6th Nov 2007 07:00
Associated British Foods PLC06 November 2007 6 November 2007 Associated British Foods plc preliminary results for year ended 15 September 2007 Recent major investment drives strong revenue and profit growth Financial Highlights • Group revenue up 13% to £6.8bn • Adjusted operating profit up 11% to £622m* • Adjusted profit before tax up 10% to £613m ** • Adjusted earnings per share up 4% to 52.9p** • Dividends per share up 4% to 19.5p • Net investment in capital expenditure and acquisitions of £489m • Net debt of £311m • Operating profit up 28% to £556m, profit before tax up 21% to £508m and basic earnings per share up 23% to 46.7p. George Weston, Chief Executive of Associated British Foods, said: "This year's strong growth in revenue and operating profit reflects the recentmajor investment made by the group in capital expenditure and acquisitions. Thescale and range of our sugar activities are being transformed and Primark is nowthe second largest clothing retailer in the UK by volume. Our grocery businesswas strengthened with the acquisition of Patak's, and Agriculture andIngredients performed well. I am very encouraged that the considerable progressmade places us well for growth in the future." * before amortisation of non-operating intangibles, profits less losses on the sale of PP&E and exceptional items. ** before amortisation of non-operating intangibles, profits less losses on sale of PP&E, profits less losses on the sale and closure of businesses and exceptional items. Adjusted earnings per share reflect much higher minority interests following the acquisition of Illovo. All figures stated after amortisation of non-operating intangibles, profits less losses on the sale of PP&E and losses on the sale and closure of businesses are shown on the face of the consolidated income statement. For further information please contact: Associated British Foods:Until 1500 onlyGeorge Weston, Chief Executive Geoff Lancaster, Head of External AffairsJohn Bason, Finance Director Mobile: 07860 562 659Tel: 020 7638 9571 Jonathan Clare/Chris Barrie/Hannah Seward, Citigate Dewe RogersonTel: 020 7638 9571After 1500John Bason, Finance DirectorTel: 020 7399 6500 Notes to Editors 1. Associated British Foods is a diversified international food, ingredients and retail group with sales of £6.8billion and 85,000 employees in 43 countries. It has significant businesses outside Europe in southern Africa, the US, China and Australia. Its aim is to achieve strong, sustainable leadership positions in markets that offer potential for profitable growth. We look to achieve this through a combination of growth of existing businesses, acquisition of complementary new businesses and achievement of high levels of operating efficiency. The group has established a track record of successful value adding acquisitions including a 51% stake in Illovo Sugar, Africa's biggest cane sugar producer with extensive agricultural and manufacturing operations in six African countries, AB Mauri (its leading international yeast and bakery ingredients business), Littlewoods stores for Primark and the grocery brands Mazola, Ovaltine and Patak's. 2. The group has strong positions in the markets in which it operates: Sugar ABF is the second largest sugar producer in the world with some two thirds of volume originating from outside the regulated EU market and with limited exposure to the cyclical world sugar price. British Sugar is Europe's most efficient producer, is the sole processor of the UK sugar beet crop and has a strong position in Poland. It has a successful cane sugar business in southern China and is investing in the beet sugar industry in the north east. Illovo is the largest sugar producer in Africa and is one of the world's leading low cost producers. Retail Primark is a major value clothing retail group, employs over 22,500 people and operates 170 stores in the UK, Ireland and Spain. Primark is the UK's second largest clothing retailer by volume (TNS). Grocery The international hot beverages business comprises Twinings, the world's leader in speciality teas and infusions, and Ovaltine, a leading brand of nutritional, malt-based beverages which, from its foundation in western Europe, has built a significant business in emerging markets, particularly Asia. George Weston Foods is Australia's second largest grocery company and ACH has the leading corn oil brand, Mazola, in the US and the premium brand, Capullo, in Mexico. The combination of the UK's leading, authentic Indian cuisine brand, Patak's, with our pan-oriental foods brand, Blue Dragon, has created a retail 'world foods' business. This is augmented by Westmill Foods' leading presence in the supply of ethnic foods to the ethnic wholesale channel. In the growing 'better for you' category, Ryvita is synonymous with healthy eating and is now developing a strong position in the healthy snacking area. Allied Bakeries is a leading UK bread supplier with famous brands such as Kingsmill, Burgen, Allinson and Sunblest. Ingredients AB Mauri has a global presence in bakers' yeast with significant market positions in the Americas, Europe and Asia and is a technology leader in bakery ingredients. It operates from 50 plants in 28 countries. ABF Ingredients comprises businesses operating in speciality proteins, enzymes, and yeast extracts. 3. We continue to invest strongly in the future growth of the group. The net expenditure in the year of £489m includes an acquisition spend of £150m, primarily on Patak's and a 20% interest in Jordans, £175m on the acquisition and fit out of new stores for Primark and £252m spent in the existing businesses. £88m proceeds were received from the sale of businesses and fixed assets. CHAIRMAN'S STATEMENT The group has made good progress in the past year and these results reflect thebenefit of recent major investment. They include a contribution from our 51%investment in Illovo Sugar for the first time, and reflect the rapid roll-out ofnew Primark stores largely driven by the conversion of the former Littlewoodsstores. These results have been achieved in the face of a weak US dollar andextremely sharp cost increases in some key commodities. Revenue was 13% ahead at £6.8bn. Adjusted operating profit increased by 11% andadjusted profit before tax by 10%. Adjusted earnings per share, which reflectmuch higher minority interests, rose by 4% to 52.9p. Our sugar activities have been transformed and now extend across nine countriesin three continents. Further investment has been authorised to upgrade andextend our facilities. In Europe we have improved processing efficiencypositioning the business to meet the challenges of the revised EU sugar regime.In southern Africa we are excited by the development potential of Illovo and newinvestment is being made to increase capacity and extend the range of itsoperations. In China additions have been made to our cane sugar capacity in thesouth and we are investing for the first time in the beet sugar industry in thenorth east. We are committed to developing our EU sales by harnessing the quotaand tariff free trading available from 2009/10 to the Least Developed Countries.Illovo processes cane sugar in four of these countries. Profit from our sugar business benefited from Illovo's contribution whichexceeded our expectations. The acquisition was earnings enhancing in its firstyear. While profit pressure from sugar regime reform continued in Europe, anexcellent result was achieved in China. At the beginning of this year it became clear that the voluntary renunciation ofsugar quota was going to fall substantially short of the target set by theEuropean Commission to achieve market balance. Extended discussions within theindustry and with the EU Commission demonstrated a welcome willingness to getthe reform back on course and reduce the transitory turbulence associated withthe initial reforms. Short-term measures, including an extended exportprogramme and a temporary quota cut, were introduced to stabilise the market in2007/8. More importantly for the long term, in September the Agriculture Council agreeda series of adaptation proposals which offered incentives to growers andprocessors to opt for permanent renunciation of quota from the 2008/9 marketingyear. We anticipate that a significant level of renunciation will now takeplace as a result of these changes, in addition to the 2.2m tonnes alreadysurrendered. There have been major developments by British Sugar in the emerging biofuelmarket. It has commissioned the UK's first bioethanol plant at Wissington,which uses sugar beet as feedstock. In June 2007 we announced a major new jointventure with BP and DuPont to build a world-scale plant in the UK and the designphase is on schedule. We will continue to monitor developments in biofuels toidentify opportunities where use of the group's capabilities would offersatisfactory long-term returns. Primark grew rapidly during the year with a 37% increase in retail selling spacesince last year end. The last Littlewoods store has been refitted and opened inBrighton in October. Significant new openings during the year were OxfordStreet in London in April, and