Annual Report 2014

Notes to the Financial Statements

1. Statement of accounting policies

(a) Basis of preparation

The financial statements are prepared in accordance with generally accepted accounting principles under the historical cost convention and comply with financial reporting standards of the Financial Reporting Council, as promulgated by the Institute of Chartered Accountants in Ireland.

(b) Trading policy

In general it is the Parent Society’s trading policy to provide a return to supplying members equivalent to net proceeds realised in each product group. Accordingly the Parent Society’s purchase prices are subject to regular revision to reflect average market realisations. Arising from this policy, provision is made in the accounts for any amounts due to or from members.

(c) Basis of consolidation

The Group financial statements include the accounts of the Parent Society and its subsidiary companies, all of which are made up to 27 December 2014. The results of subsidiary companies are consolidated from their effective date of acquisition. Goodwill which arose on acquisitions prior to 31 December 1997 has been written off against reserves on acquisition. Goodwill arising on acquisitions since that date is capitalised and amortised over its expected useful economic life.

(d) Foreign currencies

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at a contracted rate. The resulting monetary assets and liabilities are translated at the balance sheet rate or the contracted rate and the exchange differences are dealt with in the profit and loss account.

The Group’s net investments in overseas subsidiary undertakings, joint ventures and associates are translated at the rate ruling at the balance sheet date except for goodwill. Goodwill arising on the investment in foreign currency subsidiaries is included at historic cost to the Group. In certain cases the Group provides long term loans to overseas subsidiaries, and such loans form part of the Group’s net investment in those overseas subsidiaries. The profits and losses of overseas subsidiary undertakings, joint ventures and associates are translated at average rates for the year. Exchange differences resulting from the retranslation of the net investment in overseas subsidiary undertakings, joint ventures and associates at closing rates, together with the differences on the translation of the profit and loss accounts, are dealt with through reserves and reflected in the statement of total recognised gains and losses. Where net investments are matched in whole or in part by foreign currency borrowings, the exchange differences arising on the retranslation of such borrowings are also recorded as reserve movements and reflected in the statement of total recognised gains and losses.

Rates used for translation of significant results and net assets into Euro:

Average Rates Period End Rates
€ 1 = 2014 2013 2014 2013

US$

1.3308

1.3275

1.2195

1.3758

GBP£ 0.8069 0.8488 0.7838 0.8353

(e) Financial Instruments

The Parent Society uses financial instruments to hedge exposures to foreign exchange fluctuations in its normal course of business and in accordance with the Group’s risk management policies. The Group’s policy is to use forward contracts to manage its exposures to foreign exchange risk. Exposure is transactional in nature and relates to sales contracts. The gains/losses on such instruments are recognised at the same time as the gains/losses are realised on the underlying hedged transaction.

(f) Turnover

Turnover represents the fair value of goods and services supplied to external customers exclusive of trade discounts and value added tax. Goods are deemed to have been delivered and related revenue recognised when the customer has access to the significant benefits inherent in the goods and exposure to the risks inherent in these benefits. It includes EU sales support which is taken into account when the related produce is sold and excludes inter-group sales. Services are deemed to have been delivered on the rendering of the related service.

(g) Private Storage Aid Income

The Parent Society places stock in an EU scheme called Private Storage Aid during certain months of the year. The income earned from the EU on this stock is accounted for as it is earned. The financing element of the income earned is included as interest receivable in the financial statements, all other elements of the income are included in turnover.

(h) Tangible Assets

Tangible fixed assets are stated at cost less accumulated depreciation.

Depreciation is not provided on freehold land. Depreciation on other tangible fixed assets is provided on a straight line or reducing balance basis as appropriate, the principal annual rates being as follows:

Freehold buildings: 2% to 5%
Leasehold land and buildings: written off over the term of the lease or its estimated useful life, whichever is the lower
Plant and equipment: 5% to 33%
Motor vehicles: 10% to 33%

Provision is made for any impairment of tangible fixed assets.

(i) Goodwill

Purchased goodwill arising on the acquisition of a business represents the excess of the acquisition cost over the fair value of the identifiable net assets when they were acquired. Any excess of the aggregate of the fair value of the identifiable net assets acquired over the fair value of the acquisition cost is negative goodwill.

Purchased goodwill arising on acquisitions prior to 31 December 1997 was eliminated against reserves on acquisition and negative goodwill arising on such acquisitions was credited directly to reserves as a matter of accounting policy. On the disposal of a business, any goodwill so treated is included in determining the profit or loss on sale of the business.

Purchased goodwill arising on acquisitions after 1 January 1998 is capitalised in the balance sheet and written off on a straight line basis over its useful economic life, subject to a maximum of 15 years.

Goodwill arising on the acquisition of subsidiaries is shown separately on the Balance Sheet. Goodwill arising on the investment in foreign currency subsidiaries is included at the historic cost to the Group.

(j) Impairment

The carrying amounts of the Group’s goodwill and tangible assets are reviewed at each balance sheet date to determine whether there is an indication of impairment. If any such indication exists, the recoverable amount of the asset, or the cash generating unit to which it relates, is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the profit and loss account.

The recoverable amount of such assets or cash generating units is the greater of their fair value less costs to sell or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset.

(k) Financial assets

Financial fixed assets are shown at cost less provisions for permanent impairment.

(l) Redeemable loan stock

Redeemable loan stock is included in equity until redemption. On redemption the amount redeemed is moved from equity to liabilities.

