Interim Results

11th Oct 2005 07:00

C&C Group Plc11 October 2005 C&C GROUP PLC INTERIM RESULTS FOR SIX MONTHS ENDED 31 AUGUST, 2005 Dublin, London, 11 October, 2005: C&C Group plc ('C&C' or the 'Group'), theleading manufacturer, marketer and distributor of branded beverages and snacksin Ireland, today announced its interim results for the six months ended 31August, 2005. C&C adopted International Financial Reporting Standards (IFRS) on 1 March 2005.A full reconciliation between Irish GAAP and IFRS for the year to 28 February2005 is set out in Appendix 1. Prior year comparatives in this release havebeen re-stated in accordance with IFRS. Financial & Operating Highlights Financial Highlights • Revenue growth of 9%(i) • Profit before finance costs growth of 10%(i) • Earnings growth of 16%(i) • Adjusted basic EPS of 16.2 cent - an increase of 14% • Interim dividend of 6.5 cent per share - an increase of 18% • Free cash flow of €62 million (79% of EBITDA) • Net debt reduced by €47 million to €394 million Operating Highlights • Volume for the Group's cider brands grew by 27% • Volume for the Group's Irish whiskey brand, Tullamore Dew, grew by 15% • Successfully extended distribution of Magners to the greater London area • Marketing investment in the period increased by 34%(i) (i) Comparisons are based on figures excluding non-recurring itemsand are on a constant 2005 currency basis in relation to transactions in theInternational Spirits & Liqueurs division; and translation of sterlingoperations. Investors and analysts Irish Media International Media Mark Kenny or Jonathan Neilan Paddy Hughes or Ann Marie Curran Edward OrlebarK Capital Source Drury Communications Finsbury Group Tel: +353-1- 631 5500 Tel: +353 1 260 5000 Tel: +44 20 7251 3801Email :c&[email protected] Email: [email protected] Email:[email protected] Interim results for six months ended 31 August, 2005 C&C is reporting profit before finance costs and non-recurring items of €68.4million and adjusted earnings per share of 16.2 cent for the six months ended 31August 2005, increases of 10%(i) and 14% respectively. The Group generated freecash flow of €61.9 million in the period. Maurice Pratt, Group Chief Executive Officer, commented "C&C is pleased toreport continued earnings growth, notwithstanding significant marketinginvestment behind the Magners brand." "This financial performance reflects a better than expected contribution fromthe Group's cider division. Magners has exceeded our expectations in the U.K.while Bulmers, with the benefit of good summer weather, delivered strong growthin Ireland." Dividends and Dividend Policy Reflecting the Group's strong and sustainable cash flow generation capability,the Group will pay an interim dividend for the period of 6.5 cent per share, an18% increase on last year. The interim dividend will be paid on 7 December, 2005to shareholders on the Group's register at the close of business on 21 October,2005. A scrip dividend option will also be available. C&C intends to maintain a progressive dividend policy. Outlook C&C expects the strong underlying (i.e. weather adjusted) market performance ofits Cider division to continue into the second half of the year. This divisionis the principal driver of C&C's earnings growth. The International Spirits & Liqueurs division could experience some temporaryperformance shortfall in the second half as a result of impending distributionchanges. The weak overall trends in the Soft Drinks & Snacks division arecontinuing into the second half of the year. The planned re-organisation of theSnacks business, announced in June, commenced implementation on 30 September.The realignment of distribution of the former Allied Domecq brands in Irelandwill substantially reduce the profit of the Group's Distribution division whenthe expected changes become effective in February 2006. In summary, the Group expects moderate EPS growth for the full 2005/6 fiscalyear. Beyond 2005/6, the Group's objective is to enhance underlying earningsgrowth from the further roll-out of Magners in the U.K. To support this growth,C&C will expand its cider manufacturing capacity in Clonmel in 2006, ahead ofthe timeframe originally envisaged. (i) Before non-recurring items and at constant 2005 currency rates First Half Review Objectives C&C's objective is to deliver revenue and earnings growth by: • Investing behind the continuing growth of Magners in the U.K. long alcohol drinks ("LAD") market. • Supporting Bulmers continued outperformance of the Irish LAD market. • Maintaining Tullamore Dew's strong growth trend in the international whiskey market. • Maintaining operating margins in mature categories. C&C's financial objectives include generating consistent, high levels of freecash flow and sustaining an attractive dividend stream for its shareholders. C&C will further enhance shareholder value by applying free cash flow to debtpaydown. Operating Review Group Operating Summary 6 months to 6 months to 6 months to Growth 31 August 2005 31 August 2004 31 August 2004 Year-on-Year (Reported) (Constant fx) (Constant fx) •m •m •m % Revenue 419.5 385.7 383.4 9.4Profit before finance costs (ii) 68.4 62.9 62.0 10.3Operating Margin % 16.3% 16.3% 16.2% Revenue of €419.5 million, represents a 9.4% increase on 2004 levels. Profitbefore finance costs increased by 10.3% to €68.4 million against €62.0 millionin 2004(i). Operating margin, at 16.3%, is up slightly year-on-year,notwithstanding a 34%(i) increase in marketing investment. The revenue increase principally reflects growth of 28% in the Cider division.The operating margin reflects the mix effect of strong growth in the highermargin Cider division which offset the margin declines in Soft Drinks & Snacksand Distribution divisions. On a reported basis, revenue and profit before finance costs both increased 8.7%leaving operating margins unchanged. (i) At constant 2005 currency rates (ii) Excluding non-recurring items Divisional Analysis: Cider Cider Division 6 months to 6 months to 6 months to Growth 31 August 2005 31 August 2004 31 August 2004 Year-on-Year (Reported) (Constant fx) (Constant fx) •m •m •m % Revenue 144.5 112.9 112.7 28.2 Profit before finance 45.1 35.7 35.6 26.7costs Operating Margin % 31.2% 31.6% 31.6% Revenue for the Cider division of €144.5 million, represents a 28.2% increase on2004 levels. Profit before finance costs increased 26.7% to €45.1 millionagainst €35.6 million in 2004. Operating margin, at 31.2%, declined by 0.4percentage points year-on-year. It is estimated that the overall LAD market in the Republic of Ireland grew interms of volume by 1% in the six months to August 2005 and that, within this,the on-trade showed modest decline and the off-trade strong growth. Thisoutcome reflects good summer weather, particularly compared to 2004, and alsothe impact of the smoking ban in licensed premises for part of the comparable2004 period. Bulmers outperformed the LAD market and grew by 8% in the period. This strongperformance reflected primarily the good summer weather but also strong brandfundamentals. The Group's international cider brand Magners was successfully launched in thegreater London area at the start of 2005. This, together with continued, stronggrowth in Scotland and Northern Ireland contributed to sales volumes which morethan doubled within the period. The decline in operating margins was due to increased marketing investmentbehind the Magners brand, partially offset by operational leverage. Divisional Analysis: International Spirits & Liqueurs International Division 6 months to 6 months to 6 months to Growth 31 August 2005 31 August 2004 31 August 2004 Year-on-Year (Reported) (Constant fx) (Constant fx) •m •m •m % Revenue 28.9 28.8 28.0 3.2 Profit before finance costs 7.6 7.6 6.8 11.8 Operating Margin % 26.3% 26.4% 24.3% Revenue for the International Spirits & Liqueurs division of €28.9 million,represents a 3.2% increase on 2004 levels. Profit before finance costs increased11.8% to €7.6 million against €6.8 million in 2004. Operating margin, at 26.3%,increased by 2.0 percentage points year-on-year. Overall volume shipments increased 2% year-on-year. Within this total increase,Tullamore Dew recorded strong growth while Carolans declined. The negative currency impact of the stronger euro amounted to €0.8 million toboth revenue and profit before finance costs in the period. The improved operating margin reflects reduced raw material costs. Divisional Analysis: Soft Drinks & Snacks Soft Drinks & Snacks 6 months to 6 months to 6 months to Growth 31 August 2005 31 August 2004 31 August 2004 Year-on-Year (Reported) (Constant fx) (Constant fx) •m •m •m % Revenue 129.3 131.0 130.5 (0.9) Profit before finance costs 13.3 16.6 16.6 (19.9) Operating Margin % 10.3% 12.7% 12.7% Revenue for the Soft Drinks & Snacks division of €129.3 million, represents a0.9% decrease on 2004 levels. Profit before finance costs decreased 19.9% to€13.3 million against €16.6 million in 2004. Operating margin, at 10.3%,declined by 2.4 percentage points year-on-year. The overall soft drinks market volume grew by an estimated 2% in the periodreflecting, in part, the good summer weather for the period. A modest decline incarbonated soft drinks was offset by strong growth in bottled water. The snackmarket showed modest decline in the period. The revenue decrease in the period comprises a 2.1% volume decline and growth innet price yield of 1.2%. The volume decline reflected a drop in market shareprincipally in the take home beverage category and market decline in the snackscategory. The decline in operating margins is a result of revenue decline andsignificantly increased marketing investment behind company brands in growthcategories - these include Ballygowan and Club Energise. Divisional Analysis: Distribution Distribution 6 months to 6 months to 6 months to Growth 31 August 2005 31 August 2004 31 August 2004 Year-on-Year (Reported) (Constant fx) (Constant fx) •m •m •m % Revenue 116.8 113.0 112.2 4.1% Profit before finance costs 2.4 3.0 3.0 (20.0%) Operating Margin % 2.1% 2.7% 2.7% Revenue for the Distribution division of €116.8 million represents