SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR October 21, 2003
ALLIED DOMECQ PLC
(Exact name of Registrant as specified in its Charter)
ALLIED DOMECQ PLC
(Translation of Registrant's name into English)
The Pavilions
Bridgwater Road
Bedminster Down
Bristol BS13 8AR
England
(Address of Registrant's principal executive offices)
Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.
Form 20-F x Form 40-F
-------- --------
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Yes No x
-------- ----------
If "Yes" is marked, indicate below the file number assigned to
the registrant in connection with Rule 12g3-2(b): 82- _____
Exhibit Index
Exhibit No. Description
99.1 Final Results
21 October 2003
ALLIED DOMECQ DELIVERS STRONG BRAND GROWTH
Allied Domecq announces its preliminary results for the year ended
31 August 2003
with another strong year of growth
FINANCIAL HIGHLIGHTS
Growth at
Reported constant
As reported growth currency
2003 2002 % %
- Turnover GBP3,410m GBP3,334m 2 6
- Trading profit GBP621m GBP610m 2 5
- Profit before tax GBP495m GBP480m 3 9
- Normalised earnings per share 33.5p 32.6p 3 9
- Dividend 14.0p 13.0p 8
- Spirits & Wine volumes (9L cases) 68.6m 63.5m 8
- Net cash flow from operating
activities GBP702m GBP557m 26
Profits and normalised earnings are stated before goodwill and exceptional items
unless otherwise stated. The pre-tax benefit of the Mexican excise rebate for
the year to 31 August 2003 was GBP38m and has been treated as an exceptional
item. Cash flow from operating activities excludes the pre-tax benefit of the
Mexican excise rebate (2003: GBP46m; 2002: GBP203m).
Philip Bowman, Chief Executive, said: "These results demonstrate the resilience
of Allied Domecq's performance internationally. We have delivered increased
profits, strong brand growth and excellent cash generation across the business
after dealing with the pension and foreign exchange issues we reported in the
first half and the economic uncertainty created by the Iraq war and the SARS
virus. At constant currencies, earnings per share grew 9%. Excluding pension
costs and foreign exchange, underlying profits grew by 20%.
"Our geographical diversity with our core markets in Mexico, US, South Korea and
Spain provides us with a hedge against localised economic downturn and the
strong performance in the US this year has helped us ride out difficult
conditions in the Eurozone.
"The spirits brand portfolio, revitalised over the past three years by the
acquisition of complementary brands, innovation and our new approach to
marketing, has provided the company with a bedrock of brand strength and
resilience.
"Our premium wine brands have performed strongly and are on track to deliver the
targeted return on investment. Our strategy based around geographical and
varietal diversity, brand laddering and economies in procurement has shielded us
from the difficult year experienced by most other wine companies.
"The Quick Service Restaurants business has delivered strong growth with profit
up 8%. Our continued investment in innovation and marketing has ensured the
continued vibrancy of the Dunkin' Donuts and Baskin-Robbins brands.
"There are continued uncertainties in the world economy and the Eurozone remains
difficult. We are confident, however, that our business is well positioned to
meet the challenges. Early indications are that the 2004 financial year has
started well and we are on track to meet current expectations."
OPERATIONAL HIGHLIGHTS
- Revitalised spirits portfolio delivering growth with seven of the nine
core brands in volume growth
- Premium wine brands growing organic profit by 12% through positive mix
and on track to deliver target returns
- Quick Service Restaurants delivering strong like-for-like growth and new
store openings
- Strong cash generation and debt reduction
FURTHER FINANCIAL HIGHLIGHTS
Comparative information here and in the Operating and Financial Review is based
on constant exchange rates.
Total growth in Spirits & Wine Organic growth in Spirits & Wine
-Volumes up 8% -Volumes up 1%
-Net turnover up 7% -Net turnover up 2%
-Net brand contribution up 7% -Net brand contribution up 2%
-Trading profit up 4% -Trading profit down 5%
Driven by organic growth in core Good organic performance in premium
brands wine
-Volumes up 5% -Volumes down 2%
-Net turnover up 5% -Net turnover up 4%
-Marketing spend up 2% -Marketing spend up 13%
-Net brand contribution up 7% -Trading profit up 12%
Profit growth in Quick Service Growth despite challenging
Restaurants environment
-Distribution points up 8% -Increased pension costs (up
-Trading profit up 8% GBP48m)
-System-wide sales up 5% -Adverse foreign exchange
(GBP19m)
-Slowing economies and SARS
virus
Improving cash generation
-Cash flow from operating activities up 26% to GBP702m (excluding
Mexican excise rebate)
-Free cash flow after dividends improved from GBP211m to GBP281m
-Pre-tax exceptional cash benefit of Mexican excise rebate of GBP46m
(2002: GBP203m)
For further information:
Media enquiries:
Stephen Whitehead, Director of Corporate Affairs +44 (0) 7880 783532
+44 (0) 20 7009 3927
Anthony Cardew, CardewChancery +44 (0) 20 7930 0777
Investor enquiries:
Graham Hetherington, Chief Financial Officer +44 (0) 20 7009 3910
Peter Durman, Director of Investor Relations +44 (0) 7771 974817
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 09.00
(UK time) on Tuesday 21 October 2003.
Presentation webcast/audio broadcast:
A live webcast of the presentation to analysts will be available on the investor
relations section of the corporate website at 09.30 (UK time) on Tuesday 21
October. A recording of the webcast will be available from around 14.00 (UK
time).
A live audio broadcast of the presentation and question and answer session will
also be available. The presentation can be accessed by dialling:
UK/Europe: 0845 144 0006/+44 1452 569 102
US/Canada: +1 866 224 2843
Conference call:
A conference call will be held for analysts and investors at 16.00 (UK time) on
Tuesday 21 October. The call can be accessed by dialling:
UK/Europe: 0845 140 0165/+44 1452 568 061
US/Canada: +1 866 224 2972
A recording of the conference call will be available from 19.00 (UK time) on 21
October until 28 October 2003. Call the following numbers to listen to the
recording:
UK/Europe: 0845 245 5205/+44 1452 550 000 Passcode: 565087#
US/Canada: +1 866 276 1167 Passcode: 565087#
Photography:
Original high resolution photographs are available to the media free of charge
at www.newscast.co.uk +44 20 7608 1000.
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.
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 include the benefit of the Mexican excise
rebate. Organic growth comparisons exclude the contribution of acquisitions
until they have been incorporated in the business for a full 12 months from the
date of acquisition. Volumes are quoted in nine litre cases unless otherwise
specified.
Brands
All brands mentioned in this press release are trademarks and are registered and
/or otherwise protected in accordance with applicable law.
OPERATING AND FINANCIAL REVIEW
Summary
The results reflect an exceptionally strong underlying trading performance.
Reported earnings per share have increased by 3% to 33.5p, after absorbing the
impact of two non-trading factors: foreign exchange and pensions. At constant
currency, earnings per share growth improves to 9% and, excluding the effect of
increased pension costs, earnings growth increases to 20%. This is after we have
absorbed the impact of trade inventory reductions in Spain and demonstrates the
strength of our trading performance particularly in the US, Asia Pacific, Latin
America, Premium Wines and Quick Service Restaurants.
Reported turnover for the Group was up 2% to GBP3,410m and trading profit up 2%
to GBP621m.
At constant exchange rates, turnover was up 6% in the period and trading profit
increased by 5%. Organic trading profit decreased by 2% to GBP578m. We have
delivered these results through increased Spirits & Wine gross profit and the
continued improved performance of our Quick Service Restaurants business. At the
same time, we absorbed a GBP48m increase in pension costs and the impact of a
reduction in wholesalers' inventories in Spain (GBP20m). We also completed our
programme to reduce trade inventories in the US at a cost of GBP10m (2002:
GBP19m). Normalised profit before tax grew by 9% to GBP495m. We have grown
earnings with a 9% improvement in normalised earnings per share to 33.5p per
share. The contribution from businesses acquired during last year was 1.6p per
share.
The Directors are recommending a final dividend of 8.7p per share giving a
total for the year of 14.0p, an increase of 8%.
Outlook
There are continued uncertainties in the world economy and the Eurozone remains
difficult. We are confident, however, that our business is well positioned to
meet the challenges. Early indications are that the 2004 financial year has
started well and we are on track to meet current market expectations.
Business drivers
Allied Domecq has delivered strong organic growth in its core spirits brands and
robust performances from Premium Wine and Quick Service Restaurants. We are
focusing on three areas to drive competitive advantage and build a robust
platform for future sustainable growth:
- Portfolio: By building and innovating our brand portfolio through
effective marketing, we will retain consumers who enjoy our brands and
attract and excite new consumers to win greater market share.
- Presence: Through prioritising, developing and extending our geographic
presence, we will establish strong positions in key markets across the
world.
- People: By developing our people, harnessing their talents and being an
'employer of choice', we will attract and retain the best people to deliver
our business goals.
Portfolio: Through a focused programme of effective marketing and innovation
over recent years, we have revitalised the growth of our portfolio -
particularly our core brands. Our "Go Play" programme of marketing activity has
stimulated continued market share growth for Ballantine's across Europe. New
marketing programmes and executions were launched during the year for Kahlua,
Sauza, Malibu and Stolichnaya to build brand equity and drive future growth. We
have also continued our focus on the effectiveness of our marketing spend.
Innovation is also fuelling growth in our core brands. The successful launch of
Tia Lusso, a cream liqueur extension of Tia Maria, has helped to grow the Tia
Maria brand by 14%. During the year, we continued our innovation programme with
the launch of Wet by Beefeater - a premium extension of Beefeater, and Kuya - a
spiced fusion rum extension of Kahlua. In addition, we have developed a range of
ready-to-drinks in markets such as Mexico and Australia which are growing
strongly.
The portfolio continues to benefit from the targeted acquisitions made over the
past three years in growing categories such as rum, vodka and premium wine.
Malibu has exceeded our expectations with good share growth in its key markets.
Stolichnaya has continued to grow volume and share in the competitive US vodka
market. Our premium wine brands have delivered strong growth demonstrating the
resilience of our wine operations - remaining firmly on track to meet their
targeted returns.
Presence: We have increased our exposure to key markets through focused
investment in distribution and sales capabilities. We will capitalise upon
existing market strengths and establish new positions in markets with the
capacity for growth. For example, we have further strengthened our partnership
with US distributors with the continued implementation of our "first choice
supplier" approach, with new contracts established in Illinois and California.
Our strong portfolio and distributor relationships has helped us to grow market
share in the US. We have significantly increased our sales force capabilities,
particularly in the on-trade in the UK and US. The profits from our Asia Pacific
business have increased fourfold since we invested in Jinro Ballantines in South
Korea in 2000. We have established market-leading positions in a number of key
countries in Central & Eastern Europe which will continue to drive future growth
in Europe.
We have also doubled the pace at which we are opening new distribution points in
our Quick Service Restaurants business such that distribution points increased
by 8% in the year. There remain considerable opportunities to increase our brand
presence within USA and internationally and we have a programme to open over
1,000 new distribution points in 2004.
People: Our people are key to unlocking the value of our brands. We encourage
our people to be passionate about our brands by providing opportunities for
development, rewarding good performance and recognising achievement. Through
rigorous evaluation and effective recruitment, we have progressively increased
the quality of our people. There is also now a clearer link between performance
and reward to create the right environment to drive the success of our people
and our brands.
Measured by turnover, our Spirits & Wine business is 49% larger than it was in
1999 as a result of targeted acquisitions and organic growth. We are leveraging
this increased scale by introducing new ways of working. This will reduce
overlap between central, regional and market-focused functions and will allow us
to be leaner and more responsive - to speed up decision making and to push
accountability out into the business. This is enabling us to be more competitive
and to respond more quickly to customers and changing market conditions. Our
objective is to grow the profitable volume of our brands while optimising the
efficiency of our operations.
SPIRITS & WINE
Total Organic
----------- -----------
2003 Growth 2003 Growth
----------------------------------
- Volume (9L cases) 68.6m 8% 64.2m 1%
- Net turnover GBP2,480m 7% GBP2,352m 2%
- Advertising and
promotion GBP437m 1% GBP414m (5)%
- Trading profit GBP522m 4% GBP479m (5)%
We have grown our Spirits & Wine net turnover through organic growth and
acquisition. Total Spirits & Wine volumes and net turnover increased by 8% and
7% respectively. Trading profit grew 4%.
