7th Mar 2007 07:02
Glanbia PLC07 March 2007 NEWS RELEASE 2006 RESULTS For a full copy of this document - please visit www.glanbia.com For further information contact Glanbia plc +353 56 777 2200Geoff Meagher, Deputy Group Managing Director/Group Finance DirectorSiobhan Talbot, Deputy Group Finance DirectorGeraldine Kearney, Corporate Communications Director + 353 87 231 9430 Hogarth Partnership UK +44 207 357 9477John Olsen KEY MILESTONES ACHIEVED IN 2006 ON TARGET FOR DOUBLE DIGIT GROWTH IN 2007 7 March 2007 - Glanbia plc, the international dairy foods and nutritionalingredients Group, announces its full year results for the year ended 30December 2006. 2006 Results Summary 2006 2005 Change (as restated) Revenue(1) €1,853.4 m €1,830.0 m Up 1%Operating profit pre exceptional €85.6 m €80.9 m Up 6%Operating margin pre exceptional 4.6 % 4.4 % Up 20 bpsNet financing costs pre exceptional (€14.0 m) (€13.1 m) Up €0.9 mShare of results of joint venturesand associates(1) €2.8 m €0.9 m Up 205%Profit before tax pre exceptional €74.4 m €68.7 m Up 8%Profit after tax pre exceptional €66.4 m €61.1 m Up 9%Exceptional items(2) (€0.1 m) (€3.4 m) See noteEarnings per share 22.5 c 19.7 c Up 14%Adjusted earnings per share 22.6 c 20.9 c Up 8%Dividend per share in respect of the year 5.79 c 5.51 c Up 5%Net debt €224.5 m €224.2 m Similar (1) Revenue including Glanbia's share of the revenue of joint ventures andassociates was €2.1 billion in 2006, up 8% on 2005. Share of results of jointventures and associates is an after interest and tax amount. (2) Exceptional items are €3.3 million restructuring costs relating to theclosure of the Pigmeat cannery operation, €9.1 million being the cost of thedisposal of the Group's remaining 25% interest and related loan note in TheCheese Company Holdings Limited to Milk Link Limited for €70 million and €12.3million being the recognition of a deferred tax asset relating to the Group'sformer UK operations. John Moloney, Group Managing Director, said: "2006 was a good year for Glanbia. Our results are in line with marketexpectations, despite a particularly tough first half and ongoing challenges inIreland. Key financial performance indicators are trending positive andinternational operations and joint ventures are progressing well. We achieved key strategic milestones during the year including a US$105 millionUS Nutritionals acquisition, Seltzer, and the opening of one of the largestnatural cheese and whey processing plants in the world, Southwest Cheese, whichis a US$190 million 50:50 joint venture. The Seltzer acquisition is performingahead of expectations. The Southwest Cheese plant is fully commissioned and isproducing product to a world class standard. A further €50 million of development capital expenditure has been committed in2006, including €5 million to build the Group's first nutritionals operation inthe Asia Pacific region and €22.5 million for a planned capacity expansion andnew plant in the Nigerian joint venture. We are successfully developing a strategic international presence, which todayrepresents nearly 40% of the Group's revenue and profits. This gives Glanbia astrong platform from which to continue to grow and develop overseas. At the sametime, the Group continues to consistently and solidly improve the cost base,productivity and long-term sustainability of the Irish operations. As to the future, Glanbia is on target to deliver double digit earnings growthin 2007 and we believe the outlook is positive for sustained high growth." --------------------------------------------------------- 2006 Results Results for the year ended 30 December 2006 Finance review Income statement Revenue increased by 1% to €1,853.4 million (2005: €1,830.0 million). A solidoperating performance, the changing mix of business and the benefits of prioryear rationalisation initiatives improved profitability and margins. Operatingprofit pre exceptional was up 6% to €85.6 million (2005: €80.9 million) and theoperating margin pre exceptional increased 20 basis points to 4.6% (2005: 4.4%). Net financing costs pre exceptional increased by €0.9 million to €14.0 million(2005: €13.1 million). This reflects an increase in average debt in the yearprimarily driven by the acquisition of Seltzer in the second half. The Group's share of results of joint ventures and associates, post interest andtax, increased to a profit of €2.8 million in 2006, compared with a profit of€0.9 million in 2005. This result primarily reflects the improved performance inGlanbia Cheese, the Group's UK joint venture with Leprino Foods and a smallfirst time contribution from Southwest Cheese in the USA. Profit before tax pre exceptional, including share of joint ventures andassociates, increased by 8% to €74.4 million (2005: €68.7 million). Profit aftertax pre exceptional increased by 9% to €66.4 million (2005: €61.1 million). Taxation for the year amounted to a net credit of €4.3 million, compared with acharge of €0.7 million in 2005. 