Preliminary Results - Part 1

30th Nov 2006 07:02

Britvic plc30 November 2006 PART 1 OF 2 BRITVIC PLC PRELIMINARY RESULTS Britvic plc today announces its Preliminary Results for the 52 weeks ended 1October 2006 with an improved second half profit performance and strong cashmanagement. 52 weeks to 52 weeks to 1 October 2006 2 October 2005(1) % change £m £mTotal branded revenue 677.7 695.8 (2.6)Carbonates revenue 332.5 356.9 (6.8)Stills revenue 321.7 314.3 2.4EBITDA(2) 121.0 120.3 0.6Operating profit 73.7 73.3 0.5Operating profit margin 10.9% 10.5% 0.4%ptsFree cash flow(3) 48.9 (10.3)Net debt (282.6) (312.3) 9.0Profit after tax(4) 39.6 39.7 (0.3)Basic earnings per share 18.4p 18.5p (0.5)Full year dividend per share 10.0p Note regarding all numbers in this announcement other than those included within theStatutory Accounts: All numbers (other than revenue, net debt and dividend per share) are disclosedbefore exceptional items and all numbers (other than dividend per share) exclude thePrivate Label Water business - where the last contract expired in November 2005.Total revenue including Private Label Water is down 2.9% at £677.9m against £698.2min 2005. 1 Proforma adjustments have been made to 2005 results to present them on a comparable basis (as if the capital and corporate structure in place post flotation had been in place throughout 2005). On a non-proforma basis 2005 operating profit is £76.3m and profit after tax pre exceptionals is £49.2m. 2 EBITDA is defined as operating profit before depreciation and amortisation. 3 Free cash flow is defined as net cash flow excluding dividends. 4 Profit after tax after exceptional items for the 52 weeks to 1 October 2006 was £24.2m. • Operating profit up 8.9% in H2 to £55.1m and up 0.5% to £73.7m in FY06 with operating profit margin up 0.4 percentage points to 10.9% reflecting strong management action. o A focus on controlling costs resulting in the delivery of £13m of sustainable cost savings, including £11m of overhead savings. o A focus on average realised price (ARP) helping to drive margin improvements. o Successful H2 innovation focused on the growth areas of the market. • Branded revenue broadly level in H2 after 5.3% decline in H1, resulting in a 2.6% fall for the full year. o Stills revenue up 5.6% in H2 (down 1.0% in H1) driven by new water brand launches and a solid performance from the key categories of adult, juice drinks and squash. o Carbonates revenue down 4.7% in H2 (down 9.0% in H1) as Management continued to focus on promotional efficiency and ARP to support both margin and profit in a market that as a whole, benefited from a hot July, the impact of the World Cup and a major new product launch. • Profit after tax essentially flat on prior year at £39.6m, with a reduction in the effective tax rate from last year. • Significantly improved free cash flow of £48.9m underpins the Board's confidence in proposing a final dividend per share of 7p bringing the full year dividend per share to 10p. Paul Moody, Chief Executive commented: "In the second half of our financial year we have achieved a marked improvementin our volume and revenue performance. We have maintained a sharp focus on ARP,cost savings, and cash management against the backdrop of a difficult carbonatesmarket and continued growth in the stills market. The improved revenue trends seen in the second half have continued into the newfinancial year and have driven the Group's trading performance over these earlyweeks. However given the volatility in the carbonates market we remain cautiouson the outlook for this category. We are confident that in the year ahead wewill continue to make progress on margins. Britvic is well placed to benefit from the continuing consumer trend towardshealth and well-being and our new brand and product innovations, scheduled forlaunch in the first half of calendar 2007, remain focused on the growing stillscategory." For further information please contact: Investors:John Gibney/ Jo Guano +44 (0)1245 504 330 Media:Britvic - main switchboard +44 (0)1245 261 871David Lewis/ Julian Mears (Britvic) +44 (0)7834 963138/ +44 (0)7834 962542Tom Buchanan/ Conor McClafferty (Brunswick) +44 (0)20 7404 5959 A presentation for analysts and investors will be held at 9.30am on 30 November2006 at the Auditorium at Deutsche Bank, Winchester House, 1 Great WinchesterStreet, EC2N 2DB. A live and an archived webcast of the presentation including Q&A will be available on the Britvic plc website www.britvic.com There will also be a conference call today at 2.30pm (9.30am Eastern Time)primarily for US investors and analysts where there will be an opportunity toask questions. A recording of the call will be available for seven days. Toaccess this call please dial the access number below and use the pin numbergiven. Access number +44 (0)20 8609 0205Pin number 542386#Redial number +44 (0)20 8609 0289Conference reference 157252# Notes to editors Britvic is one of the two leading soft drinks businesses in Great Britain. Its broad portfolio of leading brands includes established names with high brandrecognition such as Robinsons and Tango and highly successful innovations suchas J2O and Fruit Shoot. Included within the portfolio are the Pepsi and 7UPbrands, which Britvic produces, markets, sells and distributes under itsexclusive appointment from PepsiCo which runs until December 2023. This brandand product portfolio enables Britvic to target and satisfy a wide range ofconsumer demands in all major soft drinks categories, via all available routesto market. Cautionary note regarding forward-looking statements This announcement includes statements that are forward-looking in nature.Forward-looking statements involve known and unknown risks, uncertainties andother factors which may cause the actual results, performance or achievements ofthe Company to be materially different from any future results, performance orachievements expressed or implied by such forward-looking statements. Except asrequired by the Listing Rules and applicable law, Britvic undertakes noobligation to update or change any forward-looking statements to reflect eventsoccurring after the date such statements are published. Chief executive's review In the year to 1 October 2006, our first as a listed company, Britvic increasedoperating profit by 0.5% to £73.7m, although branded revenue was down by 2.6% onthe prior year. A difficult first half was compensated by a strong second halfin which operating profit grew 8.9%. This overall performance has been achievedin the context of a challenging soft drinks market and is the result of animproved revenue performance in the second half, management's focus on AverageRealised Price (ARP), cost control and effective cash management. The combinedeffect of these management actions has been a 0.4 percentage point improvementin operating profit margin to 10.9%, an £11m sustainable reduction in overheadcosts and the re-engineering of products to help mitigate input price increases,contributing a further £2m of sustainable cost savings. A strong and improvingfree cash flow of £48.9m has underpinned the Board's decision to propose afinal dividend of 7p which will be paid on 16 February 2007, subject toshareholder approval at the AGM. The soft drinks market The total soft drinks market continued to perform well with total market volumesup 2.9%. This performance maintained the trend of the last ten years wherevolumes have increased at a compound annual growth rate of 2.6%. However, thisperformance has masked significant changes in underlying market dynamics as thestills category growth has accelerated at the expense of carbonates as theconsumer trend towards health and well-being and more natural food and beverageproducts has continued. Reflecting the changing consumer preference, the total carbonates market volumewas down 2.4% in the year. Immediately post Christmas, the carbonates marketexperienced an unprecedented decline in volume which at its most pronounced was9% down on the previous year; in the first half of the financial year the marketwas down 5%.The second half of the financial year saw the carbonates marketrecover driven by above average temperatures in July; the impact of the footballWorld Cup and a significant new product launch. The uncertain market conditionsfor carbonates led to an increase in the frequency and depth of promotionalactivity in store which in turn placed pressure on the ARP per litre beingachieved across the market. Despite all of this activity, the total carbonatesmarket in the second half of the financial year showed only marginal growth of0.3%. Unsurprisingly, no-added sugar variants performed more robustly than theoverall category showing 0.9% growth in the year; although even this wasrestricted to Cola with total fruit flavoured carbonates showing a weakperformance. Compounded by some significant structural changes in our take home customerbase, Britvic's total carbonates revenue fell by 6.8% in the year. By contrast, the stills market showed good growth, with total volume up 7.9%.The increase in the market size was generated, in the main, by key categoriessuch as juice, dairy and water. The squash market showed strong growth in theyear as consumer preference for still, fruit based products was then positivelyimpacted by the high temperatures experienced during July. Britvic's stillsrevenue increased by 2.4% despite only recently entering the water market andcurrently having no take home market presence in either juice or dairy products. Britvic's strategy In light of this market background, management action has focused on three mainareas: Supporting and growing our core brands We continue to invest in our strong portfolio of brands through both innovationand media, to ensure that they are preferred by consumers. In anticipation of a new competitor brand launch into the no added sugar Colamarket we developed a comprehensive brand and trading response that combined atotal media campaign, including extensive TV advertising, with a series of addedvalue consumer promotions, centred on our long-established and successfulbrand, Pepsi Max. The programme was developed in close co-operation with thebrand owner, Pepsi-Cola and has resulted in a strong share performance wherePepsi-Cola has attained a 23.7% share of the Cola market in the latest availableweeks of data, an increase of 4.8 % points over the eight week period prior tothe football World Cup, and the competitor launch. In the increasingly important squash market, we have invested to protect andgrow Robinsons' number one position. During the year, we have built ourmanufacturing capability and now have in-house bottle-blowing for all our largepacks leading to a significant cost reduction enabling us to increase ourpromotional competitiveness. Additionally, we have made consistent improvementsto the pack design and range to ensure that the brand maintains itsauthoritative, category leading position. The performance of J20 continues to be strong in both take home and on-premise.We introduced a new limited edition flavour of Orange & Pomegranate and havecommissioned new TV advertising that will go on air in 2007. Both initiativeshave supported the continued build of the distribution of the brand. The strap line of our new advertising campaign, 'Fruit Shoot says no so thatmums can say yes', sums up perfectly the actions that we have taken to reinforceFruit Shoot's credentials as the favourite and biggest kids' drink: sugarcontent reduced by 15%; sodium benzoate removed; and no artifical colours orflavours used. Two versions of the press campaign are rotating from October 2006to January 2007 and will reach 73% of all households with children. Our International division has launched Robinsons High Juice squash into theScandinavian market and continues to drive a strong performance for Fruit Shootin the Benelux countries. Further market launches of established Britvic brandsinto near-UK markets will take place in 2007. Innovating/ Developing new products A number of new brands and brand extensions have been launched in the year withthe aim of establishing Britvic in the growth segments of the market. Thelaunches have all been focused around the four key themes of naturalness, healthand well-being, occasionality and indulgence and have been brought to market inline with the plan that we outlined at the time of the flotation. In water, all three of our new brands (Fruit Shoot H20, Pennine Spring andDrench) have established themselves in a relatively short period. H20 isperfoming particularly strongly and achieved the position of the number onewater brand for children just eight weeks from launch. Encouragingly 90% of itsvolume is incremental to Fruit Shoot and 79% is incremental to the kids' watercategory, clear indications of the brand's relevance to the consumer independentof its parent brand. In the 2007 financial year, we have a programme of innovation launchesplanned.The first of which is the "Really Wild Drinks Company", a range of sixnatural juice drinks designed to respond to the changing guidelines with regardto soft drinks in schools. With no artificial additives and no added sugar, theydemonstrate our ability to develop products that help us manage the changinglegislative framework at the same time as giving children a choice that theywant to make. There will be further significant launches in the first half ofcalendar 2007. Managing efficiency - improving margins and free cash flow Our Business Transformation Programme, which we described at the time offlotation as being focused on driving improved efficiency and buildingcapability, is delivering against both broad objectives. Good progress has been made in improving our operating margins through securing£11m of sustainable overhead cost savings achieved through a range ofinitiatives including centralisation and automation of indirect procurement andthe accelerated development of a 'self-service' culture leading to a reductionin the number of central and support staff. Full deployment of both SAP and Siebel software has enabled us to reduce thedemand on working capital and so improve our free cash flow. With greatervisibility and much improved decision-making tools, we have been able to improvethe efficiency of our promotional activity, which has, in turn, led to astronger outcome for ARP. A further benefit derived from the implementation ofthe Programme has been a significant reduction in the time that it takes tobring a product concept to in-market launch; the innovation timeline has beencut by approximately one third. Such has been the success of the Business Transformation Programme, that we areconfident of delivering an additional £7m savings over the next two years, aspreviously announced. Our Product Value Optimisation programme has delivered an additional £2m ofsustainable cost savings which, as expected, has mostly mitigated input costpressures and consequently margin pressure. An additional £2m of savings hasbeen identified for full year 2007 with the introduction of in house large packPET squash bottles at our Norwich factory and further vertical integrationopportunities. Summary We are operating in a growth market, pursuing a strategy that is focused oncreating and building brands that deliver profitable revenue growth andshareholder returns. A sharp focus on driving efficency through improved ARP,margins, cost savings, and cash management have meant that we have come out ofwhat has been a challenging year for the market with a more efficient and cashgenerative business. With almost half of our revenue currently coming fromstills and our innovation pipeline focused on this area we are well-placed tobenefit from the predicted future growth trends in the market. Current trading and outlook The improved revenue trends seen in the second half have continued into the newfinancial year and have driven the Group's trading performance over these earlyweeks. However given the volatility in the carbonates market we remain cautiouson the outlook for this category. We are confident that in the year ahead wewill continue to make progress on margins. Britvic is well placed to benefit from the continuing consumer trend towardshealth and wellbeing and our new brand and product innovations, scheduled forlaunch in the first half