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Friday 29 August, 2008

Fage Dairy Industry

Interim Report

RNS Number : 3747C
Fage Dairy Industry S.A
29 August 2008
 



    


    










FAGE DAIRY INDUSTRY S.A.





HALF-YEARLY-REPORT

For the six months

Ended June 30, 2008






                





                                                                                                               August 14, 2008





   


This report (the 'Half-yearly Report') sets forth certain information regarding the financial condition and results of operations of FAGE Dairy Industry S.A., a Greek   (the 'Company' or 'FAGE'), for the fiscal quarter and six months ended June 30, 2008. The Half-yearly Report encloses a review, in English, of the Company's unaudited financial information and analysis for the second quarter and the first six months as well as certain other information. 


The following unaudited financial statements in the opinion of the management reflect all necessary adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position, the results of operations and cash flows for the periods presented.


For a description of accounting policies see Notes to financial statements in FAGE's 2007 annual report. 






  

INTRODUCTION


    On January 21, 2005, FAGE Dairy Industry S.A. (the 'Company' or 'FAGE') issued €130,000,000 principal amount of its 7½% Senior Notes due 2015 (the 'Senior Notes'). The Senior Notes were issued and guaranteed under an indenture (the 'Indenture'), dated as of January 21, 2005, by and among the Company, as issuer, FAGE USA, CORP., as guarantor (the 'Guarantor'), The Bank of New York, as trustee (the 'Trustee') and AIB/BNY Fund Management (Ireland) Limited, as Irish paying agent (the 'Irish Paying Agent'). The Senior Notes have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the 'Securities Act'), or any state securities laws and, unless so registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Senior Notes were offered and sold only to 'Qualified Institutional Buyers' (as defined in Rule 144A under the Securities Act) and pursuant to offers and sales occurring out the United States within the meaning of Regulation S under the Securities Act. The Indenture is not required to be, nor will it be, qualified under the U.S. Trust Indenture Act of 1939, as amended. 


    A copy of the Indenture is available from the Company upon request. This Half-yearly Report is being provided to Holders of the Senior Notes pursuant to Section 4.02 of the Indenture. The Senior Notes are listed on the Irish Stock Exchange. This Half-yearly Report is also being made available through the Company's website and at the office of the Irish Paying Agent pursuant to the rules of the Irish Stock Exchange. 


    The Guarantor is a corporation organised under the laws of the State of New York, having its principal place of business at 1 Opportunity DriveJohnstown Industrial Park, JohnstownNY 12095U.S.A. The Guarantor's US Employer Identification Number is 11-3556476. The Guarantor was incorporated on June 26, 2000. The Guarantor is the Holding Company of FAGE USA DAIRY INDUSTRY Inc. The Company is the registered holder of the entire issued capital of the Guarantor.

    The Company is a private limited company incorporated under the laws of the Hellenic Republic on December 30, 1977. Its principal place of business is located at, and the address of each of its directors and executive officers is, 35 Hermou Street, 144 52 Metamorfossi, AthensGreece, and its telephone number is (30-210) 2892555. The Company's Greek tax identification number is 094061540. The Company's website is www.fage.gr. The reference to this website is an inactive textual reference only and none of the information contained on this website is incorporated into this Half-yearly Report. References to the Company or FAGE include, unless the context requires otherwise, the Company and its consolidated subsidiaries. The Company operates principally in the Hellenic Republic, also known as Greece, and unless the context requires otherwise, references herein to the Company's markets, market share or similar terms refer to the relevant Greek market.


    In accordance with the terms of the Indenture, FAGE USA DAIRY INDUSTRY Inc. (the 'Additional Guarantor') has entered into a supplemental indenture (the 'Supplemental Indenture'), dated as of March 29, 2006, pursuant to which it has agreed to unconditionally guarantee all the obligations of the Company under the Senior Notes and the Indenture. The Additional Guarantor is a corporation organised under the laws of the State of New York, having its principal place of business at 1 Opportunity DriveJohnstown Industrial Park, JohnstownNY 12095U.S.A. The Additional Guarantor's US Employer Identification Number is 83-0419718. The Additional Guarantor was incorporated on February 17, 2005. The primary activity of the Additional Guarantor is the operation of the Company's U.S. yoghurt production facility and the distribution of its products in the U.S. The Guarantor is the registered holder of the entire issued capital of the Additional Guarantor.


    Following the issuance of the Senior Notes, the Company redeemed all of the approximately U.S. $ 92.6 million in aggregate principal amount of its then outstanding 9% senior notes due 2007 (the 'Prior Notes') and repaid approximately € 35.4 million of its short term borrowing under various lines of credit. To discharge its obligations under the indenture in relation to the Prior Notes, the Company deposited with the trustee under such indenture approximately US $97.3 million which amount satisfied the payment in full of the semi-annual interest payment on the Prior Notes due on February 1, 2005 and the aggregate principal amount of the Prior Notes on February 22, 2005 (the 'Redemption Date'), together with the interest accrued from February 1, 2005 to the Redemption Date.



INFORMATION REGARDING FORWARDߛLOOKING STATEMENTS


    The following cautionary statements identify important factors that could cause the Company's actual results to differ materially from those projected in the forwardߛlooking statements made in this Half-yearly Report. Any statements about the Company's expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forwardߛlooking. These statements are often, but not always, made through the use of words or phrases such as 'will likely result,' 'are expected to,' 'will continue,' 'believe,' 'is anticipated,' 'estimated,' 'intends,' 'expects,' 'plans,' 'seek,' 'projection' and 'outlook.' These statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed. Any forwardߛlooking statements are qualified in their entirety by reference to the factors discussed throughout this Half-yearly Report. Among the key factors that may have a direct bearing on our results of operations are:


·                     risks associated with our high leverage and debt service obligations;
 
·                     the impact of restrictive debt covenants on our operating flexibility;
 
·                     uncertainties associated with general economic conditions in Greece, across Europe and the
            United States;
 
·                     factors affecting the Company's ability to compete in a competitive market; and
 
·                     uncertainties associated with the Company's ability to implement its business strategy.

 



    These and other factors are discussed elsewhere in this Half-yearly Report.


    Because the risk factors referred to in this Half-yearly Report could cause actual results or outcomes to differ materially from those expressed in any forwardߛlooking statements made in this Half-yearly Report by the Company or on its behalf, you should not place undue reliance on any of these forwardߛlooking statements. Further, any forwardߛlooking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update any forwardߛlooking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors will emerge in the future, and it is not possible for the Company to predict which factors they will be. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those described in any forwardߛlooking statements.


Responsibility Statement in Respect of the Six Months Ended 30 June 2008


The Directors are responsible for preparing this interim management report and the condensed interim financial information in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the related Transparency Rules of the Irish Financial Services Regulatory Authority and with International Accounting Standard 34, Interim Financial Reporting (IAS 34) as adopted by the European Union.


The Directors confirm that, to the best of their knowledge:

  • the condensed interim group financial information for the half year ended 30 June 2008 has been prepared in accordance with the international accounting standard applicable to interim financial reporting, IAS 34, adopted pursuant to the procedure provided for under Article 6 of the Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002;


  • the interim management report includes a fair review of the important events that have occurred during the first six months of the financial year, and their impact on the condensed interim group financial information for the half year ended 30 June 2008, and a description of the principal risks and uncertainties for the remaining six months;


  • the interim management report includes a fair review of related party transactions that have occurred during the first six months of the current financial year and that have materially affected the financial position or the performance of the group during that period, and any changes in the related parties' transactions described in the last annual report that could have a material effect on the financial position or performance of the group in the first six months of the current financial year.


PRESENTATION OF FINANCIAL AND OTHER DATA


Financial Information


    Unless otherwise indicated, financial information in this Half-yearly Report has been presented on a consolidated basis. The consolidated financial information for the Company and its consolidated subsidiaries has been presented as of and for the six months ended June 30, 2008 and 2007 and presents the combined net assets, financial position and results of operations of the Company and its consolidated subsidiaries during the periods presented. The consolidated financial statements of the Company and its consolidated subsidiaries have been prepared in accordance with International Financial Reporting Standards ('IFRS'). You should read the consolidated financial statements of the Company and its consolidated subsidiaries included in this Half-yearly Report, including the notes thereto (collectively, the 'Consolidated Financial Statements'), together with 'Interim Management Report and Management's Discussion and Analysis of Financial Condition and Results of Operations'. Some financial information in this Half-yearly Report has been rounded and, as a result, the numerical figures shown as totals in this Half-yearly Report may vary slightly from the exact arithmetic aggregation of the figures that precede them.



Industry Data


    The Company operates in an industry in which it is difficult to obtain precise industry and market information. The Company has obtained the market and competitive position data in this Half-yearly Report from industry publications and from surveys or studies conducted by thirdߛparties that it believes to be reliable, including research information produced by Information Resources, Inc. (Hellas) ('IRI Hellas'). As part of its research for the report, IRI Hellas received market and company information from the Company. The Company cannot assure you of the accuracy and completeness of such information, and it has not independently verified the market and competitive position data contained in this Half-yearly Report. In addition, in many cases, statements in this Half-yearly Report regarding the Greek dairy industry and the Company's competitive position in the industry are based on the Company's experience and its own investigation of market conditions. There can be no assurance that any of these assumptions are accurate or correctly reflect the Company's competitive position in the industry, and none of these internal surveys or information has been verified by independent sources, which may have estimates or opinions regarding industryߛrelated information that differ from those of the Company.




