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Introduction Introduction Document Transcript

  • 7 November 2005 Dairy Crest Group plc Restatement of financial information under International Accounting Standards and International Financial Reporting Standards Dairy Crest Group plc today releases a restatement of results for the half year ended 30 September 2004 and the full year ended 31 March 2005 in accordance with International Financial Reporting Standards (“IFRS”). These results will form the comparative data for the Group’s interim and full year results for 2006. There is no change to the Group’s underlying operations under IFRS and, in particular, there is no impact on the Group’s cash flows. The move to IFRS has no direct impact on our bank covenants as these are based on “frozen GAAP”. The financial restatements result in a: • £8.5 million decrease in adjusted profit before tax and special items (including share of joint ventures) for the year ended 31 March 2005. • 3.2 pence increase in 2005 full year earnings per share. • 5.4 pence decrease in 2005 full year adjusted earning per share. • £56.8 million decrease in net assets at 1 April 2004 principally due to the recognition of the net pension liability of £70.5 million offset by the reversal of the final dividend of £16.5 million. • £52.1 million decrease in net assets at 31 March 2005 principally due to the recognition of the net pension liability of £77.3 million offset by the reversal of the final dividend of £17.7 million. The standards that give rise to the most significant changes to the Group Accounts on transition from UK GAAP to IFRS are as follows: • IFRS 3 “Business combinations” - cessation of goodwill amortisation. • IFRS 2 “Share-based payments” - inclusion of a charge for share based payments based on the fair values of these awards. • IAS 23 “Borrowing costs” - election of cessation of interest capitalisation. • IAS 19 “Employee benefits” - inclusion on the balance sheet of the net pension liabilities. • IAS 10 “Events after the balance sheet date” - dividend liability recognised when approved. • IAS 39 “Financial Instruments: Recognition and Measurement” - recognition of financial instruments at fair value or amortised cost at 1 April 2005. The Consolidated Balance sheets at 1 April 2004, 31 March 2005 and 1 April 2005 and the results for the year ended 31 March 2005 as restated under IFRS are audited. The Consolidated Balance sheet at 30 September 2004 and the results for the period ended 30 September 2004 as restated under IFRS are unaudited. The full restated financial information is available through the investor relations section of the company’s website at www.dairycrest.co.uk. Dairy Crest will announce its interim results for the six months ended 30 September 2005 on Thursday 10 November 2005. For further information: Dairy Crest Group plc Tel: 01372 472200 Alastair Murray, Finance Director Will Shaw, Investor Relations Brunswick Tel: 020 7404 5959 Page 1
  • William Cullum / Laura Cummings Page 2
  • Dairy Crest Group plc Restatement of financial information under International Accounting Standards and International Financial Reporting Standards 1. Introduction Dairy Crest Group plc previously prepared its consolidated financial statements under UK Generally Accepted Accounting Principles (“UK GAAP”). International Accounting Standards (“IAS”) and International Financial Reporting Standards (“IFRS”) will apply for the first time in the Group’s Interim Report for the six months to 30 September 2005 and for the full year 2006 Annual Report and Accounts. This document explains how the Group’s previously reported financial performance and position are reported under IFRS. The following restatements are included as appendices to this document: • Group’s consolidated balance sheet at 1 April 2004, the Group’s date of transition to IFRS; • the Group’s consolidated balance sheet at 30 September 2004 and 31 March 2005; • the Group’s consolidated income statement, consolidated statement of recognised income and expense and consolidated cash flow statement, for the year ended 31 March 2005 and for the six months ended 30 September 2004; • The Group’s consolidated balance sheet at 1 April 2005. The Consolidated Balance sheets at 1 April 2004, 31 March 2005 and 1 April 2005 and the results for the year ended 31 March 2005 as restated under IFRS are audited. The Consolidated Balance sheet at 30 September 2004 and the results for the period ended 30 September 2004 as restated under IFRS are unaudited. The financial information contained in this document does not constitute the Company’s statutory accounts within the meaning of Section 240 of the Companies Act 1985 (as amended). The UK GAAP figures in this document for 31 March 2004 and 31 March 2005 have been extracted from the statutory accounts for the year ended 31 March 2004 and 31 March 2005, which has been filed with the Registrar of Companies. The UK GAAP figures for 30 September 2004 have been extracted from the Interim Report. The auditors reported on the statutory accounts for the year ended 31 March 2004 and 31 March 2005; their reports were unqualified and did not contain a statement under either section 237 (2) or section 237 (3) of the Companies Act 1985 (as amended). This financial information has been prepared on the basis of IFRS expected to be applicable at 31 March 2006. In particular the Directors have assumed that the European Commission will endorse the amendment to IAS 19 “Employee Benefits” issued by the International Accounting Standards Board (“IASB”) in December 2004 allowing actuarial gains and losses to be recognised in full through reserves. IFRS are subject to ongoing review and endorsement by the European Union or possible amendment by interpretive guidance from the IASB and the International Financial Reporting Interpretations Committee (“IFRIC”) and are therefore still subject to change. Reference to IFRS throughout this document refers to the application of both IAS and IFRS. A summary of major impacts on the adoption of IFRS and a summary of significant accounting policies under IFRS are discussed below. 