15th Dec 2005 07:01
Associated British Foods PLC15 December 2005 Associated British Foods plc Presentation of information under IFRS For immediate release 15 December 2005 Associated British Foods plc ("ABF"), the international food, ingredients andretail group, is today presenting financial information for the year ending 17September 2005 prepared in accordance with IFRS. The move to IFRS will not change how ABF is managed and will have no impact oncash flow. The changes to the financial results prepared under UK GAAP are minimal and areas follows: • Adjusted operating profit of £555m, down £10m from £565m • Adjusted earnings per share of 52.5p, down 0.5p from 53.0p • Net assets of £3,879m, increased by £154m from £3,725m • Net cash funds of £212m, down £12m from £224m • Unadjusted operating profit of £550m, up £63m from £487m • Unadjusted earnings per share of 48.0p, up 5.8p from 42.2p Adjusted profit which excludes the effect of amortisation of intangibles,profits less losses on the sale of businesses and fixed assets and provision forthe loss on the termination of a business, is to be retained as a key measure ofoperating performance. Adjusted profit will also exclude the effect of other non-recurring items ofincome and expenditure that are material, either by their nature or their size,that are relevant to an understanding of the group's financial performance.There were no such items in 2005. A full overview of the impact of IFRS is set out in the following TransitionDocument, together with a set of unaudited restated 2005 financial statementsfor comparative purposes. Detailed reconciliations of the changes to thefinancial information previously published in accordance with UK GAAP are setout in appendices. As previously indicated, the principal changes arise from differences in theaccounting treatment relating to business combinations, deferred taxation andfinancial instruments. Commenting on the group's adoption of IFRS, John Bason, Finance Director, said: "The adoption of IFRS has had a minimal impact on the key measures ofperformance for the group and it will not change our business model, strategy,risk management processes or our cash flows." ABF will be hosting a conference call today at 9am to present financialinformation for the year ending 17 September 2005 prepared in accordance withIFRS. To participate in the conference call please telephone +44 208 322 3199. Areplay of the conference call will be available on 0207 081 9440 (account number422522, recording 854723). To download the full pdf version of the IFRS Statement, please go to the ABFwebsite and follow the link from the homepage. www.abf.co.uk For further enquiries please contact: Associated British Foods Citigate Dewe RogersonJohn Bason, Finance Director Jonathan Clare, Chris Barrie, Sara BatchelorTel: +44 (0)20 7399 6500 Tel: +44 (0)20 7638 9571Geoff LancasterTel: +44 (0)1733 422901 Associated British Foods plc IFRS Transition Document Introduction In accordance with European Union regulations, all groups listed within the EUare required to report their financial statements in accordance withInternational Financial Reporting Standards (IFRS) for all accounting periodscommencing on or after 1st January 2005. The group's interim results for theperiod ending 4 March 2006 will be prepared applying IFRS accounting policies.These results and the financial statements for the year ending 16 September 2006will include comparative information for 2005. To explain how the group's reported performance and financial position areaffected by IFRS, this document presents the restatement of certain informationpreviously reported under UK Generally Accepted Accounting Principles (UK GAAP).The restated information presented in this document includes the primaryfinancial statements together with selected notes (the "restated financialinformation"). The restated financial information is unaudited. Reconciliations to assist the reader in understanding the nature and quantum ofdifferences between UK GAAP and IFRS for the financial information included inthis report are provided in the appendices. The major changes for ABF resulting from the introduction of IFRS relate to: • The accounting for business combinations where intangible assets which did not qualify for separate recognition under UK GAAP are now recognised separately from goodwill. • The cessation of amortisation of goodwill. • The accounting for deferred tax on the basis of differences between the book value and tax base of assets and liabilities (temporary differences). This results in deferred tax being recognised in circumstances that did not give rise to deferred tax under UK GAAP. For example, deferred tax is now recognised on non-qualifying intangible assets even though no tax liability or asset is expected to crystallise in the foreseeable future. • The accounting for derivative financial instruments with effect from 18 September 2005. These will now be reflected in the balance sheet at fair value with subsequent changes in fair value being accounted for immediately in the income statement unless certain conditions are satisfied. • The calculation of profits and losses on the sale of subsidiaries which now no longer take account of goodwill previously written off to reserves. Basis of Preparation The restated financial information for: the transition to IFRS at 18 September2004, the year ended 17 September 2005 and the adoption of IAS 32 and IAS 39 at18 September 2005 has been prepared in accordance with International FinancialReporting Standards ("IFRS"), including International Accounting Standards("IAS") and interpretations issued by the International Accounting StandardsBoard ("IASB") and its committees, and as interpreted by any regulatory bodiesapplicable to the group. These are subject to ongoing amendment by the IASB andsubsequent endorsement by the EU and are therefore subject to possible change.As a result, information contained within this release and the accountingpolicies for the year ended 16 September 2006 may require updating for anysubsequent amendment to, or interpretation of, IFRS. The group is adopting the IASB's amendment to IAS 19, entitled IAS 19 ActuarialGains and Losses. This amendment requires separate recognition of the operatingand financing costs of defined benefit pension schemes (and similarly fundedemployee benefits) in the income statement. The standard permits a number ofoptions for the recognition of actuarial gains or losses. The group's policy isto recognise immediately, any variation in full in a statement of recognisedincome and expense, as permitted by the amendment to IAS 19. The EU has not yetendorsed this amendment and the above policy is subject to change, depending onthe outcome of the endorsement process. It has been assumed that the draft amendment to IAS 21, The