29 October 2002
INVESTING IN SUSTAINABLE GROWTH
Allied Domecq announces its preliminary results for the year to 31 August 2002.
HIGHLIGHTS
2002 2001 % growth
- Turnover (pound)3,334m (pound)2,879m 16
- Trading profit (pound)610m (pound)543m 12
- Profit before tax (pound)480m (pound)453m 6
- Normalised earnings per share 32.6p 31.0p 5
- Basic earnings per share 36.8p 32.6p 13
- Dividend 13.0p 12.1p 7
- Marketing investment behind Spirits & Wine (pound)443m (pound)330m 34
- Cash flow from operating activities (pound)760m (pound)423m 80
Profits and normalised earnings are stated before goodwill and exceptional items
unless otherwise stated. The post tax benefit of the Mexican excise rebate for
the year to 31 August 2002 was (pound)138m and has been treated as an
exceptional item. 2001 figures are (i) reclassified to provide a comparison for
Mexican excise rebate treated as an exceptional item in 2002 and (ii) restated
for deferred tax treatment under FRS19.
Allied Domecq's Chief Executive, Philip Bowman, said: "These results represent a
successful outcome to an important year for Allied Domecq. We have maintained
our focus on delivering profit growth while adding significantly to our brand
portfolio and improving volume performance in key markets. Our marketing
capabilities have been strengthened, which has led us to invest heavily in the
sustainable future growth of the business and bring us closer to our aim of
becoming a truly marketing-led company.
"Seven of our eight core brands are now showing volume growth reflecting our
continued commitment to invest strongly behind our core brands. Our US spirits
business has benefited from the positive actions taken earlier this year with
the business returning to organic profit growth. Importantly, most of our core
US brands show good growth trends and are gaining market share. We are also
delivering innovation with ready-to-drink products and a new cream liqueur, Tia
Lusso. During the year, we enhanced the growth profile of the portfolio through
the acquisition of Malibu and added to our premium wine business with Bodegas y
Bebidas and Mumm Cuvee Napa. The integration of our acquisitions is going well
and our new wine business is performing in line with our plans.
"Our Quick Service Restaurants business has delivered strong growth with
improved overall same store sales and an increase in distribution points.
Dunkin' Donuts continues to outperform the US QSR category and Baskin-Robbins
has benefited from its brand revitalisation.
"The results for the first month of the new financial year have been in line
with our expectations. We expect to continue to grow earnings benefiting from
the contribution of our recent acquisitions while continuing to invest strongly
in the business as we support new campaigns for our core brands and drive our
programme of innovation."
Key Points
Comparative information here and in the Operating and Financial Review is based
on constant exchange rates.
- Investment to build sustainable future growth through continued
improvement of operational effectiveness, innovation and
acquisition.
- Organic profit growth (up 3%) in Spirits & Wine (total up 15%)
- Organic advertising and promotion up 21% (total up 35%)
- Profit growth in Quick Service Restaurants up 11%
- Strong overall same store sales growth
- Dunkin' Donuts up 6% and Baskin-Robbins up 2%
1
Operational effectiveness
- Improving operational effectiveness by:
- Addressing short term volume challenges
- Investing in the US supply chain improvement project, at a cost
of (pound)19m
- Boosting the focus on our people
- Strong progress in enhancing our marketing capabilities:
- Consumer segmentation study
- New marketing campaigns for key brands
- Underlying trading working capital improved by 7% ((pound)110m)
Innovation
- Successfully developing consumer-led innovation to drive growth
- Launch of new ready-to-drink products
- New cream liqueur - Tia Lusso
Acquisition
- Significantly strengthening the brand portfolio through targeted
acquisition:
- - Malibu
- - Kuemmerling in Germany
- - Bodegas y Bebidas, Spain's leading winemaker
- - Mumm Cuvee Napa in California
- Developed an international premium, branded wine business
- Integration is on track
For further information:
Internet:
Corporate information can be downloaded from the website at www.allieddomecq.com
Presentation material:
The results presentation will be available on the corporate website from 9.30 am
(UK time) on Tuesday 29 October 2002.
Webcast:
A live webcast of the presentation to analysts will be available from the
investor relations section of the corporate website at 9.30 am (UK time) on
Tuesday 29 October. A recording of the webcast will be available from 2.00 pm
(UK time).
Conference call:
A conference call will be held for analysts and investors at 4.00 pm (UK time)
on Tuesday 29 October. The call can be accessed by dialling:
From: UK/Europe: 0800 559 3272/+44 20 7984 7582
US/Canada: +1 913 981 5508
A recording of the conference call will be available from 7.00 pm (UK time) on
29 October until 5 November 2002. Call the following numbers to listen to the
recording:
From: UK/Europe: 0800 559 3271/+44 20 7984 7578 Passcode: 465448#
US/Canada: +1 719 457 0820 Passcode: 465448
Investor enquiries:
Graham Hetherington, Group Finance Director +44 (0) 117 978 5120
Peter Durman, Director of Investor Relations +44 (0) 7771 974817
Email: investor.relations@adsweu.com
Media enquiries:
Jane Mussared, Director of Corporate Affairs +44 (0) 7880 783532
Anthony Cardew, Cardew & Co +44 (0) 20 7930 0777
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Cautionary statement regarding forward-looking information:
Some statements in this press release contain "forward-looking" statements as
defined in Section 21E of the United States Securities Exchange Act of 1934.
They represent our expectations for our business, and involve risks and
uncertainties. You can identify these statements by the use of words such as
"believes", "expects", "may", "will", "should", "intends", "plans",
"anticipates", "estimates", or other similar words. We have based these
forward-looking statements on our current expectations and projections about
future events. We believe that our expectations and assumptions with respect to
these forward-looking statements are reasonable. However, because these
forward-looking statements involve known and unknown risks, uncertainties and
other factors which are in some cases beyond our control, our actual results or
performance may differ materially from those expressed or implied by such
forward-looking statements.
KEY BUSINESS DRIVERS
We have achieved profit growth while continuing to invest in sustainable future
growth, focusing our investment on:
- Further aggressive management of our existing asset base particularly
through increased and more targeted marketing;
- Launching consumer-led innovation; and
- Enhancing the growth profile of our portfolio through acquisition in
both spirits and wine.
Marketing-led business: In our drive to become a truly marketing-led company, we
have changed our approach to understanding the consumer. We have committed
(pound)6m across 10 countries to develop a new modal approach to consumer
segmentation, which is enabling us to predict better consumers' choice of drink
and brand. This work has given us the marketing tools to determine strategies
for 11 brands and country strategies for our 10 largest markets. This provides a
rigorous basis to support our investment decisions across our whole portfolio.
We are developing the creative work that brings the brands to life and
identifying the most effective media to reach our target consumers with
integrated campaigns from TV and cinema commercials to on-trade promotions and
parties.
Consumer-led marketing: We are now delivering exciting new marketing campaigns
for key brands. During the year we launched an integrated marketing campaign
behind Ballantine's - "Go play" which is a significant departure from
traditional whisky marketing. Our fully integrated through-the-line campaign was
launched in May in over 50 countries. Stolichnaya in the US saw a significant
increase in investment with "See what unfolds". Our latest major marketing
campaign for Kahlua - "Unleash it" - is being launched in six countries through
a wide range of media from television and cinema to outdoor and radio.
Innovation: We are delivering a programme of innovation. We launched
ready-to-drink products including two in the US - Stolichnaya Citrona and Sauza
Diablo. These have been developed through a commercial partnership with Miller.
As the market develops, both parties will explore together further opportunities
to extend the range of ready-to-drink beverages via our portfolio of spirits
brands. We also launched a major innovation to the Tia Maria brand. Tia Lusso is
a new light cream liqueur that has been rolled out to nine markets, with sales
exceeding our launch expectations.
Growth through acquisition: The future growth profile of our spirits portfolio
has improved through the acquisition of Malibu, a leading international spirits
brand. The brand will become our ninth core and the third most profitable in our
portfolio with a dynamic growth profile. Our wine business has been enhanced
though the addition of Bodegas y Bebidas and Mumm Cuvee Napa. We have set out
clear plans to build a sustainable wine business that will deliver good returns
and bring best value to the trade and the consumer. We are now delivering
against these plans.
OPERATING AND FINANCIAL REVIEW
Summary
At constant exchange rates, turnover was up 19% to (pound)3,334m in the period
and trading profit increased by 14% to (pound)610m. Organic trading profit grew
by 5% to (pound)557m. Normalised profit before tax grew by 6% to (pound)480m.
We have delivered these results through the growth of Spirits & Wine gross
margin and the continued improved performance of our Quick Service Restaurants
business. At the same time, we have increased advertising and promotion by 35%
(21% for organic businesses), invested in reduced US trade inventories at a
pre-tax cost of (pound)19m and absorbed a (pound)16m increase in pension costs.
3
We have maintained earnings growth with a 5% improvement in normalised earnings
per share to 32.6 pence per share. Acquisitions during the period diluted
normalised earnings per share by 0.8 pence, of which 0.5 pence related to Malibu
and its financing through debt and equity. Excluding this dilution, normalised
earnings per share grew by 8%.
The directors are recommending a final dividend of 8.1 pence per share giving a
total for the year of 13.0 pence per share, an increase of 7%. This is in line
with our policy for the annual dividend to be covered approximately 2.5 times.
Outlook
The results for the first month of the new financial year have been in line with
our expectations. We expect to continue to grow earnings benefiting from the
contribution of our recent acquisitions while continuing to invest strongly in
the business as we support new campaigns for our core brands and drive our
programme of innovation.
Explanatory notes
Comparative information is based on constant exchange rates. Net turnover is
turnover excluding excise duty. Profit and normalised earnings are stated before
goodwill and exceptional items which includes the benefit of the Mexican excise
rebate. Organic growth comparisons exclude the contribution of acquisitions
until they have been incorporated in the business for one full calendar year
from the date of acquisition. Volumes are quoted in nine litre cases unless
otherwise specified.
SPIRITS & WINE
Total Organic
----------------------- --------------------
2002 Growth 2002 Growth
Trading profit (pound)516m 15% (pound)463m 3%
Net turnover (pound)2,380m 25% (pound)2,044m 7%
Advertising and promotion (pound)443m 35% (pound)396m 21%
We have grown both profits and turnover of our Spirits & Wine business through
organic growth and acquisition. Before the benefit of acquisitions, gross margin
increased by (pound)144m. This is partly offset by increased advertising and
promotion ((pound)69m) and the combined impact ((pound)62m) of overheads and a
decline in other income, driven primarily by higher pension costs, investment in
new systems, US listing costs and investment in ready-to-drinks. Acquired
businesses increased gross margin by (pound)152m, advertising and promotion
investment by (pound)47m and overheads by (pound)52m.
The organic gross margin increase of 13% ((pound)144m) has been driven through
enhanced mix ((pound)86m) in Asia Pacific and North America, increased pricing
((pound)25m), particularly in Latin America and volumes ((pound)24m) in Asia
Pacific and Europe.
A review of Spirits & Wine brand performance is on page 7 and a regional review
of performance is given on page 9.
QUICK SERVICE RESTAURANTS
- Trading profit up 11% to(pound)78m
- System-wide sales growth of 9%
- US same store sales growth in Dunkin' Donuts of 6% and Baskin-Robbins
of 2%
- Number of combination stores up 31%
Profit growth in our Quick Service Restaurants business has been driven by
growth in same store sales and the contribution from new stores.
Dunkin' Donuts has delivered another good year of growth outpacing the overall
QSR industry with systemwide sales up by 10% and same store sales up 6% in the
US. The brand also achieved a 4% increase in distribution points. The
restructuring of the Baskin-Robbins franchise arrangements has continued to grow
systemwide sales by 6% and US same store sales by 2%. Baskin-Robbins has
benefited from a promotional tie-in with the animated film "Spirit: Stallion of
4
the Cimarron" which has driven sales of the Spirit flavours - Wild `N Reckless
and S'more. In addition, the highly publicised "Free Scoop Nights" have
continued to drive brand awareness. Togo's has successfully increased the number
of distribution points by 10% to grow systemwide sales by 1% . A new advertising
campaign - "Legend of Togo's" - has been launched to increase awareness of the
Togo's brand and increase systemwide sales.
Innovation has long been an important part of QSR's growth strategy with new
products being developed across the brand portfolio. Dunkin' Donuts is now the
number one player in the QSR bagel category with 19% share of the US market and
it's Coffee Coolatta is number two in the QSR iced and frozen slushy category.
Baskin-Robbins has developed triple-layer shakes, "hot treats" and a variety of
new exotic flavours including "Wild Amazon", "Turkish delight" and "African
safari". Togo's has widened its range of sandwich offerings with better quality
bread and new toasted products.
