2008 Annual Results (Part 3)

RNS Number : 3557O

Premier Foods plc

05 March 2009

 

15.  Other intangible assets

	Software/ Licences	Brands/ Trademarks	Customer Relationships	Total
	£m	£m	£m	£m
Cost
At 1 January 2007	18.3	393.7	-	412.0
Additions	8.7	-	-	8.7
Acquisition of subsidiaries/businesses	31.8	598.0	280.0	909.8
Disposals	(1.5)	(2.0)	-	(3.5)
At 31 December 2007	57.3	989.7	280.0	1,327.0
Additions	31.2	-	-	31.2
Transferred to held for sale	-	-	(37.0)	(37.0)
At 31 December 2008	88.5	989.7	243.0	1,321.2
Amortisation
At 1 January 2007	3.1	19.3	-	22.4
Charge for the year	4.4	30.2	31.7	66.3
Impairments	0.6	-	-	0.6
Disposal	-	(0.1)	-	(0.1)
At 31 December 2007	8.1	49.4	31.7	89.2
Charge for the year	7.7	34.3	40.0	82.0
Transferred to held for sale	-	-	(9.5)	(9.5)
At 31 December 2008	15.8	83.7	62.2	161.7
Net book value 31 December 2007	49.2	940.3	248.3	1,237.8
Net book value 31 December 2008	72.7	906.0	180.8	1,159.5

Brands and trademarks are considered to have finite useful lives and are amortised on a straight-line basis over their estimated useful lives of 20 to 40 years. Software is amortised on a straight-line basis over its estimated useful life of 3 to 10 years.  Customer relationships are amortised on a straight-line basis over their estimated useful lives of 7 years.

Contained within brands and trademarks are values attributed to the fair value adjustment in relation to the acquisition of RHM plc in 2007. The fair values of intangible assets at acquisition for these brands were £598.0m.  The remaining periods of amortisation for these assets are between 18 and 38 years for the RHM brands.  

The fair value attributed to customer relationships acquired as part of the acquisition of RHM plc in 2007, was £280.0m and represents the value of own label contracts with new and existing customers. 

Software and licences reflect the fair value adjustment in relation to the acquisition of RHM plc. The fair value of licences at acquisition was £29.9m, which are amortised over the remaining lives of the licence agreements. 

On the acquisition of Chivers Ireland, a fair value adjustment was recognised under IFRS 3 in respect of a beneficial property lease agreement. As a result of the announcement to close the Coolock site, a £0.6m impairment was recognised in 2007.

Included in the software additions for the year above are £6.5m of internal costs (2007: £1.8m).

As at 31 December 2008, the Group's borrowings are secured on the assets of the Group including other intangible fixed assets.

  The material brands held on the balance sheet are as follows:

	Carrying value at 31 December 2008		Estimated useful life remaining
Brand/Trademark		£m		years
Bisto		169.3		28
Hovis		152.8		38
Oxo		103.5		38
Batchelors		89.3		28
Sharwoods		80.0		28
Quorn		70.5		27
Mr Kipling		65.9		28

16.  Investments

Principal subsidiaries

Name of Subsidiary	Country of incorporation or registration and principal operations	Principal activity		Effective  interest in ordinary share capital at 31 December
Operating subsidiaries				2008	2007
Chivers Hartley Limited	United Kingdom	Spreads and pickles		100%	100%
		manufacturing
H.L. Foods Limited	United Kingdom	Food canning and		100%	100%
		processing
Premier Ambient Products	United Kingdom	Spreads, pickles, vinegar,		100%	100%
(UK) Limited		jelly and desserts
		manufacturing
Premier International Foods UK Limited	United Kingdom	Hot and cold beverages manufacturing		100%	100%
Marlow Foods Limited (Quorn)	United Kingdom	Meat free manufacturing		100%	100%
Cauldron Foods Limited	United Kingdom	Meat free manufacturing		100%	100%
Premier Grocery Products Limited	United Kingdom	Manufacture and distribution of soups, meat and other food products		100%	100%
Premier Grocery Products Ireland Limited	Republic of Ireland	Manufacture and distribution of soups, meat and other food products		100%	100%
Premier Foods Group Limited	United Kingdom	Manufacture and distribution of cake, bread, own label and other food products		100%	100%
Other subsidiaries Premier Brands Foods Limited	United Kingdom	Intermediate holding		100%	100%
		company
Premier Financing Limited	United Kingdom	Intermediate holding		100%	100%
		company
Premier Foods (Holdings) Limited	United Kingdom	Intermediate holding company		100%	100%
Premier Foods Investments Limited	United Kingdom	Financing		100%	100%
Premier Foods Investments No. 1 Limited	United Kingdom	Intermediate holding company		100%	100%
Premier Foods Investments No. 2 Limited	United Kingdom	Intermediate holding company		100%	100%
Premier Foods Investments No. 3 Limited	United Kingdom	Intermediate holding company		100%	100%
Premier Foods Group Services Limited	United Kingdom	Intermediate holding company		100%	100%
Premier Foods Limited	United Kingdom	Intermediate holding company		100%	100%

Premier Foods Investments No.3 Limited and RHM Limited are direct wholly owned subsidiary undertakings of Premier Foods plc. All other subsidiary undertakings are held indirectly by Premier Foods plc.

Each of the principal subsidiary undertakings have the same year end as Premier Foods plc. The companies listed above are those that materially affect the results and the assets of the Group. A full list of subsidiary undertakings is available from the Company Secretary.

17.  Assets and liabilities held for sale

		2008		2007
		£m		£m
Non-current assets:
Property, plant and equipment		45.6		30.6
Goodwill		15.3		-
Other intangible assets		27.5		-
Other non-current assets		0.4		-
Current assets:
Inventories		9.0		-
Trade and other receivables		26.6		-
Total assets held for sale		124.4		30.6
Current liabilities:
Trade and other payables		(41.0)		-
Financial liabilities - short term borrowings		(0.4)		-
Current income tax liabilities		(1.0)		-
Non-current liabilities:
Financial liabilities - long term borrowings		(1.3)		-
Provisions		(3.0)		-
Other liabilities		(0.6)		-
Deferred tax liabilities		(9.2)		-
Total liabilities held for sale		(56.5)		-
Net assets and liabilities held for sale		67.9		30.6

The Group has received firm offers for its speciality bakery businesses, Martine Spécialités S.A.S., Le Pain Croustillant and Sofrapain S.A.S. Accordingly, the results of the speciality bakery businesses for the year have been classified as discontinued operations (refer note 10).

Assets and liabilities relating to these businesses have been reclassified as held for sale in the balance sheet with effect from 31 December 2008. The value of the assets and liabilities relating to these businesses was reviewed at the date of re-classification according to IFRS principles and as a result, the carrying amounts of non-current assets were written down to their fair values. 

Goodwill of £15.3m at 31 December 2008 is shown after the recognition of an impairment charge of £68.5m (refer to note 14).

Of the £30.6m of property, plant and equipment held for sale at 31 December 2007, £7.7m continues to be classified as held for sale at the balance sheet date. The disposal has taken longer than anticipated due to the adverse market conditions, however, management remain confident that they will be completed in the near future.

  18.  Inventories

		2008		2007
				(Restated)*
		£m		£m
Raw materials		88.4		85.4
Work in progress		5.8		4.1
Finished goods and goods for resale		144.6		118.9
Inventories		238.8		208.4
* The 31 Dec 2007 comparatives have been restated for IFRS 3 fair value adjustments on the acquisition of RHM plc.

The borrowings of the Group are secured against all the assets of the Group including inventory.

19.  Trade and other receivables

		2008		2007
				(Restated)*
		£m		£m
Trade receivables		287.4		279.1
Trade receivables impaired		(6.0)		(3.8)
Net trade receivables		281.4		275.3
Prepayments		19.6		28.9
Interest receivable		0.6		3.6
Other tax and social security receivable		20.0		13.3
Other receivables		15.4		7.8
Trade and other receivables		337.0		328.9
* The 31 Dec 2007 comparatives have been restated for IFRS 3 fair value adjustments on the acquisition of RHM plc.

The borrowings of the Group are secured against all the assets of the Group including trade and other receivables.

20.  Trade and other payables

		2008		2007
		£m		£m
Trade payables		431.6		453.6
Other tax and social security payable		11.4		13.2
Other payables		56.6		41.1
Accruals		40.2		30.6
Trade and other payables		539.8		538.5

  21.  Bank and other borrowings

		2008		2007
		£m		£m
Due within one year:
Secured Senior Credit Facility - Term A2 (note a)		150.6		100.0
Debt issuance costs		(0.8)		(0.9)
		149.8		99.1
Bank overdrafts		6.9		0.1
Total bank borrowings due within one year		156.7		99.2
Finance lease obligations (note 22)		0.6		1.0
Other unsecured loans (note c)		17.5		12.5
Total borrowings due within one year		174.8		112.7
Due after more than one year:
Secured Senior Credit facility - Working Capital (note b)		10.0		-
Debt issuance costs		-		-
		10.0		-
Secured Senior Credit Facility - Revolving (note a)		450.0		200.5
Debt issuance costs		(3.4)		(4.5)
		446.6		196.0
Secured Senior Credit Facility - Term A1 (note a)		289.9		289.8
Debt issuance costs		(1.5)		(2.1)
		288.4		287.7
Secured Senior Credit Facility - Term A2 (note a)		891.1		1,050.0
Debt issuance costs		(4.7)		(7.3)
		886.4		1,042.7
Finance lease obligations (note 22)		1.1		3.3
Other unsecured loans		0.1		-
Total other		1.2		3.3
Total borrowings due after one year		1,632.6		1,529.7
Total bank and other borrowings		1,807.4		1,642.4

The borrowings are secured by a floating charge over all assets of the Group.