2. First time adoption of IFRS The rules for first time adoption of IFRS are set out in IFRS 1 “First-Time Adoption of International Financial Reporting Standards”. The Group’s date of transition to IFRS is 1 April 2004 and the comparative information in the financial statements is restated to reflect the Group’s adoption of IFRS except where otherwise required or permitted by IFRS 1. As a general rule IFRS 1 requires these standards to be applied retrospectively. However, IFRS 1 allows for a number of exemptions to these general principles to assist companies in reporting under IFRS. The key exemptions the Group has take advantage of are as follows: Page 3
  • •Business combinations – The Group will not restate business combinations prior to the transition date. Acquisitions prior to this date will be recorded under previous accounting rules. IFRS 1 requires that an impairment review of goodwill should be conducted in accordance with IAS 36 at the date of transition and at the balance sheet date. Dairy Crest has performed this review and no adjustment is required. • Employee benefits – The Group has elected to take advantage of the exemption which allows cumulative actuarial gains and losses in relation to the defined benefit pension schemes to be recognised in full immediately in equity at the transition date. • Cumulative translation differences - IAS 21 “The Effects of Changes in Foreign Exchange Rates” requires the cumulative amount of exchange differences previously recognised directly in equity in relation to a foreign operation to be transferred to the income statement as part of the profit or loss on disposal. The Group has adopted the exemption allowing these cumulative translation differences to be set to zero at the transition date. • Financial instruments - The Group has elected to apply the exemption which allows companies not to restate comparatives for IAS 32 “Financial Instruments: Disclosure and Presentation” and IAS 39 “Financial Instruments: Recognition and Measurement”. The general principle set out by IAS 39 is that financial assets and liabilities should be recognised at fair value or amortised cost. These standards will be applied from 1 April 2005 where the fair value of derivatives will be included in the balance sheet. The net adjustment at 1 April 2005 is £0.3 million comprising the fair value of interest rate swaps and forward foreign currency contracts. The exemptions that Dairy Crest has elected not to adopt include the following: • IFRS 2 “Share-based payments” - The Group has not adopted the exemption to apply IFRS 2 Share-based payments only to awards made after 7 November 2002. Instead a full retrospective approach has been followed on all awards granted but not fully vested at 1 April 2004 to maintain consistency across reporting periods. • Fair value or revaluation at deemed cost - The Group has not adopted the exemption to restate property, plant and equipment to fair value at the transition date. Such items have been maintained at historical cost in order to maintain consistency with the Group accounting policy under UK GAAP. 3. Summary of the major impacts of adoption of International Financial Reporting Standards IAS 19 “Employee benefits” The Group previously accounted for the pensions schemes using SSAP 24 “Accounting for Pension Costs” and also complied with the transitional rules of FRS 17 “Retirement Benefits”. Under IFRS Dairy Crest is required to recognise the net deficits in the Dairy Crest Pension Fund of £64.1 million (after deferred tax of £27.4 million) and in the Wexford Creamery Limited pension schemes of £1.6 million (after deferred tax of £0.2 million) and its share of the net deficit in the Yoplait Dairy Crest Final Salary Pension Scheme of £1.1 million (after deferred tax of £0.4 million) at the transition date. In addition, the net SSAP 24 pension asset of £3.7 million has been written off. This will result in a net reduction to shareholders’ equity of £70.2 million. Despite some minor differences in the method of determining the value of the assets of the pension fund between IAS 19 and FRS 17 there is no material net difference between the balance sheet deficit computed under FRS 17 at 31 March 2004 and 31 March 2005 and the amount recognised under IAS 19. IFRS has increased the net pension costs by £7.2 million (net of interest income of £0.3 million) for the year ended 31 March 2005. Page 4
