8th Nov 2005 07:00
Associated British Foods PLC08 November 2005 Associated British Foods plc preliminary results for year ended 17 September 2005 Earnings up 14% and over £1.5bn invested for future growth Highlights • Adjusted earnings per share up 14% to 53.0p ** • Adjusted operating profit up 18% to £565m* • Group sales up 9% to £5,622m • Adjusted profit before tax up 12% to £590m ** • Dividends per share up 10% to 18.0p • Investment in acquisitions and capital expenditure of over £1.5bn • Net cash funds of £224m • Operating profit up 13% to £487m. Profit before tax down 3% to £479mand basic earnings per share down 3% to 42.2p after £47m provision to closeLittlewoods business George Weston, Chief Executive of Associated British Foods, said: "To deliver a 14% growth in earnings in such a competitive environment is veryencouraging and reflects the contribution from our acquisitions and furtherprogress in a number of our key growth platforms, such as international hotbeverages, US branded grocery and Primark, which had an outstanding performance.We have also laid firm foundations for long-term growth with over £1.5bninvested in acquisitions and capital expenditure." * before amortisation of goodwill. ** before profits less losses on the sale of businesses and fixed assets, provision for loss on termination of an operation and amortisation of goodwill. All figures stated after profits less losses on the sale of businesses and fixed assets, provision for loss on termination of an operation and amortisation of goodwill are shown on the face of the consolidated profit and loss account. 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/Sara Batchelor, 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 £5.6 billion and over 42,000employees in 41 countries. Our aim is to achieve strong, sustainable leadership positions in markets thatoffer potential for profitable growth. We look to achieve this through acombination of growth of existing businesses, acquisition of complementary newbusinesses and achievement of high levels of operating efficiency. 2. We have achieved a compound annual growth of 13% in adjustedoperating profit from 2000 to 2005. The delivery of this strong profit growthhas been driven by investment in both existing businesses and acquisitions inareas of our core expertise. 2000 2001 2002 2003 2004 2005 CAGRAdjusted operating profit £m 299 320 369 427 478 565 +13%Adjusted eps p 34.1 37.2 39.1 41.3 46.6 53.0 + 9% 3. ABF has strong positions in the markets in which it operates: International hot beverages Twinings is the world's leader in speciality teas and infusions. It has manufacturing in Europe and China and celebrates 300 years of trading next year. Ovaltine is the largest producer of malt based beverages in Europe, Thailand, Philippines and China. North America Grocery We have built up a strong portfolio of famous grocery brands in the Americas. Mazola is the leading corn oil in the US and Capullo the leading premium canola oil in Mexico. We have strong positions also in herbs & spices, sauces, corn syrup, starch and yeast. Primark Primark is a major value clothing retail group employing 12,000 people. It operates 122 stores in the UK and Ireland, and trades as Penneys in Ireland. British Sugar British Sugar is Europe's most efficient producer and the sole processor of the UK sugar beet crop. It has adapted to the structural changes in world sugar production and has strong manufacturing positions in Poland and China. AB Mauri This business has a global presence in bakers' yeast with 45 plants in 24 countries. It is market leader in the US, South America and Asia and number three in Europe. It is also the technology leader in bakery ingredients with 17 factories around the world. 4. We are investing strongly in the future growth of the group. Thetotal expenditure in the year of over £1.5bn comprises acquisitions, lessdisposals, of £733m, a significant number of new stores for Primark, £628m, andcapital expenditure in the existing businesses of £182m. ASSOCIATED BRITISH FOODS plc PRELIMINARY ANNOUNCEMENT FOR THE YEAR ENDED 17 SEPTEMBER 2005 CHAIRMAN'S STATEMENT There have been major developments in the group over the past year. Substantialinvestment has been made to strengthen our established businesses and to add newones, the main benefits of which will be realised over the coming two years.There has been a satisfactory advance in overall trading results with adjustedoperating profit improving by 18% on the year before and adjusted earnings,reflecting lower net investment income, ahead by 14%. However, some of ourbusinesses have faced a tough trading environment. Our expenditure on acquisitions and fixed assets was over £1.5bn. The two mainareas of investment were in the international yeast and bakery ingredientsbusiness and in a significant number of new stores for Primark. While much ofthe benefit of the AB Mauri investment, made on 30 September 2004, was seen inthe year, there is more to come. The major part of the investment in Primarkwas to acquire stores from the Allders and Littlewoods chains. The first ofthese opened as a Primark a few weeks ago and the roll-out of the rest of the 47stores will continue progressively over the next 15 months. By early 2007Primark will be trading from some 4 million square feet compared to 2.3 milliona year ago. The contribution from the new stores will only then be fullyrealised. In the case of Littlewoods, we acquired the whole of the business,identified 41 stores to be traded as Primark and are disposing of the remainingstores. At the time of writing, agreement on sale had been reached on over halfof the remaining stores. Another major development was the publication by the European Commission ofproposals for the reform of the European sugar regime. The thrust of theproposals will be to reduce productive capacity in the EU, eliminate subsidisedexports and reduce support prices. Our UK sugar production is highly efficientand we expect British Sugar to continue to be a strong force in the Europeanmarkets, although an adverse impact on profit can be expected particularly from2007/8 onwards. The consequence of these major developments is a shift in the source of oursales and profits both by type of business and geographically. This is alreadyapparent from the segmental analysis of our business where there has been afurther reduction in the proportion of group profits derived from EU sugar and abroadening of the contribution from overseas. We expect this trend to continue. The larger part of the satisfactory advance in trading results came fromacquisitions. Of this the main contributor was the yeast and bakery ingredientsbusiness which is bedding down well under our ownership. Over-capacity in theimportant North American market and a sharp rise in the cost of molasses, a keyingredient, held back the results from the bakers' yeast operations butappropriate management action has been taken and we expect much better resultsas the current year progresses. The US herbs & spices business and the Capullooil brand in Mexico both exceeded our expectations and contributed to thedevelopment of our portfolio of grocery brands in the Americas. The outstanding feature among our longer standing businesses was the excellentperformance of Primark. The clothing market is always fiercely competitive andin the past year there has been evidence of price deflation in the UK leading tolittle, if any, overall growth in the market. Primark, however, achievedsubstantial like-for-like sales growth and, with the addition of some new space,grew sales by 17% and operating profit by 30%. Elsewhere in the group there were good performances in UK grocery, British SugarOverseas and agriculture. However, there were lower profits at British Sugar inthe UK and our Australian bakery businesses, where market conditions weredifficult. The results of all the businesses are covered in detail in the