REG - Assoc.British Foods - Results for 53 weeks ended 18 September 2021
09/11/2021 07:00
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RNS Number : 7201R Associated British Foods PLC 09 November 2021
For release 9 November 2021
Annual Results Announcement
Year ended 18 September 2021
Associated British Foods plc results for 53 weeks ended 18 September 2021
Strong delivery in food; retail trading and margin recovering
Financial Headlines
Actual currency Constant currency
change change
Group revenue £13,884m In line +1%
Adjusted operating profit £1,011m -1% +2%
Adjusted profit before tax £908m -1%
Adjusted earnings per share 80.1p -1%
Dividends per share
- Interim 6.2p
- Final 20.5p
- Special 13.8p
Gross investment £721m
Net cash before lease liabilities £1,901m
Net debt including lease liabilities £1,380m
Statutory operating profit £808m In line
Statutory profit before tax £725m +6%
Basic earnings per share 60.5p +5%
Statutory operating profit of £808m for the year was broadly in line with the
statutory operating profit of £810m last year and is stated after charging
net exceptional items of £151m this year compared to £156m in the last
financial year.
Strong delivery in food
̶ Combined revenue up 5%(1) and adjusted operating profit up 10% to £760m(1)
̶ Sugar: very strong performance, adjusted operating profit up 75%(1)
̶ Grocery: brand investment and strong international growth
̶ Progress in Agriculture and Ingredients
Retail trading and margin recovering
̶ Primark adjusted operating profit up 15% to £415m(2)
̶ Like-for-like(3) sales down 12% on pre-pandemic levels
̶ Strong profit margin recovery, with second half margin of 10.6%(4)
̶ Wide-reaching new sustainability strategy launched
̶ Plans to accelerate selling space expansion in major growth markets
Dividend
̶ Total dividend of 34.3p per share declared and proposed: special dividend
13.8p and final dividend 20.5p
̶ Total dividends for the year 40.5p per share
George Weston, Chief Executive of Associated British Foods, said:
"Our financial performance this year more than ever demonstrates the
resilience of the group. This comes from the strength of our brands, the
diversity of our products and markets, our geographic spread, conservative
financing and an organisation design that permits fast and flexible
decision-taking.
We provided safe, nutritious food under the most extraordinary conditions
again this year, proving the value and resilience of our supply chains. Our
food businesses delivered an adjusted operating profit increase of 10%, driven
by high demand and improved productivity.
Primark delivered a good performance in the face of continued disruption to
trading caused by the pandemic. It also unveiled its wide-reaching
sustainability strategy with the aim of making more sustainable fashion
affordable for all. Although the possibility of further trading restrictions
cannot be ruled out, we expect Primark to deliver a much improved margin and
profit next year. We are now intent on expanding our new store pipeline and
investing in technology and digital capabilities to continue improving the
performance of the business.
Given the strength of our balance sheet and our confidence in the future we
are setting out today a new capital cash allocation policy that provides the
Group with the capital it needs both for investment and financial stability
while allowing for enhanced returns to shareholders when appropriate. We are
announcing a special dividend for shareholders today as a result.
We have the people and the cash resources to seize the opportunities ahead and
we look to the future with confidence."
(1)At constant currency
(2)Excluding the repayment of job retention scheme monies
(3)Like-for-like sales metric expressed over two years enables measurement of
the performance of our retail stores compared to our experience in 2019, which
was
before any of the economic effects of COVID-19
(4)Excluding 53(rd) week and the repayment of job retention scheme monies
The Group has defined, and outlined the purpose of, its Alternative
performance measures in note 13. These measures are used within the Financial
Headlines and in this Annual Results Announcement. The 53rd week applies to
Primark and George Weston Foods.
For further information please contact:
Associated British Foods:
John Bason, Finance Director
Tel: 020 7399 6545
Citigate Dewe Rogerson:
Tel: 020 7638 9571
Chris Barrie
Tel: 07968 727289
Jos Bieneman
Tel: 07834 336650
There will be an analyst and investor presentation at 09.00am GMT 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 sales of £13.9bn and 128,000 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.
Annual Results Announcement
For the 53 weeks ended 18 September 2021
Chairman's statement
The economic effects of the measures taken by governments to restrict the
COVID-19 pandemic were evident in the financial results for our last financial
year and in the results for this financial year. The Board recognises that a
Group of our scale and significance has responsibilities to many stakeholders.
I want to say thank you once again to every employee for their hard work and
determination in these difficult times.
Sales and profit for the Group this financial year were again below pre-COVID
levels and this was driven by the results for Primark, where a third of its
available trading days were lost as a result of store closures due to the
public health measures taken in our major markets. The Primark management and
operational teams demonstrated agility in responding to both the fast changing
and wide range of trading restrictions applied to our stores over the year.
The strength of Primark's sales after the reopening of all our stores in the
spring demonstrated the relevance and appeal of our value-for-money offering.
Growth in our food businesses continued this year with a combined increase in
revenue of 5% and increase in adjusted operating profit of 10% this financial
year, at constant currency.
Importantly, during this difficult trading year, we maintained our focus on
building for the future.
In Grocery, we continued to build our brands with a number of new product
introductions and wider international distribution. We made significant
progress with the expansion of Twinings in Wellness teas, Ovaltine growth in
China, Brazil and Switzerland, the overseas development of Patak's and
Mazzetti and the continuing development of Yumi's in Australia. In
Ingredients, we made major steps to build our development capability and
opened new technology development centres for our bakery ingredients and
enzyme businesses. Our yeast joint venture with Wilmar International in China
became operational this year, progress was made on building a major new yeast
facility and we expect strong growth from this business in the future.
We invested £721m in our businesses this year. We made good progress with a
number of major capital projects: work to recommission the Vivergo bioethanol
plant in the UK; a major new animal feed mill in Western Australia; and a
number of capacity increases including bakery production in Australia and
yeast production in Brazil. In Primark, we continued to increase retail
selling space with the opening of 15 new stores and developed our presence in
the important US and Central European markets. We made progress in the
development and implementation of new inventory management and point of sale
systems across the store estate. The expansion of our state-of-the art
warehouse in Roosendaal in the Netherlands was completed.
Our Responsibility and ESG
Our Company was founded with a conviction that acting responsibly and with
integrity is the only way to build and manage a business over the long term.
The belief that companies do well when they act well is deeply ingrained in
all of us, from the Board and the leadership team, across all our businesses
and at all levels of our workforce. We have a clear sense of our social
purpose. We exist to provide safe, nutritious and affordable food and to
provide quality, affordable clothing to hundreds of millions of customers
worldwide.
We have a strong belief in our duty to respect the dignity of everyone who
works for us, both within our workforce and in our supply chains. We have a
firm commitment to operating under the highest standards of corporate
citizenship, acting as a good and supportive neighbour to the communities
around us while recognising our wider obligations to society as a whole. Our
2021 Responsibility Update details the actions we continue to take to invest
in our people, support society, strengthen supply chains and respect our
environment. To see how we make a difference, please download this update, at
www.abf.co.uk/responsibility (http://www.abf.co.uk/responsibility) .
This year we have extensively engaged with our investors on the key ESG
factors for the Group and our strategy and governance in relation to these. We
provided an in-depth review of Primark's processes to provide assurance of its
supplier practices and of Primark's sustainability strategy, Primark Cares,
designed to reduce its impact on the environment and to improve the lives of
people in its supply chain. A new customer campaign was launched in September
to highlight Primark's commitment to make more sustainable fashion affordable
for all. The March and September presentations are available on our website. A
further briefing is due to be held in early 2022 and will focus on the
environmental factors that are most material for the Group.
Results
Revenue for the Group of £13.9bn was in line with last year at actual
exchange rates and was 1% ahead at constant currency. All our food businesses
delivered growth and in aggregate sales were 5% ahead of last year at constant
currency. Primark sales in both years were impacted by trading restrictions
and store closures as a result of government measures taken to contain the
spread of COVID-19. The periods of closure were longer this year compared to
the last financial year and sales declined by 5% at constant currency as a
result.
Adjusted operating profit this year of £1,011m was broadly in line with last
financial year. For the full year the strengthening of sterling against our
major currencies has led to a translation loss of some £36m. The adjusted
operating profit for Grocery, Sugar, Agriculture and Ingredients combined
increased by a strong 10% at constant currency. Primark operating profit
margin improved this year with an adjusted operating profit of £415m, before
repayment of job retention scheme monies of £94m, which compared to £362m
last financial year.
The charge for net finance expense and other financial income declined to
£103m following the repayment of £25m of the private placement debt and
there were no RCF interest charges since the facility was not drawn down this
year. This was another year where a lower proportion of the Group's profit was
generated in the UK and Ireland because of the lower Primark profitability and
the Group's adjusted effective tax rate was therefore again elevated, at
28.1%, a small decrease from 28.8% last year.
The Group's net cash before lease liabilities of £1.9bn this year compared to
£1.6bn at the same time last year even after another year in which the
pandemic adversely impacted Primark's trading. This outturn reflects the
strong cash generating capability of the Group and good working capital
management.
The statutory operating profit for the year at £808m was broadly in line with
last year. It is stated after a net exceptional non-cash charge of £151m this
year which mainly comprises impairments of £141m in property, plant and
equipment at our Spanish Sugar business, Azucarera, and other Sugar
businesses, and was marginally lower than the £156m net exceptional charge
last year. Basic earnings per share were 60.5p, an increase from the reported
57.6p last year.
Board
We welcomed Dame Heather Rabbatts as a non-executive director of the Company
with effect from 1 March 2021. Heather brings a wealth of experience having
held a number of executive and non-executive roles across local government,
infrastructure, media and sports. She was the first woman to join the board of
the Football Association. She continues to work in film and sports and is a
non-executive director of Kier Group plc.
Dividends
The Board decided not to pay any dividends relating to the 2020 financial
year. This was due to the uncertainty of cash flow for the Group as a result
of the economic impact of COVID-19 on our businesses, especially driven by the
unknown duration and extent of Primark store closures. The scale of this
uncertainty was demonstrated by the cash outflow of some £800m experienced in
the period March to May 2020. Uncertainty was particularly acute in April and
November 2020 when the Board considered the payment of an interim and then a
final dividend for the 2020 financial year.
Although uncertainty remained at the 2021 half year, it was substantially
lower as a result of the extensive roll-out of vaccinations, and so the Board
decided to declare an interim dividend. The dividend of 6.2p per share was
based on the proforma adjusted earnings per share in the first half of 18.5p
which was net of a £79.4m charge for the job retention scheme repayments in
respect of that period.
All our stores are now open, and are mostly free of trading restrictions, and
the food businesses are trading well. The uncertainty around future cash flows
is considerably lower than a year ago although the possibility of further
trading restrictions cannot be ruled out. Our net cash before lease
liabilities was £1.9bn at the year end. The Board is proposing a final
dividend of 20.5p per share which together with the interim dividend of 6.2p
per share makes a total of 26.7p per share for the year, which is three times
covered by the adjusted earnings per share of 80.1p for the year, in line with
previous practice. The Board intends to continue to have regard to a cover of
three times for regular dividends in the ordinary course.
The Board is pleased by the recovery in trading across the Group's activities
and the highly effective management of cash and reduction in financial
leverage. As a sign of our confidence, the Board is also declaring a special
dividend of 13.8p per share, to be paid as a second interim dividend at the
same time as the payment of the final dividend. We determined the amount of
this special dividend such that, taken with the final dividend proposed for
the 2021 financial year, the aggregate equates to the final dividend of 34.3p
per share paid in respect of the 2019 financial year which was our highest
ever final dividend and was based on the Group's pre-COVID profitability.
Total dividends for the year are 40.5p per share.
The payment date for the 2021 final dividend and second interim dividend will
be 14 January 2022 to shareholders on the register on 17 December 2021.
A strong capital base
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 financial leverage policy is that, in the ordinary course of business, the
Board prefers to see the Group's ratio of net debt including lease
liabilities: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. At the
end of this financial year, the financial leverage ratio was 0.7 times. The
Group also holds substantial net cash balances which ensure that it has
sufficient liquidity to meet unforeseen requirements and at this financial
year end net cash balances, before lease liabilities, amounted to £1.9bn.
The events of the last two years have clearly demonstrated the importance of
having sufficient financial resources and the credit strength to meet the
operational challenges faced by our businesses, and in particular Primark. We
are pleased that S&P Global announced that they had assigned to the Group
an 'A' grade long-term issuer credit rating, with a stable outlook, which
reflects the strength of each of the Group's businesses, their diversity and
ABF's strong credit metrics underpinned by a conservative financial policy.
Capital allocation policy
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. We see considerable opportunities to do this, both over the
short and the medium-term, and across all our businesses. Nevertheless, the
ability to invest our capital is inevitably subject to the timing of
opportunities and practical limits as to the amount that can be invested
within a given timeframe. As a result, 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.
Surplus capital may be returned to shareholders by special dividend or share
buy-backs.
It is not possible to anticipate every possible set of circumstances and this
policy must be subject to the Board's discretion. Currently, uncertainty
remains over the possible reintroduction of trading restrictions related to
COVID-19 and the decision to declare a special dividend at the indicated level
is made with this in mind.
Thank you to our employees
At the end of another challenging year I am proud of how our people have
continued to respond to the many challenges presented by COVID-19, whilst at
the same time taking action and seizing opportunities for our future. The
strength of our culture shone through and our operating model of devolved
decision making to each business and market enabled us to respond very quickly
and appropriately to local challenges. The responses this year were again a
testament to the dedication, skills and ingenuity of our people. I will never
be able to thank all of them enough for their extraordinary efforts during
this time.
Outlook
The lower Group profit in the last two financial years compared to the 2019
financial year was driven by the extensive closure of Primark stores. All of
our stores are now open and are mostly free of trading restrictions. There has
been an extensive roll-out of vaccinations against COVID-19 in all of the
markets where Primark operates and customers have returned to our stores in
large numbers. Absent the reimposition of significant restrictions, we expect
Primark trading to continue to improve and for sales to increase by at least
the estimated £2bn of sales lost due to store closures last financial year.
Primark will continue to expand its selling space next year, with the most
stores being added in two of our key markets, Italy and Spain. The expected
significant increase in sales should lead to a sharp improvement in Primark's
adjusted operating margin, recovering to above 10%. Primark is not immune to
the challenges of supply chain, raw material cost and labour rate inflation.
However, we currently expect the impact of these to be broadly mitigated by
the transaction currency gain arising from the weaker US dollar, improved
store labour efficiency and lower operating costs.
We are seeing significant cost increases in energy, logistics and commodities
in addition to the impact of widely reported port congestion and road freight
limitations. Our businesses are working to offset the impact of these through
cost savings. Where necessary, our food businesses will also implement price
increases.
With the recovery in Primark's profitability, we expect the Group's effective
tax rate to fall next year to a level closer to pre-COVID rates.
We will continue to invest in building the capacity and capabilities of all
our businesses. We expect the improvement in Group profitability to deliver
another year of strong cash generation.
Taking these factors into account, we expect significant progress, at both the
half and full year, in adjusted operating profit and adjusted earnings per
share for the Group.
Michael McLintock
Chairman
Chief Executive's statement
I am proud of how we responded to the many challenges presented by COVID-19
this year. All of our people demonstrated care, good judgement and immense
hard work.
Our financial performance this year more than ever demonstrates the resilience
of the group. This comes from the strength of our brands, the diversity of our
products and markets, our geographic spread, conservative financing and an
organisation design that permits fast and flexible decision-taking.
Group revenue was in line with last year at £13.9bn at constant currency,
with the reduction compared to pre-pandemic levels driven by the loss of sales
for the periods in which Primark's stores were closed. Adjusted operating
profit of £1,011m was broadly in line with last year, which was also impacted
by lost sales during the closures of Primark stores.
Our food businesses delivered another strong performance this year and
throughout the pandemic we have provided safe, nutritious food under the most
extraordinary conditions, proving the value and resilience of our supply
chains. The adjusted operating profit of Grocery, Sugar, Agriculture and
Ingredients combined increased by 10%, building on an increase of 26% last
year, at constant currency.
