Globe International Limited
Annual Report 2003

Plain-text annual report

Annual Report 2003 Contents 01 Financial Highlights 02 Group Overview 04 Chairman’s Statement 06 Group Managing Director’s Review 14 Group Financial Director’s Review 18 Corporate Social Responsibility 20 Directors and Advisors 22 Report of the Directors 28 Independent Auditors’ Report 29 Consolidated Profit and Loss Account 31 Consolidated Balance Sheet 32 Company Balance Sheet 33 Consolidated Cash Flow Statement 34 Notes to Consolidated Cash Flow Statement 35 Accounting Policies 37 Notes to the Financial Statements 68 Five year Financial Summary Financial Highlights Glanbia plc is an international dairy, consumer foods and nutritional products company. A culture of customer-oriented service has earned us a position of leadership as a supplier of quality dairy based consumer products and food ingredients to the health and nutrition, processed food and beverage markets worldwide. Profit before exceptional items and tax (EURO million) Operating margin (Pre-exceptional) (%) Adjusted earnings per share (cent) 77.1 71.8 66.6 53.7 4.5 3.9 3.4 3.6 19.3 17.4 15.9 11.6 2000 2001 2002 2003 2000 2001 2002 2003 2000 2001 2002 2003 Year end net debt/EBITDA (times) Interest cover (times) 2.1 1.6 1.2 1.17 3.5 2.9 5.9 4.6 2000 2001 2002 2003 2000 2001 2002 2003 In Summary (%) Group Turnover (%) Group Operating Profit (Pre-exceptional) 11.49 15.36 44.11 48.25 44.40 36.39 Consumer Foods Dairy Food Ingredients Agribusiness Glanbia plc annual report 2003 01 Group Overview Glanbia plays a vital role in health and nutrition products around the world. We pride ourselves on tracking consumer lifestyle changes and in developing the finest ingredients and food brands in response to market needs. Brand Portfolio Avonmore is the number one brand in the Irish milk market and the number two selling grocery brand. Milk, cream, cheese, fresh soup, spreads, and butters are all sold under the Avonmore brand. Yoplait is the number one yogurt choice among Irish families. It celebrates 30 years in Ireland this year. Renowned as the ‘Fillet of Cheese’, Kilmeaden Irish cheese is available in four distinctive varieties. Number two in the Irish market, “Everybody” is a probiotic yogurt drink with essential vitamins, minerals and the probiotic LGG. Snowcream is the regional favourite in the South East of Ireland – one of the first milk brands to come to market when it was launched in 1952. Premier Milk is synonymous with Dublin and has for generations been the preferred choice of families in the capital. Provon protein – premium whey protein isolate (WPI) delivers 90% protein for sports nutrition, health and wellness categories. Bioferrin isolated lactoferrin with over 90% purity. This iron-binding protein is useful for immune enhancement and antimicrobial properties. TruCal is a milk mineral complex with appropriate ratios of calcium, phosphorous, magnesium, potassium, zinc, and selenium for maintaining and promoting bone health. Salibra is a prebiotic protein product that includes high levels of immunoglobulins and lactoferrin. It also contains bioactive lipids such as phosphatidyl serine (potential cognitive function). Glanbia’s weight management ingredient that has been clinically tested and shown to decrease body fat and increase muscle. Contains active peptides, proteins and minerals as part of a weight management programme. Snopro is a range of casein products with casein protein functionality. A range of whey protein concentrate (WPC) products that provide specific and consistent functional and nutritional benefits in a wide variety of food applications. 02 Glanbia plc annual report 2003 Group Overview Global Positions United States of America (cid:127) No.1 producer of US barrel cheese (cid:127) No.2 whey protein concentrate (cid:127) No.3 lactose (cid:127) No.4 American type cheddar cheese Global Locations Ireland: Drogheda, Co. Louth Tallaght, Dublin Ballitore, Kildare Kilkenny Gorey, Co. Wexford Waterford Castlelyons, Co. Cork Ballyragget, Co. Kilkenny Virginia, Co. Cavan Kilmeaden, Co. Waterford Europe (cid:127) No.1 pizza cheese supplier in Europe Global (cid:127) Leading global supplier of advanced technology whey proteins and fractions Ireland (cid:127) No.1 dairy processor (cid:127) 2 of the top 3 grocery brands (cid:127) Avonmore No.1 & Premier No.2 milk brands (cid:127) Yoplait leads the standard yogurt market (cid:127) No.1 in cheese (cid:127) Market leader in liquid milk and cream (cid:127) No.1 Irish pigmeat processor Carrick-on-Suir, Co. Tipperary Roosky, Co Roscommon Clara, Co. Offaly Edenderry, Co. Offaly Roscrea, Co. Tipperary Portlaoise, Co. Laois Clonroche, Co. Wexford Dungarvan, Co. Waterford 81 Retail Branches UK: Oswestry, Shropshire Dumfriesshire, Scotland Melton Mowbray, Leics North Tawton, Devon Malpas, Cheshire Llangefni, Gwynedd Magherlin, Co. Armagh Portadown, Co. Armagh Other: Idaho, US Monroe, US Clovis, New Mexico Lagos, Nigeria Mexico City, Mexico Gierle, Belgium Glanbia plc annual report 2003 03 Chairman’s Statement Our core businesses: cheese, nutritional ingredients and consumer foods with a nutritional emphasis, all performed satisfactorily and are now well positioned to exploit growth opportunities into the future. The potential of the Nigerian market for evaporated milk and milk powder is the driver in the US$20m Glanbia joint venture with PZ Cussons. Chairman’s Statement Tom Corcoran, Group Chairman. In February 2004 the official sod turning took place in Clovis, New Mexico on the site of the new US$190m cheese and whey production facility. (Image courtesy of Clovis News Journal). I am pleased to report on another year of underlying earnings growth for Glanbia plc. In 2003 we completed our UK restructuring with the finalisation of a three-year business reorganisation programme. During the year the Group also commenced a number of significant strategic investments – both joint venture and stand-alone projects. Our core businesses: cheese, nutritional ingredients and consumer foods with a nutritional emphasis, all performed satisfactorily and are now well positioned to exploit growth opportunities into the future. Glanbia’s financial position was further strengthened during the year as the Group benefited from improved operating performance and good cash flows. Dividend A final dividend of 2.94c per share is proposed (2002: 2.80c), giving a total dividend for the year of 5.00c per share (2002: 4.76c), an increase of 5%. Subject to shareholder approval the final dividend will be paid on 24 May 2004 to shareholders on the Register as at 23 April 2004, the record date. Irish dividend withholding tax will be deducted at the standard rate where applicable. Board Kevin Toland, Group Development Director, joined the Board as an Executive Director on 10 January 2003. Strategic Developments 2003 was a watershed year in that significant progress was made in developing our strategic focus on the high growth areas of consumer products, dairy ingredients and in particular the nutritional market. This was achieved both through wholly owned investments and a number of strategic joint ventures, which offer a relatively low risk entry into significant growth markets. Specifically: • The Group commenced construction of the $190m cheese and whey products production facility in New Mexico, US. This new plant will be 50% owned by Glanbia with the balance jointly owned by Dairy Farmers of America Inc. and Select Milk Producers Inc. It will position the Group as the number one producer of American type cheddar cheese in the US and simultaneously build our global position as a supplier of advanced technology whey proteins to the nutritional sector. Commissioning of the new facility is planned for Autumn 2005. • The Group entered into a strategic joint venture with Conaprole of Uruguay in respect of the sales and marketing into Central and South American markets of dairy ingredients manufactured by Glanbia in Ireland and the US and by Conaprole in Uruguay. This venture is now operational and sales performance is encouraging. • The Group announced a 50/50 joint venture with PZ Cussons plc to build a new US$20 million facility in Nigeria to supply evaporated milk and milk powder to the local Nigerian market. The factory will be capable of handling 35,000 tonnes of milk products per annum and will be commissioned in early 2005. Glanbia will have full responsibility for operations while PZ Cussons plc will be responsible for the marketing and distribution of the product stream through its existing Nigerian subsidiary. • The Group announced the development of a Group Innovation Centre, to be completed by Autumn 2004. There is growing consumer awareness of the link between health and diet and Glanbia as a food Group is committed to achieving the highest standards of best practice in relation to science based innovation. Group strategy is focused on developing products with a health based functional foods and nutritional emphasis in both ingredient and consumer form. This new world-class research and product development facility, to be based in Ireland, is core to this strategy. • On 23 February 2004, the Group announced the sale of a 75% interest in its UK hard cheese business, Glanbia Foods Limited (through the sale of 100% of Glanbia Foods Limited and the simultaneous creation of a new joint venture with Milk Link Ltd which will be 25% owned by the Group) for a net consideration of c118.7m. Outlook In determining the potential outcome for 2004 the Board has taken into consideration the phasing of new investment projects, the transition to a new EU dairy regime and a weakened dollar. Taking these factors into account, the Board expects to make further progress in the current year. Furthermore, the Board is confident that the developments commenced in 2003, together with planned initiatives in 2004, will deliver satisfactory earnings growth in 2005 and beyond. Appreciation On behalf of the Board I would like to thank all shareholders for their continued support for the Group. The Board would also like to thank our valued customers and the consumer who is the ultimate barometer of success. We would also like to express our sincere appreciation to the Glanbia management team, led by John Moloney, and to the team of employees worldwide for their commitment to Glanbia. Tom Corcoran Chairman Glanbia plc annual report 2003 05 Group Managing Director’s Review Glanbia closely monitors consumer lifestyle trends – in particular the growing awareness of the link between health and diet and the demand for products with specific nutritional benefits. John Moloney, Group Managing Director. TruCal®, containing 24% calcium, addresses the fact that nine out of ten teenage girls and adult women fail to meet the recommended daily allowance of calcium (USDA). Overview Glanbia’s 2003 underlying results reflect a solid performance in a challenging year, with increased operational efficiency, volume growth in key sectors, improved margins and positive cash flows. The results, after exceptional charges, reflect the completion of restructuring in the UK through the sale of Glanbia Fresh Meats (UK) Limited and the creation of the joint venture with Milk Link Limited to service the UK cheese market. Group turnover in 2003 was down 11.9% to c2,041.07m (2002: c2,316.74m) reflecting the impact of the restucturing of operations in the UK in 2002 and 2003. Operating profit before exceptional costs (including share of operating profit of joint ventures & associates) increased by 1.4% to c92.79m (2002: c91.54m) and profit before tax and exceptional items increased by 7.4% to c77.14m (2002: c71.81m). The Group continues to focus attention on improving operational efficiencies and driving value added products, which resulted in an improvement in operating margins to 4.5% (2002: 3.9%). During the year the Group made a number of strategic investments in the US, Nigeria, Ireland and Mexico, by means of wholly owned investments and a number of strategic joint ventures into significant growth markets. We also completed a three year re-organisational programme in the UK which culminated in the sale of Glanbia Fresh Meats (UK) Limited, the closure of the UK fresh meat facilities and the formation of a joint venture with Milk Link Limited to serve the UK hard cheese market. With this narrowing of focus based around core competencies in cheese, nutritional ingredients and consumer foods with a nutritional emphasis, Glanbia is now well positioned to advance its growth strategy. We are confident that this strategy will provide a strong platform for earnings growth into the future. 06 Glanbia plc annual report 2003 Review of Operations Consumer Foods The Group’s Consumer Foods businesses encompass the manufacture and marketing of value added, fast moving consumer goods in Ireland, the UK and Continental Europe. In Ireland this includes the market leading dairy and chilled convenience food business as well as the processing and sale of Irish pork. In the UK it encompasses the production of high quality own label cheese products and the Leprino Joint Venture producing mozzarella for the European pizza sector. Overview: In 2003 Consumer Foods accounted for 44.11% of the Group’s turnover and 48.25% of the Group’s operating profit. Overall a challenging operating environment resulted in a reduction in operating profit to c44.77m (2002: c47.59m), but encouragingly, operating margins improved to 5.0% (2002: 4.0%). Turnover declined to c900.41m (2002: c1,175.11m) due to the impact of the exit from the UK consumer meats and foodservice distribution activities in 2002 and the exit from the UK fresh meats business in 2003. Consumer Foods benefited from enhanced operational efficiencies in key businesses, new product extensions, nutritional product introductions and the finalisation of the reorganisation of the UK activities. Very competitive block mozzarella markets and currency weakness adversely impacted the Glanbia Cheese business. The new UK joint venture with Milk Link, announced in February 2004, is a response to ongoing margin pressure in the highly competitive UK market and allows Glanbia to retain a stake in a more integrated business which will compete more effectively in this market, while realising cash for investment in high growth areas. Consumer Foods Turnover (EURO million) Consumer Foods Operating Profit (Pre-exceptional) (EURO million) 1,175.1 900.4 47.6 44.8 2002 2003 2002 2003 Ireland: Glanbia is Ireland’s leading supplier of branded and value-added liquid milk products and the market-leading supplier of fresh dairy products, cheeses, soups and spreads principally under the Yoplait, Avonmore and Kilmeaden brands. The Group also processes fresh pork for the retail and foodservice trade, selling in Ireland, Europe, the US and Asia. The Group operates five milk processing facilities and one fresh soup manufacturing facility to serve the Irish Consumer Foods business, as well as a number of distribution and sales locations. Glanbia currently has four pork processing facilities, one in Roscrea, County Tipperary, one in Edenderry, County Offaly, one in Clara, County Offaly and one in Roosky, County Roscommon. For over three decades the Glanbia brands have been household names and research indicates they are synonymous with quality, convenience and health. This depth of experience, combined with a constant focus on innovation and marketing is the driver that positions this business as the market leader and the consumer’s choice. Group Managing Director’s Review The Glanbia brands and food ingredients are synonymous with ‘nutrition from the fridge’. Group Managing Director’s Review Avonmore Supermilk now goes everywhere you want it to go. Don’t just milk it. Supermilk it. Cheese consumption in the US is 9 billion pounds p.a. Glanbia is the number 1 producer of US barrel cheese and one of the leading producers of American type cheddar – the consumer’s choice. Significant progress was made during the year in terms of re-organising the Group’s UK operations. In July 2003 the Group announced its decision to withdraw from its UK fresh pork operations and in February 2004 the Group announced its decision to enter into a joint venture with Milk Link to service the UK hard cheese sector. Food Ingredients and Nutritionals Food Ingredients comprises the US and Irish dairy ingredients operations, as well as the Group’s expanding nutritional business. At facilities in Ireland and the US, Glanbia processes and markets a range of milk, cheese and whey protein ingredients for sale on international markets. It is also involved in a number of strategic joint ventures. Glanbia has a strong presence in international dairy ingredients markets, is the largest producer of barrel cheese in the US, is the second largest producer of whey protein isolate worldwide and is the largest milk processor in Ireland. Glanbia’s unique position as a large-scale manufacturer of whey proteins in Ireland and the US is the cornerstone of our nutritional strategy. Consumer eating habits have changed dramatically in recent years, with less time available for food preparation and a consequent demand for convenient ‘on the go’ food solutions. Also increased consumer awareness in developed countries of the link between food and health has been a critical factor in the continued expansion of the market for healthy food options. Milk is an ideal source of protein and dairy products an ideal carrier of nutrition solutions. These properties combined with Glanbia’s product innovation and nutritional expertise place the Group in a strong position to satisfy changing consumer needs. In the Irish business health and functionality have been addressed with the introduction of probiotics, prebiotics, vitamins and minerals as well as the inclusion of more reduced fat offerings. Key among Glanbia’s product innovations is the exclusive introduction of the probiotic LGG into the Irish product ranges. LGG is the most clinically researched probiotic culture (friendly bacteria), which enhances natural resistance and maintains a healthy digestive system. LGG is only available in the yogurt drink ‘Yoplait Everybody’ and the milk-based nutritional and functional beverage, ‘Avonmore Milk Plus LGG’. During the year additional calcium has been introduced to ‘Yoplait Petits Filous’ for children’s growing bones and teeth. Ongoing nutritional product innovations are core to this business. In anticipating and responding to consumer needs for “food to go”, in 2003 the business also introduced ‘Avonmore SuperMilk on the Go’, a nutritious alternative to single serve, carbonated soft drinks, juices and bottled waters. Irish pork operations had a reasonable performance in 2003. The Group has expanded processing capacity at its facility in Roscrea and is in the process of expanding capacity at its facility in Edenderry to replace the capacity lost in the fire in Roosky in 2002. Against the background of a challenging retail environment and a competitive liquid milk sector, the Irish consumer foods business overall had a good performance in 2003 with volume growth and the expansion into new value-added segments. UK