Annual Report • Oct 4, 2010
Annual Report
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Markets have idiosyncrasies and markets have similarities. Noticing these differences and similarities, and adapting products and services to meet the requirements of individual markets, are key for Aryzta.
The urban park is a transparent space. It symbolises urbanity, mobility, the pace of modern life and a sense of community. Urban parks can be found throughout the world. Despite their many differences, they have much in common.
| Page | |
|---|---|
| 02 | Financial Highlights |
| 03 | Letter to Shareholders |
| 06 | Business Overview |
| 14 | Financial and Business Review |
| 24 | Corporate Governance Report |
| 42 | Group Risk Statement |
| 44 | Our Responsibility |
| 47 | Group and Company Financial Statements |
| 142 | Food Group Financial Statements |
| 151 | Investor Information |
Operating prot Food Europe (EUR '000)
| 2010 | 131,245 | 2010 | 69,911 | |
|---|---|---|---|---|
| 2009 | 135,103 | 2009 | 67,481 | |
| Pro forma** 2008 | 121,298 | Pro forma** 2008 | 51,865 | |
| Actual 2008 | 73,512 | Actual 2008 | 51,865 | |
| 2010 | 5,963 | |||
|---|---|---|---|---|
| 2009 | 2,123 | |||
| Pro forma** 2008 | 928 | |||
| Actual 2008 | N/A |
2010 2009 Pro forma** 2008 Actual 2008
Operating prot Origin (EUR '000)
| 2010 | 65,854 |
|---|---|
| 2009 | 75,702 |
| 70,926 | |
| 70,926 |
* Operating profit presented excluding contribution from associates and joint ventures and before non-SAP-related intangible amortisation and impact of non-recurring items.
** Pro forma numbers presented including Hiestand Holding AG in the 2008 comparative.
The 2010 financial year has been one of significant strategic developments and a key milestone for ARYZTA AG ('ARYZTA'). In June 2010, ARYZTA acquired two excellent complementary businesses in Fresh Start Bakeries and Great Kitchens, which substantially enhanced its strategic market position.
Fresh Start Bakeries (incorporating Pennant Foods and Sweet Life) is a global supplier of speciality bakery products, with a leading position in the quick service restaurant (QSR) segment. It operates 29 specialist production facilities across the USA, Canada, Germany, Poland, Sweden, Spain, Brazil, Australia and New Zealand, and has three joint ventures located in the USA, Chile and Guatemala. Pennant Foods is a leading provider of speciality bakery products and solutions to the North American QSR, foodservice and retail instore bakery channels. Sweet Life is a leading innovator and manufacturer of sweet baked goods servicing the North American and Asian QSR channel.
Separately, Great Kitchens is a leading supplier of pizza and appetisers with a focus on the deli segment of the North America retail grocery channel. The combined revenue of these businesses is USD 1.03 billion1 , with associated EBITDA of USD 133 million1 . The combined consideration for these businesses was USD 1.08 billion.
During the course of the year, ARYZTA undertook a significant amount of funding activity which was used to finance the above-mentioned acquisitions. The funding activity involved the issue of a CHF 200 million Swiss bond, USD 620 million (two tranches; USD 200 million and USD 420 million) and EUR 25 million US private placements and established a new syndicated bank facility of CHF 600 million. The Group also placed 3,864,335 shares in June 2010 to complement the aforementioned debt funding in order to ensure a prudent debt-equity mix.
Subsequent to the closing of the financial year 2010, ARYZTA's subsidiary IAWS Group Ltd ('IAWS') reached an agreement with Tim Hortons Inc. (its 50-50 partner under the Maidstone Bakery joint venture) to acquire the remaining 50% share of Maidstone Bakery for consideration of CAD 475 million. ARYZTA also announced that its new US subsidiary, Fresh Start Bakeries, is in the process of completing an investment in three bakeries in Asia (located in Taiwan, Singapore and Malaysia) and will commence the construction of a new bakery in Brazil. These investments in Asia and Brazil are expected to total in the order of USD 48 million. To fund these investments, in addition to its existing facilities, it is planned that ARYZTA will issue a perpetual callable subordinated instrument in FY2011.
These strategic investments will enhance ARYZTA's strategic market position of 'developing customer partnership model with leading operators in every channel to consumers'.
As a result of these strategic initiatives, ARYZTA has more than doubled its manufactured volumes with assets now invested in its food businesses across five continents in North America, South America, Europe, Asia and Australia.
ARYZTA's financial year was a challenging one. Economic conditions remained very challenging for the consumer. Revenues declined in most channels and markets during the financial year. ARYZTA continued to work hard with its retail and foodservice partners to provide freshly baked and conveniently prepared high-quality baked goods at affordable prices.
3
Against the backdrop of a subdued macro-economic environment, the Group posted a resilient earnings performance for the financial year 2010, increasing underlying fully diluted earnings per share by 4.0% to 244.0 cent2 , which represents an underlying fully diluted net profit of EUR 193.9 million2 in the period.
The Board recommends a final dividend of CHF 0.48023 per share, to be paid on 1 February 2011, if approved at the General Meeting on 2 December 2010.
As part of the ARYZTA Technology Initiative ('ATI'), the Group is implementing a global Enterprise Resource Planning ('ERP') system. The key objective of this initiative is the delivery of a group-wide platform that will enable all of ARYZTA's businesses to operate shared common 'best in class' processes and procedures, the effective implementation of which will improve internal business efficiencies.
To date, Otis Spunkmeyer and La Brea Bakery have implemented the SAP Enterprise Resource Planning ('ERP') system. The phased roll-out of the implementation remains in line with initial budgeting and scheduling targets.
There have been no changes to the Board membership during the course of the financial year 2010. The Board currently consists of 11 directors (three executive directors and eight non-executive directors). The Board operates under the Corporate Governance structure set out in this Annual Report on pages 24 to 40.
On behalf of the Board, we would like to acknowledge the talent, hard work and commitment of ARYZTA's management and staff. This is an everyday business and our people are the inspiration to excellence every day. We would also like to thank our customers for their support and loyalty, and our suppliers for their reliability at all times. We would finally like to thank our financiers for facilitating the Group's continued strategic development.
We believe ARYZTA AG is well positioned to deliver long-term sustainable growth.
Denis Lucey Owen Killian Chairman, Board of Directors CEO, Member of the Board
1 Based on pro forma TTM to May 2010
of Directors
Food Europe
sweden Stockholm City Hall Garden Stockholm's City Hall, one of the last buildings to be designed in the Swedish 'National Romantic' style, has its site on the northern shore of Riddarfjarden lake, from which it is separated by a set of south-facing gardens which attract thousands of sunbathers and other visitors each summer.
ARYZTA is a Swiss company based in Zurich, with operations in Europe, North America, South America, South East Asia, Australia and New Zealand.
ARYZTA was formed in 2008 through the merger of IAWS Group plc and Hiestand Holding AG and has a primary listing on the SIX Swiss Stock Exchange (Ticker: ARYN) and a secondary listing on the Irish Stock Exchange (Ticker: YZA).
The Group also holds 71.4% of Origin Enterprises plc, an agri-services business listed on AIM in London (Ticker: OGN) and the ESM in Dublin (Ticker: OIZ).
1 Pro forma TTM revenue to July 2010 (including completed acquisitions of Fresh Start Bakeries and Great Kitchens), translated at a USD-EUR rate of 1.38.
Food Business – Markets
Food Europe has market positions in speciality baking in Switzerland, Germany, Poland, the UK, Ireland, France, Sweden and Spain. ARYZTA has a mixture of business-to-business and consumer brands including, Hiestand, Cuisine de France, Delice de France, Coup de Pates and Fresh Start Bakeries.
1 Pro forma TTM revenue, EBITDA and EBITA to July 2010 (including completed acquisition of Fresh Start Bakeries), translated at a USD-EUR rate of 1.38.
Food Business – Markets
Food North America has market positions in speciality baking in the United States and Canada. ARYZTA has a mixture of business-to-business and consumer brands, including Otis Spunkmeyer, La Brea Bakery, Fresh Start Bakeries, Pennant Foods, Sweet Life and Great Kitchens.
Geographical Footprint
1 Pro forma TTM revenue, EBITDA and EBITA to July 2010 (including completed acquisitions of Fresh Start Bakeries and Great Kitchens), translated at a USD-EUR rate of 1.38.
2 Including two JV operations in California (USA) and Ontario (Canada).
Food Business – Markets
ARYZTA has embryonic speciality bakery businesses in Japan, Malaysia, Brazil, Australia and New Zealand, with joint venture operations in Chile and Guatemala. This gives ARYZTA an excellent opportunity to understand the customer diversity and opportunities in these vast markets.
1 Pro forma TTM revenue, EBITDA and EBITA to July 2010 (including completed acquisition of Fresh Start Bakeries), translated at a USD-EUR rate of 1.38.
2 Including two JV operations in Chile and Guatemala.
| in Euro `000 | Food Group 2010 |
Origin 2010 |
Total Group 2010 |
Total Group 2009 |
% Change |
|---|---|---|---|---|---|
| Group revenue | 1,679,417 | 1,330,3094 | 3,009,726 | 3,212,270 | (6.3 %) |
| Group operating profit1 | 207,119 | 65,854 | 272,973 | 280,409 | (2.7 %) |
| Share of associates and JVs2 | 20,041 | 11,572 | 31,613 | 17,525 | – |
| Operating profit, incl. associates and JVs1 | 227,160 | 77,426 | 304,586 | 297,934 | 2.2 % |
| Finance cost, net | (36,272) | (15,213) | (51,485) | (50,652) | – |
| Pre-tax profits1 | 190,888 | 62,213 | 253,101 | 247,282 | – |
| Income tax1 | (30,571) | (11,027) | (41,598) | (45,085) | – |
| Non-controlling interests3 | (2,630) | – | (17,624) | (17,649) | – |
| Underlying fully diluted net profit | 157,687 | 51,186 | 193,879 | 184,548 | 5.0 % |
| Underlying fully diluted EPS (cent) | – | 37.265 | 244.06 | 234.76 | 4.0 % |
| Food Group | Origin | Total Group | Food Group | Origin | Total Group | |
|---|---|---|---|---|---|---|
| in Euro `000 | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 |
| Reported net profit | 117,4207 | 48,039 | 151,729 | 94,633 | (56,825) | 54,010 |
| Amortisation of intangible assets1 | 46,816 | 3,914 | 50,730 | 42,983 | 3,294 | 46,277 |
| Tax on amortisation | (11,192) | (767) | (11,959) | (10,800) | (380) | (11,180) |
| Property write-down | – | – | – | – | 134,543 | 134,543 |
| Tax on property write-down | – | – | – | – | (30,940) | (30,940) |
| Non-controlling interests adj. on property write-down | – | – | – | – | – | (29,609) |
| Acquisition and merger costs | 4,643 | – | 4,643 | 22,738 | – | 22,738 |
| Tax on merger costs | – | – | – | (218) | – | (218) |
| Underlying net profit | 157,687 | 51,186 | 195,143 | 149,336 | 49,692 | 185,621 |
| Dilutive impact of Origin management equity entitlements |
– | – | (1,264) | – | – | (1,073) |
| Underlying fully diluted net profit | 157,687 | 51,186 | 193,879 | 149,336 | 49,692 | 184,548 |
Underlying fully diluted EPS (cent) – 37.265 244.06 – 36.165 234.76 1 Before the impact of non-SAP-related intangible amortisation, transaction costs, non-recurring items and related tax credits. SAP amortisation for the financial year 2010 is €634,000 (2009: €nil).
2 Associates and JVs profit net of tax and interest.
3 Presented after dilutive impact of Origin management equity entitlements, non-recurring items and related tax credits.
4 Origin revenue is presented after deducting intra group sales between Origin and Food Group.
5 Actual Origin 2010 underlying fully diluted EPS is calculated using the weighted average number of shares in issue of 137,376,888 (2009: 137,417,000).
6 Actual 2010 underlying fully diluted EPS is calculated using the weighted average number of shares in issue of 79,443,701 (2009: 78,626,718).
7 Food Group reported net profit excludes dividend income of €7,600,000 from Origin.
| in Euro million | Food Europe |
Food North America |
Food Rest of World |
Total Food Group |
Origin1 | Total Group |
|---|---|---|---|---|---|---|
| Group revenue | 1,072.0 | 571.6 | 35.8 | 1,679.4 | 1,330.3 | 3,009.7 |
| Underlying growth | (8.2 %) | (4.3 %) | 8.4 % | (6.7 %) | (10.8 %) | (8.6 %) |
| Acquisitions3 | 2.0 % | 8.4 % | 57.2 % | 4.8 % | 0.2 %2 | 2.6 % |
| Currency | 0.5 % | (1.1 %) | 9.9 % | 0.0 % | (0.7%) | (0.3%) |
| Revenue growth | (5.7%) | 3.0% | 75.5% | (1.9%) | (11.3%) | (6.3%) |
1 Origin revenue is presented after deducting intra-group sales between Origin and Food Group. 2 Includes the impact of Origin's disposal of its Marine Protein and Oils business in February 2009, which is now recognised as part of joint ventures.
3 Includes the impact of seven weeks' revenue from Great Kitchens and three weeks' revenue from Fresh Start Bakeries. It also reflects the transfer of business activity from Food Europe to Food Rest of World due to operational change.
| in Euro `000 | Food Europe |
Food North America |
Food Rest of World |
Total Food Group |
Origin | Total Group |
|---|---|---|---|---|---|---|
| Operating profit1 | 131,245 | 69,911 | 5,963 | 207,119 | 65,854 | 272,973 |
| Growth | (2.9%) | 3.6% | 180.9% | 1.2% | (13.0%) | (2.7%) |
| Operating margin | 12.2% | 12.2% | 16.6 % | 12.3% | 5.0% | 9.1% |
| Operating margin (FY ended 31 July, 2009) |
11.9% | 12.2% | 10.4% | 12.0% | 5.0% | 8.7% |
1 The above figures exclude non-SAP intangible amortisation, transaction costs and non-recurring items, and include other income of €82,000. SAP amortisation for the financial year 2010 is €634,000 (2009: €nil). During the financial year 2010, the Food Group commenced the implementation of SAP ERP across its businesses. No further material investment is planned in its existing IT infrastructure. As a result of the substantial investment in SAP intangibles, SAP amortisation will no longer be added back to underlying profit.
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 customer mix is an evenly balanced mix of convenience and independent retail, large retail, quick service restaurants and other foodservice categories.
Revenues declined during the period across most channels and markets. Convenience retail and foodservice on the island of Ireland and in the UK were the most severely impacted channels and markets. Continued pressure on the consumer in Europe and North America made for a challenging year. Operating profit remained stable, underlying ARYZTA's operating leverage. Cost curtailment and operating efficiency initiatives allowed the business to reduce its cost to serve its customers. As a result, ARYZTA's customers were facilitated to increase their value propositions to consumers.
Food Europe has leading market positions in the speciality bakery market in Switzerland, Germany, Poland, the UK, Ireland, France, Sweden and Spain. In Europe, ARYZTA has a mixture of business to business and consumer brands, including Hiestand, Cuisine de France, Delice de France, Coup de Pates and Fresh Start Bakeries. It has a diversified customer base, including convenience retail, gas stations, multiple retail, restaurants, catering and hotels, leisure and quick service restaurants.
Food Europe continued to face tough trading conditions in the financial year 2010, with underlying revenue declining 8.2%. Food Europe's operating profit declined 2.9% to €131.2 million.
In Europe the decline in revenue has been mostly evident in the UK and Ireland. The consumer has endured stringent austerity measures, significantly impacting their disposable income. Support was provided to customers, which reduced costs to serve, particularly on the island of Ireland, facilitating operators to increase their value offerings. This was underpinned by ARYZTA's cost curtailment and operating efficiency initiatives during the period.
Continental Europe revenues remain stable, where continued investment in new field sales personnel and growth from new customers, with a particular focus on the independent segment (bakeries, boulangeries and independent restaurants), have aided performance.
The Irish and UK businesses were combined with the Hiestand business following year end. This will provide integrated solutions to their customers and improve cross-selling and skill transfer between businesses.
Food North America is a leading player in the US bakery market. It has a diversified customer base, including multiple retail, restaurants, catering and hotels, leisure, hospitals, military, fundraising and quick service restaurants.
Otis Spunkmeyer and La Brea Bakery are two iconic brands which evoke emotional appeal with the consumer. Fresh Start Bakeries (incorporating Pennant Foods and Sweet Life) is a global supplier of speciality bakery products, with a leading position in the quick service restaurant segment, while Great Kitchens is a leading supplier of pizza and appetisers, with a focus on the deli segment of the retail grocery channel.
Food North America delivered revenues of €571.6 million which represented a decline of 4.3% in underlying revenue for the financial year 2010. Operating profit grew by 3.6% to €69.9 million.
In North America, conditions were weak and value propositions for consumers remain centre stage. Cost curtailment and operating efficiencies have compensated for weak revenues (following a high 2009 growth comparator) in the period.
ARYZTA has existing businesses in Japan, Malaysia and Australia. ARYZTA is continuing to understand the customer diversity and opportunity in this vast market. Through the acquisition of Fresh Start Bakeries (and its incorporated business of Sweet Life), ARYZTA now has new business operations in Brazil, Australia and New Zealand, as well as jointventure production facilities in Chile and Guatemala.
Food Rest of World delivered revenues of €35.8 million which represented an increase of 8.4% in underlying revenue for the financial year 2010. Food Rest of World operating profits grew by 180.9% to €6.0 million for the financial year 2010.
The current financial year acquisitions of Fresh Start Bakeries and Great Kitchens are milestones to deliver on ARYZTA's long-term strategic objectives. These acquisitions provide additional product expansion in North America, greater geographic expansion across Europe and Rest of World, increased access into retail and quick service restaurant channels and a substantially increased bakery capability and capacity.
As a Group, ARYZTA can now demonstrate leadership across product categories supplied from unmatched international manufacturing capabilities and delivered through a broad customer channel base. ARYZTA is strategically aligned with the key growth drivers of the industry including: declining in-home food, shortage of skilled labour and increasing demand for consistent quality at moderate cost.
Furthermore, significant benefits are expected to accrue to the Group from these new acquisitions through increased cross-selling, more efficient capital allocation, enhanced customer service and increased international customer partnerships.
These factors, together with the tremendous depth of management skills and industry knowledge across all ARYZTA businesses' executive teams, should contribute to the further growth prospects of the Group.
Adding to the implementation of the SAP Enterprise Resource Planning ('ERP') system in Otis Spunkmeyer in 2009, La Brea Bakery has now also been integrated. The implementation in both businesses was completed in line with budgeting and scheduling forecasts.
The continued phased implementation of a global ERP system is enabling the businesses to operate shared common 'best in class' processes and procedures.
This joint venture has yielded a net contribution after interest and tax of €19.9 million in the financial year 2010 compared with a net contribution of €13.8 million after interest and tax in the financial year 2009.
Subsequent to the closing of the financial year 2010, ARYZTA's subsidiary IAWS Group Ltd ('IAWS') reached an agreement with Tim Hortons Inc. (its 50-50 partner under the Maidstone Bakery joint venture) to acquire the remaining 50% share of Maidstone Bakery. Completion of the Maidstone transaction is expected by end of calendar year 2010.
ARYZTA's 71.4% subsidiary and separately listed company, Origin, has separate funding structures, which are financed without recourse to ARYZTA. Origin's net debt amounted to €111.9 million at 31 July 2010.
The consolidated net debt of the Group, excluding Origin's non-recourse debt, amounted to €1,115.6 million and relates to the food segments of the Food Group. This represented a net debt to EBITDA ratio of 2.96 times (based on banking facility covenant definition).
| Food Group cash generation | ||
|---|---|---|
| in Euro `000 | July 2010 | July 2009 |
| EBIT | 160,252 | 161,724 |
| Amortisation | 47,450 | 42,983 |
| EBITA1 | 207,702 | 204,707 |
| Depreciation | 60,363 | 54,628 |
| EBITDA | 268,065 | 259,335 |
| Working capital movement from debt factoring | 21,554 | – |
| Working capital movement | 3,264 | 24,675 |
| Dividends received4 | 24,158 | 18,830 |
| Maintenance capital expenditure | (10,330) | (15,047) |
| Interest and tax | (54,224) | (53,562) |
| Other2 | (1,469) | 2,126 |
| Cash flows generated from activities | 251,018 | 236,357 |
| Underlying net profit3 | 157,687 | 149,336 |
| Depreciation | 60,363 | 54,628 |
| 218,050 | 203,964 | |
| Net underlying cash earnings conversion | 115.1% | 115.9% |
1 Food Group EBITA is shown before other income of €51,000, contribution from joint ventures and deduction of SAP-related amortisation. SAP-related amortisation for financial year 2010 is €634,000 (2009: €nil).
2 "Other" comprises predominantly non-cash share-based charges and government grants amortisation.
3 Underlying net profit before non-SAP-related intangible amortisation, transaction costs, non-recurring
items and related tax credits. 4 Includes dividend received from Origin of €7,600,000.
| in Euro `000 | Food Group |
|---|---|
| Food Group opening net debt as at 31 July 2009 | (505,504) |
| Cash flows generated from activities | 251,018 |
| Cost of acquisitions (incl. transaction costs and net debt acquired) | (860,313) |
| Share placement | 115,001 |
| Investment capital expenditure | (46,546) |
| Deferred consideration | (2,128) |
| Dividends paid | (30,599) |
| Foreign exchange movement1 | (33,148) |
| Other | (3,404) |
| Food Group closing net debt 31 July 2010 | (1,115,623) |
| Net Debt to EBITDA2 | 2.96x |
1 Foreign exchange movement is primarily attributable to the fluctuation in the US dollar to euro rate between July 2009 (1.4252) and July 2010 (1.3079).
2 Food Group net debt to EBITDA ratio based on banking facility covenant definition (EBITDA including pro forma TTM contribution from Fresh Start Bakeries and Great Kitchens and dividend contribution from Canadian JV). Food Group net debt to EBITDA ratio based on private placement covenant definition (EBITDA including pro forma TTM contribution from Fresh Start Bakeries and Great Kitchens and EBITDA contribution from the Canadian JV, and excluding non-recurring items) is 2.84x.
ARYZTA's funding facilities and key financial covenant (excluding Origin, which has separate ring-fenced structures, financed without recourse to ARYZTA) are as follows:
| Description | 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 |
| Key Covenant | |
|---|---|
| Net debt: EBITDA (not greater than) | 3.5 times |
Weighted average interest cost of the Food Group is circa. 4.24%. The current weighted average maturity is 7.1 years.
| 2011 | ||
|---|---|---|
| 2012 | ||
| 2013 | 4% | |
| 2014 | 8% | |
| 2015 | 40% | |
| 2016 | 2% | |
| 2017 | 14% | |
| 2018 | 3% | |
| 2019 | 3% | |
| 2020 | 2% | |
| 2021 | 8% | |
| 2022 | 10% | |
| 2025 | 2% | |
| 2030 | 4% | |
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 2010 is €1.4bn (excluding overdrafts of €42.8m). Total Food Group net debt at 31 July 2010 is €1.1bn.
During the financial year 2010, ARYZTA negotiated a new syndicated bank loan of CHF 600 million maturing in December 2014. Credit Suisse and Zürcher Kantonalbank (ZKB) acted together with Bank of America, BNP Paribas, Rabobank and UBS as mandated lead arrangers. Ten Swiss cantonal banks participated in the syndicated bank facility1 . ARYZTA also placed notes in the United States under private placements of USD 200 million in December 2009 and USD 420 million and EUR 25 million in May 2010 which had an average maturity of 9.2 years at issuance. The Group also completed a CHF 200 million Swiss bond issue in November 2009.
These funding initiatives enhanced operating funding facilities for the Group and replaced previous ARYZTA banking facilities due to expire in June 2013.
1 Cantonal banks - Aargauische Kantonalbank, Bank Cantonale Vaudoise, Bank Coop AG, Basler Kantonalbank, Basellandschaftliche Kantonalbank, Schaffhauser Kantonalbank, Luzerner Kantonalbank AG, Raiffeisen Schweiz Genossenschaft, Banca dello Stato del Cantone Ticino, Thurgauer Kantonalbank.
| Group Balance Sheet | Total Group | Total Group |
|---|---|---|
| in Euro ´000 | 2010 | 2009 |
| Property, plant and equipment | 945,100 | 664,532 |
| Investment properties | 20,648 | 62,975 |
| Goodwill and intangible assets | 2,264,421 | 1,498,430 |
| Associates and joint ventures | 162,881 | 139,351 |
| Working capital | (58,672) | (14,871) |
| Other segmental liabilities | (79,336) | (93,592) |
| Segmental net assets | 3,255,042 | 2,256,825 |
| Net debt | (1,227,512) | (659,256) |
| Deferred tax, net | (294,096) | (176,474) |
| Income tax | (53,209) | (40,650) |
| Derivative financial instruments | (6,375) | (12,477) |
| Net assets | 1,673,850 | 1,367,968 |
| Food Group Balance Sheet | Food Group | Food Group |
|---|---|---|
| in Euro `000 | 2010 | 2009 |
| Property, plant and equipment | 815,918 | 577,772 |
| Investment properties | 4,646 | 3,761 |
| Goodwill and intangible assets | 2,149,826 | 1,382,431 |
| Joint ventures | 73,140 | 55,720 |
| Investment in Origin | 51,045 | 51,045 |
| Working capital | (49,997) | (28,744) |
| Other segmental liabilities | (56,024) | (55,544) |
| Segmental net assets | 2,988,554 | 1,986,441 |
| Net debt | (1,115,623) | (505,504) |
| Deferred tax, net | (280,665) | (162,355) |
| Income tax | (47,437) | (38,116) |
| Derivative financial instruments | (1,778) | (5,432) |
| Net assets | 1,543,051 | 1,275,034 |
The movement in the Food Group's fixed asset base reflects its strategic investment in its new businesses, Fresh Start Bakeries (incorporating Pennant Foods and Sweet Life) and Great Kitchens.
The newly recognised goodwill and intangibles reflect the strength of value contained within ARYZTA's businesses. This strength contributes to and supports the resilient operating profit growth in these challenging economic times.
| Food | Food North |
Food Rest of |
Total Food |
|||
|---|---|---|---|---|---|---|
| in Euro million | Europe | America | World | Group | Origin | Total |
| 2010 | ||||||
| Group share net assets1 | 1,427 | 1,281 | 230 | 2,938 | 3824 | 3,320 |
| EBITA & associates/JVs cont.2 | 141 | 137 | 23 | 301 | 77 | 378 |
| ROI | 9.9% | 10.7%3 | 10.0% | 10.2% | 20.3% | 11.4% |
| 2009 | ||||||
| Group share net assets1 | 1,292 | 638 | 4 | 1,934 | 3874 | 2,321 |
| EBITA & associates/JVs cont.2 | 135 | 81 | 3 | 219 | 79 | 298 |
| ROI | 10.4% | 12.7% | 56.7% | 11.3% | 20.4% | 12.8% |
1 Net assets exclude all bank debt, cash and cash equivalents and tax-related balances.
2 Pro forma earnings before interest tax and non-SAP amortisation (EBITA) is presented before the impact of non-recurring items. The contribution from associates and JVs is net profit (i.e. presented after interest and tax). SAP amortisation for the financial year 2010 is €634,000 (2009: €nil).
3 Re-translating July 2010 pro forma EBITA and associates/JVs contribution for Food North America at the July 2010 closing rate of 1.3079 would result in an ROI of 11.3%.
4 Origin net assets adjusted for the fluctuation in its average quarterly working capital by €64,000,000. 5 The Group WACC on a pre-tax basis is currently 8.1% (2009: 9.4%). Group WACC on a post-tax basis is currently 6.5% (2009: 7.6%).
The Board recommends a final dividend of CHF 0.48021 to be paid on 1 February 2011, if approved by shareholders at the General Meeting to be held on 2 December 2010.
In order to allow both Swiss and non-Swiss shareholders to avail of the cash flow and administrative advantages from the introduction into Swiss tax legislation of a 0 % withholding tax rate on dividend distributions made from "unrestricted contributed reserves" after 1 January 2011, the Group is proposing to delay the 2010 dividend distribution until 1 February 2011, being the most efficient date from a Group administrative perspective for the dividend distribution, after the Group's interim close date of 31 January 2011.
Origin results for the period were robust and as a result, its return on investment was maintained at circa 20%. Outlook for the financial year 2011 has improved, arising from the current positive trend in agri-markets. Subsequent to the closing of the financial year 2010, Origin created an Irish food consolidation with CapVest that has sharpened its strategic focus on its agri-business. Origin's strong balance sheet with a net debt to EBITDA ratio of 1.41x provides support for further strategic growth.
The Board of Origin has proposed a dividend per ordinary share of 9 cent for the period ended 31 July 2010. ARYZTA has a holding of 95 million shares in Origin Enterprises.
Origin's separately published results are available at www.originenterprises.com.
1 Based on EUR 0.3660 per share converted at the foreign exchange rate of one euro to CHF 1.3121 on 23 September 2010, the date of approval of the ARYZTA financial statements.
ARYZTA will continue to focus on operating efficiencies, cost management, innovation and cash flow generation. ARYZTA's opportunity will be to unlock the full potential across its enlarged business base.
In recent times, there has been a re-emergence of commodity inflation, which underpins a long-term trend of higher food prices. ARYZTA's business model supports stable margins, and bakery offers a most compelling food value proposition for the consumer, providing resilience in an inflationary environment.
ARYZTA believes, through its newly acquired businesses, which have diversified its geographical scope, product expansion and channel access points, it is better equipped to deliver a robust and sustainable performance in the future through all economic cycles.
As previously guided in its Strategic Acquisitions Announcement of 8 June 2010, the Group expects an EPS uplift of 45.0 cent arising from acquisitions in the financial year 2011.
