating the risk of a material key risks are being appropriately Group functional heads including Legal, threat to the group’s sustainable growth identified and managed. Treasury, Tax, IT, Pensions, HR, and long-term shareholder value. Procurement and Insurance also provide Brexit However, as with any business, risks input to this process, sharing with the Following the referendum decision in and uncertainties are inherent in our Director of Financial Control their view of 2016, the group established an EU Exit business activities. These risks may key risks and what activities are in place or Steering Committee which consists of have a financial, operational or planned to mitigate them. A combination a small dedicated team which worked reputational impact. of these perspectives with the business with all the businesses to assess the The board is accountable for effective risk assessments creates a consolidated risks and opportunities arising from the risk management, for agreeing the view of the group’s risk profile. A UK’s decision to leave the EU. The principal risks facing the group and summary of these risk assessments group’s business model, under which ensuring they are successfully managed. is then shared and discussed with the Primark operates largely discrete supply The board undertakes an annual Group Finance Director and Chief chains for its stores in each of the UK, assessment of the principal risks, Executive at least annually. US and EU27 and food production is, including those that would threaten the wherever possible, aligned with the The Director of Financial Control business model, future performance, end market, means that the group holds meetings with each of the solvency or liquidity. The board also undertakes relatively little cross-border non-executive directors seeking their monitors the group’s exposure to risks trading between the UK and the rest of feedback on the reviews performed and as part of the performance reviews the EU. We therefore quickly came to discussing the key risks and mitigating conducted at each board meeting. the conclusion that the overall impact of activities. Once all non-executive Financial risks are specifically reviewed Brexit on the group was relatively minor. directors have been consulted, a board by the Audit committee. report is prepared summarising the full We recognise that the current political Each year, the Audit committee on process and providing an assessment situation makes the final outcome of the behalf of the board reviews the of the status of risk management across negotiations between the UK and the effectiveness of the group’s approach the group. The key risks, mitigating EU uncertain. While we would prefer to risk management including the controls and relevant policies are a negotiated exit, we are prepared for internal control procedures and summarised and the board confirms the any of the potential outcomes. resources devoted to them. group’s principal risks. These are the In particular, over the last year the group risks which could prevent Associated Our decentralised business model and the individual businesses have British Foods from delivering its empowers the management of our taken reasonable steps to mitigate strategic objectives. This report also businesses to identify, evaluate and where possible the impacts of leaving details when formal updates relating manage the risks they face, on a timely the EU without a transitional agreement. to the key risks will be provided to the basis, to ensure compliance with The key risks identified, and the actions board throughout the year. relevant legislation, our business taken are as follows: principles and group policies. Key areas of focus this year • Imports to the UK. The UK Effective risk management processes Our businesses perform risk assessments government has indicated the tariffs and internal controls which consider materiality, risk controls that will be applied to imports in the We continued to seek improvements in and specific local risks relevant to the absence of a transitional agreement our risk management processes to markets in which they operate. The and we expect these to have a net ensure the quality and integrity of collated risks from each business are positive impact on the group. All information and the ability to respond shared with the respective divisional chief necessary registrations have been swiftly to direct risks. During the year, executives who present their divisional completed. Where goods are the Audit committee on behalf of the risks to the group executive. imported into the UK by third parties board conducted reviews on the
62 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
on behalf of the businesses, • People. The businesses have relations, the regulatory environment assurances have been sought that publicised the UK government’s and competition. These are managed these will be available when required. Settled Status Scheme and where as part of the risk process and a number appropriate have assisted employees of these are referred to in our 2019 • Disruption to EU-UK logistics. with the application process. Responsibility Report. Here, we report In the absence of a withdrawal the principal risks which we believe are agreement, there is a risk of delays Our principal risks and uncertainties likely to have the greatest current or and disruption to the flow of goods The directors have carried out an near-term impact on our strategic and between the UK and the EU in both assessment of the principal risks facing operational plans and reputation. directions. The businesses that could Associated British Foods, including They are grouped into external risks, potentially be impacted by this have those that would threaten its business which may occur in the markets or reviewed their exposure and where model, future performance, solvency or environment in which we operate, and appropriate have increased inventory liquidity. Outlined below are the group’s operational risks, which are related to levels to partially mitigate the risk. principal risks and uncertainties and the internal activity linked to our own The ability to do this is constrained by key mitigating activities in place to operations and internal controls. warehouse availability and the shelf address them. These are the principal life of the goods. risks of the group as a whole and are The ‘Changes since 2018’ describe not in any order of priority. our experience and activity over the • Data. Where necessary, the last year. businesses have agreed Standard Associated British Foods is exposed Contractual Terms to enable certain to a variety of other risks related to personal data to be transferred from a range of issues such as human the EU to the UK. resources and talent, community External risks
Risk trend Mitigation Changes since 2018
Our businesses which are impacted by Sterling weakened against some of our Increased exchange rate volatility and currency major trading currencies this year, Movement in depreciation constantly review their resulting in a gain on translation this year currency-related exposures. of £9m. exchange rates Board-approved policies require Primark covers its currency exposure on Context and potential impact businesses to hedge all transactional purchases of merchandise denominated Associated British Foods is a multinational currency exposures and long-term supply in foreign currencies at the time of group with operations and transactions in or purchase contracts which give rise to placing orders, with an average tenor of many currencies. currency exposures, using foreign Primark’s hedging activity of between exchange forward contracts. 3 and 4 months. There was a minimal Changes in exchange rates give rise to transactional effect from changes in the transactional exposures within the Cash balances and borrowings are largely US dollar exchange rate on Primark’s businesses and to translation exposures maintained in the functional currency of largely dollar denominated purchases for when the assets, liabilities and results of the local operations. the year in aggregate. overseas entities are translated into sterling Cross-currency swaps are used to align upon consolidation. borrowings with the underlying currencies In the last quarter of the fi nancial year of the group’s net assets (refer to note 25 there has been a greater level of volatility to the fi nancial statements for more in sterling exchange rates against our information). major trading currencies.
The group purchases a wide range Lower sugar prices had another Unchanged of commodities in the ordinary course negative impact on the profi tability of our Fluctuations in of business. businesses in the UK, Spain and China this year. However, spot EU prices increased commodity and We constantly monitor the markets in which we operate and manage certain of during the second half and should have a energy prices these exposures with exchange traded positive impact on profi tability next year. contracts and hedging instruments. The price of UK wheat, a key commodity Context and potential impact for our UK bakery business, returned to Changes in commodity and energy The commercial implications of more normal levels following a signifi cant prices can have a material impact on the commodity price movements are increase in 2018. group’s operating results, asset values continuously assessed and, where and cash fl ows. appropriate, are refl ected in the pricing of our products.
Annual Report and Accounts 2019 Associated British Foods plc 63 Principal risks and uncertainties
External risks continued
Risk trend Mitigation Changes since 2018
Our approach to risk management In June 2019, Primark opened its fi rst Increased incorporates potential short-term market store in Slovenia. Operating in global volatility and evaluates longer-term High infl ation in Argentina adversely socio-economic and political scenarios. markets affected our yeast and bakery ingredients The group’s fi nancial control framework business based there. Context and potential impact and board-adopted tax and treasury Associated British Foods operates in 52 policies require all businesses to comply countries with sales and supply chains in fully with relevant local laws. many more, so we are exposed to global Provision is made for known issues based market forces; fl uctuations in national on management’s interpretation of economies; societal unrest and geopolitical country-specifi c tax law, EU cases and uncertainty; a range of consumer trends; investigations on tax rulings and their evolving legislation and changes made by likely outcomes. our competitors. By their nature socio-political events are Failure to recognise and respond to any largely unpredictable. Nonetheless our of these factors could directly impact the businesses have detailed contingency profi tability of our operations. plans which include site-level emergency Entering new markets is a risk to responses and improved security any business. 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 Our businesses continue to review their Unchanged are monitored continually. products and to partner with others to Health and nutrition Recipes are regularly reviewed and enable a swift and innovative response reformulated to improve the nutritional to changing consumer needs. Context and potential impact value of our products. Our Sugar and Grocery businesses have Failure to adapt to changing consumer supported healthy eating campaigns again health choices or to address nutrition All of our grocery products are labelled with nutritional information. this year to help consumers make concerns in the formulation of our products informed choices about their food. could result in a loss of consumer base We develop partnerships with other and impact business performance. organisations to promote healthy options. We continue to invest in new product design.
64 Associated British Foods plc Annual Report and Accounts 2019 Strategic report
Operational risks
Risk trend Mitigation Changes since 2018
Safety continues to be the number one During the year there has been a 19% Unchanged priority for our businesses. The chief reduction in our employee Lost Time Workplace health executives of each business, who lead by Injury rate to 0.65%. Our businesses example, are accountable for the safety conduct thorough root cause analyses and safety performance of their business. to learn from accidents and implement safety changes. Context and potential impact Our Health and Safety Policy and Many of our operations, by their nature, Practices are fi rmly embedded in each The safety performance of the group is have the potential for loss of life or business, supporting a strong ethos of reported in the 2019 Responsibility Report workplace injuries to employees, workplace safety. at www.abf.co.uk/responsibility. contractors and visitors. 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. Unchanged Product safety is put before economic We did not have any major product recalls. considerations. Businesses have continued to defi ne and Product safety and We operate strict food safety and refi ne KPIs in this area. quality traceability policies within an organisational culture of hygiene and Context and potential impact product safety to ensure consistently high As a leading food manufacturer and retailer, standards in our operations and in the it is vital that we manage the safety and sourcing and handling of raw materials quality of our products throughout the and garments. supply chain. 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 There is an ongoing programme of Unchanged systems, we invest in developing the investment in both technology and people Breaches of IT and IT capabilities of our people across to enhance our cyber-security capabilities. our businesses. information security During the year we have reviewed IT We monitor and address any cyber-threats disaster recovery plans across the Context and potential impact and suspicious IT activity. businesses. To meet customer, consumer and supplier We have established processes, group IT We are refreshing IT Security policies needs, our IT infrastructure needs to be security policies and technologies, all of and we have made further investment fl exible, reliable and secure to allow us to which are subject to regular internal audit. in people, processes and technology interact through technology. Access to sensitive data is restricted and to detect, respond and recover from Our delivery of effi cient and effective closely monitored. disruptive cyber-threats. operations is enhanced by the use of relevant technologies and the sharing of Robust disaster recovery plans are in place information. We are therefore subject to for business-critical applications. potential cyber-threats such as computer Technical security controls are in place viruses and the loss or theft of data. over key IT platforms with the Chief There is the potential for disruption to Information Security Offi cer (CISO) tasked operations from data centre failures, IT with identifying and responding to malfunctions or external cyber-attacks. potential security risks.
Annual Report and Accounts 2019 Associated British Foods plc 65 Principal risks and uncertainties
Operational risks continued
Risk trend Mitigation Changes since 2018
We continuously seek ways to improve The environmental performance of the Unchanged the effi ciency of our operations, use group is reported in the 2019 Responsibility Our use of natural technologies and techniques to reduce Report at www.abf.co.uk/responsibility. our use of natural resources and adapt resources and managing We annually report our approach to operations to climate change in order to climate change, water and deforestation our environmental contribute positively to local environments risk via CDP at www.cdp.net. and minimise impact. impact Our businesses are continuously seeking Our businesses aim to be a good ways to reduce their impact on the Context and potential impact neighbour within their local communities. environment. Our businesses rely on a secure supply One aspect of this is the monitoring and of natural resources, some of which are management of noise, particle and We look for ways to progressively reduce vulnerable to external factors such as odour pollution. our greenhouse gas (GHG) emissions and natural disasters and climate change. reduce our contribution to climate change. Our material environmental impacts are AB Sugar, Primark and AB Agri businesses energy use and resultant greenhouse gas have each set commitments for their own emissions, water use, waste generation operations and supply chain to improve and packaging. sustainability performance. 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 diversifi ed 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.
Our Supplier Code of Conduct is designed We have developed a company-wide Unchanged to ensure suppliers, representatives and all online training module about modern Our supply chain with whom we deal, adhere to our values slavery to help accelerate awareness- and standards. raising and give businesses the tools and ethical business to train people. The full Code is available at www.abf. practices co.uk/supplier_code_of_conduct In addition to Primark and Twinings, AB Sugar has produced an interactive Context and potential impact Suppliers are expected to sign and abide sourcing map that outlines where As an international business with suppliers by this Code. AB Sugar grows, sources and exports and representatives the world over, people Adherence to the Code is verifi ed sugar: www.absugar.com/sourcing-map with whom we deal and in particular our through our supplier audit system with suppliers and our representatives must live our procurement and operational teams Primark has been working to strengthen up to our values and standards and share establishing strong working relationships its policies relating to human rights and that responsibility. with suppliers to help them meet modern slavery and has published a revised supplier code of conduct and We therefore work with them to ensure our standards. made public its human rights policy. reliability and to help them meet our All businesses are required to comply with standards of product quality and safety, the group’s Business Principles including Our Modern Slavery and Human acceptable working conditions, fi nancial its Anti-Bribery and Corruption Policy. Traffi cking Statement 2019 and the steps stability, ethics and technical competence. we take to try to ensure that any forms of modern slavery are not present within Potential supply chain and ethical business our own operations or supply chain practice risks include: are reported in detail in the 2019 • supply chain weaknesses such as poor Responsibility Report at www.abf.co.uk/ conditions for the workforce; responsibility. • 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 Strategic report Viability statement
The directors have determined that Such is the diversity of the group, Even in a worst-case scenario, the most appropriate period over which with operations across 52 countries with risks modelled to materialise to assess the Company’s viability, in and sales in more than 100, that none simultaneously and for a sustained accordance with the UK Corporate of the principal risks or uncertainties period, the likelihood of the group Governance Code, is three years. This individually is considered likely to have having insufficient resources to meet is consistent with the group’s business a material impact on the group’s its financial obligations is remote. model which devolves operational profitability or extensive cash resources. Based on this assessment, the decision making to the businesses, Furthermore, the group’s business directors confirm that they have each of which sets a strategic planning model means that no significant reliance a reasonable expectation that the time horizon appropriate to its activities is placed on any one group of customers Company will be able to continue which are typically of three years or suppliers and its diversity reduces in operation and meet its liabilities duration. The directors also considered the risk that issues affecting a particular as they fall due over the three-year the diverse nature of the group’s sector will have a material impact on period to 17 September 2022. activities and the degree to which the group as a whole. On behalf of the board. the businesses change and evolve At 14 September 2019, £1.2bn of in the relatively short term. Michael McLintock committed borrowing facilities available Chairman The directors considered the group’s to the group were undrawn and the profitability, cash flows and key financial directors are of the opinion that George Weston ratios over this period and the potential substantial further funding could be Chief Executive impact that the Principal Risks and secured, at relatively short notice, Uncertainties set out on pages 62 to 66 should the need arise. The revolving John Bason could have on the solvency or liquidity credit facility is not due for renewal Finance Director of the group. Sensitivity analysis was until July 2021 and £80m of the private applied to these metrics and the placement funding matures beyond projected cash flows were stress the period under consideration. tested against a range of scenarios. The group has a sound track record of The directors considered the level delivering strong cash flows, with well of performance that would cause the in excess of £1bn of operating cash group to breach its debt covenants, being generated in each of the last the financial implications of making eight years. This has been more than any strategic acquisitions and a variety sufficient to fund expansionary capital of factors that have the potential to investment and, specifically, has reduce profit substantially. These enabled the development of Primark included the rate and success of in continental Europe and the US. Primark’s expansion; actions which The group’s cash flows have supported could damage the group’s reputation 8% compound annual growth in the for the long term; and macro-economic dividend over the last ten years. influences such as fluctuations in commodity markets and the possible implications of a no-deal Brexit.