  • IFRS 3 “Business combinations” IFRS 3 prohibits goodwill amortisation. All goodwill has been frozen at UK GAAP carrying values on 1 April 2004. The standard requires goodwill to be carried at cost with impairment reviews undertaken annually and also when there are indications that the carrying value may not be recoverable. The full year operating profit impact for 2005 is to reduce the amortisation charge and increase net assets by £13.1 million. IFRS 2 “Share-based payments” Under IFRS share-based payments must be measured at fair value at grant date and should be recognised as an expense over the vesting period. This expense is primarily in relation to the Group’s Save as You Earn schemes (“SAYE”) and Long Term Incentive Share Plan (“LTISP”). The Group has sought advice from external valuation specialists to value its share- based payments. The fair value of the total shareholders return (“TSR”) element of the LTISP has been calculated using a Monte Carlo option-pricing model. The fair value for the Sharesave schemes have been calculated using a Black-Scholes model. The effect of adopting IFRS 2 for the year ended 31 March 2005 has reduced operating profit by £1.7 million. Additionally there is a cumulative charge for the adoption of IFRS 2 at the transition date to retained earnings of £1.2 million (after deferred tax of £0.5 million). IAS 23 “Borrowing costs” IAS 23 allows the capitalisation of borrowing costs where they are directly attributable to the construction of a qualifying asset. However, where borrowing costs are capitalised the treatment must be consistently applied to all borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets. Dairy Crest’s current accounting policy is to only capitalise interest on major capital projects. Due to the administration involved in applying capitalisation to all qualifying assets we have amended our accounting policy to expense all interest as incurred and cease capitalisation of interest as part of the cost of qualifying assets. This has resulted in a reduction in the net book value of tangible fixed assets of £6.1 million offset by the reversal of a deferred tax liability of £1.8 million at the date of transition. Profit before tax has also increased by £0.4 million for the year ended 31 March 2005 as a result of this adjustment. IAS 10 “Events after balance sheet date” Under this standard the liability for dividend payments is recognised when the dividend is approved. The normal practice under UK GAAP is for dividends to be recognised in the period to which it relates. At 31 March 2004 the final dividend for the year of £16.5 million had not been approved by the Board. In the opening IFRS balance sheet the dividend creditor has been reversed. Similarly, shareholders’ equity at 31 March 2005 has been increased by £17.7 million. IAS 17 “Leases” Under IFRS lease incentives are required to be written off over the life of the lease. Under UK GAAP these have been written off over the period up to the first rent review. The adoption of IFRS has resulted in the recognition of deferred income of £0.7 million and a deferred tax asset of £0.2 million. The deferred income will be credited to income at £0.1 million pa until 2012. IAS 12 “Income taxes” IAS 12 “Income taxes” covers accounting for both current and deferred taxation. The adoption of IAS 12 does not in itself result in any restatement of the Group’s tax charge. Page 5
  • However, the basis of recognising deferred tax under IAS 12 compared to the UK standard FRS 19 “Deferred tax” gives rise to the following differences: • deferred tax must be recognised on all fair value adjustments recorded as a result of acquisitions. This results in reduction in the deferred tax liability of £1.5 million in the opening balance sheet; and • separate disclosure of a deferred tax asset of £3.6 million is required which was previously netted off against deferred tax liabilities. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES UNDER IFRS The following are the proposed policies for the year ending 31 March 2006: Basis of preparation The financial statements have been prepared under the historical cost convention except for certain financial instruments and pension assets and liabilities, which are measured at fair value. The consolidated financial statements are presented in sterling and all values are rounded to the nearest 0.1 million (£ million) except when otherwise indicated. The consolidated financial statements of Dairy Crest Group plc have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Consolidation The Group financial statements consolidate the accounts of Dairy Crest Group plc and its subsidiary undertakings drawn up to 31 March each year using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Subsidiary undertakings and joint ventures acquired during the year are consolidated from the date on which control is transferred to the Group. Minority interests represent the interests in Wexford Creamery Limited and Haverfordwest Cheese Limited not held by the Group. Interest in Joint Ventures The Group’s investment in joint ventures are accounted for under the equity method of accounting. Joint ventures are entities which the Group has joint control and are not subsidiaries. The reporting date of the major joint venture, Yoplait Dairy Crest, is not identical to the Group although financial statements are prepared to 31 March each year. The company and joint ventures both use consistent accounting policies. The investment