##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934
 OR x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934For the fiscal year ended December 31, 2003
 OR o
    
    TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934For the transition period from  to
 Commission File Number: 33-312188 PREMIER FOODS PLC (formerly Premier International Foods plc)
 
  England and Wales 
  28 The Green, Kings Norton, Birmingham, B38 8SD, United Kingdom 
  Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of Each Class
    
    Name of Each Exchange on which RegisteredNone
    
    None
 Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: $200,000,000 12% Senior Notes due 2009 £75,000,000 121⁄4% Senior Notes due 2009 Indicate the number of outstanding shares of each of the issuers classes
of capital or common stock as of the close of the period covered by the Annual
Report: None Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes   (BALLOT BOX WITH X)
        
        No   (OPEN BALLOT BOX) Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17   (OPEN BALLOT BOX)
        

Item 18   (BALLOT BOX WITH X)




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##### Table of Contents



Premier Foods plc FORM 20-F TABLE OF CONTENTS PART IItem 1.
    
    Identity of Directors, Senior Management and AdvisersItem 2.
    
    Offer Statistics and Expected TimetableItem 3.
    
    Key InformationCertain TerminologyMarket Share InformationCautionary Statement Regarding Forward-Looking StatementsA.
    
    Selected Financial DataB.
    
    Capitalization and IndebtednessC.
    
    Reasons for the Offer and Use of ProceedsD.
    
    Risk FactorsItem 4.
    
    Information on the CompanyA.
    
    History and Development of the CompanyB.
    
    Business OverviewC.
    
    Organizational StructureD.
    
    Property, Plants and EquipmentItem 5.
    
    Operating and Financial Review and ProspectsA.
    
    Operating ResultsB.
    
    Liquidity and Capital ResourcesC.
    
    Research and Development, Patents and Licenses, Etc.D.
    
    Trend InformationE.
    
    Off-Balance Sheet ArrangementsF.
    
    Tabular Disclosure of Contractual ObligationsItem 6.
    
    Directors, Senior Management and EmployeesA.
    
    Directors and Senior ManagementB.
    
    CompensationC.
    
    Board PracticesD.
    
    EmployeesE.
    
    Share OwnershipItem 7.
    
    Major Shareholders and Related Party TransactionsA.
    
    Major ShareholdersB.
    
    Related Party TransactionsC.
    
    Interests of Experts and CounselItem 8.
    
    Financial InformationA.
    
    Consolidated Statements and Other Financial InformationB.
    
    Significant ChangesItem 9.
    
    The Offer and ListingA.
    
    Offer and Listing DetailsB.
    
    Plan of DistributionC.
    
    MarketsD.
    
    Selling ShareholdersE.
    
    DilutionF.
    
    Expenses of the Issue




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##### Table of Contents



Premier Foods Plc Item 10.
    
    Additional InformationA.
    
    Share CapitalB.
    
    Memorandum and Articles of AssociationC.
    
    Material ContractsD.
    
    Exchange ControlsE.
    
    TaxationF.
    
    Dividends and Paying AgentsG.
    
    Statement by ExpertsH.
    
    Documents on DisplayI.
    
    Subsidiary InformationItem 11.
    
    Quantitative and Qualitative Disclosures About Market RiskItem 12.
    
    Description of Securities Other than Equity SecuritiesPART IIItem 13.
    
    Defaults, Dividend Arrearages and DelinquenciesItem 14.
    
    Material Modification to the Rights of Security Holders and Use of ProceedsItem 15.
    
    Controls and ProceduresItem 16.
    
    [Reserved]Item 16A.
    
    Audit Committee Financial ExpertItem 16B.
    
    Code of EthicsItem 16C.
    
    Principal Accountants Fees and ServicesItem 16D.
    
    Exemptions from Listing Standards for Audit CommitteesItem 16E.
    

Purchases of Equity Securities by the Issuer and Affiliated PurchasersPART IIIItem 17.
    
    Financial StatementsItem 18.
    
    Financial StatementsItem 19.
    
    ExhibitsEx-4.9Ex-4.10EX-4.11EX-4.12EX-11.1EX-12.1EX-12.2EX-13.1EX-13.2
 1




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##### Table of Contents



Premier Foods plc 
 PART I 
 Item 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS. Not applicable. 
 Item 2.OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 
 Item 3. KEY INFORMATION 
 CERTAIN TERMINOLOGY Unless otherwise indicated, references to Premier, the Group, we,
us, our and ours in this annual report are to Premier Foods plc (formerly
Premier International Foods plc) and its consolidated subsidiaries. Annual
Report refers to this annual report filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 on Form 20-F. The Company refers to
Premier Foods plc (formerly Premier International Foods plc) excluding its
consolidated subsidiaries. Premier Holdings refers to Premier Foods
(Holdings) Limited, our immediate parent company (formerly known as Premier
Holdings Limited, itself formerly known as Hillsdown Holdings Limited).
Premier Financing refers to Premier Financing Limited, our wholly owned
subsidiary. Premier Investments refers to Premier Foods Investments Limited,
our U.K. parent company. Hicks Muse refers to Hicks, Muse, Tate &
Furst Limited and its affiliates. The Notes refers to our $200,000,000 12%
Senior Notes due 2009 and £75,000,000
121/4 Senior Notes due 2009. The
Indenture refers to the Indenture, dated as of August 10, 1999, between
Premier and Bankers Trust Company, as trustee. The Senior Credit Facility
refers to the bank credit facility we have under the Senior Facilities
Agreement with J.P. Morgan plc and Barclays Capital as arrangers, JPMorgan
Chase Bank and Barclays Bank plc as underwriters, with J.P. Morgan Europe
Limited as agent and security agent. The Acquisition Facility refers to the
subordinated facility we have under the acquisition facility agreement with
J.P. Morgan as arranger, JPMorgan Chase Bank as underwriter and J.P. Morgan
Europe Limited as agent and security agent. Unless otherwise indicated herein,
references to 2003, 2002 and 2001 refer to the fiscal years ended December 31,
2003, 2002 and 2001, respectively. U.K. refers to the United Kingdom of Great
Britain and Northern Ireland. U.K. GAAP refers to generally accepted
accounting principles in the United Kingdom. US GAAP refers to generally
accepted accounting principles in the United States. The U.S. and United
States refer to the United States of America. E.U. refers to the European
Union. 
 MARKET SHARE INFORMATION We operate in markets in which it is difficult in certain cases to obtain
precise market, economic and industry information. Unless the source
or date is
otherwise stated, the market, economic and industry data in this document
constitute the estimates of the directors of the Company (the
Directors), using underlying data from ACNielsen, IGD, Information Resources
Times & Trendsand Mintel, and relates to the year
2003. The accuracy and completeness of
such third party information is not guaranteed and we have not independently verified such
data. 2




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##### Table of Contents



Premier Foods plc 
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Annual Report includes statements that are, or may be deemed to be,
forward-looking statements. These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
believes, estimates, anticipates, expects, intends, may, will or
should or, in each case, their negative or other variations or comparable
terminology. These forward-looking statements include all matters that are not
historical facts. They appear in a number of places throughout this document
and include statements regarding our intentions, beliefs or current
expectations concerning, among other things, our results of operations,
financial condition, liquidity, prospects, growth, strategies and the market in
which we operate. By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on circumstances that
may or may not occur in the future. Forward-looking statements are not
guarantees of future performance. Our actual results of operations, financial
condition and liquidity, and the development of the markets in which we
operate, may differ materially from those suggested by the forward-looking
statements contained in this document. In addition, even if our results of
operations, financial condition and liquidity, and the development of the
markets in which we operate are consistent with the forward-looking statements
contained in this document, those results or developments may not be indicative
of results or developments in subsequent periods. Forward-looking statements
are based on numerous assumptions regarding our present and future business
strategies and the environment in which it will operate in the future, and many
of the factors that determine our actual results of operations, financial
condition and liquidity and the development of the markets in which we operate
are beyond our control. Important factors that could cause these differences
include, but are not limited to, those risk factors described in Item 3 Key
Information  Risk Factors of this Annual Report. You are advised to read, in particular, the parts of this document
entitled Item 3. Key Information  Risk Factors, Item 3. Key Information  Selected Financial
Data, Item 4. Information on the
Company  Business Overview and Item 5. Operating and Financial Review and Prospects for a more
complete discussion of the factors that could affect our future performance and
the markets in which we operate. In light of these risks, uncertainties and
assumptions, the events described in the forward-looking statements in this
document may not occur. These forward-looking statements are made only as of the date of this
document. We undertake no obligation to update publicly or revise publicly any
forward-looking statement, whether as a result of new information, future
events or otherwise. 
 A. Selected Financial Data We have prepared the following selected historical combined and
consolidated financial data as of and for each of the five years in the period
ended December 31, 2003. The selected historical consolidated financial data
as of December 31, 2002 and December 31, 2003 and for each of the years ended
December 31, 2001, December 31, 2002 and December 31, 2003 are derived from our
historical consolidated financial statements included elsewhere in this Annual
Report. The selected historical consolidated financial data as of December 31,
1999 and December 31, 2000 and for each of the years ended
December 31, 1999 and December 31, 2000 are derived from our historical
consolidated financial statements not included in this Annual Report. 3




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##### Table of Contents



Premier Foods plc The historical consolidated financial statements of Premier have
been prepared in accordance with U.K. GAAP, which differs in certain material
respects from U.S. GAAP. The principal differences between U.K. GAAP and U.S.
GAAP are summarized in Note 24 to our consolidated financial statements
included elsewhere in this Annual Report. You should read the following information in conjunction with the
discussion of our operating results and liquidity and capital resources
included in Item 5. Operating and Financial Review and Prospects  Operating
Results and Item 5. Operating and Financial Review and Prospects  Liquidity
and Capital Resources and our consolidated financial statements and the
related notes thereto included elsewhere in this Annual Report. Selected Historical Financial Data 1999(7)(8)
    
    2000
    
    2001
    
    2002
    
    2003
    
    2003(1)(millions except for EBITDA margin)Profit and Loss Data:Amounts in accordance with U.K. GAAP:TurnoverContinuing (9)
    
    £
    854.3
    
    
    £
    818.5
    
    
    £
    832.5
    
    
    £
    865.4
    
    
    £
    870.6
    
    
    $
    1,556.1Discontinued
    
    £
    234.8
    
    
    £
    215.1
    
    
    £
    4.1
    
    
    £
    0.2
    
    
    
    
    
    
    
    Subtotal
    
    £
    1,089.1
    
    
    £
    1,033.6
    
    
    £
    836.6
    
    
    £
    865.6
    
    
    £
    870.6
    
    
    $
    1,556.1Operating profit
    
    £
    11.7
    
    
    £
    67.6
    
    
    
    51.3
    
    
    
    60.7
    
    
    
    68.6
    
    
    $
    122.6Operating profit (before operating
exceptional items) (2)Continuing (9)
    
    £
    54.7
    
    
    £
    60.1
    
    
    £
    64.3
    
    
    £
    77.6
    
    
    £
    79.4
    
    
    $
    141.9Discontinued
    
    £
    9.4
    
    
    £
    9.1
    
    
    (£
    0.8
    )
    
    (£
    0.1
    )
    
    
    
    
    
    
    Subtotal
    
    £
    64.1
    
    
    £
    69.2
    
    
    £
    63.5
    
    
    £
    77.5
    
    
    £
    79.4
    
    
    $
    141.9Retained profit / (loss)
    
    (£
    32.6
    )
    
    (£
    8.6
    )
    
    (£
    28.5
    )
    
    £
    16.3
    
    
    £
    12.2
    
    
    $
    21.8Amounts in accordance with U.S. GAAP:Net sales
    
    £
    1,089.1
    
    
    £
    1,033.6
    
    
    £
    836.6
    
    
    £
    865.6
    
    
    £
    870.6
    
    
    $
    1,556.1Income / (loss) from operations (3)
    
    (£
    13.1
    )
    
    £
    58.1
    
    
    £
    90.4
    
    
    £
    60.8
    
    
    £
    69.1
    
    
    $
    123.5Net income / (loss)
    
    (£
    45.5
    )
    
    (£
    13.4
    )
    
    £
    37.8
    
    
    £
    14.1
    
    
    £
    14.1
    
    
    $
    25.2Other Financial Data:Amounts derived under U.K. GAAP:EBITDA (4)
    
    £
    87.7
    
    
    £
    91.5
    
    
    £
    82.1
    
    
    £
    103.1
    
    
    £
    112.3
    
    
    $
    200.7EBITDA margin (5)
    
    
    8.1
    %
    
    
    8.9
    %
    
    
    9.8
    %
    
    
    11.9
    %
    
    
    12.9
    %
    
    
    12.9
    %Depreciation and amortization (6)
    
    £
    23.6
    
    
    £
    22.3
    
    
    £
    18.6
    
    
    £
    26.0
    
    
    £
    30.5
    
    
    $
    54.5Capital
expenditure (7)
    
    £
    23.0
    
    
    £
    26.5
    
    
    £
    20.1
    
    
    £
    17.3
    
    
    £
    27.3
    
    
    $
    48.8Amounts derived under U.S. GAAP:EBITDA (4)
    
    £
    29.7
    
    
    £
    87.5
    
    
    £
    112.9
    
    
    £
    81.3
    
    
    £
    95.1
    
    
    $
    170.0EBITDA margin (5)
    
    
    2.7
    %
    
    
    8.5
    %
    
    
    13.5
    %
    
    
    9.4
    %
    
    
    10.9
    %
    
    
    10.9
    %Depreciation and amortization (6)
    
    £
    42.8
    
    
    £
    29.4
    
    
    £
    22.5
    
    
    £
    20.5
    
    
    £
    26.0
    
    
    $
    46.5Capital
expenditure (7)
    
    £
    23.0
    
    
    £
    26.5
    
    
    £
    20.1
    
    
    £
    17.3
    
    
    £
    27.3
    
    
    $
    48.8Balance Sheet Data (at end of period):Amounts in accordance with U.K. GAAP:Total assets
    
    £
    557.2
    
    
    £
    516.3
    
    
    £
    419.3
    
    
    £
    546.5
    
    
    £
    615.8
    
    
    $
    1,100.7Net combined assets
    
    
    N/a
    
    
    
    N/a
    
    
    
    N/a
    
    
    
    N/a
    
    
    
    N/a
    
    
    
    N/aShareholders deficit
    
    (£
    198.6
    )
    
    (£
    214.4
    )
    
    (£
    167.3
    )
    
    (£
    149.8
    )
    
    (£
    134.4
    )
    
    ($
    240.2
    )Amounts in accordance with U.S. GAAP:Total assets
    
    £
    603.3
    
    
    £
    579.0
    
    
    £
    484.6
    
    
    £
    614.0
    
    
    £
    688.0
    
    
    $
    1,229.7Net combined assets
    
    
    N/a
    
    
    
    N/a
    
    
    
    N/a
    
    
    
    N/a
    
    
    
    N/a
    
    
    
    N/aShareholders deficit
    
    (£
    172.9
    )
    
    (£
    187.3
    )
    
    (£
    126.8
    )
    
    (£
    111.5
    )
    
    (£
    94.2
    )
    
    ($
    168.4
    )
 See accompanying notes on the following pages. 4




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Premier Foods plc  (1)
    
    Amounts have been translated for convenience at the noon buying rate on
December 31, 2003 of $1.78742 to £1.00.(2)
    
    Aggregate U.K. GAAP exceptional items include both operating and
non-operating exceptional items. See Note 3 to our consolidated financial
statements included elsewhere in this annual report for further
information on operating and non-operating exceptional items for each of
2001, 2002 and 2003.(3)
    
    Income / (loss) from operations in accordance with U.S. GAAP is defined
herein as the sum of earnings from all operations, in each case before
related net interest expense and taxation expense.The following table reconciles operating profit in accordance with U.K.
GAAP to income from operations in accordance with U.S. GAAP: Year Ended December 31,2001
    
    2002
    
    2003(£ millions)Operating profit (before operating exceptional items) in
accordance with U.K. GAAP
    
    £
    63.5
    
    
    £
    77.5
    
    
    £
    79.4Operating exceptional items as defined under U.K. GAAP
    
    
    (12.2
    )
    
    
    (16.8
    )
    
    
    (10.8
    )Non-operating exceptional items under U.K. GAAP
    
    
    (26.2
    )
    
    
    (2.0
    )
    
    
    2.0US GAAP adjustments:Pension costs
    
    
    5.2
    
    
    
    0.1
    
    
    
    (3.0
    )Amortization of goodwill
    
    
    (5.9
    )
    
    
    3.1
    
    
    
    5.6Derivative financial instruments
    
    
    0.9
    
    
    
    (0.5
    )
    
    
    (3.0
    )Adjustments to U.K. GAAP loss on sale of
discontinued operations
    
    
    65.1
    
    
    
    
    
    
    
    Amortization of intangible assets
    
    
    
    
    
    
    (0.6
    )
    
    
    (1.1
    )Income from operations in accordance with U.S. GAAP
    
    £
    90.4
    
    
    £
    60.8
    
    
    £
    69.1
  (4)
    
    We are required under the terms of the Indenture to provide, to the
trustee and the holders of the Notes, all quarterly financial statements
that would be required by Form 10-Q in U.K. GAAP with a reconciliation to
U.S. GAAP of EBITDA calculated from amounts determined under U.S. GAAP,
total assets, total debt and shareholders equity. We have, therefore,
included EBITDA calculated from amounts determined under U.S. GAAP in our
selected financial information. In addition, our banking covenants under
the Senior Credit Facility require ratios of total net interest and total
net debt to EBITDA. We have, therefore, included EBITDA calculated from
amounts determined under U.K. GAAP in our selected financial information.
Further, we believe that the investor community commonly uses EBITDA,
calculated in the manner defined below, as a measure of the operating
performance and cash generation of businesses.As presented herein, EBITDA calculated from amounts determined under U.K.
GAAP represents operating profit before both operating and non-operating
exceptional items and depreciation and amortization of intangible assets
and pension prepayments and any other non-cash income and non-cash
charges. This definition is in accordance with the definition of EBITDA
in our Senior Credit Facility.EBITDA, calculated from amounts determined under U.S. GAAP, represents
the sum of earnings from all operations, in each case before related net
interest expense, taxation expense, depreciation and amortization of
intangible assets.EBITDA is not a measurement of operating performance calculated in
accordance with U.S. GAAP or U.K. GAAP, and should not be considered as a
substitute for operating income, profit after taxes or cash flows from
operating activities, as determined by U.S. GAAP or U.K. GAAP, or as a
measure of profitability or liquidity. EBITDA does not necessarily
indicate whether cash flow will be sufficient or available for cash
requirements. EBITDA may not be indicative of our historical operating
results and is not meant to be a prediction of our future results.
Because all companies do not calculate EBITDA identically, the
presentation of EBITDA contained herein may not be comparable to
similarly entitled measures of other companies.The following table reconciles operating profit presented under
U.K. GAAP to EBITDA before exceptional items, calculated from
amounts determined under U.K. GAAP and to net cash inflow from
operating activities presented under U.K. GAAP: Year Ended December 31,2001
    
    2002
    
    2003( £ millions)Operating profit before operating exceptional items
presented under U.K. GAAP
    
    £
    63.5
    
    
    £
    77.5
    
    
    £
    79.4Depreciation of fixed assets charged to operating profit
    
    
    16.1
    
    
    
    18.8
    
    
    
    23.4Amortization of goodwill
    
    
    0.4
    
    
    
    3.1
    
    
    
    5.6Amortization of intangible fixed assets
    
    
    0.1
    
    
    
    1.1
    
    
    
    1.5Amortization of pension prepayment
    
    
    2.0
    
    
    
    2.6
    
    
    
    2.4EBITDA before exceptional items calculated from amounts
determined under U.K. GAAP
    
    £
    82.1
    
    
    £
    103.1
    
    
    £
    112.3Exceptional cash outflows
    
    
    (13.5
    )
    
    
    (13.2
    )
    
    
    (10.9
    )Working capital movements
    
    
    13.1
    
    
    
    8.9
    
    
    
    11.3Net cash inflow from operating activities
    
    £
    81.7
    
    
    £
    98.8
    
    
    £
    112.7
 5




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##### Table of Contents



Premier Foods plc  The following table reconciles income from operations presented
under U.S. GAAP to EBITDA calculated from amounts determined under
U.S. GAAP and to net cash inflow provided by operating activities
under U.S. GAAP: Year Ended December 31,2001
    
    2002
    
    2003(£ millions)Income from operations presented under U.S. GAAP
    
    £
    90.4
    
    
    £
    60.8
    
    
    £
    69.1Depreciation of fixed assets charged to operating profit
    
    
    16.1
    
    
    
    18.8
    
    
    
    23.4Amortization of goodwill
    
    
    6.3
    
    
    
    
    
    
    
    Amortization of intangible assets
    
    
    0.1
    
    
    
    1.7
    
    
    
    2.6EBITDA calculated from amounts determined under
U.S. GAAP
    
    £
    112.9
    
    
    £
    81.3
    
    
    £
    95.1Non-cash movementsRestructuring charges
    
    
    38.4
    
    
    
    18.8
    
    
    
    8.8Pension charge
    
    
    (3.2
    )
    
    
    2.5
    
    
    
    5.4Derivative financial instruments
    
    
    (0.9
    )
    
    
    0.5
    
    
    
    3.0Sale of discontinued businesses
    
    
    (65.1
    )
    
    
    
    
    
    
    Cash movementsWorking capital movements
    
    
    10.7
    
    
    
    11.3
    
    
    
    18.4Interest received
    
    
    4.5
    
    
    
    3.9
    
    
    
    4.9Interest paid
    
    
    (44.6
    )
    
    
    (47.5
    )
    
    
    (47.9
    )Taxation
    
    
    (1.5
    )
    
    
    (1.3
    )
    
    
    (0.1
    )Payments in respect of restructuring charges
    
    
    (13.5
    )
    
    
    (13.2
    )
    
    
    (10.9
    )Net cash inflow provided by operating activities
under U.S. GAAP
    
    £
    37.7
    
    
    £
    56.3
    
    
    £
    76.7
  The following table reconciles EBITDA before exceptional items
calculated from amounts determined under U.K. GAAP to EBITDA
calculated from amounts determined under U.S. GAAP: Year Ended December 31,2001
    
    2002
    
    2003( £ millions)EBITDA before exceptional items calculated from amounts
determined under U.K. GAAP
    
    £
    82.1
    
    
    £
    103.1
    
    
    £
    112.3US GAAP adjustments:Derivative financial instruments
    
    
    0.9
    
    
    
    (0.5
    )
    
    
    (3.0
    )Operating exceptional items as defined under U.K. GAAP
    
    
    (12.2
    )
    
    
    (16.8
    )
    
    
    (10.8
    )Non-operating exceptional items as defined under U.K. GAAP
    
    
    (26.2
    )
    
    
    (2.0
    )
    
    
    2.0Sale of discontinued businesses
    
    
    65.1
    
    
    
    
    
    
    
    Pension costs
    
    
    3.2
    
    
    
    (2.5
    )
    
    
    (5.4
    )EBITDA calculated from amounts determined under U.S. GAAP
    
    £
    112.9
    
    
    £
    81.3
    
    
    £
    95.1
  (5)
    
    As presented herein, EBITDA margin calculated from amounts determined
under U.K. GAAP represents, for U.K. GAAP presentation purposes, EBITDA
divided by sales. EBITDA margin calculated from amounts determined under
U.S. GAAP for U.S. GAAP presentation purposes represents EBITDA divided by
turnover. EBITDA margin is not a measure of operating performance
calculated in accordance with U.S. GAAP or U.K. GAAP, and should not be
considered as a substitute for operating income, profit after taxes or
cash flows from operating activities, as determined by U.S. GAAP or U.K.
GAAP, or as a measure of profitability or liquidity. EBITDA margin does
not necessarily indicate whether cash flow will be sufficient or available
for cash requirements. EBITDA margin may not be indicative of the
historical operating results of Premier and is not meant to be a
prediction of potential future results. Because all companies do not
calculate EBITDA margin identically, the presentation of EBITDA margin
contained herein may not be comparable to similarly entitled measures of
other companies.(6)
    
    Under U.K. GAAP, depreciation and amortization consists of (i) depreciation of
tangible fixed assets, (ii) amortization of intangible assets and goodwill, and
(iii) amortization of pension prepayment. Under U.S. GAAP, depreciation and
amortization consists of (i) depreciation of tangible fixed assets, and (ii)
amortization of intangible assets.(7)
    
    Capital expenditure comprises the cash expenditure for the purchase of
tangible fixed assets, together with capital lease funds applied to
capital expenditure.(8)
    
    The historical financial data for 1999 have not been restated for the impact
of FRS 19 Deferred Tax.

(9)
    
    The historical data for 2001, 2002 and 2003 have been reclassified for the
impact of identifying certain promotional expenditures that are more
appropriately classified as a reduction of sales rather than selling
and distribution costs. The historical data for 1999 and 2000 have not
been reclassified. 6




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Premier Foods plc Exchange Rates In this Annual Report, unless otherwise specified or the context otherwise
requires, all references to pound(s) sterling or £ are to the lawful
currency of the United Kingdom, all references to US dollar(s) or $ are to
the lawful currency of the United States. We make no representation that any
amount translated in this Annual Report could have been or could be converted
at any of the rates indicated below. Solely for your convenience, we have translated certain financial
information in this Annual Report from pounds sterling to dollars at the rate
of £1.00=$1.78742, the noon buying rate in the City of New York for cable
transfers as certified for customs purposes by the Federal Reserve Bank of New
York on December 31, 2003 (the noon buying rate). The following table sets forth, for the periods indicated, certain
information concerning the noon buying rate of the Federal Reserve Bank of New
York for pounds sterling expressed in dollars per £1.00. Year Ended December 31,
    
    Period End(1)
    
    Average % Rate(2)
    
    High
    
    Low1999
    
    
    1.6150
    
    
    
    1.6171
    
    
    
    1.6765
    
    
    
    1.55152000
    
    
    1.4938
    
    
    
    1.5163
    
    
    
    1.6569
    
    
    
    1.39452001
    
    
    1.4543
    
    
    
    1.4396
    
    
    
    1.5045
    
    
    
    1.37302002
    
    
    1.6095
    
    
    
    1.5873
    
    
    
    1.6095
    
    
    
    1.40742003
    
    
    1.7842
    
    
    
    1.6350
    
    
    
    1.7842
    
    
    
    1.5500
  (1)
    
    Represents the noon buying rate on the last business day of the period.  (2)
    
    The average of the exchange rates on the last business day of each full
month during the relevant period. The following table sets forth, for the periods indicated, the high and low
noon buying rates for dollars to pounds sterling. Month and Year
    
    High
    
    LowDecember 2003
    
    
    1.7842
    
    
    
    1.7200January 2004
    
    
    1.8511
    
    
    
    1.7902February 2004
    
    
    1.9045
    
    
    
    1.8182March 2004
    
    
    1.8680
    
    
    
    1.7943April 2004
    
    
    1.8564
    
    
    
    1.7674May 2004
    
    
    1.8369
    
    
    
    1.7544June 2004 (through June 28)
    
    
    1.8486
    
    
    
    1.8041
 For a discussion of the impact of exchange rate fluctuations on our
operating results, see Item 11. Quantitative and Qualitative Disclosures About
Market Risk.  B.
    
    Capitalization and IndebtednessNot applicable.  C.
    
    Reasons for the Offer and Use of ProceedsNot applicable.  D.
    
    Risk Factors The risks and uncertainties described below are not the only ones facing
us. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business operations. If any of
the following risks or such other risks actually occur, our business could be
harmed. 7




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Premier Foods plc We operate in highly competitive markets. Our failure to compete effectively
could adversely affect our results of operations. Competition between manufacturers in the grocery business is intense. The
market is served by a number of well-established companies that operate on both
a national and international basis within single or multiple product
categories. We face competition at a category level from these companies with
regard to both branded and retailer brand products. Our competitors have
varying abilities to withstand changes in market conditions. Some of our
competitors are large corporations with greater financial resources than we
have. Our ability to compete effectively will require us to be successful in
the sales and marketing of our existing products, new product development and
innovation and cost rationalization. Furthermore, we cannot predict the pricing
or promotional actions of our competitors or their effect on our ability to
market and sell our products. To ensure our products remain competitive we may
be required to reduce our prices as a result of price reductions or promotional
sales undertaken by our competitors and this could adversely affect our results
of operations. Our ability to compete in the retail food industry could be adversely affected
if the concentration and buying power of grocery retailers increases, and this
could adversely affect our results of operations. In recent years the major multiple retailers have increased their share of
the U.K. grocery market. Based on the value of total U.K. grocery sales for the
13 weeks ended January 5, 2003, the top five multiple retailers held an 81%
share of total U.K. grocery sales, after adjusting for Morrisons acquisition
of Safeway. In addition, following Wal-Marts entry into the U.K. market
through its 1999 acquisition of Asda, and Morrisons acquisition of Safeway in
2004, price competition between the major multiple retailers has intensified.
This price competition has led the major multiple retailers to seek lower
prices from their suppliers. In 2003, the U.K. Competition Commission reviewed
the offers for Safeway by Morrisons, Tesco, Sainsburys and Asda and referred
to the advantageous position of the major multiple retailers in relation to
their suppliers by concluding, among other matters, that the acquisition of
Safeway by any of Asda, Morrisons, Sainsburys or Tesco may be expected to
aggravate further the imbalance in the respective bargaining positions of that
party and its suppliers. The strength of the major multiple retailers
bargaining position gives them significant leverage over their suppliers in
dictating pricing, product specification and the level of supplier
participation in promotional campaigns and offers such as Everyday Low Price
and Buy One/Get One Free. Our results of operations could be adversely
affected if we are required to reduce our prices, alter the specifications of
our retailer brand products or increase our promotional costs as a consequence
of an increase in the strength of the major multiple retailers bargaining
position. In addition, several of the major multiple retailers are seeking to
increase their presence in the convenience store sector through both organic
growth and acquisitions. In December 2002, Tesco acquired the T&S chain of
convenience stores and, in January 2004, acquired the Adminstore chain. In
February 2004, Sainsburys announced the acquisition of the Bells chain of
stores. Such acquisitions may further increase the buying and negotiating power
of the major multiple retailers and this may adversely affect our results of
operations. Given our dependence on raw materials, an inability to pass price increases of
raw materials on to our customers or to source raw materials of an acceptable
type or quality could adversely affect our results of operations. We purchase the raw materials used in our products from numerous
suppliers. The prices of many of these raw materials are affected by, among
other things, the agricultural policies of the U.K. government and of the
European Union. A portion of the raw materials we use are traded as commodity
products, the prices of which are subject to a number of factors that are not
in our control, such as quality, availability and demand. In addition, severe
weather conditions, such as floods, droughts or frosts, or political
instability, may affect the supply and price of one or more of our raw
materials. If the supply of any of our raw materials is constrained for any
reason, we may not be able to obtain sufficient supplies, or supplies of a
suitable quality, from other sources. Movement in the price levels of our raw materials has in the past had and
may in the future have a corresponding impact on finished product costs. Our
ability to pass through increases in the cost of raw materials to our customers
depends upon competitive conditions and pricing methods employed in the markets
in which we operate, and the failure to pass through price increases may
adversely affect our results of operations. Changes in consumer preferences may adversely affect our results of operations. There are a number of trends in consumer preferences which may impact on
both us and our industry as a whole. These include, among others, dietary
concerns and fashions and an increasing preference for fresh 8




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Premier Foods plc and chilled foods, ready prepared foods and organic foods. In addition,
concerns as to the nutritional value of certain foods may increasingly result
in food manufacturers being encouraged to produce products with reduced levels
of salt, sugar and fat and to eliminate trans-fatty acids from the ingredients
used. These trends may reduce demand for certain of our products and providing
or developing modified or alternative products may increase our costs and
either or both of these factors may adversely affect our results of operations. We are subject to extensive U.K. and E.U. legislation and regulation. As a manufacturer of products intended for human consumption we are
subject to extensive regulation. We are subject to legislation and regulations
in the United Kingdom and the European Union with respect to the product
composition, manufacturing, storage, handling, packaging, labeling, advertising
and safety of our products, the health, safety and working conditions of our
employees, pensions, and our competitive and marketplace conduct. Our operations and
properties, past and present, are also subject to a wide variety of
U.K., Dutch, E.U. and
local laws and regulations governing air emissions, waste water discharge,
noise levels, energy efficiency, and the presence, use,
storage, handling, generation, treatment, emission, release, discharge and
disposal of hazardous materials, substances and wastes and the remediation of
contamination to the environment. Modifications to existing legislation and/or
regulation and the introduction of new legislative and regulatory initiatives
may affect our operations and the conduct of our businesses, and the cost of
complying with such modified and/or new legislation or regulation or the
effects of such modified and/or new legislation or regulation may have an
adverse effect on our results of operations. Certain of our branded products are produced under agreements or licenses which
will expire and may not be renewable on terms acceptable to us. The reputation
of our licensed brands may be adversely affected if the reputation of our
licensors is damaged. Some of our branded products are produced and sold under agreements with,
or licenses from, third parties, including the Cadburybrand of cocoa-based
beverages, the HPbrand of convenience foods, the Loyd Grossmanbrand of
sauces, dressings and soups and the Rowntreesbrand of jelly. The agreements
and licenses under which we produce certain of our branded products will expire
and may not be renewable on terms acceptable to us. The failure to renew one or
more of our agreements or licenses could have an adverse effect on our results
of operations. Our Loyd Grossmanlicense is not due to expire until 2011 and our
Rowntreeslicense until 2012. In addition, although the HPlicense is due to
expire in 2006, we produce similar products under the Crosse & Blackwellbrand.
If the HPlicense was not to be renewed in 2006, we believe we would be able
to transfer the majority of our offering under the HPbrand to the Crosse &
Blackwellbrand. However, if HPoffers the same products
or licenses to some other
party to produce the same products, this may have an adverse impact on the
sales of the products transferred to the Crosse & Blackwellbrand. Our agreement to manufacture and distribute Cadburycocoa-based beverages
expires in May 2006. Cadburycocoa-based beverages contributed approximately
£45.0 million of our sales in 2003. This agreement is automatically renewable
in 2006 unless Cadbury Limited gives notice that it will not renew this
agreement on or before one year prior to the expiration of the initial term of
the agreement. Cadbury Limited have not served formal notice on us regarding
nonrenewal of the agreement, although in a letter dated April 30, 2003, Cadbury
Schweppes plc expressed its intention not to renew the agreement beyond 2006.
Nonrenewal of this agreement, or renewal of the agreement on different terms,
will have an adverse effect on our results of operations. The reputation of our licensed brands may be adversely affected if the
reputation of our licensors is damaged, either by the actions of a licensor or
by other factors outside our control, and this may adversely affect our results
of operations. For further information regarding the Cadburyagreement and the Loyd
Grossman, HPand Rowntreeslicenses, see Item 4.B. Information on the Company
 Business Overview  Intellectual Property. Our results of operations are subject to variations in the weather. Sales of certain of our ambient grocery products may decline in periods of
unseasonably warm weather. In particular, the market for hot beverage products
and certain of our other products was adversely affected in 2003 as a result of
the unusually hot summer in the United Kingdom. However, sales of certain of
our products, such as pickles, may increase during warm weather and this may
partially offset the negative effect that such weather may have on other parts
of our business. 9




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Premier Foods plc We are exposed to currency exchange risks. Although
83% of our business is conducted in the United Kingdom, we have
operations in France and the Netherlands. We source raw materials from
countries around the world and export our products to various countries.
Therefore, our financial position and results of operations are subject to
currency transaction risk. Our operating subsidiaries incur currency
transaction risk whenever they enter into either a purchase or sale transaction
using a currency other than pounds sterling. We enter into forward currency
contracts to hedge partially against our exposure to foreign currency exchange
rate fluctuations in the purchase of raw materials and in our export business.
This hedging reduces our exposure to short-term volatility in exchange rates.
However, sustained movement in exchange rates will increase or decrease the
sterling value of our foreign currency-denominated purchases and sales, and we
cannot guarantee that exchange rate fluctuations will not have an adverse
effect on our results of operations. With respect to currency translation risk, the financial condition and
results of operations of our non-UK businesses are measured and recorded in the
relevant domestic currency of the jurisdiction in which the business is located
and then translated into pounds sterling for inclusion in our consolidated
financial statements. The exchange rate remained comparatively stable during
2000, 2001 and most of 2002. However, since September 2002, sterling has
depreciated against the euro from
1.59 to
1.49 at June
29, 2004. (Closing rate
June 29, 2004 as reported in the Financial Times). If this depreciation is
sustained it will have a positive impact on our sales and operating profits as
reported in pounds sterling in subsequent periods. Approximately 16% of the revenues of our continuing businesses in 2003
were denominated in currencies other than pounds sterling. In addition, a
portion of our expenses was denominated in currencies other than pounds
sterling. Our financial condition and results of operations, reported in
pounds sterling, may therefore be affected by fluctuations in the value of the
local currencies in which we transact business. Furthermore, many of our raw
materials are obtained from sources outside the United Kingdom and therefore
such costs are incurred in currencies other than the pound sterling. While we
engage in foreign exchange hedging transactions, we cannot assure you that
exchange rate fluctuations will not have a material adverse effect on our own
financial position. The final stage of the European Economic and Monetary Union (Stage III)
began on January 1, 1999 in 11 E.U. Member States. The 11 participating
countries adopted fixed conversion rates between their existing currencies and
the euro, the currency that has been adopted as their common legal currency,
and then on January 1, 2002 converted their legacy currencies into the euro at
the fixed conversion rates. Euro notes and coins were introduced on January 1,
2002, and the legacy currencies ceased to be legal tender by February 28, 2002.
The United Kingdom is not currently a Stage III participant, although the U.K.
government has stated that the United Kingdom might join the single currency at
a later date. If the United Kingdom adopts the euro, the euro will replace the
pound sterling as the United Kingdoms legal currency and sterling-denominated
Notes will be effectively redenominated into euro. France and Holland participated in Stage III, and have converted their
legacy currencies into the euro. The value of our revenues and assets
denominated in euro will therefore decline relative to revenues and assets that
are denominated in other currencies, such as the pound sterling or the dollar,
if the value of the euro declines. Our substantial leverage could adversely affect our financial well-being. As of December 31, 2003 we had total debt net of cash of £513.0 million.
We anticipate that we will continue to maintain considerable debt for the
foreseeable future. Our substantial leverage poses the risk that a significant
portion of our cash flow from our operations will have to be dedicated to
servicing our debt; that we may have a much higher level of debt than certain
of our competitors, which may make it difficult for us to pursue our business
strategy; and that our debt level may limit our ability to react to changing
market conditions, changes in our business and the industry in which we
operate. Our debt agreements, which include the Notes, contain significant
restrictions limiting our flexibility in operating our business. Various
covenants contained in our debt agreements limit or may limit our ability to
pay dividends or make other distributions to our shareholders; use assets as
security in other transactions; make certain asset dispositions; make
investments; and enter into transactions with affiliates other than on
arms-length terms. Our ability to generate the cash needed to service our debt depends on certain
factors beyond our control. The future success of our operations will in large part dictate our
ability to make scheduled payments on, and satisfy, our debt obligations,
including the Senior Credit Facility. Our future operating performance will 10




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Premier Foods plc be affected by general economic, competitive, market, business and other
conditions, many of which are beyond our control. To the extent we are not able
to fund any principal or interest payments when due from cash flow from
operations or our existing facilities, we may be required to refinance this
debt pursuant to credit facilities and/or the issue of new debt and equity
securities in the capital markets. Any failure to raise the additional funds
necessary to achieve this would result in a default under the relevant debt
obligation. We may not be able to refinance any of our debt, obtain additional
financing or sell assets on commercially reasonable terms or at all. Our past and present operations may prove harmful to the environment and any
related environmental costs could have an adverse effect on our results of
operations. Our past and present business operations and ownership and operation of
property are subject to a broad range of environmental laws and regulations in
the jurisdictions in which we operate. These laws and regulations impose
increasingly stringent environmental protection standards on us and affect,
among other things, air emissions, waste water discharges, the use and handling
of hazardous materials, noise levels, waste disposal practices and
environmental clean-up. As a result, we may be exposed to substantial
environmental costs and liabilities, including liabilities associated with
divested assets and past activities. In addition, future developments such as
changes in laws or environmental conditions may increase environmental costs
and liabilities and could have an adverse effect on our results of operations. Material acquisitions
made by us may have an adverse effect on our results of
operations. We have made several acquisitions in recent years and follow a strategy of
focusing on branded acquisitions. Any future material acquisition may
significantly affect our results of operations. Furthermore, any new
acquisitions will require the attention of our management and may require the
diversion of other resources. We cannot assure you that we will be able to
manage future acquisitions profitably, or to integrate such acquisitions
successfully, without substantial costs, delays or other problems. In addition,
we cannot assure you that any companies acquired will achieve levels of
profitability that will justify the investment we make in them. Our ability to
pursue our strategy and expand our business in the future may be affected if we
are unable to identify and consummate acquisitions and integrate our
acquisitions successfully. The loss of key senior personnel could adversely impact our results of
operations. Our performance depends significantly on the efforts and expertise of our
key senior personnel. The unexpected loss of the services of one or more of
these individuals could have an adverse effect on our operating results. There
can be no assurance that we will rapidly be able to replace key senior
personnel if necessary in the future. Product quality and safety issues may result in damage to the reputation of our
brands and the termination of agreements or licenses to operate one or more of
our brands and may affect our relationship with our customers. Our products are subject to a number of supply and manufacturing
processes. A failure to control the quality of these processes, or the
occurrence of some other, perhaps external, event (for example, a third-party
contamination or tampering incident), may result in the need to take remedial
action (such as issuing warnings or withdrawing one or more of our product
batches). This may harm our relationships both with end consumers of our goods
and with our customers and may, where the product is branded, damage the
reputation of the relevant brand. If the brand is manufactured under agreement
or license, such a quality control failure may result in the termination of
that agreement or license. Any of these circumstances may have an adverse
effect on our results of operations. Certain of our intellectual property rights could be challenged or lapse. Our principal trademarks are registered in the United Kingdom, and we have
trademark registrations for various products in more than 100 countries. While
we intend to enforce our trademark and licensing rights against infringement by
third parties, our actions to establish and protect our trademark and license
rights may not be adequate to prevent imitation of our products by others or to
prevent others from seeking to block sales of our products which in their
opinion violate their trademarks and proprietary rights. If a competitor were
to infringe on trademarks or licenses held by us, enforcing our rights would
probably be costly and could potentially divert funds and resources that could
otherwise be used to operate our business. We may not be successful in
enforcing our intellectual property rights and this may adversely affect our
results of operations. 11




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Premier Foods plc Our pension expenses are based on actuarial assumptions and may prove more
costly than currently anticipated, the market value of our pension assets could
decline and our change to preparing our consolidated financial statements in
accordance with IFRS could affect our pension costs. In
May 2004, our two U.K. occupational pensions schemes,
together with the Hillsdown Foods Group pension scheme, were merged to
form the Premier Foods Pension Scheme (the PF Scheme). The PF Scheme provides
benefits on a defined (final salary) basis. Contribution levels to the PF
Scheme are determined by the Group with the agreement of the trustees, acting
on the advice of the scheme actuary. Various assumptions, which attempt to
anticipate future events are used by the scheme actuary in calculating the
expense and liabilities related to the PF Scheme. Actual experience may differ
from the actuarial assumptions used by the scheme actuary due to the
interaction of, among other things, changing market and economic conditions,
higher or lower withdrawal rates or longer or shorter life expectancy. As at
December 31, 2003, under FRS 17 and based on the actuarial assumptions, the
aggregate market value of the assets in our two predecessor U.K. defined
benefit (final salary) pension schemes was £197.3 million and our pension
liabilities were assessed at £205.9 million resulting in an estimated combined net
deficit under FRS 17 of £8.6 million, which after deferred tax assets results
in a net deficit of £6.0 million. For a discussion of the assumptions used to
calculate this deficit, see Note 6 to the consolidated financial statements
included elsewhere in this Annual Report. In May 2004, we made a one-off £10.0
million cash contribution to the PF Scheme. We also intend to make ongoing
cash contributions annually (over and above usual contributions to meet the
cost of future accrual) over an appropriate period to reduce the deficit in the
PF Scheme. If there is a
significant adverse change in the market value of our pension assets this
deficit may increase and we may need to increase our pension contributions,
both of which could have an adverse impact on our financial condition and
results of operations. In accordance with European Union regulation, we expect to prepare our
consolidated financial statements for the financial year ending December 31,
2005 and thereafter in accordance with International Financial Reporting
Standards (IFRS), rather than current U.K. GAAP and this change may also
affect our pension costs. The operation of our business is influenced by Hicks Muse, and the interests of
Hicks Muse may conflict with the noteholders interests. Hicks Muse controls approximately 93.6% of the total shares issued by
HMTF Premier Limited. The remaining 6.4% of HMTF Premier Limited is controlled
by a group of third-party co-investors. HMTF Premier Limited, a limited
company incorporated in the Cayman Islands, is the indirect beneficial owner of
100% of the ordinary shares of Premier Investments, which indirectly owns 100%
of the shares of Premier. Accordingly, Hicks Muse has a great deal of
influence over our management policies and the power to control all matters
submitted to a vote of our shareholders. In the event that circumstances arise
in which the interests of Hicks Muse conflict with your interests as the
holders of the Notes, you could be disadvantaged by the actions that Hicks Muse
may seek to pursue. 12




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Premier Foods plc 
 Item 4. INFORMATION ON THE COMPANY  A.
    
    History and Development of the Company Premier Foods plc was incorporated on May 12, 1999 in England and Wales as
a public company with limited liability under the name of Queensbury Finance
plc. On July 15, 1999, its name was changed to Premier International Foods plc
and changed again to Premier Foods plc on September 23, 2002. Both Premier and
its wholly owned subsidiary, Premier Financing, were formed as financing
vehicles in connection with Hicks Muses acquisition of Premier Holdings in
August 1999. Premier Holdings was a holding company with operating
subsidiaries engaged in the grocery, furniture and poultry businesses. As part
of this acquisition, Premier Holdings undertook a reorganization in which it
transferred its furniture and poultry businesses to other entities controlled
by Hicks Muse, and Premier Holdings was recapitalized as a grocery business on
a stand-alone basis. On October 29, 1999, Premier Holdings undertook a further
reorganization in which the parent company of Premier Holdings, HMTF Premier
Limited, made a gift to it of 100% of the ordinary share capital of Premier and
in turn Premier Holdings transferred all of its subsidiaries (with the
exception of JJ Yates & Co Limited and Citadel Insurance Limited) to Premier
for which it received in consideration £60.0 million of newly issued ordinary
shares in Premier. Premier in turn transferred those subsidiaries to Premier
Financing for which it received in consideration £60.0 million of newly issued
ordinary shares in Premier Financing. Since its acquisition by affiliates of Hicks Muse in 1999, the Group has
executed a substantial operational restructuring and acquisition program
designed to reduce costs, integrate existing parts of the business and refocus
the Group as a leading supplier of branded and retailer brand ambient grocery
products in the United Kingdom. The initial phase of this restructuring program consisted primarily of an
integration and cost reduction exercise involving the establishment of a single
management structure for the whole of the business, plant rationalizations,
headcount reductions and the integration of various administrative functions.
In January 2001 we sold The Horizon Biscuits Company Limited, our biscuits operations, to Eubisco
Limited (now Burtons Food Group Limited), a company controlled by affiliates
of Hicks Muse, which wished to consolidate their biscuit businesses, and in
February 2001 we sold F E Barber Limited, our wines and spirits subsidiary. In
addition, since 2001 we have exited from two other small, non-core businesses.
This phase of the restructuring program was largely completed by the middle of
2001. In 2001 we made three small acquisitions of businesses which added to our
principal product segments, enhanced our category scale and led to synergistic
cost reductions:   In April 2001, we acquired the convenience foods, pickles and
sauces business of Stratford-upon-Avon Foods Limited (SonA) for
£12.9 million. In September 2001, we acquired the Lift instant lemon tea
business from Northern Foods for £8.3 million. In October 2001, we acquired the business of Nelsons of
Aintree Limited (Nelsons), a manufacturer of sweet preserves, from
ABF for £7.5 million. All of the acquisitions that we made in 2001 have been integrated into our
existing operations. Since 2001, our senior management team has been significantly
strengthened. Robert Schofield joined the Group in June 2001 and was appointed
as Chief Executive in January 2002. Prior to joining Premier, Mr. Schofield
served as Managing Director for United Biscuits UK, where he directed both the
McVities and KP Foods businesses. Paul Thomas was appointed as the Groups
Finance Director in June 2002. Prior to joining Premier, Mr. Thomas was the
Finance Director of Coors Brewers (formerly Bass Brewers). In addition,
external candidates, each with significant branded product experience, were
appointed to our operational board in the positions of Marketing Director,
Commercial Director (since appointed Managing Director of MBM, our potato
packaging and marketing businesses) and Operations Director and an internal
candidate was appointed as Sales Director. The next tier of senior management
was also strengthened in a number of key areas. For more information on our
management, see Item 6. Directors, Senior Management and Employees  Directors
and Senior Management. Following the execution of our initial restructuring program and the
changes to our management team, we have driven the profitable growth of our
business through developing our branded portfolio, growing our relationships
with our customers, creating brands with critical mass to improve the
efficiency of our marketing spend and continuing to rationalize the cost base
of the business. 13




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Premier Foods plc As part of this strategy, we have made two acquisitions of complementary brands
and certain associated manufacturing assets:  
    
    In May 2002, we acquired the ambient foods business in the
United Kingdom of Nestlé SA (Nestlé) for a net consideration of
£132.2 million. The acquired business added six category leading
brands to our existing brand portfolio, enhancing our offering in
the pickles, sweet spreads and ambient dessert categories.
    