(m) Stocks

Stocks are valued at the lower of cost and net realisable value. Cost comprises invoiced price from suppliers and inward freight costs. Net realisable value is based on contracted or estimated selling prices adjusted for EU sales support, less selling and distribution expenses.

(n) Debtors

Debtors are included in the balance sheet based on outstanding amounts receivable at the period end from debtors less any provisions for doubtful debts.

(o) Taxation

Current taxation represents the amount expected to be paid or recovered in respect of taxable profit for the period and is calculated using the taxation rates that have been enacted or substantively enacted at the balance sheet date.

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.

Timing differences are differences between profit as computed for taxation purposes and profit as stated in the financial statements which arise because certain items of income and expenditure in the financial statements are dealt with in different periods for taxation purposes.

Deferred tax assets are recognised to the extent that it is considered more likely than not that there will be suitable taxable profits from which the future reversal of underlying timing differences can be deducted. Deferred taxation is measured on a discounted basis at the taxation rates that are anticipated to apply in the periods in which the timing differences reverse, based on taxation rates and legislation which are enacted or substantively enacted at the balance sheet date.

(p) Grants

Capital based grants are accounted for in the period they are received and are treated as deferred credits. These grants are released to the profit and loss account on the same basis as the related assets are depreciated.

(q) Research and development

Research and development expenditure is written off to the profit and loss account in the period in which it is incurred.

(r) Leased assets

Operating lease rentals are charged to the profit and loss account on a straight line basis over the lease term.

(s) Post retirement benefits

The Group operates a number of externally and internally funded pension schemes for its Irish employees and some employees overseas. The assets of the externally funded pension plans are managed by third-party investment managers and are held separately in trust. Regular valuations are prepared by independent professionally qualified actuaries. These determine the level of contributions required to fund the benefits set out in the rules of the plans and allow for the periodic increase of pension payments. The regular service cost of providing retirement benefits to employees during the period, together with the cost of any benefits relating to past service is charged to operating surplus in the period.

A credit representing the expected return on the assets of the retirement benefit schemes during the period is included within other finance income. This is based on the market value of the assets of the schemes at the start of the financial period adjusted for movements during the period.

A charge within other finance costs representing the interest cost on the liabilities of the retirement benefit schemes during the period is netted against other finance income. This arises from the liabilities of the schemes being one year closer to payment.

The difference between the bid value of assets and the present value of accrued pension liabilities is shown as an asset or liability in the balance sheet net of deferred tax.

Differences between actual and expected returns on assets during the period are recognised in the statement of total recognised gains and losses in the period, together with differences arising from changes in assumptions and experience (gains)/losses on the schemes’ liabilities.

Contributions to defined contribution schemes are charged to the profit and loss account in the period in which the related services are received from the relevant employees.

(t) Assets held for sale

A tangible fixed asset is classified as held for sale when its carrying amount will be recovered principally through a sale transaction. Tangible fixed assets held for sale are carried at the lower of their carrying amount, or fair value less costs to sell.

(u) Discontinued operations

A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area that has been disposed of. Classification as a discontinued operation occurs upon disposal. When an operation is classified as a discontinued operation, the comparative Group profit and loss account is represented as if the operation had been discontinued from the start of the comparative period.

(v) Provisions

A provision is recognised when the Group has a present (either legal or constructive) obligation as a result of a past event and it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount required to settle the obligation. A provision for restructuring is recognised when the Group has approved a restructuring plan and the restructuring has commenced. Insurance provisions are recognised to cover claims including claims which are known to be incurred but not reported at period end.

(w) Share based payment

The Group operates a Long Term Incentive Plan (LTIP). The LTIP is a cash settled share-based payment scheme which provides for options to be granted to a limited number of executives and senior management. Options are granted based on the value of a Notional Company “Irish Dairy Board Long Term Incentive Plan” (IDBLTIP). The value of IDBLTIP is primarily derived from an adjusted Group EBIT calculation adjusted to reflect product prices returned to members and some other variables. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted at the grant date. At each balance sheet date, the Group revises its estimate of the number and value of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the profit & loss account, and a corresponding adjustment to liabilities.

(x) Estimation techniques

The following accounting policies utilise estimation techniques: tangible assets, goodwill, impairment and post retirement benefits.

(y) Cash and liquid resources

Cash, for the purpose of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year.

2. Turnover

2014
€'000
2013
€'000
(a) By activity
Consumer Foods 856,966 796,175
Dairy Trading & Ingredients 752,758 657,388
US Distribution 730,060 670,525
2,339,784 2,124,088
(b) By destination
UK 743,971 655,322
Other EU 474,022 423,095
North America 943,184 841,824
Other 178,607 203,847
2,339,784 2,124,088
(c) By origin
Ireland 1,074,492 1,085,235
UK 378,150 246,933
Other EU 49,868 42,091
North America 831,195 748,817
Rest of the World 6,079 1,012
2,339,784 2,124,088

The disclosure of segmental information in respect of inter-segment turnover, operating profits and net assets as required by Statement of Standard Accounting Practice 25 Segmental Reporting (SSAP 25) would, in the opinion of the directors, be seriously prejudicial to the interests of the Group and, accordingly, has not been disclosed as permitted by SSAP 25.

