AB Foods Regulatory News (ABF)

For release 8 November 2016

Associated British Foods plc results for 53 weeks ended 17 September 2016

Adjusted earnings per share 5% ahead

Financial Headlines

George Weston, Chief Executive of Associated British Foods, said:

"This has been a year of progress for all of our businesses with a substantial expansion in Primark's selling space, increased margins in all of the food businesses and fundamental structural changes at AB Sugar. The recent decline in the value of sterling presents both benefits and challenges to the group. The diversity of our operations and our broad geographical footprint, combined with a strong balance sheet, equip us well to take advantage of these opportunities as they arise."

For further information please contact:

Until 15.00 only

Associated British Foods:

John Bason, Finance Director

Flic Howard-Allen, Head of External Affairs

Tel: 020 7638 9571

Citigate Dewe Rogerson:

Chris Barrie, Eleni Menikou

Tel: 020 7638 9571

Jonathan Clare

Tel: 07770 321881

After 15.00

John Bason, Finance Director

Flic Howard-Allen, Head of External Affairs

Tel: 020 7399 6500

Notes to Editors

Associated British Foods is a diversified international food, ingredients and retail group with sales of £13.4bn and 130,000 employees in 50 countries. It has significant businesses in Europe, southern Africa, The Americas, Asia and Australia.

Our aim is to achieve strong, sustainable leadership positions in markets that offer potential for profitable growth. We look to achieve this through a combination of growth of existing businesses, acquisition of complementary new businesses and achievement of high levels of operating efficiency.

ASSOCIATED BRITISH FOODS plc

ANNUAL RESULTS ANNOUNCEMENT

FOR THE 53 WEEKS ENDED 17 SEPTEMBER 2016

CHAIRMAN'S STATEMENT

This has been a year of progress for the group with revenues 5% higher than last year, adjusted operating profit ahead by 3% and earnings per share up by 5% to 106.2p. Gross investment was significant this year at just over £1bn which included capital expenditure increases both for Primark and the food businesses and the £247m consideration to acquire the minority shareholdings in Illovo Sugar Limited. This was funded by another strong cash flow and was the fifth consecutive year of operating cash generated in excess of £1bn. Although net debt at the year end was higher than last year, this was after the buyout of the Illovo minorities and a £53m increase attributable to the effect of translating foreign currency denominated net debt at weaker sterling exchange rates.

One of our group's great virtues is the way that it embraces change so positively and this year has provided plenty of opportunity for our businesses to demonstrate this. Whether responding to challenging financial markets; integrating acquired businesses; disposing of businesses; dealing with the effects of unusual weather on our supply chains or retail demand; advancing technology or changing legislation, our people have responded with enthusiasm.

The sugar industry has seen much change, not least in Europe as it has prepared for regime reform in 2017. However, 2016 will be seen as something of a turning point for AB Sugar. The profit decline of recent years has been arrested as EU and world sugar prices turned upwards and our performance improvement programme, which had already yielded substantial benefits, delivered further cost reduction and efficiency gains which have underpinned our credentials as a low-cost producer. Moving to full ownership of Illovo, at a time when increasing populations and rising incomes are driving growth in the African sugar market, is expected to accelerate its performance improvement and commercial development. We have also announced the sale of our south China cane sugar operations with completion expected later in this calendar year. We first entered the Chinese sugar market in 1995 and since then have substantially improved agricultural productivity, factory extraction and sugar yields. However, further improvements are likely to be driven by industry consolidation and we believe that other parties are better placed to take the business forward. Our beet sugar business in north east China is at an earlier stage in its development and we believe we are well positioned to take advantage of the opportunities this presents.

Cost reduction was a driver of the continued recovery of the yeast and bakery ingredients business which was the major contributor to the 22% growth in adjusted operating profit from Ingredients this year. Grocery and Agriculture both achieved further margin improvement despite the challenges for revenue growth presented by commodity price deflation. Since the year end we have announced the sale of ACH's herbs and spices business in North America with completion expected shortly. Whilst this has been a good investment over the years, it is a complex operation which occupies a niche position in its market and we believe its further development will best be achieved through consolidation with another party.

Primark's development continued apace with a further 1.2 million sq ft of selling space opened during the year. Ten years ago Primark opened its first store in Spain - the first time that it had ventured outside the UK and Ireland. Since then it has expanded into a further eight countries and has achieved a fivefold increase in retail selling space. This pace of development is set to continue with an extensive schedule of new store openings planned for 2016/17. That new store openings are still greeted with enthusiasm by our customers says much for the capability of our buyers and merchandisers who ensure that Primark remains at the forefront of fashion, but is also the result of our store designers making Primark an attractive and fun place to shop.

Corporate responsibility

Having provided an update on corporate responsibility in each of the last two years we have, today, published a full report for this year. The priorities of our businesses remain largely unchanged with a continued challenge to reduce the environmental footprint of our operations and improve the safety of our sites. We remain committed to being a good neighbour and supporting the communities where we operate. For the first time, we have sought to quantify our social impact in order to show the benefits of our collective endeavour on the lives of our people, suppliers, neighbours and customers. A copy of the report is available for download at www.abf.co.uk/responsibility.