chiefexecutive's review and the review of operations which follow. In concluding my comments on trading performance, I should highlight theprogress at Twinings as it approaches its 300th anniversary. Even after theinvestment in a major restructuring of its worldwide production facilities andmuch increased advertising and promotion spend, it showed good growth. It iswell set for its next century. As well as the major investments described above, expenditure to maintain andenhance the efficiency of our plants and other fixed assets has continued athigh levels. The group is strongly cash generative and net cash funds total£224m at the year end even after over £1.5bn of investment. The group'sfinancial position remains strong and is fully capable of supporting furtherinvestment in our businesses. Triennial valuations of the group's major UK pension schemes have been carriedout in the past year. The valuations take account of both increased lifeexpectancy, based on the latest predictions available to the group's actuaries,and current bond yields. Following the valuations, annual contributions havebeen increased and arrangements made to clear, over the next two years, thesmall actuarial deficit using our funding assumptions. However, using the FRS17 assumptions, there was a net surplus at the end of the financial year whichis reflected in these accounts. Board Changes On 3 November 2004 Tim Clarke was appointed to the Board. Mr Clarke is chiefexecutive of Mitchells & Butlers plc and was previously chief executive of SixContinents PLC prior to the demerger of Mitchells & Butlers. Peter Jackson decided to retire as chief executive and as a director with effectfrom 31 March 2005. He had been chief executive since 1999 having joined theBoard in 1992. He was managing director of British Sugar for some years beforeit was acquired by ABF. In his time as chief executive great progress was madein operating performance and in the strategic development of the group. Peter'scontribution over this period has been critical to our success and has beengreatly valued by his colleagues. We wish him the very best for the future. George Weston was appointed chief executive as successor to Peter Jackson. Employees The group now employs some 42,000 people in 41 countries. It is their effortsand enterprise in demanding conditions which have produced the results of thepast year. On behalf of shareholders I wish to thank them for all their hardwork and the progress which they have delivered. Outlook Most of our businesses are experiencing sharp increases in energy and relatedinput costs and we can be certain that competition for our businesses will berobust. They are nevertheless well placed to meet these challenges. Primark hascontinued to trade well and there is a programme to open significant additionalretail selling space in the first half of the current year. Alternativearrangements have been made quickly to continue supply of stock following therecent fire at Primark's main UK warehouse, although some limited disruption canbe anticipated. We expect further overall progress in group results in thecoming year. The roll-out of new Primark stores converted from Littlewoods will occurprogressively from spring 2006 until early 2007 and returns will buildgradually. As a consequence, the reduction in net investment income will resultin relatively modest growth in earnings next year while the benefits of ourinvestment will only be more fully realised in the following year. The Board is confident that the benefits from the significant investments madethis past year will be delivered over the next two years. Dividends The directors propose a final dividend of 12.0p which, together with the interimof 6.0p already paid, makes a total of 18.0p for the year, an increase of 10%.The proposed final dividend will be paid on 13 January 2006 to shareholders onthe register on 2 December 2005. The directors intend to maintain a policy ofincreasing dividends in line with medium-term earnings growth. Martin Adamson Chairman CHIEF EXECUTIVE'S REVIEW These strong results are the consequence of the success of Primark, goodprogress in most of our other existing businesses, and satisfactorycontributions from our recent acquisitions. Primark has had a great year in which it not only produced excellent sales andprofit growth in a difficult high street trading environment, but also acquirednew stores from Allders and Littlewoods that will increase its retail sellingspace by 60%. None of these new stores had commenced trading by the end of thefinancial year. It enjoyed enthusiastic and deserved attention in the fashionand national press, all of which helped cement this remarkable business in theconsciousness of clothes shoppers in the UK and Ireland. British Sugar faced difficult market conditions in both the UK and Poland as aconsequence of over-supply of sugar, following the accession of new memberstates to the EU. Operationally the company performed extremely well achievingrecord production at Wissington and a consistently good performance from thewhole business. Of equal importance was the continuing improvement in itshealth and safety performance. The manufacturing cost base of British Sugar isalready the lowest in the EU and, with further investment in both the UK andPoland, it will become lower still. This reality, together with our belief thatthe market for sugar in Europe post-reform will be in balance, gives usconfidence that our European sugar operations have a profitable future. Oursugar business in China recorded its highest ever profit as prices firmed andgood factory performance improved extraction rates from a smaller crop than lastyear. Our agriculture business in the UK made good progress in an enduringlydifficult market. The combination of our grain trading business with that ofCargill in a new joint venture in which we have a 50% interest is expected todeliver enhanced performance through the provision of a more comprehensive rangeof products and services. Our business in China performed extremely well,producing and selling 30% more feed than last year and delivering strong profitgrowth. Our bakery businesses in the UK and Australia both had difficult years.However, in the UK, the imminent relaunch of our premium brand, Kingsmill Gold,and significant improvements to our supply chain give us confidence for thefuture. In Australia, our new bakery at Chullora in Sydney is now complete andcontributing to a much lower cost base. This is a magnificent asset that willbenefit our company for years to come. Our other grocery businesses all made good progress. The Twinings and Ovaltinebrands both had an excellent year of sales and profit growth, and Ryvita madesimilar progress, growing the market and successfully launching new products.The Billington's range of specialist retail sugars contributed to thedevelopment of the Silver Spoon business, and Westmill Foods recovered well fromlast year's disappointments. In North America, ACH successfully integrated thenewly acquired consumer yeast and herbs & spices businesses, both of whichperformed ahead of expectations. Our existing ingredients businesses underwent a year of change andconsolidation. SPI's food polyols business returned to a more normal level ofprofitability after benefiting from spectacular growth last year, driven by thehigh consumer demand for low carbohydrate products. During the year weintegrated our existing bakery ingredients business with our newly acquiredbakers' yeast business, AB Mauri, and we consolidated the yeast extractsoperation with the rest of our ingredients business. This reorganisation hasbeen successful. Our bakers' yeast business delivered a poor performance in the large US marketwhich masked the very good progress made elsewhere. The problems in the US willnot be cured overnight but we have already made good progress and expect to beable to report better results next year. This