Sugar delivered another year of very strong improvement with profit margin
reaching 9.2% and a 75% increase in adjusted operating profit at constant
currency. Our focus in this business has been to deliver an acceptable
shareholder return on capital over the cycle and return on average capital
employed reached 10.2% this year. The profit improvement was underpinned by
significant savings from our ongoing cost improvement and efficiency
programmes. Notably, after a disappointing performance last year, Illovo
recovered strongly, benefiting from higher sales as a consequence of our
long-term drive to develop African domestic and regional volumes.
Grocery revenues were 3% ahead of last year at constant currency. This was
achieved despite a small decline in some retail volumes this year compared to
the elevated levels seen last year. Twinings Ovaltine delivered strong sales
growth, supported by increased marketing investment and driven by Ovaltine
growth in emerging markets and a programme of new product development in
existing markets. The international development of a number of our brands,
notably Patak's and Mazzetti, continued. The adjusted operating profit for
Grocery declined marginally, mainly due to weaker corn oil margins at ACH. The
development of our brands over the medium-term is demonstrated by an increase
in adjusted operating profit of 12% over the pre-COVID levels of 2019,
following a very strong profit increase of 15% last year, at constant
currency.
AB Agri performed well with progress in both revenue and adjusted operating
profit. Growth was notable in China, our UK feed business AB Connect and in AB
Neo, which specialises in feed for animals in the early stages of life, driven
by higher volumes and commodity prices. Ingredients' sales were 4% ahead, and
adjusted operating profit was 8% ahead of last year at constant currency
driven by strong trading at AB Mauri.
Primark
As we look back on two years of disruption to Primark trading caused by the
COVID-19 pandemic, our confidence in the Primark business model is unaltered.
There is no doubt that Primark, with its reliance on a highly efficient store
retail model, has been seen to be vulnerable to the pandemic. The closure of
its stores for long periods and restrictions on trading inevitably led to
significant loss of sales and profit.
We believe that Primark's proposition of providing customers with a wide
selection of products at great value prices is highly sustainable. The
low-cost retailing model is driven by structural advantages: purchasing
quantities on a large scale leads to efficient production, a broad supplier
base with long-term relationships, very low distribution costs throughout the
supply chain from supplier to store, and high store sales densities. These
characteristics provide Primark with a differentiated business model with real
competitive advantage.
Primark is a compelling brand proposition. It offers customers a wide
selection of products, from everyday essentials to the latest trends, for all
age groups and at prices everyone can afford, ranged across attractive
up-to-date stores. There is strong supporting evidence that, for a substantial
share of customers, the in-store shopping experience will have enduring
appeal. Primark is uniquely placed on the High Street to take advantage of
this as it continually evolves its store design and in-store services and
expands into new product ranges attracting existing and new customers to the
business.
At the time of writing, all our stores have reopened and are trading with only
limited restrictions in some countries. There has been an extensive roll-out
of vaccinations against COVID-19 in all the markets where Primark operates,
and customers have returned to our stores in large numbers. A post-pandemic
equilibrium has not yet been reached. However, like-for-like sales, compared
to pre-COVID levels, are steadily improving as customers' appetite to return
to shopping and city centres increases and, over the medium-term, as foreign
and domestic tourism recovers.
Next year, we expect Primark to increase sales significantly along with a
sharp improvement in adjusted operating margin, recovering to above 10%,
absent the reimposition of further restrictions on store trading. We see
opportunities to reduce costs further, with lower operating costs from reduced
lease costs and the harnessing of technology in our warehouses and stores.
Additionally, Primark is investing to upgrade its digital presence and online
visibility and is on track to launch a redesigned customer facing website in
the UK in the first quarter of 2022. In September, Primark launched a
wide-reaching new sustainability strategy aiming to position the business as a
pioneer for making more sustainable fashion affordable for all, engaging a new
generation of customers. We believe this strategy can be implemented without
any significant movements in the Primark profit margin over the longer term.
Primark sees further growth potential in all of its existing markets, and in
some new markets besides. In particular, it will accelerate the expansion of
its selling space in the major markets of the US, France, Italy and Iberia,
building on its established brand recognition, proven track record of
successful store openings and strengthening relationships with key landlords.
Operating review
Grocery
2021 2020 Actual Constant currency
currency
Revenue £m 3,593 3,528 +2% +3%
Adjusted operating profit £m 413 437 -5% -2%
Adjusted operating profit margin 11.5% 12.4%
Return on average capital employed 31.4% 31.3%
Grocery revenues were 3% ahead of last year at constant currency with
particularly strong growth in Twinings Ovaltine more than offsetting expected
decline in sales at Allied Bakeries. Adjusted operating profit however
declined, primarily driven by weaker corn oil margins at ACH, lower margins at
George Weston Foods and a one-off charge of £5m for further restructuring in
Allied Bakeries. The improvement in return on average capital employed was
mainly driven by lower working capital in our Don meat business in Australia
and lower assets employed in Allied Bakeries.
Twinings and Ovaltine continued to make strong progress. Ovaltine sales growth
was primarily in Thailand, China and Switzerland, and was supported by the
continuing success of new product launches in a number of countries. Twinings
revenue growth was driven by strong new product launches and good performances
in France and North America. Twinings has become the leading tea brand in
France.
At Allied Bakeries, sales reduced following our decision to exit the supply of
bread to the Co-op in April this year. We continued to drive significant cost
reductions with savings from a further consolidation of our operations, the
most material being delivered in the distribution network. At the end of the
year we successfully commenced a partnership to supply premium bakery products
to a leading UK multiple retailer.
AB World Foods delivered a record sales year and international progress
continued to be particularly strong supported by new distribution gains this
year in North America. We increased marketing investment in Patak's and Blue
Dragon to levels significantly ahead of pre-COVID. Al'Fez continued to perform
strongly with further distribution gains in both UK and international markets.
Silver Spoon and Westmill sales were also significantly ahead and maintained
the sales uplifts achieved last year.
At Acetum, our leading Balsamic Vinegar producer, revenues continued to
increase with the Mazzetti brand performing very strongly. We increased the
marketing support for this brand, and good commercial performance, with new
listings, delivered international growth in the US, the UK, the Netherlands
and Germany.
As expected adjusted operating profit for ACH declined this year, with margins
impacted by the later phasing of price increases following a sharp increase in
the cost of corn oil. Substantial price increases were implemented over the
year to offset cost pressures while keeping our brand equity relevant for
consumers. A further price increase has been announced.
Revenue at George Weston Foods in Australia, excluding the benefit of the 53rd
week this year, was ahead of last year. Adjusted operating profit was lower,
mainly driven by a margin decline in the Don meat business. Despite operating
restrictions imposed by regional government arising from COVID-19, the Don
factory performed well delivering excellent labour utilisation and meat
yields, as well as controlling fixed overhead costs. Although we have seen
some recovery in foodservice, we are still experiencing volumes lower than
last year. In Tip Top Australia, The One and Abbotts bread brands continued to
perform strongly and benefited from a consumer trend to buy trusted brands.
Yumi's delivered strong growth with share gains in its existing products and
successful new product launches.
Sugar
2021 2020 Actual Constant currency
currency
Revenue £m 1,650 1,594 +4% +8%
Adjusted operating profit £m 152 100 +52% +75%
Adjusted operating profit margin 9.2% 6.3%
Return on average capital employed 10.2% 6.3%
AB Sugar delivered another year of strong trading performance with big
improvements in adjusted operating profit, profit margin and return on average
capital employed. Revenue was 8% ahead of last year at constant currency with
higher domestic and regional volumes for Illovo as well as higher prices in
Europe and Africa. The commercial performance in Illovo, together with
continued savings from our cost improvement and efficiency programmes,
resulted in a 75% increase in adjusted operating profit to £152m.
The world sugar price continued to rise through the year. European sugar
prices also increased with a reduction in stocks following lower EU sugar
production in the last two campaigns. Looking ahead, estimates for EU sugar
production in next year's campaign are marginally higher, with a recovery in
yields combined with a slight reduction in the planted area, but are still
estimated to be broadly in line with EU consumption in the next marketing
year.
UK sugar production of 0.9 million tonnes this year was well down on the 1.19
million tonnes produced last year, due to adverse weather conditions at the
time of planting and the severe impact of virus yellows, a disease transmitted
by aphids on sugar beet. Difficult processing conditions and limited beet
availability increased costs further during the campaign and were an offset to
the higher sales prices achieved. Looking ahead, our production forecast for
next year is marginally over 1.0 million tonnes with a reversion to normal
yields more than offsetting a reduced planting area. We expect our UK sales to
continue to be strong next year although significant cost increases in gas,
carbon and logistics are likely to limit an improvement in year-on-year
profitability. Work to restart the Vivergo bioethanol plant next calendar year
is on track and the recent transition to E10 in blended petrol underpins the
strong demand for bioethanol from fuel blenders.
In Spain, strong demand and higher prices resulted in a significant increase
in revenues. The operating profit margin, however, was impacted by lower
volumes from the northern beet crop. Our current view for yield and sugar
content from beet sugar and lower margins due to the expected increase in
future raw refining volumes, has resulted in a non-cash exceptional charge of
€136m in these accounts to write-down the net asset value of this business.
Illovo revenues were ahead of last year driven by both strong domestic sales,
particularly in Zambia and Malawi, and regional sales. Sugar production was
ahead of last year with better production in Tanzania and Mozambique compared
to last year but was held back by disruption to the operations in South Africa
and Eswatini as a result of civil unrest. The recovery in profit this year is
very strong, with adjusted operating profit exceeding that delivered in recent
years. This was driven by improved sales, the benefits from restructuring
activities last year and further efficiency activities this year.
The campaign in China completed with sugar production ahead of last year
although poor agronomic conditions held back the yield from a larger planted
area.
Given the on-going trading challenges in some of our smaller sugar businesses
we have reviewed our outlook for these cash-generating units, including the
forecast evolution of beet area and yields. As a result, we have made a
one-time non-cash adjustment of £21m to the relevant net asset values as an
exceptional charge this year.
Agriculture
2021 2020 Actual Constant currency
currency
Revenue £m 1,537 1,395 +10% +11%
Adjusted operating profit £m 44 43 +2% +7%
Adjusted operating profit margin 2.9% 3.1%
Return on average capital employed 10.6% 10.5%
Trading at AB Agri was strongly ahead of last year with revenue and adjusted
operating profit increases of 11% and 7% respectively at constant currency.
The revenue growth was delivered by higher commodity prices and an increase in
feed volumes. Growth was notable in China, our UK feed business AB Connect and
in AB Neo, which specialises in feed for animals in the early stages of life.
China delivered a much-improved trading performance and benefited from a
recovery from the effects of African Swine Fever. We developed feed sales for
other species and supported our margins with good procurement. The
regionalisation of the nutrition technical team and increased technical talent
has supported the launch of new products. Adjusted operating profit at
Frontier was ahead with a much-improved result from grain trading as a result
of increased commodity price volatility driven by reduced UK wheat
availability, Brexit uncertainty and tightening global supply and demand. AB
Neo was also ahead driven by the performance in Spain due to increased demand
for starter feed and additives, as well as favourable buying gains.
Sales and adjusted operating profit at AB Vista, our international feed
enzymes business, were broadly in line with last year. Sales in Asia Pacific
and the Americas were ahead and offset a decline in EMEA as lockdowns affected
meat consumption and consequently feed production.
Our UK pig and poultry animal feed business has announced its intention to
build a state-of-the-art animal feed mill in the east of England. This
substantial investment will provide much needed capacity and will also ensure
consistent quality.
Ingredients
2021 2020 Actual Constant currency
currency
Revenue £m 1,508 1,503 In line +4%
Adjusted operating profit £m 151 147 +3% +8%
Adjusted operating profit margin 10.0% 9.8%
Return on average capital employed 16.9% 16.7%
Ingredients sales were 4% ahead of last year and strong trading by AB Mauri
delivered an increase in adjusted operating profit of 8%, all at constant
currency. The results of AB Mauri in Argentina continue to be reported under
IAS 29 Financial Reporting in Hyperinflationary Economies, which reduced
operating profit by £7m (2020 - £5m).
The sales growth in AB Mauri was led by our operations in Latin America, with
Brazil benefiting from a recovery in the craft channel and new non-dairy
creamer product launches. Argentina delivered good growth despite difficult
ongoing economic conditions. Strong growth was also achieved in the South and
South East Asia region, supported by the implementation of a strong technical
service and route-to-market model. The easing of COVID-19 restrictions in the
EMEA region allowed product development activities to resume and sales
increased as a result. The Italian business has now completed a new,
centralised bakery ingredients centre that will consolidate and enhance our
competitiveness and innovation in production and product development. Last
year, the demand for retail yeast and bakery ingredients generally remained
elevated compared to pre-COVID levels. However, some declines to pre-COVID
volumes were noted in countries as pandemic restrictions have been lifted.
During the year, we opened our new Global Technology Centre in the
Netherlands. This provides an upgraded international hub for the research and
development of bakery solutions, as well as accommodating a pilot plant,
laboratories and training facilities.
Significant inflationary pressures emerged across many areas of our cost base
during the final months of the year, and these are anticipated to continue in
the new financial year. Price increases will be implemented to preserve
margins.
ABF Ingredients businesses delivered revenue and profit growth despite the
challenges of COVID-19 and the supply chain. A recovery of customer demand for
our products was particularly noticeable in the last quarter.
Our enzymes business delivered a record year in its bakery, food and textiles
platforms driven by strong growth outside Europe, where we continued to
enhance our local application and commercial capabilities. Innovative new
products and operational efficiencies will be facilitated by the new
state-of-the art pilot plant which was commissioned during the year. We
maintained share in the animal feed enzyme market despite competitive pricing
pressures.
ABITEC grew its sales in the pharmaceutical and nutritional lipids markets.
Our yeast extracts business delivered a record year in sales and profit driven
by increased sales to the fast-growing market for meat analogues, new product
introductions in human and animal nutrition and demand recovery in the US
foodservice industry. Our antacids and pharmaceutical excipients business, SPI
Pharma, also delivered good growth fuelled by price and volumes, global
momentum in antacids and the promising initial success of a new excipient
product line for oral dosage forms.
Retail
2021 2020 Actual Constant currency
currency
Revenue £m 5,593 5,895 -5% -5%
Adjusted operating profit (after repayment of job retention scheme monies) £m 321 362 -11% -11%
Adjusted operating profit (before repayment of job retention scheme monies) 415 362 +15% +15%
£m
Adjusted operating profit margin (before repayment of job retention scheme 7.4% 6.1%
monies)
Return on average capital employed (before repayment of job retention scheme 6.6% 5.6%
monies)
Sales at Primark, including a 53rd week this financial year, were 5% below
last year at both actual and constant currency exchange rates. This year a
third of the available trading days were lost as a result of store closures
due to the public health measures in our major markets to control the spread
of COVID-19. This compared with the loss of one quarter of the available
trading days in the previous financial year. Despite this decreased level of
trading days, adjusted operating profit, before repayment of job retention
scheme monies, increased 15% to £415m representing an adjusted operating
profit margin of 7.4% for the full year. Operating profit margin improved
during the year from 1.9% in the first half to 10.6% in the second half,
excluding the 53rd week. The repayment of monies received from the job
retention schemes in the UK, Republic of Ireland, Portugal, Czechia and
Slovenia this year has been charged in the second half at £94m.
This year has been characterised by greater than expected restrictions on the
ability of Primark to trade. For this financial year we estimate the loss of
sales, while stores were closed, to be some £2bn. When stores were open, full
year like-for-like sales were 12% below two years ago and were 7% lower
excluding destination city centre stores. In the first half, the like-for-like
performance reflected lower category spend and lower footfall due to trading
restrictions. When the stores reopened in the third quarter, customers came
back to our stores in large numbers and sales were 3% ahead on a like-for-like
basis compared to the same period two years ago. Like-for-like sales declined
by 17% in the fourth quarter and were affected by the impact on footfall of
the changes in public health measures. Trading varied considerably across the
estate. In the UK, sales were affected by the number of people required to
self-isolate following contact tracing alerts - the "pingdemic". The
self-isolation rules were then eased in early August with like-for-like sales
showing a corresponding improvement through the period from a decline of 24%
in the first four weeks of the quarter to a decline of 11% in the last four
weeks of the quarter. In Continental Europe, like-for-like sales were impacted
by the performance of our stores in Spain and Portugal with the decline in
foreign tourism at that time.
