ALLIED FOODS (N.Z.) LIMITED AND SUBSIDIARIES ANNUAL REPORT FOR THE 52 WEEK PERIOD ENDED 3 SEPTEMBER 2017

Transcription

1 ALLIED FOODS (N.Z.) LIMITED AND SUBSIDIARIES ANNUAL REPORT FOR THE 52 WEEK PERIOD ENDED 3 SEPTEMBER 2017

2 Directors' declaration Directors' report Audit report Consolidated financial statements Statement of profit or loss and other comprehensive income Statement of changes in equity Statement of financial position Statement of cash flows Significant accounting policies Notes to the consolidated financial statements

3 DIRECTORS' DECLARATION Allied Foods (N.Z.) Limited In the opinion of the Directors of Allied Foods (N.Z.) Limited (the 'Company'), the consolidated financial report of the consolidated entity, being the Company and its controlled entities (together referred to as the 'Group') set out on pages 6 to 29: comply with New Zealand generally accepted accounting practice and presents fairly, in all material respects the financial position of the Group as at 3 September 2017, the results of its operations and cash flows for the 52 week period ended on that date; and have been prepared using the appropriate accounting policies, which have been consistently applied, except as described in Note 1(a) to the consolidated financial statements, and supported by reasonable judgements and estimates. The Directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of the Group and facilitate compliance of the consolidated financial statements with the Companies Act The Directors consider that they have taken adequate steps to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Internal control procedures are also considered to be sufficient to provide reasonable assurance as to the integrity and reliability of the consolidated financial statements. The Directors are pleased to present the annual report including the consolidated financial statements of Allied Foods (N.Z.) d and subsidiaries for the 52 week period ended 3 September ;t.,, 4-...Jo, Direet r Director /. IOc ober October

4 DIRECTORS' REPORT The Directors present their annual report, together with the consolidated financial report of Allied Foods (N.Z.) Limited (referred to as the 'Group' or 'consolidated entity'), for the 52 week period ended 3 September 2017 and the Auditors' Report thereon. No disclosure has been made in respect of Section 211 (1) (a) and (e) to U) of the Companies Act 1993 following a decision made by the shareholder in accordance with Section 211 (3) of the Act. DIRECTORS The names of the Directors of the Company at any time during or since the end of the financial year are: Steven Graeme Pedersen (appointed 13 November 2012), Mark Alexander Adam (appointed 01 Oct 2013), Lorna Kathleen Raine (appointed 30 January 2015). COMPANY PARTICULARS Allied Foods (N.Z.) Limited is incorporated in New Zealand. The address of the registered office is Building 3, Level 2, Central Business Park, 666 Great South Road, Ellerslie, Auckland. PRINCIPAL ACTIVITIES The principal activities of the consolidated entity are milling, manufacture and distribution of food and chemical products. SHAREHOLDER George Weston Foods Limited. Signed in accord 'ce with a resolution of the Directors. ff. Director t Dir. ctor October October

5 Independent auditor s report to the Shareholder of Allied Foods (N.Z.) Limited Report on the audit of the financial statements Opinion We have audited the financial statements of Allied Foods (N.Z.) Limited ( the Company ) and its subsidiaries (together the Group ) on pages 6 to 29, which comprise the consolidated statement of financial position of the Group as at 3 September 2017, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the 52 week period then ended of the Group, and the notes to the consolidated financial statements including a summary of significant accounting policies. In our opinion, the consolidated financial statements on pages 6 to 29 present fairly, in all material respects, the consolidated financial position of the Group as at 3 September 2017 and its consolidated financial performance and cash flows for the 52 week period then ended in accordance with New Zealand equivalents to International Financial Reporting Standards Reduced Disclosure Regime. This report is made solely to the Company's shareholder. Our audit has been undertaken so that we might state to the Company s shareholder those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s shareholder, for our audit work, for this report, or for the opinions we have formed. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with Professional and Ethical Standard 1 (revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other than in our capacity as auditor we have no relationship with, or interest in, the Company or any of its subsidiaries. Partners and employees of our firm may deal with the Group on normal terms within the ordinary course of trading activities of the business of the Group. Information other than the financial statements and auditor s report The directors of the Company are responsible for the Annual Report, which includes information other than the consolidated financial statements and auditor s report. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. A member firm of Ernst & Young Global Limited

