Principal Bankers Audit Committee Clydesdale Bank plc Norman L Murray 19 Stuart Street Ernest Finch East Kilbride Jack Perry Glasgow G74 4NF Remuneration Committee Solicitors Jack Perry Maclay Murray & Spens Ernest Finch 1 George Square Norman L Murray Glasgow G2 1AL Nomination Committee Auditors and Robert T Wiseman Tax Advisers Norman L Murray Deloitte LLP Ernest Finch Saltire Court Jack Perry 20 Castle Terrace Edinburgh EH1 2DB Secretary and Registered Office Registrars Maureen Burnside
Capita Registrars 159 Glasgow Road Robert Wiseman Dairies PLC The Registry East Kilbride 34 Beckenham Road Glasgow G74 4PA Beckenham Kent BR3 4TU Registered Number SCO 146494 Financial Advisers and Stockbrokers Investec 2 Gresham Street London EC2V 7QP Annual Report and Financial Statements 2011
Britain’s fresh milk professionals Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Robert Wiseman Dairies Head Office Tel 01355 244 261 159 Glasgow Road Fax 01355 230 352 East Kilbride E-mail [email protected] Glasgow G74 4PA Web www.wiseman-dairies.co.uk Summary
Welcome to the 2011 edition of Wiseman’s FIVE YEAR SUMMARY 2011 2010 2009 2008 2007 annual report. In an environment £000 £000 £000 £000 £000 Income Statement characterised by surging input costs and Revenue 917,491 886,209 847,702 721,983 605,289 heightened competitive activity, Wiseman Profit from operations 35,336 50,292 35,147 31,645 35,659 Net interest (payable)/receivable (979) (1,085) (4,380) (2,461) (1,067) Profit before tax 34,357 49,207 30,767 29,184 34,592 has continued to make progress. Tax (7,184) (13,445) (24,186) (9,864) (10,436) Profit for the year 27,173 35,762 6,581 19,320 24,156
Statistics Basic earnings per share 39.02p 50.13p 9.19p 26.76p 33.38p We hope this report gives you the information Diluted earnings per share 38.62p 49.20p 9.09p 25.97p 32.11p you seek about our Company’s performance, Balance Sheet Non-current assets 242,237 236,164 227,380 222,360 182,355 and the steps we are taking to ensure that Current assets 94,779 93,847 80,995 71,607 59,432 Current liabilities (136,202) (134,747) (107,173) (101,861) (81,798) Non-current liabilities (38,402) (55,637) (66,681) (52,597) (20,193) we continue to build our reputation as Net assets 162,412 139,627 134,521 139,509 139,796
Britain’s fresh milk professionals. Equity Share capital 7,076 7,033 7,227 7,294 7,263 Reserves 155,336 132,594 127,294 132,215 132,533 Total equity 162,412 139,627 134,521 139,509 139,796
FINANCIAL CALENDAR 2011/2012 William Keane Gerard Sweeney Managing Director Group Finance Director Annual General Meeting 6 July 2011 Interim results announced November 2011 Interim dividend paid February 2012 Financial year end 31 March 2012 Full year results announced May 2012
REGISTRARS AND DIVIDEND PAYMENTS Enquiries regarding shareholdings, lost certificates, change of address and dividend payments should be addressed to the Company’s registrars:
Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU Tel: 0871 664 0300 (calls cost 10p per minute plus network extras) From outside the UK: +44(0) 20 8639 3399 Fax: +44(0) 20 8639 2220 E-mail: [email protected]
CBP0005771905112818 Strategic Business Financial Overview Overview Review Governance Statements
Highlights of 2011
Tesco volumes increased by circa 10% from December 2010. +3.5% -29.7% Contract to supply 100% of Cooperative Group own label Turnover increased by Operating profit decreased milk from August 2011. 3.5% to £917.5 million by 29.7% to £35.3 million (2010: £886.2 million) (2010: £50.3 million) Three year extension to Sainsbury contract from October 2010. Bridgwater dairy capacity increase to 500 million litres per -22.8% 39.02p annum completed on time and within budget. Adjusted* operating Earnings per share Closure of Okehampton dairy and Cupar depot part of profit decreased by decreased to 39.02p 22.8% to £37.4 million (2010: 50.13p) targeted cost savings. (2010: £48.4 million) Expansion of Market Drayton milk reload depot to be completed summer 2011. -21.0% 18.00p Wiseman Milk Group farm gate milk price increased Adjusted** earnings Dividends declared by 2.4 pence per litre in the year. per share decreased of 18.00p per share by 21.0% to 37.32p (2010: 18.00p) * Adjusted to remove restructuring costs of £2.1 million (2010: One-off credit of £1.9 million arising from a reduction to a (2010: 47.22p) regulatory penalty provision removed). ** Adjusted to remove restructuring costs of £1.5 million (net of tax) (2010: £Nil), the gain of £0.5 million (net of tax) in respect of the fair valuing of interest rate swaps (2010: £0.2 million), the reduction to a regulatory penalty provision of £1.9 million £4.9m in 2010 and a credit of £2.2 million from changes in tax legislation (2010: £Nil). Net debt reduced by £16.2 million to £4.9 million (2010: £21.1 million)
Popular Content: Overview: Financial Statements: 02 Wiseman’s at a Glance 02 Wiseman’s at a Glance 62 Independent Auditor’s Report 06 Industry Overview 64 Consolidated Income Statement 08 Chairman’s Statement Strategic Overview: 64 Consolidated Statement 10 Key Performance Indicators of Comprehensive Income 06 Industry Overview 28 Principal Risks and Uncertainties 65 Consolidated Statement 08 Chairman’s Statement of Changes in Equity 10 Key Performance Indicators 66 Consolidated Balance Sheet 67 Consolidated Cash Flow Business Review: Statement 68 Company Balance Sheet 14 Business and Financial Review 68 Company Cash Flow Statement 20 Environmental Review 69 Company Statement of 24 Corporate Social Responsibility Comprehensive Income 28 Principal Risks and Uncertainties 69 Company Statement of 30 Board of Directors Changes in Equity 70 Notes to the Financial Statements Governance: 97 Summary 35 Directors’ Report 37 Corporate Governance 45 Directors Remuneration Report
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 01 Wiseman’s at a Glance £475m 100% Total capex since Coverage of We are floatation in 1994 GB postcodes Wiseman’s 1,008 £917.5m Dairy farmers 2011 Turnover directly contracted 4,975 Employees
We are Britain’s leading fresh liquid milk company providing almost a third of the fresh milk consumed in Britain every day.
Where did we Come From? Our Mission Awards Robert Wiseman Dairies was founded in 1947 on Our mission is to be the best fresh liquid milk Supplier Value Award from Tesco the outskirts of Glasgow, by Robert Wiseman Senior, processor and supplier in Great Britain. The award recognises our a tenant farmer. investment in and development To achieve this there are three key areas of our facilities and the way we The Company’s rapid growth came when his sons of focus for the business: have developed products at Alan and Robert joined the business. They set • Business performance both the premium and value about building a network of state of the art dairies • Shareholder return end for Tesco. designed to supply supermarket and convenience • Sustainability stores, cash and carry and food service customers. Marks & Spencer Plan A Award Our Values Wiseman has been acknowledged Wiseman’s model is to base its dairies near the Our values are the same now as they were in the Exceptional Environmental major milk fields of Britain, but close to arterial road in 1947, when the Company was founded: Excellence category, which links straight into population centres. This means • We do what we say recognises our progress so far in that the Company can move milk efficiently, one • We work hard for our customers reducing our environmental impact way, from farm to dairy, dairy to depot and onward • We work together and the targets we have set in the to customers. • We work to be better Environmental Strategy up to 2015. • We keep things simple Now Wiseman is the only fresh milk company with • We love success Grocer Gold Award – distribution covering every postcode in Great Britain. Green Supplier of the Year It employs nearly 5,000 staff, operates six major The award recognises the progress processing dairies in Aberdeen, East Kilbride, the Company has made in reducing Glasgow, Manchester, Droitwich Spa and Bridgwater, our environmental impact with and 14 distribution centres around the country. projects such as zero waste to landfill and Isotrak and confirms our The Company has invested some £475 million in position as one of the most efficient developing its network of dairies and depots since its and advanced companies in the listing on the London Stock Exchange in 1994, more food and drink industry. than any other liquid milk processor in the country.
02 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Procure Process Deliver Partnerships with Investing in continuous Dairies and depots suppliers are vital improvements in where they should be processing Supplier relationships are underpinned and The Company has invested heavily since The Company’s extensive network of dairies and sustained by fairness, loyalty, partnership and floatation in building new sites and putting in depots is strategically located so that the dairies benefit for both parties. The Wiseman Milk Group place state of the art processing equipment are near to the main milk producing regions of (WMG) for example, comprises over 1,000 dairy to ensure that we can promptly and efficiently Great Britain and the main road networks. farmers who last year supplied 62% of our produce the best quality product. requirement for milk. We process milk at these sites and then ship This investment in processing capacity and it in bulk to our network of depots for onward Our contract gives Group members the right equipment has enabled us to develop a network of delivery in a range of different distribution vehicles to serve us with three months notice if they want to dairies and depots throughout Great Britain which appropriate for the customers and their locations. switch to another buyer, but we must give two years supports our customers across the country. notice. We offer a competitive standard milk price This enables us to minimise the number of miles and partnership members are expected to meet we need to transport milk from farm to customer. high quality standards for milk and animal welfare, We believe that this is the most efficient method both of which are subject to rigorous testing from of transportation and delivery to our customers. internal and external sources throughout the year. The network is categorised into four regional In addition to this, the majority of WMG members clusters, centred around the dairies in the area. are aligned to groups set up by our major The clusters are described as: supermarket customers, which pay a premium farm gate milk price. South West Bridgwater, Pensilva, Amesbury and Bristol. Group member numbers continue to grow, Midlands and we have a healthy waiting list of farmers Droitwich, Wolverhampton and Northampton. who wish to join us and become suppliers to North of England the Company. Manchester and Leeds. Scotland In addition to our direct raw milk suppliers, we Aberdeen, Bellshill, Carlisle, East Kilbride, also have long established strategic partnerships Glasgow, Keith and Whitburn. with First Milk, Milk Link and OMSCO for supplies of raw milk and Nampak, Alpla, Tetra Pak, Closures and Systems Labelling for packaging items.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 03 04 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
What’s in this section? Strategic Overview 06 Industry Overview 08 Chairman’s Statement 10 Key Performance Indicators
Britain’s fresh milk professionals World class facilities across Great Britain
We can deliver milk to every postcode in Great Britain Dairies and depots exactly because we have invested £475 million over the last where they should be... 16 years to build a national network of dairies and depots capable of producing millions of litres of the best quality fresh liquid milk products every day in H Head office the most efficient and sustainable manner possible. Milk fields by density
This has been possible through careful management P Dairies
of the business and sensible investment decisions. D Distribution depots With our network in place, the Company has a robust balance sheet and modest net debt of only £4.9 million. M Milk procurement centre
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 05 Industry Overview A turbulent year
Nick Hasell discusses his view of the dairy industry.
My first encounter with the dairy business came in returns on offer elsewhere in the EU and countries Who is Nick Hasell? my early teens when, growing up in Cornwall, and such as Australia and New Zealand. Nick Hasell spent eleven years at The with a vague ambition of taking up farming, I would Times where his roles included Tempus help out twice a week after school at the milking The upshot was a revival in militant action by Editor, Banking Correspondent, Markets parlour of the farmer who also delivered our milk.* dairy farmers – most evident in the protests Editor and Stock Market Reporter. co-ordinated by Farmers for Action outside My most recent encounter couldn’t have been more supermarket distribution depots which peaked Prior to joining The Times, he worked different – or less rural. That is, sat in the offices of towards the end of the year. at Financial News for three years, and, The Times, on the eastern fringes of the City, where, as editor of the newspaper’s Tempus column, Inevitably, such activity was accompanied by before that, at Management Today. I was called upon, among other things, to assess a repeat of warnings by farmers’ groups of the He is now Managing Director within the investment prospects of London’s listed number of farmers leaving the industry, and worries the financial communications division food producers. that Britain would increasingly have to rely on of Financial Dynamics. imports of liquid milk. For now, the trend in producer Something of a layman’s perspective, perhaps, but numbers has continued much in line with previous still a reasonable vantage point from which to look years – down 4 per cent on the year, according to back on the year’s events in the fresh milk sector. DairyCo. In absolute terms, the number of dairy But it’s hard to do so – especially for someone farmers in England and Wales fell below the 11,000 coming from a background on Fleet Street – without for the first time in February – roughly half the first acknowledging that Wisemans was itself the number at the start of the last decade. subject of one of the industry’s most closely-tracked business stories of the last 12 months: the squeeze The corollary is that UK milk production is now on the on margins that resulted in the company’s revision rise – on a like-for-like basis, up around 3 per cent of profit guidance in September. on the year to 36.7 million litres per day in March, according to DairyCo. Just as the rest of the supply But while it may have been Wiseman that made chain has consolidated, so too has dairy farming, the headlines, that squeeze was felt throughout with larger herd sizes bringing greater economies the processing sector – and, more broadly, both of scale. Equally, the segregated and dedicated up and down the supply chain. Take primary supply groups created over the last decade by the production. Throughout the year dairy farmers supermarkets – including the Tesco Sustainable raised concerns that the farm gate milk price Dairy Group and the Sainsbury Dairy Development they were receiving was not keeping pace with Group – have brought an enhanced level of stability the rises in input costs they faced. and certainty to dairy farmers that has encouraged them to invest in both herds and fixed assets. The price of diesel, feed, and fertiliser all increased strongly on the year – in double-digit percentages Amidst the anger that is routinely directed at in most cases. Higher utility bills added further supermarkets, it’s also worth recalling that all major pressure. A surge in the value of global commodities UK food retailers are now paying a premium price to near record levels also served to flag the disparity for the milk they buy from farms for use as fresh milk. between UK farm gate milk prices and the higher Figures from DairyCo show that, from April 2011,
06 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements some of the highest milk prices obtainable in the The outcome of these negotiations is not as GB Milk Deliveries – Million Litres UK are those paid under the Wiseman Tesco or binary as it was a decade or so, given that 1100 Arla Tesco contract at 29.78p a litre. The prices three of the big four food retailers now source obtainable from Sainsbury and Asda also include milk from more than one supplier. 1050 significant premiums. Even so, the escalation of promotional activity 1000 The other consideration must be the high proportion during the summer – begun by Asda reducing the of milk produced on these shores that goes into price of four pints from £1.53 to £1.25 – together 950 liquid milk and cheese processing – such that the with what Shore Capital, the stockbroker, detected 900 UK dairy industry has less exposure to global as an element of “indiscipline in the supply chain” commodities like skimmed milk powder, and, – that is, some processors seeking incremental 850 accordingly, its milk prices don’t track the peaks volumes from retailers at the expense of margin 800 and troughs of global commodity markets. That – exerted downward pressure on prices. Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar much is illustrated by the relative stability in farm 2010/11 2009/10 2008/09 gate prices in the UK since 2007 when compared Second, and simultaneously, rivalry within the Source: DairyCo to the prices paid by United Dairy Farmers of “middle market” – the convenience store segment Northern Ireland, much of whose output is which accounts for around one-third of UK fresh milk destined for export. volumes – sprung back to life. Whereas the bigger processors benefited from the volumes freed up United Dairy Farmers Milk Price Milk prices weren’t the only cause of controversy by the demise of Dairy Farmers of Britain in 2009, v GB Liquid and Cheese Milk Prices in the course of the year. The fate of Nocton Dairies, they felt the reverse effect in 2010 as some of DFoB’s 35 a £34 million project to build Europe’s biggest assets were put back into production by smaller dairy farm at Nocton Heath in Lincolnshire, was rivals: notably the Blaydon plant on Tyneside under finally resolved. The scheme drew sustained and the new ownership of Medina Dairies. Significantly 30 passionate opposition, and its proposed size was in April 2011, almost exactly a year after this dairy scaled back from 8,100 cows to 3,770. However, the reopened, its closure for the second time was 25 application was ultimately withdrawn in February confirmed with the loss of almost 100 jobs. on objections from the Environment Agency, which concluded that the risk of pollution to the underlying And the retail sector? There’s no doubt that retailers 20 aquifer that supplied drinking water to 170,000 are working extremely hard to attract and retain people was “unacceptable”. customers amid a sustained squeeze on consumer 15 spending – and fresh milk, as a key value item, Apr'07 Oct Apr'08 Oct Apr'09 Oct Apr'10 Oct Apr'11
The desire to build bigger isn’t confined to primary has once again been at the centre of these efforts. Cheese Liquid United producers. It’s evident in the processing sector, Overall, total milk sales increased 1.9 per cent by Source: milkprices.com too, where Arla Foods is pressing ahead with plans volume in the 12 months to February, according to build a £150 million one billion litre ‘superdairy’ to DairyCo, but fell 4.5 per cent by value. IGD at Aston Clinton near Aylesbury. Again, there is research has shown that price has become the considerable local opposition, with initial objections biggest reason for both product and store choice Major Retailers Share by Volume focused on the increase in road traffic it would bring among the multiples. And within the convenience 100% to the surrounding area. The scheme has also sector, new store openings are driving volume raised eyebrows among producers – in particular, growth, but prices are falling here too. Interestingly, 80% Arla’s proposal to secure up to half of the funding it is branded fresh milk, rather than private 60% for the project by way of a levy on the farmers label, that has delivered the best recent growth who supply it. in convenience stores, according to data from 40% Nielsen Scantrack, with Wiseman’s Black & There could be wider implications, too. Not least, White edging ahead of Dairy Crest in 2010. 20% the need of any fresh milk processor which has 0% committed such a large capital sum to a project to Further rises in fuel prices and packaging costs Tesco Sainsburys Asda Morrisons Co-op Waitrose M&S Total Wiseman Arla Dairy Crest ensure that its capacity is fully utilised and achieving suggest there will be no short-term let-up for Source: DairyCo/Wiseman an adequate return on the capital invested. In short, processors – notwithstanding some of the relief Arla’s imperative to hold, if not increase, its current provided from higher selling prices for fresh milk volumes could put increased pressure on its peers. by-products, such as cream. But it’s a sector that has By the same token, the balancing act will be to withstood such setbacks before. If there’s a longer- achieve this whilst still making returns which term lesson learned as an investment columnist it’s justify the outlay. that, when an industry’s implied return on invested capital falls close to the level of the cost of capital But intense competition between processors – as currently appears the case with the dairy is already here. As Wiseman’s revised profit processing sector – it rarely stays that way for long. guidance made clear, it was something of a * For the record, it was a small herd of Jerseys, the milk was delivered hallmark of 2010/11. First, the year was unusual in a former GPO Morris Minor van and, sadly, the farm has since been in that every major supermarket put long-term sold and its buildings demolished. supply arrangements out to tender in 2010.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 07 Corporate Overview Chairman’s Statement Against a backdrop of very challenging economic and market conditions, I am pleased with the progress the Company has made in growing volumes. Reported profits, while lower than last Improved year, are in line with previous expectations. The completion of our Bridgwater facility during the year provides us with the capacity to process and distribute over 2 billion litres of milk. We are efficiency in a proud of our investment at Bridgwater, which has been critical to our volume growth and improved efficiencies in recent years. We now have the capability to supply customers in every postcode difficult climate area in Britain and will, in due course, look to utilise profitably the additional capacity available to us.
Against a backdrop of very challenging In the last year, all of the major retailers put their milk supply contracts out to tender and the economic and market conditions, I am pleased convenience and wholesale sectors of the market with the progress the Company has made. have seen heightened levels of competition to supply. Although our margins have been impacted as a consequence, we are pleased with the outcome of the tenders in volume terms, as we have either grown or retained our business with all our key customers. We increased our share of Tesco’s own label supplies, consolidated our position as Sainsbury’s largest fresh liquid milk supplier and made significant progress with The Co-operative Group, where we will be supplying all its own-brand fresh milk products from August.
Financial Results Although revenues grew 3.5% to £917.5 million (2010: £886.2 million), adjusted profit before tax declined 23.9% to £35.8 million (2010: £47.0 million). After reflecting the £2.1 million restructuring costs (2010: Nil), the £0.6 million gain on the fair valuing of interest rate swaps (2010: £0.3 million) and the £1.9 million reduction in the previous year of a penalty previously levied by the Office of Fair Trading, profit before tax declined 30.2% to £34.4 million (2010: £49.2 million).
Net debt was significantly lower at £4.9 million (2010: £21.1 million), reflecting the continued strong cash flows generated.
08 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Business Performance Shareholder Returns Board During the year we benefited from higher milk sales Reflecting the intense pressures on the business, The business has reacted positively to the changes volumes and increased prices for bulk cream. basic earnings per share (EPS) declined from 50.13p to the Board announced in May of last year whereby in 2010 to 39.02p in the current year. The adjusted Billy Keane and Gerry Sweeney assumed the roles However, given the highly competitive environment, EPS was 37.32p (2010: 47.22p). of Managing Director and Group Finance Director there has been a significant impact from customers respectively in July 2010. across the markets we serve undertaking tenders I am pleased to confirm that despite the drop in profits and renegotiating their terms. In addition, in common we are maintaining the declared dividend at the Outlook with many companies who have a requirement same level as the prior year. In addition to the interim We have previously highlighted the intense for commodities like diesel and plastics, we have dividend of 5.75p per share paid to shareholders in competitive pressures that have impacted the experienced a sustained period of intense cost February, the Board is recommending a final dividend business in the last year. In recent months we pressure. Dairy farmers who supply the Group have of 12.25p per share, bringing the total dividend for the have increased the amount paid for raw milk also seen significant pressure on their costs, which year to 18.0p (2010: 18.0p). The final dividend will be supplies and experienced significant and sustained along with a strong rise in the commodity value of payable on 15 September 2011 to shareholders on increases in oil related costs. As a result of these milk, has necessitated increases in the price we are the register at close of business on 5 August 2011. factors, we took steps to recover these costs through paying for our raw milk. price increases to customers. The Board recognises the importance of our dividend The increased revenue generated from cream payment to shareholders and the level of dividend In our pre-Close Trading Update in March we noted during the year was initially sufficient to offset the will continue to reflect the profits generated, the cash that it was unclear whether recent increases in costs, increased oil-related costs. However, as diesel and requirements of the business and the Board’s view which arose subsequent to us commencing our packaging costs continued to rise and we also faced of the Group’s future prospects. pricing negotiations with customers, were reflective pressure to increase raw milk prices, it became of short-term volatility or would be established for the necessary to seek recovery of these higher costs Sustainability longer-term. At the end of March, the higher input from customers. Given the widely acknowledged In the current year we have established ambitious costs amounted to a £5.0 million annualised increase challenges facing retailers, caused by the overall targets to further improve our environmental in our cost base. Since that date costs have continued economic environment, this has proved to be a performance. We are focussed on reducing the to rise. Currently the costs of the resin used to produce complicated and difficult process. However, we are level of greenhouse gases generated, the amount plastic bottles and fuel are respectively 20% and 13% pleased to report that we have been able to attain of waste directed to landfill and on improving our higher than the average costs incurred in the year to the level of price increase we initially sought. energy and water efficiencies. We look forward to March 2011. Whilst the longer-term outlook remains continuing to drive efficiencies across our business, uncertain, were these to stay at their present levels It should however be noted that since we sought whilst seeking to achieve our challenging through to March 2012, the annualised increase in recovery from our customers, oil related costs have environmental targets. our cost base for resin, fuel and other costs would continued to rise. now be in the order of £7.5 million. People As we reported during the year, the business is We have seen a considerable amount of new We are operating in a challenging economic and acting to drive further efficiencies and reduce costs as business incorporated into the Group during the market environment but our business remains strong, a means to offset margin pressures and I am pleased course of the year, all of which has been absorbed profitable and cash generative with low debt levels with progress in these areas. Notwithstanding the into our operations successfully. I would like to take and first class operating facilities, management fact that we are already the lowest cost operator in this opportunity to thank all of the Group’s personnel and employees. The pressure on margins caused the sector, we are targeting cost reductions across the for their contribution during the year and, in by higher input costs continues and is unhelpful, but supply chain from the collection of milk from farms, particular, in serving our customers during the harsh we are working relentlessly to improve our cost base to its processing and packing and finally its onward winter weather conditions. In addition, I would also where possible. The Board remains optimistic about distribution to customers. To date we have identified like to record my appreciation for those staff affected the Group’s long-term prospects. a number of further cost saving opportunities within by the site closures who acted in a professional our supply chain. These included the closures of our manner throughout the process of consultation, operating facilities at Okehampton and Cupar, which announcement and transfer of business. I wish were announced during March 2011. These have now them well for the future and thank them for the been closed and the business transferred to other support and commitment they have given the nearby sites. We will continue to seek to improve our business through the years. operating efficiencies across the business and also to continue to invest in projects that will help us Robert T Wiseman improve margins. Executive Chairman 17 May 2011
Our business remains strong, profitable and cash generative with low debt levels and first class operating facilities, management and employees.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 09 Key Performance Indicators Our Mission Assessing Our mission is to be the best fresh liquid milk processor and supplier in Great Britain. To achieve this there our progress are three key areas of focus for the business: Business Performance, Shareholder Return and Sustainability.
10 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Business Performance is measured by the following:
Turnover growth Operating margin Debt 3.5% 4.1% £4.89m 2011 3.5% 2011 4.1% 2011 £4.89m
2010 4.5% 2010 5.5% 2010 £21.14m
2009 17.5% 2009 4.2% 2009 £25.79m
Turnover growth is the percentage increase in the Operating margin % is based on operating profit, Net Debt is the net amount owed in respect value of sales compared with the prior year. after adjusting for any significant non-recurring of bank and other loans, bank overdrafts and items, as a percentage of turnover. finance leases less cash and bank as at the end of the financial year.