has been a year of very significant change for the group. The purchase ofthe yeast business has extended our international reach and we now have a trulyglobal coverage with commercial operations in 41 countries around the world.These include substantial businesses throughout Latin America, excellentingredient distribution capability in India and real critical mass in Chinawhere we now employ over 7,000 people. We now have significantly more optionsfor further development. After years of remarking that Primark's growth was constrained by the limitedavailability of new sites, we were presented this year with exceptionalopportunities, firstly with the closure of Allders and then the sale ofLittlewoods. Clearly we have a very real challenge to refit and staff 47substantial stores and 1.5 million square feet of additional selling space.However, when that is successfully accomplished Primark will not only be an evenmore important part of the group, but will also be a very significant force inclothes retailing in the UK and Ireland. Although final agreement on reform of the EU sugar regime is not yet agreed, weare already beginning to see the consequences of that reform as businesseswithin Europe position themselves for the post-reform years. We have spentseveral years preparing ourselves for a future where sugar represents a smallerproportion of our portfolio. That future is now upon us. The Chairman has mentioned the contribution our people make to our success and Iecho his thanks. We make a valuable economic and social contribution to everycommunity where we are present and I am pleased that we are able to publish,this year, our initial global health, safety and environment report. I am proudand thankful to be part of a company in which so many amazing people, all aroundthe world, work every day to produce and sell safe, high quality and good valueproducts. George Weston Chief Executive GROCERY 2005 2004Sales £m 2,608 2,446Operating profit £m 188 160 Our international grocery businesses grew sales by 7% to £2,608m and profit by18% to £188m. These increases were driven by the contribution fromacquisitions: the US herbs & spices business, Fleischmann yeast in the US, afull year benefit of Capullo in Mexico and Billington's sugar in the UK. Inaddition, there was strong growth from Twinings and Ovaltine. However, profitswere held back by reduced margins in the Australian bakery business whichexperienced tough competitive pressure. Our North American grocery business, ACH, significantly increased its scale withthe acquisitions of the herbs & spices and Fleischmann consumer yeast businessin the US. Sales, marketing and the supply chain of these businesses have beenfully integrated with our existing branded grocery businesses and are nowheadquartered in a new office in Chicago. Both of these acquisitions haveexceeded our expectation in their first year. Mazola improved its margins withlower soy and corn oil prices and focused marketing helped to increase volumesby 2% over last year. In Mexico, the sales, marketing and distributioninfrastructure was established to support Capullo, the premium canola oil brand,and the brand improved its market share in the second half of the year. TheKaro syrup brand in Mexico was also acquired. Capullo has been successfullylaunched in the US and marketed to the Hispanic population. Our global hot beverages brands, Twinings and Ovaltine, achieved strong salesand profit growth supported by a significant investment in brand marketing andnew products over the last two years. This included double digit growth forTwinings in the UK and US and for Ovaltine in its three key Asian markets:China, Thailand and the Philippines. In the UK, Twinings launched its "Everyday" tea aimed at the premium mainstream segment of the market and it has been verywell received by both the trade and consumers. The UK range was relaunched withnew packaging with groupings of Classics, Light Classics, Aromatics andflavoured teas designed for better accessibility for the consumer. A majorrationalisation of the tea supply chain is underway which will significantlyreduce the manufacturing cost base. Tea blending and packing will concentrateon four sites with the closure of plants in France and the US and theestablishment of a new factory in Shanghai, which has been commissioned. Arationalisation charge of £7m has been included in these accounts. Silver Spoon, the only UK brand to offer the full range of sweetening solutions,maintained its position as brand leader. Light granulated sugar is the leaderin its category and continued to grow. Billington's, the UK's leading supplierof unrefined cane sugars, grew strongly this year and has now been fullyintegrated and the benefits realised. Good volume and profit growth was achieved by Ryvita. It is the UK's leadingcrispbread brand and its innovation has driven growth in the cracker andcrispbread market as consumers seek new and healthier snack foods. A premiumwholeseed crispbread range was launched in June featuring two varieties: pumpkinseed and sunflower seed. Ryvita continued to develop its wider positioning as ahealthy eating snack brand with the establishment of Ryvita Minis which sawstrong growth in the year supported by television advertising and the launch ofnew flavours. In Australia, margins in the bread business were reduced as a result ofcontinued competitive pressure in the market and the commissioning costs of thenew bakery in west Sydney. This new bakery not only replaces the Fairfieldbakery which was destroyed by fire in 2002 and the Chatswood bakery but alsoprovides additional capacity to supply the New South Wales market. Two breadlines and one roll line are now operational and we expect the final phase ofcommissioning, which comprises packing and distribution, to be completed by theend of the year. We expect the improved efficiencies to flow from the beginningof 2006. Improvements in meat and dairy operating performance were held back bylower volumes to the major retailers. Allied Bakeries in the UK was affected by lower than expected pricing andvolumes although Kingsmill branded volumes increased. There was further progress in our ethnic foods business with a strong increasein sales of the Blue Dragon brand both in the UK and overseas. For the firsttime the brand was supported by television advertising in the UK which proved tobe successful. Westmill Foods delivered strong profit growth. Its ethnic brands in rice, flourand noodles grew in both volume and margin and the new plant in Manchester isperforming well. Pride Oils was acquired in the latter part of the year. Prideis a leading brand of edible oils which is sold to ethnic wholesalers and itsaddition strengthens our existing competence and expertise in this sector. PRIMARY FOOD & AGRICULTURE 2005 2004Sales £m 1,541 1,672Operating profit £m 187 189 Sales fell by 8% to £1,541m and profit fell by 1% to £187m. As expected therewas a decline in profit at British Sugar in the UK but this was virtually offsetby a strong increase in profit from our overseas sugar operations in Poland andparticularly China and from our animal feeds businesses. Sales declinedprimarily as a result of the sale of the UK arable business to Frontier, thejoint venture established with Cargill. In the UK, British Sugar had another good campaign with 1.39 million tonnes ofsugar produced. The crop proved to be high yielding and the UK performance wassecond in the European league for agricultural efficiency. Commercially therewere further improvements in its product range and service performance.However, profit declined as a result of the over-supply of sugar in the EU thisyear and higher energy prices. The EU saw the accession of ten new member states in May 2004, which at thepoint of entry also became members of the European sugar regime. Inanticipation of the associated increase in sugar prices in the new member statesit is now clear