DUBLIN, Ireland, Dec. 5 /PRNewswire-FirstCall/ -- HIGHLIGHTS --
Transformation from a predominantly Irish agribusiness to a leading
European convenience foods producer completed -- Strong performance
in Convenience Foods - comprising 92.4% of continuing Group
operating profits - Operating profit growth of 5.7% to euro 69.0m -
Turnover growth of 8.3% to euro 901.4m - Strong operating margins
of 7.7% (FY05: 7.8%), despite more than euro 5m of energy cost
increases - Excellent second half sales (up 8.4%) and margin (8.4%)
performance -- Fundamentally reshaped Ingredients, Agribusiness and
Related Property division: - Operating profits (including
discontinued operations) of euro 27.6m (FY05: euro 36.7m) -
Decision taken to exit sugar processing in Ireland - A decline in
Malt performance, but a positive trajectory already in place for
FY07 - Exciting developments and momentum in the management of
Group property assets -- Net exceptional charge of euro 67.1m,
principally due to costs associated with the exit from sugar
processing -- Adjusted EPS(1) of 31.1 cent (FY05: 32.5 cent) --
Final dividend maintained at 7.58 cent -- Comparable net debt of
euro 385.4m, a reduction of euro 14.3m since September 2005 and a
reduction of euro 37.9m since March 2006, despite one-off sugar
restructuring costs. -- Positive outlook for FY07 and beyond
Commenting on the results, David Dilger, Group chief executive
officer, said: "Greencore has been transformed in recent years and
is now one of Europe's leading producers of convenience foods. The
performance of our Convenience Foods division in 2006 has been
excellent, with sales growing at twice the market rate and
operating margins broadly maintained, despite significant
inflationary cost pressures. "The strength of our Convenience Foods
business has substantially mitigated the negative impact of EU
sugar regime reform, a reform that not only significantly reduced
sugar profits in 2006, but led us to exit sugar processing
entirely. "The Group is well positioned to deliver substantial
value to shareholders over the coming years primarily through
continued profit growth and cash generation in Convenience Foods.
The Group also has exciting plans to unlock the value contained in
our property portfolio." For further information, please contact:
David Dilger Group Chief Executive +353 1 605 1045 Patrick Coveney
Chief Financial Officer +353 1 605 1018 Eoin Tonge Group Capital
Markets Director +353 1 605 1036 Brian Rafferty Taylor Rafferty +1
212 889 4350 About Greencore -- Greencore is one of Europe's
leading producers of convenience foods as well as an established
ingredients and agribusiness supplier with operations in Ireland,
UK, The Netherlands and Belgium -- Greencore is Europe's largest
sandwich manufacturer, producing more than 200 million sandwiches
per annum -- Greencore is the UK's largest Christmas cake
manufacturer with a 31% market share -- Greencore is the UK's
largest producer of customer branded mineral water with 180 million
units per annum -- Greencore is the leading Malt producer in
Ireland, UK and Belgium -- Greencore retains significant property
assets in Ireland and the UK SUMMARY The year under review has been
a key period in the transformation of Greencore. The end of sugar
processing in Ireland means that Greencore has now completed its
transformation from principally an agribusiness into one of
Europe's leading convenience foods companies. The Convenience Foods
division continues to perform strongly with operating profits up
5.7% to euro 69.0m. This growth was underpinned by turnover growth
of 8.3%, more than twice the underlying total food market growth
rate of 3.4%(2), whilst keeping operating margins broadly in line
with the prior year level (7.7% versus 7.8% in FY05). This margin
performance was achieved despite divisional energy cost increases
of more than euro 5m year on year. The division benefited from
excellent business performance in the second half of the year, when
operating profits grew by 8.6%. This result reflects a clear
strategy and strong operational performance: -- Leadership of
growing, concentrated product categories: Greencore has No.1 or
No.2 positions in all of the product categories where it competes.
In addition, in FY06 seven of our nine businesses grew above their
respective market growth rates; -- Broad channel exposure: Sales to
non-multiple customers grew by 26% in FY06; -- An increased
commitment to branded products: Greencore has developed an emerging
set of licensed and owned brands that, over time, will become more
central to our business. In FY06, 'branded' products accounted for
12% of sales; -- Relentless focus on Total Lowest Cost ("TLC"):
Real operational cost reduction that totalled more than 2% of
sales; -- Aggressive product development and mix management: More
than 50% of our FY06 product range is less than one year old --
this delivers consumer excitement and maintains margin for
ourselves and our customers; -- Well-invested food facilities
delivering excellent operational performance: Customer service
levels averaged 99% across the division in FY06. The Ingredients,
Agribusiness and Related Property division delivered total
operating profits of euro 27.6m, consisting of continuing operating
profits of euro 5.6m and discontinued operating profits of euro
22.0m. The year under review saw dramatic developments in this
division. Regulatory change in the EU sugar regime posed an
insurmountable challenge to the competitiveness of the sugar
industry in Ireland. The Group responded to this challenge by
committing early to exit sugar production in Ireland and strongly
defending the Group's entitlement to restructuring aid under EU
law. As anticipated, over-capacity in European malt markets and
significant energy price inflation adversely impacted on the
performance of our Malt business. We are, however, currently seeing
a significant improvement in the malt cycle that commenced in the
last quarter of FY06. During the year, we also significantly
increased our focus on unlocking the value from the Group's
property assets. The Group continues to prioritize cash generation.
