Results to 16/09/00 - Part 1
Associated British Foods PLC
8 November 2000
Part 1
Associated British Foods reshapes for growth
Preliminary results for year ended 16 September 2000
Highlights
* Worldwide sales up 2% to £4,414 million
* Operating profit up 4% to £340 million *
* Exceptional charge of £130 million, of which £12 million is a cash
cost, for rationalisation of manufacturing and processing facilities
* Investment income reduced from £84 million to £61 million
following payment of special dividend in May 1999
* Profit before tax reduced from £389 million to £383 million *
* Adjusted earnings per share up 8% at 34.1p *
* Dividends per share up 5% to 11.25p
* £981 million cash
*before exceptional items and amortisation of goodwill
Peter Jackson, Chief Executive of Associated British Foods, said:
'During the year we took firm action towards achieving our twin goals
of sustainable real profits growth and long term cash generation. The
combination of a reshaped group and our financial strength positions us
well to develop our existing businesses as well as new areas for growth.'
For further information please contact:
Until 1500 only
Peter Jackson, Chief Executive
John Bason, Finance Director
Geoff Lancaster, Head of External Affairs
Tel: 020 7638 9571
After 1500 only
John Bason, Finance Director
Tel: 020 7589 6363
Jonathan Clare/Andrew Cornelius, Citigate Dewe Rogerson
Tel: 020 7638 9571
CHAIRMAN'S STATEMENT
I am pleased to be able to report that before exceptional charges and
amortisation of goodwill, group profit at the operating level has once
again recorded positive growth at £340 million compared with £326
million in 1999, an increase of 4 per cent over last year.
This increase was achieved despite a combination of adverse economic
factors which intensified throughout the year. The continued
strengthening of the pound sterling, against nearly all predictions,
resulted in a profit impact on the contribution from British Sugar of
no less than £19 million.
The UK agricultural sector continued to suffer from the worst economic
conditions for many years. As the largest operator in the UK
agribusiness sector we have not been immune from these pressures.
Against this background, and an environment of flat, or declining,
prices and margins in food retailing and manufacturing, to have
recorded this increase in operating profit shows the resilience of our
operations.
In reporting to shareholders last year, I indicated that a rigorous
review of the group's operations was underway. As a result, exceptional
items totalling £130 million, of which £12 million is a cash cost, have been
charged against the profit for the year. These charges arise from decisions
taken to dispose of, close or restructure a number of our manufacturing and
processing operations, both in the UK and overseas.
Following the payment of the special dividend of £448 million to
shareholders in May 1999, investment income was budgeted at a lower
level in the current year. In the event, investment income of £61
million, although lower than the previous year by some £23 million, was
ahead of our budgets despite the additional impact of lower average
interest rates.
Group profit before tax, after the charge for exceptional items, was
£247 million. At the post-tax level, earnings per share declined from
21.4p to 17.5p but, adjusting for exceptional items and amortisation of
goodwill, increased by 8 per cent to 34.1p.
Our operating companies, for the most part, performed strongly and, in
a number of instances, produced sharply improved results.
Despite the impact of the strong pound and the general depression
affecting UK farming, like-for-like profits in our agricultural
processing businesses were marginally ahead of the previous year. The
principal factors contributing to this increase were improved returns
from UK flour milling and our sugar operations in China.
In ingredients and oils, both SPI Polyols and Rohm Enzyme delivered excellent
results and Abitec, in the UK and US, also produced further like-for-like
double digit growth.
In grocery, although ongoing rationalisation costs and continued price
pressures reduced the contribution from UK baking, other companies,
notably Ryvita and Westmill Foods, significantly increased underlying
profits.
Primark, our retail textile business, achieved a 19 per cent increase
in operating profit and continued to gain increased recognition and
share in its highly competitive marketplace.
There was a welcome improvement in the contribution from our
Australasian companies driven by significantly improved profits in
milling and baking and a contraction in the level of spend on new IT
systems.
I referred earlier to the business review undertaken which has resulted
in the significant exceptional charge this year. Both in the UK and
overseas, our manufacturing and processing operations have been facing
increasingly severe price competition and margin contraction, arising
from surplus capacity in many of the basic food industries in which our
companies are involved. As stated above, the agricultural sector in
this country confronted depressed markets, a situation exacerbated by
an over-valued pound sterling.
With these pressures showing no signs of abating, it is essential to
focus only on those activities where we have a competitive advantage
and sufficient scale to make a significant contribution to our twin
objectives of sustainable real profit growth and generation of long
term free cash flow.
The strategic review of our UK and overseas manufacturing activities
has resulted in the decision to dispose of, close, or restructure those
areas of our business which have not been meeting these criteria.
