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Operating review | Grocery
&
eping 66%
ke ople
pe ed
In the first week the UK
went into lockdown,
f
Allinson’s Mill delivered
66% more pallets of flour
to its customers than the
weekly average.
Read more about how Grocery
rose to the challenge on page 25
22 Associated British Foods plc Annual Report and Accounts 2020
Strategic report
GROCERY
Grocery comprises consumer-facing
businesses that manufacture and market
a variety of well-known household brands
both nationally and internationally.
ABOUT STRATEGY
Twinings Ovaltine Allied Bakeries Each of our grocery businesses
The largest of our grocery businesses, Allied Bakeries produces a range of pursues an independent
Twinings Ovaltine, has broad bakery products under the Kingsmill, strategy appropriate to its
geographical reach. Twinings has been Sunblest, Allinson’s and Burgen brands, particular market position and
blending tea since it was founded in with flour and semolina produced by stage of development. Twinings
1706 and now sells premium teas and sister company, Allied Mills. Speedibake Ovaltine, Acetum, Jordans
infusions in more than 100 countries. specialises in own-label baked goods, Dorset Ryvita and AB World
Ovaltine malted beverages and snacks such as muffins and mince pies, for Foods have had considerable
are consumed throughout the day in retail and foodservice customers. success extending their reach
countries across the globe. into new and emerging markets,
George Weston Foods, Australia
whilst some are focused on
Acetum George Weston Foods is one of
developing brands in their core
Acquired in 2017, Acetum is the leading Australia and New Zealand’s largest food
domestic markets.
Italian producer of Balsamic Vinegar of manufacturers. Tip Top is one of the
Modena. It sells vinegars, condiments most recognised brands in Australia All of our businesses are
and glazes across the globe, trading with an extensive range of bread committed to the consistent
under the Mazzetti brand. and baked goods. The Don and KR development of their brands
Castlemaine brands manufacture and consumer research is
AB World Foods
a variety of bacon, ham and meat conducted locally and
AB World Foods focuses on the creation
products. Yumi’s produces hommus, internationally to establish
and development of world flavours and
vegetable dips and snacks and is the consumer needs and ensure
its Patak’s, Blue Dragon and Al’Fez
leader in the Australian market. appropriately targeted
branded products are sold internationally.
investment. Our production
ACH Foods, North America
Westmill Foods facilities are well maintained and
ACH Foods includes within its range of
Westmill Foods specialises in high- we take a long-term approach to
branded products Mazola, the leading
quality foods including rice, spices, capital investment, recognising
corn oil in the US, Capullo, a premium
sauces, oils, flour and noodles sold the merits of building for the
canola oil in Mexico and renowned
under brands such as Rajah, Lucky Boat, future. Acquisitions are
baking brands such as Fleischmann’s
Tolly Boy and Elephant Atta. undertaken when opportunities
yeast, Karo corn syrup and Argo
are presented to either
Jordans Dorset Ryvita corn starch. Anthony’s Goods is an
strengthen or complement
Jordans Dorset Ryvita operates in the organic and natural flours, meals and
existing businesses.
better-for-you cereal and savoury food business, primarily for online.
biscuits categories with increasing
Silver Spoon
international presence. Jordans has a
Silver Spoon and Billington’s are
heritage of using wholegrain oats in the
our two retail sugar brands in the UK,
production of its cereals and cereal bars.
complemented by a range of dessert
Dorset Cereal’s award-winning muesli
toppings and syrups under the Askeys
and granolas are renowned for the
and Crusha brands.
quality of their ingredients, which include
wholegrain oats as well as fruits, nuts AB Sports Nutrition
and seeds from around the world. HIGH5 and Reflex Nutrition are brands
Ryvita has a strong reputation in healthy in the sports nutrition sector producing
snacking and is the UK category leader protein supplements, recovery gels and
in crispbreads. drinks in the UK and sold internationally.
The HIGH5 brand sponsors a wide
range of sporting events across the UK
and internationally.
Annual Report and Accounts 2020 Associated British Foods plc 23
Operating review | Grocery
HOUSEHOLD FOOD
BRANDS ENJOYED
ALL OVER THE WORLD
Revenue Our Grocery businesses delivered a Switzerland and Brazil. Overall margins
very strong performance with adjusted improved and also benefited from a full
£3,528m operating profit growth of 15% and
profit margin increasing from 10.9%
to 12.4%. Their business plans, set
year of production efficiencies following
the closure of our tea factory in China
last year.
2019: £3,498m
a year ago to achieve further margin
Actual fx: Up 1% Silver Spoon, Jordans, Dorset Cereals,
improvement through improved trading
Constant fx: Up 2% Ryvita and AB World Foods all benefited
and cost efficiencies, were realised. Our
from significant increases in consumer
businesses responded to the increased
Adjusted operating profit demand in the second half of the year.
demand for food sold through the retail
Westmill and AB Sports Nutrition saw
channel as a result of the restrictions
£437m imposed by governments to contain the
spread of COVID-19. Workplaces were
rapidly adapted to ensure a safe working
sales and profit declines due to the
reduction in foodservice demand and
sports events respectively. The
2019: £381m acquisition of the fast-growing Al’Fez
environment for our employees. We
Actual fx: Up 15% Middle Eastern brand complements
overcame the logistical and operational
Constant fx: Up 15% AB World Food’s existing brand portfolio
challenges posed by COVID-19 and
and we have already achieved new retail
produced higher volumes throughout
listings in the UK and internationally.
Adjusted operating the second half. These higher volumes
profit margin more than offset the decline in those Allied Bakeries revenues declined this
products sold to out-of-home and year following the termination of our
12.4% foodservice channels.