Despite incurring exceptional cash costs, primarily associated with
the exit from sugar, comparable net debt at the year-end totalled
euro 385.4m, an improvement of euro 14.3m on September 2005 and an
improvement of euro 37.9m on March 2006. DIVIDEND The directors
recommend a final dividend of 7.58 cents. If approved by
shareholders, this will result in a total dividend of 12.63 cents
which is in line with last year's level. OUTLOOK Greencore is now a
fundamentally different business to that of twelve months ago with
its key focus now on driving forward its successful convenience
foods business. Despite significant increases in input price
inflation, we believe that the strong strategic and operational
model that we have put in place positions Convenience Foods well
for continued growth through FY07 and beyond. A recovery in the EU
malt market should deliver a trading improvement in the Malt
business and that, allied to the exciting property opportunities
that we are pursuing, represents a positive outlook for
Ingredients, Agribusiness and Related Property. The Board believes
the Group is well positioned to deliver substantial value to
shareholders over the coming years. OPERATIONAL REVIEW -
Convenience Foods 2006 2005 Change euro m euro m Turnover
(Continuing Operations) 901.4 832.6 +8.3% Operating Profit
(Continuing Operations)* 69.0 65.2 +5.7% * before exceptional items
The Convenience Foods division accounted for 92.4% of continuing
operating profits in FY06. The division performed strongly to
deliver full year turnover growth of 8.3%, operating profit growth
of 5.7% and healthy operating margins of 7.7%, despite challenging
pricing and input cost environments. The demanding objectives that
we have set in the key areas of operational cost reduction, channel
and customer diversification, innovation and operational
performance continue to be achieved. Financial highlights for the
year include: -- Strong margin performance The division delivered
operating margins of 7.7% for the full year, broadly in line with
the FY05 figure of 7.8%. This was achieved despite energy cost
increases, year on year, of more than euro 5m - equivalent to 60
basis points of margin reduction. -- Turnover growth at more than
twice underlying rate The division has continued to deliver strong
organic growth. Turnover growth was 8.3% for the year, a level that
is more than double the overall food market growth rate of 3.4%(2).
-- Strong second half performance The division performed better in
the second half of FY06. As highlighted in the Group's interim
statement of June 7, 2006, operating profit growth of 2.2% for the
first half of the year was achieved against a very strong
comparative period. Strong trading through the summer against a
more typical comparative period led to operating profit growth of
8.6% in the second half -- driven by sales growth of 8.4% as well
as modest operating margin improvements. -- Robust performance
across the full division The strong sales performance extended
across the division, with seven of our nine category businesses
growing above their relevant category growth rate(2). The main
exception was Greencore's Grocery business, which delivered a solid
performance relative both to historic levels and our expectations,
but suffered when compared with its FY05 performance -- a period in
which its successful response to a fire at a competitor's facility
helped deliver above normal sales and profit. The Board is pleased
with the financial performance of Convenience Foods in FY06. The
division has now reported five consecutive half-year periods of
operating profit growth. This consistent underlying delivery
reflects both the clear choices that the Group has made on where it
competes and the strong capabilities that we have built across the
businesses to successfully execute our strategy. 1. Well chosen
categories Greencore believes in the fundamental attractiveness of
the convenience foods market -- it is at the core of our strategy.
We actively seek out No.1 or strong No.2 market share positions in
product categories with concentrated ownership. In seven of our
nine convenience foods categories we hold the No.1 position and we
are the No.2 player in the other categories(2). Furthermore, we
compete in categories that are growing faster than the overall
market and that deliver high economic returns both for our
customers and for Greencore. Greencore's success, to date, has been
driven by these specific market, segment and format choices. For
example, in Mineral Water, where Greencore leads the customer brand
market with a 34% market share, annual market growth was 6% and our
growth was 10%. In Cakes, where the overall market grew at 6%, the
Celebrations Cakes segment grew at 13% and our growth was nearly
18%(2). 2. Balanced channel exposure A core feature of the
Greencore model is the balance that we seek across channels and
customers. In FY06, two thirds of our business was conducted
through the multiple channel. Within that channel, the relative
share of individual customers has remained broadly stable and
reflects the market share of those retailers in the UK grocery
market. The quality of our relationships with these customers
remains central to our business model. Excellent customer service
underpins these relationships with customer service levels across
the Group averaging 99% for the year. We are also committed to
building a material non-multiple business reflecting the fact that
nearly a quarter of total food and beverage spend in the UK is now
focused on out-of-home consumption(2). This is a dynamic and
vibrant channel characterized by higher levels of growth and
greater movements of business than the multiple channel. In FY06,
our sales to non-multiple channels grew by 26%. Our Greencore
Food-To- Go operation drives much of this strategy. In FY06, this
business delivered individually ordered fresh sandwiches and other
chilled products to approximately 7,000 individual outlets six days
per week. 3. A commitment to being the lowest cost competitor
Greencore is committed to being the Total Lowest Cost (TLC)
competitor in convenience foods. The TLC imperative is as much
about culture and leadership as it is about process and efficiency.