EXCHANGE RATE INFORMATION


    On January 1, 2002 the Company, commenced publishing its consolidated financial statements in Euros. For comparison purposes, results of previous years included in this Half-Yearly Report have also been stated in Euros based on the fixed exchange rate of Greek Drachma 340.75 to Euro 1.00.




ENFORCEABILITY OF CIVIL LIABILITIES


    The Company is a Greek société anonyme. All of the Company's executive officers and directors and a majority of the Guarantor's executive officers and directors, and certain experts named herein presently reside outside of the U.S., principally in Greece. In addition, the majority of the assets of the Company (including its consolidated subsidiaries) are located in Greece. As a result, it will be necessary for investors to comply with Greek law in order to obtain an enforceable judgement against any such foreign resident persons or the assets of the Company, including an order to foreclose upon such assets. Although the Company has agreed under the terms of the Indenture to accept service of process in the U.S. by an agent designated for such purpose, it may not be possible for investors to (i) effect service of process within the U.S. upon the Company's officers, directors and certain experts named herein and (ii) realise in the U.S. upon judgements against such persons obtained in such courts predicated upon civil liabilities of such persons, including any judgements predicated upon U.S. federal securities laws, to the extent such judgements exceed such person's U.S. assets. The Company has been advised by G.S. Kostakopoulos & Associates, Greek counsel to the Company, that under the laws of Greece, a Greek court of competent jurisdiction (a) will, other than under certain limited circumstances, recognise and declare enforceable a final and enforceable judgement of a U.S. court having jurisdiction as determined under the Greek Code of Civil Procedure, which declares a liability on the Company or any of its directors or officers for a sum of money assessed as compensatory damages and which is sought to be enforced in Greece; and (b) may, except under certain circumstances, recognise and declare enforceable a final and enforceable judgement of a U.S. court having jurisdiction as determined under the Greek Code of Civil Procedure, which is predicated upon civil liabilities contemplated by the federal securities laws of the U.S., although presently there is no precedent for such enforcement of liabilities contemplated by such securities laws.




PROPRIETARY MARKS


    Each of the following trademarks and brand names are protected registered trademarks of FAGE:


    FAGE®Junior®, Feta FAGE®Graviera of Crete FAGE®Veloutela®, Flair®Total®Total Light®Total 0%®Total 0% with fruit®Total 2%®, Total split-cup®Ageladitsa®Silouet®Silouet 0%®Silouet 2%®Silouet 0% with honey croutons®Veloutela Cocktail®Sheep's®N'Joy®, Drossato®, Yoko Choco®, Trikalino®Playia®, Farma®, Farma Diet®, Farma Plus®, ABC®, GALA DEKA®, Tzatziki FAGE®, FAGE Cream®, Family Yiaourti®, Junior Tirakia®, Glykokoutalies FAGE® and Velvet® .

  

FAGE DAIRY INDUSTRY S.A.




INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


                                                                                                                            Page

PART I     FINANCIAL INFORMATION


ITEM    1    -FINANCIAL STATEMENTS


        a -  June 30, 2008 and 2007                                                                                                   1    

                                          

        b -   December 31, 2007                                                                                                       2   


c - months ended June 30, 2008 and 2007                                                                             3


d - ended June 30, 2008 and 2007                                                                                         4         
     
       

e - Notes to Consolidated Financial Statements                                                         5-18


 ITEM 2  - INTERIM MANAGEMENT REPORT AND MANAGEMENT'S DISCUSSION
                 AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
                
OPERATIONS                                                                                                   19-25

 



                       


PART II    OTHER INFORMATION


ITEM 1    Legal Proceedings                                                                                                   26







Part I

Item 1a





FAGE DAIRY INDUSTRY S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2008 AND 2007


(All amounts in thousands of Euro, except share and per share data

(UNAUDITED)






SIX MONTHS

ENDED JUNE 30,


THREE MONTHS

ENDED JUNE 30,


Notes


2008


2007


2008


2007











    Sales



165,114


167,231


84,009


87,683

    Cost of sales



(116,456)


(105,485)


(61,702)


(56,350)

    Gross profit



48,658


61,746


22,307


31,333

    Selling, general and administrative

    expenses

5


(53,740)


(53,557)


(27,843)


(28,465)

    Other income



433


225


408


175

    Other expenses



(470)


(41)


(286)


(33)

PROFIT/(LOSS) FROM OPERATIONS



(5,119)


8,373


(5,414)


3,010

    Financial expenses

6


(6,952)


(5,532)


(4,178)


(2,342)

    Financial income

6


190


202


132


104

    Impairment loss

11


(282)


-


-


-

    Foreign exchange gains/(losses), net



(1,430)


288


98


133

   Share of profit/(losses) of associates

   accounted for     under the equity method


10



(73)



(43)



(26)



(19)

PROFIT/(LOSS) BEFORE INCOME TAXES



(13,666)


3,288


(9,388)


886

    Income tax

7


2,582


(1,480)


1,764


(626)

NET PROFIT/(LOSS)



(11,084)


1,808


(7,624)


260











Attributable to:










Equity holders of the parent



(11,084)


1,808


(7,624)


260

Minority interests



-


-


-


-




(11,084)


1,808


(7,624)


260

Earnings/(loss) per share










    Basic and diluted



(0.83)


0.14


(0.57)


0.02

Weighted average number of shares, basic and diluted



13,297,300


13,297,300


13,297,300


13,297,300








Part I

Item 1b


FAGE DAIRY INDUSTRY S.A. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS

FOR JUNE 30, 2008 AND DECEMBER 31, 2007


(All amounts in thousands of Euro





Unaudited






June 30,


December 31,


Notes


2008


2007







ASSETS






Non-Current Assets






    Property, plant and equipment



171,940


168,930

    Intangible assets



5,790


3,239

    Goodwill

9


7,668


7,763

    Investments in associate accounted for under the equity method

10


223


296

    Available for sale financial assets

11


88


88

    Other non-current assets

12


454


570

    Deferred income taxes



2,178


790

        Total non-current assts



188,341


181,676

Current Assets:






    Inventories

13


33,568


25,451

    Trade and other receivables

14


57,208


90,042

    Due from related companies

15


1,504


1,484

    Available for sale financial assets

11


1,006


1,576

    Current asset from continuing involvement






      in transferred trade receivables

14


836


-

    Cash and cash equivalents

16


26,263


31,749

        Total current assets



120,385


150,302

TOTAL ASSETS



308,726


331,978

EQUITY AND LIABILITIES






Equity attributable to equity holders of the parent company






    Share capital



39,094


39,094

    Reversal of revaluation gains



(33,236)


(33,236)

    Retained earnings



(4,471)


6,613

    Legal, tax free and special reserves



35,516


35,516

    Other reserves



(9,675)


(5,543)










27,228


42,444

Minority interests



1


1

    Total Equity



27,229


42,445

Non-Current Liabilities






    Interest bearing loans and borrowings

17


175,416


178,409

    Other long-term liabilities

18


295


458

    Reserve for staff retirement indemnities



2,507


2,432

    Deferred income taxes



4,514


5,917

        Total non-current liabilities



182,732


187,216

Current Liabilities:






    Trade accounts payable

19


40,767


63,781

    Due to related companies

15


14,379


3,122

    Short-term borrowings

20


14,000


10,000

    Current portion of long-term debt

17


5,750


2,500

    Income taxes payable



3,520


3,417

    Current liability from continuing involvement






      in transferred trade receivables

14


836


-

    Accrued and other current liabilities

21


19,513


19,497

        Total current liabilities



98,765


102,317

        Total liabilities



281,497


289,533

TOTAL LIABILITIES AND EQUITY



308,726


331,978


    



Part I

Item 1c


FAGE DAIRY INDUSTRY S.A. AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2007

(All amounts in thousands of Euro)

(UNAUDITED)





Attributable to equity holders of the parent company






Other reserves











Share capital





Reversal of revaluation gains



Legal, tax free and special reserves






Retained earnings


Unrealised gains/(losses) on available for sale financial assets





Foreign exchange gains/(losses)





Total other reserves







Total






Minority

interests





Total

equity

Balance, December 31, 2006



39,094



(33,236)



35,516



25,913



-



(756)



(756)



66,531



1



66,532






















Foreign currencies translation



-



-



-



-



-



(697)



(697)



(697)



-



(697)

Unrealised gains/(losses) on available for sale financial assets




-




-




-




-




146




-




146




146




-




146

Total income and expense for the period recognised directly in equity





-





-





-





-





146





(697)





(551)





(551)





-





(551)

Profit for the period


-


-


-


1,808


-


-


-


1,808


-


1,808

Total income and expense for the period



-



-



-



1,808



146



(697)



(551)



(1,257)



-



1,257

Balance, June 30, 2007


39,094


(33,236)


35,516


27,721


146


(1,453)


(1,307)


67,788


1


67,789






CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2008

(All amounts in thousands of Euro)

(UNAUDITED)





Attributable to equity holders of the parent company






Other reserves












Share capital





Reversal

of revaluation gains





Legal, tax free and special reserves







Retained earnings


Unrealised gains/
(losses) on available

for sale financial assets





Foreign exchange gains/

(losses)






Total other reserves








Total







Minority

interests







Total

equity

Balance, December 31, 2007



39,094



(33,236)



35,516



6,613



91



(5,634)



(5,543)