During the year we sold our UK own label ice-cream manufacturing
company and wheat starch operations. In both instances, we have
released capital which was earning inadequate returns. Since the year
end we have sold Burton's, our UK biscuit and confectionery company.
The biscuit market in the UK suffers from over-capacity and negligible
growth and, given the relative weakness of Burton's competitive
position, the decision was taken to exit this market. The sale
proceeds of £130 million will generate an exceptional profit and the
cash will be redeployed in those sectors of our activities targeted for
further long term growth. We have also sold our UK industrial fats
business which, as a marginal player in a commodity industry, did not
fit with the group's longer-term objectives.
The exceptional charges of £130 million allow for restructuring by
disposal or closure of manufacturing and processing activities in this
country, the US and the Far East. The major portion of this charge
relates to the write down of redundant or over-valued fixed assets.
The related cash costs will not be material to the group and completion
of the restructuring programme will result in improved profitability
and the release of surplus capital.
We have continued with our conservative treatment of charges for
ongoing reorganisation and closure. During the year we absorbed
against operating profits an additional £26 million in respect of
closures and redundancies in our existing businesses in the drive for
improved efficiencies.
Once again the group generated a positive cash flow after capital
expenditure and investment in acquisitions net of disposals across the
group. Acquisitions cost £78 million and were partially offset by £54
million of proceeds from the sale of our UK ice-cream and wheat starch
operations. The net result for the year was an inflow of funds of £116
million.
The group's record of investment in its existing operations has been
consistent and significant. In the past ten years, the operating
companies have invested over £2.2 billion in new fixed capital
expenditure. This policy of investing in modern equipment will
continue given the unrelenting pressures to achieve operating
efficiencies. However, capital investment for its own sake is not a
virtue and therefore the review, evaluation and monitoring of such
expenditures will be further tightened to ensure that future fixed
capital expenditure generates value added return and is directed to
those areas of our business which are targeted for growth. Capital
expenditure in the past year of £182 million was £77 million below
1999.
Much of the focus in the past year has been on the rationalisation and
restructuring of our existing businesses, but we have not been
deflected from the equally important requirement to develop our core
activities. In pursuit of this policy, we have invested in acquiring
businesses which will strengthen our market presence by expanding
product category or geographical spread. In particular we have
invested further in the added value food and healthcare ingredient
market in the US with the acquisition of the polyols business of Lonza
which, combined with our SPI business, makes us the number two supplier
in the US polyols market. In Europe we acquired Rohm Enzyme which is already
performing ahead of expectations and is set to become a leading supplier of
enzymes to food, industrial and animal feeds markets throughout the world.
We have continued to invest in the development of Primark and during
the past year opened our 100th store. Once again this division
recorded double digit growth in sales and profits reflecting the steady
expansion of the store base in recent years. Since the year end we
have acquired a further six stores from C & A which, together with a
number of other new sites in the pipeline, will provide further
development in the next two years. Although Primark has achieved
remarkable growth in sales, profit and market share there are still
great opportunities available as we expand into major conurbations
where we have hitherto had no presence.
We operate in an environment where competitive pressures are no longer
domestic, but global, where excess capacity is endemic, and where low
inflation is moving towards price deflation. If we are to prosper and
grow in such a world, we must focus on those areas of our business
which have strong market positions and where, by competitive
efficiency, we can make real profit improvement.
We are taking major steps to improve the focus of our traditional
businesses. We are giving equally urgent attention to the development
of newer, less commoditised, technologies in the provision of food and
healthcare ingredients. We have increased the pace of our investment
in these sectors and the rate of development will be accelerated by
acquisitions. These will be targeted in areas which will bring wider
but related formulation and process skills, significant market presence
and able management.
The strong positive cash flow from our operations and the inherent
strength of the group's balance sheet provide us with the resources to
achieve these objectives. The impact of change is rarely comfortable,
but the management of this company is committed to embracing the
process to drive the company forward into its next growth phase.
Board changes
In May it was announced that Garry Weston was retiring as Chairman
because of his continuing poor health and that I was appointed
Chairman. George Weston was appointed Deputy Chairman and continues as
Chief Executive of Allied Bakeries.
As previously announced, Trevor Shaw retired in December 1999 from his
full time executive role as company secretary with responsibility for
legal matters. In May 2000 he retired as a director of the company.
Dividends
The directors have declared a second interim dividend of 7.0p per share
(1999 - 6.5p) which will be paid on 19 February 2001 to shareholders
registered at the close of business on 2 February 2001. This makes a
total dividend for the year of 11.25p, an increase of 5 per cent on the
previous year excluding the special dividend payment.
Employees
I have referred to the pressures of operating in adverse conditions at
home and overseas. Our employees everywhere are rising to meet these
constant challenges and I take this opportunity to thank them for their
great contributions.