Remuneration

As noted in the Remuneration report last year, we have undertaken a complete review of the group's incentive arrangements during the course of this year and a number of changes are proposed to improve alignment with shareholder interests.

The board

Tim Clarke and Javier Ferrán have each completed more than nine years' service as directors of the Company and, in accordance with the UK Corporate Governance Code, the rest of the board must now confirm their independence annually. This having been done, we are delighted that both Tim and Javier have agreed to continue as members of the board and Tim will continue as the Senior Independent Director.

Peter Smith retired as a non-executive director of the Company in April having served nine years as a member of the board. I would like to thank Peter for the significant contribution he made during his tenure as a director and chairman of the Audit committee.

In April we welcomed Richard Reid to the board as a non-executive director and chairman of the Audit committee. Richard was formerly a partner at KPMG LLP, having joined the firm in 1980. From 2008 he served as London Chairman until he retired from the firm in September 2015.

Employees

Whenever I visit our operations around the world I am regularly reminded of the enthusiasm with which our employees undertake their responsibilities, their commitment to improving performance and their willingness to embrace change. I would like to thank them for their achievements this year which contributed greatly to the group's continuing success.

Dividends

I am pleased to report that a final dividend of 26.45p is proposed, to be paid on 13 January 2017 to shareholders on the register on 16 December 2016. Together with the interim dividend of 10.3p paid on 1 July 2016, this will make a total of 36.75p for the year, an increase of 5%.

Outlook

We expect the expansion of Primark's selling space to continue in all of its major markets. AB Sugar will benefit substantially from this year's increase in sugar prices and from reductions in its cost base. Grocery, Ingredients and Agriculture are expected to make further progress.

Assuming a continuation of current exchange rates, and following the significant devaluation of sterling, we expect group earnings to benefit from the translation of overseas profits. However, as Primark buys much of its merchandise in US dollars and sells in the UK in sterling, there will be an adverse effect, in the year, on its UK margins.

Taking all of these factors into account, at this early stage, we expect progress in adjusted operating profit and adjusted earnings for the group for the coming year.

Charles Sinclair

Chairman

CHIEF EXECUTIVE'S STATEMENT

I am pleased to report that group revenue increased by 5% to £13.4bn and adjusted operating profit of £1,118m was 3% higher than last year.

AB Sugar made a number of fundamental structural changes this year which will lead to a higher and more sustainable profit. Specifically, all of its operations delivered substantial cost reductions through performance improvement and capital investment; the sale of its cane sugar operations in south China will improve margins; and the move to full ownership will accelerate Illovo's commercial development and profit growth. There has also been an emphasis this year on working closely with growers, key members of our supply chain, to maximise efficiency and underpin our growth aspirations.

As a responsible business, AB Sugar contributes actively to the debate concerning the role that sugar can play as part of a healthy balanced diet with its Making Sense of Sugar campaign. We believe it is important to recognise that there is no single response to tackling obesity. We are committed to playing our part in finding solutions that heighten people's awareness of the calories they are consuming, whether in sugars or other food ingredients, through a combination of educational and regulatory measures.

Ingredients achieved a strong profit and margin increase driven by a further recovery in AB Mauri, our yeast and bakery ingredients business. AB Agri delivered a resilient performance with its strategy of expanding the value adding elements of its business, particularly internationally. Grocery achieved revenue growth against a background of food commodity price deflation and margin increased again with an improvement in George Weston Foods in Australia, particularly at the Don KRC meat business which generated a profit.

The strong expansion of Primark's selling space continued this year and a further 1.3 million sq ft is scheduled for next year. We were encouraged by the trading at our first store in Italy and by our five stores in the US. We now have a better understanding of what appeals to our American customers and are gaining valuable insights into store location. This was a challenging year for clothing retailers with market value declines seen in most countries in Europe. It is therefore a testament to the strength of Primark's customer offering that it increased its share in all of its major markets. The devaluation of the euro against the US dollar in 2015 put pressure on margins in this financial year and sterling's recent devaluation against the US dollar will have an impact in the coming year. Primark's commitment to maintaining its leadership position in the value sector of the clothing market has been our priority and I am pleased with the efforts of our buyers to significantly limit the profit impact of euro weakness in the financial year.

Implications of the EU referendum

ABF is an international business with diverse interests across 50 countries and has a business model that, wherever possible, aligns food production with the end markets for its products. Primark operates discrete supply chains for its stores in each of the UK, US and eurozone and as a group we undertake relatively little cross-border trading between the UK and the rest of the EU.

The referendum on the UK's continued membership of the EU has created some short-term uncertainties including a decline in the value of sterling. However, changes in legislation and trade agreements, particularly in the areas of trade tariffs and UK agricultural policy have the potential to benefit the group, and the current level of sterling offers UK food producers significant opportunities to replace imported food and build export markets. We are therefore engaging with a number of UK Government departments to ensure that the full range of opportunities and risks, as they affect ABF, are recognised.

