Annual Report • Oct 2, 2016
Annual Report
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Annual Report and Accounts
ARYZTA AG ('ARYZTA') is an international food business with a leadership position in speciality bakery. ARYZTA is based in Zurich, Switzerland, with operations in North America, Europe, Asia, Australia, New Zealand and South America. ARYZTA has a primary listing on the SIX Swiss Exchange and a secondary listing on the ISE Irish Exchange (SIX: ARYN, ISE: YZA).
| Page | Overview |
|---|---|
| 02 | Financial Highlights |
| 03 | Letter to Shareholders |
| 06 | Business Overview |
| 10 | Financial and Business Review |
| 24 | Bridge to Group Income Statement |
| 26 49 59 61 |
Governance Corporate Governance Report Compensation Report Group Risk Statement Our Responsibility |
| 65 | Group Group Consolidated Financial Statements Company |
| 145 | Company Financial Statements |
| 158 | Investor Information |
Overview
1 See glossary on page 23 for definitions of financial terms and references used in this document.
In the financial year 2016, the key successes included strong free cash generation of €267m, the transition to a pure speciality food group, and the successful consolidation and commissioning of new modern capacity to support future growth.
Financial year 2016 also marked a return to positive underlying revenue growth of 0.5%, with strong underlying revenue growth of 4.0% in Europe and 6.2% in the Rest of World, which were offset by a recovering underlying revenue performance of negative 3.1% in North America, as a result of losses arising from long-term contract renewals with a small number of key customers. Acquisitions performed to expectation during the year and currency supported revenue growth by 1.4%.
Overall, revenue from continuing operations increased by 1.5% to €3.9bn, while EBITA from continuing operations decreased 5.7% to €485m and EBITA margins declined by 100 bps to 12.5%. Half of this margin decline reflects an increased investment in brand marketing, primarily in North America, where the Otis Spunkmeyer and La Brea ranges were extended. The remainder of the margin decline related to the negative operating leverage from the long-term contract renewals. While these revenue losses adversely impacted FY 2016, resulting in an overall 5.0% decline in underlying fully diluted EPS from continuing operations to 350.3c, the successful finalisation of new long-term contracts brings revenue stability and a solid foundation for future growth.
During FY 2016, we transitioned into a pure food business, focused on frozen speciality food, by exiting our investment in Origin Enterprises, which we first listed in 2007. Since that time, Origin returned over €1 billion to its founding shareholder. When I reflect on my period as Chairman, I am very proud of how this business transformed to establish a relevance opposite primary food producers.
During August 2015, we also re-invested €451m to acquire a 49% shareholding in Picard, with a call option to acquire the balance in FY19, FY20 or FY21. As the lines are blurring between previously delineated food channels, ARYZTA must continuously evolve, and Picard has the potential to enhance ARYZTA's relevance to customers and consumers, with its unique and innovative business. Picard performed well in terms of revenue and EBITDA growth since our investment, and generated €40.5m of free cash.
During the year, the Group also successfully commissioned its €150m investment in additional bakery capacity and capabilities in Germany and consolidated older, less efficient capacity onto the same site. These capital investments, combined with the subdued operating performance, negatively impacted ROIC, which declined by 40bps to 10.5%.
At the Annual General Meeting on 13 December 2016, shareholders will be invited to approve a proposed dividend of CHF 0.5731 (€0.5255) per share. If approved, the dividend will be paid to shareholders on 1 February 2017. A dividend of CHF 0.6555 per share was paid during the year, as approved by shareholders at the Annual General Meeting on 8 December 2015.
Overview
At the 2015 AGM, held on 8 December 2015, the shareholders approved the re-election of myself, Mr. Denis Lucey as Chairman of the Board of Directors, together with the reelection of Mr. Charles Adair, Ms. Annette Flynn, Mr. Shaun B. Higgins, Mr. Owen Killian, Mr. Andrew Morgan, Mr. Wolfgang Werlé and the election of Mr. Dan Flinter. Mr. Patrick McEniff, CFO/COO and Mr. John Yamin, CEO Americas, did not present themselves for re-election to the Board, as the Board transitioned to more demonstrably independent governance. In addition, Mr. J Brian Davy, retired at the 2015 AGM.
The Board of ARYZTA AG now consists of one executive director and seven non-executive directors. The biographies of individual Board members and the Secretary to the Board are available on pages 33 to 36 in the Corporate Governance report.
At the 2016 AGM, to be held on 13 December 2016, the Board will propose the reelection of all current Board members other than Shaun B. Higgins and myself. Mr Gary McGann will be proposed as the new Chairman and Prof. Dr. Rolf Watter will be proposed as a new member of the Board. I want to welcome my successor and wholeheartedly recommend Gary McGann and Rolf Watter to you as very experienced, shareholderfriendly leaders, whose reputations are impeccable and whose values align with those of ARYZTA.
I thank my fellow and past directors for their courtesy and support during my time as Chairman. I thank you as shareholders who have encouraged, challenged and supported us throughout the period. I thank the nearly 20,000 people who turn up every day and bring their passionate expertise to our bakeries, our logistics centres and all parts of our organisation. In particular, I thank our customers for whom we exist and without whose support we would have no business.
ARYZTA, with its passion for good food, is in great hands, and I wish Gary and ARYZTA great success.
Denis Lucey Chairman, Board of Directors
3 October 2016
Overview
Business Overview Markets (continued)
Overview
| in EUR `000 | July 2016 | July 2015 | % Change |
|---|---|---|---|
| Group revenue | 3,878,871 3,820,231 | 1.5% | |
| EBITA1 | 484,867 | 513,965 | (5.7)% |
| EBITA margin | 12.5% | 13.5% | (100) bps |
| Joint ventures, net of tax | 15,682 | (1,210) | – |
| EBITA including joint ventures | 500,549 | 512,755 | (2.4)% |
| Finance cost, net | (103,180) | (83,390) | – |
| Hybrid instrument accrued dividend | (31,882) | (30,673) | – |
| Pre-tax profits | 365,487 | 398,692 | – |
| Income tax | (51,169) | (64,035) | – |
| Non-controlling interests | (2,776) | (4,669) | – |
| Underlying net profit – continuing operations | 311,542 | 329,988 | (5.6)% |
| Underlying net profit – discontinued operations2 | – | 29,735 | (100.0)% |
| Underlying net profit – total3 | 311,542 | 359,723 | (13.4)% |
| Underlying fully diluted EPS (cent) – total4 | 350.3 | 402.2 | (12.9)% |
| Underlying net profit – continuing operations3 | 311,542 | 329,988 | (5.6)% |
| Underlying fully diluted EPS (cent) – continuing operations4 | 350.3 | 368.9 | (5.0)% |
|---|---|---|---|
1 See glossary in section 22 for definitions of financial terms and references used in the financial and business review.
2 Following the reduction in the Group's investment in Origin during March 2015, the Group's proportion of Origin's results have been presented separately as discontinued operations.
3 See bridge from underlying net profit to reported net profit, as included on page 24.
4 The 31 July 2016 weighted average number of ordinary shares used to calculate underlying earnings per share is 88,929,096 (2015: 89,441,152).
| in EUR million | Europe | North America |
Rest of World |
Total Group |
|---|---|---|---|---|
| Group revenue | 1,747.1 | 1,908.1 | 223.7 | 3,878.9 |
| Underlying growth | 4.0% | (3.1)% | 6.2% | 0.5% |
| Acquisitions, net | 1.9% | (2.4)% | – | (0.4)% |
| Currency | 0.2% | 3.7% | (9.5)% | 1.4% |
| Revenue growth | 6.1% | (1.8)% | (3.3)% | 1.5% |
| Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | |
|---|---|---|---|---|---|
| Europe | |||||
| Volume % | 2.1% | 2.7% | 3.3% | 3.1% | 2.8% |
| Price / Mix % | 3.4% | 1.1% | 0.6% | (0.1)% | 1.2% |
| Underlying growth % | 5.5% | 3.8% | 3.9% | 3.0% | 4.0% |
| North America | |||||
| Volume % | (9.4)% | (6.5)% | (4.2)% | (1.2)% | (5.3)% |
| Price / Mix % | 3.8% | 4.1% | 1.9% | (0.9)% | 2.2% |
| Underlying growth % | (5.6)% | (2.4)% | (2.3)% | (2.1)% | (3.1)% |
| Underlying growth excluding contract renewals % |
(1.2)% | 2.6% | 4.7% | 2.9% | 2.2% |
| Rest of World | |||||
| Volume % | (3.7)% | (0.8)% | 3.7% | 0.1% | (0.2)% |
| Price / Mix % | 5.9% | 6.5% | 3.8% | 9.3% | 6.4% |
| Underlying growth % | 2.2% | 5.7% | 7.5% | 9.4% | 6.2% |
| Total Group | |||||
| Volume % | (4.0)% | (2.1)% | (0.3)% | 0.8% | (1.5)% |
| Price / Mix % | 3.6% | 2.9% | 1.2% | 0.0% | 2.0% |
| Underlying growth % | (0.4)% | 0.8% | 0.9% | 0.8% | 0.5% |
| Underlying growth excluding contract renewals % |
2.4% | 3.4% | 4.4% | 3.4% | 3.4% |
| in EUR `000 | July 2016 | July 2015 | % Change | EBITA Margin 2016 |
EBITA Margin 2015 |
% Change |
|---|---|---|---|---|---|---|
| Europe | 215,777 | 212,031 | 1.8% | 12.4% | 12.9% | (50) bps |
| North America | 243,292 | 275,108 | (11.6)% | 12.8% | 14.2% | (140) bps |
| Rest of World | 25,798 | 26,826 | (3.8)% | 11.5% | 11.6% | (10) bps |
| Total Group EBITA | 484,867 | 513,965 | (5.7)% | 12.5% | 13.5% | (100) bps |
ARYZTA's business is speciality food, with a primary focus on speciality baking, a niche segment of the overall bakery market. Speciality bakery consists of freshly prepared food, giving the best value, variety, taste and convenience to consumers at the point of sale. ARYZTA's customer channels consist of a mix of large retail, convenience and independent retail, Quick Serve Restaurants ('QSR') and other foodservice categories.
Total revenue from continuing operations increased by 1.5% to €3.9bn during the year ended 31 July 2016, mainly due to a favourable currency impact of 1.4%, primarily related to the strengthening of the US Dollar.
Overall underlying revenues increased during the year by 0.5%, reflecting strong underlying growth in Europe of 4.0%, offset by a (3.1)% decline in underlying revenues in North America, due entirely to the impact of long-term contract renewals. Excluding the impact of these long-term contract renewals, underlying revenue growth for the Group would have been 3.4%.
Group EBITA from continuing operations decreased (5.7)% to €484.9m and Group EBITA margins declined by (100) bps to 12.5%. Approximately half of this EBITA margin decline relates to increased investments in marketing of the Group's brands, including La Brea Bakery, Otis Spunkmeyer, Cuisine de France, Hiestand and Fornetti, in order to drive future sales of these higher margin consumer-facing sales. The remainder of the decline primarily relates to the production inefficiencies and negative operating leverage caused by the volume reductions resulting from the North American long-term contract renewals.
As previously indicated, all long-term contracts have now been signed, which significantly increases revenue stability going forward.
ARYZTA Europe has leading market positions in the speciality bakery markets in Germany, Switzerland, France, Ireland, the UK, the Netherlands, Hungary, Poland, Denmark, Spain, Sweden, Romania, Czechia and other European countries. ARYZTA Europe's business continues to benefit from growth in In-Store Bakery, driven primarily by growth in the discounter channel, and is well positioned for improved performance.
ARYZTA Europe performed strongly during the year, with revenue growth of 6.1% to €1,747.1m, of which underlying revenue increased by 4.0%. In addition, acquisitions, net of disposals, contributed 1.9% and there was also a favourable currency impact of 0.2%.
Europe EBITA increased by 1.8% to €215.8m and EBITA margins decreased by (50) bps to 12.4%.
The multi-year investment in additional bakery capacity in Germany was substantially completed during the year, enabling the consolidation of older less efficient capacity into a single highly-automated site by year-end. However, the level of change required during this transition period impacted production efficiencies and new product development, leading to reduced underlying revenue growth and operating leverage during Q4.
There was a good recovery in the ARYZTA Food Solutions businesses in Ireland and the UK during the year. The business performance in France suffered from a significant reduction in tourism, especially in Paris, due to heightened security concerns. In Switzerland, the strong Swiss franc continues to impact pricing strategies, in order to preserve market competitiveness.
ARYZTA Europe completed the divestment of Fresca in France and the acquisition of La Rousse Foods in Ireland during the year. These transactions reflect the ARYZTA Food Solutions strategy to focus on premium, higher-margin business. The recent European acquisitions of Fornetti and La Rousse performed well during the year, fully delivering their acquisition business plans.
During the year, ARYZTA Europe invested €91.1m in capital expansion, primarily related to extending capabilities and centralising production in Germany.
ARYZTA Europe also incurred €5.0m of non-cash asset write-downs of various manufacturing, distribution and administration assets and €57.1m of cash non-recurring costs, primarily related to severance and staff-related costs incurred as a direct result of bakery consolidation in Germany and de-layering of management functions across the region.
ARYZTA North America is a leading player in the speciality bakery markets in the United States and Canada. ARYZTA has three routes to market; outsourced supply chain manufacturing, customer own brand manufacturing and ARYZTA brand manufacturing. ARYZTA's key consumer brands in North America are La Brea Bakery and Otis Spunkmeyer.
ARYZTA North America revenues declined by (1.8)% to €1.9bn. Underlying revenue declined by (3.1)% during the year. The disposal of a non-core, fillings and mixes business resulted in a further decline of (2.4)%, while favourable currency movements supported revenues by 3.7% during the year.
The ARYZTA North America decline in underlying revenues is entirely related to the impact of long-term contract renewals, as highlighted in previous announcements. Excluding the impact of these customers, underlying revenue growth in ARYZTA North America would have been 2.2%, reflecting the success of the innovation driven pipeline of new food items, cross-selling and an overall extension of the customer base.
ARYZTA North America EBITA declined by (11.6)% to €243.3m, while EBITA margins declined (140) bps to 12.8%. These declines reflect the increased investment in consumer facing brands to support the nationwide roll-out of Otis Spunkmeyer. It also reflects the decreased operating leverage created by the decline in underlying revenues during the period.
During the year, ARYZTA North America invested an additional €39.8m to expand and modernise existing capabilities, primarily in the premium artisan bakery segment.
ARYZTA North America also incurred €9.7m of asset write-downs and €24.5m cash non-recurring costs due to continued optimisation and efficiency programmes.
ARYZTA's operations in the Rest of World primarily includes businesses in Brazil, Australia, New Zealand, Japan, Malaysia and Singapore. While accounting for less than 6% of the total Group's business, these locations provide attractive future growth opportunities.
ARYZTA Rest of World revenues declined by (3.3)% to €223.7m, entirely due to unfavourable currency movements of (9.5)%, primarily from the weakening of the Brazilian Real. Underlying revenue growth across the region was strong at 6.2%, driven by improved product mix and customer channel diversification.
ARYZTA Rest of World EBITA declined by (3.8)% to €25.8m, entirely due to unfavourable currency movements. Local currency EBITA grew relatively in-line with revenues, as EBITA margins declined by only (10) bps to 11.5%.
During August 2015, the Group invested €450.7m in a 49% interest in Picard, which operates an asset-light business-to-consumer platform, focused on premium speciality food. Picard is located primarily in France, but also has some international franchises.
While the Group retains the right to exercise a call option to acquire the remaining outstanding interest in Picard between FY 2019 and FY 2021, Picard remains separately managed and has separately funded debt structures, which are non-recourse to ARYZTA.
As ARYZTA is entitled to jointly approve key business decisions, including approval of proposed members of Picard management and the annual operating budget, the Group's interest in Picard has been presented as a joint venture.
During January 2015, the Group exchanged assets with a fair value of GBP 24.0m (€30.6m) for a 50% interest in Signature Flatbreads, a pioneering flatbread producer in the UK and India, producing an innovative range of authentic Indian breads, as well as high quality international flatbreads, tortillas, pizza bases and pitas.
As ARYZTA is entitled to jointly approve key business decisions, the Group's interest in Signature Flatbreads has been presented as a joint venture.
These joint venture investments, totalling €491.4m as of 31 July 2016, are financed entirely through the hybrid funding perpetual instruments, totalling €793.5m as of 31 July 2016.
Joint ventures had combined revenues of €1,403m during the ARYZTA year ended 31 July 2016 and delivered an underlying contribution to ARYZTA, after interest and tax, of €15.7m. Both joint ventures performed well, growing revenues and margins, while generating strong internal cash flows.
ARYZTA's share of Picard net profit was €13.6m reflecting 11 months of contributions. Pro forma 12 month revenue growth to July 2016 was 0.7% to €1.4 billion, while pro forma 12 month EBITDA growth to July 2016 was 6.3% to €198.8m. Picard incurred an effective tax rate of 60%, which significantly reduced its net profit contribution. Picard generated €40.5m of free cash during the period.
ARYZTA's share of Signature Flatbreads net profit was €2.1m. Following a successful refinancing, Signature repaid €21.5m of its outstanding vendor loan note to ARYZTA, during the year.
| Picard | Signature | Total | Total | |
|---|---|---|---|---|
| in EUR '000 | 2016 | 2016 | July 2016 | July 2015 |
| Revenue | 1,287,900 | 115,087 | 1,402,987 | 55,502 |
| EBITDA | 186,743 | 11,108 | 197,851 | (27) |
| Depreciation | (27,405) | (4,805) | (32,210) | (2,227) |
| EBITA | 159,338 | 6,303 | 165,641 | (2,254) |
| EBITA margin | 12.4% | 5.5% | 11.8% | (4.1)% |
| Finance costs, net | (88,746) | (1,169) | (89,915) | (444) |
| Pre-tax profits/(losses) | 70,592 | 5,134 | 75,726 | (2,698) |
| Income tax | (42,592) | (1,024) | (43,616) | 278 |
| Joint venture underlying net profit/(loss) | 28,000 | 4,110 | 32,110 | (2,420) |
| ARYZTA's share of underlying net profit | 13,627 | 2,055 | 15,682 | (1,210) |
During the year ended 31 July 2016, the Group incurred the following amounts related to integration, rationalisation and restructuring:
| in EUR `000 | Non-cash 2016 |
Cash 2016 |
Total 2016 |
Total 2015 |
|---|---|---|---|---|
| Net gain/(loss) on disposal of businesses | 993 | – | 993 | (45,685) |
| Asset write-downs | (14,787) | – | (14,787) | (146,289) |
| Acquisition-related costs | – | (2,330) | (2,330) | (9,982) |
| Severance and other staff-related costs | – | (65,447) | (65,447) | (48,642) |
| Contractual obligations | – | (6,738) | (6,738) | (2,087) |
| Advisory and other costs | – | (8,805) | (8,805) | (27,265) |
| Net acquisition, disposal and restructuring-related costs |
(13,794) | (83,320) | (97,114) | (279,950) |
During the year ended 31 July 2016, the Group disposed of two businesses, which historically generated approximately €100,000,000 in annual revenues. As the €42,060,000 proceeds received, net of associated transaction costs, exceeded the €41,067,000 carrying value of the net assets disposed, a net gain on disposal of €993,000 has been reflected in the financial statements.
The Group incurred €14,787,000 (2015: €146,289,000) of asset write-downs during the year, primarily related to the write-down of various distribution, manufacturing and administration assets within the ARYZTA Europe and ARYZTA North America segments. These write-downs arose as a result of the closure or reduction in activities in these locations and are the direct result of the Group's recent integration and rationalisation programme investments, which have replaced obsolete assets, optimised the distribution network and streamlined administrative functions.
The Group also incurred €83,320,000 (2015: €87,976,000) of costs, primarily related to severance and other staff-related costs incurred as a result of the asset closures above, de-layering of management and administrative functions, and further costs associated with the continued integration of acquired businesses into the Group's bakery and distribution network.
As these non-cash gains and losses are added back to net assets, and the cash costs are deducted from EBITA, when calculating ROIC for management compensation purposes, these items had no impact on management compensation during the year ended 31 July 2016.
The Group expects these net acquisition, disposal and restructuring-related costs to decrease significantly going forward, compared to recent periods of the multi-year restructuring programme that was aimed at integrating over 30 separately acquired autonomous business units, replacing obsolete assets, optimising the distribution network and streamlining administrative functions.
During March 2015, ARYZTA announced the completion of its offering of 49 million ordinary shares of Origin for €8.25 per share, which raised net proceeds for ARYZTA of €398,108,000. At the time of the placing, the deemed fair value of the Group's remaining 29.0% interest in Origin was also valued at €8.25 per share, resulting in a value of €299,329,000. As the total deemed consideration exceeded the Group's €145,678,000 share of the disposed net assets and cash balances of Origin, the Group recognised a gain on disposal of discontinued operations of €551,759,000.
Following the March 2015 placing, the Group's remaining 29.0% interest in Origin was determined to be an associate held-for-sale, recorded at fair value, less costs to sell. Based on the unadjusted quoted price of €7.62 as of 31 July 2015 less estimated costs to sell, a fair value adjustment of €28,459,000 was recorded during the prior year to reduce the carrying value to €270,870,000 as of 31 July 2015, resulting in a total net gain in relation to the disposal of Origin of €523,300,000 during the year ended 31 July 2015.
| in EUR '000 | July 2015 |
|---|---|
| Cash received, net of transaction costs | 398,108 |
| Net cash disposed | (25,133) |
| Cash received, net of cash disposed | 372,975 |
| Fair value of retained 29% interest | 299,329 |
| Total consideration | 672,304 |
| ARYZTA's share of Origin net assets disposed | (120,545) |
| Gain on disposal of discontinued operations | 551,759 |
| Fair value adjustment to associate held-for-sale | (28,459) |
| Net gain on disposal of discontinued operations | 523,300 |
During September 2015, ARYZTA announced the completion of its offering of its remaining 36.3 million ordinary shares of Origin for €6.30 per share, which raised net proceeds for ARYZTA of €225,101,000. As the fair value of the 29.0% investment in associate held-for-sale at 31 July 2015 was €270,870,000, this resulted in a net loss on disposal in the current year of €45,769,000. This divestment simplifies the reporting structure and transforms ARYZTA into a business fully focused on speciality food.
| in EUR `000 | July 2016 |
|---|---|
| Underlying contribution associate held-for-sale | 48 |
| Cash received, net of transaction costs | 225,101 |
| Carrying value of 29% interest disposed | (270,870) |
| Net loss on disposal of associate held-for-sale | (45,721) |
As Origin previously represented a significant component and a separately reported segment of the Group, Origin's results have been separately presented as discontinued operations, in both the current and prior years, as shown below:
| in EUR `000 | July 2016 | July 2015 |
|---|---|---|
| Revenue | 194,721 | 1,458,098 |
| EBITA | 146 | 78,895 |
| EBITA margin | 0.1% | 5.4% |
| Associates and JV, net of tax | 881 | 14,076 |
| EBITA incl. associates and JV | 1,027 | 92,971 |
| Finance cost, net | (1,015) | (4,810) |
| Pre-tax profits | 12 | 88,161 |
| Income tax | 154 | (12,690) |
| Total underlying net profit | 166 | 75,471 |
| Non-ARYZTA portion of discontinued operations | (118) | (45,736) |
| Underlying contribution associate held-for-sale | (48) | – |
| Underlying net profit – discontinued operations | – | 29,735 |
| in EUR `000 | July 2016 | July 2015 |
|---|---|---|
| EBIT | 308,626 | 345,943 |
| Amortisation | 176,241 | 168,022 |
| EBITA | 484,867 | 513,965 |
| Depreciation | 124,773 | 124,306 |
| EBITDA | 609,640 | 638,271 |
| Working capital movement | 40,586 | (63,319) |
| Working capital movement from debtor securitisation1 | 54,258 | 104,077 |
| Maintenance capital expenditure | (80,004) | (80,725) |
| Segmental operating free cash generation | 624,480 | 598,304 |
| Investment capital expenditure2 | (132,901) | (329,412) |
| Acquisition and restructuring-related cash flows | (81,702) | (101,266) |
| Segmental operating free cash generation, after investment | ||
| capital expenditure and integration costs | 409,877 | 167,626 |
| Dividends received from Origin | – | 17,056 |
| Hybrid dividend | (31,788) | (39,107) |
| Interest and income tax | (113,972) | (117,947) |
| Other3 | 2,615 | (6,200) |
| Cash flow generated from activities | 266,732 | 21,428 |
1 Total debtor balances securitised as of 31 July 2016 is €208m.
2 Includes expenditure on intangible assets.
3 Other cash generated from activities comprises primarily cash received from government grants, net of related amortisation.
| in EUR `000 | FY 2016 | FY 2015 |
|---|---|---|
| Group opening net debt as at 1 August | (1,725,103) | (1,642,079) |
| Cash flow generated from activities | 266,732 | 21,428 |
| Disposal of businesses, net of cash and finance leases | 42,060 | 22,728 |
| Proceeds from disposal of Origin, net of cash disposed | 225,101 | 398,108 |
| Investment in joint venture | (450,732) | – |
| Net debt cost of acquisitions | (26,917) | (149,822) |
| Collection of receivables from joint ventures | 21,509 | – |
| Contingent consideration paid | (46,916) | (9,240) |
| Hybrid instrument proceeds | – | 69,334 |
| Dividends paid | (57,313) | (69,364) |
| Foreign exchange movement1 | 36,038 | (363,792) |
| Other2 | (4,076) | (2,404) |
| Group closing net debt as at 31 July | (1,719,617) | (1,725,103) |
1 Foreign exchange movement for the year ended 31 July 2016 primarily attributable to the fluctuation in the GBP to euro rate from July 2015 (0.7091) to July 2016 (0.8399). Foreign exchange movement for the year ended 31 July 2015 is primarily attributable to the fluctuation in the US Dollar to euro rate from July 2014 (1.3430) to July 2015 (1.1109) and in the Swiss Franc to euro rate from July 2014 (1.2169) to July 2015 (1.0635).
2 Other comprises primarily amortisation of upfront financing costs.
As of 31 July 2016, the Group's financing facilities, related capitalised upfront borrowing costs, finance leases, overdrafts and cash balances outstanding were as follows:
| Debt Funding as at 31 July 2016 | Principal | Outstanding in EUR '000 |
|---|---|---|
| Syndicated Bank Loan | EUR 100m | (100,000) |
| Syndicated Bank Loan | USD 550m | (492,744) |
| Syndicated Bank Loan | CAD 80m | (54,936) |
| Syndicated Bank Loan | GBP 80m | (95,247) |
| Syndicated Bank Loan | CHF 270m | (248,740) |
| Private Placements | USD 1,300m | (1,164,666) |
| Private Placements | EUR 50m | (50,000) |
| Gross term debt | (2,206,333) | |
| Upfront borrowing costs | 20,020 | |
| Term debt, net of upfront borrowing costs | (2,186,313) | |
| Finance leases | (2,277) | |
| Cash and cash equivalents, net of overdrafts | 468,973 | |
| Net debt | (1,719,617) |
As of 31 July 2016, the Group's interest cover including hybrid interest was 4.50x (2015: 5.76x). The weighted average maturity of the Group gross term debt was 4.39 years (2015: 4.98 years). The weighted average interest cost of Group debt financing facilities (including overdrafts) is 4.49% (2015: 3.84%).
ARYZTA intends to maintain an investment grade position in the range of 2x – 3x Net debt: EBITDA on its syndicated bank loan. The Group's key financial ratio is as follows:
| July 2016 | July 2015 | |
|---|---|---|
| Net Debt: EBITDA1 (syndicated bank loan) | 2.90x | 2.54x |
1 Calculated based on the terms of the Group Syndicated Bank Loan Revolving Credit Facility.
1 The term debt maturity profile is set out as at 31 July 2016. Gross term debt at 31 July 2016 is €2,206.3m. Net debt at 31 July 2016 is €1,719.6m, which also includes overdrafts and finance leases, and is net of cash and related capitalised upfront borrowing costs.
2 Incorporating the drawn amount on the Revolving Credit Facility of €991.7m as at 31 July 2016, which represents 45 % of the gross term debt.
| Hybrid funding at 31 July 2016 exchange rates | (793,543) | |
|---|---|---|
| Hybrid funding fair value adjustment to year-end exchange rates | (73,087) | |
| Hybrid funding at historical cost, net of associated costs | (720,456) | |
| Hybrid Funding – first call date April 2020 | CHF 190m | (155,679) |
| Hybrid Funding – first call date March 2019 | EUR 250m | (245,335) |
| Hybrid Funding – first call date April 2018 | CHF 400m | (319,442) |
The principal euro foreign exchange currency rates used by the Group for the preparation of these Financial Statements are as follows:
| Currency | Average 2016 |
Average 2015 |
% Change | Closing 2016 |
Closing 2015 |
% Change |
|---|---|---|---|---|---|---|
| CHF | 1.0905 | 1.1191 | 2.5% | 1.0855 | 1.0635 | (2.1)% |
| USD | 1.1106 | 1.1799 | 5.9% | 1.1162 | 1.1109 | (0.5)% |
| CAD | 1.4748 | 1.4009 | (5.3)% | 1.4562 | 1.4446 | (0.8)% |
| GBP | 0.7602 | 0.7547 | (0.7)% | 0.8399 | 0.7091 | (18.4)% |
| North | Rest of | Total | ||
|---|---|---|---|---|
| in EUR million | Europe | America | World | Group |
| 2016 | ||||
| Group share net assets1 | 1,903 | 2,488 | 198 | 4,589 |
| EBITA1 | 215 | 243 | 26 | 484 |
| ROIC | 11.3% | 9.8% | 13.0% | 10.5% |
| 2015 | ||||
| Group share net assets1 | 1,963 | 2,602 | 204 | 4,769 |
| EBITA1 | 220 | 275 | 27 | 522 |
| ROIC | 11.2% | 10.6% | 13.2% | 10.9% |
1 See glossary in section 22 for definitions of financial terms and references used.
2 Group WACC on a pre-tax basis is currently 8.0% (2015: 7.4%).
| Group Balance Sheet in EUR `000 |
Total Group 2016 |
Total Group 2015 |
|---|---|---|
| Property, plant and equipment | 1,594,885 | 1,543,263 |
| Investment properties | 24,787 | 25,916 |
| Goodwill and intangible assets | 3,617,194 | 3,797,269 |
| Deferred tax on acquired intangibles | (210,635) | (246,116) |
| Working capital | (361,307) | (218,669) |
| Other segmental liabilities | (76,109) | (132,849) |
| Segmental net assets | 4,588,815 | 4,768,814 |
| Joint ventures and related receivables | 495,402 | 60,711 |
| Associate held-for-sale | – | 270,870 |
| Net debt | (1,719,617) | (1,725,103) |
| Deferred tax, net | (113,823) | (95,423) |
| Income tax | (49,118) | (45,813) |
| Derivative financial instruments | (13,888) | (12,113) |
| Net assets | 3,187,771 | 3,221,943 |
At the Annual General Meeting on 13 December 2016, shareholders will be invited to approve a proposed dividend of CHF 0.5731 (€0.5255) per share. If approved, the dividend will be paid to shareholders on 1 February 2017. A dividend of CHF 0.6555 per share was paid during the year, as approved by shareholders at the Annual General Meeting on 8 December 2015.