Annual Report and Accounts 2019 Associated British Foods plc 67 Board of Directors
123
4 1. Michael McLintock N R 2. George Weston Chairman Chief Executive Michael was appointed a director in George was appointed to the board November 2017 and Chairman in April in 1999 and took up his current 2018. He was formerly chief executive appointment as Chief Executive in April of M&G, retiring in 2016, having 2005. In his former roles at Associated joined the company in 1992 and been British Foods, he was Managing appointed chief executive in 1997. In Director of Westmill Foods, Allied 1999 he oversaw the sale of M&G to Bakeries and George Weston Foods Prudential plc where he served as an Limited (Australia). executive director from 2000 until 2016. Other appointments: Previously he held roles in investment Non-executive director of Wittington management at Morgan Grenfell and in Investments Limited corporate finance at Morgan Grenfell Trustee of the Garfield Weston and Barings. Foundation 4. Wolfhart Hauser N A R Other appointments: Trustee of the British Museum Independent non-executive Trustee of the Grosvenor Estate director Non-executive Chairman of Grosvenor 3. John Bason Wolfhart was appointed a director in Group Limited Finance Director January 2015. Starting his career with Member of the advisory board of John was appointed as Finance various research activities, he went Bestport Private Equity Limited Director in May 1999. He has extensive on to establish and lead a broad range Member of the advisory board international business experience and of successful international service of Spencer Stuart an in-depth knowledge of the industry. industry businesses. He was Chief Member of the Takeover Appeal Board He was previously the finance director Executive of Intertek Group plc for of Bunzl plc and is a member of the ten years until he retired from that Institute of Chartered Accountants in role and the board in May 2015. He was England and Wales. previously Chief Executive Officer and Other appointments: President of TÜV Süddeutschland AG Senior Independent Director of for four years and Chief Executive Compass Group PLC Officer of TÜV Product Services for Chairman of the charity FareShare 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 StrategicGovernance report
678
5 N A R 6. Emma Adamo R 8. Ruth Cairnie Non-executive director Independent non-executive Emma was appointed a director in director December 2011. She was educated Ruth was appointed a director in May at Stanford University and has an MBA 2014 and has been Senior Independent from INSEAD in France. Director since 7 December 2018. Ruth was formerly Executive Vice President Other appointments: Strategy & Planning at Royal Dutch Shell Director of Wittington plc. This role followed a number of Investments Limited senior international roles within Shell, Deputy Chair of the W. Garfield including Vice President of its Global Weston Foundation in Canada Commercial Fuels business. Ruth has also held a number of non-executive 7. Graham Allan A R directorships including on the boards of Independent non-executive Keller Group plc and ContourGlobal plc. director 5. Richard Reid N A R Graham was appointed a director in Other appointments Independent non-executive September 2018. Graham was formerly Director and Chair of Babcock director the Group Chief Executive of Dairy International Group PLC Richard was appointed a director in Farm International Holdings Limited, Non-executive director of Rolls-Royce April 2016. He was formerly a partner a pan-Asian retailer and a subsidiary of Holdings plc (until 31 December 2019) at KPMG LLP (‘KPMG’), having joined Jardine Matheson, until August 2017 Industry chair of POWERful Women the firm in 1980. From 2008, Richard after serving five years with the group. served as London Chairman at KPMG Prior to joining Dairy Farm, he was until he retired from that role and KPMG President and Chief Executive Officer at in September 2015. Previously, Richard Yum! Restaurants International and was was KPMG’s UK Chairman of the High responsible for global brands KFC, Pizza Growth Markets group and Chairman Hut and Taco Bell in all markets except of the firm’s Consumer and Industrial the US and China. Since 1989, Graham Markets group. has held various senior positions in Other appointments: multinational food and beverage Chairman of National Heart and Lung companies with operations across the Institute Foundation globe and has lived and worked in Deputy Chairman of Berry Bros & Rudd Australia, Asia, the US and Europe. Senior Advisor to Bank of China UK 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 Corporate governance
In this section Corporate governance Directors’ report Independent pages 70–82 pages 107–109 auditor’s report pages 111–118 Remuneration report Statement of directors’ pages 83–106 responsibilities page 110
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 published in April 2016 (the ‘2016 Code’) As I have mentioned before, Associated ethics, whilst encouraging management which sets out standards of good British Foods is an organisation built to take a long-term view and to invest practice in relation to board leadership upon sound ethical foundations with in the future as our businesses grew. and effectiveness, remuneration, a strong culture. This is embodied in I believe that we have made and accountability and relations with the values we seek to live by, namely: continue to make good progress shareholders. The Code is published respecting everyone’s dignity; acting along that path. by the UK Financial Reporting Council with integrity; progressing through (‘FRC’) and a copy of the Code is As Chairman, my role is to get the collaboration; and pursuing with rigour. available from the FRC website: best out of the board. This involves We discuss these in further detail in www.frc.org.uk. ensuring that, whilst the businesses the Responsibility section of this annual are run through an appropriate and report at pages 53 to 61 and also in The board has received regular sound executive team, issues are 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. 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 This has been a year of consolidating available on the Company’s website with financial years beginning on or after on the existing board and building on at www.abf.co.uk/responsibility. 1 January 2019. We will therefore report the changes that were made last year. in accordance with the 2018 Code Ruth Cairnie was appointed to the role Last year I mentioned that management in our annual report for the year ending of Senior Independent Director in late at a group level are continually looking 12 September 2020. 2018. During the course of the year, to find ways to improve communication with the assistance of the Head links with the businesses. With this The board has already started a of Secretariat, we undertook an in mind, and also taking into account programme to implement the changes internal evaluation of the board and its impending changes to corporate suggested in the 2018 Code. For committees. As has been our custom, governance, I’m pleased to report 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, for engagement with the workforce. with the workforce. who joined us in September 2018. Richard has already made good progress The board considers that the Overall, the results concluded that our ascertaining the level of engagement Company has, throughout the year board and committees are regarded as already in place, as well as reinforcing ended 14 September 2019, applied highly effective in providing oversight the employee engagement processes the main principles and complied in of the Company and its governance, both with the heads of each division full with the provisions set out in the as well as supporting appropriate when joining me at the CEO conference 2016 Code. growth plans. Further information in April 2019 as well as with the HR on this is provided on page 74. 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
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Leadership of the group. The chief executive of each together, cover a broad range of The board business within the group has authority jurisdictions, bringing valuable external In this section The board of directors is collectively for that business and reports directly perspective to the board’s deliberations Corporate governance Directors’ report Independent responsible to the Company’s to the Chief Executive. through their experience and insight pages 70–82 pages 107–109 auditor’s report shareholders for the direction and from different sectors and geographies. Chairman and Chief Executive pages 111–118 oversight of the Company to ensure This enables them to contribute The roles of the Chairman and the Chief Remuneration report Statement of directors’ its long-term success. The board met significantly to board decision-making, Executive are separately held and the pages 83–106 responsibilities regularly throughout the year to approve whilst the small size of the board division of their responsibilities is clearly page 110 the group’s strategic objectives, to is conducive to open and candid established, set out in writing, and lead the group within a framework discussions. The formal letters of agreed by the board to ensure that no of effective controls which enable risk appointment of non-executive directors one has unfettered powers of decision. to be assessed and managed, and to are available for inspection at the The Chairman is responsible for the ensure that sufficient resources are Company’s registered office. operation and leadership of the board, available to meet the objectives set. ensuring its effectiveness and setting Re-election of directors Dear fellow shareholders You will note that, at this year’s Compliance with the UK There are a number of matters which its agenda. The Chief Executive is In accordance with the Code’s I am pleased to present the Associated annual general meeting (‘AGM’), we Corporate Governance Code are specifically reserved for the board’s responsible for leading and managing recommendations, all directors British Foods plc corporate governance will be seeking approval for proposed As a premium listed company on the approval. These are set out in a clearly the group’s business within a set of currently in office will be proposed report for the year ended 14 September changes to our remuneration policy. London Stock Exchange, the Company defined schedule and include: matters authorities delegated by the board and for re-election at the 2019 AGM 2019. In my first report last year, I looked Further details on this can be found on is reporting in accordance with relating to the group’s strategic plan; for the implementation of board strategy to be held in December. approving the annual business strategy and policy. forward to continuing along the path pages 91 to 96 of this annual report. the UK Corporate Governance Code Board meetings and objectives; the nature and extent of strong governance with a focus on published in April 2016 (the ‘2016 Code’) Senior Independent Director The board held eight meetings during As I have mentioned before, Associated of principal risks to be taken to achieve ethics, whilst encouraging management which sets out standards of good The purpose of this role is to act as a the financial year. Periodically, board British Foods is an organisation built the strategic objectives; changes relating to take a long-term view and to invest practice in relation to board leadership sounding board for the Chairman and meetings are held away from the upon sound ethical foundations with to structure and capital; approval of in the future as our businesses grew. and effectiveness, remuneration, to serve as an intermediary for other corporate centre in London. As part a strong culture. This is embodied in trading statements, interim results, I believe that we have made and accountability and relations with directors where necessary. The Senior of the board’s engagement with the values we seek to live by, namely: final results and annual report; declaring continue to make good progress shareholders. The Code is published Independent Director is also available employees, the April meeting was held respecting everyone’s dignity; acting interim dividends and recommending along that path. by the UK Financial Reporting Council to shareholders should a need arise at the Primark Birmingham store, which with integrity; progressing through final dividends; the group’s policies (‘FRC’) and a copy of the Code is to convey concerns to the board included a tour of the store and meeting As Chairman, my role is to get the collaboration; and pursuing with rigour. and systems of internal control and risk available from the FRC website: which they have been unable to with employees. The May meeting best out of the board. This involves We discuss these in further detail in management; approving capital projects, www.frc.org.uk. convey through the Chairman or was held at the Primark office in Dublin. ensuring that, whilst the businesses the Responsibility section of this annual acquisitions and disposals valued at over through the executive directors. are run through an appropriate and report at pages 53 to 61 and also in The board has received regular £30m; provision of adequate succession The attendance of the directors at board sound executive team, issues are more detail in our 2019 Responsibility updates on the 2018 UK Corporate planning; approving major group policies The non-executive directors and committee meetings during the year raised and properly discussed around Report which highlights the way each Governance Code (the ‘2018 Code’) and matters relating to the compliance The non-executive directors, in addition is shown in the table below. If a director the board table. of our businesses work bearing these and the changes which this introduces. with the terms of the Relationship to their responsibilities for strategy is unable to participate in a meeting values in mind. This new report is The 2018 Code applies to companies Agreement between the Company This has been a year of consolidating and business results, play a key role in either in person or remotely, the available on the Company’s website with financial years beginning on or after and its controlling shareholders on the existing board and building on providing a solid foundation for good Chairman will solicit their views on key at www.abf.co.uk/responsibility. 1 January 2019. We will therefore report dated 14 November 2014 (which was the changes that were made last year. corporate governance and ensure that items of business in advance of the in accordance with the 2018 Code amended and restated by agreement Ruth Cairnie was appointed to the role Last year I mentioned that management no individual or group dominates the relevant meeting and share these with in our annual report for the year ending dated 29 March 2019). The schedule of of Senior Independent Director in late at a group level are continually looking board’s decision-making. They each the meeting so that they are able to 12 September 2020. matters reserved is available to view on 2018. During the course of the year, to find ways to improve communication occupy, or have occupied, senior contribute to the debate. the corporate governance section of the with the assistance of the Head links with the businesses. With this The board has already started a positions in industry which, taken Company’s website: www.abf.co.uk. of Secretariat, we undertook an in mind, and also taking into account programme to implement the changes internal evaluation of the board and its impending changes to corporate suggested in the 2018 Code. For Certain specific responsibilities are committees. As has been our custom, governance, I’m pleased to report example, the board has recently delegated to the board committees, Audit Nomination Remuneration this was led by the most recently that Richard Reid was appointed as appointed Richard Reid as designated being the Audit, Remuneration and Board committee committee committee appointed independent non-executive designated non-executive director non-executive director for engagement Nomination committees, which Michael McLintock 8/8 – 1/1 8/8 George Weston 8/8 – – – director, in this case Graham Allan, for engagement with the workforce. with the workforce. operate within clearly defined terms John Bason 8/8 – – – who joined us in September 2018. Richard has already made good progress of reference and report regularly to the The board considers that the Emma Adamo 8/8 – – – Overall, the results concluded that our ascertaining the level of engagement board. For further details, please see the Company has, throughout the year Graham Allan 8/8 4/4 – 8/8 board and committees are regarded as already in place, as well as reinforcing ‘Board committees’ section starting on ended 14 September 2019, applied Ruth Cairnie 8/8 4/4 1/1 8/8 highly effective in providing oversight the employee engagement processes page 77. the main principles and complied in Wolfhart Hauser 8/8 4/4 1/1 8/8 of the Company and its governance, both with the heads of each division full with the provisions set out in the Authority for the operational Richard Reid 8/8 4/4 1/1 8/8 as well as supporting appropriate when joining me at the CEO conference 1 2016 Code. Javier Ferrán 1/1 – – 1/1 growth plans. Further information in April 2019 as well as with the HR management of the group’s business has been delegated to the Chief 1 Javier Ferrán retired from the board on 7 December 2018 on this is provided on page 74. directors of the businesses at their conference over the summer. I look Executive for execution or further All of the above attended those meetings that they were eligible to attend. forward to reporting further progress delegation by him for the effective on this in my corporate governance day-to-day running and management statement next year. Michael McLintock Chairman
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The work of the board during the year Senior executives below board level During the financial year, key activities of the board included: are invited, when appropriate, to attend board meetings and to make Strategy presentations on the results and • conducting regular strategy update sessions in board meetings; strategies of their business units. • holding an annual ‘away-day’ focused on strategy; and Papers for board and committee • receiving a strategy update from the Chief Executive and Director of Business Development. meetings are generally provided to directors a week in advance of Acquisitions/disposals the meetings. • approving the entry into a yeast and bakery ingredients joint venture with Wilmar International in China, subject to regulatory clearances; Board committees • approving the acquisition of Anthony’s Goods; and The board has established three principal • receiving regular updates on proposed acquisitions and disposals. board committees, to which it has Financial and operational performance delegated certain of its responsibilities. These are the Audit, Nomination and • receiving regular reports to the board from the Chief Executive; Remuneration committees. The • receiving, on a rolling basis, senior management presentations from each of the group business areas; membership, responsibilities and activities of these committees are • approving the group budget for the 2019/20 financial year; described later in this Corporate • approving the Company’s full year and interim results; governance report and, in the case recommending the 2018 final dividend and approving the 2019 interim dividend; and • of the Remuneration committee, in • approving banking mandate updates and various other treasury-related matters. the Remuneration report which starts Governance and risk on page 83. Membership of these • annual review of the material financial and non-financial risks facing the group’s committees is reviewed annually. businesses; Minutes of committee meetings are • scenario planning discussion of possible business effects of any political changes made available to all directors on a within the UK; timely basis. • half yearly review of progress in implementing actions arising from the 2018 board evaluation; The Chairs of the Audit, Nomination and Remuneration committees were • participating in the 2019 annual board performance evaluation and considering the report received on the review; present at the 2018 AGM and intend • receiving regular updates on corporate governance and regulatory matters; to be present at this year’s AGM to answer questions on the work of • receiving reports from the board committee chairs; their respective committees. • confirming directors’ independence and conflicts of interest; • reviewing and approving gender pay reporting and Modern Slavery Statement; and The written terms of reference for the • undertaking appropriate preparations for the holding of the annual general meeting Audit, Nomination and Remuneration including considering and approving an ‘outlook’ statement and subsequently, committees are available on the discussing issues arising from the annual general meeting. Company’s website, www.abf.co.uk, Corporate responsibility and hard copies are available on request. • approving the enhanced reporting on responsibility; Effectiveness • receiving regular management reports and an annual presentation on health, safety and Board composition environmental issues; and At the date of this report, the board • receiving updates on Primark ethical sourcing. comprises the following directors: Investor relations and other stakeholder engagement • receiving reports on investor relations activities and regular feedback on directors’ Chairman meetings held with institutional investors; and Michael McLintock • receiving reports from the designated non-executive director for engagement with the Executive directors workforce. George Weston (Chief Executive) People John Bason (Finance Director) • appointment of Ruth Cairnie as Senior Independent Director; Non-executive directors • receiving a presentation on workforce engagement from the Group HR Director; Emma Adamo • appointment of Richard Reid as designated non-executive director for engagement Graham Allan with the workforce; and Ruth Cairnie • reviewing and approving share allocations for senior management and non-executive Wolfhart Hauser director/committee chair fees. Richard Reid
