Associated British Foods : Annual Report and Accounts 2022

Invested

in our future

Annual Report 2022

CONTENTS

2022 GROUP FINANCIAL HIGHLIGHTS

AT A GLANCE

Our operating businesses

Revenue

Adjusted operating profit

Grocery

About us

Our values

Strategic Report

Group revenue

Adjusted operating profit

Our Grocery division employs more than 15,000 people and comprises brands which occupy leading positions in markets across the globe. In the UK, nine out of 10 households use our brands. Our Twinings and

£3,735m	£399m	9 out of 10
(2021: £3,593m)	(2021: £413m)	UK households use our

grocery brands

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IFC 2022 Group financial highlights IFC At a glance

£17.0bn

£1,435m

Ovaltine brands are enjoyed in more than 100 countries worldwide.

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	A
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1. Introduction
2. Chairman's statement

5 Chief Executive's statement

8	Our business model and strategy
12	Key performance indicators
14	Operating review
14	Grocery
24	Sugar

(2021: £13.9bn)	(2021: £1,011m)
Adjusted profit	Adjusted earnings
before tax	per share
£1,356m	131.1p

Sugar

AB Sugar is a leading producer of sugar and sugar-derivedco-products in Africa, the UK, Spain and north east China.

£2,016m	£162m	One of the
(2021: £1,650m)	(2021: £152m)
largest
		sugar producers

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D	w

Progressi collab

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32	Agriculture
40	Ingredients
48	Retail

(2021: £908m)

(2021: 80.1p)

in the world

See pages 8 and 9 for more on our values and how we operate.

60	Financial review
64	Section 172 and our stakeholders
69	Responsibility
83	Climate-related Financial Disclosures
	(TCFD)
94	Principal risks and uncertainties
102	Viability statement and going
	concern

Corporate Governance

1. Chairman's introduction

1. Board of Directors

1. Corporate Governance matters

1. Directors' Remuneration Report

1. Directors' Report

1. Statement of directors' responsibilities
2. Independent Auditor's Report

Dividends per share	Basic earnings
	per share
43.7p	88.6p
(2021: 26.7p ordinary + 13.8p special)	(2021: 60.5p)
Net cash before	Net debt including lease
lease liabilities	liabilities
£1,488m	£1,764m
(2021: £1,901m)	(2021: £1,380m)
Operating profit	Profit before tax
£1,178m	£1,076m

Agriculture

AB Agri is a leading international agri-food business operating across the supply chain, producing and marketing animal feed, nutrition and technology based products and services.

Ingredients

Our Ingredients businesses are leaders in yeast and bakery ingredients as well as in specialty ingredients for the food, human and animal nutrition, pharmaceutical and various other industries.

£1,722m	£47m	UK's
(2021: £1,537m)	(2021: £44m)
largest
		animal feed business
£1,827m	£159m	One of the
(2021: £1,508m)	(2021: £151m)
leading

suppliers of specialty yeast ingredients globally

132,000

employees

53

countries operated in, across Europe, Africa, the Americas, Asia

and Australia

One of the largest

54%

of our total workforce are women

84%

of our people have access to an employee assistance programme

185

food manufacturing sites globally

Financial Statements

1. Consolidated income statement
2. Consolidated statement of comprehensive income
3. Consolidated balance sheet
4. Consolidated cash flow statement
5. Consolidated statement of changes in equity
6. Significant accounting policies

177 Accounting estimates and

(2021: £808m)	(2021: £725m)
Gross investment	Financial leverage
£930m	0.8 x
(2021: £721m)	(2021: 0.7 x)

Retail

Primark is one of the largest clothing retailers in Europe, the largest by volume in the UK and has a growing presence in the US. In total, we have 408 stores in 14 countries across Europe and the US.

£7,697m	£756m	One of the
(2021: £5,593m)	(2021: £321m)	largest

fashion retailers in Europe

food producers in the UK

84%

of the waste* we generated was sent for recycling, recovery or other beneficial use

54%

of the energy we used came from renewables

judgements

178 Notes forming part of the

financial statements

1. Company financial statements

1. Progress report
2. Glossary
3. Company directory

Our brands

• A substance or material that has no further use in our main processes and requires management to discard or treat prior to final disposal.