in joint ventures is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the joint ventures, less any impairment in value. The income statement reflects the share of the results of the joint ventures. Where there has been a change recognised directly in the joint ventures’ equity, the Group recognises its share of any changes and discloses this, when applicable in the Statement of Recognised Income and Expenses. Foreign currency translation The functional and presentational currency of Dairy Crest Group plc and its United Kingdom subsidiaries is the pound sterling (£). Transactions in foreign currency are initially recorded in the functional currency rate ruling at the date of the transaction. On consolidation, assets and liabilities of foreign subsidiaries are translated into sterling at year end exchange rates. The results of foreign subsidiaries are translated into sterling at average rates of exchange for the year. Exchange differences arising from the retranslation of the net investment in foreign subsidiaries at year end exchange rates, less exchange differences on borrowings, which finance or provide a hedge against those undertakings are taken to a separate component of equity. Exchange differences relating to foreign currency borrowings that provide a hedge against a net investment in a foreign entity remain in equity until the disposal of the net investment, at which time they are recognised in the consolidated income statement. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in equity. Page 6
  • Property plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any impairment losses. Cost comprises the purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation is calculated to write off the cost of tangible fixed assets, excluding freehold land, on a straight-line basis over the estimated useful lives of the assets as follows: Freehold buildings – 25 years Leasehold land and buildings – 25 years or, if shorter, the period of the lease Plant and equipment – 4 to 20 years Vehicles – 4 to 10 years The carrying value of property, plant and equipment is reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value exceeds the estimated recoverable value, the net asset is written down to its recoverable amount. The recoverable amount of plant and equipment is the greater of the net selling price or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are charged to the Income Statement. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset is included in the Income Statement in the year that it is derecognised. Borrowing costs Borrowing costs are recognised as an expense when incurred in accordance with IAS 23. Goodwill Goodwill recognised under UK GAAP prior to the date of transition to IFRS is stated at the net book value as at this date. Goodwill on acquisition is initially measured at cost being the excess of the costs of the business combination over the Group’s (acquirer’s) interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to the cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash- generating unit retained. Intangible assets Intangible assets acquired as part of an acquisition of a business are capitalised at fair value separately from goodwill if the fair value can be measured reliably on initial recognition and the future expected economic benefits flow to the Group. Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangibles with a finite life are amortised to the Income Statement using a methodology that matches management's estimate of how the benefit of the assets Page 7
  • will be recovered. Intangible assets are tested for impairment annually either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Intangible assets acquired separately from business combinations include software development expenditure. Software is carried at cost less accumulated amortisation. Software is amortised over 5 years. Research and development Expenditure on research is written off as incurred. Development expenditure is also written off as incurred unless the future recoverability of this expenditure can reasonably be assured as required by IAS 38. Recoverable amount of non-current assets At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Inventories Inventories is valued at the lower of cost and net realisable value. Cost includes the purchase price of raw materials (on a first in first out basis), direct labour and a proportion of manufacturing overheads based on normal operating capacity incurred in bringing each product to its present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and selling costs. Trade and other receivables Trade and other receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. Cash and Cash Equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of bank overdrafts. Interest Bearing Loans All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in net profit or loss when the liabilities are derecognised or impaired, as well as through the amortisation process. Pensions The liability in respect of defined benefit schemes is the present value of the relevant defined benefit obligation at the balance sheet date less the fair value of plan assets, along with adjustments for actuarial gains and losses and past service cost. The independent actuary completes a full actuarial valuation triennially. The obligation is updated annually for financial reporting purposes by the actuary using the projected unit credit method. The present value of the obligation is determined by the estimated future cash outflows using interest rates of high quality corporate bonds which have terms to maturity approximating the terms of the related liability. Page 8
