IFRS Statement

Associated British Foods PLC 15 December 2005 Associated British Foods plc Presentation of information under IFRS For immediate release 15 December 2005 Associated British Foods plc ('ABF'), the international food, ingredients and retail group, is today presenting financial information for the year ending 17 September 2005 prepared in accordance with IFRS. The move to IFRS will not change how ABF is managed and will have no impact on cash flow. The changes to the financial results prepared under UK GAAP are minimal and are as follows: • Adjusted operating profit of £555m, down £10m from £565m • Adjusted earnings per share of 52.5p, down 0.5p from 53.0p • Net assets of £3,879m, increased by £154m from £3,725m • Net cash funds of £212m, down £12m from £224m • Unadjusted operating profit of £550m, up £63m from £487m • Unadjusted earnings per share of 48.0p, up 5.8p from 42.2p Adjusted profit which excludes the effect of amortisation of intangibles, profits less losses on the sale of businesses and fixed assets and provision for the loss on the termination of a business, is to be retained as a key measure of operating performance. Adjusted profit will also exclude the effect of other non-recurring items of income and expenditure that are material, either by their nature or their size, that are relevant to an understanding of the group's financial performance. There were no such items in 2005. A full overview of the impact of IFRS is set out in the following Transition Document, together with a set of unaudited restated 2005 financial statements for comparative purposes. Detailed reconciliations of the changes to the financial information previously published in accordance with UK GAAP are set out in appendices. As previously indicated, the principal changes arise from differences in the accounting treatment relating to business combinations, deferred taxation and financial instruments. Commenting on the group's adoption of IFRS, John Bason, Finance Director, said: 'The adoption of IFRS has had a minimal impact on the key measures of performance for the group and it will not change our business model, strategy, risk management processes or our cash flows.' ABF will be hosting a conference call today at 9am to present financial information for the year ending 17 September 2005 prepared in accordance with IFRS. To participate in the conference call please telephone +44 208 322 3199. A replay of the conference call will be available on 0207 081 9440 (account number 422522, recording 854723). To download the full pdf version of the IFRS Statement, please go to the ABF website and follow the link from the homepage. www.abf.co.uk For further enquiries please contact: Associated British Foods Citigate Dewe Rogerson John Bason, Finance Director Jonathan Clare, Chris Barrie, Sara Batchelor Tel: +44 (0)20 7399 6500 Tel: +44 (0)20 7638 9571 Geoff Lancaster Tel: +44 (0)1733 422901 Associated British Foods plc IFRS Transition Document Introduction In accordance with European Union regulations, all groups listed within the EU are required to report their financial statements in accordance with International Financial Reporting Standards (IFRS) for all accounting periods commencing on or after 1st January 2005. The group's interim results for the period ending 4 March 2006 will be prepared applying IFRS accounting policies. These results and the financial statements for the year ending 16 September 2006 will include comparative information for 2005. To explain how the group's reported performance and financial position are affected by IFRS, this document presents the restatement of certain information previously reported under UK Generally Accepted Accounting Principles (UK GAAP). The restated information presented in this document includes the primary financial statements together with selected notes (the 'restated financial information'). The restated financial information is unaudited. Reconciliations to assist the reader in understanding the nature and quantum of differences between UK GAAP and IFRS for the financial information included in this report are provided in the appendices. The major changes for ABF resulting from the introduction of IFRS relate to: • The accounting for business combinations where intangible assets which did not qualify for separate recognition under UK GAAP are now recognised separately from goodwill. • The cessation of amortisation of goodwill. • The accounting for deferred tax on the basis of differences between the book value and tax base of assets and liabilities (temporary differences). This results in deferred tax being recognised in circumstances that did not give rise to deferred tax under UK GAAP. For example, deferred tax is now recognised on non-qualifying intangible assets even though no tax liability or asset is expected to crystallise in the foreseeable future. • The accounting for derivative financial instruments with effect from 18 September 2005. These will now be reflected in the balance sheet at fair value with subsequent changes in fair value being accounted for immediately in the income statement unless certain conditions are satisfied. • The calculation of profits and losses on the sale of subsidiaries which now no longer take account of goodwill previously written off to reserves. Basis of Preparation The restated financial information for: the transition to IFRS at 18 September 2004, the year ended 17 September 2005 and the adoption of IAS 32 and IAS 39 at 18 September 2005 has been prepared in accordance with International Financial Reporting Standards ('IFRS'), including International Accounting Standards ('IAS') and interpretations issued by the International Accounting Standards Board ('IASB') and its committees, and as interpreted by any regulatory bodies applicable to the group. These are subject to ongoing amendment by the IASB and subsequent endorsement by the EU and are therefore subject to possible change. As a result, information contained within this release and the accounting policies for the year ended 16 September 2006 may require updating for any subsequent amendment to, or interpretation of, IFRS. The group is adopting the IASB's amendment to IAS 19, entitled IAS 19 Actuarial Gains and Losses. This amendment requires separate recognition of the operating and financing costs of defined benefit pension schemes (and similarly funded employee benefits) in the income statement. The standard permits a number of options for the recognition of