Cash and bank deposits and short-term borrowings have been offset to the extent possible in accordance with the Group's banking agreements and the legal rights to such offset in accordance with IAS 32, 'Financial Instruments: Disclosure and Presentation'.
a) Senior Term Credit Facility and Revolving Credit Facility Arrangement - 2007

On 28 February 2008, the Group entered into a supplemental agreement with its banks amending certain terms of its Senior Term Credit Facility and Revolving Credit Facility Arrangement of the 16 March 2007.

This original facility was arranged by Barclays Capital, Bayerische Landesbank, BNP Paribas, Rabobank International, Lloyds TSB Bank plc and The Royal Bank of Scotland plc as lead arrangers and underwriters and Lloyds TSB Bank plc as facility agent and security trustee.

The Senior Term Credit Facility now comprises £1,332m of Term facilities. The Revolving Credit Facility is a multi-currency revolving credit facility of up to £500m (or its equivalent in other currencies). The final maturity date of the above arrangements is 16 March 2012.

b) Secured Senior Working Capital Credit Facility

On 28 February 2008, the Group converted its £100m Acquisition line into a Working Capital line and agreed an additional £125m of short-term facilities with three of its leading banks. All borrowings against the £125m of short-term facilities were fully repaid on 23 December 2008 and the facility terminated.

c) Other unsecured loans falling due within one year includes amounts owed in respect of cash receipts from debtors previously sold under the debtors securitisation programme.

On 18 November 2008 the Group announced an agreement with its lending banks to defer its 31 December 2008 covenant test to 31 March 2009. 

22.  Financial instruments

The Group is subject to the risks arising from adverse movements in interest rates, commodity prices, and foreign currency. The Group uses a variety of derivative financial instruments to manage these risks. The managing of these risks, along with the day-to-day managing of treasury activities is performed by the Group Treasury function. The policy framework governing the managing of these risks is defined by the Treasury Committee. The framework for management of these risks is incorporated into a policies and procedures manual.

The Group also enters into contracts with suppliers for its principal raw material requirements, some of which are considered commodities. These contracts are part of the Group's normal purchasing activities.

a) Market Risk

i) Foreign exchange risk

The Group's main operating entities functional currencies and the Group's presentational currency is pounds sterling although some transactions are executed in non-sterling currencies, including Euros, US dollars, Canadian dollars, Swiss Francs and Swedish Krona. The transactional amounts realised or settled are therefore subject to the effect of movements in these currencies against the pound. Management of these exposures is centralised and managed by the Group's Treasury Function. It is the Group's policy to manage the exposures arising using forward foreign currency exchange contracts and currency options. Hedge accounting is not sought for these transactions. 

The Group generates some of its profits in non-sterling currencies and has assets in non-sterling jurisdictions, principally the Euro. The translation exposure resulting from these Euro denominated profits and overseas net assets is hedged. This matter is reviewed regularly by the Treasury Committee.

The principal foreign currency affecting the translation of subsidiary undertakings within the Group financial statements is the Euro. The rates applicable are as follows:

Principal rate of exchange EUR/£	Year ended 31 December 2008	Year ended 31 December 2007
Year end	1.0310	1.3620
Average	1.2541	1.4600

The carrying amounts of the Group's financial assets are denominated in the following currencies:

				Cash at bank and in hand		Trade and other receivables
				2008	2007	2008	2007
				£m	£m	£m	£m
Currency
Sterling				22.4	12.7	267.2	243.7
Euro				13.8	8.9	27.0	43.0
US dollar				3.7	1.6	1.7	-
Other				0.7	0.7	1.5	-
				40.6	23.9	297.4	286.7

The table below shows the Group's currency exposures as at 31 December 2008 and 2007 that gave rise to net currency gains and losses recognised in the consolidated income statement. Such exposures comprise monetary assets and liabilities that are not denominated in the functional currency of the subsidiaries involved.

The amounts shown below are after taking into account the effect of forward foreign currency exchange contracts and other derivative instruments entered into to manage these exposures.

			Functional currency of subsidiaries
	Sterling			Euro	Total
	£m			£m	£m
At 31 December 2008
Net foreign currency monetary assets/(liabilities)
Sterling	-			2.6	2.6
Euro	7.0			-	7.0
US dollar	5.3			-	5.3
Other currencies	0.5			-	0.5
Total	12.8			2.6	15.4
At 31 December 2007
Net foreign currency monetary assets/(liabilities)
Sterling	-			5.7	5.7
Euro	(0.4)			-	(0.4)
US dollar	2.7			-	2.7
Other currencies	0.5			-	0.5
Total	2.8			5.7	8.5

If the Euro were to weaken/strengthen against sterling by 10% with all other variables held constant, post tax profit would decrease by £3.0m (2007: £1.7m) or increase by £2.5m (2007: £1.4m).

If the Dollar were to weaken/strengthen against sterling by 10% with all other variables held constant, post tax profit would decrease by £5.0m (2007: £3.3m) or increase by £4.1m (2007: £2.7m).

ii) Price risk

The Group purchases a variety of commodities which can experience significant price volatility, which include, inter-alia, wheat, tinplate and energy. The price risk on these commodities is managed by the Group through the Treasury Committee. It is the Group's policy to minimise its exposure to this volatility by adopting an appropriate forward purchase strategy or by the use of derivative instruments where they are available.

  iii) Cash flow and interest rate risk

The Group borrows principally in pounds sterling at floating rates of interest and seeks to mitigate the effect of adverse movements in interest rates by entering into derivative financial instruments that reduce the level of exposure to floating rates. The Group actively monitors its interest rate exposure, since the high level of debt makes its profitability sensitive to movements in interest rates. The target of fixed/capped debt is defined in the Group Treasury policy and procedures. The Group will generally maintain a proportion of debt that is fixed or capped of no less than 30% and no more than 75%, however, this can be amended subject to agreement by the Treasury Committee. The Group currently has a higher level of its debt economically hedged. Hedge accounting is not sought for these transactions.

In addition the Group has entered into a debt securitisation programme which has the effect of reducing interest cost by a further 120 basis points on the amount advanced when compared to the borrowing costs of the Group's term facility.  

Cash and deposits earn interest at floating rates based on banks short term treasury deposit rates. Short-term trade and other receivables are interest-free. 

The interest rate risk profile of the Group's non-derivative financial liabilities (debt before issuance costs) after taking account of the interest rate swaps used to manage the interest profile was:

	Floating rate	Other	Total
	£m	£m	£m
At 31 December 2008	141.6	1,650.0	1,791.6
At 31 December 2007	72.8	1,567.5	1,640.3

Included within 'Other' are interest rate swaps with varying terms and conditions. Further details on the swaps used by the Group are provided below.

In addition, the Group's provisions of £51.7m as at 31 December 2008 (2007: £75.0m) for restructuring and other liabilities were considered to be floating rate financial liabilities. These cash flows are discounted where the effect is material.

Fixed rate financial liabilities

The weighted average interest rates for fixed rate liabilities are the interest rates after the effects of hedging and are as follows:

		Weighted average interest rate %
Currency Sterling
At 31 December 2008				7.1
At 31 December 2007				5.8

The floating rates applicable to interest rate swaps are reset quarterly based on the prevailing market rate at the reset date.  

The following table reflects the earliest likely contractual maturity date of the interest rate derivative contracts taking into account zero cost call features, where market rates at the balance sheet date indicate they will be triggered by the banks, as well as mutual break clauses under which either party can be required to settle the fair value of the contract for cash. Without taking into account these features, a number of these contracts would continue for up to 30 years. 

		Within 1 year	1 and 2 years	2 and 3 years	3 and 4 years	4 and 5 years	Over 5 years	Total
		£m	£m	£m	£m	£m	£m	£m
2008
Fixed rate		340.0	125.0	-	-	-	-	465.0
Cap and Floor Structure		-	-	-	350.0	-	-	350.0
Long dated callable Swaps		-	100.0	50.0	275.0	150.0	25.0	600.0
Other callable Swaps		-	-	-	-	235.0	-	235.0
		340.0	225.0	50.0	625.0	385.0	25.0	1,650.0
2007
Fixed rate		312.5	230.0	125.0	-	-	-	667.5
Cap and Floor Structure		-	-	-	-	700.0	-	700.0
Long dated callable Swaps		-	-	200.0	-	-	-	200.0
Other callable Swaps		-	-	-	-	-	-	-
		312.5	230.0	325.0	-	700.0	-	1,567.5

The cap and floor structures have a nominal value of £350m (2007: £700m) with caps set at 6.00% to 6.25% and floor rates between 4.31% and 4.55%. In addition, when LIBOR rates are beneath the floor strike price, a digital option is triggered which results in the Group paying interest at 5.75% on all of these instruments.