Over the past three years, this culture has been deeply embedded at
all levels of our business. In FY06, we had nearly 200 TLC
initiatives running across the division. Taken together, these
initiatives have delivered operational cost improvements that total
in excess of 2% of sales, or more than euro 18m of divisional
operating profits. Included in the TLC program this year were a
number of initiatives across all categories focused on waste
reduction. As a result, total waste across the division reduced by
more than 10%. In addition, the division's 'Lean Greencore' program
saw approximately 600 process leaders complete training in lean
principles that, in turn, directly resulted in nearly 100 new cost
reduction projects. This was supported by many discrete projects
and investments directed at increased automation, productivity
improvement and efficiency enhancement. Purchasing efficiency is
also critical to our TLC effort and this year saw nearly 350
individual initiatives (in addition to the main TLC initiatives) to
drive savings through supplier concentration as well as product and
packaging re-engineering. These operational and efficiency
improvements enabled us to offset input price inflation, as well as
improve terms with our customers, without sacrificing our
commitment to quality and margin performance. We expect to deliver
similar levels of cost reduction going forward. 4. Aggressive
innovation, especially in the areas of premium and health
Innovation is the lifeblood of our convenience foods business. It
is how we deliver excitement to consumers and customers while
sustaining margins. At the end of September 2006, more than 50% of
our portfolio comprised products that are less than one year old.
For example, in response to significant changes in consumer and
customer preferences in the Chilled Meals category, we have
replaced or refreshed all of our lines, the majority being new
products and the remainder being changes in packaging. Health
remains important to the Group's innovation agenda with various
initiatives delivering cleaner ingredients and healthier choices.
One example is in the area of salt reduction where we have reduced
the average salt content in our quiche and prepared meal products
by 38% and 31% respectively. The license agreement that we put in
place with WeightWatchers(R) in June 2005 has been a particularly
important initiative. Greencore has since launched a range of
chilled prepared meals produced under license from
WeightWatchers(R), and over the course of FY06, we have built
distribution through all of the major UK and Irish retailers. In a
little over a year, we have built a retail brand with strong
margins, delivering retail sales of approximately euro 25m.
Already, we have a 10% market share in the total healthy chilled
meals sector, including the number one selling individual product.
We have already begun to roll out this brand to a number of our
other convenience foods categories. 5. A decentralised model that
bestows 'true ownership' to the businesses Greencore businesses
'own' their P&L and Cash Flow statements -- that is the
'Greencore way.' This enables our front-line leaders to make the
daily trade-offs between commercial, operational and financial
demands necessary to drive profit and cash performance. 6. Robust
financial discipline Rigorous management of our resources, in
particular our fixed and working capital investments, is a core
feature of how Greencore competes. There was euro 34.2m invested in
Convenience Foods in FY06. This spend is tightly managed and
focuses on driving efficiency improvement projects, such as our new
automated lines in Sandwiches and the real-time on-line data
capture systems in Cakes, or facilitating entry into new market
sectors, such as our move into the filled baguette, snack salad and
WeightWatchers(R) prepared meal markets. The relentless focus on
these strategic and operational imperatives is critical to our
continued success, given some significant market challenges: -- A
challenging retail environment UK multiples continued to drive
retail price deflation across many categories, particularly in the
first half of this year, placing even greater importance on our
cost reduction and innovation processes. While there is some recent
evidence of retail price inflation returning to selected food
categories, the overall pricing environment remains challenging. --
Significant input price inflation The energy price increases of
2005 and 2006 have been widely reported across the food industry.
