Financial Statements - utdni.co.uk Farm Financial... · regular forecasting; financial controls; ... strong market demand largely from China, ... United paid a record farmer price

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Annual Report & Accounts 2013-14

Financial Statements

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28

Principal activities United Dairy Farmers Limited is a members’ voluntary co-operative registered under the Industrial and Provident Societies Acts (Northern Ireland) 1969 and 1976. The principal activities of the Group include manufacturing an extensive range of dairy products for the retail, food service and food ingredients sectors and marketing and distributing these products to both domestic and international markets. The Group also collects and markets members’ milk, supplies animal feed to farmers, and provides a range of other farm inputs and services.

Financial performanceThe key performance indicators (“KPI”s) for the Group are:

2014£000

2013£000

Group turnover 443,155 418,424

Profit on ordinary activities before taxation 6,112 4,609

Average milk price paid to members (pence per litre) 32.94 25.71 Group turnover increased by 6% due to higher ingredients and consumer product sales volumes and higher market prices for milk and dairy products, which more than offset the reduction in raw milk volumes. The Group profit before tax improved by £1.5million to £6.112million reflecting the improved trading performance in the Dale Farm Group. The average milk price paid to NI members improved by 7.23ppl (28.1%) in 2013/14 reflecting improved dairy market returns during the year.

Operational performanceMilk supply The average milk output per member decreased by 1.4% as follows:

2014Litres

2013Litres

Average output per member 554,000 562,000

Sales development The Group is committed to expanding its sales of dairy products. Increases in sales volumes and in dairy product prices resulted in the following growth in sales:

Turnover growth 2014%

2013%

Dale Farm Group 28.6 7.4

Risk managementThe Board actively monitors and manages the risks it faces through an appropriate risk policy and risk register. The key risks which management face are detailed as follows:

Business performance riskThe Group faces a number of business performance risks due to internal factors or due to competitive pressures in the local and international markets in which it operates. These risks are managed through a number of measures: ensuring the appropriate management team is in place; business planning and regular forecasting; financial controls; key performance indicators; monthly reporting and timely corrective action when variances occur.

Strategic Report

KPIs

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Strategic Report

Business continuity riskWhile there is a reliance on physical infrastructure, the Group operates nine geographically autonomous production facilities which helps mitigate business continuity risks. The Group also ensures that there is adequate knowledge throughout the management team and sufficient IT support and back up capability available should an unforeseen event occur. Management maintain and regularly update business continuity and IT disaster recovery plans and participate in industry wide crisis management exercises.

Health and safety riskThe Group is committed to ensuring a safe working environment. These risks are managed by the Group through the strong promotion of a health and safety culture, extensive safety training and well defined health and safety policies.

Management developmentLong-term growth of the business depends on the Group’s ability to retain and attract personnel of high quality. This risk is managed through the pursuit of best practice in HR and Group wide development plans which are regularly reviewed and updated. These are accompanied by specific policies in areas such as training, management development and performance management.

Financial and business controlStrong financial and business controls are necessary to ensure the integrity and reliability of financial and other information on which the Group relies for day-to-day operations, external reporting and for longer term planning. The Group exercises financial and business control through a combination of: qualified and experienced financial personnel; performance analysis; budgeting and cash flow forecasting; and clearly defined policies and approval limits.

Environmental risk The Group is committed to minimising its impact on the environment and has clearly defined policies and procedures to enable compliance with environmental best practice and legislation.

Financial risk management policyThe Group’s principal financial instruments comprise cash, trade debtors and creditors, bank loans and certain other debtors and accruals. The main risks associated with these financial assets and liabilities are set out below.

Foreign currency riskThe Group’s exposure to foreign currency risk arises primarily from revenues from customers denominated principally in Euro and US Dollars. When customers place major orders of this type the Group has a policy of immediately entering into a forward currency contract to eliminate this risk.

Credit riskCredit risk arises principally on third party derived revenues. Group policy is aimed at minimising such risk through the application of satisfactory creditworthiness procedures, including where appropriate taking out credit insurance cover. The Group monitors the levels of credit to individual customers within their approved credit limits, so as to ensure the company’s exposure to bad debts is minimised.

By order of the Board

S A AgnewSecretary Date: 25 July 2014


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The directors present their report and financial statements for the year ended 31 March 2014.

Results and dividends The profit after taxation for the year amounted to £5,359,000 (2013 – profit of £3,507,000) which leaves a profit of £5,359,000 (2013 – profit of £3,598,000 after the refund of shares of £91,000) to be transferred to reserves. The directors do not recommend the payment of a dividend.

Review of 2013/14 year and future developmentsThe abnormal weather patterns in spring of 2013 led to a reduced global milk output, leading to a shortage of dairy products and a significant increase in dairy market returns. As a result there was a welcome improvement in dairy produce and farm gate milk prices. United’s farmer price increased to 30ppl in April 2013. The weather conditions improved significantly over the summer but the shortage of product and strong market demand largely from China, Africa and Russia meant that dairy market returns improved and remained buoyant for the rest of 2013. United paid a record farmer price of 33.2ppl for the eight months from August 2013 to March 2014.

More favourable weather and higher returns resulted in strong growth in the global milk supply in the last quarter of 2013/14 and this has continued in the first quarter of the new financial year. This is inevitably leading to a reduction in dairy produce returns and farm gate milk prices. The impact of this has been made worse in the UK by a recovery in the value of sterling versus the Euro and US dollar, which has further eroded returns from exports and made imported dairy products cheaper.