3. Surplus on ordinary activities before taxation is stated after charging:

2014
€'000
2013
€'000
Depreciation 14,072 14,543
Goodwill amortisation 7,549 5,481
Operating lease rentals 10,734 8,114
Auditor’s remuneration - audit fee 509 618
Directors’ fees 452 352

4. Employees and remuneration

2014
No.
2013
No.
The average number of persons employed by the Group is analysed into the following categories:
Production 1,163 1,006
Selling and distribution 1,807 1,679
Administration 415 379
3,385 3,064
2014
€’000
2013
€’000
The staff costs are comprised of:
Wages and salaries* 132,111 119,861
Social welfare costs 18,920 17,316
Pension costs (included in operating surplus) 4,598 3,957
Staff costs included in operating surplus 155,629 141,134
Pension - other finance (income)/costs (net) (243) 413
Total charged to profit and loss account 155,386 141,547
Actuarial loss/(gain) on post retirement liabilities,
net of deferred taxation, recognised in equity 22,271 (6,108)
Total aggregate payroll costs 177,657 135,439

These costs are recognised in the following line items in the profit and loss account and statement of total recognised gains and losses respectively:

Profit and loss account
Cost of sales 33,978 30,311
Selling and distribution expenses 89,209 84,197
Administration expenses* 32,442 26,626
Included in operating surplus 155,629 141,134
Other finance (income)/costs (net) (243) 413
Total charged to profit and loss account 155,386 141,547
Statement of total recognised gains and losses
Actuarial loss/(gain) on post retirement liabilities (net of deferred tax) 22,271 (6,108)
Total aggregate payroll costs 177,657 135,439

*Includes €1.3m (2013: €0.5m) share based payment expense.

5. Exceptional items

2014
€'000
2013
€'000
Disposal & write off of fixed assets (i) 2,132 473
UK restructuring costs (ii) (1,429) -
703 473

2014

(i) During the period the Group disposed of some tangible and financial assets at a profit.

(ii) During the period the Group undertook a restructuring of some of its UK businesses.

2013

(i) In 2013 the Group disposed of tangible assets at a profit and wrote off some obsolete tangible assets.

6. Interest payable (net)

2014
€'000
2013
€'000
Interest payable on bank loans and overdrafts :
Repayable within 5 years, other than by instalments 3,925 4,216
Interest receivable (809) (1,166)
3,116 3,050

7. Taxation

2014
€'000
2013
€'000
(a) Analysis of taxation charge in the period
Current tax
Irish corporation tax on the surplus for the period - 500
Adjustments in respect of previous periods (359) (886)
(359) (386)
Foreign tax
Foreign corporation tax on surplus for the period 9,567 3,164
Adjustments in respect of previous periods 307 465
9,874 3,629
Total current tax 9,515 3,243
Deferred tax
Origination and reversal of timing differences (3,033) 69
Tax on surplus on ordinary activities 6,482 3,312
(b) Factors affecting tax charge for the period
Surplus on ordinary activities before tax 28,083 22,846
Surplus on ordinary activities at the standard rate of corporation tax in Ireland of 12.5% 3,510 2,856
Effects of:
Foreign rates of tax different from Irish rates 6,092 4,970
Non utilisation/(utilisation) of tax losses (net) 68 (5,340)
Expenses/income not deductible/taxable (net) (146) (805)
Movement in other timing differences 43 1,983
Adjustments in respect of prior periods (52) (421)
Current tax charge for the period 9,515 3,243

8. Annual bonus fund and redeemable loan stock

The Board is empowered under the Rules of the Irish Dairy Board Co-operative Limited (“The Rules”) to set up an annual bonus fund and issue bonus shares and redeemable loan stock to the members based upon purchases of dairy products during the period from members. On an annual basis, an amount is transferred from revenue reserves to the annual bonus fund in the Group’s financial statements. The amounts allocated to redeemable loan stock (via a transfer to the annual bonus fund) in 2014 is €4.5m (2013 : €4.5m) and is subject to the later approval of the Board.

Following the ratification of the amount to be transferred to the annual bonus fund and the calculation of each member’s individual share, the annual bonus fund is then applied in issuing, as fully subscribed bonus shares and convertible redeemable loan stock in the ratio of one share per each ninety nine units of convertible redeemable loan stock. These bonus shares and convertible redeemable loan stock are then issued to the holders of the A and B ordinary shares.

Members are entitled, at any time after the expiry of five years from the date of any issue of the units of convertible redeemable loan stock, to apply to the Board so as to have the loan stock redeemed. The Board has discretion as to whether, and to what extent the loan stock shall be redeemed. However, in the case of all approved redemptions they shall be paid in instalments of 50% in the first year and 10% in each of the following five years. When the redemption is ratified the value of the cash payment is reclassified as a liability.

During the period, the Board decided to redeem loan stock to the value of €4.5m (2013 : €7.9m) issued in respect of the 2009 financial period, 50% was paid in cash (the rest was included in creditors) and when combined with cash payments relating to previous years resulted in total cash payments of €6.1m in 2014 (2013 : €7.8m).

During the period, the Board also distributed redeemable loan stock and bonus shares in respect of the amount transferred to the annual bonus fund in 2013 and in 2015, intends to distribute redeemable loan stock and bonus shares in respect of the amount transferred to the annual bonus fund in 2014.

