Pilgrim's Pride Corporation
PILGRIMS PRIDE CORP (Form: 8-K, Received: 09/25/2017 07:48:28)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 25, 2017

 

 

PILGRIM’S PRIDE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-09273   75-1285071

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

1770 Promontory Circle, Greeley, CO   80634-9038
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (970) 506-8000

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 7.01 Regulation FD Disclosure.

On September 25, 2017, Pilgrim’s Pride Corporation (the “Company”) distributed a confidential preliminary offering circular dated September 25, 2017 (the “Offering Circular”) relating to the proposed offering of additional 5.750% senior notes due 2025 and new senior notes due 2027 to be offered and sold only to qualified institutional buyers in an unregistered offering in reliance on Rule 144A under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States in reliance on Regulation S under the Securities Act (the “Proposed Offering”).

The Company is furnishing herewith, and incorporating by reference herein, as Exhibit 99.1 attached hereto, certain information excerpted from the Offering Circular, which includes, among other items, the audited financial statements of Moy Park Holdings (Europe) Ltd., a private company incorporated under the laws of Northern Ireland, for the year ended December 31, 2016, prepared on the basis of International Financial Reporting Standards as adopted by the European Union and audited in accordance with International Standards on Auditing (UK & Ireland).

In addition, on September 25, 2017, the Company issued a press release announcing the launch of the Proposed Offering. The Company is furnishing herewith, and incorporating by reference herein, as Exhibit 99.2 attached hereto, a copy of the press release.

The information contained in this Item 7.01, including Exhibit 99.1 and Exhibit 99.2, shall not be deemed filed for purposes of Section 18 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Exchange Act or the Securities Act, except as shall be expressly set forth by specific reference in such filing.

Exhibit 99.1 and Exhibit 99.2 contain statements intended as “forward-looking statements” which are subject to the cautionary statements about forward-looking statements set forth therein.

 

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit

No.

  

Description

99.1    Sections of Pilgrim’s Pride Corporation’s confidential preliminary offering circular, dated September 25, 2017.
99.2    Press Release issued by Pilgrim’s Pride Corporation, dated September 25, 2017.


Exhibit Index

 

Exhibit
No.

  

Description

99.1    Sections of Pilgrim’s Pride Corporation’s confidential preliminary offering circular, dated September 25, 2017.
99.2    Press Release issued by Pilgrim’s Pride Corporation, dated September 25, 2017.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

September 25, 2017     Pilgrim’s Pride Corporation
    By:  

/s/ Fabio Sandri

      Name: Fabio Sandri
      Title: Chief Financial Officer

 

Exhibit 99.1

Sections of Pilgrim’s Pride Corporation’s Confidential Preliminary Offering Circular,

dated September 25, 2017

Certain Definitions

All references to:

 

  the “issuer” or “Pilgrim’s Pride Corporation” are to Pilgrim’s Pride Corporation, a Delaware corporation;

 

  the “guarantors” are to (1) Pilgrim’s Pride Corporation of West Virginia, Inc., a West Virginia corporation, (2) Gold’n Plump Poultry, LLC, a Minnesota limited liability company, (3) Gold’n Plump Farms, LLC, a Minnesota limited liability company, and (4) JFC LLC, a Minnesota limited liability company, each of which is a wholly-owned subsidiary of Pilgrim’s Pride Corporation; and

 

  “Pilgrim’s Pride,” “Pilgrim’s,” “PPC,” “we,” “us,” “our,” “ours,” the “Company” and words of a similar effect are to Pilgrim’s Pride Corporation together with its subsidiaries (other than Granite and its subsidiaries).

 

  “British pounds,” “pounds,” “pounds sterling” and “£” are to the lawful currency of the United Kingdom;

 

  “Granite” are Granite Holdings S.à r.l. (formerly Moy Park Lux S.à r.l.), a private limited liability company ( société à responsabilité limitée ) incorporated and existing under the laws of Luxembourg. Granite is a holding company that owns Moy Park;

 

  the “JBS Group” are JBS S.A. and its consolidated subsidiaries;

 

  “JBS USA” are to JBS USA Holding Lux S.à r.l. (formerly JBS USA Holdings, Inc.), a private limited liability company ( société à responsabilité limitée ) incorporated and existing under the laws of Luxembourg. JBS USA is an indirect, wholly-owned subsidiary of JBS S.A.;

 

  “JBS S.A.” are to JBS S.A., a corporation ( sociedade anônima ) incorporated under the laws of Brazil. JBS S.A. is the ultimate parent company of the JBS Group. As of the date hereof, JBS S.A., through its wholly-owned subsidiaries, including JBS USA, beneficially owns 78.6% of Pilgrim’s Pride Corporation’s outstanding common stock;

 

  “Moy Park” are to Moy Park Holdings (Europe) Ltd., a private company incorporated under the laws of Northern Ireland. Moy Park owns the companies that comprise the “Moy Park” business based in the United Kingdom;

 

  the “Moy Park Acquisition” are to PPC’s acquisition of 100% of the total capital stock of Granite from JBS S.A.;

 

  “Moy Park Group” are to Moy Park and its subsidiaries;

 

  “U.K.” and “United Kingdom” are to the United Kingdom of Great Britain and Northern Ireland;

 

  “U.S.” and “United States” are to the United States of America, its territories and possessions, any state of the United States and the District of Columbia; and

 

  “U.S. dollars,” “dollars,” “US$” and “$” are to the lawful currency of the United States of America.


Disclosure Regarding Forward Looking Statements

Certain written and oral statements made by us may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made herein or in documents incorporated by reference herein. Statements of our intentions, beliefs, expectations or predictions for the future, denoted by the words “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “imply,” “intend,” “should,” “foresee” and similar expressions, are forward-looking statements that reflect our current views about future events and are subject to risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include the following:

 

    Matters affecting the chicken industry generally, including fluctuations in the commodity prices of feed ingredients and chicken;

 

    Our ability to obtain and maintain commercially reasonable terms with vendors and service providers;

 

    Our ability to maintain contracts that are critical to our operations;

 

    Our ability to retain management and other key individuals;

 

    Outbreaks of avian influenza or other diseases, either in our own flocks or elsewhere, affecting our ability to conduct our operations and/or demand for our poultry products;

 

    Contamination of our products, which has previously and can in the future lead to product liability claims and product recalls;

 

    Exposure to risks related to product liability, product recalls, property damage and injuries to persons, for which insurance coverage is expensive, limited and potentially inadequate;

 

    Changes in laws or regulations affecting our operations or the application thereof;

 

    New immigration legislation or increased enforcement efforts in connection with existing immigration legislation that cause our costs of business to increase, cause us to change the way in which we do business or otherwise disrupt our operations;

 

    Competitive factors and pricing pressures or the loss of one or more of our largest customers;

 

    Inability to consummate, or effectively integrate, any acquisition or to realize the associated anticipated cost savings and operating synergies;

 

    Currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and other risks associated with foreign operations;

 

    Disruptions in international markets and distribution channels;

 

    Our ability to maintain favorable labor relations with our employees and our compliance with labor laws;

 

    Extreme weather or natural disasters;

 

    The impact of uncertainties in litigation; and

 

    Other risks described under “Risk Factors” or elsewhere herein.

Actual results could differ materially from those projected in these forward-looking statements as a result of these factors, among others, many of which are beyond our control.

 

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In making these statements, we are not undertaking, and specifically decline to undertake, any obligation to address or update each or any factor in future filings or communications regarding our business or results, and we are not undertaking to address how any of these factors may have caused changes to information contained in previous filings or communications. Although we have attempted to list comprehensively these important cautionary risk factors, we must caution investors and others that other factors may in the future prove to be important and affect our business or results of operations.

Recent Developments

Moy Park Acquisition

On September 8, 2017, Onix Investments UK Limited (“Onix”), a wholly-owned subsidiary of Pilgrim’s Pride Corporation, acquired from JBS S.A. 100% of the issued and outstanding shares of common stock of Granite, the holding company that owns Moy Park, owner of the companies that comprise “Moy Park’s” business based in the United Kingdom, for an aggregate purchase price of £1.0 billion ($1.3 billion, based on an exchange rate of US$1.3099 per £1.00 on September 8, 2017), consisting of (on a cash-free, debt-free basis) £230.0 million ($301.3 million) in cash, a £562.5 million ($736.8 million) promissory note (the “JBS S.A. Seller Note”) issued on September 8, 2017 by Onix, and guaranteed by Pilgrim’s Pride Corporation, to JBS S.A. and the assumption of certain debt of Moy Park and its subsidiaries, including Moy Park (Bondco) Plc’s £300.0 million aggregate principal amount of 6.25% Senior Notes due 2021 (the “Moy Park Notes”). We refer to this transaction as the “Moy Park Acquisition.”

We believe that the Moy Park Acquisition will position us to become a global player in the chicken business, giving us access to the United Kingdom and European markets, which advances our strategy of diversifying our portfolio to be more global while at the same time reducing volatility across our businesses. In addition, we believe the Moy Park Acquisition will provide us with new business opportunities through the addition of Moy Park’s fully integrated poultry production platform and its strong presence in prepared foods. The Moy Park Acquisition was unanimously approved by a Special Committee of the Pilgrim’s Pride Corporation’s Board of Directors. Comprised entirely of independent equity directors elected to the Board by a vote controlled by the shareholders unaffiliated with JBS S.A., the Special Committee was delegated the full authority of the Pilgrim’s Pride Corporation’s Boards of Directors with respect to the Moy Park Acquisition.

The JBS S.A. Seller Note is subject to customary representations and warranties, covenants and events of default. Our obligations under the JBS S.A. Seller Note are subordinated to our obligations under the U.S. Credit Facility, which was amended on September 6, 2017 to permit the Moy Park Acquisition. Interest on the outstanding principal balance of the JBS S.A. Seller Note shall accrue at the rate per annum equal to (i) from and after November 8, 2017 and prior to January 7, 2018, 4.00%, (ii) from and after January 7, 2018 and prior to March 8, 2018, 6.00% and (iii) from and after March 8, 2018, 8.00%. Such interest shall be payable on the last business day of each month, commencing with November 2017, and ending on the maturity date of September 6, 2018 or such earlier date on which the principal of this Note is paid in full. The outstanding principal amount of the JBS S.A. Seller Note is payable at maturity. If we or any of our subsidiaries incur or issue any unsecured indebtedness, Onix, to the extent permitted by the terms of the U.S. Credit Facility, is required to prepay the principal of the JBS S.A. Seller Note, together with accrued and unpaid interest thereon, in an amount equal to the net proceeds of such indebtedness. We intend to use the proceeds from the issuance of the notes to repay the JBS S.A. Seller Note in full.

Moy Park is a leading and highly regarded U.K. food company, providing fresh, high quality and locally farmed poultry and convenience food products. The Moy Park Group has operated in the U.K. and Ireland retail market for over 50 years and delivers a range of fresh, ready-to-cook, coated and ready-to-eat poultry products to major retailers and large foodservice customers throughout the United Kingdom, Ireland, France and the Netherlands. The Moy Park Group operates four fresh chicken processing plants in the United Kingdom with an average daily processing capacity of approximately 860,000 birds and nine further processed and prepared foods plants throughout Europe with an aggregate monthly processing capacity of approximately 19,500 tons, as of June 30, 2017.

Moy Park’s customers include the foodservice industry, principally chain restaurants and food processors such as McDonald’s®, KFC® and Quick®, each of the 10 largest supermarkets in the U.K., such as Tesco®, Sainsbury’s®, Waitrose®, Morrisons®, Aldi® and Lidl®, as well as major retailers in Europe, including Carrefour® and Picard®.

 

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In addition to selling an extensive range of products sold by its retail customers under their own brand names, Moy Park offers a range of branded products, including those under the “Moy Park” poultry brand, which is well known in Northern Ireland and Ireland, and the “Castle Lea” and “O’Kane” brands of prepared, breaded and ready-to-eat products which are sold across the U.K.

During the six-month period ended June 30, 2017, the Moy Park Group generated £761.9 million ($992.5 million) in revenue, £90.3 million ($117.6 million) in gross profit and £15.3 million ($19.9 million) in profit for the period. As of June 30, 2017, the Moy Park Group had cash and cash equivalents of £130.1 million ($169.5 million) and total loans and borrowings of £322.5 million ($420.1 million). In 2016, the Moy Park Group generated £1,437.4 million ($1,872.4 million) in revenue, £171.9 million ($223.9 million) in gross profit and £32.9 million ($42.9 million) in profit for the year. As of December 31, 2016, the Moy Park Group had cash and cash equivalents of £139.6 million ($181.8 million) and loans and borrowings of £326.6 million ($425.4 million). The financial information presented above has been translated into U.S. dollars from British pounds at an exchange rate of US$1.3026 per £1.00, which was the Bloomberg Composite Rate on June 30, 2017.

The financial condition and results of operations for the Moy Park Group as of and for the year ended December 31, 2015 have not been audited by independent auditors in connection with the offering of the notes, and an audit report for this period has not been prepared or included in Pilgrim’s Pride Corporation’s confidential preliminary offering circular, dated September 25, 2017 (the “Offering Circular”). The following financial information of the Moy Park Group as of and for the year ended December 31, 2015, has not been confirmed by the initial purchasers or reviewed on our behalf by our or Moy Park’s independent auditors.