actuarial gains or losses. The group's policy is to recognise immediately, any variation in full in a statement of recognised income and expense, as permitted by the amendment to IAS 19. The EU has not yet endorsed this amendment and the above policy is subject to change, depending on the outcome of the endorsement process. It has been assumed that the draft amendment to IAS 21, The Effects of Changes in Foreign Exchange Rates, issued by the IASB on 30 September 2005 will be adopted and endorsed by the EU. The draft amendment clarifies the identification and accounting for exchange differences on monetary items forming part of a net investment in a foreign operation and requires that exchange differences on such items be recognised in equity. The group is adopting the provisions of IAS 39, Financial Instruments: Recognition and Measurement, from 18 September 2005. Financial instruments in the year ended 17 September 2005 remain recorded in accordance with UK GAAP accounting policies at that time. The adjustment to IFRS will be reflected in the balance sheet at 18 September 2005 and an assessment of the impact of IAS 39 on net assets as at that date is included in the appendices to this report. IFRS 1 exemptions IFRS 1, First-time Adoption of International Financial Reporting Standards, sets out the procedures that the group must follow when it first adopts IFRS as the basis for preparing its consolidated financial statements. The group is required to establish its IFRS accounting policies as at 17 September 2005 and, in general, apply these retrospectively to determine the IFRS opening balance sheet at its transition date of 18 September 2004. IFRS 1 provides a number of optional exemptions from the general principles. The most significant of these, to the extent that ABF will take advantage of them, are set out below: • Business combinations - the provisions of IFRS 3 have been applied from 3 September 2004. The net carrying value of goodwill at 18 September 2004, after adjustment to include the acquisition of the US herbs & spices business on 3 September 2004 under IFRS, has been deemed to be the cost at 19 September 2004; • Financial instruments - the provisions of IAS 32 and IAS 39 have not been applied to the period ended 17 September 2005. Financial instruments are accounted for under UK GAAP until 17 September 2005 and will not be restated; • Cumulative translation differences arising on consolidation of subsidiaries - IAS 21 requires such differences to be held in a separate reserve rather than included in the profit and loss reserve under UK GAAP. This reserve has been deemed to be nil on 19 September 2004; • Share-based payments - IFRS 2 has not been applied to share options granted prior to 7 November 2002 nor to any options that vested prior to 19 September 2004; and • Employee benefits - the group has elected to recognise all cumulative actuarial gains and losses in relation to employee benefit schemes at the date of transition. Presentation of financial information The primary statements within the financial information contained in this document have been presented in accordance with IAS 1, Presentation of Financial Statements. However, this format and presentation may require modification in the event that further guidance is issued and as practice develops. Overview of impact The impact of the adoption of IFRS on the income statement for the year ended 17 September 2005 and on the net assets at that date is summarised below together with details of the impact of the adoption of IAS 39 at 18 September 2005: Adjusted profit measures * Unaudited Operating Profit Profit Profit Profit Net profit before for the before for the assets tax year tax year £m £m £m £m £m £m UK GAAP 565 590 418 479 333 3,725 Business combinations - Fair value differences (8) (8) (5) (8) (5) (5) - Amortisation of goodwill - - - 78 67 67 - Amortisation of intangible assets - - - (25) (20) (20) Reverse recycled goodwill - - - 5 5 - Share based payments 1 1 1 1 1 (1) Tax on share of profits of joint ventures and associates (3) (3) - (3) - - Deferred taxation - - - - (2) 7 Retranslation of goodwill and intangibles - - - - - 13 Reverse accrual for dividends - - - - - 95 Actuarial adjustment on net pension assets - - - - - (2) Restated at 17 September 2005 555 580 414 527 379 3,879 Adoption of IAS 39 at 18 September 2005 13 Deferred tax on IAS 39 adjustments (4) 3,888 Earnings per share - UK GAAP 53.0p 42.2p - IFRS 52.5p 48.0p The adoption of IFRS has little impact on the group's adjusted measures of reported performance which exclude amortisation of intangible assets, profits less losses on the sale of fixed assets and businesses and provisions for the losses on termination of operations. The adjustments that do arise at this level relate principally to the manner in which fair values are attributed to the separable net assets acquired in a business combination and the requirement under IFRS to deduct the related tax from the group's share of profits of its associates and joint ventures which are included in operating profit. * Adjusted measures of profit are stated before amortisation of intangibles, profits less losses on the sale of fixed assets, profits less losses on the sale of businesses and provisions for the loss on termination of an operation. The group's unadjusted measures of performance are also affected by the fact that under IFRS: • Goodwill previously written off to reserves is not taken into account in calculating the profit or loss arising on the sale of businesses. • Goodwill is no longer amortised but intangible assets, which are now recognised in circumstances that would not have been the case under UK GAAP, are amortised. • With only limited exceptions, deferred tax is recognised on all differences between the book values of assets and liabilities and their tax bases (temporary differences). As a result, where intangible assets and tangible fixed assets are acquired as part of a business combination, deferred tax must be recognised on any associated temporary differences. The income statement is affected post-acquisition because the temporary differences recognised on acquisition subsequently change as a result of depreciation and amortisation. The group's net assets at 17 September 2005 are impacted by the treatment of goodwill, intangible assets and deferred tax described above. In addition, goodwill and intangible assets arising on acquisitions subsequent to 3 September 2004, where IFRS 3 has been