of calendar 2007, remain focused on the growing stillscategory. Financial and business review The following discussion is based on Britvic's results for the year ended 1October 2006 compared with proforma numbers for the year ended 2 October 2005.The key proforma adjustments are the removal of own label revenue and brandcontribution; the impact of additional plc costs; and the impact of thefinancial restructuring of the business. The financial statements for the yearended 1 October 2006 have been prepared in accordance with IFRS. Key performance indicators The principal key performance indicators that Management uses to assess theperformance of the Group in addition to income statement measures of performanceare as follows: Volume growth - number of litres sold by the Group relative to prior year. Average realised price (ARP) - is defined as revenue per litre sold. Revenue growth - sales achieved by the Group relative to prior year. Brand contribution margin - is defined as revenue less material costs and allother marginal costs that Management considers to be directly attributable tothe sale of a given product, divided by revenue. Such costs include brandspecific advertising and promotion costs, raw materials, and marginal productionand distribution costs. Management uses the brand contribution margin toanalyse Britvic's financial performance, because it provides a measure ofcontribution at brand level. Operating profit margin - is defined as operating profit before the deduction ofinterest and taxation divided by revenue. Free cash flow - is defined as net cash flow excluding dividend payments. Return on invested capital (ROIC) - ROIC is a performance indicator used byManagement and defined as Operating Profit after tax as a percentage of InvestedCapital. Invested capital is defined as non-current assets plus current assetsless current liabilities, excluding all balances relating to interest bearingliabilities and all other assets or liabilities associated with the financingand capital structure of the Group and excluding any deferred tax balances. Overview In the year to 1 October 2006 total branded volumes were down 3.3% on the prioryear with total branded revenues down 2.6% at £677.7m. These numbers reflect animproved trend in the second half of the year and a first half which wasaffected by challenging market conditions. Operating profit for the year was up0.5% on prior year to £73.7m with operating profit margin also showingimprovement at 10.9%, up 0.4 percentage points despite an increase in energycosts impacting profit margins, as expected, by approximately 0.5%. This resultreflects strong management action with a focus on controlling costs, driving ARPand cash management. This combined with closer attention to tax has driven animprovement in ROIC of 0.2 percentage points to 17.0%. Profit after tax for theyear was £39.6m essentially flat on the prior year with basic EPS also broadlyflat at 18.4p. Carbonates FY2006 FY2005 % change £'m £'mVolume (millions litres) 848.3 899.6 (5.7)ARP per litre 39.2p 39.7p (1.3)Revenue 332.5 356.9 (6.8)Brand contribution 130.1 143.3 (9.2)Brand contribution margin 39.1% 40.2% (1.1)%pts Carbonate volumes at 848.3m litres for the period were down 5.7% on prior year.However volumes had experienced an improved trend during the period from down7.2% in the first half to down 4.2% in the second half as the market as a wholebenefited from a hot July, the impact of the World Cup, significant new productlaunches and high levels of promotional activity. Revenues for the year were £332.5m down 6.8% on the prior year and also saw animproved trend with revenues down 4.7% in the second half from down 9% in thefirst half. Management responded to the promotional activity in the marketplace with clear action both in store and above the line but continued to focuson ARP. The new IT systems of SAP and SIEBEL implemented as part of the BusinessTransformation Programme have enabled more efficient promotions. As a result ARPwas essentially maintained during the second half against last year. Thispositively impacted the brand contribution margin improving from down 3percentage points against the prior year at the first half to down 1 percentagepoint for the full year. Stills FY2006 FY2005 % change £'m £'mVolume (millions litres) 446.5 437.3 2.1ARP per litre 72.1p 71.9p 0.3Revenue 321.7 314.3 2.4Brand contribution 152.0 147.5 3.0Brand contribution margin 47.2% 46.9% 0.3%pts Stills volumes increased by 2.1% for the year driven by a strong second halfvolume growth of 3.8%. Revenue, also grew to £321.7m up 2.4% on last year againdriven by strong second half growth of 5.6% predominantly due to: • new product launches with a strong performance from Britvic's new kids' water brand, Fruit Shoot H2O, with the other water launches of Pennine Spring and Drench performing in line with Management's expectations; • a solid performance in the key categories of juice drinks and adult, with Fruit Shoot and J20 performing well; and • Robinsons squash performing well due to improved distribution, consumers moving into the category away from carbonates, and additional marketing investment in the period. Stills revenue at £321.7m shows an improvement on the prior year of 2.4%. Firsthalf revenue performance was down 1.0% and was affected by structural changes tothe take home customer base and some pricing and promotional issues, which weresatisfactorily resolved, with a small number of customers that had a markedimpact on revenue in the last few weeks of the period. Prior to this, for thefirst twenty weeks of the year stills revenue growth was at 4.5%. The majority of the brand contribution margin growth of 0.3 percentage pointswas driven by the growth in ARP of 0.3% and the increase in water sales whichhad reduced prime costs. This was partially offset by input cost increasesnotably from pressure in fruit juices and also the additional cost of productionof Robinsons large packs. International FY2006 FY2005 % change £'m £'mVolume (millions litres) 35.8 38.6 (7.3)ARP per litre 65.6p 63.9p 2.7Revenue 23.5 24.7 (4.9)Brand contribution 7.0 8.2 (14.6)Brand contribution margin 29.8% 33.2% (3.4)%pts International volumes for the period were 35.8m litres, down 7.3% on prior yearwith revenues at £23.5m, down 4.9% on prior year. The fall in volume and revenueis largely explained by Britvic's travel business, in particular airlines. Thetrends in airline travel towards low cost operators have resulted in mostscheduled and chartered airlines not serving free drinks on board with aconsequential rebasing of Britvic's business with them. Excluding the airlineimpact and the effect of withdrawing from low margin export business, revenuewould have increased on prior year by 2%. The international strategy is centred on the exploitation of our UK marketleading stills brands in near European markets. In Holland, Fruit Shootcontinues to grow its market share and Robinsons' initial trading in Denmark andSweden is encouraging. However as anticipated both margins and profits have beenimpacted by launching into Sweden during the year, and the cost of acceleratinggrowth in Holland. The decline in brand contribution is substantially due tothis. Costs and overheads FY2006 FY2005 % change £'m £'mNon brand A&P (6.1) (6.6) 7.6Fixed supply chain (68.0) (66.2) (2.7)Selling costs (86.0) (88.8) 3.2Overheads and other (55.3) (64.1) 13.7Total (215.4) (225.7) 4.6 Total A&P spend (44.6) (48.9) 8.7A&P as a % of net revenue 6.6% 7.0% Non brand Advertising and Promotional (A&P) spend is down 7.6% on last year asless A&P spend went on areas such as market research and channel expenditure.However, overall A&P spend at 6.6% of revenue is also down on last year due toinvestment in carbonates being moved away from media towards in-storepromotions, as a reaction to market conditions. It is expected that total A&Pspend will be maintained at circa 7% of revenue going forward to continue tosupport the Group's long term brand building philosophy. Fixed supply chain costs have been tightly controlled showing only a marginalincrease on last year, in line with inflation despite cost pressures. At the time of flotation Management had identified £6m of cost savings in FY06(at an estimated one-off cost of £4m) with an estimated further £6m of savingsin aggregate over the following two financial years. As a consequence of thesuccess of the Business Transformation Programme, £11m of sustainable overheadcost savings were delivered in FY06, constituting a further £4m of savings (£6mon an annualised basis) and £1m brought forward from the FY07 programme. Intotal, this has resulted in an extra £2.5m of one-off costs in FY06; £1mrelating to the additional saving identified and £1.5m brought forward fromFY07. These further cost savings have increased the annualised savingsachievable in FY07 and FY08, to £15m and £18m respectively in total. In addition, overheads include £2.5m of additional ongoing expenses in relationto being a listed company, which is in line with Management's estimates at thetime of flotation. Management believes there are opportunities to generate further cost savingsthrough, for example, increased vertical integration of its production process,although as expected there were no significant savings in this area in FY06. Exceptional items During the year, Britvic incurred exceptional operating costs of £19.1m. Thesecomprised listing costs incurred as a result of Britvic's flotation (£5.5m);restructuring costs included the costs of major restructuring programmesundertaken in the year relating principally to redundancy costs and advisor fees(£7.0m); and the cost of share incentive schemes directly associated with theflotation (£6.6m). Management had previously estimated that the listing costsincurred as a result of the flotation would total approximately £4.8m (of which£2.2m was accrued and recognised in Britvic's profit and loss account for thefinancial year ended 2 October 2005). The higher costs have arisen as a resultof increased advisor and transitional costs. The next stage of the restructuring programme has been implemented earlier thananticipated, accelerating cost savings. It is estimated that the cost ofexisting restructuring programmes will be circa £1.5m in the next financial yearwith no further costs beyond that. The share incentive costs relate primarily to two schemes; the one-off cost ofthe all-employee share award announced at the time of flotation, and theTransitional Share Awards plan designed as a long term incentive scheme for themost senior managers in the business. All costs are tax deductible with the exception of the costs in relation to thelisting on the London Stock Exchange. The share incentive scheme costs willattract deductions but on a basis different to the accounting treatment. Interest The net finance charge for the year for the Group was £17.8m compared with£16.5m in 2005 (on a proforma basis). The composition of the charge was interestpayable of £18m (2005 £16.8m) in respect of borrowings, less £0.2m (2005 £0.3m)of interest income earned on surplus cash. The main driver for the increasedcharge on a proforma basis was the additional pension contributions of £30m madein both March 2005 and in December 2005. The net finance charge (pre-exceptionals) reported in the accounts has increasedfrom £6.2m to £17.8m. As well as the pension payments described above, the maindriver is the additional borrowings associated with the refinancing of the Groupwhich occurred prior to the listing on the London Stock Exchange. Taxation The tax charge of £16.3m before exceptional items, represents an effective taxrate of 29.2%, which is lower than the UK statutory rate of 30% due to a greaterfocus on the management of taxation as an independent plc. The effective taxrate as reported in the accounts for the previous year was 29.8%. Including theeffect of exceptional items, the effective tax rate was 33.7%, which is higherthan last year's rate of 32.4% due to increased disallowances relating toexceptional items. Earnings per share Earnings per share based on 52 weeks, adjusted for exceptional items, was 18.4p,down 0.1p compared to last year's figure of 18.5p on a proforma (like for like)basis. Basic earnings per share as reported in the accounts (after exceptionals)for the year was 11.2p compared with 20.2p last year. The main drivers of thereduction are the high level of exceptional costs and additional interestcharges relating to the flotation and business restructuring. Dividends The Board is recommending a final dividend for 2006 of 7 pence per share.Together with the interim dividend of 3 pence paid on 7 July 2006, this gives atotal dividend for the year of 10 pence per share. Subject to approval at theAGM, the total cost of the dividend for the year will be £21.6m and the finaldividend will be paid on 16 February 2007 to shareholders on record as at 8December 2006. Cash flow and net debt A very strong performance on cash has delivered a free cash flow for the year of£48.9m before exceptionals. This compares to an outflow of £10.3m last year. Theimprovement is driven principally by Managements focus on driving efficency andreducing costs which has resulted in a reduction in working capital and reducedcapital expenditure. Additional contributions were made to the defined benefit pension scheme of £30min the year (2005 £30m). Net debt was £282.6m at 1 October 2006 compared to the reported £213.8m at thestart of the year. The increase in borrowings was due to the £105.0m paid out individends during the year. This includes a special dividend of £98.5m (includedin the proforma net debt) and the interim dividend of £6.5m. Capital employed Non-current assets reduced in the year from £333.3m to £316.0m due to tightlycontrolled capital expenditure. Management had estimated at flotation thatdepreciation would increase by approximately £3.0m in the year, however, thereduction in capital expenditure has resulted in a decrease of £2.5m to £38.3m.Current assets also reduced from £159.1m to £151.1m reflecting reductions ininventories and receivables. At the same time, current liabilities increasedfrom £166.3m to £171.4m, reflecting increased trade creditors. Invested capitalhas reduced by 8.4% to £293.9m compared to £320.7m at the previous year end. For2005/06 ROIC has improved to 17.0% from 16.8% in 2004/05. Share price and market capitalisation At 2 October 2006 the closing share price for Britvic plc was 244.75p. The Groupis a member of the FTSE 250 index with a market capitalisation of approximately£529m at the year end. Treasury management The financial risks faced by the Group are identified and managed by a centralTreasury department. The activities of the Treasury department are carried outin accordance with Board approved policies and are subject to regular audit andTreasury Committee scrutiny. The department does not operate as a profit centre. Key financial risks faced by the Group include exposures to movement in: • Interest rates • Foreign exchange • Commodity prices The Treasury department is also responsible for the management of the Group'sdebt liquidity, currency requirements and cash. At 1 October 2006, the Group's net debt of £282.6m consisted of £285.0m drawnunder the Group's committed and syndicated bank facility, plus £17.5m ofdrawings under uncommitted bank facilities. This was netted off with £19.2m ofsurplus cash and £0.7m of issue costs of loans. Pensions The Group operates a pension scheme, which has both a defined benefit fund and adefined contribution fund. The defined benefit section of the scheme was closedon 1 August 2002, and since this date new employees have been eligible to jointhe defined contribution section of the scheme. The latest valuation forcontribution purposes was carried out as at 31 March 2004. As a result of thefull actuarial valuation at this date, further contributions of £30m were madein March and December 2005. Additional annual contributions of £10m will be madein December 2006 to 2010 (total of £50m) in order to further reduce the deficitin the scheme. The next actuarial valuation is planned to take place in linewith the normal cycle as at 31 March 2007. On an IAS19 basis, the Group's defined benefit pension scheme showed a deficitof £65.8m at 1 October 2006 compared with £84.6m for the previous year end. Thereduction in the deficit reflects the benefit of £30m of further additionalpension contributions paid in the year, net of an actuarial loss of £10.8mrecognised in the year. Critical accounting policies The discussion and analysis of Britvic's financial condition and results ofoperations are based upon the consolidated financial statements, which have beenprepared in accordance with International Financial Reporting Standards ('IFRS'). The preparation of these financial statements requires Britvic'smanagement to make estimates and judgements that affect the amounts reported inthe financial statements and accompanying notes. Management bases its estimateson historical experience and on various other assumptions it believes to bereasonable under the circumstances, the results of which form the basis formaking judgements about, among other things, the carrying value of assets andliabilities that are not readily available from other sources. Actual resultsmay differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies reflect the moresignificant judgements and estimates used in the preparation of Britvic's IFRSconsolidated financial statements. Post-retirement benefits The determination of the pension and other post retirement benefits cost andobligation is based on assumptions determined with independent actuarial advice.The assumptions include discount rate, inflation, pension and salary increases,expected return on scheme assets, mortality and other demographic assumptions. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value inuse of the cash generating units to which goodwill has been allocated. The valuein use calculation requires an estimate of the future cash flows expected toarise from the cash-generating unit and a suitable discount rate in order tocalculate present value. Deferred income tax Deferred tax assets and liabilities require management's judgement indetermining the amounts to be recognised. In particular, significant judgementis used when assessing the extent to which deferred tax assets should berecognised which is dependent on the generation of sufficient future taxableprofits. The Group recognises deferred tax assets where it is more likely thannot that the benefit will be realised. CONSOLIDATED INCOME STATEMENTFor the 52 weeks ended 1 October 2006 52 Weeks 52 Weeks Ended 1 October 2006 Ended 2 October 2005 Before Exceptional Total Before Exceptional Total Exceptional Items Exceptional Items Items Items Note £m £m £m £m £m £mRevenue 677.9 - 677.9 698.2 - 698.2Cost of Sales (263.5) - (263.5) (269.5) - (269.5)Gross Profit 414.4 - 414.4 428.7 - 428.7Selling and Distribution Costs (231.0) - (231.0) (232.3) - (232.3)Administration Expenses 5 (109.7) (19.1) (128.8) (120.1) (5.8) (125.9)Operating Profit 6 73.7 (19.1) 54.6 76.3 (5.8) 70.5Finance Income 9 0.2 - 0.2 0.3 - 0.3Finance Costs 5,9 (18.0) (0.3) (18.3) (6.5) (0.1) (6.6)Profit/(loss) before Tax 55.9 (19.4) 36.5 70.1 (5.9) 64.2Taxation 10 (16.3) 4.0 (12.3) (20.9) 0.1 (20.8)Profit/(loss) for the period 39.6 (15.4) 24.2 49.2 (5.8) 43.4attributable to the equityshareholdersEarnings Per Share 11Basic earnings per share 18.4p (7.2p) 11.2p 22.9p (2.7p) 20.2pDiluted earnings per share 18.3p (7.1p) 11.2p 22.9p (2.7p) 20.2p CONSOLIDATED BALANCE SHEETAt 1 October 2006 2006 2005 Note £m £mAssetsNon-current AssetsProperty, plant and equipment 13 218.2 231.5Intangible assets 14 95.4 96.7Trade and other receivables 17 2.4 2.4Deferred income tax assets 10d - 2.7 316.0 333.3Current AssetsInventories 18 31.7 37.9Trade and other receivables 19 99.6 101.8Other financial assets 26a 0.6 -Cash and cash equivalents 20 19.2 19.4 151.1 159.1 Total Assets 467.1 492.4 Equity and LiabilitiesIssued capital 21 (43.2) (12.3)Share premium 22 (2.5) (25.4)Own shares 22 0.5 -Share scheme reserve 22 (4.5) (0.8)Hedging reserve 22 0.4 -Other reserves 22 - (7.1)Retained earnings 22 107.0 23.4 Total Equity 57.7 (22.2) Non-current LiabilitiesInterest bearing loans and borrowings 23 (284.3) (219.3)Deferred tax liabilities 10d (3.3) -Pension liability 24 (65.8) (84.6) (353.4) (303.9)Current LiabilitiesTrade and other payables 25 (147.7) (142.4)Interest bearing loans and borrowings 23 (17.5) (13.9)Other financial liabilities 26a (1.0) -Non-interest bearing loans and borrowings 27 - (2.8)Income tax payable (5.2) (7.2) (171.4) (166.3) Total Liabilities (524.8) (470.2)Total Equity and Liabilities (467.1) (492.4) CONSOLIDATED STATEMENT OF CASH FLOWSFor the 52 weeks ended 1 October 2006 2006 2005 Note £m £mCash flows from operating activitiesProfit from continuing operations before tax and finance costs 54.6 70.5Depreciation 38.3 40.8Amortisation 4.7 3.0Share based payments 7.8 0.5Net pension charge less contributions (29.6) (27.0)Decrease / (increase) in inventory 6.2 (5.2)Decrease / (increase) in debtors 2.2 (7.3)Increase / (decrease) in creditors 3.8 (3.7)Loss on disposal of tangible assets 4.0 3.2Loss on disposal of intangible assets 0.4 -Income tax paid (3.8) (18.8)Net cash flows from operating activities 88.6 56.0 Cash flows from investing activitiesProceeds from sale of tangible assets 0.2 0.1Interest received 0.2 0.3Purchases of tangible assets (29.4) (41.2)Purchases of intangible assets (3.8) (10.6)Acquisition of subsidiary net of cash acquired 15 - (4.3)Net cash flows used in investing activities (32.8) (55.7) Cash flows from financing activitiesFinance costs (0.2) (0.8)Interest paid (16.4) (4.3)Interest bearing loans received 68.6 233.2Repayment of borrowings (2.8) -Purchase of own shares (0.5) -Increase in share capital 0.3 -Dividends paid to equity shareholders (53.3) (112.1)Dividends paid to previous shareholders (51.7) (123.9)Net cash flows used in financing activities (56.0) (7.9) Net decrease in cash and cash equivalents (0.2) (7.6)Cash and cash equivalents at beginning of period 19.4 27.0Cash and cash equivalents at the end of the period 20 19.2 19.4 By balance sheet category:Cash and cash equivalents 19.2 19.4Current interest bearing loans and borrowings:Overdraft - - 19.2 19.4 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the 52 weeks ended 1 October 2006 2006 2005 Note £m £m Actuarial loss on defined benefit pension scheme 24 (10.8) (3.4)Current tax on additional pension contributions 9.0 9.0Deferred tax on pension liabilities (5.7) (8.0)Movement in cash flow hedges 0.6 -Deferred tax on share options granted to employees 0.1 0.4Current tax in share options exercised 1.1 -Net expense recognised directly in equity attributable to equity (5.7) (2.0)shareholdersProfit for the period 24.2 43.4Total recognised income and expense for the period 18.5 41.4 Effects of changes in accounting policyAdoption of IAS 39 on 3 October 2005 (1.0) - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. General InformationBritvic plc is a company incorporated in the United Kingdom under the CompaniesAct 1985. Britvic plc and its subsidiaries (together the "Group") operate in thesoft drinks manufacturing and distribution industry, principally in the UnitedKingdom. On the 14 December 2005, the Ordinary Share Capital of Britvic plc wasadmitted to trading on the London Stock Exchange's market for listed securities. The operating companies of the Group are disclosed within note 31. 2. Statement of complianceThe financial information has been prepared on the basis of applicable IFRS,including relevant International Accounting Standards (IAS), StandingInterpretations Committee (SIC) and International Financial ReportingInterpretations Committee (IFRIC) interpretations issued by the InternationalAccounting Standards Board (IASB). These include IFRS adopted by the EU andthose awaiting formal endorsement, as applicable to the 2006 financialstatements. As permitted, the Group has also early adopted the amendment to IAS19 'Employee Benefits' published in December 2004. The Group adopted IFRS for the first time in the current year and therefore IFRS1 'First-time Adoption of International Financial Reporting Standards' has beenapplied in preparing this financial information. The Group has taken thefollowing exemptions available under IFRS 1: a) Not to restate the comparative information disclosed in the 2005 financial statements (being the financial statements for the 52 weeks ended 2 October 2005) in accordance with IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'. b) Not to restate business combinations occurring before 4 October 2004. c) To recognise all actuarial gains and losses on pensions and other post-retirement benefits directly in shareholders' equity at 4 October 2004. d) Not to apply IFRS 2 'Share-based Payment' to grants of equity instruments on or before 7 November 2002 that had vested prior to 1 January 2005. The disclosures required by IFRS 1, reconciling financial statements previouslypublished under UK GAAP to IFRS, are given in notes 32, 33 and 34. The consolidated financial statements have been prepared on a historical costbasis except where measurement of balances at fair value is required asexplained in note 3. The consolidated financial statements are presented insterling and all values are rounded to the nearest million except whereotherwise indicated. The principal accounting policies adopted by the group are set out in note 3. 3. Accounting policies Basis of preparation For all periods up to and including the year ended 2 October 2005, BritanniaSoft Drinks Limited prepared its financial statements in accordance with UKgenerally accepted accounting practice (UK GAAP). As a consequence of theacquisition of Britannia Soft Drinks Limited by Britvic plc and of thatcompany's listing on the London Stock Exchange, from 3 October 2005 the Group isrequired to prepare consolidated financial statements in accordance withInternational Financial Reporting Standards (IFRS) as endorsed by the EuropeanUnion and as applied in accordance with the provisions of the Companies Act1985. These statements are therefore the first financial statements prepared byBritvic plc in accordance with IFRS and as such take account of the requirementsand options in IFRS 1 as they relate to the 2005 comparatives included therein. Britvic plc is a public limited company incorporated and domiciled in England &Wales. The company's ordinary shares are traded on the London Stock Exchange. Basis of consolidation The consolidated financial information incorporates the financial information ofBritvic plc ("the Company") and the entities controlled by the Company (itssubsidiaries). On acquisition, the assets and liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. Any deficiency of the cost ofacquisition below the fair values of the identifiable net assets acquired(discount on acquisition) is credited to the income statement in the period ofacquisition. Subsidiaries are consolidated from the date of their acquisition, being the dateon which the Group obtains control, and continue to be consolidated until thedate that such control ceases. Control comprises the power to govern thefinancial and operating policies of the investee so as to obtain benefit fromits activities and is achieved through direct or indirect ownership of votingrights; currently exercisable or convertible potential voting rights; or by wayof contractual agreement. The financial statements of subsidiaries are preparedfor the same reporting year as the parent company, using consistent accountingpolicies. All intra-group transactions, balances, income and expenses areeliminated on consolidation. The Group financial statements consolidate the accounts of Britvic plc and allits subsidiary undertakings drawn up to 1 October 2006. The acquisition methodof accounting has been used, under which the results of subsidiary undertakingsacquired or disposed of in the year are included in the consolidated incomestatement from the date of acquisition or up to the date of disposal. Britannia SD Holdings Limited was incorporated on 27 October 2005 and changedits name to Britvic plc on 21 November 2005. Britvic plc is the entity whoseshares are listed on the Official List of the Financial Services Authority andhave been admitted to trading on the London Stock Exchange. The Britannia SoftDrinks Group became a subsidiary of Britannia SD Holdings Limited in accordancewith the Share Exchange Agreement dated 18 November 2005 for the transfer of theentire issued share capital of Britannia Soft Drinks Limited to Britannia SDHoldings Limited in consideration for the issue of fully paid up ordinary sharesof Britannia SD Holdings Limited to existing shareholders. This considerationwas paid in proportion to the existing shareholders' interests in Britannia SoftDrinks Limited. Upon stamping of the relevant stock transfer forms, Britvic plcbecame the registered holder of the entire issued share capital of BritanniaSoft Drinks Limited. The group reorganisation between Britvic plc and the Britannia Soft Drinks Groupwas a transaction between the existing shareholders (see note 21). The share exchange has been accounted for using pooling of interest accountingprinciples since the new shareholders of the Company are the same as the formershareholders and the rights of each shareholder, relative to the others, areunchanged. The consolidated financial statements are presented as if the shareexchange had been effective on 3 October 2005. Revenue recognition Revenue is the value of sales, excluding transactions with or between whollyowned subsidiaries, and after deduction of sales related discounts, value addedtax and other sales-related taxes. Revenue is recognised when the significantrisks and rewards of ownership of the goods have passed to the buyer and theamount can be measured reliably. Sales related discounts are calculated based on the expected amounts necessaryto meet claims by the Group's customers in respect of these discounts andrebates. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciationand any impairment losses. Depreciation is calculated so as to write off thecost of an asset, less its estimated residual value, on a straight-line basis,over the useful economic life of that asset as follows: Plant and machinery 3 to 20 yearsVehicles (included in plant and machinery) 5 to 7 yearsEquipment in retail outlets (included in fixtures, fittings, tools and equipment) 5 to 10 yearsOther fixtures and fittings (included in fixtures, fittings, tools and equipment) 3 to 10 years Land is not depreciated. Freehold properties are depreciated over 50 years. Leasehold properties are depreciated over 50 years, or over the unexpired leaseterm when this is less than 50 years. Gains and losses on disposals are determined by comparing proceeds with carryingamount, and are included in the income statement. The carrying values of property, plant and equipment are reviewed for impairmentwhen events or changes in circumstances indicate the carrying value may not berecoverable. Goodwill Business combinations on or after 4 October 2004 are accounted for under IFRS 3using the purchase method. Goodwill on acquisition is initially measured at costbeing the excess of the cost of acquisition over the Group's interest in thefair value of the identifiable assets and liabilities of a subsidiary, associateor jointly controlled entity at the date of acquisition. Negative goodwill isrecognised immediately in the income statement and positive goodwill isrecognised on the balance sheet. Following initial recognition, goodwill is measured at cost less accumulatedimpairment losses. Goodwill is not amortised. Goodwill is reviewed for impairment at least annually. As at the acquisitiondate, any goodwill acquired is allocated to the group of cash-generating unitsexpected to benefit from the combination's synergies by management. Impairmentis determined by assessing the recoverable amount of the group ofcash-generating units to which the goodwill relates. Where the recoverableamount of the cash-generating unit is less than the carrying amount, animpairment loss is recognised immediately in the income statement. On disposal of a subsidiary, associate or jointly controlled entity, theattributable amount of goodwill is included in the determination of the profitor loss on disposal. Intangible assets Intangible assets acquired separately from a business are capitalised at cost.An intangible asset acquired as part of a business