2006 Group tax of €8.0 million (2005: €7.6million) was offset by an exceptional tax credit of €12.3 million, which was therecognition of a deferred tax asset relating to tax losses in former UKoperations which are now being utilised. In 2005, the Group had an exceptionalcredit of €6.9 million, primarily due to a tax credit relating to a priordisposal of assets in the USA. Net exceptionals for the year amounted to €0.1 million compared with €3.4million in 2005. The 2005 exceptional amount has been restated as a consequenceof recent changes under IFRS, which no longer require that particular intercompany translation movements are reflected in the income statement. In 2006,exceptionals include €3.3 million for restructuring costs relating to theclosure of the Pigmeat cannery operations in Ireland, €9.1 million cost relatingto the disposal of the Group's remaining 25% interest and related £35 millionloan note from The Cheese Company Holdings Limited offset by €12.3 million taxcredit outlined above. Earnings per share grew 14% to 22.5 cent (2005: 19.7 cent), while adjustedearnings per share increased 8% to 22.6 cent (2005: 20.9 cent). Balance sheet and cash flow Net debt at the year end amounted to €224.5 million, which was similar to the2005 restated level of €224.2 million. The 2005 net debt was restated asrequired under IFRS to reflect an increase in lease liabilities of €8.5 million.This change in accounting policy also increased 2005 property, plant andequipment by €8.5 million. 2006 net debt reflects the €70 million received fromthe disposal of the Group's interest in The Cheese Company Holdings Limited andrelated loan note (which was discounted to current value at an exceptional costof €9.1 million) and €62.3 million (US$80 million) paid for the acquisition ofSeltzer Companies Inc. A further €19.5 million (US$25 million) is payable toSeltzer in 2007 and 2008, depending on the achievement of profitability targets.The total consideration for the Seltzer acquisition is €81.8 million (US$105million). The Group's retirement benefit obligations decreased €40.1 million to €124.9million (2005: €165 million). This is mainly as a result of a change in thediscount rate assumptions for actuarial valuations and improved investmentreturns. The discount rate applied to pension schemes in Ireland is 4.7% (2005:4.3%), whilst the rate applied to UK schemes is 5.3% (2005: 4.9%). Dividends and Annual General Meeting (AGM) The Board is recommending a final dividend of 3.41 cent per share, compared witha 3.24 cent per share final dividend in 2005. This brings the total dividend forthe year to 5.79 cent per share (2005: 5.51 cent per share), representing a 5%increase. Subject to shareholders approval, dividends will be paid on 22 May2007 to shareholders on the register as at 27 April 2007. Irish dividendwithholding tax will be deducted at the standard rate where appropriate. The AGM will be held on Wednesday 16 May 2007 and the Annual Report post out date is 13 April 2007. Operations Review Glanbia plc is organised into three divisions and has operations in Ireland,Europe and the USA, with international joint ventures in the UK, USA and Nigeria. In line with accounting standards, the Group's share of profits of joint ventures and associates is included on an after interest and tax basis and is separately outlined in the segmental analysis below. CONSUMER FOODS This division includes: Consumer Foods incorporating nutritional beverages,fresh dairy products and cheese, soups and spreads; and, Pigmeat, which producesa range of pork and bacon products. •'000 2006 2005 Change Revenue 511,022 493,582 Up 3.5%Operating profit pre exceptional 24,525 27,139 Down 10%Operating margin pre exceptional 4.8% 5.5% Down 70 bps Revenue for the Consumer Foods division was up 3.5% to €511 million (2005:€493.6 million). Operating profit was down 10% to €24.5 million (2005: €27.1million), leading to a 70 basis points reduction in the operating margin to 4.8%(2005: 5.5%). A steady performance from the consumer foods business was morethan offset by difficulties in Pigmeat including margin erosion due to lowerprices in certain segments and losses at the cannery operation. Consumer Foods Overall the consumer foods business unit had a demanding but satisfactory yearand revenue, operating profits and margins were broadly similar to last year.Significantly increased marketing investment resulted in maintaining leadingmarket share positions in key categories such as beverages, fresh dairy andcheese. Recent extensions of TV advertising position Glanbia in the top three TV grocery advertisers in Ireland and research indicates that Avonmore willbe the top advertised food brand in the country in 2007 based on currenttrends. Glanbia is the only company with seven listings in the top 100 Irishgrocery brands, with several of our portfolio improving their positions year onyear. However, the retail environment continues to be very competitive andinflationary cost pressures in the economy remain a constant challenge for thebusiness. Nutritional beverages: In 2006, this business retained its leading market shareposition in milk mainly as a result of strong marketing investment, the volumebenefits of the CMP brand and the ongoing