42,444



1



42,445






















Foreign currencies translation



-



-



-



-



-



(3,917)



(3,917)



(3,917)



-



(3,917)

Unrealised gains/(losses) on available for sale financial assets





-





-





-





-





(215)





-





(215)





(215)





-





(215)

Total income and expense for the period recognised directly in equity





-





-





-





-





(215)





(3,917)





(4,132)





(4,132)





-





(4,132)

Loss for the period


-


-


-


(11,084)


-


-


-


(11,084)


-


(11,084)

Total income and expense for the year



-



-



-



(11,084)



(215)



(3,917)



(4,132)



(15,216)



-



(15,216)

Balance, June 30, 2008


39,094


(33,236)


35,516


(4,471)


(124)


(9,551)


(9,675)


27,228


1


27,229






Part I

Item 1d


FAGE DAIRY INDUSTRY S.A. AND SUBSIDIARIES


CONSOLIDATED CASHFLOW STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007


(All amounts in thousands of Euro)
(UNAUDITED)





June 30,


Notes


2008


2007







Cash flows from operating activities






    (Loss)/profit before income taxes



(13,666)


3,288

    Adjustments to reconcile to net cash provided by operating activities:






    Depreciation and amortisation

4


6,572


5,647

    Provision for staff retirement indemnities

3


1,244


174

    Provision for doubtful accounts receivable



455


263

    Financial income

6


(190)


(202)

    Financial expenses

6


6,952


5,532

    (Gain)/loss on disposal of property, plant and equipment



55


(86)

    Impairment loss on available for sale financial assets

11


282


-

    Losses on equity investees accounted for under the equity method

10


73


43

Operating profit before working capital changes



1,777


14,659

  (Increase)/Decrease in:






    Inventories

13


(8,117)


(6,344)

    Trade and other receivables

14


32,358


(3,274)

    Due from related companies

15


(20)


(98)

    Increase/(Decrease) in:






    Trade accounts payable

19


(22,723)


(63)

    Due to related companies

15


11,257


5,246

    Accrued and other current liabilities

21


(285)


(1,440)

    Interest paid



(6,375)


(5,186)

    Income taxes paid



(34)


(587)

    Payment of staff retirement indemnities



(1,169)


(149)

    (Increase)/decrease in other non-current assets

12


107


142

    (Increase)/decrease in other long term liabilities

18


(163)


(262)

Working capital changes



4,836


(12,015)

Net Cash from Operating Activities



6,613


2,644

Cash flows from Investing Activities:






    Capital expenditure for property, plant and equipment



(12,003)


(26,388)

    Transfer from property, plant and equipment to intangible assets



1,980


-

    Additions of intangible assets



(3,055)


-

    Proceeds from disposal of property, plant and equipment



361


161

    Interest and other related income received

6


190


202

Net Cash used in Investing Activities



(12,527)


(26,025)







Cash Flows from Financing Activities:






    Net change in short-term borrowings

20


4,000


(10,000)

    Proceeds from interest bearing loans and borrowings

17


-


9,913

Net Cash used in Financing Activities



4,000


(87)

Effect of exchange rates changes on cash



(3,572)


(682)

Net increase in cash and cash equivalents



(5,486)


(24,150)

Cash and cash equivalents at beginning of period

16


31,749


58,662

Cash and cash equivalents at period-end

16


26,263


34,512



PART I                                        FAGE DAIRY INDUSTRY S.A. AND SUBSIDIARIES
Item 1e                                                                                            
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008 AND 2007



1.    CORPORATE INFORMATION:


FAGE Dairy Industry S.A., a corporation formed under the laws of the Hellenic Republic (also known as Greece), is the successor to a business founded in Athens in 1926 by the family of Mr. Athanassios Filippou, the father of the current shareholders, Messrs. Ioannis and Kyriakos Filippou. References to the Company or FAGE include, unless the contents indicate otherwise, FAGE Dairy Industry S.A. and its consolidated subsidiaries.


Its objectives and purposes, as specified in its Memorandum and Articles of Association include the production and trading of dairy products, the distribution of other food products and the trading, import and export and representation of firms in Greece and abroad in connection with such products. All operating activities are conducted in Greece and in the U.S. and the Company's products are sold under the FAGE and other related trademarks. 


The Company's headquarters are in Athens at 35 Ermou Street, 144 52 Metamorphosi. The life of FAGE Dairy Industry S.A., according to its Articles of Association is ninety (90) years as of December 30, 1977, with a possible extension permitted following a decision of the General Meeting of its Shareholders.


2.    BASIS OF PRESENTATION:


(a)               Basis of Preparation of Financial Statements: The accompanying consolidated financial statements have been prepared under the historical cost convention, except for the valuation of available for sale financial assets (including derivative financial instruments) that have been measured at fair value and they comply with International Financial Reporting Standards (IFRS). These Interim Condensed Financial Statements have been prepared by management in accordance with IAS 34 (Interim Financial Reporting). The Interim Condensed Financial Statements do not include all the information and disclosure required in the Annual Financial Statements and should be read in conjunction with the Company’s Annual Financial Statements as such December 31, 2007.
 
(b)                Effect of new accounting pronouncements: New standards and interpretations issued by the IASB and effective in 2008 (IFRIC 11, IFRS 2 ‘Company and Treasury Share Transactions’, IFRIC 12 ‘Service Concession Arrangements’ and IFRIC 14 ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’) have no impact on the Company’s financial position and performance and /or are not relevant to the Company.


(c)    Use of Estimates: The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the 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 reporting period. Actual results may ultimately differ from those estimates.


3.    PAYROLL COST:

    

    Payroll cost in the accompanying consolidated financial statements is analysed as follows:



June 30,


2008


2007


(Unaudited)

ages and salaries

15,042


13,014

social security costs

3,590


3,076

Staff retirement indemnities 

1,244


174

Other staff costs

237


360

Total payroll

20,113


16,624

Less: amounts charged to cost of production

(9,776)


(9,095)

Payroll expensed (Note 5)

10,337


7,529

4.    DEPRECIATION AND AMORTISATION:


    Depreciation and amortisation in the accompanying consolidated financial statements is analysed as follows:



June 30,


2008


2007


(Unaudited)

Depreciation on property, plant and equipment

6,265


5,447

Amortisation of intangible assets

307


200

Total depreciation and amortisation

6,572


5,647

Less: amounts charged to cost of production

(5,067)


(4,349)

Depreciation and amortisation expensed (Note 5)

1,505


1,298


5.    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:


Selling, general and administrative expenses in the accompanying consolidated statements of income are analysed as follows:




June 30,


2008


2007


(Unaudited)

Shipping and handling costs

23,233


18,107

Advertising costs 

8,295


15,407

Third party fees

5,449


7,938

Payroll (Note 3)

10,337


7,529

Depreciation and amortisation (Note 4)

1,505


1,298

Repairs and maintenance

501


593

Travelling and entertainment

543


705

Allowance for doubtful accounts 

455


263

Other

3,422


1,717


53,740


53,557



    For the six months ended June 30, 2008, there was no compensation to the shareholders and family members.

    For the six months ended June 30, 2007, an amount of €2,400 had been accrued as compensation to the shareholders and family members and is included in third party fees. 

    

6.    FINANCIAL INCOME/(EXPENSES):


    Financial income/(expense) in the accompanying consolidated statements of income is analysed as follows:

 
June 30,
 
2008
 
2007
 
 
(Unaudited)
 
Interest on loans and borrowings (Note 16)
(7,064)
 
(5,789)
 
Interest on short‑term borrowings (Note 19)
(762)
 
(595)
 
Other
(299)
 
(114)
 
 
(8,125)
 
(6,498)
 
Less: amounts capitalized in property, plant and equipment
1,173
 
966
 
Total financial expenses
(6,952)
 
(5,532)
 
Interest earned on cash at banks and on time deposits (Note 15)
181
 
202
 
Other financial income
9
 
-
 
Total financial income
190
 
202
 
Total financial income/(expense), net
(6,762)
 
(5,330)
 

 


    During the six months ended June 30, 2008 and 2007 the Company capitalized financial expenses amounted to €1,173 and €966, respectively, which relate mainly to the Company's construction of the new U.S. manufacturing plant. 


7.  INCOME TAXES:


In accordance with the Greek tax regulations, the corporate tax rate applied by companies for fiscal years since 2007 is 25%.

 

    The provision for income taxes reflected in the accompanying consolidated statements of income is analysed as follows:

 
 
June 30,
 
 
2008
 
2007
 
 
(Unaudited)
Current income taxes:
 
 
—current income tax charge
 
138
 
832
Deferred income tax charge/(benefit)
 
(2,720)
 
648
Total income tax reported in the consolidated statements of income
 
(2,582)
 
1,480
 
 
 
 
 
 

 

8.    INTANGIBLE ASSETS:


Intangible assets in the accompanying consolidated financial statements are analysed as follows:



 
 
 
Customer network
 
 
Employment contracts
 
 
Development costs
 
 
EDP license
fees/expenses
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2007
 
2,203
 
14
 
1,022
 
-
 
3,239
Additions
 
-
 
-
 
75
 
1,000
 
1,075
Transfer from property, plant & equipment
 
 
-
 
 
-
 
 
-
 
 
1,980
 
 
1,980
Foreign currency remeasurement
 
 
(203)
 
 
(4)
 
 
-
 
 
-
 
 
(207)
Amortisation (Note 5)
 
(88)
 
(5)
 
(128)
 
(76)
 
(297)
Balance, June 30, 2008
 
1,912
 
         5
 
969
 
2,904
 
5,790


Within the first six months of 2008, the Company transferred to intangible assets an amount of €2,980 concerning licence fees and other expenses related to the application of the new EDP system (SAP) in January 2008. In this, the amount of €1,980 was formerly included in property plant and equipment. 