In FY06, the division incurred energy cost increases of more than
50% (adding more than euro 5m to our cost base). We do not
anticipate similar levels of price inflation in FY07. However, farm
gate prices increased sharply in the later part of the year
impacting the cost of a wide range of raw materials and commodity
ingredients. To absorb these inflationary pressures, we are
pursuing a combination of further operational cost reduction and,
where appropriate, selected price increases. OPERATIONAL REVIEW -
Ingredients, Agribusiness And Related Property 2006 2005 Change
euro m euro m Turnover (Continuing and Discontinued Operations)
450.5 492.5 -8.5% Operating Profit (Continuing and Discontinued
Operations)* 27.6 36.7 -24.7% * before exceptional items In the
year under review, the Ingredients, Agribusiness and Related
Property division was subjected to unprecedented change. The Group
has exited sugar processing, with FY06 representing the final year
of operations. This brings an end to more than 80 years of sugar
processing in Ireland. As anticipated, over-capacity in European
malt markets and significant energy price inflation adversely
impacted on the performance of Greencore Malt. Management of the
Group's 970 acres of property assets has been refocused under Board
level leadership, delivering a positive profit contribution in FY06
and creating a strong platform for significant value enhancement in
the future. The division delivered total operating profit (pre-tax)
of euro 27.6m, consisting of continuing operating profits of euro
5.6m and discontinued operating profits of euro 22.0m. This
represents a fall of euro 9.1m (24.7%) on FY05 levels, driven by
upheavals in the EU sugar market both in anticipation of and
following the introduction of the new EU sugar regime, and by a
significant fall in profits at Malt, which absorbed energy cost
increases of approximately euro 4m. 1. Exit from sugar processing
The decision of the EU Council of Ministers in November 2005
effectively brought an end to the sugar industry in Ireland. In
March 2006, Greencore announced its intention to exit sugar
processing and put in place a process to wind down its sugar
operations, prepare a restructuring plan and claim its entitlement
to restructuring aid in accordance with EU regulations. In July
2006, the Irish Government announced its decision in relation to
the allocation of the euro 145.5m of EU restructuring aid (in the
context of a separate additional euro 123m to be paid to beet
growers over the next seven years as part of the single farm
payment scheme and euro 44m in diversification aid also allocated
for growers). Greencore rejected that decision and was granted
leave to seek a judicial review of the decision in the High Court.
On 31 July 2006, Greencore formally applied for restructuring aid
by renouncing its sugar quota and submitting a restructuring plan
to the Irish Government. Greencore subsequently agreed with the
Irish Government that, conditional upon Greencore's restructuring
plan being approved, the Group would amend the plan to reflect any
lawful decision of Government taken pursuant to the outcome of our
legal proceedings. On September 19, 2006, the Government deemed
Greencore's restructuring plan to be eligible for restructuring
aid. This decision ensures that the payment of EU aid can begin in
June 2007. Legal proceedings continue with a trial date likely to
be fixed shortly. As the Board set out in its Interim Statement,
the financial effects of exiting sugar are severe. -- Profit impact
Pre-tax profits from total sugar operations totalled euro 22.0m
(including related activities also discontinued by the Group), a
fall of euro 5.3m on FY05 but better than expected due to a
stronger than anticipated operating and commercial performance. --
Gross costs of exit In preparing our detailed restructuring plan,
we have been able to estimate exit costs more precisely than we
could when we issued our Interim Statement. Gross exit costs are
now expected to total euro 164.8m (net of tax), a modest decline on
the euro 167.5m figure indicated in the Interim Statement. Of these
costs, euro 115.0m reflects the write-off of Greencore Sugar assets
with the remainder largely cash costs and principally associated
with redundancy, demolition, environmental and remediation. Cash
costs of euro 11.2m were incurred in FY06. -- Receipt of EU
restructuring aid These exit costs will be partially offset by the
receipt of EU restructuring aid. The Board (having taken
independent legal, economic and financial advice) believes that
Greencore is entitled to euro 130.9m of EU aid -- representing 90%
of the EU aid available to Ireland. However, this entitlement is
currently subject to the outcome of the judicial review process.
The FY06 financial statements recognise an asset of euro 95.9m of
EU aid (reflecting the present value of the euro 98.4m allocated to
Greencore in the Government's decision of July 2006). In addition,
the financial statements disclose a contingent asset of euro 32.5m
(representing the difference between the Board's view of
Greencore's entitlement and the Government's decision). The EU
restructuring aid will be paid in two tranches -- 40% in June 2007
and 60% in February 2008. Note 4 to the financial statements sets
out the accounting treatment for the net costs associated with the
exit from sugar processing. Looking forward, Greencore remains
committed to serving its sugar customers. Our joint venture with
Nordzucker AG, Sugar Partners, started to trade in October 2006
taking on all the customer commitments of Greencore Sugar and
preserving much of the value of the Siucra and McKinney brands.
However, the contribution to Group profits from this activity is
not expected to be substantial. 2. Malt performance and
restructuring Malt experienced a very difficult year in FY06.
International malt prices reached a low point in the cycle last
winter driven, in large part, by industry over-capacity. That
negative pricing impact, allied to energy cost increases of
approximately euro 4m, had a negative impact on the profitability
of the Group's malt business. Last year, we took the step of
restructuring our portfolio of malting assets, resulting in the
closure of three maltings. This year, we have restructured our core
operations in the UK and Ireland, the net costs of which totalled
euro 4.5m. The Malt business also benefited from a legal settlement
receipt of euro 4.9m (net of costs). Both the restructuring costs
and legal settlement have been treated as exceptional items (see
Note 4). The combination of a better balance between supply and
demand, a weak barley harvest across Europe affecting malt prices
and more stable energy prices has led to a recovery during the
final quarter of FY06. This industry recovery, along with our
strong operational capability, high quality malting assets and
leading market positions (clear No.1 market share position in
Ireland, UK and Belgium), should deliver a considerable trading
improvement in FY07. 3. Property Greencore has always been involved
in developing and trading surplus property assets within the
Ingredients and Agribusiness area. This continued in FY06 with the
disposal of a property to a related party and the sale of a surplus
property asset within the Malt business. Cumulatively, profits on
the disposals of surplus properties were up modestly on those
delivered in FY05. The Group retains significant property assets.