Dale Farm delivered a strong performance during the year, processing a record volume of milk and generating strong growth in domestic and export markets. Dale Farm’s consumer products businesses continued to generate further significant sales and market share growth. The Ice Cream business benefited from the purchase of Mullins Ice Cream Limited in April 2013, which enhanced our presence in the scoop and premium real dairy ice cream markets. The completion of the upgrade of the cheese plant and whey processing facilities led to an increase in milk processing capability which helped support further strong growth in cheese sales. The acquisition of Ash Manor Cheese in January 2014 provided additional cheese packing capability and customer base in the Food Service and Ingredients sector.

Energy and other input costs increased further during the year; however the impact of these was offset by continued progress across the Group in cost reduction initiatives coupled with investments targeted to improve competitiveness and develop sales of value added products.

Research and Development The Group maintains an ongoing programme of innovation in added value dairy products and further widened its portfolio of products offered as follows:

Product Development 2014 2013

Number of new products launched 63 35

Number of new product variants launched in above 130 69

Number of rejuvenated products launched 9 9

Number of rejuvenated product variants launched in above 11 37

Directors’ Report

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Directors’ Report

Directors For the year ended 31 March 2014 the directors of the society wereElected by - Area 1 Fred Allen, Harold Johnston - Area 2 Robert Bryson,William Hanna, - Area 3 John Dunlop, James Murphy - Area 4 Robert Fyffe, Bertie Kelso Elected by Conference of Area Councils Billy Morton, David Rea Appointed Eric Bell, Ian McMorris

Ian McMorris retired as a director on 31 March 2014 and Helen Kirkpatrick was appointed as a director from 1 April 2014. The term of office of one of the elected directors from each of Area 3 and Area 4 ended on 31 March 2014. James Murphy and Robert Fyffe were re-elected as directors for Area 3 and Area 4 respectively. Billy Morton retired as a director on 31 March 2014 and David Rowe was elected by the Conference of Area Councils for a four year term commencing 1 April 2014.

On 14 April 2014, John Dunlop and William Hanna were re-elected as Chairman and Vice Chairman of the society.

Employment policyThe Group fully supports and complies with all the legislation which is designed to promote equality of opportunity within Northern Ireland.

Safety awareness is promoted and information on pension matters is provided to staff.

Employee involvement The Group is committed to involve all employees in the performance and development of the Group. Employees are encouraged to discuss with management matters of interest to the employee and subjects affecting day to day operations. The policy of employee involvement includes performance improvement groups, personnel surveys and a programme of continuous improvement. Discussions also take place regularly with trade unions representing employees on a wide range of issues.

Disclosure of information to the auditorsThe directors confirm that so far as they are aware, there is no relevant audit information of which the auditor is unaware. The directors have taken all necessary steps in order to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.

AuditorsA resolution to re-appoint Ernst & Young LLP as auditors will be put to the members at the Annual General Meeting.

Statement of directors’ responsibilities The directors are responsible for preparing the Strategic Report, the Directors’ 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 have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the company and of the profit or loss of the Group for that period.


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In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • state whether applicable UK Accounting Standards have been followed, subject to any material

departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume

that the company will continue in business.

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Group’s and the company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and 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 Group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

By order of the Board

S A AgnewSecretary

Date: 25 July 2014

Directors’ Report


Independent Auditors’ ReportTo the members of United Dairy Farmers Limited

We have audited the financial statements of United Dairy Farmers Limited for the year ended 31 March 2014 which comprise the Group Profit and Loss Account, the Group Balance Sheet, the Society Balance Sheet, the Group Cash Flow Statement, the Group Statement of Total Recognised Gains and Losses, the Group and Parent Company Reconciliation of Movements in Shareholders’ Funds and the related notes 1 to 28. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the society’s members, as a body, in accordance with the Industrial and Provident Societies Acts (Northern Ireland) 1969 and 1976. Our audit work has been undertaken so that we might state to the society’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 society and the society’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorAs explained more fully in the Directors’ Responsibilities Statement set out on page 31, 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 Ethical Standards for Auditors.

Scope of the audit of the financial statementsAn 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 and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statementsIn our opinion the financial statements: • give a true and fair view of the state of the Group and the society’s affairs as at 31 March 2014 and

of the its profit for the year then ended; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting

Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Strategic Report and 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 exceptionWe have nothing to report in respect of the following matters where the Industrial and Provident Societies Acts (Northern Ireland) 1969 and 1976 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the society; or • the financial statements of the society 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.

Mark Harvey (Senior Statutory Auditor)for and on behalf of Ernst & Young LLP, Statutory Auditor, Belfast

Date: 25 July 2014

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34

2014£000

2013£000

Profit for the financial year Actuarial gain/(loss) recognised on defined benefit pension schemeDeferred tax movement on actuarial (gain)/loss

5,3597,454

(1,782)

3,507(397)

(1)

Total recognised gain relating to the year 11,031 3,109

Group profit and loss accountfor the year ended 31 March 2014

Group statement of total recognised gains and losses for the year ended 31 March 2014

Notes2014

£0002013

£000

Group turnover 2 443,155 418,424

Cost of sales (407,889) (385,055)

Gross profitSelling and distribution costsOperating and administration costs

35,266(21,181)(6,695)

33,369(21,130)(6,984)

Total Operating profit 3 7,390 5,255

Bank interest receivableInterest payable and similar charges Other finance income from pension scheme

624

-(1,333)

55

3(764)

115

Profit on ordinary activities before taxationTaxation charge 7

6,112(753)

4,609(1,102)

Profit for the financial year 5,359 3,507

Cancellation of additional shares 21 - 91

Profit retained for the financial year 5,359 3,598

The results above relate to continuing operations.