Before acquisitions, volumes and net turnover grew 1% and 2% respectively. On an
organic basis, trading profit declined by 5% primarily as a result of the
increased pension costs (GBP48m). We have also absorbed the impact of the trade
inventory reductions in Spain (GBP20m) and US (GBP10m). These results reflect a
performance against a prior year that was particularly strong in the second
half.
Marketing excellence: During the year we increased advertising and promotion
spend by 1%. Before acquisitions, advertising and promotion declined by 5%,
following a 21% increase last year. This decline is driven partly by a 32%
reduction in Asia Pacific following a 57% increase last year driven by new
campaigns for Imperial and Ballantine's Masters. Spend in the region was reduced
during the second half because of the short term impact of SARS. We have also
reduced spend behind the Mexican brandies and our Other Spirits & Wine brands.
There has also been some reduction as a result of the transitioning of marketing
assignments between advertising agencies.
Over the past four years we have progressively increased our investment in
marketing our spirits portfolio particularly our core brands. Advertising and
promotion has increased by 59% since 1999 while turnover has increased by 49%
over the same period. Advertising and promotion for spirits brands, measured as
a percentage of net turnover, has increased by two percentage points since 1999
to 20%. Our wine brands, including premium wine brands, typically require lower
levels of spend at around 11% of net turnover.
In addition, we are increasingly rigorous in the way we allocate spend between
brands and markets: directing more spend behind new marketing campaigns and
product launches particularly for the core brands and withdrawing spend from
less effective areas. The investment is increasingly focused behind the core
brands which now receive 57% of the advertising and promotion spend. Our organic
spend behind the core brands increased by 2% in the year, particularly behind
Kahlua and Tia Maria. We have also increased organic spend behind the premium
wine brands by 13%, particularly the champagnes which have performed well.
Over the past four years, we have sought to improve the effectiveness of our
marketing spend through improved consumer research techniques, media and brand
tracking studies and through the way we work with our agencies. During the year,
we completed the agency realignment programme that we started in 2001,
rationalising from over 150 marketing agencies to one global agency. This
programme has already generated annual savings of around GBP20m since 2001 and
will ensure that we continue to leverage improved efficiencies for future
marketing activities. As a result, we are achieving a greater impact from our
increased spend such that we anticipate that our ongoing investment is likely to
track broadly in line with sales growth with some variation as specific brand
campaign and innovation opportunities arise.
Brand review
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 groups.
Core brands: The volumes and net turnover of our core brands, on a like-for-like
basis, both grew by 5% driven by strong growth across nearly all the brands.
Organic advertising and promotion behind the core brands was up 2% resulting in
net brand contribution up 7%.
Ballantine's has benefited from the "Go Play" campaign launched in 2002 and has
grown share strongly across its key markets in Europe and Asia Pacific. Both
Ballantine's and Beefeater have continued to grow market share in Spain.
However, despite these gains, both brands have recorded declines in overall
shipment volumes as a result of the change in buying patterns by wholesalers in
Spain. Outside Spain, Ballantine's volumes grew 3% and Beefeater volumes were
flat.
Canadian Club has grown share in the US and performed well with ready-to-drink
extensions in Australia driving total volumes up 9% and net turnover up 7%.
Excluding the ready-to-drink extensions, the Canadian Club mother brand grew
volumes by 5% and net turnover by 6%. Courvoisier has performed well in the US
and UK with overall volumes up by 5% and net turnover up by 4% although it has
slowed in the second half against a very strong performance last year.
Spirits & Wine volume and net turnover growth
Net
Volume Volume turnover
million growth growth
cases % %
----------------------------------------------------------------
Core brands
Ballantine's 5.5 (4) (3)
Beefeater 2.2 (2) 2
Canadian Club 2.4 9 7
Courvoisier 1.1 5 4
Kahlua 3.1 1 1
Maker's Mark 0.5 14 16
Malibu (organic) 0.8 50 47
Sauza 2.4 28 20
Tia Maria 0.9 14 15
Organic core brands 18.9 5 5
Malibu (acquired) 1.7 - -
Local market leaders 11.9 (4) (6)
Organic premium wine 13.1 (2) 4
Premium wine acquisitions 2.7 - -
Other Spirits & Wine brands
Other spirits 12.7 2 5
Other wine 7.6 4 (1)
Other Spirits & Wine Total 20.3 3 4
----------------------------------------------------------------
Total (including acquisitions) 68.6 8 7
----------------------------------------------------------------
organic (excluding acquisitions) 64.2 1 2
----------------------------------------------------------------
The performance of Kahlua has improved this year with volumes and net turnover
both up 1%. This has been driven by good performances in Latin America and Duty
Free and the launch of a new advertising campaign, "Unleash It", in the US.
Kahlua has also benefited from the launch in the US of Kuya, a spiced fusion
rum. This is the world's first fusion rum which is aimed at 21-29 year olds and
is being promoted through the "Do Ya Kuya?" campaign. Maker's Mark had another
good year with volumes up 14% and net turnover up 16%. Malibu is now fully
integrated as one of our core brands and has begun contributing to the organic
portfolio growth with three months of like-for-like sales. The brand has
performed well in its core markets with market share growth in the UK, US,
France and Spain.
Sauza became the world's fastest growing premium spirits brand with significant
market share growth in both US and Mexico. Sauza volumes grew 28% and net
turnover grew 20% with pricing down driven by the reduced cost of the raw
material, agave. A new fully integrated marketing campaign, "Get Lost" has
helped to drive brand awareness. The Tia Maria brand has continued to benefit
from the successful launch of Tia Lusso, a new light cream liqueur. Overall Tia
Maria volumes grew by 14% and net turnover by 15%.
Local market leaders: Stolichnaya has continued to perform strongly in the US
with good market share gains in volume and value. A new marketing campaign,
"Little Truths", was launched this summer to fuel future brand growth. The range
Stolichnaya flavours was also expanded with Stolichnaya Cranberi and Stolichnaya
Citros. Hiram Walker Liqueurs benefited from the successful launch of a new
range of fruit liqueurs in North America called Fruja which helped to grow its
volumes and net turnover up by 12%. Fundador continued to build on its position
as the largest international spirit brand in the Philippines with 6% growth in
volumes and 11% improvement in net turnover. The combined impact of a decline in
the shipment volumes of Whisky DYC and Centenario because of the change in
buying patterns by wholesalers in Spain and declines in Mexican brandies caused
overall local market leader brand volumes to fall by 4% and net turnover to
decline by 6%. Outside Spain, the local market leader volumes grew 1%.
Premium wine: The premium wine business grew volumes by 18% primarily as a
result of the acquisition of Bodegas y Bebidas in December 2001 and Mumm Cuvee
Napa in May 2002. Before the benefit of acquisitions, premium wine volumes fell
2% while net turnover grew 4% primarily as a result of the improving mix. A full
review of the premium wine brands is provided in the regional review below.
Other Spirits & Wine brands: The volumes of Other Spirits & Wine brands were
up 3% with net turnover up 4%, while net brand contribution grew by 6%. This has
been driven by strong performances by the ready-to-drink brands, Caribe Cooler
and Spirit by Terry, in Mexico and by good growth in various North American
brands such as Wiser's whisky and Polar Ice.
Market review
The regional performance of our business is reviewed below.
Europe
Organic Total
growth growth
- Volumes (9L cases) (6)% (2)%
- Net turnover (3)% 2%
- Advertising and promotion 8% 16%
- Trading profit (33)% (21)%
Reported net turnover grew 2% to GBP762m while trading profit declined 21% to
GBP114m. Before acquisitions, trading profit was down 33% reflecting net
turnover down 3% and advertising and promotion up 8%. Europe's profit decline
reflects increased marketing investment behind the launch of Tia Lusso. It was
also affected by a change in the buying patterns by Spanish wholesalers as they
reduced inventories. Outside Spain, our organic European volumes were flat and
net turnover grew 2% reflecting the sluggish economies in the region,
particularly Germany and France. Organic net brand contribution outside Spain
declined 5% reflecting the increased marketing spend for the launch of Tia
Lusso.
Our business in Spain grew its volume and value share of the total spirits
market, which continued to grow at around 2% in the year to July 2003. However,
a change in buying patterns by Spanish wholesalers caused shipment volumes to
fall by 17% on an organic basis for the year. The whisky category has continued
to grow, although at a slower rate than last year, but Ballantine's has gained
share by growing twice as fast as the category. We have continued to invest
behind Ballantine's "Go Play" in Spain with an 18% increase in advertising and
promotion to drive awareness in this important market. Beefeater has continued
to make progress with strong market share gains in the gin category. Centenario
has increased its share of the brandy category by two percentage points making
it the clear category leader. Malibu has performed very well under our ownership
with good growth in the on-trade helping to grow its market share.
The UK business had a good year with market share gains in the off-trade driven
by strong performances by Teacher's, Courvoisier, Tia Maria and Malibu.
Courvoisier grew volumes 6% and has retained its position as the number one
selling cognac in the UK. Tia Maria grew volumes 33% as a result of the launch
of Tia Lusso, which has become the number two selling cream liqueur in the UK.
Malibu has performed particularly strongly as the fastest growing speciality
liqueur brand in the on-trade.
Germany and France have both experienced sluggish economies which has slowed
consumer spending. However, key brands have made good progress with market share
growth in these markets. In Germany, Ballantine's has established itself as the
market leader in whisky. Ballantine's has also achieved market share gains in
France where Malibu has also returned to growth.
North America
Organic Total
growth growth
- Volumes (9L cases) 4% 9%
- Net turnover 7% 12%
- Advertising and promotion (4)% 3%
- Trading profit 20% 31%
Our North American business delivered a strong performance with reported net
turnover up 12% to GBP649m and trading profit up 31% to GBP182m. This was driven
primarily by the growth of core brand volumes and acquisitions. On an organic
basis, net turnover grew 7% on volumes up 4% leading to an increase in trading
profit of 20%. Organic advertising and promotion spend grew by 3% in the second
half primarily behind new above-the-line campaigns for the core brands.
The US business has delivered a robust trading performance to record overall
market share gains reflecting the strength of our brand portfolio and the
benefits of our partnership approach with our US distributors. Our focused
approach has delivered good growth across the brand portfolio.
Sauza has become a million case brand in the US with volumes up 16% to 1.1m
cases and net turnover up 14%. The strong market share gains have been helped by
the launch of a new marketing campaign, "Get Lost". The fully integrated
campaign features national and regional print adverts, broadcast advertising and
a national tour encompassing over 1,000 events. Maker's Mark continues to
outpace the bourbon category with volumes up 17% and net turnover up 19%.
The fast-growing vodka category has become increasingly competitive but
Stolichnaya has continued to gain share with volumes up 14%. The brand has
benefited from the launch in June of a new campaign, "Little Truths", which is
running in leading magazines and on billboards and radio. Hiram Walker Liqueurs
are up 12% as they begin to receive increased focus and as they benefit from the
launch of a new range of fruit liqueurs called Fruja.
Kahlua has begun to show improving consumer trends over recent months as the new
campaign called "Unleash It" has begun to receive above-the-line investment
during the second half. Volumes show a 1% decline but net turnover up 1%. The
brand was also extended with the launch of Kuya in the US - a spiced fusion rum
which combines imported rums with spices and citrus flavours.
Our US business has benefited significantly from the addition of Malibu which
has grown market share of the rum category. Courvoisier has grown volumes by 6%,
thereby taking market share. Beefeater volumes grew well helped by the premium
brand extension Wet by Beefeater, which has been launched in key on-trade
outlets in selected cities. Canadian Club continued to grow share with volumes
up 8%.
In August, Jim Clerkin was appointed President of the US spirits business.
During the year, we have implemented a new organisational structure, which is
allocating increased resource closer to the market. It is particularly directed
at brand building in the on-trade channel and towards improving our market share
in the Control States. This is supporting a better understanding of customers
and consumers and further strengthening our relationships with distributors. Our
objective is to work closely with our US distributors through a programme where
we are their "first choice supplier". We are focused on developing long-term
partnerships, which are sustainable and mutually beneficial.