    In December 2003, we acquired the ambient desserts business
in the United Kingdom and the Republic of Ireland of Unilever
Bestfoods U.K. Limited (Ambrosia) for a net consideration of
£106.3 million. The acquired business added the category-leading
Ambrosiacustard and milk puddings brand to our offering and
strengthened our ambient desserts product portfolio. The administrative functions of Nestlé were integrated into our existing
business by December 31, 2002. Following a review of our manufacturing network,
we closed our facility in Hadfield in the first quarter of 2004 and its
operations were integrated into our existing spreads and desserts factory in
Histon and our pickles operation in Bury St. Edmunds. The integration of
Ambrosia was completed by the end of the first quarter of 2004 and the business
has been absorbed into our existing operations. In early 2004, we commenced a restructuring program at MBM, our potato
packing and marketing business, to enhance MBMs integration with Premiers
grocery business, thereby enabling MBM to benefit from Premiers scale, and
enabling Premier to utilize MBMs vegetable procurement expertise. In the first half of 2004, following consultation with the workforce, we
announced plans to close our Edinburgh facility and transfer production to our
Moreton facility. This transfer is expected to be completed by December 2004. We
are currently in negotiations to sell Materne Boin S.A.S. which
operates our spreads and desserts business in France
(Materne) to funds advised by Hicks Muse,
affiliates of which are controlling parties of Premier. Materne had sales of £96.8
million for the year ended December 31, 2003. In summary, since 1999 the Group has been transformed from a disparate
group of food manufacturing companies within the Hillsdown Holdings plc
conglomerate to a focused manufacturer and marketer of food products directed
by an experienced management team with a well-defined strategy. For information regarding acquisitions and dispositions of our material
assets and our principal capital expenditures and divestitures, see Item 5.A.
Operating Results and Item 5.B. Liquidity and Capital Resources. Our registered office is located at 28 The Green, Kings Norton,
Birmingham, B38 8SD, United Kingdom and our telephone number is +44 121 458
2403. Our principal executive office is located at Premier House, Centrium
Business Park, Griffiths Way, St. Albans, Hertfordshire, AL1 2RE, United
Kingdom and our telephone number is +44 1727 815 850. We have appointed CT
Corporation System, 111 Eighth Avenue, New York, New York 10011, as our agent
to receive service of process.  B.
    
    Business Overview Overview We are a leading U.K. manufacturer and marketer of shelf-stable or
ambient grocery products and one of the largest suppliers of grocery products
in the United Kingdom. We manufacture and market grocery products for the
retail grocery and out-of-home markets in three principal product segments:  
    
    convenience foods, pickles and sauces;
    
    tea and beverages; and
    
    spreads and desserts. We also operate a potato packing and marketing business in the United
Kingdom, supplying the retail grocery, out-of-home and food manufacturing
markets. Our branded products include Ambrosiacustard and milk puddings, Branston
pickles, Typhootea, Hartleyspreserves, Galeshoney and lemon curd, Crosse &
Blackwellconvenience foods, Sun-Patpeanut butter, Sarsonsvinegar, Haywards
pickles, Smashinstant mashed potato, Marvelpowdered milk creamer and
Waistlinesalad dressings, soups and cooking sauces. In addition, we produce
Cadburycocoa-based beverages, HPcanned foods, Rowntreesjelly and Loyd
Grossmancooking sauces, soups and salad dressings under 14




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Premier Foods plc agreement or license. We also produce a range of retailer brand products,
principally for the major multiple retailers. Our broad portfolio of market-leading branded products, and our retailer
brand products, together provide us with stable sales and cash flow and give
us a platform for organic growth in our branded products by means of product
innovation and product line extension. As one of the largest suppliers of
ambient grocery products in the United Kingdom, we have established
relationships with our principal customers, the major multiple retailers, and
we are able to realize economies of scale in sourcing of raw materials,
manufacturing, distribution and marketing. Recent Developments The administrative functions of Nestlé were integrated into our existing
business by December 31, 2002. Following a review of our manufacturing network,
we closed our facility in Hadfield in the first quarter of 2004 and its
operations were integrated into our existing spreads and desserts factory in
Histon and our pickles operation in Bury St. Edmunds. In December 2003, we acquired Ambrosia for a net consideration of £106.3
million. The acquired business added the category-leading Ambrosiacustard and
milk puddings brand to our offering and strengthened our ambient
desserts
product portfolio. The integration of
Ambrosia was completed by the end of the first quarter of 2004 and the business
has been absorbed into our existing operations. In
early 2004, we commenced a restructuring programme at MBM, our potato
packing and marketing business, to enhance MBMs integration with our grocery
business, thereby enabling MBM to benefit from Premiers scale, and enabling
Premier to utilize MBMs vegetable procurement expertise. In the first half of 2004, following consultation with the workforce, we
announced plans to close our Edinburgh facility and transfer production to our
Moreton facility. This transfer is expected to be completed by December 2004. We are currently in negotiations to sell our Materne spreads and desserts
business in France to funds advised by Hicks Muse affiliates of which are
controlling parties of Premier. Materne had sales of £96.8 million for the year
ended December 31, 2003. On June 23, 2004, we announced that we expect to redeem the Notes, on or
after their first call date, September 1, 2004. Despite this expectation, we
cannot assure you that such redemption will occur as planned. In summary, since 1999 the Group has been transformed from a disparate
group of food manufacturing companies within the Hillsdown Holdings plc
conglomerate to a focused manufacturer and marketer of food products. We
believe that the Group now has a strong and efficient business directed by an
experienced management team with a clear and established strategy. Industry Product Overview The U.K. food grocery market had sales of £49.2 billion in the retail
market channel in 2003. The market comprises three principal categories,
differentiated by storage conditions: ambient; chilled and frozen. In addition,
there are four specialist categories of beer, wine and spirits; fresh produce;
fresh meat and fish; and bakery. Each of the categories has different growth
characteristics influenced by consumer preferences and trends, product and
packaging innovation, product quality and price. The ambient category, with retail sales of £14.0 billion in 2003, is the
largest category, and can be further segmented into sectors such as soft
drinks, confectionery, tea and coffee, canned foods, breakfast cereals and
sauces and pickles. These sectors show varying rates of growth, reflecting the
shift in consumer preferences towards convenience, healthy eating and
indulgence, resulting in 3.7% annual growth in retail sales value in 2003 for
the whole of the ambient category. Retailer brand participation in the category
is relatively low, at 27% of retail sales value in 2003. The chilled category, with retail sales of £11.7 billion in 2003, is the
second largest category. The chilled category includes sectors such as dairy,
ready meals and cooked and preserved meats and pre-prepared salads. It is one
of the fastest-growing food categories, with 6.8% annual growth in retail sales
value in 2003, principally driven by its convenience element and consumers
perception of quality. The chilled category requires high levels of capital
investment. Retailer brands have the highest participation among food
categories, representing 56% of retail sales value in 2003. 15




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Premier Foods plc The
frozen food category, with retail sales of £4.0 billion in 2003, is
affected by the growing consumer preference towards chilled foods. In most
frozen sectors where a chilled alternative exists, there has been a year-
on-year decline in retail sales value. Growth in the frozen category has
principally stemmed from the ice cream and frozen dessert sectors; however, the
category exhibited an overall decline in retail sales value of 1% in 2003.
Retailer brand participation in the frozen food category is relatively strong,
representing 44% of retail sales value in 2003. The specialist categories of beer, wine and spirits; fresh produce; fresh
meat and fish; and bakery have distinctly different growth characteristics
based on factors such as disposable income, perceived health concerns and
product availability. Channel Overview The grocery market in the United Kingdom can be divided into two main
channels, retail and out-of-home, with a number of subdivisions in each
channel. The most significant retail channel consists of the major multiple
retailers, which account for 71% of the retail grocery market, and which
experienced annual retail sales growth of 7.3% in 2003. The only other
significant retail channel is the convenience format, which holds a 19% share
of the total retail grocery market. The convenience store format has shown
growth in recent years through the development of buying consortia and
convenience multiples, and the increasing participation of major multiples
through acquisition or organic growth. The out-of-home channel includes food service operators, cash-and-carry
operators and delivered wholesalers. This channel had an aggregated sales value
of £49.5 billion in 2003. The food service channel, which provides meals for
sale away from the home, such as restaurants, pubs, hotels, catering,
hospitals, declined slightly in 2003. Cash-and-carry operators and delivered
wholesalers jointly form the wholesale market and primarily serve the retail
channel. In 2003, the sales value of the market was £16.4 billion, with
cash-and-carry operators representing 57% of the wholesale market. Delivered
wholesalers experienced annual sales growth of 4.5% in 2003 compared to 1.1% for
cash-and-carry operators. The ingredients channel is an alternative route to market for food
manufacturers by which they provide semi-processed raw materials to other
manufacturers. Company Products The following table sets out our sales by geographical origin and
geographical market for each of 2001, 2002 and 2003. The table has been
extracted without material adjustment from and should be read in conjunction
with our consolidated financial statements included elsewhere in this Annual
Report. Sales by Geographical OriginYear EndedDecember 31,2001
    
    2002
    
    2003(£ million)United Kingdom
    
    
    710.7
    
    
    
    746.1
    
    
    
    745.2Mainland Europe
    
    
    121.8
    
    
    
    119.3
    
    
    
    125.4Continuing Operations
    
    
    832.5
    
    
    
    865.4
    
    
    
    870.6Discontinued Operations
    
    
    4.1
    
    
    
    0.2
    
    
    
    Total
    
    
    836.6
    
    
    
    865.6
    
    
    
    870.6
 Sales by Geographical MarketYear EndedDecember 31,2001
    
    2002
    
    2003(£ million)United Kingdom
    
    
    699.6
    
    
    
    724.6
    
    
    
    726.4Mainland Europe
    
    
    124.4
    
    
    
    129.3
    
    
    
    136.1Other Countries
    
    
    8.5
    
    
    
    11.5
    
    
    
    8.1Continuing Operations
    
    
    832.5
    
    
    
    865.4
    
    
    
    870.6Discontinued Operations
    
    
    4.1
    
    
    
    0.2
    
    
    
    Total
    
    
    836.6
    
    
    
    865.6
    
    
    
    870.6
 16




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Premier Foods plc Products and Services We manufacture and market a range of leading ambient grocery products in
the United Kingdom. Our grocery business is organized into three principal
segments:  
    
    convenience foods, pickles and sauces;
    
    tea and beverages; and
    
    spreads and desserts. In addition, we are a leading marketer, grader and distributor of fresh
potatoes in the United Kingdom. We manufacture and market a broad range of grocery products under both
brand and retailer brand labels. Our branded and retailer brand products
accounted for approximately 52% and 48% respectively of our grocery product
sales in 2003 (2002: 49% and 51%; and 2001: 44% and 56%). Our grocery business manufactures and distributes products under the following brand names: Total BrandedCategorySegment
    
    Premier
    
    Product Description
    
    Position (5)Convenience foods,
    
    Branston
    
    Sweet pickles
    
    No. 1pickles and sauces
    
    Loyd Grossman(1)
    
    Cooking sauces
    
    No. 5HP(1)
    
    Baked beans, pasta
    
    No. 2Crosse & Blackwell
    
    Convenience foods
    
    N/ASarsons
    
    Vinegar
    
    No. 1Haywards
    
    Sour pickles
    
    No. 2Smash
    
    Instant mashed potato
    
    No. 2Waistline
    
    Low fat dressings
    
    No. 3Tea and beverages
    
    Typhoo
    
    Tea
    
    No. 4Cadbury(2)
    
    Cocoa-based beverages
    
    No. 1Marvel
    
    Powdered milk creamer
    
    No. 1Lift
    
    Instant tea
    
    No. 1Typhoo/London Fruit
    
    Fruit and herbal tea
    
    No. 2and Herb(3)Spreads
and dessertsU.K.
    
    Ambrosia
    
    Custard and milk puddings
    
    No. 1Hartleys
    
    Jam
    
    No. 2Hartleys/Chivers(4)/ Roses (1)
    
    Marmalade
    
    No. 2Rowntrees(1)
    
    Jelly
    
    No. 1Sun-Pat
    
    Peanut butter
    
    No. 1Gales
    
    Honey and lemon curd
    
    No. 2Spreads
and dessertsFrance
    
    Materne
    
    Compote
    
    No. 2Boin/Confipote
    
    Jam
    
    No. 2
   (1)
    
    Produced under license.(2)
    
    Manufactured and distributed under agreement.(3)
    
    Products under the London Fruit and Herbbrand are being transferred to
our Typhoobrand in the United Kingdom as part of the development of our
Typhoomasterbrand.(4)
    
    Products under the Chiversbrand are being transferred to our Hartleys
brand in the United Kingdom as part of the development of our Hartleys
masterbrand.(5)
    
    Source: ACNielsen, Scantrack December 2003. In
2003, U.K. retail sales, principally through the major multiple retailers,
accounted for approximately 74% of our U.K. grocery product sales, with the
balance of our U.K. grocery product sales being to the food service, cash-and-carry
and delivered wholesalers, industrial and export sectors. Our MBM potato
business supplies potatoes to the major multiple retailers, the out-of-home
sector and food manufacturers. It also provides seed potatoes to potato
growers. 17




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Premier Foods plc Convenience Foods, Pickles and Sauces We are a leading manufacturer of convenience foods, pickles and sauces in
the United Kingdom, operating in the following categories: baked beans; canned
vegetables; sour and sweet pickles; cooking sauces; canned pasta; soup; malt
and speciality vinegars; salad dressings; and instant mashed potato. U.K.
retail sales in these sectors amounted to an estimated £1.9 billion in 2003.
Our brands include Branston, Loyd Grossman(under license), HP(under license),
Crosse & Blackwell, Sarsons, Haywards, Waistlineand Smash. The
following table gives the percentage of our U.K. branded sales in our
convenience foods, pickles and sauces segment for the 2003 financial year,
together with, for the 2003 financial year, the total market size of each
retail category and the percentage of that retail category that is comprised of
sales of our branded products: Premier BrandedU.K. Retail Category
    
    U.K. Category ShareU.K. Sales Branded %
    
    Size for 12 Months
    
    for 12 Months Endedin 12 Months to
    
    Ended December 31,
    
    December 31,Category
    
    December 31, 2003(1)
    
    2003 in £million(2)
    
    2003(2)Convenience foods
    
    
    28
    %
    
    
    973.3
    
    
    
    6
    %Sour and sweet pickles
    
    
    63
    %
    
    
    408.4
    
    
    
    13
    %Cooking sauces
    
    
    90
    %
    
    
    499.2
    
    
    
    6
    %Total: pickles and
cooking sauces
    
    
    69
    %
    
    
    907.6
    
    
    
    9
    %Overall total
    
    
    38
    %
    
    
    1,880.9
    
    
    
    8
    %
   (1)
    
    U.K. branded sales, as a percentage of our total
category sales, including retailer branded
sales. Source: Premiers accounting records.(2)
    
    Source: ACNielsen, Scantrack December 2003, using retail market value of
categories in which Premier participates. Convenience Foods.Our convenience foods categories include baked beans
and variants, canned vegetables, canned pasta, soups and instant mashed potato.
We believe that there is no single U.K. competitor that has a comparable scale
and product breadth to the Group across the convenience foods categories in
which we operate. The large capital base required to participate in the
convenience foods categories presents a barrier to entry to potential
competitors, but the ongoing production and distribution of ambient convenience
foods requires relatively low capital expenditure and allows high-capacity utilization
to be achieved. We believe that there are opportunities for long-term cost
reductions in our convenience foods categories, and that this is a stable
business offering respectable margins and strong cash generation. Baked Beans and Variants. We are the largest U.K. manufacturer by volume
in the £238.9 million U.K. canned baked bean and variants category. Our branded
sales in this category are principally under the HPbrand, the number two U.K.
brand of baked beans. We also manufacture baked beans and variants under
retailer brand labels. The total U.K. retailer brand market share in this category was
approximately 26% in 2003 of which we believe we contributed over 90%
in 2003. Although the
canned baked bean and variants category is relatively mature and stable, it is
the second largest of the categories within the convenience foods market in
which Premier participates, and we have successfully grew our total category
share to an estimated 34% through product innovation. We produce HPbranded
products under license; for further details, see  Intellectual Property
below. We have successfully transferred our baked bean meal products from the
HPbrand to our Crosse & BlackwellHunger Breaks brand, which includes the
All-Day Breakfast and The Full Monty sub-brands. We seek to grow by further
developing product extensions and variants that can be sold under both our
brand names and under retailer brands. Canned Vegetables. We are the largest U.K. manufacturer of canned
vegetables in the £202.4 million U.K. canned vegetables category. This includes
products such as peas, carrots and pulses but excludes tomatoes and sweetcorn.
The majority of our sales of canned vegetables are retailer brand, although we
also have a branded presence under a variety of brand names that are currently
being transferred to the Crosse & Blackwellbrand. We believe that retailer
brand products comprised approximately 60% of total U.K. retail sales in this
category in 2003. Other Convenience Foods.We manufacture products in the categories of
canned pasta, soups and instant mashed potato. As with baked beans, the canned
pasta category is mature, and we therefore seek to expand our offering through
the introduction of products that are extensions of our established products.
For example, using character licensing, we introduced Scooby Dooand Bob the
Builderpasta meals in 2003. We also 18




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Premier Foods plc manufacture the U.K. category-leading
instant mashed potato brand, Smash, as well as canned meats. Pickles and Sauces.Our pickles and sauces categories include sour and
sweet pickles, cooking sauces, malt and speciality vinegars and salad
dressings. We believe that our sauces category offers the potential for further
innovation and growth, and that there is potential to innovate in the pickles
category behind the Branstonbrand. The pickles and table sauces category
experienced 4% per annum growth in sales between 2001 and 2003. Sour and Sweet Pickles. We manufacture Branstonpickle, the leading brand
in the sweet pickle category, in which we had a category share of
approximately 81% in 2003. The Branstonrecipe remains unchanged since its launch in
1922, and the brand has shown itself capable of successful product extension.
For example, in 2001, prior to its acquisition by Premier, Branstonentered the
table sauce market with Branston Smooth and
more recently we have enjoyed a successful licensing initiative with Walkers
crisps Great British Flavours range. In 2003, we extended the Branstonbrand
into the sour pickle category, launching pickled onion, beetroot and piccalilli
products, supported by a successful television advertising campaign, and in
2004 we introduced easy-squeezy bottles for Branstonsweet pickles. We
believe that there is an opportunity to turn Branstoninto a larger brand by
extending it into adjacent categories of the pickle market. The launch of the Branstonsour pickles range builds upon the number two
position of our Haywardsbrand in this category. We believe we are the leading
manufacturer of sour pickles in the United Kingdom, offering both branded and
retailer brand products. Cooking Sauces. The cooking sauces category is valued at more than £499.2
million. Approximately 90% of our 2003 grocery sales in this category are
attributable to branded sales, mainly through the Loyd Grossmanbrand, which
offers good margins and increasing market share, having experienced over 40%
compound annual sales growth in the period 2001 to 2003. We expect
this
the sales
growth in Loyd Grossmansauces to continue but at a lower rate. Cooking sauces are largely
split between Italian pasta and Indian, Chinese and Thai sauces. Loyd Grossman
sauces offer consumers a range of flavors within all of these sauce types. The
success of Loyd Grossmancooking sauces has enabled us to extend the brand
into a new line of soups and dressings which were successfully launched into
the market during 2003. We produce Loyd Grossmanbranded products under
license; for further details, see  Intellectual Property below. Recently, we
have also introduced Crosse & Blackwelland Waistlinecooking sauces, targeting
the traditional English and low-fat sectors of the category. Other Pickles and Sauces. We manufacture products in the categories of
malt and speciality vinegars and salad dressings. We are the largest branded
brewer of malt and speciality vinegars in the United Kingdom. The
category-leading Sarsonsbrand is synonymous with malt vinegar in the United
Kingdom, originating in 1794, and Sarsonsenjoys significant presence in the
out-of-home channel. We also manufacture Dufrais, a speciality vinegar brand.
We manufacture Waistline, the third largest brand in the U.K. low-fat salad
dressing category, which we have extended since its acquisition in 2002 to
include soups as well as cooking sauces, and we see potential for further
extension of this brand into other categories. Tea and Beverages We are one of the largest providers of hot beverage
products and powdered milk creamers in the United Kingdom. The products that we
manufacture are tea, hot chocolate, malted drinks and powdered milk creamers.
Our principal brands include Typhoo, Cadbury(under agreement), Lift, London
Fruit and Herband Marvel. Sales in the U.K. of tea, hot chocolate and malted drinks have been
relatively static over recent years, although sales were adversely affected in
2003 as a result of the unusually hot summer in the United Kingdom. 19




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Premier Foods plc The following table gives the percentage of our U.K. branded sales in our tea
and beverages segment for the 2003 financial year together with the total size
of each retail category and the percentage of that category that is comprised
of sales of Premiers branded products: U.K. Retail Category
    
    Premier BrandedSize for 12 Months
    
    U.K. Category ShareU.K. Branded Sales % in 12
    
    Ended December 31,
    
    for 12 Months EndedMonths to December
    
    2003 in £
    
    December 31,Category
    
    31, 2003(1)
    
    million(2)
    
    2003(2)Tea
    
    
    76
    %
    
    
    556.6
    
    
    
    10
    %Beverages
    
    
    83
    %
    
    
    120.1
    
    
    
    39
    %Total
    
    
    79
    %
    
    
    676.7
    
    
    
    15
    %
   (1)
    
    U.K. branded sales, as a percentage of our total
category sales, including retailer branded
sales. Source: Premiers accounting records.(2)
    
    Source: ACNielsen, Scantrack December 2003, using retail market value of
categories in which Premier participates. Tea. We are the third largest branded supplier of tea in the £556.6
million U.K. tea market. Branded sales, principally under the Typhoobrand,
represented 76% of our total tea sales in 2003. In addition to traditional tea,
we also manufacture Lift, the largest instant lemon tea brand in the United
Kingdom. We have a strong position in the decaffeinated tea category with the
Typhoobrand and in the fruit and herbal infusion category with London Fruit
and Herb, which is the second largest brand of fruit and herbal infusions in
the United Kingdom. We intend to continue to drive our decaffeinated and fruit
and herbal infusion offerings. London Fruit and Herbis currently being
transferred to the Typhoobrand in the United Kingdom as part of the
development of our Typhoomasterbrand. In addition to marketing tea for the
retail grocery market, we also pack and market tea for sale to the catering and
vending trades. We are the only U.K. manufacturer with a mixed branded and retailer
brand tea offering. In the past three years we have successfully repositioned
our tea business, by exiting underperforming retailer brand contracts, changing
our promotional strategy to seek to differentiate Typhoofrom other leading
brands and by extending the Typhoobrand to specialty teas. Hot Chocolate and Malted Drinks. We are the leading supplier in the
£104.2 million U.K. hot chocolate and malted drinks category. We hold the
number one position in the branded hot chocolate and malted drinks category,
with a category share of over 38% in 2003, principally through Cadburybranded products
which offer good margins. Growth in the U.K. hot chocolate and malted drinks
category is primarily due to the strong growth in instant products (which are
mixed with water rather than milk), where the Cadbury Chocolate Breakand
Highlightsbrands are the category leaders in their respective standard and
diet instant hot chocolate categories. We manufacture and distribute Cadbury
cocoa-based beverages under agreement; for further details see 
Intellectual Property below. Other Beverages. We are the leading supplier in the £15.9 million
powdered milk creamer category in the United Kingdom. We had a branded
category share of over 37% in 2003, and sell products principally under the Marvel,
Country Daleand Coffee Complimentbrand names. Spreads and Desserts We are the largest manufacturer of spreads in the
United Kingdom, with leading positions across a variety of product categories.
We compete in the jam, marmalade, honey, lemon curd and peanut butter
categories. In the United Kingdom, we manufacture a comprehensive range of
branded products under the Hartleys, Roses, Gales, and Sun-Patbrands. As a result of our acquisition of the Ambrosia business in December 2003,
we are now the leading manufacturer of ambient custard and milk puddings in the
United Kingdom and the Republic of Ireland. These products are marketed under
the Ambrosiabrand for custard and milk puddings. We also manufacture jelly
(gelatin) under the Rowntreesbrand. 20




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Premier Foods plc The
following table gives the percentage of our U.K. branded sales in our
spreads and desserts segment for the 2003 financial year together with the
total size of each retail category and the percentage of that category that is
comprised of sales of Premiers branded products: Premier BrandedU.K. Retail Category
    
    U.K. Category ShareU.K. Branded Sales % in 12
    
    Size for 12 Months
    
    for 12 Months EndedMonths to December
    
    Ended December 31,
    
    December 31,Category
    
    31, 2003(1)
    
    2003 in £ million(2)
    
    2003(2)Spreads
    
    
    48
    %
    
    
    225.2
    
    
    
    18
    %Desserts
    
    
    65
    %
    
    
    267.6
    
    
    
    32
    %Total
    
    
    54
    %
    
    
    492.8
    
    
    
    26
    %
   (1)
    
    U.K. branded sales, as a percentage of our total
category sales, including retailer branded
sales. Source: Premiers accounting records.(2)
    
    Source: AC Neilsen, Scantrack December 2003, using retail market value of
categories in which Premier participates. Spreads. We are the leading provider of jam and marmalade in the £143.4
million U.K. preserves category. We market our jams and marmalades principally
under the Hartleysbrand, which we are developing as part of our
masterbrands strategy by extending the brand across a number of product and
packaging formats. As part of this exercise, we are transferring our Chivers
marmalade brand in the United Kingdom to the Hartleysbrand and in 2003
redefined the Hartleysbrand into Family and Best to target the value and
premium segments respectively of the jam category and to seek
category share growth. We market specialty marmalades under the Rosesbrand
name. We manufacture Gales, which is the number two honey brand in the United
Kingdom, where we had a category share of 20% in 2003. Galesis also the number one
curd brand. We manufacture Sun-Pat, the number one peanut butter in the United
Kingdom, which enjoyed a category share in 2003 of approximately 35%. In 2003, we
launched Sun-Patchoc-chip peanut butter as a line extension. We
believe we are the largest supplier of retailer brand spreads in the U.K. market,
with retailer brand sales representing approximately 52% of our spreads sales
in 2003. The spreads category grew at a rate of 3% per annum in the years 2002
and 2003. We are one of the leading manufacturers of preserved fruit products in the
French grocery market. We are the leading producer of ambient fruit compote,
with a category share of 51%, driven by the number one Maternebrand.
Approximately 90% of our compote sales are attributable to the Maternebrand.
We are also the second largest manufacturer of jam in the French market, with
a 24% share of the jam category by volume. We produce jam under the Boin, Materneand
Confipotebrands and also manufacturer retailer brand jam for French retail
customers. Approximately 22% of our total annual jam sales are
retailer brand
product. Compotes. The compote market in France is a growing segment, with sales
of almost £230 million in 2003, comprising fresh (chilled) and ambient
(shelf-stable) products. The sector is dominated by branded products. In
France, we sell compote under our Maternebrand, which has a market share of
27% of the combined fresh and ambient compote market. Desserts. We are the leading manufacturer of ambient custard and milk
puddings in the United Kingdom. These products are marketed under our Ambrosia
brand which we acquired in December 2003. The Ambrosiabrand enjoyed retail
sales of over £60 million in 2003 and had a brand share of approximately 60%.
We believe that Ambrosiashigh level of brand
recognition will enable us to
innovate behind the brand and to extend the brand into alternative products and
packaging formats, such as the single-serve and snack markets. We manufacture Rowntreesjelly, the number one jelly brand in the United
Kingdom, a category in which we have a share of 84%. The product is available
in tablet, ready-to-eat and dehydrated varieties, which include sugar-free
formats. Rowntreesready-to-eat jelly is ideally placed to capitalize on the
growing trends within the single-serve, lunchbox and snack markets. We produce
Rowntreesbranded products under license; for further details see
Intellectual Property below. We are planning to transfer our Rowntrees
jelly brand to the Hartleysbrand during 2004 and 2005. In addition, we manufacture fruit pie fillings and preserved fruits in
jars under the Hartleysbrand and market cornflour and cornflour-based
desserts under the Brown & Polsonbrand. We have recently launched a range of
fruit compote snack products under the Hartleysbrand, using foil pouches to
facilitate single servings. Potatoes We are the leading marketer, grader and distributor of fresh
potatoes in the United Kingdom. Our potato business, MBM, is divided into three
segments: (i) the provision of value-added packs of potatoes to 21




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Premier Foods plc food retailers, out-of-home suppliers and wholesale customers; (ii) the supply of potatoes to
chip, snack food and other potato product manufacturers; and (iii) the
provision of seed potatoes (including a number of exclusive seed partnerships
for various potato varieties) to potato growers. MBM has achieved preferred
supplier status with certain of its major retail customers and has
well-established relationships with major food processing companies. We are seeking to integrate further MBM with the rest of our business and
to alleviate retailer-driven pressure on margins. MBM should increasingly
benefit from the rest of the Groups sales and marketing skills, and we will
provide our processing skills as MBM seeks to extend its range to prepared
vegetables. We believe that MBM has the relationship and trading skills to
enable the Group to manage its vegetable procurement better. Sales and Marketing Our sales function operates through sales teams organized into national
account teams assigned to handle all of our products for each of our major
retail and out-of-home customers. Our consumer marketing function is organized
on a product group basis and is responsible for developing and implementing
consumer marketing strategies for all our brands. Operating between our sales
and consumer marketing functions is our customer marketing department, who
support the sales teams by organizing our in-store promotional activity,
coordinating with consumer marketing campaigns as necessary. The sales,
consumer marketing and customer marketing teams have dedicated finance support
to provide analysis of channel and product profitability and promotional
effectiveness. To enhance our relationships with our major customers, our customer
contact strategy includes peer-to-peer contact through various levels of the
business, including where possible at executive and board level. We have innovation and consumer insight departments, responsible for
developing new products and brand extensions and for providing analytical
support about the markets in which we operate and an export sales department to
develop overseas business. In 2003, within our selling and distribution costs we spent approximately
£29.0 million on television and print advertising and trade
promotions in the United Kingdom. These
promotions are aimed at increasing consumer awareness, building customer
loyalty and increasing the usage and purchasing frequency of our products. In
addition, in some categories, we assist our major multiple retailer customers
to design and implement marketing promotions for their retailer brand business,
in order to encourage further demand for our retailer brand products. We also
conduct trade promotions aimed at increasing our sales among grocery retailers,
delivered wholesalers, cash-and-carry operators and food service providers. Storage and Distribution We have 16 strategically located warehouse and storage facilities in the
United Kingdom, in addition to warehousing located at our manufacturing sites.
Five of these facilities are used by our convenience foods, pickles and sauces
and spreads and desserts businesses and three are used by our tea and beverages business,
with one further facility in Northern Ireland that services our full range of
products. We operate three of these facilities with the operation of the other
six facilities being contracted out to third parties. Our potato packing and
marketing business utilizes storage facilities at each of its six processing
sites and a further grading site. Our distribution operation has two main hubs. The northern hub distributes
principally tea and beverage products and the southern hub distributes
principally canned and jar products. We distribute our products predominantly
using third-party carriers who principally operate on a fixed price per tonne
basis. Our distribution links encompass 21 points of distribution, including
our production and warehouse facilities. Our distribution strategy aims to
minimize costs while meeting the needs of our principal customers, the major
multiple retailers. Raw Materials The primary raw materials used in our operations include packaging
materials, sugar, cocoa and certain cocoa-related products, tea, glucose, fats,
honey, peanuts, dairy products, seasonal and non-seasonal fruit and vegetables,
dried pulses, tomato paste and meat. With the exception of cocoa and certain
cocoa-related products, which we are contractually obliged to acquire
exclusively from Cadbury Limited, see Item 7. Major Shareholders and Related
Party Transactions  Related Party Transactions, our raw materials are
generally sourced from a number of different suppliers in the United Kingdom,
Europe, the United States, Asia and Africa. Our most significant packaging
costs are in relation to steel cans, and we source approximately three-quarters
of our cans from one supplier. We believe there are a number of alternative
suppliers for all of our can requirements, as well as for our other packaging
materials and primary raw materials. We participate in buying 22




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Premier Foods plc consortia with Burtons Food Limited, a company controlled by affiliates of Hicks Muse, and
with other third parties where appropriate to secure lower prices for raw
materials. See Item 7. Major Shareholders and Related Party Transactions 
Related Party Transactions. We do not generally enter into supply contracts
for terms of more than one year. A substantial portion of our raw material purchases is made in currencies
other than pounds sterling and accordingly we are subject to foreign exchange
risk in sourcing our raw materials. A portion of the raw materials we use are
traded as commodity products, the prices of which are subject to a number of
factors that are not in our control, such as quality, availability and demand. We manage our exposure
to foreign currency risk and fluctuations in these commodity prices through a
combination of currency derivative products and forward-purchasing contracts.
For additional information regarding our raw materials risks, see Item 3. Key
Information  Risk Factors  Given our dependence on raw
materials, an inability to pass price increases of raw materials on
to our customers or to sources raw materials of an acceptable type or
quality could adversely affect our results of operations.  Sugar supplies
are affected by the E.U. common agricultural policy, which sets sugar production
levels for Member States and a minimum euro intervention price. Packaging costs
are affected by the price of steel, glass, paper and board and the level of
competition within the industry. We operate flexible working practices in each
product category, aimed at minimizing the impact which the seasonal
availability of raw materials, such as fruits and vegetables, has on
production. Customers Our customer base is comprised primarily of grocery retailers, including
the major multiple retailers, convenience stores, discounters and
co-operatives. In addition, we also sell to delivered wholesalers, cash-and-
carry operators and food service providers, and our potato packing and
marketing business supplies food processors and potato growers. By customer
type and sales value, our U.K. sales in 2003 were made up as follows: (i) U.K.
retailers 70%; (ii) food service 8%, (iii) cash-and-carry and delivered
wholesalers 8%; (iv) ingredients 7%; (v) export 3%; and (vi) other 4%. Our
six largest U.K. customers accounted for 50% of our U.K. sales in 2003, with three
customers each accounting for over 10% of our sales during that period. Information Systems Our enterprise resource planning (ERP) systems comprise three principal
interfaced elements: (i) SOLAR, a bespoke sales order processing, distribution
planning and warehouse management system; (ii) GEAC System 21, for
manufacturing, purchasing and financial reporting; and (iii) AGILISYS for
forecasting, planning and scheduling. We use the COGNOS business reporting
intelligence system as a high-level management information system to access
information from our ERP systems. Marketing and customer relationship
management processes are supported by bespoke systems based on COGNOS and Lotus
Notes, and these enable us to monitor promotional spend and revenue, account
and product profitability. Our information systems infrastructure is based upon a hardware platform
of IBM AS/400s, with the management and location of this outsourced to a third
party. We have a wide area network connecting our office and factory locations. Intellectual Property We own a substantial number of registered and unregistered trademarks in
countries throughout the world for use in connection with the sale and
marketing of our branded products. Our principal trademarks are registered in
the United Kingdom, and we have trademark registrations for various products in
more than 100 countries. These trademarks are important in the aggregate
because brand name recognition is a key factor in the success of many of our
product lines. The current registrations of these trademarks are effective for
varying periods of time and may be renewed periodically, provided we comply
with all applicable laws. Our trademark registrations cover all our major brands, with the exception
of Cadbury, HP, Rowntreesand Loyd Grossman, which we license or distribute
and manufacture under agreement. Our agreement to manufacture and distribute Cadburycocoa-based beverages
expires in May 2006. Cadburycocoa-based beverages contributed £45.0 million of
our sales in 2003. This agreement is automatically renewable in 2006 unless
Cadbury Limited gives notice that it will not renew this agreement on or before
one year prior to the expiration of the initial term of the agreement. Cadbury
Limited have not served formal notice on us regarding nonrenewal of the
agreement, although in a letter dated April 30, 2003, Cadbury Limited expressed
its intention not to renew the agreement beyond 2006. It is the Companys present intention to seek to renew this agreement,
subject to it being in the Companys interests to do so. In the event that the
agreement is not renewed, the Directors intend to consider a number of
alternatives in order to mitigate the effect of the loss of this business.
These alternatives may include 23




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Premier Foods plc seeking to enter into alternative arrangements
with Cadbury Limited in relation to part of the business covered by the
existing agreement, investigating other branded or retailer brand opportunities
in the manufacture and marketing of cocoa-based beverages, re-deploying some of
the assets and capacity used for production under the agreement to other parts
and product lines of the Groups business or, if such actions are not
considered attractive, removing some of the costs associated with this
business. However, there can be no assurance that the Company will be
successful in wholly or partially mitigating any loss of business resulting
from nonrenewal of the agreement. Consequently, nonrenewal of this agreement,
or renewal on different terms, may have an adverse effect on our results of
operations. In connection with our manufacture and marketing of HPcanned baked beans
and pasta, we have been granted a license by HP Foods Limited to use the HP
brand name. The license is for a term of 10 years and is scheduled to expire in
March 2006. The license agreement contains no provision for renewal, and any
renewal is subject to the parties future intentions. We produce similar
products under the Crosse & Blackwellbrand. If the HPlicense was not to be
renewed in 2006, we believe we would be able to transfer a majority of our
offering under the HPbrand to the Crosse & Blackwellbrand. The acquisition of the U.K. ambient food business of Nestlé SA included a
license from Nestlé SA for the use of the Rowntreesbrand name in respect of
the production and sale of jelly. The license is scheduled to expire in June
2012. The license agreement contains no provision for renewal, and any renewal
is subject to the parties future intentions. It is our intention to transfer
the sale of jelly under the Rowntreesbrand to our Hartleysbrand as part of
our masterbrands strategy. We have been granted an exclusive, worldwide license to use the Loyd
Grossmanname on sauces, oils and dressings, accompaniments, toppings and
marinades for a term of 10 years, until December 2011. There are provisions to
extend the license to additional products. Sales of our HP, Rowntreesand Loyd Grossmanbranded products comprised,
in aggregate, around £60 million of our sales in 2003. In addition to the agreements and licenses described above, we also have
licenses for the use of the Roses, Cadburyand WeightWatchersbrand names on
certain of our jam, marmalade, chocolate milk drink and sweet spread products.
These branded products comprised, in aggregate, approximately £5 million of our
sales in 2003. From time to time, we also enter into royalty agreements with
various licensors in connection with our television and film tie-in products. For a further discussion regarding certain of our agreements and licenses,
see Item 3. Key Information  Risk Factors  Certain of our branded products are produced under agreements or licenses which
will expire and may not be renewable on terms acceptable to us. The reputation
of our licensed brands may be adversely affected if the reputation of our
licensors is damaged. Competition The grocery products supply business is highly competitive. We compete in
a substantial number of categories within the ambient grocery market, and the
size, nature and position of our competitors within these categories varies
substantially. Our competitors vary from category to category and include
multinational, national and smaller local players. Some of our competitors have
substantially greater resources and stronger market positions than we have. The
nature of the competition between manufacturers within a category is partially
dependent on the branded/retailer brand mix. In a category that is
predominantly branded, competition will be focused upon developing the consumer
appeal of the brands. Within a category that is predominantly retailer branded,
competition between manufacturers will be more focused on price. Our strategy for competing with our competitors varies from category to
category, but generally we seek to compete through the strength of our brands,
our multicategory product offering, service, quality and price. In the convenience foods, sauces and pickles sectors our main competitors
include Unilever, Heinz, Masterfoods, Hazlewood (a division of Greencore),
Baxters, Centura Foods (a division of RHM), Mitsubishi and Kraft. In the tea
and beverages markets our main competitors include Tetley, Unilever, ABF,
GlaxoSmithKline, Dairy Crest and Yorkshire Tea. In the spreads and desserts
markets our major competitors include Heinz, Kraft, RHM, Duerrs, Rowse, Andros,
Cirio Del Monte and Kallo Foods. The potato marketing, grading and distribution
market is highly fragmented and the only other competitor of a similar size to
Premier is Greenvale AP. 24




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Premier Foods plc Government Regulation As a manufacturer of products intended for human consumption, we are
subject to extensive legislation and regulation in the United Kingdom and the
European Union covering, among other matters, the composition, manufacturing,
storage, handling, packaging, labelling, advertisement and safety of our
products; the health, safety and working conditions of our employees; and our
competitive and marketplace conduct. Our operations and properties, past and
present, are also subject to a wide variety of U.K., Dutch, E.U. and local laws and
regulations governing air emissions, waste water discharge, noise levels,
energy efficiency, environmental clean-up; the presence, use, storage,
handling, generation, treatment, emission, release, discharge and disposal of
hazardous materials, substances and wastes; and the remediation of contamination to the
environment. See Risk Factors  We are subject
to extensive U.K. and E.U. legislation and regulation. Seasonality Within our convenience foods, pickles and sauces segment, consumer demand
for convenience foods tends to be higher in the colder months of the year, with
increased sales during the autumn and winter and lower sales during the spring
and summer, and we generally have a significant increase in sales of our
pickles products during the pre-Christmas period. Sales of our tea and
beverage products are affected by seasonal changes in temperature, with sales
usually declining during the warm summer months. In addition, our working
capital requirements are affected by the seasonal nature of our sales and
production, as a higher proportion of our seasonal convenience products is
packed during the months from July to September. As a result of the seasonality
of our sales, the results of our operations for any particular six-month period
will not necessarily be indicative of our results for the full year. The value of our potato sales is principally dependent on the price at which potatoes are traded in the Commodity market, which is itself principally dependent on the quality and size of the U.K. potato harvest, which can vary significantly from year to year. In addition, sales of seeds are predominantly in the first quarter of each financial year. 25




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Premier Foods plc 
  C.
    
    Organizational Structure The following chart shows our organizational structure as of the date of filing
of this Annual Report: (ORGANIZATIONAL STRUCTURE) 26




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Premier Foods plc The following chart shows our organizational structure as of December 31, 2003: (ORGANIZATIONAL STRUCTURE) 27




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Premier Foods plc Our material subsidiaries at December 31, 2003 were as follows: Country ofIncorporation orRegistration andSubsidiary Undertakings
    
    Principal Operations
    
    Business
    
    Percentage Owned (%)FinancingPremier Financing Limited
    
    England and Wales
    
    Financing
    
    
    100Grocery
productsChivers Hartley Limited
    
    England and Wales
    
    Preserve and pickle
manufacturing
    
    
    100H.L. Foods Limited
    
    England and Wales
    
    Food canning and
processing
    
    
    100Jonker Fris B.V.
    
    Netherlands
    
    Food canning and
processing
    
    
    100Materne
Boin S.A.S.
    
    France
    
    Preserve and fruit
compote manufacturing
    
    
    100Premier Ambient Products
(UK) Limited
    
    England and Wales
    
    Preserve, pickle,
vinegar, jelly and
desserts
manufacturing
    
    
    100Premier International
Foods UK Limited
    
    England and Wales
    
    Hot and cold
beverages
manufacturing
    
    
    100PotatoesMBM Produce Limited
    
    England and Wales
    
    Potato processing
and grading
    
    
    100
 28




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Premier Foods plc 
 D. Property, Plants and Equipment We operate the facilities described below, all of which are owned and
located in the United Kingdom, except where noted. We believe that our
manufacturing plants have sufficient capacity to accommodate our planned
growth. Manufacturing Facilities We operate an extensive network of production and processing facilities.
All of our production and processing facilities are located in the United
Kingdom, except for one facility in the Netherlands and two in France. The following table shows the location of the facilities where our
products are manufactured and the capacity utilization rates of these
facilities: CapacityUtilization in the12 months EndedProducts
    
    December 31,
    
    
    
    Approximate FloorLocation of facility
    
    Manufactured
    
    2003(1)
    
    Tenure
    
    AreaLong Sutton
    
    Convenience foods
(vegetables, baked
beans, canned pasta
and meat)
    
    
    50
    %
    
    Freehold
    
    40,000m2Wisbech
    
    Convenience foods
(vegetables, baked
beans, canned
pasta, soup and
fruit)
    
    
    66
    %
    
    Freehold
    
    28,622m2Heusden, The Netherlands
    
    Convenience and
bottled foods
(vegetables and
fruit)
    
    
    47
    %
    
    Freehold
    
    34,609m2Moreton
    
    Traditional tea
    
    
    42
    %
    
    Freehold
    
    29,000m2Knighton
    
    Chocolate drinks,
powdered milk
creamers, instant
tea and jelly
crystals
    
    
    75
    %
    
    Freehold
    
    10,856m2Histon
    
    Jams, marmalades,
honey, jelly,
peanut butter and
instant mashed
potato
    
    
    65
    %
    
    Freehold
    
    27,890m2Bury St. Edmunds
    
    Pickles and sauces
    
    
    70
    %
    
    Freehold
    
    12,600m2Middleton
    
    Vinegar
    
    
    65
    %
    
    Freehold
    
    12,500m2Lifton
    
    Custard and milk
puddings
    
    
    65
    %
    
    Freehold
    
    8,640m2Edinburgh(2)
    
    Fruit, herb and
speciality teas
    
    
    
    (2)
    
    Leasehold
    
    4,052m2Boue, France
    
    Jams and ambient
fruit compote
    
    
    35
    %
    
    Freehold
    
    21,000m2Biars sur Cere, France
    
    Jams
    
    
    17
    %
    
    Freehold
    
    21,400m2
 29




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Premier Foods plc   (1)
    
    Capacity utilization is calculated using the operational hours of
productive time of the facility as a percentage of total weekly hours (on
a 24-hour/7-days-a-week basis) averaged over a yearly cycle.(2)
    
    Following consultation with the workforce, we have recently announced the
planned closure of the Edinburgh facility. Operations will be transferred
to our Moreton facility and this transfer is expected to be completed by
the end of 2004. In addition to the production and processing facilities listed above, we
operate seven additional facilities in the United Kingdom that are utilized by
our MBM business for potato packing, processing, grading, washing and storage. All our property, plant and equipment have been pledged as security to the
lenders of the Senior Credit Facility under the terms of the Senior Credit
Facility. Our past and present business operations and ownership of real property
are subject to a broad range of environmental laws and regulations in each of
the jurisdictions in which we operate, such as the Environmental Protection Act
1990 and the Water Resources Act 1991. See Item 4. Information on the Company
 Business Overview  Government Regulation. 30




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Premier Foods plc 
 Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following is a discussion of our financial condition and consolidated
results of operations for 2001, 2002 and 2003, and of the significant factors
affecting them. You should read the following discussion in conjunction with
the Selected Historical Combined and Consolidated Financial Data and our
audited consolidated historical financial statements and the related notes
thereto included elsewhere in this Annual Report. You should note that our
financial statements have been prepared in accordance with U.K. GAAP, which
differs in certain material respects from U.S. GAAP. The significant
differences between U.K. GAAP and U.S. GAAP are described in Note 24 to our
consolidated financial statements included elsewhere in this Annual Report. OVERVIEW We are a leading U.K. manufacturer and marketer of shelf-stable or
ambient grocery products and one of the largest suppliers of grocery products
in the United Kingdom. We manufacture and market grocery products for the
retail grocery and out-of-home markets in three principal product segments:  
    
    convenience foods, pickles and sauces;
    
    tea and beverages; and
    
    spreads and desserts. We also operate a potato packing and marketing business in the United
Kingdom, supplying the retail grocery, out-of-home and food manufacturing
markets. Our branded products include Ambrosiacustard and milk puddings, Branston
pickles, Typhootea, Hartleyspreserves, Galeshoney and lemon curd, Crosse &
Blackwellconvenience foods, Sun-Patpeanut butter, Sarsonsvinegar, Haywards
pickles, Smashinstant mashed potato, Marvelpowdered milk creamer and
Waistlinesalad dressings, soups and cooking sauces. In addition, we produce
Cadburycocoa-based beverages, HPcanned foods, Rowntreesjelly and Loyd
Grossmancooking sauces, soups and salad dressings under agreement or license.
We also produce a range of retailer brand products for the major multiple
retailers. Our strategy is to:  
    
    use our scale to drive our business in organic branded
growth, to grow through our customer relationships and to achieve cost
savings and business simplification;
    
    manage retailer brands pro-actively; and
    
    focus on branded acquisitions. We intend to implement this strategy in the context of intense competition
between manufacturers in the U.K. grocery business, in which major multiple
retailers have continually increased their share of the grocery market. This
competition is generally more intense for retailer brand products, where our
average prices have decreased over the past three years, than among branded
products, which are generally more able to withstand pricing pressure resulting
from the increasing bargaining power of the major multiple retailers. Over the
past three years we have faced this challenge by improving our branded mix
through acquisitions and selectively exiting low-margin retailer brand
contracts. SIGNIFICANT FACTORS AFFECTING OUR OPERATING RESULTS Acquisitions, Disposals, Restructuring and Other Activities As
a result of our strategy, we have undertaken a
number of acquisitions, disposals and restructurings, which have affected our
results of operations during the periods presented herein. The following is a
summary of our significant acquisitions, disposals, events and internal
restructurings since January 1, 2001:  
    
    In January 2001, we sold our biscuits operations, The
Horizon Biscuit Company Limited to
Eubisco Limited (now Burtons Food Group Limited), a company
controlled by affiliates of Hicks Muse, for net proceeds of £90.9
million, but retained our French biscuits distribution
business which we integrated with our French spreads and desserts
business. We used the proceeds from the sale to reduce the outstanding
balance due under our Senior Credit Facility. 31




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Premier Foods plc  
    
    In February 2001, we sold F E Barber Limited, our wines and spirits
subsidiary to a management buy-in team for £10.9 million. We used the
proceeds from the sale to reduce the outstanding balance due under our
Senior Credit Facility and to finance the SonA acquisition described
below.
    
