REG - Assoc British Foods - ABF annual results for 52 weeks ended 13 Sept 2014 <Origin Href="QuoteRef">ABF.L</Origin> - Part 2
04/11/2014 08:05
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European bank in the
syndicate to reflect the increasing activities of the group in continental Europe through Primark's expansion. The average
fixed interest coupon on the private placement notes is 5.1%.
PENSIONS
Pension liabilities in the group's defined benefit pension schemes exceeded employee benefit assets at the year end by £43m
compared with last year's restated deficit of £15m. The UK scheme accounts for 91% of the group's total pension assets and
the increase in the market value of these assets during the year was slightly more than the increase in the present value
of scheme liabilities. Total contributions to defined benefit plans in the year amounted to £41m (2013 - £69m), the lower
amount reflecting the end of the £30m p.a. deficit contributions that were paid in each of the last five years. A
triennial valuation of the UK scheme was undertaken as at 5 April 2014, which was agreed by the trustees after the group's
year end, and revealed a surplus of £78m. As a result there is no requirement to agree a recovery plan with the trustees.
On 1 October 2012 new legislation came into effect which required all eligible UK employees to be automatically enrolled
into a qualifying pension scheme. We embraced this new legislation by providing an attractive scheme with employer
contribution rates in excess of the statutory minimum and we saw a high take-up.
The charge for the year for the group's defined contribution schemes, which is equal to the contributions made, amounted to
£76m (2013 - £66m) and this is the first year that defined contribution costs have exceeded the cash contribution made to
the defined benefit schemes reflecting the changing shape of pension provision in the group.
The accounting standard under which the group's pension schemes are accounted, IAS 19 Employee benefits, has been revised,
and the new provisions were adopted by the group with effect from 15 September 2013. The comparative results for the
financial year 2013 have been restated as a prior year adjustment, the effect of which was to reduce the reported operating
profit by £5m to reflect a change in the treatment of administration costs, and to increase other financial expenses by £3m
due to the replacement of the expected rate of return on assets with the discount rate. There was little difference
between the expected rates of return on assets and the discount rates in the group's schemes in 2013 hence the small
adjustment.
John Bason
Finance Director
The annual report and accounts is available at www.abf.co.uk and will be despatched to shareholders on 6 November 2014.
The annual general meeting will be held at Congress Centre, 28 Great Russell Street, London. WC1B 3LS at 11am on Friday, 5
December 2014.
PRINCIPAL RISKS AND UNCERTAINTIES
Each business is responsible for its own risk management assessment which is reported to the group's Director of Financial
Control annually. Our decentralised business model empowers the boards and management of our businesses to identify,
evaluate and manage the risks they face on a timely basis. Key risks and internal control procedures are reviewed at group
level by the board.
We require all businesses to implement appropriate levels of risk management to ensure compliance with all relevant
legislation, our group health, safety and environment policies, our overriding business principles and group policies
relating to them, taking into account business needs and local circumstances.
Each business is responsible for regularly assessing its health, safety and environmental risks with managers, operators,
contracting companies and specialist staff working together to identify hazards. Appropriate operational procedures and
controls are put in place to mitigate risks and all employees are provided with appropriate information, training and
supervision. Further details of our risk mitigation activities can be found in our Corporate Responsibility Report at
www.abf.co.uk/responsibility.
The board reviews annually the material financial and non-financial risks facing our businesses and, on a rolling cycle
basis, reviews the effectiveness of the risk management process and the resources that our individual businesses devote to
them. The principal risks currently identified by our businesses and reviewed by the board are:
People
Issue Risk Mitigation
Product safety Reputational damage caused by food hygiene or product safety incidents. Non-compliance with regulatory requirements. Public concerns over materials used in packaging and ingredients in products. Food safety is put before economic considerations. Our businesses employ quality control specialists and operate strict policies to ensure consistently high standards
are maintained in our operations and in the sourcing and handling of raw materials. Food safety systems are regularly reviewed for efficacy and legal compliance. We
participate in independent food health and safety audits. Quality and food safety audits are undertaken at our manufacturing sites. Documented and tested product recall
procedures are embedded in all our businesses and are regularly reviewed. We proactively monitor the regulatory and legislative environment as well as emerging scientific
research.
