SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR October 21, 2004
ALLIED DOMECQ PLC
(Exact name of Registrant as specified in its Charter)
ALLIED DOMECQ PLC
(Translation of Registrant's name into English)
The Pavilions
Bridgwater Road
Bedminster Down
Bristol BS13 8AR
England
(Address of Registrant's principal executive offices)
Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.
Form 20-F x Form 40-F
------------ ----------
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Yes No x
-------- ----------
If "Yes" is marked, indicate below the file number assigned to
the registrant in connection with Rule 12g3-2(b): 82- _____
Exhibit Index
Exhibit No. Description
Exhibit No. 1 Final Results announcement dated 21 October 2004
21 October 2004
ALLIED DOMECQ DELIVERS SUSTAINED BRAND GROWTH
Allied Domecq PLC announces strong brand growth across its spirits, wine and
quick service restaurant businesses delivering an 11% increase in trading
profit and EPS up 16% at constant currency. This reflects strong value creation
from the core spirits brands with volumes up 8%, a 13% increase in profits from
our premium wine brands and a growth of 21% in trading profit at the QSR
division.
FINANCIAL HIGHLIGHTS Growth at
constant
Restated Growth currency
2004 2003 % %
- Spirits & Wine net turnover GBP2,385m GBP2,387m 0 5
- Marketing investment behind Spirits & Wine GBP421m GBP413m 2 6
- Group trading profit GBP657m GBP637m 3 11
- Group profit before tax GBP521m GBP491m 6 15
- Normalised earnings per share 35.5p 33.2p 7 16
- Dividend 15.5p 14.0p 11
- Net cash flow from operating activities GBP655m GBP702m
- Free cash flow (after dividends) GBP251m GBP243m
Figures are stated before goodwill and exceptional items. Figures for the year
ended 31 August 2003 have been restated for 'FRS 17 - Retirement benefits',
'UITF 38 - Accounting for ESOP trusts' and 'FRS 5 - Reporting the substance of
transactions - Application Note G', see page 16. Cash flow from operating
activities excludes the pre-tax benefit of the Mexican excise rebate (2004:
GBPnil; 2003: GBP46m); free cash flow excludes the post-tax benefit (2004:
GBPnil; 2003: GBP38m).
BUSINESS HIGHLIGHTS
Figures here and in the Operating and Financial Review are stated before
goodwill and exceptional items and comparative information is based on constant
exchange rates unless otherwise specified.
Spirits & Wine Core brands
-Volumes up 2% -Volumes up 8% (ex RTDs +7%)
-Net turnover up 5% -Net turnover up 7% (ex RTDs +7%)
-Marketing spend up 6% -Marketing spend up 9%
-Net brand contribution up 4% -Net brand contribution up 7%
-Trading profit up 9%
Premium wine Quick Service Restaurants
-Volumes flat -Distribution points up 6%
-Net turnover up 7% -Combination stores up 18%
-Marketing spend up 9% -System-wide sales up 12%
-Trading profit up 13% -Trading profit up 21%
Delivering improved efficiencies and cash flow
-Efficiency improvements - overheads flat, benefiting from restructuring
activities
-Strong cash generation - GBP251m free cash flow (GBP407m before dividends)
-Continued debt reduction - GBP471m reduction
Philip Bowman, Chief Executive, said:
"This has been an excellent year for Allied Domecq with strong brand growth
across our core spirits brands and good profit growth from our premium wines and
Quick Service Restaurants. These yet again underscore the successful
transformation of Allied Domecq into a brand and consumer-driven, value creating
business. In particular, our core brands performed well in the US delivering
overall market share gains. We have also followed our strategy of value
improvement in the premium wine brands to deliver strong profit growth at a time
when other wine companies have struggled in a difficult market. The double digit
profit growth at our Quick Service Restaurants business has been driven by
strong same store sales growth and new store openings. Overall, these good
performances have more than offset the trading challenges we faced in markets
such as South Korea, France and Germany.
"Looking ahead, we anticipate that the continued momentum of the core brands,
supported by our focused marketing investment, will drive volume and turnover
growth, as well as higher gross margins, even though certain markets remain
challenging. The premium wine brands are on track to meet the five year return
on investment targets that we set out two years ago. We anticipate that further
innovation and new store openings will continue to drive double digit profit
growth in our Quick Service Restaurants business. Together, this momentum will
provide us with the platform to deliver continued earnings growth in 2005."
For further information:
Media enquiries:
Stephen Whitehead, Director of Group Corporate Affairs +44 (0) 7880 783532
+44 (0) 20 7009 3927
Anthony Cardew, CardewChancery +44 (0) 20 7930 0777
Investor enquiries:
Graham Hetherington, Chief Financial Officer +44 (0) 20 7009 3910
Peter Durman, Director of Group Investor Relations +44 (0) 7771 974817
Internet:
Corporate information can be accessed 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 Thursday 21 October 2004.
Presentation webcast/audio broadcast:
A live webcast of the presentation to analysts will be available on the investor
relations section of www.allieddomecq.com at 09.30 (UK time) on Thursday 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: 0800 358 5268
US/Canada: 1 888 469 8033
France: 017 09 99 34 40
Germany: 069 58 99 90 07 11
International: +44 (0) 20 7154 2683
Conference call:
A conference call will be held for analysts and investors at 16.00 (UK time) on
Thursday 21 October. The call can be accessed by dialling:
UK: 0800 358 5268
US/Canada: 1 888 469 8033
France: 017 09 99 34 40
Germany: 069 58 99 90 07 11
International: +44 (0) 20 7154 2683
A recording of the conference call will be available from around 17.00 (UK time)
today until 28 October 2004. Call the following numbers to listen to the
recording:
UK/Europe: +44 (0) 20 8515 2499 Access code: 3198793#
US/Canada: 1 800 406 7325 Access code: 3198793#
Photography:
Original high resolution photographs are available to the media free of charge
at www.newscast.co.uk +44 (0) 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 in the Operating and Financial Review is based on
constant exchange rates. Net turnover is turnover after deducting excise duties.
Profit and normalised earnings are stated before goodwill and exceptional items.
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
At constant currency, normalised earnings per share have grown by 16% and
reported normalised earnings per share have increased by 7% to 35.5p. The three
key drivers have been:
-The growth of Spirits & Wine gross profit, particularly from the core
brands, which contributed the majority of the incremental gross profit;
-The good mix growth of the premium wine brands; and
-The strong growth in Quick Service Restaurants.
From a geographic perspective, the growth in Spirits & Wine profit has been
driven by good trading in North America, a recovery in volumes in Spain
and strong value growth in the premium wine portfolio in the US and UK. This has
been partly offset by declines in some markets in Western Europe and in Asia
Pacific due to local economic and trading challenges. Encouragingly we
stabilised the profit declines in Asia Pacific during the second half. The Quick
Service Restaurants business has delivered double digit profit growth by
implementing its strategy of driving same store sales growth, new store openings
and cost efficiencies.
At constant exchange rates, Spirits & Wine net turnover grew GBP105m (5%) to
GBP2,385m. However, Quick Service Restaurants turnover declined by GBP7m
reflecting the final transition of Baskin-Robbins from producing and selling ice
cream to US franchisees (which is now fully contracted out) to a wholly
royalty-based model. Group turnover grew by 2% at constant exchange rates.
Reported turnover for the Group declined by GBP88m (3%) to GBP3,229m of which
GBP161m related to adverse year-on-year foreign exchange movements.
At constant currency, normalised profit before tax increased by 15%. Reported
profit before tax increased 6% to GBP521m which reflects an adverse foreign
currency translation and transaction movement of GBP38m on restating the profit
for the prior period at this year's rates.
The Directors are recommending a final dividend of 9.67p per share giving a
total for the year of 15.5p, an increase of 11%.
Outlook
Looking ahead, we anticipate that the continued momentum of the core brands,
supported by our focused marketing investment, will drive volume and turnover
growth, as well as higher gross margins, even though certain markets remain
challenging. The premium wine brands are on track to meet the five year return
on investment targets that we set out two years ago. We anticipate that further
innovation and new store openings will continue to drive double digit profit
growth in our Quick Service Restaurants business. Together, this momentum will
provide us with the platform to deliver continued earnings growth in 2005.
Business drivers
Our strategy is delivering good growth in the core spirits and premium wine
brands and from Quick Service Restaurants. We focus on three areas to drive
competitive advantage and sustainable future 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.
Our increased investment in these areas, particularly advertising and promotion,
over the past four years is driving robust brand growth and strong financial
results.
SPIRITS & WINE
2004 2003 Growth
Volume (9L cases) 70.1m 68.6m 2%
Net turnover GBP2,385m GBP2,280m 5%
Advertising and promotion GBP421m GBP396m 6%
Trading profit GBP548m GBP503m 9%
Spirits & Wine net turnover has increased through the growth of our core spirits
brands and premium wine brands. Net turnover grew 5% with two percentage points
from volume growth and three percentage points from price/mix improvements.
Gross profit increased by GBP64m, or 5%, reflecting volume growth (GBP32m),
price/ mix improvements (GBP30m) and a lower cost of goods (GBP2m). The core
brands and premium wines are the key drivers of the gross profit improvement.
Trading profit grew GBP45m (9%) after advertising and promotion investment
increased by GBP25m (6%). Overheads were held flat even after investing
significantly in our sales and marketing capabilities in the US and behind the
premium wine brands. This has been achieved by driving efficiency benefits from
the restructuring of the Spirits & Wine operations. The increase in advertising
and promotion spend has been directed behind selected brand market combinations,
particularly Sauza in the US and Mexico, Ballantine's in Spain, Malibu in the US
and Spain, Kahlua in the US, Whisky DYC in Spain and Imperial in South Korea.
This continues to reflect the rigorous way in which we allocate spend behind
brands and markets; directing more behind the core brands including new
campaigns and innovation, and withdrawing spend from less effective areas. As a
result, we are continuing to achieve greater impact from our marketing
investment.
Brand review
We manage the Spirits & Wine portfolio as four groups: core brands, local market
leaders, premium wine and other Spirits & Wine brands.
Core brand volumes grew 8% and net turnover increased by 7% driven by strong
growth across nearly all the brands. There is one percentage point of mix
dilution caused by the successful growth of the lower margin ready-to-drink
extensions, which grew volumes by 15%. Excluding the ready-to-drinks, core brand
volumes and net turnover both grew by 7%. Advertising and promotion behind the
core brands was up 9% resulting in net brand contribution increasing by 7%.
Spirits & Wine volume and net turnover growth
Volume Volume Net
million growth turnover
9L cases % growth %
Core brands
Ballantine's 5.9 6 6
Beefeater 2.4 8 10
Canadian Club 2.6 7 0
Courvoisier 1.1 3 3
Kahlua 3.0 (1) 2
Maker's Mark 0.5 10 15
Malibu 3.0 17 15
Sauza 2.9 20 16
Tia Maria 0.8 (11) (13)
Core brands 22.2 8 7
Local market leaders 11.7 (2) (2)
Premium wine 15.6 0 7
Other Spirits & Wine brands
Other spirits 12.7 0 4
Other wine 7.9 5 3
Other Spirits & Wine total 20.6 2 3
Total 70.1 2 5
The core brands are key drivers of gross profit growth with their premium
positioning commanding high margins. The average gross profit per case of the
core brands is more than twice that of the rest of the portfolio. As a result,
they contributed the majority of the incremental Spirits & Wine gross profit.
Ballantine's and Beefeater grew well reflecting a recovery in volumes in Spain.
Canadian Club volumes grew 7% with flat turnover growth reflecting the price
repositioning in the US and mix dilution from the growth of ready-to-drinks in
Australia. Excluding the ready-to-drinks, Canadian Club volumes grew 3% on net
turnover down 1%. Courvoisier grew both volumes and net turnover by 3%
reflecting good growth in the UK. Kahlua volumes fell by 1% but price/mix
improved net turnover by 2%. Price increases on Maker's Mark helped to grow
net turnover 15% while volumes were up 10%. Malibu grew volumes 17% and net
turnover by 15% reflecting a mix dilution from the successful growth of ready-
to-drinks in Australia. Excluding the ready-to-drinks, volumes and net
turnover both grew 13%. Sauza volumes grew 20% and net turnover was up 16%
reflecting price decreases in Mexico following declines in raw material costs.