INTRODUCTION

Invested

in our future

Associated British Foods is a highly diversified group, with a range of food and ingredients businesses as well as our retail brand, Primark. We are united in our purpose: to provide safe, nutritious and affordable food, and clothing that is great value for money.

We work hard every day to create long-term value for our shareholders and our stakeholders which include our customers, employees and suppliers.

In our Annual Report this year we highlight how we are investing in the future, so that our businesses will deliver ever more sustainable and profitable growth, even during challenging times.

Sugar silos at Azucarera's Benavente packaging centre in northern Spain

Associated British Foods plc Annual Report 2022

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CHAIRMAN'S STATEMENT

Group revenue and profit were much stronger this year than last, demonstrating that our businesses have emerged robustly from the disruption of the pandemic.

But just as we began to experience a more normal operating environment, we encountered the most challenging economic conditions for many years with sharply rising and broadly based inflation, as well as highly volatile input costs and exchange rates. We estimate that inflation increased costs across the Group by some £1bn in this year alone. The fact that the Group prospered is testimony once again to the agility and expertise of our people and to the strength of our business model.

Group revenue increased to £17bn, an increase of 22% over last year at both actual and constant currency. Adjusted operating profit rose to £1,435m, an increase of 42% at actual exchange rates and of 38% at constant currency. Adjusted earnings per share rose by 64% to 131.1p. Compared to our last pre- pandemic financial year, 2019, revenue was ahead and adjusted operating profit and adjusted earnings per share were broadly in line. The increases over last year, and the comparison to our 2019 financial year, highlight the very real progress the Group has made in the last 12 months.

Adjusted operating profit for our Food businesses was in line with last year driven by good trading, efficient operational performances, and pricing actions to recover significant input cost inflation. The year's strong financial performance was driven by much improved sales and operating profit margin at Primark which followed the removal of COVID-19 trading restrictions applied to our stores and the resumption of more normal customer behaviour. This year all our businesses experienced cost inflation across an unprecedented range of inputs. Although hard work has successfully recovered much of this cost inflation, more remains to be done.

The Group continued to invest for the long term with a gross investment this year of £930m, notably up on the £721m investment last year. This year we increased capital investment in technology and the fitout of automated warehouses for Primark, we commenced the construction of a new sugar factory in Tanzania, progressed with the construction of a state-of-the-art feed mill in Western Australia, and began a major expansion of our yeast extracts facility in Hamburg, Germany. We spent £160m on acquisitions this year, with the key additions being the life sciences company Fytexia for ABF Ingredients, and Greencoat, an animal supplement and care business for AB Agri.

A strong capital base

The Group's treasury policies maintain a strong capital base and manage the Group's balance sheet and liquidity to ensure long-term financial stability. These policies are the basis for investor, creditor and market confidence and enable the successful development of our businesses.

In February we acted to diversify our sources of funding by issuing an inaugural public bond of £400m, 2.5 per cent due 2034. The bond also served to extend the duration of our borrowings. Most of the £297m private placement notes remaining at the beginning of the financial year were repaid during the year. The Group's existing Revolving Credit Facility of £1.1bn, due to expire in 2023, was replaced in June. The new facility for £1.5bn is now free of performance covenants and runs for five years with two 1-year extension options. The Group holds an 'A' grade long-term issuer credit rating with stable outlook from S&P Global, reflecting the strength of ABF's businesses and the Group's conservative financial policy.

The Group's balance sheet was also strengthened this year by an increase in the net surplus of the Group's defined benefit schemes, driven by the UK defined benefit scheme, from £0.6bn last year end to £1.4bn this year end.

Dividends

The Board is proposing a final dividend of 29.9p a share which will be paid on 13 January 2023 to shareholders on the register on 16 December 2022. Taken with the interim dividend of 13.8p a share, the total dividend of 43.7p a share is 8% higher than the total dividend of 40.5p in 2021, which comprised an interim dividend of 6.2p, final dividend of 20.5p and a special dividend of 13.8p a share. The total dividend for 2022 is three times covered by the adjusted earnings per share of 131.1p.