Harry Bailey
Chairman
CHIEF EXECUTIVE'S REPORT
Sales for the group increased 2% to £4,414 million and operating
profit, before exceptional items and amortisation of goodwill,
increased 4% to £340 million. This result included excellent
performances from a number of businesses and served to emphasise the
strength and depth of the group's operations.
During the year we faced a number of specific difficulties: the
effect of the weakening of the euro on the sugar support price,
volatility in the pig market, continuing difficulties in our UK
wheat starch operations as well as operational issues in our US
commodity vegetable oil processing business. This report
highlights how each of these has been, or is being, addressed.
Our twin goals for the future are sustainable growth and strong cash
flow. We have assessed each of our businesses against these
objectives. Where we believe a positive contribution can be achieved,
we will invest or restructure as necessary. In other cases, we will
look to realise value though disposal.
Our review highlighted the need for significant restructuring in
certain businesses. Action is already being taken in Allied Bakeries
and Allied Mills to rationalise their cost base. British Sugar has
announced a major appraisal of its manufacturing assets and ACH in the
US has announced its intention to move away from commodity oil
processing to focus fully on its value added business.
The exceptional charges of £130 million charged against profits in the
year, of which £12 million was a cash cost, allow for restructuring by
disposal or closure of manufacturing and processing facilities across
the group. In addition £26 million was charged in the year in respect
of costs for closures and redundancies in our businesses.
During the year we sold our UK own label ice-cream and wheat starch
businesses. Since the year end we have sold Burton's, our UK biscuit
and confectionery business, Rowallan, our industrial fats business, and
have also agreed to the phased sale of our UK 'pig breeding to
abattoir' operations. These businesses were sold because they could
not contribute to our long term goals.
Our group now consists of a breadth of businesses each with the
potential to meet our demanding requirements. We will not however
achieve our objectives solely by organic growth. A strong emphasis on
the acquisition of new businesses is crucial to the future, whether it
is to consolidate existing positions, expand from positions of strength
or to take the group into new areas. These areas will have been
researched and will create the new platforms necessary for growth. Some
of these moves will inevitably be significant but the timing and size of
any transaction will, as always, be determined solely by the best
interests of shareholders.
In order to unlock the full potential in our business, three new
organisational groupings have been established in the UK with effect
from the beginning of the new financial year:
* Primary food brings together the large scale processing businesses
in sugar and UK milling as well as international seed processing.
* Agriculture combines, for the first time, all the UK and Chinese
animal feeds businesses as well as arable merchanting.
* Five of our UK consumer products businesses have been brought
together in a single organisational group.
Allied Bakeries remains separate to provide the management focus needed
for the restructuring task it faces. These groupings sit alongside our
other businesses: George Weston Foods in Australia, Primark, Allied
Glass Containers and the businesses, ACH, SPI and Abitec which comprise
ingredients and oils.
I believe that the concentration of expertise provided by these changes
and the synergies that will be created give us the focus we need to
achieve our objectives.
PRIMARY FOOD AND AGRICULTURE
Primary food focuses on the large scale processing of agricultural
crops into major ingredients for the food industry. It operates
Europe's most efficient sugar facilities as well as being one of
Europe's biggest flour producers. It also has significant sugar
operations in Poland and China.
British Sugar performed well during the year, processing 1.55 million
tonnes of sugar representing the second largest crop in history. All
factories achieved high levels of efficiency and the new combined heat
and power plant (CHP) at the Bury factory, following the similar
investment at Wissington in 1998, has delivered its first full year's
contribution.
Sales have remained strong at British Sugar and this year's large crop
has largely offset a ten year low in world sugar prices. Institutional
sugar prices, quoted in euros, are fundamental to the profitability of
British Sugar. The further weakening of the euro caused the effective
sugar support price in the UK to fall by 8% during the year. This had
an adverse profit effect on British Sugar of £19 million, but was
partially offset by better production efficiencies.
As anticipated, the European Commission reduced the UK beet sugar
production quota by 2%. This quota reduction was smaller than we
expected and the net financial effect on British Sugar will not be
significant.
The pressure on margins arising from currency movements and the
expected review by the European Union of the sugar regime has led
British Sugar to announce a fundamental appraisal of its cost base
which, when completed, will leave the business well placed to cope with
such pressures.
In April, British Sugar concluded a long running negotiation with the
National Farmer's Union which agrees the sugar beet supply contract on
behalf of the 8,500 beet growers. The contract, known as the
Interprofessional Agreement, had remained fundamentally unchanged since
1983 and agreement on its reform has been welcomed by both parties.
Hailed as the most progressive sugar beet supply contract in Europe, the new
arrangements, which are effective for the next five years, give a firm base
from which to take the industry forward.
In Poland, the sugar factories performed well by increasing extraction
and reducing costs against a background of improving market prices.