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The work of the board during the year Senior executives below board level Board independence Board development The Chief Executive encourages other During the financial year, key activities of the board included: are invited, when appropriate, to Emma Adamo is not considered by The Chairman, with the support of the board members to visit operations either attend board meetings and to make the board to be independent in view Company Secretary, is responsible for with him, with other directors or on Strategy presentations on the results and of her relationship with Wittington the induction of new directors and the their own. During the year, Ruth Cairnie • conducting regular strategy update sessions in board meetings; strategies of their business units. Investments Limited, the Company’s continuing development of directors. visited tea estates in Sri Lanka which • holding an annual ‘away-day’ focused on strategy; and majority shareholder. She was appointed supply tea to Twinings and two factories Papers for board and committee Board induction • receiving a strategy update from the Chief Executive and Director of Business in December 2011 to represent this which supply products to Primark. meetings are generally provided The Company provides all non-executive Development. shareholding on the board of the Richard Reid, in his capacity of Chair to directors a week in advance of directors with a tailored and thorough Acquisitions/disposals Company. The board considers that of the Audit committee, regularly visits the meetings. programme of induction, which is approving the entry into a yeast and bakery ingredients joint venture with Wilmar the other non-executive directors Primark in Dublin for meetings with • facilitated by the Chairman and the International in China, subject to regulatory clearances; Board committees are independent in character and finance and internal audit teams. The Company Secretary and which takes approving the acquisition of Anthony’s Goods; and The board has established three principal judgement and that they are each Chairman visited AB World Foods in • account of prior experience and business board committees, to which it has free from any business or other Leigh, meeting with local management • receiving regular updates on proposed acquisitions and disposals. perspectives and the committees on delegated certain of its responsibilities. relationships which would materially and getting an overview of the business. Financial and operational performance which he or she serves. Graham Allan, These are the Audit, Nomination and interfere with the exercise of their The Chairman and Chief Executive • receiving regular reports to the board from the Chief Executive; who joined the board in September Remuneration committees. The independent judgement. together visited: the Primark Gran Via • receiving, on a rolling basis, senior management presentations from each of the group 2018, met with senior management membership, responsibilities and store in Madrid, meeting with local business areas; The board considered Richard Reid’s across the business as part of his activities of these committees are and senior management teams; and • approving the group budget for the 2019/20 financial year; independence by reference to the induction. With the Chairman, he visited: described later in this Corporate Azucarera factories in La Baneza and • approving the Company’s full year and interim results; relevant provisions of the UK Corporate AB Enzymes’ site in Rajamaki, Finland; governance report and, in the case Benavente, meeting with local senior recommending the 2018 final dividend and approving the 2019 interim dividend; and Governance Code and concluded that he AB Vista in Marlborough; and Twinings • of the Remuneration committee, in management. The Chairman and is independent notwithstanding his past in Andover. With Ruth Cairnie and • approving banking mandate updates and various other treasury-related matters. the Remuneration report which starts Richard Reid each attended the relationship with KPMG, which was members of the Primark Ethical team, Governance and risk on page 83. Membership of these ABF CEO conference and the formerly the group’s auditor. It has now Graham visited community projects, • annual review of the material financial and non-financial risks facing the group’s committees is reviewed annually. Chairman also attended the Illovo been four years since KPMG ceased to suppliers and factories in Coimbatore, businesses; Minutes of committee meetings are Leadership Conference. be the Company’s auditor in November India. Graham also visited: Primark’s • scenario planning discussion of possible business effects of any political changes made available to all directors on a 2015, following a competitive tender for office in Dublin; Illovo Sugar in Durban, Information flow within the UK; timely basis. the external audit. Richard was formerly South Africa; and the Wissington sugar The Company Secretary manages the • half yearly review of progress in implementing actions arising from the 2018 board evaluation; The Chairs of the Audit, Nomination a partner at KPMG, retiring from that role factory and Riverside Glasshouse, also provision of information to the board and Remuneration committees were in September 2015. He had no personal visiting local sugar beet fields. at appropriate times in consultation • participating in the 2019 annual board performance evaluation and considering the present at the 2018 AGM and intend engagement with any business within with the Chairman and Chief Executive. report received on the review; Training and development to be present at this year’s AGM to the Associated British Foods group In addition to formal meetings, the • receiving regular updates on corporate governance and regulatory matters; The Chairman has overall responsibility answer questions on the work of during the four years prior to his Chairman and Chief Executive maintain • receiving reports from the board committee chairs; for ensuring that the directors receive their respective committees. appointment by the Company in regular contact with all directors. The • confirming directors’ independence and conflicts of interest; suitable training to enable them to carry April 2016. Chairman holds informal meetings with out their duties and is supported in this • reviewing and approving gender pay reporting and Modern Slavery Statement; and The written terms of reference for the non-executive directors, without any As at the date of this report, the by the Company Secretary. Directors are • undertaking appropriate preparations for the holding of the annual general meeting Audit, Nomination and Remuneration of the executives being present, to board comprises the Chairman, also encouraged personally to identify including considering and approving an ‘outlook’ statement and subsequently, committees are available on the discuss issues affecting the group, discussing issues arising from the annual general meeting. Chief Executive, Finance Director and any additional training requirements that Company’s website, www.abf.co.uk, when appropriate. Regular management five non-executive directors. Biographical would assist them in carrying out their Corporate responsibility and hard copies are available on request. updates are sent to directors to keep and related information about the role. Training is provided in briefing • approving the enhanced reporting on responsibility; the non-executive directors informed Effectiveness directors is set out on pages 68 and 69. papers, such as the regular update from • receiving regular management reports and an annual presentation on health, safety and of events throughout the group between Board composition the Company Secretary as part of the environmental issues; and Appointments to the board board meetings and to ensure that they At the date of this report, the board board pack ahead of each meeting • receiving updates on Primark ethical sourcing. There is a formal and transparent are advised of the latest issues affecting comprises the following directors: covering developments in legal, Investor relations and other stakeholder engagement procedure for the appointment of the group. regulatory and governance matters, • receiving reports on investor relations activities and regular feedback on directors’ Chairman new directors to the board. Details are and by way of presentations and meetings held with institutional investors; and Michael McLintock available in the Nomination committee meetings with senior executives • receiving reports from the designated non-executive director for engagement with the report on page 77 which also provides Executive directors or other external sources. workforce. George Weston (Chief Executive) details of the committee’s activities. People John Bason (Finance Director) Commitment • appointment of Ruth Cairnie as Senior Independent Director; Non-executive directors The letters of appointment for the • receiving a presentation on workforce engagement from the Group HR Director; Emma Adamo Chairman and the non-executive directors • appointment of Richard Reid as designated non-executive director for engagement Graham Allan set out the expected time commitment with the workforce; and Ruth Cairnie required of them and are available for • reviewing and approving share allocations for senior management and non-executive Wolfhart Hauser inspection by any person during normal director/committee chair fees. Richard Reid 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.
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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 July of 2019 and was managed by arising from this year’s evaluation are the effectiveness of the board and Graham Allan, the most recently being implemented under the direction its members and the performance appointed independent non-executive of the Chairman. of the group. director, with the assistance of the Head of Secretariat. Priorities identified from the 2019 evaluation Progress from 2018 evaluation Board composition During the year, the Chairman oversaw The 2019 review involved each board • To continue to emphasise generalist the implementation and progression of member as well as the Company skills in board recruitment various recommendations arising from Secretary, the CEO of UK Grocery, the • Gender and racial diversity to be factors the 2018 evaluation, which included Group HR Director, the Head of Reward in board searches the actions set out below: and the Lead Audit Partner of our Workforce engagement and organisation external auditor. Each individual met Progress on 2018 objectives with Graham Allan and the Head of • To monitor and remain open to additional steps on workforce engagement People Secretariat to discuss various topics. To have more in-depth discussions The board has kept under review the board A discussion framework had been sent • about succession around the group succession plan as well as succession to to each of the participants in advance of as part of the annual board agenda key roles within the broader group, both at the meeting to enable them to consider • Board directors to have oral briefings the corporate centre and in the businesses. the topics before the meeting. The from the Group HR Director on specific In terms of engagement with the topics covered included the following: succession issues on request and prior workforce, good progress has been made, to any visits to businesses with Richard Reid having been appointed • The board (including Committee as designated non-executive director for meetings) – composition, tone and Board/Committee agendas engagement with the workforce and dynamics of meetings, rotation • To ensure additional time on individual having met with divisional CEOs to of topics, process for recruitment, business unit strategy issues (if required) reinforce this process, as well as with diversity, skills and experience • To ensure board members are fully HR directors. The board continues • Employees and organisation – briefed of key developments between to discuss succession planning and workforce engagement board meetings workforce engagement in an open manner. (bearing in mind the 2018 Code), Responsibility/ESG Corporate responsibility succession planning, visibility • To sustain momentum on progress Businesses have been required to include of organisation strength and communication of activities corporate responsibility priorities within • Responsibility/Environmental, Governance their presentations to the board. A new Social and Governance (ESG) – • To continue to monitor co-ordination format of responsibility report has been progress and communication of IT across divisions produced this year aimed at better of activities promoting the work that has been done • Governance – effectiveness of Overall, it was concluded that the board and is continuing to be done by the group. the board and committees, visibility and its committees were regarded as highly effective in providing oversight Meeting processes and management of key risks, of the Company and its governance, as Following up on the recommendations on-boarding, ongoing maintenance well as supporting appropriate growth from previous years, board members are of skills, training plans. There was mutual trust between generally content with the timing and • Individual directors – effectiveness content of board and committee papers of the Chairman and Senior the executives and non-executives with which are provided through the online Independent Director (bearing in a good balance of challenge and support. board pack system. mind that they have only been in Each director was considered to be making a valuable contribution and Board meetings are considered to be place for a relatively short period) demonstrating proper commitment, conducted with efficiency and in a manner which underwrites a collaborative yet including time, to their respective roles. appropriately challenging spirit.
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Board performance evaluation 2019 evaluation A written report was prepared and Conflicts of interest procedure Business model The directors confirm that there is a An evaluation to assess the performance This year the board undertook a further sent to board members in advance The Company has procedures in place A description of the Company’s process for identifying, evaluating and of the board as a whole, its committees internal performance evaluation. The of the September board meeting. to deal with the situation where a business model for sustainable growth managing the risks faced by the group and the individual directors is conducted review was carried out during June and The recommended actions, listed below, director has a conflict of interest. is set out in the group business model and the operational effectiveness of the annually with the aim of improving July of 2019 and was managed by arising from this year’s evaluation are As part of this process, the board: and strategy section on pages 8 and 9 related controls, which has been in place the effectiveness of the board and Graham Allan, the most recently being implemented under the direction and in the business strategy sections for the year under review and up to the considers each conflict situation its members and the performance appointed independent non-executive of the Chairman. • of the operating review on pages 12 date of approval of the annual report. separately on its particular facts; of the group. director, with the assistance of the to 49. These sections provide an They also confirm that they have Priorities identified from the 2019 evaluation considers the conflict situation in Head of Secretariat. • explanation of the basis on which the regularly monitored the effectiveness Progress from 2018 evaluation Board composition conjunction with the rest of the group generates value and preserves of the risk management and internal During the year, the Chairman oversaw The 2019 review involved each board conflicted director’s duties under • To continue to emphasise generalist it over the long term and its strategy control systems (which cover all material the implementation and progression of member as well as the Company the Companies Act 2006; skills in board recruitment for delivering its objectives. controls including financial, operational various recommendations arising from Secretary, the CEO of UK Grocery, the • Gender and racial diversity to be factors • keeps records and board minutes and compliance controls) utilising the the 2018 evaluation, which included Group HR Director, the Head of Reward Going concern and viability in board searches as to authorisations granted review process set out below. the actions set out below: and the Lead Audit Partner of our After making enquiries the directors Workforce engagement and organisation by directors and the scope of any external auditor. Each individual met approvals given; and have a reasonable expectation that the Standards Progress on 2018 objectives • To monitor and remain open to additional with Graham Allan and the Head of regularly reviews conflict authorisation. Company and the group have adequate There are guidelines on the minimum steps on workforce engagement • People Secretariat to discuss various topics. resources to continue in operational group-wide requirements for health and To have more in-depth discussions The board has kept under review the board A discussion framework had been sent • Accountability existence for a period of at least safety and environmental standards. about succession around the group succession plan as well as succession to to each of the participants in advance of Financial and business reporting 12 months from the date of approval There are also guidelines on the as part of the annual board agenda key roles within the broader group, both at the meeting to enable them to consider The board recognises that its of these annual financial statements. minimum level of internal control that • Board directors to have oral briefings the corporate centre and in the businesses. the topics before the meeting. The responsibility to present a fair, balanced Accordingly, and consistent with the each of the divisions should exercise from the Group HR Director on specific and understandable assessment In terms of engagement with the topics covered included the following: succession issues on request and prior guidance contained in the document over specified processes. Each business workforce, good progress has been made, extends to interim and other price- titled ‘Guidance on Risk Management, has developed and documented policies The board (including Committee to any visits to businesses with Richard Reid having been appointed • sensitive public reports, reports to Internal Control and Related Financial and procedures to comply with the meetings) – composition, tone and Board/Committee agendas as designated non-executive director for regulators, and information required and Business Reporting’ published by minimum control standards established, dynamics of meetings, rotation To ensure additional time on individual engagement with the workforce and • to be presented by statutory requests. the FRC in 2014, they continue to adopt including procedures for monitoring of topics, process for recruitment, business unit strategy issues (if required) having met with divisional CEOs to the going concern basis in preparing compliance and taking corrective action. diversity, skills and experience To ensure board members are fully We consider the annual report and reinforce this process, as well as with • the annual financial statements. The board of each business is required to HR directors. The board continues briefed of key developments between financial statements, taken as a • Employees and organisation – confirm twice yearly that it has complied to discuss succession planning and workforce engagement board meetings whole, are fair, balanced and The Code requires the directors to understandable and provide the with these policies and procedures. workforce engagement in an open manner. (bearing in mind the 2018 Code), Responsibility/ESG assess and report on the prospects information necessary for shareholders Corporate responsibility succession planning, visibility • To sustain momentum on progress of the group over a longer period. High level controls to assess the Company’s position and of organisation strength and communication of activities This longer-term viability statement All businesses prepare annual operating Businesses have been required to include performance, business model and • Responsibility/Environmental, Governance is set out on page 67. plans and budgets which are updated corporate responsibility priorities within strategy. The Company produced their presentations to the board. A new Social and Governance (ESG) – regularly. Performance against budget • To continue to monitor co-ordination a paper in this respect, which was Risk management and internal control format of responsibility report has been progress and communication is monitored at business unit level and of IT across divisions presented to the Audit committee. The board acknowledges its overall produced this year aimed at better of activities centrally, with variances being reported responsibility for monitoring the group’s promoting the work that has been done Governance – effectiveness of Overall, it was concluded that the board promptly. The cash position at group and • risk management and internal control and is continuing to be done by the group. the board and committees, visibility and its committees were regarded as business level is monitored constantly systems to facilitate the identification, and management of key risks, highly effective in providing oversight and variances from expected levels are Meeting processes assessment and management of risk on-boarding, ongoing maintenance of the Company and its governance, as investigated thoroughly. Following up on the recommendations and the protection of shareholders’ of skills, training well as supporting appropriate growth from previous years, board members are investments and the group’s assets. Clearly defined guidelines have been Individual directors – effectiveness plans. There was mutual trust between generally content with the timing and • The directors recognise that they are established for capital expenditure and of the Chairman and Senior the executives and non-executives with content of board and committee papers responsible for providing a return to investment decisions. These include Independent Director (bearing in a good balance of challenge and support. which are provided through the online shareholders, which is consistent the preparation of budgets, appraisal board pack system. mind that they have only been in Each director was considered to be making a valuable contribution and with the responsible assessment and and review procedures and delegated Board meetings are considered to be place for a relatively short period) demonstrating proper commitment, mitigation of risks. authority levels. conducted with efficiency and in a manner which underwrites a collaborative yet including time, to their respective roles. appropriately challenging spirit.