6 In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. If, based upon the work we have performed on the other information obtained prior to the date of this auditor s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Directors responsibilities for the financial statements The directors are responsible, on behalf of the Company, for the preparation and fair presentation of the consolidated financial statements in accordance with New Zealand equivalents to International Financial Reporting Standards Reduced Disclosure Regime, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing on behalf of the entity the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or cease operations, or have no realistic alternative but to do so. Auditor s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (New Zealand) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of the consolidated financial statements is located at the External Reporting Board website: This description forms part of our auditor s report. Chartered Accountants Auckland 27 October 2017 A member firm of Ernst & Young Global Limited

7 Allied Foods (N.Z.) limited STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME FOR THE 52 WEEK PERIOD ENDED 3 SEPTEMBER 2017 Consolidated Note 3 September 4 September $000 $000 Revenue from sale of goods 273, ,888 Cost of sales 2 {175,078) (177,339) Gross profit 98,092 94,549 Distribution expenses 2 (47,697) (46,141) Administrative expenses 2 (36,279) (35,339) Other operating expenses 2 (73) (173) Operating profit 14,043 12,896 Finance income Finance expense (105) (6) Net financial income Profit before income tax 14,110 13,022 Income tax expense 4 (4,010) (3,680} Profit for the period 10,100 9,342 Other comprehensive income Items that will not be subsequently reclassified to profit or loss: Movement in cash flow hedging position subject to basis adjustment, net of income tax 900 Total items that will not be subsequently reclassified to profit or loss: 900 Items that are or may be subsequently reclassified to profit or loss: Movement in cash flow hedging position, net of income tax 12 (1,453} Total items that are or may be subsequently reclassified to profit or loss (1,453) Other comprehensive income/(loss) for the year, net of income tax 900 (1,453) Total comprehensive income for the period 11,000 7,889 The above statement of comprehensive income should be read in conjunction with the accompanying notes. 6 EY

8 STATEMENT OF CHANGES IN EQUITY FOR THE 52 WEEK PERIOD ENDED 3 SEPTEMBER 2017 Hedging Retained Share Capital reserve earnings Consolidated Shares $000 $000 $000 Balance at 30 August ,453,200 4, ,379 Net profit for the period 9,342 Other comprehensive income/(loss) Movement in cash flow hedging position, net of tax (1,453) Total comprehensive income/(loss) for the period (1,453} 9,342 Balance at 4 September ,453,200 4,906 (756) 91,721 Net profit for the period 10,100 Other comprehensive income Movement in cash flow hedging position, net of tax 900 (excluding transfers to carrying amount of hedged items) Total comprehensive income for the period ,100 Transfer of cash flow hedging gains to the initial carrying amount of hedged items, net of deferred tax 190 Transactions with owners in their capacity as owners Dividends paid to shareholder (8,000) Total Equity $000 87,982 9,342 (1,453) 7,889 95,871 10, , (8,000) Balance at 3 September ,453,200 4, ,821 99,061 The above statement of changes in equity should be read in conjunction with the accompanying notes. 7

9 STATEMENT OF FINANCIAL POSITION AS AT 3 SEPTEMBER 2017 Consolidated Note 3 September 4 September $000 $000 Current Assets Cash and cash equivalents Trade and other receivables Inventories Amounts due from related parties Total Current Assets 5 8,681 9, ,989 31,724 18,978 18, , ,805 59,826 Non-Current Assets Property, plant and equipment Intangible assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Current tax payable Employee benefits Amounts due to related parties Total Current Liabilities Non-Current Liabilities Deferred tax liability Employee benefits Total Non-Current Liabilities Total Liabilities Net Assets Equity Share capital Hedging reserve Retained earnings Total equity 8 78,564 77, ,895 2,966 80,459 80, , , ,344 25,677 1,137 1, ,803 2, ,891 12,626 40,175 42, ,931 1, ,028 1,884 42,203 44,813 99,061 95, ,906 4, (756) 93,821 91,721 99,061 95,871 The above statement of financial position should be read in conjunction with the accompanying notes. 8

