7th Jun 2006 07:01
Greencore Group PLC07 June 2006 INTERIM STATEMENT Greencore reports operating profits of Eur42m for the six months ended 31 March2006 HIGHLIGHTS > Adjusted EPS up 2.2% to 13.7 cent > Profit after tax up 14.3% to Eur30.5m (pre-exceptionals) > Group operating profit (pre-exceptionals) of Eur42.1m in line with the first half of FY05 > Continued progress in Convenience Foods division: - 72% of Group operating profits -Turnover growth of 8.1% to Eur442m - Operating profit growth of 2.2% to Eur30.3m; achieved against a very strong comparative period - Positive outlook for second half of FY06 > Reconfigured Ingredients, Agribusiness and Related Property division: - Operating profit decrease of 5.4% to Eur11.8m - Decision taken to exit sugar processing in Ireland - Significant restructuring of malt business - Greater focus on management of Group property assets > Comparable net debt of Eur423m, up only Eur4m on March 2005, despite Oldfieldsacquisition and Sugar restructuring costs > Net exceptionals of Eur45.7m - principally due to sugar processing exit > Interim dividend maintained at 5.05 cent Commenting on the results, Greencore Group Chief Executive David Dilger said: "These results represent a solid underlying performance against a background ofa competitive convenience foods environment and EU sugar reform that has led usto exit sugar processing in Ireland. The future for Greencore now lies inConvenience Foods. I am pleased by the continued progress of and futureprospects for that division. We have high performing businesses right acrossthe range of our operations - with nine of the ten Convenience Foods businessesgrowing at or above market growth rates. Against this background, we areconfident that we will deliver a good performance for the full year." For further information, please contact: David Dilger, Chief Executive Tel: +353 1 605 1045Patrick Coveney, Chief Financial Officer Tel: +353 1 605 1018Eoin Tonge, Group Capital Markets Director Tel: +353 1 605 1036Billy Murphy, Drury Communications Tel: +353 1 260 5000Mark Garraway, College Hill Tel: +44 207 457 2020 SUMMARY The half year under review has been a critical period in the evolution ofGreencore. The decision to exit sugar processing in Ireland means thatGreencore is now completing its transition from a predominantly agri-businessentity into a convenience foods company. The Convenience Foods divisioncontinues to perform well, driven by: > leading positions in the categories and segments where we compete, with nine of our ten businesses growing at or above market growth rates; > a relentless focus on Total Lowest Cost ("TLC"), driving more than 2% per annum of real operational cost reduction; > broad channel exposure, with successful integration of Oldfields helping to drive more than 30% of our revenues in the first half of FY06 outside of the 'multiple channel'; > excellent product development and mix management, with almost 40% of our products now less than one year old; and > an emerging set of licensed brands which, over time, will become more central to our business. The division delivered a solid financial performance with turnover up 8.1% toEur442m and operating profits up 2.2% to Eur30.3m. This profit growth wasachieved against a very strong comparative period - a period in which profitswere substantially enhanced by a short-term contract to supply a competitorfollowing a fire at one of their facilities. In the six months under review, our Ingredients, Agribusiness and RelatedProperty division has been subjected to unprecedented challenges. Thecompetitive pricing behaviour throughout the European sugar industry whichpreceded the implementation of the new EU sugar regime significantly reducedGreencore Sugar's profitability. Continued over-capacity in European maltmarkets also placed significant pressures on the division, and we arerestructuring our core UK and Irish locations to better position Greencore Maltfor this new environment. The cost of this restructuring is included in theseaccounts. A strong final sugar campaign, good operational performance in ourmalt facilities and profits from property sales enabled the division to earnprofits of Eur1.8m, a decline of 5.4% from the first half of FY05. Given the anticipated negative impact of the sugar processing exit on Groupoperating profit and cashflows in FY06 and FY07 and the importance that theBoard continues to place on improving the capital structure of the Group postSugar, the interim dividend for the current year will be maintained at the prioryear level of 5.05 cent. REVIEW OF OPERATIONS: (1) CONVENIENCE FOODS The Convenience Foods division has continued to perform well. In a challengingenvironment, nine of our ten businesses are growing at least as quickly as theirmarkets, operational performance has continued to improve and our key objectivesin the areas of Total Lowest Cost, channel diversification and innovation arebeing achieved. This business performance has delivered solid financial resultswith sales growth of 8.1% and operating profit growth of 2.2%. Operatingmargins are at 6.9%. This represents an improvement of 0.6% points on lastyear's first half margin, but a decline of 0.4% points on the margin fromcontinuing operations in the first half of FY05. There are two important points of context in comparing the sales, margin andprofit levels of the first half of FY06 to the first half of FY05: > The Group acquired Oldfields in August 2005 and it has been successfullyintegrated into our sandwich business. We are delighted with the progress andprospects of the business. However, its cost base at acquisition was well abovethat of our core sandwich business and it will take