Bristol, UK, Oct. 21, 2003 (PRIMEZONE) -- 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 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 of the 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 Executives 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 31 August 31 August 2001
2003 2002
United United United
Kingdom Overseas Kingdom Overseas Kingdom Overseas
% % % % % %
Rate of 4.0 4.4 4.1 4.8 4.3 5.2
general
increase in
salaries
Rate of 3.1 1.8 3.1 2.1 3.3 2.1
increase
to
benefits
Discount rate 5.6 6.0 6.0 6.5 6.1 7.3
for scheme
liabilities
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 5.5 4.3 5.2 4.4 6.5 4.0
and other
*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 143 14 197 6 195 18
and other
Total 1,551 331 1,551 327 1,846 417
market
value of
assets
Present (2,004) (464) (1,941) (417) (1,877) (421)
value of
scheme
liabilities
Deficit in (453) (133) (390) (90) (31) (4)
the schemes
Related 136 45 117 27 9 1
deferred
tax asset
Net pension (317) (88) (273) (63) (22) (3)
and PRMB
liability
The amounts charged to profit and loss account
under FRS 17 would have been:-
31 August 31 August 31 August
2003 2002 2001
United United United
Kingdom Overseas Kingdom Overseas Kingdom Overseas
GBPm GBPm GBPm GBPm GBPm GBPm
Regular 10 19 6 9 8 8
service
cost
Past - - - 7 - -
service
cost
Interest 114 26 110 28 121 21
cost
Expected (98) (22) (130) (32) (161) (32)
return on
assets
Profit and 26 23 (14) 12 (32) (3)
loss
charge/(credit
Analysis of amount that would have been included within the Group
statement of recognised gains and losses under FRS 17 :-
31 August 31 Ausust
2003 2002
United United
Kingdom Overseas Kingdom Overseas
GBPm GBPm GBPm GBPm
Actual return less (12) (6) (320) (64)
expected return on
pension scheme assets
Experience gains and 20 (4) (62) -
losses arising on the
scheme liabilities
Changes in assumptions (71) (22) (19) (19)
underlying the present value of
the scheme liabilities
Actuarial loss recognised in (63) (32) (401) (83)
Group statement of total
recognised gains and losses
Deferred 19 11 120 25
tax
movement
Actuarial loss recognised in Group (44) (21) (281) (58)
statement of total recognised gains
and losses - net of tax
The history of experience gains and losses would have been:-
31 August 31 August
2003 2002
United United
Kingdom Overseas Kingdom Overseas
Actual return less
expected return on
pension scheme assets
Amount (GBPm) (12) (6) (320) (64)
Percentage of (1%) (2%) (21%) (20%)
the scheme
assets (%)
Experience gains and
losses arising on the
scheme liabilities
Amount (GBPm) 20 (4) (62) -
Percentage of the present (1%) 1% 3% -
value of the scheme
liabilities (%)
Actuarial loss recognised in
Group statement of total
recognised gains and losses
Amount (GBPm) (63) (32) (401) (83)
Percentage of the present 3% 7% 21% 20%
value of the scheme
liabilities (%)
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 (273) (63) (22) (3)
beginning of year net
of deferred tax
Movement in
year:
Current (10) (19) (6) (9)
service
cost
Past - - - (7)
service
cost
Contributions 26 16 16 4
Other (16) (4) 20 4
finance
income
Currency - 3 - 6
translation
adjustment
Deferred tax movement 19 11 120 25
on actuarial loss
Actuarial (63) (32) (401) (83)
loss
Deficit in scheme at the (317) (88) (273) (63)
end of the year net of
deferred tax
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 994 786
balance sheet
Less pension and post retirement benefits (147) (149)
reported under SSAP 24 (net of deferred tax)
Add pension and post retirement benefits (405) (336)