In 2015, the Moy Park Group generated revenue of £1442.3 million, gross profit of £149.2 million, EBITDA of £111.7 million for the year ended December 31, 2015. As of December 31, 2015, the Moy Park Group had cash and cash equivalents of £173.4 million and loans and borrowings of £327.3 million.

As a result of the Moy Park Acquisition, a Change of Control (as defined in the indenture governing the Moy Park Notes (the “Moy Park Indenture”)) will occur. The terms of the Moy Park Indenture require Moy Park (Bondco) Plc, the issuer of the Moy Park Notes, to make, not later than 30 days following the Change of Control, an offer to purchase for cash any and all of the outstanding Moy Park Notes at a purchase price equal to 101% of the principal amount of each Moy Park Note repurchased plus accrued and unpaid interest and additional amounts, if any, thereon, to the date of purchase.

This is neither an offer to purchase nor a solicitation of an offer to sell or buy the Moy Park Notes. Any offer to purchase the Moy Park Notes will be made solely on the terms and subject to the conditions set forth in a separate offer to purchase and that will be directed to holders of the Moy Park Notes.

 

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Summary Financial Data of PPC

Net Debt

Net debt is defined as (i) long-term debt, less current maturities, plus (ii) current maturities of long-term debt, minus (iii) cash and cash equivalents. Net debt is presented because it is used by us, and we believe it is frequently used by securities analysts, investors and other parties, in addition to and not in lieu of debt as presented under GAAP, to compare the indebtedness of companies. A reconciliation of net debt is as follows:

 

     As of December 28,
2014
    As of December 27,
2015
     As of December 25,
2016
     As of June 26,
2016
     As of June 25,
2017
 
     ( in thousands )  

Long-term debt, less current maturities

   $ 3,980     $ 985,509      $ 1,011,858      $ 1,117,979      $ 1,404,264  

Add: Notes payable and current maturities of long-term debt

     262       28,812        94        90        40,098  

Minus: Cash and cash equivalents

     576,143       439,638        120,328        41,047        303,937  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net debt (cash position)

   $ (571,901   $ 574,683      $ 891,624      $ 1,077,022      $ 1,140,425  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

“EBITDA” is defined as the sum of net income plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of: (i) income (loss) attributable to noncontrolling interests, (ii) restructuring charges and (iii) foreign currency transaction losses (gains). EBITDA is presented because it is used by us, and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with GAAP, to compare the performance of companies. We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA applicable to continuing operations. We also believe that Adjusted EBITDA, in combination with our financial results calculated in accordance with GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of its performance with its competitors. EBITDA and Adjusted EBITDA are not measurements of financial performance under GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under GAAP. Some of the limitations of these measures are:

 

    EBITDA and Adjusted EBITDA do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;

 

    EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

 

    EBITDA and Adjusted EBITDA do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;

 

    Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;

 

    EBITDA and Adjusted EBITDA are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;

 

    EBITDA and Adjusted EBITDA do not reflect the impact of earnings or charges attributable to noncontrolling interests; and

 

    EBITDA and Adjusted EBITDA do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us.

 

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In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with GAAP. You should compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only supplementally.

A reconciliation of net income to EBITDA and Adjusted EBITDA is as follows:

 

     For the twenty-six weeks ended      For the fifty-two weeks
ended

June 25, 2017
 
     June 26, 2016      June 25, 2017     
     ( in thousands )  

Net income

   $ 271,053      $ 328,536      $ 497,212  

Add:

        

Interest expense, net (i)

     22,205        26,975        48,967  

Income tax expense

     141,002        161,119        253,023  

Depreciation and amortization

     88,683        107,671        199,502  

Minus:

        

Amortization of capitalized financing costs (ii)

     1,889        1,947        3,890  
  

 

 

    

 

 

    

 

 

 

EBITDA

     521,054        622,354        994,814  
  

 

 

    

 

 

    

 

 

 

Add:

        

Foreign currency transaction losses (gains) (iii)

     (4,979      (1,191      7,685  

Restructuring charges (iv)

     —          4,349        5,418  

Minus:

        

Net income (loss) attributable to noncontrolling interest

     (204      974        375  
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 516,279      $ 624,538      $ 1,007,542  
  

 

 

    

 

 

    

 

 

 

 

(i) Interest expense, net, consists of interest expense less interest income.
(ii) Amortization of capitalized financing costs is included in both interest expense, net and depreciation and amortization above.
(iii) We measure the financial statements of our Mexico subsidiaries as if the U.S. dollar were the functional currency. Accordingly, we remeasure assets and liabilities, other than non-monetary assets, of the Mexico subsidiaries at current exchange rates. We remeasure nonmonetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. Currency exchange gains or losses resulting from these remeasurements are included in the Foreign currency transaction losses (gains) above.
(iv) Restructuring charges includes tangible asset impairment, severance and change-in-control compensation costs, and losses incurred on both the sale of unneeded broiler eggs and flock depletion.

 

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Risks Relating to Our Business

J&F Investimentos S.A. is investigating improper payments made in Brazil in connection with admissions of illicit conduct to the Brazilian Federal Prosecutor’s Office and the outcome of this investigation and related investigations by the Brazilian government could have a material adverse effect on us.

On May 3, 2017, certain officers of J&F Investimentos S.A. (“J&F,” and the companies controlled by J&F, the “J&F Group”) (including two former directors of the Company), a company organized in Brazil and an indirect controlling stockholder of the Company, entered into plea bargain agreements (the “Plea Bargain Agreements”) with the Brazilian Federal Prosecutor’s Office ( Ministério Público Federal ) (“MPF”) in connection with certain illicit conduct involving improper payments made to Brazilian politicians, government officials and other individuals in Brazil committed by or on behalf of J&F and certain J&F Group companies . The details of such illicit conduct are set forth in separate annexes to the Plea Bargain Agreements, and include admissions of improper payments to politicians and political parties in Brazil over the last 10 years in exchange for receiving, or attempting to receive, favorable treatment for certain J&F Group companies in Brazil.

Pursuant to the terms of the Plea Bargain Agreements, the MPF agreed to grant immunity to the officers in exchange for such officers agreeing, among other considerations, to: (1) pay fines totaling R$225.0 million; (2) cooperate with the MPF, including providing supporting evidence of the illicit conduct identified in the annexes to the Plea Bargain Agreements; and (3) present any previously undisclosed illicit conduct within 120 days following the execution of the Plea Bargain Agreements as long as the description of such conduct had not been omitted in bad faith. In addition, the Plea Bargain Agreements provide that the MPF may terminate any Plea Bargain Agreement and request that the Supreme Court of Brazil ( Supremo Tribunal Federal ) (“STF”) ratify such termination if any illicit conduct is identified that was not included in the annexes to the Plea Bargain Agreements.

On June 5, 2017, J&F, in its role as the controlling shareholder of the J&F Group, entered into a leniency agreement (the “Leniency Agreement”) with the MPF, whereby J&F assumed responsibility for the conduct that was described in the annexes to the Plea Bargain Agreements. In connection with the Leniency Agreement, J&F has agreed to pay a fine of R$10.3 billion, adjusted for inflation, over a 25-year period. In exchange, the MPF agreed not to initiate or propose any criminal, civil or administrative actions against J&F, the companies of the J&F Group or those officers of J&F with respect to such conduct. Pursuant to the terms of the Leniency Agreement, if the Plea Bargain Agreement is annulled by the STF, then the Leniency Agreement may also be terminated by the Fifth Chamber of Coordination and Reviews of the MPF or, solely with respect to the criminal related provisions of the Leniency Agreement, by the 10 th Federal Court of the Federal District in Brasília, the authorities responsible for the ratification of the Leniency Agreement.

On August 24, 2017, the Fifth Chamber ratified the Leniency Agreement. On September 8, 2017, the 10 th Federal Court ratified the Leniency Agreement. In compliance with the terms of the Leniency Agreement, J&F is conducting an internal investigation involving improper payments made in Brazil by or on behalf of J&F, certain companies of the J&F Group and certain officers of J&F (including two former directors of the Company). J&F has engaged outside advisors to assist it in conducting the investigation, including an assessment as to whether any of the misconduct disclosed to Brazilian authorities had any connection to the Company or Moy Park, or resulted in a violation of U.S. law. The internal investigation is ongoing and the Company is fully cooperating with J&F in connection with the investigation. We cannot predict when the investigation will be completed or the results of the investigation, including the outcome or impact of any government investigations or any resulting litigation.

On September 8, 2017, at the request of the MPF, the STF issued an order temporarily revoking the immunity from prosecution previously granted to Joesley Mendonça Batista and another executive of J&F in connection with the Plea Bargain Agreements. The MPF requested the revocation of their immunity following public disclosure of certain voice recordings involving them in which they discussed certain alleged illicit activities the MPF claims were not covered by the annexes to their respective Plea Bargain Agreements. On September 10, 2017, Joesley Mendonça Batista voluntarily turned himself into police in Brazil. On September 11, 2017, the 10 th Federal Court suspended its ratification of the criminal provisions of the Leniency Agreement as a result of the STF’s temporary revocation of Joesley Mendonça Batista immunity under his Plea Bargain Agreement. The provisions of the Leniency Agreement related to criminal conduct will remain suspended until the STF issues a final decision on the validity of the Plea Bargain Agreements.

 

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We cannot predict whether the Plea Bargain Agreements will be upheld or terminated by the STF, and, if terminated, whether the Leniency Agreement will be also terminated by either the Fifth Chamber and/or the 10 th Federal Court, and to what extent. If the Leniency Agreement is terminated, in whole or in part, as a result of any Plea Bargain Agreement being terminated, this may materially adversely affect the public perception or reputation of the J&F Group, including the Company, and could have a material adverse effect on the J&F Group’s business, financial condition, results of operations and prospects. Furthermore, the termination of the Leniency Agreement may cause the termination of certain stabilization agreements entered into by JBS S.A. and certain of its subsidiaries, which would permit the lenders of the debt that is the subject to the terms of the stabilization agreements to accelerate their debt, which could have a material adverse effect on JBS S.A. and its subsidiaries (including the Company).

Separately, Wesley Mendonça Batista (the former Chief Executive Officer of JBS S.A.) was arrested on September 13, 2017, as a result of a separate investigation by Brazil’s federal police alleging that Joesley Mendonça Batista and Wesley Mendonça Batista carried out insider trading transactions involving the sale of shares of JBS S.A. and foreign exchange futures contracts prior to the announcement of the Plea Bargain Agreements. The Securities and Exchange Commission of Brazil ( Comissão de Valores Mobiliários ) is also investigating these insider trading transactions. On September 21, 2017, the Brazilian federal police formally requested that the federal prosecutor bring charges against Joesley Mendonça Batista and Wesley Mendonça Batista as a result of this investigation. These investigations, possible indictments and any further developments in this matter may materially adversely affect the public perception or reputation of JBS S.A. and its subsidiaries (including the Company) and could have a material adverse effect on JBS S.A. and its subsidiaries (including the Company).

We are subject to anti-corruption laws in the jurisdictions in which we operate, including the U.S. Foreign Corrupt Practices Act and the UK Bribery Act.

We are subject to a number of anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”) and the UK Bribery Act.

The FCPA and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper payments or improperly providing anything of value to foreign officials, directly or indirectly, for the purpose of obtaining or keeping business and/or other benefits. Some of these laws have legal effect outside the jurisdictions in which they are adopted under certain circumstances. The FCPA also requires maintenance of adequate record-keeping and internal accounting practices to accurately reflect transactions. Under the FCPA, companies operating in the United States may be held liable for actions taken by their strategic or local partners or representatives.

The UK Bribery Act is broader in scope than the FCPA in that it directly prohibits commercial bribery (i.e. bribing others than government officials) in addition to bribery of government officials and it does not recognize certain exceptions, notably for facilitation payments, that are permitted by the FCPA. The UK Bribery Act also has wide jurisdiction. It covers any offense committed in the United Kingdom, but proceedings can also be brought if a person who has a close connection with the United Kingdom commits the relevant acts or omissions outside the United Kingdom. The UK Bribery Act defines a person with a close connection to include British citizens, individuals ordinarily resident in the United Kingdom and bodies incorporated in the United Kingdom. The UK Bribery Act also provides that any organization that conducts part of its business in the United Kingdom, even if it is not incorporated in the United Kingdom, can be prosecuted for the corporate offense of failing to prevent bribery by an associated person, even if the bribery took place entirely outside the United Kingdom and the associated person had no connection with the United Kingdom. Other jurisdictions in which we operate have adopted similar anti-corruption, anti-bribery and anti-kickback laws to which we are subject. Civil and criminal penalties may be imposed for violations of these laws.