a 4.1%increase on 2004 levels. Profit before finance costs declined by 20.0% to €2.4million compared to €3.0 million in 2004. Operating margin at 2.1% fell by 0.6 percentage points year-on-year. The principal profit contributor of this division, wine & spirits distribution,recorded revenue growth of 6% and broadly unchanged margins. Declining marginsin the wholesale segment of the division accounted for the profit and operatingmargin decline. Finance Review Foreign exchange The restatement of August 2004 profit before finance costs, at 2005 exchangerates, reduces the reported figure for that period by €0.9 million. €0.8million of this relates to transactions in the International Spirits & Liqueursdivision and arises from the change in the US Dollar and Canadian Dollarexchange rates. The remaining €0.1 million relates to the translation ofSterling denominated results at the 2005 exchange rate. The restatement ofprofit before finance costs for the year ended 28 February 2005 at the averagehedged rates for the current fiscal year (US41.27 and Can$ 1.61) is expected toreduce the reported figure by €2.2 million. Non-recurring Items Non-recurring items for the period of €8.3 million represent a provision for thecosts associated with the re-organisation of the Snacks business announced inJune 2005. Non-recurring items in the first half of 2004/5 represent costsassociated with the Initial Public Offering of the Group's shares which tookplace in May 2004. Interest costs Interest costs, excluding non-recurring items, amounted to €10.3 million, whichis €2.1 million lower than the corresponding period in 2004. The reduction isdue to lower levels of debt as a result of internal cash flow and reducedinterest rates following the May 2004 refinancing. The reduction is net of a€0.3 million increase arising from the IFRS reclassification of pension costs. Future interest rate exposure is partially hedged at the following base(excluding margin) interest rates: Current year fully hedged at an effectiverate of 3.00%; fiscal year 2007 - €250 million hedged at 3.375%; fiscal year2008 - €200 million hedged at 3.30%; and fiscal year 2009 - €50 million hedgedat 2.80%. Taxation The taxation charge for the period is based on an anticipated effective rate oftax on profits, before non-recurring items, of approximately 10% for the fullfinancial year to 28 February, 2006. Dividend The Company will pay an interim dividend of 6.5 cent per share on 7 December,2005. The dividend will be payable to shareholders on the Group's register atthe close of business on 21 October, 2005. Cash flow Free Cash Flow amounted to €62 million (79% of EBITDA) in the period andbenefited from positive movement on working capital and a low level of capitalexpenditure. Net cash flow of €47 million (before loan repayments) alsobenefited from a €9 million uptake of scrip shares in lieu of a cash dividend. Net debt Net debt at 31 August, 2005 amounted to €394.3 million, a reduction of €47million from the 28 February 2005 level. This represents an enterprise valuegearing (net debt as a percentage of market capitalisation plus net debt) of21%. Interest cover based on EBITDA was 7.9 times. Group income statement for the six months ended 31 August 2005 Six months ended 31 August 2005 Six months ended 31 August 2004 Before Before Non-recurring Non-recurring Non-recurring Non-recurring items items items items •m •m Total •m •m Total •m •m Revenue 419.5 - 419.5 385.7 - 385.7 Net operating costs (351.1) (8.3) (359.4) (322.8) (3.4) (326.2) Profit before finance costs 68.4 (8.3) 60.1 62.9 (3.4) 59.5 Finance costs (net) (10.3) - (10.3) (12.4) (9.1) (21.5) Profit before tax 58.1 (8.3) 49.8 50.5 (12.5) 38.0 Income tax expense (6.0) 0.9 (5.1) (4.8) 0.4 (4.4)Profit attributable to ordinaryshareholders 52.1 (7.4) 44.7 45.7 (12.1) 33.6 Basic earnings per share (cent) 13.9 10.5Diluted earnings per share (cent) 13.8 10.5 Group statement of recognised income and expensefor the six months ended 31 August 2005 •m •mProfit for period attributable to ordinaryshareholders 44.7 33.6 Income and expense recognised directly in equity:Exchange adjustments 0.3 (1.2)Cash flow hedges (2.6) -Actuarial gain/ (loss) 4.6 (3.9)Deferred tax (0.4) 0.8 Total recognised income and expense for period 46.6 29.3 Group statement of changes in equityfor the six months ended 31 August 2005 •m •m Total equity at beginning of period 157.8 104.8Impact of adopting IAS 32/ IAS 39 on 1 March 05 (4.1) -Total recognised income & expense for period 46.6 29.3Scrip Issue 9.4 -Dividends (24.1) -New ordinary shares issued - 6.1Shares to be issued 0.5 0.2Total equity at end of period 186.1 140.4 Group Balance Sheetas at 31 August 2005 31-Aug-05 31-Aug-04 28-Feb-05 Notes (audited) •m •m •mAssetsNon-current assetsProperty, plant & equipment 128.0 145.4 142.4Goodwill 461.9 461.9 461.9Deferred tax 7.8 6.7 7.4 597.7 614.0 611.7 Current assetsInventories 53.5 52.2 49.2Trade & other receivables 146.9 124.5 92.6Cash & cash equivalents 62.7 43.7 26.0Assets held for sale 4.8 - - 267.9 220.4 167.8 Total assets 865.6 834.4 779.5 EquityIssued capital 6 3.2 3.2 3.2Share premium 6 12.8 3.4 3.4Reserves 6 19.8 25.1 26.0Retained earnings 6 150.3 108.7 125.2Total equity 186.1 140.4 157.8 LiabilitiesNon-current liabilitiesFinancial liabilities 439.9 486.3 447.0Employment benefits - pension deficit 49.9 43.2 53.0Deferred tax 5.5 5.6 5.9 495.3 535.1 505.9 Current liabilitiesFinancial liabilities 24.6 10.0 20.0Trade & other payables 148.6 138.4 89.3Current tax liabilities 11.0 10.5 6.5 184.2 158.9 115.8Total liabilities 679.5 694.0 621.7 Total equity and liabilities 865.6 834.4 779.5 Group cash flow statement for the six months ended 31 August 2005 6 months ended 6 months ended 31 August 2005 31 August 2004 •m •mCash flows from operating activitiesProfit for period 44.7 33.6 Adjustments for:Finance costs 10.3 21.5Income tax expense 5.1 4.4Depreciation of property plant & equipment 10.1 10.2Impairment of plant & equipment 2.6 -Profit on disposal of property (2.8) -Charge for share based employee benefits 0.5 0.2Pensions charged to profit before finance costs lesscontributions paid 1.6 2.6Provision movement re IPO costs (0.1) 2.3Provision movement re re-organisation costs 6.5 (2.4) 78.5 72.4Increase in inventories (4.4) (4.8)Increase in debtors (47.4) (33.5)Increase in creditors 51.2 37.0Cash generated from operations 77.9 71.1 Interest received 0.4 0.4Interest paid (9.9) (17.9)Income taxes paid (1.0) (2.0)Net cash from operating activities 67.4 51.6 Cash flows from investing activitiesPurchase of property plant & equipment (6.2) (10.4)Sale of property plant & equipment 0.7 6.0 (5.5) (4.4) Cash flows from financing activitiesNet issue/ redemption of ordinary share capital - 0.3Expenses paid in respect of shares issued (13.5)Bank loans repaid (10.0) (565.2)New bank loans drawn down / issue costs paid (0.5) 496.1Dividends paid (14.7) -Net cash used in financing activities (25.2) (82.3) Net increase/ (decrease) in cash & cash equivalents 36.7 (35.1) Cash & cash equivalents at beginning of period 26.0 78.8Cash & cash equivalents at end of period 62.7 43.7 Notes to the interim results for the six months ended 31 August 2005 1. Basis of preparation The interim results, which are abridged and unaudited, have been prepared on thebasis of the accounting policies expected to apply for the financial year to 28February 2006. This is the first year when the financial statements will beprepared under the International Financial Reporting Standards (IFRS) and thecomparatives for 2004 have been restated from Irish Generally AcceptedAccounting Principles (GAAP) to comply with IFRS. The accounting policies ofthe Group under IFRS are shown in appendix 1. Preliminary IFRS financial statements for the year to 28 February 2005 and forthe six months to 31 August 2004, which include reconciliations of Irish GAAP toIFRS, are also shown in appendix 1. As permitted under the IFRS transition arrangements, the 2004 comparativefigures have not been adjusted for the implementation of IAS 32 (FinancialInstruments: Disclosure and Presentation) and IAS 39 (Financial Instruments:Recognition and Measurement). Instead IAS 32 and IAS 39 have been implementedat 1 March 2005 when the impact was as follows: •mNon-current assets - deferred tax 0.5Financial Liabilities (4.6)Equity (4.1) The reduction in equity of €4.1m is recognised in the restated reserves at 1March 2005 as outlined in note 6 and relates to interest rate swaps and forwardcurrency contracts and related deferred tax which were not recognised underIrish GAAP. The income tax expense for the six month period is calculated by applying thedirectors' best estimate of the annual effective tax rate to the profit for theperiod. The interim results were approved by the Board on 11 October 2005. 