combination is recognisedoutside goodwill if the asset is separable or arises from contractual or otherlegal rights and its fair value can be measured reliably. The useful lives of intangible assets are assessed to be either finite orindefinite. Amortisation is charged on assets with finite lives on astraight-line basis over a period appropriate to the asset's useful life. The carrying values of intangible assets with finite and indefinite lives arereviewed for impairment when events or changes in circumstances indicate thatthe carrying value may not be recoverable. Software costs Software expenditure is recognised as an intangible asset only after itstechnical feasibility and commercial viability can be demonstrated. Acquiredcomputer software licences and software developed in-house are capitalised onthe basis of the costs incurred to acquire and bring to use the specificsoftware. These costs are amortised over their estimated useful lives of 3 to 7years. Impairment of assets The Group assesses at each reporting date whether there is an indication that anasset may be impaired. If any such indication exists, or when annual impairmenttesting for an asset is required, the Group makes an estimate of the asset'srecoverable amount. An asset's recoverable amount is the higher of an asset'sfair value less costs to sell and its value in use and is determined for anindividual asset, unless the asset does not generate cash inflows that arelargely independent of those from other assets or groups of assets. Where thecarrying amount of an asset exceeds its recoverable amount, the asset isconsidered impaired and is written down to its recoverable amount. In assessingvalue in use, the estimated future cash flows are discounted to their presentvalue using a pre-tax discount rate that reflects current market assessments ofthe time value of money and the risks specific to the asset. Impairment lossesof continuing operations are recognised in the income statement in those expensecategories consistent with the function of the impaired asset. An assessment is made at each reporting date as to whether there is anyindication that previously recognised impairment losses may no longer exist ormay have decreased. If such indication exists, the recoverable amount isestimated. A previously recognised impairment loss is reversed only if there hasbeen a change in the estimates used to determine the asset's recoverable amountsince the last impairment loss was recognised. If that is the case the carryingamount of the asset is increased to its recoverable amount. That increasedamount cannot exceed the carrying amount that would have been determined, net ofdepreciation, had no impairment loss been recognised for the asset in prioryears. Inventories and work in progress Inventories are stated at the lower of cost and net realisable value. Costcomprises direct materials and, where applicable, direct labour costs and thoseoverheads that have been incurred in bringing inventories to their presentlocation and condition. Cost is determined using the weighted average costmethod. Net realisable value represents the estimated selling price less allestimated costs of completion and costs to be incurred in marketing, selling anddistribution. Financial assets Financial assets in the scope of IAS 39 are classified as financial assets atfair value through profit or loss. The Group determines the classification ofits financial assets at initial recognition and re-evaluates this designation ateach financial period-end. When financial assets are recognised initially, theyare measured at fair value, being the transaction price plus directlyattributable transaction costs. The Group has financial assets that are classified as loans and receivables. TheGroup measures these as follows: Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market, do not qualify astrading assets and have not been designated as either fair value through profitand loss or available for sale. Such assets are carried at amortised cost usingthe effective interest method if the time value of money is significant. Gainsand losses are recognised in income when the loans and receivables arederecognised or impaired, as well as through the amortisation process. Derivative financial instruments and hedging Period ended 1 October 2006 The Group uses derivative financial instruments such as forward currencycontracts and interest rate swaps to hedge its risks associated with foreigncurrency and interest rate fluctuations. From 3 October 2005, such derivativefinancial instruments are initially recognised at fair value on the date onwhich a derivative contract is entered into and are subsequently remeasured atfair value. Derivatives are carried as assets when the fair value is positiveand as liabilities when the fair value is negative. The fair value of forward currency contracts is calculated by reference tocurrent forward exchange rates for contracts with similar maturity profiles. Thefair value of interest rate swap contracts is determined by reference to marketvalues for similar instruments. For those derivatives designated as hedges and for which hedge accounting isdesired, the hedging relationship is documented at its inception. Thisdocumentation identifies the hedging instrument, the hedged item or transaction,the nature of the risk being hedged and how effectiveness will be measuredthroughout its duration. Such hedges are expected at inception to be highlyeffective. For the purpose of hedge accounting, hedges are classified as • fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability; or • cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction. Any gains or losses arising from changes in the fair value of derivatives thatdo not qualify for hedge accounting are taken to the income statement. Thetreatment of gains and losses arising from revaluing derivatives designated ashedging instruments depends on the nature of the hedging relationship, asfollows: Fair value hedges For fair value hedges, the carrying amount of the hedged item is adjusted forgains and losses attributable to the risk being hedged; the derivative isremeasured at fair value and gains and losses from both are taken to profit orloss. For hedged items carried at amortised cost, the adjustment is amortisedthrough the income statement such that it is fully amortised by maturity. Whenan unrecognised firm commitment is designated as a hedged item, this gives riseto an asset or liability in the balance sheet, representing the cumulativechange in the fair value of the firm commitment attributable to the hedged risk. The Group discontinues fair value hedge accounting if the hedging instrumentexpires or is sold, terminated or exercised, the hedge no longer meets thecriteria for hedge accounting or the Group revokes the designation. Cash flow hedges For cash flow hedges, the effective portion of the gain or loss on the hedginginstrument is recognised directly in equity, while the ineffective portion isrecognised in profit or loss. Amounts taken to equity are transferred to theincome statement when the hedged transaction affects profit or loss, such aswhen a forecast sale or purchase occurs. Where the hedged item is the cost of anon-financial asset or liability, the amounts taken to equity are transferred tothe initial carrying amount of the non-financial asset or liability. If a forecast transaction is no longer expected to occur, amounts previouslyrecognised in equity are transferred to profit or loss. If the hedginginstrument expires or is sold, terminated or exercised without replacement orrollover, or if its designation as a hedge is revoked, amounts previouslyrecognised in equity remain in equity until the forecast transaction occurs andare transferred to the income statement or to the initial carrying amount of anon-financial asset or liability as above. If the related transaction is notexpected to occur, the amount is taken to profit or loss. Period ended 2 October 2005 As the Group has opted not to adopt IAS 39 in the comparative periods, theaccounting policy below relates to UK GAAP and is effective for the period to 2October 2005. The Group uses forward foreign currency contracts to reduce exposure to foreignexchange rates. The Group does not use forward foreign currency contracts forspeculative purposes. For a forward foreign currency contract to be treated as a hedge, the followingcriteria must be met: • the instrument must be related to a contracted foreign currency commitment; • it must involve the same currency as the hedged item; and • it must reduce the risk of foreign currency exchange movements on the Group's operations. The rates under such contracts are used to record the hedged item. As a result,gains and losses are offset against the foreign exchange gains and losses on therelated financial assets and liabilities, or where the instrument is used tohedge a committed future transaction, are not recognised until the transactionoccurs. Amounts payable or receivable in respect of interest rate swaps are recognisedas adjustments to net interest income or expense over the period of thecontract. Derecognition of financial instruments The derecognition of a financial instrument takes place when the Group no longercontrols the contractual rights that comprise the financial instrument, which isnormally the case when the instrument is sold, or all the cash flowsattributable to the instrument are passed through to an independent third party. Share-based payments The cost of equity-settled transactions with employees is measured by referenceto the fair value at the date at which they are granted. Fair value isdetermined by an external valuer using an appropriate pricing model. In valuingequity-settled transactions, no account is taken of any performance conditions,other than conditions linked to the price of the shares ('market conditions'). The cost of equity-settled transactions is recognised, together with acorresponding increase in equity, over the period in which the performanceconditions are fulfilled, ending on the date on which the relevant employeesbecome fully entitled to the award ('vesting date'). The cumulative expenserecognised for equity-settled transactions at each reporting date until thevesting date reflects the extent to which the vesting period has expired and thenumber of equity instruments that, in the opinion of the directors of the Groupand based on the best available estimate at that date, will ultimately vest (orin the case of an instrument subject to a market condition, be treated asvesting as described below). The income statement charge or credit for a periodrepresents the movement in cumulative expense recognised as at the beginning andend of that period. No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas vesting irrespective of whether or not the market condition is satisfied,provided that all other performance conditions are satisfied. The Group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity-settled awards and has applied IFRS 2 only to equity-settledawards granted after 7 November 2002 that had not vested before 1 January 2005. Taxation The current income tax expense is based on taxable profits for the year, afterany adjustments in respect of prior years. It is calculated using taxation ratesenacted or substantively enacted by the balance sheet date and is measured atthe amount expected to be recovered from or paid to the taxation authorities. Provision is made for deferred tax liabilities, or credit taken for deferred taxassets, on all material temporary differences between the tax base of assets andliabilities and their carrying values in the consolidated financial statements. The principal temporary differences arise from accelerated capital allowances,provisions for pensions and other post-retirement benefits, provisions forshare-based payments and employee profit share schemes and other short-termtemporary differences. Deferred tax assets are recognised to the extent that it is regarded as probablethat future taxable profits will be available against which the temporarydifferences can be utilised. Deferred tax is calculated at the tax rates that are expected to apply in theperiods in which the asset or liability will be settled. Pensions The Group operates a pension scheme, the Britvic Pension Plan ("the Scheme"),which has both a defined benefit fund and a defined contribution fund. Thedefined benefit section of the scheme was closed on 1 August 2002, and sincethis date new employees have been eligible to join the defined contributionsection of the scheme. Under defined benefit pension plans, plan assets are measured at fair value andplan liabilities are measured on an actuarial basis, using the projected unitcredit method and discounted at an interest rate equivalent to the current rateof return on a high quality corporate bond of equivalent currency and term tothe plan liabilities. The service cost of providing pension benefits to employees for the year ischarged to the income statement. The cost of making improvements to pensions isrecognised in the income statement on a straight-line basis over the periodduring which the increase in benefits vests. To the extent that theimprovements in benefits vest immediately, the cost is recognised immediately.These costs are recognised as an expense. Past service costs are recognised in profit or loss on a straight-line basisover the vesting period or immediately if the benefits have vested. When asettlement (eliminating all obligations for benefits already accrued) or acurtailment (reducing future obligations as a result of a material reduction inthe scheme membership or a reduction in future entitlement) occurs theobligation and related plan assets are remeasured using current actuarialassumptions and the resultant gain or loss recognised in the income statementduring the period in which the settlement or curtailment occurs. A charge representing the unwinding of the discount on the plan liabilitiesduring the year is included within administrative expenses. A credit representing the expected return on the plan assets during the year isincluded within administrative expenses. This credit is based on the marketvalue of the plan assets, and expected rates of return, at the beginning of theyear. Actuarial gains and losses may result from: differences between the expectedreturn and the actual return on plan assets; differences between the actuarialassumptions underlying the plan liabilities and actual experience during theyear; or changes in the actuarial assumptions used in the valuation of the planliabilities. Actuarial gains and losses, and taxation thereon, are recognisedin the consolidated statement of recognised income and expense. For defined contribution plans, contributions payable for the year are chargedto the income statement as an operating expense. Employee benefits Wages, salaries, bonuses, paid annual leave and sick leave are accrued in theyear in which the associated services are rendered by the employees of theGroup. Provisions Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of the obligation. Where theGroup expects a provision to be reimbursed, for example under an insurancecontract, the reimbursement is recognised as a separate asset but only when thereimbursement is virtually certain. If the effect of the time value of money ismaterial, provisions are determined by discounting the expected future cashflows at a pre-tax rate that reflects current market assessments of the timevalue of money and, where appropriate, the risks specific to the liability.Where discounting is used, the increase in the provision due to the passage oftime is recognised as an interest expense. Leases Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at theirfair value or, if lower, at the present value of the minimum lease payments,each determined at the inception of the lease. The corresponding liability tothe lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between the finance element, which is charged tothe Income Statement using the effective interest rate method, and the capitalelement which reduces the outstanding obligation for future instalments. Rentals payable under operating leases are charged to income on a straight-linebasis over the term of the relevant lease. Lease incentives received are credited to the income statement on astraight-line basis over the term of the leases to which they relate. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call withbanks and other short-term highly liquid investments with original maturities ofthree months or less, which are readily convertible into known amounts of cashand subject to insignificant risk of changes in value. For the purposes of thestatement of cash flows, bank overdrafts repayable on demand are a component ofcash equivalents. Trade and other receivables Trade receivables, which generally have 30-90 day terms, are recognised at theiroriginal amount less an allowance for any doubtful accounts. An allowance for doubtful accounts is made when collection of the full amount isno longer considered probable. Balances are written off when the probability ofrecovery is assessed as being remote. Interest bearing loans and borrowings Borrowings are stated at proceeds received less any unamortised issue costs. Finance charges are charged to the income statement using an effective interestrate method. Finance costs not settled in the period are included within theoutstanding loan balance. Foreign currencies Functional and Presentation Currency The consolidated financial information is presented in pounds sterling, which isthe Group's functional and presentational currency. Transactions and Balances Transactions in foreign currencies are recorded at the rate ruling at the dateof the transaction. Monetary assets and liabilities denominated in foreigncurrencies are translated at the rate of exchange ruling at the balance sheetdate. All differences are taken to the income statement. Segmental reporting A business segment is a distinguishable component of the Group engaged inproviding products and services that are subject to risks and returns that aredifferent from those of other business segments. A geographical segment isengaged in providing products and services within a particular economicenvironment that are subject to risks and returns that are different from thoseof segments operating in other economic environments. Segment reporting reflectsthe internal management structure and the way the business is managed. The directors consider that the Group has only one reportable geographic segmentand one business segment being the manufacture and sale of soft drinks. Thedirectors consider that the risks and returns of the Group's products aresimilar in nature. Issued share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or optionsare shown in equity as a deduction, net of tax, from the proceeds. Exceptional items The Group presents as exceptional items on the face of the income statementthose significant items of income and expense which, because of the nature andinfrequency of the events giving rise to them, merit separate presentation toallow shareholders to understand better the elements of financial performance inthe year, so as to facilitate comparison with prior periods and to assess trendsin financial performance more readily. Borrowing costs All borrowing costs are recognised as finance costs in the income statement inthe period in which they are incurred. Issue costs of loans The finance cost recognised in the income statement in respect of capitalinstruments is allocated to periods over the terms of the instrument using theeffective interest method. New standards and interpretations not applied The Group has not applied the following IFRSs and IFRIC Interpretations, whichwill be applicable to the Group, that have been issued but are not yeteffective: Effective date , periods commencingInternational Financial Reporting Standards (IFRS)IFRS 6 Exploration for and evaluation of mineral resources 1 January 2007IFRS 7 Financial Instruments: Disclosures 1 January 2007International Accounting Standards (IAS)IAS 1 Amendment - Presentation of Financial Statements: 1 January 2007 Capital DisclosuresIAS 21 Amendment - The Effects of Changes in Foreign Exchange Rates: Net Investment in a Foreign Operation 1 January 2006IAS 39 Amendment - Financial Instruments: Recognition and Measurement: The Fair Value Option 1 January 2006IAS 39 Amendment - Financial Instruments: Recognition and Measurement: Cash Flow Hedge Accounting of Forecast Intragroup Transactions 1 January 2006IAS 39 / IFRS 4 Amendment - Financial Instruments: Recognition and Measurement: Financial Guarantee Contracts 1 January 2006International Financial Reporting Interpretations Committee (IFRIC)IFRIC 4 Determination whether an arrangement contains a lease 1 January 2006IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds 1 January 2006IFRIC 9 Reassessment of Embedded Derivatives 1 June 2006 The directors do not anticipate that the adoption of these standards andinterpretations will have a material impact on the Group's financial statementsin the period of initial application. Upon adoption of IFRS 7, the Group will have to disclose additional informationabout its financial instruments, their significance and the nature and extent ofrisks that they give rise to. More specifically the Group will need to disclosethe fair value of its financial instruments and its risk exposure in greaterdetail. There will be no effect on reported income or net assets. Those standards not mentioned above but issued recently have been considered bythe Group and have no significant impact on the financial statements. Key sources of estimation uncertainty In applying the above accounting policies, management has made appropriateestimates and judgements in a number of areas. The key sources of estimationuncertainty at the balance sheet date that have a significant risk of causingsignificant adjustment to the carrying amounts of assets and liabilities withinthe next financial year are: Post-retirement benefits The determination of the pension and other post retirement benefits cost andobligation is based on assumptions determined with independent actuarial advice.The assumptions include discount rate, inflation, pension and salary increases,expected return on scheme assets, mortality and other demographic assumptions. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value inuse of the cash generating units to which goodwill has been allocated. The valuein use calculation requires an estimate of the future cash flows expected toarise from the cash-generating unit and a suitable discount rate in order tocalculate present value. Deferred income tax Deferred tax assets and liabilities require management's judgement indetermining the amounts to be recognised. In particular, significant judgementis used when assessing the extent to which deferred tax assets should berecognised which is dependent on the generation of sufficient future taxableprofits. The Group recognises deferred tax assets where it is more likely thannot that the benefit will be realised. 4. Change of accounting policy: Implementation of IAS 32 and IAS 39 As permitted by IFRS 1 'First time adoption of International Financial ReportingStandards' the Group elected not to present comparative information inaccordance with IAS 32 'Financial Instruments: Disclosure and Presentation' andIAS 39 'Financial Instruments: Recognition and Measurement'. Therefore in thecomparative information for the year ended 2 October 2005, financial assets andliabilities are accounted for under UK GAAP. The accounting treatment under UK GAAP for derivative financial instruments usedfor hedging purposes is detailed in note 3. From 3 October 2005 for IFRS all financial assets and financial liabilities haveto be recognised initially at fair value. In subsequent periods the measurementof these financial instruments depends on their classification. At 3 October 2005 the Group had forward exchange contracts and interest rateswaps outstanding in relation to anticipated future cash flows. Hedges of cashflows have been valued using forward rates ruling at 3 October 2005. The effectsof adopting IAS 39 are shown as a restatement of the opening balance of reservesat 3 October 2005. Should IAS 39 be applied as at 2 October 2005, the impact on the balance sheetas at that date would be as follows: £mDecrease in reserves (1.0)Increase in current liabilities 1.2Increase in current assets (0.2) 5. Exceptional items 2006 2005 £m £mListing costs (5.5) (5.8)Incentive schemes directly associated with the flotation (6.6) -Restructuring costs (7.0) - (19.1) (5.8)Finance costs (see note 9) (0.3) (0.1) (19.4) (5.9)"Listing costs" relates to costs incurred in pursuit of the listing on theLondon Stock Exchange which include advisors' fees. "Incentive schemes directly associated with the flotation" include all-employeeshare schemes and management incentives. "Restructuring costs" includes the costs of major restructuring programmesundertaken in the year. These costs relate principally to redundancy costs andadvisors' fees. 6. Operating profit This is stated after charging/(crediting): 2006 2005 £m £mResearch and development expenditure written off 2.0 1.2 Net foreign currency differences 0.2 (0.1) Depreciation of property, plant and equipment 38.3 40.8Amortisation of intangible assets 4.7 3.0Total depreciation and amortisation expense included in administration 43.0 43.8expenses Operating lease payments- minimum lease payments 10.2 10.5- sublease payments (0.3) (0.2)Total lease and sublease payments recognised as an expense 9.9 10.3 7. Auditors' remuneration 2006 2005 £m £mAuditors' remuneration - audit services 0.2 0.2 Other fees to auditors- corporate finance services * 1.0 1.9 * Corporate finance fees relate to costs incurred in respect of the flotation. 8. Staff costs 2006 2005 £m £mWages and salaries* (93.3) (88.2)Social security costs (8.5) (8.7)Pension costs (note 24) (10.7) (13.4)Expense of share based payments and employee profit share scheme** (6.9) (4.4) (119.4) (114.7)* £4.3m (2005: £nil) of this is included within "restructuring costs" inexceptional items (note 5).** £6.6m (2005: £nil) of this is included within exceptional items (see note 5and note 28). Directors' emoluments included above are detailed in the Directors' RemunerationReport. The average monthly number of employees during the period was made up asfollows: 2006 2005Distribution 605 578Production 1,157 1,255Sales and marketing 786 841Administration 347 368 2,895 3,0429. Finance income/(costs) 2006 2005 £m £mFinance income Bank interest receivable - 0.3Other interest receivable 0.2 -Total finance income 0.2 0.3 Finance costs Bank loans and overdrafts (18.3) (6.6)Total finance costs (18.3) (6.6) Included within total finance costs is interest on bank loans and overdrafts of £0.3m which relates toexceptional items (2005: £0.1m). 10. Taxation a) Tax on profit on ordinary activities 2006 Before Exceptional Exceptional Items Items Total £m £m £mConsolidated income statementCurrent income taxCurrent income tax charge (16.0) 3.5 (12.5)Amounts overprovided in previous years 0.6 - 0.6Total current income tax (charge)/credit (15.4) 3.5 (11.9)Deferred income taxOrigination and reversal of temporary differences (0.9) 0.5 (0.4)Total deferred tax (charge)/credit (0.9) 0.5 (0.4)Total tax (charge)/credit in the income statement (16.3) 4.0 (12.3)Consolidated statement of recognised income and expenseTax on pensions 3.3Deferred tax on share options granted to employees 1.2Tax benefit reported in equity 4.5 2005 Before Exceptional Exceptional Items Items Total £m £m £mConsolidated income statementCurrent income taxCurrent income tax charge (12.6) 0.1 (12.5)Amounts underprovided in previous years (1.0) - (1.0)Total current income tax (charge)/credit (13.6) 0.1 (13.5)Deferred income taxOrigination and reversal of temporary differences (7.3) - (7.3)Total deferred tax charge (7.3) - (7.3)Total tax (charge)/credit in the income statement (20.9) 0.1 (20.8)Consolidated statement of changes in equityTax on pensions 1.0Deferred tax on share options granted to employees 0.4Tax benefit reported in equity 1.4 b) Reconciliation of the total tax charge The tax expense in the income statement is higher than the standard rate ofcorporation tax in the UK of 30% (2005: 30%). The differences are reconciledbelow: 2006 Before Exceptional Exceptional Items Items Total £m £m £m Accounting profit before income tax 55.9 (19.4) 36.5 Accounting profit multiplied by the UK standard rate of corporation tax of 30% (16.8) 5.8 (11.0) Expenditure not deductible for income tax purposes (0.5) (1.6) (2.1)Tax charge on share-based payments (0.1) (0.3) (0.4)Tax overprovided in previous years 0.7 0.1 0.8Tax relief on intangible assets 0.4 - 0.4 (16.3) 4.0 (12.3)Effective income tax rate 29.2% 33.7% 2005 Before Exceptional Exceptional Items Items Total £m £m £m Accounting profit before income tax 70.1 (5.9) 64.2Accounting profit multiplied by the UK standard rate of (21.0) 1.8 (19.2)corporation tax of 30%Expenditure not deductible for income tax purposes (0.4) (1.7) (2.1)Tax relief on share-based payments 0.1 - 0.1Tax overprovided in previous years 0.3 - 0.3Other temporary differences 0.1 - 0.1 (20.9) 0.1 (20.8)Effective income tax rate 29.8% 32.4% c) Unrecognised tax losses The Group has unrecognised capital tax losses which arose in the UK of £2.4m(2005: £2.4m) that are available indefinitely for offset against future taxableprofits of the companies in which the losses arose. These tax losses can only beoffset against future capital gains and have not been recognised in thesefinancial statements. d) Deferred income tax The deferred income tax included in the balance sheet is as follows: 2006 2005 £m £mDeferred tax liabilityAccelerated capital allowances for tax purposes (22.9) (23.4)Intangible assets (0.4) (0.3)Other temporary differences (1.6) (1.7)Deferred tax liability (24.9) (25.4)Deferred tax assetEmployee incentive plan 1.9 2.7Post employment benefits 19.7 25.4Deferred tax asset 21.6 28.1 Net deferred income tax (liability)/asset (3.3) 2.7 The deferred tax included in the group income statement is as follows: 2006 2005 £m £mDeferred tax liabilityEmployee incentive plan (1.1) (0.3)Intangible assets (0.1) (0.3)Other temporary differences - 0.1 Deferred tax assetAccelerated capital allowances for tax purposes 0.5 (0.9)Post employment benefits 0.2 (7.1)Deferred income tax from prior years 0.2 1.2 Deferred tax charge (0.3) (7.3) 11 Earnings per share Basic earnings per share amounts are calculated by dividing profit for the yearattributable to ordinary equity holders of the parent by the weighted averagenumber of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profitattributable to ordinary equity holders of the parent (before deducting intereston the convertible non-cumulative redeemable preference shares) by the weightedaverage number of ordinary shares outstanding during the year plus the weightedaverage number of ordinary shares that would be issued on the conversion of allthe dilutive potential ordinary shares into ordinary shares. The following table reflects the income and share data used in the basic anddiluted earnings per share computations: 2006 2005 £m £mBasic earnings per share for reported earningsNet profit attributable to ordinary shareholders 24.2 43.4Weighted average number of ordinary shares in issue for basic earnings per share 215.4 214.8Basic earnings per share for profit 11.2p 20.2pDiluted earnings per share for reported earningsNet profit attributable to ordinary shareholders 24.2 43.4Weighted average number of ordinary shares in issue for diluted 216.7 214.8earnings per shareDiluted earnings per share for profit 11.2p 20.2p The group presents as exceptional items on the face of the income statement, those significant items ofincome and expense which, because of the nature and expected infrequency of the events giving rise to them,merit separate presentation to allow shareholders to understand better the elements of financial performancein the year, so as to facilitate comparison with prior periods and to assess better trends in financialperformance. To this end, basic and diluted earnings per share is also presented on this basis using the weighted averagenumber of ordinary shares for both basic and diluted amounts as per the table above. 