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Notes2014

£0002013

£000

Fixed assetsIntangible assetsTangible assetsInvestments

89

10

4,74669,794

14

(345)63,329

14

74,554 62,998

Current assetsStocksDebtorsCash at bank and in hand

1112

54,69857,831

2,633

23,89354,005

470

115,162 78,368

Creditors: amounts due within one yearProducer accountsTrade creditorsOther creditors and accrualsCorporation taxShare capital repayable on demand

13

20

22,83529,85356,974

909577

19,83325,40029,245

431582

111,148 75,491

Net current assets 4,014 2,877

Total assets less current liabilities 78,568 65,875

Creditors: amounts due after more than one yearProvisions for liabilities – deferred taxDeferred income – capital grantsPension liability (net of deferred tax)

14171824

22,2293,1485,398

513

11,8473,1895,6776,789

31,288 27,502

47,280 38,373

Capital and reservesCalled up share capitalProfit and loss account

1921

11,85535,425

14,01424,359

Shareholders’ funds 47,280 38,373

John Dunlop Chairman William Hanna Vice-Chairman Danny McAleese Financial Director Euel Agnew Secretary

Date: 25 July 2014

Group balance sheetat 31 March 2014


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Notes2014

£0002013

£000

Fixed assetsTangible assetsInvestments

910

5,15513,578

5,32313,578

18,733 18,901

Current assetsStocksDebtorsCorporation tax

1112

29657,352

51

18257,802

-

57,699 57,984

Creditors: amounts due within one yearProducer accounts Trade creditorsOther creditors and accrualsShare capital repayable on demandCorporation tax

1320

22,8352,829

23,422577

-

19,8332,526

25,018582

27

49,663 47,986

Net current assets 8,036 9,998

Total assets less current liabilities 26,769 28,899

Creditors: amounts due after more than one yearProvisions for liabilities and charges - deferred taxDeferred income - capital grantsPension liability

14171824

1,285107264513

1,942119281

6,789

2,169 9,131

24,600 19,768

Capital and reservesCalled up share capitalProfit and loss account

1921

11,85512,745

14,0145,754

Shareholders’ funds 24,600 19,768

John Dunlop Chairman William Hanna Vice-Chairman Danny McAleese Financial Director Euel Agnew Secretary

Date: 25 July 2014

Society balance sheetat 31 March 2014

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Notes2014

£0002013

£000

Net cash inflow from operating activities 22(a) (14,092) 8,946

Returns on investments and servicing of financeBank interest receivedBank interest paidPreference share interest paidInterest element of finance lease rental payments

0(1,311)

(15)(7)

3(728)

(15)(21)

Net cash outflows from returns on investmentsand servicing of finance (1,333) (761)

Corporation tax paid (102) (646)

Capital expenditure and financial investmentPayments to acquire tangible fixed assetsReceipts from disposals of tangible fixed assetsReceipt of government capital grants

(8,894)19

143

(15,959)25

1,432

Net cash outflow from capital expenditure and financial investment (8,732) (14,502)

Acquisitions and disposalsPurchase of subsidiary undertakings 10 (4,629) (187)

Net cash outflow from acquisitions and disposals (4,629) (187)

Net cash outflow before financing (28,888) (7,150)

Financing

Repayment of other loanRepayment of bank loanIssue of new bank loansCapital element of finance leases repaidIssue of share capital repayable on demand Redemption of share capital repayable on demand(Repayment)/Issue of convertible loan stockRepayment of ordinary share capital

22(b)22(b)22(b)

2320201521

(17)(1,212)15,250

(17)43

(48)(75)

(2,159)

(50)(1,951)7,500(305)

12(6)60

(418)

Net cash inflow/(outflow) from financing 11,765 4,842

Decrease in cash 22(b) (17,123) (2,308)

Group statement of cash flowsfor the year ended 31 March 2014


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Reconciliation of net cash flow to movement in net debt

Notes2014

£0002013

£000

Decrease in cash

Repayment of capital element of finance lease contracts

Issue of new bank loans

Repayment of bank loan

Repayment of other loan

Convertible loan stock repaid / (issued)

Issue of preference shares

23

22(b)

22(b)

22(b)

15

22(b)

(17,123)5

(15,250) 1,212

1776

5

(2,308)

305

(7,500)

1,951

50

(60)

(6)

Movement in net debt in the year 22(b) (31,058) (7,568)

Net debt at 1 April (32,787) (25,219)

Net debt at 31 March 22(b) (63,845) (32,787)

Group statement of cash flowsfor the year ended 31 March 2014

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Notes to the financial statementsat 31 March 2014

1. Accounting policies

Definitions(i) ‘United’ is a co-operative society whose activities include marketing and transport of milk, sales

promotion, laboratory services, and other services to dairy farmers.

(ii) ‘Dale Farm Limited’ is a limited company which, as a wholly owned subsidiary of United, carries out manufacturing, processing, distribution and marketing activities. During the year under review it had seven trading subsidiaries, Dale Farm Dairies (Ireland) Limited, which is involved in the sale and distribution of dairy products in the Republic of Ireland, Dale Farm (GB) Limited which produces and markets yoghurts, desserts, cottage cheese and related cultured products, Rowan Glen Dairy Products Limited which markets yoghurts, desserts, cottage cheese and related dairy products and Dale Farm Ice Cream Limited which is involved in the sale and distribution of a range of ice cream and frozen products. Dale Farm Ice Cream (Ireland) Limited, a subsidiary of Dale Farm Ice Cream Limited, is involved in the sale and distribution of a range of ice cream and frozen products in the Republic of Ireland. Mullins Ice Cream Limited is a subsidiary of Dale Farm Ice Cream Limited and is involved in the manufacture and sale of ice cream and frozen products. Ash Manor Cheese Company Limited became a subsidiary of Dale Farm Limited on 31 January 2014 and is involved in the cutting, packing and sale of cheese products.

(iii) ‘United Feeds Limited’ is a wholly owned subsidiary of United, which carries out manufacturing, distribution and marketing activities in the animal feed sector.