    In April 2001, we acquired the convenience foods, pickles and sauces
business of Stratford-upon-Avon Foods Limited (SonA) for £12.9 million. This
business has been integrated into our existing convenience foods,
pickles and sauces operations. This acquisition was financed from
existing cash resources.
    
    In September 2001, we acquired the Liftinstant lemon tea business
from Northern Foods for £8.3 million. This business has been
integrated into our existing tea and beverages operations. This
acquisition was financed from existing cash resources.
    
    In October 2001, we acquired the business of Nelsons of Aintree
Limited, a manufacturer of sweet preserves, from ABF for £7.5 million.
This business has been integrated into our existing spreads
operations. This acquisition was financed from existing cash
resources.
    
    In May 2002, we acquired the ambient foods business in the United
Kingdom of Nestlé SA for a net consideration of £132.2 million. The
acquired business added seven category leading brands to our
portfolio, with products in the pickles, sweet spreads and ambient
dessert categories. The purchase price was funded by additional
borrowings under the Senior Credit Facility (see Item 5. Operating
and Financial Review and Prospectus  Liquidity and Capital
Resources). The right to acquire the ambient foods manufacturing
business in the Republic of Ireland of Nestlé, which was included in
the original acquisition agreement, was sold by us to a management
buy-in team in July 2002. The net consideration of £132.2
million paid for the U.K. business is net of the proceeds from this
sale. The administrative functions of
Nestlé were integrated into our existing business by December 31,
2002. Following a review of our manufacturing network and consultation
with the workforce, the Hadfield facility, acquired in the Nestlé
acquisition, was closed in the first quarter of 2004, and its
operations were transferred to our existing spreads and desserts factory in
Histon and our pickles operation in Bury St. Edmunds.
    
    In December 2003, we acquired the ambient desserts business in the
United Kingdom and the Republic of Ireland of Unilever Bestfoods U.K.
Limited, for a net consideration of £106.3 million. The acquired
business added the category-leading Ambrosiacustard and milk puddings
brand to our offerings and strengthened our ambient dessert product
portfolio. The purchase price was funded through existing cash
resources and an additional £75.0 million acquisition facility,
subordinated to the existing Senior Credit Facility (see Item 5.
Operating and Financial Review and Prospectus  Liquidity and
Capital Resources below). The integration of the Ambrosiabusiness
was completed by the end of the first quarter of 2004, and the
business has been absorbed into our existing operations.
    
    In the first half of 2004, following consultation with the workforce,
we announced plans to close our Edinburgh facility and transfer
production to our Moreton facility. This transfer is expected to be
completed by December 2004.
    
    Our agreement to manufacture and distribute Cadbury cocoa-based
beverages expires in May 2006. Cadburycocoa-based beverages
contributed £45.0 million to our sales in 2003. This agreement is
automatically renewable in 2006 unless Cadbury Limited gives notice
that it will not renew this agreement on or before one year prior to
the expiration of the initial term of the agreement. Cadbury Limited
have not served formal notice on us regarding nonrenewal of the
agreement, although in a letter dated April 30, 2003, Cadbury
Schweppes plc expressed their intention not to renew the agreement
beyond 2006. As the Cadburycocoa-based beverages we
produce generate relatively high margins, termination of this
agreement would have a material effect upon the margins of our tea and
beverages segment.
    
    In early 2004, we commenced a restructuring programme at MBM, our
potato packing and marketing business, to enhance MBMs integration
with Premiers grocery business, thereby enabling MBM to benefit from
Premiers scale and Premier to utilize MBMs vegetable procurement
expertise.
    
    We are currently in negotiations to sell our Materne spreads and
desserts business in France to funds advised by Hicks Muse, affiliates
of which are controlling parties of Premier. Materne had sales of £96.8
million for the year ended December 31, 2003. 32




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Premier Foods plc Industry Factors Competition between manufacturers in the grocery business is intense. The
market is served by a number of well-established companies that operate on both
a national and international basis within single or
multiple product categories. We face competition at a category level from these
companies on both branded and retailer brand products. Our competitors have
varying abilities to withstand changes in market conditions. Some of our
competitors are large corporations with greater financial resources than we
have. Our ability to compete effectively will require us to be successful in
the sales and marketing of our existing products, new product development and
innovation and cost rationalization. Furthermore, we cannot predict the pricing
or promotional actions of our competitors or their effect on our ability to
market and sell our products. To ensure our products remain competitive, we may
be required to reduce our prices as a result of price reductions or promotional
sales undertaken by our competitors, and this could adversely affect our
results of operations. In
recent years, the major multiple retailers have increased their share
of the UK grocery market. Based on the value of total U.K. grocery sales for the 13 weeks ended
January 5, 2003, the top five multiple retailers held an 81% share of total
U.K. grocery sales, after adjusting for Morrisons acquisition of Safeway. In
addition, following Wal-Marts entry into the U.K. market through its 1999
acquisition of Asda, and Morrisons acquisition of Safeway in 2004, price
competition between the major multiple retailers has intensified. This price
competition has led the major multiple retailers to seek lower prices from
their suppliers. In 2003, the U.K. Competition Commission reviewed the offers
for Safeway by Morrisons, Tesco, Sainsburys and Asda and referred to the
advantageous position of the major multiple retailers in relation to their
suppliers by concluding, among other matters, that the acquisition of Safeway
by any of Asda, Morrisons, Sainsburys or Tesco may be expected to aggravate
further the imbalance in the respective bargaining positions of that party and
its suppliers. The strength of the major multiple retailers bargaining
position gives them significant leverage over their suppliers in dictating
pricing, product specification and the level of supplier participation in
promotional campaigns and offers such as Everyday Low Price and Buy One/Get
One Free. We believe retailer brand product contracts are primarily granted
based on price and service. Our results of operations could be adversely
affected if we are required to reduce our prices, alter the specifications of
our retailer brand products or increase our promotional costs as a consequence
of an increase in the strength of the major multiple retailers bargaining
positions. Several of the major multiple retailers are seeking to increase their
presence in the convenience store sector through both organic growth and
acquisition. In December 2002, Tesco acquired the T&S chain of convenience
stores and, in January 2004, acquired the Adminstore chain. In February 2004,
Sainsburys announced the acquisition of the Bells chain of stores. Such
acquisitions may increase further the buying and negotiating power of the major
multiple retailers and this may adversely affect our results of operations. Branded products, however, generally withstand the
pricing pressure arising out of this consolidation better than
retailer brand products. We have achieved aggregate
price increases in our branded product lines over the past three years,
especially in spreads, convenience foods and pickles, with tea being an
exception to this trend. In comparison, our average selling prices for retailer
brand products, other than spreads, have decreased over the past three years.
We expect this trend to continue. There are a number of trends in consumer preferences which impact on both
us and our industry as a whole. These include, among others, dietary concerns
and fashions and an increase in preference for fresh and chilled foods, ready
prepared foods and organic foods. In addition, concerns as to the nutritional
value of certain foods may increasingly result in food manufacturers being
encouraged to produce products with reduced levels of salt, sugar and fat and
to eliminate trans-fatty acids from the ingredients used. These trends may
reduce demand for certain of our products and providing or developing modified
or alternative products may increase our costs and either or both of these
factors may adversely affect our results of operations. Seasonality Within our convenience foods, pickles and sauces segment, consumer demand
for convenience foods tends to be higher in the colder months of the year, with
increased sales during the autumn and winter and lower sales during the spring
and summer, and we generally have a significant increase in sales of pickles
during the pre-Christmas period. Sales of our tea and beverages
segment are affected by seasonal changes in temperature, with sales usually
declining during the warm summer months. In addition, our working capital
requirements are affected by the seasonal nature of our sales and
production, as
a higher proportion of our seasonal convenience products are packed during the
months from July to September. The value of our potato sales is principally dependant on the price at
which potatoes are traded in the commodity market, which is itself principally
dependant on the quality and size of the U.K. potato harvest, 33




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Premier Foods plc which can vary
significantly from year to year. In addition, sales of seed potatoes are
predominantly in the first quarter of each financial year. As a result of the seasonality of our sales, the results of our operations
for any particular six-month period will not necessarily be indicative of our
results for the full year. Raw Materials We purchase the raw materials used in our products from numerous
suppliers. The prices of many of these raw materials are affected by, among
other things, the agricultural policies of the U.K. government and of the European
Union. A portion of the raw materials we use are traded as commodity products,
the prices of which are subject to a number of factors that are not in our
control, such as quality, availability and demand. In addition, severe weather
conditions, such as floods, droughts or frosts, or political instability, may
affect the supply and price of one or more of our raw materials. Movement in the price levels of our raw materials has in the past had and
may in the future have a corresponding impact on finished product costs. Our
ability to pass through increases in the cost of raw materials to our customers
depends upon competitive conditions and pricing methods employed in the markets
in which we operate. Currency Fluctuation Although
83% of our business is conducted in the United Kingdom, we also have
operations in France and the Netherlands. We source raw materials from
countries around the world and export our products to various countries.
Therefore, our financial position and results of operations are subject to
currency transaction risk. Our operating subsidiaries incur currency
transaction risk whenever they enter into either a purchase or sale transaction
using a currency other than pounds sterling. We enter into forward currency
contracts to hedge partially against our exposure to foreign currency exchange
rate fluctuations in the purchase of raw materials and in our export business.
This hedging reduces our exposure to short-term volatility in exchange rates.
However, sustained movement in exchange rates will increase or decrease the
sterling value of our foreign currency-denominated purchases and sales, and we
cannot guarantee that exchange rate fluctuations will not have an adverse
effect on our results of operations. With respect to currency translation risk, the financial condition and
results of operations of our non-U.K. businesses are measured and recorded in the
relevant domestic currency of the jurisdiction in which the business is located
and then translated into pounds sterling for inclusion in our consolidated
financial statements. The exchange rate remained comparatively stable during
2000, 2001 and most of 2002. However, since September 2002, sterling has
depreciated against the euro from
1.59 to
1.49 at June 29, 2004. (Closing
rate June 29, 2004 as reported in the Financial Times). If this depreciation is
sustained it will have a positive impact on our sales and operating profits as
reported in pounds sterling in subsequent periods. Approximately 16% of the revenues of our continuing businesses in 2003
were denominated in currencies other than pounds sterling. In addition, a
portion of our expenses was denominated in currencies other than pounds
sterling. Our financial condition and results of operations, reported in
pounds sterling, may therefore be affected by fluctuations in the value of the
local currencies in which we transact business. Furthermore, many of our raw
materials are obtained from sources outside the United Kingdom and therefore
such costs are incurred in currencies other than the pound sterling. While we
engage in foreign exchange hedging transactions, we cannot assure you that
exchange rate fluctuations will not have a material adverse effect on our own
financial position. The final stage of the European Economic and Monetary Union (Stage III)
began on January 1, 1999 in 11 E.U. Member States. The 11 participating
countries adopted fixed conversion rates between their existing currencies and
the euro, the currency that has been adopted as their common legal currency,
and then on January 1, 2002 converted their legacy currencies into the euro at
the fixed conversion rates. Euro notes and coins were introduced on January 1,
2002, and the legacy currencies ceased to be legal tender by February 28, 2002.
The United Kingdom is not currently a Stage III participant, although the U.K.
government has stated that the United Kingdom might join the single currency at
a later date. If the United Kingdom adopts the euro, the euro will replace the
pound sterling as the United Kingdoms legal currency and sterling-denominated
Notes will be effectively redenominated into euro. France and Holland participated in Stage III, and have converted their
legacy currencies into the euro. The value of our revenues and assets
denominated in euro will therefore decline relative to revenues and assets that
are denominated in other currencies, such as the pound sterling or the dollar,
if the value of the euro declines. 34




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Premier Foods plc In addition, we entered into exchange contracts in January 2003 to
purchase $200.0 million in September 2004. This was done to eliminate exchange
risk on the $200.0 million Notes and had the effect under U.K. GAAP of fixing
the pounds sterling value of the $200.0 million Notes at £129.2 million. A loss
of £5.0 million was recorded on entering into these contracts. We have also
entered into a coupon swap to fix the pounds
sterling value of the interest cash flows on the $200.0 million Notes, which
has the effect of converting the interest payments into fixed rate sterling. We
intend to redeem the Notes in September 2004. 
 A. OPERATING RESULTS The following table summarizes our results for each of the financial years
ended December 31, 2001, 2002 and 2003. The table has been extracted from and
should be read in conjunction with our consolidated financial statements
included elsewhere in this Annual Report. In our consolidated financial statements we have reclassified amounts
previously reported for the years ended December 31, 2001, 2002 and 2003.
These amounts relate to certain promotional expenditures that would be more
appropriately classified as a reduction in sales rather than selling and
distribution costs. Year Ended December 31,% of
    
    
    
    
    
    % of
    
    
    
    
    
    % ofTotal
    
    
    
    
    
    Total
    
    
    
    
    
    Total2001
    
    Sales
    
    2002
    
    Sales
    
    2003
    
    Sales(£ million)
    
    (%)
    
    (£ million)
    
    (%)
    
    (£ million)
    
    (%)SalesContinuing operationsConvenience foods, pickles and
sauces
    
    
    334.8
    
    
    
    40.0
    
    
    
    355.0
    
    
    
    41.0
    
    
    
    374.6
    
    
    
    43.0Tea and beverages
    
    
    175.2
    
    
    
    20.9
    
    
    
    169.0
    
    
    
    19.5
    
    
    
    143.0
    
    
    
    16.4Spreads and desserts
    
    
    166.9
    
    
    
    19.9
    
    
    
    194.3
    
    
    
    22.5
    
    
    
    217.2
    
    
    
    24.9Grocery
products subtotal
    
    
    676.9
    
    
    
    80.9
    
    
    
    718.3
    
    
    
    83.0
    
    
    
    734.8
    
    
    
    84.4Potatoes
    
    
    155.6
    
    
    
    18.6
    
    
    
    147.1
    
    
    
    17.0
    
    
    
    135.8
    
    
    
    15.6Total continuing operations(1)
    
    
    832.5
    
    
    
    99.5
    
    
    
    865.4
    
    
    
    100.0
    
    
    
    870.6
    
    
    
    100.0Discontinued operations
    
    
    4.1
    
    
    
    0.5
    
    
    
    0.2
    
    
    
    0.0
    
    
    
    
    
    
    
    Total sales
    
    
    836.6
    
    
    
    100.0
    
    
    
    865.6
    
    
    
    100.0
    
    
    
    870.6
    
    
    
    100.0Cost of sales
    
    
    (661.8
    )
    
    
    (79.1
    )
    
    
    (662.6
    )
    
    
    (76.5
    )
    
    
    (677.2
    )
    
    
    (77.8
    )Gross profit
    
    
    174.8
    
    
    
    20.9
    
    
    
    203.0
    
    
    
    23.5
    
    
    
    193.4
    
    
    
    22.2Selling and distribution costs
    
    
    (87.9
    )
    
    
    (10.5
    )
    
    
    (94.4
    )
    
    
    (10.9
    )
    
    
    (87.9
    )
    
    
    (10.1
    )Administrative expenses
    
    
    (35.6
    )
    
    
    (4.3
    )
    
    
    (47.9
    )
    
    
    (5.5
    )
    
    
    (36.9
    )
    
    
    (4.2
    )Operating profit
    
    
    51.3
    
    
    
    6.1
    
    
    
    60.7
    
    
    
    7.0
    
    
    
    68.6
    
    
    
    7.9Loss on sale or termination of
operations
    
    
    (29.6
    )
    
    
    (3.5
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    Profit/(loss) on sale of fixed
assets
    
    
    3.4
    
    
    
    0.4
    
    
    
    (1.6
    )
    
    
    (0.2
    )
    
    
    2.0
    
    
    
    0.2Net interest payable
    
    
    (52.7
    )
    
    
    (6.3
    )
    
    
    (36.4
    )
    
    
    (4.2
    )
    
    
    (52.1
    )
    
    
    (6.0
    )Profit/(loss) on ordinary activities
before taxation
    
    
    (27.6
    )
    
    
    (3.3
    )
    
    
    22.3
    
    
    
    2.6
    
    
    
    18.5
    
    
    
    2.1Tax charge on profit/(loss)
on ordinary activities
    
    
    (0.9
    )
    
    
    (0.1
    )
    
    
    (6.0
    )
    
    
    (0.7
    )
    
    
    (6.3
    )
    
    
    (0.7
    )Retained profit/(loss) for the
financial period
    
    
    (28.5
    )
    
    
    (3.4
    )
    
    
    16.3
    
    
    
    (1.9
    )
    
    
    12.2
    
    
    
    1.4
   (1)
    
    Discontinued operations relate to: F E Barber Limited (trading as
Kingsland Wines and Spirits), which we sold in February 2001;
The Horizon
Biscuit Company Limited, which we sold in January 2001; and a non-core,
non-grocery business, that was put into liquidation in March 2002. 35




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Premier Foods plc The following table sets out our sales by geographical origin and
geographical market for each of 2001, 2002 and 2003. We have changed
sales by geographical origin and sales by geographical market from
amounts previously reported due to a reclassification of certain
promotional expenditures as a reduction of sales rather
than selling and distribution costs (See Note 2 to
the consolidated financial statements included elsewhere in this
Annual Report). Sales by Geographical OriginYear EndedDecember 31,2001
    
    2002
    
    2003(£ million)United Kingdom
    
    
    710.7
    
    
    
    746.1
    
    
    
    745.2Mainland Europe
    
    
    121.8
    
    
    
    119.3
    
    
    
    125.4Continuing operations
    
    
    832.5
    
    
    
    865.4
    
    
    
    870.6Discontinued operations
    
    
    4.1
    
    
    
    0.2
    
    
    
    Total
    
    
    836.6
    
    
    
    865.6
    
    
    
    870.6
 Sales by Geographical
MarketYear EndedDecember 31,2001
    
    2002
    
    2003(£ million)United Kingdom
    
    
    699.6
    
    
    
    724.6
    
    
    
    726.4Mainland Europe
    
    
    124.4
    
    
    
    129.3
    
    
    
    136.1Other countries
    
    
    8.5
    
    
    
    11.5
    
    
    
    8.1Continuing operations
    
    
    832.5
    
    
    
    865.4
    
    
    
    870.6Discontinued operations
    
    
    4.1
    
    
    
    0.2
    
    
    
    Total
    
    
    836.6
    
    
    
    865.6
    
    
    
    870.6
 Sales is the value of sales, excluding transactions with or between
wholly owned subsidiaries, after deductions of sales rebates and discounts,
value added tax and other sales-related taxes. Sales are recognized upon
receipt of confirmation that the goods shipped have been accepted by the
customer, where the sales price is fixed and collectability is reasonably
assured. Sales are also referred to as Turnover in our consolidated financial
statements included elsewhere in this Annual Report. We derive our sales
principally from selling convenience foods, pickles and sauces, tea and
beverages, spreads and desserts, and potatoes. The geographical origin of our
sales is primarily the United Kingdom, accounting for 85.4%, 86.2% and
85.6% in 2001, 2002 and 2003, respectively. Our principal geographic market
is the United Kingdom, which accounted for approximately 84.0%, 83.7% and
83.4% of the sales of our continuing operations in 2001, 2002 and 2003,
respectively. We also sell our products in mainland Europe, which accounted for
14.9%, 14.9% and 15.6% of the sales of our continuing operations in 2001,
2002 and 2003, respectively. Our branded products accounted for approximately
44.0% of our total sales in 2003 and for approximately 52.0% of our grocery
products sales in 2003. The remaining sales principally comprised retailer
brand and commodity products. Cost of sales consists of costs directly attributable to manufacturing,
including raw materials, labor, energy, other utilities and overhead costs
attributable to the manufacturing processes and factories. Our principal raw
materials include packaging materials, sugar, cocoa and certain cocoa-related
products, tea, glucose, fats, honey, peanuts, dairy products, seasonal and
non-seasonal fruit and vegetables, dried pulses, tomato paste and meat.
Manufacturing overheads include plant supervision and management costs,
technical and engineering support costs, costs for the storage of our raw
material and finished goods inventory, health and safety compliance costs,
maintenance and insurance costs, quality control costs and depreciation
relating to manufacturing equipment. Selling and distribution costs consist of selling costs, which include
advertising, direct and indirect marketing, shipping and handling costs,
certain costs of promotions and labor and overhead costs attributable to the
sales function. Distribution costs include freight, labor and overhead costs
attributable to the distribution function. Administrative expenses comprise labor and costs directly attributable
to the finance, human resources, procurement, information technology and
general management functions including amortization and depreciation relating
to non-manufacturing equipment. Net interest payable principally comprises interest paid on our Notes,
our Senior Credit Facility, our Acquisition Facility, and overdrafts less interest receivable on cash
deposits. Also included in our interest expense is the amortization of the debt
issuance costs and exchange gains or losses on our U.S. dollar-denominated
Notes. 36




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Premier Foods plc Tax credit principally comprises income taxes to which we are subject in
the various countries in which we have operations. We have a relatively low tax
level when compared with our peers, due to the comparatively high level of debt
that we have in our capital structure. Hence, we are charged a correspondingly
higher level of interest and this, in turn, reduces our profits subject to tax.
We attempt to minimize the tax payable in each jurisdiction by using
appropriate tax strategies. Our current high level of leverage, and hence
interest payable, reduces the amount of tax payable on our operating profit.
The amount of tax we pay is likely to increase as we repay our debt and hence
reduce our net interest payable, because interest is tax deductible. In
addition, we intend to redeem our Notes in September 2004.
Despite this expectation, we cannot assure you that such redemption
will occur as planned. Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Sales Sales were £870.6 million for 2003, an increase of £5.0 million, or 0.6%,
as compared to £865.6 million for 2002. The primary reasons for the increase in
sales are discussed below. Continuing Operations Sales by our continuing operations were £870.6 million for 2003, an
increase of £5.2 million, or 0.6%, as compared to £865.4 million for 2002. The
primary reasons for the increase in sales are discussed below. Convenience Foods, Pickles and Sauces.Sales by our convenience foods,
pickles and sauces segment were £374.6 million for 2003, an increase of £19.6
million, or 5.5%, as compared to £355.0 million for 2002. The increase in sales
was principally due to additional sales from Nestlé which contributed for a
full 12 months in 2003, compared to only seven months in 2002. In addition,
sales volumes in our Loyd Grossmanrange of sauces continued to increase.
Sales growth was also achieved through new product developments, including the
successful launches of Branstonsour pickles and Loyd Grossmanand Waistline
soups. These improvements were offset in part by a reduction in convenience
food sales, principally because of the prolonged hot summer in the United
Kingdom. Tea and Beverages.Sales by our tea and beverages segment were £143.0
million for 2003, a decrease of £26.0 million, or 15.4%, as compared to £169.0
million for 2002. The decrease in our tea sales during 2003 was principally due
to our strategy to exit selectively from low-margin contracts in the retailer
brand tea market. The decrease was also due to a decrease in both retailer
brand and branded tea and beverage sales as a result of prolonged hot weather
during the summer months of 2003 in the United Kingdom. Spreads and Desserts.Sales by our spreads and desserts segment were
£217.2 million for 2003, an increase of £22.9 million, or 11.8%, as compared to
£194.3 million for 2002. The increase in sales was principally due to
additional sales from Nestlé, which contributed for a full 12 months in 2003,
compared to only seven months in 2002. Following the acquisition of Ambrosia on
December 1, 2003, sales of Ambrosiaand Brown & Polsonproducts have been
reported within the spreads and desserts product segment. Ambrosia contributed
sales of £5.2 million during December 2003. Potatoes.Sales by our potatoes segment were £135.8 million for 2003, a
decrease of £11.3 million, or 7.7%, as compared to sales of £147.1 million for
2002. The decline in sales resulted from a significant price decrease in the
market price of potatoes during the first half of the year and continued
pricing pressure from the major retailers. Discontinued Operations There were no discontinued operations in 2003. The £0.2 million of sales
by discontinued operations in 2002 represents sales made by a non-core,
non-grocery business, that was put into liquidation in March 2002. Cost of Sales Cost of sales were £677.2 million for 2003, an increase of £14.6 million,
or 2.2%, as compared to £662.6 million for 2003. The increase in cost of sales
was principally additional cost of sales from the inclusion of Nestlé for a
full 12 months in 2003, compared to only seven months in 2002, partly offset by
a reduction in the costs of sales in our potatoes segment due to the lower
market price of potatoes during 2003, compared to 2002. Cost of sales as a
percentage of total sales increased from 76.5% to 77.8% for 2002 and 2003,
respectively. This increase was principally due to pricing and quality issues
experienced by our potatoes business, the impact of higher cocoa prices in our
beverages business and additional depreciation of manufacturing
equipment on our Hadfield plant, prior to
its closure. Cost of sales before operating exceptional items were £667.8
million for 2003, an increase of £14.0 million, or 2.1%, as
compared to £653.6 million for 2002. 37




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Premier Foods plc Gross Profit Gross profit was £193.4 million for 2003, a decrease of £9.6 million, or
4.7%, as compared to £203.0 million for 2002. Gross margin including Nestlé
decreased to 22.2% in 2003 from 23.5% in 2002. These decreases in gross profit
and gross profit margin were primarily due to the trends discussed above. Gross
profit before operating exceptional items was £202.8 million for 2003, a
decrease of £9.0 million, or 4.2%, as compared to £211.8 million for 2002. Selling and Distribution Costs Selling and distribution costs were £87.9 million for 2003, a decrease of
£6.5 million, or 6.9%, compared to £94.4 million for 2002. The principal cause
of the decrease in selling and distribution costs was a result of lower account
marketing costs. This reduction was due to a combination of the elimination of
costs previously incurred on the retailer brand tea contracts from which we
exited, a reduction in account marketing as a consequence of our response to
the sales volume decline in some of our business categories during the hot
summer months and improved efficiency of our marketing spend. Selling and
distribution costs before operating exceptional items were £86.5 million for
2003, a decrease of £6.6 million or 7.1%, compared to £93.1 million for 2002. Administrative Expenses Administrative
expenses were £36.9 million for 2003, a decrease of £11.0
million, or 23.0%, as compared to £47.9 million for 2002.
This decrease was principally
due to a reduction in the charge and a write-back of previous-year accruals for
performance-related payments to employees and the release of accruals made in
respect of a number of unresolved issues relating to transitional arrangements
on the acquisition of Nestlé. These matters were resolved in early 2003.
Administrative expenses before amortization and operating exceptional items
were £27.4 million for 2003, a decrease of £7.0 million, or 20.3%, as compared
to £34.4 million for 2002. Operating Profit Operating profit was £68.6 million for 2003, an increase of £7.9 million,
or 13.0%, as compared to £60.7 million for 2002. The principal causes of the
increase in operating profit before operating exceptional items have been
detailed above. Operating margin increased to 7.9% for 2003 from 7.0% for 2002.
Operating profit before amortization and operating exceptional items was £88.9
million for 2003, an increase of £4.6 million, or 5.5%, as compared to £84.3
million for 2002. Amortization of Intangible Assets Amortization of intangible assets amounted to £7.1 million and £4.2
million in 2003 and 2002, respectively; the increase primarily reflects a full
year of amortization in relation to the goodwill arising on the acquisition of
Nestlé in May 2002. Amortization of Pension Prepayments Amortization of pension prepayments amounted to £2.4 million and £2.6
million in 2003 and 2002, respectively. This charge arises when the
net defined benefit pensions expense for the period exceeds
the cash contribution paid in respect of that period. Operating Exceptional Items Operating exceptional items of £10.8 million were incurred in 2003,
compared to £16.8 million in 2002. Operating exceptional items of £10.8 million
in 2003 comprised the following principal items:  
    
    £7.4 million in relation to closure of the Hadfield factory
and the transfer of spreads and pickles production to our Histon and
Bury St. Edmunds sites, respectively;
    
    £1.5 million in relation to the integration of production
from our North Walsham convenience foods factory into our
convenience foods factories at Wisbech and Long Sutton; the North
Walsham factory was closed in the fourth quarter of 2002;
    
    £0.8 million in relation to the reorganization of our
distribution arrangements;
    
    £0.6 million in relation to the reorganization of our sales
function; and
    
    £0.5 million in relation to further restructuring of our
French spreads and desserts business following the integration of the
French biscuit distribution company. 38




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##### Table of Contents



Premier Foods plc Operating exceptional items in 2002 were £16.8 million and include the
following principal items:  
    
    £3.8 million in relation to reductions in manning and changes
to shift patterns at our Moreton tea factory;
    
    £3.0 million of costs relating to the closure of our Histon
and Hampstead administrative functions and the relocation of our
principal administrative office to St Albans;
    
    £2.4 million of costs relating to the closure of our Nelsons
spreads factory in Aintree and the relocation of production to our
Histon spreads factory;
    
    £2.2 million of costs relating to the Nestlé acquisition and
the subsequent integration of its administrative functions with
those of Premier;
    
    £2.1 million of costs relating to the closure of our North
Walsham convenience foods factory. This factory was closed in the
fourth quarter of 2002 and the production integrated into our
convenience foods factories at Wisbech and Long Sutton; and
    
    £2.1 million in relation to further restructuring of our
French spreads and desserts business following the integration of
our French biscuit distribution company. Group Operating Profit Group operating profit was £68.6 million for 2003, an increase of £7.9
million, or 13.0%, as compared to £60.7 million for 2002. The principal causes
of the increase in operating profit are discussed above. Loss on Sale or Termination of Operations There was no loss on sale or termination of operations in 2003. In 2002,
we incurred a loss of £0.4 million in relation to the liquidation of a
non-core, non-grocery business. Profit/(Loss) on Sale of Fixed Assets Profit on sale of fixed assets was £2.0 million for 2003, an increase of
£3.6 million, as compared to a £1.6 million loss in 2002. The profit in 2003
comprised a profit on disposal of surplus properties of £3.1 million, partially
offset by a loss on disposal of other fixed assets of £1.1 million. The loss in
2002 comprised a loss on disposal of surplus properties and other fixed assets. Net Interest Payable Net interest payable was £52.1 million for 2003, which comprised £5.7
million of amortization charges on our debt issuance
costs, £5.0 million of exchange losses recognized on our entering into derivative
contracts which had the impact of fixing the pound sterling value of the U.S.
dollar-denominated Notes at £129.2 million and a net £41.4 million payable on
the Notes, our Senior Credit Facility and other borrowings and cash. Net
interest payable was £36.4 million for 2002, which comprised £6.3 million of
amortization charges on our debt issuance costs, £13.2 million of exchange
gains on the translation of the principal amount of the U.S. dollar-denominated
Notes and a net £43.3 million payable on the Notes, our Senior Credit Facility,
and other borrowings and cash. The decrease of net interest payable in 2003 on the
Notes, our Senior Credit Facility and other borrowings and cash was principally
due to an increase of £1.8 million of interest income earned on our cash
deposits and a decrease in market interest rates applicable to our Senior
Credit Facility, offset by an increase in interest payable on the additional
Acquisition Facility. Profit on Ordinary Activities Before Taxation Profit on ordinary activities before taxation was £18.5 million for 2003,
as compared to a profit of £22.3 million for 2002. This decrease was due to the
net effect of the factors described above. Tax Charge on Profit/(Loss) on Ordinary Activities The tax charge on profit on ordinary activities was £6.3 million for 2003,
as compared to £6.0 million for 2002. Retained Profit/(Loss) for the Financial Period Retained profit for the financial period was £12.2 million, a decrease of
£4.1 million, as compared to a retained profit for 2002 of £16.3 million. This
decrease resulted primarily from the factors described above. 39




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##### Table of Contents



Premier Foods plc Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Sales Total sales were £865.6 million for 2002, an increase of £29.0 million, or
3.5%, as compared to sales for 2001 of £836.6 million. The primary reasons for
the increase in sales are discussed below. Continuing Operations Sales by our continuing operations were £865.4 million for 2002, an
increase of £32.9 million, or 4.0%, as compared to £832.5 million for 2001.
This increase was primarily due to the acquisition of Nestlé and Nelsons and
increased sales volumes generally, partially offset by pricing pressure on
potatoes and our exit from certain low-margin retailer brand tea contracts. Convenience Foods, Pickles and Sauces.Sales of convenience foods,
pickles and sauces were £355.0 million for 2002, an increase of £20.2 million,
or 6.0%, as compared to £334.8 million for 2001. This increase primarily
reflected sales by Nestlé, acquired in May 2002. Excluding Nestlé, sales in our
existing business decreased primarily as a result of a general market decline
and our exit from certain low-margin convenience foods
retailer brand contracts. Tea and Beverages.Sales by our tea and beverages segment were £169.0
million for 2002, a decrease of £6.2 million, or 3.5%, as compared to sales of
£175.2 million for 2001. This decrease was primarily due to lower tea sales
during 2002 resulting from our exit from certain low-margin contracts in the retailer
brand tea market. This decrease was partially offset by growth in sales of our
cocoa-based beverages business and Typhoobrand through the major multiple
retailers and the effect of full year reporting of Lift, which we
acquired in September 2001. Spreads and Desserts.Sales by our spreads and desserts segment were
£194.3 million for 2002, an increase of £27.4 million, or 16.4%, as compared to
sales of £166.9 million for 2001. The acquisition of Nestlé contributed sales
from the acquisition in May to year-end. The remaining increase in sales was
principally due to Nelsons contributing to sales for a full
12 months in 2002 as compared to three months in 2001. Potatoes.Sales by our potatoes segment were £147.1 million for 2002, a
decrease of £8.5 million, or 5.5%, as compared to sales of £155.6 million for
2001. This decrease was due primarily to the decline in market price
in potatoes and was partially offset by increased sales volumes. Discontinued Operations Sales of discontinued operations in 2002 were £0.2 million, which
represents sales made by a non-core, non-grocery business, which was put into
liquidation in March 2002. Sales of discontinued operations in 2001 consist of
£2.2 million sales made by a non-core, non-grocery business which was put into
liquidation in March 2002 and £1.9 million of sales in respect of F E Barber,
our wines and spirits business, which was sold at the start of
February 2001. Cost of Sales Cost of sales were £662.6 million for 2002, an increase of £0.8 million,
or 0.1%, as compared to £661.8 million for 2001. The increase in cost of sales
was primarily due to seven months of costs of sales in relation to the Nestlé
business and a full years cost of sales from the acquisitions
made in 2001, offset by
the exit from a number of low-margin convenience foods and tea retailer brand
contracts, and a reduction in the market price of potatoes decreasing cost of
sales in our potato segment. Cost of sales as a percentage of total sales
decreased from 79.1% to 76.5% in 2001 and 2002, respectively. This decrease
resulted primarily from the inclusion of the higher-margin Nestlé business as well as
the exit from the low-margin convenience foods and tea retailer brand contracts
and the decrease in sales by our potato business, both served to reduce sales
while the gross profit in value terms remained relatively unchanged. Cost of
sales before operating exceptional items were £653.8 million for 2002, a
decrease of £7.1 million, or 1.1%, as compared to £660.9 million for 2001. Gross Profit Gross profit was £203.0 million for 2002, an increase of £28.2 million, or
16.1%, as compared to £174.8 million for 2001. Gross profit margin including
Nestlé increased to 23.5% in 2002 from 20.9% in 2001. The
increases in gross
profit and gross profit margin were primarily due to the trends discussed
above. Gross profit before operating exceptional items was £211.8 million for
2002, an increase of £36.1 million, or 20.5%, as compared to £175.7 million for
2001. Selling and Distribution Costs Selling and distribution costs were £94.4 million in 2002, an increase of
£6.5 million, or 7.4%, as compared to £87.9 million for 2001. The principal
cause of the increase was the acquisition of Nestlé. 40




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##### Table of Contents



Premier Foods plc Selling and distribution costs before operating exceptional items were £93.1
million for 2002, an increase of £7.8 million, or 9.1%, as compared to £85.3
million for 2001. Administrative Expenses Administrative expenses were £47.9 million for 2002, an increase of £12.3
million, or 34.6%, as compared to £35.6 million in 2001. The principal cause
of the increase related to Nestlé, which incurred administrative expenses from
the acquisition in May to year-end. The remaining increases in expenditure
principally resulted from an increase in the bonus payable to our employees.
Administrative expenses before amortization and operating exceptional items
were £34.4 million for 2002, an increase of £10.0 million, or 41.0%, as
compared to £24.4 million for 2001. Operating Profit Operating profit was £60.7 million, an increase of £9.4 million, or 18.3%,
as compared to £51.3 million in 2001. The principal cause of the increase in
operating profit was the
acquisition of Nestlé in May 2002. Operating margin increased to 7.0% for 2002
from 6.1% for 2001. This improvement in operating margins reflects the increase
in gross profit partly offset by the additional selling and distribution and
administrative expenditure. Operating profit was £84.3 million for 2002, an increase of £18.3 million, or
27.7%, as compared to £66.0 million for 2001. Amortization of Intangible Assets Amortization of intangible assets of £4.2 million and £0.5 million was
incurred in 2002 and 2001 respectively. This increase primarily reflects
amortization in relation to the Nestlé acquisition in May 2002 and a full
years amortization of goodwill and trademarks in relation to the Lift and
Nelsons acquisitions. Amortization of Pension Prepayments Amortization of pension prepayments in 2002 and 2001 was £2.6 million
and £2.0 million, respectively, which arose from the net defined
benefit pensions expense exceeding the cash contributions paid. Operating Exceptional Items Operating exceptional items of £16.8 million were incurred in 2002,
compared to £12.2 million in 2001. Operating exceptional items of £16.8 million
in 2002 include the following principal items:  
    
    £3.8 million in relation to reductions in manning and changes
to shift patterns at our Moreton tea factory;
    
    £3.0 million of costs relating to the closure of our Histon
and Hampstead administrative functions and the relocation of our
principal administrative office to St. Albans;
    
    £2.4 million of costs relating to the closure of our Nelsons
spreads factory in Aintree and the relocation of production to our
Histon spreads factory;
    
    £2.2 million of costs relating to the Nestlé acquisition and
the subsequent integration of its administrative functions with
those of Premier;
    
    £2.1 million of costs relating to the closure of our North
Walsham convenience foods factory. This factory was closed in the
fourth quarter of 2002 and the production integrated into our
convenience foods factories at Wisbech and Long Sutton; and
    
    £2.1 million in relation to further restructuring of our
discontinued French spreads and desserts business following the
integration of our French biscuit distribution company. Operating exceptional items in 2001 were £12.2 million and comprised the
following principal items:  
    
    £4.5 million in relation to the transfer of administration
functions from our Moreton site to our Histon and Long Sutton sites.
This charge includes the redundancy costs of approximately 165
administration staff;
    
    £3.5 million in relation to the restructuring of production
facilities, principally the integration of the SonA production
facilities into our existing facilities at Long Sutton, Wisbech and
Bury, and the closure and sale of the SonA site. This charge
includes the redundancy costs of approximately 130 production and
administration staff; and 41




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##### Table of Contents



Premier Foods plc  
    
    £4.2 million in relation to the restructuring of distribution
arrangements, principally relating to the integration of our French biscuit distribution operations
into our French spreads and desserts business. Group Operating Profit Group operating profit was £60.7 million for 2002, an increase of £9.4
million, or 18.3%, as compared to £51.3 million for 2001. The principal causes
of the increase in operating profit are described above. Loss on Sale or Termination of Operations Loss on sale or termination of operations was £0.4 million for 2002, a
decrease of £29.2 million, as compared to a £29.6 million loss for 2001. The
loss in 2002 was due to the liquidation of a non-core, non-grocery subsidiary.
The loss in 2001 was due to a loss on disposal of The Horizon Biscuit
Company Limited of £25.5
million (including the write-off of £53.0 million of goodwill that had
previously been written off to reserves) and a loss on disposal of F E Barber
Limited of £4.1 million. Profit/(Loss) on Sale of Fixed Assets Loss on sale of fixed assets was £1.6 million for 2002, a decrease of £5.0
million, as compared to a £3.4 million profit in 2001. These losses mainly
relate to disposals of surplus properties and other fixed assets. Net Interest Payable Net interest payable was £36.4 million for 2002, which comprised £6.3
million of amortization charges on our debt issuance costs, £13.2
million of exchange gains on the translation of the principal amount of the
U.S. dollar-denominated Notes and a net £43.3 million payable on the Notes, our
Senior Credit Facility and other borrowings and cash. Net interest payable was
£52.7 million for 2001, which comprised £7.5 million of amortization charges on
our debt issuance costs, £3.6 million of exchange losses on the translation of
the principal amount of the U.S. dollar-denominated Notes and a net £41.6
million payable on the Notes, our Senior Credit Facility and other borrowings and
cash. The increase of net interest payable in 2002 on the Notes, our Senior
Credit Facility and other borrowings and cash was principally due to the
additional debt raised under our Senior Credit Facility to fund the Nestlé
acquisition offset by a reduction in debt through cash generated from our
operating activities, a decrease in market interest rates applicable to our
Senior Credit Facility. Profit/(Loss) on Ordinary Activities Before Taxation Profit on ordinary activities before taxation was £22.3 million for 2002,
an increase of £49.9 million, compared to a £27.6 million loss for 2001. Tax Charge on Profit/(Loss) on Ordinary Activities The tax charge on profit on ordinary activities was £6.0 million for 2002,
as compared to a tax charge on loss on operating activities of £0.9 million for
2001. Retained Profit/(Loss) for the Financial Period Retained profit for the financial period was £16.3 million for 2002, an
increase of £44.8 million, as compared to a loss for 2001 of £28.5 million. SIGNIFICANT ACCOUNTING POLICIES Our accounting policies are described in Note 1 to our consolidated
financial statements included elsewhere in this Annual Report. Certain of our
accounting policies require the application of judgment by management in
selecting the appropriate assumptions for calculating financial estimates. By
their nature these judgments are subject to an inherent degree of uncertainty.
These judgments are based on our historical experience, terms of existing
contracts, our observance of trends in the industry, information provided by
our customers and information available from other outside sources as
appropriate. Our significant accounting policies include: Sales Rebates and Discounts.Our over-rider discounts and customer
rebates reserve is established on our best estimate of the amounts necessary to
meet claims made by our customers in respect of these discounts and rebates.
Provision is made at the time of sale and released, if unutilized,
after assessment of the likelihood of such a claim being made. 42




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##### Table of Contents



Premier Foods plc Pension Benefits.The determination of our obligation and expense for
pension benefits is dependent on our selection of certain assumptions used by
actuaries in calculating such amounts. Those assumptions are described in Note 6 to our consolidated financial statements included elsewhere in this Annual
Report and include, among others, the discount rate, expected long-term rate of
return on plan assets and rates of increase in compensation. In accordance with
both U.K. and U.S. GAAP, actual results that differ from our assumptions are
accumulated and amortized over future periods and therefore, generally affect
our recognized expense and recorded obligation in such future periods. We are
guided in selecting our assumptions by our independent actuaries and, while we
believe that our assumptions are appropriate, significant differences in our
actual experience or significant changes in our assumptions may materially
affect our pension obligations and our future pensions expense. Tax Provisioning.Premier estimates amounts due to tax authorities both
in the United Kingdom and overseas jurisdictions based on profit before tax
multiplied by the standard rate of corporation tax adjusted for estimated
disallowable expenditure, non-taxable income and timing differences. The provision for
outstanding tax exposures is reassessed as queries are resolved with local tax
authorities. Deferred Taxes. Management judgment is required in determining our
provision for income taxes, deferred tax assets and liabilities and the extent
to which deferred tax assets can be recognized. We recognize deferred tax
assets if it is probable that sufficient taxable income will be available in
the future against which the temporary differences and unused tax losses can be
utilized. We have considered future taxable income and tax planning strategies
in assessing whether deferred tax assets should be recognized. Valuation of Goodwill, Intangible and Other Fixed Assets. Under U.K.
GAAP, our accounting policy is to amortize property, plant and equipment,
goodwill and intangible assets over their estimated useful lives. Estimated
useful lives are based on managements estimates of the period that the assets
will generate revenue. For the differences between U.K. GAAP and U.S. GAAP
accounting policies in respect of the valuation of goodwill, intangible assets
and other fixed assets see Note 24 to the consolidated financial statements
included elsewhere in this Annual Report. We additionally consider whether any
of the property, plant and equipment, goodwill and intangible assets may have
become impaired whenever events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. Factors considered
important which could trigger an impairment review include the following:  
    
    under-performance relative to historical or projected future operating results;
    
    changes in the manner of use of the assets or the strategy for the overall business; and
    
    negative industry or economic trends. When we determine that the carrying value of the asset concerned may have
been impaired, we record an impairment charge. The impairment charge is
determined by estimating the recoverable value of the asset using an
appropriate method for that asset. Certain Differences Between U.K. GAAP and US GAAP U.K. GAAP differs in certain significant respects from U.S. GAAP. The
differences applicable to us principally relate to goodwill amortization,
pensions, derivative financial instruments and deferred taxation. A summary of
the significant differences as they affect us are set out in Note 24
to the consolidated financial statements included elsewhere in this
Annual Report. Recent Accounting Pronouncements A
summary of the recent accounting standards as they affect us are set
out in Note 24 of the Notes to our consolidated financial statements included
in this Annual Report. 
 B. Liquidity and Capital Resources Our primary sources of liquidity are cash flow from operations and
borrowings under our Senior Credit Facility. CASH FLOW Net Cash Flow from Operating Activities Net cash flow generated from operating activities for the year ended
December 31, 2003 was an inflow of £43.5 million, an increase of £11.1 million
over the net cash inflow from operating activities of £32.4 million for 2002,
and an increase of £14.7 million over net cash inflow from operating activities
of £81.7 million for 2001. The table below analyzes the increase in net cash
flow generated from operating activities: 43




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##### Table of Contents



Premier Foods plc Year Ended December 312001
    
    2002
    
    2003(£ million)Operating profit before exceptional items
    
    
    64.3
    
    
    
    77.6
    
    
    
    79.4Depreciation and amortization
    
    
    18.6
    
    
    
    25.6
    
    
    
    32.9Working capital movements
    
    
    13.1
    
    
    
    8.9
    
    
    
    11.3Exceptional items
    
    
    (14.3
    )
    
    
    (13.3
    )
    
    
    (10.9
    )Net cash
inflow from operating activities after capital expenditure
    
    
    81.7
    
    
    
    98.8
    
    
    
    112.7Capital expenditure
    
    
    (12.8
    )
    
    
    (15.1
    )
    
    
    (21.0
    )Net cash
inflow from operating activities after capital expenditure
    
    
    68.9
    
    
    
    83.7
    
    
    
    91.7Interest
    
    
    (40.1
    )
    
    
    (43.6
    )
    
    
    (43.0
    )Taxation
    
    
    (1.5
    )
    
    
    (1.3
    )
    
    
    (0.1
    )Net cash inflow from operating
activities after capital expenditure, interest and taxation
    
    
    27.3
    
    
    
    38.8
    
    
    
    48.6
 Historically, our cash flows from operating activities have been largely
stable with variances resulting from the timing of the receipt of payment from
major customers and payments to major suppliers, and from capital and other
expenditures relating to the execution of our restructuring programs. Operating
profits have improved from 2001 to 2003 through increased sales and cost
reductions. The increase in depreciation and amortization for continuing
operations results from the amortization of goodwill recognized on the
acquisition of Nestlé and Ambrosia. Improvements in working capital management
have generated cash inflows in each of 2001, 2002 and 2003. Capital Expenditure and Financial Investment We incurred capital expenditure of £27.3 million, £17.3 million and £20.1
million in 2003, 2002 and 2001, respectively. We believe that our manufacturing
facilities are generally in good condition; however, we have identified a
number of projects to both improve our manufacturing efficiency and support our
new product development program. We have budgeted to spend £25.0 million on
capital expenditure on these projects in 2004. Upon completion of these
projects we expect capital expenditure to decrease as a percentage of sales. We expect to fund future capital expenditure from our operating
activities, and borrowings under the Senior Credit Facility which
places a limit on
permitted capital expenditure of £21.8 million for 2004 and for each year
thereafter. It is our intention to utilize the remaining £5.1 million of the
£10.0 million additional expenditure basket permitted by the Senior Credit
Facility to cover capital expenditure in 2004. This additional expenditure
basket permits us to spend up to £10.0 million in total on capital
expenditure, over and above the annual financial limits prescribed in the
Senior Credit Facility. Servicing of Finance Interest payments on the Notes and interest and principal payments under
our Senior Credit Facility represented significant cash requirements for us.
Borrowings under the Senior Credit Facility and the Acquisition Facility bore
interest at floating rates and require interest payments on varying dates.
Borrowings under the Senior Credit Facility as of December 31, 2003 consisted
of £187.4 million under the Term A Facility and £64.7 million under the Term B
Facility. Borrowings under the Acquisition Facility at December 31, 2003 were
£75.0 million. As of December 31, 2003, the total debt relating to our Notes was £204.2
million, comprising £75.0 million under the pound sterling-denominated Notes
and £129.2 million under the U.S. dollar-denominated Notes. We had a further
£9.3 million interest-free loan from an affiliated company. On June 23, 2004,
we announced that we expect to redeem the Notes on or after their first call
date, September 1, 2004. Despite this expectation, we cannot
assure you that such redemption will occur as planned. The table below sets out the maturity schedule of our net debt at December
31, 2003, but does not take into account our intended redemption of the Notes
in September 2004. We have significant debt service and repayment obligations under the
Senior Credit Facility and the Notes. The maturity profile of our Notes,
secured credit facilities, other debt and payments due under our finance and
operating leases is set out in the table below. 44




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##### Table of Contents



Premier Foods plc The
    
    Term A
    
    Term B
    
    Acquisition
    
    Other
    
    FinanceNotes
    
    Facility
    
    Facility
    
    Facility
    
    Debt
    
    leases
    
    Total Debt(£ millions)Maturing in:Less than 1 year.
    
