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Final Results

7th Mar 2006 07:04

Premier Foods plc07 March 2006 7 March 2006 Premier Foods plc Preliminary Results 2005 Premier delivers sales up 6.0%, operating profit up 18.2% and strengthens brand portfolio. Year Ended 31 December 2005 2004 £m £m Change Turnover 789.7 744.7 +6.0%Grocery Turnover 683.4 594.4 +15.0%Like-for-like Grocery turnover* 603.8 594.4 +1.6% Trading profit** 108.4 95.7 +13.3%Trading profit margin** 13.7% 12.9% +80bps Operating profit 95.3 80.6 +18.2%Like-for-like operating profit* 90.2 80.6 +11.9% Profit before taxation for continuing operations 51.8 2.3 Earnings per share (basic) 34.0p 9.9pAdjusted basic earnings per share*** 23.6p 21.2p +11.3% Recommended final dividend per share 9.5p 9.0p +5.6%Recommended total dividend per share 14.25p 9.0p n/a * Like-for-like represents results from continuing operations excluding resultsfrom acquisitions and disposals ** Trading profit represents operating profit for continuing activities beforeexceptional items, amortisation and the effect of changes in pension assumptions ***Adjusted earnings per share represents profit after taxation for continuingoperations before amortisation, exceptional items and the effects of changes inpension assumptions per ordinary share. The comparative for 2004 is a pro formaestimate of adjusted earnings per share calculated on the basis that the capitalstructure put in place at the time of the IPO was in place from 1 January 2004. •Like-for-like Grocery trading profit of £94.9m up 5.4% •Like-for-like Grocery trading profit, before £3.5m Branston Beans launch spend, up 9.3% •Pro-forma sales of Drive brands up 10.0% •Pro-forma branded sales up 2.8% •Improved pro forma branded mix of business: 61% of grocery sales (2004: 55%) •Efficiency and cost saving programme delivering •Repositioned portfolio into higher growth categories Robert Schofield, Chief Executive of Premier Foods plc, said, "2005 has seen another robust performance by our Grocery business with our drivebrands growing strongly and our operating margins improving in line with ourtargets. We have invested heavily behind our brands, increasing our marketingspend on our existing brands by £5m, of which £3.5m was spent in the finalquarter of 2005 launching our new Branston Beans. Furthermore, we have strengthened our brand portfolio through the acquisitionsof Bird's, Quorn and Cauldron and the sale of our Tea business. This hasimproved our growth prospects by moving us into higher growth categories. Theintegration of these businesses has gone well and the brands have performed inline with our expectations. As previously indicated, our potato business has suffered as customers haverationalised their supplier base but we have taken decisive action to cut thecost base and align the business with the new requirements of its customerbase." For further information: Premier Foods plcRobert Schofield, Chief ExecutivePaul Thomas, Finance DirectorGwyn Tyley, Investor Relations Manager+44 (0) 1727 815850 Citigate Dewe RogersonMichael BerkeleySara BatchelorAnthony Kennaway+44 (0) 20 7638 9571 A presentation to analysts will take place on Tuesday 7 March at 9am at MerrillLynch Financial Centre, 2 King Edward Street, London, EC1A 1HQ. Operating review - continuing operations 2005 2004 £m £mSalesGrocery 683.4 594.4 15.0%Fresh Produce 106.3 150.3 -29.3% ------ ------Total sales 789.7 744.7 6.0% Trading profit 108.4 95.7 13.3%Amortisation of intangibles (6.3) (2.8) 125.0%Effect of change in pension assumptions - 3.4 - ------ ------Operating profit before exceptional items 102.1 96.3 6.0%Exceptional items (6.8) (15.7) -56.7% ------ ------Operating profit 95.3 80.6 18.2% In 2005, we achieved another year of branded sales growth and improved operatingmargins. In addition, we have strengthened our brand portfolio with theacquisitions of Bird's, Quorn and Cauldron and the disposal of our Tea andJonker Fris businesses. Our strategy is based upon growing the sales of our branded portfolio, whilstmaintaining the benefits derived from also supplying retailer branded product,and driving efficiency improvements and cost reductions to improve our operatingprofit margins. Overall, continuing operations generated sales growth of 6%,based on a like-for-like growth in Grocery of 2% and the strong contributionsfrom Bird's and Quorn, which have been offset by a weaker performance from ourFresh Produce business. We increased the marketing spend on our existing brandportfolio by £5.0m to £27.7m, of which £3.5m was spent during the fourth quarterof the year launching our new Branston Beans. This increased marketing spendfuelled strong sales growth for our drive brands: Loyd Grossman grew 22%,Branston 14% (excluding Branston Beans), Ambrosia 12% and Hartley's 1%. Inaddition, we spent £6.3m marketing the brands acquired in the year which helpedto generate pro-forma year-on-year growth of 8% for Quorn and 9% for Cauldron. Overall, we have been delighted by the resilience of the business inwithstanding a number of significant trading and one-off events in the lasteighteen months. In October 2004, a fire at our Bury St Edmunds factorydisrupted production of our pickles and cooking sauce products. We were pleasedto get the factory back into full production by the Easter of 2005. In thespring, we were involved in a major product recall resulting from thecontamination of raw materials supplied to us, which contained the dye Sudan I,and which were used in a range of products manufactured by the Group. Weresponded to this issue through a number of initiatives to address the concernsthat affected the Group and the wider food production industry. In addition, thebusiness has responded strongly to the challenges of the trading impact of aninventory overhang in January 2005, exceptionally mild autumn weather andsignificant levels of energy and utility cost inflation. As we indicated at the time of our interim announcement, sales for our potatobusiness were significantly lower than in 2004 as a result of lower marketprices and volumes and this continued during the second half of the year. During2005, we realigned the business with its customer base through the acquisitionof the Gedney's fresh produce business and adjusted the business' cost basethrough the closure of two of its four remaining packing facilities. This willensure that we enter 2006 as an efficient and competitive supplier of a broadrange of fresh produce. Following the acquisition of Gedney's we have renamedthis segment "Fresh Produce". In 2005, we conducted a strategic review of our Tea and Jonker Fris businessesand concluded that the success and future competitiveness of those businessescould be better served by alternative ownership and, accordingly, we disposed ofthe businesses in October and December 2005 respectively. The net effect ofacquisitions and disposals during the year is an increase in the pro forma shareof Grocery sales from branded products of 6% to approximately 61%.Simultaneously, we have fully integrated Bird's into our business during theyear and have made excellent progress on the integration of Quorn and Cauldronover the second half. Continuing operations - Grocery 2005 2004 £m £m Sales 683.4 594.4 15.0%Like-for-like sales 603.8 594.4 1.6% Trading profit 107.9 90.0 19.9%Like-for-like trading profit 94.9 90.0 5.4% Convenience Foods, Pickles, Sauces and Meat-Free 2005 2004 £m £m Sales 396.7 347.5 14.2%Like-for-like sales 347.1 347.5 (0.1%) Trading profit 40.8 34.6 17.9%Like-for-like trading profit 34.3 34.6 (0.9%) Sales in our Convenience Foods, Pickles, Sauces and Meat-Free categories havedemonstrated a resilient performance throughout 2005 with like-for-like sales of£347.1m (2004: £347.5m) and like-for-like trading profit of £34.3m (2004:£34.6m). These categories have seen strong growth in Branston, excludingBranston Beans, (up 14%) and Loyd Grossman brands (up 22%), offset by lowersales from our smaller, mature brands and own label convenience foods. Thisperformance has been achieved despite the effect of lower sales in January 2005due to the high level of inventory on hand after the Christmas 2004 tradingperiod and the effect of a mild autumn which has particularly affected the salesof 'warming' soups and convenience meals. Like-for-like trading profit was flatat £34.3m after spending an additional £3.5m on the launch of Branston Beans andafter absorbing significant cost inflation particularly in relation to tin-plateand energy related utility costs. We have put significant efforts behind our Branston brand during the year. Atthe start of the year, following the fire at our Bury St Edmunds factory inOctober 2004, our primary focus was on the rebuilding of production anddistribution of the core Branston sweet and sour pickle ranges. We launched anew range of Branston relishes in March 2005, which achieved a category-leadingposition within 2 months of their launch. Finally, in October, we launched a newrange of Branston Beans and Pasta in anticipation of the expiry of our HPlicence, which is due in March 2006. The launch has been extremely successfulwith Branston Beans gaining a 7% value market share within 3 months of launch. In 2005, again following a period of rebuilding production and distributionafter the Bury St Edmunds fire, we extended our Loyd Grossman range to includePesto