Our strategy of multibranded combination stores continues to be a driver of
growth in new store openings with a 31% increase in the number of combination
stores to over 800. There are now 74 combination stores that offer all three of
our Quick Service Restaurant brands. This strategy is based on our brands'
complementary daypart offering and brings significant benefits to our
franchisees through improved scale and operating efficiencies, along with
increased choices for consumers.
SPIRITS & WINE BRAND PERFORMANCE
Total Spirits & Wine volumes and net turnover increased by 26% and 25%
respectively, driven by acquisitions. Before acquisitions, net turnover grew 7%
on flat volumes. We have achieved a significant improvement in performance in
the second half through a focused approach to our key brand market combinations
and the positive actions we have taken in our US business. Overall organic
volumes grew by 4% in the second half compared with a 3% decline in the first
half.
We are investing more heavily in our organic business with a 21% increase in
advertising and promotion supporting the enhanced brand activation work we have
developed. The main focus for this investment is Ballantine's in over 50
markets, Mumm and Perrier Jouet in US and UK, Stolichnaya in the US, Imperial
whisky in South Korea, the launch of Tia Lusso in nine markets and the
development of new ready-to-drink products. Over the past 18 months, we have
enhanced our marketing capabilities through detailed consumer insight research,
country and marketing strategies and exciting new creative work. We now have the
consumer-led initiatives and marketing tools to target this increased investment
to drive sustainable future growth.
We launched Stolichnaya Citrona and Sauza Diablo which have performed well in
market research with target consumers. To the end of August, our partnership
with Miller had invested $40m behind these brands to drive sales of 270,000
cases on an equivalent servings basis. We have achieved good awareness of these
brands through extensive advertising and on-premise sampling which in turn will
benefit the equity of the respective `mother brands', but distribution of these
products has been disappointing. Since it is still early days for our products,
our launch resulted in a small charge to the profit and loss account which is
reflected as an associate in `Others'. Our partnership with Miller has given us
access to an efficient production and distribution asset base in order to gain
access to any upside available from this category.
We manage our Spirits & Wine portfolio as four groups: core brands, local market
leaders, premium wine and other Spirits & Wine brands. Brand performance is
reviewed below under these categories.
5
Spirits & Wine volume and net turnover growth
Including impact of Excluding impact of
US destock US destock
Volume Volume Net Volume Net
million growth turnover growth turnover
cases % growth % growth
% %
Ballantine's 5.7 4 11 4 11
Beefeater 2.3 3 2 4 4
Canadian Club 2.2 2 (8) 7 (2)
Courvoisier 1.0 8 8 9 8
Kahlua 3.1 (9) (9) (5) (3)
Maker's Mark 0.4 10 16 10 16
Sauza 1.9 10 19 10 20
Tia Maria 0.8 13 14 13 14
Core brands 17.4 2 6 4 8
Malibu 0.5 - - - -
Local market leaders 11.4 (1) 12 0 13
Local market leader acquisitions 1.0 - - - -
Premium wine 2.2 7 10 10 12
Premium wine acquisitions 10.7 - - - -
Other wine 7.0 10 11 10 11
Other spirits 13.3 (1) 7 (1) 7
Other Spirits & Wine brands 20.3 2 8 3 8
Total (including acquisitions) 63.5 26 25 27 26
NB: The volumes of Stolichnaya Citrona and Sauza Diablo are not included in this table.
The volumes of our core brands, excluding Malibu, grew by 2% and net turnover
grew 6%, reflecting the improved second half performance across nearly all the
brands. The core brand volumes were up 8% in second half compared with a 3%
decline in the first half. This has been achieved through a more focused
approach on the key brand market combinations and improved trading in the US.
The growth for the year has been affected by our destocking of the US supply
chain announced in October 2001. Excluding the impact of the destock, volumes
grew by 4% and net turnover grew by 8%.
We have also continued to invest strongly behind our core brands with an
increase of 11% in advertising and promotion leaving the net brand contribution
from our core brands up 1%. We acquired Malibu in May 2002 and this will join
our core brands. It has performed well in the first three months of our
ownership with a rapid and effective integration into our business. We have
addressed trade loading issues and the brand continues to show good consumer
growth trends.
Ballantine's volumes grew 4% and net turnover increased 11% on continued good
performance in its key markets in Europe, Asia Pacific and Duty Free,
particularly following the launch of the new campaign "Go play". Beefeater
continued to perform well in Spain helping to offset a slower performance in the
US to drive overall volumes up 3% and net turnover up 2%. The performance of
both Kahlua and Canadian Club have been held back by the US destock and by
tougher trading conditions in the US during the first half. Canadian Club has
shown improving consumption trends during the year and Kahlua should benefit
from the recent launch of a new campaign, "Unleash it". Courvoisier benefited
from strong growth in both the UK and US markets particularly following the
success of the track "Pass the Courvoisier" by Busta Rhymes and continued
investment in the "House of Courvoisier" campaign in the US. The growth of
Maker's Mark has continued with a 10% increase in volumes driven by strong
consumer interest, good brand PR and advertising. Sauza volumes grew 10%
benefiting from our investment in improved tequila production and net turnover
increased 19% also helped by improved price and mix. Tia Maria had a good
Christmas in the UK and the launch of the new cream liqueur, Tia Lusso, helped
to grow volumes and net turnover by 13% and 14% respectively.
6
The local market leader brands benefited from Stolichnaya in the US and the
acquisition of Kuemmerling in Germany. As a result, total volumes from the local
market leader brands grew 8% while net turnover and net brand contribution grew
29% and 27% respectively. Before acquisitions, total volume for this brand
category fell by 1% largely reflecting a 12% volume decline in Mexican brandies.
In spite of this decline, caused by excise duty increases in Mexico and the
on-going pressure of the informal spirits market, we successfully grew net
turnover and net brand contribution of our Mexican brandies by 7% and 34%
respectively. Strong performances by Stolichnaya in the US and Imperial in Korea
helped to grow organic net turnover of the local market leaders by 12% and net
brand contribution by 14%. We increased our organic advertising and promotion
investment behind this category by 35%, mainly behind Stolichnaya and Imperial.
During the year, we established our premium wine business following recent
acquisitions. Before the benefit of acquisitions, our wine business grew volumes
by 7% and net turnover by 10% to drive net brand contribution up by 14%. A full
review of the wine business including our recent acquisitions is provided in the
regional review.
The volumes for the rest of the Spirits & Wine portfolio grew by 2% while net
turnover increased by 8% growing net brand contribution by 1%.
MARKET REVIEW - SPIRITS & WINE
The performance of our business is reviewed below by region.
Europe
Trading profit grew by 5% to (pound)160m driven by good performances in Spain
and the UK and through acquisition. Trading profit before acquisitions was down
4% held back by advertising and promotion, up 11%, on net turnover up 6%. This
strong investment is principally behind "Go play" campaign for Ballantine's and
the launch of Tia Lusso.
Our business in Spain has again achieved further market share gains for
Ballantine's and Beefeater, which grew volumes by 3% and 9% respectively.
Centenario consolidated its position as category leader with a 12% increase in
volumes and a 14% increase in net turnover. Advertising and promotion was
increased in Spain behind Ballantine's, Beefeater, Whisky DYC and Malibu. The
increase in excise duty in January slowed first half volume growth with core
brands up 3% which recovered to 8% growth in the second half.
The volume performance of Ballantine's outside of Spain was held back by weak
market conditions, particularly in Germany but still managed to grow market
share across Europe.
The UK business benefited from a good Christmas and strong performances for
Teacher's, Courvoisier and Tia Maria. Over the year, Teacher's grew volumes by
12% gaining share in the off-trade. Courvoisier also gained share to become the
number one selling cognac brand in the UK. Tia Maria also performed well, as
well as benefiting from the launch of Tia Lusso.
We acquired Kuemmerling, a leading German bitters brand, at the beginning of the
period. The integration has been accelerated, and is now almost complete, with
all our German operations now in one location in Frankfurt. Kuemmerling has
given us critical mass in Europe's largest spirits market providing a sound
economic platform for our German business.
We are making good progress with the implementation of our major systems upgrade
project in key European markets with systems live in France, Germany, Spain and
parts of the UK, rolling out to other key European markets through to 2003. The
project will significantly improve the availability and consistency of data
across the region and will help drive enhanced performance.
North America
Trading profit grew 7% to (pound)169m driven primarily by the contribution from
acquisitions and mix improvements. On an organic basis, net turnover grew 4% on
volumes up 1% leading to an increase in trading profit of 1%. Organic volumes
grew by 3% in the second half compared with a 2% decline in the first half. This
significant improvement in trading during the latter part of this financial year
is a direct result of our positive actions. We have refined pricing by brand and
by state, improved communications within the business, reviewed deployment of
our sales forces and re-aligned our advertising and promotion spend to improve
its effectiveness. This has been achieved as part of our implementation of a new
five year country strategy. Significant management changes were made including
the appointment of a new president, Tom Wilen. In addition, a new organisational
structure is being implemented that will allocate our resources closer to the
market place and increase sales coverage. This will facilitate a better
understanding of customers and consumers and further strengthen our
relationships with distributors.
7
The supply chain re-engineering project that we announced in October 2001 has
reduced wholesaler and retailer inventories in the US with a negative impact on
trading profit of (pound)19m, of which (pound)2m related to the Wine region.
Excluding the impact of the destock, organic trading profit grew 12%. The
destock has resulted in a reduction in shipments compared with depletions of
0.5m cases and has primarily affected Kahlua, Beefeater, Canadian Club, Hiram
Walker Liqueurs and Californian wine. The project is expected to continue in the
year to August 2003 with a further impact on trading profit of around
(pound)10m.
Stolichnaya continues to perform well, gaining share in the imported vodka
category, helped by a new advertising campaign. Courvoisier, Maker's Mark and
Sauza have all grown share during the year. Kahlua, Canadian Club and Beefeater
have been held back by the impact of the US destock and by the slower trading
experienced at the beginning of the fiscal year.
Our objective is to work closely with our US distributors through a programme
where we are the 'partner of choice'. We are focused on developing long-term
partnerships where we actively shape a sustainable model for both parties. The
recent changes in the US distributor environment have created new opportunities
that we are currently evaluating. Our US portfolio has been significantly
enhanced through the recent acquisitions of Stolichnaya, Mumm and Perrier Jouet
champagnes and Malibu and we shall continue to provide mutual benefit through
our increasingly premium portfolio in our distributor relationships.
Latin America
Trading profit for the region was up 42% to (pound)61m (excluding the Mexican
excise rebate) on net turnover up 12%. This improvement was driven by reduced
production costs and the success of the "Yo brandy" promotion for our Mexican
brandies that helped to grow their net turnover by 7% and net brand contribution
by 34% in spite of falling volumes. Sauza volumes in the region have grown 14%,
benefiting from our ongoing careful management of the supply of the key raw
material, agave and the production of tequila. We continue to manage supplies of
Sauza between its major markets, the US and Mexico. The region also benefited
from cost savings during the period. Advertising and promotion for the region
increased by 27% particularly behind Sauza, Ballantine's and the introduction of
a high energy ready-to-drink product, "Spirit".
During the period, we received compensation of (pound)213m awarded by the
Mexican Supreme Court. This was received through a combination of cash and
offsetting of duties and taxes payable. The current estimate of excise duty
rebate and related interest and inflation still to be received during the year
to August 2003 is expected to be within a range of (pound)30m to (pound)50m.
We are making good progress with the integration of our new wine businesses,
Bodegas y Vinedos Graffigna and Vinedos y Bodegas Sainte Sylvie, in Argentina.
We will increase their export potential as part of our global wine strategy;
this will address the current weak domestic trading conditions in Argentina.
Profits from Brazil have been held back by the weak economic climate but
Ballantine's and Teacher's continue to drive volume growth.
Asia Pacific
We have achieved strong growth of 20% in net turnover and trading profit. The
profit growth has been driven by good performances across the region,
particularly in South Korea, and has been achieved after a 57% increase in
advertising and promotion investment principally behind Ballantine's and
Imperial. Our South Korean business, Jinro Ballantines continues to show strong
growth. Imperial, South Korea's number one premium whisky, and Ballantine's have
been the key drivers of this growth in the region with volumes up 19% and 23%
respectively. We launched a brand extension, Ballantine's Masters, which is
progressing well and should benefit further from a new advertising campaign.
Ballantine's 12 and 17 year old have established a strong presence in the
premium aged whisky category.
Fundador continues to perform well in the Philippines with volumes up 15% and
net turnover growth of 12%, helped particularly by Fundador Solera. Australia
and New Zealand have reported strong results particularly with Kahlua and RTDs.
We achieved a rapid launch of Tia Lusso in Australia supported by marketing
materials developed by the central marketing team for local application.
