5th Dec 2006 07:01
Greencore Group PLC05 December 2006 PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 29 SEPTEMBER 2006 Greencore Group plc, one of Europe's leading convenience foods producers, todayannounces a strong performance for the year ended 29 September 2006. HIGHLIGHTS • Transformation from a predominantly Irish agribusiness to a leading European convenience foods producer completed • Strong performance in Convenience Foods - comprising 92.4% of continuing Group operating profits - Operating profit growth of 5.7% to Euro69.0m - Turnover growth of 8.3% to Euro901.4m - Strong operating margins of 7.7% (FY05: 7.8%), despite more than Euro5m of energy cost increases - Excellent second half sales (up 8.4%) and margin (8.4%) performance • Fundamentally reshaped Ingredients, Agribusiness and Related Property division: - Operating profits (including discontinued operations) of Euro27.6m (FY05: Euro36.7m) - Decision taken to exit sugar processing in Ireland - A decline in Malt performance, but a positive trajectory already in place for FY07 - Exciting developments and momentum in the management of Group property assets • Net exceptional charge of Euro67.1m, principally due to costs associated with the exit from sugar processing • Adjusted EPS(1) of 31.1 cent (FY05: 32.5 cent) • Final dividend maintained at 7.58 cent • Comparable net debt of Euro385.4m, a reduction of Euro14.3m since September 2005 and a reduction of Euro37.9m since March 2006, despite one-off sugar restructuring costs. • Positive outlook for FY07 and beyond Commenting on the results, David Dilger, Group chief executive officer, said: "Greencore has been transformed in recent years and is now one of Europe'sleading producers of convenience foods. The performance of our ConvenienceFoods division in 2006 has been excellent, with sales growing at twice themarket rate and operating margins broadly maintained, despite significantinflationary cost pressures. "The strength of our Convenience Foods business has substantially mitigated thenegative impact of EU sugar regime reform, a reform that not only significantlyreduced sugar profits in 2006, but led us to exit sugar processing entirely. "The Group is well positioned to deliver substantial value to shareholders overthe coming years primarily through continued profit growth and cash generationin Convenience Foods. The Group also has exciting plans to unlock the valuecontained in our property portfolio." (1)Before exceptional items, inter-company foreign exchange and the marking tomarket of all derivative financial instruments and related debt For further information, please contact: David DilgerGroup Chief Executive +353 1 605 1045 Patrick Coveney Chief Financial Officer +353 1 605 1018 Eoin TongeGroup Capital Markets Director +353 1 605 1036 Billy Murphy or Anne Marie CurranDrury Communications +353 1 260 5000 Rory Godson or Victoria BroughPowerscourt +44 207 236 5615 About Greencore • Greencore is one of Europe's leading producers of convenience foods aswell as an established ingredients and agribusiness supplier with operations inIreland, UK, The Netherlands and Belgium • Greencore is Europe's largest sandwich manufacturer, producing morethan 200 million sandwiches per annum • Greencore is the UK's largest Christmas cake manufacturer with a 31%market share • Greencore is the UK's largest producer of customer branded mineralwater with 180 million units per annum • Greencore is the leading Malt producer in Ireland, UK and Belgium • Greencore retains significant property assets in Ireland and the UK SUMMARY The year under review has been a key period in the transformation of Greencore.The end of sugar processing in Ireland means that Greencore has now completedits transformation from principally an agribusiness into one of Europe's leadingconvenience foods companies. The Convenience Foods division continues to perform strongly with operatingprofits up 5.7% to Euro69.0m. This growth was underpinned by turnover growth of8.3%, more than twice the underlying total food market growth rate of 3.4%(2),whilst keeping operating margins broadly in line with the prior year level (7.7%versus 7.8% in FY05). This margin performance was achieved despite divisionalenergy cost increases of more than Euro5m year on year. The division benefitedfrom excellent business performance in the second half of the year, whenoperating profits grew by 8.6%. This result reflects a clear strategy and strong operational performance: • Leadership of growing, concentrated product categories: Greencore hasNo.1 or No.2 positions in all of the product categories where it competes. Inaddition, in FY06 seven of our nine businesses grew above their respectivemarket growth rates; • Broad channel exposure: Sales to non-multiple customers grew by 26%in FY06; • An increased commitment to branded products: Greencore has developedan emerging set of licensed and owned brands that, over time, will become morecentral to our business. In FY06, 'branded' products accounted for 12% ofsales; • Relentless focus on Total Lowest Cost ("TLC"): Real operational costreduction that totalled more than 2% of sales; • Aggressive product development and mix management: More than 50% ofour FY06 product range is less than one year old - this delivers consumerexcitement and maintains margin for ourselves and our customers; • Well-invested food facilities delivering excellent operationalperformance: Customer service levels averaged 99% across the division in FY06. The Ingredients, Agribusiness and Related Property division delivered totaloperating profits of Euro27.6m, consisting of continuing operating profits ofEuro5.6m and discontinued operating profits of Euro22.0m. The year under reviewsaw dramatic developments in this division. Regulatory change in the EU sugarregime posed an insurmountable challenge to the competitiveness of the sugarindustry in Ireland. The Group responded to this challenge by committing earlyto exit sugar production in Ireland and strongly defending the Group'sentitlement to restructuring aid under EU law. As anticipated, over-capacity in European malt markets and significant energyprice inflation adversely impacted on the performance of our Malt business. Weare, however, currently seeing a significant improvement in the malt cycle thatcommenced in the last quarter of FY06. During the year, we also significantlyincreased our focus on unlocking the value from the Group's property assets. The Group continues to prioritise cash generation. Despite incurringexceptional