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UNITED DAIRY FARMERSAnnual Report & Accounts 2011/12

UNITED DAIRY FARMERSTelephone: 028 9037 2237Email: [email protected]

UN

ITED

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IRY FA

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nnual Report & A

ccounts 2011/12

Creating a Successful Future Together

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Pennybridge Ballymena

Technical Centre Ballymena

United Feeds Belfast

Dale Farm House Belfast

Dromona Cullybackey

Dunmanbridge Cookstown

United Feeds Dungannon

Rowan Glen Newtown Stewart

Kendal Cumbria

Contents

Annual Report & Accounts 2011/12

Annual Report01 The United Dairy Farmers Group

02 The Year at a Glance

03 Chairman’s Report

05 Chief Executive’s Review

09 Business Review

24 Board of Directors

26 Corporate Governance

Financial Statements28 Directors’ Report

32 Statement of Directors’ Responsibilities

33 Independent Auditors’ Report

34 Group Profi t and Loss Account

35 Group Statement of Total Recognised Gains and Losses

36 Group Balance Sheet

37 Society Balance Sheet

38 Group Statement of Cash Flows

40 Notes to the Financial Statements

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1 John Suffern - Dairy Farmer, Crumlin, Co Antrim. 2&3 Fiona & Mark McIntyre - Dairy Farmers, Bushmills, Co Antrim. 4 Edward Bruce - Dairy Farmer, Ballinamallard, Co Fermanagh. 5 Aisling Mulholland - Group Technical Centre. 6 James Kennedy - Dale Farm Van Sales, Belfast Area. 7 Joyce Hall - Dale Farm House Receptionist. 8 Magdalena Markiewicz - Dunmanbridge Retail Cheese. 9 Gary Shields - Dale Farm Project Engineer. 10 Stephen Hyndman - Pennybridge Dairy. 11 Joe Campbell - Tanker Driver, Mid Antrim. 12 Chris Mills - United Feeds, Northern Road Mill. 13 Mervyn Kelso - Dairy Farmer, Portglenone, Co L’derry. 14 Ian Patterson - Dairy Farmer, Omagh, Co Tyrone. 15 Chris McGeagh - Dunmanbridge Despatch. 16 Paul Millar - Dairy Farmer Cookstown, Co Tyrone. 17 Robert Bryson - Dairy Farmer, Banbridge, Co Down.

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Our GroupUnited Dairy Farmers is a dairy cooperative owned by 1,800 farmer members with a turnover in excess of £400 million per year and employing around 1,000 people. The Group’s activities span the food chain – from providing farm inputs and services, to collecting and marketing 1 billion litres of its members’ milk per annum, manufacturing an extensive range of dairy products for the retail, food service and food ingredient sectors and distributing these to both domestic and international markets.

Our MissionAdding sustainable value to our members’ milk through supply chain excellence, consumer led innovation and building strong positions in consumer and ingredients markets.

Our BusinessesDale Farm Manufactures, markets and distributes a wide range of dairy products

Dale Farm Dairies (Ireland) Markets and distributes Dale Farm dairy products in the Republic of Ireland

Dale Farm Ingredients Supplies a range of dairy based food ingredients to domestic and international markets

Dale Farm Ice Cream Distributes ice cream products

Dale Farm Ice Cream (Ireland) Distributes ice cream products in the Republic of Ireland

Dale Farm Lakeland Manufactures and distributes a range of consumer dairy products, including fresh milk, yogurts, desserts and cottage cheese

Rowan Glen Manufactures and distributes a range of consumer dairy products including yogurts, probiotic drinks and desserts

United Dairy Farmers Collects, tests, markets and delivers ex-farm milk

United Tankcare Supplies and maintains on-farm milk storage tanks

United Dairy Herd Management Provides herd recording & health management information

United Feeds Manufactures and supplies animal feeds and other farm inputs

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Annual Report & Accounts 2011/12 Annual Report & Accounts 2011/12

32

I am pleased to report that the United Group continued to make good progress against our strategy of growing in value with a record Group turnover and a record payment to our members for their milk supplies.

Group turnover increased by 9% on the previous year to a record £437 million, as a result of both volume and value growth, and Group profi t before tax increased by 25% to £5.2 million.

The cyclical nature of global dairy markets was again evident. Having peaked in the early months of 2011, international markets then gradually weakened with the decline accelerating in the early months of 2012 as strong growth in global milk supplies outpaced the increase in international demand for dairy products.

The United milk auction refl ected these market trends, with prices holding stable at 29.5 pence through late summer and early autumn, before weakening in the fi nal months of the year to 25.5 ppl in the March 2012 auction. Mirroring the auction returns, the base milk prices paid to members ranged from 25.25 ppl for May supplies to 28.5ppl for the autumn months and averaged 27.26 ppl for the year, an increase of 1.5 pence (6%) on the previous year.

United’s Northern Ireland membership was more stable than ever before, with an overall decline of only 1.3% as new entrants to milk production offset in part those retiring from dairy farming. For the fi rst time membership of the Society was opened to the GB farmers supplying milk to our plants at Kendal and Rowan Glen, and we were pleased that all of our GB suppliers decided to join the Society.

Dale Farm processed a record volume of milk and continued to build its added value sales, with further strong growth in sales of consumer products and food ingredients. The development of our butter and spreads business was further boosted by the acquisition at the end of 2011 of the Fane Valley packaged butter business. The Group’s investment programme continued with further expansion in chilled desserts capacity at Kendal and work commencing on the construction of a new bottling hall and central distribution facility at Dale Farm’s Pennybridge plant at Ballymena.

Elsewhere in the Group the farm services and supplies businesses performed well, especially United Feeds, which recorded another strong trading performance.

Bonus share distribution

I am pleased that the Board has agreed an allocation of bonus shares to members totalling £1.0 million: the allocation will be at the rate of 1 share per 1,000 litres of milk supplied to the Group in 2011/12.

It has been United’s policy not to seek capital contributions from members for the development of the Group’s processing activities. Taking account of the need to fund our on-going investment programme

300

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2011/122010/112009/102008/092007/08

Group Turnover£million

Group Profit before Tax£million

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Group Profit after Tax£million

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United Average Base Milk PricePence per litre

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Dale Farm Turnover£million

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Dale FarmConsumer Product Sales£million

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Dale FarmIngredients Sales£million

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2011/122010/112009/102008/092007/08

Dale FarmCommodity Sales£million

Group turnover up 9% (£37million) to £437 million

Group profi t before tax up 25% (£1.03 million) to £5.2 million

Capital investment of £5.7million

Net debt to EBITDA 2.64 times

Return on capital employed up from 7.81% to 8.24%

Average base milk price up 6% (1.5 ppl) to 27.26 ppl

Bonus share issue of 1 share per 1,000 litres

The Year at a Glance Chairman’s Report

‘The base prices paid to members increased by 1.5 pence on the previous year to average 27.26 pence per litre.’

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54

and the associated increase in the Group’s working capital requirements, the Board has decided not to pay a share dividend in respect of 2011/12.

Thanks

The continued progress in the development of the Group’s activities has been possible only because of the vision and leadership of our Board and Executive team and the commitment and considerable effort of our staff throughout the British Isles. On behalf of the Board I want to thank our Group Chief Executive, his Senior Executive team, and the management & staff across the Group for their enthusiasm and contribution during 2011/12.

Prospects

The long term outlook for the global dairy industry continues to be positive, with a growing world population and increasing demand for dairy products, particularly in developing countries. However in the short term, favourable markets and excellent grazing conditions in major dairying regions have resulted in a surplus of dairy products that has depressed markets and milk prices across the globe. With lower returns and signifi cant input cost infl ation, conditions at farm and processing level have been extremely challenging in the fi rst quarter of 2012/13. Adverse weather in the Northern Hemisphere, especially a drought in the US, is resulting in global milk production slowing and some recovery in dairy commodity prices in the second quarter.

Against the background of EU milk quotas ending in 2015 and the expansion plans of a number of countries, including the Republic of Ireland, your Board has a clear vision for the future. We remain committed to our strategy of adding sustainable value to our members’ milk and plan to further develop our processing capacity and capability to ensure there is suffi cient demand for all of our members’ milk supplies.

Northern Ireland is a small player in the global dairy scene and it is unfortunate that at a time when the dairy industry elsewhere is consolidating, the Northern Ireland industry is further fragmenting. Positive change is both necessary and desirable, but milk producers, who are the lifeblood of the industry, must ensure that change is for their long term benefi t, and not driven by short term expediency.

We value the on-going support of United members and are confi dent that, together, the Group is well placed to face the challenges ahead and deliver a competitive milk price going forward.

John DunlopChairman

The Group continued to develop successfully achieving strong growth in sales and profi t despite the impact of high input cost infl ation and weakening commodity markets.

Results

Record sales in Dale Farm’s consumer and ingredients businesses and in United Feeds helped deliver an overall Group turnover of £437 million which was up 9.3% on the previous year.

Group profi t before tax increased by 25% to £5.2 million with the additional contribution from increased sales throughout the Group, especially from cheese, whey protein products, butter and liquid milk, more than offsetting higher input and interest costs.

Net debt increased by £4.3 million to £25.2 million as a result of higher working capital related to the increased sales turnover especially in cheese and butter. Interest costs were £54,000 above the previous year at £714,000. During the year the group repaid £161,000 to shareholders leaving/retiring from the society, compared with £526,000 in the previous year.

The net liabilities of the Nilgosc pension scheme increased by £6.2 million to £7 million refl ecting lower investment returns and a higher actuarial valuation of liabilities. As a result of the increased pension liabilities the net shareholders’ funds decreased by £3.3 million to £35.7 million. The Group maintained its policy of

making a distribution to shareholders with a provision made for the issue of £1.01 million of bonus shares to members based on one bonus share per 1,000 litres of milk supplied in 2011/12.

Market & Sales

Consumer dairy products markets regained their premium over commodities as the year progressed with international dairy markets weakening in response to increased global milk supply and a slowing in demand growth from China and Russia.