2006 2005 £m £mBasic earnings per share for pre-exceptional earningsNet profit attributable to ordinary shareholders 24.2 43.4Add: Net Impact of exceptional items 15.4 5.8Net profit attributable to ordinary shareholders (before exceptional items) 39.6 49.2Weighted average number of ordinary shares in issue for basic earnings per share 215.4 214.8Basic earnings per share for pre-exceptional earnings 18.4p 22.9pDiluted earnings per share for pre-exceptional earningsNet profit attributable to ordinary shareholders (before exceptional items) 39.6 49.2Weighted average number of ordinary shares in issue for diluted earnings per share 216.7 214.8Diluted earnings per share for pre-exceptional earnings 18.3p 22.9p 12 Dividends paid and proposed 2006 2005 £m £mDeclared and paid during the yearEquity dividends on ordinary sharesFinal dividend for 2004: 270.35p per share - (33.1)First dividend for 2005: 1,539.84p per share - (189.0)Interim dividend for 2005: 112.69p per share - (13.9)Special dividend for 2006 : 45.86p per share (98.5) -Interim dividend for 2006 : 3.00p per share (6.5) -Dividends paid (105.0) (236.0)Proposed for approval by the shareholders at the AGMFinal dividend for 2006: 7.00p per share (15.1) - 13 Property, plant and equipment Fixtures, Freehold Leasehold fittings, land and land and Plant and tools and buildings buildings machinery equipment Total £m £m £m £m £m At 2 October 2005, net of accumulated depreciation 47.5 14.1 79.2 90.7 231.5Reclassification - cost (1.6) 1.6 - - -Reclassification - accumulated depreciation - - - - -Additions 0.9 1.9 12.8 13.6 29.2Disposals at cost - - (2.2) (12.6) (14.8)Depreciation eliminated on disposals - - 2.0 8.6 10.6Depreciation charge for the year (0.7) (0.5) (17.1) (20.0) (38.3)At 1 October 2006, net of accumulated depreciation 46.1 17.1 74.7 80.3 218.2 At 1 October 2006Cost 51.0 20.1 207.1 203.4 481.6Accumulated depreciation and impairment (4.9) (3.0) (132.4) (123.1) (263.4)Net carrying amount 46.1 17.1 74.7 80.3 218.2 At 2 October 2005Cost 51.7 16.6 196.5 202.4 467.2Accumulated depreciation and impairment (4.2) (2.5) (117.3) (111.7) (235.7)Net carrying amount 47.5 14.1 79.2 90.7 231.5 14 Intangible assets Software costs Goodwill Total £m £m £mCost as at 2 October 2005, net of accumulated amortisation 25.2 71.5 96.7Additions 3.8 - 3.8Disposals at cost (0.9) - (0.9)Amortisation eliminated on disposal 0.5 - 0.5Amortisation (4.7) - (4.7)At 1 October 2006 23.9 71.5 95.4 At 1 October 2006Cost (gross carrying amount) 33.7 71.5 105.2Accumulated amortisation and impairment (9.8) - (9.8)Net carrying amount 23.9 71.5 95.4 At 2 October 2005Cost (gross carrying amount) 30.8 71.5 102.3Accumulated amortisation and impairment (5.6) - (5.6)Net carrying amount 25.2 71.5 96.7 An impairment review was carried out at 1 October 2006 in accordance with IAS 36'Intangible Assets'. These reviews have been and will continue to be carried outannually or more frequently if there are indicators of impairment. Software costs are capitalised at cost. These intangible assets have beenassessed as having finite lives and are amortised under the straight-line methodover a period of 3 to 7 years. These assets are tested for impairment where anindicator of impairment arises. 15 Business combination Acquisition of trade and assets of Benjamin Shaw and Sons Limited During November 2004, the Group acquired the trade and assets of Benjamin Shawand Sons Limited, an unlisted company based in Huddersfield specialising in thebottling of mineral water. The fair value of the identifiable assets and liabilities of Benjamin Shaw andSons Limited as at the date of acquisition were: Recognised on Carrying acquisition value £m £mProperty, plant and equipment 2.8 2.8Trade and other receivables 0.3 0.3Inventories 0.2 0.2 3.3 3.3Trade and other payables (0.7) (0.7)Deferred tax liabilities - - (0.7) (0.7)Fair value of net assets 2.6 2.6Goodwill arising on acquisition 1.7 4.3 Consideration: £mCash paid (3.9)Costs associated with the acquisition (0.4)Total consideration (4.3) The cash outflow on acquisition is as follows: £mNet cash acquired with the subsidiary -Cash paid (4.3)Net cash outflow (4.3) 16 Impairment test of goodwill Goodwill acquired through business combinations has been allocated by seniormanagement to 6 individual cash-generating units for impairment testing asfollows: • Orchid; • Red Devil; • Tango; • Robinsons; • Britvic Soft Drinks business; and • Water Business. The recoverable amount of these units has been determined based on a value inuse calculation. To calculate this, cash flow projections are based onfinancial budgets approved by senior management covering a five year period.The discount rate applied to cash flow projections is 8 per cent and cash flowsbeyond the one year period are extrapolated using a growth rate in line withsenior management expectations of growth. Carrying amount of goodwill at 1 October 2006 and 2 October 2005 Red Devil Orchid Tango Robinsons BSD Water Total £m £m £m £m £m £m £mCarrying amount of goodwill 2.1 12.4 8.9 38.6 7.8 1.7 71.5 Key assumptions used in value in use calculation The following describes each key assumption on which management has based itscash flow projections to undertake impairment testing of goodwill. Growth rates - reflect senior management expectations of volume growth. Discount rates - reflect senior management's estimate of the cost of capital.The estimated cost of capital is the benchmark used by management to assessoperating performance and to evaluate future capital investment proposals. Budgeted marginal contribution - financial budgets approved by senior managementare used to determine the value assigned to budgeted marginal contribution. Advertising and promotional spend - financial budgets approved by seniormanagement are used to determine the value assigned to advertising andpromotional spend. Raw materials price, production and distribution costs, selling costs and otheroverhead inflation - the basis used to determine the value assigned to inflationis forecast consumer price indices of 2 per cent. Sensitivity to changes in assumptions There are no reasonably possible changes in key assumptions which would causethe carrying value of these units to exceed their recoverable amount. 17 Trade and other receivables (non-current) 2006 2005 £m £mPrepayments 2.4 2.4 This amount relates to the un-amortised element of lease premiums paid oninception of operating leases. 18 Inventories 2006 2005 £m £mRaw materials 7.9 9.7Finished goods 15.9 21.0Consumable stores 6.9 6.2Returnable bottles and cases 1.0 1.0Total inventories at lower of cost and net realisable value 31.7 37.9 The Group wrote down the value of stocks by £1.5m (2005: £1.2m). 19 Trade and other receivables (current) 2006 2005 £m £mTrade receivables 87.2 85.5Other receivables 0.9 2.5Prepayments 11.5 13.8 99.6 101.8 Trade receivables are non-interest bearing and are generally on credit termsusual for the business in which the Group operates. 20 Cash and cash equivalents 2006 2005 £m £mCash at bank and in hand 19.2 19.4 Cash at bank and in hand earns interest at floating rates based on daily bankdeposit rates. During the year short-term deposits are made for varying periodsof between one day and one month depending on the immediate cash requirements ofthe Group, and earn interest at the respective short-term deposit rates. Thefair value of cash and cash equivalents is £19.2m (2005: £19.4m). At 1 October 2006, the Group had available £165.0m (2005: £96.1m) of un-drawncommitted borrowing facilities in respect of which all conditions precedent hadbeen met. For the purposes of the consolidated statement of cash flows, cash and cashequivalents comprise the following: 2006 2005 £m £mCash at bank and in hand 19.2 19.4Overdraft - - 19.2 19.4 21 Issued share capital The Company was incorporated on 27 October 2005 with an authorised share capitalof £655,000,000 divided into 6,550,000,000,000 ordinary shares of £0.0001 each. 5,829,810 ordinary shares were allotted to Six Continents Investments Limited,2,914,904 ordinary shares were allotted to Whitbread Group PLC, 2,914,904ordinary shares were allotted to Allied Domecq Overseas (Canada) Limited and613,664 ordinary shares were allotted to Wotsits Brands Limited, all issued atpar value of £0.0001 for cash. As a result, issued share capital onincorporation comprised 12,273,282 ordinary shares totalling £1,227. Since the date of incorporation, the following changes in share capital haveoccurred: On 18 November 2005 the Company acquired the entire share capital of BritanniaSoft Drinks Limited pursuant to a share exchange agreement dated 18 November2005, in consideration of the issue to the shareholders of Britannia Soft DrinksLimited of 4,295,636,424,718 ordinary shares of £0.0001 each. On 18 November 2005 the entire share capital was consolidated in a ratio of 1for every 20,000 shares. This resulted in a revised share capital of214,782,435 ordinary shares with a nominal value of £2 each. On 24 November 2005, the company's share capital was reduced by a court-approvedreduction of capital. The share capital of £429,564,870 divided into214,782,435 ordinary shares of £2 each was reduced to 214,782,435 ordinaryshares of £0.20 each, thus creating distributable reserves of £386,608,383 inthe company. There have been further smaller share issues relating to incentive schemes foremployees. These are detailed below: Date No of shares issued Value (£) 17 February 2006 98,691 19,738 17 March 2006 115,258 23,052 10 April 2006 915,408 183,082 18 April 2006 126,003 25,200 As a result of the above share issues, issued share capital as at 1st October2006 comprised 216,037,795 ordinary shares of £0.20 each, totalling £43,207,559. The ordinary shares carry voting rights of one vote per share. There are norestrictions placed on the distribution of dividends, or the return of capitalon a winding up or otherwise. 2006 2005 £m £mAuthorisedOrdinary shares of £0.20 (2005: £1) each 65.5 15.7Ordinary shares issued and fully paidOrdinary shares of £0.20 (2005: £1) each 43.2 12.3 The prior year comparative relates to Britannia Soft Drinks Limited. 22 Reconciliation of movements in equity Called Share Share up share premium Own scheme Hedging Other Retained capital account shares reserve reserve reserves earnings Total £m £m £m £m £m £m £m £mAt 3 October 2005 (12.3) (25.4) - (0.8) - (7.1) 23.4 (22.2)Adoption of IAS 39 on 3 October 2005 - - - - 1.0 - - 1.0At 3 October 2005 (Restated) (12.3) (25.4) - (0.8) 1.0 (7.1) 23.4 (21.2)Reserve changes as a result of IPO (30.6) 25.4 - - - 7.1 (1.9) -Profit for the period - - - - - - (24.2) (24.2)Amounts taken to the statement of recognised income and expense - - - - (0.6) - 6.3 5.7Issue of shares (0.3) (2.5) - 2.8 - - - -Own shares purchased for share schemes - - 0.5 - - - - 0.5Movement in share based schemes - - - (6.5) - - (1.5) (8.0)Other temporary tax differences - - - - - - (0.1) (0.1)Total recognised income and expense for the year (30.9) 22.9 0.5 (3.7) (0.6) 7.1 (21.4) (26.1)Payment of dividends - - - - - - 105.0 105.0At 1 October 2006 (43.2) (2.5) 0.5 (4.5) 0.4 - 107.0 57.7 Nature and purpose of other reserves Share premium The share premium account is used to record the excess of proceeds over nominalvalue on the issue of shares. Own shares The own shares account is used to record purchases by the group of its ownshares, which will be distributed to employees as and when share awards madeunder the Britvic employee share plans vest. Share scheme reserve The share scheme reserve is used to record the movements in equity correspondingto the cost recognised in respect of equity-settled share based paymenttransactions and the subsequent settlement of any awards that vest either byissue or purchase of the Group's shares. Hedging reserve The hedging reserve records movements in the fair value of forward exchangecontracts and interest rate swaps. Other reserves Other reserves included a capital redemption reserve, which recorded the nominalvalue of shares redeemed by Britannia Soft Drinks Ltd, and a revaluationreserve, arising under UK GAAP, prior to the transition to IFRS. Deferred tax adjustments made during the year to other reserves relate todeferred tax arising under IFRS on qualifying buildings, to reflect previousdownward revaluations. Retained earnings Deferred tax adjustments made during the year to retained earnings relate todeferred tax arising under IFRS on pension actuarial losses and deferred taxarising on the cost of share options granted to employees under IFRS. Reserve changes as a result of IPO £mIssued share capital Issue of 4,295,636,424,718 ordinary shares with a nominal value of £0.0001 to theexisting shareholders of Britannia Soft Drinks Limited (429.6) Consolidation on 18 November of the total issued share capital of 4,295,648,700,000ordinary shares of £0.0001 each at a ratio of one for every 20,000. This resulted in arevised nominal value of £2 per share. The nominal value of each share wassubsequently reduced from £2 to £0.20 per share by a court approved reduction of sharecapital on 24 November 2005 creating additional distributable reserves 386.7 Elimination of Britannia Soft Drinks Limited's share capital 12.3 (30.6)Share premium accountElimination of Britannia Soft Drinks Limited's share premium account 25.4 Other reservesElimination of Britvic plc's investment in Britannia Soft Drinks Limited against other reserves 7.1 Retained earningsAdditional reserves were created by a court-approved reduction of capital on 24November 2005 as described above (386.7) Elimination of Britvic plc's investment in Britannia Soft Drinks Limited againstretained earnings (excess of cost of investment over Britannia Soft Drinks Limited'sshare capital, share premium and other reserves balances) 384.8 (1.9)23 Interest bearing loans and borrowings 2006 2005 £m £mCurrentBank overdrafts - -Unsecured bank loans (17.5) (13.9)Total (17.5) (13.9) Non-currentUnsecured bank loans (285.0) (220.0)Less unamortised issue costs 0.7 0.7Total (284.3) (219.3) The unsecured bank loans classified as current are repayable in May 2007 (2005:May 2006) and attract interest at a rate of 5.25% (2005: 4.70% to 4.84%). The unsecured bank loans classified as non-current are repayable in May 2010(2005: May 2010) and attract swap-inclusive interest at an average rate of 5.34%(2005: 5.20%). Analysis of changes in interest-bearing loans and borrowings 2006 2005 £m £mCurrent liabilities (13.9) -Non-current liabilities (219.3) -At the beginning of the period (233.2) -Bank loans repaid / drawn down (69.3) (233.9)Issue costs of new loans 0.7 0.7At the end of the period (301.8) (233.2) 24 Pensions The Group operates a pension scheme, the Britvic Pension Plan ("the Scheme"),which has both a defined benefit fund and a defined contribution fund. Thedefined benefit section of the scheme was closed on 1 August 2002, and sincethis date new employees have been eligible to join the defined contributionsection of the scheme. The funds are administered by trustees and areindependent of the Group's finances. Contributions are paid into the funds inaccordance with the recommendations of an independent actuary. The latestvaluation for contribution purposes was carried out as at 31 March 2004. As aresult of the full actuarial valuation at this date, further contributions of£30m were made in March and December 2005. An annual contribution of £10m willbe made in December 2006-2010 in order to eliminate the deficiency in the schemearising at that time. The amount recognised as an expense in relation to the defined contributionscheme in the income statement for 2006 was £1.3m (2005: £0.9m). The principal assumptions used in determining pension and post-employmentbenefit obligations for the Group's plans are shown below: 2006 2005 % %Discount rate 5.00 5.00Rate of compensation increase 4.50 4.30Expected long term return on plan assets 6.34 6.95Pension increases (LPI) 3.00 2.80Inflation assumption 3.00 2.80 The most significant non-financial assumption is the assumed rate of longevity.This is based on standard actuarial tables known as PA92. An allowance forfuture improvements in longevity has been also included. To develop the expected long term rate of return on assets assumption, the Groupconsidered the level of expected returns on risk free investments (primarilygovernment bonds), the historical level of the risk premium associated with theother asset classes in which the portfolio is invested and the