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.
Canada Montreal Parc de Bassin Bonsecour (Old Port) Montreal's Old Port, extending some two kilometres along the bank of the St Lawrence river, has been at the centre of every aspect of the city's life since the original trading post was set up there by French fur traders in 1611. The whole area was redeveloped in the 1990s, based on designs by the architects Aurèle Cardinal and Peter Rose.
ARYZTA is committed to best practice in corporate governance.
The primary corporate governance instruments adopted by ARYZTA (namely the Articles of Association, Organisational Regulations and Terms of Reference for the Committees of the Board) are available on the Company website at www.aryzta.com. While recognising the importance of these formal instruments, good corporate governance in practice requires a commitment to, and the practice of, values which guide the Group in serving the needs of its stakeholders, be they shareholders (institutional or retail), customers, consumers, suppliers, employees or other interested groups. ARYZTA is committed to keeping its corporate governance framework under review with a view to on-going developments in the area and the on-going evolution of the Group.
The ARYZTA Corporate Governance Report 2010 follows the SIX Swiss Exchange Directive on Information Relating to Corporate Governance and takes into account the Swiss Code of Best Practice for Corporate Governance.
The ARYZTA Group and Company Financial Statements 2010 comply with International Financial Reporting Standards ('IFRS') and are in accordance with Swiss law. Where necessary, these disclosures have been extended to comply with the requirements of the SIX Swiss Exchange Directive on Information Relating to Corporate Governance.
In this Report, the terms "ARYZTA" and "Company" refer to ARYZTA AG whereas "Group" and "ARYZTA Group" refer to the Company and its subsidiaries. The "Board" refers to the Board of Directors of the Company. "Origin Enterprises" means Origin Enterprises plc (ARYZTA has a 71.4% holding in Origin Enterprises plc), and the "Origin Board" means the Board of Directors of Origin Enterprises plc. In some sections, to avoid duplication, cross-reference is made to the 2010 Financial Statements (comprising the Group Financial Statements and Company Financial Statements of ARYZTA), as well as to the Articles of Association of ARYZTA AG.
The Group is structured conventionally. That is, the ARYZTA General Meeting is the supreme corporate body and the Board is accountable and reports to the shareholders, by whom it is elected. The Board, while entrusted with the ultimate direction of ARYZTA as well as the supervision and control of management, has delegated responsibility for the day-to-day management of the Group, through the Chief Executive Officer, to Executive Management. The Group's management structure corresponds to its segmental reporting lines, as set out in note 1 of the ARYZTA Group Financial Statements 2010. The Executive Teams within each segment report to the Executive Management of the Group, which in turn reports to the Board. Origin Enterprises plc constitutes an exception. It is a public company in its own right, with its own Board of Directors, separate executive management team, governance structure and ring-fenced financing arrangements. The executive management team within Origin Enterprises reports to the Origin Board. The Origin Board is accountable and reports to its shareholders, including ARYZTA. Owen Killian and Patrick McEniff, ARYZTA Board members and CEO and CFO respectively, are members of the Origin Board. Pat Morrissey, ARYZTA General Counsel and Company Secretary, is also Secretary of Origin Enterprises plc.
| Name and domicile: | ARYZTA AG, 8001 Zurich, Switzerland |
|---|---|
| Primary listing: | SIX Swiss Exchange, Zurich, Switzerland |
| Swiss Security number: | 4 323 836 |
| ISIN: | CH0043238366 |
| Cedel/Euroclear common code: | 037252298 |
| Secondary listing: | ISE Irish Exchange, Dublin, Ireland |
| SEDOL Code: | B39VJ74 |
| Swiss Stock Exchange symbol: | ARYN |
| Irish Stock Exchange symbol: | YZA |
Stock market capitalisation as of 31 July 2010: CHF 3,527,724,574 or €2,596,107,169 based on 82,810,436 registered shares (i.e. disregarding 2,234,359 treasury shares) and closing prices of CHF 42.60 or €31.35 per share.
| Name and domicile: | Origin Enterprises plc, Dublin 8, Ireland |
|---|---|
| Holding: | ARYZTA Group has a 71.4% holding in Origin Enterprises plc |
| Dual primary listing: | ESM Irish Exchange, Dublin, Ireland AIM London Stock Exchange, London, United Kingdom |
| ISIN: | IE00B1WV4493 |
| SEDOL Code: | B1WV449 |
| Irish ESM exchange symbol: | OIZ |
| London AIM symbol: | OGN |
Stock market capitalisation as of 31 July 2010: €343,180,176 based on 133,015,572 ordinary shares and closing price of €2.58 per share (excluding 5,555,270 deferred convertible ordinary shares)
Details of the principal subsidiary and associated companies of ARYZTA (being their company names, domicile, share capital, and the Company's participation therein) are set out in note 36 of the ARYZTA Group Financial Statements 2010.
As at 31 July 2010, the Company has been notified of the following shareholdings, which amount to 3% or more of the Company's issued ordinary share capital:
| Number of shares |
% of registered shares |
|
|---|---|---|
| Invesco Limited | 8,144,528 | 9.58% |
| Fidelity International Limited1 | 4,049,810 | 4.76% |
| Fidelity Management and Research LLC ("FMR LLC")1 | 3,825,000 | 4.50% |
1 Fidelity International Limited and FMR LLC are two separate investment companies, but under common control as part of the Fidelity group of investment companies.
Any significant shareholder notifications during the year and since 31 July 2010 are available from the Group's website at www.aryzta.com.
ARYZTA has no interest in any other company exceeding 5 per cent of voting rights of that other company, where that other company has an interest in ARYZTA exceeding 5 per cent of the voting rights in ARYZTA.
The share capital of the Company amounts to CHF 1,700,895.90 and is divided into 85,044,795 registered shares with a par value of CHF 0.02 per share. The share capital is fully paid-in.
Pursuant to Article 4 of the Articles of Association (governing Conditional Share Capital for Employee Benefit Plans), the amount by which the share capital of the Company may be increased on a non-pre-emptive basis may not exceed CHF 130,152.80 (through the issue of up to 6,507,640 registered shares). The Board has the power to specify the precise conditions of issue including the issue price of such shares. For further details, refer to Article 4 of the Articles of Association.
Pursuant to Article 5 of the Articles of Association (governing Authorised Share Capital for General Purposes), the amount by which the share capital of the Company may be increased for general purposes may not exceed CHF 351,556.06 (through the issue of up to 17,577,803 registered shares). Authority for this purpose expires on 3 December, 2011. The Board has the power to determine the issue price, the period of entitlement to dividends and the type of consideration or the contribution or underwriting in kind for such an issue. The Board may withdraw the pre-emptive rights and allocate them to third parties in the event of the use of shares: (1) for acquisitions; (2) to broaden the
shareholder constituency; or (3) for the purposes of employee participation, provided that in the case of (2) and (3) above such withdrawal of pre-emptive rights is in each case limited to 4,059,023 registered shares. For further details, refer to Article 5 of the Articles of Association.
Trading in ARYZTA shares on the SIX Swiss Exchange and the Irish Stock Exchange commenced on 22 August 2008, with the Company then having issued 78,940,460 registered shares. On 2 December 2008, the Company increased its share capital by issuing 2,240,000 registered shares of CHF 0.02 each. These 2,240,000 registered shares were issued to a subsidiary of ARYZTA as treasury shares to be used in connection with the ARYZTA Long-Term Incentive Plan (Matching Scheme LTIP and Option Equivalent LTIP). 1,035,000 of these treasury shares were assigned to participants in the Matching Scheme LTIP during the year ended 31 July 2009.
Following subsequent net forfeitures and treasury share disposals, there remained 1,259,359 of the original 2,240,000 registered treasury shares unallocated at 1 August 2009. 1,200,000 of such 1,259,359 registered shares were assigned during the financial year 2010 to participants in the Option Equivalent LTIP, so that, at 31 July 2010, 59,359 of the treasury shares remained unallocated.
The share capital of the Company at 1 August 2009 amounted to CHF 1,623,609.20, divided into 81,180,460 shares with a par value of CHF 0.02.
On 16 June 2010, the issued share capital was increased to 85,044,795 by the issue of 3,864,335 registered shares with a nominal value of CHF 0.02 each. The capital increase, effected at CHF 41.50 per share, was undertaken to assist the financing of the acquisition of Fresh Start Bakeries.
The share capital of the Company now amounts to CHF 1,700,895.90, divided into 85,044,795 shares with a par value of CHF 0.02. Of the 85,044,795 shares, 2,234,359 are classified as treasury shares.
ARYZTA's capital is composed of registered shares only. As at 31 July 2010, ARYZTA has 85,044,795 fully paid up, registered shares (including 2,234,359 treasury shares) with a nominal value of CHF 0.02 each. Each share entered in the share register with voting rights entitles the holder to one vote at the General Meeting and all shares have equal dividend rights. ARYZTA has not issued any participation certificates1.
ARYZTA has not issued any profit sharing certificates1.
1) Participation and profit sharing certificates are instruments which have similar features to shares but may differ with regard to their entitlement to dividend payments, voting rights, preferential rights to company assets or other similar rights.
Article 7 of the Articles of Association deals with the Shareholders' Register and Transfer Restrictions.
Pursuant to Article 7 b) of the Articles of Association, persons acquiring registered shares are, on application, entered in the share register without limitation as shareholders with voting power, provided they comply with the disclosure requirement stipulated by the Federal Act on Stock Exchanges and Securities Trading (Stock Exchange Act) of 24 March 1995 and expressly declare that they have acquired the shares in their own name and for their own account.
As part of the establishment of ARYZTA, former holders of IAWS Group plc shares and options received ARYZTA registered shares, delivered initially in the form of Capita Depository Interests and since replaced by CREST Depository Interests ('CDIs')1.
As CDI holders are not the legal owners of the shares represented by the CDIs, they are not in a position to directly enforce or exercise rights like a shareholder. CDI holders, however, have an interest in the shares represented by the CDIs.
To facilitate voting by CDI holders, the Company entered arrangements with Euroclear UK and Ireland to enable, by way of exception, registration of CREST International Nominees Limited ("CREST") in the share register as nominee with voting rights for the number of registered shares corresponding to the number of CDIs on the CDI register. Otherwise, there were no exceptions to the provisions of section 2.6.1 above granted in the year under review.
CDI holders who wish to be in a position to directly enforce or exercise their rights must have their interests entered in the share register in accordance with Article 7 of the Articles of Association and effectively hold their shares through a member of the Swiss SIS Settlement System.
Pursuant to Article 7 c) of the Articles of Association, nominee shareholders are entered in the share register with voting rights without further inquiry up to a maximum of 1.5% of the outstanding share capital available at the time. Above this 1.5% limit, registered shares held by nominees are entered in the share register with voting rights only if the nominee in question (at the application for registration or thereafter upon request by the Company) discloses the names, addresses and shareholdings of the persons for whose account the nominee holds 0.3% or more of the outstanding share capital available at that time and provided that the disclosure requirement stipulated by the Stock Exchange Act is complied with. The Board has the right to conclude agreements with nominees concerning their disclosure requirements.
1) The CREST system, operated by Euroclear UK and Ireland, is the system for the holding and settlement of transactions in uncertificated (UK, Irish and Channel Island) securities. ARYZTA shares are held in trust by Euroclear UK and Ireland for the benefit of CREST members who have been issued with dematerialised interests representing entitlements to ARYZTA registered shares in the form of CDIs.
Pursuant to Article 7 d) of the Articles of Association, the limit of registration in Article 7 c) of the Articles of Association described above also applies to the subscription for or acquisition of registered shares by exercising option or convertible rights arising from registered or bearer securities issued by the Company, as well as by means of purchasing pre-emptive rights arising from either registered or bearer shares.
Pursuant to Article 7 e) of the Articles of Association, legal entities, or partnerships, or other associations or joint ownership arrangements which are linked through capital ownership or voting rights, through common management or in like manner, as well as individuals, legal entities or partnerships which act in concert with intent to evade the entry restriction, are considered as one shareholder or nominee.
Pursuant to Article 7 f) of the Articles of Association, the Company may in special cases approve exceptions to the regulations described in section 2.6.3 above. After due consultation with the person concerned, the Company is further authorised to delete entries in the share register as shareholder with voting rights with retroactive effect if they were effected on the basis of false information or if the respective person does not provide the information pursuant to Article 7 c) described in section 2.6.3 above.
As of 31 July 2010, ARYZTA has not issued any convertible bonds or warrants. During the year, 1,200,000 option equivalents ("options") were granted to executives and senior management, subject to fulfilment of predefined vesting conditions in connection with the ARYZTA Option Equivalent Long-Term Incentive Plan (ARYZTA Option Equivalent LTIP). Please refer to note 10 of the ARYZTA AG Company Financial Statements for further information pertaining to options granted as an element of executive and management compensation.
The Board of ARYZTA consists of three executive directors and eight non-executive directors. All interests linked to each individual Director in this section correspond to the nationality of that Director, unless otherwise stated.
Diploma in Dairy Science from University College Cork
Denis Lucey has a background in the agricultural co-operative movement in Ireland. In 1982, he was appointed Chief Executive Officer of Mitchelstown Co-Operative Agricultural Society Limited, a position he held until the merger of that co-operative with the Ballyclough Co-Operative Creamery Limited in 1990 and the formation of Dairygold Co-Operative Society Limited. He served as Chief Executive Officer of Dairygold Co-Operative Society Limited until March 2003. He joined the Board of IAWS Group plc as a nonexecutive director in September 2000, and was elected Chairman of the Board in 2005. He has served as Chairman of ARYZTA, since its admission to trading on the SIX Swiss Exchange and the Irish Stock Exchange in August of 2008. He is also currently Chairman of the Milk Quota Appeals Tribunal for the Irish Department of Agriculture, Fisheries and Food. He is also a member of the Governing Body of Cork Institute of Technology.
Albert Abderhalden joined Alfred Hiestand, when the Company was a sole proprietorship in 1972. From 1984 to 1999, he was Managing Director of Hiestand Schweiz AG. From 1994 to 1998 he served as Chief Financial Officer of Hiestand Holding AG. From 1997 to 2003, he served as Vice-Chairman of Hiestand Holding AG, and from 2003 to 2007 he served as full-time Chairman of the Hiestand Board of Directors. During 2007 and 2008, he served as Vice-Chairman of Hiestand Holding AG before becoming a member of the ARYZTA Board of Directors in August 2008.
Denis Buckley has been a full time farmer throughout his working life. His involvement in farming brought him into the agricultural co-operative movement in Ireland and he served on the board of Kerry Co-op from 1977 to 2003. Since 2003, he has served as Chairman of Kerry Group plc. He joined the Board of IAWS Group plc as a non-executive director in June 1997 and held office until the establishment of ARYZTA. He became a member of the ARYZTA Board of Directors in August 2008. He is also Chairman of One51 plc.
Brian Davy is Chairman of Davy, Ireland's leading provider of stockbroking, wealth management and financial advisory services, and the sponsor of ARYZTA on the Irish Stock Exchange. He graduated from University College Dublin with a Bachelor of Commerce Degree and has spent his entire working career in building up the business and executive team of Davy, where he has worked since 1965. He is a former director of the Irish Stock Exchange and Arnotts plc. He is a member of the Executive Committee of the (Irish) National Maternity Hospital Holles Street. He joined the Board of IAWS Group plc as a non-executive director in December 1995. He became a member of the ARYZTA Board of Directors in August 2008.
Bachelor of Commerce from National University of Ireland, Galway; Fellow of the Institute of Chartered Accountants in Ireland; Associate of the Institute of Taxation in Ireland; Member of the National Association of Estate Agents (Overseas) Noreen Hynes joined Irish Distillers Group plc in 1981 and worked in various roles, including Internal Auditor and Financial Controller until 1991. From 1991 to 1995, she worked as Managing Director of Coal Distributors Limited and since then she has
been engaged in the property and business advisory services sector. She joined the Board of IAWS Group plc in March 2004 and became a member of the ARYZTA Board of Directors in August 2008.
Certificate in Business Management from College of Commerce, Rathmines, Dublin Hugo Kane joined Cuisine de France, a subsidiary of ARYZTA, in 1993 as Operations Director. He was appointed Managing Director of Cuisine de France in 2001, a position which he held until 2004. In September 2004, he was appointed to the Board of Directors and Head of Food for IAWS Group plc. In 2007, he was appointed Chief Operating Officer for IAWS Group plc. He has been COO and a member of the Board of ARYZTA since its admission to trading. He is also fulfilling a leadership role in the ARYZTA Technology Initiative.
Bachelor of Agricultural Science from University College Dublin Owen Killian joined IAWS in 1977, and worked in various managerial functions until 1988. Upon the public flotation of the Company to form IAWS Group plc in 1988, he held various senior management functions. In October 1999, he was appointed to the Board of Directors of IAWS Group plc as COO, and from 2001 to 2003 he was Head of Food. In 2003, he was appointed CEO of IAWS Group plc. He has been CEO and a member of the Board of ARYZTA since its admission to trading. Owen Killian is also Chairman of Origin Enterprises plc, the Irish-domiciled listed company, in which ARYZTA has a controlling 71.4% stake.
Fellow of the Chartered Institute of Management Accountants; Master of Business Administration from Dublin City University
Patrick McEniff joined IAWS Group plc in 1989. In the period from 1989 to 1997, he worked as a financial controller in IAWS focusing on financial reporting and systems development. In 1997, he became Director of Finance in the Food Distribution business and Flour Milling businesses of IAWS Group plc. In 2000, he was appointed Finance Director in the Bakery Business of IAWS Group plc. In 2004, he became Finance Director of IAWS Group plc. In 2008, upon the formation of ARYZTA AG, he was also appointed as CFO and member of the Board of Directors. Patrick McEniff is also a member of the Board of Directors of Origin Enterprises plc, the Irish-domiciled listed company, in which ARYZTA has a controlling stake of 71.4%.
William Murphy began his career with the Irish Forestry Department in 1963. He worked with a number of companies before joining Avonmore Creameries Limited in 1977, becoming a member of its Board of Directors in 1989. He served as Deputy Managing Director of Glanbia plc (the successor to Avonmore Creameries Limited) from 2001 to 2005. He remains a non-executive Director of Glanbia plc. He became a member of the ARYZTA Board of Directors in August 2008. He is also Chairman of Grassland Fertilisers (Kilkenny) Ltd and Chairman of the National University of Ireland Maynooth (Kilkenny) Outreach Program.
Commercial Diploma
Hans Sigrist worked as Managing Director of Würth Schweiz AG from 1974 to 2005, and has been Chairman of the Board of Directors since 1981. From 1981 to 2009, he served as a member of the Board of Management of Würth Group International. From 1997 to 2008, he was a member of the Board of Directors of Hiestand Holding AG. He became a member of the ARYZTA Board of Directors in August 2008. Hans Sigrist is also member of the Board of Directors of Kisling AG, Würth AG Arlesheim and consultant for Würth South East Asia, Australia and New Zealand.
PhD in History from the University of Zurich; Master of Law from University of Lausanne; Advanced Management Degree from the Wharton School at the University of Pennsylvania in Philadelphia
Maurice Zufferey worked as a banker with UBS from 1987 to 1998. From 1998 to 2001, he was CEO of Ecole Hôtelière de Lausanne. From 2001 to date, he has been an Executive Search Partner at Spencer Stuart. He is Office Manager Switzerland and Global Practice Leader, Private Wealth Management at Spencer Stuart. From 2001 to 2008, he was a member of the Board of Directors of Hiestand Holding AG. He became a member of the ARYZTA Board of Directors in August 2008.
Group General Counsel and Company Secretary
Bachelor of Civil Law (UCD, NUI); Solicitor, Law Society of Ireland
From 1988 to 1998, Pat Morrissey spent his career with Irish law firm LK Shields, where he was admitted as a partner in 1995. In 2000, he joined IAWS Group plc as Group General Counsel and was appointed General Counsel and Company Secretary in 2005. He has served as Group General Counsel and Company Secretary of ARYZTA since its establishment. He is also Company Secretary of Origin Enterprises plc.
With the exception of Albert Abderhalden, who served as full-time Chairman of the Board of Directors of Hiestand Holding AG from 2003 to 2007, none of the non-executive members of the Board of Directors has fulfilled any operational management functions for companies of the ARYZTA Group in the three years immediately preceding the period under review.
Disclosure of related party transactions between ARYZTA and Board members can be found in note 32 of the ARYZTA Group Financial Statements 2010.
The General Meeting has the competence to appoint and remove the members of the Board. The term of office shall correspond to the maximum term legally allowed, but shall not exceed three years. The Board determines the first term of office of each Director in such a way that, each year, an equal number of Directors will be elected or re-elected at the General Meeting of ARYZTA and in such manner that all members will have been subject to re-election after a period of three years.
The Board has adopted Organisational Regulations that, inter alia, define the essential roles and responsibilities of the Board, the Chairman, the Committees of the Board and Executive Management. The office of Chairman together with membership of the Committees of the Board and the Chair thereof are, under the Organisational Regulations, determined annually by the Board following the General Meeting.
ARYZTA has an Audit Committee and a Nomination and Remuneration Committee. The powers and responsibilities of each Committee are set out in their respective Terms of Reference, as approved by the Board.
Nomination &
| Remuneration | ||
|---|---|---|
| Audit Committee | Committee | |
| X | ||
| X | ||
| X1 | ||
| X1 | ||
| X | ||
| X | ||
X denotes that the Board Member is on the applicable Committee.
1 denotes the Board Member who Chairs the applicable Committee.
The Audit Committee comprises three non-executive directors, namely Noreen Hynes (Chairman), William Murphy and Dr. J. Maurice Zufferey, each of whom is considered by the Board to be independent. In the 2010 financial year, the Audit Committee met four times and the average duration of the meetings was approximately four hours.
The Audit Committee's role includes reviewing the Group and Company Financial Statements, the interim and full year results and the significant financial reporting judgements contained therein. The Audit Committee also reviews the Group's internal controls, and the scope and effectiveness of the Group's Internal Audit function. The Head of Internal Audit has access to the Audit Committee at all times and he and the Chief Financial Officer regularly attend meetings of the Audit Committee by invitation.
In 2010 the Audit Committee, operating under its terms of reference, discharged its responsibilities by reviewing:
The Nomination and Remuneration Committee comprises J. Brian Davy (Chairman), Denis Buckley and the Company Chairman, Denis Lucey (all non-executive directors).
The Nomination and Remuneration Committee is responsible for determining the remuneration of the executive and non-executive members of the Board, for recommending directors to the Board for appointment, and for the continuous review of senior management succession plans. In the 2010 financial year, the Nomination and Remuneration Committee met five times and the average duration of the meetings was approximately 1.5 hours.
The Group's remuneration policy for executive and non-executive directors and details of directors' remuneration are contained in note 10 of the ARYZTA Company Financial Statements 2010, in accordance with the Swiss Code of Obligations and the SIX Directive on Information Relating to Corporate Governance.
Nine Board meetings were held during the year. The average duration of regular Board meetings is approximately 4.5 hours. In addition, the Board held a two-day meeting during the year to consider ARYZTA Group strategy. At each meeting, the Chair of the
Committees report to the Board on their activities as necessary. Details of the work methods of the Committees are set out in Section 3.4.2.
The Board of Directors is the ultimate governing body. It has the power and competencies afforded by Swiss law (art. 761a of the Swiss Code of Obligation (CO)) including in particular:
The following fall within the exclusive competency of the Board of Directors:
The Board has delegated responsibility for the day-to-day management of the Group, through the Chief Executive Officer, to Executive Management.
Group Executive Management report in a regular and structured manner to the Board of Directors. The CEO and CFO report to the Board on a systematic basis. At each Board Meeting, the CEO informs the Board of the status of current business operations, significant developments and major business transactions. Likewise, the CFO reports on financial performance across the Group and key financial figures and parameters. In addition, the COO and executives within the Group regularly deliver presentations to the Board.
The Board approves the formal Risk Assessment which is required by Article 663b of the Swiss Code of Obligations. The Board has approved the design, implementation and maintenance of the Internal Control System required under applicable law.
The ARYZTA Internal Audit function reports directly to the Audit Committee. Internal Audit may audit all Group activities and regularly meets with Group Executive
Management. Internal Audit discuss audit plans with the Audit Committee on at least an annual basis, but may discuss them more frequently should circumstances require.
The external auditors, PricewaterhouseCoopers (the Auditors of the ARYZTA Company and Group Financial Statements), conduct their audit in compliance with Swiss Auditing Standards and International Standards on Auditing.
Group Executive Management consists of Owen Killian (Chief Executive Officer), Patrick McEniff (Chief Financial Officer), Hugo Kane (Chief Operating Officer), and Pat Morrissey (Group General Counsel and Secretary). Details of all Executive Management are provided in Section 3.1.
No member of the Group Executive Management holds management contracts for any company outside of the ARYZTA Group.
Please refer to note 10 of the ARYZTA AG Company Financial Statements for disclosures pertaining to compensation, shareholdings and loans, as well as the content and method of determining the compensation and share-ownership programmes.
Each ARYZTA share registered as a share conferring a voting right entitles the holder to one vote at a General Meeting. Proxies are entitled to attend shareholders' meetings and exercise all rights of the represented shareholders at such meetings.
As indicated previously in paragraph 2.6.2, ARYZTA pursues arrangements with Euroclear UK and Ireland to enable investors whose interests in ARYZTA are represented by CDIs to exercise their voting rights. CDI holders who wish to be in a position to directly enforce or exercise their rights must have their interests entered in the share register in accordance with Article 7 of the Articles of Association and effectively hold their shares through a member of the Swiss SIS Settlement System.
Pursuant to Article 14 of the Articles of Association, resolutions at the General Meeting calling for a quorum of at least two-thirds of the votes represented are required for:
General Meetings are convened by the Board of Directors and, if need be, by the Auditors. Notice of the General Meeting is given by publication in the Swiss Official Gazette of Commerce at least 20 days before the date of the meeting. The notice must state, inter alia, the day, time and place of the Meeting and the agenda.
The Board states the items in the agenda. One or more registered shareholders which jointly represent at least ten percent of the share capital of the Company registered in the Commercial Register may request items to be included in the agenda. Such requests must be in writing, specifying the items and the proposals and be submitted to the Chairman at least 45 days before the date of the General Meeting.
The relevant date to determine the shareholders' right to participate in the General Meeting on the basis of the registrations appearing in the share register is set by the Board in the invitation to the General Meeting.
ARYZTA does not have a provision on opting out or opting up in the Articles of Association. Thus, the provisions regarding the legally prescribed threshold of 33 1/3% of the voting rights for making a public takeover offer set out in art. 32 of the Swiss Stock Exchange Act are applicable.
Benefits under the ARYZTA LTIP vest upon a change of control. Otherwise, the agreements and plans benefiting the members of the Board or the Group Executive Management are unaffected by a change of control. Further details regarding the benefits under the ARYZTA LTIP are set out in note 10 of the ARYZTA Company Financial Statements 2010.
In line with the Group's policy of rotating its auditors every seven years, ARYZTA AG put the audit mandate out to tender in November 2009. Submissions were received from a number of major accounting firms. The award decision was based on a set of criteria which had previously been disclosed to all candidate firms. These criteria included such elements as the composition of the audit team, knowledge of the bakery industry sector and differentiation vis-à-vis other candidate firms. The ultimate decision was made on the basis of general best practice principles. Following a formal tender process, PricewaterhouseCoopers AG, Zurich, was elected as statutory auditor and group auditor in December 2009. The term of office is one year. Patrick Balkanyi has been the lead auditor since PricewaterhouseCoopers AG's appointment in 2009.
The total auditing fees charged by the Group auditors in the financial year 2010 amounted to €1,787,000. €300,000 of these fees were charged to Origin Enterprises plc.
The fees for additional services rendered to ARYZTA Group invoiced in the financial year by the auditors, totalled €3,164,000, of which €1,357,000 was for taxation and legal services and €1,807,000 for corporate finance and transactional services. Of these fees €127,000 were charged to Origin Enterprises plc.
PricewaterhouseCoopers presents to the Audit Committee a detailed report on the conduct of the 2010 financial statements audit, the findings on significant financial accounting and reporting issues as well as the findings on the Group's internal control system (ICS).
In 2010, PricewaterhouseCoopers attended two Audit Committee meetings and the Group Head of Internal Audit participated in all four Audit Committee meetings. Other members of the Group Executive Management attended them as invited. In addition, the Head of Internal Audit regularly met with the Chairman of the Audit Committee for interim updates.
The Board of Directors annually reviews the selection of the auditors in order to propose their appointment to the General Meeting of ARYZTA. The Audit Committee assesses the effectiveness of the work of the auditors in accordance with Swiss law. The lead auditor rotates every seven years in accordance with Swiss law.
At each meeting of the Audit Committee, audit and non-audit-related fees paid to PricewaterhouseCoopers year to date are reviewed to mitigate the risk of any potential impairment to PricewaterhouseCoopers' independence. PricewaterhouseCoopers monitors its independence throughout the year and confirms its independence to the Audit Committee annually.
ARYZTA is committed to pursuing an open and consistent communication policy with shareholders, potential investors and other interested parties. The objective is to ensure that the perception of those parties about the historical record, current performance and future prospects of ARYZTA is in line with management's assessment of the current situation at ARYZTA. The guiding principles of this policy are that ARYZTA gives equal treatment to shareholders in equal situations, that any price sensitive information is published in a timely fashion and that the information is provided in a format that is as complete, simple, transparent and consistent as possible.