launch of new products, such as coffeemilk and flavoured milks. Progress was also made in extending the product rangetargeting the growing consumer trend towards more nutritious and healthierbeverages. Fresh dairy products: In 2006, this business successfully stabilised its overallmarket share and improved its position in the growing functional foods area withthe launch of products targeting health benefits. The manufacturing cost basecontinues to improve, despite increased energy and labour costs, as a result ofcompetitiveness initiatives including the rationalisation of the Yoplaitproduction facilities undertaken in 2005 together with ongoing improvements insupply chain management and capacity consolidation. Cheese, soups and spreads: In 2006, a concerted marketing focus helped thesesegments defend their overall market share positions in increasingly competitivefood categories. The key opportunity for this business will be to continue todeliver fresh and convenient product solutions and to extend the product range,focusing on the growing consumer trend for more innovative foods in convenientformats, such as the Fresh Fare range of meal soups launched successfully thisyear. Outlook: Nutritious, fresh and natural continue to be the key drivers for foodand beverages among Irish consumers. However, the marketplace is becoming morecompetitive which is driving the need for a lower cost base. Against thisbackground consumer foods will continue with its product innovation and costmanagement programmes, underpinned by strong marketing investment to maintainthe relevance of its product portfolio to customers and consumers. Pigmeat This business had a difficult 2006 and its overall performance declined. The twokey factors affecting performance were margin erosion due to lower prices incertain segments of the business and the accelerated decline of the canneryoperation leading eventually to the decision to close this business in November2006. The closure of the cannery operation gave rise in 2006 to an exceptional item of€3.3 million primarily relating to redundancy costs. The overall cost associatedwith this rationalisation is expected to be largely neutral when the propertyelement of this business is disposed of in due course. Outlook: The outlook for the pigmeat business unit is for an improvedperformance in 2007. Pig production is expected to stabilise and improvements inoperational efficiency continue as a consequence of ongoing consolidation andmodernisation of the sector overall. AGRIBUSINESS & PROPERTY This division includes: Agribusiness, which is the key linkage with the Group's Irish farmer supply base; and Property, which has responsibility for themaximisation of value from the Group's property portfolio. •'000 2006 2005 Change Revenue 264,492 229,142 Up 15%Operating profit pre exceptional 16,876 10,684 Up 58%Operating margin pre exceptional 6.4% 4.7% Up 170 bps Revenue was up 15% to €264.5 million (2005: €229.1 million). Operating profitwas up 58% to €16.9 million (2005: €10.7 million), substantially driven byProperty. The operating margin was up 170 basis points to 6.4% (2005: 4.7%). TheAgribusiness margin was 3.7% (2005: 3.6%). Agribusiness Agribusiness had a good year, despite the ongoing challenges in farming due tothe implementation of EU policy changes under MTR. This performance was due tostrong demand in key segments, such as feed and fertilizer, and growth in marketshare as a result of competitive pricing and strong promotional activity. Thebusiness continued to rollout the Countrylife format with ten branchesredeveloped to date. Overall in 2006, there was some improvement in revenue,profits and margins. Outlook Agribusiness continues to evolve. Technology and system upgrades have beenrecently completed, further Countrylife branches are planned and the productoffering continues to expand. In particular, Agribusiness continues to work tomeet the challenges of MTR and to remain relevant and competitive for itsgrowing customer base. Property This business, known as Glanbia Estates, had a good year and successfullycompleted the disposal of non-core assets arising mainly as a result ofAgribusiness branch network rationalisation. Outlook The remit of this business is to maximise the value of Glanbia's overallproperty portfolio and to look at all options for key sites. A pipeline ofpotential transactions has been identified and these are expected to becompleted at a steady pace over the medium term. FOOD INGREDIENTS & NUTRITIONALS This division has Food Ingredients operations in Ireland and the USA that produce cheese, butter, casein and protein ingredients. It also includes the Group's global Nutritionals business. •'000 2006 2005 Change Revenue 1,077,913 1,107,288 Down 3%Operating profit pre exceptional 44,166 43,109 Up 3%Operating margin pre exceptional 4.1% 3.9% Up 20 bps Revenue decreased by 3% to €1.08 billion (2005: €1.11 billion), due to lowermarket prices for the ingredients businesses in Ireland and the USA. Despitelower revenue, operating profit was up 3% to €44.2 million (2005: €43.1 million)and the operating margin