Chairman’s statement

This is my first report to shareholders having succeeded Martin Adamson as Chairman in April and I am pleased to be able to report another good performance. Considerable progress was made in the development of the group during the year with significant capital expenditure, the restructuring of a number of businesses and growth in adjusted earnings per share of 5%. All of this was achieved against a background of a worldwide economic slow-down, with many of the countries in which we operate in recession.

The fact that we have been able to continue with our high level of capital investment despite these economic conditions is a testament to the strength of the group’s balance sheet and our ability to generate cash. A number of major long-term projects are under way including the restructuring of our meat business in Australia, the combining of Jordans and Ryvita in the UK, the creation of a packaged edible oil joint venture in North America, capacity expansions for Sugar and Ingredients in southern Africa, Europe and China, the building of the Vivergo biofuels facility in the UK and further new stores for Primark across Europe.

Such investment benefits today’s stakeholders but must also serve their interests tomorrow. Accordingly, our capital investment also addresses reduction in energy and water usage and promotes greater use of renewable fuels in our factories. The major infrastructure projects, particularly in the developing world, will provide local employment opportunities and a whole range of other social benefits.

Group revenue increased by 12% to £9.3bn and adjusted operating profit was up 8% to £720m. With over 50% of the group’s revenue and profit arising outside the UK, the weakness of sterling had a favourable currency translation effect on these results. Good trading was delivered by a number of our businesses, most notably from sugar in the UK and Africa, Allied Bakeries and Primark. However, the difficulties experienced by our Chinese sugar operations and the North American edible oils business, evident in our half year results, held back profit for the full year.

Primark continues to deliver excellent growth in both revenue and profit, achieved through strong UK like-for-like sales growth and the addition of further retail selling space. Whilst there are still many opportunities to extend Primark’s estate in the UK and Ireland, expansion into continental Europe represents an exciting and substantial growth prospect for this highly successful business.

Our European sugar operations have emerged from regime reform and profit is returning to more acceptable levels. For a relatively modest net investment, we strengthened our position in European sugar with the acquisition of Azucarera Ebro, the leading sugar producer in Iberia, and the disposal of our smaller sugar business in Poland. Azucarera will provide EU refining capacity for cane raws imported from least developed countries and is expected to be earnings accretive after the first year. Illovo delivered an excellent operating result and continues to explore the significant organic expansion opportunities available in Africa.

The profitability of our Chinese sugar businesses was severely affected by low sugar prices in the first half of the year but these saw some recovery in the second half. Profitable development of the beet sugar business in north east China is dependent on agricultural improvements and factory efficiencies which will take a number of years to achieve.

The challenges experienced by our grocery businesses last year from extreme movements in commodity costs were not repeated but were replaced instead by the pressures of trading in a recessionary environment. Although results in the first half were significantly affected by the losses sustained on high-priced US corn oil futures contracts, the second half performance was much better. There was some evidence of consumers trading down to cheaper products, but the group’s major grocery brands, particularly Kingsmill, held up well.

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