Our US business performed well this financial year and delivered a good profit
margin. Like-for-like sales consistently improved during the year and for the
full year were 6% up on the same period two years ago excluding the city
centre Boston store. Six years after our first store openings, Primark is
clearly resonating with the US customer and brand awareness continues to
build. This was especially evident in the strong trading at all the new stores
opened during the year: Sawgrass Mills Florida, American Dream New Jersey,
State Street Chicago and Fashion District Philadelphia. The performance of
both our existing and newly opened stores, combined with the profitability,
gives us confidence to increase the pace of expansion in this important
market.
We continue to extend our product offering to meet changing customer needs. In
September we launched an expanded Primark Home department at Merry Hill in the
West Midlands, with increased in-store selling space to offer an all-new range
of quality, affordable home and lifestyle products. The new space enabled us
to offer a much wider range including new categories such as cookware,
ceramics, rugs and furniture. Following a very positive customer response, we
are rolling this extended range out to a total of 40 stores over the coming
months.
Sales of our autumn/winter ranges have started well and sales densities
continue to improve. Primark has capitalised on the continued trend for
'comfort living' with the launch of its range of 'snuddies', attracting a
strong response from customers across all markets. Bestsellers include the
avocado print for men and, under our licence collection, Minnie Mouse for
kids. The Primark Edit of quality investment pieces for women has proven very
popular since launch in September, with strong sales of its seasonal staples
such as cotton cashmere jumpers and a classic trench coat driven by promotion
on Primark's social channels. Another trend which came through strongly in the
second half was the desire by more customers to get outside and get active. We
launched the Great Outdoors range with a collection of waterproof jackets,
boots and breathable trousers spanning womenswear, menswear and kids. It has
also extended the range of product under the Primark Cares label with 65% of
the Outdoors collection made from recycled or more sustainably sourced
materials. Overall, sales of the Primark Cares range, made from recycled and
more sustainably sourced materials, continue to perform strongly since the
customer launch of our sustainability strategy in September.
Following the strong trading after the reopening of our stores in the spring,
inventory, which had built up during the lockdown, reduced. All spring/summer
inventory brought forward from last year has been sold and the autumn/winter
inventory held over from last season will be sold in the coming months. In
recent weeks, we have experienced further supply chain disruption including
temporary closures at dispatch ports, limited sea container availability and
congestion at destination ports. These disruptions have delayed both the
handover of inventory from suppliers and the shipping and delivery of
inventory to store. We are closely managing this with the support of our
logistics providers, taking advantage of our scale and efficient warehouses,
and we are prioritising the product most in demand. Although, at this point,
the disruption is causing limited availability on a small number of lines, our
warehouse inventories give us stock cover on the majority of lines for the
important Christmas trading period.
Margin in the second half benefited from a significant reduction in store
operating costs, driven by lower employee headcount, improved labour
scheduling, and savings in other operating costs. Looking ahead to our next
financial year, operating profit margin will continue to benefit from these
store labour efficiencies and lower operating costs. Our forecast is for the
effect on margin of the increased costs relating to supply chain and raw
material inflationary pressures to be broadly mitigated by these lower store
operating costs and the transaction currency gain from the weaker US dollar
exchange rate. We expect the adjusted operating profit margin to be above 10%.
In September, Primark unveiled a wide-reaching new sustainability strategy,
pledging to make more sustainable fashion choices affordable for all. It is
designed to reduce fashion waste, halve carbon emissions across its value
chain and improve the lives of people who make Primark products. The new
strategy was launched with a new customer campaign, 'How Change Looks',
setting out the key commitments in prominent locations across all stores and
digital channels in all our 14 markets. The nine-year programme includes
commitments to ensure all Primark clothing is made from recycled or more
sustainably sourced materials by 2030, increasing from 25% of all clothes sold
at the time of launch; the elimination of all single-use plastics in Primark's
own operations by 2027; and the commitment to pursue a living wage for workers
in the supply chain by 2030. Primark will report annually on its progress
against the nine high-level targets in the new strategy.
This sustainability transition is expected to lead to only a modest increase
in costs in some areas of the business, net of mitigating actions, over the
period to 2030. We are confident of our ability to mitigate these increased
costs without any material impact on Primark's operating profit margin in the
short term and without any significant movements in the margin over the longer
term. Additionally, we believe that this is an opportunity to drive further
sales growth from both existing and new customers.
Digital is becoming increasingly important in Primark. We expect the roll-out
of the enabling stock management system, Oracle, across all our stores in the
current financial year and for all stores to be equipped with state-of-the-art
point of sale terminals by the end of calendar year 2022. Following the
announcement in July of our plans to launch a new customer-facing website, the
design and development of the new digital platform is progressing well. We are
on track to launch the new website in the UK in the first quarter of 2022. The
new site will showcase those products which customers expect to be able to
browse online, before they come into our stores, with much richer product
information and imagery for every product shown. We expect this to be around
70% of our total range, substantially up from some 20% on the current site.
The new site will then enable customers to research product availability in
their local store and this responds to what we know is a clear customer
demand. The initial response from consumer testing has been positive. In
addition, we are building digital marketing capability to enable us to start
to capture and manage customer data and to begin to communicate directly with
customers with relevant marketing messages.
At year end we were trading from 398 stores and 16.8 million sq ft of retail
selling space, after our latest new store in the Fashion District of
Philadelphia in the US was opened on 16 September. This represents an increase
of 0.6 million sq ft over the year. Fifteen stores were added this year: four
stores in the US; four in Spain; two in Italy, and one each in France, the UK,
the Netherlands and Poland, as well as our first store in Czechia. We
relocated to new premises in Southend. One of our first stores to open in the
Netherlands, a small store in Alkmaar, was closed. Downsizing of the Downtown
Crossing store in Boston was successfully completed in September.
Encouragingly sales in the three German stores which were downsized last year
have remained in line with pre-downsizing levels.
In the next financial year, we are planning to add a net 0.5 million sq ft of
additional selling space. Eleven store openings have been confirmed: four new
stores in Italy, four new stores in Spain and one store in each of US, Czechia
and Ireland.
We see growth in all our existing markets. Over the next five years we expect
our store estate to grow to 530 stores from 398 at financial year end. In
particular, we will accelerate the expansion of our selling space in the major
markets of the US, France, Italy and Iberia, building on our established brand
recognition, proven track record of successful store openings and
strengthening relationships with key landlords. Reflecting this, we are
expanding our team of in-market specialist acquisition surveyors. We are
increasing the use of technology and demographic data to inform our decisions
about new store locations. Additionally, we expect to benefit from more store
opportunities with the revival of property sector development as we emerge
from the pandemic.
In the US, the potential for new stores is considerable. We successfully
opened four stores in the last financial year, including new stores well
beyond our existing north-east footprint, in Florida and Chicago. This
financial year we are committed to opening a store on Jamaica Avenue, Queens
and have already signed four further leases to expand our reach in the greater
New York area and a lease for a store in Tyson's Corner, Washington.
In Western Europe, our major opportunities for growth are in Iberia, Italy and
France. In Spain, our second biggest market, we opened four new stores during
this financial year, including flagships in the city centres of Barcelona and
Bilbao, bringing our total number to 52 at the year end. We have confirmed
plans to open many more locations in this important country in the coming
years, including four in the new financial year. We plan to add four new
stores in Italy, the largest being Milan Via Torino.
We are also expanding into Central and Eastern Europe (CEE). A milestone was
the opening of our 46,000 sq ft store in Prague's historic Wenceslas Square in
June, building on our recently opened stores in Ljubljana Slovenia and in
Poland. Our reception from CEE shoppers has been very positive. We are opening
our second store in Czechia next summer and we have signed leases for our
first store in Bratislava, Slovakia and four further stores in Poland.
In addition, we will continue to explore opportunities in new markets.
New store openings in the year ended 18 September 2021:
Czechia France Italy Netherlands
Prague Wenceslas Square Coquelles Roma Maximo Rotterdam Forum
Roma - Est
Poland Spain UK US
Poznan Barcelona Sant Cugat Tamworth Sawgrass Mills Florida
Espacio León American Dream New Jersey
Bilbao Gran Via Chicago State Street
Marbella Philadelphia Fashion District
Year ended
Year ended 12 September 2020
18 September 2021
# of stores sq ft 000 # of stores sq ft 000
UK 191 7,597 190 7,534
Spain 52 2,143 48 1,988
Germany 32 1,841 32 1,841
Republic of Ireland 36 1,076 36 1,076
France 20 1,044 19 996
Netherlands 20 1,016 20 971
US 13 563 9 470
Belgium 8 403 8 403
Portugal 10 383 10 383
Italy 7 361 5 257
Austria 5 242 5 242
Poland 2 77 1 40
Czechia 1 50 n/a n/a
Slovenia 1 46 1 46
Total 398 16,842 384 16,247
Financial review
Group performance
Group revenue was in line with last year on a reported basis at £13.9bn. On a
reported basis adjusted operating profit of £1,011m was 1% lower than last
financial year. In calculating adjusted operating profit, the amortisation
charge on non-operating intangibles, profits less losses on disposal of
non-current assets, transaction costs, amortisation of acquired inventory fair
value adjustments and exceptional items are excluded from statutory operating
profit.
The income statement this year included a net charge for exceptional items of
£151m. This mainly comprised the impairment of certain plant and equipment in
our sugar business. In Spain, our current view for yield and sugar content
from beet sugar and lower margins due to the expected increase in future raw
refining volumes, resulted in a non-cash exceptional charge of €136m to
write-down the net asset value of this business. Given the ongoing trading
challenges in some of our smaller sugar businesses, following a review of our
projections for the forecast evolution of beet area and yields, we have made a
non-cash adjustment of £21m to the relevant net asset values as an
exceptional charge this year. An inventory charge of £21m in Primark was
taken at the half year which related to the clearance from our stores before
reopening after lockdown of certain seasonal items on display and which could
not be sold before the end of the season. This provision was used during the
second half of the year. Prior year exceptional items included a mark-down
provision of £22m for potential damage to Primark inventory stored on our
behalf by suppliers for longer than usual as a result of the pandemic. Minimal
damage was found and the majority of the provision was released this year.
On an unadjusted basis, statutory operating profit was in line with last year
at £808m.
The strengthening of sterling this year against some of our trading currencies
resulted in a loss on translation of £36m.
Net finance expense decreased this year due to the repayment of £25m of
private placement debt and no RCF interest charges following the repayment of
the facility at the end of the last financial year. Profits on the sale and
closure of businesses amounted to £20m and profits less losses on sale of
non-current assets were £4m.
Statutory profit before tax on a reported basis was up 6% to £725m. On our
adjusted basis profit before tax was down by 1% to £908m.
Acquisitions and disposals
In May 2021, the Group's Ingredients business acquired DR Healthcare España,
a Spanish enzymes producer for a total consideration of £14m.
During the period the Group contributed £43m to the bakery ingredients joint
venture in China with Wilmar International. These businesses were classified
as a disposal group and held for sale at the previous year end. In August
2021, the Group agreed the sale, subject to regulatory approval, of a further
factory in China to this joint venture and a non-cash reversal of £10m for
the impairment of these assets has been included in profit on sale and closure
of business.
Closure provisions of £3m relating to disposals made in previous years which
are no longer required were released to sale and closure of business in
Ingredients and Grocery, both in Asia Pacific.
Taxation
We recognise the importance of complying fully with all applicable tax laws as
well as paying and collecting the right amount of tax in every country in
which the Group operates. Our Board-adopted tax strategy is based on seven tax
principles that are embedded in the financial and non-financial processes and
controls of the Group. This tax strategy is available on the Group's website
at: www.abf.co.uk/documents/pdfs/policies/abf_tax_strategy.pdf
(http://www.abf.co.uk/documents/pdfs/policies/abf_tax_strategy.pdf) .
This year's tax charge on the adjusted profit before tax was £255m at an
effective rate of 28.1% (2020 - 28.8%). Based on current tax rates at the time
of writing and with the recovery in Primark's profitability, we expect the
Group's effective tax rate to fall next year to a level closer to pre-COVID
rates.
Looking ahead beyond next year, we anticipate upward pressure on the effective
tax rate due to the impact of corporation tax increases, notably the increase
enacted in the UK, and the proposed increase recently announced in Ireland. We
continue to monitor developments in other jurisdictions and also in respect of
the OECD's BEPS 2.0 proposals.
The total tax charge for the year of £227m benefited from a credit of £27m
(2020 - £42m) for tax relief on the amortisation of non-operating intangible
assets, amortisation of acquired inventory fair value adjustments, profits on
disposal of non-current assets, losses on disposal of businesses and
exceptional items.
Earnings and dividends
Earnings attributable to equity shareholders in the current year were £478m
and the weighted average number of shares in issue during the year, which is
used to calculate earnings per share, was 790 million (2020 - 790 million).
Given the marginal decline in operating profits and the reduction in the
adjusted effective tax rate from 28.8% to 28.1%, earnings per ordinary share
were 5% higher than last year at 60.5p. Adjusted earnings per share, which
provides a more consistent measure of trading performance, declined by 1% from
81.1p to 80.1p.
We decided not to declare an interim dividend nor propose a final dividend
relating to the last financial year. This was due to the impact of COVID-19 on
the Group's cash flow driven by the duration and number of Primark store
closures. This year the Board declared an interim dividend of 6.2 pence per
share (2020 - nil) which was paid on 9 July 2021 to shareholders registered at
the close of business on 4 June 2021.
For the full year, the Board has proposed a final dividend of 20.5p per share
giving a full year dividend of 26.7p per share. Further, the Board has
declared the payment of a special dividend, to be paid as a second interim
dividend, of 13.8p per share. The payment date for the 2021 final dividend and
second interim dividend will be 14 January 2022 to shareholders on the
register on 17 December 2021.
Total dividends for the 2021 financial year would therefore be 40.5p per share
at a total cost of £320m.
Balance sheet
Non-current assets of £10.8bn were £0.1bn lower than last year. This was
driven by a decrease in the investment in property, plant and equipment and
right-of-use assets with depreciation, amortisation and impairments higher
than capital expenditure and acquisitions made in the year. This was mostly
offset by an increase in employee benefits assets as the surplus in the UK
defined benefit pension scheme improved significantly.
Working capital at the year end was marginally higher than last year.
Net cash at the year end excluding lease liabilities was £1.9bn compared with
net cash at the end of last year of £1.6bn reflecting the strong operating
cash flow in the year. Net debt including lease liabilities was £1.4bn
compared with £2.1bn last year.
The Group's net assets of £10bn were £0.6bn higher than last year. Return on
capital employed for the Group which is calculated by expressing adjusted
operating profit as a percentage of the average capital employed for the year,
was higher this year at 9.8% compared with 9.5% last year.
Cash flow
Net cash inflow from operating activities decreased from £1,753m last year to
£1,413m this year mainly as a result of the increase in the change in working
capital compared to the prior year. Capital expenditure increased by £5m
compared to the prior year and £21m was realised from the sale of property,
plant and equipment. The net cash outlay on acquisitions and disposals was
£23m.
Tax paid in the year amounted to £298m (2020 - £254m). The increase in tax
paid was primarily due to the state aid payment of £23m and tax top up
payments made due to strong final quarter results at the end of 2020.
Financing and liquidity
The financing of the Group is managed by a central treasury department.
The Board's treasury policies are in place to maintain a strong capital base
and manage the Group's balance sheet to ensure long-term financial stability.
They are the basis for investor, creditor and market confidence and enable the
successful future development of the business.
The Board has approved a financial leverage policy for the Group. In the
ordinary course, the Board prefers to see the Group's ratio of Net Debt
including lease liabilities:Adjusted EBITDA to be well under 1.5 times at each
half-year and year-end reporting date. In exceptional circumstances, it will
be prepared to see leverage above that level for a short period of time.