During the second half, we completed our initiative to reduce the inventories in
the US supply chain with a GBP10m impact on trading profit. The destock resulted
in a reduction in shipments compared with depletions of 270,000 cases and
primarily affected Kahlua, Canadian Club, Beefeater and Hiram Walker Liqueurs.
During the last fiscal year, this planned destock had an adverse trading profit
impact of GBP19m, GBP8m of which was incurred in the first half of the year.
Latin America
Organic Total
growth growth
- Volumes (9L cases) 14% 15%
- Net turnover 8% 9%
- Advertising and promotion (9)% (9)%
- Trading profit 8% 10%
Despite challenging trading conditions in many economies across the region,
reported net turnover was up 9% to GBP303m and trading profit was up 10% to
GBP54m (excluding the Mexican excise rebate). Improving agave supply and our
recent investment in research and development to improve yields has resulted in
reduced tequila production costs and, together with a successful series of
promotions, has helped to grow Sauza volumes in the region by 41%. Mexican
brandy volumes declined by 4% reflecting the on-going declines across the
domestic brandy category. As a result, we have reduced spend behind the Mexican
brandy portfolio such that overall organic advertising and promotion for the
region declined by 9%. This follows a 27% increase last year. We have maintained
our position as market leader of the ready-to-drink category in Mexico with
volumes and net turnover up 13% and 25% respectively. This has been driven by
Spirit by Terry and Caribe Cooler, a wine cooler.
We have achieved good performances in Argentina and Brazil in spite of the
difficult economic environment. Our Argentine business has benefited
significantly from the acquisition of Graffigna in July 2001, making it the
leading spirits and wine business in Argentina. We have regained leadership of
the whisky category in Argentina through strong growth of Old Smuggler and the
launch of Teacher's. In Brazil, Ballantine's, Teacher's and Brandy Domecq have
all performed well.
During the period, the pre-tax profit of the Mexican excise rebate following the
Mexican Supreme Court ruling was GBP38m. This has been treated as an exceptional
item. This is the final payment giving a pre-tax total of GBP298m received over
the last three years.
Asia Pacific
Organic Total
growth growth
- Volumes (9L cases) 5% 7%
- Net turnover 0% 1%
- Advertising and promotion (32)% (32)%
- Trading profit 27% 30%
Asia Pacific has delivered strong trading profit growth in spite of a slowdown
in the region in the second half caused by weaker economies and the impact of
SARS on the Duty Free channel in a number of markets. Trading profit was up 30%
to GBP78m while net turnover grew 1% to GBP258m. On an organic basis, trading
profit grew 27%. The profit growth has been driven principally by South Korea
and good performances in the Philippines, Australia, the Middle East and
Thailand Duty Free. Organic advertising and promotion declined, following a 57%
increase in marketing investment last year. This decline is principally behind
Ballantine's, following the launch costs for Ballantine's Masters last year, and
Imperial, after a large increase last year for the "Imperial Keeper" campaign.
We also reviewed our spend in the second half as a result of the SARS impact in
the region.
Our South Korean business, Jinro Ballantines, grew strongly in the year with
market share growth over the last year. Ballantine's volumes grew 8% driven
particularly by growth in the super-premium aged Ballantine's range. Imperial
remains the clear leader in premium whisky and the largest volume whisky brand
in Korea although its volumes declined by 1% reflecting slowdown in the overall
scotch category during the second half. This category slowdown was driven by a
weaker Korean economy and by pressures on consumer credit.
Fundador continues to perform well in the Philippines with volumes up 6% and net
turnover growth of 11% driven by market share growth. Fundador is the largest
international spirits brand in the Philippines. Our business in Australia has
benefited from growth in the Canadian Club mother brand and CC Club and CC Cola
ready-to-drinks supported by the successful "similar yet different" message.
Premium Wine
Organic Total
growth growth
- Volumes (9L cases) (2)% 18%
- Net turnover 4% 18%
- Advertising and promotion 13% 23%
- Trading profit 12% 23%
Our premium wine brands have performed well against tough trading conditions in
many wine markets around the world. Reported net turnover grew 18% to GBP463m
and trading profit up 23% to GBP95m. We remain firmly on track to meet our
stated targets to grow the returns from our premium wines. This demonstrates the
resilience of our wine brands and the benefits of their broad geography which
provides a natural hedge against variations in recent wine cycles.
On an organic basis, trading profit grew 12% to GBP86m with volumes down 2% but
net turnover up 4%. This growth in turnover on declining volumes is directly in
line with our plans to improve the mix of the business by shifting our focus
towards premium wine brands. This is a long term strategy that we are
implementing across all our premium wine operations. For example, Bodegas y
Bebidas is part way through its transition to a premium branded business
focusing on the high value DO wines. As a result, volume reductions at Bodegas y
Bebidas distort the overall organic volumes, which have otherwise grown by 1%.
We have made good progress in the US where organic volumes have grown 2%. This
was driven mainly by a 5% volume growth of our largest US brand, Clos du Bois.
Volumes were also helped by good growth from Perrier Jouet and our Montana
brand, Brancott. Brancott has benefited significantly from being added to our
comprehensive distribution network in the US with volumes up 17% and a doubling
of net brand contribution. Mumm Cuvee Napa joined the portfolio in May 2002 and
like-for-like volumes increased 7%. There have been declines in some non-core
domestic brands as we have repositioned the portfolio towards our premium
brands.
Our UK wine business performed very strongly with organic volumes up 32%. The
main drivers have been the good performance of Mumm champagne and our Argentine
wine, Graffigna, which is now sold through our distribution network in the UK
and has more than doubled its volumes.
The Australian and New Zealand wine businesses performed well in spite of the
difficult trading conditions caused by an oversupply of certain grape varietals
and pricing pressure in the region. Our volumes in these markets grew 1%. In New
Zealand, Montana has continued to grow market share in the super premium
category where it also successfully grew sparkling wine volumes by 5%. The
Montana portfolio grew strongly in Australia with volumes up 39% as we have
extended our distribution presence.
Global Operations and Duty Free
The productivity of our Global Operations has continued to improve largely as a
result of increased production volumes through our existing sites. For example,
we have benefited from the integration of Malibu production at our sites in
Dumbarton, Jerez and Walkerville. The strong growth of Courvoisier has improved
productivity measures at Jarnac. In addition, procurement is now fully
co-ordinated across our Spirits & Wine business, and that has enabled us to
leverage synergies, especially in the areas of packaging and other services.
Our Duty Free operations have performed well within a difficult environment. The
first half saw strong organic growth and showed a recovery against the previous
year which was affected by the events of 11 September 2001. However, the impact
of the SARS virus, the Iraq war and slowing economies in many markets caused the
recovery to falter in the second half reflecting a decline in passenger traffic.
Our actions to mitigate these effects was successful with Ballantine's Aged
performing particularly well, retaining its market leadership position in super
premium scotch in duty free. The addition of Malibu and our premium wine brands
has made a very positive contribution to our Duty Free business. In particular,
our premium wines have benefited from the access to this channel provided by our
global distribution network.
QUICK SERVICE RESTAURANTS
- Distribution points up 8%
- Number of combination stores up 37%
- System-wide sales growth of 5%
- Trading profit up 8% to GBP79m
The strong profit growth in our Quick Service Restaurants business has been
driven by continued growth in same store sales and the contribution from new
stores. Distribution points increased by 8% as we significantly increased the
pace of store openings in both the US and internationally during the year. We
have plans to rapidly expand the number of distribution points over the coming
year. Overall turnover has fallen by 11% to GBP259m reflecting the final stage
in the process to full outsourcing of ice-cream manufacture for Baskin-Robbins
to Dean Foods in the US.
Dunkin' Donuts delivered a 7% growth in system-wide sales driven by a 4.4%
increase in US same store sales and a 7% increase in global distribution points.
Its same store sales growth has continued to outpace the overall QSR industry
driven by effective marketing work and innovation. Dunkin' Donuts has promoted
the sale of boxed donuts through a programme called "express donuts" which are
12 packs containing the top six flavours. This programme has also been supported
by a new campaign, "Who brought the donuts?", which encourages the purchase of
boxed donuts, thereby increasing the value of each customer transaction. In
addition, Dunkin' Donuts has driven its successful innovation programme with new
beverage offerings such as caramel iced coffee and lemonade coolatta which
benefited from a promotional competition with MTV called "Route to Cool". We
have also continued our focus on coffee with sales of "coffee by the pound"
growing well and a successful trial of a broader range of coffee offerings such
as cappuccino, latte, and espresso.
Baskin-Robbins same store sales in the US declined by 4.5% and global
system-wide sales were up 1% for the year reflecting the poor weather in key US
markets and the sluggish US economy - particularly in its core market of
California. Global distribution points increased by 9%. Baskin-Robbins ran movie
tie-ins with "X2:X-Men United" and "Sinbad" with new flavours such as Oreo
X-Mint, X-Treme Berry Sherbet and Sinbad's Triple Punch Sherbet. Free-Scoop
Nights continue to attract significant publicity to drive brand awareness.
Togo's has also been affected by the poor economic situation in California
resulting in a 5% decline in system-wide sales. Togo's has been refreshing its
product offering with the introduction of toasted sandwiches, a new line of
breads, meat and cheese and has expanded into a new range of salads and lighter
meals as well as kids meals.
Our strategy of multi-branded combination stores continues to be a driver of
growth in new store openings, with a 37% increase in the number of combination
stores to over 1,100 stores. This strategy is supported by our brands'
complementary day-part offering and brings significant benefits to our
franchisees through improved scale and operating efficiencies, along with
increased choices for consumers.
In January 2003, Jon Luther was appointed as Chief Executive Officer of the
Quick Service Restaurants business. During 2003, we restructured the business to
concentrate around the three brands and to provide improved focus on operational
systems and standards, menu and product development and the expansion of the
international business. The reorganisation has resulted in a leaner and more
focused organisation providing operational synergies. This resulted in an
exceptional charge of GBP9m which will generate annual cost savings of GBP7m.
BRITANNIA SOFT DRINKS
The Group's share of Britannia's profits for the period was GBP20m (2002:
GBP16m).
TAXATION
The normalised tax rate for the year has decreased from 25% to 24%, as we
continue to manage our tax liabilities. We anticipate that the normalised rate
for the year ending 31 August 2004 will remain at this level.
GOODWILL AND EXCEPTIONAL ITEMS
Goodwill amortisation totalled GBP40m (2002: GBP38m), the increase reflecting a
full year of amortisation relating to the acquisition of Bodegas y Bebidas.
The exceptional items of GBP28m reflect the benefit of the Mexican excise
rebate: pre-tax GBP38m (2002: GBP213m); post-tax GBP25m (2002: GBP138m). It also
includes a charge for the restructuring of Quick Service Restaurants (GBP9m) and
the completion of the acquisition integration programme announced in 2002
(GBP3m).
CASH FLOW
Net cash flow from operating activities was GBP748m (2002: GBP760m)
and free cash flow was GBP281m (2002: GBP211m). Cash flow benefited from a
rebate of excise duty (net of tax) in Mexico of GBP38m this year (2002:
GBP128m). If this non-repeatable item is excluded, free cash flow improved by
GBP160m to GBP243m. This improvement is a result of improved working capital
management, particularly debtor and creditor management, and lower tax payments.
Net debt decreased by GBP166m during the period from GBP2,578m to GBP2,412m
which includes an adverse currency translation impact on our borrowings of
GBP82m largely as a result of the strengthening Euro partially offset by a
weakening US dollar.
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. The Group broadly has a natural hedge to
the impact of fluctuations of the Euro on transaction costs from selling into
and out of the Eurozone. 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: the first 12 months being
non-discretionary. As a result, there was no material transaction impact on the
profit for 2003 although we expect a GBP5-10m negative effect in 2004.
It is our policy not to hedge the impact of foreign exchange movements on the
translation of our overseas earnings. As a result, our prior year profits at
current exchange rates are reduced by GBP19m, primarily as a result of the
weakening US dollar and Mexican peso. We anticipate, based on current exchange
rates, that 2004 trading profits will be adversely affected by between GBP5m and
GBP10m.