In the US, Sauza grew both volumes and net turnover by 13%. Tia Maria volumes
declined by 11% and net turnover fell by 13%. This decline mainly reflects the
one-off benefit of the initial distribution effect of the Tia Lusso launch
which was not repeated this year and lower Tia Maria sales which were affected
in the short-term by the focus on Tia Lusso. Looking ahead, we have developed
a new marketing campaign to revitalise the Tia Maria brand.
The recovery in core brand volumes in Spain accounted for one percentage point
of volume growth and overall core brand volume growth was 7% excluding the
Spanish market.
The local market leader brands are important contributors to overall profit and
cash generation. In addition, they provide important local scale to support the
development of the core brands in key markets. Among the local market leader
brands, the strong growth of Stolichnaya in the US and the recovery of volumes
of Whisky DYC and Centenario in Spain were offset by volume declines in the
Mexican brandies and Imperial whisky. As a result, overall local market leader
volumes and net turnover both declined by 2%. Marketing investment was reduced
across the local market leaders by 2% and net brand contribution declined by 2%.
The premium wine brands continued to deliver a significant price/mix improvement
with flat volumes and net turnover up by 7%. Marketing spend increased by 9% to
deliver a trading profit increase of 13%.
The volumes of the other Spirits & Wine brands grew volumes by 2% with net
turnover up by 3%.
Market review - Spirits & Wine
The key geographic drivers are the strong growth in core brand volumes in North
America which delivered good turnover and profit growth, a recovery in
volumes in Spain and good value growth in the premium wine portfolio. These good
results were in part offset by declines in some Western European markets as a
result of unfavourable macro-economic conditions and in South Korea where the
current consumer credit problems have affected consumption patterns.
The regional performance of our business is reviewed below.
North America
Growth
Volumes (9L cases) 5%
Net turnover 9%
Advertising and promotion 10%
Trading profit 15%
Strong trading in our North American business delivered a net turnover increase
of 9% to GBP632m with volumes up 5%. Trading profit grew 15% to GBP183m after
advertising and promotion grew by 10%.
In the US, we have continued to grow our share of the spirits market, reflecting
the strength of our core brand portfolio and the benefits of our partnership
approach with US distributors. As a result, we have grown volumes in the US by
7% and achieved good price/mix improvements to increase net turnover by 10%.
Price improvements have been achieved particularly behind Maker's Mark, Malibu
and Stolichnaya. To support this momentum, we increased our marketing investment
by 11% with the increase being directed mainly behind Malibu, Sauza and Kahlua.
Malibu has continued to increase its market share of the rum category in the US.
Volumes grew 31% with net turnover up 35%, reflecting the successful launch of
the new flavours, mango and pineapple. The original coconut flavour has also
continued to perform well with volumes up 13%. This reflects the success of the
"Seriously Easy Going" campaign.
Sauza grew both volumes and net turnover by 13% in the US. It continued to grow
its share of the tequila category as we increased our investment in the
successful "Get Lost" marketing campaign. Maker's Mark had another strong year
with further share growth with volumes up 14% and net turnover up 18%.
Stolichnaya continued to perform well with volumes up 9% and net turnover up 11%
helped by the introduction of brand extensions such as Stoli Razberi and Stoli
Elit. Beefeater grew volumes by 4% and net turnover by 5% supported by a new
advertising campaign called "This Is Gin" which has been trialled in three
cities and will be rolled out to further cities during 2005.
Our programme to revitalise Canadian Club has delivered volumes up 4% with flat
net turnover reflecting the effect of planned price repositioning across
selected States. As a result, Canadian Club has also grown share of the Canadian
whisky category. Kahlua continued to deliver positive consumption trends with
net turnover up 3% on flat volumes. Courvoisier volumes fell 2% following a
strong performance last year.
Our strategy in the US is continuing to drive market share gains. The "first
choice supplier" programme with US distributors has brought further benefits as
we have extended the contracts to new States. Around 55% of our Open State
volume is now covered by these new contracts which are long-term partnerships
based on sustainability and mutual benefit. In addition, the new team we put in
place to manage the Control States has provided the necessary focus to drive
market share gains.
Europe
Growth
Volumes (9L cases) 0%
Net turnover 2%
Advertising and promotion (3)%
Trading profit 14%
Trading profit grew 14% to GBP139m reflecting a recovery in volumes in
Spain and a good performance in the UK and Central and Eastern Europe, offset by
declines in other Western European markets caused by the challenging trading
conditions. Net turnover grew 2% to GBP734m on flat volumes. Advertising and
promotion declined by 3% as we reallocated our resources into higher growth
markets in the US and Asia. In addition, cost saving initiatives held overheads
flat. Outside Spain, our European volumes and net turnover both declined 3%
despite the core brands growing share in key markets.
Our business in Spain grew volumes by 8% and net turnover by 12% reflecting the
recovery in our volumes following last year's destock by Spanish wholesalers.
Ballantine's grew volumes by 16% and net turnover by 20% and, while the Scotch
whisky category is now in decline, the brand has continued to grow its market
share to an all-time high. We have significantly increased our investment
behind the Ballantine's "Go Play" campaign in Spain to maintain the brand's
momentum. Volumes for Beefeater grew 9% while net turnover grew 16%. Beefeater
became the market leader in the gin category by value with strong market share
gains. We have also recently launched WET by Beefeater, a premium brand
extension, in high-end on-premise accounts. Malibu has continued to gain share
following new television advertising and more than 1,000 on-trade promotion
events. The volumes for Whisky DYC increased by 6%, as the new marketing
campaign, "DYC Une", helped to improve awareness among target consumers. While
the brandy market continues to decline, Centenario has maintained its
leadership of the category with a 25% share.
The UK business has continued to deliver profit growth. Courvoisier extended its
leadership of the cognac category with both volumes and net turnover up 9%. The
brand is benefiting from new listings, a programme of on-trade events,
particularly around cocktails, and an advertising programme in style magazines.
Malibu has continued to grow share in both the on- and off-trade with volumes
and net turnover up 8%. A new national TV and cinema campaign with the
"Seriously Easy Going" message increased brand awareness along with a marketing
focus on mixing with cranberry. Volumes for the overall Tia Maria
trademark declined when compared against high volumes associated with the Tia
Lusso launch programme last year. However, Tia Lusso has retained its position
as the number two selling cream liqueur by value in the UK.
The rest of Western Europe, such as France and Germany, has experienced sluggish
economies and slower consumer spending. However, key brands have made good
progress with market share growth in these challenging markets. For example,
in France, legislative changes including price decreases have made the trading
climate difficult, although we achieved market share gains with Ballantine's.
In Germany, while the spirits market has continued to decline, Ballantine's
increased its leadership of the Scotch whisky category. Ballantine's has also
achieved share gains in other markets so that its overall European market share
reached an all-time high.
In addition, we have reviewed our distribution arrangements in a number of our
European markets and introduced new partnership arrangements in the Czech
Republic, Benelux, Poland and Switzerland. These partnerships provide a more
efficient route to market and are delivering overhead savings, improved scale
and access. In Central and Eastern Europe, we have seen good profit growth in a
number of markets such as Romania, Hungary and Russia and have benefited from
the new distribution arrangements in the Czech Republic and Poland.
Latin America
Growth
Volumes (9L cases) 4%
Net turnover 3%
Advertising and promotion 6%
Trading profit 5%
Trading profit grew 5% to GBP44m while net turnover grew 3% to GBP268m despite
the challenging market conditions. This performance reflects a significant
improvement in the second half, with volumes up 10%, net turnover up 13% and
trading profit up GBP6m. The key drivers for the year are the growth of the core
brands, particularly Sauza in Mexico, and our Argentine wines, which have been
partially offset by a decline in Mexican brandies.
Our Mexican business continued to extend its position as the leading spirits
business. Sauza continued to grow its share to become the second largest
tequila brand in Mexico. Volumes were up 36% and net turnover grew 27%
reflecting price reductions caused by the highly competitive tequila market as
well as declines in the raw material costs. We have also increased our focus
on the core brands which have delivered good growth in Ballantine's and Kahlua.
The domestic brandy category continues to be affected by the growth of the
illegal spirits market in Mexico, which has resulted in a 5% decline in our
Mexican brandy volumes. However, our brands have maintained their leadership
of the category, and we delivered a better performance in the second half with
brandy volumes up 7% driven by Presidente, albeit against weaker comparatives.
We have continued to work with the Mexican government on initiatives to tackle
the growth of the illegal spirits market. The recently implemented regimes
apply excise duties on all alcohol imports and production in order to prevent
its diversion to the illegal market. It is too early to determine the
effectiveness of these initiatives.
In Argentina, we have extended our market leadership through growth of our core
spirits brands, such as Tia Maria and Beefeater, and our Argentine wine
portfolio. The Argentine wine portfolio helped to grow our domestic wine volumes
by 40% and net turnover by 78%. In Brazil, our Latin American wines have also
helped to grow our overall Brazilian volumes by 5%. Ballantine's also continued
to perform well in the other Latin American markets.
Asia Pacific
Growth
Volumes (9L cases) 2%
Net turnover (3)%
Advertising and promotion 15%
Trading profit (4)%
The challenging trading conditions in South Korea, where a consumer credit
squeeze has triggered a significant slowdown in the overall spirits market, has
caused the regional trading profit to decline by 4% to GBP68m. Net turnover for
the region fell by 3% to GBP226m while volumes grew 2%. Core brand volumes in
the region grew 14% offsetting the declines in local market leader brands in
South Korea and the Philippines. Outside of South Korea, we experienced strong
growth in the rest of the region with volumes up 11% driven by good performances
in Greater China, Australasia and the emerging new markets.
The consumer credit squeeze in South Korea has slowed consumer spending which
has badly affected the spirits industry. As a result, the whisky category has
declined by 26% since August 2003 but our total market share improved by 1.4
percentage points to 34%. We improved our share across the premium, deluxe and
super-premium categories. The premium (12 year old) category has been most
affected, declining 29%, while Imperial Scotch whisky maintained its market
leadership with volumes down 22%. We have, however, continued to grow our share
of the premium whisky category to an all-time high. The more premium-priced
brands have fared better as the consumer base is relatively less affected by the
credit squeeze. This trend is continuing to support a mix benefit for
Ballantine's aged whisky. In addition, in December we successfully launched
Imperial 17 year old Scotch to broaden our access to this more premium-priced
category. This was the main driver for the 15% increase in advertising and
promotion in the Asia Pacific region. Our work with Imperial 17 year old and
Ballantine's Masters has grown our share of the deluxe premium category in
South Korea.
In Australia, our volumes grew 29% driven particularly by the success of our
ready-to-drink extensions and good growth from Ballantine's and Malibu. The
ready-to-drink formats are based on Canadian Club, with CC Club and CC Cola
growing volumes by 40%, and the recent launch of Malibu Chill which has been
very well received. The base Malibu brand also grew strongly in Australia with
volumes up 25%. In the Philippines, Fundador has maintained its position as the
largest international spirits brand but incurred volume declines of 14% as a
result of increasing competition from low-priced Spanish imports and the
difficult economy. Sales in Japan improved this year, driven particularly by
Ballantine's aged whisky.
Our business in China has progressed in building organisational capabilities and
a sales network. This delivered good growth from a small base such that volumes
grew by 75% driven by Ballantine's, up 90%, and Courvoisier, up 74%.
Premium Wine
Growth
Volumes (9L cases) 0%
Net turnover 7%
Advertising and promotion 9%
Trading profit 13%
The premium wine brands have grown strongly with trading profit up 13% to
GBP98m. Net turnover increased by 7% to GBP475m on flat volumes which reflects a
strong price/mix improvement of 7%. Advertising and promotion increased 9%
primarily behind our champagne brands. Our continued focus on value and mix
improvement is delivering improving returns on investment and we are on track to
reach our targets. These excellent results have been achieved at a time when
many other wine companies have struggled against a challenging wine market. It
demonstrates the strength of our wine brands and the benefits of our geographic
diversity which have provided a natural hedge against recent variations in wine
cycles. We have also improved our capital efficiency both by better working
capital management and through disposal of non-strategic assets. These capital
savings along with the profit growth are driving higher returns.