Liverpool in September, both of which have tradedstrongly. Expansion at this year's rate was a major challenge for Primark's management.Many new staff were recruited and trained, a new central UK warehouse wasbrought into operation while the impact of trading in the new stores on someexisting stores was absorbed. In this context, and with summer trading affectedby unusually wet weather, like-for-like sales growth of 1% was encouraging.Overall sales grew by 37% and profit by 20%. The most recent UK market datashows Primark is now the second largest clothing retailer in the UK by volumeand the largest in the important value sector. This demonstrates the strengthof Primark in the UK high street. It is also very encouraging that performanceat Penneys in Ireland has been excellent. We are pursuing further opportunities to expand selling space in our establishedmarkets in the UK and Ireland, but this is likely to be at a less rapid ratethan in the last two years. We expect to build on our encouraging start inSpain. The Grocery businesses have also been strengthened, particularly by theacquisition of Patak's. The combination of this authentic Indian food brandwith Blue Dragon will greatly strengthen our position in the growth orientatedworld foods market. In addition we have increased our presence in 'better foryou' foods with the acquisition of a 20% stake in Jordans. Good progress was made in many of our Grocery businesses. It was particularlysatisfying to see the major improvement in the Australian bakery business drivenby the good performance from our new bakery in Sydney. However, Allied Bakeriesin the UK performed poorly, although there was significant improvement in thesecond half of the year following the relaunch of the Kingsmill brand. Net capital expenditure on existing businesses and on acquisitions lessdisposals totalled £489m and represents further major investment in the group.This included expansionary capital of some £200m to extend capacity at ourplants and on new Primark stores. It also included the acquisition of ourinterests in Patak's and Jordans. Despite this level of investment the group'scontinuing strong cash flow limited the increase in net borrowings to £13m,rising from £298m last year to £311m. The group remains very well placed toback the growth of our businesses by further investment based on its strongbalance sheet and cash flow. Board changes In my half year statement I reported that Jeff Harris had retired from the Boardon 18 April. Peter Smith was appointed to the Board on 28 February and hassucceeded Jeff as chairman of the Audit committee. Lord MacGregor has advised that he will retire from the Board at the end of theannual general meeting on 7 December. He was appointed a director in 1994 asone of two independent non-executive directors and later became seniorindependent director in 2003. Based on his wide experience of government andbusiness, John has combined shrewd advice with the ability to challengeconstructively. His contribution has been immense and will be greatly missed. Mike Alexander has also indicated that he will not seek reappointment at theannual general meeting after nearly six years as a director. Mike's quick,clear thinking and wide operational experience have been of great value to theBoard over a period of major development for the group. Employees 85,000 people now work in the group and it is their efforts that have made theseresults possible. The tremendous range of their talent is a prime strength ofthe group. I would like to thank all our employees for their efforts in thepast year, often in demanding conditions. In many of the diverse communitieswhere we operate, our companies are a focus for local services. For example, inAfrica healthcare issues are vital and Illovo has addressed this with firstclass programmes tailored to the country of operation. The group is committedto supporting these services where appropriate and to helping the development ofall employees' skills. Dividends A final dividend of 13p is proposed to be paid on 11 January 2008 toshareholders on the register on 7 December 2007. Together with the interimdividend of 6.5p paid on 2 July 2007, this will make a total of 19.5p, anincrease of 4%. Outlook The continued development of the group's businesses and the associatedinvestment will result in further progress in 2008. Although reform of the EUsugar regime will have a further large negative effect on profit for the comingyear, we expect the shape of the regime to be resolved finally after a longperiod of uncertainty. High commodity costs will continue to put pressure onmargins but we are seeing some success in recovery through prices. As the groupbenefits from the realisation of recent major capital investment andrationalisation it is well positioned for longer term growth. Martin AdamsonChairman OPERATING REVIEW The last seven years have seen a considerable change in the shape and scale ofthe group. Revenue and operating profit have both grown by more than 50%. In2000 the group was dominated by the profit contribution from our UK sugaroperation. Today Sugar and Agriculture account for one third of the group andits composition has changed with a concentration on the growth markets of Chinaand Africa. Primark has increased four fold and is now nearly one third of thegroup's profit. Geographically the UK now accounts for only 41% of profit,there is a good balance in the scale of our businesses in the Americas, AsiaPacific, Europe and Africa and we have a significant and growing presence inemerging markets. 2007 was another year of substantial growth with revenue ahead by 13% to £6.8bnand adjusted operating profit 11% higher at £622m. These sizeable increases arelargely a function of the Illovo acquisition and a 37% increase in Primark'sretail selling space but also include good performances from a number of theGrocery businesses and Agriculture. The UK bakery business underperformed theprevious year but following the relaunch of Kingsmill in February, it madeprogress in increasing bread volumes and improving operating efficiency.Ingredients suffered from the weakness of the US dollar in translating itsresults into sterling but made good progress in local currencies. Each of our businesses has continued to evolve and there have been a number oflandmarks this year which have contributed to a transformation of the group.The Chairman has already referred to the development of our sugar business andindeed the significance of these changes is reflected in our re-naming of thebusiness segment from Primary Food to Sugar. The investment in Illovo gives usleadership in one of the world's fastest developing sugar markets, Africa, andwe have embarked on major expansion projects to enable us to maximise ouradvantageous position for export opportunities. We are also expanding our sugar business in the rapidly developing Chinesemarket. The investment in the beet sugar industry represents an opportunity touse our considerable technological expertise to make dramatic improvements inagricultural yields and process efficiencies. Our entry into the important area of renewable fuels has been marked by thestart of production at the UK's first bioethanol plant alongside our sugarfactory at Wissington. Renewables already play an important part in the group'soperations, representing nearly half of the fuel we consume running ourfactories. Our biofuels operation goes a step further offering to the market aviable and sustainable alternative to fossil derived transport fuels. In Grocery, the Patak's brand represents a particularly good fit with ourexisting businesses specialising in ethnic foods. This year was significant for Primark. Many records were broken during the yearand enormous customer and media interest continues to mark every opening of eachnew store. Oxford Street in London captured the national imagination butsimilarly successful openings featured throughout the UK, Ireland and also inour new market of Spain where we have demonstrated that good ideas travel. I am enormously encouraged that the considerable progress made over recent yearsplaces us well for growth in the future. SUGAR & AGRICULTURE Sugar 2007 2006 Revenue £m 1,151 671 Adjusted operating profit £m 199 115 This was a very significant year in the development of our international sugarbusiness. Revenue and profit were strongly ahead of last year driven by thefirst year contribution from Illovo, which exceeded our expectations, and asubstantial increase in profit from China. Our European sugar businesses alsoperformed well but profit was affected by the temporary quota cut and the netcost of the restructuring levy. We have taken a number of steps which have transformed this business. Weacquired Illovo Sugar, the largest producer in Africa, we announced a majorinvestment in the beet sugar industry in north China and we developed ourbiofuel business. The enlarged business is now the world's second largest sugarproducer with some two thirds of volume originating from outside the regulatedEU market and it has limited exposure to the cyclical world sugar price. We nowhave a strong presence in the growth markets