The movement in the redeemable loan stock balance during the period was as follows:

2014
€'000
2013
€'000
At beginning of period 20,501 23,966
Transferred from annual bonus fund 4,500 4,500
Redemption of loan stock (4,455) (7,920)
Issue of bonus shares (45) (45)
At end of period 20,501 20,501

9. Goodwill

2014
€'000
2013
€'000
Cost
At beginning of period 74,206 67,099
Arising on acquisition of businesses (note 11) 25,947 7,107
100,153 74,206
Amortisation
At beginning of period 35,391 29,910
Amortised during the period 7,549 5,481
42,940 35,391
Net book amount
At end of period 57,213 38,815

The cumulative amount of positive goodwill written off against reserves since 1976 relating to acquisitions made prior to the introduction of FRS 10 Goodwill and Intangible Assets is €41.2m (2013 : €41.2m). On disposal of subsidiaries, where the related goodwill was written off against reserves, this is transferred back from reserves and charged to the profit and loss account.

There were no indicators of impairment in goodwill arising in the year and in the opinion of the directors the fair value of goodwill is not less than the carrying value.

The expected useful economic life of the above goodwill is no more than 15 years.

10. Tangible assets

Land and Buildings
Freehold Land
€'000
Freehold Buildings
€'000
Leasehold Buildings
€'000
Plant, Equipment and vehicles
€'000
Total
€'000
Cost
At beginning of period* 9,038 110,769 9,337 138,797 267,941
Additions in the period 13 8,038 40 20,716 28,807
Arising on acquisition of businesses (note 11) - - - 3,480 3,480
Disposals in the period - - - (3,074) (3,074)
Translation adjustment 2,136 6,294 2,935 12,785 24,150
11,187 125,101 12,312 172,704 321,304
Depreciation
At beginning of period* - 43,228 4,008 93,483 140,719
Charge for the period - 2,716 839 10,517 14,072
Disposals in the period - - - (2,985) (2,985)
Translation adjustment - 2,744 1,750 11,111 15,605
- 48,688 6,597 112,126 167,411
Net book amount
At 27 December 2014 11,187 76,413 5,715 60,578 153,893
At 28 December 2013 9,038 67,541 5,329 45,314 127,222

*Includes reclassifications.

The buildings, plant, equipment and vehicles are insured at a value of €303.7m (2013 : €251.6m).

11. Acquisition of subsidiary undertakings

During 2014 the Group acquired the following businesses:

  1. In March, some tangible assets and a long term supply contract from First Milk, the UK dairy co-operative;
  2. In July, the business and assets of FoodTec UK Limited, a specialist ingredients business; and
  3. In August, the trade and assets of Telepizza subsidiary, Luxtor S.A., a Spanish pizza cheese and cheese blends plant and includes a long term supply contract.
2014
Book Value
€'000
2014
Adjustments
€'000
2014
Fair Value
€'000
Fair value of the net assets acquired at date of acquisition were as follows:
Tangible fixed assets (note 10) 4,009 (529) 3,480
Stock 3,917 (1,671) 2,246
Debtors 1,388 - 1,388
Creditors (324) (142) (466)
Net assets acquired 8,990 (2,342) 6,648
Goodwill arising on acquisitions (note 9) 25,947
Total acquired 32,595
Satisfied by:
Cash consideration 28,175
Deferred consideration 4,420
32,595
Consideration paid in 2014:
On current year acquisitions 28,175
Deferred consideration on prior year acquisition* 8,600
36,775

*Goodwill arising on acquisitions also includes €0.5m arising on the finalisation of the deferred consideration in relation to the acquisition of Meadow Ingredients USA, LLC in a prior period.

In October 2013, the Group acquired a 75% interest in Al Wazeen Trading Company LLC, a company based in Saudi Arabia.

12. Assets held for sale

2014
€'000
2013
€'000
At beginning of period 8,365 8,689
Translation adjustment 3 (324)
Disposal (8,368) -
At end of period - 8,365

In September 2012, the Group decided to close its retail distribution operation, DPI Specialty Foods Midwest Inc., in the USA and to place the building, no longer needed, for sale. This building was sold in 2014 and its carrying value was fully recovered.

13. Financial assets

2014
€'000
2013
€'000
At beginning of period 156 157
Disposal in the period (23) -
Translation adjustment 14 (1)
At end of period 147 156

In the opinion of the Directors the fair value of trade investments is not less than the carrying value.

14. Stock

Stocks at period end primarily consist of finished goods for consumption. There are no material differences between the replacement cost of stock and the amount carried in the balance sheet.

15. Debtors

2014
€'000
2013
€'000
Due within one year:
Trade debtors 305,107 242,643
Prepayments 14,926 14,556
Corporation tax debtors 1,676 855
Other debtors 12,157 13,576
333,866 271,630
Due after one year:
Deferred taxation (i) 4,851 840
338,717 272,470
(i) Arising from:
Accelerated capital allowances (3,959) -
Tax losses carried forward 735 -
Other timing differences 8,075 840
4,851 840
Deferred tax asset at start of period 840 1,788
Credit/(charge) for the period 3,467 (1,049)
Exchange movements 411 (9)
Transfer to pension deficit 133 110
Deferred tax asset at end of period 4,851 840

The Group has not recognised deferred tax assets of €1.5m (2013: €4.9m) on the basis that there is insufficient evidence that these assets will be recoverable.