Our premium-priced wines (GBP5 or US$7 retail price and above) represent around
55% of the portfolio by volume but around 85% of the portfolio by value. Our
strategy is to shift the mix of our wine portfolio towards these more premium
categories and away from the value category. As a result, we delivered flat
overall volume growth reflecting a strong performance in the premium categories
offset by the declines in the value categories. It was helped by a significant
growth in premium wine volumes during the second half with overall volumes up 4%
and net turnover up 9%.
We had a very strong year in the US, our largest wine market, with overall
volumes up 14% and net turnover up 17%. Our largest US brand, Clos du Bois, was
the key driver with volumes up 13%. Its core chardonnay varietal grew well and
we also benefited from the introduction of a new shiraz varietal. The
successful launches of the Jerry Garcia label and Mumm 'M' were also helpful
growth drivers. Mumm Cuvee Napa experienced overall strong growth with volumes
up 14%. The addition of the Gary Farrell icon wines into the portfolio has also
helped to improve the credibility and breadth of the US domestic portfolio. The
other key growth driver was the continued introduction of wine imports into the
US market, particularly from New Zealand, Champagne and Spain. The New Zealand
wines, which we market under the Brancott label in the US, delivered volume
growth of 38% and our champagne volumes in the US increased by 36%. Both our
domestic and imported brands benefited from broader distribution and improved
sales and marketing capabilities within the US market.
The UK wine business delivered good growth with volumes up 7% and net turnover
up 10%. There was good growth from a range of brands from different production
regions. The New Zealand brands grew volumes and net turnover by 9% in spite of
the supply shortage resulting from last year's reduced grape harvest. The
Spanish Rioja brands benefited from the strength of our UK distribution, with
Campo Viejo volumes up 24% and net turnover up 34%. The champagnes have also
delivered net turnover growth of 6% as we have increased prices, particularly on
Mumm. Our largest Argentine wine brand, Graffigna, also saw good growth with
volumes up 17% and net turnover up 26%.
Our wine sales in Australia and New Zealand had a slow start to the year. The
domestic sales in New Zealand declined, primarily reflecting the grape supply
shortage caused by last year's frost damage. Consolidation among the retailers
also put pressure on sales. However, we restructured our operations in New
Zealand and Australia and, coupled with the improving supply situation, we saw
good net turnover growth across all brand categories in the second half. The
grape harvest in 2004 was at record levels and will support future growth even
though overall supply remains tight in the New Zealand market. The premium
positioning of our portfolio and the tension in grape supply will support
continued value growth from our New Zealand operations.
In Spain, we restructured our operations and continued to focus on driving the
mix shift from low value table wine to more premium categories. In the second
half, our volumes grew 5% and net turnover grew 10% with good growth across the
premium portfolio. In the year as a whole, volumes declined 7% but delivered
seven percentage points of price/mix improvement to give flat overall turnover.
Global Operations and Duty Free
During the year, we restructured our Global Operations activities around a
simpler functional model based upon regional manufacturing units, supply chain,
procurement, finance, human resources and technical operations. This new
structure is enabling us to leverage our global scale more effectively, to
transfer best practice, to speed up decision-making and deliver better
utilisation of our assets. Global Operations has continued to improve
productivity by 3% for Spirits & Wine, measured as cases produced per employee.
This improvement has been achieved across the key production centres.
Our Duty Free business has grown well with core brand volumes up 8%. The growth
came from nearly all the brands with particularly strong performances from aged
Ballantine's in Asia, Sauza in the US and Europe, Beefeater and Canadian Club in
the US. Traffic numbers have improved during the year, particularly in Asia and
the US which were affected by the SARS virus and the Gulf War, respectively,
last year. The premium wine brands also performed well with good growth from
across the portfolio following improved distribution and listings in airport
shops.
QUICK SERVICE RESTAURANTS
-Distribution points up 6%
-Number of combination stores up 18%
-System-wide sales growth of 12%
-Turnover down 3%
-Trading profit up 21%
Quick Service Restaurants had an excellent year with profits up 21% to GBP86m
driven by continued growth in same store sales, the contribution from new stores
and from the cost savings resulting from last year's reorganisation.
Distribution points increased by 6% with new store openings in both the US and
internationally. Global system-wide sales increased by 12%. However, overall
turnover has fallen by 3% (GBP7m) to GBP226m, reflecting the final transition of
Baskin-Robbins from producing and selling ice cream to US franchisees (which is
now fully contracted out) to a wholly royalty-based model. Excluding the effect
of this outsourcing, turnover is up 6%. Gross profit increased by 6% to GBP208m.
Dunkin' Donuts is the key growth driver for QSR with a 13% increase in global
system-wide sales. This reflects US same store sales up 6.9% and a 6% increase
in global distribution points. The same store sales growth exceeds the rate for
the overall industry and is driven by innovation and excellent marketing. In
particular, a new range of coffee offerings including latte, cappuccino and
espresso products was launched in October 2003. During the summer, the range was
extended to include iced coffee options which also proved very popular. The
launch exceeded all expectations and helped beverages to grow by 13%. The launch
has been supported by the introduction of new high-speed coffee machines that
support Dunkin' Donuts reputation for speed, quality and value for money. On the
baked goods side, we introduced a new apple pie product and new breakfast
sandwich formats.
Baskin-Robbins grew global system-wide sales by 10%. This was driven by same
store sales growth and a 7% increase in new store openings. US same store sales
grew 2.1%, benefiting from a movie co-promotion with the recent Dreamworks film,
Shrek 2, which saw the launch of new flavours such as Fiona's Fairytale, Shrek'd
Out Chocolate Mint and Shrek's Hot Sludge sundae. We also re-launched Cappuccino
Blast for the summer with good results and successfully trialled a new store
format in California. The key innovations for the new store concept are a
beverage bar, a new cake display and the introduction of a new soft-serve ice
cream to which customers can add their own toppings. The initial results are
encouraging. To support the international business, which accounts for almost
half of Baskin-Robbins stores, we introduced a global advertising fund in
conjunction with the franchisees to deliver a more co-ordinated and cost
effective approach to marketing in our international markets.
The difficult economic conditions in California and the increasingly competitive
environment has held back the sales of Togo's which recorded an 8% decline in
system-wide sales. However, the store innovation and refurbishment programme
which has now covered around half of the stores is delivering improved results.
The new store formats provide improved menu boards and we have introduced new
products such as low carbohydrate bread and new salad dressings.
Multi-branded stores, which combine the Dunkin' Donuts and Baskin-Robbins
restaurants in one location, increased by 18% to over 1,300 store locations.
This is a key driver of new store openings and is supported by the brands'
complementary day-part offering and brings significant benefits to our
franchisees through improved scale and operating efficiencies, along with
increased choice for consumers.
This year's results also reflect the benefit of the restructuring that we
implemented during 2003. The new structure has increased the focus on the three
brands and is improving operational systems and standards, menu and product
development and the expansion of the international business. We have also
generated cost savings in the period of GBP6m.
BRITANNIA SOFT DRINKS
The Group's share of Britannia's profits for the period was GBP23m (2003:
GBP20m). Allied Domecq and the other shareholders of Britannia Soft Drinks
Limited have also agreed subject, inter alia, to market conditions, to consider
an initial public offering of Britannia Soft Drinks, between 1 January 2005 and
31 December 2008. Allied Domecq has a 23.75% share of Britannia Soft Drinks
Limited.
TAXATION
The normalised tax charge for the year has remained at 24%, in line with last
year.
GOODWILL AND EXCEPTIONAL ITEMS
Goodwill amortisation totalled GBP40m (2003: GBP40m). The exceptional items
include profits on property disposals (GBP14m); an additional profit on the
disposal of Panrico (GBP20m); offset by costs incurred in restructuring the
Spirits & Wine business (GBP31m) and asset write-downs (GBP5m).
Property disposals related primarily to assets within the premium wine business.
The consideration for the disposal of our 50% interest in Panrico in March 2000
included an additional payment of GBP20m to be paid by the end of March 2006 or
earlier, contingent upon future events. On 19 August 2004, we agreed to receive
this payment from Panrico in full and final settlement of the original sale and
purchase agreement.
The restructuring programme is aimed at reducing the overlap between central,
regional and market-focused functions and has enabled us to be leaner and more
efficient, speed up decision-making and reinforce accountability throughout the
business. The programme has delivered operational savings this year of GBP15m.
CASH FLOW
Last year, cash flow benefited from the Mexican excise rebate of GBP38m (net of
tax) and the timing of duty payments of around GBP40m. Excluding these
non-repeatable items, free cash flow improved by GBP88m despite absorbing a
number of additional outlays such as increased pension contributions and
restructuring costs. We have continued to focus on trade working capital
management and reducing the level of capital expenditure and active management
of the asset base through disposals of non-strategic assets. Our interest
payments were GBP10m lower compared with last year, benefiting from the lower
average net debt.
TREASURY OPERATIONS AND FOREIGN EXCHANGE
The Group operates a centralised treasury managing interest rate and foreign
exchange risk and financing. The Board agrees and reviews risk management
policies.
We operate a prudent hedging policy. Net currency exposures on transactions are
hedged forward for between 12 and 18 months using a blend of foreign exchange
forwards and options. As hedges fall away, if the currencies remain depreciated,
the margins of the imported products are negatively affected.
It is our policy not to hedge the impact of foreign exchange movements on the
translation of our overseas earnings into Sterling. For constant rate reporting
purposes, our prior year profit before tax was reduced by GBP38m, primarily due
to the weakening of the US dollar and Mexican peso.
We anticipate, based on current exchange rates and the hedge contracts in place,
that trading profit will be adversely affected during the next financial year by
around GBP30m, including GBP20m from currency exposures on transactions.
Our balance sheet is also exposed to currency translation impacts. Our policy is
to match our currency of debt in proportion to foreign currency earnings in
order to reduce this exposure.
The amount of risk to any counterparty is restricted according to their credit
rating. We continually monitor our exposure to counterparties and for any
changes in their credit rating.
Exposures to interest rate fluctuations charged against our borrowings are
managed 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%.
Net debt has reduced by GBP471m during the year from GBP2,412m to GBP1,941m.
This improvement includes a favourable currency translation impact on our
borrowings of GBP193m, which is largely due to the US dollar weakness. Net debt
reduction from cash flows was GBP278m, benefiting from the Panrico receipt
(GBP20m).
At 31 August 2004, EV gearing (net debt as a percentage of market capitalisation
plus net debt) was 28% (2003: 36%). Interest cover based on normalised EBITDA
was 5.4 times and cover based on normalised EBITA was 4.8 times.
PENSIONS
As anticipated, the profit and loss charge under FRS 17 was GBP51m (2003:
GBP49m), with a GBP32m (2003: GBP29m) charge within trading profit and a GBP19m
(2003: GBP20m) impact within finance charges. Within the framework of FRS 17 we
are able to confirm the charge for 2005 will be similar to 2004.
The post tax deficit included in the balance sheet at 31 August 2004 was GBP387m
compared with GBP405m at 31 August 2003.
NEW ACCOUNTING STANDARDS AND OTHER GLOBAL GAAP ISSUES
UK standards
We have adopted 'FRS 17 - Retirement benefits' from 1 September 2003 which has
led to a restatement of the figures for the year ended 31 August 2003, with a
GBP16m increase in trading profit, a GBP20m increase in finance charges and a
GBP1m decrease in the tax charge.
The amendment to 'FRS 5 - Reporting the substance of transactions' has resulted
in a number of items which were previously classified as operating costs
(GBP69m) and advertising and promotion (GBP24m) to be treated as discounts,
reducing turnover by GBP93m for the year ended 31 August 2003. Trading profit
was not affected.
The impact of these accounting standards on the profit and loss account for the
year ended 31 August 2003 is summarised on page 18.
We have also complied with 'UITF 38 - Accounting for ESOP trusts' which has
resulted in a reclassification of shares held in employee trusts from
investments to Shareholders' funds, reducing net assets by GBP129m at 31 August
2003. There were no changes to reported profits for the year ended 31 August
2003.
International Financial Reporting Standards
All EU companies listed on an EU stock exchange will be required to report their
consolidated accounts in accordance with International Financial Reporting
Standards ("IFRS"), as published by the International Accounting Standards Board
("IASB"), for all accounting periods commencing on or after 1 January 2005.