United’s milk auction tracked the market with prices peaking at 29.5 pence in early autumn, before weakening in the fi nal months of the year to 25.5 pence. United’s base milk price averaged a record 27.26 pence per litre for the year, which was an increase of 1.5 pence (6%) on the previous year.

Dale Farm turnover grew by 10.7% to a record £212 million. Consumer product sales increased by 16% to £134.6 million and food ingredient sales increased by 60% to £52.4 million. Key areas of growth in the year were in cheese which saw volume growth of 61%, whey protein products which grew by 163% and butter which saw throughput growth of 30% boosted by the acquisition at the end of the third quarter of the Fane Valley packaged butter business. The strong growth in consumer products and ingredients was offset by a reduction in commodity sales which fell by 42.0% to £25 million as the result of lower market returns and a move away from the production of milk powders to cheese and whey protein powders.

Chief Executive’s Review

‘Record sales in Dale Farm’s consumer and ingredients businesses and in United Feeds helped deliver a 9.3% increase in Group turnover to £437 million.’



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United Feeds continued to perform well delivering a turnover of £38 million which was 13.5% up on the prior year.

Investment

The Group continued its ambitious capital investment programme with a total spend of £5.7 million in the year. In addition to this, in December 2012, Dale Farm purchased the trade and assets of the Fane Valley packet butter business in Northern Ireland after Fane Valley’s decision to exit this market. This business was successfully integrated with Dale Farm’s Dromona butter business providing additional market share, greater economies of scale and mini portion packing capability for the foodservice market which Dale Farm is already successfully exploiting in the GB market.

The main capital spend in the year related to the expansion of desserts capacity at Kendal and the development of the fresh milk operation at Pennybridge which included a new bottling hall and new chilled distribution centre. Grant aided by Invest NI this new facility will be completed in the autumn of 2012 and will reduce costs and improve customer service by streamlining the distribution of Group consumer products throughout Ireland.

Outlook

Dairy markets continued to weaken in the fi rst quarter of 2012/13 with an early Northern Hemisphere spring causing a surge in milk production into an already over supplied market following a

record New Zealand production year which was over 10% up year on year. This higher production, coupled with a slowing in demand from China and Russia, resulted in global milk supply running well ahead of demand. As a result powder and butter prices experienced signifi cant reductions leading to a sharp fall in milk prices around the world.

Whilst the fall in United’s milk auction in 2012 was less than the overall fall in dairy commodity markets, United’s price was below other local milk buyers for the crucial May and June months. This was largely due to the increased dependence on powder processing during the peak production period, combined with record local milk supplies and imported distressed milk from GB and RoI overwhelming local processing demand/capacity in April and May.

Lower milk prices and adverse 2012 summer weather patterns, including excessive rainfall in NW Europe and heatwaves/droughts in the US and Russia, have helped slow global milk production and tighten dairy markets. As a result there has been some recovery in dairy markets in quarter two.

The Group’s spread of activities has helped reduce the impact of the fall in commodity prices on the business. The consumer products business has continued to perform strongly in quarter one helping offset some of the reduced contribution from commodity products and United Feeds has experienced increased demand as a result of the wet summer. Dale Farm’s GB business is delivering strong growth with increased desserts sales following last year’s capacity expansion in Kendal and Rowan Glen sales benefi ting from a heavyweight marketing campaign. Liquid milk and butter both continue to perform strongly as a result of the integration of the Fane Valley acquisitions and due to the Group’s capital investment programme which is reducing costs and increasing capacity/capability.

Key to adding value to members’ milk is further growth in the cheese and whey products businesses, which offer less volatile returns than milk powders. Both businesses have continued to perform well in the fi rst quarter of 2012/13. Clearly the expected expansion in the Irish milk supply following the removal of EU milk quotas poses a specifi c risk to the United Group. However, plans are well advanced to ensure suffi cient processing capacity is in place for members’ milk, especially at the peak production periods, so as to avoid a repeat of the auction price dip which occurred in May/June 2012.

David DobbinGroup Chief Executive

‘Plans are well advanced to ensure suffi cient processing capacity for members’ milk and avoid a repeat of the auction price dip which occurred in Spring 2012.’

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1. David Dobbin Group Chief Executive 2. Danny McAleese Group Finance Director 3. Brian Moffatt Trading and Ingredients Director 4. Stephen Cameron Group Supply Chain Director 5. Garth Boyd Chief Executive, United Feeds 6. Euel Agnew Company Secretary

Group Executive Team



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Innovation

Innovation is central to the Group’s strategy of adding sustainable value to our members’ milk and has been a key factor in the successful growth of Dale Farm sales of consumer and food ingredient products. Our process and product development work remains focused on the twin objectives of meeting and exceeding customers’ needs in nutrition, eating experience and quality and in delivering value.

Group NPD activity increased in 2011/12 with a record number of new and rejuvenated product launches. A total of 39 different new products with 73 individual product variants were launched, with a further 13 product rejuvenations in 36 individual product variants. Group products that are less than 3 years old now account for over 20% of Dale Farm consumer product sales.

Building on the success of Dromona Lighter, a full fl avour cheese with 30% less fat, Dromona Lighter Slices and Dromona Lighter Grated cheese packs were introduced during the year. The Dale Farm Lakeland range was extended by the addition of mild

and mature cheddar, cottage cheese, crème fraiche, and dessert products. The Spelga range was extended by the launch of Spelga Custard Style yogurts and the Rowan Glen yogurt range was extended by the introduction of Smooth yogurts and the development of Bonnie Shots, a Scottish provenance probiotic drink using Scottish fruit and milk which was successfully launched in April 2012. The Dale Farm ice cream

Business Review

‘Group products that are less than 3 years old now account for over 20% of Dale Farm consumer product sales.’



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range was extended by the introduction of several innovative new products for the 2012 season including Strawberry Royale, Dale Farm Mini Treats, Mrs Frostie, and a multipack version of Rapture Classic.

The development pipeline for new products is being supported by grant assistance from Invest NI, who have also provided support for process and product development work to enhance the Group’s capability in whey based nutrition and whey processing. The rapid development of the Group’s cheese manufacturing capability has been accompanied by growing technical expertise and capability in whey protein products, which are now making a signifi cant contribution to the business.

The Group Technical Centre continues to drive product, packaging and process technology innovation

and provides critical quality assurance support at all levels in the supply chain. Independent external accreditation by UKAS, CLAS and the RPA of testing methods and results ensures that the Group Laboratories are at the forefront of quality assurance from farm to customer.

All Group milk processing sites retained Grade A BRC standard, and two sites have now been accredited to the newly introduced BRC Version 6 standard. The Dunmanbridge powder plant also achieved BRC approval for the fi rst time, opening new market opportunities for the ingredients sales team.

Laboratory throughput increased in 2012/13, refl ecting growth in output from Dale Farm processing sites, as well as the increased requirements from new retail and ingredient customers. It is pleasing that service levels, external quality assessment results, and the overall level of customer complaints per unit of output, have all improved during the year.

Cheese & Whey Products

The cheese and whey business delivered an excellent performance with increases of 61% in cheese output and 163% in whey protein powder production.

The market for cheddar cheese remained relatively fi rm throughout the year and cheese production at Dunmanbridge reached its highest ever level. In its second full year of production, the new Alfomatic cheddaring machine continued to deliver consistently high quality product and Dale Farm’s reputation as a cheese supplier was further enhanced by a record

30 awards for Dromona products at internationally recognised cheese shows in 2011. These included awards at the Frome Cheese Show, the Great Yorkshire Show, the World Cheese Awards, the Great Taste Awards and Nantwich Show, where Dromona Lighter and Dromona Mild received highly coveted Gold awards.

Dromona retail and foodservice cheese sales continued to deliver double digit growth, achieving an impressive increase in market share and strengthening Dromona’s position as the leading locally produced cheese brand in Northern Ireland. The introduction of Dromona Lighter and Dromona Medium cheeses in new pack formats ensured that the brand had a full presence across all product categories.

A number of key new listings were obtained in the Republic of Ireland, while sales of Rowan Glen cheese continued on an impressive growth curve, boosted by additional distribution in the convenience sector.

Benefi ting from its Red Tractor accredited milk supply, Dale Farm made substantial progress in its objective of becoming a leading player in the UK cheese market. Substantial supermarket ‘own label’ supply contracts for portion pack cheddar were secured with major retailers, and bulk supply contracts with leading industry players also gained distribution for Dale Farm produced cheese into retail outlets throughout the British Isles and further afi eld.

Whey processing has continued to make a major contribution to the overall profi tability of the cheese business with strong international sales of whey

protein concentrate powder. Signifi cant development work was undertaken during the year to increase the value being obtained from the whey stream, resulting in increased utilisation of whey nutrients.

Fresh Milk and Cream

Dale Farm maintained its position as market leader in both fresh liquid milk & cream in Northern Ireland, with further strong sales growth and cost saving projects helping to offset the adverse effect of higher input costs.

Boosted by the full year benefi t of the Fane Valley liquid milk business which was acquired in January 2011, Dale Farm’s fresh milk business delivered double digit sales volume growth. Brand support was provided through sponsorship of the Dale Farm 2012 Dreams Sports Award, Ulster Rugby and the Grand Opera House Pantomime.



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In the Republic of Ireland the National Dairy Council continued its campaign to promote sales of products that have been ‘farmed and processed in the Republic of Ireland’. Despite this heavyweight campaign, largely targeted at products from Northern Ireland, sales of Dale Farm milk and cream in the RoI maintained their strong growth as the company secured additional listings and continued to offer choice to consumers.

Cream sales benefi ted from a strong performance through the convenience retail and foodservice channels, with sales supported by television advertising in the peak demand Christmas period and new look artwork on the cream pots.

The Pennybridge business continues to work through an ambitious capital development plan. The blow moulding facility completed last year and operated onsite by Nampak Plastics now delivers plastic bottles direct to fi llers, simplifying the fi lling process

and delivering a substantial reduction in costs and improved hygiene levels.

