Earnings Release • Sep 25, 2011
Earnings Release
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Zurich/Switzerland, 26 September 2011 – ARYZTA AG announces financial results for the financial year ended 31 July 2011
Commenting on the results, ARYZTA AG Chief Executive Officer Owen Killian said:
"2011 was a year of substantial repositioning for ARYZTA AG. Bakery volumes doubled leading to a 53.5% increase in Food Group revenue as a result of acquisition activity one year previously. ARYZTA is now much better positioned opposite consumers with greater global access to limited serve restaurants and retail, complementing our well established deeply distributed foodservice business.
Consumer confidence improved during the year leading to underlying Food Group revenue growth of 2.7%. It remains a tough economic environment for consumers who now also are dealing with higher food costs with less disposable income. We remain focused on working with our customers to manage input price inflation in an effective manner to maintain affordability without compromising quality or service.
We plan to invest up to €100m per annum over the next three years unlocking the revenue and efficiency opportunities across our business under our ARYZTA Transformation Initiative ('ATI').
At this early stage of the year we believe FY 2012 consensus EPS appears reasonable and our stated earnings goals for 2013 are still attainable".
ARYZTA AG ('ARYZTA') is a global food business with a leadership position in speciality bakery. ARYZTA is based in Zurich, Switzerland, with operations in North America, South America, Europe, South East Asia, Australia and New Zealand. ARYZTA has a primary listing on the SIX Swiss Exchange and a secondary listing on the ISE Irish Exchange (SIX: ARYN, ISE: YZA).
ARYZTA is the majority shareholder (71.4%) in Origin Enterprises plc, which has a listing on the AIM in London and the ESM in Dublin (AIM: OGN, ESM: OIZ).
Paul Meade Communications Officer ARYZTA AG Tel: +41 (0) 44 583 42 00 [email protected]
An analyst call will take place today at 09:00 CET (08:00 GMT).
Dial in numbers are: Switzerland: 0565 800 012, Ireland 01 447 5736, UK 0844 338 7409, USA 1 877 328 4999, International +44 (0) 1452 561 488. Please provide the following code: 94840777 to access the call.
Printable pdf version of slides will be available to download from the ARYZTA website www.aryzta.com 15 minutes before the call.
A conference call webcast replay will be available from the ARYZTA website www.aryzta.com
| in Euro '000 | July 2011 | July 2010 | % Change |
|---|---|---|---|
| Group revenue | 3,876,923 | 3,009,726 | 28.8% |
| EBITA | 393,326 | 272,973 | 44.1% |
| EBITA margin | 10.1% | 9.1% | – |
| Associates and JVs, net | 19,479 | 31,613 | – |
| EBITA incl. associates and JVs | 412,805 | 304,586 | 35.5% |
| Finance cost, net | (67,916) | (51,485) | – |
| Hybrid instrument accrued dividend | (11,801) | – | – |
| Pre-tax profits | 333,088 | 253,101 | – |
| Income tax | (52,295) | (41,598) | – |
| Non-controlling interests | (20,753) | (17,624) | – |
| Underlying fully diluted net profit | 260,040 | 193,879 | 34.1% |
| Underlying fully diluted EPS (cent) | 310.1c1 | 244.0c1 | 27.1% |
1 July 2011 underlying fully diluted EPS is calculated using the weighted average number of shares in issue of 83,868,319 (2010: 79,443,701).
2 See glossary in section 21 for definitions of financial terms and references used.
| in Euro million | Food Europe | Food North America |
Food Rest of World |
Total Food Group |
Origin1 Total Group | |
|---|---|---|---|---|---|---|
| Group revenue | 1,184.9 | 1,212.5 | 180.0 | 2,577.4 | 1,299.5 | 3,876.9 |
| Underlying growth | 0.9% | 5.3% | 17.0% | 2.7% | 11.8% | 6.7% |
| Acquisitions and disposals | 7.1% | 106.5% | 373.7% | 48.8% | (15.4)% | 20.4% |
| Currency | 2.5% | 0.3% | 11.8% | 2.0% | 1.3% | 1.7% |
| Revenue Growth | 10.5% | 112.1% | 402.5% | 53.5% | (2.3)% | 28.8% |
1 Origin revenue is presented after deducting intra-group sales of €2,235,000 (2010: €6,756,000) between Origin and Food Group.
| in Euro '000 | July 2011 | July 2010 | % Change |
|---|---|---|---|
| Food Group | |||
| Food Europe | 149,038 | 131,245 | 13.6% |
| Food North America | 148,673 | 69,911 | 112.7% |
| Food Rest of World | 24,601 | 5,963 | 312.6% |
| Total Food Group | 322,312 | 207,119 | 55.6% |
| Origin | 71,014 | 65,854 | 7.8% |
| Total Group EBITA | 393,326 | 272,973 | 44.1% |
| Associates & JVs, net | |||
| Food JVs | 4,622 | 20,041 | (76.9)% |
| Origin associates & JV | 14,857 | 11,572 | 28.4% |
| Total associates & JVs, net | 19,479 | 31,613 | (38.4)% |
| Total EBITA incl. associates and JVs | 412,805 | 304,586 | 35.5% |
| in Euro '000 | July 2011 | July 2010 | % Change |
|---|---|---|---|
| Group revenue | 2,577,420 | 1,679,417 | 53.5% |
| EBITA | 322,312 | 207,119 | 55.6% |
| EBITA margin | 12.5% | 12.3 % | – |
| JVs, net | 4,622 | 20,041 | – |
| EBITA incl. JVs | 326,934 | 227,160 | 43.9% |
| Finance costs, net | (57,406) | (36,272) | – |
| Hybrid instrument accrued dividend | (11,801) | – | – |
| Pre-tax profits | 257,727 | 190,888 | – |
| Income tax | (36,999) | (30,571) | – |
| Non-controlling interests | (2,666) | (2,630) | – |
| Underlying net profit | 218,062 | 157,687 | 38.3% |
ARYZTA's Food Group business is primarily focused on speciality baking, a niche segment of the overall bakery market. Speciality bakery consists of freshly prepared offerings giving the best value, variety, taste and convenience to consumers at the point of sale. ARYZTA's customers are an evenly balanced mix of convenience and independent retail, large retail, limited serve restaurants ('LSR') and other foodservice categories.
Total revenue growth in the Food Group business was underpinned by the strategic acquisitions made in the previous financial year and at the start of this financial year. Total Food Group revenue grew by 53.5% to €2.6bn, with acquisitions performing to expectations, contributing 48.8%.
ARYZTA's underlying food business performed strongly posting revenue growth of 2.7% in what was a very challenging trading environment. Food EBITA margins expanded by 20bps to 12.5%, reflecting the combination of improved efficiencies, a return of modest underlying growth in the year and changes in product mix.
The return of underlying revenue growth during the financial year was evident across most markets, particularly post Q1, with the exception of Ireland and the UK. The performance in North America was particularly strong reflecting the increased focus on the LSR channel, which enjoyed strong growth in the period. Despite the positive outcome, the operating environment remains challenging with primary food inflation and recently renewed uncertainty surrounding the global economy, combined with persistently high unemployment and the threat of rising taxation in many countries, denting consumer confidence.
Food Europe has leading market positions in the European speciality bakery market. It has a diversified customer base including convenience retail, gas stations, multiple retail, restaurants, catering and hotels, leisure and LSRs. Food Europe revenue grew by 10.5% to €1.18bn, with acquisition contribution of 7.1% and underlying revenue growth of 0.9%. Food Europe's EBITA grew 13.6% to €149.0m. Food Europe EBITA margin improved strongly by 40bps to 12.6% in the period.
Throughout the year, continental European markets were the key growth drivers. Market conditions in the UK and Ireland remained challenging, with weak consumer demand still evident. However, substantial progress has been made through operating efficiencies and cost curtailment initiatives thereby allowing operators to increase their value offerings.
Food North America is a leading player in the US bakery speciality market. It has a diversified customer base, including multiple retail, restaurants, catering and hotels, leisure, hospitals, military, fundraising and LSRs.
Food North America revenue grew by 112% to €1.21bn, with acquisition contribution of 107% and underlying revenue growth of 5.3%. Food North America's EBITA grew 113% to €148.7m. Food North America also posted a positive EBITA margin expansion of 10bps to 12.3%, reflecting ongoing initiatives to expand revenues and improve operating efficiencies.