We are pleased that S&P Global announced that they had assigned to the
Group an 'A' grade long-term issuer credit rating, with a stable outlook,
which reflected the strength of each of the Group's businesses, their
diversity, and ABF's strong credit metrics underpinned by a conservative
financial policy.
At the year end, the Group had total committed borrowing facilities amounting
to £1.5bn, comprising £1.1bn provided under the RCF, £0.3bn of US private
placement notes, maturing between 2021 and 2024, and £0.1bn of local
committed facilities in Africa. At the year end, £0.3bn was drawn down under
the private placement notes and local committed facilities. The Group also had
access to £0.5bn of uncommitted credit lines under which £0.1bn was drawn at
the year end.
Cash and cash equivalents totalled £2.3bn at the year end, of which centrally
available cash on hand was £1.9bn.
The Group holds substantial net cash bank balances, which reduce its net debt,
which include lease liabilities, and most importantly ensure that it has
sufficient liquidity to meet unforeseen requirements.
Pensions
The Group's defined benefit pension schemes were in surplus by £493m at the
year end compared with a deficit last year of £66m. The UK scheme, which
accounts for 91% of the Group's gross pension assets, was in surplus by £633m
(2020 - £94m). The increase in the UK pension surplus was driven by large
asset gains on the pension assets, whereas the defined benefit obligations
increased marginally driven by adverse changes in inflation assumptions. The
pension surplus for the Group will result in an increased interest income
compared to last year, and this will be reported in other financial income.
The last triennial valuation of the UK scheme was undertaken at 5 April 2020
which determined a deficit of £302m. This valuation was performed just after
the first COVID-19 measures were introduced. Although we were required to
agree a recovery plan with the trustees, in the light of the subsequent asset
performance, we do not currently expect to make any payments.
The charge for the year for the Group's defined contribution schemes, which
was equal to the contributions made, amounted to £81m (2020 - £79m). This
compared with the cash contribution to the defined benefit schemes of £42m
(2020 - £37m).
New accounting policies
The following accounting standards and amendments were adopted during the year
and had no significant impact on the Group:
- Amendments to IFRS 3 Definition of a Business;
- Amendments to IAS 1 and IAS 8 Definition of Material;
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate
Benchmark Reform - Phase 1; and
- Amendments to References to the Conceptual Framework in IFRS Standards.
John Bason
Finance Director
The annual report and accounts is available at www.abf.co.uk
(http://www.abf.co.uk) and will be despatched to shareholders on 11 November
2021. The annual general meeting will be held at 11am on Friday, 10 December
2021. Further details are provided in the Notice of Annual General Meeting,
although please also monitor the AGM 2021 page of the Company's website
(www.abf.co.uk/agm (http://www.abf.co.uk/agm) ) for any updates.
Principal risks and uncertainties
Managing our risks
Our approach to risk management
The delivery of our strategic objectives and the sustainable growth (or
long-term shareholder value) of our business, is dependent on effective risk
management. We regularly face business uncertainties and it is through a
structured approach to risk management that we are able to mitigate and manage
these risks and embrace opportunities when they arise. These disciplines
remain effective as we continue to navigate our way through the ongoing
challenges resulting from COVID-19 and the changing risk landscape as the
world starts to emerge from the pandemic.
The diversified nature of our operations, geographical reach, assets and
currencies are important factors in mitigating the risk of a material threat
to the Group's sustainable growth and long-term shareholder value. However, as
with any business, risks and uncertainties are inherent in our business
activities. These risks may have a financial, operational or reputational
impact.
The Board is accountable for effective risk management, for agreeing the
principal, including emerging, risks facing the Group and ensuring they are
successfully managed. The Board undertakes a robust annual assessment of the
principal risks, including emerging risks, that would threaten the business
model, future performance, solvency or liquidity. The Board also monitors the
Group's exposure to risks as part of the performance reviews conducted at each
Board meeting. Financial risks are specifically reviewed by the Audit
Committee.
Our decentralised business model empowers the management of our businesses to
identify, evaluate and manage the risks they face, on a timely basis, to
ensure compliance with relevant legislation, our business principles and Group
policies.
Our businesses perform risk assessments which consider materiality, risk
controls and specific local risks relevant to the markets in which they
operate. The collated risks from each business are shared with the respective
divisional chief executives who present their divisional risks to the Group
Executive.
Emerging risks are identified and considered at both a Group and individual
business level, with key management being close to their geographies. These
risks are identified, as part of the overall risk management process, through
a variety of horizon-scanning methods including geopolitical insights; ongoing
assessment of competitor activity and market factors; workshops and management
meetings focused on risk identification; analysis of existing risks using
industry knowledge and experience to understand how these risks may affect us
in the future; and representation and participation in key industry
associations.
The Group's Director of Financial Control receives the risk assessments on an
annual basis and, with the Finance Director, reviews and challenges them with
the divisional chief executives, on an individual basis.
These discussions are wide-ranging and consider operational, environmental and
other external risks. These risks and their impact on business performance are
reported during the year and are considered as part of the monthly management
review process.
Group functional heads including Legal, Treasury, Tax, IT, Pensions, HR,
Procurement and Insurance also provide input to this process, sharing with the
Director of Financial Control their view of key risks and what activities are
in place or planned to mitigate them. A combination of these perspectives with
the business risk assessments creates a consolidated view of the Group's risk
profile. A summary of these risk assessments is then shared and discussed with
the Finance Director and Chief Executive at least annually.
The Director of Financial Control holds meetings with each of the
non-executive directors seeking their feedback on the reviews performed and
discussing the key risks, which include emerging risks, and mitigating
activities identified through the risk assessment exercise. Once all
non-executive directors have been consulted, a Board report is prepared
summarising the full process and providing an assessment of the status of risk
management across the Group. The key risks, mitigating controls and relevant
policies are summarised and the Board confirms the Group's principal risks.
These are the risks which could prevent Associated British Foods from
delivering its strategic objectives. This report also details when formal
updates relating to the key risks will be provided to the Board throughout the
year.
Key areas of focus this year
Effective risk management processes and internal controls
We continued to seek improvements in our risk management processes to ensure
the quality and integrity of information and the ability to respond swiftly to
direct risks. During the year, the Audit Committee on behalf of the Board
conducted reviews on the effectiveness of the Group's risk management
processes and internal controls in accordance with the 2018 UK Corporate
Governance Code. Our approach to risk management and systems of internal
control is in line with the recommendations in the Financial Reporting
Council's (FRC) revised guidance 'Risk management, internal control and
related financial and business reporting' (the Risk Guidance).
The Board is satisfied that internal controls were properly maintained and
that key and emerging risks are being appropriately identified and managed.
COVID-19
Effective communication both within our businesses and across the Group has
ensured that our food businesses continued to operate, providing safe,
nutritious and affordable food to customers. Primark's leadership demonstrated
agility in responding to store activities being restricted at short notice. In
addition, its effective planning ensured that the UK stores were well prepared
for a safe reopening from 12 April.
COVID-19 has resulted in increased volatility and uncertainty in almost all of
our markets, particularly the UK, Europe and the US, where there is a high
risk of inflation impacting on energy, commodities and wages. During the year,
changes in public health measures in our major markets to control the spread
of COVID-19, and the Delta variant in particular, have impacted both our
customers and employees. Whilst the UK now has an advanced vaccination
programme and the majority of COVID-19 restrictions have been lifted, the
outlook is currently more mixed in a number of countries in which we operate.
For example, there continue to be ongoing lockdowns in place across Australia
and New Zealand. In addition, our retail business continues to adapt to
localised restrictions and special arrangements for shoppers in some of our
markets, for example in Portugal and Slovenia.
As the world starts to emerge from the COVID-19 pandemic, there are continuing
impacts our consumers, customers, retailers, suppliers and our employees.
Across a number of our businesses, there is the risk of increased pressure on
the supply chains resulting from labour shortages as economies reopen which
are exacerbated by employee health and safety concerns. The closure of the
Suez Canal in March compounded some supply chain challenges that resulted from
the pandemic and increased buying as economies have reopened. We have
contracts in place for major parts of our business to ensure that we have the
cost, stability and interim security of volumes in the volatile inbound
market. Our businesses are reliant on the availability of skilled HGV drivers.
Whilst there is currently a shortage of drivers in other parts of Europe, the
USA and Australia, the situation has been exacerbated in the UK as a result of
the EU exit. We continue to work closely with our major carriers and logistics
partners to minimise supply chain disruption. The situation remains fluid and
is being closely managed and monitored.
Throughout the pandemic, the Audit Committee, on behalf of the Board has
provided ongoing support and challenge to management's processes and internal
controls. Numerous lessons have been learnt and we have developed a flexible
set of possible responses that are ready to be deployed in the event of
further restrictions being imposed, whether that be locally, regionally or
globally.
EU exit
Our businesses were well prepared for the end of the Brexit transition period
and we have seen no material disruption to our supply chains. We have
experienced a small increase in the administrative costs of trading and in
limited cases duties related to our trading with the EU.
Regulatory changes
Our businesses are facing a large number of regulatory changes over the coming
years with new requirements being developed in a number of areas including the
Task Force on Climate-related Financial Disclosures (TCFD), Environmental,
Social and Governance (ESG), extended producer responsibility regarding
packaging and plastics and the potential requirements resulting from the BEIS
White Paper: Restoring Trust in Audit and Corporate Governance. For each of
these areas, groupwide initiatives are well advanced to meet the specific
requirements. The extent of change will have an impact on the capacity of
management at the time when they are dealing with the ongoing challenges
resulting from COVID-19, alongside the day-to-day growth of our businesses.
Environment
ABF has a clear sense of social purpose: it exists to provide safe, nutritious
and affordable food, and clothing that is great value for money, to hundreds
of millions of customers worldwide. ABF is set on a mission: to continue to
make food and clothes available and affordable and also carbon neutral as
quickly as we can. The people in our businesses are motivated by the
excitement that comes from driving social and environmental improvement. ESG
isn't simply a matter of risk mitigation. ESG factors, including the potential
implications of climate change, are considered as part of our well-established
risk management framework and they also frame opportunities for our businesses
to become better. Our leaders are empowered to include the prioritisation of
mitigation of environmental impacts as a central aspect of their business
plans, sharing learnings from other ABF businesses and applying industry best
practice. The Board reviews each business segment in depth every year, and ESG
factors are central to the analysis and discussion.
Our culture and values, and particularly our devolved decision-making model,
empowers the people closest to risks to make the right judgements to mitigate
risks. In respect of ESG, each of our businesses has prioritised and is
devoting most resources to those ESG factors which are of greatest relevance
and will make the greatest long-term difference. They are also challenged by
the centre through detailed reviews of the Group's environmental performance,
health and safety performance, and its diversity, equity and inclusion and
workforce engagement programmes.
Our principal risks and uncertainties
The directors have carried out an assessment of the principal risks facing
Associated British Foods, including emerging risks, that would threaten its
business model, future performance, solvency or liquidity. Outlined below are
the Group's principal risks and uncertainties and the key mitigating
activities in place to address them. These are the principal risks of the
Group as a whole and are not in any order of priority.
Associated British Foods is exposed to a variety of other risks related to a
range of issues such as human resources and talent, community relations, the
regulatory environment and competition. These are managed as part of the risk
process and a number of these are referred to in our 2021 Responsibility
Update. Here, we report the principal risks which we believe are likely to
have the greatest current or near-term impact on our strategic and operational
plans and reputation.
They are grouped into external risks, which may occur in the markets or
environment in which we operate, and operational risks, which are related to
internal activity linked to our own operations and internal controls.
The 'Changes since 2020' describe our experience and activity over the last
year.
External risks
Movement in exchange rates →
Context and potential impact Board-approved policies require businesses to hedge all transactional currency Primark covers its currency exposure on purchases of merchandise denominated
Associated British Foods is a multinational Group with operations and exposures and long-term supply or purchase contracts which are denominated in in foreign currencies at the time of placing orders, with an average tenor of
transactions in many currencies. a foreign currency, using foreign exchange forward contracts. Primark's hedging activity of between three and four months. There was a
positive transactional effect from changes in the US dollar exchange rate on
Changes in exchange rates give rise to transactional exposures within the Cash balances and borrowings are largely maintained in the functional currency Primark's largely dollar-denominated purchases for the year in aggregate.
businesses and to translation exposures when the assets, liabilities and of the local operations.
results of overseas entities are translated into sterling upon consolidation.
The strengthening of sterling against our major trading currencies during the
Mitigation Cross-currency swaps are used to align borrowings with the underlying financial year has largely been a result of better certainty with the EU exit
Our businesses constantly review their currency exposures and their hedging currencies of the Group's net assets (refer to note 26 to the financial completion at the end of 2020 and improved confidence as the UK's roadmap out
instruments and, where necessary, ensure appropriate actions are taken to statements for more information). of the COVID-19 lockdown was developed and restrictions subsequently eased.
manage the impact of currency movements.
Changes since 2020
Sterling strengthened against most of our trading currencies this year,
resulting in a loss on translation of £36m.
Fluctuations in commodity and energy prices ↑
Context and potential impact The commercial implications of commodity price movements are continuously new financial year. The price of corn oil, in particular, has increased,
Changes in commodity and energy prices can have a material impact on the assessed and, where appropriate, are reflected in the pricing of our products. impacting profit margins in ACH. Energy prices, particularly in the UK and
Group's operating results, asset values and cash flows.
Changes since 2020 Europe, have recently increased materially as a result of significant market
Mitigation
Commodity price inflation has been a global factor throughout the year. A uncertainty.
The Group purchases a wide range of commodities in the ordinary course of number of our food and agriculture businesses have seen increases in energy
business. and agricultural commodity prices in the latter part of the financial year, Businesses continue to manage price risk under their existing risk management
with expectations of further increases in the frameworks and, where appropriate, reflect this in pricing of products.
We constantly monitor the markets in which we operate and manage certain of
these exposures with exchange traded contracts and hedging instruments. Sugar prices in Europe and Africa have increased during the year, with a
positive impact on profitability.
Operating in global markets ↑
Context and potential impact Provision is made for known issues based on management's interpretation of Changes since 2020
Associated British Foods operates in 53 countries with sales and supply chains country-specific tax law, EU cases and investigations on tax rulings and their
COVID-19 has resulted in increased volatility and uncertainty in a number of
in many more, so we are exposed to global market forces; fluctuations in likely outcomes. our markets, particularly the UK, Europe and the US, where there is a high
national economies; societal unrest and geopolitical uncertainty; a range of
risk of inflation impacting on energy, commodities and wages.
consumer trends; evolving legislation and changes made by our competitors. By their nature socio-political events are largely unpredictable. Nonetheless
our businesses have detailed contingency plans which include site-level There is continued uncertainty as a result of the COVID-19 pandemic.
Failure to recognise and respond to any of these factors could directly impact emergency responses and improved security for employees. Authorities continue to impose restrictions on both a regional and local
the profitability of our operations.
basis.
We engage with governments, local regulators and community organisations to
Entering new markets is a risk to any business. contribute to, and anticipate, important changes in public policy. High inflation continues to be a challenge for our yeast and bakery
Mitigation
ingredients business based in Argentina.
Our approach to risk management incorporates potential short-term market We conduct rigorous due diligence when entering, or commencing business
volatility and evaluates longer-term socio-economic and political scenarios. activities in, new markets. Fifteen new Primark stores were opened in the year including our first store
The Group's financial control framework and Board-adopted tax and treasury
in Czechia.
policies require all businesses to comply fully with relevant local laws.