Wine region
For the first time our premium wine business is presented separately within the
regional review. This business includes Bodegas y Bebidas, Montana, Mumm and
Perrier Jouet champagnes and our enlarged US wine business including Buena Vista
and Mumm Cuvee Napa. David Scotland was appointed in January to lead the wine
business and has put together a strong team of wine experts from a number of
leading wine companies. The wine business delivered a trading profit of
(pound)68m on wine volumes of 13m cases which is in line with our plans. This
includes the adverse impact of the US destock. Our plans support our key
objective of achieving a return on investment above our weighted average cost of
capital by August 2005 and exceed our target of 10% by August 2007. Montana's
trading profit grew by 35% in spite of a year of significant change and a poor
North Island harvest in 2001. This growth was achieved from both domestic and
export sales. Bodegas y Bebidas continued its mix shift towards premium wine
with a 7% growth in net brand contribution on volumes down 10%. Including the
impact of the destock, our US wine business is holding volumes in a tougher
market as it benefits from the strength of well recognised brands like Clos du
Bois. Mumm Cuvee Napa was added to our US business in May and will further
support the development of our premium branded wine business. Mumm and Perrier
Jouet champagnes have shown significant growth during the year growing share in
key markets. We have addressed the excess stocks following the millennium whilst
maintaining premium price positions.
Global Operations
We have continued to achieve improvements in productivity with an increase for
Spirits & Wine of 3% (measured as cases produced per employee). This improvement
has largely been achieved through increasing production volumes through key
sites, particularly Ballantine's at Allied Distillers and Courvoisier at Jarnac.
During the year, we completed a review of our distillation strategy in Scotland.
As a result, we are investing (pound)6m at our Strathclyde Distillery over the
next 18 months and have closed our distillery at Dumbarton. One-off costs of
(pound)14m relating principally to the asset write-down of the balance sheet
value of the distillery and site demolition and clearance costs have been
charged as an exceptional item. The future cash benefits of this action will be
approximately (pound)3m per annum, initially reflected in the stock value of the
grain whisky. We have completed our US$25m investment to increase the
distillation and warehousing capacity for Maker's Mark in Kentucky. We are also
managing the transfer of Malibu production to our sites in Walkerville,
Dumbarton and Jerez which will take place during the first half of the coming
year.
Our Duty Free operations have shown a marked recovery following the downturn in
travel experienced earlier in the year following September 11 and the economic
recession in a number of markets. In particular, we have seen good growth in the
Ballantine's super premium brands and a good performance from America in the
second half of the year. We have consistently increased our leadership position
in the super premium scotch in Duty Free. The recent additions to our portfolio,
Malibu, our champagnes and Tia Lusso are all performing well in this channel.
Geographical Analysis - Spirits & Wine trading profit
In line with previous statements, the trading profits of the Spirits & Wine
regions shown in this review are on a management reporting basis at constant
exchange rates, rather than on a statutory basis at each year's actual exchange
rates, as shown in note 2 to the accounts.
The premium wine business has been presented separately within the regional
analysis. The effect of the transfer of the US wine business from North America
to premium wine and the shift of management responsibility for Duty Free from
Others to Europe is shown in the market transfers column. "Others" include
Global Operations (including profit from the sale of bulk whisky), standalone
duty free operations and central costs not allocated to marketing regions. The
losses arising from "Others" reflects increased pension costs and higher levels
of investment in central advertising and promotion in areas such as consumer
segmentation research and new product development including Stolichnaya Citrona
and Sauza Diablo.
8
Geographical analysis - Spirits & Wine trading profit
2001 2002 2002
Total Organic
Growth Growth
Reported Market Foreign At 2002 at 2002 at 2002
2001 transfers exchange exchange 2002 exchange 2002 exchange
(pound)m (pound)m (pound)m (pound)m (pound)m % (pound)m %
Europe 142 7 3 152 160 5 146 (4)
North America 185 (27) - 158 169 7 160 1
Latin America 46 - (3) 43 61 42 61 42
Asia Pacific 59 - (4) 55 66 20 66 20
Wine region - 26 - 26 68 - 29 12
Others 26 (6) (4) 16 (8) - - -
Total 458 - (8) 450 516 15 463 3
INVESTING IN OUR PEOPLE
During the year we recruited a professional HR Director, Tom Brown, to reinforce
our commitment to our people and their key role in harnessing the value from our
brands. We continue to drive toward a performance related culture through the
sourcing of the best talent, development and aligning our rewards programme with
the critical performance measures for the business.
BRITANNIA SOFT DRINKS
The group's share of Britannia's profits for the year was(pound)16m
(2001:(pound)13m).
CASH FLOW
Net cash flow from operating activities was(pound)760m (2001:(pound)423m) and
free cash inflow increased to(pound)211m (2001:(pound)86m). This improvement was
driven by increased profit and cash generation along with the benefit of the
Mexican excise rebate (free cash flow benefit 2002:(pound)128m;
2001:(pound)47m).
Net debt increased by (pound)724m during the year from (pound)1,854m to
(pound)2,578m, the main outflows being the acquisitions of Kuemmerling
((pound)125m), Bodegas y Bebidas ((pound)199m) and Malibu ((pound)555m). In
addition, we paid (pound)231m to the shareholders of Montana being the cash
settlement of shares purchased in 2001. Underlying trading working capital,
allowing for acquisitions and organic growth, has shown a 7% ((pound)110m)
improvement over last year.
TAXATION
The normalised tax rate for the year has remained in line with last year's rate
of 25%. Financial Reporting Standard 19 - Deferred Tax was adopted resulting in
a (pound)53m balance sheet adjustment to August 2001. The overall tax rate for
2001 has not changed. The tax charge for 2002 contains a credit of (pound)10m
due to an adjustment to the estimated recoverable amount of a deferred tax asset
in respect of tax losses arising in prior periods. We expect that the normalised
rate for the next financial year will not exceed 25%.
GOODWILL AND EXCEPTIONAL ITEMS
Goodwill amortisation totalled (pound)38m (2001:(pound)12m) the increase being
primarily due to the acquisitions of Mumm and Perrier Jouet champagnes and
Montana.
During 2001, (pound)47m received in respect of the Mexican excise award was
reported in operating profit. The Group has received (pound)213m during 2002
which due to its size has been treated as exceptional operating income. In
response to the receipt of this cash the Group has undertaken to invest
approximately (pound)11m on social and community projects in Mexico.
Other exceptional costs this financial year include: (pound)14m associated with
the closure of the Dumbarton distillery resulting from our review of distillery
strategy; (pound)23m for the one-off costs associated with the planned
termination of an onerous land lease in California; and (pound)36m for the
acquisition integration programme.
In aggregate, the acquisitions over the last 18 months have served to create our
premium wine business, to fill portfolio category gaps and to create critical
mass in certain markets. In combination these have been major transforming
events for the business and, as a result, costs associated with acquisition
integration are being treated as exceptional.
TREASURY OPERATIONS
The group treasury operates as a centralised service managing interest rate and
foreign exchange risk and financing. The board agrees and reviews policies and
financial instruments for risk management. We operate a prudent hedging policy.
Business trading flows are netted by currency and hedged forward for up to 18
months using a combination of forward exchange contracts and purchased foreign
exchange options.
9
The group has a natural hedge to the impact of fluctuations of the Euro on
transaction costs from selling into and out of Eurozone. The impact of foreign
exchange movements on the translation of profits was negative, though not
material, resulting principally from the depreciation of the US dollar in the
last two months of the fiscal year. This was partially offset by the
strengthening of the Euro.
Our balance sheet can be significantly affected by currency translation
movements. Our policy is to match foreign currency debt in proportion to foreign
currency earnings so as to provide a natural hedge for part of the translation
exposure.
The amount of risk to any one counterpart is restricted according to credit
rating. We continually monitor our exposure to our counterparties and their
credit ratings.
Exposures to interest rate fluctuations on borrowings and deposits are managed
by using interest rate swaps and interest rate options. It is our policy to keep
between 50 per cent and 70 per cent of net debt at fixed rates of interest with
a target of 60 per cent.
At 31 August 2002, EV gearing (net debt as percentage of market capitalisation
plus net debt) was 36%, compared with 30% at 31 August 2001.
In June 2002, a (euro)600m seven year bond and a (pound)250m twelve year bond
were issued.
PENSIONS
In line with other companies, market and demographic dynamics over recent years
have increased the cost of providing pensions. Allied Domecq has absorbed an
increased pension profit and loss charge of (pound)16m in the current year.
Recent stock market volatility has caused significant variation in the net
pension liability when assessed under FRS 17. At 31 August 2002, the post tax
deficit under this accounting standard was (pound)336m compared with (pound)25m
at 31 August 2001. This compares with Allied Domecq's enterprise value of around
(pound)7bn.
In aggregate, the pension funds remain well funded and we do not anticipate
having to materially increase Allied Domecq's cash contributions to the funds.
Accounting policies
Year to 31 August 2002
Basis of accounting
The accounts are prepared under the historical cost convention and comply with
accounting policies generally accepted in the United Kingdom ("UK GAAP"). The
accounts adopt Financial Reporting Standard (FRS) 17 Retirement Benefits in line
with the transitional timetable laid down by the standard. FRS 19 Deferred Tax
has been adopted in full and required a restatement of prior year results as
described in note 23.
Pages 47 to 50 describe the significant differences between UK GAAP and US
generally accepted accounting principles ("US GAAP") and presents a
reconciliation of net income and shareholders' equity from UK GAAP to US GAAP as
a result of such differences.
Basis of consolidation
Allied Domecq PLC (the "group" or "company") accounts consolidate the accounts
of the company and its interests in subsidiary undertakings. Interests in
associated undertakings are included using the equity method of accounting. The
results of businesses acquired or disposed of during the year are consolidated
for the period from, or up to, the date control passes.
10
Acquisitions
On the acquisition of a business, or an interest in an associate, fair values,
reflecting conditions at the date of the acquisition, are attributed to the net
assets acquired. Adjustments are also made to bring accounting policies in line
with those of the group.
Intangible fixed assets
Goodwill arising on acquisitions of a business since 1 September 1998 is
capitalised and amortised by equal instalments over its anticipated useful life,
but not exceeding 20 years. Goodwill arising on acquisitions prior to 1
September 1998 was charged directly to reserves. On disposal of a business, any
attributable goodwill previously eliminated against reserves is included in the
calculation of any gain or loss. Other purchased intangible assets are
capitalised and amortised over their useful economic lives on a straight line
basis. Where intangible assets, such as brands, are regarded as having
indefinite useful economic lives, they are not amortised but are subject to
annual impairment reviews.
Tangible fixed assets
Tangible fixed assets are capitalised at cost. Depreciation is provided to write
off the cost less the estimated residual value of assets by equal instalments
over their estimated useful economic lives as follows: Land and buildings - the
shorter of 50 years or the length of the lease; distilling, maturing and storage
equipment - 20 to 30 years; other plant and equipment and fixtures and fittings
- 5 to 10 years; and computer software - 4 years. No depreciation is provided on
freehold land.
Fixed asset investments
Fixed asset investments are stated at cost, less provision for any permanent
diminution in value.
Turnover
Turnover represents sales to external customers (including excise duties but
excluding sales taxes) and franchise income.
Stocks
Stocks are valued at the lower of cost and net realisable value. Cost comprises
purchase price or direct production cost, together with duties and manufacturing
overheads. The cost of spirits and wine stocks is determined by the weighted
average cost method.
Stocks are included in current assets, although a portion of such stocks may be
held for periods longer than one year.
Deferred tax
Full provision is made for deferred tax assets and liabilities arising from
timing differences. Deferred tax assets are recognised to the extent that they
are regarded as recoverable.
Financial instruments
The group uses financial derivative instruments to manage exposures to movements
in interest and exchange rates. Transactions involving financial instruments are
accounted for as follows:
i) Gains or losses arising on forward exchange contracts are taken to the
profit and loss account in the same period as the underlying
transaction. Premiums paid or received on foreign currency options are
taken to the profit and loss account when the option expires or matures.
ii) Net interest arising on interest rate agreements is taken to the profit
and loss account over the life of the agreement.
iii) Gains and losses on foreign currency debt and foreign exchange contracts
held for the purposes of hedging balance sheet translation exposures are
taken to reserves.
11
Foreign Currencies
Monetary assets and liabilities arising from transactions in foreign currencies
are translated at the rate of exchange prevailing at the date of transaction.
Subsequent movements in exchange rates are included in the group profit and loss
account.
The results of undertakings outside the UK are translated at weighted average
exchange rates each month. The closing balance sheets of undertakings outside
the UK are translated at year end rates. Exchange rate differences arising from
the translation of foreign currency denominated balance sheets to closing rates
are dealt with through reserves.