Machine efficiency Customer service Cash generated from operations 59.7% 99.5% £57.96m 2011 59.7% 2011 99.5% 2011 £57.96m
2010 61.5% 2010 99.6% 2010 £83.12m
2009 67.8% 2009 99.7% 2009 £67.24m
Machine efficiency is a measurement of the machine Customer service measures the percentage of Cash generated from operations before interest efficiency of the filling equipment in our four main deliveries made in full and on time. and tax. dairies which account for 95% of Group production. 2010 was the first year that we included Bridgwater and the results in the current year and prior year are affected by the inclusion of production lines at Bridgwater during their commissioning phase.
Shareholder Return is measured by the following:
Earnings per share Net assets Dividend per share 37.32p £162.4m 18.00p 2011 37.32p 2011 £162.4m 2011 18.00p
2010 47.22p 2010 £139.6m 2010 18.00p
2009 31.84p 2009 £134.5m 2009 15.00p
The Earnings per Share figures are based on profit Net assets represents the difference between total The figure for dividend per share is the amount from continuing operations adjusted for significant assets and total liabilities and is a measurement paid to shareholders in respect of the year to non-recurring items such as restructuring cost of the net worth of the Company. which the dividend relates, not the year in which and changes in tax legislation. Full details of it was actually paid. adjustments are shown in note 12 to the accounts.
Sustainability KPIs relating to the environment and the community are given on pages 20 to 23 and 24 to 27 of the annual report.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 11 12 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
What’s in this section? Business Review 14 Business and Financial Review 20 Environmental Review 24 Corporate Social Responsibility 28 Principal Risks and Uncertainties 30 Board of Directors
Britain’s fresh milk professionals Focused on delivering the best product in the most efficient manner
The Company recognises that using less resources is A few of the 2015 Key Targets: good for the environment and good for costs. We are always on the look out for ways to improve our efficiencies and effectively manage costs in a highly competitive industry whilst achieving the stretching sustainability targets we have set ourselves. 30% 25% Gas group reduction Water group reduction Part of our continuous improvement philosophy has been to continue to invest in new and existing facilities to ensure that we are always improving the performance of our modern well-invested buildings, plant and equipment and vehicles. 25% 100% Electricity group reduction Waste diversion from landfill Core to our progress is investment in our employees in terms of development, training, health & safety or improved technology such as handhelds or voice-picking technology. 15% Transport fuel use reduction
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 13 Throughout this review the Board makes forward Business and Financial Review looking statements. Such statements are by their nature inherently predictive, speculative and involve risk and uncertainty as they relate to events and circumstances that are expected to occur, based Despite difficult on the knowledge and information available to the Directors at the date this BFR was prepared.
As one would expect, the predicted events and circumstances may differ significantly from actual conditions we events and circumstances over the next year. The Board does not intend to update any of the forward looking statements contained in the BFR during the course of the financial year ending 31 March 2012 are proud of but it shall reconsider these statements in the preparation of the BFR for next year. This is without prejudice to the Company’s obligations to issue our performance statements to the market. This BFR has been prepared for the Group as a whole and therefore gives greater emphasis to We were pleased to grow our overall those matters which are significant to Robert Wiseman Dairies PLC and its subsidiary volumes during the year maintaining undertakings when viewed as a whole. or indeed growing our position with Commercial our key customers. We continued to build our overall volumes during the year, maintaining or growing our position with our key customers, while developing other areas of the business.
Tesco remains our largest customer and, during the year, we were pleased to be awarded additional store allocations and a 10% increase in the volume of own label milk supplied. This business commenced successfully in December 2010 and serving these stores will provide volume growth with Tesco in the next year.
Our Supply Chain performed admirably through the year, particularly in absorbing the impact of higher sales volumes and the challenges presented by extreme and sustained winter weather conditions.
14 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
We have significantly developed our relationship Supply Chain with The Co-operative Group. In August 2010, we In the past year we, for the first time, achieved the increased our supplies of own label milk by 30 milestone of producing over 1 billion polybottles of million litres which resulted in us supplying 75% of fresh milk across the Group. The Co-operative Group’s requirements. In March 2011 we were delighted to announce this customer’s Our Supply Chain performed admirably through the decision that we should supply all of its own label year, particularly in absorbing the impact of higher milk requirements. This will increase the volumes sales volumes and the challenges presented by we supply by 88 million litres per annum, with the extreme and sustained winter weather conditions. volumes being phased in from August. In addition, we will work with The Co-operative Group to Our dairies continue to increase their throughput establish a dedicated milk supply scheme whilst improving on their previous high performance comprising around 350 dairy farmer members of levels. the Wiseman Milk Group, who will all benefit from a premium farm gate price for supplying milk to A significant contributing factor to the performance around 4,000 Co-operative food stores. We look across the Supply Chain was the completion and forward to a long and productive relationship with utilisation of the final phase of capacity at our The Co-operative Group in establishing and Bridgwater dairy. In less than five years since delivering these arrangements. construction of this plant commenced, it has benefited from an investment programme totalling The three-year extension to our contractual £100 million and now has a 500 million litre per arrangements with Sainsbury’s commenced in annum capacity. We are realising the benefits of this October 2010. We were pleased to retain our share investment coupled with high utilisation, through of its fresh milk business and to have the opportunity operational efficiencies and minimising the use of to continue to develop our relationship with this resources. The investment has allowed us to fulfil important customer. our growth in volumes in recent years and has freed up capacity at other dairies for future growth. We were sole supplier to Netto prior to its acquisition by ASDA. Further to this acquisition, we have In December 2010 we successfully commissioned confirmed arrangements to continue to supply these a new filling machine at our Bridgwater dairy for stores following their conversion to the ASDA format. snack size packs of fresh milk. This plant allows us We are very pleased to again be working with ASDA. to more efficiently service our growing school milk volumes and gives us the capacity to seek further Despite intense competition experienced in the new business in this market. last year, sales volumes have also grown in the convenience, wholesale and food service sectors. Bridgwater dairy previously benefited from The Company’s ‘Black and White’ brand of fresh investment in the latest effluent treatment, which milk products has performed particularly well, allows waste water to be treated to such a high with customers responding to the introduction of quality that it can be discharged to the local water regional branding, identifying the milk with the course. A further investment in the current year has region in which it is produced and processed. allowed the treated water to achieve the same quality as the incoming mains water supply, thereby The vigorous and sustained competitive pressure reducing our water usage at the dairy by 25%. across the industry was, we believe, partially driven by the relatively high bulk cream prices generated We continue to review the efficiencies and potential over the last eighteen months. Whilst the higher for development at our other dairies. Given the cream revenues generated were initially beneficial, additional capacity available at Bridgwater, it this benefit was subsequently absorbed by higher was decided to cease production at our small costs incurred in the business and margin pressures. Okehampton dairy in Devon. We have successfully As we have previously highlighted, the outlook for incorporated the milk volumes previously processed bulk cream remains volatile, and whilst bulk cream at this dairy into our other facilities. prices have been stable in recent months, we remain cautious given the potential for fluctuations. We have continued to invest at our other dairies to generate improved efficiencies. In another first We note the positive progress of the Make Mine for the British dairy industry, we have invested in a Milk campaign, a three year £7.5 million campaign new refrigeration system at our Manchester dairy to highlight the nutritional benefits of milk, financed which incorporates a heat pump to recover and by a consortium of leading British dairy companies reuse waste heat. This will significantly reduce gas and co-operatives supported by EU funding. The consumption and is a step towards meeting the campaign is scheduled to continue for a further sustainability target we set ourselves for reducing two years. gas usage.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 15 In addition, we are reviewing the potential for We are also trialling Voice Picking technology in our replicating the success of investments made at distribution network. This will allow an evaluation Bridgwater at our other dairies, including the of the benefits to be derived prior to committing to potential to introduce an Effluent Treatment Plant an investment across all sites. With this technology, at our Droitwich dairy. employees receive instructions through a headset regarding items to be picked and loaded for onward We have continued to work with Tesco to develop delivery. This allows for a reduction in associated sales of its Pure milk, which is filtered to be fresher paperwork, the potential for error and the time for longer. The previously announced investment to undertaken when picking product for despatch. double our processing and filling capacity for filtered milk remains on schedule for completion in Summer Costs within the Supply Chain continue to be 2011. impacted by fluctuations in oil related costs. During the year the costs of fuel and the resin High Density To assist in effectively planning our production Polyethylene, which is used to produce plastic bottles, and adapting our Supply Chain to changing were 15% and 16% higher respectively than the circumstances, we recently invested in INFOR’s Supply previous year and have risen further in recent months. Chain Planning software. The implementation of this product has commenced and we anticipate that it We have sought to minimise these costs where will assist in more efficiently planning our business possible. Steps taken include utilising ISOTRAK requirements, in both the production and distribution to reduce fuel use and the light weighting of our of product, before the end of the year. packaging. In the last twelve months, through the use of ISOTRAK and driver training, we have Our distribution network has continued to maintain improved our fuel efficiency by 7%. In addition, high service levels through the year and now has the we have made progress through the year in further capability to distribute milk to every British postcode. reducing the weight of packaging used by reducing The completion of our distribution depot at Amesbury the amount of plastic in our bottles and caps. in November 2009 finalises the necessary investment to provide the distribution capacity to complement the Milk Procurement requirements of our dairies if they were to operate at Our objective is to increase the amount of milk full capacity. supplied by the Wiseman Milk Group to at least 70% of our requirements. During the last year we Given this, the emphasis has been on ensuring the have continued the recruitment of new members efficiency of our operations and, following a review and the Wiseman Milk Group now has in excess of of our distribution requirements, it was decided to 1,000 members, with more scheduled to commence close our distribution depot at Cupar in Fife. Following supplies in the next year. closure in April, the business previously serviced from this depot has been incorporated into existing sites. To accommodate growth of the Wiseman Milk Group we have commenced the expansion of We continue to look at other opportunities to optimise our raw milk reload depot at Market Drayton. our deliveries and drive cost reductions in this area. This development will be completed by Summer Our investment in INFOR software will allow a more 2011 in line with its budgeted cost of £2.0 million. immediate and proactive transport planning to be undertaken. A reduction in the number of miles We increased the farm gate milk price we offer travelled, hours worked and vehicles utilised is Wiseman Milk Group members three times during targeted further to its implementation. the year, resulting in a total increase of 2.4 pence to 26.72 pence per litre. This continues to be the In addition, we are utilising technology to drive leading price paid by a major liquid milk processor efficiencies elsewhere in the Supply Chain. The for producers not aligned to a major retail customer. roll-out of handheld technology will be completed in Summer 2011. This will standardise and enhance We note the value of dairy commodities remains delivery procedures across all our sites, as well strong and farmers have experienced their own as reduce the associated administration. Our cost pressures in the last year. We are committed investment in ISOTRAK across all our vehicles has to paying a market related price to our raw milk continued to be important in monitoring and suppliers. We continue to keep market developments minimising fuel consumption on a daily basis. under review and will respond to these as necessary.
16 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
The proposed development of a dedicated supply Also significant in mitigating against the higher scheme for The Co-operative Group, along with our cream revenues was the margin pressure We are reviewing the potential supply arrangements for Tesco and Sainsbury’s, will arising from the highly competitive environment for replicating the success of see a significant proportion of our direct suppliers experienced during the year. investments made at Bridgwater benefit from a premium price paid to those suppliers aligned to a major retailer. Finance Costs at our other dairies. Finance costs declined from £1.3 million to £1.0 Financial Review million. Once the gain arising on the fair value of interest rate swaps contracts in the year is excluded, Overview finance costs were £1.6 million (2010: £1.6 million). While milk sales volumes and bulk cream revenues Although operating profits have declined, interest have increased in the last year, margins have been cover remains high at 35.7 times. impacted by competitive pressures and increased costs. Tax The tax charge for the year was £7.2 million (2010: Below is the comparison of the results for the year £13.4 million). against the prior year. We had previously reported that the proposed £M (except where stated) 2011 2010 reduction in the main rate of Corporation Tax for Turnover 917.5 886.2 the financial year beginning 1 April 2011 from 28% Operating profit 35.3 50.3 to 27% would reduce our deferred tax liability and Adjustments to operating profit* 2.1 (1.9) tax charge for the year by £1.1 million. Further to the Adjusted operating profit 37.4 48.4 recent revisal of the proposed Corporation Tax rate Adjusted operating to 26%, the reduction to the deferred tax liability and profit margins (%) 4.1% 5.5% the tax charge for the year for this amendment has EPS (pence) 39.02 50.13 increased to £2.2 million. Adjusted EPS (pence) 37.32 47.22 Declared dividend (pence)** 18.00 18.00 In the current year the effective tax rate is 20.9%, Cash generated from operations 58.0 83.1 which was reduced from 27.3% by the change in the tax rate noted above. In the previous year the * In the year to 2 April 2011, operating profits are adjusted to eliminate effective rate was 27.3% or 28.4% if the impact of costs principally arising from the closure of the Okehampton dairy the reduction of the regulatory penalty, which and Cupar depot. In the prior year, the results were impacted by a was not taxable, is excluded. non-recurring item in respect of a reduction in a penalty previously levied by the Office of Fair Trading.
** In the year to 2 April 2011 an interim dividend of 5.75p was declared and paid and a final dividend of 12.25p was declared but unpaid at the end of the year. In the year to 3 April 2010 dividends totalling 28.0p were paid (10.0p in respect of the year ended 4 April 2009 and 18.0p in respect of the year ended 3 April 2010).
Turnover increased 3.5% during the year. This reflects the increase in milk volumes sold as well as the year-on-year rise in the average bulk cream price which was offset by the price reductions to customers through the year.
Operating profits fell by 29.7% compared to the previous year and adjusted operating profits dropped by 22.8%. Last year we highlighted the higher bulk cream revenues in the second half of the year and the beneficial impact these had on operating profits. As noted above, bulk cream prices have remained high, but the benefit has now been absorbed by a combination of factors, including rises in oil related costs and an increase in the amount paid for raw milk prices.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 17 Earnings Per Share Basic EPS has declined from 50.13p to 39.02p, a fall of 22.2%.
The adjusted EPS in the current year takes account of the 2.12p negative impact of restructuring costs, the 0.65p positive impact of fair valuing the interest rate swaps in place and the reversal of the 3.17p impact on the deferred tax liability of the proposed reduction in the tax rate. To establish the adjusted EPS in the previous year the reduction in the OFT penalty is reversed, which reduces the figure by 2.61p along with the 0.30p positive impact of fair valuing the interest rate swaps. Further to these matters the adjusted EPS in the current year is 37.32p, a decline of 21.0% compared to the 47.22p in the previous year.
Balance Sheet Review The Group’s balance sheet has strengthened through the year, with net assets increasing £22.8 million to £162.4 million.
The Group’s commitment to continue to invest and improve its assets resulted in £31.9 million of fixed asset additions and £1.1 million of intangible asset additions in relation to software development. Within fixed asset additions was £13.3 million spent on commercial vehicles, £12.2 million spent on plant and machinery and £3.2 million spent on IT equipment. Included within plant and machinery was the completion of the Bridgwater capacity, the initial investment in the additional capacity for filtered milk at Droitwich and upgrades to our refrigeration equipment at our Manchester dairy.
Inventories have declined by £1.0 million over the year. The value of our finished goods held for resale is consistent each year. The drop in value is attributable to the timing of purchases for packaging and other stock items.
The Group’s balance sheet has strengthened through the year, with net assets increasing £22.8 million to £162.4 million.
18 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Trade and other receivables declined £0.6 million Total borrowings amounted to £12.2 million As a result of the above factors, there was a £16.2 to £76.0 million. The primary change in this balance (2010: £25.9 million). All of the borrowings were million reduction in the net debt to £4.9 million. was a £3.6 million reduction in trade receivables at balances outstanding in respect of finance leases the year end, despite the increase in turnover. As a (2010: £5.9 million). The Bank borrowings of £20 Summary result, debtor days outstanding were 27.2 days (2010: million outstanding in the previous year were repaid The last year has presented a number of challenges 29.6 days). The previous year was impacted by the in the year. During the year the Group entered into in relation to maintaining operating margins. The timing of Easter and the associated bank holidays. £8.0 million of new finance leases, which were at difficulties encountered have had a significant impact The £1.4 million increase in VAT reflects the higher a fixed interest rate and repayable over five years. on margins for the current and forthcoming year. level of capital expenditure towards the year end compared to the previous year. During the year the Company issued 1,057,931 The Group is Britain’s largest and best invested ordinary shares to satisfy share option arrangements fresh milk company, remains highly cash generative Trade and other payables have declined by £3.5 (2010: 527,295). A total of 630,000 shares were bought and will continue to work to improve margins million to £115.3 million. Trade payables increased back for cancellation at a cost of £3.1 million and an going forward. by £12.0 million to £89.8 million, reflecting the average cost of £4.88 (2010: 2,465,000 shares at a increased level of purchases in line with turnover cost of £11.9 million). and outstanding capital balances. The £14.2 million reduction in accruals and deferred income is a The increase in net assets of £22.8 million compares reversal of an increase recorded in the previous favourably to the £5.1 million increase in 2010, despite year which was attributed to the delayed timing the lower profit after tax in the current year. This William G Keane of payments. These payments have now reverted was due to the £16.0 million reduction in dividend Managing Director to their expected pattern, hence the reduction in payments, given there were three dividend payments 17 May 2011 the outstanding balance. last year compared to one in the current year, and the lower level of share buy backs in the year. The current tax liabilities rose £3.3 million in the current year to £13.8 million. This includes tax Cash Flow and Net Debt payable in respect of the current year and balances Although profits declined and there were cash potentially payable in respect of computations from outflows in respect of working capital, the Group Gerard Sweeney previous years. has remained cash generative. Earnings before Group Finance Director interest, tax, depreciation and amortisation were 17 May 2011 Provisions remain unchanged at £4.2 million and £61.9 million (2010: £75.3 million). The decline in relate to the anticipated costs of a settlement with profits and working capital outflows in the year the OFT. This settlement was agreed in December were reflected in the £25.1 million reduction in 2007 and the balance will be payable as and when cash generated from operations to £58.0 million. the OFT conclude their investigation. The purchase of property, plant and equipment The outstanding derivative liability relates to a five resulted in cash outflows of £20.5 million (2010: year interest rate swap for £10 million entered into £26.4 million) compared to the £31.9 million of in 2008 when interest rates were higher than current additions recorded in the period. The difference levels. In the previous year there were two interest relates to the £8.0 million of finance leases entered rate swaps with associated liabilities of £1.4 million. into during the year and amounts included in trade Given interest rates have remained low during the payables at the end of the year. year, a liability of £0.8 million remains. With regards to financing activities, there was a net Deferred tax liabilities reduced to £28.3 million (2010: £20 million repayment of bank loans, £4.0 million £29.6 million). This liability was primarily impacted by expended on dividend payments and share buy the £2.2 million reduction arising from the revision in back costs of £3.1 million. future Corporation Tax rates from 28% to 26%.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 19 The Board has delegated day to day responsibility Environmental Review for all matters related to the Environment to Martyn Mulcahy, Group Operations Director.
In 2010 we published our Sustainability Report Reduce, re-use, which set out our aims and objectives and stretching targets for the next five years. If we achieve these targets, we will set a new benchmark for the dairy industry. We aim to make a real difference to the recycle environment, our customers and our staff. We want to demonstrate leadership in the supply chain through innovation and changing attitudes and behaviours. Copies of our Sustainability Strategy are available at http://www.wiseman-ir.co.uk/pdf/ “It seems a very simple principle but reports/sustainability_report_2010-2015.
we aim to reduce what we consume, Sustainability Strategy re-use materials where we can and Three key areas for reducing our environmental impact by 2015 have been identified: recycle what we cannot re-use. We set • Greenhouse Gases • Waste ourselves stretching targets and are • Natural resources continuing to make good progress.”
Martyn Mulcahy Group Operations Director
By reviewing current technology and how it can be integrated into our processes and network we have set ourselves ambitious five year targets. The targets and progress made in the last year are:
Greenhouse Gases 5 Year Target Progress after Year 1 Gas: 30% reduction 1% increase
Electricity: 25% reduction 5% reduction
Refrigeration leakages: <3% 5% reduction
Transport: 15% reduction in fuel use 2% reduction
Waste 5 Year Target Progress after Year 1 Landfill: 100% diversion 98% diversion
Waste generated: 10% reduction 5% reduction
Effluent: 15% reduction 1% increase
Natural Resources 5 Year Target Progress after Year 1 Water: 25% reduction 6% reduction
Packaging: industry best practice weights industry best practice weights in some sizes
Recycling: 30% food grade plastic in bottles 15% reduction
20 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Performance Against the Strategy Technology and Innovation At our Manchester dairy we have installed a heat This is the first year of our five year strategy so we We have continued to invest to make our business pump on the new refrigeration system to recover are still at the beginning of our journey. As can be more efficient and sustainable. During the last waste heat normally rejected through the cooling seen from the graphs below we have made the 15 years we have developed 10 new sites, towers; this heat energy is then used to pasteurise following progress: 3 processing dairies and 7 distribution depots. milk. The application of this technology will significantly reduce gas consumption and is Greenhouse Gases In specifying the design for each of these we a first in the British dairy industry. We plan to • Gas: 1% increase have considered environmental performance install this technology at all our large dairies. • Electricity: 5% reduction as a key issue. We subsequently ensure that all • Refrigeration leakages: Down by 5% successful innovations are retrofitted to existing We invested in Isotrak’s Active Transport • Transport: 2% reduction in fuel use sites if this is technically and commercially feasible. Management System along with further investment in Safe and Fuel Efficient Driver (SAFED) training to
Waste Water consumption and effluent disposal achieve targeted fuel savings and CO2 reduction. • Landfill: 98% diversion were a particular focus during the design of the Tracking units were installed on every vehicle across • Waste generated: 5% reduction Bridgwater dairy. The outcome was to invest all our sites and all drivers received SAFED training. • Effluent: 1% increase in the latest technology for effluent treatment
allowing us to treat waste water to such a high After only 12 months, we achieved a CO2 reduction
Natural Resources quality that it could be discharged to the local of 7% – equating to almost 5,000 tonnes of CO2. Each • Water: 6% reduction water course. In the past year we have made journey is reviewed for planned route adherence • Packaging: Industry best practice a further investment to install a Reverse Osmosis and engine diagnostics tell us about driving style weights in some sizes plant which will ‘polish’ the water from the effluent and fuel economy. We then review this with the • Closed Loop Recycling: 15% food treatment plant further, thereby achieving the driver ensuring that the techniques they were taught grade plastic in our plastic bottles same quality as our incoming mains water supply. at the SAFED training are adhered to every day.
The Group is pleased with the progress made to At the moment 25% of the sites’ water, around date across most of the targets. The significant 200,000 litres every day, is recycled in this way, investment made by the business in the current with plans to extend this further. A similar project and coming years should enable us to continue is being evaluated for our larger Droitwich Spa site. to make improvements in these metrics.
Waste Fuel Water generation (kgs/000l) litres of fuel used for per 1,000 litres of milk used ratio (l/l)
2010/11 1.13 2010/11 15.92 2010/11 0.60
2009/10 1.19 2009/10 16.22 2009/10 0.63
2008/09 1.43 2008/09 17.47 2008/09 0.68
Electricity Refrigeration Effluent ratio (kWh/000l) leakages (%) loading (kgs/000l)
2010/11 33.44 2010/11 6.54% 2010/11 0.99
2009/10 35.25 2009/10 6.88% 2009/10 0.98
2008/09 37.15 2008/09 8.91% 2008/09 1.06
Gas Waste ratio (kWh/000l) landfill diversion (%)
2010/11 33.92 2010/11 97.83%
2009/10 33.55 2009/10 80.79%
2008/09 33.81 2008/09 72.82%
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 21 Company Wide Approach Jim McLinden At RWD we believe well trained staff that are Jim McLinden is employed at our aware of and involved in solutions for sustainability East Kilbride dairy. He had been working issues are a key part to achieving our targets. in the bailing room and identified that All staff receive induction training which includes some product remains in the waste an environmental section highlighting targets packaging and after being compacted, and staff’s responsibilities. As well as this, was running out into the effluent drain. staff receive refresher training from the site This contributed to the site’s daily Environmental Team or Central Environmental effluent loading. Team to reinforce the importance of reducing our impact on the environment. Jim approached his site manager with an effective way of addressing this and Technology can only get us so far, the attitude rather than add it to an action log for and behaviours of our staff are key to the future one of the managers to action, the site success of our Sustainability Strategy. To identify manager encouraged Jim to develop the necessary behavioural changes we developed the idea himself. an Environmental Excellence Roadmap. It does not have targets; it identifies the behaviours required Jim was put in contact with the necessary by staff to drive change. contractors who he met on site and together they created a more defined plan. With The roadmap is not prescriptive; it encourages support from the site Jim implemented his the sites to develop their own method of changing idea. This product is now collected in a bulk behaviours which means they have ownership container and sent for animal feed. and responsibility. This ensures each site takes part and has its own climate change solutions as well as protecting natural resources and lessening their impact on the communities we operate in.