Although the code of ethics and standards of conduct adopted by JBS S.A. in late 2015 requires our employees to comply with the FCPA and the UK Bribery Act, we are still implementing a formal compliance program and policies that cover our employees and consultants. We operate in some countries which are viewed as high risk for corruption. Despite our ongoing efforts to ensure compliance with the FCPA, the UK Bribery Act and similar laws, there can be no assurance that our directors, officers, employees, agents, third-party intermediaries and the companies to which we outsource certain of our business operations, will comply with those laws and our anti-

 

8


corruption policies, and we may be ultimately held responsible for any such non-compliance. If we or our directors or officers violate anti-corruption laws or other laws governing the conduct of business with government entities (including local laws), we or our directors or officers may be subject to criminal and civil penalties or other remedial measures, which could harm our reputation and have a material adverse impact on our business, financial condition, results of operations and prospects. Any investigation of any actual or alleged violations of such laws could also harm our reputation or have an adverse impact on our business, financial condition, results of operations and prospects.

The vote by the U.K. electorate in favor of having the U.K. exit the European Union could adversely impact our business, results of operations and financial condition.

In a referendum held in the United Kingdom on June 23, 2016, a majority of those voting voted for the United Kingdom to leave the European Union (referred to as “Brexit”). For now, the United Kingdom remains a member of the European Union and there will not be any immediate change in either European Union or U.K. law as a consequence of the vote. European Union law does not govern contracts and the United Kingdom is not part of the European Union’s monetary union. However, Brexit vote signals the beginning of a lengthy process under which the terms of the United Kingdom’s withdrawal from, and future relationship with, the European Union will be negotiated and legislation to implement the United Kingdom’s withdrawal from the European Union will be enacted. The ultimate impact of Brexit vote will depend on the terms that are negotiated in relation to the United Kingdom’s future relationship with the European Union. Although the timetable for U.K. withdrawal is not at all clear at this stage, it is likely that the withdrawal of the United Kingdom from the European Union will take more than two years to be negotiated and conclude.

Brexit could impair our ability to transact business in the United Kingdom and in countries in the European Union. Brexit has already and could continue to adversely affect European and/or worldwide economic and market conditions and could continue to contribute to instability in the global financial markets. The long-term effects of Brexit will depend in part on any agreements the United Kingdom makes to retain access to markets in the European Union following the United Kingdom’s withdrawal from the European Union. In addition, we expect that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replicate or replace. If the United Kingdom were to significantly alter its regulations affecting the food industry, we could face significant new costs. It may also be time-consuming and expensive for us to alter our internal operations in order to comply with new regulations. Additionally, Moy Park’s results of operations may be adversely affected if the United Kingdom is unable to secure replacement trade agreements and arrangements on terms as favorable as those currently enjoyed by the United Kingdom. Any of the effects of Brexit could adversely affect our business, business opportunities, results of operations, financial condition and cash flows.

Our future financial and operating flexibility may be adversely affected by significant leverage.

On a historical consolidated basis, as of June 25, 2017, we had approximately $873.6 million in secured indebtedness, $583.3 million of unsecured indebtedness and had the ability to borrow approximately $631.9 million under our credit agreements. Significant amounts of cash flow will be necessary to make payments of interest and repay the principal amount of such indebtedness.

The degree to which we are leveraged could have important consequences because:

 

  It could affect our ability to satisfy our obligations under our credit agreements;

 

  A substantial portion of our cash flow from operations is required to be dedicated to interest and principal payments and may not be available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes;

 

  Our ability to obtain additional financing and to fund working capital, capital expenditures and other general corporate requirements in the future may be impaired;

 

9


  We may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;

 

  Our flexibility in planning for, or reacting to, changes in our business may be limited;

 

  It may limit our ability to pursue acquisitions and sell assets; and

 

  It may make us more vulnerable in the event of a continued or new downturn in our business or the economy in general.

Our ability to make payments on and to refinance our debt, including our credit facilities, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to various business factors (including, among others, the commodity prices of feed ingredients and chicken) and general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.

There can be no assurance that we will be able to generate sufficient cash flow from operations or that future borrowings will be available under our credit facilities in an amount sufficient to enable us to pay our debt obligations, including obligations under our credit facilities, or to fund our other liquidity needs. We may need to refinance all or a portion of their debt on or before maturity. There can be no assurance that we will be able to refinance any of their debt on commercially reasonable terms or at all.

Our performance depends on favorable labor relations with our employees and our compliance with labor laws. Any deterioration of those relations or increase in labor costs due to our compliance with labor laws could adversely affect our business.

As of June 25, 2017, we employed approximately 32,000 persons in the U.S. and approximately 10,400 persons in Mexico, and approximately 41.3% of the Company’s employees were covered under collective bargaining agreements. Substantially all employees covered under collective bargaining agreements are covered under agreements that expire in 2017 or later, with the exception of three processing operations locations, where the collective bargaining agreements expired in 2016. Collective bargaining agreements have been reached for two of these three processing operations locations and we expect to ratify these agreements in 2017. Negotiations are ongoing on the collective borrowing agreement for the remaining processing operations location. We have not experienced any labor-related work stoppage at any location in over ten years. We believe our relationship with our employees and union leadership is satisfactory. At any given time, we will likely be in some stage of contract negotiations with various collective bargaining units. In the absence of agreements, we may become subject to labor disruption at one or more of these locations, which could have an adverse effect on our financial results.

 

10


Financial Information of the Moy Park Group

MOY PARK HOLDINGS (EUROPE) LIMITED

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2016

 

     Note      2016     2015  
            £’000     £’000  

Revenue

        1,437,428       1,442,268  

Cost of sales

        (1,265,559     (1,293,029
     

 

 

   

 

 

 

Gross profit

        171,869       149,239  
     

 

 

   

 

 

 

Sales and distribution costs

        (71,831     (73,100

Administration expenses

        (36,555     (31,936

Other operating Income

        (1,676     (1,372
     

 

 

   

 

 

 

Group operating profit before exceptional items

        61,807       42,831  
     

 

 

   

 

 

 

Exceptional costs

        —         (12,528
     

 

 

   

 

 

 

Group operating profit after exceptional items

        61,807       30,303  
     

 

 

   

 

 

 

Finance costs

     7        (21,907     (22,237

Finance income

     8        946       1,292  
     

 

 

   

 

 

 

Net finance costs

        (20,961     (20,945
     

 

 

   

 

 

 

Profit before taxation

        40,846       9,358  

Taxation

     10        (7,955     3,330  
     

 

 

   

 

 

 

Profit for the year

        32,891       12,688  
     

 

 

   

 

 

 

Attributable to:

       

Owners of the parent

        32,891       12,688  
     

 

 

   

 

 

 

Profit for the year

        32,891       12,688  
     

 

 

   

 

 

 

All amounts above relate to continuing operations of the company.

The notes hereto form part of these financial statements.

 

11


MOY PARK HOLDINGS (EUROPE) LIMITED

CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME

For the year ended 31 December 2016

 

     Note      2016      2015  
            £’000      £’000  

Profit for the year

        32,891        12,688  

Other comprehensive income:

        

Items that may subsequently be reclassified to profit or loss

        

Foreign exchange rate gains/(losses)

        3,507        (1,143

Cash flow hedges

        119        174  
     

 

 

    

 

 

 

Total comprehensive income for the year, net of tax

        36,517        11,719  
     

 

 

    

 

 

 

Attributable to:

        

Owners of the parent

        36,517        11,719  
     

 

 

    

 

 

 

Items in the statement above are disclosed net of tax.

 

12


MOY PARK HOLDINGS (EUROPE) LIMITED

CONSOLIDATED BALANCE SHEET

As at 31 December 2016

 

     Note      2016      2015  
            £’000      £’000  

Assets

        

Non-current assets

        

Intangible assets

     11        195,364        199,074  

Property, plant and equipment

     12        270,913        247,463  

Trade and other receivables

     16        2,879        2,535  
     

 

 

    

 

 

 

Total non-current assets

        469,156        449,072  
     

 

 

    

 

 

 

Current assets

        

Biological assets

     14        52,857        49,051  

Inventory

     15        78,869        67,000  

Trade and other receivables

     16        124,525        74,870  

Cash and cash equivalents

     17        139,576        173,384  
     

 

 

    

 

 

 

Total current assets

        395,827        364,305  
     

 

 

    

 

 

 

Total assets

        864,983        813,377  
     

 

 

    

 

 

 

 

13


MOY PARK HOLDINGS (EUROPE) LIMITED

CONSOLIDATED BALANCE SHEET (continued)

As at 31 December 2016

 

     Note      2016     2015  
            £’000     £’000  

Equity and liabilities

       

Equity attributable to owners of the parent

       

Share capital

     22        2,774       2,774  

Retained earnings

     23        237,891       216,500  

Other reserves

     23        (672     (4,298
     

 

 

   

 

 

 
        239,993       214,976  
     

 

 

   

 

 

 

Non-controlling interests

     23        (746     (746
     

 

 

   

 

 

 

Total equity

        239,247       214,230  
     

 

 

   

 

 

 

Liabilities

       

Non-current liabilities

       

Loans and borrowings

     19        312,143       306,709  

Trade and other payables

     18        1,986       1,753  

Capital grants

     20        9,424       8,162  

Deferred tax liabilities

     21        45,321       46,553  
     

 

 

   

 

 

 

Total non-current liabilities

        368,874       363,177  
     

 

 

   

 

 

 

Current liabilities

       

Loans and borrowings

     19        14,475       20,630  

Trade and other payables

     18        242,387       215,340  
     

 

 

   

 

 

 

Total current liabilities

        256,862       235,970  
     

 

 

   

 

 

 

Total liabilities

        625,736       599,147  
     

 

 

   

 

 

 

Total equity capital and liabilities

        864,983       813,377  
     

 

 

   

 

 

 

 

14


MOY PARK HOLDINGS (EUROPE) LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 31 December 2016

 

     Share capital &
premium
     Retained
earnings
    Translation
reserve
    Hedge
reserve
     Merger
reserve
    Non–
controlling
interest
    Total  
     £’000      £’000     £’000     £’000      £’000     £’000     £’000  

At 1 January 2015

     2,774        239,412       (1,548     —          (1,781     (746     238,111  

Profit for period

     —          12,688       —         —          —         —         12,688  

Foreign exchange losses

     —          —         (1,143     —          —         —         (1,143

Dividends paid

     —          (35,600     —         —          —         —         (35,600

Fair value gain

     —          —         —         174        —         —         174  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

At 31 December 2015

     2,774        216,500       (2,691     174        (1,781     (746     214,230  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Profit for period

     —          32,891       —         —          —         —         32,891  

Foreign exchange gain

     —          —         3,507       —          —         —         3,507  

Dividends paid

     —          (11,500     —         —          —         —         (11,500

Fair value gain

     —          —         —         119        —         —         119  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

At 31 December 2016

     2,774        237,891       816       293        (1,781     (746     239,247  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The merger reserve was created on the acquisition of three entities under common control using the principles of predecessor accounting.

 

15


MOY PARK HOLDINGS (EUROPE) LIMITED

CONSOLIDATED CASH FLOW STATEMENT

For the years ended 31 December 2016

 

     Note      2016     2015  
            £’000     £’000  

Cash flows from operating activities

       

Profit before taxation

        40,846       9,358  

Adjustments for:

       

Depreciation of property, plant and equipment

     12        31,482       31,763  

Impairment of property, plant and equipment

     12        —         8,394  

Amortisation of intangible assets

     11        2,782       3,470  

Amortisation of biological assets

     14        29,831       33,632  

Amortisation of capital grants

     20        (991     (1,141

Net finance costs

        20,961       20,945  

Profit on disposal of assets

        (245     56  
     

 

 

   

 

 

 
        124,666       106,477  

Changes in working capital:

       

Movement in inventory and biological consumable assets

        (12,393     769  

Movement in trade and other receivables

        (45,122     23,203  

Movement in trade and other payables

        16,231       (8,500
     

 

 

   

 

 

 

Cash generated from operations

        83,382       121,949  

Interest received

        419       246  

Interest paid

        (20,786     (21,293

Income tax paid

        (6,026     (8,513
     

 

 

   

 

 

 

Net cash inflow from operating activities

        56,989       92,389  
     

 

 

   

 

 

 

Cash flows from investing activities

       

Purchase of property, plant and equipment

     12        (50,713     (27,483

Sale of property, plant and equipment and intangible assets

        1,909       2,105  

Receipt of capital grants

     20        2,258       1,929  

Purchase of biological bearer assets

        (29,610     (30,781
     

 

 

   

 

 

 

Net cash outflow from investing activities

        (76,156     (54,230
     

 

 

   

 

 

 

Cash flows from financing activities

       

Cash inflow from lease financing of fixed assets

        —         7,262  

Capital element of finance lease repayments

        (7,306     (8,641

Capital element of group loan receivables

        —         5,320  

Capital element of group loan liabilities

        (1,983     (2,000

Capital element of other loans movements

        5,684       (239

Proceeds from 6.25% Senior Notes

        —         98,900  

Dividends paid

        (11,500     (35,600
     

 

 

   

 

 

 

Net cash (outflow)/inflow from financing activities

        (15,105     65,002  
     

 

 

   

 

 

 

Net (decrease)/increase in cash and cash equivalents

        (34,272     103,161  

Cash and cash equivalents at 1 January

        173,384       70,641  

Movement in cash due to foreign exchange

        464       (418
     

 

 

   

 

 

 

Cash and cash equivalents at 31 December

     17        139,576       173,384  
     

 

 

   

 

 

 

 

16


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1. GENERAL INFORMATION

Moy Park Holdings (Europe) Limited (the ‘company’) is a company incorporated and domiciled in the UK. The address of the registered office is: The Food Park, 39 Seagoe Industrial Estate, Craigavon, Co Armagh, BT63 5QE. The company is a holding company of its subsidiaries (collectively, the “Group”), whose principal activity is focused on providing fresh, high quality locally farmed poultry and complementary convenience food products to major retailers and large food service customers throughout the UK, Ireland and Europe. A full list of subsidiaries is provided in note 13.

