Annual Report and Accounts 2016 WorldReginfo - 454bddc2-114c-4ea3-ad78-b27b6e198a4b FINANCIAL HEADLINES Group revenue Adjusted profit before tax** Dividends per share Operating profit £13.4bn £1,071m 36.75p £1,103m Actual: +5% Constant currency: +4% Up 5% Up 5% Up 18% Adjusted operating profit* Adjusted earnings Gross investment Profit before tax £1,118m per share** £1bn £1,042m Actual: +3% Constant currency: +3% 106.2p Up 47% Up 5% Net debt Basic earnings per share £315m 103.4p Up 55% Associated British Foods is a diversified international food, ingredients and retail group with sales of £13.4bn, 130,000 employees and operations in 50 countries across Europe, southern Africa, the Americas, Asia and Australia. REVIEW OF THE YEAR ONLINE: STRATEGIC REPORT GOVERNANCE www.abf.co.uk/ar2016 IFC Financial headlines 54 Board of directors 1 Our year in review 56 Corporate governance 2 Our businesses at a glance 69 Remuneration report 4 Chairman’s statement 88 Directors’ report 6 Chief Executive’s statement 91 Statement of directors’ responsibilities 8 Group business model and strategy 92 Independent auditor’s report 10 Business strategies 12 Operating review FINANCIAL STATEMENTS 12 Grocery 20 Sugar 98 Consolidated income statement 26 Agriculture 99 Consolidated statement of 32 Ingredients comprehensive income 36 Retail 100 Consolidated balance sheet 42 Financial review 101 Consolidated cash flow statement 44 Corporate responsibility 102 Consolidated statement of changes 48 Principal risks and uncertainties in equity 103 Significant accounting policies 108 Accounting estimates and judgements 109 Notes forming part of the financial statements 149 Company financial statements IBC Progress report IBC Company directory * 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 sale and closure of businesses and exceptional items. WorldReginfo - 454bddc2-114c-4ea3-ad78-b27b6e198a4b 1 Strategic reportStrategic 2016 OUR YEAR IN REVIEW A year of progress for all of our businesses with a substantial expansion in Primark’s selling space, increased margins in all of our food businesses and fundamental structural changes at AB Sugar. 12 GROCERY 32 INGREDIENTS 20 SUGAR 36 RETAIL 26 AGRICULTURE Front cover image: Sugar cane Above: Dorset Cereals Associated British Foods plc Annual Report and Accounts 2016 WorldReginfo - 454bddc2-114c-4ea3-ad78-b27b6e198a4b 2 OUR BUSINESSES Revenue Revenue AT A GLANCE £3,274m 2015: £3,177m £1,798m 2015: £1,818m Adjusted operating profit Adjusted operating profit £304m 2015: £285m £34m 2015: £33m Adjusted operating profit margin Adjusted operating profit margin 9.3% 2015: 9.0% 1.9% 2015: 1.8% Return on average capital employed Return on average capital employed 24.2% 2015: 22.5% 2.1% 2015: 1.9% A DIVERSIFIED GROCERY SUGAR BUSINESS The group operates through five strategic business segments Operating review, Grocery 12 Operating review, Sugar 20 International Europe Image: Central Madrid – Celebrating 10 years in Spain Twinings and Ovaltine are our Our UK beet sugar factories typically Operating review, Retail 36 global hot beverage brands. produce well over one million tonnes of sugar annually. Azucarera in Spain Europe produces over 400,000 tonnes Silver Spoon and Billington’s sugars, of beet sugar each year and has a Jordans and Dorset cereals, Ryvita, cane refining capacity of a further Kingsmill, Patak’s and Blue Dragon. 400,000 tonnes. The Americas China In the US, Mazola is the leader in We operate two beet sugar factories corn oil and we sell a range of baking in the north east of the country, with brands through retail and food service annual sugar production capacity channels. Capullo is a premium of over 160,000 tonnes. canola oil in Mexico. Southern Africa Australia Illovo is Africa’s largest sugar Ham, bacon and smallgoods under producer with agricultural and Don and KRC brands. Tip Top Bakeries production facilities in six countries. produce a range of well-known Typical annual sugar production is breads and baked goods. 