Accordingly, we will present our first set of full financial statements under
IFRS for the year ending 31 August 2006. This will require a full profit and
loss account, balance sheet and cash flow statement for the year ending 31
August 2005 for comparative purposes. For US GAAP reporting, the US Securities
and Exchange Commission has yet to determine whether we are also required to
present comparatives for the year ended 31 August 2004.
We have established a project team to ensure that appropriate processes and
procedures are in place to achieve the transition to IFRS. The project team is
addressing all implementation aspects, including changes to accounting policies,
systems implications and wider business issues that may arise. The
implementation plan is dependent upon the completion of the standard-setting
process by the IASB and the endorsement of such standards by the EU.
The Group has not yet determined the full effects of adopting IFRS. However, at
this stage we believe that the major differences between our current accounting
practice and IFRS will relate to accounting for financial instruments,
accounting for business combinations, and accounting for fixed assets and stock
under the agriculture standard.
US GAAP
In the course of our preparatory work to convert our financial statements from
UK GAAP to IFRS, we have identified the need to correct our prior reconciliation
to US GAAP. The correction relates to the foreign currency translation of
certain assets and liabilities in connection with the functional currencies used
in past business combinations. The Group has restated the US GAAP reconciliation
for prior periods and the impact in 2003 was a GBP1m charge on Net income, a
GBP105m credit to Comprehensive income and a GBP26m reduction in Shareholders'
equity. Further information can be found on page 52. This reconciliation does
not affect any of our UK GAAP financial statements or cash flows under US or UK
GAAP.
CONSTANT EXCHANGE RATE REPORTING
The following tables provide a reconciliation between the 2003 reported results
and those shown at constant exchange rates in the Operating and Financial
Review.
2003 2004
FRS 5/ Growth
Reported FRS 17 Foreign At 2004 Reported at 2004
2003 restatement exchange exchange 2004 exchange
GROUP GBPm GBPm GBPm GBPm GBPm %
Turnover 3,410 (93) (161) 3,156 3,229 2
Trading 621 16 (43) 594 657 11
profit
Finance (126) (20) 5 (141) (136) (4)
charges
Profit 495 (4) (38) 453 521 15
before tax
Taxation (119) 1 9 (109) (125) 15
Minority (16) - - (16) (14) (13)
interests
Earnings 360 (3) (29) 328 382 16
Weighted 1,075 - - 1,075 1,076
average
number of
ordinary
shares
(millions)
Normalised 33.5 (0.3) (2.7) 30.5 35.5 16
earnings
per share
(pence)
2003 2004
FRS 5/ Growth
FRS 17 at 2004
Reported restatement Foreign At 2004 Reported exchange
2003 GBPm exchange exchange 2004 %
SPIRITS & GBPm GBPm GBPm GBPm
WINE
Turnover 3,151 (93) (135) 2,923 3,003 3
Duty (671) - 28 (643) (618) (4)
Net 2,480 (93) (107) 2,280 2,385 5
turnover
Advertising (437) 24 17 (396) (421) 6
& promotion
Trading 522 16 (35) 503 548 9
profit
Geographical Analysis - Group turnover and 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 effect of
restating last year's reported 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 the sales and marketing regions.
The profit decline in "Others" principally reflects increased central marketing
costs and the additional costs associated with the implementation of the
requirements of the Sarbanes-Oxley Act of 2002 and International Financial
Reporting Standards.
Geographical Analysis - Group net turnover
2003 2004
FRS5/ Growth
Reported FRS17 Foreign At 2004 Reported at 2004
2003 restatement exchange exchange 2004 exchange
GBPm GBPm GBPm GBPm GBPm %
North 649 (15) (55) 579 632 9
America
Europe 762 (49) 10 723 734 2
Latin 303 (2) (41) 260 268 3
America
Asia 258 (12) (14) 232 226 (3)
Pacific
Premium 463 (12) (5) 446 475 7
Wine
Others 45 (3) (2) 40 50 25
Spirits & 2,480 (93) (107) 2,280 2,385 5
Wine
QSR 259 - (26) 233 226 (3)
TOTAL 2,739 (93) (133) 2,513 2,611 4
Geographical Analysis - Group trading profit
2003 2004
FRS5/ Growth
Reported FRS17 Foreign At 2004 Reported at 2004
2003 restatement exchange exchange 2004 exchange
GBPm GBPm GBPm GBPm GBPm %
North 182 - (23) 159 183 15
America
Europe 114 - 8 122 139 14
Latin 54 - (12) 42 44 5
America
Asia Pacific 78 - (7) 71 68 (4)
Premium Wine 95 - (8) 87 98 13
Others (1) 16 7 22 16 (27)
Spirits & 522 16 (35) 503 548 9
Wine
QSR 79 - (8) 71 86 21
Britannia 20 - - 20 23 15
TOTAL 621 16 (43) 594 657 11
Accounting policies
Year to 31 August 2004
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 significant differences between UK GAAP and US generally accepted accounting
principles ("US GAAP") and a reconciliation of net income and Shareholders'
equity from UK GAAP to US GAAP as a result of such differences are shown on
pages 52 to 55.
Changes in accounting policies
The Group has adopted "FRS 17 - Retirement Benefits" in full from 1 September
2003 (see note 5). In prior years the Group has complied with the transitional
disclosure requirements of this standard. The Group has also adopted
"Application Note G - revenue recognition" an amendment to "FRS 5 - Reporting
the substance of transactions" (see note 1) and has complied with "UITF 38 -
Accounting for ESOP Trusts" (see note 14).
The impact of the adoption of these accounting standards has been reflected
throughout the accounts. Prior year comparatives have been restated where
appropriate (see note 23).
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,
that reflect 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. Purchased intangible assets are also
capitalised and amortised over their estimated useful economic lives on a
straight line basis, except for purchased brand intangible assets. Purchased
brand intangible assets are considered by the Board of Directors to have an
indefinite life given the proven longevity of premium spirits brands and the
continued level of marketing support. We do not amortise purchased brand
intangible assets but they 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.
Accounting policies (continued)
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
In accordance with FRS 17 - Retirement benefits, the operating and financing
costs of pension and post-retirement schemes are recognised separately in the
profit and loss account. Service costs are systematically spread over the
service lives of the employees and financing costs are recognised in the period
in which they arise. The costs of past service benefit enhancements, settlements
and curtailments are also recognised in the period in which they arise.
The difference between actual and expected returns on assets during the year,
including changes in actuarial assumptions, are recognised in the statement of
total recognised gains and losses.
Group profit and loss account
Year to 31 August 2004
Year to 31 August 2004 Year to 31 August 2003 (restated)
Before Before
goodwill Goodwill goodwill Goodwill
and and and and
exceptional exceptional exceptional exceptional
items items Total items items Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
Turnover 1 3,229 - 3,229 3,317 - 3,317
Operating costs -goodwill amortisation 6 - (40) (40) - (40) (40)
-Mexican excise rebate 6 - - - - 38 38
-other 6 (2,604) (36) (2,640) (2,704) (10) (2,714)
Operating profit from continuing operations 625 (76) 549 613 (12) 601
Share of profits of associated undertakings 15 32 - 32 24 - 24
Trading profit on ordinary activities
before finance charges 1 657 (76) 581 637 (12) 625
Profit on sale of businesses in discontinued
activities 7 - 20 20 - - -
Profit on disposal of fixed assets in
continuing activities 7 - 14 14 - - -
Profit on ordinary activities before
finance charges 657 (42) 615 637 (12) 625
Interest payable 8 (117) - (117) (126) - (126)
Other finance charges 5 (19) - (19) (20) - (20)
Profit on ordinary activities before taxation 521 (42) 479 491 (12) 479
Taxation 9 (125) 16 (109) (118) (8) (126)
Profit on ordinary activities after taxation 396 (26) 370 373 (20) 353
Minority interests - equity and
non-equity 24 (14) - (14) (16) - (16)
Profit earned for Ordinary
Shareholders for the year 23 382 (26) 356 357 (20) 337
Ordinary dividends 11 (167) (150)
Retained profit 189 187
Earnings per Ordinary Share:
- basic 10 33.1p 31.3p
- diluted 10 32.9p 31.3p
- normalised 10 35.5p 33.2p
Group balance sheet
At 31 August 2004
31 August 31 August 2003
2004 (restated)
Note GBPm GBPm
Fixed assets
Intangible assets 12 1,234 1,273
Tangible assets 13 921 966
Investments and loans 14 21 31
Investments in associates 15 73 85
Total fixed assets 2,249 2,355
Current assets
Stocks 16 1,343 1,407
Debtors 17 636 701
Cash at bank and in hand 129 175
Total current assets 2,108 2,283
Creditors (due within one year)
Short-term borrowings 20 (378) (772)
Other creditors 18 (1,088) (1,161)
Total current liabilities (1,466) (1,933)
Net current assets 642 350
Total assets less current liabilities 2,891 2,705
Creditors (due after more than one year)
Loan capital 20 (1,692) (1,815)
Other creditors 18 (43) (46)
Total creditors due after more than one year (1,735) (1,861)
Provisions for liabilities and charges 19 (179) (126)
Net assets excluding pension and post-retirement liabilities 977 718
Pension and post-retirement liabilities (net of deferred taxation) (387) (405)
Net assets including pension and post-retirement liabilities 590 313
Capital and reserves
Called up share capital 22 277 277
Share premium account 23 165 165
Merger reserve 23 (823) (823)
Shares held in employee trusts 23 (112) (129)
Profit and loss account 23 1,003 747
Shareholders' funds - equity 510 237
Minority interests - equity and non-equity 24 80 76
590 313
Approved by the Board on 20 October 2004 and signed on its behalf by:
Sir Gerry Robinson, CHAIRMAN Graham Hetherington, DIRECTOR
Group cash flow information
Year to 31 August 2004
Year to
Year to 31 August
31 August 2003
2004 (restated)
Reconciliation of operating profit to net cash inflow Note GBPm GBPm
from operating activities
Operating profit 549 601
Goodwill amortisation 40 40
Exceptional operating costs 8 4
Depreciation 78 75
Increase in stocks (5) (72)
(Decrease)/increase in debtors (3) 58
Increase in creditors 9 65
Expenditure against provisions for reorganisation and
restructuring costs (34) (29)
Other items 13 6
Net cash inflow from operating activities 655 748
Group cash flow statement
Net cash inflow from operating activities 655 748
Dividends received from associated undertakings 15 13
Returns on investments and servicing of finance 25 (122) (148)
Taxation paid 25 (82) (65)
Capital expenditure and financial investment 25 (58) (120)
Acquisitions and disposals 25 9 -
Equity dividends paid (156) (144)
Cash inflow before use of liquid resources and financing 261 284
Management of liquid resources (4) 50
Financing 25 16 (200)
Increase in cash in the year 273 134
Reconciliation of net cash flow to movement in net debt
Increase in cash in the year 273 134
Increase/(decrease) in liquid resources 4 (50)
Decrease in loan capital 1 164
Movement in net debt resulting from cash flows 278 248
Exchange adjustments 193 (82)
Movement in net debt during the year 471 166
Opening net debt (2,412) (2,578)
Closing net debt 27 (1,941) (2,412)
Group statement of total recognised gains and losses
Year to 31 August 2004
Year to Year to 31 August
31 August 2003
2004 (restated)
GBPm GBPm
Profit earned for Ordinary Shareholders for the year 356 337
Currency translation differences on foreign currency net investments 108 4
Taxation on translation differences (26) 19
Associated undertaking reserve movement (see note 15) (17) -
Actuarial gains/(losses) on net pension liabilities 2 (65)
Total recognised gains and losses for the year 423 295
Prior year adjustment (552)
Total gains and losses recognised since the last Annual Report
and Accounts (129) 295
Group note of historical cost profits and losses
Year to 31 August 2004
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 2004
Year to Year to 31 August
31 August 2003
2004 (restated)
GBPm GBPm
Total recognised gains and losses for the year 423 295
Movement on shares in employee trusts 17 (36)
Ordinary dividends (167) (150)
Net movement in Shareholders' funds 273 109
Shareholders' funds at the beginning of the year as originally
reported 918 706
Prior year adjustment (see note 23) (681) (578)
Shareholders' funds at the beginning of the year as restated 237 128
Shareholders' funds at the end of the year 510 237
Parent company balance sheet
At 31 August 2004
31 August
31 August 2003
2004 (restated)
Note GBPm GBPm
Fixed asset investments 14 4,086 4,086
Current assets
Debtors 17 98 12
Creditors (due within one year)
Other creditors 18 (115) (180)
Net current liabilities (17) (168)
Net assets 4,069 3,918
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
Shares held in employee trusts 23 (112) (129)
Profit and loss account 23 668 534
Shareholders' funds - equity 4,069 3,918
Approved by the Board on 20 October 2004 and signed on its behalf by:
Sir Gerry Robinson, CHAIRMAN Graham Hetherington, 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 Discontinued Total
GBPm GBPm GBPm GBPm GBPm GBPm
Year to 31 August 2004
Turnover 3,003 226 - 3,229 - 3,229
Trading profit before exceptional items
and goodwill 548 86 23 657 - 657
Goodwill amortisation (40) - - (40) - (40)
Exceptional items (34) (2) - (36) - (36)
Trading profit after goodwill and
exceptional items 474 84 23 581 - 581
Profit on sale of businesses in
discontinued activities - - - - 20 20
Profit/(loss) on disposal of fixed assets
in continuing activities 15 (1) - 14 - 14
Profit before finance charges 489 83 23 595 20 615
Finance charges (136)
Profit on ordinary activities before taxation 479
Depreciation 68 10 - 78 - 78
Capital expenditure 91 21 - 112 - 112
Assets employed 2,616 134 36 2,786 - 2,786
Average numbers of employees 10,762 923 - 11,685 - 11,685
Year to 31 August 2003 (restated)
Turnover 3,058 259 - 3,317 - 3,317
Trading profit before exceptional items
and goodwill 538 79 20 637 - 637
Goodwill amortisation (40) - - (40) - (40)
Exceptional items 37 (9) - 28 - 28
Profit before finance charges 535 70 20 625 - 625
Finance charges (146)
Profit on ordinary activities before taxation 479
Depreciation 64 11 - 75 - 75
Capital expenditure 114 27 - 141 - 141
Assets employed 2,794 103 32 2,929 - 2,929
Average numbers of employees 11,343 1,206 - 12,549 - 12,549
Notes:
a) The Group has adopted "Application Note G" an amendment to "FRS 5 - Reporting
the substance of transactions". This has resulted in a number of items that were
previously classified as operating costs (GBP69m) and advertising and promotion
(GBP24m) to be treated as discounts. Trading profit was not affected.
