ANNUAL REPORT AND ACCOUNTS 2013 Associated British Foods plc Annual Report and Accounts 2013 CONTENTS Directors’ report Business review 1 2013 highlights 2 Group business model and strategy 4 Our businesses at a glance 6 Business strategies 8 Chairman’s statement 20 Operating review 36 Financial review Governance 40 Corporate responsibility 44 Board of directors 46 Corporate governance 62 Remuneration report 76 Other disclosures 80 Statement of directors’ responsibilities in respect of the annual report and the financial statements 81 Independent auditors’ report Financial statements 82 Consolidated income statement 83 Consolidated statement of comprehensive income 84 Consolidated balance sheet Our PLC website is available on multiple platforms from mobile devices to laptops. For a more interactive report, 85 Consolidated cash flow statement go online at abf.co.uk/ar2013 86 Consolidated statement of changes in equity For an in-depth look at our sustainable approach to 87 Significant accounting policies business refer to the Associated British Foods’ Corporate 92 Accounting estimates and judgements Responsibility Report 2013 which is available at 93 Notes forming part of the financial abf.co.uk/responsibility statements 127 Company financial statements 132 Progress report Shareholder information 132 Company directory 2013 HIGHLIGHTS 1 Associated British Foods • Another year of strong growth and Directors’ report | Business review | is a diversified international cash generation food, ingredients and • Remarkable performance by Primark retail group with sales • Grocery much improved of £13.3bn, and 113,000 employees in 47 countries. • Record profit for Agriculture • AB Sugar in line with expectations highlights 2013 • China Sugar and Ingredients rationalisation Group revenue Adjusted operating profit* £13.3bn £1,185m Up 9% Up 10% Adjusted profit before tax** Adjusted earnings per share** £1,096m 98.9p Up 13% Up 13% Dividends per share Net capital investment 32.0p £600m Up 12% Net debt reduced to Operating profit £804m £1,093m Up 25% Profit before tax Basic earnings per share £876m 74.8p Up 15% Up 6% * Before amortisation of non-operating intangibles, profits less losses on disposal of non-current assets and exceptional items. ** Before amortisation of non-operating intangibles, profits less losses on disposal of non-current assets, profits less losses on the sale and closure of businesses and exceptional items. All adjustments to profit measures are shown on the face of the consolidated income statement. Associated British Foods Annual Report and Accounts 2013 2 GROUP BUSINESS MODEL AND STRATEGY Directors’ report | Business review | Associated British Foods is a diversified group of food, ingredients and retail businesses selling into more than 100 countries worldwide and with operations in 47 countries across Europe, southern Africa, the Americas, Asia and Australia. Group business model and strategy Our range of activities is broad in product, technology and market scope. Our portfolio of businesses comprises sizeable operations that achieve good revenue and profit Business structure growth; mature, cash-generative operations; and smaller enterprises that afford exciting growth potential. Our businesses are organised In our markets, we aim to achieve strong and sustainable so that they are close to the positions through a combination of organic growth, acquisition of complementary new businesses and achievement of high markets and customers that levels of operating efficiency. We provide high-quality, they serve. value-for-money food and clothing that are central to people’s lives. They are managed as five business segments that bring together common industry expertise, operational capability and market intelligence. Operational decisions are made locally because, in our experience, they are most successful when made by the people who have the best 10 year adjusted earnings per share growth (pence) understanding of their markets and who have to implement them. The corporate centre aims to provide a framework 100 in which our business leaders have the freedom and decision-making authority to pursue opportunities with 80 entrepreneurial flair. The centre is small and uses short lines of communication to ensure prompt, incisive and unambiguous decision-making. It seeks to ensure that 60 business activities are appropriately monitored 9% and supported. 