reported under FRS 17 (net of deferred tax)
Net assets under FRS 17 442 301
Group profit and loss account
Profit and loss 1,299 1,087
account per Group
balance sheet
Less pension and post retirement benefits (147) (149)
reported under SSAP 24 (net of deferred tax)
Add pension and post retirement benefits (405) (336)
reported under FRS 17 (net of deferred tax)
Profit and loss account under FRS 17 747 602
6. Operating costs
Year Year
to to
31 31
August August
2003 2002
Note GBPm GBPm
Change in stocks of (72) (94)
finished goods and
work in progress
Raw 838 840
materials
and
consumables
Customs and - ongoing 671 638
excise duties
paid
-Mexican (38) (213)
excise
rebate
Staff costs 4 466 396
Depreciation 13 75 75
Goodwill 40 38
amortisation
Other operating 783 903
charges including
exceptional items
Operating - hire of 11 11
leases equipment
- property rents 48 48
Payments to - fees 3 6
auditor for
audit
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 31 August
2003 2002
GBPm GBPm
Goodwill amortisation (40) (38)
Exceptional items
Mexican excise rebate 38 213
Mexican social projects - (11)
Acquisition integration (3) (36)
costs
Termination of land lease - (23)
Asset write-downs 2 (14)
Restructuring - QSR (9) -
Total exceptional items 28 129
within operating costs
Goodwill amortisation and (12) 91
exceptional items before
taxation
Taxation (8) (46)
Goodwill amortisation and (20) 45
exceptional items after
taxation
8. Finance charges
Year to Year to
31 August 31 August
2003 2002
GBPm GBPm
Interest on bank loans 31 63
and overdrafts
Interest on other loans 107 75
Less: deposit and other (12) (8)
interest receivable
Total 126 130
9. Taxation
Year to Year to
31 31
August August
2003 2002
GBPm GBPm
The charge for taxation on the
profit for the period comprises:
Current tax
United Kingdom taxation
Corporation 25 18
tax at 30%
(2002: 30%)
Adjustment in (1) (3)
respect of
prior periods
Double (1) (3)
taxation
relief
23 12
Overseas taxation
Corporation 60 188
tax
Adjustment in 9 (26)
respect of
prior periods
69 162
Taxation on attributable profit of 10 7
associated undertakings
Total current tax 102 181
Deferred tax
Origination 65 (10)
and reversal
of timing
differences
Adjustment in (32) 5
respect of
prior periods
Recognition of (8) (10)
deferred tax
assets arising
in prior
periods
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 31 August
2003 2002
GBPm GBPm
Profit on ordinary activities 483 571
before taxation
Notional charge at United Kingdom 145 171
corporation tax rate of 30%
Differences in effective overseas 16 18
tax rates
Adjustments to prior period tax 8 (29)
charges
Taxable intra-group dividend 5 14
income
Utilisation of tax losses not - (14)
recognised
Non deductible expenditure 13 22
Non taxable income and gains (12) (10)
Losses and other timing (65) 10
differences
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).
10. Earnings per share
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 31
August August
2003 2002
GBPm GBPm
Earnings as 340 392
reported
Adjustment for (18) (81)
exceptional items net of
tax
Adjustment for goodwill 38 36
amortisation net of tax
Normalised 360 347
earnings
Average millions millions
number of
shares
Weighted average Ordinary Shares 1,107 1,087
in issue during the year
Weighted average Ordinary Shares owned by the (32) (21)
Allied Domecq employee trusts*
Weighted average Ordinary Shares used in 1,075 1,066
earnings per share calculation
* Includes American Depositary Shares representing underlying
Ordinary Shares.