b) Normalised profit before tax is GBP521m (2003: GBP491m) being trading profit
GBP657m (2003: GBP637m) less finance charges GBP136m (2003: GBP146m).
c) 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.
d) Assets employed are before deducting net borrowings of GBP1,941m (2003:
GBP2,412m), tax payable of GBP151m (2003: GBP111m) and dividends payable of
GBP104m (2003: GBP93m) to give net assets of GBP590m (2003: GBP313m).
e) Trading profit includes the Group's share of profits of associated
undertakings whose turnover is not included.
f) Acquired activities in 2004 had no material impact on turnover and trading
profit.
Notes to the accounts
2. Geographical analysis
Rest of
Europe Americas World Total
GBPm GBPm GBPm GBPm
By country of operation
Year to 31 August 2004
Turnover - continuing activities 2,106 1,685 368 4,159
- to Group companies (930)
- external 3,229
Trading profit - continuing activities 250 348 59 657
- goodwill amortisation in
continuing activities (20) (2) (18) (40)
- exceptional items in
continuing activities (23) (10) (3) (36)
Trading profit after goodwill and exceptional items 207 336 38 581
Profit on sale of businesses in discontinued activities 20 - - 20
Profit on disposal of fixed assets in continuing activities 14 - - 14
Profit before finance charges 241 336 38 615
Assets employed 1,081 1,079 626 2,786
Year to 31 August 2003 (restated)
Turnover - continuing activities 2,029 1,804 411 4,244
- to Group companies (927)
- external 3,317
Trading profit - continuing activities 246 326 65 637
- goodwill amortisation in
continuing activities (20) (2) (18) (40)
- exceptional items in
continuing activities 4 24 - 28
Profit before finance charges 230 348 47 625
Assets employed 1,113 1,196 620 2,929
Notes:
a) Export sales from the United Kingdom were GBP431m (2003: GBP419m) including
GBP301m (2003: GBP300m) sales to Group companies.
b) Trading profit includes the Group's share of profits of associated
undertakings whose turnover is not included.
Notes to the accounts
2. Geographical analysis (continued)
Rest of
Europe Americas World Total
GBPm GBPm GBPm GBPm
By country of destination
Turnover - continuing activities 1,356 1,392 481 3,229
Trading profit - continuing activities 235 327 95 657
- goodwill amortisation in
continuing activities (20) (2) (18) (40)
- exceptional items in
continuing activities (23) (10) (3) (36)
Trading profit after goodwill and exceptional items 192 315 74 581
Profit on sale of businesses in discontinued activities 20 - - 20
Profit/(loss) on disposal of fixed assets in continuing activities 14 - - 14
Profit before finance charges 226 315 74 615
Year to 31 August 2003 (restated)
Turnover - continuing activities 1,326 1,478 513 3,317
Trading profit - continuing activities 204 330 103 637
- goodwill amortisation in
continuing activities (20) (2) (18) (40)
- exceptional items in
continuing activities 4 24 - 28
Profit before finance charges 188 352 85 625
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.
Notes to the accounts
3. Exchange Rates
The significant translation rates to GBP1 :-
Average rate
for the year Closing rate
31 August 31 August
2004 2003 2004 2003
United States dollar 1.78 1.60 1.81 1.58
Mexican peso 19.92 16.72 20.55 17.48
Euro 1.47 1.49 1.48 1.45
4. Staff costs
Year to
Year to 31 August 2003
Full-Time Part-Time 31 August 2004 (restated)
UK Overseas UK Overseas Total Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
Remuneration 71 270 2 7 350 377
Social security 9 35 - - 44 44
Pension schemes - UK 5 11 - - - 11 10
- Overseas 5 - 17 - - 17 14
Post retirement medical benefits
(PRMB) 5 1 3 - - 4 5
92 325 2 7 426 450
Average numbers employed
2004 - continuing operations 1,699 8,856 71 1,059 11,685
2003 - continuing operations 1,804 9,319 187 1,239 12,549
Directors' remuneration
The amounts relating to emoluments, share options, other long term incentive
interests and Directors' pension entitlements are disclosed within the
Directors' Remuneration Report to be included in the Annual Report and Accounts
which will be published in November 2004
Notes to the accounts
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.
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. In addition there are a number of defined contribution schemes.
The assets and liabilities of the defined benefit schemes are reviewed regularly
by independent professionally qualified actuaries. For the UK schemes a full
assessment is undertaken every three years for funding purposes and the latest
full actuarial valuation of the UK schemes was carried out as at 6 April 2003
using the projected unit credit method. The latest actuarial reviews of the US
and Canadian schemes were carried out as at 1 January 2004.
The Group has adopted 'FRS 17 - Retirement benefits' in full from 1 September
2003. In prior years, the Group has complied with the transitional disclosure
requirements of this standard.
The Group's investment strategy for its funded pension schemes has been
developed within the framework of local statutory requirements. The Group's
policy for the allocation of assets within the schemes has the objective of
maintaining the right balance between controlling risk and achieving the
long-term returns which will minimise the cost to the Group. The Group aims to
invest a significant proportion of the assets (50%) into equities which the
Group believes offer the best returns over the longer term. In addition the
Group invests approximately 40% of the assets into bonds with the remainder in
properties and cash.
The total cost of pension and post-retirement benefits for the Group was GBP51m
(2003: GBP49m) of which GBP32m (2003: GBP29m) has been charged against operating
profit and GBP19m (2003: GBP20m) has been charged within other finance charges.
(a) The major assumptions used were:
31 August 2004 31 August 2003 31 August 2002
United United United
Kingdom Overseas Kingdom Overseas Kingdom Overseas
% % % % % %
Inflation 2.9 3.0 2.5 3.0 2.3 2.1
Rate of general increase in salaries 4.4 4.3 4.0 4.4 4.1 4.8
Rate of increase to benefits 3.2 1.8 3.1 1.8 3.1 2.1
Discount rate for scheme liabilities 5.8 5.7 5.6 6.0 6.0 6.5
The expected long-term rate of return of the significant schemes is :-
Equities 7.7 8.1 7.5 8.2 7.5 8.7
Bonds 5.4 6.0 5.0 5.8 5.0 6.1
Property and other 4.7 4.0 5.5 4.3 5.2 4.4
Notes to the accounts
5. Pension and post-retirement benefit schemes (continued)
(b) The net pension and post-retirement medical benefits (PRMB) liability of the
Group as at 31 August 2004 was:
31 August 2004 31 August 2003 31 August 2002
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 821 134 814 156 896 206
Bonds 616 136 594 161 458 115
Property and other 159 33 143 14 197 6
Total market value of assets 1,596 303 1,551 331 1,551 327
Present value of scheme liabilities (2,002) (458) (2,004) (464) (1,941) (417)
Deficit in the schemes (406) (155) (453) (133) (390) (90)
Related deferred tax asset 122 52 136 45 117 27
Net pension and PRMB liability (284) (103) (317) (88) (273) (63)
(c) Profit and loss account charges
The amounts charged to operating profit during the year were:
31 August 2004 31 August 2003
United United
Kingdom Overseas Kingdom Overseas
GBPm GBPm GBPm GBPm
Current service cost 11 21 10 19
Total included within operating profit 11 21 10 19
The amounts charged to other finance charges during the year were:-
Interest cost 110 25 114 26
Expected return on assets (97) (19) (98) (22)
Total included within other finance charges 13 6 16 4
(d) Analysis of amount that has been included within the Group statement of
recognised gains and losses :-
31 August 2004 31 August 2003
United United
Kingdom Overseas Kingdom Overseas
GBPm GBPm GBPm GBPm
Actual return less expected return on pension scheme assets 10 5 (12) (6)
Experience gains and losses arising on the scheme liabilities (17) (3) 20 (4)
Changes in assumptions underlying the present value of the
scheme liabilities 34 (26) (71) (22)
Actuarial gain/(loss) recognised in Group statement of total
recognised gains and losses 27 (24) (63) (32)
Deferred tax movement (8) 7 19 11
Actuarial gain/(loss) recognised in Group statement of total
recognised gains and losses - net of tax 19 (17) (44) (21)
Notes to the accounts
5. Pension and post-retirement benefit schemes (continued)
(e) The movement in deficit during the year was :-
31 August 2004 31 August 2003
United United
Kingdom Overseas Kingdom Overseas
GBPm GBPm GBPm GBPm
Deficit in scheme at beginning of year (453) (133) (390) (90)
Movement in year:
Current service cost (11) (21) (10) (19)
Contributions 44 13 26 16
Other finance income (13) (6) (16) (4)
Currency translation adjustment - 16 - (4)
Actuarial gain/(loss) 27 (24) (63) (32)
Deficit in scheme at the end of the year (406) (155) (453) (133)
Based on current market conditions we anticipate that contributions to the funds
will be approximately GBP60m in 2005 and 2006.
(f) The history of experience gains and losses is:-
31 August 2004 31 August 2003 31 August 2002
United United United
Kingdom Overseas Kingdom Overseas Kingdom Overseas
Actual return less expected return on pension scheme assets
Amount (GBPm) 10 5 (12) (6) (320) (64)
Percentage of the scheme assets (%) 1% 2% (1%) (2%) (21%) (20%)
Experience gains and losses arising on the scheme liabilities
Amount (GBPm) (17) (3) 20 (4) (62) -
Percentage of the present value of the scheme liabilities (%) 1% 1% (1%) 1% 3% -
Actuarial loss recognised in Group statement of total recognised gains and
losses
Amount (GBPm) 27 (24) (63) (32) (401) (83)
Percentage of the present value of the scheme liabilities (%) (1%) 5% 3% 7% 21% 20%
6. Operating costs
Year to
Year to 31 August
31 August 2003
2004 (restated)
Note GBPm GBPm
Change in stocks of finished goods and work in progress (5) (72)
Raw materials and consumables 810 838
Customs and excise duties paid - ongoing 618 671
- Mexican excise rebate - (38)
Staff costs 4 426 450
Depreciation 13 78 75
Goodwill amortisation 40 40
Other operating charges including exceptional items 654 690
Operating leases - hire of equipment 11 11
- property rents 45 48
Payments to auditor - fees for audit 3 3
2,680 2,716
The Parent Company audit fee was GBPnil (2003: GBPnil). Other payments to the
auditor were GBP1m (2003: GBP1m) which primarily relate to taxation services.