16. Creditors : amounts falling due within one year

2014
€'000
2013
€'000
Trade creditors 217,723 174,924
Amount due to factor (note 18) 141,831 151,296
Accruals 121,664 151,848
Redeemable loan stock 3,606 3,914
Taxation creditors (note 17) 3,736 4,280
Deferred consideration on acquisitions (note 11) 2,420 8,600
Bank overdrafts (note 18) 9,594 -
500,574 494,862

17. Taxation creditors

2014
€'000
2013
€'000
Corporation tax 1,478 2,564
PAYE 1,459 1,331
PRSI 799 321
VAT - 64
3,736 4,280

18. Loans and overdrafts

2014
€'000
2013
€'000
Amounts falling due within one year 9,594 -
Amounts falling due after one year 135,000 -

In March 2014, the Group entered into a five year syndicated financing agreement with facilities available of €165m.

All material subsidiaries of the Group entered into cross guarantees for the debts under this agreement and also are subject to a negative pledge that security will not be granted to any party during the course of the agreement.

The Group is subject to certain financial covenants and other restrictions during the period of this agreement.

Separately, in March 2014, a number of member suppliers to the Group entered into a five year agreement (reverse invoice discounting or RID facility) with a panel of International Banks led by Rabobank International to sell amounts owed to them by the Group, with committed facilities of €200m, stepping up to €255m over the period of the facility.

Under this agreement, the Group acknowledges invoices on behalf of the member suppliers to enable them to receive early payment of those invoices. Upon acknowledgement of member invoices which have been sold to Rabobank, the Group’s obligations to the member is extinguished and the Group thereafter assumes an obligation to pay the amount of member invoices sold (2014: €141.8m, 2013: €151.3m) to Rabobank.

19. Creditors : amounts falling due after one year

2014
€'000
2013
€'000
Redeemable loan stock 6,534 7,912
Deferred taxation (i) 1,646 1,169
Deferred consideration on acquisition (note 11) 2,000 -
Bank loans (note 18) 135,000 -
145,180 9,081
(i) Arising from :
Accelerated capital allowances 2,406 1,919
Other timing differences (760) (750)
1,646 1,169
Provision for deferred tax at start of period 1,169 2,219
Charge/(credit) for the period 434 (980)
Transfer to pension deficit (43) (28)
Exchange movements 86 (42)
Provision for deferred tax at end of period 1,646 1,169

20. Provision for liabilities

Insurance Provision
€'000
At beginning of period 1,888
Provided during the period 265
Utilised during the period (57)
At end of period 2,096

The insurance provision relates to reserves within the Group’s captive insurance company to cover claims incurred but not recorded at period end. The additional amount provided during the period reflects the period end reserves required. The amount utilised during the period is in respect of claims reported or paid during the period.

21. Share capital

2014
No. of Shares
2014
€'000
2013
No. of Shares
2013
€'000
Issued share capital
“A” shares of €1 each 13,335 13 13,589 14
“B” shares of €1 each 3,429 4 3,429 4
“C” shares of €1 each 267 - 267 -
“D” shares of €1 each 143 - 156 -
Bonus shares of €1 each 1,589,843 1,590 1,587,656 1,588
Deferred ordinary shares of €1 each 17,916,961 17,917 17,916,961 17,917
19,524 19,523

The shareholding of the Parent Society is subdivided into a number of classes of shares.

The main classes of shares are A, B, C and D shares as well as bonus and deferred shares of €1 each.

The holders of “A” and “B” shares are entitled to bonus shares and convertible loan stock. They are also entitled to attend and vote at General Meetings of the Society.

Bonus shares rank pari passu with “A” and “B” shares. Bonus shares issued during the period relate to the redemption of loan stock.

The holders of “C” and “D” shares are not entitled to bonus shares or convertible loan stock issued nor are they entitled to vote at General Meetings of the Society.

The holders of deferred shares do not have the right to attend or vote at the General Meetings of the Society.

22. Reconciliation of movement in other reserves

Foreign Currency Translation Reserve
€'000
Share Premium
€'000
Total
€'000
At beginning of period (28,328) 32 (28,296)
Profit on translation of overseas subsidiary companies’ net assets 23,678 - 23,678
At end of period (4,650) 32 (4,618)

23. Capital levy account

2014
€'000
2013
€'000
Balance at end of period 256 256

The balance on the capital levy account represents the excess of capital levy receipts for which deferred shares have not been issued.

24. Reconciliation of movements in members’ funds

2014
€'000
2013
€'000
Surplus for the period 21,708 19,635
Gain/(loss) on translation of overseas subsidiary companies’ net assets (note 22) 23,678 (6,561)
Actuarial (loss)/gain on post retirement liabilities (net of deferred tax) (22,271) 6,108
Redemption of loan stock/share capital (4,499) (7,920)
Net addition to members’ funds 18,616 11,262
Opening members’ funds 416,006 404,744
Closing members’ funds 434,622 416,006

25. Minority interest

2014
€'000
2013
€'000
Opening minority interest 1,363 479
Loss attributable to minority interest (net) (107) (101)
Increase in shareholding - (28)
Minority interest on acquisition of subsidiary - 1,022
Foreign exchange movements 132 (9)
Closing minority interest 1,388 1,363

In 2013, the Group increased its shareholding in its UK subsidiary Dairy Ingredients (UK) Limited from 91.9% to 92.4%.

In October 2013, the Group acquired a 75% interest in Al Wazeen Trading Company LLC giving rise to a minority interest of €1.0m.

