Annual Report and Financial Statements 2014 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Highlights 2014 Turnover Percentage by Division Turnover €’000s 2014 has been a year of further growth 700,000 625,770 and development9% for Lakeland Dairies, driven by innovation, efficiency, new 600,000 15% business developments andFood a Ing focusedredients 31% 60% 545,532 approach to meeting theF oodservineeds ceof our 500,000 472,940 customers worldwide. Agri-Trading 472,222
400,000 401,006 Lakeland Dairies is creating long term value and sustainability. Utilising the high quality milk supplied by our producers, we offer a diverse portfolio of 300,000 market leading dairy ingredients and foodservice
products across numerous food industry sectors. With 200,000 growing milk processing volumes, technologically advanced productionOper facilitiesating and Pr anofit excellent global logistics capability,€12.9m we are in2014 a strong position 100,000 to maximise10% international dairy market growth opportunities. All of €this11. is underpinned7m 2013 by the 0 collective strength and ambition of our co-operative 2010 2011 2012 2013 2014 dairy farmers and the skills of our people, working together to achieve continuing future success for Lakeland Dairies. Profit Before Tax €’000s Shareholders’ Funds €‘000s
10,864 10,000 10,335 Farmer 100,000 87,091 PROVENDER MILL 87,091 LOUGH8,000 EGISH 80,000 81,061 7,963 Milk Parlour 78,366 76,697 6,852 6,000 60,000
4,000 4,510 40,000 MILK COLLECTION
2,000 20,000 800m LITRES OF MILK
0 0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
OVER 1 BILLION LITRES Killeshandra Bailieboro Newtownards Lough Egish anticipated milk intake Foodservice Powders Foodservice Powders WORLDWIDE 170 PRODUCTS Ice Cream Butter Ice Cream by 2020 UHT UHT DISTRIBUTION Casein 70 COUNTRIES Lactose Milk Sticks
GLOBAL LOGISTICS Turnover Percentage by Division Turnover €’000s 700,000 9% 625,770
600,000 Food Ingredients 15% 31% 60% 545,532 Foodservice 500,000 472,940 Agri-Trading 472,222
400,000 401,006
300,000
200,000 Operating Profit €12.9m 2014 100,000 10% €11.7m 2013 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014 0 2010 2011 2012 2013 2014
Turnover Percentage by Division Turnover €’000s Turnover Percentage by Division 700,000 PrTofiturnov Beforer €’000se Tax €’000s Shareholders’ Funds €‘000s 625,770 9% 700,000
600,000 625,770 9% 10,864 Food Ingredients 10,000 15% 100,000 600,000 10,335 31% 60% 545,532 15% 87,091 Foodserviood Ingrecedients 500,000 545,532 87,091 31% 60% 8,000 472,940 80,000 81,061 AgFoodserviri-Tradingce 500,000 472,222 7,963 78,366 472,940 76,697 Agri-Trading 400,000 472,222 401,006 6,852 6,000 60,000 400,000 401,006 300,000 4,000 4,510 40,000 300,000
200,000 2,000 20,000 Operating Profit 200,000 Operating Pr2014ofit 100,000 €12.9m 0 0 10% €12.9m11.7m 20142013 100,000 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 0 10% €11.7m 2013 2010 2011 2012 2013 2014 0 2010 2011 2012 2013 2014
Profit BeforGroupe Ta Revenuesx €’000s Foodservice Food IngredientsShareholders’Agribusiness FundsShareholders' €‘000s Funds € € € € € 2014Profit Before625.7m Tax €’000s 190.3m 377.9m Shareholders’57.5m Funds €‘000s90.5m 10,864 10,000 10,335 100,000 10,864 87,091 Farmer 10,000 10,335 100,000 87,091 87,091 8,000 80,000 81,061 PROVENDER MILL 7,963 78,366 87,091 LOUGH EGISH 8,000 Milk Parlour 80,000 76,697 81,061 6,852 7,963 6,000 60,000 78,366 76,697 6,852 6,000 60,000
4,000 4,510 40,000
4,000 4,510 40,000 MILK COLLECTION 2,000 20,000
2,000 800m 20,000 LITRES OF MILK 0 0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 0 0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
OVER 1 BILLION LITRES Killeshandra Bailieboro Newtownards Lough Egish anticipated milk intake Foodservice Powders Foodservice Powders WORLDWIDE 170 PRODUCTS Ice Cream Butter Ice Cream by 2020 UHT UHT DISTRIBUTION Casein 70 COUNTRIES Lactose Milk Sticks
GLOBAL LOGISTICS Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited "We are in a strong position to maximise international dairy market growth opportunities with blue chip customers and a diverse product portfolio"
2 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
CONTENTS
Chairman’s Review 2
Chief Executive’s Review 4
Directors and Other Information 9
Statement of Directors’ Responsibilities 12
Independent Auditor’s Report 13
Consolidated Profit and Loss Account 14
Consolidated Statement of Total Recognised Gains and Losses 14
Consolidated Balance Sheet 15
Consolidated Cash Flow Statement 16
Notes to the Financial Statements 17
1 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Chairman’s Review
2014 has been a year of further significant progress for Lakeland Dairies underpinned by a strong business performance where the Society has reported very satisfactory results for the year.
Alo Duffy Chairman
2 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
The dairy sector continues to make a major With world class processing plants, we are able to contribution to economic growth north and south. process all of the milk that our producers will send Through that contribution, it has a big influence to us into an array of excellent dairy products. Our on community wellbeing and on the quality of increasing milk intake will also be supplemented by rural living standards. We’re proud to support new milk producer entrants and conversions from dairy farming communities through our operations other sectors to dairy farming, all of whom will be including investments in our dairy processing welcome. infrastructure on a cross border basis. I thank the Vice-Chairman, Board, Regional EU milk quotas have been abolished in the current Committees, all Members and Milk Producers year. This is a major change in the international dairy of Lakeland Dairies for your great support for landscape. It alters competitive conditions among Lakeland Dairies. On behalf of the Board I thank the dairy producing countries of the world with our management team, headed by Michael Hanley, producers and the dairy industry gradually adapting and all staff throughout the organisation for to this new market dynamic. their dedication to the business. I welcome new Board member Anthony Leddy and I very warmly The Board of Lakeland Dairies is focused on the acknowledge the outstanding contribution of our creation of a positive and sustainable future for our former Chairman Padraig Young who retired from milk producers. This includes ongoing investments the Board during the year. in modern and streamlined plants which guarantee flexibility to meet global market needs. Based on the Together, we can be pleased when we look back strategic preparations that we have made, I’m really at the achievements of our co-operative for over confident that our milk producers will benefit from a century and in particular over the past 25 years expansion opportunities in the future. since we formed Lakeland Dairies. Overall, our continuing investments signal our commitment All of the building blocks have been put in place to to the future of co-operative dairy farming in this ensure that we’ll continue to operate on the most northern region of the island. That’s a future worth efficient basis possible. We’re going to grow our investing in! business while paying the highest possible milk price in line with market conditions. We’re also supporting Your co-operative has built a roadmap for further producers with research based information through progress and innovation where Lakeland Dairies is the Lakeland Dairies Teagasc Joint Programme. This a driver of rural economic development and dairy is focused on milk protein content, grass utilisation industry growth across fifteen counties north and and herd fertility and it is backed up by our expert south. We can now look forward with confidence farm advisory and livestock nutrition services. to the further success of our co-operative as we continue to build our future together. Our mainly pasture based production system gives us many advantages in serving world markets. Maximising grass and silage based feeding, as part of overall production efficiency, can enhance returns Alo Duffy for milk producers. It also helps the positioning Chairman of our products where they originate from milk produced on high quality farms in a natural and green environment. Ultimately, it’s the global food companies and consumers worldwide who are influenced by these factors and if we can continue to supply the products that they want to buy from us then our expansion will continue to be successful.
3 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited Chief Executive’s Review
I’m pleased to report another positive year of growth and development following from a strong trading performance with higher processing volumes and consistently strong demand for our dairy products.