At the start of 2012 work commenced on Phase 2 of the development, which includes a new bottling hall and the construction of a new chilled Central Distribution Centre that will soon provide a state of the art facility for distributing the entire range of Dale Farm consumer products across the island of Ireland. The customer service levels from the Pennybridge operation, which are already recognised by customers as best in class, will be further enhanced by this new facility.

A liquid milk fi lling operation was established in Kendal in April 2011 supplying fresh, locally sourced milk as part of the Dale Farm Lakeland product range. Sales of Lakeland liquid milk performed well in their fi rst year and have been gaining momentum, with further strong growth anticipated in the year ahead.

Yogurt, Cottage Cheese and Desserts

The cultured products business had another year of impressive sales growth, though trading conditions were diffi cult, with increasing raw material costs and severe price competition with competitors continuing to discount heavily in an attempt to gain market share.

Sales of Spelga branded products benefi ted from the introduction of long term multibuy promotional activity, a renewed focus on improving distribution in Northern Ireland convenience stores, and the introduction of Spelga Custard Style yogurt. These activities have helped cement our position as the UK’s largest regional yogurt brand. Spelga also made further progress in establishing itself as an all-Ireland brand, with improved distribution and new listings helping widen the reach of the range in the Republic of Ireland.

In Scotland, sales of Rowan Glen yogurts were also boosted by the Group’s fi rst ever TV advertising campaign in Scotland. This featured two distinctively Scottish animated cows, “Gwen & Jen”, and was well received, helping to build consumer awareness and contributing to impressive market share growth for the Rowan Glen brand in 2011/12.

Building on the success of the Rowan Glen brand, a new range of probiotic drinks was developed during the year and launched into the Scottish market in the fi rst quarter of 2012/13. Emphasising its local provenance ‘Bonnie Shots’ is a totally Scottish product, made with locally sourced milk and fruit.

The Dale Farm Lakeland range of products, which now includes liquid milk, desserts, yogurt, cottage

‘A new chilled distribution centre will soon provide a state of the art facility for distributing Dale Farm consumer products throughout Ireland.’



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cheese and crème fraiche, also saw strong sales growth. Supported by an expanding van sales operation, the brand is steadily gaining traction in the retail and food service sectors in the North West of England.

In the desserts sector the decision of a major competitor to withdraw from the everyday trifl e market created opportunities for Dale Farm to expand its desserts customer base and sales volume. A new high speed cheesecake fi ller, which more than doubled previous capacity, was commissioned at Kendal in the summer of 2011 leading to signifi cant growth in sales.

Maintaining the focus on lowering production costs, a reverse osmosis plant was installed to provide the Kendal and Rowan Glen sites with concentrated milk solids; energy effi cient shrink wrappers were installed

both sites; and line automation work was completed on the main yogurt fi ller at Rowan Glen.

The new Chilled Distribution Centre built at Kendal in 2010 saw strong growth in the throughput of Group products, including cheese, butter and spreads as well as yogurts and desserts for distribution to GB retail and foodservice customers.

Butter and Spreads

The butter and spreads business based at Dromona Creamery had an excellent year with strong sales growth and a much improved fi nancial performance.

Bulk butter production increased by 30% over the previous year with the increased output helping to reduce production costs and further enhance processing effi ciency. The trade and assets of the Fane Valley consumer packet butter business were acquired in late 2011 and successfully integrated into the Dromona operation in the last quarter of the fi nancial year providing additional market share, greater economies of scale and mini portion packing capability, which Dale Farm is already successfully exploiting in the GB and RoI foodservice markets.

Dromona butter and spreads sales grew strongly in the year resulting in signifi cant market share growth in Northern Ireland. In GB, Rowan Glen & Loseley butter and spreads also performed well, benefi ting from new listings and improved distribution, particularly in the multiple supermarket sector.

Ingredients

The balance between commodity and ingredient sales shifted signifi cantly in 2011/12, with ingredient sales exceeding commodity sales for the fi rst time. Sales of ingredient products increased by 60% to over £52 million, which was more than double the level of commodity sales.

Dale Farm’s ingredients business sells a wide range of products including cheese, whey products, specialist milk powders, butter & spreads products and a wide range of cream and cultured products. All of these product categories delivered growth with cheese and whey protein products achieving signifi cant year on year growth. Although Dale Farm only entered the whey protein concentrate powder market in 2010, sales have grown strongly as the company has rapidly developed a diverse customer base in food ingredient markets in the EU, China and Middle East.

Powder

In a weakening market that was marked by a sharp fall in demand in the second half of 2011/12, the milk powder business based at Dunmanbridge had a diffi cult year, with production signifi cantly down on previous year levels.

Returns for wholemilk powder, which had generally been favourable in 2010/11, fell steadily through much of 2011/12, prompting an increased focus on the higher returns available from cheese production. Production and sales of whey powders, and in particular whey protein concentrate powder, grew rapidly on the back of further expansion of cheese production and the associated whey stream.

Operationally the powder business performed well, coping with a busy spring peak which required a large amount of fl exibility around different powder varieties. Yield and downgrade performance remained excellent and further energy improvements were made, with an additional heat recovery unit installed to recycle waste heat.

An extension of the gas pipeline to the West of Northern Ireland offers the opportunity of a substantial step reduction in energy costs and improved environmental performance at Dunmanbridge. Consequently it is encouraging to note that, following a technical and economic feasibility study and a public consultation by DETI, preparation of a detailed business case for extension of the gas network to the West is currently underway with the expectation of gas availability to Dunmanbridge by 2015/16.

‘Dale Farm sales of whey protein concentrate powder have grown strongly to a diverse customer base in the EU, China and Middle East.’



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Commodities

Although Dale Farm processed more milk than ever before, increasing sales of consumer and ingredient products meant that sales of commodity products resumed their long term decline, falling by over 40% to £25 million in 2011/12.

It was a year of considerable change in commodity markets. The beginning of the year saw good powder and butter returns from international markets, supported by healthy demand. However, in mid summer commodity returns began to weaken as high prices impacted demand, the EU released its remaining Intervention stocks of SMP, and exchange rates moved against UK exporters.

International Dairy CommodityPrices $/tonne

Stimulated by high ex-farm milk prices and favourable weather conditions, global milk production increased strongly during the winter months, with substantial year on year supply increases in New Zealand, the USA and the EU. As production overtook demand growth, prices continued to weaken and buyers shortened their books. Commodity prices within the EU fell more slowly than those on international markets, but as the price differential widened EU exports were stifl ed and competition from cheap imports forced EU returns lower.

Underpinned by the prices paid to farmers in GB, cheese returns were more stable than those from butter and milk powders, although prices began to weaken as the year-end approached.

Ice Cream

Our ice cream business continued to grow despite another disappointingly wet summer in 2011 and challenging economic conditions, which resulted in a further move towards take home products.

Growth was supported by the successful launch of new products including Helter Skelter and Rapture Roll, and take home multipack versions of consumer favourites Giant Bar, Ice Break and Choc Ice.

The fi rst ever TV advertising campaign for the Dale Farm Ice Cream range was developed during the year. This featured some of the company’s most popular products and was initially shown in the Republic of Ireland. With supporting promotional activity the campaign increased awareness of the Dale Farm brand and helped grow sales and distribution; and the campaign was subsequently extended to Northern Ireland.

In November 2011 Dale Farm gained the distributorship of the Mars ice cream range in the Republic of Ireland for 2012 onwards. This complements and extends the existing product range, especially in RoI, and will help drive sales growth in the coming year.

Wholemilk Powder Butteroil

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Milk Sales & Logistics

Encouraged by improved prices, milk supplies from members were generally ahead of the previous year’s levels. The year started well with excellent production in April, but poor weather constrained supply growth over the summer months, however production recovered strongly over the winter.

United continued to sell its milk via one month auction contracts and as option milk, with option milk prices again based on the returns achieved in the one month auctions. As milk supplies moved away from the Spring peak the auction price rose from an average of 25.85 ppl in the April 2011 auction to approximately 29.5 ppl in the July to November auctions, before gradually reducing to 25.55 ppl in March 2012 as the auction refl ected the falling returns on international markets and the rise in local milk supplies.

United Monthly Base Milk Prices(Pence per litre)

The monthly auction returns determine the base prices paid for members’ milk supplies and these increased from 25.25 ppl for May 2011 to 28.5 ppl for August to November 2011 and subsequently reduced to 26.5 ppl in March. Over the year as a whole the average base price increased by 1.5ppl to a record 27.26 ppl. With increased milk supply volumes, the total payments to members increased by £20 million (7.5%) on the previous year.

The focus on reducing milk collection costs continued during the year, with a further improvement in alternate day collection helping to offset continued cost increases, especially for fuel. With the support of United members, many of whom have installed increased capacity milk tanks, the proportion of milk collected on alternate days during the peak milk production month of May is now approaching 90%.

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2010/11 2011/12

‘ Payments to members increased by £20 million as a result of increased milk prices and higher milk supply volumes.’



2120


all United members in Northern Ireland with a new 0.20 ppl premium for milk from accredited farms - in addition to the 0.20 ppl premium already paid by Dale Farm on milk supplied to its plants.

Over the year Bactoscan results showed an improvement, but there was a slight deterioration in SCC levels, with abnormally high counts during the poor weather conditions in late summer. To further encourage improved milk quality, revised payment schemes were agreed for Bactocount, SCC and compositional quality which have been introduced in 2012/13.

United Feeds

United Feeds delivered another strong trading performance in 2011/12 with increased sales turnover and good cost control. Growth was delivered through gains in both sales volume and customer numbers in the core dairy feed market. A record number of United members were customers in the year.