ARYZTA publishes its first quarterly trading update, half-year results, nine-months' trading update and full-year results (including Annual Report) on the occasion of its quarterly announcement cycle (announcement dates on next page). These quarterly announcements are accompanied by a presentation which is broadcast live on the internet (webcast) and which anyone can choose to access, whether that person is a shareholder or not. These webcasts can be replayed at any time on the ARYZTA website (www.aryzta.com). An automatic alerting service is also provided through the website. This ensures that interested parties can sign up to the site to be alerted automatically to results and events announcements published on the website. ARYZTA also ensures that news releases are distributed to major wire and news services. These news releases are also made available in the News & Media section of the website immediately after release to the SIX Swiss Exchange and ISE Irish Exchange. In this way, the Company utilises its website and ancillary communications infrastructure to ensure a rapid and equitable distribution of information for all interested parties.
ARYZTA's Investor Relations programme for institutional investors is carried out in line with the quarterly announcement cycle, with management time allocated accordingly and not on an ad-hoc basis. In order to strike a balance between the needs of managing a business and regular transparent communication with investors, investor meetings (i.e. Group meetings, one-to-one meetings and conference calls) will not be held on an ad-hoc basis. These will be organised following quarterly announcements, save as mentioned below. Investors wishing to meet the Group in the aftermath of such quarterly announcements should e-mail the Group's Investor Relations co-ordinator (see details below). These investor communications focus either on recently announced financial results, recent corporate activity or the longer-term strategy of the Group. They do not serve the purpose of disclosing new information which might encourage an investment decision.
The Group accepts invitations to investor conferences. Attendance at conferences by the Group will be on a planned and agreed basis in advance of its quarterly announcement cycle and published on its website. The Company also communicates with analysts and stockbrokers who follow ARYZTA to facilitate third-party research on the Company. ARYZTA assumes no responsibility for any statements, expectations, or recommendations made by analysts and stockbrokers. The Group will communicate to investors at the time of any potentially price-sensitive event, such as significant acquisitions and divestments, joint venture agreements and alliances.
ARYZTA AG Talacker 41 8001 Zurich Switzerland Email: [email protected]
| Announcement of the 2010 annual results | 27 September 2010 |
|---|---|
| Issue of the 2010 annual report | 5 October 2010 |
| First quarter trading update | 29 November 2010 |
| Annual General Meeting | 2 December 2010 |
| Payment of dividend | 1 February 2011 |
| Announcement of half-year results 2011 | 14 March 2011 |
| Third quarter trading update | 7 June 2011 |
| Announcement of the 2011 annual results | 26 September 2011 |
| Issue of the 2011 annual report | 4 October 2011 |
| First quarter trading update | 28 November 2011 |
| Annual General Meeting 2011 | 1 December 2011 |
Food rest of world Australia Sydney Hyde Park
Named after its original namesake in London, Sydney's Hyde Park is situated to the east of the city's main business district. The park's many drain lids are a notable feature, many of which are connected to Busby's Bore, the city's first large-scale initiative to tap new sources of fresh water after its original Tank Stream was backed up.
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.
Food Europe sp ain Barcelona Parc Güell
Park Güell was originally an illstarred housing project named after its sponsor, Count Eusebi Güell, and based on the late 19th century English garden city concept. The park, situated on the el Carmel hill in Barcelona, was designed by the Catalan architect Antoni Gaudi and built between 1900 and 1914. It comprises a number of architectural features and is part of the Gaudi UNESCO World Heritage site.
ARYZTA has a commitment to building a successful and sustainable business for the long term. ARYZTA views the path towards sustainable development as the marrying of economic, environmental and social factors. At the heart of this commitment is a focus on corporate responsibility. ARYZTA pursues a decentralised approach to corporate responsibility through its various businesses and the different markets within which it operates.
ARYZTA believes in building long-term relationships with its stakeholders, which include consumers, customers, employees, shareholders and regulatory bodies. The Group understands its responsibilities as an important member of the communities in which it operates. It continues to embolden its businesses to play an active role within them. As well as providing employment opportunities, the Group aims to make positive contributions to its community, building relationships and earning a positive reputation as a good employer, neighbour and corporate citizen.
With regard to business ethics, ARYZTA expects all commercial dealings by or on behalf of the Group to be conducted with integrity and respect for all parties, as well as in compliance with local and national legislation.
ARYZTA recognises that its continued success is dependent on the quality, devotion and responsible behaviour of its people. It therefore provides clear policies and direction to the management teams of its operating businesses. ARYZTA continues to strive for the highest standards in management practices. The Group provides equal opportunities for all in recruitment, selection, promotion, employee development, training and reward policies and procedures. ARYZTA also complies with applicable national laws and industry standards on working hours.
Safety is of paramount importance for ARYZTA. It pursues comprehensive internal safety management procedures, including policy manuals, verification of regulatory compliance, risk assessments, individual site action plans, safety audits, training, formal accident investigation and the provision of occupational health services. It also maintains a strong focus on the use of key performance indicators, external auditing and achieving exacting external health and safety accreditation for its operations.
To ensure food and product safety, all of ARYZTA's food processing facilities operate under proprietary HACCP (Hazard Analysis and Critical Control Point) systems, or similar. Each of these systems is quality assured by third parties. ARYZTA's businesses also contribute to various voluntary initiatives on food and product safety by industry associations such as the International Food Standard (IFS), IP-Suisse, the US Food and Drug Administration (USFDA) and the British Retail Consortium (BRC).
ARYZTA is committed to a policy of sustainable economic development. It is aware that the Earth's ecosystems are both fragile and vulnerable, and that protecting the environment is critical to the continued well-being of the planet and its citizens. ARYZTA works in partnership with its key customers in promoting responsible environmental management practices.
Malaysia Kuala Lumpur KLCC Park
The KLCC park is the last major piece of landscape design undertaken by the Brazilian architect Burle Marx. His stated intention in conceiving it was to 'leave the world a little more sensitive and a little more educated to the importance of nature'.
Located in the middle of the busy city of Kuala Lumpur, the park's tropical greenery provides the ideal contrast to the hectic pace of modern city life, emphasising man's essential ties to Nature.
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
23 September 2010
of Directors
for the year ended 31 July 2010
| Revenue 3,009,726 3,212,270 4 Cost of sales (2,169,030) (2,344,377) Gross profit 840,696 867,893 Distribution expenses (416,666) (415,047) Administration expenses (201,869) (218,714) Operating profit before fair value adjustment, acquisition and merger costs and other income 222,161 234,132 Fair value adjustment on investment properties – (134,543) 2 Acquisition and merger costs (4,643) (22,738) 2 Other income 82 106 2 Operating profit 217,600 76,957 Share of profit after tax of associates and joint ventures 31,613 17,525 6 Profit before financing income and costs 249,213 94,482 Financing income 10,230 7,055 3 Financing costs (61,715) (57,707) 3 Profit before tax 197,728 43,830 Income tax (29,639) (2,853) 9 Profit for the year 168,089 40,977 Attributable as follows: Equity shareholders of the Company 151,729 54,010 Non-controlling interests 16,360 (13,033) 27 Profit for the year 168,089 40,977 2010 2009 Earnings per share for the year Notes Euro cent Euro cent Basic earnings per share 190.99 68.87 11 |
in Euro `000 | Notes | 2010 | 2009 |
|---|---|---|---|---|
Diluted earnings per share 11 189.49 68.69
| in Euro `000 | Notes | 2010 | 2009 |
|---|---|---|---|
| Profit for the year | 168,089 | 40,977 | |
| Other comprehensive income | |||
| Foreign exchange translation effects | |||
| – Foreign currency net investments | 101,287 | 51,553 | |
| – Foreign currency borrowings | 21 | (44,173) | (34,336) |
| – Recycle of foreign exchange gain on settlement of quasi-equity loans | 3 | (4,679) | – |
| – Share of joint ventures and associates' foreign exchange translation adjustment | 15 | (679) | (192) |
| Cash flow hedges | |||
| – Effective portion of changes in fair value of cash flow hedges | 3,933 | (2,727) | |
| – Fair value of cash flow hedges transferred to income statement | 2,209 | (6,992) | |
| – Deferred tax effect of cash flow hedges | 24 | (990) | 1,314 |
| – Share of joint ventures (loss)/gain on cash flow hedges | 15 | (368) | 848 |
| – Share of joint ventures deferred tax effect of cash flow hedges | 15 | 48 | (144) |
| Defined benefit plans | |||
| – Actuarial loss on Group defined benefit pension plans | 25 | (2,336) | (3,913) |
| – Deferred tax effect of actuarial loss | 24 | 563 | 817 |
| – Share of associates' actuarial loss on defined benefit plan | 15 | (973) | (1,576) |
| – Share of associates' deferred tax effect of actuarial loss | 15 | 272 | 442 |
| Deferred tax effect of capital gains tax rate change in Ireland | – | (7,035) | |
| Revaluation of previously held investment in Hiestand | – | 35,077 | |
| Total other comprehensive income | 54,114 | 33,136 | |
| Total comprehensive income for the year | 222,203 | 74,113 | |
| Attributable as follows: | |||
| Equity shareholders of the Company | 204,649 | 93,522 | |
| Non-controlling interests | 27 | 17,554 | (19,409) |
| Total comprehensive income for the year | 222,203 | 74,113 |
as at 31 July 2010
| in Euro `000 | Notes | 2010 | 2009 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 12 | 945,100 | 664,532 |
| Investment properties | 13 | 20,648 | 62,975 |
| Goodwill and intangible assets | 14 | 2,264,421 | 1,498,430 |
| Investments in associates and joint ventures | 15 | 162,881 | 139,351 |
| Deferred tax assets | 24 | 62,290 | 27,053 |
| Total non-current assets | 3,455,340 | 2,392,341 | |
| Current assets | |||
| Inventory | 16 | 212,085 | 192,646 |
| Trade and other receivables | 17 | 426,917 | 406,774 |
| Derivative financial instruments | 22 | 889 | 599 |
| Cash and cash equivalents | 20 | 394,587 | 294,536 |
| Total current assets | 1,034,478 | 894,555 | |
| Total assets | 4,489,818 | 3,286,896 |
| in Euro `000 | Notes | 2010 | 2009 |
|---|---|---|---|
| Equity | |||
| Called up share capital | 26 | 1,061 | 1,005 |
| Share premium | 632,951 | 518,006 | |
| Retained earnings and other reserves | 980,190 | 801,345 | |
| Total equity attributable to equity shareholders of the Company | 1,614,202 | 1,320,356 | |
| Non-controlling interests | 27 | 59,648 | 47,612 |
| Total equity | 1,673,850 | 1,367,968 | |
| Liabilities | |||
| Non-current liabilities | |||
| Interest-bearing loans and borrowings | 21 | 1,575,265 | 927,252 |
| Employee benefits | 25 | 15,454 | 28,544 |
| Deferred income from government grants | 23 | 18,477 | 18,941 |
| Other payables | 18 | 7,107 | 1,025 |
| Deferred tax liabilities | 24 | 356,386 | 203,527 |
| Derivative financial instruments | 22 | 804 | 3,244 |
| Deferred consideration | 19 | 25,829 | 41,259 |
| Total non-current liabilities | 1,999,322 | 1,223,792 | |
| Current liabilities | |||
| Interest-bearing loans and borrowings | 21 | 46,834 | 26,540 |
| Trade and other payables | 18 | 697,674 | 614,291 |
| Corporation tax payable | 53,209 | 40,650 | |
| Derivative financial instruments | 22 | 6,460 | 9,832 |
| Deferred consideration | 19 | 12,469 | 3,823 |
| Total current liabilities | 816,646 | 695,136 | |
| Total liabilities | 2,815,968 | 1,918,928 | |
| Total equity and liabilities | 4,489,818 | 3,286,896 |
| 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 |
| 31 July 2009 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 2008 | 39,275 | 59,734 | – | (510) | 127,446 | 19,986 | (60,035) | 599,372 | 785,268 | 61,482 | 846,750 |
| Profit for the year | – | – | – | – | – | – | – | 54,010 | 54,010 | (13,033) | 40,977 |
| Foreign exchange translation effects |
– | – | – | – | – | – | 18,888 | – | 18,888 | (1,863) | 17,025 |
| Cash flow hedges | – | – | – | (6,372) | – | – | – | – | (6,372) | (1,329) | (7,701) |
| Defined benefit plans | – | – | – | – | – | – | – | (3,057) | (3,057) | (1,173) | (4,230) |
| Deferred tax effect of capital gains tax rate change in Ireland |
– | – | – | – | – | – | – | (5,024) | (5,024) | (2,011) | (7,035) |
| Revaluation of previously held interest in Hiestand |
– | – | – | – | – | – | – | 35,077 | 35,077 | – | 35,077 |
| Total comprehensive income/(loss) |
– | – | – | (6,372) | – | – | 18,888 | 81,006 | 93,522 | (19,409) | 74,113 |
| Issue of shares, net of costs |
3,810 | 182,631 | – | – | – | – | – | – | 186,441 | – | 186,441 |
| Effect of reverse acquisition |
(42,110) | 275,641 | – | – | – | – | – | – | 233,531 | – | 233,531 |
| Issue of treasury shares | 30 | – | (30) | – | – | – | – | – | – | – | – |
| Transfer to retained earnings |
– | – | – | – | (92,338) | – | – | 92,338 | – | – | – |
| Share-based payments | – | – | – | – | – | 21,594 | – | – | 21,594 | 264 | 21,858 |
| Share-based payment reserve released on cancellation of schemes |
– | – | – | – | – | (37,449) | – | 37,449 | – | – | – |
| Arising on business combination |
– | – | – | – | – | – | – | – | – | 8,092 | 8,092 |
| Purchase/disposal of non-controlling interests |
– | – | – | – | – | – | – | – | – | (2,817) | (2,817) |
| At 31 July 2009 | 1,005 | 518,006 | (30) | (6,882) | 35,108 | 4,131 | (41,147) | 810,165 1,320,356 | 47,612 1,367,968 |
for the year ended 31 July 2010
| in Euro `000 | Notes | 2010 | 2009 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Profit for the year | 168,089 | 40,977 | |
| Income tax | 9 | 29,639 | 2,853 |
| Financing income | 3 | (10,230) | (7,055) |
| Financing costs | 3 | 61,715 | 57,707 |
| Share of profit after tax of associates and joint ventures | 6 | (31,613) | (17,525) |
| Fair value adjustment on investment properties | 2 | – | 134,543 |
| Merger costs | 2 | – | 22,738 |
| Other income | 2 | (82) | (106) |
| Depreciation of property, plant and equipment | 12 | 66,888 | 62,195 |
| Amortisation of intangible assets | 14 | 51,364 | 46,277 |
| Recognition of deferred income from government grants | 23 | (2,994) | (2,026) |
| Share-based payments | 8 | 2,318 | 3,743 |
| Other | 26 | (22) | |
| Cash flows from operating activities before changes in working capital | 335,120 | 344,299 | |
| (Increase)/decrease in inventory | 13,956 | 70,296 | |
| (Increase)/decrease in trade and other receivables | 52,926 | 28,840 | |
| Increase/(decrease) in trade and other payables | (35,829) | (72,127) | |
| Cash generated from operating activities | 366,173 | 371,308 | |
| Interest paid | (46,626) | (54,989) | |
| Interest received | 1,446 | 3,415 | |
| Income tax paid | (30,424) | (33,396) | |
| Net cash flows from operating activities | 290,569 | 286,338 |
| in Euro `000 | Notes | 2010 | 2009 |
|---|---|---|---|
| Cash flows from investing activities | |||
| Proceeds from sale of property, plant and equipment | 1,866 | 2,973 | |
| Purchase of property, plant and equipment | |||
| – maintenance capital expenditure | (16,305) | (22,762) | |
| – investment capital expenditure | (29,632) | (56,229) | |
| Grants received | 23 | 1,117 | 2,377 |
| Purchase of investment properties | – | (775) | |
| Acquisitions of subsidiaries and businesses, net of cash acquired 1 | 29 | (564,419) | (80,546) |
| Purchase of intangible assets | (18,037) | (10,705) | |
| Sale of intangible assets | 2.5 | – | 6,837 |
| Dividends received | 15 | 22,365 | 23,004 |
| Investments in associates and joint ventures | 15 | (3,052) | (26,184) |
| Deferred consideration paid | 19 | (2,128) | (27,384) |
| Net cash flows from investing activities | (608,225) | (189,394) | |
| Cash flows from financing activities | |||
| Net proceeds from issue of share capital | 115,001 | (626) | |
| Gross drawdown of loan capital | 21 | 1,776,942 | 2,467,751 |
| Gross repayment of loan capital | 21 | (1,467,590) | (2,399,509) |
| Capital element of finance lease liabilities | 21 | (1,693) | (1,300) |
| Dividends paid to non-controlling interests | 27 | (5,779) | – |
| Dividends paid to equity shareholders | (27,861) | – | |
| Net cash flows from financing activities | 389,020 | 66,316 | |
| Net increase in cash and cash equivalents | 71,364 | 163,260 | |
| Translation adjustment | 7,841 | (875) | |
| Net cash and cash equivalents at start of year | 269,144 | 106,759 | |
| Net cash and cash equivalents at end of year | 20 | 348,349 | 269,144 |
1 Total cash flow impact of acquisitions for the period was €860,313,000. This is made up of €569,062,000 of directly related net acquisition costs and total debt acquired including finance leases of €291,251,000.
ARYZTA AG (the 'Company') is a company domiciled and incorporated in Switzerland. The Group's financial statements for the year ended 31 July 2010 consolidate the individual financial statements of the Company and its subsidiaries (together referred to as the 'Group') and show the Group's interest in associates and joint ventures using the equity method of accounting.
The individual and Group Financial Statements of the Company were authorised for issue by the directors on 23 September 2010 and are subject to approval by the shareholders at the General Meeting.
The Group Financial Statements have been prepared in accordance with International Financial Reporting Standards ('IFRS').
The IFRS applied by the Group in the preparation of these financial statements are those that were effective for accounting periods beginning on or after 1 August 2009. The following standards and interpretations, issued by the International Accounting Standards Board ('IASB') and the IFRS Interpretations Committee, are effective for the first time in the current financial year and have been adopted by the Group:
IAS 1 (Revised), Presentation of Financial Statements, requires 'non-owner changes in equity' to be presented separately from 'owner changes in equity' and the presentation of a statement of changes in equity as a primary statement. The information contained in this statement had previously been disclosed by the Group in a note to the Group Financial Statements. Entities can choose whether to present one performance statement (the statement of total comprehensive income) or two statements (the income statement and the statement of comprehensive income). The Group has elected to present two statements, the Group Income Statement and Group Statement of Comprehensive Income (similar to the Group Statement of Recognised Income and Expense previously provided).
IFRS 3 (Revised), Business Combinations, introduces a number of changes to accounting for business combinations. These changes impact the amount of goodwill recognised, the reported results in the year an acquisition occurs and future reported results. The changes include, but are not limited to;
As the changes in IFRS 3 (Revised) are prospective, IFRS 3 continues to be applied to any acquisitions that occurred before the current financial year and these have not been restated. The main impact from the adoption of IFRS 3 (Revised) to the results in the current year is in relation to the expensing of transaction costs. Refer to note 2 for the total transaction costs relating to acquisitions expensed in the current year.
IFRS 7, Financial Instruments: Disclosures (Amended), expands the disclosure requirements for financial instruments, notably the classification of the fair value measurement of financial assets and liabilities in three levels. The adoption of the revised standard did not have any impact on the Group's result or financial position.
IFRS 8, Operating Segments, replaces IAS 14, Segment Reporting, and has been applied for the first time in the current financial year. The standard follows the approach that the externally reported segments should correspond to the information management uses in making decisions. This has not resulted in any changes to the basis of segmentation or to the basis of measurement of operating profit employed in compiling the Group Financial Statements in respect of the year ended 31 July 2010.
The remaining standards and interpretations adopted in the current year by the Group have had no significant impact on its consolidated results or financial position.
The following new standards and interpretations, issued by the IASB or the IFRS Interpretations Committee, have not yet become effective. The Group has not applied early adoption in relation to them.
| Standard/Interpretation | Effective date | Planned implementation by ARYZTA |
|---|---|---|
| IFRS 9 – Financial Instruments | 1 January 2013 | Reporting year 2014 |
| Amendment to IFRS 1 – First-time Adoption of IFRS | 1 January 2010 | Reporting year 2011 |
| Amendment to IFRS 2 – Group Cash-settled Share-based Payment Transactions |
1 January 2010 | Reporting year 2011 |
| Amendment to IFRS 3 – Business Combinations | 1 January 2011 | Reporting year 2012 |
| Amendment to IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations |
1 January 2010 | Reporting year 2011 |
| Amendment to IFRS 7 – Financial Instruments: Disclosures |
1 January 2011 | Reporting year 2012 |
| Amendment to IFRS 8 – Operating Segments | 1 January 2010 | Reporting year 2011 |
| Amendment to IAS 1 – Presentation of Financial Statements |
1 January 2010 | Reporting year 2011 |
| Amendment to IAS 7 – Statement of Cash Flows | 1 January 2010 | Reporting year 2011 |
| Amendment to IAS 17 – Leases | 1 January 2010 | Reporting year 2011 |
| Amendment to IAS 24 – Related Party Disclosures | 1 January 2011 | Reporting year 2012 |
| Amendment to IAS 27 – Consolidated and Separate Financial Statements |
1 January 2011 | Reporting year 2012 |
|---|---|---|
| Amendment to IAS 32 – Financial Instruments: Presentation - Classification of Rights Issues |
1 February 2010 | Reporting year 2011 |
| Amendment to IAS 34 – Interim Financial Reporting | 1 January 2011 | Reporting year 2012 |
| Amendment to IAS 36 – Impairment of Assets | 1 January 2010 | Reporting year 2011 |
| Amendment to IAS 39 – Financial Instruments: Recognition and Measurement |
1 January 2010 | Reporting year 2011 |
| Amendment to IFRIC 13 – Customer Loyalty Programmes1 January 2011 | Reporting year 2012 | |
| Amendment to IFRIC 14 – IAS 19, Limits on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction |
1 January 2011 | Reporting year 2012 |
| IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments |
1 July 2010 | Reporting year 2011 |
The Group has undertaken an initial assessment of the potential impact of IFRS 9, Financial Instruments, and the amendments and interpretations of existing standards on its consolidated results and financial position. Based on this initial assessment, the Group does not currently believe that the adoption of this standard, or the remaining amendments and interpretation listed above would have a significant impact on the consolidated results or financial position of the Group.
The Group financial statements are prepared on a historical cost basis, except that the following assets and liabilities are stated at their fair value: equity investments held at fair value through other comprehensive income, investment properties, and derivative financial instruments. The financial statements are presented in euro, rounded to the nearest thousand, unless otherwise stated.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Further information on judgements and accounting estimates is set out in note 35 to these Group Financial Statements.
The Group Financial Statements reflect the consolidation of the results, assets and liabilities of the parent undertaking, the Company and all of its subsidiaries, together with the Group's share of profits/losses of associates and joint ventures. Where a subsidiary, associate or joint venture is acquired or disposed of during the financial period, the Group financial statements include the attributable results from, or to, the effective date when control passes, or, in the case of associates, when significant influence is obtained.
Subsidiary undertakings are those entities over which the Group has the power to control the operating and financial policies, so as to obtain economic benefit from their activities. The amounts included in these financial statements in respect of the subsidiaries are taken from their latest financial statements prepared up to the period end. Where necessary, the accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.
Associates are those entities over which the Group has a significant influence, but not control of, the financial and operating policies. Investments in associates are accounted for using the equity method of accounting. Joint ventures are those entities over whose operating and financial policies the Group exercises control jointly, under a contractual agreement, with one or more parties. Investments in joint ventures are accounted for using the equity method of accounting.
Under the equity method of accounting, the Group's share of the post-acquisition profits or losses of its associates and joint ventures is recognised in the income statement. The income statement reflects, in profit before tax, the Group's share of profit after tax of its associates and joint ventures in accordance with IAS 28, Investments in Associates, and IAS 31, Interests in Joint Ventures. The Group's interest in their net assets is included as investments in associates and joint ventures in the Group Balance Sheet at an amount representing the Group's share of the fair value of the identifiable net assets at acquisition, plus the Group's share of post-acquisition retained income and expenses, less dividends received. The Group's investment in associates and joint ventures includes goodwill on acquisition. The amounts included in these financial statements in respect of the post-acquisition profits or losses of associates and joint ventures are taken from their latest financial statements prepared up to their respective year ends together with management accounts for the intervening periods to the Group's period end. Where necessary for consolidation, the accounting policies of associates and joint ventures have been changed to ensure consistency with the policies adopted by the Group.
Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the Group Financial Statements. Unrealised gains and income and expenses arising from transactions with associates and joint ventures are eliminated to the extent of the Group's interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that they do not provide evidence of impairment.
Revenue represents the fair value of the sale of goods supplied to third parties, after deducting trade discounts, volume rebates, and exclusive of value-added tax. Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. This is generally deemed to occur following delivery to the end customer. Income from services supplied is recognised in proportion to the stage of completion at the balance sheet date. Financing income is recognised on an accruals basis, taking into consideration the sums lent and the actual interest rate applied.
Management has determined the operating segments based on the reports regularly reviewed by the Group's Chief Operating Decision Maker (Chief Executive Officer) in making strategic decisions, allocating resources and assessing performance.
Following the acquisition of Fresh Start Bakeries and Great Kitchens in the current year, the Group renamed its 'Food Developing Markets' reporting segment as 'Food Rest of World'. The Group is now primarily organised into four main operating segments: Food Europe, Food North America, Food Rest of World and Origin. The Group's principal geographical segments are Europe, North America and Rest of World.
Food Europe has leading market positions in the speciality bakery market in Switzerland, Germany, the UK, Ireland, France, Spain, Sweden and Poland. In Europe, ARYZTA has a mixture of business-to-business and consumer brands, including: Hiestand, Fresh Start Bakeries, Cuisine de France, Delice de France and Coup de Pates. Food Europe has a diversified customer base within the foodservice and retail channels.
Food North America has leading positions in the speciality bakery market. It has a mixture of business-to-business and consumer brands, including: Fresh Start Bakeries, Otis Spunkmeyer, Great Kitchens and La Brea Bakery. Food North America has a diversified customer base within the foodservice and retail channels.
Food Rest of World consists of businesses in South America, Asia, Australia and New Zealand.
Origin is a leading agri-services company focused on integrated agronomy services, feed ingredients and fertilisers, with operations in Ireland, the UK, Norway, Poland and Ukraine.
Segment assets and liabilities consist of property, plant and equipment, goodwill and intangible assets and other assets and liabilities that can be reasonably allocated to the reported segment. Unallocated assets and liabilities principally include current and deferred income tax assets and liabilities, together with financial assets and liabilities.
Net finance costs and income tax are managed on a centralised basis and therefore these items are not allocated between operating segments for the purpose of presenting information to the Chief Operating Decision Maker.
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense as incurred.
Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products or processes, is capitalised, if the product or process is technically and commercially feasible, the attributable expenditure can be reliably measured, and the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, direct labour or an appropriate proportion of overheads. Capitalised
development expenditure is stated at cost, less accumulated amortisation and impairment losses. Other development expenditure is recognised in the income statement as an expense as incurred.
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as the related employee service is received. The Group's net obligation in respect of defined benefit pension plans is calculated, separately for each plan, by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine the present value, and the fair value of any plan assets is deducted. The discount rate is the yield at the balance sheet date on high-quality corporate bonds that have maturity dates approximating the terms of the Group's obligations. The calculation is performed by a qualified actuary using the projected unit credit method. Actuarial gains and losses are recognised in the Group Statement of Comprehensive Income, net of related taxes. Current and past service costs are recognised in employee costs in the income statement. Interest on plan liabilities and expected return on assets are recognised in financial costs/income in the income statement.
As defined in IFRS 2, Share-based Payment, the fair value of equity instruments granted is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the equity instrument. The fair value of the equity instruments granted is measured using an approved model as appropriate, taking into account the terms and conditions under which the equity instruments were granted. The Group equity-settled compensation schemes and plans are subject to a non-market vesting condition and, therefore, the amount recognised as an expense is adjusted annually to reflect the actual number of equity instruments that are expected to vest.
Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity or in other comprehensive income, in which case the related tax is recognised in equity or in other comprehensive income. Current income tax is the expected tax payable on the taxable income for the period, using tax rates and laws that have been enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred income tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred income tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. If the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction does not affect accounting or taxable profit or loss, it is not recognised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary
difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
A deferred income tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be recovered. Deferred income tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Transactions in foreign currencies are translated to the appropriate functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to euro at the foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to euro at the actual rates when the transactions occurred. Foreign exchange differences arising on translation of the net assets of a foreign operation are recognised directly in equity, in the foreign currency translation reserve.
Exchange gains or losses on long-term intra-group loans and on foreign currency borrowings used to finance or provide a hedge against Group equity investments in non-euro denominated operations, are taken to the translation reserve to the extent that they are neither planned nor expected to be repaid in the foreseeable future, or are expected to provide an effective hedge of the net investment. Any differences that have arisen since 1 August 2004, the date of transition to IFRS, are recognised in the foreign currency translation reserve and are recycled through the income statement on the repayment of the intra-group loan, or on disposal of the related business.
The principal euro foreign exchange currency rates used by the Group for the preparation of these financial statements are as follows:
| Currency | Average 2010 | Closing 2010 | Average 2009 | Closing 2009 |
|---|---|---|---|---|
| CHF | 1.4621 | 1.3616 | 1.5310 | 1.5247 |
| USD | 1.3811 | 1.3079 | 1.3643 | 1.4252 |
| CAD | 1.4494 | 1.3546 | 1.5932 | 1.5372 |
| GBP | 0.8776 | 0.8373 | 0.8615 | 0.8545 |
Dividends are recognised in the period in which they are approved by the Company's shareholders.
Property, plant and equipment is stated at cost, less accumulated depreciation and impairment losses. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment.