During FY 2011, the integration of Otis and Pennant into a single sweet bakery operation was completed and by year end approximately 80% of ARYZTA's North American food business was operating live on Enterprise Resource Planning ('ERP'). ARYZTA's Food North America operations enjoy very strong customer relationships across all channels such that the impact of channel switching by consumers is minimized. Food North America posted a very strong performance in the enlarged LSR channel, which enjoyed stable consumption volumes of bakery goods during the period, while businesses serving channels in higher income regions also posted strong revenue growth.
ARYZTA has businesses in Brazil, Australia, New Zealand, Malaysia and Japan as well as a joint venture production facility in Guatemala.
Food Rest of World revenue grew by 403% to €180.0m, with acquisition contribution of 374% and strong underlying revenue growth of 17.0%. Food Rest of World's EBITA grew 313% to €24.6m. While EBITA margin declined in the period to 13.7% from 16.6% in the prior year due to the impact of the Japanese natural disaster in Q3, ARYZTA's Japanese business recovered well in Q4. The development of a new bakery in Brazil is on track to satisfy the continuing strong volume growth in this market.
ARYZTA has committed €100m investment to a number of bolt-on acquisitions in Asia and the UK. The Food Group expects to close the acquisition of two bakeries in Taiwan and Singapore in Q1 2012. The decision to acquire these bakeries was previously announced in August 2010. ARYZTA has also closed the acquisition of a UK manufacturer of flat breads which primarily services the UK retail channel. These acquisitions are aligned with the Food Group's strategy to diversify geographies, channels and products. These acquisitions are expected to add approximately €78m in revenue in FY 2012 and to be modestly earnings accretive. ARYZTA has also committed to construct a new bakery in Malaysia instead of proceeding with the previously announced plan to acquire a bakery in Malaysia in August 2010.
Arising from ARYZTA's strategic repositioning initiatives across its Food Europe and Food North America businesses, ARYZTA has incurred non-recurring costs in the period. The impact of these together with the fair value gain on the acquisition of Maidstone Bakeries ('Maidstone') in October 2010, have resulted in a net benefit of €0.98m in the financial year to the end of July 2011. These break down as follows:
| in Euro '000 | Non-Cash | Cash | Total |
|---|---|---|---|
| Maidstone fair value gain on existing 50% at acquisition | 121,391 | – | 121,391 |
| Asset write-down arising on integration | (43,039) | – | (43,039) |
| Costs arising on integration | (3,600) | (63,092) | (66,692) |
| Transaction costs (including share purchase tax) | – | (10,686) | (10,686) |
Asset write-down costs relate to the closure of 6 sites. The costs were split 44% in H1 and 56% in H2, with 2 sites closed in H1. The reporting segment splits for asset write-down costs were 81% in Food Europe and 19% in Food North America.
Approximately 96% or €60.3m of cash costs arising on integration resulted from staff severance, site decommissioning and advisory costs. Approximately 62% of these costs related to Food North America.
Following on from the phased implementation of Enterprise Resource Planning ('ERP') throughout the business in FY 2010 and FY 2011, the ARYZTA Transformation Initiative ('ATI') will now enter an accelerated phase of implementation in FY 2012. At year end FY 2011 approximately 40% of ARYZTA's group wide businesses were operating live on ERP (80% in Food North America). ARYZTA is developing two integrated platforms in Europe and North America operating on a single ERP system.
ATI's goal is to develop enhanced customer interaction through the development of a single sales contact network for the entire product offering. It is also standardising operational processes, manufacturing, data and performance measurement and financial controls.
ARYZTA views ATI as key to improving competitiveness and leadership in the sector and also a key driver in margin enhancement. ARYZTA intends to invest €100m per annum in ATI over the next three years in optimising the supply chain to support the continued roll-out of ERP. The acceleration of ATI in FY 2012 will result in significant change across the Group. ATI is likely to result in the Group incurring an estimated non-recurring cash cost of €100m over the next two financial years to July 2013 as a result of planned business restructuring measures. ARYZTA anticipates multiple benefits from this investment over the implementation period targeting progressive revenue enhancement through maximising cross-selling opportunities. In addition, ATI is expected to enhance ARYZTA's leadership position in speciality bakery and deliver margin enhancement. The expected benefits arising from this transformative investment forms a key driver of ARYZTA's goal to deliver a return on investment of 15%+ from the underlying Food business by FY 2015, (which equates to an average increment of 100-150bps per annum in ROI).
The financial year has been one which has seen a return of food raw material inflation triggering the need for price increases. The Group is working closely with customers in mitigating the impact of pricing on the consumer through product innovation, selection and service model efficiencies. The outlook for food raw materials remains volatile and is expected to remain as such for the foreseeable future.
ARYZTA's 71.4% subsidiary and separately listed company, Origin Enterprises Plc ('Origin'), has separate funding structures, which are financed without recourse to ARYZTA. Origin's net debt amounted to €92.1m at 31 July 2011. The consolidated net debt of the Food Group excluding Origin's non-recourse debt amounted to €955.5m. The Food Group net debt: EBITDA ratio is 2.24x (excluding hybrid instrument as debt) and interest cover of 7.43x (excluding hybrid interest). The Food Group gross term debt weighted average maturity is circa 6.2 years. The weighted average interest cost of the Food Group financing facilities is circa 4.28%. ARYZTA intends to maintain an investment grade position in the range of 2x – 3x net debt to EBITDA.
ARYZTA's financing facilities and key financial covenants (excluding Origin, which has separate ring-fenced financing without recourse to ARYZTA) are as follows:
| Debt Funding | Principal | Maturity |
|---|---|---|
| May 2010 – Syndicated Bank Loan | CHF 600m | Dec 2014 |
| May 2010 – US Private Placement | USD 420m / EUR 25m | May 2013 –May 2022 |
| Dec 2009 – US Private Placement | USD 200m | Dec 2021–Dec 2029 |
| Nov 2009 – Swiss Bond | CHF 200m | March 2015 |
| Jun 2007 – US Private Placement | USD 450m | Jun 2014– Jun 2019 |
CHF 400m Hybrid instrument with 5% coupon funded in October 2010
After first call date (October 2014) coupon equates to 905bps plus 3 month CHF LIBOR
Traded on SIX Swiss exchange
Treated as 100% equity for bank covenant purposes
Treated as 25% equity for US PP covenant purposes
| Net Debt: EBITDA1 calculations as at 31 July 2011 | Ratio | |
|---|---|---|
| Net Debt: EBITDA1 (hybrid as equity) | 2.24x | |
| Net Debt: EBITDA1 (hybrid as debt) | 3.06x |
1 Calculated based on the Food Group EBITDA for the year ended 31 July 2011, including dividend received from Origin, adjusted for the pro forma full-year contribution of the Maidstone Bakeries acquisition.
| 2012 | ||
|---|---|---|
| 2013 | 4% |
2014 9%
2015 37%
1 Profile of term debt maturity is set out based on the Group's financial year end. Food Group gross term debt at 31 July 2011 is €1.22bn (excluding overdrafts of €159m). Total Food Group net debt at 31 July 2011 is €955.5m.
| in Euro '000 | July 2011 | July 2010 |
|---|---|---|
| EBIT | 235,780 | 160,252 |
| Amortisation | 86,532 | 47,450 |
| EBITA | 322,312 | 207,702 |
| Depreciation | 86,479 | 60,363 |
| EBITDA | 408,791 | 268,065 |
| Working capital movement1 | (12,970) | 24,818 |
| Dividends received2 | 13,138 | 24,158 |
| Maintenance capital expenditure | (39,272) | (10,330) |
| Interest and tax | (101,927) | (54,224) |
| Other non-cash charges / (income) | 4,187 | (1,469) |
| Cash flow generated from activities | 271,947 | 251,018 |
| Investment capital expenditure | (51,589) | (46,546) |
| Cash flows generated from activities after capital expenditure | 220,358 | 204,472 |