The management of, and approach to, our property assets changed
during the year. We have centralized the management of all
significant properties under the Group development director. In
addition we have put in place a set of 'site-specific' expert teams
and also enhanced the quality of our central property team, now
operationally led by a property specialist. Our property team is
focused on maximizing the value available to shareholders from all
of the Group property assets. The Group has three primary sets of
property in Ireland: Carlow -- "Carlow Gateway" (333 acres): In
November 2006, the Group submitted a comprehensive master plan to
Carlow and Laois County Councils proposing a transformation of the
former Irish Sugar site into an exciting mixed use development for
the town of Carlow, "Carlow Gateway." This submission was made at
the invitation of the respective Councils as part of their
strategic plans for the area. We understand that the Councils will
make a decision on their strategic plans and any associated
rezoning decisions during FY07. Mallow (396 acres): Cork County
Council recently sought submissions for a Special Local Area Plan
for the town of Mallow and its environs. As part of that process,
we expect to submit a comprehensive master plan for our former
sugar processing site in Mallow. As in the case of the Carlow
property, we understand the Council will make a decision on their
Local Area Plan during FY07. Irish ingredients and agri-business
(approximately 120 acres): The Group has more than 15 smaller sites
in Ireland that offer potential for added value. For example, in
FY06 the Group successfully brought one of these sites
(approximately 40 acres) through the first phase of its development
cycle. Our property team is now working on a detailed planning
application as part of the next development stage in relation to
this site. We continue to tightly monitor the economic performance
and potential of all of these properties relative to their
opportunity cost. In addition, the Group has 123 acres in North
Littlehampton in West Sussex that were part of the Hazlewood Foods
acquisition. The North Littlehampton area is one of 9 regions
competing for a residential rezoning decision in West Sussex and
Greencore is leading a consortium of landowners to present a
consolidated landholding for rezoning the area. There is an
extensive period of consultation and engineering assessment to take
place over the next two years. A decision on the preferred options
and selection of sites for potential zoning is due in December
2008. There will follow a further period of two years to facilitate
submissions to the Secretary of State with formal adoption of a
zoning decision due in December 2010. Operating profits in the
Group's other ingredients and agribusinesses and the Group share of
profits from associates were modestly down. FINANCIAL REVIEW 1.
Basis of preparation The results have been prepared in accordance
with International Financial Reporting Standards (IFRS). The Group
issued the restatement of its 2005 financial information to IFRS on
May 5, 2006. IFRS has resulted in the following key changes to the
Group income statement: -- Discontinued operations are now shown as
one line item below taxation -- Pension accounting changes result
in the Group recognizing current service costs as part of operating
profit, with returns on assets and the finance costs of liabilities
being recognized in the finance income and finance costs lines,
respectively -- Financial derivatives must be marked-to-market,
with most movements in mark-to-market from one period to the next
being recognized in the income statement -- Goodwill is no longer
amortised -- Dividends are no longer recognized until such time as
they have been approved 2. Earnings Group operating profit
(pre-exceptional) totalled euro 74.6m for FY06 (euro 74.7m in
FY05). Profit before tax (pre-exceptional) of euro 59.4m was up
11.6% on FY05 (euro 53.2m). This figure is inclusive of a net gain
of euro 5.7m, primarily resulting from the impact of marking-to-
market our trading derivatives. Our adjusted EPS for FY06
(stripping out exceptional items and the euro 5.7m gain primarily
resulting from marking-to-market our trading derivatives) was 31.1
cent versus 32.5 cent in FY05. This is based on a weighted average
number of ordinary shares of 196.2m (FY05: 193.3m). 3. Finance
Comparable net debt (excludes the impact of marking-to-market all
derivative financial instruments and related debt) at 29 September
2006 was euro 385.4m, a reduction of euro 14.3m from the comparable
September 2005 figure and a reduction of euro 37.9m since March
2006. However, this debt movement reflects euro 15.0m of one-off
outflows primarily relating to the exit from sugar processing. The
underlying trajectory of cash generation remains in place. Net
interest cost on comparable net debt was euro 30.7m (FY05: euro
30.5m). 4. Taxation The Group's tax charge on continuing operations
(excluding associates) was euro 11.4m. The effective tax rate on
continuing operations increased to 22.5% for the year, reflecting
the significant share of Group profits earned in the UK. The amount
of cash taxation continues to be well below the tax charge. 5.