and "Creamy" sauces, which helped to consolidate Loyd Grossman as thethird largest cooking sauce brand in the UK. The continued strong growth in 2005means that the Loyd Grossman brand has now more than trebled in size over thelast five years. Meat-Free 2005* 2004 £m £mSales 49.6 -Trading Profit 6.5 - Pro-forma 12 months 2005 2004Sales 99.8 92.7 7.7%Trading Profit 11.2 8.1 38.3% * 'Meat-Free' includes Quorn (29 weeks) and Cauldron (9 weeks) in 2005 Sales from the Meat-Free business have been included for the first time thisyear following the acquisition of Marlow Foods (owner of the "Quorn" brand) inJune and Cauldron in October 2005. The combined business has generated sales of£49.6m and trading profit of £6.5m. On a pro-forma basis, the Meat-Free business generated growth in sales andtrading profit of 7.7% to £99.8m (2004: £92.7m) and 38.3% to £11.2m (2004:£8.1m), respectively. This performance post acquisition is consistent with ourgrowth and profitability assumptions at the time of acquisition and we believethe business is well positioned to capitalise on the growth of its markets,which will result from the shift in consumer trends towards healthier eating andprovide a growth platform for the business. Following these acquisitions, the Group's knowledge of and access to thevegetarian and meat alternative markets is now unique amongst its competitors.Following the acquisition of Quorn, we upweighted the marketing spend on thebrand, with two additional bursts of TV advertising, and increased the level ofnew product development to continue driving the brands strong sales growth.During 2005 household penetration increased from 16.5% to 18.2%, equating to anadditional 420,000 households now eating Quorn. The integration of the Quorn andCauldron businesses has proceeded well with the sales, marketing and operationsfunctions now fully integrated into Premier's management structures. Spreads, Desserts and Beverages 2005 2004 £m £m Sales 286.7 246.9 16.1%Like-for-like sales 256.7 246.9 4.0% Trading profit 67.1 55.4 21.1%Like-for-like trading profit 60.6 55.4 9.4% Our Spreads, Desserts and Beverages product group has performed well. Totalsales grew by 16.1%, with like-for-like sales growth of 4.0% underpinning theadditional sales from the Bird's business which was acquired in February 2005.Like-for-like trading profit grew by 9.4% to £60.6m (2004: £55.4m) and totaltrading profit, including Bird's, grew by 21.1% to £67.1m. The like-for-like growth has been driven by Ambrosia with the introduction ofnew "fruit layer" custard and rice, the growth of 'snacking' formats and new ownlabel contracts. Sales for the acquired brands are in line with our expectationsat the time of the acquisition. The transfer of production of the Bird's and Angel Delight brands to ourKnighton factory was completed in December 2005. From the acquisition inFebruary through to the commissioning of the new lines in December, we incurredadditional costs as we sourced production from Kraft. These costs ceased on thetransfer of production and have been treated as exceptional because of theirnon-recurring nature. Fresh Produce 2005 2004 £m £m Sales 106.3 150.3 (29.3%)Like-for-like sales 94.2 150.3 (37.3%) Trading profit 0.5 5.7 (91.2%)Like-for-like trading profit 0.4 5.7 (93.0%) Sales in our Fresh Produce business have reduced by 29.3% to £106.3m (2004:£150.3m) and trading profit by 91.2% to £0.5m (2004: £5.7m). This result isdisappointing, having arisen as a result of the poor general tradingenvironment, lower overall market prices and the effect of contracts lost at theend of 2004 as a result of supplier consolidation in this category by the majormultiple grocery retailers. Following on from the initial phase of operationalrestructuring in 2004, we have further reviewed the cost structure and packingcapacity of the business and have reduced its operating cost base through theclosure of two of the remaining four packing facilities. We have also realigned the business with its customers requirements through theacquisition of the Gedney's fresh produce business in September 2005 which haswidened the fresh produce offering to our customers. This ensured that weentered 2006 as an efficient and competitive supplier of a broad range of freshproduce. Discontinued operations 2005 2004 £m £m Sales 77.5 152.1 (49.2%) Trading Profit 8.6 14.6 (41.1%) On 30 October 2005, the Group disposed of its Tea business for £80.2m. On 7December 2005, the Group disposed of its Netherlands-based convenience foodsbusiness, Jonker Fris, for £4.4m. The results for these businesses during theperiod of our ownership in 2005 together with the profit or loss on disposal arepresented as the result for 2005, net of tax, from discontinued operations. Thistotal amount is compared with the results for these businesses and our Frenchspreads business Materne, which was disposed of in 2004. Business outlook Overall trading performance for the year to date has been in line withexpectations. The trading environment remains highly competitive and energyrelated inflationary pressure remains a concern. However, we are confident thatwe will continue to develop the business in line with our strategy, focussing ondriving our branded sales growth whilst maintaining tight control on our costbase. Financial Review For the first time, the annual results of the Group have been prepared inaccordance with International Financial Reporting Standards as adopted by theEuropean Union ('IFRS'). For completeness we have disclosed comparativefinancial information as reconciled to that formerly presented under UK GAAP onour website, available at www.premierfoods.co.uk. The impact of conversion toIFRS has had no impact on the cash flows of the Group. Since the publication of the interim results no further adjustments have beenmade to the information previously disclosed, other than to reflect theclassification of results of the continuing and discontinued operations of theGroup. As explained in more detail in note 10, on 30 October 2005 the Groupdisposed of its Tea business, followed by the disposal of its Jonker Frissubsidiary on 7 December 2005. In accordance with IFRS 5, the results of bothactivities have been presented as discontinued operations for the entire periodof ownership in 2005 and 2004. For 2004, discontinued operations also includethe results of Materne, our French spreads business sold in July 2004. Income Statement - continuing operations Sales Sales generated by the Group's continuing operations increased by 6.0% to£789.7m (2004: £744.7m). The most significant components of this movement werethe additional sales arising from our acquisitions of Bird's, Quorn and Cauldron, offset by the reduction in sales at MBM, our potatoes business, as a result ofweaker market pricing and the loss of contract volume. Total grocery salesincreased by 15.0% to £683.4m, with like-for-like sales, stated before theimpact of acquisitions, increasing by 1.6% to £603.8m. This was the result ofstrong trading in the Grocery business in the fourth quarter, offset by weaktrading conditions experienced in January and the un-seasonally warm Autumn. Acquisitions In the current year, much progress has been achieved towards the fullintegration of each of the brands and businesses acquired during 2005, and assuch it is anticipated that these businesses will continue to deliverincremental sales and profit at levels consistent with the Group's expectationsat the time of acquisition. In addition, we expect that the transfer ofproduction of Bird's to our Knighton site that was completed in December 2005will generate a level of incremental cost saving in line with the targets set atthe time of its acquisition. For the purposes of comparability, we havepresented the additional cost of sourcing production from Kraft as exceptionalcosts during 2005 (see note 3). For 2005, the contributions generated during the period of our ownership ofQuorn (29 weeks) and Cauldron (9 weeks) are in line with our expectations at thedate of each acquisition, with Quorn generating trading profit of £6.0m (2004:£nil) and Cauldron £0.5m (2004:£nil). We have integrated the Quorn and Cauldronsales and marketing functions into existing Premier structures to maximise thesales growth and profitability in our ownership of the leading two Meat-Freebrands in the market. We continue to consider actively opportunities to acquirenew brands, based on a strict set of strategic and financial criteria. Gross Profit Gross profit for 2005 was £206.4m, an increase of 15.7% over 2004. On alike-for-like basis total gross margins stated prior to Bird's transitionalmanufacturing costs were 25.8%, up from 24.2% in 2004. This improvementprimarily reflects the benefit of significant capital investment in productionefficiency, a reduction in depreciation charged following a review of theestimated useful economic life of our assets and the write off of assets damagedin the fire at our Bury St Edmunds factory supplemented by a strong performancefrom our drive brands. The overall increase reflects this like-for-likeperformance coupled with the strong gross profit margins of our acquisitions andthe effect of the disposals of our Tea and Jonker Fris businesses. Selling and Distribution Costs Selling and distribution expenses were £73.7m for 2005, an increase of 16.2%compared to in 2004. On a total