Basis of preparationThe financial statements have been prepared on a going concern basis under the historical cost convention and in accordance with applicable accounting standards. The accounts are prepared under the Industrial and Provident Societies Acts 1969 and 1976 and where these Acts do not provide relevant guidance the Directors have adopted the requirements of the Companies Act 2006.

Basis of consolidationThe Group financial statements consolidate the financial statements of United Dairy Farmers Limited and all its subsidiary undertakings made up to 31 March each year. No profit and loss account is presented for United Dairy Farmers Limited as permitted by the Industrial and Provident Societies Acts (Northern Ireland) 1969 and 1976.

DepreciationDepreciation is provided on all tangible fixed assets at rates calculated to write off the cost, or fair value in the case of acquisitions, of each asset evenly over its expected useful life.

Rates vary according to the class of asset but are typically:

Buildings freehold – 50 years

Buildings leasehold – over the period of the lease

Plant, equipment and furniture – 3 to 15 years

Vehicles – 4 to 10 years

Land is not depreciated

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or the years of the leases where these are shorter.

The carrying values of tangible fixed assets are reviewed for impairment in periods when events or changes in circumstances indicate the carrying value may not be recoverable.

Government grantsCapital grants are credited to a deferral account and are released to revenue on the same basis as the related assets are depreciated.

Grants of a revenue nature are credited to income so as to match them with the expenditure to which they relate.


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GoodwillGoodwill is the difference between the cost of an acquired entity and the aggregate of the fair value of that entity’s identifiable assets and liabilities.

Positive goodwill is capitalised, classified as an asset on the balance sheet and amortised on a straight line basis over its useful economic life. It is reviewed for impairment at the end of the first full financial year following the acquisition and in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable.

Negative goodwill is capitalised and released to the profit and loss account as the related assets are realised.

If a subsidiary or a business is subsequently sold or closed, any goodwill arising on acquisition that was written off directly to reserves or that has not been amortised through the profit and loss account is taken into account in determining the profit or loss on sale or closure.

Intangible assetsIntangible assets acquired separately from a business are capitalised at cost. Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if the fair value can be measured reliably on initial recognition, subject to the constraint that, unless the asset has a readily ascertainable market value, the fair value is limited to an amount that does not create or increase any negative goodwill arising on the acquisition. Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against profits in the year in which it is incurred.

The carrying value of intangible assets is reviewed for impairment at the end of the first full year following acquisition and in other periods if events or changes in circumstances indicate the carrying value may not be recoverable.

PropertiesLand and buildings are stated at cost or fair value in the case of acquisitions.

StocksStock is valued at the lower of cost or net realisable value. Cost includes an appropriate element of overheads. Net realisable value is based on estimated selling price less further costs expected to be incurred for disposal.

Deferred taxationDeferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or right to pay less or to receive more, tax with the following exceptions:

Provision is made for tax on gains arising from the revaluation (and similar fair value adjustments) of fixed assets, or gains on disposal of fixed assets that have been rolled over into replacement assets, only to the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold.

Deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Deferred taxation relating to the pension deficit is netted off against the gross pension deficit.

Group reliefIt is the Group’s policy to pay for Group relief at the fiscal rate of tax on losses utilised during the period.

PensionsThe Group operated for the majority of its eligible employees three defined contribution schemes – the United Dairy Farmers Group Scheme, the Dale Farm (GB) Limited Scheme, and the United Feeds Limited

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Pensions (Continued)Scheme. Contributions to the three defined contribution schemes are charged in the profit and loss account as they become payable in accordance with the rules of the schemes.

The Group also participates in, for eligible employees, one final salary pension scheme being the NILGOSC final salary pension scheme which provides benefits based on final pensionable pay and the scheme requires contributions to be made to independently administered funds. The profit and loss account charge comprises two elements, a current service cost and the net of the expected return on the scheme assets and the interest cost of the scheme liabilities. Actuarial gains or losses are recognised through the statement of total recognised gains and losses. The scheme assets are valued at fair value and scheme liabilities are measured using the projected unit method. Net scheme assets and liabilities, reduced by deferred tax amounts are shown on the face of the balance sheet as a pension surplus or deficit as appropriate.

Research and developmentResearch and development expenditure is written off as incurred.

Foreign currenciesTransactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at the contracted rate if the transaction is covered by a forward foreign currency contract. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date or if appropriate at the forward contract rate. All differences are taken to the profit and loss account. The financial statements of non UK subsidiary undertakings are translated at the rate of exchange ruling at the balance sheet date. The exchange difference arising on the retranslation of opening net assets is taken directly to reserves. All other translation differences are taken to the profit and loss account.

Lease commitmentsAssets held under finance leases, which are those where substantially all the risks and rewards of ownership of the asset have passed to the Group, are capitalised in the balance sheet and are depreciated over their useful lives. The interest element of the rental obligations is charged to the profit and loss account over the period of the lease and represents a constant proportion of the balance of capital repayments outstanding.

Rentals paid under operating leases are charged to income on a straight line basis over the term of the lease.

Capital instrumentsOrdinary shares are included in shareholders’ funds as any redemption requires the prior consent of the board. Other instruments such as preference shares are classified as liabilities if they contain an obligation to transfer economic benefits and if not they are included in shareholders’ funds. The finance cost recognised in the profit and loss account in respect of capital instruments other than equity shares is allocated to periods over the term of the instrument at a constant rate on the carrying amount.

Revenue recognitionSale of goods

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on dispatch of the goods.

Dividends

Revenue is recognised when the Group’s right to receive payment is established.

2. Turnover and segmental reporting

Turnover, which is stated net of value added tax, represents the amounts derived from the provision of goods and services which fall within the Group’s ordinary activities. Turnover is attributable to the marketing and transporting of milk, the processing and sale of dairy products and the manufacture and sales of animal feeds. Turnover and operating profit are attributable to continuing activities.