The Group’s UK Consumer Foods businesses for the period include Glanbia Foods, Glanbia Cheese and the UK fresh meats operations (up to the date of sale – 5 July 2003). Glanbia Foods Limited is Britain’s second largest producer of cheddar, Stilton and British territorial cheeses. Glanbia Cheese, the pizza cheese joint venture with Leprino Foods, is Europe’s leading producer of mozzarella for the pizza sector, serving quick service restaurants and chilled and frozen pizza manufacturers. Glanbia Foods performed satisfactorily in 2003. Despite a highly competitive market we achieved steady sales volumes and enhanced operating efficiencies. The result for Glanbia Cheese was below expectations primarily due to the competitive nature of the block mozzarella market driven largely by a European response to the Mid Term Review of the Common Agricultural Policy. Overall the business benefited from volume growth. The Northern Ireland facility has yet to fully realise the benefits of technology investments and capacity expansion completed in October 2003. Glanbia plc annual report 2003 09 Group Managing Director’s Review Whey proteins are key ingredients in functional foods and supplements. Glanbia’s unique position as a large-scale manufacturer of whey proteins in Ireland and the US is the cornerstone of its nutritional strategy. In 2003 Glanbia launched new ingredient solutions that extend the shelf life and improve the texture of nutritional bars. Food Ingredients and Nutritionals Turnover (EURO million) 910.1 906.2 Food Ingredients and Nutritionals Operating Profit (Pre-exceptional) (EURO million) 33.8 30.1 2002 2003 2002 2003 In addition to traditional usage in food and infant formulae, whey protein fractions and whey isolate are now key ingredients in functional foods and supplements. These include: dietary supplements; sports nutrition; healthcare products; oral care products; clinical nutrition, nutritional bars and beverages. Glanbia is a leading producer of these high value-added whey-based nutritional ingredients for domestic, US, Asian and European markets. Overview: Overall, the division accounts for 44.40% of the Group’s turnover and 36.39% of the Group’s operating profit. Food Ingredients and Nutritionals performed well during 2003, with operating profit up by 12.4% on 2002. However results were impacted by the weakness of the US dollar against the Euro and weak US cheese markets in the first half of 2003. Divisional operating profit increased to c33.77m (2002: c30.05m). The operating margin was 3.7% (2002: 3.3%). Turnover was down marginally to c906.21m compared to c910.08m in 2002. Ingredients US The Group is the largest producer of US barrel cheese, the second largest producer of whey protein concentrate and the third largest producer of lactose in the US. It is one of the top producers of American type cheddar cheese, supplying the food service, food processing and retail sectors. The business had a satisfactory performance in 2003, delivering solid volume growth in a year when cheese markets were weak, particularly in the first half. The joint venture in New Mexico, which was announced in 2003, will, on completion, make Glanbia the number one producer of American type cheddar cheese in the US. Ingredients Ireland In Ireland, Glanbia Ingredients is the country’s largest dairy processor, utilising over 30% of the national manufacturing milk pool. Modern large-scale facilities in three strategic locations produce a wide portfolio of cheese, protein, butterfat-based and formulated products and cream base for Baileys Irish liqueurs. Glanbia exports over 95% of output to European, North and South American, African and Asian markets. This business had a satisfactory performance during 2003. 10 Glanbia plc annual report 2003 Group Managing Director’s Review Glanbia is Europe’s leading producer of mozzarella for the pizza sector. Glanbia has a strong R&D capability and an established track record in the development of innovative consumer products and functional foods. Colm O Brien, PhD, is one of the team of scientists who will be driving innovation at the Group’s new Innovation Centre. Nutritionals Glanbia’s international nutritional ingredients activities are now being brought to market via a separate, focused business unit. Good progress was made in developing nutritional ingredients in 2003 and the business performed in line with expectations. Agribusiness Turnover (EURO million) 231.5 234.5 Agribusiness Operating Profit (Pre-exceptional) (EURO million) 13.9 14.2 Glanbia continues to track the international nutrition debate, led by the United States, on the increasing incidence of lifestyle related diseases. This has resulted in an overall consumer lifestyle shift towards nutrition and wellness. The company’s focus on whey proteins is on their efficacy in healthcare applications, which is correlated to dietary behaviour and lifestyle. Glanbia’s Nutritional business produces lactoferrin which possesses anti-microbial and immune system benefits. The company also has a strong focus on calcium and its applications in the prevention of osteoporosis and on whey protin as a prebiotic. In 2003 the business commissioned new protein hydrolysis capacity in the US and continued its pipeline of new product development with the introduction of two novel ingredient solutions that extend the shelf life and improve the texture of nutritional bars: BarFlexTM and BarProTM both of which are partially hydrolyzed milk protein isolate, along with Prolibra TM-a weight loss solution. In 2002 the business introduced SalibraTM, a bioactive whey fraction to support intestinal health and wellness. Sales of Salibra TM are growing and the product is being introduced into the sports nutrition sector in the US as a muscle development and sports performance product. These product introductions contributed to strong sales growth in the year. 2002 2003 2002 2003 The business also added to its research capability in Ireland and the US in the areas of applications and clinical nutrition. Agribusiness The Agribusiness Division is the key linkage between Glanbia and its farmer suppliers in Ireland and is engaged primarily in farm input sales, feed milling, milk assembly and grain trading. The division also has interests in fertiliser production, veterinary wholesaling, malting and port services. Overall the division had a good performance in 2003. Market share gains were made in feed and fertiliser sales in 2003. During the year the Division continued its cost reduction programme and achieved enhanced operating efficiencies across all elements of the business. In 2003 the division accounted for 11.49% of the Group’s turnover and 15.36% of the Group’s operating profit. Turnover increased to c234.45m (2002: c231.55m), operating profit improved to c14.25m (2002: c13.89m). The operating margin was 6.0%. Group Managing Director’s Review Through Gain Foods, Glanbia Agribusiness sponsors the current Irish champion jockey, Paul Carberry. Future direction The Chairman has reported on the progress made in achieving our strategic objectives for 2003. Having completed the strategic reorganisation of the Group, Glanbia is now strongly focused on growing its three core business platforms: cheese, nutritional ingredients and consumer foods. We have the scale, technology, the efficiencies, the innovation and most importantly, a committed team of almost 5,000 people all dedicated to maximising value for shareholders. In 2004 growth will be achieved both organically and, as appropriate, by acquisition. In this regard the Group is actively pursuing a number of potential acquisition opportunities in the nutritional ingredients sector. Appreciation The progress made in 2003 is a reflection of the quality of our Board and I want to thank the Chairman and Board for their leadership during the year. I would also like to thank all employees and my management team for their contribution. I believe Glanbia made significant progress in 2003 and that we now have a solid foundation for future growth. John Moloney Group Managing Director Glanbia plc annual report 2003 13 Group Financial Director’s Review Operating profit before exceptional items, including share of joint ventures and associates, was c92.79m, an improvement of 1.4% from 2002. Adjusted earning per share was 19.26 cent, an increase of 10.4% from 2002. Group Financial Director’s Review Results Growth in operating profit before tax and exceptional items of 7.4% to c77.14m, an increase in operating margin to 4.5% together with a further reduction in debt and strengthening of the Group’s balance sheet are key highlights of the 2003 results. Operating profit before exceptional items, including share of joint ventures and associates, was c92.79m, an improvement of 1.4% from 2002 despite an 11.9% reduction in Group turnover reflecting the impact of restructuring of operations in the UK in 2002 and 2003. Details of divisional operating profit are given in the Group Managing Director’s review on pages 6 to 13. The Group’s interest charge (including interest on joint venture and associates) decreased to c15.65m from c19.73m in 2002. Interest cover (operating profit to interest) improved to 5.9 times (compared to 4.6 times in 2002) while EBITDA interest cover was 8.3 times and the ratio of year end net debt to EBITDA was 1.17 times. Substantial improvement in financial ratios has been made in the last four years. A net exceptional charge for the period of c90.47m arises primarily from the continued refocusing of operations around group strategy. It included the sale of the UK fresh meats business and the closure of related meat processing facilities, redundancy costs arising from the fire at the Roosky pigmeat plant in 2002 and costs related to the accelerating of efficiencies and cost effectiveness across all Irish business arising from the impact of the EU Commission’s Mid Term Review. Also included is the charge associated with the sale of a 75% interest in Glanbia Foods Limited which was announced on 23 February 2004. Of the net exceptional charge c41.69m relates to the write-back through the profit and loss account of goodwill previously written off to reserves, as required by accounting standards. Geoff Meagher, Group Financial Director. Glanbia produces 140,000 tonnes of cheese and some 50,000 tonnes of ingredients derived from the whey residue at three facilities in Idaho, US. As required under FRS 15 – ‘Tangible Fixed Assets’ a review of the remaining useful lives of plant and equipment owned by the Group was carried out with a resultant reduction of c5.77m in the depreciation charge, as compared with the original useful lives. The disclosure requirements of FRS 17 – ‘Retirement Benefits’ are in note 34 to the financial statements. The adoption of FRS 17 has had no impact on the results of 2003 or the prior year. The disclosures required under FRS 17 show a net deficit of c92.81m as at the balance sheet date. The increase in the net deficit during 2003 was driven mainly by the decline in corporate bond yields. As part of the sale of a 75% interest in Glanbia Foods Limited, which was announced by the Group on 23 February 2004, the assets and obligations of the Glanbia Foods pension scheme transferred with Glanbia Foods Limited. The exclusion of the deficit in the Glanbia Foods pension scheme at the balance sheet date would reduce the net pension liability in note 34 of the financial statements by c11.6m to c81.2m. The Group is reviewing its options in relation to this FRS 17 position. Taxation The tax charge for the year was c8.73m – this represents an effective tax rate of 12.5% on taxable profits. This low tax rate reflects the mix of profits in the various tax jurisdictions in which the Group operates and in particular the impact of the Irish manufacturing rate of 10%. Earnings per share and dividends Adjusted earnings per share were 19.26c compared to 17.44c in 2002 – growth of 10.4%. The total dividend per share for the year is 5.0c, an increase of 5.0% on the 2002 dividend. Cash generation Summary cash flows for 2003 and 2002 are set out on page 16. Net cash generated amounted to c22.5m resulting in a reduction in year end borrowings to c153.80m. Capital expenditure for the year, net of disposals, amounted to c39.11m. The group has applied c362m in capital investment in the last five years, including major expansions of the US facilities in Idaho and the food ingredients plant in Ballyragget. The continued weakening of the US dollar against the euro during 2003 resulted in a decrease of c15.55m in non-euro borrowings, shown as currency translation impact in the cash flow statement. Non-equity minority interests Non-equity minority interests of c115.76m (2002: c132.16m) comprise $100m preferred securities and c38.20m preference shares. The decrease of c16.40m in non-equity minority interest between 2002 and 2003 is due to the further weakening of the US dollar against the euro during 2003. Dividends paid to non-equity minority interests plus amortisation of issue costs during 2003 amounted to c11.01m. Glanbia plc annual report 2003 15 Group Financial Director’s Review Summary Cash Flows Net cash inflow from operating activities Returns on investments & servicing of finance Interest paid Dividends paid to minority interest Taxation Capital expenditure and financial investment Acquisitions and disposals Equity dividends paid Change in net debt resulting from cash flows Currency translation impact Decrease in net borrowings Net borrowings at start of year Net borrowings at end of year Balance sheet Equity shareholders’ funds decreased to c179.44m at the end of 2003 from c181.3m in 2002, due mainly to the impact of the finalisation of the restructuring of UK operations in 2003. Capital employed amounted to c300.87m at the end of 2003 compared to c320.44m in 2002, due to the reduction in non-equity minority interests arising from the weakening of the US dollar against the euro in 2003. Net debt to capital employed was 51.1% compared to 55.0% in 2002, arising from the combination of a stronger balance sheet and lower debt. Financial Instruments and Derivative Financial Instruments The conduct of its ordinary business operations necessitates the holding and issuing of financial instruments and derivative financial instruments by the Group. The main risks arising from issuing, holding and managing these financial instruments typically include liquidity risk, interest rate risk and currency risk. The Group approach is to centrally manage these risks against comprehensive policy guidelines. The Board agrees and regularly reviews these guidelines which are summarised below. These policies have remained unchanged during the past financial year. The Group does not engage in holding or issuing speculative financial instruments or derivatives thereof. The Group finances its operations by a mixture of retained profits, preference shares, preferred securities capital, medium and short term committed bank borrowings and uncommitted bank borrowings. 16 Glanbia plc annual report 2003 2003 E’000 94,507 (16,548) (11,758) (9,816) (41,517) 6,176 (14,080) 6,964 15,547 22,511 (176,308) (153,797) 2002 c’000 126,558 (20,236) (11,813) (4,990) (17,925) (8,141) (13,533) 49,920 16,431 66,351 (242,659) (176,308) The Group borrows in the major global debt markets in a range of currencies at both fixed and floating rates of interest, using derivatives where appropriate to generate the desired effective currency profile and interest rate basis. Currency risk Although the Group is based in Ireland, it has significant investment in overseas operations in the UK and the US. As a result, the Group’s euro balance sheet can be significantly affected by movements in sterling/euro and US dollar/euro exchange rates. The Group seeks to mitigate the effect of these structural currency exposures by borrowing in the same currencies as the operating (or functional) currencies of its main operating units, thereby matching, to a reasonable extent, the currency of its borrowings with that of its assets. The Group regards goodwill as a foreign currency asset for this purpose. The Group also has transactional currency exposures that arise from sales or purchases by an operating unit in currencies other than the unit’s operating functional currency. The Group requires all its operating units to mitigate such currency exposures, by means of forward foreign currency contracts. Liquidity risk The Group’s objective is to maintain a balance between the continuity of funding and flexibility through the use of borrowings with a range of maturities. In order to preserve continuity of funding, the Group’s policy is that, at a minimum, committed facilities should be available at all times to meet the full extent of its anticipated finance requirements, arising in the ordinary course of business, during the succeeding 12 month period. This means that at any time the lenders providing facilities in respect of this finance requirement are required to give at least 12 months notice of their intention to seek repayment of such facilities. At the year end, the Group had multi-currency committed term facilities of c500m of which c288m was undrawn. The weighted average period to maturity of these facilities was 3.24 years. Finance and interest rate risk The Group’s objective in relation to interest rate management is to minimise the impact of interest rate volatility on interest costs in order to protect reported profitability. This is achieved by determining a long term strategy against a number of policy guidelines, which focus on (a) the amount of floating rate indebtedness anticipated over such a period and (b) the consequent sensitivity of interest costs to interest rate movements on this indebtedness and the resultant impact on reported profitability. The Group borrows at both fixed and floating rates of interest and uses interest rate swaps to manage the Group’s exposure to interest rate fluctuations. The numerical disclosures required under Financial Reporting Standard No.13 in relation to the above risks are set out in note 38 to the financial statements. Summary The Group continued to make good progress during 2003 in improving underlying operating performance and key financial ratios, whilst at the same time completing its UK restructuring programme. Geoff Meagher Group Financial Director Corporate Social Responsibility Our vision recognises the importance of social and environmental considerations at all levels of our business strategy. Sustainability in action for any business is about understanding that economic goals are linked to environmental and social performance. Glanbia is the proud sponsor of the annual Monroe Balloon Rally in the US. For a few days in June of each year, 60 balloons dot the skies with their bright colours and beautiful designs. This popular community event attracts over 7,000 visitors. 