During the year we announced the acquisition of four additional factories from
a consortium of the Polish agri-processing group, Rolimpex, and Danish
company, Danisco, which will significantly strengthen our presence in Poland.
We are currently awaiting regulatory approval to complete the transaction.
In China, our factories contended with the worst crop damage from frost
for over 25 years but profits improved as higher sugar market prices
compensated for the loss of volume. Boqing became the first sugar
factory in Asia to be accredited with the quality mark ISO9002. Since
the year end the Huaiyuan sugar mill was acquired increasing our
Chinese production capacity to a critical mass of more than 225,000
tonnes.
An acquisition in the US this year by Germain's, our seed enhancement
business, has given it access to new coating and polymer technology and
has expanded growth opportunities particularly in South America and
Australia. To reflect the breadth of its operations, Germain's has
been renamed Germain's Technology Group. Research and development has
been relocated to a new purpose built facility at King's Lynn.
Allied Mills, our flour milling operation and one of the UK's largest
producers, achieved a good performance this year in a very competitive
market by successfully utilising gristing techniques to counteract the
poor quality crop. The business completed the latest phase of its
investment programme with the opening of its new flour and semolina
mills in Tilbury as well as the technically advanced heat treatment and
cake flour production systems at the Corby mill. The Ipswich and
Crayford mills were closed and Rochford was mothballed during the year
to complete the current programme of facilities restructuring.
Trading conditions in the UK starch market have been difficult. We did
not believe that ABR, our starch and glucose operation in Corby, was
well positioned to prosper in this market. Accordingly in September
2000 we sold the business to Roquette Freres whose core activities lie
in the starch industry. This move was in the best interests of ABR and
allows the group to focus on those businesses that maximise shareholder
value.
The businesses comprising the Agriculture group operate at the heart of
the agricultural industry with leading market positions in UK seed,
grain and animal feeds as well as having a significant position in the
Chinese animal feeds market.
Allied Grain, the UK's leading grain trader, performed to expectation
despite the lower crop yields from the UK harvest in 1999 and 2000. It
continued to strengthen its position in the market by establishing a
joint venture with Agrovista, the UK arm of the world's largest
agrochemical distributor. This will give access to the UK's largest
commercial crop trials network as well as handling Agrovista's seed,
fertiliser and grain requirements.
John K King, the specialist agricultural business supplying seeds and
buy-back contracts for crops, continued to perform strongly. It has
opened its first overseas office, in the US, and has also entered the
herb trading market. The Lincoln oil extraction plant, acquired last
year, has already substantially increased its output and sales.
ABN and Fishers, our animal feeds businesses, performed much better
during the year with Fishers recording a particularly strong profit
recovery from last year's disappointing results. Particular highlights
were the integration of the six animal feeds mills acquired from
Dalgety at the beginning of the year, the achievement of significant
cost savings in all parts of the business and increased share in the
pig, poultry and dairy feeds sectors.
Despite a slowdown in development of the feeds market in China this
year, there are encouraging prospects with the demand for quality food
increasing and continuing government support for ABN's system of safe,
healthy pigmeat production.
For a number of years, ABN has been a major breeder and processor of
pigs but its operating results have suffered from high volatility in
pig prices. Subsequent to the year end we announced the phased sale of
this business to Dalehead Foods with ABN continuing to supply feeds on
a long term basis.
INGREDIENTS AND OILS
Ingredients is a growth area for the group and we continue to focus on
applying our technical skills in producing functional ingredients from
natural products. These are used in an ever widening variety of
applications by the food industry as well as growth areas such as
personal care and pharmaceuticals.
Abitec, a leader in ingredients for food, pharmaceutical and personal
care products, performed well throughout the year, particularly in the
US in personal care lotions and other industrial markets. We continued
our investment programme during the year and projects completed include
a new laboratory and office complex in Janesville, US.
In Europe, Rohm Enzyme exceeded expectations in its first year of ownership
and is proving an important technological link between group companies with
its range of natural biological catalysts for food and personal care
applications. AB Ingredients achieved strong growth particularly in
confectionery toppings and fillings which helped to accelerate the move to
higher margin business and reduce dependence on the difficult plant bakery
market.
ACH Food Companies (formerly known as AC Humko), our Memphis based oils
and ingredients business, is working hard to improve profitability
following the settlement of the strike at its largest oil processing
plant at Champaign, Illinois. Early action to tackle operational
problems at the Greenville rice mill has led to significantly improved
profits from the rice business.