cash costs, primarily associated with the exit from sugar,comparable net debt at the year-end totalled Euro385.4m, an improvement ofEuro14.3m on September 2005 and an improvement of Euro37.9m on March 2006. DIVIDEND The directors recommend a final dividend of 7.58 cent. If approved byshareholders, this will result in a total dividend of 12.63 cent which is inline with last year's level. (2)Source: TNS OUTLOOK Greencore is now a fundamentally different business to that of twelve months agowith its key focus now on driving forward its successful convenience foodsbusiness. Despite significant increases in input price inflation, we believe that thestrong strategic and operational model that we have put in place positionsConvenience Foods well for continued growth through FY07 and beyond. A recovery in the EU malt market should deliver a trading improvement in theMalt business and that, allied to the exciting property opportunities that weare pursuing, represents a positive outlook for Ingredients, Agribusiness andRelated Property. The Board believes the Group is well positioned to deliver substantial value toshareholders over the coming years. OPERATIONAL REVIEW - Convenience Foods 2006 2005 Change Eurom EuromTurnover (Continuing Operations) 901.4 832.6 +8.3%Operating Profit (Continuing Operations)* 69.0 65.2 +5.7% * before exceptional items The Convenience Foods division accounted for 92.4% of continuing operatingprofits in FY06. The division performed strongly to deliver full year turnovergrowth of 8.3%, operating profit growth of 5.7% and healthy operating margins of7.7%, despite challenging pricing and input cost environments. The demandingobjectives that we have set in the key areas of operational cost reduction,channel and customer diversification, innovation and operational performancecontinue to be achieved. Financial highlights for the year include: • Strong margin performance The division delivered operating margins of 7.7% for the full year,broadly in line with the FY05 figure of 7.8%. This was achieved despite energycost increases, year on year, of more than Euro5m - equivalent to 60 basispoints of margin reduction. • Turnover growth at more than twice underlying rate The division has continued to deliver strong organic growth. Turnovergrowth was 8.3% for the year, a level that is more than double the overall foodmarket growth rate of 3.4%(2). • Strong second half performance The division performed better in the second half of FY06. As highlightedin the Group's interim statement of 7 June 2006, operating profit growth of 2.2%for the first half of the year was achieved against a very strong comparativeperiod. Strong trading through the summer against a more typical comparativeperiod led to operating profit growth of 8.6% in the second half - driven bysales growth of 8.4% as well as modest operating margin improvements. • Robust performance across the full division The strong sales performance extended across the division, with seven of ournine category businesses growing above their relevant category growth rate(2).The main exception was Greencore's Grocery business, which delivered a solidperformance relative both to historic levels and our expectations, but sufferedwhen compared with its FY05 performance - a period in which its successfulresponse to a fire at a competitor's facility helped deliver above normal salesand profit. The Board is pleased with the financial performance of Convenience Foods inFY06. The division has now reported five consecutive half-year periods ofoperating profit growth. This consistent underlying delivery reflects both theclear choices that the Group has made on where it competes and the strongcapabilities that we have built across the businesses to successfully executeour strategy. 1. Well chosen categories Greencore believes in the fundamental attractiveness of the convenience foodsmarket - it is at the core of our strategy. We actively seek out No.1 or strongNo.2 market share positions in product categories with concentrated ownership.In seven of our nine convenience foods categories we hold the No.1 position andwe are the No.2 player in the other categories(2). Furthermore, we compete incategories that are growing faster than the overall market and that deliver higheconomic returns both for our customers and for Greencore. Greencore's success, to date, has been driven by these specific market, segmentand format choices. For example, in Mineral Water, where Greencore leads thecustomer brand market with a 34% market share, annual market growth was 6% andour growth was 10%. In Cakes, where the overall market grew at 6%, theCelebrations Cakes segment grew at 13% and our growth was nearly 18%(2). (2)Source: TNS 2. Balanced channel exposure A core feature of the Greencore model is the balance that we seek acrosschannels and customers. In FY06, two thirds of our business was conductedthrough the multiple channel. Within that channel, the relative share ofindividual customers has remained broadly stable and reflects the market shareof those retailers in the UK grocery market. The quality of our relationshipswith these customers remains central to our business model. Excellent customerservice underpins these relationships with customer service levels across theGroup averaging 99% for the year. We are also committed to building a material non-multiple business reflectingthe fact that nearly a quarter of total food and beverage spend in the UK is nowfocused on out-of-home consumption(2). This is a dynamic and vibrant channelcharacterised by higher levels of growth and greater movements of business thanthe multiple channel. In FY06, our sales to non-multiple channels grew by 26%.Our Greencore Food-To-Go operation drives much of this strategy. In FY06, thisbusiness delivered individually ordered fresh sandwiches and other chilledproducts to approximately 7,000 individual outlets six days per week. 3. A commitment to being the lowest cost competitor Greencore is committed to being the Total Lowest Cost (TLC) competitor inconvenience foods. The TLC imperative is as much about culture and leadershipas it is about process and efficiency. Over the past three years, this culturehas been deeply embedded at all levels of our business. In FY06, we had nearly200 TLC initiatives running across the division. Taken together, theseinitiatives have delivered operational cost improvements that total in excess of2% of sales, or more than Euro18m of divisional operating profits. Included in the TLC programme this