    
    
    
    
    
    34.2
    
    
    
    
    
    
    
    
    
    
    
    10.3
    
    
    
    0.1
    
    
    
    44.61 to 2 years
    
    
    
    
    
    
    47.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47.52 to 3 years
    
    
    
    
    
    
    49.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49.43 to 4 years
    
    
    
    
    
    
    56.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56.34 to 5 years
    
    
    
    
    
    
    
    
    
    
    64.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64.7More than 5 years
    
    
    204.2
    
    
    
    
    
    
    
    
    
    
    
    75.0
    
    
    
    9.4
    
    
    
    
    
    
    
    288.6Total
    
    
    204.2
    
    
    
    187.4
    
    
    
    64.7
    
    
    
    75.0
    
    
    
    19.7
    
    
    
    0.1
    
    
    
    551.1
 Our primary sources of liquidity are cash flow from operations and
borrowings under the Senior Credit Facility. During the year ended December 31, 2003 and from January 1, 2004 to June 30, 2004, we were not in default of any of the covenants imposed by the
Indenture, the Senior Credit Facility or the Acquisition Facility. On May 10, 2004, we made the following announcement: In response to press reports, Premier Foods plc announces that it
continues to explore strategic alternatives, including transactions such as a
potential leveraged recapitalization or a potential equity offering. No
decisions have been taken as to whether or when any such transaction might take
place. 
 C. Research and Development, Patents and Licenses, etc. Premier engages in continuing research and development to maintain
the appeal of our current products and develop new innovative products for the
consumer. We spent £0.4 million, £1.0 million and £0.9 million in 2001, 2002
and 2003, respectively, on research and development
activities. Research and development expenditure is expensed in the year in
which it is incurred. 
 D. Trend Information Current Trading and Prospects Since
December 31, 2003, trading in our grocery business has developed favorably and in
line with expectations. Sales in our convenience foods, pickles and sauces
segment have grown as a result of the development of our Loyd
Grossman branded products and our entry into a number of new retailer
brand contracts. Sales in our tea and beverages sector are in line
with expectation. Our spreads and desserts sales continue to be
favorably impacted by the inclusion of sales from our recently
acquired Ambrosia brand. The difficult trading
conditions experienced by our potato business MBM over the last half
of 2003 and the first quarter of 2004, which resulted from the poor
2003 harvest, continue. Trading prospects for this business over the
remainder of the year will depend upon the outcome of the 2004 potato
crop. Taking these factors into
account, the directors are confident about the trading prospects of
the Group for the current financial year ending on December 31,
2004. See also trend information in Item 4. Information on the Company 
Business Overview  Industry and Item 5. Operating and Financial Review and
Prospectus  Significant Factors Affecting our Operating Results  Industry Factors. 
 E. Off-Balance Sheet Arrangements We do not have material off-balance sheet arrangements, other than
derivative instruments described in note 20 to our consolidated financial
statements included elsewhere in this Annual Report. We use these derivative
financial instruments solely to manage commercial and financial risk. 45




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##### Table of Contents



Premier Foods plc 
 F. Tabular Disclosure of Contractual Obligations The table below summarizes our contractual obligations, and the effect
such obligations are expected to have on our liquidity and cash flow in future
periods, as of December 31, 2003, but does not take into account our intended
redemption of the Notes in September 2003. Payment Due by PeriodTotal
    
    Less than 1 year
    
    1-3 years
    
    3-5 years
    
    More than 5 years(£ millions)Contractual
ObligationsDebt obligations (net of debt
issuance costs)
    
    
    537.5
    
    
    
    39.8
    
    
    
    91.4
    
    
    
    117.9
    
    
    
    288.4Finance lease obligations
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    12.2
    
    
    
    3.9
    
    
    
    4.1
    
    
    
    2.0
    
    
    
    2.2Capital commitments
    
    
    5.0
    
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    Pension obligations
    
    
    21.9
    
    
    
    6.9
    
    
    
    15.0
    
    
    
    
    
    
    
    Purchase
obligations(1)
    
    
    90.3
    
    
    
    43.6
    
    
    
    45.5
    
    
    
    1.0
    
    
    
    0.2Other long-term liabilities
reflected on the Groups balance
sheet
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Total
    
    
    667.2
    
    
    
    99.3
    
    
    
    156.0
    
    
    
    120.9
    
    
    
    291.0
   (1) Purchase obligations
include commitments to purchase commodities, raw materials and
packaging (including cans). 
 Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 
 A. Directors and Senior Management The following sets forth names, dates of birth and positions of the
persons who currently serve as our directors and executive officers. Name
    
    Date of Birth
    
    Position HeldRobert Schofield
    
    February 4, 1952
    
    Director, Chief ExecutiveJohn R. Muse
    
    February 24, 1951
    
    DirectorLyndon Lea
    
    January 13, 1969
    
    DirectorPaul Thomas
    
    December 30, 1955
    
    Director, Finance DirectorLuca Velussi
    
    November 7, 1969
    
    DirectorStephen Alexander
    
    December 12, 1955
    
    Non-Executive DirectorC. Dean Metropoulos
    
    May 5, 1946
    
    Non-Executive Chairman(resigned on May 13, 2004)
 Robert John Schofieldjoined Premier in 2001 to assume responsibility for
the Premier branded business. He was appointed Chief Executive in January 2002.
Prior to joining Premier, Mr. Schofield was employed by United Biscuits plc
from 1986 to 2001. At United Biscuits plc he served as Managing Director for
McVities U.K. from 1995 to 2001. From 1999 to 2001, Mr. Schofield was also
Managing Director for United Biscuits UK, and directed both the McVities and KP
Foods businesses. Mr. Schofield had previously acted as Deputy Managing
Director, taking responsibility for all operational aspects of the business,
and Manufacturing Director, for McVities. Prior to working for United Biscuits
plc, Mr. Schofield spent eight years with Nestlé International in the Far East,
between 1979 and 1986. Mr. Schofield graduated with Honors from the University
of East Anglia in 1973 and completed postgraduate studies at IMD in Switzerland
in 1994. John R. Musewas appointed a director of Premier in May 1999. Mr. Muse is
President and co-founder of Hicks Muse Inc. Mr. Muse leads the firms
investment initiatives in Europe. Prior to the formation of Hicks Muse, Mr.
Muse headed the investment and merchant banking activities of Prudential
Securities for the southwestern region of the U.S. Mr. Muse serves as a
Director of the Anderson School of Business at the University of California
(UCLA), Los Angeles, California and of Dean Foods as well as several Hicks Muse
companies including Burtons Foods, EurotaxGlasss, LIN Television, Media
Capital, Pinnacle Foods and Yell. Lyndon Leais a partner of Hicks Muse and has been with Hicks Muse since
1998. He currently serves on the boards of Yell Group plc, HMTF Furniture
Limited (which wholly owns Christie Tyler Limited) and various Cayman limited
companies which wholly own Aster City Cable and Burtons Foods Group Limited.
Prior to joining Hicks Muse, Mr. Lea served at Glenisla, which was then the
European affiliate of Kohlberg Kravis Roberts & Co. He previously served in the
investment banking division of Schroders in London and in 46




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Premier Foods plc the mergers and acquisitions department of Goldman Sachs in New York. He
received his BA Honors in Business Administration from the University of
Western Ontario, Canada. Paul Thomasjoined Premier in 2002 as Finance Director. Prior to joining
Premier, Mr. Thomas served as Finance Director with Coors Brewers (formerly
Bass Brewers) from 1994, having previously served in that role at Bass Leisure
from 1988 to 1994. Previously, Mr. Thomas was the Director of Planning and
Business Development in the retail division of Grand Metropolitan plc from 1987
to 1988, prior to which Mr. Thomas held the role of Finance Director for
Hampshire Bus Co Ltd for a year and held managerial finance positions at Thorn
EMI Screen Entertainment Ltd and Khedivial Mail Line GmbH. Mr. Thomas commenced
his career at Robson Rhodes where he qualified as a chartered accountant. Mr.
Thomas graduated with Honors from Birmingham University and completed
postgraduate studies at Cambridge University. Luca Velussiwas appointed a director of Premier on February 10, 2003. Mr.
Velussi serves as a Principal of Hicks Muse. Prior to joining Hicks Muse, Mr.
Velussi was employed in the principal investments group of Goldman Sachs in
London. Mr. Velussi serves as a Director of Aster City Holding. He received
his B.S.E. from Princeton University and his Masters in Finance from the HEC
School of Management in Paris. Stephen Alexanderbecame a non-executive director of Premier in March
2001. He served as an executive director of Premier from February 2000 to
March 2001. Stephen Alexander has extensive knowledge of the food industry in
Europe. He was previously Chief Executive of the retail division of Allied
Domecq plc and Chief Executive of J. Lyons & Company Ltd. (Food Division of
Allied Domecq plc). He was appointed Chief Executive Officer of Le Meridien
Hotels and Resorts in April 2003. C. Dean Metropoulosbecame Non-Executive Chairman of Premier in January
2002, prior to which he served as Premiers Executive Chairman from September
1999 to January 2002. Mr. Metropoulos is currently Chairman of the Board and
Chief Executive Officer of Pinnacle Foods Corporation, a food manufacturer.
Mr. Metropoulos served as Chairman of the Board and Chief Executive Officer of
International Home Foods, Inc. from November 1996 to June 2000, and the Chief
Executive Officer of Metropoulos & Co., a management services company. From
1983 through 1993, Mr. Metropoulos served as President and Chief Executive
Officer of Stella Foods, Inc. In 1994, Mr. Metropoulos became Chairman and
Chief Executive Officer of the Morningstar Group. Previously, Mr. Metropoulos
served in a variety of U.S. and international executive positions with GTE
Corporation, including Vice President and General Manager  Europe and Vice
President and Controller of GTE International. Mr. Metropoulos resigned on May
13, 2004. We are currently in the process of recruiting a new Non-Executive
Chairman. Senior Management The Companys senior management team (in addition to the Executive
Directors listed above), their dates of birth and positions are as follows: Name
    
    Date of birth
    
    PositionIan Christopher Croxford
    
    2 April 1958
    
    Operations DirectorHoward Paul Beveridge
    
    14 November 1960
    
    Marketing DirectorStephen Thomas Bolton
    
    15 October 1964
    
    Managing Director of MBMIan York
    
    22 May 1959
    
    Sales Director
 Ian Croxfordjoined Premier in 2003 as Operations Director. Prior to
joining Premier, he served as the Managing Director for John Dewars Whiskey, a
former subsidiary of Diageo, since purchased by Bacardi. Previously, Mr.
Croxford held senior management roles in a number of the leading food and
beverage companies, including Associated British Foods, Allied Lyons, Tate &
Lyle and Diageo. He graduated with Honors in Applied Biology from Liverpool
Polytechnic. Howard Beveridgejoined Premier in 2002 as Marketing Director. Prior to
joining Premier, he held senior marketing roles at Barclaycard and at BUPA
Hospitals, where he served as Marketing Director, Mr. Beveridge previously held
marketing positions with a number of major blue chip manufacturing companies
including Tube Investments, Cadbury Schweppes and United Biscuits. Mr. Beveridge is a graduate of Oxford University. Stephen Boltonjoined Premier in 2002 as Commercial Director and has since
been appointed as Managing Director of MBM. Prior to joining Premier, Mr.
Bolton served as Marketing Director at Jeyes U.K. Ltd. His early marketing and
commercial management career included periods with Philips, Sara Lee and Addis
Housewares. Mr. Bolton graduated from Trinity College, Dublin in 1984. Ian
York joined Premier in 1994 as General Sales Manager for the Canned
Foods division. His role has subsequently expanded to include responsibility
for all U.K. sales activities across the entire Premier business. He was
appointed Group Sales Director in 2001. Previously, Mr. York held a variety of
positions specializing in the U.K. grocery market with Quaker Oats Ltd.,
Associated British Foods and Blue Crest. 47




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Premier Foods plc 
 B. Compensation The aggregate compensation paid to all of our directors and executive
officers for services in such capacities was £0.6 million (2002: £2.2 million,
2001: £2.6 million) for the year, including £nil (2002: £1.0 million, 2001:
£0.8 million) of compensation for loss of office. Retirement benefits accrue
to two directors under defined benefit schemes. The highest-paid director was
paid £0.3 million (2002: £0.5 million, 2001: £1.0 million). The
accrued pension in respect of this director was £0.0 million (2002: £0.0
million, 2001: £0.0 million). Robert Schofield and Paul Thomas are
compensated by Premier. John Muse, Lyndon Lea and Luca Velussi receive no
compensation from Premier or Premier Holdings. Dean Metropoulos and Stephen
Alexander are compensated by an affiliate of Hicks Muse. See also note 6 to our consolidated financial statements included
elsewhere in this Annual Report. 
 C. Board Practices Board Composition The board of directors of Premier meets on a quarterly basis to review
performance and future strategy. In addition, Premier has an operational
board comprising Robert Schofield, Paul Thomas and other members of our
management responsible for production, sales and marketing. The operational
board meets twice monthly. Term of Office All of Premiers directors hold office until the next annual general
meeting following their appointment if appointed by the board of directors and,
in any event, until their resignation or removal from office pursuant to the
Articles. Hicks Muse effectively control 93.6% of HMTF Premier Investments
Holdings L.P. which has indirect ownership of 100% of the share capital of
Premier (see Item 4. Information on the Company  Organizational Structure).
As a result, Hicks Muse has the ability to elect all of Premiers directors. Employment Agreements Robert Schofield and Paul Thomas are employed by Premier Foods (Holdings)
Limited, the parent company of Premier. John Muse, Lyndon Lea and Luca
Velussi are employed by Hicks Muse. C. Dean Metropoulos and Stephen Alexander
are employed by affiliates of Hicks Muse. Robert Schofields and Paul Thomas
service contracts are each for a fixed term of one year and continue
thereafter unless terminated by either party. These service agreements are
terminable by Premier Foods (Holdings) Limited for cause (as defined in each service
agreement). Audit and Remuneration Committees Premier does not have a separate audit committee. The board of directors
believes that the representatives of Hicks Muse and the non-executive
directors are sufficiently independent from the day-to-day operations to
fulfill the function of an audit committee. Premier does not have a separate
remuneration committee. The board of directors determine remuneration under
guidance from Hicks Muse. The entire board serves as the audit committee. 48




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Premier Foods plc 
 D. Employees The following table sets out the average number of employees in the Group
in each of the years 2001, 2002 and 2003: Year Ended December 312001
    
    2002
    
    2003United KingdomManagement
    
    
    273
    
    
    
    291
    
    
    
    343Administration
    
    
    478
    
    
    
    553
    
    
    
    499Production, distribution and other
    
    
    2,882
    
    
    
    2,896
    
    
    
    3,171Total United Kingdom
    
    
    3,633
    
    
    
    3,740
    
    
    
    4,013NetherlandsManagement
    
    
    4
    
    
    
    8
    
    
    
    4Administration
    
    
    6
    
    
    
    4
    
    
    
    10Production, distribution and other
    
    
    123
    
    
    
    123
    
    
    
    127Total Netherlands
    
    
    133
    
    
    
    135
    
    
    
    141FranceManagement
    
    
    66
    
    
    
    75
    
    
    
    70Administration
    
    
    102
    
    
    
    113
    
    
    
    121Production, distribution and other
    
    
    283
    
    
    
    274
    
    
    
    305Total France
    
    
    451
    
    
    
    462
    
    
    
    496TotalManagement
    
    
    343
    
    
    
    374
    
    
    
    417Administration
    
    
    586
    
    
    
    670
    
    
    
    630Production, distribution and other
    
    
    3,288
    
    
    
    3,293
    
    
    
    3,603TOTAL
    
    
    4,217
    
    
    
    4,337
    
    
    
    4,650
 We employ approximately 200 to 300 people annually on a temporary basis
during peak seasons. A substantial number of our employees are represented by unions, and we
have over 15 collective bargaining agreements in place throughout our various
businesses in the United Kingdom, all of which are perpetual. Overall, we
consider our relations with both our unionized and non-unionized employees to
be good, and we have not historically experienced any significant work
stoppages, slowdowns or other collective employee actions that have resulted in
material disruptions of our businesses. 
 E. Share Ownership As
of June 30, 2004 Mr. Metropoulos beneficially owns less than 1% of our
outstanding equity securities. No other members of our board of directors
beneficially owns any of our outstanding equity. The following table shows the number of outstanding options in Premier
Foods (Holdings) Limited granted under the Premier Foods (Holdings) Limited
Employee Share Option Scheme (the Scheme). Name
    
    Number of Options at June 30, 2004Robert Schofield
    
    
    2,215,000Paul Thomas
    
    
    900,000Senior Management
    
    
    1,500,000Other
    
    
    2,316,600Total
    
    
    6,931,600
 Incentive Schemes The Premier Foods (Holdings) Limited Employee Share Option Scheme Premier Foods (Holdings) Limited (PFH) has adopted the Premier Foods
(Holdings) Limited Employee Share Option Scheme (the Scheme) (previously
known as the Hillsdown Holdings Employee Share Option Scheme), approved and
adopted by PFH by board resolution passed on July 14, 2000, with subsequent
amendments adopted by PFH by board resolution passed on October 4, 2002. The Scheme is administered by the option committee (the Committee), and
has the following features: 49




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Premier Foods plc (a) Exercise of option and lapse of options Options granted under the scheme have an exercise price of £1.46 and
expire on October 3, 2012. The rules of the Scheme together with
the option certificates issued to each individual optionholder provide that
options only become exercisable to the extent vested. In the event of a change
of control, the options may be exercised in full (whether vested or not), if
and to the extent determined by the Committee at its discretion. A change of
control for these purposes includes a listing of Premier. Options which
are not exercised in the event of a change of control will lapse and cease to
be of further effect 180 days after that event (unless the options have been
rolled over  see below). If an optionholder ceases to be an employee of PFH or any subsidiary in
certain circumstances including death, retirement, redundancy, injury or
disability, options become exercisable within a specified period from the date
of such cessation. Otherwise, options lapse on ceasing to be an employee. PFH or another member of the Group is obligated to bear any liability to
employers national insurance contributions arising in relation to the exercise
of options. (b) Adjustment of option terms In the event of any issue or reorganization, the number of shares
comprised in an option and/or the exercise price may be adjusted in such manner
as the Committee decides such that the economic effect and value of the option
remains unchanged. An adjustment may be made which reduces or further reduces the exercise
price below the nominal value of an ordinary share if there are sufficient
distributable reserves available in PFH. (c) Exchange of options The rules of the Scheme provide for the rollover of options in the event
that any company obtains control of PFH. An optionholder may at any time, by
agreement with the acquiring company, release his option in consideration of
the grant to him of rights which are equivalent to his option but relate to
shares in a different company. (d) Modifications to the Scheme The Committee may by resolution at any time amend the rules of the Scheme
and adopt additional sections of the Scheme applicable in any jurisdiction
under which options may be subject to additional and/or modified terms. No
amendment may be made which would abrogate or materially adversely affect the
subsisting rights of any optionholder unless it is made with his written
consent or approved by a resolution at a meeting of optionholders passed by
more than 75% of the optionholders who attend and vote in person or by proxy
passed as if the options constituted a separate class of the share capital. (e) Termination The Committee may at any time (without prejudice to the rights of the
optionholders under subsisting options) suspend or terminate the operation of
the Scheme. 
 Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 
 A. Major Shareholders As at January 1, 2003, HMTF Premier Investments Holdings L.P., a limited
liability partnership incorporated in the Cayman Islands, is the beneficial
owner of 100% of the ordinary shares of Premier. Hicks Muse controls a
partnership interest of approximately 93.6% of HMTF Premier Investments
Holdings L.P. The remaining 6.4% partnership interest of HMTF Premier
Investments Holdings L.P. is owned by a group of third-party co-investors. 
 B. Related Party Transactions Set forth below is a description of transactions and agreements with our
shareholders or affiliates we entered into or existed during the year ended
December 31, 2003. Some of these relationships continue to be in effect and
may result in conflicts of interest between us and these shareholders or
affiliates. See Note 22 to the consolidated financial statements
accompanying this Annual Report. Citadel Insurance Services Citadel, a subsidiary of Premier Holdings, provides Premier with insurance
services. Premier paid Citadel insurance premiums for the years ended December
31, 2003, 2002 and 2001 of £nil, £0.7 million and £0.5 million
respectively. 50




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Premier Foods plc Intercompany Loan Pursuant to an intercompany loan agreement dated August 10, 1999 entered
into between Premier and Premier Financing (the Intercompany Loan), Premier
lent an amount equal to the proceeds of the original offering to Premier
Financing, the proceeds of which were used by Premier Financing to purchase
preference shares of Premier Holdings. Interest is to be payable on the dates
and at the rate that interest is payable under the Notes. The Intercompany
Loan has the same maturity as the Notes. Premier Financings ability to pay
interest on, and to repay principal amounts borrowed under, the Intercompany
Loan is dependent upon funds generated from the operations of its operating
subsidiaries and on those subsidiaries ability to pay dividends and make other
distributions to Premier Financing. The Intercompany Loan is subordinated to
the Senior Credit Facility pursuant to a subordination deed. As of December 31, 2003, the amount due from Premier Financing to Premier
under the Intercompany Loan was £198.8 million. Monitoring and
Oversight Agreement In 1999, Premier entered into a 10-year agreement (the Monitoring and
Oversight Agreement) with Hicks Muse pursuant to which Premier will pay Hicks
Muse an annual fee of £1.2 million for providing oversight and monitoring
services to Premier. The annual fee is adjustable at the end of each fiscal
year to an amount equal to one-tenth of one percent of Premiers budgeted
consolidated net sales, but in no event may the fee be less than £1.2 million.
In addition, Premier has agreed to indemnify Hicks Muse and its shareholders
and their respective directors, officers, agents, employees and affiliates from
and against all claims, actions, proceedings, demands, liabilities, damages,
judgments, assessments, losses and costs, including fees and expenses, arising
out of or in connection with the services rendered by Hicks Muse under the
Monitoring and Oversight Agreement. The Monitoring and Oversight Agreement
makes available to Premier the resources of Hicks Muse concerning a variety of
financial and operational matters. The services that have been and will
continue to be provided by Hicks Muse could not otherwise be obtained by
Premier without the addition of personnel or the engagement of outside
professional advisers. In managements opinion, the fees provided for under the
Monitoring and Oversight Agreement reasonably reflects the benefits received
and to be received by Premier. Financial Advisory
Agreement In 1999, Premier and Hicks Muse entered into an agreement (the Financial
Advisory Agreement) pursuant to which will be entitled to receive a fee equal
to 1.5% of the transaction value for each acquisition made by Premier. The
Financial Advisory Agreement makes available to Premier the resources of Hicks
Muse concerning a variety of financial and operational matters. The services
that have been and will continue to be provided by Hicks Muse could not
otherwise be obtained by Premier without the addition of personnel or the
engagement of outside professional advisers. In our managements opinion, the
fees provided for under the Financial Advisory Agreement reasonably reflect the
benefits received and to be received by Premier. Premier paid £1.6 million in
2003 (2002: £2.1 million, 2001: £0.4 million) to Hicks Muse under the Financial
Advisory Agreement. Golden Share A Golden Share has been issued by Premier Financing with voting rights,
which entitles the holder of the Golden Share to block the passing of
resolutions for the winding-up or administration of Premier Financing or
resolutions approving other matters that would constitute a breach of the
Senior Credit Facility. These voting rights attaching to the Golden Share will
lapse upon a payment default in respect of the Notes continuing unremedied and
unwaived for a period of 180 days. The Golden Share is held by an affiliate of
Hicks Muse, which will agree with the lenders under the Senior Credit Facility
as to the exercise of the voting rights of the Golden Share. Premier Foods
(Holdings) Limited Management Charge In 2001, 2002 and 2003, Premier was recharged £0.2 million, £2.8 million
and £0.9 million, respectively, by Premier Foods (Holdings) Limited in respect
of the shared administrative functions. The decrease from 2002 to 2003 in the
recharge to Premier by Premier Holdings is primarily the result of a reduction
in restructuring costs incurred by Premier Holdings. 51




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Premier Foods plc HMTF Poultry Limited Premier has borrowed £9.3 million (2002: £9.3 million) from HMTF Poultry
Limited, an affiliated company. This loan is interest-free, subordinated to
the Senior Credit Facility and repayable in full on July 31, 2009. Transactions with Burtons Foods Limited
(Burtons) Burtons is a company
controlled by affiliates of Hicks Muse. Our directors Mr.
Schofield and Mr. Thomas are also directors of Burtons. Cadbury Biscuits Agreement Premier
Brands Limited, Premier International, Chivers Hartley Limited
(together the Premier Foods Group), Burtons Foods Limited (Burtons),
Cadbury Limited and Cadbury Schweppes plc are parties to an agreement dated May
13, 1986, as amended by a deed of amendment dated April 18, 2002 (the Cadbury
Biscuits Agreement), whereby Cadbury Limited licenses Premier International,
Chivers Hartley Limited and Burtons respectively to manufacture and sell
chocolate milk drinks, chocolate spreads, chocolate biscuits and chocolate
syrup under certain Cadbury trademarks. The Cadbury Biscuits Agreement
continues until 2026 when it is renewable by Premier International
Foods U.K. Limited on terms to
be agreed between the parties. Chocolate Supply Arrangements An agreement, dated January 29, 2001, was entered into
between Burtons and Premier International Foods UK Limited
(Premier International) whereby Premier
International agreed to buy its entire requirement of certain
Cadbury chocolate products from Burtons. The consideration
payable is determined according to a specified cost price per
tonne which shall remain valid until December 31, 2006 and
shall be agreed between the parties for each year thereafter.
The value of purchases by the Group from Burtons were
£0.7 million, £0.5 million,
£0.7 million, in the years ended December 31,
2001, 2002 and 2003. Cocoa Supply Arrangements Premier International and Burtons have agreed to cooperate in
relation to certain aspects of their respective purchase of
cocoa products from Cadbury Limited under the Beverages
Agreement and the Biscuits Agreement, respectively. In
particular the parties undertake to agree annual budgets for
cocoa bean prices and cocoa butter ratios which are used as
inputs into the prices of the cocoa products, and to issue joint
instructions to Cadbury Limited in respect of their forecasted
demands for cocoa products. Premier International made payments
to Burtons of £1.4 million for the two years ended
December 31, 2002. Burtons made a payment of
£0.6 million to Premier International in the year
ended December 31, 2003. Sugar Supply Agreements A strategic partnership agreement, dated December 5, 2003,
was entered into between Chivers Hartley Limited,
H.L. Foods Limited, Premier Ambient Products (UK)
Limited and Premier International (together the Premier
Foods Group), and British Sugar plc and Burtons, in
relation to the supply of sugar for the calendar years 2004 and
2005. Sugar purchases are made on a fixed prices per tonne
basis, subject to certain discounts and adjustments. British
Sugar plc guarantees that the terms of this agreement will
result in a specific per annum saving to the Premier Foods Group
and Burtons. Agreement in relation to distribution of Burtons
Biscuits products in France An agreement, dated January 29, 2001, was entered into
between Premier Brands France SA and Burtons whereby
Premier Brands France SA was appointed Burtons
exclusive distributor for the promotion and sale of certain
chocolate biscuit products in France. This agreement renews
automatically for continuous periods of two years unless
terminated by either party giving the other six months
written notice. Premier Brands France SA shall buy the
products at specified prices, and are liable for all taxes,
imports and duties. The value of purchases by the Group from
Burtons were £5.2 million, £5.5 million
and £4.6 million in the years ended December 31,
2001, 2002 and 2003. Shared Property at
Centrium Business Park, St. Albans The Group under-lets premises at its head office site at Centrium Business
Park, St. Albans to Burtons. The lease is for a duration of
15 years at an annual rent of £163,000 per annum, with the
first year rent-free. Sale of Freehold Land
and Buildings In
January 2003, surplus land and buildings at the Moreton site were
transferred to Burtons in exchange for the receipt of a warehouse at
Risley, near Warrington. The properties at Moreton and Risley were
both valued at £3.0 million by an independent third party. Guarantees On June 28, 2002, Premier Ambient Products (UK) Limited, a subsidiary of
Premier entered into a sale and purchase agreement with Ardnure Investments
Limited for the sale and purchase of the entire share capital of Pastam
Limited, a company registered in the Republic of Ireland, which had secured the
right to acquire the ambient foods business in the Republic of Ireland of
Nestlé SA. Premier Financing Limited, a subsidiary of Premier, has guaranteed
minimum royalty payments due from Pastam Limited to Nestlé SA, should Pastam
Limited be placed into receivership. In turn, Pastam Limited has signed a deed
of indemnity, whereby it will indemnify Premier Financing for any loss suffered
should the guarantee be called upon, and has granted Premier Ambient
Products (UK) Limited a power of
attorney to terminate the license, should a receiver be appointed to Pastam
Limited. The maximum exposure to Premier Financing under this guarantee at December 31,
0.3 million per annum until 2017.
After 2017, the exposure is limited to 0.6 million. 
 C. Interests of Experts and Counsel Not applicable. 
 Item 8. FINANCIAL
INFORMATION 
 A. Consolidated Statements and Other Financial Information The financial statements required by this item are found in Item 18
Financial Statements of this Annual Report. Litigation No member of the Group is, or has been engaged in or, so far as the
Company is aware, has pending or threatened by or against it, any legal or
arbitration proceedings which may have, or have had during the recent 52




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Premier Foods plc past (covering at least the period since December 31, 2002), a significant
effect on the Groups financial position other than as disclosed below:  (a)
    
    Members of the Group are involved in a series of three
separate but linked proceedings which arise out of events prior to
the acquisition by the Group of Hobson Ltd (Hobson). The dealings
were between Hobson (now a member of the Group); F E Barber Ltd (F
E Barber), a former member of the Group; and the
Co-operative Group (CWS) Limited (CWS). F E Barber was sold out of
the Group in 2001 and Premier Financing indemnified the purchaser of
F E Barber in respect of these proceedings, and was assigned, among
other things, the conduct of the matter. In the proceedings:(i) CWS is suing Hobson claiming damages in excess of
£10.0 million,
for loss allegedly occasioned by alleged criminal acts committed by
Mr. Andrew Regan, a shareholder in Hobson and its then chief
executive and others (including an intermediary, Mr. Ronald Zimet
and his company, Trellis International Limited (Trellis)). Mr.
Regan is alleged to procure the extension of a supply agreement
between CWS and F E Barber in January 1995 (which agreement is said
to have been brokered by Mr. Zimet and/or Trellis) at an
undervalue. CWS claims that Hobson is vicariously liable for these
acts. The two CWS employees, Mr. Regan, Mr. Zimet and/or Trellis,
and Hobsons former solicitor Mr. Thomas, are also defendants to
CWSs claim;(ii) Premier Financing is suing Mr. Regan, Mr. Zimet and/or Trellis
and the two CWS employees for damages and claiming indemnities in
respect of any loss arising from the first action; and(iii) Premier Financing is suing the law firm Alsop Wilkinson and
one of its partners (who is said to have assisted in Mr. Regans
alleged acts of bribery) for damages. The partner is
counterclaiming against Premier Financing for loss of earnings and
business opportunities as a consequence of the civil and criminal
proceedings having been brought. CWS have estimated their loss as being in excess of £10.0 million.
However, it is the view of the Groups management that the claim is unlikely to
succeed, but that if it were to do so, their assessment is that the value of
the Groups share of any settlement would not be material to the Group.  (b)
    
    A dilapidations claim has been made against Premier
International Foods U.K. Limited by Barnsfold Limited, the landlord
of a leasehold property in Speke, Liverpool occupied by Premier
until 2002. The landlords claim is quantified at £1,303,382
excluding loss of rent and fees. Premier has not finalised its
response to all elements of this claim, but Premiers quantification
of the claim is likely to be substantially lower than the claim made
by the landlord. Both parties have acknowledged that any agreed
amount for damages will be capped by any diminution in the value of
the property. Premier made a Part 36 payment into Court in December
2003 of £300,000, which remains in Court, and the landlord put
forward a Part 36 offer in January 2004 of £1,009,005 including
interest. A trial has been fixed for October 2004.(c)
    
    A claim for £658,000 has been made against Premier
International by Tibbett and Britten Limited (T&B) pursuant to
indemnities under an asset sale agreement and unquantified damages
arising out of an alleged loss of revenue of approximately £8.6
million for business it allegedly should have received under a
related distribution agreement. Premier challenges both liability
for this loss and the quantum of damages sought (Premiers position
being that the loss is greatly exaggerated owing to errors in T&Bs
calculations). Premier has asserted a counterclaim for breach of
contract by T&B in connection with T&Bs obligations to manage
pallets hired from GKN Chep under the distribution agreement.
Premier is seeking to set-off the indemnities claimed against
Premiers claim, which is quantified at £2.3 million for lost
pallets and for excess rental charges incurred. This action is
ongoing and the directors consider that appropriate accounting
provision has been made in respect of this matter. 
 B. SIGNIFICANT CHANGES We announced on June 23, 2004 the following information: Intention to Redeem Sterling-Denominated and Dollar-Denominated Senior Notes
due 2009 We expect to redeem our Notes on or after their first call date, September
1, 2004. We may redeem the Notes during the 12-month period from September 1, 2004
at the following rates: Sterling NoteYear
    
    Redemption Price
    
    Dollar Note Redemption Price2004
    
    
    106.125
    %
    
    
    106.000
    %
 Once notice has been served in accordance with the Indenture, Notes called
for redemption will become due and payable on the redemption date and interest
on such Notes will cease to accrue. Upon redemption, the redemption price plus
interest earned to the redemption date shall be paid to the holders of the
Notes. 53




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Premier Foods plc Once notice has been served in accordance with the Indenture, Notes called
for redemption will become due and payable on the redemption date and interest
on such Notes will cease to accrue. Upon redemption, the redemption price plus
interest earned to the redemption date shall be paid to the holders of the
Notes. Despite our expectations, there can be no assurance that the Notes will be
redeemed as planned. Changes to Financial Statements We have determined that certain promotional expenditures are more
appropriately classified as a reduction of sales rather than selling and
distribution costs and, accordingly, we have reclassified these amounts for
the years ended December 31, 2001, 2002 and 2003; see
Note 2 to the consolidated
financial statements included elsewhere in this Annual Report. The audited results for the three years ended December 31, 2003 reflecting
this revision are included in the consolidated financial statements included elsewhere in this Annual Report. Potential Sale of
Materne We also announced that we are in negotiations to sell our Materne spreads
and desserts business in France that operates under the Materne,
Boin and
Confipote brands to funds advised by Hicks Muse. Materne had
sales of £96.8 million for the year ended December 31, 2003. No definitive agreement has been reached and negotiations on consideration
for the sale are ongoing. Affiliates of Hicks Muse are
controlling parties of Premier. Maternes results were reported within the our consolidated financial
statements included elsewhere in this Annual Report for the year ended December
31, 2003. 54




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Premier Foods plc Item 9. THE OFFER AND LISTING 
  A.
    
    The Offer and Listing Details  Not applicable. 
  B.
    
    Plan of Distribution  Not applicable. 
  C.
    
    Markets  The Notes are listed on the Luxembourg Stock Exchange. 
  D.
    
    Selling Shareholders  Not applicable. 
  E.
    
    Dilution  Not applicable. 
  F.
    
    Expenses of the Issue  Not applicable. 
 Item 10. ADDITIONAL INFORMATION 
  A.
    
    Share Capital  Not applicable. 
  B.
    
    Memorandum and Articles of Association  Premier was incorporated in England and Wales on May 12, 1999 (registered
number 3771991). Objects and Purposes Section 4 of our Memorandum of Association sets forth the objectives for
which Premier was established:  
    
    to receive monies on deposit or loan and to borrow or raise
money in any currency;
    
    to advance, deposit or lend money, securities and/or property
and to discount, buy, sell and deal in securities or documents;
    
    to acquire, invest in and hold by way of investment, sell and
deal in securities of all kinds;
    
    to organize, incorporate, reorganize, finance, aid and
assist, financially or otherwise, companies and to underwrite or
guarantee the subscription of securities of any kind;
    
    to enter into currency and/or interest rate and any other type of swap agreements;
    
    to act as promoters and entrepreneurs and to carry on business as financiers;
    
    to exercise and enforce all rights and powers conferred by or
incidental to the ownership of securities;
    
    to enter into any guarantee or contract of indemnity or
suretyship, and to provide security;
    
    to carry on any other trade or business which can be
advantageously carried on in connection with or ancillary to any of
the businesses of Premier or its subsidiaries;
    
    to buy, sell, manufacture, repair, alter, improve,
manipulate, prepare for market, let on hire, and generally deal in
all kinds of things required by persons having dealings with
Premier;
    
    to apply for, purchase and by other means acquire, protect,
prolong and renew any form of intellectual property and to use,
manufacture under and grant licenses and privileges in respect of
those things;
    
    to purchase, take on lease, exchange, hire and otherwise
acquire any real or personal property and any right or privilege
over or in respect of it; 55




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Premier Foods plc  
    
    to sell, lease, exchange, let on hire and dispose of any real or personal property and the whole or part of the undertaking of
Premier, for such consideration as the directors think fit;
    
    to adopt any means of publicizing and making known the
businesses, services and products of Premier;
    
    to support, subscribe to and contribute to any charitable or
public objective and any institution, society and club which may be
for the benefit of Premier or persons previously or presently
affiliated with Premier; and
    
    to establish, grant and take up agencies, and to do all other
things the directors may deem conducive to the carrying on of
Premiers business as principal or agent. Directors Interest A director of Premier who is in any way interested in a contract or
proposed contract with us must declare the nature of his interest at a
meeting of the directors. A director may not vote on or be counted in the
quorum in relation to a resolution of the board of the Company or of a
committee of the board of the Company concerning a contract, arrangement,
transaction or proposal in which he has a material interest other than by
virtue of his interest in shares in Premier. However, in the absence of some
other material interest, this prohibition does not apply to a resolution
concerning any of the following matters:  (1)
    
    the granting of a guarantee, security or indemnity in respect
of money lent or obligations incurred by him or any other person at
the request of or for the benefit of Premier;(2)
    
    the granting of a guarantee, security or indemnity in respect
of a debt or obligation of Premier for which he himself has assumed
responsibility in whole or in part, either alone or jointly with
others, under a guarantee or indemnity or by the giving of security;(3)
    
    a contract, arrangement, transaction or proposal concerning
an offer of shares, debentures or other securities of Premier for
subscription or purchase, in which offer he is or may be entitled to
participate as a holder of securities or in the underwriting or
sub-underwriting of which he is to participate;(4)
    
    a contract, arrangement, transaction or proposal to which
Premier is or is to be a party concerning another company (including
a subsidiary undertaking of Premier) in which he is interested
whether as an officer, shareholder, creditor or otherwise (a
relevant company), if he does not to his knowledge hold an
interest in shares representing one percent or more of either any
class of the equity share capital of or the voting rights in the
relevant company;(5)
    
    a contract, arrangement, transaction or proposal for the
benefit of the employees of Premier (including any pension fund or
retirement, death or disability scheme) which does not award him a
privilege or benefit not generally awarded to the employees to whom
it relates; and(6)
    
    a contract, arrangement, transaction or proposal concerning
the purchase or maintenance of any insurance policy under which he
may benefit. The salary or other remuneration of executive directors may be a fixed sum
of money, or wholly or in part governed by business done or profits made, or as
otherwise decided by the board of the Company. Non-executive directors are
entitled to such remuneration as Premier may by ordinary resolution determine.
No director is required to vacate his office because he has reached the age of
70 or another age, and section 293 of the U.K. Companies Act 1985 does not
apply to Premier. There is no requirement of share ownership for a directors
qualification. The board of the Company may appoint a person who is willing to act as a
director, either to fill a vacancy or as an addition to the board of the
Company. A director appointed in this way may hold office only until the
dissolution of the next annual general meeting after his appointment unless he
is reappointed during that meeting. The board of the Company may exercise all the powers to borrow money and
to mortgage or charge all or part of the undertaking, property and assets and
uncalled capital of Premier and to issue debentures and other securities. 56




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Premier Foods plc Shareholders Meetings and Notices The board of the Company convenes general meetings of shareholders
annually. Extraordinary general meetings may be convened by the board of the
Company as deemed necessary or upon receipt of a requisition from shareholders
in accordance with the U.K. Companies Acts. An annual general meeting and an extraordinary general meeting called for
the passing of a special resolution require 21 clear days notice. All other
extraordinary general meetings require not less than 14 clear days notice. Dividend Rights; Other Rights to Share in Company Profits; Capital Calls Premier has one series of ordinary shares authorized and outstanding.
Premier may by ordinary resolution declare a dividend to be paid to
shareholders, but no dividend may exceed the amount recommended by the board of
the Company. The board of the Company may declare and pay such interim
dividends as appear to it to be justified by the profits of Premier available
for distribution. A dividend unclaimed for a period of 12 years from the date
it was declared or became due for payment is forfeited and ceases to remain
owing by Premier. Subject to the terms of allotment or issue, the board of the Company may
make calls on shareholders in respect of amounts unpaid on the shares or a
class of shares held by them respectively and not payable on a date fixed by or
in accordance with the terms of allotment or issue. None of our capital stock
is subject to any sinking fund provisions. Apart from shareholders rights to share in Premiers profits by dividend
(if any is declared), the articles of association provide that the board of the
Company may, with the authority of an ordinary resolution of Premier:  (1)
    
    resolve to capitalize an amount standing to the credit of
reserves;(2)
    
    appropriate the sum resolved to be capitalized to the
shareholders in proportion to the nominal amount of ordinary shares
held by them respectively and apply that sum on their behalf;(3)
    
    make any arrangements it thinks fit to resolve a difficulty
arising in the distribution of a capitalized reserve;(4)
    
    authorize a person to enter (on behalf of all shareholders
concerned) an agreement with Premier; and(5)
    
    generally do all acts and things required to give effect to
the resolution. Redemption Provisions; Liquidation Rights Shares may be issued on terms that they are to be redeemed or, at the
option of Premier or the holder, are liable to be redeemed. Upon a voluntary
winding-up of Premier the liquidator may, on obtaining any sanction required by
law, divide among the shareholders in kind the whole or any part of the assets
of Premier. The liquidator may not, however, distribute to a shareholder
without his consent an asset to which there is attached a liability or
potential liability for the owner. Voting Rights; Variation of Rights At a general meeting, a resolution put to the vote of the meeting is
decided by a show of hands unless a poll is properly demanded. Holders of
record of ordinary shares may appoint a proxy to attend and vote on their
behalf at any shareholders meeting. Every shareholder present in person has on
a show of hands one vote and every shareholder present in person or by proxy
has on a poll one vote for every ordinary share of which he is the holder. Subject to the U.K. Companies Act, the rights attached to a class of
shares may be varied whether or not Premier is being wound up (i) in such
manner (if any) as may be provided by those rights, or (ii) in the absence of
provision, either with the consent in writing of the holders of at least
three-fourths of the nominal amount of the issued shares of that class or with
the sanction of an extraordinary resolution passed at a separate meeting of the
holders of the issued shares of that class validly held in accordance with the
articles, but not otherwise. 57




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Premier Foods plc Limitations on Voting and Shareholding There are no limitations imposed by English law or Premiers memorandum or
articles of association on the right of non-residents or foreign persons to
hold or vote Premiers ordinary shares, other than limitations that would
generally apply to all of the shareholders. Disclosure of Interests in Shares There are no bylaw provisions governing the ownership threshold above
which shareholder ownership must be disclosed. 
  C.
    