Grocery revenues were 2% ahead of
largest private label bread contract earlier
in the financial year. The business
implemented a significant cost reduction
2019: 10.9% last year with growth in Twinings, UK
2019 IFRS 16 pro forma: 10.9% programme during the year. Combined
Grocery, ACH and George Weston
with a COVID-19 related uplift in sales
Foods in Australia. This growth was held
the underlying operating result improved.
back by lower foodservice sales and a
Return on average Following our announcement in July of
decline in Allied Bakeries. Adjusted
capital employed our exit from the Co-op contract, the
operating profit growth of 15% was
carrying values of some of our
31.3% driven by cost efficiencies and,
particularly in the second half, lower
promotional spend more than offsetting
distribution assets have been reviewed,
resulting in a write-down charge of
£15m. In the second half we received
2019: 27.4% a one-time non-cash asset write-down
2019 IFRS 16 pro forma: 26.2% £30m for the insurance claim relating to
in Allied Bakeries of £15m.
the fire in February at our Speedibake
Twinings made good progress this year Wakefield factory. This has been treated
with volume growth in black tea and as exceptional and more than offsets the
infusions in the retail channel in each of exceptional charge of £25m taken in the
its major markets. In the second half of first half.
the year the benefits from an increase in
Acetum delivered profit growth with
home consumption more than offset a
increased sales of balsamic vinegar
decline in the much smaller out-of-home
in North America and a further
channels. A key driver was the growth in
improvement in margin. ACH’s Mazola
healthy teas with the launch of a
became the leading US brand in cooking
Twinings Infusions range in France for
oils earlier this year and the second half
the first time and the expansion of the
saw extremely high demand from the
Wellness range in the US. Sales of
retail channel for our products. Since the
Ovaltine were held back by the impact of
introduction of government restrictions
COVID-19 on impulse sales, particularly
related to COVID-19 in North America
in Thailand and Vietnam, partially offset
there has been an exceptional increase
by successful new product launches in
24 Associated British Foods plc Annual Report and Accounts 2020
Strategic report
Grocery in action
FEEDING
THE UK
in the demand for ingredients for
home baking. Although successful in
Associated British Food’s grocery
businesses worked around the clock to
At peak demand
significantly increasing production meet the unprecedented consumer our businesses saw:
capacity for baking ingredients, demand for high-quality, affordable food
13%
demand has still exceeded our ability during lockdown, when public
to supply. Anthony’s Goods, the movement was severely restricted.
supplier of high quality natural and
Orders for everyday staples surged after
organic food products acquired in
lockdown began in March and at peak
September last year, performed
demand Allied Bakeries saw a 13% rise in bread production at
strongly this year also driven by this
increase in bread production. Orders Allied Bakeries
demand for home baking products.
for Jordans, Dorset Cereals and Ryvita
28%
George Weston Foods delivered products rose by 28% and demand for
excellent sales growth and margin Westmill’s retail noodles, both retail
improvement, with strong sales of brands and own-label, rose by 97%.
bread and breakfast goods by Tip Ingredients for family meals were also
Top more than offsetting weaker highly sought after, with sales of Patak’s
foodservice sales of meat products sauces up 45% and Blue Dragon meal rise in demand for Jordans,
by the Don KRC business. Yumi’s kit purchases increasing by 75%, Dorset Cereals and Ryvita products
has seen continued strong sales reflecting the fact that more people
45%
growth and we have invested in new were eating three meals a day at home.
packaging equipment and marketing Speedibake made 1 million extra garlic
activity to support the launch of a loaves in the first three weeks of
new vegetarian burger. lockdown, with Acetum sales of
Balsamic Vinegar of Modena up by 25%
year-on-year during the peak months of rise in sales of Patak’s sauces
April and May.
75%
Rising to the challenge
The grocery businesses adopted
common strategies to meet this rapid
rise in demand. Niche and specialist
lines were reduced to significantly
rise in demand for
increase production of core ranges that
Blue Dragon meal kits
were in high demand. To extend
production time employees worked
97%
extra shifts and increased overtime.
Procurement teams, meanwhile, found
alternatives for packaging, raw materials
and ingredients that were unavailable, as
downstream supply chains around the rise in demand for
world were disrupted. Westmill’s retail noodles
Customers also helped out. Many
200%
agreed to order full baskets rather than
single units, simplifying and speeding
up despatch, or extended their delivery
time windows, allowing logistics
teams to schedule many more and rise in flour demand
much larger deliveries. from supermarkets
Annual Report and Accounts 2020 Associated British Foods plc 25
Grocery in action
FEEDING
THE UK
Doing things differently
Such flexibility was achieved against
a backdrop of significant operational
change across all businesses. This
included introducing new ways of
working to make locations safe
SIAN
and COVID-19-secure, such as
installing Perspex screens, introducing
one-way systems and enhanced
cleaning practices.
It also involved setting up food donation
Sian Owen
programmes for local community
Process Technologist,
groups, charities, food banks and
Food Manufacturing, Speedibake
frontline service providers and increasing
the usual donations to FareShare, which
distributes surplus, high-quality food Ensuring mince pies for Christmas
to vulnerable people. During just the first
four weeks of lockdown, UK Grocery When COVID-19 hit, the New Product
donated 150,000 products to those Development team at Speedibake, our
in need. own-label specialist baked goods
business, became smaller due to
Allinson’s and James Neill’s Mills Every year our mince absenteeism from staff shielding.
Two specific UK Grocery sites – pie recipes have to be Sian, one of our newest team members,
Allinson’s Mill in Bishop’s Stortford rose to the challenge to keep product
and James Neill’s Mill in Belfast – faced adapted for changing
launches on track and items on shelves.
a particularly sharp and sudden rise in fruit harvests, which One of those product lines was
demand. With more time at home, the affects the mincemeat Christmas mince pies.
nation rediscovered its love for baking.
composition. There’s a Due to a devastating fire in February
real art to updating at our Wakefield bakery, Sian had to
our recipes, which we improvise. She moved into a meeting
room in our Bradford site and used
trial and re-trial until domestic ovens and some customer
they’re ready for facilities to conduct the time critical
approval. Timing is annual bake tests she would usually
crucial, as we need to undertake in our own industrial
facilities. The skill needed to translate
ensure we have performance from a domestic to an
enough time to bake industrial oven for customer trials is no
the nation’s pies. So, small feat.
when it came down to Thanks to Sian’s can-do attitude, and
it, I just had to find a ingenuity, Speedibake will produce its
great-tasting 33 million mince pies for
way through. Christmas this year, more than 80% of
the UK’s ‘baked in-store’ mince pies the
nation purchases from the major
UK Grocery donated supermarkets each year.
150,000 products to
those in need in just
four weeks.
26 Associated British Foods plc Annual Report and Accounts 2020
Strategic report
James Neill’s Mill featured in BBC
Two’s ‘Keeping Britain Fed’
programme, which examined
how the national food supply
withstood the pressure of the
early days of COVID-19.