that sugar stocks were increased. There were no temporary quotacuts to maintain the balance between supply and demand within the EU in 2004/5.The consequent surplus of quota sugar severely pressured prices in many memberstates and led to lower value of exports of excess sugar onto the world market.The Commission has sought to rectify this imbalance in the coming year byinvoking a temporary quota cut of 1.8 million tonnes across the EU and our shareof this is 91,000 tonnes in the UK and Poland combined. British Sugar Overseas improved its performance substantially over the previousyear. The full year benefits of accession came through in Poland albeit to a lesserextent than anticipated due to the impact of the over-supply of sugar in the EUand the strength of the zloty relative to the euro. Operational performance wasstrong and good progress was made in the first phase of a two-year capitaldevelopment programme to bring standards of efficiency and product quality atthe Glinojeck sugar factory up to the standards of the best in Europe. Our sugar business in China had its best year yet, driven by strong marketconditions and consistent plant operations. Crop volumes were again lower dueto adverse weather conditions but good factory performance improved extractionrates and restricted the overall decrease in sugar production. Prices continuedto rise during the year as the market reacted to the smaller crop and increasedconsumption of sugar and there was an improvement in margins. Tradingrelationships continue to be built with major industrial customers in China whodemand high quality and consistent service levels. Draft detailed proposals for the reform of the EU sugar regime were tabled tothe European Parliament and Council of Ministers in June 2005. We welcome theinclusion of a restructuring scheme which proposes to establish a fund, by levyon the industry lasting three years, to provide compensation to processorswishing to relinquish quota to the Commission. By this mechanism, theCommission expects to achieve the necessary industry restructuring withoutmandatory quota cuts. However, a more significant cut in the sugar referenceprice is proposed with a bigger associated cut in beet prices. Much debate andnegotiation will be forthcoming before a final resolution is concluded. Weexpect some volatility in pricing over the next few years but our best estimateof the effect of these proposals will be a reduction in operating profit fromour sugar operations by some £40m per annum in the long run. British Sugar is now well prepared to deal with the outcome of reform. Theimprovements at Glinojeck in Poland are underway and the installation of theUK's first bioethanol plant is expected to be complete by late 2006.Commercially a number of new products targeted at specific customers have beenintroduced and there have been investments in retail sugars in Poland. Work isunderway to examine ways of reducing the cost base even further. We believethat these steps strengthen British Sugar's leadership position ahead of reform. ABNA, our agriculture group, delivered its best ever result despite a difficultmarket for its UK pig and poultry feeds. The animal feeds business in China delivered a strong performance. Thissuccess followed the buyout of our joint venture partners, expansion into newregions by leasing mills, and a strong demand for our products as a result of agovernment and industry drive to improve food safety. In the UK, pig and poultry feeds faced a very difficult year due tomanufacturing over-capacity and much higher energy costs which affected bothproduction and distribution. Strong market shares were achieved. The BritishStandards Institute's ISO International Environmental Standard was obtained atall ten feed mills in the UK, which will help to reduce compliance costssignificantly within the framework of the new Integrated Pollution andPrevention Control regulations. Good performances were delivered by the foodingredients and co-product divisions. In April we completed the sale of Allied Grain to a new joint venture withCargill which will trade as Frontier. The joint venture is a major purchaserand supplier of cereals and oil seeds in the UK and is also a leading supplierof seed and fertiliser to the UK farming community. The creation of Frontierwill provide a more comprehensive range of products and services to customersacross the UK. INGREDIENTS 2005 2004Sales £m 603 294Operating profit £m 72 36 The acquisition of the international bakers' yeast and ingredients business anda strong performance from enzymes led to a doubling of sales and profit to £603mand £72m respectively. Following the acquisition, a new organisation, AB Mauri, was established and thegroup's existing bakery ingredients operations were integrated with thoseacquired. A development team was created to ensure the transfer of bestpractice and technology between all of the international businesses. Bakeryingredients was strengthened during the year with the acquisition of a businessspecialising in enzyme applications technology. It brings a strong innovationand development capability in enzyme functionality research and a team wellplaced to commercialise high value bakery ingredients, initially in the large USplant bakery market and thereafter worldwide. The profit of AB Mauri is lower than we expected at the time of acquisition. Aspreviously reported, higher molasses, energy and distribution costs haveaffected the business. In many countries, increased prices have recovered thisincrease in input costs but, in North America and Turkey, we were unable to passon these costs because of significant over-capacity in these markets. Growthwas achieved in the South American and Eastern Asian markets, particularlyChina. Rationalisation of factories in India and Brazil cost £2m and thebenefit of this will be realised next year. Investment this year included the opening of a new factory in western China inXinjiang and expansion in two further plants in China, one in India and anotherin Vietnam is underway. The relocation of the factory in New Zealand is also inprogress. The newly acquired yeast extracts business performed ahead of expectations.Further development is expected following the strengthening of management and agreater focus on research and development. Shortly after the year end weacquired a leading US manufacturer of whey protein concentrates and isolates.It targets the fast growing protein speciality market where key customerapplications are nutritional, particularly dietary supplements and sportnutrition. Its expertise in people, products and technology complement theexisting capabilities of the yeast extracts business. Speciality lipids delivered a solid sales performance with medium chaintriglyceride sales in the US achieving their highest level. In the US, the foodpolyol business saw good recovery in the second half of the year following thereduced market demand for polyols in low carbohydrate foods earlier in the year. The pharma ingredients business performed well with strong growth in sales ofpolyol excipients and antacids. Growth in enzyme sales has been led by the bakery and feed sectors andgeographically the strongest areas for growth have been Asia Pacific and EasternEurope. The sale of enzymes to AB Mauri has developed in line with ouracquisition model. RETAIL 2005 2004Sales £m 1,006 858Operating profit £m 140 108 Primark, our value clothing retailer, has recorded another excellentperformance. Profits increased 30% on sales ahead of last year by 17% which isall the more remarkable given the difficult trading environment this year on theUK high street. Like-for-like sales for the year increased by 9% and were particularly strong inthe second half. Sales further benefited from the additional retail sellingspace from new store openings and extensions to existing stores. Theimprovement in margin reflects better purchasing and favourable