  • The current service cost are recognised in operating costs in the Income Statement. Past service costs are included in operating costs where the benefit have vested, otherwise they are amortised on a straight-line basis over the vesting period. The expected return on assets of funded defined benefit schemes and the interest on pension scheme liabilities comprise the finance element of the pension cost and are included in finance income. Actuarial gains and loses arising from experience adjustments, changes in actuarial assumptions and amendments to pension plans are charged or credited to the Statement of Recognised Income or Expense in the period in which they arise. Share based payments Equity based performance payments The Group has issued equity-settled share based payments for which the Group receives services from employees in consideration for the equity instrument. Equity-settled share based payments are measured at fair value at the grant date by an external valuer using a Monte Carlo option-pricing model. The costs of equity settled transactions are recognised on a straight-line basis over the vesting period. The cumulative expense recognised for equity settled transactions at each reporting date until vesting reflects the expired vesting period and the number of awards that, in the opinion of the directors, will eventually vest. The amount charged to the Income Statement is credited to reserves. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional on market conditions, which are treated as vesting irrespective of whether the market conditions are satisfied. The Group also provides employees with the ability to purchase the Group’s ordinary shares at 80% of the fair value at the grant date (SAYE Scheme). The Group records an expense, based on the estimate of the 20% discount related to the shares expected to vest on a straight-line basis over the vesting period using a Black Scholes option pricing model. Employees’ Share Ownership Plan (“ESOP”) The shares in the Company held by the Dairy Crest Employees’ Share Ownership Plan Trust to satisfy Long Term Incentive Share Plan awards are presented as a deduction from equity in arriving at shareholders equity. Leased assets Assets acquired under finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at fair value of the leased asset or, if lower, the present value of the minimum lease payments. The net present value of future lease rentals is included as a liability on the balance sheet. The interest element of lease rentals is charged to the Income Statement in the year. Capitalised leased assets are depreciated over the shorter of the useful life of the asset or the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease rentals are charged to the Income Statement on a straight-line basis over the lease term. Revenue Revenue on sale of goods and services is recognised when the significant risks and rewards of owning the goods are transferred to the buyer and can be reliably measured. Revenue comprises the invoiced value for the sale of goods net of value added tax, rebates and discounts and after eliminating sales within the Group. Government and other grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the Income Statement over the expected useful life of the relevant asset in equal annual instalments. Page 9
  • Income tax Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: • except where the deferred income tax liability arises from initial recognition of goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry- forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: • except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income tax relating to items recognised directly in equity are recognised in equity and not in the income statement. Derivative instruments The Group uses derivative financial instruments such as foreign currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are stated at fair value. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. For the purpose of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability or cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction. In relation to cash flow hedges to hedge firm commitments which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement. When the hedged firm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously Page 10
  • been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the Income Statement in the same year in which the hedged item affects the net profit and loss, for example when the future sale actually occurs. For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the Income Statement for the year. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the Income Statement for the year. Presentation of results under IFRS The attached appendices are presented in accordance with the IFRS accounting policies the Group intends to adopt for the year ending 31 March 2006. Appendices – Statements and reconciliations Page Consolidated Balance Sheet at 1 April 2004 11 Consolidated Income Statement for the period ended 30 September 2004 12 Consolidated Income Statement for the year ended 31 March 2005 13 Consolidated Balance Sheet at 30 September 2004 14 Consolidated Balance Sheet at 31 March 2005 15 Consolidated Balance Sheet at 1 April 2005 16 Consolidated Statement of Recognised Income and Expense for the period ended 30 September 2004 17 Consolidated Statement of Recognised Income and Expense for the year ended 31 March 2005 18 Consolidated Cash Flow Statement for the period ended 30 September 2004 19 Consolidated Cash Flow Statement for the year ended 31 March 2005 20 Page 11