grew 20 basis points to 4.1% (2005: 3.9%), mainlybecause of the increased contribution from the higher margin Nutritionalsbusiness. Overall, this division delivered a good performance, particularly inlight of the difficult market environment in the first half. Food Ingredients Ireland 2006 was a particularly challenging time for both producers and processors inthe Irish dairy industry. The EU is now in its fourth year of implementation ofMTR with further reductions in dairy supports. This had and is having asignificant and unpredictable effect on the sector and continues to squeezeoperating margins and impact performance. Outlook Global dairy markets are currently reasonably firm and 2007 is expected to beless volatile. In Ireland, the final year of MTR continues to affect producersand processors and there is no expectation of a material uplift in performancefrom Food Ingredients Ireland. However, this business continues to pursueproductivity, quality and efficiency gains and is reorganising its productoffering to reflect changes in market demand. Food Ingredients USA Production volumes reached record levels in 2006 and demand was excellent forall cheese types. Milk supply in Idaho was up significantly year-on-year. Therewas also strong demand for dairy proteins, especially in the second half of theyear and this lifted whey prices. While cheese pricing was volatile, FoodIngredients USA delivered a good performance with excellent management ofmanufacturing costs. Outlook In the USA, markets, demand and milk availability are expected to remain strongand Food Ingredients USA operations are expected to run at full capacity. Thisbusiness is expected to perform well in 2007 and will continue its focus onoperational excellence and increasing its market presence. Nutritionals In 2006, the global nutritional market exhibited strong growth and the Group'sNutritionals business delivered good organic growth, benefiting from increasedcapacity in whey in Idaho, vitamins and minerals in Germany and bars, beveragesand powders in the UK. The business performed well and continued to investheavily in people and research and development to drive the business forward.The Seltzer acquisition in October delivered an important step forward indeveloping the Nutritionals business. Seltzer is a leading US nutritionalsolutions company with strong expertise in the development of customisedformulations and the provision of speciality ingredients for the nutritionalsupplement, food and beverage markets. Outlook The Nutritionals business is expected to deliver a strong performance in 2007.Existing operations are expected to continue to grow organically and althoughneutral in terms of the 2006 performance, Seltzer will contribute for a fullyear in 2007 and will be earnings enhancing. Work has commenced on Glanbia'sfirst nutritional operation in the Asia Pacific region. Based outside Shanghai,at a cost of €5 million, this facility is expected to be complete in 2008. JOINT VENTURES & ASSOCIATES (GLANBIA SHARE) Glanbia has a number of international joint ventures, which are an important part of the Group's growth strategy. •'000 2006 2005 Change Revenue (1) 262,871 131,444 Up 100%Profit after interest and tax (2) 2,842 932 Up 205% (1) Not included in Group revenue (2) Included in the Income Statement as share of results of joint ventures and associates UK Glanbia Cheese, a joint venture with Leprino, produces mozzarella cheese for theEuropean market. This business had a good performance in 2006 and this isexpected to continue in 2007. Nigeria Nutricima, a joint venture with PZ Cussons plc, delivered strong top line growthand good market share development in powdered and evaporated milk during theyear. The business performed satisfactorily although overall results wereimpacted by significant market development expenditure. A pipeline of newproducts and capacity expansion is underway and this business is forecast toperform as planned in 2007. USA Southwest Cheese, a joint venture with main partners Dairy Farmers of Americaand Select Milk Producers Inc., was commissioned in 2006. This plant, whichproduces cheese and whey proteins, is based in New Mexico and continues its rampup to full capacity, forecast for the second quarter of 2007. Southwest Cheeseis already producing product to world class standards and is forecast to performas planned in 2007. 