2010-2015 Targets: Greenhouse gases: Transport
Sustainability strategy:
1
reduce Natural Resources: Water what we can; Reduction Reuse in fuel use across the Group where we can; and 25% Waste: Effluent target Reduction Recycle across the Group what we cannot 15% Reduction across the Group
22 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Working with Suppliers We have been working hard with our packaging Sustainable Supply Chain We do not simply focus on our own impacts but work suppliers to decrease the environmental impact Sharing best practices within the dairy industry with suppliers across the business so seek to of our packaging. We continue to invest in new and wider food and drinks industry is important to minimise the environmental impact of the business moulds and technology to enable our plastic milk us. Through involvement in various forums we can as a whole. We are working with our direct supply bottles to be as light as possible while still being help and influence progression towards a more dairy farmer members to identify their on farm strong enough to protect the milk. Over the past year sustainable supply chain for our industry. individual carbon footprint calculations as well we have increased the recycled content of our as being able to give them guidelines on possible plastic bottles from 10% to 15% recycled food grade We invest a lot of time and effort in numerous energy and power savings. plastic and we are working with our blowmoulding industry committees and forums which include: partners and the plastics re-processors to ensure • Dairy UK Sustainability & Participant farmer members can measure their a sustainable supply of material and increase Environment Committee impact and identify savings both environmentally this to 20%. • IGD Industry Sustainability Group and financially. Each member is issued with a • ECR UK Sustainable Distribution Working Group comprehensive ‘traffic light’ report at the conclusion Even the humble cap is getting a sustainable • WRAP Courtauld Commitment. of the assessment which takes approximately 2.5 makeover. Already 20% lighter, we are looking to • Industrial Symbiosis Programme hours on average to complete. make it lighter again and assessing the viability Advisory Groups of including recycled plastic. As well as our bottles • Carbon Trust Industry Energy Efficiency To date 245 of our standard Wiseman farms we have been working on reducing the impact Accelerator programme. have undertaken their first year assessment. of labels and sleeves by reducing the height. The energy savings to date average out at We are pleased to achieve recognition for the £393 per farm per annum. Company’s progress in maximising efficiencies and minimising environmental impact. During the year this included a Plan A Award for Exceptional Environmental Awareness from Marks & Spencer, who praised our “bold and broad approach” in this area.
Zero Waste Our Bellshill dairy piloted a zero waste to landfill project. A bulk material recycling area was set up with well-marked, segregated bays for each material type. The site’s recycling rate was raised from 19% to over 77% in a short period of time and the dairy is now recycling over 95% of its waste.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 23 Despite a challenging business environment, we Corporate Social Responsibility reinforced our commitment to Corporate Social Responsibility (‘CSR’) during the year. The Board has delegated the day to day responsibility for Viewing sustainability all employee matters related to CSR to David Dobbins, Group Commercial Director, with the Executive Directors on the Board being responsible in a wider context for all other CSR matters. Our CSR focus falls under three general headings: • Employee engagement and development • Supplier relationships than just focusing • Wiseman in the Community Employee Engagement and Development The Company believe that the best way to manage on the environment employee engagement and development is by focusing on 3 separate areas, namely: • Personnel • Learning & Development “We view sustainability in a wider context • Health & Safety Personnel than just focusing on the environment. We look to be an inclusive employer demonstrating For us it is also about the development commitment to our employees.
of our staff and how we relate to our The Company is proud of its track record in helping customers, suppliers and the local staff to progress in their careers. Many employees choose to stay and work in the business after their communities we serve.” normal retirement age.
David Dobbins Group Commercial Director
24 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
The company has a strong and long-established A Group Induction Programme ensures that every partnership with trade union USDAW. Membership employee receives a comprehensive corporate Our Values levels have reached record levels in the last induction to the company, which is then followed We aim to live up to our 12 months. up by a local, job-specific training programme values in everything we do delivered onsite. The Group is committed to the principle of equal • We do what we say opportunities and will not tolerate discrimination Employees are encouraged to continually develop on the grounds of sex, race, disability, marital themselves throughout their career with vacancies • We work hard for our customers status, age, political belief, colour, culture, advertised online. Last year over 1,800 courses • We work together nationality, ethnic or national origin, religion or took place on a wide range of topics from technical • We work to be better belief, sexual orientation or gender reassignment. training to behavioural development courses • We keep things simple on Assertiveness, Time Management or • We love success As a widely dispersed business our ethnic mix varies Presentation Skills. from location to location. In common with most of the transport and logistics industry in Great Britain, Management Development training has been our distribution staff are predominantly male, but extended and to support our drive for Lean Thinking our production facilities include a broader gender and Continuous Improvement, 2011 sees the mix due to the availability of shift and part time nationwide launch of courses in Problem Solving working. Currently the Company has an 89% and Project Management. male/11% female split. The age profile across the group is also diverse. We are proud to support the Eden programme – a 3 year Foundation Degree in Dairy Technology Learning & Development supported by Reaseheath College, Cheshire. We look to ensure that employees receive all Now in its second year, we have 12 students necessary training when they start and we who are already applying the academic assist them to develop their skills throughout knowledge they have gained to deliver real their time with the Group. benefits through onsite projects.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 25 Health & Safety The Group currently has 39 employees trained Our vision is we are world class We look to ensure that our employees have a to NEBOSH General Certificate level and 240 leaders in H&S, exemplary in all safe environment in which to work. employees trained to IOSH Managing Safely level. matters relating to health, safety The Group actively seeks to eliminate risk from the We are proud of our excellent record of and welfare. We promote the business as far as is practical or effectively manage achievement over the past two years gaining successful management of the risk when it cannot be eliminated. The Group has eight RoSPA awards. We have once again health safety and welfare. invested heavily in health & safety to ensure that entered our Wolverhampton Site for an employees have an appropriate working achievement award in the RoSPA Awards 2011. environment to carry out their duties. Supplier Relationships We have introduced the RoSPA Quality Safety It is our experience that supplier relationships Audit (QSA) into the business. This audit measures are mutually beneficial if we pool and share performance against the international best knowledge, and we work to build strong practice compliance standards of OHSAS 18001. partnerships to allow this to happen. We pay our suppliers in accordance with agreed terms The QSA offers an objective system to measure and conditions. our health and safety status. Our health and safety team have all recently achieved the status of RoSPA We have over 1,000 farmers within the Wiseman Quality Safety Auditors. Milk Group supplying us directly and long established relationships with farmer owned Key to improving safety is proactive auditing of co-operatives First Milk, Milk Link and the our sites. The sites are audited on a regular basis. organic milk co-operative, OMSCO. We work to improve our safety culture and enjoy year on year improvement of our safety audit scores. The majority of Wiseman Milk Group members Furthermore, there has been an overall are now ‘aligned’ to retailer supply groups, and improvement of 3.95% on our scoring this year. benefiting from premium farm gate milk prices. Those who are not, are offered the Wiseman Training is key to ensuring that our workforce is standard milk price, which is market related and equipped with the information required to carry competitive relative to other fresh milk buyers. out work safely. For example we have developed a programme of training which includes, working together with the safety union reps, IOSH and NEBOSH courses, accident investigation and contractor control.
Wiseman staff get saddle sore for hospice care In September 2010, ten Wiseman staff saddled up to raise £13,800 for hospice care by cycling 244 miles in three days, from London to Paris.
And they weren’t the only ones who were saddle sore – because whilst the Wiseman team battled their way to Paris, a group of volunteers from the Company’s Northampton depot covered the same distance on exercise bikes!
London to Paris rider, sales manager Sam Eccles said: “We were really pleased that the team in the depot were involved too. Knowing that they were supporting us was some comfort, although they didn’t have to climb any hills!”
26 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Wiseman gives it welly! More than 300 people took part in the first ever Wiseman Welly Walk raising £15,500 for Eden Valley Hospice in Carlisle.
Organised by staff at the Company’s depot in Carlisle, the Wiseman Welly Walk took a three mile route along the banks of the River Eden. A pair of distinctive black and white cow print Wiseman Wellies was included in the entry fee, to be worn during the walk.
Alan Vidler, site manager at the Wiseman depot said: “We had a terrific response to the Wiseman Welly Walk idea. The hospice is a cause close to the hearts of all our staff, so as well as a great day out the event raised much needed funds to help the hospice continue its valuable work.“
With help from volunteers at its dairies and depots, the Company is now planning a number of Wiseman Welly Walks across the country.
All members are required to meet high quality organisations seeking help and support. These standards for milk and animal welfare both of requests are considered using criteria developed which are subject to rigorous independent testing by WiC and agreed by the Company’s throughout the year. management team.
In addition to our raw milk supplies, we maintain In the past year Wiseman in the Community long term strategic partnerships with over 50 contributed the following: other key suppliers of all sizes. Staff and Company fundraising £126,582 Wiseman in the Community and donations in kind for Help We are an integral part of local communities all the Hospices and other charity over the UK as a supplier of fresh milk and as a organisations major employer. With that comes a responsibility to wherever possible, get involved with local Donations in kind, sponsorship £124,643 communities particularly where we have dairies and charitable contributions to and distribution centres. In 2008 we established community groups Wiseman in the Community (WiC); a group of staff from around Great Britain who represent all of the Donations in kind, sponsorship £30,884 areas of the country in which we operate and who and charitable contributions to are willing to contribute some of their spare time. farming organisations This group has been tasked with the responsibility Donations in kind, sponsorship £28,601 for finding out how Wiseman’s can become and charitable contributions to appropriately involved in their area. customer charities
WiC has chosen to support Help the Hospices Donated panel space on Wiseman £312,500 (www.helpthehospices.org.uk) the leading national branded milk products to charity charity that represents and promotes hospice and and community organisations palliative care across the UK. In addition to this, (equivalent advertising value) the group receives hundreds of requests each Total £623,210 year from local community and farming related
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 27 Principal Risks and Uncertainties Our biggest challenges There are a number of potential risks and uncertainties which we have identified within the business that could have a material impact on the Group’s long-term performance. These are not all of the risks which the Directors have identified, but those that the Directors currently consider are material.
Risks Description of risk Measures to reduce the risk
Oil related costs The Group is exposed to fluctuations arising from movements The Group has taken measures such as the investment in in the price of diesel. The Group operates over 1,100 commercial Isotrak and SAFED training designed to reduce our fuel usage. vehicles and 300 trailers and diesel is a significant cost within the In the past we have taken out hedges in respect of a proportion Group’s operations. of our diesel cost in order to mitigate our exposure to these fluctuations. We continue to review the appropriateness of these arrangements and further hedge arrangements may be entered into as considered appropriate.
Commodity priced The Group produces bulk cream as a by-product of the liquid The Group enters into a series of medium and short term by-products milk process in its dairies. This product either goes into pot contracts on bulk cream designed to maximise the returns cream or bulk cream sales. The bulk cream sales are sold to the business. via a mix of long term arrangements or monthly deals but in both circumstances the selling prices track the current market prices. During the year there were significant fluctuations in the commodity prices achieved for bulk cream and such fluctuations can result in significant adjustments to the profitability of the group. In the current year the value of bulk cream has been significantly higher than in the prior year generating higher revenues.
Commercial We have developed close working relationships with all of our The Group focuses heavily on delivering a high quality product relationships customers. However, a large percentage of the Group’s sales on time. We maintain regular contact with all of our customers are made to Multiple Retailers and, in the period to 2 April 2011, and members of the senior management team, including 76% of our total milk sales by volume was concentrated in five members of the Board, meet with individual management key customers (year ended 3 April 2010: 73%). Damage to, or loss from our key customers throughout the year. of the relationship with these customers could have a detrimental effect upon the financial performance of the Group.
Information The Group continues to invest heavily on improvements to In order to reduce this risk to an acceptable level, the Group has technology production and communication facilities. In the current period continued to invest in additional IT personnel and IT security to the main focus has been on the new capacity at Bridgwater ensure that we are as well protected as we practically can be and opportunities offered by our new Infor planning tools. from IT viruses and downtime. We have also continued to make significant upgrades to our production facilities to ensure that they remain the most efficient and technologically advanced in the country. However, this increases the Group’s risk of reliance on IT systems and processes.
Manufacturing In the current year the Group has completed the final phase of The Group aims to operate 2 x 8 hour shifts 6 days a week in our capacity Bridgwater with the commissioning of line 1 at Bridgwater. Whilst processing sites in order to enable sufficient time throughout the this provides the group with significant additional processing week for preventative maintenance. This ensures the integrity capacity, the Group gained volume in Tesco and the Co-operative and robustness of our operating equipment. In addition the Group during the year and was awarded additional volume with Group has recovery plans in place in respect of most of the the Co-operative Group which will commence in August 2011. This foreseeable situations that pose a risk to continuity of operations will see our dairies having to continue to operate at high volumes and staff are trained to ensure that were any such event to arise and levels of efficiency throughout the year. Therefore there is a we could react in the most appropriate manner. risk associated with our success in delivering growth that within the next couple of years we shall reduce our spare capacity which will limit our ability to deal with any significant breakdowns etc in house by spreading the necessary volume over the remaining 5 dairies.
28 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Risk Description of risk Measures to reduce the risk
Raw materials With 96.9% of our sales of milk by volume being in polybottles The Group have established strong working relations with our (year ended 3 April 2010: 96.5%) the Group is exposed to polybottle suppliers and believe that we are managing this risk fluctuations in HDPE resin price. In addition to the impact as fully as is commercially practical given a suitable hedging of an increase in global demand for this resin, it has been arrangement has not been identified in relation to these costs. clearly demonstrated in the current period that it can also The Group works closely with all of its milk suppliers. Our experienced be subject to significant fluctuations on account of it being milk procurement and trading teams understand the businesses an oil related commodity. requirements, the pattern of milk production and the impact of micro Shortage of milk supply due to animal welfare issues, extreme and macro matters on off farm supplies. The business maintains weather conditions or economic factors could result in the focus on customer requirements and availability of milk off farm business having insufficient supplies of milk to meet our throughout the year and ensures that we have suitable contingency customers’ requirements. arrangements and plans for the majority of foreseeable situations individually and as an industry. The effectiveness of the measures taken by the business was best demonstrated during the extreme weather conditions in December 2010. During this period we were able to collect 99.98% of the milk available from our farms and met all of our customer orders.
Environmental risk Whilst we are focused on improving our environmental impact at We continue to work with industry bodies, within our own business all sites, the nature of the product means that we have significant and with our suppliers, to constantly improve our environmental environmental impacts from packaging types to method of performance. Details of how we are performing can be found in delivery to the customer. the environmental section of this annual report.
Product quality Product quality is paramount. The impact to the business as a The Group has invested significant amount of time, money and result of either product contamination, which could affect food resource into ensuring that we have a robust quality process safety, or lack of quality could be significant as it could result in throughout every step of the supply chain including the supply base. loss of business or loss of reputation. All of the Group’s sites are subject to frequent internal and external audits with all of the processing sites accredited to BRC Global Standard for Food Safety Grade A standard and the sites have all achieved high accreditation from each of the multiple retailers they supply.
Management The Group has a large percentage of its business concentrated The credit risk associated with our trade receivables balance is of credit risk in a small number of Multiple Retailers and this is also reflected limited because the customers are either large corporations with in our trade receivable balances. high credit ratings or we have credit insurance in place to mitigate the risk of exposure.
Management The Group has limited exposure to foreign exchange risks due The Group’s policy when purchasing capital equipment from, or in of foreign to limited packaging and capex spend in euros. selling products to, overseas countries is to fix our liability in pounds exchange risk Sterling when orders are placed using foreign exchange contracts.
Management of The Group does have some borrowings which Historically the policy of the Group has been to hedge around 40% to interest rate risk are not fixed as such and it is therefore exposed 60% of the core borrowings. We have in place one interest rate hedge, to limited interest rate risk. a five year £10 million floating to fixed rate hedge. Excluding the fixed rate finance leases the year-end debt was nil compared to the £10 million of hedged balances and, as a result, the Group has hedged balances inconsistent with its policy in this area. However, there are no intentions to either increase the level of borrowing or buy-out the hedges at present. We continue to review the appropriateness of our interest rate policy and our hedging policy throughout each financial year.
Regulatory risk The Group employs nearly 5,000 people and It remains the Group’s policy to ensure that employees are aware must ensure that at all times it complies with all of their responsibilities under all applicable regulatory requirements, applicable laws and regulations in how it and including Competition Law and their associated compliance is its employees operate. monitored through the year. As part of our compliance procedure for Competition Law, we organise formal training sessions for all sales department employees on a regular basis.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 29 1. Robert Wiseman (56) Executive Chairman Robert joined the business in 1975. He became Board of Managing Director in 1985, Chief Executive on 16 May 2005 and was appointed Executive Chairman on 8 July 2010. He has responsibility for all operational matters within the Group. He was awarded Ernst & Young Entrepreneur Directors of the Year 2003.
2: William Keane (55) Managing Director William is a Fellow of the Chartered Institute of Management Accountants and joined Wiseman on 1 January 1994 as Group Finance Director and was appointed Managing Director on 8 July 2010.
4. 3. 5. 1. 2.
30 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
3: Gerard Sweeney CA (43) 5: Martyn Mulcahy (54) 7: Ernest J Finch MBE BSc (64) Group Finance Director Group Operations Director Non-executive Director Gerard Sweeney assumed the role of Group Martyn joined the business in December 1994 Ernie joined the Company in September 1999 Finance Director in July 2010. Having joined the and has been involved in the dairy industry for and was previously group executive of retail business in 1997 as Financial Planning Manager, most of his working life. Martyn has been a director operations and systems with Marks and Spencer he was promoted to Financial Controller two years of the operating company, Robert Wiseman & Sons plc. He is currently a non-executive director later and subsequently promoted to Finance Director Limited, since October 1995 and is responsible of CAFCASS and holds posts as a commercial on February 2002. From 2006 until 2010 he was for the Group’s operational activities including adviser in both the public and private sectors. Company Secretary of Robert Wiseman Dairies PLC all environmental, production and distribution and its subsidiaries. related matters. 8: David Dobbins (53) Group Commercial Director 4: Norman L Murray BA, CA (63) 6: Jack Perry CBE, BSc, CA (56) David joined the business in May 1982 and has Non-executive Director Non-executive Director been involved in the milk industry for his entire Norman joined the Company in September 2003 Jack joined the Company on 1 March 2010 and working life. He has been a director of the operating and is the Senior Independent Director. He is was previously Chief Executive of Scottish Enterprise company, Robert Wiseman & Sons Limited, since currently Chairman of Cairn Energy PLC, Chairman until retiring from that post on 3 November 2009. March 1989 and is responsible for the Group’s of Petrofac Limited and a Non-executive Director He has also been Managing Partner of Ernst & commercial activities including employee matters, of Greene King plc. He is a past President of the Young in Glasgow and Regional Industry Leader sales & marketing, commodity trading (bulk Institute of Chartered Accountants of Scotland. for Consumer Products. He is a former chairman cream), health and safety and customer services. of CBI Scotland and a member of the UK and Ireland advisory committee of Barclays Wealth.
8. 7. 6.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 31 32 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
What’s in this section? Governance 35 Directors’ Report 37 Corporate Governance 45 Directors Remuneration Report
Britain’s fresh milk professionals Focused on managing performance for our customers’ benefit
Governance is not about box ticking but is part of the way in which we operate. By constantly monitoring the risks to the business we look at not simply how we prevent or manage risk but also what happens if the worst case arises. Having the ability to move milk and product around our strategic network coupled with our focus on maintaining business continuity enables the Company to maintain such high performance levels to our customers when extreme situations arise. In the current year the Company received exceptional feedback from our customers despite the most challenging weather conditions we had ever seen. It is this focus on managing the business properly and efficiently to meet our customers’ requirements that is at the heart of everything we do.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 33 How do we govern our business?
The Board is accountable to shareholders for good governance, however governance is not simply about the Board – it’s about how governance is communicated, understood and carried out across the Group. Whilst the Board can set out the Group’s mission and values it is essential that everyone involved with the business acts in accordance with these values in order to achieve our mission.
Our Board of Directors Remuneration at a Glance The Board of Robert Wiseman Dairies PLC consists of 8 members; Key points to note in 2011 3 Non-executive Directors and 5 Executive Directors. The Company believes that it has the right balance of independence, experience, responsibility • The Remuneration Committee set the pay packages for those individuals and accountability in its Board structure. For full details of the Directors affected by the Board changes that occurred during the year. who sit on the Board see pages 30 and 31. • It also sought to ensure that the levels of remuneration delivered to the Company’s senior executives during the year was, as far as possible, appropriately aligned with the overall performance of the business Board Committees over the period. There are three principal Board Committees: • Finally, the Committee reviewed and amended the Company’s incentive arrangements to ensure they did not encourage excessive risk taking and • The Audit Committee, chaired by N Murray delivered rewards that were appropriate and justified. • The Remuneration Committee, chaired by J Perry • The Nomination Committee, chaired by R Wiseman For full details of the Directors’ Remuneration Report see pages 45 to 60. 2011 Board Objectives The Board is responsible for achieving the Company’s mission to be the best fresh liquid milk processor and supplier in Great Britain, meeting our customers’ needs for quality fresh milk products. In doing so the Board looks to maximise the benefits generated for shareholders, employees and suppliers whilst minimising the environmental impact of the business.
Composition of the Board
Executive Chairma n 1 Executive Directors Non-Executive Directors
4
3
34 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Directors’ Report
The Directors present their Annual Report on the affairs of the Group, together with the financial statements and auditor’s report, for the financial year ended 2 April 2011.
Principal Activities and Business Review The principal activities of the Group remain the processing and distribution of milk and associated products. A review of the results and the development of the business is given in the Chairman’s Statement on pages 8 and 9 and the Business and Financial Review (‘BFR’) on pages 14 to 19.
Results and Dividends Group results, dividends paid and recommended transfers to retained earnings are as follows:
£000 Group retained earnings at 4 April 2010 94,975 ESOP share amortisation (2,129) Share-based payments credit 1,722 Arising on exercise of options 2,179 Arising on purchase of ordinary shares for cancellation (3,074) Total comprehensive income 25,908 Dividends (4,021) Group retained earnings at 2 April 2011 115,560
Enhanced Business Review Requirements The Group is required to comply with the Enhanced Business Review disclosures required by the Companies Act 2006 as amended to comply with the EU Modernisation Directive. The Group has chosen to include much of the disclosure within its Business and Financial Review including the following:
• Disclosure of Key Performance Indicators for the Group on page 11 of the Annual Report. • Disclosure of Principal Risks and Uncertainties affecting the business including the use of financial instruments on pages 28 and 29. • Disclosure of Financial Risk Management Policy in respect of key risks relating to credit, foreign exchange and interest rates on page 29.
In addition the Group has made certain disclosures about its environmental impact and performance in the current year within the Environmental Report contained on pages 20 to 23.
The Group has also made certain disclosures regarding future prospects in the Chairman’s Statement on pages 8 and 9.
Corporate Governance The Board has overall responsibility for risk management and internal control within the context of achieving the Group’s objectives. Our process for identifying and managing risk is set out on pages 42 and 43 of the Corporate Governance section of the Annual Report and Financial Statements.
Share Capital On 13 May 2011 the Company had been notified, in accordance with Chapter 5 of the Disclosure and Transparency Rules, of the following interests in the Company’s ordinary share capital:
Number of shares Percentage held RT Wiseman 12,689,896 17.93% AW Wiseman 8,996,314 12.71% First Milk Ltd 7,162,026 10.12% F & C Asset Management Plc 3,435,322 4.85% Standard Life Investments Ltd 3,273,521 4.63% Aberforth Partners LLP 3,204,190 4.53% AXA SA 3,049,472 4.31%
Details of the share capital of the Company are given in Note 26 to the financial statements.
Acquisition of Company’s Own Shares At the end of the year, the Directors had authority, under the shareholders’ resolution of 8 July 2010, to purchase on behalf of the Company 7,000,000 of the Company’s ordinary share capital at prices ranging between 10p and 345.50p per share. This authority expires at the conclusion of the 2011 Annual General Meeting. It is proposed that this authority will be renewed at the 2011 Annual General Meeting, as detailed in the Notice of Annual General Meeting.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 35 Directors’ Report continued
Directors The names of the current Directors of the Company are set out on pages 30 and 31 of the Annual Report. WG Keane and MC Mulcahy will retire by rotation and will seek re-election by shareholders at the 2011 AGM. G Sweeney retires and offers himself for election by shareholders at the 2011 AGM. EJ Finch will also retire at the Annual General Meeting in accordance with provisions of the Combined Code and will seek to be re-appointed.
Charitable and Political Contributions During the year the Group made charitable donations of £28,000 (2010: £12,000) principally to local charities serving the communities in which the Group operates and £Nil (2010: £Nil) for political purposes.
Fixed Assets There is no material difference between the book value and the current open market value of the Group’s interests in land and buildings.
Terms of Payment to Suppliers Payment terms with suppliers are such that payment is made by the Group at the end of the month following that in which goods or services are received, except where individual terms of payment have been agreed. The Company has no trade creditors.
Environmental Policy The Group is committed to minimising any harmful effects of its activities on the environment and to working with suppliers, customers and the local community to carry out this policy. Programmes to reduce energy usage and minimise waste have been put in place and the Group works with customers and suppliers to avoid excess packaging and promote the use of recyclable materials. Further details of the Group’s environmental objectives and initiatives in this area are set out on pages 20 to 23.
Employees Details of the number of employees and related costs can be found in Note 9 to the financial statements. The Group places considerable value on the involvement of its employees and has continued its previous practice of keeping them informed on matters affecting them as employees and on the various factors affecting the performance of the Group. Communication is made via regular meetings with senior management, notice boards and newsletters sent to every employee.
Disabled Employees Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical with that of other employees.
Disclosure of Information to Auditors In the case of each of the persons who are Directors of the Company at 17 May 2011:
• So far as each of the Directors is aware, there is no relevant audit information (as defined by the Companies Act 2006) of which the Company’s auditors are unaware; and • Each of the Directors has taken all of the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information (as defined) and to establish that the Company’s auditors are aware of that information.