During August 2016, the Group exercised its option to increase its Revolving Credit Facility ('RCF') by CHF 150m, to a total available capacity of CHF 1,550m (€1,428m). As of 31 July 2016 the balance outstanding on this facility was €991.7m.
During August 2016, the Group signed a new €1,000m Term Loan Facility, which matures in February 2018, with similar financial terms as the RCF.
During September 2016, the Group utilised the available capacity of the RCF, Term Loan Facility and existing cash resources to redeem all of its outstanding Private Placements, which totalled €1,215m as of 31 July 2016, for a total redemption cost of €1,410m, including the principal balance, early redemption costs of €169m, accrued interest, associated unamortised borrowing costs and other related fees.
These transactions are expected to result in a significant reduction in the Group's weighted average interest cost.
During FY17 ARYZTA expects to generate free cash in a range of €225–€275m, excluding Private Placement early redemption costs, and deliver underlying fully diluted EPS in-line with consensus of 358 cent.
The Board and senior management have invested significant time and resources in identifying specific risks across the Group, and in developing a culture of balanced risk minimisation. The Board considers the risks and uncertainties disclosed on page 59 to continue to reflect the principal risks and uncertainties of the Group.
This report contains forward looking statements, which reflect management's current views and estimates. The forward looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward looking statements. Potential risks and uncertainties include such factors as general economic conditions, foreign exchange fluctuations, competitive product and pricing pressures and regulatory developments.
'Joint ventures, net' – presented as profit from joint ventures, net of taxes and interest, before non-ERP amortisation and the impact of associated non-recurring items.
'EBITA' – presented as earnings before interest, taxation, non-ERP related intangible amortisation; before net acquisition, disposal and restructuring-related costs and related tax credits.
'EBITDA' – presented as earnings before interest, taxation, depreciation and amortisation; before net acquisitions, disposal and restructuring-related costs and related tax credits.
'ERP' – Enterprise Resource Planning intangible assets include the Group SAP system.
'Hybrid instrument' – presented as Perpetual Callable Subordinated Instrument in the Financial Statements.
'Segmental Net Assets' – Based on segmental net assets, which excludes joint ventures, all bank debt, cash and cash equivalents and tax balances, with the exception of deferred tax liabilities associated with non-ERP intangible assets, as those deferred tax liabilities represent a notional non-cash tax impact directly linked to segmental intangible assets recorded as part of a business combination, rather than an actual cash tax obligation.
'ROIC' – Return On Invested Capital is calculated on a consistent basis year over year using a pro-forma trailing twelve months segmental EBITA ('TTM EBITA') reflecting the full twelve month contribution from acquisitions and full twelve month deductions from disposals, divided by the respective Segmental Net Assets, as of the end of each respective period.
'Underlying net profit' – presented as reported net profit, adjusted to include the Hybrid instrument accrued dividend as a finance cost; before non-ERP related intangible amortisation; before net acquisition, disposal and restructuring-related costs and before any non-controlling interest allocation of those adjustments, net of related income tax impacts.
The Group utilises the underlying net profit measure to enable comparability of the results from period to period, without the impact of transactions that do not relate to the underlying business. It is also the Group's policy to declare dividends based on underlying fully diluted earnings per share, as this provides a more consistent basis for returning dividends to shareholders.
for the financial year ended 31 July 2016
| in EUR `000 | ARYZTA Group 2016 |
ARYZTA Group 2015 |
|---|---|---|
| Underlying net profit – continuing operations | 311,542 | 329,988 |
| Intangible amortisation | (176,241) | (168,022) |
| Tax on amortisation | 36,715 | 35,104 |
| Share of joint venture intangible amortisation and restructuring related costs, net of tax |
(3,966) | (310) |
| Hybrid instrument accrued dividend | 31,882 | 30,673 |
| Net acquisition, disposal and restructuring-related costs | (97,114) | (279,950) |
| Tax on net acquisition, disposal and restructuring-related costs | 9,911 | 47,881 |
| Reported net profit/(loss) – continuing operations | 112,729 | (4,636) |
| Underlying net profit – discontinued operations | – | 29,735 |
| Underlying contribution associate held-for-sale | 48 | (17,296) |
| Intangible amortisation, non-recurring and other | – | (6,343) |
| Profit for the year – discontinued operations | 48 | 6,096 |
| (Loss)/gain on disposal of discontinued operations | (45,769) | 523,300 |
| Reported net profit – discontinued operations | (45,721) | 529,396 |
| Reported net profit attributable to equity shareholders | 67,008 | 524,760 |
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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/about-aryzta/ corporate-governance. While recognising the importance of these formal instruments, good corporate governance requires a commitment to, and the practice of, values that guide the Group in serving the needs of its stakeholders, be they shareholders, customers, consumers, suppliers, employees and other interested parties.
ARYZTA is committed to continually reviewing its corporate governance framework with a view to related developments.
The Board's policy is that, excluding the Chairman, a majority of its membership shall consist of independent non-executive directors, as determined in accordance with the Swiss Code of Best Practice for Corporate Governance.
At the ARYZTA 2015 Annual General Meeting ('AGM'), one new independent nonexecutive director, Dan Flinter, was appointed by the shareholders, two executive directors, Patrick McEniff and John Yamin, retired from the Board without seeking reelection, as did non-executive director, Brian Davy. Accordingly, since 8 December 2015, the Board has comprised the Chairman, the Chief Executive Officer and six non-executive directors each of whom is considered by the Board to be independent in character and judgement.
The Group utilises leading international search firms to advise and assist the Board in its on-going renewal programme. The aim of this programme is to ensure that ARYZTA is served by a Board whose members possess the right mix of skills, experience and talent, and who share ARYZTA's values.
This year, the Board retained an independent professional services firm to undertake a strategic board competencies review. The purpose of the review was to consider the composition of the Board in the light of the strategic and operational agenda facing ARYZTA over the medium term, identifying critical experiences and capabilities. This work was particularly significant this year, having regard to the 30 October 2015 announcement by the Chairman, Denis Lucey, that a new candidate would be proposed by the Board at the 2016 AGM and that Mr. Lucey would retire as Chairman at that time.
In financial year 2016, the Board established a new GovernanceandNomination Committee. This new committee managed the engagement with the independent professional services firm, undertaking the strategic board competencies review. In addition, the committee oversaw the adoption of updated (a) Organizational Regulations for the Board and (b) Terms of references for (i) the Audit Committee (ii) Remuneration Committee and (iii) Governance and Nomination Committee, all of which are published on the ARYZTA website.
In addition, the Governance and Nomination Committee oversaw the adoption by ARYZTA of a revised Code of Practice for Director's Dealings in Company Securities and Person's Discharging Managerial Responsibilities (PDMRs). These instruments reflect the impact of regulatory changes on ARYZTA and governance best practice developments, including requiring pre-clearance and reporting of any future securities pledges by Directors or PDMRs.
By virtue of the Swiss Ordinance against Excessive Compensation at Listed Companies (the 'Ordinance'), since the ARYZTA 2014 AGM, the General Meeting has the following non-transferable powers:
Additionally, since the ARYZTA 2015 AGM, the General Meeting votes on the compensation of the Board and Executive Management on a prospective basis.
At the 2015 Annual General Meeting, the shareholders ratified the 2015 Compensation Report through a separate advisory vote, and in line with the Ordinance, shareholders approved the maximum aggregate amount of remuneration of the Board of Directors (for the period up to the 2016 AGM) and Executive Management (for the financial year ending 31 July 2017).
The ARYZTA Corporate Governance Report 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 consolidated financial statements are prepared in accordance with International Financial Reporting Standards ('IFRS') and the requirements of Swiss law. The ARYZTA AG Company financial statements are prepared in accordance with the requirements of Swiss Law and the Company's Articles of Association. Where necessary, the financial statement 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 the 'Company' refer to ARYZTA AG, whereas the 'Group' and the 'ARYZTA Group' refer to ARYZTA AG and its subsidiaries. The 'Board' refers to the Board of Directors of the Company.
To avoid duplication in some sections, cross-references are made to the 2016 Financial Statements (comprising the Group consolidated financial statements and Company financial statements of ARYZTA AG), as well as to the Articles of Association of ARYZTA AG (available on the Company website at www.aryzta.com/about-aryzta/ corporate-governance).
The Group is structured conventionally. 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 dayto-day management of the Group, to the extent allowed under Swiss law, through the Chief Executive Officer ('CEO'), to Executive Management. The Group's management and organisational structure corresponds to its segmental reporting lines: ARYZTA Europe, ARYZTA North America and ARYZTA Rest of World.
Each segment's management team is responsible for the day-to-day activities of their segment and reports to Executive Management, which in turn reports through the CEO to the Board.
| 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 2016:
CHF 3,235,248,309 or €3,027,109,563 based on 88,758,527 registered shares outstanding (i.e. disregarding 3,052,007 treasury shares) and closing prices of CHF 36.45 or €34.105 per share.
Stock market capitalisation as of 31 July 2015:
CHF 4,355,380,920 or €4,127,271,505 based on 88,758,527 registered shares outstanding (i.e. disregarding 3,052,007 treasury shares) and closing prices of CHF 49.07 or €46.50 per share.
Details of the significant subsidiaries and associated companies of ARYZTA (being their company names, domicile, share capital, and the Company's participation therein) are set out in note 35 of the 2016 ARYZTA Group consolidated financial statements on page 142.
As at 31 July 2016, the Company has been notified of the following shareholdings or voting rights, which amount to 3% or more of the Company's issued ordinary share capital:
| Number | Number of | Number | Number of | |
|---|---|---|---|---|
| of shares | shares % | of shares | shares % | |
| 2016 | 2016 | 2015 | 2015 | |
| Causeway Capital Management LLC | 6,881,741 | 7.50% | – | – |
| MassMutual | 5,597,654 | 6.10% | 5,450,713 | 5.94% |
| BlackRock Inc. | 4,531,319 | 4.94% | 4,874,919 | 5.31% |
| ARYZTA Treasury shares | 3,052,007 | 3.32% | 3,052,007 | 3.32% |
| Norges Bank | 2,858,242 | 3.11% | – | – |
Any significant shareholder notifications during the year, and since 31 July 2016, are available from the Group's website at:
www.aryzta.com/investor-centre/shareholder-notifications.
The ARYZTA Group has no interest in any other company exceeding five percent of voting rights of that other company, where that other company has an interest in the ARYZTA Group exceeding five percent of the voting rights in ARYZTA.
The registered share capital of the Company, as at 31 July 2016, amounts to CHF 1,836,210.68 and is divided into 91,810,534 registered shares with a par value of CHF 0.02 per share. The share capital is fully paid-up.
ARYZTA has no conditional share capital.
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 183,621.06 (through the issue of up to 9,181,053 registered shares). Authority for this purpose expires on 7 December 2017.
The Board has the power to determine the issue price, the period of entitlement to dividends and the type of consideration or the contribution 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 those shares: (1) for acquisitions, subject to a maximum of 9,181,053 registered shares; (2) to broaden the shareholder constituency, subject to a maximum of 4,590,526 registered shares; or (3) or for the purposes of employee participation, subject to a maximum of 3,060,351 registered shares. For further details, refer to Article 5 of the Articles of Association, which is available on the Company website at www.aryzta.com/about-aryzta/corporate-governance.
Trading in ARYZTA shares on the SIX Swiss Exchange and the Irish Stock Exchange commenced in August 2008.
The subsequent changes in share capital, treasury shares and the allocation of treasury shares to awards granted in connection with the ARYZTA Long-Term Incentive Plans (Matching Plan and Option Equivalent Plan) are as follows:
| Nominal value CHF |
Shares in issue |
Shares outstanding |
Treasury shares |
Matching Plan Allocation |
Option Plan Allocation |
Unallocated Treasury shares |
|
|---|---|---|---|---|---|---|---|
| Issuance of shares on formation | 0.02 | 78,940,460 | 78,940,460 | – | – | – | – |
| Issuance of shares to subsidiary | 0.02 | 2,240,000 | – | 2,240,000 | – | – | 2,240,000 |
| Treasury share disposal | – | 5,641 | (5,641) | – | – | (5,641) | |
| Granting of LTIP awards | – | – | – | 1,035,000 | – | (1,035,000) | |
| As of 31 July 2009 | 81,180,460 | 78,946,101 | 2,234,359 | 1,035,000 | – | 1,199,359 | |
| Issuance of shares | 0.02 | 3,864,335 | 3,864,335 | – | – | – | – |
| Forfeitures of LTIP awards | – | – | – | (60,000) | – | 60,000 | |
| Granting of LTIP awards | – | – | – | – | 1,200,000 | (1,200,000) | |
| As of 31 July 2010 | 85,044,795 | 82,810,436 | 2,234,359 | 975,000 | 1,200,000 | 59,359 | |
| As of 31 July 2011 | 85,044,795 | 82,810,436 | 2,234,359 | 975,000 | 1,200,000 | 59,359 | |
| Vesting of LTIP awards | – | 975,000 | (975,000) | (975,000) | – | – | |
| Issuance of shares | 0.02 | 2,513,500 | – | 2,513,500 | – | – | 2,513,500 |
| Granting of LTIP awards | – | – | – | 944,250 | 1,569,250 | (2,513,500) | |
| Forfeitures of LTIP awards | – | – | – | (194,250) | (259,250) | 453,500 | |
| Issuance of shares | 0.02 | 4,252,239 | 4,252,239 | – | – | – | – |
| As of 31 July 2012 | 91,810,534 | 88,037,675 | 3,772,859 | 750,000 | 2,510,000 | 512,859 | |
| Granting of LTIP awards | – | – | – | 222,750 | 222,750 | (445,500) | |
| Exercise of LTIP awards | – | 81,915 | (81,915) | – | (370,000) | 288,085 | |
| Forfeitures of LTIP awards | – | – | – | (246,750) | (123,250) | 370,000 | |
| As of 31 July 2013 | 91,810,534 | 88,119,590 | 3,690,944 | 726,000 | 2,239,500 | 725,444 | |
| Exercise of LTIP awards | – | 55,182 | (55,182) | – | (115,000) | 59,818 | |
| Forfeitures of LTIP awards | – | – | – | (3,000) | (29,000) | 32,000 | |
| As of 31 July 2014 | 91,810,534 | 88,174,772 | 3,635,762 | 723,000 | 2,095,500 | 817,262 | |
| Vesting of LTIP awards | – | 327,052 | (327,052) | (327,052) | – | – | |
| Exercise of LTIP awards | – | 256,703 | (256,703) | – | (501,000) | 244,297 | |
| Granting of LTIP awards | – | – | – | – | 980,000 | (980,000) | |
| Forfeitures of LTIP awards | – | – | – | (395,948) | – | 395,948 | |
| As of 31 July 2015 | 91,810,534 | 88,758,527 | 3,052,007 | – | 2,574,500 | 477,507 | |
| Granting of LTIP awards | – | – | – | – | 2,624,500 | (2,624,500) | |
| Forfeitures of LTIP awards | – | – | – | – | (315,500) | 315,500 | |
| As of 31 July 2016 | 91,810,534 | 88,758,527 | 3,052,007 | – | 4,883,500 | (1,831,493) |
Of the 91,810,534 registered shares, 88,758,527 are outstanding and 3,052,007 are classified as treasury shares. While the treasury shares are less than the total 4,883,500 Option Plan awards outstanding, treasury shares continue to exceed the 1,589,500 Option Plan Awards vested and eligible for exercise as of 31 July 2016.
ARYZTA's capital is composed of registered shares only. As at 31 July 2016, ARYZTA has 91,810,534 fully paid-up, registered shares (including 3,052,007 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 .
Article 7 of the Articles of Association deals with the Shareholders' Register and Restrictions on Transferability, and is available on the Company website at www.aryzta.com/about-aryzta/corporate-governance.
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 CREST2 Depository Interests ('CDIs')3 .
A CDI represents an entitlement to an ARYZTA registered share. 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. However, CDI holders do maintain an interest in the shares represented by the CDIs.
To facilitate voting by CDI holders, the Company has 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. There were no other 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.
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 that 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 a 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 2016, ARYZTA has not issued any convertible bonds or warrants.
As of 31 July 2016, a total of 4,883,500 Option Equivalent Plan awards granted to executives and senior management remain outstanding, subject to fulfilment of predefined vesting conditions in connection with the ARYZTA Long Term Incentive Plan.
Please refer to the Compensation Report on pages 49 to 56 of this Annual Report for further information pertaining to the vesting of Long Term Incentive Plan awards granted as an element of Executive Management compensation.
At 31 July 2016, the Board of ARYZTA consists of one executive director and seven non-executive directors, each of whom is considered by the Board to be independent in character and judgement. Moreover, none of the non-executive directors are party to relationships or circumstances with ARYZTA which, in the Board of Directors' opinion, are likely to affect their judgement. All interests linked to each individual director in this section correspond to the nationality of that director, unless otherwise stated.
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 non-executive 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.
Non-executive member
Charles Adair was Vice-Chairman of BMO Capital Markets, a full-service investment bank headquartered in Toronto, Canada, until his retirement in 2016. He began his career in the agricultural commodity trading and transportation industries in the U.S. and joined BMO Capital Markets in 1984 in Chicago. He was a leader in the formation of BMO's initial U.S. investment banking effort, as one of the senior members of the Chicago investment banking platform in 1995. In addition, he started BMO's Food&Agribusiness Mergers&Acquisitions practice from Chicago. He has over 36 years of experience in the food and agribusiness industries. He became a member of the ARYZTA Board of Directors in December 2010.
Dan Flinter is a former CEO of Enterprise Ireland and a former Executive Director of IDA Ireland. He is Chairman of the Boards of PM Group Holdings Ltd and The Irish Times Ltd. He is a board member of Dairygold Co-Operative Society, where he chairs the Remuneration Committee. He is Chairman of the Board of VCIM and the Centre for Effective Services and a member of the Board of the Institute of Directors, Ireland. He is also a former Chairman of the Governing Authority of Maynooth University. He became a member of the ARYZTA Board of Directors in December 2015.
Bachelor of Commerce from University College Cork, Ireland, Fellow of Chartered Certified Accountants; Chartered Director
Annette Flynn has held various senior roles in UDG Healthcare plc, including Managing Director of the Packaging&Specialty division and Head of Group Strategy. Prior to joining UDG Healthcare, Annette held senior positions with Kerry Group plc working in their Irish, UK and US operations. She is a non-executive director of Canada Life International Assurance (Ireland) DAC, where she chairs the Risk Committee and is also a member of the Audit Committee. She is a board member of Dairygold Co-Operative Society, where she chairs the Audit Committee. She was formerly an executive and, subsequently, non-executive Director of UDG Healthcare plc and a non-executive director of Grafton Group plc. She is a Fellow of Chartered Certified Accountants and a Chartered Director accredited by the Institute of Directors UK. She became a member of the ARYZTA Board of Directors in December 2014.
Bachelor of Business Administration, Public Accounting, Pace University, New York; Advanced Management Program from INSEAD, in addition to executive programs at Harvard, Columbia, Duke and IMD
Shaun B. Higgins has 30 years' experience in the beverage industry and five years in public accounting. He has served in both the Chief Operating Officer and Chief Financial Officer roles. Shaun has held a number of senior level positions in the Coca-Cola system, including President and Chief Operating officer of Coca-Cola Canada, Chief Strategist and Planning Officer and Chief Financial Officer of Coca-Cola Enterprises. Prior to retiring, Shaun was the President of Coca-Cola Enterprises Europe. Before joining the Coca-Cola system, he was the Chief Financial Officer of Joyce Beverages Inc., the largest Seven-Up bottler in the United States. He is a member of the Advisory Board of Carmine Labriola Contracting Corp., and an operating partner of Marvin Traub Associates. He serves as an executive coach to senior level corporate leaders, and is a beverage industry consultant. He is a Certified Public Accountant and a Fellow of the National Association of Corporate Directors. He became a member of the ARYZTA Board of Directors in December 2011.
Bachelor of Agricultural Science from University College Dublin Owen Killian is CEO of ARYZTA and has been since its admission to trading in 2008. He was previously CEO of IAWS Group plc since 2003. Prior to this, he held several executive positions within IAWS Group plc, since it was listed in 1988. He also served as the Chairman of the Origin Board of Directors from 2007 to October 2015.
Andrew Morgan has more than 25 years' experience with Diageo Plc, including, most recently, seven years as President Diageo Europe. Diageo is the world's leading premium drinks business and a FTSE top 10 company. Mr Morgan also spent eight years with the Gillette Company in a number of sales and marketing roles. He has held a succession of marketing, strategy and general management positions with Diageo and has lived in London, Athens, Madrid and Barcelona, as well as managing emerging markets in Latin America, Asia and Africa. He is a member of Council at the University of Leicester and is investing chairman of two start-up companies in the consumer goods sector. He is a former President of AIM, the European Consumer Goods association and served two terms on the Global Advisory Board of British Airways. He became a member of the ARYZTA Board of Directors in December 2013.
Wolfgang Werlé has held several positions within the Food and Beverage and Services industries including President and CEO of Gate Gourmet International from 1992 to 1995 and as President and CEO of SAir Relations from 1996 to 2001, both within the Swissair/SAir-Group. From 2001 to 2008, he served as CEO and Delegate of the Board of Hiestand International and from 2007 to 2008 as Chairman of Hiestand Holding AG. He also served as a member of the Board of Directors of ARYZTA from August 2008 to December 2008. He also served on the Board of Schweizerische Post/Swiss Post Services from 2002 to 2010 and as a member of the Board of Directors of Grand Resort Bad Ragaz since 2005 and of Cat Holding AG since 2012. He re-joined the ARYZTA Board of Directors in December 2012.
Group General Counsel, Company Secretary and Chief Administrative Officer ('CAO') 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 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 and effective August 2013 was appointed CAO of ARYZTA. He also served as Company Secretary of Origin Enterprises from 2007 to October 2015.
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. There were no related-party transactions between the ARYZTA Group and Board members during the year ended 31 July 2016 (2015: none).
During the year ended 31 July 2016, the Group paid broker related fees totalling €686,000 (2015: €2,521,000) to J&E Davy, primarily in connection with its placing of Origin shares. J. Brian Davy, a member of the ARYZTA Board of Directors until December 2015, also served as Chairman of J&E Davy, up to his retirement from that board in March 2015. These fees were based on arm's length negotiations and were consistent with costs paid to other providers for similar services.
The General Meeting has the competence to appoint and remove the members of the Board. By virtue of the Ordinance, as from the ARYZTA 2014 AGM, all directors are subject to annual election by the General Meeting.
The Board has adopted Organizational Regulations that define the essential roles and responsibilities of the Board, the Chairman, the Committees of the Board and Executive Management. By virtue of the Ordinance, as from the ARYZTA 2014 AGM, the office of Chairman and the members of the Remuneration Committee are subject to annual election by the General Meeting. Membership of the Audit Committee, the Governance andNomination Committee and the respective Chairs thereof, are determined annually by the Board, following the Annual General Meeting, in accordance with the Organizational Regulations, which are available on the ARYZTA website at www.aryzta.com/about-aryzta/ corporate-governance.
ARYZTA has an Audit Committee, a Governance and Nomination Committee and a Remuneration Committee. The powers and responsibilities of each Committee are set out in their respective Terms of Reference, as approved by the Board and which are available on the ARYZTA website at www.aryzta.com/about-aryzta/corporate-governance.
As of 31 July 2016, these Committees are comprised as follows:
| Governance and Nomination Committee |
Audit Committee |
Remuneration Committee |
|
|---|---|---|---|
| Denis Lucey (Chairman) | X | X | |
| Charles Adair | X1 | ||
| Dan Flinter | X1 | ||
| Annette Flynn | X1 | ||
| Shaun B. Higgins | X | X | |
| Owen Killian (CEO) | |||
| Andrew Morgan | X | ||
| Wolfgang Werlé | X |
X denotes that the Board Member is on the applicable Committee.
1 denotes the Board Member who chairs the applicable Committee.
From 1 August 2015 until the Annual General Meeting on 8 December 2015, the Audit Committee was comprised of four non-executive directors, namely Shaun B. Higgins (Chairman), Annette Flynn, Andrew Morgan and Wolfgang Werlé. From 8 December 2015 through to 31 July 2016, the Audit Committee was comprised of three non-executive directors, namely Annette Flynn (Chair), Andrew Morgan and Wolfgang Werlé. Each of these directors is considered by the Board to be independent in judgement and character. In the 2016 financial year, the Audit Committee met five times and the average duration of the meetings was approximately three hours.
The Audit Committee's role includes reviewing the Group consolidated financial statements 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 they, as well as the CFO/COO, regularly attend meetings of the Audit Committee by invitation.
In financial year 2016, the Audit Committee, operating under its Terms of Reference, discharged its responsibilities by reviewing:
As of 31 July 2015, the Nomination and Remuneration Committee comprised three non-executive directors namely J. Brian Davy (Chairman), the Company Chairman, Denis Lucey and Charles Adair. Each of these directors is considered by the Board to be independent in judgement and character. In financial year 2016, the Nomination and Remuneration Committee met two times and the average duration of the meetings was approximately two hours.
The Nomination and Remuneration Committee was responsible for determining the remuneration of the executive and non-executive members of the Board, for nominating for the approval of the Board and ultimately the shareholders, candidates to fill Board vacancies and for the continuous review of senior management succession plans.
At the 8 December 2015 AGM, the committee was reconstituted. Shareholders elected the new Remuneration Committee, comprising Charles Adair (Chairman), Company Chairman Denis Lucey and Shaun B. Higgins. The newly constituted Remuneration Committee met two times in financial year 2016 and the average duration of the meetings was approximately two hours.
The Remuneration Committee is responsible for determining the remuneration of the members of the Board and the CEO, and for approving the remuneration of other members of senior management, upon the recommendation of the CEO. The Group's remuneration policy for executive and non-executive directors and details of directors' remuneration are contained in the Compensation Report on pages 49 to 56 of this Annual Report, in accordance with the Swiss Code of Obligations and the SIX Directive on Information Relating to Corporate Governance.
The Governance and Nomination Committee was established immediately following the 8 December 2015 AGM. This newly established Governance and Nomination Committee comprised three non-executive directors, namely Dan Flinter (Chairman), Company Chairman Denis Lucey and Shaun B. Higgins. Each of these directors is considered by the Board to be independent in judgement and character. In financial year 2016, the Governance and Nomination Committee met three times and the average duration of the meeting was approximately two hours.
The Governance andNomination Committee is responsible for nominating for approval of the Board, and ultimately, the shareholders candidates to fill Board vacancies and for the continuous review of senior management succession plans. In addition, the committee is charged with monitoring the Company's compliance with corporate governance best practices and with applicable legal, regulatory and listing requirements and recommending to the Board such changes or actions, as deemed necessary.
Five Board meetings were held during the financial year 2016. The average duration of regular Board meetings was approximately five hours. At each meeting, the Chairs of the Committees reported to the Board on their activities, as necessary. Details of the work methods of the Committees are set out in Section 3.4.2.
| Eligible to attend | Attended | |
|---|---|---|
| Denis Lucey (Chairman) | 5 | 5 |
| Charles Adair | 5 | 5 |
| J. Brian Davy | 2 | 2 |
| Dan Flinter | 3 | 3 |
| Annette Flynn | 5 | 5 |
| Shaun B. Higgins | 5 | 5 |
| Owen Killian | 5 | 5 |
| Patrick McEniff | 2 | 2 |
| Andrew Morgan | 5 | 5 |
| Wolfgang Werlé | 5 | 5 |
| John Yamin | 2 | 1 |
| Eligible to attend | Attended | |
|---|---|---|
| Annette Flynn (Chair, from 8 December 2015) | 5 | 5 |
| Shaun B. Higgins (Chair, until 8 December 2015) | 3 | 3 |
| Andrew Morgan | 5 | 5 |
| Wolfgang Werlé | 5 | 5 |
| Eligible to attend | Attended | |
|---|---|---|
| Brian J Davy (Chair) | 2 | 2 |
| Charles Adair | 2 | 2 |
| Denis Lucey | 2 | 2 |
| Eligible to attend | Attended | |
|---|---|---|
| Dan Flinter (Chair) | 3 | 3 |
| Shaun B. Higgins | 3 | 3 |
| Denis Lucey | 3 | 3 |
| Eligible to attend | Attended | |
|---|---|---|
| Charles Adair (Chair) | 2 | 2 |
| Shaun B. Higgins | 2 | 2 |
| Denis Lucey | 2 | 2 |
The Board of Directors is the ultimate governing body. It has the power and competencies afforded by Swiss law (art. 716a 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 CEO, to Executive Management, to the extent allowed by Swiss law.