The strong trading performance was underpinned by continued innovation in the delivery of products and concepts targeted at improving the value of outputs on farm. The sales of the Creamaker and Advance ranges of feeds continued to increase as customers maintained the focus on maximizing the nutritional effi ciency of their herds. One of the key determinants in the success and adoption of these new products and concepts is the company’s ability to provide them in a form to suit any feeding system or combination of feeding systems backed up with support from advisory staff.

Improvements in productivity continued throughout the business offsetting the cost increases experienced

as a result of rising energy markets. This focus on cost control will continue to be facilitated by ongoing capital investment and improvement in business processes.

IT

During the year work continued on a range of IT projects designed to deliver improved business performance. The data management processes linked to the Group’s ERP and Laboratory Information Management System (LIMS) were streamlined. The use of Electronic Data Interchange (EDI) and Document Management was further expanded, with signifi cant growth in electronic billing for Group customers.

The Group’s Central Storage Area Network (SAN) was replaced and this has improved the performance of the Group’s ERP and other centrally stored systems. In addition the new SAN has been relocated to the Disaster Recovery centre, where it also provides improved capacity for Disaster Recovery arrangements.

Producer Services

United’s Producer Services team had another busy year, helping member farmers improve the effi ciency of their milk production and the quality of their product.

Dairy Herd Management continued to expand, with an increased number of participating herds. Herd

health testing has grown considerably, with almost one third of members now getting quarterly bulk tank results for BVD, IBR and Johne’s disease, and increased demand for individual cow monitoring. ‘Your Herd’, the online herd management programme, continues to develop, with the Herd Genetic Summary report generating substantial interest. Co-operation with farm advisors has been a key feature of the last year and numerous farm workshops were hosted focusing on udder health and Somatic Cell Count.

Sales of the Heatime electronic heat detection system were encouraging, and a new version of the product was introduced which uses Radio Frequency technology for data transfer, enabling continuous monitoring of individual cows.

United Tankcare had strong sales of new and ex-farm tanks, refl ecting the ongoing expansion on local farms. During the year the business actively engaged with farmers seeking to reduce energy costs, providing them with plate coolers tailored to the circumstances on their individual farms. Work was undertaken during the year to develop and exploit the potential to use rain water to further minimise energy use.

Excellent progress was made in the development of the Group’s “Red Tractor” milk pool, which is essential to enable Dale Farm to develop its sales into GB and to meet the requirements of liquid milk customers in Northern Ireland. Field staff helped members through the audit process. To encourage uptake it was agreed that from April 2012 the scheme would be opened to



22

People

On a like for like basis, total numbers employed, inclusive of temporary and agency workers, increased from 854 in March 2011 to 931 in March 2012. This refl ects the signifi cant expansion in the cheese and desserts businesses, the integration of the Fane Valley liquid milk and packet butter businesses, and the expansion of our in-house milk collection. The engagement, capability and commitment of our people is vitally important to the performance of the business, and in 2011/12 a series of training, business improvement Toolkit, Lean Manufacturing and continuous improvement programmes were delivered across the Group.

Training undertaken included a major initiative to ensure that all Group drivers hold a Certifi cate of Professional Competence; as well as NEBOSH and IOSH safety training and multi-skill training for operatives at Pennybridge. In United Feeds Invest NI supported Management Development and Sales Effectiveness training, along with skills training to improve mill performance and effi ciency.

A structured programme of briefi ngs and attitude surveys were carried out to encourage staff involvement and feedback. These showed continued year on year improvements which were also refl ected in positive trends on labour turnover and attendance, which remain well ahead of industry benchmarks.

Health and Safety

Ensuring a safe working environment is a constant objective for the Group. All managers and employees are encouraged and supported to promote a safe working environment.

It is encouraging to report that safety performance continues to compare favourably with industry benchmarks, with a 30% reduction in days lost due to accidents during the year.

Environment

We continue to use in house environmental scorecards and improvement groups to maintain the focus on our eight key environmental factors, namely energy, CO2, water, effl uent discharge, product COD loss, waste to landfi ll, chemical use and packaging waste.

The following activities and achievements were completed in the past year :-

Energy Consumption - Energy consumption per tonne of production volume across the seven manufacturing facilities operated by Dale Farm and United Feeds, decreased by 20% in 2011/12.

The energy monitoring system installed at Dunmanbridge in 2010 helped achieve further


23

reductions in electricity and oil costs by quickly highlighting any problem areas requiring immediate rectifi cation; and progress at Pennybridge Dairy was recognised when the Dairy Manager, Barry Spence, was voted the ‘Resource Management Champion’ at the 2011 Sustainable Ireland awards.

Water Consumption - Reductions in water usage were achieved by more effi cient production runs, increased use of water meters to establish consumption rates for specifi c processes and continuing review and monitoring of CIP (cleaning in place) equipment. Expressed per 1,000 litres of milk or per tonne of product processed, water consumption decreased by 28% compared to the previous year, and this was also refl ected in lower effl uent volumes. Reductions in chemical use have also been achieved through CIP optimisation programs and effi cient production schedules.

Packaging Improvements - In 2010 Dale Farm became the fi rst Northern Ireland based company to sign up to Phase 2 of the Courtalds Environmental Commitment, which aims to achieve more sustainable use of resources over the entire lifecycle of products. This commitment ensures that sustainability is a fundamental consideration in the development of our packaging materials and that each site continues to implement business improvement processes to reduce the waste from packaging machinery.

ISO Environmental Accreditation - During the year all of Dale Farm’s NI manufacturing sites were successful in maintaining their third party accreditation against the international environmental management standard ISO 14001.

Dale Farm again achieved the top “Platinum” status in the 2011 Arena network Environmental Benchmarking survey of Northern Ireland’s largest public and private sector organisations and was the highest scoring food company.

Corporate Social Responsibility

In addition to our work in ensuring high standards for food safety throughout our supply chain and protecting and promoting the stewardship of the environment, the Group remains active in supporting a range of educational and community initiatives.

Dale Farm participated in the ‘Tasty Careers’ campaign run by the Food and Drink Sector Skills Council to link schools with food companies to highlight the opportunities available for pupils considering career options.

At a time when it is increasingly diffi cult for young people to obtain employment, the Group provided various under graduate sandwich placements for students. Under the auspices of Business in the Community’s GAP programme the Group also provided 26 week placements to a number of formerly unemployed graduates; and through links with local schools and colleges the Group also provided a range of short term work experience opportunities for GCSE and A level students.

Dale Farm continues to maintain its compliance with the internationally recognised Sedex Ethical Trading standard, which is recognised by our major multiple customers.



24

The Board of Directors of United Dairy Farmers Limited consists of 12 non-executive Directors. The Board of Directors of Dale Farm Limited consists of 4 non-executive Directors, all of whom are also Directors of United Dairy Farmers Limited. The current Group Directors are:

1. John Dunlop, Chairman is a dairy farmer from Portadown, Co Armagh. He was elected as a Director of United Dairy Farmers in 1998, as Vice-Chairman in 2009, and as Chairman of the Society in April 2010. John is also a Director of Dale Farm Limited and United Feeds Limited, and is a member of the Farmer Forum of Dairy UK. He is a past County Chairman of the Ulster Farmers’ Union for Co Armagh and was previously a director of Craigavon and Armagh Rural Development.

2. William Hanna, Vice Chairman is a dairy farmer from Rathfriland, Co Down. He was elected as a Director of United Dairy Farmers in 2003 and is also a member of the Northern Ireland Board of Dairy UK and a former Chairman of the Dairy Council for Northern Ireland. William is a member of the Board of Trustees of Agrisearch and a past County Chairman of the Ulster Farmers’ Union for Co Down.

3. Fred Allen is a dairy farmer from Randalstown, Co Antrim. He was elected as a Director of United Dairy Farmers in 2009 and is also a Director of the Dairy Council for Northern Ireland.

4. Robert Fyffe is a dairy farmer from Omagh, Co Tyrone. He was elected as a Director of United Dairy Farmers in 2006 and is also a member of the Northern Ireland Local Board of the NFU Mutual Insurance Society.

5. Harry Johnston is a dairy farmer from Ahoghill, Co Antrim. He was elected as a Director of United Dairy Farmers in 2011 and is also a Director of the Dairy Council for Northern Ireland and Glenfarm Holdings Limited. He is a past County Chairman of the Ulster Farmers’ Union for Co Antrim.

6. Bertie Kelso is a dairy farmer from Dungannon, Co Tyrone. He was elected as a Director of United Dairy Farmers in 1996, is also a Director of the Dairy Council for Northern Ireland, and is a past County Chairman of the Ulster Farmers’ Union for Co Tyrone.

7. Brian McCracken is a dairy farmer from Newtownards, Co Down. He was elected as a Director of United Dairy Farmers in 2003.

8. Billy Morton is a dairy farmer from Armagh. He was elected as a Director of United Dairy Farmers in 1998 and is also a Director of Dale Farm Limited.

9. James Murphy is a dairy farmer from Tempo, Co Fermanagh. He was elected as a Director of United Dairy Farmers in 2010.

10. David Rea is a dairy farmer from Crossgar, Co Down, who previously worked as a veterinary surgeon. He was elected as a Director of United Dairy Farmers in 2008 and is also a Director of the Dairy Council for Northern Ireland.

11. Eric Bell OBE is an appointed independent Director of United Dairy Farmers and a Director of Dale Farm Limited, having joined both Boards in 2009. Eric is a former Senior Partner in Grant Thornton (Chartered Accountants) and is Chairman of Samuel Lamont Holdings Group Limited. He is also a non- executive Director of a number of other Northern Ireland companies, and a former Chairman of the Institute of Directors in Northern Ireland.

12. Dr Ian McMorris is an appointed independent Director of United Dairy Farmers and a Director of Dale Farm Limited. Ian is a freelance consultant and joined both Boards in 2008. He is a Director of i-Track Limited and was formerly Director of Consulting with PmpGenesis; Managing Director of Ulster Weavers Home Fashions Ltd; a Board member of both the Department of Enterprise, Trade and Investment and the Economic Research Institute for Northern Ireland; Chairman of the CBI Northern Ireland; and a member of the Economic Development Forum.