Effects of Changesin Foreign Exchange Rates, issued by the IASB on 30 September 2005 will beadopted and endorsed by the EU. The draft amendment clarifies theidentification and accounting for exchange differences on monetary items formingpart of a net investment in a foreign operation and requires that exchangedifferences on such items be recognised in equity. The group is adopting the provisions of IAS 39, Financial Instruments:Recognition and Measurement, from 18 September 2005. Financial instruments inthe year ended 17 September 2005 remain recorded in accordance with UK GAAPaccounting policies at that time. The adjustment to IFRS will be reflected inthe balance sheet at 18 September 2005 and an assessment of the impact of IAS 39on net assets as at that date is included in the appendices to this report. IFRS 1 exemptions IFRS 1, First-time Adoption of International Financial Reporting Standards, setsout the procedures that the group must follow when it first adopts IFRS as thebasis for preparing its consolidated financial statements. The group is requiredto establish its IFRS accounting policies as at 17 September 2005 and, ingeneral, apply these retrospectively to determine the IFRS opening balance sheetat its transition date of 18 September 2004. IFRS 1 provides a number of optional exemptions from the general principles. Themost significant of these, to the extent that ABF will take advantage of them,are set out below: • Business combinations - the provisions of IFRS 3 have been applied from 3 September 2004. The net carrying value of goodwill at 18 September 2004, after adjustment to include the acquisition of the US herbs & spices business on 3 September 2004 under IFRS, has been deemed to be the cost at 19 September 2004; • Financial instruments - the provisions of IAS 32 and IAS 39 have not been applied to the period ended 17 September 2005. Financial instruments are accounted for under UK GAAP until 17 September 2005 and will not be restated; • Cumulative translation differences arising on consolidation of subsidiaries - IAS 21 requires such differences to be held in a separate reserve rather than included in the profit and loss reserve under UK GAAP. This reserve has been deemed to be nil on 19 September 2004; • Share-based payments - IFRS 2 has not been applied to share options granted prior to 7 November 2002 nor to any options that vested prior to 19 September 2004; and • Employee benefits - the group has elected to recognise all cumulative actuarial gains and losses in relation to employee benefit schemes at the date of transition. Presentation of financial information The primary statements within the financial information contained in thisdocument have been presented in accordance with IAS 1, Presentation of FinancialStatements. However, this format and presentation may require modification inthe event that further guidance is issued and as practice develops. Overview of impact The impact of the adoption of IFRS on the income statement for the year ended 17September 2005 and on the net assets at that date is summarised below togetherwith details of the impact of the adoption of IAS 39 at 18 September 2005: Adjusted profit measures * Unaudited Operating Profit Profit Profit Profit Net profit before for the before for the assets tax year tax year £m £m £m £m £m £mUK GAAP 565 590 418 479 333 3,725Business combinations- Fair value differences (8) (8) (5) (8) (5) (5)- Amortisation of goodwill - - - 78 67 67- Amortisation of intangible assets - - - (25) (20) (20)Reverse recycled goodwill - - - 5 5 -Share based payments 1 1 1 1 1 (1)Tax on share of profits of jointventures and associates (3) (3) - (3) - -Deferred taxation - - - - (2) 7Retranslation of goodwill and intangibles - - - - - 13Reverse accrual for dividends - - - - - 95Actuarial adjustment on net pension assets - - - - - (2) Restated at 17 September 2005 555 580 414 527 379 3,879 Adoption of IAS 39 at 18 September2005 13 Deferred tax on IAS 39 adjustments (4) 3,888Earnings per share- UK GAAP 53.0p 42.2p- IFRS 52.5p 48.0p The adoption of IFRS has little impact on the group's adjusted measures ofreported performance which exclude amortisation of intangible assets, profitsless losses on the sale of fixed assets and businesses and provisions for thelosses on termination of operations. The adjustments that do arise at thislevel relate principally to the manner in which fair values are attributed tothe separable net assets acquired in a business combination and the requirementunder IFRS to deduct the related tax from the group's share of profits of itsassociates and joint ventures which are included in operating profit. * Adjusted measures of profit are stated before amortisation of intangibles, profits less losses on the sale of fixed assets, profits less losses on the sale of businesses and provisions for the loss on termination of an operation. The group's unadjusted measures of performance are also affected by the factthat under IFRS: • Goodwill previously written off to reserves is not taken into account in calculating the profit or loss arising on the sale of businesses. • Goodwill is no longer amortised but intangible assets, which are now recognised in circumstances that would not have been the case under UK GAAP, are amortised. • With only limited exceptions, deferred tax is recognised on all differences between the book values of assets and liabilities and their tax bases (temporary differences). As a result, where intangible assets and tangible fixed assets are acquired as part of a business combination, deferred tax must be recognised on any associated temporary differences. The income statement is affected post-acquisition because the temporary differences recognised on acquisition subsequently change as a result of depreciation and amortisation. The group's net assets at 17 September 2005 are impacted by the treatment ofgoodwill, intangible assets and deferred tax described above. In addition,goodwill and intangible assets arising on acquisitions subsequent to 3 September2004, where IFRS 3 has been applied, are denominated in local currencies andretranslated at each balance sheet date. Proposed dividends are no longerreflected as liabilities until they have been approved by the shareholders.Changes in accounting for share based payments and employee benefits have only aminor impact as the group does not have any significant share based incentiveschemes and had adopted FRS 17 in full in its 2005 UK GAAP accounts. Under UK GAAP, all of the group's property leases were accounted for asoperating leases. IAS 17, Leases, requires the element of a property lease thatrelates to land to be considered separately from the element that relates tobuildings. The land element will generally continue to be accounted for as anoperating lease but, in certain cases, the buildings