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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 Remuneration They include a comprehensive set of access to the Chairman of the board. A separate Remuneration report is set financial reports and key performance Assessment of principal risks out on pages 83 to 106 which provides indicators covering commercial, The directors confirm that, during details of our remuneration policy and operational, environmental and people the year, the board has carried out a how it has been implemented, together issues. Performance against budgets thorough assessment of the principal with the activities of the Remuneration and forecasts is discussed regularly risks facing the group, including those committee and proposed changes to at board meetings and at meetings that could threaten its business model, the remuneration policy. between operational and group future performance, solvency or management. The adequacy and Articles of association and share liquidity, together with emerging risks. suitability of key performance indicators is capital A description of the principal risks and reviewed regularly. All chief executives Information in relation to share capital, how they are being managed and and finance directors of the group’s the appointment and powers of mitigated is set out on pages 62 to 66. operations are asked to sign an annual directors, the issue and buy back of confirmation that their business has Annual review of the effectiveness shares and significant interests in share complied with the Group Accounting of the systems capital is set out in the Directors’ report Manual in the preparation of consolidated During the year, the board reviewed the on pages 107 to 109. financial statements and specifically effectiveness of the group’s systems of Relations with shareholders to confirm the adequacy and accuracy risk management and internal control Individual shareholders of accounting provisions. processes embracing all material We have a number of individual systems, including financial, operational Internal audit shareholders. All are invited to and compliance controls, to ensure that The group’s businesses employ internal the annual general meeting, have they remain robust. The review covered auditors (both employees and resources access to our website and receive the financial year to 14 September 2019 provided by major accounting firms electronic communications. We have and the period to the date of approval of other than the firm involved in the audit a dedicated in-house team to manage this annual report. The review included: of the group (except where expressly communications with our shareholders, permitted by the Audit committee)) • the annual risk management review, making sure we respond directly, as with skills and experience relevant to a comprehensive process identifying appropriate, to any matters regarding the operation of each business. All of the the key external and operational risks their shareholdings. We also have a internal audit activities are co-ordinated facing the group and the controls and dedicated team at Equiniti (our share centrally by the group’s Director of activities in place to mitigate them, the registrar) which looks after their needs. Financial Control, who is accountable findings of which are discussed with To improve security and efficiency of to the Audit committee. each member of the board individually communications and to reduce the (refer to the risk management section amount of paper we use, our default All group businesses are required to on pages 62 to 66 for details of the method of communications with comply with the group’s financial control process undertaken); and shareholders is e-communications. framework that sets out minimum We also encourage the direct payment control standards. A key function of the • the annual assessment of internal of dividends into bank or building group’s internal audit resources is to control, which, following consideration society accounts. undertake audits to ensure compliance by the Audit committee, provided assurance to the board around with the financial control framework Institutional shareholders the control environment and and make recommendations for During the year, the board has processes in place around the group, improvement in controls where maintained an active programme of specifically those relating to internal appropriate. Internal audit also conducts engagement with institutional investors, financial control. regular reviews to ensure that risk the purpose of which is both to develop management procedures and controls The board evaluated the effectiveness shareholders’ understanding of the are observed. The Audit committee of management’s processes for Company’s strategy, operations and receives regular reports on the results monitoring and reviewing risk performance and to provide the board of internal audit’s work and monitors management and internal control. with an awareness of the views of the status of recommendations arising. No significant failings or weaknesses significant shareholders. At each board The committee reviews annually the were identified by the review and the meeting, the directors are briefed adequacy, qualifications and experience board is satisfied that, where areas of on shareholder meetings that have of the group’s internal audit resources improvement were identified, processes taken place and on feedback received, and the nature and scope of internal are in place to ensure that remedial including any significant concerns raised. audit activity in the overall context of action is taken and progress monitored. the group’s risk management system.
76 Associated British Foods plc Annual Report and Accounts 2019
Governance Corporate governance
Financial reporting The group’s Director of Financial The board confirmed that it was satisfied Relations with shareholders continued Board committees Detailed management accounts are Control meets with the Chair of the that the systems and processes were Here are some of the ways in which we engage with our shareholders: prepared every four weeks, consolidated Audit committee as appropriate but at functioning effectively and complied Annual general meeting in a single system and reviewed by least quarterly, without the presence of with the requirements of the 2016 Code. Nomination committee report The AGM provides an opportunity for directors to engage with shareholders, answer senior management and the board. executive management, and has direct Members Remuneration their questions and to meet them informally. The 2019 AGM will be held on Friday They include a comprehensive set of access to the Chairman of the board. A separate Remuneration report is set 6 December 2019 at 11.00 am at the Congress Centre in London. We encourage those At the date of this report, the following financial reports and key performance Assessment of principal risks out on pages 83 to 106 which provides who cannot attend to vote by proxy on all resolutions put forward. All votes are taken are members of the committee: indicators covering commercial, The directors confirm that, during details of our remuneration policy and by a poll. In 2018, voting levels at the AGM were over 80% of the Company’s issued Michael McLintock (Chair) operational, environmental and people the year, the board has carried out a how it has been implemented, together share capital. Ruth Cairnie issues. Performance against budgets thorough assessment of the principal with the activities of the Remuneration Annual report Richard Reid and forecasts is discussed regularly risks facing the group, including those committee and proposed changes to We publish a full annual report and accounts each year which contains a strategic report, Wolfhart Hauser at board meetings and at meetings that could threaten its business model, the remuneration policy. responsibility section, governance section and financial statements. The annual report is All members served on the between operational and group future performance, solvency or available in paper format and on our website: www.abf.co.uk. committee throughout the year. management. The adequacy and Articles of association and share liquidity, together with emerging risks. Responsibility/ESG suitability of key performance indicators is capital Meetings A description of the principal risks and We publish a responsibility report every three years with an update report each year in reviewed regularly. All chief executives Information in relation to share capital, The committee met once during the how they are being managed and between. The Company Secretary acts as a focal point for communications on matters and finance directors of the group’s the appointment and powers of year under review. mitigated is set out on pages 62 to 66. of corporate responsibility. During the year, the Company responded to requests for operations are asked to sign an annual directors, the issue and buy back of meetings, telephone meetings or written information from both existing and potential Primary responsibilities confirmation that their business has Annual review of the effectiveness shares and significant interests in share shareholders and research bodies on a broad range of environmental, social and In accordance with its terms complied with the Group Accounting of the systems capital is set out in the Directors’ report governance risk matters including matters related to climate change, water and of reference, the Nomination Manual in the preparation of consolidated During the year, the board reviewed the on pages 107 to 109. greenhouse gas risk management, supply chain management, animal welfare, committee’s primary financial statements and specifically effectiveness of the group’s systems of sustainable agriculture, human rights, employee welfare, gender balance and human Relations with shareholders responsibilities include: to confirm the adequacy and accuracy risk management and internal control capital development. Individual shareholders • leading the process for board of accounting provisions. processes embracing all material Meetings We have a number of individual appointments and making systems, including financial, operational The Chairman issues an invitation each year to the Company’s largest institutional Internal audit shareholders. All are invited to recommendations to the board; and compliance controls, to ensure that shareholders to hear their views and discuss any issues or concerns. During the year, The group’s businesses employ internal the annual general meeting, have • regularly reviewing the board they remain robust. The review covered the Chairman held meetings with a number of institutional shareholders and discussed auditors (both employees and resources access to our website and receive structure, size and composition the financial year to 14 September 2019 a range of topics including the Company’s strategy and approach to governance provided by major accounting firms electronic communications. We have (including skills, knowledge, and the period to the date of approval of and remuneration-related matters (taking into account proposed changes to the other than the firm involved in the audit a dedicated in-house team to manage independence, experience and this annual report. The review included: remuneration policy). of the group (except where expressly communications with our shareholders, diversity), recommending any On the day of the announcement of the interim and final results, the Company’s necessary changes; permitted by the Audit committee)) • the annual risk management review, making sure we respond directly, as largest shareholders, together with financial analysts, are invited to a presentation with a considering plans for orderly with skills and experience relevant to a comprehensive process identifying appropriate, to any matters regarding • question and answer session by the Chief Executive and Finance Director, with webcast succession for appointments to the the operation of each business. All of the the key external and operational risks their shareholdings. We also have a presentations of the results available for all shareholders through the Company’s website. board and to senior management internal audit activities are co-ordinated facing the group and the controls and dedicated team at Equiniti (our share Following the results, the executive team hold one-to-one and group meetings with to maintain an appropriate balance centrally by the group’s Director of activities in place to mitigate them, the registrar) which looks after their needs. institutional shareholders and potential investors. These views are then reported back of skills and experience within the Financial Control, who is accountable findings of which are discussed with To improve security and efficiency of to the board as a whole at the nearest following board meeting to ensure that they are Company and to ensure progressive to the Audit committee. each member of the board individually communications and to reduce the aware of what the Company’s largest shareholders are concerned with, or not as the case refreshment of the board; (refer to the risk management section amount of paper we use, our default may be. All group businesses are required to • keeping under review the on pages 62 to 66 for details of the method of communications with Press releases comply with the group’s financial control leadership needs of the group, process undertaken); and shareholders is e-communications. framework that sets out minimum We issue press releases for all substantive news relating to Associated British Foods. both executive and non-executive, We also encourage the direct payment You can find these on our website: www.abf.co.uk. control standards. A key function of the • the annual assessment of internal to ensure the organisation of dividends into bank or building Results announcements competes efficiently in the group’s internal audit resources is to control, which, following consideration society accounts. marketplace; and undertake audits to ensure compliance by the Audit committee, provided We release a full set of financial and operational results at the interim and full year stage. assurance to the board around We release trading statements at the first and third quarter stages with reduced • being responsible for identifying with the financial control framework Institutional shareholders the control environment and disclosure, whilst still providing sufficient detail to allow investors to model and value and nominating, for the approval and make recommendations for During the year, the board has processes in place around the group, our business. of the board, candidates to fill board improvement in controls where maintained an active programme of vacancies as and when they arise. specifically those relating to internal Website (www.abf.co.uk) appropriate. Internal audit also conducts engagement with institutional investors, financial control. Our website is regularly updated and contains a comprehensive range of information on regular reviews to ensure that risk the purpose of which is both to develop our Company. There is a section dedicated to investors which includes our investor management procedures and controls shareholders’ understanding of the The board evaluated the effectiveness calendar, financial results, presentations, press releases and contact details. The area are observed. The Audit committee of management’s processes for Company’s strategy, operations and dedicated to individual shareholders is an essential communication method. It includes receives regular reports on the results monitoring and reviewing risk performance and to provide the board information on shareholder news, administrative services and contact information. of internal audit’s work and monitors management and internal control. with an awareness of the views of the status of recommendations arising. No significant failings or weaknesses significant shareholders. At each board The committee reviews annually the were identified by the review and the meeting, the directors are briefed adequacy, qualifications and experience board is satisfied that, where areas of on shareholder meetings that have of the group’s internal audit resources improvement were identified, processes taken place and on feedback received, and the nature and scope of internal are in place to ensure that remedial including any significant concerns raised. audit activity in the overall context of action is taken and progress monitored. the group’s risk management system.
76 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 77
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 We believe that members of the September 2018 and the appointment to function effectively. board should collectively possess of Ruth Cairnie as Senior Independent a diverse range of skills, expertise, Governance Director in late 2018, the focus this year industry knowledge, business and Members of the Nomination committee has been on consolidating existing board other experience necessary for the are appointed by the board from responsibilities. Priorities identified for effective oversight of the group. amongst the directors of the Company, 2019 include continuing to emphasise in consultation with the Chairman. Accordingly, the board has decided generalist skills in board recruitment The committee comprises a minimum not to set any measurable objectives and continuing to factor in gender of three members at any time, a majority in relation to diversity. The Nomination and racial diversity. 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 non-executive directors or one although gender and ethnicity remain leadership consulting firm and a 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 Conduct for Executive Search Firms’ identified in our priorities for 2019. Only members of the committee on gender diversity and best practice, It continues to be our policy to ask any have the right to attend committee to help identify potential candidates executive search agencies engaged meetings. Other individuals such as as part of a process of progressive to ensure that half of the candidates the Chief Executive, members of refreshment of the board. That process they put forward for consideration senior management, Group HR resulted in Graham Allan joining the are women. Director and external advisers may board with effect from 5 September be invited to attend meetings as We recognise that our approach of not 2018. In March 2019, the Chairman and when appropriate. setting a target, but instead focussing joined the advisory board of Spencer on initiatives to achieve no barriers Stuart. Spencer Stuart is otherwise The committee may take independent to talent, means that we are unlikely independent of the Company. professional advice on any matters to meet the 2020 expectations of the covered by its terms of reference at Re-election of non-executive directors Hampton-Alexander Review. However, the Company’s expense. The committee members reviewed we believe that our approach is right the results of the annual board The committee Chair reports the for the decentralised structure of our performance evaluation that related outcome of meetings to the board. broader business and will continue to to the composition of the board and deliver a strong, stable and increasingly the time needed to fulfil the roles of The terms of reference of the balanced senior team. Chairman, Senior Independent Director Nomination committee are available For details of diversity as it applies to and non-executive director. Wolfhart on the Investors section of the the group’s wider workforce, please Hauser, independent non-executive Company’s website: www.abf.co.uk. see pages 56 and 57. director of the Company, stepped down Board appointments process from the role of Chair of FirstGroup plc The process for making new with effect from 25 July 2019. Ruth appointments is led by the Chair. Cairnie, Senior Independent Director of Where appropriate, external, the Company, was appointed Chair of independent consultants are engaged Babcock International Group PLC in July to conduct a search for potential 2019. Ruth stepped down from the candidates, who are considered on board of ContourGlobal plc with effect the basis of their skills, experience from 30 September 2019 and it has and fit with the existing members of also been announced that Ruth will the board. The Nomination committee be stepping down from the board has procedures for appointing a of Rolls-Royce Holdings plc on non-executive or an executive director 31 December 2019. and these are set out in its terms The committee members considered of reference. the re-election of directors prior to their recommended approval by shareholders at the annual general meeting.
