31st Aug 2005 07:01
Glanbia PLC31 August 2005 Glanbia plc Glanbia House Kilkenny, Ireland This document is available in PDF format on www.glanbia.com Restatement of Financial Information under International Financial Reporting Standards (IFRS) 31 August 2005 Contents General information 1 - 2Restated IncomeStatements for yearended 1 January 2005and half year ended 3July 2004 3Restated BalanceSheets as at 1 January2005, 3 July 2004 and4 January 2004 4Optional exemptionsavailed of attransition 5Impact of transition to IFRS 5 - 11 SCHEDULES:Detailed reconciliations from Irish GAAP accounts to IFRS accounts: Balance Sheet at date of transition 4 January 2004 12 Income Statement for year ended 1 January 2005 13 Balance Sheet as at 1 January 2005 14 Income Statement for half year ended 3 July 2004 15 Balance Sheet as at 3 July 2004 16 Restated Balance Sheet as at 2 January 2005 17 Summary of provisionalsignificant accountingpolicies 18 - 23 This document is intended for issue to the market to explain how the previouslyreported financial statements of Glanbia are impacted by the transition to IFRS. GENERAL INFORMATION In July 2002, the European Union (EU) approved a regulation requiring all EUlisted companies to prepare consolidated financial statements in accordance withInternational Financial Reporting Standards ("IFRS") for accounting periodscommencing on or after 1 January 2005. Glanbia plc will publish its 2005 annualreport in accordance with IFRS. Previously the Group prepared its financialstatements in accordance with accounting standards generally accepted in Ireland("Irish GAAP"). This document provides information on the impact of the adoptionof IFRS on Glanbia's financial statements. The adoption of IFRS represents a change in the basis of preparation offinancial statements and does not affect the operations or cash flows of thegroup. Impact of IFRS on 2004 at a Glance Irish GAAP IFRS Change Principal reason for change •'000 •'000 •'000 Turnover 1,846,045 1,753,645 (92,400) Discontinued operations excluded -€92.4m -------------- -------- -------- ------- ----------------- Operatingprofit preexceptional 84,422 86,257 1,835 Discontinued operations excluded -€0.9m Credit re pension charge +€2.6m -------------- -------- -------- ------- -----------------Operatingprofit postexceptional 84,822 89,152 4,330 As above and also including: Reclassification of exceptional +€3.3m Foreign currency loss -€0.8m -------------- -------- -------- ------- -----------------Profit beforetax and preexceptional 77,742 79,011 1,269 As above and also including: Tax on joint ventures and associates included in PBT -€0.7m ============= ======== ======== ======== =================Equity sharecapital andreserves 221,401 113,825 (107,576) Employee benefits (pension) -€113.7m Timing of dividend recognition +€9.0m ============= ======== ======== ======== ================= Change cent cent centEarnings pershare (EPS) 20.41 21.03 0.62-------------- -------- -------- -------- -----------------Adjustedearnings pershare (1) 20.10 20.59 0.49============== ======== ======== ======== =================(1) Adjusted EPS is based on profits pre exceptional A full reconciliation of all changes is provided in the schedules on pages 12 to17. Basis of preparation of financial statements under International FinancialReporting Standards ("IFRS"). The Group's date of transition to IFRS is 4 January 2004. The Group's financialstatements for the year ended 31 December 2005 will be prepared in accordancewith IFRS and the comparatives for those periods will be restated to reflectIFRS, except where otherwise required or permitted by IFRS 1 First Time Adoptionof International Accounting Standards. IFRS 1 requires an entity to comply with each IFRS effective at the reportingdate for its first IFRS financial statements. As a general principle, IFRS 1requires the standards effective at the reporting date to be appliedretrospectively. However, retrospective application is prohibited in some areas,particularly where retrospective application would require judgements bymanagement about past conditions after the outcome of the particular transactionis already known. A number of optional exemptions from full retrospectiveapplication of IFRS's are granted where the cost of compliance is deemed toexceed the benefits to users of the financial statements. The financial information in this document has been prepared in accordance withIFRS's, which the Group expects to be effective at 31 December 2005. Thestandards currently in issue are subject to ongoing review and endorsement bythe EU, while the application of the standards continue to be subject tointerpretation by the International Financial Reporting InterpretationsCommittee ("IFRIC"). The EU has yet to approve the amendment to IAS 19, which,as mentioned in more detail below, the group has implemented. In addition, theEU has endorsed a revised version of IAS 39 rather than the version published bythe International Accounting Standards Board. Further standards may be issued that could be applicable for financial yearsbeginning on or after 2 January 2005, or are applicable to later periods, butwith the option for companies to adopt for earlier periods. As a result,additional adjustments could therefore be required to the 2004 financialinformation prior to its inclusion as comparative figures in the 2005 finalfinancial statements. Relevant accounting periods The financial statements of the Group are prepared on a 52 week basis. The 2004full-year financial statements were prepared for a 52 week period ending on 1January 2005 and are referred to herein as FY 2004. Full-year comparatives for2003 are referred to as FY 2003. The 2004 interim financial statements wereprepared for a 26 week period ending on 3 July 2004 and are referred to hereinas H1 2004. GLANBIA plc RESTATED INCOME STATEMENTS FY 2004 H1 2004 Pre- Pre- exceptional Exceptional Total exceptional Exceptional Total •'000 •'000 •'000 •'000 •'000 •'000 Turnover 1,753,645 1,753,645 880,412 880,412 -------- -------- ------- -------- -------- ------ Operatingprofit 86,257 2,895 89,152 41,390 (325) 41,065Group interest (5,723) (5,723) (4,073) (4,073)Share oflosses of JV'sand associates (1,523) (1,523) (249) (249) -------- -------- ------- -------- -------- ------Profit beforetax 79,011 2,895 81,906 37,068 (325) 36,743Taxation (8,386) (8,386) (5,037) (5,037) -------- -------- ------- -------- -------- ------Profit aftertax 70,625 2,895 73,520 32,031 (325) 31,706Discontinuedoperations (1,601) (1,601) 429 429 -------- -------- ------- -------- -------- ------Profit for theperiod 70,625 1,294 71,919 32,031 104 32,135 -------- -------- ------- -------- -------- ------Attributableto:Equity holdersof the parent 61,119 26,218Non-equityminorityinterest 10,387 5,602Equityminorityinterest 413 315 ------- ------ 71,919 32,135 ------- ------ EPS cent 21.03 9.03 The schedules on pages 13 and 15 of this document provide a reconciliationbetween the above IFRS figures for FY 2004 and H1 2004 respectively to thepreviously reported Irish GAAP results. GLANBIA plc RESTATED BALANCE SHEETS FY 2004 H1 2004 FY 2003 ASSETS •'000 •'000 •'000Non-current assetsProperty, plant and equipment: 302,057 295,795 280,378Intangible assets 36,698 22,181 21,672Investments in associates and joint ventures 59,199 36,174 22,204Financial assets 28,672 22,342 12,225Receivables 51,942 52,239 (1)Deferred tax assets 12,299 7,775 7,594 -------- -------- -------- 490,867 436,506 344,072Current assetsInventories 133,419 121,009 129,467Receivables and prepayments 172,622 303,073 167,375Cash and cash equivalents 51,625 38,364 37,669 -------- -------- -------- 357,666 462,446 334,511Assets held for sale and included indisposal groups 200,725 -------- -------- --------Total assets 848,533 898,952 879,308 -------- -------- -------- SHAREHOLDERS' EQUITY AND LIABILITIESShare capital 17,559 17,559 17,551Capital and other reserves 194,063 188,486 193,158Revenue reserves (97,797) (89,807) (104,194) -------- -------- --------Equity share capital and reserves 113,825 116,238 106,515Equity minority interest 6,085 5,986 5,671Non-equity minority interest 110,384 119,302 115,759 -------- -------- -------- 230,294 241,526 227,945 -------- -------- --------Non-current liabilitiesBorrowings 198,682 211,388 170,351Deferred tax liabilities 30,375 31,143 28,232Retirement benefit obligations 126,676 88,515 86,563Capital grants 15,276 15,732 16,611Other liabilities 5,348 7,187 5,380 -------- -------- -------- 376,357 353,965 307,137Current liabilitiesTrade and other payables 238,373 302,934 280,049Borrowings 3,509 527 43,221 -------- -------- -------- 241,882 303,461 323,270 -------- -------- --------Total liabilities 618,239 657,426 630,407Liabilities included with disposal groups 20,956 -------- -------- --------Total shareholders' equity and liabilities 848,533 898,952 879,308 -------- -------- ------- The schedules on pages 12, 14 and 16 of this document provide a reconciliationbetween the above IFRS figures for FY 2004 and H1 2004 respectively to thepreviously reported Irish GAAP balances OPTIONAL EXEMPTIONS AVAILED OF AT TRANSITION As stated earlier, IFRS 1 and certain other IFRS's contain a number of optionalexemptions that can be availed of by companies on transition to IFRS. Glanbia,in common with the majority of listed companies, has elected to avail of thefollowing options: (i) Business combinations that took place before transition date have notbeen restated and therefore all goodwill written off to reserves or amortisedprior to date of transition remains written off and will not be taken intoaccount either for subsequent impairment reviews or on disposal of thesubsidiary. (ii) Fair value, or a previous revaluation to fair value adjusted forsubsequent depreciation, may be used as deemed cost for any item of property,plant and equipment at the date of transition. The Group has opted to regard thefixed asset valuations of 31 December 1988 and 31 December 1992 as deemed costand the related asset values therefore remain unadjusted on transition to IFRS.Certain assets in the Foods Ingredients and Agribusiness divisions have beenfair valued at date of transition. (iii) The Group has elected to set the cumulative translation differenceson foreign subsidiaries to zero at date of transition. (iv) The actuarial losses on the Group's defined benefit schemes have beenrecognised in full on the balance sheet at the date of transition, and adjustedagainst reserves. (v) Given the delay encountered in securing EU approval, the effectivedate of the revised versions of IAS 32 and IAS 39 is 1 January 2005 andtherefore the group is adopting these standards only in respect of the 2005figures. Irish GAAP will apply to the 2004 reported figures. (vi) In accordance with the transitional arrangements set out in IFRS 2Share Based Payment, this standard has been applied in respect of share optionsgranted after 7 November 2002, which had not vested by transition date. (vii) The Group has elected to recognise its interest in joint venturesusing the equity method of accounting. (viii) The Group has opted for early adoption of IFRS 5 Non-current assetsheld for sale and discontinued operations and has applied this standard fromtransition date. IMPACT OF TRANSITION TO IFRS The adoption of IFRS will result in the following changes to the Group'saccounting policies and the financial impact of each is summarised. The overallimpact on the Group's reported figures can be found in the schedules on pages 12to 17. Employee benefits Under Irish GAAP, the Group accounted for its defined benefit plans under SSAP24which spread the pension cost over the employees' periods of service.Disclosures required under the transitional arrangements of FRS 17, (includingthe fair values of the pension assets and liabilities and the amounts that wouldhave been recognised in the P&L account and in the statement of recognised gainsand losses ("STRGL")) were made in the notes to the accounts. Under IFRS 1, the Group has determined that prospective application of thecorridor methodology under IAS would not be