Pension and post employment benefits
Pension and post retirement medical benefit costs are charged to the profit and
loss account on a systematic basis over the service life of employees, with the
advice of actuaries, using the projected unit credit method.
Group profit and loss account
Year to 31 August 2002
Year to 31 August 2001
Year to 31 August 2002 (restated)
Before Before
goodwill Goodwill goodwill Goodwill
and and and and
exceptional exceptional exceptional exceptional
items items Total items items Total
Note (pound)m (pound)m(pound)m (pound)m (pound)m(pound)m
Continuing activities 3,184 - 3,184 2,879 - 2,879
Acquired activities 150 - 150 - - -
Turnover 1 3,334 - 3,334 2,879 - 2,879
Operating costs
- goodwill amortisation 6 - (38) (38) - (12) (12)
- Mexican excise rebate 6 - 213 213 - 47 47
- other 6 (2,739) (84)(2,823) (2,358) (9)(2,367)
------------------------------------------------------------------
Continuing activities 567 125 692 521 26 547
Acquired activities 28 (34) (6) - - -
------------------------------------------------------------------
Operating profit from continuing operations 595 91 686 521 26 547
Share of profits of associated undertakings 15 15 - 15 22 - 22
Trading profit 1 610 91 701 543 26 569
Profit on sale of businesses 7 - - - - 6 6
Profit on ordinary activities before finance charges 610 91 701 543 32 575
Finance charges 8 (130) - (130) (90) - (90)
Profit on ordinary activities before taxation 480 91 571 453 32 485
Taxation 9 (120) (46) (166) (113) (15) (128)
Profit on ordinary activities after taxation 360 45 405 340 17 357
Minority interests - equity and non-equity 24 (13) - (13) (13) - (13)
Profit earned for ordinary shareholders for the year 23 347 45 392 327 17 344
Ordinary dividends 11 (141) (127)
Retained profit 251 217
Earnings per ordinary share:
- basic 10 36.8p 32.6p
- diluted 10 36.7p 32.6p
- normalised 10 32.6p 31.0p
12
Group balance sheet
At 31 August 2002
31 August 31 August
2002 2001
(restated)
Note (pound)m (pound)m
Fixed assets
Intangible assets 12 1,316 618
Tangible assets 13 877 767
Investments and loans 14 126 87
Associated undertakings 15 71 75
Total fixed assets 2,390 1,547
Current assets
Stocks 16 1,302 1,203
Debtors due within one year 17 736 689
Debtors due after more than one year 17 332 316
Cash at bank and in hand 169 111
Total current assets 2,539 2,319
Creditors (due within one year)
Short term borrowings 20 (971) (770)
Other creditors 18 (1,022) (1,189)
Total current liabilities (1,993) (1,959)
Net current assets 546 360
Total assets less current liabilities 2,936 1,907
Creditors (due after more than one year)
Loan capital 20 (1,776) (1,195)
Other creditors 18 (90) (48)
Total creditors due after more than one year (1,866) (1,243)
Provisions for liabilities and charges 19 (284) (255)
Net assets 786 409
Capital and reserves
Called up share capital 22 277 267
Share premium account 23 165 26
Merger reserve 23 (823) (823)
Profit and loss account 23 1,087 871
Shareholders' funds - equity 706 341
Minority interests - equity and non-equity 24 80 68
786 409
13
Group cash flow information
Year to 31 August 2002
Year to Year to
31 August 31 August
2002 2001
Reconciliation of operating profit to net cash inflow from operating activities Note (pound)m (pound)m
Operating profit 686 547
Goodwill amortisation 38 12
Exceptional operating costs 64 9
Depreciation 75 56
Increase in stocks (94) (72)
Increase in debtors (22) (55)
Increase/(decrease) in creditors 71 (43)
Expenditure against provisions for reorganisation and restructuring costs (36) (34)
Other items (22) 3
Net cash inflow from operating activities 760 423
Group cash flow statement
Net cash inflow from operating activities 760 423
Dividends received from associated undertakings 11 9
Returns on investments and servicing of finance 26 (133) (76)
Taxation paid 26 (178) (34)
Capital expenditure and financial investment 26 (712) (118)
Acquisitions and disposals 26 (586) (635)
Equity dividends paid (133) (163)
Cash outflow before use of liquid resources and financing (971) (594)
Management of liquid resources (21) (6)
Financing 26 798 488
Decrease in cash in the year (194) (112)
Reconciliation of net cash flow to movement in net debt
Decrease in cash in the year (194) (112)
Increase in liquid resources 21 6
Increase in loan capital (649) (488)
Movement in net debt resulting from cash flows (822) (594)
Exchange adjustments 98 (8)
Movement in net debt during the year (724) (602)
Opening net debt (1,854) (1,252)
Closing net debt 28 (2,578) (1,854)
Group statement of total recognised gains and losses
Year to 31 August 2002
Year to Year to
31 August 31 August
2002 2001
Note (pound)m (pound)m
Profit earned for ordinary shareholders for the year 392 344
Currency translation differences on foreign currency net investments (23) (18)
Deferred taxation - origination and reversal of timing differences (12) 2
Total recognised gains and losses for the year 357 328
Prior year adjustment 23 (53) -
Total recognised gains and losses recognised since last annual report 304 328
The statement of recognised gains and losses for the year ended 31 August 2002
has been restated for the adoption of FRS 19 (note 23).
Group note of historical cost profits and losses
There is no difference between the profit earned for ordinary shareholders as
disclosed in the profit and loss account and the profit stated on an historical
cost basis.
Group reconciliation of movements in shareholders' funds
Year to 31 August 2002
14
Year to Year to
31 August 31 August
2002 2001
(restated)
Note (pound)m (pound)m
Shareholders' funds at the beginning of the year 341 190
Total recognised gains and losses for the year 357 328
Prior year adjustment 23 - (53)
Ordinary dividends (141) (127)
Ordinary share capital issued (net of costs) 149 -
Goodwill written back on disposals - 3
Net movement in shareholders' funds 365 151
Shareholders' funds at the end of the year 706 341
Parent company balance sheet
As at 31 August 2002
31 August 31 August
2002 2001
Note (pound)m (pound)m
Fixed asset investments 14 4,179 3,998
Current assets
Debtors 17 14 5
Creditors (due within one year)
Other creditors 18 (88) (496)
Net current liabilities (74) (491)
Net assets 4,105 3,507
Capital and reserves
Called up share capital 22 277 267
Share premium account 23 165 26
Merger reserve 23 2,420 2,420
Capital reserve 23 651 651
Profit and loss account 23 592 143
Shareholders' funds - equity 4,105 3,507
Profits of the parent company
Under s230 (4) of the Companies Act 1985, a separate profit and loss account for
the parent company is not presented.
Profits for the year arising in the parent company are disclosed in note 23.
Notes to the accounts
15
Continuing
Spirits & Total
Wine QSR Britannia Continuing Acquired Discontinued Total
1. Activity analysis (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
Year to 31 August 2002
Turnover 2,868 316 - 3,184 150 - 3,334
Trading profit before exceptional items and goodwill 488 78 16 582 28 - 610
Goodwill amortisation (30) - - (30) (8) - (38)
Exceptional items 155 - - 155 (26) - 129
Trading profit after exceptional items 613 78 16 707 (6) - 701
Profit on sale of businesses - - - - -
Profit before finance charges 613 78 16 707 (6) - 701
Finance charges (130)
---------
Profit on ordinary activities before taxation 571
Depreciation 61 10 - 71 4 - 75
Capital expenditure 92 34 - 126 7 - 133
Assets employed 2,681 120 46 2,847 939 - 3,786
Average numbers of employees 10,348 1,173 - 11,521 592 - 12,113
-----------------------------------------------------------------------------------------------------------------------------
Year to 31 August 2001
Turnover 2,571 308 - 2,879 - - 2,879
Trading profit before exceptional items and goodwill (e) 458 72 13 543 - - 543
Goodwill amortisation (12) - - (12) - - (12)
Exceptional items 38 - - 38 - - 38
Trading profit after exceptional items 484 72 13 569 - - 569
Profit on sale of businesses 2 - - 2 - 4 6
Profit before finance charges 486 72 13 571 - 4 575
Finance charges (90)
---------
Profit on ordinary activities before taxation 485
Depreciation 46 10 - 56 - - 56
Capital expenditure 70 27 - 97 - - 97
Assets employed 2,536 114 43 2,693 - - 2,693
Average numbers of employees 8,403 1,382 - 9,785 - - 9,785
Notes:
a) Acquired activities in 2001 had no material impact on turnover and trading
profit.
b) Normalised profit before tax is(pound)480m (2001:(pound)453m) being trading
profit(pound)610m (2001:(pound)543m) less finance charges(pound)130m
(2001:(pound)90m).
c) Spirits & Wine goodwill is amortised over 20 years and relates principally
to Mumm and Perrier Jouet and Montana acquired in 2001 and Jinro
Ballantines acquired in 2000.
d) Assets employed are before deducting net borrowings of(pound)2,578m
(2001:(pound)1,854m), tax payable of(pound)334m (2001:(pound)350m) and
dividends payable of(pound)88m (2001:(pound)80m) to give net assets
of(pound)786m (2001:(pound)409m).
e) Trading profit for the prior year has been reclassified to treat the rebate
of Mexican excise as an exceptional item.
Rest of
Europe Americas World Total
2. Geographical analysis (pound)m (pound)m (pound)m (pound)m
By country of operation
Year to 31 August 2002
Turnover
- continuing activities 1,739 1,822 418 3,979
- acquired activities 153 14 1 168
- to group companies (813)
- external 3,334
Trading profit
- continuing activities 226 310 46 582
- acquired activities 26 2 - 28
- goodwill amortisation in continuing activities (11) (1) (18) (30)
- goodwill amortisation in acquired activities (8) - - (8)
- exceptional items in continuing activities (11) 166 - 155
- exceptional items in acquired activities (21) (5) - (26)
Profit before finance charges 201 472 28 701
Assets employed 1,650 1,376 760 3,786
Year to 31 August 2001
Turnover
- continuing activities 1,543 1,785 254 3,582
- to group companies (703)
- external 2,879
Trading profit
- continuing activities (c) 212 298 33 543
- goodwill amortisation (6) - (6) (12)
- exceptional items in continuing activities (9) 47 - 38
197 345 27 569
Profit on sale of businesses in continuing and discontinued operations 5 1 - 6
Profit before finance charges 202 346 27 575
Assets employed 1,341 939 413 2,693
16
Notes:
a) Export sales from the United Kingdom were(pound)448m (2001:(pound)454m)
including(pound)336m (2001:(pound)348m) sales to group companies.
b) Trading profit includes the group's share of profits of associated
undertakings whose turnover is not included.
c) Trading profit for the prior year has been reclassified to treat the rebate
of Mexican excise as an exceptional item.
Rest of
Europe Americas World Total
Geographical analysis (pound)m (pound)m (pound)m (pound)m
By country of destination
Year to 31 August 2002
Turnover
- continuing activities 1,082 1,584 518 3,184
- acquired activities 131 15 4 150
1,213 1,599 522 3,334
Trading profit
- continuing activities 184 308 90 582
- acquired activities 25 3 - 28
- goodwill amortisation in continuing activities (11) (1) (18) (30)
- goodwill amortisation in acquired activities (8) - - (8)
- exceptional items in continuing activities (11) 166 - 155
- exceptional items in acquired activities (21) (5) - (26)
158 471 72 701
Year to 31 August 2001
Turnover - continuing activities 982 1,542 355 2,879
Trading profit
- continuing activities c) 186 289 68 543
- goodwill amortisation (6) - (6) (12)
- exceptional items in continuing activities (9) 47 - 38
171 336 62 569
Notes:
a) Turnover excludes sales to group companies.
b) Trading profit includes the group's share of profits of associated
undertakings whose turnover is not included.
c) Trading profit for the prior year has been reclassified to treat the rebate
of Mexican excise as an exceptional item.
17
3. Exchange Rates
The significant translation rates to(pound)1 :-
Average rate
for the year Closing rate
31 August 31 August
2002 2001 2002 2001
United States dollar 1.46 1.44 1.55 1.45
Mexican peso 13.70 13.51 15.33 13.36
Euro 1.60 1.63 1.58 1.60
Year to Year to
Full-Time Part-Time 31 August 2002 31 August 2001
------------------------------------
UK Other UK Other Total Total
4. Staff costs (pound)m (pound)m(pound)m (pound)m (pound)m (pound)m
Remuneration 69 274 3 11 357 310
Social security 8 33 - 1 42 36
Pension schemes
- UK (9) - - - (9) (11)
- other - (1) - - (1) (15)
Post retirement medical benefits (PRMB) 1 6 - - 7 5
69 312 3 12 396 325
Average numbers employed
2002 - Continuing operations 1,563 8,465 146 1,347 11,521
2002 - Acquired operations - 569 - 23 592
2002 - Total 1,563 9,034 146 1,370 12,113
2001 - Continuing operations 1,547 7,531 106 601 9,785
Directors' remuneration
The amounts relating to emoluments, share options, long term incentive scheme
interests and directors' pension entitlements are disclosed within the
remuneration report.