Michael G. Hanley Group Chief Executive
4 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Group revenues increased by 15% to €625.7m yielding a 10% growth in operating profit to €12.9m and profit before tax of €10.9m. Set against the increasingly difficult market conditions of 2014, these are a robust set of results where the Co-operative also paid a competitive milk price throughout the year. The Society closed its financial year with shareholders' funds of €90.5m and a strong balance sheet as outlined on page 15.
Performance by Division
Foodservice €190.3m Foodservice Division revenues increased by 12% to €190.3m driven by encouraging levels of demand for our innovative products, organic growth and new business development activity in key markets including EMEA and Asia. Consumer sentiment has improved gradually in key markets. This benefited our foodservice customers and fed into stronger sales across our hospitality, catering and convenience market segments.
Food Ingredients €377.9m Food Ingredients revenues increased by 22% to €377.9m due to consistently strong demand across our portfolio of dairy ingredients from leading food manufacturers and infant formula customers worldwide. There is a continuing and growing requirement for high quality milk powders and functional ingredients, particularly in nutritional, pharmaceutical and beverage markets, which we are also addressing through an expansion of operations.
Agribusiness €57.5m With significantly better growing and grazing conditions in 2014, Agribusiness revenues were reduced due to lower feed demand and overall lower prices. However the division manufactured and sold over 155,000 tonnes of high quality ruminant feedstuffs during the year. 2014 also saw the development and launch of our Rumismart Sustain integrated feeding programmes and solutions. These are designed to help our milk suppliers and customers to improve the efficiency of their production systems and facilitate a more efficient use of nutrients on the farm. This approach also gives advice on how our high quality feed products can be utilised most efficiently on-farm to optimise outputs from the same or lower levels of inputs.
5 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
BAILIEBORO DRYER NUMBER 3
Bailieboro, Co. Cavan has been designated as our centre of excellence for milk powder manufacturing. There are currently two major milk drying plants at this location, the most recent of which was commissioned in 2010 following investment of €20m. In 2014 we announced a planned €36m investment in a further ‘Bailieboro Dryer Number 3’, construction of which has now started in the current year for completion in 2016.
The development of Bailieboro Dryer Number 3 will see the installation of a new 7 tonne per hour milk drying facility at Bailieboro where total milk powder production capacity will increase to 19 tonnes per hour. This will provide a value-added processing capability for all future milk produced by Lakeland Dairies farmers. Additionally, we have processing flexibility to draw on through our milk powder plant at Lough Egish Co. Monaghan, which will cater for peak milk production periods.
Lakeland Dairies currently produces 90,000 tonnes of milk powders a year and this will rise to 130,000 tonnes on completion of the new Bailieboro Dryer Number 3. The same site also produces 24,000 tonnes of butter.
This major dual factory presence on a single site provides total flexibility in our milk throughput, for maximum value added returns, and it contributes to overall economies of scale for our food ingredients business.
GLOBAL LOGISTICS CENTRE
During the year, we completed a new €10m global logistics centre at our major foodservice processing centre in Newtownards, Co. Down. This is a highly automated facility with over 14,000 individual pallet spaces and robotic systems to manage, assemble and prepare consignments for export. It will ensure our capacity to meet global customer requirements with the maximum flexibility.
Our ice cream and UHT dairy manufacturing facilities at Killeshandra have also been upgraded. This is an impressive and efficient operation which is contributing strongly to the delivery of customer satisfaction in our foodservice division.
6 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Human Resources WEB PRESENCE We are focused on continuous professional Lakeland Dairies launched a new web development, upskilling and training for our staff to presence which will further support ensure that our workforce remains agile and flexible our business development activities as we continue our growth as a deeply competitive across the Group as well as providing international dairy company. Our Management enhanced services to milk producers. and Graduate Development Programmes are The website includes video capability contributing successfully to the achievement of and is also optimised for viewing on high standards of leadership and business process mobile devices including smartphones innovation across the organisation. and tablets. Outlook 2014 was a global turning point where an oversupply of dairy production created downward pressure on prices. The Russian ban on EU dairy products (arising from the crisis in Ukraine) has also led to large volumes of product previously destined for Russia being sold at discount rates onto world markets.
Global dairy supplies are reducing but there is still an overhang of product in the markets. The long term outlook for dairy is reasonably stable in spite of current volatility. OECD estimates are that dairy consumption will increase by over 13% per head of population worldwide between now and 2023. Global dairy demand continues to rise at a MILK STICKS rate of approximately 2% per annum. International projections foresee a world population of over 9 Constant innovation is key to our billion people by 2050 (from a current 7.2 billion) success. Our new ‘milk stick’ dairy and an increased need for food including higher product was developed for the global volumes of dairy. dairy foodservice industry including airlines, convenience outlets and cafés. The investments we have made on an ongoing It has received an immensely positive basis are strategically designed to create reaction from our customers. sustainability through economies of scale including innovation, technological competitiveness and cost effectiveness. This ensures that we will support milk producers as a strong player in the international marketplace in the years ahead, including the payment of a sustainably competitive milk price.
Worldwide usage of dairy ingredients and foodservice dairy products is driven by global trends including wellness, convenience, safety and sustainability. These trends are advantageous to Lakeland Dairies where we are specialists in key manufacturing areas including protein technology, aseptic manufacturing processes, emulsion technology and spray drying technology.
We are in a strong position to maximise international dairy market growth opportunities with blue chip customers and a diverse product portfolio. We see a consistently growing opportunity in areas including infant formula, dairy proteins and health related nutritional products including lactose and whey, among other categories.
7 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Conclusion I welcome Alo Duffy as Chairman and I express our This will rise to over 1 billion litres annually by 2020 warm appreciation to our former Chairman Padraig and that capacity will be underpinned by enhanced Young for his dedication and commitment to Lakeland innovation, new product developments and Dairies over many years. I thank the Chairman, Board intensive business development activity. and Regional Committees for their guidance and Our mission is to promote the long term support throughout the past year. I am very grateful future success of dairy farming and processing to each of my management colleagues and all staff throughout our operating region. We are ready for their excellent contribution across the business. and able to meet that opportunity with maximum In particular, I acknowledge and thank our valued efficiency and competitiveness. customers across all divisions.
Lakeland Dairies has created a processing, marketing and worldwide distribution capability designed to Michael G. Hanley enhance the future long term sustainability and Group Chief Executive profitability of our business. We currently process over 800m litres of milk annually.
Five Year Review
Turnover 401,006 472,222 472,940 545,532 625,770
Profit Before Tax 4,510 6,852 7,963 10,335 10,864
as % of €’000s 1.1% 1.45% 1.68% 1.89% 1.74% Turnover
Shareholders’ 76,697 81,061 78,366 87,091 90,454 funds
2010 2011 2012 2013 2014
8 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Board of Directors and Other Information 2014
9 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited BOARD OF DIRECTORS
1. Aloysius Duffy (Chairman) 7. Seán M. Finnegan 13. Peter Quinn (appointed 13th November 2014) 8. Seán Glennon 14. John Taylor 2. Gerard Melia (Vice-Chairman) 9. David Hannon 15. Alan Thompson 3. Michael G. Hanley (Chief Executive) 10. Colin Kelso 16. Anthony Leddy 4. Seamus Brennan 11. James Lynch (appointed 13th November 2014) 5. John Farrell 12. Oliver Neville 17. Padraig Young 6. Vincent Farrelly (retired 13th November 2014)
Management Executives & Operational Divisions
Group Chief Food Ingredients Agri-Trading Executive Kieran Lonergan Pat Shiels Michael G. Hanley General Manager General Manager
Group Financial Foodservice Head of Group Controller Dermot Farrell Human Resources Peter Sheridan General Manager Tadhg O'Halloran
10 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
6 15 9 14 10 3 2 7 4 17 11 1 12 13 8 5 16
Other information
Secretary Auditor Registered Office Michael Ryan KPMG Killeshandra Chartered Accountants Co. Cavan Principal Bankers 1 Stokes Place Ireland AIB Bank St. Stephen’s Green Bank of Ireland Dublin 2 Rabobank Ireland Ulster Bank
11 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements, in accordance with applicable law and regulations.