78 Associated British Foods plc Annual Report and Accounts 2019
Governance Corporate governance
Committee activities during the year Performance evaluation Diversity Governance Audit committee report Internal financial controls Succession planning The committee’s effectiveness As a board, we recognise that diversity The Audit committee comprises a • reviewing the effectiveness of the Given the relatively recent changes to was reviewed as part of the board’s is important for introducing different Members minimum of three members, all of group’s internal financial controls, the board with the appointment of the performance evaluation process which perspectives into board debate and whom are independent non-executive During the year and as at the date including the policies and overall current Chairman in April 2018, the was carried out during June and July decision-making and that this is a wider directors of the Company. Two of this report, members and Chair of process for assessing established appointment of Graham Allan as a new of 2019. This evaluation concluded issue than just gender and ethnicity. the committee have been as follows: members constitute a quorum. systems of internal financial control independent non-executive director in that the committee was continuing We believe that members of the Richard Reid (Chair) and timeliness and effectiveness The committee Chair fulfilled the September 2018 and the appointment to function effectively. board should collectively possess Graham Allan of corrective action taken by requirement that there must be at least of Ruth Cairnie as Senior Independent a diverse range of skills, expertise, Governance Ruth Cairnie management; one member with recent and relevant Director in late 2018, the focus this year industry knowledge, business and Members of the Nomination committee Wolfhart Hauser financial experience and competence in has been on consolidating existing board other experience necessary for the Whistleblowing and fraud are appointed by the board from accounting or auditing (or both) during responsibilities. Priorities identified for effective oversight of the group. Primary responsibilities overseeing the group’s policies, amongst the directors of the Company, • the year. In addition, the committee as 2019 include continuing to emphasise procedures and controls for in consultation with the Chairman. Accordingly, the board has decided In accordance with its terms of a whole has competence in the sectors generalist skills in board recruitment preventing bribery, identifying The committee comprises a minimum not to set any measurable objectives reference, the Audit committee’s in which the Company operates. All and continuing to factor in gender money laundering, and the group’s of three members at any time, a majority in relation to diversity. The Nomination primary responsibilities include: committee members are expected to and racial diversity. arrangements for whistleblowing; of whom are independent non-executive committee considers diversity as one be financially literate and to have an Financial reporting As noted in last year’s report, the directors. A quorum consists of two of many factors when recommending Internal audit understanding of the following areas: • monitoring the integrity of the Company engaged Spencer Stuart, members being either two independent new appointments to the board, • monitoring and reviewing the group’s financial statements and • the principles of, and developments an external executive search and non-executive directors or one although gender and ethnicity remain effectiveness and independence of any formal announcements relating in, financial reporting including the leadership consulting firm and a independent non-executive director important factors and are a factor the group’s internal audit function to the Company’s performance, applicable accounting standards and signatory to the ‘Voluntary Code of and the Chairman. in searches for new candidates, as in the context of the group’s overall reviewing significant financial statements of recommended practice; Conduct for Executive Search Firms’ identified in our priorities for 2019. financial risk management system; Only members of the committee reporting judgements contained • key aspects of the Company’s on gender diversity and best practice, It continues to be our policy to ask any considering and approving the have the right to attend committee in them before their submission • operations including corporate policies to help identify potential candidates executive search agencies engaged meetings. Other individuals such as to the board; remit of the internal audit function, as part of a process of progressive to ensure that half of the candidates and the group’s internal the Chief Executive, members of informing the board of the ensuring it has adequate resources refreshment of the board. That process they put forward for consideration • control environment; senior management, Group HR outcome of the group’s external and appropriate access to resulted in Graham Allan joining the are women. • matters which may influence the Director and external advisers may audit and explaining how it information to enable it to perform board with effect from 5 September presentation of accounts and key figures; be invited to attend meetings as We recognise that our approach of not contributed to the integrity its function effectively; and 2018. In March 2019, the Chairman • the principles of, and developments in, and when appropriate. setting a target, but instead focussing of financial reporting; joined the advisory board of Spencer External audit company law, sector-specific laws and on initiatives to achieve no barriers • reviewing and challenging, where other relevant corporate legislation; Stuart. Spencer Stuart is otherwise The committee may take independent • overseeing the relationship to talent, means that we are unlikely necessary, the consistency of, the role of internal and external independent of the Company. professional advice on any matters with the group’s external auditor, • to meet the 2020 expectations of the and changes to, accounting and auditing and risk management; and covered by its terms of reference at including reporting to the board Re-election of non-executive directors Hampton-Alexander Review. However, treasury policies; whether the the Company’s expense. each year whether it considers • the regulatory framework for the The committee members reviewed we believe that our approach is right group has followed appropriate the audit contract should be put group’s businesses. the results of the annual board The committee Chair reports the for the decentralised structure of our accounting policies and made out to tender, adhering to any The committee as a whole has performance evaluation that related outcome of meetings to the board. broader business and will continue to appropriate estimates and legal requirements for tendering competence relevant to the sectors to the composition of the board and deliver a strong, stable and increasingly judgements; the clarity and or rotation of the audit services The terms of reference of the in which the group operates. the time needed to fulfil the roles of balanced senior team. completeness of disclosure; contract as appropriate, reviewing Chairman, Senior Independent Director Nomination committee are available significant adjustments resulting For details of diversity as it applies to and monitoring the external The committee invites the Group Finance and non-executive director. Wolfhart on the Investors section of the from the audit; the going the group’s wider workforce, please auditor’s objectivity and Director, Group Financial Controller, Hauser, independent non-executive Company’s website: www.abf.co.uk. concern assumption, the viability see pages 56 and 57. independence, agreeing the Director of Financial Control and senior director of the Company, stepped down Board appointments process statement, and compliance scope of their work and fees representatives of the external auditor from the role of Chair of FirstGroup plc The process for making new with accounting standards; paid to them for audit, assessing to attend its meetings in full, although with effect from 25 July 2019. Ruth it reserves the right to request any of appointments is led by the Chair. Narrative reporting the effectiveness of the audit Cairnie, Senior Independent Director of Where appropriate, external, process, and agreeing the policy these individuals to withdraw. Other • at the board’s request, reviewing the Company, was appointed Chair of independent consultants are engaged senior managers are invited to present the content of the annual report and in relation to the provision of Babcock International Group PLC in July to conduct a search for potential such reports as are required for the accounts and advising the board on non-audit services. 2019. Ruth stepped down from the candidates, who are considered on committee to discharge its duties. whether, taken as a whole, it is fair, board of ContourGlobal plc with effect the basis of their skills, experience balanced and understandable and During the year, the committee held from 30 September 2019 and it has and fit with the existing members of provides the information necessary four meetings with the external auditor also been announced that Ruth will the board. The Nomination committee for shareholders to assess without any executive members of be stepping down from the board has procedures for appointing a the Company’s position and the board being present. of Rolls-Royce Holdings plc on non-executive or an executive director performance, business model 31 December 2019. and these are set out in its terms The committee has unrestricted and strategy; of reference. access to Company documents and The committee members considered • where requested by the board, information, as well as to employees of the re-election of directors prior to their assisting in relation to the board’s the Company and the external auditor. recommended approval by shareholders assessment of the principal at the annual general meeting. risks facing the Company and the The committee may take independent prospects of the Company for the professional advice on any matters purposes of disclosures required covered by its terms of reference in the annual report and accounts; 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 20192019 AssociatedAssociated British Foods plc 79
Corporate governance
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: committee in relation to the performance evaluation. A description group’s financial statements • the description of performance in the of how the evaluation was conducted A key responsibility of the committee annual report to ensure it was fair, is set out on page 74 of the corporate is to consider the significant areas of balanced and understandable; governance report. complexity, management judgement the accounting principles, policies • and estimation that have been applied The terms of reference of the Audit and practices adopted in the group’s in the preparation of the financial committee can be viewed on the financial statements, any proposed statements. The committee has, with Investors section of the Company’s changes to them, and the adequacy support from Ernst & Young LLP (‘EY’) website: www.abf.co.uk. of their disclosure. This included as external auditor, reviewed the preparation for the adoption of IFRS Meetings suitability of the accounting policies 16 Leases from the next financial The Audit committee met four times which have been adopted and whether year and the disclosures in this during the year. The committee’s management has made appropriate year’s interim and annual reports; agenda is linked to events in the estimates and judgements. group’s financial calendar. • important accounting issues or areas of complexity, the actions, estimates Set out below are the significant areas of Activities during the year and judgements of management accounting judgement or management In order to fulfil its terms of reference, in relation to financial reporting estimation and a description of how the Audit committee receives and and in particular the assumptions the committee concluded that such reviews presentations and reports underlying the going concern judgements and estimates were from the group’s senior management, and viability statements; appropriate. These are divided between consulting as necessary with the • any significant adjustments to financial those that could have a material impact external auditor. reporting arising from the audit; and on the financial statements and those Monitoring the integrity of • tax contingencies, compliance that are less likely to have a material reported financial information with statutory tax obligations and impact but nevertheless, by their nature, Ensuring the integrity of the the group’s tax policy. required a degree of estimation. 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 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 industries and countries in which the relevant cash generating units operate. The to sell. Value in use is determined with 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 and 9 to the financial statements for more details of these assumptions. estimation uncertainty. 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 The committee reviewed and challenged the provisions recorded and the contingent is dependent on subjective judgements liabilities disclosed at the balance sheet date and management confirmed that they as to the outcome of decisions by tax represent their best estimate of the financial exposure faced by the group. authorities in various jurisdictions around the world and the ability of the group to The external auditor explained to the committee the work they had conducted during the year, use tax losses within the time limits including how their audit procedures were focused on those provisions requiring the highest imposed by the various tax authorities. degree of judgement. The committee discussed with both management and the external See also reference to taxation on page 51. 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 Associated British Foods plc Annual Report and Accounts 2019
Governance Corporate governance
The committee’s effectiveness was During the year it formally reviewed Significant accounting issues Areas of significant accounting judgement reviewed during the second half of the group’s interim and annual reports. considered by the Audit and estimation material to the group the year as part of the board’s annual These reviews considered: committee in relation to the financial statements Audit committee assurance performance evaluation. A description group’s financial statements Leases The committee received updates from management outlining the effect of the new standard, • the description of performance in the of how the evaluation was conducted A key responsibility of the committee The group will adopt IFRS 16 Leases including the judgements and key assumptions used in the estimation of the impact. annual report to ensure it was fair, is set out on page 74 of the corporate is to consider the significant areas of from the next financial year and the balanced and understandable; The committee reviewed the judgement applied in identifying lease arrangements and the governance report. complexity, management judgement effects of transition to this new accounting the accounting principles, policies reasonableness of lease terms determined by management including their assessments • and estimation that have been applied standard are set out in the Significant The terms of reference of the Audit and practices adopted in the group’s of options to terminate and extend leases. The committee was satisfied that the discount in the preparation of the financial Accounting Policies. Judgement is required rate assumptions appropriately reflected current market assessments of the incremental committee can be viewed on the financial statements, any proposed statements. The committee has, with in determining the term of each lease, borrowing rate for each of the group’s subsidiaries in respect of their lease commitments. Investors section of the Company’s changes to them, and the adequacy support from Ernst & Young LLP (‘EY’) the discount rate used to value the lease website: www.abf.co.uk. of their disclosure. This included liabilities and right-of-use assets disclosed The external auditor undertook an assessment of management’s assumptions, using as external auditor, reviewed the preparation for the adoption of IFRS and in identifying lease arrangements independent experts, and considered that the transition disclosure in respect of the Meetings suitability of the accounting policies 16 Leases from the next financial under the scope of IFRS 16. adoption of IFRS 16 from the next financial year was appropriate. The Audit committee met four times which have been adopted and whether year and the disclosures in this during the year. The committee’s management has made appropriate Other accounting areas requiring year’s interim and annual reports; management judgement or estimation Audit committee assurance agenda is linked to events in the estimates and judgements. group’s financial calendar. • important accounting issues or areas Post-retirement benefits Actuarial valuations of the group’s pension scheme obligations are undertaken every three of complexity, the actions, estimates Set out below are the significant areas of Valuation of the group’s pension schemes years by independent qualified actuaries who also provide advice to management on the Activities during the year and judgements of management accounting judgement or management and post-retirement medical benefit assumptions to be used in preparing the accounting valuations each year. Details of the In order to fulfil its terms of reference, in relation to financial reporting estimation and a description of how schemes require various subjective assumptions made in the current and previous year are disclosed in note 11 of the financial the Audit committee receives and and in particular the assumptions the committee concluded that such judgements to be made including statements together with the bases on which those assumptions have been made. reviews presentations and reports judgements and estimates were underlying the going concern mortality assumptions, discount rates, The committee reviewed the assumptions by comparison with externally derived data from the group’s senior management, and viability statements; appropriate. These are divided between general and salary inflation, and the and also considered the adequacy of disclosures in respect of the sensitivity of the surplus consulting as necessary with the • any significant adjustments to financial those that could have a material impact rate of increase for pensions in payment or deficit to changes in these key assumptions. external auditor. reporting arising from the audit; and on the financial statements and those and those in deferment. Monitoring the integrity of • tax contingencies, compliance that are less likely to have a material Misstatements • an assessment of business The Chair of the committee met reported financial information with statutory tax obligations and impact but nevertheless, by their nature, Management reported to the committee continuity plans in place in the with the Director of Financial Control Ensuring the integrity of the the group’s tax policy. required a degree of estimation. that they were not aware of any group’s businesses; regularly during the year to monitor financial statements and associated material or immaterial misstatements • reports on fraud perpetrated the effectiveness of the internal announcements is a fundamental made intentionally to achieve a particular against the group; audit function, receiving updates responsibility of the Audit committee. presentation. The external auditor • the group’s approach to anti-bribery on audit progress and statistics on Areas of significant accounting judgement reported to the committee the and corruption, and whistleblowing; outstanding issues. and estimation material to the group misstatements that they had found the group’s approach to IT and • Whistleblowing and fraud financial statements Audit committee assurance in the course of their work. After cybersecurity; and The group’s Whistleblowing Policy Impairment of goodwill, intangible The committee considered the reasonableness of cash flow projections which were due consideration the committee reports on significant systems • contains arrangements for an and tangible assets based on the most recent budget approved by the board and reflected management’s concurred with management that these implementations. independent external service provider Assessment for impairment involves expectations of sales growth, operating costs and margins based on past experience misstatements were not material and to receive, in confidence, complaints on comparing the book value of an asset with and external sources of information. Long-term growth rates for periods not covered that no adjustments were required. Internal audit its recoverable amount, being the higher by the annual budget were challenged to ensure they were appropriate for the products, The Audit committee is required accounting, risk issues, internal controls, of value in use and fair value less costs industries and countries in which the relevant cash generating units operate. The Internal financial control and to assist the board in fulfilling its auditing issues and related matters to sell. Value in use is determined with committee also reviewed and challenged the key assumptions made in deriving these risk management responsibilities for ensuring the capability for reporting to the Audit committee reference to projected future cash flows projections: discount rates, growth rates, and expected changes in production and sales The committee is required to assist of the internal audit function and the as appropriate. The Audit committee discounted at an appropriate rate. Both volumes, selling prices and direct costs. The committee also considered the adequacy the board to fulfil its responsibilities adequacy of its resourcing and plans. reviewed reports from internal audit the cash flows and the discount rate of the disclosures in respect of the key assumptions and sensitivities. Refer to notes 8 relating to the adequacy and and the actions arising therefrom. involve a significant degree of and 9 to the financial statements for more details of these assumptions. effectiveness of the control environment, To fulfil its duties, the committee Further details on the policy can be estimation uncertainty. reviewed: The committee was satisfied that the discount rate assumptions appropriately reflected controls over financial reporting and found on page 57. current market assessments of the time value of money and the risks associated with the group’s compliance with the UK • internal audit’s reporting lines and The group’s Anti-fraud Policy has the particular assets. The other key assumptions were all considered to be reasonable. Corporate Governance Code. To fulfil access to the committee and all been communicated to all employees these duties, the committee reviewed: The external auditor undertook an independent audit of the estimate of value in use and members of the board; and states that all employees have fair value less costs to sell, including a challenge of management’s underlying cash flow • the external auditors’ management • internal audit’s plans and its a responsibility for fraud prevention and projections, long-term growth assumptions and discount rates. On the basis of their letters and their Audit committee achievement of the planned activity; detection. Any suspicion of fraud should audit work, and their challenge of the key assumptions and associated sensitivities, reports; • the results of key audits and other be reported immediately and will be they considered that the £65m impairment charge to the tangible fixed assets of Allied significant findings, the adequacy Bakeries was appropriately recognised and that no further impairments were required. • internal audit reports on key audit investigated vigorously. The Audit areas and any significant deficiencies of management’s response and committee reviewed all instances of Tax provisions The committee reviews the Company’s tax policy and principles for managing in the financial control environment; the timeliness of their resolution; and fraud perpetrated against the Company The level of current and deferred tax tax risks annually. • reports on the systems of internal • changes in internal audit personnel to and the action taken by management recognised in the financial statements The committee reviewed and challenged the provisions recorded and the contingent financial control and risk management; ensure appropriate resourcing, skills both to pursue the perpetrators and is dependent on subjective judgements liabilities disclosed at the balance sheet date and management confirmed that they • internal audit’s evaluation of the group’s and experience are put in place. to prevent recurrences. as to the outcome of decisions by tax represent their best estimate of the financial exposure faced by the group. authorities in various jurisdictions around readiness for a ‘no deal’ Brexit; the world and the ability of the group to The external auditor explained to the committee the work they had conducted during the year, use tax losses within the time limits including how their audit procedures were focused on those provisions requiring the highest imposed by the various tax authorities. degree of judgement. The committee discussed with both management and the external See also reference to taxation on page 51. 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 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 81