Exceptional charges The Group incurred exceptional charges (net of
tax) of euro 67.1m in the period under review (full details of
which are contained in Note 4 to the Preliminary Statement). This
total charge comprises four separate areas: (i) Sugar euro 68.9m
(net cost) related to the exit from sugar processing in Ireland
(ii) Malt euro 4.9m (net benefit) from legal settlement; euro 4.5m
(net cost) from restructuring of UK and Irish operations (iii)
Chilled Sauces euro 2.0m (net cost) related to the exit from the
Chesterfield facility and the consolidation of that business into a
single site (iv) UK Pension euro 3.4m (net benefit) reduction in
pension liability due to changes in design of pension benefits 6.
Capital Investment Significant capital investment was made in the
period. Capital expenditure invested in Convenience Foods amounted
to euro 34.2m. There was a total investment of euro 13.7m in our
Ingredients, Agribusiness and Related Property division driven, in
part, by capital required to accomplish the final sugar processing
campaign. 7. Pensions The fair value of total plan assets relating
to the Group's defined benefit pension schemes (excluding
associates) increased to euro 539.9m at September 2006 from euro
494.2m at September 2005. The present value of total pension
liabilities for these schemes increased to euro 591.5m from euro
576.1m over the same period. This is reflected in a reduction in
the net pension deficit (before related deferred tax) to euro 51.6m
at September 2006 (from euro 81.9m at September 2005). The Group
has agreed funding proposals in place to address the relevant
deficits. The primary Irish scheme, the Greencore Group Pension
Scheme, had a surplus (before related deferred tax) of euro 25.0m.
NOTES TO THE FINANCIAL STATEMENTS Year ended September 29, 2006 1.
Basis of Preparation of Financial Statements under IFRS The
financial statements presented in this preliminary announcement
have been prepared in accordance with International Financial
Reporting Standards (IFRS) and International Financial Reporting
Interpretations Committee (IFRIC) interpretations endorsed by the
European Union (EU) and with those parts of the Companies Acts,
1963 to 2005 applicable to companies reporting under IFRS. The
financial statements, which are presented in euro, rounded to the
nearest thousand (unless otherwise stated), have been prepared
under the historical cost convention, as modified by the
revaluation of property, plant and equipment (these revaluations
being considered 'deemed cost' at the date of transition to IFRS),
and the measurement at fair value of certain financial assets and
financial liabilities including, share options, available for sale
investments and derivative financial instruments. The carrying
values of recognized assets and liabilities that are hedged, are
adjusted to record the changes in the fair values attributable to
the risks being hedged. The financial statements for the year ended
September 30, 2005, which were prepared in accordance with the
accounting policies generally accepted in the Republic of Ireland
(Irish GAAP) have, with the exception of IAS 32 Financial
Instruments: Disclosure and Presentation and IAS 39 Financial
Instruments: Recognition and Measurement, been restated under IFRS
with effect from the transition date. As permitted under IFRS 1
First-time adoption of International Financial Reporting Standards
the Group applied the requirements of IAS 32 Financial Instruments:
Disclosure and Presentation and IAS 39 Financial Instruments:
Recognition and Measurement from 1 October 2005. Full details of
the accounting policies adopted by the Group on transition to IFRS
and of the impact on the reported results and balance sheet of the
Group on transition to IFRS, were published on 5 May 2006 and are
available on the Group's website http://www.greencore.com/. 2.
Approved IFRS The Group's accounting policies under IFRS are based
on the International Financial Reporting Standards and
Interpretations, issued by the International Accounting Standards
Board (IASB) and on International Accounting Standards (IAS) and
Standing Interpretations Committee interpretations, approved by the
predecessor International Accounting Standards Committee that have
been subsequently authorised by the IAS and remain in effect. 3.
Segmental Reporting The Group's primary reporting segment, for
which more detailed disclosures are made, is by class of business.