applied, are denominated in local currencies and retranslated at each balance sheet date. Proposed dividends are no longer reflected as liabilities until they have been approved by the shareholders. Changes in accounting for share based payments and employee benefits have only a minor impact as the group does not have any significant share based incentive schemes and had adopted FRS 17 in full in its 2005 UK GAAP accounts. Under UK GAAP, all of the group's property leases were accounted for as operating leases. IAS 17, Leases, requires the element of a property lease that relates to land to be considered separately from the element that relates to buildings. The land element will generally continue to be accounted for as an operating lease but, in certain cases, the buildings element will now be accounted for as a finance lease. Adjustment has therefore been made to include the fair value of these finance leased buildings within fixed assets, with an obligation of equal amount being provided as a lease creditor. There is therefore no impact on the group's net assets. The finance lease obligations have, however, reduced the group's net cash funds by £12m at 17 September 2005. As noted previously, the group will adopt IAS 39 with effect from 18 September 2005. The group enters into derivative financial instruments to hedge its exposure to fluctuations in exchange rates and commodity prices. Under IAS 39, such derivative financial instruments are recorded at their fair value. The impact of the adoption of IAS 39 is to increase the group's net assets at 18 September 2005 by £9m. Restated consolidated statements 1.1 Consolidated income statement for the year ended 17 September 2005 Unaudited Continuing Ongoing Acquisitions Total £m £m £m Revenues 5,201 421 5,622 Operating costs (4,701) (398) (5,099) 500 23 523 Share of profit from joint ventures and associates 5 2 7 Profits less losses on sale of fixed assets 20 - 20 Operating profit 525 25 550 Adjusted operating profit 505 50 555 Profits less losses on the sale of fixed assets 20 - 20 Amortisation of intangibles - (25) (25) Profits less losses on sale of businesses (1) Provision for loss on termination of an operation (47) Profit before interest 502 Investment income 49 Interest payable (34) Other net financial income 10 Profit before taxation 527 Adjusted profit before taxation 580 Profits less losses on the sale of fixed assets 20 Profits less losses on sale of businesses (1) Provision for loss on termination of an operation (47) Amortisation of intangibles (25) Taxation (141) Profit for the year 386 Attributable to: Equity shareholders 379 Minority interests 7 Profit for the year 386 Basic and diluted earnings per ordinary share 48.0p Dividends per share 17.15p The results of acquisitions shown separately above are those of both the US herbs & spices business and the international yeast and bakery ingredients business which were acquired from Burns Philp and which were negotiated concurrently. The acquisition of herbs & spices completed on 3 September 2004. The acquisition of yeast and bakery ingredients completed on 30 September 2004. 1.2 Consolidated balance sheet at 17 September 2005 Unaudited £m Non-current assets Intangible assets 1,152 Property, plant and equipment 2,255 Non-current assets held for sale 9 Investments in joint ventures 36 Investments in associates 15 Employee benefits asset 95 Deferred tax assets 78 Total non-current assets 3,640 Current assets Inventories 558 Trade and other receivables 678 Other investments 269 Cash and cash equivalents 929 Total current assets 2,434 TOTAL ASSETS 6,074 Current liabilities Interest bearing loans and overdrafts (447) Trade and other payables (747) Income tax (113) Amounts owed to joint ventures (3) Provisions (61) Total current liabilities (1,371) Non-current liabilities Interest bearing loans and overdrafts (539) Income tax (4) Provisions (29) Deferred tax liabilities (233) Employee benefits liability (19) Total non-current liabilities (824) TOTAL LIABILITIES (2,195) NET ASSETS 3,879 Equity Issued capital 47 Other reserves 173 Own shares reserve (7) Pension reserve 49 Translation reserve 13 Retained earnings 3,575 3,850 Minority interest - equity 29 TOTAL EQUITY 3,879 1.3 Consolidated cash flow statement for the year ended 17 September 2005 Unaudited £m Cash flow from operating activities Profit before taxation 527 Adjustments for non-cash items: - Amortisation 25 - Depreciation 161 - Share option charge (1) - Other 8 Pension cost less contributions (8) Profits less losses on sale of fixed assets (20) Share of profit from joint ventures and associates (7) Profits less losses on sale of businesses 1 Provision for loss on termination of an operation 47 Investment income (49) Interest payable 34 Other net financial income (10) Other movement in own shares held reserve 1 Operating cash flow before changes in working capital and provisions 709 Increase in inventories (33) Increase in receivables (20) Decrease in payables (9) Increase in other provisions - Income tax paid (132) Net cash from operating activities 515 Cash flows from investing activities Dividends received from joint ventures 2 Dividends received from associates 2 Purchase of tangible fixed assets (403) Proceeds from the sale of tangible fixed assets 39 Purchase of subsidiary undertakings (1,130) Sale of subsidiary undertakings 8 Proceeds from the sale of joint ventures and associates (18) Interest received 54 Loan repayment from joint ventures 51 Net cash from investing activities (1,395) Cash flows from financing activities Dividends paid to minorities (4) Dividends paid to shareholders (135) Interest paid (29) Management of liquid resources 273 Increase in short term loans 365 Increase in long term loans 170 Increase in bank borrowings 9 Inflow from reductions in own shares held 7 Net cash from financing activities 656 Net decrease in cash and cash equivalents (224) Cash and cash equivalents at 18 September 2004 1,144 Effect of exchange rate fluctuations on cash held 9 Cash and cash equivalents at 17 September 2005 929 1.4 Consolidated statement of recognised income and expense for the year ended 17 September 2005 Unaudited £m Actuarial losses on defined benefit schemes (7) Foreign exchange translation differences 43 Tax on currency translation differences (1) Net loss recognised directly in equity 35 Net profit for the year 386 Total recognised gains and losses relating to the year 421 Attributable to: Equity shareholders 413 Minority interests 