10 STATEMENT OF FINANCIAL POSITION AS AT 3 SEPTEMBER 2017 Consolidated Note 3 September 4 September $000 $000 Cash flows from operating activities Profit before income tax 14,110 13,022 Adjustments for: Depreciation and amortisation 9,724 9,410 Finance income (172) (132) Finance expense Net gain on sale of property, plant and equipment (20} {116} Operating profit before changes in working capital and provisions 23,747 22,190 Change in current receivables (910) Change in inventories (948) (358) Change in current payables (952) (657) Change in employee benefits 15 {199} Cash generated from operations 20,952 25,709 Interest received Interest paid (21) (6) Income taxes paid {4,999} {3,566} Net cash generated by operating activities 16,104 22,241 Cash flows from investing activities Capital expenditure (9,438) (10,251) Proceeds from sale of property, plant and equipment Net cash used in investing activities (9,305) (10,045) Cash flows from financing activities Dividends paid (8,000} Net cash used in financing activities (8,000} Net (decrease)/increase in cash and cash equivalents (1,201) 12,196 Cash and cash equivalents at the beginning of the period 9,882 (2,314) Cash and cash equivalents at the end of the period 5 8,681 9,882 4,733 The above statements of cash flows should be read in conjunction with the accompanying notes. 9

11 TO THE FINA NCIAL STATEMENT S 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Allied Foods (N.Z.) Limited (the 'Company') is a company domiciled in New Zealand and registered under the Companies Act The consolidated financial report for the 52 week period ended 3 September 2017 comprises the financial statements of the Company and its subsidiaries (together referred to as the 'consolidated entity' or 'Group') and was authorised for issue in accordance with a resolution of the directors on 27 October The comparative information is presented for the 53 week period ended 4 September The significant accounting policies used in the preparation of this financial report are: (a) Statement of compliance and basis of preparation The consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand ('NZ GAAP') and the requirements of the Companies Act They comply with the New Zealand Equivalents to International Financial Reporting Standards Reduced Disclosure Regime ('NZ IFRS RDR') as appropriate for profit-orientated entities. The Group is eligible to report in accordance with NZ IFRS RDR on the basis that it does not have public accountability and is not a large for-profit public sector entity. The consolidated entity does not early adopt New Zealand Equivalents to International Financial Reporting Standards that have been issued or amended but are not yet effective, with the exception of New Zealand Equivalent to International Financial Reporting Standard 9 "Financial Instruments" ('NZ IFRS 9') which was early adopted on 5 September 2016 (refer to Note 1 (g) for further details). As allowed by the transition provisions of the standard, the consolidated entity has elected not to restate the comparative information. The adjustment to the opening balance of the retained earnings as at the date of initial application was not required as the effect of NZ IFRS 9 adoption was immaterial. The financial statements are presented in New Zealand dollars ('$'), rounded to the nearest thousand, which is the Company's and the consolidated entity's functional currency.. The financial statements have been prepared on the historical cost basis except for certain financial instruments that are stated at fair value. The preparation of consolidated financial statements in conformity with NZ IFRS RDR requires management to make judgements, estimates and assumptions about the reported amounts of assets and liabilities, income and expenses and the disclosure of contingent assets and liabilities. The estimates and associated assumptions are based on experience. Actual results may differ from these estimates. The significant area of estimation uncertainty and critical judgements in applying accounting policies is risks in relation to foreign exchange movements and currency derivatives (N ote 15). The estimates and underlying assumptions are reviewed on a regular basis. Revisions to accounting estimates are recognised from the period in which the estimates are revised. The consolidated entity presents and classifies items in the financial statements consistently from one period to the next unless it is apparent, following a significant change in the nature of the entity's operations or a review of its financial statements, that another presentation or classification would be more appropriate, or the New Zealand Equivalents to International Financial Reporting Standards require a change in presentation. When an entity changes the presentation or classification of items in its financial statements, comparative amounts are reclassified unless the reclassification is impracticable. Certain comparative information was amended in these financial statements to conform to the current period presentation. These amendments do not impact the consolidated entity's results and do not have any significant impact on the statement of financial position. 10

