REG - Assoc.British Foods - Interim Results Announcement
25/04/2023 07:00
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RNS Number : 2990X Associated British Foods PLC 25 April 2023
Interim Results Announcement
24 weeks ended 4 March 2023
For release 25 APRIL 2023
Associated British Foods plc results for the 24 weeks ended 4 March 2023
Strong growth in Group sales
Very good footfall and margin better than expected at Primark
Financial Headlines
Actual currency Constant currency
change change
Group revenue £9,560m +21% +17%
Adjusted operating profit £684m -3% -7%
Adjusted profit before tax £667m In line
Adjusted earnings per share 62.0p -3%
Dividend per share 14.2p +3%
Gross investment £527m +17%
Net cash before lease liabilities £586m
Net debt including lease liabilities £2,601m
Statutory operating profit £663m -3%
Statutory profit before tax £644m +1%
Basic earnings per share 67.0p +11%
Statutory operating profit is derived from the adjusted operating profit after
taking certain charges and credits as shown on the face of the condensed
consolidated income statement.
Summary of Group performance
Food
● Sales increased across all businesses, up 23% in aggregate to £5,332m
● Adjusted operating profit up 13% to £373m
● Exceptionally strong adjusted operating profit performance in Ingredients, up
62%
● Sugar crop and inflationary challenges offset by strong Illovo performance
● Grocery adjusted operating profit broadly in line with pricing lagging input
cost inflation as expected
● Agriculture adjusted operating profit down with difficult animal feed markets
in UK and China
Primark
● Sales up 19% to £4,228m reflecting good growth in all countries
● Strong like-for-like sales growth driven by price and volume
● New stores performing strongly
● Adjusted operating profit of £351m, margin of 8.3%
● US: expansion into southern states to be anchored by new warehouse
● Announcement of restructuring and growth plan for Germany
● Digital development continues with rollout of improved website, UK trial of
Click and Collect launched with geographic extension later this year
Shareholder returns
● £140m of the £500m share buyback completed in the period
George Weston, Chief Executive of Associated British Foods, said:
"This period was marked by extreme and volatile inflation in all our
businesses. We have taken considerable action to mitigate these costs through
operational cost savings and, where appropriate, pricing.
The performance of our Food businesses was resilient in aggregate, underpinned
by an exceptional performance at Ingredients. We were very pleased with the
improvement in Primark sales, which recovered strongly from the second half of
the last financial year and drove operating profit margin up to 8.3%, higher
than we had expected.
Primark has been very successful in this period in attracting new customers
with its proposition of good quality merchandise combined with price
leadership and well invested stores. We have had a very strong contribution
from new stores opened in the period, and today we are announcing plans for
the development of our Primark business in southern states of the US."
The Group has defined and outlined the purpose of its Alternative performance
measures in note 14. These measures are used within the Financial Headlines
and in this Interim Results Announcement.
For further information please contact:
Associated British Foods:
+44 20 7399 6545
John Bason, Finance Director
Eoin Tonge, Finance Director designate
Chris Barrie, Corporate Affairs Director
Citigate Dewe Rogerson:
+44 20 7638 9571
Holly Gillis +44 7940 797560
Angharad Couch +44 7507 643004
There will be an analyst and investor presentation at 09.00am BST today which
will be streamed online and accessed via our website here
(https://www.abf.co.uk/investorrelations/results_and_presentations) .
Notes to editors
Associated British Foods is a diversified international food, ingredients and
retail group with annual sales of £17bn and 132,000 employees in 53
countries. It has significant businesses in Europe, Africa, the Americas, Asia
and Australia.
Our aim is to achieve strong, sustainable leadership positions in markets that
offer potential for long-term profitable growth. We look to achieve this
through a combination of growth of existing businesses, acquisition of
complementary new businesses and achievement of high levels of operating
efficiency.
For release 25 APRIL 2023
Interim Results Announcement
For the 24 weeks ended 4 March 2023
Chairman's statement
Our performance this half year should be seen in the context of an operating
environment that has seen intense and volatile inflationary pressures. First
half revenues were up 21% at actual exchange rates and 17% at constant
currency, against the same period last year, to £9.6bn. Careful pricing
decisions at Primark and the usual delay in recovering inflation in many of
our Food businesses resulted in lower Group margins. Given this economic
environment, it is creditable that adjusted operating profit for the Group was
broadly in line with that delivered last year. Adjusted operating profit was
3% lower at £684m at actual exchange rates and declined 7% at constant
currency. There were no exceptional items in either half year, and so the
statutory operating profit also declined by 3% to £663m this period.
Over the period, sterling saw pronounced weakness and this was the major
reason for the decline in the Primark margin. However, given the international
breadth of our operations there was a £29m benefit on the translation of our
non-sterling earnings.
Within Food, our Ingredients businesses performed well with AB Mauri recording
good growth in volumes and cost recovery. Our Grocery and Sugar businesses
were resilient in the face of cost inflation and, in the case of Sugar, a
particularly poor UK crop and other challenges.
Given the wider economic conditions and their effect on the cost of living for
our customers, Primark traded very strongly in the half year, ahead of both
our expectations and the wider clothing retail market. The business attracted
new customers and it is notable that the higher sales resulted from both
pricing and an increase in unit volumes.
The net of finance and other financial income and expense improved by £23m,
reflecting a further substantial increase in the surplus in the Group's
defined benefit pension schemes and the increase in interest rates. Adjusted
profit before tax was in line with last year. As previously indicated, the
effective tax rate increased to 24.7% from 23.2% last year. Adjusted earnings
per share declined by 3% to 62.0p.
We have a number of large capital projects under way, and with a recovery from
the pandemic-affected years gross investment is building and increased by 17%
to £527m. This was driven by projects to build capacity in our businesses,
add stores in Primark and increasingly expand our capabilities in automation
and technology. We expect this higher level of investment to continue over the
medium term.
The cash outflow for the Group in the first half was £895m, some £600m
higher than that expected in a typical first half. This increase was driven by
£140m spent in the first half following the initiation of the £500m share
buyback programme and by a working capital increase some £400m higher than a
typical first half. This higher than usual increase in working capital was
driven by three factors: the effect of inflation, higher than usual inventory
at Primark and higher sugar production in Illovo. Working capital will be
lower at the end of the financial year, with the seasonal increase in Sugar
inventory set to reverse and we expect a reduction in Primark's inventory.
This cash outflow in the first half resulted in net cash before lease
liabilities of £586m at the half year. Net debt including lease liabilities
of £3.2bn was £2.6bn, giving a financial leverage ratio of 1.2 times. Total
liquidity was £2.5bn.
Board
Last November we announced that John Bason would be retiring this month,
having been Finance Director since 1999. He leaves with our immense gratitude.
On 6 February this year we welcomed Eoin Tonge to the Group as Finance
Director Designate. John will stand down as Finance Director, and from the
Board, on 28 April with Eoin succeeding him as Finance Director the following
day. John will become Chairman of Primark's Strategic Advisory Board in May.
Having completed nine years on the Board on 1 May 2023, Ruth Cairnie will
relinquish her roles of Senior Independent Director and as Chair of the
Remuneration Committee with effect from that date. Dame Heather Rabbatts
will become Senior Independent Director and Graham Allan will become Chair of
the Remuneration Committee. Ruth will not stand for re-election at the next
Annual General Meeting of the Company.
Dividend
The Board has declared an interim dividend of 14.2p a share, an increase of 3%
on last year reflecting our confidence in our forecast for the outturn for the
year.
The dividend will be paid on 7 July 2023 to shareholders registered at the
close of business on 2 June 2023.
Capital allocation
In the ordinary course of business, the Board prefers to see the Group's
financial leverage, expressed as the ratio of net debt including lease
liabilities to adjusted EBITDA, to be well under 1.5 times at each half year
and year end reporting date. In exceptional circumstances the Board will be
prepared to see leverage above that level for a short period of time. Our
priority is always to invest in our businesses, both organically and by
acquisition, at an appropriate pace and wherever attractive returns on capital
can be generated. The Board may from time to time conclude that it has surplus
cash and capital. In making this assessment, the Board will be mindful that
financial leverage consistently below 1.0 times and substantial net cash
balances at both half and full year ends may indicate such a surplus position.
Accordingly, we announced a share buyback programme of £500m in November
2022. The Board views the share buyback as an investment, rather than simply a
return of capital, with both the size and timing of the programme appropriate
for the delivery of value to shareholders. Although financial leverage was 1.2
times at this half year end, with the seasonal reduction of working capital,
leverage is expected to be below 1.0 times at the financial year end.
In the period we purchased 8.1m shares for £140m. Shares bought back were
cancelled and at the end of the half year we had 784m ordinary shares in
issue. The weighted average number of shares for the half year was 786m which
compared to 789m for the last financial year.
Outlook
In the second half the continued recovery of significant inflation in our
input costs remains a management priority across the Group, albeit that
inflation has become less volatile, with some input costs reduced. Some
macro-economic headwinds for the consumer remain.
For the full year, adjusted operating profit in our Food businesses is
expected to be modestly ahead of last year. After the very strong performance
in the first half, we expect Ingredients profit for the full year to be well
ahead of last year. We now expect a decline in adjusted operating profit for
the full year at AB Sugar mainly as a consequence of much lower UK sugar
production. We now expect the Grocery adjusted operating profit to be ahead
of the prior year with the full year benefit of the pricing actions and cost
savings already taken.
At Primark, we remain cautious about the resilience of consumer spending in
the face of ongoing inflation in the cost of living and higher interest
rates. We expect like-for-like sales growth in the second half although we
expect that growth to moderate from that in the first half. The cost of
bought-in goods will be higher than the same period a year ago due to the
particular strength of the US dollar against sterling and the euro at the time
of purchasing. However, we will start to see the benefits of lower sea freight
costs, which have returned to normal levels, and of much reduced energy costs.
Our forecast for overhead costs includes increases in in-store retail wages
and incremental investment in technology. Taking these factors into account,
we now expect the second half margin to be similar to that achieved in the
first half and as a consequence the full year adjusted operating profit margin
to be similar to 8.3%.
For the full year, our expectation for the Group remains for adjusted
operating profit and adjusted earnings per share to be broadly in line with
the previous financial year.
Michael McLintock
Chairman
Chief Executive's statement
Inflation dominated the economic and commercial environment for all our
businesses. The growth in sales, an increase of 17% at constant currency to
£9.6bn, demonstrated the work to recover the very significant input cost
inflation that we were not able to mitigate through operational efficiencies.
We chose not to recover all the input cost inflation in Primark and actions on
price in our Food businesses lagged input cost inflation as usual, and margin
declined in the first half as a result. Given the extent of inflation this was
to be expected and we regard this level of profitability as satisfactory in
the circumstances while acknowledging that there is more work to do on margin
recovery.
At the start of this financial year all our businesses were experiencing
inflation across raw materials and commodities, in the supply chain, and in
energy. All of this was made more difficult by high volatility and short-term
currency movements which were especially pronounced in the sterling US dollar
exchange rate which is a major determinant of Primark's transaction costs. As
the period progressed, this volatility lessened and some input costs such as
freight and cotton fell back to normal levels. Labour costs have increased
substantially and some costs, while reduced, remain above past norms. Our
businesses took steps to offset these higher input costs through operational
cost savings and where necessary the implementation of price increases.