OPERATING REVIEW

GROCERY

Adjusted operating profit increased by 7% with a further improvement in margin. Revenues were also ahead, including the benefit of a 53rd week but were again held back by commodity price deflation.

Twinings Ovaltine had another good year led by Twinings in Australia and the US and a return to growth for Ovaltine in Thailand. Continued support for the brand through television, digital and print advertising drove a further increase in Twinings' UK value market share following the brand's relaunch last year. Twinings is the clear market leader in Australia, where the breakfast range was relaunched during the year, and the successful 'Tealand' television advertising campaign, which has driven further growth in Italy, has recently been rolled out in France and Japan. Sales of Ovaltine in Thailand increased and, with less sold on promotion, there was also some margin improvement. Brand extensions drove growth in Switzerland and some of these lines now have wider geographic distribution achieving particular success in Germany.

Revenues at Allied Bakeries were ahead this year driven by a substantial increase in Kingsmill volumes. A further strengthening of relationships with major customers saw the business win The Grocer magazine's 'supplier of the year' award for the second year running. Our premium brands, Allinson and Burgen also performed well with notable success for Allinson Seeded and Seeded Wholemeal variants. The continued growth of Kingsmill Sandwich Thins led to investment in a second production line which came on stream in the Stockport bakery in April, providing a platform for further innovation.

Silver Spoon gained new contracts and benefited from a relaunch this summer, but low retail sugar prices maintained pressure on margins. Wider distribution and a targeted home-baking marketing campaign drove an increase in Billington's revenues, and Allinson maintained its position as the UK's leading bread flour brand. The full integration of Dorset Cereals with Jordans and Ryvita has now delivered the expected savings in operations, logistics and procurement. International expansion drove excellent growth for Jordans and Dorset, which also increased their UK market share. The Jordans Farm partnership, launched late last year in conjunction with LEAF (Linking Environment and Farming) and the Wildlife Trust to improve sustainability and biodiversity on the farms of our oat suppliers, has received widespread recognition within the industry. Ryvita lost crispbread sales in a very competitive UK market although its relaunch this year and a new portion pack format has slowed the rate of decline.

Revenues at AB World Foods were level with last year. Patak's and Blue Dragon achieved growth in their important markets of Canada and the UK where both brands strengthened their market-leading positions, but Patak's faced a more challenging competitive environment in Australia. Westmill had a good year across most segments with a particularly strong performance in noodles where Lucky Boat achieved good growth. Spices and microwaveable rice both delivered volume and value growth but the proliferation of low cost basmati rice brands put pressure on sales and margin of our products.

Operating profit for our grocery businesses in North America was ahead of last year. Stratas Foods, our commodity oils joint venture, performed strongly. At ACH, Mazola oil revenues were marginally below last year despite distribution gains, as pricing remained under pressure from competing vegetable oils which had a raw material cost advantage throughout the year. Mexico's results were disappointing as unfavourable exchange rate movements and competitor pricing pressure reduced volumes and margin. Since the year end we have reached agreement to sell ACH's North American herbs and spices business including the Tone's, Spice Islands and Durkee brands, the licence for Weber seasonings, and a manufacturing facility in Ankeny, Iowa. The transaction has now received clearance from the anti-trust authorities and completion, with a cash consideration of $365m, is expected in mid-November. As a consequence of the sale, ACH has announced the rationalisation of its remaining overheads with the result that we expect a minimal effect on its adjusted operating profit in the new financial year.

Adjusted operating profit and margin both increased at George Weston Foods in Australia. The Don KRC meat business generated a profit with a return to more normal bought-in raw material prices, good volume growth and production efficiencies. Continuous improvement at the Castlemaine factory remains a management priority with further opportunities identified. Last autumn's Tip Top relaunch was well received by customers and the trade, and bread and breakfast bakery both performed well. The brand is committed to innovative new product development with Café Brioche style fruit bread launched in Australia during the year and Tip Top Extra Protein distributed across Australia and New Zealand.

SUGAR

Our reported revenue and adjusted operating profit for AB Sugar for the period were in line with last year, and substantially ahead at constant currency as a result of the weakness of the African currencies.

A reduction in EU stock levels and an increase in world sugar prices resulted in a strengthening of European sugar prices. This benefited our Spanish business in the year but, with most of British Sugar's contracts agreed on an annual basis, no material impact on its results from the improvement in pricing will be seen until the 2016/17 financial year. All of our sugar businesses delivered substantial cost reductions again this year through a combination of continuous improvement, business transformation, capital expenditure and procurement activities.