5. Pension schemes
The group operates a number of pension and post retirement healthcare schemes
throughout the world. The major schemes are of the defined benefit type and the
assets of the schemes are largely held in separate trustee administered funds.
The UK defined benefit schemes are now closed to new members. The group has
continued to account for pensions in accordance with SSAP 24 and the disclosures
given in a) are those required by the standard. To the extent not given in a)
additional information required under the transitional arrangements of FRS 17
are set out in b) below.
a) Allied Domecq pension schemes
United Kingdom
The assets and liabilities of the UK schemes are reviewed regularly by an
actuary. A full assessment is undertaken every three years with a further
limited review each year for reporting purposes. The latest triennial assessment
was carried out in April 2000 and the latest review was at April 2002. The
actuarial assessments consider assets and liabilities at the date of calculation
and forecast assets and liabilities in the future according to a set of
assumptions, the most important of which are the rate of return on the assets,
the rates of increase in remuneration, pensions and dividends and the average
future terms on which assets would be sold to meet liabilities.
18
The actuarial reviews as at April 2002 were carried out on the basis of assumed
future investment returns of 7% per annum, remuneration increases of 4.75% per
annum, pension increases of 3.5% per annum and a long term net yield on UK
equities of 2.68%. The market value of the assets of the Main Fund was
(pound)1,397m and the funding level was 106%. The market value of the Executive
Fund was (pound)379m and the funding level was 83%.
Overseas
The group operates defined benefit pension and post retirement medical benefit
plans in several countries overseas, with the most significant being in the US
and Canada. The latest actuarial reviews of these plans were carried out as at
31 August 2001 by independent actuaries for the purpose of calculating pension
costs for the fiscal year ending 31 August 2002.
The actuarial reviews of the US plans showed that the combined market value of
pension plan assets was (pound)186m at 31 August 2001 (2000: (pound)254m). This
represents approximately 144% (2000: 202%) of the value of benefits that had
accrued to pensioners, deferred pensioners and members as at that date. The
principal assumptions used to calculate the liabilities at 30 August 2001 were
assumed future investment returns of 7.25% (2000: 7.75%) per annum and earnings
increases of 5.00% (2000: 5.00%) per annum.
The actuarial reviews of the Canadian plans showed that the combined market
value of pension plan assets was (pound)132m at 31 August 2001 (2000:
(pound)171m). This represents approximately 108% (2000: 140%) of the value of
benefits that had accrued to pensioners, deferred pensioners and members as at
that date. The principal assumptions used to calculate the liabilities at 30
August 2001 were assumed future investment returns of 6.94% (2000: 6.97%) per
annum and earnings increases of 4.98% (2000: 4.98%) per annum.
b) FRS 17 retirement benefits 31 August 2002 31 August 2001
-----------------------------------------------------------------
United United
Major assumptions Kingdom Overseas Kingdom Overseas
% % % %
Rate of general increase in salaries 4.1 4.8 4.3 5.2
Rate of increase to benefits 3.1 2.1 3.3 2.1
Discount rate for scheme liabilities 6.0 6.5 6.1 7.3
Inflation 2.3 2.1 2.5 2.7
The expected long term rate of returns of the significant schemes is:-
Equities 8.5 8.7 8.0 10.0
Bonds 5.0 6.1 5.5 6.5
Property and other 5.2 4.4 6.5 4.0
Net Pension and post retirement medical benefits liability 31 August 2002 31 August 2001
--------------------------------------------
United United
Kingdom Overseas Kingdom Overseas
Market Market Market Market
value value value value
(pound)m (pound)m (pound)m (pound)m
Equities 896 206 1,182 273
Bonds 458 115 469 126
Property and other 197 6 195 18
Total market value of assets 1,551 327 1,846 417
Present value of scheme liabilities (1,941) (417) (1,877) (421)
Deficit in the schemes (390) (90) (31) (4)
Related deferred tax asset 117 27 9 1
Net pension and PRMB liability (273) (63) (22) (3)
The disclosures for 31 August 2001 have been amended to include all material
overseas pension and PRMB plans throughout the group; the original disclosures
related to the main North American schemes only.
19
The amounts charged to profit and loss account under FRS 17 would have been:-
31 August 2002 31 August 2001
-----------------------------------------
United United
Kingdom Overseas Kingdom Overseas
(pound)m (pound)m (pound)m (pound)m
Regular service cost 6 9 8 8
Past service cost - 7 - -
Interest cost 110 28 121 21
Expected return on assets (130) (32) (161) (32)
Profit and loss (credit)/charge (14) 12 (32) (3)
Analysis of amount that would have been included within the group statement of
recognised gains and losses under FRS 17:-
31 August 2002
United
Kingdom Overseas
(pound)m (pound)m
Actual return less expected return on pension scheme assets (320) (64)
Experience gains and losses arising on the scheme liabilities (62) -
Changes in assumptions underlying the present value of the scheme liabilities (19) (19)
Actuarial loss recognised in group statement of total recognised gains and losses (401) (83)
Deferred tax movement 120 25
Actuarial loss recognised in group statement of total recognised gains and losses - net of
tax (281) (58)
The movement in deficit during the year under FRS 17 would have been:-
31 August 2002
United
Kingdom Overseas
(pound)m (pound)m
Deficit in scheme at beginning of year net of deferred tax (22) (3)
Movement in year:
Current service cost (6) (9)
Past service cost - (7)
Contributions 16 4
Other finance income 20 4
Currency translation adjustment - 6
Deferred tax movement on actuarial loss 120 25
Actuarial loss (401) (83)
Deficit in scheme at the end of the year net of deferred tax (273) (63)
Year to Year to
31 August 2002 31 August 2001
6. Operating costs Note Continuing Acquired (pound)m (pound)m
Change in stocks of finished goods and work in progress (88) (6) (94) (72)
Raw materials and consumables 785 55 840 714
Customs and excise duties paid
- ongoing 619 19 638 605
- Mexican excise rebate (213) - (213) (47)
Staff costs 4 388 8 396 325
Depreciation 13 71 4 75 56
Goodwill amortisation 30 8 38 12
Other operating charges including exceptional items 835 68 903 678
Operating leases
- hire of equipment 11 - 11 10
- property rents 48 - 48 49
Payments to auditor - fees for audit 6 - 6 2
2,492 156 2,648 2,332
20
The parent company audit fee was nil (2001:nil). Other payments to the auditor
were(pound)4m (2001:(pound)4m) which primarily relate to due diligence and
taxation services.
Mexican excise rebate
The Mexican Supreme Court ruled in 2001 in favour of an action, brought by a
number of spirits companies challenging the excise duty regime applicable to
their Mexican operations during 1998 and 1999. Its ruling determined that the
tax was inequitable because it was applied only to large companies.
The Mexican Supreme Court awarded compensation which, by agreement with the
Mexican tax authorities, is principally received by offset against current and
future duties and taxes. At 31 August 2002, (pound)260m has been received and
has been subject to applicable corporation tax at 35%. It is anticipated that
the remaining recovery will be in the region of (pound)30m to (pound)50m
comprising excise duty rebate and related interest and inflation adjustments and
will be fully recovered by 31 August 2003.
Due to the size of the 2002 rebate it has been treated as an exceptional item
and for comparative purposes the 2001 benefit has been reclassified from trading
profit to exceptional items.
Year to Year to
31 August 2002 31 August 2001
7. Goodwill amortisation and exceptional items (pound)m (pound)m
Goodwill amortisation (38) (12)
Exceptional items
Mexican excise rebate 213 47
Mexican social projects (11) -
Acquisition integration costs (36) -
Termination of land lease (23) -
Asset write-downs (14) -
Year 2000 and EMU costs - (1)
Aborted acquisition costs - (4)
Surplus property provisions - (4)
Operating costs 129 38
Profit on sale of businesses - 6
Total exceptional items 129 44
Goodwill amortisation and exceptional items before taxation 91 32
Taxation (46) (15)
Goodwill amortisation and exceptional items after taxation 45 17
Trading profit for the prior year has been reclassified to treat the rebate of
Mexican excise as an exceptional item.
21
Year to Year to
31 August 2002 31 August 2001
8. Finance charges (pound)m (pound)m
Interest on bank loans, overdrafts and other loans repayable wholly within five years 138 96
Less: deposit and other interest receivable (8) (6)
Total 130 90
9. Taxation
The group has adopted FRS 19 during the year ended 31 August 2002. Consequently
the group's consolidated financial statements as at 31 August 2001 have been
restated for the impact of the adoption of FRS 19. There was no impact on the
taxation charge for that year (note 23).
Year to Year to
31 August 2002 31 August 2001
(pound)m (pound)m
The charge for taxation on the profit for the period comprises:
Current tax
United Kingdom taxation
Corporation tax at 30% (2001: 30%) 18 71
Adjustment in respect of prior periods (3) -
Double taxation relief (3) (51)
12 20
Overseas taxation
Corporation tax 188 73
Adjustment in respect of prior periods (26) 10
162 83
Taxation on attributable profit of associated undertakings 7 6
Total current tax 181 109
Deferred tax
Origination and reversal of timing differences (5) 19
Recognition of deferred tax assets arising in prior periods (10) -
Total tax charge 166 128
A reconciliation of the current tax charge at the UK corporation tax rate of 30%
(2001: 30%) to the group's current tax on profit on ordinary activities is shown
below:
Year to Year to
31 August 2002 31 August 2001
(pound)m (pound)m
Profit on ordinary activities before taxation 571 485
Notional charge at United Kingdom corporation tax rate of 30% 171 146
Differences in effective overseas tax rates 18 12
Adjustments to prior period tax charges (29) 10
Taxable intra-group dividend income 14 10
Utilisation of tax losses (14) (18)
Non deductible expenditure 22 8
Non taxable income and gains (10) (24)
Timing differences 10 (27)
Other current year items (1) (8)
Current tax charge 181 109
10. Earnings per share
Basic earnings per share of 36.8p (2001:32.6p) has been calculated on earnings
of(pound)392m (2001:(pound)344m) divided by the average number of shares of
1,066m (2001:1,054m).
Diluted earnings per share of 36.7p (2001:32.6p) has been calculated on earnings
of(pound)392m (2001:(pound)344m) and after including the effect of all dilutive
potential ordinary shares, the average number of shares is 1,069m (2001:1,055m).
22
To show earnings per share on a consistent basis, normalised earnings per share
of 32.6p (2001: 31.0p) has been calculated on normalised earnings of(pound)347m
(2001:(pound)327m) divided by the average number of shares of 1,066m (2001:
1,054m). Normalised earnings has been calculated as follows:
Year to Year to
31 August 2002 31 August 2001
(pound)m (pound)m
Earnings as reported 392 344
Adjustment for exceptional items net of tax (81) (27)
Adjustment for goodwill amortisation net of tax 36 10
Normalised earnings 347 327
Year to Year to
31 August 2002 31 August 2001
Average number of shares Millions Millions
Weighted average ordinary shares in issue during the year 1,087 1,068
Weighted average ordinary shares owned by the Allied Domecq employee trusts (21) (14)
Weighted average ordinary shares used in earnings per share calculation 1,066 1,054
Year to Year to Year to Year to
31 August 2002 31 August 2001 31 August 2002 31 August 2001
11. Ordinary dividends (pound)m (pound)m p p
Interim 53 47 4.90 4.50
Final 88 80 8.10 7.60
141 127 13.00 12.10
The 2002 interim dividend was paid on 26 July 2002 and the final dividend will
be paid on 7 February 2003.
31 August 31 August
Other 2002 2001
Goodwill Brands Intangibles Total Total
12. Intangible assets (pound)m (pound)m (pound)m (pound)m (pound)m
Cost
At the beginning of the year 601 - 34 635 111
Currency translation adjustment - - - - -
Additions 184 555 1 740 524
At the end of the year 785 555 35 1,375 635
Amortisation
At the beginning of the year (15) - (2) (17) (3)
Currency translation adjustment - - - - -
Charged in the year (38) - (4) (42) (14)
At the end of the year (53) - (6) (59) (17)
Net balance at the end of the year 732 555 29 1,316 618
Goodwill purchased during the year principally relates to the acquisitions of
Kuemmerling GmbH, Bodegas y Bebidas S.A. and Mumm Cuvee Napa (see note 25) and
is being amortised over 20 years. Brands purchased during the year relates to
the acquisition of Malibu, a coconut-flavoured rum-based spirit, for a net cash
consideration of (pound)555m. An impairment review was carried out at the
balance sheet date and the directors are satisfied that the brand has not
suffered any loss in value. Other intangibles are being amortised over ten
years.