9.    SUBSIDIARIES:


    The consolidated financial statements as at June 30, 2008 and December 31, 2007, include the

financial statements of FAGE Dairy Industry S.A. and its subsidiaries listed below:

  

Equity interest 






  June 30,


December 31,


Country of




2008


2007


incorporation


Activities


  (Unaudited)






Foods Hellas S.A.

-


98.38%



Greece



Liquidated in 2006

Pindos S.A.

-


-


Greece


Cheese producer-merged into FAGE Dairy Industry S.A.

Tamyna S.A.

-


-


Greece


Cheese producer merged into FAGE Dairy Industry S.A.

Voras S.A.

-


-


Greece


Liquidated in 2005

Xylouris S.A.

100.0%


99.99%


Greece


Cheese producer

Zagas S.A.

100.0%


99.99%


Greece


Cheese producer

Agroktima Agios Ioannis S.A.

100.0%


99.99%


Greece


Agricultural and farm development-ceased operations

Iliator S.A.

97.0%


97.0%


Greece


Construction-not operating

FAGE Italia S.r.l.

100.0%


99.99%


Italy


Distribution network covering Italy

FAGE USA Corp.

100.0%


100.0%


USA


Holding company of FAGE USA Dairy Industry Inc.

FAGE U.K. Limited

100.0%


100.0%


United Kingdom


Distribution network covering the United Kingdom

FAGE USA Dairy Industry Inc.

100.0%


100.0%


USA


U.S. operating subsidiary with primary activity the operation of the Company's U.S. yoghurt production facility and the distribution of its products in the U.S. 


Foods Hellas S.A.:  Foods Hellas S.A. (Foods Hellas) was owned 99.38% by FAGE and the balance of 0.62% was owned in equal shares by the two shareholders of FAGE. Foods Hellas was a distribution company with a network that covered Northern Greece.


FAGE acquired its participating interest in Foods Hellas in three tranches (46.9% in 1990, 37.5% in 1992 and 14.98% in 2001) for a total consideration of €3,207. Effective January 1, 1998, the distribution network of Foods Hellas is being operated under the name of FAGE. During 2005 Foods Hellas was liquidated.


Pindos S.A.:  FAGE acquired 100% of Pindos S.A. (Pindos) in seven tranches (51% in 1993, 19.6% in 1994, 11.2% in 1997, 12.09% in 1998, 2.22% in 1999, 1.37% in 2001 and 2.52% in 2002) for a total consideration of €8,359. Pindos was a cheese producer in Ioannina. During 2002, Pindos merged into FAGE Dairy Industry S.A.


Tamyna S.A.:  FAGE acquired 100% of Tamyna S.A. (Tamyna) in five tranches (42.3% in 1996, 4.7% in 1997, 25.49% in 2000, 26.93% in 2001 and 0.58% in 2002) for a total consideration of €4,845. Tamyna was a cheese producer in Aliveri. During 2002, Tamyna merged into FAGE Dairy Industry S.A.


Voras S.A.:  FAGE acquired 100% of Voras S.A. (Voras) in four tranches (45% in 1996, 25% in 1997, 5.5% in 1998 and 24.5% in 2002) for a total consideration of €8,499. As of December 31, 2002, all assets of Voras have been transferred to FAGE Dairy Industry S.A., and Voras has been liquidated.


Xylouris S.A.:  FAGE acquired 100% of Xylouris S.A. (Xylouris) in seven tranches (35% in 1995, 12% in 1996, 4% in 1997, 17% in 2002, 3.75% in 2003, 28.24% in 2004 and 0.01% in 2006 for a total consideration of €2,032. Xylouris is a cheese producer in Crete.


Zagas S.A.:  Zagas S.A. (Zagas) is a cheese producer in Agrinio. FAGE acquired its participating interest of 100% of Zagas in two tranches (99.99% in 2001 and 0.01% in 2006), for a total consideration of €3,086. 

Agroktima Agios Ioannis S.A.:  FAGE acquired 100% of Agroktima Agios Ioannis S.A. (Agroktima) in three tranches (33.24% in 1998, 66.75% in 2000 and 0.01% in 2006) for a total consideration of €1,583. Agroktima was an agricultural and farm development company which ceased operations in 2007.


Iliator S.A.:  The Company has a participation interest of 97% in Iliator S.A., a construction company which is not operating.


FAGE Italia S.r.l.:  FAGE Italia S.r.l. is a 100% owned Italian distribution company. FAGE acquired its interest in FAGE Italia S.r.l. in three tranches (88.87% in 1993, 11.12% in 2004 and 0.01% in 2006) for a total consideration of €650.


FAGE USA Corp.:  FAGE USA Corp. was incorporated by FAGE Dairy Industry S.A. in 2000 as a wholly owned subsidiary. FAGE USA Corp. is the holding company of FAGE USA Dairy Industry Inc.


FAGE U.K. Limited:  On April 13, 2005, FAGE acquired 100% of the share capital of its distributor in the United Kingdom, Gordons Conrad Limited (subsequently renamed to FAGE U.K. Limited), for a consideration of €5,303.


FAGE USA Dairy Industry Inc.: FAGE USA Corp. which was incorporated by the Company in the year 2000, established FAGE USA DAIRY INDUSTRY Inc. as a wholly owned subsidiary whose primary activity is the ownership and operation of the Company's U.S. yoghurt production facility and the distribution of its products in the U.S.


The net book value of goodwill reflected in the accompanying consolidated balance sheets is analysed as follows:



June 30,


December 31,


2008


2007


  (Unaudited)

Foods Hellas S.A.

1,296


1,296

Pindos S.A.

308


308

Voras S.A.

2,122


2,122

Xylouris S.A.

1,130


1,130

Iliator S.A.

26


26

Zagas S.A.

1,310


1,310

FAGE Italia S.r.l.

284


284

FAGE U.K. Limited

1,192


1,287


7,668


7,763


10.    INVESTMENTS IN ASSOCIATES ACCOUNTED FOR UNDER THE EQUITY METHOD:


Bizios S.A. (Bizios) was incorporated on November 10, 1997. During 1997, the Company purchased 45% of the voting shares for a cash consideration of €4,755.


FAGE's investment in Bizios is accounted for using the equity method. In this respect, losses of €73 and €43 have been recognised in the accompanying consolidated statements of income for the six months ended June 30, 2008 and 2007, respectively. The carrying value of the investment in Bizios as at June 30, 2008 and December 31, 2007, amounted to €223 and €296, respectively and is included in the accompanying consolidated balance sheets.


11.  AVAILABLE FOR SALE FINANCIAL ASSETS:

 

Available for sale financial assets are analysed as follows:


June 30,


December 31,


2008


2007

Shares-listed: 

 (Unaudited)

Vis S.A.

716


921

Elbisco Holdings S.A.

290


655


1,006


1,576

Shares-unlisted: 




Packing Hellas Development S.A.

88


88


88


88


Available for sale financial assets consist of investments in ordinary and preferred shares and, therefore, have no fixed maturity date or coupon rate.


The aboveߛmentioned investments have been classified as available for sale and are carried at their fair market value with the difference in the market values reflected in other reserves.



For the six months ended June 30, 2007, gains of €146 net of deferred income taxes were recognised and reported in equity. For the six months ended June 30, 2008, losses of €215 net of deferred income taxes were recognised and reported in equity while, losses of €282 were also recognised but reported in the accompanying 2008 consolidated statement of income, as it was determined that the related investments had been impaired.


12.    OTHER NON-CURRENT ASSETS:


Other non-current assets are analysed as follows:


June 30,


December 31,


2008


2007


 (Unaudited)

Longߛterm notes receivable at amortised cost

867


757

Less: current maturities, included in trade and other accounts receivable

(766)


(551)


101


206

Utility deposits

213


223

Other

140


141


454


570


The maturity of the long-term notes receivable subsequent to June 30, 2008 and December 31, 2007, is as follows:



June 30,


December 31,


2008


2007

Maturity

 (Unaudited)

Within 1 year

766


551

2-5 years

101


206


867


757

13.    INVENTORIES:


Inventories are analysed as follows:


June 30


December 31,


2008


2007


  (Unaudited)

Merchandise

5,020


3,993

Finished and semiߛfinished products

17,778


10,595

Raw materials and supplies

10,770


10,863


33,568


25,451

 

14.   TRADE AND OTHER RECEIVABLES:


Trade and other receivables are analysed as follows:


June 30,


December 31,


2008


2007

Trade:

(Unaudited)

-In Euro

35,292


58,590

-In foreign currencies

8,967


6,968


44,259


65,558

-Less: allowance for doubtful accounts

(967)


(804)


43,292


64,754

Other:




-Value added tax

10,337


15,921

-Prepaid income taxes

987


1,038

-Prepaid expenses

20


473

-Advances to suppliers

4,080


7,965

-Various debtors

715


1,822


16,139


27,219

-Less: allowance for doubtful accounts

(2,223)


(1,931)


13,916


25,288


57,208


90,042


On March 21, 2008, the Company entered into an accounts receivable agreement for financing of up to €35 million with ABN AMRO Bank, in respect of trade accounts receivables in an amount of 100% to 90% of the value of the receivables. Using this agreement the Company financed its operations, and that is the main reason for the decrease of trade accounts receivables in euros from €58,590 to €35,292. 