11. Ordinary dividends
Year Year to Year Year to
to to
31 31 August 31 31
August 2002 August August
2003 2003 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 31
August August
Other 2003 2002
Goodwill Brands Intangibles Total Total
GBPm GBPm GBPm GBPm GBPm
Cost
At the 785 555 35 1,375 635
beginning
of the year
Currency - - - - -
translation
adjustment
Additions - - - - 740
At the end 785 555 35 1,375 1,375
of the year
Amortisation
At the (53) - (6) (59) (17)
beginning
of the year
Currency - - - - -
translation
adjustment
Charged in (40) - (3) (43) (42)
the year
At the end (93) - (9) (102) (59)
of the year
Net balance at 692 555 26 1,273 1,316
the end of the
year
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 698 677 1,375
beginning of
the year
Currency 42 24 66
translation
adjustment
740 701 1,441
Capital 49 92 141
expenditure
Disposals and (16) (72) (88)
transfers
At the end of 773 721 1,494
the year
Depreciation
At the (145) (353) (498)
beginning of
the year
Currency (10) (16) (26)
translation
adjustment
(155) (369) (524)
Disposals and 4 67 71
transfers
Charge for the (18) (57) (75)
year
At the end of (169) (359) (528)
the year
Net book value at 604 362 966
31 August 2003
Net book value at 553 324 877
31 August 2002
31 August 2003 31 August 2002
At Net book At Net book
cost value cost value
GBPm GBPm GBPm GBPm
Freehold land 689 548 630 511
and buildings
Long lease land 17 15 14 13
and buildings
Short lease 67 41 54 29
land and
buildings
Total land and 773 604 698 553
buildings
14. Investments and loans
Franchise
Investments and trade
Listed Unlisted loans Total
GBPm GBPm GBPm GBPm
Group
At the 102 16 8 126
beginning
of the year
Currency - - - -
translation
adjustment
Additions 43 - 1 44
Disposals (6) (3) (1) (10)
and
transfers
At the end 139 13 8 160
of the year
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 Lehman 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 4,086 93 4,179
beginning
of the year
Additions - 41 41
Disposals - (5) (5)
At the end 4,086 129 4,215
of the year
15. Investments in associates
Unlisted Listed
companies companies
share of share of
Cost reserves reserves Loans Total
GBPm GBPm GBPm GBPm GBPm
At the 43 12 14 2 71
beginning
of the year
Currency - - - - -
translation
adjustment
Share of - 14 - - 14
retained
profit for
the year
At the end 43 26 14 2 85
of the year
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 31
August August
2003 2002
GBPm GBPm
Raw materials 45 52
and consumables
Maturing 1,047 953
inventory
Finished 293 281
products
Bottles, cases 22 16
and pallets
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 17 36 - -
assets (note
19)
Amounts due - - - 4
from subsidiary
undertakings
Other debtors 108 111 12 10
Prepayments and 53 52 - -
accrued income
679 736 12 14
Amounts due
after more than
one year
Pension 309 302 - -
prepayments
Other debtors 2 15 - -
Prepayments and 15 15 - -
accrued income
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 216 175 - -
creditors
Bills 17 15 - -
payable
Amounts - - 81
owed to
subsidiary
undertakings
Other 312 286 6
creditors
Social 10 9 - -
security
Taxation 228 226 - -
Accruals 285 223 - -
and
deferred
income
Proposed 93 88 93 88
dividend
(note 11)
1,161 1,022 180 88
Amounts
due after
more than
one year
Other 34 45 - -
creditors
Accruals 12 45 - -
and
deferred
income
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 81 49 10 144 284
beginning
of the
year
Currency 2 (1) - 2 3
translation
adjustment
Timing differences - - - 2 2
within statement
of recognised
gains and losses
Utilised (5) (29) (1) - (35
during the )
year
Charged 12 12 - 5 29
during the
year
At the end 90 31 9 153 283
of the
year
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 16 28
allowances
Goodwill and other 82 70
intangible assets
Pensions and post other 72 72
retirement benefits
Tax losses and (37) (47)
credits
Other timing 3 (15)
differences
Net deferred 136 108
taxation liability
Comprising :
Deferred tax asset (17) (36)
(note 17)
Deferred tax 153 144
liability
136 108
At the beginning of 108 111
the year
Currency 1 (3)
translation
adjustment
Timing differences within 2 12
statement of recognised gains
and losses
Acquisition of - 3
businesses
Charged during the 25 (15)
year
At the end of the 136 108
year
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
NZD 400m Revolving Credit Expired - 115