of China and a number of southernAfrican countries and we have plans for significant capacity expansion here. Inaddition, the Illovo acquisition provides the opportunity to develop quota andtariff free exports to the EU as a result of four of the six countries in whichthey operate having Least Developed Country status. Based in the southern hemisphere, Illovo's operating season runs from April toMarch and so our financial results include the contribution from the second halfof Illovo's 2006/7 season and the first half of their 2007/8 season. Caneproduction in the 2006/7 season was in line with the previous year but sugarproduction was substantially below expectations at 1.7m tonnes, primarily due topoor weather conditions in South Africa and Tanzania. Factory performance wassatisfactory with record sugar production in Malawi and record output in anumber of downstream products. Revenue and profit benefited from higherdomestic sales, better regional and world prices and continued cost savings.The current season, 2007/8, is progressing well with own cane production broadlyin line with last year and sugar production forecast to increase to 1.9m tonnes.Factory performance has been broadly in line with plan. Growth in profit forthe 2007/8 season is anticipated. The development potential of Illovo was demonstrated by the announcement of amajor expansion of sugar and cane production in Zambia. We are investing £100mto increase, by 50%, the area of irrigated cane developed by Illovo and itsgrowers to increase factory capacity and to build the wider infrastructurenecessary to support a much larger operation. Sugar production is planned toincrease from 240,000 tonnes to 440,000 tonnes by the 2009/10 season. Projectsfor substantial further expansion are being developed. The recent investments in capacity in our four cane sugar factories in southChina enabled us to process a record crop this year. For a number of years,growth in sugar consumption has exceeded growth in domestic production leadingto a deficit in the Chinese market and firm sugar prices. The combination ofcrop and prices has driven a substantial increase in profit. In August we announced an investment in the Chinese beet sugar industry. Thisis centred in the north east where the provinces have abundant, high qualityarable land with ideal weather conditions to produce high sugar content in thebeet. Government approval has recently been given for the creation of a jointventure, to be called BoTian, with the Hebei Tian Lu Sugar Group. ABF holds 51%of the joint venture. BoTian will initially operate four beet sugar factoriesin the northern provinces of China but negotiations are well advanced for afurther five factories and more are being considered. A significant increase insugar production is planned. There is a major opportunity to improve beetyields by the application of British Sugar's European beet sugar expertisethrough better agricultural practices and technology transfer. In additionrefinery capacity will be increased through investment and efficiencyimprovements. The UK business benefited from a very efficient campaign, the additional quotaof 83,000 tonnes acquired and lower energy costs. However, as expected, thesefactors were offset by the further impact on profit of sugar regime reformarising from the temporary quota cut and the cost of the restructuring levywhich exceeded reduced beet costs. Sugar prices were more stable. Although theAllscott factory was closed at the end of the campaign, in light of the EuropeanCommission proposals announced in May 2007 to make further changes to the EUsugar regime reform, British Sugar decided to reconsider its plans for itsoperations in the UK, and specifically activities on the York site. As aconsequence, an application for restructuring will be made to the UK government. The future and extent of operations at the York site will be determined oncethis application for restructuring has been approved. The cost of closure ofboth factories was provided for in last year's accounts. In Poland profit waslevel with last year with the benefits of an excellent campaign, the additionalquota of 11,000 tonnes acquired and factory rationalisation offsetting theimpact of regime reform. The Glinojeck factory performed ahead of expectationsfollowing completion of its major expansion programme. Juice processing is nowfirmly established here. This process was pioneered in our UK factories,permitting out of season sugar refining, and is a major driver in improvingasset utilisation. The sugar produced was 1.16m tonnes in the UK and 0.21mtonnes in Poland. In recent months the European Commission has announced measures to redress theimbalance in supply and demand for sugar in the EU. For the current marketingyear, 2007/8, it announced a temporary quota withdrawal of 2.1m tonnes. It hasnow allowed exports of up to 1.4m tonnes of quota sugar and has allocated aproportion of the remaining sugar in intervention for non-food uses. Profit inour EU businesses is expected to be lower next year because of the substantialincrease in the restructuring levy, from €126 per tonne to €173, and thetemporary quota withdrawal of 193,000 tonnes mitigated in part by the reductionin beet costs. The adaptation package agreed in September by the European Commission primarilyoffers new incentives directly to growers to renounce quota permanently from the2008/9 marketing year onwards. Its aim is to encourage additional renunciationof at least 13.5% of the European quota in addition to the 2.2m tonnes alreadyrenounced, with relief from the restructuring levy in 2007/8 and the benefit ofcompensation for the processor. British Sugar plans to renounce quota in the UKand Poland from 2008/9 as a consequence of these measures. A quota reduction of13.5% would be 193,000 tonnes. The Wissington biofuel plant has been commissioned and is producing bioethanolfor blending with petroleum in the UK. The plant uses sugar beet as feedstockand has the capacity to deliver 70m litres a year. Vivergo Fuels, the jointventure with BP and DuPont in which ABF has a 45% interest, has now beenestablished and is working on the detailed design for a world-scale bioethanolplant which will use wheat as feedstock. It is expected to cost £200m and willbe built at BP's chemical site at Saltend, Hull. Its capacity will be 420mlitres of bioethanol per year and is planned to come on- stream in late 2009.ABF expects a return on its investment ahead of its cost of capital in the firstfull year of operation. The plant will initially produce bioethanol, but thepartners will look at the feasibility of converting it to biobutanol once thetechnology is available. It is expected that formal agreements will be enteredinto by the joint venture with AB Agri and Frontier Agriculture. The supply oflocally grown wheat would be arranged by Frontier which is the UK's leadinggrain marketer and supplier of agricultural inputs. The major co-product ofbioethanol production, distillers' grain, would be sold to AB Agri. It will useits highly specialised sales and marketing business, which sources and developsco-products from the food, drink and energy industries, to market thedistillers' grain as an alternative feed for livestock. Agriculture 2007 2006 Revenue £m 687 623Adjusted operating profit £m 18 15 AB Agri performed well and its strategy to focus on working with large-scalesuppliers and livestock producers is delivering new opportunities for growthalongside those created by its technology-based feed ingredients business. The UK delivered excellent results with full year benefits from restructuring,cost saving initiatives and firmer pricing. Frontier performed ahead ofexpectations and recent investment in systems, a low cost base and nationaltrading have strengthened the business. Following our decision to focus onco-products, our ruminant feed operations have benefited from the increasingdemand in the UK dairy sector. In pig and poultry, where our focus continues tobe on compound feeds, our strategy of building strong supply chain relationshipswith the key players in the industry has further strengthened our business. However, in China, margins were lower following substantial increases in thecost of raw materials, particularly for soy, and reduced pig and poultry numbersfollowing the outbreak of disease. Raw material costs remain high but priceincreases are being negotiated to recover these costs. A new feed mill wasbuilt in Harbin during the year bringing the total number of mills in China tosix at the year end. RETAIL 2007 2006PrimarkRevenue £m 1,602 1,168Adjusted operating profit £m 200 166 LittlewoodsRevenue £m - 141Adjusted operating profit £m - 19 Once again Primark's results were very strongly ahead of last year, revenue wasup 37% and profit up 20%. The revenue increase was driven by the opening ofsubstantially more retail selling space. Like-for-like sales growth was 1% andour estimate of like-for-like sales growth, in stores unaffected by newopenings, is 7%. This was achieved despite the impact, common to other clothingretailers, of poor weather over the summer months. Operating profit margin wasaffected by