In June, we completed the buyout of the minority interests in Illovo Sugar Limited for a purchase consideration of £247m. Africa is a growth market for sugar, driven by increasing populations and rising incomes and, with AB Sugar's strong track record of commercial development and delivery of performance improvement, full ownership will accelerate Illovo's progress. In order to align Illovo's financial year end more closely with that of the group, Illovo's results will now be consolidated for the year to 31 August. These results therefore include Illovo's revenue and profit for an 11 month period. They also reflect a change in accounting policy for the valuation of Illovo's sugar cane roots in line with an amendment to IAS 41 which now permits the valuation of such assets at cost less accumulated depreciation. The cane roots adjustment had the effect of reducing adjusted operating profit by £8m this year, with a restatement of the adjusted operating profit for 2015 to reduce it by £10m.

UK sugar production for the 2015/16 year was just short of 1.0 million tonnes, as planned, with a return to more typical beet yields and a smaller contracted growing area designed to reduce excessive stocks from the prior year. Above average rainfall in June slowed the growth of the new crop for the 2016/17 season and, combined with a further small reduction in the contracted area, we expect a further reduction in sugar production next year. Delivered beet costs for the 2016/17 campaign will be lower than this year.

The end of the EU sugar regime in October 2017 represents an opportunity for British Sugar to increase its sugar production and it is working with growers to restore beet supplies to more normal levels in 2017/18. This is the first crop for which growers will be able to choose between one and three year deals, both of which will have bonuses linked to the sugar sales price. This is designed to strengthen the partnership with our farmers and underpin British Sugar's competitive position.

During the year, British Sugar completed a £15m investment in an anaerobic digestion plant at the Bury St Edmunds factory. This new facility will consume some 100,000 tonnes of pressed sugar beet pulp as a feedstock and will generate five megawatts of electricity for export to the national grid. This investment will reduce our carbon emissions and our energy consumption by avoiding the need to dry the pulp and by eliminating the transportation of it for animal feed.

In Spain, the operating result improved significantly with the benefit of lower beet costs, higher beet sugar production and better pricing. Total production for the year is estimated to be 474,000 tonnes of which 449,000 tonnes was from beet and 25,000 tonnes was from raw sugars co-refined in the beet factories in the north.

Beet sugar in north China made a small profit with the benefit of increased production to 159,000 tonnes and record operating performances at both factories. In the south, our cane sugar factories operated at a much lower level than last year and sugar production reduced to 284,000 tonnes mainly as a result of poor sugar content. On 12 September we reached agreement to sell our cane sugar business in south China to a consortium led by Nanning Sugar, a leading producer in the region which has the support of the Guangxi government. Upon completion of the transaction, which is subject to third party consents and regulatory approvals, we will receive consideration for our shareholdings in the business together with the repayment of related loans.

Illovo production was lower than last year as a result of severe drought. However, an improved sales mix and further cost savings across the business contributed to an increase in full year profit. With the exception of Tanzania, all of Illovo's countries of operation experienced substantial currency devaluations during the year but, despite the pressure this placed on consumers and on production costs, Illovo maintained its margin development through a combination of price increases and benefits delivered by the performance improvement programme. The new refining and sugar conditioning facility at the Nakambala plant in Zambia was commissioned in July 2016, is now fully operational, and is a key step in broadening our product range to meet the demands of a fast developing domestic market.

Good progress was made this year by Vivergo Fuels which increased throughput in the bioethanol plant, although achieving operational reliability remained challenging. An improvement in the operating result was driven by better margins with the benefit of lower wheat prices and higher EU bioethanol prices. The UK Energy & Climate Change Select Committee recently issued a report recommending a proposal to increase the bioethanol inclusion in road fuel from the current level of 5% to 10%. We believe this is the only practical next step towards achieving the UK Government's previously agreed 2020 renewable obligation for transport fuel in the near term, and would bring the UK into line with the US, Brazil, France and Germany.

AGRICULTURE

UK agriculture faced a number of challenges this year and in that context AB Agri performed well, delivering an adjusted operating profit just below last year but with a higher reported operating margin. Good results from the specialist businesses and a strong finish by Frontier Agriculture were more than offset by lower UK feed profits.

The UK dairy market saw continued price pressure resulting from global oversupply, and pig prices fell to their lowest level for a number of years. Against this background our UK pig starter feed business had a strong year but the smaller UK sugar beet crop resulted in less beet feed availability which adversely affected revenue and profit at AB Connect, our UK feed business.

AB Agri has a strong tradition of seeking ways of extracting value from feedstock materials and has entered the specialist anaerobic digestion (AD) products and services sector this year. A new business was created to market a range of specialist vitamin and mineral packs, and a nutritionally balanced, blended food-waste product for use as the feedstock for AD plants. We have built an AD plant in Yorkshire, due to be commissioned before the end of the calendar year, which will enable us to promote our nutritional, operational and product expertise in this developing market.

Frontier Agriculture achieved record grain procurement volumes from farms and benefited from strong grain exports in the second half of the year. The creation of a strategic alliance with a major UK fertiliser manufacturer and the acquisition of a bio-stimulant specialist will further strengthen Frontier's crop inputs business.