8 Total recognised income and expense for the year 421 1.5 Consolidated balance sheet at 18 September 2004 Unaudited £m Non-current assets Intangible assets 592 Property, plant and equipment 1,447 Non-current assets held for sale 12 Investments in joint ventures 12 Investments in associates 11 Other investments 1 Employee benefits asset 91 Deferred tax assets 17 Total non-current assets 2,183 Current assets Inventories 496 Trade and other receivables 592 Other investments 539 Cash and cash equivalents 1,144 Total current assets 2,771 TOTAL ASSETS 4,954 Current liabilities Interest bearing loans and overdrafts (68) Trade and other payables (634) Income tax (106) Amounts owed to joint ventures (1) Provisions (14) Total current liabilities (823) Non-current liabilities Interest bearing loans and overdrafts (357) Income tax (8) Provisions (25) Deferred tax liabilities (142) Employee benefits liability (10) Total non-current liabilities (542) TOTAL LIABILITIES (1,365) NET ASSETS 3,589 Equity Issued capital 47 Other reserves 173 Own shares reserve (14) Pension reserve 56 Translation reserve - Retained earnings 3,300 3,562 Minority interest - equity 27 TOTAL EQUITY 3,589 Accounting policies under IFRS Basis of accounting under IFRS The restated financial information for: the transition to IFRS at 18 September 2004, the year ended 17 September 2005 and the adoption of IAS 32 and IAS 39 at 18 September 2005 has been prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board which are expected to be endorsed by the EU and to be effective at 31 December 2005. Basis of preparation The financial statements are presented in sterling, rounded to the nearest million. They are prepared on the historical cost basis except that derivative financial instruments, investments held for trading and investments available-for-sale are stated at their fair value. Recognised assets and liabilities that are hedged are stated at fair value in respect of the risk that is hedged. The preparation of financial statements under IFRS requires management to make judgements, estimates and assumptions about the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognised in the period in which the estimates are revised. The financial statements of the company and its subsidiary undertakings are made up for the 52 weeks ended 17 September 2005, except that, to avoid delay in the preparation of the consolidated financial statements, those of Australia, New Zealand, China, Poland and the North and South American subsidiary undertakings are made up to 31 August 2005. The accounting policies set out below have been applied to all periods presented except where the policy is indicated as relating to the implementation of IAS 39 which is being adopted from 18 September 2005. Basis of consolidation The consolidated financial statements include the results of the Company and all of its subsidiary undertakings from the date that control commences to the date that control ceases. The consolidated financial statements also include the group's share of the results of its joint ventures and associates on an equity accounting basis from the point at which joint control or significant influence retrospectively commences to the date that it ceases. Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Business combinations On the acquisition of a business or an interest in a joint venture or associate, fair values, reflecting conditions at the date of acquisition, are attributed to the net assets including significant intangible assets acquired. Adjustments to fair values include those made to bring accounting policies into line with those of the group. Revenue Revenue represents the net invoiced value of goods and services delivered to customers excluding sales taxes. Revenue is recognised when the risks and rewards of the underlying products and services have been substantially transferred to the customer. Revenue is stated net of price discounts, certain promotional activities and similar items. Foreign currencies In individual companies, transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rate prevailing at the balance sheet date. Any resulting differences are taken to the income statement. On consolidation, assets and liabilities of group companies that are denominated in foreign currencies are translated into sterling at the rate of exchange at the balance sheet date. Income and expense items are translated into sterling at weighted average rates of exchange other than substantial transactions which are translated at the rate of exchange on the date of the transaction. Differences arising from the retranslation of opening net assets of group companies, together with differences arising from the restatement of the net results of group companies from average or actual rates, to rates at the balance sheet date, are taken to equity. Net investment hedges take the form of either foreign currency borrowings or derivatives. All foreign exchange gains or losses arising on translation or net investments are recorded in equity and included in cumulative translation differences. Liabilities used as hedging instruments in a net investment hedge are revalued at closing exchange rates with resulting gains or losses taken to equity. Foreign exchange contracts hedging net investments in overseas businesses are revalued at fair value. Effective fair value movements are taken to equity with any ineffectiveness recognised in the income statement. Pensions and other post employment benefits The group's principal pension funds are defined benefit plans. In addition, the group has defined contribution plans, unfunded post employment medical benefit liabilities and other unfunded post employment liabilities. For defined benefit plans, the amount charged in the income statement is the cost of benefits accruing to employees over the year, plus any vested benefit improvements granted to members by the group during the year. It also includes a credit equivalent to the group's expected return on pension plan assets over the year, offset by a charge equal to the expected increase in plan liabilities over the year. The difference between the market value of plan assets and the present value of plan liabilities is disclosed as an asset or liability on the consolidated balance sheet. Any related deferred tax (to the extent it is recoverable) is disclosed separately on the consolidated balance sheet. Any differences between the expected return on assets and that actually