currencyexchange rates. Consumer awareness of the value of the Primark offering has dramaticallyincreased this year. This has been reflected in the extensive coverage given toPrimark in local and national press and fashion magazines. A Primark opening has become something of an event and during the year newstores opened in Sunderland, Lincoln, Leeds, Kingston on Thames, Dundrum andMullingar. We continued to develop more selling space at existing stores withextensions opening in Watford, Wrexham, Wakefield, Gloucester, Belfast, Droghedaand Cork. Four stores were closed following relocations to larger stores or asa result of a compulsory purchase order. By the year end we were trading from122 stores and 2.5 million square feet of retail selling space in the UK andRepublic of Ireland. The store opening programme for the first half of the new financial year willadd 0.3 million square feet and includes most of the stores acquired fromAllders in the first half of the year. Leicester and Lakeside Thurrock havealready opened and other new stores will open in Dundalk, Bromley, Hull, Cardiffand Oxford. Extensions will be made to a number of locations, most notably adoubling of the space at Hammersmith. On 1 November 2005 the main warehouse which supplies Primark in the UK wasdestroyed by a fire. The management team responded well and, working withsuppliers and our logistics provider, alternative arrangements were quickly madeto continue the supply of stock to the UK stores. The business in Ireland wasunaffected since it is supplied by a separate warehouse. In July we completed the acquisition of Littlewoods stores which comprised anestate of 120 premises. This was a unique opportunity to acquire a portfolio oflarge stores in attractive high street locations. We intend to close theLittlewoods business in early January 2006 and its trading to date has been inline with our expectation at the time of acquisition. A provision of £47m hasbeen made in these accounts for the full business closure costs. We intend to refurbish and refit 41 of these stores as Primark adding a further1.2 million square feet of selling space from spring 2006 until early 2007. Thecapital expenditure is expected to be some £250m bringing the total investment,net of disposals, to some £500m and the operating profit return is expected toexceed the group's pre-tax cost of capital in the first full year of trading. Of the remaining 79 stores, agreement has already been reached to sell over halfwith completion agreed for early 2006. Negotiations to dispose of the remainingstores continue and there has been a high degree of interest in the saleprocess. This investment programme will result in a 60% increase in the selling space ofPrimark from 2.5 million square feet today to over 4 million square feet at thebeginning of 2007. We believe that there will be opportunities to expand theestate further. FINANCE DIRECTOR'S REPORT GROUP PERFORMANCE Group sales increased by 9% to £5,622m and operating profit, before theamortisation of goodwill, increased by 18% to £565m. The significant increase in operating profit mainly reflected the acquisition ofthe international yeast and bakery ingredients business and the US herbs &spices business at the beginning of the year and an outstanding performance fromPrimark. Good progress was made by many of our businesses, particularlyinternational hot beverages, British Sugar Overseas and agriculture but ouroverall result was held back by profit declines at British Sugar in the UK andour bakery business in Australia. The disposal of properties no longer required by the group resulted in a profiton disposal of fixed assets of £20m which compares with £8m last year. A lossof £6m on the disposal of two agriculture businesses during the year wasprincipally due to the charging to the profit and loss account of goodwillpreviously written off to reserves on the original acquisitions. Investment income less interest payable reduced from £36m to £15m following thesubstantial cash outflow on acquisitions during the period, over £660m of whichwas incurred at the beginning of the year. Other financial income, whichrepresents the return on the group's defined benefit pension scheme assets lessthe interest on scheme liabilities, amounted to £10m. Profit before tax fell from £494m to £479m reflecting a provision of £47m forthe costs of closing the Littlewoods business, a £32m increase in the goodwillamortisation charge arising on recent acquisitions, and the net profit on thesale of fixed assets and businesses. Adjusted to exclude these items, profitbefore tax increased 12% from £525m to £590m. TAXATION The tax charge of £139m included an underlying charge of £165m, at an effectivetax rate of 28.0% on the adjusted profit before tax described above. Theeffective tax rate has been reduced as a result of an increase in the profitssubject to a lower tax rate. The overall tax charge for the year benefited froma £15m (2004 - £9m) credit for tax relief on the amortisation of goodwillarising from recent 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 reduced by £9m to £333m and the weighted average number of shares inissue remained constant at 789 million. Earnings per ordinary share thereforefell by 3% from 43.3p to 42.2p. A more consistent measure of performance isprovided by the adjusted earnings per share which excludes the provision for theclosure of Littlewoods, profits on the sale of businesses and fixed assets andthe amortisation of goodwill net of any tax benefit. Adjusted earnings pershare increased by 14% from 46.6p to 53.0p. The interim dividend was increased by 14% to 6.0p and a final dividend has beenproposed at 12.0p which represents an overall increase of 10% for the year.Dividends will cost a total of £142m and £191m will be transferred to reserves.The dividend is covered, on an adjusted basis, 2.9 times. BALANCE SHEET Fixed assets increased by £1,235m to £3,287m due to the additional tangibleassets and goodwill arising on acquisitions in the year, the acquisition of theLittlewoods stores and, with a much higher investment in Primark, a level ofcapital expenditure significantly higher than depreciation. Our interest injoint ventures increased by £24m almost all of which relates to the cost ofacquisition of our interest in Frontier Agriculture Limited. On 4 April 2005 wecontributed our Allied Grain business to a joint venture with Cargill PLC whocontributed their UK grain trading operations. Both parties have a 50% interestin the new business. The transaction has been accounted for as a part disposalof our original investment and the acquisition of 50% of the Banks CargillAgriculture operation. The segmental analysis includes the sales of AlliedGrain up to the date of disposal. Sales of the joint venture thereafter areexcluded from group turnover. Net cash funds, being current asset investments and cash at bank less short-termborrowings and loans, were £1,034m lower than last year at £224m. Workingcapital, including tax and dividend accruals, increased by £56m. Pension assets, which are the net of the market value of the assets andliabilities, net of tax, of the group's defined benefit pension schemes, fell by£7m but remain in surplus at £51m. The group's net assets increased by £229m to £3,725m. A currency gain of £29m arose on the translation into sterling of the group'snon-sterling net assets. This largely resulted from a strengthening of theAustralian dollar against sterling year on year. Although operating profit increased substantially, the high level of investmentmade this year in acquisitions and capital expenditure has resulted in a smalldecline in return on capital employed for the group from 24.4% to 24.0%. Returnon capital employed is defined as operating profit before the amortisation ofgoodwill expressed as a percentage of average capital employed for the year. CASH FLOW Net cash flow from operating activities was £647m compared to £631m last year.The increase in operating profit before goodwill amortisation and deprecationcontributed £110m of additional cash generation which was partly offset by anadverse working capital movement year on year of £69m and an increased level ofpension contributions. Capital expenditure during the year was £403m of which £221m was spent on theacquisition of new stores and the refitting of existing Primark stores. Thebalance was used principally to upgrade, modernise and expand existingmanufacturing facilities including investment in new factories in Australia andChina. In addition to the expenditure on new Primark stores included withincapital expenditure, a further £407m is included in acquisitions in respect ofthe purchase of the Littlewoods business. £657m was spent on the AB Mauriacquisition and a further £66m was spent on the acquisitions of smallerbusinesses to complement our grocery and ingredients operations together withthe buyout of a number of minority interests in our Polish sugar businesses.