Moreover, an amount of €836 is disclosed both as current assets and current liability from continuing involvement in transferred trade receivables.


There was no write-off of accounts receivable during the six months ended June 30, 2008 and 2007.


It is the Company's policy to attach liens against the property of most of its delinquent customers. Due to the prolonged and complex legal procedures in Greece, it is not unusual for the collection process to take three to five years before a case is finalised.


15.    DUE FROM (TO) RELATED COMPANIES:


FAGE purchases goods and services from and makes sales of goods to certain related companies in the ordinary course of business. Such related companies consist of affiliates or companies, which have common ownership and/or management with FAGE.

Account balances with related companies are as follows:

         


June 30,


December 31,


2008


2007

Due from:

 (Unaudited)

-    Ioannis Nikolou ULP

1,499


1,046

-    Evga S.A.

-


433

-    Vihep S.A.

5


5


1,504


1,484

Due to: 




-    Iofil S.A. 

5,949


1,310

-    Mornos S.A.

3,594


881

-    Vis S.A. 

552


203

-    Agan S.A.

2,138


686

-    Evga S.A.

2,021


-

-    Bizios S.A.

124


41

- G.S. Kostakopoulos & Associates

1


1


14,379


3,122


Transactions with related companies for the six months ended June 30, 2008 and 2007 are analyzed as follows:



Purchases

from related parties


Sales

to related parties


June 30,

2008


June 30,

2007


June 30,

2008


June 30,

2007




(Unaudited)



Inventories, materials and supplies


24,488



23,400



2,186



2,182

Advertising and media

2,307


4,465


-


-

Other services

4,318


4,144


-


-


31,113


32,009


2,186


2,182


Purchases of inventories, materials and supplies, represent approximately 25% and 27% of FAGE's total purchases for the six months ended June 30, 2008 and 2007, respectively.


Advertising, media buying and other services represent approximately 52% and 36% of FAGE's total respective costs for the six months ended June 30, 2008 and 2007, respectively.


16.    CASH AND CASH EQUIVALENTS:


Cash and cash equivalents are analysed as follows:



June 30,


December 31,


2008


2007


 (Unaudited)

Cash in hand

207


200

Cash at banks

26,056


31,549


26,263


31,749


Cash at banks earns interest at floating rates based on monthly bank deposit rates. Interest earned on cash at banks and time deposits is accounted for on an accrual basis and amounted to €190 and €202 for the six months ended June 30, 2008 and 2007, respectively, and is included in financial income in the accompanying consolidated statements of income.


Cash and cash equivalents at June 30, 2008, consists of €11,689 denominated in foreign currencies and €14,574 in Euro (€9,791 and €21,958 at December 31, 2007, respectively).


  17.    INTEREST BEARING LOANS AND BORROWINGS:

    

    Interest bearing loans and borrowings are analysed as follows:



Outstanding Balance


June 30,


December 31,


2008


2007


(Unaudited)



(a)    Senior Notes

130,000


130,000

(b)    Other long-term debt

55,000


55,000

Total long-term debt

185,000


185,000

Less: Unamortised issuance costs

(3,834)


(4,091)

Long-term portion

181,166


180,909

Less: Current portion

(5,750)


(2,500)


175,416


178,409


(a)    Senior Notes:


In January 2005, the Company completed the issuance of debt securities (Senior Notes) at an aggregate face amount of €130 million with maturity date on January 15, 2015. The net proceeds of the Senior Notes, after issuance costs, of €125.4 million were used to (i) redeem all of the previously outstanding debt securities plus accrued and interest thereon of approximately €74.5 million, (ii) the repayment of outstanding short-term borrowings under various lines of credit maintained by the Company with several banks of approximately €35.4 million and, (iii) the acquisition of its distributor in the United Kingdom (Note 11).


The Senior Notes bear nominal interest at a rate of 7.5% per annum (effective rate 8.03% per annum), payable semi-annually on each January 15 and July 15 and commenced on July 15, 2005. The Senior Notes are redeemable in whole or in part, at the option of the Company at any time on or after January 15, 2010. The Senior Notes are listed on the Irish Stock Exchange.


The indebtedness evidenced by the Senior Notes constitutes general unsecured senior obligation of FAGE Dairy Industry S.A. and ranks pari passu in right of payment with all other senior indebtedness and will rank senior in right of payment to all subordinated indebtedness of FAGE Dairy Industry S.A.


The Senior Notes Indenture contains certain covenants that, among other things, limit the type and amount of additional indebtedness that may be incurred by FAGE Dairy Industry S.A. and its subsidiaries and imposes certain limitations on investments, loans and advances, sales or transfers of assets, liens, dividends and other payments, the ability of FAGE Dairy Industry S.A. and its subsidiaries to enter into sale-leaseback transactions, certain transactions with affiliates and certain mergers. The Company is in compliance with the terms of the Indenture as of June 30, 2008 and December 31, 2007.


(b) Other Long-Term Loans:
 
(i)     In October 2006, the Company issued a new bond through Alpha Bank in Greece at an aggregate face amount of €20 million. The net proceeds of this bond, after issuance costs, of €19.7 million were used to increase the share capital of FAGE USA Dairy Industry Inc. and for general working capital needs.
 
This bond bears nominal interest at a rate of Euribor plus 1.85 % per annum payable semi-annually on each April 27 and October 27, commencing on April 27, 2007. The principal amount of the debt securities is repayable in six instalments of €1.0 million semi-annually starting from October 27, 2008 and a balloon payment of €14.0 million on October 27, 2011.
 
(ii)    On March 28, 2007, the Company issued a new bond through CITIGROUP in an aggregate face amount of €10 million to repay short-term borrowings. This bond, which is unsecured, bears nominal interest of Euribor plus 1.85%, payable semi-annually while the principal is repayable in seven instalments of €750 semi-annually starting from September 2008 and a final instalment of €4,750 in March 2012. The issuance costs for this loan amounted to €87.
 
(iii)   On July 13, 2007, the Company issued a new bond through ABN AMRO Bank N.V. at an aggregate face amount of 10 million to repay short-term borrowings. This bond, which is unsecured, bears nominal interest of Euribor plus 1.60%, payable semi-annually, while the principal is repayable in seven instalments of €500 semi-annually starting from July 2008 and a final instalment of €6.5 million in January 2012. The issuance costs for this loan amounted to €75.
 
(iv)   On August 6, 2007, the Company issued a new bond through Piraeus Bank at an aggregate face amount of €10 million both to repay short-term borrowings and to finance part of its capital expenditure program. This bond, which is unsecured, bears nominal interest of Euribor plus 1.80%, payable semi-annually, while the principal is repayable in seven instalments of €750 semi-annually starting from February 2009 and a final instalment of €4,750 in August 2012. The issuance costs for this loan amounted to €76.
 
(v)    On November 30, 2007, the Company issued a new bond through Alpha Bank at an aggregate face amount of €5 million both to repay short-term borrowings and to finance part of its capital expenditure program. This bond will be unsecured, bears nominal interest of Euribor plus 1.85%, payable semi-annually, while the principal is repayable in seven instalments of € 250 semi-annually starting from October 2008 and a final instalment of € 3,250 in April 2012. The issuance costs for this loan amounted to €51.
 
The indebtedness evidenced by the debt securities constitutes general unsecured senior obligation of FAGE Dairy Industry S.A. and ranks pari passu in right of payment with all other senior indebtedness and will rank senior in right of payment to all subordinated indebtedness of FAGE Dairy Industry S.A.
 
The loan agreements contain certain covenants that, among other things, limit the type and amount of additional indebtedness that may be incurred by FAGE Dairy Industry S.A. and its subsidiaries and imposes certain limitations on investments, loans and advances, sales or transfers of assets, liens, dividends and other payments, the ability of FAGE Dairy Industry S.A. and its subsidiaries to enter into sale-leaseback transactions, certain transactions with affiliates and certain mergers. The Company is in compliance with the terms of the loan agreement as of June 30, 2008 and December 31, 2007.

 

 


Finance expenses on the Company's interest bearing loans and borrowings for the six months ended June 30, 2008 and 2007, amounted to €7,064 and €5,789, respectively and are included in financial expenses in the accompanying consolidated statements of income.


The annual principal payments required to be made on all loans subsequent to June 30, 2008 and December 31, 2007 are as follows:

  


June 30,


December 31,


2008


2007


(Unaudited)



Within one year

5,750


2,500

2-5 years

49,250


52,500

Over 5 years

130,000


130,000


185,000


185,000


18.    OTHER LONG-TERM LIABILITIES:


The Company has entered into agreements for the acquisition of machinery and equipment with extended credit terms. The obligations under these agreements are repayable in equal semi-annual installments through July 31, 2010.


The obligation under these agreements are analysed as follows:



June 30,


December 31,


2008


2007


  (Unaudited)

Obligation relating to the acquisition of fixed assets at amortised cost

720


982

Less: Current portion included in trade accounts payable

(425)


(524)

Longߛterm portion

295


458



The annual payments required to be made on the above obligations subsequent to June 30, 2008 and December 31, 2007, are as follows:




June 30,


December 31,


2008


2007

Maturity

  (Unaudited)

Within 1 year

425


524

2-5 years

295


458


720


982

19.    TRADE ACCOUNTS PAYABLE:


Trade accounts payable are analysed as follows:



June 30,


December 31,


2008


2007


 (Unaudited)

Domestic suppliers

20,309


17,809

Foreign suppliers

20,458


25,109

Cheques payable

-


20,863


40,767


63,781


Included in trade accounts payable to foreign suppliers are balances denominated in foreign currencies amounting to €4,888 and €3,496 as of June 30, 2008 and December 31, 2007, respectively.