element will now beaccounted for as a finance lease. Adjustment has therefore been made to includethe fair value of these finance leased buildings within fixed assets, with anobligation of equal amount being provided as a lease creditor. There istherefore no impact on the group's net assets. The finance lease obligationshave, however, reduced the group's net cash funds by £12m at 17 September 2005. As noted previously, the group will adopt IAS 39 with effect from 18 September2005. The group enters into derivative financial instruments to hedge itsexposure to fluctuations in exchange rates and commodity prices. Under IAS 39,such derivative financial instruments are recorded at their fair value. Theimpact of the adoption of IAS 39 is to increase the group's net assets at 18September 2005 by £9m. Restated consolidated statements 1.1 Consolidated income statement for the year ended 17 September 2005 Unaudited Continuing Ongoing Acquisitions Total £m £m £m Revenues 5,201 421 5,622Operating costs (4,701) (398) (5,099) 500 23 523Share of profit from joint ventures and associates 5 2 7Profits less losses on sale of fixed assets 20 - 20 Operating profit 525 25 550 Adjusted operating profit 505 50 555Profits less losses on the sale of fixed assets 20 - 20Amortisation of intangibles - (25) (25)Profits less losses on sale of businesses (1)Provision for loss on termination of an operation (47) Profit before interest 502Investment income 49Interest payable (34)Other net financial income 10 Profit before taxation 527 Adjusted profit before taxation 580Profits less losses on the sale of fixed assets 20Profits less losses on sale of businesses (1)Provision for loss on termination of an operation (47)Amortisation of intangibles (25) Taxation (141) Profit for the year 386 Attributable to:Equity shareholders 379Minority interests 7Profit for the year 386 Basic and diluted earnings per ordinary share 48.0pDividends per share 17.15p The results of acquisitions shown separately above are those of both the USherbs & spices business and the international yeast and bakery ingredientsbusiness which were acquired from Burns Philp and which were negotiatedconcurrently. The acquisition of herbs & spices completed on 3 September 2004.The acquisition of yeast and bakery ingredients completed on 30 September 2004. 1.2 Consolidated balance sheet at 17 September 2005 Unaudited £mNon-current assetsIntangible assets 1,152Property, plant and equipment 2,255Non-current assets held for sale 9Investments in joint ventures 36Investments in associates 15Employee benefits asset 95Deferred tax assets 78 Total non-current assets 3,640 Current assetsInventories 558Trade and other receivables 678Other investments 269Cash and cash equivalents 929 Total current assets 2,434 TOTAL ASSETS 6,074 Current liabilitiesInterest bearing loans and overdrafts (447)Trade and other payables (747)Income tax (113)Amounts owed to joint ventures (3)Provisions (61) Total current liabilities (1,371) Non-current liabilitiesInterest bearing loans and overdrafts (539)Income tax (4)Provisions (29)Deferred tax liabilities (233)Employee benefits liability (19)Total non-current liabilities (824) TOTAL LIABILITIES (2,195) NET ASSETS 3,879 EquityIssued capital 47Other reserves 173Own shares reserve (7)Pension reserve 49Translation reserve 13Retained earnings 3,575 3,850Minority interest - equity 29 TOTAL EQUITY 3,879 1.3 Consolidated cash flow statement for the year ended 17 September 2005 Unaudited £mCash flow from operating activities Profit before taxation 527Adjustments for non-cash items:- Amortisation 25- Depreciation 161- Share option charge (1)- Other 8Pension cost less contributions (8)Profits less losses on sale of fixed assets (20)Share of profit from joint ventures and associates (7)Profits less losses on sale of businesses 1Provision for loss on termination of an operation 47Investment income (49)Interest payable 34Other net financial income (10)Other movement in own shares held reserve 1 Operating cash flow before changes in working capital and provisions 709 Increase in inventories (33)Increase in receivables (20)Decrease in payables (9)Increase in other provisions -Income tax paid (132) Net cash from operating activities 515 Cash flows from investing activities Dividends received from joint ventures 2Dividends received from associates 2Purchase of tangible fixed assets (403)Proceeds from the sale of tangible fixed assets 39Purchase of subsidiary undertakings (1,130)Sale of subsidiary undertakings 8Proceeds from the sale of joint ventures and associates (18)Interest received 54Loan repayment from joint ventures 51 Net cash from investing activities (1,395) Cash flows from financing activities Dividends paid to minorities (4)Dividends paid to shareholders (135)Interest paid (29)Management of liquid resources 273Increase in short term loans 365Increase in long term loans 170Increase in bank borrowings 9Inflow from reductions in own shares held 7 Net cash from financing activities 656 Net decrease in cash and cash equivalents (224) Cash and cash equivalents at 18 September 2004 1,144Effect of exchange rate fluctuations on cash held 9 Cash and cash equivalents at 17 September 2005 929 1.4 Consolidated statement of recognised income and expense for the year ended 17 September 2005 Unaudited £m Actuarial losses on defined benefit schemes (7)Foreign exchange translation differences 43Tax on currency translation differences (1)Net loss recognised directly in equity 35Net profit for the year 386 Total recognised gains and losses relating to the year 421 Attributable to:Equity shareholders 413Minority interests 8 Total recognised income and expense for the year 421 1.5 Consolidated balance sheet at 18 September 2004 Unaudited £mNon-current assets Intangible assets 592Property, plant and equipment 1,447Non-current assets held for sale 12Investments in joint ventures 12Investments in associates 11Other investments 1Employee benefits asset 91Deferred tax assets 17 Total non-current assets 2,183 Current assetsInventories 496Trade and other receivables 592Other investments 539Cash and cash equivalents 1,144 Total current assets 2,771 TOTAL ASSETS 4,954 Current liabilitiesInterest bearing loans and overdrafts (68)Trade and other payables (634)Income tax (106)Amounts owed to joint ventures (1)Provisions (14) Total current liabilities (823) Non-current liabilities Interest bearing loans and overdrafts (357)Income tax (8)Provisions (25)Deferred tax liabilities (142)Employee benefits liability (10) Total non-current liabilities (542) TOTAL LIABILITIES (1,365) NET ASSETS 3,589 Equity Issued capital 47Other reserves 173Own shares reserve (14)Pension reserve 56Translation reserve -Retained earnings 3,300 3,562Minority interest - equity 27 TOTAL EQUITY 3,589 Accounting policies under IFRS Basis of accounting under