Demand for flour in supermarkets
consequently increased sharply, in April
rising 200% above usual levels.
While there was no shortage of flour itself
– with the significant amount that usually
went to restaurants and foodservice
businesses being available to retail
customers due to lockdown – there was a
lack of capacity to pack 1.5 kg bags for
stores.
Faced with this challenge, Allinson’s and
James Neill’s Mills ran at greater capacity
and for longer hours than ever before. In
the first week of lockdown, Allinson’s
provided customers with 66% more pallets
of flour than its weekly average. Meanwhile,
Neill’s took what would ordinarily have
been ten weeks’ worth of retail customers’
flour orders in one day, using up four
months of reserve packaging stock.
The two mills worked with retailers to
ensure fair and even distribution and to
devise creative ways to get flour to
consumers. This included providing stores
with 4 kg and 16 kg pack sizes that shop
staff packed into smaller bags in-store.
Even then – with all UK mills combined
producing enough 1.5 kg bags of flour for
15% of households to buy one per week
– demand significantly outstripped capacity.
Empty supermarket shelves in the home
baking section became emblematic of how
sharply and suddenly the world had
changed. Allinson’s efforts to keep shelves
stocked featured on a full day’s BBC news
schedule, with its team described as
‘hidden heroes’, while James Neill’s Mill
took part in BBC Two’s ‘Keeping Britain
Fed’ programme, which examined how the
national food supply withstood the pressure
of the early days of COVID-19.
Annual Report and Accounts 2020 Associated British Foods plc 27
Grocery in action
MAZOLA: A CENTURY-
OLD BRAND TOPPING
THE US MARKET
Mazola has taken the lead in the US branded The brand continues to evolve its marketing
cooking oil sector by leveraging its health
credentials and increasing its retail profile.
approach to expand its consumer base. While
television advertising remains the core platform, 11%
between 2017 and 2020 Mazola increased its
Mazola corn oil was the leading US brand by Mazola was the
digital investment by 500%, including the regular
volume for the year to the end of February 2020, leading US brand by
posting of healthy recipe ideas. Online promotion
with more than 11% of the market, having been volume for the year
enables a precise targeting of consumers not
the third-leading brand as recently as 2016. to the end of
always possible via television advertising. For
Investing in the brand example, the business can connect with February 2020 with
Mazola’s steady growth reflects continued consumers electronically and advise them that more than 11% of
marketing investment and strong retail execution, corn oil is better for their heart. the market.
a new approach in a sector traditionally led by
Expanding retail range
price. After ACH-funded clinical research proved
Mazola’s continuing growth also follows its
that corn oil is significantly better than extra virgin
success in encouraging more stores to stock its
olive oil in lowering ‘bad’ cholesterol – findings
different product sizes. In the past five years
which were published in leading scientific journals
Walmart, for example, has increased its range of
500%
– Mazola has consistently targeted health-
Mazola variants by 30%. As well as keeping sales
conscious consumers with its healthy heart
high, the brand has also lowered costs
message. That, along with the brand’s great taste
and supported the environment by reducing
and versatility, has encouraged more and more Between 2017
its amount of plastic packaging.
consumers to use Mazola. and 2020 Mazola
Mazola’s continuing growth story is all the more increased its digital
striking given the great age of the brand, which investment
celebrates its 110th anniversary in 2021. by 500%.
28 Associated British Foods plc Annual Report and Accounts 2020
Strategic report
VEGETARIAN Research shows that almost half of Australian
adults are trying to eat less meat – as reflected
LAUNCHES DRIVE
in the sustained double-digit sales growth in
major grocery retailers’ plant-based
categories.
YUMI’S GROWTH Expanding winning ranges
Yumi’s first launch in this arena, Veggie Bites,
consisted of delicious bite-sized balls made
from fresh vegetables with no preservatives.
Yumi’s, our Australian chilled dips and snacks
This first-to-market offering, with its new
business, has grown strongly, benefiting from
product format and pouch packaging, was an
an increasing trend for meat-free foods and its
instant hit. The range has now been expanded
2018 acquisition by George Weston Foods.
to five varieties including Zucchini & Lentil and
With post-acquisition support and investment, Sweet Potato & Herbs.
Yumi’s has expanded its operational and
marketing capability, enabling it to identify key
opportunities and manufacture winning
2020 Building on the success of Veggie Bites and
continued category growth, Yumi’s identified
an opportunity to expand into vegetarian
product ranges. It has continued to grow in its
Yumi’s expanded burgers. Having no burger-packing capability,
heartland of chilled dips via flavour extensions
its Veggie Bites it invested in a new packing machine and
and by meeting demand for innovative tastes
range; launched expanded its frying and conveyer equipment.
and textures.
vegetarian burgers; Aware that the primary barrier to sampling
New packing automation and filling and added new among the target ‘meat reducer’ audience was
equipment has increased production speeds flavours to its dip concern around taste, the burgers were
and enabled Yumi’s to meet growing range in 2020. crafted to delicious recipes with consumer
consumer and retailer demand for a wider dip communication centred on taste.
range. Recent launches include a classic
Investment has enabled Yumi’s to advertise
creamy garlic dip and a textured rocket and
through mass media, with the 2020 campaign
almond pesto hommus.
including TV, online video and outdoor and
As a proud vegetarian brand, Yumi’s sees a in-store communication. This is a significant
great opportunity in plant-based foods, which step forward for the brand, supporting new
are growing globally as consumers seek growth opportunities and product extensions.
healthier choices.