Board of Directors


25

ChairmanJohn Dunlop

Vice-ChairmanWilliam Hanna

DirectorsFred Allen Eric Bell OBERobert FyffeHarold JohnstonBertie KelsoBrian McCrackenIan McMorrisBilly MortonJames Murphy David Rea

Chief ExecutiveDavid Dobbin CBE

Financial DirectorDanny McAleese

SecretaryEuel Agnew

AuditorsErnst & Young LLPBedford House16 Bedford StreetBelfast BT2 7DT

BankersUlster Bank11-16 Donegall Square EastBelfast BT1 5UB

Company StatusUnited Dairy Farmers Limited is a members’ voluntary co-operative registered under the Industrial and ProvidentSocieties Acts (Northern Ireland) 1969 and 1976

Registered Offi ceDale Farm House15 Dargan RoadBelfast BT3 9LS

1 2 3

4 5 6

7 8 9

10 11 12



26

The Board is committed to adopting best practice in Corporate Governance as deemed practical and appropriate for a member owned cooperative.

The Board

The Board routinely meet monthly (except for July) with a formal schedule of matters specifi cally reserved for its decision. Additional meetings are held as required. The Board reviews trading performance, ensures adequate funding, sets and monitors strategy, examines major acquisition opportunities and formulates policy on key issues. To enable the Board to discharge its duties all members receive appropriate and timely briefi ng papers. The Group has appropriate insurance cover in place for Board Members.

The Board comprises 12 non-executive Directors, 8 of whom are appointed by the farmer members through Area elections; 2 are elected by the members’ Area Councils acting collectively; and 2 Directors are appointed by the elected Directors. The term of offi ce of elected Directors is 4 years while appointed Directors are appointed for not more than 3 years and can only serve a maximum of two terms.

The attendance of Directors at the eleven routine Board meetings in 2011/12 was as follows:

John Dunlop 11Fred Allen 11Eric Bell 11Robert Fyffe 11Harold Johnston 11William Hanna 11Bertie Kelso 11Brian McCracken 11Ian McMorris 10Billy Morton 11James Murphy 11David Rea 11

The Chairman and Vice Chairman are both elected annually by the Board. The remuneration of the directors of the society is determined each year by the members at the annual general meeting. All farmer directors are also suppliers of milk to United Dairy Farmers, but they and the appointed directors are regarded as independent. Induction training is provided for newly elected/appointed Directors and further training is provided as required.

The Board Committees Comprise:

Audit Nominations

Eric Bell (Chairman) John Dunlop (Chairman)Brian McCracken William HannaIan McMorris David DobbinBilly Morton

The Audit Committee

The Audit Committee meets at least twice a year and has specifi c terms of reference which include responsibility for reviewing the Annual Accounts prior to submission to the Board, monitoring the internal control systems, review of the policy and procedures for the identifi cation, assessment and reporting of risks and liaison with external auditors. The Committee satisfi es itself on the independence of the auditors and monitors the level of non-audit fees. Internal auditors were appointed during the year: they review key risk areas and relevant controls across the group and report their fi ndings to the Audit Committee, together with any recommendations for improvement.

The Nominations Committee

The Nominations Committee makes recommendations to the Board on the appointment of “non elected” directors to the Boards of the group, subsidiary and associate companies, as well as senior executive appointments.

The Management Team

The Group Chief Executive and management team, who are responsible for operating decisions and the effective functioning of the main activities in the Group, report to the Board.

Dialogue with Shareholders

Communication with members is given the highest priority by the Board and the Annual Report gives a comprehensive review of the fi nancial and operating performance of the Group for the year. The Board uses the AGM to have an open dialogue with members and the Group has 4 Area Councils elected by the membership, which meet about 4 times a year with the elected Directors for their Area to discuss the affairs of the Society. The Society also keeps in touch with members through the issue of the monthly magazine “United News” and via the Group Web site www.utdni.co.uk.

Any member wishing to contact the Company can do so at the registered offi ce of the Company.

27

Financial Statements

Corporate Governance



28

The directors present their report and fi nancial statements for the year ended 31 March 2012.

Results and dividends

The profi t after taxation for the year amounted to £4,240,000 (2011 – profi t of £3,249,000) which, after the issue of shares of £1,007,000 (2011 – £979,000) leaves a profi t of £3,233,000 (2011 – profi t of £2,270,000) to be transferred to reserves. The directors do not recommend the payment of a dividend.

Principal activities

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

Future developments

Global dairy markets remained relatively fi rm through 2011, with strong demand helping maintain returns in most internationally traded products. This was refl ected in higher prices at United’s raw milk auctions and an increase in the milk prices that members received. However, in the early months of 2012 trading conditions deteriorated as global milk production surged, boosted by a prolonged New Zealand season overlapping with an early European spring, leading to a build up of dairy stocks and a collapse in returns, which was made worse by the strengthening of sterling, especially against the Euro. United’s milk auctions refl ected the change in market circumstances, with signifi cant price reductions in the fi nal quarter of 2011/12 and the early months of the new fi nancial year. There are now some indications that dairy markets are starting to stabilise and it is expected that markets will slowly start to recover, as milk supply moderates in response to lower global dairy prices. Dale Farm’s consumer products had another successful year, benefi ting from continued sales growth and improved returns, as UK and Irish markets gradually refl ected the higher global commodity prices. Energy and other input costs increased further during the year; however these were offset by good progress across the Group in cost reduction initiatives coupled with investments targeted to improve competitiveness and develop sales of value added products.

Financial performance

The key performance indicators (“KPI”s) for the group are:

KPIs 2012 2011 £000 £000

Group turnover 437,276 400,152Profi t on ordinary activities before taxation 5,188 4,159Bonus share issue to members 1,007 979Average base milk price paid to members (pence per litre) 27.26 25.75

Group turnover increased by 9.3%, due to higher ingredients and consumer product sales volumes and growth in the volume of milk handled coupled with increased market prices for milk and dairy products.

Group profi t before tax improved by £1.029 million to £5.188 million. Net interest costs reduced by £20k and this was enhanced by an increase of £666k in the fi nance credit from the pension scheme, resulting in the profi t before taxation increasing by £1.03 million.

The base milk price paid to NI members increased by 1.51ppl in 2011/12 refl ecting improved dairy market returns during much of the year and increased demand for milk for processing.

Directors’ Report


29

Operational performance

Milk supply The average milk output per member has increased by 6.9% as follows:

2012 2011 Litres Litres

Average output per member 575,000 538,000

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

2012 2011Turnover growth % %

Dale Farm group 10.7 12.2

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

Product development 2012 2011

Number of new products launched 39 42Number of new product variants launched in above 73 67 Number of rejuvenated products launched 13 12Number of rejuvenated product variants launched in above 36 7

Risk management

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

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

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

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

Directors’ Report



30

Risk management (continued)

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

Financial and business controlStrong fi nancial and business controls are necessary to ensure the integrity and reliability of fi nancial and other information on which the group relies for day-to-day operations, external reporting and for longer term planning. The Group exercises fi nancial and business control through a combination of: qualifi ed and experienced fi nancial personnel; performance analysis; budgeting and cash fl ow forecasting; and clearly defi ned policies and approval limits.

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

Financial risk management policy

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

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

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

Fixed assets The movement in tangible fi xed assets during the year is shown in note 9.

Directors For the year ended 31 March 2012 the directors of the society were:

Elected by - Area 1 Fred Allen, Harold Johnston - Area 2 William Hanna, Brian McCracken - Area 3 John Dunlop, James Murphy - Area 4 Robert Fyffe, Bertie Kelso Elected by Conference of Area Councils Billy Morton, David Rea Appointed Eric Bell, Ian McMorris

The term of offi ce of one of the elected directors from each of Area 3 and Area 4 ended on 31 March 2012. John Dunlop and Bertie Kelso were re-elected as directors for Area 3 and Area 4 respectively, for a four year term. David Rea was re-elected by the Conference of Area Councils for a four year term commencing 1 April 2012.

On 16 April 2012, John Dunlop and William Hanna were re-elected as Chairman and Vice Chairman of the society.

Directors’ Report


31

Employment policy

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

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

Employee involvement

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

Charitable contributions

During the year donations totalling £803 (2011 – £820) together with small contributions of product, were given to various local charities.

Creditor payment policy and practice

It is the society’s policy that payments to producers and suppliers are made in accordance with those terms and conditions agreed between the society and its producers and suppliers, provided that all trading terms and conditions have been complied with.

Disclosure of information to the auditors

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

Auditors

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

By order of the Board

S A AgnewSecretary Date: 11 June 2012

Directors’ Report



32

The directors are responsible for preparing the annual report and the fi nancial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare fi nancial statements for each fi nancial year. Under that law the directors have elected to prepare the fi nancial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the fi nancial statements unless they are satisfi ed that they give a true and fair view of the state of affairs of the Group and the company and of the profi t or loss of the Group for that period. In preparing these fi nancial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the fi nancial statements; and

• prepare the fi nancial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping proper accounting records that are suffi cient to show and explain the Group’s and the company’s transactions and disclose with reasonable accuracy at any time the fi nancial position of the Group and the company and enable them to ensure that the fi nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Statement of Directors’ Responsibilities


33

to the members of United Dairy Farmers Limited

We have audited the fi nancial statements of United Dairy Farmers Limited for the year ended 31 March 2012, which comprise the Group Profi t and Loss Account, Group Statement of Total Recognised Gains and Losses, Group Balance Sheet, Society Balance Sheet, Group Statement of Cash Flows and the related notes 1 to 29. The fi nancial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the society’s members, as a body, in accordance with the Industrial and Provident Societies Acts (Northern Ireland) 1969 and 1976. Our audit work has been undertaken so that we might state to the society’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the society and the society’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Directors’ Responsibilities Statement, set out on page 32, the directors are responsible for the preparation of the fi nancial statements and for being satisfi ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the fi nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the fi nancial statements

An audit involves obtaining evidence about the amounts and disclosures in the fi nancial statements suffi cient to give reasonable assurance that the fi nancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the society’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of signifi cant accounting estimates made by the directors; and the overall presentation of the fi nancial statements. In addition, we read all the fi nancial and non-fi nancial information in the annual report to identify material inconsistencies with the audited fi nancial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on fi nancial statementsIn our opinion the fi nancial statements:

• give a true and fair view of the state of the group and society’s affairs as at 31 March 2012 and of its profi t for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of the Industrial and Provident Societies Acts (Northern Ireland) 1969 and 1976.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Industrial and Provident Societies Acts (Northern Ireland) 1969 and 1976 requires us to report to you if, in our opinion:

• a satisfactory system of internal control over transactions has not been maintained; or

• the society has not kept proper accounting records; or

• the fi nancial statements are not in agreement with the books of accounts; or

• we have not received all the information and explanations we require for our audit.