£18m was contributed for the shares in the Frontier joint venture and £8m wasrealised on the disposal of small businesses resulting in a net cash outflow onacquisitions and disposals of £1,140m. TREASURY POLICY AND CONTROLS The group's cash and current asset investments totalled £1,198m at the year endincluding £660m placed with professional investment managers who have fulldiscretion to act within closely monitored and agreed guidelines. The investment objective is to preserve the underlying assets, whilst achievinga satisfactory return. The investment guidelines are kept under constant reviewwith the objective of monitoring and controlling risk levels. The guidelinesrequire that investments must carry a minimum credit rating of AA-/A1 for longand short-term paper respectively, and also set down conditions relating tosovereign risk, length of maturity, exchange rate exposure and type ofinvestment instrument. Aggregate limits for each category of investment andrisk exposure are set for each manager. The group's UK cash balances are managed by a central treasury departmentoperating under strictly controlled guidelines, which also arranges term bankfinance for acquisitions and to meet short-term working capital requirementsparticularly for the sugar beet and wheat harvests. A number of the group's businesses are exposed to changes in exchange rates onsales and purchases made in foreign currencies and to changes in commodityprices. British Sugar is exposed to movements in the euro exchange rate on theprice of sugar in the UK and Poland, Primark sources garments from overseasprimarily in US dollars and many businesses purchase raw materials in foreigncurrencies largely US dollar denominated. Significant cross-border transactions are covered by forward purchases and salesof foreign currency, or foreign currency options as appropriate. The majorityof the group's commodity exposures are managed through forward purchasecontracts with only very limited use being made of options. All derivativetransactions are tightly controlled within set limits and speculative trading isnot undertaken. The group does not hedge the translation effect of exchangerate movements on the profit and loss account. The group regards its interestin its overseas subsidiary undertakings as long-term investments and does nothedge the translation effect of exchange rate movements on them. FINANCIAL REPORTING STANDARDS AND ACCOUNTING POLICIES There have been no changes in accounting policies during the year.International Financial Reporting Standards (IFRS) will be adopted for the yearending 16 September 2006, the impact of which was described in our accounts for2004. The principal differences identified were accounting for financialinstruments, intangible assets and deferred tax although the impact on adjustedearnings per share is not expected to be material. The form and content of ourfinancial statements will also be different under IFRS. Our 2005 results, netassets and cash flows, restated in accordance with IFRS, will be published inDecember 2005. POST BALANCE SHEET EVENT On 1 November 2005 the main warehouse which supplied Primark in the UK wasdestroyed by fire. The group is fully insured for the consequent stock loss andbusiness interruption. The warehouse was owned by a third party. John Bason Finance Director The annual report and accounts will be available on 10 November 2005 and theannual general meeting will be held at The Royal College of Surgeons, London at11am on Friday, 9 December 2005. CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 17 September 2005 Continuing Ongoing Acquisitions Total Total 2005 2005 2005 2004 £m £m £m £m NoteTurnover of the group including its share of 5,341 433 5,774joint ventures 5,181Less share of turnover of joint ventures (140) (12) (152) (16)Group turnover 1 5,201 421 5,622 5,165 Operating costs (4,749) (396) (5,145) (4,744)Group operating profit 452 25 477 421 Share of operating results of: joint ventures 2 2 4 8 6 - 6 3associatesTotal operating profit 1 460 27 487 432 Operating profit before 506 59 565 478 amortisation of goodwill Amortisation of goodwill (46) (32) (78) (46) Profits less losses on sale of fixed assets 20 8Profits less losses on sale of businesses (6) 7Provision for loss on termination of an operation (47) -Investment income 49 59Profit on ordinary activities before interest 503 506 Interest payable (34) (23)Other financial income 10 11 Profit on ordinary activities before taxation 479 494 Adjusted profit before taxation 590 525 Profits less losses on sale of 20 8 fixed assets Profits less losses on sale of (6) 7 businesses Provision for loss on termination 2 (47) - of an operation Amortisation of goodwill (78) (46) Tax on profit on ordinary activities 3 (139) (146)Profit on ordinary activities after taxation 340 348Minority interests - equity (7) (6)Profit for the financial year 333 342Dividends 4 (142) (129)Transfer to reserves 191 213 Basic and diluted earnings per ordinary share 5 42.2p 43.3pAdjusted earnings per ordinary share 5 53.0p 46.6p The results of acquisitions shown separately above are those of both the USherbs & spices business (sales and operating profit: £97m and £12m) and theinternational yeast and bakery ingredients business (sales and operating profit:£324m and £47m) which were acquired from Burns Philp and which were negotiatedconcurrently. The acquisition of herbs & spices completed on 3 September 2004.The acquisition of yeast and bakery ingredients completed on 30 September 2004. The group has no discontinued operations within the meaning of the FinancialReporting Standards during either 2005 or 2004. CONSOLIDATED BALANCE SHEET at 17 September 2005 2005 2004 £m £mFixed assetsIntangible assets - 1,035 593goodwillTangible assets 2,252 1,459 3,287 2,052 Interest in net assets of - joint ventures 36 12 - associates 15 11Other investments - 1Total fixed asset 51 24investments 3,338 2,076Current assetsStocks 558 496Debtors 719 600Investments 901 1,547Cash at bank and in hand 297 136 2,475 2,779 Creditors amounts falling due within one yearShort-term borrowings (447) (68)Other creditors (958) (829) (1,405) (897)Net current assets 1,070 1,882 Total assets less current liabilities 4,408 3,958 Creditors amounts falling due after one yearLoans (527) (357)Other creditors (4) (8) (531) (365)Provision for liabilities and charges (203) (155)Net assets excluding pension assets and liabilities 3,674 3,438Pension assets 68 58Pension liabilities (17) -Net assets 3,725 3,496 Capital and reservesCalled up share capital 47 47Revaluation reserve 3 3Other reserves 173 173Profit and loss reserve including pension reserve 3,473 3,246Equity shareholders' 3,696 3,469funds Minority interests in subsidiary undertakings - 29 27equity 3,725 3,496 CONSOLIDATED CASH FLOW STATEMENT for the year ended 17 September 2005 2005 2004 Note £m £m Cash flow from operating activities 6 647 