Segmental reporting, by areas of activity and geographical markets, has not been included in these financial statements. Disclosure of such information is not considered relevant and would be seriously prejudicial to the interests of the Group.


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3. Operating profit

This is stated after charging/(crediting):

2014£000

2013£000

Depreciation of owned tangible fixed assetsDepreciation of tangible fixed assets held under finance leases Amortisation of goodwillFinance lease charges Capital grant releaseRevenue grants Research and development costs Auditors’ remuneration – audit services* Non-audit services** – taxation compliance services – other audit related servicesOperating lease rentals – land and buildings – plant and equipmentProfit on disposal of fixed assets

4,985255103

7(469)

-338

75140

8104

2,982(10)

4,387307221

21(411)

(245)342

7530

-234

2,902(25)

* £18k (2013 - £18k) of this relates to the Society** Included in non audit services is £22k (2013 - £22k) relating to the Society 4. Directors’ remuneration

2014£000

2013£000

Fees and other emoluments 153 153

5. Staff costs

2014£000

2013£000

Wages and salaries Social security costs Other pension costs

22,724 2,173

768

21,9302,043

718

25,665 24,691

The average number of Group employees during the year was:

2014No.

2013No.

Processing Selling and distribution Operations and administration Milk recording (part-time)

462 215 184

78

399201199

85

939 884

The number of employees at 31 March 2014 was 959 (2013 – 890).

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6. Interest payable and similar charges

2014£000

2013£000

Bank loans and overdrafts Finance charges payable under finance and hire purchase contracts Interest on Preference Shares

1,311 7

15

7282115

Group interest payable 1,333 764

7. Tax

(a) The taxation charge is made up as follows: 2014£000

2013£000

Based on profit for the year:

Current tax: Corporation tax on profit for the period Adjustments in respect of previous periods

1,032 (292)

66823

Total current tax (note 7(b)) 740 691

Deferred tax: Increase in deferred tax provision Retirement benefits Adjustments in respect of previous periods Impact of change in tax rate

316 143

(40) (406)

368185(13)

(129)

Total deferred tax (note 17) 13 411

Total tax charge 753 1,102

(b) Factors affecting tax charge for the year

The tax assessed on the profit on ordinary activities for the period varies from the standard rate of corporation tax in the UK. The differences are explained below:

2014£000

2013£000

Profit on ordinary activities before tax 6,112 4,609

Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 23% (2013 – 24%) 1,406 1,105

Effect of:Disallowed expenses and non-taxable income Depreciation in excess of capital allowances Short term timing differences Non-qualifying depreciation/amortisationNon-qualifying goodwill amortisationResearch and development tax creditTiming difference on retirement benefits Profits taxed at lower rateAdjustment in respect of previous periods

24 (376)

(15) 170

7-

(164)(20)

(292)

29(340)

(45)179

17(53)

(195)(29)

23

740 691


44

8. Intangible fixed assets

Group Goodwill£000

Cost: At 31 March 2013 Additions (note 10)

4,0515,194

At 31 March 2014 9,245

Amortisation: At 31 March 2013 Provided for during the year

4,396103

At 31 March 2014 4,499

Net book value: At 31 March 2014 4,746

At 31 March 2013 (345)

The net book value at 31 March 2014 is analysed below:

£000

Purchased goodwill Goodwill arising on consolidation

3944,352

4,746 Goodwill is being amortised over its expected useful life. Negative goodwill is capitalised and released to the profit and loss account as the related assets are realised. Goodwill additions for the year ended 31 March 2014 relate to the purchase of subsidiary undertakings.

9. Tangible fixed assets

Group Landand

buildings£000

Plantand

equipment£000

Vehicles andassociatedequipment

£000Total

£000

Cost:At 31 March 2013Fair Value on acquisitionAdditions Disposals

33,2941,0871,261

-

88,0941,6657,633

-

8,26359

-(210)

129,6512,811

8,894(210)

At 31 March 2014 35,642 97,392 8,112 141,146

Depreciation:At 31 March 2013Provided during the yearRelating to disposals

6,936823

-

51,2494,329

-

8,13788

(210)

66,3225,240(210)

At 31 March 2014 7,759 55,578 8,015 71,352

Net book value:At 31 March 2014 27,883 41,814 97 69,794

At 31 March 2013 26,358 36,846 126 63,329

The net book value of plant and equipment and vehicles and associated equipment includes amounts of£728,739 (2013 – £1,006,478) relating to assets held under finance leases and hire purchase contracts.

45


9. Tangible fixed assets (continued)

The net book value of land and buildings comprises:

2014£000

2013£000

Freehold Leasehold

21,613 6,270

19,1957,163

27,883 26,358

Society

Landand

buildings£000

Plantand

equipment£000

Vehiclesand

associatedequipment

£000Total

£000

Cost:At 31 March 2013AdditionsDisposals

5,624--

5,593177

-

7,587-

(165)

18,804177

(165)

At 31 March 2014 5,624 5,770 7,422 18,816

Depreciation:At 31 March 2013Provided during the yearDisposals

972116

-

5,007172

-

7,50257

(165)

13,481345

(165)

As 31 March 2014 1,088 5,179 7,394 13,661

Net book value:

At 31 March 2014 4,536 591 28 5,155

At 31 March 2013 4,652 586 85 5,323

The net book value of vehicles and associated equipment includes an amount of £6,933 (2013 – £52,500) relating to assets held under finance leases and hire purchase contracts.