like-for-like basis, selling and distributionexpenses decreased by £1.0m, reflecting an increase of £5.0m on marketing spendrelating primarily to our Branston Beans launch offset by logistics cost savingsmade within both Grocery and Fresh Produce. Administrative Costs Administrative expenses were £39.8m in 2005, an increase of 6.4% compared to in2004. On a total like-for-like basis administrative expenses before amortisationand exceptional items increased by £0.5m primarily due to the impact of sharebased payment costs of £1.1m offset by the rationalisation of property and otherfixed costs in Fresh Produce of £1.0m. Amortisation of intangible assetsincreased to £6.3m in 2005 (2004: £2.8m), primarily due to the acquisitions ofBird's and Quorn. Other Operating Income Other operating income amounted to £2.4m comprising £0.9m of fair valueadjustments on ongoing forward foreign exchange contracts and £1.5m of incomeunder our business interruption insurance in relation to the fire at Bury StEdmunds. Under IAS 39, changes in the fair value of unsettled forward foreignexchange contracts that are not designated as hedges are now recorded outside ofcost of sales. These economic hedges are recorded as other operating income orexpense with variations in commodity prices due to foreign exchange shown aspart of cost of sales. The net economic impact remains the same. Operating Profit Operating profit before exceptional items for the continuing business was£102.1m for 2005, an increase of £5.8m, or 6.0%, compared to 2004. Operatingprofit after exceptional items increased by 18.2% to £95.3m. Exceptional Items Exceptional items are not addressed in IFRS. Accordingly, the Group has definedexceptional items as those items of financial significance to be disclosedseparately, in order to assist in understanding the financial performanceachieved and in making projections of future results Exceptional items for the period reflect the aggregate effect of a number ofnon-recurring events, resulting in a net expense of £6.8m compared to £15.7m inthe prior year. The principal elements of the charge for the current periodrelate to the costs associated with the integration of the Bird's business, therationalisation of our operations at MBM, the Sudan 1 product recall and theimpact of the insurance claim for the Bury St Edmunds fire (see note 3). Pensions Consistent with all public companies, the Group reviews actuarial assumptionsused in calculating its pension obligations on a regular basis. It is ourobjective to ensure that the balance between the cash flow risk to the businessand our responsibilities to our current and former employees is fully andregularly understood and that the impact of changes to the composition of thebusiness on our pension obligations is known in advance. In this context, the Group monitors the scheme-specific demographiccharacteristics of members, along with the discount rate, returns on equity,inflation and the rate of future salary increases assumptions. As at 31 December2005, on an IAS 19 "Employee Benefits" basis, in aggregate, the Group's pensionschemes are in deficit (net of related deferred tax asset) by £59.1m. We haverevised the assumptions used in determining the IAS19 liabilities to reflectchanges in the economic environment and the scheme as at 31 December 2005. Thesechanges, detailed in note 5, continue to be monitored on a regular basis. Interest Interest payable for the business of £51.5m comprised net cash interest payableof £42.4m, the write-off of debt issuance costs arising on the re-negotiation ofborrowings in 2005 of £6.3m, the regular amortisation of debt issuance costs of£1.7m and the impact of movements in the fair value of interest rate swaps of£1.1m. The net interest payable of £43.5m, after interest income of £8.0m represents asignificant saving on the prior year cost of £78.3m. The saving is a consequenceof the new financing structure put in place at the time of the IPO in July 2004.At the time of the acquisition of Marlow Foods in June 2005, the Group carriedout a further re-financing exercise to fund the acquisition, its futureinvestment programmes and its ongoing working capital requirements. Thisresulted in the write-off of £6.3m of un-amortised facility costs relating tothe previous structure. Facility costs relating to the new credit facilitiestotalled £5.6m and these are being amortised over the term of the newfacilities. The Group continues to actively review the sources and cost of fundsin the context of its short to medium term investment opportunities with theintention of securing the lowest cost of financing for the level of gearing. Taxation The tax charge and effective rate of tax for continuing operations were £14.9mand 28.8% respectively, broadly in line with the rate anticipated for the fullyear. The underlying cash rate of tax paid for 2005 is 24%, reflecting thedeductibility of goodwill arising on certain acquisitions and the accelerationof benefits available through ongoing capital expenditure programmes. UnderIFRS, it is anticipated that the effect of an ongoing investment programme willbe to maintain the effective cash rate of tax within a range of 25-26% in themedium term, with movements in deferred tax adjusting the income statementeffective rate of tax to the UK statutory rate. Discontinued operations The Group continues to monitor actively the ongoing operational performance andstrategic positioning of all its brands and product categories. As a result ofthis process, on 30 October 2005, the Group sold its Tea business to Apeejay TeaInternational for consideration of £80.2m and sold its Netherlands-basedconvenience foods business, Jonker Fris, to NPM on 7 December 2005 forconsideration of £4.4m. In aggregate, the Group recorded a profit on disposal of these businesses of£40.9m, a result that was considered the best value available to the Group. Thisprofit, combined with the operating profits earned by each of the businessesduring the Group's period of ownership (net of taxes), has been recorded as theresult of discontinued operations in the income statement. Earnings Per Share Based on our performance for the year, basic earnings per share was 34.0p (2004:9.9p). In accordance with IFRS and as a reflection of the impact of disposals inthe year, basic earnings per share from continuing and discontinued operationswere 15.0 pence per share (2004: 1.5p) and 19.0 pence per share (2004: 8.4p)respectively, significantly ahead of the prior year. Dividend Consistent with our stated dividend policy, the board recommended a finaldividend of 9.50p per ordinary share (2004: 9.00p), resulting in a totaldividend for 2005 of 14.25p per ordinary share. The final dividend payment,which totals £23.5m, is payable in July 2006. Under IFRS dividends are recordedin the financial statements in the period in which they are declared. Cash Flow and Borrowings In the year, the Group's net borrowings increased from £370.3m to £572.1m. Aftera cash inflow from operations of £73.9m, the primary components of the netoutflow were acquisition cash flows (including repayment of Marlow debt), net ofdisposals, of £194.2m, ongoing net capital expenditure of £36.2m, dividends of£33.8m and debt issuance costs of £5.6m. Net cash generated by operating activities of £73.9m in 2005 compares with£28.5m in 2004, primarily reflecting an improvement in operating profit of£14.7m and a reduction of £23.1m in net interest payable. Acquisition cash flows (including repayment of Marlow debt) of £275.8m consistsof the consideration and associated transaction costs of £72.1m, £172.0m and£27.1m for the purchase of Bird's, Marlow Foods and Cauldron Foods withinGrocery and £4.6m for Gedney's within Fresh Produce. The total consideration forMarlow Foods included £3.2m of acquisition related costs and included a paymentof a cash sum of £118.6m (net of cash acquired), assumed borrowings of £53.4mand £4.1m of loan notes. Capital Expenditure The Group operates a capital expenditure programme that is monitored withinpre-defined financial targets, related to the performance of the Group,operating efficiency and growth characteristics of each investment. In 2005, theGroup incurred net capital expenditure totalling £36.2m in relation to ongoingand acquired businesses. This was in addition to the re-build of our Bury St.Edmunds plant. This figure includes acquisition related capital expenditure of£6.0m spent on the relocation of Bird's production to our Knighton factory. Wecontinue to review the capital demands of the business and consider theexpenditure for 2005 to reflect a level of spend slightly ahead of our ongoingtarget level, as a result of a combination of recurring and non-recurringinvestment requirements. Impact of IFRS The consolidated financial statements of the Group are presented in accordancewith IFRS. The Group has made excellent progress in achieving its conversion toIFRS. The impact on earnings has been limited to the accounting for the Group'sforeign exchange and interest rate swaps, the amortisation of intangibles,pension accounting, accruals for employee incentive awards and deferred tax.There have also been a number of presentational changes to the income statementand balance sheet, but there has been no cash impact arising from any of theseadjustments. We have embedded IFRS within the business and IFRS will form thebasis