Looking into the second half, our focus remains on margin recovery in both
Food and Retail.
In Food, revenues grew by 17% to £5.3bn and adjusted operating profit grew by
4% to £373m at constant currency. Ingredients performed particularly
strongly, and adjusted operating profit rose by 48% at constant currency to
£102m. This was mainly driven by good cost recovery and resilient volumes at
AB Mauri, our yeast and bakery ingredients business; ABF Ingredients, our
portfolio of speciality ingredients businesses, also had a strong period. In
Sugar, the adjusting operating profit in the first half was ahead driven by
the Illovo businesses in Zambia and Malawi. However, we now expect full year
profits to decline: adverse weather conditions damaged the UK beet crop and as
a result sugar production was the lowest seen in decades at British Sugar,
severe flooding in Mozambique caused the significant loss of sugar cane, and
adverse price movements combined with short-term spikes in operating costs
drove losses at Vivergo. Pricing actions became more evident as the period
progressed in Grocery but margins declined. Agriculture sales rose
significantly but margins declined given that market conditions for animal
feed in our major markets of the UK and China remained tough.
A key feature of Primark trading in the first half was the increase in
footfall and unit volumes which compared to volume declines seen elsewhere in
retailing in this environment. We were pleased with the recovery in Primark
sales from those of the second half of the last financial year and a 10%
increase in like-for-like sales over last year.
Late last summer the US dollar strengthened significantly against sterling and
the euro, and energy costs were both high and highly volatile. Against this
backdrop, and the likelihood of much reduced disposable incomes for our
customers, we decided to implement only moderate price increases on a
selection of our ranges for this financial year. Given the evolution of the
inflation environment, we believe that this decision was not only in the best
interests of Primark customers but also supported our core proposition of
everyday affordability and price leadership. This pricing did not recover the
input cost inflation in the first half, and margins declined in the period as
a result. Margins in the second half of this financial year are now expected
to be similar to that achieved in the first half of this year, and this
increases our confidence in returning the Primark margin to above 10%.
Today we are announcing our plans to establish a significant presence for
Primark in southern states of the US. In the coming months we expect to sign
leases for stores in states across the region, including locations in Texas.
We are locating our second US distribution centre in Jacksonville Florida and
construction is progressing well.
We are committed to our Primark business in Germany and have been developing
plans with some restructuring to return the existing estate to long-term
profitability and we will also open new stores.
We increased our focus on investment and innovation in the Group and the
increase in capital expenditure is one reflection of this. This was achieved
despite the intensity of work required to successfully manage high inflation.
We are well placed to grow both sales and profits sustainably in the medium
term.
George Weston
Chief Executive
Operating review
The table below shows the results by segment on a reported basis.
Revenue Adjusted operating profit
24 weeks ended 24 weeks ended 52 weeks ended 24 weeks ended 24 weeks ended 52 weeks
4 March 5 March 17 September 2022 4 March 5 March ended
2023 2022 £m 2023 2022 17 September 2022
£m
£m
£m £m £m
Operating segments
Grocery 2,105 1,821 3,735 173 175 399
Sugar 1,189 914 2,016 86 77 162
Agriculture 950 809 1,722 12 15 47
Ingredients 1,088 798 1,827 102 63 159
Food 5,332 4,342 9,300 373 330 767
Retail 4,228 3,540 7,697 351 414 756
Central - - - (40) (38) (88)
9,560 7,882 16,997 684 706 1,435
References to changes in revenue and adjusted operating profit in the
following segmental commentary are based on constant currency.
Grocery
2023 2022 Actual Constant currency
currency
Revenue £m 2,105 1,821 +16% +10%
Adjusted operating profit £m 173 175 -1% -10%
Revenue in the first half was 10% higher than the same period last year with
price increases building during the period to recover cost inflation. Adjusted
operating profit was slightly lower reflecting the decline in margin from 9.6%
in the same period last year to 8.2% this year, which reflected the lag
between input cost inflation and the time taken for the agreement and
implementation of pricing. In the second half, we will benefit from the full
effect of the pricing taken in the first half, and from further pricing
implemented in the period. As a consequence we expect the decline in the
adjusted operating profit margin, compared to the second half margin of the
prior year, to be substantially less than the 1.4 ppt decline in the first
half. For the full year, we now expect adjusted operating profit to be broadly
in line with the previous year.
Half year sales at Twinings Ovaltine were broadly in line with the same period
last year. Marketing investment was increased in the period and we expect an
increase for the full year. Twinings revenues were ahead driven by good
performances in the US and Australia and continued growth of Wellness teas.
Although Ovaltine performed well in Brazil and Switzerland, revenues were held
back by the disruption to imports into Myanmar, lower sales of powder products
in Thailand, and lower foodservice sales in China.
Allied Bakeries secured significant pricing in the period and the results
improved. The trajectory of this performance is encouraging with the financial
performance improving through the period and, as a consequence, a bigger
improvement is expected in the second half. We continue to work on
improvements to the financial performance of this business. Early indications
are that the significant brand investment made in the period by Jordans Dorset
Ryvita is having a positive impact. Pricing at AB World Foods and Westmill led
to higher sales.
Revenue growth was strong at ACH, our edible oils and bakery ingredients
business in the US, driven by both Mazola and Fleischmann's improving on their
strong market share positions, and pricing taken to recover inflationary
costs. Stratas, our joint venture in the US that supplies oils to the
foodservice, ingredients and retail markets, continued to trade very strongly.
George Weston Foods in Australia delivered strong sales growth led by pricing.
Our Tip Top baking business traded well but faced a number of inflationary
pressures, specifically very high prices for wheat used in bread due to a wet
Australian harvest. Don KRC, our meat business, delivered some recovery in its
adjusted operating profit due to good sales growth and production increased as
labour availability improved.
Sugar
2023 2022 Actual Constant currency
currency
Revenue £m 1,189 914 +30% +27%
Adjusted operating profit £m 86 77 +12% +5%
AB Sugar revenues were 27% ahead of the same period last year driven by higher
sugar and co-product prices, higher Illovo volumes, and the resumption of
Vivergo bioethanol sales. The contribution from the higher sales was partly
offset by higher costs for beet, cane and energy, increased processing costs
in British Sugar, and a substantial trading loss at Vivergo. We also
recognised a £10m charge for extensive flood damage to the cane estate in
Mozambique following cyclone Freddy. Taking all this into account, adjusted
operating profit was 5% ahead of the same period last year.
European and world sugar prices improved further, and remain high, with
estimates for EU sugar production in the 2022/23 campaign showing a reduction
of some 10% compared to last year as a result of a smaller growing area and
lower beet yields caused by adverse weather. Our UK and Spanish businesses
have largely contracted sales for this financial year at much improved prices.
UK sugar production for the 2022/23 campaign was 0.74 million tonnes, down
from 1.03 million tonnes in the previous year. This was an exceptionally low
level of production and was caused by both low beet yields and sugar content
following an unusually adverse sequence of weather events over the summer and
winter. Energy costs and beet costs were higher in the period compared to last
year. Looking to the second half, as a consequence of the production
shortfall, British Sugar has secured alternative sources of supply and
continues to work with its customers to ensure continuity of supply, and
profitability will be significantly impacted as a result.
Vivergo incurred substantial losses in the first half as a result of higher
energy and wheat costs, and lower bioethanol prices than expected combined
with short-term spikes in operating costs. Losses are expected to reduce in
the second half with more consistency in operating costs and as bioethanol
prices improve.
Sugar production at Azucarera is expected to be some 11% lower than last year
with higher margin beet sugar production running at similar levels to last
year while volumes of lower margin cane raws declined. In this first half, the
benefit of higher sugar prices was more than offset by higher energy costs,
but we expect an improvement in profitability in the second half of the
financial year.
Financial results at Illovo for the period were much higher than in the same
period a year ago. Sales were much improved with higher sugar prices and
volumes, higher sugar production in Malawi and Zambia in particular, strong
sales of co-products, and an improved performance in Eswatini compared to
volumes affected by strike action last year. Profit was also ahead despite the
charge taken for flood damage to our cane estates in Mozambique and a levy
required by the South African Sugar Association reflecting the early-stage
insolvency of some of the other market participants in the period.
Construction of the new production and packaging plant at Kilombero, in
Tanzania, is progressing and, when operational, will enable us to supply more
domestic demand from domestic production, so displacing imports.
AB Sugar China trading performance was below the same period last year mainly
as a result of lower sugar prices which resulted from a reduction in demand
due to the temporary closure of hospitality venues caused by pandemic-related
restrictions.
Agriculture
2023 2022 Actual Constant currency
currency
Revenue £m 950 809 +17% +15%
Adjusted operating profit £m 12 15 -20% -25%
Revenue in the period was up significantly and reflected pricing taken to
recover higher input costs partially offset by lower volumes of compound feed
in the UK and China where market conditions continue to remain challenging.
Lower demand for UK compound feed volumes was the result of avian influenza
and a reduction in the UK pig herd. Compound feed volumes in China were also
lower as a result of low livestock prices and localised disruption from the
pandemic. Sales at AB Vista, our enzymes business, were broadly in line with
last year but increased raw material and freight costs led to lower margins.
Frontier benefitted from good grain trading and higher demand for fertiliser.
The decline in adjusted operating profit in the first half was driven mainly
by lower profit in our UK and Chinese compound feed businesses.
Ingredients
2023 2022 Actual Constant currency
currency
Revenue £m 1,088 798 +36% +27%
Adjusted operating profit £m 102 63 +62% +48%
Sales and adjusted operating profit rose significantly in the period with a
very strong performance by AB Mauri and ABF Ingredients performing well.
AB Mauri, our yeast and bakery ingredients business, saw sales rise strongly
with successful actions on pricing and resilient volumes. All major regions,
and North America in particular, showed good sales increases with the
exception of China where demand was lower due to pandemic-related disruption.
Adjusted operating profit grew significantly as a result. Looking ahead,
construction of a new yeast plant in northern India has begun and plans to
expand capacity in Brazil are on schedule for completion this year. AB Biotek,
which develops high value yeast strains for non-baking applications, is now
benefitting from additional capability and innovation with the start-up
earlier this month of our new specialty yeast plant in Hull in the UK.
ABF Ingredients, our portfolio of specialty ingredients businesses, delivered
good organic revenue and profit growth and also benefitted from the
acquisition last year of Fytexia Group. Ohly, Abitec and SPI Pharma, our
specialists in yeast extracts, lipids and pharmaceutical ingredients
respectively, all delivered significant revenue growth, while we had good
revenue growth at AB Enzymes and PGPI, our food and feed enzymes business and
our extruded proteins business respectively. Fytexia continues to perform
well.
Retail
2023 2022 Actual Constant currency
currency
Revenue £m 4,228 3,540 +19% +17%
Adjusted operating profit £m 351 414 -15% -16%
Total Primark sales for the first half were 17% ahead of last year at constant
currency with increases in all our markets. Trading was significantly better
than expected driven by good footfall and the appeal of our proposition to new
and existing customers. This represented a material improvement in both the UK
and Europe on the second half of the last financial year. This financial year
began with good sales in September, followed by softer trading in a warm
October, succeeded by better trading in November and December which culminated
in two record sales weeks in the run-up to Christmas. Trading in the New Year
started very strongly with a slight softening in February against harder
year-on-year comparators. More recently we have seen a positive reaction to
our spring and summer ranges.