Long dated swaps of £600m (2007: £200m) have callable options whereby the counterparty bank can cancel the swap at nil cost at certain specified dates.  Of these contracts £400m (2007: £200m) have a stated maturity date of 2037 and the remainder have maturity dates of 2023 (£150m, 2007: £nil) and 2013 (£50m, 2007: £nil). These swaps have an average fixed rate of 4.84% (ranging between 4.52% and 4.99%) with two contracts (nominal value of £200m) having an initial discounted interest rate of circa 1.54% until 31 December 2009. Of the contracts in place, £150m are currently callable with a further £100m becoming callable from 31 December 2009, and the remainder being callable from September 2010 onwards.

The other callable swaps contain features whereby a fall in LIBOR below 3.5% and 3.25% causes the rate of interest paid by the Group to increase. Above these rates the Group pay a fixed rate of interest of an average 4.54%. These contracts are also callable at nil cost. Callable features are currently active on contracts with a nominal value of £60m with the remainder active from 31 December 2009. These instruments give rise to the increase in interest payable shown in the sensitivity analysis below.

At 31 December 2008, for every 50 basis points reduction in rates below the last floating reset rate of 2.77% (based on 3 month LIBOR), with all other variables held constant, annualised net cash interest would increase by £3.6m.

At 31 December 2008, if interest rates were 200 basis points higher than the last floating reset rate of 2.77% (based on 3 month LIBOR), with all other variables held constant, annualised net interest would decrease by £5.1m.  This analysis assumes that currently applicable callable features in two contracts with nominals of £110m are not exercised.

At 31 December 2007, if interest rates were 10 basis points higher/lower, with all other variables held constant, post tax profit, excluding derivative fair value movements, would have decreased/increased by £0.6m.

At 31 December 2007, if interest rates were 50 basis points higher/lower, with all other variables held constant, post tax profit, excluding derivative fair value movements, would have decreased by £2.8m or increased by £1.5m.

Since 31 December 2008, the Group has negotiated an amendment to the break clauses in two of its interest rate swaps. Refer to note 34 for further details.

b) Credit risk

The Group's principal financial assets are cash and cash deposits, trade and other receivables and investments.  

The Group has no significant concentrations of credit risk. Cash and cash equivalents are deposited with high-credit quality financial institutions and trade receivables are due principally from major grocery retailers (though it is the Group's policy to insure trade debt).

At 31 December 2008, trade and other receivables of £42.3m (2007: £32.9m) were past due but not impaired. These relate to customers with whom there is no history of default.

The ageing of trade and other receivables was as follows:

		Past due
Fully performing		1-30 days	31-60 days	61-90 days	91-120 days	120+ days	Total
	£m	£m	£m	£m	£m	£m	£m
Trade and other receivables
2008	255.1	32.8	4.1	4.3	1.0	0.1	297.4
2007	253.8	11.3	7.3	3.7	10.4	0.2	286.7

At 31 December 2008, trade and other receivables of £6.0m (2007: £3.8m) were determined to be specifically impaired and provided for. The amount of the provision reflects receivables from customers which are considered to be experiencing difficult economic situations.  

The Group does not hold any collateral as security against its financial assets.

Movements in the provision for impairment of trade receivables are as follows:

		2008	2007
			(Restated)*
		£m	£m
At 1 January		3.8	1.3
Provision for receivables - on acquisition		-	5.5
Unused provision reversed		-	(0.3)
Receivables written off during the year as uncollectable		(5.7)	(3.3)
Provision for receivables impairment disposed		-	(0.4)
Provision for receivables impairment raised		7.9	1.0
At 31 December		6.0	3.8
* The 31 Dec 2007 comparatives have been restated for IFRS 3 fair value adjustments on the acquisition of RHM plc.

The Group has benefitted from a £100m securitisation programme to allow it to transfer trade receivable balances to one of the Group's primary banks. This programme also allows the Group to de-link its own credit rating from that of the underlying assets and achieve a lower cost of funding.

c) Liquidity risk

The Group manages liquidity risk through both the treasury and finance functions. Cash flow forecasts are prepared and reviewed on a weekly basis, normally covering a period of three months.

In addition, cash flow forecasts are prepared as part of the Group's overall budgeting and forecasting processes and performance is monitored against this each month. This is intended to give the Board sufficient forward visibility of debt levels.

The Group's net debt level can vary significantly from month to month and there is some volatility within months. This reflects trading patterns, timing of receipts from customers and payments to suppliers, patterns of inventory holdings and the timing of the spend on major capital and restructuring projects. For these reasons the debt levels at the year end date may not be indicative of debt levels at other points throughout the year.

The following table analyses the Group's financial liabilities into relevant maturity groupings based on the expected undiscounted cash flows.

	Within 1 year	1 and 2 years	2 and 3 years	3 and 4 years	4 and 5 years	Over 5 years	Total
	£m	£m	£m	£m	£m	£m	£m
At 31 December 2008
Bank Term Loan	150.6	178.3	-	1,002.7	-	-	1,331.6
Bank Revolver Facility (Drawn down)	-	-	-	450.0	-	-	450.0
Working capital facility	-	10.0	-	-	-	-	10.0
Bank overdraft	6.9	-	-	-	-	-	6.9
Finance leases	0.6	0.4	0.2	0.2	0.1	0.5	2.0
At 31 December 2007
Bank Term Loan	100.0	150.0	180.0	-	1,009.8	-	1,439.8
Bank Revolver Facility (Drawn down)	-	-	-	-	200.5	-	200.5
Bank overdraft	0.1	-	-	-	-	-	0.1
Finance leases	1.0	1.1	0.9	0.6	0.6	0.9	5.1

The Bank Term Loan and Bank Revolver Facility are re-priced quarterly, loan notes every six months and other liabilities are not re-priced before the maturity date.

The Group has £90.0m (2007: £100.0m) of facilities available and not drawn as at 31 December 2008  expiring between 1 and 2 years, and £50.4m (2007: £400.0m), expiring between 3 and 4 years.

The un-drawn facilities form part of the Group's overall working capital lines, the drawn down amounts of which bear interest at floating rates, subject to any hedge overlay, and are committed for £90m until March 2010, and the remaining £50.4m until March 2012.

The borrowings are secured by a floating charge over all the assets of the Group.

Subsequent to the year end, the Group has put in place a £60m short term liquidity facility with three of its lead banks. This facility will mature on 31 March 2009. The Group has also agreed amendments to its Term and Revolving Credit Facilities with its lending banks. Refer to note 34 for further detail.

The following table analyses the expected undiscounted cash flows of interest on the floating rate debt to maturity (based on the last fixed rate refix of 2.77% (2007: 5.99%)).

	Within 1 year	1 and 2 years	2 and 3 years	3 and 4 years	4 and 5 years	Over 5 years	Total
	£m	£m	£m	£m	£m	£m	£m
Interest
2008	49.6	45.5	40.5	8.4	-	-	144.0
2007	98.3	92.3	83.3	72.5	15.1	-	361.5

The following table analyses the Group's derivative financial instruments into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed are the undiscounted cash flows. Where it relates to options the mark to market value is used.

	Within 1 year	1 and 2 years	2 and 3 years	3 and 4 years	4 and 5 years	Over 5 years	Total
	£m	£m	£m	£m	£m	£m	£m
At 31 December 2008
Forward foreign exchange contracts:
Outflow	(78.9)	(16.7)	-	-	-	-	(95.6)
Inflow	64.3	13.7	-	-	-	-	78.0
Commodities:
Outflow	(24.2)	(0.4)	-	-	-	-	(24.6)
Outflow on options	(0.6)	-	-	-	-	-	(0.6)
Inflow	14.9	0.2	-	-	-	-	15.1
Interest rate swaps:
Outflow	(56.4)	(174.4)	(41.0)	(353.5)	(88.2)	(27.0)	(740.5)
Outflow on options	-	-	-	(32.8)	-	-	(32.8)
Inflow	34.4	96.6	20.4	204.1	45.8	16.5	417.8
	(46.5)	(81.0)	(20.6)	(182.2)	(42.4)	(10.5)	(383.2)
At 31 December 2007
Forward foreign exchange contracts:
Outflow	(68.9)	(8.8)	-	-	-	-	(77.7)
Inflow	68.1	8.8	-	-	-	-	76.9
Interest rate swaps:
Outflow	(26.3)	(23.3)	(11.5)	(6.8)	-	-	(67.9)
Outflow on options	-	-	-	-	(13.3)	-	(13.3)
Inflow	33.9	30.4	15.0	9.0	-	-	88.3
	6.8	7.1	3.5	2.2	(13.3)	-	6.3

The above table incorporates the contractual cash flows of the interest rate derivatives with floating rates of interest calculated based on LIBOR of 2.77% (2007: 5.99%) at the balance sheet date. This table includes the effect of mutual break clauses, whereby either party can require the other to settle the fair value of the contract at that date for cash. To date, the Group has not been required to settle for cash under such a clause and does not anticipate a future requirement to do so. 