Facility
NZD100m Revolving Credit 2006 23 -
Facility*
MXN 600m Revolving Credit 2008 34 -
Facility
Other loans Various - 16
Foreign currency swaps Various (115) (59)
Secured loans
NZD 225m Revolving Credit Expired - 60
Facility**
Total 1,817 1,904
Less amounts repayable (2) (128)
within one year
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 711 647
years
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 31 August
2003 2002
Book Current Book Current
value vale value value
GBPm GBPm GBPm GBPm
Cash at 175 175 169 169
bank and
in hand
Short-term (772) (772) (971) (971)
borrowings
Loan (1,815) (1,932) (1,776) (1,829)
capital
Net (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 31 August
2003 2002
Book Current Book Current
value vale value value
GBPm GBPm GBPm GBPm
Interest rate 1 (34) - (43)
swaps
Cross currency 7 44 8 16
swaps
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
Fixed rate debt
Weighted
average
Weighted time for
Floating Fixed average which rate
Net rate net rate interest is fixed
debt debt debt rate
GBPm GBPm GBPm % Years
Sterling 65 5 60 11.2 8
US dollar* 1,471 523 948 5.7 5
Euro 701 166 535 5.1 4
NZ dollar 108 35 73 8.1 3
Japanese 110 36 74 0.7 6
Yen
Other (43) (43) - - -
Net debt 2,412 722 1,690 5.6 6
31 August 2002
Weighted
average
Weighted time for
Floating Fixed average which rate
Net rate net rate interest is fixed
debt debt debt rate
GBPm GBPm GBPm % Years
Sterling 350 166 184 6.6 11
US dollar* 1,262 303 959 5.7 6
Euro 719 332 387 5.1 4
NZ dollar 252 214 38 9.1 3
Japanese 68 32 36 0.9 3
Yen
Other (73) (73) - - -
Net debt 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 - assets 155 - 4 128 - 12
exchange
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 400 400 277 277
shares of 25p
Authorised Issued
million million million million
Number of 1,600 1,600 1,107 1,068
shares
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 shares
(p)
SAYE Scheme 3 December 1999 262.0 655,020
1999
International SAYE 2 June 2000 265.0 385,716
Scheme 1999 30 November 2001 282.0 570,132
Approved Executive 5 May 2000 331.0 36,252
Share Option Scheme 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 1 November 1999 342.0 4,617,281
Option Scheme 1999 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 8 May 2001 0.1 1,263,666
Incentive Scheme 1999 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 1 November 2002 24.45 469,470
Executive Share Option 8 January 2003 25.85 3,868
Scheme 1999 1 May 2003 22.93 3,750
Executive Share 1 November 2002 24.45 38,011
Option Scheme 1999 8 January 2003 25.85 33,366
1 May 2003 22.93 1,750
Long Term 8 January 2003 0.006 21,276
Incentive Scheme
1999
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 277 165 (823) 1,087 706
beginning
of the
year
Profit earned - - - 340 340
for shareholders
for the year
Currency - - - 3 3
translation
differences
on foreign
currency
net investments
Taxation - - - 19 19
on translation
differences
Ordinary - - - (150) (150)
dividends
At the end of 277 165 (823) 1,299 918
the year
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 277 165 2,420 651 592 4,105
beginning of
the year
Profit earned - - - - 92 92
for shareholders
for the year
Ordinary - - - - (150) (150)
dividends
At the end of 277 165 2,420 651 534 4,047
the year
24. Minority interests
Equity Non-equity Total
GBPm GBPm GBPm
At the 76 4 80
beginning of
the year
Currency 2 - 2
translation
adjustment
Share of 15 1 16
profits of
subsidiary
undertakings
Dividends (21) (1) (22)
declared
At the end of 72 4 76
the year
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 22 8
received
Interest paid (149) (137)
Dividends paid to (21) (4)
minority shareholders
(148) (133)
Taxation paid
UK taxation - (1)
Overseas taxation (65) (177)
(65) (178)
Capital expenditure and
financial investment
Purchase of tangible (144) (133)
fixed assets
Sale of tangible 21 17
fixed assets
Purchase of intangible - (556)
fixed assets
Purchase of trade (3) (13)
investments
Disposal of trade 11 7
investments
Purchase of Ordinary Share (41) (34)
capital for employee trusts
(156) (712)
Acquisitions and
disposals
Purchase of subsidiary - (550)
undertakings
Borrowings acquired with - (36)
subsidiary undertakings
- (586)
Financing
Issue of Ordinary - 149
Share capital
Redemption of debt (175) -
Bonds issued during - 622
the year
Increase in other 11 27