The net book value of land and buildings comprises:

2014£000

2013£000

Leasehold 4,536 4,652


46

10. Investments

Group Society

2014£000

2013£000

2014£000

2013£000

Shares at cost Subsidiary undertakings Trade investment

- 14

- 14

13,564 14

13,56414

14 14 13,578 13,578

At 31 March 2014 the principal subsidiary undertakings were:

Subsidiary undertakings Holding

Proportion of voting

rights and shares held Nature of business

Dale Farm Limited Ordinary shares 100% Manufacture, sale and distribution ofmilk and a comprehensive range of

dairy products

Dale Farm Dairies (Ireland) Limited

Ordinary shares 100%* Sale and distribution of milk and dairy products

Dale Farm (GB) Limited Ordinary shares 100%* Manufacture and sale of yoghurts, desserts, cottage cheese and related

cultured products

Rowan Glen Dairy Products Limited

Ordinary shares 100%* Sale of yoghurts, cottage cheese, desserts and related dairy products

Ash Manor Cheese Company Limited

Ordinary shares 100%* Packing and sale and distribution of cheese products

Dale Farm Ice Cream Limited

Ordinary shares 100%* Sale and distribution of ice cream and frozen products

Dale Farm Ice Cream (Ireland) Limited

Ordinary shares 100%** Sale and distribution of ice cream and frozen products

Mullins Ice Cream Limited Ordinary shares 100%** Manufacture and sale of ice cream and frozen products

United Feeds Limited Ordinary shares 100% Manufacture and sale of animal feeds

* Held by Dale Farm Limited. ** Held by Dale Farm Ice Cream Limited.

The above undertakings are incorporated and operate in Northern Ireland, with the exception of Dale Farm (GB) Limited and Ash Manor Cheese Company Limited which are incorporated in England and operate in Great Britain, Rowan Glen Dairy Products Limited which is incorporated and operates in Scotland, and Dale Farm Dairies (Ireland) Limited and Dale Farm Ice Cream (Ireland) Limited which are incorporated and operate in the Republic of Ireland.

During the year the Group acquired Mullins Ice Cream Ltd on 15 April 2013 and Ash Manor Cheese Company Ltd on 31 January 2014 for a total consideration of £10,335k. These investments have been included in the Group Balance Sheet at their fair value at the date of acquisition. The latest audited accounts for Ash Manor Cheese Company Limited are for the year ended 31 January 2014.

47


10. Investments (continued)

Analysis of the acquisitionsBook Value

£000

RevaluationAdjustments

£000

Fair Valueto Group

£000

Tangible fixed assets StocksDebtorsCashCreditors due within one yearDeferred taxGovernment grants

(a) 1,8731,8302,7831,384

(3,516)(105)

(47)

939------

2,8121,8302,7831,384

(3,516)(105)

(47)

Net Assets 4,202 939 5,141

Goodwill arising on acquisition 5,194

Fair value of purchase consideration 10,335

Less: Net cash balances acquired 1,384

Deferred consideration 4,322

Net cash outflow 4,629

(a) Increase in the value of the fixed assets following an independent professional valuation.

11. Stocks

Group Society

2014£000

2013£000

2014£000

2013£000

Raw materials and consumablesFinished goods and goods for resale

4,34350,355

4,27819,615

20294

13943

54,698 23,893 296 182

The difference between the carrying value of stocks and their replacement cost is not material.


48

12. Debtors

Group Society

2014£000

2013£000

2014£000

2013£000

Trade debtorsAmounts due from subsidiary undertakings – loans – trading Other debtorsPrepayments and accrued incomeGroup relief

55,206--

1,3711,254

-

51,583--

1,507915

-

8,48330,93416,053

1,289593

-

11,14034,55810,1711,494

40732

57,831 54,005 57,352 57,802 13. Other creditors and accruals

Group Society

2014 £000

2013 £000

2014 £000

2013£000

Bank overdrafts & other facilitiesBank loans (note 16)Obligations under finance leases and hire purchasecontracts (note 23)Other taxes and social securityOther creditorsAccrualsDeferred considerationLoan stock (note 15)Group relief

38,6947,016

29702

1,0827,197

2,000254

-

19,4081,057

16666983

6,786-

329-

19,149657

-565398

2,345-

25454

20,567657

-573575

2,317-

329-

56,974 29,245 23,422 25,018

Included in bank overdraft and other facilities is invoice discounting with recourse of £22m (2013 – Nil) for which the Group have provided an assignment over certain trade debtors.

14. Creditors: amounts due after more than one year

Group Society

2014£000

2013£000

2014£000

2013£000

Obligations under finance leases and hire purchase contracts (note 23) Bank loans (note 16)Deferred consideration

2019,888

2,321

3811,809

-

-1,285

-

-1,942

-

22,229 11,847 1,285 1,942

49


15. Convertible loan stock

Convertible loan stock: Group and Society

2014£000

2013£000

At 1 AprilLoan stock issuedLoan stock repaid

329 4

(79)

26998

(38)

At 31 March 254 329 Loan stock is convertible on the basis of £1 of loan stock to £1 of ordinary shares held, subject to current legal limits on the maximum number of shares being raised.

16. Bank loans

Group Society

2014£000

2013£000

2014£000

2013£000

Wholly repayable within five yearsIn more than five years

24,5372,367

10,0992,767

1,942-

2,599-

26,904 12,866 1,942 2,599

Repayable in annual instalments of £400,008 2,367 2,767 The loans are interest bearing at a variable rate based on LIBOR and are secured by way of unlimited intra-group guarantees.

17. Provisions for liabilities

The movements in deferred taxation during the current year are as follows:

Group£000

Society£000

At 31 March 2013Arising on acquisitionCharge\(credit) in the current yearAdd back credit relating to retirement benefit

At 31 March 2014

3,1899013

(144)

3,148

119-

(12)-

107

Deferred taxation provided in the financial statements is as follows:

Group Society

2014£000

2013£000

2014£000

2013£000

Capital allowances in advance of depreciationOther timing differences

3,168(20)

3,199(10)

117(10)

128(9)

3,148 3,189 107 119

The deferred taxation asset relating to the pension deficit is netted off against the gross pension deficit in the financial statements.