2007 outlook Ireland will remain challenging in light of the competitive retail environmentand the ongoing effects of the implementation of MTR. Irish operations continueto focus on key aspects of business execution which drive performance,productivity and cost competitiveness. International operations are expected toperform well in 2007 and Food Ingredients USA, Nutritionals and Joint Venturesare all well positioned for good growth. Glanbia is successfully developing a strategic international presence, whichtoday represents nearly 40% of revenue and profits. This gives the Group astrong platform from which to continue to grow and develop overseas. At the sametime, the Group continues to consistently and solidly improve the long-termsustainability of the Irish operations. As to the future, Glanbia is on target to deliver double digit earnings growthin 2007 and we believe the outlook is positive for sustained high growth. Consolidated income statementfor the year ended 30 December 2006 Pre- Pre- exceptional Exceptional Total exceptional Exceptional Total (as restated) (as restated) (as restated) 2006 2006 2006 2005 2005 2005 Notes •'000 •'000 •'000 •'000 •'000 •'000 Revenue 2 1,853,427 - 1,853,427 1,830,012 - 1,830,012Cost of sales (1,596,547) - (1,596,547) (1,589,686) - (1,589,686) -------- ------- -------- -------- ------- ------- Gross profit 256,880 - 256,880 240,326 - 240,326 Distribution expenses (105,724) - (105,724) (94,743) - (94,743)Administrationexpenses 3 (65,589) (12,455) (78,044) (64,651) (5,041) (69,692) -------- ------- -------- -------- ------- ------- Operating profit 85,567 (12,455) 73,112 80,932 (5,041) 75,891 Finance income 4 4,883 - 4,883 4,209 - 4,209Finance costs 4 (18,918) - (18,918) (17,358) (5,304) (22,662)Share of results ofjoint ventures andassociates 2,842 - 2,842 932 - 932 -------- ------- -------- -------- ------- ------- Profit before taxation 74,374 (12,455) 61,919 68,715 (10,345) 58,370Income taxes 5 (7,970) 12,321 4,351 (7,592) 6,935 (657) -------- ------- -------- -------- ------- ------- Profit for the year 66,404 (134) 66,270 61,123 (3,410) 57,713 -------- ------- -------- -------- ------- ------- Attributable to: Equity holders of the Parent 65,934 57,396Minority interests 336 317 -------- ------- 66,270 57,713 -------- ------- Basic earnings per share (cent) 6 22.51 19.69 Diluted earnings pershare (cent) 6 22.47 19.62 Consolidated statement of recognised income and expensefor the year ended 30 December 2006 2006 2005 (as restated) •'000 •'000 Actuarial gain/(loss) - defined benefit schemes 36,852 (42,303)Deferred tax on actuarial gain/loss (3,923) 4,054Share of actuarial gain - joint venture 230 -Currency translation differences (9,401) 889Fair value adjustments - Group 2,367 (873) - Joint ventures 367 - ------- ------- Net income/(expense) recognised directly in equity 26,492 (38,233)Profit for the year 66,270 57,713 ------- ------- Total recognised income for the year 92,762 19,480 ------- ------- Attributable to:Equity holders of the Parent 92,426 19,163Equity minority interest 336 317 ------- ------- 92,762 19,480 ------- ------- Consolidated balance sheetas at 30 December 2006 2006 2005 (as restated)ASSETS Notes •'000 •'000Non-current assetsProperty, plant and equipment 335,152 340,503Intangible assets 138,724 57,963Investments in associates 10,933 11,090Investments in joint ventures 58,668 59,832Available for sale investments 12,527 29,511Trade and other receivables - 56,874Derivative financial instruments 2,095 1,825Deferred tax assets 23,923 15,869 ------- ------- 582,022 573,467 ------- -------Current assets Inventories 145,158 144,250Trade and other receivables 169,540 143,610Derivative financial instruments 6,776 1,125Cash and cash equivalents 8 259,311 104,405 ------- ------- 580,785 393,390 ------- ------- Total assets 1,162,807 966,857 ------- ------- EQUITYIssued capital and reserves attributable to equity holders of the ParentShare capital 98,304 97,964Other reserves 9 113,696 120,192Retained earnings 10 (18,116) (100,737) ------- ------- 193,884 117,419Minority interests 6,635 6,299 ------- ------- 200,519 123,718 ------- ------- LIABILITIESNon-current liabilitiesBorrowings 8 444,570 327,424Deferred tax liabilities 38,611 34,471Trade and other payables 11,373 -Retirement benefit obligations 124,888 165,016Provisions for other liabilities and charges 6,032 6,072Derivative financial instruments 3,406 -Capital grants 10,660 14,855 ------- ------- 639,540 547,838 ------- -------Current liabilitiesBorrowings 8 39,235 1,133Provisions for other liabilities and charges 7,110 8,433Trade and other payables 270,773 278,583Current tax liabilities 1,942 4,605Derivative financial instruments 3,688 2,547 ------- ------- 322,748 295,301 ------- -------Total liabilities 962,288 843,139 ------- -------Total equity and liabilities 1,162,807 966,857 ------- ------- Consolidated cash flow statementfor the year ended 30 December 2006 2006 2005 Notes •'000 •'000Cash flows from operating activitiesCash generated from operations 11 58,486 163,835Interest received 1,000 670Interest paid (19,967) (23,177)Tax paid (6,274) (3,777) ------- -------Net cash from operating activities 33,245 137,551 ------- ------- Cash flows from investing activitiesAcquisition of subsidiary, net of cash acquired (69,892) (19,366)Purchase of property, plant and equipment (38,085) (46,979)Purchase of available for sale investments (3,406) (5,214)Disposal of subsidiary, net of cash disposed (323) (147)Disposal of available for sale investments 22,185 14,394Repayment of loan note by The Cheese CompanyHoldings Limited 52,822 -Proceeds from sale of property, plant and equipment 8,665 4,418 ------- -------Net cash used in investing activities (28,034) (52,894) ------- ------- Cash flows from financing activitiesProceeds from issue of ordinary shares 190 