a higher depreciation charge, arising from the recent investment innew stores, and by a higher level of discounting of the summer season stock tomake way for the autumn range. Retail selling space increased by 1.3m sq ft during the year to 4.8m sq ft atthe year end. 32 new stores were opened, five smaller stores were closed,bringing the total to 170 stores at the year end. New store openings: UKAberdeen Dundee London - Oxford StreetBedford Dunfermline LondonderryBirmingham - Merryhill Eastbourne OldhamBlackpool Glasgow - Parkhead PlymouthBurton-on-Trent Greenock PooleCamberley Hanley RedditchCheltenham Inverness Sheffield - MeadowhallChesterfield Irvine SwindonCoventry Lincoln WolverhamptonDoncaster Liverpool - Church StreetIrelandBallina Dublin - SwordsSpainMurcia Stores closed (all resites):Aberdeen Doncaster SwindonBurton-on-Trent Dundee Highlights during the year included the opening of London's Oxford Street storein April. This was extremely successful, selling one million items in its firstten days of trading, and attracting considerable media coverage. The 85,000 sqft Liverpool store was opened in September and was greeted with a similar levelof enthusiasm both by customers and the media. Primark has demonstrated successin trading from very large premises and now has 25 stores trading from over50,000 sq ft of which eight trade from over 70,000 sq ft. Over the last twoyears the average store size has risen by more than 50% from 19,000 sq ft to29,000 sq ft. Since the year end we have opened a new store in Brighton which brings to aconclusion the conversion of the 41 former Littlewoods stores. This highlysuccessful development programme has driven significant growth in the number ofstores and selling space in the UK. Primark is now established as a majorclothing retailer on the UK high street. TNS ranks Primark as the UK's secondlargest clothing retailer by volume and Verdict Research now places Primark asthe leading retailer in value clothing. The stores in Oxford Street and Liverpool showcase the new fit-out in our largerstores. The high standard aims to meet customers' expectations of prestigioushigh street locations. A range of finishes, colours and textures has been usedto create zones within the spacious store interiors which reinforce anddifferentiate the departments. An electronic 'call forward' system is beingintroduced to speed customer transaction times and minimise queuing. Whilst the main focus for development has been the UK, trading in Irelandcontinued to be very strong last year. The Irish estate expanded with theopening of two new stores and extensions to existing stores, particularly at thesuccessful location at Blanchardstown, west of Dublin. Trading in our twostores in Spain exceeded expectation. Like-for-like growth in Madrid, just overa year from opening, is very strong and the sales density exceeds the averagefor the UK and Ireland. UK Ireland Spain TotalStoresAt September 2006 107 35 1 143Net additions 24 2 1 27 At September 2007 131 37 2 170 Retail selling space m sq ftAt September 2006 2.8 0.7 - 3.5Net additions 1.1 0.1 0.1 1.3 At September 2007 3.9 0.8 0.1 4.8 Plans are currently in place to open nine stores in the next financial yearincluding Ealing and Basingstoke in the UK and Cork in Ireland. Five stores areexpected to open in Spain: Jerez, two in Madrid, Bilbao and Oviedo. 9% of all clothing purchases in the UK takes place at Primark (TNS).Voted 'Best Value High Street Fashion' by GMTV and ITV viewers. GROCERY 2007 2006 Revenue £m 2,605 2,578Adjusted operating profit £m 153 182 Revenue for the year was in line with last year but profit declined from £182mto £153m. Adverse currency translation, particularly as a result of US dollarweakness, affected both revenue and profit. At constant currencies, revenueincreased by 4% and profit was impacted by £7m. Operating profit was furtherreduced by losses incurred at Allied Bakeries, margin pressure at Silver Spoonand a charge of £8m for factory rationalisation at ACH in the US and BlueDragon. Our international hot beverage brands, Twinings and Ovaltine, continued todeliver strong growth with the benefit of marketing investment in theirstrategic markets. Twinings growth was driven by green tea and the stronggrowth of Everyday tea in the UK. We made good progress in developing ourmarket shares around the world, but most notably in the UK, which is at an alltime high, in Italy where we enjoy over one third of speciality tea sales, andin France. The introduction of new packaging in the US had a significantimpact, raising the Twinings share to record levels. In August we signed anagreement with an existing Japanese distributor to establish a joint venture inJapan to provide a platform for developing our presence in one of the fivebiggest tea markets in the world. We sold our Scandinavian food distributor inOctober 2006, and the profit on this disposal is included in the incomestatement below operating profit. The Ovaltine brand again performed well. Disappointing sales in Switzerlandduring the poor ski season were more than offset by good growth achieved in Asiaand a successful targeting of developing markets, notably Brazil, Nigeria andVietnam, all of which had strong double digit growth. Ready-to-drink had aparticularly strong year and the new product development programme continuedapace. Early success has been achieved in raising prices in key markets torecover recent rises in world commodity prices, particularly in dairy andbarley. Restructuring of our factory at Neuenegg in Switzerland, to reducecosts and improve operating flexibility, is progressing according to plan withmost of the major work now completed. At Silver Spoon, significant business gains were made in the wholesale sector,despite continued margin pressure on sugar. Billington's and Allinson werecompletely re-launched and several new products have been introduced resultingin significant new listings in major retailers. Working closely with Illovo, thebusiness has more than doubled its fairtrade sugar volume both under theBillington's brand and in own label. An innovative brown sweetener wasintroduced under the Silver Spoon branding which has achieved encouraginglistings. After a difficult first half, the crispbread market returned to growth in thesecond half of the year stimulated by a continued trend towards more premiumvariants, new product launches from Ryvita and vigorous marketing support.Ryvita extended crispbread into sweet snacking with the launch of Muesli Crunchand provided a convenient format with the introduction of Sesame and MultigrainSnackpacks. Healthy snacking has continued to grow but these markets havebecome increasingly competitive. However, Ryvita Minis strengthened its positionwithin the Healthy Bagged Snacks segment and we extended our offering withincereal bars with the launch of Ryvita Luxury Goodness bars which combine greattaste with strong health credentials. In September 2007 we acquired 20% of the highly successful UK breakfast cerealand cereal bar business, Jordans. The brand has a strong and differentiatedconsumer position based on its use of natural and Conservation Grade(R)ingredients. It is well positioned to benefit from consumers' growing desirefor natural ingredients and healthy eating. This investment is an excitingdevelopment for our UK branded grocery business which already has extensiveinterests and expertise in cereal-based branded foods both in the UK andinternationally. It will be a strong partner to ensure the further developmentof the Jordans business. Westmill Foods is the leading supplier of ethnic foods to the ethnic wholesalechannel in the UK. Profit was sharply ahead following the successfulintegration of the brands acquired last year and the completion of a newintegrated warehouse at Enfield. New packing lines for the Rajah spice brandwere installed and this brand, together with Lucky Boat noodles and GreenDragon, recorded double digit sales growth. Scarcity of non-GM, long grain ricefrom the US affected sales of the Tolly Boy brand but this was offset in part bystrong growth in sales of our basmati brands. The pan-oriental retail brand, Blue Dragon, performed well this year anddelivered good growth. During the year we announced the relocation ofmanufacturing from two factories in Wales to a new factory now being built inPoland. The factory is due to open in spring 2008. In September we completed the acquisition of Patak's, a leading brand in Indiancuisine widely recognised for its authenticity. It was established in Englandin 1957 and has grown strongly in the UK but has also established a wideinternational presence. It manufactures, markets and distributes Indian cookingsauces, curry pastes, chutneys and other meal accompaniments from the Indiansub-continent. In the UK it supplies both retail and foodservice. Its mainfactory is in Leigh, Lancashire. The combination of Patak's with our existing businesses will create a leadingposition in the UK for the supply of world foods to both the retail andwholesale channels. These markets have grown strongly and this growth isexpected to continue. Our grocery business outside the UK will