Ernst & Young LLPStatutory Auditor Belfast

Date: 18 June 2012

Independent Auditors’ Report



34

2012 2011 Notes £000 £000

Group turnover 2 437,276 400,152

Cost of sales (404,492) (370,917)

Gross profi t 32,784 29,235

Selling and distribution costs (20,716) (18,146)Operating and administration costs (7,069) (6,433)

Total operating profi t 3 4,999 4,656

Bank interest receivable 78 4Interest payable and similar charges 6 (714) (660)Other fi nance income from pension scheme 25 825 159

Profi t on ordinary activities before taxation 5,188 4,159

Taxation charge 7 (948) (910)

Profi t for the fi nancial year 4,240 3,249

Issue of additional shares 23 (1,007) (979)

Profi t retained for the fi nancial year 3,233 2,270

Group Profi t and Loss Accountfor the year ended 31 March 2012


35

2012 2011 £000 £000

Profi t for the fi nancial year 4,240 3,249

Foreign exchange movement (11) -

Actuarial gain/(loss) recognised on defi ned benefi t pension scheme (9,713) 13,052

Deferred tax movement on actuarial (gain)/loss 2,310 (3,681)

Total recognised gain/(loss) relating to the year (3,174) 12,620

Group Statement of Total Recognised Gains and Lossesfor the year ended 31 March 2012



36

2012 2011 Notes £000 £000

Fixed assetsIntangible assets 8 (186) (147)Tangible assets 9 52,065 51,178Investments 10 14 13 51,893 51,044

Current assets Stocks 11 25,814 18,058Debtors 12 50,934 52,671Cash at bank and in hand 1,942 329Sinking fund account - 74 78,690 71,132

Creditors : amounts due within one yearProducer accounts 22,434 25,431Trade creditors 22,233 19,145Other creditors and accruals 14 29,101 20,793Corporation tax 385 460Share capital repayable on demand 21 576 555

74,729 66,384

Net current assets 3,961 4,748

Total assets less current liabilities 55,854 55,792

Creditors : amounts due after more than one year 15 5,437 7,724Provisions for liabilities – deferred tax 18 2,963 3,192Deferred income – capital grants 19 4,656 4,951Pension liability (net of deferred tax) 25 7,019 780 20,075 16,647 35,779 39,145

Capital and reservesCalled up share capital 20 13,609 12,826Share capital to be allotted 23 1,011 979Profi t and loss account 23 21,159 25,340

Shareholders’ funds 35,779 39,145

John Dunlop Chairman William Hanna Vice-Chairman Danny McAleese Financial Director Euel Agnew Secretary Date: 11 June 2012

Group Balance Sheetat 31 March 2012


37

2012 2011 Notes £000 £000

Fixed assetsTangible assets 9 5,516 5,746Investments 10 13,578 13,577 19,094 19,323

Current assets Stocks 11 180 156Debtors 12 59,573 52,180Cash at bank and in hand 168 78Sinking fund account - 74Corporation tax 287 40 60,208 52,528

Creditors : amounts due within one yearProducer accounts 22,434 25,431Trade creditors 2,610 2,734Other creditors and accruals 14 25,406 15,499Share capital repayable on demand 21 576 555 51,026 44,219

Net current assets 9,182 8,309

Total assets less current liabilities 28,276 27,632

Creditors : amounts due after more than one year 15 2,599 3,305Provisions for liabilities and charges - deferred tax 18 129 150Deferred income - capital grants 19 304 329Pension liability 25 7,019 780 10,051 4,564 18,225 23,068

Capital and reservesCalled up share capital 20 13,609 12,826Share capital to be allotted 23 1,011 979Profi t and loss account 23 3,605 9,263

Shareholders’ funds 18,225 23,068

John Dunlop Chairman William Hanna Vice-Chairman Danny McAleese Financial Director Euel Agnew Secretary Date: 11 June 2012

Society Balance Sheetat 31 March 2012



38

2012 2011 Notes £000 £000

Net cash infl ow from operating activities 13(a) 3,035 5,870

Returns on investments and servicing of fi nanceBank interest received 78 5Bank interest paid (671) (596)Preference share interest paid (13) (18)Interest element of fi nance lease rental payments (30) (46)

Net cash outfl ows from returns on investmentsand servicing of fi nance (636) (655) Corporation tax paid (896) (1,542)

Capital expenditure and fi nancial investmentPayments to acquire tangible fi xed assets (5,727) (5,431)Receipts from disposals of tangible fi xed assets 40 82Receipt of government capital grants 107 720

Net cash outfl ow from capital expenditure and fi nancial investment (5,580) (4,629)

Acquisitions and disposals Purchase of business (114) (336)

Net cash outfl ow from acquisitions and disposals (114) (336)

Net cash outfl ow before fi nancing (4,191) (1,292)

Financing

Repayment of other loan 13(b) (87) (100)Repayment of bank loan 13(b) (2,247) (2,282)Capital element of fi nance leases repaid 24 (347) (412)Issue of share capital repayable on demand 21 40 78Redemption of share capital repayable on demand 21 (19) (37)Issue of convertible loan stock 16(b) 90 -Repayment of ordinary share capital 23 (161) (518)

Net cash outfl ow from fi nancing (2,731) (3,271)

Decrease in cash 13(b) (6,922) (4,563)

Group Statement of Cash Flowsfor the year ended 31 March 2012


39

Reconciliation of net cash fl ow to movement in net debt 2012 2011 Notes £000 £000

Decrease in cash (6,922) (4,563)Repayment of capital element of fi nance lease contracts 24 347 412Repayment of bank loan 13(b) 2,247 2,282Repayment of other loan 13(b) 87 100Convertible loan stock issued 16(b) (90) -Issue of preference shares 13(b) (21) (41)

Movement in net debt in the year 13(b) (4,352) (1,810)

Net debt at 1 April (20,867) (19,057)

Net debt at 31 March 13(b) (25,219) (20,867)

Group Statement of Cash Flowsfor the year ended 31 March 2012



40

1. Accounting policies

Defi nitions(i) ‘United’ is a co-operative society whose activities include marketing and transport of milk, sales promotion, central laboratory services, and all other services to dairy farmers.

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

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

Basis of preparationThe fi nancial statements have been prepared on a going concern basis under the historical cost convention and in accordance with applicable accounting standards. The accounts are prepared under the Industrial and Provident Societies Act 1969 and 1976, where this Act does not provide relevant guidance the directors have adopted the requirements of the Companies Act 2006.

Basis of consolidationThe Group fi nancial statements consolidate the fi nancial statements of United Dairy Farmers Limited and all its subsidiary undertakings made up to 31 March each year. No profi t and loss account is presented for United Dairy Farmers Limited as permitted by the Industrial and Provident Societies Acts (Northern Ireland) 1969 and 1976.Entities other than subsidiary undertakings, in which the group has a participating interest and over whose operating and fi nancial policies the group exercises a signifi cant infl uence are treated as joint ventures. In the group fi nancial statements, joint ventures are accounted for using the equity method.

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

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

Buildings freehold – 50 yearsBuildings leasehold – over the period of the leasePlant, equipment and furniture – 3 to 15 yearsVehicles – 4 to 10 yearsLand is not depreciated

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

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

Government grantsCapital grants are credited to a deferral account and are released to revenue on the same basis as the related assets are depreciated. Grants of a revenue nature are credited to income so as to match them with the expenditure to which they relate.

Notes to the Financial Statementsat 31 March 2012


41

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

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

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

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

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

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

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

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

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

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

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

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

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

PensionsThe Group operated for the majority of its eligible employees three defi ned contribution schemes – the United Dairy Farmers Group Scheme, the Dale Farm (GB) Limited Scheme, and the United Feeds Limited Scheme. Contributions to the three defi ned contribution schemes are charged in the profi t and loss account as they become payable in accordance with the rules of the schemes.



42

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

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

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

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

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

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

Revenue recognition

Sale of goodsRevenue is recognised when the signifi cant risks and rewards of ownership of the goods have passed to the buyer, usually on dispatch of the goods.

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

2. Turnover and segmental reporting

Turnover, which is stated net of value added tax, represents the amounts derived from the provision of goods and services which fall within the group’s ordinary activities. Turnover is attributable to the marketing and transporting of milk, the processing and sale of dairy products and the manufacture and sale of animal feeds. Turnover and operating profi t are attributable to continuing activities.

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


43

3. Operating profi tThis is stated after charging/(crediting): 2012 2011 £000 £000

Depreciation of owned tangible fi xed assets 4,540 4,481Depreciation of tangible fi xed assets held under fi nance leases 300 333Amortisation of goodwill 153 555Finance lease charges 30 46Capital grant release (402) (377)Revenue grants (200) (530)Research and development costs 338 323Auditors’ remuneration – audit services* 76 76 – non-audit services** 15 25Operating lease rentals – land and buildings 191 175 – plant and equipment 2,538 1,928Profi t on disposal of fi xed assets (35) (74) * £18k (2011 - £18k) of this relates to the Society** Included in non audit services is £9k (2011 - £9k) relating to the Society

4. Directors’ remuneration 2012 2011 £000 £000

Fees and other emoluments 153 150

5. Staff costs 2012 2011 £000 £000

Wages and salaries 20,458 19,356Social security costs 1,968 1,820Other pension costs 768 767 23,194 21,943 The average number of group employees during the year was: 2012 2011 No. No.