borrowings
(164) 798
Year Year
to to
31 31
August August
2003 2002
26. Reconciliation of net cash inflow from GBPm GBPm
operating activities to free cash flow
Net cash inflow from 748 760
operating activities
Capital expenditure net of (123) (116)
sale of tangible assets
Dividends received from 13 11
associated undertakings
Operating cash net of 638 655
fixed assets
Taxation paid (65) (178)
Net interest (127) (129)
paid
Dividends - ordinary (144) (133)
paid shareholders
- minorities (21) (4)
Free cash 281 211
flow
Cash Other Loan
at loans capital
bank Overdrafts due due
and due within within after
in one year one one
hand year year
27. Net debt GBPm GBPm GBPm GBPm
At the beginning of 169 (843) (128) (1,776)
the year
Increase/(decrease) in 57 77 - -
cash
(Decrease)/increase in (50) - - -
liquid resources
Decrease/ (increase) in - - 147 17
loan capital and other
loans
Exchange adjustments (1) (4) (21) (56)
At the end of the year 175 (770) (2) (1,815)
Year to 31 August
2003 2002
Net Net
debt debt
27. Net debt GBPm GBPm
At the beginning of the year (2,578) (1,854)
Increase/(decrease) in cash 134 (194)
(Decrease)/increase in liquid (50) 21
resources
Decrease/ (increase) in loan 164 (649)
capital and other loans
Exchange adjustments (82) 98
At the end of the year (2,412) (2,578)
Liquid resources comprise short term deposits which have maturity
dates of less than three months
31 31
August August
2003 2002
28. Capital commitments GBPm GBPm
Contracted for but not 1 1
provided in the accounts
Land Land
and and
buildings Other buildings Other
31 31 31 31
August August August August
2003 2003 2002 2002
29. Operating lease GBPm GBPm GBPm GBPm
commitments
The minimum operating lease payments to
be made in the year ending
31 August 2004 for
leases expiring:
Within one 4 1 3 1
year
Within two to five 14 8 15 7
years
After five 26 - 26 1
years
44 9 44 9
Parent company
31 August 31 August
2003 2002
30. Contingent GBPm GBPm
liabilities
Guarantees in respect of 2,555 2,654
liabilities of
subsidiary undertakings
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 43 50
undertakings
Purchases of goods and (11) (13)
other services
Marketing expenditure (14) (8)
charged
Dividends received 13 11
As at As at
31 August 2003 31 August 2002
GBPm GBPm
Loans to associated 2 2
undertakings
Net amounts due from 6 11
associated undertakings
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.
US GAAP reconciliation (continued)
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.
US GAAP reconciliation (continued)
Year Year
to to
31 31
August August
2003 2002
Note GBPm GBPm
Profit earned for ordinary 340 392
shareholders in accordance with UK
GAAP
Adjustments to conform with US
GAAP:
Brands a) - -
Goodwill a) 42 38
Other intangible a) (3) (4)
assets
Stocks c) (22) (66)
Restructuring e) (7) 4
costs
Pension costs and other post f) 20 28
retirement benefits
Share g) 5 -
compensation
Derivative i) (61) 90
instruments
Mexican excise l) (40) (54)
rebate
Franchise n) (10) (9)
income
Other (3) (1)
Deferred taxation j) (11) (40)
- other
Deferred taxation - on above US GAAP j) 30 28
adjustments
Minority share of above - -
adjustments
Net income in accordance with US 280 406
GAAP
Other comprehensive income :
Minimum pension liability (61) (203)
Currency translation differences 78 (130)
Comprehensive income in accordance 297 73
with US GAAP
Net earnings per ordinary share
Basic 26.0p 38.1p
Diluted 26.0p 38.0p
Shareholders'
equity
Year Year
to to
31 31
August August
2003 2002
Note GBPm GBPm
Shareholders' funds as reported in 918 706
the Group balance sheet
Adjustments to conform with US
GAAP:
Brands a) 1,408 1,410
Goodwill a) 227 185
Other intangible - costs a) 166 168
assets
Other intangible - accumulated a) (145) (144)
assets amortisation
Associated b) 57 57
undertakings
Stock c) 23 45
Investments d) (129) (93)
Restructuring e) 1 8
costs
Pension and other post retirement f) (620) (555)
benefits
Share g) 6 1
compensation
Proposed h) 93 88
dividends
Derivative i) (18) (26)
instruments
Mexican excise l) - 40
rebate
Liabilities m) (42) (38)
Franchise n) (19) (9)
income
Other 8 6
Deferred taxation j) - 11
- other
Deferred taxation - on above US GAAP j) (277) (319)
adjustments
Minority share of above - -
adjustments
Shareholders' equity in accordance 1,657 1,541
with US GAAP
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