provide thecapability to drive the international growth of Patak's. The integration ofBlue Dragon and Patak's will begin in the next few months. Allied Bakeries underperformed this year with a particularly poor first halfwhen lower volumes and non-recovery of higher wheat costs affectedprofitability. Following this, the Kingsmill brand was relaunched in Februarywith improved products and new packaging. Recipes were improved to excludeartificial preservatives and some loaves are now larger and have a softertexture. The launch was supported by strong marketing and televisionadvertising. The combination of price increases to recover the increased wheatcosts from 2006, higher volumes and significant enhancements in operatingefficiency resulted in an improving performance in the second half.Unprecedented increases in the cost of bread-quality flour over the summer of2007 have resulted in the need for further bread price increases which are beingnegotiated with the major retailers. Our Australian grocery business saw sales and underlying profit substantiallyahead of last year. Milling & baking performed well with a strong improvement inthe performance of the New South Wales bakery. The substantial increase in thecost of wheat during the year was recovered by a price increase in February.Strong growth was enjoyed in '9 Grain' bread and Bazaar Breads of the World,reflecting consumer preference for healthy breads and variety. Bakingoperations have now expanded into China with the opening of a plant in Wuhan tosupply KFC with bread rolls. The bakery also sells Tip Top branded productsinto the Wuhan retail market to meet the increasing demand of the Chineseconsumer for western style products. The performance of the meat & dairybusinesses continued to improve. Our two major brands, Don's and Watsonia,benefited from relaunches, and the successful introduction of new shaved meatproducts improved their market share. ACH performed satisfactorily in both the US and Mexico. Mazola marginally lostshare in a US vegetable oil market which declined by 3% in the year. The costof vegetable oils increased sharply in the second half which led to some marginpressure. Very strong demand for these oils, including demand for theproduction of biofuels, is continuing to drive these commodity prices stillhigher. Further price increases are planned to recover these higher input costsin 2007/8. Consumer concerns over the use of trans fatty acids remained astrong influence on the performance of our foodservice business. A number ofrestaurant businesses have changed the oils used in food preparation with theresult that our profit declined. Our business is now having success with thesale of oil formulations with no trans fatty acids. Oil processing atJacksonville has ceased and we have withdrawn from the supply of certain lowmargin commodity products. Profit in Mexico increased with further progressfrom Capullo and its other grocery brands. ACH successfully launched extensions to its gourmet spice business with both theintroduction of a new packaging format, grinders, under the Spice Islands brandand the launch of a new line of gourmet grilling spices under the Weber Grillbrand. Weber Grill is licensed from the manufacturer of Weber grills and issynonymous with barbeques and outdoor grilling. Both launches have exceededinitial expectations. INGREDIENTS 2007 2006 Revenue £m 728 683Adjusted operating profit £m 75 79 Our Ingredients businesses are almost entirely located outside the UK and aretherefore susceptible to the impact of movements in exchange rates on thetranslation of their results. Reported revenue and profit were respectively 7%ahead and 5% lower than last year. However, at constant exchange rates, revenueincreased by 12% and profit was level with last year. In addition, the strengthof the Real had a substantial adverse effect on our Brazilian operations throughcompetition from cheaper imports. AB Mauri generated good sales growth in yeast, particularly in South America andsouth and west Asia. Construction of the yeast finishing plant in Mexico wascompleted during the year which, coupled with a bakery ingredients plant due forcommissioning in January 2008, will significantly increase our presence in thislarge market. We have also completed the expansion of our yeast plant at Hebeiin China and are reviewing opportunities for further expansion in the region totake advantage of continued market growth. Capital investment continued with anautomation project to improve the efficiency of the UK yeast plant in Hull. During the year we bought out our joint venture partner in the Philippines whichenabled us to rationalise production in the region and announce the closure ofthe old Philippines plant. A key challenge across the yeast businesses is the effective treatment of wastewater. To enable a more co-ordinated approach to technical projects across theregions we have reorganised our central technical resources under the new ABMauri Global Technology Group. One of its first initiatives was to identify themost appropriate technologies for waste water management. Subsequent to the year end we acquired certain of the European assets of theyeast business of Gilde Bakery Ingredients. The acquired business comprises awet and dry yeast plant based in Casteggio, Italy; a 50% shareholding in theUniferm yeast and bakery ingredients plants in Germany; a number of WestEuropean sales and distribution companies; and a 10% stake in Somadir, Morocco'sleading yeast manufacturer. Ownership of some of the businesses is dependent onclearances by the relevant competition authorities. The acquisition alsoincluded part of the dry yeast business together with ownership of the Fermipanbrand in a large number of markets throughout the world. This will significantlyimprove our ability to offer excellent sales reach and customer service inEurope, Africa, Middle East and south and west Asia. In bakery ingredients we continued to share technology across the group and havestarted to see the benefit in our global accounts. Our South American businesscontinued to expand and was able to recover raw material cost increases withpricing. We completed the sale of our commodity food polyols business in the US inFebruary and by the year end we had closed the old manufacturing plant inDelaware and sold the site. The loss on disposal of this business, includingthe write-off of goodwill and the costs of the plant closure, is charged inthese accounts. The business supplying antacids, excipients including polyols,and drug delivery systems to pharmaceutical companies has been retained. In ABF Ingredients, strong sales growth across all sectors has helped to driveprofit development with progress particularly in the US. We expanded bothwithin growing and established markets. Growth in enzymes was supported byinvestment in capacity expansion at its Finnish plant. Capacity expansion hasalso been achieved in proteins and yeast extracts. Such is the sales momentumin these businesses that further expansion projects are planned in enzymes,proteins and yeast extracts in the coming year, supported by investment in bothselling and research capabilities. George WestonChief Executive FINANCIAL REVIEW GROUP PERFORMANCE Group revenue increased by 13% to £6,800m. Operating profit, adjusted toexclude exceptional items, the amortisation of non-operating intangibles andprofits on the sale of property, plant and equipment, increased by 11% to £622m. The strength of sterling continued to have an adverse effect on thetranslation of our overseas results. At constant currency, revenue increased by16% and profit by 13%. The improvement in adjusted operating profit before exceptional items wasdelivered despite the adverse impact of sugar regime reform of some £30m and a£13m adverse currency translation effect primarily as a result of the weak USdollar. These were offset by a better than forecast first time contribution fromIllovo, another strong performance from Primark and good progress in many of ourfood and ingredients businesses. The disposal of properties, plant and equipment resulted in a profit of £8mwhich compares with £10m last year. A net loss of £39m, including goodwillwritten off of £27m, arose on business disposals during the year, primarily ourScandinavian food distributor and the commodity food polyols business in the US. Finance expense less finance income of £35m compares with a charge of £14m lastyear. This year-on-year increase of £21m results primarily from the cost ofacquisition of Illovo at the end of last year and a substantial capitalinvestment programme. Other financial income of £26m includes £25m of netpensions financing income, being the expected return on assets in the group'spension schemes less the charge on pension scheme liabilities, and a £1m netforeign exchange gain on financing activities. Profit before tax increased from £419m to £508m. Last year's result included anexceptional charge of £97m for the costs of closing two British Sugar factories. Adjusted to exclude exceptional items, amortisation of non-operatingintangibles and profits and losses on the sale of businesses and fixed assets,profit