Corporate governance Remuneration report Annual statement by the Remuneration committee Chair
External audit The Audit committee has formally • the major issues that arose during Auditor independence reviewed the independence of the the course of the audit and their In this section
The Audit committee is responsible external auditor. EY has reported to resolution; The remuneration How the policy, How we expect to for the development, implementation the committee confirming that it • key accounting and audit judgements; policy that applies to approved in 2016, was implement the and monitoring of policies and believes it remained independent • the level of errors identified during executive and non- implemented in 2018/19 remuneration policy procedures on the use of the external throughout the year, within the the audit; and executive directors pages 97–104 in 2019/20 auditor for non-audit services, in meaning of the regulations on this • recommendations made by the pages 91–96 pages 104–106 accordance with professional and matter and in accordance with their external auditors in their management regulatory requirements. These policies professional standards. letters and the adequacy of are kept under review to meet the management’s response. To fulfil its responsibility to ensure the objective of ensuring that the group independence of the external auditor, benefits in a cost-effective manner FRC Audit Quality Review of the The committee Chair’s letter and the annual implementation report on directors’ remuneration the Audit committee reviewed: will be subject to an advisory vote at the 2019 AGM. The remuneration policy will be subject from the cumulative knowledge and Company’s 2018 audit by EY During the year, the Audit Quality to a binding vote at the 2019 AGM. experience of its auditor whilst also • a report from the external auditor Review Team from the FRC undertook ensuring that the auditor maintains the describing arrangements to identify, a review of EY’s audit of the Group’s necessary degree of independence and report and manage any conflicts of 2019 has been a busy year for No change to the overall quantum of LTIP – Context 2018 financial statements. At the time objectivity. The committee’s policy on interest, and policies and procedures the Remuneration committee reward is proposed, as we remain The diverse businesses in our portfolio of writing the AQRT had yet to conclude the use of the external auditor to provide for maintaining independence and as we have been reviewing our mindful of the broader debate about need to deliver different performance this review. Indicative recommendations non-audit services is in accordance with monitoring compliance with relevant remuneration policy. executive pay and inequality in society. outcomes in order to support the applicable laws and takes into account for improvement included impairment overall strategy. In reviewing the requirements; and In this letter I have summarised the Pension contributions the relevant ethical guidance for testing, including how EY evidenced design of our LTIP, we have sought • the extent of non-audit services thinking behind our policy review and We welcome the new expectation for auditors. Any non-audit work to be they had challenged management’s to create a very strong linkage to provided by the external auditor. have set out the key features of the new pension contributions for executives undertaken by the auditor requires assumptions and evidenced their these desired outcomes: policy we are proposing. More details, to be in line with those for the broader authorisation by the Group Finance The total fees paid to EY for the 52 involvement in and oversight of the including the process we followed, employee population, as raised by a • incentivise growth in all our non-Sugar Director and the Audit committee prior weeks ended 14 September 2019 were work of component audit teams. are provided on the following pages. number of investors and now reflected businesses; and to its commencement. The committee £8.6m of which £0.8m related to non- The Audit committee discussed the I then present our key decisions in in the UK Corporate Governance Code. • ensure executives are focussed on also ensures that fees incurred, or to audit work. Further details are provided indicative review findings with EY, implementing our current remuneration We believe this is the right thing to delivering an acceptable return across be incurred, for non-audit services, both in note 2 to the financial statements. reviewed EY’s proposed actions to policy in 2018/19 and decisions so far do and are proposing to align pension the cycle from the Sugar business. individually and in aggregate, do not Auditor effectiveness address these findings and is satisfied regarding 2019/20. Further information contributions or cash allowances exceed any limits in applicable law and The LTIP should not reward executives To assess the effectiveness of that these changes were implemented on these topics can be found in the for future directors with the wider take into account the relevant ethical the external auditors, the committee for the 2019 audit. implementation report. UK workforce. if high sugar prices drive spikes in guidance for auditors. reviewed: profitability. If shareholders benefit from Auditor appointment Executive remuneration policy review Fairness and taking a long-term view increases in the share price driven by The committee is required to approve • the external auditor’s fulfilment of The Audit committee reviews annually In 2016 we introduced a number of are key principles for us when running sugar price volatility, executives will the use of the external auditor to the agreed audit plan and variations the appointment of the auditor, taking important changes to our remuneration the business and when making share in this as a result of having provide: accounting advice and training; from it; into account the auditor’s effectiveness policy, including a new design of the remuneration decisions. Considering the significant shareholdings themselves. corporate responsibility and other • reports highlighting the major issues and independence, and makes a Long Term Incentive Plan (LTIP) contributions for our current executive assurance services; financial due that arose during the course of recommendation to the board measures to reflect the strategy directors, we believe that it is important LTIP – Performance measures diligence in respect of acquisitions Group adjusted earnings per share (EPS) the audit; accordingly. Any decision to open the of holding a portfolio of diverse to honour our contractual commitments and disposals; and will consider other is an important performance measure • feedback from the businesses external audit to tender is taken on the businesses and the very different nature as an organisation, and we are therefore services when it is in the best interests via questionnaires evaluating the recommendation of the Audit committee. of our Sugar business. On balance, not planning to make changes to their for our growth businesses. However, of the Company to do so, provided they performance of each assigned audit we believe that our current policy it is not an appropriate measure for a The Company’s current external auditor, current pension arrangements as part of can be undertaken without jeopardising team, planning, challenge and works well. Nonetheless, we have used cyclical business such as Sugar. We EY, was first appointed at the Annual this year’s remuneration policy review. auditor independence. Tax services interaction with the business; and the opportunity of this policy review to are therefore proposing that the first General Meeting in December 2015, This is consistent with the approach we including tax compliance, tax planning take an even more fundamental look measure of performance in the LTIP is • a report on EY, as a firm, from with effect from 2016, following the took across our UK employee population and related implementation advice at the LTIP structure and its linkage to adjusted EPS growth in the non-Sugar the Audit Quality Review Team conclusion of a competitive tender when closing our defined benefit may not be undertaken by the external how we want to drive the businesses. businesses over the three-year (‘AQRT’) of the Financial Reporting process. The Audit committee is satisfied pension to new members, and when auditor except in very exceptional The other main focus of our review performance period. This adjusted EPS Council (‘FRC’). with the auditor’s effectiveness and defined contribution rates were changed. circumstances where specialist has been the recent changes in the measure is used in our current LTIP. independence and has recommended to knowledge is required. The aggregate The Audit committee holds private corporate governance environment. Shareholding requirements expenditure with the group auditor meetings with the external auditors the board that EY be reappointed as the We have a shareholding culture amongst We believe executives should be accountable for the performance is reviewed by the Audit committee. after each committee meeting to Company’s external auditor for 2019/20. As a result, the substantive changes our senior leadership team, driven by of their investment decisions. The No individually significant non-audit review key issues within their sphere The Company has no current retendering that we are proposing to the policy are: a sense of ownership of the business assignments that would require of interest and responsibility. plans, but keeps such plans under rather than shareholding rules. Our second proposed measure is therefore • a reduction in pension contribution a modifier, based on the three-year disclosure were undertaken review in light of the applicable legal executive directors currently have To fulfil its responsibility for oversight rates for new executive directors average adjusted return on capital in the financial year. and regulatory framework. shareholdings considerably above of the external audit process, the to align with other UK employees; the minimum requirements set in our employed (ROCE) in the non-Sugar The Company has a policy that any Audit committee reviewed: Compliance with the CMA Order • the introduction of a post-employment businesses. This measure is a remuneration policy, as do many other partners, directors or senior managers The Company confirms that, during shareholding requirement; and downward only modifier of up to • the terms, areas of responsibility, senior executives. Reflecting the new hired directly from the external auditor the period under review, it has complied • a new approach to LTIP 20% of the calculated incentive and associated duties and scope of corporate governance expectations, we must be pre-approved by the Group HR with the provisions of The Statutory performance targets. is intended to act as a safety net the audit as set out in the external are proposing to introduce a post-leaving Director, and the Group Finance Director Audit Services for Large Companies by placing a focus on returns; the auditor’s engagement letter; holding requirement that demonstrates or Group Financial Controller, with the Market Investigation (Mandatory performance range is set accordingly. • the overall work plan and fee proposal; our commitment, and that of our Chairman of the Audit committee being Use of Competitive Tender Processes executives, to good corporate consulted as appropriate. and Audit Committee Responsibilities) Order 2014. governance and the long term.
82 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 2019 Associated British Foods plc 83
Governance Corporate governance Remuneration report Annual statement by the Remuneration committee Chair
External audit The Audit committee has formally • the major issues that arose during Auditor independence reviewed the independence of the the course of the audit and their In this section
The Audit committee is responsible external auditor. EY has reported to resolution; The remuneration How the policy, How we expect to for the development, implementation the committee confirming that it • key accounting and audit judgements; policy that applies to approved in 2016, was implement the and monitoring of policies and believes it remained independent • the level of errors identified during executive and non- implemented in 2018/19 remuneration policy procedures on the use of the external throughout the year, within the the audit; and executive directors pages 97–104 in 2019/20 auditor for non-audit services, in meaning of the regulations on this • recommendations made by the pages 91–96 pages 104–106 accordance with professional and matter and in accordance with their external auditors in their management regulatory requirements. These policies professional standards. letters and the adequacy of are kept under review to meet the management’s response. To fulfil its responsibility to ensure the objective of ensuring that the group independence of the external auditor, benefits in a cost-effective manner FRC Audit Quality Review of the The committee Chair’s letter and the annual implementation report on directors’ remuneration the Audit committee reviewed: will be subject to an advisory vote at the 2019 AGM. The remuneration policy will be subject from the cumulative knowledge and Company’s 2018 audit by EY During the year, the Audit Quality to a binding vote at the 2019 AGM. experience of its auditor whilst also • a report from the external auditor Review Team from the FRC undertook ensuring that the auditor maintains the describing arrangements to identify, a review of EY’s audit of the Group’s necessary degree of independence and report and manage any conflicts of 2019 has been a busy year for No change to the overall quantum of LTIP – Context 2018 financial statements. At the time objectivity. The committee’s policy on interest, and policies and procedures the Remuneration committee reward is proposed, as we remain The diverse businesses in our portfolio of writing the AQRT had yet to conclude the use of the external auditor to provide for maintaining independence and as we have been reviewing our mindful of the broader debate about need to deliver different performance this review. Indicative recommendations non-audit services is in accordance with monitoring compliance with relevant remuneration policy. executive pay and inequality in society. outcomes in order to support the applicable laws and takes into account for improvement included impairment overall strategy. In reviewing the requirements; and In this letter I have summarised the Pension contributions the relevant ethical guidance for testing, including how EY evidenced design of our LTIP, we have sought • the extent of non-audit services thinking behind our policy review and We welcome the new expectation for auditors. Any non-audit work to be they had challenged management’s to create a very strong linkage to provided by the external auditor. have set out the key features of the new pension contributions for executives undertaken by the auditor requires assumptions and evidenced their these desired outcomes: policy we are proposing. More details, to be in line with those for the broader authorisation by the Group Finance The total fees paid to EY for the 52 involvement in and oversight of the including the process we followed, employee population, as raised by a • incentivise growth in all our non-Sugar Director and the Audit committee prior weeks ended 14 September 2019 were work of component audit teams. are provided on the following pages. number of investors and now reflected businesses; and to its commencement. The committee £8.6m of which £0.8m related to non- The Audit committee discussed the I then present our key decisions in in the UK Corporate Governance Code. • ensure executives are focussed on also ensures that fees incurred, or to audit work. Further details are provided indicative review findings with EY, implementing our current remuneration We believe this is the right thing to delivering an acceptable return across be incurred, for non-audit services, both in note 2 to the financial statements. reviewed EY’s proposed actions to policy in 2018/19 and decisions so far do and are proposing to align pension the cycle from the Sugar business. individually and in aggregate, do not Auditor effectiveness address these findings and is satisfied regarding 2019/20. Further information contributions or cash allowances exceed any limits in applicable law and The LTIP should not reward executives To assess the effectiveness of that these changes were implemented on these topics can be found in the for future directors with the wider take into account the relevant ethical the external auditors, the committee for the 2019 audit. implementation report. UK workforce. if high sugar prices drive spikes in guidance for auditors. reviewed: profitability. If shareholders benefit from Auditor appointment Executive remuneration policy review Fairness and taking a long-term view increases in the share price driven by The committee is required to approve • the external auditor’s fulfilment of The Audit committee reviews annually In 2016 we introduced a number of are key principles for us when running sugar price volatility, executives will the use of the external auditor to the agreed audit plan and variations the appointment of the auditor, taking important changes to our remuneration the business and when making share in this as a result of having provide: accounting advice and training; from it; into account the auditor’s effectiveness policy, including a new design of the remuneration decisions. Considering the significant shareholdings themselves. corporate responsibility and other • reports highlighting the major issues and independence, and makes a Long Term Incentive Plan (LTIP) contributions for our current executive assurance services; financial due that arose during the course of recommendation to the board measures to reflect the strategy directors, we believe that it is important LTIP – Performance measures diligence in respect of acquisitions Group adjusted earnings per share (EPS) the audit; accordingly. Any decision to open the of holding a portfolio of diverse to honour our contractual commitments and disposals; and will consider other is an important performance measure • feedback from the businesses external audit to tender is taken on the businesses and the very different nature as an organisation, and we are therefore services when it is in the best interests via questionnaires evaluating the recommendation of the Audit committee. of our Sugar business. On balance, not planning to make changes to their for our growth businesses. However, of the Company to do so, provided they performance of each assigned audit we believe that our current policy it is not an appropriate measure for a The Company’s current external auditor, current pension arrangements as part of can be undertaken without jeopardising team, planning, challenge and works well. Nonetheless, we have used cyclical business such as Sugar. We EY, was first appointed at the Annual this year’s remuneration policy review. auditor independence. Tax services interaction with the business; and the opportunity of this policy review to are therefore proposing that the first General Meeting in December 2015, This is consistent with the approach we including tax compliance, tax planning take an even more fundamental look measure of performance in the LTIP is • a report on EY, as a firm, from with effect from 2016, following the took across our UK employee population and related implementation advice at the LTIP structure and its linkage to adjusted EPS growth in the non-Sugar the Audit Quality Review Team conclusion of a competitive tender when closing our defined benefit may not be undertaken by the external how we want to drive the businesses. businesses over the three-year (‘AQRT’) of the Financial Reporting process. The Audit committee is satisfied pension to new members, and when auditor except in very exceptional The other main focus of our review performance period. This adjusted EPS Council (‘FRC’). with the auditor’s effectiveness and defined contribution rates were changed. circumstances where specialist has been the recent changes in the measure is used in our current LTIP. independence and has recommended to knowledge is required. The aggregate The Audit committee holds private corporate governance environment. Shareholding requirements expenditure with the group auditor meetings with the external auditors the board that EY be reappointed as the We have a shareholding culture amongst We believe executives should be accountable for the performance is reviewed by the Audit committee. after each committee meeting to Company’s external auditor for 2019/20. As a result, the substantive changes our senior leadership team, driven by of their investment decisions. The No individually significant non-audit review key issues within their sphere The Company has no current retendering that we are proposing to the policy are: a sense of ownership of the business assignments that would require of interest and responsibility. plans, but keeps such plans under rather than shareholding rules. Our second proposed measure is therefore • a reduction in pension contribution a modifier, based on the three-year disclosure were undertaken review in light of the applicable legal executive directors currently have To fulfil its responsibility for oversight rates for new executive directors average adjusted return on capital in the financial year. and regulatory framework. shareholdings considerably above of the external audit process, the to align with other UK employees; the minimum requirements set in our employed (ROCE) in the non-Sugar The Company has a policy that any Audit committee reviewed: Compliance with the CMA Order • the introduction of a post-employment businesses. This measure is a remuneration policy, as do many other partners, directors or senior managers The Company confirms that, during shareholding requirement; and downward only modifier of up to • the terms, areas of responsibility, senior executives. Reflecting the new hired directly from the external auditor the period under review, it has complied • a new approach to LTIP 20% of the calculated incentive and associated duties and scope of corporate governance expectations, we must be pre-approved by the Group HR with the provisions of The Statutory performance targets. is intended to act as a safety net the audit as set out in the external are proposing to introduce a post-leaving Director, and the Group Finance Director Audit Services for Large Companies by placing a focus on returns; the auditor’s engagement letter; holding requirement that demonstrates or Group Financial Controller, with the Market Investigation (Mandatory performance range is set accordingly. • the overall work plan and fee proposal; our commitment, and that of our Chairman of the Audit committee being Use of Competitive Tender Processes executives, to good corporate consulted as appropriate. and Audit Committee Responsibilities) Order 2014. governance and the long term.