12 TO THE FINANCIAL STA TEMEN TS (b) Basis of consolidation Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to direct the activities of an entity so as to significantly affect the returns of that entity. The results of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. lntragroup balances and any unrealised income and expenses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. (c) Foreign currency Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to New Zealand dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to New Zealand dollars at foreign exchange rates ruling at the date the fair value was determined. (d) Revenue from sale of goods Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns, discounts and allowances. Revenue is recognised when the risks and rewards of the underlying products have been substantially transferred to the customer and when it can be measured reliably. (e) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax ('GST'), except where the amount of GST incurred is not recoverable from the taxation authorities. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authorities is included as a current asset or liability in the statement of financial position. (f) Financial instruments: accounting policies that are applicable to the comparative information Financial assets and financial liabilities, except for derivatives, are measured initially at fair value plus directly attributable transaction costs, and thereafter at amortised cost. Non-derivative financial instruments principally comprise trade and other receivables, amounts receivable from related parties, cash and cash equivalents, trade and other payables and amounts payable to related parties. Cash and cash equivalents comprise bank and cash balances, call deposits and short-term investments with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the consolidated entity's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. 11

13 TO THE FINANCIAL STATEMENTS (f) Financial instruments: accounting policies that are applicable to the comparative information (continued) Derivative financial instruments The consolidated entity uses derivative financial instruments to manage the economic exposure to foreign currency risk and does not use derivatives for speculative purposes. Derivative financial instruments are recognised at fair value. The fair value is typically determined by reference to forward exchange rates and yield curve data, which are observable in the market. Subsequent to initial recognition, derivative financial instruments are stated at fair value. Changes in the value of derivatives are recognised in profit or loss unless they qualify for hedge accounting, when recognition of any change in fair value depends on the nature of the item being hedged. Cash flow hedges The purpose of hedge accounting is to mitigate the impact of changes in foreign exchange by matching the impact of the hedged risk and the hedging instrument in profit or loss. Changes in the value of derivatives used as hedges of future cash flows are recognised through other comprehensive income in the hedging reserve, with any ineffective portion recognised immediately in profit or loss. When the future cash flow results in the recognition of a nonfinancial asset or liability, the gains and losses previously recognised in the hedging reserve are included in the initial measurement of that asset or liability. otherwise, gains and losses previously recognised in the hedging reserve are recognised in profit or loss at the same time as the hedged transaction. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in the hedging reserve is retained in the hedging reserve until the forecast transaction occurs. Gains or losses on hedging instruments relating to an underlying exposure that no longer exists are taken to profit or loss. (g) Financial instruments: accounting policies that are applicable to the current reporting period and disclosures in relation to the initial application of NZ IFRS 9 Financial assets and financial liabilities, except for derivatives, are measured initially at fair value plus directly attributable transaction costs. The consolidated entity has determined that the business model within which debt instruments are held has the objective to collect contractual cash flows, and those contractual cash flows are solely payments of principal and interest. Therefore, debt instruments such as trade receivables and amounts receivable from related parties are subsequently measured at amortised cost and subject to regular review for impairment. The consolidated entity has reviewed and assessed its existing financial assets as at 5 September 2016 based on the facts and circumstances that existed at that date and concluded that the initial application of NZ IFRS 9 has not had any material impact on the measurement of the consolidated entity's financial assets. 12