IFRS The restated financial information for: the transition to IFRS at 18 September2004, the year ended 17 September 2005 and the adoption of IAS 32 and IAS 39 at18 September 2005 has been prepared in accordance with International FinancialReporting Standards issued by the International Accounting Standards Board whichare expected to be endorsed by the EU and to be effective at 31 December 2005. Basis of preparation The financial statements are presented in sterling, rounded to the nearestmillion. They are prepared on the historical cost basis except that derivativefinancial instruments, investments held for trading and investmentsavailable-for-sale are stated at their fair value. Recognised assets andliabilities that are hedged are stated at fair value in respect of the risk thatis hedged. The preparation of financial statements under IFRS requires management to makejudgements, estimates and assumptions about the reported amounts of assets andliabilities, income and expenses. The estimates and associated assumptions arebased on historical experience. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revision to accounting estimates are recognised in the period in which theestimates are revised. The financial statements of the company and its subsidiary undertakings are madeup for the 52 weeks ended 17 September 2005, except that, to avoid delay in the preparation of the consolidated financial statements, those of Australia, New Zealand, China, Poland and the North and South American subsidiary undertakings are made up to 31 August 2005. The accounting policies set out below have been applied to all periods presentedexcept where the policy is indicated as relating to the implementation of IAS 39which is being adopted from18 September 2005. Basis of consolidation The consolidated financial statements include the results of the Company and allof its subsidiary undertakings from the date that control commences to the datethat control ceases. The consolidated financial statements also include thegroup's share of the results of its joint ventures and associates on an equityaccounting basis from the point at which joint control or significant influenceretrospectively commences to the date that it ceases. Subsidiaries are entities controlled by the Company. Control exists when theCompany has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. Joint ventures are those entities over whose activities the Group has jointcontrol, established by contractual agreement. Associates are those entities in which the Group has significant influence, butnot control, over the financial and operating policies. Business combinations On the acquisition of a business or an interest in a joint venture or associate,fair values, reflecting conditions at the date of acquisition, are attributed tothe net assets including significant intangible assets acquired. Adjustments tofair values include those made to bring accounting policies into line with thoseof the group. Revenue Revenue represents the net invoiced value of goods and services delivered tocustomers excluding sales taxes. Revenue is recognised when the risks andrewards of the underlying products and services have been substantiallytransferred to the customer. Revenue is stated net of price discounts, certainpromotional activities and similar items. Foreign currencies In individual companies, transactions in foreign currencies are recorded at therate of exchange at the date of the transaction. Monetary assets andliabilities in foreign currencies are translated at the rate prevailing at thebalance sheet date. Any resulting differences are taken to the incomestatement. On consolidation, assets and liabilities of group companies that are denominatedin foreign currencies are translated into sterling at the rate of exchange atthe balance sheet date. Income and expense items are translated into sterlingat weighted average rates of exchange other than substantial transactions whichare translated at the rate of exchange on the date of the transaction. Differences arising from the retranslation of opening net assets of groupcompanies, together with differences arising from the restatement of the netresults of group companies from average or actual rates, to rates at the balancesheet date, are taken to equity. Net investment hedges take the form of either foreign currency borrowings orderivatives. All foreign exchange gains or losses arising on translation or netinvestments are recorded in equity and included in cumulative translationdifferences. Liabilities used as hedging instruments in a net investment hedgeare revalued at closing exchange rates with resulting gains or losses taken toequity. Foreign exchange contracts hedging net investments in overseasbusinesses are revalued at fair value. Effective fair value movements are takento equity with any ineffectiveness recognised in the income statement. Pensions and other post employment benefits The group's principal pension funds are defined benefit plans. In addition, thegroup has defined contribution plans, unfunded post employment medical benefitliabilities and other unfunded post employment liabilities. For defined benefitplans, the amount charged in the income statement is the cost of benefitsaccruing to employees over the year, plus any vested benefit improvementsgranted to members by the group during the year. It also includes a creditequivalent to the group's expected return on pension plan assets over the year,offset by a charge equal to the expected increase in plan liabilities over theyear. The difference between the market value of plan assets and the present value ofplan liabilities is disclosed as an asset or liability on the consolidatedbalance sheet. Any related deferred tax (to the extent it is recoverable) isdisclosed separately on the consolidated balance sheet. Any differences betweenthe expected return on assets and that actually achieved, and any changes in theliabilities over the year due to changes in assumptions or experience within theplans, are recognised in the statement of recognised income and expense. Contributions payable by the group in respect of defined contribution plans arecharged to operating profit as incurred. Share based payments: employee benefits The Executive Share Incentive Plan allows executives to receive an allocation ofshares to be received at the end of 2005/06 subject to attainment of certainfinancial performance criteria. The fair value of the shares to be awarded isrecognised as an employee expense with a corresponding increase in equity. Thefair value is measured at grant date and spread over the period during which theexecutives become unconditionally entitled to the shares. The fair value of theshares allocated is measured taking into account the terms and conditions uponwhich the shares were allocated. The