Notes to the accounts
7. Goodwill amortisation and exceptional items
Year to Year to
31 August 2004 31 August 2003
GBPm GBPm
Goodwill amortisation (40) (40)
Exceptional items
Mexican excise rebate - 38
Acquisition integration costs - (3)
Asset write-downs (5) 2
Restructuring (31) (9)
Total exceptional items within operating costs (36) 28
Profit on sale of businesses 20 -
Profit on disposal of fixed assets 14 -
Goodwill amortisation and exceptional items before taxation (42) (12)
Taxation 16 (8)
Goodwill amortisation and exceptional items after taxation (26) (20)
8. Interest payable
Year to Year to
31 August 2004 31 August 2003
GBPm GBPm
Interest on bank loans and overdrafts 21 31
Interest on other loans 103 107
Less: deposit and other interest receivable (7) (12)
Interest payable 117 126
Notes to the accounts
9. Taxation
Year to
Year to 31 August 2003
31 August 2004 (restated)
GBPm GBPm
The charge for taxation on the profit for the period comprises:
Current tax
United Kingdom taxation
Corporation tax at 30% (2003: 30%) (3) 25
Adjustment in respect of prior periods (11) (1)
Double taxation relief (3) (1)
(17) 23
Overseas taxation
Corporation tax 65 60
Adjustment in respect of prior periods 1 9
66 69
Taxation on attributable profit of associated undertakings 10 10
Total current tax 59 102
Deferred tax
Origination and reversal of timing differences 57 64
Adjustment in respect of prior periods (7) (32)
Recognition of deferred tax assets arising in prior periods - (8)
Total tax charge 109 126
A reconciliation of the current tax charge at the UK corporation tax rate of 30%
(2003: 30%) to the Group's current tax on profit on ordinary activities is shown
below :
Year to
Year to 31 August 2003
31 August 2004 (restated)
GBPm GBPm
Profit on ordinary activities before taxation 479 479
Notional charge at United Kingdom corporation tax rate of 30% 144 144
Differences in effective overseas tax rates 11 16
Adjustments to prior period tax charges (10) 8
Taxable intra-group dividend income - 5
Non deductible expenditure 7 13
Non taxable income and gains (33) (12)
Losses and other timing differences (57) (64)
Other current year items (3) (8)
Current tax charge 59 102
10. Earnings per share
Basic earnings per share of 33.1p (2003: 31.3p) has been calculated on earnings
of GBP356m (2003: GBP337m) divided by the average number of shares of 1,076m
(2003: 1,075m).
Diluted earnings per share of 32.9p (2003: 31.3p) has been calculated on
earnings of GBP356m (2003: GBP337m) and after including the effect of all
dilutive potential Ordinary Shares, the average number of shares is 1,083m
(2003: 1,076m).
Notes to the accounts
10. Earnings per share (continued)
To show earnings per share on a comparable basis, normalised earnings per share
of 35.5p (2003: 33.2p) has been calculated on normalised earnings of GBP382m
(2003: GBP357m) divided by the average number of shares of 1,076m (2003:
1,075m). Normalised earnings has been calculated as follows:
Year to
Year to 31 August 2003
31 August 2004 (restated)
GBPm GBPm
Earnings as reported 356 337
Adjustment for exceptional items net of tax (10) (18)
Adjustment for goodwill amortisation net of tax 36 38
Normalised earnings 382 357
Average number of shares Millions Millions
Weighted average Ordinary Shares in issue during the year 1,107 1,107
Weighted average Ordinary Shares owned by the Allied Domecq employee trusts* (31) (32)
Weighted average Ordinary Shares used in earnings per share calculation 1,076 1,075
* Includes American Depositary Shares representing underlying Ordinary Shares.
11. Ordinary dividends
Year to Year to Year to Year to
31 August 2004 31 August 2003 31 August 2004 31 August 2003
GBPm GBPm p p
Interim 63 57 5.83 5.30
Final 104 93 9.67 8.70
167 150 15.50 14.00
The 2004 interim dividend was paid on 30 July 2004 and the final dividend will
be paid on 2 February 2005.
12. Intangible assets
31 August 31 August
Other 2004 2003
Goodwill Brands Intangibles Total Total
GBPm GBPm GBPm GBPm GBPm
Cost
At the beginning of the year 785 555 35 1,375 1,375
Currency translation adjustment - - - - -
Additions 4 - - 4 -
At the end of the year 789 555 35 1,379 1,375
Amortisation
At the beginning of the year (93) - (9) (102) (59)
Currency translation adjustment - - - - -
Charge for the year (40) - (3) (43) (43)
At the end of the year (133) - (12) (145) (102)
Net balance at the end of the year 656 555 23 1,234 1,273
Goodwill is being amortised over 20 years. Brands relates to the acquisition of
Malibu in 2002. The acquired brand intangible asset is determined to have an
indefinite useful economic life. An impairment review was carried out at the
balance sheet date and the Board of Directors are satisfied that the brand has
not suffered any loss in value. Other intangibles are being amortised over ten
years.
Notes to the accounts
13. Tangible assets
Land and Plant and
buildings equipment Total
GBPm GBPm GBPm
Cost
At the beginning of the year 773 721 1,494
Currency translation adjustment (45) (39) (84)
728 682 1,410
Additions - acquisitions 2 1 3
- capital expenditure 31 81 112
Disposals and transfers (38) (33) (71)
At the end of the year 723 731 1,454
Depreciation
At the beginning of the year (169) (359) (528)
Currency translation adjustment 12 20 32
(157) (339) (496)
Disposals and transfers 15 26 41
Charge for the year (17) (61) (78)
At the end of the year (159) (374) (533)
Net book value at 31 August 2004 564 357 921
Net book value at 31 August 2003 604 362 966
31 August 2004 31 August 2003
At Net book At Net book
cost value cost value
GBPm GBPm GBPm GBPm
Freehold land and buildings 638 506 689 548
Long lease land and buildings 16 14 17 15
Short lease land and buildings 69 44 67 41
Total land and buildings 723 564 773 604
Notes to the accounts
14. Investments and loans
Franchise
Investments and trade
Listed Unlisted loans Total
GBPm GBPm GBPm GBPm
Group
At the beginning of the year 139 13 8 160
Prior year adjustment (129) - - (129)
At the beginning of the year (restated) 10 13 8 31
Currency translation adjustment - - (1) (1)
Disposals and transfers (8) - (1) (9)
At the end of the year 2 13 6 21
The Group has complied with "UITF 38 - Accounting for ESOP trusts". This has
resulted in the reclassification of shares held in employee trusts from
investments to shareholders' funds and has been accounted for as a prior year
adjustment. The Parent Company lends funds to the employee trusts to purchase
the shares; a similar prior year adjustment has been made in that company.
The unlisted investments include a holding of 1% in Suntory Limited,
incorporated in Japan.
Investment Listed
in subsidiary investments
undertaking (restated) Total
GBPm GBPm GBPm
Parent Company
At the beginning of the year 4,086 129 4,215
Prior year adjustment - (129) (129)
At the beginning of the year (restated) 4,086 - 4,086
Additions - - -
At the end of the year 4,086 - 4,086
Notes to the accounts
15. Investments in associates
Unlisted
companies Listed
share of companies
reserves share of
Cost (restated) reserves Loans Total
GBPm GBPm GBPm GBPm GBPm
At the beginning of the year 43 26 14 2 85
Currency translation adjustment (1) (1) (1) - (3)
Additions 1 - - - 1
Other reserve movement - (17) - - (17)
Share of retained profit for the year - 7 - - 7
At the end of the year 43 15 13 2 73
The share of profits before taxation was GBP32m (2003: GBP24m) and dividends
received were GBP15m (2003: GBP13m).
The principal associate is a 23.75% (2003: 25%) equity interest in Britannia
Soft Drinks Limited, a company engaged in the manufacture and sale of soft
drinks. Britannia has adopted a defined benefit scheme which has resulted in a
GBP17m reduction in the Group's shares of the net assets.
Other associates include Baskin-Robbins Japan (44% equity interest),
Baskin-Robbins Korea (33% equity interest) and the Group's interest in the
Miller RTD commercial partnership.
The above figures comprise the amounts attributable to the Group based on the
latest accounts it has been practicable to obtain, some of which are unaudited
management accounts.
16. Stocks
31 August 31 August
2004 2003
GBPm GBPm
Raw materials and consumables 27 45
Maturing inventory 1,025 1,047
Finished products 273 293
Bottles, cases and pallets 18 22
1,343 1,407
17. Debtors
Group Parent Company
31 August 31 August
2003
2004 (restated) 2004 2003
GBPm GBPm GBPm GBPm
Amounts falling due within one year
Trade debtors 450 501 - -
Amounts due from subsidiary undertakings - - 94 -
Deferred tax assets (note 19) 18 22 - -
Other debtors 94 108 4 12
Prepayments and accrued income 58 53 - -
620 684 98 12
Amounts due after more than one year
Other debtors 3 2 - -
Prepayments and accrued income 13 15 - -
16 17 - -
Debtors 636 701 98 12
The Group has adopted "FRS 17 - Retirement benefits". As a result pension assets
and liabilities are now included within the new balance sheet classification
"Pension and post-retirement liabilites" This has been accounted for as a prior
year adjustment.
Notes to the accounts
18. Creditors
Group Parent Company
31 August 31 August
2004 2003 2004 2003
GBPm GBPm GBPm GBPm
Amounts due within one year
Trade creditors 233 216 - -
Bills payable 18 17 - -
Amounts owed to subsidiary undertakings - - - 81
Other creditors 255 312 11 6
Social security 9 10 - -
Taxation 196 228 - -
Accruals and deferred income 273 285 - -
Proposed dividend (note 11) 104 93 104 93
1,088 1,161 115 180
Amounts due after more than one year
Other creditors 33 34 - -
Accruals and deferred income 10 12 - -
43 46 - -
19. Provisions for liabilities and charges
Post
retirement
medical Reorganisation Deferred
benefits and Surplus taxation Total
(restated) restructuring properties (restated)
GBPm GBPm GBPm GBPm GBPm
At the beginning of the year 90 31 9 153 283
Prior year adjustment (90) - - (67) (157)
At the beginning of the year
(restated) - 31 9 86 126
Currency translation adjustment - 4 - (5) (1)
Timing differences within - - - 23 23
statement of recognised gains and losses
Utilised during the year - (44) - - (44)
Charged during the year - 32 - 43 75
At the end of the year - 23 9 147 179
The Group has adopted "FRS 17 - Retirement benefits". As a result pensions and
post-retirement medical liabilities and the related deferred tax are now
included within the new balance sheet classification "Pension and
post-retirement liabilities" This has been accounted for as a prior year
adjustment.
GBP11m of reorganisation and restructuring provisions brought forward from
previous years were utilised during the year. New provisions totalling GBP7m
were created during the year. Of the provisions outstanding at the year end,
GBP11m relate to the termination of a land lease in California and GBP2m for the
trust fund established for social and community projects in Mexico. The
remainder relates to the Group restructuring programme.
It is expected that the majority of reorganisation and restructuring costs will
be incurred in the financial year ending 31 August 2005, 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.