26. Net cash (outflow)/inflow from operating activities

2014
€'000
2013
€'000
Operating surplus 30,253 25,836
Exceptional items (1,429) -
Depreciation of tangible assets 14,072 14,543
Goodwill amortisation 7,549 5,481
Increase in stocks (69,372) (33,714)
Increase in debtors (47,120) (45,084)
(Decrease)/increase in creditors (8,847) 109,440
Post retirement liabilities (748) (1,633)
Exchange movements (1,806) (209)
Net cash (outflow)/inflow from operating activities (77,448) 74,660

27. Analysis of net cash/(debt)

28 December 2013
€'000
Cash flow
€'000
Exchange movements
€'000
27 December 2014
€'000
Net cash/(debt)
Cash at bank and in hand 51,905 (9,778) 3,139 45,266
Bank overdraft - (9,594) - (9,594)
51,905 (19,372) 3,139 35,672
Loans falling due after one year - (135,000) - (135,000)
Net cash/(debt) 51,905 (154,372) 3,139 (99,328)

28. Other financial assets

2014
€'000
2013
€'000
Restricted cash on deposit 7,833 7,239

Deposits of €7.8m (2013 : €7.2m) were held at period end within the Group’s captive insurance company and are restricted for use by the Group other than for the purposes of insurance.

29. Capital commitments

2014
€'000
2013
€'000
Commitments for which contracts have been placed 8,332 6,660
Commitments approved but not contracted for 44,562 24,223

30. Post retirement liabilities

The Group accounts for its post retirement liabilities in accordance with FRS17 - ‘Retirement Benefits’.

The Parent Society and certain subsidiaries operate and contribute to defined benefit and defined contribution schemes in addition to a number of internally funded arrangements.

The total profit and loss account charge in respect to defined benefit schemes for the Group was a charge of €1.9m (2013 : €2.2m) of which €2.1m (2013 : €1.8m) has been charged against operating surplus and €0.2m (2013 : €0.4m has been charged) has been credited within other finance costs.

Contributions to defined contribution pension schemes in the period were €2.5m (2013 : €2.1m).

The trustees of the Parent Society scheme have obtained an actuarial valuation dated 1 January 2014 using the projected unit valuation method. The trustees of the Adams Foods Limited scheme have obtained a valuation dated 31 December 2012. Valuations as at 27 December 2014 have been obtained for the internally funded schemes. These valuations, and the most recent actuarial valuations of the other post retirement schemes, have been updated by independent qualified actuaries to take account of the requirements of FRS17, in order to assess the liabilities of the schemes as at 27 December 2014.

It has been agreed that an employer contribution rate of 20.6% of pensionable pay plus an additional €1.0m will apply in future years for the Irish scheme and the expected contributions for the coming financial period are €1.9m. For the other schemes it has been agreed that an employer contribution rate of 19% of pensionable salary plus an additional €0.4m will apply in future years and that the expected contributions for the coming financial period are €0.8m.

FRS 17 Retirement benefits

Financial assumptions

The major assumptions used by the actuaries to calculate scheme liabilities under FRS17 are:

2014 2013 2014 2013
Irish Scheme Other Schemes
% % % %
Inflation rate increase 1.75 2.00 2.10 2.50
Salary rate increase 2.75 3.00 4.25 4.65
Pension payment increases 1.75 2.00 2.10 2.50
Discount rate 2.10 3.80 3.50 4.50
Scheme assets
Long term rate of return expected at each period end:
Equities n/a 7.00 n/a 5.60
Bonds n/a 3.50 n/a 3.10
Property n/a 6.00 n/a 5.60
Other n/a 1.00 n/a -

In valuing the liabilities of the pension fund at 27 December 2014, mortality assumptions have been made as indicated below.

The assumptions relating to longevity underlying the pension liabilities at the balance sheet date are based on standard actuarial mortality tables and include an allowance for future improvements in longevity. The assumptions are equivalent to expecting a 65 year old to live for a number of years as follows:

Irish Scheme Other Schemes
Current pensioner aged 65 23 years male 25 years female 23 years male 25 years female
Future retiree* upon reaching 65 26 years male 27 years female 25 years male 27 years female

The assumptions used by the actuary are chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not necessarily be borne out in practice.

*Retiring in 25 years for the Irish scheme and in 20 years for other schemes.

