9th Dec 2005 11:09
Associated British Foods PLC09 December 2005 CHAIRMAN'S ADDRESS TO AGM - 9th December 2005 Good Morning Ladies and Gentlemen. It is good to see so many of you here.Could I please ask you to switch off your mobile phones. It is now just past eleven o'clock and I would like to welcome you to theseventieth Annual General Meeting of our company, Associated British Foods. Iam Martin Adamson, the Chairman of the company, and I am joined on the platformby other Directors and the Company Secretary, Paul Lister. Galen Weston hasasked me to apologise for his absence on this occasion. There is a quorum present and we can formally open this meeting. You may wishto follow the proceedings by referring to the Notice of Meeting which you willfind this year on page 80 of the Annual Report and Accounts. In view of the length of the Notice of Meeting I will, with your permission,take it as read. Before we proceed to the formal business of the meeting there are a few issues Iwould like to cover. The individual resolutions will be put to you after thiswhen there will be the opportunity to ask questions. You received the annual report and accounts some weeks ago. They contain agreat deal of information and to avoid testing your patience I will confine mycomments now to a few important matters. First of all, the trading results were good. Adjusted operating profit rose by18% and adjusted earnings per share by 14%. Dividends for the year will show anincrease of 10%, the fourth successive year of double digit increase individends. All of this has been against a background of very competitivemarkets for most of our businesses. The annual report includes extensive comments on the trading results ofindividual businesses and there is no need for me to repeat that. However, Iwon't let this opportunity pass of remarking on the really excellent trading byPrimark. Sales growth has been strong where that of many competitors has beenweak or negative. Profits grew by 30%. This was achieved in a tradingenvironment which was tough, even by the standards of UK clothing retailing. I am sure you all know about the shocking fire at Primark's main UK warehouse onthe evening of 1st November. The premises, which were owned by a third party,and our stock were a complete 'write off'. Our insurance covers the stock andalso the effect of business interruption. More importantly, Primark'smanagement took immediate action to deal with this crisis; another warehouse wasmade available and incoming stock flowed to all stores with little interruption.Sourcing of alternative goods for those destroyed has proceeded as quickly aspracticable, helped by the use for a period of a large cargo plane to speedgoods from Asia. Primark has continued to trade well. The good growth in the group's trading results was accompanied by a major levelof investment. £1.5bn was spent on renewing plant and machinery, expandingcapacity and buying new businesses. Normal renewal investment in productiveassets absorbed £182m. We invested £628m in acquiring new space for Primark andfitting it out. £733m was spent on acquiring new businesses, of which the majorpart was on the yeast and bakery ingredients business now trading as AB Mauri.There were also several other smaller businesses which add to the range andcapacity of our food manufacturing operations. This heavy investment reflects our long-term strategy, discussed when we met ayear ago, of devoting much of our resources to expanding our non-sugar interestsby developing current businesses and adding new ones which complement ourexisting operations and skills. The investment I have referred to has been bothin the UK, some £700m, much of it to expand Primark, and abroad another £850mwith AB Mauri accounting for the major part. You will recognise from what I have been saying that your Board retains itslong-term commitment to grow our businesses. At the risk of repetition, I willemphasise that when we invest in existing operations and add new ones it is inthe expectation that we will be there, in a leading position, in the long term. A very good example of this long-term commitment is Twinings which most of youwill know celebrates its 300th anniversary next year. ABF acquired the businessin 1964. The founder, Thomas Twining, would not recognise the commercial worldof today nor the far flung operations which make up Twinings nine generationslater. However, he would I guess recognise much of the product, the range tosuit different tastes and above all the commitment to quality. Twinings, together with Ovaltine, forms the core of ABF's hot beverages businesswhich now is sold in more than 90 countries. Ovaltine, or as it is known inmany of its markets, 'Ovomaltine', by coincidence has just celebrated itscentenary. It was originally developed in Switzerland as a tonic formalnourished children but has spawned many other products in its variousmarkets. There are other brands in our hot beverages business with strong regionalpresence. Less than 25% of this business is now in the UK. Very much thelargest part