Notes to the accounts
19. Provisions for liabilities and charges (continued)
Deferred taxation
31 August
31 August 2003
2004 (restated)
GBPm GBPm
Accelerated capital allowances 37 16
Goodwill and other intangible assets 117 82
Tax losses and credits (58) (37)
Pensions and post-retirement benefits (174) (181)
Other timing differences 33 3
Net deferred taxation asset (45) (117)
Comprising :
Deferred tax asset (note 17) (18) (22)
Deferred tax liability (note 19) 147 86
Pensions and post retirement benefits (note 5) (174) (181)
(45) (117)
Movement in deferred taxation
31 August
2004
GBPm
At the beginning of the year 136
Prior year adjustment (253)
At the beginning of the year (restated) (117)
Currency translation adjustment -
Timing differences within statement of recognised
gains and losses 22
Charged during the year 50
At the end of the year (45)
The prior year adjustment arises following the introduction of "FRS 17 -
Retirement Benefits"
Deferred tax assets of GBP39m at 31 August 2004 (2003: GBP42m) 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.
Notes to the accounts
20. Net debt
31 August 31 August
Redemption 2004 2003
date GBPm GBPm
Unsecured loans
GBP250m Bond (6.625%)* 2014 247 247
EUR600m Bond (5.875%)* 2009 402 410
GBP450m Bond (6.625%)* 2011 448 447
EUR800m Bond (5.5%)* 2006 539 550
NZD125m Capital Notes (9.3%) 2006 45 45
DEM500m Notes (4.75%)* 2005 173 176
NZD100m Revolving Credit Facility* 2006 19 23
MXN 600m Revolving Credit Facility 2008 28 34
Foreign currency swaps Various (209) (115)
1,692 1,817
Less amounts repayable within one year - (2)
Loan capital 1,692 1,815
Short-term borrowings 378 772
Cash at bank and in hand (129) (175)
Net debt 1,941 2,412
* Borrowings and interest guaranteed by Allied Domecq PLC or Allied Domecq
(Holdings) PLC
The Euro and GBP Bonds have been partially swapped into floating rate US
dollars.
The Parent Company has short-term borrowings of nil (2003: nil)
31 August 31 August
2004 2003
GBPm GBPm
Repayment schedule
More than five years 695 1,104
Between two and five years 222 711
Between one and two years 775 -
Loan capital 1,692 1,815
Short-term borrowings 378 772
Total borrowings 2,070 2,587
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 2004 the Group had available undrawn committed bank facilities of
GBP1,192m (2003: GBP1,346m) of which GBP77m (2003: GBP167m) mature in less than
one year and GBP1,115m (2003: GBP1,179m) between two and five years.
Notes to the accounts
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 2004 31 August 2003
Book Current Book Current
value value value value
GBPm GBPm GBPm GBPm
Cash at bank and in hand 129 129 175 175
Short-term borrowings (378) (378) (772) (772)
Loan capital (1,692) (1,799) (1,815) (1,932)
Net debt (1,941) (2,048) (2,412) (2,529)
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, 71% (2003: 70%) of net debt was at fixed rates of
interest. At the year end, the weighted average maturity of net debt was
approximately 3.4 years (2003: 4 years).
31 August 2004 31 August 2003
Book Current Book Current
value value value value
GBPm GBPm GBPm GBPm
Interest rate swaps 1 (30) 1 (34)
Cross currency swaps 8 32 7 44
9 2 8 10
There is a deferred loss in respect of interest rate swaps, being the net of the
current value less book value, of which GBP10m (2003: GBP9m) relates to the
financial year ending 31 August 2005 and GBP21m (2003: GBP26m) thereafter.
There is a deferred gain in respect of cross currency swaps, being the net of
the current value less book value, of which GBP4m (2003: GBP6m) relates to the
financial year ending 31 August 2005 and GBP20m (2003: GBP31m) thereafter.
After taking account of cross currency and interest rate swaps, the currency and
interest rate exposure of net debt as at 31 August 2004 was:
31 August 2004 31 August 2003
Fixed rate debt Fixed rate debt
Weighted Weighted
Weighted average Weighted average
Floating average time for Floating average time for
Net rate net Fixed rate interest which rate Net rate net Fixed rate interest which rate
debt debt debt rate is fixed debt debt debt rate is fixed
GBPm GBPm GBPm % Years GBPm GBPm GBPm % Years
Sterling 18 18 - - - 65 5 60 11.2 8
US dollar 1,205 443 762 5.8 5 1,471 523 948 5.7 5
Euro 562 89 473 5.2 2 701 166 535 5.1 4
NZ dollar 95 22 73 8.1 2 108 35 73 8.1 3
Japanese Yen 103 34 69 0.7 3 110 36 74 0.7 4
Other (42) (42) - - - (43) (43) - - -
Net debt 1,941 564 1,377 5.7 4 2,412 722 1,690 5.6 6
Some of the interest rate swaps included in the above table are cancellable at
the option of the banks at various dates between 1 September 2004 and 31 August
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 2004 was
approximately 3.6% (2003: 2.8%).
Notes to the accounts
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 82% (2003: 84%) 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 2004 31 August 2003
Nominal Nominal
value of Book Current value of Book Current
derivatives value value derivatives value value
GBPm GBPm GBPm GBPm GBPm GBPm
Foreign exchange forward rate contracts - assets 140 - 5 155 - 4
- liabilities 53 - (1) 72 - (4)
Options - assets 110 - 3 19 - -
- liabilities - - - 19 - -
303 - 7 265 - -
A net gain of GBP13m was recognised on all foreign exchange forward contracts
and options maturing in the year to 31 August 2004 (2003: GBP13m).
At 31 August 2004 and 31 August 2003, 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
2004 2003 2004 2003
GBPm GBPm GBPm GBPm
Equity
Ordinary Shares of 25p 400 400 277 277
Authorised Issued
Million Million Million Million
Number of shares 1,600 1,600 1,107 1,107
Notes to the accounts
22. Share capital (continued)
Share option schemes
During the year options have been granted under the existing employee share
option schemes over both Ordinary Shares and American Depositary Shares (ADSs)
totalling 13,159,067* shares. Options were exercised over 3,986,000* shares and
options over 2,349,338* shares lapsed during the year.
* These totals include ADSs each of which represents four underlying Ordinary
Shares
Details of the unexercised options granted under the Company's employee share
option schemes at 31 August 2004 were as follows:
Options over Ordinary Shares
Option Ordinary
Date of grant Price (p) shares
SAYE Scheme 1999 3 December 1999 262.0 593,197
International SAYE Scheme 1999 2 June 2000 265.0 117,883
30 November 2001 282.0 522,009
Approved Executive Share Option Scheme 1999 5 May 2000 331.0 9,063
8 May 2001 408.0 845,480
2 November 2001 351.5 298,442
3 May 2002 438.0 34,245
1 November 2002 382.0 426,548
1 May 2003 351.0 25,641
1 November 2003 383.0 353,751
1 May 2004 455.3 6,589
Executive Share Option Scheme 1999 1 November 1999 342.0 3,524,647
16 November 1999 331.5 292,500
5 May 2000 331.0 15,937
8 May 2001 408.0 2,679,218
2 November 2001 351.5 4,465,579
3 May 2002 438.0 214,353
1 November 2002 382.0 7,122,334
1 May 2003 351.0 64,359
1 November 2003 383.0 8,209,060
1 May 2004 455.3 129,901
Long Term 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
1 November 2003 0.1 1,051,959
1 May 2004 0.1 49,423
33,708,967
Options over ADSs
Option
Date of grant price $ ADSs
US Schedule to the Executive Share Option Scheme 1999 1 November 2002 24.45 425,715
8 January 2003 25.85 3,868
1 May 2003 22.93 3,750
1 October 2003 26.16 373,566
Executive Share Option Scheme 1999 1 November 2002 24.45 37,975
8 January 2003 25.85 33,366
1 May 2003 22.93 1,750
1 November 2003 26.16 337,638
Long Term Incentive Scheme 1999 8 January 2003 0.006 21,276
1 November 2003 0.006 41,952
1,280,856
Notes to the accounts
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 option price of the underlying options and the market value on the date of
the award and is amortised over the vesting period. As at 31 August 2004 the
Company's employee trusts held 27,073,905 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
Shares
held in Profit
Share employee and loss
Share premium Merger trusts account
capital account reserve (restated) (restated) Total
GBPm GBPm GBPm GBPm GBPm GBPm
Group
At the beginning of the year 277 165 (823) - 1,299 918
Prior year adjustment - - - (129) (552) (681)
At the beginning of the year (restated) 277 165 (823) (129) 747 237
Profit earned for Shareholders for the year - - - - 356 356
Currency translation differences on foreign
currency net investments - - - - 108 108
Taxation on translation differences - - - - (26) (26)
Movement on shares in employee trusts - - - 17 - 17
Associated undertaking reserve movement - - - - (17) (17)
Actuarial gain on net pension liabilities
(net of deferred tax) - - - - 2 2
Ordinary dividends - - - - (167) (167)
At the end of the year 277 165 (823) (112) 1,003 510
Goodwill (at historic exchange rates) of GBP2,284m has been written off to
reserves.
The following adjustments have been made to opening Shareholders' funds as a
result of the adoption of "FRS 17 - Retirement benefits", "Application Note G -
revenue recognition" an amendment to "FRS 5 - Reporting the substance of
transactions" and "UITF 38 - Accounting ESOP Trusts".
31 August
2004
GBPm
Reversal of SSAP 24 pension debtor (309)
Reversal of SSAP 24 post-retirement medical benefit 90
Gross pension and post-retirement benefits reported under FRS 17 (586)
Deferred taxation adjustments on above 253
UITF 38 reclassification of shares held by employee trusts (129)
Total prior year adjustments (681)
Notes to the accounts
23. Capital and reserves (continued)
Shares
held in
Share employee Profit
Share premium Merger Capital trusts and loss
capital account reserve reserve (restated) account Total
GBPm GBPm GBPm GBPm GBPm GBP GBPm
Parent Company
At the beginning of the year 277 165 2,420 651 - 534 4,047
Prior year adjustment - - - - (129) - (129)
At the beginning of the year
(restated) 277 165 2,420 651 (129) 534 3,918
Profit earned for Shareholders
for the year - - - - - 301 301
Movement on shares in employee
trusts - - - - 17 - 17
Ordinary dividends - - - - - (167) (167)
At the end of the year 277 165 2,420 651 (112) 668 4,069
24. Minority interests
Equity Non-equity Total
GBPm GBPm GBPm
At the beginning of the year 72 4 76
Currency translation adjustment (3) - (3)
Share of profits of subsidiary undertakings 12 2 14
Dividends declared (4) (1) (5)
Disposals (2) - (2)
At the end of the year 75 5 80
The principal minority shareholdings relate to Jinro Ballantines Company Limited
and Corby Distilleries Limited.
Notes to the accounts
25. Detailed analysis of gross cash flows
Year to
Year to 31 August
31 August 2003
2004 (restated)
GBPm GBPm
Returns on investments and servicing of finance
Interest received 7 22
Interest paid (124) (149)
Dividends paid to minority shareholders (5) (21)
(122) (148)
Taxation paid
UK taxation (1) -
Overseas taxation (81) (65)
(82) (65)
Capital expenditure and financial investment
Purchase of tangible fixed assets (112) (144)
Sale of tangible fixed assets 53 21
Purchase of intangible fixed assets (8) -
Purchase of trade investments - (3)
Disposal of trade investments 9 6
(58) (120)
Acquisitions and disposals
Purchase of subsidiary undertaking (10) -
Purchase of associated undertaking (1) -
Sale of subsidiary undertaking 20 -
9 -
Financing
Net movement of Ordinary Share capital within 17 (36)
employee trusts*
Redemption of debt - (175)
(Decrease)/increase in other borrowings (1) 11
16 (200)
Following the adoption of "UITF 38 - Accounting for ESOP trusts' the net cash
outflow arising from the purchase and disposal of shares by the trusts in 2003
has been reclassified from "Capital expenditure and financial investment" to
"Financing"
* includes American Depositary Shares representing underlying Ordinary Shares.