| Underlying net profit | 218,062 | 157,687 |
1 July 2010 working capital movement includes €21.5m received from debt factoring.
2 Includes dividends from Origin of €8,550,000 (July 2010: €7,600,000).
| Food Group net debt and investment activity | ||
|---|---|---|
| in Euro '000 | FY 2011 | FY 2010 |
| Food Group opening net debt as at 31 July 2010 | (1,115,623) | (505,504) |
| Cash flows generated from activities | 271,947 | 251,018 |
| Hybrid instrument proceeds | 285,004 | – |
| Cost of acquisitions | (317,674) | (860,313) |
| Share placement | – | 115,001 |
| Integration and transaction costs | (31,847) | – |
| Investment capital expenditure | (51,589) | (46,546) |
| Deferred consideration | (12,900) | (2,128) |
| Dividends paid | (32,908) | (30,599) |
| Foreign exchange movement | 51,106 | (33,148) |
| Amortisation of financing costs and other | (984) | (3,404) |
| Food Group closing net debt as at 31 July 2011 | (955,468) | (1,115,623) |
| Food | Food North |
Food Rest of |
Total Food |
|||
|---|---|---|---|---|---|---|
| in Euro million | Europe | America | World | Group | Origin | Total |
| 2011 | ||||||
| Group share net assets1 | 1,368 | 1,635 | 253 | 3,256 | 4343 | 3,690 |
| EBITA & associates/JVs cont.2 | 149 | 157 | 26 | 332 | 86 | 418 |
| ROI | 10.9% | 9.6% | 10.1% | 10.2% | 19.8% | 11.3% |
| 2010 | ||||||
| Group share net assets1 | 1,427 | 1,290 | 230 | 2,947 | 3983 | 3,345 |
| EBITA & associates/JVs cont.2 | 141 | 137 | 23 | 301 | 77 | 378 |
| ROI | 9.9% | 10.6% | 10.0% | 10.2% | 19.4% | 11.3% |
1 Net assets exclude all bank debt, cash and cash equivalents and tax-related balances.
2 EBITA, presented as segmental EBITA including pro forma contribution in the current year from Maidstone of €4,743,000 in the Food North American segment (covering the pre-acquisition period in FY2011) and segmental contribution from associates and JVs of €3,706,000 in the North American segment and €909,000 in the Food Rest of World segment. EBITA is before interest, tax, non-SAP amortisation and before the impact of non-recurring items. The contribution from associates and JVs is net profit (i.e. presented after interest and tax).
3 Origin net assets adjusted for the fluctuation in its average quarterly working capital by €95,544,000 (2010: €80,579,000).
4 The Group WACC on a pre-tax basis is currently 8.0% (2010: 8.1%). Group WACC on a post-tax basis is currently 6.7% (2010: 6.5%).
| Group Balance Sheet | Total Group | Total Group |
|---|---|---|
| in Euro ´000 | 2011 | 2010 |
| Property, plant and equipment | 939,949 | 945,100 |
| Investment properties | 32,180 | 20,648 |
| Goodwill and intangible assets | 2,650,956 | 2,280,763 |
| Associates and joint ventures | 124,057 | 162,881 |
| Other financial assets | 35,013 | – |
| Working capital | (128,185) | (62,282) |
| Other segmental liabilities | (59,379) | (83,075) |
| Segmental net assets | 3,594,591 | 3,264,035 |
| Net debt | (1,047,588) | (1,227,512) |
| Deferred tax, net | (309,425) | (303,089) |
| Income tax | (38,248) | (53,209) |
| Derivative financial instruments | (2,824) | (6,375) |
| Net assets | 2,196,506 | 1,673,850 |
| Food Group Balance Sheet | Food Group | Food Group |
|---|---|---|
| in Euro `000 | 2011 | 2010 |
| Property, plant and equipment | 845,693 | 815,918 |
| Investment properties | 16,178 | 4,646 |
| Goodwill and intangible assets | 2,520,450 | 2,166,168 |
| Joint ventures | 4,976 | 73,140 |
| Investment in Origin | 51,045 | 51,045 |
| Working capital | (90,372) | (53,607) |
| Other segmental liabilities | (39,567) | (59,763) |
| Segmental net assets | 3,308,403 | 2,997,547 |
| Net debt | (955,468) | (1,115,623) |
| Deferred tax, net | (292,985) | (289,658) |
| Income tax | (28,299) | (47,437) |
| Derivative financial instruments | (1,918) | (1,778) |
| Net assets | 2,029,733 | 1,543,051 |
The Board recommends a final dividend of CHF 0.56791 to be paid on 1 February 2012, if approved by shareholders at the General Meeting to be held on 1 December 2011.
1 Based on EUR 0.4652 per share converted at the foreign exchange rate of one Euro to CHF 1.22082 on 22 September 2011, the date of the approval of the ARYZTA financial statements.
Origin is the leading agri-services group focused on integrated agronomy and agriinputs in the UK, Ireland and Poland. ARYZTA has a holding of 95m shares in Origin.
Origin reported excellent financial and operating results underpinned by a buoyant trading environment for primary producers supporting firm demand for agronomy services and inputs. Origin completed significant repositioning of non-core businesses in the period and deployed the cash received from its non-core disposals to close three acquisitions in the UK (involving a total investment of €79.3m) which transformed the scale and profile of its UK operations into the leading provider of agronomy advice and agri inputs. In the year under review, Origin's Agri-Services segment expanded its EBIT margin by 50bps to 5.2% and reported a 29.3% increase in operating profits to €66m. Origin reported fully diluted adjusted earnings per share of 43.34c, an increase of 16.3% on the prior year, and reduced its net debt by €19.8m to €92.1m, reflecting a Net debt: EBITDA ratio of 1.17x. Origin's ROI for the period was 19.8%.
The Board of Origin has proposed a dividend per ordinary share of 11.0 cent for the period ended 31 July 2011.
Origin's separately published results, which were released on 22 September 2011, are available at www.originenterprises.com.
Economic outlook for mature markets continues to weaken amid continuing volatility in raw material inputs and in financial markets. These conditions increase the downside risks to the global economic outlook significantly. Consumer spending remains weak with footfall driven by increased promotional activity in all channels. Competition between ARYZTA's customers has also increased in response to elevated levels of consumer switching between channels pulled by the promotional activity.
ARYZTA's strategy to deal with this challenging market environment is to leverage key customer relationships to grow revenue, to focus on product development around consumer insights and to identify and exploit cost efficiencies across the organisation. This will be supported by increased investment in emerging markets and availing of acquisition growth opportunities to add new customers, channels, products and geographies.
ARYZTA has repositioned itself to become a leading global player in speciality bakery through the acquisitions completed just one year ago and now has a more balanced earnings flow. The resulting diversification arising from these acquisitions has also repositioned its access to more customers and channels providing a better balanced access to consumers.
The Group has well diversified sources of finance with long maturity, supporting its continued investment grade status. These characteristics coupled with the planned investment of €100m in the ATI programme in each of the next three years will enhance ARYZTA's leadership in the global bakery sector.
ARYZTA believes that the current FY 2012 consensus EPS (338 cents) appears reasonable at this early stage of the year. ARYZTA continues to believe that the FY 2013 EPS target of 400+ cent and the FY 2015 Food Group target of a return on investment of 15%+ from underlying Food business remains valid.
The Board and senior management have invested significant time and resources in identifying specific risks across the Group, and in developing a culture of balanced risk minimisation. The Board considers the risks and uncertainties disclosed on page 14 to continue to reflect the principal risks and uncertainties of the Group.
This report contains forward looking statements which reflect management's current views and estimates. The forward looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward looking statements. Potential risks and uncertainties include such factors as general economic conditions, foreign exchange fluctuations, competitive product and pricing pressures and regulatory developments.
'EBITA' – presented before non-recurring items and related tax credits. SAP intangible asset amortisation is treated as depreciation.
'Associates and JVs, net' – presented as profit from associates and JVs, net of taxes and interest.
'EBITDA' – presented as earnings before interest, taxation, depreciation and amortisation reported for the period and before non-recurring items and related deferred tax credits.
'Non-controlling interests' – always presented after dilutive impact of related subsidiaries' management incentives.
'Hybrid instrument' – presented as Perpetual Callable Subordinated Instrument in the Financial Statements.
