Ladies and Gentlemen, good morning. I am delighted as Chairman of the Board to welcome you to the seventy third Annual General Meeting of our company, Associated British Foods. Once again, it is good to see so many of you here today.
It is just past 11 o’clock so we are able to get started. However, I would ask you, as a courtesy to others, please to switch off the ring tones on mobile phones.
I am joined on the platform by my colleagues on your Board and by our company secretary, Paul Lister. Mr Galen Weston apologises for the fact that he is unable to join us today.
Those of you who attend regularly will have noticed a new face this year and I would like to take a moment to introduce Charles Sinclair to you. A brief CV is on page 19 of the Annual Report. Charles could you please stand so that shareholders can identify you. Charles has wide business experience of both the UK and overseas and I am sure will contribute strongly to the work of the Board.
Turning then to our formal business. 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. Again this year the notice is on separate sheets which 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 12 resolutions which I will put to the meeting, after each of which I will be glad to take questions relating to that resolution. Before proceeding to the formal resolutions, however, I would like to make a few remarks.
You received the Annual Report and Accounts for the year to 13 September 2008 several weeks ago and they include full comment on the year’s trading. I have no intention of reprising those comments today but there are a few important matters I would like to mention.
The year was a period of increasingly difficult economic conditions. Many input costs like raw materials and energy rose sharply for the greater part of the year. Currency exchange rates became increasingly volatile. Against this general economic background there was excellent progress by most of our businesses.
Group revenue grew by 21% (in part due to higher costs in our food businesses recovered in pricing). Operating profits grew by 7%. Earnings per share grew less sharply by 4%, mainly due to a higher interest burden.
It was particularly pleasing to see the very good results from our grocery businesses and the continuing development of Primark’s strong retail position.
In profit terms our European sugar activities continued to decline. It is encouraging however that the transition to the new European Union sugar regime is largely over and there is the prospect of reasonable equilibrium in a market where consumption will exceed domestic production.
British Sugar was bought by ABF almost 18 years ago. During very much the greater part of that time it has delivered excellent returns. Recent years have shown a cumulative reduction in those returns as the European sugar regime has changed. With more stable conditions now in prospect, British Sugar in Europe remains an excellent business and the vital base for the recent developments of our sugar interests.
Shareholders may well have seen that ABF is in negotiation to purchase Azucarera Ebro S.L.U. Ebro produces around 50% of the sugar consumed in Spain and Portugal. It offers a full range of products. It operates from beet factories and also processes imported raw sugar at a new refinery in southern Spain. If this purchase proceeds, it will greatly strengthen our European sugar operations as we position them for the future.
We have continued to invest heavily in the long term development of our businesses. The investment has been to increase capacity, to extend the range of our product offering and to improve efficiency. This investment, which has continued over several years, has resulted in a re-shaping of the group. It has enabled us to absorb the impact of European Union regime change and greatly grow our non-EU sugar profits. It has backed the successful expansion of Primark and considerable growth in our grocery and other businesses.
One of these businesses is ABAgri our agriculture business. Profits from European sugar may have declined but ABAgri has had a great year. This has partly been due to successful grain trading in volatile markets but there have been all round improvements across its operations. The business, which originated selling the co-products from our beet sugar and milling businesses to UK farmers to feed livestock, has become steadily more complex over recent years with a greatly increased technological content and international presence. It is still the UK’s largest agricultural business but many more things beside.
It is very easy in a group of ABF’s size to concentrate on the scale of the sugar interests, the growth of the retailing interests or the variety and spread of the worldwide grocery businesses. This video has shown you something of the quality of the agriculture business and its scope for further development.
I mentioned earlier the excellent grocery results with operating profits approaching £200m. We have a great UK brand portfolio, which combines some longstanding ABF brands with others added in the last few years, as well as other strong brands in Northern America and Australia. If you missed the display of advertisements on the screen behind me and around the room before the meeting began, a glance at pages 12 and 45 of the Annual Report will show what I mean.
Like most of our businesses, the grocery ones have faced sharply rising commodity prices and energy costs for most of the year, with an overlay of currency fluctuation. The very good results have been delivered in difficult conditions.
The rate of expansion at Primark has been less rapid than in the previous 18 months, but space has still grown by 13%. Sales increased by 21% with like for like store growth at 4%. We continue to pursue opportunities to bring Primark to towns and cities in the UK which currently are not served, as well as further upgrading stores here and in the Republic of Ireland. The roll-out of stores in Spain is gathering pace with the intention of good national coverage there and in Portugal in the next few years. Meanwhile, we will test other Northern European markets.
The clothing retail market is highly competitive even in good general trading conditions. The present economic environment is exceptionally difficult for clothing retailers. However, I am confident that Primark’s market position and offering places it well to compete however difficult the trading environment.
I have mentioned the heavy investment over the last few years and the importance of the returns from this programme in enabling the group to absorb the reduction in European sugar profits. We expect to continue to invest in the current year and to consider opportunities for further development, subject to maintaining a sound financing structure.
The Annual Report shows that 95,000 people work in the ABF group in very many different countries. The work is often demanding; think heat in southern Africa, or extreme cold in northern China, or a bakery plant with a glitch and high service levels to be maintained, or 3.30 pm on a Saturday afternoon in a Primark store. Our people meet these challenges and by their efforts have delivered these results. We shareholders should be very grateful for their skill and determination.
I would now like to comment on current year trading. The economic background is the most severe for a very long time. There is also an unusually high degree of uncertainty about the way economic conditions will develop over the coming months. The pressures earlier in 2008 on commodity and energy costs have reduced but currency exchange rates remain volatile and, critically, pressure on consumers’ spending has increased substantially.
I repeat what I said in the Annual Report that the group’s businesses will not be immune to the worsening economic climate. However, by the nature, range and market position of the group’s businesses we are well placed to face this demanding environment.
Trading in the current year has overall been up to our expectations. Our budgets are set for some progress in operating profits over the current year but little change in net earnings due to additional interest expense.
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) 7638 9571