Like-for-like sales were 10% ahead of last year driven by higher average
selling prices and higher unit volumes. Footfall increased in both the UK and
in Europe. This was against a comparative period which had some disruption
from COVID-19. Like-for-like sales for the half year returned to levels
broadly in line with pre-COVID. The increase in our weighted average retail
selling space was more meaningful in the period, at 3.4%, and follows the
acceleration of our store opening programme. All the new stores opened in the
period are performing well with some exceptionally high sales densities.
The benefit of stronger sales than expected drove operating profit margin up
to 8.3%, which was higher than we expected at the start of our financial year.
However, the first half margin last year was 11.7%. The margin reduction from
last year was a result of our decision not to fully recover all the inflation
in input costs. The cost of bought-in goods increased due to the significant
strengthening of the US dollar against sterling and the euro, and higher
freight rates. We also experienced inflation in labour and energy costs.
In the UK, total sales were 15% ahead of the same period a year ago driven by
like-for-like sales growth of 15%. Footfall strengthened on high streets and
in retail parks and was significantly better in our destination city stores
which are now busy as tourists and office workers have returned. The strength
of these sales is evidenced by the outperformance of Primark's share of the
total UK clothing, footwear and accessories market by value, including online
sales. The latest 12-week data to 5 March 2023, showed Primark's market share
increased from 6.2% last year to 6.5% this year.
Total sales in Europe, excluding the UK, were 18% higher, with an increase in
like-for-like sales of 8% with higher average selling prices and footfall. The
like-for-like performance was driven by much improved performances in our
large markets of Spain, France and Germany. In Spain, Primark increased its
market share in the period from November to the end of January with sales 14%
higher against overall market growth of 5%. We opened 10 stores in Europe in
the first half, all of which have shown very strong and sustained customer
demand, in particular Bucharest in Romania, and Bari and Caserta Naples in
southern Italy. We also added more than 100,000 sq ft of retail selling space
in France, with Saint Etienne performing particularly well. This extensive
store opening programme delivered a 6% year-on-year increase in weighted
average retail selling space.
In Germany, like-for-like sales recovered strongly in this first half,
increasing 13% year-on-year, but sales densities across the estate remain too
low as a result of the size of some existing stores and their proximity to one
another. We have been developing our plans to return our business to long-term
profitability and have announced today a restructuring and growth plan. We
intend to optimise the retail selling space of some stores and to reduce the
number of stores which stood at 31 at the end of the period. We closed our
store in Weiterstadt in the half year and our store in Steglitz Berlin after
the period end. We are consulting on our intention to close a further four
stores: Gelsenkirchen, Frankfurt Nord-West-Zentrum, Kaiserslautern and
Krefeld. We recently reduced the size of our Hannover store and we are
consulting on plans to reduce in size more stores in due course.
Primark is committed to the German market where it has a substantial and loyal
customer base. A large proportion of German shoppers do not live within a
convenient distance of a Primark store and so we will invest in new stores in
locations where there is little risk of cannibalisation. The new stores will
be smaller than the average in Primark's estate in Germany and the merchandise
will be selected to appeal to local customer demand. Our proposition remains
attractive to customers and we believe the enhanced functionality of our new
website will benefit sales.
In the US total sales were 11% higher with good trading across the 16 stores.
Prior year comparatives were particularly strong with consumer spending
supported by COVID-related government stimulus. We opened three new stores in
the period with another five stores opening in the second half: Buffalo, and
Albany New York, Baltimore Maryland, and two further stores in the wider New
York metro area - Green Acres Long Island and Jersey Gardens Newark. We also
signed in the period two leases for new stores due to open beyond this
financial year: Florida Mall Orlando, and Jersey City New Jersey. In the
coming months we expect to sign leases for stores across southern states of
the US, including locations in Texas. We are locating our second US
distribution centre in Jacksonville Florida and construction is progressing
well.
Trading across the estate benefitted from higher levels of stock and this
better availability of stock compared to last year drove incremental sales
through investment in high demand seasonal product. Our cold weather and
Christmas collections, including the "Snuddie" and velvet plush leggings,
drove good sales growth in the first quarter. Since the Christmas period,
holiday and summer categories have had exceptional growth in sales of
beachwear and luggage in particular. Early reaction to our spring and summer
ranges has been positive. Our collaborations with UK and Spanish brand
ambassadors continue to perform well across all markets. Health and beauty
continued its strong sales performance with expanded product ranges driving
strong growth. More recent standalone collections such as the Edit, our more
premium essentials range for women, continue to grow and attract new
customers.
The Primark Cares sustainability strategy was launched in September 2021. We
published in November 2022 the first of our annual Sustainability and Ethics
Progress Reports. Some 50% of clothing unit sales in this first half contained
recycled or more sustainably sourced materials, an increase from 39% over the
same period last year. We have now trained over 250,000 farmers in more
sustainable farming practices under the Primark Sustainable Cotton Programme.
We are well placed to reach our target to train some 275,000 farmers by the
end of this calendar year and we now plan to expand the Programme beyond
Bangladesh, India, Pakistan and China to farmers in Turkey. Some 38% of the
cotton in our clothes sold in the first half is now organic, recycled or
sourced from this Programme, up from 33% in the same period last year. After
the period end we launched our first circular product collection comprising 35
pieces in menswear, womenswear and kidswear.
Primark's digital development continues. Our much-improved website was
launched in the UK a year ago followed by the Republic of Ireland before
Christmas, Germany and Spain after the half year end, with Italy, US and
France the next to follow. All remaining markets will follow over the summer.
We have seen a significant increase in customer traffic where the new website
has been introduced, and importantly the stock checker facility is being used
by a significant number of customers. We believe that the website has
contributed to like-for-like growth in the relevant markets. Our Click and
Collect trial of children's products in 25 stores in the north of England and
Wales was launched in late November and continues with encouraging results. We
have decided to extend this trial to 32 stores which are broadly within the
M25 region by late summer.
Retail selling space increased by 0.5 million sq ft since the last financial
year end and on 4 March 2023 we were trading from 419 stores and 17.8 million
sq ft of selling space. Thirteen new stores were opened in the period: our
first store in Romania, Primark's 15th market, three in the US, three in
Italy, three in France, two in Poland, and one in Northern Ireland. We fully
reopened our Bank Buildings store in the heart of Belfast, which was damaged
by fire in 2018, and closed our temporary store in Donegal Place. We
extended our stores at Sawgrass Mills, Florida, and Galway Eyre Square,
Republic of Ireland, and closed our store in Weiterstadt, Germany. After the
period end we closed one of our stores in Berlin. We are on track to deliver a
net increase in retail selling space of some 1 million sq ft in the financial
year.
Principal risks and uncertainties
Managing our risks
Our approach to risk management
The delivery of our strategic objectives is dependent on effective risk
management. There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance and could cause actual
results to differ materially from expected and historical results. Details of
the principal risks facing the Group's businesses at an operational level were
included on pages 94 to 101 of the Group's Annual Report and Accounts for the
52 weeks ended 17 September 2022, as part of the Strategic Report.
We have reassessed our principal risks for the remaining six months of the
financial year as the world continues to face uncertainties as a result of the
war between Russia and Ukraine. Whilst supply chain volatility has reduced and
energy prices and sea freight costs have stabilised, uncertainty and
instability continue to be significant risks and there are inflationary
pressures on raw materials and some key commodities. We remain cognisant of
the significant impacts that would result from an escalation in the conflict
in Ukraine. Our procurement teams continue to work closely with suppliers.
Rising interest rates and a slowdown in global growth, potentially leading to
recession in some economies, could exacerbate debt problems, raise risks of
emerging market crises, and could trigger market instability.
Whilst consumer spending has proven to be more resilient in this trading
period than anticipated at the start of the financial year, household budgets
continue to face real pressures as a result of high inflation, increased
interest rates and general economic uncertainty. This means that some
consumers are having to make challenging and difficult choices in respect of
what they spend and where they spend it. Whilst we continue to offer safe,
nutritious and affordable food and affordable, quality clothes to our
customers, the full consequences of the current cost of living crisis remains
uncertain. The impact on our businesses will depend on the extent of
government intervention and the duration of any economic downturns.
Extreme weather conditions have a significant impact on sugar production. In
the UK, adverse weather conditions have resulted in significantly lower beet
yields from the 2022/23 crop. British Sugar has moved swiftly to secure
alternative sources of supply. Mozambique continues to be impacted by ongoing
severe flooding resulting in significant areas of crops being under water.
Some of our businesses are experiencing challenges in recruiting and retaining
talent with the appropriate skills in pockets of their operations. Recruitment
and talent management and development continue to be key priorities.
Our businesses remain on high alert to the heightened risk of IT security
breaches and cyber-based attacks. We continue to invest in monitoring and
detection capabilities.
The purchase of merchandise denominated in foreign currencies by Primark is
the most material currency transaction risk for the Group, although Primark is
now bought for this financial year. Financial markets have generally been less
volatile than the same period last year, which was impacted by the onset of
the war in Ukraine. Market disruption events still remain though and ABF's key
transactional and earnings denominated currencies are subject to these
economic and geo-political events. Sterling is on average weaker against our
portfolio of earnings currencies and the net impact of this will lead to a
small translation gain in the second half of the year.
The Group purchases a wide range of commodities, including the consumption of
energy, in the ordinary course of business. We constantly monitor the markets
in which we operate and manage certain of these exposures with fixed price
supply contracts, exchange traded contracts and hedging instruments. The
commercial implications of commodity price movements are continuously assessed
and, where appropriate, are reflected in the pricing of our products.
The Group continues to focus on tightly managing cash flow, maintaining a very
strong level of liquidity and prudently managing the interest rate and credit
risk associated with our significant gross cash balances.
Going concern
After making enquiries, the directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
foreseeable future. For this reason, they continue to adopt the going concern
basis in preparing the Condensed Consolidated Interim Financial Statements.
See note 11 to the Condensed Consolidated Interim Financial Statements.