appropriate and therefore has optedfor early adoption of the amendment to IAS 19 allowing recognition in thestatement of recognised income and expense ("SRIE") of actuarial gains andlosses in full in the period in which they occur. The accounting treatment ofdefined benefit plans will thus be similar to that previously disclosed inrespect of FRS 17. The balance sheet will reflect the full value of the pensionscheme deficits, actuarial gains and losses will be recognised directly inequity through the SRIE and the charge to the income statement will includecurrent and past service costs. As mentioned earlier, the amendment to IAS 19 allowing the recognition ofactuarial gains and losses in the SRIE has not been fully adopted by theEuropean Commission to date but is expected to be shortly. The impact of implementing IAS 19 on the previously reported figures is asfollows: FY 2004 H1 2004 FY 2003 Balance Sheet •'000 •'000 •'000 Increase in retirement benefitobligation (126,676) (88,515) (86,563)Increase in deferred tax asset 12,372 7,812 7,594Decrease in deferred tax liability 540 540 540Decrease in current & non-currentreceivables (SSAP 24 assets) (6,228) (5,424) (5,554)Decrease in non-current payables (SSAP24 liability) 6,332 6,946 7,951To foreign currency translationreserve (80) 1,376 ------- ------- -------Net impact on revenue reserves (113,740) (77,265) (76,032) ------- ------- ------- Income Statement Reduction in pension charge 2,833 1,687Related tax charge (281) (174) ------- -------Net impact on profit for the period 2,552 1,513 ------- ------- Business combinations and goodwill Under IFRS 3, goodwill, being the excess of the cost of a business combinationover the acquiror's interest in the net fair value of identifiable assets andliabilities, is recognised as an asset. Goodwill is not amortised but is subjectto annual impairment tests. Under Irish GAAP, goodwill on acquisitions made before 4 January 1998 was offsetagainst reserves - the revaluation reserve for acquisitions made up to 1992 andrevenue reserves thereafter. On subsequent disposal of such businesses anyrelated goodwill was taken into account in determining the profit or loss ondisposal. With effect from 4 January 1998, goodwill was capitalised andclassified as an asset on the balance sheet and amortised on a straight linebasis over its useful economic life (not exceeding twenty years). The Group has adopted the optional exemption in IFRS 1 not to restate businesscombinations made before the date of transition. Goodwill arising aftertransition date and unamortised goodwill carried as an asset at transition dateis not amortised but is subject to an annual impairment review. Goodwill writtenoff to reserves is not included in the gain or loss on subsequent disposal ofthe relevant business. Goodwill on acquisitions up to 1992 was debited to revaluation reserve untilsuch time as the revaluation reserve was completely written down. The balancesheet as prepared under Irish GAAP did not disclose this goodwill separately asboth it and the revaluation reserve had been netted to zero. As stated below,the Group has opted to use previous revaluations in arriving at the deemed costof property, plant and equipment and as required by IFRS 1, the balance on therevaluation reserve in this instance is transferred to revenue reserves.Accordingly, the revaluation reserve was reinstated by transferring goodwillpreviously written off to revaluation reserve to the goodwill reserve andcrediting revenue reserves as follows: FY 2004 €59,610,000, H1 2004 €60,937,000and FY 2003 €60,387,000. As required under IFRS 1, goodwill was reviewed for impairment as at transitiondate and no impairment resulted from that review. Reversal of the goodwillamortisation for 2004 results in a credit to Income Statement of €238,000 for FY2004 and €81,000 for H1 2004. Property, plant and equipment Under Irish GAAP, fixed assets were stated at cost or valuation less accumulateddepreciation. The transitional provisions of FRS 15 were followed, whereby thebook value of revalued assets was retained in place of a policy of ongoingrevaluations. Depreciation was calculated on all fixed assets, excludingfreehold land, on a straight line basis, by reference to the expected usefullives of the assets concerned. Under IAS 16, property, plant and equipment requires initial measurement atcost. IFRS 1 allows entities to use a deemed cost at transition date for assetsacquired prior to transition. Deemed cost can be (a) the depreciated historical cost (b) the fair value of the asset at date of transition, or (c) a revaluation to fair value under previous GAAP which has beendepreciated up to the transition date. Valuations of the Group's assets were carried out at 31 December 1988 and 31December 1992. These valuations were based on open market value or whereappropriate, an open market value calculated on a depreciated replacement costbasis and were therefore broadly comparable to fair values at that time. The Group has elected to use option (c) for assets that were revalued, anddepreciated historical cost for assets acquired since those revaluation dates,with the exception of particular assets within the Food Ingredients andAgribusiness Divisions that have been fair valued at date of transition, with anet increase in value of those assets of €85,000. After initial recognition, property plant and equipment will be carried at costless accumulated depreciation and accumulated impairment losses. Software development costs previously capitalised under Irish GAAP as plant andequipment have been reclassified as intangible assets. The amounts reclassifiedare as follows: FY 2004 €19,808,000, H1 2004 €19,684,000 and FY 2003€19,206,000. Foreign currencies Currency translation differences on foreign currency net investments have beenwritten off under Irish GAAP to revenue reserves. Under IAS 21, translation differences are recorded in a separate currencytranslation reserve. On disposal of a foreign operation, the cumulativetranslation differences relating to that operation