Auditors Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to re-appoint them will be proposed at the forthcoming Annual General Meeting.
Annual General Meeting The notice convening the Annual General Meeting, which will be held at the Holiday Inn East Kilbride, Stewartfield Way, East Kilbride on 6 July 2011 at 12.00 noon, is sent to shareholders separately with this report, together with the explanation of the items of special business.
Approved by the Board of Directors and signed on its behalf by:
Maureen Burnside Secretary 17 May 2011
Registered Office 159 Glasgow Road East Kilbride Glasgow G74 4PA
36 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Corporate Governance
“Strong governance requires a clear understanding of what the Group wants to achieve, a strong Board, good people and appropriate processes and controls.”
Introduction Robert Wiseman Dairies PLC believes that the principal role of its Board is to achieve the Company’s mission to be the best fresh liquid milk processor and supplier in Great Britain, meeting our customers’ needs for quality fresh milk products. Details of how the business has performed in the current year against achieving its mission are set out in the strategy section of this Annual Report. This section of the Annual Report seeks to explain how the Group is governed and how the Board ensures that the Group operates within the risk appetite and strategy set by the Board.
The Company is committed to the principles of Corporate Governance contained in the revised Combined Code on Corporate Governance which is appended to the Listing Rules of the Financial Services Authority (‘the Combined Code’), and each of the provisions of the Combined Code is reviewed throughout the year to see whether it is necessary to take steps to ensure that the Company is in compliance with all of those provisions as at the date of this Report or to explain any instances of non-compliance.
On 23 December 2008 the Company was promoted to the FTSE 350. One result of this was that the provisions of the Combined Code are different in respect of the balance of the Board. The Combined Code requires that, for FTSE 350 companies, at least half the board, excluding the chairman, should comprise non-executive directors determined by the board to be independent. In the period from 4 April 2010 to 8 July 2010 half of the Board excluding the Chairman was made up of Non- executive Directors. In expectation of the retirement of Andrew Dare in July 2010, the Nomination Committee met in May 2010 to consider whether it was appropriate for the Company to increase the number of independent Non-executive Directors it has and it concluded that, given the then current Board structure and membership, there was no need to change the Board balance to comply with the best practice provisions of the Combined Code. The Nomination Committee agreed to keep this matter under review. In December 2010 following the reduction in market capitalisation of the Company, the Company was excluded from the FTSE 350. The requirement of the Combined Code for companies below the FTSE 350 is that a board should have at least two independent non-executive directors. During the year the Company had at least three independent non-executive directors. The requirement of the Combined Code to have at least two independent non-executive directors applies to companies that are below the FTSE 350 throughout the year immediately prior to the reporting year, therefore the Company has not complied with the provisions of the Combined Code on Board balance in the year ended 2 April 2011 nor shall we comply with the provisions in the year ending 31 March 2012. The Group believes that the balance of skills and experience within the Board is appropriate for the requirements of the business.
In the period prior to 8 July 2010 the roles of Chairman and Chief Executive were separate and there was a clear division of responsibilities between those roles. Following changes in the Board composition prompted by the resignation of Alan Wiseman and Andrew Dare from the Board on 8 July 2010, Robert Wiseman, the then Chief Executive, took on the role of Executive Chairman and Billy Keane, the then Finance Director, was promoted to Managing Director. Whilst the Chairman leads the Board and ensures the effective engagement and contribution of all Non-executive Directors (NED) and Executive Directors, he shares with the Managing Director responsibility for all Group businesses and acts in accordance with the authority delegated from the Board. Responsibility for the development of policy and strategy and operational management is delegated to the Executive Directors and the Group senior management team. There is also a Senior Non-executive Director (Norman Murray) whose role is separately defined.
BOARD MAKE-UP Period to 8 July 2010 Post 8 July 2010 Not independent Independent Not independent Independent Non-executive Chairman – A Wiseman Senior NED – N Murray Executive Chairman – R Wiseman Senior NED – N Murray Chief Executive – R Wiseman Rem Comm chair – E Finch Managing Director – W Keane Rem Comm chair – J Perry Finance Director – W Keane NED – J Perry Finance Director – G Sweeney NED – E Finch Operations Director – M Mulcahy NED – A Dare Operations Director – M Mulcahy Commercial Director – D Dobbins Commercial Director – D Dobbins
The Group believes that the change in the Board structure is consistent with its previous approach and remains aligned to the interests of its shareholders with R Wiseman being the largest individual shareholder with interests amounting to 17.9% of the Company’s ordinary share capital.
With the exception of the balance of the Board and separation of the Chairman and Chief Executive roles detailed above, the Company has complied throughout the year ended 2 April 2011 with the Provisions of the Code of Best Practice set out in section 1 of the Combined Code.
Directors Brief biographical details of current Directors are set out on pages 30 and 31.
• During the course of the year the Board comprised up to five Executive Directors and five Non-executive Directors. As detailed in the table above all of the Non- executive Directors with the exception of the Non-executive Chairman were considered by the Group to be independent. Norman Murray as the Senior Independent Non-executive Director is available to address concerns which shareholders may have that have not been dealt with through the normal communication channels with the Chairman and the Executive Directors. The Non-executive Chairman was deemed to not be independent on account of his previous Executive position, shareholding and relationship with the then Chief Executive.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 37 Corporate Governance continued
In accordance with the Company’s Articles of Association, which provide for all Directors to stand for re-election at intervals of no more than three years, WG Keane and M Mulcahy will retire by rotation and will seek re-election by shareholders at the 2011 AGM. Our Articles of Association require that a Director appointed to the Board since the last AGM should retire at the next AGM and stand for election to the Board to give shareholders an opportunity to confirm their appointment, therefore G Sweeney retires and offers himself for election by shareholders at the 2011 AGM.
In addition as we explained last year EJ Finch was re-elected in 2010; however his total period of appointment is now in excess of 10 years at which point the Code requires the Company to consider whether he is still independent by reason of the duration of his involvement with the Company. While it was agreed at the 2010 AGM that EJ Finch be reappointed for a period of three years, we consider it appropriate that he stand for re-election on an annual basis. The Board is satisfied that following the review of Board and Director effectiveness in 2011, EJ Finch remains independent in character and judgment. He continues to demonstrate the characteristics of independence which we consider essential, such as objectively challenging management and taking part in rigorous debate. We believe that it is advantageous to the Company to retain his services due to his commercial experience, strong knowledge of the Group’s business and affairs, together with his experience gained as Chairman of the Remuneration Committee.
Particulars of Directors’ remuneration and interests in shares of the Company are given in the Report of the Board in relation to Remuneration Policy and Practice (the ‘Directors’ Remuneration Report’) on pages 45 to 60 and Note 9 respectively.
The Board At Robert Wiseman Dairies PLC we believe that the Board needs to be independent, balanced and insightful, informed and effective.
How does the Board demonstrate independence? The Board considers that its make up is in keeping with its requirements. Whilst the Board now only has 3 independent directors, we believe that this is appropriate given the size of the company. In addition with the largest shareholder RT Wiseman on the Board, we believe that the interests of shareholders are always represented.
How does the Board demonstrate balance and insight? The Board considers that the make up of the Board is more important than the number of independent Non-executive Directors on the Board. The Board of Robert Wiseman Dairies combines a broad range of skills and experience which ensures that there is always the necessary level of challenge in respect of executive performance. We are conscious of the need to give sufficient time for questions and debate in the boardroom so discussion does not get curtailed.
The governance committees carry out detailed independent oversight on behalf of the Board to ensure we have the appropriate processes in place for succession, remuneration and audit. The Non-executive Directors are provided with access to the management team through presentations at Board and committee meetings and ad hoc meetings at their request.
The Company Secretary supports the members of the Board in carrying out their governance responsibilities.
On appointment to the Board, Directors are provided with a full, formal and tailored programme of induction, to familiarise themselves with the Group’s businesses; the risks and strategic challenges the Group faces; and the economic, competition, legal and regulatory environments in which the Group operates.
How does the Board keep fully informed? We have a comprehensive but efficient committee structure to help keep the Board fully informed.
In advance of all Board meetings the Directors are supplied with detailed papers covering the Group’s operating functions. Members of the executive management team attend and make presentations as appropriate at meetings of the Board. The Company Secretary is responsible to the Board for the timeliness and quality of information.
Directors can obtain independent professional advice at the Company’s expense in performance of their duties as Directors. None of the Directors obtained independent professional advice in the period under review. All Directors have access to the advice and the services of the Company Secretary. In addition to these formal roles, the Non-executive Directors have access to senior management either by telephone or via informal meetings.
A programme of strategic and other reviews, together with other training provided during the year, ensures that Directors continually update their skills; their knowledge and familiarity with the Group’s businesses; and their awareness of sector, risk, regulatory, legal, financial and other developments to enable them to fulfill effectively their role on the Board and committees of the Board. During the year representatives from Deloitte LLP, Maclay Murray & Spens LLP and Aon gave presentations to the members of the Board as part of the Board training and technical update process.
38 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Corporate Governance continued
The Executive Chairman, Managing Director and Group Finance Director have met with major shareholders during the year in order to continually develop their understanding of the views of other major shareholders and they have discussed these with the Board accordingly.
The committee chairmen report to the full Board on the outcomes of each meeting. With detailed work being delegated to the committees, it is essential that time is given to keeping all Directors up to date and to give them opportunities to ask questions.
The Operational Board (this is the Board of Robert Wiseman & Sons Limited) also supports the Board in fulfilling its governance accountabilities.
Board effectiveness Good governance is a matter of the Board working effectively as it goes about meeting its objectives and undertaking its responsibilities. To this end we annually undertake a review of both the Board and its governance committees. This matters to us – a strong Board makes a significant difference to a company’s ability to achieve its objectives.
What did the Board do during 2010/11? The Board meets regularly to determine the strategic direction of the Group and to review operating, financial and risk performance. During the current year the Board considered the following:
• approval of the Group’s annual Business Plan; • the Group’s strategy; • capital expenditure projects above certain thresholds; • all guarantees; • treasury policies; • the interim and annual financial statements; • the Company’s dividend policy; • transactions involving the issue or purchase of Company shares; • borrowing powers; • appointments to the Board; • legal actions brought by or against the Group above certain thresholds; and • the scope of delegations to Board Committees, subsidiary boards and executive management of the Group.
The Board received regular updates from the Chairmen of the Audit; Remuneration and Nomination Committees on activities during the year. During the year a separate meeting was held by the Non-executive Directors in March 2011, whilst no major issues were discussed we believe that it is essential that the Non-executive Directors are given this opportunity to formally catch up and discuss matters amongst themselves privately.
How did the Board review its performance? Robert Wiseman, Chairman, led the 2010/11 Board review. Consistent with previous years each director had a one to one discussion with the Chairman, enabling him to highlight particular issues or themes to be reviewed. The performance of the Chairman was reviewed by the Non-executive Directors.
The 2010/11 review has confirmed that all of the Directors’ performances have continued to be effective, and the Directors’ offering themselves for re-election or election at the AGM continue to demonstrate appropriate commitment and contribution to the role of Director.
Individual performance The Chairman has reviewed the performance of the executive directors individually against set objectives. Remuneration is directly linked to these reviews and is determined by the Remuneration Committee.
The Board has determined that each Non-executive Director demonstrates commitment to the role, including giving sufficient time to Robert Wiseman Dairies meetings and matters. Each Non-executive Director is independent in character and judgement; and every Director makes an effective and valuable contribution to the Board.
What is the Board’s focus going forward? We do not consider that once you have good governance that this can be easily maintained. Like all of our business processes this is a matter of continuous development and improvement. We shall continue to monitor our performance in the business and invest in additional controls and more efficient processes whenever we identify such a need.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 39 Corporate Governance continued
Attendance at Board and Committee Meetings from 4 April 2010 to 17 May 2011
Audit Remuneration Nomination Board Committee Committee Committee (max 8) (max 4) (max 8) (max 3) Executive Directors RT Wiseman 8 – – 2 WG Keane 8 – – – M Mulcahy 8 – – – D Dobbins 8 – – – G Sweeney** 6 – – –
Non-executive Directors AW Wiseman* 2 – – 1 NL Murray 6 4 7 3 EJ Finch 8 4 8 3 JS Perry 8 4 7 3 AR Dare* 2 1 2 1
* A Wiseman & AR Dare retired from the Board in July 2010 ** G Sweeney was appointed to the Board in July 2010
In addition, the Chairman of the Audit Committee also held 2 meetings with the external auditors during the period 4 April 2010 – 17 May 2011 covering the audit planning and an evaluation meeting towards the end of each year’s audit process.
Committees of the Board The terms of reference of the principal Committees of the Board – Audit, Remuneration and Nomination – are available on the Company’s website, www.wiseman-dairies.co.uk. Those terms of reference have been reviewed in the current year and are reviewed at least annually. The work carried out by the Audit and Nomination Committees in discharging their responsibilities is summarised below. The work carried out by the Remuneration Committee is described within the Directors’ Remuneration Report on pages 45 to 60.
Nomination Committee Robert Wiseman (Chairman) Norman L Murray Ernest J Finch Jack S Perry
The Committee leads the process for making appointments to the Board; ensures that there is a formal, rigorous and transparent procedure for the appointment of new Directors to the Board; reviews the composition of the Board through a full evaluation of the skills, knowledge and experience of Directors; and ensures plans are in place for orderly succession for appointments to the Board, and to other senior executive management positions.
In the current year the Committee has:
• reviewed and approved the move of RT Wiseman from Chief Executive to Executive Chairman, the assumption of the role of the Managing Director by WG Keane and the promotion of G Sweeney to the role of Group Finance Director; • reviewed and approved the appointment of the full time Company Secretary; • reviewed the balance of executive to Non-executive Directors on the Board and the independence of EJ Finch, given his service to the Board for more than ten years; and • reviewed whether all of the directors should retire by rotation on an annual basis and resolved that this was not conducive to continuity on the Board.
40 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Corporate Governance continued
Audit Committee Norman L Murray (Chairman) Ernest J Finch Jack Perry
The Audit Committee consists entirely of Non-executive Directors who are considered to be independent by the Board, and is chaired by Norman Murray who has recent and relevant financial experience. As can be seen from the Directors’ biographical details, appearing on pages 30 and 31, the other members of the Committee bring to it a wide range of appropriate experience. The Terms of Reference of the Committee include all matters indicated by the Combined Code.
The Committee meets with Executive Directors and management, as well as privately with the external auditors. In the current year the Committee has:
• reviewed and advised the Board on the Group’s interim and annual financial statements; • reviewed the control of the Group’s financial and business risks; • discussed and agreed the nature and scope of the work to be performed by the external auditors and internal audit departments; • reviewed the results of this audit work and the response of management; • reviewed the activities, resources, organisational structure and operational effectiveness of the Group’s internal audit departments as discussed in more detail below; • reviewed and approved the scope of the Risk Committee, chaired by the Finance Director of the operating company, Robert Wiseman & Sons Limited; • reviewed the effectiveness of the Group’s system of internal control (including financial, operational, compliance and risk management), as well as the appropriateness of whistleblowing procedures; • made recommendations on the appointment, re-appointment and remuneration of the external auditors and monitored the performance of the auditors; and • reviewed the non-audit services provided to the Group by the external auditors and monitored and assessed the independence of the auditors.
The Committee has ensured that both the Board and the external auditors have safeguards in place to prevent the compromise of the auditors’ independence and objectivity. The external auditors also reported regularly to the Committee on the actions that they have taken to comply with professional and regulatory requirements and current best practice in order to maintain their independence. This report included details of the rules regarding the rotation of key members of the audit team to ensure independence. The Committee reviews the auditors’ independence annually and ensures that they comply with the Auditing Practices Board’s Ethical Standards. The Committee has recommended to the Board that Deloitte be proposed for reappointment by shareholders at the AGM on 6 July 2011.
The Audit Committee has established a policy in relation to the supply of non-audit services by the external auditors and reviewed and approved this policy in March 2011. The Company will engage an external adviser to provide non-audit services on the basis of the skills and experience required for the work, where benefit will be derived as a result of the third party’s knowledge of the Company and cost. On occasions, the nature of non-audit advice may make it more timely and cost-effective to select Deloitte, who already have a good understanding of the Group. In other situations Deloitte may be considered for non-audit services for a restricted list of services, although, before the engagement commences, the Company shall carry out rigorous checks, including competitive tender, to confirm they are the best provider. In addition the Group must be satisfied that the auditors’ objectivity and independence would not be compromised in any way as a result of being instructed to carry out those services. Deloitte is also subject to professional standards which safeguard the integrity of the auditing role performed on behalf of shareholders.
If the fees to be paid to the external auditor for the provision of non-audit services are below £50,000, the adviser may be engaged in accordance with the Company’s financial delegations of authority after a quotation has been received. If the fees payable are expected to exceed that level, the engagement must be approved by the Audit Committee in advance. The Committee keeps under review the independence and objectivity of the external auditors and the effectiveness of the audit process. It has reviewed and updated the Auditor Engagement Policy which requires prior Committee approval for certain engagements.
At the year end meeting to review the Annual report and Accounts the Audit Committee formally considers the level of non-audit services and fees provided by the Group’s auditors. The detail and level of fees are fully discussed and the Committee is satisfied that there is no risk to the objectivity and independence of the external audit arising from the level of non-audit fees.
Details of the amounts paid to the external auditors during the year for audit and other services in addition to fees paid to other accountancy firms during the year are set out in the notes to the financial statements on page 76.
The Audit Committee meet on at least two occasions during the year end audit process in March and May. Issues likely to impact the financial statements are raised at the initial meeting by both the senior management and the external auditors. The auditors will also present their audit plan. Audit Committee guidance is sought on accounting policies and assumptions to be adopted in preparing the financial statements. After discussing any issues raised, the Audit Committee will recommend the policies to be adopted or direct senior management to produce further information if deemed necessary and take advice from the auditors on best practice.
At the final meeting, the external auditors report their audit results to the Audit Committee including a summary of the significant accounting and auditing issues, internal control findings and a summary of audit differences identified. The Audit Committee would consider any disagreements in accounting treatment between management and the auditors, should any arise.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 41 Corporate Governance continued
At the beginning of each year, an internal audit plan is developed by the relevant departments based on the significant risks in the Group Risk Matrix and identified mitigation measures. The Audit Committee receives updates on the internal audit workplan on an ongoing basis. The external auditors do not place any direct reliance on the work undertaken by the Group’s internal audit functions due to the nature of the scope and the timing of their work.
In addition to the standing members of the Audit Committee and representatives from the external auditors, Douglas Laing, Finance Director of Robert Wiseman & Sons Limited, routinely attends and is invited to give presentations at meetings of the Audit Committee.
Internal Control The Board has overall responsibility for the Group’s system of internal control and annually reviews its effectiveness, including a review of financial, operational, compliance and risk management controls. The implementation and maintenance of the risk management and internal control systems are the responsibility of the Executive Directors and other senior management. The system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and provide reasonable, but not absolute, assurance against material misstatement or loss. This process has been in place for the year under review and up to the date of approval of the Annual Report and Financial Statements, and is in accordance with the Revised Guidance.
The Board has reviewed the effectiveness of the internal control system, including controls related to financial, operational and reputational risks identified by the Group, in accordance with the Code for the period from 4 April 2010 to the date of approval of this Annual Report. No significant failings or weaknesses were identified during this review; however had such failings or weaknesses been identified then the Board would have taken the action required to remedy them.
At the Board meeting on 10 March 2011, following a review and evaluation of the controls and systems in place, the Board concluded that the Group has a sound system of internal controls in place. There have been no significant changes to the system of internal controls since that date.
The Operational Board is the senior executive team of the Group and has mechanisms for monitoring the risk management practices approved and adopted by individual business areas. They confirm that there is an ongoing process, embedded in the Group’s integrated internal control system, allowing for the identification, evaluation and management of significant business risks, as well as a reporting process to the Board. The Board requires the departments within the trading company to undertake at least an annual review to identify new or potentially under-managed risks. The results of these reviews are reported to the Board via the Audit Committee. This process has been in place throughout the current year and up to the date of the approval of this Annual Report, and it accords with best practice guidelines. The main elements of the Group’s internal control system, including risk identification, are as follows:
1. Board The Board has overall responsibility for the Group’s system of internal control and exercises this through an organisational structure with clearly defined levels of responsibility and authority as well as appropriate reporting procedures. The Board meets regularly and has a schedule of matters that are brought to it, or its duly authorised committees, for decision aimed at maintaining effective control over strategic, financial, operational and compliance issues. This structure includes the Audit Committee, which, with the Group Finance Director, reviews the effectiveness of the internal financial and operating control environment of the Group.
2. Risk Committee Whilst the Board of Robert Wiseman Dairies PLC remains responsible for determining the strategic direction of the Group and reviewing operating, financial and risk performance, the Risk Committee has established policies for identifying all major operational, financial and reputational risks within the strategy set by the PLC Board. The Risk Committee is comprised of the majority of Directors from the Operational Board of Robert Wiseman and Sons Limited along with the Internal Compliance Manager. In the current year the Risk Committee has:
• continuously monitored the risks affecting the business including horizon gazing to try to identify new risks to strategy before they manifest themselves to the business; • ensured that risk management is considered throughout our activities and is embedded in the culture and business processes of the Group; • reviewed the controls over all of the risks identified which affect the business, to assess whether they mitigate the risk taking into consideration operational, financial and/or commercial limitations; • ensured that key controls identified are appropriately and regularly tested by independent personnel; and • liaised on a regular basis with the Board through the Audit Committee.
3. Operational Board This is responsible for risk reviews and internal control, which it exercises through different departments located throughout the Group’s operations. The Operational Board reviews business risks, processes and procedures in all the departments of the trading company, agreeing with the relevant management plans to mitigate those risks and improve internal controls and processes. It monitors progress in implementing recommendations and provides regular reports on its findings, as appropriate, to executive management and, via the Audit Committee, to the Board. Annually the Finance Director of the operating company specifically reviews and reports on business risks to executive management and, via the Audit Committee, to the Board.
The departments within the operating company undertake risk reviews, at least annually, to identify new or potentially under-managed risks.
42 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Corporate Governance continued
4. Financial Reporting There is a comprehensive strategic planning, budgeting and forecasting system with an annual operating plan approved by the Board of Directors. Monthly financial information, including trading results, cash flow statements and indebtedness, is reported with corrective action outlined by operating company executives as appropriate. Throughout the year, Group senior management hold formal meetings with trading company management to review their business and financial performance against budget and forecast. Informal meetings of Group senior management and trading company management are held most weeks.
5. Audits and Reviews The key internal risks identified in the Group are all subject to regular audits or reviews by suitably trained and qualified personnel. With the work carried out by the Internal Compliance Manager and the Risk Committee during the year, the Group considers that it has in place a structure which manages all of the risks, ensuring that reviews and audits are carried out in an independent manner and reported throughout the Group without having to create a separately defined Internal Audit department. The review by the Audit Committee of the outputs of the various Internal Control departments and the Risk Committee along with the Group’s monitoring procedures in place ensure that the audits and reviews performed by these departments are independent. Audits and reviews are carried out by personnel who are independent of the location being visited. The Group considers that it had an independent internal audit function in the year under review.
The risk management framework and internal control system detailed above provides the control environment in which the Company operates in compliance with the Combined Code provisions on Internal Control. Having considered all of the controls and systems in place and their operation throughout the year the Board considers that the Group has an effective internal control environment which is appropriate for the business and has operated effectively throughout the year.
Adoption of Going Concern Basis The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the BFR on pages 14 to 19. In addition, the BFR outlines the Group’s policies and processes for managing its financial risks. Details of the Group’s exposure to credit, interest rate, liquidity and capital risk are outlined in Notes 18, 21 and 23 of the financial statements.
In their consideration of going concern, the Directors have reviewed the Group’s future cashflow forecasts and associated risks; these forecasts extend for a period beyond one year from the date of approval of these financial statements.
The Group’s borrowing facilities were renewed in November 2010 and allow for £100 million of bank borrowings; of this, £80 million of bank borrowings available to the Group is due for renewal in November 2013 with the £20 million overdraft facility being subject to annual renewal in November 2011. The Group’s banker, Clydesdale Bank PLC, has indicated that on the basis of information currently available it would expect to renew this £20 million facility for a further twelve months beyond its expiry in November 2011. The Directors are of the opinion that the Group’s cash flow forecasts, taking into account reasonably possible changes in trading performance given current market and economic conditions, show that the Group will be able to operate within its current facilities and comply with its banking covenants.
After making enquiries, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. The financial statements have therefore been prepared on a going concern basis.
Directors’ Responsibilities Statement The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the Parent Company financial statements under IFRSs as adopted by the EU. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors:
• properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and • make an assessment of the company’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 43 Corporate Governance continued
Responsibility Statement We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and • the management report, which is incorporated into the directors’ report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board
Robert Wiseman William Keane Executive Chairman Managing Director 17 May 2011 17 May 2011
44 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Directors’ Remuneration Report
An Introduction from the Chairman of the Remuneration Committee I am pleased to introduce this, our ninth Directors’ Remuneration Report (‘DRR’) for which we will be seeking approval from shareholders at our Annual General Meeting.
This is the first report to be produced following my appointment as Chairman of the Remuneration Committee in place of Ernest Finch and I would like to take this opportunity to record my thanks for the considerable work that he put into developing the Company’s remuneration structures and strategies and improving our reporting practices.