On 11 September 2017 it was announced that the Group had been acquired by Pilgrim’s Pride Corporation, a publically listed company in the USA. The ultimate parent company of the Group is JBS S.A. by virtue of their majority shareholding in Pilgrim’s Pride Corporation. JBS S.A. is a company listed on the Brazilian stock exchange.

 

2. ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

 

(a) Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and IFRIC interpretations. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of biological assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss.

The Group financial statements consolidate those of the company and its subsidiaries (together referred to as the “Group”).

Consolidation and subsidiaries

Subsidiaries (as listed in note 13) are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which the control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations with entities not under common control. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition by acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets. Acquisition costs are expensed as incurred.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

 

17


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2. ACCOUNTING POLICIES (continued)

 

(a) Basis of preparation (continued)

 

For business combinations of entities under common control that are outside the scope of IFRS 3(revised), the principles of predecessor accounting are applied whereby an acquirer is not required to be identified and all entities are included at their pre-combination carrying amounts. This accounting treatment leads to differences on consolidation between consideration paid and carrying amount of the underlying net asset. This difference is included within equity as a merger reserve.

Intercompany transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

The financial statements are presented in thousands of pounds sterling (“£”) except when otherwise indicated.

 

(b) Directors’ responsibilities in respect of the financial statements

In preparing these non-statutory financial statements, the directors have:

 

    selected suitable accounting policies and applied them consistently;

 

    made judgements and estimates that are reasonable and prudent;

 

    stated whether applicable Accounting Standards have been followed; subject to any material departures being disclosed and explained in the non-statutory financial statements; and

 

    prepared the non-statutory financial statements on the going concern basis as they believe that the Company will continue in business.

The directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the assets, liabilities, financial position and profit or loss of the Company and to enable them to ensure that the statutory financial statements, which are separately prepared, comply with the Companies Act 2006 and all regulations to be construed as one with the Act. They have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

 

(c) Going concern

These consolidated financial statements relating to the Group have been prepared on the going concern basis.

After making appropriate enquiries and having prepared and reviewed cash flow forecasts which take into account possible changes in trading performance, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and for at least one year from the date of these financial statements. For these reasons they continue to adopt the going concern basis in preparing the Group’s financial statements.

 

18


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2. ACCOUNTING POLICIES (continued)

 

(d) New standards, amendments and interpretations

Standards, amendments and interpretations effective and adopted by the Group:

There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on 1 January 2016 that had a material impact on the Group.

New standards and interpretations not yet adopted by the Group

 

    IFRS 9 ‘Financial instruments’ (effective 1 January 2018). This is a new standard on classification and measurement of financial assets that will replace IAS 39. IFRS 9 has two measurement categories: amortised cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise it is measured at fair value through profit or loss. Amortised cost accounting will also be applicable for most financial liabilities, with bifurcation of embedded derivatives. The main change is that in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. IFRS 9 will also introduce an ‘expected loss’ impairment model replacing the ‘incurred loss’ model. This new model will mean an entity will now always recognise 12 months of expected losses on financial assets in profit or loss. The Group is yet to assess the impact of IFRS 9 on its financial statements but it will be applied in 2018.

 

    IFRS 15 ‘Revenue from contracts with customers’ (effective 1 January 2017) The objective of IFRS 15 is to clarify the principles of revenue recognition with the core principle being to recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Group is yet to assess the impact of IFRS 15 on its financial statements.

 

    IFRS 16 ‘Leases’ (effective 1 January 2019). This is a new standard establishing principles for the recognition, measurement, presentation and disclosure of leases, with the objective of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions. The standard replaces IAS 17 and provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The Group is yet to assess the impact of IFRS 16 on its financial statements.

 

(e) Foreign currency translation

The functional currency of the Group is pounds sterling because that is the currency of the primary economic environment in which the Group operates. The Group’s presentation currency is pounds sterling.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or costs’. All other foreign exchange gains and losses are presented in the income statement within ‘other operating income/costs’.

 

19


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2. ACCOUNTING POLICIES (continued)

 

(e) Foreign currency translation (continued)

 

Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

 

    assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

 

    income and expenses for each income statement presented are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

 

    all resulting exchange differences are recognised in other comprehensive income.

The following exchange rates were applied for £1 at 31 December:

 

     2016      2015  

United States dollar

     1.2303        1.4819  

Euro

     1.1651        1.3605  

 

(f) Property, plant and equipment

Owned assets

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement.

Leased assets

Leases under which the Group assumes substantially all the risks and rewards of ownership of an asset are classified as finance leases. Property, plant and equipment acquired under finance leases is recorded at fair value or, if lower, the present value of minimum lease payments at inception of the lease, less depreciation and any impairment.

Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in the other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment under finance leases is depreciated over the shorter of the useful life of the asset and lease term.

 

20


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2. ACCOUNTING POLICIES (continued)

 

(f) Property, plant and equipment (continued)

 

Depreciation

Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term. Freehold land is not depreciated. The estimated useful lives are as follows:

 

    Buildings—20 to 50 years

 

    Plant and Machinery—4 to 15 years

 

    Fixture, fittings, tools and equipment—3 to 25 years

The residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

 

(g) Intangible assets

Intangible assets comprise goodwill, certain acquired separable corporate brand names and acquired customer relationships. Goodwill represents the excess of fair value attributed to investments in businesses or subsidiary undertakings over the fair value of the underlying net assets, including intangible assets, at the date of their acquisition.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the net present value of future cash flows derived from the underlying assets using a projection period of up to five years for each cash-generating unit. After the projection period a steady growth rate representing an appropriate long-term growth rate for the industry is applied. Any impairment is recognised immediately as an expense and is not subsequently reversed.

Corporate brand names and customer relationships acquired as part of acquisitions of businesses are capitalised separately from goodwill as intangible assets if their value can be measured reliably on initial recognition and it is probable that the expected future economic benefits that are attributable to the asset will flow to the Group.

Certain corporate brands of the Group are considered to have an indefinite economic life because of the nature of the corporate brand names, their proven ability to maintain market leadership and profitable operations over long periods of time and the Group’s commitment to develop and enhance their value. The carrying value of these intangible assets is reviewed at least annually for impairment and adjusted to the recoverable amount if required.

Amortisation

Amortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Customer relationships are being amortised between 5 and 16 years. The majority of trade names are considered to have an indefinite useful life while the remaining trade names have a 16 year life.

 

(h) Investments

Non-current investments are stated at their purchase cost less any provision for diminution in value. Investment income is included in the profit and loss account on an accrual basis.

 

21


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2. ACCOUNTING POLICIES (continued)

 

(i) Impairment of non-financial assets

Assets not subject to amortisation are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

 

(j) Financial assets

Classification

The Group classifies its financial assets as loans and receivables. Management determines the classification of its financial assets at initial recognition.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that arise principally through the provision of services to customers. They are initially recognised at fair value and are subsequently stated at amortised cost using the effective interest method. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. Loans and receivables comprise mainly cash and cash equivalents and trade and other receivables.

Impairment of financial assets

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows (discounted at the original effective interest rate) associated with the impaired receivable.

For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within other operating costs in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

 

(k) Derivative financial instruments and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:

 

  a) Hedges of the fair value of recognised assets or liabilities (fair value hedges); or

 

  b) Hedges of a particular risk associated with a recognised asset or liability or a highly probably forecast transaction (cash flow hedges).

 

22


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2. ACCOUNTING POLICIES (continued)

 

(k) Derivative financial instruments and hedging activities (continued)

 

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Income Statement together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income. Amounts accumulated in equity are reclassified to either profit or loss in the periods when the hedged item affects profit or loss or to the initial measurement of the cost of a non-financial asset when the forecast transaction that is hedged results in recognition of such an asset.

 

(l) Inventory

Inventories are stated at the lower of cost (which for biological assets transferred to inventory is fair value at the date of transfer) and net realisable value. Cost is determined on the first in first out basis. Cost comprises material costs, direct wages and other direct production costs together with a proportion of production overheads relevant to the stage of completion of work in progress and finished goods and excludes borrowing costs. Net realisable value represents the estimated selling price less costs to completion and appropriate selling and distribution costs. Provision is made, where necessary, for slow moving, obsolete and defective inventories.

 

(m) Biological assets

Biological assets are comprised of live poultry which are categorised as either bearer (breeding bird) assets or consumable assets (broilers and hatching eggs).

Biological assets are recognised in the financial statements as follows:

 

    Consumable assets are measured at fair value less costs to sell and are transferred to processing plant inventory at fair value less costs to sell;

 

    Due to the short formation period of poultry the Group believes that the fair value of bearer assets is substantially represented by its formation cost. Bearer assets are capitalised at formation cost at the beginning of their productive cycle (formation cost includes the purchase cost of day old chick, feeding costs, labour costs and veterinary costs) and are amortised based on laying profile, over the anticipated productive cycle to its estimated realisable values. Consequently the fair value of the asset is materially equivalent to amortised cost throughout the life of the asset;

 

    Costs incurred in respect of bearer assets subsequent to the beginning of their productive cycle are expensed in the income statement;

 

    Changes in fair value of consumable assets and amortisation of bearer assets are recognised in the income statement within cost of sales; and

 

    The formation cost of the Group’s bearer assets is included as a cash outflow in investing activities as these bearer assets are used to produce the consumable assets that the Group uses in its manufacturing process.

In measuring the fair value of poultry, various management estimates and judgements are required:

 

    Estimates and judgements in determining the fair value of poultry relate to market prices, average lifecycle growth and laying profile; and

 

23


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2. ACCOUNTING POLICIES (continued)

 

(m) Biological assets (continued)

 

    Market prices for poultry are based on the Group’s knowledge of a limited market for poultry transactions at various points of the consumable and bearer assets’ lifecycle.

 

(n) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less.

Bank factored receivables in which full recourse lies with the lender are recognised as a liability and included within current liabilities, loans and borrowings while the related receivables continue to be reported separately in trade and other receivables until the related account balances are collected.

 

(o) Trade and other receivables

Bank factored receivables in which the lender has no recourse are derecognised when the rights to receive cash flows from those receivables have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

 

(p) Trade and other payables

Trade and other payables are initially stated at fair value and subsequently measured at amortised cost.

 

(q) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

 

(r) Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material and provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability. The increase in the provision due to passage of time is recognised in finance costs.

 

(s) Revenue

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts, returns and value added taxes. The Group recognises

 

24


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2. ACCOUNTING POLICIES (continued)

 

(s) Revenue (continued)

 

revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities, as described below. The Group bases its estimate of return on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue is recognised at the point that the risks and rewards of the inventory have passed to the customer, which is either at the point of dispatch or on delivery of the products. This varies from customer to customer according to the terms of sale.

Rebates given to customers mainly comprise of volume related rebates on sales of finished goods. Contractual volume related rebates are accrued as goods are sold based on the percentage rebate applicable to forecast total sales over the rebate period, where it is probable the rebates will be paid and the amount can be estimated reliably. Such rebates are debited against turnover in the income statement.

 

(t) Leases

The costs associated with operating leases are taken to the income statement on a straight line basis over the period of the lease. Where the company enters into a lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a “finance lease”, the accounting policy for which is disclosed in (e).

 

(u) Net finance costs

Finance costs

Finance costs comprise interest payable on borrowings and finance leases.

Finance income

Finance income comprises interest receivable on funds invested in loans and cash and cash equivalents. Interest income is recognised in profit or loss as it accrues using the effective interest method.

 

(v) Capital grants

Capital grants are recognised at their fair value where there is a reasonable assurance that the grant will comply with all attached conditions.

Grants relating to property, plant and equipment are included in non-current liabilities as deferred capital grants and are credited to the income statement on a straight line basis over the expected lives of the related assets.

 

(w) Income tax

Income tax for the years presented comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

 

25


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2. ACCOUNTING POLICIES (continued)

 

(w) Income tax (continued)

 

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet 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 following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of other assets or liabilities that affect neither accounting nor taxable profit; nor differences relating to investments in subsidiaries to the extent that they are unlikely to reverse in the foreseeable future. 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 balance sheet 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. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

 

(x) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the Board of Directors which has been identified as the chief operating decision maker.

 

(y) Employee benefits: Pension obligations

The Group operates a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense over the period of employee service. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

 

26


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2. ACCOUNTING POLICIES (continued)

 

(z) Exceptional items

Exceptional items are those items that are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group.