14 Allied Foods (N.Z.} Limited TO THE FI NANCI AL STATEMENT S (g) Financial instruments: accounting policies that are applicable to the current reporting period and disclosures in relation to the initial application of NZ IFRS 9 (continued) The effect on the classification of the financial instruments is presented in the table below: Financial Classification Classification Carrying amount Carrying amount instrument under NZ IAS 39 under NZ IFRS 9 under NZ IAS 39 under NZ IFRS 9 as at 5 as at 5 September 2016 September 2016 * $000 $000 Foreign currency Derivatives Derivatives forward contracts designated as designated as - financial assets hedging hedging (Note 15} instruments instruments Foreign currency Derivatives Derivatives (1,118) (1,118) forward contracts designated as designated as - financial hedging hedging liabilities instruments instruments Note 15 Trade and other Loans and Financial assets 31,656 31,656 receivables receivables at amortised cost Note 6 Amounts due Loans and Financial assets from related receivables at amortised cost arties (Note 16} Cash and cash Loans and Financial assets 9,882 9,882 equivalents receivables at amortised cost Note 5 Amounts due to Financial Financial 12,626 (12,626) related parties liabilities at liabilities at (Note 16} amortised cost amortised cost Trade and other Financial Financial 24,559 (24,559) payables liabilities at liabilities at (Note 1 O} amortised cost amortised cost * The change in the measurement category of different financial assets has had no impact on their respective carrying amounts on initial application. The consolidated entity applied the NZ IFRS 9 new impairment model as of the date of initial application and determined that the effect of the adoption of the standard on the loss allowance was immaterial. Thus, no adjustment to the loss allowance was recognised in the consolidated financial statements; There were no financial assets or financial liabilities which the consolidated entity had previously designated as at fair value through profit or loss ('FVTPL') under NZ IAS 39 that were subject to reclassification, or which the consolidated entity has elected to reclassify upon the application of NZ IFRS 9. There were no financial assets or financial liabilities which the consolidated entity has elected to designate as at FVTPL at the date of initial application of NZ IFRS 9. 13

15 TO THE FI NAN CI AL STATEMENT S (g) Financial instruments: accounting policies that are applicable to the current reporting period and disclosures in relation to the initial application of NZ IFRS 9 (continued) Impairment NZ IFRS 9 introduces an expected credit loss model as opposed to an incurred credit loss model under NZ IAS 39. The expected credit loss model requires the consolidated entity to recognise a loss allowance for expected credit losses ('ECL') and changes in those ECL at each reporting date to reflect changes in credit risk since initial recognition of the financial assets that are not accounted for at fair value through profit and loss. The consolidated entity measures the loss allowance for trade receivables and receivables from related parties at an amount equal to lifetime ECL. Expected credit losses are estimated using reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. As at 5 September 2016, the consolidated entity reviewed and assessed its existing financial assets for impairment using reasonable and supportable information that is available without undue cost and effort in accordance with the requirements of NZ IFRS 9 to determine the credit risk of the assets at the date they were initially recognised, and compared that to the credit risk as at 5 September As a result, no adjustment to the credit loss allowance was recognised as at 5 September 2016 due to the fact that the effect of the application of the new impairment model was immaterial. No additional loss allowance, attributable to the change in the accounting policy upon application of the new accounting standard, was also recognised in the current reporting period. Derivative financial instruments The consolidated entity uses derivative financial instruments to manage the economic exposure to foreign currency risk and does not use derivatives for speculative purposes. Derivative financial instruments are recognised at fair value. The fair value is typically determined by reference to forward exchange rates and yield curve data, which are observable in the market. Subsequent to initial recognition, derivative financial instruments are stated at fair value. Changes in the value of derivatives are recognised in profit or loss unless they qualify for hedge accounting, when recognition of any change in fair value depends on the nature of the item being hedged. Cash flow hedges NZ IFRS 9 introduced new general hedge accounting requirements that allow greater flexibility to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an 'economic relationship'. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about the consolidated entity's risk management activities have also been introduced. The consolidated entity has applied the NZ IFRS 9 hedge accounting requirements prospectively from the date of initial application on 5 September The qualifying hedging relationships in place as at 5 September 2016 also qualified for hedge accounting in accordance with NZ IFRS 9 and were therefore regarded as continuing hedging relationships. No rebalancing of any of the hedging relationships was necessary on 5 September As the critical terms of the hedging instruments match those of their corresponding hedged items, all hedging relationships continue to be effective under NZ IFRS 9's effectiveness assessment requirements. The consolidated entity has also not designated any hedging relationships under NZ IFRS 9 that would not have met the qualifying hedge accounting criteria under NZ IAS 39. Consistent with prior periods, the consolidated entity has continued to designate the change in fair value of the entire forward contract, as the hedging instrument in the consolidated entity's cash flow hedge relationships. 14 EY