All other expenditure, including repairs and maintenance costs, is recognised in the income statement as an expense as incurred.
Depreciation is calculated to write off the cost less estimated residual value of property, plant and equipment, other than freehold land and assets under construction, on a straight-line basis, by reference to the following estimated useful lives:
Buildings 25 to 50 years Plant and machinery 3 to 15 years Motor vehicles 3 to 7.5 years
The residual value of assets, if significant, and the useful life of assets is reassessed annually.
Gains and losses on disposals of property, plant and equipment are recognised on the completion of sale. Gains and losses on disposals are determined by comparing the proceeds received with the carrying amount and are included in operating profit.
Investment property, principally comprising land, is held for capital appreciation. Investment property is stated at fair value. The fair value is based on market value, being the estimated amount for which a property could be exchanged in an arm's length transaction. Any gain or loss arising from a change in fair value is recognised in the income statement. When property is transferred to investment property following a change in use, any difference arising at the date of transfer between the carrying amount of the property immediately prior to transfer and its fair value is recognised in equity if it is a gain. Upon disposal of the property, the gain would be transferred to retained earnings. Any loss arising in this manner, unless it represents the reversal of a previously recognised gain, would be recognised immediately in the income statement.
Leases of property, plant and equipment, where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset or the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in interest-bearing loans and borrowings. The interest element of the payments is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The asset acquired under the finance lease is depreciated over the shorter of the useful life of the asset or the lease term.
Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the lease term.
All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries, associates and joint ventures. Goodwill represents the difference between the cost of the acquisition and the fair value
of the Group's share of net identifiable assets acquired at the date of acquisition. Goodwill is stated at cost or deemed cost, less any accumulated impairment losses. In respect of associates and joint ventures, the carrying amount of goodwill is included in the carrying amount of the investment.
Intangible assets acquired as part of a business combination are valued at their fair value at the date of acquisition. These generally include brand and customer-related intangible assets. Computer software that is not an integral part of an item of computer hardware is also classified as an intangible asset. Where intangible assets are separately acquired, they are capitalised at cost.
Intangible assets with finite lives are amortised over the period of their expected useful lives in equal annual instalments, as follows;
| Customer relationship | 12 to 20 | years |
|---|---|---|
| Brands | 13 to 30 | years |
| Patents and other | 4 to 5 | years |
| Computer-related | 3 to 7 | years |
| intangibles |
All intangible assets are stated at cost, less accumulated amortisation and impairment losses incurred. Cost comprises purchase price and other applicable directly attributable costs.
The carrying amounts of the Group's assets, other than inventories (which are carried at the lower of cost and net realisable value), deferred tax assets (which are recognised based on recoverability), and those financial instruments which are carried at fair value, are reviewed to determine whether there is an indication of impairment when an event or transaction indicates that there may be. If any such indication exists, an impairment test is carried out and the asset is written down to its recoverable amount. Goodwill, intangible assets with indefinite lives and intangible assets not yet available for use are tested for impairment annually.
An impairment loss is recognised whenever the carrying amount of an asset, or its cashgenerating unit, exceeds its recoverable amount. Impairment losses are recognised in the income statement. Goodwill is allocated to the various cash-generating units for the purposes of impairment testing. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit, and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. An impairment loss, other than in the case of goodwill, is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Inventory is stated at the lower of cost on a first-in, first-out basis and net realisable value. Cost includes all expenditure which has been incurred in the normal course of business in bringing the products to their present location and condition. Net realisable value is the estimated selling price of inventory on hand, less all further costs to completion and all costs expected to be incurred in marketing, distribution and selling.
Cash equivalents are defined as short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement.
Shares are classified as equity. Incremental costs and taxes directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
Trade and other receivables are initially measured at fair value and are thereafter measured at amortised cost using the effective interest method, less any provision for impairment. A provision for impairment is recognised in administration expenses when there is objective evidence that the Group will not be able to collect all amounts due, according to the original terms of the receivables.
Where risks associated with trade receivables are transferred out of the Group under receivables purchase arrangements, such receivables are derecognised from the balance sheet except to the extent of the Group's continued involvement through retention of the late payment risk.
Short-term bank deposits with an original maturity of three months or less, which do not meet the definition of cash and cash equivalents, are classified as loans and receivables within current assets and stated at amortised cost in the balance sheet.
Trade and other payables are recognised initially at fair value and are subsequently measured at amortised cost, using the effective interest method.
Forward currency contracts and interest rate swaps are marked to market using quoted market values.
All derivatives are initially recorded at fair value on the date the contract is entered into and subsequently, at reporting dates, remeasured to their fair value. The gain or loss arising on remeasurement is recognised in the income statement, except where the instrument is a designated hedging instrument.
Derivative financial instruments are used to manage the Group's exposure to foreign currency risk, interest rate risk and commodity price risk through the use of forward currency contracts, interest rate swaps and futures contracts. These derivatives are generally designated as cash flow hedges in accordance with IAS 39, Financial Instruments: Recognition and Measurement. The Group does not enter into speculative derivative transactions.
Subject to the satisfaction of certain criteria relating to the documentation of the risk, objectives and strategy for the hedging transaction and the ongoing measurement of its effectiveness, cash flow hedges are accounted for under hedge accounting rules. In such cases, any unrealised gain or loss arising on the effective portion of the derivative instrument is recognised in the cash flow hedge reserve, a separate component of equity. Unrealised gains or losses on any ineffective portion of the derivative are recognised in the income statement. When the hedged transaction occurs the related gains or losses in the cash flow hedge reserve are transferred to the income statement.
For interest-bearing loans and borrowings with a contractual repricing date of less than six months, the nominal amount is considered to approximate fair value for disclosure purposes. For loans with a repricing date of greater than six months, the fair value is calculated based on the expected future principal and interest cash flows, discounted at appropriate current market interest rates.
Interest-bearing borrowings are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost, using the effective interest rate method.
Fair value for disclosure purposes is based on the present value of future cash flows discounted at appropriate current market rates.
Grants that compensate the Group for the cost of an asset are shown as deferred income and recognised in the Group Income Statement in instalments on a basis consistent with the depreciation policy of the relevant assets.
Other grants are credited to the income statement to offset the matching expenditure.
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and the outflow can be reliably measured. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
The Group treats transactions with non-controlling interests as transactions with equity owners of the group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
When the group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss, where appropriate.
Certain amounts in the 31 July 2009 financial statement notes have been reclassified or adjusted to conform to the 31 July 2010 presentation. These reclassifications or adjustments were made for presentation purposes and have no effect on total revenues, expenses, profit for the year, assets, liabilities or equity as previously reported.
| l) Segment revenue and result | Food Europe |
Food North America |
Food Rest of World |
Origin | Total Group | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| in Euro `000 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 |
| Segment revenue1 | 1,072,010 | 1,137,230 | 571,585 | 555,110 | 35,822 | 20,414 | 1,330,309 | 1,499,516 | 3,009,726 | 3,212,270 |
| Operating profit before non recurring items2 |
95,518 | 101,893 | 59,079 | 57,771 | 5,655 | 2,060 | 61,909 | 72,408 | 222,161 | 234,132 |
| Non-recurring items (note 2) | 118 | (22,738) | (4,710) | – | – | – | 31 | (134,437) | (4,561) | (157,175) |
| Operating profit | 95,636 | 79,155 | 54,369 | 57,771 | 5,655 | 2,060 | 61,940 | (62,029) | 217,600 | 76,957 |
| Share of profit after tax of associates and joint ventures |
– | – | 19,923 | 13,808 | 118 | – | 11,572 | 3,717 | 31,613 | 17,525 |
| Profit before financing income and costs |
95,636 | 79,155 | 74,292 | 71,579 | 5,773 | 2,060 | 73,512 | (58,312) | 249,213 | 94,482 |
| Financing income3 | 10,230 | 7,055 | ||||||||
| Financing costs3 | (61,715) | (57,707) | ||||||||
| Profit before tax as reported in Group Income Statement |
197,728 | 43,830 |
1 There are no significant intercompany revenues between the Group's food business segments. There was €6,756,000 (2009: €8,321,000) 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.
| Food | Food | Food | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ll) Segment assets | Europe | North America | Rest of World | Origin | Total Group | |||||
| in Euro `000 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 |
| Segment assets excluding investments in associates and joint ventures |
1,716,751 | 1,566,132 | 1,387,060 | 691,875 | 243,862 | 10,256 | 521,498 | 557,094 | 3,869,171 | 2,825,357 |
| Investments in associates and joint ventures |
293 | – | 69,584 | 55,720 | 3,263 | – | 89,741 | 83,631 | 162,881 | 139,351 |
| Segment assets | 1,717,044 | 1,566,132 | 1,456,644 | 747,595 | 247,125 | 10,256 | 611,239 | 640,725 | 4,032,052 | 2,964,708 |
| Reconciliation to total assets as reported in Group Balance Sheet Derivative financial |
||||||||||
| instruments | 889 | 599 | ||||||||
| Cash and cash equivalents | 394,587 | 294,536 | ||||||||
| Deferred tax assets | 62,290 | 27,053 | ||||||||
| Total assets as reported in Group Balance Sheet |
4,489,818 | 3,286,896 | ||||||||
| Food | Food | Food | ||||||||
| lll) Segment liabilities | Europe | North America | Rest of World | Origin | Total Group | |||||
| in Euro `000 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 |
| Segment liabilities | 290,001 | 274,289 | 175,808 | 109,594 | 17,544 | 6,325 | 293,657 | 317,675 | 777,010 | 707,883 |
| Reconciliation to total liabilities as reported in Group Balance Sheet |
||||||||||
| Interest-bearing loans and borrowings |
1,622,099 | 953,792 | ||||||||
| Derivative financial instruments |
7,264 | 13,076 | ||||||||
| Current and deferred tax liabilities |
409,595 | 244,177 | ||||||||
| Total liabilities as reported in Group Balance Sheet |
2,815,968 | 1,918,928 |
| lV) Other segment information | Food Europe |
Food North America |
Food Rest of World |
Origin | Total Group | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| in Euro `000 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 |
| Depreciation | 45,324 | 40,928 | 14,057 | 13,177 | 982 | 523 | 6,525 | 7,567 | 66,888 | 62,195 |
| Amortisation of intangible assets |
35,609 | 33,210 | 11,533 | 9,710 | 308 | 63 | 3,914 | 3,294 | 51,364 | 46,277 |
| Fair value adjustment | – | – | – | – | – | – | – | 134,543 | – | 134,543 |
| Capital expenditure – Property, plant and equipment |
24,155 | 66,063 | 13,967 | 11,331 | 581 | 615 | 6,169 | 5,854 | 44,872 | 83,863 |
| – Computer-related intangibles |
6,076 | 7,050 | 11,074 | 2,827 | 30 | 43 | 1,062 | 668 | 18,242 | 10,588 |
| – Other intangibles | – | 1,086 | – | – | – | – | 160 | – | 160 | 1,086 |
| Total capital expenditure | 30,231 | 74,199 | 25,041 | 14,158 | 611 | 658 | 7,391 | 6,522 | 63,274 | 95,537 |
| Europe | North America | Rest of World | Total Group | |||||
|---|---|---|---|---|---|---|---|---|
| in Euro `000 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 |
| Segment revenue1 | 2,402,319 | 2,636,746 | 571,585 | 555,110 | 35,822 | 20,414 | 3,009,726 | 3,212,270 |
| Segment assets | 2,328,283 | 2,206,857 | 1,456,644 | 747,595 | 247,125 | 10,256 | 4,032,052 | 2,964,708 |
| IFRS 8 non-current assets2 | 1,820,547 | 1,700,830 | 1,346,701 | 661,959 | 225,802 | 2,499 | 3,393,050 | 2,365,288 |
1 Revenues from external customers attributed to the Group's country of domicile, Switzerland, are 5.8% of total Group revenues (2009: 5.3%). Revenues from external customers attributed to material foreign countries are United States 19.0% (2009: 17.3%), Ireland 28.5% (2009: 31.2%) and the United Kingdom 23.6% (2009: 25.4%). 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 4.9% of total Group non-current assets (2009: 6.6%). Non-current assets attributed to material foreign countries are: United States 39.7% (2009: 28.0%), Ireland 14.9% (2009: 22.2%) and the United Kingdom 6.9% (2009: 9.9%).
| in Euro `000 | Notes | 2010 | 2009 |
|---|---|---|---|
| Fair value adjustment | |||
| Fair value adjustment to investment properties | 2.1 | – | 134,543 |
| Acquisition and merger costs | |||
| Share-based payments | 2.2 | – | 20,517 |
| Bank facilities | 2.3 | – | 2,221 |
| Acquisition related costs | 2.4 | 4,643 | – |
| 4,643 | 22,738 | ||
| Other (income)/expenses | |||
| Gain on disposal of operations | 2.5 | – | (5,562) |
| Gain on sale of property, plant and equipment | (82) | (1,189) | |
| Costs associated with the closure of the Cork flour mill |
– | 6,645 | |
| (82) | (106) | ||
| Total | 4,561 | 157,175 |
The directors have reviewed the carrying amount of investment properties as at 31 July 2010 and are satisfied that there has been no change to the valuation during the financial year.
In the prior year, there was a fair value adjustment to the investment property held by Origin Enterprises, plc (the Group's 71.4% owned subsidiary and separately listed company) which principally comprises 32 acres (13 hectares) of development land located close to the centre of Ireland's second largest city, Cork, in its South Docklands area. The area has long been associated with Origin's port activities. More recently, the Group had been considering an overall redevelopment of the area and in 2007 (the year of the Origin IPO) revalued and transferred the property to investment property.
In 2009, the Irish property market deteriorated due to unprecedented combinations of negative economic factors affecting the Irish economy. The deteriorating market conditions had a particular impact on the values of Irish land and development properties, which led to a significant fall in value. The pre-2009 fair value would have included a significant value attributed to the redevelopment opportunity of this land, which was substantially reduced in the prior year.
In accordance with its accounting policy of carrying investment property at fair value, the Group commissioned Savills, independent qualified valuation experts, to conduct a valuation of the Group's investment properties in June 2009. The valuation was on the basis of market value and complies with the requirements of the Valuation and Appraisal Standards issued under the auspices of the Society of Chartered Surveyors. For this purpose, market value was defined by the independent valuation experts as the estimated amount for which the property should exchange on the date of valuation between a
willing buyer and a willing seller in an arm's length transaction after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.
The fair value was estimated based on considerations regarding the Irish economy, the local property market, the property-related development plan and its challenges, planning permissions received to date and a property analysis (strengths and weaknesses, trends and saleability) rather than based on other factors or assumptions. In particular, the valuation expert reflected the impact of the lack of liquidity in the market and based his assessment on the assumption that no forced sale was required, as it may have been very difficult to achieve a successful sale of these assets in the short term. The valuation expert also referred to the valuation uncertainty which may lead to heightened price volatility, due to the combination of the above-mentioned factors that are contributing to a very difficult trading environment in the property market.
Against the background of conditions in the Irish property market, and the general economic environment in Ireland, this resulted in an impairment loss to the carrying value of investment properties of €134,543,000 in financial year 2009.
The merger between IAWS and Hiestand in August 2008 triggered the vesting of all previously granted IAWS share awards. This resulted in an accelerated share-based payment charge of €20,517,000 of which €18,115,000 related to equity-settled schemes and €2,402,000 related to cash-settled schemes, for which the up front cash payments were made in previous periods. A related deferred tax credit of €218,000 has been reflected within the 2009 taxation charge. Net of deferred tax the amount is €20,299,000.
As a result of creating ARYZTA, new banking facilities were negotiated by the enlarged Group. This resulted in the extinguishment of redundant IAWS facilities whose related unamortised facility costs of €2,221,000 were expensed to the income statement.
Included here are transaction costs directly relating to the acquisition of Fresh Start Bakeries and Great Kitchens during the 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. Details relating to both these acquisitions are set out in note 29.
On 26 September 2008, the Group disposed of the non-core US-based McCann's Oatmeal brand and related goodwill for a net cash consideration of €6,837,000.
On 3 February 2009, the Group transferred its 100% shareholding in United Fish Industries Limited and United Fish Industries (UK) Limited together with a cash consideration of €16,000,000 for a 50% shareholding in the enlarged Welcon Invest AS ("Welcon") business. The net assets of the business transferred on this date amounted to €19,822,000. The Group's 50% shareholding in Welcon is treated as a joint venture and is accounted for using the equity method of accounting in accordance with IAS 31, Interests in Joint Ventures, as from 3 February 2009.
A total gain of €5,562,000 arose on both these transactions.
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Financing income | ||
| Interest income | (1,112) | (1,924) |
| Defined benefit plan: expected return on plan assets (note 25) | (4,439) | (5,131) |
| Foreign exchange gain realised on settlement of quasi-equity intercompany loans1 |
(4,679) | – |
| Total financing income recognised in income statement | (10,230) | (7,055) |
| Financing costs | ||
| Interest cost on bank loans and overdrafts | 55,531 | 49,061 |
| Interest cost under finance leases | 186 | 270 |
| Defined benefit plan: interest cost on plan liabilities (note 25) | 5,407 | 5,850 |
| Interest cost on deferred consideration (note 19) | 591 | 2,526 |
| Total financing costs recognised in income statement | 61,715 | 57,707 |
| Effective portion of changes in fair value of interest rate swaps2 |
(3,205) | 11,972 |
| Fair value of interest rate swaps transferred to income statement2 |
283 | (862) |
| Total financing (income)/expense recognised directly in other comprehensive income |
(2,922) | 11,110 |
1 During the year, as part of the refinancing of the Food Group loan facilities and the extinguishment of certain previous loan facilities, a number of long-term (quasi-equity) intercompany loans were settled.
2 No unrealised gains or losses on any ineffective portion of derivatives have been recognised in the income statement.
Group revenue relates primarily to sale of products.
| Group operating profit after charging/(crediting) the following amounts |
||
|---|---|---|
| in Euro `000 | 2010 | 2009 |
| Depreciation of property, plant and equipment (note 12) | ||
| – owned assets | 65,747 | 60,908 |
| – leased assets | 1,141 | 1,287 |
| 66,888 | 62,195 | |
| Raw materials and consumables used | 1,887,019 | 2,061,822 |
| Employment costs | 411,781 | 431,971 |
| Amortisation of intangible assets | 51,364 | 46,277 |
| Recognition of deferred income from government grants | (2,994) | (2,026) |
| Operating lease rentals | ||
| – plant and machinery | 5,560 | 6,745 |
| – other | 32,926 | 30,226 |
| Total operating lease rentals | 38,486 | 36,971 |
| – Food Group operating lease rentals | 32,704 | 32,378 |
| – Origin operating lease rentals | 5,782 | 4,593 |
| Research and development expenditure - Food Group | 3,342 | 3,445 |
| Research and development expenditure - Origin | 1,914 | 1,862 |
| Auditor's remuneration for audit services | 1,787 | 2,200 |
| Auditor's remuneration for non-audit services | 3,164 | 3,655 |
Directors' emoluments are disclosed in note 10 of the ARYZTA Company Financial Statements 2010.
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Group share of: | ||
| Revenue1 | 136,117 | 89,419 |
| Profit, after tax1 | 29,729 | 16,193 |
| in Euro `000 | ||
|---|---|---|
| Group share of: | ||
| Revenue | 117,573 | 122,496 |
| Profit, after tax | 1,884 | 1,332 |
| Share of profit after tax of | ||
|---|---|---|
| associates and joint ventures | 31,613 | 17,525 |
1 Revenue and profit after tax contribution for CillRyan's, a significant joint venture, is €64.9 million and €19.9 million respectively, which represents ARYZTA's 50% share.
| Average number of persons employed | ||
|---|---|---|
| by the Group during the year | 2010 | 2009 |
| Sales and distribution | 3,809 | 3,780 |
| Production | 4,450 | 4,382 |
| Management and administration | 1,091 | 1,182 |
| 9,350 | 9,344 | |
| Aggregate employment costs of the Group in Euro `000 |
2010 | 2009 |
| Wages and salaries | 359,447 | 363,255 |
| Social welfare costs | 40,037 | 35,497 |
| Pension costs (note 25) | 9,979 | 11,361 |
| Share-based payments (note 8) | ||
| 2,318 | 21,858 |
The Group has outstanding grants of equity-based incentives under the following plans:
ARYZTA Matching Scheme LTIP
ARYZTA Option Equivalent LTIP
The total expense reported in the Group Income Statement in the current period in relation to equity settled share-based payments is €2,318,000. The total expense reported in the prior year was €21,858,000 which included an early vesting charge of €18,115,000 detailed below and an existing scheme share-based payment charge of €3,743,000.
As set out in note 2.2 of these Group Financial Statements, in 2009 the merger between IAWS and Hiestand triggered the vesting of all previously granted IAWS share awards (see notes 8.4, 8.5 and 8.6). This resulted in an accelerated share-based payment charge in 2009 of €20,517,000, of which €18,115,000 related to equity-settled schemes and €2,402,000 related to cash-settled schemes, for which the up front cash payments were made in previous periods.
| Equity entitlements issued | Weighted conversion price 2010 in CHF |
Number of equity entitlements 2010 |
Weighted conversion price 2009 in CHF |
Number of equity entitlements 2009 |
|---|---|---|---|---|
| Outstanding at beginning of | ||||
| year | 0.02 | 1,035,000 | – | – |
| Forfeited during the year | 0.02 | (60,000) | – | – |
| Issued during the year1 | – | – | 0.02 | 1,035,000 |
| Outstanding at the end of year | 0.02 | 975,000 | 0.02 | 1,035,000 |
| Vested at end of year | – | – | – | – |
1 No equity entitlements under the matching scheme were awarded in 2010. During 2009, employees were granted 1,035,000 equity entitlements in the Company under the Matching Scheme LTIP. All equity entitlements granted have a life of ten years from grant date.
| Equity entitlements outstanding | Conversion price in CHF |
Number of equity entitlements 2010 |
Actual remaining life (years) 2010 |
|---|---|---|---|
| Equity entitlements by conversion price | 0.02 | 975,000 | 8 |
| Total outstanding as at 31 July | 0.02 | 975,000 | 8 |
The equity instruments granted under the ARYZTA Matching Scheme LTIP are equitysettled share-based payments as defined in IFRS 2, Share-based Payment.
During 2010, the Company made no new awards under the Matching Scheme LTIP. Participants with Matching Scheme Awards have the prospect of receiving up to three shares for each recognised qualifying interest held throughout the performance period. Vesting is determined by reference to underlying fully diluted EPS growth. Compound growth in underlying fully diluted EPS in any three consecutive financial years ending after 31 July 2008 must exceed 10%, with vesting accruing as per the following table:
| Multiple | |
|---|---|
| Underlying fully diluted | (qualifying in |
| EPS compound growth | vestment shares) |
| 15% or more | 3 |
| >12.5% < 15% | 2 |
| 10% to 12.4% | 1 |
| < 10% | 0 |
Awards under the Matching Scheme are subject to additional conditions, including notably: (a) the requirement to remain in service throughout the performance period; (b) the requirement to hold recognised qualifying interests throughout the performance period; and (c) the requirement that ARYZTA's return on invested capital over the expected performance period is not less than its weighted average cost of capital.
The fair value assigned to equity entitlements issued under the ARYZTA Matching Scheme LTIP represents the full value of an ordinary share on the date of grant adjusted for the estimated lost dividends between date of issue and vesting date and the nominal value of the share.
The costs of the Matching Awards under the LTIP are charged to the income statement over the estimated vesting period. Each year an assessment is made as to the probability of the number of scheme participants who will fulfil the vesting conditions, what multiple of qualifying investment shares will be met and the period over which they will vest. The total estimated charge over the vesting period is €17,097,000 (CHF 24,998,000) of which €2,920,000 (CHF 4,437,000) has been charged to date.
| Weighted conversion price 2010 |
Number of equity entitlements |
|
|---|---|---|
| Equity entitlements granted and outstanding | in CHF | 2010 |
| Option equivalents outstanding at beginning of year | – | – |
| Issued during the year | 37.23 | 1,200,000 |
| Option equivalents outstanding at end of year | 37.23 | 1,200,000 |
| Exercisable at end of year | – | – |
1 During 2010, employees were granted 1,200,000 share option equivalents in the Company under the share option equivalent scheme. All share option equivalents granted have a contractual life of ten years from grant date.
The equity instruments granted under the ARYZTA Option Equivalent LTIP are equitysettled share-based payments as defined in IFRS 2, Share-based Payment. The vesting of the share option equivalents granted is conditional on the growth rate in underlying fully diluted EPS in any three consecutive accounting periods exceeding the growth in the Eurozone Core Consumer Price Index plus 5%. In addition, the return on invested capital over the relevant three-year performance period must not be less than the weighted average cost of capital of the Group, and the individual must be in on-going employment.
The Group has no legal or constructive obligation to repurchase or settle the equity option equivalents in cash. The costs of the Option Equivalent Scheme LTIP are charged to the income statement over the expected vesting period from grant date.
The weighted average fair value assigned to share option equivalents granted under the ARYZTA Option Equivalent Scheme LTIP was determined using the Black-Scholes valuation model. The significant inputs into the model were the price of the shares as at the grant date, an expected option life of 4.75 years, expected share price volatility of 28.25%, the exercise price of CHF 37.23, the expected dividend yield of 1.5%, and the risk-free rate of 1.1%. The volatility, measured at the standard deviation of continuously compounded share returns, is based on statistical analysis of monthly share prices of a peer group over the period of 4.75 years.
None of these equity entitlements have vested at the end of the year.
Participation in the Origin Plan is available only to employees of Origin and is specifically not available to ARYZTA executives, officers or employees.
Under the terms of the Origin Plan, 4,682,134 ordinary shares were issued to senior executives of Origin during the year ended 31 July 2007. As the consideration paid for these shares equalled their fair value, no additional share-based compensation charge was recorded under IFRS 2, Share-based Payment. To retain the ordinary shares issued under the terms of the Origin Plan, the senior executives must remain with Origin Enterprises plc for five years and financial and business targets must be achieved. If a senior executive leaves before the five year period or the financial and business targets
are not achieved, the ordinary shares issued under the terms of the Origin Plan may be reacquired by Origin at the lower of the amount paid for the shares and the then fair market value of the shares.
Under the terms of the Origin Plan, senior executive employees of Origin are also issued equity entitlements of €0.01 in Origin Enterprises plc at par value, which will be converted on a one-to-one basis into ordinary shares in Origin after the expiration of five years. The conversion will occur only if specified EPS targets are achieved and the employee remains in employment.
| Details of equity entitlements granted under the Origin Plan |
Weighted conversion price 2010 in Euro |
Number of equity entitlements 2010 |
Weighted conversion price 2009 in Euro |
Number of equity entitlements 2009 |
|---|---|---|---|---|
| Equity entitlements outstanding at beginning of year |
0.01 | 5,555,270 | 0.01 | 5,555,270 |
| Issued during the year | – | – | – | – |
| Equity entitlements outstanding at end of year |
0.01 | 5,555,270 | 0.01 | 5,555,270 |
| Vested at end of year | – | – | – | – |
The equity entitlements issued under the Origin plan are equity-settled share-based payments as defined in IFRS 2, Share-based Payment.
The weighted average fair value assigned to equity entitlements issued under the Origin Plan represents the fair value of an ordinary share on the date of grant adjusted for the lost dividends between date of issue and vesting date.
None of these equity entitlements have vested at the end of the year.
The merger of IAWS and Hiestand on 21 August 2008 triggered the vesting of all previously granted options under this scheme.
The measurement requirements of IFRS 2, Share-based Payment, had been implemented in respect of share options that were granted after 7 November 2002 under this scheme, that had not vested at the date of transition of the Company to IFRS (1 August 2005).
| Details of options granted under the share | Weighted conversion price 2010 |
Number of equity entitlements |
Weighted conversion price 2009 |
Number of equity entitlements |
|---|---|---|---|---|
| option scheme | in Euro | 2010 | in Euro | 2009 |
| Options outstanding at beginning of year | – | – | 12.07 | 3,669,300 |
| Vested and exercised on merger1 | – | – | 12.07 | (3,669,300) |
| Options outstanding at end of year | – | – | – | – |
| Exercisable at end of year | – | – | – | – |
1 As set out in note 2.2 of these Group Financial Statements, the merger between IAWS and Hiestand in August 2008 triggered the vesting of all previously granted share awards under the 1997 Share Option Scheme.
The merger of IAWS and Hiestand on 21 August 2008 triggered the vesting of all previously granted equity entitlements under this scheme.
The measurement requirements of IFRS 2, Share-based Payment, had been implemented in respect of the equity entitlements granted under this scheme.
| Weighted | Number of | Weighted | Number of | |
|---|---|---|---|---|
| conversion | equity | conversion | equity | |
| Details of options granted under the share | price 2010 | entitlements | price 2009 | entitlements |
| option scheme | in Euro | 2010 | in Euro | 2009 |
| Options outstanding at beginning of year | – | – | 15.65 | 2,230,000 |
| Vested and exercised on merger1 | – | – | 15.65 | (2,230,000) |
| Options outstanding at end of year | – | – | – | – |
| Exercisable at end of year | – | – | – | – |
1 As set out in note 2.2 of these Group Financial Statements, the merger between IAWS and Hiestand in August 2008 triggered the vesting of all previously granted EEPS equity entitlements.
The merger of IAWS and Hiestand on 21 August 2008 triggered the vesting of all previously granted equity entitlements under this scheme.