Deferred tax has been calculated at 20% as at March 2014 reflecting HMRC enactment, in July 2013, of a reduction in the corporation tax rate effective from 1 April 2015.


50

18. Deferred income - capital grants

Group Society

£000 £000

At 31 March 2013Arising on acquisitionArising on new capital grantsRelease for the year

5,67747

143(469)

281- -

(17)

At 31 March 2014 5,398 264

19. Issued share capital

Group and Society

Allotted, called up and fully paid2014

No.2013

No.2014

£0002013

£000

Ordinary shares of £1 each 11,855,843 14,013,506 11,855 14,014

2014£000

2013£000

Ordinary shares:At 1 AprilIssued during the yearCancelled during the year

14,01472

(2,231)

13,609905

(500)

At 31 March 11,855 14,014

United is a co-operative society established under the Industrial and Provident Societies Acts (Northern Ireland) 1969 and 1976. It is governed by its rules which require all members to have a minimum shareholding of 200 £1 ordinary shares, fully paid up.

20. Share capital repayable on demand

Group and Society

Preference Shares2014

£000

At 1 April 2013 582

Issued during the year 43

Cancelled during the year (48)

At 31 March 2014 577 During the year £43,500 in share capital repayable on demand was issued in lieu of ordinary shares to members who had retired from milk production. Interest on the preference shares is payable annually at bank base rate less 0.25% or at such higher rate as may be determined by the board: for the year ended 31 March 2014 the rate of interest paid was 2.5%.

51


21. Reconciliation of shareholders’ funds and movements on reserves

Group

Share capital allotted

£000

Share capital to be allotted

£000

Profit and loss account

£000

Total share-holders’ funds

£000

At 31 March 2012 13,609 1,011 21,159 35,779

Profit for the financial yearMovement on pension deficitOrdinary shares issuedConvertible loan stock issuedShares cancelled

--

905-

(500)

--

(823)(97)(91)

3,507(398)

--

91

3,507(398)

82(97)

(500)

At 31 March 2013 14,014 - 24,359 38,373

Profit for the financial yearMovement on pension deficitOrdinary shares issuedShares cancelled

--

72(2,231)

----

5,3595,707

--

5,3595,707

72(2,231)

At 31 March 2014 11,855 - 35,425 47,280

Society

Share capital allotted

£000

Share capital to be allotted

£000

Profit and loss account

£000

Total share-holders’ funds

£000

At 31 March 2012 13,609 1,011 3,605 18,225

Profit for the financial yearMovement on pension deficitOrdinary shares issuedConvertible loan stock issuedShares cancelled

--

905-

(500)

--

(823)(97)(91)

2,456(398)

--

91

2,456(398)

82(97)

(500)

At 31 March 2013 14,014 - 5,754 19,768

Profit for the financial yearMovement on pension deficitOrdinary shares issuedShares cancelled

--

72(2,231)

----

1,2845,707

--

1,2845,707

72(2,231)

At 31 March 2014 11,855 - 12,745 24,600


52

22. Notes to the Group statement of cash flows

(a) Reconciliation of operating profit to net cash inflows from operating activities:

2014£000

2013£000

Operating profitDepreciation of tangible fixed assetsAmortisation of intangiblesDecrease/(increase) in stocksIncrease in debtorsIncrease in creditorsCapital grant releasePension movementProfit on disposal of fixed assets

7,3905,240

103(28,975)

(1,043)4,330(469)(649)

(19)

5,2554,694

2211,921

(3,071)1,011(411)

(649)(25)

Net cash (outflow)/inflow from operating activities (14,092) 8,946

(b) Analysis of net debt

At 31 March 2013

£000Cash flow

£000

At 31 March 2014

£000

Cash at bank and in handOverdrafts & other facilities

470(19,408)

2,163(19,286)

2,633(38,694)

(18,938) (17,123) (36,061)

Loan stockPreference sharesBank loansFinance leaseOther loans

(330)(582)

(12,866)(54)(17)

765

(14,038)5

17

(254) (577)

(26,904)(49)

-

(32,787) (31,058) (63,845)


23. Obligations under finance leases and hire purchase contracts

Group Society

2014£000

2013£000

2014£000

2013£000

Amounts payable:- Within one year- In two to five years- Over five years

3422

-

2244

-

---

---

Less: finance charges allocated to future periods

56

(7)

66

(12)

-

-

-

-

49 54 - -

Finance leases and hire purchase contracts are analysed as follows:

Current obligationsNon-current obligations

2920

1638

--

--

49 54 - -

Analysis of changes in finance leases and hire purchase contracts:

Balance brought forwardArising on acquisitionCapital element of lease rental payments

5412

(17)

359 -

(305)

---

48-

(48)

At 31 March 49 54 - -

24. Pension scheme information

United Dairy Farmers Limited, Dale Farm Limited and United Feeds operate two types of pension schemes for the benefit of their employees and the total pension charge to the Group for the period amounted to £0.787m (2013 – £0.730m). The details of these schemes are set out below:

(a) Defined Contribution SchemesThe Group operated for the majority of its eligible employees three defined contribution schemes – the United Dairy Farmers Group Scheme, the Dale Farm (GB) Limited Scheme and the United Feeds Limited Scheme. The assets of the schemes are held in independently administered funds. Contributions to the three defined contribution schemes are charged in the profit and loss account as they become payable in accordance with the rules of the schemes.