The Industrial and Provident Societies Acts, 1893 to 2014, require the Directors to prepare the Society’s financial statements for each financial year. Under that legislation, the Directors have elected to prepare the Society’s consolidated financial statements (“the financial statements”) in accordance with Generally Accepted Accounting Practice in Ireland, comprising applicable law and the accounting standards issued by the Financial Reporting Council and promulgated by the Institute of Chartered Accountants in Ireland.
The Society’s financial statements are required by law to give a true and fair view of the state of affairs of the Society and of the profit or loss of the Society for that period.
In preparing these financial statements, the directors are required to:
› select suitable accounting policies and then apply them consistently; › make judgements and estimates that are reasonable and prudent; and › prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Society will continue in business.
The Directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financial position of the Society and enable them to ensure that the financial statements comply with the Industrial and Provident Societies Acts, 1893 to 2014. They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Society and to prevent and detect fraud and other irregularities.
The Directors are also responsible for preparing the Annual Report and ensuring that it complies with the requirements of the Industrial and Provident Societies Acts, 1893 to 2014.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Society’s website. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
On behalf of the Board of Directors
Aloysius Duffy, Chairman
Gerard Melia, Vice-Chairman
12th March 2015
12 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Independent Auditor’s Report
To the members of Lakeland Dairies In addition, we read all the financial and non-financial Co-operative Society Limited information in the financial statements to identify material inconsistencies with the audited financial We have audited the Lakeland Dairies Co-operative statements and to identify any information that is Society Limited (“the Society”) consolidated financial apparently materially incorrect based on, or materially statements (“the financial statements”) for the year inconsistent with, the knowledge acquired by us in the ended 27 December 2014 which comprise the profit course of performing the audit. If we become aware of and loss account, statement of total recognised gains any apparent material misstatements or inconsistencies and losses, balance sheet, cash flow statement and the we consider the implications for our report. related notes. The financial reporting framework that has been applied in their preparation is Irish law and Opinion on financial statements accounting standards issued by the Financial Reporting Council and promulgated by the Institute of Chartered In our opinion the financial statements Accountants in Ireland (Generally Accepted Accounting › give a true and fair view, in accordance with Practice in Ireland). Generally Accepted Accounting Practice in Ireland, This report is made solely to the Society’s members, of the state of affairs of the Society as at 27 as a body. Our audit work has been undertaken so that December 2014 and of the Society’s profit for the we might state to the Society’s members as a body year then ended; and those matters we are required to state to them in an › have been properly prepared in accordance with auditor’s report and for no other purpose. To the fullest Generally Accepted Accounting Practice in Ireland. extent permitted by law, we do not accept or assume responsibility to anyone other than the Society and the As required by Section 13(2) of the Industrial and Society’s members as a body, for our audit work, for this Provident Societies Act 1893 we examined the balance report, or for the opinions we have formed. sheet showing the receipts and expenditure funds and effects of the Society, and verified the same with Respective responsibilities the books, deeds, documents, accounts and vouchers of the Directors and auditor relating thereto, and found them to be correct, duly vouched and in accordance with law. As explained more fully in the Statement of Directors’ Responsibilities set out on page 12 the directors are responsible for the preparation of financial statements Conall O’Halloran giving a true and fair view. Our responsibility is to audit For and on behalf of KPMG, and express an opinion on the financial statements in Chartered Accountants accordance with Irish law and International Standards Statutory Audit Firm on Auditing (UK and Ireland). Those standards require 1 Stokes Place us to comply with the Financial Reporting Council’s St. Stephen’s Green Ethical Standards for Auditors. Dublin 2
Scope of the audit of the financial statements 12th March 2015
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 Society’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.
13 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Consolidated Profit and Loss Account
FOR THE YEAR ENDED 27 DECEMBER 2014 NOTES 2014 2013 €’000 €’000
Society turnover – continuing operations 2 625,770 545,532
Net operating costs 3 (612,829) (533,814)
Operating profit – continuing operation, being profit on ordinary activities before interest and taxation 12,941 11,718
Interest payable, net 4 (2,168) (1,343) Other financial charges, net 5 91 (40)
Profit on ordinary activities before taxation 10,864 10,335
Tax on profit on ordinary activities 7 (1,501) (1,420)
Profit for the year 9,363 8,915
Consolidated Statement of Total Recognised Gains and Losses
FOR THE YEAR ENDED 27 DECEMBER 2014
NOTES 2014 2013 €’000 €’000
Profit for the year 9,363 8,915
Currency translation adjustments 1,176 (174)
Actuarial (loss)/gain on post-employment schemes 22 (8,439) 457
Related deferred tax movement 22 1,364 (381)
Total recognised gains and losses for the year 3,464 8,817
Aloysius Duffy Gerard Melia Chairman Vice-Chairman
12th March 2015
14 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Consolidated Balance Sheet
AS AT 27 DECEMBER 2014 NOTES 2014 2013 €’000 €’000
Fixed assets Goodwill and intangible assets 9 12,696 13,952 Tangible assets 10 79,038 59,619 Financial fixed assets 11 2,318 2,382
94,052 75,953
Current assets Stocks 12 53,321 66,439 Debtors 13 89,083 96,348 Cash at bank and in hand 458 348
142,862 163,135
Creditors: amounts falling due within one year 14 (97,684) (124,764)
Net current assets 45,178 38,371
Total assets less current liabilities 139,230 114,324 Creditors: amounts falling due after one year 15 (16,250) - Provisions for liabilities 16 (1,479) (2,503) Capital grants 17 (5,362) (5,067)
Net assets excluding pension liability 116,139 106,754 Pension liability net of deferred tax 22 (25,685) (19,663)
Net assets 90,454 87,091
Capital and reserves Ordinary share capital 18 6,220 6,269 Revenue reserves 19 84,234 80,822
Shareholders’ funds 20 90,454 87,091
Aloysius Duffy Gerard Melia Chairman Vice-Chairman
12th March 2015
15 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Consolidated Cash Flow Statement
FOR THE YEAR ENDED 27 DECEMBER 2014 NOTES 2014 2013 €’000 €’000
Net cash inflow/(outflow) from operating activities 24(a) 39,688 (2,374)
Returns on investments and servicing of finance 24(b) (2,116) (1,160) Tax paid (800) (908) Capital expenditure and financial investment 24(c) (23,854) (14,418) Dividends paid (52) (57)
Net cash inflow/(outflow) before financing and management of liquid resources 12,866 (18,917)
Financing 24(d) (12,756) 18,863
Increase/(decrease) in cash 25(b) 110 (54)
16 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
1. ACCOUNTING POLICIES
The principal accounting policies of the Society, which are outlined below, have been applied consistently throughout the current year and prior year.
(a) Basis of preparation The consolidated financial statements (“the financial statements”) are prepared in accordance with Irish law and accounting standards issued by the Financial Reporting Council and promulgated by the Institute of Chartered Accountants in Ireland.
The annual financial statements are made up to the last Saturday of the calendar year. For the current year the financial statements cover the 52 week period ending on 27 December 2014, while comparatives are for the 52 week period ending on 28 December 2013. The consolidated balance sheets for 2014 and 2013 have been drawn up as at 27 December 2014 and 28 December 2013 respectively.
(b) Basis of consolidation The financial statements incorporate the results and financial position of the Society and its subsidiaries prepared to the balance sheet date. Upon the acquisition of a business, fair values are attributed to identifiable net assets acquired. Goodwill arising on acquisitions is dealt with as set out in (g) overleaf.
(c) Turnover Turnover comprises the fair value of goods and services delivered to third parties, exclusive of trade discounts and value added tax. Goods are deemed to have been delivered when the customer has access to the significant benefits inherent in the goods and exposure to the risks inherent in these benefits. Turnover includes the value of selling aids and supports received under EU regulations.