  • Dairy Crest Group plc Consolidated Balance Sheet 1 April 2004 (Audited) £m Opening balance sheet adjustments Wexford/ Previously YDC reported under Borrowing Share based Employee Employee Total effect of Restated UK GAAP costs payments Dividend Employee Benefits Benefits Benefits Leases Taxation transition to IFRS under IFRS ASSETS Non-current assets Goodwill 99.8 - 99.8 Property, plant and equipment 321.2 (6.1) (6.1) 315.1 Deferred tax asset - 0.5 27.4 0.2 0.2 3.6 31.9 31.9 Investment in joint ventures using equity method 4.1 (1.1) (1.1) 3.0 425.1 (6.1) 0.5 - - 27.4 (0.9) 0.2 3.6 24.7 449.8 Current assets Trade and other receivables 130.6 (5.3) (5.3) 125.3 Inventories 188.5 - 188.5 Financial assets - - - Cash and cash equivalents 16.6 - 16.6 335.7 - - - (5.3) - - - - (5.3) 330.4 TOTAL ASSETS 760.8 (6.1) 0.5 - (5.3) 27.4 (0.9) 0.2 3.6 19.4 780.2 LIABILITIES Non-current liabilities Borrowings (292.8) - (292.8) Retirement benefit obligations - (91.5) (1.8) (93.3) (93.3) Deferred tax liability (32.4) 1.8 1.6 (2.1) 1.3 (31.1) Deferred income (10.3) (0.7) (0.7) (11.0) (335.5) 1.8 - - 1.6 (91.5) (1.8) (0.7) (2.1) (92.7) (428.2) Current liabilities Trade and other payables (162.0) 16.5 16.5 (145.5) Current tax liabilities (13.2) - (13.2) Borrowings (3.5) - (3.5) (178.7) - - 16.5 - - - - - 16.5 (162.2) TOTAL LIABILITIES (514.2) 1.8 - 16.5 1.6 (91.5) (1.8) (0.7) (2.1) (76.2) (590.4) EQUITY Equity attributable to equity holders of the parent Ordinary shares (31.0) - (31.0) Share premium account (24.8) - (24.8) Interest in ESOP 3.8 - 3.8 Merger reserve (55.9) - (55.9) Retained earnings (128.9) 4.3 (0.5) (16.5) 3.7 64.1 2.4 0.5 (1.5) 56.5 (72.4) Total shareholders’ equity (236.8) 4.3 (0.5) (16.5) 3.7 64.1 2.4 0.5 (1.5) 56.5 (180.3) Minority interests in equity (9.8) 0.3 0.3 (9.5) TOTAL EQUITY (246.6) 4.3 (0.5) (16.5) 3.7 64.1 2.7 0.5 (1.5) 56.8 (189.8) TOTAL EQUITY AND LIABILITIES (760.8) 6.1 (0.5) - 5.3 (27.4) 0.9 (0.2) (3.6) (19.4) (780.2) Page 12
  • Dairy Crest Group plc Consolidated Income Statement Period Ended 30 September 2004 (Unaudited) £m Transitional Adjustments Previously Total effect of reported under Share based Employee Business Joint ventures transition to Restated under UK GAAP payments Benefits Combinations reclassification Other IFRS IFRS Group revenue 630.5 630.5 Operating costs (586.4) 0.3 (3.7) 0.2 (3.2) (589.6) Share of profit of joint ventures 3.3 (3.3) (3.3) - Operating profit before goodwill and finance costs 47.4 0.3 (3.7) - (3.3) 0.2 (6.5) 40.9 Operating exceptional items/special items (1.1) - (1.1) Goodwill amortisation (6.4) 6.4 6.4 - Total operating profit 39.9 0.3 (3.7) 6.4 (3.3) 0.2 (0.1) 39.8 Profit on disposal of closed sites 0.6 0.6 Net finance costs Group (8.5) 0.2 (0.1) 0.1 (8.4) Share of joint ventures (0.1) 0.1 0.1 - Profit on ordinary activities before tax 31.9 0.3 (3.5) 6.4 (3.2) 0.1 0.1 32.0 Income tax expense (9.1) 1.0 (1.3) 1.0 - 0.7 (8.4) Profit after tax 22.8 0.3 (2.5) 5.1 (2.2) 0.1 0.8 23.6 Share of joint ventures' net profit - 2.2 2.2 2.2 Group profit for the period 22.8 0.3 (2.5) 5.1 - 0.1 3.0 25.8 Page 13
  • Dairy Crest Group plc Consolidated Income Statement Year Ended 31 March 2005 (Audited) £m Transitional Adjustments Previously reported Wexford/YDC under UK Share based Employee Employee Business Joint ventures Total effect of Restated under GAAP payments Benefits Benefits Combinations reclassification Other transition to IFRS IFRS Group revenue 1,260.6 1,260.6 Operating costs (1,167.5) (1.7) (7.4) (0.1) 0.5 (8.7) (1,176.2) Share of profit of joint ventures 7.5 (7.5) (7.5) - Operating profit before goodwill and interest 100.6 (1.7) (7.4) (0.1) - (7.5) 0.5 (16.2) 84.4 Operating exceptional items/special items (5.4) 4.3 4.3 (1.1) Goodwill amortisation (13.1) 13.1 13.1 - Total operating profit 82.1 (1.7) (7.4) (0.1) 13.1 (3.2) 0.5 1.2 83.3 Profit on disposal of closed sites 1.0 (0.3) (0.3) 0.7 Net finance costs Group (16.3) 0.3 (0.1) 0.2 (16.1) Share of joint ventures (0.1) 0.1 0.1 - Profit on ordinary activities before tax 66.7 (1.7) (7.1) (0.1) 13.1 (3.4) 0.4 1.2 67.9 Income tax expense (19.0) 0.2 2.1 (2.5) 1.1 (0.5) 0.4 (18.6) Profit after tax 47.7 (1.5) (5.0) (0.1) 10.6 (2.3) (0.1) 1.6 49.3 Share of joint ventures' net profit - 2.3 2.3 2.3 Group profit for the year 47.7 (1.5) (5.0) (0.1) 10.6 - (0.1) 3.9 51.6 Page 14