The pace of development of our international operations has increased. AB Vista, our animal nutrition and technology business, achieved further volume and market share growth driven by strong sales of its two leading feed enzyme products, Quantum Blue and Econase XT. We have developed our pig starter feed business in Spain and the recent acquisition of Agro Korn in Denmark provides an exciting platform for further growth in specialist proteins for pigs, calves, poultry, fish and pets.

AB Agri China enjoyed a good year due to its continued focus on sales into the fast growing larger-farm sector and the development of its service business aimed at integrated international livestock producers. These relationships, supported by the construction of a new pre-mix feed mill which will provide an assured source of high-quality feed and is due to be completed next spring, will further differentiate our feed business in China.

INGREDIENTS

Ingredients' revenues were 4% ahead of last year and operating profit was again substantially ahead with a further improvement in margin.

AB Mauri, our bakery ingredients and yeast business, delivered a third year of significant profit recovery with The Americas being a major contributor to its success. In North America, new bakery ingredient products targeted at the faster growing market segments, such as tortillas and flatbreads, were well received. A robust performance in Latin America, despite continuing economic difficulties, was driven by higher output from the yeast factory in Veracruz and strong operational execution.

A focus on the development of new products to meet changing consumer tastes included the creation of organic bread ingredient solutions and a range of natural ferments and flavours. We also successfully introduced new shelf-life extension products aimed at reducing food waste in the supply chain.

We made further progress in China this year including the rationalisation of production facilities with the closure of our old factory site at Harbin. In the rest of Asia good revenue growth drove higher profit and further factory optimisation initiatives drove efficiencies in manufacturing operations.

A key driver of the development of the business has been the recent investment in the US and UK Centres of Excellence. Opened in November 2015 in response to customer requests for support in developing their products, the UK facility in Corby, Northamptonshire provides an opportunity for customers to access the latest innovations in bakery development. This mirrors the successful US bakingHUBtm which was opened in January last year in St Louis, Missouri. Expansion of the bakery ingredients research and development centre in the Netherlands will be completed next year.

ABF Ingredients made further progress with margin improvement driven by lower raw material costs and tight control of overheads. Our speciality lipids business, Abitec in North America, had an excellent year with increased sales in human nutrition applications for cognitive health and weight management, and success for its range of products designed to enhance bioavailability of molecules in pharmaceutical and nutraceutical applications.

Yeast extracts came under some price pressure in the more mature European and North American markets but the effects were, in part, mitigated by tight cost control. Sales of SPI's excipients and drug delivery solutions increased in line with market growth for pharmaceutical reformulations and, at PGPI, the cereal crisp extrusion business continued to develop, fuelled by the consumer trend for healthy snacking.

Our range of bakery enzymes was extended during the year with a number of new product launches including a new glucose oxidase enzyme for the bakery sector. Increased sales into the detergent sector were driven by a focus on the speciality enzymes segments and a broadening of our customer base. The food enzyme business in South America and Asia was also expanded with a particular emphasis on bakery. Expansion of the enzymes plant in Finland is on schedule for completion next year.

RETAIL

Sales at Primark were 9% ahead of last year at constant currency driven by a weighted average increase in selling space of 9% with a much higher proportion of this year's new store openings being in the second half. Revenue benefited by two percentage points from the 53rd week this year. Unseasonable weather and cautious consumer sentiment led to value declines in the clothing retail sector in some of our important markets, particularly the UK and Germany. Warm weather in the pre-Christmas period was followed by a very cold March and April. Like-for-like sales were 2% negative overall. The UK like-for-like performance was in line with this but Ireland delivered a strong sales performance throughout the year, Spain, France and Austria traded well and the Netherlands and Germany were less affected by cannibalisation as the year progressed. As a result of the weakening of sterling, sales were 11% ahead when translated at actual exchange rates.

The operating profit margin reduced from 12.6% to 11.6% driven by the devaluation of the euro against the US dollar early in calendar 2015. Primark buys a substantial proportion of its garments in US dollars and sells them in euros and sterling and is therefore subject to transactional currency exposures. Forward currency contracts are taken out to cover these exposures when orders are placed and as a consequence last year's results were largely unaffected by this devaluation and the impact was felt throughout this financial year. A large part of the gross impact was mitigated by a good buying performance and also a lower level of mark-downs as a result of tight stock management.

Sterling's weakening against the US dollar, particularly following the EU referendum, had little transactional impact on Primark's margins in this financial year. However, at current exchange rates the effect will be adverse in the new financial year. The reaction of UK clothing retailers to this major movement in exchange rates is currently uncertain but Primark is committed to leading the value sector of the market with its on-trend product offering and maintenance of its price leadership position in clothing.

In the US, awareness of the Primark brand started at a low level and has continued to grow. The brand has been well received with very positive customer feedback, particularly for its exceptional value-for-money and the breadth of its product range. We are encouraged by the most recent openings in the regional malls at Danbury, Willow Grove and Freehold Raceway.