year were a number of initiatives across allcategories focused on waste reduction. As a result, total waste across thedivision reduced by more than 10%. In addition, the division's 'Lean Greencore'programme saw approximately 600 process leaders complete training in leanprinciples that, in turn, directly resulted in nearly 100 new cost reductionprojects. This was supported by many discrete projects and investments directedat increased automation, productivity improvement and efficiency enhancement. Purchasing efficiency is also critical to our TLC effort and this year sawnearly 350 individual initiatives (in addition to the main TLC initiatives) todrive savings through supplier concentration as well as product and packagingre-engineering. These operational and efficiency improvements enabled us to offset input priceinflation, as well as improve terms with our customers, without sacrificing ourcommitment to quality and margin performance. We expect to deliver similarlevels of cost reduction going forward. 4. Aggressive innovation, especially in the areas of premium and health Innovation is the lifeblood of our convenience foods business. It is how wedeliver excitement to consumers and customers while sustaining margins. At theend of September 2006, more than 50% of our portfolio comprised products thatare less than one year old. For example, in response to significant changes inconsumer and customer preferences in the Chilled Meals category, we havereplaced or refreshed all of our lines, the majority being new products and theremainder being changes in packaging. Health remains important to the Group's innovation agenda with variousinitiatives delivering cleaner ingredients and healthier choices. One exampleis in the area of salt reduction where we have reduced the average salt contentin our quiche and prepared meal products by 38% and 31% respectively. 2Source: TNS The license agreement that we put in place with WeightWatchers(R) in June 2005has been a particularly important initiative. Greencore has since launched arange of chilled prepared meals produced under license from WeightWatchers(R),and over the course of FY06, we have built distribution through all of the majorUK and Irish retailers. In a little over a year, we have built a retail brandwith strong margins, delivering retail sales of approximately Euro25m. Already,we have a 10% market share in the total healthy chilled meals sector, including the number one selling individual product. Wehave already begun to roll out this brand to a number of our other conveniencefoods categories. 5. A decentralised model that bestows 'true ownership' to the businesses Greencore businesses 'own' their P&L and Cash Flow statements - that is the 'Greencore way'. This enables our front-line leaders to make the dailytrade-offs between commercial, operational and financial demands necessary todrive profit and cash performance. 6. Robust financial discipline Rigorous management of our resources, in particular our fixed and workingcapital investments, is a core feature of how Greencore competes. There wasEuro34.2m invested in Convenience Foods in FY06. This spend is tightly managedand focuses on driving efficiency improvement projects, such as our newautomated lines in Sandwiches and the real-time on-line data capture systems inCakes, or facilitating entry into new market sectors, such as our move into thefilled baguette, snack salad and WeightWatchers(R) prepared meal markets. The relentless focus on these strategic and operational imperatives is criticalto our continued success, given some significant market challenges: • A challenging retail environment UK multiples continued to drive retail price deflation across many categories,particularly in the first half of this year, placing even greater importance onour cost reduction and innovation processes. While there is some recentevidence of retail price inflation returning to selected food categories, theoverall pricing environment remains challenging. • Significant input price inflation The energy price increases of 2005 and 2006 have been widely reported across thefood industry. In FY06, the division incurred energy cost increases of morethan 50% (adding more than Euro5m to our cost base). We do not anticipatesimilar levels of price inflation in FY07. However, farm gate prices increasedsharply in the later part of the year impacting the cost of a wide range of rawmaterials and commodity ingredients. To absorb these inflationary pressures, weare pursuing a combination of further operational cost reduction and, whereappropriate, selected price increases. OPERATIONAL REVIEW - Ingredients, Agribusiness And Related Property 2006 2005 Change Eurom Eurom Turnover (Continuing and Discontinued 450.5 492.5 -8.5%Operations)Operating Profit (Continuing and 27.6 36.7 -24.7%Discontinued Operations)* * before exceptional items In the year under review, the Ingredients, Agribusiness and Related Propertydivision was subjected to unprecedented change. The Group has exited sugarprocessing, with FY06 representing the final year of operations. This brings anend to more than 80 years of sugar processing in Ireland. As anticipated,over-capacity in European malt markets and significant energy price inflationadversely impacted on the performance of Greencore Malt. Management of theGroup's 970 acres of property assets has been refocused under Board levelleadership, delivering a positive profit contribution in FY06 and creating astrong platform for significant value enhancement in the future. The division delivered total operating profit (pre-tax) of Euro27.6m, consistingof continuing operating profits of Euro5.6m and discontinued operating profitsof Euro22.0m. This represents a fall of Euro9.1m (24.7%) on FY05 levels, drivenby upheavals in the EU sugar market both in anticipation of and following theintroduction of the new EU sugar regime, and by a significant fall in profits atMalt, which absorbed energy cost increases of approximately Euro4m. 1. Exit from sugar processing The decision of the EU Council of Ministers in November 2005 effectively broughtan end to the sugar industry in Ireland. In March 2006, Greencore announced itsintention to exit sugar processing and put in place a process to wind down itssugar operations, prepare a restructuring plan and claim its entitlement torestructuring aid in accordance with EU regulations. In July 2006, the IrishGovernment announced its decision in relation to the allocation of theEuro145.5m of EU restructuring aid (in the context