Since the year end a long term supply contract with Archer Daniels
Midland Company, a fully integrated soybean crusher and refiner, was
announced. ACH has taken the strategic decision to phase out refining
and bleaching of vegetable oils at Champaign, from early 2001, and to
focus on the marketing, development and manufacture of high value,
specialised shortening and oil products. As a result of this contract,
ACH will now concentrate on the marketing and selling of high volume,
commodity oils through both foodservice and retail channels. Since the
year end negotiations have been concluded with Procter & Gamble for the
acquisition of its branded foodservice oil business which will be
integrated into ACH's existing private label business after completion
of the transaction in January 2001. The closure of the oil and
shortening plant in Columbus, Ohio was announced in August 2000 with
completion expected in Spring 2001.
In November 1999, Pacific Grain Products was acquired. This business
is a leading grain based ingredient manufacturer, located in Woodland
California, and produces rice flour and flour blends, extruded
particulates and other speciality food ingredients. Its contribution
since acquisition has been ahead of expectations.
SPI polyols, our business acquired in 1998, continues to produce strong
results in a market characterised by robust demand. During the year it
acquired the polyol business of Lonza in the US creating the number two
supplier in that market. Lonza complements SPI's existing range of
speciality polyols and gives access to a wider customer base. The
former Lonza plant in Mapleton, Illinois produces both liquid and
crystalline sorbitol and a range of other products which, as
ingredients in sugar free products, replace the bulking function
normally carried out by sugar. The company also produces tablet grade
crystalline sorbitol which offers new opportunities for SPI Pharma, the
pharmaceutical ingredients division of SPI.
SPI Pharma is building its capabilities to service the pharmaceutical
industry with highly engineered ingredients designed to improve
finished dosage performance for the consumer yet be more cost effective
to produce.
GROCERY
Price and margin pressure continued in the UK bread industry during the
year. Allied Bakeries responded by further streamlining its business
with the closure of its bakeries in Aberdeen, Lytham, Ipswich and
Coleraine during the year. The Kingsmill brand was strengthened in the
premium bread sector with the successful launch of Tasty Wholemeal and
Tasty Crust. Branded bread has grown from 58% to 63% of Allied
Bakeries' volume and Kingsmill remains the leading UK bread brand.
Innovative product development is a key focus for us and during the
year we introduced organic product ranges including a partially baked
product for use in retailer in-store bakeries.
Speedibake, our specialist frozen bakery business, has faced difficult
trading conditions in a very competitive market. However during the
year Speedibake has developed its business through increased rates of
product innovation and by establishing category partnerships with
leading multiple retailers.
Twinings in the UK performed well during the year, growing its business
and returning record profits. This was achieved by the continued
growth of established products as well as new product introductions
such as additions to the herb tea and organic tea ranges.
Overseas, Twinings acquired a long established food distributor in
Sweden together with its previous distributor there. These will be
integrated with existing operations in Norway and Denmark to form a
unified food and drink distribution business across Scandinavia.
Profits were maintained in the US and new easy-opening packaging was
successfully launched in the Australian market.
Silver Spoon, our retail sugar business, successfully increased its
share in the UK tabletop sugar market through a strong product and
service offering to the major supermarkets and other trade customers.
Silver Spoon has become the only supplier that can offer a full range
of natural and calorie reduced products with the launch earlier in the
year of 'Nothing Comes Closer To Sugar'. Another successful extension
of the Treat range has been flavoured dessert toppings. Enhanced
service levels and reduced production costs will result from capital
investment in new packaging equipment at Bury.
Ryvita achieved substantial underlying profit growth compared to last
year. Sales of traditional crispbread increased both in the UK market
and for export. Extruded crispbread saw rapid growth in private label
with a major share gain in the French market. Organic Allinson
crackerbread was launched during the year following organic supplier
accreditation being granted to our Stockport factory. All the major UK
supermarkets have listed the product and it is already being exported
to Belgium.
Westmill Foods achieved significant improvement in profit this year
with increased sales volumes and improved margins in the rice and
noodle businesses. Continuing investment in new plant has strengthened
our position as a leading supplier of staple ethnic foods.
The sale of our own label ice-cream manufacturing business was
completed in May following regulatory approval. Since the year end we
have sold Burton's, our UK biscuit and sugar confectionery business,
and Rowallan, our industrial margarines and bakery fats business. The
sale of each of these businesses reflects our strategy to develop the
portfolio in areas which present the best opportunities for us to take
a market leading position.
RETAIL & PACKAGING
Our retail textile business, represented by Primark in the UK and
Penneys in Ireland, again achieved excellent results with sales up 18%
and profits up 19% on last year. Our value for money formula has
continued to prove extremely popular in the high street and like-for-
like sales grew by 10% over last year.