expectations forfuture returns of each asset class. The expected return for each asset class wasthen weighted based on the target asset allocation to develop the expected longterm rate on assets assumption for the portfolio. Net benefit expense Recognised in the Income Statement 2006 2005 £m £mCurrent service cost (11.6) (11.1)Special termination benefits (0.5) (0.1)Interest cost on benefit obligation (20.7) (19.6)Expected return on plan assets 21.8 18.3Curtailment gain 1.6 -Net expense (9.4) (12.5) The net expense detailed above is all recognised in arriving at net profit fromcontinuing operations before tax and finance costs / income, and is includedwithin cost of sales, selling and distribution costs and administrationexpenses. Taken to the Statement of Recognised Income and Expense 2006 2005 £m £mActual return on scheme assets 31.8 50.9Less: Expected return on scheme assets (21.8) (18.3) 10.0 32.6Other actuarial gains and losses (20.8) (36.0)Actuarial losses taken to the Statement of Recognised Income and Expense (10.8) (3.4) Net liability 2006 2005 £m £mPresent value of benefit obligation (454.5) (412.2)Fair value of plan assets 388.7 327.6Net liability (65.8) (84.6) Movements in the present value of benefit obligation are as follows: 2006 2005 £m £mAt start of period (412.2) (352.1)Current service cost (11.6) (11.1)Special termination benefits* (0.5) (0.1)Member contributions (2.4) (2.5)Interest cost on benefit obligation (20.7) (19.6)Benefits paid 12.1 9.2Curtailment gain 1.6 -Actuarial gains and losses (20.8) (36.0)At end of period (454.5) (412.2) The current service cost excludes contributions made by employees of £2.4m(£2.5m). * Special termination benefits relate to redundancy payments Movements in the fair value of plan assets are as follows: 2006 2005 £m £mAt start of period 327.6 243.9Expected return on plan assets 21.8 18.3Actuarial gains and losses 10.0 32.6Employer contributions 39.0 39.5Member contributions 2.4 2.5Benefits paid (12.1) (9.2)At end of period 388.7 327.6 Categories of scheme assets as a percentage of the fair value of total schemeassets 2006 2006 2005 2005 % £m % £mEquities and real estate 58 226.3 61 199.8Bonds and gilts 42 161.3 38 124.5Cash 0 1.1 1 3.3Total 100 388.7 100 327.6 Categories of scheme assets as a percentage of the expected return on assets 2006 2006 2005 2005 % £m % £mEquities and real estate 69 15.1 74 13.5Bonds and gilts 30 6.6 26 4.8Cash 1 0.1 0 0Total 100 21.8 100 18.3 History of experience gains and losses 2006 2005 2004 £m £m £mFair value of scheme assets 388.7 327.6 243.9Present value of defined benefit obligations (454.5) (412.2) (352.1)Deficit in the scheme (65.8) (84.6) (108.2)Experience adjustments arising on plan liabilities (2.0) - 10.5Experience adjustments arising on plan assets 10.0 32.6 6.1 The cumulative amount of actuarial gains and losses recognised since 4 October2004 in the Group Statement of Recognised Income and Expense is an overall lossof £14.3 million (2005: loss of £3.4 million). The Directors are unable todetermine how much of the pension scheme deficit recognised on transition toIFRS and taken direct to equity of £1.3 million is attributable to actuarialgains and losses since the inception of those pension schemes. Consequently,the Directors are unable to determine the amount of actuarial gains and lossesthat would have been recognised in the Group Statement of Recognised Income andExpense before 4 October 2004. 25 Trade and other payables (current) 2006 2005 £m £mTrade payables (92.3) (83.1)Amounts owed to Group undertakings - (0.1)Other payables (9.3) (16.4)Accruals and deferred income (27.9) (31.1)Other taxes and social security (18.2) (11.7) (147.7) (142.4)26 Financial instruments The main risks arising from the Group's financial instruments are foreigncurrency risk, commodity price risk and interest rate risk. The board ofdirectors review and agree policies for managing these risks as summarisedbelow. Foreign currency risk The Group has transactional exposures arising from purchases of prime materialsand commercial assets in currencies other than the functional currency of theGroup. Such purchases are made in the currencies of US dollars and euros. Forthe financial year ended 1 October 2006, the Group has hedged 70% (2005: 75%) offorecast exposures 12 months in advance using forward foreign exchangecontracts. Commodity price risk The main commodity price risk arises in the purchases of prime materials, beingPET, sugar, cans and frozen concentrated orange juice. Where it is consideredcommercially advantageous, the Group enters into fixed price contracts withsuppliers to hedge against unfavourable commodity price changes. Interest rate risk The Group borrows in desired currencies at both fixed and floating rates ofinterest and then uses interest rate swaps to generate the desired interest rateprofile and to manage the Group's exposure to interest fluctuation. At 1October 2006, £100.0m (2005: £100.0m) of the Group's borrowings were at fixedrates after taking account of interest rate swaps. Credit risk There are no significant concentrations of credit risk within the Group. Themaximum credit risk exposure relating to financial assets is represented bycarrying value as at the balance sheet date. Under the transitional provisions permitted under IFRS, the Group has takenadvantage of the exemption contained in IFRS 1 whereby on first-time adoption ofIFRS there is no requirement to apply IAS 32 'Financial Instruments: Disclosureand Presentation' and IAS 39 'Financial Instruments: Recognition andMeasurement' on transition. Application of IAS 32 and IAS 39 from 2 October2005 does not have a material impact on the Group's financial position orresult. The comparative information contained within this note has therefore beendisclosed in accordance with that shown under UK GAAP whereas the current yearinformation is shown under IFRS. Liquidity risk The Group's objective is to maintain a balance between continuity of funds andflexibility through the use of bank loans and overdrafts. The bank loans enteredinto by the Group are unsecured. a) Financial assets and liabilities under IFRS at 1 October 2006 Interest rate risk profile of financial assets and liabilities The interest rate profile of the financial assets and liabilities of the groupas at 1 October 2006 by maturity date is as follows: Fixed rate More than Total 5 years Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years £m £m £m £m £m £m £mBank loans* - - - (100.0) - - (100.0) * Includes the effects of the related interest rate swaps on floating borrowingsdiscussed below Floating rate More than Total 5 years Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years £m £m £m £m £m £m £mCash 19.2 - - - - - 19.2Bank loans (17.5) - - (184.3) - - (201.8)Interest rate swap* - - - 0.5 - - 0.5Foreign currency contracts (1.0) - - - - - (1.0) * See note 23 Interest on financial instruments classified as floating rate is re-priced atintervals of less than one year. Interest on financial instruments classified asfixed rate is fixed until the maturity of the instrument. The other financialinstruments of the Group that are not included in the above tables arenon-interest bearing and are therefore not subject to interest rate risk. Fair values of financial assets and financial liabilities Set out below is a comparison by category of carrying amounts and fair values ofall of the Group's financial instruments that are carried in the financialstatements. Book value Fair value 2006 2006 £m £mFinancial assetsCash 19.2 19.2 Forward currency contracts 0.1 0.1Interest rate swap 0.5 0.5 0.6 0.6Financial liabilitiesInterest-bearing loans and borrowings:Fixed rate borrowings (100.0) (100.0)Floating rate borrowings (201.8) (201.8)Forward currency contracts (1.0) (1.0) The fair value of derivatives has been calculated by discounting the expectedfuture cash flows at prevailing interest rates. Hedges Cash flow hedges At 1 October 2006, the Group held 25 US dollar and 58 Euro forward exchangecontracts designated as hedges of expected future purchases from overseassuppliers in US dollars and Euros for which the Group believe to be 'highlyprobable' transactions. The forward currency contracts are being used to hedgethe foreign currency risk of these 'highly probable' transactions. The terms ofthese contracts are as follows: Average Maturity range exchange rateForward contracts to hedge expected future purchases US$7,084,000 31 Oct 06 to 28 Sept 07 £ / US$1.81EUR€43,548,000 31 Oct 06 to 28 Sept 07 £ / EUR€1.48 The terms of the forward currency contracts have been negotiated to match theterms of the commitments. The cash flow hedges of the expected future purchaseswithin the 12 months of the balance sheet date have been assessed to beeffective. Interest rate hedges At 1 October 2006, the Group had an interest rate swap in place with a notionalamount of £100.0m whereby it exchanges floating rate interest based on 6 monthLIBOR for a fixed rate of interest of 4.83%. The swap contracts have the sameduration and other critical terms as the borrowings which they hedge. b) Financial Assets and liabilities under UK GAAP at 2 October 2005 The Group's financial instruments comprise cash and borrowings. With theexception of analysis of currency exposures, the disclosures below excludeshort-term debtors and creditors. Interest rate profile of financial assets Fixed rate financial Floating rate Non-interest bearing assets financial assets financial assets Total £m £m £m £mAt 2 October 2005Sterling - - 21.8 21.8Total - - 21.8 21.8 Included above is £2.4m relating to the un-amortised element of lease premiumspaid on inception of operating leases and cash of £19.4m. Interest rate profile of financial liabilities Fixed rate Floating rate financial financial Non-interest bearing liabilities liabilities financial liabilities Total £m £m £m £mAt 2 October 2005Sterling (100.0) (119.3) - (219.3)Total (100.0) (119.3) - (219.3) The amounts shown in the table above takes into account the interest rate swapused to manage the interest rate profile of financial liabilities. Borrowing facilities The Group has various borrowing facilities available to it. The undrawncommitted facilities available in respect of which all conditions precedent hadbeen met at that date are as follows: 2005 £mExpiring in one year or less 16.1Expiring in one to two years -Expiring in more than two years 80.0 96.1Currency exposures The table below shows the Group's transactional (i.e. non-structural) currencyexposures that give rise to the currency gains and losses recognised in theincome statement. Such exposures comprise the monetary assets and liabilitiesof the Group that are not denominated in the functional currency of the Group,and include those arising on short-term debtors and creditors. 2005 £mEuro 34.8US dollar 8.8 43.6Gains and losses on hedges The Group enters into forward foreign currency contracts to minimise thecurrency exposures that arise on purchase denominated in foreign currencies.Changes in the fair value of instruments used as hedges are not recognised inthe financial statements until the hedge position matures. The Group had forward contracts for the purchase of foreign currency as follows: 2005Euro (•m) 36.5US dollar ($m) 11.8 All contracts entered into mature within 12 months of the period end. Unrecognised gains and losses on financial instruments used for hedging are asfollows: 2005 £mUnrecognised gains 0.1Unrecognised losses (0.4)Net unrecognised losses (0.3) Fair values of financial assets and financial liabilities The book values of the Group's recognised financial assets and liabilities arenot materially different to their fair values. The fair values of unrecognised financial assets and liabilities are as follows: 2005 £mForward Foreign Currency ContractsEuros (0.4)US dollar 0.1Interest Rate SwapsSterling (0.8) The fair value of derivatives has been calculated by discounting the expectedfuture cash flows at prevailing interest rates. 27 Non-interest bearing loan 2006 2005 £m £mNon-interest bearing loans - (2.8) The unsecured non-interest bearing loan was repaid on 29 November 2005. 28 Share-based payments The expense recognised for share-based payments in respect of employee servicesreceived during the year to 1 October 2006 is £6.9m (2005: £4.4m). All of thatexpense arises from transactions which are expected to be equity-settledshare-based payment transactions. The Britvic share incentive plan ("SIP") The SIP is an all-employee plan approved by HMRC. The plan allows for annualawards of free Ordinary shares with a value of 3% of salary (subject to HMRCmaximum limits) together with an offer of matching shares on the basis of onefree matching share for each Ordinary share purchased with a participant'ssavings, up to a maximum of £75 per four week pay period. Employees areentitled to receive the annual free share award provided they are employed byBritvic on the last day of each financial year and on the award date. There areno cash settlement alternatives. Awards made during the 52 weeks ended 1 October 2006 were as follows: No of sharesAnnual free shares award 957,953Matching shares award - 1 free share for every ordinary share purchased 347,212Special free shares award after flotation 915,408Special matching shares award - 2 free shares for every ordinary share purchased 339,952 The Britvic executive share option plan ("option plan") The Option Plan allows for options to buy Ordinary shares to be granted toselected employees. The option price is the market price of Britvic plc's shareson the business day before the date of grant. Options become exercisable on thesatisfaction of the performance condition and remain exercisable until ten yearsafter the date of grant. The performance condition requires average growth in EPS of 7% pa over a threeyear period in excess of the growth in RPI over the same period for the optionsto vest in full. If EPS growth averages 3% pa in excess of RPI growth, 40% ofthe options will vest. Straight-line apportionment will be applied betweenthese two levels to determine the number of options that vest and no optionswill vest if average EPS growth is below the lower threshold. In some circumstances, at the discretion of Britvic, an optionholder whoexercises his/her option may receive a cash payment rather than the Ordinaryshares under option. The cash payment would be equal to the amount by which themarket value of the Ordinary shares under option exceeds the option price.However, it is expected that this plan will be equity-settled and as aconsequence has been accounted for as such. The following table illustrates the movements in the number of share optionsduring the year. Number of share Weighted average options exercise price (Pence)Outstanding as at 3 October 2005 - -Granted during the year 1,644,828 245.0Forfeited during the year (62,199) 245.0Exercised during the year - -Expired during the year - -Outstanding at 1 October 2006 1,582,629 245.0 Exercisable at 1 October 2006 - - The share options outstanding as at 1 October 2006 had a weighted averageremaining contractual life of 9.2 years and had an exercise price of 245.0p. The weighted average fair value of options granted during the year was 40.4p. The fair value of equity-settled share options granted is estimated as at thedate of grant using a binomial model, taking account of the terms and conditionsupon which the options were granted. The following table lists the inputs to the model used for the year ended 1October 2006. 