20.    SHORT-TERM BORROWINGS:


Short-term borrowings are draw-downs under various lines of credit maintained by the Company with several banks. Short-term borrowings amounted to €14,000 and €10,000 as at June 30, 2008 and December 31, 2007, respectively and are denominated in Euros.


The weighted average interest rates on short-term borrowings for the six months ended June 30, 2008 and 2007, was 6.75% and 5.77%, respectively.


Interest on short-term borrowings for the six months ended June 30, 2008 and 2007, totalled €762 and €595, respectively and is included in interest expense in the accompanying consolidated statements of income.


21.    ACCRUED AND OTHER CURRENT LIABILITIES:


The amount reflected in the accompanying consolidated balance sheets is analysed as follows:



June 30,


December 31,


2008


2007


  (Unaudited)

Payroll

147


299

Third parties

23


24

Milk producers

40


89

Other

54


229


264


641





Advances from customers

-


318





Accrued interest

5,778


5,458

Provision for fines 

6,877


9,401

Social security funds payable

953


1,654

Accrued and other liabilities

5,641


2,025


19,249


18,538

 Total

19,513


19,497



As of June 30, 2008, the Company set-off against the total fine imposed by the Greek Competition Authority an amount of €2.5 million, concerning VAT claim from the Tax Authorities, and the balance of the fine amounted to €6.9 million was charged with interest amounted to €1.9 million, because the balance will be settled in 45 instalments, the last of them to be paid in April 2012. 


22.    CONTINGENCIES AND COMMITMENTS:


  • Litigation and claims:


(i)    In June 2006, the Greek Competition Authority initiated an investigation into price fixing in the Greek dairy market. FAGE was one of the 17 Greek domestic and foreign companies that have been identified in the investigation. In December 2007, the Greek Competition Authority announced the imposition of fines on certain dairy companies and supermarkets in Greece, including FAGE. The fine imposed on FAGE amounted to € 9.4 million. The Company understands that the total fines announced by the Competition Authority against all of the identified companies amount to approximately € 76.5 million. The Company had challenged the imposition of the fine against it in the courts in Greece. As the Company believed that its request for the suspension of the imposition of the fine was very doubtful, a provision of €9.4 million was recognised and included in the consolidated financial statements as at December 31, 2007. As of June 30, 2008, the Company set-off against the total fine an amount of €2.5 million, concerning VAT claim from the Tax Authorities, and the balance of the fine amounted to €6.9 million was charged with interest amounted to €1.9 million, because the balance will be settled in 45 instalments, the last of them to be paid in April 2012. 

(ii)    In July 2007, there was a press report suggesting that a preliminary investigation by a State prosecutor had led to sufficient evidence being gathered to charge Greece's four largest dairy companies (including FAGE) with price fixing. According to the report, the State prosecutor is expected to request that the related dairy companies be charged with serial extortion, a criminal offence. During his investigation, the State prosecutor questioned a number of milk producers who alleged that the four companies threatened to stop buying milk from them if they did not lower their prices. The State prosecutor alleges that there is evidence to suggest that the dairy firms colluded and acted as a cartel to force down the price at which they purchased milk. However, FAGE believes that its policy concerning the prices paid to milk producers was on an arm's length basis consistent with proper market practices and that the allegations are unfounded. To date, no charges have been brought against the Company.


(iii)    On November 13, 2006, the Company notified the public in Greece that the children's yoghurt desserts Junior banana, caramel, orange and strawberry flavours and enriched with vitamins A+D with expiry dates December 4-7, 2006, were being recalled for preventive purposes, due to the possibility of the products containing glass splinters. The relevant Greek authorities have inspected FAGE's facilities in Greece and have not imposed any fines to date. According to the Company's management and legal advisors, no customer claims have been raised with respect to this issue.


(iv)    In addition, the Company is a party to various lawsuits and arbitration proceedings in the normal course of business. According to the Company's management and its legal advisors, all of the lawsuits are expected to be settled without any material adverse effect on the Company's consolidated financial position and consolidated results of operations.


  (b) Commitments:


  • Service Agreements:


The Company has entered into agreements with Agan and Iofil, related companies, for the provision of corporate management services which expire in 2012.


Future minimum amounts payable under these agreements as at June 30, 2008 and December 31, 2007, are as follows:




June 30,


December 31,


2008


2007


 (Unaudited)

Within 1 year

8,527


8,439

2-5 years

12,708


17,015


21,235


25,454


Of the future minimum amounts payable at June 30, 2008 of €21,235, an amount of €2,817 relates to nonߛcancellable agreements.


(ii)    Investment in U.S.A:


    The Company has signed agreements with various foreign suppliers for the acquisition of equipment and machinery for the U.S. production facility.


    Future minimum amounts payable under these agreements as at June 30, 2008 and December 31, 2007, are as follows:

  


June 30,


December 31,


2008


2007


 (Unaudited)

Within 1 year

1,049


8,866


1,049


8,866




(iii)    Operating Lease Commitments:


As of June 30, 2008 and December 31, 2007, the Company has entered into a number of operating lease agreements relating to the rental of buildings and transportation equipment most of which expire on various dates through 2010.


Rental expense included in the accompanying consolidated statements of income for the six months ended June 30, 2008 and 2007, amounted to €810 and €632, respectively.


Future minimum rentals payable under non-cancellable operating leases as at June 30, 2008 and December 31, 2007, are as follows:



June 30,


December 31,


2008


2007


  (Unaudited)

Within one year

1,007


868

2-5 years

1,437


1,316


2,444


2,184



(iv)    Letters of Guarantee:


At June 30, 2008 and December 31, 2007, the Company had outstanding bank letters of guarantee in favour of various parties amounting to €1,820 and €4,299, respectively. Such guarantees have been provided for the good execution of agreements and for the participation in biddings. 

    


  PART I    INTERIM MANAGEMENT REPORT AND MANAGEMENT'S DISCUSSION

  ITEM 2      AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

                 

General 


        The net sales for the six months ended June 30, 2008 amounted to €165.1 million a decrease of €2.1 million or 1.3% as compared to the net sales of the respective period of the year 2007 which amounted to €167.2 million. Loss before income taxes for the six months ended June 30, 2008 was €13.7 million as compared to a profit of €3.3 million for the respective period of the year 2007. 

        The main factors which affected the Company's business environment for the six months ended June 30, 2008, as compared to the respective period for the year 2007 were:


  • firstly, the significant promotional activities in yoghurt and milk business by all of the Company's major competitors (Friesland, Delta, Mevgal) in the domestic market; the promotional activities for the year 2008 lasted for the whole period of the six months, whereas in the respective period of the year 2007 there were no significant promotional activities up to May 15, 2007. The aggressiveness of the promotional activities started after May 15, 2007 and continued through 2007 and into 2008. Consequently, the impact on profitability from promotional activities, amounting to 7.0 million, was much more significant in the first six months of the year 2008 than it was in the respective period of the year 2007.


  • secondly, the significant strengthening of the Euro against the US dollar and the UK sterling. On average, there was a devaluation of 14.3% for US dollar and 13.4% for UK sterling against the Euro, comparing the first six months of the years 2007 and 2008. This had an impact of not only reducing the sales value, but the profitability as well. Although the large percentage of the Company's revenues is generated in euros, the Company has increased its international exposure from the sales to the US and UK markets, and its financial position and results of operations are increasingly subject to currency translation risks. While the revenues from sales to the US and UK markets have been negatively impacted from the strong euro, the key elements which constitute the manufacturing cost of the products (raw materials, labour, packaging materials) are in euros. This caused downward pressure on sales and profitability which the Company estimates to be approximately €5.2 million for the six months ended June 30, 2008, out of which €3.6 million is due to the US dollar and €1.6 million to the UK sterling.

There is a further negative impact from the strengthening of the Euro, which affects the valuation of the receivables, payables and cash and cash equivalents denominated in US dollar and UK sterling. This impact for the six months ended June 30, 2008 amounted to €1.4 million, whereas the respective amount for the six months ended June 30, 2007 was a gain of €0.3 million. 

Consequently, the total impact on profitability due to the strengthening of the Euro amounted to €6.6 million for the six months ended June 30, 2008.


  • thirdly, there was a significant increase of 35.4% in milk prices for the milk collected in the domestic market, comparing the first six months of the years 2007 and 2008. This had an impact on profitability which amounted to €6.2 million. Starting from February 2008, milk prices paid to the farmers in the domestic market have gradually been reduced, following the downward trend for milk prices around Europe and the U.S. In the second half of the year 2008, the Company believes that the milk prices will be approximately 10% lower than in the first half and, therefore, the negative impact from milk prices in the first half of the year 2008 should slow down in the second half.