2. Segmental analysis Six months ended 31 August Six months ended 31 August 2005 2004Class of business analysis Revenue *Net result Revenue *Net result •m •m •m •m Cider 144.5 45.1 112.9 35.7International Spirits & Liqueurs 28.9 7.6 28.8 7.6Soft Drinks & Snacks 129.3 13.3 131.0 16.6Distribution 116.8 2.4 113.0 3.0 419.5 68.4 385.7 62.9 *Net result represents profit before finance costs and non-recurring items 3. Earnings per ordinary share Six months to 31 August Six months to 31 August 2005 2004 •m •mEarnings as reported 44.7 33.6Adjustments for non-recurring items net of tax 7.4 12.1Earnings adjusted for non-recurring items 52.1 45.7 '000 '000Number of shares at beginning of period 321,130 321,130Shares issued in lieu of dividend 2,922 -Number of shares at end of period 324,052 321,130 Weighted average number of ordinary shares 321,940 321,130Weighted average number of ordinary shares including shareoptions 323,302 321,130 Basic earnings per share - cent 13.9 10.5Diluted earnings per share - cent 13.8 10.5Adjusted basic earnings per share - cent 16.2 14.2 4. Financial Liabilities 31 August 2005 31 August 2004 •m •m Amounts falling due within one yearBank loans 20.0 10.0Loss on mark to market - Derivatives 4.6 - 24.6 10.0 Amounts falling due after one yearBank Loans 437.0 486.3Loss on mark to market - Derivatives 2.9 - 439.9 486.3 Unamortised issue costs of €3.0m have been netted against outstanding bank loans repayable after 1 year. 5. Analysis of net debt Cash & cash Bank loans due Bank loans due Net debt equivalents within one year after one year •m •m •m •mAt 1 March 2005 (26.0) 20.0 447.0 441.0At 31 August 2005 (62.7) 20.0 437.0 394.3 6. Reserves Capital Reserves Share Share Capital Capital Hedge Shares to FX Retained capital Premium redemption reserve reserve be reserve Translation Earnings issued reserve •m •m •m •m •m •m •m •mGroupAt 28 February 2005 3.2 3.4 0.3 24.9 - 0.6 0.2 125.2IAS 39 adjustment - - - - (4.1) - - -At 1 March 2005 - asrestated 3.2 3.4 0.3 24.9 (4.1) 0.6 0.2 125.2Scrip Issue - 9.4 - - - - - -Retained profits - - - - - - - 44.7Dividend on ordinaryshares (24.1)Other movements - - - - (2.6) 0.5 - 4.5At 31 August 2005 3.2 12.8 0.3 24.9 (6.7) 1.1 0.2 150.3 7. Dividend An interim dividend of 6.5 cent per share is proposed on 324,052,889 ordinaryshares amounting to €21.1m. Notes not forming part of the interim results 1. General Unless otherwise stated comparative information in this statement for revenue,marketing investment and profit before finance costs are for continuingoperations, at constant foreign exchange rates for translation of Sterling andfor transaction exposures for International spirits & liqueurs and are beforenon-recurring items. EBITDA is before non-recurring items and Free Cash Flow isbefore financing activities. Volume data is in litres for ciders and soft drinks; 9 litre cases for wines,spirits and liqueurs; and kilos for snacks. Volume for the Soft Drinks & Snacksdivision is weighted on the basis of revenue. Unit price movements quoted arebased on revenue net of excise duty where applicable. The loss from transaction exposure is calculated by applying the actual rates insix months to 31 August, 2005 to the actual currency receipts in six months to31 August, 2004. 2. Reconciliation of six months to 31 August, 2004 results at constant currency. Actual 6 months IAS adjustments FX FX 6 months to Aug to Aug '04 '04 at constant Translation Transaction currency •m •m •m •m •mRevenueCider 112.9 - (0.2) - 112.7International 28.8 - - (0.8) 28.0Soft drinks & snacks 131.0 - (0.5) - 130.5Distribution 113.0 - (0.8) - 112.2Total 385.7 - (1.5) (0.8) 383.4 Profit before finance costsCider 36.5 (0.8) (0.1) - 35.6International 7.7 (0.1) - (0.8) 6.8Soft drinks & snacks 17.0 (0.4) - - 16.6Distribution 3.0 - - - 3.0Total (1.3) (0.1) (0.8) 62.0 64.2 3. Special note regarding forward-looking information Some statements in this interim report contain forward-looking statements. Theyrepresent our expectations for our business, and involve risks anduncertainties. We have based these forward-looking statements on our currentexpectations and projections about future events. We believe that ourexpectations and assumptions with respect to these forward-looking statementsare reasonable. However, because these forward-looking statements involve knownand unknown risks, uncertainties and other factors, which are in some casesbeyond our control, our actual results or performance may differ materially fromthose expressed or implied by such forward-looking statements. Appendix 1 Restatement of 2004/05 Results under International Financial Reporting Standards CONTENTS 1. Overview 1.1 Highlights of restatement of 2004/05 results under IFRS 1.2 Introduction 1.3 Overview of impact of transition to IFRS 2. Basis of preparation of financial statements under IFRS 3. Principal exemptions availed of on transition to IFRS 4. Review of main changes arising on transition to IFRS 5. Restatement of 2004/05 Financial Statements 5.1 Year ended 28 February 2005 5.2 Six months ended 31 August 2004 5.3 Transition balance sheet as at 1 March 2004 5.4 Segmental analysis restated 6. Statement of accounting policies under IFRS 7. Auditors' Report 1. OVERVIEW 1.1 HIGHLIGHTS OF RESTATEMENT OF 2004/5 RESULTS UNDER IFRS The Group's results for 2004/5 which were previously prepared in accordance withaccounting practice generally accepted in the Republic of Ireland (Irish GAAP)have been restated under the recognition and measurement principles ofInternational Financial Reporting Standards (IFRS). The restated results and the reconciliations to the originally reported IrishGAAP statements are shown in Section 5. The impact on the audited results for year-ended 28 February 2005 is summarisedas follows: Irish GAAP % Comments on principal IFRS changes IFRS Change • m • mRevenue 750.4 750.4 - Operating Profit before goodwill 111.8 109.1 -2% Employee benefits and share basedamortisation payments adjustments Profit before tax 54.4 81.5 +50% Non amortisation of goodwill Profit after tax 48.3 75.9 +57% Non amortisation of goodwill Total equity 150.4 157.8 +5% Pension and deferred tax assets and liabilities included under IFRSNet debt 441.0 441.0 - cent centEarnings per shareBasic EPS 15.0 23.6 +57% Non amortisation of goodwillAdjusted EPS 26.4 25.8 -2% Employee benefits and share based payments 1.2 INTRODUCTION Up to and including 28 February 2005, C&C Group plc ("the Group'') prepared itsconsolidated financial statements in accordance with Irish GAAP. The application of IFRS is mandatory for the consolidated financial statementsof all entities whose securities are listed on a regulated exchange in theEuropean Union (EU) and applies in respect of accounting periods commencing onor after 1 January 2005. The Regulation passed by the EU requires thatIFRS-compliant financial statements be produced by the Group for the interimperiod ended 31 August 2005 and the year ending 28 February 2006 and that thosefinancial statements contain a full set of disclosures for the comparativeperiods in 2004/5. As stipulated under IFRS 1 First-time Adoption ofInternational Financial Reporting Standards, the transition date to IFRS (beingthe beginning of the earliest period for which the Group presents fullcomparative information under IFRS in its first IFRS financial statements) is 1March 2004 other than for IAS32 and IAS39 where the transition date is 1 March2005. This document deals with the transition to IFRS under the following sections: 1. Overview of impact of transition to IFRS. 2. Basis of preparation of financial statements under IFRS. 3. Principal exemptions availed of on transition to IFRS. 4. Main changes arising on transition to IFRS. 5. Details of the reconciliation between Irish GAAP and the restated IFRS financial information. 6. New Group accounting policies based on IFRS. 7. Independent auditors' report on the restated IFRS financial information. Details of the impact of the transition to the recognition and measurementprinciples of IFRS on the Group's reported performance and financial position isshown in Section 5 as follows: 5.1 Audited Group Income Statement and Group Statement of RecognisedIncome and Expense for the year ended 28 February 2005 and Group Balance Sheetas at that date together with reconciliations of profit and equity from IrishGAAP to IFRS. 5.2 Unaudited Group Income Statement and Group Statement of RecognisedIncome and Expense for the six-month period ended 31 August 2004 and GroupBalance Sheet as at that date together with reconciliations of profit and equityfrom Irish GAAP to IFRS. 5.3 Adjustments required to the Irish GAAP Group Balance Sheet as at 1March 2004 (the "transition date" as defined above) for transition to IFRS. 5.4 Restatement under IFRS of selected segmental information published in2004/5 Interim and Annual Reports. The Group has adopted preliminary new accounting policies to adopt IFRS whichare outlined in Section 6 and which are conditional on the adoption by the EU ofa number of IFRS that still have to be endorsed. The restatements of the Group Income Statement, Statement of Recognised Incomeand Expense, Balance Sheet and segmental information for the full year ended 28February 2005 and the Transition Balance Sheet dated 1 March 2004 have beenaudited by the Group's auditors, KPMG, Chartered Accountants. The financialinformation in respect of the six months ended 31 August 2004 is unaudited. 1.3 OVERVIEW OF IMPACT OF TRANSITION TO IFRS The standards which give rise to the most significant changes to the Groupfinancial statements on transition to IFRS are: IFRS 2 Expensing of share-based payments at fair value IFRS 3 Non-amortisation of goodwill IAS 12 Deferred tax computed on the basis of temporary differences IAS 19 Recognition of defined benefit pension schemes' assets and liabilities IAS 32/ IAS 39 Recognition and measurement of financial instruments - derivatives carried at fair value; classification of hedges (from 1 March 2005 only) The impact of the transition to IFRS on the Group financial statements issummarised as follows: Full year 2005 Interim 2004 (Unaudited) Irish GAAP IFRS Irish GAAP IFRS •m •m •m •mGroup Income Statement Revenue 750.4 750.4 385.7 385.7Operating profit before goodwill 111.8 109.1 60.8 59.5Profit before finance costs 85.2 112.3 45.9 59.5Profit before tax (PBT) 54.4 81.5 24.4 38.0Profit after tax 48.3 75.9 19.9 33.6 Tax rate (as a % of PBT) 11.2% 6.9% 18.4% 11.6%Basic EPS (euro cent) 15.0c 23.6c 6.2c 10.5c Group Balance Sheet Total assets 742.6 779.5 813.1 834.4Total liabilities 592.2 621.7 666.5 694.0Total equity 150.4 157.8 146.6 140.4 Net debt 441.0 441.0 452.6 452.6 2 BASIS OF PREPARATION OF FINANCIAL STATEMENTS UNDER IFRS EU law requires all publicly quoted companies in the EU to prepare theirconsolidated financial statements for accounting periods commencing on or after1 January 2005 in accordance with IFRS and accordingly the Group's financialstatements for the year to 28 February 2006 will be prepared on this basis. The financial information presented in this document has been prepared inaccordance with the recognition and measurement principles of IFRS andInterpretations issued by the International Accounting Standards Board (IASB)that either have been endorsed by the EU or are expected to be endorsed and beeffective by 28 February 2006. On this basis the Group has adopted preliminarynew accounting policies and these are set out in Section 6. The restated 2004/5 financial information provided in this document and the newgroup accounting policies are conditional on certain of the IFRS being approvedby the EU, in particular the Amendment to IAS 19: Actuarial Gains and Losses,Group Plans and Disclosures which allows the recognition of actuarial gains andlosses in the Statement of Recognised Income and Expense. 