Furthermore, for the purposes of this table, callable features have been reflected where the yield curve indicates that a counterparty is likely to call or cancel a contract at nil cost to themselves. We note that no contracts (2007: 3 contracts) are expected to be called at nil prior to their contractual maturity based on the current yield curve.

d) Fair Value

The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is based on quoted market prices at the balance sheet date. The fair value of interest-rate swaps and foreign currency forward contracts is estimated by calculating the present value using quoted market prices at the balance sheet date. The fair value of foreign exchange option contracts is determined using forward exchange market rates at the balance sheet date using the Garman Kohlhagen model. Where the model is unable to revalue the options, valuations are sought from reliable third parties.

For the purposes of valuing trade and other receivables, cash and cash equivalents, trade and other payables, the amounts, paid, payable, received or receivable are assumed to approximate fair value. For retirement benefit obligations, the measurement of liabilities is defined and related assets are stated at market (bid) value. For disclosure purposes the fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

The following table shows the carrying amounts (which approximate to fair value except as noted below) of the Group's financial assets and financial liabilities. Fair value is the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties, other than a forced or liquidation sale and excludes accrued interest. Set out below the table is a summary of methods and assumptions used for each category of financial instruments.

							2008	2007 (Restated)*
							£m	£m
Loans and receivables:
Cash and cash equivalents							40.6	23.9
Trade and other receivables							297.4	286.7
Financial assets at fair value through profit or loss:
Derivative financial instruments
- Forward foreign currency exchange contracts / currency options							21.2	2.1
- Interest rate swaps							-	6.4
Financial liabilities at fair value through profit or loss:
Derivative financial instruments
- Forward foreign currency exchange contracts / currency options							(1.0)	(0.7)
- Commodity derivatives							(11.9)	-
- Interest rate swaps							(237.4)	(24.9)
Financial liabilities at amortised cost:
Trade and other payables							(528.4)	(525.3)
Bank Term Loan							(1,334.6)	(1,429.5)
Bank Revolver Facility (Drawn down)							(446.6)	(196.0)
Bank overdraft							(6.9)	(0.1)
Finance leases							(1.7)	(4.3)
Other							(17.6)	(12.5)
Interest payable							(22.8)	(12.9)
* The 31 Dec 2007 comparatives have been restated for IFRS 3 fair value adjustments on the acquisition of RHM plc.

Fair value estimation

Derivatives

Forward exchange contracts are marked to market using prevailing market prices. Hedge accounting has not been applied to forward contracts and as a result the movement in the fair value of £18.8m has been debited to the income statement in the year (2007: £4.7m credit). Commodity derivatives are marked to market using prevailing prices and are also not designated for hedge accounting. As a result the fair value movement of £11.9m (2007: nil) has been credited to the income statement. Interest rate swaps are marked to market using prevailing market prices. Interest rate swaps are also not designated for hedge accounting. As a result the movement in the fair value of £218.9m has been charged to the income statement in the year (2007: £31.0m charge).  

Short and Long Term Borrowings, Loan Notes and Interest Payable

Fair value is calculated based on discounted expected future principal and interest rate cash flows.  The fair value of the floating rate debt in current market conditions does not approximate the carrying value above. The fair value of the debt is likely to be lower than the carrying amount however since 31 December 2008 the Group has restructured its debt (refer to note 34 for further details).

Certain Euro denominated short and long term borrowings are designated as hedges against Euro denominated assets within the Group. In total £72.4m of Euro borrowings (2007: £70.2m) are designated as hedges against Euro assets.

Finance Lease Liabilities

The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogeneous lease agreements.

  Trade and Other Receivables/Payables

The carrying value of receivables/payables with a remaining life of less than one year is deemed to reflect the fair value given their short maturity. The fair values of non-current receivables/payables are also considered to be the same as the carrying value due to the size and nature of the balances involved.  

e) Obligations under finance leases    

					Minimum lease payments		Present value of minimum lease payments
					2008	2007	2008	2007
					£m	£m	£m	£m
Not later than one year					0.6	1.0	0.6	1.0
Later than one year but not later than five years					0.9	3.2	0.7	2.7
Later than five years					0.5	0.9	0.4	0.6
					2.0	5.1	1.7	4.3
Less: future finance charges					(0.3)	(0.8)	N/a	N/a
Present value of lease obligations					1.7	4.3	1.7	4.3
Less: Amount due for settlement within 12 months							(0.6)	(1.0)
Amounts due for settlement after 12 months							1.1	3.3

It is the Group's policy to lease certain items of plant and equipment under finance leases. The average lease term is 2 years, the longest being 9 years.  

For the year ended 31 December 2008, the average effective borrowing rate was 7.6% (2007: 8.3%).

Interest rates are fixed at the contract date, and thus expose the Group to fair value interest rate risk. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. 

The fair value of the Group's lease obligations approximates their carrying value. The Group's obligations under finance leases are secured by the lessor's title to the leased assets.

f) Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may vary the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity plus net debt.

On 18 November 2008 the Group announced an agreement with its lending banks to defer its 31 December 2008 covenant test to 31 March 2009, pending a review of its capital structure.

  The gearing ratios at 31 December 2008 and 31 December 2007 were as follows:

		2008	2007
		£m	£m
Total borrowings		1,807.4	1,642.4
Less cash and cash equivalents		(40.6)	(23.9)
Net debt		1,766.8	1,618.5
Total equity		991.8	1,460.3
Total capital		2,758.6	3,078.8
Gearing ratio		64%	53%

23.  Deferred Tax

Deferred tax is calculated in full on temporary differences using the tax rate appropriate to the jurisdiction in which the (asset)/liability arises and the tax rates that are expected to apply in the periods in which the asset or liability is settled. In all cases this is 28% except for an asset of £1.9m (2007: £0.2m) relating to Irish retirement benefit obligations where the local rate of 12.5% has been used.

		2008	2007
		£m	£m
At 1 January		207.6	32.1
Acquisition of subsidiaries/businesses (note 28)		-	165.6
Credited to the income statement		(25.0)	(29.6)
Debited to equity		19.7	40.6
Transferred to held for sale		(9.2)	-
Disposal of subsidiaries/businesses		-	(1.1)
At 31 December		193.1	207.6

Due to the unpredictability of future profit streams the Group has not recognised deferred tax assets of £48.1m (2007: £48.1m) relating to capital losses, £7.1m (2007: £10.1m) relating to UK corporation tax losses, £1.3m (2007: £1.3m) Irish corporate tax losses and £34.8m (2007: £34.8m) relating to ACT. These losses can generally be carried forward indefinitely under current legislation. 

Deferred tax liabilities	Accelerated tax depreciation	Intangibles	Total
	£m	£m	£m
At 1 January 2007	29.5	32.3	61.8
Prior years restatement of opening balances	(2.0)	(2.2)	(4.2)
Acquisition of subsidiaries/businesses	9.1	271.6	280.7
Current year restatement of acquired balances	(0.8)	(18.0)	(18.8)
Current year charge/(credit)	10.6	(12.7)	(2.1)
Prior years (credit)/charge	(0.5)	2.0	1.5
Disposal of subsidiaries/businesses	(1.1)	-	(1.1)
At 31 December 2007	44.8	273.0	317.8
Current year charge/(credit)	36.8	(11.4)	25.4
Prior years credit	(6.8)	-	(6.8)
Transferred to held for sale	(2.0)	(7.2)	(9.2)
At 31 December 2008	72.8	254.4	327.2

Deferred tax assets	Retirement benefit obligation	Share based payments	Financial	Losses	Other	Total
			Instruments
	£m	£m	£m	£m	£m	£m
At 1 January 2007	(25.3)	(2.5)	-	-	(1.9)	(29.7)
Prior years restatement of opening balances	0.3	0.2	-	-	-	0.5
Acquisition of subsidiaries/businesses	(72.3)	-	1.6	(28.6)	(15.8)	(115.1)
Current year restatement of acquired balances	4.6	-	(0.1)	1.9	0.8	7.2
Current year charge/(credit)	17.9	(1.1)	(5.7)	(25.4)	1.1	(13.2)
Prior year credit	-	-	-	-	(0.5)	(0.5)
Debited to equity	39.5	1.1	-	-	-	40.6
At 31 December 2007	(35.3)	(2.3)	(4.2)	(52.1)	(16.3)	(110.2)
Current year charge/(credit)	14.9	1.7	(59.1)	(17.2)	10.2	(49.5)
Prior year charge/(credit)	-	-	-	6.8	(0.9)	5.9
Debited to equity	19.2	0.5	-	-	-	19.7
At 31 December 2008	(1.2)	(0.1)	(63.3)	(62.5)	(7.0)	(134.1)

Net deferred tax liability					£m
At 31 December 2008					193.1
At 31 December 2007					207.6

Where there is a legal right of offset and an intention to settle as such, deferred assets and liabilities may be presented on a net basis. This is the case for most of the Group's deferred tax balances and therefore they have been offset in the tables above. Substantial elements of the Group's deferred tax assets and liabilities, primarily relating to the defined benefit pension obligation, are greater than one year in nature.

Deferred tax assets in respect of losses are only recognised to the extent that it is anticipated they will be utilised in the foreseeable future.

Included within the current year charge is an adjustment to deferred tax relating to accelerated tax depreciation is affected by an adjustment of £25.4m as a result of the phasing out of Industrial Buildings Allowances between 2008 and 2011, enacted in the 2008 Finance Act.