    Material Contracts The following contracts are the only contracts (not being contracts
entered into in the ordinary course of business) which have been entered into
by members of the Group within the two years immediately preceding the date of
this Annual Report which are or may be material or which have been entered into
by members of the Group and which contain any provision under which any member
of the Group has any obligation or entitlement which is material to the Group
as at the date of this Annual Report: Senior Credit Facility Premier Financing entered into a senior
credit facilities agreement dated August 10, 1999 (as amended on August 20,
1999 and November 5, 1999 and amended and restated on May 27, 2002 and further
amended and restated on October 30, 2003 and November 17, 2003) with J.P.
Morgan plc and Barclays Capital as arrangers, JPMorgan Chase Bank and Barclays
Bank plc as underwriters, with J.P. Morgan Europe Limited as agent and security
agent (the Senior Credit Facility).  (a)
    
    Structure Under the Senior Credit Facility, a syndicate of financial institutions
made £420.0 million of senior secured credit facilities available to Premier
Financing. As a result of a refinancing exercise on May 27, 2002
new facilities were made available, £135.0 million of which was made available to fund the acquisition
of the ambient foods manufacturing business in the United Kingdom of Nestlé SA.
These facilities have been reduced in line with repayments made. As of December
31, 2003, the amount of committed undrawn borrowing facilities available to
Premier Financing under the Senior Credit Facility was £60.8 million. The Senior Credit Facility provides for separate loan facilities
comprising: (i) the Term A Facility; (ii) the Term B Facility; and (iii) the
Working Capital Facility. Certain ancillary facilities are also provided for
therein. Borrowings under the Senior Credit Facility at June 30, 2004 comprised
£168.4 million under the Term A Facility and £64 million under the Term B
Facility. The Working Capital Facility is available in the amount of up to £100.0
million in pounds sterling or the equivalent in certain foreign currencies in
the form of revolving advances and a letter of credit facility, which is to be
used for general corporate purposes. Of the £100.0 million of Working Capital
Facility, £4.4 million was drawn as of December 31, 2003 as a cash advance and
£34.8 million was utilized for general corporate purposes.  (b)
    
    Interest Rates and Fees Interest on advances under the various facilities is payable at the rate
per annum equal to LIBOR (or EURIBOR for euro) plus applicable mandatory liquid
asset costs plus a margin for the Term A Facility of 2.25% per annum reducing
on the basis of a ratchet reducing in several steps to 1.25% per annum
dependent upon certain net debt to consolidated EBITDA ratios for the Term A
Facility. As of June 30, 2004, the margin applied to LIBOR on the Term A
Facility was 2.0%. The margin for the Term B facility is 2.75% per annum. Commitment fees are payable at the rate of 0.75% per annum of the undrawn
portion of the relevant facilities. The commitment fees on the Working Capital
Facility reduce in several steps to 0.25% per annum depending upon certain net
debt to consolidated EBITDA ratios. As of June 30, 2004, the margin applied to
LIBOR in respect of commitment fees was 0.625%. Default interest is payable at
the applicable interest rate plus 1% per annum.  (c)
    
    Security and Guarantees Premier Financings obligations under the Senior Credit Facility are
required to be guaranteed by each of the material operating subsidiaries of
Premier. Each charging subsidiary has granted security over substantially
all of its assets, including English-law fixed charges over material
properties, bank accounts, 58




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Premier Foods plc insurances, debts and shares and a floating charge over all of its other
undertakings and assets. Certain limited material subsidiaries incorporated
outside of England and Wales have given similar security.  (d)
    
    Covenants The Senior Credit Facility requires Premier Financing to observe certain
undertakings, including undertakings relating to delivery of financial
statements, insurances, notification of any default or any occurrence which
could be reasonably expected to have a material adverse effect, consents and
authorizations being maintained, compliance with environmental laws,
notification of material litigation and labor disputes, access to books and
records, uses of proceeds, filing of tax returns, pension schemes, the
provision of guarantees and security from subsidiaries, euro compliance,
intellectual property rights and hedge transactions. The Senior Credit Facility requires Premier Financing to comply with
certain negative covenants, including covenants relating to negative pledges,
borrowed money, guarantees, disposals, operating leases, change of accounting
reference date or accounting policy, identity of auditors, equity yield and
intercompany loan payments, reduction of capital, loans and credit, intra-group
contracts and arrangements, distributions, share capital, disposals,
acquisitions and joint ventures, amendments to documents, change in business,
merger and amalgamation, shareholders meetings and constitutive documents,
acquisitions and joint ventures and new subsidiaries. Certain categories of
permitted payment may be made as exceptions to the restrictions on dividends
and intercompany loan payments including payment of interest on the Notes. In addition, the Senior Credit Facility requires Premier Financing to
comply with specified financial ratios and tests, including EBITDA to total
interest expense, total net debt to EBITDA, fixed charge coverage ratio and
maximum capital expenditure. In the year ended December 31,
2003, Premier met all covenants imposed by the Senior Credit Facility. There are caps on permitted budgeted capital expenditure for each
financial year with the right to carry forward any surplus of budgeted capital
expenditures up to a maximum surplus amount of one-third of the previous years
budget for use within the first six months of the following financial year. An
additional capital expenditure basket permitted by the Senior Credit Facility
allows Premier to spend up to £10.0 million in total on capital expenditure over
and above the financial limits prescribed.  (e)
    
    Maturity and Amortization The Term A Facility is repaid in semiannual installments commencing on
June 30, 2002, with the final maturity on December 31, 2007. The Term B
Facility is repaid in two equal installments with 50% repayable on June 30,
2008 and the balance repayable on December 31, 2008. The Working Capital
Facility (and all other facilities made available thereunder) will cease to be
available on December 31, 2007.  (f)
    
    Prepayment The Senior Credit Facility is required to be prepaid in full immediately
upon the occurrence of certain events including a change of control (as defined
therein) or any asset sale (as defined therein). The first £100.0 million and
thereafter 50% of the aggregate net proceeds of any flotation (as defined
therein) which does not constitute a full prepayment event (as defined therein)
is applied in or towards prepayment of the Senior Credit Facility. The net
proceeds from certain relevant disposals which are not applied in acquiring
replacement assets or other assets required in the business over a six-month
reinvestment period must be applied in prepayment of the Senior Credit
Facility. A percentage of excess cash flow must be applied in prepayment of the
Senior Credit Facility. This percentage is initially 75% but reduces in two
equal steps to 25% depending upon the applicable total net debt to consolidated
EBITDA ratio for the financial year in question. Any amounts received in
respect of any claims made against professional advisers are applied in or
towards prepayment of the senior credit facility after applications to
discharge associated liabilities and claims and/or to acquire assets to which
the relevant claim relates. Subject to an indemnity for broken funding costs,
Premier Financing may prepay amounts outstanding under the Senior Credit
Facility, without penalty or premium, in whole or in part in minimum amounts of
£1.0 million, upon three business days notice to the agent for the Senior Credit
Facility. Prepayments of an amount up to £25.0 million will be applied as
directed by Premier Financing and thereafter firstly against advances under the
Term A and Term B Facilities on a pro rata basis, secondly in reduction of
working capital advances and thirdly in reduction of outstandings under the
ancillary facilities.  (g)
    
    Events of Default The Senior Credit Facility contains certain events of default, including
events relating to failure to pay, misrepresentation, cross-default, derivative
transaction default, breach of undertakings, illegality or 59




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Premier Foods plc unenforceability, insolvency, administration, appointment of receivers and
managers, suspension or winding-up of business, seizure, qualification of
financial statements, environmental matters and changes of ownership. Acquisition Facility On November 17, 2003 Premier Financing entered into a subordinated
facilities agreement with J.P. Morgan PLC as arranger, JPMorgan Chase Bank as
underwriters and J.P. Morgan Europe Limited as agent and security agent (the
Acquisition Facility) where an unsecured term loan
facility of £75.0 million
was made available to fund the acquisition of the ambient desserts
business in the United Kingdom and Republic of Ireland of
Unilever Bestfoods U.K. Limited. The Acquisition Facility is required to be repaid in one
installment on March 31, 2009. Borrowings under the Acquisition Facility on
June 30, 2004 were £75.0 million.  (a)
    
    Interest Rates and Fees Interest on advances under the Acquisition Facility is payable at the rate
per annum equal to LIBOR plus applicable mandatory liquid asset costs plus a
margin of 4.5% per annum.  (b)
    
    Security and Guarantees Premier Financings obligations under the Acquisition Facility are not
secured.  (c)
    
    Covenants The Acquisition Facility requires Premier Financing to observe certain
undertakings, including undertakings relating to delivery of financial
statements, insurances, notification of any default or any occurrence which
could be reasonably expected to have a material adverse effect, consents and
authorizations being maintained, compliance with environmental laws,
notification of material litigation and labor disputes, access to books and
records, uses of proceeds, filing of tax returns, pension schemes, the
provision of guarantees and security from subsidiaries, euro compliance,
intellectual property rights and hedge transactions. The Acquisition Facility requires Premier Financing to comply with certain
negative covenants, including covenants relating to negative pledges, borrowed
money, guarantees, disposals, operating leases, change of accounting reference
date or accounting policy, identity of auditors, equity yield and intercompany
loan payments, reduction of capital, loans and credit, intra-group contracts
and arrangements, distributions, share capital, disposals, acquisitions and
joint ventures, amendments to documents, change in business, merger and
amalgamation, shareholders meetings and constitutive documents, acquisitions
and joint ventures, and new subsidiaries. Certain categories of permitted
payment may be made as exceptions to the restrictions on dividends and
intercompany loan payments including payment of interest on the Notes. In addition, the Acquisition Facility requires Premier Financing to comply
with specified financial ratios and tests, including EBITDA to total interest
expense, total net debt to EBITDA, fixed charge coverage ratio and maximum
capital expenditure. In the year ended December 31, 2003, Premier Foods met all
covenants imposed by the Acquisition Facility. There are caps on permitted budgeted capital expenditure for each
financial year with the right to carry forward any surplus of budgeted capital
expenditures up to a maximum surplus amount of one-third of the previous years
budget for use within the first six months of the following financial year. An
additional capital expenditure basket permitted by the Acquisition Facility
permits Premier Foods to spend up to £10 million in total on capital
expenditure, over and above the financial limits prescribed.  (d)
    
    Maturity and Amortization The Acquisition Facility will be repaid in one installment on March 31,
2009.  (e)
    
    Prepayment The Acquisition Facility is required to be prepaid in full immediately
upon the occurrence of certain events including a change of control (as defined
therein) or any asset sale (as defined therein). The first £100.0 million and
thereafter 50% of the aggregate net proceeds of any flotation (as defined
therein) which does not constitute a full prepayment event (as defined therein)
is applied in or towards prepayment of the Senior Credit Facility or, subject
to the Intercreditor Deed (as defined below), towards prepayment of the
Acquisition Facility. The net proceeds from certain relevant disposals which
are not applied in acquiring replacement assets or other assets required in the
business over a six-month reinvestment period must be applied in prepayment of
the Acquisition Facility. A percentage of excess cash flow must be applied in
prepayment of the Acquisition Facility. This percentage is initially 75% but
reduces in two equal steps to 25% depending upon the applicable total net debt
to consolidated EBITDA ratio for the financial year in question. Any amounts
received in respect 60




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Premier Foods plc of any claims made against professional advisers are applied in or towards
prepayment of the Acquisition Facility after applications to discharge
associated liabilities and claims and/or to acquire assets to which the
relevant claim relates. Subject to an indemnity for broken funding costs,
Premier Financing may prepay amounts outstanding under the Acquisition
Facility, without penalty or premium, in whole or in part in minimum amounts of
£1 million, upon three business days notice to the agent for the Acquisition
Facility. Prepayments will be applied against advances under the Acquisition
Facility on a pro rata basis.  (f)
    
    Events of Default The Acquisition Facility contains certain events of default, including
events relating to failure to pay, misrepresentation, cross-default, derivative
transaction default, breach of undertakings, illegality or unenforceability,
insolvency, administration, appointment of receivers and managers, suspension
or winding-up of business, seizure, qualification of financial statements,
environmental matters and changes of ownership. Intercreditor Deed Premier Financing and certain of its subsidiaries have entered into an
intercreditor deed dated November 26, 2003, among others, J.P. Morgan Europe
Limited as senior agent, senior subordinated agent and security agent (the
Intercreditor Deed). The Intercreditor Deed provides for, among other things, the conditions on
which certain payments can and cannot be made in respect of the Senior Credit
Facility and the Acquisition Facility. Prior to the satisfaction of all
obligations under the Senior Credit Agreement Premier Financing agrees (and
certain of its subsidiaries agree) that:  (a)
    
    it will not make any payment of or in respect of, or purchase, redeem or
acquire, any debt due under the Acquisition Facility in cash or in kind
except to make payments of interest, fees and expenses under the
Acquisition Facility provided that the amount is then due and payable, no
non-payment event (as defined in the Intercreditor Agreement) is
outstanding and no stop notice (as defined in the Intercreditor Deed) is
in force;(b)
    
    it will not discharge any debt due under the Acquisition Facility by
set-off, any right of combination of accounts or otherwise;(c)
    
    it will not create or permit to subsist any Encumbrance (as defined) over
any of its assets for any of the debt due under the Acquisition Facility
except in accordance with the priority and ranking specified in the
Intercreditor Deed;(d)
    
    it will not give any financial support to any person for or in connection
with the Acquisition Facility, except as permitted and in accordance with
the priority and ranking specified in the Intercreditor Deed;(e)
    
    it will not allow any debt due under the Acquisition Facility to be
evidenced by a negotiable instrument; and(f)
    
    it will not take or omit to take any action whereby the ranking and/or
subordination of the debt due under the Acquisition Facility provided for
in the Intercreditor Deed may be impaired. Notes On August 5, 1999 Premier Foods plc (Premier Foods) issued $200.0
million aggregate principal amount 12% Senior Notes due 2009 (the Dollar
Notes) and £75.0 million aggregate principal amount 12 1/4% Senior Notes due
2009 (the Sterling Notes, and together with the Dollar Notes, the Notes)
governed by an indenture (the Indenture). The Notes were subsequently
exchanged for SEC-registered Notes in July 2000 on the same terms and
conditions by the holders. The Notes will mature on September 1, 2009, unless
redeemed at Premier Foods option at an earlier date as described below. Cash
interest on the Dollar Notes accrues at a rate of 12% per annum and is payable
in cash semiannually on 1 March and 1 September of each year. Cash interest on
the Sterling Notes accrues at a rate of 12 1/4% per annum and is payable in
cash semiannually on March 1 and September 1 of each year. The
Notes may be redeemed at Premier Foods option at any time on or
after September 1, 2004, in whole or in part. At any time on or prior to
September 1, 2004, the (a) Notes may also be redeemed as a whole at the option
of Premier Foods and (b) each holder will have the right to require Premier
Foods to purchase all or a part of such holders Notes, in each case upon the
occurrence of a change of control (as defined in the Indenture). The Indenture
governing the Notes contains covenants limiting Premiers ability to incur
additional debt, transfer and sell assets, enter into transactions with
affiliates and pay dividends or make any other distributions on capital stock.
These covenants are subject to a number of important limitations and
exceptions. 61




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Premier Foods plc The Notes contain certain events of default, including events relating to
the failure to pay interest or principal, defaults in the observance or
performance of any other covenant or agreement contained in the Notes or the
Indenture, judgments in an aggregate amount in excess of £10 million being
rendered against Premier Foods and certain events of bankruptcy, insolvency or
reorganization affecting Premier Foods or any of its significant restricted
subsidiaries. The Group presently intends to redeem the Notes on the first date
that such redemption is possible, being September 1, 2004.
Despite this expectation, we cannot assure you that such redemption
will occur as planned. Intercompany Loan Pursuant to an intercompany loan agreement dated August 10, 1999 entered
into between Premier Foods and Premier Financing (the Intercompany Loan),
Premier Foods lent an amount equal to the proceeds of the Notes offering to
Premier Financing, the proceeds of which were used by Premier Financing to
purchase preference shares of Premier Foods (Holdings) Limited. Interest is
payable on the dates and at the rate that interest is payable under the Notes.
The Intercompany Loan has the same maturity as the Notes. Premier Financings
ability to pay interest on, and to repay principal amounts borrowed under, the
Intercompany Loan is dependent upon funds generated from the operations of its
operating subsidiaries and on those subsidiaries ability to pay dividends and
make other distributions to Premier Financing. The Intercompany Loan is
subordinated to the Senior Credit Facility pursuant to a subordination deed,
see  Subordination Deed below. At December 31, 2003 the amount due from Premier Financing to Premier
Foods under the Intercompany Loan was £198.8 million. Subordination Deed In
connection with the Intercompany Loan, Premier Foods plc, Premier
Foods (Holdings) Limited and Premier Financing entered into
subordination deeds which
provide for restrictions on Premier Foods taking certain actions in relation
to the Notes. In particular, Premier Foods may not receive payments to pay
principal on the Notes or any prepayment, redemption, defeasance or purchase of
principal on the Notes or certain indemnities until the Senior Credit Facility
has been paid in full. The subordination deed:  (a)
    
    prohibits Premier Financing from making payments on the
principal amount of the Intercompany Loan while the Senior Credit
Facility is outstanding;(b)
    
    prohibits other payments under the Intercompany Loan to be
made if certain stop events have occurred and are continuing or the
making of the payment would immediately give rise to a stop event
(such stop events are a notice of acceleration, payment default or
insolvency events under the Senior Credit Facility);(c)
    
    gives the Senior Credit Facility priority for payment over
the other subordinated debts, including the Notes, in the event of
any insolvency, bankruptcy, receivership, liquidation or
reorganization proceeding relating to Premier Financing;(d)
    
    prohibits Premier Foods from receiving security in respect of
the Intercompany Loan, creating security over or assigning,
transferring or disposing of its rights in the Intercompany Loan and
accelerating or enforcing its rights thereunder; and(e)
    
    subjects Premier Foods to turnover obligations in the event
that payments are received in breach of the subordination deed. Restrictions are also placed on Premier Foods amending the Intercompany
Loan or the Notes, the Indenture or other documents relating to the Notes which
affect the timing or amount of payments due. Investors Undertaking As part of the arrangements for the Senior Credit Facility, Premier Foods
has agreed that, until a payment default in respect of the Notes has continued
unremedied and unwaived for a period of 180 days, it would not take any formal
legal steps to wind up Premier Financing or to obtain an administrative order
in respect of Premier Financing in respect of unperformed obligations owed to
it. Forward Purchase Contracts On
January 20, 2003, Premier Financing entered into forward exchange contracts
with Barclays Bank plc to purchase $200.0 million, value dated September 1, 2004.
These contracts were entered into to fix the sterling value of the repayment of
the dollar-denominated principal element of the Notes. 62




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Premier Foods plc Acquisition Agreement in Relation to the Ambrosia Transaction An agreement between Premier Ambient Products (UK) Limited and Unilever
Bestfoods U.K. Limited (the Seller) was entered into on November 2, 2003 (the
Ambrosia Acquisition Agreement) pursuant to which Premier Ambient Products
(UK) Limited acquired the ambient desserts business in the United
Kingdom and the Republic of Ireland of Unilever Bestfoods U.K.
Limited, for a net consideration of £106.3 million in cash. The Ambrosia Acquisition Agreement contains certain warranties usual for a
transaction of this type given by the Seller relating to, among other things,
material contracts, financial information, consents and licenses, litigation,
environment, employment, tax, intellectual property, pensions and product
liability. The period during which Premier Ambient Products (UK) Limited may
make a warranty claim against the Seller expires 18 months from completion of
the acquisition (other than claims in relation to tax warranties which expires
after seven years), and the aggregate liability of the Seller for
warranty claims only is subject to a
cap of £35.0 million. In order to make a claim against the
seller pursuant to these warranties, the aggregate amount of all claims for
warranty claims only must exceed £2.0 million
and no individual claim may be less than £100,000. In addition, Premier Ambient Products (UK) Limited provides certain
indemnities, usual for a transaction of this type, to the Seller in relation to
liabilities arising from the employment of those employees of the business who
transferred to Premier Ambient Products (UK) Limited pursuant to the
acquisition, and each of the Seller and Premier Ambient Products (UK) Limited
agrees not to solicit for employment any of the others senior employees for a
period of two years from the date of completion of the acquisition. Acquisition Agreements in Relation to the Nestlé Transaction On May 3, 2002 Nestlé U.K. Limited, Nestlé Ireland Limited, Nestlé S.A.
(together, the Sellers), Premier Ambient Products (UK) Limited, Premier
Financing Limited and Pastam Limited entered into a sale and purchase agreement
and two agreements for the sale of intellectual property rights (together, the
Nestlé Acquisition Agreements) pursuant to which Premier Ambient Products
(UK) Limited acquired the ambient food manufacturing business of Nestlé U.K.
Limited in the United Kingdom for a net consideration of
£132.2 million. The Nestlé Acquisition Agreements contain certain warranties given by the
Sellers relating to tax liabilities which are valid until May 2008, with the
aggregate liability of the Sellers under such warranties being subject to a cap
of £50.0 million. In order to make a claim against the
seller pursuant to these warranties, the aggregate amount of all claims must exceed £4.0 million
and no individual claim may be less than £100,000. In addition, Premier Ambient
Products (UK) Limited provides an indemnity, not unusual for a transaction of this
type, to the Sellers for losses arising out of a breach of its warranty not to
alter the terms and conditions of employment of those employees of the business
who transferred to the employment of Premier Ambient Products (UK) Limited
pursuant to the acquisition. Premier Financing Limited guarantees the obligations of Premier Ambient
Products (UK) Limited under the Nestlé Acquisition Agreements. Monitoring and Oversight Agreement In 1999, Premier Foods (Holdings) Limited and Premier Financing entered
into a 10-year agreement (the Monitoring and Oversight
Agreement) with Hicks Muse pursuant to which the Group paid Hicks Muse an annual fee of
£1.2 million for providing financial oversight and monitoring services to the
Group. The annual fee was adjustable at the end of each financial year to an
amount equal to one-tenth of one percent of the Groups budgeted consolidated
annual net sales, but in no event would the fee be less than £1.2 million. In
addition, the Group agreed to indemnify Hicks Muse and its shareholders
and their respective directors, officers, agents, employees and affiliates from
and against all claims, actions, proceedings, demands, liabilities, judgments,
assessments, losses and costs, including fees and expenses, arising out of or
in connection with the services rendered by Hicks Muse under the
Monitoring and Oversight Agreement. The Monitoring and Oversight Agreement made
available to the Group the resources of Hicks Muse concerning a variety
of financial and operational matters. The services that were provided by Hicks
Muse could not otherwise have been obtained by the Group without the
addition of personnel or the engagement of outside professional
advisers. See Note 22 to our consolidated financial statements
included elsewhere in this Annual Report for a description of the
fees paid under this agreement. Financial Advisory Agreement In 1999, Premier Foods plc, Premier Financing and Hicks Muse entered
into an agreement (the Financial Advisory Agreement) pursuant to which Hicks
Muse was entitled to receive a fee equal to 1.5% of the transaction value
for each acquisition, sale, merger, recapitalization, restructuring or other
similar transaction involving the Company and its subsidiaries. The Financial
Advisory Agreement made available to 63




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Premier Foods plc the Company and its subsidiaries the resources of Hicks Muse concerning a
variety of financial and operational matters. The services that were provided
by Hicks Muse could not have been obtained by Premier without the
addition of personnel or the engagement of outside professional advisers. See
note 22 to our consolidated financial statements included elsewhere in this
Annual Report for a description of the fees that have been paid to date under
the Financial Advisory Agreement. 64




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Premier Foods plc 
 D. Exchange Controls Not applicable. 
 E. Taxation United States US Federal Income Tax Considerations The following discussion is based upon the provisions of the U.S. Internal
Revenue Code of 1986, as amended (the Code), the applicable U.S. Treasury
regulations promulgated or proposed thereunder, judicial authority and current
administrative rulings and practice, all as in effect on the date hereof.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that may be retroactive and that could alter or modify the
continued validity of the statements and conclusions set forth below. Except with respect to the discussions set forth below under  Non-US
Holders and  Information Reporting and Backup Withholding, this discussion
is limited to the U.S. federal income tax considerations applicable to a
beneficial owner of a Note that is for U.S. federal income tax purposes: (i) a
citizen or resident of the United States; (ii) a corporation (or other entity
treated as a corporation for U.S. federal income tax purposes) created or
organized in the United States or under the laws of the United States or any
political subdivision thereof or therein; (iii) an estate, the income of which
is includible in gross income for U.S. federal income tax purposes regardless
of its source; or (iv) a trust, if a court within the U.S. is able to exercise
primary supervision over the administration of the trust and one or more U.S.
persons have authority to control all substantial decisions of the trust (a US
Holder). Certain aspects of U.S. federal income taxation relevant to a
beneficial owner of a Note other than a U.S. Holder (a Non-US Holder) are
also discussed below. This discussion does not address all aspects of U.S.
federal income taxation that might be relevant to particular holders in light
of their personal investment circumstances or status, nor does it discuss the
consequences to holders subject to special treatment under the U.S. federal
income tax laws, such as brokers or dealers in securities or foreign currency,
taxpayers that have elected mark-to-market accounting, financial institutions,
financial services entities, insurance companies, tax-exempt organizations or
private foundations, taxpayers holding Notes as part of a straddle, hedge,
conversion transaction, constructive sale or other integrated investment or
U.S. Holders that have a functional currency other than the U.S. dollar,
certain expatriates or former long-term residents of the United States and
persons subject to the alternative minimum tax. The discussion does not address
any special rules that may apply if the holder receives principal in
installment payments or if the Note is called before the maturity date.
Additionally, the discussion does not consider the tax treatment of
partnerships or other pass-through entities or persons who hold Notes through a
partnership or other pass-through entity. Moreover, the effect of any
applicable state, local or foreign tax laws or the applicability of U.S.
federal gift or estate taxation is not discussed. Holders are urged to consult
their own tax advisers regarding the U.S. federal, state, local, foreign and
other tax considerations of the acquisition, ownership and disposition of the
Notes. Except as otherwise indicated below, this discussion is generally limited
to the tax consequences to beneficial owners of the Notes that are initial
holders of the Notes that hold the Notes as capital assets (within the meaning
of Section 1221 of the Code) and that purchased the Notes at the issue price.
For this purpose, the issue price of a Note is the first price at which a
substantial amount of the Notes were sold to the public for money (excluding
sales to bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers). Each investor is advised to consult such persons own tax advisor with
respect to the specific tax consequences to such person of purchasing, holding
or disposing of Notes. Stated Interest on Notes Stated interest on a Note will be taxable to a U.S. Holder as ordinary
income either at the time it accrues or is received in accordance with the U.S.
Holders method of accounting for U.S. federal income tax purposes. 65




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Premier Foods plc Stated interest paid on a Note will be includible in income by a U.S.
Holder in an amount equal to the U.S. dollar value of the interest, regardless
of whether a payment is in fact converted to U.S. dollars at that time. If such
U.S. Holder uses the cash method of accounting for tax purposes, the U.S.
dollar value of such interest is determined using the spot rate at the time
payment is received. If a U.S. Holder uses the accrual method of accounting for
tax purposes, the U.S. dollar value of such interest is determined using the
average exchange rate during the relevant accrual period (or partial accrual
period with respect to interest paid in a subsequent taxable year) or, if
elected, the spot rate (i) on the last day of the relevant accrual period (or
partial accrual period) or (ii) on the payment date, if such date is within
five business days of the last day of the accrual period or taxable year. Any
such election will apply to all debt instruments held by the U.S. Holder at the
beginning of the first taxable year to which the election applies or afterwards
acquired and will be irrevocable without the consent of the U.S. Internal
Revenue Service. Any differences in the exchange rate between the rate at
which interest on a Note is included in income and the spot rate on the payment
(or disposition) date for interest will result in exchange gain or loss with
respect to the related amount of interest, and will generally be treated as
ordinary income or loss for U.S. federal income tax purposes. The U.S. dollar
value of interest accrued or received, adjusted for any exchange gain or loss
with respect to the amount accrued, generally will be a U.S. Holders tax basis
in the pounds sterling received as interest on a Note. Additional Amounts Assuming that the contingency that we will pay Additional Amounts (i.e.,
the amount of interest provided in the Notes to prevent any net reduction for
withholding taxes, determined using the withholding tax rate applicable to the
U.S. Holder) is remote or incidental (within the meaning of applicable U.S.
Treasury regulations), a U.S. Holder will treat the gross amount of any
Additional Amounts as ordinary interest income at the time such amount is
received or accrued in accordance with such U.S. Holders method of accounting
for tax purposes in the same manner as discussed above under  Stated Interest
on Notes. Consequently, the amount a U.S. Holder will include in gross income
with respect to a Note could exceed the amount includible by the U.S. Holder
as stated interest should Additional Amounts be due under the Notes. Withholding Taxes Any foreign withholding taxes paid at the rate applicable to a U.S. Holder
will be treated as foreign taxes eligible for credit against such holders U.S.
federal income tax liability, at the election of the U.S. Holder, subject to
generally applicable limitations and conditions (including that the U.S. Holder
claim any applicable treaty benefits). Alternatively, such taxes are eligible
for deduction in computing such U.S. Holders taxable income. Stated interest
and Additional Amounts will constitute foreign source income for U.S. foreign
tax credit purposes. Such income will generally constitute high withholding
tax interest for U.S. foreign tax credit purposes, unless the rate applicable
to the U.S. Holder is below 5%, in which case such income generally will
constitute passive income. The calculation of foreign tax credits involves
the application of complex rules that depend on a U.S. Holders particular
circumstances. Accordingly, investors are urged to consult their tax advisers
regarding their ability to claim a credit for any foreign withholding taxes
paid with respect to the Notes. Sale, Exchange or Redemption Unless a non-recognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by us) or other disposition of a Note will be a
taxable event for U.S. federal income tax purposes. In that event, a U.S.
Holder will recognize gain or loss equal to the difference between (i) the
amount of cash plus the fair market value of any property received upon that
sale, exchange, redemption or other taxable disposition (other than amounts
attributable to accrued interest) and (ii) the U.S. Holders adjusted tax basis
in the Note. A U.S. Holders adjusted tax basis in a Note generally will equal
the cost of the Note (net of accrued interest) to the U.S. Holder, which is for
pound sterling Notes the U.S. dollar value of the pound sterling purchase price
translated at the spot rate for the date of purchase (or, in some cases, the
settlement date). The conversion of dollars into pounds sterling and the
immediate use of those pounds sterling to purchase a Note generally will not
result in a taxable gain or loss for a U.S. Holder. A U.S. Holder will have a
tax basis in any pounds sterling received on the sale, exchange or retirement
of a Note equal to the U.S. dollar value of the pounds sterling on the date of
receipt. Except to the extent of exchange gain or loss discussed below, gain or
loss recognized by a U.S. Holder of a Note should be capital gain or loss and
will be long-term capital gain or loss if the Note has been held by the U.S.
Holder for more than one year at the time of sale, exchange, redemption or
other disposition. If the U.S. Holder is an individual, any capital gain
generally will be subject to U.S. federal income tax at preferential rates of
specified minimum holding periods are met. The deductibility of capital losses
is subject to limitations. 66




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Premier Foods plc Upon the sale, exchange, retirement or repayment of a Note, a U.S. Holder
will recognize exchange gain or loss to the extent that the rate of exchange on
the date of retirement or disposition differs from the rate of exchange on the
date the Note was acquired, or deemed acquired. Exchange gain or loss is
recognized, however, only to the extent of total gain or loss on the
transaction. For purposes of determining the total gain or loss on the
transaction, a U.S. Holders tax basis in the Note will generally equal the
U.S. dollar cost of the Note. Exchange gain or loss recognized by a U.S. Holder
will generally be treated as ordinary income or loss. Any gain realized by a U.S. Holder on the sale, exchange or redemption of
a Note generally will be treated as U.S. source income for U.S. foreign tax
credit purposes. Any loss realized upon such a sale, exchange, redemption or
other disposition of a Note generally will be allocated against U.S. source
income for U.S. foreign tax credit purposes, except to the extent that such
loss is attributable to accrued but unpaid interest. Non-US Holders Subject to the discussion below under  Information Reporting and Backup
Withholding, a Non-US Holder of a Note generally will not be subject to U.S.
federal income or withholding tax on payments, including stated interest and
Additional Amounts, in respect of a Note and gain realized on the sale,
exchange, redemption or other disposition of a Note unless (i) that income is
effectively connected with the conduct by the Non-US Holder of a trade or
business in the United States (or in the case of a treaty resident,
attributable to a permanent establishment (or a fixed base) in the United
States) or (ii) in the case of a gain, the Non-US Holder of a Note is a
non-resident alien individual who holds a Note as a capital asset and is
present in the United States for 183 days or more in the taxable year of the
sale, exchange, redemption or other disposition and certain other conditions
are satisfied. Information Reporting and Backup Withholding Payments of interest and principal on a Note and the proceeds from the
sale of a Note paid to a U.S. Holder (other than a corporation or other exempt
recipient) will be reported to the U.S. Internal Revenue Service. A U.S. Holder
may be subject to U.S. backup withholding (currently at the rate of 28%) with
respect to amounts paid on a Note and the proceeds from the sale, redemption or
other disposition of a Note unless such U.S. Holder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a correct taxpayer identification number certified
under penalties of perjury, certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. Interest on a Note paid outside the United States to a Non-US Holder
through a U.S. person or a U.S. related person (as defined below) is subject to
information reporting and possible backup withholding unless certain
documentation and other requirements are satisfied. The payment of principal on
a Note and the proceeds from the sale, redemption or other disposition of a
Note by a Non-US Holder to or through the U.S. office of any broker, U.S. or
foreign, or the non-US office of a U.S. person or a U.S.-related person, will
be subject to information reporting and possible backup withholding unless (i)
the owner certifies its non-US status under penalties of perjury or otherwise
establishes an exemption and (ii) the broker does not have actual knowledge, or
reason to know, that the holder is a U.S. Holder or that the conditions of any
other exemption are not, in fact, satisfied. A US-related person is a person
with certain enumerated U.S. relationships. Backup withholding is not an additional tax. Any amount withheld under
the backup withholding rules will be creditable against the holders U.S.
federal income tax liability, subject to satisfaction of certain procedural
requirements. Holders of Notes should consult their tax advisers to determine
whether they qualify for exemption from U.S. withholding and the procedure for
obtaining an exemption, if applicable. United Kingdom UK Tax Consequences The following summary describes certain U.K. tax consequences of the
ownership of the Notes but does not purport to be comprehensive. Except where
expressly stated, the summary relates only to the position of those persons who
are (i) the absolute beneficial owners of their Notes and the interest thereon;
(ii) who are neither resident nor ordinarily resident in the United Kingdom for
the purpose of U.K. taxation; and (iii) who do not carry on a trade, profession
or vocation in the United Kingdom through a branch or agency or, in relation to
a corporate noteholder does not carry on a trade in the United Kingdom through
a permanent establishment in the United Kingdom, and may not apply to special
situations, such as those of dealers in securities. Furthermore, the
discussion below is generally based upon provisions of U.K tax law and U.K.
Inland Revenue practice as of the date hereof. These provisions may be
repealed, revoked or modified (possibly with retrospective effect) so as to
result in U.K. tax consequences different from those discussed below. Persons
considering the purchase, 67




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Premier Foods plc ownership or disposition of the Notes should consult their own tax
advisers concerning U.K. tax consequences in the light of their particular
situations as well as any consequences arising under the law of any other
relevant tax jurisdiction. No representations with respect to the tax
consequences to any particular holder of the Notes are made hereby. Interest on the Notes The Notes will constitute quoted Eurobonds within the meaning of section
349 of the U.K. Income and Corporation Taxes Act 1988 (ICTA) provided they
are listed on a recognized stock exchange within the meaning of section 841
of ICTA. The Luxembourg Stock Exchange is currently a recognized stock
exchange for these purposes. Accordingly, as long as the Notes are listed on
the Luxembourg Stock Exchange and remain so listed, payments of interest on the
Notes may be made without withholding on account of U.K. income tax. Interest on the Notes constitutes U.K. source income for U.K. tax purposes
and, as such, may be subject to income tax by direct assessment even where paid
without withholding except in the hands of a holder who is exempt from U.K.
income tax under the terms of an applicable double taxation treaty or
otherwise. However, interest with a U.K. source received without deduction or
withholding on account of United Kingdom tax will not be chargeable to U.K. tax
in the hands of a holder of notes who is not resident for tax purposes in the
United Kingdom unless that holder of Notes carries on a trade, profession or vocation in
the United Kingdom through a U.K. branch or agency or, in relation to a
corporate noteholder does not carry on a trade in the United Kingdom through a
permanent establishment in connection with which the interest is received or to
which the Notes are attributable. There are exemptions for interest received
by certain categories of agents (such as some brokers and investment managers). Any paying agent or other person through whom interest is paid to, or by
whom interest is received on behalf of, an individual (whether resident in the
United Kingdom or elsewhere) may be required to provide information in relation
to the payment and the individual concerned to the U.K. Inland Revenue. The
Inland Revenue may communicate this information to the tax authorities of other
jurisdictions. Proposed European Directive on the Taxation of Savings Income On June 3, 2003 the EU Council of Economic and Finance Ministers adopted a
new Directive regarding the taxation of savings income. The Directive is
scheduled to be applied by Member States from January 1, 2005, provided that
certain non-EU countries adopt similar measures from the same date. Under the
Directive, each Member State will be required to provide to the tax authorities
of another Member State details of payments of interest or other similar income
paid by a person within its jurisdiction to an individual resident in that
other Member State; however, Austria, Belgium and Luxembourg may instead apply
a withholding system for a transitional period in relation to such payments,
deducting tax at rates rising over time to 35%. The transitional period is to
commence on the date from which the Directive is to be applied by Member States
and to terminate at the end of the first full fiscal year following agreement
by certain non-EU countries to the exchange of information relating to such
payments. Persons considering the purchase, ownership or disposition of the Notes
who are in any doubt as to their tax position or who may be subject to tax in
other jurisdictions should consult their own tax advisers. 
 F. Dividends and Paying Agent Not applicable. 
 G. Statement by Experts Not applicable. 
 H. Documents on Display We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the Exchange Act), applicable to foreign
private issuers and fulfill the obligation with respect to such requirements by
filing reports with the SEC. You may read and copy any reports, statements and
other information we file with the SEC at the SECs public reference rooms in
Washington D.C., New York, New York, and Chicago, Illinois. Copies of such
material may be obtained by mail from the Public Reference Branch of the SEC at
such addresses. Please call 1-800-SEC-0330 for further information on the
public reference rooms. As a foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy statements, and
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Premier Foods plc from the reporting and short-swing profit recovery provisions contained in
Section 16 of the Exchange Act. In addition, we are not be required under the
Exchange Act to file periodic reports and financial statements with the SEC as
frequently or as promptly as U.S. companies whose securities are registered
under the Exchange Act. A copy of each report submitted in accordance with
applicable U.S. law is available for public review at our principal executive
offices. 
 I. Subsidiary Information Not applicable. 
 Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion of our financial risk-management activities
includes forward-looking statements that involve risks and uncertainties.
Actual results could differ materially from those projected in the
forwardlooking statements. Market risk represents the risk of changes in the value of financial
instruments, whether derivative or non-derivative, as a result of fluctuations
in foreign currency exchange rates and interest rates. The objective of our
financial risk management strategy is to protect us against unfavorable
changes in the financial markets and thus help us secure profitability.
Funding and management of the financial risks are the responsibility of our
treasury committee, which is a subcommittee appointed by our board of
directors. Under our financial policy, we use various financial instruments within
specified limits to manage the primary market exposures associated with our
underlying assets and liabilities, as well as with anticipated transactions. We
use these instruments to reduce risk by essentially creating offsetting market
exposures. These contracts are entered into with financial institutions in
accordance with our treasury policies and procedures, thereby reducing the risk
of credit loss. We use derivative financial instruments only for commercial
purposes and financial purposes. We do not use derivative financial instruments
for speculative purposes. The following discussion contains sensitivity analyses which present the
hypothetical loss in cash flows or fair values of the financial instruments and
derivative financial instruments that were held by us as of December 31, 2003
that were subject to changes in foreign currency exchange rates and interest
rates. The range of sensitivities chosen for these analyses reflects our view
of changes that are reasonably possible over a one-year period. In the normal course of business, we also face risks that are either
nonfinancial or nonquantifiable. These risks principally include country,
commodity, credit and legal risks, and are not represented in the following
analyses. Currency Fluctuation Although
83% of our business is conducted in the United Kingdom, we have
operations in France and the Netherlands. We source raw materials from
countries around the world and export our products to various countries.
Therefore, our financial position and results of operations are subject to
currency transaction risk. Our operating subsidiaries incur currency
transaction risk whenever they enter into either a purchase or sale transaction
using a currency other than pounds sterling. We enter into forward currency
contracts to hedge partially against our exposure to foreign currency exchange
rate fluctuations in the purchase of raw materials and in our export business.
This hedging reduces our exposure to short-term volatility in exchange rates.
However, sustained movement in exchange rates will increase or decrease the
sterling value of our foreign currency-denominated purchases and sales, and we
cannot guarantee that exchange rate fluctuations will not have an adverse
effect on our results of operations. With respect to currency translation risk, the financial condition and
results of operations of our non-UK businesses are measured and recorded in the
relevant domestic currency of the jurisdiction in which the business is located
and then translated into pounds sterling for inclusion in our consolidated
financial statements. The exchange rate remained comparatively stable during
2000, 2001 and most of 2002. However, since September 2002, sterling has
depreciated against the euro from
1.59 to
1.49 at June 29, 2004. (Closing
rate June 29, 2004 as reported in the Financial Times). If this depreciation is
sustained it will have a positive impact on our sales and operating profits as
reported in pounds sterling in subsequent periods. Approximately 16% of the revenues of our continuing businesses in 2003
were denominated in currencies other than pounds sterling. In addition, a
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Premier Foods plc other than pounds sterling. Our financial condition and results of operations,
reported in pounds sterling, may therefore be affected by fluctuations in the
value of the local currencies in which we transact business. Furthermore, many
of our raw materials are obtained from sources outside the United Kingdom and
therefore such costs are incurred in currencies other than the pound sterling.
While we engage in foreign exchange hedging transactions, we cannot assure you
that exchange rate fluctuations will not have a material adverse effect on our
own financial position. The final stage of the European Economic and Monetary Union (Stage III)
began on January 1, 1999 in 11 E.U. Member States. The 11 participating
countries adopted fixed conversion rates between their existing currencies and
the euro, the currency that has been adopted as their common legal currency,
and then on January 1, 2002 converted their legacy currencies into the euro at
the fixed conversion rates. Euro notes and coins were introduced on January 1,
2002, and the legacy currencies ceased to be legal tender by February 28, 2002.
The United Kingdom is not currently a Stage III participant, although the U.K.
government has stated that the United Kingdom might join the single currency at
a later date. If the United Kingdom adopts the euro, the euro will replace the
pound sterling as the United Kingdoms legal currency and sterling-denominated
Notes will be effectively redenominated into euro. France and Holland participated in Stage III, and have converted their
legacy currencies into the euro. The value of our revenues and assets
denominated in euro will therefore decline relative to revenues and assets that
are denominated in other currencies, such as the pound sterling or the dollar,
if the value of the euro declines. We entered into exchange contracts in January 2003 to purchase $200.0
million in September 2004. This was done to eliminate exchange risk on the
$200.0 million Senior Notes and had the effect under U.K. GAAP of fixing the
pounds sterling value of the $200.0 million Senior Notes at £129.2 million. A
loss of £5.0 million was recorded on entering into these contracts. Under U.S.
GAAP, the U.S. $200.0 million Senior Notes are translated into pounds sterling
at the period exchange rate and the forward exchange contracts are measured at
fair value. As of December 31, 2003, the contractual value and market value of our
foreign currency forward purchase contracts were £185.0 million and £167.9
million, respectively. Using a hypothetical adverse change of 10% in foreign currency exchange
rates, the hypothetical loss in cash flows of derivative and non-derivative
financial instruments and foreign currency-denominated balance sheet positions
at December 31, 2003 is estimated to be £6.4 million compared with £7.2 million
as of December 31, 2002. Interest Rate Risk Our borrowings are principally denominated in pounds sterling, with both
fixed and floating rates of interest. We actively monitor our interest rate
exposure on these borrowings and use a variety of derivative financial
instruments to hedge such exposure, including interest rate swaps, collars and
caps. The nature and volume of derivative financial instruments held
by us is
determined based upon conditions set by our borrowing agreements with our
lenders. The borrowing agreements require us to hedge a minimum of 50% of the
interest rate exposure on our Senior Credit Facility. In addition, we have entered into a cross-currency swap to fix the cash
flows on our Dollar-denominated Notes, which has the effect of converting the
interest payments from fixed-rate dollars into fixed-rate pounds sterling. As at December 31, 2003, we paid interest at the below rates on our
borrowings. 70




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Premier Foods plc Amount
    
    
    
    Interest RateOutstanding at
    
    
    
    atDecember 31,
    
    Interest Rate Payable
    
    DecemberBorrowings
    
    2003
    
    Per Annum
    
    31, 2003Term A Facility
    
    £
    187.4
    
    
    LIBOR plus margin
    
    
    5.80
    %Term B Facility
    
    £
    64.7
    
    
    LIBOR plus margin
    
    
    6.80
    %Drawn Working Capital Facility
    
    £
    41.0
    
    
    LIBOR plus margin
    
    
    5.61
    %Working Capital Facility utilized
for other purposes
    
    £
    15.5
    
    
    Various
    
    VariousUnutilized Working Capital Facility
    
    £
    43.5
    
    
    0.25%-0.75%
    
    
    0.50
    %$200 million Notes
    
    $
    200.0
    
    
    12.00%
    
    
    12.00
    %£75 million Notes
    
    £
    75.0
    
    
    12.25%
    
    
    12.25
    %£75 million Acquisition Facility
    
    £
    75.0
    
    
    LIBOR plus margin
    
    
    8.50
    %
 The margin applicable to the Term A Facility and drawings under the
Working Capital Facility is 2.25% per annum reducing on the basis of a ratchet
in several steps to 1.25% per annum dependent upon certain net debt to
consolidated EBITDA ratios. At December 31, 2003, the margin applied to LIBOR
on this facility was 1.75%. The margin applied to LIBOR at December 31, 2003 on
the Term B Facility was 2.75%. The above interest rate at April 3, 2004
excludes any adjustment to LIBOR as a result of interest rate hedging. This is
because the derivative instruments used to fix the interest rates are not
allocated specifically against the Term A Facility, Term B Facility, the drawn
Working Capital Facility or the Acquisition Facility. The utilization of the Working Capital Facility for other purposes incurs
fees dependent upon the purpose for which the facility is used. Commitment fees
are payable at the rate of 0.75% per annum of the undrawn portion of the
relevant facilities. The interest payable per annum on commitment fees on the
Working Capital Facility reduce in several steps from 0.75% to 0.25% per annum
dependent upon certain net debt to consolidated EBITDA ratios. As of December
31, 2003, the margin applied to LIBOR in respect of commitment fees was 0.50%. Credit Risk Potential
concentrations of credit risk to us consist principally of
cash and cash equivalents and trade receivables. Cash and cash equivalents are
deposited with high-credit, quality financial institutions. Trade receivables
are due principally from major grocery retailers. Furthermore, it is our
policy to insure all third-party trade debt. We do not consider there to be any
significant concentration of credit risk as of December 31, 2003. Inflation We do not believe that our businesses are affected by inflation to any
greater extent than other similarly situated businesses in our industry. 
 Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 
 PART II 
 Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. 
 Item 14. MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Not applicable. 71




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Premier Foods plc 
 Item 15. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Based
on their review as of the end of the period covered by this Annual Report of our disclosure
controls and procedures, the Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures (as
defined in U.S. Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective to
ensure that material information is recorded, processed, summarized and
reported by us in a timely manner and that the information is accumulated and
communicated to management to allow timely decisions regarding required
disclosure. Change in Internal Controls As of the date of this annual report, based on the assessment of the
Board, there were no changes in our internal controls or in other factors that
have materially affected or is reasonably likely to affect these internal
controls over financial reporting subsequent to the date of their evaluation,
including any corrective actions regarding significant deficiencies and
material weaknesses. 
 ITEM 16 [RESERVED] 
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors, which fulfils the function of our audit
committee (our Audit Committee), has determined that Paul Thomas, a director and our Finance Officer,
is an audit committee financial expert, as defined in Item 16.A. of Form
20-F. 
 ITEM 16B. CODE OF ETHICS We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer and persons
performing similar functions. Our finance code of ethics is filed as Exhibit
11.1 to this Annual Report. 
 ITEM 16C. PRINCIPAL
ACCOUNTANTS FEES AND SERVICES Our principal accountant is PricewaterhouseCoopers LLP. Independent Auditor Fees Aggregate fees billed by PricewaterhouseCoopers LLP for professional
services during 2003 and 2002 were as follows: 2003
    
    2002(£ thousand)Audit services
    
    
    340
    
    
    
    345Audit-related services
    
    
    154
    
    
    
    137Tax services
    
    
    12
    
    
    
    15Other services
    
    
    85
    
    
    
    265Aggregate fees for professional services
    
    
    591
    
    
    
    762
 Audit Servicesrepresent standard audit work required each year in order
to issue an audit opinion on the consolidated financial statements of Premier
Foods plc and to issue reports on
local statutory financial statements. It also includes services that may only
be provided by our independent auditor such as auditing non-recurring
transactions and the application of new accounting policies, pre-issuance
reviews of quarterly financial results, consents, comfort letters and covenant
compliance statements and any audit services required for SEC or other
regulatory filings. Audit-Related Servicesrepresent other assurance services provided by
auditors but not restricted to those that can only be provided by the auditor
signing the audit report. They comprise amounts for services such as
acquisition due diligence, audits of pension and benefit plans, contractual
audits of third-party arrangements and consultation regarding new accounting
pronouncements. Tax Servicesrepresent tax compliance and other tax services, and
expatriate tax return services. 72




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Premier Foods plc Other
Servicesin 2003 consisted of services provided on the
acquisition of Ambrosia. Other services in 2002 relate to services
provided on the acquisition of Nestlé. Pre-Approval Policy of Audit and Non-Audit Services of Independent Auditors Our Audit Committee is responsible for the oversight of our independent
auditors work. Our Audit Committees policy is to pre-approve all audit and
non-audit services provided by PricewaterhouseCoopers LLP. These services may
include audit services, audit-related services, tax services and other services
as described above. On an annual basis the Audit Committee details the
particular services or categories of services that are pre-approved and sets a
specific budget for each service. At the Audit Committee meetings our
management and PricewaterhouseCoopers LLP report on the extent of services
actually provided in relation to pre-approved services and request pre-approval
of additional services, as appropriate. The audit committee financial expert,
Paul Thomas, may issue pre-approval for additional services, if required. ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS Not applicable. 73




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Premier Foods plc 
 PART III 
 Item 17. FINANCIAL STATEMENTS We have responded to Item 18 in lieu of this item. 
 Item 18. FINANCIAL STATEMENTS The financial statements required by this item are found at the end of
this report beginning on page F-1. 
 Item 19. EXHIBITS The exhibits filed with or incorporated by reference into this Annual Report are listed below. Exhibit Number 1.1*
    
    Certificate of Incorporation of Premier (incorporated herein by reference
to Exhibit 3.1 of the Registration Statement on Form F-4 Registration No.
33-312188).1.2*
    
    Memorandum and Articles of Association of Premier (incorporated herein by
reference to Exhibit 3.2 of the Registration Statement on Form F-4
Registration No. 33-312188).2.1*
    
    Indenture dated August 10, 1999 between Premier and Bankers Trust Company
as Trustee (incorporated herein by reference to Exhibit 4.1 of the
Registration Statement on Form F-4).2.2*
    
    Form of Global Note (included in Exhibit 2.1).2.3*
    
    Form of Definitive Registered Note (included in Exhibit 2.1).4.1*
    
    Facilities Agreement dated August 10, 1999 between Premier Financing as
Borrower, Chase Manhattan plc, Deutsche Banc Alex. Brown Incorporated and
Salomon Brothers International Limited as arrangers, The Chase Manhattan
Bank, Bankers Trust Company and Citibank N.A. as Underwriters, Chase
Manhattan International Limited as the Agent and the Security Agent and
Bankers Trust Company as the Document Agent (incorporated herein by
reference to Exhibit 4.6 of the Registration Statement on Form F-4
Registration No. 33-312188).4.2*
    
    Intra-Group Loan Agreement dated August 10, 1999 between Premier as
Lender and Premier Financing Limited as Borrower (incorporated herein by
reference to Exhibit 4.7 of the Registration Statement on Form F-4
Registration No. 33-312188).4.3*
    
    Subordination Deed dated August 10, 1999 between Premier Financing as
Principal Debtor, Premier as Subordinated Lender and Chase Manhattan
International Limited as Security Agent (incorporated herein by reference
to Exhibit 4.8 of the Registration Statement on Form F-4 Registration No.
33-312188).4.4*
    
    Monitoring and Oversight Agreement dated August 10, 1999 between Premier
and Hicks Muse (incorporated herein by reference to Exhibit 10.2 of the
Registration Statement on Form F-4 Registration No. 33-312188).4.5*
    
    Financial Advisory Agreement dated August 10, 1999 between Premier and
Hicks Muse (incorporated herein by reference to Exhibit 10.3 of the
Registration Statement on Form F-4 Registration No 33-312188).4.6*
    
    Deal slips for Forward Purchase Contracts from January 20, 2003 for the
purchase of $200 million from Barclays Bank PLC, value dated September 1,
2004 (incorporated by reference to Exhibit 4.6 of Form 20-F for our 2002
fiscal year).4.7*
    
    Supplemental Agreement dated May 27, 2002 relating to a Facilities
Agreement dated August 10, 1999 between, inter alia, Premier Financing
Limited, the subsidiaries of Premier Financing Limited party thereto, JP
Morgan plc and Barclays Capital (the investment banking division of
Barclays Bank PLC), as Amendment Arrangers, and JP Morgan Europe Limited,
as Agent and Security Agent (incorporated herein by reference to Exhibit
4.7 of Form 20-F for our 2002 fiscal year).4.8*
    
    Agreement dated May 3, 2002 between Nestlé U.K. Limited, Nestlé (Ireland)
Limited, Pastam Limited and Premier Financing Limited (incorporated herein
by reference to Exhibit 4.8 of Form 20-F for our 2002 fiscal year).
 74




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##### Table of Contents



Premier Foods plc 4.9
    
    Facility Agreement dated November 17, 2003 relating to an Acquisition
Facility between inter alia, Premier Financing Limited, the subsidiaries
of Premier Financing Limited party thereto, J.P. Morgan plc as Arranger,
JPMorgan Chase Bank as Underwriter and J.P. Morgan Europe Limited as Agent
and Security Agent.4.10
    
    Amended and Restated Facilities Agreement for £412,300,000 Senior
Secured Credit Facilities for Premier Financing Limited, as Borrower, and
others, between Premier Financing Limited, J.P. Morgan plc and Barclays
Capital as Amendment Arrangers, JPMorgan Chase Bank and Barclays Bank plc
as Amendment Underwriters, the persons whose names and addresses are set
out in Schedule 1 thereto as Banks, the banks and financial institutions
whose names and capacities are set out in Schedule 5 thereto and J.P.
Morgan Europe Limited as Agent and Security Agent, dated November 17,
2003.4.11
    
    Agreement dated November 2, 2003 between Premier Ambient Products (UK)
Limited and Unilever Bestfoods U.K. Limited pursuant to which Premier
Ambient Products (UK) Limited acquired the ambient desserts business in the United Kingdom and the Republic of Ireland of
Unilever Bestfoods U.K. Limited.4.12
    
    Intercreditor Agreement, dated
November 26, 2003, between Premier Financing Limited, as the
Company, Certain Subsidiaries of the Company, as Obligors, the Senior
Finance Parties and the Senior Subordinated Finance Parties and J.P.
Morgan Europe Limited, relating, inter alia, to a Senior Facilities
Agreement dated August 10, 1999 (as subsequently amended and
restated) and a Senior Subordinated Facility Agreement dated
November 17, 2003.8.1
    
    List of material subsidiaries of
Premier (included in Item 10.1. and note 21 to the consolidated financial statements of Premier).11.1
    
    Code of Ethics.12.1
    
    Robert Schofield, Chief Executive certification, dated June 30, 2004,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.2
    
    Paul Thomas, Finance Director certification dated June 30, 2004,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.13.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted by Section
906 of the Sarbanes-Oxley Act of 2002 of Robert Schofield, Chief
Executive, dated June 30, 2004.13.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted by Section
906 of the Sarbanes-Oxley Act of 2002 of Paul Thomas, Finance Director,
dated June 30, 2004.
   *
    
    Incorporated by reference.
    