Health and nutrition Health concerns over fat, salt and calorie content of foods. Responding correctly to the spectrum of food poverty and malnutrition versus obesity. Inappropriate advertising to children. Recipes are regularly reviewed and reformulation is conducted to improve the nutritional value of products, with a focus on reducing fat, salt and calorie content where
possible. Our UK Grocery group has signed the UK government's 'Public Health Responsibility Deal' and associated pledges to reduce salt, remove trans fats and promote
healthy eating and lifestyle options to our employees. All of our grocery products are labelled with nutritional information. Our UK Grocery portfolio contains only a
small number of products specifically intended for children. These products are marketed responsibly, following accepted codes of practice and within the parameters of a
clear, operational business policy. We are looking further to continue programmes related to health and nutrition, and to develop partnerships to help educate people
about health and nutrition.
Workplace health and safety Potential for fatal accidents and serious injuries to employees, contractors and visitors. Loss of healthy workforce and supply chain due to diseases such as HIV/AIDS, TB and malaria in high-risk countries. Group Health and Safety Policy and practices are embedded with a strong ethos of workplace safety across the group. We maintain a programme of audits to verify
implementation and support continuous improvement. Accountable senior executives and specialists are appointed.We provide health and safety training and continue to
share guidance and best practice with our businesses. We have extended the internal and external auditing of health, safety and management reporting. We continue to
invest in health and safety management.
Management succession Failure to plan for succession to key roles could lead to a lack of management continuity and suboptimal operational or financial performance. Each business has a succession plan which is reviewed with group management twice a year, and with the board annually. Development of our senior managers is co-ordinated
by the Group HR Director and the Head of Executive Development. A small number of executive search companies have been briefed to introduce us to talented executives from
other companies who could add value to the group.
Suppliers and supply chain reliability Damage to brands caused by supply chain weakness, e.g. poor conditions for workers. Problems with supply reliability caused by natural disasters and other incidents. Understanding the sustainability and responsible business practices of our suppliers. Maintain programme of supplier audits where appropriate. Extensive audit programme for labour standards of suppliers. We have introduced a Supplier Code of Conduct
which is being implemented across all our businesses, tailored to their requirements. We continue to work, in partnership with suppliers and NGOs, to improve working
conditions, e.g. via training. Continued focus on worker safety and safe working conditions. We have built up an intensive programme of ethical audits in Primark's
supply chain. Primark has maintained its classification as a leader, by the Ethical Trade Initiative, and we are mapping second tier suppliers (subcontractors). The
Grocery division conducts independent reviews of the environmental and ethical risks in its supply chains to increase understanding. External communication and
transparency on the management of our supply chain in Primark and Grocery has been enhanced. Business continuity and disaster recovery plans are regularly reviewed.
Ethical business practices Unacceptable business practices which contravene our business principles. Reputational damage through irresponsible business practices of individuals. All businesses are signed up to the group's Business Principles and Anti-Bribery and Corruption Policy. A programme of training and compliance has been implemented for
Penalties imposed through bribery, corruption or unfair competition. all employees. Appointment of anti-bribery and corruption specialists. Businesses work co-operatively to ensure visibility of reputational risk within supply chains and
draw upon best practice management expertise across the group including Primark and Twinings.
Environment
Environment management including climate change Long-term increase in energy prices. Physical threats to operations from climate change, e.g. flooding. Climate change impact altering growth rates of raw materials we use. Increasing cost to operations to adapt to climate change and mitigate impact. Negative impact on the environment and the communities which depend on land used by our operations. Compliance with the group's Environment Policy and annual reporting of environmental impact. Best available techniques are employed to reduce energy consumption -
statutory requirement for all sites subject to the EU's Pollution Prevention and Control regime. Agricultural raw materials are sourced from a wide range of geographical
locations and suppliers. We have a continued focus on reducing our environmental impact and implementing changes to our operations to maximise opportunities such as
recycling more waste and using more renewable sources of fuel. We have implemented infrastructural protections against weather-related risks such as floods. Greenhouse
gas emissions are measured and reported annually and subject to assurance by KPMG LLP. Substantial investment is made to improve environmental risk management, with a
focus on energy efficiency, when investing in new capital projects.