3 PRINCIPAL EXEMPTIONS AVAILED OF ON TRANSITION TO IFRS The rules for first time adoption of IFRS are set out in IFRS 1, First-timeadoption of International Financial Reporting Standards. In general the Group isrequired to establish its IFRS Accounting Policies for 2005/6 and apply theseretrospectively to determine the IFRS opening balance sheet at the transitiondate of 1 March 2004. The standard permits a number of specified exemptions fromthe general principle of retrospective restatement and the Group has elected, incommon with the majority of other listed companies, to avail of a number ofthese exemptions as follows: (i) Business Combinations Business combinations that occurred prior to the transition date of 1 March 2004have not been subject to restatement. As a result, goodwill as at the transitiondate is carried forward at its net book value and together with goodwill arisingon business combinations after the transition date is subject to annualimpairment testing in accordance with IAS 36: Impairment of Assets. As requiredby IFRS 1 goodwill was assessed for impairment as at the transition date and noimpairment resulted from this exercise. (ii) Employee Benefits The Group has elected to recognise all cumulative actuarial gains and lossesapplicable to defined benefit pension schemes in the transition balance sheetand to adjust them against retained income. Going forward, the Group expects toapply the amendment to IAS 19: Actuarial Gains and Losses, Group Plans andDisclosures, (not yet endorsed by the EU) which allows actuarial gains andlosses to be recognised immediately in the Statement of Recognised Income andExpense. This approach is consistent with the treatment required by FRS 17 theeffect of which we have previously disclosed in our Irish GAAP financialstatements. (iii) Financial Instruments The Group has availed of the exemption under IFRS 1 not to restate thecomparative information under IAS 32: Financial Instruments: Disclosure andPresentation and IAS 39: Financial Instruments: Recognition and Measurement.Comparative information on financial instruments for 2004/5 in the 2005/6financial statements will be presented on the Irish GAAP basis. (iv) Currency Translation Adjustments IFRS require that on disposal of a foreign operation, the cumulative amount ofcurrency translation differences previously recognised directly in reserves forthat operation be transferred to the income statement as part of the profit orloss on disposal. The Group has deemed the cumulative currency translationdifferences applicable to foreign operations to be zero as at the transitiondate. The cumulative currency translation differences arising after thetransition date (i.e. during 2004/5) have been re-classified from retainedincome to a separate component of equity (termed the "foreign currencytranslation reserve") with no net impact on capital and reserves attributable tothe Group's equity holders. 4 REVIEW OF MAIN CHANGES ARISING ON TRANSITION TO IFRS The most significant changes arising from the transition to IFRS from Irish GAAPare described in the following paragraphs. The impact of these changes on theGroup's 2004/5 Full Year and Interim Income Statements and Balance Sheets is setout in Section 5 of this document and is based on the preliminary accountingpolicies set out in Section 6. (i) IFRS 2: Share-based Payment IFRS 2: Share-based Payment, requires that an expense for share-based payments,which in the case of the Group are executive share option schemes, be recognisedin the income statement based on their fair value at the date of grant. Thisexpense is recognised over the vesting period of the schemes. The chargerecognised in the Income Statement is based on the directors' assessment of thelikelihood that the vesting conditions attaching to the options will beachieved. Fair value calculations have been applied in respect of shareentitlements granted in May 2004. The fair value of the share entitlements wasdetermined by using a trinomial option-pricing model. The following inputs wereused in determining the fair value of share entitlements: • The exercise price, which is the market price at the date the shareentitlements were granted. • Future price volatility was based on historical volatility of mid capIrish companies and international drink companies and is assessed over fiveyears being the estimated average period from date of grant to exercise of theshare entitlements. • The risk free interest rate used in the model is the rate applicableto Irish Government Bonds with a remaining term equal to the expected term ofthe share entitlements being valued. • Dividend yield. An expense of €0.6 million has been recognised in the Group Income Statement inrespect of the year ended 28 February 2005 (€0.2 million for the six monthsended 31 August 2004) and this is based on share entitlements granted in May2004. (ii) IFRS 3: Business Combinations Under Irish GAAP, goodwill recognised on acquisitions was amortised over itsuseful life of 20 years. Under IFRS 3 goodwill is no longer amortised on astraight line basis but instead is subject to annual impairment testing. At 1March 2004, the transition date, the Group held a net goodwill asset of €461.9million that is carried forward at its net book value and, together withgoodwill arising on business combinations subsequent to the transition date, issubject to annual impairment testing in accordance with IAS 36: Impairment ofAssets. As a result the 2004/5 charge of €29.8 million under Irish GAAP forgoodwill amortisation is not charged under IFRS and results in an increase inpre-tax profit. Under Irish GAAP, the Group previously reversed the goodwillamortisation charge to determine adjusted earnings per share. This change,therefore, more appropriately aligns the accounting treatment of goodwill withthe Group's presentation of the underlying earnings performance of the business. At 1 March 2004 and 28 February 2005 impairment testing was performed ongoodwill and no impairments resulted. (iii) IAS 12: Income taxes Under Irish GAAP, deferred tax was recognised in respect of all timingdifferences as required by FRS 19: Deferred Tax that had originated but notreversed by the balance sheet date. Deferred tax under IAS 12: Income Taxes, is recognised in respect of alltemporary differences at the balance sheet date between the tax bases of assetsand liabilities and their carrying value for financial reporting purposes, withcertain exceptions. IAS 12 also requires that deferred tax assets andliabilities must be disclosed separately on the balance sheet, unless theyqualify for offset. IAS 12 results in an overall increase in the net deferredtax liability of the Group. The adjustments made to deferred tax assets andliabilities as at the transition date of 1 March 2004, and reflected in thetransition balance sheet, principally relate to the following issues: • The Group revalued its freehold and long leasehold properties in 1998.IAS 12 requires a provision to be made for deferred tax on property revaluationsurpluses and this gave rise to a deferred tax liability of €1.5m that isreflected in the transition balance sheet. • IAS 12 requires that a deferred tax provision be made for allrolled-over capital gains rather than only those expected to crystallise. TheIFRS transition balance sheet includes a deferred tax liability of €0.5m inrespect of rolled-over capital gains, which did not arise under Irish GAAP. • The deferred tax impact of defined benefit pension scheme surplusesand deficits accounted for in accordance with IAS 19: Employee Benefits, hasresulted in the creation of a deferred tax asset of €5.8 million in thetransition balance sheet. IAS 12 requires deferred tax to be provided in respect of undistributed profitsof overseas subsidiaries unless the parent is able to control the timing ofremittances and it is probable that such remittances will not be made in theforeseeable future. As the Group is able to control the timing of remittancesfrom overseas subsidiaries and no such remittances are anticipated in theforeseeable future, no provision has been made for any tax on undistributedprofits of overseas subsidiaries. (iv) IAS 19: Employee Benefits The Group previously applied the provisions of SSAP 24: Accounting for PensionCosts under Irish GAAP and provided detailed disclosure under FRS 17: RetirementBenefits in accounting for pensions and other post employment benefits. IAS 19:Employee Benefits, requires the net assets and liabilities of defined benefitpension schemes to be recognised on the face of the balance sheet. The Group'stransition IFRS Balance Sheet reflects the net assets and liabilities of theGroup's defined benefit pension schemes. In accordance with the alternativeallowed under IFRS 1, the Group has recognised all cumulative actuarial gainsand losses attributable to its defined benefit pension schemes as at thetransition date. This has resulted in a pre-tax reduction in net assets of €37.0million, which represents the sum of the deficit plus the reversal of a SSAP 24creditor in the Irish GAAP balance sheet as at 28 February 2004. An associateddeferred tax asset of €5.8 million has been recognised in respect of the pensiondeficit. Therefore the total adjustment to net assets is €31.2 million. The reduction in the 2004/5 profit before tax as a result of the adoption of IAS19, compared to SSAP 24, is €2.1 million. The Group has elected to apply the amendment to IAS 19, which allows actuarialgains and losses to be taken directly to reserves through the Statement ofRecognised Income and Expense. (v) IAS 32: Financial Instruments: Disclosure and Presentation and IAS 39Financial Instruments: Recognition and Measurement The Group has availed of the exemption not to restate comparative informationfor both IAS 32 and IAS 39 in relation to financial instruments. The Group enters into derivative instruments to limit its exposure to interestrate and foreign exchange risk. Under Irish GAAP, these instruments wereaccounted for using a hedging model, whereby gains and losses were deferreduntil the underlying transaction occurred. Under IFRS, derivative instrumentsare recognised on the balance sheet at fair value. In order to achieve hedgeaccounting under IFRS, certain criteria must be met regarding documentation,designation and effectiveness of the hedge. When a derivative is used to hedge against fluctuations in fair value of arecognised asset, liability or firm commitment, the change in fair value of boththe hedging instrument and the hedged risk in the hedged item are recognised inthe income statement when they occur. When a derivative is used to hedge against fluctuations in future cash flowsrelating to a recognised asset, liability or probable forecast transaction, thechange in fair value of the hedging instrument is recognised in equity to theextent that it is an effective hedge until those future cash flows occur. The Group will apply IAS 32 and IAS 39 for the first time prospectively from 1March 2005. (vi) Other less significant adjustments • Dividends. In accordance with IAS 10: Events after the Balance Sheet date interim dividends are recognised when paid and final dividends once approved by shareholders at the Annual General Meeting. • Returnable packaging has been reclassified as Property, plant & equipment in accordance with IAS 16. 5. RESTATEMENT OF 2004/05 FINANCIAL STATEMENTS 5.1 FOR THE YEAR ENDED 28 FEBRUARY 2005 C&C Group plc Group income statement for the year ended 28 February 2005 Restated under IFRS Audited Before Non-recurring non-recurring Items items Total •m •m •mRevenue 750.4 - 750.4 Operating costs (638.0) (0.1) (638.1) Profit before finance costs 112.4 (0.1) 112.3 Finance costs (net) (21.6) (9.2) (30.8) Profit before tax 90.8 (9.3) 81.5 Income tax expense (8.1) 2.5 (5.6) Profit attributable to ordinary shareholders 82.7 (6.8) 75.9 Basic earnings per share (cent) 23.6Diluted earnings per share (cent) 23.6 Group statement of recognised income and expensefor the year ended 28 February 2005 •m Profit attributable to ordinary shareholders 75.9 Income and expense recognised directly in equity:Exchange differences (1.5)Deferred tax 1.4Actuarial loss (11.8)Total recognised income and expense for year 64.0 Group statement of changes in equityfor the year ended 28 February 2005 •m Total equity at beginning of year 104.8Total recognised income and expense for year 64.0Dividends on ordinary shares (17.7)Shares to be issued 0.6New ordinary shares issued 6.1Total equity at end of year 157.8 C&C Group plc Group income statement - reconciliation from Irish GAAP to IFRS (audited)for the year ended 28 February 2005 Impact of transition to IFRS Under IAS 10 IAS 12 IAS 19 IFRS2 IFRS 3 Irish Events Deferred Employee Share Business GAAP after the Taxation Benefits Based Combinations Under BS date Payments IFRS •m •m •m •m •m •m •m Revenue 750.4 - - - - - 750.4 Operating costs (635.3) - - (2.1) (0.6) - (638.0) IPO related transaction costs (3.3) - - - - - (3.3)Amortisation of goodwill (29.8) - - - - 29.8 - Operating Profit 82.0 - - (2.1) (0.6) 29.8 109.1 Profit on disposal of fixed assets 3.2 - - - - - 3.2 Profit before finance costs 85.2 - - (2.1) (0.6) 29.8 112.3Finance costs (net) (30.8) - - - - - (30.8) Profit before tax 54.4 - - (2.1) (0.6) 29.8 81.5Income tax expense (6.1) - 0.3 0.2 - - (5.6) Profit attributable to ordinary 48.3 - 0.3 (1.9) (0.6) 29.8 75.9shareholders Dividends - paid (17.7) - - - - - (17.7) - proposed (24.1) 24.1 - - - - - Profit retained for financial year 6.5 24.1 0.3 (1.9) (0.6) 29.8 58.2 C&C Group plcConsolidated Group Balance Sheetas at 28 February 2005 Restated under IFRS (audited) 28 Feb 05 •mAssetsNon-current assetsProperty, plant & equipment 142.4Goodwill 461.9Deferred tax 7.4 611.7 Current assetsInventories 49.2Trade & other receivables 92.6Cash & cash equivalents 26.0 167.8 Total assets 779.5 Equity Issued capital 3.2Share premium 3.4Other reserves 26.0Retained earnings 125.2Total equity 157.8 LiabilitiesNon-current liabilitiesFinancial liabilities 447.0Employee benefits - pension deficit 53.0Deferred tax 5.9 505.9Current liabilitiesFinancial liabilities 20.0Trade & other payables 89.3Current tax liabilities 6.5 115.8Total liabilities 621.7 Total equity and liabilities 779.5 C&C Group plc Consolidated Group Balance Sheet - reconciliation from Irish GAAP to IFRS(audited) as at 28 February 2005 Under IAS 10 IAS 12 IAS 16 IAS 19 IAS 21 IFRS2 IFRS 3 Irish Events Income Property, Employee Effects Business GAAP after the Taxes Plant & Benefits of Share Combinations Under BS date Equipment changes Based IFRS in FX Payments rates •m •m •m •m •m •m •m •m •mAssetsNon-current assetsProperty, plant & 138.5 - - 3.9 - - - - 142.4equipmentGoodwill 432.1 - - - - - - 29.8 461.9Deferred tax - - - - 7.4 - - - 7.4 570.6 - - 3.9 7.4 - - 29.8 611.7 Current assetsInventories 55.0 - - (5.8) - - - - 49.2Trade & other receivables 91.0 - - 1.9 - (0.3) - - 92.6Cash & cash equivalents 26.0 - - - - - - - 26.0 172.0 - - (3.9) - (0.3) - - 167.8 Total assets 742.6 - - - 7.4 (0.3) - 29.8 779.5 Equity Issued capital 3.2 - - - - - - - 3.2Share premium 3.4 - - - - - - - 3.4Other reserves 25.2 - - - - 0.2 0.6 - 26.0Retained earnings 118.6 24.1 (1.7) - (44.5) (0.5) (0.6) 29.8 125.2Total equity 150.4 24.1 (1.7) - (44.5) (0.3) - 29.8 157.8 LiabilitiesNon-current liabilitiesFinancial liabilities 447.0 - - - - - - - 447.0Employee benefits -pension deficit - - - - 53.0 - - - 53.0Deferred tax 4.2 - 1.7 - - - - - 5.9 451.2 - 1.7 - 53.0 - - - 505.9 Current liabilitiesFinancial liabilities 20.0 - - - - - - - 20.0 Trade & other payables 114.5 (24.1) - - (1.1) - - - 89.3Current tax liabilities 6.5 - - - - - - - 6.5 141.0 (24.1) - - (1.1) - - - 115.8 Total liabilities 592.2 (24.1) 1.7 - 53.0 - - - 621.7 Total equity and 742.6 - - - 7.4 (0.3) - 29.8 779.5liabilities 5.2 FOR SIX MONTHS ENDED 31 AUGUST 2004 C&C Group plc Group income statement for six months ended 31 August 2004 Restated under IFRS Unaudited Before Non- non-recurring recurring items items Total •m •m •mRevenue 385.7 - 385.7 Operating costs (322.8) (3.4) (326.2) Profit before finance costs 62.9 (3.4) 59.5 Finance costs (net) (12.4) (9.1) (21.5) Profit before tax 50.5 (12.5) 38.0 Income tax expense (4.8) 0.4 (4.4) Profit attributable to ordinary shareholders 45.7 (12.1) 33.6 Basic earnings per share (cent) 10.5Diluted earnings per share (cent) 10.5 Group statement of recognised income and expensefor the six months ended 31 August 2004 •m Profit attributable to ordinary shareholders 33.6 Income and expense recognised directly in equity:Exchange differences (1.2)Actuarial loss (3.9)Deferred tax 0.8Total recognised income and expense for period 29.3 Group statement of changes in equityfor the six months ended 31 August 2004 •m Total equity at beginning of period 104.8Total recognised income and expense for period 29.3Shares to be issued 0.2New ordinary shares issued 6.1Total equity at end of period 140.4 C&C Group plc Group income statement - reconciliation from Irish GAAP to IFRS (unaudited) for six months ended 31 August 2004 Impact of transition to IFRS Under IAS 10 IAS 19 IFRS2 Share IFRS 3 Business Events Employee Based Combinations Irish GAAP after the Benefits Payments Under BS date IFRS •m •m •m •m •m •m Revenue 385.7 - - - - 385.7 Operating costs (321.5) - (1.1) (0.2) - (322.8) IPO related transaction costs (3.4) - - - - (3.4)Amortisation of goodwill (14.9) - - - 14.9 - Profit before finance costs 45.9 - (1.1) (0.2) 14.9 59.5 Finance costs (net) (21.5) - - - - (21.5) Profit before tax 24.4 - (1.1) (0.2) 14.9 38.0 Income tax expense (4.5) - 0.1 - - (4.4) Profit attributable to ordinary 19.9 - (1.0) (0.2) 14.9 33.6shareholders Ordinary dividends - proposed interim (17.7) 17.7 - - - - Profit retained for financial period 2.2 17.7 (1.0) (0.2) 14.9 33.6 C&C Group plc Consolidated Group Balance Sheet as at 31 August 2004 Restated under IFRS (unaudited) •mAssetsNon-current assetsProperty, plant & equipment 145.4Goodwill 461.9Deferred tax 6.7 614.0Current assetsInventories 52.2Trade & other receivables 124.5Cash & cash equivalents 43.7 220.4Total assets 834.4 EquityIssued capital 3.2Share premium 3.4Other reserves 25.1Retained earnings 108.7Total equity 140.4 Liabilities Non-current liabilities Financial liabilities 486.3Employee benefits - pension deficit 43.2Deferred tax 5.6 535.1Current liabilitiesFinancial liabilities 10.0Trade & other payables 138.4Current tax liabilities 10.5 158.9Total liabilities 694.0 Total equity and liabilities 834.4 C&C Group plc Consolidated Group Balance Sheet - reconciliation from Irish GAAP to IFRS(unaudited) as at 31 August 2004 Under IAS 10 IAS 12 IAS 16 IAS 19 IAS 21 IFRS2 IFRS 3 Under Irish Events Income Property, Employee Effects of Share Business IFRS GAAP after Taxes Plant & Benefits changes of Combinations the Equipment in FX Based BS date rates Payments •m •m •m •m •m •m •m •m •m AssetsNon-current assetsProperty, plant & equipment 141.8 - - 3.6 - - - - 145.4Goodwill 447.0 - - - - - - 14.9 461.9Deferred tax - - - - 6.7 - - - 6.7 588.8 - - 3.6 6.7 - - 14.9 614.0 Current assetsInventories 57.7 - - (5.5) - - - - 52.2Trade & other receivables 122.9 - - 1.9 - (0.3) - - 124.5Cash & cash equivalents 43.7 - - - - - - - 43.7 224.3 - - (3.6) - - - - 220.4Total assets 813.1 - - - 6.7 (0.3) - 14.9 834.4 Equity Issued capital 3.2 - - - - - - - 3.2Share premium 3.4 - - - - - - - 3.4Other reserves 24.9 - - - - - 0.2 - 25.1Retained earnings 115.1 17.7 (2.0) - (36.5) (0.3) (0.2) 14.9 108.7Total equity 146.6 17.7 (2.0) - (36.5) (0.3) - 14.9 140.4 Liabilities Non-current liabilitiesFinancial liabilities 486.3 - - - - - - - 486.3Employee benefits - pensiondeficit - - - - 43.2 - - - 43.2Deferred tax 3.6 - 2.0 - - - - - 5.6 489.9 - 2.0 - 43.2 - - - 535.1 Current liabilitiesFinancial liabilities 10.0 - - - - - - - 10.0Trade & other payables 156.1 (17.7) - - - - - - 138.4Current