twelve months to bring thesecosts in line with our operational best practice and to enable Oldfields tobenefit fully from Group synergies. > Sales and profits in the comparative period were substantially enhanced by oursuccessful response to a fire at a competitor's facility in October 2004. OurGrocery business secured a short-term, but highly profitable, supply contractwhile that facility was rebuilt. This contract, the benefit of which was earnedin the first half of FY05, helped deliver a level of sales and profits well inexcess of any previously delivered at our Grocery business. At a Group level,the profit impact of this contract broadly offset the losses incurred at ourPizza business (now discontinued) in the first half of FY05. These two factors entirely explain the relative fall in percentage margin fromcontinuing operations between the first half of FY06 and the first half of FY05.In the Convenience Foods division, the second half of the year has always beenthe biggest generator of divisional sales and profit, with categories such asSandwiches, Quiche, Water, and Chilled Desserts experiencing significant summeruplifts. Against this background, the Board is pleased with the financialperformance of Convenience Foods in the first half of FY06. The underlyingperformance continues to reflect the clear choices Greencore has made on whereit competes and the strong capability that it has built across the businesses. 1. Well Chosen Categories Greencore believes in the fundamental attractiveness of the chilled conveniencefoods market - it is at the core of our strategy. Growth in this market hasimproved modestly over the last six months, with annual growth now running at4.5%. Greencore's success to date has been driven by the specific market,segment and format choices that the Group has made. For example, in ChilledSauces, where Greencore leads the industry with a 41% market share, annualmarket growth is now 15%. In Cakes, where the overall market grew at 6%, ourtwo key segments, Celebration Cakes and Christmas Cakes, had growth of 16% and10%, respectively. 2. Balanced Channel Exposure Over the last six months, we have further strengthened our non-multiplebusiness, which accounts for more than 30% of Convenience Foods sales. InJanuary, we launched a new business unit, Greencore Food Service, to enable usto better serve the catering sector. It works across our categories to deliver'integrated solutions' to large food-service customers and has already achieveda number of notable account successes. In addition, the acquisition andintegration of Oldfields has significantly enhanced our presence in the coffeeshop channel. These two initiatives, along with a sustained focus on theconvenience store channel across our business, have driven a 27% increase innon-multiple sales over the first half of FY05. 3. A Commitment to Being the Lowest Cost Competitor An essential part of Greencore's operating and economic model is our commitmentto being the lowest cost competitor. This imperative is as much about cultureand leadership as it is about process and efficiency. We currently have over160 individual TLC initiatives running across the division and continue todeliver operational cost improvements that total in excess of 2% of sales.These efficiency improvements are vital to helping our businesses both to offsetinput price inflation and to improve terms to our customers. 4. Aggressive Innovation, Especially in the Areas of Premium and Health Innovation is the lifeblood of this business, delivering excitement to consumersand customers and enabling us to sustain margins in a price deflationaryenvironment. In the 12 months to March 2006, almost 40% of our portfoliocomprised products that are less than one year old. In two of our strongestperforming categories, Chilled Sauces and Chilled Desserts, the level of newproduct introductions sits at 81% and 53% of their respective productportfolios. Health is important to the Group's innovation agenda. Our license agreementwith WeightWatchers has been an important initiative. Greencore launched arange of chilled prepared meals produced under license from WeightWatchers lastsummer and is now supplying this range to all major UK and Irish retailers. Inless than 12 months, it has grown into a retail brand delivering sales ofapproximately Eur25m a year at a margin above that earned in our customerbranded prepared meals. Already we have the number one selling individual SKUin the healthy chilled prepared meals category. We have the opportunity tofurther develop this brand over the next few years. 5. A Decentralised Model that Bestows 'True Ownership' to the Businesses Greencore businesses 'own' their income statement - that is the 'Greencore way'.This enables our front-line leaders to make the daily trade-offs betweencommercial, operational and financial demands necessary to drive profitperformance. It is a critical organisational choice from which we will notdepart. 