Condensed consolidated income statement
for the 24 weeks ended 4 March 2023
Continuing operations Note 24 weeks ended 24 weeks ended 52 weeks ended
4 March 5 March
2023 2022
£m
£m
17 September
2022
£m
Revenue 1 9,560 7,882 16,997
Operating costs before exceptional items (8,949) (7,237) (15,729)
Exceptional items 2 - - (206)
611 645 1,062
Share of profit after tax from joint ventures and associates 50 37 109
Profits less losses on disposal of non-current assets 2 4 7
Operating profit 663 686 1,178
Adjusted operating profit 684 706 1,435
Profits less losses on disposal of non-current assets 2 4 7
Amortisation of non-operating intangibles (20) (20) (47)
Acquired inventory fair value adjustments (2) - (5)
Transaction costs (1) (4) (6)
Exceptional items 2 - - (206)
Profits less losses on sale and closure of businesses 7 (2) (11) (23)
Profit before interest 661 675 1,155
Finance income 22 6 19
Finance expense (59) (50) (111)
Other financial income 20 4 13
Profit before taxation 644 635 1,076
Adjusted profit before taxation 667 666 1,356
Profits less losses on disposal of non-current assets 2 4 7
Amortisation of non-operating intangibles (20) (20) (47)
Acquired inventory fair value adjustments (2) - (5)
Transaction costs (1) (4) (6)
Exceptional items 2 - - (206)
Profits less losses on sale and closure of businesses 7 (2) (11) (23)
Taxation UK (excluding tax on exceptional items) (28) (29) (50)
UK ( exceptional items) - - 3
Overseas (excluding tax on exceptional items) (132) (122) (243)
Overseas ( exceptional items) 58 - (66)
3 (102) (151) (356)
Profit for the period 542 484 720
Attributable to
Equity shareholders 527 476 700
Non-controlling interests 15 8 20
Profit for the period 542 484 720
Basic and diluted earnings per ordinary share (pence) 4 67.0 60.3 88.6
Dividends per share paid and proposed for the period (pence) 5 14.2 13.8 43.7
Condensed consolidated statement of comprehensive income
for the 24 weeks ended 4 March 2023
24 weeks ended 24 weeks ended 52 weeks
4 March 5 March
2023 2022
£m
£m
ended
17 September
2022
£m
Profit for the period recognised in the income statement 542 484 720
Other comprehensive income
Remeasurements of defined benefit schemes 18 300 821
Deferred tax associated with defined benefit schemes (2) (74) (198)
Items that will not be reclassified to profit or loss 16 226 623
Effect of movements in foreign exchange (179) 5 440
Net gain/(loss) on hedge of net investment in foreign subsidiaries 1 5 (1)
Net gain on other investments held at fair value through other comprehensive - - 4
income
Movement in cash flow hedging position (271) 72 419
Deferred tax associated with movement in cash flow hedging position 62 (3) (28)
Deferred tax associated with movement in other investments - - (1)
Share of other comprehensive (loss)/income of joint ventures and associates (6) 7 28
Effect of hyperinflationary economies 26 10 46
Items that are or may be subsequently reclassified to profit or loss (367) 96 907
Other comprehensive (loss)/income for the period (351) 322 1,530
Total comprehensive income for the period 191 806 2,250
Attributable to
Equity shareholders 191 799 2,219
Non-controlling interests - 7 31
Total comprehensive income for the period 191 806 2,250
Condensed consolidated balance sheet
at 4 March 2023
Note 4 March 5 March 17 September
2022
£m
2023 2022
£m £m
Non-current assets
Intangible assets 1,901 1,756 1,868
Property, plant and equipment 5,702 5,308 5,599
Right-of-use assets 2,386 2,511 2,456
Investments in joint ventures 297 271 301
Investments in associates 91 69 85
Employee benefits assets 10 1,440 942 1,393
Income tax 23 23 23
Deferred tax assets 204 191 158
Other receivables 58 53 58
Total non-current assets 12,102 11,124 11,941
Current assets
Assets classified as held for sale 6 92 - 45
Inventories 3,601 2,525 3,259
Biological assets 129 115 105
Trade and other receivables 1,824 1,507 1,758
Derivative assets 92 146 475
Current asset investments 8 3 34 4
Income tax 68 62 67
Cash and cash equivalents 8 1,213 2,190 2,121
Total current assets 7,022 6,579 7,834
Total assets 19,124 17,703 19,775
Current liabilities
Liabilities classified as held for sale 6 (26) - (14)
Lease liabilities 8 (322) (292) (316)
Loans and overdrafts 8 (150) (275) (157)
Trade and other payables (2,892) (2,466) (3,114)
Derivative liabilities (134) (40) (205)
Income tax (140) (152) (160)
Provisions (60) (80) (87)
Total current liabilities (3,724) (3,305) (4,053)
Non-current liabilities
Lease liabilities 8 (2,865) (2,849) (2,936)
Loans 8 (480) (473) (480)
Provisions (28) (35) (26)
Deferred tax liabilities (593) (456) (647)
Employee benefits liabilities (77) (145) (79)
Total non-current liabilities (4,043) (3,958) (4,168)
Total liabilities (7,767) (7,263) (8,221)
Net assets 11,357 10,440 11,554
Equity
Issued capital 45 45 45
Other reserves 38 175 178
Translation reserve 253 (16) 422
Hedging reserve (49) 61 154
Retained earnings 10,970 10,091 10,649
Total equity attributable to equity shareholders 11,257 10,356 11,448
Non-controlling interests 100 84 106
Total equity 11,357 10,440 11,554
Condensed consolidated cash flow statement
for the 24 weeks ended 4 March 2023
Note 24 weeks ended 24 weeks ended 52 weeks ended
4 March 5 March
2023 2022
£m
£m
17 September
2022
£m
Cash flow from operating activities
Profit before taxation 644 635 1,076
Profits less losses on disposal of non-current assets (2) (4) (7)
Profits less losses on sale and closure of businesses 2 11 23
Transaction costs 1 4 6
Finance income (22) (6) (19)
Finance expense 59 50 111
Other financial income (20) (4) (13)
Share of profit after tax from joint ventures and associates (50) (37) (109)
Amortisation 39 33 68
Depreciation (including depreciation of right-of-use assets and non-cash lease 386 373 802
adjustments)
Exceptional items - - 206
Acquired inventory fair value adjustments 2 - 5
Effect of hyperinflationary economies 8 2 16
Net change in the fair value of current biological assets (39) (29) (8)
Share-based payment expense 8 8 19
Pension costs less contributions (2) 3 7
Increase in inventories (437) (376) (953)
Increase in receivables (115) (122) (288)
(Decrease)/increase in payables (151) 46 512
Purchases less sales of current biological assets - - (4)
(Decrease)/increase in provisions (20) 13 7
Cash generated from operations 291 600 1,457
Income taxes paid (148) (150) (304)
Net cash generated from operating activities 143 450 1,153
Cash flow from investing activities
Dividends received from joint ventures and associates 43 45 93
Purchase of property, plant and equipment (444) (272) (680)
Purchase of intangibles (54) (64) (89)
Lease incentives received 12 8 46
Sale of property, plant and equipment 11 10 30
Purchase of subsidiaries, joint ventures and associates 7 (29) (114) (154)
Sale of subsidiaries, joint ventures and associates 4 - -
Purchase of other investments - - (7)
Interest received 22 4 17
Net cash used in investing activities (435) (383) (744)
Cash flow from financing activities
Dividends paid to non-controlling interests (5) (6) (8)
Dividends paid to equity shareholders 5 (235) (271) (380)
Interest paid (57) (48) (114)
Payment of lease liabilities 8 (135) (131) (321)
Decrease in short-term loans 8 (11) (80) (12)
Increase in long-term loans 8 - 402 178
Increase/(decrease) in current asset investments 8 1 (1) 30
Share buyback (140) - -
Movement from changes in own shares held (21) (50) (50)
Net cash used in financing activities (603) (185) (677)
Net decrease in cash and cash equivalents (895) (118) (268)
Cash and cash equivalents at the beginning of the period 1,995 2,189 2,189
Effect of movements in foreign exchange (20) 20 74
Cash and cash equivalents at the end of the period 8 1,080 2,091 1,995
Condensed consolidated statement of changes in equity
for the 24 weeks ended 4 March 2023
Attributable to equity shareholders Non-controlling interests £m Total equity £m
Note Issued capital £m Other reserves £m Translation reserve Hedging reserve £m Retained earnings £m Total
£m
£m
Balance as at 17 September 2022 45 178 422 154 10,649 11,448 106 11,554
Total comprehensive income
Profit for the period recognised in the income statement - - - - 527 527 15 542
Remeasurements of defined benefit schemes - - - - 18 18 - 18
Deferred tax associated with defined benefit schemes - - - - (2) (2) - (2)
Items that will not be reclassified to profit or loss - - - - 16 16 - 16
Effect of movements in foreign exchange - - (164) - - (164) (15) (179)
Net gain on hedge of net investment in foreign subsidiaries - - 1 - - 1 - 1
Movement in cash flow hedging position - - - (271) - (271) - (271)
Deferred tax associated with movement in cash flow hedging position - - - 62 - 62 - 62
Share of other comprehensive income of joint ventures and associates - - (6) - - (6) - (6)
Effect of hyperinflationary economies - - - - 26 26 - 26
Items that are or may be reclassified to profit or loss - - (169) (209) 26 (352) (15) (367)
Other comprehensive income - - (169) (209) 42 (336) (15) (351)
Total comprehensive income - - (169) (209) 569 191 - 191
Inventory cash flow hedge movements
Losses transferred to cost of inventory - - - 6 - 6 - 6
Total inventory cash flow hedge movements - - - 6 - 6 - 6
Transactions with owners
Dividends paid to equity shareholders 5 - - - - (235) (235) - (235)
Net movement in own shares held - - - - (13) (13) - (13)
Share buyback - (140) - - - (140) - (140)
Dividends paid to non-controlling interests - - - - - - (6) (6)
Total transactions with owners - (140) - - (248) (388) (6) (394)
Balance as at 4 March 2023 45 38 253 (49) 10,970 11,2576 100 11,357
Balance as at 18 September 2021 45 175 (34) 43 9,692 9,921 83 10,004
Total comprehensive income
Profit for the period recognised in the income statement - - - - 476 476 8 484
Remeasurements of defined benefit schemes - - - - 300 300 - 300
Deferred tax associated with defined benefit schemes - - - - (74) (74) - (74)
Items that will not be reclassified to profit or loss - - - - 226 226 - 226
Effect of movements in foreign exchange - - 6 - - 6 (1) 5
Net gain on hedge of net investment in foreign subsidiaries - - 5 - - 5 - 5
Movement in cash flow hedging position - - - 72 - 72 - 72
Deferred tax associated with movement in cash flow hedging position - - - (3) - (3) - (3)
Share of other comprehensive income of joint ventures and associates - - 7 - - 7 - 7
Effect of hyperinflationary economies - - - - 10 10 - 10
Items that are or may be subsequently reclassified to profit or loss - - 18 69 10 97 (1) 96
Other comprehensive income - - 18 69 236 323 (1) 322
Total comprehensive income - - 18 69 712 799 7 806
Inventory cash flow hedge movements
Gains transferred to cost of inventory - - - (51) - (51) - (51)
Total inventory cash flow hedge movements - - - (51) - (51) - (51)
Transactions with owners
Dividends paid to equity shareholders 5 - - - - (271) (271) - (271)
Net movement in own shares held - - - - (42) (42) - (42)
Dividends paid to non-controlling interests - - - - - - (6) (6)
Total transactions with owners - - - - (313) (313) (6) (319)
Balance as at 5 March 2022 45 175 (16) 61 10,091 10,356 84 10,440
Condensed consolidated statement of changes in equity (continued)
for the 24 weeks ended 4 March 2023
Attributable to equity shareholders Non-controlling interests £m Total equity £m
Note Issued capital £m Other reserves £m Translation reserve Hedging reserve £m Retained earnings £m Total
£m
£m
Balance as at 18 September 2021 45 175 (34) 43 9,692 9,921 83 10,004
Total comprehensive income
Profit for the period recognised in the income statement - - - - 700 700 20 720
Remeasurements of defined benefit schemes - - - - 821 821 - 821
Deferred tax associated with defined benefit schemes - - - - (198) (198) - (198)
Items that will not be reclassified to profit or loss - - - - 623 623 - 623
Effect of movements in foreign exchange - - 429 - - 429 11 440
Net loss on hedge of net investment in foreign subsidiaries - - (1) - - (1) - (1)
Net gain on other investments held at fair value through other comprehensive i
- 4 - - - 4 - 4
income
Movement in cash flow hedging position - - - 419 - 419 - 419
Deferred tax associated with movement in cash flow hedging position - - - (28) - (28) - (28)
Deferred tax associated with movement in other investment - (1) - - - (1) - (1)
Share of other comprehensive income of joint ventures and associates - - 28 - - 28 - 28
Effect of hyperinflationary economies - - - - 46 46 - 46
Items that are or may be subsequently reclassified to profit or loss - 3 456 391 46 896 11 907
Other comprehensive income - 3 456 391 669 1,519 11 1,530
Total comprehensive income - 3 456 391 1,369 2,219 31 2,250
Inventory cash flow hedge movements
Gains transferred to cost of inventory - - - (280) - (280) - (280)
Total inventory cash flow hedge movements - - - (280) - (280) - (280)
Transactions with owners
Dividends paid to equity shareholders 5 - - - - (380) (380) - (380)
Net movement in own shares held - - - - (31) (31) - (31)
Deferred tax associated with share-based payments - - - - (1) (1) - (1)
Dividends paid to non-controlling interests - - - - - - (8) (8)
Total transactions with owners - - - - (412) (412) (8) (420)
Balance as at 17 September 2022 45 178 422 154 10,649 11,448 106 11,554
1. Operating segments
The Group has five operating segments. These are the Group's operating
divisions, based on the management and internal reporting structure, which
combine businesses with common characteristics, primarily in respect of the
type of products offered by each business, but also the production processes
involved and the manner of the distribution and sale of goods. The Board is
the chief operating decision-maker.