02 Glanbia plc annual report 2003 Corporate Social Responsibility Irish sports star, national hero and hurler DJ Carey was the captain of the 2003 All Ireland winning Kilkenny hurling team, proudly sponsored by Glanbia. In 2003 Glanbia supported the 2003 Special Olympics, World Games which was held in Ireland. The Group has a deep and proud history of social and community involvement. In 2002 the Board of Glanbia decided to formally develop this culture through the adoption of a Corporate Social Responsibility (CSR) Programme. With Group headquarters in Ireland, Glanbia decided to adopt the Irish Business In the Community charter on CSR as the Group standard. Glanbia was among the first Irish companies to sign this charter, which is designed to harness the impact of business for the benefit of all stakeholders. Since 2002 the Group has been formalising all CSR activities to meet the needs of stakeholders and support business strategy. As an organisation with a deep reach into communities throughout Ireland, the UK and US, this has been an extensive and rewarding process. Our vision recognises the importance of social and environmental considerations at all levels of our business strategy. Sustainability in action for any business is about understanding that economic goals are linked to environmental and social performance. Our aim is to strive for continuous improvement and in this regard significant progress was made in 2003. Environmental performance During the year we adopted ISO14001 as our global production standard. The Glanbia Environmental Management Team identified a set of key process indicators (KPI’s) and completed a detailed risk assessment of all of our sites. They have also identified base emission loads to land, air and water. Through the adoption of the standard, Group businesses have made significant progress in minimising the environmental impact of ongoing improvements in production processes. Strategic Environmental Plans are now being developed for each Business Unit which will be the focus of activity for 2004. Ongoing workshops will be carried out throughout the year and a measurement process will be put in place to monitor and report at the end of the year. Social impact Glanbia has a proud tradition in supporting community and charitable causes, particularly around the communities where we are based. We give substantial support to amateur sports such as the GAA in Ireland and to the essential services in our communities in Ireland, UK and the US. It is also our policy to communicate all developments affecting both the Group and the workplace to employees. Glanbia has had a very positive response to its “Heads Up” programme, which is designed to harvest Group intelligence and energy through the exchange of ideas across all businesses. The “Heads Up” programme has been instrumental in realising the four key Group values: - be the best - find a better way - pride in what we do - people matter The Group was a major sponsor of the 2003 Special Olympics, World Games. The customer and employee response received from our association with this spectacular community initiative was deeply encouraging. Glanbia and in particular our employees are also actively involved with a voluntary second level school organisation, Junior Achievement Ireland. This organisation encourages student interest in the world of work and commerce. Also in 2003 we polled all employees to nominate the Glanbia charity of choice. Subsequently Glanbia is now committed to linking our mission as a food and nutritional company to support for specified children’s health care organisations in the US and Ireland. People in the Workplace People are core to the Glanbia strategy and the continued commitment of our employees is critical to our future success. As an evolving company in a rapidly changing environment, it is essential that our people can change with us and respond effectively to the challenges of the marketplace. To this end Group policy is to support employees by providing relevant training and development programmes. Glanbia also operates a graduate placement programme, attracting high calibre graduates from leading universities. The Group endeavours to attract and retain the best people by providing a challenging and rewarding career and personal development path. We comply with all appropriate equality and anti-discrimination legislation and are committed to providing equal opportunities for the advancement of all employees. Marketplace Glanbia is proud of its brands and it is important to us that our stakeholders – consumers, customers and our business partners/suppliers – are aware of how we do business. Glanbia’s growth strategy has in recent years involved the formation of a number of strategic relationships with other partners through joint ventures. It is imperative to us as a Group that we therefore respond promptly and positively to all stakeholders needs. A new marketing code is currently being developed to include: consumer feedback; packaging and labelling; product safety; supplier dealings; advertising/promotions, recruitment and people development. Glanbia plc annual report 2003 19 Directors and Advisors Tom Corcoran Michael Walsh Liam Herlihy John Moloney Billy Murphy Tom Heffernan Victor Quinlan Chris Hill John Callaghan Ned Fitzpatrick Non-Executive Directors Thomas P Corcoran (aged 64) is Chairman of Glanbia plc. He has served as a non- executive Director since 1988 and was appointed Chairman of the Company in 2000. He is also Chairman of Glanbia Co-operative Society Limited. He is a Director of Irish Co-operative Organisation Society Limited, where he is currently a Vice-President. He is a Director of Irish Agricultural Wholesale Society Limited and a Director of Waterford Leader Partnership Limited. He has completed the Institute of Directors Director Development Programme (2003) and holds a Certificate of Merit in Corporate Governance from the Institute of Directors Centre for Corporate Governance at University College Dublin. He farms at Bohadoon, Dungarvan, Co. Waterford. Liam Herlihy (aged 52) is Vice-Chairman of Glanbia plc. He was appointed to the Board in 1997 and was appointed Vice-Chairman of the Company in 2001. He is also Vice- Chairman of Glanbia Co-operative Society Limited and a Director of Co-operative Animal Health Limited. He completed the ICOS Diploma in Corporate Direction in 2002. He farms at Headborough, Knockanore, Tallow, Co. Waterford. Michael J Walsh (aged 61) is Vice- Chairman of Glanbia plc. He was appointed to the Board in 1989 and was appointed Vice-Chairman of the Company in 1996. He is also Vice-Chairman of Glanbia Co- operative Society Limited, a Director of Irish Co-operative Organisation Society Limited and a Director of The Irish Dairy Board Co-operative Limited. He farms at Coolroe, Graiguenamanagh, Co. Kilkenny. John E Callaghan, FCA, (aged 61) was appointed to the Board in 1998. He is Chairman of First Active plc and a Director of Rabobank Ireland plc. He was formerly Managing Partner of KPMG (Ireland) and Chief Executive of Fyffes plc. Jerry V Liston, B.A., MBA, (aged 63) was appointed to the Board in 2002. He is Executive Chairman of the Michael Smurfit Graduate School of Business, University College Dublin and holds directorships in other companies. He was formerly Chief Executive of United Drug plc and a past Chairman of the Irish Management Institute. The following non-executive Directors are farmers and all are Directors of Glanbia Co-operative Society Limited: Henry V Corbally (aged 49) completed the ICOS Diploma in Corporate Direction in 2002. He farms at Kilmainhamwood, Kells, Co. Meath. Edward P Fitzpatrick (aged 56) is Vice- Chairman of South Eastern Cattle Breeding Society Limited and completed the ICOS Diploma in Corporate Direction in 2003. He farms at Knockmoylan, Mullinavat, Co. Kilkenny. James A Gilsenan (aged 44) completed the ICOS Diploma in Corporate Direction in 2003. He farms at Drogheda Road, Collon, Co. Louth. Thomas P Heffernan (aged 48) is a Director of South Eastern Cattle Breeding Society Limited and completed the ICOS Diploma in Corporate Direction in 2003. He farms at Kearney Bay, Glenmore, Co. Kilkenny. Christopher L Hill, B.Agr.Sc., (aged 45) is a Director of Wicklow Rural Partnership Limited and a member of the Wicklow County Development Board. He completed the ICOS Diploma in Corporate Direction in 2002. He farms at Johnstown House, Arklow, Co. Wicklow. John J Miller (aged 63) is a Director of Laois Leader Rural Development Company Limited and is active in Spink Community Council. He farms at Boleybeg, Abbeyleix, Co. Laois. 20 Glanbia plc annual report 2003 Michael Parsons (aged 54) is Chairman of Kilkenny Co-operative Livestock Market Limited. He farms at Outrath, Kilkenny. Eamon M Power (aged 49) is currently completing the ICOS Diploma in Corporate Direction and is a Master Farmer. He farms at Corse, Fethard-on-Sea, Co. Wexford. Frank Quigley (aged 61) farms at Feddans, Carrick on Suir, Co. Waterford. John V Quinlan, B.Agr.Sc., (aged 58) holds directorships in a number of companies, including Irish Sugar Limited. He is currently completing the ICOS Diploma in Corporate Direction. He farms at Baptistgrange, Lisronagh, Clonmel, Co. Tipperary. George E Stanley (aged 59) is a Committee Member of The Centenary Co-operative Creamery Society Limited. He farms at Shinrone, Birr, Co. Offaly. Executive Directors John J Moloney, B.Agr.Sc., MBA, (aged 49) is Group Managing Director since June 2001. He was appointed to the Board in 1997. He was appointed Deputy Group Managing Director in October 2000 and assumed the responsibilities of Chief Operating Officer in January 2001. He joined the Group in 1987 and held a number of senior management positions including Chief Executive of the Food Ingredients and Agricultural Trading Divisions. He previously worked with the Department of Agriculture, Food and Forestry and in the meat industry in Ireland. He is a Director of The Irish Dairy Board Co-operative Limited, Repak Limited and a Council Member of both the Irish Business and Employers Confederation and the Irish Management Institute. Directors and Advisors Jim Gilsenan Henry Corbally John Miller Michael Parsons Eamon Power Jerry Liston Eric Stanley Geoff Meagher Frank Quigley Kevin Toland William G Murphy, B. Comm, (aged 58) is Deputy Group Managing Director since June 2001. He joined the Group in 1977 and has held a number of senior positions including Chief Executive of Dairy Food Ingredients, Chief Executive of Consumer Foods Ireland and Chief Executive of the Agribusiness Division. He was appointed to the Board in 1989. Prior to joining the Group he worked as a grain trader with Cargill Limited. He is a Director of IAWS Group plc and Irish Agricultural Wholesale Society Limited. Geoffrey J Meagher, CPA, (aged 54) is Group Financial Director since 1993. He joined the Group in 1975 and held a number of positions including that of Group Financial Controller. Prior to that he trained and worked with PricewaterhouseCoopers, Chartered Accountants . Kevin E Toland, FCMA, (aged 38) was appointed to the Board on 10 January 2003. He joined the Group in 1999 and is Group Development Director, having previously held the position of Chief Executive of the Consumer Foods Division. Prior to joining Glanbia, Mr Toland held a number of senior management positions with Coca-Cola Bottlers in Russia and with Diageo plc in Ireland and Central Europe. Directors offering themselves for re-appointment The following Directors are retiring by rotation in accordance with the Articles of Association of the Company and, being eligible, offer themselves for re-appointment: John E Callaghan (aged 61), Thomas P Heffernan (aged 48), Christopher L Hill (aged 45), John J Moloney (aged 49), William G Murphy (aged 58) and Michael Parsons (aged 54). All are farmers with the exception of John E Callaghan, John J Moloney and William G Murphy. All are Directors of Glanbia Co- operative Society Limited with the exception of John E Callaghan and William G Murphy. Solicitors Arthur Cox, Earlsfort Centre, Earlsfort Terrace, Dublin 2, Ireland. Pinsents, 3 Colmore Circus, Birmingham B4 6BH, United Kingdom. Stockbroker J & E Davy, 49 Dawson Street, Dublin 2, Ireland. Shareholder Enquiries All shareholders’ enquiries should be addressed to the Registrar. Shareholders may check their accounts on the Company’s Share Register by accessing the Company’s website at www.glanbia.com, clicking on “For Investors” and “Shareholding Online”. Shareholders may check their shareholdings, recent dividend payments details and can also download forms required to notify the Registrar of changes in their details. Board Committees Audit Committee JE Callaghan-Chairman, TP Corcoran, L Herlihy, JV Liston, JJ Miller, EM Power, GE Stanley, MJ Walsh. Remuneration Committee TP Corcoran-Chairman, JE Callaghan, L Herlihy, JV Liston, MJ Walsh. Nomination Committee TP Corcoran-Chairman, JE Callaghan, L Herlihy, JV Liston, JJ Moloney, MJ Walsh. Secretary and Registered Office Siobhán Talbot, B.Comm, FCA, Glanbia House, Kilkenny, Ireland. Registrar and Transfer Office Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland. Telephone: +353 1 216 3100 Facsimile: +353 1 216 3151 Auditors PricewaterhouseCoopers, Ballycar House, Newtown, Waterford, Ireland. Principal Bankers ABN AMRO Bank N.V., Allied Irish Banks p.l.c., Bank of Ireland, BNP Paribas S.A., Barclays Bank PLC, Citibank N.A., IIB Bank Limited, Rabobank Ireland plc, Ulster Bank Markets Limited. Glanbia plc annual report 2003 21 Report of the Directors for the year ended 3 January 2004 Introduction The Directors are pleased to present their report to shareholders together with the audited financial statements for the year ended 3 January 2004. Principal activities Glanbia plc is an international dairy, consumer foods and nutritional products company. It is principally engaged in the processing and marketing of cheese; dairy-based food ingredient and nutritional products; dairy-based consumer products; fresh milk; consumer and other meat products; manufacture of animal feedstuffs and trading in agricultural products. Group processing operations are located in Ireland, the UK and the USA. Sales and marketing activities are undertaken in various European countries and in the USA, South America, Asia and Africa. The Group serves a broad customer base in the retail, food service and food and beverage processing sectors. Review of business Group turnover for the year was c2,041.07m compared with c2,316.74m in 2002. The Chairman’s Statement, Group Managing Director’s Review and the Group Financial Director’s Review contain a comprehensive commentary on the business and the year-end financial position. Results Details of the results for the year and the appropriation thereof are set out in the consolidated profit and loss account on page 29. Share Capital The authorised share capital of the Company is 306,000,000 ordinary shares of c0.06 each. The issued share capital is 292,514,184 ordinary shares of c0.06 each. Dividends On 1 October 2003 an interim dividend of 2.06c per share on the ordinary shares amounting to c5.980m was paid to shareholders on the Register as at 5 September 2003. The Directors have recommended the payment of a final dividend of 2.94c per share on the ordinary shares which amounts to c8.535m. Subject to shareholders approval this dividend will be paid on 24 May 2004 to shareholders on the Register as at 23 April 2004, the record date. Future developments Our plans for the future development of the Group are outlined in the Chairman’s Statement; Group Managing Director’s Review and the Group Financial Director’s Review. Important events since the year end On 23 February 2004, the Group announced the sale of a 75% interest in its UK hard cheese business, Glanbia Foods Limited (through the sale of 100% of Glanbia Foods Limited and the simultaneous creation of a new joint venture with Milk Link Limited which will be 25% owned by the Group). A provision for the loss on this transaction is detailed in note 5 to the financial statements. Substantial interests As at 20 February 2004, Glanbia Co-operative Society Limited held 54.79% of the Company’s issued ordinary shares. The Company has not been notified of any other interest of 3% or more in its issued ordinary shares. Research and development The Group is committed to an ongoing and extensive innovation programme to support a customer-led business and marketing approach. There is growing consumer awareness of the link between health and diet and Glanbia as a food Group is committed to achieving the highest standards of best practice in relation to science based innovation. It is directed towards the development of technically superior dairy-based food ingredient and nutritional products, cheese, high value consumer food products, and the enhancement of proprietary technologies and processes. Safety, health and welfare The Group is committed to complying with the Safety, Health and Welfare at Work Act, 1989. A comprehensive statement on safety, health and welfare at work has been prepared by each of the relevant companies in the Group. The policies set out in these statements are kept under review as part of the process of safeguarding the wellbeing of employees. Directors The Directors of the Company are listed on pages 20 and 21 of this Annual Report. In accordance with the Articles of Association of the Company, John E Callaghan, Thomas P Heffernan, Christopher L Hill, John J Moloney, William G Murphy and Michael Parsons retire from the Board by rotation and, being eligible, offer themselves for re-appointment. None of the Directors proposed for re-appointment has a service contract with the Company. Biographical details of Directors offering themselves for re-appointment are set out on pages 20 and 21. 