6. Robust Financial Discipline Rigorous disciplines on fixed and working capital investments are a core featureof how Greencore operates. We have invested nearly Eur6m in capital projects inConvenience Foods in the first half of FY06 (122% of depreciation). This spendis tightly managed and focuses on driving efficiency improvement projects, suchas the line automation initiatives in Cakes and Sandwiches, or facilitatingentry into new market sectors, such as our move into the snack salads market. These elements continue to drive our business. The Group has also had to dealwith three significant market challenges in the period under review: > Consumer Health Trends Consumers have become increasingly concerned regarding the wholesomeness ofprocessed food. In particular, this has contributed to a slowdown in the growthof the Prepared Meals category, with category growth now at 4.7% per annum. Wehave responded with a comprehensive new range of customer branded meals(launched in March 2006), a more wholesome set of ingredients and thedevelopment of the WeightWatchers prepared meals range. > A Price Deflationary Retail Environment UK multiples continue to drive retail price deflation across many categories,placing even greater importance on our cost reduction and innovation processes. > Input Price Inflation As expected, energy prices increased further in the first half of FY06. Whilesignificant, we have built these increases (which totalled more than Eur2m inthe first half of FY06) into our plans for FY06 and FY07 and continue to manageenergy efficiency and energy pricing tightly. Our TLC agenda is critical toenabling us to absorb these increases and to date has been successful. REVIEW OF OPERATIONS: (2) INGREDIENTS, AGRIBUSINESS AND RELATED PROPERTY The Ingredients, Agribusiness and Related Property division has been subjectedto unprecedented challenges. The new EU sugar regime (which effectively endedthe sugar industry in Ireland), the pricing and capacity pressure across EUsugar markets that preceded it, and continued over-capacity in European maltmarkets, have placed significant pressures on the division. However, a strongfinal sugar campaign, good operational performance in our malt facilities and acontribution from property sales enabled the division to earn profits ofEur1.8m, a fall of 5.4% from the first half of FY05. While the importance of this division as a source of earnings to the GreencoreGroup will diminish over time, focused and effective management of the Group'sproperty assets, now led centrally at Group Board level, has the potential tocreate long term value for shareholders. 1. Decision to Exit Sugar Processing On 15 March 2006, Greencore announced its intention to exit sugar processing.The decision of the EU Council of Ministers in November 2005 effectively broughtan end to the sugar industry in Ireland. Greencore had hoped to be able toundertake 'one more campaign' in 2006/2007 but unfortunately, and despiteconsiderable efforts by many parties, it was not feasible to do so. Greencorewill not process sugar again, and as determined by the EU sugar regime reformmechanism, the Group intends to renounce its quota and present a restructuringplan to the Irish Government to secure the restructuring aid to which it isentitled. As detailed in the announcement of 15 March 2006, the financial effects ofexiting sugar are severe: > Profit Impact Approximately Eur10m fall in profits in FY06 and an elimination of sugarprocessing profits thereafter (versus FY05 profits of approximately Eur25m). > Costs of Exit Gross exit costs of Eur168m (approximately one third of which are cash costs),partially offset by Greencore's legal entitlement to Eur131m (Present Valueequates to Eur124m) of EU restructuring aid, resulting in an exceptional chargeto the first half of FY06 accounts of Eur44m. Note 3 to the accounts sets outthe accounting treatment for the costs and the risks to the receipts andpayments arising from the exit. Greencore has advised the Irish Government of its intention to cease processingand renounce quota. As required by EU regulation, Greencore intends to submit acomprehensive restructuring plan. Under this regulation, this plan needs to besubmitted by 31 July 2006, and a decision to approve or reject the Greencorerestructuring plan is required from Government by 30 September 2006. Allparties are still awaiting the publication of the final EU 'Implementing Rules'which will set out the operational elements that underpin the EU Regulation of20 February 2006. In operating terms, our Sugar business has performed well. The final campaignat the reconfigured Mallow factory was very successful. Despite the dramaticfalls in EU sugar prices, the morale blow associated with the exit decision andaggressive competition with other suppliers at our core customers, the businesshas held up well. Greencore Sugar remains committed to serving its customers.It has sufficient stocks of sugar to fully service Irish industrial sugar andretail customers until November 2006 and has now put in place plans to supplythese customers for the long term, preserving the value of the Siucra andMcKinney brands. 2. Malt Restructuring International malt prices reached a low point in the cycle at the end of 2005,driven, in large part, by industry over-capacity. That pricing impact, alliedto energy increases of more than 50% year on year, had a negative impact on theprofitability of the Group's malt business. During the period, the businessbenefited from a legal settlement of Eur4.9m. Last year, we took the step ofclosing three maltings; this year, the focus is on restructuring our coreoperations in the UK and Ireland, the net costs of which are Eur4.6m. This workis ongoing and we believe it will ultimately leave us well placed to benefitfrom the anticipated improvement in the malt cycle. 