for all of our financial communications in the future. Following our transition to IFRS, the Group conducted a review of the usefuleconomic lines and residual values of its property, plant and equipment. As aconsequence, and based upon independent valuation advice, we have revised theweighted average useful lives of our assets upwards, with the effect of reducingour current year and on-going depreciation charge by £2.5-£3.6m annually. Consolidated income statement 31 December Year ended 2005 31 December 2004* Note £m £m------------------------- ----- ----------- -----------Continuing operationsTurnover 2 789.7 744.7Cost of sales (583.3) (566.3)------------------------- ----- ----------- -----------Gross profit 206.4 178.4 Selling and distribution (73.7) (63.4)costs Administrative costs (39.8) (37.4) Other operating income 2.4 3.0------------------------- ----- ----------- -----------Operating profit 95.3 80.6 ----------- ----------- Before exceptional items 102.1 96.3 Exceptional items 3 (6.8) (15.7) ----------- ----------- Interest payable and otherfinancial charges 4 (51.5) (83.6)Interest receivable 4 8.0 5.3------------------------- ----- ----------- -----------Profit before taxation forcontinuing operations opopoperations 51.8 2.3 Taxation (charge)/credit (14.9) 0.1------------------------- ----- ----------- -----------Profit after taxation forcontinuing operations 36.9 2.4 Profit from discontinued 10 46.7 13.4operations------------------------- ----- ----------- -----------Profit for the year 83.6 15.8------------------------- ----- ----------- ----------- Earnings per share (pence) 6Basic 34.0 9.9Diluted 33.7 9.7------------------------- ----- ----------- ----------- Earnings per share (pence) 6- continuingBasic 15.0 1.5Diluted 14.9 1.5------------------------- ----- ----------- -----------Earnings per share (pence) 6- discontinuedBasic 19.0 8.4Diluted 18.8 8.2------------------------- ----- ----------- ----------- Dividends**Recommended final dividend (£m) 7 23.5 22.0Declared interim dividend (£m) 11.8 -Recommended final dividend (pence) 9.5 9.0Declared interim dividend (pence) 4.75 - * Results are restated for the impact of the transition to InternationalFinancial Reporting Standards ("IFRS"). ** Under IFRS dividends are recorded in the period in which they are declared.Consolidated balance sheet As at 31 December 2005 2004* Note £m £m------------------------------ ------ ------- ---------ASSETS:Non-current assetsProperty, plant and equipment 197.3 141.3Goodwill 267.7 129.4Intangible assets 151.5 52.6Investments 0.1 0.1Other non-current assets 0.4 0.8Deferred tax assets - 11.7------------------------------ ------ ------- ---------Current assetsInventories 89.8 91.8Trade and other receivables 136.3 110.6Financial assets - derivative financialinstruments 1.3 -Cash and cash equivalents 14.0 12.5------------------------------ ------ ------- ---------Total assets 858.4 550.8------------------------------ ------ ------- --------- LIABILITIES:Current liabilitiesTrade and other payables (166.8) (136.5)Financial liabilities 8 (35.9) (27.9)- short term borrowings- derivative financial instruments (1.5) -Interest payable (2.0) (2.2)Provisions (0.3) -Current tax liabilities (19.4) (12.7)------------------------------ ------ ------- ---------Non-current liabilitiesFinancial liabilities 8 (546.1) (354.9)long-term borrowings 8 (4.1) -loan notesRetirement benefit obligations 5 (84.5) (65.6)Provisions (0.4) (2.9)Other liabilities (0.1) -Deferred tax liabilities (15.3) ------------------------------- ------ ------- ---------Total liabilities (876.4) (602.7)------------------------------ ------ ------- ---------Net liabilities (18.0) (51.9)------------------------------ ------ ------- ---------EQUITYCapital and reservesShare capital 2.5 2.4Share premium (a) 321.5 320.9Merger reserve (a) (136.8) (136.8)Other reserves (a) (0.2) -Profit and loss reserve (a) (205.0) (238.4)------------------------------ ------ ------- ---------Total shareholders' deficit (18.0) (51.9)------------------------------ ------ ------- --------- * Results are restated for the impact of the transition to InternationalFinancial Reporting Standards ("IFRS"). Consolidated cash flow statement Year ended 31 December 2005 2004* Note £m £m----------------------------------- ------ ------ ------- Cash generated from operations (d) 117.7 87.9 ------ -------Interest paid (42.6) (64.7)Interest received 6.3 5.3Taxation paid (7.5) - ------ -------Cash inflow from operating activities 73.9 28.5 ------ -------Acquisition of Bird's (72.1) -Acquisition of Marlow (118.6) -Acquisition of Gedney's (4.6) -Acquisition of Cauldron (27.1) -Sale of subsidiaries/businesses 81.6 34.2Purchase of property, plant and equipment (49.8) (35.9)Receipts from insurers 12.0 5.9Purchase of intangible assets (1.1) (0.9)Sale of property, plant and equipment 2.7 4.0 ------ -------Cash (outflow)/inflow from investing activities (177.0) 7.3 ------ -------Repayment of borrowings (380.0) (151.4)Proceeds from new borrowings 585.9 -Proceeds from share issue - 119.1Share issue refund/(costs) 0.6 (10.1)Debt issuance costs (5.6) (8.1)Repayment of debt acquired with Marlow (53.4) -Dividends paid (33.8) - ------ -------Cash inflow/(outflow) from financing activities 113.7 (50.5)----------------------------------- ------ ------ -------Net inflow/(outflow) of cash and cash 10.6 (14.7)equivalentsCash and cash equivalents at beginning of year 2.6 17.3----------------------------------- ------ ------ -------Cash and cash equivalents at end of year 13.2 2.6----------------------------------- ------ ------ ------- Consolidated statement of recognised income and expense----------------------------------- ------ -------Profit for the year 83.6 15.8 Actuarial losses (net of tax) (18.2) (39.2)Tax on share options 0.7 ------------------------------------ ------ -------Net loss not recognised in income statement (17.5) (39.2)----------------------------------- ------- -------Total recognised income/(expense) recognised in the year 66.1 (23.4) Effect of adopting IAS 39 at 1 January 2005 (note 4) (1.8) ------------------------------------ ------- ------- 64.3 (23.4)----------------------------------- ------- ------- * Results are restated for the impact of the transition to InternationalFinancial Reporting Standards ("IFRS"). (a) Analysis of movement in reserves Group Profit Share Merger Other and loss premium reserve reserves reserve Total £m £m £m £m £m------------------ ------- ------- -------- ----------- -----------At 1 January2004 10.0 (136.8) - (221.5) (348.3)Capitalisationof the Group'sloan notes byissue ofshares 203.4 - - - 203.4Shares issuedthrough publicoffer for cash 117.9 - - - 117.9Issue expenses (10.1) - - - (10.1)Capitalisationof sharepremium (0.9) - - - (0.9)Shares issuedto Directors 0.6 - - - 0.6Share basedpayments - - - 6.5 6.5Profit for theyear - - - 15.8 15.8Actuarialgains andlosses (net oftaxation) - - - (39.2) (39.2)------------------ ------- ------- -------- ----------- -----------At 31 December2004 320.9 (136.8) - (238.4) (54.3)First timeadoption ofIAS 39 - - (1.8) - (1.8)------------------ ------- ------- -------- ----------- -----------At 1 January2005 320.9 (136.8) (1.8) (238.4) (56.1)Profit for theyear - - - 83.6 83.6Dividends paid - - - (33.8) (33.8)Actuarialgains andlosses (net oftaxation) - - - (18.2) (18.2)Settlement ofderivatives - - 1.6 - 1.6Share basedpayments - - - 1.1 1.1Issue costsrefund 0.6 - - - 0.6Tax on shareoptions - - - 0.7 0.7------------------ ------- ------- -------- ----------- -----------At 31 December2005 321.5 (136.8) (0.2) (205.0) (20.5)------------------ ------- ------- -------- ----------- ----------- (b) Reconciliation of cash and cash equivalents to net borrowings 2005 2004 £m £m Net inflow/(outflow of cash and cash equivalents 10.6 (14.7) Debt acquired with Marlow (53.4) - (Increase)/dec rease of borrowings (146.0) 355.7 Other non-cash changes (13.0) (17.4) ----------------------------------- --------- ------- (Increase)/decrease in borrowings net of cash (201.8) 323.6 Total borrowings net of cash at beginning of year (370.3) (693.9) ----------------------------------- --------- ------- Total borrowings at end of year (572.1) (370.3) ----------------------------------- --------- ------- (c) Analysis of movement in borrowings At 31 Effect Re-stated Cash Other As at December of at 1 flow non cash 31 2004 IAS 32 January changes December 2005 2005 £m £m £m £m £m £m --------------- -------- ------ -------- ------- -------- -------- Bank overdrafts (9.9) (23.0) (32.9) 32.1 - (0.8)Cash and bankdeposits 12.5 23.0 35.5 (21.5) - 14.0--------------- -------- ------ -------- ------- -------- --------Cash and cashequivalentsnet ofoverdrafts 2.6 - 2.6 10.6 - 13.2 Borrowings -term (380.0) - (380.0) 55.0 - (325.0)Borrowings -revolver - - - (260.0) - (260.0)Loan notes - - - - (4.1) (4.1)Finance leases - - - - (0.9) (0.9)Other (0.1) - (0.1) - - (0.1) --------------- -------- ------ -------- ------- -------- --------Grossborrowings netof cash (377.5) - (377.5) (194.4) (5.0) (576.9) Debt issuancecosts 7.2 - 7.2 5.6 (8.0) 4.8--------------- -------- ------ -------- ------- -------- -------- Total netborrowings (370.3) - (370.3) (188.8) (13.0) (572.1)--------------- -------- ------ -------- ------- -------- -------- (d) Reconciliation of operating profit to cash generated from operations Year