23
13. Tangible assets
Land and Plant and
Buildings Equipment Total
Cost (pound)m (pound)m (pound)m
At the beginning of the year 617 644 1,261
Currency translation adjustment (9) (35) (44)
608 609 1,217
Additions
- acquisitions 66 41 107
- capital expenditure 51 82 133
Disposals (27) (55) (82)
At the end of the year 698 677 1,375
Depreciation
At the beginning of the year (149) (345) (494)
Currency translation adjustment (4) 12 8
(153) (333) (486)
Disposals 18 45 63
Charge for the year (10) (65) (75)
At the end of the year (145) (353) (498)
Net book value at 31 August 2002 553 324 877
Net book value at 31 August 2001 468 299 767
31 August 2002 31 August 2001
------------------------------------------------------------------
At Net book At Net book
cost value cost value
(pound)m (pound)m (pound)m (pound)m
Freehold land and buildings 630 511 550 428
Long lease land and buildings 14 13 13 13
Short lease land and buildings 54 29 54 27
Total land and buildings 698 553 617 468
Investments Franchise
------------------------------- and trade
Listed Unlisted loans Total
14. Investments and loans (pound)m (pound)m (pound)m (pound)m
Group
At the beginning of the year 63 14 10 87
Currency translation adjustment - - (1) (1)
Additions 40 4 3 47
Disposals and transfers (1) (2) (4) (7)
At the end of the year 102 16 8 126
The unlisted investments include a holding of 1% in Suntory Limited,
incorporated in Japan.
Investment
in subsidiary Listed
undertaking investments Total
Parent company (pound)m (pound)m (pound)m
At the beginning of the year 3,937 61 3,998
Additions 149 34 183
Disposals - (2) (2)
At the end of the year 4,086 93 4,179
24
Included within listed investments is(pound)93m (2001:(pound)61m) in respect of
a holding of 24,514,993 (2001: 17,221,999) ordinary shares of 25p each of the
company, purchased by the company and held by the trustees of the group's
employee trusts. The market value of these shares was(pound)100m
(2001:(pound)70m) at 31 August 2002.
Unlisted Listed
companies companies
share of share of
Cost reserves reserves Loans Total
15. Associated undertakings (pound)m (pound)m (pound)m (pound)m (pound)m
At the beginning of the year 44 22 14 2 82
Prior year adjustment (note 23) - (7) - - (7)
At the beginning of the year as restated 44 15 14 2 75
Currency translation adjustment (1) - (1) - (2)
Share of retained profit for the year - (3) 1 - (2)
At the end of the year 43 12 14 2 71
The share of profits before taxation was(pound)15m (2001:(pound)22m) and
dividends received were(pound)11m (2001:(pound)9m).
The principal associate is a 25% equity interest in Britannia Soft Drinks
Limited, a company engaged in the manufacture and sale of soft drinks.
Other associates include Baskin-Robbins Japan (44% equity interest),
Baskin-Robbins Korea (33% equity interest) and the group's interest in the
Miller RTD commercial partnership.
The above figures comprise the amounts attributable to the group based on the
latest accounts it has been practicable to obtain, some of which are unaudited
management accounts.
31 August 31 August
2002 2001
16. Stocks (pound)m (pound)m
Raw materials and consumables 52 36
Maturing inventory 953 905
Finished products 281 251
Bottles, cases and pallets 16 11
1,302 1,203
Group Parent company
---------------------------------------------
31 August 31 August
2002 2001 2002 2001
(restated)
17. Debtors (pound)m (pound)m (pound)m (pound)m
Amounts falling due within one year
Trade debtors 537 533 - -
Advance corporation tax recoverable on foreign income dividends - 2 - -
Deferred tax assets (note 19) 36 10 - -
Amounts due from subsidiary undertakings - - 4 -
Other debtors 111 86 10 5
Prepayments and accrued income 52 58 - -
736 689 14 5
Amounts due after more than one year
Pension prepayments (note 19) 302 295 - -
Other debtors 15 3 - -
Prepayments and accrued income 15 18 - -
332 316 - -
25
Group Parent company
---------------------------------------------
31 August 31 August
2002 2001 2002 2001
18. Creditors (pound)m (pound)m (pound)m (pound)m
Amounts due within one year
Trade creditors 175 154 - -
Bills payable 15 7 - -
Amounts owed to subsidiary undertakings - - - 416
Other creditors 286 264 - -
Social security 9 8 - -
Taxation 226 241 - -
Accruals and deferred income 223 209 - -
Deferred purchase consideration - 226 - -
Proposed dividend (note 11) 88 80 88 80
1,022 1,189 88 496
Amounts due after more than one year
Other creditors 45 28 - -
Accruals and deferred income 45 20 - -
90 48 - -
Post
retirement Reorganisation
medical and Surplus Deferred
benefits restructuring properties taxation Total
19. Provisions for liabilities and charges (pound)m (pound)m (pound)m (pound)m(pound)m
At the beginning of the year 103 15 16 75 209
Prior year adjustment - - - 46 46
At the beginning of the year as restated 103 15 16 121 255
Currency translation adjustment (6) - - (2) (8)
Timing differences within statement of recognised gains and losses - - - 12 12
Acquisition of businesses - - - 6 6
Reclassification to pension prepayments (note 17) (20) - - - (20)
Utilised during the year (5) (30) (6) - (41)
Charged during the year 9 64 - 7 80
At the end of the year 81 49 10 144 284
The future cost of the post retirement medical benefits is assessed in
accordance with independent actuarial advice. Of the balance reported in August
2001, (pound)20m has been reclassified as pension prepayments following a review
of overseas pension and post retirement benefits.
Reorganisation and restructuring provisions brought forward from previous years
were largely utilised during the year. New provisions totalling (pound)64m were
created during the year. Of the provisions outstanding at the year end,
(pound)19m relate to the acquisition integration programme, (pound)18m for the
termination of a land lease in California and (pound)9m for the trust fund
established for social and community projects in Mexico.
It is expected that the majority of reorganisation and restructuring costs will
be incurred in the 2003 financial year, whilst the trust funds will be disbursed
as the projects develop.
The provision for surplus properties will be utilised over the terms of the
leases to which the provisions relate.
26
Following the adoption of FRS 19 the opening deferred liability of (pound)65m
has been grossed up to reflect deferred tax assets of (pound)10m which are now
included within debtors.
Deferred taxation
The group has adopted FRS19 during the year ended 31 August 2002 and the
consolidated financial statements as at 31 August 2001 have been restated.
31 August 31 August
2002 2001
(restated)
(pound)m (pound)m
Accelerated capital allowances 28 26
Goodwill and other intangible assets 70 59
Pensions and other retirement benefits 72 55
Tax losses and credits (47) (48)
Other timing differences (15) 19
Net deferred taxation liability 108 111
Comprising:
Deferred tax asset (note 17) (36) (10)
Deferred tax liability 144 121
108 111
At the beginning of the year 111 52
Prior year adjustment - 46
At the beginning of the year as restated 111 98
Currency translation adjustment (3) 2
Timing differences within statement of recognised gains and losses 12 (2)
Acquisition of businesses 3 (6)
Charged during the year (15) 19
At the end of the year 108 111
Deferred tax assets of (pound)49m at 31 August 2002 (2001: (pound)85m) have not
been recognised due to the degree of uncertainty over the utilisation of the
underlying tax losses and deductions in certain tax jurisdictions.
Deferred tax has not been provided for liabilities which might arise on
unremitted earnings of overseas subsidiaries and associates, as such earnings
are reinvested by the group and no tax is expected to be payable on them in the
foreseeable future.
31 August 31 August
Redemption 2002 2001
20. Net debt date (pound)m (pound)m
Unsecured loans
* GBP250m Bond (6.625%) 2014 246 -
* EUR600m Bond (5.875%) 2009 376 -
* GBP450m Bond (6.25%) 2011 447 447
* EUR800m Bond (5.5%) 2006 504 497
NZD125m Capital Notes (9.3%) 2006 38 38
* DEM500m notes (4.75%) 2005 161 158
* NZD400m Revolving Credit Facility 2002 115 86
Other loans - 16 32
Foreign currency swaps Various (59) (8)
Secured loans
** NZD225m Revolving Credit Facility 2003 60 55
Total 1,904 1,305
Less amounts repayable within one year (128) (110)
Loan capital 1,776 1,195
Short term borrowings 971 770
Cash at bank and in hand (169) (111)
Net debt 2,578 1,854
27
* Borrowings and interest guaranteed by Allied Domecq PLC and Allied Domecq
(Holdings) PLC.
** Borrowings subject to a charge over Montana assets.
The Euro and GBP Bonds have been partially swapped into floating rate US
dollars. The parent company has short term borrowings of nil (2001: nil)
31 August 31 August
2002 2001
(pound)m (pound)m
Repayment schedule
More than five years 1,069 447
Between two and five years 647 693
Between one and two years 60 55
Loan capital 1,776 1,195
Short term borrowings 971 770
Total borrowings 2,747 1,965
The funding policy of the group is to maintain a broad portfolio of debt,
diversified by source and maturity and to maintain committed facilities
sufficient to cover 117.5% of peak anticipated debt requirements (with a minimum
of (pound)300m). At 31 August 2002 the group had available undrawn committed
bank facilities of (pound)1,606m (2001: (pound)1,358m) of which (pound)580m
(2001: (pound)331m) mature in less than one year and (pound)1,026m (2001:
(pound)1,027m) between two and five years.
21. Financial instruments
The group's treasury policies are set out in the operating and financial review.
Set out below is a year end comparison of the current and book values of the
group's financial instruments by category, excluding short term debtors and
creditors. Where available, market rates have been used to determine current
values. Where market rates are not available, current values have been
calculated by discounting cash flows at prevailing interest and exchange rates.
31 August 2002 31 August 2001
------------------------------------------------------------------
Current Current
Book value Value Book value Value
(pound)m (pound)m (pound)m (pound)m
Cash at bank and in hand 169 169 111 111
Short term borrowings (971) (971) (770) (770)
Loan capital (1,776) (1,829) (1,195) (1,216)
Net debt (2,578) (2,631) (1,854) (1,875)
Interest rate risk management
Exposure to interest rate fluctuations on borrowings and deposits is managed by
using cross currency swaps, interest rate swaps and purchased interest rate
options. The group has a fixed/floating debt target of 60% +/- 10%. At the year
end, taking account of swaps, 61% (2001: 60%) of net debt was at fixed rates of
interest. At the year end, the weighted average maturity of net debt was
approximately 4.9 years (2001: 4.3 years).
28
31 August 2002 31 August 2001
------------------------------------------------------------------
Current Current
Book value Value Book value Value
(pound)m (pound)m (pound)m (pound)m
Interest rate swaps - (43) - (5)
Cross currency swaps 8 16 - (2)
8 (27) - (7)
There is a deferred loss in respect of interest rate swaps, being the net of the
current value less book value, of which (pound)11m (2001: (pound)1m) relates to
the financial year ending 31 August 2003 and (pound)32m (2001: (pound)4m)
thereafter.
There is a deferred gain in respect of cross currency swaps, being the net of
the current value less book value, of which (pound)1m (2001: nil) relates to the
financial year ending 31 August 2003 and (pound)7m (2001: (pound)2m - loss)
thereafter.
After taking account of cross currency and interest rate swaps, the currency and
interest rate exposure of net debt as at 31 August 2002 was:
31 August 2002 31 August 2001
Fixed rate debt Fixed rate debt
Weighted Weighted Weighted
Floating Fixed average average time Floating Fixed Weighted average time
Net rate rate interest for which Net rate rate average for which
debt net debt debt rate rate is debt net debt debt interest rate is fixed
fixed rate
(pound)m (pound)m (pound)m % Years (pound)m (pound)m (pound)m % Years
Sterling 350 166 184 6.6 11 127 52 75 6.6 10
Canadian dollar 68 6 62 5.8 6 95 28 67 5.8 7
US dollar 1,194 297 897 5.7 6 793 378 415 6.0 7
Euro 719 332 387 5.1 4 583 98 485 4.6 4
NZ dollar 252 214 38 9.1 3 178 140 38 9.3 5
Japanese Yen 68 32 36 0.9 3 71 34 37 0.9 4
Other (73) (73) - - - 7 7 - - -
Net debt 2,578 974 1,604 5.6 6 1,854 737 1,117 5.4 6
Some of the interest rate swaps included in the above table are cancellable at
the option of the banks at various dates between 2002 and 2006.
The floating rate debt includes bank debt bearing interest at rates based on the
relevant inter bank rate and on commercial paper rates in the UK, US, Canada and
France. These rates are fixed in advance for periods up to six months. The
weighted average interest rate on floating net debt as at 31 August 2002 was
approximately 3.6% (2001: 4.0%).