The measurement requirements of IFRS 2, Share-based Payment, had been implemented in respect of the equity entitlements granted under this scheme.
| Details of options granted under the share | Weighted conversion price 2010 |
Number of equity entitlements |
Weighted conversion price 2009 |
Number of equity entitlements |
|---|---|---|---|---|
| option scheme | in Euro | 2010 | in Euro | 2009 |
| Options outstanding at beginning of year | – | – | 0.30 | 1,350,000 |
| Vested and exercised on merger1 | – | – | 0.30 | (1,350,000) |
| Options outstanding at end of year | – | – | – | – |
| Exercisable at end of year | – | – | – | – |
1 As set out in note 2.2 of these Group Financial Statements, the merger between IAWS and Hiestand in August 2008 triggered the vesting of all previously granted ECIS equity entitlements.
| Income tax expense | ||
|---|---|---|
| in Euro `000 | 2010 | 2009 |
| Current tax charge | 40,522 | 26,630 |
| Deferred tax credit (note 24) | (10,883) | (23,777) |
| Income tax expense1 | 29,639 | 2,853 |
| Reconciliation of average effective tax rate to applicable tax rate | ||
| in Euro `000 | 2010 | 2009 |
| Profit before tax | 197,728 | 43,830 |
| Less share of profits after tax of associates and joint ventures | (31,613) | (17,525) |
| 166,115 | 26,305 | |
| Income tax on profits for the year at 21.2% (2009: 21.2%)2 | 35,216 | 5,577 |
| Expenses not deductible for tax purposes | 6,766 | 6,635 |
| Income subject to lower rates of tax | (8,123) | (9,437) |
| Change in estimates and other prior year adjustments: | ||
| – Current tax3 | (2,353) | (3,085) |
| – Deferred tax3 | (2,338) | 2,569 |
| Unutilised tax losses | 471 | 594 |
| Income tax expense | 29,639 | 2,853 |
| Movement recognised directly in other comprehensive income | 2010 | 2009 |
| Effect of capital gains tax rate change in Ireland | – | 7,035 |
| Relating to Group employee benefit plans actuarial gains/(losses) |
(563) | (817) |
| Derivative financial instruments | 990 | (1,314) |
| 427 | 4,904 | |
| 1 The increase in the tax charge during the year relates primarily to the impact of the fair value adjustment |
on investment properties in financial year 2009.
2 21.2% is the standard rate of income tax applicable to trading profits in Zurich, Switzerland.
3 The reduction in the tax charge in the current year, due to changes in estimates and other prior-year adjustments, relates primarily to the realisation of tax deductions within the Group which were previously expected to be permanent differences.
At the 2 December 2010 General Meeting, shareholders will be invited to approve a proposed dividend of CHF 0.4802 (euro equivalent €0.3660) per share to be paid to shareholders after the balance sheet date. A dividend of CHF 0.5324 was paid during the period (2009: no dividend paid during the period).
| 2010 | 2009 | |
|---|---|---|
| Basic earnings per share | in Euro 000 | in Euro000 |
|
| Profit for year attributable to equity shareholders | 151,729 | 54,010 |
| Weighted average number of ordinary shares | 000 |000 |
|
| Issued ordinary shares at 1 August1 | 78,946 | 63,669 |
| Effect of shares issued during the year | 498 | 14,758 |
| Weighted average number of ordinary shares for the year | 79,444 | 78,427 |
| Basic earnings per share | 190.99 cent | 68.87 cent |
| 2010 | 2009 | |
| Diluted earnings per share | in Euro 000 | in Euro000 |
|
| Profit for year attributable to equity shareholders | 151,729 | 54,010 |
| Effect on non-controlling interests share of profits due to dilutive impact of Origin management equity entitlements2 |
(1,187) | – |
| Diluted profit for financial year attributable to equity shareholders |
150,542 | 54,010 |
| Weighted average number of ordinary shares (diluted) | 000 |000 |
|
| Weighted average number of ordinary shares used in basic calculation |
79,444 | 78,427 |
| Effect of equity instruments with a dilutive effect | – | 200 |
| Weighted average number of ordinary shares (diluted) for the year | 79,444 | 78,627 |
| Diluted earnings per share | 189.49 cent | 68.69 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 as detailed in note 8.3 of these Group Financial Statements. These equity entitlements dilute the Group's share of Origin profits available as part of its diluted earnings per share calculation.
| 31 July 2010 | Land and | Plant and | Motor | Assets under |
|
|---|---|---|---|---|---|
| in Euro `000 | buildings | machinery | vehicles | construction | Total |
| Cost | |||||
| At 1 August 2009 | 374,546 | 529,302 | 20,589 | – | 924,437 |
| Additions | 14,877 | 24,583 | 1,430 | 3,982 | 44,872 |
| Arising on business combination (note 29) | 94,097 | 143,468 | 178 | 8,635 | 246,378 |
| Transfer from investment properties (note 13) | 43,212 | – | – | – | 43,212 |
| Disposals | (1,103) | (23,636) | (3,378) | – | (28,117) |
| Translation adjustments | 4,205 | 19,434 | (764) | 24 | 22,899 |
| At 31 July 2010 | 529,834 | 693,151 | 18,055 | 12,641 | 1,253,681 |
| Accumulated depreciation | |||||
| At 1 August 2009 | 41,857 | 209,331 | 8,717 | – | 259,905 |
| Depreciation charge for year | 9,991 | 52,363 | 4,534 | – | 66,888 |
| Disposals | (129) | (23,199) | (3,117) | – | (26,445) |
| Translation adjustments | (1,530) | 10,317 | (554) | – | 8,233 |
| At 31 July 2010 | 50,189 | 248,812 | 9,580 | – | 308,581 |
| Net book amounts | |||||
| At 31 July 2010 | 479,645 | 444,339 | 8,475 | 12,641 | 945,100 |
| At 31 July 2009 | 332,689 | 319,971 | 11,872 | – | 664,532 |
| Assets | |||||
|---|---|---|---|---|---|
| 31 July 2009 | Land and | Plant and | Motor | under | |
| in Euro `000 | buildings | machinery | vehicles | construction | Total |
| Cost | |||||
| At 1 August 2008 | 180,963 | 395,577 | 12,247 | 154,488 | 743,275 |
| Additions | 4,345 | 35,512 | 1,983 | 42,023 | 83,863 |
| Transfer from assets under construction | 120,357 | 76,154 | – | (196,511) | – |
| Arising on business combination (note 29) | 91,181 | 85,429 | 12,727 | – | 189,337 |
| Disposals | (10,538) | (63,378) | (4,539) | – | (78,455) |
| Translation adjustments | (11,762) | 8 | (1,829) | – | (13,583) |
| At 31 July 2009 | 374,546 | 529,302 | 20,589 | – | 924,437 |
| Accumulated depreciation | |||||
| At 1 August 2008 | 37,342 | 214,479 | 8,463 | – | 260,284 |
| Depreciation charge for year | 9,580 | 47,782 | 4,833 | – | 62,195 |
| Disposals | (2,767) | (49,621) | (3,800) | – | (56,188) |
| Translation adjustments | (2,298) | (3,309) | (779) | – | (6,386) |
| At 31 July 2009 | 41,857 | 209,331 | 8,717 | – | 259,905 |
| Net book amounts | |||||
| At 31 July 2009 | 332,689 | 319,971 | 11,872 | – | 664,532 |
| At 31 July 2008 | 143,621 | 181,098 | 3,784 | 154,488 | 482,991 |
The net book value in respect of assets held under finance leases and accordingly capitalised in property, plant and equipment is as follows:
| in Euro `000 | Buildings | Plant and machinery |
Motor vehicles |
Total |
|---|---|---|---|---|
| At 31 July 2010 | 6 | 3,782 | 507 | 4,295 |
| At 31 July 2009 | – | 3,857 | 942 | 4,799 |
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Contracted, but not provided for in the financial statements | 7,720 | 7,474 |
| Authorised by the directors, but not contracted for | 8,337 | 8,687 |
| 16,057 | 16,161 |
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Balance at 1 August | 62,975 | 192,418 |
| Fair value adjustment | – | (134,543) |
| Arising on business combination (note 29) | – | 3,747 |
| Development costs | 715 | 1,339 |
| Transfer to property, plant and equipment (note 12) | (43,212) | – |
| Translation adjustment | 170 | 14 |
| Balance at 31 July | 20,648 | 62,975 |
Investment property principally comprises development land owned by Origin Enterprises plc and located in Ireland in areas destined for future development and regeneration. The total value of the investment properties owned by the Food Group is €4,646,000. Rental income from these properties is negligible from a Group perspective and is not disclosed separately.
Development costs capitalised relates to various works carried out on development land and buildings held as investment properties.
During the current year, Origin Enterprises, plc, reassessed its strategy and transferred a number of properties to property, plant and equipment at their carrying value as these properties will be used in the business in the medium term. The directors have reviewed the carrying amount of investment properties as at 31 July 2010 and are satisfied that there has been no change to the valuation during the financial year.
In 2009, the Irish property market deteriorated due to unprecedented combinations of negative economic factors affecting the Irish economy. The deteriorating market conditions particularly impacted the values of Irish land and development properties, which saw a significant fall in value. The fair value in previous years would have included a significant value attributed to the redevelopment opportunity of this land, which was substantially reduced in 2009.
In accordance with its accounting policy of carrying investment property at fair value, the Group commissioned Savills, independent qualified valuation experts, to conduct a valuation of the Group's investment properties in June 2009. The valuation was on the basis of market value and complies with the requirements of the Valuation and Appraisal Standards issued under the auspices of the Society of Chartered Surveyors. For this purpose, market value was defined by the independent valuation experts as the estimated amount for which the property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.
The fair value was estimated based on considerations regarding the Irish economy, the local property market, the property-related development plan and its challenges, planning permissions received to date and a property analysis (strengths and weaknesses, trends and saleability) rather than based on other factors or assumptions. In particular, the valuation expert reflected the impact of the lack of liquidity in the market and based his assessment on the assumption that no forced sale is required as it may be very difficult to achieve a successful sale of these assets in the short term. The valuation expert
also referred to the valuation uncertainty which may lead to heightened price volatility due to the combination of the above-mentioned factors that are contributing to a very difficult trading environment in the property market.
Against the background of current conditions in the Irish property market, and the general economic environment in Ireland, this resulted in an impairment loss to the carrying value of investment properties of €134,543,000 in financial year 2009.
14 Goodwill and intangible assets
| 31 July 2010 | Customer | Computer | SAP-related | Patents | |||
|---|---|---|---|---|---|---|---|
| in Euro `000 | Goodwill | relationships | Brands | related | intangibles | and other | Total |
| Cost | |||||||
| At 1 August 2009 | 969,414 | 328,763 | 255,169 | 32,246 | 7,581 | 8,904 | 1,602,077 |
| Arising on business combination (note 29) |
329,950 | 373,477 | 8,062 | 974 | 2,411 | 6,152 | 721,026 |
| Additions | – | 160 | – | 1,329 | 16,913 | – | 18,402 |
| Other1 (note 19) | (6,474) | – | – | – | – | – | (6,474) |
| Translation adjustments | 57,467 | 14,658 | 19,128 | 1,227 | 559 | (189) | 92,850 |
| At 31 July 2010 | 1,350,357 | 717,058 | 282,359 | 35,776 | 27,464 | 14,867 | 2,427,881 |
| Accumulated amortisation | |||||||
| At 1 August 2009 | – | 46,855 | 31,534 | 24,756 | – | 502 | 103,647 |
| Amortisation | – | 32,037 | 14,785 | 3,716 | 634 | 192 | 51,364 |
| Translation adjustments | – | 5,174 | 2,337 | 896 | 27 | 15 | 8,449 |
| At 31 July 2010 | – | 84,066 | 48,656 | 29,368 | 661 | 709 | 163,460 |
| Net book amounts | |||||||
| At 31 July 2010 | 1,350,357 | 632,992 | 233,703 | 6,408 | 26,803 | 14,158 | 2,264,421 |
| At 31 July 2009 | 969,414 | 281,908 | 223,635 | 7,490 | 7,581 | 8,402 | 1,498,430 |
1 Other is comprised of adjustments made to goodwill arising out of reductions to the expected deferred consideration payable on acquisitions prior to the implementation of IFRS 3 (Revised), Business Combinations.
| Total |
|---|
| 894,633 |
| 636,207 |
| 11,674 |
| (9,304) |
| 376 |
| 68,491 |
| 1,602,077 |
| 58,806 |
| 46,277 |
| (3,135) |
| 1,699 |
| 103,647 |
| 1,498,430 |
| 835,827 |
Goodwill acquired through business combinations has been allocated at acquisition to the appropriate cash-generating units that are expected to benefit from the business combination. The carrying amount of goodwill allocated to cash-generating units across the Group is summarised as follows:
| in Euro `000 | Pre-tax discount rate 2010 |
Pre-tax discount rate 2009 |
Projection period |
Growth rate |
2010 | 2009 |
|---|---|---|---|---|---|---|
| Hiestand | 7.4% | 9.2% | 3 years | 2% | 407,773 | 365,046 |
| Otis Spunkmeyer Inc. | 9.5% | 10.6% | 3 years | 2% | 289,270 | 265,461 |
| Groupe Hubert | 9.8% | 11.7% | 3 years | 2% | 110,203 | 111,822 |
| Masstock Group Holdings Limited |
9.9% | 11.9% | 3 years | 2% | 50,538 | 49,521 |
| La Brea Bakery | 9.5% | 10.6% | 3 years | 2% | 55,759 | 51,170 |
| Fresh Start Bakeries1 | – | – | – | – | 236,548 | – |
| Great Kitchens1 | – | – | – | – | 78,009 | – |
| Other2 | – | – | – | – | 122,257 | 126,394 |
| 1,350,357 | 969,414 |
| Goodwill arising on investments | ||
|---|---|---|
| in JVs and associates | 22,352 | 21,980 |
1 The goodwill associated with the acquisitions of Fresh Start Bakeries and Great Kitchens is based on provisional allocations. There have been no indications of impairment associated with these businesses since the respective acquisition dates, which occurred during the final quarter of the fiscal year; therefore, no annual impairment testing has been performed related to these provisional goodwill amounts.
2 Other is comprised of goodwill in a number of cash-generating units which are individually insignificant.
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. No impairment losses have been recognised in respect of the Group's cash-generating units in the years ended 31 July 2010 and 31 July 2009.
The recoverable amounts of cash-generating units are based on value-in-use calculations. Those calculations use cash flow projections based on expected future operating results and related cash flows. These projections are based on current operating results of the individual cash-generating units and an assumption regarding future organic growth. For the purposes of the calculation of value in use, the cash flows are projected over a three year period, with additional cash flows in subsequent years calculated using a terminal value methodology.
The cash flows are discounted using appropriate risk-adjusted discount rates as disclosed in the table above. The weighted average of those rates is 8.6% (2009: 10.2%), reflecting the risk associated with the individual future cash flows and the risk-free rate. Any significant adverse change in the expected future operational results and cash flows may result in the value in use being less than the carrying amount of a cash-generating unit and would require that the carrying amount of the cash-generating unit be impaired and stated at the greater of the value in use or the recoverable amount of the
business unit. However, the results of the impairment testing undertaken at 31 July 2010 provide sufficient headroom such that any reasonable movement in any of the underlying assumptions would not give rise to an impairment charge. Reducing the future growth rate to 0% does not give rise to an impairment. The overall weighted average cost of capital of the Group pre-tax is 8.1% (2009: 9.4%) and post-tax is 6.5% (2009: 7.6%).
The term of the discounted cash flow model is a significant factor in determining the fair value of the cash-generating units. The term has been arrived at by taking account of the Group's strong financial position, its established history of earnings growth and cash flow generation and its proven ability to pursue and integrate value-enhancing acquisitions.
Key assumptions include management's estimates of future profitability and maintenance capital expenditure requirements.
The goodwill included within the carrying amount of investments in associates and joint ventures is subject to impairment testing when an indicator of impairment arises.
Notes to the Group Financial Statements (continued) for the year ended 31 July 2010
| Share of | Share of | ||
|---|---|---|---|
| Total | |||
| 139,351 | |||
| 1,884 | 29,729 | 31,613 | |
| 1,252 | 1,800 | 3,052 | |
| 29 | – | 4,747 | 4,747 |
| (2,123) | (20,242) | (22,365) | |
| (413) | (1,287) | (1,700) | |
| 338 | 7,845 | 8,183 | |
| 37,769 | 125,112 | 162,881 | |
| 120,074 | 58,057 | 178,131 | |
| 1,332 | 16,193 | 17,525 | |
| 15.1 | 7,013 | 45,991 | 53,004 |
| 15.2 | (87,266) | – | (87,266) |
| (1,986) | (21,018) | (23,004) | |
| (622) | |||
| (1,010) | 2,593 | 1,583 | |
| 36,831 | 102,520 | 139,351 | |
| Notes | associates net assets 36,831 (1,326) |
joint ventures net assets 102,520 704 |
On 3 February 2009, the Group transferred its 100 % shareholding in United Fish Industries and United Fish Industries (UK) together with cash consideration of €16,000,000 for a 50 % shareholding in the enlarged Welcon business. The net assets of the business, transferred on 3 February 2009, amounted to €19,822,000 and the Group's shareholding is treated as a joint venture and is accounted for using the equity method of accounting. A breakdown of the carrying amount is presented in the following table:
| in Euro `000 | Total |
|---|---|
| Net assets transferred | 19,822 |
| Cash consideration | 16,000 |
| Transaction costs paid | 2,146 |
| Gain arising on transfer | 5,562 |
| Other | 2,461 |
| 45,991 |
The cash consideration of € 16,000,000, together with transaction costs paid of €2,146,000 and the cash element of the net assets transferred of €1,025,000, resulted in a total cash flow impact from this transaction of €19,171,000.
During 2009, Origin increased its shareholding in Continental Farmers Group plc, a largescale producer of high-value agricultural crops, operating in Poland and Ukraine, from 20 % to 36.9 % for a cash consideration of €7,013,000. The total cash flow impact of the two additions is €26,184,000.
In the financial year 2010, Origin increased its shareholding in Continental Farmers Group plc from 36.9 % to 38.7 %.
On 1 August 2008, the Group's ownership in Hiestand Holding AG was increased from 32 % to 64 %. As a result and from that date Hiestand has been accounted for as a subsidiary undertaking and not as an associate undertaking. The remaining 36 % holding was subsequently absorbed by ARYZTA by means of a statutory merger under Swiss law, as disclosed in note 29 to these Group Financial Statements.
The amounts included in these Group Financial Statements in respect of the income and expenses of associates and joint ventures are taken from their latest financial statements, prepared up to their respective year ends, together with management accounts for the intervening periods to the Group's year end. All joint ventures of the Group have a 31 December year end. All associates of the Group have a 31 July year end, with the exception of Continental Farmers Group plc, which has a year end of 31 December.
The investment in associates and joint ventures is analysed as follows:
| 31 July 2010 | Joint | ||
|---|---|---|---|
| in Euro `000 | Associates | ventures | Total |
| Non-current assets | 28,689 | 90,036 | 118,725 |
| Current assets | 31,452 | 70,875 | 102,327 |
| Non-current liabilities | (8,407) | (24,345) | (32,752) |
| Current liabilities | (14,345) | (33,426) | (47,771) |
| Net assets | 37,389 | 103,140 | 140,529 |
| Goodwill | 380 | 21,972 | 22,352 |
| At 31 July 2010 | 37,769 | 125,112 | 162,881 |
| 31 July 2009 | Joint | ||
|---|---|---|---|
| in Euro `000 | Associates | ventures | Total |
| Non-current assets | 25,871 | 82,786 | 108,657 |
| Current assets | 29,003 | 46,730 | 75,733 |
| Non-current liabilities | (5,583) | (21,410) | (26,993) |
| Current liabilities | (12,840) | (27,186) | (40,026) |
| Net assets | 36,451 | 80,920 | 117,371 |
| Goodwill | 380 | 21,600 | 21,980 |
| At 31 July 2009 | 36,831 | 102,520 | 139,351 |
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Raw materials | 48,691 | 64,557 |
| Finished goods | 151,031 | 119,928 |
| Consumable stores | 12,363 | 8,161 |
| 212,085 | 192,646 |
A total expense of €3,321,000 (2009: €2,393,000) was recognised in the income statement arising from write-down of inventory.
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Current | ||
| Trade receivables | 372,345 | 352,595 |
| Trade receivables due from associates | 154 | 216 |
| VAT recoverable | 5,921 | 6,536 |
| Prepayments and accrued income | 26,998 | 22,864 |
| Other receivables | 21,499 | 24,563 |
| 426,917 | 406,774 |
A total expense of €2,975,000 (2009: €4,536,000) was recognised in the income statement arising from impairment of trade receivables.
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Non-current | ||
| Other payables | 7,107 | 1,025 |
| Current | ||
| Trade payables | 370,993 | 335,008 |
| Trade payables due to associates and joint ventures | 2,096 | 2,984 |
| Accruals and other payables1 | 311,098 | 260,319 |
| Employee related tax and social welfare | 6,051 | 9,907 |
| Value-added tax | 7,436 | 6,073 |
| 697,674 | 614,291 |
1 Accruals and other payables consist primarily of balances due for goods and services received and not yet invoiced.
Deferred consideration comprises the net present value of the amounts expected to be payable arising on business combinations. Residual deferred consideration is due entirely within five years and is payable subject to the achievement of earnings-based targets.
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Balance at 1 August | 45,082 | 65,679 |
| Arising on business combination (note 29) | – | 3,800 |
| Discounting unwind | 591 | 2,526 |
| Payments of deferred consideration | (2,128) | (27,384) |
| Written off against goodwill1 (note 14) | (6,474) | – |
| Translation adjustment | 1,227 | 461 |
| Balance at 31 July | 38,298 | 45,082 |
| Classified as: | ||
| Current | 12,469 | 3,823 |
| Non-current | 25,829 | 41,259 |
| 38,298 | 45,082 |
1 Written off against goodwill is comprised of adjustments made to goodwill arising out of reductions to the expected deferred consideration payable on acquisitions prior to the implementation of IFRS 3 (Revised), Business Combinations.
As set out further in note 21 of these Group Financial Statements, the Group operates two distinct debt funding structures, which are segregated in line with its segmental and corporate reporting structures. One Group funding structure finances the Food segments of the Group ('Food Group') as a whole and the second funding structure finances the Origin segment and its related subsidiaries ('Origin').
In accordance with IAS 7, Statement of Cash Flows, cash and cash equivalents comprise cash balances held for the purposes of meeting short-term cash commitments and investments, which are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Bank overdrafts are included within current interest-bearing loans and borrowings in the Group Balance Sheet.
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Food Group cash at bank and in hand | 318,544 | 204,586 |
| Origin cash at bank and in hand | 76,043 | 89,950 |
| Total cash at bank and in hand | 394,587 | 294,536 |
| Food Group bank overdraft | (42,820) | (15,276) |
| Origin bank overdraft | (3,418) | (10,116) |
| Bank overdrafts (note 21) | (46,238) | (25,392) |
| Included in the Group Cash Flow Statement | 348,349 | 269,144 |
Cash at bank and in hand earns interest at floating rates based on daily deposit bank rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates.
This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost.
As previously noted, the Group operates two distinct debt funding structures which are segregated in line with its segmental and corporate reporting structures. The Group's 71.4 % subsidiary, Origin Enterprises plc has a separate funding structure which is financed without recourse to ARYZTA AG or its Europe, North America and Rest of World Food Group business segment subsidiaries.
Each of the Food Group and Origin funding structures have been independently negotiated by the Group. There are no cross guarantees or recourse obligations between the Food Group and Origin segments of the Group in respect of their separate funding facilities. As a result, these two parts of the Group effectively act as separate independent counter parties from a third-party borrowing perspective.
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Included in non-current liabilities | ||
| Food Group loans | 1,388,581 | 692,622 |
| Origin loans | 183,694 | 231,870 |
| Total bank loans | 1,572,275 | 924,492 |
| Finance leases | 2,990 | 2,760 |
| Non-current interest-bearing loans and borrowings | 1,575,265 | 927,252 |
| Included in current liabilities | ||
| Bank overdrafts | 46,238 | 25,392 |
| Total finance leases | 3,586 | 3,908 |
|---|---|---|
| Total bank loans and overdrafts | 1,618,513 | 949,884 |
| Current interest-bearing loans and borrowings | 46,834 | 26,540 |
| Finance leases | 596 | 1,148 |
| Net debt | (659,256) | (236,295) | (291,251) | (4,376) | (36,334) | (1,227,512) |
|---|---|---|---|---|---|---|
| Finance leases | (3,908) | 1,693 | (1,369) | – | (2) | (3,586) |
| Loans | (924,492) | (309,352) | (289,882) | (4,376) | (44,173) | (1,572,275) |
| Cash and cash equivalents | 269,144 | 71,364 | – | – | 7,841 | 348,349 |
| Overdrafts | (25,392) | (20,766) | – | – | (80) | (46,238) |
| Cash | 294,536 | 92,130 | – | – | 7,921 | 394,587 |
| Analysis of net debt in Euro `000 |
1 August 2009 |
Cash flows | Arising on business combination |
Non-cash movements |
Translation adjustment |
31 July 2010 |
| Split of net debt in Euro `000 |
1 August 2009 |
Cash flows | Arising on business combination |
Non-cash movements |
Translation adjustment |
31 July 2010 |
|---|---|---|---|---|---|---|
| Food Group net debt | (505,504) | (282,148) | (291,251) | (3,572) | (33,148) | (1,115,623) |
| Origin net debt | (153,752) | 45,853 | – | (804) | (3,186) | (111,889) |
| Net debt | (659,256) | (236,295) | (291,251) | (4,376) | (36,334) | (1,227,512) |
| 2010 | Currency | Calendar
year of
maturity | Nominal
value
in Euro 000 | Carrying<br>amount<br>in Euro000 |
|------------------------------------------------------|----------|---------------------------------|----------------------------------|------------------------------------|
| Food Group loans | | | | |
| Senior secured revolving
working capital facility | CHF | 2014 | 408,402 | 403,445 |
| Swiss Bond | CHF | 2015 | 146,886 | 145,075 |
| Private placement 2010 | | | | |
| Series A | USD | 2013 | 53,521 | 53,226 |
| Series B | USD | 2016 | 30,583 | 30,415 |
| Series C | USD | 2018 | 45,875 | 45,622 |
| Series D | USD | 2021 | 114,688 | 114,055 |
| Series E | USD | 2022 | 76,458 | 76,037 |
| Series F | EUR | 2020 | 25,000 | 24,860 |
| Private placement 2009 | | | | |
| Series A | USD | 2021 | 61,167 | 60,713 |
| Series B | USD | 2024 | 30,583 | 30,357 |
| Series C | USD | 2029 | 61,167 | 60,713 |
| Private placement 2007 | | | | |
| Series A | USD | 2014 | 114,688 | 114,688 |
| Series B | USD | 2017 | 191,146 | 191,146 |
| Series C | USD | 2019 | 38,229 | 38,229 |
| Origin loan facilities | | | | |
| Facility A | EUR | 2012 | 115,000 | 113,950 |
| Facility B | GBP | 2012 | 2,070 | 2,070 |
| Facility D | EUR | 2012 | 16,000 | 16,000 |
| Facility E | GBP | 2012 | 42,448 | 42,448 |
| Facility G | GBP | 2012 | 9,226 | 9,226 |
| 1,583,137 | 1,572,275 | |||
|---|---|---|---|---|
| 2009 | Currency | Calendar year of maturity |
Nominal value in Euro 000 | Carrying<br>amount<br>in Euro000 |
|
| Food Group loans | ||||
| ARYZTA loan facility | EUR | 2013 | 379,738 | 376,661 |
| Private placement 2007 | ||||
| Series A | USD | 2014 | 105,248 | 105,248 |
| Series B | USD | 2017 | 175,414 | 175,414 |
| Series C | USD | 2019 | 35,083 | 35,083 |
| Other | EUR | 2011 | 217 | 217 |
| Origin loan facilities | ||||
| Facility A | EUR | 2012 | 115,000 | 113,207 |
| Facility D | EUR | 2012 | 16,000 | 16,000 |
| Facility E | GBP | 2012 | 43,622 | 43,622 |
| Facility G | GBP | 2012 | 9,040 | 9,040 |
| Facility G | EUR | 2012 | 50,000 | 50,000 |
| 929,362 | 924,492 |
At 31 July 2010, the weighted average effective interest rate in respect of the Group's interest-bearing liabilities was 4.35 % (2009: 4.18 %)
| Repayment schedule – loans and overdrafts | ||
|---|---|---|
| in Euro `000 | 2010 | 2009 |
| Less than one year | 46,238 | 25,392 |
| Between one and five years | 900,126 | 713,995 |
| After five years | 672,149 | 210,497 |
| 1,618,513 | 949,884 |
| Repayment schedule – finance leases in Euro `000 |
Minimum lease payments 2010 |
Interest 2010 |
Present value of payments 2010 |
Minimum lease payments 2009 |
Interest 2009 |
Present value of payments 2009 |
|---|---|---|---|---|---|---|
| Less than one year | 650 | 54 | 596 | 1,258 | 110 | 1,148 |
| Between one and five years | 3,340 | 350 | 2,990 | 3,191 | 431 | 2,760 |
| After five years | – | – | – | – | – | – |
| 3,990 | 404 | 3,586 | 4,449 | 541 | 3,908 |
As set out previously in this note, the Group operates two separate funding structures.All Group borrowings within the Food Group funding structures are secured by guarantees from ARYZTA and upstream guarantees from various companies within the Food Group.
All Group borrowings within the Origin structure are guaranteed by Origin Enterprises plc with fixed and floating charges over the Origin Group assets totalling €692,384,000. The Origin borrowings do not have recourse to ARYZTA or any Group subsidiaries outside of the Origin Group.