Group Executive Management report in a regular and structured manner to the Board of Directors. The CEO and CFO/COO 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/COO reports on financial performance across the Group and key financial figures and parameters. In addition, executives within the Group regularly deliver presentations to the Board. The Board approves the formal Risk Assessment, as well as the design, implementation and maintenance of the Internal Control System.
The ARYZTA Internal Audit function reports directly to the Audit Committee and to the Group General Counsel, Company Secretary and CAO. Internal Audit may audit all Group activities and regularly meets with Group Executive Management. Internal Audit discusses 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 AG (the Auditors of the ARYZTA Group consolidated financial statements and the Company financial statements), conduct their audits in compliance with the auditing standards referenced in their respective opinions.
For financial year 2015, Group Executive Management consisted of Owen Killian (Group CEO), Patrick McEniff (Group CFO/COO), John Yamin (CEO of the Americas) and Pat Morrissey (Group General Counsel, Company Secretary and CAO). For financial year 2016, Group Executive Management comprised the same four individuals, as well as Hilliard Lombard, until his resignation, announced on 26 November 2015 and effective 31 January 2016.
No member of the Group Executive Management holds management contracts for any company outside the ARYZTA Group.
Chief Executive Officer ('CEO') and executive member Bachelor of Agricultural Science from University College Dublin Owen Killian is CEO of ARYZTA and has been since its admission to trading in 2008. He was previously CEO of IAWS Group plc since 2003. Prior to this, he held several executive positions within IAWS Group plc, since it was listed in 1988. He also served as the Chairman of the Origin Board of Directors from 2007 to October 2015.
Fellow of the Chartered Institute of Management Accountants; Master of Business Administration from Dublin City University
Patrick McEniff joined IAWS Group plc after its listing on the Irish Stock Exchange in 1989 and has fulfilled various senior management roles, focused on finance and systems development. In 2004, he was appointed to the board of IAWS Group plc as its Group Finance Director. In 2008, upon the formation of ARYZTA, he was also appointed as CFO and member of the Board of Directors and in 2012 was also appointed as COO of the Group. He served as a member of the ARYZTA Board of Directors from 2008 to December 2015 and as a member of the Origin Board of Directors from 2007 to October 2015.
John Yamin has over 30 years of experience working in the food service industry across North America. He held various executive positions at Starbucks Coffee Company and Caravali Coffee, Inc. from 1994 to 2002. From 1980 to 1994, he held executive management roles at Marriott Corporation, ARAMARK Services and Louise's Trattoria, Inc. In 2002, he joined La Brea Bakery, Inc. as Senior Vice president of Brand Development, which culminated into the Chief Executive Officer role in 2003. He is a fellowship member of the Culinary Institute of America. He served as a member of the ARYZTA Board of Directors from December 2013 to December 2015.
Group General Counsel, Company Secretary and Chief Administrative Officer ('CAO') 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 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 and effective August 2013 was appointed CAO of ARYZTA. He also served as Company Secretary of Origin Enterprises from 2007 to October 2015.
Please refer to note 10 of the ARYZTA AG Company financial statements on pages 152 to 153 for details of Board members' shareholdings and to the Compensation Report on pages 49 to 56 for disclosures pertaining to compensation, as well as the content and method of determining the compensation and share-ownership programmes.
No loans or advances were made by the ARYZTA Group to members of the Board of Directors or to Executive Management during the financial year, or were outstanding at 31 July 2016 (2015: none).
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 15 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 and on the Group's homepage (www.aryzta.com) 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 on the agenda. One or more registered shareholders who 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 331/3% of the voting rights for making a public takeover offer set out in Article 32 of the Swiss Stock Exchange Act are applicable.
Benefits under the ARYZTA LTIP vest upon a change of control by reference to the fair value of the LTIP instruments. The final determination of such fair value falls to be made by the Board of Directors (acting through the Remuneration Committee thereof) on the basis of independent, external, professional advice. 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 the Compensation Report on pages 49 to 56 of this Annual Report.
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. At the 2015 AGM, PricewaterhouseCoopers AG, Zurich, was re-elected as statutory auditor and Group auditor for the 2016 financial year.
The total audit and audit-related fees charged by the Group auditors in financial year 2016 amounted to €2,362,000.
The total audit and audit-related fees charged by the Group auditors in the financial year 2015 amounted to €2,738,000.
The Group's policy is to manage its relationship with the Group's external auditor to ensure their independence is maintained. In order to achieve this, the Board has determined limits on the type and scale of non-audit work that can be provided by the auditor.
Contracts to the auditor for other non-audit work are deemed to be pre-approved by the Audit Committee, up to an aggregate limit of 100% of the audit fee for the current year. This is subject to the requirement that all contracts for specific pieces of non-audit work with fees exceeding €250,000 be awarded on the basis of competitive tendering. Where the awarding of a contract for non-audit work to the auditor is to be made that is likely to increase total fees for non-audit work above this aggregate limit, the Group CFO notifies the Chair of the Audit Committee in advance of such a contract being awarded.
Fees for additional services rendered by the auditors to the ARYZTA Group in financial year 2016 totalled €1,778,000 (2015: €1,894,000). A significant portion of these fees related to tax return preparation or review in over 20 countries, covering more than 100 legal entities.
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Auditor's remuneration for audit and audit-related services | 2,362 | 2,738 |
| Auditor's remuneration for tax compliance and related services | 1,164 | 854 |
| Auditor's remuneration for tax consulting services | 614 | 970 |
| Auditor's remuneration for advisory services | – | 70 |
| 4,140 | 4,632 |
| Total other fees / Audit and audit-related services | 75% | 69% |
|---|---|---|
| Tax consulting or advisory services /Audit and audit-related services | 26% | 38% |
PricewaterhouseCoopers presents to the Audit Committee a detailed report on the results of the 2016 Group consolidated and Company financial statement audits, the findings on significant financial accounting and reporting issues, as well as the findings on the Group's internal control system ('ICS').
In financial year 2016, both PricewaterhouseCoopers and the Group Head of Internal Audit participated in all five Audit Committee meetings. Other members of the Group Executive Management attended the meetings as invited. In addition, the Group Head of Internal Audit regularly met with the Chair of the Audit Committee for interim updates.
On an annual basis, the Board of Directors reviews the selection of the auditors, in order to propose their appointment to the Annual 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.
During meetings of the Audit Committee, audit and non-audit-related fees to be charged by PricewaterhouseCoopers during the year, 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-quarter trading update, half-year results, third-quarter trading update and full-year results (including the Annual Report) on the occasion of its quarterly announcement cycle (see details on page 158). These quarterly announcements are each accompanied by a news release. Additionally, a presentation and conference call, which is broadcast live on the internet (webcast) and which anyone can choose to access, whether a shareholder or not, are held on a half-yearly basis, or as deemed necessary by the Board. 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 be automatically alerted 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 (www.aryzta.com/news-media). In this way, the Group 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. ARYZTA has appointed a dedicated communications officer to focus on the management of the communication process with investors and the media, and to support ARYZTA's efforts to strike a balance between the needs of managing a business and regular transparent communication with investors. ARYZTA's policy regarding investor meetings (i.e. Group meetings, one-to-one meetings and conference calls) is that these 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 subsequent to such quarterly announcements should e-mail the Group's Communications Officer (see details on page 158). 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 that 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. The Group also communicates with analysts and stockbrokers who follow ARYZTA to facilitate third-party research on the Group. 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, agreements and alliances using the methods outlined above.
Paul Meade Communications Officer
Talacker 41 8001 Zurich Switzerland Tel: +41 (0) 44 583 42 00 Fax: +41 (0) 44 583 42 49 E-mail: [email protected]
ARYZTA's overriding long-term goal is to achieve sustainable, profitable growth and deliver enhanced shareholder value. ARYZTA pursues this objective in a competitive and changing environment. ARYZTA's success is intrinsically connected with its ability to attract, retain and motivate good people.
ARYZTA's remuneration tools, in particular the short-term performance related bonus and the ARYZTA Long-Term Incentive Plan ('LTIP'), are key instruments in this regard. These remuneration tools are designed to focus management on the delivery of ARYZTA's key corporate goals, over the short-term and the long-term, as set by the Board and communicated to the market through ARYZTA's investor relations activities.
As in prior years, the Board will submit this Compensation Report to a separate advisory vote of the shareholders at the ARYZTA 2016 Annual General Meeting ('AGM').
Additionally, in compliance with the Articles of Association, shareholders at the 2016 AGM will be asked to approve the maximum aggregate amount of remuneration of:
As in prior years, for the financial year ending 31 July 2016 ('FY 2016') the RemCo was responsible for:
The RemCo reviews the various elements of remuneration on an annual basis to ensure that executives are remunerated in line with the level of their authority and responsibility within the Group. The RemCo reports to the Board at the next Board meeting following each meeting of the RemCo. In addition, all RemCo papers (e.g., agenda, minutes, presentations, etc.) are available to all members of the Board. The CEO attends meetings of the RemCo by invitation only.
At our 2015 AGM, shareholders ratified the FY 2015 Compensation Report in a separate advisory vote and approved, with strong majorities, the Board's proposals for maximum possible remuneration for the Board and Group Executive Management.
In FY 2016, ARYZTA took independent external professional advice from an independent, internationally respected, compensation consulting firm and engaged with market participants regarding ARYZTA's compensation practices. The expert consulting firm was commissioned to:
The expert consulting firm reported that Executive Management target total direct compensation, comprising (a) base salary, (b) target bonus and (c) grant date fair value long-term incentive, is positioned within the competitive range (+/– 15%) of the ARYZTA Peer Group1 median. Regarding the ARYZTA LTIP, the expert consulting firm recommended that ARYZTA:
The Board has accepted these recommendations. The expert consulting firm also reported that ARYZTA non-executive director compensation is consistent with European headquartered companies.
Employment contracts for Executive Management, with maximum notice periods of 12 months and a cap on post-contractual competition restrictions of one year, were introduced in FY 2015 and remain unchanged in FY 2016.
1 The ARYZTA Peer Group for this purpose means Associated British Foods Plc, Campbell Soup Company, ConAgra Foods Inc., Cranswick Plc, Flowers Foods Inc., Glanbia Plc, Greencore Group Plc., Greggs Plc, Hershey Company, J&J Snack Foods Corp., JM Smucker Company, Kerry Group Plc, Chocoladefabriken Lindt & Sprungli AG, Mondelez International Inc., Treehouse Foods Inc.
For FY 2016, consistent with the shareholder approval, non-executive board members were paid a yearly fee (CHF 88,000), reflecting the time commitment and responsibilities of the role. Additional compensation for non-executive directors for service on a Board Committee was CHF 8,000 and CHF 16,000 for the Chair thereof.
Non-executive Board members were not eligible for performance-related payments and did not participate in the LTIP.
Executive directors received no additional compensation for their role as a board member.
The following table reflects the direct payments received by Board members during the years ended 31 July 2016 and 2015. Fluctuations in amounts received are reflective of the changing roles and responsibilities held by the individual directors, during each respective year.
| Direct payments | Direct payments | |
|---|---|---|
| Audited | year ended | year ended |
| in CHF `000 | 31 July 2016 | 31 July 2015 |
| Denis Lucey | 323 | 323 |
| Charles Adair | 100 | 96 |
| Hugh Cooney1 | – | 40 |
| J Brian Davy2 | 43 | 104 |
| Dan Flinter2 | 69 | – |
| Annette Flynn1 | 100 | 64 |
| Shaun B. Higgins | 104 | 104 |
| Owen Killian | – | – |
| Patrick McEniff2 | – | – |
| Andrew Morgan | 96 | 96 |
| Götz-Michael Müller1 | – | 22 |
| Wolfgang Werlé | 96 | 96 |
| John Yamin2 | – | – |
| Total | 931 | 945 |
1 The terms of office as Members of the Board of Directors of H. Cooney and G-M. Müller expired on 2 December 2014 and on that date A. Flynn was elected to the Board.
2 The terms of office as Members of the Board of Directors of J.B. Davy, P. McEniff and J. Yamin expired on 8 December 2015 and on that date D. Flinter was elected to the Board.
As per pages 42 to 43 of the Corporate Governance Report, for financial year 2015, Group Executive Management consisted of Owen Killian (Group CEO), Patrick McEniff (Group CFO/COO), John Yamin (CEO of the Americas) and Pat Morrissey (Group General Counsel, Company Secretary and CAO). For financial year 2016, Group Executive Management comprised the same four individuals, as well as Hilliard Lombard, until his resignation, announced on 26 November 2015 and effective 31 January 2016.
The elements of the remuneration package for Executive Management for financial years 2016 and 2015 comprised:
The highest total compensation in financial year 2016 was earned by Owen Killian, and his total remuneration is disclosed separately in the following table.
| Total Executive | Total Executive | |||
|---|---|---|---|---|
| Audited | Management | Owen Killian | Management | Owen Killian |
| in CHF `000 | 2016 | 2016 | 2015 | 2015 |
| Basic salaries | 4,077 | 1,277 | 3,551 | 1,277 |
| Benefits in kind | 205 | 83 | 189 | 83 |
| Pension contributions | 489 | 192 | 441 | 192 |
| Performance-related bonus | 3,0581 | 9581 | – | – |
| Non-compete compensation and pension | 545 | – | – | – |
| Long-term incentives (LTIP)2 | – | – | 986 | 305 |
| Total compensation | 8,374 | 2,510 | 5,167 | 1,857 |
1 The performance-related bonus earned by Owen Killian in FY 2016 has been withheld pending resumption of growth in underlying fully diluted earnings per share.
Average total compensation per member 1,675 1,292
2 ARYZTA The FY 2015 Executive Management LTIP compensation expense relates entirely to 2012 LTIP awards, which vested in September 2015. No compensation expense has been recognized to date for LTIP awards granted in September 2014, as the performance criteria for those awards requires that Underlying EPS in FY 2017 would exceed 500 cent per share, which is currently considered remote. Additionally, no compensation expense has been recognized to date for LTIP awards made in FY 2016, as the required minimum performance targets have not yet been achieved.
The compensation to members of Executive Management, during financial years 2016 and 2015, includes compensation for their roles as members of the Board or Company Secretary of ARYZTA and, in the case of Owen Killian, Patrick McEniff and Pat Morrissey, for their service as officers of Origin Enterprises plc (respectively, Chairman, nonexecutive director and Company Secretary) until October 2015.
No severance and/or termination payments were made to any member of Executive Management during financial years 2016 and 2015. Hilliard Lombard, who departed the Group to pursue other interests effective 31 January 2016, was paid no more than his contractual entitlements.
No loans or advances were made by the ARYZTA Group to members of the Board of Directors or to Executive Management during the financial year, or were outstanding at 31 July 2016 (2015: none).
For financial year 2016, the basic salary of Executive Management was reviewed by the RemCo with regard to personal performance and corporate goals. For financial year 2016, when reviewing Executive Management's remuneration, the applicable weighting of each component was at the discretion of the RemCo. Employment-related benefits consist principally of a car allowance and pension. Pension benefits are determined solely in relation to basic salary. For financial year 2017 and future years, the shareholders have the authority to set the maximum remuneration for Executive Management.
For financial year 2016, the short-term performance-related bonus targets for Executive Management were set at 100% of basic salary, with the potential amounts earned being capped at 150% of basic salary. The short-term performance-related bonus targets were determined 50% by reference to incremental gains in ROIC and the remaining 50% being measured by reference to the achievement of free cash generation targets.
The incremental gain in ROIC is calculated on a constant currency basis, by comparing the FY 2016 ROIC to FY 2015 ROIC. Any asset impairments or non-recurring charges recorded in FY 2016 are reversed for the purposes of the comparison, so ensuring that Executive Management do not benefit therefrom. Likewise, the net assets and historical annual EBITA levels of any acquisitions (disposals) made in FY 2016 are added to (subtracted from) the FY 2015 ROIC base, for the purposes of the comparison.
Executive Management have the potential to earn a percentage of their set target bonus, based on the incremental gain in ROIC. For example, if an ROIC increase of 80 bps were achieved, Executive Management would earn 80% of their relevant individual bonus targets. As there was no incremental increase in ROIC in FY 2016, no amount of short-term bonus was earned by Executive Management regarding this element.
The remaining 50% of the short-term performance-related bonus target for Executive Management was based on free cash generation as follows:
| Free cash generation achieved | % of base salary earned as short-term performance-related bonus |
|---|---|
| €250m or more | 75% of base salary |
| €225m | 50% of base salary |
| €200m | 25% of base salary |
| Less than €200m | 0% of base salary |
| Between €200m-€250m | +1% of base salary earned for every €1m of cash generation |
As free cash generation of €267m was achieved in FY 2016, 75% of base salary was earned by Executive Management as their short-term performance-related bonus.
While the LTIP has been particularly associated with EPS growth, EPS growth is not an isolated end in itself. The underlying goal is to drive the development of an international business capable of sustainable growth and the delivery of significant value for shareholders. This is supported through adherence to prudent capital discipline.
Benefits under the LTIP vest upon a change of control by reference to the fair value of the LTIP instruments. The final determination of such fair value falls to be made by the Board of Directors (acting through the RemCo) on the basis of independent, external, professional advice. Otherwise, the agreements and plans benefiting the members of the Board or the Group Executive Management are unaffected by a change of control.
The long-term incentive remuneration of Executive Management consists of both Matching Plan and Option Equivalent Plan awards.
Executive Management were granted no awards under the Matching Plan during FY 2016 or FY 2015 as the last awards made under the Matching Plan were made during FY 2013. No awards under the matching plan remain outstanding as of 31 July 2016.
Vesting of awards under the Option Equivalent Plan is conditional on compound annual growth in underlying fully diluted EPS in three consecutive accounting periods exceeding the compound growth in the Eurozone Core Consumer Price Index, plus 5%, on an annualised basis.
Awards under the Option Equivalent Plan are also subject to additional conditions, including notably:
ROIC is reported to investors in conjunction with the announcement of annual and halfyear results and is presented on a Group and segmental basis. As presented on page 21, the ROIC reported for the year ended 31 July 2016 was 10.5% (2015: 10.9%).
WACC is determined as a blend of the Group's deemed cost of capital and deemed cost of debt, with each of these components weighted on the basis of the Group's debt to equity ratio. WACC is measured annually by an external specialist using standard calculation methodology and is reported to investors in conjunction with the announcement of yearly and half-yearly results. For the year ended 31 July 2016, the pre-tax WACC was 8.0% (2015: 7.4%).
The Option Equivalent Plan awards granted in the years before financial year 2016 can be exercised as of the time the performance conditions described above have been met, but no longer than ten years after grant date. Awards granted during financial year 2016, which meet the conditions for vesting after the initial three year performance period, are subject to additional conditions, including notably an additional two year holding period before they can be exercised.
The cost of the Matching Plan and the Option Equivalent Plan can be considered in accounting and dilutive terms.
Awards under the LTIP are equity-settled share-based payments, as defined in IFRS 2, 'Share-based Payment'. The total cost recognised in relation to share-based payments for the financial years 2016 and 2015 is detailed in note 8 of the Group Consolidated Financial Statements on page 98.
No more than 10% of share capital may be allocated for issue over its ten year life. No awards may be made under the current LTIP after 31 July 2019.
The vesting and net exercise of (1) all Option Equivalent Plan awards outstanding (based on the closing share price of CHF 36.45 on 31 July 2016), plus (2) the impact of any LTIP awards that have already been exercised, would result in a dilution of 2.1% of total shares outstanding (or 0.26% annualised) in the period since 2008.
No more than 3.0% of share capital may be allocated for issue over any 3 year period. Based on the closing share price of CHF 36.45 on 31 July 2016, no dilution arises in respect of awards granted in the last three years.
Executive Management were granted 1,130,000 Option Equivalent Awards under the Option Equivalent Plan during FY 2016, as detailed below. As shown in the table on page 52, no expense was recognised for these awards in FY 2016. The following table details awards outstanding under the Option Equivalent Plan in favour of Executive Management:
| Of which | |||||
|---|---|---|---|---|---|
| Options | Granted | Forfeited | Closing | Vesting criteria | |
| carried forward | during | during | position | have been | |
| 1 August 2015 | the year1 | the year2 | 31 July 2016 | fulfilled3 | |
| Executive Management | |||||
| Owen Killian | 1,160,000 | 410,000 | – | 1,570,000 | 750,000 |
| Patrick McEniff | 910,000 | 300,000 | – | 1,210,000 | 610,000 |
| Pat Morrissey | 220,000 | 120,000 | – | 340,000 | 100,000 |
| John Yamin | 150,000 | 150,000 | – | 300,000 | – |
| Hilliard Lombard2 | – | 150,000 | (150,000) | – | – |
| Total | 2,440,000 | 1,130,000 | (150,000) | 3,420,000 | 1,460,000 |
1 During the period ended 31 July 2016, an additional 1,130,000 Option Equivalent Plan awards were granted to Executive Management, at a weighted average exercise price of CHF 44.98.
2 During September 2015, the Board of Directors approved that Hilliard Lombard become a member of Executive Management. Effective January 2016, Hilliard Lombard resigned from Executive Management.
3 The weighted average exercise price of all Option Equivalent Plan awards that remain outstanding and for which the vesting conditions have been met is CHF 39.34.
We have audited the information marked as 'audited' in the accompanying compensation report of ARYZTA AG for the year ended 31 July 2016 (from page 49 to 56 in the printed report).
The Board of Directors is responsible for the preparation and overall fair presentation of the compensation report in accordance with Swiss law and the Ordinance. The Board of Directors is also responsible for designing the remuneration system and defining individual compensation packages.
Our responsibility is to express an opinion on the accompanying compensation report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the compensation report complies with Swiss law and articles 14–16 of the Ordinance.
An audit involves performing procedures to obtain audit evidence on the disclosures made in the compensation report with regard to compensation, loans and credits in accordance with articles 14–16 of the Ordinance. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatements in the compensation report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of compensation, as well as assessing the overall presentation of the compensation report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
In our opinion, the compensation report of ARYZTA AG for the year ended 31 July 2016 complies with Swiss law and articles 14–16 of the Ordinance.
PricewaterhouseCoopers AG
Patrick Balkanyi Carrie Rohner Audit expert Auditor in charge
Zurich, 3 October 2016
The Board and senior management continue to invest 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 are identified and associated mitigating controls are evaluated. These processes are driven by local management, who are best placed to identify the significant ongoing and emerging risks facing the business. The outputs of these risk assessment processes are subject to various levels of review by Group management and Internal Audit, and a consolidated Risk Map denoting the potential frequency, severity and velocity of identified risks is reviewed by the Board of Directors on an annual basis. Risks identified, and associated mitigating controls, are also subject to audit as part of various operational, financial, health and safety audit programmes.
ARYZTA is committed to operating as a financially successful and socially responsible business for the long-term. This requires balancing the organisation's financial strategy and leveraging the Group's global resources to improve environmental, economic and social outcomes. The Group has established the ARYZTA Cares initiative, aimed at promoting active employee, customer and supplier engagement in pursuit of our corporate responsibility goals.
The key elements of this programme, as summarised below, include:
Additional information on each of these areas is also available on our website at: http://www.aryzta.com/our-responsibilities
ARYZTA is aware that the earth's ecosystems are fragile and that environmental conservation is critical to the continued well-being of the planet, its natural resources and its citizens. In order to monitor the Group's impact on the environment, key bakery production metrics have been established for monitoring electricity consumption, gas consumption, waste water intensity and overall carbon emissions, which are reported to executive management and the Board of Directors on a regular basis.
These metrics are used not only to assess the efficiency of our individual bakeries and to identify potential cost savings opportunities, but are also included as the primary inputs in determining the Group's CO2 emissions per metric tonne of food sold, which is the key environmental performance indicator used for measuring the success of our ARYZTA Cares initiative.
This CO2 metric is calculated based on various bakery and distribution activity inputs and applying a relevant Green House Gas emission factor to assess the estimated global warming potential of activities directly related to ARYZTA's business. These CO2 metrics and the related calculations are verified annually by an independent third party and are published separately on our website, along with other key environmental initiatives of the Group.
ARYZTA's commitment to supply chain excellence includes strict supplier standards, comprehensive facility expectations and detailed adherence to customer specifications.
To ensure our food is produced with the highest level of food safety, the Group's raw material suppliers generally must:
ARYZTA's food processing facilities operate under comprehensive Hazard Analysis and Critical Control Point (HACCP) systems based on Codex Alimentarius Principles, Good Manufacturing Practice (GMP) and in compliance with applicable food laws and regulations. All relevant internal food safety and quality systems are also certified by independent third-parties.
ARYZTA is committed to our Food Safety, Quality Assurance and Responsible Marketing programmes and has partnered with iCiX to establish effective and efficient ways to manage these programmes. ARYZTA contributes to various voluntary initiatives on food and product safety by actively engaging with industry associations including the British Retail Consortium, International Featured Standards (IFS-Food and IFS-Logistics), American Institute of Baking (AIB) and the US Food and Drug Administration.
Our products are produced to the exacting specifications of our major international food customers, as well as for the unique expectations of our independent local customers. Excellence within this wide array of supply chain expectations is achieved through partnering with our customers, suppliers and partners and through detailed internal training programmes, to ensure quality control standards are adhered to throughout the entire supply chain process.
ARYZTA recognises that its continued success is dependent on the quality, commitment and responsible behaviour of its people. ARYZTA values diversity and treats all individuals with respect.
The health and safety of our people is of paramount importance to ARYZTA. The Group pursues comprehensive safety management procedures, including policy manuals, verification of regulatory compliance, risk assessments, individual site action plans, safety audits, training programmes, formal accident investigations and the provision of occupational health services.
In order to attract and retain the most talented workforce possible, the Group provides equal opportunities in recruitment, selection, promotion, employee development, succession planning, training and compensation, solely on the basis of merit and business needs and does not discriminate.
The Group has implemented a global Employee Code of Conduct, which establishes policies and expectations of employee behaviour, ethics, anti-bribery and corruption, political involvement and collective bargaining. ARYZTA fully complies with applicable national and local laws and industry standards on working hours and workplace environment.
The Group has established a 24/7 hotline with Expo-link (0800 563823) where employees, customers and suppliers can confidentially communicate any concerns through an independent service.
The Group has implemented 'My ARYZTA Connection', a human resources information system used for confidentially retaining and updating employee information, in order to streamline administration and enhance utilisation of employee data on a secure and confidential basis.
ARYZTA partners with our key suppliers to establish long-term sustainable sources of raw materials that address the social, ethical, economic, safety, quality, and environmental aspects of product sourcing.
The Group sources only UEP-certified eggs in North America. In Europe, our procurement team recently partnered with wheat farmers to encourage sustainable agricultural practices, including optimising the amount of fertiliser and pesticides used. We also strive to source Fairtrade ingredients and utilise diversity suppliers in sourcing our products.
In order to support the long-term development of sustainable palm oil solutions, ARYZTA is a global member of the Roundtable on Sustainable Palm Oil (RSPO) and participates in three of the available solutions: Book and Claim (GreenPalm certificates), Mass Balance, and Segregated Supply.
In addition to meeting the stringent sourcing requirements of our international food customers, ARYZTA has established a Global Supplier Code of Conduct and actively audits suppliers utilising internal and external resources to ensure suppliers are compliant with workplace standards, business practices and all local laws and regulations.
The Group understands its responsibilities as an important member of the communities in which it operates and encourages its business units to play an active role within them. In addition to providing employment opportunities, the Group aims to make positive contributions to its community by building relationships and earning a positive reputation as a good employer, neighbour and corporate citizen.
The Group believes that donations are the business of the shareholder and ARYZTA has established protocols for philanthropic activities. Employees are also encouraged to contribute their time and talents to causes that are important to them individually. In addition, ARYZTA routinely supports philanthropic activities of our key customers.
| Page | Group Consolidated Financial Statements, presented in euro and prepared in accordance with IFRS and the requirements of Swiss law |
|---|---|
| 66 | Statement of Directors' Responsibilities |
| 67 | Group Consolidated Income Statement |
| 68 | Group Consolidated Statement of Comprehensive Income |
| 69 | Group Consolidated Balance Sheet |
| 71 | Group Consolidated Statement of Changes in Equity |
| 73 | Group Consolidated Cash Flow Statement |
| 75 | Group Statement of Accounting Policies |
| 89 | Notes to the Group Consolidated Financial Statements |
| Company Financial Statements, presented in Swiss francs and prepared in accordance with the requirements of Swiss law |
|
| 145 | Company Income Statement |
| 146 | Company Balance Sheet |
| 148 | Notes to the Company Financial Statements |
Company law requires the directors to prepare Group consolidated and Company financial statements for each financial year. The directors are required to prepare the Group consolidated financial statements in accordance with International Financial Reporting Standards ('IFRS') and the requirements of Swiss law and to prepare the Company financial statements in accordance with Swiss law and the Company's Articles of Association.
This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of the Group consolidated and Company financial statements that are free from material misstatement, whether due to fraud or error.
In preparing each of the Group consolidated and Company financial statements, the directors are required to:
The directors are responsible for keeping proper books of account that present, with reasonable accuracy at any time, the financial position of the Group and Company and enable them to ensure that its financial statements comply with IFRS, the requirements of Swiss law and the Company's Articles of Association.
They are also responsible for taking such steps as are reasonably available to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website.