Foreign exchange
The group estimates its net transaction cash flows, in its main currencies of
business which are then hedged forward for up to 18 months using a combination
of forward exchange contracts and purchased foreign exchange options. At the
year end 86% (2001: 90%) of such currency exposures for the following 12 months
had been hedged and 0% (2001: 19%) had been hedged between 12 and 18 months.
The estimated current value of the foreign exchange cover forward contracts and
options entered into to hedge future transaction flows is set out below based on
quoted market prices where available and option pricing models.
29
31 August 2002 31 August 2001
Nominal Nominal
value of Book Current value of Book Current
derivatives value value derivatives value Value
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
Foreign exchange forward rate contracts
- assets 128 - 12 49 1 1
- liabilities 97 - (3) 168 (1) (1)
Options
- assets - - - - - -
- liabilities 6 - - 12 - -
231 - 9 229 - -
A net gain of (pound)9m was recognised on all foreign exchange forward contracts
and options maturing in the year to 31 August 2002 (2001: (pound)11m loss).
At 31 August 2002 and 31 August 2001, there were no material monetary assets or
liabilities in currencies other than the functional currencies of group
companies, having taken into account the effect of derivative financial
instruments that have been used to hedge foreign currency exposure.
Allotted, called up
Authorised and fully paid
31 August 31 August 31 August 31 August
2002 2001 2002 2001
22. Share capital (pound)m (pound)m (pound)m (pound)m
Equity
Ordinary shares of 25p 400 300 277 267
Authorised Issued
million million million million
Number of shares 1,600 1,200 1,107 1,068
At the Annual General Meeting of the company held on 31 January 2002, the
authorised share capital was increased to (pound)400m by the creation of an
additional 400m ordinary shares of 25p each.
On 27 February 2002 the group announced that it had placed 39 million New
Ordinary Shares (the "New Ordinary Shares") at a price of 390p per New Ordinary
Share. The New Ordinary Shares represented 3.7% of Allied Domecq's existing
issued share capital. The New Ordinary Shares were admitted to the Official List
of the UK Listing Authority and began trading on the London Stock Exchange on 4
March 2002.
The gross proceeds receivable by the Group were (pound)152m which was used
towards the financing of the acquisitions of Malibu and Mumm Cuvee Napa. Net
proceeds after issue costs were (pound)149m.
Share option schemes
During the year, 8,110,144 options have been granted under existing employee
share options schemes. Options were exercised over 762,494 shares and options
over 1,348,191 shares lapsed during the year. Details of the unexercised options
granted under the company's employee share option schemes at 31 August 2002 were
as follows:
Option Ordinary
Date of grant Price (p) shares
SAYE Scheme 1999 3 December 1999 262.0 1,239,345
International SAYE Scheme 1999 2 June 2000 265.0 854,840
30 November 2001 282.0 573,211
Approved Executive Share Option Scheme 1999 5 May 2000 331.0 54,378
8 May 2001 408.0 1,139,560
2 November 2001 351.5 320,942
3 May 2002 438.0 41,094
Executive Share Option Scheme 1999 1 November 1999 342.0 5,620,745
16 November 1999 331.5 1,724,639
5 May 2000 331.0 174,073
8 May 2001 408.0 3,562,194
2 November 2001 351.5 5,158,849
3 May 2002 438.0 221,853
Long Term Incentive Scheme 1999 8 May 2001 0.1 1,263,666
2 November 2001 0.1 1,563,889
3 May 2002 0.1 77,054
23,590,332
30
The company currently satisfies the exercise of options using existing shares
that are purchased in the market by the company's employee trusts. As at 31
August 2002 the company's employee trusts held 24,514,993 shares in the company
all of which were the subject of options granted under the company's employee
share schemes. The trustees are obliged to waive the dividends on these shares.
The options exercised during the year were all satisfied by the transfer of
shares to participants by the employee trusts.
Share Profit
Share premium Merger and loss
capital account reserve account Total
23. Capital and reserves (pound)m (pound)m (pound)m (pound)m (pound)m
Group
At the beginning of the year 267 26 (823) 924 394
Prior year adjustment - - - (53) (53)
At the beginning of the year as restated 267 26 (823) 871 341
Issue of ordinary share capital 10 139 - - 149
Profit earned for shareholders for the year - - - 392 392
Currency translation differences on foreign currency net investments - - - (23) (23)
Deferred taxation - origination and reversal of timing differences - - - (12) (12)
Ordinary dividends - - - (141) (141)
At the end of the year 277 165 (823) 1,087 706
Goodwill (at historic exchange rates) of (pound)2,284m has been written off to
reserves.
The group adopted FRS19 - Deferred Taxation during the year ended 31 August 2002
and restated the opening balance sheet. This resulted in a reduction in
shareholders' equity of (pound)53m being (pound)46m to the deferred tax balance
(note 19) and (pound)7m to the share of reserves of associated undertakings
(note 15). The tax charge for the year ended 31 August 2001 did not change as a
result of the adoption of this standard.
Share Profit
Share premium Merger Capital and loss
capital account reserve reserve account Total
Parent company (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
At the beginning of the year 267 26 2,420 651 143 3,507
Issue of ordinary share capital 10 139 - - - 149
Profit earned for shareholders for the year - - - - 590 590
Ordinary dividends - - - - (141) (141)
At the end of the year 277 165 2,420 651 592 4,105
Equity Non-equity Total
24. Minority interests (pound)m (pound)m (pound)m
At the beginning of the year 65 3 68
Currency translation adjustment (1) - (1)
Share of profits of subsidiary undertakings 12 1 13
Dividends declared (4) - (4)
Additions 4 - 4
At the end of the year 76 4 80
31
25. Acquisitions
During the year the group made the following acquisitions which were accounted
for using the purchase method of accounting. Goodwill will be amortised over a
20 year period on a straight line basis. The results of operations of the
businesses have been included in the group's consolidated profit and loss
account from the date of acquisition.
Accounting Fair
Book Policy Value
Values Adjustments Adjustments Total
a) Kuemmerling GmbH (pound)m (pound)m (pound)m (pound)m
Tangible fixed assets 2 - 5 7
Stocks 2 - - 2
Debtors 8 - - 8
Borrowings (1) - - (1)
Creditors (7) - - (7)
Taxation (1) - - (1)
Net assets acquired 3 - 5 8
Goodwill 116
Purchase consideration - cash 124
On 4 September 2001, the group completed the acquisition of Kuemmerling GmbH.
Kuemmerling is Germany's fourth largest spirits brand and the second largest in
the bitters category and has been consolidated into the group's Spirits and Wine
segment. This acquisition strengthens the group's global spirits business. The
goodwill arising on this acquisition principally relates to the purchase of an
established spirits brand. In connection with the acquisition, the group
purchased all of the outstanding share capital of Kuemmerling GmbH. None of the
goodwill is deductible for tax purposes.
Accounting Fair
Book Policy Value
Values Adjustments Adjustments Total
b) Bodegas y Bebidas S.A. (pound)m (pound)m (pound)m (pound)m
Tangible fixed assets 74 - 12 86
Investments 4 (4) - -
Stocks 49 3 - 52
Debtors 62 - - 62
Borrowings (35) - - (35)
Creditors (43) - - (43)
Taxation (3) - (4) (7)
Other Provisions (5) - 3 (2)
Minority interests (4) - - (4)
Net assets acquired 99 (1) 11 109
Goodwill 55
Purchase consideration - cash 164
On 7 September 2001, the group filed with the Spanish Stock Exchange Commission
(the "CNMV") a recommended cash offer for the entire share capital of Bodegas y
Bebidas S.A. a market leading Spanish wine producer. The offer valued the equity
of Bodegas y Bebidas S.A. at EUR 279 million. The offer was cleared by CNMV and
the group completed the acquisition of 98% of the outstanding share capital of
Bodegas y Bebidas on 27 December 2001. Bodegas y Bebidas has been consolidated
into the group's Spirits and Wine segment. The acquisition expands the group's
global wine business.
32
The goodwill arising on the acquisition principally relates to the purchase of
established premium wine brands. We anticipate that the goodwill arising may be
deductible for tax purposes, although the amount is yet to be determined. The
goodwill and other amounts arising may be subject to adjustment as fair values
are finalised.
Accounting Fair
Book Policy Value
Values Adjustments Adjustments Total
c) Mumm Cuvee Napa (pound)m (pound)m (pound)m (pound)m
Tangible fixed assets 11 - 3 14
Stocks 16 - (7) 9
Creditors (4) - - (4)
Taxation - - 4 4
Net assets acquired 23 - - 23
Goodwill 8
Purchase consideration - cash 31
On 22 May 2002, the group acquired Mumm Cuvee Napa, a premium Californian
sparkling wine for cash consideration of (pound)31 million. This acquisition of
a premium wine further develops the group's global wine business.
The goodwill arising on the acquisition principally relates to the purchase of
established premium wine brands. We anticipate that the goodwill arising may be
deductible for tax purposes, although the amount is yet to be determined. The
goodwill and other amounts arising may be subject to adjustment as fair values
are finalised.
d) Montana
The group completed the acquisition of Montana on 31 August 2001 and published a
provisional table of book values of the assets acquired. During the year ended
31 August 2002 the group completed this valuation which did not result in any
material change to the individual numbers previously disclosed. The net increase
in goodwill amounted to (pound)5m. During September 2001 the group paid
(pound)231m deferred purchase consideration to the shareholders of Montana.
Year to Year to
31 August 31 August
2002 2001
26. Detailed analysis of gross cash flows (pound)m (pound)m
Returns on investments and servicing of finance
Interest received 8 6
Interest paid (137) (78)
Dividends paid to minority shareholders (4) (4)
(133) (76)
Taxation paid
UK taxation (1) 15
Overseas taxation (177) (49)
(178) (34)
Capital expenditure and financial investment
Purchase of tangible fixed assets (133) (97)
Sale of tangible fixed assets 17 24
Purchase of intangible fixed assets (556) (23)
Purchase of trade investments (13) -
Disposal of trade investments 7 4
Purchase of ordinary share capital for employee benefit trust (34) (26)
(712) (118)
Acquisitions and disposals
Purchase of subsidiary undertakings (550) (442)
Borrowings acquired with subsidiary undertakings (36) (193)
Cash and overdrafts disposed of with subsidiary undertakings - (1)
Sale of associated undertakings - 1
(586) (635)
Financing
Issue of ordinary share capital 149 -
Redemption of debt - (637)
Bonds issued during the year 622 944
Increase in other borrowings 27 181
798 488
34
Year to Year to
31 August 31 August
2002 2001
27. Reconciliation of net cash inflow from operating activities to free cash flow (pound)m (pound)m
Net cash inflow from operating activities 760 423
Capital expenditure net of sale of tangible assets (116) (73)
Dividends received from associated undertakings 11 9
Operating cash net of fixed assets 655 359
Taxation paid (178) (34)
Net interest paid (129) (72)
Dividends paid
- ordinary shareholders (133) (163)
- minorities (4) (4)
Free cash flow 211 86
Year to 31
August
Cash at Overdrafts Other loans Loan capital 2002 2001
bank and due within due within due after Net Net
in hand one year one year one year debt debt
28. Net debt (pound)m (pound)m (pound)m (pound)m(pound)m(pound)m
At the beginning of the year 111 (660) (110) (1,195) (1,854) (1,252)
Increase/(decrease) in cash 39 (233) - - (194) (112)
Increase in liquid resources 21 - - - 21 6
Increase in loan capital and other loans - - (19) (630) (649) (488)
Exchange adjustments (2) 50 1 49 98 (8)
At the end of the year 169 (843) (128) (1,776) (2,578) (1,854)
31 August 31 August
2002 2001
29. Capital commitments (pound)m (pound)m
Contracted for but not provided in the accounts 1 8
Land and Land and
Buildings Other Buildings Other
31 August 31 August 31 August 31 August
2002 2002 2001 2001
30. Operating lease commitments (pound)m (pound)m (pound)m (pound)m
The minimum operating lease payments to be made in the year ending
31 August 2002 for leases expiring:
Within one year 3 1 3 2
Within two to five years 15 7 20 5
After five years 41 1 20 2
59 9 43 9
35
Parent company
31 August 31 August
2002 2001
31. Contingent liabilities (pound)m (pound)m
Guarantees in respect of liabilities of subsidiary undertakings 2,654 1,755
In the normal course of business, the group has a number of legal claims or
potential claims against it, none of which are expected to give rise to
significant loss. We are not currently involved in any legal or arbitration
proceedings, including any proceedings which are threatened or pending of which
we are aware, which may have a material effect on our financial position,
results of operations or liquidity.