3. Property Greencore has always been involved in trading and developing surplus propertyassets within the Ingredients and Agribusiness area and still has significantproperty assets in the UK and Ireland. In recognition of the potential value ofour property assets and the skills needed to access it, all significant propertyactivity is now under the responsibility of the Group Development Director. FINANCIAL REVIEW The results have been prepared in accordance with International FinancialReporting Standards ("IFRS"). The Group issued its restatement of its 2005financial information to IFRS on 5 May 2006. IFRS has resulted in the followingkey changes to the Group income statement: > Discontinued operations are now shown as one line item below taxation. > Pension accounting charges result in the Group recognising current servicecosts as part of operating profit, with returns on assets and the finance costsof liabilities being recognised in the finance income and finance costs lines,respectively. > Financial derivatives must be marked-to-market, with most movements inmark-to-market from one period to the next being recognised in the incomestatement. > Goodwill is no longer amortised. > Dividends are no longer recognised until such point as they have beenapproved. Group operating profit (pre-exceptional) of Eur42.1m was in line with the firsthalf of last year. Convenience Foods operating profit grew by 2% to Eur30.3m.Ingredients, Agribusiness and Related Property operating profit declined by 5.4%to Eur11.8m. Strong profit after tax growth of 14.3% (to Eur30.5m) principallyreflected the strong positive impact of marking-to-market our tradingderivatives within the finance income category. This impact is stripped out ofAdjusted EPS of 13.7 cent, an increase of 2.2% over the first half of FY05. Net debt at 31 March 2006 was Eur423m (before the impact of marking-to-marketour fair value hedges and trading derivatives), an increase of Eur4m from thecomparable March 2005 figure (see Note 7 for fuller explanation). However, thistwelve month debt movement reflects approximately Eur40m of one-off items, whichinclude the cash costs associated with the fundamental restructuring ofGreencore Sugar in 2005 and the acquisition costs of Oldfields. The rise incomparable net debt of Eur24m from September 2005 is principally explained by aseasonal working capital uplift in Sugar that totalled approximately Eur45m byend March. Importantly, the underlying trajectory of cash generation remains inplace. The Group incurred exceptional charges (net of tax) of Eur45.7m in the periodunder review (full details of which are contained in Note 3 to the accounts).This total charge comprises four separate areas: (i) Sugar: Eur43.8m (net cost) related to the exit from sugar processing inIreland. (ii) Malt: Eur4.9m (net benefit) from legal settlement; Eur4.6m (net cost) fromrestructuring of UK and Irish operations (iii) Chilled Sauces: Eur2.0m (net cost) related to the exit from theChesterfield facility and the consolidation of that business into a single site. (iv) Foreign Exchange: Eur0.2m (net cost) Significant capital investment was made in the period. Capital expenditureamounted to Eur23.6m, compared to depreciation charges of Eur19.4m. Of thisfigure, 67% was invested in Convenience Foods. The tax charge on continuing operations of Eur5.1m equates to an effective taxrate of 16% (see Note 8 for fuller explanation). OUTLOOK The performance and prospects for Convenience Foods are encouraging; it is thefuture of Greencore. Despite the fact that FY05 was a strong comparative year,we expect to generate good performance in Convenience Foods this year andbelieve the division is well positioned for further growth in the years to come. Market conditions remain difficult for our Ingredients and Agribusinessoperations. The guidance we issued in our March 2006 statement on Sugar remainsappropriate. Malt remains a challenge but the anticipated upturn in maltprices, which is taking longer to materialise than we had hoped, is expected toassert itself in late FY06 and FY07. Greencore is successfully completing its transition into a convenience foodscompany. We are confident that we will deliver a good performance for the fullyear. E F Sullivan7 June 2006 CONSOLIDATED INCOME STATEMENT FOR HALF YEAR ENDED 31 MARCH 2006 Half year to 31 March 2006 (Unaudited) Pre - exceptional Exceptional Total Notes Eur'000 Eur'000 Eur'000Continuing operations 2Revenue 658,052 - 658,052Cost of sales (464,799) (9,150) (473,949) -------------- -------------- --------------Gross profit 193,253 (9,150) 184,103Distribution, administration and other expenses (151,158) (37,735) (188,893) -------------- -------------- --------------Profit /(loss) before financing, 2 42,095 (46,885) (4,790)associates and taxFinance income 7 24,748 - 24,748Finance costs 7 (32,620) - (32,620)Share of profit of associates 1,387 - 1,387 -------------- -------------- --------------Profit/(loss) before taxation 35,610 (46,885) (11,275)Taxation 8 (5,066) 1,190 (3,876) -------------- -------------- --------------Result for the period from continuing operations 3 30,544 (45,695) (15,151) Discontinued operationsLoss from discontinued operations - - - -------------- -------------- --------------Result for the financial period 30,544 (45,695) (15,151) -------------- -------------- -------------- Attributable to:Equity shareholders 30,126 (45,695) (15,569)Minority interests 418 - 418 -------------- -------------- -------------- 30,544 (45,695) (15,151) -------------- -------------- -------------- Earnings per share for the period Notes Eur centContinuing operations 6 (8.0) Basic earnings per shareDiluted earnings per share 6 (7.8)Discontinued operations - Basic earnings per share 6Diluted earnings per share 6 - CONSOLIDATED INCOME STATEMENT FOR HALF YEAR ENDED 31 MARCH 2006(CONTINUED) Half year to 25 March 2005 (Unaudited) Pre - exceptional Exceptional Total Notes Eur'000 Eur'000 Eur'000Continuing operations 2Revenue 630,441 - 630,441Cost of sales (443,961) - (443,961) -------------- -------------- --------------Gross profit 186,480 - 186,480Distribution, administration and other expenses (144,361) (73,703) (218,064) -------------- -------------- --------------Profit /(loss) before financing, associates and tax 2 42,119 (73,703) (31,584)Finance