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
| Fair value through income |
Hedge | Loans and | Liabilities at | Total carrying |
Fair | ||
|---|---|---|---|---|---|---|---|
| in Euro `000 | Fair value hierarchy |
statement 2010 |
instruments 2010 |
receivables 2010 |
amortised cost 2010 |
amount 2010 |
value 2010 |
| Trade and other receivables | – | – | 393,998 | – | 393,998 | 393,998 | |
| Cash and cash equivalents | – | – | 394,587 | – | 394,587 | 394,587 | |
| Derivative financial assets | Level 2 | – | 889 | – | – | 889 | 889 |
| Total financial assets | – | 889 | 788,585 | – | 789,474 | 789,474 | |
| Trade and other payables | – | – | – | (691,294) | (691,294) | (691,294) | |
| Bank overdrafts | – | – | – | (46,238) | (46,238) | (46,238) | |
| Bank borrowings | – | – | – | (1,572,275) | (1,572,275) | (1,700,344) | |
| Finance lease liabilities | – | – | – | (3,586) | (3,586) | (3,586) | |
| Derivative financial liabilities | Level 2 | – | (7,264) | – | – | (7,264) | (7,264) |
| Total financial liabilities | – | (7,264) | – | (2,313,393) | (2,320,657) | (2,448,726) |
| in Euro `000 | Fair value hierarchy |
Fair value through income statement 2009 |
Hedge instruments 2009 |
Loans and receivables 2009 |
Liabilities at amortised cost 2009 |
Total carrying amount 2009 |
Fair value 2009 |
|---|---|---|---|---|---|---|---|
| Trade and other receivables | – | – | 377,374 | – | 377,374 | 377,374 | |
| Cash and cash equivalents | – | – | 294,536 | – | 294,536 | 294,536 | |
| Derivative financial assets | Level 2 | – | 599 | – | – | 599 | 599 |
| Total financial assets | – | 599 | 671,910 | – | 672,509 | 672,509 | |
| Trade and other payables | – | – | – | (599,336) | (599,336) | (599,336) | |
| Bank overdrafts | – | – | – | (25,392) | (25,392) | (25,392) | |
| Bank borrowings | – | – | – | (924,492) | (924,492) | (981,611) | |
| Finance lease liabilities | – | – | – | (3,908) | (3,908) | (3,908) | |
| Derivative financial liabilities | Level 2 | – | (13,076) | – | – | (13,076) | (13,076) |
| Total financial liabilities | – | (13,076) | – | (1,553,128) | (1,566,204) | (1,623,323) |
Set out below are the major methods and assumptions used in estimating the fair values of the financial assets and liabilities disclosed in the preceding table.
Receivables and payables are carried at amortised cost less any impairment provision. For any receivables or payables with a remaining life of less than six months or demand balances, the carrying value less impairment provision, where appropriate, is deemed to reflect fair value.
For short-term bank deposits and cash and cash equivalents, all of which have a remaining maturity of less than three months, the nominal amount is deemed to reflect fair value.
Forward currency contracts are marked to market using quoted forward exchange rates at the balance sheet date. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.
For interest-bearing loans and borrowings with a contractual repricing date of less than six months, the nominal amount is deemed to reflect fair value. For loans with repricing dates of greater than six months, the fair value is calculated based on the present value of the expected future principal and interest cash flows, discounted at market interest rates effective at the balance sheet date.
Fair value is based on the present value of future cash flows discounted at implicit interest rates.
The tables at the beginning of this note summarise the financial instruments carried at fair value, by valuation method, as of 31 July 2010. Fair value classification levels have been assigned to the Group's financial instruments carried at fair value The different levels assigned are defined as follows:
Level 1: Prices quoted in active markets Level 2: Valuation techniques based on observable market data Level 3: Valuation techniques based on unobservable input
Risk management is a fundamental element of the Group's business practice on all levels and encompasses different types of risks. This overall Group risk management process includes the performance of a risk assessment that is described in more detail in note 34.
Financial risk management specifically is described in further detail below.
The Group's international operations expose it to different financial risks that include:
The Group has a risk management programme in place, which seeks to limit the impact of these risks on the financial performance of the Group. The Board has determined the policies for managing these risks. It is the policy of the Board to manage these risks in a non-speculative manner.
Credit risk arises from credit issued to customers on outstanding receivables and outstanding transactions, as well as cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions.
The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. There is no concentration of credit risk by dependence on individual customers or geographically.
The Group has detailed procedures for monitoring and managing the credit risk related to its trade receivables based on experience, customer's track record and historic default rates. Individual risk limits are generally set by customer, and risk is only accepted above such limits in defined circumstances. The utilisation of credit limits is regularly monitored. Impairment provisions are used to record impairment losses, unless the Group is satisfied that no recovery of the amount owing is possible. At that point the amount is considered irrecoverable and is written off directly against the trade receivable.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified.
The Group also manages credit risk through the use of a receivables purchase arrangement with a financial institution. Under the terms of this non-recourse agreement, the Group has transferred credit risk and control of certain trade receivables, amounting to €30,373,000 (2009: €nil). The Group has continued to recognise an asset of €483,000 (2009: €nil) representing the maximum extent of its continuing involvement and an associated liability of a similar amount.
Cash and short-term bank deposits are invested with institutions with the highest shortterm credit rating with limits on amounts held with individual banks or institutions at any one time. For banks and financial institutions, only independently rated banks with a minimum rating of "A1/P1" are accepted.
The carrying amount of financial assets, net of impairment provisions, represents the Group's maximum credit exposure. The maximum exposure to credit risk at year end was as follows:
| Carrying | Carrying | |
|---|---|---|
| amount | amount | |
| in Euro `000 | 2010 | 2009 |
| Trade and other receivables | 393,998 | 377,374 |
| Cash and cash equivalents | 394,587 | 294,536 |
| Derivative financial assets | 889 | 599 |
| 789,474 | 672,509 |
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
| Carrying | Carrying | |
|---|---|---|
| amount | amount | |
| in Euro `000 | 2010 | 2009 |
| Europe | 267,970 | 301,155 |
| North America | 88,168 | 45,619 |
| Rest of World | 16,207 | 5,821 |
| 372,345 | 352,595 |
The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
| Carrying | Carrying | ||
|---|---|---|---|
| amount | amount | ||
| in Euro `000 | 2010 | 2009 | |
| ARYZTA Food Group | 203,297 | 171,493 | |
| Origin food businesses | 29,612 | 33,264 | |
| Origin agribusiness | 139,436 | 147,838 | |
| 372,345 | 352,595 |
The aging of trade receivables at the reporting date was:
| in Euro `000 | Gross 2010 |
Impairment 2010 |
Gross 2009 |
Impairment 2009 |
|---|---|---|---|---|
| Not past due | 280,785 | 3,497 | 269,318 | 2,079 |
| Past due 0–30 days | 78,515 | 2,326 | 70,112 | 1,170 |
| Past due 31–120 days | 21,922 | 3,165 | 21,852 | 5,438 |
| Past due more than 121 days | 4,960 | 4,849 | 4,909 | 4,909 |
| 386,182 | 13,837 | 366,191 | 13,596 |
All other receivables are due in less than six months and are deemed to be fully recoverable. The Group standard payment terms are typically 0–60 days.
Analysis of movement in impairment provisions in respect of trade receivables was as follows:
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Balance at 1 August | 13,596 | 13,428 |
| Acquired | 185 | 691 |
| Charged during the year | 2,975 | 4,536 |
| Released during the year | (2,919) | (5,059) |
| Balance at 31 July | 13,837 | 13,596 |
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group's objective is to maintain a balance between flexibility and continuity of funding. The Group's policy is that not more than 40% of total bank borrowing facilities should mature in any proceeding twelve-month period. At 31 July 2010, 97% of the Group's total borrowings will mature at least after two years.
The Food Group has syndicated loan facilities totalling CHF 600,000,000, as well as USD 1,070,000,000 and EUR 25,000,000 private placement facilities and a CHF 200,000,000 Swiss-listed bond. Short-term flexibility is achieved through the availability of overdraft facilities totalling EUR 70,365,430.
Origin has syndicated loan facilities totalling EUR 450,000,000. Short-term flexibility is achieved through the availability of overdraft facilities totalling EUR 33,934,000.
The following are the contractual maturities of financial liabilities including estimated interest payments:
| 2010 | Carrying | Contractual | More than | ||||
|---|---|---|---|---|---|---|---|
| in Euro `000 | amount | cash flows | 6 mths or less | 6–12 mths | 1–2 years | 2–5 years | 5 years |
| Non-derivative financial liabilities |
|||||||
| Fixed rate bank loans | (985,136) | (1,430,742) | (22,883) | (27,656) | (108,834) | (428,981) | (842,388) |
| Variable rate bank loans | (587,139) | (663,661) | (3,799) | (10,030) | (20,061) | (629,771) | – |
| Finance lease liabilities | (3,586) | (3,990) | (352) | (298) | (1,009) | (2,331) | – |
| Bank overdrafts | (46,238) | (46,238) | (46,238) | – | – | – | – |
| Trade and other payables | (691,294) | (691,294) | (658,827) | (25,360) | (2,474) | (3,365) | (1,268) |
| Derivative financial instruments |
|||||||
| Interest rate swaps used for hedging |
(4,600) | (4,600) | (2,934) | (862) | (583) | (221) | – |
| Currency forward contracts used for hedging |
|||||||
| – Inflows | – | 108,125 | 88,866 | 19,259 | – | – | – |
| – Outflows | (1,775) | (109,900) | (90,693) | (19,207) | – | – | – |
| (2,319,768) | (2,842,300) | (736,860) | (64,154) | (132,961) | (1,064,669) | (843,656) |
| 2009 | Carrying | Contractual | More than | ||||
|---|---|---|---|---|---|---|---|
| in Euro `000 | amount | cash flows | 6 mths or less | 6–12 mths | 1–2 years | 2–5 years | 5 years |
| Non-derivative financial liabilities |
|||||||
| Fixed rate bank loans | (315,939) | (448,990) | (9,195) | (9,195) | (18,390) | (160,420) | (251,790) |
| Variable rate bank loans | (608,553) | (617,873) | (4,256) | – | (217) | (613,400) | – |
| Finance lease liabilities | (3,908) | (4,449) | (950) | (308) | (2,232) | (959) | – |
| Bank overdrafts | (25,392) | (25,392) | (25,392) | – | – | – | – |
| Trade and other payables | (599,336) | (599,336) | (581,294) | (17,017) | – | (1,025) | – |
| Derivative financial instruments |
|||||||
| Interest rate swaps used for hedging |
(9,355) | (9,355) | (3,071) | (3,068) | (2,897) | (319) | – |
| Currency forward contracts used for hedging |
|||||||
| – Inflows | – | 65,342 | 44,299 | 19,215 | 1,828 | – | – |
| – Outflows | (3,122) | (68,464) | (46,495) | (20,148) | (1,821) | – | – |
| (1,565,605) | (1,708,517) | (626,354) | (30,521) | (23,729) | (776,123) | (251,790) |
The fair value of derivative financial assets and liabilities at the balance sheet date is set out in the following table:
| in Euro `000 | Assets 2010 |
Liabilities 2010 |
Assets 2009 |
Liabilities 2009 |
|---|---|---|---|---|
| Cash flow hedges | ||||
| Currency forward contracts | 889 | 2,664 | 599 | 3,721 |
| Interest rate swaps | – | 4,600 | – | 9,355 |
| At 31 July | 889 | 7,264 | 599 | 13,076 |
Cash flow hedges are those of highly probable forecasted future income or expenses. In order to qualify for hedge accounting, the Group is required to document the relationship between the item being hedged and the hedging instrument and demonstrate, at inception, that the hedge relationship will be highly effective on an ongoing basis. The hedge relationship must be tested for effectiveness on subsequent reporting dates.
There is no significant difference between the timing of the cash flows and the income statement effect of cash flow hedges.
Market risk is the risk that changes in market prices and indices, such as foreign exchange rates and interest rates, will affect the Group's income or the value of its holdings of financial instruments.
In addition to the Group's operations carried out in eurozone economies, it also has significant operations in the UK, Switzerland, North America, South America and Australia. As a result, the Group Balance Sheet is exposed to currency fluctuations including, in particular, sterling, US dollar, Canadian dollar and Swiss franc movements. The Group manages its balance sheet having regard to the currency exposures arising from its assets being denominated in a wide range of currencies.
As part of its approach towards mitigating its exposure to foreign currency risk, the Group will, when required, fund foreign currency assets in the currency of the related assets.
These relationships are typically designated by the Group as net investment hedges of foreign currency exposures on net investments in foreign operations using the borrowings as the hedging instrument. These hedge designations allow the Group to mitigate the risk of foreign currency exposures on the carrying amount of net assets in foreign operations in its Group Financial Statements.
The borrowings designated in net investment hedge relationships are measured at fair value with the effective portion of the change in value of the borrowings being recognised directly through equity in the foreign currency translation reserve. Any ineffectiveness arising on such hedging relationships is recognised immediately in the income statement.
The Group also hedges a portion of its transactional currency exposure through the use of currency swaps. Transactional exposures arise from sales or purchases by an operating unit in currencies other than the unit's functional currency. The Group requires its operating units to use forward currency contracts to eliminate the currency exposures on certain foreign currency purchases. The forward currency contracts must be in the same currency and match the settlement terms of the hedged item.
The following table details the Group's exposure to transactional foreign currency risk at the balance sheet date:
| GBP | USD | CAD | CHF | EUR | Other | Total |
|---|---|---|---|---|---|---|
| 4,210 | 1,238 | 3,785 | 1,005 | 26,087 | 1,630 | 37,955 |
| – | 101 | 2 | 37 | – | 48 | 188 |
| 6,585 | 2,035 | 1,676 | 430 | 2,971 | 73 | 13,770 |
| (5,472) | (3,681) | (1,680) | (757) | (20,127) | (78) | (31,795) |
| (5,024) | – | (1,563) | (417) | (3,698) | – | (10,702) |
| (1,031) | (946) | 268 | (424) | (554) | – | (2,687) |
| (732) | (1,253) | 2,488 | (126) | 4,679 | 1,673 | (6,729) |
The following table details the Group's exposure to transactional foreign currency risk at 31 July 2009.
| GBP | USD | CAD | CHF | EUR | Other | Total |
|---|---|---|---|---|---|---|
| 1,480 | 2 | 1,686 | 702 | 31,336 | 6,356 | 41,562 |
| – | 14 | 77 | 61 | 3,064 | 189 | 3,405 |
| 548 | (5,412) | 2,001 | 877 | 8,426 | 388 | 6,828 |
| (6,556) | (8,780) | (701) | (191) | (23,727) | (2,114) | (42,069) |
| (1,959) | (1,719) | (504) | (10,087) | (26,265) | (2,614) | (43,148) |
| (2,469) | (1,403) | – | (1,851) | (616) | – | (6,339) |
| (8,956) | (17,298) | 2,559 | (10,489) | (7,782) | 2,205 | (39,761) |
A 10% strengthening or weakening of the euro against the following currencies at 31 July 2010 would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis as 2009.
| 2010 in Euro `000 |
10% strengthening income statement |
10% strengthening equity |
10% weakening income statement |
10% weakening equity |
|---|---|---|---|---|
| GBP | (27) | 4,980 | 33 | (6,086) |
| USD | 28 | 23,719 | (34) | (28,989) |
| CAD | (202) | (24) | 247 | 30 |
| CHF | (27) | 39 | 33 | (47) |
| At 31 July 2010 | (228) | 28,714 | 279 | (35,092) |
| 2009 in Euro `000 |
10% strengthening income statement |
10% strengthening equity |
10% weakening income statement |
10% weakening equity |
|---|---|---|---|---|
| GBP | 590 | 6,076 | (721) | (7,426) |
| USD | 1,445 | 128 | (1,766) | (156) |
| CAD | (233) | – | 284 | – |
| CHF | 785 | 4,307 | (960) | (5,264) |
| At 31 July 2009 | 2,587 | 10,511 | (3,163) | (12,846) |
The impact on equity from changing exchange rates results principally from foreign currency loans designated as net investment hedges. This impact on equity would be offset by the revaluation in equity of the hedged net assets.
The Group's debt bears both floating and fixed rates of interest as per the original contracts. The Group's policy is to maintain up to 85% of overall Group average annual borrowings at fixed rates. This is achieved through the issuing of fixed rate debt or the use of interest rate swaps. At 31 July, the interest rate profile of the Group's interestbearing financial instruments was as follows:
| Carrying | Carrying | |
|---|---|---|
| amount | amount | |
| in Euro `000 | 2010 | 2009 |
| Fixed rate instruments | ||
| Bank borrowings | (985,136) | (315,939) |
| Finance lease liabilities | (3,586) | (3,908) |
| (988,722) | (319,847) | |
| Variable rate instruments | ||
| Cash and cash equivalents | 394,587 | 294,536 |
| Bank overdrafts | (46,238) | (25,392) |
| Bank borrowings | (587,139) | (608,553) |
| Total interest-bearing financial instruments | (1,227,512) | (659,256) |
A change of 50 basis points in interest rates at the reporting date would have had the effect as shown below on the Group Income Statement and equity. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis as 2009.
| 2010 in Euro `000 |
Principal amount |
Impact of 50 bp increase on Income Statement |
Impact of 50 bp increase on equity |
|---|---|---|---|
| Variable rate instruments | (587,139) | (2,936) | – |
| Bank overdrafts | (46,238) | (231) | – |
| Interest rate swaps | 307,187 | – | 1,536 |
| Cash flow sensitivity, net | (326,190) | (3,167) | 1,536 |
| 2009 in Euro `000 |
Principal amount |
Impact of 50 bp increase on Income Statement |
Impact of 50 bp increase on equity |
|---|---|---|---|
| Variable rate instruments | (608,553) | (3,043) | – |
| Bank overdrafts | (25,392) | (127) | – |
| Interest rate swaps | 308,249 | – | 1,541 |
| Cash flow sensitivity, net | (325,696) | (3,170) | 1,541 |
The Group purchases and sells certain commodities for the purposes of receipt or delivery and uses derivative contracts to protect itself from movements in prices other than exchange differences. These contracts are classified as 'own use' contracts, as they were entered into and continue to be held for the purpose of the receipt or delivery of the non-financial item, in accordance with the business unit's expected purchase, sale or usage requirements. 'Own use' contracts are outside the scope of IAS 39, Financial Instruments: Recognition and Measurement, and are accounted for on an accruals basis. Where a commodity contract is not entered into, or does not continue, to be held to meet the Group's own purchase, sale or usage requirements, it is treated as a derivative financial instrument, and the recognition and measurement requirements of IAS 39, Financial Instruments: Recognition and Measurement, are applied.
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| At 1 August | 18,941 | 3,906 |
| Arising on business combination (note 29) | – | 14,657 |
| Received in the period | 1,117 | 2,377 |
| Translation adjustment | 1,413 | 27 |
| 21,471 | 20,967 | |
| Recognised in Group Income Statement | (2,994) | (2,026) |
| At 31 July | 18,477 | 18,941 |
Government grants received in the period are principally in relation to compensation for the funding of capital investments.
The deductible and taxable temporary differences at the balance sheet date, in respect of which deferred tax has been recognised, are analysed as follows:
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Deferred tax assets (deductible temporary differences) | ||
| Pension related | 4,189 | 3,814 |
| Employee compensation | 2,892 | 2,120 |
| Financing related | 2,838 | 4,032 |
| Property, plant and equipment | 4,389 | 2,732 |
| Intangible assets | 1,212 | 104 |
| Tax loss carry forwards and tax credits | 28,316 | – |
| Other | 18,454 | 14,251 |
| 62,290 | 27,053 |
| Pension related | (191) | (204) |
|---|---|---|
| Employee compensation | – | (83) |
| Financing related | (686) | (1,391) |
| Property, plant and equipment | (80,456) | (54,257) |
| Investment properties | (7,065) | (7,262) |
| Intangible assets | (251,581) | (133,062) |
| Other | (16,407) | (7,268) |
| (356,386) | (203,527) |
The deductible temporary differences as well as the unused tax losses and tax credits for which no deferred tax assets are recognised expire as follows:
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Within one year | – | – |
| Between one and five years | – | – |
| After five years | 4,065 | 2,577 |
| 4,065 | 2,577 |
| Tax loss | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2010 | Property, plant | Investment | Intangible | Employee | Pension | Financing | carry | ||
| in Euro `000 | & equipment | properties | assets | compensation | related | related | forwards | Other | Total |
| At 1 August 2009 | (51,525) | (7,262) | (132,958) | 2,037 | 3,610 | 2,641 | – | 6,983 (176,474) | |
| Recognised in Group Income Statement |
(1,803) | (1,726) | 11,959 | (1,333) | (253) | (378) | 2,715 | 1,702 | 10,883 |
| Transfer to property, plant & equipment |
(1,352) | 1,352 | – | – | – | – | – | – | – |
| Recognised in Group Statement of Comprehensive Income |
– | – | – | – | 563 | (990) | – | – | (427) |
| Arising on business combination (note 29) |
(22,644) | – | (123,764) | 2,190 | 45 | 44 | 26,380 | (4,530) (122,279) | |
| Translation adjustments and other |
1,257 | 571 | (5,606) | (2) | 33 | 835 | (779) | (2,108) | (5,799) |
| At 31 July 2010 | (76,067) | (7,065) | (250,369) | 2,892 | 3,998 | 2,152 | 28,316 | 2,047 (294,096) |
Movements in deferred tax, during the year, were as follows:
| 2009 | Property, plant | Investment | Intangible | Employee | Pension | Financing | ||
|---|---|---|---|---|---|---|---|---|
| in Euro `000 | & equipment | properties | assets | compensation | related | related | Other | Total |
| At 1 August 2008 | (39,625) | (28,302) | (80,780) | 2,865 | 3,514 | 3,470 | 8,545 | (130,313) |
| Recognised in Group Income Statement |
(7,154) | 30,166 | 11,180 | (932) | 282 | (1,113) | (8,652) | 23,777 |
| Recognised in Group Statement of Comprehensive Income |
(121) | (6,914) | – | – | 817 | 1,314 | – | (4,904) |
| Arising on business combination (note 29) |
(5,821) | (2,201) | (60,513) | (86) | 96 | (1,283) | 9,463 | (60,345) |
| Arising on disposal | 2,217 | – | – | – | (893) | – | (89) | 1,235 |
| Translation adjustments and other |
(1,021) | (11) | (2,845) | 190 | (206) | 253 | (2,284) | (5,924) |
| At 31 July 2009 | (51,525) | (7,262) | (132,958) | 2,037 | 3,610 | 2,641 | 6,983 | (176,474) |
The Group operates a number of defined benefit and defined contribution pension plans with assets held in separate trustee-administered funds.
The Group's principal defined benefit plan (the "Plan") was restructured in the year ended 31 July 2007. Prior to this IAWS Group Limited (formerly IAWS Group, plc) was the principal employer of the Plan. A number of the Origin Enterprises plc ("Origin") businesses participated in this Plan. Following the formation of Origin, a restructuring of this Plan was approved. On completion of the restructuring, Origin replaced IAWS Group Limited (formerly IAWS Group, plc) as principal employer, such that the Plan now only includes active members employed by Origin and the current deferred members of the Plan. As part of the Plan restructuring, the Trustees purchased annuities for the Plan's existing pensioners. This extinguished the Group's liability in the Plan relating to those pensioners. All non-Origin members were transferred to a new defined contribution plan during the year ended 31 July 2008.
Outside of this principal Origin employee defined benefit plan, the Group operates two smaller defined benefit plans within its Food business segments.
During the year, Origin undertook a strategic review of its Irish defined benefit pension arrangements. Benefit changes were implemented and in the case of the Origin scheme the Origin Group ceased its liability to contribute to the scheme with effect from 16 December 2009 and agreed to increase the transfer values payable from the plan on wind up to one hundred percent of the transfer values under the Minimum Funding Standard excluding any allowance for pension increases. These payments will be made during the 2011 financial year and are included as a current liability of €12,703,000 in other payables at 31 July 2010. The impact of the changes is to reduce the pension liabilities in the Group Balance Sheet and the related volatility.
Under IAS 19, Employee Benefits, the total deficit in the Group's defined benefit plans, including the main plan, outlined above, for which Origin is the principal employer, at 31 July 2010 was €11,828,000 (2009: €25,236,000). The pension cost recorded in the Income Statement for the year in respect of the Group's defined benefit plans was €3,308,000 (2009: charge of €3,400,000). The estimated contributions expected to be paid during the year ending 31 July 2011 in respect of the Group's defined benefit plans is €5,064,000.
A charge of €4,335,000 (2009: €4,048,000) was recorded in respect of the Group's defined contribution plans.
Long-term employee benefits included in the Group Balance Sheet comprises the following:
| Total | 15,454 | 28,544 |
|---|---|---|
| Other1 | 3,626 | 3,308 |
| Deficit in Origin defined benefit plans | 7,498 | 23,053 |
| Deficit in ARYZTA Food Group defined benefit plans | 4,330 | 2,183 |
| in Euro `000 | 2010 | 2009 |
1 Other includes provisions to meet pension fund deficiencies in subsidiaries acquired, mostly relating to unfunded pensions. The residual actuarial deficit is being paid over the remaining lifetime of the pensioners.
The valuations of the defined benefit plans used for the purposes of the following disclosures are those of the most recent actuarial valuations to 31 July 2010 by an independent, qualified actuary. The valuations have been performed using the projected unit credit method. The main assumptions used by the actuary, averaged across the plans, were as follows:
| 2010 | 2009 | |
|---|---|---|
| Rate of increase in salaries | 2.65% | 2.37% |
| Rate of increases in pensions in payment and deferred benefits | 2.68% | 2.26% |
| Discount rate on plan liabilities | 4.42% | 5.15% |
| Inflation rate | 2.68% | 2.26% |
Assumptions regarding future mortality experience are set based on advice from published statistics and experience. The average life expectancy in years of a pensioner retiring at age 65 is as follows:
| 2010 | 2009 | |
|---|---|---|
| Male | 21.8 | 21.8 |
| Female | 24.8 | 24.8 |
The expected and applied long-term rates of return on the assets of the plans were:
| 2010 | 2009 | |
|---|---|---|
| Equities | 8.30% | 8.75% |
| Bonds | 4.00% | 4.11% |
| Property | 6.94% | 6.98% |
| Other | 2.13% | 3.27% |
| in Euro `000 | 2010 | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|---|
| Fair value of plan assets: | |||||
| Equities | 28,035 | 34,896 | 38,579 | 39,751 | 60,811 |
| Bonds | 34,891 | 14,886 | 16,785 | 3,354 | 19,039 |
| Property | 6,061 | 5,086 | 6,743 | 6,285 | 5,345 |
| Other | 22,219 | 40,191 | 972 | 279 | 4,132 |
| Total fair value of assets | 91,206 | 95,059 | 63,079 | 49,669 | 89,327 |
| Present value of plan liabilities | (103,034) | (120,295) | (86,444) | (56,128) | (95,893) |
| Deficit in the plans | (11,828) | (25,236) | (23,365) | (6,459) | (6,566) |
| Related deferred tax asset | 3,998 | 3,610 | 3,514 | 1,542 | 1,537 |
| Net pension liability | (7,830) | (21,626) | (19,851) | (4,917) | (5,029) |
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Fair value of plan assets at 1 August | 95,059 | 63,079 |
| Expected return on plan assets | 4,439 | 5,131 |
| Employer contributions | 6,547 | 4,182 |
| Employee contributions | 2,128 | 2,015 |
| Arising on business combination | – | 36,310 |
| Translation adjustments | 4,583 | 7 |
| Benefit payments | (6,260) | (5,546) |
| Transfer on wind up of scheme | (18,051) | – |
| Other | (939) | – |
| Actuarial gain/(loss) on plan assets | 3,700 | (10,119) |
| Fair value of plan assets at 31 July | 91,206 | 95,059 |
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Value of plan obligations at 1 August | (120,295) | (86,444) |
| Current service cost | (2,639) | (2,681) |
| Interest on plan obligations | (5,407) | (5,850) |
| Employee contributions | (2,128) | (2,015) |
| Arising on business combination | – | (35,623) |
| Benefit payments | 6,260 | 5,546 |
| Translation adjustments | (4,781) | 566 |
| Transfer on wind up of scheme | 18,051 | – |
| Other | 939 | – |
| Settlement gain on transfer of members to defined contribution plan |
12,557 | – |
| Curtailment gain | 445 | – |
| Actuarial (loss)/gain | (6,036) | 6,206 |
| Present value of plan obligations at 31 July | (103,034) | (120,295) |
| Movement in net liability recognised in the Group Balance Sheet | ||
|---|---|---|
| in Euro `000 | 2010 | 2009 |
| Net liability in plans at 1 August | (25,236) | (23,365) |
| Current service cost | (2,639) | (2,681) |
| Employer contributions | 6,547 | 4,182 |
| Other finance expense | (968) | (719) |
| Actuarial gain/(loss) | (2,336) | (3,913) |
| Arising on acquisition | – | 687 |
| Settlement gain on transfer of members to defined contribution plan |
12,557 | – |
| Curtailment gain | 445 | – |
| Translation adjustments | (198) | 573 |
| Net liability in plans at 31 July | (11,828) | (25,236) |
| Analysis of defined benefit expense recognised in the Group Income Statement |
||
| in Euro `000 | 2010 | 2009 |
| Current service cost | 2,639 | 2,681 |
| Settlement gain on transfer of members to defined contribution plan |
(12,557) | – |
| Curtailment gain | (445) | – |
| Enhanced transfer values | 12,703 | – |
| Non-financing expense recognised in Group Income Statement | 2,340 | 2,681 |
| Expected return on Plan assets | (4,439) | (5,131) |
| Interest cost on Plan liabilities | 5,407 | 5,850 |
| Included in financing costs, net | 968 | 719 |
| Net charge to Group Income Statement | 3,308 | 3,400 |
| Actual return/(loss) on pension Plan assets | 8,139 | (4,987) |
| Defined benefit pension expense recognised in the Group Statement of Comprehensive Income |
||
| in Euro `000 | 2010 | 2009 |
| Actual return /(loss) less expected return on Plan assets | 3,700 | (10,119) |
| Experience gains on Plan liabilities | 2,681 | 3,177 |
| Changes in demographic and financial assumptions | (8,717) | 3,029 |
| Actuarial loss | (2,336) | (3,913) |
| Deferred tax effect of actuarial loss | 563 | 817 |
| Actuarial loss recognised in Group Statement of Comprehensive Income |
(1,773) | (3,096) |
| History of experience gains and losses: |
2010 | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|---|
| Difference between expected and actual return on plan assets |
|||||
| – Amount (in €`000) | 3,700 | (10,119) | (18,870) | 4,991 | (1,305) |
| – % of Plan assets | 4.06% | (10.64)% | (29.91)% | 10.05% | (1.46)% |
| Experience gains/(losses) on plan obligations – Amount (in €`000) |
2,681 | 3,177 | (1,714) | (538) | (1,066) |
| – % of Plan obligations | 2.60% | 2.64% | (1.98)% | (0.96)% | (1.11)% |
| Total actuarial (loss)/gain recognised in Group Statement of Comprehensive Income |
|||||
| – Amount (in €`000) | (2,336) | (3,913) | (19,577) | 9,060 | 4,811 |
| – % of Plan obligations | (2.27)% | (3.25)% | (22.65)% | 16.14% | 5.02% |
| Registered shares of CHF 0.02 each (2009 prior to reverse |
||||
|---|---|---|---|---|
| acquisition: € 0.30 each) – | 2010 | 2010 | 2009 | 2009 |
| authorised, issued and fully paid | 000 | in Euro000 |
000 | in Euro000 |
||
| At 1 August | 81,180 | 1,005 | 127,339 | 38,201 |
| Issue of shares prior to reverse acquisition (€ 0.30) |
– | – | 12,700 | 3,810 |
| Effect of reverse acquisition | – | – | (61,099) | (41,036) |
| Opening issued share capital of ARYZTA (CHF 0.02)1 |
81,180 | 1,005 | 78,940 | 975 |
| Issue of registered shares (CHF 0.02)2 |
3,865 | 56 | 2,240 | 30 |
| Total | 85,045 | 1,061 | 81,180 | 1,005 |
1 After the merger with Hiestand the issued share capital of ARYZTA consisted of 78,940,460 registered shares with a nominal value of CHF 0.02 each, fully paid up. Shareholders are entitled to dividend as declared. The ARYZTA shares rank pari passu in all respects with each other. The share capital for the periods prior to the merger with Hiestand is that of IAWS Group Limited.