Inter-segment pricing is determined on an arm's length basis. Segment result
is adjusted operating profit, as shown on the face of the consolidated income
statement. Segment assets comprise all non-current assets except employee
benefits assets, income tax assets, deferred tax assets, and all current
assets except cash and cash equivalents, current asset investments and income
tax assets. Segment liabilities comprise trade and other payables, derivative
liabilities, provisions and lease liabilities.
Segment results, assets and liabilities include items directly attributable to
a segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly corporate assets and expenses, cash,
borrowings, employee benefits balances and current and deferred tax balances.
Segment non-current asset additions are the total cost incurred during the
period to acquire segment assets that are expected to be used for more than
one year, comprising property, plant and equipment, right-of-use assets,
operating intangibles and biological assets.
Businesses disposed are shown separately and comparatives have been
re-presented for businesses sold or closed during the period.
The Group is comprised of the following operating segments:
Grocery
The manufacture of grocery products, including hot beverages, sugar and
sweeteners, vegetable oils, balsamic vinegars, bread and baked goods, cereals,
ethnic foods, and meat products, which are sold to retail, wholesale and
foodservice businesses.
Sugar
The growing and processing of sugar beet and sugar cane for sale to industrial
users and to Silver Spoon, which is included in the Grocery segment.
Agriculture
The manufacture of animal feeds and the provision of other products for the
agriculture sector.
Ingredients
The manufacture of bakers' yeast, bakery ingredients, enzymes, lipids, yeast
extracts and cereal specialities.
Retail
Buying and merchandising value clothing and accessories through the Primark
and Penneys retail chains.
Geographical information
In addition to the required disclosure for operating segments, disclosure is
also given of certain geographical information about the Group's operations,
based on the geographical groupings: United Kingdom; Europe & Africa; The
Americas; and Asia Pacific.
Revenues are shown by reference to the geographical location of customers.
Profits are shown by reference to the geographical location of the businesses.
Segment assets are based on the geographical location of the assets.
Revenue Adjusted operating profit
24 weeks ended 24 weeks ended 52 weeks 24 weeks ended 24 weeks ended 52 weeks
4 March 2023
4 March 5 March
£m 5 March
2023 2022 2022
£m
£m £m
ended ended
17 September 17 September
2022 2022
£m £m
Operating segments
Grocery 2,105 1,821 3,735 173 175 399
Sugar 1,189 914 2,016 86 77 162
Agriculture 950 809 1,722 12 15 47
Ingredients 1,088 798 1,827 102 63 159
Retail 4,228 3,540 7,697 351 414 756
Central - - - (40) (38) (88)
9,560 7,882 16,997 684 706 1,435
Geographical information
United Kingdom 3,590 2,951 6,378 261 288 533
Europe & Africa 3,508 2,902 6,291 235 255 482
The Americas 1,219 919 2,028 160 107 279
Asia Pacific 1,243 1,110 2,300 28 56 141
9,560 7,882 16,997 684 706 1,435
Operating segments for the 24 weeks ended 4 March 2023
Grocery Sugar Agriculture Ingredients Retail Central Total
£m £m £m £m £m £m £m
Revenue from continuing businesses 2,117 1,260 953 1,194 4,228 (192) 9,560
Internal revenue (12) (71) (3) (106) - 192 -
Revenue from external customers 2,105 1,189 950 1,088 4,228 - 9,560
Adjusted operating profit before joint ventures and associates 141 82 8 91 351 (40) 633
Share of profit after tax from joint ventures and associates 32 4 4 11 - - 51
Adjusted operating profit 173 86 12 102 351 (40) 684
Finance income 22 22
Finance expense (1) (1) - - (39) (18) (59)
Other financial income 20 20
Adjusted profit before taxation 172 85 12 102 312 (16) 667
Profits less losses on disposal of non-current assets 1 - - - - 1 2
Amortisation of non-operating intangibles (11) - (2) (7) - - (20)
Acquired inventory fair value adjustments - - (2) - - - (2)
Transaction costs - - (1) - - - (1)
Profits less losses on sale and closure of businesses - (6) - 4 - - (2)
Profit before taxation 162 79 7 99 312 (15) 644
Taxation (102) (102)
Profit for the period 162 79 7 99 312 (117) 542
Segment assets (excluding joint ventures and associates) 2,866 2,509 643 2,113 7,501 147 15,779
Investments in joint ventures and associates 52 48 147 141 - - 388
Segment assets 2,918 2,557 790 2,254 7,501 147 16,167
Cash and cash equivalents 1,213 1,213
Current asset investments 3 3
Income tax 91 91
Deferred tax assets 210 210
Employee benefits assets 1,440 1,440
Segment liabilities (696) (670) (190) (391) (4,193) (187) (6,327)
Loans and overdrafts (630) (630)
Income tax (140) (140)
Deferred tax liabilities (593) (593)
Employee benefits liabilities (77) (77)
Net assets 2,222 1,887 600 1,863 3,308 1,477 11,357
Non-current asset additions 67 131 11 86 282 2 579
Depreciation and non-cash lease adjustments (57) (47) (9) (30) (239) (4) (386)
Amortisation (13) (1) (3) (7) (15) - (39)
Operating segments for the 24 weeks ended 5 March 2022
Grocery Sugar Agriculture Ingredients Retail Central Total
£m £m £m £m £m £m £m
Revenue from continuing businesses 1,822 950 810 878 3,540 (118) 7,882
Internal revenue (1) (36) (1) (80) - 118 -
Revenue from external customers 1,821 914 809 798 3,540 - 7,882
Adjusted operating profit before joint ventures and associates 150 75 13 54 414 (38) 668
Share of profit after tax from joint ventures and associates 25 2 2 9 - - 38
Adjusted operating profit 175 77 15 63 414 (38) 706
Finance income 6 6
Finance expense (1) (1) - - (35) (13) (50)
Other financial income 4 4
Adjusted profit before taxation 174 76 15 63 379 (41) 666
Profits less losses on disposal of non-current assets 3 - - - - 1 4
Amortisation of non-operating intangibles (15) - - (5) - - (20)
Transaction costs (1) - - (3) - - (4)
Profits less losses on sale and closure of businesses - - - (11) - - (11)
Profit before taxation 161 76 15 44 379 (40) 635
Taxation (151) (151)
Profit for the period 161 76 15 44 379 (191) 484
Segment assets (excluding joint ventures and associates) 2,611 2,099 519 1,722 6,805 165 13,921
Investments in joint ventures and associates 37 32 141 130 - - 340
Segment assets 2,648 2,131 660 1,852 6,805 165 14,261
Cash and cash equivalents 2,190 2,190
Current asset investments 34 34
Income tax 85 85
Deferred tax assets 191 191
Employee benefits assets 942 942
Segment liabilities (649) (461) (177) (349) (3,906) (220) (5,762)
Loans and overdrafts (748) (748)
Income tax (152) (152)
Deferred tax liabilities (456) (456)
Employee benefits liabilities (145) (145)
Net assets 1,999 1,670 483 1,503 2,899 1,886 10,440
Non-current asset additions 55 120 14 73 142 1 405
Depreciation and non-cash lease adjustments (52) (42) (8) (26) (240) (5) (373)
Amortisation (20) (1) (1) (6) (5) - (33)
Impairment of property, plant, equipment and right-of-use assets on sale - - - (11) - - (11)
and closure of businesses
Operating segments for the 52 weeks ended 17 September 2022
Grocery Sugar Agriculture Ingredients Retail Central Total
£m £m £m £m £m £m £m
Revenue from continuing businesses 3,736 2,097 1,728 1,996 7,697 (257) 16,997
Internal revenue (1) (81) (6) (169) - 257 -
Revenue from external customers 3,735 2,016 1,722 1,827 7,697 - 16,997
Adjusted operating profit before joint ventures and associates 328 154 31 142 756 (88) 1,323
Share of profit after tax from joint ventures and associates 71 8 16 17 - - 112
Adjusted operating profit 399 162 47 159 756 (88) 1,435
Finance income 19 19
Finance expense (1) (2) - (1) (76) (31) (111)
Other financial income 13 13
Adjusted profit before taxation 398 160 47 158 680 (87) 1,356
Profits less losses on disposal of non-current assets 4 2 - - - 1 7
Amortisation of non-operating intangibles (32) - (2) (13) - - (47)
Acquired inventory fair value adjustments (1) - (2) (2) - - (5)
Transaction costs (1) - (2) (3) - - (6)
Exceptional items - - - - (206) - (206)
Profits less losses on sale and closure of businesses - (16) - (7) - - (23)
Profit before taxation 368 146 41 133 474 (86) 1,076
Taxation (356) (356)
Profit for the period 368 146 41 133 474 (442) 720
Segment assets (excluding joint ventures and associates) 2,876 2,422 597 2,017 7,570 136 15,618
Investments in joint ventures and associates 62 45 143 136 - - 386
Segment assets 2,938 2,467 740 2,153 7,570 136 16,004
Cash and cash equivalents 2,121 2,121
Current asset investments 4 4
Income tax 90 90
Deferred tax assets 163 163
Employee benefits assets 1,393 1,393
Segment liabilities (703) (616) (196) (450) (4,545) (188) (6,698)
Loans and overdrafts (637) (637)
Income tax (160) (160)
Deferred tax liabilities (647) (647)
Employee benefits liabilities (79) (79)
Net assets 2,235 1,851 544 1,703 3,025 2,196 11,554
Non-current asset additions 128 223 26 183 489 3 1,052
Depreciation and non-cash lease adjustments (109) (75) (17) (57) (532) (12) (802)
Amortisation (37) (3) (3) (14) (11) - (68)
Reversal of impairment of property, plant & equipment and - (19) - (11) - - (30)
right-of-use assets
Geographical information for the 24 weeks ended 4 March 2023
United Kingdom Europe & Africa The Americas Asia Pacific Total
£m £m £m £m £m
Revenue from external customers 3,590 3,508 1,219 1,243 9,560
Segment assets 5,916 6,744 1,803 1,704 16,167
Non-current asset additions 143 292 105 39 579
Depreciation and non-cash lease adjustments (136) (175) (41) (34) (386)
Amortisation (8) (26) (2) (3) (39)
Acquired inventory fair value adjustments (2) - - - (2)
Transaction costs (1) - - - (1)
Geographical information for the 24 weeks ended 5 March 2022
United Kingdom Europe & Africa The Americas Asia Pacific Total
£m £m £m £m £m
Revenue from external customers 2,951 2,902 919 1,110 7,882
Segment assets 5,449 5,856 1,415 1,541 14,261
Non-current asset additions 139 170 54 42 405
Depreciation and non-cash lease adjustments (138) (176) (29) (30) (373)
Amortisation (14) (13) (3) (3) (33)
Transaction costs (3) - - (1) (4)
Impairment of property, plant, equipment and right-of-use - - - (11) (11)
assets on sale and closure of businesses
Geographical information for the 52 weeks ended 17 September 2022
United Kingdom Europe & Africa The Americas Asia Pacific Total
£m £m £m £m £m
Revenue from external customers 6,378 6,291 2,028 2,300 16,997
Segment assets 5,972 6,519 1,840 1,673 16,004
Non-current asset additions 285 487 177 103 1,052
Depreciation and non-cash lease adjustments (277) (392) (69) (64) (802)
Amortisation (25) (32) (5) (6) (68)
Impairment of property, plant and equipment on sale and - - - (30) (30)
closure of businesses
Acquired inventory fair value adjustments (2) (3) - - (5)
Transaction costs (2) (3) - (1) (6)
Exceptional items - (206) - - (206)
The Group's operations in the following countries met the criteria for
separate disclosure:
Revenue Non-current assets
24 weeks ended 52 weeks ended 24 weeks ended 52 weeks ended
4 March 24 weeks ended 17 September 2022 4 March 24 weeks ended 17 September 2022
2023 5 March £m 2023 5 March £m
£m
£m
2022 2022
£m £m
Australia 705 571 1,232 606 568 623
Spain 880 748 1,545 647 635 650
United States 806 614 1,315 854 683 866
All segment disclosures are stated before reclassification of assets and
liabilities classified as held for sale.