It is also worth noting that, although there has been a change in its Chairmanship, the Remuneration Committee’s overall philosophy and approach to its responsibilities continue as before. In particular, the Remuneration Committee:
• remains fully committed to the principle of “pay for performance” – our executive team should have the opportunity to increase the amount of their remuneration for delivering results that are beyond expectations; and • firmly believes that the pay structures operated by the Company should actively enhance the alignment between the interests of our senior employees and those of our shareholders – in practice, this means that the Company’s remuneration arrangements should be flexible enough to allow enhanced rewards to be provided where returns to shareholders significantly increase and more restrained amounts to be paid where this is not the case.
As in previous years, the purpose of the DRR is to provide further details in relation to our remuneration policies for Executive Directors (including the Executive Chairman) and explain how these were applied for the year ended 2 April 2011. It also sets out tables with details of individual salary, incentive, and pension benefits of all the Directors for the year.
As required by legislation, the main body of the DRR has been divided into two parts; one that contains audited information and another which sets out some unaudited information. The Company’s auditors are required to report on the ‘auditable part’ of the DRR and to state whether in their opinion that part has been properly prepared in accordance with the Companies Act 2006.
The DRR includes fairly complex information in some areas. We have, however, endeavoured to provide straightforward summaries of the key points throughout the report wherever possible. For example, the table on page 48 lists the various parts of the Executive Directors’ remuneration packages and gives a brief explanation of each element. In addition, we have highlighted and summarised on pages 46 and 47 below some of the more significant issues that the Committee has addressed during the course of the year.
We welcome questions and feedback from all shareholders on both the content and style of the DRR.
Jack Perry Chairman of the Remuneration Committee 16 May 2011
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 45 Directors’ Remuneration Report continued
UNAUDITED INFORMATION The Remuneration Committee JS Perry (Chairman) EJ Finch NL Murray AR Dare (resigned as a Non-executive Director and member of the Committee on 8 July 2010)
The Company has a Remuneration Committee (the ‘Committee’), which is constituted in accordance with the recommendations of the Combined Code. During the period from 4 April 2010 to 16 May 2011, the Committee met eight times and JS Perry and EJ Finch attended all meetings, with NL Murray attending seven meetings and AR Dare attending two.
The Committee consists entirely of independent Non-executive Directors and operates within terms of reference agreed with the Board; these are reviewed annually and are available on the Group’s website. None of the Committee has any personal financial interest in the Company (other than as shareholders) or any conflicts of interests arising from cross directorships or day-to-day involvement in running the business.
The Committee is responsible for monitoring and developing Group policy on executive remuneration and has oversight of the operation of the Group’s share option and long-term incentive plans. The Committee makes recommendations to the full Board and in the current year the Board accepted all its recommendations. No Director is involved in any decisions about his own remuneration.
During the year, the Committee consulted with RT Wiseman, Executive Chairman, in relation to a number of its proposals and continued to receive advice from both Shepherd and Wedderburn LLP and Towers Watson (both of whom are appointed by the Committee) on structuring Directors’ remuneration packages for which they received fees of £14,500 and £14,625 respectively (2010: £22,000 and £2,345 respectively). Shepherd and Wedderburn LLP and Towers Watson provided additional services to the Group on the administration, operation and design of the Company’s share incentive arrangements for which they received fees of £10,750 and £6,000 respectively (2010: £23,415 and £1,915 respectively).
In the course of the year, the terms of engagement of both Shepherd and Wedderburn LLP and Towers Watson were reviewed, revised and approved by the Committee.
Significant Issues During the Year Impact of Board changes on existing Executive Directors During the year, the Committee reviewed the remuneration arrangements of those existing Executive Directors affected by the Board changes that occurred on 8 July 2010, namely RT Wiseman who was appointed as Executive Chairman and WG Keane who was appointed as Managing Director.
In conducting the above review, the Committee considered a variety of factors including:
• The scope and nature of the new roles being undertaken by these individuals; • The extent to which each Director was involved in transitional arrangements relating to their new or former position; and • Objective benchmarking information covering similar roles within the sector.
In summary, the conclusion reached by the Committee was that the overall structure of these Executive Directors’ existing remuneration arrangements (i.e. the form of each element of their package, the balance between fixed and variable pay and the maximum percentage of salary reward opportunities that were available under the annual bonus and long term incentive schemes) continued to be appropriate and should be maintained for the remainder of the year ended 2 April 2011. However, it was agreed that, in the case of WG Keane, an increase to the quantum of his basic salary was required in order to reflect the increased levels of responsibility associated with his new role. Details of this increase are provided on page 49.
46 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Directors’ Remuneration Report continued
Remuneration arrangements for new Executive Director The Committee was also required to determine the remuneration arrangements for the Company’s new Executive Director, G Sweeney, who was appointed Group Finance Director with effect from 8 July 2010.
Again, the Committee considered the scope of the role and appropriate market data and concluded that the structure of G Sweeney’s package should mirror that of the arrangements made available to the other Executive Directors (other than RT Wiseman). Details of the basic salary level set for G Sweeney are provided on page 49; the remaining elements of his remuneration package are described throughout this DRR.
Consideration of approach to risk/clawback Finally, the Committee also conducted a review of the short and long term incentive arrangements made available to the Company’s Executive Directors to ensure that, so far as possible:
• They did not encourage excessive risk taking; and • The level of reward that they ultimately delivered to participants was appropriate and justified.
The Committee concluded that the above objectives were largely met by various elements of the existing structures including:
• The additional 12 month holding period that applies to a proportion of vested awards under the Long Term Incentive Plan (or ‘LTIP’); • The ability of the Committee to reduce the percentage of an LTIP award that vests where it is felt that it is not a genuine reflection of the underlying performance of the Company over the relevant performance period; and • The mandatory deferral into shares of certain annual bonus payments under the Deferred Bonus Plan.
The Committee did, however, determine that it would also be appropriate to introduce ‘clawback’ provisions into the rules of the Deferred Bonus Plan. As a result, the rules of this arrangement have now been amended so as to give the Committee the ability to lapse future awards if it is discovered that the financial results to which the original bonus payment related are later discovered to have been materially misstated.
Looking Forward During the year to 31 March 2012, the Committee will continue to closely monitor the positions of RT Wiseman, WG Keane and G Sweeney (being those Executive Directors affected by the Board changes in 2010) and may make additional amendments to their remuneration arrangements to take account of any further developments in the scope and/or nature of their respective roles and responsibilities.
Overview of Remuneration Policy for Executive Directors for the Current and Subsequent Financial Years Remuneration packages within the Group are designed to attract, motivate and retain Directors and/or employees of the high calibre needed to maintain the Group’s position as a market leader and to reward them for enhancing value to shareholders. This design process takes into account factors that are specific to the Company and its executives. By way of illustration, the Committee is mindful of the fact that RT Wiseman is already a substantial shareholder in the Company – it is for this reason that, as noted below, he does not participate in any of the Group’s share incentive arrangements.
The process for determining Directors’ remuneration for a financial year also takes cognisance of pay policies within the Group as a whole. For example, the Committee will normally have regard to average pay increases across the employee population when setting salary levels for Executive Directors. In the year ended 3 April 2010, this approach led to a ‘freeze’ in the level of the Executive Directors’ salaries.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 47 Directors’ Remuneration Report continued
For Executive Directors accepting appointments outside the Group, the Board’s permission would be required. No Executive Director has sought to accept any appointment outside the Group.
The Five Key Elements of the Executive Directors’ Remuneration in the Year Ended 2 April 2011 Brief details are as follows:
Element Description Objective Performance Period Conditions Annual Base salary Annual salary paid to To ensure that the Directors n/a Not applicable. Executive Directors. receive an appropriate and competitive level of fixed remuneration having regard to their skills and experience. Annual bonus Executive Directors can earn To incentivise Executive 1 year Achievement of challenging additional payments at Directors to deliver performance performance goals (financial the end of each financial year. ‘beyond expectation’ during and non-financial) over the the financial year. course of the financial year. Long-term Long Term Incentive Executive Directors can be To incentivise Executive 3 years Currently two conditions must Plan (or ‘LTIP’) conditionally awarded shares Directors to deliver superior be satisfied over a 3-year period. in the Company worth up to levels of long-term performance The receipt of half the shares is 100% of salary which become for the benefit of shareholders, conditional on the Company’s available at the end of a thereby aligning the interests of Total Shareholder Return three-year period (subject the Directors with those of the (i.e. share price increase plus to the attainment of Company’s members. dividends paid) comparing performance conditions). favourably to a comparator group of companies in the same sector. The receipt of the remaining half of the shares is conditional on the Company’s earnings per share performance. Deferred Bonus Plan Any cash bonus awarded to To ensure that Executive 3 years Release of shares is not subject an Executive Director (other Directors have an appropriate to performance targets but is than RT Wiseman) that exceeds focus on the Company’s long-term normally conditional on the a specified threshold (currently performance and to promote retention relevant individual remaining 60% of base salary) is delivered and stability amongst the senior with the Group over the in the form of shares which manager population. three-year deferral period. only become available to the individual at the end of a further three-year period. Pensions Contributions by the Company To ensure that Directors are n/a Not applicable. to defined contribution provided with an appropriate pension arrangements pension provision. for the benefit of Executive Directors.
48 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Directors’ Remuneration Report continued
Balance of Executive Directors’ Remuneration The Company’s policy is that a substantial proportion of the remuneration of the Executive Directors should be performance related. All of the Executive Directors participate in the annual bonus scheme, and, with the exception of RT Wiseman, can benefit from participation in a long-term incentive plan. In the case of the Executive Directors’ remuneration packages for the year ended 2 April 2011, this balance between fixed and performance related pay (excluding pension arrangements) is illustrated in the table below:
Illustration of the Relative Value of Executive Directors’ Remuneration Elements 2011 Percentage of Maximum Remuneration Package
100%
80% LTIP 60% Bonus Basic Salary 40%
20%
0% RT Wiseman WG Keane M Mulcahy D Dobbins G Sweeney
* For the purposes of this diagram the % presented is based upon annual salary, the maximum bonus potential for each individual in the year and in the case of the Directors who participate in the LTIP scheme, an LTIP award of 100% of base salary. It is also assumed that in respect of the LTIP award the maximum number of shares vest.
Detailed Explanation of the Elements of Executive Directors’ Remuneration Basic Salary Basic salaries are determined by the Committee prior to the beginning of each year (with any increases taking effect from 1 April of that year) and/or when an individual changes position or responsibility. Salary levels are determined taking a number of factors into account, including individual and business performance, level of experience, the competitiveness of total remuneration and, as explained on page 46, pay policies within the Group as a whole. The Committee also relies on objective benchmarking which gives up-to-date information on remuneration practice within a comparator group of similar companies by market capitalisation within the sector.
With effect from the start of the year ended 2 April 2011, the basic salary levels for each of WG Keane, M Mulcahy and D Dobbins were increased by approximately 4.3% to £292,000, £276,500 and £261,000 respectively – this is consistent with the overall average increases for the year for salaried employees of the Group. No such increase was applied in the case of RT Wiseman, whose basic salary was retained at £504,000, being the level paid in the year ended 3 April 2010.
As highlighted on page 46, WG Keane’s annual basic salary was subsequently increased to £350,000 on 8 July 2010 in order to reflect the higher levels of responsibility associated with his new role of Managing Director, which became effective on that date. On his appointment as new Group Finance Director, also on 8 July 2010, G Sweeney’s annual basic salary was set at £200,000.
Executive Directors’ contracts of service, which include details of remuneration, will be available for inspection at the Annual General Meeting. In addition to their basic salary, the Executive Directors receive benefits-in-kind, being a car and private medical insurance.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 49 Directors’ Remuneration Report continued
Annual Bonus Scheme Under the Company’s annual bonus scheme, Executive Directors can become entitled to an award if, and to the extent that, specific performance conditions and objectives are met over the financial year in question.
The measures used to determine the amount of bonus paid to an Executive Director are set by the Committee at the start of each year and contain a combination of stretching group wide financial objectives (which require the delivery of above budget performance before any element becomes payable) and business specific targets tied to the parts of the Company’s operations that the individual can directly influence.
For all Executive Directors, the current maximum payment that can be made under the annual bonus scheme in respect of a financial year is an amount equal to 100% of base salary – this remains unchanged from the previous year.
In the case of the Executive Chairman, RT Wiseman, the full amount of any award made under the annual bonus scheme is paid in cash. For all other Executive Directors, any bonuses paid in respect of a financial year up to a specified threshold (currently 60% of salary) are paid in cash with the balance being satisfied in shares awarded pursuant to the Company’s Deferred Bonus Plan that are normally released after the expiry of a three-year holding period. Further details in relation to the Deferred Bonus Plan are provided on page 60.
Under current arrangements, bonuses are paid to other senior management below main Board level as agreed with the Committee on an annual basis. In general, these bonus payments are based on Group wide financial targets and other measures of performance appropriate to the individuals concerned.
Annual Bonus Scheme – Performance Conditions and Weightings for the Year Ended 2 April 2011 For the year ended 2 April 2011, the group wide financial measures and business specific targets used to determine the amount of bonus paid to each of the Executive Directors can be summarised as follows:
Executive Director Group wide financial measures relating to: Business specific targets relating to: RT Wiseman EPS, operating profit, sales volume Achievement against certain non-financial measures and delivery of specified projects WG Keane EPS, operating profit, sales volume Achievement against certain non-financial measures and delivery of specified projects M Mulcahy EPS and operating profit Structural development, efficiency & productivity levels, site operations/reporting and sustainability D Dobbins EPS and operating profit Volumes, sales and marketing, HR, customer relations and health and safety G Sweeney EPS and operating profit Financial management, IT, corporate communications/relationships, risk management and tax
The choice of the above measures reflected the Committee’s belief that any incentive compensation should be tied both to the overall performance of the Group and to those areas of the business that the relevant individual can directly influence.
50 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Directors’ Remuneration Report continued
The maximum potential payments under the bonus scheme for the year ended 2 April 2011 as a % of base salary were:
Total bonus Group wide Business under the financial specific scheme Executive Director measures targets (as a % of salary) Maximum potential RT Wiseman 80% 20% 100% WG Keane 80% 20% 100% M Mulcahy 60% 40% 100% D Dobbins 60% 40% 100% G Sweeney 60% 40% 100%
The overall structure of the annual bonus scheme and the maximum opportunity is unchanged for the year ending 31 March 2012.
Annual Bonus Scheme – Actual Payments for the Year Ended 2 April 2011
Total bonus Bonus Bonus under the payable payable scheme in cash in shares (as a % of (as a % of (as a % of Executive Director salary) salary) salary) Actual 2010-11 RT Wiseman 16% 16% – WG Keane 22% 22% – M Mulcahy 22% 22% – D Dobbins 23% 23% – G Sweeney (see Note 1) 15% 15% –
Note 1: The percentage disclosed for G Sweeney is calculated with reference to his annual salary and not the salary for the period from appointment as disclosed in the table on page 57.
The above bonus levels for the year ended 2 April 2011 were made up as follows:
• the targets relating to earnings per share and operating profit were not met, with the result that no payments were made to any participants in relation to this element of their bonus arrangement; • the sales volume targets in RT Wiseman and WG Keane’s incentive measures were met to the extent of a payment of 4% of salary to both individuals; and • the business specific targets were met to the extent of a payment of:
Business specific target bonus award – actual 2011 % of salary
RT Wiseman 12% WG Keane 18% M Mulcahy 22% D Dobbins 23% G Sweeney (see Note 1 above) 15%
After careful consideration, the committee concluded that these payment levels under the annual bonus scheme were an appropriate and fair recognition of the individual efforts of the executive directors during what was an extremely challenging year for the business.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 51 Directors’ Remuneration Report continued
Long Term Incentive Plan – Overview The Company’s LTIP seeks to incentivise participants to create shareholder value whilst retaining due focus on the underlying financial performance of the Group.
Under its terms, conditional awards of shares can be made to selected employees, including the Executive Directors, the vesting of which is normally dependent on both continued employment with the Group and the extent to which pre-determined performance conditions are met over a specified period of three years. The value of shares awarded to a participant under the LTIP in any financial year is subject to a limit of 100% of basic salary.
In the case of awards granted under the LTIP prior to 7 December 2009, all shares in respect of which they vest are released to the relevant participants immediately. However, for grants made to Executive Directors on or after 7 December 2009, the release of a proportion of the shares that vest will be deferred for a specified period, during which they will normally be forfeited on cessation of employment.
The Committee has overall responsibility for supervising the operation of the LTIP and the grant of awards under its terms. With the exception of RT Wiseman, all of the Executive Directors participate in the LTIP. No amounts due under the LTIP are recognised as remuneration until the award has vested and the shares have been released. The accounting policy for share based payments, which provides for the cost to be recognised over the period from grant to vesting, is set out in Note 2 on page 74.
Long Term Incentive Plan – Awards Granted During the Year Ended 2 April 2011 On 24 June 2010:
• Each of WG Keane, M Mulcahy and D Dobbins received an LTIP award with a face value equal to 100% of their then base salaries – where these awards vest in respect of more than 60% of the shares over which they were granted, the excess above that level will be subject to a 12 month additional deferral period as described above; • G Sweeney (who was not then an Executive Director) was granted an award with a face value equal to 43% of his then basic salary; and • Awards averaging 48% of basic salary were made to a further 30 senior executives (reflecting the Committee’s policy of offering LTIP participation to other key individuals within the organisation).
Notwithstanding the above grant to G Sweeney, the Committee decided that, following his elevation to Group Finance Director on 8 July 2010, a further award should be made to him so as to ensure that, in aggregate, he received awards during the year with a face value equal to 100% of his new base salary on appointment (being the same level of award made to the other Executive Directors who participate in the LTIP). As a result, on 20 December 2010 a further supplementary LTIP award was granted to G Sweeney with a face value equal to 62.5% of his new base salary.
It should be noted that the above supplementary award granted to G Sweeney is subject to the same performance conditions and additional deferral provisions as apply to the awards granted during the year to the other Executive Directors.
Long Term Incentive Plan – Performance Conditions for all outstanding Awards The performance conditions applicable to all awards under the LTIP that were outstanding during the year are intended to strike an appropriate balance between (i) incentivising participants to achieve superior returns for shareholders; and (ii) applying measures that are directly relevant to, and understood by, participants. They can be summarised as follows:
• The vesting of 50% of an award will be determined by the extent to which the Company’s TSR over a three-year period outperforms the TSR achieved by the median company in a comparator group comprised of food producer companies. The required levels of TSR outperformance are as follows:
TSR performance achieved Proportion of TSR element of award vesting Below median Nil Equal to median 25% Median + 12% p.a. 100% Between median and median + 12% p.a. Pro-rata between 25% and 100%
52 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Directors’ Remuneration Report continued
• The vesting of the remaining 50% of an award will be dependent on the extent to which the growth in the Company’s EPS over the same period exceeds the growth in RPI. The required levels of EPS performance are as follows:
EPS growth achieved Proportion of EPS element of award vesting Less than RPI + 3% p.a. Nil RPI + 3% p.a. 25% RPI + 10% p.a. 100% Between RPI + 3% p.a. and RPI + 10% p.a. Pro-rata between 25% and 100%
• When assessing the extent to which these EPS targets have been satisfied, the Committee takes cognisance of the impact of any share buy backs undertaken by the Company in the relevant period • Notwithstanding the above, the extent to which the award vests as a consequence of the operation of these conditions can be reduced where, in exceptional circumstances, the Committee considers that the level of TSR and/or EPS growth achieved is not a genuine reflection of the underlying performance of the Company over the period in question.
It is currently anticipated that the above levels of EPS and TSR performance will also be applied to the LTIP awards to be made shortly after the announcement of the Company’s results for the year ended 2 April 2011. For future awards, the Committee will review, and may amend, the required performance levels in order to ensure they remain appropriately stretching.
Long Term Incentive Plan – Awards Vesting During the Year Ended 2 April 2011 The performance period applicable to the LTIP awards granted in June 2007 ended on 3 April 2010 and approximately 85% of these awards vested shortly thereafter. Over the period, the Company outperformed the median company in the applicable comparator group by approximately 7.5% per annum and achieved growth in EPS in excess of RPI + 10% per annum. In addition, and after appropriate consideration, the Committee concluded that the outturn from these conditions was a genuine reflection of the underlying performance of the business over the period in question. Further details in relation to this vesting can be found on page 59.
Deferred Bonus Plan The Deferred Bonus Plan was adopted by the Board in March 2010 and is the mechanism for delivering any element of annual bonus awards that is deferred into shares.
Any shares provided to an individual under the Deferred Bonus Plan will only be released after the expiry of a three-year period from award (at which time the relevant individuals will also receive the benefit of any dividends paid over the deferral period). Given that these awards relate to bonuses that have already been earned by participants the release of such shares is not dependent on the satisfaction of additional performance conditions – their receipt will, however, normally be conditional on continued employment with the Group. In addition, for awards granted in the financial year ending 31 March 2012 and later years, the Committee will have the ability to reduce the number of shares ultimately released to participants if it is later discovered that the financial results to which the original bonus payments relate have been materially misstated.
No ‘matching awards’ are provided under the Deferred Bonus Plan and it should be noted that all shares utilised for this arrangement are existing shares in the Company that have been purchased in the market.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 53 Directors’ Remuneration Report continued
Pension Arrangements Executive Directors are members of money purchase pension schemes. Their dependants are eligible for the payment of a lump sum in the event of death in service equivalent to four times basic salary. The Executive Directors, excluding the Executive Chairman, are entitled to a Company contribution to these arrangements equal to 10% of basic salary.
As explained in previous years, the changes in the pension scheme regulations which came into effect on 6 April 2006 have affected the Company’s provision of pension scheme benefits to the Executive Chairman. The Company has maintained his historic pension framework and paid an equivalent contribution of 30% of salary directly to RT Wiseman from which he can make his own retirement provision. The Company is not responsible for compensating for changes in personal tax liability.
Share Options Schemes – Overview and Details of Directors’ Participation The Company currently operates the following share option schemes:
• The 1994 Employee Share Option Scheme (the ‘1994 Scheme’); • The 2003 Approved Share Option Scheme (the ‘2003 Approved Scheme’); • The 2003 Unapproved Share Option Scheme (the ‘2003 Unapproved Scheme’); and • The Sharesave Schemes.
Summaries of each of these arrangements are set out below. It should, however, be noted that RT Wiseman does not participate in any of the Company’s share option schemes. In addition, individuals who receive awards under the LTIP in any year are not normally eligible to be granted options under the 2003 Approved Scheme or the 2003 Unapproved Scheme in the same period. Accordingly, on the basis that, since its introduction in the year ended 29 March 2003, the LTIP has been used as the mechanism for providing long-term incentives to Executive Directors, no options have been granted to them under the 2003 Approved Scheme or the 2003 Unapproved Scheme and it is not intended that options will be issued to them under these schemes in the future. WG Keane and D Dobbins only hold outstanding options under the Sharesave Schemes. M Mulcahy holds options under the 1994 Scheme and the Sharesave Schemes.
The 1994 Scheme The 1994 Scheme (which has subsequently been superseded by the 2003 Approved Scheme) was formerly used by the Company to grant options to a broad selection of employees in the Group. Although a number of options granted under this plan currently subsist, no further awards will be granted.
The 2003 Approved Scheme and the 2003 Unapproved Scheme These arrangements (which were established during the year ended 3 April 2004, following approval at the 2003 Annual General Meeting), are used to grant options across the Group which are normally exercisable between three and ten years following their grant. The total market value (at date of grant) of shares over which an individual may be granted options under these Schemes in any financial year is limited to 100% of basic salary.
54 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Directors’ Remuneration Report continued
The principal difference between these two plans is that the approval of HM Revenue and Customs was sought and obtained for the 2003 Approved Scheme, whereas no such approval was sought in relation to the 2003 Unapproved Scheme.
Options granted under these Schemes will not be exercisable unless there has been a sustained improvement in the performance of the Group over a three or more year period. Currently, the performance condition that applies to options granted under these Schemes requires a minimum growth in the Company’s EPS equal to the growth in RPI plus 3% per annum, tested over an initial three year period from grant.
As noted above, there is no intention to award options under either of these Schemes to any of the Executive Directors.
The Sharesave Schemes Under the Sharesave Schemes, employees can accumulate funds which can be used to fund the purchase of shares under an option that becomes exercisable after the fifth anniversary of its date of grant.
Share Incentive Plan In August 2002, the Group established an HM Revenue and Customs Approved Share Incentive Plan (‘SIP’) which came into operation on 1 May 2003. During the year ended 2 April 2011, awards were made under the SIP which is available to all employees of the Group with continuous service of 3 months. These awards were under the ‘Matching Share’ scheme, whereby participants could contribute up to £125 per month towards the purchase of shares in the Company which were then matched on a 1 for 4 basis. Shares acquired under the Matching Share scheme are solely conditional upon the relevant participant remaining in the Group’s employment for 3 years from the date of award. Except for RT Wiseman, all of the Executive Directors participate in the SIP.
Performance Review The graph below shows the Company’s performance over the past 5 years, measured by TSR, compared with the performance of the FTSE All-Share Food Producers Index over the same period also measured by TSR (both rebased to 100). The FTSE All-Share Food Producers Index has been selected for this comparison because it is a broad equity market index comprising many of the companies against which the Group benchmarks its performance internally.