On behalf of the Board
Denis Lucey Owen Killian Chairman, Board of Directors CEO, Member of the Board
22 September 2016
of Directors
for the year ended 31 July 2016
| in EUR `000 | Notes | 2016 | 2015 |
|---|---|---|---|
| Continuing Operations | |||
| Revenue | 1 | 3,878,871 | 3,820,231 |
| Cost of sales | (2,654,228) | (2,709,763) | |
| Distribution expenses | (414,410) | (407,658) | |
| Gross profit | 810,233 | 702,810 | |
| Selling expenses | (188,656) | (167,646) | |
| Administration expenses | (410,065) | (469,171) | |
| Operating profit | 1 | 211,512 | 65,993 |
| Share of profit/(loss) after tax of joint ventures | 15 | 11,716 | (1,520) |
| Profit before financing income, financing costs and income tax expense | 223,228 | 64,473 | |
| Financing income | 4 | 3,526 | 2,137 |
| Financing costs | 4 | (106,706) | (85,527) |
| Profit/(loss) before income tax | 120,048 | (18,917) | |
| Income tax (expense)/credit | 9 | (4,543) | 18,950 |
| Profit for the year from continuing operations | 115,505 | 33 | |
| Discontinued operations | |||
| (Loss)/profit for the year from discontinued operations | 2 | (45,721) | 532,246 |
| Profit for the year | 69,784 | 532,279 | |
| Attributable as follows: | |||
| Equity shareholders – continuing operations | 112,729 | (4,636) | |
| Equity shareholders – discontinued operations | (45,721) | 529,396 | |
| Equity shareholders – total | 67,008 | 524,760 | |
| Non-controlling interests – continuing operations | 2,776 | 4,669 | |
| Non-controlling interests – discontinued operations | – | 2,850 | |
| Non-controlling interests – total | 27 | 2,776 | 7,519 |
| Profit for the year | 69,784 | 532,279 | |
| 2016 | 2015 | ||
| Basic earnings per share | Notes | euro cent | euro cent |
| From continuing operations | 11 | 91.1 | (39.8) |
| From discontinued operations | 11 | (51.5) | 597.1 |
| 39.6 | 557.3 | ||
| 2016 | 2015 | ||
| Diluted earnings per share | Notes | euro cent | euro cent |
| From continuing operations | 11 | 90.9 | (39.8) |
| From discontinued operations | 11 | (51.4) | 597.1 |
| 39.5 | 557.3 |
| in EUR `000 | Notes | 2016 | 2015 |
|---|---|---|---|
| Profit for the year | 69,784 | 532,279 | |
| Other comprehensive income | |||
| Items that may be reclassified subsequently to profit or loss: | |||
| Foreign exchange translation effects | |||
| – Foreign currency net investments | (49,548) | 370,741 | |
| – Foreign currency borrowings | 21 | 36,027 | (359,872) |
| – Taxation effect of foreign exchange translation movements | 9 | 198 | 5,265 |
| – Foreign exchange translation effects related to discontinued operations | – | 9,286 | |
| Cash flow hedges | |||
| – Effective portion of changes in fair value of cash flow hedges | 5,747 | (12,391) | |
| – Fair value of cash flow hedges transferred to income statement | (7,380) | 4,936 | |
| – Deferred tax effect of cash flow hedges | 9 | 376 | 599 |
| – Cash flow hedges gain related to discontinued operations, net of tax | – | 3,352 | |
| Share of joint ventures' other comprehensive income | 15 | 304 | – |
| Total of items that may be reclassified subsequently to profit or loss | (14,276) | 21,916 | |
| Items that will not be reclassified to profit or loss: | |||
| Defined benefit plans | |||
| – Actuarial loss on Group defined benefit pension plans | 25 | (462) | (6,882) |
| – Deferred tax effect of actuarial loss/(gain) | 9 | (23) | 1,216 |
| – Discontinued operations loss on defined benefit plans, net of tax | – | (17,789) | |
| Total of items that will not be reclassified to profit or loss | (485) | (23,455) | |
| Total other comprehensive loss | (14,761) | (1,539) | |
| Total comprehensive income for the year | 55,023 | 530,740 | |
| Attributable as follows: | |||
| Equity shareholders | 53,757 | 522,888 | |
| Non-controlling interests | 27 | 1,266 | 7,852 |
| Total comprehensive income for the year | 55,023 | 530,740 | |
as at 31 July 2016
| in EUR `000 | Notes | 2016 | 2015 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 12 | 1,594,885 | 1,543,263 |
| Investment properties | 13 | 24,787 | 25,916 |
| Goodwill and intangible assets | 14 | 3,617,194 | 3,797,269 |
| Investments in joint ventures | 15 | 491,446 | 32,067 |
| Receivables from joint ventures | 17 | 3,956 | 28,644 |
| Deferred income tax assets | 24 | 133,176 | 105,579 |
| Total non-current assets | 5,865,444 | 5,532,738 | |
| Current assets | |||
| Inventory | 16 | 248,719 | 259,855 |
| Trade and other receivables | 17 | 168,595 | 264,036 |
| Derivative financial instruments | 22 | 669 | 653 |
| Cash and cash equivalents | 20 | 647,724 | 316,867 |
| Total current assets | 1,065,707 | 841,411 | |
| Associate held-for-sale | 2 | – | 270,870 |
| Total assets | 6,931,151 | 6,645,019 |
| in EUR `000 | Notes | 2016 | 2015 |
|---|---|---|---|
| Equity | |||
| Called up share capital | 26 | 1,172 | 1,172 |
| Share premium | 774,040 | 774,040 | |
| Retained earnings and other reserves | 2,397,460 | 2,428,295 | |
| Total equity attributable to equity shareholders | 3,172,672 | 3,203,507 | |
| Non-controlling interests | 27 | 15,099 | 18,436 |
| Total equity | 3,187,771 | 3,221,943 | |
| Liabilities | |||
| Non-current liabilities | |||
| Interest-bearing loans and borrowings | 21 | 1,963,709 | 1,937,176 |
| Employee benefits | 25 | 13,470 | 15,274 |
| Deferred income from government grants | 23 | 23,945 | 16,998 |
| Other payables | 18 | 37,678 | 51,917 |
| Deferred income tax liabilities | 24 | 457,634 | 447,118 |
| Derivative financial instruments | 22 | 4,618 | 5,401 |
| Total non-current liabilities | 2,501,054 | 2,473,884 | |
| Current liabilities | |||
| Interest-bearing loans and borrowings | 21 | 403,632 | 104,794 |
| Trade and other payables | 18 | 778,621 | 742,560 |
| Income tax payable | 49,118 | 45,813 | |
| Derivative financial instruments | 22 | 9,939 | 7,365 |
| Contingent consideration | 19 | 1,016 | 48,660 |
| Total current liabilities | 1,242,326 | 949,192 | |
| Total liabilities | 3,743,380 | 3,423,076 | |
| Total equity and liabilities | 6,931,151 | 6,645,019 |
| Foreign | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash | Share | currency | Total | ||||||||
| 31 July 2016 in EUR `000 |
Other | flow | based | trans | share | Non | |||||
| Share capital |
Share premium |
Treasury shares |
equity reserve |
hedge reserve |
payment reserve |
lation reserve |
Retained earnings |
holders equity |
controlling interests |
Total | |
| At 1 August 2015 | 1,172 | 774,040 | (47) | 720,456 | (10,264) | – | (5,153) 1,723,303 3,203,507 | 18,436 3,221,943 | |||
| Profit for the year | – | – | – | – | – | – | – | 67,008 | 67,008 | 2,776 | 69,784 |
| Other comprehensive (loss)/income | – | – | – | – | (1,257) | – | (12,961) | 967 | (13,251) | (1,510) | (14,761) |
| Total comprehensive (loss)/income | – | – | – | – | (1,257) | – | (12,961) | 67,975 | 53,757 | 1,266 | 55,023 |
| Equity dividends (note 10) | – | – | – | – | – | – | – | (52,710) | (52,710) | – | (52,710) |
| Dividends to non-controlling interests (note 27) |
– | – | – | – | – | – | – | – | – | (4,603) | (4,603) |
| Dividends accrued on perpetual callable subordinated instruments (note 26) |
– | – | – | – | – | – | – | (31,882) | (31,882) | – | (31,882) |
| Total transactions with owners recognised directly in equity |
– | – | – | – | – | – | – | (84,592) | (84,592) | (4,603) | (89,195) |
| At 31 July 2016 | 1,172 | 774,040 | (47) | 720,456 | (11,521) | – | (18,114) 1,706,686 3,172,672 | 15,099 3,187,771 |
| Other | Cash flow |
Revalua | Share based |
Foreign currency trans |
Total share |
Non | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 31 July 2015 | Share | Share | Treasury | equity | hedge | tion | payment | lation | Retained | holders | controlling | |
| in EUR `000 | capital | premium | shares | reserve | reserve | reserve | reserve | reserve | earnings | equity | interests | Total |
| At 1 August 2014 | 1,172 | 773,735 | (55) | 604,446 | (3,616) | 13,322 | 19,454 | (29,045) 1,324,292 2,703,705 | 87,752 2,791,457 | |||
| Profit for the year | – | – | – | – | – | – | – | – | 524,760 | 524,760 | 7,519 | 532,279 |
| Other comprehensive (loss)/income | – | – | – | – | (4,571) | – | – | 20,487 | (17,788) | (1,872) | 333 | (1,539) |
| Total comprehensive (loss)/income | – | – | – | – | (4,571) | – | – | 20,487 | 506,972 | 522,888 | 7,852 | 530,740 |
| Issue of perpetual callable subordinated instruments |
– | – | – | 401,014 | – | – | – | – | – | 401,014 | – | 401,014 |
| Redemption of perpetual callable subordinated instrument |
– | – | – | (285,004) | – | – | – | – | (46,676) | (331,680) | – | (331,680) |
| Release of treasury shares due to exercise of LTIP |
– | 305 | 8 | – | – | – | – | – | – | 313 | – | 313 |
| Share-based payments | – | – | – | – | – | – | 1,705 | – | – | 1,705 | – | 1,705 |
| Transfer of share-based payment reserve to retained earnings |
– | – | – | – | – | – | (19,919) | – | 19,919 | – | – | – |
| Equity dividends | – | – | – | – | – | – | – | – | (65,034) | (65,034) | – | (65,034) |
| Dividends to non-controlling interests (note 27) |
– | – | – | – | – | – | – | – | – | – | (12,307) | (12,307) |
| Dividend accrued on perpetual callable subordinated instrument (note 26) |
– | – | – | – | – | – | – | – | (30,673) | (30,673) | – | (30,673) |
| Total contributions by and distributions to owners |
– | 305 | 8 | 116,010 | – | – | (18,214) | – | (122,464) | (24,355) | (12,307) | (36,662) |
| Disposal of Origin | – | – | – | – | (2,077) | (13,322) | (1,240) | 3,405 | 14,562 | 1,328 | (64,727) | (63,399) |
| Acquisition of non-controlling interests |
– | – | – | – | – | – | – | – | (59) | (59) | (134) | (193) |
| Total transactions with owners recognised directly in equity |
– | 305 | 8 | 116,010 | (2,077) | (13,322) | (19,454) | 3,405 | (107,961) | (23,086) | (77,168) | (100,254) |
| At 31 July 2015 | 1,172 | 774,040 | (47) | 720,456 | (10,264) | – | – | (5,153) 1,723,303 3,203,507 | 18,436 3,221,943 |
| in EUR `000 | Notes | 2016 | 2015 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Profit for the year from continuing operations | 115,505 | 33 | |
| Income tax expense/(credit) | 9 | 4,543 | (18,950) |
| Financing income | 4 | (3,526) | (2,137) |
| Financing costs | 4 | 106,706 | 85,527 |
| Share of (profit)/loss after tax of joint ventures | 15 | (11,716) | 1,520 |
| Net (gain)/loss on disposal of businesses | 3 | (993) | 45,685 |
| Asset write-downs | 3 | 14,787 | 146,289 |
| Other restructuring-related payments less than /(in excess of) current year costs | 1,618 | (14,650) | |
| Depreciation of property, plant and equipment | 1 | 112,030 | 114,519 |
| Amortisation of intangible assets | 1 | 188,984 | 177,809 |
| Recognition of deferred income from government grants | 23 | (3,098) | (4,107) |
| Share-based payments | 8 | – | 1,705 |
| Other | (4,332) | (2,437) | |
| Cash flows from operating activities before changes in working capital | 520,508 | 530,806 | |
| Increase in inventory | (16,223) | (25,627) | |
| Decrease in trade and other receivables | 80,902 | 67,594 | |
| Increase/(decrease)in trade and other payables | 30,165 | (1,209) | |
| Cash generated from operating activities | 615,352 | 571,564 | |
| Interest paid | (98,934) | (88,831) | |
| Interest received | 3,331 | 1,666 | |
| Income tax paid | (18,369) | (30,782) | |
| Net cash flows from operating activities – continuing operations | 501,380 | 453,617 | |
| Net cash flows from operating activities – discontinued operations | – | (171,068) | |
| Net cash flows from operating activities | 501,380 | 282,549 |
| in EUR `000 | Notes | 2016 | 2015 |
|---|---|---|---|
| Cash flows from investing activities | |||
| Proceeds from sale of property, plant and equipment | 1,030 | 1,120 | |
| Purchase of property, plant and equipment | |||
| – maintenance capital expenditure | (81,034) | (80,725) | |
| – investment capital expenditure | (102,985) | (269,290) | |
| Grants received | 23 | 10,045 | 193 |
| Investment in joint venture | 15 | (450,732) | – |
| Acquisition of businesses, net of cash acquired | 29 | (26,447) | (148,530) |
| Proceeds from disposal of Origin, net of cash disposed | 2 | 225,101 | 372,975 |
| Disposal of businesses, net of cash disposed | 3 | 42,060 | 22,642 |
| Purchase of intangible assets | (29,916) | (60,122) | |
| Net receipts from joint ventures | 21,509 | – | |
| Contingent consideration paid | 19 | (46,916) | (9,240) |
| Investing cash flows from discontinued operations | – | (4,224) | |
| Net cash flows from investing activities | (438,285) | (175,201) | |
| Cash flows from financing activities | |||
| Issue of perpetual callable subordinated instrument | 26 | – | 401,014 |
| Repayment of perpetual callable subordinated instrument | 26 | – | (331,680) |
| Gross drawdown of loan capital | 21 | 290,887 | – |
| Gross repayment of loan capital | 21 | (43,903) | (337,668) |
| Capital element of finance lease liabilities | 21 | (26) | (60) |
| Dividends paid on perpetual callable subordinated instruments | (31,788) | (39,107) | |
| Repurchase of non-controlling interests | – | (193) | |
| Dividends paid to non-controlling interests | 27 | (4,603) | (4,330) |
| Dividends paid to equity shareholders | (52,710) | (65,034) | |
| Financing cash flows from discontinued operations | – | 79,485 | |
| Net cash flows from financing activities | 157,857 | (297,573) | |
| Net increase in cash and cash equivalents | 220,952 | (190,225) | |
| Translation adjustment | (12) | (549) | |
| Net cash and cash equivalents at start of year | 248,033 | 438,807 | |
| Net cash and cash equivalents at end of year | 20 | 468,973 | 248,033 |
ARYZTA AG (the 'Company') is domiciled and incorporated in Zurich, Switzerland. The consolidated financial statements for the year ended 31 July 2016 consolidate the individual financial statements of the Company and its subsidiaries (together referred to as the 'Group'), and show the Group's interest in joint ventures using the equity method of accounting.
The Group consolidated financial statements and the ARYZTA AG Company financial statements were preliminarily authorised for issue by the directors on 22 September 2016. Final approval of these financial statements was granted by the directors on 30 September 2016, subject to approval by the shareholders at the General Meeting on 13 December 2016.
The Group consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board ('IASB') and the requirements of Swiss law. These policies have been consistently applied to all years presented, unless otherwise stated.
In the preparation of these Group consolidated financial statements, the Group has applied all standards that were required for accounting periods beginning on or before 1 August 2015. There are no new standards and interpretations issued by the IASB or the IFRS Interpretations Committee, which are effective for the first time in the current financial year.
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 any of them.
| Standard/Interpretation | Effective date | Planned implementation by ARYZTA (reporting year to 31 July) |
|---|---|---|
| Amendments to IFRS 11 – Accounting for Acquisitions of Interests in Joint Operations |
1 January 2016 | 2017 |
| Amendments to IAS 1 – Disclosure initiative | 1 January 2016 | 2017 |
| Improvements to IFRSs (2012-2014) | 1 January 2016 | 2017 |
| Amendments to IAS 7 – Disclosure initiative | 1 January 2017 | 2018 |
| Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses |
1 January 2017 | 2018 |
| IFRS 9 – Financial Instruments | 1 January 2018 | 2019 |
| IFRS 15 – Revenue from Contracts with Customers | 1 January 2018 | 2019 |
| Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions |
1 January 2018 | 2019 |
| IFRS 16 – Leases | 1 January 2019 | 2020 |
The Group has undertaken an initial assessment of the potential impact of the new standards, amendments and improvements listed above that become effective during the year ending 31 July 2017. Based on this initial assessment, the Group does not currently believe that the adoption of these standards, amendments and interpretations will have a significant impact on the consolidated results or financial position of the Group.
The Group consolidated financial statements are prepared on a historical cost basis, except that assets held-for-sale, investment properties, derivative financial instruments and certain financial liabilities are stated at fair value through profit or loss or other comprehensive income.
The Group consolidated 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 in the application of the Group's accounting policies. 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 areas involving a higher degree of judgement and accounting estimates is set out in note 34.
In accordance with IAS 1, 'Presentation of Financial Statements', the Group Consolidated Income Statement is presented by function of expense.
Management has also identified certain acquisition, disposal and restructuring-related costs within each functional area that do not relate to the underlying business of the Group. Due to the relative size or nature of these items, in order to enable comparability of the Group's underlying results from period to period, these items have been presented as separate components of operating profit within note 3 and have been excluded from the calculation of underlying net profit in note 11.
Additionally, to enable a more comprehensive understanding of the Group's financial performance, the Group Consolidated Income Statement by nature of cost, through operating profit, is set out in note 5.
Following the reduction in the Group's ownership interest in Origin Enterprises plc ('Origin') from 68.1% to 29.0% in March 2015, and the classification of the remaining investment in Origin as an associate held-for-sale, the corresponding amounts included in the 31 July 2015 Group Consolidated Income Statement, Consolidated Statement of Comprehensive Income and Consolidated Cash Flow Statement related to Origin have been presented as a single Discontinued Operations amount within these statements and the related notes, in accordance with IFRS 5, 'Non-current Assets Held for Sale and Discontinued Operations'.
Certain other amounts in the 31 July 2015 Group consolidated financial statement notes have been reclassified or adjusted to conform to the 31 July 2016 presentation. These other reclassifications or adjustments were made for presentation purposes and have no effect on total revenues, expenses, profit for the year, total assets, total liabilities, equity or cash flow classifications as previously reported.
The Group consolidated financial statements reflect the consolidation of the results, the assets and the liabilities of the parent undertaking, and all of its subsidiaries, together with the Group's share of the profits/losses of associates and joint ventures.
Subsidiary undertakings are those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Where necessary, the accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.
When the group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount, plus proceeds received, recognised in profit or loss. The fair value of the retained interest is then utilised as the initial carrying amount for purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. 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.
Associates are entities over which the Group has significant influence, but not control, generally accompanying a shareholding between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, with the Group's investment including goodwill identified on acquisition.
Under IFRS 11, 'Joint Arrangements', investments in joint arrangements are classified as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them all to be joint ventures. Joint ventures are accounted for using the equity method of accounting, with the Group's investment including goodwill identified on acquisition.
Under the equity method, investments are initially recognised at cost, with the carrying amount increased or decreased thereafter to recognise the Group's share of the profits or losses and movements in other comprehensive income after the date of the acquisition.
When the Group's share of losses equals or exceeds its interest in the associate or joint venture, which includes any interests that, in substance, form part of the Group's net investment, the Group does not recognise further losses, unless it has incurred a legal or constructive obligation to do so.
Profits and losses resulting from upstream and downstream transactions between the Group and its associates and joint ventures are recognised in the Group's financial statements, only to the extent of the unrelated investor's interests. Unrealised losses are eliminated, unless the transaction provides evidence of an impairment of the asset transferred.
If the ownership interest is reduced, but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss, where appropriate. Dilution gains and losses arising on investments in associates or joint ventures are recognised in the income statement.
The Group determines at each reporting date whether there is any objective evidence that the investment in the associate or joint venture is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value and recognises the amount adjacent to share of profit after tax of associates or joint ventures in the income statement.
Where necessary, accounting policies of associates and joint ventures have been changed to ensure consistency with the policies adopted by the Group.
Non-current assets are classified as assets held for sale or related to discontinuing operations when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value, less costs to sell.
Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the Group consolidated 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 and services supplied to third parties, after deducting trade discounts and volume rebates, and is exclusive of sales 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. Financing income is recognised on an accrual 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 (CEO) in making strategic decisions, allocating resources and assessing performance.
As reflected in those reports, the continuing operations of the Group are primarily organised into three operating segments, ARYZTA Europe, ARYZTA North America, ARYZTA Rest of World. The Group's principal geographies are Europe, North America and Rest of World.
Origin was consolidated up until the placing of 49 million shares in March 2015, which reduced ARYZTA's holding from 68.1% to 29.0%. Thereafter, Origin was accounted for as an associate held-for-sale, until the remaining holding of 29.0% was disposed in September 2015.
ARYZTA Europe has leading market positions in the European speciality bakery market. In Europe, ARYZTA has a mixture of business-to-business and consumer brands and a diversified customer base within the foodservice, large retail and convenience or independent retail channels.
ARYZTA North America has leading positions in the speciality bakery market in the United States and Canada. It has a mixture of business-to-business and consumer brands and a diversified customer base within the QSR, large retail and other foodservice channels.
ARYZTA Rest of World consists of businesses in Australia, Asia, New Zealand and South America, primarily partnering with international QSR and other foodservice customers.
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 joint ventures, current and deferred income tax assets and liabilities, together with financial assets and liabilities and associate held-for-sale. Share of results of joint ventures, net finance costs and income tax are managed on a centralised basis. Therefore, these items are not allocated between operating segments for the purpose of presenting information to the Chief Operating Decision Maker.
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 employees have earned in return for their service in the current and prior periods. The future benefit is discounted to determine the present value of the obligation and the fair value of any plan assets is deducted. The discount rate is the yield at the balance sheet date on highquality corporate bonds that have maturity dates approximating the terms of the Group's obligations.
The defined benefit calculations are performed by a qualified actuary using the projected unit credit method on an annual basis. Re-measurement gains and losses arising
from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in the Group Consolidated Statement of Comprehensive Income, net of related taxes. Current and past service costs are recognised as employment costs in the income statement. The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets, and is recognised in financing costs /income in the income statement.
As defined in IFRS 2, 'Share-based Payment', the cost of equity instruments granted is recognised at fair value, with a corresponding increase in equity. The fair value is measured at grant date and recognised 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 the Black-Scholes valuation model, taking into account the terms and conditions under which the equity instruments were granted. The Group's equity-settled share-based compensation plans are subject to a non-market vesting condition; therefore, the amount recognised is adjusted annually to reflect the current estimate of achieving these conditions and the number of equity instruments expected to eventually vest.
The Group recognises termination benefits when it has a formal plan to terminate the employment of current employees, which has been approved at the appropriate levels of the organisation and when the entity is demonstrably committed to a termination through announcement of the plan to those affected. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer.
Income tax expense 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 also recognised directly in equity or in other comprehensive income, respectively. 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, in the respective countries where the Group and its subsidiaries operate and generate taxable income.
Deferred income tax is recognised 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.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Items included in the financial statements of the Group's entities are measured using the currency of the primary economic environment in which each entity operates (the 'functional currency'). The consolidated financial statements are presented in euro, the Group's presentation currency, rounded to the nearest thousand, unless otherwise stated.
Transactions in currencies other than the functional currency of each respective entity are converted to the relevant functional currency using the foreign exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are converted to the relevant functional currency using the foreign exchange rate at the balance sheet date. Foreign exchange differences arising on conversion into the local functional currency are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.
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 at the balance sheet date. Income and expenses of foreign operations are translated to euro at the average exchange rates for the year, unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions. Foreign exchange differences arising on translation of the net assets of a foreign operation are recognised in other comprehensive income, as a change 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 noneuro denominated operations are included in other comprehensive income, as a change in the foreign currency 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 transition to IFRS are recognised in the foreign currency translation reserve and are recycled through the Group Consolidated 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 consolidated financial statements are as follows:
| Average | Average | Closing | Closing | |||
|---|---|---|---|---|---|---|
| Currency | 2016 | 2015 | % Change | 2016 | 2015 | % Change |
| CHF | 1.0905 | 1.1191 | 2.5% | 1.0855 | 1.0635 | (2.1)% |
| USD | 1.1106 | 1.1799 | 5.9% | 1.1162 | 1.1109 | (0.5)% |
| CAD | 1.4748 | 1.4009 | (5.3)% | 1.4562 | 1.4446 | (0.8)% |
| GBP | 0.7602 | 0.7547 | (0.7)% | 0.8399 | 0.7091 | (18.4)% |
Dividends are recognised in the period in which they are approved by the Company's shareholders.
Property, plant and equipment is stated at historical 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 expenditures, including repairs and maintenance costs, are recognised in the income statement as an expense as incurred.
Interest on specific and general borrowings used to finance construction costs of property, plant and equipment is capitalised during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed.
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 20 | years |
| Motor vehicles | 3 to 7.5 | years |
The residual value of assets, if significant, and the useful life of assets is reassessed annually. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.
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, net of related selling costs, with the carrying amount of the asset and are included in operating profit.
Investment property, principally comprised of land and buildings, is held for capital appreciation and 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 Group Consolidated 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 Group Consolidated 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. Assets acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.
The corresponding rental obligations, net of finance charges, are included in interestbearing 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. For disclosure purposes, the fair value of finance leases is based on the present value of future cash flows, discounted at appropriate current market rates.
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.
Business combinations are accounted for by applying the acquisition method. The cost of each acquisition is measured as the aggregate of the fair value of the consideration transferred, as at the acquisition date, and the fair value of any non-controlling interest in the acquiree.
The consideration transferred includes the fair value of any assets or liabilities resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Where any part of the consideration for a business combination is contingent, the fair value of that component is determined by discounting the estimated amounts payable to their present value at the acquisition date. The discount is unwound as a finance charge in the Group Consolidated Income Statement over the life of the obligation. Subsequent changes to the estimated amounts payable for contingent consideration are recognised as a gain or loss in the Group Consolidated Income Statement.
Where a business combination is achieved in stages, the Group's previously held interest in the acquiree is re-measured to fair value at the acquisition date and included within the consideration, with any gain or loss recognised in the Group Consolidated Income Statement.
Goodwill is initially recognised at cost, being the difference between the cost of the acquisition over the fair value of the net identifiable assets and liabilities assumed. Following initial recognition, goodwill is stated at cost, less any accumulated impairment losses.
When the initial accounting for a business combination is only provisionally determined at the end of the financial year in which the combination occurs, any adjustments to the provisional values allocated to the identifiable assets and liabilities are made within a period of no more than one year from the acquisition date.
Acquisition costs arising in connection with a business combination are expensed as incurred.
Intangible assets acquired as part of a business combination are initially recognised at fair value being their deemed cost as 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. Cost comprises purchase price and other applicable directly attributable costs. Directly attributable costs that are capitalised as part of the ERP and computer-related intangibles include the employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred.
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.
Intangible assets with finite lives are amortised over the period of their expected useful lives in equal annual instalments, generally as follows:
| Customer relationships | 5 to 25 years |
|---|---|
| Brands | 10 to 25 years |
| Computer-related intangibles | 3 to 5 years |
| ERP-related intangibles | 12 years |
| Patents and other | 3 to 15 years |
Subsequent to initial recognition, the expected useful lives and related amortisation of finite life intangible assets are reviewed at least at each financial year-end and, if the expected economic benefits of the asset are different from previous estimates, amortisation is adjusted accordingly. Intangible assets are stated at cost, less accumulated amortisation and any impairment losses incurred.
There are no intangible assets with an indefinite useful life.
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 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 and at least at each reporting date. If any such indication exists, an impairment test is carried out and, if necessary, the asset is written down to its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and an asset's value-in-use. The Group tests goodwill for impairment annually, during the last quarter of the financial year, or more frequently if events or changes in circumstances indicate a potential impairment.
An impairment loss is recognised whenever the carrying amount of an asset, or its cash-generating unit, exceeds its estimated recoverable amount. Impairment losses are recognised in the income statement as an expense. 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 for goodwill is not subsequently reversed. An impairment loss for other assets may be 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 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 on hand, call deposits and other short-term highly liquid investments with original maturities of three months or less.
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 Group Consolidated Cash Flow Statement.
Shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity, net of tax, as a deduction from the proceeds.
If any Group company purchases ARYZTA AG's equity share capital, those shares are accounted for as treasury shares in the consolidated financial statements of the Group. Consideration paid for treasury shares, including any directly attributable incremental cost, net of tax, is deducted from equity attributable to the shareholders of the Company, until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company's shareholders.
Trade and other receivables (excluding prepayments) 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. If collection is expected in one year or less they are classified as current assets. If not, they are presented as noncurrent assets. 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 or exposure.
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 other receivables within current assets and are 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. Trade and other payables are classified as current liabilities, if payment is due within one year or less, otherwise, they are presented as non-current liabilities.
Derivatives, including forward currency contracts, interest rate swaps and commodity futures contracts are used to manage the Group's exposure to foreign currency risk, interest rate risk and commodity price risk. These derivatives are generally designated as cash flow hedges in accordance with IAS 39, 'Financial Instruments: Recognition and Measurement'.
Derivative financial instruments are initially recorded at fair value on the date the contract is entered into and are subsequently re-measured to fair value, as of each reporting date, using quoted market values. The gain or loss arising on re-measurement is recognised in the income statement, except where the instrument is a designated hedging instrument.
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 other comprehensive income, as part of the cash flow hedge reserve. Unrealised gains or losses on any ineffective portion 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.
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of or sold.
Interest-bearing borrowings are recognised initially at fair value, net of attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost, using the effective interest rate method.
Fees paid on the establishment of loan facilities are capitalised as transaction costs of the loan, to the extent that it is probable that some or all of the facility will be drawn down, and are amortised over the period of the facility to which the fees relate.
For interest-bearing loans and borrowings with a contractual re-pricing date of less than six months, the nominal amount is considered to approximate fair value for disclosure purposes. For loans with a re-pricing 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.