tax liabilities 10.5 - - - - - - - 10.5 176.6 (17.7) - - - - - - 158.9 Total liabilities 666.5 (17.7) 2.0 - 43.2 - - - 694.0 Total equity and 813.1 - - - 6.7 (0.3) - 14.9 834.4liabilities 5.3 TRANSITION BALANCE SHEET AS AT 1 MARCH 2004 C&C Group plc Consolidated Group Balance Sheet as at 1 March 2004 (transition date) Restated under IFRS (audited) •mAssetsNon-current assetsProperty, plant & equipment 147.8Goodwill 461.9Deferred tax 5.8 615.5 Current assetsInventories 46.2Trade & other receivables 97.6Cash & cash equivalents 78.8 222.6Total assets 838.1 Equity Issued capital 0.5Share premium -Other reserves 24.9Retained earnings 79.4Total equity 104.8 Liabilities Non-current liabilitiesFinancial liabilities 507.0Employee benefits - pension deficit 37.7Deferred tax 5.7Provision for Liabilities and charges 22.0 572.4 Current liabilitiesFinancial liabilities 52.9Trade & other payables 85.3Current tax liabilities 22.7 160.9Total liabilities 733.3 Total equity and liabilities 838.1 C&C Group plc Consolidated Group Balance Sheet - reconciliation from Irish GAAP to IFRS(audited) as at 1 March 2004 (transition date) Under IAS 12 IAS 16 IAS 19 IAS 21 Under Income Property, Employee Effects of Irish Plant & Benefits changes in IFRS Taxes Equipment FX rates GAAP •m •m •m •m •m •mAssetsNon-current assetsProperty, plant & equipment 144.1 - 3.7 - - 147.8Goodwill 461.9 - - - - 461.9Deferred tax - - - 5.8 - 5.8 606.0 - 3.7 5.8 - 615.5 Current assetsInventories 51.7 - (5.5) - - 46.2Trade & other receivables 96.1 - 1.8 - (0.3) 97.6Cash & cash equivalents 78.8 - - - - 78.8 226.6 - (3.7) - (0.3) 222.6 Total assets 832.6 - - 5.8 (0.3) 838.1 Equity Issued capital 0.5 - - - - 0.5Share premium - - - - - -Other reserves 24.9 - - - - 24.9Retained earnings 112.9 (2.0) - (31.2) (0.3) 79.4Total equity 138.3 (2.0) - (31.2) (0.3) 104.8 Liabilities Non current liabilitiesFinancial liabilities 507.0 - - - - 507.0Employee benefits - pension - - - 37.7 - 37.7deficitDeferred tax 3.7 2.0 - - - 5.7Provisions for liabilities & 22.0 - - - - 22.0charges 532.7 2.0 - 37.7 - 572.4 Current liabilitiesFinancial liabilities 52.9 - - - - 52.9Trade & other payables 86.0 - - (0.7) - 85.3Current tax liabilities 22.7 - - - - 22.7 161.6 - - (0.7) - 160.9 Total liabilities 694.3 2.0 - 37.0 - 733.3 Total equity and liabilities 832.6 - - 5.8 (0.3) 838.1 5.4 SEGMENTAL ANALYSIS RESTATED C&C Group plc Restatement under IFRS of selected segmental information Year ended 28 February 2005 (audited) Year ended 28 February 2005 Turnover *Net result Net assets •m •m •mClass of business analysisCider 212.6 64.8 385.6International Spirits & Liqueurs 68.5 17.4 59.7Soft Drinks & Snacks 238.7 24.3 113.0Distribution 230.6 5.9 40.5Total 750.4 112.4 598.8 Unallocated IPO preparation costs - (3.3) -Group net borrowings - - (441.0) 750.4 109.1 157.8Geographical analysis by country of operationRepublic of Ireland 613.5 112.5 589.7Rest of the world 136.9 (0.1) 9.1Unallocated items - (3.3) (441.0)Total 750.4 109.1 157.8 Geographical analysis by country of destinationRepublic of Ireland 530.2UK 147.6Rest of Europe 27.3North America 35.9Rest of the world 9.4Total 750.4 Other Segment Information Capital Expenditure Depreciation •m •mClass of business analysisCider 6.5 7.2International Spirits & Liqueurs 3.1 0.6Soft Drinks & Snacks 9.9 11.6Distribution 0.8 1.0 20.3 20.4 6 months ended 31 August 2004 (unaudited) Six months ended 31 August 2004Class of business analysis Revenue •m *Net result •mCider 112.9 35.7International Spirits & Liqueurs 28.8 7.6Soft drinks & snacks 131.0 16.6Distribution 113.0 3.0 385.7 62.9 *Net result represents profit before net finance costs and non-recurring items 6. STATEMENT OF ACCOUNTING POLICIES UNDER IFRS Statement of compliance The financial information in this document has been prepared in accordance withthe recognition and measurement principles of International Financial ReportingStandards (IFRS), including Interpretations issued by the InternationalAccounting Standards Board ("IASB") and its committees which are expected to beendorsed by the European Commission by 28 February 2006. Details of the qualifications to be taken into account and the principalexemptions availed of on transition to IFRS are set out in Sections 2 and 3 ofthis document. Basis of preparation The financial information, which is presented in euro millions to one decimalplace, has been prepared on an historical cost basis except for the measurementat fair value of share options and derivative instruments (prospectively from 1March 2005). Basis of consolidation The financial statements comprise the financial statements of C&C Group plc andits subsidiaries. Subsidiaries, which are entities controlled by the Group, areconsolidated from the date on which control is transferred to the Group andcease to be consolidated from the date on which control is transferred out ofthe Group. Control exists when the company has the power, directly orindirectly, to govern the financial and operating policies of an entity so as toobtain economic benefits from its activities. Financial statements ofsubsidiaries are prepared for the same reporting year as the parent company and,where necessary, adjustments are made to the results of subsidiaries to bringtheir accounting policies into line with those used by the Group. All inter-company balances and transactions, including unrealised gains arisingfrom inter-group transactions, have been eliminated in full. Unrealised lossesare eliminated in the same manner as unrealised gains except to the extent thatthey provide evidence of impairment. Revenue Revenue comprises the fair value of goods supplied by the Group, inclusive ofexcise duty and exclusive of inter-company sales and value added tax, afterallowing for discounts and other allowances. Revenue is recognised to theextent that it is probable that the economic benefits will flow to the Group,that it can be reliably measured, and that the significant risks and rewards ofownership of the goods have passed to the buyer. Foreign currency translation Transactions in foreign currencies are recorded at the rate of exchange rulingat the date of the transaction. Monetary assets and liabilities denominated inforeign currencies are translated at the exchange rate ruling at the balancesheet date and all differences arising are taken to the consolidated incomestatement with the exception of differences arising on long term inter-companymonetary assets and liabilities which form part of the net investment of thegroup in its foreign subsidiaries. Exchange differences on the net investment inforeign entities are taken directly to equity. Results and cash flows of non-euro subsidiary undertakings are translated intoeuro at average exchange rates for the year, and the related balance sheets aretranslated at the rates of exchange ruling at the balance sheet date. On disposal of a foreign operation, accumulated currency translation differencesare recognised in the income statement as part of the overall gain or loss ondisposal; the cumulative currency translation differences arising prior to thetransition date are deemed to be zero for the purposes of ascertaining the gainor loss on disposal of a foreign operation subsequent to 1 March 2004. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciationand impairment losses except for land which is not depreciated. Subsequentcosts are included in an asset's carrying amount or recognised as a separateasset, as appropriate, only when it is probable that future economic benefitsassociated with the item will flow to the Group. Property, plant and equipmentis depreciated over its expected useful economic life on a straight line basisat the following rates: Freehold and long leasehold buildings 2%Plant and machinery 10%Motor vehicles 15%Other equipment 5-20%Returnable bottles, cases and kegs 10-25% The residual value and useful lives of property, plant and equipment arereviewed and adjusted if appropriate at each balance sheet date. On disposal of property, plant and equipment the cost and related accumulateddepreciation and impairments are removed from the financial statements and thenet amount, less any proceeds, is taken to the income statement. The carrying amounts of the Group's property, plant and equipment are reviewedat each balance sheet date to determine whether there is any indication ofimpairment. An impairment loss is recognised when the carrying amount of anasset or its cash generation unit exceeds its recoverable amount (being thegreater of fair value less costs of sale and value in use). Impairment lossesare recognised in the income statement unless the asset is recorded at arevalued amount in which case it is firstly dealt with through the revaluationreserve with any residual amount being transferred to the income statement. Business combinations Other than the merger of the Company with C&C Group International Holdings Ltdand subsidiaries in 2004, which was accounted for as a transaction under commoncontrol, the purchase method of accounting is employed in accounting foracquisitions of new subsidiaries by the Group. The Group has availed of theexemption under IFRS 1: First-time Adoption of International Financial ReportingStandards, whereby business combinations prior to the transition date of 1 March2004 are not restated. IFRS 3: Business Combinations, has been applied witheffect from the transition date of 1 March 2004 and goodwill amortisation ceasedfrom that date. The cost of a business combination is measured as the aggregate of the fairvalue at the date of exchange of assets given, liabilities incurred or assumedand equity instruments issued in exchange for control together with any directlyattributable expenses. Goodwill Goodwill arising on acquisitions prior to the date of transition to IFRS hasbeen retained, with the previous Irish GAAP amount being its deemed cost,subject to being tested for impairment. Goodwill written off to reserves underIrish GAAP prior to 1998 has not been reinstated and will not be included indetermining any subsequent profit or loss on disposal. Goodwill on acquisitions is initially measured at