amount recognised as an expense isadjusted to reflect the actual number of shares that vest. The Share Option Scheme (1994) and Executive Option Scheme (2000) allowexecutives to acquire shares of the Company. The fair value of options grantedis recognised as an employee expense with a corresponding increase in equity.The fair value is measured at grant date and spread over the period during whichthe executives become unconditionally entitled to the options. The fair valueof the options granted is measured using a binomial lattice model, taking intoaccount the terms and conditions upon which the options were granted. Theamount recognised as an expense is adjusted to reflect the actual number ofshare options that vest except where forfeiture is only due to share prices notachieving the threshold for vesting. Income tax Income tax on the profit or loss for the period comprises current and deferredtax. Income tax is recognised in the income statement except to the extent thatit relates to items taken directly to reserves. Current tax is the tax expected to be payable on the taxable income for theyear, using tax rates enacted or substantially enacted at the balance sheetdate, together with any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Thefollowing temporary differences are not provided for: goodwill not deductiblefor tax purposes, the initial recognition of assets or liabilities that affectneither accounting nor taxable profit, and differences relating to investmentsin subsidiaries to the extent that they will probably not reverse in theforeseeable future. The amount of deferred tax provided is based on the expectedmanner of realisation or settlement of the carrying amount of assets andliabilities, using tax rates enacted or substantially enacted at the balancesheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends arerecognised at the same time as the liability to pay the related dividend. Financial instruments Financial instruments in the year ended 17 September 2005 are recorded inaccordance with UK GAAP accounting policies. Accounting for financialinstruments from 18 September 2005 will be in accordance with the followingpolicies under IFRS. Adjustment to IFRS will be reflected in the balance sheetat 18 September 2005. The group uses derivative financial instruments to hedge its exposure tofluctuations in foreign exchange and interest rates and also to changes in theprice of certain commodities used in the manufacture of its products. Derivative financial instruments are recognised in the balance sheet at theirfair value calculated using either discounted cash flows or option pricingmodels consistently applied for similar types of instrument. Both techniquestake into consideration assumptions based on market data. Changes in the fairvalue of derivatives that do not qualify for hedge accounting are charged orcredited to the income statement. The purpose of hedge accounting is to mitigate the impact on the group ofchanges in exchange or interest rates and commodity prices, by matching theimpact of the hedged item and the hedging instrument in the income statement.To qualify for hedge accounting the hedging relationship must meet severalconditions with respect to documentation, probability of occurrence, hedgeeffectiveness and reliability of measurement. At inception of the transactionthe group documents the relationship between hedging instruments and hedgeditems, as well as its risk management objective and strategy for undertakingvarious hedge transactions. This process includes linking all derivativesdesignated as hedges to specific assets and liabilities or to specific firmcommitments or forecast transactions. The group also documents its assessment,both at the hedge inception and on a quarterly basis, as to whether thederivatives that are used in hedging transactions have been, and are likely tocontinue to be, highly effective in offsetting changes in the fair value or cashflows of hedged items. The group designates derivatives that qualify as hedges for accounting purposesas either: (a) a hedge of the fair value of a recognised asset or liability(fair value hedge), (b) a hedge of a forecast transaction or firm commitment(cash flow hedge), or (c) a hedge of a net investment in a foreign entity. The method of recognising the resulting gains or losses from movements in fairvalues is dependent on whether the derivative contract is designated to hedge aspecific risk and qualifies for hedge accounting. Where a derivative financial instrument is designated as a hedge of thevariability in cash flows of a recognised asset or liability, or a highlyprobable forecast transaction, the effective part of any gain or loss on thederivative financial instrument is recognised directly in reserves. Theineffective part of any gain or loss is recognised in the income statementimmediately. Thereafter, the movement in the derivative financial instrumentand asset or liability is recognised in the income statement. When the forecast transaction subsequently results in the recognition of anasset or liability, the associated cumulative gain or loss is removed fromreserves and is included in the initial measurement of the non financial assetor liability. Otherwise, the cumulative gain or loss is removed from reservesand is recognised in the income statement at the same time as the hedgedtransaction. To the extent that any part of the hedge is ineffective, the gainor loss on that part is recognised in the income statement. To the extent that an instrument used to hedge a net investment in a foreignoperation is determined to be an effective hedge, the gain or loss arising isrecognised directly in reserves. The ineffective portion is recognisedimmediately in the income statement. Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulateddepreciation and impairment losses. Depreciation is charged to the income statement on a straight-line basis overthe estimated useful lives of items of property, plant and equipment sufficientto reduce them to their estimated residual value. Land is not depreciated. Theestimated useful lives are as follows: - freehold buildings 66 years- plant and equipment, fixtures and fittings: sugar factories 20 years other operations 12 years- vehicles 8 years Leases Where the group has substantially all the risks and rewards of ownership of anasset that is subject to a lease, the lease is treated as a finance lease.Other leases are treated as operating leases. Payments made under operatingleases are recognised in the income statement on a straight-line basis over theterm of the lease. The benefit of lease incentives received is recognised in theincome statement over the life of the lease. Intangible assets other than goodwill Intangible assets that are acquired by the group and have a finite life