Perpetual callable subordinated instruments are recognised within other equity reserves, net of attributable transaction costs. These amounts are maintained within other equity reserves at historical cost, until such time that management and the Board of Directors have approved the settlement of such amounts. Any difference between the amount paid upon settlement of instruments without a maturity date and the historical cost is recognised directly within retained earnings. Dividends associated with these instruments are recognised directly within retained earnings.
Grants that compensate the Group for the cost of an asset are shown as deferred income in the balance sheet and are recognised in the 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 associated 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, which do not result in a loss of control, as transactions with equity owners of the Group. For purchases from noncontrolling interests, the difference between any consideration paid and the relevant share acquired in the carrying value of the 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 re-measured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is then 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.
| 1 | Segment information | |||||||
|---|---|---|---|---|---|---|---|---|
| 1.1 | Analysis by business segment | |||||||
| I) Segment revenue and result | ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
Total Continuing Operations |
||||
| in EUR `000 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| Segment revenue1 | 1,747,045 1,646,635 1,908,147 1,942,342 | 223,679 | 231,254 3,878,871 3,820,231 | |||||
| Operating profit/(loss)2 | 70,443 | (40,881) | 124,954 | 96,077 | 16,115 | 10,797 | 211,512 | 65,993 |
| Share of profit/(loss) after tax of joint ventures |
11,716 | (1,520) | ||||||
| Financing income3 | 3,526 | 2,137 | ||||||
| Financing costs3 | (106,706) | (85,527) | ||||||
| Profit/(loss) before income tax expense as reported in Group Consolidated Income Statement |
120,048 | (18,917) |
1 Revenues from external customers attributed to the Group's country of domicile, Switzerland, are 7.0% (2015: 6.8%) of total Group revenues. Revenues from external customers attributed to material foreign countries are United States 40.0% (2015: 40.2%), Germany 15.0% (2015: 15.1%) and Canada 9.2% (2015: 10.6%). For the purposes of this analysis, customer revenues are allocated based on the geographic location of the 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. There were no significant intercompany revenues between business segments.
2 Certain central executive and support costs have been allocated against the operating results of each business segment.
3 Joint ventures, finance income/(costs) and income tax expense are managed on a centralised basis. Therefore, these items are not allocated between business segments for the purposes of presenting information to the Chief Operating Decision Maker.
| ARYZTA | ARYZTA | ARYZTA | Total | |||||
|---|---|---|---|---|---|---|---|---|
| II) Segment assets | Europe | North America | Rest of World | Continuing Operations | ||||
| in EUR `000 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| Segment assets | 2,411,081 2,513,401 2,967,117 3,107,704 | 275,982 | 269,234 5,654,180 5,890,339 | |||||
| Reconciliation to total assets as reported in the Group Consolidated Balance Sheet |
||||||||
| Investments in joint ventures and related financial assets |
495,402 | 60,711 | ||||||
| Associate held-for-sale | – | 270,870 | ||||||
| Derivative financial instruments | 669 | 653 | ||||||
| Cash and cash equivalents | 647,724 | 316,867 | ||||||
| Deferred income tax assets | 133,176 | 105,579 | ||||||
| Total assets as reported in Group Consolidated Balance Sheet |
6,931,151 6,645,019 | |||||||
| III) Segment liabilities | ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
Total Continuing Operations |
||||
| in EUR `000 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| Segment liabilities | 508,256 | 550,965 | 479,005 | 505,284 | 78,104 | 65,276 1,065,365 1,121,525 | ||
| Reconciliation to total liabilities as reported in Group Consolidated Balance Sheet |
||||||||
| Interest-bearing loans and borrowings | 2,367,341 2,041,970 |
| Consolidated Balance Sheet 3,743,380 3,423,076 |
|
|---|---|
| Total liabilities as reported in Group | |
| Current and deferred income tax liabilities 296,117 |
246,815 |
| Derivative financial instruments 14,557 |
12,766 |
| IV) Other segment information |
ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
Total Continuing Operations |
||||
|---|---|---|---|---|---|---|---|---|
| in EUR `000 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| Depreciation | 50,143 | 57,368 | 53,276 | 47,547 | 8,611 | 9,604 | 112,030 | 114,519 |
| ERP amortisation | 9,179 | 5,330 | 3,564 | 4,457 | – | – | 12,743 | 9,787 |
| Amortisation of other intangible assets | 78,192 | 82,550 | 90,114 | 79,101 | 7,935 | 6,371 | 176,241 | 168,022 |
| Capital expenditure | ||||||||
| – Property, plant and equipment | 108,420 | 180,113 | 64,976 | 153,204 | 10,916 | 10,963 | 184,312 | 344,280 |
| – Intangibles | 14,273 | 39,577 | 16,364 | 21,328 | 65 | 316 | 30,702 | 61,221 |
| Total capital expenditure | 122,693 | 219,690 | 81,340 | 174,532 | 10,981 | 11,279 | 215,014 | 405,501 |
| Europe | North America | Rest of World | Total Continuing Operations |
|||||
|---|---|---|---|---|---|---|---|---|
| in EUR `000 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| IFRS 8 non-current assets1 | 2,750,410 2,343,064 2,737,659 2,837,326 | 244,199 | 246,769 5,732,268 5,427,159 |
1 Non-current assets as reported under IFRS 8, 'Operating Segments', include all non-current assets as presented in the Group Consolidated Balance Sheet, with the exception of deferred taxes and derivative financial instruments. Non-current assets attributed to the Group's country of domicile, Switzerland, are 5.9% of total Group non-current assets (2015: 6.6%). Non-current assets attributed to material foreign countries are: United States 35.9% (2015: 39.3%), Germany 13.9% (2015: 14.1%) and Canada 11.8% (2015: 12.9%).
During March 2015, ARYZTA announced the completion of its offering of 49 million ordinary shares of Origin for €8.25 per share, which raised net proceeds for ARYZTA of €398,108,000. At the time of the placing, the deemed fair value of the Group's remaining 29.0% interest in Origin was also valued at €8.25 per share, resulting in a value of €299,329,000. As the total deemed consideration exceeded the Group's €145,678,000 share of the disposed net assets and cash balances of Origin, the Group recognised a gain on disposal of discontinued operations of €551,759,000.
In accordance with IFRS 5, 'Non-current Assets Held for Sale and Discontinued Operations', as Origin previously represented a significant component and separately reported segment of the Group, Origin's results have been separately presented in the Group Financial Statements as Discontinued Operations, in both the current and prior years.
A calculation of the March 2015 gain on disposal is shown below:
| in EUR `000 | Origin |
|---|---|
| Net assets of discontinued operation disposed | |
| Property, plant and equipment (note 12) | 96,394 |
| Investment properties (note 13) | 7,575 |
| Goodwill and intangible assets (note 14) | 160,495 |
| Investment in associates and joint venture (note 15) | 62,370 |
| Inventory | 220,157 |
| Trade and other receivables | 396,520 |
| Trade and other payables | (458,284) |
| Interest bearing loans and borrowings | (248,774) |
| Derivative financial liabilities, net | (748) |
| Employee benefits (note 25) | (24,240) |
| Deferred income tax liabilities | (10,355) |
| Income tax payable | (17,166) |
| Total net assets disposed | 183,944 |
| Other comprehensive income recycled on disposal of discontinued operations | 1,328 |
| Non-controlling interests disposed as part of discontinued operations (note 27) | (64,727) |
| ARYZTA's share of Origin net assets disposed | 120,545 |
| Consideration | |
| Cash received, net of transaction costs | 398,108 |
| Net cash disposed | (25,133) |
| Cash received, net of cash disposed | 372,975 |
| Fair value adjustment to associate held-for-sale | (28,459) |
|---|---|
| Gain on disposal of discontinued operations | 551,759 |
Fair value of retained 29% interest 299,329 Total consideration 672,304
Following the March 2015 placing, the Group's remaining 29.0% interest in Origin was determined to be an associate held-for-sale, recorded at fair value, less costs to sell. Based on the unadjusted quoted price of €7.62 as of 31 July 2015, less estimated costs to sell, a fair value adjustment of €28,459,000 was recorded during the prior year to reduce the carrying value to €270,870,000 as of 31 July 2015, resulting in a total net gain in relation to the disposal of Origin of €523,300,000 during the year ended 31 July 2015.
During September 2015, ARYZTA announced the completion of its offering of its remaining 36.3 million ordinary shares of Origin for €6.30 per share, which raised net proceeds for ARYZTA of €225,101,000. As the fair value of the 29.0% investment in associate held-for-sale at 31 July 2015 was €270,870,000, this resulted in a net loss on disposal in the current year of €45,769,000. This divestment simplifies the reporting structure and transforms ARYZTA into a business fully focused on speciality food.
Analysis of the result of discontinued operations in both years, including the loss recognised on the disposal of the associate held-for-sale, is as follows:
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Revenue | – | 829,518 |
| Cost of sales | – | (719,381) |
| Distribution expenses | – | (18,196) |
| Gross profit | – | 91,941 |
| Selling expenses | – | (32,124) |
| Administration expenses | – | (52,572) |
| Operating profit | – | 7,245 |
| Share of profit after tax of associates and joint ventures | – | 6,026 |
| Profit before financing income, financing costs and income tax expense |
– | 13,271 |
| Financing income | – | 1,951 |
| Financing costs | – | (5,542) |
| Profit before income tax | – | 9,680 |
| Income tax expense | – | (734) |
| Profit after tax from discontinued operations | – | 8,946 |
| Gain on disposal of discontinued operations | – | 551,759 |
| Fair value adjustment to associate held-for-sale | – | (28,459) |
| Underlying contribution associate held-for-sale | 48 | – |
| Cash received, net of transaction costs | 225,101 | – |
| Carrying value of 29% interest disposed | (270,870) | – |
| (Loss)/profit for the year from discontinued operations | (45,721) | 532,246 |
| Attributable as follows: | ||
| Equity shareholders – discontinued operations | (45,721) | 529,396 |
| Non-controlling interests – discontinued operations | – | 2,850 |
| (Loss)/profit for the year from discontinued operations | (45,721) | 532,246 |
3 Net acquisition, disposal and restructuring-related costs In accordance with IAS 1, 'Presentation of Financial Statements', the Group Consolidated Income Statement is presented by function of expense.
Management has also identified certain acquisition, disposal and restructuring-related costs within each functional area that do not relate to the underlying business of the Group. Due to the relative size and nature of these items, they have been presented as separate components of operating profit below, in order to enable comparability of the Group's underlying results and performance from period to period, and have been excluded from the calculation of underlying net profit in note 11.
| IFRS Income Statement |
Net acquisition, disposal, restructuring related costs |
Intangible amortisation |
Financial Business Review |
IFRS Income Statement |
Net acquisition, disposal, restructuring related costs |
Intangible amortisation |
Financial Business Review |
|
|---|---|---|---|---|---|---|---|---|
| in EUR `000 | 2016 | 2016 | 2016 | 2016 | 2015 | 2015 | 2015 | 2015 |
| Revenue | 3,878,871 | – | – | 3,878,871 | 3,820,231 | – | – | 3,820,231 |
| Cost of sales | (2,654,228) | 32,484 | – (2,621,744) | (2,709,763) | 129,974 | – (2,579,789) | ||
| Distribution expenses | (414,410) | 3,983 | – | (410,427) | (407,658) | 7,706 | – | (399,952) |
| Gross profit | 810,233 | 36,467 | – | 846,700 | 702,810 | 137,680 | – | 840,490 |
| Selling expenses | (188,656) | 5,040 | – | (183,616) | (167,646) | 5,545 | – | (162,101) |
| Administration expenses | (410,065) | 55,607 | 176,241 | (178,217) | (469,171) | 136,725 | 168,022 | (164,424) |
| Operating profit of continuing operations | 211,512 | 97,114 | 176,241 | 484,867 | 65,993 | 279,950 | 168,022 | 513,965 |
| Joint Ventures | 11,716 | 804 | 3,162 | 15,682 | (1,520) | – | 310 | (1,210) |
| Profit of continuing operations before financing income, financing costs and income tax expense |
223,228 | 97,918 | 179,403 | 500,549 | 64,473 | 279,950 | 168,332 | 512,755 |
| ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
Total Continuing Operations |
||||||
|---|---|---|---|---|---|---|---|---|---|
| in EUR `000 | Notes | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| Net gain/(loss) on disposal of businesses |
3.1 | (4,987) | (45,685) | 5,980 | – | – | – | 993 | (45,685) |
| Asset write-downs | 3.2 | (5,040) | (72,395) | (9,747) | (68,544) | – | (5,350) | (14,787) | (146,289) |
| Total net gain/(loss) on disposal of businesses and asset write-downs |
(10,027) | (118,080) | (3,767) | (68,544) | – | (5,350) | (13,794) | (191,974) | |
| Acquisition-related costs | (2,330) | (9,467) | – | (515) | – | – | (2,330) | (9,982) | |
| Severance and other staff-related costs | (48,314) | (28,367) | (15,614) | (18,916) | (1,519) | (1,359) | (65,447) | (48,642) | |
| Contractual obligations | (1,402) | (586) | (5,305) | (1,285) | (31) | (216) | (6,738) | (2,087) | |
| Advisory and other costs | (5,069) | (13,862) | (3,538) | (10,670) | (198) | (2,733) | (8,805) | (27,265) | |
| Total acquisition and restructuring-related costs |
3.3 | (57,115) | (52,282) | (24,457) | (31,386) | (1,748) | (4,308) | (83,320) | (87,976) |
| Total acquisition, disposal and restructuring-related costs |
(67,142) | (170,362) | (28,224) | (99,930) | (1,748) | (9,658) | (97,114) | (279,950) |
As these non-cash gains and losses are added back to net assets, and the cash costs are deducted from EBITA, when calculating ROIC for management compensation purposes, these items had no impact on management compensation during the year ended 31 July 2016.
During the year, the Group disposed of two businesses, which historically generated approximately €100,000,000 in total annual revenues. As the €42,060,000 proceeds received, net of associated transaction costs, exceeded the €41,067,000 carrying value of the net assets disposed (including €20,573,000 of goodwill), a net gain on disposal of €993,000 has been reflected in the financial statements during the year ended 31 July 2016.
During January 2015, the Group agreed to exchange certain assets, which historically generated approximately €100,000,000 in annual revenues, for a 50% interest in Signature Flatbreads. As the €53,106,000 total fair value of the Group's 50% interest and the Vendor Loan Note receivable from the joint venture, were less than the €66,659,000 carrying value of the net assets exchanged and related costs incurred, the transaction resulted in a loss on disposal in the amount of €13,789,000, including foreign exchange losses of €236,000.
During April 2015, the Group agreed to sell its 100% interest in Carroll Cuisine, which historically generated approximately €45,000,000 in annual revenues, for cash consideration of €37,276,000. As the proceeds received exceeded the €12,970,000 carrying value of the net assets disposed and associated costs incurred, the transaction resulted in a gain on disposal of €24,306,000.
As a result of the two disposals above, the Group also wrote-off a proportionate amount of goodwill within the UK and Ireland Cash Generating Unit in the amount of €56,202,000. The total of the above transactions and the associated write-down of Goodwill resulted in a net loss on disposal of businesses within continuing operations of €45,685,000 during the year ended 31 July 2015.
The Group incurred €14,787,000 (2015: €146,289,000) of asset write-downs during the year, primarily related to the write-down of various distribution, manufacturing, and administration assets within the ARYZTA Europe and ARYZTA North America segments. These asset write-downs arise following the closure of and/or reduction in activities in these locations. The reductions are the direct result of the Group's recent integration and rationalisation programme investments, which have replaced obsolete assets, optimised the distribution network and streamlined administrative functions.
During the year ended 2016, the Group completed its joint venture investment in Picard (note 15), as well as a bolt-on acquisition in Ireland (note 29). During the years ended 2016 and 2015, progress continued on integrating recent acquisitions and aligning the operational processes of those businesses to the Group's existing network.
As a result of these investments, the Group has recognised costs, including, providing for amounts as required by IAS 37, 'Provisions, Contingent Liabilities and Contingent Assets', in the Group Consolidated Income Statement as follows:
During the year ended 31 July 2016, the Group incurred acquisition-related costs such as share purchase tax, due diligence and other professional services fees totalling €2,330,000 (2015: €9,982,000). These costs primarily related to activities associated with the Group's acquisition of La Rousse Foods, a supplier of fresh, frozen and ambient goods to various restaurants, hotels and caterers in Ireland. It also includes the finalisation of the Group's joint venture interest investment in Picard.
The costs incurred during the year ended 31 July 2015 primarily related to activities associated with the Group's various acquisitions, as well as the Group's investments in the Picard and Signature joint ventures.
The Group incurred and provided for €65,447,000 (2015: €48,642,000) in severance and other staff-related costs during the year. These related primarily to costs associated with employees whose service was discontinued following certain rationalisation decisions across the various business locations of the Group, primarily in Europe.
The operational decisions made as a result of the Group's integration and rationalisation projects triggered early termination penalties and resulted in certain long-term operational contracts becoming onerous. The Group incurred total costs of €6,738,000 (2015: €2,087,000) during the year to either exit or provide for such onerous contractual obligations.
During the year ended 31 July 2016, the Group incurred €8,805,000 (2015: €27,265,000) in advisory and other costs related directly to the rationalisation of certain bakery assets, integration of the supply chain and distribution functions of recently acquired businesses into the Group's network, and costs associated with centralisation of certain functions.
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Total financing income recognised in Group Consolidated | ||
| Income Statement | 3,526 | 2,137 |
| Financing costs | ||
| Interest cost on bank loans and overdrafts | (106,475) | (85,433) |
| Interest cost under finance leases | (98) | (13) |
| Defined benefit plan: net interest cost on plan liabilities (note 25) | (133) | (81) |
| Total financing costs recognised in Group Consolidated | ||
| Income Statement | (106,706) | (85,527) |
| Recognised directly in other comprehensive income | ||
| Effective portion of changes in fair value of interest rate swaps1 | 615 | (6,042) |
1 No unrealised gains or losses on any ineffective portion of derivatives have been recognised in the income statement.
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Revenue | 3,878,871 | 3,820,231 |
| Raw materials and consumables used | (1,809,609) (1,782,313) | |
| Employment costs (note 7) | (788,491) | (752,818) |
| Distribution costs | (209,841) | (211,157) |
| Amortisation of intangible assets (note 1) | (188,984) | (177,809) |
| Depreciation of property, plant and equipment (note 1) | (112,030) | (114,519) |
| Light, heat and power | (80,803) | (83,241) |
| Storage, rent and rates | (77,961) | (72,073) |
| Operating lease rentals | (69,122) | (61,557) |
| Recognition of deferred income from government grants (note 23) | 3,098 | 4,107 |
| Net gain/(loss) on disposal of businesses (note 3) | 993 | (45,685) |
| Asset write-downs (note 3) | (14,787) | (146,289) |
| Acquisition-related costs (note 3) | (2,330) | (9,982) |
| Other restructuring-related costs (note 3) | (15,543) | (29,352) |
| Other direct and indirect costs | (301,949) | (271,550) |
| Operating profit from continuing operations | 211,512 | 65,993 |
Group revenue relates primarily to sale of products.
Please refer to the ARYZTA AG Compensation Report on pages 49 to 56 for details on the compensation process and compensation for the year of Directors and Group Executive Management.
| by the Group during the year | 2016 | 2015 |
|---|---|---|
| Production | 14,668 | 13,926 |
| Sales and distribution | 3,627 | 3,317 |
| Management and administration | 1,562 | 1,557 |
| Average number of persons employed – continuing operations | 19,857 | 18,800 |
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Wages and salaries | 634,844 | 616,347 |
| Social welfare costs | 71,819 | 68,585 |
| Severance and other staff related costs (note 3) | 65,447 | 48,642 |
| Defined contribution plans (note 25) | 13,202 | 14,557 |
| Defined benefit plans – current service cost (note 25) | 4,435 | 3,618 |
| Defined benefit plans – past service gain (note 25) | (1,256) | (636) |
| Share-based payments (note 8) | – | 1,705 |
| Employment costs – continuing operations | 788,491 | 752,818 |
The Group has outstanding grants of equity-based incentives under the ARYZTA Option Equivalent Plan LTIP. All grants under the ARYZTA Matching Plan LTIP outstanding as of 31 July 2014, were either exercised or forfeited during the year ended 31 July 2015.
The total cost reported in the Group consolidated financial statements in relation to equity settled share-based payments is Nil (2015: €1,705,000).
The analysis of movements within the LTIP plans is as follows:
| Matching Plan awards | Weighted conversion price 2016 in CHF |
Number of equity entitlements 2016 |
Weighted conversion price 2015 in CHF |
Number of equity entitlements 2015 |
|---|---|---|---|---|
| Outstanding at beginning of the year | – | – | 0.02 | 723,000 |
| Exercised during the year | – | – | 0.02 | (327,052) |
| Forfeited during the year | – | – | 0.02 | (395,948) |
| Outstanding at the end of the year | – | – | – | – |
| Vested at end of the year | – | – | – | – |
The performance conditions associated with 327,052 Matching Plan awards (173,359 of which were held by Executive Management) were fulfilled during the year ended 31 July 2014 and these awards were exercised during the year ended 31 July 2015. As the performance criteria for the remaining awards outstanding under the Matching Plan were not met, they were forfeited, as they were no longer capable of vesting.
No new equity entitlements were awarded under the Matching Plan during the years ended 31 July 2016 or 31 July 2015.
| Option Equivalent Plan awards | Weighted conversion price 2016 in CHF |
Number of equity entitlements 2016 |
Weighted conversion price 2015 in CHF |
Number of equity entitlements 2015 |
|---|---|---|---|---|
| Outstanding at beginning of the year | 55.21 | 2,574,500 | 39.59 | 2,095,500 |
| Granted during the year | 44.58 | 2,624,500 | 81.00 | 980,000 |
| Exercised during the year | – | – | 40.57 | (501,000) |
| Forfeited during the year | 44.48 | (315,500) | – | – |
| Outstanding at the end of the year | 50.19 | 4,883,500 | 55.21 | 2,574,500 |
| Vested at end of the year | 39.34 | 1,589,500 | 39.36 | 1,594,500 |
| Option Equivalent Plan awards outstanding by conversion price |
Conversion price in CHF |
Number of equity entitlements |
Actual remaining life (years) |
|
| Issued during financial year 2010 | 37.23 | 550,000 | 3.1 | |
| Issued during financial year 2012 | 39.95 | 962,500 | 5.2 | |
| Issued during financial year 2013 | 46.70 | 77,000 | 6.3 | |
| Issued during financial year 2015 | 81.00 | 980,000 | 8.2 | |
| Issued during financial year 2016 | 44.62 | 2,314,000 | 9.3 |
As of 31 July 2016 50.19 4,883,500 7.5
The equity instruments granted under the ARYZTA Option Equivalent Plan LTIP are equity-settled share-based payments as defined in IFRS 2, 'Share-based Payment'. The Group has no legal or constructive obligation to repurchase or settle the Option Equivalent awards in cash.
Vesting of the awards under the Option Equivalent Plan is conditional on compound annual growth in underlying fully diluted EPS (including the associated cost of any awards expected to vest) in three consecutive accounting periods exceeding the compound growth in the Euro-zone Core Consumer Price Index, plus 5%, on an annualised basis.
Awards under the Option Equivalent Plan are subject to additional conditions, including notably:
The Option Equivalent Plan awards granted in the years before financial year 2015 can be exercised as of the time the performance conditions described above have been met, but no longer than ten years after grant date. Awards granted during financial year 2015, which meet the conditions for vesting after the initial three year performance period, are subject to additional conditions, including notably an additional two year holding period before they can be exercised.
The weighted average fair value assigned to share option equivalents granted under the ARYZTA Option Equivalent Plan LTIP during the year ended 31 July 2016 was CHF 6.80, which 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 5.0 years, expected share price volatility of 23.11%, the weighted average exercise price of CHF 44.58 or €40.88, the expected dividend yield of 1.5% and the risk-free rate of (0.54)%.
No Option Equivalent Plan awards were exercised during the year ended 31 July 2016.
The weighted average exercise price of all 1,589,500 Option Equivalent Plan awards that remain outstanding and for which the vesting conditions have been met is CHF 39.34.
| Income tax expense/(credit) | |
|---|---|
| -- | ----------------------------- |
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Current tax charge | 22,657 | 32,111 |
| Deferred tax credit (note 24) | (18,114) | (51,061) |
| Income tax expense/(credit) – continuing operations | 4,543 | (18,950) |
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Profit/(loss) before tax | 120,048 | (18,917) |
| Less share of (profit)/loss after tax of joint ventures | (11,716) | 1,520 |
| Profit/(loss) before tax and before share of (profit)/loss of JVs | 108,332 | (17,397) |
| Income tax on profit/(loss) for the year at 21.2% (2015: 21.2%)1 | 22,966 | (3,688) |
| Expenses/(income) not deductible/(taxable) for tax purposes | (11,164) | 3,596 |
| Income subject to lower rates of tax | (5,168) | (17,734) |
| Recognition of previously unrecognised deferred taxes | – | (2,691) |
| Change in estimates and other prior year adjustments: | ||
| – Current tax | (1,491) | 1,517 |
| – Deferred tax | (600) | 50 |
| Income tax expense/(credit) – continuing operations | 4,543 | (18,950) |
| Current and deferred tax movements recognised directly in other comprehensive income – continuing operations |
||
| in EUR `000 | 2016 | 2015 |
| Relating to foreign exchange translation effects | (198) | (5,265) |
| Relating to cash flow hedges | (376) | (599) |
| Relating to Group employee benefit plans actuarial gains/(losses) | ||
| (note 25) | 23 | (1,216) |
1 21.2% is the standard rate of income tax applicable to trading profits in Zurich, Switzerland.
Tax recognised directly in other comprehensive income (551) (7,080)
At the Annual General Meeting on 13 December 2016, shareholders will be invited to approve a proposed dividend of CHF 0.5731 (€0.5255) per share. If approved, the dividend will be paid to shareholders on 1 February 2017. A dividend of CHF 0.6555 per share was paid during the year, as approved by shareholders at the Annual General Meeting on 8 December 2015.
| 2016 | 2015 | |
|---|---|---|
| Basic earnings per share | in EUR '000 | in EUR '000 |
| Profit/(loss) attributable to equity shareholders – continuing operations | 112,729 | (4,636) |
| (Loss)/profit attributable to equity shareholders – discontinued operations | (45,721) | 529,396 |
| Profit attributable to equity shareholders – total | 67,008 | 524,760 |
| Profit/(loss) attributable to equity shareholders – continuing operations | 112,729 | (4,636) |
| Perpetual callable subordinated instrument accrued dividend | (31,882) | (30,673) |
| Profit/(loss) used to determine basic EPS – continuing operations | 80,847 | (35,309) |
| (Loss)/profit used to determine basic EPS – discontinued operations | (45,721) | 529,396 |
| Profit used to determine basic EPS – total | 35,126 | 494,087 |
| Weighted average number of ordinary shares | '000 | '000 |
| Ordinary shares outstanding at 1 August1 | 88,759 | 88,175 |
| Effect of exercise of equity instruments during the year | – | 481 |
| Weighted average number of ordinary shares used to determine basic earnings per share |
88,759 | 88,656 |
| Basic earnings/(loss) per share from continuing operations | 91.1 cent (39.8) cent | |
| Basic (loss)/earnings per share from discontinued operations | (51.5) cent 597.1 cent | |
| Basic earnings per share | 39.6 cent 557.3 cent | |
| 2016 | 2015 | |
|---|---|---|
| Diluted earnings per share | in EUR '000 | in EUR '000 |
| Profit/(loss) used to determine diluted EPS – continuing operations | 80,847 | (35,309) |
| (Loss)/profit used to determine basic EPS – discontinued operations | (45,721) | 529,396 |
| Effect on non-controlling interests share of reported profits, due to dilutive impact of Origin management equity entitlements |
– | (27) |
| (Loss)/profit used to determine diluted EPS – discontinued operations | (45,721) | 529,369 |
| Profit used to determine diluted EPS – total | 35,126 | 494,060 |
| Weighted average number of ordinary shares (diluted) | '000 | '000 |
| Weighted average number of ordinary shares used to determine basic earnings per share |
88,759 | 88,656 |
| Effect of equity-based incentives with a dilutive impact2 | 170 | – |
| Weighted average number of ordinary shares used to determine diluted earnings per share |
88,929 | 88,656 |
| Diluted earnings/(loss) per share from continuing operations | 90.9 cent (39.8) cent | |
| Diluted (loss)/earnings per share from discontinued operations | (51.4) cent 597.1 cent | |
| Diluted earnings per share | 39.5 cent 557.3 cent |
1 Issued share capital excludes treasury shares as detailed in note 26.
2 In accordance with IAS 33, 'Earnings Per Share', potential ordinary shares are treated as dilutive only when their conversion would decrease profit per share or increase loss per share from continuing operations. As the impact related to the conversion of equity-based incentives would decrease the loss per share for the year ended 31 July 2015, no dilutive effect was given to outstanding equity based incentives during that period.
In addition to the basic and diluted earnings per share measures required by IAS 33, 'Earnings Per Share', as calculated above, the Group also presents an underlying fully diluted earnings per share measure, in accordance with IAS 33 paragraph 73. This additional measure enables comparability of the Group's underlying results from period to period, without the impact of transactions that do not relate to the underlying business. It is also the Group's policy to declare dividends based on underlying fully diluted earnings per share, as this provides a more consistent basis for returning dividends to shareholders.