of a separate additionalEuro123m to be paid to beet growers over the next seven years as part of thesingle farm payment scheme and Euro44m in diversification aid also allocated forgrowers). Greencore rejected that decision and was granted leave to seek ajudicial review of the decision in the High Court. On 31 July 2006, Greencoreformally applied for restructuring aid by renouncing its sugar quota andsubmitting a restructuring plan to the Irish Government. Greencore subsequently agreed with the Irish Government that, conditional uponGreencore's restructuring plan being approved, the Group would amend the plan toreflect any lawful decision of Government taken pursuant to the outcome of ourlegal proceedings. On 19 September 2006, the Government deemed Greencore'srestructuring plan to be eligible for restructuring aid. This decision ensuresthat the payment of EU aid can begin in June 2007. Legal proceedings continuewith a trial date likely to be fixed shortly. As the Board set out in its Interim Statement, the financial effects of exitingsugar are severe. • Profit impact Pre-tax profits from total sugar operations totalled Euro22.0m (includingrelated activities also discontinued by the Group), a fall of Euro5.3m on FY05but better than expected due to a stronger than anticipated operating andcommercial performance. • Gross costs of exit In preparing our detailed restructuring plan, we have been able to estimate exitcosts more precisely than we could when we issued our Interim Statement. Grossexit costs are now expected to total Euro164.8m (net of tax), a modest declineon the Euro167.5m figure indicated in the Interim Statement. Of these costs,Euro115.0m reflects the write-off of Greencore Sugar assets with the remainderlargely cash costs and principally associated with redundancy, demolition,environmental and remediation. Cash costs of Euro11.2m were incurred in FY06. • Receipt of EU restructuring aid These exit costs will be partially offset by the receipt of EU restructuringaid. The Board (having taken independent legal, economic and financial advice)believes that Greencore is entitled to Euro130.9m of EU aid - representing 90%of the EU aid available to Ireland. However, this entitlement is currentlysubject to the outcome of the judicial review process. The FY06 financialstatements recognise an asset of Euro95.9m of EU aid (reflecting the presentvalue of the Euro98.4m allocated to Greencore in the Government's decision ofJuly 2006). In addition, the financial statements disclose a contingent assetof Euro32.5m (representing the difference between the Board's view ofGreencore's entitlement and the Government's decision). The EU restructuringaid will be paid in two tranches - 40% in June 2007 and 60% in February 2008. Note 4 to the financial statements sets out the accounting treatment for the netcosts associated with the exit from sugar processing. Looking forward, Greencore remains committed to serving its sugar customers. Ourjoint venture with Nordzucker AG, Sugar Partners, started to trade in October2006 taking on all the customer commitments of Greencore Sugar and preservingmuch of the value of the Siucra and McKinney brands. However, the contributionto Group profits from this activity is not expected to be substantial. 2. Malt performance and restructuring Malt experienced a very difficult year in FY06. International malt pricesreached a low point in the cycle last winter driven, in large part, by industryover-capacity. That negative pricing impact, allied to energy cost increases ofapproximately Euro4m, had a negative impact on the profitability of the Group'smalt business. Last year, we took the step of restructuring our portfolio ofmalting assets, resulting in the closure of three maltings. This year, we haverestructured our core operations in the UK and Ireland, the net costs of whichtotalled Euro4.5m. The Malt business also benefited from a legal settlementreceipt of Euro4.9m (net of costs). Both the restructuring costs and legalsettlement have been treated as exceptional items (see Note 4). The combination of a better balance between supply and demand, a weak barleyharvest across Europe affecting malt prices and more stable energy prices hasled to a recovery during the final quarter of FY06. This industry recovery,along with our strong operational capability, high quality malting assets andleading market positions (clear No.1 market share position in Ireland, UK andBelgium), should deliver a considerable trading improvement in FY07. 3. Property Greencore has always been involved in developing and trading surplus propertyassets within the Ingredients and Agribusiness area. This continued in FY06with the disposal of a property to a related party and the sale of a surplusproperty asset within the Malt business. Cumulatively, profits on the disposalsof surplus properties were up modestly on those delivered in FY05. The Group retains significant property assets. The management of, and approachto, our property assets changed during the year. We have centralised themanagement of all significant properties under the Group development director.In addition we have put in place a set of 'site-specific' expert teams and alsoenhanced the quality of our central property team, now operationally led by aproperty specialist. Our property team is focused on maximising the valueavailable to shareholders from all of the Group property assets. The Group has three primary sets of property in Ireland: Carlow - "Carlow Gateway" (333 acres): In November 2006, the Group submitted acomprehensive master plan to Carlow and Laois County Councils proposing atransformation of the former Irish Sugar site into an exciting mixed usedevelopment for the town of Carlow, "Carlow Gateway". This submission was madeat the invitation of the respective Councils as part of their strategic plansfor the area. We understand that the Councils will make a decision on theirstrategic plans and any associated rezoning decisions during FY07. Mallow (396 acres): Cork County Council recently sought submissions for aSpecial Local Area Plan for the town of Mallow and its environs. As part ofthat process, we expect to submit a comprehensive master plan for our formersugar processing site in Mallow. As in the case of the Carlow property, weunderstand the Council will make a decision on their Local Area Plan duringFY07. Irish ingredients and agri-business (approximately 120 acres): The Group hasmore than 15 smaller sites in Ireland that offer potential for added value. Forexample, in