22 Glanbia plc annual report 2003 Directors’ and Secretary’s share interests The interests of the Directors and Group Secretary and their spouses and minor children in the share capital of the Company, subsidiary companies and the holding Society are disclosed in note 36 to the financial statements. The remaining Directors comprise four executive Directors and two independent non-executive Directors. All Directors are required to submit themselves for re-appointment at least every three years. Share options In 2002 the shareholders approved the introduction of a Long Term Incentive Plan (“LTIP”) and Savings-Related Share Option (“Sharesave”) Scheme in order to further align the interests of Group personnel with those of shareholders. Options outstanding under the Company’s 1988 Share Option Scheme, the LTIP and the Sharesave Scheme as at 3 January 2004 amounted to 5,392,473 ordinary shares (4 January 2003: 5,954,528), made up as follows: The Board meets monthly and on other occasions as necessary. The Board has a formal schedule of matters specifically reserved to it for decision. All Directors have full and timely access to the information necessary to enable them to discharge their duties. All Directors have access to the advice and services of the Group Secretary, who is responsible for ensuring that Board procedures are followed. All Directors are entitled to take independent advice, if necessary, at the Company’s expense. Dates exercisable 2004– 2013 2004– 2008 2005 – 2006 The Group continues to implement its core values programme throughout the Group, the aim of which is to foster a Group wide corporate culture based on performance, innovation, ethics and people development. All Directors have participated in this programme and continually review the conduct and operation of Board meetings. No of ordinary shares Price range Share option scheme and LTIP 2,949,500 Sharesave Scheme 2,442,973 Total 5,392,473 c1.55 – c4.25 GBP£2.90 c1.20/GBP£0.764 As detailed in note 25 to the financial statements 2,168,354 ordinary shares have been purchased for the purpose of the Sharesave Scheme and are held in an employee benefit trust (“the Employees’ Share Trust”) pending exercise of the options. Any further shares required for the Sharesave Scheme will be existing shares purchased by the Employees’ Share Trust. Corporate governance The Board has reviewed the Combined Code, which is appended to the Listing Rules of the Irish Stock Exchange. The Board believes that, except in relation to the composition of the Board, the Audit and Remuneration Committees as noted below, the Company has complied throughout the financial period with the provisions of the Combined Code. Board/Board committees The Company is a subsidiary of Glanbia Co-operative Society Limited (“the Society”) which currently nominates from its Board of Directors, which is elected on a three-year basis, fourteen non-executive Directors for appointment to the Board of the Company in accordance with the Articles of Association. The Society, an Irish industrial and provident society, owns 54.79% of the share capital of the Company and many of its members supply milk and trade with Irish subsidiaries of the Company. All Directors have been advised of their fiduciary duties and of their obligation to bring an independent judgement to bear on issues of strategy, performance, resources, including key appointments and standards of conduct. The roles of the Chairman and Group Managing Director are and always have been separate. Mr JE Callaghan and Mr JV Liston are independent non-executive Directors and Mr Callaghan is the Senior Independent Director. The remaining non-executive Directors are, as stated earlier, nominated by the Board of Glanbia Co-operative Society Limited for appointment to the Board of the Company. Throughout the year to 3 January 2004 the Board had an Audit Committee, a Remuneration Committee and a Nomination Committee each of which has formal terms of reference that have been approved and are reviewed by the Board. Among the areas reviewed by the Audit Committee are the accounting policies and practices adopted in the preparation of the annual and interim financial statements, the scope, cost effectiveness and result of the audit and the independence and objectivity of the auditors. The Committee discusses the scope and outcome of the internal audit programme with the Group Internal Auditor. The auditors meet with the Committee at least once a year without any executives being present. Glanbia plc annual report 2003 23 Report of the Directors continued for the year ended 3 January 2004 Membership of the Audit Committee which comprises non-executive Directors under the chairmanship of Mr Callaghan is set out on page 21 of this Annual Report. The role of the Nomination Committee is to carry out the selection process associated with the appointment of Directors and to make proposals to the Board regarding the appointment of Directors. Directors appointed during the year are required to retire and seek re-appointment at the annual general meeting following their appointment. All Directors are required to submit themselves for re-appointment at intervals of not more than three years. The appointment to the Board of non-executive Directors nominated by Glanbia Co-operative Society Limited (“the Society”) is subject to and co-terminus with their appointments as Directors of the Society and is further subject to their removal as Directors under the Articles of Association. The remaining non-executive Directors are appointed to the Board on the basis of a three-year term, which may be renewed and are also subject to earlier removal under the Articles. Membership of the Nomination Committee which comprises a majority of non-executive Directors under the chairmanship of Mr T Corcoran is set out on page 21 of this Annual Report. Due to the composition of the Board, as explained above, membership of the Board and of the Audit and Remuneration Committees is not composed of the number of independent non-executive Directors required under the Combined Code. Remuneration Remuneration Committee The Remuneration Committee determines, on behalf of the Board, the Company’s framework of executive remuneration and the specific packages and conditions of employment for each of the executive Directors and certain senior executives. The Committee consults the Group Managing Director regarding remuneration proposals and obtains internal and external professional advice as deemed appropriate. The remuneration of the non-executive Directors is determined by the Remuneration Committee within the total amount approved by the Company’s shareholders in general meeting from time to time. The Remuneration Committee operates the Company’s Share Option Schemes. The members of the Remuneration Committee are Messrs T Corcoran (Chairman), JE Callaghan, JV Liston, MJ Walsh and L Herlihy. Remuneration policy Remuneration policy is based on attracting, retaining and motivating executives to ensure that they perform in the best interests of the Company and its shareholders. The Remuneration Committee obtains external advice on remuneration in comparable companies as necessary and has given full consideration to schedules A and B to the Combined Code. Currently the components of the remuneration package for executive Directors are basic salary and benefits, performance- related annual bonus, participation in the LTIP and participation in a defined benefit pension scheme. Executive Directors also participate in the share option scheme of the Company which expired in August 1998. Basic salaries and benefits The basic salaries of executive Directors are reviewed annually with regard to personal performance, competitive market practice or where a change of responsibility occurs. Benefits-in-kind consist principally of a company car. No fees are payable to executive Directors. Performance-related annual bonus The Group operates a performance-related bonus scheme for executive Directors, senior executives and other management. Payments under the scheme for executive Directors depend on the achievement of pre-determined goals for Group performance and an assessment of individual performance against agreed objectives. Long Term Incentive Plan As noted above, in 2002 the shareholders approved the introduction of a Long Term Incentive Plan (“LTIP”) for selected key Group employees in order to further align the interests of key Group personnel with those of shareholders. Under the 2002 LTIP options cannot be exercised before the expiration of three years from the date of grant and can only be exercised if a predetermined performance criterion for the Company has been achieved. The performance criterion is that there has been an increase in the adjusted earnings per share of the Company of at least the increase in the Consumer Price Index plus 5% compounded during a three-year period. To encourage participating executives to hold the shares issued to them on the exercise of their options, share awards specified as a percentage of the shares held may be made on the second and fifth anniversary of the exercise of the option. 24 Glanbia plc annual report 2003 The number of shares which may be the subject of such awards may not exceed 20% and 10% of the number of shares so held on the respective anniversaries. present at the AGM. The level of proxy votes for and against was announced after each resolution had been passed on a show of hands. Benefits under the LTIP are not pensionable. Employee Savings – Related Share Option Scheme In 2002 the shareholders approved an employee Savings- Related Share Option (“Sharesave”) Scheme. The Group encourages eligible employees to save in order to buy shares in the Company. The Sharesave Scheme provides a means of saving and giving employees the opportunity to become shareholders. In 2002 approximately 1,600 employees were granted options under the Sharesave Scheme, no further options were granted in 2003 under the Sharesave Scheme. Going concern After making enquiries the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operation and existence for the foreseeable future, and accordingly they continue to adopt a going concern basis in preparing the financial statements. Internal control The Directors are required by the Combined Code to maintain a sound system of internal control to safeguard shareholders’ investment and the Group’s assets. Pension benefits Pension benefits for executive Directors are calculated on basic salary only. Benefits, which are agreed on appointment, are designed to provide two-thirds of basic salary at retirement for full service. Service contracts No Director has a service contract with a notice period in excess of one year or with provisions for pre-determined compensation on termination which exceeds one year’s salary and benefits-in-kind. Details of Directors’ emoluments and attributable pension benefits are set out in note 9 and details of Directors’ shareholdings and share options are included in note 36 to the financial statements. Shareholders The Company has dialogue with institutional shareholders during the year and immediately following the announcement of the half-year and full-year results, the Company presents these results to investors and analysts. The Company responds to enquiries from all shareholders and welcomes their attendance at the Annual General Meeting. Annual General Meeting The Notice of the 2003 Annual General Meeting was despatched to shareholders not less than 20 working days before the meeting. Separate resolutions were proposed at the meeting on each substantially separate issue, including a resolution to receive and consider the 2002 financial statements and the reports of the Directors and Auditors thereon. The Chairmen of the Audit Committee and the Remuneration Committee were The Board confirms that there are ongoing procedures for identifying, evaluating and managing significant risks faced by the Group. These, or their equivalent, have been in place for the year covered in this Annual Report and Financial Statements and up to the date of its approval and are themselves regularly reviewed by the Board and accord with the Turnbull guidance 1 which the Board has fully adopted. The Board has also reviewed the effectiveness of the current system of internal control specifically for the purposes of this statement. While acknowledging its responsibility for the system of internal control, the Board is aware that such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. The risk appetite of the Group is set by the Board. The strategy for managing risk is formulated by the Group Executive Committee, a management committee of the Group Managing Director, and recommended to the Board. In judging the effectiveness of the Group’s controls, the Board monitors the reports of the Audit Committee and management. Without diminishing its own responsibilities the Board has delegated certain acts to the Audit Committee. These include detailed reviews of key risks inherent in the business and of the systems for managing these risks. The Committee summarises its findings to the Board as required but at least half-yearly. Glanbia plc annual report 2003 25 Report of the Directors continued for the year ended 3 January 2004 The Group’s control systems include: • a Code of Business Practice that defines a set of agreed standards and guidelines for corporate behaviour; • an organisational structure with clearly defined lines of responsibility and delegation of authority; • appropriate terms of reference for Board committees with responsibility for policy areas; • a formal schedule of matters specifically referred to the Board for its decision; • a comprehensive system of financial reporting to the Board, based on an annual budget with monthly reports against actual results, analysis of variances, scrutiny of key performance indicators and regular re-forecasting; • clearly defined guidelines for capital expenditure, including detailed budgeting, appraisal and post-investment review; • a Group Financial Management Manual that clearly sets out the accounting policies and financial control procedures to be followed by Business Units; • a Treasury Risk Management policy approved by the Board which ensures that foreign exchange and interest rate exposures of the Group are managed within defined parameters; • a Group wide risk assessment process which is maintained by Business Unit Management reporting to the Group Executive and Board as required; • a Group Internal Audit function operating globally which monitors and supports the internal financial control system and reports to the Audit Committee and management. Internal audit work is focused on the areas of greatest risk to the Group determined on the basis of a risk management approach to audit; • the Audit Committee, a formally constituted committee of the Board comprising non-executive Directors only, meets with internal and external auditors to satisfy itself that control procedures are in place and are being followed. Finally the Directors, through the use of appropriate procedures and systems, have ensured that measures are in place to secure compliance with the Company’s obligation to keep proper books of account. These books of account are kept at the registered office of the Company. Subsidiary and associated undertakings A list of the principal subsidiary and associated undertakings is included in note 37 to the financial statements. Auditors The auditors PricewaterhouseCoopers have expressed their willingness to continue in office in accordance with Section 160(2) of the Companies Act, 1963. Special business at the Annual General Meeting Notice of the 2004 Annual General Meeting with details of the special business to be considered at the meeting is set out in a separate circular which is enclosed with this Annual Report. Amendment to Articles of Association Shareholders are being asked to increase the maximum number of Directors of the Company to twenty two. Disapplication of pre-emption rights, purchase of Company shares and treasury shares Under the second item of special business, shareholders are being asked to renew the authority to disapply the strict statutory pre-emption provisions in the event of a rights issue or in any other issue up to an aggregate amount of c809,148.96 in nominal value of ordinary shares, representing 4.6% of the nominal value of the Company’s issued ordinary share capital for the time being. This authority will expire on the earlier of the close of business on 17 August 2005 or the date of the Annual General Meeting of the Company in 2005. At the last Annual General Meeting of the Company shareholders passed a resolution to give the Company, or any of its subsidiaries, the authority to purchase up to 10% of its own shares. This authority will expire on 18 May 2004. Under the third item of special business, shareholders are being asked to extend this authority until the earlier of the close of business on 17 August 2005 or the date of the Annual General Meeting of the Company in 2005. While the Directors do not have any current intention to exercise this power, this authority is being sought as it is common practice for public companies. 26 Glanbia plc annual report 2003 As required by the Listing Rules, options to subscribe for a total of 2,949,500 ordinary shares were outstanding on 20 February 2004, representing 1.01% of the issued ordinary share capital at that date. If this share buy-back authority which is being sought from shareholders was used in full, these options would represent 1.12% of the issued ordinary share capital. Shareholders are also being asked under the fourth item of special business to pass a resolution authorising the Company to re-issue such shares purchased by it and not cancelled as treasury shares. Such purchases would be made only at price levels which it considered to be in the best interests of the shareholders generally, after taking into account the Company’s overall financial position. Furthermore the authority being sought from shareholders will provide that the minimum price which may be paid for such shares shall not be less than the nominal value of the shares and the maximum price will be 105% of the then market price of such shares. On behalf of the Board Thomas P Corcoran Chairman John J Moloney Group Managing Director Glanbia House Kilkenny 2 March 2004 1 Guidance for Directors, Internal Control: Guidance for Directors on the Combined Code (the “Turnbull guidance”) published in September 1999. Statement of Directors’ responsibilities Irish company law requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing the financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements are prepared in accordance with accounting standards generally accepted in Ireland and comply with Irish statute comprising the Companies Acts, 1963 to 2001, and the European Communities (Companies: Group Accounts) Regulations, 1992. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The maintenance and integrity of the Glanbia plc web site is the responsibility of the Directors. Glanbia plc annual report 2003 27 Independent Auditors’ Report: To the members of Glanbia plc We have audited the financial statements on pages 29 to 67, which have been prepared under the historical cost convention, (as modified by the revaluation of certain fixed assets) and the accounting policies set out in the statement of accounting policies on pages 35 to 36. Respective responsibilities of Directors and Auditors The Directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable Irish law and accounting standards generally accepted in Ireland are set out on page 27 in the statement of Directors’ responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements, auditing standards issued by the Auditing Practices Board applicable in Ireland and the Listing Rules of the Irish Stock Exchange. This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section 193 of the Companies Act, 1990 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come, save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with Irish statute comprising the Companies Acts, 1963 to 2001, and the European Communities (Companies: Group Accounts) Regulations, 1992. We state whether we have obtained all the information and explanations we consider necessary for the purposes of our audit and whether the Company balance sheet is in agreement with the books of account. We also report to you our opinion as to: • whether the Company has kept proper books of account; • whether the Directors’ Report is consistent with the financial statements; and • whether at the balance sheet date there existed a financial situation which may require the Company to convene an extraordinary general meeting; such a financial situation may exist if the net assets of the Company, as stated in the Company balance sheet, are not more than half of its called-up share capital. We also report to you if, in our opinion, information specified by law or the Listing Rules regarding Directors’ remuneration and transactions is not disclosed. We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the Directors’ Report, the Chairman’s Statement, the Group Managing Director’s Review, the Group Financial Directors Review and the Corporate Governance statement. We review whether the Corporate Governance statement on pages 23 to 26 reflects the Company’s compliance with the seven provisions of the Combined Code specified for our review by the Listing Rules, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls or to form an opinion on the effectiveness of the Company’s or Group’s corporate governance procedures or its risk and control procedures. Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion, the financial statements give a true and fair view of the state of affairs of the Company and the Group at 3 January 2004 and of the loss and cash flows of the Group for the year then ended and have been properly prepared in accordance with the Companies Acts, 1963 to 2001, and the European Communities (Companies: Group Accounts) Regulations, 1992. We have obtained all the information and explanations we consider necessary for the purposes of our audit. In our opinion, proper books of account have been kept by the Company. The Company balance sheet is in agreement with the books of account. In our opinion, the information given in the Directors’ Report on pages 22 to 27 is consistent with the financial statements. The net assets of the Company, as stated in the Company balance sheet on page 32, are more than half the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 3 January 2004 a financial situation which, under Section 40(1) of the Companies (Amendment) Act, 1983, would require the convening of an extraordinary general meeting of the Company. PricewaterhouseCoopers Chartered Accountants and Registered Auditors Waterford 2 March 2004 28 Glanbia plc annual report 2003 Consolidated Profit and Loss Account for the year ended 3 January 2004 Notes Pre- exceptional 2003 E’000 Exceptional 2003 E’000 Total 2003 E’000 Pre- exceptional 2002 c’000 Exceptional 2002 c’000 Total 2002 c’000 2,386,437 (69,699) 2,316,738 (2,010,118) 306,620 (127,339) (90,693) 88,588 2,947 91,535 (25,610) – 13,754 (68,064) (19,206) Turnover Less share of turnover of joint venture Group turnover Cost of sales Gross profit Distribution costs Administrative expenses 2,109,760 (68,687) 2,041,073 (1,773,537) – – – – 2,109,760 (68,687) 2,386,437 (69,699) 2,041,073 (1,773,537) 2,316,738 (2,010,118) 267,536 (94,697) (80,970) – – (16,451) 267,536 (94,697) (97,421) 306,620 (127,339) (90,693) 1 3 Group operating profit Share of operating profit of joint venture and associates 91,869 (16,451) 75,418 88,588 916 – 916 2,947 – – – – – – – – – Operating profit including joint venture and associates Loss on sale of operations 4 Provision for loss on sale of operation 5 Profit on sale of fixed assets 6 Loss on termination of operations 7 Group interest 8 Share of interest of joint venture and associates 92,785 – – – – (15,023) (16,451) (28,190) (49,146) 11,594 (9,827) – 76,334 (28,190) (49,146) 11,594 (9,827) (15,023) 91,535 – – – – (19,206) – (25,610) – 13,754 (68,064) – (627) – (627) (521) – (521) Profit/(loss) before taxation Taxation 9 10 77,135 (10,272) (92,020) 1,546 (14,885) (8,726) 71,808 (7,939) (79,920) – (8,112) (7,939) Profit/(loss) after taxation 66,863 (90,474) (23,611) 63,869 (79,920) (16,051) Equity minority interest Non-equity minority interest Loss for the year Dividends Loss absorbed for the year Earnings per share Fully diluted earnings per share Adjusted earnings per share 11 12 13 13 13 On behalf of the Board TP Corcoran JJ Moloney GJ Meagher Directors (251) (11,005) (34,867) (14,515) (49,382) (12.01c) (12.01c) 19.26c (677) (12,619) (29,347) (13,833) (43,180) (10.06c) (10.06c) 17.44c Glanbia plc annual report 2003 29 2003 E’000 2002 c’000 (14,885) (8,112) 4,125 4,544 (10,760) (3,568) (45,257) (38,636) 2003 E’000 2002 c’000 (34,867) (29,347) 5,520 3,127 (29,347) (26,220) 2003 E’000 (34,867) (14,515) (49,382) 5,520 41,688 318 2002 c’000 (29,347) (13,833) (43,180) 3,127 49,607 3,191 (1,856) 181,297 12,745 168,552 179,441 181,297 Consolidated Profit and Loss Account (continued) for the year ended 3 January 2004 Note of historical cost profits and losses Loss before taxation Difference between historical cost depreciation charge and actual depreciation charge Historical cost loss before taxation Historical cost loss absorbed for the year Statement of total recognised gains and losses Loss for the year Currency translation difference on foreign currency net investments Total recognised losses for the year Reconciliation of movements in shareholders’ funds Loss for the year Dividends Other recognised gains Goodwill on disposal Currency translation adjustment on goodwill reserves Net change in shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds On behalf of the Board TP Corcoran JJ Moloney GJ Meagher Directors 30 Glanbia plc annual report 2003 Consolidated Balance Sheet as at 3 January 2004 Assets employed Fixed assets Tangible assets Goodwill Financial assets Investments in joint venture: Share of gross assets Share of gross liabilities Investments in associates Other investments Current assets Stocks Debtors Cash and bank balances Notes 2003 E’000 2002 c’000 14 15 363,641 2,466 416,826 4,420 16 16 17 18 19 40,542 (27,598) 12,944 9,607 15,903 30,527 (17,426) 13,101 9,101 14,252 38,454 36,454 404,561 457,700 202,736 210,402 59,775 472,913 180,022 226,838 90,953 497,813 Creditors – Amounts falling due within one year 20 348,751 317,442 Net current assets Total assets less current liabilities Less: Non-current liabilities Creditors – Amounts falling due after more than one year Provisions for liabilities and charges Deferred taxation Capital grants Capital and reserves Called up equity share capital Share premium account Merger reserve Revenue reserves Capital reserve Equity shareholders’ funds Equity minority interests Non-equity minority interests On behalf of the Board TP Corcoran JJ Moloney GJ Meagher Directors 124,162 180,371 528,723 638,071 22 183,682 275,407 23 24 25 26 27 28 29 30 30 27,559 16,611 23,723 18,505 300,871 320,436 17,551 80,005 113,148 (34,088) 2,825 179,441 5,671 115,759 17,551 80,005 113,148 (32,232) 2,825 181,297 6,983 132,156 300,871 320,436 Glanbia plc annual report 2003 31 Notes 2003 E’000 2002 c’000 16 519,516 518,325 19 20 944 133 1,077 43,243 5,124 94 5,218 56,396 (42,166) (51,178) 477,350 467,147 22 3,397 1,905 473,953 465,242 25 26 28 29 17,551 435,273 16,903 4,226 17,551 435,273 8,192 4,226 473,953 465,242 Company Balance Sheet as at 3 January 2004 Assets employed Fixed assets Financial assets Current assets Debtors Cash and bank balances Creditors – Amounts falling due within one year Net current liabilities Total assets less current liabilities Less non-current liabilities Creditors – Amounts falling due after more than one year Capital and reserves Called up equity share capital Share premium account Revenue reserves Capital reserve On behalf of the Board TP Corcoran JJ Moloney GJ Meagher Directors 32 Glanbia plc annual report 2003 Notes (a) Consolidated Cash Flow Statement for the year ended 3 January 2004 Net cash inflow from operating activities Returns on investments and servicing of finance Interest received Interest paid Finance lease interest Dividends paid to equity minority interest Dividends paid to non-equity minority interest Taxation Capital expenditure and financial investment Purchase of fixed assets Disposal of fixed assets (Purchase)/disposal of investments Acquisitions and disposals Purchase of subsidiary undertakings Disposal of subsidiary undertakings Termination of operations Fire insurance proceeds (net of redundancy and other costs) Equity dividends paid Cash inflow before management of liquid resources and financing Financing Decrease in term loans Decrease in finance leases Minority interest redeemed Capital grants received Decrease in cash in year Reconciliation of net cash flow to movement in net debt Decrease in cash in year Decrease in debt and finance leasing Change in net debt resulting from cash flows Translation difference Movement in net debt in year Net debt at 4 January 2003 Net debt at 3 January 2004 (b) 2003 E’000 277 (16,676) (149) (1,463) (10,295) (41,741) 2,629 (2,410) – 795 (1,851) 7,332 (34,478) (987) (100) 5 2003 E’000 94,507 2002 c’000 126,558 2002 c’000 913 (20,938) (211) (123) (28,306) (11,690) (32,049) (9,816) (4,990) (35,018) 6,377 10,705 (677) 1,184 (8,648) – (76,658) (1,024) – 11 (17,936) (8,141) (13,533) 49,909 (77,671) (27,762) (27,762) 77,682 49,920 16,431 66,351 (242,659) (176,308) (41,522) 6,276 (14,080) 7,059 (35,560) (28,501) (28,501) 35,465 6,964 15,547 22,511 (176,308) (153,797) Glanbia plc annual report 2003 33 Notes to Consolidated Cash Flow Statement for the year ended 3 January 2004 (a) Net cash inflow from operating activities Group operating profit (before exceptional items) Reorganisation and merger costs Profit on disposal of fixed assets Depreciation Capital grants released (Increase)/decrease in stocks (Increase)/decrease in debtors Increase/(decrease) in creditors Goodwill amortisation (b) Analysis of net debt Net cash Cash at bank and in hand Debt Debt Finance leases 2003 E’000 2002 c’000 91,869 88,588 (338) (415) 38,125 (1,443) (35,004) (2,333) 3,749 297 (775) (885) 53,072 (1,670) 27,850 34,185 (74,120) 313 94,507 126,558 At 4 January 2003 c’000 Cash flow c’000 Exchange movement c’000 At 3 January 2004 E’000 90,953 (28,501) (2,677) 59,775 (264,652) (2,609) 34,478 987 18,224 (211,950) – (1,622) (267,261) 35,465 18,224 (213,572) Net debt (176,308) 6,964 15,547 (153,797) Analysed as follows: Cash and bank balances Loans due within one year Finance leases due within one year Finance leases due after one year Loans due after one year 90,953 – (1,117) (1,492) (264,652) (176,308) 59,775 (42,523) (698) (924) (169,427) (153,797) 34 Glanbia plc annual report 2003 Accounting Policies The significant accounting policies adopted by the Group are as follows: (a) Basis of preparation The financial statements have been prepared in accordance with accounting standards generally accepted in Ireland and Irish statute comprising the Companies Acts, 1963 to 2001. Accounting standards generally accepted in Ireland in preparing financial statements giving a true and fair view are those published by the Institute of Chartered Accountants in Ireland and issued by the Accounting Standards Board. These financial statements are prepared for a 52 week period ending on 3 January 2004, comparatives are for the 53 week period ended 4 January 2003. The balance sheets for 2003 and 2002 have been drawn up as at 3 January 2004 and 4 January 2003 respectively. The results to 3 January 2004 are referred to as 2003 results. (b) Basis of consolidation The Group financial statements, which are stated in euro, are prepared under the historical cost convention as modified by the revaluation of certain fixed assets. They incorporate: (i) The financial statements of Glanbia plc and its subsidiaries including results of subsidiaries acquired from the date of their acquisition. (ii) The Group’s share of the results and net assets of associated companies and joint ventures based on the equity and gross equity methods of accounting respectively. Inter-group sales and profits have been eliminated on consolidation. (c) Turnover Turnover comprises the invoiced value, excluding value added tax, of goods supplied and services rendered. Certain dairy products are sold based on “on account” price agreements which are subject to adjustment when the final prices are agreed. (d) Earnings per share Earnings per share represents the profit in cent attributable to each equity share, based on the consolidated profit after tax, minority interests and preference dividends, divided by the weighted average number of equity shares in issue in respect of the period. Adjusted earnings per share is calculated by excluding exceptional items and goodwill amortisation. In calculating fully diluted earnings per share, the difference between the number of shares issued on exercise of all options and the number of shares that would have been issued at fair value is regarded as dilutive. (e) Stocks Stocks are valued at the lower of cost or net realisable value. Cost in the case of raw materials, bought-in goods and expense stock comprises purchase price plus transport and handling costs less discounts, rebates and subsidies. Cost in the case of products manufactured by the Group consists of direct material and labour costs together with the relevant production overheads based on normal levels of activity. Net realisable value represents the estimated selling price less costs to completion and appropriate selling and distribution costs. (f) Debtors Provision is made for all debts, the collection of which is considered doubtful. In arriving at this provision, account is taken of the age profile of the debt and its adherence to credit terms. (g) Fixed assets and depreciation (i) Assets acquired under finance leases are included in fixed assets on the basis given in the accounting policy on leasing, less accumulated depreciation. (ii) Other fixed assets are stated at cost or valuation less accumulated depreciation. As detailed in note 14, the Group revalued its land, buildings, plant and equipment (excluding leased plant) as at 31 December 1992 and 3 January 1993. On adoption of FRS 15, the Group followed the transitional provisions to retain the book value of the assets that were revalued, but not to adopt a policy of revaluation in the future. (iii) Depreciation is calculated on all fixed assets, other than freehold land, on a straight line basis by reference to the expected useful lives of the assets concerned, or the period of any related finance lease, whichever is the shorter. Interest incurred on payments on account of major fixed tangible assets under construction is included in the cost of these assets. (iv) (v) Any surplus or deficit on realisation of revalued assets is calculated by reference to their carrying value, and is dealt with through the profit and loss account. (h) Financial fixed assets Financial fixed assets are shown at cost less provisions for permanent diminution in value. Income from financial fixed assets, is recognised in the profit and loss account in the year in which it is receivable. (i) Capital grants Capital grants received and receivable by the Group are credited to capital grants accounts and are transferred to the profit and loss account over the expected useful lives of the assets to which they relate. (j) Leasing Tangible fixed assets, acquired under a lease which transfers substantially all of the risks and rewards of ownership to the Group, are capitalised as a fixed asset. Amounts payable under such leases (finance leases), net of finance charges, are shown as short or medium term borrowings, as appropriate. Finance charges on finance leases are charged to the profit and loss account over the term of the lease on an actuarial Glanbia plc annual report 2003 35 Accounting Policies (continued) basis. All other leases are operating leases and the annual rentals are charged to the profit and loss account. (k) Taxation Corporation tax is calculated on the results for the year after taking account of manufacturing and similar reliefs, capital allowances and group relief. (l) Deferred taxation In accordance with FRS 19, deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax is not provided on unremitted earnings of subsidiaries, associates and joint ventures where there is no commitment to remit these earnings, or on the revaluation of assets, such as property, unless a binding sales agreement exists at the balance sheet date. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. (m) Foreign exchange and hedging (i) Monetary assets and liabilities in foreign currencies are translated into euro at the exchange rates ruling at the balance sheet date. All hedging instruments are matched with their underlying hedge item. Each instrument’s gain or loss is brought into the profit and loss account, at the same time and in the same place as is the matched underlying asset, liability, income or cost. For foreign exchange instruments this will be in operating profit matched against the relevant purchase or sale, and for interest rate instruments, within interest payable or receivable over the life of instrument, or relevant interest period. The profit or loss on an instrument may be deferred if the hedged transaction is expected to take place or would normally be accounted for in a future period. (ii) Exchange adjustments arising on: (a) (b) the retranslation of the net investment in foreign subsidiaries and; forward contracts and borrowings used to hedge net equity investments in foreign subsidiaries, are transferred directly to reserves, and reflected in the statement of total recognised gains and losses. asset or liability. Any profit or loss arising on such early termination is accounted for over the remaining life of the underlying hedged asset or liability. If the matched underlying asset or liability prematurely ceases to exist, or is no longer considered likely to exist prior to the maturity date of any associated financial instrument held as a hedge, the hedging instrument is terminated and any profit or loss arising together with any incurred and unamortised premia or fees are recognised in the profit and loss account at that time. Instruments which cease to be recognised as hedges are marked to market. (iv) All other gains and losses arising from changes in exchange rates are dealt with through the profit and loss account in the year in which they occur. (n) Goodwill Goodwill represents the difference between: (i) The fair value attributable to the net separable assets of undertakings acquired; and (ii) The fair value of the acquisition consideration. With effect from 4 January 1998, goodwill is capitalised and classified as an asset on the balance sheet. Goodwill is amortised on a straight line basis over its useful economic life (not exceeding twenty years) which has been determined by reference to the periods over which the value of the underlying businesses are expected to exceed the values of their identifiable net assets. Goodwill on acquisitions which arose before 4 January 1998, remains offset against revenue reserves. On subsequent disposal of such businesses any related goodwill is taken into account in determining the profit or loss on disposal. (o) Research and development expenditure All expenditure on research and development is written off to the profit and loss account in the year in which it is incurred. (p) Pension schemes The Group’s pension schemes, both contributory and non-contributory, are funded over the employees’ period of service. The Group’s contributions are based on the most recent actuarial valuation of the funds. The disclosures required under the transitional arrangements of Financial Reporting Standard 17 “Retirement Benefits” for the year ended 3 January 2004 are shown in note 34. (iii) All premia or fees, paid or received in respect of a financial instrument held as a hedge are accounted for over the originally anticipated life of the underlying hedged asset or liability even if the financial instrument is subsequently terminated prior to maturity of the underlying hedged (q) Finance costs of capital instruments Costs incurred in connection with the issue of debt and non-equity shares are charged to the profit and loss account on an annual basis over the lives of the related instruments. 