Ended 31 December 2005 2004 £m £m----------------------------- -------- --------Continuing operationsOperating Profit 95.3 80.6Depreciation of property, plant and equipment 15.9 15.0Amortisation of intangible assets 6.3 2.8Gain on disposal of property, plant and equipment (4.7) (0.6)Revaluation gains on financial instruments (1.1) -Share based payments 1.1 6.5----------------------------- -------- --------Net cash inflow from operating activities beforeinterest and 112.8 104.3tax (paid)/received and movements in working capital (Increase)/decrease in inventories (0.7) 4.8Increase in receivables (12.4) (13.3)Increase/(decrease) in other payables and provisions 16.9 (4.4)Movement in net retirement benefit obligations (5.4) (20.3)----------------------------- -------- --------Cash generated from continuing operations 111.2 71.1Discontinued operations 6.5 16.8----------------------------- -------- --------Cash generated from operations 117.7 87.9----------------------------- -------- -------- -------- -------- Exceptional items cash flow (8.9) (18.6) Cash generated from operations before exceptional items 126.6 106.5 -------- ------- (e) Additional analysis of cash flows Year ended 31 December 2005 2004----------------------------------- -------- -------- £m £mInterest received 6.3 5.3Interest paid (42.6) (64.7)Issue costs of new bank loan (5.6) (8.1)----------------------------------- -------- --------Return on investments and servicing of (41.9) (67.5)finance ----------------------------------- -------- -------- Sales of subsidiaries/businessesSale of subsidiaries/businesses 81.6 34.8Cash disposed of on sale of subsidiaries/ - (0.6)businesses ----------------------------------- -------- --------Sales of subsidiaries/businesses 81.6 34.2----------------------------------- -------- -------- 1. Basis of Preparation For the first time, the annual results of the Group have been prepared inaccordance with International Financial Reporting Standards as adopted by theEuropean Union ('IFRS'). For completeness we have disclosed comparativefinancial information as reconciled to that formerly presented under UK GAAP onour website, available at www.premierfoods.co.uk. The impact of conversion toIFRS has had no cash impact. Since the publication of the interim results no further adjustments have beenmade to the information previously disclosed, other than to reflect there-classification of results of the continuing and discontinued operations ofthe Group. On 30 October 2005 the Group sold its Tea business and Jonker Fris on7 December 2005. In accordance with IFRS 5, the results of both activities havebeen presented as discontinued operations for the entire period of ownership in2004 and 2005. For 2004 discontinued operations also include the results ofMaterne, our French spreads business sold in July 2004. The date of transition to IFRS was 1 January 2004, being the start of theearliest period of comparative information. The financial information for 2004has been restated to comply with IFRS. Under the provisions of IFRS 1 "Firsttime adoption of International Financial Reporting Standards" the requirementsof IAS 32 "Financial Instruments: Disclosure and presentation" and IAS 39"Financial Instruments: Recognition and measurement" have been adopted from 1January 2005 (note 4). The figures and financial information for the year 2004 do not constitute thestatutory financial statements for that year. Those financial statements havebeen delivered to the Registrar and included the auditors' report which wasunqualified and did not contain a statement either under section 237(2) of theCompanies Act 1985 (accounting records or returns inadequate or accounts notagreeing with records and returns), or section 237(3) (failure to obtainnecessary information and explanations). The figures and financial informationfor the year 2005 do not constitute the statutory financial statements for thatyear. Those financial statements have not yet been delivered to the Registrar. The principal accounting policies in the preparation of this financialinformation are set out on our website and prepared on a consistent basis to the2005 financial statements. These policies have been consistently applied to allthe years presented, unless otherwise stated. Premier Foods plc was incorporated on 22 June 2004, with an issued share capitalof 5,000,000 1p ordinary shares. Premier Foods plc became the ultimate holdingcompany of the Group on 15 July 2004. On this date, HMTF Premier Limited(HMTFPL) contributed its shares in Premier Foods Investment No.3 Limited (PFINo.3) to Premier Foods plc in exchange for 1,000 1p ordinary shares in PremierFoods plc. The scheme of arrangement has been accounted for as a Groupreconstruction. 2. Segmental Analysis The results below for the year ended 31 December 2005 are divided intocontinuing and discontinued operations, with the two continuing segmentsdescribed as Grocery and Fresh Produce. Following the disposal of our Teabusiness, within Grocery we now refer to two product groupings, namelyConvenience Foods, Pickles, Sauces and Meat-Free (which now incorporates Quornand Cauldron) and Spreads, Desserts and Beverages. Results for the Tea businessand Jonker Fris are presented as discontinued operations. Each of these segments primarily supplies the United Kingdom market, although wealso supply certain products to mainland Europe and the United States.Inter-segment transfers or transactions are entered into under the same termsand conditions that would be available to unrelated third parties. These segments are the basis on which the Group reports its primary segmentinformation. The segment results for the year ended 31 December 2005 are asfollows: Year ended 31 December 2005 Grocery Fresh Unallocated Total for Produce Group £m £m £m £m-------------------- -------- -------- -------- ---------TurnoverTotal turnoverfromcontinuingoperations 683.4 106.3 - 789.7-------------------- -------- -------- -------- --------- ResultOperatingprofit beforeexceptional 101.6 0.5 - 102.1Exceptionalitems (3.1) (3.7) - (6.8)Interestpayable andother financecharges - - (51.5) (51.5)Interestreceivable - - 8.0 8.0-------------------- -------- -------- -------- ---------Profit beforetaxation forcontinuingoperations 98.5 (3.2) (43.5) 51.8Taxation - - (14.9) (14.9)-------------------- -------- -------- -------- ---------Profit aftertaxation forcontinuingoperations 98.5 (3.2) (58.4) 36.9Discontinuedoperations 46.7 - - 46.7-------------------- -------- -------- -------- ---------Profit for theyear 145.2 (3.2) (58.4) 83.6-------------------- -------- -------- -------- --------- Balance sheetSegment assets 800.0 42.7 - 842.7Unallocatedassets - - 15.7 15.7-------------------- -------- -------- -------- ---------Consolidatedtotal assets 800.0 42.7 15.7 858.4-------------------- -------- -------- -------- --------- Segmentliabilities (238.9) (13.2) - (252.1)Unallocatedliabilities - - (624.3) (624.3)-------------------- -------- -------- -------- ---------Consolidatedtotalliabilities (238.9) (13.2) (624.3) (876.4)-------------------- -------- -------- -------- --------- Other information Grocery Fresh Discontinued Total for Produce Group £m £m £m £m Capitalexpenditure 42.4 2.3 5.1 49.8Softwareexpenditure 0.7 0.3 - 1.0Depreciation 13.0 2.9 2.2 18.1Amortisation 6.3 - 0.3 6.6 Year ended 31 December 2004 Grocery Fresh Unallocated Total for Produce Group £m £m £m £m-------------------- -------- -------- --------- --------TurnoverTotal turnoverfromcontinuingoperations 594.4 150.3 - 744.7-------------------- -------- -------- --------- -------- ResultOperatingprofit beforeexceptional 90.6 5.7 - 96.3Exceptionalitems (9.2) (6.5) - (15.7)Interestpayable andother financecharges - - (83.6) (83.6)Interestreceivable - - 5.3 5.3Profit beforetaxation forcontinuingoperations 81.4 (0.8) (78.3) 2.3Taxation - - 0.1 0.1-------------------- -------- -------- --------- --------Profit aftertaxation forcontinuingoperations 81.4 (0.8) (78.2) 2.4Discontinuedoperations 13.4 - - 13.4-------------------- -------- -------- --------- --------Profit for theyear 94.8 (0.8) (78.2) 15.8-------------------- -------- -------- --------- -------- Balance sheetSegment assets 487.1 39.5 - 526.6Unallocatedassets - - 24.2 24.2-------------------- -------- -------- --------- --------Consolidatedtotal assets 487.1 39.5 24.2 550.8-------------------- -------- -------- --------- -------- Segmentliabilities (192.6) (13.1) - (205.7)Unallocatedliabilities - - (397.0) (397.0)-------------------- -------- -------- --------- --------Consolidatedtotalliabilities (192.6) (13.1) (397.0) (602.7)-------------------- -------- -------- --------- -------- Other information Grocery Fresh Discontinued Total for Produce Group £m £m £m £m Capitalexpenditure 32.6 0.9 3.8 37.3Softwareexpenditure 0.9 - - 0.9Depreciation 13.0 2.0 4.0 19.0Amortisation 2.8 - 0.7 3.5 Unallocated assets and liabilities, comprises cash and cash equivalents, netborrowings, taxation balances and financial derivatives. Discontinued Operations On 30 October, the Group disposed of its Typhoo Tea and related products(collectively 'Tea') business for £80.2m. On 7 December, the Group also disposedof its Netherlands-based convenience foods business, Jonker Fris, for £4.4m. Thesegmental results for the discontinued operations stated above aggregated withthe profit or loss of each