During this financial year we opened 1.2 million sq ft of selling space, bringing the total estate to 315 stores and 12.3 million sq ft at the financial year end. A net 22 new stores were opened and two stores, in Oxford and Grimsby, were temporarily relocated to smaller premises pending redevelopment. This was another very active year for store development, particularly in the second half when 16 new stores and 0.9 million sq ft of selling space were opened. New stores this year comprised our first store in Italy, at Arese north west of Milan, a 135,000 sq ft Spanish flagship on Gran Via in Madrid, three stores in each of France and the Netherlands, seven in the UK, four stores in the north east of the US and a store in each of Germany, Portugal and Austria. Four stores were extended including a 49,000 sq ft increase in the selling space at Creteil in Paris, which doubled the size of the store only two years after its opening.

Store development has also focused this year on upgrading the back-of-house area to create a more motivating work environment for our employees. First trialled with the opening of the Leeds Trinity store in 2013, we have now rolled out this concept in 59 new stores and, to date, 34 existing stores have been upgraded as part of their planned refurbishment. Designed with a completely open plan, fresh, modern look and feel, the effect has been dramatic. Wi-fi throughout the area has made it easier for key tasks to be undertaken 'on-the-go'; the open-plan environment encourages team interaction, collaboration and efficiency - staff briefings and inductions take less time leaving more time to be spent on the shop floor; and instances of paid absence are lower than in similar stores.

1.3 million sq ft of new space is currently planned to be opened next year. Five stores are planned for Germany, two more Italian stores in Florence and Brescia, and notably an 89,000 sq ft store in the centre of Amsterdam. Three more stores will be opened in the north east of the US, bringing the total to eight, and an extension to the Downtown Crossing store in Boston is planned which will increase selling space by 20%. A 32,000 sq ft extension to the Oxford Street East store will also be opened ahead of the important Christmas period.

Our new warehouse at Islip, Northamptonshire is now operational and relocation of capacity from Magna Park will be completed early in the new financial year. The new distribution centre at Roosendaal in the Netherlands is on track to open early in the new calendar year.

George Weston

Chief Executive

FINANCIAL REVIEW

GROUP PERFORMANCE

Group revenue increased by 5% to £13.4bn and adjusted operating profit was 3% higher at £1,118m. In calculating adjusted operating profit, the amortisation charge on non-operating intangibles, profits or losses on disposal of non-current assets and any exceptional items are excluded. On an unadjusted basis, operating profit was £1,103m, 18% higher than last year which included a £98m exceptional charge. Revenue and operating profit both benefited to a small extent from a 53rd week's trading activity in some of our businesses this year but this was offset by the consolidation of only 11 months' results for Illovo as a consequence of the alignment of its year end with the rest of the group.

These results take into account a change in our accounting policy for the valuation of Illovo's sugar cane roots following the amendment of IAS 41 which now permits the valuation of such assets at cost less accumulated depreciation. This change reduced both adjusted and unadjusted operating profit in the current year by £8m and in the prior year, which has been restated, by £10m.

The currency markets in this financial year have been more volatile than in recent years, especially for sterling, our reporting currency. Sterling's strength in the first half of the year had an adverse translation effect on the group's results. In the second half, and particularly after the result of the EU referendum, sterling weakened and we benefited from translation, resulting in little net effect for the financial year as a whole. The biggest transactional exposures in our group are in British Sugar and Primark. Margins at British Sugar benefit from euro strength while margins at Primark are adversely affected by sterling or euro weakness against the US dollar. Because Primark hedges its exposures when orders are placed, the impact of sterling's weakness will not be felt until the new financial year.

Finance expense less finance income of £50m was lower than last year's net charge of £53m reflecting a lower average level of debt during the year. Profit before tax increased from £707m to £1,042m with the benefit of a substantially lower level of losses on disposal of businesses and exceptional items. On our adjusted basis which excludes these items, profit before tax rose by 5% to £1,071m.

ACQUISITIONS AND DISPOSALS

Some ten years after the acquisition of 51% of Illovo Sugar Limited, we acquired the non-controlling interests of the company on 28 June for a purchase consideration of £247m. The transaction was immediately earnings accretive for the group. The business rationale is explained in the operating review and moving to full ownership presented the opportunity to align management and financial reporting including a change of year end.

The disposal of our cane sugar business in south China is subject to regulatory approvals but is expected to complete later this year. The sale of ACH's herbs and spices business in the US is due to complete by the end of this month. The combined proceeds net of costs are expected to be over £0.5bn with little impact on the group's adjusted operating profit after these disposals and some overhead rationalisation.

Assets and liabilities which will be disposed of when these transactions complete are shown separately on the balance sheet as assets and liabilities classified as held for sale. The net assets are held at their net book value without impairment as these values are lower than the expected disposal proceeds.

TAXATION

We recognise the importance of complying fully with all applicable tax laws as well as paying and collecting the right amount of tax in every country in which the group operates. Our board-adopted tax policy is based on seven tax principles that are embedded in the financial and non-financial processes and controls of the group. These tax principles are included in the appendix to our Corporate Responsibility report www.abf.co.uk/responsibility.