income 7 16,727 - 16,727Finance costs 7 (28,754) - (28,754)Share of profit of associates 1,797 - 1,797 -------------- -------------- --------------Profit/(loss) before taxation 31,889 (73,703) (41,814)Taxation 8 (4,145) 8,290 4,145 -------------- -------------- --------------Result for the period from continuing operations 3 27,744 (65,413) (37,669) Discontinued operationsLoss from discontinued operations (1,011) - (1,011) -------------- -------------- --------------Result for the financial period 26,733 (65,413) (38,680) -------------- -------------- -------------- Attributable to:Equity shareholders 25,790 (65,413) (39,623)Minority interests 943 - 943 -------------- -------------- -------------- 26,733 (65,413) (38,680) -------------- -------------- -------------- Earnings per share for the period Notes Eur centContinuing operations 6 (20.1) Basic earnings per shareDiluted earnings per share 6 (19.9) (0.5) Discontinued operations Basic earnings per share 6Diluted earnings per share (0.5) CONSOLIDATED INCOME STATEMENT FOR HALF YEAR ENDED 31 MARCH 2006 (CONTINUED) Year ended 30 September 2005 (Audited) Pre - exceptional Exceptional Total Notes Eur'000 Eur'000 Eur'000Continuing operations 2Revenue 1,325,042 - 1,325,042Cost of sales (930,733) - (930,733) -------------- -------------- --------------Gross profit 394,309 - 394,309Distribution, administration and other expenses (292,356) (74,255) (366,611) -------------- -------------- --------------Profit /(loss) before financing, associates and tax 2 101,953 (74,255) 27,698Finance income 7 33,179 - 33,179Finance costs 7 (58,274) - (58,274)Share of profit of associates 3,559 - 3,559 -------------- -------------- --------------Profit/(loss) before taxation 80,417 (74,255) 6,162Taxation 8 (12,412) 8,289 (4,123) -------------- -------------- --------------Result for the period from continuing operations 3 68,005 (65,966) 2,039 Discontinued operationsLoss from discontinued operations (3,643) (38,263) (41,906) -------------- -------------- --------------Result for the financial period 64,362 (104,229) (39,867) -------------- -------------- -------------- Attributable to:Equity shareholders 62,822 (104,229) (41,407)Minority interests 1,540 - 1,540 -------------- -------------- -------------- 64,362 (104,229) (39,867) -------------- -------------- -------------- Earnings per share for the period Notes Eur centContinuing operations Basic earnings per share 6 0.3Diluted earnings per share 6 0.3 Discontinued operations Basic earnings per 6 (21.7)Diluted earnings per share 6 (21.5) CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2006 31 March 2006 25 March 2005 30 September 2005 (Unaudited) (Unaudited) (Audited) Eur'000 Eur'000 Eur'000ASSETSNon-current assetsIntangible assets 352,989 338,958 353,814Property, plant and equipment 372,614 492,380 484,595Investment property 1,052 1,150 1,101Investments in associates 8,766 5,946 6,012Financial assets - 1,783 645Trade and other receivables 123,699 - -Available for sale - financial assets 624 - -Retirement benefit assets 38,951 - 6,598Deferred tax assets 30,420 33,659 34,962 -------------- -------------- --------------Total non-current assets 929,115 873,876 887,727 -------------- -------------- --------------Current assetsInventories 167,936 187,972 132,981Trade and other receivables 75,912 92,862 135,460Cash and cash equivalents 57,110 97,492 74,102 -------------- -------------- --------------Total current assets 300,958 378,326 342,543 -------------- -------------- --------------Total assets 1,230,073 1,252,202 1,230,270 -------------- -------------- -------------- EQUITYShare capital 125,648 123,841 125,116Share premium 99,767 93,149 97,489Other reserves 3,655 2,287 2,574Retained earnings (30,094) (12,686) (31,685) -------------- -------------- -------------- 198,976 206,591 193,494Minority interest 4,713 5,344 4,382 -------------- -------------- --------------Total equity 203,689 211,935 197,876 -------------- -------------- -------------- LIABILITIESNon-current liabilitiesBorrowings 460,998 505,166 473,541Derivative financial instruments 22,277 - -Retirement benefit obligations 68,948 68,290 88,486Trade and other payables 11,482 7,802 8,836Government grants 1,439 1,741 1,452Provisions for other liabilities and 16,990 961 14,732chargesDeferred tax liabilities 49,243 49,115 41,373 -------------- -------------- --------------Total non-current liabilities 631,377 633,075 628,420 -------------- -------------- -------------- Current liabilitiesBorrowings 3 11,258 325Derivative financial instruments 1,471 - -Trade and other payables 369,901 362,066 375,741Taxes payable 23,632 33,868 27,908 -------------- -------------- --------------Total current liabilities 395,007 407,192 403,974 -------------- -------------- --------------Total liabilities 1,026,384 1,040,267 1,032,394 -------------- -------------- --------------Total equity and liabilities 1,230,073 1,252,202 1,230,270 -------------- -------------- -------------- CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR HALF YEAR ENDED 31 MARCH 2006 Half year to Half year to 31 March 2006 25 March 2005 (Unaudited) (Unaudited) Eur'000 Eur'000Cash flows from operating activitiesOperating profit pre-exceptionals 42,095 42,119Operating profit - discontinued operations - (1,404)Share based compensation charge 259 68Depreciation (net of grants) 19,437 20,237Amortisation of intangible assets 623 380Net exceptional costs (3,449) (11,567)Changes in working capital (43,078) (41,156)Other movements 37 958 -------------- --------------Cash generated from operations 15,924 9,635Finance cost paid (16,055) (16,494)Taxes paid/(received) 628 (123) -------------- --------------Net cash from operating