RNS No 8483j
ASSOCIATED BRITISH FOODS PLC
19 April 1999
INTERIM REPORT
FOR THE 24 WEEKS ENDED 27 FEBRUARY 1999
KEY POINTS
- Worldwide sales #1,985 million
- Profit before exceptional charges and tax #183 million
- FRS 11 asset write down of #74 million
- Investment income #48 million
- Earnings per share before exceptional charges 14.0 pence
- Return of capital of #448 million, equivalent to 12% of ABF's market
capitalisation, by way of a Special Dividend of 50 pence per share
- Consolidation of share capital. 88 new shares for every
100 existing shares
- In addition to the Special Dividend the first interim dividend of
4.25 pence will be paid in September and the company will in
future maintain its normal dividend policy
Garry H Weston, Executive Chairman, reports:-
Group turnover for the period has increased to #1,985 million, up #22 million
on the previous period. After allowing for currency translation effects which
reduced turnover by some #30 million and the closure of a high volume, low
margin European commodity trading operation last year, sales show an increase
on last year of some 5%.
Operating profit of #146 million for the period before exceptional charges
and the amortisation of goodwill shows a small decrease of #4 million on the
previous year. That we have been able to produce these results during a
period of very low retail growth and competitive pricing, particularly in the
food sector, is very encouraging.
Recent accounting standard changes have had a significant effect on the
presentation of this interim statement. The Accounting Standards Board has
published Financial Reporting Standard 11 detailing comprehensive guidelines
on the carrying value of fixed assets. Following the adoption of this
standard and applying the guidelines, in view of the economic returns
currently being obtained by some of our operating divisions, it is considered
necessary to reduce the book value of the fixed assets employed within these
by #74 million. For some years the company has been writing off against
profits the costs of restructuring its cereal processing and baking
activities. In reviewing these activities under the FRS 11 guidelines it has
been decided to further reduce the book value of the fixed assets employed in
these divisions which accounts for substantially all of the write down. Under
the requirements of FRS 11 it will be necessary to review the carrying value
of these assets each year.
Changes to the accounting standard concerning the treatment of goodwill no
longer allow its immediate write off to reserves, but require the goodwill
acquired to be capitalised in the balance sheet and amortised through the
profit and loss account. The effect of adopting this revised standard has
been to reduce operating profits for the period by #2 million and to increase
shareholders' funds by #99 million.
British Sugar's sales volumes have exceeded budget for the period and this
year's sugar beet harvest has produced a crop in excess of 1.4 million
tonnes. Operating profits have risen slightly to #74 million compared with
the same period last year. The Green pound was succeeded by the Euro with
effect from 1 January 1999, with UK sugar prices being aligned to the Euro
from this date. The effect of Green pound and Euro movements have had little
effect on this period's results. Trading conditions for British Sugar's
operations in Poland and China have shown some deterioration since last year,
with falling selling prices resulting in trading losses for the period.
Allied Bakeries have had a mixed trading period. In January, the major
retailers reduced the price of economy bread to 7 pence per loaf. This
prompted a 50% increase in demand for economy bread. The increase was
inevitably at the expense of the premium loaf, nevertheless, the Kingsmill
brand increased its sales over last year and is now the single largest
selling bread brand in the United Kingdom. Restructuring costs of some #2
million (last year #1 million) have been incurred in the period to improve
production efficiency.
Our other UK manufacturing operations are continuing to find that trading
conditions at home and in our export markets remain difficult. Animal feeds,
although still suffering from industry overcapacity and weak demand, have
shown significant recovery from the low levels of profitability which were
seen in the second half of 1998. Twinings are continuing to develop and
expand their business and sales and operating profits for this group have
increased by 8% and 7% respectively. The Twinings distribution network has
been further strengthened by the acquisition of Carl Lange in Denmark.
In Australia and New Zealand, George Weston Foods' sales in local currency
have increased by 4% in the period which translates to a small decrease on a
year ago when converted to sterling. Operating profits within most of the
divisions have shown a modest increase on last year, but with the continued
pressure on margins within the baking sector, it has proved difficult to
achieve last year's performance. The implementation of a major computer
system is progressing ahead of plan and one-off costs of some #5 million have
been charged during the period in respect of this project. Currency
movements have further reduced operating profits by #1 million. Management is
budgeting for improved results in the second half.