  • fourthly, production in the Company's newly built U.S. yoghurt facility commenced in early April 2008, with low volume initially and increasing gradually to 100% of yoghurt sold in the U.S. in the second half of June 2008. Only 26% of the volume of yoghurt sold in the U.S. market during the first six months of 2008 was locally produced, with the remainder being imported from Greece. Sales volume in the U.S. market increased by 54.4% comparing the first six months of 2007 and 2008 and with rising per unit transportation costs, comparing the same periods of 2007 and 2008, transportation costs to the U.S. from Greece rose from €1.9 million in first six months of 2007 to €5.0 million in the first six months of 2008. Consequently, the total impact on profitability due to increased transportation costs from Greece to the U.S. was €3.1 million for the first six months of 2008. With production of 100% of the volume sold locally at the Company's U.S. yoghurt facility from the end of June 2008 and on, the negative impact on profitability from Transatlantic transportation cost is going to be eliminated and the negative impact on profitability from U.S. dollar exposure is going to be considerably reduced.


    Greek Dairy Market


        In the first six months of the year 2008, the Greek dairy market experienced a decrease of 0.3% in volume as compared to the first six months of the year 2007. This resulted mainly from a decrease of 0.3% in the milk market and 2.7% in the branded yoghurt market, as compared to an 8.0% increase in the volume in the packaged cheese market. Within the milk business, the fresh milk and the Evaporated milk decreased by 3.8% and 2.5% respectively, comparing the first six months of the years 2008 and 2007. ESL milk increased by 12.8% comparing the same periods. Finally, the UHT milk showed a decrease of 6.0% comparing the first six months of the years 2008 and 2007.


The Company's Total Sales


        The Company's total volume sales increased by 5.4% comparing the first six months of the years 2008 and 2007. The Company's total sales decreased by 1.3%, mainly due to the promotional activities in the yoghurt and the milk business in the domestic market and the strengthening of the euro against the US dollar and the UK sterling. 


    The Company's Domestic Market

    

        The business environment in the Greek Dairy Market remained quite aggressive in the first six months of 2008, as a result of significant promotional activities. The Company responded with its own promotional activities to defend and increase its market share at the expense of its profitability.


        FAGE's domestic volume sales increased by 1.1%, comparing the first six months of the years 2007 and 2008. In July, 2007, the Company decided to terminate the arrangement with Ferrero S.p.a for the distribution of refrigerated snacks. If the respective volume of snacks are excluded from the volume of the second quarter 2007 for comparison purposes, then the volume sales increased by 1.8%.


        Due to the significant promotional activities which continued in the second quarter of 2008, the decrease in sales in value in the domestic market was 5.3%.


        The Company increased its sales volume in the yoghurt business by 3.7% in the domestic market, comparing the first six months of the years 2007 and 2008 (while the sales volume in the yoghurt business in the total Greek Dairy Market decreased by 2.7%). This resulted in the increase of the market share of the Company's total volume in yoghurt business from 31.5% to 34.2%, comparing the first six months of the years 2007 and 2008. Within the yoghurt business, there has been an upward trend in strained yoghurt which reflected an increase in the Company's market share from 35.8% to 43.6% comparing the first six months of the years 2007 and 2008, respectively.


        In addition, the Company increased its sales in volume in the ESL milk by 3.8%, comparing the first six months of the years 2007 and 2008, whereas the respective increase in the total Greek Dairy market was 12.8%. As far as the volume sales in the cheese and cream products is concerned, the cheese volume decreased by 2.0%, whereas the cream products volume decreased by 1.3%.


The Company's International Markets


    The Company's exports and international sales in volume increased by 26.7%, whereas the respective increase in sales in value increased by 19.3%, comparing the first six months of the years 2007 and 2008. Export and international sales in volume for the first six months of 2008 represent 20.1% of the Company's total sales volume, as compared to 16.7% for the respective period of the year 2007. Furthermore, export and international sales in value for the first six months of 2008 represented 27.7% of the Company's total sales in value, as compared to 23.3% for the respective period of the year 2007.


            The increasing international exposure of the Company's sales to countries such as the US and the UK has coincided with the persistent strengthening of the euro, mainly against the US dollar and the UK sterling, comparing the average exchange rates of the first six months of the years 2008 and 2007 (1€=1.3338 US$ and 1€=1.5243 US$ in the first six months of 2007 and 2008, respectively; 1€=0.6728 UK£ and 1€=0.7628 UK£ in the first six months of 2007 and 2008, respectively). This had an impact not only on sales in value (as the receivables in US dollars and UK sterling are translated into euros), but on profitability as well. As a result, exports and international sales in value increased by 19.3%, while the respective increase in sales in volume was 26.7%.


    The exports and international sales in volume in yoghurt increased by 31.2%, with a respective increase in sales in value of 24.3%, comparing the first six months of the year 2007 and 2008, mainly due to the strengthening of the euro against the US dollar and UK sterling. This increase mainly came from the US and UK markets, where the sales in volume increased by 54.4% and 13.8%, respectively. Exports and international volume sales to other countries increased by 13.3% in the same period.


    Export and international sales volume in yoghurt represented 44.1% of the Company's total sales volume the first six months of the years 2008, as compared to 38.4% in the respective period of the year 2007. In strained yoghurt (mainly the 'Total' Brand), the volume of exports and international sales represent 57.1% of the Company's total volume of strained yoghurt in the first six months of 2008, up from 53.5% in the respective period of 2007.


    Cheese sales volume in the export and international markets for the first six months of 2008 decreased by 20.5%, whereas the respective decrease in value was 9.9%. This decrease comes from the 'feta' cheese volume, resulting from the Company's decision to withdraw from the sales of bulk 'feta' cheese to the export and international markets.

 

In January 2008, the Company increased prices for almost all its products in the domestic market by approximately 3.0% and approximately 3.0% on average to the European countries. In the US market, there were no price increases, within the first six months of the year 2008.

           

Results of Operations


  The following table sets forth, for the periods indicated, certain items in the Company's consolidated income statements expressed as percentages of net sales:

  



Six months 

ended


Three months ended


June 30,


June 30,


2008


2007


2008


2007




(Unaudited)



Net sales    

100.0%


100.0%


100.0%


100.0%

Cost of sales    

(70.5)


(63.1)


(73.4)


(64.3)

Gross profit    

29.5


36.9


26.6


35.7

Selling, general and administrative expenses    

(32.5)


(32.0)


(33.1)


(32.5)

Other income    

0.2


0.1


0.4


0.2

Other expenses    

(0.3)


-


(0.3)


-

Profit/(loss) from operations    

(3.1)


5.0


(6.4)


3.4

Financial income/(expenses), net    

(4.1)


(3.2)


(4.8)


(2.6)

Impairment loss    

(0.2)


-


-


-

Foreign exchange (losses)/gains, net    

(0.9)


0.2


-


0.2

Share of profit/(loss) of associates    

-


-


-


-

Net profit/(loss) before income taxes    

(8.3)


2.0


(11.2)


1.0

Income taxes    

1.6


(0.9)


2.1


(0.7)

 Net profit/(loss)    

  (6.7)%


  1.1%


(9.1)%


0.3%










 Six months ended June 30, 2008 compared to six months ended June 30, 2007


      Net sales.  Net sales for the six months ended June 30, 2008 amounted to 165.1 million, a decrease of 2.1 million, or 1.3%, compared to the net sales for the respective period of the year 2007, which amounted to 167.2 million. This was mainly due to:


  • firstly, the significant promotional activities in the yoghurt and milk business. This negative impact was partially offset by the fact that there was an average price increase of approximately 3.0% across all of the Company's products in early January 2008.

  • secondly, the strengthening of the euro against the US dollar and the UK sterling. This had an impact of not only reducing the sales value, but the profitability as well.  

  • thirdly, the Company's decision to terminate in July 2007 the arrangement with Ferrero S.p.a for the distribution of refrigerated snacks and to cease sales of bulk 'feta' cheese to some European Countries, based on the fact that these products had a negative impact on the profitability of the Company.


   Gross profit.  Gross profit for the six months ended June 30, 2008 was €48.7 million, a decrease of €13.0 million, or 21.1%, from €61.7 million for the six months ended June 30, 2007. Gross profit as a percentage of net sales for the six months ended June 30, 2008 was 29.5% compared to 36.9% for the comparable period of 2007. The promotional activities in the domestic market both in yoghurt and milk products, the upward trend in milk prices for milk collected in the domestic market and the strengthening of euro against the US dollar and UK sterling were the main factors contributing to the decrease in gross profit and consequently the gross margin, comparing the first half of the years 2008 and 2007.


    Selling, general and administrative expenses.  Selling, general and administrative expenses ('SG & A') for the six months ended June 30, 2008 were €53.7 million, an increase of €0.1 million, or 0.2%, from €53.6 million for the six months ended June 30, 2007. As a percentage of net sales, SG & A was 32.5% for the six months ended June 30, 2008 from 32.0% for the comparable period of 2007. In the first six months of 2008 there were no Family Compensation Payments as compared to a provision for an amount of €2.4 million in the respective period of 2007. 

The shipping and handling costs increased from €18.1 million to €23.2 million comparing the first six months of the years 2007 and 2008 (see Note 5). This is partly due to the fact that the production in the Company's newly built U.S. yoghurt facility commenced in early April 2008, with low volume initially and increasing gradually to 100% of yoghurt sold in the U.S. in the second half of June 2008. Only 26% of the volume of yoghurt sold in the U.S. market during the first six months of 2008 was locally produced, with the remainder being imported from Greece. Sales volume in the U.S. market increased by 54.4% comparing the first six months of 2007 and 2008 and with rising per unit transportation costs, comparing the same periods of 2007 and 2008, transportation costs to the U.S. from Greece rose from €1.9 million in first six months of 2007 to €5.0 million in the first six months of 2008. Consequently, the total impact on profitability due to increased transportation costs from Greece to the U.S. was €3.1 million for the first six months of 2008. With production of 100% of the volume sold locally at the Company's U.S. yoghurt facility from the end of June 2008 and on, the negative impact on profitability from transatlantic transportation cost is going to be eliminated. Furthermore, the increase in shipping and handling costs is due to the increase of sales in volume by 5.4%.