are transferred to the incomestatement as part of the profit or loss on disposal. The Group has availed of the IFRS 1 exemption allowing it to deem all cumulativetranslation differences that have arisen up to transition date to be equal tozero. These translation differences will therefore remain written off againstrevenue reserves and will no longer be separately disclosed in the notes to theaccounts. Certain intercompany loans had been treated under Irish GAAP as part of the netinvestment in the foreign entity and foreign exchange gains or losses arising onthese loans had been recognised directly in reserves. On transition, loansbetween fellow subsidiaries do not qualify under IFRS as part of the netinvestment and therefore gains or losses on these loans must be recognised inthe Income Statement. IAS 21 provides specific guidance on how the functional currency (i.e. thecurrency that an entity should use to record its transactions) of a companyshould be determined and the functional currencies of a small number of groupcompanies have altered as a result of the application of this guidance. The financial impact of the above is an additional charge to the incomestatements as follows: FY 2004 €798,000 and H1 2004 €325,000. Income taxes Under Irish GAAP, deferred tax was provided in full on timing differences whichresult in an obligation at the balance sheet date to pay more tax or a right topay less tax, at a future date. Deferred tax was not provided on the unremittedearnings of subsidiaries, associates or joint ventures where there was nocommitment to remit these earnings, or on the revaluation of assets unless abinding sales agreement existed at the balance sheet date. Under IAS 12, deferred tax is provided on all temporary differences that existat the balance sheet date including unremitted earnings of associates and jointventures where the group does not have the ability to control the payment ofdividends by the associate or joint venture. Deferred tax is provided on allrevaluations and rolled over capital gains, regardless of whether there is anintention to dispose of the relevant assets in the future. Deferred tax adjustments are also required to account for the tax effects ofother IFRS adjustments. The financial impact on the previously reported figures, excluding the deferredtax impact of retirement benefit obligations, which are shown above, are: FY 2004 H1 2004 FY 2003 •'000 •'000 •'000 (Increase) in deferred tax liability (1,495) (1,512) (1,528) ======= ======= ======= Additional charge to income statement (33) (16) ======= ======= ======= Share-based payments Share-based payments include executive share option schemes, employee sharesaveschemes and share awards. Under Irish GAAP, the charge to the profit & loss account was based on thedifference between the market value of the shares at the date of grant and theexercise price. Under IFRS 2, the charge to the income statement in respect of share-basedpayments is based on the fair value of the options granted and is spread overthe vesting period of the instrument. Under IFRS 1, this requirement appliesonly to grants of shares, share options or other equity instruments made after 7November 2002 that have not vested by transition date. The Trinomial model wasused in the valuation of the share options. The implementation of IFRS 2 results in a cumulative charge to revenue reservesfor FY 2003 of €9,000 and a charge to the income statement for FY2004 of €76,000and for H1 2004 of €23,000. Dividends Under Irish GAAP, the group accrued for dividends declared after the balancesheet date. Under IAS 10, these dividends are not considered liabilities of the group at thebalancesheet date and so are not provided for, but are disclosed in the notes to theaccounts. This results in an increase in revenue reserves at FY 2004 of €8,989,000, at H12004 of €6,274,000 and at FY 2003 of €8,535,000. Exceptional items Under Irish GAAP, three types of exceptional items were required to be shownafter operating profit - (i) profits / losses on sale or termination of anoperation, (ii) costs of a fundamental reorganisation and (iii) profits / losseson disposal of fixed assets. Under IFRS, all exceptional items, apart from the results of discontinuedoperations, are disclosed in the appropriate operating line item beforeoperating profit, with separate disclosure for items which are material byvirtue of their size or nature. This results in a reclassification of exceptional items reported by the groupfor FY 2004. Joint ventures and associates Under Irish GAAP, the results of joint ventures and associates were splitbetween operating profit, interest and tax with each separate figure shown inthe profit and loss account beside the equivalent group figure. Joint ventureswere accounted for under the gross equity method of accounting whereby theGroup's share of turnover was separately disclosed within turnover and theGroup's share of gross assets and liabilities was separately disclosed in thebalance sheet. Under IAS 28 and IAS 31, a single figure for results of joint ventures andassociates is disclosed after operating profit and before interest. The Grouphas opted to account for its joint ventures under the equity method ofaccounting, rather than proportional consolidation, in line with the accountingtreatment of associates. Following a review of all its investments, the group has concluded that itsholding in Westgate Biological Ltd, which had been accounted for at cost withinother investments, should be reclassified as an associate and accordinglyaccounted for under the equity method of accounting. The results of certain associates and joint ventures have been adjusted to takeaccount of the implementation of IFRS within their own accounts. FY 2004 H1 2004 FY 2003 •'000 •'000 •'000Balance sheetShare of results of reclassified investment (187) (116) (35)Impact of retirement benefit obligationsrecognisedin joint venture (1,546) (1,122) (1,122) ------- ------- -------Net impact on revenue reserves (1,733) (1,238) (1,157) ======= ======= =======Income