Our operations in the United States continue to expand in the ingredients
sector with the US$ 215 million acquisition of SPI Polyols in October last
year. The company operates mainly in the United States with a further
production facility in France and is a leading supplier of polyols in
North and South America. Polyols are used as sweetening agents in food
products and as ingredients in personal care products such as toothpaste.
AC Humko, our oils and food ingredients division in the United States, has
experienced operational difficulties and competitive trading conditions. The
modification of refining operations to cope with increased throughput had
some effect in reducing production efficiencies, although that issue has now
been resolved. The results for the period were also adversely affected by the
start up costs of the rice mill in Greenville, Mississippi acquired last
year.
Primark, our clothing retail division, enjoyed particularly encouraging
results and another record Christmas period with sales and operating profits
increasing by 21% and 75% respectively. Furthermore, these exceptional
results are being maintained. Primark has secured a major new site in
Reading, England, which is due to open early in the autumn and further
expansion is planned in the coming year.
Investment income for the period of #48 million is slightly down on last
year, largely due to funds being used for the acquisition of SPI Polyols
referred to above. Returns achieved by our professional fund managers during
the period are comparable to those obtained a year ago, but future returns
will be affected by the lower level of interest rates now available.
The group's Year 2000 remedial programme is nearing completion. Most of our
divisions will have finished their replacement and testing phase by the end
of April this year. Attention now focuses on contingency planning to ensure
that minimal disruption will occur to our divisions in the event of a failure
of our suppliers or equipment.
Whilst trading conditions remain extremely competitive we are continuing to
invest in our business and are confident that we are well placed to benefit
from any upturn in the economy and in the markets that we serve.
Dividends
Following a review of the company's strategic options, the company
has decided to return #448 million of capital to shareholders, equivalent to
12% of the market capitalisation of the company, by way of a Special
Dividend. At a board meeting today the directors declared a Special Dividend
of 50p per share payable on 14 May 1999 to shareholders on the register on 7
May 1999.
It is proposed that the shares of the company be consolidated to reflect the
return of capital in ABF's financial ratios. The consolidation is subject to
shareholder approval. Wittington Investments Limited, the company's
controlling shareholder, has informed the board that it intends to vote in
favour of the consolidation.
The effect of the Special Dividend and consolidation for a holder of 100
ordinary shares would be a receipt of #50 in cash and a reduced holding of 88
new ordinary shares in the company. Your board considers that this will not
only return a significant sum to shareholders but will leave the company with
adequate resources to pursue attractive investment opportunities.
A circular explaining these proposals is enclosed with this report.
As in previous years, at the board meeting today, the directors declared a
first interim dividend of 4.25p per share (1998 - 4.25p) which will be paid
on the consolidated share capital on 1 September 1999 to shareholders
registered at the close of business on 6 August 1999.
Board changes
As already announced, Mr John Bason will be joining the board
of our company as Finance Director and will commence his new duties from 4
May 1999.
I also wish to advise that Mr David Garman will be leaving the company,
having resigned as a director on 16 April 1999, after five years as a main
board director, and head of the group's bakery operations. David is leaving
us to become Chief Executive of a PLC and we wish him every success with his
new responsibilities, and I thank him for his strong contribution to ABF
whilst with us.
Mr Garman's position on our board, and the management of our bread
operations, will become the responsibility of Mr George G Weston, at present
working with Mr Garman as head of the Kingsmill division of Allied Bakeries.
George Weston first joined our company in 1988 as manager of the group's
flour milling operations in Melbourne, Australia.