before tax increased 10% from £559m to £613m. TAXATION The tax charge of £108m included an underlying charge of £153m, at an effectivetax rate of 25.0% on the adjusted profit before tax described above. Theeffective tax rate has reduced from last year's 26.8% as a result of an increasein the profits subject to lower tax rates and the prospective effect of thereduction of tax rates in the UK and elsewhere on deferred tax carrying values. The overall tax charge for the year benefited from a £30m (2006 - £13m) creditfor tax relief on the amortisation of non-operating intangible assets andgoodwill arising from asset acquisitions. This credit, together with the taxeffect of the other exceptional items, has been excluded from the calculation ofadjusted earnings per share. EARNINGS AND DIVIDENDS Earnings attributable to equity shareholders increased by £68m to £369m and theweighted average number of shares in issue remained at 790 million. Earnings perordinary share increased by 23% from 38.1p to 46.7p. A more consistent measureof performance is provided by the adjusted earnings per share which excludesexceptional items, profits on the sale of businesses and fixed assets and theamortisation of non-operating intangibles net of any tax benefit. Adjustedearnings per share increased by 4% from 50.9p to 52.9p. The interim dividend was increased by 4% to 6.5p and a final dividend has beenproposed at 13.0p which represents an overall increase of 4% for the year. Inaccordance with IFRS, no accrual has been made in these accounts for theproposed dividend which is expected to cost £103m and will be charged next year. The dividend is covered, on an adjusted basis, 2.7 times. BALANCE SHEET Non-current assets increased by £327m to £4,719m including £2,642m of property,plant and equipment. The increase was driven by acquisitions which added £168mand capital expenditure of £420m. To determine the market value of the assets backing the Primark business we haveobtained an independent valuation of its freehold and long leasehold properties. The net book value at the year end was £579m and the valuation on a vacantpossession basis is £1,002m. This valuation increases to £1,262m with thebenefit of the Primark covenant. These assets continue to be included in theaccounts at their depreciated historic cost. Working capital, including tax accruals, decreased by £35m. Net borrowings were £311m at the year end compared with £298m last year. A currency loss of £28m arose on the translation into sterling of the group'snon-sterling net assets. This resulted from the continued strengthening ofsterling against the US dollar year on year. The group's net assets increased by £282m to £4,464m. Despite the high level of investment made this year in acquisitions and capitalexpenditure, the return on capital employed for the group was consistent withlast year at 18.8%. Return on capital employed is defined as operating profitbefore exceptional items and the amortisation of non-operating intangiblesexpressed as a percentage of average capital employed for the year. CASH FLOW Net cash flow from operating activities was £696m compared to £419m last year.This increase reflects a positive working capital movement year on year of£184m. The group invested a net £489m in capital expenditure and acquisitions duringthe year. Capital expenditure amounted to £420m of which £175m was spent on theacquisition of new stores and the refitting of existing Primark stores. Thebalance was used to upgrade, expand or build new manufacturing facilitiesincluding commissioning of the new biofuels plant at British Sugar's Wissingtonfactory, construction of a new factory in Poland for Blue Dragon andrationalisation of the Ovaltine factory in Switzerland and the ACH oils plant atJacksonville in the US. £150m was spent on the acquisition of Patak's, a 20% interest in Jordans and anumber of smaller businesses to complement our Grocery and Agricultureoperations. £58m was realised on the disposal of the Scandinavian distributionbusiness and SPI Foods in the US resulting in a net cash outflow on acquisitionsand disposals of £92m. FINANCING This year's acquisitions were financed in part by the surplus cash funds thathave historically been managed by professional investment managers. All suchfunds have now been liquidated. Cash and cash equivalents totalled £411m at theyear end and were managed during the year by a central treasury departmentoperating under strictly controlled guidelines, which also arranges term bankfinance for acquisitions and to meet short-term working capital requirements,particularly for the sugar beet and wheat harvests. At the beginning of the year the company refinanced its external borrowings andnegotiated a multicurrency $1.2bn syndicated loan facility with its existingbanking group, with a term of five years including two one-year extensionoptions. £412m was borrowed under this facility at the year end, drawn down ineuros, £248m, and US dollars, £164m. PENSIONS Pensions are accounted for in accordance with IAS 19 - employee benefits. Thetotal pension expense for the year was £71m compared with £67m last year. On an IAS 19 basis, the net surplus (employee benefit assets less liabilities)in the group's defined benefit pension schemes increased from £127m last year to£276m this year benefiting from more favourable market conditions. Following the merger of the British Sugar and Associated British Foods pensionschemes in April 2006, the company agreed with the Pension Trustees to make twopayments of £14.5m to eliminate the funding deficit, at that date, in theBritish Sugar section of the newly-merged scheme. The first payment was made inOctober 2006 and the second in October 2007. A full actuarial valuation of thecombined scheme is planned to take place with the normal triennial cycle inApril 2008. Total contributions to defined benefit plans in the year amountedto £61m (2006 - £48m). For defined contribution schemes the charge for the year is equal to thecontributions made which amounted to £24m (2006 - £21m). FINANCIAL REPORTING STANDARDS AND ACCOUNTING POLICIES There have been no changes to International Accounting Standards this year thathave a material impact on the group accounts. We have refined our policy of excluding intangible amortisation from thecalculation of adjusted profit and earnings. The amortisation charge in respectof intangible assets that arise on a business combination, non-operatingintangibles, will continue to be excluded from the adjusted profit and earningsmeasures. Amortisation arising on intangibles that are purchased in theordinary course of business, operating intangibles, such as licences andinformation technology expenditure, is charged to adjusted operating profit. Noamortisation of operating intangibles has historically been excluded from theadjusted measures hence there has been no need for restatement. POST BALANCE SHEET EVENTS The acquisition of certain of the European assets of Gilde Bakery Ingredients,and the disposal of our German yeast business, was agreed on 2 October 2007.The acquisition of the operations in Spain, Portugal and Germany is dependent onclearances by the relevant competition authorities. Gilde will continue tooperate these businesses until competition clearance has been received. John BasonFinance Director The annual report and accounts will be available on 8 November 2007 and theannual general meeting will be held at Congress Centre, 28 Great Russell Street,London. WC1B 3LS at 11am on Friday, 7 December 2007. CONSOLIDATED INCOME STATEMENTfor the year ended 15 September 2007 2007 2006Continuing operations Note £m £m Revenue 1 6,800 5,996Operating costs before exceptional items (6,262) (5,486)Exceptional items - impairment of property, plant & equipment - (64) - restructuring costs - (33) 538 413Share of profit after tax from joint ventures and associates 10 10Profits less losses on sale of property, plant & equipment 8 10 Operating profit 556 433 Adjusted operating profit 1 622 561Profits less losses on sale of property, plant & equipment 8 10Amortisation of non-operating intangibles (74) (41)Exceptional items - (97) Profits less losses on sale of businesses (39) (4)Provision for loss on termination of an operation - (8) Profit before interest 517 421Finance income 20 32Finance expense (55) (46)Other financial income 26 12 Profit before taxation 508 419 Adjusted profit before taxation 613 559Profits less losses on sale of property, plant & equipment 8 10Amortisation of non-operating intangibles (74) (41)Exceptional items - (97)Profits less losses on sale of businesses (39) (4)Provision for loss on termination of an operation - (8) Taxation: - UK (excluding tax on exceptional items) (46) (89) - UK (on exceptional items) - 29 - Overseas (62) (51) 2 (108) (111)Profit for the period 400 308 Attributable toEquity shareholders 369 301Minority interests 31 7 Profit for the period 400 308 Basic and diluted earnings per ordinary share (pence) 4 46.7 38.1Dividends per share paid and proposed for the year (pence) 3 19.50 18.75 CONSOLIDATED BALANCE SHEETat 15 September 2007 2007 2006 £m £mNon-current assetsIntangible assets 