During the year we opened our 100th store following the opening of the
stores acquired last year from the Co-op. New stores were opened in
Hereford, Reading, Barnstaple, Basildon, Hemel Hempstead, Wrexham,
Stevenage, Lisburn, Hammersmith, Romford, Taunton and Wigan. Following
these new openings our total retail sales area has increased to nearly
1.5 million square feet and our stores now employ a total of over 6,200
people throughout the UK and Ireland. Following the closure of four
smaller stores the total at the year end was 96. The average size of
our stores has consistently increased over the years and the
Hammersmith and Reading stores have nearly 30,000 square feet of retail
space each.
During the year the UK operations and buying functions were combined
and moved to the refurbished premises in Reading where buying,
administration, operations and personnel are now located. After the
year end we announced that six new stores have been acquired from C&A.
The purchase of a number of further sites is currently being
negotiated.
Our glass packaging businesses, Lax & Shaw and Gregg & Company, have
now merged and trade under the Allied Glass Containers name. They
achieved an increased share in an oversupplied market helped by capital
investments across the business which resulted in higher productivity
and improved product quality. The recent programme of modernisation at
both plants, Knottingly and Leeds, is now complete and the combined
strengths of the two companies in the food and liquor sectors will
provide a solid platform for growth and improved margins.
AUSTRALIA & NEW ZEALAND
George Weston Foods, our major food processor in Australia and New
Zealand, achieved much improved results. Sales in local currency
increased by 10% and profits increased by £10 million to £27 million.
This improvement reflected improved trading, the acquisition of the Don
Smallgoods business and a reduction in the costs associated with
upgrading its information technology.
The consumer products divisions sharpened their marketing during the
year with a more innovative and market-focused approach to their
products. The baking division launched Noble Rise, a premium bread
range developed in Queensland, and Ruby's Home Bake, Australia's first
branded consumer par-bake bread range. A number of brands were
successfully relaunched including Tip Top and Golden.
The biscuit and cake division improved profits over last year. The
biscuit range was relaunched with packaging emphasising the Weston's
brand and was supported by a major marketing campaign and benefited,
together with a number of other products, from its successful
association as an Official Provider to the Sydney 2000 Olympic Games.
It enabled the company not only to showcase these products but also to
reward staff with tickets to events for outstanding contribution to the
business.
The milling division experienced strong domestic and export sales.
Capital was invested in the reconditioning of plant and equipment in
Queensland and the commissioning of a new flour mill in Port Adelaide.
The meat and dairy division performed well despite increased input
costs. Don's has met expectation since acquisition in October 1999 and
the integration of its operations with Chapman's is on schedule with
the transfer of meat processing from Nairne, South Australia to
Melbourne.
The upgraded group information technology system is now operational and
the focus will be to maximise the benefit from this.
Peter Jackson
Chief Executive
FINANCE DIRECTOR'S REPORT
GROUP PERFORMANCE
Sales for the group including its share of joint ventures increased by
2%, or £106 million, to £4,414 million. Sales were not materially
affected by currency translation.
Operating profit before exceptional items and the amortisation of
goodwill increased by 4%, or £14 million, to £340 million. The most
significant impact of currency movements compared to last year was in
British Sugar where the weakening of the euro reduced the sugar support
price and reduced profits by £19 million. In addition, the effect of
currency on the translation of our overseas results reduced profits by
a further £4 million.
The exceptional operating charge of £130 million reflects the results
of a review of the group's activities undertaken during the year. The
group has now embarked upon a programme to dispose of, close or
restructure a number of its manufacturing and processing facilities
worldwide. The charge comprises £118 million write down of fixed asset
carrying values and, where a constructive obligation has been created,
provision has been made for an estimate of the associated cash costs,
including redundancy, amounting to £12 million.
During the year the group disposed of its low margin UK own label ice-
cream and wheat starch businesses. The net proceeds from the disposals
covered their net asset values resulting in no significant impact on
the profit and loss account.
Investment income decreased from £84 million in 1999 to £61million this
year. This mainly reflects the lower funds available for investment
following the payment of the special dividend at a cost of £448 million
on 14 May 1999 but also the lower average interest rate this year
compared to 1999.
Profit before tax reduced from £300 million to £247 million as a result
of the higher level of exceptional charges in 2000 and the lower
investment income.
TAXATION
The tax charge of £111 million represents an effective tax rate of
29.0% (1999 - 29.6%) on the profits from underlying operations. No tax
relief is available on the exceptional items and amortisation of
goodwill.
EARNINGS AND DIVIDENDS
After the effect of the exceptional charges and lower investment
income, earnings decreased by £46 million to £138 million. The
weighted average number of shares in issue decreased from 860 million
to 789 million as a result of the share consolidation that took place
on 7 May 1999. Earnings per ordinary share decreased from 21.4p to
17.5p. However, after adjusting for exceptional items and amortisation
of goodwill, earnings per share increased by 8% from 31.7p to 34.1p.