Water use and availability Securing access to sources of water and maintaining water availability for all. Ensuring good practices in sharing and managing water supplies with local communities. Operating in water stress areas. Water-intensive sites in areas of water stress identified, and efforts focused on water efficiencies in these areas. Investing heavily in the quality of our water usage
data to enable improved measurement and management of water use and water quality. Investment in irrigation systems. Look to build long-term partnerships to address
water issues at a local level. Finalise the standardised approach to water measurement across the group so that we can target investment and build an effective water
stewardship.
Financial and regulatory
Competition rules Penalties for failing to comply with the 1998 Competition Act, the 2003 Enterprise Act, relevant EU law and all relevant competition legislation. Clear policy direction and close support from specialist in-house legal department. Compulsory awareness training.
Financial, currency and commodity risks Loss sustained as a result of failure of internal controls or fraud, and exposure to foreign currencies, interest rates, counterparty credit risk, liquidity risk, and changes in market prices especially for energy and commodities. Adherence to the group's financial control framework and anti-fraud policy. Treasury operations are conducted within a framework of board-approved policies and
guidelines. Sufficient funding is maintained by way of external loans and committed bank facilities, which are renewed or extended on a timely basis, having regard to the
group's projected funding needs. Financial transactions are dealt through financial institutions with a credit rating of A or better. Details of the group's accounting
and risk management policies with respect to financial instruments and associated quantitative and qualitative disclosures are set out in note 24 on pages 118-127 in the
Annual Report.
Tax compliance Failure to comply with local tax law resulting in underpayment of tax and exposure to related interest and penalties. The group has a financial control framework and a board adopted tax policy requiring all businesses to comply fully with all relevant local tax law. Provision is made for
known issues based on management's interpretation of country specific tax law and the likely outcome. Any interest and penalties on tax issues are provided for in the
tax charge.
IT security breach Data loss or theft. Business disruption. Group IT Security policies and procedures are rolled out across the businesses. Employee awareness campaigns are undertaken to highlight key activities to minimise IT
security risks. Technical security controls are in place over key IT platforms. Head of IT Security is tasked with identifying security risks and working with the
businesses to implement mitigating controls. Internal audit reviews of compliance with policies and procedures are undertaken.
Loss of a major site The loss of one of our key sites could present significant operational difficulties. Our businesses have in place business continuity plans to manage the impact of such an event and group insurance programmes to mitigate the financial consequences.
Regulatory and political Failure to recognise political or cultural differences in the many countries in which we operate could directly impact the success of our operations. Proposals to end sugar quotas in 2017. We remain vigilant to future changes and the risk presented by operating in emerging markets. We engage with governments and NGOs to ensure the views of our stakeholders
are represented and we try to anticipate, and contribute to, important changes in public policy. Our financial control requirements are consistently applied wherever we
operate.
Major capital projects and acquisitions Risk of overspending initial cost estimates, overrunning construction timelines and failure to meet design specifications. All major projects are managed by dedicated teams who work in close liaison with business management. Project plans are reviewed and approved by group management and,
for larger projects, by the board. Updates on progress are provided throughout the project.
CAUTIONARY STATEMENTS
This report contains forward-looking statements. These have been made by the directors in good faith based on the
information available to them up to the time of their approval of this report. The directors can give no assurance that
these expectations will prove to have been correct. Due to the inherent uncertainties, including both economic and
business risk factors underlying such forward-looking information, actual results may differ materially from those
expressed or implied by these forward-looking statements. The directors undertake no obligation to update any
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