arestated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the income statement on a straight-line basis overthe estimated useful lives of intangible assets from the date they are availablefor use. The estimated useful lives are as follows: - customer relationships up to 5 years- technology and brands up to 15 years Goodwill All business combinations are accounted for applying the purchase method.Goodwill represents amounts arising on acquisition of subsidiary undertakings,associates and joint ventures. In respect of business acquisitions that haveoccurred since 3 September 2004, goodwill represents the excess of the purchaseconsideration over the fair value of the net identifiable assets acquired,including separately identified intangible assets. In respect of acquisitions prior to this date, goodwill is included on the basisof its deemed cost, which represents the net book value recorded under previousGAAP. The classification and accounting treatment of business combinations thatoccurred prior to 3 September 2004 has not been reconsidered in preparing thegroup's opening IFRS balance sheet at 18 September 2004. Goodwill is systematically tested for impairment at each balance sheet date andis not amortised. Inventories Inventories are stated at the lower of cost and net realisable value. Costincludes raw materials, direct labour and expenses, an appropriate proportion ofproduction and other overheads, but not borrowing costs. Cost is calculated ona first-in first-out basis. Note 1 Segment Reporting Segment reporting is presented in respect of the group's business andgeographical segments. The primary format, business segments, is based on thegroup's management and internal reporting structure and combines businesses withcommon characteristics. Inter-segment pricing is determined on an arm's lengthbasis. Segment results, assets and liabilities include items directlyattributable to a segment as well as those that can be allocated on a reasonablebasis. Unallocated items comprise mainly corporate assets and expenses. Segmentcapital expenditure is the total cost incurred during the period to acquiresegment assets that are expected to be used for more than one period. Business segments The group is comprised of the following business segments: - Grocery - The manufacture of grocery products, including hot beverages, sugar and sweeteners, vegetable oils, bread and baked goods, ethnic foods, herbs & spices and meat & dairy products which are sold into retail, wholesale and foodservice. - Primary Food - The processing of sugar beet and sugar cane for sale to industrial users and to Silver Spoon, which is included in the grocery segment. - Agriculture - The manufacture of animal feeds and the provision of other products and services for the agriculture sector. - Ingredients - The manufacture of yeast, bakery improvers, dough conditioners and other bakery ingredients, together with yeast extracts, emulsifiers, enzymes, polyols and antacids. - Retail - Buying and merchandising value clothing and accessories through the Primark and Penneys retail chains. Geographical segments The secondary format presents the revenues, profits and assets for the followinggeographical segments: - United Kingdom - Rest of Europe - The Americas - Australia, Asia & Rest of World In presenting information on the basis of geographical segments, segment revenueis based on the geographical location of customers. Segment assets are based onthe geographical location of the assets. Business segments Primary Inter- Grocery Food Agriculture Ingredients Retail Central segment Total 2005 2005 2005 2005 2005 2005 2005 2005 £m £m £m £m £m £m £m £m Revenue from external customers 2,615 802 747 609 1,006 - - 5,779Businesses disposed - - 11 - - - - 11Inter-segment revenue (7) (8) - (6) - - (147) (168)Total external revenue 2,608 794 758 603 1,006 - (147) 5,622 Adjusted profit from operations 185 166 20 65 140 (21) - 555Businesses disposed 1 - 3 - - (5) - (1)Provision for loss on termination - - - - (47) - - (47)of an operationProfits less losses on sale of (1) 24 (3) - - - - 20property, plant & equipmentAmortisation of intangibles (5) - - (20) - - - (25)Segment result 180 190 20 45 93 (26) - 502Pension credit - - - - - 10 - 10Profit from operations 180 190 20 45 93 (16) - 512Net financing costs - - - - - 15 - 15Income tax expense - - - - - (141) - (141)Minority interest - - - - - (7) - (7)Net profit for the year 180 190 20 45 93 (149) - 379 Segment assets (excl. investments 1,885 727 173 1,046 877 873 - 5,581in associates and joint ventures)Investment in associates & joint 5 5 25 16 - - - 51venturesSegment assets 1,890 732 198 1,062 877 873 - 5,632 Segment liabilities (348) (96) (55) (99) (230) (12) - (840) Capital expenditure 109 38 7 25 228 - - 407Depreciation 68 35 6 24 28 - - 161Amortisation 5 - - 20 - - - 25Other significant non-cash 14 - - 5 47 - - 66expenses Geographical segments United Rest of The Australia, Inter- Total Kingdom Europe Americas Asia & segment 2005 2005 2005 2005 Rest of 2005 world 2005 £m £m £m £m £m £m Revenue from external customers 2,990 652 1,104 959 (83) 5,622 Segment assets 2,557 1,181 1,075 819 - 5,632 Capital expenditure 263 54 21 69 - 407Depreciation 94 15 24 28 - 161Amortisation 2 10 10 3 - 25Other significant non-cash 51 5 8 2 - 66expenses Other significant non-cash expenses includes a provision of £47m for costsassociated with the termination of Littlewoods. Net Segment Assets & Liabilities 4,792 Balance Sheet (Extract) Intangible assets 1,152 Tangible assets 2,255 Non-Current assets held for sale 9 Interests in net assets of: Joint Ventures 36 Associates 15 Current Assets Inventories 558 Trade and other 678 receivables Cash and cash 929 equivalents Trade and other (747) payables Amounts owed to JV's (3) Provisions (90) 4,792 Note 2 Income Tax Expense for the year ended 17 September 2005 Unaudited £mCurrent tax expense UK - income tax at 30% 84Overseas - income and corporation tax 49Joint ventures and associates -Over provided in prior years (1) 132 Deferred tax expense UK deferred tax (2)Overseas deferred tax 12Over provided in prior years (1) Total income tax expense in income statement 141 Reconciliation of effective tax rate Nominal tax charge at UK income tax rate (30%) 156Lower tax rates on overseas earnings (25)Expenses not deductible for tax purposes 9Utilisation of losses (1)Deferred tax not recognised 3Adjustments in respect of prior periods (1) 141 Appendices 1. Adoption of IAS 39 - impact for the year ended 17 September 2005 As permitted by IFRS 1, the group does not intend to adopt IAS 39, FinancialInstruments: Recognition and Measurement, retrospectively and will thereforeadopt this standard with effect from 18 September 2005. Had IAS 39 been applied to the balance sheet as at 17 September 2005, thegroup's net assets would have been £3,888m. The table