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 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 60% and 80% of net debt at fixed rates of interest with a target of 70%.
At 31 August 2003, EV gearing (net debt as percentage of market capitalisation
plus net debt) was 36%, in line with last year. Interest cover based on EBITDA
was 5.5 times and cover based on EBIT was 4.9 times.
In July, Allied Domecq put in place a new GBP1.1 billion five year bank facility
which replaced the existing GBP1 billion facility which was due to mature in May
2004.
PENSIONS
Like many other companies, charges for pension and post retirement benefits have
again increased substantially during the year, growing by GBP48m as a result of
changing market and demographic dynamics. During the year, formal triennial
valuations were completed for the two UK funds representing around 80% of our
pension liabilities. The Company has agreed a plan with the Trustees to address
the funding deficits disclosed in the valuation reports and cash contributions
of around GBP45m will be made in each of the next three years. In the year under
review, we contributed GBP42m to the pensions and post retirement benefit
schemes around the world, of which GBP26m related to the UK funds.
We intend to adopt the UK accounting standard FRS17 for the financial year 2003/
04. Had this standard applied for 2002/03, the overall charge to the profit and
loss account would have been GBP49m. We expect a similar charge under FRS17 for
the 2004 financial year. The post tax deficit included in the balance sheet at
31 August 2003 would have been GBP405m compared with GBP336m at 31 August 2002
reflecting further deterioration in equity markets and a reduction in benchmark
bond yields.
CONSTANT EXCHANGE RATE REPORTING
The following tables provide a reconciliation between the 2002 reported results
and those shown at constant exchange rates in the Operating and Financial
Review.
----------------------------------------------------------------------------
2002 2003
----------------------------------------------------------------------------
Growth
Reported Foreign At 2003 Reported at 2003
2002 Exchange Exchange 2003 exchange
GROUP GBPm GBPm GBPm GBPm %
----------------------------------------------------------------------------
Turnover 3,334 (114) 3,220 3,410 6
----------------------------------------------------------------------------
Trading profit 610 (19) 591 621 5
----------------------------------------------------------------------------
Finance charges (130) (6) (136) (126) (7)
----------------------------------------------------------------------------
Profit before tax 480 (25) 455 495 9
----------------------------------------------------------------------------
Taxation (120) 6 (114) (119) 4
----------------------------------------------------------------------------
Minority interests (13) - (13) (16) 23
----------------------------------------------------------------------------
Earnings 347 (19) 328 360 10
----------------------------------------------------------------------------
Weighted average number
of ordinary shares
(millions) 1,066 1,066 1,075
----------------------------------------------------------------------------
Earnings per share
(pence) 32.6 30.8 33.5 9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2002 2003
----------------------------------------------------------------------------
Growth
Reported Foreign At 2003 Reported at 2003
2002 Exchange Exchange 2003 exchange
SPIRITS & WINE GBPm GBPm GBPm GBPm %
----------------------------------------------------------------------------
Turnover 3,018 (88) 2,930 3,151 8
----------------------------------------------------------------------------
Duty (638) 20 (618) (671) 9
----------------------------------------------------------------------------
Net turnover 2,380 (68) 2,312 2,480 7
----------------------------------------------------------------------------
Advertising and
promotion 443 (9) 434 437 1
----------------------------------------------------------------------------
The foreign exchange adjustment restates prior year profits and sales at current
year average exchange rates. Where this would distort the reporting of
underlying performance following a material devaluation or under conditions of
hyperinflation, profits and sales are not restated and retain their original
value as reported in pounds sterling.
Geographical Analysis - Group trading profit
In line with previous statements, the trading profits of the 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 table below shows the foreign exchange affect of
restating last year's reporting trading profit for each region at this year's
actual exchange rates. "Others" in the table includes Global Operations
(including profit from the sale of bulk whisky), stand-alone Duty Free
operations and central costs not allocated to marketing regions. In addition,
the table sets out the impact of market transfers on last year's regional
Spirits & Wine trading profits. The market transfers column includes the
movement of European Duty Free from Europe to our stand-alone Duty Free
operations reported in "Others". The column also includes the movement of some
existing Spanish wine operations from Europe to Premium Wine and the
reallocation of central costs, primarily central marketing costs such as
consumer research activities, to the regions. The profit decline "Others"
principally reflects increased pension costs (GBP48m) partly offset by the year
on year benefit of some one-off costs which were not repeated in the current
year.
Geographical Analysis - Group trading profit
-------------------------------------------------------------------------------
2002 2003 2003
Total Organic
-------------------------------------------------------------------------------
Growth Growth
Reported Market Foreign At 2003 at 2003 at 2003
2002 transfers exchange exchange 2003 exchange 2003 exchange
GBPm GBPm GBPm GBPm GBPm % GBPm %
-------------------------------------------------------------------------------
Europe 160 (27) 12 145 114 (21) 97 (33)
-------------------------------------------------------------------------------
North 169 (11) (19) 139 182 31 167 20
America
-------------------------------------------------------------------------------
Latin 61 (3) (9) 49 54 10 53 8
America
-------------------------------------------------------------------------------
Asia 66 (4) (2) 60 78 30 76 27
Pacific
-------------------------------------------------------------------------------
Premium 68 8 1 77 95 23 86 12
Wine
-------------------------------------------------------------------------------
Others (8) 37 3 32 (1) (103) - (100)
-------------------------------------------------------------------------------
Spirits & 516 - (14) 502 522 4 479 (5)
Wine
-------------------------------------------------------------------------------
QSR 78 - (5) 73 79 8 79 8
-------------------------------------------------------------------------------
Britannia 16 - - 16 20 25 20 25
-------------------------------------------------------------------------------
TOTAL 610 - (19) 591 621 5 578 (2)
-------------------------------------------------------------------------------
Accounting policies
Year to 31 August 2003
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 have complied with the disclosure requirements of Financial Reporting
Standard (FRS) 17 Retirement Benefits in line with the transitional timetable
laid down by the standard. The Group intends to adopt FRS 17 in full from 1
September 2003.
Pages 49 to 51 describes 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.
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 and maturing
equipment - 20 years; storage tanks - 20 to 50 years; other plant and equipment
and fixtures and fittings - 5 to 12 years; and computer software - 4 years.
Vineyard developments are not depreciated in the first 3 years unless they
become productive within that time. 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.
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 2003
Year to 31 August 2003 Year to 31 August 2002
---------------------- ----------------------
Before Before
goodwill Goodwill goodwill Goodwill
and and and and
exceptional exceptional exceptional exceptional
items items Total items items Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
-----------------------------------------------------------------------------------------------------------
Turnover 1 3,410 - 3,410 3,334 - 3,334
-----------------------------------------------------------------------------------------------------------
Operating - goodwill
costs amortisation 6 - (40) (40) - (38) (38)
- Mexican
excise
rebate 6 - 38 38 - 213 213
- other 6 (2,813) (10) (2,823) (2,739) (84) (2,823)
-----------------------------------------------------------------------------------------------------------
Operating profit from
continuing operations 597 (12) 585 595 91 686
Share of profits of
associated undertakings 15 24 - 24 15 - 15
-----------------------------------------------------------------------------------------------------------
Trading profit on
ordinary activities
before finance charges 1 621 (12) 609 610 91 701
Finance charges 8 (126) - (126) (130) - (130)
-----------------------------------------------------------------------------------------------------------
Profit on ordinary
activities before
taxation 495 (12) 483 480 91 571
Taxation 9 (119) (8) (127) (120) (46) (166)
-----------------------------------------------------------------------------------------------------------
Profit on ordinary
activities after
taxation 376 (20) 356 360 45 405
Minority - equity and
interests non-equity 24 (16) - (16) (13) - (13)
-----------------------------------------------------------------------------------------------------------
Profit earned for
ordinary shareholders
for the year 23 360 (20) 340 347 45 392
Ordinary dividends 11 (150) (141)
-----------------------------------------------------------------------------------------------------------
Retained profit 190 251
-----------------------------------------------------------------------------------------------------------
Earnings per
ordinary share:
- basic 10 31.6p 36.8p
- diluted 10 31.6p 36.7p
- normalised 10 33.5p 32.6p
----------------------------------------------------------------------------------------------------------
Group balance sheet
At 31 August 2003
31 August 31 August
2003 2002
Note GBPm GBPm
--------------------------------------------------------------------------------
Fixed assets
Intangible assets 12 1,273 1,316
Tangible assets 13 966 877
Investments and loans 14 160 126
Investments in associates 15 85 71
--------------------------------------------------------------------------------
Total fixed assets 2,484 2,390
--------------------------------------------------------------------------------
Current assets
Stocks 16 1,407 1,302
Debtors due within one year 17 679 736
Debtors due after more than one year 17 326 332
Cash at bank and in hand 175 169
--------------------------------------------------------------------------------
Total current assets 2,587 2,539
--------------------------------------------------------------------------------
Creditors (due within one year)
Short-term borrowings 20 (772) (971)
Other creditors 18 (1,161) (1,022)
---------------------------------------------------------------------------------
Total current liabilities (1,933) (1,993)
---------------------------------------------------------------------------------
Net current assets 654 546
--------------------------------------------------------------------------------
Total assets less current liabilities 3,138 2,936
Creditors (due after more than one year)
Loan capital 20 (1,815) (1,776)
Other creditors 18 (46) (90)
---------------------------------------------------------------------------------
Total creditors due after more than one year (1,861) (1,866)
--------------------------------------------------------------------------------
Provisions for liabilities and charges 19 (283) (284)
---------------------------------------------------------------------------------
Net assets 994 786
--------------------------------------------------------------------------------
Capital and reserves
Called up share capital 22 277 277
Share premium account 23 165 165
Merger reserve 23 (823) (823)
Profit and loss account 23 1,299 1,087
--------------------------------------------------------------------------------
Shareholders' funds - equity 918 706
Minority interests - equity and non-equity 24 76 80
--------------------------------------------------------------------------------
994 786
--------------------------------------------------------------------------------
Approved by the Board on 20 October 2003 and signed
on its behalf by:
Gerry Robinson, Graham Hetherington,
CHAIRMAN DIRECTOR
Group cash flow information
Year to 31 August 2003
Year to Year to
31 August 31 August
2003 2002
Reconciliation of operating profit to net cash inflow from operating activities Note GBPm GBPm
--------------------------------------------------------------------------------------------------------------
Operating profit 585 686
Goodwill amortisation 40 38
Exceptional operating costs 4 64
Depreciation 75 75
Increase in stocks (72) (94)
Decrease/(increase) in debtors 58 (22)
Increase in creditors 65 71
Expenditure against provisions for reorganisation and restructuring costs (29) (36)
Other items 22 (22)
---------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities 748 760
--------------------------------------------------------------------------------------------------------------
Group cash flow statement
--------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities 748 760
Dividends received from associated undertakings 13 11
Returns on investments and servicing of finance 25 (148) (133)
Taxation paid 25 (65) (178)
Capital expenditure and financial investment 25 (156) (712)
Acquisitions and disposals 25 - (586)
Equity dividends paid (144) (133)
---------------------------------------------------------------------------------------------------------------
Cash inflow/(outflow) before use of liquid resources and financing 248 (971)
Management of liquid resources 50 (21)
Financing 25 (164) 798
---------------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash in the year 134 (194)
---------------------------------------------------------------------------------------------------------------
Reconciliation of net cash flow to movement in net debt
---------------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash in the year 134 (194)
(Decrease)/increase in liquid resources (50) 21
Decrease/(increase) in loan capital 164 (649)
---------------------------------------------------------------------------------------------------------------
Movement in net debt resulting from cash flows 248 (822)