Press enquiries to:Garry H Weston - Chairman
Harry Bailey - Deputy Chairman
Telephone: 0171-589 6363
CONSOLIDATED PROFIT AND LOSS ACCOUNT
24 Weeks to 27 Feb 1999 Year to 12 Sept 1998
Con- Con-
tinuing tinuing
oper- oper-
ations 24 Weeks ations
before Excep- to before Excep-
excep- tional 28 Feb excep- tional
tionals items Total 1998 tionals items Total
Note # m # m # m # m # m # m # m
Turnover of the group
including its share of
joint ventures 1,988 - 1,988 1,966 4,202 - 4,202
Less share of turnover
of joint ventures (3) - (3) (3) (7) - (7)
Group turnover 1 1,985 - 1,985 1,963 4,195 - 4,195
Operating costs (1,843) (74) (1,917) (1,815) (3,878) (19) (3,897)
Group operating profit 142 (74) 68 148 317 (19) 298
Share of operating
results of
-joint ventures 1 - 1 1 (3) - (3)
associates 1 - 1 1 2 - 2
Total operating
profit 1 144 (74) 70 150 316 (19) 297
Operating profit before
exceptional items and
amortisation of
goodwill 146 - 146 150 316 - 316
Exceptional items 1 - (74) (74) - - (19) (19)
Amortisation of goodwill (2) - (2) - - - -
Profits less losses on
sale of properties 2 - 2 - (3) - (3)
Investment income 48 - 48 53 119 - 119
Profit on ordinary
activities before
interest 194 (74) 120 203 432 (19) 413
Interest payable (11) - (11) (10) (22) - (22)
Profit on ordinary
activities before
taxation 183 (74) 109 193 410 (19) 391
Tax on profit on
ordinary activities 2 (56) - (56) (61) (124) - (124)
Profit on ordinary
activities after
taxation 127 (74) 53 132 286 (19) 267
Minority interests -
equity (1) - (1) (2) (2) - (2)
Profit for the financial
period 126 (74) 52 130 284 (19) 265
Dividends -
first interim (34) - (34) (38) (38) - (38)
second interim - - - - (56) - (56)
special interim (448) - (448) - - - -
Retained profit for the
financial period (356) (74) (430) 92 190 (19) 171
Earnings per ordinary
share 14.0p (8.2)p 5.8p 14.5p 31.7p (2.1)p 29.6p
The group has made no material acquisitions nor discontinued any operations
within the meaning of the Financial Reporting Standards during either 1999 or
1998.
CONSOLIDATED BALANCE SHEET
As at As at As at
27 Feb 28 Feb 12 Sept
1999 1998 1998
# m # m # m
Fixed assets
Intangible fixed assets
- goodwill 99 - -
Tangible fixed assets 1,459 1,409 1,439
1,558 1,409 1,439
Interest in net assets of
- joint ventures 2 7 3
- associates 9 6 6
Other investments 18 8 17
Total investments 29 21 26
1,587 1,430 1,465
Current assets
Stocks 745 773 428
Debtors 533 490 481
Investments 1,298 1,359 1,570
Cash at bank and in hand 88 72 70
2,664 2,694 2,549
Creditors amounts falling due
within one year
Short term borrowings (56) (57) (44)
Other creditors (846) (771) (682)
Special interim dividend (448) - -
(1,350) (828) (726)
Net current assets 1,314 1,866 1,823
Total assets less
current liabilities 2,901 3,296 3,288
Creditors amounts falling due
after one year
Loans (164) (156) (157)
Other creditors (6) (50) (13)
(170) (206) (170)
Provision for liabilities and
charges (54) (51) (55)
2,677 3,039 3,063
Capital and reserves
Called up share capital 47 47 47
Revaluation reserve 3 4 3
Other reserves 173 173 173
Profit and loss account 2,375 2,737 2,774
Equity shareholders' funds 2,598 2,961 2,997
Minority interests in subsidiary
undertakings - equity 79 78 66
2,677 3,039 3,063
CONSOLIDATED CASH FLOW STATEMENT
24 weeks 24 weeks Year
to to to
27 Feb 28 Feb 12 Sept
1999 1998 1998
Note #m #m #m
Cash flow from operating
activities 3 (44) (22) 448
Dividends from joint ventures - - 1
Dividends from associates - - 1
Return on investments and
servicing of finance
Dividends and other
investment income 49 52 113
Interest paid (11) (11) (22)
Dividends paid to minorities (1) (1) (2)
37 40 89
Taxation (22) (23) (127)
Capital expenditure and
financial investment
Purchase of tangible fixed
assets (114) (102) (226)
Sale of tangible fixed assets 5 2 10
Purchase of equity investments - - (3)
Sale of equity investments 1 - 3
Purchase of own shares - (1) (8)
(108) (101) (224)
Acquisitions and disposals
Purchase of new subsidiary
undertakings (140) (37) (57)
Advances to joint ventures (1) - (1)
(141) (37) (58)
Equity dividends paid - (97) (135)
Net cash (outflow)/inflow before use