business in arriving at the net result fromdiscontinued operations for 2005, with 2004 restated for comparison purposes. In2004, discontinued operations also included our French spreads business Materne. Discontinued operations had the following effect on the segment results ofGrocery, analysed into continuing and discontinued components. Discontinued Continuing Grocery 2005 2005 2005Turnover £m £m £m--------------------------- ----------- -------- -------- Total turnover 77.2 683.4 760.6--------------------------- ----------- -------- -------- ResultOperating profit 8.3 98.5 106.8--------------------------- ----------- -------- -------- Discontinued Continuing Grocery 2004 2004 2004Turnover £m £m £m--------------------------- ----------- -------- -------- Total turnover 152.1 594.4 746.5--------------------------- ----------- -------- -------- ResultOperating profit 9.6 81.2 90.8--------------------------- ----------- -------- -------- Segmental analysis - secondary The following table provides an analysis of the Group's sales, which areallocated on the basis of geographical market destination and segmental assetsand additions to property, plant and equipment and intangible assets, which areallocated by geographical market origin. Turnover Carrying Value of Total Capital Expenditure (continuing) Segmental Assets (including software) 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m----------- ------ ----- --------- ------- -------- -------- United 757.4 724.5 858.4 533.5 50.1 35.8KingdomMainland 25.4 14.0 - 17.3 0.7 2.4EuropeOther 6.9 6.2 - - - -countries ----------- ------ ----- --------- ------- -------- --------Total 789.7 744.7 858.4 550.8 50.8 38.2----------- ------ ----- --------- ------- -------- -------- 3. Exceptional items During the year, the Group incurred the following: 2005 2004 £m £mExceptional items - continuing operations 4.7 -Bird's - transitional manufacturing costs 0.5 - - other integration costsMBM restructuring costs 3.7 3.9Net insurance recovery on Bury St Edmunds (4.7) (3.5)Sudan 1 2.4 -IPO 0.9 15.0Restructuring and other costs 0.7 0.3Property disposal (1.4) ------------------------------------- ------------ -------Total 6.8 15.7------------------------------------ ------------ ------- (a) Bird's transitional manufacturing costs On 14 February 2005 the Group acquired the Bird's Custard, Angel Delight andassociated brands from Kraft Foods Inc. (collectively 'Bird's'). Following theacquisition, the product range continued to be produced at Kraft's factory inBanbury under a series of transitional arrangements. These arrangements wereextended to the end of the year following the decision to ensure the continuityof supply to our customers during the heavy pre-Christmas trading season forBird's. For the purposes of comparability, we have presented the additional costof sourcing production from Kraft as exceptional costs. (b) MBM restructuring costs In the period to 31 December 2005, as part of our ongoing commitment tomanufacturing efficiency, we incurred restructuring costs and stock write-offsrelating to rationalisation of operations within the Fresh Produce segment. Thishas been part of an ongoing process, which began in the second half of 2004 andis the result of a significant reduction in business volumes. (c) Net insurance recovery on Bury St Edmunds On 27 October 2004, the Group suffered a serious fire at its Bury St Edmundsfactory, which is the primary manufacturing site for our pickles and sauces.Subsequently, the factory has been rebuilt and the benefit of replacingdepreciated assets with new capital investment and credited as exceptionalincome, net of the impact of writing off the damaged assets. (d) Sudan 1 On 18 February 2005, the Foods Standards Agency initiated a recall of a numberof products, which had been identified as being contaminated with a dye, "Sudan1", which is not authorised for use in food products. The dye was traced to abatch of chilli powder supplied to the Group in its manufacture of Worcestersauce. The Group used the Worcester sauce in three other products and suppliedWorcester sauce to a number of retail and food ingredient customers. Claimsagainst the company by customers relating to the recall are being dealt with byour insurers and we continue to believe we have no material financial exposurein this respect. During the course of the recall the Group incurred a number of legal and otherexpenses involved in the handling of the recall. These are the subject of aclaim against the supplier of the contaminated chilli powder and its insurers.In case such recovery is unsuccessful the Group has provided in full for thesecosts and has recorded an exceptional charge of £2.4m in relation to thismatter. (e) IPO In 2004, the company's initial public offering (IPO) resulted in a charge of£15.0m of exceptional items to continuing operations. The costs included thecash cancellation of existing share options, the cash cancellation of 30% ofsenior management's share options and the cost of issue of new 1p ordinary shareoptions, exercisable one year after the IPO. We also incurred a further £3.1m ofcosts, attributable to the IPO, of which £0.9m were charged in 2005. (f) Restructuring and other costs These primarily relate to the restructuring of the production and administrationfacilities in the UK grocery business. (g) Property disposal This relates to the sale of surplus property in the West Midlands. This propertywas not used in our operations. For year ended 31 December 2004, exceptional items relating to the Tea andJonker Fris businesses have been restated and reclassified to discontinuedbusiness. 4. Net interest payable and financial instruments On 1 January 2005, the Group adopted the provisions of IAS 32 and IAS 39,Financial Instruments. The primary effect of this change in accounting policyrelates to the accounting, presentation and disclosure of the Group's interestsin forward exchange contracts and interest rate swaps and the effect of thesechanges was to increase the Group's net liabilities at 31 December 2004 by £1.8mto £53.7m. In future, the operating profit impact of commodity contracts and foreigncurrency transactions will be recorded as other operating income or expense. Asnoted below, the net economic impact of the interest rate swaps will form acomponent of net interest payable. On 6 June 2005, the Group renewed its borrowings with term facilities of £325.0mrepayable over the period to 6 June 2010 and revolving credit facilities of£455.0m, of which £260.0m was drawn down as at 31 December 2005. As a result ofthese changes, debt issuance costs of £6.3m (2004: £10.5m) relating to the priorfacilities were written off to interest payable. Cash and bank deposits and short-term borrowings included in the balance sheetreflect the anticipated level at which the Group will offset cash and overdraftsand legal rights to such offset in accordance with IAS 32. 2005 2004 £m £m------------------------------------ ---------- ---------Interest payable 8.6 22.4Interest payable on bank loans, senior notes andoverdraftsInterest payable on unsecured, unguaranteed loan notes - 11.1Interest payable on term facility 20.4 15.7Interest payable on revolving facility 13.4 8.9Amortisation of debt issuance costs 1.7 3.9Fair valuation of interest rate swaps 1.1 ------------------------------------- ---------- --------- 45.2 62.0 Senior notes early redemption penalty - 11.1Acceleratedl amortisation of debt issuance costs 6.3 10.5------------------------------------ ---------- --------- 6.3 21.6------------------------------------ ---------- ---------Total interest payable 51.5 83.6Interest receivable - bank deposits (8.0) (5.3)------------------------------------ ---------- ---------Net interest payable 43.5 78.3------------------------------------ ---------- --------- 5. Retirement Benefit Schemes Accounting Policy Employee benefits Group companies operate a number of pension schemes. The schemes are generallyfunded through payments to insurance companies or trustee-administered funds,determined by periodic actuarial calculations. The Group has both definedbenefit and defined contribution plans. A defined benefit plan is a pension planthat defines an amount of pension benefit that an employee will receive onretirement, usually dependent on one or more factors such as age, years ofservice and compensation. A defined contribution plan is a pension plan underwhich the Group pays fixed contributions into a separate entity. The Group hasno legal or constructive obligations to pay further contributions into a definedcontribution plan if the fund does not hold sufficient assets to pay allemployees the benefits relating to employee service in the current and priorperiods. Defined Contribution Plans Obligations for contributions to defined contribution pension plans arerecognised as an expense in the income statement as incurred. Defined Benefit Plans The liability recognised in the balance sheet in respect of defined benefitpension plans is the present value of the defined benefit obligation at thebalance sheet date less the fair value of plan assets, together with adjustmentsfor unrecognised actuarial gains or losses and past service costs. The definedbenefit obligation is calculated annually by independent actuaries using theprojected unit credit method. The present value of the defined benefitobligation