2014 2013 2014 2013 2014 2013
Irish Scheme Other Schemes Total
€'000 €'000 €'000 €'000 €'000 €'000
Assets in schemes at period end
Equities 45,960 59,750 32,871 28,749 78,831 88,499
Bonds 13,346 9,630 12,344 10,563 25,690 20,193
Property 2,062 1,986 4,434 4,121 6,496 6,107
Other 21,066 626 648 1,762 21,714 2,388
82,434 71,992 50,297 45,195 132,731 117,187
Actuarial value of liabilities (121,590) (92,164) (61,976) (50,546) (183,566) (142,710)
Deficit in schemes (39,156) (20,172) (11,679) (5,351) (50,835) (25,523)
Related deferred tax asset 4,895 2,522 2,561 1,266 7,456 3,788
Net pension liabilities (34,261) (17,650) (9,118) (4,085) (43,379) (21,735)
Analysis of the amount charged to operating surplus during the period
Current service cost 1,450 1,226 662 581 2,112 1,807
Analysis of the amount credited/(charged) to other finance costs during the period
Expected return on pension scheme assets 3,827 3,327 2,227 1,830 6,054 5,157
Interest on pension scheme liabilities (3,513) (3,544) (2,298) (2,026) (5,811) (5,570)
Other finance income/(costs) 314 (217) (71) (196) 243 (413)
Analysis of the amount recognised in the Statement of Total Recognised Gains and Losses
Actual return less expected return on pension scheme assets 7,262 6,445 584 2,666 7,846 9,111
Experience gains/(losses) arising on the scheme liabilities 2,896 2,320 (384) (172) 2,512 2,148
Changes in assumptions underlying the present value of scheme liabilities (29,939) (1,597) (6,456) (2,468) (36,395) (4,065)
Actuarial (loss)/gain recognised in STRGL (19,781) 7,168 (6,256) 26 (26,037) 7,194
Movement in benefit obligations during the period
Benefit obligations at beginning of period 92,164 90,843 50,546 47,707 142,710 138,550
Current service cost 1,450 1,226 662 581 2,112 1,807
Interest on scheme liabilities 3,513 3,544 2,298 2,026 5,811 5,570
Plan participant’s contributions 333 385 161 160 494 545
Actuarial loss/(gain) 27,043 (723) 6,840 2,640 33,883 1,917
Benefits paid (2,913) (3,111) (1,929) (1,882) (4,842) (4,993)
Exchange adjustment - - 3,398 (686) 3,398 (686)
Benefit obligations at end of period 121,590 92,164 61,976 50,546 183,566 142,710
Movement in plan assets during the period
Fair value of plan assets at beginning of period 71,992 62,867 45,195 41,674 117,187 104,541
Expected return on scheme assets 3,827 3,327 2,227 1,830 6,054 5,157
Actuarial gain 7,262 6,445 584 2,666 7,846 9,111
Employer’s contributions 1,933 2,079 1,060 1,355 2,993 3,434
Plan participant’s contributions 333 385 161 160 494 545
Benefits paid from plan (2,913) (3,111) (1,929) (1,882) (4,842) (4,993)
Exchange adjustment - - 2,999 (608) 2,999 (608)
Fair value of plan assets at end of period 82,434 71,992 50,297 45,195 132,731 117,187
2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 2014 2013 2012 2011 2010
Irish Scheme Other Schemes Total
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
History of experience gains and losses
Difference between the expected and actual return on scheme assets:
Amount 7,262 6,445 5,314 (7,982) 4,006 584 2,666 1,601 (937) 3,090 7,846 9,111 6,915 (8,919) 7,096
Percentage of scheme assets 9% 9% 8% -14% 7% 1% 6% 4% -2% 8% 6% 8% 7% -9% 7%
Experience gains / (losses) on scheme liabilities:
Amount 2,896 2,320 (53) 508 (3,562) (384) (172) (108) 77 2,590 2,512 2,148 (161) 585 (972)
Percentage of scheme liabilities 2% 3% 0% 1% -6% -1% 0% 0% 0% 7% 1% 2% 0% 1% -1%
Total amount recognised in STRGL:
Amount (19,781) 7,168 (10,625) (13,239) (594) (6,256) 26 (736) (3,182) 4,747 (26,037) 7,194 (11,361) (16,421) 4,153
Percentage of scheme liabilities -16% 8% -12% -18% -1% -10% 0% -2% -7% 12% -14% 5% -8% -14% 4%

Sensitivity analysis for principal assumptions used to measure scheme liabilities.

There are inherent uncertainties surrounding the financial assumptions adopted in calculating the actuarial valuation of the Group’s defined benefit pension schemes. The following table analyses, for the Group’s Irish and other pension schemes, the estimated impact on the plan liabilities resulting from changes to key actuarial assumptions, whilst holding all other assumptions constant.

Assumption Change in Assumption Impact on Irish plan liabilities Impact on other schemes’ plan liabilities
Discount Rate Increase/decrease by 0.25% Decrease/increase by 5.4% Decrease/increase by 4.7%
Price Inflation Increase/decrease by 0.25% Increase/decrease by 4.9% Increase/decrease by 3.5%
Mortality Increase/decrease by one year Increase/decrease by 3.5% Increase/decrease by 2.4%

31. Financial commitments

a) Operating leases

At 27 December 2014, the Group had annual commitments under non-cancellable operating leases as follows:

2014 2013
Land and Buildings
€'000
Other
€'000
Land and Buildings
€'000
Other
€'000
Expiring within 1 year 617 819 522 468
Expiring between 2 and 5 years 5,703 4,740 5,528 4,716
Expiring after 5 years 378 - - -
6,698 5,559 6,050 5,184

b) Bank guarantees

The Group had outstanding guarantees at the period end as follows:

2014
€'000
2013
€'000
Bank guarantees 8,086 12,477

c) Other financial commitments

The Group had the following outstanding forward currency contracts at the period end in respect of foreign exchange risk on sales contracts entered into during the period in accordance with its foreign exchange hedging policy:

2014
€'000
2013
€'000
Forward foreign currency contracts 294,093 248,128

32. Related party transactions

The principal related party relationships requiring disclosure in the consolidated financial statements of the Group under FRS 8, Related Party Disclosures, pertain to transactions with members of the Parent Society entered into by subsidiaries of the Group.