of liquid funds and financing (278) (240) (5)
Management of liquid
funds 5 (52) (138) (107)
Financing 4 (21) (9) (11)
Increase/(decrease) in
cash 5 (205) (93) 113
(278) (240) (5)
CONSOLIDATED STATEMENT OF TOTAL
RECOGNISED GAINS AND LOSSES
24 weeks 24 weeks Year
to to to
27 Feb 28 Feb 12 Sept
1999 1998 1998
#m #m #m
Profit for the financial period 52 130 265
Currency translation differences
on foreign currency net assets 31 (24) (59)
Total recognised gains and
losses 83 106 206
RECONCILIATION OF MOVEMENTS IN
CONSOLIDATED SHAREHOLDERS' FUNDS
24 weeks 24 weeks Year
to to to
27 Feb 28 Feb 12 Sept
1999 1998 1998
#m #m #m
Profit for the financial period 52 130 265
Dividend- first interim (34) (38) (38)
second interim - - (56)
special interim (448) - -
Retained profit for the
financial period (430) 92 171
Other recognised gains and
losses relating to the period 31 (24) (59)
Goodwill acquired and written
off during the period - (24) (32)
Net increase in shareholders'
funds (399) 44 80
Opening shareholders' funds 2,997 2,917 2,917
Closing shareholders' funds 2,598 2,961 2,997
NOTES TO THE INTERIM STATEMENTS
24 weeks 24 weeks Year
to to to
27 Feb 28 Feb 12 Sept
1999 1998 1998
#m #m #m
1.Geographical analysis of turnover
(by origin and destination)
European Union, mainly United Kingdom
and Ireland 1,377 1,433 3,023
Australia and New Zealand 244 257 534
North America 312 240 557
Elsewhere, mainly Asia 52 33 81
Group Turnover 1,985 1,963 4,195
Business sector
Manufacturing 1,812 1,820 3,900
Retail 173 143 295
Group Turnover 1,985 1,963 4,195
Geographical analysis of operating profit
(by origin)
European Union, mainly United Kingdom
and Ireland 127 124 268
Australia and New Zealand 9 15 25
North America 10 11 22
Elsewhere, mainly Asia (2) - 1
Total operating profit
before exceptional items 144 150 316
Exceptional items
-impairment of fixed assets (74) - -
European Commission fine - - (13)
write down of joint ventures - - (6)
Total operating profit 70 150 297
Business sector
Manufacturing 123 138 293
Retail 21 12 23
Total operating profit
before exceptional items 144 150 316
Exceptional items
-impairment of fixed assets (74) - -
European Commission fine - - (13)
write down of joint ventures - - (6)
Total operating profit 70 150 297
2.Tax on profit on ordinary activities
United Kingdom 41 44 93
Overseas 14 16 29
Associates and joint ventures 1 1 2
56 61 124
3.Cash flow from operating activities
Operating profit 68 148 298
Depreciation 83 77 151
Impairment of fixed assets 74 - -
(Increase)/decrease in
working capital
-stocks (297) (356) (16)
debtors (35) 5 7
creditors 64 106 6
Provisions (1) (2) 2
(44) (22) 448
4.Analysis of changes in financing
Issue of short term loans (18) (4) (32)
Repayment of short term loans 5 - 24
Issue of loans over one year (7) - -
Repayment of loans over one
year 2 - 2
Shares issued to minority
shareholders (3) (5) (5)
(21) (9) (11)
5.Changes in net funds
Increase/(decrease) in net
cash (205) (93) 113
Financing (note 4) (21) (9) (11)
Management of liquid funds (52) (138) (107)
Shares issued to minority
shareholders 3 5 5
Purchase of equity investments - - 1
Sale of equity investments - - (1)
Changes in market value - - 3
Arising on the acquisition of
subsidiary undertakings - (2) (8)
Effect of currency changes 2 (5) (16)
Movement in net funds for the
period (273) (242) (21)
Opening net funds 1,439 1,460 1,460
Closing net funds 1,166 1,218 1,439
Analysis of net funds
Current asset investments 1,298 1,359 1,570
Cash at bank and in hand 88 72 70
Short term borrowings (56) (57) (44)
Loans falling due after one
year (164) (156) (157)
1,166 1,218 1,439
6.Other information
The figures shown for the financial year ended 12 September 1998, which
have been abridged from the group's 1998 financial statements, are not the
group's statutory accounts. Those accounts have been reported on by the
auditors and delivered to the Registrar of Companies. The report of the
auditors was unqualified and did not contain a statement under section 237
(2) or (4) of the Companies Act 1985.
The figures for the 24 weeks ended 27 February 1999 and 28 February 1998
are unaudited.