  24.  Provisions for liabilities and charges

	Restructuring	Other	Total
	£m	£m	£m
At 1 January 2007	6.7	1.5	8.2
Acquired in the year	17.7	16.5	34.2
Utilised during the year	(16.4)	(2.9)	(19.3)
Additional charge in year	50.2	0.9	51.1
Unwind of provision	0.4	0.4	0.8
At 31 December 2007 (Restated)*	58.6	16.4	75.0
Utilised during the year	(54.8)	(3.1)	(57.9)
Additional charge in the year	33.8	6.4	40.2
Transferred to held for sale	-	(3.0)	(3.0)
Unwind of provision	0.6	0.3	0.9
Released during the year	-	(3.5)	(3.5)
At 31 December 2008	38.2	13.5	51.7
			2008
Analysis of total provisions:			£m
Current	18.4	5.2	23.6
Non-current	19.8	8.3	28.1
	38.2	13.5	51.7
		2007
			(Restated)*
Analysis of total provisions:			£m
Current	50.5	6.1	56.6
Non-current	8.1	10.3	18.4
	58.6	16.4	75.0
* The 31 Dec 2007 comparatives have been restated for IFRS 3 fair value adjustments on the acquisition of RHM plc.

31 December 2008

At 31 December 2008, restructuring, redundancy and onerous lease provisions have been raised in respect of the integration and restructuring of RHM's manufacturing facilities into the Group's existing Premier operations, the move of existing administrative functions to a group-wide shared service centre and closure of our mill in Rotherham. Other than onerous leases which range from 4 to 24 years, it is anticipated that the majority of these provisions will be utilised during 2009.

Other provisions primarily relate to dilapidations against leasehold properties. The costs relating to these provisions will be incurred over a number of years in accordance with the length of the leases.  These provisions have been discounted at rates between 4.1% and 5.6%. The unwinding of the discount is charged to the income statement under interest payable.

Other provisions primarily related to dilapidations against leasehold properties. 

31 December 2007

At 31 December 2007, restructuring provisions were raised in respect of the integration and restructuring of RHM's administrative functions and manufacturing facilities, integration of the Irish operations and the integration of Campbell's UK into the Group's existing Grocery operations. 

Other provisions primarily related to dilapidations against leasehold properties. 

  25.  Retirement benefit schemes

Defined Benefit Schemes

The Group operates a number of defined benefit schemes under which employees are entitled to retirement benefits which are based on final salary on retirement. These are as follows:

a) Premier schemes

The Premier Foods Pension Scheme ('PFPS') was the principal funded defined benefit scheme within the old Premier Group which also operated a smaller funded defined benefit scheme, the Premier Ambient Products Pension Scheme ('PAPPS') for employees acquired with the Ambrosia business in 2001. As a result of the acquisition of Campbell's in 2006, the Group inherited the Premier Grocery Products Pension Scheme ('PGPPS') covering the employees of Campbell's UK business, and the Premier Grocery Products Ireland Pension Scheme ('PGPIPS') covering the employees of Campbell's Ireland. The Group also acquired two further schemes with the acquisition of Chivers Ireland in January 2007, the Chivers 1987 Pension Scheme, and the Chivers 1987 Supplementary Pension Scheme. These schemes are presented together below as the Premier schemes.

b) RHM schemes

As a result of the acquisition of RHM plc, the Group also acquired the RHM Pension Scheme, the Premier Foods Ireland Pension Scheme (1994), the Premier Foods Ireland Van Sales Scheme and the French Termination Indemnity Arrangements. These schemes are presented together below as the RHM schemes, with the exception of the French Termination Indemnity Arrangements which have been included in the speciality bakery businesses disposal group following their classification as discontinued operations.  

The exchange rates used to translate the overseas Euro based schemes are £1.00 = 1.2541 Euros for the average rate during the year, and £1.00 = 1.0310 Euros for the closing position at 31 December 2008.

Under all the schemes detailed above, the employees are entitled to retirement benefits which vary as a percentage of final salary on retirement.

The assets of all schemes are held by the trustees of the respective schemes and are independent of the Group's finances. The schemes invest through investment managers appointed by the trustees in UK and European equities and in investment products made up of a broader range of assets. The plan assets do not include any of the Group's own financial instruments, nor any property occupied by, or other assets used by, the Group.

At the balance sheet date, the principal actuarial assumptions used for the principal schemes were as follows:

	Premier schemes		RHM schemes
	2008		2008
Discount rate	6.3%		6.3%
Inflation	2.8%		2.8%
Expected salary increases	3.8%		2.8%
Future pension increases	2.0%		2.0%
	2007		2007
Discount rate	5.9%		5.9%
Inflation	3.3%		3.3%
Expected salary increases	4.3%		3.3%
Future pension increases	2.4%		2.4%

For the smaller overseas schemes the discount rate ranges from 4.0% to 5.6%, expected salary increases from 0.0% to 4.5%, and future pension increases from 0.0% to 3.0%. The Group has adopted more conservative mortality rates, the 'Medium Cohort' assumption, for all schemes this year. The mortality assumptions are based on standard mortality tables which allow for future mortality improvements. The assumptions are as follows:

Life expectancy	Premier schemes	RHM schemes	Total
Male pensioner, currently aged 65	85.3	84.8	84.9
Female pensioner, currently aged 65	87.9	87.1	87.3
Male non-pensioner, currently aged 45	86.6	86.1	86.2
Female non-pensioner, currently aged 45	89.0	88.3	88.4

The fair values of plan assets split by type of asset are as follows:

Pension scheme assets	Premier schemes	RHM schemes	Total
Assets at 31 December 2008
Equities	148.5	387.5	536.0
Government Bonds	12.6	1.4	14.0
Corporate Bonds	9.4	277.9	287.3
Property	1.3	191.1	192.4
Absolute / Target Return Products	180.4	222.9	403.3
Interest rate and inflation Swaps	26.5	250.0	276.5
Cash / Other	36.7	782.1	818.8
Fair value of scheme assets	415.4	2,112.9	2,528.3
Assets at 31 December 2007
Equities	222.8	605.7	828.5
Government Bonds	30.5	85.1	115.6
Corporate Bonds	8.7	289.3	298.0
Property	1.6	96.6	98.2
Absolute / Target Return Products	232.6	176.1	408.7
Interest rate and inflation Swaps	-	9.6	9.6
Cash / Other	10.0	816.8	826.8
Fair value of scheme assets	506.2	2,079.2	2,585.4

The schemes invest in interest rate and inflation swaps to protect from fluctuations in interest and inflation.

The expected rates of return on assets were:

	Premier schemes	RHM schemes	Total
2008 (for 2009 return)
Expected rate (%)	7.4	6.3	6.5
Market value (£m)	415.4	2,112.9	2,528.3
2007 (for 2008 return)
Expected rate (%)	8.0	6.9	7.2
Market value (£m)	506.2	2,079.2	2,585.4
2006 (for 2007 return)
Expected rate (%)	7.5	-	7.5
Market value (£m)	465.7	-	465.7

The expected return on pension scheme assets is based on the long-term investment strategy set out in the Schemes' Statement of Investment Principles at the start of the year. 

The actual rate of return on plan assets was a loss of 18.2% (2007: 4.6% gain) for Premier schemes, and a 4.3% gain for RHM schemes (2007: 5.8% gain). 

The pension schemes hold a charge over the assets of the Group.

The amounts recognised in the balance sheet arising from the Group's obligations in respect of its defined benefit schemes is as follows:

	Premier schemes	RHM schemes	Total
	£m	£m	£m
2008
Present value of funded obligations	(587.7)	(1,952.1)	(2,539.8)
Fair value of plan assets	415.4	2,112.9	2,528.3
(Deficit)/surplus in scheme	(172.3)	160.8	(11.5)
2007
Present value of funded obligations	(581.7)	(2,126.9)	(2,708.6)
Fair value of plan assets	506.2	2,079.2	2,585.4
Deficit in scheme	(75.5)	(47.7)	(123.2)
2006
Present value of funded obligations	(550.4)	-	(550.4)
Fair value of plan assets	465.7	-	465.7
Deficit in scheme	(84.7)	-	(84.7)
2005
Present value of funded obligations	(418.9)	-	(418.9)
Fair value of plan assets	334.5	-	334.5
Deficit in scheme	(84.4)	-	(84.4)
2004
Present value of funded obligations	(368.3)	-	(368.3)
Fair value of plan assets	303.2	-	303.2
Deficit in scheme	(65.1)	-	(65.1)

All of the schemes recognise a deficit with the exception of the RHM scheme which is in surplus under IAS 19. This surplus of £163.7m has been shown separately on the face of the balance sheet within Non-current assets.

The increase in the discount rate during the year has been the main driver in the reduction in the fair value of funded obligations.  