As a substantial UK tax payer, the group will benefit from the future reductions in the UK corporation tax rate to 19% from 1 April 2017 and 17% from 1 April 2020. These reductions were enacted before our balance sheet date and their effect on our UK deferred tax liability is therefore taken into account in the current year and will be reflected in our current tax charge in the years in which the lower rates apply.

This year's tax charge of £221m includes an underlying charge of £227m at an effective rate of 21.2% (2015 - 21.3%) on the adjusted profit before tax. This year's effective rate includes the beneficial effect of the revaluation of UK deferred tax balances. This will not be repeated next year and, combined with profit increasing in businesses subject to a corporation tax rate higher than that in the UK, we expect the group's effective tax rate to increase a little from this level. The overall tax charge for the year benefited from a credit of £5m (2015 - £8m) for tax relief on the amortisation of non-operating intangible assets and goodwill arising from previous acquisitions.

EARNINGS AND DIVIDENDS

Last year's earnings per share have been restated for the change of accounting policy for the valuation of sugar cane roots with a reduction of 0.5p. Earnings attributable to equity shareholders in the current year were £818m and the weighted average number of shares in issue during the year, which is used to calculate earnings per share, was 791 million (2015 - 790 million). Earnings per ordinary share were 55% higher than last year at 103.4p with the benefit of substantially lower losses on sale of businesses and exceptional items this year. Adjusted earnings per share, which provides a more consistent measure of trading performance, increased by 5% from 101.5p to 106.2p.

The interim dividend was increased by 3% to 10.3p and a final dividend has been proposed at 26.45p which represents an overall increase of 5% for the year. The proposed dividend is expected to cost £209m and will be charged next year. Dividend cover, on an adjusted basis, remains at 2.9 times.

BALANCE SHEET

Non-current assets of £6.9bn were £0.6bn higher than last year driven by substantially higher capital expenditure than depreciation this year and as a result of the translation of overseas assets at a weaker sterling exchange rate. The change of accounting policy for sugar cane roots resulted in the reclassification of these assets from non-current biological assets to property, plant and equipment where they are now carried at historic cost rather than fair value.

Working capital at the year end was at a similar level to last year. Year-on-year changes in the carrying values of inventory, trade receivables and payables were largely the result of currency translation. Average working capital as a percentage of sales at 8.4% was lower than last year's 9.4%. Net debt at the year end was £121m higher than last year at £315m reflecting the buyout of the Illovo minorities and a £53m increase attributable to the effect of translating foreign currency denominated net debt at weaker sterling exchange rates.

The group's net assets increased by £611m to £7,122m. Return on capital employed for the group, which is calculated by expressing adjusted operating profit as a percentage of the average capital employed for the year, was 18.1% compared with 17.6% last year. This reflected the higher profit and only a small increase in average capital employed which was primarily the consequence of Primark's expansion.

CASH FLOW

The group generated a net cash flow from operating activities of £1,310m this year with tight management of working capital throughout the year. Gross expenditure on property, plant and equipment and intangibles amounted to £796m compared with £613m last year. Primark spent £435m on the acquisition of new stores and the fit-out of new and existing stores, while a number of expansion projects increased the expenditure in the food businesses. £27m was realised from the sale of property, plant and equipment, the major elements of which were the sale of farmland in South Africa and the continued redevelopment of a former factory site in Western Australia where further lots were sold for housing development during the year.

£10m was incurred on the acquisition of two small businesses for AB Agri and £252m was spent on the buyout of the minority interests in Illovo Sugar Limited which is shown in the cash flow statement under financing activities inclusive of costs associated with the buyout.

FINANCING

The financing of the group is managed by a central treasury department. The group has total committed borrowing facilities amounting to £2.1bn, which comprise: £0.6bn of US private placement notes maturing between 2017 and 2024, with an average fixed rate coupon of 4.7%, £15m of which is payable in March 2017; £1.2bn provided under a syndicated, revolving credit facility which matures in July 2021; and £0.3bn of local committed facilities in Africa and Spain. During the financial year we repaid, from existing cash resources, £78m of private placement notes. At the year end, £740m was drawn down under these committed facilities. The group also had access to £0.8bn of uncommitted credit lines under which £142m was drawn at the year end. Cash and cash equivalents, including cash within assets held for sale, totalled £581m at the year end.

PENSIONS

The deficit in the group's defined benefit pension schemes increased from £16m last year to £303m, including liabilities held for sale, this year end. The UK scheme accounts for 88% of the group's gross liabilities and its deficit was £138m. Long-term bond yields, which are used to value defined benefit pension obligations for accounting purposes, have been falling for some time, with a marked decline in UK yields at the balance sheet date following the EU referendum. This had a material impact on the discounted value of pension liabilities. When considered in the context of gross pension assets of £4bn, and with the group's strong balance sheet and substantial cash generating ability, it is well within the group's capacity to fund the future requirements of all these schemes. However, bond yields at current levels will result in an increased service cost and a higher interest charge next year.