cost being the excess of thecost of the business combination over the acquirer's interest in the net fairvalue of the identifiable assets, liabilities and contingent liabilities.Following initial recognition, goodwill is measured at cost less any accumulatedimpairment losses. Goodwill relating to acquisitions from 1 March 2004 andgoodwill carried in the balance sheet at 1 March 2004 is not amortised. Goodwillis reviewed for impairment annually or more frequently if events or changes incircumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of thecash-generating units expected to benefit from the combination's synergies.Impairment is determined by assessing the recoverable amount of thecash-generating unit, to which the goodwill relates. Where goodwill forms part of a cash-generating unit and part of the operationwithin that unit is disposed of, the goodwill associated with the operationdisposed of is included in the carrying amount of the operation when determiningthe gain or loss on disposal of the operation. Goodwill disposed of in thiscircumstance is measured on the basis of the relative values of the operationdisposed of and the proportion of the cash-generating unit retained. Leases Where the Group has entered into lease arrangements on land and buildings thelease payments are allocated between land and buildings and each is assessedseparately to determine whether it is a finance or operating lease. Finance leases, which transfer to the Group substantially all the risks andbenefits to ownership of the leased asset, are capitalised at the inception ofthe lease at the fair value of the leased asset or if lower the present value ofthe minimum lease payments. The corresponding liability to the lessor isincluded in the balance sheet as a finance lease obligation. Lease payments areapportioned between finance charges and a reduction of the lease obligation soas to achieve a constant rate of interest on the remaining balance of theliability. Finance charges are charged to the income statement as part offinance costs. Capitalised leased assets are depreciated over the shorter of the estimateduseful life of the asset or the lease term. Leases where the lessor retains substantially all the risks and benefits ofownership of the assets are classified as operating leases. Operating leasepayments are recognised as an expense in the income statement on a straight linebasis over the lease term. Inventories Inventories are stated at the lower of cost and net realisable value. Costincludes all expenditure incurred in acquiring the inventories and bringing themto their present location and condition and is based on the first-in first-outprinciple. In the case of finished goods and work in progress, cost includes directproduction costs and the appropriate share of production overheads plus exciseduties where appropriate. Net realisable value is the estimated selling price inthe ordinary course of business, less estimated costs of completion andestimated costs necessary to complete the sale. Trade and other receivables Trade receivables, which generally have 30 to 90 day terms, are recognised andcarried at original invoice amount less an allowance for incurred losses. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in handand short term deposits with an original maturity of three months or less. Bankoverdrafts that are repayable on demand and form part of the Group's cashmanagement are included as a component of cash and cash equivalents for thepurpose of the statement of cashflows. Interest-bearing borrowings Up to 28 February 2005 all interest-bearing borrowings were initially recognisedat cost being fair value less attributable transaction costs. Transaction costswere amortised over the expected life of the relevant borrowing. From 1 March 2005 interest-bearing borrowings continue to be recognisedinitially at fair value less attributable transaction costs but subsequently aremeasured at amortised cost with any difference between cost and redemption valuebeing recognised in the income statement over the period of the borrowings on aneffective interest rate basis. Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits would be required to settle the obligation.If the effect of the time value of money is material, provisions are determinedby discounting the expected future cash flows at an appropriate rate. Pensions and other post-employment benefits Obligations to the defined contribution pension plans are recognised as anexpense in the income statement as incurred. The Group operates a number of defined benefit pension schemes that requirecontributions to be made to separately administered funds. The Group's netobligation in respect of defined benefit pension schemes is calculatedseparately for each plan by estimating the amount of future benefits thatemployees have earned in return for their service in the current and priorperiods. That benefit is discounted to determine its present value, and the fairvalue of any plan asset is deducted. The discount rate employed in determiningthe present value of the schemes' liabilities is determined by reference tomarket yields at the balance sheet date on high quality corporate bonds for aterm consistent with the currency and term of the associated post-employmentbenefit obligations. The net surplus or deficit arising in the Group's defined benefit pensionschemes is shown within either non-current assets or liabilities on the face ofthe Group Balance Sheet. The deferred tax impact of pension scheme surpluses anddeficits is disclosed separately within deferred tax assets or liabilities asappropriate. The Group has elected to avail of the Amendment to IAS 19: EmployeeBenefits, to recognise post transition date actuarial gains and lossesimmediately in the statement of recognised income and expense even though thishas not yet been endorsed by the EU. Any increase in the present value of plans' liabilities expected to arise fromemployee service during the period is charged to operating profit. The expectedreturn on the plans' assets and the expected increase during the period in thepresent value of the plans' liabilities arising are included in finance costs. When the benefits of a defined benefit plan are improved, the portion of theincreased benefit relating to past service by employees is recognised as anexpense in the income statement over the periods during which they vest. To theextent that the benefits vest immediately, the expense is recognised immediatelyin the income statement. Share based payment transactions Group share schemes allow employees to acquire shares in the company. The fairvalue of share entitlements granted is recognised as an employee expense in theincome statement with a corresponding increase in equity. An external valuerusing a trinomial model determines the fair value. Share entitlements granted bythe company are subject to certain non market-based vesting conditions.Non-market vesting conditions are not taken into account when estimating thefair value of entitlements as at the grant date. The expense for the shareentitlements shown in the income statement is based on the fair value of thetotal number of entitlements expected to vest and is allocated to accountingperiods on a straight line basis over the vesting period. The cumulative chargeto the income statement is only reversed where entitlements do not vest becauseall performance conditions have not been met or where an employee in receipt ofshare entitlements leaves the Group before the end of the vesting period. The proceeds received by the company on the vesting of share entitlements arecredited to share capital and share premium when the share entitlements areexercised. Tax Current tax Current tax expense represents the expected amount to be paid in respect oftaxable income for the current year. Current tax for the current and prioryears, to the extent that it is unpaid, is recognised as a liability in thebalance sheet. Deferred tax Deferred tax is recognised as a component of the tax expense in the incomestatement except to the extent that it relates to items recognised directly inequity. Deferred income tax is provided, using the liability method, on temporarydifferences between the carrying amounts of assets and liabilities for financialreporting purposes and the amounts used for taxation purposes. Deferred incometax assets and liabilities are calculated, without discounting, at the tax ratesthat are expected to apply to their respective periods of realisation, based ontax laws enacted or substantively enacted at the balance sheet date. In accordance with IAS 12 no deferred taxes are recognised in conjunction withthe initial recognition of goodwill and the initial recognition of assets andliabilities that affect neither accounting nor taxable income. This alsoapplies to differences relating to investments in subsidiaries to the extentthat the company controls the timing of the reversal and it is probable thatreversal will not occur in the foreseeable future. Deferred tax liabilities are provided in full. Deferred tax assets arerecognised for deductible temporary differences, carry forward of unused taxcredits and unused tax losses, to the extent that it is probable that taxableprofit will be available against which they can be offset. Dividends Final dividends on ordinary shares are recognised as a liability in the Groupfinancial statements only after they have been approved at an annual generalmeeting of the Company. Interim dividends on ordinary shares are recognised whenthey are paid. Derivative financial instruments The Group uses derivative financial instruments (principally interest rate swapsand forward foreign exchange contracts) to hedge its exposure to foreignexchange and interest rate risks arising from operational and financingactivities. Up to 28 February 2005 gains and losses on derivative financial instruments usedto hedge foreign exchange and interest rate exposures arising on future plannedtransactions were recognised in the income statement when the hedgedtransactions occur. With effect from 1 March 2005 derivative financial instruments