statement Share of results of reclassified investment (152) (81)Impact of retirement benefit obligationsrecognisedin joint venture 12 0 ------- -------Net impact on profit for period (140) (81) ======= ======= Non-current assets for sale and discontinued operations IFRS 5 requires that non current assets and disposal groups (groups of assetsthat are to be disposed of in a single transaction) be presented separately fromother assets and liabilities. There was no Irish GAAP equivalent requirement forseparate disclosure of these items. Under Irish GAAP, turnover and results of discontinued operations until disposaldate were separately disclosed within total turnover and operating profit. Theprofit or loss on disposal of the operation was separately disclosed belowoperating profit. Under IFRS 5, a single number is disclosed on the face of the income statementafter operating profit, being the total of (i) the discontinued operation'spost-tax profit / loss and (ii) the post tax gain / loss on disposal of theoperation. IFRS 5 is effective for accounting periods beginning on or after 1 January 2005but the group has opted under the standard's transitional provisions toimplement it from date of transition, using valuations and other informationthat were available at that date. Financial assets and financial instruments IFRS 1 gives companies the option to implement IAS 32 and IAS 39 from date oftransition or if adopting for the first time in 2005, to implement only inrespect of the 2005 figures and not the comparative period. The group has chosenthe latter option and therefore Irish GAAP applies to the 2004 reported figures.The differences that apply to the restated opening 2005 figures are noted below. (a) Derivative financial instrumentsThe activities of the group expose it primarily to the financial risks ofchanges in foreign currency exchange rates and interest rates. The group usesderivative financial instruments such as foreign exchange contracts and options,interest rate swap contracts and forward rate agreements to hedge theseexposures. Under Irish GAAP, gains or losses on derivative financial instruments weregenerally recognised in the accounts on the settlement of the hedged item. Thefair values of such derivatives were disclosed in the notes to the accounts.Where the matched underlying asset or liability ceased to exist, or was nolonger considered likely to exist prior to any associated financial instrumentheld as a hedge, the hedging instrument was terminated and any profit or lossarising was recognised in the profit and loss account at that time. In order to apply hedge accounting for financial instruments under IAS 39,strict criteria, including the existence of formal documentation and theachievement of effectiveness tests must be met. Hedge accounting may be appliedto three types of hedging relationship - fair value hedges, cash flow hedges andhedges of a net investment in a foreign operation. All derivatives must berecognised on the balance sheet at fair value. In the case of fair value hedges,the gain or loss from remeasuring the hedging instrument at fair value isrecognised immediately in the income statement. At the same time, the carryingamount of the hedged item is adjusted for the gain or loss attributable to thehedged risk and the change is also recognised immediately in the incomestatement to offset the value change on the hedging instrument. Gains or losseson the remeasurement of cash flow hedges and hedges of a net investment in aforeign operation to fair value are deferred in equity to the extent the hedginginstrument is determined to be effective and are recycled to the incomestatement when the hedged cash flows affect income. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in the income statement as theyarise. (b) Preferred securities and preference sharesUnder Irish GAAP these were accounted for as non-equity minority interests, withthe dividends recorded through the dividends and appropriations line of theprofit and loss account. Under IAS 32 and IAS 39, the Group will account for the preferred securities andpreference shares as borrowings since the holders are entitled to fixeddividends. The dividends will be included within the interest charge in theincome statement. (c) Financial assets excluding investments in joint ventures and associatesUnder Irish GAAP, all financial assets apart from investments in associates andjoint ventures were carried at cost less provisions for permanent diminution invalue, with the market value of the quoted investments disclosed in the notes tothe accounts. Under IAS 32 and IAS 39, these financial assets will be designated asavailable-for-sale financial assets and recognised at fair value in the balancesheet. Any movement in fair value will be charged or credited to a fair valuereserve. The cumulative movement in fair value on a financial asset will beremoved from the fair value reserve and reflected in the income statement ondisposal of the investment. The impact of the above on the reported figures is shown in the schedule on page17 of this document. This document is available in PDF format on www.glanbia.comThe detailed tables can also be viewed on the RNS Service on the London StockExchange Website. Glanbia plc Summary of provisional significant accounting policies 1. Consolidation The Group financial statements incorporate: (i) The financial statements of Glanbia plc (the Company) and enterprisescontrolled by the Company (its subsidiaries). Control is achieved where theCompany has the power to govern the financial and operating policies of aninvestee enterprise so as to obtain benefits from its activities.Subsidiaries are consolidated from the date on which control is transferred tothe Group and are no longer consolidated from the date that control ceases. Thepurchase method of accounting is used to account for the acquisition ofsubsidiaries. The cost of an acquisition is measured as the fair value of theassets given up, shares issued or liabilities undertaken at the date ofacquisition plus costs directly attributable to the acquisition. The excess ofthe cost of acquisition over the fair value of the net assets of the subsidiaryacquired is recorded as goodwill. If the cost of acquisition is less than thefair value of the Group's share of the identifiable net assets acquired, thedifference (negative goodwill) is recognised directly in the income statement.Inter-company transactions, balances and unrealised gains on transactionsbetween Group companies are eliminated. Where necessary, accounting policies forsubsidiaries have been changed to ensure consistency with the policies adoptedby the Group. (ii) The Group's share of the results and net assets of associated companies andjoint ventures are included based on the equity method of accounting. Anassociate is an enterprise over which the Group is in a position to exercisesignificant influence, but not control, through participation in the financialand operating policy decisions of the investee. A joint venture is an entitysubject to joint control by the Group and other parties.Under the equity method of accounting, the group's share of the post-acquisitionprofits or losses of associates and joint ventures is recognised in the incomestatement and its share of post acquisition movements in reserves is recognisedin reserves. The cumulative post-acquisition movements are adjusted against thecost of the investment. Unrealised gains on transactions between the Group andits associates and joint ventures are eliminated to the extent of the Group'sinterest in the associate or joint venture; unrealised losses are alsoeliminated unless the transaction provides evidence of an impairment of theasset transferred. When the Group's share of losses in an associate or jointventure equals or exceeds its interest in the associate or joint venture, theGroup does not recognise further losses, unless the Group has incurredobligations or made payments on behalf of the associate or joint venture. 2. Segment reporting The Group reports segment information by class of business and by geographicalarea. A business segment is a group of assets and operations engaged inproviding products or services that are subject to risks and returns that aredifferent from those of other business segments. The group's primary reportingsegment, for which more detailed disclosures are required, will be by class ofbusiness. 3. Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the 'functional currency'). The consolidated financialstatements are presented in euros, which is the Company's functional andpresentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the date of the transactions. Monetary assetsand liabilities denominated in foreign currencies are retranslated at the rateof exchange ruling at the balance sheet date. Currency translation differenceson monetary assets and liabilities are taken to the income statement, exceptwhere hedge accounting is applied. (iii) Group companies The income statement and balance sheet of Group companies that have a functionalcurrency different from the presentation currency are translated into thepresentation currency as follows:(a) assets and liabilities at each balance sheet date are translated at theclosing rate at the date of the balance sheet(b) income and expenses in the income statement are translated at averageexchange rates for the year.Resulting exchange differences and exchange movements on currency instrumentsdesignated as hedges of such investments, are taken to a separate translationreserve within equity. When a foreign entity is sold, such exchange differencesare recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as local currency assets and liabilities of the foreignentity and are translated at the balance sheet rate. 4. Property, plant and equipment With the exception of assets that had been revalued or fair valued at transitionto IFRS (see below), property, plant and equipment is stated at cost lesssubsequent depreciation less any impairment loss. Depreciation is calculated on the straight-line method to write off the cost ofeach asset to their residual values over their estimated useful life as thefollowing rates: Land %Buildings NilPlant and equipment 3 - 5Motor vehicles 5 - 33 20 - 25 Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, the term of therelevant lease.Interest incurred on payments on account of major assets under construction isincluded in the cost of those assets.Where the carrying amount of an asset is greater than its estimated recoverableamount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carryingamount and are included in operating profit. Repairs and maintenance are charged to the income statement during the financialperiod in which they are incurred. The cost of major renovations is included inthe carrying amount of the asset when it is probable that future economicbenefits in excess of the originally assessed standard of performance of theexisting asset will flow to the Group. Major renovations are depreciated overthe remaining useful life of the related asset. Certain items of property, plant and equipment that had been revalued prior tothe date of transition to IFRS (4 Janaury 2004) are measured on the basis ofdeemed cost, being the revalued amount depreciated to date of transition. Itemsof property, plant and equipment that were fair valued at date of transition arealso measured at deemed cost, being the fair value at date of transition. 5. Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the net assets of the acquired subsidiary/associate atthe date of acquisition. Goodwill on acquisitions of subsidiaries and associatesis included in intangible assets. Goodwill is carried at cost less accumulated impairment losses, if applicable.Goodwill is tested for impairment on an annual basis. In accordance with IFRS 1, goodwill written off to reserves prior to date oftransition to IFRS remains written off. In respect of goodwill capitalised andamortised under previous accounting standards, its value at date of transitionto IFRS is its carrying value under previous standards. (ii) Development costs Research expenditure is recognised as an expense as incurred. Costs incurred ondevelopment projects (relating to the design and testing of new or improvedproducts) are recognised as intangible assets when it is probable that theproject will be a success, considering its commercial and technologicalfeasibility, and costs can be measured reliably. (iii) Intellectual property Expenditure to acquire intellectual property is capitalised and amortised usingthe straight-line method over its useful life. (iv) Computer software Costs incurred on the acquisition of computer software are capitalised as arecosts directly associated with developing or maintaining computer softwareprograms, if they meet the recognition criteria of IAS 38. Computer softwarecosts recognised as assets are written off over the estimated useful lives. 6. Investments For 2004:Financial fixed assets are shown at cost less provisions for permanentdiminution in value. Income from financial fixed assets is recognised in theprofit and loss account in the year in which it is receivable. From 2005:The group classifies all its investments as available for sale financial assetsand they are initially recognised at fair value and are valued at fair value ateach balance sheet date. Unrealised gains and losses arising from changes in thefair value of investments classified as available-for-sale are recognised inequity. When such investments are sold or impaired, the accumulated fair valueadjustments are included in the income statement as gains or losses frominvestments. The fair values of quoted investments are based on current bid prices. If themarket for a financial asset is not active the group establishes fair valueusing valuation techniques. Where the range of reasonable fair values issignificant and no reliable estimate can be made, the group measures theinvestment at cost less impairment. 7. Leases Leases of property, plant and equipment where the Group has substantially allthe risks and rewards of ownership are classified as finance leases. Financeleases are capitalised at the inception of the lease at the lower of the fairvalue of the leased property or the present value of the minimum lease payments.Each lease payment is allocated between the liability and finance charges so asto achieve a constant rate on the finance balance outstanding. The correspondingrental obligations, net of finance charges, are included in other payables,split between current and non-current as appropriate. The interest element ofthe finance cost is charged to the income statement over the lease period. Theproperty, plant and equipment acquired under finance leases is depreciated overthe shorter of the useful life of the asset or the lease term. Leases where a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments made underoperating leases (net of any incentives received from the lessor) are charged tothe income statement on a straight-line basis over the period of the lease. 8. Inventories Inventories are stated at the lower of cost or net realisable value. Cost isdetermined by the first-in-first-out ("FIFO") method. The cost of finished goodsand work in progress comprises raw materials, direct labour, other direct costsand related production overheads (based on normal capacity). Net realisablevalue is the estimated selling price in the ordinary course of business, lessthe costs of selling expenses. 9. Trade receivables Trade receivables are carried at original invoice amount less provision forimpairment of these receivables. A provision for impairment of trade receivablesis established when there is objective evidence that the Group will not be ableto collect all amounts due according to the original terms of receivables. 10. Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For thepurposes of the cash flow statement, cash and cash equivalents comprise cash onhand, deposits held at call with banks, other short-term highly liquidinvestments with original maturities of 3 months or less, and bank overdrafts.In the balance sheet, bank overdrafts, if applicable, are included in borrowingsin current liabilities. 11. Income taxes Current tax represents the expected tax payable or recoverable on the taxableprofit for the period, taking into account adjustments relating to prior years. Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the financial statements. Tax rates enacted orsubstantively enacted by the balance sheet date are used to determine deferredincome tax. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profit will be available against which the temporary differences can beutilised. Deferred income tax is provided on temporary differences arising on investmentsin subsidiaries, associates and joint ventures, except where the timing of thereversal of the temporary difference can be controlled and it is probable thatthe temporary difference will not reverse in the foreseeable future. 12. Employee benefits (i) Pension obligations The Group operates a number of defined benefit and defined contribution schemeswhich provide retirement and death benefits for the majority of employees. Theschemes are funded through separate trustee controlled funds. In respect of defined benefit plans, obligations are measured at discountedpresent value whilst plan assets are recorded at fair value. The operating andfinancing costs of such plans are recognised in the income statement; servicecosts are spread systematically over the lives of employees and financing costsare recognised in the periods in which they arise. Actuarial gains and lossesare recognised immediately in the statement of recognised income and expense. Payments to defined contribution schemes are charged as an expense as they falldue. (ii) Share based payments Share-based payments include executive share option schemes, employee sharesaveschemes and share awards. The charge to the income statement in respect of share-based payments is basedon the fair value of the equity instruments granted and is spread over thevesting period of the instrument. The fair value of the instruments iscalculated using the Trinomial model. 13. Government grants Grants from the government are recognised at their fair value where there is areasonable assurance that the grant will be received and the Group will complywith all attached conditions. Government grants relating to costs are deferredand recognised in the income statement over the period necessary to match themwith the costs they are intended to compensate. Government grants relating tothe purchase of property, plant and equipment are included in non-currentliabilities and are credited to the income statement on a straight-line basisover the expected lives of the related assets. 14. Revenue recognition Revenue comprises the fair value of the sale of goods and services to externalcustomers net of value-added tax, rebates and discounts. Revenue from the saleof goods is recognised when significant risks and rewards of ownership of thegoods are transferred to the buyer. Revenue from the rendering of services isrecognised in the period in which the services are rendered. Interest income isrecognised on a time proportion basis, taking account of the principaloutstanding and the effective rate over the period to expected maturity, when itis determined that such income will accrue to the Group. Dividends arerecognised when the right to receive payment is established. 15. Impairment of assets Assets that have an indefinite useful life are not subject to amortisation andare tested annually for impairment. Assets that are subject to amortisation arereviewed for impairment when events or changes in circumstance indicate that thecarrying value may not be recoverable. An impairment loss is recognised to theextent that the carrying value of the assets exceeds its recoverable amount. Therecoverable amount is the higher of the assets fair value less costs to sell andits value in use.For the purposes of assessing impairment, assets are grouped at the lowestlevels for which there are separately identifiable cash flows (cash generatingunits). 16. Share capital Preferred securities and preference sharesFor 2004:Preferred securities and preference shares, with fixed dividend entitlements andfixed redemption dates, are accounted for as non-equity minority instrumentswithin shareholders' funds. From 2005:Such preferred securities and preference shares are classified as liabilities. Own sharesThe cost of own shares, held by an Employee Share Trust in connection with thecompany's Sharesave Scheme, is deducted from equity. 17. Dividends Dividends to the company's shareholders are recognised as a liability of thecompany as follows:Interim dividends when the board resolve to pay the dividendFinal dividends when the dividends are approved by the company's shareholders. 18. Derivative financial instruments The activities of the group expose it primarily to the financial risks ofchanges in foreign currency exchange rates and interest rates. The group usesderivative financial instruments such as foreign exchange contracts and options,interest rate swap contracts and forward rate agreements to hedge theseexposures. For 2004:Derivative financial instruments used as hedging instruments are matched withtheir underlying hedged item. Each instrument's gain or loss is brought into theprofit and loss account at the same time and in the same place as is the matchedunderlying asset, liability, income or cost. For foreign exchange instrumentsthis will be in operating profit matched against the relevant purchase or saleand for interest rate instruments, within interest payable or receivable overthe life of the instrument, or relevant interest period. The profit or loss onan instrument may be deferred if the hedged transaction is expected to takeplace or would normally be accounted for in a future period, If the matched underlying asset or liability prematurely ceases to exist, or isno longer considered likely to exist prior to the maturity date of anyassociated financial instrument held as a hedge, the hedging instrument isterminated and any profit or loss arising is recognised in the profit and lossaccount at that time. Instruments which cease to be recognised as hedges aremarked to market. From 2005:The Group accounts for financial instruments under IAS 32 'FinancialInstruments: Disclosure and Presentation' and IAS 39 'Financial Instruments:Recognition and Measurement'. In order to apply hedge accounting for financialinstruments under IAS 39, strict criteria, including the existence of formaldocumentation and the achievement of effectiveness tests must be met. Hedgeaccounting may be applied to three types of hedging relationships - fair valuehedges, cash flow hedges and hedges of a net investment in a foreign operation. All derivatives are recognised on the balance sheet at fair value. In the caseof fair value hedges, the gain or loss from remeasuring the hedging instrumentat fair value is recognised immediately in the income statement. At the sametime, the carrying amount of the hedged item is adjusted for the gain or lossattributable to the hedged risk and the change is also recognised immediately inthe income statement to offset the value change on the hedging instrument. Gainsor losses on the remeasurement of cash flow hedges and hedges of a netinvestment in a foreign operation to fair value are deferred in equity to theextent the hedging instrument is determined to be effective and are recycled tothe income statement when the hedged cash flows affect income. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in the income statement as theyarise. Hedge accounting is discontinued when the hedging instrument no longer qualifiesfor hedge accounting. At that time, any cumulative gain or loss on the hedginginstrument recognised in equity is retained in equity until the forecastedtransaction occurs. If the hedged transaction is no longer expected to occur,the net cumulative gain or loss recognised in equity is transferred to theincome statement. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Glanbia