1.7 million tonnes. Associated British Foods plc Annual Report and Accounts 2016 WorldReginfo - 454bddc2-114c-4ea3-ad78-b27b6e198a4b 3 Revenue Revenue Revenue reportStrategic £1,084m 2015: £1,211m £1,294m 2015: £1,247m £5,949m 2015: £5,347m Adjusted operating profit Adjusted operating profit Adjusted operating profit £58m 2015: £60m £93m 2015: £76m £689m 2015: £673m Adjusted operating profit margin Adjusted operating profit margin Adjusted operating profit margin 5.4% 2015: 5.0% 7.2% 2015: 6.1% 11.6% 2015: 12.6% Return on average capital employed Return on average capital employed Return on average capital employed 17.7% 2015: 19.2% 13.1% 2015: 11.1% 30.2% 2015: 31.1% AGRICULTURE INGREDIENTS RETAIL Operating review, Agriculture 26 Operating review, Ingredients 32 Operating review, Retail 36 AB Agri operates at the heart of Yeast and bakery ingredients Primark the agricultural industry. Its unique AB Mauri operates globally in yeast Primark is a major retail group breadth and experience enable it and bakery ingredients production employing 68,000 people. to add value all along the food, drink with 49 plants in 26 countries It operates stores in the UK, and biofuel industry supply chains. supplying plant and artisanal bakers Republic of Ireland, Spain, Portugal, and the foodservice and wholesale Germany, the Netherlands, Belgium, AB Agri supplies products and channels. It is a technology leader in Austria, France, Italy and the US. services to farmers, feed and food bread improvers, dough conditioners manufacturers, processors and and bakery mixes. It offers customers quality, retailers. It also buys grain from up-to-the-minute fashion at farmers and supplies crop inputs Speciality ingredients value-for-money prices. through its joint venture arable ABF Ingredients focuses on operation, Frontier Agriculture. high-value ingredients for food and Buying and merchandising teams non-food applications. It manufactures in Dublin (Republic of Ireland) and The business employs more than and markets enzymes, lipids, yeast Reading (UK) travel internationally 2,300 people in the UK and China extracts and cereal specialities to source and buy fashion items and market products in more than worldwide with manufacturing that best reflect each season’s 65 countries worldwide. facilities in Europe and the US. key fashion trends. Primark’s range includes womenswear, lingerie, childrenswear, menswear, footwear, accessories, hosiery and homeware. Associated British Foods plc Annual Report and Accounts 2016 WorldReginfo - 454bddc2-114c-4ea3-ad78-b27b6e198a4b 4 CHAIRMAN’S STATEMENT CHARLES SINCLAIR, CHAIRMAN a low-cost producer. Moving to full ownership of Illovo, at a time when increasing populations and rising incomes are driving growth in the African sugar market, is expected to accelerate its performance improvement and commercial development. We have also announced the sale of our south China cane sugar operations with completion expected later in this calendar year. We first entered the Chinese sugar market in 1995 and since then have substantially improved agricultural productivity, factory extraction and sugar yields. However, further improvements are likely to be driven by industry consolidation and we believe that other parties are better placed to take the business forward. Our beet sugar business in north east China is at an earlier stage in its development and we believe we are well positioned to take advantage of the opportunities this presents. Cost reduction was a driver of the continued recovery of the yeast and bakery ingredients business which was the major contributor to the 22% growth in adjusted operating profit from Ingredients this year. Grocery and Agriculture both achieved further margin improvement despite the challenges for revenue growth presented by commodity price deflation. Since the year end we have announced the sale of ACH’s herbs and spices This has been a year of progress for One of our group’s great virtues is business in North America with the group with revenues 5% higher the way that it embraces change so completion expected shortly. Whilst than last year, adjusted operating positively and this year has provided this has been a good investment over profit ahead by 3% and earnings plenty of opportunity for our businesses the years, it is a complex operation which per share up by 5% to 106.2p. Gross to demonstrate this. Whether responding occupies a niche position in its market investment was significant this year to challenging financial markets; and we believe its further development at just over £1bn which included integrating acquired businesses; disposing will best be achieved through consolidation capital expenditure increases both of businesses; dealing with the effects with another party. for Primark and the food businesses of unusual weather on our supply chains and the £247m consideration to or retail demand; advancing technology Primark’s development continued acquire the minority shareholdings or changing legislation, our people apace with a further 1.2 million sq ft in Illovo Sugar Limited. This was have responded with enthusiasm. of selling space opened during the year. funded by another strong cash flow Ten years ago Primark opened its first and was the fifth consecutive year of The sugar industry has seen much store in Spain – the first time that it operating