Notes to the accounts
Year to Year to
31 August 31 August
2004 2003
26. Reconciliation of net cash inflow from operating activities to free cash GBPm GBPm
flow
Net cash inflow from operating activities 655 748
Capital expenditure net of sale of tangible assets (59) (123)
Dividends received from associated undertakings 15 13
Operating cash net of fixed assets 611 638
Taxation paid (82) (65)
Net interest paid (117) (127)
Dividends paid - Ordinary Shareholders (156) (144)
- minorities (5) (21)
Free cash flow 251 281
Year to 31 August
Other
short-term
Cash at Overdrafts borrowings Loan capital 2004 2003
bank and due within due within due after Net Net
in hand one year one year one year debt debt
27. Net debt GBPm GBPm GBPm GBPm GBPm GBPm
At the beginning of the year 175 (90) (682) (1,815) (2,412) (2,578)
(Decrease)/increase in cash (37) - 310 - 273 134
Increase/(decrease) in liquid resources 4 - - - 4 (50)
Decrease/(increase) in loan capital and other loans - - 2 (1) 1 164
Exchange adjustments (13) 16 66 124 193 (82)
At the end of the year 129 (74) (304) (1,692) (1,941) (2,412)
Liquid resources comprise short-term deposits which have maturity dates of less
than three months
31 August 31 August
2004 2003
28. Capital commitments GBPm GBPm
Contracted for but not provided in the accounts 3 1
Land and Land and
buildings Other buildings Other
31 August 31 August 31 August 31 August
2004 2004 2003 2003
29. Operating lease commitments GBPm GBPm GBPm GBPm
The minimum operating lease payments to be made in
the year ending 31 August 2005 for leases expiring:
Within one year 5 4 4 1
Within two to five years 24 7 14 8
After five years 21 - 26 -
50 11 44 9
Notes to the accounts
Parent Company
31 August 31 August
2004 2003
30. Contingent liabilities GBPm GBPm
Guarantees in respect of liabilities of subsidiary undertakings 2,188 2,555
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. Allied Domecq, together with the other major
players in the US drinks industry, has been named in a putative class action
lawsuit in the State of Ohio alleging a consistent, long-running deceptive
programme of advertising and marketing which is illegally targeted at children
and underage drinkers and claiming disgorgement of unlawful profits. The
lawsuit, which is being vigorously defended, is in the very early pre-discovery,
pre-trial pleading stages; accordingly, it is too early to determine the
materiality of the contingent liability arising from this lawsuit and no reserve
has been established in connection therewith.
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 2004 31 August 2003
GBPm GBPm
Sales to associated undertakings 52 43
Purchases of goods and other services (2) (11)
Marketing expenditure charged (11) (14)
Dividends received 15 13
As at As at
31 August 2004 31 August 2003
GBPm GBPm
Loans to associated undertakings 2 2
Net amounts due from associated undertakings 10 6
Transactions with Directors
Remuneration and shareholdings of Directors are disclosed in the Directors'
Remuneration Report which will be published in November 2004.
Notes to the accounts
32. Statutory accounts
The financial statements of Allied Domecq PLC for the year ended 31 August 2004
and this preliminary announcement were approved by the Board of Directors on 20
October 2004. 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 2003 is derived from the
Group's statutory accounts for 2003 which have been delivered to the Registrar
of Companies. The auditors have reported on the 2003 statutory accounts and on
the 2004 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 2004 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 2004. The
Annual General Meeting of the Company will be held on 28 January 2005 at the The
Landmark London Hotel, 222 Marylebone Road, London NW1 6JQ.
34. Financial calendar
Ex dividend date for final dividend 5 January 2005
Record date for final dividend 7 January 2005
Annual General Meeting 28 January 2005
Final dividend payable (Ordinary Shares) 2 February 2005
Final dividend payable (ADRs) 9 February 2005
Interim results announced (provisional) 21 April 2005
Ex dividend date for interim dividend (provisionsal) 29 June 2005
Record date for interim dividend (provisional) 1 July 2005
Interim dividend payable (Ordinary Shares) (provisional) 29 July 2005
Interim dividend payable (ADRs) (provisional) 5 August 2005
US GAAP reconciliation
Allied Domecq PLC listed on the New York Stock Exchange on 31 July 2002. Pages
52 to 55 provide an explanation and reconciliation from UK to US GAAP.
Differences between UK and US Generally Accepted Accounting Principles
The Group's consolidated financial statements are prepared in accordance with UK
GAAP, which differ from those generally accepted in the United States ("US
GAAP"). The significant differences between UK GAAP and US GAAP which affect the
Group's net income and shareholders' equity are summarised below.
Restatement of previously reported US GAAP information
In the course of doing preparatory work to convert its financial statements from
UK GAAP to International Financial Reporting Standards (IFRS), the Group has
identified an error in its prior reconciliation to US GAAP. The error relates to
the foreign currency translation of certain assets and liabilities in connection
with past business combinations. The principal assets and liabilities involved
are brands, goodwill and related deferred tax. As a result, we have restated the
US GAAP reconciliation for prior periods. This reconciliation adjustment does
not affect any of our UK GAAP financial statements.
"SFAS No. 52 - Foreign Currency Translation", requires the Group to use the
functional currency of the acquired entity to measure these assets and
liabilities. As exchange rates between pounds sterling (the Group's reporting
currency) and the various functional currencies of the acquired entities move,
SFAS No. 52 requires a corresponding change in the valuation of these assets and
liabilities in the Group's consolidated financial statements, with an offsetting
charge or credit to currency translation adjustments within other comprehensive
income.
In prior US GAAP reconciliations, the Group used pounds sterling in measuring
certain of these assets and liabilities and as a result, the Group did not
follow SFAS No. 52. The Group has followed SFAS No. 52 in the US GAAP
reconciliation of its 2004 consolidated financial statements. The Group has
restated the US GAAP reconciliation for prior periods and the impact in 2003
was a GBP1m charge on net income, a GBP105m credit to comprehensive income and a
reduction in Shareholders' equity of GBP26m. The impact of these restatements
for prior periods 2000 to 2003 is as follows:
US GAAP reconciliation changes Year ended 31 August
2003 2002 2001 2000
GBPm GBPm GBPm GBPm
Net income as reported 280 406 332 1,554
Effects of restatement:
Brands - - 2 3
Goodwill - - 2 1
Stocks (1) 1 - -
Deferred taxation - - (1) (1)
Net income as restated 279 407 335 1,557
Net earnings per Ordinary share (pence)
Basic as reported 26.0p 38.0p 31.5p 146.7p
Effect of net income restatement - 0.1p 0.3p 0.3p
Basic as restated 26.0p 38.1p 31.8p 147.0p
Diluted as reported 26.0p 38.0p 31.5p 146.7p
Effect of net income restatement (0.1p) 0.1p 0.3p 0.3p
Diluted as restated 25.9p 38.1p 31.8p 147.0p
Comprehensive income as reported 297 73 114 1,592
Effects of restatement:
Currency translation differences 106 (48) (10) 3
Restatement of net income (1) 1 3 3
Comprehensive income as restated 402 26 107 1,598
Shareholders equity as reported 1,657 1,541 1,484 1,513
Effects of restatement:
Brands (48) (110) (60) (51)
Goodwill 17 (49) (44) (48)
Other Intangible assets - - 1 -
Stock 3 - (1) -
Deferred taxation 2 28 20 21
Other - - - 1
Shareholders equity as restated 1,631 1,410 1,400 1,436
US GAAP reconciliation (continued)
a) Brands, goodwill and other intangible assets
Under UK GAAP, goodwill arising on acquisitions of a business since 1 September
1998 is capitalised and is held in pounds sterling 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.
Purchased intangible assets are capitalised and amortised over their estimated
useful economic lives on a straight-line basis, except for purchased brand
intangible assets. Purchased brand intangible assets are considered by the Board
of Directors, to have an indefinite life given the long-term nature of premium
spirits brands and the level of marketing support. We do not amortise purchased
brand intangible assets but they 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. Under SFAS No. 52
purchase accounting adjustments of acquired assets, liabilities and goodwill
should be translated into the functional currency of the entity to which they
relate. 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
currency translation and the fair values allocated to intangible assets
(including significant 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. The GAAP difference relates to maturing stock,
which is being released over a number of years when it is sold to third parties.
d) 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.
e) Pension costs and other post-retirement benefits
In accordance with FRS 17 - Retirement benefits, the operating and financing
costs of pension and post-retirement schemes are recognised separately in the
profit and loss account. Service costs are systematically spread over the
service lives of the employees and financing costs are recognised in the period
in which they arise. Financing costs include the interest cost and the expected
return on assets (calculated using the market value of assets). The costs of
past service benefit enhancements, settlements and curtailments are also
recognised in the period in which they arise. The difference between actual and
expected returns on assets during the year, including changes in actuarial
assumptions, are recognised in the statement of total recognised gains and
losses.
Under US GAAP, SFAS No. 87-Employers' Accounting for Pensions, where the
unfunded accumulated benefit obligation (being the actuarial present value of
benefits attributed by the pension benefit formula to employee service rendered
prior to that date and based on current and past compensation levels) exceeds
the fair value of plan assets, a liability must be recognised in the statement
of financial position. If this liability exceeds the unrecognised prior service
cost, the excess is recorded as a reduction of shareholders' equity, net of tax.
f) Share compensation
Under UK GAAP, the cost of share option plans are amortised based on the excess
of the option price of the underlying options and the market value at the date
of the grant. 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)
g) 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.
h) Derivative instruments and debt translation
The Group's foreign currency, interest rate and commodity contracts that hedge
against forecast exposures 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.
Under UK GAAP, where the Group issues or holds foreign currency debt outside of
its domestic country, translation gains and losses together with foreign
exchange gains and losses on related cross currency swaps, are recorded in
reserves. Under US GAAP, the Group does not meet the hedge accounting criteria
and therefore both translation gains and losses on such debt and the mark to
market on related swaps are recorded in income.
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.
i) Deferred taxation
Other than the tax effect of other UK to US GAAP differences there was only one
material difference in the year ended 31 August 2003 between UK GAAP and US
GAAP. This difference related 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 more likely than not.
j) Exceptional items
Under UK GAAP, exceptional items are material charges or gains that are
associated with the ordinary activities of the Group that the Board of Directors
determine, individually or in aggregate, would have a material impact on the
true and fair view of specific line items in the consolidated financial
statements. 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.
k) Mexican excise rebate
Under UK GAAP, we recognised 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.
l) 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).
m) 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 to Year to
31 August 31 August
2004 2003
(restated)
Note GBPm GBPm
Profit earned for Ordinary 356 337
Shareholders in accordance
with UK GAAP (as restated,
see page 20)
Adjustments to conform with US GAAP:
Brands a) (69) -
Goodwill a) 42 42
Other intangible assets a) (3) (3)
Stocks c) (14) (23)
Restructuring costs d) - (7)
Pension costs and other post-retirement
benefits e) (26) 24
Share compensation f) (17) 5
Derivative instruments and debt
translation h) 205 (61)
Mexican excise rebate k) - (40)
Franchise income m) (6) (10)
Other 6 (3)
Deferred taxation - other i) - (11)
Deferred taxation - on above US GAAP
adjustments i) (18) 29
Minority share of above adjustments - -
Net income in accordance with US GAAP 456 279
Other comprehensive income :
Minimum pension liability 8 (61)
Currency translation differences (175) 184
Comprehensive income in accordance with US GAAP 289 402
Net earnings per Ordinary Share
Basic 42.4p 26.0p
Diluted 42.1p 25.9p
Shareholders' equity
Year to Year to
31 August 31 August
2004 2003
(restated)
Note GBPm GBPm
Shareholders' funds as reported in 510 237
the Group balance sheet (as
restated, see page 20)
Adjustments to conform with US GAAP:
Brands a) 1,144 1,361
Goodwill a) 270 244
Other intangible assets - costs a) 159 179
Other intangible assets - accumulated
amortisation a) (143) (158)
Associated undertakings b) 54 57
Stock c) 12 26
Restructuring costs d) 1 1
Pension and other post
retirement-benefits e) 104 185
Share compensation f) (8) 6
Proposed dividends g) 104 93
Derivative instruments and debt
translation h) (1) (18)
Liabilities l) (38) (42)
Franchise income m) (23) (19)
Other 17 8
Deferred taxation - other i) - -
Deferred taxation - on above US GAAP
adjustments i) (425) (529)
Minority share of above adjustments - -
Shareholders' equity in accordance with
US GAAP 1,737 1,631
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
21 October 2004
ALLIED DOMECQ PLC
By: /s/ Charles Brown
---------------------------
--------------------------
Name: Charles Brown
Title: Director, Corporate Secretariat
Deputy Company Secretary