    Filed herewith. 75




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Premier Foods plc SIGNATURES The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on its behalf. PREMIER FOODS PLCBy:
    
    /s/ Robert SchofieldName:
    
    Robert SchofieldTitle:
    
    Chief ExecutiveDate: June 30, 2004
 76




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##### Table of Contents



Premier Foods plc PageReport of Independent Accountants  2001, 2002 and 2003
    
    
    F-1Audited Consolidated Financial StatementsConsolidated Profit and Loss Accounts for each of the three years in
the three-year period ended December 31, 2003
    
    
    F-2Consolidated Balance Sheets at December 31, 2002 and 2003
    
    
    F-3Consolidated Statements of Total Recognised Gains and Losses
    
    
    F-4Note of Consolidated Historical Cost Profits and Losses
    
    
    F-4Reconciliation of Movements in Consolidated Shareholders Deficit
    
    
    F-4Consolidated Cash Flow Statements
    
    
    F-6Notes to the Consolidated Financial Statements
    
    
    F-7
 77




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##### Table of Contents



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTING FIRM  In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of profit and loss, cash flows and shareholders
deficit, included on pages F-2 to F-48, present fairly, in all material
respects, the financial position of Premier Foods plc and its subsidiaries at
December 31, 2002 and December 31, 2003, and the results of their operations,
their cash flows and shareholders deficit for the years ended December 31,
2001, December 31, 2002 and December 31, 2003 in conformity with accounting
principles generally accepted in the United Kingdom. These consolidated
financial statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with
auditing standards generally accepted in the United Kingdom and the standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion. Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Information relating to the nature and effect of
such differences is presented in note 24 to the consolidated financial
statements. PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
United Kingdom March 30, 2004, except for Note 2, Analysis of Continuing Operations, Note 4,
Summary Segmental Analysis, and Note 19, Commitments and Contingencies 
Contingent Liabilities  Legal Proceedings, paragraph (a), and Note 24,
Summary of Differences between U.K. and U.S. Generally Accepted Accounting
Principles  (g) Other disclosures required by U.S. GAAP  Income Statement
Information, as to which the date is June 30, 2004 F-1




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Premier Foods plc CONSOLIDATED PROFIT AND LOSS ACCOUNTS Year EndedDecember 31,Note
    
    2001 (1)
    
    2002 (1)
    
    2003 (1)£m
    
    £m
    
    £mTurnover:
    
    Continuing operations
    
    
    
    
    
    
    832.5
    
    
    
    865.4
    
    
    
    870.6Discontinued operations
    
    
    
    
    
    
    4.1
    
    
    
    0.2
    
    
    
    2,4
    
    
    
    836.6
    
    
    
    865.6
    
    
    
    870.6Operating profit:
    
    Continuing operations
    
    
    
    
    
    
    64.3
    
    
    
    77.6
    
    
    
    79.4Operating exceptional items
    
    
    3
    
    
    
    (12.2
    )
    
    
    (16.8
    )
    
    
    (10.8
    )52.1
    
    
    
    60.8
    
    
    
    68.6Discontinued operations
    
    
    
    
    
    
    (0.8
    )
    
    
    (0.1
    )
    
    
    Operating exceptional items
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    (0.1
    )
    
    
    2,4
    
    
    
    51.3
    
    
    
    60.7
    
    
    
    68.6Non-operating exceptional items
    
    
    3
    
    
    
    (26.2
    )
    
    
    (2.0
    )
    
    
    2.0Profit on ordinary activities before interest and taxation
    
    
    
    
    
    
    25.1
    
    
    
    58.7
    
    
    
    70.6Interest payable and similar charges
    
    
    7
    
    
    
    (57.2
    )
    
    
    (40.3
    )
    
    
    (57.8
    )Interest receivable and similar income
    
    
    
    
    
    
    4.5
    
    
    
    3.9
    
    
    
    5.7Net interest payable and similar charges
    
    
    
    
    
    
    (52.7
    )
    
    
    (36.4
    )
    
    
    (52.1
    )Profit / (loss) on ordinary activities before taxation
    
    
    
    
    
    
    (27.6
    )
    
    
    22.3
    
    
    
    18.5Taxation charge on profit / (loss) on ordinary activities
    
    
    8
    
    
    
    (0.9
    )
    
    
    (6.0
    )
    
    
    (6.3
    )Profit / (loss) on ordinary activities after taxation
    
    
    
    
    
    
    (28.5
    )
    
    
    16.3
    
    
    
    12.2Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transferred to reserves
    
    
    17
    
    
    
    (28.5
    )
    
    
    16.3
    
    
    
    12.2
  (1)
    
    Turnover has been amended in line with the reclassification disclosed in Note 2 to the Annual Financial Report. The accompanying notes are an integral part of these consolidated financial statements. F-2




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Premier Foods plc

CONSOLIDATED BALANCE SHEETS December 31,Note
    
    2002
    
    2003£m
    
    £mFixed assets:Intangible assets
    
    
    9
    
    
    
    113.9
    
    
    
    190.4Tangible assets
    
    
    10
    
    
    
    135.1
    
    
    
    153.1Investments
    
    
    11
    
    
    
    0.2
    
    
    
    0.2249.2
    
    
    
    343.7Current assets:Stocks
    
    
    12
    
    
    
    111.3
    
    
    
    122.3Debtors due:Within one year
    
    
    13
    
    
    
    133.5
    
    
    
    118.7After more than one year
    
    
    13
    
    
    
    9.0
    
    
    
    6.5Cash at bank and in hand
    
    
    
    
    
    
    43.5
    
    
    
    24.6297.3
    
    
    
    272.1Creditors: amounts falling due within one year:Bank loans, overdrafts and other creditors
    
    
    14
    
    
    
    (217.6
    )
    
    
    (238.0
    )Net current assets
    
    
    
    
    
    
    79.7
    
    
    
    34.1Total assets less current liabilities
    
    
    
    
    
    
    328.9
    
    
    
    377.8Creditors: amounts falling due after more than one year:Borrowings
    
    
    15
    
    
    
    (464.7
    )
    
    
    (497.7
    )Other creditors
    
    
    15
    
    
    
    (0.2
    )
    
    
    (0.2
    )Provisions for liabilities and charges
    
    
    16
    
    
    
    (13.8
    )
    
    
    (14.3
    )(478.7
    )
    
    
    (512.2
    )Net liabilities
    
    
    
    
    
    
    (149.8
    )
    
    
    (134.4
    )Capital and reserves:Called up share capital
    
    
    17
    
    
    
    83.7
    
    
    
    83.7Share premium account
    
    
    17
    
    
    
    623.2
    
    
    
    623.2Revaluation reserve
    
    
    17
    
    
    
    4.0
    
    
    
    4.0Profit and loss account
    
    
    17
    
    
    
    (860.7
    )
    
    
    (845.3
    )Total shareholders deficit
    
    
    
    
    
    
    (149.8
    )
    
    
    (134.4
    )
 Signed on behalf of the Board of Directors, who approved the financial
statements on March 30, 2004. Paul Thomas Director The accompanying notes are an integral part of these consolidated financial statements. F-3




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Premier Foods plc

CONSOLIDATED STATEMENTS OF
TOTAL RECOGNISED GAINS AND LOSSES Year EndedDecember 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mProfit / (loss) for the financial year
    
    
    (28.5
    )
    
    
    16.3
    
    
    
    12.2Currency translation differences on foreign currency net investments
    
    
    (1.1
    )
    
    
    1.2
    
    
    
    3.2Total
recognised gains and losses for the year
    
    
    (29.6
    )
    
    
    17.5
    
    
    
    15.4
 NOTE OF CONSOLIDATED HISTORICAL COST PROFITS AND LOSSES Year EndedDecember 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mProfit / (loss) on ordinary activities before taxation
    
    
    (27.6
    )
    
    
    22.3
    
    
    
    18.5Realisation of property revaluation gains of previous year
    
    
    0.1
    
    
    
    
    
    
    
    Historical cost profit / (loss) on ordinary activities before taxation
    
    
    (27.5
    )
    
    
    22.3
    
    
    
    18.5Historical cost profit / (loss) retained after taxation, and dividends
    
    
    (28.4
    )
    
    
    16.3
    
    
    
    12.2
 RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS FUNDS Year EndedDecember 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mProfit / (loss) for the financial year
    
    
    (28.5
    )
    
    
    16.3
    

    
    
    12.2Goodwill transferred to the profit and loss account in respect of
disposed businesses
    
    
    53.0
    
    
    
    
    
    
    
    Other
recognised gains and losses
    
    
    (1.1
    )
    
    
    1.2
    
    
    
    3.2Share capital issued
    
    
    23.7
    
    
    
    
    
    
    
    Net increase in shareholders funds
    
    
    47.1
    
    
    
    17.5
    
    
    
    15.4Opening shareholders deficit
    
    
    (214.4
    )
    
    
    (167.3
    )
    
    
    (149.8
    )Closing shareholders deficit
    
    
    (167.3
    )
    
    
    (149.8
    )
    
    
    (134.4
    )
 The accompanying notes are an integral part of these consolidated financial statements. F-4




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Premier Foods plc CONSOLIDATED CASH FLOW STATEMENTS Year endedDecember 31,Note
    
    2001
    
    2002
    
    2003£m
    
    £m
    
    £mNet cash inflow from operating activities
    
    
    (a
    )
    
    
    81.7
    
    
    
    98.8
    
    
    
    112.7Return on investments and servicing of finance
    
    
    (b
    )
    
    
    (40.1
    )
    
    
    (43.6
    )
    
    
    (43.0
    )Taxation
    
    
    
    
    
    
    (1.5
    )
    
    
    (1.3
    )
    
    
    (0.1
    )Capital expenditure and financial investment
    
    
    (b
    )
    
    
    (12.8
    )
    
    
    (15.1
    )
    
    
    (21.0
    )Acquisitions and disposals
    
    
    (b
    )
    
    
    72.3
    
    
    
    (132.8
    )
    
    
    (106.3
    )Cash (outflow) / inflow before financing
    
    
    
    
    
    
    99.6
    
    
    
    (94.0
    )
    
    
    (57.7
    )Financing:Issue of shares
    
    
    (b
    )
    
    
    23.7
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    
    
    
    
    
    
    
    
    (8.6
    )
    
    
    (4.3
    )Increase / (reduction) in debt
    
    
    (b
    )
    
    
    (119.8
    )
    
    
    116.4
    
    
    
    34.8(96.1
    )
    
    
    107.8
    
    
    
    30.5Increase / (decrease) in cash in the year
    
    
    
    
    
    
    3.5
    
    
    
    13.8
    
    
    
    (27.2
    )Reconciliation of net cash flow to movement in net debt
Increase / (decrease) in cash in the year
    
    
    
    
    
    
    3.5
    
    
    
    13.8
    
    
    
    (27.2
    )Cash outflow / (inflow) from increased gross debt
    
    
    
    
    
    
    119.8
    
    
    
    (116.4
    )
    
    
    (34.8
    )Exchange movement on gross debt net of cash in the year
    
    
    
    
    
    
    (3.6
    )
    
    
    13.2
    
    
    
    (3.8
    )(Increase) / decrease in gross debt net of cash in the year
    
    
    
    
    
    
    119.7
    
    
    
    (89.4
    )
    
    
    (65.8
    )Debt issuance costs
    
    
    
    
    
    
    
    
    
    
    8.6
    
    
    
    4.3Less amortisation of debt issuance costs
    
    
    
    
    
    
    (7.5
    )
    
    
    (6.3
    )
    
    
    (5.7
    )(Increase) / decrease in total debt net of cash in the year
    
    
    
    
    
    
    112.2
    
    
    
    (87.1
    )
    
    
    (67.2
    )Total debt net of cash at January 1,
    
    
    
    
    
    
    (470.9
    )
    
    
    (358.7
    )
    
    
    (445.8
    )Total debt net of cash at December 31,
    
    
    
    
    
    
    (358.7
    )
    
    
    (445.8
    )
    
    
    (513.0
    )
 Analysis of movement in net debt At
    
    
    
    
    
    
    
    
    
    
    
    Exchange
    
    AtDecember 31,
    
    
    
    
    
    
    
    
    
    Debt issuance
    
    movement
    
    December 31,2002
    
    Cash flow
    
    Acquisitions
    
    costs
    
    on debt
    
    2003£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mBank overdrafts
    
    
    (3.2
    )
    
    
    (7.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.3
    )Less: Cash balances
    
    
    43.5
    
    
    
    (20.1
    )
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    24.6Net cash
    
    
    40.3
    
    
    
    (27.2
    )
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    14.3Debt due after 1 year
    
    
    (473.9
    )
    
    
    47.4
    
    
    
    (75.0
    )
    
    
    
    
    
    
    (5.0
    )
    
    
    (506.5
    )Debt due within 1 year
    
    
    (27.0
    )
    
    
    (7.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34.2
    )Finance leases
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Gross debt
    
    
    (501.0
    )
    
    
    40.2
    
    
    
    (75.0
    )
    
    
    
    
    
    
    (5.0
    )
    
    
    (540.8
    )Gross debt net of cash
    
    
    (460.7
    )
    
    
    13.0
    
    
    
    (75.0
    )
    
    
    
    
    
    
    (3.8
    )
    
    
    (526.5
    )Capitalised debt issuance costs
    
    
    14.9
    
    
    
    
    
    
    
    4.3
    
    
    
    (5.7
    )
    
    
    
    
    
    
    13.5Total debt net of cash
    
    
    (445.8
    )
    
    
    13.0
    
    
    
    (70.7
    )
    
    
    (5.7
    )
    
    
    (3.8
    )
    
    
    (513.0
    )
 The accompanying notes are an integral part of these consolidated financial statements. F-5




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##### Table of Contents



Premier Foods plc NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS Year EndedDecember 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £m(a) Reconciliation of operating profit to operating cash flowsOperating profit before exceptional items
    
    
    63.5
    
    
    
    77.5
    
    
    
    79.4Depreciation of tangible fixed assets
    
    
    16.1
    
    
    
    18.8
    
    
    
    23.4Amortisation of intangible fixed assets
    
    
    0.5
    
    
    
    4.2
    
    
    
    7.1Amortisation of pension prepayment
    
    
    2.0
    
    
    
    2.6
    
    
    
    2.4Cash flow relating to restructuring
    
    
    (13.5
    )
    
    
    (13.2
    )
    
    
    (10.9
    )(Increase) / decrease in stocks
    
    
    17.8
    
    
    
    7.3
    
    
    
    (5.2
    )(Increase) / decrease in debtors
    
    
    (9.6
    )
    
    
    7.3
    
    
    
    13.8Increase / (decrease) in creditors
    
    
    6.0
    
    
    
    (4.2
    )
    
    
    1.4Exchange movement in working capital
    
    
    (1.1
    )
    
    
    (1.5
    )
    
    
    1.3Net cash inflow from operating activities
    
    
    81.7
    
    
    
    98.8
    
    
    
    112.7
 (b) Analysis of cash flows for headings netted in the cash flow statement Year EndedDecember 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mReturn on investments and servicing of financeInterest received
    
    
    4.5
    
    
    
    3.9
    
    
    
    4.9Interest paid
    
    
    (44.5
    )
    
    
    (47.4
    )
    
    

    (47.9
    )Interest element of finance lease rental payments
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    Return on investments and servicing of finance
    
    
    (40.1
    )
    
    
    (43.6
    )
    
    
    (43.0
    )Capital expenditure and financial investmentPurchase of tangible fixed assets
    
    
    (20.1
    )
    
    
    (17.3
    )
    
    
    (27.3
    )Purchase of intangible fixed assets
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Sale / (purchase) of investments
    
    
    (0.1
    )
    
    
    
    
    
    
    Sale of tangible fixed assets
    
    
    7.4
    

    
    
    2.2
    
    
    
    6.5Capital expenditure and financial investment
    
    
    (12.8
    )
    
    
    (15.1
    )
    
    
    (21.0
    )Acquisitions and disposalsPurchase of subsidiary undertakings
    
    
    (28.7
    )
    
    
    (132.8
    )
    
    
    (106.3
    )Cash acquired with subsidiary undertakings
    
    
    (0.8
    )
    
    
    
    
    
    
    Sale of subsidiary undertakings
    
    
    101.8
    
    
    
    
    
    
    
    Acquisitions and disposals
    
    
    72.3
    
    
    
    (132.8
    )
    
    
    (106.3
    )FinancingIncrease / (decrease) in debt due within one year
    
    
    (6.5
    )
    
    
    13.6
    
    
    
    7.2Increase / (decrease) in debt due after more than one year
    
    
    (112.4
    )
    
    
    102.9
    
    
    
    27.6Issue of shares
    
    
    23.7
    
    
    
    
    
    
    
    Capital element of finance lease rental payments
    
    
    (0.9
    )
    
    
    (0.1
    )
    
    
    Financing
    
    
    (96.1
    )
    
    
    116.4
    
    
    
    34.8
 The accompanying notes are an integral part of these consolidated financial statements. F-6




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##### Table of Contents



Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting Policies The following accounting policies have been applied consistently in dealing
with the items which are considered to be material in relation to Premiers
financial statements. Basis of Accounting The consolidated financial statements have been prepared in accordance with
applicable accounting standards in the U.K., under the historical cost
convention. Consolidated financial statements for 2001, 2002 and 2003 The results of Premier for the three years ended December 31, 2003 and the
balance sheets at December 31, 2002 and December 31, 2003 have been
consolidated in accordance with applicable accounting standards in
the U.K.,
under the historical cost convention. The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the U.K. requires management to
make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those estimates. The businesses acquired during the financial periods presented have been
consolidated from the date on which control of the net assets and operations of
the businesses was transferred to Premier. Similarly, the results of Group
companies and businesses divested during the financial periods presented have
been included in the Groups accounts only until the date that control of the
net assets and operations of the companies and businesses was transferred from
Premier. Premier is allocated overhead costs relating to Premier Holdings shared
administrative functions based on central managements estimate of the time
involved in supporting each of the groups to which Premier Holdings provides
those administrative functions to. The allocated costs are included in general
administrative and other expenses in the consolidated profit and loss account.
Management believes that such allocation methodology is reasonable. The
expenses allocated to Premier for these services are not necessarily indicative
of the expenses that would have been incurred if Premier had been a separate
independent entity. In 2001, 2002 and 2003, Premier has been recharged £0.2m,
£2.8m and £0.9m by Premier Foods Holdings Limited in respect of the shared
administrative functions. The decrease from 2002 to 2003 in the recharge to
Premier by Premier Holdings is primarily the result of a reduction in
restructuring costs incurred by Premier Holdings in 2003. Employees of Premier companies are members of a number of defined benefit
pension schemes. Each of Premiers operating companies directly funds the
schemes based on the actual pension cost for its employees in accordance with
the funding levels as determined by the schemes actuaries. There are no
recharges or allocations of costs from Premier Holdings. Goodwill In accordance with FRS 10 Goodwill and Intangible Assets, purchased goodwill,
being the excess of the fair value of the purchase consideration over the fair
value of the separable net tangible assets of businesses acquired, is
capitalised and amortised over the shorter of its estimated useful life and 20
years on a straight-line basis. Prior to 1998, goodwill arising on the
acquisition of subsidiary undertakings was written off to reserves in the year
of acquisition. On the subsequent disposal or termination of a business
acquired prior to 1998, the profit or loss on disposal or termination is
calculated after charging the gross amount of any related goodwill previously
taken to reserves. F-7




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##### Table of Contents



Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Turnover Turnover is the value of sales, excluding transactions with or between wholly
owned subsidiaries, after deduction of sales rebates, value added tax and other
taxes directly attributable to turnover. Sales are recognised upon receipt of
confirmation that the goods shipped have been accepted by the customer, where
the sales price is fixed and collectability is reasonably assured. Shipping
and handling costs are included in selling and distribution costs.
Certain promotional expenditures are more appropriately classified as
a reduction of sales rather than selling and
distribution costs.
Amounts previously reported have been reclassified accordingly. (see
Note 2 Analysis of Continuing Operations). Research and Development Research and development expenditure is expensed in the year in which it is
incurred (see note 5  Profit / (Loss) on Ordinary Activities before
Taxation). Depreciation and Amortisation Freehold land is not depreciated. Long and short leasehold property is
amortised over the terms of the leases from the date the property is brought
into use. Other fixed assets are depreciated over their estimated useful lives on a
straight-line basis at rates sufficient to reduce them to their estimated
residual value. Such estimated useful lives are: Freehold land
    
    - Not depreciatedFreehold buildings
    
    - 20 to 50 yearsPlant and machinery
    
    - 3 to 15 yearsVehicles
    
    - 3 to 5 years.
 When properties are revalued, the depreciation thereafter provided is based on
the revalued depreciable amounts. In accordance with FRS 11 Impairment of Fixed Assets and Goodwill, where
assets are impaired as a result of market factors, write-downs are charged
initially against any related revaluation reserve until historic cost is
reached and thereafter charged to operating profit. Investments Investments held as fixed assets are stated at cost less any provision for
impairment in their value. Leasing Finance leases relating to significant items of plant, machinery and vehicles
have been capitalised and depreciated in accordance with Premiers depreciation
policy, subject to a maximum period of the term of the lease. The capital
element of future lease payments is included in other creditors. Payments
under operating leases are charged wholly to the profit and loss account in the
year in which they are incurred. Where a leasehold property, which has substantially ceased to be used for the
purpose of the business is sublet, full provision is made for the future costs
of the property less recoverable amounts. Stocks Stocks are valued at the lower of cost and net realisable value. No interest is
included but, where appropriate, cost includes production and other
attributable overhead expenses. Cost is calculated on a first-in-first-out
basis by reference to the invoiced value of supplies and attributable costs of
bringing stocks to their present location and condition. Foreign Currency Translation Assets and liabilities denominated in foreign currencies are translated into
sterling at rates of exchange ruling at the end of the financial year, and the
results of overseas subsidiaries are translated at the average rate of exchange
ruling during the year. Differences on exchange arising from the retranslation
of the opening net investment in subsidiary undertakings, and from the
translation of the results of those companies at an average rate are taken to
reserves. Where foreign currency borrowings are used to finance or hedge equity
investments, the gain or loss arising on translation of these matched
borrowings is also taken to reserves. All other exchange differences are dealt
with through the profit and loss account. F-8




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##### Table of Contents



Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Deferred Tax FRS 19 Deferred tax, which was adopted in 2002, requires full provision to be
made for deferred tax arising from timing differences between the recognition
of gains and losses in the financial statements and their inclusion in tax
computations. Premier has chosen not to discount its deferred tax liability.
The prior year figures have been restated in order to comply with the standard.
The effects of adopting FRS 19 Deferred tax are: 2001
    
    2002£m
    
    £mIncrease / (reduction) in taxation charge for the period
    
    
    0.3
    
    
    
    (0.6
    )Reduction in net assets
    
    
    7.1
    
    
    
    
 Government Grants Government grants on capital expenditure are credited to a deferral account and
are released to revenue by equal annual amounts over the life of the asset to
which they relate. Other grants are released to revenue over the life of the
projects to which they relate. Pension Costs Pension
costs are recognised and measured in accordance with SSAP 24
Accounting for pension costs. The pension costs relating to Premier pension
schemes are assessed in accordance with the advice of independent qualified
actuaries. The amounts so determined include the regular cost of providing the
benefits as a percentage of current and expected future earnings of the
employees covered. Variations from the regular pension cost are spread on a
systematic basis over the estimated average remaining service lives of current
employees in the plans. FRS 17 Retirement benefits FRS 17 Retirement benefits introduces a completely different approach to
accounting for defined benefit pension schemes. At each year end the pension
scheme assets are measured at market value, the pension scheme liabilities are
measured at a present value using a specified actuarial valuation method and
discounted at a corporate bond rate, and the resulting surplus or deficit is
shown on the companys balance sheet. FRS 17 Retirement benefits redefines
what should be reported as operating costs, including an annual current
service cost (which is no longer reduced or increased by spreading forward
surpluses or deficits). The expected return on scheme assets less the notional
interest cost on the scheme liabilities is included as other finance costs (or
income) adjacent to interest. Actuarial gains and losses from year to year are
to be recognised immediately in the Statement of Total Recognised Gains and
Losses. FRS 17 Retirement benefits requires that accounts ending after June
22, 2001 give additional balance sheet disclosure in order to provide adequate
future data comparatives when FRS 17 Retirement benefits is fully
implemented. Premier has provided this information separately within the
financial statements. Full adoption of FRS 17 Retirement benefits has been
delayed in accordance with the standard until the financial statements for the
year ended December 31, 2005. Post Retirement Benefits Premier provides certain additional post retirement and unfunded pension
benefits principally for employees in continental Europe. The estimated cost of
providing such benefits is charged against profits on a systematic basis over
the employees working lives within Premier. Exceptional Items Exceptional items are those that need to be disclosed by virtue of their size
or incidence. Such items are included within operating profits unless they
represent profits or losses on the sale or termination of an operation, costs
of a fundamental reorganisation or restructuring having a material affect on
the nature and focus of Premiers business, or profits or losses on the
disposal of fixed assets. Cash and Liquid Resources Short-term cash deposits, which can be called on demand or without notice
without any material penalty are included within cash balances within the
consolidated balance sheet and consolidated cash flow statements. F-9




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##### Table of Contents



Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Debt Issuance Costs Costs
relating to the issuance of debt are capitalised and amortised over the
period of the debt, in line with the amortisation of the debt, in accordance
with FRS 4 Capital Instruments. Financial Instruments Derivative
financial instruments utilised by Premier comprise interest rate
swaps, cross currency swaps, forward foreign exchange contracts and currency
options. All such instruments are used for hedging purposes to alter the risk
profile of an underlying exposure faced by Premier. Interest rate swap
settlements are recognised as adjustments to interest expense over the term of
the underlying instrument and exchange gains or losses are recognised on the
maturity of the underlying transaction. 2. Analysis of Continuing Operations 2001
    
    2002Operating
    
    
    
    
    
    
    
    
    
    
    
    
    
    OperatingContinuing
    
    exceptional
    
    Discontinued
    
    
    
    
    
    Continuing
    
    exceptional
    
    Discontinuedoperations
    
    items
    
    operations
    
    Total
    
    operations
    
    items
    
    operations
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mTurnover
    
    
    832.5
    
    
    
    
    
    
    
    4.1
    
    
    
    836.6
    
    
    
    865.4
    
    
    
    
    
    
    
    0.2
    
    
    
    865.6Cost of sales
    
    
    (657.2
    )
    
    
    (0.9
    )
    
    
    (3.7
    )
    
    
    (661.8
    )
    
    
    (653.6
    )
    
    
    (8.8
    )
    
    
    (0.2
    )
    
    
    (662.6
    )Gross profit
    
    
    175.3
    
    
    
    (0.9
    )
    
    
    0.4
    
    
    
    174.8
    
    
    
    211.8
    
    
    
    (8.8
    )
    
    
    
    
    
    
    203.0Selling and
distribution
    
    
    (84.9
    )
    
    
    (2.5
    )
    
    
    (0.5
    )
    
    
    (87.9
    )
    
    
    (93.1
    )
    
    
    (1.3
    )
    
    
    
    
    
    
    (94.4
    )Administrative
    
    
    (26.1
    )
    
    
    (8.8
    )
    
    
    (0.7
    )
    
    
    (35.6
    )
    
    
    (41.1
    )
    
    
    (6.7
    )
    
    
    (0.1
    )
    
    
    (47.9
    )Net operating
expenses
    
    
    (111.0
    )
    
    
    (11.3
    )
    
    
    (1.2
    )
    
    
    (123.5
    )
    
    
    (134.2
    )
    
    
    (16.8
    )
    
    
    (0.1
    )
    
    
    (142.3
    )Operating profit
    
    
    64.3
    
    
    
    (12.2
    )
    
    
    (0.8
    )
    
    
    51.3
    
    
    
    77.6
    
    
    
    (16.8
    )
    
    
    (0.1
    )
    
    
    60.7
 2003OperatingContinuing
    
    exceptional
    
    Discontinuedoperations
    
    items
    
    operations
    
    Total£m
    
    £m
    
    £m
    
    £mTurnover
    
    
    870.6
    
    
    
    
    
    
    
    
    
    
    
    870.6Cost of sales
    
    
    (667.8
    )
    
    
    (9.4
    )
    
    
    
    
    
    
    (677.2
    )Gross profit
    
    
    202.8
    
    
    
    (9.4
    )
    
    
    
    
    
    
    193.4Selling and distribution
    
    
    (86.5
    )
    
    
    (1.4
    )
    
    
    
    
    
    
    (87.9
    )Administrative
    
    
    (36.9
    )
    
    
    
    
    
    
    
    
    
    
    (36.9
    )Net operating expenses
    
    
    (123.4
    )
    
    
    (1.4
    )
    
    
    
    
    
    
    (124.8
    )Operating profit
    
    
    79.4
    
    
    
    (10.8
    )
    
    
    
    
    
    
    68.6
 The discontinued operations relate to F E Barber Limited (trading as Kingsland
Wines and Spirits), which was sold in February 2001 and a non-core, non-grocery
business, which was put into liquidation in March 2002. F-10




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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Reclassification of 2001, 2002 and 2003 turnover and selling and distribution
costs Certain
promotional expenditures are more
appropriately classified as a reduction of sales rather than selling and
distribution costs. Amounts previously reported have been reclassified
accordingly, and the effect is set out below: 2001
    
    2002
    
    2003£m
    
    £m
    
    £mTurnoverAs previously reported for the year ended December 31
    
    
    857.7
    
    
    
    889.3
    
    
    
    890.0Selling and distribution costs reclassified as turnover
    
    
    (21.1
    )
    
    
    (23.7
    )
    
    
    (19.4
    )As reclassified for the year ended December 31
    
    
    836.6
    
    
    
    865.6
    
    
    
    870.6Selling and distribution costsAs previously reported for the year ended December 31
    
    
    109.0
    
    
    
    116.8
    
    
    
    107.3Selling and distribution costs reclassified as turnover
    
    
    (21.1
    )
    
    
    (23.7
    )
    
    
    (19.4
    )Administrative costs reclassified as selling and distribution costs
    
    
    
    
    
    
    1.3
    
    
    
    As reclassified for the year ended December 31
    
    
    87.9
    
    
    
    94.4
    
    
    
    87.9
 Reclassification of 2002 administrative costs Certain administrative costs related to 2002
operating exceptional items are more appropriately classified as cost of
sales or selling and distribution rather than administrative. The amounts
have been reclassified accordingly, and the effect is set out below: 2002£mAdministrative costsAs previously reported for the year ended December 31
    
    
    58.0Administrative costs reclassified as cost of sales
    
    
    (8.8
    )Administrative costs reclassified as selling and distribution costs
    
    
    (1.3
    )As reclassified for the year ended December 31
    
    
    (47.9
    )
 3. Exceptional Items The principal components of exceptional items are as follows: 2001
    
    2002
    
    2003£m
    
    £m
    
    £mOperating exceptional items:Continuing operations:Restructuring of production facilities
    
    
    (3.5
    )
    
    
    (8.8
    )
    
    
    (9.4
    )Restructuring of selling and distribution facilities
    
    
    (4.2
    )
    
    
    (1.3
    )
    
    
    (1.4
    )Restructuring of administration facilities
    
    
    (4.5
    )
    
    
    (4.5
    )
    
    
    Nestlé acquisition costs
    
    
    
    
    
    
    (2.2
    )
    
    
    Total operating exceptional items
    
    
    (12.2
    )
    
    
    (16.8
    )
    
    
    (10.8
    )Non-operating exceptional items:Loss on sale or termination of discontinued operations
    
    
    (29.6
    )
    
    
    (0.4
    )
    
    
    Profit / (loss) on sale of fixed assets
    
    
    3.4
    
    
    
    (1.6
    )
    
    
    2.0Total non-operating exceptional items
    
    
    (26.2
    )
    
    
    (2.0
    )
    
    
    2.0
 The loss on sale or termination of discontinued operations in 2002 relates to
the liquidation of a non-core, non-grocery business, which was put into
liquidation in March 2002. The loss on sale or termination of discontinued
operations in 2001 relates to the disposal of our wines and spirits operations. F-11




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##### Table of Contents



Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. Summary Segmental Analysis Turnover
by product group, turnover by geographical origin and turnover by
geographical market have been changed from amounts previously
reported due to a reclassification of certain promotional
expenditures from selling and distribution costs to a
reduction of sales (see Note 2 Analysis of
Continuing Operations). Turnover by Product Group2001
    
    2002
    
    2003£m
    
    £m
    
    £mConvenience foods, pickles and sauces
    
    
    334.8
    
    
    
    355.0
    
    
    
    374.6Tea and beverages
    
    
    175.2
    
    
    
    169.0
    
    
    
    143.0Spreads and desserts
    
    
    166.9
    
    
    
    194.3
    
    
    
    217.2Grocery products sub-total
    
    
    676.9
    
    
    
    718.3
    
    
    
    734.8Potatoes
    
    
    155.6
    
    
    
    147.1
    
    
    
    135.8Continuing operations
    
    
    832.5
    
    
    
    865.4
    
    
    
    870.6Discontinued operations
    
    
    4.1
    
    
    
    0.2
    
    
    
    0.0Total
    
    
    836.6
    
    
    
    865.6
    
    
    
    870.6
 Following the acquisition of the ambient desserts business in the
U.K. and Republic of Ireland of Unilever Bestfoods U.K. Limited in
December 2003, the spreads business has been renamed
spreads and desserts. Premier
operates as a unified grocery products business. As at
December 31, 2003, the product groups
shown had shared administrative functions and the operating assets
were not
separable. Therefore, further segmental analysis of operating profit and
operating assets by product group have not been disclosed in these
financial statements. Turnover by Geographical
    
    Turnover by GeographicalOrigin
    
    
    
    
    
    
    
    
    
    Market2001
    
    2002
    
    2003
    
    2001
    
    2002
    
    2003£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mUK
    
    
    710.7
    
    

    
    746.1
    
    
    
    745.2
    
    
    
    699.6
    
    
    
    724.6
    
    
    
    726.4Mainland Europe
    
    
    121.8
    
    
    
    119.3
    
    
    
    125.4
    
    
    
    124.4
    
    
    
    129.3
    
    
    
    136.1Other countries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.5
    
    
    
    11.5
    
    
    
    8.1Continuing operations
    
    
    832.5
    
    
    
    865.4
    
    
    
    870.6
    
    
    
    832.5
    
    
    
    865.4
    
    
    
    870.6Discontinued operations
    
    
    4.1
    
    
    
    0.2
    
    
    
    
    
    
    
    4.1
    
    
    
    0.2
    
    
    
    Total
    
    
    836.6
    
    
    
    865.6
    
    
    
    870.6
    
    
    
    836.6
    
    
    
    865.6
    
    
    
    870.6
 F-12




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##### Table of Contents



Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Operating profit by
    
    Operating assets bygeographical origin
    
    geographical origin2001
    
    2002
    
    2003
    
    2002
    
    2003£m
    
    £m
    
    £m
    
    £m
    
    £mUK
    
    
    62.5
    
    
    
    74.5
    
    
    
    75.2
    
    
    
    262.1
    
    
    
    339.6Mainland Europe
    
    
    2.3
    
    
    
    3.1
    
    
    
    4.2
    
    
    
    33.9
    
    
    
    39.0Other countries
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Continuing operations
    
    
    64.3
    
    
    
    77.6
    
    
    
    79.4
    
    
    
    296.0
    
    
    
    378.6Operating exceptional items (note 3)
    
    
    (12.2
    )
    
    
    (16.8
    )
    
    
    (10.8
    )
    
    
    
    
    
    
    Discontinued operations
    
    
    (0.8
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    51.3
    
    
    
    60.7
    
    
    
    68.6
    
    
    
    296.0
    
    
    
    378.6Net debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (445.8
    )
    
    
    (513.0
    )Net deficit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149.8
    )
    
    
    (134.4
    )
 5. Profit / (Loss) on Ordinary Activities Before Taxation 2001
    
    2002
    
    2003£m
    
    £m
    
    £mThe profit / (loss) before tax was arrived at after charging:Depreciation of tangible fixed assetsOwned assets
    
    
    15.9
    
    
    
    19.1
    
    
    
    23.3Leased assets
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1Amortisation of intangible fixed assets
    
    
    0.5
    
    
    
    4.2
    
    
    
    7.1Auditors remunerationAudit services
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3Audit-related services
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Other services
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.1Operating lease paymentsPlant and machinery
    
    
    4.3
    
    
    
    2.9
    
    
    
    3.5Land and buildings
    
    
    1.7
    
    
    
    1.6
    
    
    
    2.0Research and development
    
    
    0.4
    
    
    
    1.0
    
    
    
    0.9
 6. Employees Employee remuneration and related costs (including directors emoluments) were
as follows: 2001
    
    2002
    
    2003£m
    
    £m
    
    £mWages and salaries
    
    
    90.0
    
    
    
    94.9
    
    
    
    102.0Social security costs
    
    
    9.0
    
    
    
    9.2
    
    
    
    11.0Other pension costs
    
    
    2.7
    
    
    
    3.1
    
    
    
    5.0101.7
    
    
    
    107.2
    
    
    
    118.0
 The average number of employees during the period was as follows: 2001
    
    2002
    
    2003Management
    
    
    343
    
    
    
    374
    
    
    
    417Administration
    
    
    586
    
    
    
    670
    
    
    
    630Production, distribution and other
    
    
    3,288
    
    
    
    3,293
    
    
    
    3,6034,217
    
    
    
    4,337
    
    
    
    4,650
 F-13




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Pensions Premier participates in a number of Premier Holdings pension schemes
(principally the HF scheme and the Premier Brands pension plan), the majority
of which are funded defined benefit schemes; there are in addition a small
number of company defined contribution schemes, personal pension schemes and
life assurance only arrangements. The scheme funds are administered by trustees
and are independent of Premiers finances. The schemes invest in a mixture of
U.K. and European equities and corporate and government bonds. The total pension cost for Premier in 2001, 2002 and 2003 has been assessed in
accordance with the advice of independent qualified actuaries, using the
Projected Unit Method. Actuarial assessments of the schemes were made during
2003, with the principal actuarial assumptions being that the rate of discount
of liabilities is 3% more than wage inflation and 4% more than pension
increases. Allowance was made for pensions in payment to increase as required
by statute and in accordance with the rules of the schemes, and also to reflect
Premier Holdings and Premiers policies. Assets were valued in 2003 and 2002
using a discounted dividend approach. In 2001, assets were valued using a
market value approach. The market valuation methodology was more appropriate
than an actuarial value approach in 2001, as the discounted dividend approach
generated valuations of the scheme assets that were excessive, in the view of
Premiers management. At December 31, 2003, the date of the latest actuarial assessments, based on
the most recent formal actuarial valuations at December 31, 2002 for the
Premier Brands scheme and April 5, 2001 for the HF scheme, the total market
value of the assets was £197.3m and the actuarial value of the assets was
sufficient to cover 100% of the benefits that had accrued to members after
fully allowing for future salary increases. The normal cost of Premiers
defined benefit pension schemes was £4.1m (2002: £3.9m, 2001: £3.9m), which,
after interest on the recognised surplus and amortisation of the remaining
unrecognised surplus, resulted in a net defined benefit pensions expense of
£4.3m (2002: £2.6m, 2001: £2.0m). Premier recommenced contributions to the
schemes from July 2003, paying £1.6m and accruing £0.3m in contributions to
December 31, 2003. The pension prepayment was amortised by £2.4m. Premier did
not contribute to the schemes during 2002, due to the scheme surplus, therefore
the amortisation of the pension prepayment of £2.6m comprised the net defined
benefit pensions expense of £2.6m. In 2001, Premier did not contribute to the
schemes, due to the scheme surplus at that time. The net defined benefit
pensions expense of £2.0m in 2001 comprised an amortisation of the pension
prepayment of £2.0m. The cost of the defined contribution schemes was £0.3m (2002: £0.2m, 2001:
£0.7m). The pension prepayment at December 31, 2003 was £5.8m (2002: £8.2m), which
represented the accumulated difference between the pension cost and employer
contributions. The reduction in the prepayment of £2.4m comprises the
amortisation in 2003 of £2.4m. Premier also operates plans in continental Europe, which provide employees with
certain post retirement and unfunded pension benefits. The liabilities in
respect of these benefits amounted to £0.3m at December 31, 2003 (2002: £0.1m;
2001: £0.6m). The cost of these plans was £0.4m (2002: £0.3m; 2001: £0.3m). FRS 17 Retirement benefit disclosures FRS 17 Retirement benefits came into effect during 2001. The following items
are recorded under the transitional disclosure requirements of FRS 17, and
should be read in conjunction with the pension disclosures in accordance with
SSAP 24 Accounting for pension costs recorded above. Full actuarial
assessments of the schemes were made on December 31, 2003 by an independent
qualified actuary, based on the most recent formal actuarial valuations at
December 31, 2002 for the Premier Brands scheme and April 5, 2001 for the HF
scheme. The major assumptions used by the actuary were: 2001
    
    2002
    
    2003Rate of increase in salaries
    
    
    3.0
    %
    
    
    2.5
    %
    
    
    2.5
    %Rate of increase in pensions in payment
    
    
    2.0
    %
    
    
    1.5
    %
    
    
    1.5
    %Discount rate
    
    
    6.0
    %
    
    
    5.5
    %
    
    
    5.5
    %Inflation assumption
    
    
    2.0
    %
    
    
    1.5
    %
    
    
    1.5
    %
 F-14




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The assets in the scheme and the expected rate of return at December 31, were: Expected
    
    
    
    
    
    Expected
    
    
    
    
    
    Expectedrate of
    
    Market
    
    rate of
    
    Market
    
    rate of
    
    Marketreturn
    
    value
    
    return
    
    value
    
    return
    
    value2001
    
    2001
    
    2002
    
    2002
    
    2003
    
    2003£m
    
    
    
    £mAssetEquities
    
    
    7.4
    %
    
    
    145.5
    
    
    
    9.5
    %
    
    
    123.3
    
    
    
    8.5
    %
    
    
    148.6Bonds
    
    
    6.5
    %
    
    
    62.4
    
    
    
    6.0
    %
    
    
    51.6
    
    
    
    6.0
    %
    
    
    47.9Other
    
    
    4.0
    %
    
    
    4.7
    
    
    
    4.0
    %
    
    
    0.7
    
    
    
    4.0
    %
    
    
    0.8Total market value
of scheme assets
    
    
    7.0
    %
    
    
    212.6
    
    
    
    7.0
    %
    
    
    175.6
    
    
    
    7.9
    %
    
    
    197.3
 The following amounts at December 31, were measured in accordance with the
requirements of FRS 17 Retirement benefits. 2001
    
    2002
    
    2003£m
    
    £m
    
    £mTotal market value of scheme assets
    
    
    212.6
    
    
    
    175.6
    
    
    
    197.3Present value of scheme liabilities
    
    
    (215.1
    )
    
    
    (185.9
    )
    
    
    (205.9
    )Deficit in the schemes
    
    
    (2.5
    )
    
    
    (10.3
    )
    
    
    (8.6
    )Related deferred tax asset
    
    
    0.8
    
    
    
    3.1
    
    
    
    2.6Net pension liability
    
    
    (1.7
    )
    
    
    (7.2
    )
    
    
    (6.0
    )
 If the above amounts had been
recognised in the financial statements, Premiers
net liabilities and profit and loss reserve at December 31, would be as
follows: 2001
    
    2002
    
    2003£m
    
    £m
    
    £mNet shareholders deficit including pension
prepayment recognised under SSAP 24
    
    
    (167.3
    )
    
    
    (149.8
    )
    
    
    (134.4
    )Pension
prepayment recognised under SSAP 24
    
    
    (10.8
    )
    
    
    (8.2
    )
    
    
    (5.8
    )Net pension
liability recognised under FRS 17
    
    
    (1.7
    )
    
    
    (7.2
    )
    
    
    (6.0
    )Net shareholders deficit including pension
liability recognised under FRS 17
    
    
    (179.8
    )
    
    
    (165.2
    )
    
    
    (146.2
    )Profit and loss reserve including pension
prepayment recognised under SSAP 24
    
    
    (878.2
    )
    
    
    (860.7
    )
    
    
    (845.3
    )Pension
prepayment recognised under SSAP 24
    
    
    (10.8
    )
    
    
    (8.2
    )
    
    
    (5.8
    )Net pension
liability recognised under FRS 17
    
    
    (1.7
    )
    
    
    (7.2
    )
    
    
    (6.0
    )Profit and loss reserve including pension
liability recognised under FRS 17
    
    
    (890.7
    )
    
    
    (876.1
    )
    
    
    (857.1
    )
 F-15




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following amounts would
have been recognised in the performance statements
in the year to December 31, 2003 and 2002 under the requirements of FRS 17: 2002
    
    2003£m
    
    £mAnalysis of amount charged to operating profitCurrent service cost
    
    
    3.9
    
    
    
    4.3Past service cost (gross)
    
    
    
    
    
    
    1.0Less
unrecognised surplus
    
    
    
    
    
    
    Curtailments / settlements (gross)
    
    
    
    
    
    
    Less
unrecognised surplus
    
    
    
    
    
    
    Total operating charge
    
    
    3.9
    
    
    
    5.3Analysis of amount credited to other finance incomeExpected return on pension scheme assets
    
    
    15.0
    
    
    
    14.5Interest on pension scheme liabilities
    
    
    (12.9
    )
    
    
    (10.4
    )Net return
    
    
    2.1
    
    
    
    4.1Analysis
of amount recognised in Statement of Total Recognised Gains and
LossesActual return less expected return on pension scheme assets
    
    
    (31.2
    )
    
    
    15.0Experience gains and losses arising on the scheme liabilities
    
    
    2.4
    
    
    
    (13.7
    )Changes in assumptions underlying the present value of the scheme liabilities
    
    
    22.8
    
    
    
    Actuarial
gain / (loss) recognised in the Statement of Total Recognised
Gains and Losses
    
    
    (6.0
    )
    
    
    1.3Movement in surplus / (deficit) during the yearSurplus / (deficit) in the scheme at beginning of the year
    
    
    (2.5
    )
    
    
    (10.3
    )Movement in year:Current service cost
    
    
    (3.9
    )
    
    
    (4.3
    )Employer contributions
    
    
    
    
    
    
    1.6Past service costs
    
    
    
    
    
    
    (1.0
    )Other finance income
    
    
    2.1
    
    
    
    4.1Actuarial
gain / (loss) recognised in the Statement of Total Recognised
Gains and Losses
    
    
    (6.0
    )
    
    
    1.3Surplus / (deficit) in scheme at end of year
    
    
    (10.3
    )
    
    
    (8.6
    )History of experience gains and lossesDifference between the expected and actual return on scheme assets:Amount (£m)
    
    
    (31.2
    )
    
    
    15.0Percentage of scheme assets at period end
    
    
    18
    %
    
    
    8
    %Experience gains and losses of scheme liabilities:Amount (£m)
    
    
    2.4
    
    
    
    (13.7
    )Percentage of the present value of the scheme liabilities at period end
    
    
    1
    %
    
    
    7
    %Total amount
recognised in Statement of Total Recognised Gains and Losses:Amount (£m)
    
    
    (6.0
    )
    
    
    1.3Percentage of the present value of the scheme liabilities at period end
    
    
    3
    %
    
    
    1
    %
 Employer contributions in the year ended December 31, 2003 were £1.6m. It has been expected that
contributions will be £6.9m in 2004 and £7.5m per annum thereafter. F-16




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Directors emoluments Aggregate emoluments paid to Directors by Premier in respect of services to
Premier and its subsidiaries totalled £0.6m (2002: £2.2m, 2001: £2.6m) for the
year, including £nil (2002: £1.0m, 2001: £0.8m) of compensation for loss of
office. Retirement benefits accrue to two Directors (2002: two, 2001: three)
under defined benefit schemes. The highest paid Director was paid £0.3m (2002:
£0.5m, 2001: £1.0m). The accrued pension in respect of this director was
£0.0m (2002: £0.0m, 2001 £0.0m). 7. Interest payable and similar charges 2001
    