Historical TSR Performance Growth in the value of a hypothetical £100 holding over five years FTSE All-Share Food Producers Index comparison based on average values
£250
£200
£150
Robert Wiseman Dairies £100 FTSE All-Share Food Processors Index TSR Performance
£50
£0 March 06 March 07 March 08 March 09 March 10 March 11
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 55 Directors’ Remuneration Report continued
Directors’ Contracts
Date of contract Notice period Executive Chairman RT Wiseman 12 May 2005 12 months
Executive Directors WG Keane 12 May 2005 12 months M Mulcahy 4 September and 3 November 2003 12 months D Dobbins 4 and 16 September 2003 12 months G Sweeney 4 and 22 September 2003 12 months
In the event of early termination by the Company, the Executive Directors would be entitled to loss of salary, benefits and pension contributions for the notice periods. Depending on the circumstances of termination, the Executive Director may be entitled, or the Committee may exercise its discretion to allow the Executive Director, to exercise a proportion of their outstanding awards under long-term incentive arrangements (but only to the extent that any applicable performance conditions have been met). The Committee’s policy on early termination is to emphasise the duty of the terminated party to mitigate any loss caused by the early termination to the fullest extent practicable.
Non-executive Directors do not have service contracts or notice periods, with the exception of JS Perry who is entitled to receive one month’s written notice, although under the Company’s Articles of Association all Directors must retire by rotation and seek re-election at least every three years.
Date of last End of period appointment of appointment Non-executive Directors NL Murray AGM 2009 AGM 2012 EJ Finch AGM 2010 AGM 2011 J S Perry AGM 2010 AGM 2013
Non-executive Directors’ Remuneration The remuneration of each of the Non-executive Directors is determined by the Board (in the absence of the Director in question) within limits set out in the Articles of Association and taking into account a number of factors pertinent to their position and the level of fees in similar companies. Non-executive Directors cannot participate in any of the Company’s long-term incentive arrangements and are not entitled to a bonus or pension contributions.
The basic fee paid to each Non-executive Director in the year was £37,000 (2010: £32,000). NL Murray, as Senior Independent Non-executive Director and Chairman of the Audit Committee received a further payment at a rate of £4,000 (2010: £7,000) per annum. The Chairman of the Remuneration Committee, received a further payment of £4,000 (2010: £5,000).
Payments to Former Directors AW Wiseman retired as Chairman on 8 July 2010. He has, however, been retained as an employee of the Group on an ongoing basis. Under the terms of this employment, AW Wiseman receives an annual base salary of £33,500 but is not eligible to participate in any of the Company’s long-term incentive arrangements and is not entitled to a bonus or pension contributions.
56 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Directors’ Remuneration Report continued
AUDITED INFORMATION Aggregate Directors’ Remuneration The total amounts for Directors’ remuneration were as follows:
2011 2010 £000 £000 Emoluments 2,095 3,015 Gains on exercise of share options 67 19 Amounts receivable under LTIP 324 381 Money Purchase pension contribution 254 231 2,740 3,646
Directors’ emoluments for the year or from period of appointment if later:
2011 2011 2011 2011 2011 2010 Fees/basic Benefits Annual Emoluments Plans/Schemes 2011 Emoluments 2010 salary in kind bonuses1 sub-total total2 TOTAL sub-total TOTAL Name of Director £000 £000 £000 £000 £000 £000 £000 £000 Executive RT Wiseman 504 23 80 607 – 607 1,037 1,037 WG Keane 336 13 75 424 122 546 574 701 M Mulcahy 277 25 60 362 133 495 554 700 D Dobbins 261 13 60 334 120 454 516 643 G Sweeney3 150 9 30 189 16 205 – –
Non-executive AW Wiseman4 44 4 – 48 – 48 189 189 NL Murray 41 – – 41 – 41 39 39 EJ Finch5 37 – – 37 – 37 37 37 JS Perry6 41 – – 41 – 41 3 3 AR Dare4 12 – – 12 – 12 34 34 B Hodson7 – – – – – – 32 32 Aggregate emoluments 1,703 87 305 2,095 391 2,486 3,015 3,415
1 The annual bonus figure disclosed in the above table represents the total value of the award made under the Company’s annual bonus scheme for the year ended 2 April 2011. 2 The Plans/Schemes balance represents the value of Long Term Incentive Plan awards vesting and share options exercised as detailed on pages 58 and 59. 3 The disclosures for G Sweeney relate to the period from appointment on 8 July 2010 until the year end. 4 Fees for AW Wiseman and A Dare for the year ended 2 April 2011 relate to the period up to their retirement as Directors on 8 July 2010. As explained on page 56, AW Wiseman has, following such retirement, entered into an employment contract with the Group in terms of which he is paid an annual basic salary of £33,500. 5 In respect of the period up to the end of July 2010, fees for the services of EJ Finch as Non-executive Director were paid to DFA Solutions Ltd. 6 Fees for J S Perry for the year ended 3 April 2010 relate to the period from appointment in March 2010 until the year end. 7 B Hodson retired as a Director on 30 March 2010.
As detailed on page 54, changes in pension scheme regulations affected the Company’s provision of pension scheme benefits to the Executive Chairman, RT Wiseman. In order to allow a valid comparison to be made with the basic salary and pension payment figures paid in prior years, the amount of the equivalent contribution which has been paid directly to RT Wiseman from which he can make his own retirement provision has been included in the pension payment table on page 60 rather than the table of Directors’ emoluments above.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 57 Directors’ Remuneration Report continued
Directors’ Share Options Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors but do include amounts in respect of options exercised. Details of the options exercised by Directors during the year are as follows:
Gains on Gains on exercise exercise 2011 2010 Scheme £000 £000 WG Keane Sharesave scheme 14 0 M Mulcahy 1994 employee share option scheme 20 19 M Mulcahy Sharesave scheme 5 0 D Dobbins Sharesave scheme 12 0 G Sweeney Sharesave scheme 16 0 67 19
Details of options for Directors at the year end are as follows:
Exercise Date from Scheme 04-Apr-10 Exercised Granted 02-Apr-11 price (£) which exercisable Expiry date WG Keane Sharesave scheme 4,957 (4,957) – – 1.960 01-Sep-10 01-Mar-11 Sharesave scheme 1,468 – – 1,468 3.835 01-Sep-12 01-Mar-13 Sharesave scheme – – 1,708 1,708 3.870 01-Sep-15 01-Mar-16 6,425 (4,957) 1,708 3,176
M Mulcahy 1994 Employee share option scheme (1) 6,200 (5,000) – 1,200 1.147 04-Jan-05 04-Jan-12 Sharesave scheme 3,743 (3,743) – – 1.960 01-Sep-10 01-Mar-11 Sharesave scheme 1,895 – – 1,895 3.835 01-Sep-12 01-Mar-13 Sharesave scheme – – 1,501 1,501 3.870 01-Sep-15 01-Mar-16 11,838 (8,743) 1,501 4,596
D Dobbins Sharesave scheme 4,215 (4,215) – – 1.960 01-Sep-10 01-Mar-11 Sharesave scheme 1,725 – – 1,725 3.835 01-Sep-12 01-Mar-13 Sharesave scheme – – 1,580 1,580 3.870 01-Sep-15 01-Mar-16 5,940 (4,215) 1,580 3,305
G Sweeney Sharesave scheme 5,766 (5,766) – – 1.960 01-Sep-10 01-Mar-11 Sharesave scheme 1,178 – – 1,178 3.835 01-Sep-12 01-Mar-13 Sharesave scheme – – 1,836 1,836 3.870 01-Sep-15 01-Mar-16 6,844 (5,766) 1,836 3,014
1 The ability to exercise these options granted under the 1994 Employee share option scheme was originally subject to a performance condition relating to the earnings per share performance of the Company. This condition has been satisfied. 2 There have been no variations to the terms and conditions of the above options during the financial year. 3 The market price of the ordinary shares at 2 April 2011 was £3.41 and the range during the year was £2.99 to £5.27.
58 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Directors’ Remuneration Report continued
Long Term Incentive Schemes Aggregate emoluments disclosed above do not include any amounts for the value of LTIP awards in the Company granted to or held by the Directors but do include amounts in respect of awards that have vested and been exercised. Details of the LTIP awards that vested and were exercised in the year are as follows:
Gains on Exercise Market price at exercise 2011 Scheme No of options price exercise date (£) £000 WG Keane 2007 LTIP award 22,241 0.00 4.86 108 M Mulcahy 2007 LTIP award 22,241 0.00 4.86 108 D Dobbins 2007 LTIP award 22,241 0.00 4.86 108 324
Details of the maximum conditional Directors’ awards under the LTIP are as follows:
Date on which last condition Market price has to Scheme 04-Apr-10 Lapsed Exercised Granted 03-Apr-11 at grant (£) be met* WG Keane 2007 award 26,052 (3,811) (22,241) – – 4.99 03-Apr-10 2008 award 39,755 – – – 39,755 3.18 02-Apr-11 2009 award 40,983 – – – 40,983 3.66 31-Mar-12 2009 award 26,606 – – – 26,606 4.89 31-Mar-12 2010 award – – – 57,142 57,142 5.11 31-Mar-13 133,396 (3,811) (22,241) 57,142 164,486
M Mulcahy 2007 award 26,052 (3,811) (22,241) – – 4.99 03-Apr-10 2008 award 39,755 – – – 39,755 3.18 02-Apr-11 2009 award 40,983 – – – 40,983 3.66 31-Mar-12 2009 award 23,536 – – – 23,536 4.89 31-Mar-12 2010 award – – – 54,109 54,109 5.11 31-Mar-13 130,326 (3,811) (22,241) 54,109 158,383
D Dobbins 2007 award 26,052 (3,811) (22,241) – – 4.99 03-Apr-10 2008 award 39,755 – – – 39,755 3.18 02-Apr-11 2009 award 40,983 – – – 40,983 3.66 31-Mar-12 2009 award 20,466 – – – 20,466 4.89 31-Mar-12 2010 award – – – 51,076 51,076 5.11 31-Mar-13 127,256 (3,811) (22,241) 51,076 152,280
G Sweeney 2008 award 19,877 – – – 19,877 3.18 02-Apr-11 2009 award 20,491 – – – 20,491 3.66 31-Mar-12 2010 award – – – 14,677 14,677 5.11 31-Mar-13 2010 award – – – 35,511 35,511 3.52 31-Mar-13 40,368 – – 50,188 90,556
1 Under the rules of the LTIP, the actual vesting of the awards will not take place until some time after this date (i.e. vesting will only occur when the information becomes available to determine the extent to which the relevant performance conditions have been satisfied). 2 The performance criteria that must be met in order for 50% of the above awards to vest requires the Company’s TSR to outperform the median company of a comparator group comprised of companies in the FTSE Food Producers Sector over a period of three years. The vesting of the remaining 50% of the awards requires the Company to advance growth in earnings per share. Further details in relation to these conditions are set out on pages 52 and 53. For the TSR element of these awards, the comparator group comprises Associated British Foods, Carr’s Milling, Cranswick, Dairy Crest, Devro, Glanbia, Greencore, Hilton Food Group (2010 awards only), Northern Foods, Premier Foods, Tate & Lyle, Unilever and Uniq. 3 There have been no variations to the terms and conditions of the above awards during the financial year.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 59 Directors’ Remuneration Report continued
Deferred Bonus Plan Aggregate emoluments disclosed above include amounts for the value of Deferred Bonus Plan awards granted to the Directors in the year in which they are awarded but do include amounts in respect of awards that have vested and been exercised. Details of the maximum conditional Directors’ awards under this arrangement are as follows:
Market Date price at on which Bonus award 04-Apr-10 Lapsed Vested Granted 02-Apr-11 grant (£) shares vest WG Keane 2009/10 bonus – – – 21,918 21,918 5.11 24-Jun-13 D Dobbins 2009/10 bonus – – – 19,569 19,569 5.11 24-Jun-13 M Mulcahy 2009/10 bonus – – – 20,743 20,743 5.11 24-Jun-13
1 The awards made in 2010 equated to shares worth the amount of the bonus for the financial year to 3 April 2010 that was deferred under the Plan based on the share price for the three dealing days preceding the date of grant. The total bonus disclosed for the financial year to 3 April 2010 included the deferred element detailed in the table above. 2 On the vesting of the above awards the holders will also receive the benefit of any dividends paid over the deferral period. 3 Further details of the Deferred Bonus Plan are set out on page 53. 4 There have been no variations to the terms and conditions of the above awards during the financial year.
Pensions Four Directors are members of money purchase schemes. As disclosed on page 54, the amount of the equivalent contribution which has been paid directly to RT Wiseman from which he can make his own retirement provision has been included in the pension payment table below. Contributions paid by the Company in respect of such Directors during the year ended 2 April 2011 are disclosed below:
2011 2010 Pensions total Pensions total Name of Director £000 £000 RT Wiseman 151 151 WG Keane 34 28 M Mulcahy 28 27 D Dobbins 26 25 G Sweeney 15 – 254 231
Approval This report was approved by the Board of Directors on 16 May 2011 and signed on its behalf by:
Jack Perry Chairman of the Remuneration Committee 17 May 2011
60 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
What’s in this section? Financial Statements 62 Independent Auditor’s Report 68 Company Balance Sheet 64 Consolidated Income Statement 68 Company Cash Flow Statement 64 Consolidated Statement 69 Company Statement of of Comprehensive Income Comprehensive Income 65 Consolidated Statement 69 Company Statement of of Changes in Equity Changes in Equity 66 Consolidated Balance Sheet 70 Notes to the Financial Statements 67 Consolidated Cash Flow Statement 97 Summary
Britain’s fresh milk professionals Engaging with stakeholders and communicating clearly
We keep things simple and we do what we say. This applies to everything we do from communications with our employees to communications with suppliers and customers to reporting financial performance. As highlighted during the year, margins declined in the second half of the year due to intense competitive pressures. The Company is focused on reversing this decline whilst managing cost pressures such as fluctuations in oil related costs. Along with improved margins capacity utilisation is on target to efficiently use the available capacity within the business.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 61 Independent Auditor’s Report to the members of Robert Wiseman Dairies PLC
We have audited the financial statements of Robert Wiseman Dairies PLC for the year ended 2 April 2011 which comprise the consolidated income statement, the consolidated and parent company statement of comprehensive income, the consolidated and parent company balance sheets, the consolidated and parent company cash flow statements, the consolidated and parent company statements of changes in equity and the related Notes 1 to 35. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditor As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the Audit of the Financial Statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on Financial Statements In our opinion the financial statements: • give a true and fair view of the state of the group’s and of the parent company’s affairs as at 2 April 2011 and of the group’s profit for the year then ended; • the group financial statements have been prepared in accordance with IFRSs as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.
Separate Opinion in Relation to IFRSs as issued by the IASB As explained in Note 1 to the group financial statements, the group, in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB).
In our opinion the group financial statements comply with IFRSs as issued by the IASB.
Opinion on Other Matters Prescribed by the Companies Act 2006 In our opinion: • The part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and • The information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on Which We Are Required to Report by Exception We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion: • Adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • The parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • Certain disclosures of directors’ remuneration specified by law are not made; or • We have not received all the information and explanations we require for our audit.
62 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Under the Listing Rules we are required to review: • The directors’ statement contained within the corporate governance report in relation to going concern; and • The part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review; and • certain elements of the report to the shareholders by the Board on directors’ remuneration.
James Baird ACA (Senior Statutory Auditor), for and on behalf of Deloitte LLP, Chartered Accountants and Statutory Auditors, Edinburgh, United Kingdom 17 May 2011
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 63 Consolidated Income Statement For the year ended 2 April 2011
Year ended Year ended 2 April 2011 3 April 2010 Notes £000 £000
Continuing operations Revenue 3 917,491 886,209
Cost of sales (728,622) (687,460) Gross profit 188,869 198,749
Administrative expenses (26,007) (29,476) Non-recurring administrative expenses 4 – 1,864 Total administrative expenses (26,007) (27,612) Selling and distribution costs (126,334) (121,508) Other operating income 5 860 663 Restructuring costs 4 (2,052) – Other operating expenses (net) (153,533) (148,457) Operating profit 35,336 50,292
Investment revenues 6 11 186 Finance costs 7 (990) (1,271) Profit before tax 34,357 49,207
Tax 10 (7,184) (13,445) Profit for the year from continuing operations 8 27,173 35,762
Earnings per ordinary share Basic earnings per share 12 39.02p 50.13p Diluted earnings per share 12 38.62p 49.20p
The accompanying notes are an integral part of this income statement.
Consolidated Statement of Comprehensive Income For the year ended 2 April 2011
Year ended Year ended 2 April 2011 3 April 2010 Notes £000 £000
Profit for the year 27,173 35,762 Tax on share-based payment transactions 10 (1,265) 1,883 Total comprehensive income for the year 29 25,908 37,645
64 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Consolidated Statement of Changes in Equity For the year ended 2 April 2011
Share Capital Share Retained premium Special Merger ESOP redemption Capital earnings account reserve reserve reserve reserve Total Group £000 £000 £000 £000 £000 £000 £000 £000
At 5 April 2009 7,227 91,992 35,897 4,062 (3,872) (2,817) 2,032 134,521
Total comprehensive income for the year – 37,645 – – – – – 37,645 ESOP share amortisation – (5,094) – – – 5,094 – – Share-based payments credit – 2,336 – – – – – 2,336 Arising on new share issues (net of expenses) 53 – 1,215 – – – – 1,268 Arising on purchase of ordinary shares for cancellation (247) (11,916) – – – – 247 (11,916) Arising on purchase of ordinary shares by trust – – – – – (4,239) – (4,239) Contribution for purchase of shares by ESOT – (7) – – – – – (7) Dividends – (19,981) – – – – – (19,981) At 3 April 2010 7,033 94,975 37,112 4,062 (3,872) (1,962) 2,279 139,627
Total comprehensive income for the year – 25,908 – – – – – 25,908 ESOP share amortisation – (1,424) – – – 1,424 – – ESOP share disposal on exercise of options – (705) – – – 705 – – Share-based payments credit – 1,722 – – – – – 1,722 Arising on new share issues (net of expenses) 106 – 2,001 – – – – 2,107 Arising on exercise of options – 2,179 – – – – – 2,179 Arising on purchase of ordinary shares for cancellation (63) (3,074) – – – – 63 (3,074) Arising on purchase of ordinary shares by trust – – – – – (2,036) – (2,036) Dividends – (4,021) – – – – – (4,021)
At 2 April 2011 7,076 115,560 39,113 4,062 (3,872) (1,869) 2,342 162,412
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 65 Consolidated Balance Sheet As at 2 April 2011
2 April 2011 3 April 2010 Notes £000 £000
Non-current assets Goodwill 14 4,394 4,394 Other intangible assets 15 1,583 822 Property, plant and equipment 13 236,260 230,948 242,237 236,164
Current assets Inventories 17 11,478 12,493 Trade and other receivables 18 75,991 76,587 Cash and cash equivalents 7,310 4,767 94,779 93,847
Total assets 337,016 330,011
Current liabilities Trade and other payables 19 (115,283) (118,823) Obligations under finance leases 20 (2,872) (1,223) Current tax liabilities 22 (13,811) (10,465) Provisions 25 (4,236) (4,236) (136,202) (134,747)
Non-current liabilities Obligations under finance leases 20 (9,329) (4,679) Borrowings 21 – (20,000) Deferred tax liabilities 24 (28,301) (29,560) Derivative financial instruments 23 (772) (1,398) (38,402) (55,637)
Total liabilities (174,604) (190,384) Net assets 162,412 139,627
Equity Share capital 26 7,076 7,033 Share premium account 27, 29 39,113 37,112 Special reserve 29 4,062 4,062 Merger reserve arising on consolidation 29 (3,872) (3,872) Capital redemption reserve 29 2,342 2,279 ESOP reserve 28, 29 (1,869) (1,962) Retained earnings 29 115,560 94,975 Total equity 162,412 139,627
The financial statements of Robert Wiseman Dairies PLC, company registration number SC146494, were approved by the Board of Directors on 17 May 2011 and signed on its behalf by:
William Keane Gerard Sweeney Director Director 17 May 2011 17 May 2011 The accompanying notes are an integral part of this balance sheet.
66 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Consolidated Cash Flow Statement For the year ended 2 April 2011
Year ended Year ended 2 April 2011 3 April 2010 Notes £000 £000
Operating activities Cash generated from operations 30a 57,958 83,125 Interest paid (1,588) (2,460) Income taxes paid (6,362) (8,743) Net cash from operating activities 50,008 71,922
Investing activities Interest received 11 186 Purchase of property, plant and equipment (20,545) (26,436) Purchase of intangible assets (1,113) – Proceeds from sale of property, plant and equipment 760 542 Net cash used in investing activities (20,887) (25,708)
Financing activities Issue of ordinary share capital 2,107 1,261 Purchase of own shares (3,074) (11,916) Dividends paid (4,021) (19,981) Net purchase of own shares by employee share option trust 143 (4,239) New bank loans raised 65,292 20,000 Repayment of borrowings (85,292) (35,000) Repayment of obligations under finance lease (1,733) (859) Net cash used in financing activities (26,578) (50,734)
Net increase/(decrease) in cash and cash equivalents 30b 2,543 (4,520)
Cash and cash equivalents at start of year 4,767 9,287 Cash and cash equivalents at end of year 7,310 4,767
The accompanying notes are an integral part of this cash flow statement.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 67 Company Balance Sheet As at 2 April 2011
2 April 2011 3 April 2010 Notes £000 £000
Non-current assets Property, plant and equipment 16 16 Investments 16 28,546 28,546 28,562 28,562 Current assets Trade and other receivables 18 70,247 75,235 Total assets 98,809 103,797
Current liabilities Trade and other payables 19 (52) (52) Total liabilities (52) (52) Net assets 98,757 103,745
Equity Share capital 26 7,076 7,033 Share premium account 27, 29 39,113 37,112 Special reserve 29 12,591 12,591 Capital redemption reserve 29 2,342 2,279 Retained earnings 29 37,635 44,730 Total equity 98,757 103,745
The financial statements of Robert Wiseman Dairies PLC, company registration number SC146494, were approved by the Board of Directors on 17 May 2011 and signed on its behalf by:
William Keane Gerard Sweeney Director Director 17 May 2011 17 May 2011
The accompanying notes are an integral part of this balance sheet.
Company Cash Flow Statement For the year ended 2 April 2011
All of the Company’s transactions are paid for by one of its subsidiaries. The Company does not have any actual cash flows in the current or prior year and therefore no cash flow statement has been presented.
68 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Company Statement of Comprehensive Income For the year ended 2 April 2011
Year ended 53 Weeks ended 2 April 2011 3 April 2010 Notes £000 £000
Profit for the year 29 – 21,061 Total comprehensive income for the year – 21,061
Company Statement of Changes in Equity For the year ended 2 April 2011
Share Capital Share Retained premium Special redemption Capital earnings account reserve reserve Total Company £000 £000 £000 £000 £000 £000
At 5 April 2009 7,227 55,566 35,897 12,591 2,032 113,313 Arising on new share issues (net of expenses) 53 – 1,215 – – 1,268 Arising on purchase of ordinary shares (247) (11,916) – – 247 (11,916) Total comprehensive income – 21,061 – – – 21,061 Dividends – (19,981) – – – (19,981) At 3 April 2010 7,033 44,730 37,112 12,591 2,279 103,745 Arising on new share issues (net of expenses) 106 – 2,001 – – 2,107 Arising on purchase of ordinary shares (63) (3,074) – – 63 (3,074) Total comprehensive income – – – – – – Dividends – (4,021) – – – (4,021) At 2 April 2011 7,076 37,635 39,113 12,591 2,342 98,757
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 69 Notes to the Financial Statements For the year ended 2 April 2011
1. GENERAL INFORMATION Robert Wiseman Dairies PLC is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given on the inside back cover of this document. The nature of the Group’s operations and its principal activities are set out in Note 3 and in the Business and Financial Review on pages 14 to 19.
These financial statements are presented in pounds Sterling because that is the currency of the primary economic environment in which the Group operates.
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
IFRS 9 Financial Instruments IAS 24 (amended) Related Party Disclosures IAS 32 (amended) Classification of Rights Issues IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 14 (amended) Prepayments of a Minimum Funding Requirement Improvements to IFRSs (May 2010)
IFRS 9, which the Group plans to adopt for the year beginning on 31 March 2013, will impact both the measurement and disclosures of Financial Instruments.
The directors do not expect that the adoption of the other standards listed above will have a material impact on the financial statements of the Group in future periods.
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.
In their consideration of going concern, the Directors have reviewed the Group’s cashflow forecasts and associated risks; these forecasts extend for a period beyond one year from the date of approval of these financial statements. Additional details are set out on page 43.
After making enquiries, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. The financial statements have therefore been prepared on a going concern basis.
2. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments in accordance with IAS 39, Financial Instruments: Recognition and Measurement. The principal accounting policies adopted are set out below.
Basis of Consolidation The consolidated financial statements incorporate the results, cash flows and financial position of the Company and its subsidiaries for the year to 2 April 2011. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition.
The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intercompany transactions, balances, income and expenses between Group entities are eliminated on consolidation.
No income statement is presented for Robert Wiseman Dairies PLC, as provided by Section 408 of the Companies Act 2006. The Company’s profit for the financial year, determined in accordance with the Act was £Nil (2010 £21,061,000). The separate financial statements of the Company, excluding the Income Statement, are presented as required by the Companies Act 2006. The financial statements of the Company have been prepared in accordance with IFRS and on the historical cost basis. The principal accounting policies adopted are the same as those set out in this note.
Investments Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
70 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
2. SIGNIFICANT ACCOUNTING POLICIES (continued) Goodwill (continued) For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal, but is recorded as a movement on reserves.
Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.
Sales of goods are recognised when goods are delivered and title has passed. Discounts to customers, including overrider and retrospective rebates, are recognised as deductions from revenue in the same period as the related sales. Discounts not yet invoiced are recorded within accruals and deferred income. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
The group as lessor Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.
The group as lessee Assets held under finance leases are recognised as assets of the Group at their fair value at the date of acquisition or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly through the income statement.
Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease. There were no operating leases in the current or prior year.
Foreign Currencies Transactions in currencies other than pounds Sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation of monetary items are included in net profit or loss for the period. The transactions referred to are primarily payables in respect of purchases of plant and equipment along with packaging materials. Non-monetary assets are recorded at the historic rate and are not re-translated.
Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognised in the profit or loss in the period in which they are incurred.
Operating Profit Operating profit is stated after restructuring costs and any gains on the sale of property, plant and equipment but before investment revenues and finance costs.
Retirement Benefit Costs The Group operates a Group Personal Pension Scheme and a small defined contribution pension scheme. Contributions to these schemes are charged as an expense in the period during which they fall due.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 71 Notes to the Financial Statements continued For the year ended 2 April 2011
2. SIGNIFICANT ACCOUNTING POLICIES (continued) Taxation The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is dealt with in the statement of comprehensive income.
Deferred tax liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities; and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Property, Plant and Equipment Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at their historical cost, less any accumulated depreciation and accumulated impairment losses.
Properties in the course of construction for production or administrative purposes are carried at cost, less any recognised impairment loss. Cost includes professional fees. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. All other tangible assets are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost of assets, other than land and properties under construction, over their estimated useful lives, using the straight- line method, on the following bases:
Buildings 2%–4% Plant and machinery 10%–33% Motor vehicles 10%–20%
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.
Software Development Costs An internally-generated intangible asset arising from the Group’s software development is recognised only if all of the following conditions are met:
• An asset is created that can be separately identified (such as software and new processes); • It is probable that the asset created will generate future economic benefits; and • The development cost of the asset can be measured reliably.
Internally-generated intangible assets are amortised on a straight-line basis over their useful lives of 3 to 5 years. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.
Impairment of Tangible and Intangible Assets Excluding Goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
72 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
2. SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of Tangible and Intangible Assets Excluding Goodwill (continued) The recoverable amount is the greater of realisable value less costs to sell and 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 risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.
Other Intangible Assets Other intangible assets are carried at cost less accumulated amortisation. Other intangible assets are recognised if it is probable that there will be future economic benefits attributable to the asset, the cost of the asset can be measured reliably, the asset is separately identifiable and there is control over the use of the asset. Where the Group acquires a business, other intangible assets such as customer lists are identified and evaluated to determine the fair value on the acquisition balance sheet. Other intangible assets are amortised on a straight line basis over their estimated useful lives of between 1 and 10 years.
Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the First In First Out method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Provision is made for obsolete, slow moving or defective items where appropriate.
Trade Receivables Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Financial Instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets comprise trade receivables and cash and cash equivalents. Financial liabilities comprise trade payables, derivative financial instruments, obligations under finance leases and borrowings.
Financial Liabilities and Equity Instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of any direct issue costs.
Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible into a known amount of cash and are subject to an insignificant risk of changes in value.
Other Financial Liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
Trade Payables Trade payables are not interest bearing and are stated at their nominal value.
Derivative Financial Instruments The Group’s activities expose it primarily to the financial risks of changes in interest rates. The Group uses interest rate swaps to hedge these exposures. Such derivatives are initially recorded at cost, if any, and are remeasured to fair value at subsequent reporting dates. Changes in the fair value of hedges and derivative financial instruments are recognised in the income statement as they arise.
The Group does not hold or issue derivative financial instruments for speculative purposes. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value, with unrealised gains or losses reported in the income statement.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 73 Notes to the Financial Statements continued For the year ended 2 April 2011
2. SIGNIFICANT ACCOUNTING POLICIES (continued) Share-based Payments The Group has applied the requirements of IFRS 2 ‘Share-based Payments’. The Group issues equity settled share-based payments to certain employees. Equity settled share-based payments are measured at fair value at the date of the grant. The fair value determined at the grant date of the equity settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value of all equity settled share-based payments is measured using either the Black Scholes model or a Monte Carlo Simulation dependent upon whether the shares have an external criterion or not. Fair value of LTIPs is measured using the Binomial model.
For cash settled share-based payments a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each balance sheet date. The Group estimates the expected value of share-based payments and this is charged through the income statement over the vesting period of the relevant instrument. The valuations are calculated using either the Black Scholes method or a Monte Carlo Simulation dependent upon whether the shares have an external performance criterion or not.
These valuations are based upon a number of assumptions which are detailed in Note 32 and amended only to take account of the estimated levels of share vesting and exercise. Any changes in these assumptions over the period of vesting can affect the actual number of shares which may vest and may be exercised at the end of the vesting period.
Own shares The shares in the Company held by the Employee Share Option Trust to satisfy options under the Group’s share-based payments schemes are presented as a deduction from equity (ESOP reserve). Consideration received from the sale of such shares is also recognised in equity with no gain or loss recognised in the consolidated income statement.
Own shares are recorded at cost and are amortised over a 3 year period, which represents the expected vesting period of the options.
Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect of discounting is material.
Key Estimations and Assumptions The Group has used estimates and assumptions in arriving at certain figures within the financial statements. The resulting accounting estimates may not equate with the actual results, which will only be known in time. Those areas believed to be key areas of estimation are noted below, with further details of the assumptions used listed at the relevant note.
Item Note reference
Tax 10 Impairment testing 13, 14 and 15 Share-based payments 32
3. SEGMENT INFORMATION All of the Group’s revenue and profits arose wholly from the processing and distribution of liquid milk and associated products in the UK. Consequently, under IFRS 8, the directors have concluded that the Group has a single operating and reporting segment.
The Group has three customers who represent more than 10% of total group revenues. These three customers represent 30%, 12% and 11% of revenue in the current year (2010: 34%, 14% and 12%).
Total revenue for the year of £918,362,000 (2010: £887,058,000) comprises the sale of goods of £917,491,000 (2010: 886,209,000), other operating income of £860,000 (2010: £663,000) and investment revenues of £11,000 (2010: £186,000).
74 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
4. NON-RECURRING EXPENSES Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Administrative expenses: Adjustment to regulatory penalty provision – 1,864 A previously agreed settlement with The Office of Fair Trading (OFT) was revised downwards in April 2010 (see Note 35).
Restructuring costs: Redundancy costs (1,132) – Impairment of assets (Note 13) (920) – Total restructuring costs (2,052) –
The restructuring cost relates principally to costs incurred on the closure of premises at Okehampton and Cupar.
5. OTHER OPERATING INCOME Other operating income principally comprises rental of premises to a supplier for the provision of polybottles to the Group and gains on the sale of property, plant and equipment.
6. INVESTMENT REVENUES Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Interest on bank deposits 11 186
7. FINANCE COSTS
Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Interest on bank overdrafts and loans 748 1,089 Interest on finance lease obligations 327 113 Gain arising on fair value of interest swap contract in the year (626) (295) Other interest 541 364 990 1,271
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 75 Notes to the Financial Statements continued For the year ended 2 April 2011
8. PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS Profit for the year from continuing operations has been arrived at after (crediting)/charging:
Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Net foreign exchange (gains)/losses (75) 97 Gain on sale of property, plant and equipment (388) (189) Inventory write offs – 133 Inventory included in cost of sales 728,622 687,460 Depreciation of owned property, plant and equipment (Note 13) 23,820 23,976 Depreciation of property, plant and equipment held under finance lease (Note 13) 1,515 753 Impairment of property, plant and equipment (Note 13) 920 – Amortisation of software development costs (Note 15) 181 112 Amortisation of customer lists (Note 15) 171 171 Bad debt expense 20 58 Staff costs (Note 9) 136,809 130,089
Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Audit services Audit of parent company and consolidated financial statements 88 88 Audit of subsidiary companies pursuant to legislation 11 24 Audit-related regulatory reporting 4 4 Accounting advice – 4 Total audit fees 103 120
Non-audit services Tax compliance services 20 20 Tax advisory services 36 82 Services relating to information technology – 44 Other – 10 Total non-audit fees 56 156 Total 159 276
Other advisors’ fees in relation to taxation work 57 50 Other advisors’ fees in relation to other work 57 95 Total 114 145
Fees payable to Deloitte LLP for the non-audit services to the Company are not required to be disclosed because the consolidated financial statements have disclosed such fees on a consolidated basis.
A description of the work of the Audit Committee is set out in the corporate governance statement on pages 41 and 42 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.
76 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
9. STAFF COSTS
Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Employee costs during the year amounted to: Wages and salaries 121,689 117,082 Redundancy costs 1,132 – Social security costs 12,276 11,361 Other pension costs (Note 33) 1,712 1,646 136,809 130,089
The average monthly number of persons employed by the Group (including Executive Directors and key management personnel) during the year was as follows:
Year ended Year ended 2 April 2011 3 April 2010 Number Number
Production and distribution 4,217 3,984 Administration 644 614 4,861 4,598
Directors’ Remuneration Details of Directors’ remuneration for the year are provided in the audited part of the Directors’ Remuneration Report on pages 57 to 60.
Directors’ Interests The Directors who held office at 2 April 2011 had, together with their connected parties, the following interests in the ordinary shares of 10p of the Company, all of which were beneficial:
2 April 2011 3 April 2010 Number Number
RT Wiseman 12,689,896 12,689,896 WG Keane 29,039 22,730 M Mulcahy 37,276 32,181 D Dobbins 18,874 13,321 G Sweeney 12,548 10,444 NL Murray 12,100 10,000 EJ Finch 5,000 5,000 JS Perry 5,000 –
In addition, RT Wiseman holds a non-beneficial interest in 159,771 ordinary shares of 10p each (2010: 165,064). No changes took place in the interests of Directors between 2 April 2011 and 17 May 2011.
Directors’ Share Options Details of Directors’ share options are provided in the Directors’ Remuneration Report on pages 58 and 59.
Directors’ Transactions There were no contracts of significance during the year to which the Company, or any of its subsidiary undertakings, was a party and in which a Director of the Company is or was materially interested.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 77 Notes to the Financial Statements continued For the year ended 2 April 2011
10. TAX
Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Current tax: UK Corporation tax 11,279 13,388 Adjustment in respect of prior year tax computations (359) (675) Total current tax 10,920 12,713
Deferred tax: Current year (968) 687 Adjustment in respect of prior year tax computations (560) 45 Impact of change in rate of tax (2,208) – Total deferred tax (3,736) 732
Total tax 7,184 13,445
The charge for the year can be reconciled to the profit per the income statement as follows:
Year ended Year ended Year ended Year ended 2 April 2 April 3 April 3 April 2011 2011 2010 2010 £000 % £000 %
Profit before tax 34,357 – 49,207 – UK corporation tax rate of 28% (2010: 28%) 9,620 28.0% 13,778 28.0% Tax effect of expenses that are not deductible in determining taxable profit 820 2.4% 474 1.0% Utilisation of previously unrecognised tax losses – – (94) (0.2%) Adjustments to the tax charge in respect of previous periods (919) (2.7%) (630) (1.3%) Impact of change in rate of tax (2,208) (6.4%) – – Temporary differences 839 2.4% (770) (1.6%) Current year deferred tax (968) (2.8%) 687 1.4% Tax expense and effective tax rate for the year 7,184 20.9% 13,445 27.3%
Amounts taken to other comprehensive income:
Year ended Year ended 2 April 3 April 2011 2010 £000 £000
Current tax credit (1,212) (723)
Deferred tax: Relating to share based payments 2,446 (1,160) Impact of changes in tax rate 31 – Tax expense/(credit) taken directly to Statement of Comprehensive Income 1,265 (1,883)
The Group earns its profits in the UK, therefore the tax rate used for the tax charge is the standard rate for UK corporation tax, currently 28%.
No tax has been recognised directly in equity.
There are no unused tax losses or credits or deductible differences for which no deferred tax asset is recognised.
78 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
10. TAX (continued) The Finance (No.3) Bill 2011 was published on 31 March 2011 and included a reduction in the main rate of corporation tax for the financial year beginning 1 April 2011 from 28% to 26%. This tax law change has been substantively enacted. The impact of this change is set out below:
Year ended Year ended 2 April 3 April 2011 2010 £000 £000
Deferred tax liability at end of year at 28% (2010: 28%) 30,478 29,560 Impact of change in tax rate reflected in Consolidated Income Statement (2,208) – Impact of change in tax rate reflected through Statement of Comprehensive Income 31 – Deferred tax liability at end of year at 26% (2010: 28%) 28,301 29,560
The Government has also indicated that it intends to enact future reductions in the main tax rate of 1% each year down to 23% by 1 April 2014. The future 1% main tax rate reductions are expected to have a similar proportional impact on our financial statements as outlined above, however the actual impact will be dependent on our deferred tax position at that time and will be recognised when the relevant legislation is substantively enacted.
The Group provides for future liabilities in respect of uncertain tax positions where additional tax may become payable in future periods and such provisions are based upon management’s assessments of exposures.
11. DIVIDENDS
Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Amounts recognised as distributions in the year Dividends paid 4,021 19,981
Pence Pence
Dividend per share 5.75 28.00
£000 £000
Dividend proposed but not paid or included in the accounting records 8,668 –
Pence Pence
Dividend proposed per share 12.25p –
The interim dividend approved by the Board on 11 November 2010 of 5.75p per ordinary share was paid on 3 February 2011. The final proposed dividend for the year to 2 April 2011 of 12.25p per ordinary share will be paid on 15 September 2011 to ordinary shareholders on the register at close of business on 5 August 2011 and is subject to approval by shareholders at the Annual General Meeting in July 2011. This has not been included as a liability at 2 April 2011.
In the year ended 3 April 2010 there was no final proposed dividend for the year as 3 dividend payments were made during the year:
Final dividend in respect of year ended 4 April 2009 10.00p First interim dividend in respect of year ended 3 April 2010 5.75p Second interim dividend in respect of year ended 3 April 2010 12.25p
The second interim dividend of 12.25p per share was paid on 1 April 2010 in place of a final dividend for the year ended 3 April 2010.
The underlying dividend, namely the interim paid and final proposed in respect of the year, was 18.00p per share in the year ended 2 April 2011 and 18.00p per share in the year ended 3 April 2010.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 79 Notes to the Financial Statements continued For the year ended 2 April 2011
12. EARNINGS PER ORDINARY SHARE
Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Profit from continuing operations – basic EPS earnings 27,173 35,762 Non-recurring administrative expenses (Note 4) – (1,864) Impact of restructuring costs (net of tax) 1,477 – Impact of changes in tax legislation (2,208) – Impact of fair value of interest rate swap (net of tax) (451) (212) Adjusted EPS earnings 25,991 33,686
Number of shares Number of shares – basic earnings per share 69,637,371 71,339,958 Potential dilutive ordinary shares re share options 713,867 1,347,093 Number of shares – diluted earnings per share 70,351,238 72,687,051
The number of shares above represents the weighted average number of ordinary shares in issue in the year excluding 762,620 (2010: 735,994) shares held by the employee benefit trust.
Earnings per ordinary share Adjusted earnings per share 37.32p 47.22p Non-recurring administrative expenses – 2.61p Impact of restructuring costs (2.12p) – Impact of changes in tax legislation 3.17p – Impact of fair value of interest rate swap 0.65p 0.30p Basic earnings per share 39.02p 50.13p
Adjusted diluted earnings per share 36.94p 46.34p Diluted earnings per share 38.62p 49.20p
See Note 10 for details of tax adjustments.
80 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
13. PROPERTY, PLANT AND EQUIPMENT
Freehold land Plant and Motor and buildings machinery vehicles Total Group £000 £000 £000 £000
Cost At 5 April 2009 154,855 151,663 69,318 375,836 Additions 9,755 14,363 10,031 34,149 Disposals – (550) (5,522) (6,072) At 3 April 2010 164,610 165,476 73,827 403,913 Additions 2,019 15,369 14,550 31,938 Disposals – (415) (7,234) (7,649) At 2 April 2011 166,629 180,430 81,143 428,202
Accumulated depreciation At 5 April 2009 16,664 101,017 36,274 153,955 Charge for the year 2,854 12,347 9,528 24,729 Disposals – (402) (5,317) (5,719) At 3 April 2010 19,518 112,962 40,485 172,965 Charge for the year 2,962 12,564 9,809 25,335 Impairment loss 778 142 – 920 Disposals – (250) (7,028) (7,278) At 2 April 2011 23,258 125,418 43,266 191,942
Carrying amount At 2 April 2011 143,371 55,012 37,877 236,260 At 3 April 2010 145,092 52,514 33,342 230,948
The carrying amount of the Group’s plant and machinery includes an amount of £12,668,000 (2010: £6,305,000) in respect of assets held under finance leases.
At 2 April 2011 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £8,561,000 (2010: £5,576,000).
Included in additions is £Nil (2010: £158,000) in respect of capitalisation of interest.
The impairment loss relates to the closure of premises at Okehampton and Cupar (Note 4).
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 81 Notes to the Financial Statements continued For the year ended 2 April 2011
14. GOODWILL 2011 2010 Group £000 £000
Cost At start and end of year 4,394 4,394
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. The carrying value of goodwill by CGU is as follows: 2011 2010 £000 £000
Glasgow depot 2,138 2,138 Northampton depot 246 246 Pensilva depot 738 738 Bridgwater depot 842 842 Other depots 430 430 Total 4,394 4,394
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates, which are based on industry growth forecasts, and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The discount rate applied to future cash flows was 7.2% (2010: 8.4%). Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. In the current year the assumed growth rate was Nil (2010: Nil).
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management and extrapolates cash flows based on a changing dynamic in the way in which consumers purchase milk over a three year period. This rate varies dependent on the market in which the customers operate.
The present value of the cash flows is then compared to the carrying value of the asset.
The fair value of goodwill is substantially in excess of book value in both 2010 and 2011. The Directors have concluded that there are no reasonably possible changes in key assumptions that would have caused an impairment write down to be recorded at the year end.
82 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
15. OTHER INTANGIBLE ASSETS
Software development Customer costs lists Total Group £000 £000 £000
Cost At 5 April 2009 and 3 April 2010 712 1,296 2,008 Additions 1,113 – 1,113 At 2 April 2011 1,825 1,296 3,121
Amortisation At 5 April 2009 477 426 903 Charge for the year 112 171 283 At 3 April 2010 589 597 1,186 Charge for the year 181 171 352 At 2 April 2011 770 768 1,538
Carrying amount At 2 April 2011 1,055 528 1,583 At 3 April 2010 123 699 822
There has been no significant research and development expenditure in the current year that is not detailed in the table above (2010: Nil).
16. INVESTMENTS The Company has investments in a number of subsidiary undertakings.
2011 2010 Company £000 £000
Cost at beginning and end of the year 28,546 28,546
Details concerning investments which are not significant have been omitted in order to avoid a statement of excessive length. Details of the only trading subsidiary undertakings in the year are set out below:
Country of Description and proportion of shares registration Principal activity held by the Company
Robert Wiseman & Sons Limited Scotland Milk processing and distribution 100% £1 ordinary shares 100% £1 ‘A’ cumulative convertible redeemable preference shares 100% £1 ‘B’ cumulative convertible redeemable preference shares Robert Wiseman Leasing Limited Scotland Lease of plant and equipment 100% £1 ordinary shares
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 83 Notes to the Financial Statements continued For the year ended 2 April 2011
17. INVENTORIES
Group Group 2011 2010 £000 £000
Raw materials and consumables 7,657 8,765 Finished goods and goods for resale 3,821 3,728 11,478 12,493
18. TRADE AND OTHER RECEIVABLES Credit Risk The Group’s principal financial assets are bank balances and cash and trade and other receivables, which represent the Group’s maximum exposure to credit risk in relation to financial assets. The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management based on prior experience and their assessment of the current economic environment.
The Group has a large percentage of business and trade receivables concentrated in a small number of customers. The credit risk associated with the Group’s trade receivables balance is limited as the customers are either large corporations with high credit ratings or the Group has credit insurance in place to mitigate the risk of exposure.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.
Group Group Company Company 2011 2010 2011 2010 £000 £000 £000 £000
Trade receivables 68,475 72,104 – – Amounts due from subsidiaries – – 70,247 75,235 VAT 4,721 3,349 – – Other receivables 219 222 – – Prepayments and accrued income 2,576 912 – – Total 75,991 76,587 70,247 75,235
Trade Receivables Total trade receivables (net of allowances) held by the Group at 2 April 2011 amounted to £68,475,000 (2010: £72,104,000). An allowance has been made for estimated irrecoverable amounts from the sale of goods of £1.0 million (2010: £1.0 million). This allowance has been determined by reference to past default experience and management’s assessment of the current economic environment. Provision is made for receivables which are over 60 days past due. Trade receivables which are past due but less than 60 days past due are provided for on a specific invoice by invoice basis. This is based on previous experience and factors relevant to the specific customer and invoice.
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
The average credit period taken on sales of goods is 30 days (2010: 30 days). No interest has been charged on the receivables.
Before accepting any new customer, the Group assesses the potential customer’s credit quality and the potential credit limit of each customer. New customers are subdivided into two groups, cash sales customers and credit accounts.
Cash sales customers settle their accounts in cash on a daily or weekly basis. The quantities involved are usually small with minimal credit exposure for the Group. Credit checks are not generally carried out on these customers unless payment is to be made by cheque rather than cash.
84 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
18. TRADE AND OTHER RECEIVABLES (continued) For credit accounts all customers are credit checked using external credit agencies. Credit ratings are used to allocate a credit rating to each new account or when applicable decline credit. For any customer seeking a credit level above £100,000 an application is made to a credit insurance provider for an authorised credit limit and once approved this would allow credit clearance up to the level agreed with the insurer. Credit limits are reviewed on a weekly basis with changes to insurance limits being notified to the Group on a daily basis.
Of the trade receivables balance of £68,475,000 (2010: £72,104,000), £41,588,000 (2010: £41,940,000) is due from Tesco, Sainsbury, Iceland, the Co-operative Group and Farmfoods (2010: Tesco, Sainsbury, Iceland and the Co-operative Group including Somerfield), each of whom represent more than 5% of the total balance of trade receivables.
Within the Group’s total trade receivables balance are debtors with a carrying amount of £2,329,000 (2010: £7,888,000) which are overdue for payment at the reporting date and which the Group has not made any provision for, on the basis that there has not been a change in the credit worthiness of the customer and the Group considers that the amounts will be recovered. The Group does not hold any collateral over these balances. The weighted average age of these receivables past due is 48 days (2010: 45 days).
Ageing of Overdue but not Impaired Receivables
2011 2010 £000 £000
30–60 days 2,229 7,888 60–90 days 1 – 90+ days 99 – Total 2,329 7,888
Allowance for Aged Receivables
2011 2010 £000 £000
Balance at beginning of year 1,008 952 Movement in allowance in income statement 18 56 Balance at end of year 1,026 1,008
When determining the fair value amount of any trade receivable the Group considers any change in the credit quality from the date when credit was initially granted up to and including the reporting date. The Group has a large percentage of business and trade receivables concentrated in a small number of customers. Despite this the credit risk associated with the Group’s trade receivables is limited as the small numbers of customers previously mentioned are all large corporations with high credit ratings and/or credit insurance in place to mitigate this exposure.
Ageing of Impaired Trade Receivables
2011 2010 £000 £000
Current 415 170 0–30 days 209 309 30–60 days 77 338 60–90 days 57 33 90+ days 268 158 Total 1,026 1,008
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 85 Notes to the Financial Statements continued For the year ended 2 April 2011
19. TRADE AND OTHER PAYABLES This principally comprises amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 40 days (2010: 40 days).
Group Group Company Company 2011 2010 2011 2010 £000 £000 £000 £000
Trade payables 89,806 77,817 – – Other payables 449 470 – – Accruals and deferred income 20,888 35,121 52 52 Social security and PAYE 4,140 5,415 – – 115,283 118,823 52 52
The Directors consider that the carrying amount of trade payables approximates to their fair value.
20. OBLIGATIONS UNDER FINANCE LEASES
2011 2010 Minimum lease payments £000 £000
Amounts payable under finance leases: Within one year 3,314 1,473 In second to fifth years inclusive 9,968 5,084 13,282 6,557
Less: future finance charges (1,081) (655) Present value of lease obligations 12,201 5,902
Analysed as: Amounts due for settlement within 12 months 2,872 1,223 Amounts due for settlement after 12 months 9,329 4,679 12,201 5,902
It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is 5 years. For the year ended 2 April 2011, the average effective borrowing rate was 4.2% (2010: 4.6%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
All lease obligations are denominated in sterling.
The fair value of the Group’s lease obligations is approximately equal to their carrying amount.
The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets as disclosed in Note 13.
86 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
21. BORROWINGS Group Group 2011 2010 £000 £000
Bank loans and overdrafts – 20,000 Obligations under finance leases (Note 20) 12,201 5,902 12,201 25,902
The borrowings are repayable as follows: On demand or within one year 2,872 1,223
In the second year 2,873 21,280 In the third to fifth years inclusive 6,456 3,399 9,329 24,679 12,201 25,902
There are nil borrowings in currencies other than Sterling (2010: Nil).
After taking into consideration the interest rate swap in place in 2011, £12,201,000 of borrowings were arranged at fixed interest rates (2010: £25,902,000).
The Directors estimate that the fair value of the Group’s borrowings is not significantly different from the balance sheet values for all borrowings.
Liquidity Risk Management Ultimate responsibility for liquidity risk management rests with the Board of Directors which has built appropriate processes and controls for monitoring and managing the Group’s short, medium and long-term funding and liquidity management requirements. The main processes used by the Group to manage its liquidity risk are to maintain adequate reserves of cash, suitable banking facilities and available facilities. The Group continuously monitors forecast and actual cashflows and as disclosed below the Group has suitable undrawn facilities to manage and further reduce the level of liquidity risk.