2. Exceptional items
2023
At half year, there were no exceptional items.
2022
At half year, there were no exceptional items. At year end, the income
statement included an exceptional charge for Primark of £206m comprising
non-cash writedowns of £72m against property, plant and equipment and a
writedown of £134m of right-of-use assets relating to the capitalisation of
store leases.
3. Income tax expense
24 weeks ended 24 weeks ended 52 weeks ended
4 March
5 March 17 September 2022
2023
£m 2022 £m
£m
Current tax expense
UK - corporation tax at 21.76% (2022 - 19%) 23 18 44
Overseas - corporation tax 112 112 244
UK - (over)/under provided in prior periods (7) 1 (12)
Overseas - (over)/under provided in prior periods - (3) 1
128 128 277
Deferred tax expense
UK deferred tax 12 10 18
Overseas deferred tax 20 12 72
UK - over provided in prior periods - - (3)
Overseas - (over)/under provided in prior periods (58) 1 (8)
(26) 23 79
Total income tax expense in income statement 102 151 356
Reconciliation of effective tax rate
Profit before taxation 644 635 1,076
Less share of profit after tax from joint ventures and associates (50) (37) (109)
Profit before taxation excluding share of profit after tax from joint ventures 594 598 967
and associates
Nominal tax charge at UK corporation tax rate of 21.76% (2022 - 19%) 129 114 184
Effect of higher and lower tax rates on overseas earnings - 7 4
Effect of changes in tax rates on income statement 2 3 2
Expenses not deductible for tax purposes 28 24 63
Disposal of assets covered by tax exemptions or unrecognised capital losses 1 1 6
Deferred tax not recognised 7 3 120
Adjustments in respect of prior periods (65) (1) (23)
102 151 356
Income tax recognised directly in equity
Deferred tax associated with defined benefit schemes 2 74 198
Deferred tax associated with share-based payments - - 1
Deferred tax associated with movement in cash flow hedging position (62) 3 28
Deferred tax associated with movement in other investments - - 1
(60) 77 228
The adjusted tax rate of 24.7% (2022 half year: 23.2%) is the estimated
weighted average annual tax rate based on full year projections and has been
applied to profit before adjusting items for the 24 weeks ended 4 March 2023.
The tax impact of adjusting items has been calculated on an item-by-item
basis. The UK corporation tax rate of 19% increased to 25% from 1 April 2023.
The legislation to effect these changes was enacted before the balance sheet
date and UK deferred tax has been calculated accordingly.
In April 2019 the European Commission published its decision on the Group
Financing Exemption in the UK's controlled foreign company legislation. The
Commission found that the UK law did not comply with EU State Aid rules in
certain circumstances. The Group has arrangements that may be impacted by this
decision as might other UK-based multinational groups that had financing
arrangements in line with the UK's legislation in force at the time. The UK
Government, the Group and a number of other UK companies appealed against this
decision to the General Court of the European Union ('GCEU'). On 8 June 2022,
the GCEU found in favour of the Commission's original decision. As a result of
this, in August 2022, the UK Government, the Group and various other UK
companies appealed GCEU's decision to the Court of Justice of the European
Union. We have calculated our maximum potential liability to be £26m (HY22:
£26m), however we do not consider that any provision is required in respect
of this amount based on our current assessment of the issue. Following receipt
of charging notices from HM Revenue & Customs ('HMRC'), we made payments
to HMRC in FY2021. Our assessment remains that no provision is required in
respect of this amount. We will continue to consider the impact of the
Commission's decision on the group and the potential requirement to record a
provision.
In the second half of last year a deferred tax asset arose mainly in relation
to the charge taken for the impairment of property, plant and equipment and
store leases in Primark Germany. A significant proportion of this asset was
deemed not to be recoverable and was written off as an exceptional tax
charge. Since then, further work has been undertaken to assess the amount of
the deferred tax asset that is expected to be recoverable. This work
determined that the deferred tax asset at last year end was understated in
error. The Directors believe that this understatement of the deferred tax
asset was not material to the prior period financial statements. Accordingly,
an exceptional tax credit of £58m has been recognised in this half year.
4. Earnings per share
24 weeks ended 24 weeks ended 52 weeks ended
4 March
5 March 17 September 2022
2023
pence 2022 pence
pence
Adjusted earnings per share 62.0 63.8 131.1
Disposal of non-current assets 0.3 0.5 0.9
Sale and closure of businesses (0.3) (1.4) (2.9)
Acquired inventory fair value adjustments (0.3) - (0.6)
Transaction costs (0.1) (0.5) (0.8)
Exceptional items - - (26.1)
Tax effect on above adjustments and exceptional tax 7.4 - (8.0)
Amortisation of non-operating intangibles (2.5) (2.5) (6.0)
Tax credit on non-operating intangibles amortisation and goodwill 0.5 0.4 1.0
Earnings per ordinary share 67.0 60.3 88.6
5. Dividends
24 weeks ended 24 weeks 52 weeks 24 weeks ended 24 weeks 52 weeks
4 March
4 March
ended ended
ended ended
2023
2023
pence 5 March 17 September 2022
£m 5 March 17 September 2022
2022 pence 2022 £m
pence £m
2021 final and special - 34.3 34.3 - 271 271
2022 interim - - 13.8 - - 109
2022 final 29.9 - - 235 - -
29.9 34.3 48.1 235 271 380
The 2022 final dividend of 29.9p was approved on 9 December 2022 and totalled
£235m when paid on 13 January 2023. The 2023 interim dividend of 14.2p per
share, totalling £110m will be paid on 7 July 2023 to shareholders on the
register on 2 June 2023.
6. Assets and liabilities classified as held for sale
The Group currently continues to expect to dispose of its north China sugar business, subject to competition and administrative requirements. £92m of assets classified as held for sale comprise of £49m of inventories, £17m of property, plant and equipment, £12m of operating intangibles, £8m of trade and other receivables and a deferred tax asset of £6m. £26m of liabilities classified as held for sale comprise trade and other payables.
7. Acquisitions and disposals
Acquisitions
2023
In November, the Agriculture division acquired Advance Sourcing, which
provides specialist products to create value by improving herd performance and
supports dairy farmers to improve herd efficiency and build resilience across
the agri-food supply chain.
In February, the Agriculture division acquired Progres in Finland, originally
created by Finnish biosciences company Hankkija and owner of a patented
additive used to support good health, reduce inflammation and stimulate
recovery, which improves gut integrity and the performance of animals.
Cash consideration was £24m. Net assets acquired included non-operating
intangible assets of £5m, £2m of other operating assets and £17m of
goodwill. The cash outflow of £29m on the purchase of subsidiaries, joint
ventures and associates in the cash flow statement comprised cash
consideration of £24m less cash acquired of £1m and £6m of deferred
consideration in respect of previous acquisitions.
2022
In January 2022, the Group acquired Fytexia, a B2B specialty ingredients
business in France and Italy producing and formulating polyphenols-based
active ingredients for the dietary supplements industry. The Group also
acquired a small grocery company in New Zealand and a small agriculture
business in Finland during the first half.
In the second half, the Group acquired Greencoat, a UK-based animal supplement
and care business.
Total consideration for these acquisitions was £160m, comprising £153m cash
consideration and £7m deferred consideration. Pre-acquisition carrying
amounts were the same as recognised values on acquisition apart from £88m of
non-operating intangibles in respect of brands, technology and customer
relationships, an £8m uplift to inventory, a £16m related deferred tax
liability and goodwill of £85m.
Disposals
2023
The Group agreed to sell property, plant and equipment to its Chinese joint venture partner. Profit on sale was £4m.
In March, Gledhow, the Group's 30% equity-accounted associate in Illovo South Africa formally went into business rescue. A non-cash provision of £6m was booked on the financial guarantee held on this business' liabilities.
2022
There were no disposals in the first half. The proposed sale of a yeast
company to the joint venture with Wilmar International in China (classified as
held for sale at the 2021 year end) did not go ahead. The £10m non-cash
impairment reversed in 2021 through profit/(loss) on sale and closure of
business was reinstated at a cost of £11m.
The Group's investment in north China Sugar was classified as held-for-sale at
the 2022 financial year end and an associated £19m non-cash write-down was
charged to loss on sale and closure of business.
The Group also released £3m of closure provisions in Vivergo in the UK and
£4m of warranty provisions that were no longer required for a disposed
Ingredients business in the United States.
8. Analysis of net debt
At Cash flow Acquisitions New leases and non-cash Exchange adjustments At
17 September
£m
£m
items
£m
4 March
2022
£m
2023
£m
£m
Short-term loans (31) 11 - - 3 (17)
Long-term loans (480) - - - - (480)
Lease liabilities (3,252) 135 (1) (71) 2 (3,187)
Total liabilities from financing activities (3,763) 146 (1) (71) 5 (3,684)
Cash at bank and in hand, cash equivalents and 1,995 (895) - - (20) 1,080
overdrafts
Current asset investments 4 (1) - - - 3
Net debt including lease liabilities (1,764) (750) (1) (71) (15) (2,601)
Cash and cash equivalents comprise bank and cash balances, deposits and
short-term investments with original maturities of three months or less.