(d) Tangible assets Tangible fixed assets are stated at cost, less depreciation and impairment.
Freehold land and assets under construction are not depreciated. Depreciation is charged so as to write off the cost of other tangible fixed assets over their estimated useful lives as follows:
Buildings 10 to 20 years
Plant and machinery 3 to 10 years
Motor vehicles 4 to 5 years
Provision is made for any impairment of tangible fixed assets.
(e) Financial assets Financial fixed assets are shown at cost less provisions for impairment in value. Income from financial fixed assets, together with any related tax credits, is recognised in the Profit and Loss Account in the year it is received.
(f) Leased assets Tangible fixed assets held under leasing arrangements that transfer substantially all the risks and rewards of ownership to the Society are capitalised and depreciated over the lesser of the estimated useful life or the period of the lease. The capital element of the related rental obligations is included in creditors. The interest element of the rental obligations is charged to the Profit and Loss Account so as to produce a constant periodic rate of charge. Rentals in respect of all other leases are charged to the Profit and Loss Account as incurred.
Assets subject to sale and leaseback transactions are retained on the Society’s Balance Sheet and the proceeds of the sale are included in deferred income within creditors where this reflects the substance of the agreements in accordance with FRS 5 Reporting the substance of transactions.
17 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes to the Financial Statements
1. ACCOUNTING POLICIES (continued)
(g) Goodwill Purchased goodwill arising on the acquisition of a business represents the excess of the acquisition cost over the fair value of the identifiable net assets when they were acquired. Any excess of the aggregate of the fair value of the identifiable net assets acquired over the fair value of the acquisition cost is negative goodwill.
Purchased goodwill arising on acquisitions prior to 1 January 1999 was eliminated against reserves on acquisition and negative goodwill arising on such acquisitions was credited directly to reserves as a matter of accounting policy. On the disposal of a business, any goodwill so treated is included in determining the profit or loss on sale of the business.
Purchased goodwill arising on acquisitions after 1 January 1999 is capitalised in the Balance Sheet and written off on a straight line basis over its useful economic life, subject to a maximum of 20 years.
Goodwill arising on the acquisition of subsidiaries is shown separately in the Balance Sheet.
(h) Intangible assets Intangible assets acquired separately are capitalised at cost. Intangible assets acquired in the course of a business combination are capitalised at fair value being their deemed cost as at the date of acquisition.
Following initial recognition, intangible assets are carried at cost less any applicable accumulated amortisation and any accumulated impairment losses. Where amortisation is charged on these assets, this expense is taken to the Profit and Loss Account.
The amortisation of intangible assets is calculated to write off the book value of intangible assets over their useful lives on a straight-line basis on the assumption of zero residual value. In general, intangible assets are amortised over periods ranging from 5 to 20 years, depending on the nature of the intangible asset.
(i) Stocks Stocks are valued at the lower of cost and net realisable value. In the case of work-in-progress and finished goods, cost comprises of direct materials, direct labour and an appropriate proportion of manufacturing overheads based on normal production levels.
Net realisable value represents the estimated selling price less all further costs to completion and all related costs to be incurred in marketing, selling and distribution.
(j) Research and development Expenditure on research and development is written off to the Profit and Loss Account in the year in which it is incurred.
(k) Capital grants Capital grants received and receivable are credited to the capital grants account. Annual transfers to income are made from that account to amortise such grants on the same basis as the related assets are depreciated.
(l) Taxation Current tax, including Irish corporation tax and foreign tax, is provided on the Society’s taxable profits at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted at the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Provision is made at the rates expected to apply when the timing differences reverse. Timing differences are differences between the Society’s taxable profits and its results as stated in the financial statements. These differences arise from the inclusion of gains and losses in taxable profits in periods different from those in which they are recognised in the financial statements.
A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
18 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
1. ACCOUNTING POLICIES (continued)
(m) Foreign currencies The accounts are expressed in euro (€). Transactions denominated in foreign currencies during the year have been translated at the rate of exchange ruling at the date of the transactions or at a contracted rate where there are matching forward contracts. Assets and liabilities denominated in foreign currencies are retranslated to euro at the rates of exchange ruling at the balance sheet date. The resulting profits or losses are dealt with in the Profit and Loss Account.
The Society’s net investment in overseas and subsidiaries is retranslated at the rate ruling at the balance sheet date. The profits and losses of overseas joint ventures and subsidiaries are translated at the average rates for the year. Exchange differences resulting from the translation of the opening Balance Sheets of overseas joint ventures and subsidiaries at closing rates together with the differences on the translation of the Profit and Loss Account are dealt with through reserves and reflected in the Statement of Total Recognised Gains and Losses.
(n) Defeasance of borrowings Where a defeasance arrangement is entered into in relation to borrowings, the gain or loss arising on the defeasance of the borrowings is recognised as it is realised by applying the effective interest rate method.
(o) Dividends Dividends are recognised in the period in which they are approved by the Society’s shareholders, or in the case of an interim dividend, when it has been approved by the Board of Directors and paid.
(p) Pension costs The Society makes pension contributions for a substantial number of employees.
In relation to the Society’s defined contribution schemes, contributions are accrued and recognised in operating profit or loss in the period in which they are earned by the relevant employees.
For the Society’s defined benefit schemes, the difference between the market value of the schemes’ assets and the actuarially assessed present value of the schemes’ liabilities, calculated using the projected unit credit method, is disclosed as an asset/liability in the Balance Sheet, net of deferred tax as appropriate. The amount charged to operating profit is the actuarially determined cost of pension benefits promised to employees and earned during the year plus any improvement changes granted to members during the year.
The expected return on the pension schemes’ assets during the year and the increase in the schemes’ liabilities due to the unwinding of the discount during the year are shown as financing costs in the Profit and Loss Account. Any difference between the expected return on assets and that actually achieved, and any changes in the liabilities due to changes in assumptions or because actual experience during the year was different to that assumed, are recognised as actuarial gains and losses in the Statement of Total Recognised Gains and Losses.
(q) Financial instruments The Society enters into transactions in the normal course of business using financial instruments in order to hedge its exposure to exchange rate variations. These transactions are accounted for as an adjustment to the underlying transaction being hedged.
(r) Bank factored debtors and stock Factored debt where full recourse is held by the lender is recognised as a liability and included in Creditors: amounts falling due within one year while the related receivables and stock balances continue to be reported separately in trade debtors and stock until the related account balances are collected.
19 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes to the Financial Statements
2. SOCIETY TURNOVER – CONTINUING OPERATIONS
The amount of Society turnover by market supplied is as follows:
2014 2013 €’000 €’000
Food Ingredients 377,939 308,921 Foodservice 190,284 169,802 Agri-Trading 57,547 66,809
625,770 545,532
Segmental disclosure of turnover by source and by geographical region and profit before taxation and net assets by geographical area and by class of business are not provided, as in the opinion of the Directors, such information would be prejudicial to the interests of the Society.
Convertible Loan Stock has been allocated by the Irish Dairy Board to the Society. The Loan Stock is convertible into cash at the discretion of the Irish Dairy Board over a six year period which starts five years from the date of issue. This discretion has been exercised since 1988. Based on this discretion and on grounds of prudence, the Loan Stock is being recognised as and when receivable in cash. The allocation of Convertible Loan Stock to the Society and the benefit received is based on the level of trading with the Irish Dairy Board. Income of €386,000 (2013: €753,000), in respect of this Loan Stock, has been included in turnover for the 2014 financial year. The total income earned but not yet recognised at 2014 amounts to €1,374,000 (2013: €1,457,000), stated on a net present value basis. Such income will be recognised as and when receivable.
