Chief Executive's statement

This was another year of progress for the group. Revenue increased by 9% to £11.1bn and adjusted operating profit was 1% ahead of last year at £920m.

These results were achieved in a difficult trading environment which was characterised by substantial increases in many of our commodity costs and a weakening of consumer demand in developed markets as disposable incomes reduced.

There were a number of highlights this year. AB Sugar achieved a significant improvement in profit driven by our Chinese and Iberian businesses and AB Agri had another record year. In Grocery, Twinings and Ovaltine achieved excellent revenue growth and Jordans Ryvita and AB World Foods delivered on the investment in recent years with growth and much improved margins. Like-for-like sales growth at Primark was notable when most of its high street competitors showed a decline. Our investment across the group was substantial this year with a number of projects completed or expected to complete next year.

We have made a major investment in our sugar businesses in recent years with the acquisition of Azucarera in Iberia, the development of our presence in China in both cane and beet sugar and capacity expansions in Illovo. It is pleasing to report the growth in profit for this group, now named AB Sugar, driven by our investment in Azucarera and in China. In the UK, British Sugar worked hard to meet its supply obligations, albeit at some cost, after the production shortfall arising from the effects of the harsh winter on the beet crop. Looking ahead, the combination of an increase in production, a further improvement in our operations and higher sugar prices are expected to benefit our business.

Grocery’s major challenge during the year was the mitigation of the effects of rising commodity costs and consumers seeking ever better value. All of our businesses improved their consumer offering and management has delivered on investments made in recent years, contained costs and achieved price increases. The reported reduction in profitability in Australia was, however, a major disappointment. To address this we have appointed a new management team and a programme of cost reduction and the full commissioning of the meat factory will be their focus for the coming year.

Our increased investment in Primark this year demonstrates our commitment to support the continued growth of this business. Much attention has been paid to the effects of the increase in input costs, especially cotton, during the year. The decision to maintain our value position on the high street, even at the expense of margin, has proven to be successful and the achievement of like-for-like sales growth of 3% and growth in market share in a challenged consumer environment is a demonstration of this. Some of these cost pressures are now reducing. Our experience in continental Europe continues to be encouraging both in terms of strong consumer demand and selling space expansion and gives us confidence for future growth.

The combination of higher input costs and increased competition for yeast in some parts of the world contributed to a decline in margin for Ingredients. We remain committed to our investment in building capacity, with new factories being constructed in China and Mexico, and in developing a sharper and more differentiated offering for both yeast and bakery ingredients. Profit improvement is expected as molasses costs begin to subside in some of our markets.

Net capital investment in the group was £825m this year which included a much higher level of expenditure for Primark on new stores, and on the refit and extension of existing stores, as we increased the retail selling space by 12% on what has become a substantial estate. Our development in continental Europe gathered pace and there was a 10% increase in the UK. Elsewhere we completed major projects for yeast at Harbin in China, an increase in sugar capacity in Swaziland and in efficient production at Allied Bakeries. In the coming financial year we will see the completion of the Vivergo bioethanol plant in Hull and of the commissioning of the meat factory at Castlemaine in Australia. Looking forward investment in Primark is expected to continue at least at these levels but with some reduction in the level of expenditure in the rest of the group.

Summary

Operating profit improved as our businesses overcame the challenges of high commodity cost inflation and weaker consumer demand. Further substantial investment saw the completion, or near completion, of a number of major capital projects and a sizeable increase in the Primark estate. Opportunities for further investment are exciting, particularly in Primark, and the strength of the group balance sheet and a strong cash flow will enable us to pursue them with confidence.

George Weston
Chief Executive