The advertising cost decreased from €15.4 million to €8.3 million comparing the first six months of the years 2007 and 2008 (See Note 5). This offsets the negative impact from the increase in the promotional activities comparing the first six months of the years 2007 and 2008.


        Profit/(loss) from operations.  Loss from operations for the six months ended June 30, 2008 was €5.1 million, a decrease of €13.5 million from the profit from operations of €8.4 million for the six months ended June 30, 2007. This decrease is mainly due to the decrease in gross profit.


        Financial income/(expenses) net.  Net financial expenses for the six months ended June 30, 2008 were €6.8 million compared to €5.3 million for the respective period of the year 2007. 


        Foreign exchange losses (gains), net.  Foreign exchange losses for the six months ended June 30, 2008 were €1.4 million mainly concerning mainly cash at bank in US dollar and receivables in US dollar and UK sterling. For the six months ended June 30, 2007, foreign exchange gains were €0.3 million. This is due to the strengthening of euro against the US dollar and UK sterling, which affected the valuation of the receivables, payables and cash and cash equivalents denominated in US dollars and UK sterling. 


        Profit/(loss) before income taxes. Loss before income taxes for the six months ended June 30, 2008 was €13.7 million, compared to a profit before income taxes of €3.3 million for the six months ended June 30, 2007, mainly due to the decrease of gross profit. 


        Income taxes.  The provision for income taxes for the six months ended June 30, 2008 reflected a benefit of €2.6 million due to the loss before income taxes. Income tax for the six months ended June 30, 2007 was €1.5 million.


        Net profit/(loss). Net loss for the six months ended June 30, 2008 was €11.1 million, as compared to a profit of €1.8 million for the respective period of 2007, mainly due to the decrease of gross profit.  


Three months ended June 30, 2008 compared to three months ended June 30, 2007


    Net sales.  Net sales for the three months ended June 30, 2008 amounted to 84.0 million, a decrease of 3.7 million, or 4.2%, compared to the net sales for the respective period of the year 2007, which amounted to 87.7 million. This was mainly due to:


  • firstly, the significant promotional activities in the yoghurt and milk business. This negative impact was partially offset by the fact that there was an average price increase of approximately 3.0% across all of the Company's products in early January 2008.

  • secondly, the strengthening of the euro against the US dollar and the UK sterling. This had an impact of not only reducing the sales value, but the profitability as well.  

  • thirdly, the Company's decision to terminate in July 2007 the arrangement with Ferrero S.p.a for the distribution of refrigerated snacks and to cease sales of bulk 'feta' cheese to some European Countries, based on the fact that these products had a negative impact on the profitability of the Company.


    Gross profit.  Gross profit for the three months ended June 30, 2008 was €22.3 million, a decrease of €9.0 million, or 28.8%, from €31.3 million for the three months ended June 30, 2007. Gross profit as a percentage of net sales for the three months ended June 30, 2008 was 26.6% compared to 35.7% for the comparable period of 2007. The promotional activities in the domestic market both in yoghurt and milk products, the upward trend in milk prices for milk collected in the domestic market and the strengthening of euro against the US dollar and UK sterling were the main factors contributing to the decrease in gross profit and, consequently, the gross margin, comparing the second quarter of the years 2007 and 2008.


    Selling, general and administrative expenses.  Selling, general and administrative expenses ('SG & A') for the three months ended June 30, 2008 were €27.8 million, a decrease of €0.7 million, or 2.5%, from €28.5 million for the three months ended June 30, 2007. As a percentage of net sales, SG & A was 33.1% for the three months ended June 30, 2008 from 32.5% for the comparable period of 2007. In the second quarter of 2008 there were no Family Compensation Payments as compared to a provision for an amount of €1.2 million in the second quarter of 2007.


        Profit/(loss) from operations.  Loss from operations for the three months ended June 30, 2008 was €5.4 million, a decrease of €8.4 million from the profit from operations of €3.0 million for the three months ended June 30, 2007.This decrease is mainly due to the decrease in gross profit.


        Financial income/(expenses) net.  Net financial expenses for the three months ended June 30, 2008 were €4.0 million compared to €2.2 million for the respective period of the year 2007. This is due, in part, to the fact that for the three months ended June 30, 2007 an amount of €0.9 million out of the interest expenses were capitalized due to the investment in the US, whereas there is no such a respective amount for the three months ended June 30, 2008. 


        Foreign exchange losses (gains), net.  Foreign exchange gains both for the three months ended June 30, 2008 and 2007 were €0.1 million. 


        Profit/(loss) before income taxes. Loss before income taxes for the three months ended June 30, 2008 was €9.4 million, compared to profit before income taxes of €0.9 million for the three months ended June 30, 2007, mainly due to the decrease of gross profit. 


        Income taxes.  The provision for income taxes for the three months ended June 30, 2008 reflected a benefit of €1.8 million due to the loss before income taxes. Income tax for the three months ended June 30, 2007 was €0.6 million. 


        Net profit/(loss). Net loss for the three months ended June 30, 2008 was €7.6 million, as compared to a profit of €0.3 million for the respective period of 2007, mainly due to the decrease of gross profit. 

    

Liquidity and Capital Resources 


Sources of capital.  The Company funds its operating costs through cash from operations and short-term borrowings under various lines of credit maintained at several banks of approximately 63.0 million (ABN accounts receivables financing of €35.0 million is included). At June 30, 2008, a total of approximately €41.0 million was used under these lines of credit while the unused portion amounted to 22.0 million. 


Cash at banks and cash equivalents on June 30, 2008 amounted to 26.3 million (See Note 16). This amount together with the unused lines of credit are sufficient to finance the investment program of the Company.    


    Cash flow data.


Six months ended June 30,


2008


2007

(€ thousands)

(Unaudited)

Cash flow from/(used in) operating activities    

6,613


2,644

Cash flow from/(used in) investing activities    

(12,527)


(26,025)

Cash flow from/(used in) financing activities    

4,000


(87)

Effect of exchange rates changes on cash    

(3,572)


(682)

Cash and cash equivalents at beginning of period    

31,749


58,662

Cash and cash equivalents at period-end    

26,263


34,512


  Cash flow from operating activities.


Six months ended


June 30,


2008


2007


(Unaudited)

Operating profit before working capital changes    

1,777


14,659

Net decrease in working capital    

4,836


(12,015)


6,613


2,644



    Net cash from operating activities for the six months ended June 30, 2008 was €6.6 million, compared to net cash from operating activities of €2.6 million for the six months ended June 30, 2007, an improvement of €4.0 million. This change is primarily due to the improvement of working capital which resulted from the decrease of trade and other receivables.

 

    Cash flow used in investing activities.  Net cash used in investing activities amounted to €12.5 million (€9.7 million for the U.S investment) and €26.0 million for the six month periods ended June 30 of the years 2008 and 2007, respectively. The capex for the facilities located in Greece reflect both capex maintenance programs and further operating efficiencies. 


    Cash flow from financing activities. Net cash from financing activities for the first six months of 2008 was 4.0 million, which reflects the net proceeds of a short-term loan of €4.0 million issued from ABN Amro Bank.


    Pro forma liquidity and capital resources.  Upon the completion of the issuance of the Senior Notes in 2005 and the €55.0 million new bonds issued in 2007 and 2008, the Company's principal sources of liquidity are existing cash balances, cash flow from operations and available amounts under the Company's various lines of credit maintained with several banks. The Company's principal liquidity needs are debt service (primarily interest on the Senior Notes), shareholder payments, capital expenditures and working capital. The Company believes that its available capital resources will be sufficient to fund its liquidity needs. 


Principal Risks and Uncertainties for the Remaining Six Months of 2008


    Risk assessment and evaluation is an integral part of the management process throughout the Company. Risks are identified, evaluated and appropriate risk management strategies are implemented at each level. The key business risks are identified by the senior management team. The Board of Directors in conjunction with senior management identifies major business risks faced by the Company and determines the appropriate course of action to manage these risks.

The principal risks and uncertainties faced by the Company are summarised below:


-        firstly, the Company is exposed to aggressive competition in the domestic market; 

-        secondly, the Company is exposed to currency exchange rate fluctuation, particularly in relation to the US dollar and the UK sterling;

-        thirdly, price fluctuations in raw materials could adversely affect the Company's manufacturing costs.

  

The Board of Directors regularly monitors all of the above risks and appropriate actions are taken to mitigate those risks or address the potential adverse consequences.


  


PART II


ITEM 1 - LEGAL PROCEEDINGS


    No material changes have emerged with respect to the legal proceedings in which the Company is involved and which are incidental to the conduct of its business. The Company does not believe that the outcome of any of these legal proceedings will have a material adverse effect on the business, financial condition or prospects of the Company. See Note 22 ('Contingencies and Commitments-Litigation and Claims') to the accompanying Consolidated Financial Statements. 

    



This announcement has been issued through the Companies Announcement Service of

The Irish Stock Exchange.





This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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