82 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 83
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 Consistent with past practice however, measure is based on adjusted return downwards with a more stretching we have used discretion to reduce the on average capital employed in the performance range. number of shares vesting for the small Sugar business, with the book value of We believe that this new approach number of executives, including the goodwill added to the denominator so is well aligned with our strategy and executive directors, involved in the that any investment in Sugar is reflected. operating model and is in investors’ original investment decision to which the The modifier may reduce the calculated interests. It addresses concerns we had impairment relates. The reduction has incentive outcome by up to a further heard from some shareholders, that the been set at 15% of the pre-adjustment 20% of the previously calculated current model allows for part of the vesting amount. amount. The scale of this adjustment LTIP to be earned regardless of the reflects the relative size of Sugar in the Discretion has been applied to reduce Sugar performance. In the new model, group portfolio. the LTIP rather than the STIP as all of the outcome includes the impact investment decisions are long-term, In the 2019-22 LTIP cycle, the adjusted of Sugar. multi-year choices. average Sugar return will be calculated I am delighted that when we over the three years of the LTIP These LTIP awards were allocated at consulted our largest shareholders, performance period. For future cycles a share price of £26.25. Share prices they were very supportive of our we will lengthen the averaging period have since fallen, so the committee has proposals. to include past performance so that considered whether any adjustment eventually the average is calculated over to the vesting outcome should be Remuneration in 2018/19 five or more years. This will reduce the considered. In some previous cycles LTIP 2016-19 impact of peaks and troughs in sugar our share price rose significantly while This is the first vesting under the LTIP price and reflects our position that this the number of shares vesting was low measures that we introduced in 2016. business must deliver an acceptable due to stretching EPS targets. In these return to investors and generate cash For the 60% of the LTIP that is cases, no adjustments were made to over the sugar cycle. Our current focus measured with the impact of Sugar increase vesting and so for consistency is to drive Sugar returns up to acceptable removed, the performance outcome of approach, no adjustment is being levels, following a period of low sugar was 70.89% of maximum. Over the made this time. Our executive directors pricing caused by the European sugar performance period the Retail, Grocery have very significant shareholdings so regime change. We are therefore and Ingredients businesses performed they have experienced the share price proposing that in the initial 2019-22 well against a backdrop of Brexit decline directly through its impact on cycle, no adjustment be made if uncertainty, consequent volatility in their personal wealth. average returns are above 8% but foreign exchange rates and a challenging We believe that the calculated vesting that executives are penalised for lower environment on the high street. returns, with the full reduction applying outcome, following the application of if average returns are at or below 5%. For the 40% of the LTIP measured discretion as detailed above, is fair and This takes into account the fact that our on adjusted group EPS and ROCE, in line with our tradition of reasonable European sugar businesses may still be the performance outcome was 61.68%. and conservative levels of reward. affected by the effects of regime change The performance of the non-Sugar at the start of the performance period. businesses was as described above, A return at the bottom of this range while Sugar performance over the is broadly in line with shareholder three years was impacted by reform expectations for 2019/20. Executives of the European sugar regime and low will need to drive improved performance world sugar prices. if they are to avoid the downwards modifier being applied to vesting in 2022.
84 Associated British Foods plc Annual Report and Accounts 2019
Governance Remuneration report
The first and second measures Over time we would expect the bottom This year we have recognised an Short Term Incentive Plan (STIP) Taking all of the above into account, STIP 2019/20 described above for our new LTIP model of the performance range to move up as impairment charge of £65m in respect 2018/19 the financial STIP outcome is 74.13% The personal performance element form 60% of our current LTIP model and we include more years in the averaging of our UK bakeries following the loss STIP targets for 2018/19 were set taking of maximum which the committee of the STIP will be modified to focus are familiar to our executives. Our new of returns and move beyond the impact of a key contract. This has been into account the projected substantial considers to be an appropriate reflection on in-year execution of multi-year proposal is to introduce a third measure of regime change. Furthermore, in our charged ‘below the line’ of adjusted decline in profitability of the Sugar of performance in a challenging year. priorities related to environmental, which is a further modifier that penalises next policy review in 2022, we expect operating profit and does not impact business driven by global and European social and governance (ESG) Salaries executives if returns from the Sugar to determine whether the modifier incentive outcomes. prices. This reduction was offset by measures/business health as well as In December 2018, we did not increase business are not acceptable. This could apply both upwards and setting challenging growth targets for to business performance. This change Consistent with past practice however, the salaries of our executive directors. measure is based on adjusted return downwards with a more stretching Retail and Grocery. was welcomed by our shareholders we have used discretion to reduce the on average capital employed in the performance range. Remuneration in 2019/20 in consultation. number of shares vesting for the small Achievement of the budget was seen Sugar business, with the book value of LTIP 2019-22 We believe that this new approach number of executives, including the as very challenging throughout the year, Salaries goodwill added to the denominator so Subject to our new remuneration policy is well aligned with our strategy and executive directors, involved in the but the final profit outcome was a little This year, with increases for our wider that any investment in Sugar is reflected. being approved, we will make LTIP operating model and is in investors’ original investment decision to which the ahead of budget, driven by the strong UK workforce typically in the range The modifier may reduce the calculated allocations for the 2019-22 performance interests. It addresses concerns we had impairment relates. The reduction has growth in Primark and our international of 2%-3.5%, we have decided not to incentive outcome by up to a further period in December 2019 with heard from some shareholders, that the been set at 15% of the pre-adjustment grocery businesses. Primark increase salaries for the executive 20% of the previously calculated performance subject to the proposed current model allows for part of the vesting amount. performance was a result of better directors. This reflects our conservative amount. The scale of this adjustment new performance measures. LTIP to be earned regardless of the buying and lower mark-downs, leading approach on remuneration. reflects the relative size of Sugar in the Discretion has been applied to reduce Sugar performance. In the new model, to margins above expectations. In our IFRS 16 group portfolio. the LTIP rather than the STIP as The committee has chosen voluntarily to all of the outcome includes the impact international grocery businesses, we IFRS 16 will impact outcomes under investment decisions are long-term, disclose our CEO pay ratio for 2018/19 In the 2019-22 LTIP cycle, the adjusted of Sugar. were delighted with new product the LTIP in 2020 and 2021 as the EPS multi-year choices. on page 103. average Sugar return will be calculated development. Whilst at a much lower and ROCE targets were set without I am delighted that when we over the three years of the LTIP These LTIP awards were allocated at profit than the previous year, AB Sugar the impact of this change to lease Lastly, as you will see, we have taken consulted our largest shareholders, performance period. For future cycles a share price of £26.25. Share prices was marginally ahead of budget with accounting being taken into account. this opportunity to review the format they were very supportive of our we will lengthen the averaging period have since fallen, so the committee has tight cost control and strong measures of this Remuneration report. We hope proposals. Incentive performance ranges will to include past performance so that considered whether any adjustment taken in our Spanish business to reduce that the additional tables and narrative be adjusted to ensure that the LTIP eventually the average is calculated over to the vesting outcome should be beet prices. will add clarity for readers Remuneration in 2018/19 outcomes remain no harder or easier to five or more years. This will reduce the considered. In some previous cycles of the report. LTIP 2016-19 In light of the impairment taken at achieve than they would have been on impact of peaks and troughs in sugar our share price rose significantly while This is the first vesting under the LTIP half year, as described above, the the old accounting basis. The revised Ruth Cairnie price and reflects our position that this the number of shares vesting was low measures that we introduced in 2016. committee has applied discretion to performance ranges will be disclosed Remuneration committee Chair business must deliver an acceptable due to stretching EPS targets. In these adjust the STIP target upwards by the in the 2020 Remuneration report. return to investors and generate cash For the 60% of the LTIP that is cases, no adjustments were made to depreciation benefit in the second half over the sugar cycle. Our current focus measured with the impact of Sugar increase vesting and so for consistency arising from this impairment. is to drive Sugar returns up to acceptable removed, the performance outcome of approach, no adjustment is being levels, following a period of low sugar was 70.89% of maximum. Over the made this time. Our executive directors We also adjusted the STIP and LTIP pricing caused by the European sugar performance period the Retail, Grocery have very significant shareholdings so ranges to take into consideration regime change. We are therefore and Ingredients businesses performed they have experienced the share price the accounting charge for Argentina proposing that in the initial 2019-22 well against a backdrop of Brexit decline directly through its impact on hyperinflation that was included in cycle, no adjustment be made if uncertainty, consequent volatility in their personal wealth. reported numbers but not in the original average returns are above 8% but foreign exchange rates and a challenging performance targets. This adjustment We believe that the calculated vesting that executives are penalised for lower environment on the high street. made the targets no harder or easier to outcome, following the application of returns, with the full reduction applying achieve than was originally intended. if average returns are at or below 5%. For the 40% of the LTIP measured discretion as detailed above, is fair and This takes into account the fact that our on adjusted group EPS and ROCE, in line with our tradition of reasonable European sugar businesses may still be the performance outcome was 61.68%. and conservative levels of reward. affected by the effects of regime change The performance of the non-Sugar at the start of the performance period. businesses was as described above, A return at the bottom of this range while Sugar performance over the is broadly in line with shareholder three years was impacted by reform expectations for 2019/20. Executives of the European sugar regime and low will need to drive improved performance world sugar prices. if they are to avoid the downwards modifier being applied to vesting in 2022.
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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 Chair Senior Independent Director 2014 8 Javier Ferrán1 Member Senior Independent Director 2006 1 Wolfhart Hauser Member Independent Director 2015 8 Richard Reid Member Independent Director 2016 8 Michael McLintock Member Chairman 2017 8 Graham Allan2 Member Independent Director 2018 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 Line of sight Clarity and simplicity Fairness and doing the right thing We aim to align We believe that executive Total remuneration should Our board is accountable for remuneration and business pay should be clear and fairly reflect the performance ensuring that the portfolio objectives through simple for participants delivered and efforts made that we operate is the right performance measures to understand. by executives. one to deliver optimal to which individuals have The best way to achieve this returns to shareholders line of sight. is through alignment with and for ascertaining that the business performance. 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.
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Role of the Remuneration committee We operate a portfolio approach to our businesses, to which we remain committed. The role of the divisions in the portfolio The committee is responsible to the board for determining: is reviewed regularly. Since we put our current remuneration policy in place in 2016, the following important changes have taken place: • 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; • our non-Sugar businesses have continued to grow; • the overall policy for remuneration of the Chief Executive’s first line reports; • European regime reform has impacted performance in our Sugar division; and • the design and monitoring of the operation of any Company share plans; • the overall shape of the group has changed with Primark becoming a relatively larger part of the whole and Sugar becoming • stretching incentive targets for executive directors to encourage enhanced performance; relatively smaller (less than 20% of the whole). • an approach that fairly and responsibly rewards contribution to the Company’s long-term success; and With the changes in the European sugar regime, we have considered the role of AB Sugar in the portfolio and continue to other provisions of the executive directors’ service agreements and ensuring that contractual terms and payments made • believe that this business will deliver an acceptable return to investors and generate cash over the sugar cycle. on termination are fair to the individual and the Company, and that failure is not rewarded and loss is mitigated. Recent history has reinforced the case for a bespoke approach to our remunerationpackage, reflecting the different nature of The committee’s remit is set out in detail in its terms of reference, which are reviewed regularly and were last updated in the Sugar business. In the early stages of this review we consulted several of our largest shareholders. Their feedback included: September 2015. They are available on request from the Company Secretary’s office or at www.abf.co.uk/ investorrelations/ corporate_governance. • 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); The committee’s terms of reference are being reviewed in late 2019 to ensure that they are compliant with latest corporate • recognition of the challenge of designing an LTIP for a diverse organisation; governance requirements and once approved will be available at the link above. • some challenge from a few of our shareholders on the current LTIP approach, particularly the fact that part excluded Sugar Members of the Remuneration committee performance when, as investors, they can only invest in the business as a whole; and In the financial year and as at the date of this report, members and Chair of the committee have been as follows: • 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. Role on committee Independence Year of appointment Meetings attended Ruth Cairnie1 Chair Senior Independent Director 2014 8 Our workforce remuneration practices vary widely across the organisation. Each divisional chief executive is responsible Javier Ferrán1 Member Senior Independent Director 2006 1 to the Board for running his/her business well and reporting to the Board on how they engage the people in their businesses. Wolfhart Hauser Member Independent Director 2015 8 Within our review we consulted the HR directors from our divisions as representatives of the employees in their areas of the Richard Reid Member Independent Director 2016 8 organisation. We sought to understand views on the alignment of reward and culture in the organisation. Their feedback included: Michael McLintock Member Chairman 2017 8 Graham Allan2 Member Independent Director 2018 8 • 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 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. different business models and market practices; • confirmation of the importance of shares in long-term incentives to align our business leaders’ interests with those George Weston (Chief Executive), Des Pullen (Group HR Director) and Julie Withnall (Group Head of Reward) attend the of shareholders; meetings of the committee. No individual is present when their own remuneration is considered. • support for our line of sight principle that ensures that targets are meaningful to participants; and Remuneration principles • confirmation that our approach to discretion and flexibility is well aligned with our culture and focuses on ‘doing the right thing’. Our remuneration approach needs to enable us to attract and retain top executive talent to promote the strategic and financial In line with the UK Corporate Governance Code, the following factors, which align well with our principles, were also considered: 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. • 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); Alignment, accountability Line of sight Clarity and simplicity Fairness • predictability and proportionality – we believe that the link between individual awards, the delivery of strategy and the long- and doing the right thing We aim to align We believe that executive Total remuneration should term performance of the company is clearly explained in this report and that our approach ensures proportionate pay Our board is accountable for remuneration and business pay should be clear and fairly reflect the performance outcomes that do not reward poor performance; and ensuring that the portfolio objectives through simple for participants delivered and efforts made • alignment to culture – we want our executives to make decisions for the long-term performance and health of the business. that we operate is the right performance measures to understand. by executives. This informs our approach to target setting, operation of discretion and personal performance measures. one to deliver optimal to which individuals have The best way to achieve this returns to shareholders line of sight. is through alignment with and for ascertaining that the business performance. 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.
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Proposed changes to Directors’ Remuneration Policy and to Shareholding Requirements Revised policy Rationale Fixed Pay Pension 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. to future accrual for members that joined the group Pension contributions and/or cash allowance for new before it closed. We believe it is right to honour the executive directors aligned with contribution rates at pensions offered to incumbent executive directors the time of appointment for other UK-based 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. Variable Pay LTIP – Up to Conditional share awards with performance We felt that the LTIP structure and performance 200% of salary measured on: measures could be improved to create an even stronger alignment with our strategy and performance • 200% of salary – Group EPS with the impact of drivers. The reasoning is detailed in the committee Sugar removed Chair’s statement. • Modified 80%-100% – by Group ROCE with the impact of Sugar removed We have not changed the LTIP quantum, the • Modified a further 80%-100% – by Sugar ROCE with requirement for executive directors to hold net vested the book value of goodwill added to the denominator LTIP shares for two years from the vesting date or the scope of discretion available to the Committee. Shareholding Conditional awards do not count. Shares that have Both of our current executives have holdings requirement – vested and are subject to a holding period considerably in excess of our required holding level. This 250% of salary do count. At least 50% of net shares vested under reflects the culture of the group and the commitment (beneficially- STIP and LTIP must be held until the shareholding of our leaders to the long-term stewardship of the owned) requirement is met. business. In light of this, we have not increased the Executive directors will be required to retain, for two 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 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.
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Proposed changes to Directors’ Remuneration Policy and to Shareholding Requirements Remuneration structures at a glance Revised policy Rationale The table below outlines the remuneration structure that will apply in 2019/20, subject to approval of the new remuneration policy. Fixed Pay Proposed implementation in 2019/20 (subject Pension No changes to pension provision for incumbent The group has a wide variety of pension arrangements Remuneration element Purpose to approval of new remuneration policy) executives, whose current arrangements reflect and a strong history of honouring commitments we Fixed Pay market practice and pensions practice elsewhere make to individuals at appointment. For example, Base salary Provides core reward for the role. In December 2019, salaries will not be increased. in the group at the time that their employment our defined benefit (DB) pension scheme remains open Enables the Company to attract contracts were put in place. to future accrual for members that joined the group and retain executives of the calibre Pension contributions and/or cash allowance for new before it closed. We believe it is right to honour the required to deliver our strategy. pensions offered to incumbent executive directors executive directors aligned with contribution rates at Pension Provides a competitive George Weston will accrue benefits under the the time of appointment for other UK-based when they signed their employment contracts. retirement benefit. Company’s DB scheme and/or EFRBS. employees. This would currently cap company We recognise that going forward it is right for the rate John Bason will have a pension allowance of 25% contributions at 10% of salary. of pension contribution for new joiners at the top of the of salary. organisation to align with what is offered to our wider UK population. Benefits Provides a competitive and cost- No changes to benefits offered are anticipated in Variable Pay effective benefits package appropriate the year. LTIP – Up to Conditional share awards with performance We felt that the LTIP structure and performance to the role. measured on: measures could be improved to create an even 200% of salary Variable Pay stronger alignment with our strategy and performance • 200% of salary – Group EPS with the impact of STIP – Up to 200% of salary Encourages and rewards attainment Up to 20% of salary in cash based on personal drivers. The reasoning is detailed in the committee Sugar removed of challenging performance targets performance objectives linked to key long-term business Chair’s statement. in cash and shares • Modified 80%-100% – by Group ROCE with the over a one-year period. performance and business health goals. We have not changed the LTIP quantum, the impact of Sugar removed Shares element facilitates operation Up to 180% of salary based on financial performance requirement for executive directors to hold net vested • Modified a further 80%-100% – by Sugar ROCE with of malus and clawback, aligns (currently adjusted operating profit with a working capital LTIP shares for two years from the vesting date or the book value of goodwill added to the denominator the interests of executives multiplier), up to 130% of salary in cash and up to 50% the scope of discretion available to the Committee. and shareholders and promotes of salary in shares. Shareholding Conditional awards do not count. Shares that have Both of our current executives have holdings executive retention. requirement – vested and are subject to a holding period considerably in excess of our required holding level. This LTIP – Up to Rewards long-term business growth, Conditional share awards will be allocated on or after 250% of salary do count. At least 50% of net shares vested under reflects the culture of the group and the commitment facilitates the operation of malus and 9 December using the new performance measures, (beneficially- STIP and LTIP must be held until the shareholding of our leaders to the long-term stewardship of the 200% of salary clawback, aligns the interests of subject to the policy being approved. owned) requirement is met. business. In light of this, we have not increased the executives and shareholders and level of holding required of our executives. • The LTIP targets for 2019–22 are shown on page 105. Executive directors will be required to retain, for two promotes executive retention. years post leaving the Company, a holding of shares Recognising corporate governance requirements, we • A two-year post-vesting holding period applies to net at a level equal to the lower of the shareholding have introduced a post-departure holding requirement of tax shares. requirement or their actual shareholding on departure. that is in line with Investment Association (IA) guidance. Shareholding requirement To demonstrate commitment to A shareholding requirement of 250% of salary, the Company’s success and align as detailed on the previous page. Further investor feedback executives’ and shareholders’ interests.