The first interim dividend of 4.25p and a second interim dividend of
7.0p will produce an increase of 5% for the year. Dividends will cost
a total of £89 million. Dividend cover, after adjusting for
exceptional items and amortisation of goodwill, is 3.0 times (1999 -
2.9 times). £49 million will be transferred to reserves.
BALANCE SHEET
Net cash funds, being current asset investments and cash at bank less
short term borrowings and loans, increased by £110 million to £981
million reflecting the cash generated by the group in the year.
Fixed assets marginally declined by £20 million to £1,647 million with
additions from capital expenditure and acquisitions being more than
offset by depreciation, disposals and the asset write down of £118
million included in the exceptional charge. Working capital, being
stocks and debtors less other creditors and provisions was virtually
unchanged.
As a consequence the group's net assets increased by £88 million to
£2,841 million.
A currency gain of £50 million arose on the translation into sterling
of the group's non-sterling net assets principally relating to the
group's net assets in the US.
CASH FLOW
Net cash flow from operating activities was £445 million, a £25 million
increase on last year.
Capital expenditure during the year was £182 million and has been used
principally to upgrade, modernise and expand existing manufacturing
facilities and also for investment in new Primark stores.
The acquisition spend during the year was £78 million and the more significant
purchases were Rohm Enzyme in Germany and the Lonza polyol business in the US.
Disposals proceeds were £54 million for the UK ice-cream and wheat starch
businesses.
POST BALANCE SHEET EVENTS
On 27 October 2000, the group announced the sale of Burton's, the UK
biscuit and sugar confectionery business, realising proceeds of £130
million. The net assets of the business were approximately £87 million
at the time of sale and the operating profit was £10 million, £7
million after rationalisation costs, in the year to September 2000.
Other disposals announced were the sale of Rowallan, an industrial
fats business, and the pig business of ABN. A small loss will be
reported on the sale of these businesses but the effect is expected
to be earnings enhancing.
On 6 November 2000, negotiations were concluded for the acquisition of
the branded foodservice oil business from Procter & Gamble by ACH in
the US, with completion scheduled for January 2001. Annual sales of
this business in its last financial year were $127 million.
FINANCIAL REPORTING STANDARDS AND ACCOUNTING POLICIES
FRS15 - 'tangible fixed assets' and FRS16 - 'current tax' have been
adopted in the current year's financial statements. There have been no
other changes to the group's accounting policies from the previous
year.
John Bason
Finance Director
The annual report and accounts will be available on 15 November 2000
and the annual general meeting will be held at The Park Lane Hotel,
London at 11am on Friday 15 December 2000.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 16 September 2000
Continuing
operations
before
exceptional Exceptional
items items Total
Note £m £m £m
Turnover of the group
including its share
of joint ventures 4,414 - 4,414
Less share of turnover
of joint ventures (8) - (8)
________ ________ ________
Group turnover 1 4,406 - 4,406
Operating costs (4,079) (130) (4,209)
________ ________ ________
Group operating profit 327 (130) 197
Share of operating
results of:
- joint ventures 3 - 3
- associates 4 - 4
________ ________ ________
Total operating profit 1 334 (130) 204
Operating profit before
exceptional items and
amortisation of goodwill 340 - 340
Exceptional items 1 - (130) (130)
Amortisation of goodwill (6) - (6)
Profits less losses
on sale of properties 8 - 8
Investment income 61 - 61
________ ________ ________
Profit on ordinary
activities before interest 403 (130) 273
Interest payable (26) - (26)
________ ________ ________
Profit on ordinary
activities before taxation 377 (130) 247
Tax on profit on
ordinary activities 2 (111) - (111)
________ ________ ________
Profit on ordinary
activities after taxation 266 (130) 136
Minority interests - equity (3) 5 2
________ ________ ________
Profit for the financial year 263 (125) 138
Dividends
- interim 3 (89) - (89)
- special interim - - -
________ ________ ________
Transfer to/(from) reserves 174 (125) 49
======== ======== ========
Basic and diluted
earnings per ordinary share 33.3p (15.8)p 17.5p
Earnings per ordinary
share before amortisation
of goodwill 34.1p (15.8)p 18.3p
For the year ended 18 September 1999
Continuing
operations
before
exceptional Execptional
items items Total
Note £m £m £m
Turnover of the group
including its share
of joint ventures 4,308 - 4,308
Less share of turnover
of joint ventures (9) - (9)
________ ________ ________
Group turnover 1 4,299 - 4,299
Operating costs (3,982) (84) (4,066)
________ ________ ________
Group operating profit 317 (84) 233
Share of operating results of:
- joint ventures 2 - 2
- associates 2 - 2
________ ________ ________
Total operating profit 1 321 (84) 237
Operating profit before
exceptional items and
amortisation of goodwill 326 - 326
Exceptional items 1 - (84) (84)
Amortisation of goodwill (5) - (5)
Profits less losses
on sale of properties 4 - 4
Investment income 84 - 84
________ ________ ________
Profit on ordinary activities
before interest 409 (84) 325
Interest payable (25) - (25)
________ ________ ________
Profit on ordinary
activities before taxation 384 (84) 300
Tax on profit on
ordinary activities 2 (115) - (115)
________ ________ ________
Profit on ordinary
activities after taxation 269 (84) 185
Minority interests - equity (1) - (1)
________ ________ ________
Profit for the financial year 268 (84) 184
Dividends
- interim 3 (85) - (85)
- special interim (448) - (448)
________ ________ ________
Transfer to/(from) reserves (265) (84) (349)
======== ======== ========
Basic and diluted
earnings per ordinary share 31.1p (9.7)p 21.4p
Earnings per ordinary share
before amortisation of goodwill 31.7p (9.7)p 22.0p
The group has made no material acquisitions nor discontinued any
operations within the meaning of the Financial Reporting Standards
during either 2000 or 1999.