Annual Report and Accounts 2020 Associated British Foods plc 29
Grocery in action
FROM HEALTH DRINK
TO INDULGENT
DESSERT: OVALTINE’S
STIRRING JOURNEY
In the early 20th century, a Swiss Ovaltine has also introduced a palm
chemist perfected a wholesome oil-free version of Crunchy Cream in
powdered drink to help combat Europe, acknowledging demand from
malnutrition. Reflecting two of its key some consumers for such products.
ingredients, eggs and malt, Dr Albert Carefully developed over three years
Wander named his creation Ovomaltine. to ensure it has exactly the same
consistency and taste as the original
In 1906 the product reached the UK,
spread, the rapeseed oil-based product
where it was called Ovaltine. More than
has been an immediate hit.
one century later, that drink – along
with numerous category and range Straight from the Swiss mountains
extensions – is enjoyed by millions of Regional innovations are often
people in over 100 countries. And while subsequently rolled out into other
its nutritious benefits are still a prime markets. Rocks – bite-sized chunks
attraction, it is now as likely to be of Ovaltine, originally launched in
consumed as an indulgent treat or an Switzerland three years ago – were first
energy snack. introduced in Brazil as a McDonald’s
McFlurry flavour. Following that
Continuous innovation
success, they have now hit retail shelves
Ovaltine’s growth has been driven
as a standalone product ‘straight from
by powerful innovation. The brand
the Swiss mountains’. Ovaltine has also
introduced its first line extension, a
grown by recognising differences – as
single-portion sachet for cafés, in 1931
well as similarities – between regional
with the Ovo Sport bar arriving six years
tastes. In Brazil, it is crunchier and
later. Fast forward to 2020 and more
sweeter, with less malt. Its positioning
than half of turnover in its home country
as a delicious flavouring is on a par with
of Switzerland now comes from
1904
chocolate, rather than a drink, giving it
products launched in the 21st century.
a leading role in numerous categories –
Products range from ready-to-drink
from cheesecake and ice cream to
Ovaltine, muesli, ice cream and in Brazil,
crêpes and biscuits. By contrast, in
even pizza. Ovomaltine is founded by Swiss
Thailand, Ovaltine’s biggest market,
nutrition remains the focus, with a chemist Dr Albert Wander.
Consumer insight teams across the
world closely monitor emerging recent innovation being a soy-flavoured
1906
preferences, often from a vantage point drink mix.
inside family homes. Indeed, the
Partnerships have played a key part
genesis of the brand’s successful
in the brand’s growth. In Brazil, for
Crunchy Cream spread – which includes
example, more than 25 major food
crispy malt granules and cocoa – came
chains, from KFC to Subway, offer Ovomaltine reaches the UK and
when a Swiss consumer insight team
an Ovaltine-branded dessert. In the is called Ovaltine.
noticed people were sprinkling Ovaltine
country’s supermarkets there are
on their bread at breakfast time. The
numerous Ovaltine-branded products
winning idea was extended recently
produced by other leading food and
with the launch of Ovaltine Crunchy Roll
drink companies, from Hershey’s
– a bread roll filled with the spread for
1937
chocolate bars to Unilever ice cream.
eating on the go.
The Ovo Sport bar arrives.
30 Associated British Foods plc Annual Report and Accounts 2020
Strategic report
100+ COUNTRIES
The Ovomaltine range was enjoyed by millions
of people in over 100 countries in 2020.
25+ FOOD CHAINS
In Brazil more than 25
major food chains, from
KFC to Subway, offer an
Ovaltine-branded dessert.
Annual Report and Accounts 2020 Associated British Foods plc 31Grocery in action
BRINGING
MIDDLE
EASTERN
FEASTS TO
FAMILY
MEALTIMES
Fuelling its goal to inspire more people to explore The Al’Fez range – created by Sam Jacobi, an
diverse international cuisines, AB World Foods
has acquired Al’Fez, the leading mainstream
December entrepreneur of Iraqi descent who was born in
Israel and raised in London – is dedicated to
Middle Eastern brand in Europe. 2019 expanding the Middle Eastern cuisine category,
which is currently under-represented in the world
Middle Eastern foods and flavours – such as
foods aisle. It aims to make the region’s complex
falafel, harissa and sumac – are becoming ever AB World Foods’
set of flavours widely accessible for the home
more popular in home cooking. Al’Fez supplies December 2019
chef, through its easy-to-use products that
a range of traditional Middle Eastern foods acquisition of Al’Fez
provide the building blocks for a feast.
to retailers and foodservice customers in 28 complements its
countries including the UK, the Netherlands, existing portfolio, Inspired by tradition
Belgium, Switzerland, Finland, Spain, Portugal, including Patak’s and The range is inspired by authentic Middle Eastern
Denmark, Italy and Norway. AB World Foods’ Blue Dragon. family dishes and flavours. It includes: tahini,
December 2019 acquisition of Al’Fez made from 100% ground roasted sesame seeds;
complements its existing portfolio, including spices, from the fresh, zesty flavour of sumac
Patak’s and Blue Dragon. to the aromatic warmth of za’atar; harissa paste
varieties, each adding their own twist of flavour;
Expanding the category
classic-flavoured tagine cooking sauces;
Middle Eastern food crosses countries and
continents, with flavours drawn from the 28 couscous varieties, such as Moroccan Spiced,
Giant Maftoul and Pearl; and mezze kits that bring
southern Mediterranean, North Africa and the
Levant. While steeped in a rich history, the countries favourites such as tabouleh, flatbread and falafel
to the table, each cooked from scratch.
region’s cuisine is at the cutting edge of many
exciting new food trends – from people wanting Al’Fez, available in
to experiment more at home with fresh new more than 28
flavours to those seeking delicious alternatives countries, supplies
to meat. retailers and
foodservice
customers with a
range of traditional
Middle Eastern foods.
32 Associated British Foods plc Annual Report and Accounts 2020Strategic report
JORDANS:
PURPOSEFUL
PIONEERS
From boosting biodiversity in almond groves to The brand’s purpose-driven work has grown
supporting Amazonian communities, Jordans has
been doing good while growing strongly for
alongside its international footprint. In 2019,
Jordans assisted the Seeds for Bees project in
4,200 ha
almost five decades. Californian almond groves, introducing
wildflowers on 512 acres of land. This practice
for wildlife
Jordans was one of the UK’s original ‘purpose-
boosts biodiversity and improves pollination and
driven’ brands. It’s hard to imagine now, but Thirty-four farmers
almond yields. The flowers also provide ground
when it was founded in 1972, the idea of using now grow oats for
cover, which reduces soil erosion and improves
organic oats in breakfast cereals to improve Jordans, creating more
moisture retention – a significant benefit in this
people’s health and protect the environment was than 4,200 hectares of
drought-hit area.