1,570 1,542Property, plant & equipment 2,642 2,479Biological assets 48 46Investments in joint ventures 46 54Investments in associates 33 15Employee benefits assets 308 169Deferred tax assets 70 82Other receivables 2 5 Total non-current assets 4,719 4,392 Current assetsAssets classified as held for sale 48 53Inventories 765 681Biological assets 53 51Trade and other receivables 967 896Other financial assets 17 70Cash and cash equivalents 411 349 Total current assets 2,261 2,100 TOTAL ASSETS 6,980 6,492 Current liabilitiesLiabilities classified as held for sale (7) (11)Interest-bearing loans and overdrafts (125) (531)Trade and other payables (1,167) (972)Other financial liabilities (26) (25)Income tax (82) (85)Provisions (36) (49) Total current liabilities (1,443) (1,673) Non-current liabilitiesInterest-bearing loans (598) (176)Provisions (14) (21)Deferred tax liabilities (430) (398)Employee benefits liabilities (31) (42) Total non-current liabilities (1,073) (637) TOTAL LIABILITIES (2,516) (2,310) NET ASSETS 4,464 4,182 EquityIssued capital 47 47Other reserves 173 173Translation reserve (49) (29)Hedging reserve (1) (6)Retained earnings 4,074 3,773 4,244 3,958Minority interests 220 224 TOTAL EQUITY 4,464 4,182 CONSOLIDATED CASH FLOW STATEMENTfor the year ended 15 September 2007 2007 2006 £m £mCash flow from operating activitiesProfit before taxation 508 419Profits less losses on sale of property, plant & (8) (10)equipmentProfits less losses on sale of businesses 39 4Provision for loss on termination of an operation - 8Exceptional items - 97Financial income (20) (32)Financial expense 55 46Other financial income (26) (12)Share of profit from joint ventures and associates (10) (10)Amortisation 79 41Depreciation 214 177Change in the fair value of biological assets (59) -Share-based payment expense 6 -Pension costs less contributions (14) (1)Increase in inventories (38) (29)Increase in receivables (58) (178)Increase in payables 151 78Decrease in provisions (17) (62) Cash generated from operations 802 536Income taxes paid (106) (117) Net cash from operating activities 696 419 Cash flows from investing activitiesDividends received from joint ventures 1 1Dividends received from associates 2 3Purchase of property, plant & equipment (420) (432)Purchase of intangibles (7) (13)Sale of property, plant & equipment 30 181Purchase of subsidiaries (132) (496)Sale of subsidiaries 58 -Purchase of joint ventures and associates (18) -Interest received 20 36 Net cash from investing activities (466) (720) Cash flows from financing activitiesDividends paid to minorities (26) (6)Dividends paid to shareholders (150) (144)Interest paid (58) (47)Decrease in other current investments 52 216Financing:Decrease in short-term loans (307) (46)Increase/(decrease) in long-term loans 417 (365)(Increase)/decrease in own shares held (9) 1 Net cash from financing activities (81) (391) Net increase/(decrease) in cash and cash 149 (692)equivalentsCash and cash equivalents at the beginning of the 198 894periodEffect of movements in foreign exchange 2 (4) Cash and cash equivalents at the end of the period 349 198 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the year ended 15 September 2007 2007 2006 £m £m Actuarial gains on defined benefit schemes 110 43Deferred tax associated with defined benefit (25) (12)schemesEffect of movements in foreign exchange (32) (88)Net gain on hedge of net investment in foreign 4 14subsidiariesMovement in cash flow hedging position 7 (17)Deferred tax associated with movement in cash flow (2) 4hedging position Net gain/(loss) recognised directly in equity 62 (56)Profit for the period 400 308 Total recognised income and expense for the period 462 252Adjustments relating to adoption of IAS 32 and IAS 39 on - 718 September 2005 (equity shareholders) 462 259Attributable to:Equity shareholders 439 246Minority interests 23 6 462 252 NOTES TO THE PRELIMINARY ANNOUNCEMENTfor the year ended 15 September 2007 1. Segmental analysis Segment reporting is presented in respect of the group's business andgeographical segments. The primary format, business segments, is based on thegroup's management and internal reporting structure and combines businesses withcommon characteristics. Inter-segment pricing is determined on an arm's lengthbasis. Segment results, assets and liabilities include items directlyattributable to a segment as well as those that can be allocated on a reasonablebasis. Unallocated items comprise mainly corporate assets and expenses, cash,borrowings, employee benefit balances and current and deferred tax balances.Segment capital expenditure is the total cost incurred during the period toacquire segment assets that are expected to be used for more than one year. Business segments The group is comprised of the following business segments: - Grocery The manufacture of grocery products, including hot beverages, sugar & sweeteners, vegetable oils, bread & baked goods, ethnic foods, herbs & spices and meat & dairy products which are sold to retail, wholesale and foodservice businesses. - Sugar The growing and processing of sugar beet and sugar cane for sale to industrial users and to Silver Spoon, which is included in the Grocery segment. - Agriculture The manufacture of animal feeds and the provision of other products for the agriculture sector. - Ingredients The manufacture of bakers' yeast, bakery ingredients, speciality proteins, enzymes, lipid technologies and polyols. - Retail Buying and merchandising value clothing and accessories through the Primark and Penneys retail chains. To reflect the changed nature of the former Primary Food segment it has beenrenamed Sugar. Geographical segments The secondary format presents the revenues, profits and assets for the followinggeographical segments: - United Kingdom- Europe, Middle East & Africa- The Americas- Asia Pacific Geographically segmented revenues are shown by reference to the geographicallocation of customers. Geographically segmented profits are shown by referenceto the geographical location of the businesses. Segment assets are based on thegeographical location of the assets. Revenue Adjusted operating profit 2007 2006 2007 2006 £m £m £m £m Grocery 2,605 2,578 153 182Sugar 1,151 671 199 115Agriculture 687 623 18 15Ingredients 728 683 75 79Retail 1,602 1,309 200 185Central - - (26) (22) 6,773 5,864 619 554 Businesses disposed:Grocery 7 78 - 3Agriculture - 8 - 1Ingredients 20 46 3 3 27 132 3 7 6,800 5,996 622 561 Geographical segmentsUnited Kingdom 3,216 2,995 255 280Europe, Middle East & Africa 1,251 668 158 70The Americas 1,142 1,164 113 121Asia Pacific 1,164 1,037 93 83 6,773 5,864 619 554Businesses disposed:United Kingdom - 8 - 1Europe, Middle East & Africa 7 78 - 3The Americas 20 46 3 3 27 132 3 7 6,800 5,996 622 561 1. Segmental analysis - for the year ended 15 September 2007 Business segments Grocery Sugar Agriculture Ingredients Retail Central Eliminations Total £m £m £m £m £m £m £m £m Revenue from continuing businesses 2,616 1,250 689 775 1,602 - (159) 6,773Businesses disposed 7 - - 20 - - - 27Internal revenue (11) (99) (2) (47) - - 159 - Revenue from external customers 2,612 1,151 687 748 1,602 - - 6,800 Adjusted operating profit from 153 199 18 75 200 (26) - 619continuing businessesBusinesses disposed - - - 3 - - - 3 Adjusted operating profit 153 199 18 78 200 (26) - 622Amortisation of non-operating (14) (32) - (28) - - - (74)intangiblesProfits less losses on sale of - - - - 8 - - 8property, plant & equipmentProfits less losses on sale of 7 - 1 (40) (7) - - (39)businesses Profit before financial income, 146 167 19 10 201 (26) - 517financial expenses and taxationFinance costs (35) - (35)Other finance income 26 - 26Taxation (108) - (108) Profit for the period 146 167 19 10 201 (143) - 400 Segment assets (excluding investments 1,949 1,609 172 924 1,436 21 - 6,111in associates and joint venturesInvestment in associates and joint 25 10 31 13 - - - 79ventures Segment assets 1,974 1,619 203 937 1,436 21 - 6,190Cash and cash equivalents 411 - 411Employee benefits assets 308 - 308Deferred tax assets 70 - 70Other current investments 1 - 1Segment liabilities (391) (427) (56) (119) (217) (35) - (1,245)Interest-bearing loans and overdrafts (723) - (723)Income tax (82) - (82)Deferred tax liabilities (434) - (434)Employee benefits liabilities (32) - (32) Net assets 1,583 1,192 147 818 1,219 (495) - 4,464 Capital additions 85 113 6 44 139 - - 387 Depreciation 75 52 7 24 56 - - 214 Amortisation 14 37 - 28 - - - 79 Geographical segments United Europe The Asia Kingdom Middle East Americas Pacific Eliminations Total & Africa £m £m £m £m £m £m Revenue from external customers 3,216 1,258 1,162 1,164 - 6,800 Segment assets 2,858 1,601 905 826 - 6,190 Capital additions 230 79 37 41 - 387 Depreciation 124 33 23 34 - 214 Amortisation 10 39 25 5 - 79 1. Segmental analysis - for the year ended 16 September 2006 Business segments Grocery Sugar Agriculture Ingredients Retail Central Eliminations Total £m £m £m £m £m £m £m £m Revenue from continuing businesses 2,597 766 623 729 1,309 - (160) 5,864Businesses disposed 78 - 8 46 - - - 132Internal revenue (19) (95) - (46) - - 160 - Revenue from external