Shareholder returns

Last year we set out our policies on financial leverage and capital allocation. In the ordinary course of business, the Board prefers to see the Group's financial leverage, expressed as the ratio of net debt including lease liabilities to adjusted EBITDA, to be well under 1.5 times at each half year and year end reporting date. In exceptional circumstances the Board will be prepared to see leverage above that level for a short period

of time.

Our capital allocation policy is to invest in our businesses at an appropriate pace and wherever attractive returns on capital can be generated. We continue to see considerable opportunities to do this. Nevertheless, as previously stated the Board may from time to time conclude that it has surplus cash and capital. In making this assessment, the Board will be mindful that financial leverage consistently below 1.0 times and substantial net cash balances at both half and full year ends may indicate such a surplus position. Given it is not possible to anticipate every possible set of circumstances, this policy remains subject to the Board's discretion. Surplus capital may be returned to shareholders by special dividend or share buy-backs.

At the end of this financial year the financial leverage ratio was 0.8 times and net cash balances before lease liabilities amounted to £1.5bn.

Looking ahead, economic conditions are challenging and the outlook for consumer discretionary spending may well prove to be weak in the near term. However, the Group continues to trade robustly and our businesses are well invested and offer competitive products to customers. The Food businesses occupy positions of strength in their markets and have a pipeline of development opportunities ahead. With Primark stores open and trading, its cash flows are strong. The Group also benefits from considerable financial strength attributable to its strong cash generating capability and its effective management of cash, which result in a steady reduction in financial leverage over time.

By contrast, the value attributed by the financial markets to the Group's share capital has fallen considerably this year.

Taking into account all these factors, including the Group's policies on leverage and capital allocation, the Board has decided not only to declare a final dividend but also to commence a share buyback programme of £500m. At yesterday's market close, this buyback programme represents approximately 4.7% of the issued share capital of the Group with our intention being to complete it within this financial year. Shares bought back will be cancelled.

The Board views the share buyback as an investment, rather than simply a return of capital, with both the size and timing of the programme now considered to be appropriate for the delivery of value to shareholders whilst at the same time, continuing to leave appropriate scope for both organic and inorganic investment opportunities. The Board will continue to review the availability of surplus cash and capital at each half year and financial year end, in accordance with the Group's policies on financial leverage and capital allocation.

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Associated British Foods plc Annual Report 2022

Associated British Foods plc Annual Report 2022

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CHAIRMAN'S STATEMENT continued

Our commitment to ESG

This year the Group continued to make further significant and wide-ranging progress in its environmental, social and governance activity.

In May we presented to investors the environmental factors which are most material for our businesses. With regard to greenhouse gas emissions, our focus has been on delivering on our 2030 commitments, but we are also intent on achieving net zero by 2050 or potentially sooner. Some 54% of the Group's total energy needs are already met from renewable sources which are mostly from bio-massby-products in our Sugar businesses; furthermore, we highlighted that our Sugar businesses provide co-products that in turn are critical feedstock for other important industries.

Inflation is most onerous to people on lower incomes. We take the wellbeing of our people seriously. Across the Group our businesses are taking steps to mitigate wherever possible these higher living costs. In the UK we have delivered several initiatives to support our people. These include differentiated salary increases, so that those on lower incomes have higher increases, short- term financial support, benefits hubs offering discounts on goods including groceries, and other measures. The detail of this support varies by business and country, as we are a decentralised group, but the principles are clear and our businesses across the world are adopting a similar approach.

Progress on ESG must be owned by management at all levels, starting with the most senior. Effective from the 2022/23 financial year, 15% of the short-term incentive opportunity for the Chief Executive and Finance Director will be linked to ESG priorities including those that are climate-related.

Looking ahead, we recognise that there is likely to be further significant regulation and legislation from governments to drive ESG progress and bring transparency to related corporate activity. Whilst we will of course comply with all new requirements, our focus will be on actions which make the most material difference.