below details the various components of the impact on net assets onadoption of IAS 39: Unaudited £m Closing net assets on 17 September 2005 before adoption of IAS 39 3,879 Adjustments arising from adoption of IAS 39:- Forward exchange contracts 10- Energy swaps 3 Deferred tax (4) Opening net assets on 18 September 2005 after adoption of IAS 39 3,888 2 Detailed Reconciliations 2.1 Consolidated income statement for the year ended 17 September 2005 IFRS 2 IAS 36 IAS 36 IFRS 3 IFRS 3 IAS 12 Under Re- UK Share-based Re- Amort- Bus- Re- Def- Sum Un- UK format GAAP pay- verse isation iness verse erred of audited GAAP to under ment good- of combin- re- tax IFRS IFRS IFRS IFRS will intang- ations cycled adjust- presen- amort- ibles good- ments tation isation will £m £m £m £m £m £m £m £m £m £m £m Continuing operationsTurnover ofthe groupincludingitsshare of jointventures 5,774Less shareofturnover of jointventures (152) Group 5,622 5,622 Revenues - 5,622turnoverOperatingcosts (5,145) (5,145) Operating 1 78 (25) (8) - - 46 (5,099) costs 477 1 78 (25) (8) - - 46 523 7 7 Share of profit from - 7 joint ventures and associates 20 20 Profits less - 20 losses on sale of fixed assets Groupoperatingprofit 477 27 504 Operating 1 78 (25) (8) - - 46 550 profit 484 Adjusted 1 78 - (8) - - 71 555 operating profit 20 Profits less - - - - - - - 20 losses on the sale of fixed assets - Amortisation - - (25) - - - (25) (25) of intangibles Share ofoperatingresults of -joint 4 (4) - - - ventures -associates 6 (6) - - - Totaloperatingprofit 487 - - - -Operatingprofitbeforeamortisation of goodwill 565 (565) - - -Amortisationof goodwill (78) 78 - - - - -Profits lesslosses onsaleof fixed assets 20 (20) - - -Profits lesslosses on saleof business (6) (6) Profits less 5 5 (1) losses on sale of businessesProvision forloss on term-ination of an operation (47) (47) Provision for - (47) loss on termination of an operation 451 Profit before 1 78 (25) (8) 5 - 51 502 interestInvestmentincome 49 49 Investment - 49 incomeProfit onordinaryactivitiesbeforeinterest 503 - -Interestpayable (34) (34) Interest - (34) payableOtherfinancialincome 10 10 Other net - 10 financial incomeProfit onordinaryactivitiesbeforetaxation 479 (3) 476 Profit 1 78 (25) (8) 5 - 51 527 Before taxationAdjustedprofitbefore taxation 590 509 Adjusted 1 78 - (8) - - 71 580 profit before taxationProfits lesslosses on saleof fixed assets 20 20 Profits less - - - - - - - 20 losses on the sale of fixed assetsProfits lesslosses on saleof business (6) (6) Profits less - - - - 5 - 5 (1) losses on sale of businessesProvision forloss on terminationof an operation (47) (47) Provision for - - - - - - - (47) loss on termination of an operationAmortisationof goodwill (78) - Amortisation - - (25) - - - (25) (25) of intangiblesTax on profiton ordinary activities (139) 3 (136) Taxation (0) (11) 5 3 (2) (5) (141) Profit onordinaryactivitiesafter Profit for taxation 340 - 340 the year 1 67 (20) (5) 5 (2) 46 386 Minorityinterests -equity (7) 7 - - - Profit for the financial year 333 7 340 1 67 (20) (5) 5 (2) 46 386 Basic and dilutedearnings perordinary share 42.2p Basic and diluted 48.0p earnings per ordinary shareAdjusted earnings per ordinary share 53.0p Dividends per 17.15p share 2.2 Consolidated balance sheet at 17 September 2005 IAS 10 IAS 16 IAS 36 Under Reformat UK GAAP Reverse Reverse Reverse UK to under dividends revaluation goodwill GAAP IFRS IFRS not yet reserve amortisation presen- approved tation £m £m £m £m £m £mFixed Non-currentassets assetsIntangibleassets -goodwill 1,035 1,035 Intangible 78 assetsTangibleassets 2,252 (9) 2,243 Property, plant and equipment 9 9 Non-current assets held for saleInterests innet assets of- jointventures 36 36 Investments in joint ventures- associates 15 15 Investments in associates 97 97 Employee benefits asset 42 42 Deferred tax assets 3,338 139 3,477 Total - - 78 non-current assets Current Currentassets assetsStocks 558 558 InventoriesDebtors 719 (41) 678 Trade and other receivablesInvestments 901 (632) 269 Other InvestmentsCash at bankand in hand 297 632 929 Cash and cash equivalents 2,475 (41) 2,434 Total current - - - assets 5,911 TOTAL - - 78 ASSETS Creditors amounts falling due within Currentone year liabilitiesShort-termborrowings (447) (447) Interest bearing loans and overdraftsOthercreditors (958) 116 (842) Trade and 95 other payables (113) (113) Income tax (3) (3) Amounts owed to joint ventures (61) (61) Provisions (1,405) (61) (1,466) Total current 95 - - liabilitiesNet currentassets 1,070Total assetsless currentliabilities 4,408Creditors amounts falling due Non-currentafter one year liabilitiesLoans (527) (527) Interest bearing loans and overdraftsOthercreditors (4) (4) Income tax (531)Provisionsforliabilities (203) 174 (29) Provisionsand charges (142) (142) Deferred tax (11) liabilities 3,674Pension 68 (68)AssetPensionLiability (17) (1) (18) Employee benefits liability (720) Total - - (11) non-current liabilitiesNet Assets 3,725 - 3,725 NET ASSETS 95 - 67Capital and EquityreservesCalled upshare capital 47 47 Issued capitalRevaluationreserve 3 3 Revaluation (3) reserveOther 173 173 Otherreserves reserves (6) (6) Own shares reserve 51 51 Pension reserve - Translation reserveProfit andloss account 3,473 (45) 3,428 Retained 95 3 67 earningsEquityshareholdersfunds' 3,696 - 3,696 95 - 67 Minorityinterests insubsidiaryundertakings- equity 29 29 Minority interest - equity 3,725 - 3,725 TOTAL 95 - 67 EQUITY IAS 36 IFRS 3 IAS 21 IFRS 3 IFRS 2 IAS 19 IAS 12 IAS 17 Goodwill Reverse Share- Leases Amort- Bus- and re- based Sum of Un- isation iness intang- cycled pay- Pension IFRS audited of intang- combin- ibles good- ment adjust- Def- Adjust- IFRS ibles ations currency will ment ferred ment £m £m £m £m £m £m £m £m £m £m Non-currentassetsIntangible assets (25) 14 13 37 117 1,152 Property, plant 12 12 2,255and equipment Non-current assets held - 9for sale Investments injoint ventures - 36Investments inassociates - 15Employee benefitsasset (2) (2) 95Deferred tax 36 - 36 78assets Totalnon-current assets (25) 50 13 - - (2) 37 12 163 3,640 CurrentassetsInventories - - 558Trade and otherreceivables - 678Other - 269InvestmentsCash and cashequivalents - 929 Total currentassets - - - - - - - - - 2,434 TOTAL (25) 50 13 - - (2) 37 12 163 6,074ASSETS Currentliabilities Interest bearing loans - (447)and overdrafts Trade and 95 (747)otherpayables Income tax - (113) Amounts owed to joint - (3)ventures Provisions - (61) Total current - - - - - - - 95 (1,371)liabilities Non-currentliabilities Interest bearing loans (12) (12) (539)and overdrafts Income tax - (4) Provisions - (29) Deferred taxliabilities 5 (55) (1) 1 (30) (91) (233) Employee benefitsliability (1) (1) (19) Total 5 (55) - - (1) - (30) (12) (104) (824)non-current liabilities NET ASSETS (20) (5) 13 - (1) (2) 7 - 154 3,879 EquityIssued - 