Good morning Ladies and Gentlemen. I am delighted as your Chairman to welcome you to the seventy second Annual General Meeting of our company, Associated British Foods. It is good to see so many of you here.
It is just past the appointed hour of 11.00 o’clock so apart from a reminder, as a courtesy to others, to switch off mobile phones we’ll get started.
I am joined on the platform by my colleagues on your Board and by our company secretary, Paul Lister. Regular attendees amongst you may have spotted a new face this year and I would like to take a moment to introduce Peter Smith to you. A brief CV is on page 29 of the Annual Report. Peter could you please stand so that shareholders can identify you.Peter brings very wide experience both from his distinguished earlier career in the public accounting profession and latterly as a director of a variety of businesses. He is extremely well qualified to chair ABF’s Audit Committee and is also contributing strongly to Board discussions.
To our formal business then. There is a quorum present and I therefore formally open the meeting. You may find it helpful to follow the proceedings by referring to the Notice of the Meeting which this year is on separate sheets you will have received with the Annual Report and Accounts.
In view of the length of the Notice of the Meeting I will, with your permission, take it as read.
The formal part of our meeting today consists of 10 resolutions which I will put to the meeting, after each of which I will invite your questions. Before we get to that however I would like to make a few remarks.
The Annual Report and Accounts, which you received some weeks ago, includes full comment on the past year’s trading. I will only mention a few important issues. When I spoke to you a year ago I said that the previous year had been one of significant change and one which laid the foundations for strong, sustainable growth in the year ahead.The first evidence of this is apparent from the result for the past year. Turnover grew by 13% and operating profits by 11%, while profits net of interest and tax rose by 10%. Earnings per ABF share grew less sharply, by 4%, reflecting the Illovo minorities’ share in their profits. The proportion of profits earned by our UK based operations now accounts for somewhat less than half of the total compared to almost three quarters at the turn of the century. The remainder is spread widely across the Americas, Asia Pacific and Europe, Middle East and Africa. We are well placed to develop our businesses in all these regions.
Results for the past year have continued to be affected by sugar regime reform in Europe. Profits from this part of our business were some £30m lower than in the previous year. This, together with adverse impacts of currency changes on overseas profits and losses in our UK bakery business, has masked to some extent the progress made by most of our businesses.
I would like to take a few moments to talk about our sugar businesses. Two thirds of our production is outside Europe and that part has good growth prospects based as it is in countries with rising rates of consumption. Since the acquisition of our 51% stake, Illovo has announced several major investments to expand existing capacity. Most recent was the decision to invest in the sugar industry in Mali with a capacity for 200,000 tonnes together with an ethanol plant and electricity co-generation unit. The project, which has been developed in close co-operation with the government of Mali, will also enable major agricultural expansion providing jobs and income in the surrounding area.
A few months ago British Sugar announced a major investment in the provinces of North Eastern China. This is an excellent opportunity to work with growers to improve radically their agricultural yields. In addition, our processing skills will enable much improved production efficiency. Again, this project has been developed in close co-operation with local government. It also will result in a major contribution to the local economy.
Within Europe and particularly in the UK we have continued to invest in improved efficiency. The transitional effects of the changes in the EU sugar regime continue in the current year. However, we are confident that there is a sound future for this business when the changes described in the Annual Report are fully implemented. Meanwhile you will have noted our initial investment in bioethanol, which is now fully operational, and the much larger joint venture with BP and Dupont which is currently in the design phase.
However, we have not been idle in other areas of the group. In our food activities we have strengthened our yeast business by expanding capacity and by acquisition. The addition of the Patak’s brand and assets to our UK grocery businesses was very important. Linking its excellent reputation in Indian cuisine with our existing Blue Dragon brand to form our ‘World Foods’ business gives a strong position in this growing market. We have also continued to invest in maintaining and enhancing the quality of our plants worldwide.
In talking about the growth of our businesses I will finish with a few words about Primark. You will remember that a step change in Primark’s scale began a little over two years ago with the purchase of the Littlewoods chain. With other new sites, the programme of refitting and opening stores was a major challenge. It has been completed on time and on budget. Primark in the UK now trades from almost double the space of two years ago. Some of the openings were so successful that they received national media coverage. As a consequence, Primark is now reckoned to be the second largest clothing retailer in the UK by volume and the largest by turnover in the important ‘value’ sector. Primark is a major force across the UK. I am glad to say that there is still scope to expand our coverage.
While so much attention has been on the UK expansion, I am delighted that growth elsewhere has been strong. In Eire, results for Penneys have been outstanding and a considerable programme of increasing space is in train. Last month two new Primark stores opened in Spain. Their early results, together with those of the two stores opened in 2006, are very encouraging. Further stores are scheduled to open in Spain in the next couple of years, by which time Primark will have a sizeable presence in this important market.
Listening to me talk about the major investment of recent years, shareholders are entitled to ask whether we can continue to make the necessary level of investment to support and grow our businesses. The answer is a confident ‘Yes’. The group is lightly borrowed for one of its size; cash flow is strong. There is ample capacity to continue to back our businesses with substantial investment where appropriate; and, very importantly, well within the bounds of prudent financing.
The annual report shows that 85,000 people now work in the ABF group. I am conscious that work has a major influence on every employee’s life. As an employer, the group frequently contributes beyond the contents of the pay packet. In many parts of Southern Africa and China for example, the business is the focal point for the community and also provides services such as health, education and housing. Across our businesses much effort goes into training and development.
I am also aware of the demands our diverse group places on many employees in terms of travel and exposure to different cultures and working practices. The success with which people rise to these challenges is always impressive. I am grateful to all our employees for the contribution they have made to the group’s development.
Now let me comment on current year trading. The continued development of the group’s businesses and the investments we have made will result in further progress in 2008. I said in my statement in the annual report that reform of the European Union sugar regime will again have a large negative effect on profit in the coming year. Although there is a greater degree of uncertainty than normal about general economic conditions, including volatility in some commodity prices and currencies, we expect that profits in the rest of the group will show good progress. Trading so far in the current year has been fully up to our expectations.
Beyond the current year we expect the revised shape of the EU sugar regime to bring stability to the European market and the prospect of some profit recovery. The major capital investment of recent years will support the prospects for longer term growth in all our businesses.
For further information please contact:
Associated British Foods plc
John Bason, Finance Director
Tel: +44 (0)20 7399 6500
Geoff Lancaster, Head of External Affairs
Tel: +44 (0)7860 562 659
Citigate Dewe Rogerson
Jonathan Clare, Chris Barrie, Hannah Seward
Tel: +44 (0)20 7638 9571