PRESENTATION ON THE IMPACT OF RESTATING ACCOUNTS FROM UK GAAP TO INTERNATIONAL FINANCIAL REPORTING S

1
PRESENTATION ON THE IMPACT OF RESTATING ACCOUNTS
FROM UK GAAP TO INTERNATIONAL FINANCIAL REPORTING
STANDARDS 25 MAY 2005
2
IFRS - Current Position

• Restatement of opening balance sheet at 31 March
  2004 completed
• Restatement of profit and loss account for
  2004/05 and balance sheet at 31 March 2005
  completed
• Numbers are unaudited estimates based on current
  understanding of IFRS
• Numbers will not be audited until May 2006
• Further changes may be required if additional
  standards issued or interpretation amended or
  further guidance issued by IFRIC

3
IFRS Overview

• IFRS does not alter cash flows of the Group
• No impact on operations solely an accounting
  matter
• Major changes are in accounting for pensions,
  share based payments, goodwill and dividends.
  Other minor changes
• Adjustments are in line with expectations
• Net assets at 31 March 2004 reduced by 56.7m and
  normalised PBT for 2004/05 by 8.9m. Change to
  pensions represents 70.3m and 7.6m of these
  adjustments respectively and change to dividends
  increases net assets by 16.5m
• Net assets at 31 March 2005 reduced by 50.7m.
  Pensions represent 76.8m of this adjustment
  offset by change to dividends, 17.7m and
  reversal of goodwill amortisation, 10.6m (after
  tax)

4
Significant standards for Dairy Crest

• IFRS1 - First-time adoption of IFRS
• IAS19 - Employee benefits
• IFRS2 - Share based payment
• IAS23 - Borrowing costs
• IFRS3 - Business combinations
• IAS10 - Events after the balance sheet date
• IAS12 - Income taxes
• IAS17 - Leases
• IAS32/39 - Financial instruments
• IAS14 - Segmental reporting

5
IFRS1 First-time adoption of IFRS

• Relevant transitional arrangements
• Business combinations
• Elected not to restate transactions before 31
  March 2004 with the result that goodwill at that
  date will be frozen, not amortised and subject to
  annual impairment reviews
• Pensions
• Elected to recognise in full in equity all
  pension related losses at 31 March 2004

6
IFRS1 First-time adoption of IFRS (Cont)

• Cumulative translation differences
• Elected to set cumulative translation
  differences relating to investment in Wexford to
  zero at 31 March 2004
• Financial instruments
• Elected not to restate 04/05 profit and loss
  account and balance sheets at 31 March 2004 and
  2005 for IAS32 and 39 (derivative financial
  instruments)
• Share based payments
• Elected to apply IFRS2 to all outstanding share
  based payments
• Property plant and equipment
• Elected not to restate PPE to fair value at 31
  March 2004

7
IAS19 Employee benefits

• Requirement
• Net deficit in Dairy Crest Pension Fund has to be
  shown in the balance sheet
• Profit and loss charge is based on market
  conditions at the beginning of the year
• SSAP24 computed cost based on discounting
  liabilities using the expected return on
  investments whereas IAS19 discounts using AA
  corporate bond yield
• Impact
• Similar to FRS17 numbers
• 04/05 pension charge increased by 7.6m, 8.4m
  charged against operating profit and 0.8m
  credited to interest
• Net deficit of 66.6m recognised at 31 March 04
  leading to reduction of 70.3m in net assets
  (including reversal of the SSAP24 prepayment net
  of deferred tax, 3.7m) which increases to 76.8m
  at 31 March 2005

8
IFRS2 Share based payment

• Requirements
• Charge required for share based payments based on
  fair value of option at the date of grant
• Fair value charge on market condition options
  (TSR element of LTISP) which is not subsequently
  adjusted to actual payout
• Charge also required for sharesave options which
  are issued at a discount
• Impact
• UK GAAP
• No charge required in 04/05 for outstanding LTISP
  options as none are expected to payout
• No charge required for Sharesave or ESOS which
  are outside scope for charge
• IFRS
• Share based payment charge of 1.7m (2.1m after
  deferred tax charge of 0.4m) in 04/05 for 2
  Sharesave schemes and TSR element of LTISP
• No charge for EPS element of LTISP as not
  expected to payout
• For 05/06, sharesave charge will be reduced by
  c.0.6m as one scheme matured in Mar 05
• IFRS2 has no impact on cash cost or number of
  shares which will be issued on maturity of
  schemes