Processing 379 357Selling and distribution 216 204Operations and administration 180 172Milk recording (part-time) 89 84 864 817

The number of employees at 31 March 2012 was 866 (2011– 823).

6. Interest payable and similar charges 2012 2011 £000 £000

Bank loans and overdrafts 671 596Finance charges payable under fi nance and hire purchase contracts 30 46Interest on Preference Shares 13 18

Group interest payable 714 660



44

7. Tax

(a) The taxation charge is made up as follows: 2012 2011 £000 £000Based on profi t for the year:

Current tax:

Corporation tax on profi t for the period 808 1,063Adjustments in respect of previous periods 1 (131)

Total current tax (note 7(b)) 809 932 Deferred tax:

(Decrease)/Increase in deferred tax provision (12) 3Retirement benefi ts 368 67Adjustments in respect of previous periods 30 153Impact of change in tax rate (247) (245)

Total deferred tax (note 18) 139 (22)

Total tax charge 948 910

(b) Factors affecting tax charge for the year

The tax assessed on the profi t on ordinary activities for the period varies from the standard rate of corporation tax in the UK. The differences are explained below: 2012 2011 £000 £000

Profi t on ordinary activities before tax 5,188 4,159

Profi t on ordinary activities multiplied bystandard rate of corporation tax in the UK of 26%(2011 – 28%) 1,349 1,164

Effect of:Disallowed expenses and non-taxable income 30 27Depreciation in excess of capital allowances (35) (4)Short term timing differences (32) -Non-taxable profi t on disposal - (19)Non-qualifying depreciation/amortisation 203 147Non-qualifying goodwill amortisation 26 162Share issue allowed for taxation (262) (274)Research and development tax credit (42) (42)Timing difference on retirement benefi ts (399) (72)Profi ts taxed at lower rate (26) (26)Adjustment in respect of previous periods (3) (131) 809 932


45

8. Intangible fi xed assets

Group Goodwill £000Cost:At 31 March 2011 3,875Additions 114

At 31 March 2012 3,989

Amortisation:At 31 March 2011 4,022Provided for during the year 153

At 31 March 2012 4,175 Net book value:At 31 March 2012 (186) At 31 March 2011 (147)

The net book value at 31 March 2012 is analysed below: £000

Purchased goodwill 343Goodwill arising on consolidation (529) (186)

Goodwill is being amortised over its expected useful life of 10 years. Negative goodwill is capitalised and released to the profi t and loss account as the related assets are realised.Goodwill addition for year ended 31 March 2012 relates to the purchase of a dairy products business.

9. Tangible fi xed assets

Group Vehicles Land Plant and and and associated buildings equipment equipment Total £000 £000 £000 £000Cost:At 31 March 2011 29,118 70,588 8,811 108,517Additions 1,421 4,306 - 5,727Disposals - - (492) (492)

At 31 March 2012 30,539 74,894 8,319 113,752

Depreciation:At 31 March 2011 5,493 43,446 8,400 57,339Provided during the year 715 3,958 167 4,840Relating to disposals - - (492) (492)

At 31 March 2012 6,208 47,404 8,075 61,687

Net book value:At 31 March 2012 24,331 27,490 244 52,065 At 31 March 2011 23,625 27,142 411 51,178 The net book value of plant and equipment and vehicles and associated equipment includes amounts of £1,304,382 (2011 – £1,614,615) relating to assets held under fi nance leases and hire purchase contracts.



46

9. Tangible fi xed assets (continued)

The net book value of land and buildings comprises: 2012 2011 £000 £000

Freehold 15,296 14,469Leasehold 9,035 9,156 24,331 23,625

Society Vehicles Land Plant and and and associated buildings equipment equipment Total £000 £000 £000 £000Cost:At 31 March 2011 5,607 5,116 7,989 18,712Additions 17 244 - 261Disposals - - (366) (366)

At 31 March 2012 5,624 5,360 7,623 18,607

Depreciation:At 31 March 2011 740 4,512 7,714 12,966Provided during the year 116 273 102 491Disposals - - (366) (366)

As 31 March 2012 856 4,785 7,450 13,091

Net book value:At 31 March 2012 4,768 575 173 5,516 At 31 March 2011 4,867 604 275 5,746

The net book value of vehicles and associated equipment includes an amount of £116,629 (2011 – £181,413) relating to assets held under fi nance leases and hire purchase contracts.

The net book value of land and buildings comprises: 2012 2011 £000 £000

Leasehold 4,768 4,867

10. Investments Group Society 2012 2011 2012 2011 £000 £000 £000 £000Shares at costSubsidiary undertakings - - 13,564 13,564Trade investment 14 13 14 13 14 13 13,578 13,577


47

10. Investments (continued)

At 31 March 2012 the principal subsidiary undertakings were:

Proportion of voting rights and Nature ofSubsidiary undertakings Holding shares held business

Dale Farm Limited Ordinary shares 100% Manufacture and distribution of milk and a comprehensive range of dairy products

Dale Farm Ice Cream Limited Ordinary shares 100%* Sale and distribution of ice cream and frozen products

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

Rowan Glen Dairy Products Limited Ordinary shares 100%* Sale of yoghurts, cottage cheese, desserts and related dairy products

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

Dale Farm Ice Cream (Ireland) Ordinary shares 100%** Sale and distribution ofLimited ice cream and frozen products

Dale Farm Dairies (Ireland) Ordinary shares 100%* Sale and distribution of Limited milk and dairy products

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

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

11. Stocks Group Society 2012 2011 2012 2011 £000 £000 £000 £000

Raw materials and consumables 3,952 3,768 118 92Finished goods and goods for resale 21,862 14,290 62 64 25,814 18,058 180 156

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



48

12. Debtors Group Society 2012 2011 2012 2011 £000 £000 £000 £000

Trade debtors 49,164 50,287 15,414 17,489Amounts due from subsidiary undertakings – loans - - 32,617 20,844 – trading - - 10,394 12,139Other debtors 947 1,144 907 976Prepayments and accrued income 823 1,240 241 732

50,934 52,671 59,573 52,180

13. Notes to the group statement of cash fl ows

(a) Reconciliation of operating profi t to net cash infl ows from operating activities: 2012 2011 £000 £000

Operating profi t 4,999 4,656Depreciation of tangible fi xed assets 4,840 4,814Amortisation of intangibles 153 555Increase in stocks (7,756) (5,632)Decrease/(Increase) in debtors 1,737 (6,941)(Decrease)/Increase in creditors 163 8,710Capital grant release (402) (377)Foreign exchange movement (12) -Pension movement (652) 159Profi t on disposal of fi xed assets (35) (74)

Net cash infl ow from operating activities 3,035 5,870

(b) Analysis of net debt At At 31 March Cash 31 March 2011 fl ow 2012 £000 £000 £000

Cash at bank and in hand 329 1,613 1,942Overdrafts (10,037) (8,535) (18,572)

(9,708) (6,922) (16,630)

Loan stock (254) (16) (270)Sinking fund account 74 (74) -Preference shares (555) (21) (576)Bank loans (9,564) 2,247 (7,317)Finance lease (706) 347 (359)Other loans (154) 87 (67)

(20,867) (4,352) (25,219)


49

14. Other creditors and accruals Group Society 2012 2011 2012 2011 £000 £000 £000 £000

Bank overdrafts 18,572 10,037 20,744 11,014Bank loans (note 17) 1,951 2,248 657 657Obligations under fi nance leases and hire purchasecontracts (note 24) 304 352 48 76Amounts due to subsidiary undertakings – trading - - 80 - Other taxes and social security 660 574 533 553Other creditors 915 1,044 345 542Accruals 6,430 6,284 2,730 2,332Loan stock (note 16) 269 254 269 254Group relief payable - - - 71 29,101 20,793 25,406 15,499

15. Creditors: amounts due after more than one year

Group Society 2012 2011 2012 2011 £000 £000 £000 £000

Obligations under fi nance leases and hirepurchase contracts (note 24) 55 354 - 49Bank loans (note 17) 5,366 7,316 2,599 3,256Other loans 16 54 - -

5,437 7,724 2,599 3,305

16. Loan stock and convertible loan stock

(a) Loan stock: Group and Society 2012 2011 £000 £000

At 1 April 74 74Cancelled during year (74) - At 31 March - 74

(b) Convertible loan stock: Group and Society 2012 2011 £000 £000

At 1 April 180 180Loan stock issued 89 - At 31 March 269 180

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



50

17. Bank loans

Maturity of debt

Payments due: Group Society 2012 2011 2012 2011 £000 £000 £000 £000

In one year 1,951 2,248 657 657In more than one but not more than two years 1,057 1,951 657 657In more than two but not more than fi ve years 3,142 3,171 1,942 1,971In more than fi ve years 1,167 2,194 - 628 7,317 9,564 3,256 3,913Less: due within one year (1,951) (2,248) (657) (657)

Amounts due in more than one year 5,366 7,316 2,599 3,256

The loans are interest bearing at a variable rate based on LIBOR and are secured by way of unlimited intra-group guarantees.

18. Provisions for liabilities

The movements in deferred taxation during the current year are as follows: Group Society £000 £000

At 31 March 2011 3,192 150Charge\(credit) in the current year 139 (21)Add back credit relating to retirement benefi t (368) - At 31 March 2012 2,963 129

Deferred taxation provided in the fi nancial statements is as follows: Group Society 2012 2011 2012 2011 £000 £000 £000 £000

Capital allowances in advance of depreciation 2,977 3,124 139 161Other timing differences (14) (12) (10) (11)Capital gains held over - 80 - - 2,963 3,192 129 150

The deferred taxation asset relating to the pension defi cit is netted off against the gross pension defi cit in the fi nancial statements.