Exchange adjustments (82) 98
---------------------------------------------------------------------------------------------------------------
Movement in net debt during the year 166 (724)
Opening net debt (2,578) (1,854)
---------------------------------------------------------------------------------------------------------------
Closing net debt 27 (2,412) (2,578)
---------------------------------------------------------------------------------------------------------------
Group statement of total recognised gains and losses
Year to 31 August 2003
Year to Year to
31 August 31 August
2003 2002
GBPm GBPm
------------------------------------------------------------------------------------------
Profit earned for ordinary shareholders for the year 340 392
Currency translation differences on foreign currency net investments 3 (23)
Taxation on translation differences 19 (12)
-------------------------------------------------------------------------------------------
Total recognised gains and losses for the year 362 357
------------------------------------------------------------------------------------------
Group note of historical cost profits and losses
Year to 31 August 2003
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 2003
Year to Year to
31 August 31 August
2003 2002
GBPm GBPm
------------------------------------------------------------------------------------------
Shareholders' funds at the beginning of the year 706 341
------------------------------------------------------------------------------------------
Total recognised gains and losses for the year 362 357
Ordinary dividends (150) (141)
Ordinary share capital issued (net of costs) - 149
------------------------------------------------------------------------------------------
Net movement in shareholders' funds 212 365
------------------------------------------------------------------------------------------
Shareholders' funds at the end of the year 918 706
------------------------------------------------------------------------------------------
Parent company balance sheet
At 31 August 2003
31 August 31 August
2003 2002
Note GBPm GBPm
------------------------------------------------------------------------------
Fixed asset investments 14 4,215 4,179
------------------------------------------------------------------------------
Current assets
Debtors 17 12 14
Creditors (due within one year)
Other creditors 18 (180) (88)
-------------------------------------------------------------------------------
Net current liabilities (168) (74)
-------------------------------------------------------------------------------
Net assets 4,047 4,105
-------------------------------------------------------------------------------
Capital and reserves
Called up share capital 22 277 277
Share premium account 23 165 165
Merger reserve 23 2,420 2,420
Capital reserve 23 651 651
Profit and loss account 23 534 592
-------------------------------------------------------------------------------
Shareholders' funds - equity 4,047 4,105
-------------------------------------------------------------------------------
Approved by the Board on 20 October 2003 and signed
on its behalf by:
Gerry Robinson, Graham Hetherington,
CHAIRMAN DIRECTOR
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
1. Activity analysis
---------------------------------------------------------------------------------------------------------------------
Spirits & Total
Wine QSR Britannia continuing
GBPm GBPm GBPm GBPm
----------------------------------------------------------------------------------------------------------------------
Year to 31 August 2003
Turnover 3,151 259 - 3,410
----------------------------------------------------------------------------------------------------------------------
Trading profit before exceptional items and goodwill 522 79 20 621
Goodwill amortisation (40) - - (40)
Exceptional items 37 (9) - 28
----------------------------------------------------------------------------------------------------------------------
Profit before finance charges 519 70 20 609
----------------------------------------------------------------------------------------------------------------------
Finance charges (126)
Profit on ordinary activities before taxation 483
----------------------------------------------------------------------------------------------------------------------
Depreciation 64 11 - 75
Capital expenditure 114 27 - 141
Assets employed 3,711 103 49 3,863
Average numbers of employees 11,343 1,206 - 12,549
----------------------------------------------------------------------------------------------------------------------
Year to 31 August 2002
Turnover 3,018 316 - 3,334
----------------------------------------------------------------------------------------------------------------------
Trading profit before exceptional items and goodwill 516 78 16 610
Goodwill amortisation (38) - - (38)
Exceptional items 129 - - 129
----------------------------------------------------------------------------------------------------------------------
Profit before finance charges 607 78 16 701
----------------------------------------------------------------------------------------------------------------------
Finance charges (130)
Profit on ordinary activities before taxation 571
----------------------------------------------------------------------------------------------------------------------
Depreciation 65 10 - 75
Capital expenditure 99 34 - 133
Assets employed 3,620 120 46 3,786
Average numbers of employees 10,940 1,173 - 12,113
----------------------------------------------------------------------------------------------------------------------
Notes:
a) Normalised profit before tax is GBP495m (2002: GBP480m) being trading
profit GBP621m (2002: GBP610m) less finance charges GBP126m (2002:
GBP130m).
b) Spirits & Wine goodwill is amortised over 20 years and relates principally
to Mumm, Perrier Jouet and Montana acquired in 2001 and Jinro Ballantines
acquired in 2000.
c) Assets employed are before deducting net borrowings of GBP2,412m (2002:
GBP2,578m), tax payable of GBP364m (2002: GBP334m) and dividends payable of
GBP93m (2002: GBP88m) to give net assets of GBP994m (2002: GBP786m).
d) Trading profit includes the Group's share of profits of associated
undertakings whose turnover is not included.
2. Geographical analysis
Rest of
Europe Americas World Total
GBPm GBPm GBPm GBPm
--------------------------------------------------------------------------------
By country of operation
Year to 31 August 2003
Turnover - continuing activities 2,097 1,821 419 4,337
--------------------------------------------------------------------------------
- to Group companies (927)
---------------------------------------------------------------------------------
- external 3,410
--------------------------------------------------------------------------------
Trading profit - continuing activities 229 327 65 621
- goodwill amortisation in
continuing activities (20) (2) (18) (40)
- exceptional items in continuing
activities 4 24 - 28
--------------------------------------------------------------------------------
Profit before finance charges 213 349 47 609
--------------------------------------------------------------------------------
Assets employed 1,896 1,347 620 3,863
--------------------------------------------------------------------------------
Year to 31 August 2002
Turnover - continuing activities 1,892 1,836 419 4,147
--------------------------------------------------------------------------------
- to Group companies (813)
---------------------------------------------------------------------------------
- external 3,334
--------------------------------------------------------------------------------
Trading profit - continuing activities 252 312 46 610
- goodwill amortisation in
continuing activities (19) (1) (18) (38)
- exceptional items in continuing
activities (32) 161 - 129
--------------------------------------------------------------------------------
Profit before finance charges 201 472 28 701
--------------------------------------------------------------------------------
Assets employed 1,650 1,376 760 3,786
--------------------------------------------------------------------------------
Notes:
a) Export sales from the United Kingdom were GBP419m (2002: GBP448m) including
GBP300m (2002: GBP336m) sales to Group companies.
b) Trading profit includes the Group's share of profits of associated
undertakings whose turnover is not included.
2. Geographical analysis (continued)
Rest of
Europe Americas World Total
GBPm GBPm GBPm GBPm
---------------------------------------------------------------------------------------
By country of destination
Year to 31 August 2003
Turnover - continuing activities 1,387 1,495 528 3,410
----------------------------------------------------------------------------------------
Trading - continuing activities 188 330 103 621
profit - goodwill
amortisation in
continuing activities (20) (2) (18) (40)
- exceptional items in
continuing activities 4 24 - 28
----------------------------------------------------------------------------------------
172 352 85 609
----------------------------------------------------------------------------------------
Year to 31 August 2002
Turnover - continuing activities 1,213 1,599 522 3,334
----------------------------------------------------------------------------------------
Trading profit
- continuing
activities 209 311 90 610
- goodwill
amortisation in
continuing activities (19) (1) (18) (38)
- exceptional
items in
continuing
activities (32) 161 - 129
----------------------------------------------------------------------------------------
158 471 72 701
----------------------------------------------------------------------------------------
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.
3. Exchange Rates
The significant translation rates to GBP1 :-
Average rate
for the year Closing rate
--------------------------------------------
31 August 31 August
2003 2002 2003 2002
----------------------------------------------------------------------------------------
United States dollar 1.60 1.46 1.58 1.55
Mexican peso 16.72 13.70 17.48 15.33
Euro 1.49 1.60 1.45 1.58
4. Staff costs
Year to Year to
Full-Time Part-Time 31 August 2003 31 August 2002
---------------------------
UK Other UK Other Total Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------------------------------------------------------
Remuneration 80 282 4 11 377 357
Social security 9 34 - 1 44 42
Pension schemes - UK 26 - - - 26 (9)
- other - 7 - - 7 (1)
Post retirement medical
benefits (PRMB) 1 11 - - 12 7
----------------------------------------------------------------------------------------
116 334 4 12 466 396
----------------------------------------------------------------------------------------
Average numbers employed
2003 - Continuing
operations 1,804 9,319 187 1,239 12,549
----------------------------------------------------------------------------------------
2002 - Continuing
operations 1,563 9,034 146 1,370 12,113
----------------------------------------------------------------------------------------
Directors' remuneration
The amounts relating to emoluments, share options, Long Term Incentive Scheme
interests and Directors' pension entitlements are disclosed within the
Directors' Remuneration Report.
5. Pension and post retirement benefit 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 funds represent approximately 80% of the overall pension liabilities of
the Group and are closed to new members. Full actuarial reviews of the UK funds
were carried out during the year and agreement has been reached with the scheme
trustees on funding for the next three years.
The Group has continued to account for pensions in accordance with SSAP24 for
the year ended 31 August 2003. Additional information required under the
transitional arrangements for the introduction of FRS 17 is set out below. The
Group intends to fully adopt the FRS 17 accounting standard for the year ending
31 August 2004.
SSAP 24 disclosures
United Kingdom
The assets and liabilities of the defined benefit UK schemes are reviewed
regularly by an actuary. A full assessment is undertaken every three years for
funding purposes and the latest full actuarial valuation of the UK schemes was
carried out as at 6 April 2003 by an independent actuary. The valuation is based
on a market value approach using the projected unit credit method. The most
important assumptions are the discount rate, the rate of increase in
remuneration and the pension increase rate.
The funding position as at 6 April 2003 is used as the basis for SSAP 24
accounting purposes. The main assumptions were a discount rate of 7.5% (2002:
7.5%) per annum, remuneration increases of 4% (2002: 4.5%) per annum for the
Main Fund and 5.5% (2002: 4.5%) per annum for the Executive Fund and pension
increases of 3.2% (2002: 3.5%) per annum. The market value of the Main Fund was
GBP1,129m (2002: GBP1,397m) and the funding level was 107% (2002: 106%). The
market value of the Executive Fund was GBP325m (2002: GBP379m) and the funding
level was 81% (2002: 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 2002 by independent actuaries for the purpose of calculating pension
costs for the year ended 31 August 2003.
The actuarial reviews of the US plans showed that the combined market value of
pension plan assets was GBP151m at 31 August 2002 (2001: GBP186m). This
represents approximately 105% (2001: 144%) 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 31 August 2002 were
an assumed discount rate of 6.25% (2001: 7.25%) per annum and earnings increases
of 5% (2001: 5%) per annum. The actuarial reviews of the Canadian plans showed
that the combined market value of pension plan assets was GBP113m at 31 August
2002 (2001: GBP132m). This represents approximately 95% (2001: 108%) 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 31 August 2002 were an assumed discount rate of 6.74% (2001:
6.94%) per annum and earnings increases of 4.38% (2001: 4.98%) per annum.
FRS 17 disclosures
The following information complies with the transitional requirements of FRS 17
and is for disclosure purposes only.
Major assumptions
31 August 2003 31 August 2002 31 August 2001
------------------------------------------------
United United United
Kingdom Overseas Kingdom Overseas Kingdom Overseas
--------------------------------------------------
% % % % % %
Rate of general increase in
salaries 4.0 4.4 4.1 4.8 4.3 5.2
Rate of increase to
benefits 3.1 1.8 3.1 2.1 3.3 2.1
Discount rate for scheme
liabilities 5.6 6.0 6.0 6.5 6.1 7.3
Inflation 2.5 3.0 2.3 2.1 2.5 2.7
The expected long term rate of returns of the significant schemes is :-
Equities 7.5 8.2 *7.5 8.7 8.0 10.0
Bonds 5.0 5.8 5.0 6.1 5.5 6.5
Property and other 5.5 4.3 5.2 4.4 6.5 4.0
*31 August 2002 assumption amended from 8.5% to 7.5%.