2006Dividend yield (%) 3.0Expected volatility (%) 19.0Risk-free interest rate (%) 4.3Expected life of option (years) 5.0Share price at date of grant (pence) 242.0Exercise price (pence) 245.0 The Britvic performance share plan ("PSP") The PSP allows for awards of Ordinary shares to be made to selected employeessubject to the satisfaction of a performance condition. Different performanceconditions apply to different groups of employees. Awards granted to members of the senior leadership team are subject to aperformance condition which measures the Company's total shareholder return ("TSR") relative to the TSR of a comparator group (consisting of 22 othercompanies) over a three year performance period. The awards will not vestunless the Company's position in the comparator group is at least median. Atmedian 40% will vest, rising on a straight-line basis to 100% vesting at upperquartile. Awards granted to members of the senior management team will be subject to aperformance condition which requires average growth in EPS of 7% pa over a threeyear period in excess of the growth in RPI over the same period for the awardsto vest in full. If EPS growth averages 3% pa in excess of RPI growth, 40% ofthe awards will vest. Straight-line apportionment will be applied between thesetwo levels to determine the number of awards that vest and no awards will vestif average EPS growth is below the lower threshold. In addition, a transitional award has been made to members of both the seniorleadership team and the senior management team shortly after flotation, atlevels varying according to seniority. These awards will vest in tranches overa period of up to three years, subject to the satisfaction of a performancecondition. The performance condition requires the Company's Return on InvestedCapital ("ROIC") to be at least 17% over the performance period for the award tovest in full. If ROIC is 15% over the performance period, 50% of the award willvest. Straight-line apportionment will be applied between these two levels todetermine the percentage of awards that vest and no awards will vest if ROIC isbelow the lower threshold. In some circumstances, at the discretion of Britvic, vested awards may besatisfied by a cash payment rather than a transfer of Ordinary Shares. However,it is expected that this plan will be equity-settled and as a consequence hasbeen accounted for as such. The following table illustrates the movements in the number of shares during theyear. Number of Number of Number of Shares subject to Shares subject to Shares subject to TSR condition EPS condition ROIC conditionOutstanding as at 3 October 2005 - - -Granted during the year 744,872 746,956 3,834,820Vested during the year - - -Lapsed or cancelled during the year (44,163) (63,465) (170,458)Outstanding at 1 October 2006 700,709 683,491 3,664,362 Weighted average fair value of shares granted during the year 120.5p 221.4p 229.0p The fair value of equity-settled shares granted is estimated as at the date ofgrant using separate models as detailed below, taking account of the terms andconditions upon which the shares were granted. The following table lists the inputs to the models used for the year ended 1October 2006. Shares subject to Shares subject to Shares subject to TSR condition EPS condition ROIC conditionValuation model used Share price at date Share price at date of of grant adjusted for grant adjusted for dividends not dividends not received received Monte Carlo during vesting during vesting Simulation period periodDividend yield (%) 3.0 3.0 3.0Expected volatility (%) 19.0 N/A N/AShare price at date of grant (pence) 242.0 242.0 242.0 InterContinental Hotels Group PLC - executive share option plan ("IHG ESOP") Some employees also participated in the Executive Share Option Plan ofInterContinental Hotels Group PLC, which was the ultimate parent undertaking ofthe Group prior to flotation. As a result of Britvic's flotation, theperformance condition relating to options granted in 2004 and 2005 was changedand the number of options which vested was determined. These options willremain exercisable until 13 June 2009. Options granted in earlier years becameexercisable on the satisfaction of their respective three year performanceconditions and remain exercisable until ten years after the date of grant. Thecost in relation to the exercise of these options is ultimately borne byInterContinental Hotels Group PLC. The following table illustrates the movements in the number of share optionsduring the year. Weighted average Number of exercise price share options PenceOutstanding at beginning of the year 1,724,338 491.0Exercised during the year (724,500) 485.9Lapsed or cancelled during the year (370,952) 556.7Outstanding at end of the year 628,886 458.1 Exercisable at end of year 628,886 458.1 The weighted average share price at the date of exercise for share optionsexercised during the year was 876.3p. The share options outstanding as at 1 October 2006 had a weighted averageremaining contractual life of 4.7 years and the range of exercise prices was349.1p - 619.8p. There were no options granted to Britvic employees under this plan in 2006. InterContinental Hotels Group PLC - sharesave plan ("IHG SAYE") Some employees also participated in the Sharesave Plan of InterContinentalHotels Group PLC. As a result of Britvic's flotation, the Sharesave Optionsbecame exercisable for the period from 14 December 2005 to 13 June 2006. Anyunexercised options were lapsed on 14 June 2006. The cost in relation to theexercise of these options is ultimately borne by InterContinental Hotels GroupPLC. The following table illustrates the movements in the number of share optionsduring the year. Number of share Weighted average options exercise price PenceOutstanding at beginning of the year 672,738 420.5Exercised during the year (386,813) 420.5Lapsed or cancelled during the year (285,925) 420.5Outstanding at end of the year - N/A Exercisable at end of year - N/A The weighted average share price at the date of exercise for share optionsexercised during the year was 983.0p. There were no options granted to Britvic employees under this plan in 2006. Other employee share plans In addition to the above schemes, the Company's Chairman entered into a sharescheme agreement with the Company. Further details are set out in theDirectors' Remuneration Report. 29 Notes to the consolidated cash flow statement Analysis of net debt 2005 Cash flows 2006 £m £m £mCash at bank and in hand 19.4 (0.2) 19.2Overdrafts - - -Net cash 19.4 (0.2) 19.2Debt due within one year (13.9) (3.6) (17.5)Debt due after more than one year (219.3) (65.0) (284.3)Debt (233.2) (68.6) (301.8)Net debt (213.8) (68.8) (282.6) 30 Commitments and contingencies Operating lease commitments Future minimum lease payments under non-cancellable operating leases are asfollows: 2006 Land and buildings Other Total £m £m £mWithin one year 3.5 5.4 8.9After one year but not more than five years 10.4 8.0 18.4More than five years 36.8 2.0 38.8 50.7 15.4 66.1 2005 Land and buildings Other Total £m £m £mWithin one year 3.0 4.9 7.9After one year but not more than five years 10.5 5.4 15.9More than five years 39.0 - 39.0 52.5 10.3 62.8Capital commitments At 1 October 2006, the Group has commitments of £3.9m (2005: £3.3m) relating tothe acquisition of new plant and machinery. Contingent liabilities The Group has the following contingent liabilities at 1 October 2006 and 2October 2005: The Group has assigned its interest in certain leasehold properties to othertenants. It remains liable for rentals due to the landlord for any defaults onthe part of these tenants. It is not practicable to estimate the amount ortiming of rentals that may default. However, the Directors do not expect thatany potential default would result in a material claim against the Group. 31 Related party disclosures The consolidated financial statements include the financial statements ofBritvic plc and the subsidiaries listed in the table below. Particulars ofdormant subsidiaries which do not materially affect the Group results have beenexcluded. Name Country of % equity incorporation interest Britannia Soft Drinks Limited UK 100Britvic Holdings Limited UK 100Britvic International Limited UK 100Britvic Soft Drinks Limited UK 100Robinsons Soft Drinks Limited UK 100Orchid Drinks Limited UK 100Red Devil Energy Drinks Limited UK 100 During the period the Group entered into transactions in the ordinary course ofbusiness with significant shareholders (Intercontinental Hotels Group plc,Whitbread plc and Allied Domecq plc). Transactions entered into for the periodended 2 October 2005 and for the period 3 October 2005 to 14 December 2005 (oncompletion of the changed shareholding arrangements detailed in Note 21) were asfollows: 2006 2005 £m £mTurnover from significant shareholders 1.7 8.3 The balances outstanding from significant shareholders (Intercontinental HotelsGroup plc, Whitbread plc and Allied Domecq plc) at 2 October 2005 was £60,000.The amount due at 1 October 2006 is not shown as the former significantshareholders ceased to be related parties from 14 December 2005. Sales to related parties were made on arm's length terms. Key management personnel are deemed to be the directors of the Company.Accordingly, remuneration payable to key management personnel is shown in theDirectors' Remuneration Report. There were no other related party transactions requiring disclosure in thesefinancial statements. 32 Reconciliation of equity at 4 October 2004 (date of transition to IFRS Effect of transition to UK GAAP IFRS IFRS Footnote £m £m £mAssetsNon-current AssetsProperty, plant and equipment (a) 259.3 (24.4) 234.9Intangible assets (a) 76.5 19.3 95.8Trade and other receivables (h) - 2.4 2.4Deferred income tax assets (e) - 9.6 9.6 335.8 6.9 342.7Current AssetsInventories 32.5 - 32.5Trade and other receivables 93.5 - 93.6Cash and cash equivalents 27.0 - 27.0 153.1 - 153.1Total Assets 488.9 6.9 495.8 Equity and LiabilitiesIssued capital (12.3) - (12.3)Share premium (25.4) - (25.4)Revaluation reserve (b) (3.7) 3.7 -Share option reserve (c) - (0.3) (0.3)Other reserves (b)(e)&(h) (4.6) (2.6) (7.2)Retained earnings (g) (140.9) (30.4) (171.2)Total Equity (186.9) (29.6) (216.5)Non-current LiabilitiesNon interest-bearing loan (2.8) - (2.8)Pension liability (d) (75.1) (33.1) (108.2)Deferred income tax liabilities (e) (22.5) 22.5 - (100.4) (10.6) (111.0)Current LiabilitiesTrade and other payables (f) (188.0) 33.2 (154.8)Income tax payable (13.5) - (13.5) (201.5) 33.2 (168.3)Total Liabilities (301.9) 22.6 (279.3)Total Equity and Liabilities (488.8) (7.0) (495.8) a) Software costs of £19.3m treated as tangible fixed assets under UK GAAP have been reclassified as intangible assets under IFRS. £5.1m of revalued leasehold land classified as a finance lease under UK GAAP has been reclassified as an operating lease under IFRS. b) The revaluation reserve recognised under UK GAAP has been reclassified as other reserves under IFRS, as the Group has elected, under IFRS 1, to retain UK GAAP carrying values of property, plant and equipment including revaluations as deemed cost at transition. c) IFRS 2 requires the fair value of option and share awards to be charged to the income statement over the vesting period. The fair value is determined at the date of grant using an appropriate pricing model. The Group have elected to take the exemption under IFRS 1 not to apply IFRS 2 to grants of equity instruments on or before 7 November 2002 that had vested prior to 1 January 2005 d) Pension liabilities increased by £0.6m (net of deferred tax) under IFRS because the method of valuing pension scheme assets differs from UK GAAP. Deferred tax assets of £32.5m which were netted off against the related pension liabilities under UK GAAP are now included within the deferred tax headings on the face of the balance sheet. e) Adjustments to deferred tax relate to the recognition of: (i) A deferred tax asset of £1.5m relating to the previous downward revaluation of qualifying buildings. This has been credited to Other Reserves. (ii) A deferred tax asset of £0.2m relating to share options granted to employees under IFRS. (iii) A deferred tax liability of £2.0m relating to the upward revaluation of certain land under IFRS. (iv) The reclassification of the deferred tax asset of £32.4m relating to the pension liability which is netted against the pension liability under UK GAAP, and the reclassification of the resulting deferred tax asset to non-current assets. f) Under UK GAAP, dividends are recognised as an expense in the period to which they relate. Under IFRS, dividends are recognised as an appropriation of reserves in the period in which they are authorised. Therefore the final proposed dividend for the period ended 4 October 2004 is reversed under IFRS, as it was not approved until after the balance sheet date. g) The adjustments to retained earnings are as follows: £m Reversal of final dividend proposed under UK GAAP on adoption of IFRS (f) (33.1) Gross pension liability recognised under adoption of IFRS (d) 0.9 Deferred tax recognised re pension liability under adoption of IFRS (d) (0.3) Deferred tax recognised on other items under adoption of IFRS (e) 1.8 Recognition of fair value of share options granted to employees under IFRS (c) 0.3 Recognition of operating lease rentals for land reclassified under IFRS (h) - Total (30.4) h) Lease premiums are treated as prepayments under IFRS and are released to the income statement over the term of the associated lease. 33 Reconciliation of profit for the period ended 2 October 2005 Effect of transition to UK GAAP IFRS IFRS Footnote £m £m £mRevenue 698.2 - 698.2Cost of sales (269.5) - (269.5)Gross profit 428.7 - 428.7Selling and distribution costs (232.3) - (232.3)Administrative expenses (a) (133.1) 7.2 (125.9)Profit from continuing operations before tax 63.3 7.2 70.5and finance costsFinance income 0.3 - 0.3Finance costs (b) (7.8) 1.2 (6.6)Profit before tax 55.8 8.4 64.2Income tax expense (c) (20.8) - (20.8)Profit for the year 35.0 8.4 43.4 a) The adjustments to administrative expenses are as follows: 2005 £m (i) Reversal of amortisation of goodwill for the period under UK GAAP 9.7(ii) Accrual under IFRS for untaken holidays (0.7)(iii) Movement in the accrual under IFRS for the fair value of options granted to (0.5) employees(iv) Land operating lease payments on land reclassified as an operating lease under - IFRS(v) Expected return on pension scheme assets net of interest cost on the benefit (1.3) obligation Total 7.2 (i) Under UK GAAP, goodwill was amortised over its useful economic life, not exceeding 20 years. Under IFRS, goodwill is not amortised but tested annually for impairment. (ii) Under IFRS, a liability is recognised for wages and salaries costs accrued in respect of untaken holiday at the balance sheet date. (iii) IFRS 2 requires the fair value of option and share awards to be charged to the income statement over the vesting period. The fair value is determined at the date of grant using an appropriate pricing model. The Group have elected to take the exemption under IFRS 1 not to apply IFRS 2 to grants of equity instruments on or before 7 November 2002 that had vested prior to 1 January 2005. (iv) Under IFRS certain leasehold land is reclassified as being held under an operating lease rather than a finance lease. The associated lease premium is reclassified as a prepayment and is released to the income statement over the term of the associated lease. (v) Under IFRS, the expected return on pension scheme assets net of interest cost on the benefit obligation is reclassified as an administrative expense. b) The expected return on pension scheme assets is lower under IFRS than UK GAAP, because the method of valuing pension scheme assets differs from UK GAAP. The resulting expected return on pension scheme assets net of interest cost on the benefit obligation is a net cost of £1.2m which is reclassified as an administrative expense under IFRS. In the opinion of the Directors this net cost should be classified in the same profit and loss heading as the other pension expenses. c) (i) A deferred tax charge of £320,000 is recognised under IFRS in relation to taxation on the amortisation of intangibles purchased post April 2002, which continues to be deductible for tax purposes but is not amortised for accounting purposes under IFRS. (ii) Under IFRS, the deferred tax charge in relation to the expected return on pension scheme assets is £30,000 lower compared to UK GAAP. (iii) Deferred income tax is recognised under IFRS in relation to certain revalued land (£14,000), share options granted to employees (£23,000) and holiday pay accrued for untaken holiday (£196,000). Explanation of material adjustments to the consolidated statement of cash flows There are no material differences between the statement of cash flows preparedunder IFRS and the cash flow statement prepared under UK GAAP. MORE TO FOLLOW This information is provided by RNS The company news service from the London Stock Exchange

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Britvic