FY06 the Group successfully brought one of these sites(approximately 40 acres) through the first phase of its development cycle. Ourproperty team is now working on a detailed planning application as part of thenext development stage in relation to this site. We continue to tightly monitorthe economic performance and potential of all of these properties relative totheir opportunity cost. In addition, the Group has 123 acres in North Littlehampton in West Sussex thatwere part of the Hazlewood Foods acquisition. The North Littlehampton area isone of 9 regions competing for a residential rezoning decision in West Sussexand Greencore is leading a consortium of landowners to present a consolidatedlandholding for rezoning the area. There is an extensive period of consultationand engineering assessment to take place over the next two years. A decision onthe preferred options and selection of sites for potential zoning is due inDecember 2008. There will follow a further period of two years to facilitatesubmissions to the Secretary of State with formal adoption of a zoning decisiondue in December 2010. Operating profits in the Group's other ingredients and agribusinesses and theGroup share of profits from associates were modestly down. FINANCIAL REVIEW 1. Basis of preparation The results have been prepared in accordance with International FinancialReporting Standards (IFRS). The Group issued the restatement of its 2005financial information to IFRS on 5 May 2006. IFRS has resulted in the followingkey changes to the Group income statement: • Discontinued operations are now shown as one line item below taxation • Pension accounting changes result in the Group recognising currentservice costs as part of operating profit, with returns on assets and thefinance costs of liabilities being recognised in the finance income and financecosts lines, respectively • Financial derivatives must be marked-to-market, with most movements inmark-to-market from one period to the next being recognised in the incomestatement • Goodwill is no longer amortised • Dividends are no longer recognised until such time as they have beenapproved 2. Earnings Group operating profit (pre-exceptional) totalled Euro74.6m for FY06 (Euro74.7min FY05). Profit before tax (pre-exceptional) of Euro59.4m was up 11.6% on FY05(Euro53.2m). This figure is inclusive of a net gain of Euro5.7m, primarilyresulting from the impact of marking-to-market our trading derivatives. Our adjusted EPS for FY06 (stripping out exceptional items and the Euro5.7m gainprimarily resulting from marking-to-market our trading derivatives) was 31.1cent versus 32.5 cent in FY05. This is based on a weighted average number ofordinary shares of 196.2m (FY05: 193.3m). 3. Finance Comparable net debt (excludes the impact of marking-to-market all derivativefinancial instruments and related debt) at 29 September 2006 was Euro385.4m, areduction of Euro14.3m from the comparable September 2005 figure and a reductionof Euro37.9m since March 2006. However, this debt movement reflects Euro15.0mof one-off outflows primarily relating to the exit from sugar processing. Theunderlying trajectory of cash generation remains in place. Net interest cost on comparable net debt was Euro30.7m (FY05: Euro30.5m). 4. Taxation The Group's tax charge on continuing operations (excluding associates) wasEuro11.4m. The effective tax rate on continuing operations increased to 22.5%for the year, reflecting the significant share of Group profits earned in theUK. The amount of cash taxation continues to be well below the tax charge. 5. Exceptional charges The Group incurred exceptional charges (net of tax) of Euro67.1m in the periodunder review (full details of which are contained in Note 4 to the PreliminaryStatement). This total charge comprises four separate areas: (i) Sugar Euro68.9m (net cost) related to the exit from sugar processing in Ireland (ii) Malt Euro4.9m (net benefit) from legal settlement; Euro4.5m (net cost) from restructuring of UK and Irish operations (iii) Chilled Sauces Euro2.0m (net cost) related to the exit from the Chesterfield facility and the consolidation of that business into a single site (iv) UK Pension Euro3.4m (net benefit) reduction in pension liability due to changes in design of pension benefits 6. Capital Investment Significant capital investment was made in the period. Capital expenditureinvested in Convenience Foods amounted to Euro34.2m. There was a totalinvestment of Euro13.7m in our Ingredients, Agribusiness and Related Propertydivision driven, in part, by capital required to accomplish the final sugarprocessing campaign. 7. Pensions The fair value of total plan assets relating to the Group's defined benefitpension schemes (excluding associates) increased to Euro539.9m at September 2006from Euro494.2m at September 2005. The present value of total pensionliabilities for these schemes increased to Euro591.5m from Euro576.1m over thesame period. This is reflected in a reduction in the net pension deficit(before related deferred tax) to Euro51.6m at September 2006 (from Euro81.9m atSeptember 2005). The Group has agreed funding proposals in place to address therelevant deficits. The primary Irish scheme, the Greencore Group Pension Scheme, had a surplus(before related deferred tax) of Euro25.0m. Consolidated Income StatementYear ended 29 September 2006 2006 2005 Note Pre - Exceptional Total Pre - Exceptional Total exceptional exceptionalContinuing operations Euro'000 Euro'000 Euro'000 Euro'000 Euro'000 Euro'000 Revenue 3 1,176,784 - 1,176,784 1,105,366 - 1,105,366Cost of sales (826,666) (181) (826,847) (779,549) - (779,549) Gross profit 350,118 (181) 349,937 325,817 - 325,817Operating costs, net (275,508) 1,998 (273,510) (251,133) - (251,133) Group operating profit 3 74,610 1,817 76,427 74,684 - 74,684Finance income 7 35,929 - 35,929 33,179 - 33,179Finance costs 7 (54,002) - (54,002) (58,202) - (58,202)Share of profit of 2,848 - 2,848 3,559 - 3,559associates after taxProfit before taxation 59,385 1,817 61,202 53,220 - 53,220 Taxation (11,447) 10 (11,437) (9,386) - (9,386) Result for the period from 47,938 1,827 49,765 43,834 - 43,834continuing operations Discontinued operationsProfit/(Loss) from 19,398 (68,903) (49,505) 20,600 (104,301) (83,701)discontinued operations Result for the financial 67,336 (67,076) 260 64,434 (104,301) (39,867)period ====== ======= ======= ====== ======= ======Attributable to:Equity shareholders 66,620 (67,076) (456) 62,894 (104,301) (41,407)Minority interests 716 716 1,540 - 1,540 - 67,336 (67,076) 260 64,434 (104,301) (39,867) ====== ======= ==== ===== ======= ====== Basic earnings per share(cent) Continuing operations 25.0 21.9 Discontinued operations (25.2) (43.3) 6 (0.2) (21.4) ===== ===== Diluted earnings per share (cent) Continuing operations 24.9 21.8 Discontinued operations (25.1) (43.1) 6 (0.2) (21.3) ===== ===== Consolidated Balance Sheetat 29 September 2006 2006 2005 Euro'000 Euro'000 ASSETSNon-current assetsIntangible assets 353,897 353,814Property, plant and equipment 385,771 484,595Investment property 1,003 1,101Investments in associates 8,216 6,012Financial assets - 645Trade and other receivables 56,508 -Retirement benefit assets 24,981 6,598Deferred tax assets 24,957 34,962Total non-current assets 855,333 887,727Current assetsInventories 126,774 132,982Trade and other receivables 154,324 135,460Cash and cash equivalents 78,967 74,102Available for sale financial assets 530 -Derivative financial instruments 389 -Total current assets 360,984 342,544Total assets 1,216,317 1,230,271 ======== ======= EQUITYCapital and reserves attributable to equityholders of the CompanyShare capital 126,820 125,116Share premium 104,137 97,489Other reserves 2,572 1,944Retained earnings (54,156) (31,054) 179,373 193,495Minority interest in equity 3,572 4,382Total equity 182,945 197,877 LIABILITIESNon-current liabilitiesBorrowings 433,657 473,541Derivative financial instruments 32,043 -Retirement benefit obligations 76,603 88,486Other payables 11,818 8,836Provisions for other liabilities and charges 14,422 14,732Deferred tax liabilities 42,202 41,373Government grants 1,182 1,452Total non-current liabilities 611,927 628,420 Current liabilitiesBorrowings 265 325Derivative financial instruments 1,153 -Trade and other payables 362,285 382,527Provisions for other liabilities and charges 33,230 -Income taxes payable 24,512 21,122Total current liabilities 421,445 403,974Total liabilities 1,033,372 1,032,394Total equity and liabilities 1,216,317 1,230,271 ======== ======= Consolidated Cash Flow StatementYear ended 29 September 2006 2006 2005 Euro'000 Euro'000 Operating profit (pre-exceptional) 74,610 74,684Profit on discontinued operations (pre-exceptional) 21,991 22,205Non cash items: Depreciation 35,509 40,306 Amortisation of intangibles 1,014 940 Employee share option expense 430 153 Amortisation of government grants (243) (606)Changes in working capital (3,795) (14,822)Other movements (3,611) (5,470) Cash flows from operating activities (pre-exceptional) 125,905 117,390Cash outflows related to exceptional items (15,011) (15,598)Interest paid (32,767) (32,482)Tax received / (paid) 395 (2,268) Net cash inflow from operating activities 78,522 67,042 Cash flows from investing activitiesDividends received from associates 1,205 3,385Purchase of intangible fixed assets - -Purchase of property, plant and equipment (47,924) (57,393)Acquisition of subsidiary - (15,245)Disposal of property, plant and equipment - -Disposal of subsidiary and associated undertakings - 9,158Disposal of available for sale financial assets - 2,626Interest received 2,139 1,379Government grants (repaid) / received (27) 427 Net cash outflows from investing activities (44,607) (55,663) Cash flows from financing activitiesProceeds from issue of shares 1,183 727Decrease in borrowings (9,527) (3,908)Decrease in finance lease liabilities (1,944) (366)Dividends paid to equity holders of the company (17,470) (18,444)Dividends paid to minority interests (1,586) (1,452) Net cash outflows from financing activities (29,344) (23,443) Net increase / (decrease) in cash & cash equivalents 4,571 (12,064) Reconciliation of opening to closing cash and cash equivalentsCash and cash equivalents at beginning of year 74,102 86,278Translation adjustment 294 (112)Increase / (decrease) in cash and cash equivalents 4,571 (12,064)Cash and cash equivalents at end of year 78,967 74,102 Consolidated Statement of Recognised Income and ExpenseYear ended 29 September 2006 2006 2005 Euro'000 Euro'000Items of income and expense taken directly within equityCurrency translation differences 50 766Actuarial gain / (loss) on Group defined benefit pension schemes 11,187 (30,754)Deferred tax on Group defined benefit pension obligations (1,352) 6,419Share of actuarial gain/(loss) on defined benefit pension schemes of associates (net) 490 (1,660)Mark to market of available for sale financial assets (406) -Cash flow hedges: - Gains taken to equity 389 - Transferred to profit and loss for the period (169) -Deferred tax on cash flow hedge (66) - Net income / (expense) recognised directly within equity 10,123 (25,229)Group profit / (loss) for the financial year 260 (39,867)Total recognised income and expense for the financial year 10,383 (65,096) ====== ====== Attributable to:Equity Shareholders 9,667 (66,636)Minority Interests 716 1,540Total recognised income and expense for the financial year 10,383 (65,096) ===== ====== Consolidated Statement of Changes in EquityYear ended 29 September 2006 2006 2005 Euro'000 Euro'000Total equity at beginning of year 197,877 281,044Impact of adoption of IAS 32 & IAS 39 (7,414) - At beginning of year as adjusted 190,463 281,044Issue of share capital 8,352 7,574Employee share options expense 430 153Deferred tax on employee share option expense taken directly in equity (283) 257Dividends (24,814) (24,378)Movement in minority interests (870) (137)Total income and expense for the year attributable to equity holders 9,667 (66,636)Total equity at end of year 182,945 197,877 ====== ===== NOTES TO THE FINANCIAL STATEMENTSYear ended 29 September 2006 1. Basis of Preparation of Financial Statements under IFRS The financial statements presented in this preliminary announcement have beenprepared in accordance with International Financial Reporting Standards (IFRS)and International Financial Reporting Interpretations Committee (IFRIC)interpretations endorsed by the European Union (EU) and with those parts of theCompanies Acts, 1963 to 2005 applicable to companies reporting under IFRS. Thefinancial statements, which are presented in euro, rounded to the nearestthousand (unless otherwise stated), have been prepared under the historical costconvention, as modified by the revaluation of property, plant and equipment(these revaluations being considered 'deemed cost' at the date of transition toIFRS), and the measurement at fair value of certain financial assets andfinancial liabilities including, share options, available for sale investmentsand derivative financial instruments. The carrying values