  • Dairy Crest Group plc Consolidated Balance Sheet 30 September 2004 (Unaudited) £m Transitional Adjustments Previously Wexford/YDC Total effect of reported under Borrowing Share based Employee Employee Business transition to Restated UK GAAP costs payments Benefits Benefits Combinations Dividend Taxation Other IFRS under IFRS ASSETS Non-current assets Goodwill 100.4 6.4 6.4 106.8 Property, plant and equipment 316.1 (6.1) 0.1 (6.0) 310.1 Deferred tax asset - 0.5 30.5 0.3 3.6 0.2 35.1 35.1 Investment in joint ventures using equity method 6.2 (1.2) (1.2) 5.0 memethod 422.7 (6.1) 0.5 30.5 (0.9) 6.4 - 3.6 0.3 34.3 457.0 Current assets Trade and other receivables 125.5 (5.3) (5.3) 120.2 Inventories 196.6 - 196.6 Financial assets - - - Cash and cash equivalents 10.4 - 10.4 332.5 - - (5.3) - - - - - (5.3) 327.2 TOTAL ASSETS 755.2 (6.1) 0.5 25.2 (0.9) 6.4 - 3.6 0.3 29.0 784.2 LIABILITIES Non-current liabilities Borrowings (263.3) - (263.3) Retirement benefit obligations - (102.3) (2.0) (104.3) (104.3) Deferred tax liability (34.3) 1.8 1.6 (1.3) (2.1) - (34.3) Deferred income (10.0) (0.7) (0.7) (10.7) (307.6) 1.8 - (100.7) (2.0) (1.3) - (2.1) (0.7) (105.0) (412.6) Current liabilities Trade and other payables (161.0) 7.3 7.3 (153.7) Current tax liabilities (15.0) - (15.0) Borrowings (7.6) - (7.6) Deferred income (0.7) - (0.7) (184.3) - - - - - 7.3 - - 7.3 (177.0) TOTAL LIABILITIES (491.9) 1.8 - (100.7) (2.0) (1.3) 7.3 (2.1) (0.7) (97.7) (589.6) EQUITY Equity attributable to equity holders of the parent Ordinary shares (31.0) - (31.0) Share premium account (24.9) - (24.9) Interest in ESOP 2.2 - 2.2 Merger reserve (55.9) - (55.9) Retained earnings (143.4) 4.3 (0.5) 75.5 2.6 (5.1) (7.3) (1.5) 0.4 68.4 (75.0) Total shareholders’equity (253.0) 4.3 (0.5) 75.5 2.6 (5.1) (7.3) (1.5) 0.4 68.4 (184.6) Minority interests in equity (10.3) 0.3 0.3 (10.0) TOTAL EQUITY (263.3) 4.3 (0.5) 75.5 2.9 (5.1) (7.3) (1.5) 0.4 68.7 (194.6) TOTAL EQUITY AND LIABILITIES (755.2) 6.1 (0.5) (25.2) 0.9 (6.4) - (3.6) (0.3) (29.0) (784.2) Page 15
  • Dairy Crest Group plc Consolidated Balance Sheet 31 March 2005 (Audited) £m Transitional Adjustments Previously Wexford/YDC Total effect of reported under Business Borrowing Share based Employee Employee transition to Restated under UK GAAP Combinations costs payments Dividend Benefits Benefits Leasing Taxation Other IFRS IFRS ASSETS Non-current assets Goodwill 97.3 13.1 13.1 110.4 Property, plant and equipment 322.7 (5.7) (5.7) 317.0 Deferred tax asset - 0.3 30.0 0.3 0.2 3.6 1.8 36.2 36.2 Investment in joint ventures using equity method 6.4 (1.2) (1.2) 5.2 426.4 13.1 (5.7) 0.3 - 30.0 (0.9) 0.2 3.6 1.8 42.4 468.8 Current assets Trade and other receivables 129.3 (5.3) (5.3) 124.0 Inventories 172.7 - 172.7 Financial assets - - - Cash and cash equivalents 27.2 - 27.2 329.2 - - - - (5.3) - - - - (5.3) 323.9 TOTAL ASSETS 755.6 13.1 (5.7) 0.3 - 24.7 (0.9) 0.2 3.6 1.8 37.1 792.7 Non-current liabilities Borrowings (254.4) - (254.4) Retirement benefit obligations - (100.4) (2.3) (102.7) (102.7) Deferred tax liability (34.7) (2.5) 1.7 1.6 (2.5) (1.8) (3.5) (38.2) Deferred income (10.7) (0.7) (0.7) (11.4) (299.8) (2.5) 1.7 - - (98.8) (2.3) (0.7) (2.5) (1.8) (106.9) (406.7) Current liabilities Trade and other payables (165.6) 17.7 17.7 (147.9) Financial liabilities - - - Current tax liabilities (16.3) - (16.3) Borrowings (0.3) - (0.3) Deferred income (0.9) - (0.9) (183.1) - - 17.7 - - - - - 17.7 (165.4) TOTAL LIABILITIES (482.9) (2.5) 1.7 - 17.7 (98.8) (2.3) (0.7) (2.5) (1.8) (89.2) (572.1) EQUITY Equity attributable to equity holders of the parent Ordinary shares (31.2) - (31.2) Share premium account (28.2) - (28.2) Interest in ESOP 1.6 - 1.6 Merger reserve (55.9) - (55.9) Retained earnings (148.8) (10.6) 4.0 (0.3) (17.7) 74.1 2.8 0.5 (1.1) - 51.7 (97.1) Total shareholders’ equity (262.5) (10.6) 4.0 (0.3) (17.7) 74.1 2.8 0.5 (1.1) - 51.7 (210.8) Minority interests in equity (10.2) 0.4 0.4 (9.8) TOTAL EQUITY (272.7) (10.6) 4.0 (0.3) (17.7) 74.1 3.2 0.5 (1.1) - 52.1 (220.6) TOTAL EQUITY AND LIABILITIES (755.6) (13.1) 5.7 (0.3) - (24.7) 0.9 (0.2) (3.6) (1.8) (37.1) (792.7) Page 16
  • Dairy Crest Group plc Consolidated Balance Sheet 1 April 2005 (Audited) £m 1 April 2005 31 March 2005 Restated under under IFRS Derivatives IFRS ASSETS Non-current assets Goodwill 110.4 110.4 Property plant and equipment 317.0 317.0 Deferred tax asset 36.2 36.2 Investment in joint ventures using the equity method 5.2 (0.1) 5.1 468.8 (0.1) 468.7 Current assets Trade and other receivables 124.0 124.0 Inventories 172.7 172.7 Financial assets - 0.5 0.5 Cash and cash equivalents 27.2 27.2 323.9 0.5 324.4 TOTAL ASSETS 792.7 0.4 793.1 LIABILITIES Non-current liabilities Borrowings (254.4) (254.4) Retirement benefit obligations (102.7) (102.7) Deferred tax liability (38.2) (38.2) Deferred income (11.4) (11.4) (406.7) - (406.7) Current liabilities Trade and other payables (147.9) (147.9) Financial liabilities - (0.1) (0.1) Current tax liabilities (16.3) (16.3) Borrowings (0.3) (0.3) Deferred income (0.9) (0.9) (165.4) (0.1) (165.5) TOTAL LIABILITIES (572.1) (0.1) (572.2) EQUITY Equity attributable to equity holders of the parent Ordinary shares (31.2) (31.2) Share premium account (28.2) (28.2) Interest in ESOP 1.6 1.6 Merger reserve (55.9) (55.9) Hedging and translation reserves - (0.3) (0.3) Retained earnings (97.1) (97.1) Total shareholders’ equity (210.8) (0.3) (211.1) Minority interests in equity (9.8) (9.8) TOTAL EQUITY (220.6) (0.3) (220.9) TOTAL EQUITY AND LIABILITIES (792.7) (0.4) (793.1) Page 17