3. NET OPERATING COSTS
2014 2013 €’000 €’000
Employee costs (Note 6) 36,781 33,038 Other external charges 566,394 491,757 Auditor’s remuneration 133 144 Depreciation (Note 10) 7,658 6,809 Operating lease payments 986 1,176 Amortisation of capital grants (Note 17) (739) (689) Amortisation of goodwill and intangible assets assets (Note 9) 1,616 1,606 Profit on disposal of tangible assets - (27)
612,829 533,814
4. NET INTEREST PAYABLE AND SIMILAR CHARGES
2014 2013 €’000 €’000
Interest expense arising on bank loans and overdrafts repayable within five years 2,179 1,350 Bank interest receivable (11) (7)
2,168 1,343
20 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
5. OTHER FINANCIAL CHARGES, NET
2014 2013 €’000 €’000
Gain on disposal of financial fixed assets (186) - Dividend income (Note 11) (52) (183) Defeasance gain (Note 10) (15) (154) Expected return on pension scheme assets (Note 22) (3,421) (3,084) Interest on pension scheme liabilities (Note 22) 3,583 3,461
(91) 40
6. EMPLOYEE COSTS
The total employee remuneration was as follows:
2014 2013 €’000 €’000
Wages and salaries 30,749 28,429 Social welfare costs 3,387 3,050 Pension costs: Current service costs: defined benefit schemes (Note 22) 707 608 Past service credit: defined benefit schemes (Note 22) (470) (465) Other pension costs: defined contribution and similar schemes 2,408 1,416
Amount charged to Profit and Loss Account 36,781 33,038
The average number of employees during the year were as follows:
2014 2013
Foodservice 375 373 Food Ingredients 228 190 Agri-Trading 64 64
667 627
In addition to the employee costs above, an amount of €8,439,000 relating to actuarial losses on post employment schemes has been recorded in the Consolidated Statement of Total Recognised Gains and Losses (2013: actuarial gains €457,000).
21 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes to the Financial Statements
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
2014 2013 €’000 €’000
Current tax Irish corporation tax on profit for the year 1,088 833 Adjustment to tax charge in respect of previous periods (22) (52)
Total current tax 1,066 781
Deferred tax charge (Note 16) 110 352 Deferred tax on post employment schemes 325 287
Total deferred tax 435 639
Total tax on profit on ordinary activities 1,501 1,420
The difference between the total current taxation shown above and the amount calculated by applying the standard rate of corporation tax to the profit before tax is as follows:
2014 2013 €’000 €’000
Profit on ordinary activities before tax 10,864 10,335
Tax on Society profit on ordinary activities at standard corporation tax rate of 12.5% 1,358 1,292
Effects of: Expenses allowable/not deductible (76) (183) Research and development tax credit (150) (140) Depreciation in excess of capital allowances (39) 12 Income taxed at different rate (1) - Grant amortisation (77) (77) Disposal of chargeable asset (23) - Utilisation of overseas losses forward (46) (71) Tax loss forward 142 - Adjustments to tax charge in respect of previous periods (22) (52)
Society current tax charge for the year 1,066 781
Factors that may affect future tax charges In Ireland taxable profits arising from trading operation are taxable at 12.5%. Non-trading income is taxed at 25%.
In the UK, reductions in the corporation tax rate to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the Society’s future current tax charge accordingly. The deferred tax balances at 2014 have been calculated based on the rate of 20% substantively enacted at the balance sheet date.
22 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
8. DIVIDENDS – ON EQUITY SHARES
2014 2013 €’000 €’000
Dividends paid 52 57
Dividends of €52,000 (2013: €57,000) were approved by the Directors in March 2014 and ratified at the subsequent Annual General Meeting.
9. GOODWILL AND INTANGIBLE ASSETS
TOTAL €’000
Cost At 29 December 2013 32,052 Additions 360
At 27 December 2014 32,412
Amortisation At 29 December 2013 18,100 Amortisation for the year 1,616
At 27 December 2014 19,716
Net book value At 27 December 2014 12,696
At 29 December 2013 13,952
Goodwill is amortised over its expected useful economic life, which the Directors estimate to be 5 to 20 years. Additions during the year relate to acquired brand names and recipes. The Directors have reviewed the recoverable amount of goodwill as at 27 December 2014, in the context of the Society’s budgets and business plans. No indications of impairment were noted and in their opinion the recoverable amount of the goodwill balance is not less than the net book value and, accordingly, no impairment has arisen.
23 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes to the Financial Statements
10. TANGIBLE ASSETS
Land & Plant & Motor Assets under Buildings Machinery Vehicles construction Total €’000 €’000 €’000 €’000 €’000
Cost At 29 December 2013 45,338 106,551 3,255 - 155,144 Additions 2,568 12,794 1 10,615 25,978 Foreign exchange movement 588 1,221 2 - 1,811
At 27 December 2014 48,494 120,566 3,258 10,615 182,933
Depreciation At 29 December 2013 23,335 69,083 3,107 - 95,525 Charge for the year 1,654 5,966 38 - 7,658 Foreign exchange movement 144 567 1 - 712
At 27 December 2014 25,133 75,616 3,146 - 103,895
Net book value At 27 December 2014 23,361 44,950 112 10,615 79,038
At 29 December 2013 22,003 37,468 148 - 59,619
Included in the above are the following amounts in respect of fixed assets, principally plant and machinery, which are financed by finance leases and which continue to be legally owned by the lessors:
2014 2013 €’000 €’000
Net book value as at year end 2,066 2,492
Depreciation charge for year 303 685
Tangible fixed assets with a net book value of €Nil at 27 December 2014(2013: €123,000) were subject to a sale and leaseback financing arrangement entered into in 2006, and which ended in 2014. A gain of €4,015,000 arose on the transaction and was credited to deferred income. This gain is being recognised over eight years as, in the opinion of the Directors, this represents the period over which the gain is realised (Note 5).
Tangible fixed assets with a net book value of €1,999,000 at 27 December 2014(2013:€2,251,000) were subject to a sale and leaseback financing arrangement entered into in 2001 and are included in leased assets at the year end. A gain of €1,508,000 arose on the transaction and was credited to deferred income. This gain is being recognised over thirteen years as, in the opinion of the Directors, this represents the period over which the gain is realised (Note 5).
Amounts recognised in the Profit and Loss Account relating to these arrangements were €15,000 (2013: €154,000).
24 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
11. FINANCIAL FIXED ASSETS
2014 2013 €’000 €’000
a) Listed investments at cost At start and end of year 10 10
The market value of listed investments at year end was €155,000 (2013: €231,000).
(b) Unlisted investment at cost One51plc: Equity interest - 4.8 million ordinary shares (2013: 4.7 million)
At 29 December 2013 732 732 Additions 100 -
At 27 December 2014 832 732
Equity interest in Socius Ingredients LLC At 29 December 2013 1,640 1,640 Disposal (164) -
At 27 December 2014 1,476 1,640
Total at 27 December 2014 2,318 2,382
Dividends of €42,000 (2013: €174,000) and €10,000 (2013: €9,000) were received in respect of the Socius Ingredients LLC investment and the listed investment, respectively, during the year.
12. STOCKS
2014 2013 €’000 €’000
Finished goods 38,988 52,224 Raw materials 5,587 6,503 Consumables 8,746 7,712
53,321 66,439
In the opinion of the Directors, the replacement cost of stocks does not differ materially from the amounts stated above.
25 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes to the Financial Statements
13. DEBTORS
2014 2013 €’000 €’000
Amounts falling due within one year
Trade debtors (a) 85,615 89,367 Other debtors and prepayments 2,867 5,977 Corporation tax recoverable 51 317 Unpaid share capital 1 1
88,534 95,662
Amounts falling due after one year
Other debtors (b) 549 686
89,083 96,348
(a) Included in trade debtors above are amounts totalling €13,363,000 (2013: €31,905,000) subject to debt factoring arrangements with the Society’s banks.
(b) Other debtors include IDB Convertible Loan Stock, which falls due after one year.
14. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2014 2013 €’000 €’000
Bank loans (15(a)) 3,750 - Bank overdraft (15(a)) - 1,587 Bank factored debt (15(a)) 18,481 49,601 Trade creditors 33,403 35,340 PAYE and PRSI 1,758 966 Other creditors and accruals 40,003 37,270 VAT payable 289 -
97,684 124,764
26 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
15. CREDITORS: AMOUNTS FALLING DUE AFTER ONE YEAR
2014 2013 €’000 €’000
Bank loans (a) 16,250 -
(a) The Society’s bank facilities comprise a combination of bank overdraft, bank factored debt and term debt. Borrowings under the bank facilities are secured by fixed and floating charges over the assets of the Society and its material subsidiaries and the bank factored debt is secured over the Society’s trade debtors and stock.