achieved, and any changes in the liabilities over the year due to changes in assumptions or experience within the plans, are recognised in the statement of recognised income and expense. Contributions payable by the group in respect of defined contribution plans are charged to operating profit as incurred. Share based payments: employee benefits The Executive Share Incentive Plan allows executives to receive an allocation of shares to be received at the end of 2005/06 subject to attainment of certain financial performance criteria. The fair value of the shares to be awarded is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the executives become unconditionally entitled to the shares. The fair value of the shares allocated is measured taking into account the terms and conditions upon which the shares were allocated. The amount recognised as an expense is adjusted to reflect the actual number of shares that vest. The Share Option Scheme (1994) and Executive Option Scheme (2000) allow executives to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the executives become unconditionally entitled to the options. The fair value of the options granted is measured using a binomial lattice model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting. Income tax Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items taken directly to reserves. Current tax is the tax expected to be payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, together with any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. Financial instruments Financial instruments in the year ended 17 September 2005 are recorded in accordance with UK GAAP accounting policies. Accounting for financial instruments from 18 September 2005 will be in accordance with the following policies under IFRS. Adjustment to IFRS will be reflected in the balance sheet at 18 September 2005. The group uses derivative financial instruments to hedge its exposure to fluctuations in foreign exchange and interest rates and also to changes in the price of certain commodities used in the manufacture of its products. Derivative financial instruments are recognised in the balance sheet at their fair value calculated using either discounted cash flows or option pricing models consistently applied for similar types of instrument. Both techniques take into consideration assumptions based on market data. Changes in the fair value of derivatives that do not qualify for hedge accounting are charged or credited to the income statement. The purpose of hedge accounting is to mitigate the impact on the group of changes in exchange or interest rates and commodity prices, by matching the impact of the hedged item and the hedging instrument in the income statement. To qualify for hedge accounting the hedging relationship must meet several conditions with respect to documentation, probability of occurrence, hedge effectiveness and reliability of measurement. At inception of the transaction the group documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions. The group also documents its assessment, both at the hedge inception and on a quarterly basis, as to whether the derivatives that are used in hedging transactions have been, and are likely to continue to be, highly effective in offsetting changes in the fair value or cash flows of hedged items. The group designates derivatives that qualify as hedges for accounting purposes as either: (a) a hedge of the fair value of a recognised asset or liability (fair value hedge), (b) a hedge of a forecast transaction or firm commitment (cash flow hedge), or (c) a hedge of a net investment in a foreign entity. The method of recognising the resulting gains or losses from movements in fair values is dependent on whether the derivative contract is designated to hedge a specific risk and qualifies for hedge accounting. Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in reserves. The ineffective part of any gain or loss is recognised in the income statement immediately. Thereafter, the movement in the derivative financial instrument and asset or liability is recognised in the income statement. When the forecast transaction subsequently results in the recognition of an asset or liability, the associated cumulative gain or loss is removed from reserves and is included in the initial measurement of the non financial asset or liability. Otherwise, the cumulative gain or loss is removed from reserves and is recognised in the income statement at the same time as the hedged transaction. To the extent that any part of the hedge is ineffective, the gain or loss on that part is recognised in the income statement. To the extent that an instrument used to hedge a net investment in a foreign operation is determined to be an effective hedge, the gain or loss arising is recognised directly in reserves. The ineffective portion is recognised immediately in the income statement. Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment sufficient to reduce them to their estimated residual value. Land is not depreciated. The estimated useful lives are as follows: - freehold buildings 66 years - plant and equipment, fixtures and fittings: sugar factories 20 years other operations 12 years - vehicles 8 years Leases Where the group has substantially all the risks and rewards of ownership of an asset that is subject to a lease, the lease is treated as a finance lease. Other leases are treated as operating leases. Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. The benefit of lease incentives received is recognised in the income statement over the life of the lease. Intangible assets other than goodwill Intangible assets that are acquired by the group and have a finite life are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets from the date they are available for use. The estimated useful lives are as follows: - customer relationships up to 5 years - technology and brands up to 15 years Goodwill All business combinations are accounted for applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiary undertakings, associates and joint ventures. In respect of business acquisitions that have occurred since 3 September 2004, goodwill represents the excess of the purchase consideration over the fair value of the net identifiable assets acquired, including separately identified intangible assets. In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which represents the net book value recorded under previous GAAP. The classification and accounting treatment of business combinations that occurred prior to 3 September 2004 has not been reconsidered in preparing the group's opening IFRS balance sheet at 18 September 2004. Goodwill is systematically tested for impairment at each balance sheet date and is not amortised. Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes raw materials, direct labour and expenses, an appropriate proportion of production and other overheads, but not borrowing costs. Cost is calculated on a first-in first-out basis. Note 1 Segment Reporting Segment reporting is presented in respect of the group's business and geographical segments. The primary format, business segments, is based on the group's management and internal reporting structure and combines businesses with common characteristics. Inter-segment pricing is determined on an arm's length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Business segments The group is comprised of the following business segments: - Grocery - The manufacture of grocery products, including hot beverages, sugar and sweeteners, vegetable oils, bread and baked goods, ethnic foods, herbs & spices and meat & dairy products which are sold into retail, wholesale and foodservice. - Primary Food - The processing of sugar beet and sugar cane for sale to industrial users and to Silver Spoon, which is included in the grocery segment. - Agriculture - The manufacture of animal feeds and the provision of other products and services for the agriculture sector. - Ingredients - The manufacture of yeast, bakery improvers, dough conditioners and other bakery ingredients, together with yeast extracts, emulsifiers, enzymes, polyols and antacids. - Retail - Buying and merchandising value clothing and accessories through the Primark and Penneys retail chains. Geographical segments The secondary format presents the revenues, profits and assets for the following geographical segments: - United Kingdom - Rest of Europe - The Americas - Australia, Asia & Rest of World In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. Business segments Primary Inter- Grocery Food Agriculture Ingredients Retail Central segment Total 2005 2005 2005 2005 2005 2005 2005 2005 £m £m £m £m £m £m £m £m Revenue from external customers 2,615 802 747 609 1,006 - - 5,779 Businesses disposed - - 11 - - - - 11 Inter-segment revenue (7) (8) - (6) - - (147) (168) Total external revenue 2,608 794 758 603 1,006 - (147) 5,622 Adjusted profit from operations 185 166 20 65 140 (21) - 555 Businesses disposed 1 - 3 - - (5) - (1) Provision for loss on termination - - - - (47) - - (47) of an operation Profits less losses on sale of (1) 24 (3) - - - - 20 property, plant & equipment Amortisation of intangibles (5) - - (20) - - - (25) Segment result 180 190 20 45 93 (26) - 502 Pension credit - - - - - 10 - 10 Profit from operations 180 190 20 45 93 (16) - 512 Net financing costs - - - - - 15 - 15 Income tax expense - - - - - (141) - (141) Minority interest - - - - - (7) - (7) Net profit for the year 180 190 20 45 93 (149) - 379 Segment assets (excl. investments 1,885 727 173 1,046 877 873 - 5,581 in associates and joint ventures) Investment in associates & joint 5 5 25 16 - - - 51 ventures Segment assets 1,890 732 198 1,062 877 873 - 5,632 Segment liabilities (348) (96) (55) (99) (230) (12) - (840) Capital expenditure 109 38 7 25 228 - - 407 Depreciation 68 35 6 24 28 - - 161 Amortisation 5 - - 20 - - - 25 Other significant non-cash 14 - - 5 47 - - 66 expenses Geographical segments United Rest of The Australia, Inter- Total Kingdom Europe Americas Asia & segment 2005 2005 2005 2005 Rest of 2005 world 2005 £m £m £m £m £m £m Revenue from external customers 2,990 652 1,104 959 (83) 5,622 Segment assets 2,557 1,181 1,075 819 - 5,632 Capital expenditure 263 54 21 69 - 407 Depreciation 94 15 24 28 - 161 Amortisation 2 10 10 3 - 25 Other significant non-cash 51 5 8 2 - 66 expenses Other significant non-cash expenses includes a provision of £47m for costs associated with the termination of Littlewoods. Net Segment Assets & Liabilities 4,792 Balance Sheet (Extract) Intangible assets 1,152 Tangible assets 2,255 Non-Current assets held for sale 9 Interests in net assets of: Joint Ventures 36 Associates 15 Current Assets Inventories 558 Trade and other 678 receivables Cash and cash 929 equivalents Trade and other (747) payables Amounts owed to JV's (3) Provisions (90) 4,792 Note 2 Income Tax Expense for the year ended 17 September 2005 Unaudited £m Current tax expense UK - income tax at 30% 84 Overseas - income and corporation tax 49 Joint ventures and associates - Over provided in prior years (1) 132 Deferred tax expense UK deferred tax (2) Overseas deferred tax 12 Over provided in prior years (1) Total income tax expense in income statement 141 Reconciliation of effective tax rate Nominal tax charge at UK income tax rate (30%) 156 Lower tax rates on overseas earnings (25) Expenses not deductible for tax purposes 9 Utilisation of losses (1) Deferred tax not recognised 3 Adjustments in respect of prior periods (1) 141 Appendices 1. Adoption of IAS 39 - impact for the year ended 17 September 2005 As permitted by IFRS 1, the group does not intend to adopt IAS 39, Financial Instruments: Recognition and Measurement, retrospectively and will therefore adopt this standard with effect from 18 September 2005. Had IAS 39 been applied to the balance sheet as at 17 September 2005, the group's net assets would have been £3,888m. The table below details the various components of the impact on net assets on adoption of IAS 39: Unaudited £m Closing net assets on 17 September 2005 before adoption of IAS 39 3,879 Adjustments arising from adoption of IAS 39: - Forward exchange contracts 10 - Energy swaps 3 Deferred tax (4) Opening net assets on 18 September 2005 after adoption of IAS 39 3,888 2 Detailed Reconciliations 2.1 Consolidated income statement for the year ended 17 September 2005 IFRS 2 IAS 36 IAS 36 IFRS 3 IFRS 3 IAS 12 Under Re- UK Share-based Re- Amort- Bus- Re- Def- Sum Un- UK format GAAP pay- verse isation iness verse erred of audited GAAP to under ment good- of combin- re- tax IFRS IFRS IFRS IFRS will intang- ations cycled adjust- presen- amort- ibles good- ments tation isation will £m £m £m £m £m £m £m £m £m £m £m Continuing operations Turnover of the group including its share of joint ventures 5,774 Less share of turnover of joint ventures (152) Group 5,622 5,622 Revenues - 5,622 turnover Operating costs (5,145) (5,145) Operating 1 78 (25) (8) - - 46 (5,099) costs 477 