The next triennial valuation of the UK scheme is due in April 2017 and it is expected that appropriate contribution plans, designed to fund the scheme and any deficit over the long term, will be implemented. The last valuation of the UK scheme was undertaken as at 5 April 2014 which was agreed by the trustees in December 2014, and revealed a surplus of £79m.

The charge for the year for the group's defined contribution schemes, which was equal to the contributions made, amounted to £74m (2015 - £76m). This was substantially greater than the cash contribution to the defined benefit schemes of £38m (2015 - £39m) reflecting the changing shape of pension provision in the group.

John Bason

Finance Director

The annual report and accounts is available at www.abf.co.uk and will be despatched to shareholders on 10 November 2016. The annual general meeting will be held at Congress Centre, 28 Great Russell Street, London. WC1B 3LS at 11am on Friday, 9 December 2016.

RISK MANAGEMENT

Effective risk management is central to the board's role in providing strategic oversight and stewardship of the group. In order to deliver our strategic plans, we believe we must understand and respond appropriately to risks and also consider whether additional business opportunities can be realised through effective risk management.

We require all of our businesses to implement appropriate levels of risk management to ensure compliance with relevant legislation, our overriding business principles and group policies relating to them.

We have embedded a process for identifying risks and put in place activities to mitigate them. Our decentralised business model empowers the management of our businesses to identify, evaluate and manage the risks they face on a timely basis. The collated risks from each business are shared with the respective divisional chief executives who present their divisional risks to the group executive.

The group's Director of Financial Control receives the risk assessments on an annual basis and, with the Group Finance Director, reviews them with the divisional chief executives. These risks and their impact on business performance are reported during the year and are considered as part of the monthly management review process.

Group functional heads including Legal, Treasury, Tax, IT, Pensions, HR and Insurance also provide input to this process, sharing with the Director of Financial Control their view of key risks and what activities are in place or planned to mitigate them. A summary of these risk assessments is then shared and discussed with the Group Finance Director and Chief Executive at least annually.

The board undertakes an annual review of the material risks facing our businesses together with the internal control procedures and resources devoted to them. It also monitors the group's exposure to these risks as part of the performance reviews undertaken at each board meeting. Financial risks are reviewed by the Audit committee and all other risks are reviewed by the board.

The Director of Financial Control holds meetings with each of the non-executive directors seeking their feedback on the reviews performed and discussing the key risks and mitigating activities. Once all non-executive directors have been consulted, a board report is prepared summarising the full process and providing an assessment of the status of risk management across the group. The key risks, mitigating controls and relevant policies are summarised. This report also details when formal updates, relating to the key risks, will be provided to the board throughout the year.

Reporting our principal risks and uncertainties

The group's principal risks and uncertainties identified by the above process during 2016 are detailed in the following tables. They are grouped into external risks, which may occur in the markets or environment in which we operate, and operational risks, which are related to internal activity linked to our own operations and internal controls. The 'Changes since 2015' highlight the significant variations in the profile of our principal risks or describe our experience and activity over the last year.

These are the principal risks of the group as a whole and are not in any order of priority. The operational and product diversity of the group reduces the impact that any one business risk can have on the group's results.

The UK's decision to leave the European Union has had some immediate impact on our results as a consequence of the effect on currency markets, but the extent to which our operations and financial performance are affected in the longer term will only become apparent as details emerge of how the exit is to be engineered. Both at a group and individual business level, we are preparing for changes in legislation, trade agreements and working practices and formulating plans to take advantage of the changing landscape and to mitigate risk.

Operational risks

CAUTIONARY STATEMENTS

This report contains forward-looking statements. These have been made by the directors in good faith based on the information available to them up to the time of their approval of this report. The directors can give no assurance that these expectations will prove to have been correct. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements. The directors undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

We confirm that to the best of our knowledge:

We consider the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

The contents of this announcement, including the responsibility statement above, have been extracted from the annual report and accounts for the 53 weeks ended 17 September 2016 which will be despatched to shareholders on 10 November 2016 and may then be found at www.abf.co.uk. Accordingly this responsibility statement makes reference to the financial statements of the Company and the group and to the relevant narrative appearing in that annual report and accounts rather than the contents of this announcement.

On behalf of the board

8 November 2016

CONSOLIDATED INCOME STATEMENT

For the 53 weeks ended 17 September 2016

1 The results of the prior year have been restated to reflect the change of accounting policy for sugar cane roots (see note 11)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 53 weeks ended 17 September 2016

CONSOLIDATED BALANCE SHEET

At 17 September 2016

1 Prior year balances have been restated to reflect the change of accounting policy for sugar cane roots (see note 11)

CONSOLIDATED CASH FLOW STATEMENT

For the 53 weeks ended 17 September 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 53 weeks ended 17 September 2016

NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT

For the 53 weeks ended 17 September 2016