  • Dairy Crest Group plc Consolidated Statement of Recognised Income and Expense Period Ended 30 September 2004 (Unaudited) £m Previously reported Total effect of under UK Share based Employee Business transition to Restated GAAP payments Benefits combinations Other IFRS under IFRS Profit for the period 22.8 0.3 (2.5) 5.1 0.1 3.0 25.8 Exchange differences on foreign currency net investments - 0.3 0.3 0.3 Exchange differences on foreign currency borrowings - (0.3) (0.3) (0.3) Actuarial losses - (7.3) (7.3) (7.3) Tax on actuarial losses - 2.1 2.1 2.1 Total recognised income and expenses relating to the period 22.8 0.3 (7.7) 5.1 0.1 (2.2) 20.6 Page 18
  • Dairy Crest Group plc Consolidated Statement of Recognised Income and Expense Year Ended 31 March 2005 (Audited) £m Previously reported Total effect of under UK Share based Employee Business transition to Restated under GAAP payments Benefits Wexford/YDC combinations Other IFRS IFRS Profit for the year 47.7 (1.5) (5.0) (0.1) 10.6 (0.1) 3.9 51.6 Exchange differences on foreign currency net investments - 0.5 0.5 0.5 Exchange differences on foreign currency borrowings - (0.5) (0.5) (0.5) Deferred tax on share based payments - (0.4) (0.4) (0.4) Actuarial losses - (1.8) (0.5) (2.3) (2.3) Tax on actuarial losses - 0.5 0.2 0.7 0.7 Total recognIsed income and expenses relating to the year 47.7 (1.9) (6.3) (0.4) 10.6 (0.1) 1.9 49.6 Page 19
  • Dairy Crest Group plc Consolidated Cash Flow Statement Period Ended 30 September 2004 (Unaudited) £m Transitional Adjustments Previously Total effect of reported under Share based Employee Business Joint ventures transition to Restated under UK GAAP payments Benefits combinations reclassification Other IFRS IFRS Cash flow from operating activities Operating profit before finance costs 39.9 0.3 (3.7) 6.4 (3.3) 0.2 (0.1) 39.8 Adjustments for: Pensions 0.4 3.7 3.7 4.1 Operating exceptional items/special items (0.1) - (0.1) Amortisation of goodwill 6.4 (6.4) (6.4) - Depreciation 16.8 (0.2) (0.2) 16.6 Release of grants (0.3) - (0.3) Share of joint ventures (3.3) 3.3 3.3 - Share based payments - (0.3) (0.3) (0.3) Net profit on rationalisation of household business (2.3) - (2.3) Decrease in working capital 6.6 - 6.6 Cash generated from operations 64.1 - - - - - - 64.1 Interest paid (9.9) (9.9) Income tax paid (4.5) (4.5) Net cash flow from operating activities 49.7 - - - - - - 49.7 Cash flow from investing activities Payments to acquire fixed assets (net of grants) (13.9) - (13.9) Proceeds from disposal of fixed assets 5.6 - 5.6 Purchase of businesses (5.4) - (5.4) Receipt from sale of business 0.2 - 0.2 Net cash used in investing activities (13.5) - - - - - - (13.5) Cash flow from financing activities Increase in short term borrowings 4.1 - 4.1 Decrease in long term borrowings (30.0) - (30.0) Dividends paid (16.5) - (16.5) Net cash used in financing activities (42.4) - - - - - - (42.4) Net decrease in cash and cash equivalents (6.2) - (6.2) Cash and cash equivalents at the beginning of the period 16.6 - - - - - - 16.6 Cash and cash equivalents at the end of the period 10.4 - - - - - - 10.4 Reconciliation of net cash flow to movement in net debt Net decrease in cash and cash equivalents (6.2) (6.2) Decrease in debt 25.9 25.9 Exchange differences (0.5) (0.5) Decrease in net funds 19.2 19.2 Opening net debt (279.7) (279.7) Closing net debt (260.5) (260.5) Page 20
  • Dairy Crest Group plc Consolidated Cash Flow Statement Year Ended 31 March 2005 (Audited) £m Transitional Adjustments Previously reported Share based Business Joint ventures Total effect of Restated under under UK GAAP payments Employee Benefits combinations reclassification Other transition to IFRS IFRS Cash flow from operating activities Operating profit before finance costs 82.1 (1.7) (7.5) 13.1 (3.2) 0.5 1.2 83.3 Adjustments for: Pensions 0.1 7.5 7.5 7.6 Operating exceptional items (0.2) - (0.2) Amortisation of goodwill 13.1 (13.1) (13.1) - Depreciation 34.4 (0.5) (0.5) 33.9 Release of grants (0.8) - (0.8) Share of joint ventures (3.2) 3.2 3.2 - Share based payments - 1.7 1.7 1.7 Net profit on rationalisation of household business (3.1) - (3.1) Decrease in stocks 16.8 - 16.8 Decrease in debtors 3.7 - 3.7 Increase in creditors 0.1 - 0.1 Cash generated from operations 143.0 - - - - - - 143.0 Interest paid (17.7) - (17.7) Income tax paid (12.6) - (12.6) Net cash flow from operating activities 112.7 - - - - - - 112.7 Cash flow from investing activities Payments to acquire fixed assets (net of grants) (37.7) - (37.7) Proceeds from disposal of fixed assets 8.2 - 8.2 Purchase of businesses (9.9) - (9.9) Receipt from sale of business 0.2 - 0.2 Net cash used in investing activities (39.2) - - - - - - (39.2) Cash flow from financing activities Decrease in short term borrowings (3.5) - (3.5) Decrease in long term borrowings (57.2) - (57.2) Dividends paid (23.9) - (23.9) Proceeds from exercise of share options 3.6 - 3.6 Proceeds from sale and leaseback 18.7 - 18.7 Finance lease repayments (0.6) - (0.6) Net cash used in financing activities (62.9) - - - - - - (62.9) Net increase in cash and cash equivalents 10.6 - 10.6 Cash and cash equivalents at the beginning of the year 16.6 - - - - - - 16.6 Cash and cash equivalents at the end of the year 27.2 - - - - - - 27.2 Reconciliation of net cash flow to movement in net debt Net increase in cash and cash equivalents 10.6 10.6 Decrease in debt 60.7 60.7 Decrease in finance leases 0.6 0.6 Proceeds from sale and leaseback (18.7) (18.7) Exchange differences (1.0) (1.0) Decrease in net funds 52.2 52.2 Opening net debt (279.7) (279.7) Closing net debt (227.5) (227.5) Page 21