16 TO THE FI NANCI AL STATEMENT S (g) Financial instruments: accounting policies that are applicable to the current reporting period and disclosures in relation to the initial application of NZ IFRS 9 (continued) In addition, NZ IFRS 9 requires hedging gains and losses to be basis adjusted to the initial carrying amount of nonfinancial hedged items. NZ IFRS 9 states that such transfers are not a reclassification adjustment under NZ IAS 1 and hence they do not affect other comprehensive income. Previously, hedging gains and losses subject to basis adjustments were categorised as amounts that may be subsequently reclassified to profit or loss in other comprehensive income, and the actual basis adjustments were presented as a reclassification adjustment in other comprehensive income. Since the NZ IFRS 9 hedge accounting requirements apply prospectively from the date of initial application, the comparative figures have not been restated. However, the current year fair value gain of $900,000 (being $1,250,000 net of tax of $350,000) on forward foreign exchange contracts subject to cash flow hedge accounting that will be subsequently basis adjusted onto the initial carrying amount of non-financial hedged items, has been presented as amounts that will not be subsequently reclassified to profit or loss. Furthermore, the current year basis adjustment of $190,000 (being $264,000 net of tax of $74,000) has been presented as a direct transfer from equity to the initial carrying amount of the hedged items and to the deferred tax account as appropriate, rather than being presented as a reclassification adjustment affecting other comprehensive income. Apart from this, the application of the NZ IFRS 9 hedge accounting requirements has had no impact on the results and financial position of the consolidated entity. Please refer to Note 15 for disclosures regarding the consolidated entity's risk management activities. The policies in accordance with NZ IFRS 9 that have been applied to the hedge accounting in the current period are summarised below. The purpose of hedge accounting is to mitigate the impact of changes in foreign exchange by matching the impact of exchange rate movements on the hedged item and the hedging instrument. The consolidated entity designates certain derivatives as hedging instruments in respect of foreign currency risk in cash flow hedges. At the inception of the hedge relationship, the consolidated entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its hedging strategy. Furthermore, at the inception of the hedge and on an ongoing basis, the consolidated entity documents whether the hedging instrument is effective in offsetting changes in cash flows of the hedged item attributable to the hedged risk, which is when the hedging relationships meet all the following hedge effectiveness requirements: - there is an economic relationship between the hedged item and the hedging instrument; - the effect of credit risk does not dominate the value changes that result from that economic relationship; and - the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the consolidated entity actually hedges and the quantity of the hedging instrument that the consolidated entity actually uses to hedge that quantity of hedged item. If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging relationship remains the same, the consolidated entity adjusts the hedge ratio of the hedging relationship so that it meets the qualifying criteria again. The consolidated entity designates the full change in the fair value of a forward contract as the hedging instrument for all its hedging relationships involving forward contracts. Changes in the value of derivatives used as hedges of future cash flows are recognised through other comprehensive income in the hedging reserve, with any ineffective portion recognised immediately in profit or loss. When the future cash flow results in the recognition of a non-financial asset or liability, the gains and losses previously recognised in the hedging reserve are included in the initial measurement of that asset or liability. Otherwise, gains and losses previously recognised in the hedging reserve are recognised in profit or loss at the same time as the hedged transaction. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in the hedging reserve is retained in the hedging reserve until the forecast transaction occurs. Gains or losses on hedging instruments relating to an underlying exposure that no longer exists are taken to profit or loss. 15 EY

17 TO THE FINANCIAL STATEMENTS (h) Income tax Income tax expense comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items taken directly to other comprehensive income. Current tax is the tax expected to be payable on taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. (i) Property, plant and equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of items of property, plant and equipment sufficient to reduce them to estimated residual value. Land is not depreciated. The estimated useful lives are generally deemed to be no longer than: Freehold and leasehold buildings Plant and equipment Fixtures and fittings Motor Vehicles 50 years 12 years 12 years 4 years (j) Leases A lease is an agreement whereby the lessor conveys to the lessee, in return for a payment or a series of payments, the right to use a specific asset for an agreed period of time. Where the group is a lessee and has substantially all the risks and rewards of ownership of an asset, the arrangement is considered a finance lease. Finance leases are recognised as assets of the consolidated entity within property, plant and equipment at the inception of the lease at the lower of fair value and the present value of the minimum lease payments. Depreciation on leased assets is charged to profit or loss on the same basis as owned assets. Payments made under finance leases are apportioned between capital repayments and interest expense charged to profit or loss. Other leases where the group is a lessee are treated as operating leases. Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease, as is the benefit of lease incentives. Where the group is a lessor under an operating lease, the asset is capitalised within property, plant and equipment and depreciated over its useful economic life. Payments received under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. 16