Food Group WACC on a pre-tax basis is currently 8.0%. Food Group WACC presented on a post-tax basis is currently 6.7%.
for the year ended 31 July 2011
| in Euro '000 | Food Group 2011 |
Origin 2011 |
Total Group 2011 |
Total Group 2010 |
|---|---|---|---|---|
| Group revenue | 2,577,420 | 1,299,5033 | 3,876,923 | 3,009,726 |
| EBITA | 322,312 | 71,014 | 393,326 | 272,973 |
| Associates and JVs, net | 4,622 | 14,857 | 19,479 | 31,613 |
| EBITA incl. associates and JVs | 326,934 | 85,871 | 412,805 | 304,586 |
| Finance cost, net | (57,406) | (10,510) | (67,916) | (51,485) |
| Hybrid instrument accrued dividend | (11,801) | – | (11,801) | – |
| Pre-tax profits | 257,727 | 75,361 | 333,088 | 253,101 |
| Income tax | (36,999) | (15,296) | (52,295) | (41,598) |
| Non-controlling interests | (2,666) | – | (20,753) | (17,624) |
| Underlying fully diluted net profit | 218,062 | 60,065 | 260,040 | 193,879 |
| Underlying fully diluted EPS (cent) | – | 43.34c1 | 310.1c2 | 244.0c2 |
| Origin | Total Group | Total Group | |||
|---|---|---|---|---|---|
| 2011 | 2011 | 2010 | |||
| 179,9484 | 45,798 | 212,657 | 151,729 | ||
| 86,532 | 4,295 | 90,827 | 50,730 | ||
| (17,028) | (1,663) | (18,691) | (11,959) | ||
| (121,391) | 4,133 | – | |||
| 43,039 | – | – | |||
| 10,686 | 2,139 | – | |||
| – | 4,738 | – | |||
| 66,692 | – | – | |||
| (974) | 11,010 | 10,036 | 4,643 | ||
| (11,801) | – | (11,801) | – | ||
| (18,615) | 625 | (17,990) | – | ||
| – | – | (3,325) | – | ||
| 218,062 | 60,065 | 261,713 | 195,143 | ||
| – | – | (1,673) | (1,264) | ||
| 218,062 | 60,065 | 260,040 | 193,879 | ||
| Food Group 2011 |
Underlying fully diluted EPS (cent) – 43.34c1 310.1c2 244.0c2
1 Actual Origin FY 2011 underlying fully diluted EPS is calculated using the weighted average number of shares in issue of 138,416,254 (FY 2010: 137,376,888).
2 FY 2011 underlying fully diluted EPS is calculated using the weighted average number of shares in issue of 83,868,319 (FY 2010: 79,443,701).
3 Origin revenue is presented after deducting intra-group sales of €2,235,000 (2010: €6,756,000) between Origin and Food Group.
4 Food Group reported net profit excludes dividend income of €8,550,000 (2010: €7,600,000) from Origin.
The Board and senior management have invested significant time and resources in identifying specific risks across the Group, and in developing a culture of balanced risk minimisation. The Group has formal risk assessment processes in place through which risks and mitigating controls are evaluated. These processes are driven by business unit management, who are best placed to identify the significant ongoing and emerging risks facing the businesses. The outputs of these risk assessment processes are subject to various levels of review by management, and a consolidated Risk Map is reviewed by the ARYZTA Board of Directors on an annual basis. Risks identified and associated mitigating controls are also subject to audit as part of operational, financial and health and safety audit programmes.
1 These risks are not listed in order of importance.
The directors are responsible for preparing the Annual Report and the Group and Company Financial Statements, in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and Company Financial Statements for each financial year. Under that law, the directors are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards ('IFRS') and the requirements of Swiss law.
This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of the Group and Company financial statements that are free from material misstatement, whether due to fraud or error.
In preparing each of the Group and Company Financial Statements, the directors are required to:
The directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with IFRS and the requirements of Swiss law.
They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website.
On behalf of the Board
Denis Lucey Owen Killian Chairman, Board of Directors CEO, Member of the Board
22 September 2011
of Directors
| in Euro `000 | Notes | 2011 | 2010 |
|---|---|---|---|
| Revenue | 3,876,923 | 3,009,726 | |
| Cost of sales | (2,774,960) | (2,169,030) | |
| Gross profit | 1,101,963 | 840,696 | |
| Distribution expenses | (510,401) | (416,666) | |
| Administration expenses | (289,063) | (201,869) | |
| Operating profit before net acquisition, disposal and restructuring related costs | 302,499 | 222,161 | |
| Net acquisition, disposal and restructuring related costs | 3 | (10,036) | (4,561) |
| Operating profit | 292,463 | 217,600 | |
| Share of profit after tax of associates and joint ventures | 19,479 | 31,613 | |
| Profit before financing income and costs | 311,942 | 249,213 | |
| Financing income | 12,065 | 10,230 | |
| Financing costs | (79,981) | (61,715) | |
| Profit before tax | 244,026 | 197,728 | |
| Income tax | (15,614) | (29,639) | |
| Profit for the year | 228,412 | 168,089 | |
| Attributable as follows: | |||
| Equity shareholders of the Company | 212,657 | 151,729 | |
| Non-controlling interests | 15,755 | 16,360 | |
| Profit for the year | 228,412 | 168,089 | |
| Earnings per share for the year | Notes | 2011 Euro cent |
2010 Euro cent |
| Basic earnings per share | 4 | 256.80 | 190.99 |
Diluted earnings per share 4 237.97 189.49
Group Statement of Comprehensive Income for the year ended 31 July 2011
| in Euro `000 | Notes | 2011 | 2010 |
|---|---|---|---|
| Profit for the year | 228,412 | 168,089 | |
| Other comprehensive income | |||
| Foreign exchange translation effects | |||
| – Foreign currency net investments | (18,822) | 101,287 | |
| – Foreign currency borrowings | 6 | 57,600 | (44,173) |
| – Recycle of foreign exchange gain on settlement of quasi-equity loans | (1,398) | (4,679) | |
| – Recycle on disposal of subsidiary undertakings | 379 | – | |
| – Taxation effect of foreign exchange translation movements | (2,876) | – | |
| – Share of joint ventures and associates' foreign exchange translation adjustment | 1,170 | (679) | |
| Cash flow hedges | |||
| – Effective portion of changes in fair value of cash flow hedges | (2,345) | 3,933 | |
| – Fair value of cash flow hedges transferred to income statement | 6,897 | 2,209 | |
| – Deferred tax effect of cash flow hedges | (286) | (990) | |
| – Share of joint ventures and associates loss on cash flow hedges | (692) | (368) | |
| – Share of joint ventures and associates deferred tax effect of cash flow hedges | 85 | 48 | |
| Defined benefit plans | |||
| – Actuarial loss on Group defined benefit pension plans | (1,881) | (2,336) | |
| – Deferred tax effect of actuarial loss | 67 | 563 | |
| – Share of associates' actuarial loss on defined benefit plan | (654) | (973) | |
| – Share of associates' deferred tax effect of actuarial loss | 164 | 272 | |
| Total other comprehensive income | 37,408 | 54,114 | |
| Total comprehensive income for the year | 265,820 | 222,203 | |
| Attributable as follows: | |||
| Equity shareholders of the Company | 247,738 | 204,649 | |
| Non-controlling interests | 18,082 | 17,554 | |
| Total comprehensive income for the year | 265,820 | 222,203 | |
| in Euro `000 | 2011 | 2010 |
|---|---|---|
| Assets | ||
| Non-current assets | ||
| Property, plant and equipment | 939,949 | 945,100 |
| Investment properties | 32,180 | 20,648 |
| Goodwill and intangible assets | 2,650,956 | 2,280,763 |
| Investments in associates and joint ventures | 124,057 | 162,881 |
| Other receivables | 35,013 | – |
| Deferred tax assets | 79,073 | 60,981 |
| Total non-current assets | 3,861,228 | 3,470,373 |
| Current assets | ||
| Inventory | 251,416 | 212,085 |
| Trade and other receivables | 477,959 | 426,917 |
| Derivative financial instruments | 608 | 889 |
| Cash and cash equivalents | 482,229 | 394,587 |
| Total current assets | 1,212,212 | 1,034,478 |
| Total assets | 5,073,440 | 4,504,851 |
| 2011 in Euro `000 |
2010 |
|---|---|
| Equity | |
| Called up share capital 1,061 |
1,061 |
| Share premium 632,951 |
632,951 |
| Retained earnings and other reserves 1,490,084 |
980,190 |