 

(aa) Dividend distribution

Dividend distribution to the company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the company’s shareholders.

 

(bb) Fair value estimation

Fair values are estimated based on the fair value hierarchy of IFRS 13 which defines the different levels of fair value as follows:

 

    Quoted prices in active markets for identical assets or liabilities (level 1).

 

    Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2).

 

    Inputs for the asset or liability that are not based on observable market data (level 3).

 

3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group’s combined financial information under IFRS requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The Directors consider that the following estimates and judgements are likely to have the most significant effect on the amounts recognised in the combined financial information:

Depreciation and amortisation of intangible and tangible fixed assets

Intangible and tangible fixed assets (as detailed in notes 11 and 12), except for goodwill and trade names with indefinite lives, are depreciated or amortised at historical cost using a straight-line method based on the estimated useful life, taking into account any residual value. The asset’s residual value and useful life are based on the directors’ best estimates and are reviewed, and adjusted if required, at each balance sheet date. If the estimate of useful lives was adjusted by +/- one year with all other variables held constant, the depreciation/amortisation charge would have been £2.5m/£3.0m lower/higher than the charge recognised in the income statement (2015: £2.6m/£3.4m).

Useful life of Intangible assets and impairment

Corporate brand names and customer relationships acquired (as detailed in note 11) as part of acquisitions of businesses are capitalised separately from goodwill as intangible assets if their value can be measured reliably on initial recognition and it is probable that the expected future economic benefits that are attributable to the asset will flow to the Group. Certain corporate brands of the Group are considered to have an indefinite economic life because of the nature of the corporate brand names, their proven ability to maintain market leadership and profitable operations over long periods of time and the Group’s commitment to develop and enhance their value. The carrying value of these intangible assets is reviewed at least annually for impairment and adjusted to the recoverable amount if required.

 

27


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

 

The Group annually tests whether goodwill and intangible assets with indefinite useful lives have suffered any impairment. In testing for potential impairment, the directors must make significant judgements and estimates to determine whether the recoverable amount is less than the carrying value. The recoverable amount is the higher of the fair value less cost to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the asset-specific risks. Determining cash flows requires the use of judgements and estimates that have been included in the Group’s strategic plans and long-term forecasts. The data necessary for the execution of the impairment tests are based on the directors’ estimates of future cash flows, which require estimating revenue growth rates and profit margins.

 

4. SEGMENTAL REPORTING

Management has determined the operating segments based on the operating reports reviewed by the Board of directors that are used to assess both performance and strategic decisions. Management has identified that the Board of directors is the chief operating decision maker in accordance with the requirements of IFRS 8 ‘Operating segments’.

The Board of directors considers the business to be split into two main types of business generating revenue and operating profit namely UK & Ireland and Europe.

The Board of directors assesses the performance of the segments based on EBITDA and revenue.

All segment revenue and EBITDA are attributable to the principal activity of the Group being integrated poultry production providing fresh, high quality locally farmed poultry and complementary convenience food products to major retailers and large food service customers throughout the UK, Ireland and Europe.

Revenue from external customers, EBITDA and operating profit is measured in a manner consistent with the income statement.

 

* EBITDA is defined as earnings before finance costs, income tax, depreciation and amortisation and therefore adds back the amortisation arising on the Group’s bearer biological assets. Management uses this measure internally as bird amortisation relates to the cost of bearer assets which are used to produce the broiler assets which are used in the Group’s manufacturing process.

 

     2016  
     UK &
Ireland
     Europe      Segment
total
     Corporate
costs
    Total  
     £’000      £’000      £’000      £’000     £’000  

Revenue

             

Total revenue from external customers

     1,079,377        358,051        1,437,428        —         1,437,428  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net profit

     46,070        3,612        49,682        (16,791     32,891  

Net finance costs

     1,024        82        1,106        19,855       20,961  

Taxation expense/(credit)

     8,372        2,647        11,019        (3,064     7,955  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Operating profit

     55,466        6,341        61,807        —         61,807  

Amortisation of bearer assets

     29,831        —          29,831        —         29,831  

Other depreciation and amortisation

     27,820        6,444        34,264        —         34,264  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

EBITDA*

     113,117        12,785        125,902        —         125,902  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

28


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

4. SEGMENTAL REPORTING (continued)

 

     2015  
     UK &
Ireland
     Europe     Segment
total
     Corporate
costs inc
exceptional
items
    Total  
     £’000      £’000     £’000      £’000     £’000  

Revenue

            

Total revenue from external customers

     1,124,123        318,145       1,442,268        —         1,442,268  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Net profit

     32,386        3,421       35,807        (23,119     12,688  

Net finance costs

     3,135        831       3,966        16,979       20,945  

Taxation expense/(credit)

     3,555        (497     3,058        (6,388     (3,330
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Operating profit

     39,076        3,755       42,831        (12,528     30,303  

Amortisation of bearer assets

     33,632        —         33,632        —         33,632  

Other depreciation and amortisation

     29,003        6,230       35,233        —         35,233  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA*

     101,711        9,985       111,696        (12,528     99,168  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The Group is domiciled in the UK. The result of its revenue from external customers in the UK is £l,070m (2015: £1,091.9m) and the total revenue from other countries is £367.4m (2015: £350.4m).

Revenues of approximately £270.3m and £262.1m (2015: £295.2m and £234.6m) were derived from individual customers who represent more than 10% of total revenue.

 

5. EMPLOYEES AND DIRECTORS

 

(a) Staff costs for the Group during the year:

 

     2016      2015  
     £’000      £’000  

Wages and salaries

     223,426        208,853  

Defined contribution pension cost

     5,017        4,877  

Employer’s national insurance contributions and similar taxes

     21,922        20,353  
  

 

 

    

 

 

 
     250,365        234,083  
  

 

 

    

 

 

 

Average monthly number of people (including Executive Directors) employed:

 

     2016      2015  

By reportable segment

     

UK & Ireland

     8,895        8,499  

Europe

     978        979  
  

 

 

    

 

 

 
     9,873        9,478  
  

 

 

    

 

 

 

 

(b) Key management compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, both directly and indirectly.

 

29


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

5. EMPLOYEES AND DIRECTORS (continued)

 

(b) Key management compensation (continued)

 

The following table details the aggregate compensation paid in respect of the members of key management

 

     2016      2015  
     £’000      £’000  

Wages and salaries

     2,633        2,839  

Short-term non-monetary benefits

     69        99  

Post-employment benefits

     117        142  

Sums paid to third parties for management services

     351        232  
  

 

 

    

 

 

 
     3,170        3,312  
  

 

 

    

 

 

 

There are no defined benefit schemes for key management. Pension costs under defined contribution schemes are included in the post-employment benefits disclosed above.

 

(c) Retirement benefits

The Group offers membership of one of the Group’s Pension Schemes to eligible employees. The schemes are all defined contribution schemes and the pensions cost in the year was £5.0m (2015: £4.9m).

 

6. EXPENSES BY NATURE

 

     2016      2015  
     £’000      £’000  

Raw materials and consumables used

     794,414        836,480  

Other costs of sales

     180,611        177,785  

Employee costs

     250,365        234,061  

Depreciation and amortisation

     64,095        68,865  

Transportation expenses

     32,107        33,693  

Advertising costs

     4,431        4,047  

Other selling expenses

     16,937        17,946  

Operating lease payments

     20,063        17,426  

Exceptional items

     —          12,528  

Other expenses

     12,598        9,134  
  

 

 

    

 

 

 
     1,375,621        1,411,965  
  

 

 

    

 

 

 

Other costs of sales include directly related production overheads.

Total exceptional items in 2015 were £12.5m. This comprised £10m of restructuring costs (including £8.4m of property, plant & equipment impairments) and £2.5m of costs incurred on an aborted Initial Public Offering process that was pursued by the previous parent company Marfrig Alimentos S.A. before their decision to sell the Group to JBS S.A.

Certain comparative figures within this note have been amended to conform with the current year presentation.

 

30


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

7. FINANCE COSTS

 

     2016      2015  
     £’000      £’000  

Interest costs:

     

Interest payable on borrowings

     21,135        19,603  

Interest arising from finance leases

     772        924  

Interest payable on group loans

     —          88  

Foreign exchange losses on financing activities

     —          1,269  

Fair value losses on financial instruments (foreign exchange forward contracts)

     —          353  
  

 

 

    

 

 

 

Finance costs

     21,907        22,237  
  

 

 

    

 

 

 

 

8. FINANCE INCOME

 

     2016      2015  
     £’000      £’000  

Interest income

     647        1,292  

Foreign exchange gains on financing activities

     214        —    

Fair value gains on financial instruments (foreign exchange forward contracts)

     85        —    
  

 

 

    

 

 

 
     946        1,292  
  

 

 

    

 

 

 

 

9. AUDITOR REMUNERATION

During the year the Group (including its overseas subsidiaries) obtained the following services from the company’s auditors at costs as detailed below:

 

     2016      2015  
     £’000      £’000  

Fees payable to company’s auditor and its associates for the audit of financial statements (including audit of subsidiaries)

     157        222  

Fees payable to company’s auditor and its associates for other services:

     

- Tax advisory services

     19        23  

- Other audit services

     34        24  
  

 

 

    

 

 

 
     210        269  
  

 

 

    

 

 

 

The comparative amounts for 2015 were payable to BDO Northern Ireland and associated network firms, who were the auditor to the group in respect of that financial year.

 

31


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

10. TAXATION

 

     2016      2015  
     £’000      £’000  

Analysis of charge in year

     

Current tax on profits for the year

     9,321        5,966  

Changes in estimates related to prior years

     (61      (1,908
  

 

 

    

 

 

 

Total current tax

     9,260        4,058  
  

 

 

    

 

 

 

Origination and change in timing differences

     (468      (1,077

Changes in estimates related to prior years

     1,847        (1,120

Impact of change in tax rate

     (2,684      (5,191
  

 

 

    

 

 

 

Total deferred tax (note 21)

     (1,305      (7,388
  

 

 

    

 

 

 

Income tax charge/(credit)

     7,955        (3,330
  

 

 

    

 

 

 

The tax charge/(credit) for the year differs from the standard rate of corporation tax in the UK 20% (2015:20.25%). The differences are explained below:

 

     2016      2015  
     £’000      £’000  

Profit before tax

     40,846        9,358  
  

 

 

    

 

 

 

Profit multiplied by the rate of corporation tax in the UK of 20% (2015:20.25%) Effects of:

     8,169        1,895  

Expenses not deductible

     1,052        2,809  

French social contributions, imports etc

     (258      (1,620

Losses of foreign subsidiary

     (87      1,046  

Changes in estimates related to prior years

     1,786        (3,029

Impact of change in tax rate and foreign tax rates

     (2,707      (4,431
  

 

 

    

 

 

 

Income tax charge/(credit)

     7,955        (3,330
  

 

 

    

 

 

 

Reductions in the UK corporation tax rate to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015. Finance Act 2016 further reduced the 18% rate to 17% from 1 April 2020, following substantive enactment on 6 September 2016. Together this will reduce the Group’s future tax charge accordingly.

 

32


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

11. INTANGIBLE ASSETS

 

     2016  
     Trade
name
     Customer
relationships
     Goodwill      Total  
     £’000      £’000      £’000      £’000  

Cost

           

At 1 January

     168,677        33,246        19,075        220,998  

Disposals

     —          (5,502      —          (5,502
  

 

 

    

 

 

    

 

 

    

 

 

 

At 31 December

     168,677        27,744        19,075        215,496  
  

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortisation

           

At 1 January

     336        21,588        —          21,924  

Charge for the year

     63        2,719        —          2,782  

On disposals

     —          (4,574      —          (4,574
  

 

 

    

 

 

    

 

 

    

 

 

 

At 31 December

     399        19,733        —          20,132  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net book amount

           

At 31 December

     168,278        8,011        19,075        195,364  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     2015  
     Trade
name
     Customer
relationships
     Goodwill      Total  
     £’000      £’000      £’000      £’000  

Cost

           

At 1 January

     168,677        34,846        19,075        222,598  

Disposals

     —          (1,600      —          (1,600
  

 

 

    

 

 

    

 

 

    

 

 

 

At 31 December

     168,677        33,246        19,075        220,998  
  

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortisation

           

At 1 January

     275        18,376        —          18,651  

Charge for the year

     61        3,409        —          3,470  

On disposals

     —          (197      —          (197
  

 

 

    

 

 

    

 

 

    

 

 

 

At 31 December

     336        21,588        —          21,924  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net book amount

           

At 31 December

     168,341        11,658        19,075        199,074  
  

 

 

    

 

 

    

 

 

    

 

 

 

All amortisation charges have been treated as an expense in the income statement. Trade names considered to have an indefinite useful life have a carrying value of £167.7m (2015: £167.7m).

Management reviews the business performance based on operating segments identified as UK & Ireland and Europe. Goodwill and other intangible assets with indefinite useful lives are monitored by management at operating segment level. All goodwill and intangible assets are within the UK & Ireland segment.

