BRISTOL, U.K., Oct. 21, 2003 (PRIMEZONE) -- Allied Domecq (NYSE:AED) (Other OTC:ALDQF) Delivers Strong Brand Growth
FINANCIAL HIGHLIGHTS Growth
Re- at
As ported constant
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:
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
---------------------------------------------------------------------
Re- Market For- At Growth Growth
ported trans- eign 2003 at 2003 at 2003
2002 fers ex- ex- 2003 exchange 2003 exchange
change change
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
----------------------
Before
goodwill Goodwill
and and
exceptional exceptional
items items Total
Note GBPm GBPm GBPm
--------------------------------------------------------------------
Turnover 1 3,410 -- 3,410
--------------------------------------------------------------------
Operating -- goodwill
costs amortisation 6 -- (40) (40)
-- Mexican
excise
rebate 6 -- 38 38
-- other 6 (2,813) (10) (2,823)
--------------------------------------------------------------------
Operating profit from
continuing operations 597 (12) 585
Share of profits of
associated undertakings 15 24 -- 24
--------------------------------------------------------------------
Trading profit on
ordinary activities
before finance charges 1 621 (12) 609
Finance charges 8 (126) -- (126)
--------------------------------------------------------------------
Profit on ordinary
activities before
taxation 495 (12) 483
Taxation 9 (119) (8) (127)
---------------------------------------------------------------------
Profit on ordinary
activities after
taxation 376 (20) 356
Minority -- equity and
interests non-equity 24 (16) -- (16)
--------------------------------------------------------------------
Profit earned for
ordinary shareholders
for the year 23 360 (20) 340
Ordinary dividends 11 (150)
--------------------------------------------------------------------
Retained profit 190
--------------------------------------------------------------------
Earnings per
ordinary share:
- basic 10 31.6p
- diluted 10 31.6p
- normalised 10 33.5p
--------------------------------------------------------------------
Year to 31 August 2002
----------------------
Before
goodwill Goodwill
and and
exceptional exceptional
items items Total
Note GBPm GBPm GBPm
--------------------------------------------------------------------
Turnover 1 3,334 -- 3,334
--------------------------------------------------------------------
Operating - goodwill
costs amortisation 6 -- (38) (38)
- Mexican
excise
rebate 6 -- 213 213
- other 6 (2,739) (84) (2,823)
--------------------------------------------------------------------
Operating profit from
continuing operations 595 91 686
Share of profits of
associated undertakings 15 15 -- 15
--------------------------------------------------------------------
Trading profit on
ordinary activities
before finance charges 1 610 91 701
Finance charges 8 (130) -- (130)
--------------------------------------------------------------------
Profit on ordinary
activities before
taxation 480 91 571
Taxation 9 (120) (46) (166)
--------------------------------------------------------------------
Profit on ordinary
activities after
taxation 360 45 405
Minority - equity and
interests non-equity 24 (13) -- (13)
--------------------------------------------------------------------
Profit earned for
ordinary shareholders
for the year 23 347 45 392
Ordinary dividends 11 (141)
--------------------------------------------------------------------
Retained profit 251
--------------------------------------------------------------------
Earnings per
ordinary share:
- basic 10 36.8p
- diluted 10 36.7p
- normalised 10 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 Note GBPm GBPm
cash inflow from operating activities
--------------------------------------------------------------------
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 31 August
2003 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
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116 334 4 12 466 396
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Average numbers
employed
2003 -- Continuing
operations 1,804 9,319 187 1,239 12,549
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2002 -- Continuing
operations 1,563 9,034 146 1,370 12,113
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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.
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