Changes in the present value of the defined benefit obligation were as follows:

	Premier schemes	RHM schemes	Total
	£m	£m	£m
2008
Opening defined benefit obligation	(581.7)	(2,126.9)	(2,708.6)
Current service cost	(9.0)	(8.1)	(17.1)
Past service cost	-	(2.8)	(2.8)
Interest cost	(33.9)	(122.9)	(156.8)
Actuarial gain	23.3	214.8	238.1
Other costs/exchange differences	(10.2)	(4.1)	(14.3)
Curtailments	-	(0.2)	(0.2)
Contributions by plan participants	(4.3)	(13.1)	(17.4)
Benefits paid	28.1	111.2	139.3
Closing defined benefit obligation	(587.7)	(1,952.1)	(2,539.8)
2007
Opening defined benefit obligation	(550.4)	-	(550.4)
Acquisition of subsidiary undertaking	(15.9)	(2,231.8)	(2,247.7)
Current service cost	(10.2)	(7.0)	(17.2)
Past service cost	-	(2.1)	(2.1)
Interest cost	(29.1)	(89.6)	(118.7)
Actuarial gain	2.6	135.8	138.4
Other costs/exchange differences	(3.1)	(1.0)	(4.1)
Curtailments	0.6	(4.6)	(4.0)
Contributions by plan participants	(3.7)	(10.8)	(14.5)
Benefits paid	27.5	84.2	111.7
Closing defined benefit obligation	(581.7)	(2,126.9)	(2,708.6)

Changes in the fair value of plan assets were as follows:

	Premier schemes	RHM schemes	Total
	£m	£m	£m
2008
Opening fair value of plan assets	506.2	2,079.2	2,585.4
Expected return	39.7	140.4	180.1
Administrative and life insurance costs	(2.2)	(5.5)	(7.7)
Actuarial losses	(131.6)	(50.3)	(181.9)
Contributions by employer	18.0	43.1	61.1
Contributions by plan participants	4.3	13.1	17.4
Other income/exchange differences	9.1	4.1	13.2
Benefits paid	(28.1)	(111.2)	(139.3)
Closing fair value of plan assets	415.4	2,112.9	2,528.3
2007
Opening fair value of plan assets	465.7	-	465.7
Acquisition of subsidiary undertaking	13.2	1,993.3	2,006.5
Expected return	36.3	104.6	140.9
Administrative and life insurance costs	(1.9)	(4.2)	(6.1)
Actuarial (loss)/gains	(14.8)	11.7	(3.1)
Contributions by employer	28.8	46.3	75.1
Contributions by plan participants	3.7	10.8	14.5
Other income/exchange differences	2.7	0.9	3.6
Benefits paid	(27.5)	(84.2)	(111.7)
Closing fair value of plan assets	506.2	2,079.2	2,585.4

  The history of the plans for the current and prior years is as follows:

	Premier schemes	RHM schemes	Total
	£m	£m	£m
2008
Experience adjustments on plan liabilities	23.3	214.8	238.1
Experience adjustments on plan assets	(131.6)	(50.3)	(181.9)
Net actuarial (loss)/gain for the year	(108.3)	164.5	56.2
Cumulative actuarial (loss)/gain	(186.3)	312.0	125.7
2007
Experience adjustments on plan liabilities	2.6	135.8	138.4
Experience adjustments on plan assets	(14.8)	11.7	(3.1)
Net actuarial (loss)/gain for the period	(12.2)	147.5	135.3
Cumulative actuarial (loss)/gain	(78.0)	147.5	69.5
2006
Experience adjustments on plan liabilities	4.4	-	4.4
Experience adjustments on plan assets	11.7	-	11.7
Net actuarial gain for the year	16.1	-	16.1
Cumulative actuarial loss	(65.8)	-	(65.8)
2005
Experience adjustments on plan liabilities	(43.7)	-	(43.7)
Experience adjustments on plan assets	17.8	-	17.8
Net actuarial loss for the year	(25.9)	-	(25.9)
Cumulative actuarial loss	(81.9)	-	(81.9)
2004
Experience adjustments on plan liabilities	(65.8)	-	(65.8)
Experience adjustments on plan assets	9.8	-	9.8
Net actuarial loss for the year	(56.0)	-	(56.0)
Cumulative actuarial loss	-	-	-

The actual return on plan assets was a £1.8m loss (2007: £137.8m gain), which is £181.9m less (2007: £3.1m less) than the expected return on plan assets of £180.1m (2007: £140.9m) at the start of the relevant periods. 

The actuarial gain on liabilities of £238.1m (2007: £138.4m gain) comprises a loss on member experience of £8.6m (2007: £30.6m gain) and an actuarial gain due to changes in assumptions of £246.7m (2007: £107.8m gain).

The net actuarial gains taken to the statement of recognised income and expense were £56.2m (2007: £135.3m gain). These were £37.4m (2007: £95.8m gain) net of taxation (with tax at 28% for UK schemes, and 12.5% for Irish schemes).

The Group expects to contribute approximately £56.2m (2008: £73.0m) to its defined benefit plans in 2009, £23.9m (2008: £22.0m) of regular contributions and £32.3m (2008: £51.0m) of additional contributions to fund the scheme deficits.

  The amounts recognised in the income statement are as follows:

	Premier schemes	RHM schemes	Total
	£m	£m	£m
2008
Current service cost	(9.0)	(8.1)	(17.1)
Past service cost	-	(2.8)	(2.8)
Administrative and life insurance costs	(2.2)	(5.5)	(7.7)
Interest cost	(33.9)	(122.9)	(156.8)
Expected return on plan assets	39.7	140.4	180.1
Losses on curtailment	-	(0.2)	(0.2)
Total expense	(5.4)	0.9	(4.5)
2007
Current service cost	(10.2)	(7.0)	(17.2)
Past service cost	-	(2.1)	(2.1)
Administrative and life insurance costs	(1.9)	(4.2)	(6.1)
Interest cost	(29.1)	(89.6)	(118.7)
Expected return on plan assets	36.3	104.6	140.9
Gains/(losses) on curtailment	0.6	(4.6)	(4.0)
Total expense	(4.3)	(2.9)	(7.2)

Defined Contribution Schemes

A number of companies in the Group operate defined contribution schemes, predominantly stakeholder arrangements. In addition a number of schemes providing life assurance benefits only are operated. The total expense recognised in the income statement of £1.1m (2007: £1.2m) represents contributions payable to the plans by the Group at rates specified in the rules of the plans.  

Other post retirement benefits

The Group does not provide any other post retirement benefits.

26.  Share capital

			2008	2007
			£m	£m
Authorised
1,500,000,000 (2007: 1,500,000,000) ordinary shares of 1 pence each			15.0	15.0
Issued and fully paid
844,604,805 (2007: 844,600,074) ordinary shares of 1 pence each			8.5	8.5

2008

During the year, 4,731 1 pence ordinary shares were issued to certain employees at a price of between 171 and 186 pence per ordinary share upon the exercise of share options and were fully paid up.

2007

On 15 February 2007, a special resolution was passed to increase the authorised share capital of the Company to £15.0m by the creation of 500m ordinary shares at 1 pence each. 

On 16 March 2007, the Group completed the acquisition of 100% of RHM plc for a total consideration of £1,338.0m. The consideration for the acquisition was one new ordinary Premier Foods' share and 83.2 pence in cash for each RHM share held. Premier Foods issued 348,324,199 shares at 296.25 pence for each ordinary share in RHM plc. 

During 2007, 577,148 1 pence ordinary shares were issued to certain employees at a price of between 171 and 230 pence per ordinary share upon the exercise of share options and were fully paid up.

Share option schemes

The Company has share option schemes for certain senior executives and key individuals. The employees involved in the schemes hold options to subscribe for up to 32.9m ordinary shares of 1 pence each between 2009 and 2014, granted at prices ranging between 1 pence per ordinary share and 196 pence per ordinary share. The number of shares subject to options, the periods in which they were granted and the periods in which they may be exercised are given below. For 2008, a summary of the Company's schemes is as follows:

1.    The Company adopted an Executive Share Option Scheme ('ESOS') at the time of admission for executive directors. A portion of the options granted under the ESOS have now vested and are exercisable between 3 and 10 years after grant as certain performance criteria have been met. These options are equity settled and the number of shares subject to options, the periods in which they were granted and the periods in which they may be exercised are given below.

2.    A Savings Related Share Option Scheme for employees. The employees involved in the scheme have the right to subscribe for up to 20.8m ordinary shares. The number of shares subject to options, the periods in which they were granted and the periods in which they may be exercised are given below. These options are equity-settled, have a maximum term of 3.5 years and generally vest only if employees remain in employment to the vesting date.

3.    A Long-Term Incentive Plan for senior managers. The individuals involved in the scheme have the right to subscribe for up to 5.0m ordinary shares at 1 pence per ordinary share. The number of shares subject to awards, the periods in which they were granted and the periods in which they may be awarded are given below. These awards are equity-settled and have a maximum term of 3 years. 

The vesting conditions attached to the Company's Long-Term Incentive Plan arrangements are explained in detail in the directors' remuneration report.  

4.     A Co-Investment Plan for directors and senior managers. The scheme is structured as a share matching plan and the individuals involved in the scheme are required to commit and retain a significant amount of capital in the form of Premier Foods' shares. The number of shares subject to awards, the periods in which they were granted and the periods in which they may be awarded are given below. These awards are equity-settled and have a maximum term of 3 years. 

5.    A small number of shadow awards have been made to senior management of the Group. These awards are cash-settled, have a maximum term of 3 years and vest with the employees in accordance with the terms of the Long-Term Incentive Plan noted below. They have an exercise price of 1 pence and remaining contractual life of 1.6 years.