18 TO THE FINANCIAL STATEMENTS (k) Intangible assets Goodwill Goodwill arises on acquisition of businesses and subsidiaries. Business combinations are accounted for by applying the acquisition method. Goodwill represents the difference between the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the net identifiable assets acquired. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment. Negative goodwill arising on an acquisition is recognised immediately in profit or loss. Research and development Research expenditure is recognised in profit or loss as incurred. Development expenditure is capitalised if the product or process is technically and commercially feasible but is otherwise expensed as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Other intangible assets other intangible assets that are acquired by the consolidated entity, which have finite useful lives, are stated at cost less accumulated amortisation and accumulated impairment losses. Expenditure on internally generated goodwill and brands is recognised in profit or loss as incurred. Amortisation Amortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of intangible assets, from the date that they are available for use. Goodwill and intangible assets with an indefinite useful lives are not amortised but tested for impairment at each reporting date. The estimated useful lives of software are generally deemed to be no longer than 7 years. (I) Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes raw materials, direct labour and expenses and an appropriate proportion of production and other overheads, calculated on a first-in first-out basis. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. (m) Impairment of non-financial assets The carrying amounts of the consolidated entity's assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. For goodwill and intangible assets without a finite life, the recoverable amount is estimated at each reporting date. The recoverable amount of assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised in profit or loss whenever the carrying amount of an asset or cash-generating unit exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. Impairment losses in respect of goodwill are not subsequently reversed. For other assets, an impairment charge is reversed if there has been a change in the estimates used to determine the recoverable amount, but only to the extent that the new carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment charge had been recognised. 17

19 TO THE FINANCIAL STATEMENTS (n) Employee benefits Short-term employee benefits Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the consolidated entity has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Defined contribution superannuation plans Obligations for contributions to defined contribution plans are recognised as an expense in profit or loss as incurred. Long-term employee benefits The consolidated entity's net obligation in respect of long-term employee benefits is the present value of future benefit that employees have earned in return for their service in the current and prior periods. Remeasurements are recognised in profit or loss in the period in which they arise. 18

20 TO THE FINANCIAL STATEMENTS Consolidated $000 $ T H E R EXP E N S E S Cost of sales include: Defined contribution pension costs Distribution expenses include: Defined contribution pension costs Administrative expenses include: Defined contribution pension costs Increase in loss allowance on trade receivables Rental expense 13 other operating expenses include Research and development costs that are not eligible for capitalisation Gain on disposal of property, plant and equipment ,524 2, (20) (116) 3. NET FINANCIAL INCOME Interest income Third parties Net foreign exchange gain Finance income Interest expense Third parties Net foreign exchange loss Finance expense Net financial income (30) (6) (75) (105) (6)

21 TO THE FINANCIAL STATEMENTS Consolidated $000 $ I N C O M E T A X Recognised in the statement of profit and loss and other comprehensive income Current tax expense Current year Adjustments for prior period Deferred tax expense Origination and reversal of temporary differences Adjustments for prior period Total income tax expense in the statement of profit and loss and other comprehensive income 4,409 4,177 (119) (140) 4,290 4,037 (394) (453) (280) (357) 4,010 3,680 Numerical reconciliation between tax benefit and pre-tax net loss Profit before tax Income tax expense using the domestic tax rate of 28% (2016: 28%) Change in income tax expense due to: Non-deductible expenses Over provided in prior years Total income tax expense Income tax recognised in other comprehensive income Changes in cash flow hedging position 14,110 13,022 3,951 3, (5) (44) 4,010 3, (565) Deferred tax assets and liabilities Deferred tax assets are attributable to the following: Loss allowance for doubtful debts Employee benefits Provision for obsolete inventory Hedging reserve Intangible assets Deferred tax liabilities are attributable to the following: Property, plant and equipment Hedging reserve Intangible assets Net deferred tax liability ,598 1, ,739 2,015 (3,540) (3,559) (130) (242) (3,670) {3,801) (1,931) (1,787) 20 EY