Health and nutrition ↑
Context and potential impact Our brands develop partnerships with other organisations to promote healthy Changes since 2020
Failure to adapt to changing consumer health choices or to address nutrition options, for example, Ryvita has partnered with Cancer Research UK on a
Our Sugar and Grocery businesses have invested in communication linked to
concerns in the formulation of our products, related to consumer preferences campaign to promote fibre consumption in the UK. nutrition and health during the year to help consumers make informed choices
or government public health policies, could result in a loss of consumer base
about their diet.
and impact business performance. Before COVID-19, our specialist sports-nutrition brand HIGH5 typically
Mitigation supported over 600 events which promote exercise across the UK each year, Notable examples include the Ryvita 'Fibre Fit' campaign in the UK, through
Consumer preferences and market trends are monitored continually. helping over 500,000 people improve their fitness levels. These events are which the business has continued to engage over 50,000 consumers in relation
predominantly promoted online, and HIGH5 assists in this promotion by to the benefit of a high-fibre diet.
Recipes are regularly reviewed and reformulated to improve the nutritional highlighting events on its website and via social media in conjunction with
value of our products. nutritional advice. In addition, our Sugar business's campaign 'Making Sense of Sugar' has
continued to develop into a global platform. The aim is to provide factual
All of our grocery products are labelled with nutritional information. We invest in research with experts to improve our understanding of the science information based on robust science to help inform and educate people about
and societal trends. sugar and the role it can play as part of a healthy balanced diet.
We actively consider consumer health in the context of brand development and
merger and acquisition activity. For example, the launch of the Twinings Our businesses continue to assess the nutritional content of their products on
wellness range. Branded grocery acquisitions over the past decade include an ongoing basis; and engage with stakeholders, directly and through trade
Acetum, producers of Balsamic Vinegar of Modena, that is typically consumed as associations, in relation to nutrition science and changes to the regulatory
an accompaniment to salads; and Dorset Cereals, producers of high-fibre and consumer operating environment.
breakfast cereals made from whole grains and dried fruits, nuts and seeds.
↑ increased
→ unchanged
↓ decreased
Operational risks
Workplace health and safety →
Context and potential impact Our Health and Safety Policy and Practices are firmly embedded in each We are saddened to report that in the year there were two work-related
Many of our operations, by their nature, have the potential for loss of life business, supporting a strong ethos of workplace safety. fatalities in our southern Africa sugar operations. Our businesses have
or workplace injuries to employees, contractors and visitors.
conducted thorough root cause analyses and have implemented safety changes.
We have a continuous safety audit programme to verify implementation of safety
We are saddened that since the start of the pandemic in March 2020, we have management and support a culture of continuous improvement. This year over £39m was invested in reducing the safety and health risks
lost 43 colleagues to COVID-19. We deeply mourn their passing and our hearts
across a wide range of operational hazards. As part of this we invested £9.3m
go out to their families and colleagues. Best practice safety and occupational health guidance is shared across the dedicated to COVID-19 safety measures for employees, customers and other
Mitigation businesses, co-ordinated from the corporate centre, to supplement the delivery visitors to our stores and manufacturing sites. A Group-level steering
Safety continues to be one of our main priorities. The chief executives of of their own programmes. committee has shared best practice for minimising the risk of infection across
each business, who lead by example, are accountable for the safety performance
Changes since 2020 all of our businesses.
of their business.
The safety performance of the Group is reported in the 2021 Responsibility
Update at www.abf.co.uk/responsibility. In Illovo, we launched a Group Vaccination Roll-out Campaign which has seen
almost 20,000 employees, dependants, growers and community members vaccinated
against COVID-19 to date. We plan to continue the campaign in the coming
months to reach many more.
Product safety and quality →
Context and potential impact Food quality and safety audits are conducted across all our manufacturing All Primark's products are tested to, and must meet, stringent product safety
As a leading food manufacturer and retailer, it is vital that we manage the sites, by independent third parties and customers, and a due diligence specifications in line with and in some instances above legal requirements.
safety and quality of our products throughout the supply chain. programme is in place to ensure the safety of our retail products. Primark continues to drive and improve product performance for quality and
Mitigation
compliance purposes through its product approval processes, in country
Product safety is put before economic considerations. Our sites comply with international food safety and quality management inspections centres and management of its supply base.
standards and our businesses conduct regular mock product incident exercises.
Changes since 2020
We operate strict food safety and traceability policies within an
We did not have any major product recalls.
organisational culture of hygiene and product safety to ensure consistently All businesses set clear expectations of suppliers, with relevant third-party
high standards in our operations and in the sourcing and handling of raw certification or other assessment a condition of doing business. Product Businesses have continued to define and refine KPIs in this area.
materials and garments. testing and trials are undertaken as required and where bespoke raw materials
are purchased, the businesses will work closely with the supplier to ensure
quality parameters are suitably specified and understood.
Breaches of IT and information security →
Context and potential impact Robust disaster recovery plans are in place for business-critical applications The extent of remote working has increased the risk of users falling victim to
To meet customer, consumer and supplier needs, our IT infrastructure needs to and are adequately tested. phishing attacks because users rely primarily on email communication. We have
be flexible, reliable and secure to allow us to interact through technology.
an ongoing phishing testing regime and there is regular communication with all
Technical security controls are in place over key IT platforms with the Chief users to remind them of the risks. We have raised the level of monitoring for
Our delivery of efficient and effective operations is enhanced by the use of Information Security Officer (CISO) tasked with identifying and responding to phishing attempts and other security threats. In addition, we have issued
relevant technologies and the sharing of information. We are therefore subject potential security risks. security awareness advice on secure homeworking best practices.
to potential cyber-threats such as computer viruses and the loss or theft of
Changes since 2020
data.
As the number of employees working at home as a result of COVID-19 As cybersecurity risks evolve, we continue to invest in our security
restrictions remains high, the impact on the delivery of IT services and the capabilities at a Group level and across the businesses allowing us to more
There is the potential for disruption to operations from data centre failures, need for increased information security has been enveloped into our daily effectively detect, respond and recover from disruptive cyber-threats.
IT malfunctions or external cyber-attacks. practices.
Mitigation
We have improved and developed the existing disciplines to ensure that user
In parallel to building IT roadmaps and developing our technology systems, we There is an ongoing programme of investment in both technology and people to devices are regularly patched and upgraded to reflect changing IT security
invest in developing the IT skills and capabilities of our people across our enhance the longevity of our IT environments for both on-site and remote threats. Revised guidance for laptop and desktop patching has been issued to
businesses. working. all businesses to ensure that systems are up to date and secure.
We continue to actively monitor and mitigate any cyber-threats and suspicious To maintain the support for seamless homeworking we continue to modify our IT During the year we have reviewed and tested IT disaster recovery plans across
IT activity. infrastructure, manage bandwidth with our telecommunications partners and the businesses.
improve our collaboration tools.
We have established Group IT security policies, technologies and processes,
all of which are subject to regular internal audit.
Access to sensitive data is restricted and closely monitored.
Our use of natural resources and managing our environmental impact ↑
Context and potential impact TCFD compliance. We have engaged external experts to support our TCFD This year, we also performed a high-level exercise to establish an overview of
Our businesses and their supply chains rely on a secure supply of finite implementation and established a steering committee to oversee its governance, our Scope 3 emissions. These same three businesses comprised a significant
natural resources, some of which are vulnerable to external factors such as which reports to the Audit Committee. The steering committee comprises senior proportion of those emissions.
natural disasters and climate change and others are vulnerable based on the functional leaders from Corporate Social Responsibility, Environment, Finance,
operational choices we take. Our material environmental impacts come from fuel Risk Management, Corporate Affairs and HR, together with senior representation We continued to focus on improving our energy efficiency and optimising the
use, energy use and agricultural operations giving rise to greenhouse gas from AB Sugar and Primark. use of renewable energy sources with 54% of energy used this year coming from
emissions, use of land related to agricultural operations, the abstraction and
renewables, mainly from a biomass-based fuel.
management of water in water-stressed areas and waste which is not yet Our packaging and product design teams are working together to address the use
eliminated at source, reused or recycled including single-use plastics. of single-use plastics and scale up innovative solutions to the environmental This year 79% of the waste materials generated by our businesses' operations
impacts of single-use plastic. was sent for recycling, recovery or other beneficial uses.
Our businesses and supply chains operate in many areas subject to climate
change risks and opportunities as we transition to a lower-carbon world. Our Our businesses aim to be a good neighbour within their local communities. Twinings in the UK is a carbon neutral business thanks to energy efficiency
ongoing success depends on mitigating these risks and making the most of the Aspects of this include the monitoring and management of noise, particle and projects and the greater use of renewable energy.
opportunities. In our assessment of climate-related business risks, we odour pollution and community engagement. Where possible, our businesses
recognise that the cumulative impacts of changes in weather and water implement circular economy principles to use more from less and continuously GWF achieved its GHG and water reduction targets of 20% reduction by 2020,
availability could affect our operations at a Group level. The diversified and seek ways to recycle or reuse all waste materials. against a 2010 baseline as set by the Australian Food & Grocery Council.
decentralised nature of Associated British Foods means that mitigation or
adaptation strategies are considered and implemented by individual businesses AB Sugar and AB Agri have set commitments for their own operations and supply As a Group we continue to develop our single-use plastic packaging solutions
and divisions. chain to improve sustainability performance. to align with future environmental packaging legislation in local geographies
whilst balancing the needs to minimise food waste and carbon emissions with
Our operations generate a range of emissions such as dust, wastewater and Primark is committed to the Textiles 2030 Initiative, to accelerate the whole food safety and integrity at the core. Our UK grocery business is a signatory
waste which, if not controlled, could pose a risk to the environment and local fashion and textiles industry's move towards circularity and system change in to the Courtauld Commitment 2025 as well as the UK Plastics PACT, a
communities, potentially creating risk to our licence to operate and resulting the UK. collaborative initiative delivered by WRAP, that will create a circular
in additional costs.
economy for plastics.
Mitigation Through Primark's Sustainable Cotton Programme we have committed to train
We continuously seek ways to improve the efficiency of our operations, using 160,000 farmers in more sustainable farming methods by 2022. This is a GWF is a member of the Australian Packaging Covenant Organisation (APCO) and
technologies and techniques to reduce our use of natural resources and significant commitment towards helping Primark fulfil our long-term ambition has committed that by 2025 its packaging will be designed to be 100%
subsequent impact on the environment. of ensuring all the cotton used in our supply chain is sustainably sourced. recyclable, reusable or compostable to help "close-the-loop".
Changes since 2020
Climate change, with its associated risks and opportunities, is not a new
The environmental performance of the Group is reported in the 2021 Primark launched the Primark Cares sustainability strategy focused on People,
issue. It has long been important to us and our stakeholders. We have Responsibility Update at www.abf.co.uk/responsibility. Planet and Product with targets of halving its carbon footprint across our
considered some of these issues for many years as part of normal commercial
entire Primark value chain by 2030 and changing the way we make clothes to
decision-making, for example Primark's longstanding Sustainable Cotton This year, we began engaging formally with each business in respect of TCFD, ensure they are recyclable by design by 2027 and, by 2030, made from recycled
Programme, and the assessment of drought risk to the wheat supply in our building on existing awareness of climate change issues. This will continue in fibres or more sustainably sourced materials. Additionally, we will eliminate
Australian bakery business, long standing progress in reducing energy use in the coming year until full reporting under TCFD begins for ABF in 2022 and single-use plastics and all non-clothing waste by 2027 and already work with
sugar refining. It is not a separate and parallel discipline; it is already thereafter on an ongoing basis. We are currently reviewing the governance of cotton farmers to deliver better soil health, biodiversity and water quality
part of the ordinary course of business and we are working to understand and climate-related risks and opportunities to ensure the Board is enabled to in the regions where our cotton is grown.
improve this further. fully consider these while setting our strategy and overseeing major
decisions. We report our approach to climate change, water and deforestation risk on an
The Board receives a formal update from the Group Corporate Responsibility
annual basis via CDP at www.cdp.net.
Director, the Chief People and Performance Officer and the Group Safety and To better understand how the potential long-term impacts of climate change
Environment Manager on environmental issues annually including on GHG might affect our businesses, our performance and our balance sheet, this year
emissions and carbon management. In addition, environmental issues are we began scenario analysis. Our overall focus is on the specific businesses
addressed as part of both specific and routine Board agenda items. As an and raw materials with the greatest identified climate risk exposure, and
example, Primark reported to the Board in June 2021 on its carbon reduction those that offer the greatest transition opportunities. We identified Primark,
footprint. AB Sugar and Twinings as the businesses with the most material climate-related
risks and opportunities. In 2020, these three businesses comprise in aggregate
The Audit Committee and the Board have received specific briefings on climate 73% of adjusted operating profit, 69% of Scope 1 and 2 emissions and 97% of
change matters and on our approach to achieving water usage.
Our supply chain and ethical business practices →
Context and potential impact Primark has strengthened our policies around modern slavery and published a Changes since 2020
As an international business we understand that we have both a role to play in revised Supplier Code of Conduct. This is a combination of the ABF Group Code
Our Modern Slavery and Human Trafficking Statement 2021, together with the
delivering on the UN sustainable agenda and also that we are expected to abide of Conduct and the Base Code of the Ethical Trading Initiative, of which steps we take to try to ensure that any forms of modern slavery are not
by internationally agreed rules of business conduct. Doing so means we are Primark is a member. Our new Code is tailored specifically to some of the present within our own operations or supply chain, are reported in detail in
managing risks to our business and to all those involved in our supply chains, risks Primark perceives in our supply chains. We are internationally the 2021 Responsibility Update at www.abf.co.uk/responsibility.
and so we expect that our supply chain partners will work within the same recognised for our ethical trade programme. More information is available at
framework as us. We work with our supply chain partners to help them meet our https://corporate.primark.com/en. In June 2021, the UK Government's Business Against Slavery Forum coalition
standards of acceptable working conditions, financial stability, ethics and
hosted a Ministerial Forum at which the chief executives of member companies
technical competence. Potential supply chain and ethical business practice Twinings uses a comprehensive Community Needs Assessment Framework, which has discussed relevant issues with ministers. Our Chief Executive, George Weston,
risks include: been developed in consultation with expert organisations to help understand attended this event and contributed to discussions on several themes,
what supply chain communities really need. In addition to human and labour including the UK Government's forthcoming Modern Slavery Strategy Review, the
- the vulnerability of workers in our supply chains and the amplification of rights, it covers housing, water and sanitation, health and nutrition, gender challenges involved in modern slavery due diligence and how to harness the
this as a result of the ongoing impacts of COVID-19; and children's rights, land rights, farming practices and more. power of transparency and other levers for positive change.
- inconsistent adoption of a rigorous human rights due diligence approach Primark, Twinings and AB Sugar have all produced interactive sourcing maps to AB Agri's Human Rights Policy addresses modern slavery and other issues in
across the Group; and low transparency of Group human rights impact. better understand and address the challenges in their supply chain operations. line with the Universal Declaration of Human Rights.
Mitigation
Our businesses ask their suppliers to work in line with recognised standards, Primark's map shows suppliers' production sites covering 95% of Primark AB Sugar have further developed their modern slavery policy and created their
including the UN Guiding Principles on Business and Human Rights, products for sale in stores: 'We Listen, We Act, We Remedy' toolkit.
International Labour Organization's Declaration on Fundamental Principles and https://corporate.primark.com/en/our-approach/our-standards/global-sourcing-map.
Rights at work and our Supplier Code of Conduct. This code, which incorporates
Primark has reviewed and updated its Code of Conduct, strengthening the
the Ethical Trading Initiative Base Code, underpins any relevant policies or Twinings' map outlines where we source tea and ingredients: requirements that guard against forced labour and adding a new clause that
standards the businesses set themselves. We have developed a groupwide online https://www.sourcedwithcare.com/en/our-approach/sourcing-map. requires all its suppliers to have effective grievance procedures for workers
training module about modern slavery to help accelerate awareness-raising and
in place.
give businesses the tools to train people. AB Sugar's map outlines where we grow, source and export sugar:
www.absugar.com/sourcing-map. Twinings published its Human Rights Policy in 2021.
Twinings set a target in 2016 to positively impact 500,000 people through
Sourced with Care. The programme has now reached almost 544,000 people and
delivered lasting change.