 

33


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

11. INTANGIBLE ASSETS (continued)

 

The recoverable amount of all CGUs has been determined based on value in use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five year period. Cash flows beyond the five year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed the long term average growth rate for the poultry business in which the CGU operates. The key assumptions used for value in use calculations were as follows:

 

     2016     2015  
     £’000     £’000  

Compound revenue growth

     4.3     4.1

Gross margin

     12.8     11.0

Long term growth rate

     3.0     3.0

Discount rate

     8.4     9.6

Management determined budgeted gross margin based on past performance and its expectations of market development. The growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the relevant operating segments. Management have considered the sensitivity of these assumptions and consider that no reasonable changes in the assumptions would lead to an impairment of the intangible assets.

 

12. PROPERTY, PLANT AND EQUIPMENT

 

     2016  
     Land and
buildings
     Plant and
machinery
     Fixtures,
fittings, tools
and equipment
    Total  
     £’000      £’000      £’000     £’000  

Cost

          

At 1 January

     250,049        352,485        43,645       646,179  

Additions at cost

     14,149        30,651        5,913       50,713  

Disposals

     (2,547      (10,248      (1,019     (13,814

Exchange adjustments

     8,168        10,301        340       18,809  
  

 

 

    

 

 

    

 

 

   

 

 

 

At 31 December

     269,819        383,189        48,879       701,887  
  

 

 

    

 

 

    

 

 

   

 

 

 

Accumulated depreciation

          

At 1 January

     120,782        246,785        31,149       398,716  

Charge for the period

     8,374        18,929        4,179       31,482  

Disposals

     (2,534      (9,520      (1,018     (13,072

Exchange adjustments

     6,124        7,405        319       13,848  
  

 

 

    

 

 

    

 

 

   

 

 

 

At 31 December

     132,746        263,599        34,629       430,974  
  

 

 

    

 

 

    

 

 

   

 

 

 

Net book amount

          

At 31 December

     137,073        119,590        14,250       270,913  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

34


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

12. PROPERTY, PLANT AND EQUIPMENT (continued)

 

     2015  
     Land and
buildings
     Plant and
machinery
     Fixtures,
fittings, tools
and equipment
    Total  
     £’000      £’000      £’000     £’000  

Cost

          

At 1 January

     253,158        339,219        40,332       632,709  

Additions at cost

     3,900        18,747        4,836       27,483  

Disposals

     (3,730      (1,092      (1,394     (6,216

Exchange adjustments

     (3,279      (4,389      (129     (7,797
  

 

 

    

 

 

    

 

 

   

 

 

 

At 31 December

     250,049        352,485        43,645       646,179  
  

 

 

    

 

 

    

 

 

   

 

 

 

Accumulated depreciation

          

At 1 January

     112,024        227,988        27,899       367,911  

Charge for the period

     9,212        18,141        4,410       31,763  

Impairment

     3,625        4,463        306       8,394  

Disposals

     (1,800      (861      (1,394     (4,055

Exchange adjustments

     (2,279      (2,946      (72     (5,297
  

 

 

    

 

 

    

 

 

   

 

 

 

At 31 December

     120,782        246,785        31,149       398,716  
  

 

 

    

 

 

    

 

 

   

 

 

 

Net book amount

          

At 31 December

     129,267        105,700        12,496       247,463  
  

 

 

    

 

 

    

 

 

   

 

 

 

Included within the net book value of £270.9m is £18.8m (2015: £9.0m) relating to assets under the course of construction.

Finance lease commitments

Included in property, plant and equipment are assets held under finance leases and hire purchase agreements with a net book value of £17.2m (2015: £22.5m) and accumulated depreciation of £8.6m (2015: £21.0m).

 

35


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

13. INVESTMENTS

Principal subsidiary undertakings of the Group

The company substantially owns directly or indirectly the whole of the issued and fully paid ordinary share capital of its subsidiary undertakings. Principal subsidiary undertakings of the Group at 31 December 2016 are presented below:

 

Subsidiary    Nature of business    Country of
incorporation
     Proportion of
ordinary
shares held
by parent
     Proportion of
ordinary
shares held
by the Group
 
                 %      %  

Moy Park Ltd

   Value added poultry processing      UK        100        100  

Moy Park France Holding SAS

   Holding company      France        100        100  

Moy Park France SAS

   Value added poultry processing      France        100        100  

Dungannon Proteins Ltd

   Processing poultry by-products      UK        100        100  

O’Kane Blue Rose (Newco 1) Ltd

   Holding company      UK        100        100  

O’Kane Poultry Ltd

   Non trading company      UK        100        100  

Rose Energy Ltd

   Biomass energy      UK        67        67  

Kitchen Range Foods Limited

   Trading and production of
sweet, savoury and deep frozen
snacks
     UK        100        100  

Bakewell Foods Ltd

   Holding company      UK        100        100  

Albert van Zoonen B.V.

   Manufacture of frozen foods      Holland        100        100  

Moy Park Newco Ltd

   Holding company      UK        100        100  

Moy Park Bondco Plc

   Financing company      UK        100        100  

Moy Park France Holdco SARL

   Holding company      France        100        100  

Moy Park Beef Orleans SARL

   Value added meat processing      France        100        100  

Moy Park Food Service Dublin Ltd

   Value added meat processing      Ireland        100        100  

There are no restrictions on the company’s ability to access or use the assets and settle the liabilities of the company’s subsidiaries.

 

14. BIOLOGICAL ASSETS

 

     2016      2015  
     £’000      £’000  

At 1 January

     49,051        47,077  

Increase due to purchases

     485,112        497,909  

Consumables transferred to inventory

     (451,949      (462,415

Change in fair value due to biological transformation

     46,637        57,860  

Amortisation of bearer assets

     (29,831      (33,632

Sales of biological assets

     (46,163      (57,748
  

 

 

    

 

 

 

At 31 December

     52,857        49,051  
  

 

 

    

 

 

 

Bearer assets

     21,453        21,674  

Consumable assets

     31,404        27,377  
  

 

 

    

 

 

 
     52,857        49,051  
  

 

 

    

 

 

 

 

36


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

14. BIOLOGICAL ASSETS (continued)

 

At 31 December 2016 the company had 3.2m bearer assets (2015:3m) and 33.6m consumable assets (2015:31.3m).

During the year the company processed 265.7m birds (2015: 258.5m).

The fair value of the Group’s bearer assets are determined using level 3 of the fair value hierarchy, whilst the fair value of the Group’s consumable assets are determined using level 2 of the fair value hierarchy.

 

15. INVENTORY

 

     2016      2015  
     £’000      £’000  

Raw materials

     34,400        27,829  

Work in progress

     15,871        14,552  

Finished goods

     28,598        24,619  
  

 

 

    

 

 

 
     78,869        67,000  
  

 

 

    

 

 

 

The cost of inventories recognised as expenses and included in cost of sales amounted to £1,043.5m (2015: £1,059.0m).

 

16. TRADE AND OTHER RECEIVABLES

 

     2016      2015  
     £’000      £’000  

Trade receivables—gross

     106,014        56,910  

Provision for trade receivables

     (1,702      (3,024
  

 

 

    

 

 

 

Trade receivables—net

     104,312        53,886  

Other receivables

     12,845        13,789  

Prepayments

     10,247        9,730  
  

 

 

    

 

 

 
     127,404        77,405  
  

 

 

    

 

 

 

Less non-current portion—other receivables

     (2,879      (2,535
  

 

 

    

 

 

 

Trade and other receivables—current

     124,525        74,870  
  

 

 

    

 

 

 

Trade and other receivables are held at cost and any fair value difference is not material. Trade and other receivables are considered past due once they have passed their contracted due date. Trade receivables are reviewed for impairment if they are past due beyond 60 days.

The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:

 

     2016      2015  
     £’000      £’000  

Sterling

     96,552        49,541  

Euro

     30,830        27,864  

United States dollar

     22        —    
  

 

 

    

 

 

 
     127,404        77,405  
  

 

 

    

 

 

 

 

37


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

16. TRADE AND OTHER RECEIVABLES (continued)

 

Movements on the Group provision for impairment of trade receivables are as follows:

 

     2016      2015  
     £’000      £’000  

At 1 January

     3,024        2,787  

Provision for receivables impairment

     780        287  

Reductions

     (2,212      —    

Exchange movement

     110        (50
  

 

 

    

 

 

 

At 31 December

     1,702        3,024  
  

 

 

    

 

 

 

The creation and release of provision for impaired receivables have been included in ‘sales and distribution costs’ in the income statement. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.

The other classes within trade and other receivables do not contain impaired assets.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The Group does not hold any collateral as security.

At 31 December 2016, trade receivables of £9.6m (2015: £6.8m) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:

 

     2016      2015  
     £’000      £’000  

Up to 3 months

     9,548        6,687  

3 to 6 months

     —          35  

Over 6 months

     70        83  
  

 

 

    

 

 

 

At 31 December

     9,618        6,805  
  

 

 

    

 

 

 

At 31 December 2016, trade receivables of £1.7m (2015: £3.0m) were impaired. The ageing analysis of these trade receivables is as follows:

 

     2016      2015  
     £’000      £’000  

Up to 3 months

     186        101  

3 to 6 months

     92        408  

Over 6 months

     1,424        2,515  
  

 

 

    

 

 

 

At 31 December

     1,702        3,024  
  

 

 

    

 

 

 

 

17. CASH AND CASH EQUIVALENTS

 

     2016      2015  
     £’000      £’000  

Cash at bank and in hand

     139,576        173,384  
  

 

 

    

 

 

 
     139,576        173,384  
  

 

 

    

 

 

 

 

38


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

18. TRADE AND OTHER PAYABLES

The following amounts were held in foreign currencies:

 

     2016      2015  
     £’000      £’000  

United States dollar

     4        40  

Euro

     4,497        4,027  
  

 

 

    

 

 

 
     4,501        4,067  
  

 

 

    

 

 

 

 

     2016      2015  
     £’000      £’000  

Trade payables

     193,375        173,068  

Other tax and social security payable

     16,404        13,064  

Accruals and other payables

     34,594        30,961  
  

 

 

    

 

 

 
     244,373        217,093  
  

 

 

    

 

 

 

Trade and other payables—current

     242,387        215,340  

Trade and other payables—non-current

     1,986        1,753  
  

 

 

    

 

 

 
     244,373        217,093  
  

 

 

    

 

 

 

The fair value of trade and other payables approximates their carrying value due to short maturities.

 

19. LOANS AND BORROWINGS

 

     2016      2015  
     £’000      £’000  

Non-current

     

Bank borrowings

     10,371        1,166  

Senior notes

     295,147        294,047  

Finance lease liabilities

     6,625        11,496  
  

 

 

    

 

 

 
     312,143        306,709  
  

 

 

    

 

 

 

Current

     

Bank borrowing

     7,756        9,789  

Senior notes

     1,803        1,803  

Finance lease liabilities

     4,916        7,320  

Other loans

     —          1,718  
  

 

 

    

 

 

 
     14,475        20,630  
  

 

 

    

 

 

 

At 31 December 2016 borrowings of £7.2m (2015: £8.8m) were secured on book debts.

 

39


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

19. LOANS AND BORROWINGS (continued)

 

Interest rate profile of Interest bearing borrowings

 

     2016     2015  
     Debt      Interest
rate
    Debt      Interest
rate
 
     £’000            £’000         

Non-current borrowings

          

Bank borrowings

     10,371        2.3     1,166        3.8

Senior notes

     295,147        6.2     294,047        6.2

Finance lease liabilities

     6,625        3.9     11,496        3.2
  

 

 

      

 

 

    
     312,143          306,709     

Current borrowings

          

Bank borrowing

     7,756        0.9     9,789        1.0

Senior notes

     1,803        6.2     1,803        6.2

Finance lease liabilities

     4,916        3.9     7,320        3.2

Other debt

     —          —         1,718        3.5
  

 

 

      

 

 

    
     14,475          20,630     
  

 

 

      

 

 

    
     326,618          327,339     
  

 

 

      

 

 

    

The carrying amounts and fair value of the non-current borrowings are as follows:

 

     2016      2015  
     Carrying
amount
     Fair Value      Carrying
amount
     Fair Value  
     £’000      £’000      £’000      £’000  

Bank borrowings

     10,371        10,068        1,166        1,072  

Senior notes

     295,147        311,353        294,047        301,382  

Finance lease liabilities

     6,625        6,126        11,496        10,681  
  

 

 

    

 

 

    

 

 

    

 

 

 
     312,143        327,547        306,709        313,135  
  

 

 

    

 

 

    

 

 

    

 

 

 

The fair value of current borrowings equals their carrying amount, as the impact of discounting is not significant. The fair value of the Senior Notes is determined using level 1 of the fair value hierarchy. The fair values of non-current borrowings are determined using level 3 of the fair value hierarchy and are based on cash flows discounted using a rate based on the borrowing rates noted above.