| Total equity attributable to equity shareholders of the Company 2,124,096 |
1,614,202 |
| Non-controlling interests 72,410 |
59,648 |
| Total equity 2,196,506 |
1,673,850 |
| Liabilities | |
| Non-current liabilities | |
| Interest-bearing loans and borrowings 1,363,893 |
1,575,265 |
| Employee benefits 16,026 |
15,454 |
| Deferred income from government grants 11,246 |
18,477 |
| Other payables 10,749 |
10,846 |
| Deferred tax liabilities 388,498 |
364,070 |
| Derivative financial instruments 299 |
804 |
| Deferred consideration 9,209 |
25,829 |
| Total non-current liabilities 1,799,920 |
2,010,745 |
| Current liabilities | |
| Interest-bearing loans and borrowings 165,924 |
46,834 |
| Trade and other payables 857,560 |
701,284 |
| Corporation tax payable 38,248 |
53,209 |
| Derivative financial instruments 3,133 |
6,460 |
| Deferred consideration 12,149 |
12,469 |
| Total current liabilities 1,077,014 |
820,256 |
| Total liabilities 2,876,934 |
2,831,001 |
| Total equity and liabilities 5,073,440 |
4,504,851 |
| 31 July 2011 in Euro `000 |
Share capital |
Share premium |
Treasury shares |
Other equity reserve |
Cash flow hedge reserve |
Revalua tion reserve |
Share based payment reserve |
Foreign currency trans lation reserve |
Retained earnings |
Total share holders equity |
Non controlling interests |
Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| At 1 August 2010 | 1,061 | 632,951 | (30) | – | (2,603) | 35,108 | 6,188 | 9,697 | 931,830 1,614,202 | 59,648 1,673,850 | ||
| Profit for the year | – | – | – | – | – | – | – | – | 212,657 | 212,657 | 15,755 | 228,412 |
| Foreign exchange translation effects |
– | – | – | – | – | – | – | 34,357 | – | 34,357 | 1,696 | 36,053 |
| Cash flow hedges | – | – | – | – | 2,863 | – | – | – | – | 2,863 | 796 | 3,659 |
| Defined benefit plans | – | – | – | – | – | – | – | – | (2,139) | (2,139) | (165) | (2,304) |
| Total comprehensive income |
– | – | – | – | 2,863 | – | – | 34,357 | 210,518 | 247,738 | 18,082 | 265,820 |
| Share-based payments |
– | – | – | – | – | – | 18,801 | – | – | 18,801 | 262 | 19,063 |
| Equity dividends | – | – | – | – | – | – | – | – | (30,768) | (30,768) | – | (30,768) |
| Dividends to non-controlling interests |
– | – | – | – | – | – | – | – | – | – | (5,582) | (5,582) |
| Transfer of revaluation reserve to retained earnings |
– | – | – | – | – | (17,960) | – | – | 17,960 | – | – | – |
| Issue of perpetual callable subordinated instrument |
– | – | – | 285,004 | – | – | – | – | – | 285,004 | – | 285,004 |
| Dividend on perpetual callable subordinated instrument |
– | – | – | – | – | – | – | – | (11,801) | (11,801) | – | (11,801) |
| Taxation effect of perpetual callable subordinated instrument dividend |
– | – | – | – | – | – | – | – | 920 | 920 | – | 920 |
| At 31 July 2011 | 1,061 | 632,951 | (30) | 285,004 | 260 | 17,148 | 24,989 | 44,054 1,118,659 2,124,096 | 72,410 2,196,506 |
| 31 July 2010 in Euro `000 |
Share capital |
Share premium |
Treasury shares |
Cash flow hedge reserve |
Re valuation reserve |
Share based payment reserve |
Foreign currency trans lation reserve |
Retained earnings |
Total share holders equity |
Non controlling interests |
Total |
|---|---|---|---|---|---|---|---|---|---|---|---|
| At 1 August 2009 | 1,005 | 518,006 | (30) | (6,882) | 35,108 | 4,131 | (41,147) | 810,165 1,320,356 | 47,612 1,367,968 | ||
| Profit for the year | – | – | – | – | – | – | – | 151,729 | 151,729 | 16,360 | 168,089 |
| Foreign exchange translation effects |
– | – | – | – | – | – | 50,844 | – | 50,844 | 912 | 51,756 |
| Cash flow hedges | – | – | – | 4,279 | – | – | – | – | 4,279 | 553 | 4,832 |
| Defined benefit plans | – | – | – | – | – | – | – | (2,203) | (2,203) | (271) | (2,474) |
| Total comprehensive income |
– | – | – | 4,279 | – | – | 50,844 | 149,526 | 204,649 | 17,554 | 222,203 |
| Issue of shares, net of costs |
56 | 114,945 | – | – | – | – | – | – | 115,001 | – | 115,001 |
| Equity dividends | – | – | – | – | – | – | – | (27,861) | (27,861) | – | (27,861) |
| Dividends paid to non-controlling interests |
– | – | – | – | – | – | – | – | – | (5,779) | (5,779) |
| Share-based payments | – | – | – | – | – | 2,057 | – | – | 2,057 | 261 | 2,318 |
| At 31 July 2010 | 1,061 | 632,951 | (30) | (2,603) | 35,108 | 6,188 | 9,697 | 931,830 1,614,202 | 59,648 1,673,850 |
| in Euro `000 | Notes | 2011 | 2010 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Profit for the year | 228,412 | 168,089 | |
| Income tax | 15,614 | 29,639 | |
| Financing income | (12,065) | (10,230) | |
| Financing costs | 79,981 | 61,715 | |
| Share of profit after tax of associates and joint ventures | (19,479) | (31,613) | |
| (Gain)/loss on disposal of operations | 3 | (117,258) | – |
| Asset write-downs | 3 | 43,039 | – |
| Loss on dilution | 3 | 4,738 | – |
| Other restructuring related costs | 42,253 | (82) | |
| Depreciation of property, plant and equipment | 88,354 | 66,888 | |
| Amortisation of intangible assets | 94,228 | 51,364 | |
| Recognition of deferred income from government grants | (3,036) | (2,994) | |
| Share-based payments | 14,294 | 2,318 | |
| Other | (791) | 26 | |
| Cash flows from operating activities before changes in working capital | 458,284 | 335,120 | |
| (Increase)/decrease in inventory | (49,327) | 13,956 | |
| (Increase)/decrease in trade and other receivables | (60,109) | 52,926 | |
| Increase/(decrease) in trade and other payables | 82,289 | (35,829) | |
| Cash generated from operating activities | 431,137 | 366,173 | |
| Interest paid | (76,547) | (46,626) | |
| Interest received | 4,438 | 1,446 | |
| Income tax paid | (55,090) | (30,424) | |
| Net cash flows from operating activities | 303,938 | 290,569 |
| in Euro `000 | Notes | 2011 | 2010 |
|---|---|---|---|
| Cash flows from investing activities | |||
| Proceeds from sale of property, plant and equipment | 2,937 | 1,866 | |
| Purchase of property, plant and equipment | |||
| – maintenance capital expenditure | (45,896) | (16,305) | |
| – investment capital expenditure | (30,855) | (29,632) | |
| Grants received | 25 | 1,117 | |
| Acquisitions of subsidiaries and businesses, net of cash acquired | 5 | (394,863) | (564,419) |
| Sale of subsidiaries and businesses, net of cash surrendered | 72,562 | – | |
| Purchase of intangible assets | (23,735) | (18,037) | |
| Dividends received | 11,590 | 22,365 | |
| Investments in associates and joint ventures | (1,128) | (3,052) | |
| Deferred consideration paid | (12,900) | (2,128) | |
| Net cash flows from investing activities | (422,263) | (608,225) | |
| Cash flows from financing activities | |||
| Net proceeds from issue of equity instruments | 285,004 | 115,001 | |
| Gross drawdown of loan capital | 192,258 | 768,743 | |
| Gross repayment of loan capital | (347,356) | (459,391) | |
| Capital element of finance lease liabilities | (748) | (1,693) | |
| Dividends paid to non-controlling interests | (5,582) | (5,779) | |
| Dividends paid to equity shareholders | (30,768) | (27,861) | |
| Net cash flows from financing activities | 92,808 | 389,020 | |
| Net (decrease)/increase in cash and cash equivalents | (25,517) | 71,364 | |
| Translation adjustment | (5,196) | 7,841 | |
| Net cash and cash equivalents at start of year | 348,349 | 269,144 | |
| Net cash and cash equivalents at end of year | 6 | 317,636 | 348,349 |
The financial information included on pages 16 to 36 of this News Release have been extracted from the ARYZTA Group financial statements for the year ended 31 July 2011 on which the auditor has issued an unqualified audit opinion.
The financial information has been prepared in accordance with the accounting policies set out in the Group's financial statements for the year ended 31 July 2010 which were prepared in accordance with International Financial Reporting Standards (IFRS), and have been updated for changes in IFRS applicable to the financial year 2011 as outlined in the Group accounting policies note to the interim financial statements for the period ended 31 January 2011.