activities 497 (6,982) -------------- --------------Cash flows from investing activitiesFinance income received 895 869Dividends received from associates 59 1,835Acquisitions of intangible fixed assets (54) (511)Purchase of property, plant and equipment (23,564) (20,479) -------------- --------------Net cash used in investing activities (22,664) (18,286) -------------- --------------Net cash inflow before financing activities (22,167) (25,268) -------------- --------------Cash flows from financing activitiesProceeds from the issue of share capital 175 212Movement in borrowings 12,879 46,342Repayment of finance lease liabilities (170) (166)Dividends paid to minorities (87) (118)Dividends paid (7,185) (8,925) -------------- --------------Net cash used in financing activities 5,612 37,345 -------------- --------------Net increase/(decrease) in cash and cash equivalents in period (16,555) 12,077 -------------- --------------Cash and cash equivalents at beginning of period 74,102 86,278Currency translation differences (437) (863) -------------- --------------Cash and cash equivalents at end of period 57,110 97,492 -------------- -------------- STATEMENT OF CHANGES IN EQUITY Share Share Retained Minority Total capital premium earnings & interests other reserves Eur'000 Eur'000 Eur'000 Eur'000 Eur'000 Balance at 30 September 2005 125,116 97,489 (29,111) 4,382 197,876First time adoption adjustments in respect of IAS 39* - - (7,645) - (7,645) ------------- ------------- ------------- ------------- -------------Restated balance at 1 October 2005 125,116 97,489 (36,756) 4,382 190,231Group defined benefit pension schemes: - Actuarial gain - - 48,417 - 48,417Loss relating to cash flow hedges - - (354) - (354)Currency translation effects - 1,007 - 1,007Fair value available for sale financial assets - (9) - (9) Tax on items taken directly to equity - - (8,581) - (8,581) ------------- ------------- ------------- ------------- -------------Net income/(expense) recognised in equity - - 40,480 - 40,480Loss for the period - - (15,569) 418 (15,151) ------------- ------------- ------------- ------------- -------------Total recognised income and expense for the period - - 24,911 418 25,329Share-based compensation charge - - 259 - 259Dividends paid - - (14,853) (87) (14,940)Issue of shares 532 2,278 - - 2,810 ------------- ------------- ------------- ------------- -------------Balance at 31 March 2006 (unaudited) 125,648 99,767 (26,439) 4,713 203,689 ------------- ------------- ------------- ------------- ------------- Share Share Retained Minority Total capital premium earnings & interests other reserves Eur'000 Eur'000 Eur'000 Eur'000 Eur'000 Balance at 24 September 2004 123,647 92,459 60,419 4,519 281,044Group defined benefit pension schemes: - Actuarial loss - - (18,479) - (18,479) Currency translation effects - - 734 - 734Tax on items taken directly to equity 1,058 1,058 ------------- ------------- ------------- ------------- -------------Net income/(expense) recognised in equity - - (16,687) - (16,687)Loss for the period - - (39,623) 943 (38,680) ------------- ------------- ------------- ------------- -------------Total recognised income and expense for the period - - (56,310) 943 (55,367)Share-based compensation charge - - 68 - 68Dividends paid - - (14,576) (118) (14,694)Issue of shares 194 690 - - 884 ------------- ------------- ------------- ------------- -------------Balance at 25 March 2005 (unaudited) 123,841 93,149 (10,399) 5,344 211,935 ------------- ------------- ------------- ------------- ------------- Share Share Retained Minority Total capital premium earnings & interests other reserves Eur'000 Eur'000 Eur'000 Eur'000 Eur'000 Balance at 24 September 2004 123,647 92,459 60,419 4,519 281,044Group defined benefit pension schemes: - Actuarial loss - - (32,622) - (32,622) Currency translation effects - - 766 - 766Tax on items taken directly to equity - - 6,884 - 6,884 ------------- ------------- ------------- ------------- -------------Net income/(expense) recognised in equity - - (24,972) - (24,972)Loss for the period - - (41,407) 1,540 (39,867) ------------- ------------- ------------- ------------- -------------Total recognised income and expense for the period - - (66,379) 1,540 (64,839)Share-based compensation charge - - 152 - 152Dividends paid - - (24,378) (1,452) (25,830)Acquisition of minority interest - - - (225) (225)Reissue of own shares - - 1,075 - 1,075Issue of shares 1,469 5,030 - - 6,499 ------------- ------------- ------------- ------------- -------------Balance at 30 September 2005 (audited) 125,116 97,489 (29,111) 4,382 197,876 ------------- ------------- ------------- ------------- ------------- * As disclosed in note 1, the Group deferred the adoption of IAS 32 'FinancialInstruments: Disclosure and Presentation' and IAS 39 'Financial Instruments:Recognition and Measurement' to 1 October 2005. NOTES half year ended 31 March 2006 1. Basis of Preparation of Financial Statements under IFRS This interim statement for the six months ended 31 March 2006 is unaudited andwas approved by the board of directors on 6 June 2006. Greencore Group plc ("the Group") previously prepared its financial statementsunder Irish/UK GAAP. Following a directive issued by the EU in July 2002, theGroup is required to prepare its FY05/06 consolidated financial statements inaccordance with International Financial Reporting Standards ("IFRS"). Accordingly, in preparing this interim statement, management has used its bestknowledge of the expected standards and interpretations, facts and circumstancesand accounting policies that will be applied when the Group prepares its firstset of financial statements, in accordance with IFRS, being those