Borrowings have the following maturity profile:

 

     2016      2015  
     £’000      £’000  

Less than 1 year

     14,475        20,630  

1-5 years

     312,143        12,662  

Over 5 years

     —          294,047  
  

 

 

    

 

 

 
     326,618        327,339  
  

 

 

    

 

 

 

 

40


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

19. LOANS AND BORROWINGS (continued)

 

The carrying amounts of the Group’s borrowings are denominated in the following currencies:

 

     2016      2015  
     £’000      £’000  

Sterling

     319,454        316,557  

Euro

     7,164        10,782  
  

 

 

    

 

 

 
     326,618        327,339  
  

 

 

    

 

 

 

 

(a) Finance lease liabilities

Lease liabilities are effectively secured as the rights to the leased assets revert to the lessor in the event of default.

 

     2016      2015  
     £’000      £’000  

Gross finance lease liabilities—minimum lease payments

     

No later than 1 year

     5,384        8,001  

Later than 1 year and no later than 5 years

     7,234        12,571  
  

 

 

    

 

 

 
     12,618        20,572  

Future finance charges on finance lease liabilities

     (1,077      (1,756
  

 

 

    

 

 

 

Present value of finance lease liabilities

     11,541        18,816  
  

 

 

    

 

 

 

The present value of finance lease liabilities is as follows:

 

     2016      2015  
     £’000      £’000  

No later than 1 year

     4,916        7,320  

Later than 1 year and no later than 5 years

     6,625        11,496  
  

 

 

    

 

 

 
     11,541        18,816  
  

 

 

    

 

 

 

 

20. CAPITAL GRANTS

 

      2016      2015  
     £’000      £’000  

Balance at 1 January

     8,162        7,394  

Grants claimed in year

     2,258        1,929  

Released to Income statement

     (991      (1,141

Movement due to foreign exchange

     (5      (20
  

 

 

    

 

 

 

At 31 December

     9,424        8,162  
  

 

 

    

 

 

 

 

41


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

21. DEFERRED TAX

The analysis of the deferred tax liability is as follows:

 

     2016      2015  
     £’000      £’000  

Deferred tax liabilities:

     

Deferred tax liability to be recovered after more than 12 months

     44,634        45,825  

Deferred tax liability to be recovered within 12 months

     687        728  
  

 

 

    

 

 

 

Deferred tax liabilities

     45,321        46,553  
  

 

 

    

 

 

 

The movement in deferred tax liabilities during the year is as follows:

 

     Accelerated
tax
depreciation
     Fair
value
gains
     Total  
     £’000      £’000      £’000  

At 1 January 2015

     6,384        47,585        53,969  

Credited to the income statement

     (1,133      (6,255      (7,388

Exchange difference

     (28      —          (28
  

 

 

    

 

 

    

 

 

 

At 31 December 2015

     5,223        41,330        46,553  
  

 

 

    

 

 

    

 

 

 

Credited to the income statement

     1,679        (2,984      (1,305

Exchange difference

     73        —          73  
  

 

 

    

 

 

    

 

 

 

At 31 December 2016

     6,975        38,346        45,321  
  

 

 

    

 

 

    

 

 

 

Fair value gains relate to deferred tax liabilities arising on fair value adjustments to non-current tangible and intangible fixed assets.

The Group has tax losses of approximately £45.9m (2015: £46.3m) available for carry forward and offset against future taxable profits arising from the same trade. The Group has a potential deferred tax asset of £15.6m (2015: £15.7m), which has not been recognised in these financial statements as its future recovery is uncertain. This potential deferred tax asset will be recognised when it can be regarded as more likely than not that there will be sufficient taxable profits from which the tax losses can be deducted.

 

22. SHARE CAPITAL AND PREMIUM

 

     Number of
shares
     Ordinary
shares
     Share
premium
     Total  
     £’000      £’000      £’000      £’000  
  

 

 

    

 

 

    

 

 

    

 

 

 

At 1 January 2015

     277,418        2,774        —          2,774  
  

 

 

    

 

 

    

 

 

    

 

 

 

At 31 December 2015 and 31 December 2016

     277,418        2,774        —          2,774  
  

 

 

    

 

 

    

 

 

    

 

 

 

All shares are authorised, allotted and fully paid up. There is no allotted but unpaid share capital.

 

42


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

23. RETAINED EARNINGS AND OTHER RESERVES

 

     Retained
earnings
    Translation
reserve*
    Hedge
Reserve*
     Merger
reserve*
    Non-
controlling
interest
    Total  
     £’000     £’000     £’000      £’000     £’000     £’000  

At 1 January 2015

     239,412       (1,548     —          (1,781     (746     235,337  

Profit for year

     12,688       —            —         —         12,688  

Foreign exchange (losses)

     —         (1,143     —          —         —         (1,143

Fair value gain

     —         —         174        —         —         174  

Dividend paid

     (35,600          —         —         (35,600
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

At 31 December 2015

     216,500       (2,691     174        (1,781     (746     211,456  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Profit for year

     32,891       —         —          —         —         32,891  

Foreign exchange gains

     —         3,507       —          —         —         3,507  

Fair value gain

     —         —         119        —         —         119  

Dividend paid

     (11,500     —         —          —         —         (11,500
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

At 31 December 2016

     237,891       816       293        (1,781     (746     236,473  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

* Included in Consolidated Balance Sheet as Other reserves.

 

24. COMMITMENTS AND CONTINGENCIES

(a) Capital commitments

Authorised and contracted future capital expenditure before deduction of available government grants amounted to:

 

     2016      2015  
     £’000      £’000  

Property, plant and equipment

     6,874        7,883  
  

 

 

    

 

 

 
     6,874        7,883  
  

 

 

    

 

 

 

(b) Operating lease commitments

The Group leases various properties under non-cancellable operating lease agreements. The lease terms are between 1 and 21 years, and the majority of lease agreements are renewable at the end of the lease period at market rate.

The Group also leases various vehicles, plant and equipment under non- cancellable lease agreements.

The lease expenditure charged to the income statement during the year is disclosed in note 6.

The future aggregate minimum lease payments under non-cancellable operating leases as follows:

 

     2016      2015  
     £’000      £’000  

Within 1 year

     11,885        10,188  

Later than 1 year and less than 5 years

     27,519        24,201  

After 5 years

     21,229        15,009  
  

 

 

    

 

 

 
     60,633        49,398  
  

 

 

    

 

 

 

 

43


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

25. FINANCIAL INSTRUMENTS—RISK MANAGEMENT

Financial risk management

The Group’s activities expose it to a variety of financial risks that include the effects of changes in market prices, (including foreign exchange, interest rate risk and commodity price risk), credit risk and liquidity risk.

Risk management is carried out by the board of directors. The Group has in place a risk management programme that seeks to limit the adverse effects on the financial performance of the company by monitoring levels of debt finance and the related finance costs.

(a) Market risk

(i) Foreign exchange risk

The Group operates in the UK, Ireland, France and the Netherlands and is therefore exposed to foreign exchange risk. Foreign exchange risk arises on sales and purchases made in foreign currencies and on recognised assets and liabilities and net investments in foreign operations.

The Group monitors its exposure to currency fluctuations on an on-going basis. The Group uses foreign currency bank accounts and forward foreign exchange contracts to reduce its exposure to foreign currency translation risk.

At 31 December 2016 if Sterling had weakened/strengthened by 10% against the Euro and US Dollar with all other variables held constant, post-tax profit for the year would have been £0.6m/£0.5m, (2015: £1.6m/£1.3m) higher/lower, mainly as a result of foreign exchange gains/losses on translation of Euro and US dollar-denominated trade receivables, US dollar-denominated borrowings and profits/losses realised in the European subsidiaries denominated in Euro.

(ii) Interest rate risk

The Group’s interest rate risk arises from the Group’s borrowings as disclosed in Note 19. Where possible the Group seeks to fix the interest rates that it pays to mitigate the risk of interest rate fluctuations.

(iii) Commodity price risk

The Group’s commodity price risk results from price fluctuations in the raw materials used to produce feed for its biological asset production operations. In order to minimise this risk, the Group has a policy of seeking professional advice from expert commodity traders and this advice is given very careful consideration and acted upon as appropriate.

(b) Credit risk

Concentrations of credit risk exist in relation to transactions with major customers however as the majority of these are blue chip companies, the company considers there to be minimal risk of default. The Group has policies in place to ensure that sales of goods are made to customers with an appropriate credit history. Cash and cash equivalents are held with reputable institutions.

No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counterparties. Management believe that no further credit risk provision is required in excess of normal provision for doubtful receivables.

 

44


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

25. FINANCIAL INSTRUMENTS—RISK MANAGEMENT (continued)

 

(c) Liquidity risk

Cash flow forecasting is performed in the operating entities of the Group and aggregated by group finance. Group finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group minimises the risk of breaching borrowing limits or covenants on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plan and covenant compliance requirements on its borrowings.

An analysis of the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date is provided in note 19.

Financial liabilities have the following undiscounted maturity profile:

 

     Less than
1 year
     Between
1 and 3 years
     Between
3 and 5 years
     Over 5 years  
     £’000      £’000      £’000      £’000  

At 31 December 2016

           

Loans and borrowings

     32,657        54,666        328,839        —    

Trade and other payables (excluding tax and social security)

     225,983        1,986        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     258,640        56,652        328,839        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Less than
1 year
     Between
1 and 3 years
     Between
3 and 5 years
     Over 5 years  
     £’000      £’000      £’000      £’000  

At 31 December 2015

           

Loans and borrowings

     38,973        48,134        40,718        309,375  

Trade and other payables (excluding tax and social security)

     202,276        1,753        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     241,249        49,887        40,718        309,375  
  

 

 

    

 

 

    

 

 

    

 

 

 

Capital risk management

The aim of the Group is to maintain sufficient funds to enable it to safeguard its ability to continue as a going concern and to make suitable investments and incremental acquisitions while providing returns for shareholders with minimal recourse to bankers.

Capital risk measures such as gearing ratios are not currently relevant to the Group.

 

26. RELATED PARTY TRANSACTIONS

Key management compensation is given in note 5.

The company’s ultimate parent company was JBS S.A., a company registered in Brazil. The company’s immediate parent company is Granite Holdings SARL, a company incorporated in Luxembourg.

 

45


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

26. RELATED PARTY TRANSACTIONS (continued)

 

Related party transactions with fellow members of the JBS group are as follows:

Trading transactions

 

     Transaction amount      Balance  
Related party relationship Transaction type    2016      2015      2016     2015  
  

 

 

    

 

 

    

 

 

   

 

 

 
     £’000      £’000      £’000     £’000  

Group companies         Purchases/recharges

     (21,296      (2,191      (2,218     (565

These transactions are trading relationships which are made at market value. The company has not made any provision for impairment in respect of related party debtors nor has any guarantee been given during 2016 or 2015 regarding related party transactions.

 

27. FINANCIAL INSTRUMENTS

(a) BY CATEGORY

 

     2016      2015  
     Loans and
receivables
     Assets at fair
value through
profit and loss
     Total      Loans and
receivables
     Assets at fair
value through
profit and loss
     Total  
     £’000      £’000      £’000      £’000      £’000      £’000  

Assets as per balance sheet

                 

Derivative financial instruments

     —          372        372        —          172        172  

Trade and other receivables excluding prepayments

     116,785        —          116,785        67,503        —          67,503  

Cash and cash equivalents

     139,576        —          139,576        173,384        —          173,384  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     256,361        372        256,733        240,887        172        241,059  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     2016      2015  
     Financial
liabilities at
amortised
cost
     Liabilities at
fair value
through profit
and loss
     Total      Financial
liabilities at
amortised
cost
     Liabilities at
fair value
through
profit and
loss
     Total  
     £’000      £’000      £’000      £’000      £’000      £’000  

Liabilities as per balance sheet

                 

Derivative financial instruments

     —          —          —          —          269        269  

Loans and borrowings—current

     14,475        —          14,475        20,630        —          20,630  

Loans and borrowings—non-current

     312,143        —          312,143        306,709        —          306,709  

Trade and other payables excluding non-financial liabilities

     227,969        —          227,969        203,760        —          203,760  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     554,587        —          554,587        531,099        269        531,368  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

46


MOY PARK HOLDINGS (EUROPE) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

28. EVENTS AFTER THE REPORTING DATE

On 11 September 2017, the US based Pilgrim’s Pride Corporation announced that it had acquired Moy Park from JBS S.A., JBS S.A. remains the ultimate parent company of Moy Park Limited by virtue of its majority shareholding in Pilgrim’s Pride Corporation.

The directors are aware that on 30 May 2017, J&F Investimentos, a shareholder of the ultimate parent company JBS S.A., entered into a leniency agreement with the Brazilian Federal Prosecuter’s Office. The directors confirm that this agreement and connected investigations are not related to the activities of any member of the Moy Park Holdings (Europe) Limited Group.

There are no other events after the reporting date requiring adjustment or disclosure in the financial statements.

 

29. ULTIMATE PARENT COMPANY

The immediate parent company is Granite Holdings SARL, a company incorporated and registered in Luxembourg. At 31 December 2016 the company’s ultimate parent company is JBS S.A., a company listed on the Brazilian stock exchange. JBS S.A. is ultimately controlled by the Batista family comprised of Jose Batista Sobrinho (the founder of JBS), his wife and five of their children through their ownership and control of J&F Investimentos S.A., a Brazillian corporation which owns 42% of the outstanding capital of JBS S.A.