The consolidated financial information is presented in Euro, rounded to the nearest thousand, unless otherwise stated.
| l) Segment revenue and result | Food Europe |
Food North America |
Food Rest of World |
Origin | Total Group | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| in Euro `000 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Segment revenue1 | 1,184,928 | 1,072,010 | 1,212,463 | 571,585 | 180,029 | 35,822 | 1,299,503 | 1,330,309 | 3,876,923 | 3,009,726 |
| Operating profit before non recurring items2 |
112,665 | 95,518 | 108,155 | 59,079 | 14,960 | 5,655 | 66,719 | 61,909 | 302,499 | 222,161 |
| Net acquisition, disposal and restructuring related costs (note 3) |
(62,127) | 118 | 64,105 | (4,710) | (1,004) | – | (11,010) | 31 | (10,036) | (4,561) |
| Operating profit | 50,538 | 95,636 | 172,260 | 54,369 | 13,956 | 5,655 | 55,709 | 61,940 | 292,463 | 217,600 |
| Share of profit after tax of associates and joint ventures |
7 | – | 3,706 | 19,923 | 909 | 118 | 14,857 | 11,572 | 19,479 | 31,613 |
| Profit before financing income and costs |
50,545 | 95,636 | 175,966 | 74,292 | 14,865 | 5,773 | 70,566 | 73,512 | 311,942 | 249,213 |
| Financing income3 | 12,065 | 10,230 | ||||||||
| Financing costs3 | (79,981) | (61,715) | ||||||||
| Profit before tax as reported |
in Group Income Statement 244,026 197,728
1 There are no significant intercompany revenues between the Group's food business segments. There was €2,235,000 (2010: €6,756,000) in intra-group revenue between the Origin and food segments of the Group.
2 Certain central executive and support costs have been allocated against the operating profits of each business segment.
3 Finance income/(costs) and income tax are managed on a centralised basis and therefore these items are not allocated between business segments for the purposes of presenting information to the Chief Operating Decision Maker as defined in the Group accounting policies.
| Food | Food | Food | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ll) Segment assets | Europe | North America | Rest of World | Origin | Total Group | |||||
| in Euro `000 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Segment assets excluding investments in associates and joint ventures |
1,670,110 | 1,719,441 | 1,837,126 | 1,400,457 | 280,751 | 244,117 | 599,486 | 521,498 | 4,387,473 | 3,885,513 |
| Investments in associates and joint ventures |
495 | 293 | 1,420 | 69,584 | 3,061 | 3,263 | 119,081 | 89,741 | 124,057 | 162,881 |
| Segment assets | 1,670,605 | 1,719,734 | 1,838,546 | 1,470,041 | 283,812 | 247,380 | 718,567 | 611,239 | 4,511,530 | 4,048,394 |
| Reconciliation to total assets as reported in Group Balance Sheet |
||||||||||
| Derivative financial instruments |
608 | 889 | ||||||||
| Cash and cash equivalents | 482,229 | 394,587 | ||||||||
| Deferred tax assets | 79,073 | 60,981 | ||||||||
| Total assets as reported in Group Balance Sheet |
5,073,440 | 4,504,851 | ||||||||
| lll) Segment liabilities | Food Europe |
Food North America |
Food Rest of World |
Origin | Total Group | |||||
| in Euro `000 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Segment liabilities | 302,294 | 293,001 | 203,522 | 180,062 | 30,993 | 17,639 | 380,130 | 293,657 | 916,939 | 784,359 |
| as reported in Group Balance Sheet Interest-bearing loans and borrowings Derivative financial instruments |
1,529,817 3,432 |
1,622,099 7,264 |
||||||||
| Current and deferred tax liabilities |
426,746 | 417,279 | ||||||||
| Total liabilities as reported in Group Balance Sheet |
2,876,934 | 2,831,001 | ||||||||
| Food Europe |
Food North America |
Food Rest of World |
Origin | Total Group | ||||||
| lV) Other segment information in Euro `000 |
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Depreciation | 46,916 | 45,324 | 30,785 | 14,057 | 5,377 | 982 | 5,276 | 6,525 | 88,354 | 66,888 |
| SAP-related amortisation | – | – | 3,401 | 634 | – | – | – | – | 3,401 | 634 |
| Amortisation of other | ||||||||||
| intangible assets | 36,373 | 35,609 | 40,518 | 10,899 | 9,641 | 308 | 4,295 | 3,914 | 90,827 | 50,730 |
| Capital expenditure – Property, plant and equipment |
25,228 | 24,155 | 24,813 | 13,967 | 21,816 | 581 | 6,425 | 6,169 | 78,282 | 44,872 |
| – Computer-related intangibles |
9,513 | 6,076 | 14,879 | 11,074 | 955 | 30 | 3,001 | 1,062 | 28,348 | 18,242 |
| – Other intangibles | – | – | – | – | – | – | – | 160 | – | 160 |
| Total capital expenditure | 34,741 | 30,231 | 39,692 | 25,041 | 22,771 | 611 | 9,426 | 7,391 | 106,630 | 63,274 |
| Europe | North America | Rest of World | Total Group | |||||
|---|---|---|---|---|---|---|---|---|
| in Euro `000 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Segment revenue1 | 2,484,431 | 2,402,319 | 1,212,463 | 571,585 | 180,029 | 35,822 | 3,876,923 | 3,009,726 |
| Segment assets | 2,389,172 | 2,330,973 | 1,838,546 | 1,470,041 | 283,812 | 247,380 | 4,511,530 | 4,048,394 |
| IFRS 8 non-current assets2 | 1,877,077 | 1,823,237 | 1,654,252 | 1,360,098 | 250,826 | 226,057 | 3,782,155 | 3,409,392 |
1 Revenues from external customers attributed to the Group's country of domicile, Switzerland, are 5.4% of total Group revenues (2010: 5.8%). Revenues from external customers attributed to material foreign countries are United States 28.3% (2010: 19.0%), the United Kingdom 24.1% (2010: 23.6%) and Ireland 13.6% (2010: 28.5%). For the purposes of this analysis, customer revenues are allocated based on geographic location of vendor.
As is common in this industry, the Group has a large number of customers, and there is no single customer with a share of revenue greater than 10% of total Group revenue.
2 Non-current assets as reported under IFRS 8, Operating Segments, include all non-current assets as presented in the Group Balance Sheet, with the exception of deferred taxes. Non-current assets attributed to the Group's country of domicile, Switzerland, are 11.3% of total Group non-current assets (2010: 8.9%). Non-current assets attributed to material foreign countries are: United States 29.5% (2010: 39.7%), Ireland 12.2% (2010: 14.9%) and the United Kingdom 8.0% (2010: 6.9%).
Notes to the Group Financial Statements (continued) for the year ended 31 July 2011
| Food Europe |
Food North America |
Food Rest of World |
Total Food Group |
Origin | Total Group | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| in Euro `000 | Notes | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Gain / (loss) on disposal of operations |
3.1 | – | – 121,391 | – | – | – | 121,391 | – | (4,133) | – | 117,258 | – | |
| Acquisition related costs | 3.2 | – | – | (9,994) | (4,643) | (692) | – | (10,686) | (4,643) | (2,139) | – | (12,825) | (4,643) |
| Loss on dilution | 3.3 | – | – | – | – | – | – | – | – | (4,738) | – | (4,738) | – |
| Asset write-downs | 3.4 | (34,999) | – | (8,040) | – | – | – | (43,039) | – | – | – | (43,039) | – |
| Staff related costs | 3.4 | (17,878) | – (29,085) | – | – | – | (46,963) | – | – | – | (46,963) | – | |
| Contractual obligations | 3.4 | (3,969) | – | – | – | – | – | (3,969) | – | – | – | (3,969) | – |
| Grant related costs | 3.4 | (2,338) | – | – | – | – | – | (2,338) | – | – | – | (2,338) | – |
| Advisory costs | 3.4 | (1,049) | – | (7,671) | – | – | – | (8,720) | – | – | – | (8,720) | – |
| Other costs | 3.4 | (1,894) | 118 | (2,496) | (67) | (312) | – | (4,702) | 51 | – | 31 | (4,702) | 82 |
| Total1 | (62,127) | 118 | 64,105 | (4,710) | (1,004) | – | 974 | (4,592) (11,010) | 31 | (10,036) | (4,561) |
1 The total spend above includes (EUR 140,000) cost of sales, (EUR 905,000) distribution expenses, (EUR 55,681,000) administration expenses and EUR 46,690,000 other income and expenses.
| in Euro `000 | 2011 | |
|---|---|---|
| Gain / (loss) on disposal of operations | Notes | |
| Fair value gain on acquisition of 50% share in Maidstone Bakeries |
3.1.1 | 121,391 |
| Loss on disposal of Origin Food business | 3.1.2 | (7,301) |
| Gain on disposal of Origin Feed business | 3.1.3 | 3,168 |
| 117,258 |
On 29 October 2010, ARYZTA closed the acquisition of all outstanding shares of the previously 50% owned Maidstone Bakeries joint venture for total deemed consideration of €502,808,000 for 100% of the business. The consideration was based on a discounted cash flow enterprise value and was in line with market valuation multiples on comparable industry transactions. Maidstone Bakeries is no longer treated as a joint venture for accounting purposes and is now fully consolidated in the Food North America segment. A non-cash gain of €121,391,000 on the previously owned 50% of Maidstone Bakeries has been recorded within operating profit in these financial statements. This is a requirement under IFRS 3 (Revised), Business Combinations, implemented by the Group as required for the financial year ended 31 July 2010. See note 5 for further details.