a novel idea. However, as interest in the links land (or 3,000 football
between food and health has grown, so too has Protecting communities pitches) for wildlife
the Jordans brand. Jordans also supports a programme in Bolivia such as barn owls,
that protects Brazil nut trees and the brown hares, turtle
Expanding yield while helping wildlife
communities that depend upon them. Brazil nuts doves and vital
In 1985, Jordans was a pioneer in working with
– a staple in many Jordans products – are a pollinating insects
farmers to not only grow oats and improve yield,
fascinating ingredient that are entirely ‘wild including bees.
but to make sure space was provided for wildlife.
harvested’ from the Amazon rainforest. As Brazil
This approach remains a cornerstone of the brand
nut trees depend on the forest to fruit, they are
today. In 2016, Jordans built on this foundation by
threatened by deforestation, with the nut-
launching The Jordans Farm Partnership – an
collecting communities themselves also
improved farm partnership model working with
vulnerable to poor harvests. The programme
UK conservation charity, The Wildlife Trust and
works with 15 harvester communities to help
LEAF. This requires at least 10% of each British
grow healthy Brazil nut trees and plant new
farm that supplies Jordans to be managed for
saplings in the forest. In doing so, it
wildlife, overseen by an environmental adviser
demonstrates how the rainforest can generate
and supported by agronomists. Thirty-four
economic prosperity for its communities. The
farmers now grow oats for Jordans, creating
initiative also identifies new income streams for
more than 4,200 hectares of land – or 3,000
harvester communities and provides guidance on
football pitches – for wildlife such as barn owls,
health and sanitation.
brown hares, turtle doves and vital pollinating
insects including bees.
Annual Report and Accounts 2020 Associated British Foods plc 33Operating review | Sugar
16
YEARS
Having built up skills and expertise
and developed first-rate facilities in
16 years of growing tomatoes,
when the opportunity arose British
Sugar opted to use its horticulture
capabilities to grow a key ingredient
for the pharmaceutical industry.
Read more about how British Sugar rapidly
changed one part of its business on page 38
TRANSFORMATIONAL
EFFICIENCY
Sustainability
AND
34 Associated British Foods plc Annual Report and Accounts 2020Strategic report
SUGAR
AB Sugar is a leading producer of sugar and
sugar-derived co-products in southern Africa,
the UK, Spain and north east China.
ABOUT STRATEGY
We employ 32,000 people and As a global business, we operate in AB Sugar is one of the world’s
operate 27 plants in ten countries a diverse and continually changing largest and most diverse sugar
with the capacity to produce some environment with many opportunities producers and has a simple
4.5 million tonnes of sugar annually. and challenges. Although we have a vision to be the world’s leading
Our products are sold into industry global portfolio, we operate with a sugar business.
sectors including food and drink, local heart, working together to do
Whilst sugar is at the heart of
pharmaceutical, industrial, agricultural, what is right for the location and market.
what we do, the sugar
power and energy.
As we evolve to meet the changing production process provides
In Europe, Azucarera is the largest needs of customers, growers and opportunities to do more
producer in Iberia and British Sugar is others, it is our role to ensure we use than simply manufacture an
the sole processor of the UK beet sugar resources responsibly, build strong ingredient. We are an innovative
crop. Illovo Sugar is the biggest sugar rural economies and ensure thriving and advanced manufacturer,
processor in Africa, based in South healthy communities. producing a wide range of sugar
Africa and operating in the growing and co-products. Additionally,
By drawing upon everything we
markets of Eswatini, Malawi, we are an energy and power
have learnt over many decades as
Mozambique, Tanzania and Zambia. We supplier and, as part of the wider
a sugar producer, we continue to
also have a beet sugar business in north agri-business value chain, we
embrace innovation and strive to
east China which is cost-competitive are an important contributor to
create more from less by working
with cane sugar production. the economy across all our
collaboratively across our group and with
locations.
Our success has been built on continued our stakeholders.
development and innovation to meet the Our success has been built on
changing priorities of our customers, to continued development and
continually improve our operations and innovation to meet the changing
to work with our growers to ensure needs of our customers, to
sustainable, efficient agricultural improve our operations and to
production. work with our growers to ensure
sustainable, efficient, agricultural
production. We seek to drive
continuous improvement in
everything we do and are
committed to developing
our people to build capability and
capacity across our business.
Annual Report and Accounts 2020 Associated British Foods plc 35Operating review | Sugar
A WORLD-LEADING
SUGAR BUSINESS
FOCUSED ON
EXCELLENCE
Revenue AB Sugar revenue was 5% ahead of last In the UK, sugar production from the
year at constant currency. Adjusted 2019/20 campaign of 1.19 million tonnes
£1,594m operating profit was well ahead, driven
by further savings from the cost
improvement programme and the
was ahead of the prior year with a strong
operating performance by the factories
overcoming a much-prolonged
2019: £1,608m
expected recovery in EU sugar prices campaign as a result of adverse weather.
Actual fx: Down 1% which more than offset lower profits at Beet processing lasted 208 days, a
Constant fx: Up 5% Illovo. Each business remained focused record for European sugar production.
on reducing the cost of sugar production With the higher sales price and some
Adjusted operating profit by identifying efficiencies in all areas improvement in sales volume the
including our agricultural supply chain. profitability of British Sugar improved
£100m EU sugar prices increased this year with
a reduction in stocks following lower EU
significantly. At this early stage a
reduction of well over 10% in sugar
production is expected next year.
2019: £26m sugar production in the last two
Actual fx: Up 285% campaigns. Looking ahead, estimates The operating performance in Spain
Constant fx: Up 376% for EU sugar production in the 2020/21 improved significantly and the business
campaign are lower again due to delivered a breakeven operating result.
reduced yields following adverse This was achieved by a combination of
Adjusted operating
weather conditions throughout the higher sales prices, lower beet costs and
profit margin
season and the prevalence of virus a significant reduction in operating costs.
6.3% yellows disease in the beet. Production In light of the beet volumes contracted
volumes in the EU are estimated to be by Azucarera in the second crop year
below consumption in the next after reducing the beet price, we have
2019: 1.6% marketing year. Furthermore there has revised our financial forecasts for this
2019 IFRS 16 pro forma: 1.9% been a recovery in the world sugar price business. This has resulted in a one-time
following a sharp decline in March this non-cash write-off of goodwill of £23m
year. Our UK and Spanish businesses as an exceptional charge.