The pension costs represent contributions payable by the Group to the schemes and amounted to £465k (2013 – £438k). The unpaid contributions outstanding at the year end, included in ‘Other creditors’, are £28k (2013 – £35k). (b) Northern Ireland Local Government Officers’ Superannuation Committee Scheme65 employees participate in the Northern Ireland Local Government Officers’ Superannuation Committee Scheme (the NILGOSC Scheme). This scheme is a ‘multi-employer’ pension scheme with some 88,000 members. It provides a final salary (i.e. defined benefits) pension scheme for eligible Group employees and other members of the scheme. To finance these benefits, assets are accumulated in the scheme and are held separately from the assets of the employers. Membership of this scheme closed to other employees of the Group on 1 March 1995.

Participating employers pay contributions at rates recommended by the scheme’s professionally qualified actuaries, based on regular actuarial reviews of the financial position of the scheme. Contributions to the

53


54

24. Pension scheme information (continued)

scheme are based on the last available actuarial valuation made as at 31 March 2013. Based on this valuation, United Dairy Farmers Limited is paying an employer’s contribution rate of 28.5% from 1 April 2014 and is required to make additional lump sum payments of £649,000 per annum. The total contributions to the scheme for the year ended 31 March 2015 will be approximately £1million.

United Dairy Farmers Limited has initiated legal proceedings against the Department of Agriculture and Rural Development seeking confirmation that it does not have responsibility for the pension liabilities of former Milk Marketing Board for Northern Ireland employees who did not become employees of the company in 1995. This case has been considered by the Chancery Court with the final hearing in May 2014 and the judgement of the court is awaited.

The company continues to account for the scheme as it has done historically as a defined benefit scheme to ensure full accordance with Financial Reporting Standard 17.

Actuarial valuationThe latest full actuarial valuation took place on 31 March 2013. The principle assumptions used by the independent qualified actuaries to update the valuation to 31 March 2014 for FRS 17 purposes were:

2014%

2013%

Rate of salary increasesDiscount rateInflation assumptionPension increases

-4.32.62.6

-4.52.82.8

Average future life expectancies at age 65 are:

2014 2013

Current pensioners Male Female

22.925.4

22.925.7

Future pensioners Male Female

25.127.7

24.927.7

The Group’s share of assets and liabilities in the scheme and the expected rates of return were:

Long-termrate of return

expected at 31 March 2014

%

Value at 31 March 2014

£000

Long-term rate of return

expected at 31 March 2013

%

Value at 31 March 2013

£000

EquitiesBondsPropertyCash

6.43.46.90.9

56,2659,1008,4931,972

5.73.03.93.0

52,8487,5505,4912,745

Total market value of assetsPresent value of scheme liabilities

75,83076,479

68,63477,451

Deficit in the SchemeDeferred tax asset

(649)136

(8,817)2,028

Net pension deficit (513) (6,789)

55


24. Pension scheme information (continued)

Analysis of Amount Charged to Operating Profit

2014£000

2013£000

Current service cost 322 292

Total operating charge 322 292

Analysis of the amount credited to other finance income

Expected return on pension scheme assetsInterest on pension scheme liabilities

3,486(3,431)

3,430(3,315)

Total other finance income 55 115

Amount recognised in the statement of total recognised gains and losses

Actuarial loss recognised in the statement of total recognised gains and losses

7,454

(397)

Analysis of movements in deficit during the year

2014£000

2013£000

At beginning of periodCurrent service costEmployers’ contributionsNet return on assetsActuarial gain/(loss)

(8,817)(322)

98155

7,454

(9,233)(292)

990115

(397)

At end of period (649) (8,817)

25. Future capital commitments

At 31 March 2014 the directors have authorised future capital expenditure which, without taking account of government grants, amounts to:

Group Society

2014£000

2013£000

2014£000

2013£000

ContractedNon contracted

940150

3,875577

--

--


56

26. Other financial commitmentsAt 31 March 2014 the Group and society’s annual commitments under non-cancellable operating leases were as follows:

Land and buildings Plant and equipment

2014£000

2013£000

2014£000

2013£000

Group

Leases expiring:

Within one year Within two to five years After more than five years

91-

25

3517425

4842,116

165

4382,043

603

116 234 2,765 3,084

Society

Leases expiring:

Within one year Within two to five years After more than five years

---

---

74710

43

22262840

- - 827 890

27. Related party transactions

The directors, with the exception of the appointed directors, are all engaged in dairy farming and supply their milk to United on the same terms as all other members. They are also entitled to utilise all other services made available by United on the same terms as other members.

The net value of milk purchased from and services provided to these directors during the year was £4,400,673 (2013 – £3,030,384).

At 31 March 2014 the net amount owed to the directors was £463,519 (2013 – £314,830).

28. Contingent liabilities

The society is responsible for the collection and payment of quota levy liability due by suppliers of milk to the society. It is unlikely any quota levy will be payable for the year ended 31 March 2014.

The society has provided an unlimited guarantee in favour of the Ulster Bank in respect of United Group borrowings from Ulster Bank. At 31 March 2014 the United Group borrowings from Ulster Bank amounted to some £63 million (2013: £31.4 million).

The banking facilities of the subsidiary, United Feeds Limited are secured by a floating charge over the company’s assets.

Under the terms of different grant schemes there exists a contingent liability to repay grants received if certain conditions therein are not fulfilled.

Certain other contingent liability claims and guarantees occur in the normal course of business but it is not considered that any material liabilities will arise.

DunmanbridgeCookstown

Fivemiletown Cheese

MullinsKilrea

United FeedsDungannon

DromonaCullybackey

Technical CentreBallymena

United FeedsBelfast

PennybridgeBallymena

Dale Farm HouseBelfast

KendalCumbria

Ash ManorWrexham

Rowan GlenDumfries and Galloway

4x100g

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