Our latest Responsibility Report is issued with this Report and it details the large number of actions being taken across the Group. It can be found on the Group website.

Board

I have only one instance of succession planning to report this year, but it is unusually noteworthy. In July we announced that John Bason would be stepping down as Finance Director of the Group, and from the Board on 28 April next year after a long and distinguished period of service. John took up the post of Finance Director in May 1999 and his tenure has been marked by clear analysis, excellent judgement and tireless commitment to the Group. On behalf of the Board I would like to place on record our deep gratitude for his exceptional contribution. I am delighted that we are retaining John's experience and expertise in Primark where he will become Senior Advisor and Chairman of the newly constituted Strategic Advisory Board from May next year. In his place we welcome Eoin Tonge from Marks and Spencer Group Plc where he is currently Chief Financial Officer and Chief Strategy Officer. Eoin was previously Chief Financial Officer of Greencore Group plc and so importantly he has experience of both food and retail industries. He will join the Board no later than February 2023 and I am confident that he will make a strong contribution.

Executive remuneration

The Remuneration Committee has carried out its triennial review of the Group's remuneration policy. The key change is the proposal to replace the current long-term incentive plan for the Group's senior management, including the executive directors, with a restricted share plan starting in the 2022/23 financial year. Full details of the proposal are set out in the report of the Remuneration Committee.

Her Majesty The Queen

On the death of Her Majesty, George Weston, Chief Executive, issued the following statement: "It is with the greatest sadness that we note the news today of the death of Her Majesty The Queen. Her Majesty worked consistently to bring peoples from different nations and cultures together and she personified so many of the best human values. With businesses in 53 countries around the world including in 20 Commonwealth nations, we at ABF place on record our gratitude for all she has done to promote a sense of shared humanity and purpose."

Our employees

In the first half of this year our businesses had to contend with considerable disruption from the pandemic, and the second half of the year saw the emergence of high inflation and volatile prices. I would like to thank our people for the way in which they responded to the many challenges of the year in a fast-changing business environment. The skills and professionalism of our people continue to impress me hugely.

Looking ahead

The Group continues to face considerable headwinds from high inflation, particularly in energy costs, volatile exchange rates and pressure on consumer discretionary spending. However, I remain confident that the Group has the business model necessary to deliver a year of resilient performance with further growth in sales.

We look forward to Primark's accelerated rollout of stores, especially in the United States, and to further digital development including the launch of the new Click and Collect trial in stores in the north of England and Wales. Our Food businesses continue to plan to recover rising input costs both through pricing and efficiency improvements, to launch new products and to invest in brand development.

In a Group as diversified as this, there are no shortages of opportunities: we shall continue to invest wherever and whenever our return thresholds can be met.

Michael McLintock

Chairman

CHIEF EXECUTIVE'S STATEMENT

Farewell to John Bason

Usually we say our thank yous at the end of updates on events of the year. That can make them seem like an afterthought and I don't want to run the risk.

These are the 23rd and last full year report and accounts for a year during which John Bason has been our Finance Director. He will step down in April next year.

Sometimes when you announce someone's departure their authority drains away and sometimes their interest also. If you thought that was a risk with John, then you really don't know him. He is an extraordinary and unignorable bundle of energy, enthusiasm and passion. Those alone would have made him an outstanding steward of this company, but they are only the start.

Diversified companies need two things in particular from their finance department. First, they need rock solid, accurate and timely financial reporting. John has always ensured ABF has that. The finance systems, and the culture of accurate, unvarnished reporting of numbers exist because John always knew that we had to have both.

But secondly a diversified company must have at its centre people who can exercise good judgement around capital allocation. There is a capital discipline which John created and which we all employ and which is now embedded in ABF's DNA. But processes are no substitute for just getting decisions right and John's judgement has always been masterful. Many thousands of requests for capital have come across his desk and he has made precious few mistakes assessing them.

But finally all companies also need the finance director to work well with the chief executive. John has been a wonderful co-conspirator who has given me precious counsel, thoughtful reflection, constant support and the occasional clip around the ear, throughout my time as chief executive and I will always be in his debt.

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Associated British Foods plc Annual Report 2022

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