1 78 (25) (8) - - 46 523 7 7 Share of profit from - 7 joint ventures and associates 20 20 Profits less - 20 losses on sale of fixed assets Group operating profit 477 27 504 Operating 1 78 (25) (8) - - 46 550 profit 484 Adjusted 1 78 - (8) - - 71 555 operating profit 20 Profits less - - - - - - - 20 losses on the sale of fixed assets - Amortisation - - (25) - - - (25) (25) of intangibles Share of operating results of -joint 4 (4) - - - ventures -associates 6 (6) - - - Total operating profit 487 - - - - Operating profit before amortisation of goodwill 565 (565) - - - Amortisation of goodwill (78) 78 - - - - - Profits less losses on sale of fixed assets 20 (20) - - - Profits less losses on sale of business (6) (6) Profits less 5 5 (1) losses on sale of businesses Provision for loss on term- ination of an operation (47) (47) Provision for - (47) loss on termination of an operation 451 Profit before 1 78 (25) (8) 5 - 51 502 interest Investment income 49 49 Investment - 49 income Profit on ordinary activities before interest 503 - - Interest payable (34) (34) Interest - (34) payable Other financial income 10 10 Other net - 10 financial income Profit on ordinary activities before taxation 479 (3) 476 Profit 1 78 (25) (8) 5 - 51 527 Before taxation Adjusted profit before taxation 590 509 Adjusted 1 78 - (8) - - 71 580 profit before taxation Profits less losses on sale of fixed assets 20 20 Profits less - - - - - - - 20 losses on the sale of fixed assets Profits less losses on sale of business (6) (6) Profits less - - - - 5 - 5 (1) losses on sale of businesses Provision for loss on termination of an operation (47) (47) Provision for - - - - - - - (47) loss on termination of an operation Amortisation of goodwill (78) - Amortisation - - (25) - - - (25) (25) of intangibles Tax on profit on ordinary activities (139) 3 (136) Taxation (0) (11) 5 3 (2) (5) (141) Profit on ordinary activities after Profit for taxation 340 - 340 the year 1 67 (20) (5) 5 (2) 46 386 Minority interests - equity (7) 7 - - - Profit for the financial year 333 7 340 1 67 (20) (5) 5 (2) 46 386 Basic and diluted earnings per ordinary share 42.2p Basic and diluted 48.0p earnings per ordinary share Adjusted earnings per ordinary share 53.0p Dividends per 17.15p share 2.2 Consolidated balance sheet at 17 September 2005 IAS 10 IAS 16 IAS 36 Under Reformat UK GAAP Reverse Reverse Reverse UK to under dividends revaluation goodwill GAAP IFRS IFRS not yet reserve amortisation presen- approved tation £m £m £m £m £m £m Fixed Non-current assets assets Intangible assets - goodwill 1,035 1,035 Intangible 78 assets Tangible assets 2,252 (9) 2,243 Property, plant and equipment 9 9 Non-current assets held for sale Interests in net assets of - joint ventures 36 36 Investments in joint ventures - associates 15 15 Investments in associates 97 97 Employee benefits asset 42 42 Deferred tax assets 3,338 139 3,477 Total - - 78 non-current assets Current Current assets assets Stocks 558 558 Inventories Debtors 719 (41) 678 Trade and other receivables Investments 901 (632) 269 Other Investments Cash at bank and in hand 297 632 929 Cash and cash equivalents 2,475 (41) 2,434 Total current - - - assets 5,911 TOTAL - - 78 ASSETS Creditors amounts falling due within Current one year liabilities Short-term borrowings (447) (447) Interest bearing loans and overdrafts Other creditors (958) 116 (842) Trade and 95 other payables (113) (113) Income tax (3) (3) Amounts owed to joint ventures (61) (61) Provisions (1,405) (61) (1,466) Total current 95 - - liabilities Net current assets 1,070 Total assets less current liabilities 4,408 Creditors amounts falling due Non-current after one year liabilities Loans (527) (527) Interest bearing loans and overdrafts Other creditors (4) (4) Income tax (531) Provisions for liabilities (203) 174 (29) Provisions and charges (142) (142) Deferred tax (11) liabilities 3,674 Pension 68 (68) Asset Pension Liability (17) (1) (18) Employee benefits liability (720) Total - - (11) non-current liabilities Net Assets 3,725 - 3,725 NET ASSETS 95 - 67 Capital and Equity reserves Called up share capital 47 47 Issued capital Revaluation reserve 3 3 Revaluation (3) reserve Other 173 173 Other reserves reserves (6) (6) Own shares reserve 51 51 Pension reserve - Translation reserve Profit and loss account 3,473 (45) 3,428 Retained 95 3 67 earnings Equity shareholders funds' 3,696 - 3,696 95 - 67 Minority interests in subsidiary undertakings - equity 29 29 Minority interest - equity 3,725 - 3,725 TOTAL 95 - 67 EQUITY IAS 36 IFRS 3 IAS 21 IFRS 3 IFRS 2 IAS 19 IAS 12 IAS 17 Goodwill Reverse Share- Leases Amort- Bus- and re- based Sum of Un- isation iness intang- cycled pay- Pension IFRS audited of intang- combin- ibles good- ment adjust- Def- Adjust- IFRS ibles ations currency will ment ferred ment £m £m £m £m £m £m £m £m £m £m Non-current assets Intangible assets (25) 14 13 37 117 1,152 Property, plant 12 12 2,255 and equipment Non-current assets held - 9 for sale Investments in joint ventures - 36 Investments in associates - 15 Employee benefits asset (2) (2) 95 Deferred tax 36 - 36 78 assets Total non-current assets (25) 50 13 - - (2) 37 12 163 3,640 Current assets Inventories - - 558 Trade and other receivables - 678 Other - 269 Investments Cash and cash equivalents - 929 Total current assets - - - - - - - - - 2,434 TOTAL (25) 50 13 - - (2) 37 12 163 6,074 ASSETS Current liabilities Interest bearing loans - (447) and overdrafts Trade and 95 (747) other payables Income tax - (113) Amounts owed to joint - (3) ventures Provisions - (61) Total current - - - - - - - 95 (1,371) liabilities Non-current liabilities Interest bearing loans (12) (12) (539) and overdrafts Income tax - (4) Provisions - (29) Deferred tax liabilities 5 (55) (1) 1 (30) (91) (233) Employee benefits liability (1) (1) (19) Total 5 (55) - - (1) - (30) (12) (104) (824) non-current liabilities NET ASSETS (20) (5) 13 - (1) (2) 7 - 154 3,879 Equity Issued - 47 capital Revaluation (3) - reserve Other - 173 reserves Own shares reserve (1) (1) (7) Pension (2) (2) 49 reserve Translation reserve 13 13 13 Retained (20) (5) - - - 7 147 3,575 earnings (20) (5) 13 - (1) (2) 7 - 154 3,850 Minority interest - equity - 29 TOTAL (20) (5) 13 - (1) (2) 7 - 154 3,879 EQUITY 2.3 Consolidated cash flow statement for year ended 17 September 2005 IFRS 2 IAS 36 IAS 36 IFRS 3 Under Refor- UK Share Rever- Amorti- Busi- Sum Unaud- UK mat GAAP based sal sation ness of ited GAAP to under pay- of of combi- IFRS IFRS IFRS IFRS ment