accountingstandards adopted for use in the EU, as of 29 September 2006. The preparationof financial information in conformity with IFRS requires management to makejudgements and estimates that impact the application of policies and thereported amounts of assets, liabilities, income and expenses. Estimates andassociated assumptions are based on historical experience and all other relevantavailable information. As a result, this information, while based onmanagement's best knowledge of expected standards and interpretations, currentfacts and circumstances, may change. For example, IFRS standards andInternational Financial Reporting Interpretations Committee interpretations aresubject to ongoing review and possible amendment or interpretative guidance and,therefore, are still subject to change. Consequently, until the Group preparesits first set of full year financial statements in accordance with accountingstandards adopted for use in the EU, the possibility cannot be excluded that theaccompanying financial information may have to be adjusted. The Group's first consolidated financial statements prepared in accordance withIFRS will be for the year ended 29th September 2006. Consequently, thecomparative figures for 2005 have been restated in accordance with IFRS, withthe exception of IAS 32 'Financial Instruments: Disclosure and Presentation' andIAS 39 'Financial Instruments: Recognition and Measurement' which have beenapplied prospectively from 1 October 2005, as permitted by IFRS 1 'First-timeAdoption of IFRS'. The accounting policies followed in this interim statement are consistent withthose published by the Group on 5 May 2006 as part of the Greencore Grouprestatement of financial information under IFRS, a copy of which is available onthe Group website at www.greencore.com. 1. Segmental Reporting The Group's primary reporting segment, for which more detailed disclosures aremade, is by class of business. The Group has two primary reporting segments:(i) Convenience Foods and (ii) Ingredients, Agribusiness & Related Properties. Revenue - half year Operating profit - half year 2006 2005 2006 2005 Eur'000 Eur'000 Eur'000 Eur'000ContinuingConvenience Foods 441,694 408,444 30,341 29,688Ingredients, Agri & Related Properties 216,358 221,997 11,754 12,431 -------------- -------------- -------------- --------------DiscontinuedConvenience Foods - 38,889 - (1,404) -------------- -------------- -------------- -------------- Total Group 658,052 669,330 42,095 40,715 -------------- -------------- -------------- -------------- 2. Exceptional Items Exceptional items are those that, in management's judgement, need to bedisclosed by virtue of their size or incidence. Such items are included withinthe income statement caption to which they relate and are separately disclosedeither in the notes to the consolidated financial statements or on the face ofthe consolidated income statement. IAS 1 'Presentation of Financial Statements'includes restructuring and litigation settlements as items which would give riseto separate disclosure. The Group reports the following exceptional items (net of tax): 2006 2005 Eur'000 Eur'000 Fundamental reorganisation of Greencore Sugar - (66,010)Exit from sugar processing (43,753) -Chilled Sauce business restructuring (2,069) -Malt business restructuring (4,643)Malt legal settlement 4,930 -Gain/(loss) on foreign exchange (160) 597 -------------- -------------- (45,695) (65,413) -------------- -------------- (a) Fundamental reorganisation of Greencore Sugar & exit from sugar processing In January 2005, the Group announced its decision to consolidate all sugarprocessing at Mallow and to close the Carlow facility. The Carlow facility wasclosed during FY05. In March 2006, Greencore announced its intention to exit sugar processingentirely, renounce its quota and apply for the EU restructuring aid which isavailable under the Council Regulation (EC) No 320/2006 ("the Regulation"). Thetotal EU restructuring aid available for the sugar quota renounced by Greencoreis Eur146m. The Regulation sets out that at least 10% of the total Eur146m ofrestructuring aid shall be reserved for growers of sugar beet and machinerycontractors, principally in respect of redundant machinery. After consultationof the interested parties, the Member State shall determine if this percentageis to be increased, provided that an economically sound balance between theelements of the restructuring plan (to be submitted by Greencore) is ensured. Given the Member State's role in determining the amount of restructuring aid,there is a risk to the level of aid that Greencore will finally receive. IfGreencore received a lower amount to that recognised in these accounts, it wouldtake a charge in its income statement for the shortfall between the amountreceived and the amount now recognised in its accounts. Similarly, should theultimate tax treatment of this matter differ from our current estimate (based onprofessional advice), or should the final costs of exiting sugar processingdiffer from current estimates, such financial impacts will be dealt with in theincome statement. The Greencore Board, having taken independent legal, economic and financialadvice has determined that it is entitled to 90% of the restructuring aid andhas recognised a receivable of Eur124 million (the present value equivalent ofEur131 million) in the accounts for the half year ended 31 March 2006. The current year exceptional loss represents the net cost (after taking accountof the above-mentioned restructuring aid) of the decision to exit sugarprocessing in Ireland. (b) Chilled Sauces business restructuring Following a strategic review at Greencore Chilled Sauces, a decision was made