36 Glanbia plc annual report 2003 Notes to the Financial Statements 3 January 2004 1 Segmental analysis (a) Analysis by class of business Turnover Consumer Foods Food Ingredients Agribusiness 2003 E’000 900,411 906,210 234,452 2002 c’000 1,175,114 910,075 231,549 2,041,073 2,316,738 Total turnover for Food Ingredients was c1,079.120m (2002: c1,099.481m) of which c172.910m (2002: c189.406m) represented inter-segment sales and c906.210m (2002: c910.075m) comprised sales to third parties. Inter-segment sales within Consumer Foods and Agribusiness were not material. Pre-exceptional operating profit including share of profits of joint venture and associates Consumer Foods Food Ingredients Agribusiness Net assets Consumer Foods Food Ingredients Agribusiness Unallocated liabilities Total net assets 2003 E’000 44,773 33,765 14,247 2002 c’000 47,590 30,051 13,894 92,785 91,535 2003 E’000 194,454 187,318 72,896 454,668 2002 c’000 209,146 211,673 75,925 496,744 (153,797) (176,308) 300,871 320,436 Glanbia plc annual report 2003 37 Notes to the Financial Statements (continued) 3 January 2004 1 Segmental analysis (continued) (b) Analysis by geographical segments Turnover by destination Ireland Rest of Europe USA/other Turnover by origin Ireland Rest of Europe USA/other Pre-exceptional operating profit including share of profits of joint venture and associates Ireland Rest of Europe USA/other Net assets Ireland Rest of Europe USA/other Unallocated liabilities Total net assets 2003 E’000 793,753 653,747 593,573 2002 c’000 837,533 885,703 593,502 2,041,073 2,316,738 2003 E’000 2002 c’000 1,132,431 1,163,733 459,028 449,614 686,667 466,338 2,041,073 2,316,738 2003 E’000 74,178 3,894 14,713 2002 c’000 58,597 12,072 20,866 92,785 91,535 2003 E’000 296,717 101,204 56,747 2002 c’000 290,232 135,308 71,204 454,668 496,744 (153,797) (176,308) 300,871 320,436 The Directors consider segmental analysis of operating profit to be more meaningful than analysis of profit/(loss) before taxation. 2 Employees and remuneration The average number of persons employed by the Group during the year was 5,052 (2002: 6,416) and is analysed into the following categories: Number of persons employed Consumer Foods Food Ingredients Agribusiness 38 Glanbia plc annual report 2003 2003 2002 3,371 969 712 4,794 923 699 5,052 6,416 2 Employees and remuneration (continued) The staff costs are comprised of: Wages and salaries Social welfare costs Pension costs 3 Exceptional items Redundancy cost arising from fire at Roosky plant (note 6) Restructuring cost associated with EU Commission’s Mid Term Review of Common Agricultural Policy 2003 E’000 170,224 17,774 8,796 2002 c’000 209,632 20,372 7,002 196,794 237,006 2003 E’000 (9,505) (6,946) (16,451) 2002 c’000 – – – 4 Loss on sale of operations The loss arises primarily from the sale by the Group of its UK Fresh Meats operation at West Bromwich. The Group also disposed of a pig farm during the year, and recognised an additional loss representing increased pension obligations to former employees, of the UK Dairies operation which was disposed of in a prior period. Loss on disposal of asset Goodwill write-back to profit and loss account on sale Goodwill written off on sale Fresh Meats c’000 UK Dairies c’000 Pig Farm c’000 Total E’000 (10,852) (5,417) (651) (16,920) (10,262) (99) – – (909) – (11,171) (99) (21,213) (5,417) (1,560) (28,190) The loss on sale in 2002 arose mainly from the Group’s sale of its UK Foodservice distribution business in August 2002. The Group also sold two farms during 2002. 5 Provision for loss on sale of operation The provision arises from the sale by the Group of a 75% interest in its UK hard cheese business (Glanbia Foods Limited), which was announced on 23 February 2004. Loss on disposal of asset after year end Write-back of goodwill on asset disposed after year end 2003 E’000 (18,629) (30,517) (49,146) 2002 c’000 – – – Glanbia plc annual report 2003 39 Notes to the Financial Statements (continued) 3 January 2004 6 Profit on sale of fixed assets The profit arises from the excess of insurance proceeds received over the net book value of assets destroyed by fire at the pigmeat processing plant in Roosky, Ireland on 8 May 2002. On disposal of investments Profit on disposal of tangible assets 2003 E’000 – 11,594 2002 c’000 13,396 358 11,594 13,754 The Directors have taken the decision not to reinstate the processing plant at Roosky but rather to restore the lost capacity at the two remaining pig processing plants, with the result that a redundancy cost of c9,505k has been incurred during the year (note 3). 7 Loss on termination of operations The loss arises from the decision to close the Group’s UK Fresh Meats operation at Drongan and Gainsborough, and an adjustment relating to the loss arising from the closure of the Group’s UK Consumer Meats operation in June 2002. 2003 E’000 Loss arising on termination of operations Goodwill write-back to profit and loss account on termination Goodwill written off on termination (8,578) – (1,249) 2002 c’000 (30,370) (37,694) – 8 Group interest Loans and overdrafts: Repayable within five years Senior notes Finance leases Interest receivable 9 Profit/(loss) before taxation (a) The profit/(loss) before taxation is stated after charging/(crediting): Depreciation Auditors’ remuneration Research and development expenditure (net of grants) Operating lease rentals – plant and machinery – other Capital grants released 40 Glanbia plc annual report 2003 (9,827) (68,064) 2003 E’000 2002 c’000 (7,362) (7,735) (149) 223 (11,314) (8,679) (211) 998 (15,023) (19,206) 2003 E’000 2002 c’000 38,125 53,072 564 615 4,695 5,483 4,348 3,756 6,326 6,865 (1,443) (1,670) 9 Profit/(loss) before taxation (continued) (b) Directors’ remuneration The salary, fees and other benefits for each of the Directors during the year were: Salary and fees c’000 Performance bonus c’000 Short term incentive plan c’000 Pension contribution c’000 Other benefits c’000 Executive Directors JJ Moloney WG Murphy GJ Meagher KE Toland (note (a)) 2003 2002 Non-Executive Directors TP Corcoran MJ Walsh L Herlihy JE Callaghan JV Liston HV Corbally EP Fitzpatrick JA Gilsenan TP Heffernan CL Hill JJ Miller M Parsons EM Power F Quigley V Quinlan GE Stanley 2003 2002 329 217 208 227 981 644 70 32 32 38 38 13 13 13 13 13 13 13 13 13 13 13 353 337 216 148 143 125 632 332 – – – – – – – – – – – – – – – – – – 2003 Total remuneration 1,334 2002 Total remuneration 981 632 332 – – – – – 62 – – – – – – – – – – – – – – – – – – – 62 76 64 61 65 266 158 – – – – – – – – – – – – – – – – – – 266 158 10 21 19 17 67 44 – – – – – – – – – – – – – – – – – – 67 44 2003 Total E’000 631 450 431 434 1,946 70 32 32 38 38 13 13 13 13 13 13 13 13 13 13 13 353 2,299 2002 Total c’000 466 393 381 – 1,240 70 32 32 38 22 13 13 13 13 13 13 13 13 13 13 13 337 1,577 Glanbia plc annual report 2003 41 Notes to the Financial Statements (continued) 3 January 2004 9 Profit/(loss) before taxation (continued) (b) Directors’ remuneration (continued) (a) Mr KE Toland was appointed a Director on 10 January 2003. (b) No fees are payable to executive Directors. The performance bonus refers to payments to executive Directors based on individual and Group performance. The Short Term Incentive Plan (“STIP”) was introduced in 2001 for executive Directors as part of an overall plan to align the interests of all senior management more fully with shareholders interests. The STIP ceased in August 2002, at which time the executive Directors were granted share options under the Company’s 2002 Long Term Incentive Plan. (c) Details of Directors’ share options are set out in note 36 to the financial statements. (d) The Remuneration Committee of the Board, which comprises solely of non-executive Directors, determines the Company’s policy on executive Director remuneration and sets the remuneration package of each of the executive Directors. There are no contracts of service for executive Directors which are required to be made available for inspection. The following pension benefits accrued to executive Directors of the Company: JJ Moloney WG Murphy GJ Meagher KE Toland 2003 2002 Transfer value of increase in accrued pension c’000 Annual pension accrued in 2003 in excess of inflation c’000 Total annual accrued pension at 3 January 2004 c’000 413 140 88 27 668 465 34 7 6 5 52 32 151 142 119 28 440 337 42 Glanbia plc annual report 2003 Pre- exceptional 2002 c’000 Exceptional 2002 c’000 10 Taxation Pre- exceptional 2003 E’000 Exceptional 2003 E’000 4,031 (457) 3,574 345 (453) (108) – 136 3,602 7,112 (442) – – – – – – – – – (1,546) – 6,670 (1,546) 10,272 (1,546) Irish corporation tax Current tax on income for the year Adjustments in respect of prior years Foreign tax Current tax on income for the year Adjustments in respect of prior years Share of current tax of joint venture Share of tax of associates Total current tax Deferred tax Group Joint venture Total deferred tax Total tax charge Total 2003 E’000 4,031 (457) 1,680 37 3,574 1,717 345 (453) 1,851 (537) (108) 1,314 – 136 169 92 3,602 3,292 5,566 (442) 5,124 8,726 4,809 (162) 4,647 7,939 Total 2002 c’000 1,680 37 1,717 1,851 (537) 1,314 169 92 3,292 4,809 (162) 4,647 7,939 – – – – – – – – – – – – – The current tax charge for the year is lower than the current charge that would result from applying the standard rate of Irish corporation tax to profit on ordinary activities. The differences are explained below: Profit on ordinary activities before taxation Profit on ordinary activities multiplied by standard rate of Irish corporation tax of 12.5% (2002: 16%) Effects of: Earnings at reduced and passive Irish rates Excess of depreciation over capital allowances Other deferred tax timing differences Utilisation of tax losses Difference in effective tax rates on overseas earnings Adjustments to tax charge in respect of previous periods Expenses not deductible for tax purposes and other adjustments Current tax charge for the year, including associates Group Associates and joint venture 2003 E’000 2002 c’000 77,135 71,808 9,642 11,489 (819) 1,187 (1,339) (2,849) (1,887) (910) 577 (1,650) 2,054 (2,896) (2,664) (2,959) (500) 418 3,602 3,292 3,466 136 3,031 261 3,602 3,292 Glanbia plc annual report 2003 43 Notes to the Financial Statements (continued) 3 January 2004 11 Profit attributable to Glanbia plc Of the loss for the year of c34.867m (2002: c29.347m), profits of c23.226m (2002: c17.371m) have been dealt with in the financial statements of Glanbia plc, the holding Company. A separate profit and loss account has not been prepared for the holding Company because the conditions laid down in Section 3(2) of the Companies (Amendment) Act, 1986 have been complied with. 12 Dividends Interim dividend paid ordinary shares Less credit for own shares held by Employee Share Trust Final dividend proposed Ordinary shares Less credit for own shares held by Employee Share Trust Total ordinary dividends for the year 13 Earnings per share Loss after taxation and minority interest 2003 cent per share 2.06 – 2.06 2.94 – 2.94 5.00 2003 E’000 6,026 (46) 5,980 8,600 (65) 8,535 14,515 2002 cent per share 1.96 – 1.96 2.80 – 2.80 4.76 2002 c’000 5,733 – 5,733 8,191 (91) 8,100 13,833 2003 E’000 2002 c’000 (34,867) (29,347) Weighted average number of ordinary shares in issue 290,303,425 291,702,675 Earnings per share Adjustments: Goodwill amortisation Exceptional items Loss on sale of operations Provision for loss on sale of operations Profit on sale of fixed assets Loss on termination of operations Adjusted earnings per share Fully diluted earnings per share (12.01c) (10.06c) 0.10c 5.13c 9.71c 16.93c (3.99c) 3.39c 0.11c – 8.78c – (4.72c) 23.33c 19.26c 17.44c (12.01c) (10.06c) In the opinion of the Directors, adjusted earnings per share is a more appropriate indicator of underlying performance. 44 Glanbia plc annual report 2003 14 Tangible assets – Group Cost or valuation As at 4 January 2003 Currency translation adjustment Additions Disposals Reclassification Write down arising from termination of operations Land and buildings c’000 Plant and equipment c’000 Motor vehicles c’000 235,452 (10,340) 8,451 (21,401) 169 (5,396) 585,553 15,490 (26,159) 29,697 (26,779) (1,964) (765) 85 498 (63) 1,795 – Total E’000 836,495 (36,414) 38,646 (48,243) – (6,161) As at 3 January 2004 206,935 559,583 17,805 784,323 Depreciation As at 4 January 2003 Charged to profit and loss account Currency translation adjustment On disposals Reclassification As at 3 January 2004 Net book value As at 3 January 2004 As at 4 January 2003 63,069 7,718 (2,312) (5,851) 20 342,445 29,970 (11,927) (17,084) (1,846) 14,155 437 102 (40) 1,826 419,669 38,125 (14,137) (22,975) – 62,644 341,558 16,480 420,682 144,291 218,025 1,325 363,641 172,383 243,108 1,335 416,826 (a) Included in the net book values of plant and equipment are assets acquired under lease agreements with a net book value of c16,560,000 (2002: c20,370,000). The depreciation charged in respect of these leased assets and included in the total depreciation charge above was c3,734,000 (2002: c3,483,000). (b) A valuation of former Avonmore freehold land and buildings, plant and equipment (excluding leased plant) was carried out by Messrs Lisney, Valuers, as at 3 January 1993. The valuation was based on open market value in existing use, and where appropriate, on open market value calculated on a depreciated replacement cost basis. The valuation supported the overall value of the assets valued. The valuers also estimated the remaining useful lives of the assets which have been used in determining the depreciation rates set out below. (c) Land and buildings, plant and equipment of the former Waterford operations were valued by Fergus Slattery Rushton, Surveyors and Valuers, on 31 December 1992, on an existing use basis incorporating the depreciated replacement cost, and open market value methods. Subsequent additions are stated at cost. (d) The main rates of depreciation used in these financial statements are as follows: Buildings Plant and equipment Motor vehicles % 3 – 5 5 – 33 20 – 25 (e) As required under FRS 15, a review of the useful lives of the Group’s plant and equipment was carried out during the year with a resultant reduction in the depreciation charge of c5,771,000, as compared with the original useful lives. Glanbia plc annual report 2003 45 Notes to the Financial Statements (continued) 3 January 2004 15 Goodwill – Group At 4 January 2003 Goodwill on disposal Currency translation adjustment Amortised to profit and loss account At 3 January 2004 The cumulative goodwill amortised at 3 January 2004 was c1,389,000 (2002: c1,092,000). 2003 E’000 4,420 (1,348) (309) (297) 2002 c’000 5,042 – (309) (313) 2,466 4,420 16 Financial assets Company At 4 January 2003 Additions Disposals At 3 January 2004 Group At 4 January 2003 Additions Share of retained profit Disposals/redemption Transfers Amounts written off Currency translation adjustment Subsidiaries c’000 Associates c’000 Other investments (note 17) c’000 Total E’000 513,544 1,395 – – – – 3,386 1,492 (301) 518,325 1,492 (301) 513,544 1,395 4,577 519,516 Joint venture c’000 Associates c’000 Other investments (note 17) c’000 13,101 9,101 680 167 – – – (1,004) – 428 – 78 – – 14,252 2,302 – (608) – (43) – Total E’000 36,454 2,982 595 (608) 78 (43) (1,004) At 3 January 2004 12,944 9,607 15,903 38,454 46 Glanbia plc annual report 2003 17 Other investments Own shares Irish Dairy Board Moorepark Technology Quoted investments Glanbia Enterprise Fund Limited Other Market value Quoted investments (including own shares) 2003 Company E’000 2003 Group E’000 2002 Company c’000 2,868 – – 19 1,690 – 2,868 9,425 331 80 1,690 1,509 3,169 – – 19 198 – 2002 Group c’000 3,169 9,692 373 80 198 740 4,577 15,903 3,386 14,252 5,140 5,657 3,387 3,704 The amount included above as own shares relates to 2,168,354 ordinary shares in Glanbia plc held by an Employee Share Trust. The Employee Share Trust was established in May 2002 to operate in connection with the Company’s Savings Related Share Option Scheme (“Sharesave Scheme”). The trustee of the Employee Share Trust is Mourant & Co., a Jersey based trustee services company. The shares purchased by the Employee Share Trust cost c3,202,121 and had a market value of c4,727,012 at 3 January 2004 (2002: c3,221,900). The shares are being written down to the option price of c1.20 (GBP£0.764) over the period to the earliest date on which the options granted under the Sharesave Scheme can be exercised. The purpose of the Sharesave Scheme, which is open to Irish and UK employees, is to provide a tax efficient method for employees to save money for the purpose of acquiring shares in the Company. To participate in the Sharesave Scheme in 2002, employees agreed to save a fixed amount between c12 and c320 (GBP£10 and GBP£250 in the UK) each month for a three year period in a Revenue approved Save as You Earn (“SAYE”) contract. As detailed in note 25 to the financial statements, options over 2,988,622 ordinary shares were granted in 2002 under the Sharesave Scheme of which options over 2,442,973 ordinary shares remain outstanding at 3 January 2004. The options granted in 2002 are exercisable, under normal circumstances, between 2005 and 2006. No further options were granted in 2003 under the Sharesave Scheme. In the opinion of the Directors, the value of the unquoted investments is not less than as shown above. Glanbia plc annual report 2003 47 Notes to the Financial Statements (continued) 3 January 2004 18 Stocks – Group Raw materials and other stocks Finished goods and goods for resale Expense stocks The replacement cost of stocks is not materially different from the above amounts. 