Deferred tax has been calculated at 24% as at March 2012 refl ecting HMRC enactment, in March 2012, of a reduction in the corporation tax rate effective from 1 April 2012.

HM Treasury have announced their intention for the main rate of corporation tax to drop to 22% by 2014, through reductions of 1% per annum over the next two years, although the drop in rates is not enacted at the balance sheet date. A drop in tax rate to 22% would reduce the deferred tax liability at 31 March 2012 to £2,716k for the group and £118k for the society. The deferred tax asset included within the pension defi cit would reduce from £2,214k to £2,030k.


51

19. Deferred income - capital grants Group Society £000 £000

At 31 March 2011 4,951 329Arising on new capital grants 107 -Release for the year (402) (25)

At 31 March 2012 4,656 304

20. Issued share capital

Group and Society 2012 2011 2012 2011Allotted, called up and fully paid No. No. £000 £000

Ordinary shares of £1 each 13,609,040 12,826,300 13,609 12,826 2012 2011 £000 £000Ordinary shares:At 1 April 12,826 13,345Issued during the year 944 7Cancelled during the year (161) (526)

At 31 March 13,609 12,826

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

21. Share capital repayable on demand

Group and SocietyPreference Shares £000

At 1 April 2011 555Issued during the year 40Cancelled during the year (19) At 31 March 2012 576

During the year £39,540 in share capital repayable on demand was issued in lieu of ordinary shares to members who had retired from milk production. Interest on the preference shares is payable annually at bank base rate less 0.25% or at such higher rate as may be determined by the board.

22. Share capital to be allocated

Group and Society

Fully paid to be allotted 2012 2011 £000 £000

Ordinary shares of £1 each 1,011 979



52

23. Reconciliation of shareholders’ funds and movements on reserves

Group Share Profi t Total Share capital and share- capital to be loss holders’ allotted allotted account funds £000 £000 £000 £000

At 31 March 2010 13,345 - 13,699 27,044

Profi t for the fi nancial year - - 3,249 3,249Movement on pension defi cit - - 9,371 9,371Ordinary shares issued 7 979 (979) 7Shares cancelled (526) - - (526)

At 31 March 2011 12,826 979 25,340 39,145 Profi t for the fi nancial year - - 4,240 4,240Movement on pension defi cit - - (7,403) (7,403)Foreign exchange movement - - (11) (11)Ordinary shares issued 944 (886) 58Convertible loan stock issued - (89) - (89)Shares cancelled (161) - - (161)Bonus shares to be allotted - 1,007 (1,007) -

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

Society Share Profi t Total Share capital and share- capital to be loss holders’ allotted allotted account funds £000 £000 £000 £000

At 31 March 2010 13,345 - (1,941) 11,404

Profi t for the fi nancial year - - 2,812 2,812Movement on pension defi cit - - 9,371 9,371Ordinary shares issued 7 979 (979) 7Shares cancelled (526) - - (526)

At 31 March 2011 12,826 979 9,263 23,068

Profi t for the fi nancial year - - 2,752 2,752Movement on pension defi cit - - (7,403) (7,403)Ordinary shares issued 944 (886) 58Convertible loan stock issued - (89) - (89)Shares cancelled (161) - - (161) Bonus shares to be allotted - 1,007 (1,007) -

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


53

24. Obligations under fi nance leases and hire purchase contracts Group Society 2012 2011 2012 2011 £000 £000 £000 £000

Amounts payable:Within one year 324 383 50 80In two to fi ve years 67 363 - 50Over fi ve years - 22 - - 391 768 50 130

Less: fi nance charges allocated to future periods (32) (62) (2) (5)

359 706 48 125

Finance leases and hire purchase contractsare analysed as follows:Current obligations 304 352 48 76Non-current obligations 55 354 - 49 359 706 48 125

Analysis of changes in fi nance leasesand hire purchase contracts:Balance brought forward 706 1,118 125 229Capital element of lease rental payments (347) (412) (77) (104)

At 31 March 359 706 48 125

25. Pension scheme information

United Dairy Farmers Limited and Dale Farm Limited

United Dairy Farmers Limited and Dale Farm Limited operate two types of pension schemes for the benefi t of their employees and the total pension charge to the group for the period amounted to £0.743m (2011 – £0.602m). The details of these schemes are set out below:

(a) Defi ned Contribution Schemes

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

The pension costs represent contributions payable by the group to the schemes and amounted to £439k (2011 – £480k). The unpaid contributions outstanding at the year end, included in ‘Other creditors’, are £35k (2011 – £36k).

(b) Northern Ireland Local Government Offi cers’ Superannuation Committee Scheme

70 employees participate in the Northern Ireland Local Government Offi cers’ Superannuation Committee Scheme (the NILGOSC Scheme). This scheme is a ‘multi-employer’ pension scheme with some 88,000 members. It provides a fi nal salary (i.e. defi ned benefi ts) pension scheme for eligible group employees and other members of the scheme. To fi nance these benefi ts, assets are accumulated in the scheme and are held separately from the assets of the employers. Membership of this scheme closed to other employees of the group on 1 March 1995.



54

25. Pension scheme information (continued)

Participating employers pay contributions at rates recommended by the scheme’s professionally qualifi ed actuaries, based on regular actuarial reviews of the fi nancial position of the scheme. Contributions to the scheme are based on the last available actuarial valuation made as at 31 March 2010. Based on this valuation, United Dairy Farmers Limited is paying an employer’s contribution rate of 23.3% from 1 April 2011 and is required to make additional lump sum payments of £649,000 per annum. The total contributions to the scheme for the year ended 31 March 2013 will be approximately £1million.

United Dairy Farmers Limited has initiated legal proceedings against the Department of Agriculture and Rural Development seeking confi rmation that it does not have responsibility for the pension liabilities of former Milk Marketing Board for Northern Ireland employees who did not become employees of the company in 1995.

United Dairy Farmers Limited had initiated legal proceedings against NILGOSC seeking a declaration from the court that it was not responsible for the pension liabilities in the scheme and this case had been heard in the previous year. In a judgement delivered subsequent to the year end, which also dealt with a related judicial review application, the High Court declined to make the declaration that United Dairy Farmers had sought and awarded costs against the company.

The company continues to account for the scheme as it has done historically as a defi ned benefi t scheme to ensure full accordance with Financial Reporting Standard 17.

Actuarial valuation

The latest full actuarial valuation took place on 31 March 2010. The principle assumptions used by the independent qualifi ed actuaries to update the valuation to 31 March 2012 for FRS 17 purposes were: 2012 2011 % % Rate of salary increases - -Discount rate 4.8 5.5Infl ation assumption 2.5 2.8Pension increases 2.5 2.8

Average future life expectancies at age 65 are: 2012 2011 Current pensioners Male 22.9 22.9 Female 25.7 25.7Future pensioners Male 24.9 24.9 Female 27.7 27.7


55

25. Pension scheme information (continued)

The group’s share of assets and liabilities in the scheme and the expected rates of return were: Long-term Long-term rate of return rate of return expected at Value at expected at Value at 31 March 31 March 31 March 31 March 2012 2012 2011 2011 % £000 % £000

Equities 6.2 45,265 7.5 48,254Bonds 4.1 8,563 4.9 8,773Property 4.4 4,893 5.5 3,760Cash 3.5 2,447 4.6 1,880

Total market value of assets 61,168 62,667Present value of scheme liabilities 70,401 63,721

Defi cit in the Scheme (9,233) (1,054)Deferred tax asset 2,214 274

Net pension defi cit (7,019) (780)

Analysis of Amount Charged to Operating Profi t 2012 2011 £000 £000

Current service cost 302 239

Total operating charge 302 239

Analysis of the amount credited to other fi nance income 2012 2011 £000 £000 Expected return on pension scheme assets 4,257 4,008Interest on pension scheme liabilities (3,432) (3,849)

Total other fi nance income 825 159

Amount recognised in the statement of total recognised gains and losses 2012 2011 £000 £000Actuarial gain/(loss) recognised in the statement of total recognised gains and losses (9,713) 13,052

Analysis of movements in defi cit during the year 2012 2011 £000 £000

At beginning of period (1,054) (14,364)Current service cost (302) (239)Employers’ contributions 1,011 338Net return on assets 825 159Actuarial gain/(loss) (9,713) 13,052

At end of period (9,233) (1,054)



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26. Future capital commitments

At 31 March 2012 the directors have authorised future capital expenditure which, without taking account of government grants, amounts to: Group Society 2012 2011 2012 2011 £000 £000 £000 £000

Contracted 2,895 435 - -Non contracted 1,986 244 - -

27. Other fi nancial commitments

At 31 March 2012 the group and society’s annual commitments under non-cancellable operating leases were as follows: Land and Plant and buildings equipment 2012 2011 2012 2011 £000 £000 £000 £000GroupLeases expiring:Within one year 31 31 393 428Within two to fi ve years 171 154 1,019 739After more than fi ve years - - 260 399 202 185 1,672 1,566

SocietyLeases expiring: Within one year - - 22 81Within two to fi ve years - - 653 483After more than fi ve years - - 57 - - - 732 564

28. Related party transactions

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

The net value of milk purchased from and services provided to these directors during the year was £3,073,292 (2011 – £2,957,554). At 31 March 2012 the net amount owed to the directors was £262,231 (2011 – £314,580).

29. Contingent liabilities

The society is responsible for the collection and payment of quota levy liability due by suppliers of milk to the society. It is unlikely any quota levy will be payable for the year ended 31 March 2012.

The company has provided an unlimited guarantee in favour of the Ulster Bank in respect of United Group borrowings from Ulster Bank. At 31 March 2012 the United Group borrowings from Ulster Bank amounted to some £23.6 million (2011: £18.1 million). The banking facilities of the subsidiary, United Feeds Limited, are secured by a fl oating charge over the company’s assets.

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

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

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