↑ increased
→ unchanged
↓ decreased
Viability statement
The directors have determined that the most appropriate period over which to
assess the Company's viability, in accordance with the UK Corporate Governance
Code, is three years. This is consistent with the Group's business model which
devolves operational decision making to the businesses. Each business sets a
strategic planning time horizon appropriate to its activities and which are
typically of three years duration. The directors also considered the diverse
nature of the Group's activities and the degree to which the businesses change
and evolve in the relatively short term.
The directors considered the Group's profitability, cash flows and key
financial ratios over this period and the potential impact that the Principal
Risks and Uncertainties set out on pages 16 to 22 could have on future
performance, solvency or liquidity of the Group and its resilience to threats
to its viability posed by severe but plausible scenarios. Sensitivity analysis
was applied to these metrics and the projected cash flows were stress tested
against a range of scenarios.
The directors considered the level of performance that would cause the Group
to exhaust its available liquidity; to breach its debt covenants; the
financial implications of making any strategic acquisitions and a variety of
factors that have the potential to reduce profit substantially. We considered
actions which could damage the Group's reputation for the long term,
macro-economic influences such as fluctuations in commodity markets, and
climate-related business risks. Specific consideration has been given to the
potential ongoing risks associated with COVID-19. These risks include its
impact on Primark's trading performance and to a lesser extent our ability to
run our factories efficiently with the potential for disruption through
shortage of labour or logistical issues caused by port constraints.
At the year end the Group had gross cash of £2,307m and £1,088m of undrawn
committed Revolving Credit Facilities (RCF) which together provide some
£3,395m of liquidity. In August 2020, a two-year extension to the Group's RCF
was agreed with its relationship banks extending the maturity of the facility
to July 2023. During the course of this assessment all of the £297m of
outstanding private placement notes will mature and the RCF will require
refinancing. It is the opinion of the board based on the credit rating and the
strength of the balance sheet that this facility can be renewed, and that
substantial further funding could be secured should the need arise. Events of
COVID-19 and the last year show that there was a value in having sufficient
financial resources and credit strength to manage the operational challenges
faced across our businesses. ABF has sought an external validation of our
credit strength and the A grade credit rating from S&P Global reflects
this.
The diversity of the Group is such that we have some 60 different businesses
operating in different markets, sectors, customers, geographies and products.
The importance of food production has been highlighted by recent events and
the resilience of the Group has been demonstrated by our ability to ensure the
continuity of the food supply chain. While the principal risks considered all
have the potential to affect future performance, none of them are considered
individually or collectively likely to give rise to a deterioration in trading
to a level that might threaten the viability of the Company for the period of
the assessment.
The Group has a track record of delivering strong cash flows, with in excess
of £1bn of operating cash being generated in each of the last ten years. This
has been more than sufficient to meet not only our ongoing financing
obligations but also to fund the Group's expansionary capital investment.
Even in a worst-case scenario, with risks modelled to materialise
simultaneously and for a sustained period, the possibility of the Group having
insufficient resources to meet its financial obligations is considered
extremely remote. Based on this assessment, the directors confirm that they
have a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the three-year period
to 14 September 2024.
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 consolidated financial statements.
The forecast for the going concern assessment period to 28 February 2023 has
been updated for the business's latest trading in October and is our best
estimate of cashflow in the period. Having reviewed this forecast and having
applied a downside sensitivity and performed a reverse stress test, we
consider it a remote possibility that the financial headroom could be
exhausted.
At the full year, the Group had net cash, before lease liabilities, of
£1,901m and had an undrawn, committed RCF of £1,088m for the coming year.
The directors have satisfied themselves that the RCF is available for at least
the going concern assessment period, having assessed the Group's projected
compliance with the remaining terms and covenants of these facilities. Events
of COVID-19 and the last year show that there was a value in having sufficient
financial resources and credit strength to manage the operational challenges
faced across our businesses. ABF has sought an external validation of our
credit strength and the A grade credit rating from S&P Global reflects
this.
In August 2020, a two-year extension to the Group's RCF was agreed with its
relationship banks, extending the maturity of the facility to July 2023.
Whilst this maturity date is beyond the going concern assessment period, it is
the opinion of the Board, based on the credit rating and the strength of the
balance sheet, that this facility can be renewed, and that substantial further
funding could be secured should the need arise.
In reviewing the cash flow forecast for the period, the directors reviewed the
trading for both Primark and the non-Primark businesses in light of the
experience gained from the last eighteen months 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.
The diversity of the Group is such that we have some 60 different businesses
operating in different markets, sectors, customer groups, geographies and
products. The importance of food production has been highlighted by recent
events and the resilience of the Group has been demonstrated by our ability to
ensure the continuity of the food supply chain. While the principal risks
considered all have the potential to affect future performance, none of them
are considered individually or collectively likely to give rise to a
deterioration in trading to a level that might threaten the viability of the
Company for the period of the assessment.
As a downside scenario, the directors considered the extreme adverse scenario
in which half of the Primark estate was closed for six months including the
forthcoming Christmas trading period, without taking any of the available cost
mitigation actions within their control and assuming no available job
retention scheme support. Under this downside scenario the Group has a
forecast net cash position throughout the period and forecast compliance with
the covenants in the debt facilities.
In addition, we also considered the circumstances which would be needed to
exhaust the Group's cash resources over the assessment period - a reverse
stress test. This would indicate that all Primark stores would need to remain
completely closed for more than 12 months, including the peak Christmas sales
period. 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 cost cutting measures and reducing capital
investment. Secondly, we have seen governments develop a number of measures to
contain the virus, including widespread vaccination programmes, which make it
likely that any future lockdowns would be regional.
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.
Directors' responsibilities in respect of the financial statements
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
- the Strategic report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
We consider the annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
The contents of this announcement, including the responsibility statement
above, have been extracted from the annual report and accounts for the 53
weeks ended 18 September 2021 which may be found at www.abf.co.uk
(http://www.abf.co.uk) and will be despatched to shareholders on 11 November
2021. Accordingly this responsibility statement makes reference to the
financial statements of the Company and the group and to the relevant
narrative appearing in that annual report and accounts rather than the
contents of this announcement.
On behalf of the Board
Michael McLintock George Weston John Bason
Chairman Chief Executive Finance Director
9 November 2021
Consolidated income statement
for the 53 weeks ended 18 September 2021
Continuing operations note 2021 2020
£m
£m
Revenue 1 13,884 13,937
Operating costs before exceptional items (13,008) (13,046)
Exceptional items 2 (151) (156)
725 735
Share of profit after tax from joint ventures and associates 79 57
Profits less losses on disposal of non-current assets 4 18
Operating profit 808 810
Adjusted operating profit 1 1,011 1,024
Profits less losses on disposal of non-current assets 4 18
Amortisation of non-operating intangibles (50) (59)
Acquired inventory fair value adjustments (3) (15)
Transaction costs (3) (2)
Exceptional items 2 (151) (156)
Profits less losses on sale and closure of businesses 7 20 (14)
Profit before interest 828 796
Finance income 9 11
Finance expense 3 (111) (124)
Other financial (expense)/income (1) 3
Profit before taxation 725 686
Adjusted profit before taxation 908 914
Profits less losses on disposal of non-current assets 4 18
Amortisation of non-operating intangibles (50) (59)
Acquired inventory fair value adjustments (3) (15)
Transaction costs (3) (2)
Exceptional items 2 (151) (156)
Profits less losses on sale and closure of businesses 7 20 (14)
Taxation - UK (excluding tax on exceptional items) (68) (69)
- UK (on exceptional items) 3 1
- Overseas (excluding tax on exceptional items) (196) (189)
- Overseas (on exceptional items) 34 36
4 (227) (221)
Profit for the period 498 465
Attributable to
Equity shareholders 478 455
Non-controlling interests 20 10
Profit for the period 498 465
Basic and diluted earnings per ordinary share (pence) 6 60.5 57.6
Dividends per share paid and proposed for the period (pence) 5 26.7 nil
Special dividend per share proposed for the period (pence) 5 13.8 nil
Consolidated statement of comprehensive income
for the 53 weeks ended 18 September 2021
2021 2020
£m
£m
Profit for the period recognised in the income statement 498 465
Other comprehensive income
Remeasurements of defined benefit schemes 559 (89)
Deferred tax associated with defined benefit schemes (144) 15
Items that will not be reclassified to profit or loss 415 (74)
Effect of movements in foreign exchange (355) (97)
Net loss on hedge of net investment in foreign subsidiaries 14 (3)
Deferred tax associated with movements in foreign exchange - 1
Reclassification adjustement for movements in foreign exchange on subsidiaries (6) -
disposed
Movement in cash flow hedging position 39 (15)
Deferred tax associated with movement in cash flow hedging position (14) -
Share of other comprehensive income of joint ventures and associates (10) (1)
Effect of hyperinflationary economies 18 17
Items that are or may be subsequently reclassified to profit or loss (314) (98)
Other comprehensive income/(loss) for the period 101 (172)
Total comprehensive income for the period 599 293
Attributable to
Equity shareholders 579 296
Non-controlling interests 20 (3)
Total comprehensive income for the period 599 293
Consolidated balance sheet
at 18 September 2021
2021 2020
£m
£m
Non-current assets
Intangible assets 1,581 1,629
Property, plant and equipment 5,286 5,651
Right-of-use assets 2,649 2,990
Investments in joint ventures 278 233
Investments in associates 60 56
Employee benefits assets 640 100
Income tax 23 -
Deferred tax assets 218 212
Other receivables 55 45
Total non-current assets 10,790 10,916
Current assets
Assets classified as held for sale 13 43
Inventories 2,151 2,150
Biological assets 85 72
Trade and other receivables 1,367 1,328
Derivative assets 124 102
Current asset investments 32 32
Income tax 58 30
Cash and cash equivalents 2,275 1,996
Total current assets 6,105 5,753
Total assets 16,895 16,669
Current liabilities
Liabilities classified as held for sale − (5)
Lease liabilities (289) (297)
Loans and overdrafts (330) (154)
Trade and other payables (2,386) (2,316)
Derivative liabilities (34) (87)
Income tax (172) (171)
Provisions (71) (123)
Total current liabilities (3,282) (3,153)
Non-current liabilities
Lease liabilities (2,992) (3,342)
Loans (76) (318)
Provisions (31) (41)
Deferred tax liabilities (363) (210)
Employee benefits liabilities (147) (166)
Total non-current liabilities (3,609) (4,077)
Total liabilities (6,891) (7,230)
Net assets 10,004 9,439
Equity
Issued capital 45 45
Other reserves 175 175
Translation reserve (34) 323
Hedging reserve 43 (7)
Retained earnings 9,692 8,819
Total equity attributable to equity shareholders 9,921 9,355
Non-controlling interests 83 84
Total equity 10,004 9,439
Consolidated cash flow statement
for the 53 weeks ended 18 September 2021
2021 2020
£m
£m
Cash flow from operating activities
Profit before taxation 725 686
Profits less losses on disposal of non-current assets (4) (18)
Profits less losses on sale and closure of businesses (20) 14
Transaction costs 3 2
Finance income (9) (11)
Finance expense 111 124
Other financial expense/(income) 1 (3)
Share of profit after tax from joint ventures and associates (79) (57)
Amortisation 74 89
Depreciation (including depreciation of right-of-use assets and non-cash lease 823 827
adjustments)
Impairment of property, plant & equipment and right-of-use assets - 15
Exceptional items 151 156
Acquired inventory fair value adjustments 3 15
Effect of hyperinflationary economies 7 5
Net change in the fair value of current biological assets (12) (1)
Share-based payment expense 17 8
Pension costs less contributions 4 10
(Increase)/decrease in inventories (120) 199
(Increase)/decrease in receivables (98) 81
Increase/(decrease) in payables 175 (174)
Purchases less sales of current biological assets (1) (1)
(Decrease)/increase in provisions (40) 41
Cash generated from operations 1,711 2,007
Income taxes paid (298) (254)
Net cash generated from operating activities 1,413 1,753
Cash flow from investing activities
Dividends received from joint ventures and associates 63 43
Purchase of property, plant and equipment (551) (561)
Purchase of intangibles (76) (61)
Lease incentives received 10 35
Sale of property, plant and equipment 21 30
Purchase of subsidiaries, joint ventures and associates (57) (16)
Sale of subsidiaries, joint ventures and associates 34 2
Purchase of other investments (14) (1)
Interest received 9 11
Net cash used in investing activities (561) (518)
Cash flow from financing activities
Dividends paid to non-controlling interests (4) (7)
Dividends paid to equity shareholders (49) (271)
Interest paid (116) (104)
Repayment of lease liabilities (290) (247)
Decrease in short-term loans (10) (43)
Decrease in long-term loans (18) (2)
Increase in current asset investments (2) (2)
Purchase of shares in subsidiary undertaking from non-controlling interests (23) (2)
Net cash used in financing activities (512) (678)
Net increase in cash and cash equivalents 340 557
Cash and cash equivalents at the beginning of the period 1,909 1,358
Effect of movements in foreign exchange (60) (6)
Cash and cash equivalents at the end of the period 2,189 1,909
Consolidated statement of changes in equity
for the 53 weeks ended 18 September 2021
Attributable to equity shareholders Non- Total
controlling
equity
interests
£m
£m
Issued Other Translation Hedging Retained Total
capital
reserves
reserve
reserve
earnings
£m
£m
£m
£m
£m
£m
Balance as at 14 September 2019 45 175 409 (9) 8,832 9,452 98 9,550
IFRS 16 opening balance adjustment - - - - (149) (149) (1) (150)
Balance as at 15 September 2019 45 175 409 (9) 8,683 9,.303 97 9,400
Total comprehensive income
Profit for the period recognised in the income statement - - - - 455 455 10 465
Remeasurements of defined benefit schemes - - - - (89) (89) - (89)
Deferred tax associated with defined benefit schemes - - - - 15 15 - 15
Items that will not be reclassified to profit or loss - - - - (74) (74) - (74)
Effect of movements in foreign exchange - - (83) (1) - (84) (13) (97)
Net loss on hedge of net investment in foreign subsidiaries - - (3) - - (3) - (3)
Deferred tax associated with movements in foreign exchange - - 1 - - 1 - 1
Movement in cash flow hedging position - - - (15) - (15) - (15)
Share of other comprehensive income of joint ventures and associates - - (1) - - (1) - (1)
Effect of hyperinflationary economies - - - - 17 17 - 17
Items that are or may be subsequently reclassified to profit or loss - - (86) (16) 17 (85) (13) (98)
Other comprehensive income - - (86) (16) (57) (159) (13) (172)
Total comprehensive income - - (86) (16) 398 296 (3) 293
Inventory cash flow hedge movements
Gains transferred to cost of inventory - - - 18 - 18 - 18
Total inventory cash flow hedge movements - - - 18 - 18 - 18
Transactions with owners
Dividends paid to equity shareholders - - - - (271) (271) - (271)
Net movement in own shares held - - - - 8 8 - 8
Deferred tax associated with share-based payments - - - - 1 1 - 1
Dividends paid to non-controlling interests - - - - - - (8) (8)
Acquisition and disposal of non-controlling interests - - - - - - (2) (2)
Total transactions with owners - - - - (262) (262) (10) (272)
Balance as at 12 September 2020 45 175 323 (7) 8,819 9,355 84 9,439
Total comprehensive income
Profit for the period recognised in the income statement - - - - 478 478 20 498
Remeasurements of defined benefit schemes - - - - 559 559 - 559
Deferred tax associated with defined benefit schemes - - - - (144) (144) - (144)
Items that will not be reclassified to profit or loss - - - - 415 415 - 415
Effect of movements in foreign exchange - - (355) - - (355) - (355)
Net gain on hedge of net investment in foreign subsidiaries - - 14 - - 14 - 14
Reclassification adjustment for movements in foreign exchange on subsidiaries - - (6) - - (6) - (6)
disposed
Movement in cash flow hedging position - - - 39 - 39 - 39
Deferred tax associated with movements in cash flow hedging position - - - (14) - (14) - (14)
Share of other comprehensive income of joint ventures and associates - - (10) - - (10) - (10)
Effect of hyperinflationary economies - - - - 18 18 - 18
Items that are or may be subsequently reclassified to profit or loss - - (357) 25 18 (314) - (314)
Other comprehensive income - - (357) 25 433 101 - 101
Total comprehensive income - - (357) 25 911 579 20 599
Inventory cash flow hedge movements
Gains transferred to cost of inventory - - - 25 - 25 - 25
Total inventory cash flow hedge movements - - - 25 - 25 - 25
Transactions with owners
Dividends paid to equity shareholders - - - - (49) (49) - (49)
Net movement in own shares held - - - - 17 17 - 17
Dividends paid to non-controlling interests - - - - - - (4) (4)
Acquisition and disposal of non-controlling interests - - - - (6) (6) (17) (23)
Total transactions with owners - - - - (38) (38) (21) (59)
Balance as at 18 September 2021 45 175 (34) 43 9,692 9,921 83 10,004
1. Operating segments
The Group has five operating segments, as described below. 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 and 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 year.