631Dividends from joint ventures 2 4Dividends from associates 2 2Return on investments and servicing of financeInvestment income 54 55Interest paid (29) (23)Dividends paid to minorities (4) (1) 21 31 Taxation (132) (128) Capital expenditure and financial investmentPurchase of tangible fixed assets (403) (223)Sale of tangible fixed assets 39 29 Loan repayment from joint venture 51 - (313) (194)Acquisitions and disposalsPurchase of subsidiary undertakings (1,130) (229)(Purchase)/sale of joint ventures and associates (18) 1Sale of subsidiary undertakings 8 24 (1,140) (204) Equity dividends paid (135) (119) Net cash inflow before use of liquid funds and financing (1,048) 23 Management of liquid resources 649 (18) FinancingBorrowings due within one year - repayment of loans (111) (97) - increase in loans 476 81Borrowings due after one year - repayment of loans (205) (6) - increase in loans 375 2Increase/(decrease) in bank borrowings 9 (6)Inflow from reduction in/(increase in cost of) 7 (2)own shares held 551 (28) Increase/ (decrease) in cash 152 (23) CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 17 September 2005 2005 2004 £m £m Profit for the financial year 333 342Actuarial (losses) / gains on net pension assets (7) 43Deferred tax associated with net pension assets - (13)Currency translation differences on foreign 29 (75)currency net assetsTax on currency translation differences (1) 1Total recognised gains and losses relating to the 354 298year CONSOLIDATED STATEMENT OF HISTORICAL COST PROFITS for the year ended 17 September 2005 There is no material difference between the group results as reported and on an unmodified historical cost basis.Accordingly no note of historical cost profits and losses has been prepared. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDSfor the year ended 17 September 2005 2005 2004 £m £m Opening shareholders' funds 3,469 3,304Profit for the financial year 333 342Dividends (142) (129)Goodwill written back 7 (3)Net decrease/(increase) in own shares held 8 (1)Other recognised gains and losses relating to the 21 (44)yearClosing shareholders' funds 3,696 3,469 NOTES TO THE PRELIMINARY ANNOUNCEMENT for the year ended 17 September 2005 1. Segmental analysis Group turnover Operating profit Capital employed 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m Analysis by business Grocery 2,608 2,446 188 160 835 765 Primary food & agriculture 1,541 1,672 187 189 672 686 Ingredients 603 294 72 36 335 125 Retail 1,006 858 140 108 515 338 Inter company sales (147) (165) - - - - Central costs / capital employed - - (22) (19) 342 (24) 5,611 5,105 565 474 2,699 1,890 Businesses disposed: Grocery - 22 - 1 - 2 Primary food & agriculture 11 38 - 3 - 4 5,622 5,165 565 478 2,699 1,896 Amortisation of goodwill - - (78) (46) - - 5,622 5,165 487 432 2,699 1,896 Analysis by geography (by origin and destination) United Kingdom 2,979 2,942 316 298 1,707 1,165 Rest of Europe 652 526 71 59 268 191 The Americas 1,104 865 108 66 328 255 Australia, Asia & Rest of World 959 834 70 51 396 279 Inter company sales (83) (62) - - - - 5,611 5,105 565 474 2,699 1,890 Businesses disposed: United Kingdom 11 41 - - - 4 Rest of Europe - 5 - - - 2 Australia, Asia & Rest of - 14 - 4 - - World 5,622 5,165 565 478 2,699 1,896 Amortisation of goodwill - - (78) (46) - - 5,622 5,165 487 432 2,699 1,896 Turnover and operating profit of the businesses acquired from Burns Philp areincluded in the grocery and ingredients segments and amount to £114m and £319mrespectively in sales and £22m and £37m respectively in operating profit. Turnover for primary food & agriculture in 2005 includes sales of £171m by theAllied Grain business up to the point of its disposal to Frontier AgricultureLimited, a joint venture in which the group has a 50% interest. Sales made bythe joint venture thereafter are not consolidated. The amortisation of goodwill arises in primary food & agriculture £1m (2004 -£2m), ingredients £35m (2004 - £6m) and grocery £42m (2004 - £38m). Bygeography, the charge arises in the United Kingdom £10m (2004 - £11m), Rest ofEurope £21m (2004 - £8m), the Americas £37m (2004 - £23m) and Australia, Asia &Rest of World £10m (2004 - £4m). Capital employed comprises tangible fixed assets, interests in joint venturesand associates, current assets (excluding deferred tax, cash and investments),creditors (excluding borrowings, tax and dividends), and provisions forliabilities and charges excluding deferred tax. A reconciliation of capitalemployed to net assets together with an analysis of goodwill by segment is shownbelow. Reconciliation to Net Assets 2005 2004 £m £m Capital employed 2,699 1,896 Goodwill 1,035 593 Other investments - 1 Current asset investments 901 1,547 Cash 297 136 Borrowings (974) (425) Tax (117) (114) Dividends (95) (88) Deferred tax (72) (108) Pension asset 51 58 Net assets 3,725 3,496 Goodwill shown in the above reconciliation arises in primary food & agriculture£26m (2004 - £19m), ingredients £517m (2004 - £50m) and grocery £492m (2004 -£524m). By geography, the goodwill arises in the United Kingdom £93m (2004 -£83m), Rest of Europe £321m (2004 - £152m), the Americas £470m (2004 - £346m)and Australia, Asia & Rest of World £151m (2004 - £12m). 2. Provision for loss on termination of an operation On 30 July 2005 the entire issued share capital of Littlewoods Stores Limited,St James's Street Properties Limited and Littlewoods Stores Holdings Limited ("Littlewoods") was acquired. The group intends to close the Littlewoodsbusiness by mid January 2006. Provision of £47m has been made in these accountsfor the costs associated with the termination of this business. The tax effectof these costs reduces the group's tax charge by £11m. 41 of the storesacquired are expected to be retained and will be refitted and trade as Primark.The remaining stores will be sold. 2005 2004 £m £m3. Tax on profit on ordinary activities The charge for the year comprises: UK corporation tax at 30% (2004 - 30%) 84 94 Overseas income and corporation tax 48 30 Joint ventures and associates 3 2 Current tax charge 135 126 UK deferred tax (5) 7 Overseas deferred tax 9 13 Total tax charge 139 146 Add back: Tax credit on goodwill amortisation 15 9 Tax credit/(charge) on exceptional items 11 (4) Underlying tax charge 165 151 4. Dividends First interim dividend of 6.00p per share 47 41 (2004 - 5.25p) Proposed final dividend of 12.00p per share (2004 - 95 88 11.15p) 142 129 The first interim dividend was paid on 4 July 2005. The proposed final dividend will be paid on 13 January 2006. 2005 2004 £m £m5. Earnings per ordinary share Adjusted profit for the financial year 418 368 Profits less losses on sale of fixed assets 20 8 Profits less losses on sale of businesses (6) 7 Provision for loss on termination of an (47) - operation Tax effect on above 11 (4) Amortisation of goodwill (78) (46) Tax credit on goodwill amortisation 15 9 Profit for the financial year attributable 333 342 to shareholders Adjusted earnings per ordinary share 53.0p 46.6p Earnings per ordinary share on: - sale of fixed assets 2.5p 1.0p - sale of businesses (0.8p) 0.9p - provision for loss on termination (5.9p) - of an operation - tax effect on above 1.4p (0.5p) adjustments - amortisation of goodwill (9.9p) (5.8p) - tax credit on goodwill 1.9p 1.1p amortisation Earnings per ordinary share 42.2p 43.3p The weighted average number of ordinary shares in issue during the year was 789million (2004 - 789 million). The calculation of the weighted average number ofshares excludes 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 businesses and fixed assets, provision for loss ontermination of an operation, goodwill amortisation and the associated taxcredits, is shown to provide clarity on the 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 789million (2004 - 789 million). 