Details of the share options of the Premier Foods Executive Share Option Scheme are as follows:

		2008		2007
	Year of expiry	Options	Weighted average exercise price (p)	Options	Weighted average exercise price (p)
Outstanding at beginning of year		2,598,043	170	3,036,978	170
Forfeited during the year		(38,683)	170	(438,935)	170
Outstanding at the end of the year	2014	2,559,360	170	2,598,043	170
Exercisable at the end of the year		1,096,869	170	1,113,447	170

The options outstanding at 31 December 2008 had a weighted average exercise price of 170 pence (2007: 170 pence), and a weighted average remaining contractual life of 5.6 years (2007: 6.6 years).

  The options under the Premier Foods plc Executive Share Option Scheme are equity-settled and have a maximum term of 10 years. Options to subscribe for 2.6m of the ordinary shares under this scheme are subject to vesting conditions as set out in the directors' remuneration report. 

Details of the share options of the Premier Foods Savings Related Share Option Schemes are as follows:

	2008		2007
	Options	Weighted average exercise price (p)	Options	Weighted average exercise price (p)
Outstanding at beginning of year	11,373,922	184	2,713,315	184
Scheme rolled over from RHM acquisition	-	-	3,992,613	171
Exercised during the year	(4,731)	172	(100,832)	173
Granted during the year	16,876,711	72	5,655,364	196
Forfeited during the year	(7,462,154)	184	(886,538)	179
Outstanding at the end of the year	20,783,748	93	11,373,922	184
Exercisable at the end of the year	17,495	182	-	-

During the year, 16.9m (2007: 5.7m) options were granted under the Savings Related Share Option Schemes, with a weighted average exercise price at the date of exercise of 72 pence per ordinary share. 

The options outstanding at 31 December 2008 had a weighted average exercise price of 93 pence (2007: 184 pence), and a weighted average remaining contractual life of 2.6 years (2007: 2.0 years).

Details of the share options of the Premier Foods Long-Term Incentive Plan are as follows:

	2008		2007
	Options	Weighted average exercise price (p)	Options	Weighted average exercise price (p)
Outstanding at beginning of year	4,417,661	1	2,253,829	1
Scheme rolled over from RHM acquisition	-	-	2,128,490	1
Granted during the year	2,394,634	1	994,198	1
Forfeited during the year	(1,777,018)	1	(958,856)	1
Outstanding at the end of the year	5,035,277	1	4,417,661	1
Exercisable at the end of the year	-	-	-	-

During the year, 2.4m (2007: 1.0m) of awards were granted under the Long-Term Incentive Plan, with a weighted average share price at the date of exercise of 1 pence. The awards outstanding at 31 December 2008 had a weighted average remaining contractual life of 1.7 years (2007: 1.7 years). Details of executive director participation in the above schemes can be found in the directors' remuneration report.  

  The weighted average fair value of awards granted during the year was 70 pence per award (2007: 206 pence). This was determined using a closed-form approach as a proxy for a stochastic Monte Carlo valuation model (which takes into account market based performance conditions) except for the Savings Related Share Option Scheme where the Black-Scholes model was used. The significant inputs into the model were:

	2008	2007
Weighted average share price (pence)	126	272
Annual risk-free interest rate (%)	4.0	5.5
Expected dividend at grant date (%)	4.5	5.3
Expected option life (years)	3	3
Expected volatility (%)	33	21

The expected dividend is based on the annual average dividend yield for the Group up to the date of the grant  (15 April 2008) and matched to the expected life of the awards. 

The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last three years. 

Details of the share awards of the Premier Foods Co-Investment Plan are as follows:

			2008	2007
			Awards	Awards
Outstanding at beginning of year			1,272,454	-
Granted during the year			3,530,765	1,272,454
Forfeited during the year			(375,801)	-
Outstanding at the end of the year			4,427,418	1,272,454
Exercisable at the end of the year			-	-

The awards outstanding at 31 December 2008 had a weighted average remaining contractual life of 2.1 years (2007: 2.4 years). The weighted average fair value of awards granted during the year was 66 pence per award (2007: 238 pence). This was determined using a closed-form approach as a proxy for a stochastic Monte Carlo valuation model. The significant inputs into the model were:

	2008	2007
Weighted average share price (pence)	118	314
Annual risk-free interest rate (%)	4.0	5.5
Expected dividend (%)	4.5	5.3
Expected option life (years)	3	3
Expected volatility (%)	33	21

The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last three years.  

In 2008, the Group recognised an expense of £1.4m net of a £0.8m credit in relation to lower social security obligations on the share awards (2007: £3.9m), related to all equity-settled share based payment transactions.

  27.  Reserves

	Share premium reserve	Merger reserve	Other reserves	Profit and loss reserve	Minority interest reserve
						Total
	£m	£m	£m	£m	£m	£m
At 1 January 2007	760.6	(136.8)	-	(167.8)	0.1	456.1
Loss for the year	-	-	-	(63.3)	-	(63.3)
Dividends paid	-	-	-	(61.1)	-	(61.1)
Shares issued (a)	-	1,029.7	-	-	-	1,029.7
Cost of shares issued (a)	-	(2.2)	-	-	-	(2.2)
Actuarial gain (net of taxation) (b)	-	-	-	95.8	-	95.8
Share based payments (c)	-	-	-	3.9	-	3.9
Purchase of own shares (d)	-	-	-	(3.0)	-	(3.0)
Tax on share options (e)	-	-	-	(1.1)	-	(1.1)
Movement on net investment hedge	-	-	(3.1)	-	-	(3.1)
Exchange differences on translation	-	-	-	0.1	-	0.1
At 31 December 2007	760.6	890.7	(3.1)	(196.5)	0.1	1,451.8
Loss for the year	-	-	-	(443.8)	-	(443.8)
Dividends paid	-	-	-	(54.7)	-	(54.7)
Actuarial gain (net of taxation) (b)	-	-	-	37.4	-	37.4
Share based payments (c)	-	-	-	2.2	-	2.2
Tax on share options (e)	-	-	-	(0.5)	-	(0.5)
Movement on net investment hedge	-	-	(19.9)	-	-	(19.9)
Exchange differences on translation	-	-	-	10.8	-	10.8
At 31 December 2008	760.6	890.7	(23.0)	(645.1)	0.1	983.3

Share premium reserve

The share premium reserve comprises the premium paid over the nominal value of shares for shares issued.

Merger reserve

The merger reserve comprises the non-statutory premium arising on shares issued as consideration for acquisition of subsidiaries where merger relief under section 131 of the Companies Act 1985 applies.

Other reserves

Other reserves comprise the hedging reserve which represents the effective portion of the gains or losses on derivative financial instruments that have been designated as hedges.

Profit and loss reserve

The profit and loss reserve represents the cumulative surplus or deficit and the own shares reserve which represents the cost of shares in the Premier Foods plc purchased in the market and held by the Company on behalf of the Employee Benefit Trust ('EBT') in order to satisfy options and awards under the Company's incentive schemes.

Minority interest reserve

The minority interest reserve represents the reserves attributable to minority interests.

Notes to the reserves table

(a)        On 16 March 2007, Premier Foods plc issued 348,324,199 new 1 pence ordinary shares for a premium of 295.25 pence for the acquisition of RHM. Under s.131 of the Companies Act 1985, share premium arising as a result of acquiring more than 90% of the issued share capital of a company is recorded in the merger reserve.

(b)        Actuarial gains relating to the Group’s retirement benefit schemes are recognised directly within the profit and loss reserve (note 25).

 

(c)        Amounts are in respect of outstanding share option schemes in accordance with IFRS 2: “Share-based payment”.

 

(d)        On acquisition of RHM plc the Group inherited two employment benefit trusts. The purpose of these trusts was to distribute ordinary shares in the Company of RHM plc for the benefit of employees from the previous RHM business. On acquisition the shares held by the EBT converted to the shares of the Company of Premier Foods plc.

 

As at 31 December 2008, the UK Trustee of the EBT held 86,274 ordinary shares in the Company and the overseas Trustee of the EBT held 850,000 ordinary shares in the Company. The value of the Company’s shares held by the Trustees of the EBTs at 31 December 2008 was £0.3m based on market value at the year end.

 

As at 31 December 2008, the Trustee of the Premier Foods plc EBT held 57,509 ordinary shares in the Company.

 

(e)        Amounts are in respect of deferred tax on the intrinsic value of outstanding options above.

28.  Acquisitions

Subsequent to the year ended 31 December 2007, the Group has completed the exercise of attributing fair value adjustments to the assets and liabilities acquired with the RHM business. As a result, final fair value adjustments have been made to the previously presented provisional fair values at 31 December 2007 in relation to a decrease in trade receivables of £0.4m, a decrease in property, plant and equipment of £0.5m, an increase in engineering spares inventory of £0.5m, an increase in dilapidation provisions of £0.7m and the associated decrease in deferred tax liabilities of £0.5m. The impact of these final fair value adjustments is an increase in goodwill by £0.6m which was disclosed in our Interim Report 2008.  These have been incorporated with effect from the date of acquisition and the comparative balance sheet has been restated to reflect these fair value adjustments.

  29.  Notes to the cash flow statement

Reconciliation of operating (loss)/profit to cash flows from operating activities

		Year		Year
		ended		ended
		31 Dec 2008		31 Dec 2007
			(Restated)*
		£m		£m
Continuing operations
Operating (loss)/profit		(40.5)		72.0
Depreciation of property, plant and equipment		50.7		44.9
Amortisation of intangible assets		76.7		62.0
Impairment/loss on disposal of property, plant and equipment		10.6		15.9
Impairment/loss on disposal of intangible assets		-		0.6
Impairment of goodwill		194.4		-
Revaluation gains on financial instruments		(6.9)		(4.7)
Share based payments		1.4		3.9
Net cash inflow from operating activities before interest and tax and movements in working capital		286.4		194.6
Increase in inventories		(38.8)		(5.6)
(Increase)/decrease in trade and other receivables		(42.5)		103.4
Increase in trade and other payables and provisions		23.6		138.4
Exchange gain/(loss) on working capital		1.1		(3.1)
Movement in net retirement benefit obligations		(56.6)		(63.9)
Cash generated from continuing operations		173.2		363.8
Discontinued operations		16.2		(3.6)
Cash generated from operating activities		189.4		360.2
Exceptional items cash flow		(121.8)		(105.5)
Cash generated from operations before exceptional items		311.2		465.7
* Comparatives have been restated to reflect the classification of Martine Spécialités S.A.S., Le Pain Croustillant and Sofrapain S.A.S. as discontinued operations.

Additional analysis of cash flows

		Year		Year
		ended		ended
		31 Dec 2008		31 Dec 2007
		£m		£m
Interest paid		(150.4)		(122.8)
Interest received		45.0		24.8
Financing costs		(20.2)		(18.8)
Return on financing		(125.6)		(116.8)
Sale of subsidiaries / businesses		-		22.0

Reconciliation of cash and cash equivalents to net borrowings

		Year		Year
		ended		ended
		31 Dec 2008		31 Dec 2007
		£m		£m
Net inflow of cash and cash equivalents		9.9		21.3
Debt acquired with RHM		-		(0.5)
Unamortised debt issuance acquired with RHM		-		4.8
Decrease/(increase) in finance leases		2.6		(2.7)
Increase in borrowings		(133.2)		(987.4)
Other non-cash changes		(27.6)		(12.6)
Increase in borrowings net of cash		(148.3)		(977.1)
Total borrowings net of cash at beginning of year		(1,618.5)		(641.4)
Total net borrowings at end of year		(1,766.8)		(1,618.5)

Analysis of movement in borrowings 

			As at 1 January 2008	Cash flow	Other non-cash changes	As at 31 December 2008
			£m	£m	£m	£m
Bank overdrafts			(0.1)	(6.8)	-	(6.9)
Cash and bank deposits			23.9	16.7	-	40.6
Net cash and cash equivalents			23.8	9.9	-	33.7
Borrowings - term facilities			(1,439.8)	118.2	(20.0)	(1,341.6)
Borrowings - revolving credit facilities			(200.5)	(249.5)	-	(450.0)
Finance leases			(4.3)	1.1	1.5	(1.7)
Other			(12.5)	(5.1)	-	(17.6)
Gross borrowings net of cash			(1,633.3)	(125.4)	(18.5)	(1,777.2)
Debt issuance costs			14.8	3.2	(7.6)	10.4
Total net borrowings			(1,618.5)	(122.2)	(26.1)	(1,766.8)

30.  Operating lease commitments

The Group has lease agreements in respect of properties, plant and equipment, for which future minimum payments extend over a number of years.

		2008		2007
		Property	Plant and	Property	Plant and
			Equipment		equipment
		£m	£m	£m	£m
Within one year		16.4	13.9	12.2	12.0
Between 2 and 5 years		56.0	33.0	71.8	34.2
After 5 years		115.3	1.5	84.8	-
		187.7	48.4	168.8	46.2

Included in property above are £33.5m (2007: £48.4m) of operating lease commitments for discontinued operations.

The Group sub-lets various properties under non-cancellable lease arrangements.

31.  Capital commitments

		2008		2007
		£m		£m
Contracts placed for future capital expenditure not provided in the financial statements		22.8		42.6

32.  Contingencies

In April 2008 the UK Office of Fair Trading notified the Group of an inquiry into potential co-ordination of retail prices in sectors of the Grocery market. The Group is co-operating with the inquiry which is currently at the information gathering stage.

There were no other material contingent liabilities at 31 December 2008. Other contingencies and guarantees in respect of the Parent Company are described in note 8 of the Parent Company financial statements.

33.  Related party transactions

Key management personnel of the Group are considered to be the Executive and Non-Executive Directors, the Operations Board and the Company Secretary. 

Details of their remuneration are set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. Further information about the remuneration of individual directors is provided in the audited part of the directors' remuneration report.

	Year ended 31 Dec 2008		Year ended 31 Dec 2007
		£m		£m
Salaries and other short term benefits		4.3		4.4
Post employment benefits		0.4		0.4
Termination benefits		0.7		0.6
Share based payments		0.1		0.8
		5.5		6.2

Apart from the information above and the related party transaction disclosed in the directors' report, there were no other related party transactions.

34.  Post balance sheet events

Financing Arrangements

On 12 January 2009, the Group arranged a £60m working capital facility to provide additional working capital headroom to 31 March 2009. As a consequence the total available debt facility during this period is £1,990m.

On 5 March 2009, the Group announced revised financing arrangements including a proposed share issuance and proposed changes to lending agreements to provide greater covenant and liquidity headroom and to extend the maturity of the facility. These revised financing arrangements require the approval of ordinary shareholders at an extraordinary general meeting scheduled for 23 March 2009.

With regards the lending agreements, the Group announced amendments to its Term and Revolving Credit Facilities.  These amendments included a rephasing of the facilities to provide additional liquidity and covenant headroom to an extended maturity date in December 2013. The total facility as at 31 March 2009 will be £1,930m and will be amortised by £100m in April 2009. The facility will then be amortised by £50m in December 2009 and then in June and December of each year until December 2013 when the facility matures. 

As part of the amendment process the covenant schedule for the Group has been reset. The two covenants which the Group is required to meet are calculated and tested on a 12 month rolling basis at the half year and full year each year. For the next 12 months, those tests are as follows:

	June 2009	December 2009
Net Debt/EBITDA	5.00:1	4.75:1
EBITDA/Cash Interest	2.00:1	2.00:1

For the purposes of the covenant calculation net debt is defined as net borrowings and amounts guaranteed under standby letters of credit but excluding any financial indebtedness in relation to arrangements under its debtor securitisation programme and any items relating to its subsidiary Citadel Insurance Company Limited.  EBITDA is defined as profit before tax excluding exceptional items, movement on the fair valuation of financial instruments, pension financing credit/charge, expenses relating to employee share incentive schemes and cash interest, which is defined to be net interest excluding the amortisation of debt issuance costs, exceptional write-off of financing costs, unwind of discount on provisions, securitisation interest and fair value adjustments for interest hedging instruments.

With regards to the proposed share issue, the Group proposes to raise approximately £404m, before expenses, through the issue of 1,553,416,776 new ordinary shares. This will be structured as a placing and open offer of 1,055,756,006 new ordinary shares at a price of 26 pence per share, and a firm placing of 497,660,770 new ordinary shares at a price of 26 pence per share. Subject to the approval of shareholders at the extraordinary general meeting, the Company expects to receive the proceeds on approximately 27 March 2009. 

Pensions

The Group has agreed new arrangements with its four main Pension Schemes (RHM Pension Scheme, Premier Foods Pension Scheme, Premier Ambient Products Pension Scheme and Premier Grocery Products Pension Scheme) regarding deficit payments. The key terms of this agreement relate to providing greater certainty on deficit payments by fixing the deficit payments from 2009 to 2013 and agreeing that any incremental deficits arising from the 2010 and 2013 valuations will be recovered over a 12 year period. The new arrangements are conditional on the share placing and new financing arrangements.

Disposal of the speciality bakery businesses

The Group received firm offers for its speciality bakery businesses, Martine Spécialités S.A.S., Le Pain Croustillant and Sofrapain S.A.S.  Subsequent to year end the Group completed the employee consultation process required under French labour law and binding offer agreements were signed in relation to the disposal of the three businesses. 

The sales of Le Pain Croustillant and Martine Spécialitiés S.A.S. completed on 2 March 2009 and we expect the sale of Sofrapain S.A.S. to complete in April 2009.

Receivables Purchasing Agreement

In March 2009, the Group extended the maturity date of its Receivables Purchasing Agreement provided by DLLI (a wholly owned subsidiary of Rabobank Group) from December 2010 to March 2012. The underlying commercial terms have also been renegotiated, the principle changes being an increase in the margin and a reduction in the advance rate. 

Interest rate swaps

Since 31 December 2008, the Group has negotiated an amendment to the break clauses in two of its interest rate swaps. This has the effect of extending the first break date under these interest rate swaps to August 2012 from March 2009 and December 2009 and makes the break dates consistent with other long dated swaps in its portfolio.   It also has the effect of fixing the net payments on one long dated swap and amending its terms such that it will now settle on termination for a mark to market payment to the counterparty bank.

 

END

 

 

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