The smallest and largest group of companies for which group financial statements are drawn up and of which the company is included are those of the group headed by JBS S.A.

Copies of the Group financial statements are available from www.jbsglobal.com

 

47


EBITDA

“EBITDA” is defined as the sum of profit for the year plus net finance costs, taxation, depreciation and amortization. “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting biological assets from EBITDA. EBITDA is presented because it is used by the Moy Park Group, and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with IFRS, to compare the performance of companies. We believe investors would be interested in the Moy Park Group’s Adjusted EBITDA because this is how the Moy Park Group’s management analyzes EBITDA applicable to continuing operations. We also believe that Adjusted EBITDA, in combination with Moy Park’s financial results calculated in accordance with IFRS, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of its performance with its competitors. EBITDA and Adjusted EBITDA are not measurements of financial performance under IFRS. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of the Moy Park Group’s results as reported under IFRS. Some of the limitations of these measures are:

 

    EBITDA and Adjusted EBITDA do not reflect the Moy Park Group’s cash expenditures, future requirements for capital expenditures or contractual commitments;

 

    EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, the Moy Park Group’s working capital needs;

 

    EBITDA and Adjusted EBITDA do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on the Moy Park Group’s debt;

 

    Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;

 

    EBITDA and Adjusted EBITDA are not adjusted for all non-cash income or expense items that are reflected in the Moy Park Group’s statements of cash flows; and

 

    EBITDA and Adjusted EBITDA do not reflect limitations on or costs related to transferring earnings from Moy Park’s subsidiaries to Moy Park.

In addition, other companies in the industry may calculate EBITDA and Adjusted EBITDA differently than Moy Park does, limiting its usefulness as a comparative measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of the Moy Park Group’s operating performance or any other measures of performance derived in accordance with IFRS. You should compensate for these limitations by relying primarily on the Moy Park Group’s IFRS results and using EBITDA and Adjusted EBITDA only supplementally.

A reconciliation of net income to EBITDA and Adjusted EBITDA is as follows:

 

     For the year ended
December 31,
    For the six-month period ended June 30,     For the twelve-month
period ended June 30,
 
     2016     2016 (i)     2016     2017     2017 (i)     2017     2017 (i)  
     (in
thousands
of pounds)
    (in
thousands
of U.S.
dollars)
    (in
thousands
of pounds)
    (in
thousands
of pounds)
    (in
thousands
of U.S.
dollars)
    (in
thousands
of pounds)
    (in
thousands
of U.S.
dollars)
 

Profit for the year

     32,891       42,844       14,868       15,323       19,960       33,346       43,436  

Add:

              

Net finance costs (ii)

     20,961       27,304       10,776       10,747       13,999       20,932       27,266  

Taxation

     7,955       10,362       6,219       3,468       4,517       5,204       6,779  

Depreciation and amortization

     63,104       82,199       31,692       31,088       40,495       62,500       81,413  

Minus:

              

Amortization of capital grants (iii)

     (991     (1,291     (484     (491     (640     (998     (1,300
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     125,902       164,000       64,039       61,117       79,611       122,980       160,194  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Minus:

              

Amortization of biological assets

     29,831       38,858       15,551       14,809       19,290       29,089       37,891  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     96,071       125,142       48,488       46,308       60,321       93,891       122,302  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(i) Solely for the convenience of investors, British pound amounts have been translated into U.S. dollars at an exchange rate of US$1.3026 per £1.00, which was the Bloomberg Composite Rate on June 30, 2017 and should not be construed as implying that the British pound amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate.
(ii) Net finance costs consists of finance costs less finance income.
(iii) Amortization of capital grants is included in depreciation and amortization above.

 

48


Unaudited Pro Forma Combined Financial Information of PPC

On September 8, 2017, a wholly-owned subsidiary of Pilgrim’s Pride Corporation acquired from JBS S.A. 100% of the issued and outstanding shares of common stock of Granite Holdings S.à r.l. (formerly Moy Park Lux S.à r.l.) (“Granite”). We refer to this transaction as the “Moy Park Acquisition.” Granite is predominately comprised of Moy Park Holdings (Europe) Ltd. (“Moy Park”) and its subsidiaries (the “Moy Park Group”). In addition to Granite’s investment in Moy Park, the entity holds an insignificant cash balance and incurs limited administrative expenses.

“Pilgrim’s Pride,” “Pilgrim’s,” “PPC,” “we,” “us,” “our,” “ours,” the “Company” and words of a similar effect are to Pilgrim’s Pride Corporation together with its subsidiaries (other than Granite and its subsidiaries).

The following unaudited pro forma combined financial information presents the unaudited pro forma combined balance sheet and unaudited pro forma combined statement of operations based upon combining the following historical financial statements of PPC and the Moy Park Group, after giving effect to the Moy Park Acquisition and adjustments described in the accompanying notes: (1) PPC’s unaudited historical condensed consolidated financial statements as of June 25, 2017 and for the twenty-six weeks ended June 25, 2017 and June 26, 2016, and the related notes thereto, which are included elsewhere in the Offering Circular; (2) PPC’s audited historical consolidated financial statements for the fifty-two weeks ended December 25, 2016, and the related notes thereto, which are included elsewhere in the Offering Circular; (3) the Moy Park Group’s unaudited historical interim consolidated financial statements as of June 30, 2017 and for the six-month periods ended June 30, 2017 and June 30, 2016, and the related notes thereto, which are not included elsewhere in the Offering Circular; and (4) the Moy Park Group’s audited historical consolidated financial statements for the years ended December 31, 2016, and the related notes thereto, which are included elsewhere in the Offering Circular. The unaudited pro forma combined financial information should be read in conjunction with, and is qualified in its entirety by reference to, such historical financial statements and historical financial information and the related notes contained therein.

JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”), beneficially owns 78.6% of the outstanding common stock of Pilgrim’s Pride Corporation. Prior to the Moy Park Acquisition, Granite was a wholly-owned subsidiary of JBS S.A. Accordingly, the Moy Park Acquisition will be accounted for as a transaction among entities under common control. Granite will initially be recorded by PPC at Granite’s historic carrying value and PPC’s will include the activities of Granite in its financial statements since the date the entities were first under common control. Pilgrim’s Pride Corporation and Moy Park came under common control as of September 30, 2015, the date JBS S.A. acquired Moy Park. Granite was created as a holding company as a result of JBS S.A.’s acquisition of Moy Park.

The unaudited pro forma combined financial information is presented for illustrative purposes only to reflect the Moy Park Acquisition, and does not represent what PPC’s results of operations or financial position would actually have been had the Moy Park Acquisition occurred on the dates assumed within Note 1 (Basis of Presentation), or had the combined operations taken place from the earliest date of common control, September 30, 2015. Further, the unaudited pro forma combined financial information does not represent or project Pilgrim’s results of operations or financial position for any future periods. The unaudited pro forma combined financial information is intended to provide information about the continuing impact of the Moy Park Acquisition as if it had been consummated on June 25, 2017, in the case of the unaudited pro forma combined balance sheet, and on September 30, 2015, in the case of the unaudited pro forma combined statements of income. The pro forma adjustments are based on available information and certain assumptions that management believes are factually supportable and are expected to have a continuing impact on PPC’s results of operations. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma combined financial information have been made. However, the estimated purchase price allocations are subject to finalization and may differ materially from the estimated amounts based on the assumptions discussed within the footnotes to this unaudited pro forma combined financial information.

 

49


Unaudited Pro Forma Combined Balance Sheet

As of June 25, 2017

(in thousands)

 

    PPC
Historical
    Moy Park Group
Historical

(Note 3)
    Pro Forma
Adjustments
    Notes
(Note 5)
    PPC  Pro Forma
Combined
 

Cash and cash equivalents

  $ 303,937     $ 169,404     $ (301,278     (a)     $ 172,063  

Restricted cash

    20,348       —         —           20,348  

Trade accounts and other receivables, less allowance for doubtful accounts

    406,586       170,079       —           576,665  

Accounts receivable from related parties

    4,050       —         —           4,050  

Inventories

    967,577       175,880       —           1,143,457  

Income taxes receivable

    13,659       —         —           13,659  

Prepaid expenses and other current assets

    66,572       15,235       —           81,807  

Assets held for sale

    5,542       —         —           5,542  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

    1,788,271       530,598       (301,278       2,017,591  

Other long-lived assets

    17,484       3,645       —           21,129  

Identified intangible assets, net

    153,855       452,892       —           606,747  

Goodwill

    175,444       848,469       —           1,023,913  

Property, plant and equipment, net

    1,721,948       352,108       —           2,074,056  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total assets

  $ 3,857,002     $ 2,187,712     $ (301,278     $ 5,743,436  
 

 

 

   

 

 

   

 

 

     

 

 

 

Notes payable

  $ —       $ —       $ 724,806       (b)     $ 724,806  

Accounts payable

    519,820       279,182       14,190       (e)       813,192  

Accounts payable to related parties

    3,622       —         —           3,622  

Accrued expenses

    324,727       39,185       —           363,912  

Income taxes payable

    93,910       —         —           93,910  

Current maturities of long-term debt

    40,098       28,485       —           68,583  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

    982,177       346,852       738,996         2,068,025  

Long-term debt, less current maturities

    1,404,264       391,608       —           1,795,872  

Deferred tax liabilities

    171,042       77,954       —           248,996  

Other long-term liabilities

    89,422       14,594       —           104,016  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

    2,646,905       831,008       738,996         4,216,909  

Preferred stock

    —         —         —           —    

Common stock

    2,602       3,613       —           6,215  

Treasury stock, at cost

    (231,758     —         —           (231,758

Additional paid-in capital

    1,688,684       1,025,184       (1,026,084     (a), (b)       1,687,784  

Retained earnings (accumulated deficit)

    (193,073     325,902       (14,190     (e)       118,639  

Accumulated other comprehensive loss

    (66,735     2,977       —           (63,758
 

 

 

   

 

 

   

 

 

     

 

 

 

Total Pilgrim’s Pride Corporation stockholders’ equity

    1,199,720       1,357,676       (1,040,274       1,517,122  

Noncontrolling interest

    10,377       (972     —           9,405  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total stockholders’ equity

    1,210,097       1,356,704       (1,040,274       1,526,527  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities and stockholders’ equity

  $ 3,857,002     $ 2,187,712     $ (301,278     $ 5,743,436  
 

 

 

   

 

 

   

 

 

     

 

 

 

See accompanying notes to the Unaudited Pro Forma Combined Financial Information of PPC

 

50


Unaudited Pro Forma Combined Statement of Operations

For the twenty-six weeks ended June 25, 2017

(in thousands)

 

     PPC Historical     Moy Park Group
Historical

(Note 3)
    Pro Forma
Adjustments
    Notes
(Note 5)
    PPC  Pro Forma
Combined
 

Net sales

   $ 4,272,096     $ 959,636     $ —         $ 5,231,732  

Cost of sales

     3,631,504       846,662       —           4,478,166  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     640,592       112,974       —           753,566  

Selling, general and administrative expense

     124,489       78,733       —           203,222  

Administrative and restructuring charges

     4,349       —         —           4,349  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     511,754       34,241       —           545,995  

Interest expense, net of capitalized interest

     28,321       13,378       18,968       (c     60,667  

Interest income

     (1,346     (130     —           (1,476

Foreign currency transaction losses (gains)

     (1,191     —         —           (1,191

Miscellaneous, net

     (3,685     —         —           (3,685
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     489,655       20,993       (18,968       491,680  

Income tax expense

     161,119       2,829       (7,094     (d     156,854  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     328,536       18,164       (11,874       334,826  

Less: Net income attributable to noncontrolling interest

     974       —         —           974  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Pilgrim’s Pride Corporation

   $ 327,562     $ 18,164     $ (11,874     $ 333,852  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the Unaudited Pro Forma Combined Financial Information of PPC

 

51


Unaudited Pro Forma Combined Statement of Operations

For the fifty-two weeks ended December 25, 2016

(in thousands)

 

     PPC
Historical
    Moy Park Group
Historical

(Note 3)
    Pro Forma
Adjustments
    Notes
(Note 5)
    PPC  Pro Forma
Combined
 

Net sales

   $ 7,931,123     $ 1,947,571     $ —         $ 9,878,694  

Cost of sales

     7,016,763       1,716,977       —           8,733,740  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     914,360       230,594       —           1,444,954  

Selling, general and administrative expense

     199,781       151,566       —           351,347  

Administrative and restructuring charges

     1,069       —         —           1,069  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     713,510       79,028       —           792,538  

Interest expense, net of capitalized interest

     45,921       29,682       37,936       (c     113,539  

Interest income

     (1,724     (1,282     —           (3,006

Foreign currency transaction losses (gains)

     3,897       —         —           3,897  

Miscellaneous, net

     (7,219     —         —           (7,219
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     672,635       50,628       (37,936       685,327  

Income tax expense

     232,906       8,034       (14,188     (d     226,752