2005 2004 £m £m6. Reconciliation of operating profit to cash flow from operating activities Group operating profit 477 421 Amortisation of goodwill 78 46 Depreciation 161 139 (Increase)/decrease in working capital - stocks (33) 30 - debtors (20) (39) - creditors (9) 16 Other provisions - 4 Pension cost less contributions (8) 13 Other movement in own shares held reserve 1 1 Net cash from operating activities 647 631 2005 20047. Reconciliation of net cash flow to movement in net £m £m funds Increase/ (decrease) in cash 152 (23) Management of liquid resources (649) 18 Net (increase)/decrease in borrowings (544) 26 Change in net funds resulting from cash (1,041) 21 flows Effect of currency changes 11 8 On acquisition of subsidiary undertakings (4) (9) Movement in net funds (1,034) 20 Opening net funds 1,258 1,238 Closing net funds 224 1,258 8. Analysis of net funds At Cash Exchange At Acquisition adjustments 18 flow £m 17 September of September 2004 £m subsidiary undertakings 2005 £m £m £m Cash at bank and in hand 136 152 - 9 297 Short-term borrowings (68) (374) (4) (1) (447) Investments 1,547 (649) 1 2 901 Loans over one year (357) (170) (1) 1 (527) 1,258 (1,041) (4) 11 224 9. Other information The financial information set out above does not constitute the group's statutory financial statements for the years ended 17 September 2005 and 18 September 2004, but is derived from them. The 2004 financial statements have been filed with the Registrar of Companies whereas those for 2005 will be delivered following the company's annual general meeting. The auditor's opinions on these financial statements were unqualified and did not include a statement under section 237 (2) or (3) of the Companies Act 1985. ACCOUNTING POLICIES Basis of preparation These financial statements have been prepared under the historical costconvention as modified by the revaluation of certain assets, and in accordancewith applicable accounting standards and the Companies Act 1985. Basis of consolidation The group accounts comprise a consolidation of the accounts of the company andits subsidiary undertakings, together with the group's share of the results andnet assets of its joint ventures and associates. The financial statements of thecompany and its subsidiary undertakings are made up for the 52 weeks ended 17September 2005, except that, to avoid delay in the preparation of theconsolidated financial statements, those of the Australian, New Zealand, China,Poland and the North and South American subsidiary undertakings are made up to31 August 2005. Acquisitions The consolidated profit and loss account includes the results of new subsidiaryundertakings, joint ventures and associates attributable to the period sincechange of control. Disposals The results of subsidiary undertakings, joint ventures and associates sold areincluded up to the dates of change of control. The profit or loss on thedisposal of an acquired business takes into account the amount of any relatedgoodwill previously written off directly to reserves, or the net amount ofcapitalised goodwill remaining unamortised, as appropriate. Intangible fixed assets Intangible fixed assets consist of goodwill arising on acquisitions since 13September 1998, being the excess of the fair value of the purchase considerationof new subsidiary undertakings over the fair value of net assets acquired.Goodwill is capitalised in accordance with FRS 10 and amortised over its usefuleconomic life, not exceeding 20 years. Goodwill previously written off againstreserves has not been reinstated. Goodwill arising on the acquisition of jointventures and associates is included in the carrying value of the investments. Tangible fixed assets Tangible fixed assets are carried at their original cost less accumulateddepreciation. Depreciation Depreciation is provided on the original cost of assets and is calculated on astraight line basis at rates sufficient to reduce them to their estimatedresidual value. No depreciation is provided on freehold land or payments onaccount. Leaseholds are written off over the period of the lease. Theanticipated life of other assets is generally deemed to be not longer than: Freehold buildings 66 yearsPlant, machinery, fixtures and fittings - sugar factories 20 years - other operations 12 yearsVehicles 8 years Fixed asset investments Joint ventures and associates are accounted for in the financial statements ofthe group under the equity method of accounting. Other fixed asset investmentsin the group's accounts, and all fixed asset investments in the accounts of thecompany, are stated at cost less amounts written off in respect of anyimpairment. Stocks Stocks are valued at the lower of cost or net realisable value, after making dueprovision against obsolete and slow-moving items. In the case of manufacturedgoods the term "cost" includes ingredients, production wages and productionoverheads. Current asset investments Current asset investments are stated at the lower of cost or market value. Foreign currencies Monetary assets and liabilities denominated in foreign currencies are translatedinto sterling at rates of exchange ruling at the balance sheet date or at thecontracted rate as appropriate. The assets and liabilities of overseasoperations are translated into sterling at the rates of exchange ruling at thebalance sheet date. The results of overseas operations have been translated atthe average rate prevailing during the year. Exchange differences arising onconsolidation are taken directly to reserves. Other exchange differences aredealt with as part of operating profits. Group Turnover Turnover represents the net invoiced value of goods and services delivered tocustomers excluding sales taxes. Revenue is recognised when the risks andrewards of the underlying products and services have been substantiallytransferred to the customer. Pension and post-retirement benefits In accordance with 'FRS 17 - Retirement Benefits', the operating and financingcosts of pension and post-retirement schemes are recognised separately in theprofit and loss account. Service costs are systematically spread over theservice lives of the employees and financing costs are recognised in the periodin which they arise. The costs of past service benefit enhancements,settlements and curtailments are also recognised in the period in which theyarise. The difference between actual and expected returns on assets during the year,including changes in actuarial assumptions, are recognised in the statement oftotal recognised gains and losses. Research and development Expenditure in respect of research and development is written off againstprofits in the period in which it is incurred. Leases All material leases entered into by the group are operating leases, wherebysubstantially all of the risks and rewards of ownership of an asset remain withthe lessor. Rental payments are charged against profits on a straight linebasis over the life of the lease. Financial instruments Forward foreign exchange contracts and currency options are used to hedgeforecast transactional cash flows and accordingly, any gains or losses on thesecontracts are recognised in the profit and loss account when the underlyingtransaction is settled. Derivative commodity contracts are used to hedgecommitted purchases or sales of commodities and accordingly, any gains or losseson these contracts are recognised in the profit and loss account in the sameaccounting period as the underlying purchase or sale. Gains or losses arisingon hedging instruments that are cancelled due to the termination of theunderlying exposure are taken to the profit and loss account immediately. Deferred tax Provision for deferred tax is made on all timing differences that haveoriginated, but not reversed at the balance sheet date. A deferred tax asset isregarded as recoverable and therefore recognised only when it is regarded asmore likely than not that there will be sufficient future taxable profits.Deferred tax is not discounted. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
AB Foods