As shown below, for purposes of calculating this measure, the Group adjusts reported net profit by the following items and their related tax impacts:
| 2016 | 2015 | |
|---|---|---|
| Underlying fully diluted earnings per share | in EUR '000 | in EUR '000 |
| Profit/(loss) used to determine basic EPS – continuing operations | 80,847 | (35,309) |
| Amortisation of non-ERP intangible assets (note 1) | 176,241 | 168,022 |
| Tax on amortisation of non-ERP intangible assets (note 24) | (36,715) | (35,104) |
| Share of joint venture intangible amortisation and restructuring-related costs, net of tax (note 15) |
3,966 | 310 |
| Net acquisition, disposal and restructuring-related costs (note 3) | 97,114 | 279,950 |
| Tax on net acquisition, disposal and restructuring-related costs | (9,911) | (47,881) |
| Underlying net profit – continuing operations | 311,542 | 329,988 |
| (Loss)/profit used to determine basic EPS – discontinued operations | (45,721) | 529,396 |
| Underlying contribution as associate – discontinuing operations | (48) | 17,296 |
| Amortisation, non-recurring and other – discontinued operations | – | 6,343 |
| Loss/(gain) on disposal of discontinued operations | 45,769 (551,759) | |
| Fair value adjustment – discontinuing operations | – | 28,459 |
| Underlying net profit – discontinued operations | – | 29,735 |
| Underlying net profit – total | 311,542 | 359,723 |
| Weighted average number of ordinary shares used to determine basic earnings per share |
88,759 | 88,656 |
| Underlying basic earnings per share – continuing operations | 351.0 cent 372.2 cent | |
| Underlying basic earnings per share – discontinued operations | – | 33.6 cent |
| Underlying basic earnings per share – total | 351.0 cent 405.8 cent | |
| Weighted average number of ordinary shares used to determine basic earnings per share |
88,759 | 88,656 |
| Effect of equity-based incentives with a dilutive impact | 170 | 785 |
| Weighted average number of ordinary shares used to determine underlying fully diluted earnings per share |
88,929 | 89,441 |
| Underlying fully diluted earnings per share – continuing operations | 350.3 cent 368.9 cent | |
| Underlying fully diluted earnings per share – discontinued operations | – | 33.3 cent |
| Underlying fully diluted earnings per share – total | 350.3 cent 402.2 cent |
| 12 Property, plant and equipment |
||||||
|---|---|---|---|---|---|---|
| 31 July 2016 in EUR '000 |
Land and buildings |
Plant and Machinery |
Motor Vehicles |
Assets under construction |
Total | |
| Net Book Value At 1 August 2015 | 506,321 | 873,735 | 1,768 | 161,439 | 1,543,263 | |
| Additions | 6,427 | 70,253 | 1,292 | 106,340 | 184,312 | |
| Transfer from assets under construction | 28,027 | 87,876 | 1,235 | (117,138) | – | |
| Arising on business combination (note 29) | 3,860 | 30 | 561 | – | 4,451 | |
| Business disposals | (2,878) | (1,988) | – | – | (4,866) | |
| Asset write-downs/disposals, net | (109) | (3,394) | (115) | (1,551) | (5,169) | |
| Depreciation charge for year | (20,343) | (90,695) | (992) | – | (112,030) | |
| Translation adjustments | (6,238) | (6,959) | (34) | (1,845) | (15,076) | |
| Net Book Value At 31 July 2016 | 515,067 | 928,858 | 3,715 | 147,245 | 1,594,885 | |
| At 31 July 2016 | ||||||
| Cost | 607,165 | 1,479,247 | 8,395 | 147,245 | 2,242,052 | |
| Accumulated depreciation | (92,098) | (550,389) | (4,680) | – | (647,167) | |
| Net Book Value At 31 July 2016 | 515,067 | 928,858 | 3,715 | 147,245 | 1,594,885 |
| 31 July 2015 in EUR '000 |
Land and buildings |
Plant and Machinery |
Motor Vehicles |
Assets under construction |
Total |
|---|---|---|---|---|---|
| Net Book Value At 1 August 2014 | 534,286 | 688,544 | 3,097 | 148,083 | 1,374,010 |
| Additions | 10,398 | 52,347 | 532 | 286,978 | 350,255 |
| Transfer from assets under construction | 31,632 | 228,310 | 62 | (260,004) | – |
| Arising on business combination (note 29) | 32,960 | 42,585 | 1,113 | 816 | 77,474 |
| Business disposals | (680) | (43,054) | (1) | (12,448) | (56,183) |
| Disposals as part of discontinued operations (note 2) | (70,755) | (23,806) | (1,833) | – | (96,394) |
| Asset write-downs/disposals, net | (26,248) | (29,473) | (181) | (20,181) | (76,083) |
| Transfer to investment properties (note 13) | (826) | – | – | – | (826) |
| Depreciation charge for year | (21,460) | (96,137) | (932) | – | (118,529) |
| Translation adjustments | 17,014 | 54,419 | (89) | 18,195 | 89,539 |
| Net Book Value At 31 July 2015 | 506,321 | 873,735 | 1,768 | 161,439 | 1,543,263 |
| At 31 July 2015 | |||||
| Cost | 589,756 | 1,385,065 | 7,204 | 161,439 | 2,143,464 |
| Accumulated depreciation | (83,435) | (511,330) | (5,436) | – | (600,201) |
| Net Book Value At 31 July 2015 | 506,321 | 873,735 | 1,768 | 161,439 | 1,543,263 |
The net book value in respect of assets held under finance leases and accordingly capitalised in property, plant and equipment is as follows:
| in EUR '000 | Plant and Machinery |
Motor Vehicles |
Total |
|---|---|---|---|
| At 31 July 2016 | 263 | 2,306 | 2,569 |
| At 31 July 2015 | 264 | 688 | 952 |
| – (1,494) |
1,949 |
|---|---|
| (7,575) | |
| – | 826 |
| 365 | – |
| 25,916 | 30,716 |
| 2016 | 2015 |
Investment property is principally comprised of properties previously used in operations, which were transferred to investment property upon the determination that the properties would no longer be used in operations, but instead would be held as an investment for capital appreciation. Rental income and operating expenses recognised related to these properties is not significant.
No material fair value adjustments were recorded to investment properties during the years ended 31 July 2016 and 31 July 2015.
| 31 July 2016 | Customer | Computer | ERP-related | Patents | |||
|---|---|---|---|---|---|---|---|
| in EUR '000 | Goodwill | Relationships | Brands | related | intangibles | and other | Total |
| Net Book Value At 1 August 2015 | 2,435,928 | 952,900 | 171,990 | 14,542 | 177,500 | 44,409 | 3,797,269 |
| Additions | – | – | – | 6,766 | 23,936 | – | 30,702 |
| Arising on business combination (note 29) | 6,918 | 16,500 | 2,800 | – | – | – | 26,218 |
| Business disposals (note 3) | (20,573) | – | – | (62) | – | – | (20,635) |
| Asset write-downs | – | – | – | (34) | (1,801) | – | (1,835) |
| Amortisation charge for the year | – | (136,350) | (26,235) | (2,933) | (12,743) | (10,723) | (188,984) |
| Translation adjustments | (18,602) | (5,854) | (1,457) | 845 | (346) | (127) | (25,541) |
| Net Book Value At 31 July 2016 | 2,403,671 | 827,196 | 147,098 | 19,124 | 186,546 | 33,559 | 3,617,194 |
| At 31 July 2016 | |||||||
| Cost | 2,403,671 | 1,496,912 | 321,446 | 53,802 | 213,447 | 61,290 | 4,550,568 |
| Accumulated amortisation | – | (669,716) | (174,348) | (34,678) | (26,901) | (27,731) | (933,374) |
| Net Book Value At 31 July 2016 | 2,403,671 | 827,196 | 147,098 | 19,124 | 186,546 | 33,559 | 3,617,194 |
| 31 July 2015 in EUR '000 |
Goodwill | Customer Relationships |
Brands | Computer related |
ERP-related intangibles |
Patents and other |
Total |
|---|---|---|---|---|---|---|---|
| Net Book Value At 1 August 2014 | 2,273,382 | 971,897 | 177,116 | 16,042 | 185,792 | 66,368 3,690,597 | |
| Additions | – | 532 | – | 5,267 | 52,514 | 4,010 | 62,323 |
| Arising on business combination (note 29) | 87,112 | 47,198 | 2,878 | 67 | – | 5,528 | 142,783 |
| Business disposals (note 3) | (56,202) | – | – | – | (9,439) | (63) | (65,704) |
| Disposals as part of discontinued operations (note 2) | (96,124) | (41,769) | (10,056) | (611) | (11,935) | – | (160,495) |
| Asset write-downs | – | – | – | (3,316) | (36,337) | – | (39,653) |
| Amortisation charge for the year | – | (116,187) | (19,497) | (4,180) | (9,787) | (34,695) | (184,346) |
| Translation adjustments | 227,760 | 91,229 | 21,549 | 1,273 | 6,692 | 3,261 | 351,764 |
| Net Book Value At 31 July 2015 | 2,435,928 | 952,900 | 171,990 | 14,542 | 177,500 | 44,409 3,797,269 | |
| At 31 July 2015 | |||||||
| Cost | 2,435,928 | 1,498,014 | 324,043 | 49,661 | 191,670 | 93,239 4,592,555 | |
| Accumulated amortisation | – | (545,114) (152,053) | (35,119) | (14,170) | (48,830) | (795,286) | |
| Net Book Value At 31 July 2015 | 2,435,928 | 952,900 | 171,990 | 14,542 | 177,500 | 44,409 3,797,269 |
Goodwill acquired through business combinations is allocated at acquisition to the cash-generating units, or groups of cash generating-units, that are expected to benefit from the synergies of the business combination.
The business units shown in the following table represent the lowest level at which goodwill is now monitored for internal management purposes. Accordingly, this is also the level at which the 2016 goodwill impairment testing was performed. The carrying amount of goodwill allocated to the relevant cash-generating units, as well as the key assumptions used in the 2016 impairment testing, are summarised as follows:
| in EUR '000 | Pre-tax discount rate 2016 |
Projection period |
Terminal growth rate |
Carrying Value 2016 |
Carrying Value 2015 |
|---|---|---|---|---|---|
| UK, Ireland and Netherlands | 7.8% | 3 years | 2% | 211,409 | 210,774 |
| Germany and other1 | 8.1% | 3 years | 2% | 369,930 | 370,393 |
| Switzerland | 6.7% | 3 years | 2% | 244,529 | 249,581 |
| France | 8.5% | 3 years | 2% | 85,354 | 105,927 |
| ARYZTA Europe | 911,222 | 936,675 | |||
| ARYZTA North America | 8.3% | 3 years | 2% 1,435,709 1,443,858 | ||
| ARYZTA Rest of World | 11.7% | 3 years | 3% | 56,740 | 55,395 |
| 2,403,671 2,435,928 |
1 Other comprise goodwill in a number of cash-generating units which are individually insignificant.
The Group tests goodwill for impairment annually, during the last quarter of the financial year, or more frequently if changes in circumstances indicate a potential impairment. No impairment losses have been recognised related to the Group's goodwill during the year ended 31 July 2016. During the year ended 31 July 2015, an impairment of €56,202,000 was recorded in the ARYZTA Europe operating segment, as a result of business disposals (note 3).
The recoverable amounts of cash-generating units are based on value-in-use calculations. These calculations use pre-tax cash flow projections based on expected future operating results and related cash flows at the time the impairment test is performed. 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 based on current financial budgets, with additional cash flows in subsequent years calculated using a terminal value methodology and discounted using the relevant rate, as disclosed in the table above.
A 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 recoverable amount of the business unit. However, based on the results of the impairment testing undertaken, sufficient headroom exists such that any reasonable movement in any of the underlying assumptions would not give rise to an impairment charge. Key assumptions include management's estimates of future profitability, specifically the terminal growth rate and growth estimates for the projection period, as well as the discount rate.
The terminal growth rate within the discounted cash flow model is a significant factor in determining the value-in-use of the cash-generating units. A terminal growth rate is included to take into account the Group's strong financial position, its established history of earnings growth, ongoing cash flow generation and its proven ability to pursue and integrate value-enhancing acquisitions. The terminal growth rates utilised approximated relevant long-term inflation rates within each of the cash-generating units. While the terminal growth rate is a significant factor in the goodwill impairment testing, reducing the terminal growth rate to 0% would not give rise to a material impairment.
The discount rate used is also a significant factor in determining the value-in-use of the cash-generating units. These rates are based on the relevant risk-free rate, adjusted to reflect the risk associated with the respective future cash flows of that cash-generating unit. While the discount rate is a significant factor in the goodwill impairment testing, increasing the discount rate by 1% would not give rise to a material impairment.
| Share of | Share of | ||
|---|---|---|---|
| 31 July 2016 | associates | joint ventures | |
| in EUR '000 | net assets | net assets | Total |
| At 1 August 2015 | – | 32,067 | 32,067 |
| Investment in joint venture | – | 450,732 | 450,732 |
| Share of profit after tax and before intangible amortisation |
– | 15,682 | 15,682 |
| Group share of intangible amortisation | – | (3,162) | (3,162) |
| Group share of restructuring-related costs | – | (804) | (804) |
| Gains through other comprehensive income | – | 304 | 304 |
| Translation adjustments | – | (3,373) | (3,373) |
| At 31 July 2016 | – | 491,446 | 491,446 |
| 31 July 2015 in EUR '000 |
|||
| At 1 August 2014 | 41,323 | 13,588 | 54,911 |
| Investment in joint ventures | – | 30,577 | 30,577 |
| Share of losses, after tax and before intangible amortisation |
– | (1,210) | (1,210) |
| Group share of intangible amortisation | – | (310) | (310) |
| Movements in investment in associates and JV in discontinued operations |
4,326 | 3,133 | 7,459 |
| Disposals as part of discontinued operations (note 2) |
(45,649) | (16,721) | (62,370) |
| Translation adjustments | – | 3,010 | 3,010 |
| At 31 July 2015 | – | 32,067 | 32,067 |
During August 2015, the Group acquired a 49% interest in Picard, which operates an asset light business-to-consumer platform focused on premium speciality food. Picard is located primarily in France, but also has some international franchises outside of France.
While ARYZTA holds only a minority shareholding and voting rights in Picard, the Group is entitled to jointly approve key business decisions, including approval of proposed members of Picard management and the annual operating budget, which are considered relevant activities. Therefore, the Group's interest in Picard has been presented as a joint venture.
The Group also retains the right to exercise a call option to acquire the remaining outstanding interest in Picard between FY2019 and FY2021, Picard remains separately managed and has separately funded debt structures, which are non-recourse to ARYZTA.
During January 2015, the Group exchanged assets with a fair value of GBP 24,000,000 (€30,577,000) for a 50% interest in Signature Flatbreads, a pioneering flatbread producer in the UK and India, producing an innovative range of authentic Indian breads, as well as high quality international flatbreads, tortillas, pizza bases and pitas. As ARYZTA is entitled to jointly approve key business decisions, the Group's interest in Signature Flatbreads has been presented as a joint venture.
The Group also received a vendor loan note receivable from Signature Flatbreads, with an initial balance of GBP 17,683,000 (€22,529,000), of which GBP 17,700,000 (€21,509,000) was repaid during the year ended 31 July 2016.
The amounts included in these Group consolidated financial statements in respect of the current year post-acquisition profits or losses of 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. Both Picard and Signature International Foods India Private Ltd have a year-end of 31 March, while Signature Flatbreads (UK) Ltd has a year-end of 31 May.
The assets, liabilities and overall investments in joint ventures are as follows:
| 31 July 2016 in EUR '000 |
Picard | Signature | Total | ARYZTA portion |
|---|---|---|---|---|
| Cash and cash equivalents | 122,594 | 3,769 | 126,363 | 61,551 |
| Other current assets | 122,413 | 22,859 | 145,272 | 71,008 |
| Total current assets | 245,007 | 26,628 | 271,635 | 132,559 |
| Total non-current assets | 1,901,773 | 61,663 | 1,963,436 | 956,424 |
| Trade and other payables | (230,334) | (19,954) | (250,288) | (122,081) |
| Other current liabilities | (62,241) | (461) | (62,702) | (30,523) |
| Total current liabilities | (292,575) | (20,415) | (312,990) | (152,604) |
| Total non-current liabilities | (1,690,737) | (23,968) (1,714,705) | (834,866) | |
| Balance at 31 July 2016 | 163,468 | 43,908 | 207,376 | 101,513 |
| Goodwill | 389,933 | |||
| Investment in joint ventures | 491,446 |
The share of revenues and results of joint ventures are as follows:
| 31 July 2016 | ARYZTA's | |||
|---|---|---|---|---|
| in EUR '000 | Picard | Signature | Total | share thereof |
| Revenue | 1,287,900 | 115,087 | 1,402,987 | |
| EBITDA | 186,743 | 11,108 | 197,851 | |
| Depreciation | (27,405) | (4,805) | (32,210) | |
| EBITA | 159,338 | 6,303 | 165,641 | |
| Finance costs, net | (88,746) | (1,169) | (89,915) | |
| Pre-tax profits | 70,592 | 5,134 | 75,726 | |
| Income tax | (42,592) | (1,024) | (43,616) | |
| Joint venture underlying net profit | 28,000 | 4,110 | 32,110 | 15,682 |
| Intangible amortisation, net of | ||||
| deferred taxes | (4,326) | (2,113) | (6,439) | (3,162) |
| Restructuring-related costs | (1,652) | – | (1,652) | (804) |
| Profit after tax | 22,022 | 1,997 | 24,019 | 11,716 |
| Gains through other comprehensive income | 626 | – | 626 | 304 |
| Total other comprehensive income | 22,648 | 1,997 | 24,645 | 12,020 |
| Balance at 31 July | 248,719 | 259,855 |
|---|---|---|
| Packaging and other | 18,235 | 16,955 |
| Finished goods | 177,009 | 186,520 |
| Raw materials | 53,475 | 56,380 |
| in EUR '000 | 2016 | 2015 |
A total expense of €17,461,000 (2015: €15,169,000) was recognised in the Group Consolidated Income Statement arising from write-down of inventory.
| 2016 | 2015 |
|---|---|
| 3,956 | 28,644 |
| 99,607 | 185,777 |
| 187 | 789 |
| 20,581 | 22,123 |
| 24,992 | 25,947 |
| 23,228 | 29,400 |
| 168,595 | 264,036 |
| in EUR '000 | 2016 | 2015 |
|---|---|---|
| Non-current | ||
| Other payables | 37,678 | 36,732 |
| Forward purchase obligation (note 22) | – | 15,185 |
| Balance at 31 July | 37,678 | 51,917 |
| Current | ||
| Trade payables | 382,560 | 372,135 |
| Amounts due to related parties (note 31) | 333 | 191 |
| Accruals and other payables1 | 358,618 | 352,159 |
| Employee-related tax and social welfare | 11,716 | 9,128 |
| VAT payable | 10,516 | 8,947 |
| Forward purchase obligation (note 22) | 14,878 | – |
| Balance at 31 July | 778,621 | 742,560 |
1 Accruals and other payables consist primarily of balances due for goods and services received not yet invoiced and for staff compensation.
Contingent consideration comprises the net present value of amounts expected to be payable arising on business combinations. Residual deferred and contingent consideration is due entirely within five years of the related acquisition and is payable subject to the passage of time or achievement of earnings or revenue-based targets, respectively.
| in EUR '000 | 2016 | 2015 |
|---|---|---|
| Balance at 1 August | 48,660 | 15,254 |
| Arising on business combination (note 29) | 572 | 42,366 |
| Payments of contingent consideration | (46,916) | (9,240) |
| Released to income statement | (1,140) | – |
| Translation adjustment | (160) | 280 |
| Balance at 31 July | 1,016 | 48,660 |
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 Consolidated Balance Sheet.
The cash and cash equivalents included in the Group Consolidated Cash Flow Statement are analysed as follows:
| in EUR '000 | 2016 | 2015 |
|---|---|---|
| Cash at bank and on hand | 647,724 | 316,867 |
| Bank overdrafts | (178,751) | (68,834) |
| Included in the Group Consolidated Cash Flow Statement | 468,973 | 248,033 |
Cash at bank and on 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.
Details of the Group's interest bearing loans and borrowings are outlined below.
The bank and private placement borrowings of the Group share security via a security assignment agreement.
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Included in non-current liabilities | ||
| Loans | 1,962,339 | 1,935,828 |
| Finance leases | 1,370 | 1,348 |
| Non-current interest-bearing loans and borrowings | 1,963,709 | 1,937,176 |
| Included in current liabilities | ||
| Loans | 223,974 | 35,883 |
| Bank overdrafts (note 20) | 178,751 | 68,834 |
| Total bank loans and overdrafts | 402,725 | 104,717 |
| Finance leases | 907 | 77 |
| Current interest-bearing loans and borrowings | 403,632 | 104,794 |
| Total bank loans and overdrafts | 2,365,064 | 2,040,545 |
| Total finance leases | 2,277 | 1,425 |
| Total interest-bearing loans and borrowings | 2,367,341 | 2,041,970 |
| Analysis of net debt in EUR `000 |
1 August 2015 |
Cash flows | Arising on business combination / disposal |
Non-cash movements |
Translation adjustment |
31 July 2016 |
|---|---|---|---|---|---|---|
| Cash | 316,867 | 319,991 | 15,613 | – | (4,747) | 647,724 |
| Overdrafts | (68,834) | (114,652) | – | – | 4,735 | (178,751) |
| Cash and cash equivalents | 248,033 | 205,339 | 15,613 | – | (12) | 468,973 |
| Loans | (1,971,711) | (246,984) | – | (3,645) | 36,027 | (2,186,313) |
| Finance leases | (1,425) | 26 | (470) | (431) | 23 | (2,277) |
| Net debt | (1,725,103) | (41,619) | 15,143 | (4,076) | 36,038 | (1,719,617) |
During March 2016, the Group agreed new terms for its revolving credit facility, which reduced the Group's revolving credit facility capacity from CHF 1,977m to CHF 1,400m. The facility has a maturity in March 2019 for CHF 500m and March 2021 for the remaining CHF 900m, with an option to extend the entire facility to March 2021. The new facility has substantially unchanged financial covenants.
Also see changes to the Group's interest-bearing loans and borrowings subsequent to year-end, as included in note 32.
The terms of outstanding loans are as follows:
| 2016 | Currency | Calendar year of maturity |
Nominal Value in EUR'000 |
Carrying amount in EUR'000 |
|---|---|---|---|---|
| Senior secured revolving working capital facility | Various | 2019 | 438,327 | 433,638 |
| Senior secured revolving working capital facility | Various | 2021 | 553,340 | 544,901 |
| Private placement 2014 | ||||
| Series A | USD | 2020 | 89,590 | 88,954 |
| Series B | USD | 2022 | 223,974 | 222,381 |
| Series C | USD | 2024 | 125,426 | 124,534 |
| Series D | EUR | 2024 | 25,000 | 24,822 |
| Private placement 2010 | ||||
| Series C | USD | 2018 | 53,754 | 53,361 |
| Series D | USD | 2021 | 134,385 | 133,403 |
| Series E | USD | 2022 | 89,590 | 88,935 |
| Series F | EUR | 2020 | 25,000 | 24,817 |
| Private placement 2009 | ||||
| Series A | USD | 2021 | 71,671 | 71,119 |
| Series B | USD | 2024 | 35,836 | 35,560 |
| Series C | USD | 2029 | 71,671 | 71,119 |
| Private placement 2007 | ||||
| Series B | USD | 2017 | 223,974 | 223,974 |
| Series C | USD | 2019 | 44,795 | 44,795 |
| Total outstanding loans at 31 July 2016 | 2,206,333 | 2,186,313 |
| Calendar | Nominal | Carrying | ||
|---|---|---|---|---|
| 2015 | Currency | year of maturity |
Value in EUR'000 |
amount in EUR'000 |
| Senior secured revolving working capital facility | Various | 2019 | 730,493 | 720,865 |
| Private placement 2014 | ||||
| Series A | USD | 2020 | 90,017 | 89,377 |
| Series B | USD | 2022 | 225,043 | 223,442 |
| Series C | USD | 2024 | 126,024 | 125,127 |
| Series D | EUR | 2024 | 25,000 | 24,822 |
| Private placement 2010 | ||||
| Series B | USD | 2016 | 36,007 | 35,883 |
| Series C | USD | 2018 | 54,010 | 53,825 |
| Series D | USD | 2021 | 135,026 | 134,563 |
| Series E | USD | 2022 | 90,017 | 89,709 |
| Series F | EUR | 2020 | 25,000 | 24,914 |
| Private placement 2009 | ||||
| Series A | USD | 2021 | 72,014 | 71,653 |
| Series B | USD | 2024 | 36,007 | 35,826 |
| Series C | USD | 2029 | 72,013 | 71,653 |
| Private placement 2007 | ||||
| Series B | USD | 2017 | 225,042 | 225,043 |
| Series C | USD | 2019 | 45,009 | 45,009 |
| Total outstanding loans at 31 July 2015 | 1,986,722 | 1,971,711 |
The weighted average effective interest rate in respect of the Group's interest-bearing loans was as follows:
| 31 July | 31 July | |
|---|---|---|
| 2016 | 2015 | |
| Total bank loans | 4.5% | 3.8% |
The pre-tax weighted average cost of capital associated with the Group's financing structures was 8.0% (2015: 7.4%).
| Repayment schedule – loans and overdrafts (nominal values) | |||||
|---|---|---|---|---|---|
| ------------------------------------------------------------ | -- | -- | -- | -- | -- |
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Less than one year | 402,725 | 104,841 |
| Between one and five years | 1,339,191 | 1,169,571 |
| After five years | 643,168 | 781,144 |
| 2,385,084 | 2,055,556 |
| Repayment schedule – finance leases in EUR `000 |
Minimum lease payments 2016 |
Interest 2016 |
Present value of payments 2016 |
Minimum lease payments 2015 |
Interest 2015 |
Present value of payments 2015 |
|---|---|---|---|---|---|---|
| Less than one year | 966 | 59 | 907 | 134 | 57 | 77 |
| Between one and five years | 1,412 | 42 | 1,370 | 1,358 | 10 | 1,348 |
| After five years | – | – | – | – | – | – |
| 2,378 | 101 | 2,277 | 1,492 | 67 | 1,425 |
The fair values of financial assets, liabilities, investment property and assets held-for-sale, together with the carrying amounts shown in the balance sheet, are as follows:
| in EUR `000 | Fair value hierarchy |
Fair Value through income statement 2016 |
Hedge instruments 2016 |
Loans and receivables 2016 |
Liabilities at amortised cost 2016 |
Total carrying amount 2016 |
Fair value 2016 |
|---|---|---|---|---|---|---|---|
| Trade and other receivables (excluding prepayments) |
– | – | 126,978 | – | 126,978 | 126,978 | |
| Cash and cash equivalents | – | – | 647,724 | – | 647,724 | 647,724 | |
| Derivative financial assets | Level 2 | – | 669 | – | – | 669 | 669 |
| Investment properties | Level 3 | 24,787 | – | – | – | 24,787 | 24,787 |
| Total financial assets | 24,787 | 669 | 774,702 | – | 800,158 | 800,158 | |
| Trade and other payables (excluding non-financial liabilities) |
– | – | – | (779,189) | (779,189) | (779,189) | |
| Bank overdrafts | – | – | – | (178,751) | (178,751) | (178,751) | |
| Bank borrowings | – | – | – | (2,186,313) | (2,186,313) | (2,380,949) | |
| Finance lease liabilities | – | – | – | (2,277) | (2,277) | (2,277) | |
| Derivative financial liabilities | Level 2 | – | (14,557) | – | – | (14,557) | (14,557) |
| Forward purchase obligation | Level 3 | (14,878) | – | – | – | (14,878) | (14,878) |
| Contingent consideration | Level 3 | (1,016) | – | – | – | (1,016) | (1,016) |
| Total financial liabilities | (15,894) | (14,557) | – | (3,146,530) | (3,176,981) | (3,371,617) |
| in EUR `000 | Fair value hierarchy |
Fair Value through income statement 2015 |
Hedge instruments 2015 |
Loans and receivables 2015 |
Liabilities at amortised cost 2015 |
Total carrying amount 2015 |
Fair value 2015 |
|---|---|---|---|---|---|---|---|
| Trade and other receivables (excluding prepayments) |
– | – | 244,610 | – | 244,610 | 244,610 | |
| Cash and cash equivalents | – | – | 316,867 | – | 316,867 | 316,867 | |
| Derivative financial assets | Level 2 | – | 653 | – | – | 653 | 653 |
| Investment properties | Level 3 | 25,916 | – | – | – | 25,916 | 25,916 |
| Associate held-for-sale | Level 1 | 270,870 | – | – | – | 270,870 | 270,870 |
| Total financial assets | 296,786 | 653 | 561,477 | – | 858,916 | 858,916 | |
| Trade and other payables (excluding non-financial liabilities) |
– | – | – | (761,217) | (761,217) | (761,217) | |
| Bank overdrafts | – | – | – | (68,834) | (68,834) | (68,834) | |
| Bank borrowings | – | – | – | (1,971,711) | (1,971,711) | (2,096,779) | |
| Finance lease liabilities | – | – | – | (1,425) | (1,425) | (1,425) | |
| Derivative financial liabilities | Level 2 | – | (12,766) | – | – | (12,766) | (12,766) |
| Forward purchase obligation | Level 3 | (15,185) | – | – | – | (15,185) | (15,185) |
| Contingent consideration | Level 3 | (48,660) | – | – | – | (48,660) | (48,660) |
| Total financial liabilities | (63,845) | (12,766) | – | (2,803,187) | (2,879,798) | (3,004,866) |
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 tables.
The tables at the beginning of this note summarise the financial instruments carried at fair value, by valuation method. 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:
All trade and other receivables or payables, other than the forward purchase obligation, are carried at amortised cost, less any impairment provision. For any trade and other 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 an original and 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.
Investment property, principally comprised of land and buildings, is held for capital appreciation. Investment property is stated at fair value through the income statement. 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. As the fair value is based on inputs not observable within the market, it has been classified as a Level 3 asset.
The Group's 29% investment in Origin was classified as an associate held-for-sale as of 31 July 2015 because its carrying amount was to be recovered principally through a sale transaction. This is stated at fair value, less costs to sell. As the fair value is determined by reference to prices quoted in an active market, it was classified as a Level 1 financial asset.