32. Related party transactions
Transactions with associated undertakings
All transactions with these undertakings arise in the normal course of the
business.
Year to Year to
31 August 2002 31 August 2001
(pound)m (pound)m
Sales to associated undertakings 50 43
Purchases of goods and other services (13) (11)
Marketing expenditure charged (8) (11)
Dividends received 11 9
As at As at
31 August 2002 31 August 2001
(pound)m (pound)m
Loans to associated undertakings 2 2
Net amounts due from associated undertakings 11 11
Transactions with directors
Remuneration and shareholdings of directors are disclosed in the remuneration
report.
33. Statutory accounts
The financial statements of Allied Domecq PLC for the year ended 31 August 2002
and this preliminary announcement were approved by the board of directors on 28
October 2002. This announcement does not constitute the group's statutory
accounts but is derived from those accounts.
The financial information for the year ended 31 August 2001 is derived from the
Group's statutory accounts for 2001 which have been delivered to the Registrar
of Companies. The auditors have reported on the 2001 statutory accounts and on
the 2002 statutory accounts; both of these audit reports were unqualified and
did not contain a statement under section 237 (2) or (3) of the Companies Act
1985. The 2002 statutory accounts will be delivered to the Registrar of
Companies following the Annual General Meeting.
36
34. Annual Report and Annual General Meeting
The Annual Report will be sent to shareholders by the end of November 2002. The
Annual General Meeting of the company will be held on 4th February 2003 at the
Le Meridien Grosvenor House Hotel, Park Lane, London W1K 7TN.
35. Dividends
An interim ordinary dividend of 4.9p per share was paid on 26 July 2002 and the
directors are recommending a final ordinary dividend of 8.1p per share, making a
total for the year of 13.0p. The ex dividend date for the final dividend is 8
January 2003 and the record date is 10 January 2003. The final dividend will be
paid on 7 February 2003.
US GAAP reconciliation
Allied Domecq listed on the New York Stock Exchange on 31 July 2002. An
explanation and reconciliation from UK to US GAAP follows below.
Differences between UK and US Generally Accepted Accounting Principles
The Group's consolidated financial statements are prepared in accordance with UK
GAAP, which differ from those generally accepted in the United States ("US
GAAP"). The significant differences between UK GAAP and US GAAP which affect the
Group's net income and shareholders' equity are summarised below.
a) Brands, goodwill and other intangible assets
Under UK GAAP, goodwill arising on acquisitions of a business since 1 September
1998 is capitalised and amortised by equal instalments over its anticipated
useful life, but not exceeding 20 years. Goodwill arising on acquisitions prior
to 1 September 1998 was charged directly to reserves. On disposal of a business,
any attributable goodwill previously eliminated against reserves is included in
the calculation of any gain or loss. Other purchased intangible assets are
capitalised and amortised over their useful economic lives on a straight line
basis. Where intangible assets, such as brands, are regarded as having
indefinite useful economic lives, they are not amortised but are subject to
annual impairment reviews.
Under US GAAP, prior to the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 141 - Business Combinations and SFAS No. 142 - Goodwill
and Other Intangible Assets, goodwill and other intangible assets arising on
acquisition were capitalised and amortised over their useful economic lives, but
not exceeding 40 years. The group adopted the provisions of SFAS No. 141 as at 1
July 2001, and SFAS No. 142 as at 1 September 2002. Goodwill and intangible
assets determined to have an indefinite useful life acquired in a purchase
business combination are no longer amortised and are subjected to annual
impairment testing. Upon adoption of SFAS No. 142 the Group's accumulated
amortisation for brands and goodwill was (pound)356 million and (pound)180
million respectively. Accordingly, net income no longer includes amortisation of
brands, and goodwill amortisation recognised under UK GAAP is reversed.
The amount of goodwill under UK GAAP differs to that under US GAAP due to the
fair values allocated to intangible assets, significantly brands, stock, and the
exclusion from the purchase price consideration of certain costs.
b) Associated undertakings
The principal difference between UK GAAP and US GAAP relates to the accounting
treatment of goodwill which is discussed in note a).
c) Stocks
37
Under UK GAAP, stock acquired through a business combination is valued at the
lower of replacement cost and net realisable value. Under US GAAP, stock
acquired through a business combination reflects the selling price less costs to
complete, costs of disposal and a reasonable element of profit for the selling
effort by the acquiring company.
d) Investments
Under UK GAAP, other investments include amounts in respect of ordinary shares
held by the employee share trust. Under US GAAP, these amounts would be treated
as Treasury Stock and deducted from shareholders' funds.
e) Restructuring costs
Under UK GAAP, provisions are made for restructuring costs once a detailed
formal plan is in place and valid expectations have been raised in those
affected that the restructuring will be carried out. Provision is made for
voluntary redundancy payments to the extent that it is expected that volunteers
will come forward. US GAAP requires a number of specific criteria to be met
before restructuring costs can be recognised as an expense. Also, to the extent
restructuring costs are related to the activities of an acquired company, US
GAAP allows them to be recognised as a liability upon acquisition provided
certain specific criteria are met whereas UK GAAP does not. Accordingly, timing
differences arise between UK GAAP and US GAAP recognition of restructuring
costs.
f) Pension and other post retirement benefits
Under the group's accounting policy for post-employment benefits, in accordance
with SSAP 24, pension costs are charged to the profit and loss account on a
systematic basis over the service life of employees based on consultation with
actuaries and using the projected unit credit method and a set of long-term
actuarial assumptions.
Under US GAAP, pension costs and liabilities are calculated in accordance with
SFAS No. 87--Employers' Accounting for Pensions. This standard requires the use
of the projected unit credit method and prescribes, in particular, the use of a
market-related discount rate. This is not the same as the long-term approach
used under SSAP 24.
g) Share compensation
Under UK GAAP, the cost of share option plans are amortised based on the cost of
the shares acquired by the employee trust to fulfil the plan, less the amount
contributed by the employee. Under US GAAP, compensation for fixed plan awards
is determined at the date of grant, based on the cost of the fair value of the
shares subject to the award, less the option exercise or purchase price, if any,
except for allowable discounts with respect to certain qualified plans where the
discount is no greater than 15% of the fair value of the shares. Compensation
costs for variable plan awards is estimated at the end of each period from the
date of grant to the date final compensation costs are determinable based on the
difference between the fair value of the shares subject to the award and the
option exercise or purchase price. Such cost is allocated to compensation
expense over the vesting period and, if performance criteria are applicable to
the award, based on actual performance attained.
h) Proposed dividends
Under UK GAAP, the proposed dividends on ordinary shares, as recommended by the
directors, are deducted from shareholders' equity and shown as a liability in
the balance sheet at the end of the period to which they relate, including
proposed dividends which have been recommended but not yet approved by
shareholders. Under US GAAP, such dividends are only deducted from shareholders'
equity at the date of declaration of the dividend.
i) Derivative instruments
The group's foreign currency, interest rate and commodity contracts hedge
forecast exposures that do not meet the US GAAP hedge accounting criteria. Under
US GAAP, these contracts are marked to market at the balance sheet date and
gains and losses arising are included in net income. Under UK GAAP, these gains
and losses can be deferred until the hedged transactions actually occur.
The group may enter into foreign currency contracts to hedge the purchase price
consideration on certain acquisitions. Under UK GAAP, the gains and losses
arising on these foreign currency contracts are recognised in the purchase price
consideration. Under US GAAP, the gains and losses arising on these foreign
currency contracts are recognised within net income.
38
j) Deferred taxation
The group has adopted FRS 19--Deferred Tax in the year ended 31 August 2002.
Consequently, the consolidated financial statements as at 31 August 2001, and
the year ended 31 August 2001 have been restated and disclosures have been
modified to reflect retroactively the impact of the adoption of FRS 19 on such
financial statements as required by UK GAAP. FRS 19 brings accounting for
deferred tax under UK GAAP conceptually closer to US GAAP, although some
differences remain. Following the group's restatement under FRS 19, and other
than the tax effect of other UK to US GAAP differences, there is only one
material difference between UK GAAP and US GAAP. This difference relates to the
recognition criteria for recording deferred tax assets under US GAAP and UK
GAAP. Under US GAAP, the calculation of current and deferred tax assets is based
on the probable tax treatment of the tax position taken. Once it is determined
that there is a probable deferred tax asset, it is then reduced by a valuation
allowance to the extent it is deemed more likely than not (a likelihood of more
than 50%) that some portion or all of the deferred tax asset will not be
realised.
Under UK GAAP, both the existence of the asset and the probability of its
recoverability are considered in combination, and a deferred tax asset is
recognised only to the extent that its existence and recoverability are probable
(a threshold which is higher than "more likely than not").
k) Exceptional items
Under UK GAAP, exceptional items are those that, by virtue of their size or
nature, the board of directors believes should be separately disclosed. Such
items are included within the profit and loss account heading and disclosed in
the notes to the consolidated financial statements. Under US GAAP, there is no
such concept as exceptional items. Exceptional items would not be considered
extraordinary or non-operating items under US GAAP.
l) Mexican excise rebate
Under UK GAAP, we are recognising the amount due when offset against future
excise duty and other taxes payable. Under US GAAP, the Mexican excise rebate
was recognised upon the issuance of a favourable court judgment and additional
interest and inflation adjustments are recognised as they accrue.
m) Liabilities
The group is contractually obligated to make a payment to a business venture
partner upon termination of the venture which, unless renewed, is scheduled to
terminate in 2029. Under UK GAAP, the group records the obligation at the
present value of the payment obligation, discounted at a risk-adjusted rate to
reflect the time value of money, and recognises interest expense each period
such that the recorded obligation will equal the payment obligation at the
currently best estimated scheduled maturity. Under US GAAP, the obligation is
recorded at the amount payable at maturity (i.e. undiscounted).
n) Franchise income
The group has entered into agreements to sell the right to develop multiple
stores within a specified territory, which entitles the group to non-refundable
franchise fees. Under UK GAAP, these franchise fees are recognised upon signing
of the agreement. Under US GAAP, the revenue recognition is based on store
openings or until the rights to develop the territory have been forfeited.
39
Year to Year to
31 August 31 August
2002 2001
Note (pound)m (pound)m
Profit earned for ordinary shareholders in accordance with UK GAAP 392 344
Adjustments to conform with US GAAP:
Brands a) - (32)
Goodwill a) 38 (16)
Other intangible assets a) (4) (5)
Stocks c) (66) (1)
Restructuring costs e) 4 (10)
Pension costs and other post retirement benefits f) 28 (3)
Share compensation g) - (1)
Derivative instruments i) 90 (19)
Mexican excise rebate l) (54) 94
Franchise income n) (9) -
Other (1) 2
Deferred taxation - other j) (40) -
Deferred taxation - on above US GAAP adjustments j) 28 (21)
Minority share of above adjustments - -
Net income in accordance with US GAAP 406 332
Other comprehensive income:
Minimum pension liability (203) (207)
Currency translation differences (130) (11)
Comprehensive income in accordance with US GAAP 73 114
Net earnings per ordinary share
Basic 38.1p 31.5p
Diluted 38.0p 31.5p
Goodwill and other intangible assets - adoption of SFAS No. 142
Reported net income in accordance with US GAAP 406 332
Add back: brand amortisation - 32
Add back: goodwill amortisation - 29
Adjusted net income in accordance with US GAAP 406 393
Basic earnings per share :
Reported net income in accordance with US GAAP 38.1p 31.6p
Brand amortisation - 3.1p
Goodwill amortisation - 2.8p
Adjusted net income in accordance with US GAAP 38.1p 37.5p
Diluted earnings per share :
Reported net income in accordance with US GAAP 38.0p 31.6p
Brand amortisation - 3.1p
Goodwill amortisation - 2.8p
Adjusted net income in accordance with US GAAP 38.0p 37.5p
Shareholders' equity
Year to Year to
31 August 31 August
2002 2001
Note (pound)m (pound)m
Shareholders' funds as reported in the Group balance sheet 706 341
Adjustments to conform with US GAAP:
Brands a) 1,410 1,203
Goodwill a) 185 291
Other intangible assets - costs a) 168 197
Other intangible assets - accumulated amortisation a) (144) (166)
Associated undertakings b) 57 57
Stock c) 45 85
Investments d) (93) (61)
Restructuring costs e) 8 4
Pension and other post retirement benefits f) (555) (291)
Share compensation g) 1 1
Proposed dividends h) 88 80
Derivative instruments i) (26) (5)
Mexican excise rebate l) 40 94
Liabilities m) (38) (38)
Franchise income n) (9) -
Other 6 1
Deferred taxation - other j) 11 51
Deferred taxation - on above US GAAP adjustments j) (319) (360)
Minority share of above adjustments - -
Shareholders' equity in accordance with US GAAP 1,541 1,484
40