2003 E’000 11,375 174,751 16,610 2002 c’000 6,898 157,854 15,270 202,736 180,022 19 Debtors Amounts falling due within one year Trade debtors Amounts due by joint venture Amounts due by associated companies Value added tax Other debtors Prepayments and accrued income Amounts due from/(to) parent Glanbia Co-operative Society Limited Amounts falling due after one year Pension prepayment/surplus 2003 Company E’000 2003 Group E’000 2002 Company c’000 2002 Group c’000 – – – – – 913 148,349 9,043 128 5,119 17,119 20,257 – – – – – 153,144 6,230 140 5,109 7,222 1,011 30,455 31 (3,695) 4,113 (802) – 14,082 – 25,340 944 210,402 5,124 226,838 48 Glanbia plc annual report 2003 20 Creditors – Amounts falling due within one year Trade creditors Amounts due to associated companies Other creditors (note 21) Accruals and deferred income Borrowings (note 38) Bills of exchange Dividend payable (note 12) Amounts due to subsidiary companies 21 Other creditors Corporation tax PAYE and PRSI Other creditors 22 Creditors – Amounts falling due after more than one year Borrowings (note 38) Other creditors 2003 Company E’000 2003 Group E’000 2002 Company c’000 113 – – 1,505 – – 8,535 33,090 141,517 1,406 21,161 111,370 43,221 20,189 9,887 – 55 – – 1,222 – – 8,100 47,019 2002 Group c’000 144,614 1,208 27,807 112,614 1,117 20,630 9,452 – 43,243 348,751 56,396 317,442 2003 Company E’000 – – – – 2003 Group E’000 8,276 3,532 9,353 21,161 2002 Company c’000 – – – – 2002 Group c’000 14,535 3,486 9,786 27,807 2003 Company E’000 2003 Group E’000 2002 Company c’000 2002 Group c’000 3,397 – 170,351 13,331 1,905 – 266,144 9,263 3,397 183,682 1,905 275,407 The maturity profile of the Group’s borrowings is analysed in note 38. The Company’s borrowings are due between one and five years. Glanbia plc annual report 2003 49 Notes to the Financial Statements (continued) 3 January 2004 23 Deferred taxation – Group Liability at 4 January 2003 Translation difference Receipt from joint venture Profit and loss account Liability at 3 January 2004 2003 E’000 23,723 (2,728) 998 5,566 2002 c’000 21,109 (2,195) – 4,809 27,559 23,723 The receipt from joint venture reflects the settlement in respect of a deferred tax asset in Glanbia Cheese Limited. The deferred tax balance of c27.559m represents the net liability arising from the following: Amount provided c’000 21,282 (959) 7,236 27,559 2003 E’000 2002 c’000 18,505 20,203 5 (418) (38) 11 – (39) (1,443) (1,670) 16,611 18,505 Capital allowances Redundancy Other timing differences 24 Capital grants – Group At 4 January 2003 Receivable for year In disposed subsidiaries Currency translation adjustment Released to profit and loss account At 3 January 2004 50 Glanbia plc annual report 2003 25 Called up equity share capital (a) Authorised: 2003 E’000 2002 c’000 306,000,000 ordinary shares of c0.06 each 18,360 18,360 (b) Issued: 292,514,184 ordinary shares of c0.06 each 17,551 17,551 In accordance with the terms of the 2002 Long Term Incentive Plan (“LTIP”), options over 160,000 ordinary shares were granted during the year and are exercisable between 2006 and 2013. Total options over 2,069,500 ordinary shares were outstanding at 3 January 2004 under the LTIP, at prices ranging between c1.55 and c1.90. Furthermore, in accordance with the terms of the LTIP, executives to whom options were granted in 2002 are eligible to receive share awards related to the number of ordinary shares which they hold on the second anniversary of the exercise of the option, to a maximum of 168,400 ordinary shares. In accordance with the terms of the Company’s 2002 Sharesave Scheme, options over 2,442,973 ordinary shares which were granted in 2002, remain outstanding on 3 January 2004 and are exercisable, under normal circumstances, between 2005 and 2006. In May 2002, the Company established an Employee Share Trust to operate in connection with the Company’s Sharesave Scheme. As detailed in note 17 to the financial statements, 2,168,354 ordinary shares were held by the Employee Share Trust at 3 January 2004. The dividend rights in respect of these shares have been waived. Total options over 5,392,473 ordinary shares were outstanding at 3 January 2004 at prices ranging between c1.20 and c4.25 and GBP£0.764 and GBP£2.90, exercisable in periods up to 2013. 26 Share premium account At 3 January 2004 and at 4 January 2003 Company c’000 Group c’000 435,273 80,005 Glanbia plc annual report 2003 51 Notes to the Financial Statements (continued) 3 January 2004 27 Merger reserve – Group Share premium – representing excess of fair value over nominal value of ordinary shares issued in connection with the merger of Avonmore Foods plc and Waterford Foods plc Merger adjustment (note (a)) Share premium and other reserves relating to nominal value of shares in Waterford Foods plc 2003 E’000 2002 c’000 355,271 (327,085) 84,962 355,271 (327,085) 84,962 113,148 113,148 (a) The merger adjustment represents the difference between the nominal value of the issued share capital of Waterford Foods plc, and the fair value of the shares issued by Avonmore Foods plc in 1997, calculated in accordance with Regulation 22(5) of the European Communities (Companies: Group Accounts) Regulations, 1992 (“The Regulations”). (b) The presentation shown above is a departure from Regulation 22(5) of the Regulations as noted above, but has been adopted by the Directors as they believe that the presentation is required to give a true and fair view of the state of affairs of the Group as required by Regulation 14 of the Regulations and the Companies Acts. The presentation adopted is in accordance with the required accounting practice as outlined in Financial Reporting Standard 6 for merger accounting. Had the requirements of Regulation 22(5) of the Regulations been complied with, the merger adjustment would have been shown as an adjustment to consolidated reserves, and the share premium account would have been identified separately in the Balance Sheet. 28 Revenue reserves Company Subsidiaries c’000 c’000 Joint venture and associates c’000 Total profit and loss reserves c’000 Currency translation reserve c’000 Goodwill reserve c’000 Total revenue reserves c’000 At 4 January 2003 Currency translation difference on foreign currency net investments Goodwill on disposal (Loss absorbed)/profit retained for year 8,192 61,191 6,243 75,626 (32,490) (75,368) (32,232) – – – – – – – – 8,711 (58,688) 595 (49,382) 5,520 – – 318 41,688 5,838 41,688 – (49,382) At 3 January 2004 16,903 2,503 6,838 26,244 (26,970) (33,362) (34,088) 52 Glanbia plc annual report 2003 29 Capital reserve At 3 January 2004 and at 4 January 2003 30 Minority interests At 4 January 2003 Share of profit for the year Currency translation adjustment Dividend paid to equity minority interest Dividend payable to non-equity minority interest Increase in minority interest in subsidiaries Minority interest redeemed Company c’000 4,226 Group c’000 2,825 Equity 2003 E’000 6,983 251 – (1,464) – 1 (100) Equity 2002 c’000 Non-equity 2003 E’000 Non-equity 2002 c’000 6,428 677 – (123) – 1 – 132,156 11,005 (17,107) – 147,777 12,619 (16,550) – (10,295) (11,690) – – – – At 3 January 2004 5,671 6,983 115,759 132,156 Non-equity minority interest includes US$100 million 7.99% cumulative guaranteed preferred securities issued by a subsidiary during 1996, net of issue costs. The holders of these securities have no rights against Group companies other than the issuing entity and, to the extent prescribed by the guarantee, the Company. The structure of the guarantee is such so as to provide for payment obligations (dividends and redemption payments) under the securities to rank subordinate to all the creditors of the Group, and to be made only to the extent that there are sufficient distributable profits available. The securities are redeemable on 14 November 2006 and are renewable for further ten year periods by mutual agreement. Non-equity minority interest also includes c38.2m cumulative redeemable preference shares issued by Waterford Foods plc in 1993 and 1995. The rate of dividend on these shares is currently 8.5%. Waterford Foods plc has the right to reset the rate of dividend on the seventh and fourteenth anniversaries of the date of allotment of the first tranche of shares. The shares may be redeemed by Waterford Foods plc at any time at the issue price. Any such early redemption may entitle the holders, in certain circumstances, to receive an additional redemption premium. The holders of the shares may call for redemption at the issue price if the dividend rate is reset and in certain other circumstances. All shares in issue on the twenty-first anniversary of the date of issue of the first tranche of shares, will be redeemed at the issue price. On a winding up of Waterford Foods plc the holders of the shares will be entitled, in priority to any other shareholders, to the amount paid up or credited as paid up (including any premium paid) in respect of the shares and to all arrears of dividends. The shares do not carry any voting rights. Glanbia plc annual report 2003 53 Notes to the Financial Statements (continued) 3 January 2004 31 Capital commitments Capital expenditure approved: Contracted for Not yet contracted for 32 Operating lease commitments Commitments under operating leases, payable in 2004, expire as follows: Within one year Two to five years After five years 2003 Company E’000 2003 Group E’000 2002 Company c’000 – – – 14,547 86,050 100,597 – – – Company c’000 – – – – 2002 Group c’000 12,672 40,591 53,263 Group c’000 710 5,240 538 6,488 33 Contingent liabilities Company (i) The Company has guaranteed the liabilities of certain subsidiaries in the Republic of Ireland in respect of any losses or liabilities (as defined in Section 5 (c) of the Companies (Amendment) Act, 1986) for the year ended 3 January 2004 and the Directors are of the opinion that no losses will arise therefrom. These subsidiaries avail of the exemption from filing audited financial statements, as permitted by Section 17 of the Companies (Amendment) Act, 1986. (ii) The Company has guaranteed certain liabilities of Glanbia Milk Limited and Avonmore Delaware L.P., and the Directors are of the opinion that no losses will arise therefrom. Group (i) Bank guarantees, amounting to c18.117m (2002: c15.780m) are outstanding as at 3 January 2004, mainly in respect of payment of EU subsidies. 54 Glanbia plc annual report 2003 34 Pension schemes (a) In the Republic of Ireland and the United Kingdom the Group operates defined benefit schemes which provide retirement and death benefits for the majority of employees. The schemes are funded through separate trustee controlled funds. The contributions paid to the schemes are in accordance with the advice of professionally qualified actuaries. The latest actuarial valuation reports for these schemes, which are not available for public inspection, are dated between 31 December 2000 and 30 June 2003. The contributions paid to the schemes in 2003 are in accordance with the contribution rates recommended in the actuarial valuation reports. The aggregate market value of the assets at these actuarial valuation dates was in excess of c342m. The most recent actuarial valuations show that the schemes are less than 100% funded in respect of discontinuance liabilities. In relation to accrued liabilities based on pensionable salaries projected to normal retirement age, the aggregate value of the assets of the schemes represented 90% of these accrued liabilities at the relevant actuarial valuation dates. The Group has made proposals to members of the pension schemes in relation to the funding of the schemes. On actuarial advice, the pension charge will be increased for the effects of this deficit and the variation from the regular cost will be amortised over the employees’ expected remaining working lives. The pension cost charged to the profit and loss account for 2003 amounted to c8,091,000 (2002: c5,946,000). The principal assumptions adopted for the actuarial valuations assume that the long-term rate of investment return exceeds the rate of increase in pensionable salaries by between 2% and 2.5% per annum. The method of funding used in calculating the contribution rates was the Projected Unit Method. In the United Kingdom the Group also operates defined contribution schemes for the Group’s employees. The pension cost charged to the profit and loss account for 2003 amounted to c230,000 (2002: c492,000). In the U.S.A., the Group operates defined contribution schemes for the Group’s employees. The pension cost charged to the profit and loss account is equal to the contributions paid. The pension cost charged for 2003 amounted to c475,000 (2002: c564,000). (b) FRS 17 Retirement benefits The transitional arrangements of FRS 17 require disclosure of the assets and liabilities as at 3 January 2004 and 4 January 2003 calculated in accordance with the requirements of FRS 17. Financial assumptions The assets of the schemes operated by the Group have been taken at market value and the liabilities have been calculated using the following principal actuarial assumptions: Inflation rate increase Discount rate Salary rate increase Pension payment increase 2003 % 2.25 5.5 3.5 2002 Irish Schemes 2001 2003 % 2.5 5.75 3.5 % 2.5 6.0 3.5 % 2.6 5.6 3.1 2002 UK Schemes % 2.25 - 2.5 5.75 3.25 - 3.5 2001 % 2.5 6.0 3.5 2.25 - 3.5 2.5 - 3.5 2.5 - 3.5 1.85- 3.25 1.75 - 3.25 2.5 - 3.0 Scheme assets The expected long term rate of return on the assets of the schemes at 3 January 2004 and 4 January 2003 were as follows: Equities Bonds Other 2003 % 8.5 4.44 - 5.0 7.5 2002 % 8.5 5.75 7.5 2001 % 8.5 6.0 7.5 Glanbia plc annual report 2003 55 Notes to the Financial Statements (continued) 3 January 2004 34 Pension schemes (continued) Scheme assets (continued) The assets of the Group schemes at 3 January 2004 and 4 January 2003 were as follows: Equities Bonds Other Total assets Actuarial liabilities (Deficit)/surplus Related deferred tax asset/(liability) 2003 E’000 235,110 78,778 25,965 2002 c’000 206,775 79,248 28,020 2001 c’000 273,947 86,263 23,702 339,853 (440,260) 314,043 (392,148) 383,912 (367,993) (100,407) 7,594 (78,105) 4,876 15,919 (2,198) Net pension (liability)/asset (note (a)) (92,813) (73,229) 13,721 (a) As detailed in note 5, on 23 February 2004 the Group announced the sale of a 75% interest in Glanbia Foods Limited to Milk Link Limited. As part of this transaction, the assets and obligations of the Glanbia Foods pension scheme transferred with Glanbia Foods Limited. The exclusion of the deficit in the Glanbia Foods pension scheme at 3 January 2004 would reduce the net pension liability noted above by c11.6m to c81.2m. On full implementation of FRS 17 the amounts that would have been charged, on the basis of the above assumptions, to the profit and loss account and the statement of total recognised gains and losses for the year ended 3 January 2004 and 4 January 2003 are as follows: Analysis of the amount that would have been charged to the operating profit in 2003 and 2002 under FRS 17 Current service cost Past service cost Disposals 2003 E’000 10,086 295 – 2002 c’000 9,760 117 (861) 10,381 9,016 Analysis of amount that would have been credited to other finance income in 2003 and 2002 under FRS 17 Expected return on pension scheme assets Interest on past service scheme liabilities Net credit to finance income 2003 E’000 2002 c’000 23,326 (21,864) 29,400 (21,566) 1,462 7,834 Analysis of amount that would have been recognised in statement of total recognised gains and losses (STRGL) Actual return less expected return on pension scheme assets Experience (losses)/gains arising on pension scheme liabilities Effect of changes in assumptions underlying the present value of scheme liabilities Actuarial loss that would have been recognised in statement of total recognised gains and losses 56 Glanbia plc annual report 2003 2003 E’000 16,120 (3,835) (35,088) 2002 c’000 (86,424) 510 (12,527) (22,803) (98,441) 34 Pension schemes (continued) Movement in (deficit)/surplus during the year (Deficit)/surplus in schemes at beginning of year Translation of opening balances Current service cost Past service cost Disposals Cash contributions Finance income Experience loss Deficit at end of year 2003 E’000 (78,105) 3,043 (10,086) (295) – 6,377 1,462 2002 c’000 15,919 – (9,760) (117) 861 5,599 7,834 (22,803) (98,441) (100,407) (78,105) History of experience gains and losses 2003 2002 Difference between the actual and expected return on scheme assets expressed as a percentage of scheme assets Experience (losses)/gains on scheme liabilities expressed as a percentage of the schemes actuarial liabilities Total loss on STRGL as a percentage of schemes actuarial liabilities 4.7% (27.5%) (0.9%) (5.2%) 0.1% (25.1%) If the above amounts had been recognised in the financial statements, the Group net assets and profit and loss account reserve would be as follows: Net assets Net assets as reported Pension liability calculated on the basis of FRS 17 Less: SSAP 24 asset that will be reversed on implementation of FRS 17 Plus: Pension provision that will be reversed on implementation of FRS 17 Net assets on FRS 17 basis (note (b)) Reserves Profit and loss account reserve as reported Pension (liability)/asset calculated on the basis of FRS 17 Less: SSAP 24 asset that will be reversed on implementation of FRS 17 Plus: Pension provision that will be reversed on implementation of FRS 17 2003 E’000 300,871 (92,813) (14,082) 14,171 2002 c’000 320,436 (73,229) (25,340) 8,843 208,147 230,710 2002 c’000 75,626 (73,229) (25,340) 8,843 2001 c’000 118,806 13,721 (27,306) 10,758 2003 E’000 26,244 (92,813) (14,082) 14,171 Profit and loss account reserve on FRS 17 basis (note (b)) (66,480) (14,100) 115,979 Comprising: Profit and loss account reserve on FRS 17 basis Excluding pension (deficit)/asset Pension (deficit)/asset 26,333 (92,813) 59,129 (73,229) 102,258 13,721 (66,480) (14,100) 115,979 (b) As noted above, on 23 February 2004 the Group announced the sale of a 75% interest in Glanbia Foods Limited to Milk Link Limited. As part of this transaction the assets and obligations of the Glanbia Foods pension scheme transferred with Glanbia Foods Limited. If this transaction had been recognised in the financial statements, the net assets on an FRS 17 basis at 3 January 2004 would amount to c228.45m and the profit and loss account reserve on an FRS 17 basis at 3 January 2004 would amount to (c46.18m). Glanbia plc annual report 2003 57 Notes to the Financial Statements (continued) 3 January 2004 35 Related party transactions (a) Transactions with principal shareholder Glanbia Co-operative Society Limited (“the Society”) holds 54.79% of the issued share capital of the Company. A significant number of shareholders of the Society either trade with or supply milk to the Company or its subsidiaries. The Company and its subsidiaries provide various administration, milk advisory, shareholder advisory, secretarial and legal services to the Society and also make certain payments on behalf of the Society. The charge for these services amounted to c1.539m for the year (2002: c1.603m). The Society has obligations to certain of its members in the form of loan stock, investment stock units, convertible stock and patronage bonus, the level of which is dependent on trade between those members of the Society and the Company and its subsidiaries. There was no interest payable by the Society in relation to financing transactions between the Society and the Company during 2003 (2002: c0.857m). The Society owns Glanbia House, which is the Registered Office of the Company, and charged rent to the Company in respect of this property of c253,948 (2002: c253,947). The balance due from the Company and its subsidiaries to the Society at 3 January 2004 is c3.695m (2002: c0.802m). (b) Transactions with Directors The majority of non-executive Directors of Glanbia plc trade farm produce and farm inputs with Irish subsidiaries of the Company. All transactions are carried out on terms consistent with those applied to dealings with unrelated parties. At 3 January 2004, trading balances due from Directors amounted to c75,382 (2002: c80,878). Details of 2003 trading are summarised below: Purchases from Directors Sales to Directors Total amounts traded 2003 E’000 2002 c’000 1,557 1,478 Highest level of trading with an individual Director 569 559 2003 E’000 729 244 2002 c’000 733 237 (c) Transactions with affiliated companies The Company and its subsidiaries transacted purchases and sales with associated companies, including the joint venture as listed in note 37. At 3 January 2004, net balances due from associated companies amounted to c7,765,202 (2002: c5,162,072) and purchases from associated companies amounted to c13,966,660 (2002: c20,311,472) for the year. Sales to associated companies amounted to c82,361,399 (2002: c80,939,893). 