16. PROVISIONS FOR LIABILITIES
Deferred Restructuring and taxation other provisions Total €’000 €’000 €’000
At 29 December 2013 401 2,102 2,503 Utilised in the year - (511) (511) Charge/(credit) for the year 110 (623) (513)
At 27 December 2014 511 968 1,479
Deferred taxation Deferred tax liabilities represents provision for timing differences as follows:
2014 2013 €’000 €’000
Accelerated capital allowances 1,237 938 Tax losses forward (517) (373) Defined benefit pension contributions (209) (164)
511 401
The deferred tax asset of €517,000 (2013: €373,000) relates to taxable losses arising in subsidiary companies, L.E. Pritchitt & Co. Limited and Lakeland Dairies (N.I.) Limited. A deferred tax asset of €209,000 (2013: €164,000) also exists in relation to pension contributions on which a tax deduction will be available over a number of years. The asset has been recognised on the basis that the Directors are of the opinion that there will be suitable taxable profits in the future to utilise this tax loss. There is no significant unrecognised deferred tax(2013: €Nil).
The Society’s financial statements do not recognise deferred tax liabilities in relation to retained reserves of overseas subsidiaries as there is no binding agreement to distribute such reserves. Since such reserves are continually reinvested by the Society, no tax is expected to be payable on them in the foreseeable future.
Restructuring provisions This provision relates to the costs of the restructuring plan announced in recent years by the Society. The provision is not discounted as it is expected that it will be substantially utilised during the coming year.
27 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes to the Financial Statements
17. CAPITAL GRANTS
€’000
Recognised At 29 December 2013 12,212 Received during the year 980 Foreign exchange movement 78
At 27 December 2014 13,270
Amortised At 29 December 2013 7,145 Credited to profit and loss account 739 Foreign exchange movement 24
At 27 December 2014 7,908
Net book amount At 27 December 2014 5,362
At 29 December 2013 5,067
Under agreements with a number of grant agencies, the Society has received grants which may be revoked, cancelled or repaid in certain circumstances.
During the year, a grant of €980,000 was received from Invest NI in relation to a warehouse development at the Society’s Newtownards site.
18. ORDINARY SHARE CAPITAL
2014 2013 €’000 €’000
At 29 December 2013 – 125,368,546 ordinary shares (2013: 126,063,275) of 5 cent each 6,269 6,304
Redemption of 983,425 ordinary shares (2013: 694,729) of 5 cent each (49) (35)
At 27 December 2014 – 124,385,121 ordinary shares (2013: 125,368,546) of 5 cent each 6,220 6,269
In common with organisations registered under the Industrial and Provident Societies Acts, 1893 to 2014, the Society does not have an authorised share capital.
28 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
19. REVENUE RESERVES 2014 2013 €’000 €’000
At beginning of year 80,822 72,062 Profit for the year 9,363 8,915 Dividends paid (Note 8) (52) (57) Currency translation adjustment 1,176 (174) Actuarial (loss)/gain on post employment schemes, net of deferred tax movement (7,075) 76
At end of year 84,234 80,822
Profits available for distribution are partially restricted by existing grant agreements. At 27 December 2014 this restriction amounted to €7,071,000 (2013: €7,071,000). The cumulative amount of goodwill written off directly against the Society’s reserves at 27 December 2014 was €1,714,000 (2013: €1,714,000).
20. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS
2014 2013 €’000 €’000
Opening shareholders’ funds 87,091 78,366 Profit for the year 9,363 8,915 Dividends paid (Note 8) (52) (57) Shares redeemed (49) (35) Currency translation adjustment 1,176 (174) Actuarial (loss)/gain on post employment schemes, net of deferred tax movement (7,075) 76
Closing shareholders’ funds 90,454 87,091
21. COMMITMENTS
At the year end, the following capital commitments authorised by the Board have not been provided for in the financial statements: 2014 2013 €’000 €’000 (a) Capital commitments
Contracted for 26,447 6,947 Not contracted for 19,917 6,583
46,364 13,530
The capital commitments at year end relate predominately to the Society’s investment in a new dryer at the Bailieborough site.
29 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes to the Financial Statements
21. COMMITMENTS (continued)
(b) Forward contracts The Society enters into forward foreign exchange contracts in the normal course of business to reduce transactional exposures arising from purchases or sales, predominantly in pounds sterling and US dollars. The foreign currency contracts are denominated in the same currency as the hedged item. It is the Society’s policy that no trading in financial instruments is undertaken. At the year end, the Society had entered into various contracts whereby it is committed to buying sterling and selling dollars with an equivalent euro nominal value of €27,111,000 (2013: €22,999,000).
At the year end, purchase commitments on forward contracts for certain raw materials not yet provided for in the financial statements amounted to €12,373,000(2013: €10,008,000).
22. PENSION COSTS
Defined contribution The Society operates a number of defined contribution schemes. In addition the Society contributed to a defined benefit scheme which is accounted for as a defined contribution scheme under the multi employer scheme provisions of FRS17 Retirement Benefits (FRS 17). This is due to the fact that the underlying assets and liabilities attributable to individual employers cannot be identified on a consistent and reasonable basis. Contributions payable in the year in respect of the above amounted to €2,408,000 (2013: €1,416,000), of which €162,000 (2013: €135,000) was outstanding at the year end.
Defined benefit Pensions for certain staff in the Republic of Ireland are funded through two defined benefit pension schemes, one of which is referred to above. The assets of both schemes are vested in independent trusts for the benefit of the members and their dependants. The contributions are based on the advice of an independent professionally qualified actuary obtained at three-yearly intervals. The latest finalised actuarial valuation for the principal scheme, the defined benefit occupational pension scheme (‘the principal scheme’), was conducted as at 1 January 2014. In this actuarial report the funding requirements for the scheme are set out in order to ensure that there are adequate funds available to meet the cost of benefits as they fall due. A level of contribution that needs to be paid to the scheme in the period to the next review was recommended. The Society accepted this recommendation and has arranged payment of contributions accordingly. This scheme was closed to new entrants effective from 1 January 2009.
The Society operates one closed defined benefit arrangement in the UK and the last formal actuarial review was carried out as at 1 August 2012. The actuary outlined in his report the scheme’s funding requirements and recommended a level of contributions to be paid in the period to the next review. The Society accepted this recommendation and has arranged payment of contributions accordingly.
The actuarial reports are not available for public inspection but the results are advised to the members of the schemes. The actuarial reports include details of agreed contribution rates for future years.
There are no unfunded pension schemes.
The valuation of the defined benefit schemes used for the purpose of FRS 17 disclosures have been based on the most recent actuarial valuations as identified above and updated by the independent actuaries to take account of the requirements of FRS 17 in order to assess the liabilities at the balance sheet date. Scheme assets are stated at their market value at the balance sheet date.
The financial assumptions used to calculate the retirement benefit liabilities under FRS 17 were as follows:
2014 2013 2012 Projected Projected Projected Unit Unit Unit
Republic of Ireland: Rate of increase in salaries 1.30% 2.00% 2.00% Rate of increase of pensions in payment 1.30% 1.80% 1.80% Rate of increase of deferred pensions 1.40% 1.90% 2.00% Discount rate 2.25% 3.70% 4.00% Inflation rate 1.50% 2.00% 2.00% 30 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
22. PENSION COSTS (continued)
The assumptions relating to longevity underlying the pension liabilities at the balance sheet date are based on standard actuarial mortality tables and include an allowance for future improvements in longevity. The assumptions are equivalent to expecting a 65-year old to live for 20.9 years for males (2013: 21.1 years) and 23.5 years for females (2013: 23.2 years). The assumptions used by the actuary are chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not necessarily be borne out in practice.