For interest-bearing loans and borrowings with a contractual re-pricing date of less than six months, the nominal amount is considered to approximate fair value for disclosure purposes. For loans with a re-pricing 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.
Fair value is based on the present value of future cash flows discounted at implicit interest rates.
The liability related to the HiCoPain forward purchase contract (notes 18 and 26) is carried at fair value through profit and loss. In accordance with the terms of that agreement, the fair value of this financial instrument is based on the estimated net book value of HiCoPain AG upon the final exit of the non-controlling interest shareholder. As the fair value of this obligation is based on inputs not observable within the market, it has been classified as a Level 3 financial liability.
Where any part of the consideration for a business combination is deferred or contingent, the fair value of that component is determined by discounting the estimated amounts payable to their present value at the acquisition date. The discount is unwound as a finance charge in the Group Consolidated Income Statement over the life of the obligation. Subsequent changes to the estimated amounts payable for contingent consideration are recognised as a gain or loss in the Group Consolidated Income Statement. As the fair value of this obligation is based on inputs not observable within the market, it has been classified as a Level 3 financial liability.
| 2015 | |
|---|---|
| 63,845 | 44,885 |
| 572 | 42,366 |
| – | (16,360) |
| (46,916) | (9,240) |
| (1,140) | – |
| (467) | 2,194 |
| 15,894 | 63,845 |
| 2016 |
Risk management is a fundamental element of the Group's business practice at 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 33. 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.
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. Management does not expect any losses from non-performance by these counterparties.
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 geographies.
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 owed 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 €226,256,000 (2015: €176,574,000). The Group has continued to recognise an asset of €17,797,000 (2015: €17,948,000), representing the maximum extent of its continuing involvement or exposure.
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 EUR `000 | 2016 | 2015 |
| Cash and cash equivalents | 647,724 | 316,867 |
| Trade and other receivables | 126,978 | 244,610 |
| Derivative financial assets | 669 | 653 |
| 775,371 | 562,130 |
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was as follows:
| Carrying | Carrying | |
|---|---|---|
| amount | amount | |
| in EUR `000 | 2016 | 2015 |
| Europe | 69,260 | 127,813 |
| North America | 6,483 | 34,002 |
| Rest of World | 23,864 | 23,962 |
| 99,607 | 185,777 |
The aging of trade receivables at the reporting date was as follows:
| Provision for | Provision for | |||
|---|---|---|---|---|
| Gross | impairment | Gross | impairment | |
| in EUR `000 | 2016 | 2016 | 2015 | 2015 |
| Not past due | 42,312 | 417 | 124,196 | 412 |
| Past due 0–30 days | 47,282 | 195 | 49,678 | 411 |
| Past due 31–120 days | 11,202 | 1,596 | 8,285 | 524 |
| Past due more than 121 days | 8,049 | 7,030 | 10,121 | 5,156 |
| 108,845 | 9,238 | 192,280 | 6,503 |
The Group payment terms are typically 0–60 days. With the exception of the long-term vendor loan note due from a joint venture, all other receivables are due in less than six months. Other than the receivables provided for in the impairment above, receivables are deemed to be fully recoverable.
The analysis of movement in impairment provisions in respect of trade receivables was as follows:
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Balance at 1 August | 6,503 | 18,163 |
| Arising on business combination | 439 | 1,308 |
| Business disposals | – | (1,550) |
| Disposals as part of discontinued operations | – | (11,121) |
| Provided/(utilised) during the year | 2,481 | (593) |
| Translation adjustment | (185) | 296 |
| Balance at 31 July | 9,238 | 6,503 |
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 generally not more than 40% of total bank borrowing facilities should mature in any twelve-month period. At 31 July 2016, 17% of the Group's total borrowings will mature within the next 12 months.
The following are the contractual maturities of financial liabilities, including estimated interest payments:
| 2016 in EUR `000 |
Carrying amount |
Contractual cash flows |
6 mths or less | 6 – 12 mths | 1 – 2 years | 2 – 5 years | More than 5 years |
|---|---|---|---|---|---|---|---|
| Non-derivative financial liabilities |
|||||||
| Fixed rate bank loans | (1,207,774) | (1,525,328) | (30,182) | (254,156) | (100,992) | (417,958) | (722,040) |
| Variable rate bank loans | (978,539) | (1,051,889) | (6,570) | (6,570) | (13,140) | (1,025,609) | – |
| Finance lease liabilities | (2,277) | (2,378) | (518) | (448) | (961) | (451) | – |
| Bank overdrafts | (178,751) | (178,751) | (178,751) | – | – | – | – |
| Trade and other payables | (779,189) | (779,189) | (707,649) | (33,862) | (4,369) | (10,284) | (23,025) |
| Forward purchase obligation | (14,878) | (14,878) | (14,878) | – | – | – | – |
| Derivative financial instruments |
|||||||
| Interest rate swaps used for hedging |
(8,642) | (8,642) | (2,012) | (2,012) | (2,921) | (1,697) | – |
| Currency forward contracts used for hedging |
|||||||
| – Inflows | – | 326,789 | 316,414 | 10,375 | – | – | – |
| – Outflows | (5,915) | (332,704) | (321,758) | (10,946) | – | – | – |
| (3,175,965) | (3,566,970) | (945,904) | (297,619) | (122,383) | (1,455,999) | (745,065) |
| 2015 in EUR `000 |
Carrying amount |
Contractual cash flows |
6 mths or less | 6 – 12 mths | 1 – 2 years | 2 – 5 years | More than 5 years |
|---|---|---|---|---|---|---|---|
| Non-derivative financial liabilities |
|||||||
| Fixed rate bank loans | (1,250,846) | (1,630,568) | (31,124) | (67,131) | (285,685) | (348,305) | (898,323) |
| Variable rate bank loans | (720,865) | (776,672) | (6,445) | (6,444) | (12,887) | (750,896) | – |
| Finance lease liabilities | (1,425) | (1,492) | (36) | (98) | (1,333) | (25) | – |
| Bank overdrafts | (68,834) | (68,834) | (68,834) | – | – | – | – |
| Trade and other payables | (761,217) | (761,217) | (696,374) | (28,111) | (4,821) | (7,093) | (24,818) |
| Forward purchase obligation | (15,185) | (15,185) | – | – | (15,185) | – | – |
| Derivative financial instruments |
|||||||
| Interest rate swaps used for hedging |
(9,258) | (9,258) | (1,928) | (1,929) | (2,631) | (2,770) | – |
| Currency forward contracts used for hedging |
|||||||
| – Inflows | 204,840 | 174,837 | 30,003 | – | – | – | |
| – Outflows | (3,508) | (208,348) | (178,147) | (30,201) | – | – | – |
| (2,831,138) | (3,266,734) | (808,051) | (103,911) | (322,542) | (1,109,089) | (923,141) |
The fair value of derivative financial assets and liabilities at the balance sheet date is set out in the following table:
| Assets | Liabilities | Assets | Liabilities | |
|---|---|---|---|---|
| in EUR `000 | 2016 | 2016 | 2015 | 2015 |
| Cash flow hedges | ||||
| Currency forward contracts | 669 | (5,915) | 653 | (3,508) |
| Interest rate swaps | – | (8,642) | – | (9,258) |
| At 31 July | 669 | (14,557) | 653 | (12,766) |
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 has significant operations in the UK, Switzerland and North America. As a result, the Group Consolidated 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 consolidated 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 other comprehensive income 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 uses 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 31 July 2016:
| 2016 | GBP | USD | CAD | CHF | EUR | Other | Total |
|---|---|---|---|---|---|---|---|
| in EUR `000 | |||||||
| Trade receivables | 9,214 | 1,387 | 1,086 | 6,764 | 7,884 | 4,232 | 30,567 |
| Other receivables | 187 | 91 | 98 | – | 233 | 20 | 629 |
| Cash and cash equivalents | 5,146 | 5,327 | 46 | 83 | 15,389 | 509 | 26,500 |
| Trade payables | (3,453) | (26,852) | (4,874) | (102) | (24,672) | (3,744) | (63,697) |
| Other payables | (1,021) | (5,319) | (544) | (23) | (2,766) | (5) | (9,678) |
| Derivative financial | |||||||
| instruments | (1,765) | (10,380) | (318) | – | (1,267) | (18) | (13,748) |
| At 31 July 2016 | 8,308 | (35,746) | (4,506) | 6,722 | (5,199) | 994 | (29,427) |
The following table details the Group's exposure to transactional foreign currency risk at 31 July 2015:
| 2015 | |||||||
|---|---|---|---|---|---|---|---|
| in EUR `000 | GBP | USD | CAD | CHF | EUR | Other | Total |
| Trade receivables | 8,520 | 6,753 | 1,424 | 6,764 | 9,494 | 2,720 | 35,675 |
| Other receivables | – | 2 | – | – | 3,444 | 88 | 3,534 |
| Cash and cash equivalents | 306 | 4,601 | 45 | 1,849 | 9,940 | 594 | 17,335 |
| Trade payables | (8,534) | (23,674) | (491) | (1,090) | (28,339) | (3,468) | (65,596) |
| Other payables | (623) | (165) | – | (339) | (1,017) | – | (2,144) |
| Derivative financial instruments |
(264) | (8,322) | (88) | – | (2,295) | 9 | (10,960) |
| At 31 July 2015 | (595) | (20,805) | 890 | 7,184 | (8,773) | (57) | (22,156) |
A 10% strengthening or weakening of the foreign currencies below against the euro at 31 July 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 in the prior year.
| 2016 in EUR `000 |
10% strengthening income statement |
10% strengthening equity |
10% weakening income statement |
10% weakening equity |
|---|---|---|---|---|
| GBP | (916) | 11,255 | 1,119 | (13,756) |
| USD | 2,306 | 48,159 | (2,818) | (58,861) |
| CAD | 381 | 7,036 | (465) | (8,600) |
| CHF | (611) | – | 747 | – |
| At 31 July 2016 | 1,160 | 66,450 | (1,417) | (81,217) |
| 2015 in EUR `000 |
10% strengthening income statement |
10% strengthening equity |
10% weakening income statement |
10% weakening equity |
|---|---|---|---|---|
| GBP | 30 | 14,720 | (37) | (17,991) |
| USD | 1,135 | 35,375 | (1,387) | (43,236) |
| CAD | (89) | 11,473 | 109 | (14,022) |
| CHF | (653) | – | 798 | – |
| At 31 July 2015 | 423 | 61,568 | (517) | (75,249) |
The impact on equity from changing exchange rates results principally from foreign currency loans designated as net investment hedges. This impact would be offset by the revaluation of the hedged net assets, which would also be recorded in equity.
The Group's debt bears both variable and fixed rates of interest as per the original contracts. Fixed rate debt is achieved through the issuance of fixed rate debt or the use of interest rate swaps. At 31 July, the interest rate profile of the Group's interest-bearing financial instruments was as follows:
| Carrying amount | Carrying amount | |
|---|---|---|
| in EUR `000 | 2016 | 2015 |
| Fixed rate instruments | ||
| Bank borrowings | (1,207,774) | (1,250,846) |
| Finance lease liabilities | (2,277) | (1,425) |
| (1,210,051) | (1,252,271) | |
| Variable rate instruments | ||
| Cash and cash equivalents | 647,724 | 316,867 |
| Bank overdrafts | (178,751) | (68,834) |
| Bank borrowings | (978,539) | (720,865) |
| Total interest-bearing financial instruments | (1,719,617) | (1,725,103) |
A change of 50 bps in interest rates at the reporting date would have had the effect as shown below on the Group Consolidated Income Statement and equity. This analysis assumes that all other variables, in particular interest earned on cash and cash equivalents and foreign currency exchange rates, remain constant. The analysis is performed on the same basis as in the prior year.
| 2016 in EUR `000 |
Principal amount |
Impact of 50 bp increase on income statement |
Impact of 50 bp increase on equity |
|---|---|---|---|
| Bank overdrafts | (178,751) | (894) | – |
| Variable rate bank borrowings | (978,539) | (4,893) | – |
| Interest rate swaps | 508,359 | – | 2,542 |
| Cash flow sensitivity, net | (648,931) | (5,787) | 2,542 |
| 2015 in EUR `000 |
Principal amount |
Impact of 50 bp increase on income statement |
Impact of 50 bp increase on equity |
|---|---|---|---|
| Bank overdrafts | (68,834) | (344) | – |
| Variable rate bank borrowings | (720,865) | (3,604) | – |
| Interest rate swaps | 510,068 | – | 2,550 |
| Cash flow sensitivity, net | (279,631) | (3,948) | 2,550 |
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 accrual 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 are applied.
| At 31 July | 23,945 | 16,998 |
|---|---|---|
| Translation adjustment | – | 24 |
| Recognised in Group Consolidated Income Statement | (3,098) | (4,107) |
| Arising on business disposals | – | (373) |
| Received during the year | 10,045 | 193 |
| At 1 August | 16,998 | 21,261 |
| in EUR `000 | 2016 | 2015 |
The deductible and taxable temporary differences at the balance sheet date, in respect of which deferred income tax has been recognised, are analysed as follows:
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Deferred income tax assets (deductible temporary differences) | ||
| Property, plant and equipment and ERP | 8,856 | 11,427 |
| Employee compensation | 4,682 | 4,725 |
| Pension related | 4,967 | 5,161 |
| Financing related | 1,341 | 1,165 |
| Tax loss carry-forwards and tax credits | 92,429 | 71,856 |
| Other | 20,901 | 11,245 |
| 133,176 | 105,579 | |
| Deferred income tax liabilities (taxable temporary differences) | ||
| Property, plant and equipment and ERP | (123,049) | (103,530) |
| Intangible assets | (210,635) | (246,116) |
| Pension related | (1,086) | (432) |
| Financing related | (3,962) | (11,269) |
| Unremitted earnings | (78,826) | (75,293) |
| Other | (40,076) | (10,478) |
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 EUR `000 | 2016 | 2015 |
|---|---|---|
| Within one year | – | – |
| Between one and five years | 3,187 | 676 |
| After five years | 23,348 | 19,974 |
| Total unrecognised tax losses | 26,535 | 20,650 |
(457,634) (447,118)
Deferred income tax liabilities of €8,560,000 (2015: €15,745,000) have not been recognised for withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries, as the timing of the reversal of these temporary differences is controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future.
Movements in net deferred tax assets /(liabilities), during the year, were as follows:
| 2016 in EUR `000 |
Property, plant and equipment and ERP |
Employee compensation |
Pension related |
Financing related |
Tax losses, credits and unremitted earnings |
Other | Sub-Total | Intangible assets |
Total |
|---|---|---|---|---|---|---|---|---|---|
| At 1 August 2015 | (92,103) | 4,725 | 4,729 | (10,104) | (3,437) | 767 | (95,423) | (246,116) | (341,539) |
| Recognised in Group Consolidated Income Statement |
(23,672) | (20) | (822) | 6,979 | 16,889 | (17,955) | (18,601) | 36,715 | 18,114 |
| Recognised in Group Consolidated Statement of Comprehensive Income |
– | – | (23) | 376 | – | 198 | 551 | – | 551 |
| Arising on business combination (note 29) |
– | – | – | – | – | – | – | (2,413) | (2,413) |
| Translation adjustments and other |
1,582 | (23) | (3) | 128 | 151 | (2,185) | (350) | 1,179 | 829 |
| At 31 July 2016 | (114,193) | 4,682 | 3,881 | (2,621) | 13,603 | (19,175) | (113,823) | (210,635) | (324,458) |
| 2015 in EUR `000 |
Property, plant and equipment and ERP |
Employee compensation |
Pension related |
Financing related |
Tax losses, credits and unremitted earnings |
Other | Sub-Total | Intangible assets |
Total |
|---|---|---|---|---|---|---|---|---|---|
| At 1 August 2014 | (88,853) | 4,091 | 1,611 | (11,132) | (13,133) | 5,314 | (102,102) | (246,717) | (348,819) |
| Recognised in Group Consolidated Income Statement |
9,969 | 2 | 1,908 | (310) | 12,274 | (7,886) | 15,957 | 35,104 | 51,061 |
| Recognised in Group Consolidated Statement of Comprehensive Income |
– | – | 1,216 | 2,914 | – | 2,950 | 7,080 | – | 7,080 |
| Arising on business combination (note 29) |
(4,642) | – | – | – | – | – | (4,642) | (12,869) | (17,511) |
| Translation adjustments and other |
(8,577) | 632 | (6) | (1,576) | (2,578) | 389 | (11,716) | (21,634) | (33,350) |
| At 31 July 2015 | (92,103) | 4,725 | 4,729 | (10,104) | (3,437) | 767 | (95,423) | (246,116) | (341,539) |
The Group operates a number of defined benefit and defined contribution pension plans in various jurisdictions. The majority of plans are externally funded with plan assets held in corresponding separate trustee-administered funds, governed by local regulations and practice in each country.
The trustees of the various pension funds are required by law to act in the best interests of the plan participants and are responsible for investment strategy and plan administration. The level of benefits available to members depends on length of service and either their average salary over their period of employment, their salary in the final years leading up to retirement or in some cases historical salaries, depending on the rules of the individual plan.
Long-term employee benefits included in the Group Consolidated Balance Sheet comprises the following:
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Total deficit in defined benefit plans | 11,387 | 13,487 |
| Other1 | 2,083 | 1,787 |
| Total | 13,470 | 15,274 |
1 Other includes provisions to meet unfunded pension fund deficiencies in a variety of insignificant subsidiaries.
The valuations of the defined benefit schemes used for the purposes of the following disclosures are those of the most recent actuarial reviews carried out at 31 May 2016 by an independent, qualified actuary. The valuations have been performed using the projected unit method.
The employee benefit plans expose the Group to a number of risks, the most significant of which are:
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields. If assets underperform this yield, this will create a deficit. The plans hold a significant proportion of equities which, though expected to outperform corporate bonds in the long-term, create volatility and risk. The allocation to equities is monitored to ensure it remains appropriate given the long-term objectives of the plans.
An increase in corporate bond yields will decrease the value placed on liabilities of the plans, although this will be partially offset by a decrease in the value of the bond holdings within the plans.
In certain plans the benefit obligations are linked to inflation, with the result that higher inflation will lead to higher liabilities (although caps on the level of inflationary increases are in place). The majority of the assets are either unaffected by or only loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit.
Life expectancy
In the event that members live longer than assumed, a further deficit will emerge.
The Group ensures that the investment positions are managed with an asset-liability matching ('ALM') framework that has been developed to achieve long-term investments that are in line with the obligations under the pension plans. Within this framework, the Group's ALM objective is to match assets to the pension obligations by investing in longterm fixed interest securities with maturities that match the benefit payments as they fall due and in the appropriate currency.
The main assumptions used were determined based on management experience and expectations in each country, as well as actuarial advice based on published statistics.
An average of these assumptions across all plans were as follows:
| 2016 | 2015 | |
|---|---|---|
| Rate of increase in salaries | 1.78% | 1.78% |
| Rate of increases in pensions in payment and deferred benefits | 0.00% | 0.00% |
| Discount rate on plan liabilities | 0.19% | 1.04% |
The mortality assumptions imply the following life expectancies, in years, of an active member on retiring at age 65, 20 years from now:
| 2016 | 2015 |
|---|---|
| 24.2 | 23.2 |
| 26.2 | 25.7 |
The mortality assumptions imply the following life expectancies, in years, of an active member, aged 65, retiring now:
| 2016 | 2015 | |
|---|---|---|
| Male | 22.3 | 21.5 |
| Female | 24.3 | 24.0 |
The sensitivity of the defined benefit obligation to changes in the principal financial actuarial assumptions is set out below. The present value of the defined benefit obligation has been calculated using the projected unit credit method, which is the same as that applied in calculating the defined benefit obligation recognised in the Group Consolidated Balance Sheet. The impact on the defined benefit obligation as at 31 July 2016 is on the basis that only one principal financial actuarial assumption is changed, with all other assumptions remaining unchanged.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.
| Assumption | Change in Assumption | Impact on plan liabilities | |||
|---|---|---|---|---|---|
| Discount rate | Increase / decrease 0.15% Decrease / increase by 1.9% | ||||
| Salary growth rate | Increase / decrease 0.50% Increase / decrease by 1.0% | ||||
| Net pension liability in EUR `000 |
2016 | 2015 | |||
| Fair value of plan assets: | |||||
| Equities | 16,727 | 18,617 | |||
| Bonds | 27,322 | 26,979 | |||
| Property | 13,537 | 14,155 | |||
| Other | 2,464 | 7,075 | |||
| Total fair value of assets | 60,050 | 66,826 | |||
| Present value of plan liabilities | (71,437) | (80,313) | |||
| Deficit in the plans | (11,387) | (13,487) | |||
| Related deferred tax asset (note 24) | 3,881 | 4,729 | |||
| Net pension liability | (7,506) | (8,758) | |||
| Movement in the fair value of plan assets in EUR `000 |
2016 | 2015 | |||
| Fair value of plan assets at 1 August | 66,826 | 131,374 | |||
| Interest income | 641 | 1,004 | |||
| Employer contributions | 3,113 | 3,079 | |||
| Employee contributions | 2,657 | 2,612 | |||
| Benefit payments made | (3,567) | (417) | |||
| Plan settlements | (6,540) | (1,287) | |||
| Actuarial return on plan assets (excluding interest income) | (695) | 2,982 | |||
| Movements in discontinued operations | – | 6,960 | |||
| Disposals as part of discontinued operations | – | (87,310) | |||
| Translation adjustments | (2,385) | 7,829 | |||
| Fair value of plan assets at 31 July | 60,050 | 66,826 |
| Movement in the present value of plan obligations | ||
|---|---|---|
| in EUR `000 | 2016 | 2015 |
| Present value of plan obligations at 1 August | (80,313) | (142,259) |
| Current service cost | (4,435) | (3,618) |
| Past service gain | 1,256 | 636 |
| Settlement gain | 2,049 | – |
| Interest expense on plan obligations | (774) | (1,085) |
| Employee contributions | (2,657) | (2,612) |
| Benefit payments made | 3,567 | 417 |
| Plan settlements | 6,540 | 1,287 |
| Actuarial changes in demographic and financial assumptions | (3,748) | (6,393) |
| Actuarial experience adjustments | 3,981 | (3,471) |
| Arising on disposal of business | 503 | – |
| Movements in discontinued operations | – | (26,007) |
| Disposals as part of discontinued operations | – | 111,550 |
| Translation adjustments | 2,594 | (8,758) |
| Present value of plan obligations at 31 July | (71,437) | (80,313) |
| Net liability in plans at 31 July | (11,387) | (13,487) |
|---|---|---|
| Translation adjustments | 209 | (929) |
| Disposals as part of discontinued operations (note 2) | – | 24,240 |
| Movements in discontinued operations | – | (19,047) |
| Arising on disposal of business | 503 | – |
| Actuarial loss on Group defined benefit pension plans | (462) | (6,882) |
| Net interest expense | (133) | (81) |
| Employer contributions | 3,113 | 3,079 |
| Settlement gain | 2,049 | – |
| Past service gain | 1,256 | 636 |
| Current service cost | (4,435) | (3,618) |
| Net liability in plans at 1 August | (13,487) | (10,885) |
| Balance Sheet in EUR `000 |
2016 | 2015 |
The estimated contributions expected to be paid during the year ending 31 July 2017 in respect of the Group's defined benefit plans are €3,985,650.
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Current service cost | 4,435 | 3,618 |
| Past service gain | (1,256) | (636) |
| Settlement gain | (2,049) | – |
| Non-financing expense recognised in Group Consolidated Income Statement |
1,130 | 2,982 |
| Included in financing costs, net | 133 | 81 |
| Net charge to Group Consolidated Income Statement | 1,263 | 3,063 |
Additionally, a charge of €13,202,000 (2015: €14,557,000) was recorded in the Group Consolidated Income Statement in respect of the Group's defined contribution plans within continuing operations.
000 **2016** 2015 Return on plan assets (excluding interest income) **(695)** 2,982 Experience gains/(losses) on plan liabilities **3,981** (3,471) Changes in demographic and financial assumptions **(3,748)** (6,393) Actuarial loss **(462)** (6,882) Deferred tax effect of actuarial loss (note 9) **(23)** 1,216 **Actuarial loss recognised in Group Consolidated Statement of Comprehensive Income (485)** (5,666) **History of experience gains and losses: 2016** 2015 *Difference between expected and actual return on plan assets and losses:* – Amount (in €000) (695) 2,982 – % of Plan assets (1.16)% 4.46% Experience gains/(losses) on plan obligations: – Amount (in €000) **3,981** (3,471) – % of Plan obligations **5.57%** (4.32) % *Total actuarial losses recognised in Group Consolidated Statement of Comprehensive Income:* – Amount (in €000) (462) (6,882) – % of Plan obligations (0.65)% (8.57) %| At 31 July | 91,811 | 1,172 | 91,811 | 1,172 |
|---|---|---|---|---|
| Issue of registered shares (CHF 0.02) | – | – | – | – |
| At 1 August | 91,811 | 1,172 | 91,811 | 1,172 |
| Registered shares of CHF 0.02 each – authorised, issued and fully paid |
2016000 | 2016<br>in EUR000 |
2015000 | 2015<br>in EUR000 |
At the Annual General Meeting on 8 December 2015, the shareholders approved the resolution to modify Article 5 of the Articles of Association (Authorised capital for general purposes). Pursuant to these modifications, the Board of Directors is now authorised to increase the share capital at any time until 7 December 2017, by an amount not exceeding CHF 183,621.06, through the issue of up to a maximum of 9,181,053 fully paid-up registered shares with a nominal value of CHF 0.02 each.
Furthermore, the Board of Directors was authorised to exclude the subscription rights of the shareholders and to allocate them to third parties if the shares are used for the following purposes:
| 2016000 | 2016<br>in EUR000 | 2015000 | 2015<br>in EUR000 |
|--------------|---------------------|--------------|---------------------|
| 3,052 | 47 | 3,636 | 55 |
| – | – | (584) | (8) |
| 3,052 | 47 | 3,052 | 47 |
| | | | |
There were no options exercised or other treasury share transactions during the year ended 31 July 2016.
During the year ended 31 July 2015, 501,000 vested Option Equivalent Plan awards were exercised, in exchange for 256,703 shares. The weighted average share price at the time of these exercises was CHF 79.98 per share.
The performance conditions associated with 327,052 Matching Plan awards were fulfilled during the year ended 31 July 2014. Therefore, these awards were approved as vested by the Nomination and Remuneration Committee and were subsequently exercised by management during the year ended 31 July 2015.
In October 2010, the Group raised CHF 400,000,000 through the issuance of a perpetual Callable Subordinated Instrument ('Hybrid Instrument'), which was recognised at a carrying value of €285,004,000 within equity, net of transaction costs. This Hybrid Instrument offered a coupon of 5.0% and had no maturity date, with an initial call date by ARYZTA in October 2014. In October 2014, the Group repaid the CHF 400,000,000 (€331,680,000) Hybrid Instrument, in line with the initial call date.
In April 2013, the Group raised CHF 400,000,000 through the issuance of an additional Hybrid Instrument, which was recognised at a carrying value of €319,442,000 within equity, net of transaction costs of €4,865,000. This Hybrid Instrument offers a coupon of 4.0% and has no maturity date, with an initial call date by ARYZTA in April 2018. In the event that the call option is not exercised, the coupon would be 605 bps, plus the 3-month CHF LIBOR.
In October 2014, the Group raised CHF 190,000,000 through the issuance of an additional Hybrid Instrument. This Hybrid Instrument offers a coupon of 3.5% and has no maturity date, with an initial call date by ARYZTA in April 2020. In the event that the call option is not exercised, the coupon would be 421 bps, plus the 3-month CHF LIBOR.
In November 2014, the Group raised €250,000,000 through the issuance of an additional Hybrid Instrument. This Hybrid Instrument offers a coupon of 4.5% and has no maturity date, with an initial call date by ARYZTA in March 2019. In the event that the call option is not exercised, the coupon would be 677 bps, plus the 5 year swap rate.
The two Hybrid instruments issued during the year ended 31 July 2015 were recognised at a combined value of €401,014,000 within equity, net of related transaction costs of €6,534,000.
| Other equity reserve in EUR `000 |
2016 | 2015 |
|---|---|---|
| At 1 August | 720,456 | 604,446 |
| Redemption of perpetual callable subordinated instrument | – | (285,004) |
| Issuance of hybrid instruments, net of transaction costs | – | 401,014 |
| At 31 July | 720,456 | 720,456 |
The total coupon recognised for these Hybrid instruments during the year ended 31 July 2016 was €31,882,000 (2015: €30,673,000).
The cash flow hedge reserve comprises of the effective portion of the cumulative net change in the fair value of cash flow hedging instruments.
This reserve comprises amounts credited to reserves in connection with equity awards, less the amount related to any such awards that become vested.
The foreign currency translation reserve comprises all foreign exchange differences, since the date of the Group's transition to IFRS, arising from translation of the net assets of the Group's non-euro-denominated functional currency operations into euro, the Group's presentation currency.
During March 2012, the Group entered into an agreement to acquire the remaining 40% interest in HiCoPain AG. Based on this agreement, the non-controlling interest shareholder continues to participate in the risk and rewards of the business until the final exit date, which is expected to occur during financial year 2017. At that time, consideration based on the net book value of HiCoPain AG, will be paid to the non-controlling interest shareholder.
Total estimated future consideration and related costs to be paid in connection with this transaction of CHF 17,349,000 (€14,412,000) were recorded as a reduction in retained earnings of the Group at the time of the agreement. As of 31 July 2016, the remaining estimated liability is €14,878,000 (2015: €15,185,000). Upon payment of the consideration and final exit of the minority shareholder, the carrying value of the related non-controlling interest will then be eliminated directly as an increase in retained earnings.
The capital managed by the Group consists of total equity of €3,187,771,000 (2015: €3,221,943,000). The Group has set the following goals for the management of its capital:
Net debt amounted to €1,719,617,000 at 31 July 2016 (2015: €1,725,103,000).