    2002
    
    2003£m
    
    £m
    
    £mBank loans and overdrafts
    
    
    46.0
    
    
    
    47.1
    
    
    
    47.1Exchange loss / (gain) on U.S. dollar denominated bond
    
    
    3.6
    
    
    
    (13.2
    )
    
    
    5.0Amortisation of debt issuance costs
    
    
    7.5
    
    
    
    6.3
    
    
    
    5.7Finance leases
    
    
    0.1
    
    
    
    0.1
    
    
    
    57.2
    
    
    
    40.3
    
    
    
    57.8
 In January 2003, Premier entered into derivative contracts, which had the
effect of fixing the pounds sterling value of the US$200m Senior Notes at
£129.2m. A loss of £5.0m was recorded on entering into these contracts. 8. Taxation on Profit / (Loss) on Ordinary Activities 2001
    
    2002
    
    2003£m
    
    £m
    
    £mPremier and subsidiary undertakings:U.K. corporation tax at 30.0% (2002: 30.0%, 2001: 30.0%)Current year
    
    
    0.8
    
    
    
    6.7
    
    
    
    5.2Prior year
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )Overseas tax
    
    
    
    
    
    
    
    
    
    
    Total current tax
    
    
    0.6
    
    
    
    6.7
    
    
    
    5.0Deferred tax
    
    
    0.3
    
    
    
    (0.7
    )
    
    
    1.3Taxation charge on profit / (loss) on ordinary activities
    
    
    0.9
    
    
    
    6.0
    
    
    
    6.3
 The principal items affecting the tax charge are exceptional items not taxable
or not allowable for tax purposes. Tax relief on exceptional items in the year
was £3.2m not taxable (2002: £4.0m not allowable, 2001: £2.5m not allowable). F-17




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A reconciliation from the corporation tax calculated from the profit / (loss)
before tax to the actual tax charge is set out below. 2001
    
    2002
    
    2003£m
    
    £m
    
    £mProfit / (loss) before taxation
    
    
    (27.6
    )
    
    
    22.3
    
    
    
    18.5Tax credit / (charge) on profit / (loss) before tax at U.K.
corporation tax rate of 2003: 30.0% (2002: 30.0%, 2001: 30.0%)
    
    
    8.3
    
    
    
    (6.7
    )
    
    
    (5.6
    )Non allowable / (disallowable) exceptional items
    
    
    (9.0
    )
    
    
    (1.6
    )
    
    
    0.6Timing differences
    
    
    0.9
    
    
    
    (0.7
    )
    
    
    0.9Utilisation of taxation losses
    
    
    
    
    
    
    4.1
    
    
    
    Other disallowable items
    
    
    (0.8
    )
    
    
    (1.8
    )
    
    
    (1.1
    )Adjustment to prior year
    
    
    
    
    
    
    
    
    
    
    0.2Taxation
charge on profit / (loss) on ordinary activities
    
    
    (0.6
    )
    
    
    (6.7
    )
    
    
    (5.0
    )
 9. Intangible Assets Goodwill
    
    Trademarks
    
    Total£m
    
    £m
    
    £mCost at January 1, 2003
    
    
    91.4
    
    
    
    27.5
    
    
    
    118.9Additions
    
    
    55.8
    
    
    
    27.8
    
    
    
    83.6Cost at December 31, 2003
    
    
    147.2
    
    
    
    55.3
    
    
    
    202.5Amortisation at January 1, 2003
    
    
    3.8
    
    
    
    1.2
    
    
    
    5.0Charge for the year
    
    
    5.6
    
    
    
    1.5
    
    
    
    7.1Amortisation at December 31, 2003
    
    
    9.4
    
    
    
    2.7
    
    
    
    12.1Net book value at December 31, 2003
    
    
    137.8
    
    
    
    52.6
    
    
    
    190.4Net book value at December 31, 2002
    
    
    87.6
    
    
    
    26.3
    
    
    
    113.9
 The addition to goodwill during 2003 includes £55.6m in relation to the
acquisition of the ambient desserts business in the U.K. and the
Republic of Ireland of Unilever Bestfoods U.K. Limited (Ambrosia). Goodwill arising on
acquisition is amortised over a period of 20 years. The addition to trademarks in 2003 relates to trademarks acquired on the
acquisition of Ambrosia. Trademarks are amortised over a period of 20 years. F-18




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. Tangible Fixed Assets Freehold
    
    Long
    
    Shortland and
    
    leasehold
    
    leasehold
    
    Plant andbuildings
    
    properties
    
    properties
    
    machinery
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £mCost or valuation at January 1, 2003
    
    
    69.4
    
    
    
    3.7
    
    
    
    0.8
    
    
    
    224.1
    
    
    
    298.0Additions
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    26.5
    
    
    
    27.3Acquisition of subsidiaries
    
    
    3.9
    
    
    
    
    
    
    
    
    
    
    
    13.3
    
    
    
    17.2Disposals
    
    
    (5.1
    )
    
    
    
    
    
    
    
    
    
    
    (7.9
    )
    
    
    (13.0
    )Exchange adjustments
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    2.7
    
    
    
    3.5Cost or valuation at December 31, 2003
    
    
    69.8
    
    
    
    3.7
    
    
    
    0.8
    
    
    
    258.7
    
    
    
    333.0Depreciation at January 1, 2003
    
    
    15.6
    
    
    
    0.6
    
    
    
    0.4
    
    
    
    146.3
    
    
    
    162.9Charge for the year
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    21.0
    
    
    
    23.4Acquisition of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Disposals
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    (6.9
    )
    
    
    (8.6
    )Exchange adjustments
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    2.2Depreciation at December 31, 2003
    
    
    16.7
    
    
    
    0.6
    
    
    
    0.4
    
    
    
    162.2
    
    
    
    179.9Net book value at December 31, 2003
    
    
    53.1
    
    
    
    3.1
    
    
    
    0.4
    
    
    
    96.5
    
    
    
    153.1Net book value at December 31, 2002
    
    
    53.8
    
    
    
    3.1
    
    
    
    0.4
    
    
    
    77.8
    
    
    
    135.1The cost or valuation of depreciable
assets included above at December 31,
2003
    
    
    56.6
    
    
    
    3.7
    
    
    
    0.8
    
    
    
    258.7
    
    
    
    319.8Analysis of cost or valuation at
December 31, 2003Cost
    
    
    65.8
    
    
    
    3.7
    
    
    
    0.8
    
    
    
    258.7
    
    
    
    329.0Valuation
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.069.8
    
    
    
    3.7
    
    
    
    0.8
    
    
    
    258.7
    
    
    
    333.0
 Included in long leasehold
property at December 31, 2003 were capitalised
finance leases with a net book value of £0.3m (2002: £0.3m, 2001: £0.3m).
Depreciation charged during the year on these assets was £nil (2002: £nil,
2001: £nil). Included in plant and machinery at December 31, 2003 were
capitalised finance leases with a net book value of £0.1m (2002: £0.2m, 2001:
£0.2m). Depreciation charged during the year on these assets was £0.1m (2002:
£0.1m, 2001 £0.2m). Premier implemented FRS 15, Tangible and intangible fixed assets in 2000.
Premier has taken advantage of the transitional arrangements relating to
previously revalued assets and has not revalued those assets held at valuation.
Premiers freehold and long leasehold properties in the U.K. were revalued on
the basis of open market value for existing use by Bidwells at December 31,
1990. The historical cost of revalued assets at December 31, 2003 was £0.1m
(2002: £0.1m). The valuations were undertaken in accordance with the manual of
the Royal Institute of Chartered Surveyors. The book values of these properties
were adjusted to their valuations during the relevant financial period and the
resultant net surplus credited to the revaluation reserve. 2002
    
    2003£m
    
    £mCapital expenditure commitmentsExpenditure contracted for but not provided in the consolidated
financial statements
    
    
    1.4
    
    
    
    5.0
 F-19




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. Investments Unlisted investments
    
    £mAt January 1, 2003
    
    
    0.2Additions
    
    
    Disposals
    
    
    At December 31, 2003
    
    
    0.2Provisions at December 31, 2002 and 2003
    
    
    Net book value at December 31, 2003
    
    
    0.2Net book value at December 31, 2002
    
    
    0.2
 12. Stocks 2002
    
    2003£m
    
    £mRaw materials
    
    
    36.9
    
    
    
    43.4Work in progress
    
    
    4.9
    
    
    
    2.5Finished goods and goods for resale
    
    
    69.5
    
    
    
    76.4111.3
    
    
    
    122.3
 13. Debtors 2002
    
    2003£m
    
    £mDue within one year:Trade debtors, net of provisions
    
    
    108.8
    
    
    
    98.7Other debtors including VAT
    
    
    18.8
    
    
    
    14.9Prepayments
    
    
    5.9
    
    
    
    5.1133.5
    
    
    
    118.7Due after more than one year:Other debtors and pension prepayments
    
    
    9.0
    
    
    
    6.5Total debtors
    
    
    142.5
    
    
    
    125.2
 F-20




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. Creditors Due Within One Year 2002
    
    2003£m
    
    £mSenior Credit Facility due within one year
    
    
    27.0
    
    
    
    34.2Other bank loans and overdrafts
    
    
    3.2
    
    
    
    10.3Debt issuance costs
    
    
    (5.7
    )
    
    
    (4.7
    )24.5
    
    
    
    39.8Trade creditors
    
    
    138.4
    
    
    
    147.6Corporation taxes
    
    
    12.4
    
    
    
    19.0Other taxes and social security
    
    
    5.9
    
    
    
    4.3Finance lease obligations
    
    
    0.1
    
    
    
    0.1Amounts due to parent company
    
    
    0.9
    
    
    
    1.9Other creditors
    
    
    12.8
    
    
    
    6.4Interest accruals
    
    
    10.5
    
    
    
    8.8Other accruals
    
    
    12.1
    
    
    
    10.1217.6
    
    
    
    238.0
 15. Creditors Due After More Than One Year 2002
    
    2003£m
    
    £mBorrowings:Unsecured subordinated US$200m 12.0% Senior Notes due 2009
    
    
    124.2
    
    
    
    129.2Unsecured subordinated £75m 12.25% Senior Notes due 2009
    
    
    75.0
    
    
    
    75.0Debt issuance costs
    
    
    (1.1
    )
    
    
    198.1
    
    
    
    204.2Senior Credit Facility
    
    
    265.3
    
    
    
    217.9Debt issuance costs
    
    
    (8.1
    )
    
    
    (5.4
    )257.2
    
    
    
    212.5Acquisition Facility
    
    
    
    
    
    
    75.0Debt issuance costs
    
    
    
    
    
    
    (3.4
    )
    
    
    
    71.6Loan from related party
    
    
    9.3
    
    
    
    9.3Other unsecured loans
    
    
    0.1
    
    
    
    0.19.4
    
    
    
    9.4464.7
    
    
    
    497.7Other creditors:Government grants in respect of capital expenditure
    
    
    0.2
    
    
    
    0.2
 The loan from related party is from HMTF Poultry, an affiliated company, does
not bear interest and is repayable in full on July 31, 2009. The maturity profiles of borrowings and finance lease obligations are shown in
note 20. F-21




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Description of Senior Credit Facility, Acquisition Facility and Subordination
Arrangements Senior Credit Facility In May 2002, Premier Financing entered into an amended and restated Senior
Credit Facilities Agreement with J.P. Morgan plc and Barclays Capital as
arrangers, JPMorgan Chase Bank and Barclays Bank plc as underwriters, with J.P.
Morgan Europe Limited as agent and security agent (the Senior Credit
Facility). Under the Senior Credit Facility, a syndicate of financial
institutions made £412.3m of senior secured credit facilities available to
Premier Financing. These facilities have been reduced in line with repayments
made. At December 31, 2003, the facilities available to Premier amounted to
£352.1m. Acquisition Facility In November 2003, Premier Financing entered into a subordinated facilities
agreement with J.P. Morgan PLC as arranger, JPMorgan Chase Bank as underwriter
and J.P. Morgan Europe Limited as agent and security agent (the Acquisition
Facility). Under the Acquisition Facility, a syndicate of financial
institutions made an unsecured term loan facility of up to £75.0m available to
Premier Financing for acquisition purposes. Structure Senior Credit Facility The Senior Credit Facility provides for £352.1m of loan facilities comprising
(i) Term A and Term B Facilities and (ii) the Working Capital Facility (each as
described below) and the ancillary facilities which may be provided therein. The Term A Facility is for an amount of up to £187.4m and the Term B Facility
is for an amount of up to £64.7m. At December 31, 2003, £187.4m was
outstanding on the Term A Facility and £64.7m was outstanding on the Term B
Facility. The Working Capital Facility in the amount of up to £100.0m is available in
pounds sterling or the equivalent in certain foreign currencies in the form of
revolving advances and a letter of credit facility, which is to be used for
general corporate purposes. At December 31, 2003, £4.4m had been drawn down as
a cash advance under the Working Capital Facility and £34.8m was utilized for
general corporate purposes. Acquisition Facility The Acquisition Facility is for an amount of up to £75.0m. At December 31,
2003, £75.0m was outstanding on the Acquisition Facility. Interest Rates and Fees Interest on advances under the various facilities is payable at the rate per
annum equal to LIBOR (or EURIBOR for euro) plus applicable mandatory liquid
asset costs plus the following applicable margins in relation to the
facilities:  
    
    2.25% per annum reducing on the basis of a ratchet reducing
in several steps to 1.25% per annum dependent upon certain net debt
to consolidated EBITDA ratios for the Term A Facility and the drawn
down amount under the Working Capital Facility. At December 31,
2003, the margin applied to LIBOR on the Term A Facility was 1.75%;
    
    2.75% per annum for the Term B Facility; and
    
    4.50% per annum for the Acquisition Facility. Commitment fees are payable at the rate of 0.75% per annum of the undrawn
portion of the relevant facilities. The commitment fees on the Working Capital
Facility reduce in several steps to 0.25% per annum dependent upon certain net
debt to consolidated EBITDA ratios. At December 31, 2003, the margin applied to
LIBOR in respect of commitment fees was 0.50%. Default interest is payable at
the applicable interest rate plus 1% per annum. Security and Guarantees Premier Financings obligations under the Senior Credit Facility are required
to be guaranteed by each of the material operating subsidiaries of Premier.
Each charging subsidiary has granted security over substantially all of its
assets, including English law fixed charges over material properties, bank
accounts, insurances, debts and shares and a floating charge over all of its
other undertakings and assets. Certain limited material subsidiaries
incorporated outside of England and Wales have given similar security. F-22




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Covenants The Senior Credit Facility requires Premier Financing to observe certain
undertakings, including undertakings relating to delivery of financial
statements, insurances, notification of any default or any occurrence which
could be reasonably expected to have a material adverse effect, consents and
authorisations being maintained, compliance with environmental laws,
notification of material litigation and labour disputes, access to books and
records, uses of proceeds, filing of tax returns, pension schemes, the
provision of guarantees and security from subsidiaries, euro compliance,
intellectual property rights and hedge transactions. The Senior Credit Facility requires Premier Financing to comply with certain
negative covenants, including covenants relating to negative pledges, borrowed
money, guarantees, disposals, operating leases, change of accounting reference
date or accounting policy, identity of auditors, equity yield and intercompany
loan payments, reduction of capital, loans and credit, intra-group contracts
and arrangements, distributions, share capital, disposals, acquisitions and
joint ventures, amendments to documents, change in business, merger and
amalgamation, shareholders meetings and constitutive documents, acquisitions
and joint ventures and new subsidiaries. Certain categories of permitted
payment may be made as exceptions to the restrictions on dividends and
intercompany loan payments including payment of interest on the Notes. In addition, the Senior Credit Facility and the Acquisition Facility requires
Premier Financing to comply with specified financial ratios and tests,
including EBITDA / total interest expense, total net debt / EBITDA, fixed
charge coverage ratio and maximum capital expenditure. In the year ended
December 31, 2003, Premier met all covenants imposed by the Senior Credit
Facility and the Acquisition Facility. There are caps on permitted budgeted capital expenditure for each financial
year with the right to carry forward any surplus of budgeted capital
expenditures up to a maximum surplus amount of one third of the previous years
budget for use within the first six months of the following financial year. An
additional capital expenditure basket permitted by the Senior Credit Facility
permits Premier to spend up to £10.0 million in total on capital expenditure,
over and above the financial limits prescribed. Maturity and Amortization Senior Credit Facilities Term Loan Facilities:The Term A Facility will be repaid in semi-annual
installments commencing on June 30, 2002, with the final maturity on December
31, 2007. The Term B Facility will be repaid in two installments with 50%
repayable on June 30, 2008 and the balance repayable on December 31, 2008. Working Capital Facility:The Working Capital Facility (and all other
facilities made available thereunder) will cease to be available on December
31, 2007. Acquisition Facility The Acquisition Facility will be repaid in one installment on March 31, 2009. Subordination Deed The Subordination Deed provides for restrictions on Premier taking certain
actions in relation to the Notes. In particular, Premier may not receive
payments to pay principal on the Notes or any prepayment, redemption,
defeasance or purchase of principal on the Notes or certain indemnities until
the Senior Credit Facility has been paid in full. F-23




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 16. Provisions for Liabilities and Charges Unfunded pensionliabilities and post
    
    RestructuringDeferred
    
    retirement
    
    andtax
    
    benefits
    
    other provisions
    
    Total£m
    
    £m
    
    £m
    
    £mAt January 1, 2003
    
    
    7.0
    
    
    
    0.1
    
    
    
    6.7
    
    
    
    13.8Charged
    
    
    1.3
    
    
    
    
    
    
    
    8.6
    
    
    
    9.9Utilised
    
    
    
    
    
    
    
    
    
    
    (9.4
    )
    
    
    (9.4
    )At December 31, 2003
    
    
    8.3
    
    
    
    0.1
    
    
    
    5.9
    
    
    
    14.3
 Deferred tax relates principally to accelerated capital allowances and pension
prepayment. Deferred tax has not been provided in respect of liabilities,
which might arise on the distribution of unappropriated profits of overseas
entities. Restructuring provisions represent the liability in respect of (i) the closure
of the Hadfield site and integration of its operations into the Histon and Bury
St. Edmunds sites; (ii) changes to distribution arrangements; and (iii)
provision in relation to the restructuring of Materne, Premiers French
preserve and compote manufacturing and selling operation following the
integration of Premier Premiers France, Premiers French biscuit distribution
company. The provision for unfunded pension liabilities and post retirement benefits
represents the liability in respect of pension obligations in Premiers
continental European operations where no funded plans are in operation. The potential liability for tax on capital gains, which might arise if
Premiers revalued properties were to be sold at their book value, and no
advantage taken of rollover relief, is estimated to be £1.2m (2002: £1.2m). 17. Share Capital and Reserves 2002
    
    2003£m
    
    £mAuthorized100,000,000 £1 ordinary shares (2002: 100,000,000 £1 ordinary shares)
    
    
    100.0
    
    
    
    100.0Issued and fully paid83,701,200 £1 ordinary shares (2002: 83,701,200 £1 ordinary shares)
    
    
    83.7
    
    
    
    83.7
 F-24




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS TotalProfit and
    
    capitalShare
    
    Share
    
    Revaluation
    
    loss
    
    andcapital
    
    premium
    
    reserve
    
    account
    
    reserves£m
    
    £m
    
    £m
    
    £m
    
    £mAt January 1, 2003
    
    
    83.7
    
    
    
    623.2
    
    
    
    4.0
    
    
    
    (860.7
    )
    
    
    (149.8
    )Movements in the year:Retained profit for the financial year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.2
    
    
    
    12.2Exchange movements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.2
    
    
    
    3.2At December 31, 2003
    
    
    83.7
    
    
    
    623.2
    
    
    
    4.0
    
    
    
    (845.3
    )
    
    
    (134.4
    )
 18. Acquisitions and Disposals The provisional value of the net assets acquired and consideration paid in
respect of the acquisition of the ambient desserts business in
the U.K. and the Republic of Ireland of Unilever Bestfoods UK Limited (Ambrosia) in December
2003, was as follows: ConsistencyofBook
    
    
    
    
    
    accounting
    
    Provisionalvalue
    
    Revaluations
    
    policy
    
    fair value£m
    
    £m
    
    £m
    
    £mAssets acquired:Intangible assets
    
    
    27.8
    
    
    
    
    
    
    
    
    
    
    
    27.8Fixed assets
    
    
    17.2
    
    
    
    
    
    
    
    
    
    
    
    17.2Current assetsStocks
    
    
    6.5
    
    
    
    
    
    
    
    (0.8
    )
    
    
    5.7Total capital employed
    
    
    51.5
    
    
    
    
    
    
    
    (0.8
    )
    
    
    50.7ConsiderationCash
    
    
    106.3
    
    
    
    
    
    
    
    
    
    
    
    106.3Total consideration
    
    
    106.3
    
    
    
    
    
    
    
    
    
    
    
    106.3Goodwill arising
    
    
    54.8
    
    
    
    
    
    
    
    0.8
    
    
    
    55.6
 From December 1, 2003, the Ambrosia ambient foods business contributed £5.2m to
Premiers turnover, £0.7m to Premiers operating profit, £1.3m to net cash flow
from operating activities, £0.7m of interest expense and £nil to capital
expenditure. The value of the net assets acquired and consideration paid in respect of the
acquisition of the ambient foods business in the U.K. of Nestlé SA (Nestlé)
in May 2002, was as follows: F-25




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ConsistencyofBook
    
    
    
    
    
    accounting
    
    Fairvalue
    
    Revaluations
    
    policy
    
    value£m
    
    £m
    
    £m
    
    £mAssets acquired:Intangible assets
    
    
    20.0
    
    
    
    
    
    
    
    
    
    
    
    20.0Fixed assets
    
    
    24.7
    
    
    
    (4.8
    )
    
    
    
    
    
    
    19.9Current assetsStocks
    
    
    12.4
    
    
    
    (0.1
    )
    
    
    (0.9
    )
    
    
    11.4Trade debtors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other debtors
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Creditors due in less than one yearTrade creditors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other creditors
    
    
    (0.2
    )
    
    
    

    
    
    
    
    
    
    
    (0.2
    )Total capital employed
    
    
    57.9
    
    
    
    (4.9
    )
    
    
    (0.9
    )
    
    
    52.1ConsiderationCash
    
    
    132.2
    
    
    
    
    
    
    
    
    
    
    
    132.2Debt net of cash acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total consideration
    
    
    132.2
    
    
    
    
    
    
    
    
    
    
    
    132.2Goodwill arising
    
    
    74.3
    
    
    
    4.9
    
    
    
    0.9
    
    
    
    80.1
 The Nestlé ambient foods business contributed £52.2m to Premiers turnover,
£6.9m to Premiers operating profit, £9.1m to net cash flow from operating
activities, £5.9m of interest expense and £0.3m to capital expenditure in 2002. In addition, in January 2002, Premier acquired a potato seed business for
£0.6m. The assets acquired comprised £0.2m of trade debtors and £0.2m of trade
creditors. The goodwill arising on the acquisition was £0.6m. There were no disposals in 2003 or 2002. 19. Commitments and Contingencies Commitments to make operating lease payments during the next financial year
were as follows: Plant andLand and buildings
    
    machinery2002
    
    2003
    
    2002
    
    2003£m
    
    £m
    
    £m
    
    £mOn leases expiring:Within 1 year
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.4Between 2 and 5 years
    
    
    0.3
    
    
    
    0.2
    
    
    
    2.2
    
    
    
    2.5After 5 years
    
    
    0.7
    
    
    
    0.7
    
    
    
    
    
    
    
    1.4
    
    
    
    1.4
    
    
    
    2.6
    
    
    
    2.9
 Capital commitments are disclosed in note 10 Tangible Fixed Assets. Contingent Liabilities Legal Proceedings No member of the Group is, or has been engaged in or, so far as the
Company is aware, has pending or threatened by or against it, any legal or
arbitration proceedings which may have, or have had during the recent past
(covering at least the period since December 31, 2002), a significant effect on
the Groups financial position other than as disclosed below:  (a)
    
    Members of the Group are involved in a series of three
separate but linked proceedings which arise out of events prior to
the acquisition by the Group of Hobson Ltd (Hobson). The dealings
were between Hobson (now a member of the Group); F E Barber Ltd (F
E Barber), a former member of the Group; and the
Co-operative Group (CWS) Limited (CWS). F E Barber was sold out of
the Group in 2001 and Premier Financing indemnified the purchaser of
F E Barber in respect of these proceedings, and was assigned, among
other things, the conduct of the matter. In the proceedings: (i) CWS
is suing Hobson claiming damages in excess of £10.0 million,
for loss allegedly occasioned by alleged criminal acts committed by
Mr. Andrew Regan, a shareholder in F-26




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Hobson and its then chief executive and others (including an
intermediary, Mr. Ronald Zimet and his company, Trellis
International Limited) (Trellis). Mr. Regan is alleged to procure
the extension of a supply agreement between CWS and F E Barber in
January 1995 (which agreement is said to have been brokered by Mr.
Zimet and/or Trellis) at an undervalue. CWS claims that Hobson is
vicariously liable for these acts. The two CWS employees, Mr.
Regan, Mr. Zimet and/or Trellis, and Hobsons former solicitor Mr.
Thomas, are also defendants to CWSs claim; (ii) Premier Financing is suing Mr. Regan, Mr. Zimet and/or Trellis
and the two CWS employees for damages and claiming indemnities in
respect of any loss arising from the first action; and (iii) Premier Financing is suing the law firm Alsop Wilkinson and
one of its partners (who is said to have assisted in Mr. Regans
alleged acts of bribery) for damages. The partner is
counterclaiming against Premier Financing for loss of earnings and
business opportunities as a consequence of the civil and criminal
proceedings having been brought. CWS have estimated their loss as being in excess of £10.0 million.
However, it is the view of the Groups management that the claim is unlikely to
succeed, but that if it were to do so, their assessment is that the value of
the Groups share of any settlement would not be material to the Group.  (b)
    
    A dilapidations claim has been made against Premier
International Foods U.K. Limited by Barnsfold Limited, the landlord
of a leasehold property in Speke, Liverpool occupied by Premier
until 2002. The landlords claim is quantified at £1,303,382
excluding loss of rent and fees. Premier has not finalised its
response to all elements of this claim, but Premiers quantification
of the claim is likely to be substantially lower than the claim made
by the landlord. Both parties have acknowledged that any agreed
amount for damages will be capped by any diminution in the value of
the property. Premier made a Part 36 payment into Court in December
2003 of £300,000, which remains in Court, and the landlord put
forward a Part 36 offer in January 2004 of £1,009,005 including
interest. A trial has been fixed for October 2004.(c)
    
    A claim for £658,000 has been made against Premier
International by Tibbett and Britten Limited (T&B) pursuant to
indemnities under an asset sale agreement and unquantified damages
arising out of an alleged loss of revenue of approximately £8.6
million for business it allegedly should have received under a
related distribution agreement. Premier challenges both liability
for this loss and the quantum of damages sought (Premiers position
being that the loss is greatly exaggerated owing to errors in T&Bs
calculations). Premier has asserted a counterclaim for breach of
contract by T&B in connection with T&Bs obligations to manage
pallets hired from GKN Chep under the distribution agreement.
Premier is seeking to set-off the indemnities claimed against
Premiers claim, which is quantified at £2.3 million for lost
pallets and for excess rental charges incurred. This action is
ongoing and the directors consider that appropriate accounting
provision has been made in respect of this matter. Guarantees On June 28, 2002, Premier Ambient Products (UK) Limited, a subsidiary of
Premier entered into a sale and purchase agreement with Ardnure Investments
Limited for the sale and purchase of the entire share capital of Pastam
Limited, a company registered in the Republic of Ireland, which had secured the
right to acquire the ambient foods business in the Republic of Ireland of
Nestlé SA. Premier Financing Limited, a subsidiary of Premier, has guaranteed
minimum royalty payments due from Pastam Limited to Nestlé SA, should Pastam
Limited be placed into receivership. In turn, Pastam Limited has signed a deed
of indemnity, whereby it will indemnify Premier Financing for any loss suffered
should the guarantee be called upon, and has granted Premier Ambient
Products (UK) Limited a power of
attorney to terminate the license, should a receiver be appointed to Pastam
Limited. The maximum exposure to Premier Financing under this guarantee at December 31,
2003 is Euro 4.7m, which reduces by Euro 0.3m per annum until 2017. After
2017, the exposure is limited to Euro 0.6m. F-27




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20. Financial Instruments Risk management The interest rate and foreign exchange risks are managed by the Treasury
Committee, which is a subcommittee appointed by the Board of Directors. Day to
day management of treasury activities is performed by the Group treasury
department. The framework for management of these risks is set down in the
Senior Credit Facility Agreement and in the Treasury Policies and Procedures
manual. The main risks arising from Premiers financial transactions are interest rate
risk, liquidity risk and foreign currency risk. The policies towards these
risks are documented and are reviewed on a regular basis by the Treasury
Committee. Premier also enters into contracts with suppliers for its principal raw
materials, some of which are considered commodities. However, as these
contracts are part of Premiers normal purchasing activities and always result
in actual delivery, commodity risk arising from these contracts is not
considered material. Interest rate risk Premier borrows principally in pounds sterling and U.S. dollars at both fixed
and floating rates of interest. Premier actively monitors its interest rate
exposure, since the high level of gearing makes its profitability sensitive to
movements in interest rates. However, the minimum interest rate hedging that
must be in place is governed by the hedging strategy letter, which forms part
of the £352.1m Senior Credit Facility Agreement. Premier makes use of a
variety of derivative instruments including interest rate swaps, collars and
caps to hedge its interest rate exposure. The mixture of instruments used to
hedge its exposure however is determined by the conditions of the Senior Credit
Facility and discussions with its lending group. The Senior Credit Facility
Agreement requires Premier to hedge a minimum of 50% of its senior debt. The
senior debt at December 31, 2003 amounts to £252.1m. Premier currently has
hedging in place for £132.4m until September 2004. In addition, Premier has
entered into a coupon swap to fix the cash flows on its US$200m high yield debt
issue, which has the effect of converting the interest payments into fixed rate
sterling. Liquidity risk Premier has negotiated facilities with its bankers that provide sufficient
headroom to ensure liquidity and continuity of funding. It therefore has
sufficient unutilised banking facilities and reserve borrowing capacity.
Premier tends to have significant fluctuations in its short-term borrowing
position due to seasonal factors; however, the revolving credit facilities are
set at a level sufficient to meet its projected peak borrowing requirements. Foreign exchange risks Premier reports its financial statements in pounds sterling and trades in
several non-sterling currencies. Its trading transactions are therefore subject
to the effect of movements in these currencies. Such exposures arise from
sales or purchases in currencies other than the units functional currency.
Management of the major exposures is centralised and managed by the Group
treasury department, the small residual being managed by subsidiary companies
within the guidelines set down in the Treasury Policies and Procedures manual.
This requires subsidiaries to hedge committed foreign currency transaction
exposure above certain levels. It is Premiers policy to hedge exposure using
forward foreign currency exchange contracts, currency borrowings / investments
and currency options. Again, this is monitored by the Treasury Committee.
Although Premier generates some of its profits in non-sterling currencies and
has assets in non-sterling jurisdictions, the translation exposure resulting
from these profits and overseas net assets is not considered material and is
currently not hedged. This matter is reviewed regularly by members of the
Treasury Committee. In January 2003, Premier entered into forward exchange contracts to purchase
US$200.0 million. These had the effect under U.K. GAAP of fixing the pounds
sterling value of the US$200.0 million Senior Notes at £129.2 million. A loss
of £5.0 million was recorded on entering into these contracts. F-28




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Credit risk Potential concentrations of credit risk to Premier consist principally of cash
and cash equivalents and trade receivables. Cash and cash equivalents are
deposited with high-credit, quality financial institutions. Trade receivables
are due principally from major European grocery retailers. Furthermore, it is
Premiers policy to insure all third-party trade debt. Premier does not
consider there to be any significant concentration of credit risk at December
31, 2003. Interest rate and currency profile Sterling
    
    US dollar
    
    Euro
    
    Other
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £m2003Financial assetsFloating rate
    
    
    9.7
    
    
    
    1.3
    
    
    
    13.6
    
    
    
    
    
    
    
    24.6Cash and deposits
    
    
    9.7
    
    
    
    1.3
    
    
    
    13.6
    
    
    
    
    
    
    
    24.62002Financial assetsFloating rate
    
    
    30.2
    
    
    
    1.6
    
    
    
    11.7
    
    
    
    
    
    
    
    43.5Cash and deposits
    
    
    30.2
    
    
    
    1.6
    
    
    
    11.7
    
    
    
    
    
    
    
    43.5
 The financial assets all have maturities of less than one year and are all at floating rates. Sterling
    
    US Dollar
    
    Euro
    
    Other
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £m2003Financial
liabilitiesFloating rate
    
    
    (256.1
    )
    
    
    (0.2
    )
    
    
    (1.1
    )
    
    
    
    
    
    
    (257.4
    )Fixed rate
    
    
    (270.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (270.9
    )Interest free
    
    
    (9.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.3
    )Borrowings
    

    
    (536.3
    )
    
    
    (0.2
    )
    
    
    (1.1
    )
    
    
    
    
    
    
    (537.6
    )Fixed rate weighted average interest rate
    
    
    8.53
    %Fixed rate weighted average years to maturity
    
    
    0.78Interest free rate weighted average years to
maturity
    
    
    5.592002Financial liabilitiesFloating rate
    
    
    (207.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (207.3
    )Fixed rate
    
    
    (272.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (272.7
    )Interest free
    
    
    (9.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.3
    )Borrowings
    
    
    (489.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (489.3
    )Fixed rate weighted average interest rate
    
    
    10.2
    %Fixed rate weighted average years to maturity
    
    
    1.69
 The above calculation of the fixed rate weighted average interest rates
excludes any borrowing margin on £182.6m as the derivative instruments used to
fix the interest rates are not allocated specifically against Term A, Term B or
the Acquisition Facility, which in turn would determine the applicable margin.
The level of floating rate borrowings are determined by reference to the Senior
Credit Facility. The pricing basis for all floating rate borrowings is LIBOR.
Interest periods selected are determined by reference to market conditions and
interest rate outlook but cannot be for a maturity period longer than twelve
months. The weighted average period to maturity of the Senior Notes has been
calculated to reflect the companys option to repay the debt obligation on
September 1, 2004. The interest rates applicable
to the Notes and Term and Working Capital
Facilities are detailed in note 15. The analysis of average interest rates and
years to maturity on fixed rate debt is after adjusting for interest rate
swaps. Exposure to movements in interest rates and years to maturity on fixed
rate debt is after adjusting for interest rate swaps. Exposure to movements in
interest rates is further protected by interest rate caps and interest rate
collars amounting to £65.8m bringing the total amount of interest rate hedging
to £336.7m. The hedging currently in place on the senior debt is operative
until September 2005. The company has excluded short-term trade creditors from
this disclosure and has no long-term trade creditors. F-29




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Maturity of financial liabilities 2002
    
    2003Debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    Debtissuance
    
    Finance
    
    
    
    
    
    
    
    
    
    issuance
    
    FinanceDebt
    
    costs
    
    leases
    
    Total
    
    Debt
    
    costs
    
    leases
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mWithin 1 year or on
demand
    
    
    30.2
    
    
    
    (5.7
    )
    
    
    0.1
    
    
    
    24.6
    
    
    
    44.5
    
    
    
    (4.7
    )
    
    
    0.1
    
    
    
    39.9Between:1 and 2 years
    
    
    36.0
    
    
    
    (3.9
    )
    
    
    
    
    
    
    32.1
    
    
    
    47.5
    
    
    
    (3.0
    )
    
    
    
    
    
    
    44.52 and 3 years
    
    
    50.0
    
    
    
    (2.2
    )
    
    
    
    
    
    
    47.8
    
    
    
    49.4
    
    
    
    (2.5
    )
    
    
    
    
    
    
    46.93 and 4 years
    
    
    52.0
    
    
    
    (1.7
    )
    
    
    
    
    
    
    50.3
    
    
    
    56.3
    
    
    
    (2.0
    )
    
    
    
    
    
    
    54.34 and 5 years
    
    
    59.3
    
    
    
    (1.1
    )
    
    
    
    
    
    
    58.2
    
    
    
    64.7
    
    
    
    (1.1
    )
    
    
    
    
    
    
    63.6Over 5 years
    
    
    276.6
    
    
    
    (0.3
    )
    
    
    
    
    
    
    276.3
    
    
    
    288.6
    
    
    
    (0.2
    )
    
    
    
    
    
    
    288.4504.1
    
    
    
    (14.9
    )
    
    
    0.1
    
    
    
    489.3
    
    
    
    551.0
    
    
    
    (13.5
    )
    
    
    0.1
    
    
    
    537.6
 Currency analysis of financial assets and liabilities The table below shows Premiers currency exposures that give rise to net
currency gains and losses that are recognised in the consolidated profit and
loss account for the year ended December 31, 2003. Such exposures comprise
monetary assets / (liabilities) that are not denominated in the functional
currency of the subsidiary involved. The amounts shown below are after taking into account the effect of forward
exchange contracts and other derivative instruments entered into to manage
these exposures. Net foreign currency assets / (liabilities) 2002
    
    2003Functional currency of Group operation
    
    Functional currency of Group operationSterling
    
    Euro
    
    Other
    
    Total
    
    Sterling
    
    Euro
    
    Other
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mSterling
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Euro
    
    
    23.5
    
    
    
    
    
    
    
    
    
    
    
    23.5
    
    
    
    25.9
    
    
    
    
    
    
    
    
    
    
    
    25.9US dollar
    
    
    (95.1
    )
    
    
    
    
    
    
    
    
    
    
    (95.1
    )
    
    
    38.9
    
    
    
    
    
    
    
    
    
    
    
    38.9Swiss franc
    
    
    (0.4
    )
    
    
    0.1
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Canadian dollar
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Other
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (0.2
    )(71.7
    )
    
    
    0.2
    
    
    
    
    
    
    
    (71.5
    )
    
    
    64.3
    
    
    
    
    
    
    
    
    
    
    
    64.3
 Undrawn committed borrowing facilities 2002
    
    2003£m
    
    £mExpiring in less than 1 year
    
    
    
    
    
    
    Expiring in more than 1 but less than 2 years
    
    
    
    
    
    
    Expiring in more than 2 years
    
    
    77.3
    
    
    
    60.8As at December 31,
    
    
    77.3
    
    
    
    60.8
 The above undrawn facilities form part of Premiers overall working capital
lines, which bear interest at floating rates and are committed until December
31, 2007. F-30




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Fair value of financial assets and liabilities Set out below is a comparison of book and fair values of all Premiers
financial instruments by category: 2002
    
    2002
    
    2003
    
    2003Book
    
    Fair
    
    Book
    
    Fairvalue
    
    value
    
    value
    
    value£m
    
    £m
    
    £m
    
    £mFinancial instruments held
or issued to finance
Premiers operations:Short-term borrowings and
current portion of
long-Term Borrowings
    
    
    (30.2
    )
    
    
    (30.2
    )
    
    
    (44.5
    )
    
    
    (44.5
    )Long-term borrowings
    
    
    (473.9
    )
    
    
    (478.6
    )
    
    
    (506.5
    )
    
    
    (510.1
    )Other financial liabilities
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Cash deposits
    
    
    43.5
    
    
    
    43.5
    
    
    
    24.6
    
    
    
    24.6
 Fair values for the Notes, which have been included within long-term
borrowings, have been based on current market values. Financial instruments held or issued to manage Premiers interest rate or
currency profile are set out below: 2002
    
    2002
    
    2003
    
    2003Book
    
    Fair
    
    Book
    
    Fairvalue
    
    value
    
    value
    
    value£m
    
    £m
    
    £m
    
    £mFair value adjustment profit / (loss)Interest rate swaps
    
    
    
    
    
    
    (2.8
    )
    
    
    
    
    
    
    (0.6
    )Cross currency swaps
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    (1.4
    )Foreign exchange contracts
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    (17.1
    )
 The foreign exchange contracts and interest rate swap agreements have been
marked to their fair values at each balance sheet date. All commodity
contracts are settled by physical delivery and are not held for trading
purposes. There are no significant gains or losses on hedges at December 31,
2003 expected to be shown in the income statement for December 31, 2004. The analysis of financial instruments in this note excludes short-term debtors
and creditors as permitted under FRS 13 Derivatives and other financial
instruments. F-31




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##### Table of Contents



21. Principal Subsidiary Undertakings The following represent the principal undertakings of Premier at December 31,
2003. Percentages indicate ownership of the undertakings ordinary share
capital by Premier, directly or indirectly. Details of the country of
incorporation and principal operations and the main activity of each
undertaking are also given. All undertakings shown are included in the
consolidated financial statements. Country ofincorporation orregistration andprincipal
    
    
    
    %Subsidiary Undertakings
    
    operations
    
    Business
    
    OwnedFinancingPremier Financing Limited
    
    England and Wales
    
    Financing
    
    
    100Grocery productsMaterne
Boin S.A.S.
    
    France
    
    Preserve and fruit compote
manufacturing
    
    
    100Chivers Hartley Limited
    
    England and Wales
    
    Preserve and pickle
manufacturing
    
    
    100HL Foods Limited
    
    England and Wales
    
    Food canning and processing
    
    
    100Jonker Fris BV
    
    Netherlands
    
    Food canning and processing
    
    
    100Premier Ambient Products
(UK) Limited
    
    England and Wales
    
    Pickle, vinegar, sweet
spreads, jelly and desserts
manufacturing
    
    
    100Premier International
Foods U.K. Limited
    
    England and Wales
    
    Hot and cold beverages
manufacturing
    
    
    100PotatoesMBM Produce Limited
    
    England and Wales
    
    Potato processing and grading
    
    
    100
 22. Certain Relationships and Related Party Transactions The following related party relationships and transactions have been disclosed
because of their material nature to the operations of Premier. Other
transactions with entities within the Premier Foods Investments Limited Group
are not disclosed as permitted by FRS 8 Related party disclosures. Monitoring and Oversight Agreement In 1999, Premier entered into a 10-year agreement (the Monitoring and
Oversight Agreement) with Hicks Muse pursuant to which Premier will pay Hicks
Muse an annual fee of £1.2m for providing oversight and monitoring services to
Premier. The annual fee is adjustable at the end of each fiscal year to an
amount equal to one-tenth of one percent of Premiers budgeted consolidated net
sales, but in no event may the fee be less than £1.2m. In addition, Premier has
agreed to indemnify Hicks Muse and its shareholders and their respective
directors, officers, agents, employees and affiliates from and against all
claims, actions, proceedings, demands, liabilities, damages, judgments,
assessments, losses and costs, including fees and expenses, arising out of or
in connection with the services rendered by Hicks Muse under the Monitoring and
Oversight Agreement. The Monitoring and Oversight Agreement makes available to
Premier the resources of Hicks Muse concerning a variety of financial and
operational matters. The services that have been and will continue to be
provided by Hicks Muse could not otherwise be obtained by Premier without the
addition of personnel or the engagement of outside professional advisers. In
managements opinion, the fees provided for under the Monitoring and Oversight
Agreement reasonably reflects the benefits received and to be received by
Premier. F-32




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##### Table of Contents



Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Financial Advisory Agreement In 1999, Premier and Hicks Muse entered into an agreement (the Financial
Advisory Agreement) pursuant to which Hicks Muse will be entitled to receive a
fee equal to 1.5% of the transaction value for each acquisition made by
Premier. The Financial Advisory Agreement makes available to Premier the
resources of Hicks Muse concerning a variety of financial and operational
matters. The services that have been and will continue to be provided by Hicks
Muse could not otherwise be obtained by Premier without the addition of
personnel or the engagement of outside professional advisers. In managements
opinion, the fees provided for under the Financial Advisory Agreement
reasonably reflect the benefits received and to be received by Premier.
Premier paid £1.6m in 2003 (2002: £2.1m, 2001: £0.4m) to Hicks Muse under the
Financial Advisory Agreement. Golden Share A Golden Share has been issued by Premier Financing with voting rights, which
entitles the holder of the Golden Share to block the passing of resolutions for
the winding-up or administration of Premier Financing or resolutions approving
other matters that would constitute a breach of the Senior Credit Facility.
These voting rights attaching to the Golden Share will lapse upon a payment
default in respect of the Notes continuing unremedied and unwaived for a period
of 180 days. The Golden Share is held by an affiliate of Hicks Muse, which will
agree with the lenders under the Senior Credit Facility as to the exercise of
the voting rights of the Golden Share. Citadel Insurance Citadel, a subsidiary of
Premier Holdings, provides Premier with insurance services. Premier
paid Citadel Insurance premium payments for the year ended
December 31, 2003, 2002 and 2001 of £nil, £0.7m and
£0.5m respectively. Premier Holdings Limited
Management Charge In 2001, 2002 and 2003, Premier was recharged £0.2m, £2.8m and £0.9m,
respectively, by Premier Holdings Limited in respect of the shared
administrative functions. The decrease from 2002 to 2003 in the recharge to
Premier by Premier Holdings is primarily the result of a reduction in
restructuring costs incurred by Premier Holdings in 2003. HMTF Poultry Limited Premier has borrowed £9.3m (2002: £9.3m) from HMTF Poultry Limited, an
affiliated company. This loan is interest-free, subordinated to the Senior
Credit Facility and repayable in full on July 31, 2009. Transactions with Burtons Foods Limited
(Burtons) Burtons is a company
controlled by affiliates of Hicks Muse. Our directors Mr.
Schofield and Mr. Thomas are also directors of Burtons. Cadbury Biscuits
Agreement Premier Foods Limited,
Premier International Foods U.K. Limited, Chivers Hartley Limited (together
the Premier Foods Group), Burtons Foods Limited (Burtons), Cadbury Limited and Cadbury
Schweppes plc are parties to an agreement dated May 13, 1986, as amended by a
deed of amendment dated April 18, 2002 (the Cadbury Biscuits Agreement),
whereby Cadbury Limited licenses Premier International Foods U.K.
Limited, Chivers Hartley Limited
and Burtons respectively to manufacture and sell chocolate milk drinks,
chocolate spreads, chocolate biscuits and chocolate syrup under certain Cadbury
trademarks. The Cadbury Biscuits Agreement continues until 2026 when it is
renewable by Premier International Foods UK Limited on terms to be agreed between the parties. Chocolate Supply
Arrangements An agreement, dated January 29, 2001, was entered into
between Burtons and Premier International Foods UK Limited
(Premier International) whereby Premier
International agreed to buy its entire requirement of certain
Cadbury chocolate products from Burtons. The consideration
payable is determined according to a specified cost price per
tonne which shall remain valid until December 31, 2006 and
shall be agreed between the parties for each year thereafter.
The value of purchases by the Group from Burtons were
£0.7 million, £0.5 million,
£0.7 million, in the years ended December 31,
2001, 2002 and 2003. Cocoa Supply
Arrangements Premier International and Burtons have agreed to cooperate in
relation to certain aspects of their respective purchase of
cocoa products from Cadbury Limited under the Beverages
Agreement and the Biscuits Agreement, respectively. In
particular the parties undertake to agree annual budgets for
cocoa bean prices and cocoa butter ratios which are used as
inputs into the prices of the cocoa products, and to issue joint
instructions to Cadbury Limited in respect of their forecasted
demands for cocoa products. Premier International made payments
to Burtons of £1.4 million for the two years ended
December 31, 2002. Burtons made a payment of
£0.6 million to Premier International in the year
ended December 31, 2003. Sugar Supply Agreements A strategic partnership agreement, dated December 5, 2003,
was entered into between Chivers Hartley Limited,
H.L. Foods Limited, Premier Ambient Products (UK)
Limited and Premier International (together the Premier
Foods Group), and British Sugar plc and Burtons, in
relation to the supply of sugar for the calendar years 2004 and
2005. Agreement in relation to distribution of Burtons
Biscuits products in France An agreement, dated January 29, 2001, was entered into
between Premier Brands France SA and Burtons whereby
Premier Brands France SA was appointed Burtons
exclusive distributor for the promotion and sale of certain
chocolate biscuit products in France. This agreement renews
automatically for continuous periods of two years unless
terminated by either party giving the other six months
written notice. Premier Brands France SA shall buy the
products at specified prices, and are liable for all taxes,
imports and duties. The value of purchases by the Group from
Burtons were £5.2 million, £5.5 million and
£4.6 million in the years ended December 31,
2001, 2002 and 2003. Shared Property at
Centrium Business Park, St. Albans The Group under-lets premises at its head office site at Centrium Business
Park, St. Albans to Burtons. The lease is for a duration of
15 years at an annual rent of £163,000 per annum, with the
first year rent free. Sale of Freehold Land
and Buildings In
January 2003, surplus land and buildings at the Moreton site were
transferred to Burtons in exchange for the receipt of a warehouse at
Risley, near Warrington. The properties at Moreton and Risley were
both valued at £3.0 million by an independent third party. F-33