The actual return on the assets during the year was a positive 16.47% (2013: positive return of 15.43%).
2014 2013 2012 Projected Projected Projected Unit Unit Unit
United Kingdom:
Rate of increase of pensions in payment 2.85% 3.30% 2.70% Rate of increase of deferred pensions 2.15% 2.60% 2.00% Discount rate 3.80% 4.60% 4.65% Inflation rate - CPI 2.15% 2.60% 2.00%
The assumptions relating to longevity underlying the pension liabilities at the balance sheet date are based on standard actuarial mortality tables and include an allowance for future improvements in longevity. The assumptions are equivalent to expecting a 63-year old to live for 23.05 years for males and 25.46 years for females. The assumptions used by the actuary are chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not necessarily be borne out in practice.
The actual return on the assets during the year was 10.1% (2013: 5.8%).
The market value of the assets in the pension schemes and the expected rates of return were:
Total Rate of Market Rate of Market Rate of Market return value return value return value 2014 2014 2013 2013 2012 2012 €’000 €’000 €’000 Equities * 47,268 6.05%-6.75% 41,745 6.75% 37,269 Bonds * 24,775 3.52%-4.65% 18,711 3.31%-4.65% 15,974 Other assets * 6,064 2.10%-6.00% 5,131 2.00%-6.00% 4,706 Total market value of pension scheme assets 78,107 65,587 57,949
Present value of pension scheme liabilities (108,713) (89,131) (84,212) Deficit in the pension schemes (30,606) (23,544) (26,263) Deferred tax asset 4,921 3,881 4,549 Net pension liability (25,685) (19,663) (21,714)
* Under revised Irish GAAP coming into effect from the 2015 financial year onwards, the expected return in assets equals the discount rate.
31 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes to the Financial Statements
22. PENSION COSTS (continued)
Republic of Ireland Rate of Market Rate of Market Rate of Market return value return value return value 2014 2014 2013 2013 2012 2012 €’000 €’000 €’000 Equities * 35,483 6.05% 31,506 6.75% 27,282 Bonds * 20,260 3.52% 14,843 3.31% 12,080 Other assets * 1,488 2.10% - 5.70% 1,532 2.00%-6.00% 1,176 Total market value of pension scheme assets 57,231 47,881 40,538
Present value of pension scheme liabilities (73,239) (58,922) (54,750) Deficit in the pension schemes (16,008) (11,041) (14,212) Deferred tax asset 2,002 1,380 1,777 Net pension liability (14,006) (9,661) (12,435)
* Under revised Irish GAAP coming into effect from the 2015 financial year onwards, the expected return in assets equals the discount rate.
United Kingdom Rate of Market Rate of Market Rate of Market return value return value return value 2014 2014 2013 2013 2012 2012 €’000 €’000 €’000 Equities * 11,785 6.75% 10,239 6.75% 9,987 Bonds * 4,515 4.65% 3,868 4.65% 3,894 Other assets * 4,576 2.70%-6.00% 3,599 2.00%-6.00% 3,530 Total market value of pension scheme assets 20,876 17,706 17,411
Present value of pension scheme liabilities (35,474) (30,209) (29,462) Deficit in the pension schemes (14,598) (12,503) (12,051) Deferred tax asset 2,919 2,501 2,772 Net pension liability (11,679) (10,002) (9,279)
* Under revised Irish GAAP coming into effect from the 2015 financial year onwards, the expected return in assets equals the discount rate.
32 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
22. PENSION COSTS (continued)
The following are the amounts that have been included in the Profit and Loss Account and the Statement of Total Recognised Gains and Losses:
ROI UK TOTAL
2014 2013 2014 2013 2014 2013 €’000 €’000 €’000 €’000 €’000 €’000
Included in payroll costs Current service costs (Note 6) (707) (608) - - (707) (608) Past service credit 470 465 - - 470 465
(237) (143) - - (237) (143)
Included in net interest payable and similar charges Expected return on pension scheme assets (Note 5) 2,182 2,085 1,239 999 3,421 3,084 Interest on pension scheme liabilities (Note 5) (2,158) (2,167) (1,425) (1,294) (3,583) (3,461)
Net return included in net interest payable and similar charges 24 (82) (186) (295) (162) (377)
Included in Statement of Total Recognised Gains and Losses Difference between expected and actual return on assets 5,815 4,009 620 (8) 6,435 4,001 Experience gains and losses on scheme liabilities 1,044 516 - - 1,044 516 Effect of changes in actuarial assumptions underlying the present value of the scheme liabilities (13,416) (2,928) (2,502) (1,132) (15,918) (4,060)
Actuarial gains/(losses) included in the Statement of Total Recognised Gains and Losses (6,557) 1,597 (1,882) (1,140) (8,439) 457
2014 2013 2012 2011 2010 €’000 €’000 €’000 €’000 €’000
Present value of funded defined benefit obligations (108,713) (89,131) (84,212) (67,650) (67,706) Fair value of plan assets 78,107 65,587 57,949 48,471 49,532
Deficit in the scheme (30,606) (23,544) (26,263) (19,179) (18,174) Related deferred tax asset 4,921 3,881 4,549 4,023 3,767
Net liability (25,685) (19,663) (21,714) (15,156) (14,407)
33 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes to the Financial Statements
22. PENSION COSTS (continued)
ROI UK TOTAL
2014 2013 2014 2013 2014 2013 €’000 €’000 €’000 €’000 €’000 €’000 Movement in present value of defined benefit obligation At beginning of year (58,922) (54,750) (30,209) (29,462) (89,131) (84,212) Current service costs (707) (608) - - (707) (608) Interest cost (2,158) (2,167) (1,425) (1,294) (3,583) (3,461) Past service credit 470 465 - - 470 465 Scheme participants’ contribution (686) (678) - - (686) (678) Benefits paid 1,136 1,228 701 1,101 1,837 2,329 Actuarial losses (12,372) (2,412) (2,502) (1,132) (14,874) (3,544) Foreign exchange adjustment - - (2,039) 578 (2,039) 578
At end of year (73,239) (58,922) (35,474) (30,209) (108,713) (89,131)
ROI UK TOTAL
2014 2013 2014 2013 2014 2013 €’000 €’000 €’000 €’000 €’000 €’000 Movements in fair value of plan assets At beginning of year 47,881 40,538 17,706 17,411 65,587 57,949 Expected return on plan assets 2,182 2,085 1,239 999 3,421 3,084 Actuarial gains/(losses) 5,815 4,009 620 (8) 6,435 4,001 Contributions by employer 1,803 1,799 815 750 2,618 2,549 Contributions by members 686 678 - - 686 678 Benefits paid (1,136) (1,228) (701) (1,101) (1,837) (2,329) Foreign exchange adjustment - - 1,197 (345) 1,197 (345)
At end of year 57,231 47,881 20,876 17,706 78,107 65,587
ROI UK TOTAL
2014 2013 2014 2013 2014 2013 €’000 €’000 €’000 €’000 €’000 €’000 Movement in deficit during the year Deficit in schemes at beginning of year (11,041) (14,212) (12,503) (12,051) (23,544) (26,263) Current service cost (707) (608) - - (707) (608) Contributions paid 1,803 1,799 815 750 2,618 2,549 Past service credit 470 465 - - 470 465 Expected return on assets 2,182 2,085 1,239 999 3,421 3,084 Interest on liabilities (2,158) (2,167) (1,425) (1,294) (3,583) (3,461) Difference between expected and actual returns 5,815 4,009 620 (8) 6,435 4,001 Experience gains on scheme liabilities 1,044 516 - - 1,044 516 Change in financial and demographic assumptions (13,416) (2,928) (2,502) (1,132) (15,918) (4,060) Foreign exchange adjustment - - (842) 233 (842) 233
Deficit in schemes at end of year (16,008) (11,041) (14,598) (12,503) (30,606) (23,544)
34 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
22. PENSION COSTS (continued)
Experience gains/(losses) are as follows:
Total 2014 2013 2012 2011 2010 Difference between the expected and actual return on schemes’ assets: Amount (€’000) 6,435 4,001 3,861 (5,710) 1,492 Percentage of schemes’ assets 8.24% 6.10% 6.66% (11.78%) 3.01%
Experience gains/(losses) on schemes’ liabilities: Amount (€’000) 1,044 516 282 714 (36) Percentage of schemes’ liabilities (0.95%) (0.58%) (0.33%) 1.06% 0.05%
Total amount included in Statement of Total Recognised Gains and Losses: Amount (€’000) (8,439) 457 (10,231) (1,786) 1,390 Percentage of schemes’ liabilities 7.76% (0.51%) 12.15% 2.64% (2.05%)
The cumulative actuarial loss before deferred tax recognised in the Statement of Total Recognised Gains and Losses is a loss of €28,567,000 (2013: loss of €20,128,000).