731Sharesave Scheme - receipt from Trustees 122 2,191Increase/(decrease) in borrowings 169,851 (20,242)Finance lease principal payments (1,077) (1,449)Dividends paid to Company's shareholders (16,472) (15,612)Repayment of minority interest - (7)Capital grants received 123 772 ------- -------Net cash from/(used) in financing activities 152,737 (33,616) ------- ------- Net increase in cash and cash equivalents 157,948 51,041 Cash and cash equivalents at the beginning of the year 104,405 51,625Effects of exchange rate changes on cash and cashequivalents (3,042) 1,739 ------- ------- Cash and cash equivalents at the end of the year 259,311 104,405 ------- ------- Reconciliation of net cash flow to movement in net debt 2006 2005 •'000 •'000 Net increase in cash and cash equivalents 157,948 51,041Cash (outflow)/inflow from debt financing (168,774) 21,691 ------- ------- (10,826) 72,732Debt acquired with subsidiaries - (1,786)Fair value of interest rateswaps qualifying as fair value hedges 3,978 -Exchange translation adjustment on net debt 6,506 (24,717) ------- ------- Movement in net debt in the year (342) 46,229Net debt at beginning of year (224,152) (270,381) ------- ------- Net debt at the end of the year (224,494) (224,152) ------- ------- 1 Basis of preparation The financial information presented in this preliminary announcement has beenprepared in accordance with International Financial Reporting Standards (IFRS)and IFRIC interpretations endorsed by the European Union (EU) and with those parts of the Companies Acts 1963 to 2006 applicable tocompanies reporting under IFRS. The financial information has been preparedunder the historical cost convention as modified by use of fair values foravailable for sale assets and derivative financial instruments. The financial information set out in this document does not constitute fullstatutory financial statements but has been derived from the Group financialstatements for the year ended 30 December 2006 (referred to as the 2006financial statements). The 2006 financial statements have been audited and havereceived an unqualified audit report. The financial statements were approved by the Board of Directors on 6 March 2007and signed on its behalf by MJ Walsh, JJ Moloney and GJ Meagher. Prior year adjustments Foreign currency The Group has adopted the amendment to IAS 21, 'Net Investment in a ForeignOperation', in the Group's financial statements from 1 January 2006. Theadoption of this amendment, which has resulted in a change in accounting policy,requires that all foreign exchange gains and losses on inter-company loans thatform part of the net investment in a foreign operation, including loans betweenfellow subsidiaries, are recognised directly in equity on consolidation. Priorperiod comparative figures have been restated to reflect the impact of thischange. In the prior year, such loans between fellow subsidiaries did notqualify as part of the net investment and therefore the exchange gains andlosses on these loans were recognised directly in the income statement. This change results in the recognition of a gain of €3.9 million, previously included within administration expenses in the income statement in the prioryear, directly in equity in the currency reserve. There is no net impact onequity as a result of this change. The overall impact represents an increase incurrency reserve amounting to €3.9 million and a decrease in retained earningsamounting to €3.9 million. The change in accounting policy has resulted in adecrease in basic earnings per share for the year-ended 31 December 2005 of 1.35cent Leases The Group has adopted IFRIC 4, Determining whether an Arrangement contains aLease, in the Group's financial statements from 1 January 2006. The Groupreviews arrangements that do not take the legal form of a lease and adetermination is made as to whether the substance of an arrangement could equateto a finance lease, considering whether fulfilment of the arrangement isdependant upon the use of a specific asset and the arrangement contains theright to use an asset. If the specified criteria are met, the arrangement isclassified as a finance lease. In prior years the annual cost of thisarrangement was recognised as an expense as incurred. The effect of this changein accounting policy has resulted in both an increase in property, plant andequipment and lease liabilities amounting to €8.5 million at 31 December 2005.This resulted in no net impact to profit or basic earnings per share for theyear ended 31 December 2005. 