40 compound annual growth 20 0 0403 05 06 07 08 09 10 11 12 13 Associated British Foods Annual Report and Accounts 2013 3 BUSINESS STRATEGIES IN MORE DETAIL Directors’ report | Business review | The group operates through five strategic business segments: Sugar, Agriculture, Retail, Grocery and Ingredients. For more strategic content on our five businesses, go to page 6 Group business model and strategy Strategy Organic growth The corporate centre agrees Organic growth is achieved strategy and budgets with through investment in the businesses and monitors marketing, in the development their performance closely. of existing and new products The group balance sheet is managed to ensure long-term and technologies and in financial stability, regardless of the state of capital markets, and capital funding is made available to all of our businesses targeted capital expenditure where returns meet or exceed clearly defined criteria. The to improve efficiency and centre provides selected services where the scale of its operations enables a more cost-effective or efficient delivery, expand capacity. where expertise that might not be available at a business level can be retained by the group, or where the provision of We are committed to innovation, the continuous pursuit such services would otherwise distract business executives. of improvement and the maintenance of our efficient Such services include investor relations, pensions, insurance, manufacturing capability. tax and treasury management, where specialist expertise is We aim to operate in a sustainable, ethical, efficient and safe brought together in one place for the benefit of the group as manner. We have a strong culture of continuing operational a whole. The centre also co-ordinates selected value-added improvement and focus on delivering exceptional quality and capabilities to support the businesses in their local markets customer service. The group takes a long-term approach to such as talent management and development, procurement, investment and is committed to increasing shareholder value and the sharing of best practice in, for example, health and through sound commercial, responsible and sustainable business safety or engineering risk management. We operate to high decisions that deliver steady growth in earnings and dividends. ethical standards as an organisation and expect the same of our employees. We encourage an open and honest culture Acquisitions are made to complement existing business in all our dealings and ensure that our core values are fully activities and to exploit opportunities in adjacent markets implemented throughout the group. or geographies. Associated British Foods Annual Report and Accounts 2013 4 OUR BUSINESSES AT A GLANCE Directors’ report | Business review | Our businesses at a glance The group operates through five strategic Sugar Agriculture business segments: Revenue Revenue Sugar, Agriculture, £2,677m 2012: £2,666m £1,410m 2012: £1,265m Retail, Grocery and Ingredients. Adjusted operating profit Adjusted operating profit £435m 2012: £510m £47m 2012: £40m Adjusted operating profit margin Adjusted operating profit margin 16.2% 2012: 19.1% 3.3% 2012: 3.2% Return on average capital employed Return on average capital employed 23.4% 2012: 26.5% 16.4% 2012: 16.5% Sugar, Europe AB Agri operates at the heart of the Our UK beet sugar factories produce agricultural industry with activities that over one million tonnes of sugar annually. stretch from field to fork. Its unique Azucarera in Spain produces over breadth and experience enable it to add 400,000 tonnes of beet sugar each year value all along the food, drink and biofuel and has a cane refining capacity of a industry supply chains. further 400,000 tonnes. AB Agri supplies products and services Sugar, China to farmers, feed and food manufacturers, We operate five cane sugar mills in processors and retailers. It also buys Guangxi Province and four beet sugar grain from farmers and supplies crop factories in the north east of the country. inputs through its joint venture arable Continuous investment has raised annual operation, Frontier Agriculture. sugar capacity to over 900,000 tonnes. We employ over 2,000 people in the Sugar, Southern Africa UK and China and market products in Illovo is Africa’s largest sugar producer more than 65 countries worldwide. with agricultural and production facilities in six countries. Annual sugar production is 1.8 million tonnes. For more content on Sugar’s operations, For more content on Agriculture’s operations, go to page 22 go to page 25 Associated British Foods Annual Report and Accounts 2013 5 Directors’ report | Business review | Our businesses at a glance Retail Grocery Ingredients Revenue Revenue Revenue £4,273m 2012: £3,503m £3,840m 2012: £3,726m £1,088m 2012: £1,067m Adjusted operating profit Adjusted operating profit Adjusted operating profit £514m 2012: £356m £232m 2012: £187m £1m 2012: £27m Adjusted operating profit margin Adjusted operating profit margin Adjusted operating profit margin 12.0% 2012: 10.2% 6.0% 2012: 5.0% 0.1% 2012: 2.5% Return on average capital employed Return on average capital