58 Glanbia plc annual report 2003 36 Directors’ and Secretary’s interests The interests of the Directors and Secretary and their spouses and minor children in the share capital of the Company, the holding Society and subsidiary companies/societies were as follows: (a) Glanbia plc Beneficial Directors TP Corcoran L Herlihy MJ Walsh JJ Moloney JE Callaghan HV Corbally EP Fitzpatrick JA Gilsenan TP Heffernan CL Hill JV Liston GJ Meagher JJ Miller WG Murphy M Parsons EM Power F Quigley JV Quinlan GE Stanley KE Toland Secretary S Talbot Ordinary shares of c0.06 03/01/04 05/01/03 ** Number of units * * * $ 81,520 81,804 23,708 60,000 35,000 1,495 38,501 2,842 27,644 31,966 – 212,327 61,136 230,827 26,344 37,893 35,148 21,347 28,724 13,650 81,520 81,804 23,708 60,000 35,000 1,495 38,501 2,842 27,644 31,966 – 212,327 61,136 230,827 26,344 37,893 35,148 21,347 28,724 13,650 9,100 9,100 There have been no changes in the interests of the Directors and Secretary between 3 January 2004 and 20 February 2004. Executive Director * ** Or at date of appointment if later $ Appointed as an Executive Director 10 January 2003 Glanbia plc annual report 2003 59 Notes to the Financial Statements (continued) 3 January 2004 36 Directors’ and Secretary’s interests (continued) (a) Glanbia plc (continued) Details of movements on outstanding options over the Company’s ordinary share capital are set out below. Outstanding options are exercisable on dates between 2004 and 2012. Beneficial Directors JJ Moloney 1988 Share Option Scheme 2002 Long Term Incentive Plan Sharesave Scheme GJ Meagher 1988 Share Option Scheme 1988 Share Option Scheme 2002 Long Term Incentive Plan WG Murphy 1988 Share Option Scheme 1988 Share Option Scheme 2002 Long Term Incentive Plan KE Toland 2002 Long Term Incentive Plan Sharesave Scheme Secretary S Talbot 2002 Long Term Incentive Plan Sharesave Scheme Options – Ordinary shares of c0.06 Number of units 05/01/03 Granted during year 03/01/04 ** 150,000 290,000 4,593 50,000 75,000 205,000 50,000 75,000 225,500 164,000 4,593 164,000 4,593 – – – – – – – – – – – – – 150,000 290,000 4,593 50,000 75,000 205,000 50,000 75,000 225,500 164,000 4,593 164,000 4,593 Exercise price c 4.25 (b) 1.55 (c) 1.2 (d) 1.97 (a) 4.25 (b) 1.55 (c) 1.97 (a) 4.25 (b) 1.55 (c) 1.55 (c) 1.20 (d) 1.55 (c) 1.20 (d) Options: (a) Exercisable by Directors at any time up to April 2004. (b) Exercisable by Directors at any time up to May 2008. (c) Exercisable by Directors and Secretary between 2005 and 2012. (d) Exercisable by Directors and Secretary, under normal circumstances, between September 2005 and March 2006. There were no other changes in the interests of the Directors and Secretary between 3 January and 20 February 2004. JJ Moloney, GJ Meagher, KE Toland and S Talbot, as participants of the 2002 Long Term Incentive Plan, are eligible for a share award of 10% of the ordinary shares that they continue to hold following the second anniversary of the exercise of the option. Participants in the Sharesave Scheme are deemed to be interested in 2,168,354 ordinary shares beneficially owned by the Glanbia Employees’ Share Trust as at 3 January 2004 (2,167,949 ordinary shares as at 20 February 2004). No options granted to the Directors or Secretary lapsed during the year. The market price of the shares as at 3 January 2004 was c2.18 and the range during the year was c1.20 to c2.18. The 1988 Share Option Scheme expired on 31 August 1998. ** Or at date of appointment if later. 60 Glanbia plc annual report 2003 36 Directors’ and Secretary’s interests (continued) (b) Glanbia Co-operative Society Limited “A” Ordinary shares of c1 Convertible redeemable “B” shares of c0.01 03/01/04 03/01/04 05/01/03 ** Number of units Number of units 05/01/03 ** Beneficial Directors TP Corcoran L Herlihy MJ Walsh HV Corbally EP Fitzpatrick JA Gilsenan TP Heffernan CL Hill JJ Miller M Parsons EM Power F Quigley JV Quinlan GE Stanley 65,761 86,515 12,793 4,058 22,401 2,259 25,100 15,051 22,150 6,349 24,570 24,666 8,850 599 65,019 83,247 11,513 3,458 21,830 1,721 24,261 14,276 20,863 5,738 23,578 24,075 8,565 539 307 1,401 981 207 643 106 347 345 621 471 512 221 240 33 910 3,945 1,780 698 1,371 581 1,013 997 1,628 825 1,223 704 410 93 There have been no changes in the above interests between 3 January 2004 and 20 February 2004. ** Or at date of appointment if later. Glanbia plc annual report 2003 61 Notes to the Financial Statements (continued) 3 January 2004 36 Directors’ and Secretary’s interests (continued) (b) Glanbia Co-operative Society Limited (continued) Convertible loan stock units c0.01269738 “C” shares of c0.01*** 03/01/04 03/01/04 05/01/03 ** Number of units Number of units 05/01/03 ** Beneficial Directors TP Corcoran L Herlihy MJ Walsh JJ Moloney HV Corbally EP Fitzpatrick JA Gilsenan TP Heffernan CL Hill GJ Meagher JJ Miller WG Murphy M Parsons EM Power F Quigley JV Quinlan KE Toland Secretary S Talbot * * * * 220,440 1,062,568 140,392 – 217,781 243,713 167,020 197,755 – – 289,109 – 155,883 240,306 167,199 – – – 145,390 656,968 88,431 – 136,802 152,174 103,548 123,551 – – 187,337 – 96,610 158,022 108,321 – – – 1,924,500 16,626,637 1,100,000 4,634,869 63,498 6,497,492 3,714,146 203,157 3,426,974 8,880,921 6,309,314 2,904,610 1,269,738 4,945,207 2,634,869 1,067,686 – 924,500 6,039,219 500,000 1,634,869 63,498 3,645,061 1,714,146 203,157 1,126,974 2,380,921 6,181,322 2,142,766 1,269,738 1,134,869 1,134,869 813,686 – 7,182,246 3,658,558 JA Gilsenan had a beneficial interest in 1,382 Investment Stock Units of c0.1269738 in the Society as at 5 January 2003, which were cashed during 2003. There have been no changes in the above interest between 3 January 2004 and 20 February 2004 with the exception of convertible loan stock units issued to Directors who are milk suppliers in accordance with the conditions of the 2004 Revolving Share Plan of the Society. Executive Director. * ** Or at date of appointment if later. *** Increase in shareholding to be issued in March 2004. 62 Glanbia plc annual report 2003 (1) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (3) (2) (4) (4) (5) (6) (4) (4) (7) (8) (9) 37 Details of the Company’s interest in its principal subsidiary and associated undertakings are as follows: Address of Group interest % registered office Principal activities Grain and Fertilizers Dairy Products Property and Land Dealing Operation of Pig Rearing Facilities Manufacture of Animal Feed Products Financing Financing Dairying, Liquid Milk and General Trading Pork and Bacon Products Milk Products Milk Products Investment Holding Investment Holding 60 100 100 100 100 100 100 100 100 100 100 100 100 Fertilizers 73.34 Holding Company Holding Company Supply of Animal Feeds Consumer Foods Products Manufacture and supply of Cheese, Butter and Dairy Products Holding Company Investment Holding Holding Company Milk Products Holding Company 100 100 100 100 100 100 100 100 100 100 (a) Subsidiaries D Walsh & Sons Limited Glanbia Consumer Foods Limited Glanbia Estates Limited Glanbia Farms Limited Glanbia Feeds Limited Glanbia Finance (Ireland) Limited Glanbia Financial Services Glanbia Foods Society Limited Glanbia Fresh Pork Limited Glanbia Ingredients (Ballyragget) Limited Glanbia Ingredients (Virginia) Limited Glanbia Investments (Ireland) Limited Glassonby Grassland Fertilizers (Kilkenny) Limited Waterford Foods plc Glanbia (UK) Limited Glanbia Feedstuffs Limited Glanbia Foods (NI) Limited Glanbia Foods Limited Glanbia Holdings Limited Glanbia Investments (UK) Limited Glanbia Inc. Glanbia Foods Inc. Glanbia Foods B.V. (b) Associated undertakings/joint ventures Glanbia Cheese Limited Co-operative Animal Health Limited 31 December 2002 South Eastern Cattle Breeding Society Limited 31 December 2002 Malting Company of Ireland Limited South East Port Services Limited 31 October 2003 3 January 2004 Agro Chemicals Cattle Breeding Malting Port Services Addresses of registered offices of subsidiary and associated undertakings are as follows: (1) 20 Patrick Street, Kilkenny, Ireland. (2) Glanbia House, Kilkenny, Ireland. (3) (4) Palmerstown, Kilkenny, Ireland. Second Floor, 2 Albert Road, Tamworth, Staffordshire, B79 7JN, England. (5) Unit 4, Carn Industrial Estate, Portadown, Co Armagh, BT63 5RH, Northern Ireland. (6) Maes y Clawdd, Maesbury Road, Oswestry, Shropshire, SY10 8NL, England. (7) Suite 780, Wilmington Trust Centre, 1100 North Market Street, Wilmington, Delaware, USA. (8) Richfield, Lincoln County, Idaho, 83349 USA. (9) Krijtenbogtstraat 2A, 5066 BJ, Moergestel, The Netherlands. (10) Tullow, Co Carlow, Ireland. (11) Dovea, Thurles, Co Tipperary, Ireland. (12) South Link, Togher, Cork, Ireland. Date to which results included Principal activities Address of Group interest % registered office 3 January 2004 Cheese Products 51 50 57 33.33 49 (4) (10) (11) (12) (3) Associated companies are treated as such where the Group has significant but not dominant influence over operating and financial policies. Glanbia plc annual report 2003 63 Notes to the Financial Statements (continued) 3 January 2004 38 Borrowings and financial instruments An outline of the objectives, policies and strategies pursued by the Group in relation to financial instruments is set out in the Group Financial Directors Review on pages 14 to 16. For the purposes of the disclosures which follow in this note, short term debtors and creditors which arise directly from the Group’s operations have been excluded as permitted under FRS 13. The disclosures therefore, focus on those financial instruments which play a significant medium term role in the financial risk profile of the Group. (a) Maturity of financial liabilities The maturity profile of the Group’s financial liabilities, other than short term creditors such as trade creditors and accruals, as at 3 January 2004 were as follows: In less than one year or on demand Between one and two years Between two and five years Less cash balances At 3 January 2004 At 4 January 2003 Finance Net leases borrowings E’000 E’000 Non-equity minority interest E’000 698 466 458 1,622 43,221 466 169,885 213,572 – – 115,759 115,759 Debt E’000 42,523 – 169,427 211,950 Total E’000 43,221 466 285,644 329,331 (59,775) – (59,775) – (59,775) 152,175 1,622 153,797 115,759 269,556 173,699 2,609 176,308 132,156 308,464 Debt includes Stg£65m (c92.133m) of senior notes issued by way of private placement to institutional investors, of which Stg£30m were repaid in January 2004 and Stg£35m are repayable in March 2006. (b) Borrowing facilities The Group has various borrowing facilities available to it. The undrawn committed facilities available at 3 January 2004 in respect of which all conditions precedent had been met at that date, are as follows: In less than one year or on demand Between one and two years Between two and five years In more than five years 2003 E’000 2002 c’000 21,473 4,828 – 145,126 146,159 120,000 – – 287,632 149,954 64 Glanbia plc annual report 2003 38 Borrowings and financial instruments (continued) (c) Interest rate risk profile of financial liabilities Euro Sterling US dollars Finance leases (d) Fixed rate financial liabilities Euro Sterling US dollars 2003 Floating rate financial liabilities E’000 2003 Fixed rate financial liabilities E’000 2003 Total E’000 2002 Floating rate financial liabilities c’000 2002 Fixed rate financial liabilities c’000 2002 Total c’000 38,337 (36,853) 19,112 37,594 191,354 78,165 75,931 154,501 97,277 33,905 7,219 16,027 37,397 207,501 94,759 71,302 214,720 110,786 20,596 307,113 327,709 57,151 339,657 396,808 1,622 329,331 2,609 399,417 Weighted average interest rate 2003 % 8.50 6.69 7.99 7.25 2002 % 8.50 6.69 7.99 7.25 Weighted average period rate is fixed 2002 2003 years years 3.58 1.26 2.87 1.96 4.57 2.26 3.86 2.96 Fixed rate financial liabilities include US$100m (maturing November 2006) and c38.2m (maturing July 2007) non-equity minority interest. The floating rate financial liabilities comprise bank borrowings bearing interest at rates fixed in advance for periods ranging from overnight up to six months by reference to inter-bank interest rates (EURIBOR, £LIBOR, $LIBOR). The figures shown in the table above also take into account various interest rates and currency swaps used to manage the interest rate and currency profile of financial liabilities. (e) Currency exposures As explained on page 16 of the Group Financial Directors Review, the Group’s currency exposures arising from its investment overseas (its structural currency exposures) are mitigated to a reasonable extent. Gains and losses arising from these structural currency exposures are recognised in the statement of total recognised gains and losses. Transactional (non-structural) exposures comprise monetary assets and monetary liabilities of the Group that are not denominated in the operating (or “functional”) currency of the operating unit involved, other than certain borrowings treated as hedges of net investments in overseas operations. Transactional exposures give rise to the net currency gains and losses recognised in the profit and loss account. At 3 January 2004, taking into account the effect of any currency swaps, forward contracts and other derivatives entered into to manage these exposures, the Group had no material transactional currency exposures. Glanbia plc annual report 2003 65 Notes to the Financial Statements (continued) 3 January 2004 38 Borrowings and financial instruments (continued) (f) Fair value of financial assets and financial liabilities Set out below is a comparison by category of the net carrying amounts and estimated fair values of all the Group’s financial assets and financial liabilities as at 3 January 2004. Negative figures in the table below represent financial assets. Net carrying amount 2002 c’000 2003 E’000 Estimated fair value 2002 c’000 2003 E’000 Primary financial instruments held or issued to finance the Group’s operations: Non-equity shares Long term fixed rate borrowings Short term and current portion of long term borrowings Cash balances/financial assets 115,759 92,133 121,439 132,156 99,908 167,353 126,527 96,012 121,439 137,428 107,041 167,353 (59,775) (90,953) (59,775) (90,953) Derivative financial instruments held to manage the interest rate and currency profile: Interest rate swaps and similar instruments Forward foreign currency contracts and currency options 269,556 308,464 284,203 320,869 1,599 – 1,599 – – – 4,314 (3,506) 6,993 (623) 808 6,370 Market rates have been used to determine the fair value of all swaps and forward foreign currency contracts. The fair values of all other items have been calculated by discounting expected future cash flows at prevailing year end interest rates. Due to seasonal aspects of the business, cash balances at year end are typically higher than on average throughout the year. 66 Glanbia plc annual report 2003 38 Borrowings and financial instruments (continued) (g) Hedges The Group’s policy is to hedge the following exposures: • • Structural and transactional currency exposures and currency exposures on future committed sales – using currency swaps, Interest rate risk – using interest rate swaps, currency swaps and interest rate options. forward currency contracts and currency options. Gains and losses on instruments used for hedging are not recognised until the exposure that is being hedged is itself recognised. The table below shows the extent to which the Group has unrecognised gains and losses on financial instruments and deferred gains and losses in respect of financial instruments used as hedges. Unrecognised gains and losses: On hedges at 4 January 2003 Arising in previous year and recognised in 2003 Arising in previous year and not recognised in 2003 Arising in 2003 and not recognised in 2003 On hedges at 3 January 2004 Of which: Expected to be recognised in 2004 Expected to be recognised in 2005 or later Deferred gains and losses: On hedges at 4 January 2003 Arising in previous year and recognised in 2003 Arising in previous year and not recognised in 2003 Arising in 2003 and not recognised in 2003 On hedges at 3 January 2004 Of which: Expected to be recognised in 2004 Expected to be recognised in 2005 or later 39 Approval of the financial statements The Directors approved the financial statements on 2 March 2004. Gains E’000 Losses E’000 Net E’000 623 (623) – 3,506 (6,993) 4,278 (2,715) – (6,370) 3,655 (2,715) 3,506 3,506 (2,715) 791 3,492 14 (602) (2,113) 2,890 (2,099) – – – – – – – (2,241) 695 (2,241) 695 (1,546) (1,546) – – (1,546) (1,546) (520) (1,026) (520) (1,026) Glanbia plc annual report 2003 67 Five year Financial Summary Profit and loss accounts 2003 Emillion 2002 c million 2001 c million 2000 c million 1999 c million Turnover 2,041.1 2,316.7 2,625.4 2,401.7 2,503.9 Operating profit Interest (net) Share of operating profit of joint venture and associates (Loss)/profit on sale of operations Provision for loss on sale of operation Reorganisation and merger costs Profit/(loss) on sale of fixed assets Loss on termination of operations (Loss)/profit before taxation Taxation Minority interests (Loss)/profit Dividends 75.4 (15.7) 0.9 (28.2) (49.1) – 11.6 (9.8) (14.9) (8.7) (11.3) (34.9) (14.5) 88.6 (19.7) 2.9 (25.6) – – 13.8 (68.1) (8.1) (7.9) (13.3) (29.3) (13.8) 91.7 (26.6) 1.6 (2.1) – – (3.5) – 61.1 (7.4) (13.6) 40.1 (13.2) 81.8 (28.9) 0.8 23.1 – (2.8) 5.5 – 79.5 (5.5) (14.5) 59.5 (12.6) (Loss absorbed)/profit retained (49.4) (43.1) 26.9 46.9 Key financial ratios Operating profit before exceptional items/turnover*** % (Loss)/profit before tax/turnover % Earnings per share Fully diluted earnings per share Adjusted earnings per share Borrowings/capital employed** Current assets/current liabilities Quick assets*/current liabilities times times c % c c 4.5 (0.7) (12.01) (12.01) 19.26 51.1 1.4 0.8 3.9 (0.3) (10.06) (10.06) 17.44 55.0 1.6 1.0 3.6 2.3 13.71 13.71 15.85 75.2 1.5 0.9 3.4 3.3 20.35 20.35 11.55 101.5 1.4 1.0 92.1 (34.1) 0.5 (84.2) – (9.1) – – (34.8) (8.9) (13.6) (57.3) (20.8) (78.1) 3.7 (1.4) (19.58) (19.58) 11.43 138.0 1.5 1.0 * Current assets less stocks ** Excluding capital grants *** Excluding share of turnover of joint venture and associates 68 Glanbia plc annual report 2003 l e u b y v a n y b d e c u d o r p d n a d e n g s e d i Glanbia plc Glanbia House Kilkenny, Ireland Telephone: +353 56 7772200 Fax: +353 56 7772222 www.glanbia.com 

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