toconsolidate all chilled sauce manufacturing at the Bristol facility and to closethe Chesterfield factory. The current year exceptional loss represents thecosts associated with this decision. (c) Malt business restructuring Following on from the closure of three maltings during 2005, Greencore Malt isnow focused on restructuring its core operations in both Ireland and the UK.The current year exceptional loss represents the costs associated with thisbusiness restructuring. (d) Legal settlement The Group settled an outstanding claim related to Greencore Malt at Eur4.9m (netof costs). (e) Gain/(loss) on foreign exchange Under IFRS, an intra-group monetary asset (or liability), whether short-term orlong-term, cannot be eliminated against the corresponding intra-group liability(or asset) without showing the results of currency fluctuations in theconsolidated income statement, unless the exchange differences arise on amonetary item that forms part of a net investment in a foreign operation. Thefinancial impact of this requirement is an additional pre-tax loss of Eur0.160mfor the half year ended 31 March 2006 (gain of Eur0.597m for H1 2005). 4. Related Party Transaction During the period, the Group disposed of a property to its associate, OdlumGroup. A profit of Eur3.7m was recognised on this disposal, being the portionof the gain on disposal realised as a result of this transaction. 5. Dividends An interim dividend of 5.05 cent (2005: 5.05 cent) per share is payable on 5October 2006 to the shareholders on the Register of Members as of 16 June 2006.The ordinary shares will be quoted ex-dividend from 14 June 2006. The dividendwill be subject to dividend withholding tax, although certain classes ofshareholders may qualify for exemption. The liability in respect of this interim dividend is not recognised in thebalance sheet of the Group for the half year ended 31 March 2006 because theinterim dividend had not been approved at this balance sheet date (but wassubsequently declared by the directors of the Company). 6. Earnings per Ordinary Share The calculation of the Group's earnings per ordinary share for continuingoperations is based on a loss of Eur15.6m (H1 2005: loss of Eur38.6m; full year2005: profit of Eur0.5m) and on 195.5m ordinary shares (H1 2005: 192.3m; fullyear 2005: 193.3m) being the weighted average number of ordinary shares in issuein the period. The calculation of earnings per ordinary share from discontinuedoperations is based on a loss of Eur1.0m for the period ended 25 March 2005 anda loss of Eur41.9m for the year ended 30 September 2005. The calculation of the diluted earnings per ordinary share for continuingoperations is based on a loss of Eur15.3m (H1 2005: loss of Eur38.6m; full year2005: profit of Eur0.6m) and on 197.2m ordinary shares (H1 2005: 193.4m; fullyear 2005: 194.7m) being the weighted average number of ordinary shares in issuein the period. The calculation of diluted earnings per ordinary share fromdiscontinued operations is based on a loss of Eur1.0m for the period ended 25March 2005 and a loss of Eur41.9m for the year ended 30 September 2005. The Group's adjusted earnings per share is after the elimination of theexceptional items reported in note 3 and the mark-to-market of all derivativeswhich do not form part of a hedging relationship, as defined by IAS 39 'Financial Instruments: Recognition and Measurement' (i.e. trading derivatives). The calculation of adjusted earnings per ordinary share is based on apre-exceptional profit of Eur30.1m (H1 2005: Eur25.8m; full year 2005 Eur62.8m)adjusted for a gain of Eur3.4m recognised on trading derivatives (H1 2005: nil;full year 2005: nil). The weighted average number of ordinary shares in issueduring the period was 195.5m (H1 2005: 192.3m; full year 2005: 193.3m). Half year Half year Full year 2006 2005 2005 cent cent cent Adjusted EPS 13.7 13.4 32.5 7. Components of Net Debt and Financing Half year Half year 2006 2005Net Debt Eur'000 Eur'000Current assetsCash and cash equivalents 57,110 97,492Current liabilitiesBorrowings (3) (11,258)Non-current liabilitiesBorrowings before fair value adjustment (480,420) (505,166) -------------- --------------Comparable net debt (423,313) (418,932)Derivative financial instruments (current liabilities) (1,064) N/aBorrowings - fair value adjustment (non-current liabilities) 19,422 N/aDerivative financial instruments (non-current liabilities) (22,277) N/a -------------- -------------- (427,232) N/a -------------- -------------- Finance CostsNet finance costs on interest bearing cash and cash equivalents and borrowings (15,202) (14,810)Net pension financing credit 3,749 2,783Change in fair value of derivatives 3,581 - -------------- -------------- (7,872) (12,027) -------------- --------------Analysed as:Finance income 24,748 16,727Finance costs (32,620) (28,754) -------------- -------------- (7,872) (12,027) -------------- -------------- 8. Effective Tax Rate The tax charge on pre-exceptional continuing operations of Eur5.1m equates to aneffective tax rate of 16% (on trading income excluding the impact ofmarking-to-market of financial derivatives). 9. Information The interim statement is being sent to registered shareholders by post orelectronically to those who have elected for the Electronic ShareholderCommunications Option. Copies are also available from the Company's registered office at St Stephen'sGreen House, Earlsfort Terrace, Dublin 2, Ireland, and from its registrar,Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road,Sandyford Industrial Estate, Dublin 18, Ireland. The statement will also beavailable on the Company's website at www.greencore.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Greencore