good- intan- nations adjust- pre- will gibles ments sen- amorti- tation sation £m £m £m £m £m £m £m £m £m Cash flow from Cash flow from operating activities operating activities Operating profit 477 4 481 Profit before 1 78 (25) (8) 46 527 taxation Adjustments for - - non-cash items: Amortisation of 78 78 - Amortisation of (78) 25 (53) 25 goodwill intangibles Depreciation 161 161 - Depreciation - 161 - - Share option (1) (1) (1) charge - - Other 8 8 8 (8) (8) Pension cost less - (8) contributions (20) (20) Profits less losses - (20) on sale of fixed assets (7) (7) Share of profit from joint - (7) ventures and associates 1 1 Profits less losses - 1 on sale of businesses 47 47 Provision for loss on - 47 termination of an operation (49) (49) Investment income - (49) 34 34 Interest payable - 34 (10) (10) Other net financial - (10) income 1 1 Other movement in - 1 own shares held reserve (7) 709 Operating cash flow - - - - - 709 before changes in working capital and provisions (Increase)/decrease in working capital - stocks (33) (33) Increase in - - (33) inventories - debtors (20) (20) Increase in - (20) receivables - creditors (9) (9) Decrease in - (9) payables Other provisions - - Increase in other - - provisions (132) (132) Income tax paid - (132) Pension cost less (8) 8 - contributions Other movement in own 1 (1) - shares held reserve 647 (132) 515 Net cash from - - - - - 515 operating activities Cash flows from - 0 investing activities Dividends from joint 2 2 Dividends received - 2 ventures from joint ventures Dividends from 2 2 Dividends received - 2 associates from associates (403) (403) Purchase of - (403) tangible fixed assets 39 39 Proceeds from the - 39 sale of tangible fixed assets (1,130) (1,130) Purchase of - (1,130) subsidiary undertakings 8 8 Sale of subsidiary - 8 undertakings (18) (18) (Purchase)/proceeds from the sale - (18) of joint ventures and associates Return on investments and servicing of finance Investment income 54 54 Interest received - 54 Interest paid (29) 29 - Dividends paid to (4) 4 - minorities 21 Taxation (132) 132 - Capital expenditure and financial investment Purchase of tangible (403) 403 - fixed assets Sale of tangible 39 (39) - fixed assets Loan repayment from 51 51 Loan repayment from - 51 joint venture joint venture (313) Acquistions and disposals Purchase of (1,130) 1,130 - subsidiary undertakings Sale of joint (18) 18 - ventures and associates Sale of subsidiary 8 (8) - undertakings (1,140) Equity divdends paid (135) 135 - Net cash (outflow)/ (1,048) inflow before use of liquid funds and financing 300 (1,395) Net cash from - - - - - (1,395) investing activities Cash flows from financing activities (4) (4) Dividends paid to - (4) minorities (135) (135) Dividends paid to - (135) shareholders (29) (29) Interest paid - (29) Management of liquid 649 (376) 273 Management of - 273 resources liquid resources Financing - - Borrowings due within (111) 476 365 Increase in short - 365 one year - repayment term loans of loans - increase in loans 476 (476) - - - Borrowings due after (205) 375 170 Increase in long - 170 one year - repayment term loans of loans - increase in loans 375 (375) - - - Increase/(decrease) 9 9 Increase in bank - 9 in bank borrowings borrowings Inflow from 7 7 Inflow from - 7 reductions in/ reductions in own (increase in cost of) shares held own shares held 1,200 (544) 656 Net cash from - - - - - 656 financing activities Increase/(decrease) 152 (376) (224) Net decrease in - - - - - (224) in cash cash and cash equivalents 2.4 Consolidated balance sheet at 18 September 2004 IAS 10 IAS 16 IAS 21 IFRS 2 IAS 19 IAS 12 Under Refor- UK Reverse Rever- Good- Share Pen- Defer- Sum Unaudi- UK mat GAAP divi- sal will based sion red of ted GAAP to under dends of and pay- adjust- tax IFRS IFRS IFRS IFRS not revalu- intan- ment ment adjust- pre- yet ation gibles ments sen- approv- reserve cur- tation ed rency £m £m £m £m £m £m £m £m £m £m £m Fixed assets Non-current assets Intangible 593 593 Intangible (1) (1) 592 assets - assets goodwill Tangible assets 1,459 (12) 1,447 Property, plant - 1,447 and equipment 12 12 Non-current - 12 assets held for sale Interests in 12 12 Investments in - 12 net assets of - joint ventures joint ventures - associates 11 11 Investments in - 11 associates Other 1 1 Other - 1 investments investments 93 93 Employee (2) (2) 91 benefits asset 17 17 Deferred tax - - 17 assets 2,076 110 2,186 Total - - (1) - (2) - (3) 2,183 non-current assets Current assets Current assets Stocks 496 496 Inventories - 496 Debtors 600 (8) 592 Trade and other - 592 receivables Investments 1,547 (1,008) 539 Other - 539 Investments Cash at bank 136 1,008 1,144 Cash and cash - 1,144 and in hand equivalents 2,779 (8) 2,771 Total current - - - - - - - 2,771 assets 4,957 TOTAL ASSETS - - (1) - (2) - (3) 4,954 Creditors amounts Current falling due within one liabilities year Short-term (68) (68) Interest - (68) borrowings bearing loans and overdrafts Other creditors (829) 107 (722) Trade and other 88 88 (634) payables (106) (106) Income tax - (106) (1) (1) Amounts owed to - (1) joint ventures (14) (14) Provisions - (14) (897) (14) (911) Total current 88 - - - - - 88 (823) liabilities Net current 1,882 assets Total assets 3,958 less current liabilities Creditors Non-current amounts falling liabilities due after one year Loans (357) (357) Interest - (357) bearing loans and overdrafts Other creditors (8) (8) Corporation tax - (8) (365) Provisions for (155) 130 (25) Provisions - (25) liabilities and charges (151) (151) Deferred tax (1) 1 9 9 (142) liabilities 3,438 Pension Asset 58 (58) Pension - (9) (9) Employee (1) (1) (10) Liability benefits liability (550) Total - - - (1) - 9 8 (542) non-current liabilities Net Assets 3,496 - 3,496 NET ASSETS 88 - (1) (1) (2) 9 93 3,589 Capital and Equity reserves Called up share 47 47 Issued capital - 47 capital Revaluation 3 3 Revaluation (3) (3) - reserve reserve Other reserves 173 173 Other reserves - 173 (14) (14) Own shares - - (14) reserve 58 58 Pension reserve (2) (2) 56 - Translation - - reserve Profit and loss 3,246 (44) 3,202 Retained 88 3 (1) (1) 9 98 3,300 account earnings Equity 3,469 - 3,469 88 - (1) (1) (2) 9 93 3,562 shareholders funds' Minority 27 27 Minority - 27 interests in interest - subsidiary equity undertakings - equity 3,469 - 3,496 TOTAL EQUITY 88 - (1) (1) (2) 9 93 3,589 This information is provided by RNS The company news service from the London Stock Exchange

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