22 TO THE FINANCIAL STATEMENTS Consolidated $000 $ C A S H A N D C A S H E Q U I V A L E N T S Cash at bank and on hand Cash and cash equivalents in the statement of cash flows 8,681 9,882 8,681 9, T R A D E A N D O T H E R R E C E I VA B L E S Trade receivables Less: loss allowance Fair value derivatives designated as hedging instruments Other receivables 29,118 30,393 (342) (313) 28,776 30, ,576 29,989 31, CO NT ROLLE D ENT IT I ES Subsidiary Principal Activities Ownership% Country of Incorporation Balance Date George Weston Foods Milling of flour, manufacture and (N.Z.) Limited distribution of food and chemical products New Zealand 3 September 21

23 TO THE FINANCIAL STATEMENTS 8. PROPERTY, PLANT AND EQUIPMENT Consolidated Freehold Leasehold Plant and Fixtures Motor Capital Total land and land and equipment and Vehicles work in buildings buildings fittings progress Cost Balance at 4 September , ,121 3,775 4,143 8, ,721 Additions , ,353 Transfers from capital works in progress 4,716 3, (8,688) Disposals (74) (275) (671) (5,528) Balance at 3 September , ,106 3,634 4,749 4, ,632 (4,508) 9,439 Accumulated depreciation and impairment losses Balance at 4 September , ,136 2,947 3, ,829 Depreciation , ,653 Disposals (74) (4,424) (272) (645) (5,415) Balance at 3 September , ,595 2,957 3, ,068 Carr in9 amounts at 4 September , , ,060 8,765 77,892 at 3 September , , ,696 4,430 78,564 22

24 TO THE FINANCIAL STATEMENTS 9. I N T A N G I B L E S Consolidated Cost Balance at 4 September 2016 Additions Balance at 3 September 2017 Accumulated amortisation and impairment losses Balance at 4 September 2016 Amortisation for the year Balance at 3 September 2017 Carrying amounts At 4 September 2016 At 3 September 2017 Goodwill Brands Software Total 1, ,719 12,364 1, ,719 12, ,648 9,398 1,071 1, ,719 10,469 1,895 1,071 2,966 1,895 1,895 23

25 TO THE FINANCIAL STATEMENTS Consolidated $000 $ TRADE AND OTHER PAYABLES Current Trade payables Fair value derivatives designated as hedging instruments Other payables and accrued expenses 13, ,461 21,344 20,399 1,118 4,160 25, EMPLOYEE BENEFITS Current liabilities Liability for annual leave 2,803 2,788 Non-current liabilities Liability for long-service leave EY

26 TO THE FINANCIAL STATEMENTS Consolidated $000 $ C A P I T A L A N D R E S E R V E S Share capital 453,200 ordinary shares (2016: 453,200) 4,000,000 preference shares (2016: 4,000,000) 906 4,000 4, ,000 4,906 At 3 September 2017, share capital comprised 453,200 authorised, issued and fully paid ordinary shares (2016: 453,200) and 4,000,000 preference shares (2016: 4,000,000). The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. During the 52 week period ended 3 September 2017 the Company declared and paid dividends of $8,000,000 (2016: $nil). The preference shares are redeemable upon two-day notice being given by the Company. Dividends are noncumulative and are payable as determined from time to time by the Directors of the Company. These shares rank for payment of dividends in priority to ordinary shares. In the event of the Company being wound up, all shares rank equally in any distribution of funds. Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. The following table identifies the movements in the cash flow hedging reserve during the year, and the periods in which the cash flows are expected to occur. The periods in which the cash flows are expected to impact profit or loss are materially the same. Currency Derivatives Opening balance Gain/(loss) recognised in the hedging reserve Amounts reclassified from the hedging reserve to profit or loss: -Cost of sales (hedged item has affected profit or loss) Amounts removed from the hedging reserve and included in a non-financial asset: - Inventory Deferred tax Closing balance Cash flows are expected to occur: - within six months - between six months and one year - between one and two years (756) 1, (424) (1,811) 7 (214) 565 (756) (415) (313) (27) (756) 25