9
IAS23 Borrowing costs

• Requirement
• Under IFRS capitalisation of borrowing costs is
  allowed in line with UK GAAP provided they are
  directly attributable to the construction of a
  qualifying fixed asset
• Borrowing costs should be capitalised on all
  qualifying fixed assets otherwise borrowing costs
  are written off as incurred
• Impact
• Existing UK GAAP policy is to capitalise
  borrowing costs on qualifying fixed assets above
  1m
• Under IFRS, not allowed to selectively capitalise
  borrowing costs
• Under IFRS, Dairy Crest policy will be to write
  off borrowing costs as incurred
• Net assets at 31 March 2004 reduced by 6.1m
  gross (4.3m net of deferred tax), to write off
  borrowing costs previously capitalised.
  Reduction in net assets is 5.7m gross (4.0m net
  of deferred tax) at 31 March 2005
• Benefit to operating profit of c.0.5m in 04/05
  from lower depreciation offset by 0.1m increase
  in interest expense

10
IFRS3 Business combinations

• Requirement
• Goodwill will cease to be amortised from 1 April
  2004 and instead will be subject to an annual
  impairment review, the effect of which will be
  charged to profit and loss
• Identifiable intangible assets must be recognised
  for acquisitions post 1 April 2004 as part of the
  fair values on acquisition. These intangible
  assets should be amortised over their estimated
  useful life. The residual balance of the
  consideration paid over the net assets acquired
  is goodwill which is subject to annual impairment
  review
• Impact
• Under IFRS there is no amortisation of goodwill
  which under UK GAAP amounted to 13.1m in 04/05
• Goodwill of 99.8m at 31 March 2004 will be
  retained subject to annual impairment review
• Previously a tax deduction was obtained for the
  amortisation of goodwill at 10 pa on trade and
  asset acquisitions post 1 April 2002
• This will cease and therefore we have elected for
  a statutory tax deduction at 4 pa. 1.8m of tax
  benefit previously obtained will have to be
  repaid to Inland Revenue in 05/06

11
IAS10 Events after the balance sheet date

• Requirement
• Final dividends declared after balance sheet date
  will be recognised as a liability in the year
  they are declared
• Impact
• Increase in net assets and retained profits of
  16.5m at 31 March 2004
• Increase in net assets and retained profits of
  17.7m at 31 March 2005

12
IAS12 - Income taxes

• Requirement
• No difference in accounting for current taxation
  between IAS12 and UK GAAP. However difference in
  recognising deferred tax
• Deferred tax must be recognised on all fair value
  adjustments made as a result of acquisitions
• Separate disclosure is required of deferred tax
  assets and deferred tax liabilities which
  previously were netted off against each other
• Impact
• Additional deferred tax asset recognised at 31
  March 2004 and 31 March 2005
• Separate disclosure of deferred tax asset will be
  required

13
IAS17 - Leases

• Requirement
• Under IFRS lease incentives have to be written
  off over period of lease not the period until
  first rent review
• Impact
• Lease incentive of 0.7m will be deferred at 31
  March 2004 and released to PL at 0.1m pa

14
IAS32 and 39 Financial Instruments

• Requirement
• Derivative financial instruments must be
  recognised on the balance sheet and measured at
  fair value
• Impact
• Dairy Crests financial instruments include
  interest rate swaps, currency borrowings and
  forward foreign exchange contracts
• All qualify for hedge accounting
• Thus no change to profit and loss account
• Balance sheet from 30 September 2005 will include
  fair value of the financial instruments which
  will be recorded in a separate component of
  equity

15
IFRS14 Segmental reporting

• Requirement
• Externally reportable segments must be aligned to
  a companys organisational and internal financial
  reporting structure
• Revenues, operating profit, assets, liabilities,
  capital expenditures depreciation and
  amortisation and exceptional items must be
  disclosed for each reportable segment
• Impact
• Group now organised into two discrete divisions,
  Foods and Dairies following reorganisation in
  half two 2004/05
• Foods and Dairies will be the reportable segments
  under IFRS
• Previously we reported two segments, Consumer
  Foods and Food Services
• Foods is similar to historical Consumer Foods
  except that milk to major retailers will now be
  included within Dairies

16
Restatement of 31 March 2004net assets
Adjustments net of deferred tax
17
Restatement of 31 March 2005net assets
Adjustments net of deferred tax
18
Restatement 04/05 profit and loss account
(unaudited)
19
Restated segmental analysisUK GAAP / IFRS
(Unaudited)
operating profit before exceptional items and
goodwill amortisation