£133m (2022 half year - £99m; 2022 full year - £126m) of bank overdrafts
that are repayable on demand form part of the Group's cash management and are
included as a component of cash and cash equivalents for the purpose of the
cash flow statement.
Net cash excluding lease liabilities is £586m (2022 half year - £1,476m;
2022 year end - £1,488m).
£133m (2022 half year - £99m; 2022 full year - £126m) of bank overdrafts
plus the £17m (2022 half year - £176m; 2022 full year - £31m) of short-term
loans shown above comprise the £150m (2022 half year - £275m; 2022 full year
- £157m) of current loans and overdrafts shown on the face of the balance
sheet.
Current and non-current lease liabilities shown on the face of the balance
sheet of £322m and £2,865m respectively (2022 half year - £292m and
£2,849m respectively; 2022 full year - £316m and £2,936m respectively)
comprise the £3,187m (2022 half year - £3,141m; 2022 full year - £3,252m)
of lease liabilities shown above. Current asset investments comprise term
deposits and short-term investments with original maturities of greater than
three months.
Interest paid is included within financing activities. The roll-forward of the
liabilities associated with interest paid is an opening balance of £(18)m,
expense of £(59)m, payments of £57m, interest on the interest rate swap
£(5)m and a closing balance of £(25)m (2022 half year: opening balance of
£(20)m, expense of £(50)m, payments of £48m, fx of £(1)m and a closing
balance of £(23)m; 2022 full year: opening balance of £(20)m, expense of
£(111)m, payments of £114m, fx of £(1)m and a closing balance of £(18)m).
9. Related parties
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. Full details of the Group's other related party relationships,
transactions and balances are given in the Group's financial statements for
the 52 weeks ended 17 September 2022. There have been no material changes in
these relationships in the 24 weeks ended 4 March 2023 or up to the date of
this report. No related party transactions have taken place in the first 24
weeks of the current financial year that have materially affected the
financial position or the performance of the group during that period.
10. Defined benefit pension schemes
Employee benefits assets primarily comprise the accounting surplus of the
Group's UK defined benefit scheme. At the end of the period these UK asset
schemes were £1,397m (2022 half year: £935m). The increase from £1,366m at
the end of the last financial year is due to an increase in corporate bond
yields since year end.
11. Basis of preparation
Associated British Foods plc ('the Company') is a company domiciled in the
United Kingdom. The condensed consolidated interim financial statements of the
Company for the 24 weeks ended 4 March 2023 comprise those of the Company and
its subsidiaries (together referred to as 'the Group') and the Group's
interests in joint ventures and associates.
The consolidated financial statements of the Group for the 52 weeks ended 17
September 2022 are available upon request from the Company's registered office
at 10 Grosvenor Street, London, W1K 4QY or at www.abf.co.uk
(http://www.abf.co.uk) .
The condensed consolidated interim financial statements have been prepared in
accordance with UK-adopted IAS 34 Interim Financial Reporting. They do not
include all of the information required for full annual financial statements
and should be read in conjunction with the consolidated financial statements
for the 52 weeks ended 17 September 2022.
After making enquiries, the directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
foreseeable future. For this reason, they continue to adopt the going concern
basis in preparing the consolidated interim financial statements.
The directors have reviewed a detailed cash flow forecast to the end of the
2024 financial year. Having reviewed this forecast and having applied a
downside sensitivity analysis and performed a reverse stress test, the
directors consider it a remote possibility that the financial headroom could
be exhausted.
The Board's treasury policies are in place to maintain a strong capital base
and manage the Group's balance sheet and liquidity to ensure long-term
financial stability. These policies are the basis for investor, creditor and
market confidence and enable the successful development of the business. The
events of the last two years demonstrated the importance of sufficient
financial resources and credit strength to meet any operational challenges or
business disruption events. The financial leverage policy states that, in the
ordinary course of business, the Board prefers to see the Group's ratio of net
debt including lease liabilities to adjusted EBITDA to be well under 1.5x. At
the end of this financial period, the financial leverage ratio was 1.2x and
the Group had net cash before lease liabilities of £586m.
In March 2023, S&P Global Ratings reaffirmed their assignment to the Group
of an 'A' grade long-term issuer credit rating. The Group's funding basis is
supported by the existing £400m public bond due in 2034 furthermore the
Groups committed Revolving Credit Facility is free of performance covenants
maturing in 2027, with two 1-year extension options.
In reviewing the cash flow forecast for the period, the directors reviewed the
trading for both Primark and the Food businesses in light of the experience
gained from events of the last two years of trading and emerging trading
patterns. The directors have a thorough understanding of the risks,
sensitivities and judgements included in these elements of the cash flow
forecast and have a high degree of confidence in these cash flows.
As a downside scenario the directors considered the adverse scenario in which
inflationary costs are not fully recovered and in which energy costs are twice
the forecasted increase and other inflationary cost pressures are 25% higher.
It also includes further adverse foreign exchange impacts combined with a
global recession, reducing demand for goods further than the base levels
forecast. This downside scenario was modelled without taking any mitigating
actions within their control. Under this downside scenario the Group forecasts
liquidity throughout the period and compliance with financial covenants in the
remaining $100m of outstanding private placement notes (due March 2024).
In addition, the directors also considered the circumstances which would be
needed to exhaust the Group's total liquidity over the assessment period - a
reverse stress test. This indicates that increasing inflation (rising energy
costs and other inflationary cost pressures; and adverse foreign exchange
impacts) combined with a global recession, reducing demand for goods, and more
frequent and extreme weather events would need to exceed £3.9 billion more
than the level forecasted by the Group, without any mitigating actions being
taken before total liquidity is exhausted. The likelihood of these
circumstances is considered remote for two reasons. Firstly, over such a long
period, management could take substantial mitigating actions, such as
reviewing pricing, cost cutting measures and reducing capital investment.
Secondly, the Group has significant business and asset diversification and
would be able to, if it were necessary, dispose of assets and/or businesses to
raise considerable levels of funds.
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Operating
Review. Note 26 on pages 204 to 215 of the 2022 Annual Report provides details
of the Group's policy on managing its financial and commodity risks.
The 24 week period for the condensed consolidated interim financial statements
of the Company means that the second half of the year is usually a 28 week
period, and the two halves of the reporting year are therefore not of equal
length. For the Retail segment, Christmas, falling in the first half of the
year, is a particularly important trading period. For the Sugar segment, the
balance sheet, and working capital in particular, is strongly influenced by
seasonal growth patterns for both sugar beet and sugar cane, which vary
significantly in the markets in which the Group operates.
The condensed consolidated interim financial statements are unaudited but have
been subject to an independent review by the auditor and were approved by the
board of directors on 25 April 2023. They do not constitute statutory
financial statements as defined in section 434 of the Companies Act 2006. The
comparative figures for the 52 weeks ended 17 September 2022 have been
abridged from the Group's 2022 financial statements and are not the Company's
statutory financial statements for that period. Those financial statements
have been reported on by the Company's auditor for that period and delivered
to the Registrar of Companies. The report of the auditor was unqualified, did
not include a reference to any matters to which the auditor drew attention by
way of emphasis without qualifying their report and did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
This Interim Results Announcement has been prepared solely to provide
additional information to shareholders as a body, to assess the Group's
strategies and the potential for those strategies to succeed. This Interim
Results Announcement should not be relied upon by any other party or for any
other purpose.
12. Significant accounting policies
Except where detailed otherwise, the accounting policies applied by the Group
in these condensed consolidated interim financial statements are substantially
the same as those applied by the Group in its consolidated financial
statements for the 52 weeks ended 17 September 2022 including for derivatives
and current biological assets, which are recognised in the balance sheet at
fair value and fair value less costs to sell, respectively. The methodology
for selecting assumptions underpinning the fair value calculations has not
changed since 17 September 2022. The significant movement in derivatives and
in the cash flow hedging position recorded in other comprehensive income are
due to changes in underlying market conditions.
New accounting standards
The following accounting standards, amendments and clarifications were adopted
during the period and had no significant impact on the Group:
● Annual Improvements to IFRS 2018-2020:
○ Amendment to IFRS 1 First-time Adoption of International Financial Reporting
Standards-Subsidiary as a First-time Adopter.
○ Amendment to IFRS 9 Financial Instruments-Fees in the '10 per cent' Test for
Derecognition of Financial Liabilities.
○ Amendment to IAS 41 Agriculture-Taxation in Fair Value Measurements.
● Onerous Contracts-Cost of Fulfilling a Contract (Amendments to IAS 37)
● Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS
16)
● Reference to the Conceptual Framework (Amendments to IFRS 3)
Accounting standards not yet applicable
The Group is assessing the impact of the following standards, interpretations
and amendments that are not yet effective. Where already endorsed by the UK
Endorsement Board (UKEB), these changes will be adopted on the effective dates
noted. Where not yet endorsed by the UKEB, the adoption date is less certain:
● Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12) effective 2024 financial year
● Definition of Accounting Estimates (Amendments to IAS 8) effective 2024
financial year
● Disclosure of Accounting policies (Classification of Liabilities as Current or
Non-current - Amendments to IAS 1 and IFRS Practice Statement 2). IAS 1
effective 2024 financial year. IFRS 2 Practice Statement 2 has no transition
requirements or effective date
● IFRS 17 Insurance Contracts effective 2024 financial year
● Amendments to Classification of Liabilities as Current or Non-current - IAS 1
Presentation of Financial Statements effective 2024 financial year (not yet
endorsed by the UKEB)
● Lease Liability in a Sale and Leaseback (Amendments to IFRS 16) effective 2024
financial year
13. Accounting estimates and judgements
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates. In preparing the
condensed consolidated interim financial statements, the significant
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty were the same as those applied to
the consolidated financial statements for the 52 weeks ended 17 September
2022.
14. Alternative performance measures
In reporting financial information, the Board uses various alternative
performance measures (APMs) which it believes provide useful additional
information for understanding the financial performance and financial health
of the Group. These APMs should be considered in addition to IFRS measures and
are not intended to be a substitute for them. Since IFRS does not define APMs,
they may not be directly comparable to similar measures used by other
companies.
The Board also uses APMs to improve the comparability of information between
reporting periods and geographical units (such as like-for-like sales) by
adjusting for non-recurring or uncontrollable factors which affect IFRS
measures, to aid users in understanding the Group's performance.
Consequently, the Board and management use APMs for performance analysis,
planning, reporting and incentive-setting.
APM Closest equivalent IFRS measure Definition/purpose Reconciliation/calculation
Like-for-like sales No direct equivalent The like-for-like sales metric enables measurement of the performance of our Consistent with the definition given
retail stores on a comparable year-on-year basis.
This measure represents the change in sales at constant currency in our retail
stores adjusted for new stores, closures and relocations. Refits, extensions
and downsizes are also adjusted for if a store's retail square footage changes
by 10% or more. For each change described above, a store's sales are excluded
from like-for-like sales for one year.
No adjustments are made for disruption during refits, extensions or downsizes
if a store's retail square footage changes by less than 10%, for
cannibalisation by new stores, or for the timing of national or bank holidays.
It is measured against comparable trading days in each period.
Adjusted operating (profit) margin No direct equivalent Adjusted operating (profit) margin is adjusted operating profit as a See note A
percentage of revenue.