The Group has two primary reporting segments, (i) Convenience Foods
and (ii) Ingredients, Agribusiness & Related Property. Revenue
Operating Profit 2006 2005 2006 2005 euro '000 euro '000 euro '000
euro '000 Continuing Convenience Foods 901,443 832,554 68,967
65,242 Ingredients, Agri & Related Property 275,341 272,812
5,643 9,442 Total continuing 1,176,784 1,105,366 74,610 74,684
Discontinued Convenience Foods - 76,095 - (5,064) Ingredients, Agri
& Related Property 175,161 219,676 21,991 27,269 Total
discontinued (pre interest & taxation) 175,161 295,771 21,991
22,205 Associated Undertakings Convenience Foods - - - -
Ingredients, Agri & Related Property 44,184 43,189 3,857 4,549
Total - associated undertakings (pre interest & taxation)
44,184 43,189 3,857 4,549 4. Exceptional Items Exceptional items
are those that, in management's judgement, need to be disclosed by
virtue of their nature or amount. Such items are included within
the income statement caption to which they relate and are
separately disclosed in the notes to the consolidated financial
statements. The Group reports the following exceptional items (net
of tax): 2006 2005 euro '000 euro '000 Continuing operations Malt
legal settlement (a) 4,930 - Malt restructuring (b) (4,459) -
Pension curtailment gain (c) 3,365 - Chilled Sauce business
restructuring (d) (2,009) - Total continuing operations 1,827 -
Discontinued operations Fundamental reorganisation of Greencore
Sugar (e) - (66,038) Provision for loss on termination of
operations (f) - (40,090) Disposal of interest in subsidiary (g) -
1,827 Exit from sugar processing (h) (68,903) - Total discontinued
operations (68,903) (104,301) Total exceptional costs (67,076)
(104,301) (a) Malt legal settlement The Group settled an
outstanding claim related to Greencore Malt at euro 4.9m (net of
costs). (b) Malt restructuring Following on from the closure of
three maltings during 2005, Greencore Malt focused on restructuring
its core operations in both Ireland and the UK. The exceptional
loss represents the costs associated with this business
restructuring. (c) Pension curtailment gain In April 2006, a number
of changes in benefit design were implemented in respect of the
Hazlewood Foods Retirement Benefits Scheme. These changes included
a shift to a career average revalued basis in respect of accrued
benefits with revaluation set at the level of limited price
inflation. It also included the integration of the scheme with the
basic state pension in respect of future service. These scheme
amendments net of related costs resulted in an exceptional pension
curtailment gain (net of tax) of euro 3.4m. (d) Chilled Sauces
business restructuring Following a strategic review at Greencore
Chilled Sauces, a decision was made to consolidate all chilled
sauce manufacturing at the Bristol facility and to close the
Chesterfield factory. The exceptional loss represents the costs
associated with this decision. (e) Fundamental reorganisation of
Greencore Sugar In January 2005, the Group announced its decision
to consolidate all sugar processing at Mallow and to close the
Carlow facility. The costs associated with this fundamental
restructuring totalled euro 66.0m. (f) Provision for loss on
termination of operations In October 2005, the Group disposed of
its UK Pizza business for a nominal consideration. The exceptional
item booked during the year ended September 2005 included a
provision to write down all of the assets related to the pizza
business to their recoverable amounts and to cover all costs
directly related to the decision to sell the pizza business. (g)
Disposal of interest in subsidiary In August 2005 a small non-core,
deli-style meat business with operations in Ireland and Germany was
sold, resulting in a profit of euro 1.9m (net of tax euro 1.8m).
(h) Exit from sugar processing On March 15, 2006, Greencore
confirmed its intention to exit sugar processing in Ireland,
renounce its quota and apply for the EU restructuring aid which is
available under the Council Regulations (EC) No 320/2006 (the
Regulation). The total EU restructuring aid available for the sugar
quota renounced by Greencore is euro 145.5m. This Regulation
states, inter alia, that at least 10% of the restructuring aid
shall be reserved for sugar beet growers and machinery contractors.
The Regulation gives the Member State the responsibility to
determine if this percentage is to be increased but imposes on the
Member State the requirement, using objective and non-
discriminatory criteria, to ensure an economically sound balance
between the elements of the restructuring plan. On July 12, 2006,
the Member State announced that it was allocating 67.6%
(representing euro 98.4m) to Greencore, with the balance of the EU
aid to be allocated to sugar beet growers and machinery
contractors. The Board of Greencore rejected the basis of this
allocation. That government decision is currently subject to a
judicial review in the Irish High Court. On July 31, 2006,
Greencore formally applied for restructuring aid by renouncing its
sugar quota and submitting a restructuring plan to the Irish
Government. Greencore subsequently agreed with the Irish Government
that, conditional upon Greencore's restructuring plan being
approved, the Group would amend the plan to reflect any lawful
decision of the Government taken pursuant to the outcome of the
legal proceedings. On September 19, 2006, the Government deemed
Greencore's restructuring plan to be eligible for restructuring
aid. The financial consequences to Greencore are as follows: euro
'000 Write-down and impairment of assets (115.0) Environmental,
remediation, demolition, redundancy & other costs (49.8)
(164.8) Less: present value of EU restructuring aid receivable
which may be regarded as virtually certain 95.9 Net exceptional
charge (post-tax) (68.9) Restructuring costs As of September 29,
2006, the costs associated with the exit from sugar processing are
estimated at euro 164.8m. The Government in announcing its decision
in relation to the allocation of EU restructuring aid included an
'illustrative' allocation of euro 50.0m to the Greencore Group
Pension Scheme. As of September 29, 2006, this pension scheme did
not require such an allocation, as it had a net retirement benefit
asset of euro 25.0m (an asset which takes account of the present
value of all anticipated obligations of the pension scheme). The
Board believes that the Government was not entitled to direct the
allocation of aid in this manner. Accordingly, the Group has
concluded that such an allocation will not have to be made.