On 2 December 2008, the issued shares were increased to 81,180,460 registered shares by the issue of 2,240,000 registered shares of nominal value of CHF 0.02 each in the capital of ARYZTA pursuant to a share subscription on behalf of ARY LTIP Trustee Limited.
2 On 16 June 2010, the issued shares were increased to 85,044,795 by the issue of 3,864,335 registered shares of nominal value of CHF 0.02 each. This capital increase, effected at CHF 41.50 per share, was undertaken to assist the financing of the purchase of Fresh Start Bakeries.
3 Pursuant to Article 4 of the Articles of Association (governing Conditional Share Capital for Employee Benefit Plans), the amount by which the share capital of the Company may be increased on a non-pre-emptive basis may not exceed CHF 130,152.80 (through the issue of up to 6,507,640 registered shares).
Pursuant to Article 5 of the Articles of Association (governing Conditional Share Capital for General Purposes), the amount by which the share capital of the Company may be increased for general purposes may not exceed CHF 351,556.06 (through the issue of up to 17,577,803 registered shares).
| Treasury shares of CHF 0.02
each – allotted, called up
and fully paid 1 | 2010000 | 2010<br>in Euro000 | 2009000 | 2009<br>in Euro000 |
|-------------------------------------------------------------------------------|--------------|----------------------|--------------|----------------------|
| At 1 August | 2,234 | 30 | – | – |
| Issue of shares | – | – | 2,240 | 30 |
| Movement on treasury shares | – | – | (6) | – |
| At 31 July | 2,234 | 30 | 2,234 | 30 |
| Deferred convertible ordinary
shares of € 0.30 each – | | | | |
| authorised, issued and fully | 2010 | 2010 | 2009 | 2009 |
|---|---|---|---|---|
| paid | 000 | in Euro000 |
000 | in Euro000 |
||
| At 1 August | – | – | 3,580 | 1,074 |
| Effect of reverse acquisition | – | – | (3,580) | (1,074) |
| At 31 July | – | – | – | – |
1 On 2 December 2008, the issued shares were increased to 81,180,460 registered shares by the issue of 2,240,000 registered shares of nominal value of CHF 0.02 each in the capital of ARYZTA pursuant to a share subscription on behalf of ARY LTIP Trustee Limited.
ARY LTIP Trustee Limited is a wholly owned subsidiary of ARYZTA, formed for the purposes of holding shares subject to the ARYZTA Long-Term Incentive Plan ("LTIP"). ARY LTIP Trustee Limited holds these shares in treasury, pending satisfaction of the applicable terms of the LTIP.
The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.
The revaluation reserve relates to revaluation surpluses arising on revaluations of property prior to being transferred into investment property and a previously held interest in an associate.
This reserve comprises amounts credited to reserves in connection with equity awards less the effect of any exercises of such awards.
The translation reserve comprises all foreign exchange differences from 1 August 2004, arising from the translation of the net assets of the Group's non-euro-denominated operations, including the translation of the profits of such operations from the average exchange rate for the year to the exchange rate at the balance sheet date, net of hedging.
The capital managed by the Group consists of the Group equity of €1,673,850,000. The Group has set the following goals for the management of its capital:
As set out in note 21 of these Group Financial Statements, the Group operates two distinct debt funding structures. The Group's 71.4% subsidiary and separately listed company, Origin Enterprises plc, has separate funding structures, which are financed without recourse to ARYZTA AG. Origin Enterprises plc net debt amounted to €111,889,000 at 31 July 2010. The consolidated net debt of the Group, excluding Origin's non-recourse debt, amounted to €1,115,623,000 and relates to the ARYZTA Food segments of the Group.
The Food Group employs four ratio targets to monitor equity and to be compliant with its bank covenants:
These ratios are reported to the Board of Directors at regular intervals through internal financial reporting.
The proposed payout ratio to shareholders for the Group's financial year to 31 July 2010 is 15% of fully diluted underlying earnings per share. Underlying earnings per share for the financial year 31 July 2010 excludes non-SAP-related intangible amortisation, related tax credits, and the impact of transaction costs of €4,643,000 as detailed in note 2 of these Group Financial Statements. The payout will be in the form of a dividend. The payout ratio and form of payout proposed by the Board will be reviewed on an annual basis and is subject to the decision of the General Meeting of the shareholders.
1 Calculated based on the Food Group banking covenant definition of EBITDA. This is the Food Group EBITDA for the year ended 31 July 2010, including dividends received from its Canadian joint venture and Origin, adjusted for the pro forma full year contribution of Food Group acquisitions. The Food Group banking covenant definition of net debt is the Food Group net debt as reported in Note 21 of the Group Financial Statements adjusted for letters of credit outstanding and accrued interest on debt.
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Balance at 1 August | 47,612 | 61,482 |
| Share of profit/(loss) for the year | 16,360 | (13,033) |
| Arising on business combination | – | 8,092 |
| Share of income/(expenses) recognised directly in equity | 1,194 | (6,376) |
| Dividends paid to non-controlling interests | (5,779) | – |
| Share of share-based payment charge | 261 | 264 |
| Disposals of non-controlling interests | – | (1,522) |
| Purchase of non-controlling interests | – | (1,295) |
| Balance at 31 July | 59,648 | 47,612 |
Non-cancellable operating lease rentals are payable as set out below. These amounts represent minimum future lease payments, in aggregate, that the Group is required to make under existing lease agreements.
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Operating lease commitments payable: | ||
| Within one year | 32,513 | 18,216 |
| In two to five years | 87,412 | 59,733 |
| After more than five years | 54,776 | 47,777 |
| 174,701 | 125,726 |
During the year, the Group completed the acquisitions of Fresh Start Bakeries on 08 July 2010 and Great Kitchens on 07 June 2010.
Fresh Start Bakeries (incorporating Pennant Foods and Sweet Life) is a global supplier of speciality bakery products, with a leading position in the quick service restaurant segment. It operates 29 specialist production facilities across the USA, Canada, Germany, Poland, Sweden, Spain, Brazil, Australia and New Zealand and has three joint ventures located in North America, Chile and Guatemala. Pennant Foods is a leading provider of speciality bakery products and solutions to the North American quick service restaurant, foodservice and retail in-store bakery channels. Sweet Life is a leading innovator and manufacturer of sweet baked goods servicing the North American and Asian quick service restaurant channel.
Great Kitchens, a wholly owned subsidiary of Arbor Frozen Foods, Inc. is a leading supplier of pizza and appetisers with a focus on the deli segment of the North American retail grocery channel.
The goodwill arising on these business combinations is attributable to the skills and talent of the acquired businesses' work force and the synergies expected to be achieved from integrating the companies into the Group's existing business.
| Total | |||
|---|---|---|---|
| 2010 | provisional | Fresh Start | Great |
| in Euro `000 | fair value | Bakeries | Kitchens |
| Net assets acquired: | |||
| Property, plant and equipment | 246,378 | 239,751 | 6,627 |
| Intangible assets | 391,076 | 317,077 | 73,999 |
| Investments in joint ventures | 4,747 | 4,747 | – |
| Inventory | 28,674 | 21,767 | 6,907 |
| Trade and other receivables | 68,591 | 51,258 | 17,333 |
| Trade and other payables | (89,949) | (75,656) | (14,293) |
| Debt acquired | (289,882) | (266,301) | (23,581) |
| Finance leases | (1,369) | – | (1,369) |
| Deferred tax | (122,279) | (93,926) | (28,353) |
| Income tax | (1,518) | (1,518) | – |
| Net assets acquired | 234,469 | 197,199 | 37,270 |
| Goodwill arising on acquisition | 329,950 | 244,635 | 85,315 |
| Consideration | 564,419 | 441,834 | 122,585 |
| Satisfied by: | |||
| Cash consideration | 582,973 | 460,281 | 122,692 |
| Cash acquired | (18,554) | (18,447) | (107) |
| Consideration | 564,419 | 441,834 | 122,585 |
The net cash outflow on acquisitions during the period was disclosed in the Group Cash Flow Statement as follows:
| in Euro `000 | Total |
|---|---|
| Cash flows from operating activities | |
| Transaction costs paid | 4,643 |
| Cash flows from investing activities | |
| Cash consideration | 582,973 |
| Cash acquired | (18,554) |
| 564,419 | |
| Cash flows from financing activities | |
| Debt acquired, including finance leases | 291,251 |
| Total cash spend on acquisitions | 860,313 |
The impact of the business combinations during the year on the Income Statement of the Group is set out in the following table:
| in Euro `000 | Fresh Start Bakeries | Great Kitchens |
|---|---|---|
| Revenue | 34,728 | 23,887 |
| Net profit | 1,244 | 412 |
If the acquisitions had occurred on 1 August 2009, management estimates that consolidated revenue would have been €3,697,836,000 and consolidated net profit for the period would have been €191,004,000. In determining these amounts management has assumed that the fair value adjustments that arose on the dates of the acquisition would have been the same if the acquisitions occurred on 1 August 2009.
For the identification and estimation of the fair value of the acquired intangibles of Great Kitchens and Fresh Start Bakeries, ARYZTA was assisted by an independent appraisal firm. 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 for the acquisitions of Fresh Start Bakeries and Great Kitchens are based on provisional valuations due to the close proximity of both transactions to the end of the financial year.
In 2009, the Group completed the acquisitions of Hiestand Holding AG, Fresca SAS and a number of smaller acquisitions mainly in the Origin agri-business, the principal ones being CSC Crop Protection Limited and GB Seeds Limited.
IAWS' relationship with Hiestand began in 2003 when IAWS acquired its 22% shareholding in Hiestand, a gourmet bakery business with manufacturing and distribution facilities, principally in Switzerland and Germany as well as Eastern Europe and Asia.
IAWS' initial 22% shareholding was increased to 32% in the financial year 2006. On 7 June 2008, IAWS entered into an agreement to purchase Lion Capital's 32% shareholding in Hiestand which would bring IAWS' total shareholding in Hiestand to 64%. This transaction was completed on 1 August 2008 and since this date Hiestand has been consolidated.
The investment was accounted for using the equity method up to the end of July 2008. The carrying amount as at 31 July 2008 was €87,266,000. At the date of acquisition, any changes in the carrying amount of the investment recognised in the past were reversed. Secondly, the changes in fair values that occurred since the original shareholdings were obtained were recognised based on the respective interests held. Both items in the total amount of €35,077,000 were recognised against equity.
On 9 June 2008, the IAWS Board and the Hiestand Board announced the proposed merger of IAWS and Hiestand with a view to creating the global leader in speciality bakery. Following the merger on 21 August 2008, ARYZTA became the holding company of the enlarged Group.
On 7 February 2009, the Group completed the acquisition of Fresca SAS. Fresca is a French based food distribution business concentrated on the Greater Paris region and serving principally the local catering and restaurant markets.
In 2009, Origin completed a number of bolt-on acquisitions in the United Kingdom. The principal transactions were the acquisition of CSC Crop Protection Limited in April 2009 and GB Seeds Limited in June 2009. These acquisitions improve the strategic position of Origin's integrated agronomy services business. The Group also acquired holdings in a Food Europe distribution business. The results of these other acquisitions were not material to the Group.
The goodwill arising on the principal Hiestand and Fresca business combinations is attributable to the skills and talent of the acquired businesses' work force and the synergies expected to be achieved from integrating the companies into the Group's existing business.
Details of net assets acquired and goodwill arising from the business combinations in 2009 are set out below:
| 2009 | Acquiree's | Fair | ||||
|---|---|---|---|---|---|---|
| in Euro `000 | carrying amount |
value adjustments |
Fair value | Hiestand | Fresca | Other |
| Net assets acquired: | ||||||
| Property, plant and equipment | 165,313 | 24,024 | 189,337 | 183,474 | 1,070 | 4,793 |
| Investment property | 3,297 | 450 | 3,747 | 3,747 | – | – |
| Goodwill | 106,408 | (106,408) | – | – | – | – |
| Intangible assets | 42,595 | 233,581 | 276,176 | 256,786 | 9,300 | 10,090 |
| Inventory | 38,121 | (23) | 38,098 | 27,005 | 2,166 | 8,927 |
| Trade and other receivables | 101,392 | (1,293) | 100,099 | 83,564 | 7,061 | 9,474 |
| Trade and other payables | (91,895) | (15,615) | (107,510) | (84,265) | (7,487) | (15,758) |
| Debt acquired | (128,633) | – | (128,633) | (126,238) | – | (2,395) |
| Finance leases | (659) | – | (659) | – | – | (659) |
| Deferred tax | (20,885) | (39,460) | (60,345) | (54,343) | (3,254) | (2,748) |
| Deferred income from government grants | – | (14,657) | (14,657) | (14,657) | – | – |
| Defined benefit and other pension obligations | (1,194) | (1,489) | (2,683) | (2,128) | (207) | (348) |
| Income tax | (9,855) | 1,055 | (8,800) | (9,606) | 395 | 411 |
| Net assets acquired before non-controlling interests |
284,170 | 263,339 | 9,044 | 11,787 | ||
| Non-controlling interests | (8,092) | (8,092) | – | – | ||
| Net assets acquired after non-controlling interests |
276,078 | 255,247 | 9,044 | 11,787 | ||
| Goodwill arising on acquisition | 360,031 | 335,811 | 20,929 | 3,291 | ||
| Consideration | 636,109 | 591,058 | 29,973 | 15,078 | ||
| Satisfied by: | Notes | |||||
| Equity consideration: | ||||||
| Fair value of shares exchanged for 32% Lion Capital holding |
29.2.1 | 187,960 | 187,960 | – | – | |
| Equity-based consideration for remaining 36% interest in Hiestand Holding AG |
29.2.2 | 233,531 | 233,531 | – | – | |
| Total equity consideration | 421,491 | 421,491 | – | – | ||
| Cash consideration | 70,119 | 30,000 | 25,488 | 14,631 | ||
| Transaction costs | 33,907 | 30,514 | 2,887 | 506 | ||
| Deemed consideration of previously held 32% interest |
29.2.3 | 121,854 | 121,854 | – | – | |
| Deferred consideration | 3,800 | – | 3,800 | – | ||
| Cash acquired | (15,062) | (12,801) | (2,202) | (59) | ||
| Consideration | 636,109 | 591,058 | 29,973 | 15,078 |
There have been no material revisions of the provisional fair value adjustments since the initial values were established at the time of each acquisition.
For the identification and estimation of the fair value of the acquired intangibles of Hiestand, ARYZTA was assisted by an independent accounting firm. 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 net cash outflow on acquisitions during the prior period amounted to €80,546,000 and was composed as follows:
| in Euro `000 | Hiestand | Fresca | Other | Total |
|---|---|---|---|---|
| Cash consideration | 30,000 | 25,488 | 14,631 | 70,119 |
| Transaction costs paid | 23,740 | 287 | 479 | 24,506 |
| Cash acquired | (12,801) | (2,202) | (59) | (15,062) |
| Cash spend on purchase of non-controlling interests1 |
– | – | 983 | 983 |
| Cash spend per cash flow statement |
40,939 | 23,573 | 16,034 | 80,546 |
1 Goodwill arising on the acquisition of non-controlling interests was €376,000.
The impact of the business combinations during the prior year on the Income Statement of the Group is set out in the following table:
| in Euro `000 | Hiestand | Fresca | Other |
|---|---|---|---|
| Revenue | 509,935 | 17,556 | 29,891 |
| Operating profit | 61,050 | 655 | 4,503 |
If the acquisitions had occurred on 1 August 2008, management estimates that consolidated revenue for the prior year would have been €3,264,171,000 and consolidated operating profit for the prior year would have been €76,238,000. In determining these amounts, management has assumed that the fair value adjustments that arose on the dates of the acquisition would have been the same if the acquisitions occurred on 1 August 2008.
This amount is represented by the issuance of 12,700,000 IAWS shares issued at a market value of €14.80, being the opening quoted price of IAWS shares on 31 July 2008.
This is the fair value of the equity consideration as defined by IFRS 3, Business Combinations, for use in reverse acquisition accounting. The fair value was calculated by determining the number of IAWS shares which would need to have been issued to non-IAWS shareholders of Hiestand to give them the same stake in IAWS Group Limited as they will have in ARYZTA going forward.
This would be satisfied by the issuance of 13,737,143 IAWS shares to the non-IAWS shareholders of Hiestand at a market value of €17.00, being the opening quoted price of IAWS shares on 21 August 2008, the date of the merger. The fair value of €233,531,000 so calculated is presented in equity.
Also included in equity is an adjustment that was required to show the share capital of ARYZTA in the Group Balance Sheet rather than that of IAWS. This step in the acquisition accounting is effectively a reclassification.
The net impact of both these steps was an increase in equity of €233,531,000 in the prior year.
The deemed consideration of the previously held 32% interest in Hiestand comprises the current fair value of IAWS's original 32% share in the net assets of Hiestand of €85,607,000 and the current fair value of the goodwill arising thereon of €36,247,000.
| 30 | Contingent liabilities | ||
|---|---|---|---|
| 2010 | 2009 | ||
in Euro 000 | in Euro000 |
|||
| a) | Government grants repayable if grant conditions are not met | 3,489 | 5,458 |
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.
In the normal course of business, the Group undertakes transactions with its associates, joint ventures and other related parties. A summary of transactions with these related parties, which relate primarily to transactions with associates and joint ventures during the year, are as follows:
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Sale of goods | 67,975 | 65,673 |
| Purchase of goods | (5,269) | (7,586) |
| Provision of services | 24 | 1,841 |
| Receiving of services | (1,887) | (989) |
The trading balances owing to the Group from related parties were €1,361,728 (2009: €923,000) and the trading balances owing from the Group to these related parties were €2,831,032 (2009: €850,000).
For the purposes of the disclosure requirements of IAS 24, Related Party Disclosures, the term "key management personnel" (i.e. those persons having authority and responsibility for planning, directing and controlling the activities of the Group) comprises the Board of Directors and the Group Executive Management which manages the business and affairs of the Group.
A summary of the compensation to key management is as follows:
| in Euro `000 | 2010 | 2009 |
|---|---|---|
| Short-term employee benefits | 3,038 | 4,928 |
| Post employment benefits | 319 | 312 |
| Share-based payments | 1,607 | 2,134 |
| Total key management compensation | 4,964 | 7,374 |
Further detailed disclosure in relation to the compensation entitlements of the Board of Directors and Executive Management is provided in note 10 of the ARYZTA Company Financial Statements 2010.
On 10 September 2010, ARYZTA's 71.4% subsidiary, Origin Enterprises Plc (Origin), concluded a strategic agreement with CapVest Limited, facilitating the consolidation of Irish consumer food brands by establishing a new food business venture, Valeo Food Group (Valeo), in which Origin will hold an associate interest of 45%.
As part of this agreement, Origin will transfer its food business, which includes the premier Irish food brands, Odlums, Shamrock and Roma, into Valeo for net cash proceeds of €26m and a deferred consideration in the form of loan notes of €35m. This transfer will conclude the exit by Origin of a direct involvement in its previously reported Food business segment, which contributed revenues of €253m and operating profits of €13.8m to ARYZTA AG 31 July 2010 Group financial statements.
The disposal of the Origin food business assets into Valeo is expected to result in a loss on disposal of approximately €8m and will be shown as a non-recurring item in the financial statements for the year ended 31 July 2011. In addition to acquiring Origin's food business, Valeo has also reached agreement on the same date to acquire Batchelors, a leading manufacturer and retail category partner for a number of Ireland's most iconic ambient food and drink brands including Batchelors, Erin, Squeez and Lustre, servicing the canned vegetables, dry sauces and mixes, juices and canned fruit
categories in Ireland. This transaction is not expected to have a material impact on ARYZTA's share of profit from associates.
Valeo is being financed through a combination of external ring-fenced senior bank debt facilities and equity funding provided by CapVest.
For the year ended 31 July 2011, Origin's 45 per cent interest in Valeo will be treated as an associate undertaking and will be accounted for using the equity method in accordance with IAS 28, Investments in Associates.
On 12 August 2010, ARYZTA announced that its subsidiary IAWS Group Limited reached agreement with Tim Hortons Inc. (Tim Hortons), its 50-50 partner under the CillRyan's joint venture, to acquire Tim Hortons' 50% share of CillRyan's for consideration of CAD 475m (€349m).
CillRyan's principal operating entity Maidstone Bakery Limited (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. Following this investment, Maidstone will be under ARYZTA's 100% ownership. The carrying value of the investment in the Maidstone JV at 31 July 2010 is €68.3m. Completion of the Maidstone transaction is expected by end of the calendar year 2010.
Separately, ARYZTA's US subsidiary, Fresh Start Bakeries, is in the process of completing an investment in three bakeries in Asia (located in Taiwan, Singapore and Malaysia) and will commence the construction of a new bakery in Brazil. These bakeries principally service a leading international quick service restaurant operator, which continues to expand in these regions. The cost of these investments by Fresh Start Bakeries is expected to total in the order of USD 48m (EUR 36m).
It is planned that ARYZTA will issue a Perpetual Callable Subordinated Instrument ('Hybrid instrument') in the near term as the principal financing for these strategic investments.
The Board and senior management of ARYZTA 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 management of the businesses, who are best placed to identify the significant ongoing and emerging risks facing their 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.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses.
In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described below:
| Note | Name |
|---|---|
| Note 8 | Share-based payments |
| Note 14 | Goodwill and intangible assets – measurement of the recoverable amounts of |
| CGUs | |
| Note 22 | Financial instruments and financial risk |
| Note 24 | Deferred tax |
| Note 25 | Retirement benefit obligations |
The Group has grants of share-based incentives outstanding under various incentive plans. Estimating the value of these grants, and the period over which this value will be recognised as an expense, requires various management estimates and assumptions, as set out in note 8.
Impairment testing of assets, particularly of goodwill, involves estimating the future cash flows for a cash-generating unit and an appropriate discount rate to determine a recoverable value, as set out in note 14.
The Group Balance Sheet includes deferred tax assets of €62.3m relating to deductible differences and, in certain cases, deferred tax assets related to tax loss carry-forwards of €28.3m provided that their utilisation appears reasonable. The recoverable value is based on forecasts of the corresponding taxable Group company over a period of several years. As actual results may differ from these forecasts, the deferred tax assets may need to be adjusted accordingly.
The estimation of employee benefit costs requires the use of actuaries and the determination of appropriate assumptions such as discount rates and expected future rates of return, as set out in note 25.
A list of all of the Group's principal subsidiary undertakings as at 31 July 2010 is provided in the table below.
| Name | Nature of business Currency | Share capital millions |
Group % share |
Regis tered office |
|
|---|---|---|---|---|---|
| (a) Food subsidiaries – Ireland | |||||
| Cuisine de France | Food manufacturing and distribution | EUR | 0.635 | 100 | 3 |
| IAWS Management Services | Management | EUR | 0.00005 | 100 | 1 |
| IAWS Technology and Global Services | Research and development | EUR | 0.152 | 100 | 3 |
| Gallagher's Bakery | Food manufacturing and distribution | EUR | 0.034 | 100 | 1 |
| (b) Food subsidiaries – United Kingdom | |||||
| Cuisine de France (UK) Limited | Food distribution | GBP | 0.250 | 100 | 6 |
| Delice de France, plc | Food manufacturing and distribution | GBP | 0.250 | 100 | 10 |
| (c) Food subsidiaries – Mainland Europe | |||||
| IAWS France SA | Food distribution | EUR | 28.750 | 100 | 7 |
| Hiestand Schweiz AG | Food | CHF | 3.500 | 100 | 13 |
| Hiestand International AG | Food | CHF | 0.200 | 100 | 13 |
| HiCoPain AG | Food | CHF | 20.000 | 60 | 17 |
| Hiestand Beteiligungsholding GmbH & Co KG | Food | EUR | 0.026 | 100 | 5 |
| (d) Food subsidiaries – United States of America | |||||
| Cuisine de France, Inc. | Bread distribution | USD | 0.002 | 100 | 8 |
| La Brea Bakery Holdings, Inc. | Bread manufacturing and food distribution | USD | 0.007 | 100 | 9 |
| Otis Spunkmeyer, Inc. | Baked good manufacturing and distribution | USD | 0.00001 | 100 | 14 |
| Arbor Frozen Foods, Inc.1 | Food manufacturing and distribution | USD | 0.0001 | 100 | 18 |
| FSB Global Holdings, Inc.1 | Baked good manufacturing and distribution | USD | 0.085 | 100 | 19 |
| Pennant Foods Company L.L.C.1 | Baked good manufacturing and distribution | USD | 0.0001 | 100 | 9 |
| (e) Food joint venture | |||||
| CillRyan's Bakery Limited | Bread manufacturing and distribution | CAD | 21.105 | 50 | 1 |
| (f) Origin subsidiaries – Ireland | |||||
| Origin Enterprises plc | Holding company | EUR | 1.386 | 71.4 | 1 |
| Goulding Chemicals Limited | Fertiliser blending and distribution | EUR | 6.349 | 71.4 | 1 |
| R. & H. Hall Limited | Grain and feed trading | EUR | 6.865 | 71.4 | 1 |
| Shamrock Foods Limited | Food distribution | EUR | 0.0001 | 71.4 | 1 |
| Odlum Group | Flour milling | EUR | 4.493 | 71.4 | 12 |
| (g) Origin subsidiaries – United Kingdom | |||||
| Origin Fertilisers (UK) Limited | Fertiliser blending and distribution | GBP | 0.550 | 71.4 | 2 |
| Masstock Group Holdings Limited | Specialist agronomy services | GBP | 0.010 | 71.4 | 15 |
| (h) Origin associates and joint venture | |||||
| Welcon Invest AS | Fish processing | NOK | 12.000 | 35.7 | 11 |
| BHH Limited | Provender millers | STG | 5.020 | 35.7 | 4 |
| Continental Farmer's Group Plc | Producer of agriculture crops | EUR | 0.652 | 27.6 | 16 |
1 During the year, Arbor Frozen Foods, Inc., FSB Global Holdings, Inc. and Pennant Foods Company L.L.C. were added to the list of significant subsidiaries.
The country of registration is also the principal location of activities in each case.
As statutory auditor, we have audited the accompanying consolidated financial statements of ARYZTA AG, which comprise the Group Income Statement, Group Statement of Comprehensive Income, Group Cash Flow Statement, Group Balance Sheet and Group Statement of Changes in Equity and notes on pages 49 to 124 for the year ended 31 July 2010. The financial statements of the Company as of 31 July 2009 and for the year then ended were audited by other auditors, whose report dated 24 September 2009 expressed an unqualified opinion on those statements.
The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards as well as the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements for the year ended 31 July 2010 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with IFRS and comply with Swiss law.