Adjusted operating profit Operating profit Adjusted operating profit is stated before amortisation of non-operating A reconciliation of this measure is provided on the face of the condensed
intangibles, transaction costs, amortisation of fair value adjustments made to consolidated income statement and by operating segment in note 1
acquired inventory, profits less losses on disposal of non-current assets and
exceptional items.
Items defined above which arise in the Group's joint ventures and associates
are also treated as adjusting items for the purposes of adjusted operating
profit.
Adjusted profit before tax Profit before tax Adjusted profit before tax is stated before amortisation of non-operating A reconciliation of this measure is provided on the face of the condensed
intangibles, transaction costs, amortisation of fair value adjustments made to consolidated income statement and by operating segment in note 1
acquired inventory, profits less losses on disposal of non-current assets,
exceptional items and profits less losses on sale and closure of businesses.
Items defined above which arise in the Group's joint ventures and associates
are also treated as adjusting items for the purposes of adjusted profit before
tax.
Adjusted earnings per share Earnings per share Adjusted earnings per share is stated before amortisation of non-operating Reconciliation of this measure is provided in note 4
intangibles, transaction costs, amortisation of fair value adjustments made to
acquired inventory, profits less losses on disposal of non-current assets,
exceptional items and profits less losses on sale and closure of businesses
together with the related tax effect.
Items defined above which arise in the Group's joint ventures and associates
are also treated as adjusting items for the purposes of adjusted earnings per
share.
Exceptional items No direct equivalent Exceptional items are items of income and expenditure which are material and Exceptional items are included on the face of the condensed consolidated
unusual in nature and are considered of such significance that they require income statement with further detail provided in note 2
separate disclosure on the face of the income statement.
Constant currency Revenue and see adjusted operating profit (non-IFRS) measure Constant currency measures are derived by translating the relevant prior year See note B
figures at current year average exchange rates, except for countries where CPI
has escalated to extreme levels, in which case actual exchange rates are used.
There are currently three countries where the Group has operations in this
position - Argentina, Venezuela and Turkey.
Effective tax rate Income tax expense The effective tax rate is the tax charge for the period expressed as a Whilst the effective tax rate is not disclosed, a reconciliation of the tax
percentage of profit before tax. charge on profit before tax at the UK corporation tax rate to the actual tax
charge is provided in note 3
Adjusted effective tax rate No direct equivalent The adjusted effective tax rate is the tax charge for the period excluding tax The tax impact of reconciling items between profit before tax and adjusted
on adjusting items expressed as a percentage of adjusted profit before tax. profit before tax is shown in note 3
Dividend cover No direct equivalent Dividend cover is the ratio of adjusted earnings per share to dividends per See note C
share relating to the period.
Capital expenditure No direct equivalent Capital expenditure is a measure of investment each period in non-current See note D
assets in existing businesses. It comprises cash outflows from the purchase of
property, plant and equipment and intangibles.
Gross investment No direct equivalent Gross investment is a measure of investment each period in non-current assets See note E
of existing businesses and acquisitions of new businesses. It includes capital
expenditure as well as cash outflows from the purchase of subsidiaries, joint
ventures and associates, additional shares in subsidiary undertakings
purchased from non-controlling interests and other investments, as well as net
debt assumed in acquisitions.
Net cash/debt before lease liabilities No direct equivalent This measure comprises cash, cash equivalents and overdrafts, current asset A reconciliation of this measure is shown in note 8
investments and loans.
Net cash/debt including lease liabilities No direct equivalent This measure comprises cash, cash equivalents and overdrafts, current asset A reconciliation of this measure is shown in note 8
investments, loans and lease liabilities.
Adjusted EBITDA See Adjusted operating profit (non-IFRS) measure Adjusted EBITDA is stated before depreciation, amortisation and impairment See note F
charged to adjusted operating profit.
Financial leverage ratio No direct equivalent Financial leverage is the ratio of net cash/debt including lease liabilities See note F
to adjusted EBITDA based on the last 12 months rolling adjusted EBITDA.
Total liquidity No direct equivalent Total liquidity comprises net cash/debt before lease liabilities plus See note G
qualifying debts and credit facilities. Qualifying debt and credit facilities
are those which are medium-to-long-term, are committed and either contain no
performance covenants, or where they do, they are assessed as highly unlikely
to be breached in even a severe downside scenario.
(Average) capital employed No direct equivalent Capital employed is derived from the management balance sheet and does not Consistent with the definition given
reconcile directly to the statutory balance sheet. All elements of capital
employed are calculated in accordance with UK adopted IFRS.
Average capital employed for each segment and the Group is calculated by
averaging the capital employed for each period of the financial year based on
the reporting calendar of each business.
Return on (average) capital employed No direct equivalent The return on (average) capital employed measure divides annualised adjusted Consistent with the definition given
operating profit by average capital employed.
(Average) working capital No direct equivalent Working capital is derived from the management balance sheet and does not Consistent with the definition given
reconcile directly to the statutory balance sheet. All elements of working
capital are calculated in accordance with UK-adopted IFRS.
Average working capital for each segment and the Group is calculated by
averaging the working capital for each period of the financial year based on
the reporting calendar of each business.
(Average) working capital No direct equivalent This measure expresses (average) working capital as a percentage of revenue. Consistent with the
as a percentage of revenue
definition given
Note A
Grocery Sugar Agriculture Ingredients Retail Central and disposed businesses Total
£m
£m
£m
£m
£m
£m
£m
24 weeks ended 4 March 2023
External revenue from continuing businesses 2,105 1,189 950 1,088 4,228 - 9,560
Adjusted operating profit 173 86 12 102 351 (40) 684
Adjusted operating margin % 8.2% 7.2% 1.3% 9.4% 8.3% 7.2%
24 weeks ended 5 March 2022
External revenue from continuing businesses 1,821 914 809 798 3,540 - 7,882
Adjusted operating profit 175 77 15 63 414 (38) 706
Adjusted operating margin % 9.6% 8.4% 1.9% 7.9% 11.7% 9.0%
Note B
Grocery Sugar Agriculture Ingredients Retail Disposed businesses Total
£m
£m
£m
£m
£m
£m
£m
24 weeks ended 4 March 2023
External revenue from continuing businesses 2,105 1,189 950 1,088 4,228 - 9,560
at actual rates
24 weeks ended 5 March 2022
External revenue from continuing businesses 1,821 914 809 798 3,540 - 7,882
at actual rates
Impact of foreign exchange 99 22 15 62 89 - 287
External revenue from continuing businesses 1,920 936 824 860 3,629 - 8,169
at constant currency
% change at constant currency +10% +27% +15% +27% +17% +17%
Grocery Sugar Agriculture Ingredients Retail Central and disposed businesses Total
£m
£m
£m
£m
£m
£m
£m
24 weeks ended 4 March 2023
Adjusted operating profit at actual rates 173 86 12 102 351 (40) 684
24 weeks ended 5 March 2022
Adjusted operating profit at actual rates 175 77 15 63 414 (38) 706
Impact of foreign exchange 17 5 1 6 3 - 32
Adjusted operating profit at constant currency 192 82 16 69 417 (38) 738
% change at constant currency -10% +5% -25% +48% -16% -7%
Note C
24 weeks ended 24 weeks ended 52 weeks ended
4 March
5 March
2023
17 September 2021
pence 2022
pence
pence
Adjusted earnings per share (pence) 62.0 63.8 131.1
Dividends relating to the period (pence) 14.2 13.8 43.7
Dividend cover 4 5 3
Note D
From the cash flow statement 24 weeks ended 24 weeks ended 52 weeks ended
4 March
5 March
17 September 2022
2023
£m
£m 2022
£m
Purchase of property, plant and equipment 444 272 680
Purchase of intangibles 54 64 89
498 336 769
Note E
From the cash flow statement 24 weeks ended 24 weeks ended 52 weeks ended
4 March
5 March
17 September 2022
2023
£m
£m 2022
£m
Purchase of property, plant and equipment 444 272 680
Purchase of intangibles 54 64 89
Purchase of subsidiaries, joint ventures and associates 29 114 154
Purchase of other investments - - 7
527 450 930
Note F
24 weeks ended 24 weeks ended 52 weeks ended
4 March
5 March
17 September 2022
2023
£m
£m 2022
£m
Adjusted operating profit 684 706 1,435
Charged to adjusted operating profit:
Depreciation of property, plant and equipment 258 245 521
Amortisation of operating intangibles 20 14 24
Depreciation of right-of-use assets and non-cash lease adjustments 128 128 281
Adjusted EBITDA 1,090 1,093 2,261
Net debt including lease liabilities (2,601) (1,665) (1,764)
Financial leverage ratio (based on the last 12 months rolling adjusted EBITDA) 1.2 0.8 0.8
Note G
At 4 March 2023 At 5 March 2022 At 17 September 2022
£m
£m
£m
Net cash before lease liabilities 586 1,476 1,488
Qualifying debt 400 400 400
Qualifying credit facilities 1,500 1,088 1,500
Total liquidity 2,486 2,964 3,388
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 forward-looking statements whether as a
result of new information, future events or otherwise.
Responsibility statement
The Interim Results Announcement complies with the Disclosure and Transparency
Rules ('the DTR') of the UK's Financial Conduct Authority in respect of the
requirement to produce a half-yearly financial report.
The directors confirm that to the best of their knowledge:
this financial information has been prepared in accordance with UK-adopted
International Accounting Standard 34 Interim Financial Reporting;
this Interim Results Announcement includes a fair review of the important
events during the first half and their impact on the financial information,
and a description of the principal risks and uncertainties for the remaining
half of the year as required by DTR 4.2.7R; and this Interim Results
Announcement includes a fair review of the disclosure of related party
transactions and changes therein as required by DTR 4.2.8R.
On behalf of the board
Michael McLintock George Weston John Bason
Chairman Chief Executive Finance Director
25 April 2023
Independent review report to Associated British Foods plc
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the Interim Results Announcement for the 24 week period ended 4
March 2023 which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the condensed
consolidated balance sheet, the condensed consolidated cash flow statement,
the condensed consolidated statement of changes in equity and the related
explanatory notes. We have read the other information contained in the Interim
Results Announcement and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the
condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed consolidated interim financial statements in the
Interim Results Announcement for the 24 week period ended 4 March 2023 are not
prepared, in all material respects, in accordance with UK-adopted
International Accounting Standard 34 Interim Financial Reporting and the
Disclosure Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK and Ireland) Review of Interim Financial information
performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 11, the annual financial statements of the Group will be
prepared in accordance with UK-adopted international accounting standards. The
condensed set of financial statements included in this Interim Results
Announcement has been prepared in accordance with UK-adopted International
Accounting Standard 34 Interim Financial Reporting.
Conclusions relating to Going Concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with this ISRE, however future events or conditions may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the Interim Results Announcement
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the Interim Results Announcement, the directors are responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the Interim Results Announcement, we are responsible for
expressing to the Company a conclusion on the condensed set of financial
statements in the Interim Results Announcement. Our conclusion, including our
Conclusions Relating to Going Concern, is based on procedures that are less
extensive than audit procedures, as described in the Basis for conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK and
Ireland) Review of Interim Financial information performed by the Independent
Auditor of the Entity issued by the Auditing Practices Board. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our work, for this report, or for the conclusions
we have formed.
Ernst & Young LLP
Birmingham
25 April 2023
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