5. Pension and post retirement benefit schemes (continued)
FRS 17 disclosures (continued)
Net pension and post retirement medical
benefits (PRMB) liability
31 August 2003 31 August 2002 31 August 2001
----------------------------------------------------
United United United
Kingdom Overseas Kingdom Overseas Kingdom Overseas
market market market market market market
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
Equities 814 156 896 206 1,182 273
Bonds 594 161 458 115 469 126
Property and other 143 14 197 6 195 18
---------------------------------------------------------------------------------------
Total market value of assets 1,551 331 1,551 327 1,846 417
Present value of scheme
liabilities (2,004) (464) (1,941) (417) (1,877) (421)
---------------------------------------------------------------------------------------
Deficit in the schemes (453) (133) (390) (90) (31) (4)
Related deferred tax asset 136 45 117 27 9 1
---------------------------------------------------------------------------------------
Net pension and PRMB liability (317) (88) (273) (63) (22) (3)
---------------------------------------------------------------------------------------
The amounts charged to profit and loss account
under FRS 17 would have been:-
31 August 2003 31 August 2002 31 August 2001
----------------------------------------------------
United United United
Kingdom Overseas Kingdom Overseas Kingdom Overseas
GBPm GBPm GBPm GBPm GBPm GBPm
Regular service cost 10 19 6 9 8 8
Past service cost - - - 7 - -
Interest cost 114 26 110 28 121 21
Expected return on assets (98) (22) (130) (32) (161) (32)
----------------------------------------------------------------------------------------
Profit and loss charge/(credit) 26 23 (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 2003 31 August 2002
---------------------------------
United United
Kingdom Overseas Kingdom Overseas
GBPm GBPm GBPm GBPm
Actual return less expected return on
pension scheme assets (12) (6) (320) (64)
Experience gains and losses arising on
the scheme liabilities 20 (4) (62) -
Changes in assumptions underlying the present
value of the scheme liabilities (71) (22) (19) (19)
---------------------------------------------------------------------------------------
Actuarial loss recognised in Group statement of
total recognised gains and losses (63) (32) (401) (83)
Deferred tax movement 19 11 120 25
---------------------------------------------------------------------------------------
Actuarial loss recognised in Group statement of
total recognised gains and losses - net of tax (44) (21) (281) (58)
---------------------------------------------------------------------------------------
The history of experience gains and losses would have been:-
31 August 2003 31 August 2002
---------------------------------
United United
Kingdom Overseas Kingdom Overseas
Actual return less expected return on pension
scheme assets
Amount (GBPm) (12) (6) (320) (64)
Percentage of the scheme assets (%) (1%) (2%) (21%) (20%)
Experience gains and losses arising on the
scheme liabilities
Amount (GBPm) 20 (4) (62) -
Percentage of the present value of the
scheme liabilities (%) (1%) 1% 3% -
Actuarial loss recognised in Group statement
of total recognised gains and losses
Amount (GBPm) (63) (32) (401) (83)
Percentage of the present value of the
scheme liabilities (%) 3% 7% 21% 20%
5. Pension and post retirement benefit schemes (continued)
FRS 17 disclosures (continued)
The movement in deficit during the year under FRS 17 would have been :-
31 August 2003 31 August 2002
---------------------------------------
United United
Kingdom Overseas Kingdom Overseas
GBPm GBPm GBPm GBPm
Deficit in scheme at
beginning of year net of
deferred tax (273) (63) (22) (3)
Movement in year:
Current service cost (10) (19) (6) (9)
Past service cost - - - (7)
Contributions 26 16 16 4
Other finance income (16) (4) 20 4
Currency translation adjustment - 3 - 6
Deferred tax movement on
actuarial loss 19 11 120 25
Actuarial loss (63) (32) (401) (83)
---------------------------------------------------------------------------------
Deficit in scheme at the end
of the year net of deferred tax (317) (88) (273) (63)
--------------------------------------------------------------------------------
Group net assets and profit and loss account reserves under FRS 17 would have
been :-
31 August 31 August
2003 2002
GBPm GBPm
------------------------
Group net assets
Net assets per Group balance sheet 994 786
Less pension and post retirement benefits reported
under SSAP 24 (net of deferred tax) (147) (149)
Add pension and post retirement benefits reported
under FRS 17 (net of deferred tax) (405) (336)
--------------------------------------------------------------------------------
Net assets under FRS 17 442 301
--------------------------------------------------------------------------------
Group profit and loss account
Profit and loss account per
Group balance sheet 1,299 1,087
Less pension and post retirement benefits reported
under SSAP 24 (net of deferred tax) (147) (149)
Add pension and post retirement benefits reported
under FRS 17 (net of deferred tax) (405) (336)
--------------------------------------------------------------------------------
Profit and loss account under FRS 17 747 602
--------------------------------------------------------------------------------
6. Operating costs
Year to Year to
31 August 2003 31 August 2002
Note GBPm GBPm
--------------------------------------------------------------------------------
Change in stocks of finished goods
and work in progress (72) (94)
Raw materials and consumables 838 840
Customs and - ongoing 671 638
excise duties
paid
- Mexican
excise
rebate (38) (213)
Staff costs 4 466 396
Depreciation 13 75 75
Goodwill amortisation 40 38
Other operating charges
including exceptional items 783 903
Operating leases - hire of equipment 11 11
- property rents 48 48
Payments to - fees for audit 3 6
auditor
--------------------------------------------------------------------------------
2,825 2,648
--------------------------------------------------------------------------------
The parent company audit fee was nil (2002: nil). Other payments to the auditor
were GBP1m (2002: GBP4m) which primarily relate to taxation services.
Mexican excise rebate
The Mexican Supreme Court ruled in 2000 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, was principally recovered by offset against current and
future duties and taxes. At 31 August 2003 the recovery was complete and GBP298m
has been received over the past three financial years subject to applicable
corporation tax at 35%.
7. Goodwill amortisation and exceptional items
Year to Year to
31 August 2003 31 August 2002
GBPm GBPm
--------------------------------------------------------------------------------
Goodwill amortisation (40) (38)
---------------------------------------------------------------------------------
Exceptional items
Mexican excise rebate 38 213
Mexican social projects - (11)
Acquisition integration costs (3) (36)
Termination of land lease - (23)
Asset write-downs 2 (14)
Restructuring - QSR (9) -
--------------------------------------------------------------------------------
Total exceptional items within operating costs 28 129
--------------------------------------------------------------------------------
Goodwill amortisation and exceptional items
before taxation (12) 91
Taxation (8) (46)
---------------------------------------------------------------------------------
Goodwill amortisation and exceptional items
after taxation (20) 45
--------------------------------------------------------------------------------
8. Finance charges
Year to Year to
31 August 2003 31 August 2002
GBPm GBPm
--------------------------------------------------------------------------------
Interest on bank loans and overdrafts 31 63
Interest on other loans 107 75
Less: deposit and other interest receivable (12) (8)
---------------------------------------------------------------------------------
Total 126 130
--------------------------------------------------------------------------------
9. Taxation
Year to Year to
31 August 2003 31 August 2002
GBPm GBPm
--------------------------------------------------------------------------------
The charge for taxation on the profit for the period comprises:
Current tax
United Kingdom taxation
Corporation tax at 30% (2002: 30%) 25 18
Adjustment in respect of prior periods (1) (3)
Double taxation relief (1) (3)
---------------------------------------------------------------------------------
23 12
Overseas taxation
Corporation tax 60 188
Adjustment in respect of prior periods 9 (26)
---------------------------------------------------------------------------------
69 162
Taxation on attributable profit of associated
undertakings 10 7
--------------------------------------------------------------------------------
Total current tax 102 181
Deferred tax
Origination and reversal of timing
differences 65 (10)
Adjustment in respect of prior periods (32) 5
Recognition of deferred tax assets arising
in prior periods (8) (10)
--------------------------------------------------------------------------------
Total tax charge 127 166
--------------------------------------------------------------------------------
A reconciliation of the current tax charge at the UK corporation tax rate of 30%
(2002: 30%) to the Group's current tax on profit on ordinary activities is shown
below :
Year to Year to
31 August 2003 31 August 2002
GBPm GBPm
--------------------------------------------------------------------------------
Profit on ordinary activities before taxation 483 571
--------------------------------------------------------------------------------
Notional charge at United Kingdom corporation
tax rate of 30% 145 171
Differences in effective overseas tax rates 16 18
Adjustments to prior period tax charges 8 (29)
Taxable intra-group dividend income 5 14
Utilisation of tax losses not recognised - (14)
Non deductible expenditure 13 22
Non taxable income and gains (12) (10)
Losses and other timing differences (65) 10
Other current year items (8) (1)
---------------------------------------------------------------------------------
Current tax charge 102 181
--------------------------------------------------------------------------------
10. Earnings per share
Basic earnings per share of 31.6p (2002: 36.8p) has been calculated on earnings
of GBP340m (2002: GBP392m) divided by the average number of shares of 1,075m
(2002: 1,066m).
Diluted earnings per share of 31.6p (2002: 36.7p) has been calculated on
earnings of GBP340m (2002: GBP392m) and after including the effect of all
dilutive potential ordinary shares, the average number of shares is 1,076m
(2002: 1,069m).
To show earnings per share on a consistent basis, normalised earnings per share
of 33.5p (2002: 32.6p) has been calculated on normalised earnings of GBP360m
(2002: GBP347m) divided by the average number shares of 1,075m (2002: 1,066m).
Normalised earnings has been calculated as follows:
Year to Year to
31 August 2003 31 August 2002
GBPm GBPm
-------------------------------------------------------------------------------
Earnings as reported 340 392
Adjustment for exceptional items net of tax (18) (81)
Adjustment for goodwill amortisation net of tax 38 36
-------------------------------------------------------------------------------
Normalised earnings 360 347
-------------------------------------------------------------------------------
Average number of shares millions millions
-------------------------------------------------------------------------------
Weighted average Ordinary Shares in
issue during the year 1,107 1,087
Weighted average Ordinary Shares owned by the Allied
Domecq employee trusts* (32) (21)
--------------------------------------------------------------------------------
Weighted average Ordinary Shares used in earnings per
share calculation 1,075 1,066
--------------------------------------------------------------------------------
* Includes American Depositary Shares representing underlying Ordinary Shares.
11. Ordinary dividends
Year to Year to Year to Year to
31 August 2003 31 August 2002 31 August 2003 31 August 2002
GBPm GBPm p p
-----------------------------------------------------------------------------------
Interim 57 53 5.30 4.90
Final 93 88 8.70 8.10
-----------------------------------------------------------------------------------
150 141 14.00 13.00
-----------------------------------------------------------------------------------
The 2003 interim dividend was paid on 25 July 2003 and the final dividend will
be paid on 4 February 2004.
12.Intangible assets
31 August 31 August
Other 2003 2002
Goodwill Brands Intangibles Total Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------------------------------
Cost
At the
beginning of
the year 785 555 35 1,375 635
Currency
translation
adjustment - - - - -
Additions - - - - 740
--------------------------------------------------------------------------------
At the end
of the year 785 555 35 1,375 1,375
--------------------------------------------------------------------------------
Amortisation
At the
beginning of
the year (53) - (6) (59) (17)
Currency
translation
adjustment - - - - -
Charged in
the year (40) - (3) (43) (42)
--------------------------------------------------------------------------------
At the end
of the year (93) - (9) (102) (59)
--------------------------------------------------------------------------------
Net balance at
the end of the
year 692 555 26 1,273 1,316
--------------------------------------------------------------------------------
Goodwill is being amortised over 20 years. Brands relates to the acquisition of
Malibu in 2002; 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.