Further to our initial shareholder discussions, we engaged with a broader group of shareholders and with proxy agencies to seek Fees for non-executive To attract and retain a high-calibre In December 2019, the fees will remain unchanged. their feedback on the revised remuneration policy outlined above. We have listened closely to their feedback, which is directors and the Chairman Chairman and non-executives by summarised below. providing a competitive core reward for the role. • 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.
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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.
Incentives performance and release timing Performance % of measures base 2019/20 2020/21 2021/22 2022/23 2023/24
Personal Objectives 20% Performance Cash payment (subject to malus and clawback) STIP
Financial Adjusted operating 130% Performance Cash payment (subject to malus and clawback) STIP profit x working capital modifier 50% Performance Deferral Paid in shares. Release of shares Absolute TSR alignment on shares – granted at start (subject to malus and clawback) of performance period
LTIP Adjusted EPS excluding 200% Performance Release of Holding Sugar x moderator based Vests at end of year three shares (subject on three-year average to malus and Absolute TSR alignment on shares – granted at start of performance period ROCE excluding Sugar x clawback) moderator based on three-year average Sugar returns
Shareholding 250% Absolute TSR alignment requirement
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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 Remuneration policy for executive directors of our new remuneration policy. 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 Base salaries are normally reviewed on an annual basis. Factors Increases will be aligned with the (100% cash) taken into account include market pay movements, the level of range of increases available for other increases awarded to UK employees across the group and the UK employees. 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 (excluding Benefits are restricted to typical UK market levels for executive The cost of benefits is capped relocation) directors and include, but are not limited to, death in service at 10% of salary. payment, permanent health insurance, company car plus private fuel, family healthcare and, where relevant, fees to maintain professional memberships.
Pension Defined benefit (DB) pension arrangements – closed to For the Chief Executive, a retirement new members benefit target of circa two-thirds of The current executive directors were members of the Company’s final pensionable pay is payable at DB pension scheme. The scheme is designed to provide retirement normal retirement age. benefits of around two-thirds of final pensionable pay at age 65. For the Finance Director the Both executive directors opted out of the scheme on 5 April 2006 maximum company contribution but retain their accrued benefits. Since then the Chief Executive (or cash equivalent) is 25% of salary. has earned benefits in an EFRBS. The Finance Director accrued benefits in an EFRBS until April 2019. The EFRBS is designed Future executives may receive broadly to mirror the DB scheme. Company contributions (or cash equivalent) up to a maximum rate Defined contribution pension arrangements/cash alternative aligned to that for other employees, Since April 2019 the Finance Director has received a cash pension currently 10% of base salary. 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.
Short term Performance measures and target-setting STIP cash of 150% of base salary incentive Group financial performance targets can apply to up to the full and STIP shares of 50% of base plan (STIP) amount of the STIP and are assessed against prime financial and salary. strategic measures used across the group to drive performance. In exceptional circumstances, such Personal performance measures can apply to up to 20% of the as the appointment of a new Chief STIP and are based on personal targets aligned to key business Executive, this could be increased health and business performance goals. to 300% of base salary to correct any shortfall against market. The on-target performance level is set at the start of each financial Any increase would consider year considering budgeted performance and any early re-forecasts. adjustments in other elements A range is set around the target to incentivise delivery of stretching of the package to ensure that the performance. total was not excessive. Annual allocations of conditional shares vest based on performance At maximum, 100% of the allocated in year one and a further service period of two years. Shares vest shares vest; at target 50% vest; three years after the start of the relevant STIP performance period. at threshold 10% vest; and below A cash or shares dividend equivalent payment is made, pro rata to threshold awards lapse. the number of shares vesting, at the release date.
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Remuneration report
Operation and link to business strategy Maximum opportunity Short term Retrospective disclosure of targets incentive Achievement against targets will be disclosed at the end of the plan (STIP) financial year in that year’s Remuneration report and further detail, continued 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. increased to 300% of base salary to The calculated outcome may then be further moderated downwards correct any shortfall against market. to reflect average Sugar ROCE performance with the book value Any increase would consider of goodwill added to the denominator over three or more years. adjustments in other elements of the package to ensure that the These measures reflect our strategy and feedback from investors. total was not excessive. They are well understood both by participants and shareholders. At maximum, 100% of the allocated Targets are set for each allocation, taking into account the shape shares vest; at target 50% vest; of the portfolio, market expectations and internal forecasts for the at threshold 10% vest; and below next few years, and the scale of investments made. threshold awards lapse. 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.
Shareholding Executives are required to build a holding of beneficially owned During employment requirement shares in the company. 250% of salary to be held in the Conditional awards under our incentive plans do not count towards form of shares. this limit. Post-employment Shares that have vested and are subject to a holding period do count. Executive directors will be required to retain, for two years post leaving At least 50% of net shares vested under STIP and LTIP must be the Company, a holding of shares held until the shareholding requirement is met. at a level equal to the lower of the shareholding requirement or their actual shareholding on departure. Non-executive The Chairman and executive directors review non-executive directors’ fees in light of fees payable in directors’ fees 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 Associated British Foods plc Annual Report and Accounts 2019
Governance Remuneration report
Operation and link to business strategy Maximum opportunity Notes to the remuneration policy table Short term Retrospective disclosure of targets Malus and clawback incentive Achievement against targets will be disclosed at the end of the The committee may, at any time within two years of an LTIP vesting or STIP being paid, determine that clawback shall apply if plan (STIP) financial year in that year’s Remuneration report and further detail, the committee determines that performance outcomes were misstated or an erroneous calculation was made in assessing the continued including the performance range that applied to financial targets, extent to which performance targets were met. LTIP and STIP payments can be clawed back if the participant is found at any will be disclosed one year later. 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. Discretion, clawback and malus Please refer to the notes that follow this table. As a condition of participating in the STIP and LTIP, all participants are required to agree that the committee may cause any STIP Long term Growth in adjusted EPS with the adjusted operating profit, tax and 200% of base salary at allocation. 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 incentive plan (LTIP) interest of Sugar removed. they participate; and/or reduce any amounts otherwise payable to them; and/or require the participant immediately to transfer In exceptional circumstances, shares or cash back to the Company. 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 Discretion and average capital employed of Sugar removed. increased to 300% of base salary to The committee will apply discretion, where necessary and by exception, to ensure that there are no unintended consequences The calculated outcome may then be further moderated downwards correct any shortfall against market. from the operation of the remuneration policy. The committee applies a robust set of principles to ensure that incentive outcomes to reflect average Sugar ROCE performance with the book value Any increase would consider are consistent with business performance and aligned with shareholder interests. Any material exercises of discretion by the of goodwill added to the denominator over three or more years. adjustments in other elements committee in relation to the STIP and LTIP will be in line with scheme rules, or other applicable contractual documentation, and of the package to ensure that the will be fully disclosed and explained in the relevant year’s annual implementation report. These measures reflect our strategy and feedback from investors. total was not excessive. They are well understood both by participants and shareholders. At maximum, 100% of the allocated Approach to recruitment remuneration Targets are set for each allocation, taking into account the shape shares vest; at target 50% vest; Area Policy and operation of the portfolio, market expectations and internal forecasts for the at threshold 10% vest; and below next few years, and the scale of investments made. Overall As we may need to recruit future executive directors from outside the UK or from companies with more threshold awards lapse. aggressive incentive policies than our own, the arrangements below are intended to provide the necessary Vesting period flexibility to recruit the right individuals. Annual allocations of conditional shares will be free of restrictions For internal appointments, awards in respect of the prior role may be allowed to vest according to the terms after a five-year period, comprising a three-year performance period of the scheme, adjusted as relevant to take account of the new appointment. In addition, ongoing prior and a two-year holding period for the net of tax award. remuneration obligations may continue. Discretion, clawback and malus The rationale for the package offered will be explained in the subsequent annual implementation report. Please refer to the notes that follow this table. We apply the same policy for new joiners as for existing executive directors. Dividend equivalents A cash or shares dividend equivalent payment will be made, Base salary Base salary would be set at an appropriate level to recruit the best candidate, based on their skills, experience pro rata to the number of shares vesting, at the release date. and current remuneration, taking into account market data and internal salary relativities.
Shareholding Executives are required to build a holding of beneficially owned During employment Relocation If a new executive director needs to relocate, the Company may pay: requirement shares in the company. 250% of salary to be held in the • actual relocation costs and other reasonable expenses relating to moving house, including temporary Conditional awards under our incentive plans do not count towards form of shares. accommodation if required; this limit. Post-employment • disturbance allowance of up to 5% of salary, some of which may be tax-free for qualifying expenditure; Shares that have vested and are subject to a holding period do count. Executive directors will be required • school fees for dependent children where there are cultural or language considerations; to retain, for two years post leaving • medical costs for the overseas family, where relevant; At least 50% of net shares vested under STIP and LTIP must be the Company, a holding of shares • one business class return fare per annum each for the executive, his/her partner and dependent children held until the shareholding requirement is met. at a level equal to the lower of the in order to maintain family or other links where an executive is recruited from outside the UK; shareholding requirement or their actual shareholding on departure. • 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 Non-executive The Chairman and executive directors review non-executive directors’ fees in light of fees payable in finding advice and support with tax returns as required; directors’ fees comparable companies and by reference to the time commitment, responsibility and technical skills • tax equalisation costs for an agreed period; and required to make a valuable contribution to an effective board. Fees are paid in cash on a quarterly basis • any tax due, grossed up, on any relocation-related payments listed above. 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 Buy-out awards In addition to normal incentive awards, buy-out awards may be made to reflect value forfeited through an own fees. 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 We pay additional fees to reflect extra duties and time commitments, including to the Senior Independent achieved/likely to be achieved and the proportion remaining of the performance period. Awards may be made Director, committee Chairs and individuals taking on other projects and responsibilities at the request in cash or shares. of the Company. As the Chair of the Nomination committee is currently the Company Chairman, no fee is paid for this role at present. 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 Chairman Company, however, buy-out awards are not subject to a formal maximum. Any awards would be broadly no The Remuneration committee reviews the Chairman’s fees. No other benefits are paid to the Chairman. more valuable than those being replaced. Shareholding Where possible, we would specify that at least 50% of any vested buy-out awards should be retained until the We encourage our non-executive directors to build up a shareholding of at least 100% of their annual fee. shareholding requirement is met. Expenses Other elements Benefits, pension, STIP, LTIP and shareholding requirements will operate in line with the remuneration policy. 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 Non-executives Fees would be in line with the remuneration policy. We would not pay to relocate a non-executive director. a grossed-up basis.
92 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 93
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 ni 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 Policy and operation Notice period 12 months’ notice by either the director or the Company. Contracts are available for inspection at the Company’s offices. Contracts and service agreements are not reissued when base salaries or fees are changed. Non-compete During employment and for 12 months thereafter.
Executive directors – Resignation contractual No payments on departure, even if, by mutual agreement, the notice period is cut short. termination payments 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 Good leaver* support 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 Associated British Foods plc Annual Report and Accounts 2019
Governance Remuneration report
How pay and conditions of employees were considered when setting the directors’ remuneration policy Provision Policy and operation The group is geographically dispersed and therefore subject to very different pay markets. As a result, it is difficult to make STIP cash Good leaver* sensible comparisons with all employees across the group. However, the Remuneration committee is mindful of our reward The committee will consider making a payment pro rata for time and performance, for the financial year practices across the group when setting and implementing the remuneration policy for the executive directors. We have in which the termination/death took place. Any agreed payment will be made in the December following engaged with our divisional HR Directors when reviewing executive remuneration policy but have not consulted employees. the year end. In the case of death, payment may be accelerated. This is consistent with the approach The structure and principles of incentives further down the organisation are consistent with the approach taken for the Chief for other STIP participants. Executive and Finance Director. The committee is provided with data on the remuneration structure for two tiers of senior Resignation management below the executive directors and uses this information to work with the Company to ensure consistency of If an executive director ceases to be employed before, or is under notice when, full year results are approach. In addition, the committee approves all share-based LTIP awards across the group. published, no STIP is paid. The executive directors have a greater proportion of their total reward package at risk than other employees. This means that ni Leaver due to misconduct/poor performance years of very good performance, the Chief Executive’s package increases proportionately more than that of other employees and No payment is made. conversely in years of lower performance it may be proportionately less. We believe that this is the right model for our business LTIP and STIP Good leaver* and drives an appropriate performance focus. Salary increases for executive directors are limited to the range of increases shares Where the performance condition on STIP shares has already been achieved and the award is subject to available to UK-based employees except in a change of role. 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 Statement of consideration of shareholders’ views and, unless the committee determines otherwise, pro-rating to reflect the period from the start of the The committee Chair is available to discuss any remuneration matters with shareholders, to help shape our policy and practice. performance period until the date of cessation. Such awards will vest on the normal vesting date or Each year we invite our larger institutional shareholders to share their views on the group’s remuneration, strategy and at such other date as the committee determines. In the case of death, vesting may be accelerated. governance. The feedback received, and our response, is detailed in the committee Chair’s statement and the policy review Awards or portions of awards that do not vest will lapse. section at the start of this report. Leaver due to resignation/misconduct/poor performance Executive directors serving as non-executive directors All conditional awards lapse. To encourage self-development and external insight, the committee has determined that, with the consent of both the Chairman Change of control of the Company and the Chief Executive, executive directors may serve as non-executive directors of other companies in an individual capacity, In the event of a change of control, all unvested awards under the LTIP would vest, subject to the retaining any fees earned. committee considering the extent that any performance conditions attached to the relevant awards have Service contracts and policy on payment for loss of office 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 Provision Policy and operation of a change of control. Notice period 12 months’ notice by either the director or the Company. Contracts are available for inspection at the Non-executive Appointment is for three years unless terminated by either party on six months’ notice. Continuation Company’s offices. Contracts and service agreements are not reissued when base salaries or fees directors – contractual of appointment depends on performance and re-election. Non-executive directors typically serve two are changed. termination payments or three three-year terms. Non-compete During employment and for 12 months thereafter. 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 Executive directors – Resignation for election or re-election in compliance with the UK Corporate Governance Code. Where an individual contractual No payments on departure, even if, by mutual agreement, the notice period is cut short. termination payments does not stand for re-election, they are not paid in lieu of notice. Departure not in the case of resignation Service contracts allow for the Company to terminate employment by paying the director in lieu of * Good leavers are those leaving because of ill health/injury/disability/death, redundancy, retirement or because their employing company is being transferred outside some or all of their notice period. The Company may determine that such a payment is made in monthly the group or for any other reason determined by the committee. 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 Good leaver* support 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 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 95
Remuneration report
Executive directors’ reward potential