On 10 September 2010, the Group's 71.4% subsidiary and separately listed company, Origin Enterprises plc ('Origin'), announced that it had reached an agreement with CapVest Limited ('CapVest') to establish Valeo Foods Group Limited ('Valeo'), to facilitate consolidation of Irish consumer food brands. On 26 November 2010, Origin further announced that Valeo had completed the simultaneous acquisitions of the branded food businesses of Origin and the Irish food company Batchelors. With effect from 26 November 2010, Origin's 44.1% investment in Valeo has been treated as an associate undertaking and accounted for using the equity method in accordance with IAS 28, Investments in Associates.
A loss of €7,301,000 was realised on the disposal of Origin Foods to Valeo. The impact of this loss on ARYZTA's profit attributable to equity shareholders for the period is €5,214,000 which is after deduction of Origin non-controlling interests. The loss was calculated as follows:
| in Euro `000 | 2011 | ||
|---|---|---|---|
| Net assets transferred on 26 November 2010: | |||
| Property, plant and equipment | (31,252) | ||
| Goodwill and intangible assets | (42,732) | ||
| Working capital | (12,734) | ||
| Provisions for liabilities and charges | 3,429 | ||
| Net assets transferred | (83,289) | ||
| Consideration: | |||
| Net cash consideration | 25,340 | ||
| Fair value of vendor loan note | 33,540 | ||
| Fair value of 44.1% equity interest in Valeo Foods | 17,108 | ||
| Total consideration received | 75,988 | ||
| Loss on disposal of Origin Food business | (7,301) |
On 10 November 2010, Origin announced that it had reached agreement with W&R Barnett Limited ('Barnett') to establish an all-Ireland grain and feed handling logistics and trading business. The all-Ireland business was formed through the integration of Origin's R&H Hall ('Hall') business in the Republic of Ireland with the business of Origin and Barnett in Northern Ireland. The transaction was completed on 28 January 2011. Under the terms of the transaction, Barnett acquired a 50% interest in Hall, mirroring the economic interests of Origin and Barnett in the Northern Ireland business.
Origin now holds a 50% interest in Hall and, from 28 January 2011, this 50% holding is treated as an associate undertaking in accordance with IAS 28, Investments in Associates. A gain arose on the transaction as follows:
| in Euro `000 | 2011 | ||
|---|---|---|---|
| Net assets transferred on 28 January 2011: | |||
| Property, plant and equipment | (15,412) | ||
| Working capital | (35,704) | ||
| Provisions for liabilities and charges | 2,667 | ||
| Net assets transferred | (48,449) | ||
| Consideration: | |||
| Net cash consideration | 40,562 | ||
| Fair value of 50% equity interest in Hall | 11,055 | ||
| Total consideration received | 51,617 | ||
| Gain on disposal of Origin Feed business | 3,168 |
Total acquisition related transaction costs incurred during the period of €12,825,000. The ARYZTA Food Group incurred €10,686,000 relating primarily to the acquisition of the outstanding 50% of Maidstone Bakeries. Origin incurred €2,139,000 relating to the acquisition by Origin of United Agri Products Limited, Rigby Taylor Limited and Carrs Fertilisers agronomy businesses. These costs include share purchase tax, due diligence and other professional service fees. Since the adoption of IFRS 3 (Revised), Business Combinations, these costs no longer form part of the acquisition consideration and are expensed within operating profit through the income statement. Details relating to these acquisitions are set out in note 5.
Included here are transaction costs directly relating to the acquisition of Fresh Start Bakeries and Great Kitchens during the prior year totalling €4,643,000. These costs include due diligence and other professional service fees. Since the adoption of IFRS 3 (Revised), Business Combinations, these costs no longer form part of the acquisition consideration and are expensed through the income statement.
There were also banking costs relating to the financing of these acquisitions totalling €6,515,000 which were booked against interest-bearing borrowings in the balance sheet. This results in total transaction related costs of €11,158,000 for the acquisitions of Fresh Start Bakeries and Great Kitchens.
On 23 June 2011, Continental Farmers Group plc ('CFG') raised €16,726,000 of funding upon its flotation on the ESM and AIM markets of the Dublin and London Stock exchanges. As a result Origin's shareholding reduced from 38.7% to 24.2%. This gave rise to a loss of €4,738,000 on the dilution of the holding, which is recorded in the income statement for the year ended 31 July 2011.
During the period, the Group commenced two separate integration and rationalisation programs in each of its Food Europe and Food North America segments. These programs will allow the development of two principal operating platforms in Food Europe and Food North America to optimise the Group's manufacturing and business support platforms.
As a result of decisions made through these projects the Group has incurred and provided for costs to be incurred during the financial period through its income statement as follows:
As part of the implementation of the Group's integration and rationalisation programs the Group has commenced the closure and/or reduction in activity of a number of its operational sites. As part of this process, the Group has written down certain manufacturing, distribution and administration assets related to these sites during the period for a total charge of €43,039,000. Included in this charge is a write-down for a property situated in Tallaght, Ireland which was decommissioned and transferred to investment properties during the financial year.
The Group has incurred and provided for €46,963,000 in severance and other costs during the period in relation to employees whose service was discontinued following the actual or announced closure and rationalisation of certain Group operational sites.
The operational decisions made through the Group's integration and rationalisation projects triggered an early termination and/or resulted in certain operational contracts becoming onerous. The Group has incurred total costs during the period to either exit or provide for such contracts of €3,969,000.
The termination of certain activities caused by the Group's integration and rationalisation programs have resulted in the triggering of certain grant repayment conditions. This has resulted in a charge of €2,338,000 related to repayment of grants.
The Group has identified €13,422,000 in other costs related directly to the implementation of its integration and rationalisation programs during the period. These costs are composed principally of integration advisory costs of €8,720,000, and operational site decommissioning and other costs of €4,702,000.
| 2011 | 2010 | |
|---|---|---|
| Basic earnings per share | in Euro 000 | in Euro000 |
|
| Profit for year attributable to equity shareholders | 212,657 | 151,729 |
| Weighted average number of ordinary shares | 000 |000 |
|
| Issued ordinary shares at 1 August1 | 82,810 | 78,946 |
| Effect of shares issued during the year | – | 498 |
| Weighted average number of ordinary shares for the year | 82,810 | 79,444 |
| Basic earnings per share | 256.80 cent | 190.99 cent |
| 2011 | 2010 | |
| Diluted earnings per share | in Euro 000 | in Euro000 |
|
| Profit for year attributable to equity shareholders | 212,657 | 151,729 |
| Hybrid instrument accrued dividend | (11,801) | – |
| Effect on non-controlling interests share of profits due to dilutive impact of Origin management equity entitlements2 |
(1,276) | (1,187) |
| Diluted profit for financial year attributable to equity shareholders |
199,580 | 150,542 |
| Weighted average number of ordinary shares (diluted) | 000 |000 |
|
| Weighted average number of ordinary shares used in basic calculation |
82,810 | 79,444 |
| Effect of equity instruments with a dilutive effect | 1,058 | – |
| Weighted average number of ordinary shares (diluted) for the year | 83,868 | 79,444 |
| Diluted earnings per share | 237.97 cent | 189.49 cent |
1 Issued share capital excludes 2,234,359 treasury shares issued during the financial year 2009.
2 This adjustment reflects the dilutive impact of equity entitlements granted to Origin senior management under the Origin Long-Term Incentive Plan. These equity entitlements dilute the Group's share of Origin profits available as part of its diluted earnings per share calculation.