Report of the Statutory Auditor on the Consolidated Financial Statements to the General Meeting (continued)
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
PricewaterhouseCoopers AG
Audit Expert Audit Expert Auditor in Charge
Patrick Balkanyi Cornelia Ritz Bossicard
Zurich, 23 September 2010
for the year ended 31 July 2010
| 12 month | 19 month | |
|---|---|---|
| year ended | period ended | |
| in CHF `000 | 31 July 2010 | 31 July 2009 |
| Income | ||
| Revenues from licences and management fees | 35,456 | 31,121 |
| Financial income | 20,953 | 17,231 |
| Dividend income | – | 34,093 |
| Total income | 56,409 | 82,445 |
| Expenses | ||
| Depreciation and amortisation | (49,536) | (78,264) |
| Personnel expenses | (2,673) | (5,126) |
| Financial expenses | (44,468) | (21,395) |
| Other operating expenses | (15,722) | (34,797) |
| Service fees | – | (4,751) |
| Total expenses | (112,399) | (144,333) |
| Loss before taxes | (55,990) | (61,888) |
| Taxes | (2,172) | (3,972) |
| Net loss after taxes | (58,162) | (65,860) |
as at 31 July 2010
| in CHF `000 | 2010 | 2009 |
|---|---|---|
| Assets | ||
| Non-current assets | ||
| Property, plant and equipment | 1,114 | 1,085 |
| Intangible assets | 121,431 | 170,242 |
| Financial assets | ||
| – investments | 1,318,546 | 1,318,954 |
| – loans to group companies | 863,051 | 157,580 |
| Total non-current assets | 2,304,142 | 1,647,861 |
| Current assets | ||
| Cash and cash equivalents | 40,056 | 5,779 |
| Trading accounts receivable from third parties | – | 563 |
| Other receivables | ||
| – from third parties | 537 | 1,679 |
| – from Group companies | 39,245 | 23,694 |
| Deferred expenses and accrued income | 394 | – |
| Total current assets | 80,232 | 31,715 |
| Total assets | 2,384,374 | 1,679,576 |
| in CHF `000 | 2010 | 2009 |
|---|---|---|
| Equity | ||
| Called up share capital | 1,701 | 1,624 |
| Share premium | 159,316 | 1,065,653 |
| Unrestricted reserves | 1,023,411 | – |
| Reserves for own shares | 75,167 | 75,167 |
| Loss carried forward | (65,860) | – |
| Net loss for the year | (58,162) | (65,860) |
| Total equity | 1,135,573 | 1,076,584 |
| Liabilities | ||
| Non-current liabilities | ||
| Provisions | 5,190 | 5,630 |
| Intercompany non-current liabilities | 395,985 | 572,047 |
| Interest-bearing loans and borrowings | 756,080 | – |
| Total non-current liabilities | 1,157,255 | 577,677 |
| Current liabilities | ||
| Trade accounts payable | 7,230 | 843 |
| Accrued expenses and deferred income | 10,205 | 12,444 |
| Interest-bearing loans and borrowings | 33,412 | – |
| Other accounts payable | ||
| – to third parties | 425 | 141 |
| – to Group companies | 40,274 | 11,887 |
| Total current liabilities | 91,546 | 25,315 |
| Total liabilities | 1,248,801 | 602,992 |
| Total equity and liabilities | 2,384,374 | 1,679,576 |
The Company's accounting period runs for the year from 1 August 2009 to 31 July 2010. The comparative accounting period was from 1 January 2008 to 31 July 2009.
The Company is party to cross guarantees on ARYZTA AG (excluding Origin) Group borrowings.
The Company has guaranteed the liabilities of certain of its subsidiaries. The Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.
The Swiss ARYZTA entities form a VAT subgroup and, hence, every company participating in the subgroup is liable for VAT payables of the other subgroup participants.
| 12 month | 19 month |
|---|---|
| year ended | period ended |
| 31 July 2010 | 31 July 2009 |
in CHF 000 | in CHF000 |
|
| 1,500 | 1,500 |
| Share capital | Share capital | ||
|---|---|---|---|
| millions | Percentage | Percentage | |
| 2009 | |||
| 3.500 | 3.500 | 100 | 100 |
| 0.200 | 0.200 | 100 | 100 |
| 0.026 | 0.026 | 100 | 100 |
| 60.637 | 60.637 | 100 | 100 |
| 0.036 | 0.036 | 100 | 100 |
| 185.000 | 185.000 | 100 | 100 |
| 2.400 | 2.400 | 100 | 100 |
| 0.200 | 0.200 | 100 | 100 |
| 0.100 | 0.100 | 100 | 100 |
| 43.085 | 43.085 | 100 | 100 |
| EUR EUR EUR |
2010 MYR |
millions 2009 |
2010 |
1 The amount disclosed represents limited liability capital.
| Authorised | 12 month
year ended
31 July 2010000 | 12 month<br>year ended<br>31 July 2010<br>in CHF000 | 19 month
period ended
31 July 2009000 | 19 month<br>period ended<br>31 July 2009<br>in CHF000 |
|----------------------------------------------------------------|------------------------------------------------|-------------------------------------------------------|--------------------------------------------------|---------------------------------------------------------|
| Shares of CHF 0.02 each | 109,130 | 2,183 | 109,130 | 2,183 |
| | 12 month
year ended
31 July 2010000 | 12 month<br>year ended<br>31 July 2010<br>in CHF000 | 19 month
period ended
31 July 2009000 | 19 month<br>period ended<br>31 July 2009<br>in CHF000 |
| Shares of CHF 0.02 each – authorised,
issued and fully paid | | | | |
| Opening balance | 81,180 | 1,624 | 100 | 2 |
| Issued during the period | 3,865 | 77 | 81,080 | 1,622 |
| As at 31 July | 85,045 | 1,701 | 81,180 | 1,624 |
On 21 August 2008, after the merger of ARYZTA AG with Hiestand Holding AG, the issued share capital of ARYZTA consisted of 78,940,460 ordinary shares with a nominal value of CHF 0.02 each fully paid up. On 2 December 2008, the issued share capital was increased to 81,180,460 by the issue of 2,240,000 registered shares of nominal value of CHF 0.02 each in the capital of ARYZTA, pursuant to a share subscription on behalf of ARY LTIP Trustee Limited.
ARY LTIP Trustee Limited is a wholly owned subsidiary of ARYZTA formed for the purposes of holding shares subject to the ARYZTA Long-Term Incentive Plan ("LTIP") and ARY LTIP Trustee Limited will hold these shares in treasury pending satisfaction of the applicable terms of the LTIP.
On 16 June 2010, the issued share capital was increased to 85,044,795 by the issue of 3,864,335 registered shares with a nominal value of CHF 0.02 each. The capital increase, effected at CHF 41.50 per share, was undertaken to assist the financing of the purchase of Fresh Start Bakeries.
Shareholders are entitled to dividend as declared. The ARYZTA shares rank pari passu in all respects with each other.
Pursuant to Article 4 of the Articles of Association (governing Conditional Share Capital for Employee Benefit Plans), the amount by which the share capital of the Company may be increased on a non-pre-emptive basis may not exceed CHF 130,152.80 (through the issue of up to 6,507,640 registered shares).
Pursuant to Article 5 of the Articles of Association (governing Conditional Share Capital for general purposes), the amount by which the share capital of the Company may be increased for general purposes may not exceed CHF 351,556.06 (through the issue of up to 17,577,803 registered shares).
On 2 December 2008, the Company increased its share capital to 81,180,460 by the issue of 2,240,000 registered shares of nominal value of CHF 0.02 each in the capital of ARYZTA. These 2,240,000 registered shares were issued to a subsidiary of ARYZTA, ARY LTIP Trustee Limited, as treasury shares for use in connection with the ARYZTA Long-Term Incentive Plan.
ARY LTIP Trustee Limited was formed for the purposes of holding shares, subject to the ARYZTA Long-Term Incentive Plan ('LTIP') and ARY LTIP Trustee Limited will hold these shares in treasury pending satisfaction of the applicable terms of the LTIP.
| | 12 month
year ended
31 July 2010000 | 12 month<br>year ended<br>31 July 2010<br>in CHF000 | 19 month
period ended
31 July 2009000 | 19 month<br>period ended<br>31 July 2009<br>in CHF000 |
|-----------------------------|------------------------------------------------|-------------------------------------------------------|--------------------------------------------------|---------------------------------------------------------|
| Opening balance | 2,234 | 75,167 | – | – |
| Issue of shares | – | – | 2,240 | 75,357 |
| Movement on treasury shares | – | – | (6) | (190) |
| As at 31 July | 2,234 | 75,167 | 2,234 | 75,167 |
ARYZTA AG, Zurich, as the ultimate parent company of the ARYZTA Group, is fully integrated into the group-wide internal risk assessment process.
The Board and senior management of ARYZTA 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 management of the businesses, who are best placed to identify the significant ongoing and emerging risks facing their 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.
As at 31 July 2010, the Company has been notified of the following shareholdings which amount to 5% or more of the Company's issued ordinary share capital:
| % of | % of | |||
|---|---|---|---|---|
| Number | registered | Number | registered | |
| of shares | shares | of shares | shares | |
| 2010 | 2010 | 2009 | 2009 | |
| Invesco Limited | 8,144,528 | 9.58% 4,102,193 | 5.05% | |
| Fidelity International Limited1 | 4,049,810 | 4.76% 4,255,814 | 5.24% | |
| Fidelity Management and Research LLC ("FMR LLC")1 | 3,825,000 | 4.50% 3,825,000 | 4.71% |
1 Fidelity International Limited and FMR LLC are two separate investment companies, but under common control, as part of the Fidelity group of investment companies.
Any significant shareholder notifications during the year and since 31 July 2010 are available on the Group's website www.aryzta.com.
The pension fund liability was CHF 161,000 at 31 July 2010 (2009: CHF 140,000).
The Nomination and Remuneration Committee of the Board (the "NRC") is responsible for determining the remuneration of executive and non-executive members of the Board and for approving the remuneration of other members of senior management.
The Group's policy on executive remuneration recognises that employment and remuneration conditions for senior executives must reward and motivate senior executives to perform in the best interests of the shareholders, while striking an appropriate balance between long-term and short-term goals.
Executives are remunerated in line with the level of their authority and responsibility within the Group. The elements of the remuneration package for Executive Management, all of which are reviewed annually by the NRC may comprise: (a) basic salary and benefits (including retirement benefits); (b) short-term performance related bonus (measured by reference to performance in the financial year); and (c) long-term incentives.
Basic salary of executive directors is reviewed annually with regard to personal performance, Group performance and competitive market practice. Employment related benefits consist principally of a car allowance and pension. Pension benefits are determined solely in relation to basic salary.
Short-term performance related bonus payments were not made to Executive Management in the year.
The ARYZTA Long-Term Incentive Plan ("LTIP") is designed to incentivise executives for driving the achievement of superior financial targets measured over the long term (three financial years) and to align their interests with the shareholders through the promotion
and encouragement of share ownership. The LTIP allows a mix of tools to be employed to this end. The ARYZTA Long-Term Incentive Plan ("LTIP") consists of a Share Option Equivalent LTIP and a Matching Scheme LTIP. See note 8 of the Group Financial Statements for the total expense recognised in the Income Statement for share-based payments in 2010.
During the year, the Company made awards under the Share Option Equivalent LTIP to Executive Management and to Group Management. The vesting of the share options equivalents granted is conditional on the growth rate in underlying fully diluted EPS in any three consecutive accounting periods exceeding the growth in the Euro zone Core Consumer Price Index plus 5%. In addition, the return on invested capital over the relevant three year performance period must not be less than the weighted average cost of capital of the Group, and the individual must be in on-going employment. The Group has no legal or constructive obligation to repurchase or settle the option equivalents in cash. The cost of the Share Option Equivalent LTIP is charged to the Income Statement over the current estimated vesting period from grant date.
During 2010, the Company made no new awards under the Matching Scheme LTIP. Participants with Matching Scheme Awards have the prospect of receiving up to three shares for each recognised qualifying interest held throughout the performance period. Vesting is determined by reference to underlying fully diluted EPS growth. Compound growth in EPS in any three consecutive financial years ending after 31 July 2008 must exceed 10%, with vesting accruing as per the following table:
| Multiple (re | |
|---|---|
| qualifying invest | |
| EPS growth | ment shares) |
| 15% or more | 3 |
| >12.5% < 15% | 2 |
| 10% to 12.4% | 1 |
| < 10% | 0 |
Awards under the Matching Scheme are subject to additional conditions including notably: (a) the requirement to hold recognised qualifying interests throughout the performance period; and (b) the requirement that ARYZTA's return on invested capital over the performance period is not less than its weighted average cost of capital.
The cost of the Matching Scheme LTIP is charged to the Income Statement over the estimated vesting period. The fair value assigned to these equity instruments represents the full value of an ordinary share on the date of grant, adjusted for lost dividends between the date of issue and the vesting date.
Non-executive Board members are paid a yearly fee which reflects the time commitment and responsibilities of the role. Additional compensation is payable for service on a Board Committee (including the Chair thereof). The level of fees is kept under review by reference to comparable external figures. Non-executive Board members are not eligible for performance-related payments and do not participate in the Group's Long-Term Incentive Plan.
| Direct payments | Direct payments | |
|---|---|---|
| in 12 month | in 19 month | |
| year ended | period ended | |
| in CHF `000 | 31 July 2010 | 31 July 20091 |
| Denis Lucey | 323 | 323 |
| Albert Abderhalden | 88 | 77 |
| Denis Buckley | 96 | 96 |
| J Brian Davy | 112 | 112 |
| Noreen Hynes | 112 | 112 |
| Hugo Kane | 88 | 77 |
| Owen Killian | 88 | 77 |
| Patrick McEniff | 88 | 77 |
| William Murphy | 96 | 97 |
| Hans Sigrist | 88 | 77 |
| Dr J Maurice Zufferey | 96 | 84 |
| Beatrice Dardis2 | – | 90 |
| Wolfgang Werle2 | – | 30 |
| Paul Wilkinson2 | – | 98 |
| Total | 1,275 | 1,427 |
1 Depending on when they commenced their service with the Group, the compensation paid to the members of the Board of Directors covers the period from either 1 August 2008 or the date of their appointment to the Board of Directors of ARYZTA to 31 July 2009.
2 B. Dardis and P. Wilkinson resigned from the Board on 28 July 2009 and W. Werle resigned from the Board on 29 December 2008.
With the exception of Denis Lucey, OwenKillian and PatrickMcEniff who were appointed on 6 June 2008, all other Directors were appointed to the ARYZTA Board upon the admission of ARYZTA to trading on the SIX Swiss Exchange and Irish Stock Exchange on 22 August 2008.
| Total Executive | Total Executive | |||||
|---|---|---|---|---|---|---|
| Management | Owen Killian | Management | Owen Killian | |||
| in CHF `000 | 2010 | 2010 | 2009 | 2009 | ||
| Basic salaries | 3,196 | 1,277 | 3,188 | 1,277 | ||
| Performance related bonus | – | – | 2,920 | 1,277 | ||
| Benefits in kind | 234 | 83 | 240 | 83 | ||
| Pension contributions | 467 | 191 | 478 | 191 | ||
| Executive Incentive Plan | 2,350 | 903 | 3,267 | 1,307 | ||
| Total compensation paid to members of ARYZTA Executive Management |
6,247 | 2,454 | 10,093 | 4,135 |
The highest total compensation in the reporting period was received by OwenKillian, and his total remuneration is disclosed separately above. Executive Management, as per the ARYZTA Group's Corporate Governance Report at page 24, consists of Owen Killian
(CEO), PatrickMcEniff (CFO), HugoKane (COO), and PatMorrissey (Group General Counsel and Company Secretary).
The compensation to members of the Executive Management disclosed for the financial year includes compensation for their roles as members of the Board of ARYZTA for the period from 1 August 2009 to 31 July 2010 and in the case of Owen Killian, Patrick McEniff and Pat Morrissey for their service as officers of Origin Enterprises plc (respectively, Chairman, non-executive Director and Company Secretary).
The directors and Company Secretary who held office at 31 July 2010 had no interests, other than those shown below, in the ordinary shares in, or loan stock of, the Company or other Group undertakings. Beneficial interests at 31 July were as follows:
| No. of shares | No. of shares | |
|---|---|---|
| Shares in ARYZTA at CHF 0.02 each | 2010 | 2009 |
| Denis Lucey | 1,250 | 1,250 |
| Albert Abderhalden | 313,788 | 313,788 |
| Denis Buckley | 2,250 | 2,250 |
| J Brian Davy | 58,186 | 58,186 |
| Noreen Hynes | 1,000 | 1,000 |
| Hugo Kane | 240,978 | 280,978 |
| Owen Killian | 523,731 | 523,731 |
| Patrick McEniff | 320,006 | 320,006 |
| William Murphy | 6,171 | 6,171 |
| Hans Sigrist | 14,000 | 14,000 |
| Dr J Maurice Zufferey | 396 | 396 |
| Company Secretary | ||
| Pat Morrissey | 93,251 | 93,251 |
| 1,575,007 | 1,615,007 |
Details of the interests of OwenKillian, PatrickMcEniff, HugoKane, and PatMorrissey in share entitlements under the Matching Scheme and Share Option Equivalent Scheme are set out below. There have been no changes in the interests as shown above between 31 July 2010 and 23 September 2010.
| 1) | 2) | 3) | 4) | |
|---|---|---|---|---|
| Directors | ||||
| Owen Killian | – | 300,000 | 31 July 2011 | 6 April 2019 |
| Patrick McEniff | – | 180,000 | 31 July 2011 | 6 April 2019 |
| Hugo Kane | – | 180,000 | 31 July 2011 | 6 April 2019 |
| Pat Morrissey | – | 90,000 | 31 July 2011 | 6 April 2019 | |
|---|---|---|---|---|---|
| Total | – | 750,000 | |||
1) Maximum number of shares available based on Matching Scheme awards made during the current financial year.
2) Maximum number of shares available based on Matching Scheme awards held at 31 July 2010.
3) Earliest date by which qualifying conditions can be met.
4) Latest date by which qualifying conditions must be met.
| 1) | 2) | 3) | 4) | |
|---|---|---|---|---|
| Directors | ||||
| Owen Killian | 300,000 | 300,000 | 31 July 2012 | 14 December 2019 |
| Patrick McEniff | 250,000 | 250,000 | 31 July 2012 | 14 December 2019 |
| Hugo Kane | 150,000 | 150,000 | 31 July 2012 | 14 December 2019 |
| Company Secretary | ||||
| Pat Morrissey | 100,000 | 100,000 | 31 July 2012 14 December 2019 | |
| Total | 800,000 | 800,000 |
1) Maximum number of share option equivalent rights available based on share option equivalents granted during the current financial year.
2) Maximum number of shares option equivalent rights available based on share option equivalents granted during the year and held at 31 July 2010.
3) Earliest date by which qualifying conditions can be met.
4) Latest date by which qualifying conditions must be met.
The Board of Directors will propose to the General Meeting of Shareholders the following appropriation of earnings:
| in CHF `000 | 2010 | 2009 |
|---|---|---|
| Balance at beginning of period | 999,469 | – |
| Dividend payment | (41,918) | – |
| Transfer from share premium to unrestricted reserves | – | 1,065,329 |
| Net loss for the year | (58,162) | (65,860) |
| Available earnings | 899,389 | 999,469 |
| Proposed dividend in the amount of1 | 39,766 | 42,031 |
| To be carried forward | 859,623 | 957,438 |
| Total | 899,389 | 999,469 |
1 Proposed dividend represents an estimated amount. This will be adjusted to take account of actual currency translation rates at the date of payment and of any new shares entitled to dividend which are issued subsequent to July 31, and prior to the date of the dividend payment.
As statutory auditor, we have audited the accompanying financial statements of ARYZTA AG (the Company), which comprise the Company Income Statement, Company Balance Sheet and notes on pages 127 to 137 for the year ended 31 July 2010. The financial statements of the Company as of 31 July 2009 and for the year then ended were audited by other auditors, whose report dated 24 September 2009 expressed an unqualified opinion on those statements.
The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the Company's articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements for the year ended 31 July 2010 comply with Swiss law and the Company's articles of incorporation.
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.
We further confirm that the proposed appropriation of available earnings complies with Swiss law and the Company's articles of incorporation. We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers AG
Audit Expert Audit Expert Auditor in Charge
Zurich, 23 September 2010
Patrick Balkanyi Cornelia Ritz Bossicard
| Page 143 |
Basis of Preparation |
|---|---|
| 144 | Food Group Income Statement |
| 145 | Food Group Statement of Comprehensive Income |
| 146 | Food Group Balance Sheet |
| 148 | Food Group Cash Flow Statement |
These unaudited Food Group Financial Statements comprise designated individual legal entities which are consolidated as subsidiaries of ARYZTA AG and show the Food Group's interest in joint ventures of ARYZTA AG using the equity method, and which do not form part of Origin Enterprises, plc.
The accompanying financial statements comprise the Income Statement, Statement of Comprehensive Income, Balance Sheet and Cash Flow Statement ("the Food Group Financial Statements") of the Food Group for the year ended 31 July 2010 with 31 July 2009 comparatives.
The Directors have prepared the Food Group Financial Statements by applying accounting policies consistent with those applied by ARYZTA AG and extracting the differences between the audited financial statements of ARYZTA AG and the audited financial statements of Origin Enterprises plc, after reflecting appropriate adjustments deemed necessary to prepare the Food Group Financial Statements. The investment in Origin is carried at historic cost.
The ARYZTA AG and Origin Enterprises plc Group Financial Statements have been reported on by the ARYZTA AG auditor without qualification.
for the year ended 31 July 2010
| 2010 | 2009 | |
|---|---|---|
| in Euro `000 | unaudited | unaudited |
| Revenue | 1,679,417 | 1,712,754 |
| Cost of sales | (1,010,354) | (1,026,643) |
| Gross profit | 669,063 | 686,111 |
| Operating expenses | (508,811) | (524,387) |
| Operating profit before acquisition, merger costs and other | 160,252 | 161,724 |
| Dividend income from investment in Origin | 7,600 | – |
| Acquisition, merger costs and other | (4,592) | (22,738) |
| Operating profit | 163,260 | 138,986 |
| Share of profit of joint ventures | 20,041 | 13,808 |
| Profit before financing income and costs | 183,301 | 152,794 |
| Financing costs, net | (36,272) | (33,299) |
| Profit before tax | 147,029 | 119,495 |
| Income tax expense | (19,379) | (21,827) |
| Profit for the year | 127,650 | 97,668 |
| Attributable as follows: | ||
| Equity shareholders | 125,020 | 94,633 |
| Non-controlling interests | 2,630 | 3,035 |
| Profit for the year | 127,650 | 97,668 |
| 2010 | 2009 | |
|---|---|---|
| in Euro `000 | unaudited | unaudited |
| Profit for the year | 127,650 | 97,668 |
| Other comprehensive income | ||
| Foreign exchange translation effects | 53,180 | 23,602 |
| Actuarial loss on Group defined benefit pension schemes, net of deferred tax | (1,510) | (115) |
| Gains/(losses) relating to cash flow hedges, net of deferred tax | 2,895 | (3,050) |
| Revaluation of previously held investment in Hiestand | – | 35,077 |
| Total other comprehensive income for the year | 54,565 | 55,514 |
| Total comprehensive income for the year | 182,215 | 153,182 |
| Attributable as follows: | ||
| Equity shareholders | 178,262 | 150,147 |
| Non-controlling interests | 3,953 | 3,035 |
| Total comprehensive income for the year | 182,215 | 153,182 |
as at 31 July 2010
| 2010 | 2009 | |
|---|---|---|
| in Euro `000 | unaudited | unaudited |
| Assets | ||
| Non-current assets | ||
| Property, plant and equipment | 815,918 | 577,772 |
| Investment property | 4,646 | 3,761 |
| Goodwill and intangible assets | 2,149,826 | 1,382,431 |
| Investments in joint ventures | 73,140 | 55,720 |
| Other investments | 51,045 | 51,045 |
| Deferred tax assets | 57,683 | 21,754 |
| Total non-current assets | 3,152,258 | 2,092,483 |
| Current assets | ||
| Amounts owed by Origin Enterprises plc | 49 | 1,629 |
| Inventory | 129,947 | 96,381 |
| Trade and other receivables | 247,336 | 207,918 |
| Derivative financial instruments | 394 | 534 |
| Cash and cash equivalents | 318,544 | 204,586 |
| Total current assets | 696,270 | 511,048 |
| Total assets | 3,848,528 | 2,603,531 |
| in Euro `000 | 2010 unaudited |
2009 unaudited |
|---|---|---|
| Equity | ||
| Called up share capital | 1,061 | 1,005 |
| Share premium | 632,951 | 518,006 |
| Retained earnings and other reserves | 897,103 | 745,302 |
| Total equity attributable to equity shareholders of parent 1,531,115 |
1,264,313 | |
| Non-controlling interests | 11,936 | 10,721 |
| Total equity 1,543,051 |
1,275,034 | |
| Liabilities | ||
| Non-current liabilities | ||
| Interest-bearing loans and borrowings 1,391,189 |
694,511 | |
| Employee benefits | 7,524 | 5,108 |
| Deferred income from government grants | 16,100 | 16,465 |
| Other payables | 7,107 | 1,025 |
| Deferred tax liabilities | 338,348 | 184,109 |
| Derivative financial instruments | – | 801 |
| Deferred consideration | 12,824 | 29,123 |
| Total non-current liabilities 1,773,092 |
931,142 | |
| Current liabilities | ||
| Interest-bearing loans and borrowings | 42,978 | 15,579 |
| Trade and other payables | 427,329 | 334,672 |
| Corporation tax payable | 47,437 | 38,116 |
| Derivative financial instruments | 2,172 | 5,165 |
| Deferred consideration | 12,469 | 3,823 |
| Total current liabilities | 532,385 | 397,355 |
| Total liabilities 2,305,477 |
1,328,497 | |
| Total equity and liabilities 3,848,528 |
2,603,531 |
for the year ended 31 July 2010
| 2010 | 2009 | |
|---|---|---|
| in Euro `000 | unaudited | unaudited |
| Cash flows from operating activities | ||
| Profit before tax | 147,029 | 119,495 |
| Financing costs, net | 36,272 | 33,299 |
| Dividend income from investment in Origin | (7,600) | – |
| Share of profit of joint ventures | (20,041) | (13,808) |
| Merger and other expenses | (51) | 22,738 |
| Depreciation of property, plant and equipment | 60,363 | 54,628 |
| Amortisation of intangible assets | 47,450 | 42,983 |
| Recognition of deferred income from government grants | (2,895) | (1,881) |
| Share-based payments | 1,400 | 2,827 |
| Other | 25 | 1,180 |
| Cash flows from operating activities before changes in working capital | 261,952 | 261,461 |
| (Increase)/decrease in inventory | (1,235) | 8,466 |
| (Increase)/decrease in trade and other receivables | 30,918 | 45,997 |
| Increase/(decrease) in trade and other payables | (4,865) | (29,788) |
| Cash generated from operating activities | 286,770 | 286,136 |
| Interest paid, net | (31,651) | (33,694) |
| Income tax paid | (22,573) | (19,868) |
| Net cash flows from operating activities | 232,546 | 232,574 |
| in Euro `000 | 2010 unaudited |
2009 unaudited |
|---|---|---|
| Cash flows from investing activities | ||
| Proceeds from sale of property, plant and equipment | 852 | 1,551 |
| Purchase of property, plant and equipment | ||
| – maintenance capital expenditure | (10,330) | (15,047) |
| – investment capital expenditure | (29,632) | (56,229) |
| Grants received | 1,117 | 2,377 |
| Acquisition of subsidiaries and businesses, net of cash acquired | (564,419) | (66,312) |
| Investment in joint venture | (1,800) | – |
| Purchase of intangible assets | (16,914) | (10,705) |
| Dividends received | 24,158 | 18,830 |
| Deferred consideration | (2,128) | (27,384) |
| Net cash flows from investing activities | (599,096) | (152,919) |
| Cash flows from financing activities | ||
| Net proceeds from issue of share capital | 115,001 | (626) |
| Drawdown of loan capital | 360,431 | 78,437 |
| Capital element of finance lease liabilities | (807) | (646) |
| Dividends paid | (30,599) | – |
| Net cash flows from financing activities | 444,026 | 77,165 |
| Net increase in cash and cash equivalents | 77,476 | 156,820 |
| Translation adjustment | 8,938 | 738 |
| Net cash and cash equivalents at start of year | 189,310 | 31,752 |
| Net cash and cash equivalents at end of year | 275,724 | 189,310 |
Food Rest of world Brazil Rio de Janeiro Flamengo Park
Located close to Guanabara Bay, and also named after Brigadier Eduardo Gomes, the Aterro do Flamengo is the city's largest outdoor leisure space. The park has strong sporting associations, forming the final stretch of the Rio de Janeiro mara‑ thon and a key section of the city's famous cycling race. The gardens were planned by the world-renowned landscape designer Burle Marx and are also the site of the Carmen Miranda Museum and the monument to soldiers killed during World War II.
| Announcement of the 2010 annual results | 27 September 2010 |
|---|---|
| Issue of the 2010 annual report | 5 October 2010 |
| First quarter trading update | 29 November 2010 |
| Annual General Meeting | 2 December 2010 |
| Payment of dividend | 1 February 2011 |
| Announcement of half-year results 2011 | 14 March 2011 |
| Third quarter trading update | 7 June 2011 |
| Announcement of the 2011 annual results | 26 September 2011 |
| Issue of the 2011 annual report | 4 October 2011 |
| First quarter trading update | 28 November 2011 |
| Annual General Meeting 2011 | 1 December 2011 |
All enquiries regarding investor meeting requests should be sent by e-mail.
Hilliard Lombard Head of Group Finance and Communications
Talacker 41 8001 Zurich Switzerland Tel: +41 (0) 44 583 42 00 Fax: +41 (0) 44 583 42 49 [email protected] www.aryzta.com
Imprint Design: hilda design matters, Zurich Photographs parks: Lonely Planet Images Print: Neidhart + Schön Group, Zurich
Talacker 41 8001 Zurich Switzerland Tel: +41 (0) 44 583 42 00 Fax: +41 (0) 44 583 42 49 [email protected] www.aryzta.com
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