2 Segment information Primary reporting format - business segments At 30 December 2006 the Group is organised into three main business segments: - Consumer Foods- Food Ingredients and Nutritionals- Agribusiness and Property The segment results for the year ended 30 December 2006 are as follows: Food Ingredients Agribusiness Consumer and and Foods Nutritionals Property Unallocated Group2006 •'000 •'000 •'000 •'000 •'000 Total grosssegment revenue 511,077 1,186,890 264,492 - 1,962,459Inter-segment (55) (108,977) - - (109,032)revenue -------- -------- -------- -------- -------- Revenue 511,022 1,077,913 264,492 - 1,853,427 -------- -------- -------- -------- -------- Operating profitpre exceptional 24,525 44,166 16,876 - 85,567itemsExceptional items (3,277) - - (9,178) (12,455) -------- -------- -------- -------- -------- 21,248 44,166 16,876 (9,178) 73,112 -------- -------- -------- -------- Finance income and costs (14,035)Share of results ofjoint ventures 2,842and associates -------- Profit before tax 61,919Tax 4,351 -------- Profit for the year 66,270 -------- The segment results for the year ended 31 December 2005 are as follows: Food Ingredients Agribusiness Consumer and and Foods Nutritionals Property Unallocated Group (as restated) (as restated) (as restated)2005 •'000 •'000 •'000 •'000 •'000 Total grosssegment revenue 493,667 1,215,559 239,826 - 1,949,052Inter-segment (85) (108,271) (10,684) - (119,040)revenue -------- -------- -------- -------- -------- Revenue 493,582 1,107,288 229,142 - 1,830,012 -------- -------- -------- -------- -------- Operatingprofit pre 27,139 43,109 10,684 - 80,932exceptional itemsExceptional items (11,860) (2,649) (1,160) 10,628 (5,041) -------- -------- -------- -------- -------- 15,279 40,460 9,524 10,628 75,891 -------- -------- -------- -------- Finance income and costs (18,453)Share of results ofjoint ventures and 932associates -------- Profit before tax 58,370Tax (657) -------- Profit for the year 57,713 -------- 3 Exceptional items 2006 2005 (as restated) Notes •'000 •'000 Restructuring cost (a) (3,277) (15,669)The Cheese Company Holdings Limited (b) (9,178) -Loss on sale or termination of operations - (331)Profit on sale of quoted investments - 10,959 ------- ------- (12,455) (5,041)Exceptional tax credit (note 5) 12,321 6,935 Exceptional finance cost (note 4) - (5,304) ------- ------- Net exceptional items (134) (3,410) ------- ------- a) Restructuring costs relate to the closure of the Pigmeat cannery operation. Costs include redundancy and the release of unamortised capital grants. b) On 29 December 2006, the Group disposed of its remaining 25% interest and related 2008-2018 loan note in The Cheese Company Holdings Limited to the majority shareholder, Milk Link Limited. 4 Finance income and costs (a) Finance income 2006 2005 •'000 •'000 Interest income (i) 4,883 4,209 ------- ------- (b) Finance costs - pre-exceptional 2006 2005 (as restated) •'000 •'000 Interest expense - Bank borrowings repayable within five years (15,096) (10,291) - Finance lease (380) (472) ------- ------- (15,476) (10,763) Finance cost of preferred securities andpreference shares (3,442) (6,595) ------- ------- Total finance costs - pre exceptional (18,918) (17,358) ------- ------- Finance costs - exceptionalCancellation of preferred securities (ii) - (5,304) ------- ------- Total finance costs (18,918) (22,662) ------- ------- i) Interest income consists mainly of interest on a Stg£35 million subordinated secured loan note granted by The Cheese Company Holdings Limited in 2004, representing part proceeds on the sale by the Group of a 75% interest in its UK hard cheese business. On 29 December 2006, the Group disposed of its remaining 25% interest in The Cheese Company Holdings Limited and related 2008-2018 loan note to the majority shareholder, Milk Link Limited. ii) On 15 June 2005 the Group prepaid the US$100 million 7.99% cumulative guaranteed preferred securities, giving rise to a cost of €5.3 million, which was disclosed as an exceptional item. 5 Income taxes 2006 2005 •'000 •'000 Irish corporation tax 3,080 2,460Adjustments in respect of prior years 238 (1,285) ------- -------Current tax on income for the year 3,318 1,175 ------- ------- Foreign tax 1,035 594Adjustments in respect of prior years (46) (1,056) ------- -------Current tax on income for the year 989 (462) ------- ------- Total current tax 4,307 713 Deferred tax 3,663 6,879 ------- -------Pre-exceptional tax charge 7,970 7,592Exceptional tax credit (12,321) (6,935) ------- ------- (4,351) 657 ------- ------- A deferred tax asset of €12.1 million arising from the expected use in futureyears of UK tax losses, which previously had not been recognised due touncertainty as to recoverability, has been recognised in the 2006 financialstatements. The restructuring provision in the Pigmeat Division also resulted ina net tax credit of €0.2 million. The tax credits in 2006 and 2005, by virtue of their size and nature, have beenseparately disclosed as exceptional credits in the financial statements. 