Chairman's statement
"Good results, and especially those achieved in difficult trading conditions, are not delivered by chance. They are the consequence of the hard work and enterprise of our employees."
CHARLES SINCLAIR
CHAIRMAN
A year ago we could not have forseen the extraordinary world events that would unfold or the impact that they would have on even the most stable economies.
That the group has been able to deliver 9% sales growth and adjusted earnings per share 2% ahead of last year’s 53 week period is testament to the strength of our businesses and the exceptional efforts made by our employees.
Substantial inflation in commodity costs during the year, particularly cotton, wheat, vegetable oil, molasses and energy, presented our businesses with challenges. The impact on margins in Grocery were mitigated in most part through price increases and by extensive management action to drive efficiencies through reduced energy consumption, reformulated recipes and packaging, and better distribution. Primark’s determination to offer the best value clothing on the high street led to its decision not to pass on the full effect of cost increases to customers and understandably this reduced margins. Competitive pressures prevented AB Mauri from recovering its higher costs in Europe and the US.
Some businesses benefited from high prices and volatile markets however. World sugar prices have been at 30 year highs for most of the year, enabling AB Sugar to deliver a record profit and more than offset the higher costs associated with weather-related production shortfalls in the UK and Africa. Volatile wheat prices throughout the year created exceptional grain trading opportunities for Frontier which, together with growth in speciality feeds and nutrition, contributed to AB Agri also delivering a record profit.
The last few years have seen intensive capital investment in the food businesses with a number of new and expanded factories already in production which are expected to deliver improved profitability in the coming year. 2012 will see completion of two of the group’s most ambitious investments to date: the new meat factory in Castlemaine near Melbourne in Australia and Vivergo’s wheat bioethanol plant being constructed in Hull. We expect this level of investment to moderate and, in the near term, a greater proportion of our expenditure will therefore be on new stores for Primark. Cash flow from operations will strengthen further as a consequence.
Corporate governance has continued to evolve over the past year and emerging practice has remained a regular subject for discussion at the board. We have always sought to run our business in a responsible way, recognising that good corporate governance supports the long-term health of the group. The board also recognises the importance of its stewardship responsibilities including its role in setting the values which underpin our group culture.
Our governance reporting obligations are defined by the updated Combined Code, renamed in June 2010 as the UK Corporate Governance Code. We fully support the new Code and the direction in which it is taking the practice of good governance in the UK and, in particular, the emphasis placed on the board’s responsibility for providing the leadership necessary for long-term success. I am also mindful of my personal responsibility as Chairman to lead the board and to ensure that it is working effectively. This year’s board evaluation process was undertaken with the Financial Reporting Council’s guidance on board effectiveness very much in mind and we took a close look at how we might develop further.
The new Code also prompted us to re-examine our governance procedures including a review of the matters reserved to the board and the terms of reference of its committees. We have followed the debate on the annual election of directors with interest and will be adopting this practice, with all of our directors standing for re-election at this year’s annual general meeting.
We very much welcome the publication, in February, of the Davies Review of Women on Boards. We recognise the benefits of diversity throughout the business, including gender diversity, and we employ many senior female managers across the group including, importantly, in operational areas.
The issue of gender diversity at board level is of unanimous concern and was a specific issue considered during this year’s board evaluation process. Both as a business and a board, we will continue to appoint on merit but it has now been agreed with the Nominations committee that we will ask executive search agencies to ensure that half of the candidates they put forward are women.
We have a gender diversity task force with representation from across the group’s businesses, the aims of which are to increase the visibility of, and opportunities for, women at all levels of seniority, and to encourage them in their development.
For a number of years the Company has not been required to issue a printed copy of its interim results but has chosen to do so for the convenience of those shareholders who do not have easy access to the internet. It is clear that this practice is now out of step with the vast majority of leading FTSE companies and therefore, from 2012 onwards, a hard copy of the interim results will no longer be sent to shareholders. Our results will be disseminated to the stock market by way of a Stock Exchange announcement and will be published on the Company’s website (www.abf.co.uk). A hard copy of the announcement will be made available upon request to the Company Secretary’s office.
After 47 years as a director on our board, Galen Weston has decided that he does not wish to stand for re-election at the forthcoming annual general meeting. When he joined the board in 1964, serving under his father Garfield, the group’s revenues were £260m and profit after tax was £8m, derived largely from milling and baking operations in the UK, Australasia and South Africa. During a remarkable period in the group’s evolution Galen has provided sound guidance and support, and his contribution has been greatly valued.
Good results, and especially those achieved in difficult trading conditions, are not delivered by chance. They are the consequence of the hard work and enterprise of our employees who, for the first time, exceed 100,000 in number this year. On behalf of shareholders, I thank them all for their efforts and the success they have achieved in the past year.
A final dividend of 16.85p is proposed, to be paid on 13 January 2012 to shareholders on the register on 9 December 2011. Together with the interim dividend of 7.9p paid on 8 July 2011, this will make a total of 24.75p for the year, an increase of 4%.
The outlook for economic growth in developed economies around the world is subdued and we believe will remain so in the medium term. We expect continued pressure on consumer disposable incomes. However, commodity costs appear to be subsiding although the effect of forward purchasing means that the benefits to the group will not be felt immediately and, in the case of Primark, not until the beginning of the new calendar year. Improved sugar pricing is expected to benefit AB Sugar in the coming year and we have made a good start to this year’s production campaigns in the northern hemisphere. The group is also expected to benefit from the returns on recently completed capital investments. As a result we expect growth in sales and adjusted operating profit in the coming year, with the profit improvement weighted towards the second half.
Charles Sinclair
Chairman