are recognisedinitially at cost and thereafter are stated at fair value. The gain or loss onremeasurement to fair value is recognised immediately in the income statement.However, where derivatives qualify for hedge accounting, recognition of anyresultant gain or loss depends on the nature of the item being hedged (seehedging accounting policy). The fair value of interest rate swaps is the estimated amount that the Groupwould receive or pay to terminate the swap at the balance sheet date, takinginto the account current interest and currency exchange rates and the currentcreditworthiness of the swap counterparties. The fair value of forward exchangecontracts is calculated by reference to current forward exchange rates forcontracts with similar maturity profiles and equates to the quoted market priceat the balance sheet date, being the present value of the quoted forward price. Hedge accounting For the purposes of hedge accounting, derivative financial instruments areclassified either as fair value hedges (which entail hedging the exposure tomovements in the fair value of a recognised asset, liability or firm commitment)or cash flow hedges (which hedge exposure to fluctuations in future cash flowsderived from a particular risk associated with a recognised asset, liability, afirm commitment or a highly probable forecast transaction). In the case of fair value hedges any gain or loss stemming from there-measurement of the hedging instrument to fair value is reported in the incomestatement and reflected in the carrying value of the hedged item on the balancesheet. Where a derivative financial instrument is designated as a hedge of thevariability in cash flows of a recognised liability, a firm commitment or ahighly probable forecasted transaction, the effective part of any gain or losson the derivative financial instrument is recognised as a separate component ofequity with the ineffective portion being reported in the income statement. Whena firm commitment or forecast transaction results in the recognition of anon-financial asset or a non-financial liability, the cumulative gain or loss isremoved from equity and included in the initial measurement of the asset orliability. Otherwise, the associated gains or losses that had previously beenrecognised in equity are transferred to the income statement contemporaneouslywith the materialisation of the hedged transaction. Any gain or loss arising inrespect of changes in the time value of the derivative financial instrument isexcluded from the measurement of hedge effectiveness and is recognisedimmediately in the income statement. Hedge accounting is discontinued when the hedging instrument expires or is sold,terminated or exercised, or no longer qualifies for special hedge accounting. Atthat point in time, any cumulative gain or loss on the hedging instrumentrecognised as a separate component of equity is kept in equity until theforecast transaction occurs with future changes in fair value recognised in theincome statement. If a hedged transaction is no longer anticipated to occur, thenet cumulative gain or loss recognised in equity is transferred to the incomestatement in the period. Research and development Expenditure on research that is not related to specific product development isrecognised in the income statement as incurred. Expenditure on the development of new or substantially improved products orprocesses is capitalised if the product or process is technically feasible andcommercially viable. 7. Independent auditors' report to the Directors of C&C Group plc on itsconsolidated preliminary International Financial Reporting Standards ('IFRS')financial information In accordance with the terms of our engagement letter, we have audited theaccompanying consolidated preliminary IFRS balance sheet of the Company and itssubsidiaries ('the Group') as at 1 March 2004 and 28 February 2005, the relatedconsolidated preliminary IFRS income statement for the year ended 28 February2005 and related basis of preparation, accounting policies and other notes asset out on pages 25 to 43 ('the preliminary IFRS financial information'). Included with the preliminary IFRS financial information set out on pages 25 to43 are the consolidated preliminary balance sheet as at 31 August 2004 and therelated consolidated preliminary income statement for the six-month period thenended ('the preliminary IFRS interim financial information'). We have notaudited this preliminary IFRS interim financial information and therefore it isnot covered by this opinion. Respective responsibilities of Directors and KPMG The directors of the Company have accepted responsibility for the preparation ofthe preliminary IFRS financial information which has been prepared as part ofthe Group's conversion to IFRS. As part of its conversion to IFRS, the Group has prepared the preliminary IFRSfinancial information for the year ended 28 February 2005 to establish thefinancial position and results of operations of the Group necessary to providethe comparative financial information expected to be included in the Group'sfirst complete set of IFRS consolidated financial statements as at 28 February2006. The preliminary IFRS financial information does not include comparativefinancial information for the prior period. As explained in the basis ofpreparation note on page 20, this preliminary IFRS financial information hasbeen prepared on the basis of the recognition and measurement criteria of IFRSin issue that either are endorsed by the European Union ("EU") and effective (oravailable for early adoption) at 28 February 2006 or are expected to be endorsedand effective (or available for early adoption) at 28 February 2006. There is,however, a possibility that the directors may determine that some changes tothese policies are necessary when preparing the full annual financial statementsfor the first time in accordance with those IFRS endorsed for use by the EU.This is because, as disclosed in the basis of preparation, the directors haveanticipated that a standard, which has yet to be formally endorsed for use inthe EU, will be so endorsed in time to be applicable to the next annualfinancial statements. Similarly changes may arise from further interpretationsissued between now and the year end date which may result in the directorsrevising the accounting policies applied. The directors have applied IFRS inaccordance with IFRS 1: First-time Adoption of International Financial ReportingStandards and have taken advantage of certain exemptions available in thatstandard and, in particular, IAS 32: Financial Instruments: Disclosure andPresentation and IAS 39: Financial Instruments: Recognition and Measurement havenot been applied to the preliminary IFRS financial information relating to theyear ended 28 February 2005. Our responsibilities, as independent auditors, are established in Ireland by theAuditing Practices Board, our profession's ethical guidance and the terms of ourengagement. Under the terms of engagement we are required to report to you our opinion as towhether the preliminary IFRS financial information has been properly prepared,in all material respects, in accordance with the respective accounting policynotes to the preliminary IFRS financial information. We also report to you if,in our opinion, we have not received all the information and explanations werequire for our audit. We read the other information accompanying the preliminary IFRS financialinformation and consider whether it is consistent with the preliminary IFRSfinancial information. We consider the implications for our report if we becomeaware of any apparent misstatements or material inconsistencies with thepreliminary IFRS financial information. Our report has been prepared for the Company solely in connection with theCompany's conversion to IFRS. Our report was designed to meet the agreedrequirements of the Company determined by the Company's needs at the time. Ourreport should not therefore be regarded as suitable to be used or relied on byany party wishing to acquire rights against us other than the Company for anypurpose or in any context. Any party other than the Company who chooses to relyon our report (or any part of it) will do so at its own risk. To the fullestextent permitted by law, KPMG will accept no responsibility or liability inrespect of our report to any other party. Basis of audit opinion We conducted our audit having regard to Auditing Standards issued by theAuditing Practices Board. An audit includes examination, on a test basis, ofevidence relevant to the amounts and disclosures in the preliminary IFRSfinancial information. It also includes an assessment of the significantestimates and judgments made by the directors in the preparation of thepreliminary IFRS financial information, and of whether the accounting policiesare appropriate to the Group's circumstances, consistently applied andadequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the preliminary IFRSfinancial information has been prepared in accordance with the basis ofpreparation on page 20 and is free from material misstatement, whether caused byfraud or other irregularity or error. In forming our opinion we also evaluatedthe overall adequacy of the presentation of information in the preliminary IFRSfinancial information. Opinion In our opinion, the accompanying preliminary IFRS financial information on pages25 to 43 has been prepared, in all material respects, in accordance with thebasis of preparation and accounting policy notes which describe how IFRS havebeen applied under IFRS 1: First-time Adoption of International FinancialReporting Standards and the assumptions made by the directors of the Companyabout the standards and interpretations expected to be effective, and thepolicies expected to be adopted, when they prepare the first complete set ofconsolidated IFRS financial statements of the Group for the year ended 28February 2006. KPMG Registered Auditors Date: 10 October 2005 This information is provided by RNS The company news service from the London Stock Exchange

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C&C Group