Accounting for the receipt of EU aid The Group's entitlement to EU
Restructuring Aid is estimated to be euro 130.9m. As of September
29, 2006, the receipt of euro 98.4m is regarded as virtually
certain and the present value of this amount (being euro 95.9m) has
therefore been included in the year-end balance sheet as a
receivable and netted against the related gross exceptional costs
in the Group income statement. The balance of the Group's
entitlement of euro 32.5m which cannot at year-end be reasonably
regarded as virtually certain is treated as a contingent asset and
therefore, disclosed but not regarded as a receivable until its
receipt becomes virtually certain. The Group remains confident of a
successful outcome of the judicial review. Timing of receipt of
Restructuring Aid The EU regulations (320/2006 and 968/2006) set
out a timetable for the payment of restructuring aid in two
tranches, 40% in June 2007 and 60% in February 2008. The related
amounts are included in the financial statements as follows: euro
'000 Current assets - EU restructuring aid receivable 39.4
Non-current assets - EU restructuring aid receivable 56.5 95.9 5.
Dividends The proposed final dividend per share for the year ended
September 29, 2006 is 7.58c (2005: 7.58c). This proposed final
dividend is payable on April 5, 2007, to shareholders on the
Register of Members on December 15, 2006. This proposed dividend is
subject to approval by the shareholders at the AGM and has not been
included as a liability in the balance sheet of the Group as of
September 29, 2006, in accordance with IAS 10 'Events after the
Balance Sheet Date'. An interim dividend of 5.05 cents (2005: 5.05
cents) was paid on October 5, 2006. 6. Earnings per Ordinary Share
The calculation of the Group's earnings per ordinary share for
continuing operations is based on a profit of euro 49.0m (2005:
euro 42.3m) and on 196.2m ordinary shares (2005: 193.3m) being the
weighted average number of ordinary shares in issue in the period.
The calculation of earnings per ordinary share from discontinued
operations is based on a loss of euro 49.5m (2005: loss of euro
83.7m). The calculation of the diluted earnings per ordinary share
for continuing operations is based on a profit of euro 49.0m (2005:
euro 42.3m) and on 196.9m ordinary shares (2005: 194.2m) being the
weighted average number of ordinary shares outstanding assuming
conversion of all dilutive potential ordinary shares. Employee
share options which are performance based are treated as
contingently issuable shares, because their issue is contingent
upon satisfaction of specified performance conditions in addition
to the passage of time. These contingently issuable ordinary shares
are excluded from the computation of diluted earnings per ordinary
share where the conditions governing exercisability have not been
satisfied as at the end of the reporting period. The calculation of
diluted earnings per ordinary share from discontinued operations is
based on a loss of euro 49.5m (2005: loss of euro 83.7m). The
Group's adjusted earnings per share is after the elimination of the
exceptional items reported in note 4, inter-company foreign
exchange and the mark-to-market of all derivative financial
instruments and related debt. The calculation of adjusted earnings
per ordinary share is based on a pre-exceptional profit of euro
66.6m (2005: euro 62.9m) adjusted to exclude (i) a gain of euro
0.5m (2005: euro 0.1m) related to inter- company foreign exchange
and a gain of euro 5.2m (2005: nil) recognised on the
mark-to-market of all derivative financial instruments together
with related debt. The weighted average number of ordinary shares
in issue during the period was 196.2m (2005: 193.3m). 2006 2005
cents cents Adjusted EPS 31.1 32.5 7. Components of Net Debt and
Financing 2006 2005 euro '000 euro '000 Net Debt Current assets
Cash and cash equivalents 78,967 74,102 Current liabilities
Borrowings (265) (325) Non-current liabilities Borrowings before
fair value adjustment (464,127) (473,541) Comparable net debt
(385,425) (399,764) Borrowings -- fair value hedge adjustment
(non-current liabilities) 30,470 - Total cash, cash equivalents
& borrowing (354,955) (399,764) Finance Costs Net finance costs
on interest bearing cash and cash equivalents and borrowings
(30,717) (30,507) Net pension financing credit 6,987 5,412 Change
in fair value of derivatives 5,157 - Foreign exchange gain
(inter-company) 500 72 (18,073) (25,023) Analysed as: Finance
income 35,929 33,179 Finance costs (54,002) (58,202) (18,073)
(25,023) 8. Information The annual report and accounts will be
circulated to shareholders on January 15, 2007, prior to the Annual
General Meeting to be held on February 15, 2007 in Jurys
Ballsbridge Hotel, Ballsbridge, Dublin 4, Ireland. By order of the
Board, CM Bergin, Company Secretary, December 5, 2006, Greencore
Group plc, St Stephen's Green House, Earlsfort Terrace, Dublin 2,
Ireland. For tabular information, please contact Taylor Rafferty +1
212 889 4350 (1) Before exceptional items, inter-company foreign
exchange and the marking to market of all derivative financial
instruments and related debt (2) Source: TNS DATASOURCE: Greencore
Group plc CONTACT: David Dilger, Group Chief Executive,
+353-1-605-1045, Patrick Coveney, Chief Financial Officer,
+353-1-605-1018, Eoin Tonge, Group Capital Markets Director,
+353-1-605-1036, all of Greencore; or, Brian Rafferty, of Taylor
Rafferty, +1-212-889-4350, for Greencore Web site:
http://www.greencore.com/
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