Notes to the Group Financial Statements (continued) for the year ended 31 July 2011
During the year the Group completed the acquisition of Maidstone Bakeries, as well as three smaller acquisitions in the Origin Agri-Services business.
The Group completed the acquisition of the outstanding 50% of the Maidstone Bakeries ('Maidstone') joint venture on 29 October 2010. As a result and from that date, Maidstone has been accounted for as a subsidiary undertaking and not as a joint venture.
Maidstone operates in Brantford, Ontario from a purpose-built circa 400,000 square-foot bakery. Currently, Maidstone exclusively services the Tim Hortons network under a contractual arrangement which extends to 2016 (or 2017 at Tim Hortons' option) and may be extended beyond this point by mutual agreement.
The goodwill arising on this business combination is attributable to the skills and talent of the Maidstone work force, the synergies expected to be achieved from integrating Maidstone into the Group's existing businesses and increasing capacity utilisation of the facility.
During the year Origin completed a number of acquisitions in the United Kingdom.
On 8 March 2011, the Group completed the acquisition of 100% of United Agri Products Limited ('UAP'). UAP is a premier provider of agronomy services to arable, fruit and vegetable growers.
On 9 March 2011, the Group acquired 100% of Rigby Taylor Limited ('Rigby Taylor'). Rigby Taylor is a leading service provider supplying advice and technical product solutions to the professional sports turf, landscape and amenity sectors.
On 13 July 2011, the Group acquired 100% of Origin Fertilisers 2011 Limited from Carrs Milling Industries plc ('Carrs Milling'). Origin Fertilisers 2011 Limited is a leading provider of branded specialist fertilisers together with integrated nutrient management systems servicing the arable, grassland, horticulture and forestry sectors.
As a result of the above acquisitions, Origin has built upon its core positions in the supply of specialist agronomy services and crop nutrition ingredients.
The goodwill recognised on the Origin acquisitions is attributable to the skills and technical talent of the work force, and the synergies expected to be achieved from integrating these companies into the Group's existing business.
Details of net assets acquired and goodwill arising from these business combinations are set out below:
| 2011 | Total | ||
|---|---|---|---|
| in Euro `000 | Maidstone Bakeries | Other | provisional fair value |
| Provisional fair value of net assets acquired: | |||
| Property, plant and equipment | 94,267 | 12,733 | 107,000 |
| Intangible assets | 175,158 | 37,844 | 213,002 |
| Financial assets | – | 232 | 232 |
| Inventory | 7,925 | 30,791 | 38,716 |
| Trade and other receivables | 6,592 | 36,975 | 43,567 |
| Trade and other payables | (9,684) | (58,232) | (67,916) |
| Finance leases | (25) | (402) | (427) |
| Deferred tax | (24,290) | (7,930) | (32,220) |
| Retirement benefit obligations | – | 444 | 444 |
| Income tax | (5,138) | (734) | (5,872) |
| Net assets acquired | 244,805 | 51,721 | 296,526 |
| Goodwill arising on acquisition | 258,003 | 26,548 | 284,551 |
| Consideration | 502,808 | 78,269 | 581,077 |
| Satisfied by: | |||
| Cash consideration | 334,719 | 94,608 | 429,327 |
| Cash acquired | (18,156) | (17,419) | (35,575) |
| Net cash consideration | 316,563 | 77,189 | 393,752 |
| Investment in joint venture on acquisition date |
64,854 – |
64,854 | |
| Fair value gain on 50% equity interest held prior to acquisition date |
121,391 | – | 121,391 |
| Contingent consideration | – | 1,080 | 1,080 |
| Consideration | 502,808 | 78,269 | 581,077 |
Transaction expenses of €12,825,000 related to the above transactions have been charged to net acquisition, disposal and restructuring related costs in the Group Income Statement.
ARYZTA's existing 50% equity interest of the joint venture has been re-measured at its fair value, with the resulting gain, over the previous carrying value, of €121,391,000 recognised within the net acquisition, disposal and restructuring related costs in the Group Income Statement.
The net cash outflow on acquisitions during the period was disclosed in the Group Cash Flow Statement as follows:
| in Euro `000 | Total |
|---|---|
| Cash consideration | 429,327 |
| Cash acquired | (35,575) |
| Other | 1,111 |
| Total cash spend on acquisitions | 394,863 |
The impact of this business combination during the year on the Income Statement of the Group is set out in the following table:
| in Euro `000 | Maidstone Bakeries | Other |
|---|---|---|
| Revenue | 114,853 | 109,331 |
| Profit for the year | 21,714 | 7,964 |
If the acquisition had occurred on 1 August 2010, management estimates that consolidated revenue would have been €4,055,221,000 and consolidated profit for the year would have been €232,552,000. In determining these amounts management has assumed that the fair value adjustments that arose on the date of the acquisition would have been the same if the acquisition had occurred on 1 August 2010.
For the identification and estimation of the fair value of the acquired intangibles of the acquisitions, ARYZTA was assisted by independent appraisal firms. The identified intangibles include the fair value of contract-related intangibles, brands and the customer relationships. To value the contract-related intangibles and brands, the relief-from-royalty methodology (income approach method) has been applied. The excess earnings method (income approach method) was the basis for the fair value valuation of customer relationships.
The fair values presented in this note are based on provisional valuations due to the close proximity of the transactions to the end of the period.
| Analysis of net debt | 1 August | Arising on business |
Non-cash | Translation | 31 July | |
|---|---|---|---|---|---|---|
| in Euro `000 | 2010 | Cash flows | combination | movements | adjustment | 2011 |
| Cash | 394,587 | 95,721 | – | – | (8,079) | 482,229 |
| Overdrafts | (46,238) | (121,238) | – | – | 2,883 | (164,593) |
| Cash and cash equivalents | 348,349 | (25,517) | – | – | (5,196) | 317,636 |
| Loans | (1,572,275) | 155,098 | – | (2,684) | 57,600 | (1,362,261) |
| Finance leases | (3,586) | 748 | (385) | 132 | 128 | (2,963) |
| Net debt | (1,227,512) | 130,329 | (385) | (2,552) | 52,532 | (1,047,588) |
| Split of net debt | 1 August | Arising on business |
Non-cash | Translation | 31 July | |
| in Euro `000 | 2010 | Cash flows | combination | movements | adjustment | 2011 |
| Food Group net debt | (1,115,623) | 110,884 | (25) | (1,810) | 51,106 | (955,468) |
| Origin net debt | (111,889) | 19,445 | (360) | (742) | 1,426 | (92,120) |
Net debt (1,227,512) 130,329 (385) (2,552) 52,532 (1,047,588)
In October 2010, the Group raised CHF 400m through the issuance of a Perpetual Callable Subordinated Instrument ('Hybrid Instrument'), which has been recognised within equity. The proceeds from the issuance were used as principal financing for ARYZTA's acquisition of the remaining 50% share of the Maidstone Bakeries joint venture held by Tim Hortons Inc.
| in Euro '000 | 2011 | |
|---|---|---|
| At 1 August 2010 | – | |
| Issuance of hybrid instrument, net of transaction costs | 285,004 | |
| At 31 July 2011 | 285,004 |
The Hybrid Instrument offers a coupon of 5%, accruing €11,801,000 to 31 July 2011 (2010: €nil), and is undated with an initial call date by ARYZTA after four years. The balance recognised on issuance is shown net of transaction costs of €7,436,000.
A former Hiestand shareholder has taken legal action against the Company asserting, in essence, entitlement under the Hiestand Holding AG and IAWS Group plc merger to a price for its Hiestand shares equal to the price IAWS Group paid Lion Capital for its former Hiestand shares under their contract. While such an action is permitted under Swiss law (based on Article 105 of the Swiss Merger Act), it does not affect the implementation of the merger. The Group considers the case to be without merit. A complete defence to the claim, based on the law and the facts, is being vigorously pursued.
At the 1 December 2011 General Meeting, shareholders will be invited to approve a proposed dividend of CHF 0.5679 (euro equivalent €0.4652) per share to be paid to shareholders on 1 February 2012. A dividend of CHF 0.4802 was paid during the period (2010: CHF 0.5324).
On 8 August 2011, ARYZTA completed the acquisition of Honeytop Speciality Foods ("Honeytop") for an enterprise value of GBP 80,000,000. Honeytop is a leading manufacturer of flat breads supplying into the United Kingdom LSR and retail markets. The information required by IFRS 3 (revised), Business Combinations, has not been disclosed due to the proximity between the date of the completion of the acquisition and the date of approval of the Group financial statements.
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