is determined by discounting the estimated future cash outflows usinginterest rates of high-quality corporate bonds that are denominated in thecurrency in which the benefits will be paid, and that have terms to maturityapproximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes inactuarial assumptions are charged or credited to the statement of recognisedincome and expenditure in the year in which they arise. Past-service costs are recognised immediately in income, unless the changes tothe pension plan are conditional on the employees remaining in service for aspecified period of time (the vesting period). In this case, the past-servicecosts are amortised on a straight-line basis over the vesting period. Group Defined Benefit Schemes Most Group companies participate in the Premier Foods Pension Scheme (the"PFPS"), the principal funded defined benefit scheme operated by the Group. TheGroup also operates a smaller funded defined benefit scheme, the Premier AmbientProducts Pension Scheme (the "PAPPS") for employees within the Ambrosiabusiness. Under the schemes, employees are entitled to retirement benefitsvarying as a percentage of final salary on retirement. No other post-retirementbenefits are provided. The assets of both schemes are held by the trustees and are independent of theGroup's finances. The schemes invest through investment managers appointed bythe trustees in UK and European equities and in investment products comprising abroader range of assets. For the purposes of this financial information, pension costs presented arecalculated by independent, qualified actuaries using the projected unit creditmethod. The figures below are consolidated to include PFPS and PAPPS. At the balance sheet date, the principal actuarial assumptions used were asfollows: Liabilities 2005 2004---------------------------- -------- -----------Discount rate 5.00% 5.50%Expected salary increases 3.75% 3.50%Future pension increases 2.75% 2.50%Inflation 2.75% 2.50%Average expected remaining life of a 65 year old male 15* 16*(years) * The mortality assumption used is slightly below the national average becauseit reflects the socio-economic profile of the membership and the schemes' actualand anticipated mortality experience. The fair values of plan assets and the expected rates of return on assets were: Assets Expected rate Market Expected Market of return value rate of value return 2005 2005 2004 2004 % £m % £m---------------- ------ --------- -------- ---------- Equities 8.00% 160.8 8.50% 136.8InsightTargetedReturn 6.75% 66.0 7.70% 166.4ML TargetedReturn 7.75% 103.8 - -Cash & Other 4.50% 3.9 ----------------- ------ --------- -------- ----------Total 7.63% 334.5 8.06% 303.2---------------- ------ --------- -------- ---------- At the balance sheet date, the distribution of assets underlying the targetedreturn products were: 2005 2004--------------- ------ -------- -------- -------- -------- --------- Cash Equities Total Cash Equities Total £m £m £m £m £m £m--------------- ------ -------- -------- -------- -------- ---------Insight Targeted 66.0 - 66.0 166.4 - 166.4ReturnML Targeted Return 60.2 43.6 103.8 - - ---------------- ------ -------- -------- -------- -------- --------- The expected return on pension scheme assets is based on the long-terminvestment strategy set out in the Schemes' Statement of Investment Principlesat the start of the year. In 2005, the expected return was calculated using theequity return and targeted investment return assumptions of 8.5% and 7.7%respectively. As at 31 December 2004, £99.9m was temporarily held as cash withan expected return of 8.5%, pending re-investment in equity markets. Theexpected return on the majority of the remaining cash £66.5m was the targetedreturn benchmark in place of 6.5% (net of fees). The actual rate of return on plan assets was 13.4% (2004: 10.8%).The plan assetsdo not include any of the Group's own financial instruments, nor any propertyoccupied by, or other assets used by, the Group. The amounts recognised in the balance sheet arising from the Group's obligationsin respect of its defined benefit schemes is as follows: 2005 2004 £m £m----------------------- ---------- ---------Present value of funded obligations (418.9) (368.3)Fair value of plan assets 334.5 303.2----------------------- ---------- ---------Deficit in scheme (84.4) (65.1)----------------------- ---------- --------- Changes in the present value of the defined benefit obligation are as follows: 2005 2004 £m £m--------------------------- ---------- ---------Opening defined benefit obligation (368.3) (301.9)Current service cost (4.3) (2.7)Interest cost (20.0) (16.1)Actuarial losses (43.7) (65.8)Other income - (2.2)Curtailments 1.2 -Contributions by plan participants (2.1) (2.0)Benefits paid 18.3 22.4--------------------------- ---------- ---------Closing defined benefit obligation (418.9) (368.3)--------------------------- ---------- --------- Changes in the fair value of plan assets are as follows: 2005 2004 £m £m--------------------------- ---------- ---------Opening fair value of plan assets 303.2 272.5Expected return 23.4 21.5Administrative and life insurance costs (1.2) (1.4)Actuarial gains 17.8 9.8Contributions by employer 7.5 19.0Contributions by plan participants 2.1 2.0Other income - 2.2Benefits paid (18.3) (22.4)--------------------------- ---------- ---------Closing fair value of plan assets 334.5 303.2--------------------------- ---------- --------- The history of the plan for the current and prior period is as follows: 2005 2004 £m £m--------------------------- --------------- ---------Present value of defined benefit obligation (418.9) (368.3)Fair Value of plan assets 334.5 303.2--------------------------- --------------- --------- Deficit (84.4) (65.1)--------------------------- --------------- --------- Experience adjustments on plan liabilities (43.7) (65.8)Experience adjustments on plan assets 17.8 9.8 In accordance with the transitional provisions for the amendments to IAS 19"Employee Benefits" in December 2004, the disclosures above are determinedprospectively from the 2004 reporting period. The Group expects to contributeapproximately £8.3m to its defined benefit plan in 2006. The amounts recognisedin the income statement are as follows: 2005 2004 £m £m--------------------------- --------------- ---------Current service cost (4.3) (2.7)Administrative and life insurance costs (1.2) (1.4)Interest cost (20.0) (16.1)Expected return on plan assets 23.4 21.5Gains on curtailment 1.2 ---------------------------- --------------- --------- Total (expense)/credit (0.9) 1.3--------------------------- --------------- --------- The actual return on plan assets was £40.5m (2004: £29.5m). During the yearactuarial losses of £25.9m (2004: £56.0m) were recognised in the statement ofincome and expenses. Accumulated actuarial losses were £81.9m as at 31 December2005 (2004: £56.0m). Defined Contribution Schemes A number of companies in the Group operate defined contribution schemes,predominantly Stakeholder arrangements. In addition a number of schemesproviding life assurance benefits only are operated. The total expenserecognised in the income statement of £0.9m (2004: £0.4m) representscontributions payable to the plans by the Group at rates specified in the rulesof the plans. Other post retirement benefits The Group does not provide any other post retirement benefits. 6. Earnings per share Basic earnings per share have been calculated by dividing earnings attributableto ordinary shareholders of £83.6m (2004: £15.8m) by the weighted average number of ordinary shares ofthe Company. 2005 2004---------------- ------ --------- -------- ------ --------- -------- Basic Dilutive Diluted Basic Dilutive Diluted EPS effect of EPS EPS effect of EPS share share options options---------------- ------ --------- -------- ------ --------- -------- ContinuingoperationsProfit aftertax (£m) 36.9 - 36.9 2.4 - 2.4Weightedaverage numberof 245.5 2.4 247.9 159.2 3.0 162.2shares (million)Earnings pershare (pence) 15.0 (0.1) 14.9 1.5 - 1.5 DiscontinuedoperationsProfit aftertax (£m) 46.7 - 46.7 13.4 - 13.4Weightedaverage numberof 245.5 2.4 247.9 159.2 3.0 162.2shares (million)Earnings pershare (pence) 19.0 (0.2) 18.8 8.4 (0.2) 8.2 Total businessProfit aftertax (£m) 83.6 - 83.6 15.8 - 15.8Weightedaverage numberof 245.5 2.4 247.9 159.2 3.0 162.2shares (million) Earnings pershare (pence) 34.0 (0.3) 33.7 9.9 (0.2) 9.7---------------- ------ --------- -------- ------ --------- -------- Diluted Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume conversion of all dilutivepotential ordinary shares. The only dilutive instrument of the Company are shareoptions. A calculation is done to determine the number of shares that could havebeen acquired at fair value (determined as the average annual market share priceof the Company's shares) based on the monetary value of the subscription rightsattached to the outstanding share options. The number of shares used tocalculate ordinary earnings per share is compared below with the number ofshares that would have been issued assuming the exercise of the share options. No adjustments are required to earnings between undiluted and diluted earningsper share. 