6 Earnings per share Basic 2006 2005 (as restated) •'000 •'000 Profit attributable to equityholders 65,934 57,396of the Company --------- --------- Weighted average number of ordinaryshares in issue 292,958,667 291,469,902 --------- --------- Basic earnings per share (cent pershare) 22.5 19.7 --------- --------- Diluted 2006 2005 •'000 •'000 Weighted average number of ordinaryshares in issue 292,958,667 291,469,902Adjustments for share options 480,072 1,134,139 --------- ---------Adjusted weighted average number ofordinary shares 293,438,739 292,604,041 --------- --------- Diluted earnings per share (cent per share) 22.5 19.6 --------- --------- Adjusted 2006 2005 •'000 •'000 Profit attributable to equity holders of the Company 65,934 57,396Exceptional items 134 3,410 --------- --------- 66,068 60,806 --------- --------- Adjusted earnings per share (cent per share) 22.6 20.9 --------- --------- Diluted adjusted earnings per share (cent per share) 22.5 20.8 --------- --------- 7 Dividends The dividends paid in 2006 and 2005 were €16.5 million (5.62 cent per share) and€15.6 million (5.36 cent per share) respectively. On 4 October an interimdividend of 2.38 cent per share on the ordinary shares amounting to €6.98million was paid to shareholders on the register of members as at 15 September2006. The Directors have recommended the payment of a final dividend of 3.41cent per share on the ordinary shares which amounts to €10 million. Subject toshareholders approval this dividend will be paid on Tuesday 22 May 2007 toshareholders on the register of members as at Friday, 27 April 2007, the recorddate. The financial statements do not reflect this final dividend payable. 8 Borrowings 2006 2005 (as restated) •'000 •'000 Borrowings due within one year 39,235 1,133Borrowings due after one year 444,570 327,424Less:Cash and cash equivalents (259,311) (104,405) ------- ------- 224,494 224,152 ------- ------- 9 Other reserves Capital and mergers Currency Fair value reserves reserve reserves Total •'000 •'000 •'000 •'000 Balance at 1 January 2006 116,250 2,596 2,144 120,990 Amendment to IAS 21 - (798) - (798) ------- ------- ------- -------Restated Balance at 1 January 2006 116,250 1,798 2,144 120,192 Translation differences onforeign currency net investments - (9,401) - (9,401)Revaluation of interest rateswaps gain in year - - 2,378 2,378Foreign exchange contracts gain in year - - 1,840 1,840Transfers to income statement - Foreign exchange contracts gain in year - - (540) (540) - Forward commodity contracts loss in year - - 227 227 - Interest rate swaps gain in year - - (1,169) (1,169)Revaluation of forwardcommodity contracts gain in year - - 591 591Revaluation of investmentsgain in year - - 102 102Deferred tax on fair value adjustments - - (695) (695)Cost of share options 199 - - 199Discount on own shares vested (28) - - (28) ------- ------- ------- ------- Balance at 30 December 2006 116,421 (7,603) 4,878 113,696 ------- ------- ------- ------- 10 Retained earnings Retained Goodwill earnings write-off Total •'000 •'000 •'000 Balance at 1 January 2006 (8,574) (92,961) (101,535) Amendment to IAS 21 798 - 798 ------- ------- --------Restated Balance at 1 January 2006 (7,776) (92,961) (100,737) ------- ------- -------- Actuarial gain - defined benefit schemes 36,852 - 36,852Deferred tax on pension gain (3,923) - (3,923)Share of actuarial gain - joint venture 230 - 230 ------- ------- --------Net income recognised directly in equity 33,159 - 33,159Profit for the year 65,934 - 65,934 ------- ------- -------- Total recognised income for 2006 99,093 - 99,093 Dividends paid in 2006 (16,472) - (16,472) ------- ------- -------- Balance at 30 December 2006 74,845 (92,961) (18,116) ------- ------- -------- 11 Cash generated from operations 2006 2005 •'000 •'000 (as restated) Profit for the year 66,270 57,713 Non-cash exceptional restructuring costs - 2,172Exceptional loss on The Cheese Company HoldingsLimited 9,178 -Share of results of associates and joint ventures (2,842) (932)Income taxes (4,351) 657Depreciation 25,415 24,085Amortisation 4,452 3,313Cost of share options 199 161Gain on disposal of investments (1,541) (10,959)Gain on disposal of property, plant and equipment (7,531) (2,509)Interest income (4,883) (4,209)Interest expense 18,918 22,662Amortisation of government grants received (4,322) (1,424) ------- ------ Net profit before changes in working capital 98,962 90,730Change in net working capital - Increase in inventory (2,684) (5,501) - (Increase)/decrease in short term receivables (25,137) 35,419 - (Decrease)/increase in short term liabilities (11,332) 36,045 - (Decrease)/increase in provisions (1,323) 7,142 ------- ------ Cash generated from operations 58,486 163,835 ------- ------ 12 Statutory financial statements The financial information in this preliminary announcement is not the statutoryfinancial statements of the Company, a copy of which is required to be annexedto the Company's annual return to the Companies Registration Office. A copy ofthe financial statements in respect of the financial year ended 30 December 2006will be annexed to the Company's annual return for 2006. The auditors of theCompany have made a report, without any qualification on their audit, of thefinancial statements of the Company in respect of the financial year ended 31December 2005 and the Directors approved the financial statements of the Companyin respect of the financial year ended 30 December 2006 on 6 March 2007. A copyof the financial statements of the Company in respect of the year ended 31December 2005 has been annexed to the Company's annual return for 2005 to theCompanies Registration Office. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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