ACCOUNTING POLICIES
Basis of preparation
These financial statements have been prepared under the historical cost
convention as modified by the revaluation of certain assets, and in
accordance with applicable accounting standards and the Companies Act 1985.
The comparative figures for the 24 weeks to 28 February 1998 have been
restated to reflect the adoption of FRS9.
Basis of consolidation
The group accounts comprise a consolidation of the accounts of the Company
and all its subsidiaries together with the group's share of the results and
net assets of its associates and joint ventures. The financial statements of
the company and its subsidiary undertakings are made up for the 24 weeks
ended 27 February 1999, except for those of the Australian and New Zealand
group and China and Poland which are made up to 16 January 1999, and the
North American subsidiary undertakings which are made up to 13 February 1999
to avoid delay in the preparation of the consolidated financial statements.
Acquisitions
The consolidated profit and loss account includes the results of new
subsidiary undertakings, associates and joint ventures attributable to the
period since acquisition. Goodwill on acquisition, being the excess of the
purchase price of new subsidiary undertakings, associates and joint ventures
over the fair value of net assets acquired, is capitalised in accordance with
FRS 10 and amortised over its useful economic life. Goodwill previously
eliminated against reserves has not been reinstated.
Disposals
The results of subsidiary undertakings, associates and joint ventures sold
are included up to the dates of change of control. The profit or loss on the
disposal of an acquired business takes into account the attributable value of
purchased goodwill not previously amortised relating to that business.
Foreign currencies
Assets and liabilities overseas are converted into sterling at the rates of
exchange ruling at the balance sheet date. The results of overseas operations
have been translated at the average rate prevailing during the period.
Exchange differences arising on consolidation are taken directly to reserves.
Other exchange differences are dealt with as part of operating profits.
Pensions
The group has established separately funded pension schemes for the benefit
of permanent staff, which vary with employment conditions in the countries
concerned. Net pension costs are charged to income over the expected average
remaining service lives of employees. Any differences between the charge for
pensions and total contributions are included within pension provisions or
debtors as appropriate.
Research and development
Expenditure in respect of research and development is written off against
profits in the period in which it is incurred.
Fixed asset investments
Associated undertakings and joint ventures are accounted for in the financial
statements of the group under the equity method of accounting. Other fixed
asset investments are stated at cost less amounts written off in respect of
any permanent diminution in value.
Depreciation
Depreciation, calculated on cost or on valuation, is provided on a straight
line basis to residual value over the anticipated life of the asset. No
depreciation is provided on freehold land. Leaseholds are written off over
the period of the lease. The anticipated life of other assets is generally
deemed to be not longer than:
Freehold buildings 66 years
Plant, machinery, fixtures and fittings
-sugar factories 20 years
other operations 12 years
Vehicles 8 years
Leases
All material leases entered into by the group are operating leases, whereby
substantially all of the risks and rewards of ownership of an asset remain
with the lessor. Rental payments are charged against profits on a straight
line basis over the life of the lease.
Stocks
Stocks are valued at the lower of cost or net realisable value, after making
due provision against obsolete and slow-moving items. In the case of
manufactured goods the term "cost" includes ingredients, production wages and
production overheads.
Current asset investments
Current asset investments are stated at the lower of cost or market value.
Deferred tax
Deferred tax represents corporation tax in respect of accelerated taxation
allowances on capital expenditure and other timing differences, to the extent
that a liability is anticipated in the foreseeable future.
With the exception of FRS 10 and FRS 11 which were adopted in the period,
these accounting policies are consistent with those used in the preparation
of the financial statements for the year ended 12 September 1998.
DIRECTORS Garry H Weston Chairman +
Harold W Bailey Deputy Chairman
Trevor HM Shaw
Peter J Jackson
David NC Garman (resigned 16 April 1999)
George G Weston (appointed 19 April 1999)
WG Galen Weston *
Rt Hon John RR MacGregor OBE * +
Professor Sir Roland Smith * +
SECRETARY Trevor HM Shaw
REGISTERED OFFICE Weston Centre
Bowater House
68 Knightsbridge
London SW1X 7LQ
Company registered in England, number 293262
REGISTRAR'S AND Lloyds Bank Plc
TRANSFER OFFICE Registrar's Department
Goring by Sea
Worthing BN99 6DA
INTERNET SITE http://www.ABF.co.uk
* Non-executive director
+ Member of Audit and Remuneration Committees
END
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