13. Tangible assets
Land and Plant and
Buildings equipment Total
Cost GBPm GBPm GBPm
-------------------------------------------------------------------------
At the beginning of the year 698 677 1,375
Currency translation adjustment 42 24 66
-------------------------------------------------------------------------
740 701 1,441
Capital expenditure 49 92 141
Disposals and transfers (16) (72) (88)
-------------------------------------------------------------------------
At the end of the year 773 721 1,494
-------------------------------------------------------------------------
Depreciation
-------------------------------------------------------------------------
At the beginning of the year (145) (353) (498)
Currency translation adjustment (10) (16) (26)
--------------------------------------------------------------------------
(155) (369) (524)
Disposals and transfers 4 67 71
Charge for the year (18) (57) (75)
--------------------------------------------------------------------------
At the end of the year (169) (359) (528)
--------------------------------------------------------------------------
Net book value at 31 August 2003 604 362 966
Net book value at 31 August 2002 553 324 877
31 August 2003 31 August 2002
---------------------------------
At Net book At Net book
cost value cost value
GBPm GBPm GBPm GBPm
Freehold land and buildings 689 548 630 511
Long lease land and buildings 17 15 14 13
Short lease land and buildings 67 41 54 29
------------------------------------
Total land and buildings 773 604 698 553
------------------------------------
14. Investments and loans
Investments Franchise
--------------------- and trade
Listed Unlisted loans Total
GBPm GBPm GBPm GBPm
------------------------------------------------------------------------------------
Group
At the beginning of the year 102 16 8 126
Currency translation
adjustment - - - -
Additions 43 - 1 44
Disposals and transfers (6) (3) (1) (10)
-------------------------------------------------------------------------------------
At the end of the year 139 13 8 160
-------------------------------------------------------------------------------------
Included within listed investments is GBP129m (2002: GBP93m) in respect of a
holding of 32,549,067 (2002: 24,514,993) Ordinary Shares of 25p each of the
Company, purchased by the parent company (see below) and held by the trustees of
the Group's employee trusts. The market value of these shares was GBP124m (2002:
GBP100m) at 31 August 2003. The listed investments also include GBP8m (2002:
GBP6m) in respect of a holding of 14.5% (2002: 11.2%) in Peter Lehmann Wines
Limited, incorporated in Australia.
The market value of these shares was GBP8m (2002: GBP6m) at 31 August 2003. The
unlisted investments include a holding of 1% in Suntory Limited, incorporated in
Japan.
Investment
in subsidiary Listed
undertaking investments Total
GBPm GBPm GBPm
--------------------------------------------------------------------------------
Parent company
At the beginning of the year 4,086 93 4,179
Additions - 41 41
Disposals - (5) (5)
---------------------------------------------------------------------------------
At the end of the year 4,086 129 4,215
--------------------------------------------------------------------------------
15. Investments in associates
Unlisted Listed
companies companies
share of share of
Cost reserves reserves Loans Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------------------------------
At the beginning of the year 43 12 14 2 71
Currency translation
adjustment - - - - -
Share of retained profit for
the year - 14 - - 14
--------------------------------------------------------------------------------
At the end of the year 43 26 14 2 85
--------------------------------------------------------------------------------
The share of profits before taxation was GBP24m (2002: GBP15m) and dividends
received were GBP13m (2002: GBP11m).
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.
16. Stocks
31 August 31 August
2003 2002
GBPm GBPm
-------------------------------------------------------------------------------
Raw materials and consumables 45 52
Maturing inventory 1,047 953
Finished products 293 281
Bottles, cases and pallets 22 16
-------------------------------------------------------------------------------
1,407 1,302
-------------------------------------------------------------------------------
17. Debtors
Group Parent company
31 August 31 August
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
-------------------------------------------------------------------------------
Amounts falling due within one year
Trade debtors 501 537 - -
Deferred tax assets (note 19) 17 36 - -
Amounts due from subsidiary undertakings - - - 4
Other debtors 108 111 12 10
Prepayments and accrued income 53 52 - -
-------------------------------------------------------------------------------
679 736 12 14
-------------------------------------------------------------------------------
Amounts due after more than one year
Pension prepayments 309 302 - -
Other debtors 2 15 - -
Prepayments and accrued income 15 15 - -
-------------------------------------------------------------------------------
326 332 - -
-------------------------------------------------------------------------------
18. Creditors
Group Parent Company
--------------------------------
31 August 31 August
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
---------------------------------------------------------------------------
Amounts due within one year
Trade creditors 216 175 - -
Bills payable 17 15 - -
Amounts owed to subsidiary
undertakings - - 81 -
Other creditors 312 286 6 -
Social security 10 9 - -
Taxation 228 226 - -
Accruals and deferred income 285 223 - -
Proposed dividend (note 11) 93 88 93 88
---------------------------------------------------------------------------
1,161 1,022 180 88
---------------------------------------------------------------------------
Amounts due after more than
one year
Other creditors 34 45 - -
Accruals and deferred income 12 45 - -
---------------------------------------------------------------------------
46 90 - -
---------------------------------------------------------------------------
19. Provisions for liabilities and charges
Post
retirement Reorganisation
medical and Surplus Deferred
benefits restructuring properties taxation Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------------------------------------
At the beginning of the year 81 49 10 144 284
Currency translation
adjustment 2 (1) - 2 3
Timing differences within
statement of recognised gains and
losses - - - 2 2
Utilised during the year (5) (29) (1) - (35)
Charged during the year 12 12 - 5 29
-------------------------------------------------------------------------------------
At the end of the year 90 31 9 153 283
-------------------------------------------------------------------------------------
The future cost of the post retirement medical benefits is assessed in
accordance with independent actuarial advice.
GBP29m of reorganisation and restructuring provisions brought forward from
previous years were utilised during the year. New provisions totalling GBP9m
were created during the year. Of the provisions outstanding at the year end,
GBP3m relate to the final stages of the acquisition integration programme,
GBP16m for the termination of a land lease in California and GBP4m for the trust
fund established for social and community projects in Mexico. The remainder
relates to the QSR restructuring programme.
It is expected that the majority of reorganisation and restructuring costs will
be incurred in the 2004 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.
19. Provisions for liabilities and charges (continued)
Deferred taxation
31 August 31 August
2003 2002
GBPm GBPm
--------------------------------------------------------------------------------
Accelerated capital allowances 16 28
Goodwill and other intangible assets 82 70
Pensions and other post retirement benefits 72 72
Tax losses and credits (37) (47)
Other timing differences 3 (15)
---------------------------------------------------------------------------------
Net deferred taxation liability 136 108
---------------------------------------------------------------------------------
Comprising :
Deferred tax asset (note 17) (17) (36)
Deferred tax liability 153 144
--------------------------------------------------------------------------------
136 108
--------------------------------------------------------------------------------
At the beginning of the year 108 111
Currency translation adjustment 1 (3)
Timing differences within statement of recognised gains
and losses 2 12
Acquisition of businesses - 3
Charged during the year 25 (15)
---------------------------------------------------------------------------------
At the end of the year 136 108
--------------------------------------------------------------------------------
Deferred tax assets of GBP42m at 31 August 2003 (2002: GBP49m) 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.
20. Net debt
31 August 31 August
Redemption 2003 2002
date GBPm GBPm
--------------------------------------------------------------------------------
Unsecured loans
GBP250m Bond (6.625%)* 2014 247 246
EUR600m Bond (5.875%)* 2009 410 376
GBP450m Bond (6.625%)* 2011 447 447
EUR800m Bond (5.5%)* 2006 550 504
NZD125m Capital Notes (9.3%) 2006 45 38
DEM500m notes (4.75%)* 2005 176 161
NZD400m Revolving Credit Facility Expired - 115
NZD100m Revolving Credit Facility* 2006 23 -
MXN600m Revolving Credit Facility 2008 34 -
Other loans Various - 16
Foreign currency swaps Various (115) (59)
Secured loans
NZD225m Revolving Credit Facility** Expired - 60
--------------------------------------------------------------------------------
Total 1,817 1,904
Less amounts repayable within one year (2) (128)
---------------------------------------------------------------------------------
Loan capital 1,815 1,776
Short-term borrowings 772 971
Cash at bank and in hand (175) (169)
---------------------------------------------------------------------------------
Net debt 2,412 2,578
--------------------------------------------------------------------------------
* Borrowings and interest guaranteed by Allied Domecq PLC or 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 (2002: nil)
31 August 31 August
2003 2002
GBPm GBPm
--------------------------------------------------------------------------------
Repayment schedule
More than five years 1,104 1,069
Between two and five years 711 647
Between one and two years - 60
--------------------------------------------------------------------------------
Loan capital 1,815 1,776
Short-term borrowings 772 971
--------------------------------------------------------------------------------
Total borrowings 2,587 2,747
--------------------------------------------------------------------------------
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 with a minimum of GBP300m above peak borrowing requirements.
At 31 August 2003 the Group had available undrawn committed bank facilities of
GBP1,346m (2002: GBP1,606m) of which GBP167m (2002: GBP580m) mature in less than
one year and GBP1,179m (2002: GBP1,026m) 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 2003 31 August 2002
Book Current Book Current
value value value value
GBPm GBPm GBPm GBPm
--------------------------------------------------------------------------
Cash at bank and in hand 175 175 169 169
Short-term borrowings (772) (772) (971) (971)
Loan capital (1,815) (1,932) (1,776) (1,829)
---------------------------------------------------------------------------
Net debt (2,412) (2,529) (2,578) (2,631)
---------------------------------------------------------------------------
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 70% +/- 10%. At the year
end, taking account of swaps, 70% (2002: 61%) of net debt was at fixed rates of
interest. At the year end, the weighted average maturity of net debt was
approximately 4 years (2002: 4.9 years).
31 August 2003 31 August 2002
----------------------------------
Book Current Book Current
value value value value
GBPm GBPm GBPm GBPm
---------------------------------------------------------------------------
Interest rate swaps 1 (34) - (43)
Cross currency swaps 7 44 8 16
---------------------------------------------------------------------------
8 10 8 (27)
----------------------------------------------------------------------------
There is a deferred loss in respect of interest rate swaps, being the net of the
current value less book value, of which GBP9m (2002: GBP11m) relates to the
financial year ending 31 August 2004 and GBP26m (2002: GBP32m) thereafter.
There is a deferred gain in respect of cross currency swaps, being the net of
the current value less book value, of which GBP6m (2002: GBP1m) relates to the
financial year ending 31 August 2004 and GBP31m (2002: GBP7m) thereafter.
After taking account of cross currency and interest rate swaps, the currency and
interest rate exposure of net debt as at 31 August 2003 was:
31 August 2003 31 August 2002
-------------------------------------------- -------------------------------------------
Fixed rate debt Fixed rate debt
--------------- ---------------
Weighted Weighted
average average
Floating Weighted time for Floating Weighted time for
Net rate net Fixed rate average which rate Net rate net Fixed rate average which rate
debt debt debt interest is fixed debt debt debt interest is fixed
rate rate
GBPm GBPm GBPm % Years GBPm GBPm GBPm % Years
---------------------------------------------------------------------------------------------------------
Sterling 65 5 60 11.2 8 350 166 184 6.6 11
US dollar * 1,471 523 948 5.7 5 1,262 303 959 5.7 6
Euro 701 166 535 5.1 4 719 332 387 5.1 4
NZ dollar 108 35 73 8.1 3 252 214 38 9.1 3
Japanese
Yen 110 36 74 0.7 6 68 32 36 0.9 3
Other (43) (43) - - - (73) (73) - - -
---------------------------------------------------------------------------------------------------------
Net debt 2,412 722 1,690 5.6 6 2,578 974 1,604 5.6 6
---------------------------------------------------------------------------------------------------------
* US dollar debt includes a non-material amount of Canadian dollar debt.
Some of the interest rate swaps included in the above table are cancellable at
the option of the banks at various dates between 2004 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 2003 was
approximately 2.8% (2002: 3.6%).
21. Financial instruments (continued)
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 84% (2002: 86%) of such currency exposures had been hedged for the
following 12 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.
31 August 2003 31 August 2002
---------------------- --------------------------
Nominal Nominal
value of Book Current value of Book Current
derivatives value value derivatives value value
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------------- -----------------------
Foreign exchange - assets 155 - 4 128 - 12
forward rate
contracts
- liabilities 72 - (4) 97 - (3)
Options - assets 19 - - - - -
- liabilities 19 - - 6 - -
-------------------------------------------------------------------------------------
265 - - 231 - 9
-------------------------------------------------------------------------------------
A net gain of GBP13m was recognised on all foreign exchange forward contracts
and options maturing in the year to 31 August 2003 (2002: GBP9m).
At 31 August 2003 and 31 August 2002, 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.
22. Share capital
Allotted, called up
Authorised and fully paid
--------------------------------------
31 August 31 August 31 August 31 August
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
-----------------------------------------------------------------------------------
Equity
Ordinary shares of 25p 400 400 277 277
-----------------------------------------------------------------------------------
Authorised Issued
--------------------------------------
million million million million
-----------------------------------------------------------------------------------
Number of shares 1,600 1,600 1,107 1,068
-----------------------------------------------------------------------------------
Share option schemes
During the year options have been granted under the existing employee share
options schemes over both Ordinary Shares and American Depositary Shares (ADSs)
totalling 11,754,945 * shares. Options were exercised over 1,598,429 shares and
options over 1,738,186* shares lapsed during the year.