The Group employs two ratio targets to monitor its financing covenants:
These ratios are reported to the Board of Directors at regular intervals through internal financial reporting.
The proposed pay-out ratio to shareholders for the Group's financial year to 31 July 2016 is 15% of fully diluted underlying earnings per share. The pay-out will be in the form of a dividend. The pay-out ratio and form of pay-out proposed by the Board will be reviewed on an annual basis and is subject to the decision of the Annual General Meeting of the shareholders.
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Balance at 1 August | 18,436 | 87,752 |
| Share of profit for the year | 2,776 | 7,519 |
| Share of other comprehensive income | (1,510) | 333 |
| Dividends paid to non-controlling interests – continuing operations | (4,603) | (4,330) |
| Dividends paid to non-controlling interests – discontinued operations | – | (7,977) |
| Acquisition of non-controlling interests | – | (134) |
| Disposal as part of discontinued operations (note 2) | – | (64,727) |
| Balance at 31 July | 15,099 | 18,436 |
During financial year 2015, the Group completed an offering of 49 million ordinary shares in Origin on 25 March 2015, thereby reducing the Group's holding from 68.1% to 29.0%. Thereafter, the related non-controlling interests balance of €64,727,000 was de-recognised and Origin was presented as an associate asset held-for-sale.
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 EUR `000 | 2016 | 2015 |
|---|---|---|
| Operating lease commitments payable: | ||
| Within one year | 58,713 | 54,256 |
| In two to five years | 167,938 | 155,322 |
| After more than five years | 116,221 | 120,699 |
| Total | 342,872 | 330,277 |
Capital expenditure contracted for at the end of the year, but not yet incurred, is as follows:
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Property, plant and equipment | 9,473 | 37,293 |
| Intangible assets | 1,237 | 6,487 |
| Total | 10,710 | 43,780 |
The bank and private placement borrowings of the Group share security via a security assignment agreement. In addition to this, the private placement borrowings of the Group are secured by guarantees from ARYZTA AG and upstream guarantees from various companies within the Group.
During the year ended 31 July 2016, the Group completed the 100% acquisition of La Rousse Foods, a supplier of fresh, frozen and ambient goods to various restaurants, hotels and caterers across Ireland.
The details of the net assets acquired and goodwill arising from this business combination are set out below. The goodwill arising on this business combination is attributable to the skills and talent of the in-place work-force and the synergies expected to be achieved from integrating the acquired operations into the Group's existing businesses.
| in EUR `000 | Provisional fair values |
|---|---|
| Provisional fair value of net assets acquired: | |
| Property, plant and equipment (note 12) | 4,451 |
| Intangible assets (note 14) | 19,300 |
| Inventory | 2,068 |
| Trade and other receivables | 5,641 |
| Trade and other payables | (7,884) |
| Finance leases (note 21) | (470) |
| Deferred tax (note 24) | (2,413) |
| Income tax payable | (592) |
| Net assets acquired | 20,101 |
| Goodwill arising on acquisitions (note 14) | 6,918 |
| Consideration | 27,019 |
| Satisfied by: | |
| Cash consideration | 26,772 |
| Cash acquired | (325) |
| Net cash consideration | 26,447 |
| Contingent consideration | 572 |
The net cash outflow on these acquisitions during the year is disclosed in the Group Consolidated Cash Flow Statement as follows:
Total consideration 27,019
| in EUR `000 | Total |
|---|---|
| Cash flows from investing activities | |
| Cash consideration | 26,772 |
| Cash acquired | (325) |
| Net cash consideration within investment activities | 26,447 |
| Finance leases acquired within net debt | 470 |
| Net debt consideration | 26,917 |
Acquisition-related costs of €2,330,000 related to the Group's acquisition and joint venture investment related activities were charged to the Group Consolidated Income Statement during the year ended 31 July 2016, as included in note 3, net acquisition disposal and restructuring-related costs.
The impact of this business combination during the year on the Group Consolidated Income Statement is set out in the following table:
| in EUR '000 | Total |
|---|---|
| Revenue | 35,720 |
| Profit for the year | 1,769 |
No material difference exists between the consolidated revenue and profit reported and the consolidated revenue and profit that would have been reported if this acquisition had occurred on 1 August 2015. In making this determination, management has assumed that the fair value adjustments that arose on the date of the acquisition would have been the same if the acquisition had occurred on 1 August 2015.
The identified intangibles associated with this acquisition primarily includes the fair value of customer relationships. The income approach method was the basis for the fair value of these intangibles.
The fair values presented in this note are based on provisional valuations due to the complexity of the transaction.
During the year ended 31 July 2015, the Group completed the 100% acquisition of two businesses in the ARYZTA Europe segment.
The details of the net assets acquired and goodwill arising from these business combinations are set out below. The goodwill arising on these business combinations is attributable to the skills and talent of the in-place work-force and the synergies expected to be achieved from integrating the acquired operations into the Group's existing businesses.
| in EUR `000 | Final fair values | ||
|---|---|---|---|
| Final fair value of net assets acquired: | |||
| Property, plant and equipment (note 12) | 77,474 | ||
| Intangible assets (note 14) | 55,671 | ||
| Inventory | 7,703 | ||
| Trade and other receivables | 15,926 | ||
| Trade and other payables | (31,515) | ||
| Finance leases | (1,292) | ||
| Deferred tax (note 24) | (17,511) | ||
| Income tax payable | (2,672) | ||
| Net assets acquired | 103,784 | ||
| Goodwill arising on acquisitions (note 14) | 87,112 | ||
| Consideration | 190,896 | ||
| Satisfied by: | |||
| Cash consideration | 155,713 | ||
| Cash acquired | (7,183) | ||
| Net cash consideration | 148,530 | ||
| Contingent consideration | 42,366 |
The net cash outflow on acquisitions during the prior year was disclosed in the Group Consolidated Cash Flow Statement as follows:
Total consideration 190,896
| in EUR '000 | Total |
|---|---|
| Cash flows from investing activities | |
| Cash consideration | 155,713 |
| Cash acquired | (7,183) |
| Net cash consideration within investment activities | 148,530 |
| Finance leases acquired within net debt | 1,292 |
| Net debt consideration | 149,822 |
Costs of €9,982,000 related to the Group's acquisition and joint venture investment related activities were charged to the Group Consolidated Income Statement during the year ended 31 July 2015, as included in note 3.
For the identification and estimation of the fair value of the intangibles acquired as part of these acquisitions, ARYZTA was assisted by an independent non-audit appraisal firm. The identified intangibles acquired primarily related to customer relationships, which were valued using the income approach method.
The Group is subject to litigation risks and legal claims that arise in the ordinary course of business, for which the outcomes are not yet known. These claims are not currently expected to give rise to any material significant future cost or contingencies.
In the normal course of business, the Group undertakes transactions with its joint ventures and other related parties. A summary of transactions with these related parties is as follows:
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Purchase of goods | (136) | (64) |
| Provision of services | 3,008 | 578 |
| Receiving of services | (686) | (2,521) |
Purchase of goods and provision of services relate primarily to transactions with joint ventures during the year.
Services received during the year ended 31 July 2016 related to broker fees paid totalling €686,000 (2015: €2,521,000) to J&E Davy, primarily in connection with its placing of Origin shares. J. Brian Davy, a member of the ARYZTA Board of Directors until December 2015, also served as Chairman of J&E Davy, up to his retirement from that board in March 2015. These fees were based on arm's length negotiations and were consistent with costs paid to other providers for similar services.
The trading balances owing to the Group from related parties were €187,000 (2015: €789,000) and the trading balances owing from the Group to these related parties were €333,000 (2015: €191,000).
Non-current other receivables comprises €3,956,000 (2015: €28,644,000), which relates to a vendor loan note made to Signature Flatbreads (UK) Ltd, a joint venture undertaking. The coupon rate on the vendor loan note is 5.84% compounding. Unless previously repaid, redeemed or repurchased, the vendor loan note will be repaid in full in March 2020.
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 manage the business and affairs of the Group. A summary of the compensation to key management is as follows:
| in EUR `000 | 2016 | 2015 |
|---|---|---|
| Short-term employee benefits | 4,780 | 4,187 |
| Post-employment benefits | 448 | 394 |
| Performance-related bonus | 2,804 | – |
| Non-compete compensation and pension | 500 | – |
| Long-term incentives (LTIP) | – | 881 |
| Total key management compensation | 8,532 | 5,462 |
Further detailed disclosure in relation to the compensation entitlements of the Board of Directors and Executive Management is provided in the Compensation Report on pages 49 to 56.
During August 2016, the Group exercised its option to increase its Revolving Credit Facility ('RCF') by CHF 150m, to a total available capacity of CHF 1,550m (€1,428m). As of 31 July 2016 the balance outstanding on this facility was €991.7m.
During August 2016, the Group signed a new €1,000m Term Loan Facility, which matures in February 2018, with similar financial terms as the RCF.
During September 2016, the Group utilised the available capacity of the RCF, Term Loan Facility and existing cash resources to redeem all of its outstanding Private Placements, which totalled €1,215m as of 31 July 2016, for a total redemption cost of €1,410m, including the principal balance, early redemption costs of €169m, accrued interest, associated unamortised borrowing costs and other related fees.
These transactions are expected to result in a significant reduction in the Group's weighted average interest cost.
The Board and senior management continue to invest 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 are identified and associated mitigating controls are evaluated. These processes are driven by local management, who are best placed to identify the significant ongoing and emerging risks facing the business. The outputs of these risk assessment processes are subject to various levels of review by Group management and Internal Audit, and a consolidated Risk Map denoting the potential frequency, severity and velocity of identified risks is reviewed by the Board of Directors on an annual basis. Risks identified, and associated mitigating controls, are also subject to audit as part of various operational, financial, 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 the reported amounts of assets and liabilities, income and expenses.
Information about significant areas of estimation, uncertainty, and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the Group consolidated financial statements are described below:
| Note | Name |
|---|---|
| Note 8 | Share-based payments |
| Note 14&29 | Goodwill, intangible assets and business combinations |
| Notes 9&24 | Income tax expense and deferred income tax |
The Group has share-based incentive awards outstanding under various incentive plans. Estimating the value of these awards and the period over which this value is recognised as an expense requires various management estimates and assumptions, as set out in note 8.
Accounting for business combinations is complex in nature, requiring various estimates including: the fair value of assets acquired/liabilities assumed, the identification and valuation of intangible assets received, the estimated contingent consideration to be transferred and the allocation of the excess purchase price to the resulting goodwill, as set out in note 29. Furthermore, testing of assets for impairment, particularly goodwill, involves determination of the cash-generating units, estimating the respective future cash flows and applying the appropriate discount rates, in order to determine an estimated recoverable value of those cash-generating units, as set out in note 14.
Income tax expense, as set out in note 9, and deferred taxes, as set out in note 24, are subject to management estimate. The Group Consolidated Balance Sheet includes deferred taxes relating to temporary differences, which are based on forecasts of the corresponding entity's taxable income and reversal of these temporary differences, forecasted over a period of several years. As actual results may differ from these forecasts, these deferred taxes may need to be adjusted accordingly.
A list of all of the Group's significant subsidiary and joint venture undertakings, as at 31 July 2016 and 2015, are provided in the table below. For the purposes of this note, a significant subsidiary is one that has third-party revenues equal to, or in excess of, 2% of total Group revenue and/or consolidated Group assets equal to, or in excess of, 2% of total Group assets. A significant joint venture is one in which the Group's share of profits after tax is equal to, or in excess of, 2% of total Group operating profit and/or the carrying value of the investment is equal to, or in excess of, 2% of total Group assets.
| Share | Group | Group | ||||
|---|---|---|---|---|---|---|
| capital | % share | Registered office |
||||
| 1 | ||||||
| 1 | ||||||
| 2 | ||||||
| 3 | ||||||
| 4 | ||||||
| ARYZTA Bakeries Deutschland GmbH | Food manufacturing and distribution | EUR | 3.072 | 100 | 100 | 5 |
| Hiestand&Suhr Handels und Logistik GmbH | Food distribution | EUR | 0.025 | 100 | 100 | 6 |
| Pré Pain B.V. | Food manufacturing and distribution | EUR | 0.018 | 100 | 100 | 7 |
| (b) Significant subsidiaries – North America | ||||||
| ARYZTA LLC | Food manufacturing and distribution | USD | 705.000 | 100 | 100 | 8 |
| ARYZTA Limited | Food manufacturing and distribution | CAD | 255.818 | 100 | 100 | 9 |
| ARYZTA Canada Co. | Food manufacturing and distribution | CAD | 113.400 | 100 | 100 | 10 |
| (c) Significant subsidiaries – Rest of World | ||||||
| ARYZTA Australia Pty Limited | Food manufacturing and distribution | AUD | 17.000 | 100 | 100 | 11 |
| (d) Significant joint venture | ||||||
| Lion/Polaris Lux Holdco S.à.r.l. (Picard) | Food distribution | EUR | 0.100 | 49 | – | 12 |
| Name (a) Significant subsidiaries – Europe ARYZTA Bakeries Ireland ARYZTA Technology Ireland Delice de France Limited France Distribution SAS ARYZTA Food Solutions Schweiz AG |
Food manufacturing and distribution Asset management company Food distribution Food distribution Food distribution |
Nature of business Currency EUR EUR GBP EUR CHF |
millions 1.016 0.000 0.250 0.108 3.500 |
2016 100 100 100 100 100 |
% share 2015 100 100 100 100 100 |
The country of registration is also the principal location of activities in each case.
As statutory auditor, we have audited the Group consolidated financial statements of ARYZTA AG, which comprise the Group Consolidated Income Statement, Group Consolidated Statement of Comprehensive Income, Group Consolidated Balance Sheet, Group Consolidated Statement of Changes in Equity, Group Consolidated Cash Flow Statement, Group Statement of Accounting Policies and Notes to the Group Consolidated Financial Statements (pages 67 to 142), for the year ended 31 July 2016.
The Board of Directors is responsible for the preparation and fair presentation of the Group 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 Group 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 Group 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 Group consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Group consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the Group 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 Group 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 Group 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 Group consolidated financial statements for the year ended 31 July 2016 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the International Financial Reporting Standards (IFRS) and comply with Swiss law.
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 Group consolidated financial statements according to the instructions of the Board of Directors.
We recommend that the Group consolidated financial statements submitted to you be approved.
PricewaterhouseCoopers AG
Patrick Balkanyi Carrie Rohner Audit expert Auditor in charge
Zurich, 3 October 2016
for the year ended 31 July 2016
| 2016 in CHF `000 |
2015 |
|---|---|
| Revenues from licences and management fees from Group companies 9,189 |
7,524 |
| Dividend income from Group companies 126,581 |
252,705 |
| Personnel expenses (4,800) |
(4,770) |
| Other operating expenses to Group companies (4,955) |
(8,158) |
| Other operating expenses (5,505) |
(13,058) |
| Depreciation and amortisation (225) |
(284) |
| Operating profit 120,285 |
233,959 |
| Financial income from Group companies 52,908 |
50,782 |
| Financial expenses (64,919) |
(79,455) |
| Profit before income tax expense 108,274 |
205,286 |
| Income tax expense (271) |
(2,826) |
| Profit for the year 108,003 |
202,460 |
as at 31 July 2016
| in CHF `000 | 2016 | 2015 |
|---|---|---|
| Assets | ||
| Current assets | ||
| Cash and cash equivalents | 2,666 | 1,859 |
| Other current receivables | ||
| – from third parties | 1,536 | 3,968 |
| – from Group companies | 83 | 611 |
| Total current assets | 4,285 | 6,438 |
| Long-term assets | ||
| Financial assets | ||
| – loans to Group companies | 2,326,789 | 2,256,179 |
| Investments | ||
| – investments in Group companies | 2,114,367 | 2,102,203 |
| Property, plant and equipment | 2,000 | 2,123 |
| Total long-term assets | 4,443,156 | 4,360,505 |
| Total assets | 4,447,441 | 4,366,943 |
| in CHF `000 | 2016 | 2015 |
|---|---|---|
| Liabilities | ||
| Short-term liabilities | ||
| Trade payable | ||
| – to third parties | 863 | 106 |
| Short-term interest bearing liabilities | ||
| – to third parties | 193,829 | 1,029,439 |
| Other short-term liabilities | ||
| – to third parties | 178,472 | 118,088 |
| – to Group companies | 563,010 | 67,377 |
| Accrued expenses | 18,474 | 8,921 |
| Total short-term liabilities | 954,648 | 1,223,931 |
| Long-term liabilities | ||
| Long-term interest-bearing liabilities | ||
| – to third parties | 1,666,839 | 1,366,879 |
| Liabilities to Group companies | 278,522 | 278,522 |
| Total long-term liabilities | 1,945,361 | 1,645,401 |
| Total liabilities | 2,900,009 | 2,869,332 |
| Equity | ||
| Share capital | 1,836 | 1,836 |
| Legal reserves from capital contribution | 1,079,391 | 1,137,573 |
| Legal reserves for own shares from capital contribution | 117,871 | 117,871 |
| Retained earnings | 348,334 | 240,331 |
| Total equity | 1,547,432 | 1,497,611 |
| Total equity and liabilities | 4,447,441 | 4,366,943 |
The financial statements of ARYZTA AG, with a registered address of Talacker 41, 8001 Zurich, have been prepared in accordance with the new requirements of Swiss law effective for accounting periods beginning 1 August 2015.
The Company's accounting period for the year is from 1 August 2015 to 31 July 2016. Certain amounts in the Company's 31 July 2015 financial statements and related notes have been reclassified or adjusted to conform to the 31 July 2016 presentation. These reclassifications or adjustments were made for presentation purposes and have no effect on profit for the year, total assets, total liabilities or equity as previously reported.
Financial assets are valued at acquisition cost, less adjustments for foreign currency movements and any other impairment of value.
Investments are initially recognised at cost. These investments are assessed annually and adjusted to their recoverable amount, where necessary.
Assets and liabilities in currencies other than Swiss francs are translated to Swiss francs using year-end rates of exchange. Income and expenses denominated in foreign currencies are recognised in Swiss francs at the applicable rate of exchange on the date of the transactions.
Dividend income resulting from financial investments is recorded upon approval of the dividend distribution.
Revenues from licences and management fees from Group companies are recognised in the period in which they fall due.
Treasury shares are recognised at acquisition cost and include shares held directly or by any ARYZTA AG Group company.
The number of full-time equivalents in ARYZTA AG is not greater than 50. Please refer to page 97 of the Group Consolidated Financial Statements to view the Group's full-time equivalents.
The Company has the following outstanding bonds, which are included within interest bearing loans and borrowings.
| 2016 in CHF '000 |
2015 in CHF '000 |
Interest Rate |
Maturity | |
|---|---|---|---|---|
| Hybrid Instrument 2013 | 400,000 | 400,000 | 4.00% | No specified maturity date |
| Hybrid Instrument 2014 | 190,000 | 190,000 | 3.50% | No specified maturity date |
In October 2014, the Company issued a CHF 190m perpetual callable subordinated instrument ('Hybrid Instrument') with a 3.5% coupon. This Hybrid Instrument is undated, with an initial call date in April 2020.
The short-term portion of the Company's interest-bearing loans and borrowings relates primarily to amounts drawn by the Company against positive cash balances of other entities within the Group's overall cash pooling arrangement. These cash pooling overdrafts are repayable on demand and form an integral part of the Group's cash and debt management structure.
The Company is party to cross guarantees on ARYZTA Group borrowings. The Company has also guaranteed the liabilities of subsidiaries within the ARYZTA Group. The Company treats these guarantees 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 Company holds direct investments in the following entities, all of which are intermediate holding companies or intercompany financing entities within the ARYZTA Group.
| Share capital millions |
Percentage | ||||
|---|---|---|---|---|---|
| Company (Domicile) | 2016 | 2015 | 2016 | 2015 | |
| ARYZTA Holdings Asia Pacific BV (Amsterdam, NL) | EUR | 0.020 | 0.020 | 100 | 100 |
| ARYZTA Holdings Germany AG (Zurich, CH) | CHF | 0.100 | 0.100 | 100 | 100 |
| ARYZTA Holdings Ireland Limited (St Helier, JE) | EUR | – | – | 100 | 100 |
| ARYZTA Finance II AG (Cham, CH) | EUR | 0.087 | 0.087 | 100 | 100 |
| Hiestand Beteiligungsholding GmbH & Co. KG (Schweinfurt, DE)1 |
EUR | 0.026 | 0.026 | 100 | 100 |
| ARYZTA Food Europe AG (Zurich, CH) | CHF | 6.450 | 6.450 | 100 | 100 |
| Summerbake GmbH (Klotze, DE) | EUR | 0.025 | 0.025 | 100 | 100 |
1 The amount disclosed represents limited liability capital.
| | Year ended
31 July 2016000 | Year ended<br>31 July 2016<br>in CHF000 | Year ended
31 July 2015000 | Year ended<br>31 July 2015<br>in CHF000 |
|----------------------------------------------------------------|------------------------------------|------------------------------------------|------------------------------------|------------------------------------------|
| Shares of CHF 0.02 each – authorised,
issued and fully paid | | | | |
| As at 1 August | 91,811 | 1,836 | 91,811 | 1,836 |
| Issued during the period | – | – | – | – |
| As at 31 July | 91,811 | 1,836 | 91,811 | 1,836 |
| | | | | |
| | Year ended | Year ended | Year ended | Year ended |
| | 31 July 2016000 | 31 July 2016<br>in CHF000 | 31 July 2015000 | 31 July 2015<br>in CHF000 |
| Shares of CHF 0.02 each | | | | |
| Conditional capital | – | – | – | – |
| Authorised capital | 9,181 | 184 | 9,181 | 184 |
At the Annual General Meeting on 8 December 2015, the shareholders approved the resolution to modify Article 5 of the Articles of Association (Authorised capital for general purposes). Pursuant to these modifications, the Board of Directors is now authorised to increase the share capital at any time until 7 December 2017, by an amount not exceeding CHF 183,621.06, through the issue of up to a maximum of 9,181,053 fully paid-up registered shares with a nominal value of CHF 0.02 each.
Furthermore, the Board of Directors was authorised to exclude the subscription rights of the shareholders and to allocate them to third parties, if the shares are used for the following purposes:
The registered share capital of the Company as at 31 July 2016, amounts to CHF 1,836,210.68, and is divided into 91,810,534 registered shares with a par value of CHF 0.02 per share, of which 88,758,527 are outstanding and 3,052,007 are classified as treasury shares.
Shareholders are entitled to dividends as declared and approved. The ARYZTA shares rank pari passu in all respects with each other.
| | Year ended
31 July 2016000 | Year ended<br>31 July 2016<br>in CHF000 | Year ended
31 July 2015000 | Year ended<br>31 July 2015<br>in CHF000 |
|------------------------------------------------------------|------------------------------------|------------------------------------------|------------------------------------|------------------------------------------|
| As at 1 August | 3,052 | 117,871 | 3,636 | 137,503 |
| Release of treasury shares
upon exercise of LTIP shares | – | – | (584) | (19,632) |
| As at 31 July | 3,052 | 117,871 | 3,052 | 117,871 |
There were no options exercised or other treasury share transactions during the year ended 31 July 2016.
During the year ended 31 July 2015, 501,000 vested Option Equivalent Plan awards were exercised, in exchange for 256,703 shares. The weighted average share price at the time of these exercises was CHF 79.98 per share.
The performance conditions associated with 327,052 Matching Plan awards were fulfilled during the year ended 31 July 2014. Therefore, these awards were approved as vested by the Nomination and Remuneration Committee and were subsequently exercised by management during the period ended 31 July 2015.
The shares issued as part of these exercises were issued out of shares previously held in treasury by ARYZTA Grange Company, a wholly-owned subsidiary within the ARYZTA Group.
As at 31 July 2016, the Company has been notified of the following shareholdings or voting rights, which amount to 3% or more of the Company's issued ordinary share capital:
| Number of shares 2016 |
Number of shares % 2016 |
Number of shares 2015 |
Number of shares % 2015 |
|
|---|---|---|---|---|
| Causeway Capital Management LLC | 6,881,741 | 7.50% | – | – |
| MassMutual | 5,597,654 | 6.10% | 5,450,713 | 5.94% |
| BlackRock Inc. | 4,531,319 | 4.94% | 4,874,919 | 5.31% |
| ARYZTA Treasury shares | 3,052,007 | 3.32% | 3,052,007 | 3.32% |
| Norges Bank | 2,858,242 | 3.11% | – | – |
Any significant shareholder notifications during the year, and since 31 July 2016, are available on the Group's website at:
www.aryzta.com/investor-centre/shareholder-notifications
The pension fund liability was CHF 20,069 at 31 July 2016 (2015: CHF 18,847).
Please refer to the ARYZTA AG Compensation Report on pages 49 to 56 for details on the compensation process and compensation for the year of Non-executive Directors and Group Executive Management.
The Directors and Company Secretary 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 | 2016 | 2015 |
| Non-executive Directors | ||
| Denis Lucey | 4,250 | 4,250 |
| Charles Adair | 5,000 | 3,000 |
| J Brian Davy1 | N/A | 58,186 |
| Dan Flinter1 | 1,200 | N/A |
| Annette Flynn2 | 1,000 | 1,000 |
| Shaun B. Higgins | 2,500 | 2,500 |
| Andrew Morgan | – | – |
| Wolfgang Werlé | 2,336 | 2,336 |
| Executive Management | ||
| Owen Killian | 216,530 | 633,816 |
| Patrick McEniff | 558,347 | 553,347 |
| Pat Morrissey | 131,922 | 131,922 |
| John Yamin | 47,171 | 47,171 |
| Total | 970,256 | 1,437,528 |
1 Effective 8 December 2015 J.B. Davy resigned from the Board and D. Flinter was elected to the Board.
2 Effective 2 December 2014 A. Flynn was elected to the Board.
There have been no changes in the interests as shown above between 31 July 2016 and 30 September 2016.
No loans or advances were made to members of the Board of Directors or to Executive Management during the financial year, or were outstanding at 31 July 2016 (2015: none).
Details of the interests of Owen Killian, PatrickMcEniff, Pat Morrissey and John Yamin in share entitlements under the Option Equivalent Plan are set out below.
| Total | 2,440,000 | 1,130,000 | (150,000) | 3,420,000 | 1,460,000 |
|---|---|---|---|---|---|
| Hilliard Lombard2 | – | 150,000 | (150,000) | – | – |
| John Yamin | 150,000 | 150,000 | – | 300,000 | – |
| Pat Morrissey | 220,000 | 120,000 | – | 340,000 | 100,000 |
| Patrick McEniff | 910,000 | 300,000 | – | 1,210,000 | 610,000 |
| Owen Killian | 1,160,000 | 410,000 | – | 1,570,000 | 750,000 |
| Executive Management | |||||
| Options carried forward 1 August 2015 |
Granted during the year1 |
Forfeited during the year2 |
Closing position 31 July 2016 |
Of which Vesting criteria have been fulfilled3 |
1 During the period ended 31 July 2016, an additional 1,130,000 Option Equivalent Plan awards were granted to Executive Management, at a weighted average exercise price of CHF 44.98.
2 During September 2015, the Board of Directors approved that Hilliard Lombard become a member of Executive Management. Effective January 2016, Hilliard Lombard resigned from Executive Management.
3 The weighted average exercise price of all Option Equivalent Plan awards that remain outstanding and for which the vesting conditions have been met is CHF 39.34.
During August 2016, the Company exercised its option to increase its Revolving Credit Facility ('RCF') by CHF 150m, to a total available capacity of CHF 1,550m (€1,428m). As of 31 July 2016 the balance outstanding on this facility was CHF 1,076.4m (€991.7m).
During August 2016, the Company signed a new CHF 1,085m (€1,000m) Term Loan Facility, which matures in February 2018, with similar financial terms as the RCF.
During September 2016, the ARYZTA Group utilised the available capacity of the RCF, Term Loan Facility and existing cash resources of the Company and other wholly-owned subsidiaries to redeem all of the Group's outstanding Private Placements, which totalled CHF 1,319m (€1,215m) as of 31 July 2016. These Private Placements had been held by IAWS Finance PP, a wholly-owned subsidiary within the ARYZTA Group.
These transactions are expected to result in a significant reduction in the ARYZTA Group weighted average interest cost.
The Board of Directors will propose to the Annual General Meeting of Shareholders the following appropriation of earnings:
| in CHF `000 | 2016 | 2015 |
|---|---|---|
| Balance of retained earnings carried forward | 240,331 | 37,871 |
| Net profit for the year | 108,003 | 202,460 |
| Closing balance of retained earnings | 348,334 | 240,331 |
| Dividend payment from retained earnings | – | – |
| Balance of retained earnings to be carried forward | 348,334 | 240,331 |
Proposed release and distribution of legal reserves from capital contribution in the amount of1 50,868 58,182
1 Proposed release and distribution of legal reserves from capital contribution 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 31 July and prior to dividend ex-date.
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 to the Company Financial Statements (pages 145 to 153), for the year ended 31 July 2016.
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 2016 comply with Swiss law and the Company's Articles of Association.
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 Association. We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers AG
Patrick Balkanyi Carrie Rohner Audit expert Auditor in charge
Zurich, 3 October 2016
Paul Meade Communications Officer
Talacker 41 8001 Zurich Switzerland Tel: +41 (0) 44 583 42 00 Fax: +41 (0) 44 583 42 49 E-mail: [email protected]
Announcement of the 2016 annual results 26 September 2016 Issue of the 2016 annual report 3 October 2016 Capital Markets Day 6 October 2016 First-quarter trading update 28 November 2016 Annual General Meeting 2016 13 December 2016 Payment of dividend 1 February 2017 Announcement of half-year results 2017 13 March 2017 Third-quarter trading update 30 May 2017 Announcement of the 2016 annual results 25 September 2017 Issue of the 2017 annual report 2 October 2017 First-quarter trading update 27 November 2017 Annual General Meeting 2017 6 December 2017
Concept/Design: hilda design matters, Zurich Photographs: ARYZTA AG, Zurich 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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