Return on average
have largely contracted sales for next
capital employed Illovo delivered a much-reduced profit
year at prices in line with our
which was mostly driven by our
6.3%
expectations.
performance in South Africa. Market
demand in South Africa reduced this
year by some 10% in response to the
2019: 1.6%
recent introduction of a sugar tax and we
2019 IFRS 16 pro forma: 1.8%
36 Associated British Foods plc Annual Report and Accounts 2020Strategic report
Sugar in action
expect market volumes to continue
at these lower levels. Adjusted
operating profit included a £10m
charge for restructuring, including the
closure of the Umzimkulu mill in this
market, which, combined with the
cost improvement programme, is
expected to deliver benefits in the
next financial year. Illovo’s sugar
production was below last year at A laboratory employee testing sugar
1.63 million tonnes with the 2019/20 samples at the new on-site factory facilities.
season curtailed by the early onset of
the rainy season. The operating profit
in Malawi was impacted by lower
sales volumes this year but plans are
in place to deliver an improvement PARTNERING WITH
GROWERS TO
next year. Export sales across
southern Africa have been limited by
COVID-19 restrictions on cross-border
traffic between countries and on
port capacity. STRENGTHEN
In China a return to normal yields after
a very poor crop last year and higher CHINA’S SUGAR
sugar sales prices resulted in a
much-improved operating result.
Further progress is expected next
INDUSTRY
year with a larger crop area and the AB Sugar China has a long history To support growers in managing this
benefit of almost 80% of grower of transforming the efficiency and significant shift, AB Sugar is helping
contract payments now linked to sustainability of the sugar industry them to develop best agronomy
beet sugar content. in China. practices so they can increase their yield
and sugar content thereby earning
First established in the Chinese cane
higher margins. In turn, AB Sugar China
sugar sector in 1995, it moved into beet
gains from ensuring a more sustainable
in the north with the acquisition of
beet supply, improved beet quality and
businesses in 2007. Since then it has
greater operational efficiency at its
invested heavily in the industry, leading
two factories.
the way in agricultural developments
including mechanisation, so improving By the 2021/22 campaign, AB Sugar
rural prosperity. AB Sugar China is now China aims to contract all of its 1,130 big
working with growers to further advance growers by PBS. Already, during
crop quality. 2020/21, 77% of growers were
contracted in this way – far higher than
Traditionally, Chinese growers have
the business’s original 50% goal.
been paid per tonne of beet, with no
adjustment for the sugar content in the The move to PBS involves further
beet. Reflecting experience outside significant investment from AB Sugar,
China, the business has now moved including the installation of beet
to Pay by Sugar (PBS), where growers sampling and testing equipment at both
are paid a headline price per tonne of factories, mobilising ‘beet academies’ to
beet with an adjustment for the actual train growers how to increase yields and
sugar content. providing additional R&D capability.
Annual Report and Accounts 2020 Associated British Foods plc 37Sugar in action
BRITISH SUGAR’S GROWTH
OPPORTUNITY IN THE
PHARMACEUTICAL SECTOR
British Sugar has reconfigured its successful UK Growth opportunities
tomato business by growing a key ingredient for
the pharmaceutical industry. 13 British Sugar switched from its successful,
award-winning tomato crop to cannabis,
Prior to 2016, British Sugar grew 2% of the UK’s
tomato crop at Riverside Glasshouse, 18 hectares
football due to the significantly greater growth and
profit opportunities inherent in growing some
of glasshouse (equivalent to 13 football pitches)
that uses surplus heat and carbon dioxide from
pitches pharmaceutical ingredients. The decision
supported the business’s strategy of maximising
return on investment from all assets and being
British Sugar’s adjacent Wissington sugar factory.
Riverside Glasshouse open-minded about new co-product and
Maximising the value of the high-grade facilities, comprises 18 hectares growth possibilities.
it moved out of tomatoes and now uses of glasshouse Riverside was reconfigured to provide the right
Riverside to grow a non-psychoactive variety (equivalent to 13 environment for the new crop in just 60 days.
of cannabis, specially cultivated for medical football pitches), that Internal fixtures were removed; LED lights
purposes. This plant contains cannabidiol use surplus heat and were inserted; and blackout blinds were installed
(CBD), the active pharmaceutical ingredient in carbon dioxide from throughout. The first cuttings were planted
Epidyolex®/Epidiolex® (cannabidiol), a medicine British Sugar’s in January 2017, just two months after the last
licensed in Europe and the US for children with adjacent Wissington tomatoes were packed and sold, and by
severe forms of epilepsy. Some 240 miles of sugar factory. May 2017 the first batch of botanical raw
piping carries hot water from the sugar factory’s
materials were delivered to the client, GW
combined heat and power (CHP) plant all
Pharmaceuticals (GW)*.
year round to maintain temperatures that suit
the plants.
38 Associated British Foods plc Annual Report and Accounts 2020Strategic report
British Sugar grows cannabis plants specifically * GW is a UK-based global biopharmaceutical company that
60 days bred by GW to produce CBD. CBD is produced
naturally by microscopic resin heads (trichomes)
has established a world-leading position in cannabinoid
science and medicines over the last two decades. GW’s
pioneering work has led to the regulatory approval of
found on the plants. These trichomes act as a world-first, potentially life-changing, cannabis-based
Riverside was defence mechanism to predators and harmful medicines, which have treated thousands of patients in the
reconfigured to UV rays. UK and around the world.
provide the right
environment for the Epidyolex®/Epidiolex® is an oral solution which
new crop in just contains highly purified CBD. The medicine
was approved by the U.S. Food & Drug Riverside Glasshouse (pictured
60 days.
Administration (FDA) in June 2018, and by below) is adjacent to British Sugar’s
the European Medicines Agency (EMA) in factory in Wissington, UK (seen in
September 2019. The medicine was background).
recommended by the National Institute for
Health and Care Excellence (NICE) to receive
routine reimbursement from NHS England in
November 2019. GW continues to research the
medicine in other forms of refractory epilepsy,
alongside autism spectrum disorders.