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 and
services 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
2021 2020 2021 2020
£m
£m
£m
£m
Operating segments
Grocery 3,593 3,528 413 437
Sugar 1,650 1,594 152 100
Agriculture 1,537 1,395 44 43
Ingredients 1,508 1,503 151 147
Retail 5,593 5,895 321 362
Central - - (70) (63)
13,881 13,915 1,011 1,026
Businesses disposed:
Grocery 2 13 - (1)
Ingredients 1 9 - (1)
13,884 13,937 1,011 1,024
Geographical information
United Kingdom 4,982 5,054 293 312
Europe & Africa 4,944 5,048 302 298
The Americas 1,678 1,619 259 254
Asia Pacific 2,277 2,194 157 162
13,881 13,915 1,011 1,026
Businesses disposed:
Asia Pacific 3 22 - (2)
13,884 13,937 1,011 1,024
2021
Grocery Sugar Agriculture Ingredients Retail Central Total
£m £m £m £m £m £m £m
Revenue from continuing businesses 3,594 1,714 1,539 1,687 5,593 (246) 13,881
Internal revenue (1) (64) (2) (179) - 246 -
External revenue from continuing businesses 3,593 1,650 1,537 1,508 5,593 - 13,881
Businesses disposed 2 - - 1 - - 3
Revenue from external customers 3,595 1,650 1,537 1,509 5,593 - 13,884
Adjusted operating profit before joint ventures and associates 364 149 31 134 321 (70) 929
Share of profit after tax from joint ventures and associates 49 3 13 17 - - 82
Adjusted operating profit 413 152 44 151 321 (70) 1,011
Profits less losses on disposal of non-current assets 2 1 - 1 - - 4
Amortisation of non-operating intangibles (41) - (2) (7) - - (50)
Acquired inventory fair value adjustments (3) - - - - - (3)
Transaction costs - - - (2) - (1) (3)
Exceptional items - (141) - - (6) (4) (151)
Profits less losses on sale and closure of businesses - - - 19 - 1 20
Profit before interest 371 12 42 162 315 (74) 828
Finance income 9 9
Finance expense (1) (2) - (1) (80) (27) (111)
Other financial income (1) (1)
Taxation (227) (227)
Profit for the period 370 10 42 161 235 (320) 498
Segment assets (excluding joint ventures and associates) 2,541 1,776 441 1,480 6,919 154 13,311
Investments in joint ventures and associates 53 28 139 118 - - 338
Segment assets 2,594 1,804 580 1,598 6,919 154 13,649
Cash and cash equivalents 2,275 2,275
Current asset investments 32 32
Income tax 81 81
Deferred tax assets 218 218
Employee benefits assets 640 640
Segment liabilities (601) (361) (151) (340) (4,142) (208) (5,803)
Loans and overdrafts (406) (406)
Income tax (172) (172)
Deferred tax liabilities (363) (363)
Employee benefits liabilities (147) (147)
Net assets 1,993 1,443 429 1,258 2,777 2,104 10,004
Non-current asset additions 113 134 21 118 343 16 745
Depreciation (including depreciation of right-of-use assets) (110) (82) (16) (56) (549) (10) (823)
Amortisation (48) (4) (3) (9) (8) (2) (74)
Reversal of impairment of property, plant & equipment and - - - 10 - - 10
right-of-use assets
2020
Grocery Sugar Agriculture Ingredients Retail Central Total
£m £m £m £m £m £m £m
Revenue from continuing businesses 3,530 1,658 1,398 1,685 5,895 (251) 13,915
Internal revenue (2) (64) (3) (182) - 251 -
External revenue from continuing businesses 3,528 1,594 1,395 1,503 5,895 - 13,915
Businesses disposed 13 - - 9 - - 22
Revenue from external customers 3,541 1,594 1,395 1,512 5,895 - 13,937
Adjusted operating profit before joint ventures and associates 404 98 33 132 362 (63) 966
Share of profit after tax from joint ventures and associates 33 2 10 15 - - 60
Businesses disposed (1) - - (1) - - (2)
Adjusted operating profit 436 100 43 146 362 (63) 1,024
Profits less losses on disposal of non-current assets 9 7 1 (1) 3 (1) 18
Amortisation of non-operating intangibles (52) - (1) (6) - - (59)
Acquired inventory fair value adjustments (15) - - - - - (15)
Transaction costs - - - (2) - - (2)
Exceptional items 5 (23) - - (138) - (156)
Profits less losses on sale and closure of businesses (4) - - (4) - (6) (14)
Profit before interest 379 84 43 133 227 (70) 796
Finance income 11 11
Finance expense (1) (3) - - (79) (41) (124)
Other financial income 3 3
Taxation (221) (221)
Profit for the period 378 81 43 133 148 (318) 465
Segment assets (excluding joint ventures and associates) 2,689 1,893 429 1,470 7,372 155 14,008
Investments in joint ventures and associates 51 27 136 75 - - 289
Segment assets 2,740 1,920 565 1,545 7,372 155 14,297
Cash and cash equivalents 1,998 1,998
Current asset investments 32 32
Income tax 30 30
Deferred tax assets 212 212
Employee benefits assets 100 100
Segment liabilities (637) (351) (147) (334) (4,523) (219) (6,211)
Loans and overdrafts (472) (472)
Income tax (171) (171)
Deferred tax liabilities (210) (210)
Employee benefits liabilities (166) (166)
Net assets 2,103 1,569 418 1,211 2,849 1,289 9,439
Non-current asset additions 104 88 21 97 476 13 799
Depreciation (including depreciation of right-of-use assets) (109) (85) (16) (57) (546) (14) (827)
Amortisation (62) (2) (2) (7) (14) (2) (89)
Impairment of property, plant & equipment and (15) - - - - - (15)
right-of-use assets
Impairment of property, plant and equipment on sale (1) - - (1) - - (2)
and closure of businesses
Impairment of right-of-use assets on sale and closure - - - (2) - - (2)
of businesses
1. Operating segments - geographical information
2021
United Kingdom Europe & Africa The Americas Asia Pacific Total
£m £m £m £m £m
Revenue from external customers 4,982 4,944 1,678 2,280 13,884
Segment assets 5,178 5,754 1,324 1,393 13,649
Non-current asset additions 200 382 74 89 745
Depreciation (including depreciation of right-of-use assets and non-cash lease (288) (406) (62) (67) (823)
adjustments)
Amortisation (35) (26) (7) (6) (74)
Acquired inventory fair value adjustments - (3) - - (3)
Reversal of impairment of property, plant and equipment on sale and closure of - - - 10 10
businesses
Transaction costs (2) - - (1) (3)
Exceptional items (13) (117) - (21) (151)
2020
United Kingdom Europe & Africa The Americas Asia Pacific Total
£m £m £m £m £m
Revenue from external customers 5,054 5,048 1,619 2,216 13,937
Segment assets 5,249 6,263 1,314 1,471 14,297
Non-current asset additions 197 406 128 68 799
Depreciation (including depreciation of right-of-use assets and non-cash lease (292) (397) (70) (68) (827)
adjustments)
Amortisation (48) (27) (6) (8) (89)
Acquired inventory fair value adjustments - (15) - - (15)
Impairment of property, plant & equipment and (15) - - - (15)
right-of-use assets
Impairment of property, plant and equipment on sale - - - (2) (2)
and closure of businesses
Impairment of right-of-use assets on sale and - - - (2) (2)
closure of businesses
Transaction costs - (1) - (1) (2)
Exceptional items (4) (108) (44) - (156)
The group's operations in the following countries met the criteria for
separate disclosure:
Revenue Non-current assets
2021 2020 2021 2020
£m
£m
£m £m
Australia 1,209 1,161 533 558
Spain 1,190 1,097 670 849
United States 1,098 1,055 672 727
All segment disclosures are stated before reclassification of assets and
liabilities classified as held for sale.
2. Exceptional items
2021
Exceptional items of £151m comprise impairments of £141m in property, plant
and equipment at Azucarera and other sugar businesses, a £21m inventory
charge in Primark, the reversal of £20m of the £22m Primark inventory
provision raised last year, a £5m provision for excessive stock of COVID-19
related items in Primark and a £4m pension past service cost following a
further High Court ruling on 20 November 2020 regarding the equalisation of
Guaranteed Minimum Pensions.
In our sugar business in Spain we have seen a significant increase in revenues
reflecting strong demand and higher prices, although the operating profit
margin was impacted by lower volumes from the northern beet crop, as well as a
one-off charge from a court arbitration. Our current view for yield and sugar
content from beet sugar and our lower estimated margins due to the expected
increases in raw refining volumes in the future has resulted in a non-cash
exceptional charge of €136m to write down the net asset value of this
business. Given the ongoing trading challenges in some of our smaller sugar
businesses we have reviewed our forward projections for these units, including
the forecast evolution of beet area and yields. As a result, we have made a
non-cash adjustment of £21m to the relevant net asset values as an
exceptional charge this year.
Our half year results included an inventory charge of £21m in Primark, which
related to certain seasonal items already on display in closed stores and
which could not be sold before the end of the season. This inventory had been
cleared from our stores to allow spring/summer stock to be displayed as stores
prepared to reopen, and an exceptional provision of £21m was charged to
reflect the write-down of this inventory to net realisable value, which has
subsequently been utilised.
The prior year end exceptional items included a £22m markdown provision which
was created for potential damage of inventory stored on our behalf by
suppliers for longer than usual as a result of the pandemic. In large part,
this damage did not arise and £20m of the provision has been released. £5m
has been provided for excessive stock of COVID-19 related items.
2020
The prior year included exceptional items of £156m. Impairments of £116m in
property, plant and equipment and right-of-use assets at Primark were
recognised related to downsizing of a number of stores in the US and Germany.
Beet volumes contracted by Azucarera in the second crop year after reducing
the beet price paid to farmers, resulted in revised business forecasts and a
£23m non-cash write-down of goodwill. A charge of £22m related to a markdown
provision in Primark for inventory stored on our behalf by suppliers for
longer than usual as a result of the pandemic. A £5m gain was recorded
related to the closure of our Speedibake Wakefield factory where the net
proceeds received from the insurance claim raised for the factory being
destroyed by a fire in February 2020 exceeded the losses recorded earlier in
the year.
3. Finance expense
2021 2020
£m £m
Bank loans and overdrafts (16) (29)
All other borrowings (10) (10)
Lease liabilities (84) (84)
Other payables (1) (1)
(111) (124)
4. Income tax expense
2021 2020
£m £m
Current tax expense
UK - corporation tax at 19% (2020 - 19%) 46 57
Overseas - corporation tax 208 203
UK - under provided in prior periods 9 3
Overseas - over provided in prior periods (9) (4)
254 259
Deferred tax expense
UK deferred tax 13 5
Overseas deferred tax (37) (53)
UK - (over)/under provided in prior periods (3) 3
Overseas - under provided in prior periods - 7
(27) (38)
Total income tax expense in income statement 227 221
Reconciliation of effective tax rate
Profit before taxation 725 686
Less share of profit after tax from joint ventures and associates (79) (57)
Profit before taxation excluding share of profit after tax from joint ventures 646 629
and associates
Nominal tax charge at UK corporation tax rate of 19% (2020 - 19%) 123 120
Effect of higher and lower tax rates on overseas earnings 33 18
Effect of changes in tax rates on income statement 17 13
Expenses not deductible for tax purposes 51 54
Disposal of assets covered by tax exemptions or unrecognised capital losses (3) 1
Deferred tax not recognised 9 6
Adjustments in respect of prior periods (3) 9
227 221
Income tax recognised directly in equity
Deferred tax associated with defined benefit schemes 144 (15)
Deferred tax associated with share-based payments - (1)
Deferred tax associated with movement in cash flow hedging position 14 -
Deferred tax associated with movements in foreign exchange - (1)
158 (17)
The UK corporation tax rate of 19% is set to increase 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. The effect of
this change was a £15m charge to the income statement principally on the
amortisation on non-operating intangibles and exceptional items and a £39m
charge to other comprehensive income relating to the deferred tax liability on
the pension surplus.
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 Group
has appealed against the European Commission's decision, as have the UK
Government and a number of other UK companies. We have calculated our maximum
potential liability to be £26m (2020 - £27m), 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') during the year, we made payments to HMRC. Receipt of
the charging notices marginally changed our assessment of the maximum
potential liability but did not change our assessment 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.
5. Dividends
2021 2020 2021 2020
pence per share
pence per share
£m
£m
2019 final - 34.30 - 271
2020 interim - - - -
2020 final - - - -
2021 interim 6.20 - 49 -
6.20 34.30 49 271
The 2021 interim dividend was declared on 20 April 2021 and was paid on 9 July
2021. As a sign of our confidence in our improved trading we have declared the
payment of a special dividend, to be paid as a second interim dividend of
13.8p per share at a cost of £109m.
The Board has proposed a final dividend of 20.5p per share at a cost of £162m
which together with the interim dividend of 6.2p per share makes a total of
26.7p per share for the year.
The combined 2021 final and special dividend of 34.3p, with a total value of
£271m, will be paid on 14 January 2022 to shareholders on the register on 17
December 2021.
No interim or final dividend was proposed or paid for 2020.
6. Earnings per share
The calculation of basic earnings per share at 18 September 2021 was based on
the net profit attributable to equity shareholders of £478m (2020 - £455m),
and a weighted average number of shares outstanding during the year of 790
million (2020 - 790 million). The calculation of the weighted average number
of shares excludes the shares held by the Employee Share Ownership Plan Trust
on which the dividends are being waived.
Adjusted earnings per ordinary share, which exclude the impact of profits less
losses on disposal of non-current assets and the sale and closure of
businesses, amortisation of acquired inventory fair value adjustments,
transaction costs, amortisation of non-operating intangibles, exceptional
items and any associated tax credits, is shown to provide clarity on the
underlying performance of the group.
The diluted earnings per share calculation takes into account the dilutive
effect of share incentives. The diluted, weighted average number of shares is
790 million (2020 - 790 million). There is no difference between basic and
diluted earnings.
2021 2020
pence
pence
Adjusted earnings per share 80.1 81.1
Disposal of non-current assets 0.5 2.3
Sale and closure of businesses 2.5 (1.8)
Acquired inventory fair value adjustments (0.4) (1.9)
Transaction costs (0.4) (0.3)
Exceptional items (19.1) (19.7)
Tax effect on above adjustments 3.0 4.6
Amortisation of non-operating intangibles (6.3) (7.5)
Tax credit on non-operating intangibles amortisation and goodwill 0.6 0.8
Earnings per ordinary share 60.5 57.6
7. Acquisitions and disposals
Acquisitions
2021
In May 2021, the Group's Ingredients business acquired DR Healthcare España,
a Spanish enzymes producer. Total consideration for this transaction was
£14m, comprising £12m cash consideration and £2m deferred consideration.
Net assets acquired included non-operating intangible assets of £19m, which
were recognised with their related deferred tax of £5m.
During the period, the Group contributed £43m to the bakery ingredients joint
venture in China with Wilmar International and also paid £2m of deferred
consideration on acquisitions made in prior years.