Details of the unexercised options granted under the Company's employee share
option schemes at 31 August 2003 were as follows:
Options over Ordinary Shares
Option Ordinary
Date of grant price (p) shares
-----------------------------------------------------------------------------------
SAYE Scheme 1999 3 December 1999 262.0 655,020
International SAYE Scheme 1999 2 June 2000 265.0 385,716
30 November 2001 282.0 570,132
Approved Executive Share Option Scheme 5 May 2000 331.0 36,252
1999 8 May 2001 408.0 1,124,856
2 November 2001 351.5 320,942
3 May 2002 438.0 34,245
1 November 2002 382.0 470,956
1 May 2003 351.0 25,641
Executive Share Option Scheme 1999 1 November 1999 342.0 4,617,281
16 November 1999 331.5 947,017
5 May 2000 331.0 46,248
8 May 2001 408.0 3,519,398
2 November 2001 351.5 5,085,762
1 November 2002 382.0 7,676,505
3 May 2002 438.0 221,853
1 May 2003 351.0 64,359
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
1 November 2002 0.1 1,015,906
29,722,698
* These totals include ADSs each of which represents four underlying Ordinary
Shares
Options over ADSs
Option Ordinary
Date of grant price $ shares
---------------------------------------
US Schedule to the Executive Share Option
Scheme 1999 1 November 2002 24.45 469,470
8 January 2003 25.85 3,868
1 May 2003 22.93 3,750
Executive Share Option Scheme 1999 1 November 2002 24.45 38,011
8 January 2003 25.85 33,366
1 May 2003 22.93 1,750
Long Term Incentive Scheme 1999 8 January 2003 0.006 21,276
-------
571,491
-------
22. Share capital (continued)
The Company currently satisfies the exercise of options using existing shares
that are purchased in the market by the Company's employee trusts. The profit
and loss expense under the option plans is determined based upon the excess of
the shares purchased by the trust over the exercise price of the underlying
options and is amortised over the vesting period of the underlying options. As
at 31 August 2003 the Company's employee trusts held 32,549,067 shares
(including ADSs) in the Company all of which were the subject of awards made
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.
23. Capital and reserves
Share Profit
Share premium Merger and loss
capital account reserve account Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------------------------------
Group
At the beginning of the year 277 165 (823) 1,087 706
Profit earned for shareholders
for the year - - - 340 340
Currency translation
differences on foreign
currency net investments - - - 3 3
Taxation on translation
differences - - - 19 19
Ordinary dividends - - - (150) (150)
---------------------------------------------------------------------------------
At the end of the year 277 165 (823) 1,299 918
--------------------------------------------------------------------------------
Goodwill (at historic exchange rates) of GBP2,284m has been written off to
reserves.
Share Profit
Share premium Merger Capital and loss
capital account reserve reserve account Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------------------------------
Parent company
At the beginning of the year 277 165 2,420 651 592 4,105
Profit earned for shareholders
for the year - - - - 92 92
Ordinary dividends - - - - (150) (150)
---------------------------------------------------------------------------------
At the end of the year 277 165 2,420 651 534 4,047
--------------------------------------------------------------------------------
24. Minority interests
Equity Non-equity Total
GBPm GBPm GBPm
--------------------------------------------------------------------------------
At the beginning of the year 76 4 80
Currency translation adjustment 2 - 2
Share of profits of subsidiary
undertakings 15 1 16
Dividends declared (21) (1) (22)
---------------------------------------------------------------------------------
At the end of the year 72 4 76
--------------------------------------------------------------------------------
The principal minority shareholdings relate to Jinro Ballantines and Corby
Distillers.
25. Detailed analysis of gross cash flows
Year to Year to
31 August 31 August
2003 2002
GBPm GBPm
--------------------------------------------------------------------------------
Returns on investments and servicing of finance
Interest received 22 8
Interest paid (149) (137)
Dividends paid to minority shareholders (21) (4)
---------------------------------------------------------------------------------
(148) (133)
---------------------------------------------------------------------------------
Taxation paid
UK taxation - (1)
Overseas taxation (65) (177)
---------------------------------------------------------------------------------
(65) (178)
---------------------------------------------------------------------------------
Capital expenditure and financial investment
Purchase of tangible fixed assets (144) (133)
Sale of tangible fixed assets 21 17
Purchase of intangible fixed assets - (556)
Purchase of trade investments (3) (13)
Disposal of trade investments 11 7
Purchase of Ordinary Share capital for employee
trusts (41) (34)
--------------------------------------------------------------------------------
(156) (712)
---------------------------------------------------------------------------------
Acquisitions and disposals
Purchase of subsidiary undertakings - (550)
Borrowings acquired with subsidiary undertakings - (36)
---------------------------------------------------------------------------------
- (586)
---------------------------------------------------------------------------------
Financing
Issue of Ordinary Share capital - 149
Redemption of debt (175) -
Bonds issued during the year - 622
Increase in other borrowings 11 27
--------------------------------------------------------------------------------
(164) 798
--------------------------------------------------------------------------------
26. Reconciliation of net cash inflow from operating activities to free cash
flow
Year to Year to
31 August 31 August
2003 2002
GBPm GBPm
----------------------------------------------------------------------------------------
Net cash inflow from operating activities 748 760
Capital expenditure net of sale of tangible assets (123) (116)
Dividends received from associated undertakings 13 11
---------------------------------------------------------------------------------------
Operating cash net of fixed assets 638 655
Taxation paid (65) (178)
Net interest paid (127) (129)
Dividends - ordinary
paid shareholders (144) (133)
- minorities (21) (4)
----------------------------------------------------------------------------------------
Free cash flow 281 211
---------------------------------------------------------------------------------------
27. Net debt
Year to 31 August
-----------------
Cash at Overdrafts Other loans Loan capital 2003 2002
bank and due within due within due after Net Net
in hand one year one year one year debt debt
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------------------------------------
At the beginning of
the year 169 (843) (128) (1,776) (2,578) (1,854)
Increase/(decrease)
in cash 57 77 - - 134 (194)
(Decrease)/increase in
liquid resources (50) - - - (50) 21
Decrease/(increase)
in loan capital and
other loans - - 147 17 164 (649)
Exchange adjustments (1) (4) (21) (56) (82) 98
---------------------------------------------------------------------------------------
At the end of the
year 175 (770) (2) (1,815) (2,412) (2,578)
---------------------------------------------------------------------------------------
Liquid resources comprise short-term deposits which have maturity dates of less
than three months.
28. Capital commitments
31 August 31 August
2003 2002
GBPm GBPm
---------------------------------------------------------------------------------------
Contracted for but not 1 1
provided in the accounts
---------------------------------------------------------------------------------------
29. Operating lease commitments
Land and Land and
buildings Other buildings Other
31 August 31 August 31 August 31 August
2003 2003 2002 2002
GBPm GBPm GBPm GBPm
---------------------------------------------------------------------------------------
The minimum operating lease payments to be
made in the year ending
31 August 2004 for
leases expiring:
Within one year 4 1 3 1
Within two to five years 14 8 15 7
After five years 26 - 26 1
---------------------------------------------------------------------------------------
44 9 44 9
---------------------------------------------------------------------------------------
30. Contingent liabilities
Parent company
----------------------
31 August 31 August
2003 2002
GBPm GBPm
--------------------------------------------------------------------------------
Guarantees in respect of liabilities of
subsidiary undertakings 2,555 2,654
--------------------------------------------------------------------------------
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.
31. 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 2003 31 August 2002
GBPm GBPm
--------------------------------------------------------------------------------
Sales to associated undertakings 43 50
Purchases of goods and other services (11) (13)
Marketing expenditure charged (14) (8)
Dividends received 13 11
As at As at
31 August 2003 31 August 2002
GBPm GBPm
--------------------------------------------------------------------------------
Loans to associated undertakings 2 2
--------------------------------------------------------------------------------
Net amounts due from associated undertakings 6 11
--------------------------------------------------------------------------------
Transactions with directors
Remuneration and shareholdings of Directors are disclosed in the Directors'
Remuneration Report.
32. Statutory accounts
The financial statements of Allied Domecq PLC for the year ended 31 August 2003
and this preliminary announcement were approved by the Board of Directors on 20
October 2003. 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 2002 is derived from the
Group's statutory accounts for 2002 which have been delivered to the Registrar
of Companies. The auditors have reported on the 2002 statutory accounts and on
the 2003 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 2003 statutory accounts will be delivered to the Registrar of
Companies following the Annual General Meeting.
33. Annual Report and Annual General Meeting
The Annual Report will be sent to shareholders by the end of November 2003. The
Annual General Meeting of the Company will be held on 30 January 2004 at the
Hotel Inter-Continental London, One Hamilton Place, Hyde Park Corner, London W1J
7QY.
34. Dividends
An interim ordinary dividend of 5.3p per share was paid on 25 July 2003 and the
Directors are recommending a final ordinary dividend of 8.7p per share, making a
total for the year of 14.0p. The ex dividend date for the final dividend is 7
January 2004 and the record date is 9 January 2004. The final dividend will be
paid on 4 February 2004.
US GAAP reconciliation
Allied Domecq listed on the New York Stock Exchange on 31 July 2002. Pages 49 to
51 provide an explanation and reconciliation from UK to US GAAP.
Differences between UK and US General 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 2001. 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. 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
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
(including ADSs) held by the employee share trusts. 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 (including ADSs) 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.
j) Deferred taxation
The Group adopted FRS 19-Deferred Tax in the year ended 31 August 2002. 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.
Year to Year to
31 August 31 August
2003 2002
Note GBPm GBPm
---------------------------------------------------------------------------------
Profit earned for ordinary shareholders in accordance
with UK GAAP 340 392
Adjustments to conform with US GAAP:
Brands a) - -
Goodwill a) 42 38
Other intangible assets a) (3) (4)
Stocks c) (22) (66)
Restructuring costs e) (7) 4
Pension costs and other post retirement benefits f) 20 28
Share compensation g) 5 -
Derivative instruments i) (61) 90
Mexican excise rebate l) (40) (54)
Franchise income n) (10) (9)
Other (3) (1)
Deferred taxation - other j) (11) (40)
Deferred taxation - on above US GAAP adjustments j) 30 28
Minority share of above adjustments - -
---------------------------------------------------------------------------------
Net income in accordance with US GAAP 280 406
---------------------------------------------------------------------------------
Other comprehensive income :
Minimum pension liability (61) (203)
Currency translation differences 78 (130)
----------------------------------------------------------------------------------
Comprehensive income in accordance with US GAAP 297 73
---------------------------------------------------------------------------------
Net earnings per ordinary share
Basic 26.0p 38.1p
Diluted 26.0p 38.0p
---------------------------------------------------------------------------------
Shareholders' equity
--------------------
Year to Year to
31 August 31 August
2003 2002
Note GBPm GBPm
---------------------------------------------------------------------------------
Shareholders' funds as reported in the Group balance
sheet 918 706
Adjustments to conform with US GAAP:
Brands a) 1,408 1,410
Goodwill a) 227 185
Other intangible assets - costs a) 166 168
Other intangible assets - accumulated
amortisation a) (145) (144)
Associated undertakings b) 57 57
Stock c) 23 45
Investments d) (129) (93)
Restructuring costs e) 1 8
Pension and other post retirement benefits f) (620) (555)
Share compensation g) 6 1
Proposed dividends h) 93 88
Derivative instruments i) (18) (26)
Mexican excise rebate l) - 40
Liabilities m) (42) (38)
Franchise income n) (19) (9)
Other 8 6
Deferred taxation - other j) - 11
Deferred taxation - on above US GAAP adjustments j) (277) (319)
Minority share of above adjustments - -
---------------------------------------------------------------------------------
Shareholders' equity in accordance with US GAAP 1,657 1,541
---------------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
21 October, 2003
ALLIED DOMECQ PLC
By: /s/ Charles Brown
---------------------------
--------------------------
Name: Charles Brown
Title: Director of Secretariat & Deputy
Company Secretary