CONSOLIDATED BALANCE SHEET
As at As at
16 September 200018 September 1999
£m £m
Fixed assets
Intangible assets - goodwill 151 108
Tangible assets 1,459 1,528
-------- --------
1,610 1,636
-------- --------
Interest in net assets of
- joint ventures 12 7
- associates 11 8
Other investments 14 16
-------- --------
Total fixed asset investments 37 31
-------- --------
1,647 1,667
-------- --------
Current assets
Stocks 496 464
Debtors 526 491
Investments 1,133 1,030
Cash at bank and in hand 65 51
-------- --------
2,220 2,036
-------- --------
Creditors: amounts falling
due within one year
Short term borrowings (57) (53)
Other creditors (735) (680)
-------- --------
(792) (733)
-------- --------
Net current assets 1,428 1,303
-------- --------
Total assets less
current liabilities 3,075 2,970
-------- --------
Creditors: amounts falling
due after one year
Loans (160) (157)
Other creditors (11) (10)
-------- --------
(171) (167)
-------- --------
Provisions for liabilities
and charges (63) (50)
-------- --------
2,841 2,753
======== ========
Capital and reserves
Called up share capital 47 47
Revaluation reserve 3 3
Other reserves 173 173
Profit and loss account 2,540 2,451
-------- --------
Equity shareholders' funds 2,763 2,674
Minority interests in
subsidiary undertakings - equity 78 79
-------- --------
2,841 2,753
======== ========
CONSOLIDATED CASH FLOW STATEMENT
For the For the
year ended year ended
16 September 18 September
2000 1999
Note £m £m
Cash flow from operating
activities 4 445 420
-------- --------
Dividends from joint ventures 2 1
-------- --------
Dividends from associates 1 2
-------- --------
Return on investments
and servicing of finance
Dividends and other
investment income 51 90
Interest paid (26) (24)
Dividends paid to minorities (2) (2)
-------- --------
23 64
-------- --------
Taxation (106) (120)
-------- --------
Capital expenditure and
financial investment
Purchase of tangible
fixed assets (182) (259)
Sale of tangible fixed assets 32 16
Purchase of equity investments (7) (1)
Sale of equity investments 17 10
Purchase of own shares - (1)
-------- --------
(140) (235)
-------- --------
Acquisitions and disposals
Purchase of new subsidiary
undertakings (73) (153)
Purchase of joint ventures and associates (5) (3)
Sale of subsidiary undertakings 54 -
-------- --------
(24) (156)
-------- --------
Equity dividends paid (85) (538)
-------- --------
Net cash inflow/(outflow)
before use of liquid
funds and financing 116 (562)
======== ========
Management of liquid funds 104 (541)
Financing (1) (1)
Increase/(decrease) in cash 13 (20)
-------- --------
5 116 (562)
======== ========
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the For the
year ended year ended
16 September 18 September
2000 1999
£m £m
Profit for the financial year 138 184
Currency translation differences
on foreign currency net assets 50 26
Tax on currency translation differences (12) -
-------- --------
Total recognised gains and losses 176 210
======== ========
CONSOLIDATED STATEMENT OF HISTORICAL COST PROFITS
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 CONSOLIDATED SHAREHOLDERS' FUNDS
For the For the
year ended year ended
16 September 18 September
2000 1999
£m £m
Profit for the financial year 138 184
Dividends
-interim (89) (85)
-special interim - (448)
-------- --------
Transfer to/(from) reserves 49 (349)
Other recognised gains and losses relating to the year 38 26
Goodwill written back 2 -
-------- --------
Net increase/(decrease) in shareholders' funds 89 (323)
Opening shareholders' funds 2,674 2,997
-------- --------
Closing shareholders' funds 2,763 2,674
======== ========
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