Republic of Ireland 2014 2013 2012 2011 2010 Difference between the expected and actual return on schemes’ assets: Amount (€’000) 5,815 4,009 3,446 (3,959) 1,100 Percentage of schemes’ assets 10.16% 8.37% 8.5% (12.08%) 3.26%
Experience gains/(losses) on schemes’ liabilities: Amount (€’000) 1,044 516 282 714 (36) Percentage of schemes’ liabilities 1.41% (0.88%) (0.52%) (1.79%) 0.09%
Total amount included in Statement of Total Recognised Gains and Losses: Amount (€’000) (6,557) 1,597 (10,089) 639 2,001 Percentage of schemes’ liabilities 8.95% (2.71%) 18.43% (1.60%) (4.74%)
United Kingdom 2014 2013 2012 2011 2010 Difference between the expected and actual return on schemes’ assets: Amount (€’000) 620 (8) 415 (1,751) 392 Percentage of schemes’ assets 2.97% (0.05%) 2.39% (11.15%) 2.48%
Total amount included in Statement of Total Recognised Gains and Losses: Amount (€’000) (1,882) (1,140) (142) (2,425) (611) Percentage of schemes’ liabilities 5.31% 3.77% 0.48% 8.74% 2.39%
The expected contributions for the year ended 2 January 2016 total €2,694,000.
35 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes to the Financial Statements
23. SUBSIDIARIES
At 27 December 2014, the Society had the following principal subsidiaries:
Subsidiaries Society Share (held directly) Activity
Denothar Limited* 100% Holding company
Lakeland Dairy Sales Limited* 100% Sales of dairy produce
Lakeland Dairy Processing Limited* 100% Research & Development
Lakeland Dairies (N.I.) Limited** 100% Milk procurement
Lakeland Dairy Food Services Limited* 100% Manufacture and supply of dairy produce
Bailie Foods Limited* 100% Manufacture and supply of dairy produce
L.E. Pritchitt & Co. Limited*** 100% Manufacture and supply of dairy produce
Lakeland Securities Limited* 100% Investment holding company
(* Registered in the Republic of Ireland, ** Registered in Northern Ireland, *** Registered in the UK)
All shares held are ordinary shares. The Society has given guarantees for the purposes of Section 17 of the Companies (Amendment) Act, 1986 to all wholly owned subsidiary companies registered in the Republic of Ireland.
The addresses of the Registered Offices of the subsidiaries are available from the Secretary of Lakeland Dairies Co-operative Society Limited.
All of the above companies have a year end date of 27 December 2014.
36 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
24. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of operating profit to net cash inflow/(outflow) from operating activities
2014 2013 €’000 €’000
Operating profit 12,941 11,718 Profit on disposal of fixed assets - (27) Depreciation 7,658 6,809 Amortisation of goodwill 1,616 1,606 Grant amortisation (739) (689) Decrease/(increase) in stocks 13,118 (20,962) Decrease/(increase) in debtors 6,999 (12,301) Increase in creditors 1,610 14,433 Restructuring charge (623) (470) Difference between pension charge and cash contributions (2,381) (2,404) Restructuring provision utilised (511) (87)
Net cash inflow/(outflow) from operating activities 39,688 (2,374)
(b) Returns on investments and servicing of finance 2014 2013 €’000 €’000
Interest received 11 7 Interest paid (2,179) (1,350) Dividends received 52 183
Net cash outflow (2,116) (1,160)
(c) Capital expenditure and financial investment 2014 2013 €’000 €’000
Purchase of fixed assets (24,724) (14,462) Purchase of financial fixed asset (100) - Purchase of intangible asset (360) - Sales proceeds on disposal of fixed assets - 44 Sales proceeds on disposal of financial fixed assets 350 - Grants received 980 -
Net cash outflow (23,854) (14,418)
37 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes to the Financial Statements
24. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)
(d) Financing 2014 2013 €’000 €’000
Bank term loans received 20,000 - Bank overdraft (repaid)/received (1,587) 923 Factored debt (repaid)/received (31,120) 18,731 BES scheme repayments - (756) Share redemptions (49) (35)
Net cash (outflow)/inflow (12,756) 18,863
25. ANALYSIS AND RECONCILIATION OF NET DEBT
(a) Analysis and changes in net debt
2013 Cash flow 2014 €’000 €’000 €’000
Cash at bank and in hand 348 110 458 Overdraft/loans due within 1 year (51,188) 28,957 (22,231) Loans due after 1 year - (16,250) (16,250)
(50,840) 12,817 (38,023)
(b) Reconciliation of net cash flow - movement in net debt 2014 2013 €’000 €’000
Net debt at beginning of year (50,840) (31,888) Increase/(decrease) in cash 110 (54) Decrease/(increase) in loans 12,707 (19,654) Decrease in other debt - 756
Net debt at end of year (38,023) (50,840)
38 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes to the Financial Statements
26. FINANCIAL RISK MANAGEMENT
Key financial risks are reviewed on an ongoing basis by the Board of Directors and management of the Society. The Society does not trade in financial instruments nor does it enter into any leveraged derivative transactions. The four key financial risks managed by the Society on an ongoing basis are interest rates, liquidity, credit and currency risks.
Interest rates The objective of the Society’s interest rate management policy is to manage the Society’s debt to ensure that the cost of this debt is minimised. In this regard, the Society occasionally enters into interest rate swap agreements. No such agreements were used in the year to 27 December 2014.
Liquidity The Society’s objective is to ensure it has adequate funds available to meet its financial commitments as they fall due. Accordingly, it ensures an appropriate mix of current and long term borrowings and monitors future expected cash flows carefully.
Credit The Society’s objective is to ensure there are no significant risks to the Society from failure by customers to pay. To reduce this exposure the Society seeks to insure the majority of customers, within the Food Ingredients and Foodservices divisions, for credit risk. In addition, all customers must undergo a credit check before commencement of services.
Currency The Society’s reporting currency is the euro. Exposure to other currencies that arise in the course of ordinary trading, principally sterling and the US dollar, are monitored on an ongoing basis and are typically managed by entering into appropriate forward currency contracts.
27. RELATED PARTY TRANSACTIONS
In the ordinary course of their business as farmers, the Directors transact with the Society on similar commercial terms to other shareholders. There were no transactions with the Directors, during the year, outside of the ordinary course of business of the Society.
28. POST BALANCE SHEET EVENTS
On 31 December 2014, the Society acquired Taste Trends Limited. It is the leading UK maker of fat-free frozen yogurts for the foodservice market.
29. BOARD APPROVAL
These financial statements were approved by the Board of Directors on 12th March 2015.
39 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
Notes
40 Lakeland Dairies Co-operative Society Limited Annual Report and Financial Statements 2014
Notes
41 Annual Report and Financial Statements 2014 Lakeland Dairies Co-operative Society Limited
42 "Coolicious is the leading brand of frozen yogurt in the foodservice sector" Lakeland Dairies Co-operative Society Limited Killeshandra Co. Cavan Tel: +353 (0)49 436 4200 Fax: +353 (0)49 436 4201 [email protected] www.lakeland.ie Farm Services 1890 474720