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Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FRS 8 Related Party Disclosures The Company is a wholly owned subsidiary undertaking of Premier Foods
Investments Limited, which prepares consolidated financial statements made
available for public disclosure. In accordance with the exemptions available
to such undertakings under FRS 8 Related Party Disclosures, no other
disclosure of related party transactions with Premier Foods Investments Ltd
group companies has been made in these financial statements. 23. Parent Undertakings The Companys ultimate parent undertaking is HMTF Premier Investments Holdings
L.P., a limited liability partnership incorporated in the Cayman Islands. The Companys
immediate parent undertaking is Premier Foods (Holdings) Limited (formerly
Premier Holdings Limited, formerly Hillsdown Holdings Limited), a company
incorporated in England and Wales and which owns 100% of Premiers issued share
capital. Premier Food Investments Limited is the largest group undertaking that prepares
consolidated financial statements, which include the Company. The consolidated
financial statements of Premier Food Investments Limited are available at the
Companys registered office, which is at 28 The Green, Kings Norton,
Birmingham, B38 8SD, United Kingdom. 24. Post balance sheet
events Merging of pension
schemes With effect from May 21,
2004, the Premier Brands Pension Fund and the Hillsdown Foods Group Pension
Scheme were merged into the Premier Foods Group Pension Scheme. At the merger date the Group made a cash
injection of £10.0 million to the merged scheme to equalise the funding levels of the schemes to facilitate the
merger. An actuarial valuation of the merged scheme is in the course of being prepared, the results of which are
due during the third quarter of 2004. This valuation will update the results of the latest actuarial valuations of the
separate schemes referred to above, and advise the funding position and contributions requirement from the
Group post merger and post cash sum injection of £10.0 million. Pending the results of the post merger valuation,
the Group continues to pay contributions to the merged scheme at the levels applying to each of the separate
schemes pre merger, without any adjustment for the £10.0 million cash injection. Notes redemption On June 23, 2004, the
Company announced that it expects to redeem the Notes
on or after their first call date, September 1, 2004. Despite
this expectation, the Company cannot assure that such redemption will
occur as planned. F-34




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Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 24. Summary of Differences Between U.K. and U.S. Generally Accepted Accounting Principles The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the U.K. (UK GAAP), which differ
in certain material respects from generally accepted accounting principles in
the U.S. (US GAAP). Such differences involve methods for measuring the
amounts shown in the consolidated financial statements, as well as additional
disclosures required by U.S. GAAP. The following is a summary of the material adjustments to the consolidated
profit on ordinary activities after taxation and consolidated shareholders
deficit that would have been required in applying the significant differences
between U.K. and U.S. GAAP. Reconciliation of consolidated profit and loss accounts Year ended December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mConsolidated profit / (loss) on ordinary activities after taxation
as reported under U.K. GAAP
    
    
    
    
    
    
    (28.5
    )
    
    
    16.3
    
    
    
    12.2US GAAP adjustments:Amortization of goodwill
    
    
    (a
    )
    
    
    (5.9
    )
    
    
    3.1
    
    
    
    5.6Amortization of intangible assets
    
    
    (a
    )
    
    
    
    
    
    
    (0.6
    )
    
    
    (1.1
    )Pensions
    
    
    (b
    )
    
    
    5.2
    
    
    
    0.1
    
    
    
    (3.0
    )Deferred tax
    
    
    (c
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    Derivative financial instruments
    
    
    (d
    )
    
    
    5.5
    
    
    
    (7.4
    )
    
    
    (17.2
    )Valuation difference on US$200.0 million 12% Senior Notes
    
    
    (d
    )
    
    
    
    
    
    
    
    
    
    
    17.3Goodwill transferred to the profit and loss account in
respect of disposed businesses
    
    
    (a
    )
    
    
    49.0
    
    
    
    
    
    
    
    Pension prepayment asset in respect of disposed businesses
    
    
    (b
    )
    
    
    10.0
    
    
    
    
    
    
    
    Deferred tax liability in respect of disposed businesses
    
    
    (c
    )
    
    
    6.1
    
    
    
    
    
    
    
    Net U.S. GAAP adjustments
    
    
    
    
    
    
    69.5
    
    
    
    (4.8
    )
    
    
    1.6Tax effect of net U.S. GAAP adjustments
    
    
    
    
    
    
    (3.2
    )
    
    
    2.6
    
    
    
    0.3Consolidated net income / (loss) in accordance with U.S. GAAP
    
    
    
    
    
    
    37.8
    
    
    
    14.1
    
    
    
    14.1
 Reconciliation of consolidated shareholders deficit 2002
    
    2003£m
    
    £mConsolidated shareholders deficit as reported under U.K. GAAP
    
    
    
    
    
    
    (149.8
    )
    
    
    (134.4
    )US GAAP adjustments:Goodwill not capitalized under U.K. GAAP
    
    
    (a
    )
    
    
    213.3
    
    
    
    213.3Accumulated amortization of goodwill not capitalized under U.K. GAAP
    
    
    (a
    )
    
    
    (189.7
    )
    
    
    (189.7
    )Amortization of goodwill under U.K. GAAP not amortized under U.S. GAAP
    
    
    (a
    )
    
    
    3.1
    
    
    
    8.7Amortization of intangible assets recognized as goodwill under U.K. GAAP
    
    
    (a
    )
    
    
    (0.6
    )
    
    
    (1.7
    )Capitalisation of tax benefit on acquisition of intangible assets
    
    
    (a
    )
    
    
    4.2
    
    
    
    8.6Pensions
    
    
    (b
    )
    
    
    28.5
    
    
    
    25.5Deferred tax
    
    
    (c
    )
    
    
    (14.6
    )
    
    
    (18.7
    )Derivative financial instruments
    
    
    (d
    )
    
    
    (1.9
    )
    
    
    (19.1
    )Valuation difference on US$200.0 million 12% Senior Notes
    
    
    (d
    )
    
    
    
    
    
    
    17.3Revaluation of fixed assets
    
    
    (e
    )
    
    
    (4.0
    )
    
    
    (4.0
    )Net U.S. GAAP adjustments
    
    
    
    
    
    
    38.3
    
    
    
    40.2Consolidated shareholders deficit as reported under U.S. GAAP
    
    
    
    
    
    
    (111.5
    )
    
    
    (94.2
    )
 F-35




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Premier Foods plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Rollforward analysis of consolidated shareholders funds deficit 2001
    
    2002
    
    2003£m
    
    £m
    
    £mBalance in accordance with U.S. GAAP at January 1,
    
    
    
    
    
    
    (187.3
    )
    
    
    (126.8
    )
    
    
    (111.5
    )UK GAAP profit / (loss) for the financial year
    
    
    
    
    
    
    (28.5
    )
    
    
    16.3
    
    
    
    12.2Other recognized gains and losses
    
    
    
    
    
    
    (1.1
    )
    
    
    1.2
    
    
    
    3.2Issue of share capital
    
    
    
    
    
    
    23.7
    
    
    
    
    
    
    
    US GAAP adjustmentsAmortization of goodwill
    
    
    (a
    )
    
    
    (5.9
    )
    
    
    3.1
    
    
    
    5.6Amortization of intangible assets recognized as goodwill
under U.K. GAAP
    
    
    (a
    )
    
    
    
    
    
    
    (0.6
    )
    
    
    (1.1
    )Capitalisation of tax benefit on acquisition of intangible assets
    
    
    (a
    )
    
    
    
    
    
    
    4.2
    
    
    
    8.6Goodwill transferred to the profit and loss account in respect
of disposed businesses
    
    
    
    
    
    
    49.0
    
    
    
    
    
    
    
    Pensions
    
    
    (b
    )
    
    
    5.2
    
    
    
    0.1
    
    
    
    (3.0
    )Pension prepayment asset in respect of disposed businesses
    
    
    (b
    )
    
    
    10.0
    
    
    
    
    
    
    
    Deferred tax
    
    
    (c
    )
    
    
    2.5
    
    
    
    2.6
    
    
    
    0.3Deferred tax arising on acquisition of intangible assets
    
    
    (a
    )
    
    
    
    
    
    
    (4.2
    )
    
    
    (8.6
    )Derivative financial instruments
    
    
    (d
    )
    
    
    5.5
    
    
    
    (7.4
    )
    
    
    (17.2
    )Valuation difference on US$200.0 12% Senior Notes
    
    
    (d
    )
    
    
    
    
    
    
    
    
    
    
    17.3Revaluation of fixed assets
    
    
    (e
    )
    
    
    0.1
    
    
    
    
    
    
    
    Balance in accordance with U.S. GAAP at December 31,
    
    
    
    
    
    
    (126.8
    )
    
    
    (111.5
    )
    
    
    (94.2
    )
 A summary of the principal differences and additional disclosures applicable to
Premier are set out below: (a) Goodwill and intangible assets Both U.K. GAAP and U.S. GAAP require purchase consideration to be allocated to
the net assets acquired at their fair value on the date of acquisition, with
the difference between the consideration and the fair value of the identifiable
net assets recorded as goodwill. Under U.K. GAAP, goodwill arising on acquisitions made on or before December
31, 1997 has been written off directly to reserves in the year of acquisition.
If a subsidiary or a business has been subsequently sold or closed, previously
written-off goodwill that resulted from the initial acquisition has been taken
into account in determining the gain or loss on sale or closure. Goodwill that
arises on acquisitions subsequent to December 31, 1997, following the
introduction of FRS 10 Goodwill and Intangible Assets, has been capitalized
and amortized over its estimated useful life, which has been estimated at 20
years. Under U.S. GAAP, goodwill arising on acquisitions made on or before December
31,1997 has been capitalized as an intangible asset and amortized over its
estimated useful life. However, Premier adopted the transition provisions of
FAS 141, Business Combinations (FAS 141), with effect from July 1, 2001.
Premier also adopted the provisions of FAS 142, Goodwill and Other Intangible
Assets (FAS 142), on January 1, 2002. As a result, goodwill is no longer
subject to amortization subsequent to the date of adoption. As the
non-amortization of goodwill provisions of FAS 142 were effective immediately
for all acquisitions after June 30, 2001, goodwill arising from the Lift and
Nelsons acquisitions was also not amortized during 2001. In December 2003, Premier acquired the ambient desserts business
in the U.K. of Unilever Bestfoods U.K. Limited for net consideration of £106.3 million, including
£1.3m of acquisition costs. The purchase price was funded through existing
cash resources and an additional £75.0 million Acquisition Facility,
subordinated to the existing Senior Credit Facility. The acquired business
(Ambrosia) comprises the Ambrosiaand Brown & Polsonbrands. In May 2002,
Premier acquired the ambient foods manufacturing business in the U.K. of Nestlé
SA for a net consideration of £132.2 million. The Nestlé and Ambrosia
businesses were acquired principally because of the quality of the brands of
the acquired businesses, their complementarity with Premiers own product
ranges and the synergies available in combining the businesses with Premiers.
The definition of intangible assets under FAS 141 is wider than that under FRS
10. Furthermore FAS 109 requires the recognition of a deferred tax provision
on the amortization of acquired intangible assets. The deferred tax provisions
created on the acquisition of the Nestlé and Ambrosia intangible assets were
£4.2m and £4.4m, respectively, under U.S. GAAP whereas no deferred tax
provision was recognized under U.K. GAAP. Therefore, the total intangible
assets recognized on the acquisition of Nestlé and Ambrosia under FAS 141 were
£63.9m and £77.6m, respectively, compared with £20.0m recognized for Nestlé and
£27.8m recognized for Ambrosia under FRS 10. Goodwill F-36




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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS calculated under FAS 141 for Nestlé and Ambrosia was £40.4m and £10.2m,
respectively, compared to £80.1m calculated for Nestlé and £55.6m calculated
for Ambrosia, under U.K. GAAP. Goodwill has arisen on the acquisitions because
the value of the own label and industrial elements of the business, the
established manufacturing processes and the synergies arising from the
combination of the businesses are not capitalizable as intangible assets under
FAS 141. In addition, Premier acquired a potato seed business in 2002, for a
net consideration of £0.6m, which resulted in goodwill of £0.6m. The Horizon Biscuit Company Limited was disposed of in 2001 and goodwill of £53.0m, which
had been written off directly to reserves was written back through the profit
and loss account in accordance with U.K. GAAP. Under U.S. GAAP, this goodwill
had been capitalized and amortized and the net book value of goodwill remaining
in respect of The Horizon Biscuit Company Limited at the date of disposal was £4.0m. The
U.S. GAAP adjustment, therefore to the U.K. GAAP profit and loss on disposal in
respect of goodwill was the goodwill previously amortized under U.S. GAAP of
£49.0m. The U.S. GAAP adjustment reverses the following: (i) write-off of
goodwill arising on acquisitions made on or before December 31, 1997 directly
to reserves under U.K. GAAP; and (ii) amortization expense recorded under U.K.
GAAP and the movement in accumulated amortization under U.K. GAAP during the
period subsequent to the adoption of FAS 141 and FAS 142. The following table shows the results of operations as if FAS 142 were applied
to prior periods: 2001£mNet income as reported under U.S. GAAP
    
    
    37.8Add back: Goodwill amortization
    
    
    6.3Adjusted net income
    
    
    44.1
 The gross carrying amount of other intangible assets, which consists of brands,
trademarks and licenses under U.S. GAAP, is £149.0m as of December 31, 2003
(£71.4 m as of December 31, 2002), are being amortized over an estimated useful
life of between 20 and 40 years. Accumulated amortization as of December 31,
2003 was £4.4m (£1.8m at December 31, 2002). The amortization expense for the
year ended December 31, 2003 is £2.6m (£1.7m and £0.1 in 2002 and 2001,
respectively). Amortization expense on the other intangible assets is expected
to be £4.5m in each of 2004, 2005, 2006, 2007 and 2008. As of January 1, 2002, Premier performed the transitional impairment test under
FAS 142 and compared the carrying value for each reporting unit to its fair
value, which was determined based both on discounted cash flows and a value
based on a multiple of earnings. Upon completion of the transitional
impairment test, Premier determined that there was no impairment as of January
1, 2002, as the carrying value of each reporting unit did not exceed its fair
value determined under either of the valuation methods. Premier also completed
the annual impairment test required by FAS 142 during the fourth quarter of
2003, which was also performed by comparing the carrying value of each
reporting unit to its fair value based on discounted cash flows and a value
based on a multiple of earnings. This annual impairment test did not indicate
any impairment in the carrying value of the goodwill. A roll forward of U.S. GAAP goodwill during 2003 is shown below: PremierFoods UK
    
    Materne
    
    MBM
    
    Total£m
    
    £m
    
    £m
    
    £mBalance as of January 1, 2003
    
    
    68.0
    
    
    
    5.9
    
    
    
    0.7
    
    
    
    74.6Goodwill acquired
    
    
    10.2
    
    
    
    
    
    
    
    
    
    
    
    10.2Balance as of December 31, 2003
    
    
    78.2
    
    
    
    5.9
    
    
    
    0.7
    
    
    
    84.8
 (b) Pensions Under U.K. GAAP, the cost of providing pension benefits should be expensed over
the average expected service lives of eligible employees in accordance with the
provisions of SSAP 24. Under U.S. GAAP, the annual pension cost comprises the estimated cost of
benefits accruing in the period as F-37




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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS determined in accordance with Statement of Financial Accounting Standards
(SFAS) No. 87, which requires readjustment of the significant actuarial
assumptions annually to reflect current market and economic conditions. Under
SFAS No. 87, part of the surplus which represents the excess plan assets over
plan obligations has been recognized in the balance sheet, with the remainder
of the unrecognized surplus and the unrecognized gains and losses spread over
the employees remaining service lifetimes. The pension benefit obligation is
calculated by using a projected unit credit method. Actuarial gains or losses
within a 10% corridor have not been recognized. The net assets under U.K.
GAAP of The Horizon Biscuit Company Limited, which was disposed
of in 2001 included a pension prepayment asset of £10.0m. No asset was
included in the net assets under U.S. GAAP disposed of. The U.S. GAAP
adjustment, therefore to the U.K. GAAP profit and loss on disposal in respect
of pension assets was £10.0m. The measurement date for the majority of the assets and liabilities is December
31, 2003. The disclosures below are in accordance with the requirements of
SFAS No. 132-R. The components of net periodic pension cost for all Premier sponsored defined
benefit pension plans were as follows: Components of pension cost 2001
    
    2002
    
    2003£m
    
    £m
    
    £mService cost
    
    
    3.9
    
    
    
    3.9
    
    
    
    4.3Recognised actuarial loss
    
    
    
    
    
    
    2.0
    
    
    
    2.3Interest cost
    
    
    12.8
    
    
    
    11.3
    
    
    
    10.8Expected return on plan assets
    
    
    (18.2
    )
    
    
    (11.4
    )
    
    
    (10.1
    )Sale of biscuit businesses
    
    
    
    
    
    
    (2.0
    )
    
    
    Amortization of transition asset
    
    
    (1.7
    )
    
    
    (1.3
    )
    
    
    Net periodic pension cost
    
    
    (3.2
    )
    
    
    2.5
    
    
    
    7.3
 The funded status under U.S. GAAP for Premier sponsored defined benefit pension
plans is as follows: Funded status 2002
    
    2003£m
    
    £mProjected benefit obligation
    
    
    (185.9
    )
    
    
    (205.9
    )Fair value of plan assets
    
    
    175.6
    
    
    
    197.3Funded status
    
    
    (10.3
    )
    
    
    (8.6
    )Unrecognized net actuarial (gain) / loss
    
    
    47.0
    
    
    
    39.6Net asset recognized
    
    
    36.7
    
    
    
    31.0
 Amounts recognized in respect of Premiers pension obligations for Premier
sponsored defined benefit pension plans in the consolidated balance sheets
consist of the following: 2002
    
    2003£m
    
    £mPrepaid pension expense
    
    
    36.7
    
    
    
    31.0Net asset recognized
    
    
    36.7
    
    
    
    31.0
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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Changes in the benefit obligation and plan assets of Premier sponsored defined
benefit pension plans during the year were as follows: 2002
    
    2003£m
    
    £mBenefit obligation at January 1,
    
    
    215.1
    
    
    
    185.9Service cost
    
    
    3.9
    
    
    
    4.3Past service cost
    
    
    
    
    
    
    1.0Interest cost
    
    
    11.3
    
    
    
    10.8Employee contributions
    
    
    1.8
    
    
    
    2.1Benefit payments
    
    
    (15.9
    )
    
    
    (11.5
    )Actuarial losses / (gains)
    
    
    (28.4
    )
    
    
    13.3Sale of Kingsland Wines and Spirits
    
    
    (1.9
    )
    
    
    Benefit obligation at December 31,
    
    
    185.9
    
    
    
    205.9
 Changes in plan assets for Premier sponsored defined benefit pension plans were
as follows: 2002
    
    2003£m
    
    £mFair value of plan assets at January 1,
    
    
    212.6
    
    
    
    175.6Actual return on plan assets
    
    
    (25.2
    )
    
    
    29.5Employer contributions
    
    
    
    
    
    
    1.6Employee contributions
    
    
    1.8
    
    
    
    2.1Benefit payments
    
    
    (15.9
    )
    
    
    (11.5
    )Payment of biscuit transfer
    
    
    4.2
    
    
    
    Sale of Kingsland Wines and Spirits
    
    
    (1.9
    )
    
    
    Fair value of plan assets at December 31,
    
    
    175.6
    
    
    
    197.3Accumulated benefit obligation at December 31,
    
    
    
    
    
    
    178.0
 The weighted-average assumptions used at December 31, to determine pension cost
for Premiers defined benefit pension plans were as follows: 2001
    
    2002
    
    2003%
    
    %
    
    %Discount rate
    
    
    6.0
    
    
    
    5.5
    
    
    
    5.5Expected long-term return on plan assets
    
    
    7.0
    
    
    
    5.9
    
    
    
    5.9Expected rate of increase in compensation levels
    
    
    3.0
    
    
    
    2.5
    
    
    
    2.5Expected rate of increase of pensions
    
    
    2.0
    
    
    
    1.5
    
    
    
    1.5
 The weighted-average assumptions used at December 31, to determine benefit
obligations for Premiers defined benefit pension plans were as follows: 2001
    
    2002
    
    2003%
    
    %
    
    %Discount rate
    
    
    6.0
    
    
    
    5.5
    
    
    
    5.5Rate of compensation increase
    
    
    3.0
    
    
    
    2.5
    
    
    
    2.5
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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The weighted-average assumptions used for the years ended December 31, to
determine net periodic benefit cost for Premiers defined benefit pension plans
were as follows: 2001
    
    2002
    
    2003%
    
    %
    
    %Discount rate
    
    
    6.0
    
    
    
    5.5
    
    
    
    5.5Expected long-term return on plan assets
    
    
    7.0
    
    
    
    5.9
    
    
    
    5.9Rate of compensation increase
    
    
    3.0
    
    
    
    2.5
    
    
    
    2.5
 The return on assets is derived from expected returns on the individual asset
classes and the asset allocation benchmark of 70% equities and 30% bonds.
Equities are assumed to return 6.5% and bonds 4.5% leading to an overall rate
of assumed return of 5.9%. Plan Assets The pension plan weighted-average asset allocations at December 31, by asset
category are as follows: 2001
    
    2002
    
    2003%
    
    %
    
    %Equity securities
    
    
    70.0
    
    
    
    70.0
    
    
    
    75.0Debt securities
    
    
    30.0
    
    
    
    30.0
    
    
    
    25.0Total
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 The equity and bond holdings are discrete and the investment managers are not
permitted to significantly alter the asset allocation. The benchmark for the
bond investments is RPI +4%, while that for equity investment is 70% U.K. All
Share index and 30% FTSE Europe (ex-UK). F-40




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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (c) Deferred tax Under U.K. GAAP, Premier adopted FRS19 Deferred tax in 2002, which requires
full provision to be made for deferred tax arising from timing differences
between the recognition of gains and losses in the financial statements and
their inclusion in tax computations. Premier has chosen not to discount its
deferred tax liability. Under U.S. GAAP, deferred tax is provided for on a full liability basis. Under
the full liability method, deferred tax assets or liabilities are recognized
for differences between the financial and tax basis of assets and liabilities
and for tax loss carry forwards at the statutory rate at each reporting date. A
valuation allowance is established when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The loss on disposal of
The Horizon Biscuit Company Limited, which was disposed of in
2001, was calculated under U.K. GAAP on net assets including a deferred tax
liability calculated on the partial provision basis. Under U.S. GAAP, the net
assets disposed of would include a deferred tax asset or liability calculated
on the full provision basis. The difference of £6.1m between the deferred tax
liability as calculated under U.K. GAAP and U.S. GAAP is therefore recorded as
a decrease to the loss on disposal of The Horizon Biscuit Company Limited as recorded
under U.K. GAAP. Classification of Premiers tax liabilities and assets under U.S. GAAP is as
follows: 2002
    
    2003£m
    
    £mDeferred tax liabilities:Accelerated tax depreciation
    
    
    4.6
    
    
    
    6.8Rollover relief
    
    
    2.8
    
    
    
    2.8Derivative financial instruments
    
    
    (0.6
    )
    
    
    (0.5
    )Pensions
    
    
    11.0
    
    
    
    9.4Intangible assets
    
    
    3.9
    
    
    
    8.6Total deferred tax liabilities
    
    
    21.7
    
    
    
    27.1Deferred tax assets:Provisions
    
    
    (0.1
    )
    
    
    (0.1
    )21.6
    
    
    
    27.0
 Total tax expense is as follows: Year ended December 312001
    
    2002
    
    2003£m
    
    £m
    
    £mUK GAAP:Current tax expense
    
    
    0.6
    
    
    
    6.7
    
    
    
    5.0Deferred tax expense / (credit)
    
    
    0.3
    
    
    
    (0.7
    )
    
    
    1.3Total tax expense
    
    
    0.9
    
    
    
    6.0
    
    
    
    6.3US GAAP:Current tax expense
    
    
    0.6
    
    
    
    6.7
    
    
    
    5.0Deferred tax expense / (credit)
    
    
    3.9
    
    
    
    (3.3
    )
    
    
    1.0Total tax expense
    
    
    4.5
    
    
    
    3.4
    
    
    
    6.0
 (d) Derivative financial instruments Premiers derivative financial instruments include interest rate swaps, cross
currency swaps and foreign exchange contracts. Under U.K. GAAP, Premier has
recorded its derivative financial instruments off-balance sheet as at December
31, 2002 and December 31, 2003. Premier has recorded payments arising from
interest rate derivatives in the profit and loss account along with the related
interest payments on its net debts according to the accrual method. Premier
records currency derivatives relating to net cash flows in the profit and loss
account as such cash flows are received or paid; any unrealized gains or losses
are deferred at reporting period end. Under U.S. GAAP, prior to the adoption of Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133), Premier had designated its foreign currency derivatives
as hedges of specific underlying assets and liabilities. F-41




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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On January 1, 2001, Premier adopted SFAS 133, as amended by SFAS 137 and SFAS
138 and as interpreted by the Derivatives Implementation Group. Premier has
not designated any of its derivatives as qualifying hedge instruments under
SFAS 133. Premier has not subsequently designated any of its derivatives as
qualifying hedge instruments under SFAS 133, such that gains and losses related
to the fair value adjustment of all derivative instruments are classified in
the consolidated statement of income and cash flows in accordance with the
earnings treatment of the hedged transaction. A summary of movements in fair
value is summarized below. 2002
    
    2003
    
    Movement£m
    
    £m
    
    £mFair value adjustment profit / (loss)Interest rate swaps
    
    
    (2.8
    )
    
    
    (0.6
    )
    
    
    2.2Cross currency swaps
    
    
    0.6
    
    
    
    (1.4
    )
    
    
    (2.0
    )Foreign exchange contracts:To eliminate currency risk on raw material purchases
    
    
    0.3
    
    
    
    (2.7
    )
    
    
    (3.0
    )To eliminate currency risk on US$200 million
    
    
    
    
    
    
    (14.4
    )
    
    
    (14.4
    )Fair value adjustment profit / (loss)
    
    
    (1.9
    )
    
    
    (19.1
    )
    
    
    (17.2
    )Less tax
    
    
    0.6
    
    
    
    0.5
    
    
    
    (0.1
    )Fair value adjustment profit / (loss) net of tax
    
    
    (1.3
    )
    
    
    (18.6
    )
    
    
    (17.3
    )
 In January 2003, Premier entered into forward exchange contracts to purchase
US$200.0 million. These had the effect under U.K. GAAP of fixing the pounds
sterling value of the US$200.0 million Senior Notes at £129.2 million. A loss
of £5.0 million was recorded on entering into these contracts. Under U.S.
GAAP, the US$200.0 million Senior Notes are translated into pounds sterling at
the period exchange rate and the forward contracts are measured at fair value. The movement on the fair value of the interest rate swaps and cross currency
swaps has been recognized as interest expense as these products are used to
hedge future interest payments in pounds sterling and U.S. dollars. The
movement on the fair value of the foreign exchange contracts has been
recognized as an adjustment to cost of sales in respect of contracts used to
eliminate currency risk from raw material purchases and as an adjustment to
interest expense in respect of the contracts that have been used to eliminate
currency risk in the US$200.0 million Senior Notes. Premier has also evaluated its existing contracts for embedded derivatives,
and has considered whether any embedded derivatives would have to be
bifurcated, or separated, from the host contracts in accordance with SFAS 133
requirements. No significant embedded derivatives were noted as a result of
this exercise. Fair value of financial instruments The following methods and assumptions were used in estimating the indicated
fair values of financial instruments: Cash and Cash Equivalents: The carrying amount approximates fair value because
of the short maturity of these instruments. Receivables (other than trade receivables): The fair values are estimated based
on one of the following methods: (i) quoted market prices; (ii) current rates
for similar issues; (iii) recent transactions for similar issues; or (iv)
present value of expected future cash flows. Short-term debt: The fair value is estimated based on current rates offered for
similar debt. Premier uses derivative financial instruments for the purpose of reducing its
exposure to adverse fluctuations in foreign currency exchange rates and
interest rates. Premier is not a party to leveraged derivatives and does not
hold or issue financial instruments for speculative or trading purposes. (e) Revaluation
of fixed assets Under U.K. GAAP, certain tangible fixed assets have been revalued so that their
carrying value is equivalent to their current market value at that date, as
determined by an independent appraiser. Revaluation amounts are recorded to
both tangible fixed assets and reserves and are reduced by accumulated
depreciation as appropriate.
Under U.S. GAAP, tangible fixed assets are carried at cost. Accordingly,
revaluation reserves net of accumulated depreciation have been reclassified to
long-term assets and related depreciation amounts recorded in the profit and
loss account. F-42




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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (f) Stock
compensation During the year ended December 31, 2000, Premier Holdings approved a share
option scheme, which included in its terms the ability to grant share options
to certain employees of Premier. The options follow a graded vesting schedule,
in that a third of the shares granted vest at each fiscal year end following
the grant date. Options can be exercised at any point after vesting, up to 10
years after the grant date. Premier Holdings has the ability to repurchase the
shares at their fair value after the options are exercised. Share option activity on share options granted to Premier employees for the
three years ended December 31, 2001, December 31, 2002 and December 31, 2003
was as follows: Number of shares under option2001
    
    2002
    
    2003Outstanding at January 1,
    
    
    5,421,284
    
    
    
    2,628,382
    
    
    
    6,555,600Granted
    
    
    
    
    
    
    5,489,000
    
    
    
    500,000Lapsed
    
    
    (2,792,902
    )
    
    
    (1,561,782
    )
    
    
    (174,000
    )Outstanding at December 31,
    
    
    2,628,382
    
    
    
    6,555,600
    
    
    
    6,881,600Exercisable at December 31,
    
    
    1,538,192
    
    
    
    4,047,267
    
    
    
    5,653,600
 The weighted average exercise price of all options granted, lapsed and
outstanding in 2001, 2002 and 2003 was £1.46. The weighted-average contractual life of options outstanding at December 31,
2003, was 8.3 years. Premier Holdings management estimates that the grant
date fair value of Premier Holdings shares did not exceed £1.46. No compensation cost has been recognized for this scheme under U.K. GAAP as the
share options have been granted by Premier Foods (Holdings) Limited. No
compensation cost has been recognized for this scheme under U.S. GAAP as the
grant date fair value of the options was estimated to be less than or equal to
the exercise price. No options outstanding at December 31, 2003, were subject
to future performance criteria. The stock based compensation expense, net of tax, based on the fair value at
the grant dates calculated under the fair value method consistent with the
provisions of FAS 123, for all awards would have been £0.2m resulting in a pro
forma net income under U.S. GAAP of £13.9m for the year ended December 31, 2003
and 2002, respectively. Because options vest over several years and additional
option grants may be made in future years, the above pro forma results may not
be representative of the pro forma results for future years. For purposes of the pro forma disclosure, Premier calculated the fair value of
the options using the Black-Scholes model. The fair value of each option grant
was estimated on the date of grant at £0.18 and £0.15 for grants in 2003 and
2002, respectively, using the minimum value method with the following
assumptions for the grants: 0% dividend yield, expected life of three years and
a weighted average risk free interest rate of 4.4% for 2003 and 3.8% in 2002. (g) Other
disclosures required by U.S. GAAP Income statement information Under U.K. GAAP, Premiers income statements are presented in accordance with
U.K. Financial Reporting Standard No. 3. These statements present
substantially the same information as is required under Article 10 of
Regulation S-X, in accordance with U.S. GAAP. Differences between the two
presentations are outlined below. Under U.K. GAAP, exceptional costs are permitted to be shown on the face of
the income statement and requires that certain specified costs are shown as
exceptional items, as this presentation is useful to the investor community as
it removes the effect of non-recurring items in the income statement. For
purposes of presenting income statement information in accordance with U.S.
GAAP, exceptional costs are not permitted to be shown on the face of the
income statement. Under U.K. GAAP, subtotals which exclude depreciation and amortization costs
may be shown on the face of the income statement as earnings excluding
depreciation, amortization, interest and taxation are commonly used by the
investor community as a measure of operating performance of the business.
Under U.S. GAAP, such subtotals are not permitted. Certain
promotional expenditures are more appropriately classified as a
reduction of sales rather than selling and
distribution costs, and certain administrative costs are more
appropriately classified as cost of sales or
selling and distribution rather than
administrative. Amounts previously reported have been
reclassified accordingly. (See Note 2 Analysis of Continuing
Operations ). A summary of Premiers income statements, as calculated under U.K. GAAP
classified in accordance with U.S. GAAP, follows: F-43




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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2001
    
    2002
    
    2003£m
    
    £m
    
    £mSales
    
    
    836.6
    
    
    
    865.6
    
    
    
    870.6Cost of sales
    
    
    (661.8
    )
    
    
    (662.6
    )
    
    
    (677.2
    )Gross profit
    
    
    174.8
    
    
    
    203.0
    
    
    
    193.4Operating expensesSelling, general and administration costs
    
    
    (123.5
    )
    
    
    (142.3
    )
    
    
    (124.8
    )Income from operations
    
    
    51.3
    
    
    
    60.7
    
    
    
    68.6Other income / (expenses)Interest income
    
    
    4.5
    
    
    
    3.9
    
    
    
    5.7Interest expense
    
    
    (57.2
    )
    
    
    (40.3
    )
    
    
    (57.8
    )Gain / (loss) on disposal of fixed assets
    
    
    3.4
    
    
    
    (1.6
    )
    
    
    2.0Gain / (loss) on disposal of business divisions
    
    
    (29.6
    )
    
    
    (0.4
    )
    
    
    Other income / (expenses) net
    
    
    (78.9
    )
    
    
    (38.4
    )
    
    
    (50.1
    )Income before income taxes
    
    
    (27.6
    )
    
    
    22.3
    
    
    
    18.5Income taxes
    
    
    (0.9
    )
    
    
    (6.0
    )
    
    
    (6.3
    )Net income
    
    
    (28.5
    )
    
    
    16.3
    
    
    
    12.2
 Cash flow information Under U.K. GAAP, Premiers cash flow statements are presented in accordance
with U.K. Financial Reporting Standard No. 1, as revised (FRS 1). These
statements present substantially the same information as is required under
Statement of Financial Accounting Standards No. 95, in accordance with U.S.
GAAP. Differences between the two presentations are outlined below. Under U.K. GAAP, Premiers cash flow comprises of increases or decreases in
cash, which comprises cash balances less amounts repayable on demand and
overdrafts. Cash flow is defined differently under U.S. GAAP. For purposes of
presenting cash flow information in accordance with U.S. GAAP, cash flow
represents increases or decreases in cash and cash equivalents, which include
short-term, highly liquid investments with original maturities of less than 90
days, and exclude overdrafts. Under U.K. GAAP, cash flows are presented for operating activities; returns on
investments and servicing of finance; taxation; capital expenditure and
financial investment; acquisitions and disposals; equity dividends paid; and
management of liquid resources and financing. U.S. GAAP requires the
classification of cash flows resulting from operating, investing and financing
activities. Cash flows under U.K. GAAP in respect of interest received, interest paid,
investment income and taxation are included within operating activities under
U.S. GAAP. Also, under U.S. GAAP, capital expenditures and financial investment
and cash flows from acquisitions and disposals are included within investing
activities. Equity dividends paid and management of liquid resources are
included within financing activities. A summary of Premiers operating, investing and financing activities,
classified in accordance with U.S. GAAP, follows: 2001
    
    2002
    
    2003£m
    
    £m
    
    £mNet cash provided by operating activities
    
    
    37.7
    
    
    
    56.3
    
    
    
    76.7Net cash provided by / (used in) investing activities
    
    
    59.5
    
    
    
    (147.9
    )
    
    
    (127.3
    )Net cash used in financing activities
    
    
    (96.1
    )
    
    
    107.8
    
    
    
    31.7Net increase / (decrease) in cash and cash equivalents
    
    
    1.1
    
    
    
    16.2
    
    
    
    (18.9
    )Cash and cash equivalents under U.S. GAAP, beginning of year
    
    
    26.2
    
    
    
    27.3
    
    
    
    43.5Cash and cash equivalents under U.S. GAAP, end of year
    
    
    27.3
    
    
    
    43.5
    
    
    
    24.6
 F-44




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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Restructuring costs For the year ended December 31, 2001, the restructuring charge of £12.2m
relates to the (i) integration of the administration functions of Premier
International Foods UK Limited with those of HL Foods and Chivers Hartley. The charge includes the
redundancy costs of approximately 165 administration staff; (ii) the relocation
of the manufacturing facilities of Stratford on Avon Foods Limited to the
existing sites at Long Sutton and Bury St Edmunds. The charge includes the
redundancy costs of approximately 130 production and administration staff; and
(iii) further costs from the relocation of Premiers French biscuit
distribution operation, which has been retained following the disposal of
The Horizon Biscuit Company Limited. The £1.8m restructuring provision at December 31, 2001,
represents the costs still to be incurred in relation to the integration of
Premier Brands France, Premiers French biscuit distribution company, into
Materne, Premiers French preserves and compote manufacturing and selling
operation. The costs comprise anticipated payments arising from the
reorganization of distribution and logistics arrangements. For the year ended December 31, 2002, the restructuring charge of £16.8m
principally relates to (i) the restructuring of the manufacturing processes at
the Moreton tea factory. The £3.8m approximate cost, which included the
redundancy costs for approximately 84 production staff, were in relation to
reductions in manning and changes to shift patterns at the Moreton tea factory;
(ii) £3.0 million of costs relating to the relocation of the principal
administrative office to St Albans and the closure of the Histon and Hampstead
administrative functions. The charge includes the redundancy costs of
approximately 15 administration staff; (iii) £2.4 million of costs relating to
the closure of the Nelsons spreads factory in Aintree and the relocation of
production to the Histon spreads factory. The charge includes the redundancy
costs of approximately 116 people; (iv) £2.1 million of costs relating to the
Nestlé acquisition and the subsequent integration of its administrative
functions with those of Premier. The charge includes the redundancy costs of
approximately 45 administration staff. The review of the Nestlé manufacturing
platform was not completed until the first quarter of 2003, therefore, no
provision was made for the costs of this integration at December 31, 2002; (v)
£2.1 million of costs relating to the closure of the North Walsham convenience
foods factory. The charge includes the redundancy costs of approximately 120
production and administration staff. This factory was closed in the fourth
quarter of 2002 and the production integrated into the convenience foods
factories at Wisbech and Long Sutton; and (vi) £2.1 million in relation to
further restructuring of the French spreads and biscuits distribution operation
following the integration of the businesses in 2001. For the year ended December 31, 2003, the restructuring charge of £10.8m
principally relates to (i) the closure of the Hadfield factory and the transfer
of spreads and pickles production to the Histon and Bury St Edmunds sites
respectively. The £7.4 million approximate cost included the redundancy costs
of approximately 238 production and administration staff; (ii) £1.5 million in
relation to the integration of production from the North Walsham convenience
foods factory into the convenience foods factory at Wisbech and Long Sutton.
The North Walsham factory was closed in the fourth quarter of 2002; (iii) £0.8
million in relation to changes to distribution arrangements; (iv) £0.6 million
in relation to the reorganization of the sales function. The charge includes
the redundancy costs of approximately 22 sales representatives; and (v) £0.5
million in relation to further restructuring of the French spreads and biscuits
distribution operation. Hadfield closure In May 2002, we acquired the ambient foods manufacturing business in the U.K.
of Nestlé SA, which included two manufacturing facilities, Hadfield and
Middleton, both in Manchester. Following a review of the group manufacturing
platform in Quarter 1, 2003, a decision was taken, following consultation with
staff, to close the Hadfield factory and integrate its spreads and pickles
operations in the existing spreads factory in Histon and pickles operation in
Bury St. Edmunds. The closure of the Hadfield factory resulted in the
redundancy of approximately 238 production and administration staff. The
closure of Hadfield will be completed in early 2004. The costs incurred in the closure of the Hadfield factory are as follows: Provision at
    
    
    
    
    
    
    
    
    
    Provision atJanuary 1,
    
    Charge in
    
    Utilised in
    
    December 31,2003
    
    year
    
    year
    
    2003£m
    
    £m
    
    £m
    
    £mEmployee redundancy costs
    
    
    
    
    
    
    4.2
    
    
    
    (2.7
    )
    
    
    1.5Contract termination costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Installation costs
    
    
    
    
    
    
    1.5
    
    
    
    (1.3
    )
    
    
    0.2Trial production costs
    
    
    
    
    
    
    1.3
    
    
    
    (0.6
    )
    
    
    0.7Transportation costs
    
    
    
    
    
    
    0.4
    
    
    
    (0.4
    )
    
    
    
    
    
    
    7.4
    
    
    
    (5.0
    )
    
    
    2.4
 F-45




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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Customer Base In 2003, Premier had sales to three customers who represented more than 10% of
Premiers total sales (2002: two; 2001: one). The customers represented 13%,
12% and 10% respectively of Premiers total sales in 2003 (2002: 13% and 11%;
2001: 12%). Lease commitments The following is a summary of future minimum lease payments: Operating
    
    FinanceLeases
    
    Leases£m
    
    £mFiscal year ending December 31,2004
    
    
    3.9
    
    
    
    0.12005
    
    
    2.6
    
    
    
    2006
    
    
    1.5
    
    
    
    2007
    
    
    1.1
    
    
    
    2008
    
    
    0.9
    
    
    
    Thereafter
    
    
    2.2
    
    
    
    Total future minimum lease payments
    
    
    12.2
    
    
    
    0.1Less amount representing interest
    
    
    
    
    
    
    Present value of net minimum lease payments
    
    
    
    
    
    
    0.1Less current maturities
    
    
    
    
    
    
    (0.1
    )Long-term obligation
    
    
    
    
    
    
    
 Total rent expense on operating leases was £5.5m (2002: £4.5m; 2001: £6.0m). Comprehensive income Comprehensive income is defined as the change in net assets of a business
enterprise arising from transactions and other events and circumstances from
non-owner sources. It includes all changes in net assets during the reporting
period except those resulting from investments by owners and distributions to
owners. The disclosures required for comprehensive income under U.S. GAAP are
substantially similar to those presented in the Statement of Total Recognised
Gains and Losses as prepared under U.K. GAAP. Allowance for doubtful receivables
    
    2001
    
    2002
    
    2003£m
    
    £m
    
    £mBalance at January 1,
    
    
    0.8
    
    
    
    1.5
    
    
    
    0.6Acquisitions
    
    
    0.2
    
    
    
    
    
    
    
    Charged to costs and expenses
    
    
    0.6
    
    
    
    (0.5
    )
    
    
    0.5Deductions
    
    
    (0.1
    )
    
    
    (0.4
    )
    
    
    Balance at December 31,
    
    
    1.5
    
    
    
    0.6
    
    
    
    1.1
 Inventory obsolescence provision
    
    2001
    
    2002
    
    2003£m
    
    £m
    
    £mBalance at January 1,
    
    
    5.5
    
    
    
    10.0
    
    
    
    7.0Charged to costs and expenses
    
    
    6.3
    
    
    
    (0.5
    )
    
    
    1.9Deductions
    
    
    (1.8
    )
    
    
    (2.5
    )
    
    
    (3.9
    )Balance at December 31,
    
    
    10.0
    
    
    
    7.0
    
    
    
    5.0
 F-46




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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Advertising expense Costs associated with advertising are expensed in the year incurred. Premier
incurred £6.2m of advertising expenses during 2003 (2002: £11.2m; 2001: £3.9m). Excise taxes Premier was charged and in turn collected £nil (2002: £nil; 2001: £3.6m) of
excise taxes during 2003. The decrease in excise taxes charged and in turn
collected is due to the sale of F E Barber Limited in January 2001, which was
the principal subsidiary of Premier which charged and collected excise taxes. Long-lived assets analysed by geographical region
    
    Long-lived assets2001
    
    2002
    
    2003£m
    
    £m
    
    £mBy geographic region:UK
    
    
    103.2
    
    
    
    120.7
    
    
    
    137.7Mainland Europe
    
    
    12.8
    
    
    
    14.4
    
    
    
    15.4116.0
    
    
    
    135.1
    
    
    
    153.1
 The long-lived assets detailed above are presented under U.S. GAAP accounting
standards and exclude the revaluation permitted under U.K. GAAP accounting
standards. Unaudited pro forma results of operations The following unaudited pro forma information presents the results of
operations, including the effects of acquisition financing, of Premier under
U.K. GAAP, giving pro forma effect to the following acquisitions as if they had
occurred as of January 1, 2002: (i) SonA; (ii) Lift; (iii) Nelsons; (iv)
Nestlé; and (v) Ambrosia. (unaudited)Year endedDecember 31,2002
    
    2003£m
    
    £mNet sales
    
    
    959.6
    
    
    
    923.1Operating profit
    
    
    89.1
    
    
    
    93.8Interest charge
    
    
    (49.4
    )
    
    
    (60.4
    )Net income
    
    
    15.3
    
    
    
    16.4
 The pro forma results are not necessarily indicative of what actually would
have occurred if the SonA acquisition, the Lift acquisition, the Nelsons
acquisition, the Nestlé acquisition and the Ambrosia acquisition had been in
effect for the periods presented, nor should they be considered indicative of
future results. Other classification differences Consolidated profit and loss accounts Under U.K. GAAP, discontinued operations are recorded when material and
separable operations are sold either during the year or by the earlier of the
finalisation of the annual accounts or three months subsequent to year end.
Discontinued operations are disclosed separately within the financial
statements and related notes thereto and prior year comparative figures are
restated to reflect the discontinuance. Under U.S. GAAP, disposals of
businesses that do not constitute separate business segments are not accounted
for as discontinued operations, and are recorded and disclosed as asset sales
within continuing operations. F-47




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Premier Foods plc NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Under U.K. GAAP, items classified as exceptional do not meet the definition of
extraordinary under U.S. GAAP, and accordingly are classified as operating
expenses or non-operating expenses as appropriate. Under U.K. GAAP, shipping and handling costs are included in selling and
distribution costs. Under U.S. GAAP, shipping and handling costs are included
in cost of sales. Shipping and handling costs for the years ended December 31
2003, 2002 and 2001 were £36.6m, £38.0m and £36.3m. Consolidated balance sheets Under U.K. GAAP, Premier classifies non-current receivables due later than one
year as current assets. Non-current receivables are classified as non-current
assets under U.S. GAAP. Under U.K. GAAP, debt issuance costs are netted against the related debt
balances and are amortized over the term of the underlying debt. Under U.S.
GAAP, debt issuance costs are capitalized as assets on the balance sheet,
separate from the related debt, and are amortized over the term of the
underlying debt. Recently issued accounting pronouncements United States SFAS No. 149 In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (FAS 149). FAS 149 generally
improves financial reporting for derivative instruments by requiring that
contracts with comparable characteristics be accounted for similarly and by
clarifying when a derivative contains a financing component that warrants
special reporting in the statement of cash flows. The guidance in SFAS 149 was
effective prospectively for contracts entered into or modified and for hedging
relationships designated after June 30, 2003. Premier does not expect this
statement to have a material impact on the financial statements. SFAS No. 150 In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (FAS 150).
The statement establishes standards on how to classify and measure certain
financial instruments with characteristics of both liabilities and equity and
requires additional disclosures regarding alternative ways of settling
instruments and the capital structure of entities-all of whose shares are
mandatory redeemable. The provisions of FAS 150 were effective for all
financial instruments entered into or modified after May 31, 2003, and
otherwise was effective the first interim period beginning after June 15, 2003.
However, the guidance applying to mandatorily redeemable non-controlling
interests has been deferred. Premier does not expect this statement to have a
material impact on the financial statements. FIN 46-R In December 2003, the Financial Accounting Standards Board issued FASB
Interpretation No.46- R, Consolidation of Variable Interest Entities Revised
(FIN 46-R). FIN 46-R modifies the scope exceptions provided in FIN 46 and
requires entities to replace FIN 46 provisions with FIN 46-R provisions for all
newly created post-January 31, 2003 entities as of the end of the first interim
or annual reporting period ending after March 15, 2004. Premier does not
believe that it has any variable interest entities and do not expect this
interpretation to have a material impact on the financial statements. F-48




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Exhibit List

4.9
    
    Facility Agreement dated November 17, 2003 relating to an Acquisition
Facility between inter alia, Premier Financing Limited, the subsidiaries
of Premier Financing Limited party thereto, J.P. Morgan plc as Arranger,
JPMorgan Chase Bank as Underwriter and J.P. Morgan Europe Limited as Agent
and Security Agent.4.10
    
    Amended and Restated Facilities Agreement for £412,300,000 Senior
Secured Credit Facilities for Premier Financing Limited, as Borrower, and
others, between Premier Financing Limited, J.P. Morgan plc and Barclays
Capital as Amendment Arrangers, JPMorgan Chase Bank and Barclays Bank plc
as Amendment Underwriters, the persons whose names and addresses are set
out in Schedule 1 thereto as Banks, the banks and financial institutions
whose names and capacities are set out in Schedule 5 thereto and J.P.
Morgan Europe Limited as Agent and Security Agent, dated November 17,
2003.4.11
    
    Agreement dated November 2, 2003 between Premier Ambient Products (UK)
Limited and Unilever Bestfoods U.K. Limited pursuant to which Premier
Ambient Products (UK) Limited acquired the ambient desserts business in the United Kingdom and the Republic of Ireland of
Unilever Bestfoods U.K. Limited.4.12
    
    Intercreditor Agreement, dated
November 26, 2003, between Premier Financing Limited, as the
Company, Certain Subsidiaries of the Company, as Obligors, the Senior
Finance Parties and the Senior Subordinated Finance Parties and J.P.
Morgan Europe Limited, relating, inter alia, to a Senior Facilities
Agreement dated August 10, 1999 (as subsequently amended and
restated) and a Senior Subordinated Facility Agreement dated
November 17, 2003.8.1
    
    List of material subsidiaries of
Premier (included in Item 10.1. and note 21 to the consolidated financial statements of Premier).11.1
    
    Code of Ethics.12.1
    
    Robert Schofield, Chief Executive certification, dated June 30, 2004,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.2
    
    Paul Thomas, Finance Director certification dated June 30, 2004,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.13.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted by Section
906 of the Sarbanes-Oxley Act of 2002 of Robert Schofield, Chief
Executive, dated June 30, 2004.13.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted by Section
906 of the Sarbanes-Oxley Act of 2002 of Paul Thomas, Finance Director,
dated June 30, 2004.




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| |  | Filed herewith.
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