2005 2004 Number Number------------------------------------ ---------- ---------Weighted average number of ordinary shares for thepurpose of basic earnings per share 245,471,086 159,224,050 Effect of dilutive potential ordinary shares:Share options 2,438,835 3,048,316------------------------------------ ---------- ---------Weighted average number of ordinary shares for thepurpose of diluted earnings per share 247,909,921 162,272,366------------------------------------ ---------- --------- 7. Dividends The board proposes a final dividend of 9.50 pence per ordinary share (2004: 9.00pence), which is payable on 7 July 2006 to shareholders on the Register ofMembers on 9 June 2006 resulting in an aggregate dividend in 2005 of 14.25 penceper ordinary share (2004: 9.00 pence). In accordance with IFRS final dividend isrecognised when declared an interim dividend is recognised when paid. 8. Bank and other borrowings 2005 2004 £m £m------------------------------------------- --------- --------Due within one year:Secured Senior Credit Facility - Term (note 25.0 -a)Debt issuance costs (0.6) -------------------------------------------- --------- -------- 24.4 -------------------------------------------- --------- -------- Secured Senior Credit Facility - Revolving 11.0 -(note a)Debt issuance costs (0.6) -------------------------------------------- --------- -------- 10.4 -------------------------------------------- --------- -------- Secured Senior Credit Facility -Term A - 9.3(note b)Debt issuance costs - (0.9)------------------------------------------- --------- -------- - 8.4------------------------------------------- --------- -------- Secured Senior Credit Facility -Term B - 10.7(note b)Debt issuance costs - (1.1)------------------------------------------- --------- -------- - 9.6------------------------------------------- --------- -------- Bank overdrafts 0.8 9.9------------------------------------------- --------- -------- Total bank borrowings 35.6 27.9Finance lease obligations 0.3 -------------------------------------------- --------- -------- 35.9 27.9------------------------------------------- --------- --------Due after more than one year: Secured Senior Credit Facility - Term (note 300.0 -a)Debt issuance costs (1.4) -------------------------------------------- --------- -------- 298.6 -------------------------------------------- --------- -------- Secured Senior Credit Facility - Revolving 249.0 -(note a)Debt issuance costs (2.2) -------------------------------------------- --------- -------- 246.8 -------------------------------------------- --------- -------- Secured Senior Credit Facility -Term A - 166.5(note b)Debt issuance costs - (2.4)------------------------------------------- --------- -------- - 164.1------------------------------------------- --------- -------- Secured Senior Credit Facility -Term B - 193.5(note b)Debt issuance costs - (2.8)------------------------------------------- --------- -------- - 190.7------------------------------------------- --------- -------- Finance lease obligations 0.6 -Other unsecured loans 0.1 0.1------------------------------------------- --------- -------- 0.7 0.1------------------------------------------- --------- -------- 546.1 354.9------------------------------------------- --------- --------Loan notes (note c) 4.1 -------------------------------------------- --------- --------Total bank and other borrowings 586.1 382.8------------------------------------------- --------- -------- The carrying amount of the Group's borrowings are all denominated in PoundsSterling. (a) Senior Term Credit Facility and Revolving credit Facility Arrangement - 2005 On 6 June 2005, the Group refinanced and entered into a new Term and RevolvingCredit Facility agreement. This was arranged by BNP Paribas, J.P. Morgan plc,Lloyds TSB Bank plc and The Royal Bank of Scotland plc as lead arrangers andunderwriters and Lloyds TSB Bank plc as facility agent and security trustee.These facilities were subsequently syndicated to a further 23 financialinstitutions. The Senior Term Credit Facility comprises £325.0m. The Revolving Credit Facilityis a multi currency revolving credit facility of up to £455.0m (or itsequivalent in other currencies). The final maturity date of the above arrangements is 6 June 2010. (b) Senior Credit Facility and Acquisition Facility Arrangement - 2004 The facilities in place prior to 6 June 2005 included a Senior Credit Facilityand an Acquisition Facility agreement with J.P. Morgan plc as arranger, JPMorganChase Bank as underwriter, with J.P. Morgan Europe Limited as agent and securitytrustee. Under the Senior Credit Facility, a syndicate of financial institutionsmade £380.0m of credit facilities available to the Group. The Senior Credit Facility comprised £175.8m of Term A facilities and £204.2m ofTerm B facilities. In addition a multi currency revolving credit facility of£200.0m (or its equivalent in other currencies) was available. These facilitieswere repaid on 6 June 2005. (c) Loan notes - 2008 As part of the acquisition arrangement of Marlow Foods Holdings Limited, on 6June 2005, the Group entered into deferred consideration arrangements withcertain individuals. This resulted in loan notes being issued to the Group.These notes incur interest at a six month LIBOR rate and mature in 2008. 9. A cquisitions of subsidiaries The following companies were acquired during the year: Name of Principal Date of Shares Voting Cash Total netbusinesses activities acquisition acquired equity outflow on consid-acquired instruments acquisition eration* acquired % £m £m--------- ---------- ---------- -------- --------- ---------- ----------Bird's Manufacture 14 February No N/a 72.1 72.1 and distribution of Bird's Custard, Angel Delight and associated brands (acquired from Kraft) Marlow Manufacturing 6 June Yes 100 118.6 176.1Foods andHolding distributionLimited of 'Quorn' products (meat free myco-protein), both frozen and chilled Monument Supply and 5 September Yes 100 4.6 4.6(GB) distributionLimited of fresh(Gedney's) vegetables Cauldron Manufacturing 30 October Yes 100 27.1 27.1Foods andLimited distribution of vegetable based products. \* Total net consideration includes net debt and cash acquired as well as costs ofacquisitions. The financial performance of the companies acquired was as follows: Name of Revenue post Profit^ post Pro-forma Pro-forma businesses acquisition acquisition Revenue for Profit^ for acquired Year* Year* £m £m £m £m-------------- ------------ ------------ ----------- -----------Bird's 30.0 - 33.8 -Marlow FoodsHoldingLimited 47.1 4.5 84.4 6.3Monument (GB)Limited 12.1 0.1 36.0 0.3Cauldron FoodsLimited 2.5 0.5 15.4 1.9 ^ Profit is defined as operating profit before interest and tax. * As if the acquisition had occurred on 1 January 2005. 10. Discontinued operations The results of the discontinued operations for the period from 1 January 2005 tothe dates of disposal are as follows: Period End Year 2005 End 2004 £m £m------------------------------------ ------------ -------Revenue 77.2 152.1Expenses (68.9) (142.5)------------------------------------ ------------ -------Profit before tax 8.3 9.6Income tax expense (2.5) (2.4)------------------------------------ ------------ -------Profit after tax on discontinued operations for the 5.8 7.2period ------------ ------------------------------------------- Pre tax gain on disposal 40.9 9.8Tax on gain - (3.6)------------------------------------ ------------ -------Gain after taxation 40.9 6.2------------------------------------ ------------ ------------------------------------------- ------------ -------Total profit on discontinued operations 46.7 13.4------------------------------------ ------------ ------- During the year discontinued businesses contributed £6.5m (2004: £16.8m) to theGroup's net operating cash flows, paid £5.1m (2004: £3.8m) in respect ofinvesting activities and paid £nil (2004: £nil) in respect of financingactivities. A cash inflow of £81.6m (2004: £34.2m) arose on the disposal of discontinuedbusinesses. 11. Disposal of subsidiaries/businesses As referred to in note 2 the Group disposed of its Tea and Jonker Frisbusinesses during the year. On the respective dates of disposal the net assets of each business were asfollows: Tea Jonker Fris 30 October 2005 7 December 2005 Property, plant and equipment 15.0 2.6Intangible assets and goodwill 6.3 -Inventories 10.0 10.1Trade and other receivables 0.3 5.1Cash and bank deposits - - Trade and other payables - (7.1)Current tax recoverable - 0.4Deferred tax liabilities (2.0) --------------------------------- ----------- ------------Net assets disposed 29.6 11.1Consideration 77.7 3.9-------------------------------- ----------- ------------Gain/(loss) on disposal 48.1 (7.2)Gain on curtailment of pension (net oftax) 0.8Foreign exchange on disposal - (0.8)-------------------------------- ----------- ------------Total gain/(loss) 48.9 (8.0)-------------------------------- ----------- ------------ Satisfied by:Cash 80.0 5.0Net consideration adjustment 0.2 (0.6)Disposal costs (2.5) (0.5)-------------------------------- ----------- ------------ 77.7 3.9-------------------------------- ----------- ------------ Net cash inflow arising on disposal:Cash consideration 77.7 3.9-------------------------------- ----------- ------------ 77.7 3.9-------------------------------- ----------- ------------ This information is provided by RNS The company news service from the London Stock Exchange

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