is spread across the world with Asia a particular area of growth. I am glad to say that our hot beverages business has been trading very well andgrowing both the main brands and the various sub brands and extensions that havebeen developed. Just one example which you may recognise, if only from theadvertising involving Stephen Fry, is the recently launched 'Twinings EverydayTea'. It is pleasing that it has been performing well up to expectations. There is one other thing which Thomas Twining would recognise in a much changedworld. That is the famous shop at 216 Strand in London, not far from here. Itis the site of his original tea shop and is the oldest commercial premises incontinuous trading in the city. Those of you who head south from here shouldtake a very slight detour to visit it. ABF is now widely spread around the world, operating in a variety of businesses.There will always be challenges for our people to face. As I speak to youtoday, the first is the proposed reform of the EU sugar regime. On 24thNovember agreement was reached in Brussels by The Council of Ministers for thereform of the regime. This agreement follows revisions to the proposalspublished by the European Commission in June 2005. The agreement has yet to beratified by the European Parliament. The ABF businesses affected by theseproposals are the sugar operations of British Sugar in the UK and Poland. The thrust of the proposals will be to reduce productive capacity in the EU,eliminate subsidised exports and reduce support prices. The nature of theseproposals is welcomed by British Sugar as one of the most efficient producers inthe EU. We envisage a continuing successful role for British Sugar which willbe supported with investment, where appropriate, as it adapts to the newenvironment. Our best estimate of the longer term operating impact on our sugar operations,which results from the agreement, is based on the assumptions made by theEuropean Commission. The outcome is expected to be slightly better at the endof the period of transition than the £40m reduction in profit which we estimatedin June 2005 in response to the Commission's first proposals. The recent rise in gas prices is an important issue for ABF as it is for much ofBritish industry. The market for gas has simply failed to operate in the wayintended. For example, last week, despite sharply higher prices, the main gaspipeline from Europe operated at substantially below capacity and stocksconsequently reduced further. If supplies to industry failed this would haveserious consequences for industry and customers alike. Another major development will be the roll out of new stores by Primark over thenext 15 months. Recent new store openings have been successful and 46 furtherstores will be opened mainly those acquired when we bought Littlewoods.Together with store extensions 1.5 million square feet of trading space will beadded to give 4 million square feet against 2.3 million just over a year ago.The plans for this programme are well developed. I have every confidence thatthey will be successfully implemented and that Primark will be trading stronglyfrom a much expanded base. Plans for these two major businesses will not affect our commitment to buildingour other businesses further. Following the major investment of the past year,ABF is still cash positive and has the financial strength to support furthergrowth in our operations. Let me comment now on the immediate outlook. I said earlier that Primark has continued to trade well even after the fire.There was swift and effective action by Primark's management which helpedmitigate the disruptive effect of an event of this magnitude. Trading in the current year for British Sugar UK and Poland has been difficultand we expect volatility to continue during the transition to the new EU regime.We continue to work on cost reductions in both the UK and Poland and theexploitation of new revenue opportunities including the manufacture ofbioethanol in the UK. I would remind shareholders of my comments in the annual report about the impacton profits of the roll out of new Primark stores converted from Littlewoods.This will occur progressively from Spring 2006 until early 2007 and returns willbuild gradually. The reduction in net investment income will result inrelatively modest growth in earnings for the current year and the benefit of theinvestment will begin to be realised from the second half of the year andbeyond. Overall, trading in the early part of the current year has been a little aheadof the previous year which saw a good opening. Competition in all our marketsis strong and the current trend in energy prices is a particular concern. Weexpect to deliver further progress as the year develops. END For further information, please contact; Associated British Foods John Bason, Finance Director Tel: 020 7399 6500 Geoff Lancaster, Head of External Affairs Tel: 07860 562 659 Citigate Dewe Rogerson Jonathan Clare/Chris Barrie/Sara Batchelor Tel: 020 7638 9571 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
AB Foods