47capitalRevaluation (3) -reserve Other - 173reservesOwn sharesreserve (1) (1) (7)Pension (2) (2) 49reserveTranslationreserve 13 13 13Retained (20) (5) - - - 7 147 3,575earnings (20) (5) 13 - (1) (2) 7 - 154 3,850Minority interest- equity - 29 TOTAL (20) (5) 13 - (1) (2) 7 - 154 3,879EQUITY 2.3 Consolidated cash flow statement for year ended 17 September 2005 IFRS 2 IAS 36 IAS 36 IFRS 3 Under Refor- UK Share Rever- Amorti- Busi- Sum Unaud- UK mat GAAP based sal sation ness of ited GAAP to under pay- of of combi- IFRS IFRS IFRS IFRS ment good- intan- nations adjust- pre- will gibles ments sen- amorti- tation sation £m £m £m £m £m £m £m £m £mCash flow from Cash flow fromoperating activities operating activitiesOperating profit 477 4 481 Profit before 1 78 (25) (8) 46 527 taxation Adjustments for - - non-cash items:Amortisation of 78 78 - Amortisation of (78) 25 (53) 25goodwill intangiblesDepreciation 161 161 - Depreciation - 161 - - Share option (1) (1) (1) charge - - Other 8 8 8 (8) (8) Pension cost less - (8) contributions (20) (20) Profits less losses - (20) on sale of fixed assets (7) (7) Share of profit from joint - (7) ventures and associates 1 1 Profits less losses - 1 on sale of businesses 47 47 Provision for loss on - 47 termination of an operation (49) (49) Investment income - (49) 34 34 Interest payable - 34 (10) (10) Other net financial - (10) income 1 1 Other movement in - 1 own shares held reserve (7) 709 Operating cash flow - - - - - 709 before changes in working capital and provisions(Increase)/decreasein working capital- stocks (33) (33) Increase in - - (33) inventories- debtors (20) (20) Increase in - (20) receivables- creditors (9) (9) Decrease in - (9) payablesOther provisions - - Increase in other - - provisions (132) (132) Income tax paid - (132)Pension cost less (8) 8 -contributionsOther movement in own 1 (1) -shares held reserve 647 (132) 515 Net cash from - - - - - 515 operating activities Cash flows from - 0 investing activitiesDividends from joint 2 2 Dividends received - 2ventures from joint venturesDividends from 2 2 Dividends received - 2associates from associates (403) (403) Purchase of - (403) tangible fixed assets 39 39 Proceeds from the - 39 sale of tangible fixed assets (1,130) (1,130) Purchase of - (1,130) subsidiary undertakings 8 8 Sale of subsidiary - 8 undertakings (18) (18) (Purchase)/proceeds from the sale - (18) of joint ventures and associatesReturn on investments andservicing of financeInvestment income 54 54 Interest received - 54Interest paid (29) 29 -Dividends paid to (4) 4 -minorities 21Taxation (132) 132 -Capital expenditureand financialinvestmentPurchase of tangible (403) 403 -fixed assetsSale of tangible 39 (39) -fixed assetsLoan repayment from 51 51 Loan repayment from - 51joint venture joint venture (313)Acquistions anddisposalsPurchase of (1,130) 1,130 -subsidiaryundertakingsSale of joint (18) 18 -ventures andassociatesSale of subsidiary 8 (8) -undertakings (1,140)Equity divdends paid (135) 135 -Net cash (outflow)/ (1,048)inflow before use ofliquid funds andfinancing 300 (1,395) Net cash from - - - - - (1,395) investing activities Cash flows from financing activities (4) (4) Dividends paid to - (4) minorities (135) (135) Dividends paid to - (135) shareholders (29) (29) Interest paid - (29)Management of liquid 649 (376) 273 Management of - 273resources liquid resourcesFinancing - -Borrowings due within (111) 476 365 Increase in short - 365one year - repayment term loansof loans- increase in loans 476 (476) - - -Borrowings due after (205) 375 170 Increase in long - 170one year - repayment term loansof loans- increase in loans 375 (375) - - -Increase/(decrease) 9 9 Increase in bank - 9in bank borrowings borrowingsInflow from 7 7 Inflow from - 7reductions in/ reductions in own(increase in cost of) shares heldown shares held 1,200 (544) 656 Net cash from - - - - - 656 financing activities Increase/(decrease) 152 (376) (224) Net decrease in - - - - - (224)in cash cash and cash equivalents 2.4 Consolidated balance sheet at 18 September 2004 IAS 10 IAS 16 IAS 21 IFRS 2 IAS 19 IAS 12 Under Refor- UK Reverse Rever- Good- Share Pen- Defer- Sum Unaudi- UK mat GAAP divi- sal will based sion red of ted GAAP to under dends of and pay- adjust- tax IFRS IFRS IFRS IFRS not revalu- intan- ment ment adjust- pre- yet ation gibles ments sen- approv- reserve cur- tation ed rency £m £m £m £m £m £m £m £m £m £m £mFixed assets Non-current assetsIntangible 593 593 Intangible (1) (1) 592assets - assetsgoodwillTangible assets 1,459 (12) 1,447 Property, plant - 1,447 and equipment 12 12 Non-current - 12 assets held for saleInterests in 12 12 Investments in - 12net assets of - joint venturesjoint ventures- associates 11 11 Investments in - 11 associatesOther 1 1 Other - 1investments investments 93 93 Employee (2) (2) 91 benefits asset 17 17 Deferred tax - - 17 assets 2,076 110 2,186 Total - - (1) - (2) - (3) 2,183 non-current assets Current assets Current assetsStocks 496 496 Inventories - 496Debtors 600 (8) 592 Trade and other - 592 receivablesInvestments 1,547 (1,008) 539 Other - 539 InvestmentsCash at bank 136 1,008 1,144 Cash and cash - 1,144and in hand equivalents 2,779 (8) 2,771 Total current - - - - - - - 2,771 assets 4,957 TOTAL ASSETS - - (1) - (2) - (3) 4,954 Creditors amounts Currentfalling due within one liabilitiesyearShort-term (68) (68) Interest - (68)borrowings bearing loans and overdraftsOther creditors (829) 107 (722) Trade and other 88 88 (634) payables (106) (106) Income tax - (106) (1) (1) Amounts owed to - (1) joint ventures (14) (14) Provisions - (14) (897) (14) (911) Total current 88 - - - - - 88 (823) liabilitiesNet current 1,882assetsTotal assets 3,958less currentliabilitiesCreditors Non-currentamounts falling liabilitiesdue after oneyearLoans (357) (357) Interest - (357) bearing loans and overdraftsOther creditors (8) (8) Corporation tax - (8) (365)Provisions for (155) 130 (25) Provisions - (25)liabilities andcharges (151) (151) Deferred tax (1) 1 9 9 (142) liabilities 3,438Pension Asset 58 (58)Pension - (9) (9) Employee (1) (1) (10)Liability benefits liability (550) Total - - - (1) - 9 8 (542) non-current liabilitiesNet Assets 3,496 - 3,496 NET ASSETS 88 - (1) (1) (2) 9 93 3,589Capital and EquityreservesCalled up share 47 47 Issued capital - 47capitalRevaluation 3 3 Revaluation (3) (3) -reserve reserveOther reserves 173 173 Other reserves - 173 (14) (14) Own shares - - (14) reserve 58 58 Pension reserve (2) (2) 56 - Translation - - reserveProfit and loss 3,246 (44) 3,202 Retained 88 3 (1) (1) 9 98 3,300account earningsEquity 3,469 - 3,469 88 - (1) (1) (2) 9 93 3,562shareholdersfunds'Minority 27 27 Minority - 27interests in interest -subsidiary equityundertakings -equity 3,469 - 3,496 TOTAL EQUITY 88 - (1) (1) (2) 9 93 3,589 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
AB Foods