2020
In December 2019, the Group's Grocery business in the UK acquired Al'Fez, a
Middle Eastern food brand with customers in the UK and Europe. In the second
half of the year the Group acquired two small Agriculture businesses in Europe
and the Group's Ingredients business acquired Larodan, a Swedish manufacturer
and international marketer of state-of-the-art, high-purity research-grade
lipids that will expand our research and product development capabilities to
better serve the pharmaceutical, nutritional and industrial market sectors.
Total consideration for these acquisitions was £19m, comprising £16m cash
consideration and £3m deferred consideration. Net assets acquired comprised
non-operating intangible assets of £15m, which were recognised with their
related deferred tax of £3m, and £1m of other operating assets. Goodwill of
£6m resulted from these acquisitions.
Disposals
2021
In the first half of 2021, the Group sold a number of our Chinese yeast and
bakery ingredients businesses into a new Chinese joint venture with Wilmar
International. These businesses were classified as a disposal group and held
for sale at the previous year end. Gross cash consideration was £39m with
£5m of cash disposed with the businesses. The joint venture also assumed
£11m of debt, resulting in net proceeds of £45m. Net assets disposed were
£33m with provisions of £6m for associated restructuring costs and a £6m
gain on the recycling of foreign exchange differences. The gain on disposal
was £6m.
In August, the Group agreed the sale of a further factory in China to the same
joint venture, subject to regulatory approval. These factory assets were fully
written down in 2019 when the proposed joint venture with Wilmar was first
announced. A non-cash reversal of impairment of £10m has been included in
profit on sale and closure of business.
Closure provisions of £3m relating to disposals made in previous years were
no longer required and were released to sale and closure of business in
Ingredients and Grocery, both in Asia Pacific. Property provisions of £1m
held in previous years were also no longer required and were released in the
Central and UK segments.
2020
In 2020, the Group announced the closure of the Cake business in the Grocery
segment in Australia and the Jasol New Zealand business in the Ingredients
segment, with £10m included in loss on closure of business, comprising £2m
non-cash impairment of property, plant and equipment, £2m non-cash impairment
of right-of-use assets and £6m of restructuring provisions. The Group also
sold a small business in China, reported within the Asia Pacific and Grocery
segments. Cash proceeds amounted to £2m on £1m of net assets disposed,
resulting in a pre-tax profit on disposal of £1m.
Warranty provisions of £1m relating to disposals made in previous years were
no longer required and were released to sale and closure of business in the
Americas and Ingredients segments. The Group also charged a £6m onerous lease
provision to sale and closure of business (in the Central and UK segments) in
respect of guarantees given on property leases assigned to third parties that
the Group expects to be required to honour.
8. Analysis of net debt
At Cash flow Disposals New leases and non-cash Exchange At
18 September
12 September £m £m items adjustments
2021
£m
2020 £m £m
£m
Short-term loans (65) 10 10 (202) 3 (244)
Long-term loans (318) 18 - 202 22 (76)
Lease liabilities (3,639) 290 - (100) 168 (3,281)
Total liabilities from financing activities (4,022) 318 10 (100) 193 (3,601)
Cash at bank and in hand, cash equivalents and overdrafts 1.909 340 - - (60) 2,189
Current asset investments 32 2 - - (2) 32
(2,081) 660 10 (100) 131 (1,380)
At Cash flow Disposals New leases and non-cash Exchange At
14 September £m £m items adjustments 12 September
2019 £m £m 2020
(after IFRS 16 transition) £m
£m
Short-term loans (89) 43 - (23) 4 (65)
Long-term loans (348) 2 - 23 5 (318)
Lease liabilities (3,678) 247 1 (143) (66) (3,639)
Total liabilities from financing activities (4,115) 292 1 (143) (57) (4,022)
Cash at bank and in hand, cash equivalents and overdrafts 1,358 557 - - (6) 1,909
Current asset investments 29 2 - - 1 32
(2,728) 851 1 (143) (62) (2,081)
Cash and cash equivalents comprise bank and cash balances, call deposits and
short-term investments with original maturities of three months or less. £86m
(2020 - £89m) of bank overdrafts that are repayable on demand form an
integral 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 £1,901m (2020 - £1,558m).
£86m (2020 - £89m) of bank overdrafts plus the £244m (2020 - £65m) of
short-term loans shown above comprise the £330m (2020 - £154m) 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 £289m and £2,992m respectively (2020 - £297m and £3,342m
respectively) comprise the £3,281m (2020 - £3,639m) of lease liabilities
shown above.
Current asset investments comprise term deposits and short-term investments
with original maturities of greater than three months but less than one year.
9. Related parties
The Group has a controlling shareholder relationship with its parent company,
Wittington Investments Limited, with the trustees of the Garfield Weston
Foundation and with certain other individuals who hold shares in the Company.
The Group has a related party relationship with its associates and joint
ventures and with its directors. In the course of normal operations, related
party transactions entered into by the Group have been contracted on an arm's
length basis.
Material transactions and year end balances with related parties were as
follows:
Sub 2021 2020
note £000 £000
Charges to Wittington Investments Limited in respect of services provided by 895 1,095
the Company and its subsidiary undertakings
Dividends paid by Associated British Foods and received in a beneficial
capacity by:
(i) trustees of the Garfield Weston Foundation and their close family 1 1,570 9,151
(ii) directors of Wittington Investments Limited who are not trustees of the 300 3,632
Foundation and their close family
(iii) directors of the Company who are not trustees of the Foundation and are 14 73
not directors of Wittington Investments Limited
Sales to fellow subsidiary undertakings on normal trading terms 2 55 96
Sales to companies with common key management personnel on normal trading 3 14,980 18,404
terms
Commissions paid to companies with common key management personnel on normal 3 - 557
trading terms
Amounts due from companies with common key management personnel 3 1,705 2,237
Sales to joint ventures on normal trading terms 44,405 14,154
Sales to associates on normal trading terms 46,407 28,249
Purchases from joint ventures on normal trading terms 361,287 323,860
Purchases from associates on normal trading terms 16,524 12,863
Amounts due from joint ventures 35,941 41,722
Amounts due from associates 4,033 3,497
Amounts due to joint ventures 22,960 26,745
Amounts due to associates 1,615 1,272
1. The Garfield Weston Foundation ('the Foundation') is an English
charitable trust, established in 1958 by the late W. Garfield Weston. The
Foundation has no direct interest in the Company, but as at 18 September 2021
was the beneficial owner of 683,073 shares (2020 - 683,073 shares) in
Wittington Investments Limited representing 79.2% (2020 - 79.2%) of that
company's issued share capital and is, therefore, the Company's ultimate
controlling party. At 18 September 2021 trustees of the Foundation comprised
four grandchildren of the late W. Garfield Weston and five children of the
late Garry H. Weston.
2. The fellow subsidiary undertakings are Fortnum and Mason plc and Heal
& Son Limited.
3. The companies with common key management personnel are the George
Weston Limited group, in Canada, and Selfridges & Co. Limited.
Amounts due from joint ventures include £32m (2020 - £40m) of finance lease
receivables. The remainder of the balance is trading balances. All but £4m
(2020 - £5m) of the finance lease receivables are non-current.
10. Other Information
The financial information set out above does not constitute the Company's
statutory accounts for the 53 weeks ended 18 September 2021, or the 52 weeks
ended 12 September 2020. Statutory accounts for 2020 have been delivered to
the Registrar of Companies and those for 2021 will be delivered following the
Company's annual general meeting. The auditors have reported on those
accounts. Their reports were (i) unqualified, (ii) did not include references
to any matters to which the auditors drew attention by way of emphasis without
qualifying their reports and (iii) did not contain a statement under section
498(2) or (3) of the Companies Act 2006 in respect of the accounts.
11. Basis of preparation
The Company presents its consolidated financial statements in sterling,
rounded to the nearest million, prepared on the historical cost basis except
that current biological assets and certain financial instruments are stated at
fair value, and assets classified as held for sale are stated at the lower of
carrying amount and fair value less costs to sell.
The preparation of financial statements under Adopted IFRS requires management
to make judgements, estimates and assumptions about the reported amounts of
assets and liabilities, income and expenses and the disclosure of contingent
assets and liabilities. The estimates and associated assumptions are based on
experience. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed regularly. Revisions to
accounting estimates are recognised prospectively from when the estimates are
revised.
Details of accounting standards which came into force in the year are set out
at the end of this note.
The Group's consolidated financial statements are prepared to the Saturday
nearest to 15 September. Accordingly, they have been prepared for the 53 weeks
ended 18 September 2021 (2020 - 52 weeks ended 12 September 2020).
To avoid delay in the preparation of the consolidated financial statements,
the results of certain subsidiaries, joint ventures and associates are
included to 31 August each year.
Adjustments have been made where appropriate for significant transactions or
events occurring between 31 August and 18 September.
12. New accounting policies
The following accounting standards and amendments were adopted during the
year and had no significant impact on the Group:
- Amendments to IFRS 3 Definition of a Business;
- Amendments to IAS 1 and IAS 8 Definition of Material;
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate
Benchmark Reform - Phase 1; and
- Amendments to References to the Conceptual Framework in IFRS Standards.
The Group is assessing the impact of the following standards, interpretations
and amendments that are not yet effective. Where already endorsed by the UKEB,
these changes will be adopted on the effective dates noted. Where not yet
endorsed by the UKEB, the adoption date is less certain:
- IFRS 17 Insurance Contracts effective 2023 financial year (not yet
endorsed by the UKEB);
- Amendments to IAS 1 Presentation of Financial Statements: Classification
of Liabilities as Current or Non-current effective 2023 financial year (not
yet endorsed by the UKEB);
- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2) effective 2024 financial year (not yet endorsed by the UKEB);
- Amendments to IAS 8 Definition of Accounting Estimates effective 2024
financial year (not yet endorsed by the UKEB);
- Amendments to IAS 12 Deferred Tax related to Assets and Liabilities
arising from a Single Transaction effective 2024 financial year (not yet
endorsed by the UKEB);
- Amendments to IAS 16 Property, Plant and Equipment - Proceeds before
Intended Use effective 2023 financial year (not yet endorsed by the UKEB);
- Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract
effective 2023 financial year (not yet endorsed by the UKEB);
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate
Benchmark Reform - Phase 2 effective 2022 financial year (endorsed by the
UKEB). Financial authorities have announced the timing of key interest rate
benchmark replacements such as LIBOR in the UK, the US and the EU and other
territories expected at the end of 2021, with remaining USD tenors expected to
cease in 2023. We are primarily exposed to USD LIBORs that will be available
until June 2023; and
- Annual Improvements to IFRS 2018-2020 effective 2023 financial year (not
yet endorsed by the UKEB).
13. Alternative performance measures
In reporting financial information, the Board uses various 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,
for cannibalisation by new stores, or for the timing of national or bank
holidays.
It is measured against comparable trading days in each year.
Two year like-for-like sales No direct equivalent The like-for-like sales metric expressed over two years enables measurement of Consistent with the definition given
the performance of our retail stores compared to our experience in 2019, which
was before any of the economic effects of COVID-19.
It is calculated as described above for like-for-like sales, but with 2019
data as the comparator.
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 consolidated
intangibles, transaction costs, amortisation of fair value adjustments made to income statement and by operating segment in note 1 of the financial
acquired inventory, profits less losses on disposal of non-current assets and statements
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 operating profit before repayment of job retention scheme monies See adjusted operating profit (non-IFRS) measure Adjusted operating profit before repayment of job retention scheme monies is See note A
adjusted operating profit adjusted for repayment of job retention scheme
monies.
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 consolidated
intangibles, transaction costs, amortisation of fair value adjustments made to income statement and by operating segment in note 1 of the financial
acquired inventory, profits less losses on disposal of non-current assets, statements
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 and adjusted earnings per share Earnings and earnings per share Adjusted earnings and adjusted earnings per share are stated before Reconciliations of these measures are provided in note 7 of the financial
amortisation of non-operating intangibles, transaction costs, amortisation of statements
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 and
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 consolidated income
unusual in nature and are considered of such significance that they require statement with further detail provided in note 2 of the financial statements
separate disclosure on the face of the income statement.
Exceptional items (continued)
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
figure 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 two countries where the Group has operations in this
position - Argentina and Venezuela.
Effective tax rate Income tax expense The effective tax rate is the tax charge for the year 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 5 of the financial statements
Adjusted effective tax rate No direct equivalent The adjusted effective tax rate is the tax charge for the year 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 7 of the financial statements
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 year.
Capital expenditure No direct equivalent Capital expenditure is a measure of investment each year in non-current assets See note D
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 year in non-current assets of See note E
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 25 of the financial
investments and loans. statements
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 25 of the financial
investments, loans and lease liabilities. statements
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
(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 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 adjusted operating Consistent with the definition given
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 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
(Average) working capital (continued) the reporting calendar of each business.
(Average) working capital as a percentage of revenue No direct equivalent This measure expresses (average) working capital as a percentage of revenue. Consistent with the definition given
Note A
Grocery Sugar Agriculture Ingredients Retail Central and disposed businesses Total
£m £m £m £m £m £m £m
2021
External revenue from continuing businesses 3,593 1,650 1,537 1,508 5,593 3 13,884
Adjusted operating profit 413 152 44 151 321 (70) 1,011
Repayment of job retention scheme monies - - - - 94 - 94
Adjusted operating profit before repayment of job retention scheme monies 413 152 44 151 415 (70) 1,105
Adjusted operating margin % 11.5% 9.2% 2.9% 10.0% 5.7% 7.3%
2020
External revenue from continuing businesses 3,528 1,594 1,395 1,503 5,895 22 13,937
Adjusted operating profit 437 100 43 147 362 (65) 1,024
Adjusted operating margin % 12.4% 6.3% 3.1% 9.8% 6.1% 7.3%
Note B
Grocery Sugar Agriculture Ingredients Retail Disposed businesses Total
£m
£m
£m
£m
£m
£m
£m
2021
External revenue from continuing businesses 3,593 1,650 1,537 1,508 5,593 3 13,884
at actual rates
2020
External revenue from continuing businesses 3,528 1,594 1,395 1,503 5,895 22 13,937
at actual rates
Impact of foreign exchange (29) (70) (8) (49) (14) 1 (169)
External revenue from continuing businesses 3,499 1,524 1,387 1,454 5,881 23 13,768
at constant currency
% change at constant currency +3% +8% +11% +4% -5% +1%
Grocery Sugar Agriculture Ingredients Retail Central and disposed businesses Total
£m
£m
£m
£m
£m
£m
£m
2021
Adjusted operating profit at actual rates 413 152 44 151 321 (70) 1,011
2020
Adjusted operating profit at actual rates 437 100 43 147 362 (65) 1,024
Impact of foreign exchange (16) (13) (2) (7) - 2 (36)
Adjusted operating profit at constant currency 421 87 41 140 362 (63) 988
% change at constant currency -2% +75% +7% +8% -11% +2%
Note C
2021 2020
£m
£m
Adjusted earnings per share (pence) 80.1 81.10
Dividends relating to the year (pence) - excluding special dividend proposed 26.7 -
Dividend cover 3.00 n/a
Note D
From the cash flow statement 2021 2020
£m
£m
Purchase of property, plant and equipment 551 561
Purchase of intangibles 76 61
627 622
Note E
From the cash flow statement 2021 2020
£m
£m
Purchase of property, plant and equipment 551 561
Purchase of intangibles 76 61
Purchase of subsidiaries, joint ventures and associates 57 16
Purchase of shares in subsidiary undertaking from non-controlling interests 23 2
Purchase of other investments 14 1
721 641
Note F
2021 2020 2019
£m
£m
(IFRS 16 pro forma basis)
£m
Adjusted operating profit 1,011 1,024 1,482
Charged to adjusted operating profit:
Depreciation of property, plant and equipment 535 538 544
Amortisation of operating intangibles 26 33 23
Depreciation of right-of-use assets and non-cash lease adjustments 288 289 281
Impairment of property, plant and equipment and right-of-use assets - 15 -
Adjusted EBITDA 1,860 1,899 2,330
Net debt including lease liabilities (1,380) (2,081) (2,728)
Financial leverage ratio 0.7 1.1 1.2
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