of recognised assetsand liabilities that are hedged, are adjusted to record the changes in the fairvalues attributable to the risks being hedged. The financial statements for the year ended 30 September 2005, which wereprepared in accordance with the accounting policies generally accepted in theRepublic of Ireland (Irish GAAP) have, with the exception of IAS 32 FinancialInstruments: Disclosure and Presentation and IAS 39 Financial Instruments:Recognition and Measurement, been restated under IFRS with effect from thetransition date. As permitted under IFRS 1 First-time adoption of International FinancialReporting Standards the Group applied the requirements of IAS 32 FinancialInstruments: Disclosure and Presentation and IAS 39 Financial Instruments:Recognition and Measurement from 1 October 2005. Full details of the accounting policies adopted by the Group on transition toIFRS and of the impact on the reported results and balance sheet of the Group ontransition to IFRS, were published on 5 May 2006 and are available on theGroup's website www.greencore.com. 2. Approved IFRS The Group's accounting policies under IFRS are based on the InternationalFinancial Reporting Standards and Interpretations, issued by the InternationalAccounting Standards Board (IASB) and on International Accounting Standards(IAS) and Standing Interpretations Committee interpretations, approved by thepredecessor International Accounting Standards Committee that have beensubsequently authorised by the IAS and remain in effect. 3. Segmental Reporting The Group's primary reporting segment, for which more detailed disclosures aremade, is by class of business. The Group has two primary reporting segments,(i) Convenience Foods and (ii) Ingredients, Agribusiness & Related Property. Revenue Operating Profit 2006 2005 2006 2005 Euro'000 Euro'000 Euro'000 Euro'000ContinuingConvenience Foods 901,443 832,554 68,967 65,242Ingredients, Agri & Related Property 275,341 272,812 5,643 9,442Total continuing 1,176,784 1,105,366 74,610 74,684 DiscontinuedConvenience Foods - 76,095 - (5,064)Ingredients, Agri & Related Property 175,161 219,676 21,991 27,269Total discontinued (pre interest & taxation) 175,161 295,771 21,991 22,205 Associated UndertakingsConvenience Foods - - - -Ingredients, Agri & Related Property 44,184 43,189 3,857 4,549Total - associated undertakings (pre interest 44,184 43,189 3,857 4,549& taxation) 4. Exceptional Items Exceptional items are those that, in management's judgement, need to bedisclosed by virtue of their nature or amount. Such items are included withinthe income statement caption to which they relate and are separately disclosedin the notes to the consolidated financial statements. The Group reports the following exceptional items (net of tax): 2006 2005 Euro'000 Euro'000Continuing operationsMalt legal settlement (a) 4,930 -Malt restructuring (b) (4,459) -Pension curtailment gain (c) 3,365 -Chilled Sauce business restructuring (d) (2,009) -Total continuing operations 1,827 - Discontinued operationsFundamental reorganisation of Greencore Sugar (e) - (66,038)Provision for loss on termination of operations (f) - (40,090)Disposal of interest in subsidiary (g) - 1,827Exit from sugar processing (h) (68,903) -Total discontinued operations (68,903) (104,301) Total exceptional costs (67,076) (104,301) (a) Malt legal settlement The Group settled an outstanding claim related to Greencore Malt at Euro4.9m(net of costs). (b) Malt restructuring Following on from the closure of three maltings during 2005, Greencore Maltfocused on restructuring its core operations in both Ireland and the UK. Theexceptional loss represents the costs associated with this businessrestructuring. (c) Pension curtailment gain In April 2006, a number of changes in benefit design were implemented in respectof the Hazlewood Foods Retirement Benefits Scheme. These changes included ashift to a career average revalued basis in respect of accrued benefits withrevaluation set at the level of limited price inflation. It also included theintegration of the scheme with the basic state pension in respect of futureservice. These scheme amendments net of related costs resulted in anexceptional pension curtailment gain (net of tax) of Euro3.4m. (d) Chilled Sauces business restructuring Following a strategic review at Greencore Chilled Sauces, a decision was made toconsolidate all chilled sauce manufacturing at the Bristol facility and to closethe Chesterfield factory. The exceptional loss represents the costs associatedwith this decision. (e) Fundamental reorganisation of Greencore Sugar In January 2005, the Group announced its decision to consolidate all sugarprocessing at Mallow and to close the Carlow facility. The costs associatedwith this fundamental restructuring totalled Euro66.0m. (f) Provision for loss on termination of operations In October 2005, the Group disposed of its UK Pizza business for a nominalconsideration. The exceptional item booked during the year ended September 2005included a provision to write down all of the assets related to the pizzabusiness to their recoverable amounts and to cover all costs directly related tothe decision to sell the pizza business. (g) Disposal of interest in subsidiary In August 2005 a small non-core, deli-style meat business with operations inIreland and Germany was sold, resulting in a profit of Euro1.9m (net of taxEuro1.8m). (h) Exit from sugar processing On 15 March 2006, Greencore confirmed its intention to exit sugar processing inIreland, renounce its quota and apply for the EU restructuring aid which isavailable under the Council Regulations (EC) No 320/2006 (the Regulation). Thetotal EU restructuring aid available for the sugar quota renounced by Greencoreis Euro145.5m. This Regulation states, inter alia, that at least 10% of therestructuring aid shall be reserved for sugar beet growers and machinerycontractors. The Regulation gives the Member State the responsibility todetermine if this percentage is to be increased but imposes on the Member Statethe requirement, using objective and non-discriminatory criteria, to ensure aneconomically sound balance between the elements of the restructuring plan. On July 12 2006, the Member State announced that it was allocating 67.6%(representing Euro98.4m) to Greencore, with the balance of the EU aid to beallocated to sugar beet growers and machinery contractors. The Board ofGreencore rejected the basis of this allocation. That government decision iscurrently subject to a judicial review in the Irish High Court. On 