Annual Report and Accounts 2020 Associated British Foods plc 39Sugar in action
AT THE HEART OF THE
UK’S HOME-GROWN
SUGAR INDUSTRY
British Sugar is putting customers firmly at the Other recent initiatives included developing a
centre of its operations as it delivers on its
ambition to be the supplier of choice for sugar 208 days broader range of product format and traded
sugars, investing in its customer services team,
in the UK. automating warehousing for quicker response
The business achieved times and extending logistics operations to allow
The business processes around eight million Europe’s longest-ever bespoke scheduling. In 2019/20 these changes
tonnes of sugar beet and produces up to 1.4 continuous sugar boosted service levels and sales volumes.
million tonnes of sugar annually. It has been processing campaign
strengthening its operations for over a decade, to lasting 208 days. Record-breaking year with growers
succeed in the more competitive market arising In addition to focusing on customers, British
from the 2017 EU industry deregulation. This Sugar also works closely with its growers and
includes continuous investment in its four their representative body, NFU Sugar, to drive
factories which has totalled £500m over the past improvements and innovation.
decade, driving efficiency improvements,
Such collaboration has helped achieve over 25%
reducing energy consumption and emissions,
improvement in beet sugar yields in the last ten
and improving operational flexibility.
years and this year achieving Europe’s longest-
Focused on our customers ever continuous sugar processing ‘campaign’.
Listening to what customers want – and The campaign lasted 208 days, up from 194 days
delivering it – is pivotal to British Sugar’s strategy. last year. It saw British Sugar process more than
A focus on customers 7.8 million tonnes of beet, in 290,000 deliveries,
Complementing the efficiency achieved via its during 2019/20 has from more than 3,000 growers.
ongoing supply chain investment, the team is helped British Sugar
committed to delivering quality products when boost service levels Positioned for future success
customers need them, on time and in full. and sales volumes. As it looks to the future, British Sugar faces
challenges and opportunities with an unswerving
Key to this has been providing customers with
customer focus; security of supply by working in
greater market insight through regular and reliable
partnership with its growers; sound operations;
information on UK, EU and world sugar markets.
and a robust leadership team.
The team has also focused on changing how it
contracts with customers to introduce more
options and to help reduce volatility in pricing
and create longer-term relationships.
25%
Collaboration with growers has helped
achieve over 25% improvement in beet
sugar yields in the last ten years.
3,000
Newark: one of British Sugar’s four factories
GROWERS
in which it has invested £500 million over British Sugar processed more than
the past decade. 7.8 million tonnes of beet, in 290,000
deliveries, from more than 3,000 growers.
40 Associated British Foods plc Annual Report and Accounts 2020Strategic report
ERNEST
Dr Ernest Peresu
Group Medical Services Specialist,
Illovo Sugar Africa
Readiness of our hospitals and
clinics in Africa
Illovo owns and runs four hospitals and
27 clinics spread across our operations
in the six African countries in which we
Along with readiness are located.
of the hospitals and Dr Ernest Peresu has spearheaded our
clinics, a critical part medical preparedness for the challenges
of our COVID-19 of COVID-19, leading the plan-ahead
emergency planning team helping to safeguard the health
and wellbeing of our employees and
has been health their families.
communications.
To deal with the expected increase in
Ensuring we the volume of patients and to ensure
reached local dedicated lines of medical treatment to
communities with prevent the potential for cross-over
infections, a key part of that plan was to
practical, evidence- create two streams of care – one for
based information to patients with respiratory symptoms and
empower people another for those with general illnesses
to stay as healthy – and ensuring adequate supplies of
equipment, oxygen and PPE kits.
as possible was a
key part of the plan.
Annual Report and Accounts 2020 Associated British Foods plc 41Operating review | Agriculture
20
YEARS
With 20 years of expertise,
our data and technology
platforms deliver targeted
insights that create
continuous improvement for
agricultural supply chains.
Read more about how Intellync
delivers targeted insight on page 46
BETTER
results
42 Associated British Foods plc Annual Report and Accounts 2020Strategic report
Strategic Report
AGRICULTURE
AB Agri is a leading international agricultural
business operating across the agri-food industry,
producing and marketing animal feed, nutrition-
and technology-based products and services.
ABOUT STRATEGY
With a detailed understanding of Co-product innovation AB Agri operates through a
agriculture’s importance in the global and marketing strong network of contacts
food supply chain, our philosophy is to AB Agri is one of the UK’s largest and across the entire agri-food
help change it for the better; influencing most progressive marketers of food and supply chain, influencing
and improving food production, so that drink co-products, having pioneered the progressive systems that use
everyone can eat nutritious food that is industry for over 30 years. Co-products expertise, technology and
produced safely and responsibly. are a secondary product stream created insight to make a difference to
during the manufacture of food and the way food is produced.
Across the agricultural supply chain, our
drink. They are usually cereal or plant-
products, data insight and technological Organic growth is achieved
based residues from industries such as
innovation enable our customers to through innovative product
brewing, distilling and sugar production.
produce and process high-yielding, safe development and by extending
and nutritious food in a responsible way, Supply chain, data and the business’s already broad
using fewer chemicals and antibiotics, technology solutions geographic reach into new
safeguarding natural resources and With 20 years of expertise, our data and territories and new areas
creating less waste and lower emissions. technology platforms deliver targeted adjacent to its core capabilities.
Employing over 3,000 people around the insight that create continuous Using the diverse breadth of
world, we sell products into 84 countries improvement for agricultural supply products, services and people
and continue to grow our global chains. We work exclusively with major within the AB Agri community,
operations. Our core capabilities include: food processors, retailers and directly the business develops bespoke
with farmers, enabling them to: solutions tailored to its
Specialised feed ingredients
customers’ needs.
and mixtures • increase productivity and yields;
A major investor in research and • improve animal health and husbandry; AB Agri will continue its
development of specialty feed ingredients and successful strategy of seeking
and mixtures, we provide highly • deploy robust quality assurance and to make complementary
specialised advice around procurement corporate responsibility programmes. acquisitions to strengthen its
and formulation for livestock feeds portfolio of businesses and its
Commodity risk management
and pet foods as well as global technical capability. It will also
We are the UK’s leading grain trading
manufacturing expertise. We market continue to collaborate with
and crop inputs (seed, crop protection
pioneering feed ingredients: additive other businesses in the
and fertiliser products, agronomy and
products, high-quality, bespoke, vitamin Associated British Foods group
precision farming advice) company
and mineral pre-mixes, starter feeds and to harness new contacts and
through Frontier Agriculture, our joint
micro-ingredients developed using a technologies.
venture with Cargill plc, providing
world-class expertise in feed enzymes,
customers with in-depth insight into
nutrition and product formulation.
global commodity markets.