customers 2,656 671 631 729 1,309 - - 5,996 Adjusted operating profit from 182 115 15 79 185 (22) - 554continuing businessesBusinesses disposed 3 - 1 3 - - - 7 Adjusted operating profit 185 115 16 82 185 (22) - 561Exceptional items - (97) - - - - - (97)Amortisation of non-operating (12) - - (29) - - - (41)intangiblesProfits less losses on sale of 4 4 (1) - 2 1 - 10property, plant & equipmentProfits less losses on sale of 3 (2) - (6) - 1 - (4)businessesProvision for loss on termination of - - - - (8) - - (8)an operation Profit before finance costs, other 180 20 15 47 179 (20) - 421finance income, and taxationFinance costs (14) - (14)Other finance income 12 - 12Taxation (111) - (111) Profit for the period 180 20 15 47 179 (133) - 308 Segment assets (excluding investments 1,782 1,497 158 1,010 1,302 14 - 5,763in associatesand joint ventures)Investment in associates and joint 7 6 27 29 - - - 69ventures Segment assets 1,789 1,503 185 1,039 1,302 14 - 5,832Cash and cash equivalents 356 - 356Employee benefits assets 169 - 169Deferred tax assets 82 - 82Other current investments 53 - 53Segment liabilities (303) (338) (48) (113) (214) (60) - (1,076)Interest-bearing loans and overdrafts (707) - (707)Income tax (86) - (86)Deferred tax liabilities (398) - (398)Employee benefits liabilities (43) - (43) Net assets 1,486 1,165 137 926 1,088 (620) - 4,182 Capital additions 84 55 6 48 289 - - 482 Depreciation 71 36 7 30 33 - - 177 Amortisation 12 - - 29 - - - 41 Impairment - 64 - - - - - 64 Other significant non-cash expenses - 30 - - 10 - - 40 Geographical segments United Europe The Asia Kingdom Middle East Americas Pacific Eliminations Total & Africa £m £m £m £m £m £m Revenue from external customers 3,003 746 1,210 1,037 - 5,996 Segment assets 2,519 1,533 1,023 757 - 5,832 Capital additions 343 52 30 57 - 482 Depreciation 101 18 26 32 - 177 Amortisation 4 7 18 12 - 41 Impairment 64 - - - - 64 Other significant non-cash expenses 40 - - - - 40 Other significant non-cash expenses include a provision of £30m for costsassociated with the closure of two UK sugar factories, announced on 4 July 2006,and a provision of £10m for costs associated with the termination ofLittlewoods. 2. Income tax expense 2007 2006 £m £m Current tax expense UK - corporation tax at 30% (2006: 30%) 37 37 Overseas - corporation tax 71 46 Over-provided in prior years (7) - 101 83 Deferred tax expense UK deferred tax 14 21 Overseas deferred tax (12) 8 Under/(over) provided in prior years 5 (1) Total income tax expense in income statement 108 111 Reconciliation of effective tax rate Profit before taxation 508 419 Less share of profit from joint ventures and (10) (10) associates Profit before taxation excluding share of profit from joint ventures and 498 409 associates Nominal tax charge at UK corporation tax rate of 30% (2006: 30%) 149 123 Lower tax rates on overseas earnings (46) (23) Expenses not deductible for tax purposes 7 12 Adjustments in respect of prior periods (2) (1) 108 111 3. Dividends 2007 2006 2007 2006 pence pence £m £m Per share 2005 final - 12.00 - 95 2006 interim - 6.25 - 49 2006 final 12.50 - 99 - 2007 interim 6.50 - 51 - 19.00 18.25 150 144 The 2007 interim dividend was declared on 24 April 2007 and paid on 2 July 2007. The 2007 final dividend of 13.00p, total value of £103m, will be paid on 11January 2008 to shareholders on the register on 7 December 2007. Dividends relating to the period were 19.50p per share totalling £154m (2006 -18.75p per share totalling £148m). 4. Earnings per share The calculation of basic earnings per share at 15 September 2007 was based onthe net profit attributable to equity shareholders of £369m (2006 - £301m), anda weighted average number of shares outstanding during the year of 790 million(2006 - 790 million). The calculation of the weighted average number of sharesexcludes the shares held by the Employee Share Option Scheme on which thedividends are being waived. Adjusted earnings per ordinary share, which exclude the impact of profits lesslosses on the sale of property, plant & equipment and businesses, provision forloss on termination of an operation, amortisation of non-operating intangibles,exceptional items and the associated tax credits, is shown to provide clarity onthe underlying performance of the group. The diluted earnings per share calculation takes into account the dilutiveeffect of share options. The diluted, weighted average number of shares is 790million (2006 - 790 million). There is no difference between basic and dilutedearnings. 2007 2006 £m £m Adjusted profit for the period 418 402 Profits less losses on sale of property, 8 10 plant & equipment Profits less losses on sale of businesses (39) (4) Provision for loss on termination of an - (8) operation Exceptional items - (97) Tax effect on above 15 26 Amortisation of non-operating intangibles (74) (41) Tax credit on non-operating intangibles amortisation & 30 13 goodwill Minority share of amortisation of 11 - non-operating intangibles net of tax Profit for the period attributable to equity 369 301 shareholders 2007 2006 pence pence Adjusted earnings per share 52.9 50.9 Earnings per share on: Sale of property, plant & equipment 1.0 1.3 Sale of businesses (4.9) (0.5) Provision for loss on termination of - (1.0) operation Exceptional items - (12.3) Tax effect on above 1.9 3.3 Amortisation of non-operating intangibles (9.4) (5.2) Tax credit on non-operating intangibles amortisation & 3.8 1.6 goodwill Minority share of amortisation of 1.4 - non-operating intangibles net of tax Earnings per ordinary share 46.7 38.1 5. Analysis of net funds/(debt) At Cash flow Exchange At 16 September Acquisitions/ adjustments 15 September 2006 disposals 2007 £m £m £m £m £m Cash at bank and in hand, cash 198 149 - 2 349 equivalents and overdrafts(1) Short-term borrowings(1) (373) 307 3 - (63) Other current Investments 53 (52) - - 1 Loans over one year (176) (417) (9) 4 (598) (298) (13) (6) 6 (311) (1) Cash and cash equivalents comprise cash balances, call deposits and investments with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the group's cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement. 6. Other information The financial information set out above does not constitute the group'sstatutory financial statements for the years ended 15 September 2007 and 16September 2006 but it is derived from them. The 2006 financial statements havebeen filed with Registrar of Companies whereas those for 2007 will be deliveredfollowing the company's annual general meeting. The auditors' opinions on thesefinancial statements were unqualified and did not include a statement underSection 237 (2) or (3) of the Companies Act 1985. SIGNIFICANT ACCOUNTING POLICIESfor the year ended 15 September 2007 Associated British Foods plc (the "Company") is a company domiciled in theUnited Kingdom. The consolidated financial statements of the Company for theyear ended 15 September 2007 comprise those of the Company and its subsidiaries(together referred to as the "group") and the group's interest in associates andjointly-controlled entities. The financial statements were authorised for issue by the directors on 6November 2007. Basis of preparation The consolidated financial statements have been prepared and approved by thedirectors in accordance with International Financial Reporting Standards asadopted by the EU. The financial statements are presented in sterling, rounded to the nearestmillion. They are prepared on the historical cost basis except that biologicalassets and certain financial instruments are stated at their fair value. Assetsclassified as held for sale are stated at the lower of carrying amount and fairvalue less costs to sell. However, the financial information included in thispreliminary announcement does not in itself contain sufficient information tocomply with IFRS. The accounting policies applied in preparing this financial information areconsistent with the group's financial statements for the year ended 16 September2006. New accounting standards that came into force in the year did not requirerestatement of comparatives. The preparation of financial statements under IFRS requires management to makejudgments, estimates and assumptions about the reported amounts of assets andliabilities, income and expenses and the disclosure of contingent assets andliabilities. The estimates and associated assumptions are based on experience.Actual results may differ from these estimates. The estimates and underlyingassumptions are reviewed on a regular basis. Revisions to accounting estimatesare recognised from the period in which the estimates are revised. The consolidated financial statements of the Company are prepared for the 52weeks ended15 September 2007 except that, to avoid delay in the preparation of theconsolidated financial statements, the results of certain subsidiaries areincluded up to 31 August 2007. The results of Illovo are included for theperiod to 30 September 2007 in line with Illovo's local reporting date.Adjustments are made for significant transactions or events occurring between 31August and 30 September. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
AB Foods