31 July 2006, Greencore formally applied for restructuring aid by renouncingits sugar quota and submitting a restructuring plan to the Irish Government.Greencore subsequently agreed with the Irish Government that, conditional uponGreencore's restructuring plan being approved, the Group would amend the plan toreflect any lawful decision of the Government taken pursuant to the outcome ofthe legal proceedings. On 19 September 2006, the Government deemed Greencore'srestructuring plan to be eligible for restructuring aid. The financial consequences to Greencore are as follows: Euro'000Write-down and impairment of assets (115.0)Environmental, remediation, demolition, redundancy & other costs (49.8) (164.8)Less: present value of EU restructuring aid receivable which may be regarded asvirtually certain 95.9Net exceptional charge (post-tax) (68.9) Restructuring costs As at 29 September 2006, the costs associated with the exit from sugarprocessing are estimated at Euro164.8m. The Government in announcing its decision in relation to the allocation of EUrestructuring aid included an 'illustrative' allocation of Euro50.0m to theGreencore Group Pension Scheme. At 29 September 2006, this pension scheme didnot require such an allocation, as it had a net retirement benefit asset ofEuro25.0m (an asset which takes account of the present value of all anticipatedobligations of the pension scheme). The Board believes that the Government wasnot entitled to direct the allocation of aid in this manner. Accordingly, theGroup has concluded that such an allocation will not have to be made. Accounting for the receipt of EU aid The Group's entitlement to EU Restructuring Aid is estimated to be Euro130.9m.As of 29 September 2006, the receipt of Euro98.4m is regarded as virtuallycertain and the present value of this amount (being Euro95.9m) has thereforebeen included in the year-end balance sheet as a receivable and netted againstthe related gross exceptional costs in the Group income statement. The balance of the Group's entitlement of Euro32.5m which cannot at year-end bereasonably regarded as virtually certain is treated as a contingent asset andtherefore, disclosed but not regarded as a receivable until its receipt becomesvirtually certain. The Group remains confident of a successful outcome of the judicial review. Timing of receipt of Restructuring Aid The EU regulations (320/2006 and 968/2006) set out a timetable for the paymentof restructuring aid in two tranches, 40% in June 2007 and 60% in February 2008.The related amounts are included in the financial statements as follows: Euro'000Current assets - EU restructuring aid receivable 39.4Non-current assets - EU restructuring aid receivable 56.5 95.9 5. Dividends The proposed final dividend per share for the year ended 29 September 2006 is7.58c (2005: 7.58c). This proposed final dividend is payable on 5 April 2007,to shareholders on the Register of Members at 15 December 2006. This proposed dividend is subject to approval by the shareholders at the AGM andhas not been included as a liability in the balance sheet of the Group as at 29September 2006, in accordance with IAS 10 'Events after the Balance Sheet Date'. An interim dividend of 5.05 cent (2005: 5.05 cent) was paid on 5 October 2006. 6. Earnings per Ordinary Share The calculation of the Group's earnings per ordinary share for continuingoperations is based on a profit of Euro49.0m (2005: Euro42.3m) and on 196.2mordinary shares (2005: 193.3m) being the weighted average number of ordinaryshares in issue in the period. The calculation of earnings per ordinary sharefrom discontinued operations is based on a loss of Euro49.5m (2005: loss ofEuro83.7m). The calculation of the diluted earnings per ordinary share for continuingoperations is based on a profit of Euro49.0m (2005: Euro42.3m) and on 196.9mordinary shares (2005: 194.2m) being the weighted average number of ordinaryshares outstanding assuming conversion of all dilutive potential ordinaryshares. Employee share options which are performance based are treated ascontingently issuable shares, because their issue is contingent uponsatisfaction of specified performance conditions in addition to the passage oftime. These contingently issuable ordinary shares are excluded from thecomputation of diluted earnings per ordinary share where the conditionsgoverning exercisability have not been satisfied as at the end of the reportingperiod. The calculation of diluted earnings per ordinary share fromdiscontinued operations is based on a loss of Euro49.5m (2005: loss ofEuro83.7m). The Group's adjusted earnings per share is after the elimination of theexceptional items reported in note 4, inter-company foreign exchange and themark-to-market of all derivative financial instruments and related debt. The calculation of adjusted earnings per ordinary share is based on apre-exceptional profit of Euro66.6m (2005: Euro62.9m) adjusted to exclude (i) again of Euro0.5m (2005: Euro0.1m) related to inter-company foreign exchange anda gain of Euro5.2m (2005: nil) recognised on the mark-to-market of allderivative financial instruments together with related debt. The weightedaverage number of ordinary shares in issue during the period was 196.2m (2005:193.3m). 2006 2005 cent centAdjusted EPS 31.1 32.5 7. Components of Net Debt and Financing 2006 2005 Euro'000 Euro'000Net DebtCurrent assetsCash and cash equivalents 78,967 74,102Current liabilitiesBorrowings (265) (325)Non-current liabilitiesBorrowings before fair value adjustment (464,127) (473,541)Comparable net debt (385,425) (399,764)Borrowings - fair value hedge adjustment (non-current liabilities) 30,470 -Total cash, cash equivalents & borrowing (354,955) (399,764) Finance CostsNet finance costs on interest bearing cash and cash equivalents and (30,717) (30,507)borrowingsNet pension financing credit 6,987 5,412Change in fair value of derivatives 5,157 -Foreign exchange gain (inter-company) 500 72 (18,073) (25,023) Analysed as:Finance income 35,929 33,179Finance costs (54,002) (58,202) (18,073) (25,023) 8. Information The annual report and accounts will be circulated to shareholders on 15 January2007, prior to the Annual General Meeting to be held on 15 February 2007 inJurys Ballsbridge Hotel, Ballsbridge, Dublin 4, Ireland. By order of the Board, CM Bergin, Company Secretary, 5 December 2006, GreencoreGroup plc, St Stephen's Green House, Earlsfort Terrace, Dublin 2, Ireland. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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