Compound feed
We are a major international
manufacturer and supplier of pig,
poultry and dairy feeds with 29
production sites in the UK, continental
Europe and China. We work closely
with major processors and producers
to benchmark productivity and
performance, developing tailored feeds
and new feeding regimes to improve
performance for every customer.
Annual Report and Accounts 2020 Associated British Foods plc 43Operating review | Agriculture
PRODUCTS AND
SERVICES FOR
THE AGRI-FOOD
INDUSTRY
Revenue Revenue and adjusted operating profit at Intellync is our newly formed data and
AB Agri were in line with last year. As technology-led supplier of insights that
£1,395m COVID-19 appeared in our markets the
business reacted swiftly and effectively
to ensure the safety of employees and
enable more effective decision making
on farms. This will improve efficiency
and animal welfare on farms and provide
2019: £1,385m
continued availability of animal feed to enhanced supply chain assurance.
Actual fx: Up 1% our customers. During the year two small farm data and
Constant fx: Up 1% technology businesses were acquired
Sales and profit at AB Vista, our
and a new technology centre in Kilkenny,
international feed enzymes business,
Adjusted operating profit Ireland was opened.
were strongly ahead of last year, with
£43m good sales growth in the Americas and
the first full year of sales from Signis, our
innovative animal digestion aid. Growth
Profits in our Chinese feed business
benefited from lower raw material prices
and tight cost control. Growth in our
2019: £42m trended lower in the second half as beef cattle and sheep feed business is
Actual fx: Up 2% customers either reduced feed reducing our reliance on pig production,
Constant fx: Up 2% production volume or reduced their feed which continues to suffer from the
enzyme inclusion rates in response to effects of African Swine Fever. Frontier
lower foodservice demand. Agriculture, our grain trading and crop
Adjusted operating
inputs joint venture, saw a reduction in
profit margin Sales were lower this year at our UK
profit with unfavourable weather in the
feed businesses. Sales prices were
3.1%
autumn and spring leading to a much-
reduced due to lower commodity costs
reduced winter cereal area and lower
and the benefit of new customers only
demand for fertilizer and crop protection
2019: 3.0% partially offset lower compound feed
treatments.
2019 IFRS 16 pro forma: 3.0% demand following a decline in
foodservice milk and poultry meat
volumes as a result of COVID-19. The
Return on average new premix production facility at Fradley
capital employed Park in Staffordshire has now been fully
commissioned. Our feed businesses in
10.5% Spain and Denmark have performed
particularly strongly and our Polish
business, acquired last year, has
2019: 10.7%
performed well.
2019 IFRS 16 pro forma: 10.3%
44 Associated British Foods plc Annual Report and Accounts 2020Strategic report
Strategic Report
Agriculture in action
BRIAN
Brian Kenyon
Senior Nutrition Manager,
AB Connect, a division of AB Agri
A ground-breaking ‘emergency
diet’ for livestock
Farmers need their livestock to have
the right amount of minerals and
nutrients to ensure a healthy, balanced
I’m proud of the work diet. AB Connect, a part of AB Agri, is
our team delivered. one of the top UK animal feed suppliers,
Thankfully, we ensuring that approximately 270 million
chickens and 2.3 million pigs are fed
haven’t had to trigger a healthy, nutritious diet tailored to
the use of the their needs.
emergency diets When COVID-19 hit the UK, it presented
because supply a risk to manufacturing and delivery
chains remained continuity for our compound feed mills.
Brian and his Nutrition Team set to work
robust. But by on a solution to ensure livestock would
developing this suite still be fed should parts of the animal
of diets the UK’s feed supply chain be interrupted. This
agri-food supply had never been done before and
required precision planning.
chain is even more
resilient for The solution they devised was a
targeted range of diets that could be
the future. more easily supplied during a crisis,
whilst still meeting the animals’ health
and welfare needs. Brian was the driving
force behind turning complexity into
simplicity. With his guidance and
coordination, the Nutrition Team
reviewed all pig and poultry diets and
identified suitable emergency substitute
diets. They then worked with the
Commercial, Customer Services and
Formulation Teams to transform these
intricate formulas into a reality.
Annual Report and Accounts 2020 Associated British Foods plc 45Agriculture in action
FEEDING BEST
Data-driven decision-making
Such instant nutrition and farm
performance guidance is an everyday
PRACTICE IN
feature of the CowConnect weighing
system and feeding software, one
of a range of technology-led tools
FARMING
delivered by Intellync, a division
of AB Agri. Through products such as
CowConnect, Intellync provides its
customers with data-driven insights
that enable them to make better,
faster, more sustainable decisions on
farms – and across the supply chain –
in line with best practice.
A dairy farmer is preparing the daily feed A few hours later, they review the mix
Intellync was launched in
ration for their herd and needs to adjust precision to ensure the cows were fed
December 2018 to bring together
the formulation to account for rain and accurately. They also receive an alert
and grow AB Agri’s data, technology
the addition of nine extra cows. They informing them that there may be an
and sustainability capability,
quickly add the correct number of opportunity to optimise their starch
with its complement of deep
cows to an app and activate the rain inclusion that could improve the herd’s
agricultural expertise.
function; a new, balanced ration is sent milk production. The same message
automatically to the mixer wagon for the goes simultaneously to the farm It has three business areas:
team to begin loading the exact amount nutritionist who, by the next morning,
• FarmWizard, acquired in April
of ingredients needed that day. has remotely updated the ration
2020, which provides easy-to-use
calculation, adjusting the starch content.
and navigate dairy farm management
This automatically appears on the mixer
software and milk processor solutions;
wagon loading system, ready to be
implemented with that day’s feeding
programme. The busy farmer,
meanwhile, can continue to focus on
running their farm.
THE FarmWizard CowConnect
SUPPLY Provides easy-to-use
and navigate dairy farm
Provides an innovative weighing
system and feeding solution that
CHAIN
management software. transforms how dairy farms
drive feed accuracy.
Through our various businesses
we cover the supply chain every
step of the way.
Genetics & Breeding Veterinary Services Consultant Services Feed & Agri
Inputs
46 Associated British Foods plc Annual Report and Accounts 2020You can also read