The other principal features of the Group’s borrowings are as follows:
(i) Bank overdrafts are repayable on demand. The average effective interest rate on bank overdrafts approximates 2.13% (2010: 1.45%) per annum. (ii) The Group had one principal bank loan of £20.0 million in the prior year which was repaid during the current year. The loan carried an interest rate at 1.5% above LIBOR per annum.
As at 2 April 2011, the Group had available £100 million (2010: £80.0 million) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. Of the undrawn committed borrowing facilities £20 million expires in one year or less (2010: £20.0 million).
The disclosures in respect of the ageing of trade receivables are provided in Note 18. The trade payables balance is due to be paid within two months of the year end.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 87 Notes to the Financial Statements continued For the year ended 2 April 2011
21. BORROWINGS (continued) Gearing Ratio Management review the level of debt and the capital structure of the Group on a regular basis. Twice a year the Group reports on the level of gearing to its shareholders as part of the reporting process. Management’s view on the current level of debt is detailed in the Chairman’s statement on page 8 and the Business and Financial Review on page 19.
The gearing ratio at the year end is as follows:
2011 2010 £000 £000
Borrowings (12,201) (25,902) Cash and cash equivalents 7,310 4,767 Net debt (4,891) (21,135) Equity 162,412 139,627 Net debt to equity ratio 3.0% 15.1%
Equity includes all capital and reserves of the Group attributable to equity holders of the parent.
Capital Risk Management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from 2010.
The capital structure of the Group consists of debt, which includes borrowings, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in Notes 26 to 29.
Externally Imposed Capital Requirement The Group is not subject to externally imposed capital requirements.
22. CURRENT TAX LIABILITIES
2011 2010 £000 £000
UK Corporation tax payable 13,811 10,465
23. DERIVATIVE FINANCIAL INSTRUMENTS Interest Rate Risk Management The Group is exposed to risk of fluctuations in interest rates as result of its level of borrowings in the current year and a significant amount of the borrowings have floating interest rates. This risk is managed by the Group maintaining an appropriate level of fixed and floating rates which it does with the use of interest rate swap contracts. The Group shall continue to regularly evaluate its arrangements re interest rate swaps and hedging activities to ensure that these are aligned with the Group interest rate views and risk appetite.
The Group’s exposure to interest rates on financial assets and financial liabilities is detailed in the liquidity risk management section in Note 21.
Interest Rate Swaps The Group used interest rate swaps to manage its exposure to interest rate movements on its bank borrowings during 2010 and 2011.
On 25 June 2008 the Group entered into an interest rate swap with Clydesdale Bank with an effective date of 25 June 2008, for a period of 5 years.
88 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
23. DERIVATIVE FINANCIAL INSTRUMENTS (continued) On 20 November 2007 the Group entered into an interest rate swap with Rabobank with an effective date of 22 November 2007, for a period of 3 years. This expired on 22 November 2010.
Under these contracts the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. These contracts enable the Group to mitigate the risk of changing interest rates on the fair value of the variable rate debt held by the Group such as term loans, overdrafts etc. The fair value of the interest rate swap at the reporting date is determined by discounting the future cash flows using the yield curves at the reporting date and the credit risk inherent in the contract as disclosed below.
The average interest rate is based upon the outstanding balances at the end of the financial year.
Average contract fixed interest rate ||||||| Notional principal amount |||||||| Fair value 2011 2010 2011 2010 2011 2010 Outstanding receive fixed pay floating contracts % % £000 £000 £000 £000
Interest rate swaps that are carried at fair value through the income statement 1–3 years – 5.358% – 10,000 – (346) 1–5 years 5.22% 5.22% 10,000 10,000 (772) (1,052) Total 10,000 20,000 (772) (1,398)
The interest rate swaps settle on a quarterly basis. The Group shall settle the difference between the fixed swap rate and the notional LIBOR rate on a net basis. This arrangement is designed to reduce the Group’s cash flow exposure resulting from variable interest rates on borrowings.
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into 3 levels based on the extent to which the fair value is observable.
The levels are classified as follows:
Level 1: fair value is based on quoted prices in active markets for identified financial assets or liabilities. Level 2: fair value is determined using directly observable inputs other than level 1 inputs. Level 3: fair value is determined on inputs not based on observable market data.
In the current and prior year, the interest rate swaps are classed as level 2 financial instruments. There have been no transfers between the various levels of the fair value hierarchy during the year.
Interest Rate Sensitivity The sensitivity analysis below has been determined based on the Group’s exposure to interest rates at the balance sheet date. In calculating the sensitivity management have assumed that for floating rate liabilities the amount of liability outstanding as at the balance sheet date is the same throughout the year. When management have assessed interest rate risk they have assessed it based upon their best estimate of reasonably possible changes in interest rates which for the current year is 0.5%.
Had interest rates been 1.0% higher or lower whilst all other variables such as quantum of net debt were constant throughout the period, then the impact upon the Group profit for the year ended 2 April 2011 would be £100,000 (2010: £200,000).
The Group’s sensitivity to interest rates has decreased during the current period as there has been a fall in borrowings through the period as a result of a fall in the capital expenditure programme.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 89 Notes to the Financial Statements continued For the year ended 2 April 2011
24. DEFERRED TAX The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period.
Accelerated tax Intangible Share-based Financial depreciation assets payments instruments Other Total £000 £000 £000 £000 £000 £000
At 5 April 2009 31,756 244 (1,133) (474) (405) 29,988 Charge/(credit) to income statement 1,299 (48) (582) 83 (20) 732 Charge to equity – – (1,160) – – (1,160) At 3 April 2010 33,055 196 (2,875) (391) (425) 29,560 (Credit)/charge to income statement (1,420) (48) (129) 175 (106) (1,528) Credit to statement of comprehensive income – – 2,446 – – 2,446 Impact of change in tax rate reflected in income statement (2,259) (11) 8 15 39 (2,208) Impact of change in tax rate reflected in the SOCIE – – 31 – – 31 At 2 April 2011 29,376 137 (519) (201) (492) 28,301
Certain deferred tax assets and liabilities have been offset. The net total is classified within non-current liabilities.
25. PROVISIONS
Group £000
At 4 April 2010 and 2 April 2011 4,236
Included in current liabilities 4,236
The regulatory penalty provision relates to an Early Resolution Agreement with the Office of Fair Trading in relation to its investigation into Dairy Retail Prices under Chapter I of the Competition Act 1998 entered into in December 2007. The settlement figure was revised downwards in April 2010 (see Note 35).
26. SHARE CAPITAL
2011 2010 Group and Company £000 £000
Authorised: 110,000,000 (2010: 110,000,000) ordinary shares of 10p each 11,000 11,000 Issued and fully paid: 70,759,752 (2010: 70,331,861) ordinary shares of 10p each 7,076 7,033
During the year the Company issued 1,057,931 ordinary shares with a nominal value of 10p each in respect of employees exercising options under the share option and sharesave schemes (2010: 527,295 ordinary shares). The Group made a contribution of £Nil (2010: £7,000) to the Employee Share Ownership Trust to enable the trust to satisfy the valid exercise of options granted under employee share option and sharesave schemes.
Further to shareholders’ resolutions of 9 July 2009 and 8 July 2010, the Company bought 630,000 ordinary shares with a nominal value of £63,000, representing 0.9% of the Company’s share capital, for a total consideration of £3,074,000. These shares have been cancelled.
The Company has one class of ordinary shares which carry no right to fixed income.
90 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
27. SHARE PREMIUM ACCOUNT
Share premium Group and Company £000
Balance at 4 April 2010 37,112 Premium arising on issue of equity shares 2,001 Balance at 2 April 2011 39,113
28. OWN SHARES The own shares reserve represents the cost of shares in Robert Wiseman Dairies PLC purchased in the market and held by the Employee Benefit Trust to satisfy options under the Group’s share-based payments schemes.
An employee benefit trust has been established to hedge the future obligations of the Group in respect of shares awarded under the Long Term Incentive Plan (‘LTIP’) and other employee share schemes. The trustees of the Trust, which is responsible for administering awards under the LTIP and other employee share schemes, purchase the Company’s ordinary shares in the open market with financing provided by Robert Wiseman & Sons Ltd as required on the basis of regular reviews of the anticipated share liabilities of the Group. The Trust has waived any entitlement to the receipt of dividends in respect of all of its holding of the Company’s ordinary shares. The Trust’s waiver of dividends may be revoked at any time.
Own shares Group £000
Cost 4 April 2010 2,943 Purchase of shares 2,036 Disposed of on exercise of options (1,409) 2 April 2011 3,570
Amortisation 4 April 2010 (981) Charge in the year transferred to retained earnings (1,424) Disposed of on exercise of options 704 2 April 2011 (1,701)
Net book value at 2 April 2011 1,869 Net book value at 4 April 2010 1,962
` Own shares number
4 April 2010 689,046 Shares purchased 414,709 Disposed of on exercise of options (329,877) 2 April 2011 773,878
The market value at 2 April 2011 of the 773,878 ordinary shares held in the Trust (2010: 689,046), which are listed in the UK, was £2,639,000 (2010: £3,528,000).
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 91 Notes to the Financial Statements continued For the year ended 2 April 2011
29. RESERVES The movements on reserves are as follows:
Share Capital Retained premium Special Merger ESOP redemption earnings account reserve reserve reserve reserve Total Group £000 £000 £000 £000 £000 £000 £000
At 5 April 2009 91,992 35,897 4,062 (3,872) (2,817) 2,032 127,294 ESOP share amortisation (5,094) – – – 5,094 – – Share-based payments credit 2,336 – – – – – 2,336 Arising on new share issues (net of expenses) – 1,215 – – – – 1,215 Arising on purchase of ordinary shares for cancellation (11,916) – – – – 247 (11,669) Arising on purchase of ordinary shares by trust – – – – (4,239) – (4,239) Contribution for purchase of shares by ESOT (7) – – – – – (7) Total comprehensive income 37,645 – – – – – 37,645 Dividends (19,981) – – – – – (19,981) At 3 April 2010 94,975 37,112 4,062 (3,872) (1,962) 2,279 132,594 ESOP share amortisation (1,424) – – – 1,424 – – ESOP share disposal on excercise of options (705) – – – 705 – – Share-based payments credit 1,722 – – – – – 1,722 Arising on new share issues (net of expenses) – 2,001 – – – – 2,001 Arising on exercise of options 2,179 – – – – – 2,179 Arising on purchase of ordinary shares for cancellation (3,074) – – – – 63 (3,011) Arising on purchase of ordinary shares by trust – – – – (2,036) – (2,036) Total comprehensive income 25,908 – – – – – 25,908 Dividends (4,021) – – – – – (4,021) At 2 April 2011 115,560 39,113 4,062 (3,872) (1,869) 2,342 155,336
Share Capital Retained premium Special redemption earnings account reserve reserve Total Company £000 £000 £000 £000 £000
At 5 April 2009 55,566 35,897 12,591 2,032 106,086 Arising on new share issues (net of expenses) – 1,215 – – 1,215 Arising on purchase of ordinary shares (11,916) – – 247 (11,669) Total comprehensive income 21,061 – – – 21,061 Dividends (19,981) – – – (19,981) At 3 April 2010 44,730 37,112 12,591 2,279 96,712 Arising on new share issues (net of expenses) – 2,001 – – 2,001 Arising on purchase of ordinary shares (3,074) – – 63 (3,011) Dividends (4,021) – – – (4,021) At 2 April 2011 37,635 39,113 12,591 2,342 91,681
92 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
30. NOTES TO THE CASH FLOW STATEMENT a) Reconciliation of Operating Profit to Cash Generated from Operations
Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Operating profit 35,336 50,292 Depreciation and impairment of property, plant and equipment 26,255 24,729 Amortisation of intangible assets 352 283 Share-based payments charge 1,722 2,336 Gain on sale of property, plant and equipment (388) (189) Decrease/(increase) in inventories 1,015 (1,912) Decrease/(increase) in trade and other receivables 596 (15,460) (Decrease)/increase in trade and other payables (6,930) 24,910 Decrease in provisions – (1,864) Cash generated from operations 57,958 83,125
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less. This included £143,000 of restricted cash held by the Employee Share Option Trust. b) Reconciliation of Net Cash Flow to Movement in Net Debt
Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Increase/(decrease) in cash and cash equivalents 2,543 (4,520) New finance leases (8,032) (6,688) Cash outflow from decrease in net debt and lease financing 21,733 15,859 Movement in net debt in the year 16,244 4,651
Net debt at beginning of year (21,135) (25,786) Net debt at end of year (4,891) (21,135)
31. OPERATING LEASE ARRANGEMENTS The Group as Lessor Property rental income earned during the year was £450,000 (2010: £450,000). The property has a committed tenant for one year. All operating lease contracts contain market review clauses in the event that the lessee exercises its option to renew. The lessee does not have an option to purchase the property at the expiry of the lease period.
At the balance sheet date, the group had contracted with tenants for the following future minimum lease payments:
Year ended Year ended 2 April 2011 3 April 2010 £000 £000
Within one year – 450 In the second to fifth years inclusive – 338 – 788
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 93 Notes to the Financial Statements continued For the year ended 2 April 2011
32. SHARE-BASED PAYMENTS Equity-settled Share Option Plan The Group plan for share options, excluding the sharesave scheme, provides for a grant price equal to the average quoted market price of the Group shares over the three days prior to the date of grant. The vesting period is generally three years. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Furthermore, options generally lapse if the employee leaves the Group before the options vest.
The employee sharesave schemes are open to all employees and provide for a purchase price equal to the average market price on the three days prior to the date of invitation, less 20%. If the options remain unexercised after a period of 5.5 years from the date of grant, the options expire. Furthermore, options generally lapse if the employee leaves the Group before the options vest.
2011 2010 Weighted Weighted average average exercise price exercise price Options (in £) Options (in £)
Outstanding at beginning of year 4,968,758 3.391 5,185,104 3.256 Granted 1,945,066 4.384 1,037,732 3.660 Lapsed (365,378) 3.976 (176,451) 3.482 Exercised (1,123,798) 2.082 (1,077,627) 2.984 Outstanding at the end of the year 5,424,648 3.979 4,968,758 3.391 Exercisable at the end of the year 958,613 4.368 449,511 3.125
The weighted average share price at the date of exercise for share options exercised during the period was £4.058 (2010 £4.356). The options outstanding at 2 April 2011 had a weighted average exercise price of £3.979 (2010: £3.391) and a weighted average remaining contractual life of 5.8 years (2010: 5.8 years). In the year ended 2 April 2011, options were granted on 16 June, 24 June and 20 December 2010, with the aggregate of the estimated fair values of the options granted on those dates being £2,308,000. In the year ended 3 April 2010, options were granted on 23 June 2009 with the aggregate of the estimated fair values of the options granted on those dates being £522,000.
Share options have been granted under various employee schemes. The following share options were outstanding at the year end:
Scheme Grant date 2 April 2011 Exercise price Normal exercise dates
RWD 1994 Scheme 4 January 2002 9,626 £1.147 4January 2005 to 4 January 2012 24 June 2002 1,013 £1.485 24 June 2005 to 24 June 2012 16 May 2003 2,500 £1.920 16 May 2006 to 16 May 2013
RWD 2003 Approved Scheme 11 June 2004 19,500 £2.315 11 June 2007 to 11 June 2014 14 June 2005 45,664 £2.584 14 June 2008 to 14 June 2015 26 June 2006 115,387 £3.550 26 June 2009 to 14 June 2016 18 June 2007 353,538 £4.990 18 June 2010 to 18 June 2017 20 June 2008 528,631 £3.270 20 June 2011 to 20 June 2018 23 June 2009 461,237 £3.660 23 June 2012 to 23 June 2019 24 June 2010 549,190 £5.110 24 June 2013 to 24 June 2020 20 December 2010 8,522 £3.520 20 December 2013 to 20 December 2020
RWD Unapproved 2003 Scheme 14 June 2005 29,436 £2.584 14 June 2008 to 14 June 2015 26 June 2006 103,161 £3.550 26 June 2009 to 26 June 2016 18 June 2007 278,788 £4.990 18 June 2010 to 18 June 2017 20 June 2008 511,290 £3.270 20 June 2011 to 20 June 2018 23 June 2009 513,530 £3.660 23 June 2012 to 23 June 2019 24 June 2010 230,732 £5.110 24 June 2013 to 24 June 2020
Sharesave Scheme 25 June 2007 653,906 £3.835 1 September 2012 to 1 March 2013 23 June 2010 1,008,997 £3.870 1 September 2015 to 1 March 2016
94 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Strategic Business Financial Overview Overview Review Governance Statements
Notes to the Financial Statements continued For the year ended 2 April 2011
32. SHARE-BASED PAYMENTS (continued) The Group introduced a Long Term Incentive Plan in 2003. Under this scheme a maximum of 310,620 shares could be issued to participants in 2010 (period from 4 April 2010 to 2 April 2011), 484,696 in 2011, 547,362 in 2012 and 476,406 in 2013 upon the achievement of prescribed performance criteria.
Under the Long Term Incentive Plan (‘LTIP’) conditional awards of shares can be made to selected employees, including the Executive Directors but excluding the Chief Executive. This scheme is intended to incentivise the participants to create shareholder value whilst retaining due focus on the underlying financial performance of the Group and to more closely align their interests with those of the shareholders. The performance criteria that must be met in order for the award to vest are detailed on pages 52 and 53 of the Directors’ Remuneration Report.
The options outstanding are as follows:
2011 2010 Options Options
Outstanding LTIP options at beginning of year 1,342,678 1,196,785 Granted during the year 476,406 547,362 Exercised during the year (264,010) (401,469) Lapsed during the year (46,610) – Outstanding at the end of the year 1,508,464 1,342,678 Exercisable at the end of the year – –
The weighted average share price at the date of excercise for options under the LTIP scheme exercised during the period was £4.954 (2010: £3.833).
The weighted average fair value of options granted under the LTIP scheme during the period was £3.657 (2010: £2.584).
The valuation of the LTIP scheme is calculated using the Monte Carlo simulation and the inputs into this model are as follows:
2011 2010
Weighted average share price £4.96 £3.66 Weighted average exercise price Nil Nil Expected volatility 35.0 25.0 Expected life 3 years 3 years Risk-free rate % 2.90% 2.31% Expected dividend yields 3.50% 3.70%
The inputs into the Black-Scholes model which apply to share options and the Share Incentive Plan are as follows:
2011 2010
Weighted average share price £4.949 £3.66 Weighted average exercise price £4.384 £3.66 Expected volatility 35.0 25.0 Expected life 3.2 years 3.2 years Risk-free rate % 2.90% 2.31% Expected dividend yields 3.50% 3.70%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous eight years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
The Group recognised total expenses of £1,185,000 and £1,242,000 related to equity-settled share-based payment transactions on share options in 2011 and 2010 respectively; £537,000 and £1,094,000 related to equity-settled share-based payment transactions on share-based payments under the LTIP scheme in 2011 and 2010 respectively.
Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 95 Notes to the Financial Statements continued For the year ended 2 April 2011
32. SHARE-BASED PAYMENTS (continued) Other Share-based Payment Plans – Share Incentive Plan In August 2002, the Group established an Inland Revenue Approved Share Incentive Plan (‘SIP’) which came into operation on 1 May 2003. During the year ended 2 April 2005, two different forms of awards were made under the SIP, both of which were available to all employees of the Group with continuous service of 3 months. Under the ‘Matching Share’ scheme, participants could contribute up to £125 per month towards the purchase of shares in the Company which were then matched on a 1 for 4 basis. Shares acquired under the Matching Share scheme are solely conditional upon the relevant participant remaining in the Group’s employment for three years from the date of award.
33. RETIREMENT BENEFIT SCHEMES Defined Contribution Schemes The Group operates a group personal pension scheme for its employees and a small defined contribution scheme. The assets of the schemes are held separately from those of the Group in independently administered funds. The pension cost charged in respect of these schemes for the year ended 2 April 2011 was £1,712,000 (2010: £1,646,000). Contributions, including employee contributions, due but not yet paid in respect of the current reporting period amounted to £314,000 (2010: £265,000).
34. RELATED PARTY TRANSACTIONS Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Balances due to the Company from its subsidiaries are disclosed in the Company’s separate financial statements.
Key management personnel comprise the Group Board. Details of individual and collective remuneration are included in the Directors’ Remuneration Report on pages 45 to 60. Details of directors’ shareholdings in the Company are also shown on page 77. Total dividends of £737,000 were paid in respect of these shareholdings in the year.
Remuneration of Key Management Personnel The remuneration of the directors, who are key management personnel of the group, is set out below in aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’. Further information about the remuneration of individual directors is provided in the audited part of the Directors’ Remuneration Report on pages 57 to 60.
2011 2010 £000 £000
Short-term employee benefits 2,095 3,015 Post-employment benefits 254 231 Share-based payments 391 400 2,740 3,646
35. CONTINGENT LIABILITY Office of Fair Trading (‘OFT’) In December 2007 the Company entered into an Early Resolution Agreement with the OFT in relation to its investigation into Dairy Retail Prices under Chapter I of the Competition Act 1998 (‘the Agreement’). The Company, and other parties, were subject to a provisional finding by the OFT in respect of the disclosure of commercially sensitive retail pricing intentions in respect of fresh liquid milk in 2003 (‘the 2003 Retail Price Initiative’).
The matters reviewed by the OFT related to Retail Price Initiatives which resulted in additional monies being returned to farmers. The Company’s support for the 2003 Retail Price Initiative was driven by a wish to provide support for its farmer suppliers. All monies paid to the Company following the Retail Price Initiatives were returned to farmers and no profit was generated by the Company from such initiatives.
Further to entering into the Agreement the Company reached a settlement with the OFT in December 2007 to pay £6.1 million. This settlement was revised downwards in April 2010 and as part of this revision the Company has agreed to pay a sum of £4.2 million. Further to those arrangements the OFT resolved its investigation in relation to Wiseman, on condition it continues to provide full co-operation to the OFT.
The sum of £4.2 million represents an imposed penalty of £6.5 million less a 35% discount for co-operation; the Company intends to continue to co-operate fully with the OFT and as such the Company considers that £4.2 million accurately reflects the amount of money that shall be paid, with the balance of £2.3 million representing a contingent liability.
96 Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Summary
Welcome to the 2011 edition of Wiseman’s FIVE YEAR SUMMARY 2011 2010 2009 2008 2007 annual report. In an environment £000 £000 £000 £000 £000 Income Statement characterised by surging input costs and Revenue 917,491 886,209 847,702 721,983 605,289 heightened competitive activity, Wiseman Profit from operations 35,336 50,292 35,147 31,645 35,659 Net interest (payable)/receivable (979) (1,085) (4,380) (2,461) (1,067) Profit before tax 34,357 49,207 30,767 29,184 34,592 has continued to make progress. Tax (7,184) (13,445) (24,186) (9,864) (10,436) Profit for the year 27,173 35,762 6,581 19,320 24,156
Statistics Basic earnings per share 39.02p 50.13p 9.19p 26.76p 33.38p We hope this report gives you the information Diluted earnings per share 38.62p 49.20p 9.09p 25.97p 32.11p you seek about our Company’s performance, Balance Sheet Non-current assets 242,237 236,164 227,380 222,360 182,355 and the steps we are taking to ensure that Current assets 94,779 93,847 80,995 71,607 59,432 Current liabilities (136,202) (134,747) (107,173) (101,861) (81,798) Non-current liabilities (38,402) (55,637) (66,681) (52,597) (20,193) we continue to build our reputation as Net assets 162,412 139,627 134,521 139,509 139,796
Britain’s fresh milk professionals. Equity Share capital 7,076 7,033 7,227 7,294 7,263 Reserves 155,336 132,594 127,294 132,215 132,533 Total equity 162,412 139,627 134,521 139,509 139,796
FINANCIAL CALENDAR 2011/2012 William Keane Gerard Sweeney Managing Director Group Finance Director Annual General Meeting 6 July 2011 Interim results announced November 2011 Interim dividend paid February 2012 Financial year end 31 March 2012 Full year results announced May 2012
REGISTRARS AND DIVIDEND PAYMENTS Enquiries regarding shareholdings, lost certificates, change of address and dividend payments should be addressed to the Company’s registrars:
Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU Tel: 0871 664 0300 (calls cost 10p per minute plus network extras) From outside the UK: +44(0) 20 8639 3399 Fax: +44(0) 20 8639 2220 E-mail: [email protected]
CBP0005771905112818 Principal Bankers Audit Committee Clydesdale Bank plc Norman L Murray 19 Stuart Street Ernest Finch East Kilbride Jack Perry Glasgow G74 4NF Remuneration Committee Solicitors Jack Perry Maclay Murray & Spens Ernest Finch 1 George Square Norman L Murray Glasgow G2 1AL Nomination Committee Auditors and Robert T Wiseman Tax Advisers Norman L Murray Deloitte LLP Ernest Finch Saltire Court Jack Perry 20 Castle Terrace Edinburgh EH1 2DB Secretary and Registered Office Registrars Maureen Burnside
Capita Registrars 159 Glasgow Road Robert Wiseman Dairies PLC The Registry East Kilbride 34 Beckenham Road Glasgow G74 4PA Beckenham Kent BR3 4TU Registered Number SCO 146494 Financial Advisers and Stockbrokers Investec 2 Gresham Street London EC2V 7QP Annual Report and Financial Statements 2011
Britain’s fresh milk professionals Robert Wiseman Dairies PLC Annual Report and Financial Statements 2011 Robert Wiseman Dairies Head Office Tel 01355 244 261 159 Glasgow Road Fax 01355 230 352 East Kilbride E-mail [email protected] Glasgow G74 4PA Web www.wiseman-dairies.co.uk