Sales to members during the financial period ended 27 December 2014 amounted to €22.1m (2013 : €7.9m) and purchases from members amounted to €900.6m (2013 : €869.7m). Amounts receivable from and payable to members arising from the aforementioned sales and purchases transactions as at the balance sheet date are €5.0m (2013 : €3.0m) and €65.4m (2013 : €75.2m) respectively.

In general, the transfer pricing policy implemented by the Group across its subsidiaries is market-based. Sales to and purchases from other related parties (being members of the Parent Society) are conducted in the ordinary course of business and on terms equivalent to those that prevail in arm’s-length transactions. The outstanding balances included in receivables and payables as at the balance sheet date in respect of transactions with members are unsecured and settlement arises in cash. No guarantees have been either requested or provided in relation to related party receivables and payables. In addition to the trading transactions outlined, the Group has also made a proposed transfer to the annual bonus fund which will be payable to the members.

There were no transactions with Directors or key management during the period.

There were no Director loans in existence during the period or outstanding at period end.

33. Share based payment

The Group operates a Long Term Incentive Plan (LTIP) for a limited number of executives and senior management. The purpose of the LTIP is to align the interest of participants and members to support the growth of the Irish Dairy Board. The LTIP is a cash settled share-based payment scheme which provides for options to be granted to employees. Options are granted to employees based on the value of a Notional Company “Irish Dairy Board Long Term Incentive Plan” (IDBLTIP). The value of IDBLTIP is primarily derived from an adjusted Group EBIT calculation adjusted to reflect product prices returned to members and some other variables. Participation in the plan and the number of options to be granted is at the sole discretion of the Personnel and Remuneration Sub-Committee on the recommendation of the Chief Executive.

The maximum number of options that may be granted to any employee in any year is such that the number of options granted by the notional share price does not exceed the employee’s annual salary. The scheme commenced on 1 January 2013 and terminates on 30 April 2022. Options granted vest after 3 years provided the employee remains in employment of the Group over the period and provided specified performance conditions are met. Options will only vest after 3 years if the annualised compound growth in the value of IDBLTIP as calculated in accordance with the rules of the scheme over the 3 previous years is at least equal to 5% plus the growth in the Consumer Price Index. Vested awards are settled by way of a cash payment (over the following 3 years) to employees based on the growth in the value of the notional shares over which each participant has been awarded options. The Group has recognised an expense of €1.3m (2013: €0.5m) within employee costs in relation to the LTIP.

34. Significant subsidiary companies

Incorporated in and operating from % Holding Activities
Irish Dairy Board Limited* Ireland 100 Marketing food products
IDB Investment Limited* Ireland 100 Group financing
IDB Insurance Limited Ireland 100 Group captive insurance
IDB Treasury Limited Ireland 100 Group factoring and financing
Kerrygold Irish Cream Liqueur Limited Ireland 100 Manufacturing, marketing and distributing drink products
Salsola Limited* Ireland 100 Group financing
LLC IDB Russia Russia 100 Marketing and distributing dairy food products
Al Wazeen Trading Company LLC Saudi Arabia 75 Manufacturing, marketing and distributing dairy products
Irish Dairy Board España SL Spain 100 Manufacturing, marketing and distributing dairy products
IDB Global BV The Netherlands 100 Group financing
Adams Foods Limited United Kingdom 100 Manufacturing, marketing and distributing dairy products
Adams Food Ingredients Limited United Kingdom 100 Manufacturing, marketing and distributing dairy products
Dairy Ingredients (UK) Limited United Kingdom 92.4 Marketing and distributing dairy products
The Meadow Cheese Company Limited United Kingdom 100 Manufacturing, marketing and distributing dairy products
The Cheese Warehouse Limited United Kingdom 100 Manufacturing, marketing and distributing dairy products
IDB Deutschland GmbH* Germany 100 Manufacturing, marketing and distributing dairy products
Irish Dairy Board (Shenzhen) Co., Limited China 100 Marketing and distributing dairy food products
Irish Dairy Board Inc. U.S.A. 100 Marketing food products
DPI Specialty Foods Mid Atlantic, Inc. U.S.A. 100 Marketing and distributing food products
DPI Specialty Foods Rocky Mountain, Inc. U.S.A. 100 Marketing and distributing food products
DPI Specialty Foods West, Inc. U.S.A. 100 Marketing and distributing food products
DPI Specialty Foods Northwest, Inc. U.S.A. 100 Marketing and distributing food products
DPI Dedicated Logistics U.S.A. 100 Marketing and distributing food products
Thiel Cheese & Ingredients, LLC U.S.A. 100 Manufacturing, marketing and distributing dairy products
Meadow Ingredients USA, LLC U.S.A. 100 Manufacturing, marketing and distributing dairy products

In accordance with section 17 of the Companies (Amendment) Act 1986, the Parent Society has undertaken to indemnify the creditors of its subsidiary companies incorporated in Ireland in respect of all losses and liabilities as referred to in section 5 (c) of that Act. The subsidiaries covered by this guarantee are An Bord Bainne (Management) Limited, IDB Investment Limited, An Bord Bainne (Sales) Limited, Irish Dairy Board Limited, IDB Premier Limited, An Bord Bainne (Services) Limited, An Bord Bainne (Exports) Limited, Kerrygold Limited, Kerrygold Irish Cream Liqueur and Kerrygold Butter Packing Ireland Limited.

* These subsidiary companies are directly owned by the Parent Society.

35. Approval of financial statements

The financial statements were approved by the Board of Directors on 10 March 2015.

In this section: