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 April 22, 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 Interim Results
22 April 2004
ALLIED DOMECQ DELIVERS STRONG BRAND GROWTH
Interim results for the six months ended 29 February 2004.
FINANCIAL HIGHLIGHTS Growth at
constant
Restated Growth currency
2004 2003 % %
- Spirits & Wine net turnover GBP1,263m GBP1,252m 1 3
- Marketing investment behind Spirits & Wine GBP225m GBP216m 4 5
- Trading profit GBP337m GBP323m 4 9
- Profit before tax GBP266m GBP250m 6 12
- Normalised earnings per share 18.0p 16.9p 7 12
- Dividend 5.83p 5.30p 10
- Net cash flow from operating activities GBP244m GBP318m
Figures are stated before goodwill and exceptional items. Figures for the six
months ended 28 February 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 below. Cash flow
from operating activities excludes the pre-tax benefit of the Mexican excise
rebate (2004: nil; 2003: GBP24m).
BUSINESS HIGHLIGHTS
Spirits & Wine Core brands
-Volumes up 1% -Volumes up 6%
-Net turnover up 3% -Net turnover up 6%
-Marketing spend up 5% -Marketing spend up 10%
-Net brand contribution up 3% -Net brand contribution up 5%
-Trading profit up 5%
Premium wine Quick Service Restaurants
-Volumes down 3% -Distribution points up 8%
-Net turnover up 4% -Combination stores up 33%
-Marketing spend up 12% -System-wide sales up 8%
-Trading profit up 11% -Trading profit up GBP11m (48%)
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.
Philip Bowman, Chief Executive, said: "This is an excellent set of results
delivering growth at the top end of expectations. On a constant currency basis,
earnings per share increased by 12%. Volume growth in our core spirits brands of
6% and the increase in profits from our wine portfolio, up 11%, drove an
increase of 5% in Spirits & Wine trading profit. Growth in sales and outlets
within our Quick Service Restaurants business, along with the benefits from its
recent restructuring, contributed an extra GBP11 million of trading profit.
Marketing spend was up by 10% for our core brands and 12% for premium wine. The
sustained increase in investment in advertising and promotion over the past four
years is proving its worth.
"The quality of our performance in the US and the strong recovery in Spain more
than made up for more subdued trading in Latin America and Asia Pacific. Outside
the UK, the European economies remain challenging. Although there are many
uncertainties in today's operating environment, not least the impact of global
terrorism and the continued weakness of the US dollar, we remain confident that
we are on track to deliver earnings growth in line with market expectations for
the current financial year."
OPERATIONAL HIGHLIGHTS
- +6% volume and value growth and improving margins from the nine core
spirits brands
- Brand investment continues to drive performance with advertising and
promotion up 5%
- Premium wine profits up 11% and on track to meet targeted returns
- Quick Service Restaurants delivering excellent profit growth (+GBP11m)
- Efficiency improvements - overheads flat, benefiting from new ways of
working globally
- Continued debt reduction - GBP296m reduction, GBP251m as a result of
foreign exchange
ENDS
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 22 April 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 22
April. 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: 0845 245 3471
US/Canada: 1 866 434 1098
France: 017 070 8180
Germany: 069 222 22 0455
International: +44 (0) 1452 569 394
Conference call:
A conference call will be held for analysts and investors at 16.00 (UK time) on
Thursday 22 April. The call can be accessed by dialling:
UK: 0845 245 3471
US/Canada: 1 866 434 1098
France: 017 070 8180
Germany: 069 222 22 0455
International: +44 (0) 1452 569 394
A recording of the conference call will be available from 19.00 (UK time) today
until 29 April 2004. Call the following numbers to listen to the recording:
UK/Europe: +44 (0) 1452 550 000 Access code: 1156474#
US/Canada: 1 866 247 422 Access code: 1156474#
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 12% and
reported normalised earnings per share have increased by 7% to 18.0p. We have
delivered these results through the growth of Spirits & Wine gross margin,
particularly from the core brands and premium wine, and through the strong
growth in Quick Service Restaurants. The growth in Spirits & Wine has been
driven by good trading in North America, a recovery in shipment volumes in Spain
and strong value growth in the premium wine portfolio. This has been partly
offset by declines in Asia Pacific and Latin America due to local economic and
trading challenges. The Quick Service Restaurants business has delivered very
strong profit growth with its strategy of driving same store sales growth, new
store openings and cost efficiencies.
At constant exchange rates, Spirits & Wine net turnover grew GBP31m (3%) to
GBP1,263m, this was offset by a GBP13m reduction in Quick Service Restaurants
turnover. This reduction reflects the final transition of Baskin-Robbins moving
from producing and selling ice cream to US franchisees (which is now fully
contracted out) to a wholly royalty-based model. As a result, Group turnover was
flat in the period. Reported turnover for the Group declined by GBP35m (2%) to
GBP1,704m of which GBP38m related to adverse year-on-year foreign exchange
movements.
At constant currency, normalised profit before tax increased by 12%. Reported
profit before tax increased 6% to GBP266m which reflects an adverse foreign
currency translation movement of GBP12m on restating the trading profit for the
prior period at this year's rates.
The Directors have declared an interim dividend of 5.83p per share, an
increase of 10%.
Outlook
There are many challenges operating in today's uncertain environment, not least
the impact of global terrorism and the weakness of the US dollar. However, we
remain optimistic that we are on track to deliver earnings growth in line with
market expectations for the current financial year.
Business drivers
Our strategy is delivering tangible results in the core spirits brands and
robust performances from premium wine and Quick Service Restaurants. We are
focused 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 good results.
SPIRITS & WINE
2004 2003 Growth
----------------------------------
- Volume (9L cases) 36.0m 35.8m 1%
- Net turnover GBP1,263m GBP1,232m 3%
- Advertising and promotion GBP225m GBP214m 5%
- Trading profit GBP296m GBP282m 5%
We have increased Spirits & Wine net turnover through the growth of our core
spirits brands and premium wine brands. Net turnover grew 3% with one percentage
point from volume growth and two percentage points from price/mix improvements.
Gross margin increased by GBP26m, or 4%, reflecting volume growth (GBP6m) and
price/mix improvements (GBP24m) offset by higher cost of goods (GBP4m). Trading
profit grew GBP14m (5%) after advertising and promotion investment increased by
GBP11m (5%) and overheads were held flat reflecting the 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 Kahlua in the US, Ballantine's in Spain, Sauza in US and Mexico,
Malibu in France and Spain, Whisky DYC in Spain and Imperial in South Korea.
Brand review
We manage the Spirits & Wine portfolio as four groups: core brands, local market
leaders, premium wine and other Spirits & Wine brands.
Spirits & Wine volume and net turnover growth
Net
Volume Volume turnover
million growth growth
cases % %
--------------------------------
Core brands
Ballantine's 2.9 5 5
Beefeater 1.1 12 14
Canadian Club 1.3 3 3
Courvoisier 0.6 1 1
Kahlua 1.6 1 4
Maker's Mark 0.3 13 16
Malibu 1.3 16 10
Sauza 1.4 17 12
Tia Maria 0.5 (14) (16)
Core brands 11.0 6 6
Local market leaders 6.3 (4) (3)
Premium wine 8.0 (3) 4
Other Spirits & Wine brands
Other spirits 6.4 (3) (2)
Other wine 4.3 8 3
Other Spirits & Wine Total 10.7 1 (1)
----------------------------------------------------------------
Total 36.0 1 3
----------------------------------------------------------------
Core brands: The volumes and net turnover of our core brands both grew by 6%
driven by strong growth across nearly all the brands. Advertising and promotion
behind the core brands was up 10% resulting in net brand contribution increasing
by 5%.
Ballantine's grew both volumes and net turnover by 5%. This reflects good growth
in Europe as a result of a recovery in shipment volumes in Spain and strong
growth in Latin America offset by declines in Asia Pacific, particularly South
Korea. Advertising and promotion behind Ballantine's increased by 11% as we
continue to invest in the "Go Play" campaign. These marketing initiatives have
helped to grow Ballantine's to its highest ever market share in Europe.
Beefeater delivered another good performance in Spain where it has now become
the leading gin by value. WET by Beefeater has continued to roll-out in the US
and Spain with a focus on high end bars and clubs, bartender education and
sampling. Total Beefeater volumes grew by 12% and net turnover by 14%, primarily
as a result of the shipments rebound in Spain.
Canadian Club has continued to grow share in the US and its ready-to-drink
extensions in Australia performed well driving total volumes and net turnover up
3%. Excluding the ready-to-drink extensions, the Canadian Club mother brand grew
volumes by 2% and net turnover was flat, reflecting price repositioning in
certain US states.
Courvoisier volumes and net turnover both grew 1% as a result of strong growth
in the UK where it has consolidated its leadership of the cognac category.
Its volumes in the US were down 1% reflecting a strong performance in
the same period last year.
The revitalisation strategy for Kahlua has sustained the positive consumption
trends that we established last year. Volumes grew 1% and net turnover by 4%
reflecting the mix benefit from strong growth in the US. We have increased our
marketing spend significantly behind the "Unleash It" campaign which has
included television advertising, on-trade events and promotions. We have also
continued the roll-out of Kuya, a spiced fusion rum extension of Kahlua. Maker's
Mark has delivered another good performance with volumes up 13% and price
increases helping to grow net turnover by 16%.
Malibu demonstrated strong growth with volumes up 16% and net turnover up by
10%. The successful launch of Malibu Chill, a ready-to-drink extension in
Australia, has helped overall volume growth. Excluding ready-to-drinks, volumes
of the mother brand are up 9%. The "Seriously Easy Going" marketing programme
has continued to drive brand awareness through television, radio and on-trade
promotions. We are launching new Malibu flavours of pineapple and mango in the
US which are aimed at broadening the brand's appeal.
Sauza has delivered robust growth with volumes up 17% and net turnover increased
by 12%. Sauza in the US delivered volumes up 13% and net turnover up 17%. The
price/mix reduction for the overall brand reflects a price reduction in Mexico
following the reduced cost of the raw material, agave.
Tia Maria has disappointed with volumes down by 14% and net turnover down by
16%. This reflects lower Tia Maria sales which have been affected in the short-
term by the recent focus on Tia Lusso. The year-on-year performance reflects
the one-off benefit of the initial distribution of the Tia Lusso launch which
was not repeated this year. Tia Lusso maintained its position as the number two
cream liqueur in the UK in spite of aggressive competitor activity. We have also
scaled back our expectations in other European markets.
Local market leaders: 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.
These include Stolichnaya, which has continued to benefit from the popularity of
the premium vodka category in the US with volumes and net turnover both up 15%.
This has been driven by good growth in the base brand and the flavoured
extensions. In aggregate, local market leader volumes and net turnover fell by
4% and 3% respectively, reflecting declines in the Mexican brandy portfolio and
in Imperial Scotch in South Korea. The Mexican brandy volumes have continued to
decline with volumes down 12% reflecting the growth of the 'informal spirits'
market. Imperial Scotch whisky also experienced volume declines of 28% as a
result of the consumer credit squeeze in South Korea that is affecting sales of
the premium (12 year old) Scotch category. The recovery of shipment volumes in
Spain drove improved performances in Centenario and Whisky DYC with their
respective volumes up 21% and 17%. Centenario has extended its market leadership
of the Solera brandy category in Spain. Teacher's continued to gain share in the
UK Scotch market with both volumes and net turnover up 3%. Fundador has
maintained its position as the largest international spirit brand in the
Philippines but its volumes declined by 4% due to increased competition from
cheaper imported brandies entering the market. Kuemmerling has continued to
provide valuable critical mass to our operations in Germany and supported the
development of Ballantine's as the leading Scotch. Advertising and promotion
increased behind the local market leaders by 7%, particularly behind Imperial in
South Korea and Whisky DYC in Spain, with net brand contribution declining by
4%.
Premium wine: Premium wine net turnover grew 4% with a 3% reduction in volumes
reflecting seven percentage points of price/mix improvement in turnover. This is
directly in line with our strategy to improve the mix of the premium wine
portfolio and helped to grow trading profit by 11%. We remain on track to meet
our targeted returns on investment. A full review of the premium wine brands is
provided in the market review below.
Other Spirits & Wine brands: The volumes of Other Spirits & Wine brands grew by
1% with net turnover and net brand contribution reducing by 1%. In the Other
Spirits portfolio, we have seen good growth in Wall Street whisky in Latin
America, Wiser's whisky in Canada, Long John in France, Polar Ice in Canada and
Laphroaig in various markets. The Other Wine portfolio has benefited from the
growth of domestic wines in Argentina, the success of Caribe Cooler
ready-to-drink in Mexico and the growth of agency wine brands.
Market review - Spirits & Wine
The key geographic drivers are the strong growth in core brand volumes in North
America which is delivering good turnover and profit growth, a recovery in
shipment volumes in Spain and good value growth in the premium wine portfolio.
These good results are in part offset by declines in Asia Pacific, particularly
South Korea, and Latin America, primarily Mexico.
The regional performance of our business is reviewed below.
North America
Growth
- Volumes (9L cases) 5%
- Net turnover 7%
- Advertising and promotion 10%
- Trading profit 10%
Our North American business delivered a strong performance with net turnover up
7% to GBP325m and trading profit up 10% to GBP99m. This was driven primarily by
the growth of core brand volumes and price/mix improvements.
The US business has continued to deliver an excellent trading performance to
record overall market share gains. This reflects the strength of our portfolio
of core brands and premium wine brands and the benefits of our partnership
approach with our US distributors. We increased advertising and promotion by 10%
with a focus on Kahlua and Sauza.
Kahlua has sustained the positive consumption trends established last year in
the US. Volumes and net turnover both grew 4%, primarily reflecting growth in
the base brand. Last year's launch of Kuya, a spiced fusion rum extension of
Kahlua, continues to roll out in the US and represented 1 percentage point of
Kahlua's volume growth.
Sauza is the fastest growing tequila brand in the US with volumes up 13% and net
turnover up 17%. The brand has benefited from a significant increase in
marketing investment behind "Get Lost", which was launched last year. Malibu
also continued to take share of the rum category and grew volumes by 14% and net
turnover by 15%. The targeted marketing with the "Seriously Easy Going" campaign
and TV advertising has increased brand awareness.
Stolichnaya has grown volumes and net turnover by 15% in the US with solid
growth in the base brand and the flavoured extensions. Maker's Mark delivered
another strong performance in the US with volumes up 17% and price increases
supporting net turnover up 20%. The brand has made further share gains in the
bourbon category.
Courvoisier's volume performance in the US was down 1% following an
exceptionally strong performance in the same period last year. Our initiatives
to revitalise Canadian Club in the US have continued to deliver growth with
volumes up 4% but with flat net turnover growth which reflects planned price
repositioning across selected states. Beefeater volumes declined marginally in
North America as a result of a strong performance last year.
We are now benefiting from the 'Move to Market' initiative that we implemented
last year which has allocated increased resources closer to the market. This has
increased our competitiveness with around 100 more sales people in the market to
deliver an improved understanding of customers and consumers and to strengthen
further our relationships with distributors. We have focused brand building in
the on-trade channel and towards improving our market share in the Control
States. We have also continued our "first choice supplier" programme with the US
distributors to develop long-term partnerships, which are sustainable and
mutually beneficial. During 2004, we will drive further benefits from the
roll-out of our new "first choice supplier" contracts with more distributors
across the US.
Europe
Growth
- Volumes (9L cases) 2%
- Net turnover 4%
- Advertising and promotion 6%
- Trading profit 10%
Trading profit grew 10% to GBP64m reflecting a recovery in shipment volumes in
Spain and a good performance in the UK offset by declines caused by the
challenging trading conditions in other Western European markets. Net turnover
grew 4% to GBP390m on volumes up 2%. Advertising and promotion grew 6%,
principally in Spain and France. Outside Spain, our European volumes declined 3%
and net turnover fell by 2% despite growing share in key markets reflecting the
sluggish economies in the region, particularly Germany and France.
Our business in Spain grew volumes by 14% and net turnover by 23% reflecting the
recovery in our shipment volumes following last year's decline as a result of
the destock by Spanish wholesalers. Ballantine's grew shipment volumes by 26%
and net turnover by 31%. In addition, Ballantine's has continued to grow its
market share to an all time high even though it is now priced above its main
competitor brand and, at the end of 2003, the overall Scotch whisky category
began to move into decline. We have continued to invest heavily behind
Ballantine's marketing programme "Go Play" in Spain, to drive awareness in this
important market. The shipment volumes for Beefeater grew 18% while net turnover
grew 32%. Beefeater became the market leader in the gin category by value with
strong market share gains. Malibu has continued to gain share following new
television advertising and on-trade promotions. Whisky DYC is benefiting from a
new marketing campaign, "DYC Une", which is helping to improve awareness among
target consumers. Centenario has continued to consolidate its market leadership
with 25% share of the brandy category.
The UK business has continued to deliver growth in turnover and profit.
Courvoisier grew both volumes and net turnover by 9% and extended its leadership
of the cognac category. The "House of Courvoisier" campaign and a
programme of on-trade events, particularly around cocktails, are helping to
drive brand awareness. Malibu has performed strongly in the on- and off-trade
with a marketing focus on mixing with cranberry. As the fastest growing
speciality spirit brand, Malibu has become the UK's number two in the category.
Teacher's grew volumes and net turnover by 3%, with further market share gains.
Shipment volumes for the Tia Maria trademark declined compared to the Tia Lusso
launch programme last year and following aggressive discounting by the
competition. However, Tia Lusso has continued to gain share and has retained its
position as the number two selling cream liqueur in the UK.
Other markets in Western Europe, such as Germany and France, have experienced
challenging trading with sluggish economies that have slowed consumer spending.
However, key brands have made good progress with market share growth in these
challenging markets. In Germany, we continue to benefit from the increased scale
that Kuemmerling provides and Ballantine's has maintained its position as the
leading Scotch brand. Ballantine's has also achieved market share gains in other
European markets where market share has reached an all time high.
Latin America
Growth
- Volumes (9L cases) 0%
- Net turnover (4)%
- Advertising and promotion (6)%
- Trading profit (11)%
Trading profit declined 11% to GBP33m and net turnover also declined by 4% to
GBP150m. These reductions are driven primarily by declines in the Mexican brandy
category which are offset in part by the strong growth of Sauza. The continued
growth of the 'informal spirits' market in Mexico has caused declines in the
domestic brandy category resulting in a 12% decline in our Mexican brandy
volumes. Net turnover also declined by 10% and we reduced our marketing
investment behind the brandy portfolio by 34%. We have continued to work with
the Mexican government on initiatives to tackle the growth of the 'informal
spirits' market. The Government has recently implemented new regimes to apply
excise duties on all alcohol imports and production which should help prevent
its diversion to the informal market. We have also launched Stigma, the first
white brandy, which is aimed at the premium on-trade market to try to
revitalise the brandy category. In contrast, Sauza has continued to deliver very
strong growth with volumes up 25% and net turnover up 12% reflecting price
declines across the category because of lower raw material costs. Our focus on
other core brands in Mexico delivered good growth in Kahlua and Ballantine's. We
maintained our leadership of the ready-to-drink category with good growth in
Caribe Cooler, a wine-based ready-to-drink, which grew volumes by 6% and net
turnover by 13%.
We have market leadership in Argentina where we have experienced strong growth
in our core spirits such as Beefeater and Tia Maria and with our wine portfolio.
The Graffigna wine portfolio helped to grow our domestic wine volumes by 44% and
net turnover by 74%. In Brazil, we experienced a slower first half following
very strong growth in the same period last year.
Asia Pacific
Growth
- Volumes (9L cases) (3)%
- Net turnover (8)%
- Advertising and promotion 5%
- Trading profit (13)%
Trading profit declined by 13% to GBP33m as a result of the challenging trading
conditions in South Korea where a consumer credit squeeze has caused significant
slowdown in the overall spirits market. As a result, volumes for the region
declined 3% and net turnover fell by 8% to GBP115m. Outside of South Korea, we
experienced strong growth in the rest of the region with volumes up 7% driven by
good performances in Japan, Australasia and China.
The consumer credit squeeze in South Korea has slowed overall consumer spending
which in turn has badly affected the overall liquor industry. Particularly hard
hit was the whisky category which has declined by 14% since August 2003. The
premium (12 year old) category has been most affected and, while Imperial Scotch
whisky maintained its market leadership, its volumes declined. 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 an
Imperial 17 year old Scotch to broaden our access to this more premium priced
category. This was the main driver for a 5% increase in advertising and
promotion in the Asia Pacific region.
Our business in Japan has delivered an improvement in volumes following a
renewed focus by Suntory but the market remains difficult, especially for
whisky. In Australia, our ready-to-drink offerings continue to be the principal
growth driver with volumes up 13% and net turnover up 17%. The success of the
ready-to-drink formats is centred on Canadian Club, with CC Club and CC Cola
growing volumes by 14%, and Malibu Chill which has been very well received. The
Canadian Club mother brand has also benefited from the increased marketing
around the trademark with volumes up 10%. Fundador has maintained its position
as the largest international spirits brand in the Philippines but incurred
volume declines of 4% as a result of increasing competition from cheap Spanish
imports. Our business in China has delivered good growth from a small base with
good performances in aged Ballantine's and Courvoisier.
Premium Wine
Growth
- Volumes (9L cases) (3)%
- Net turnover 4%
- Advertising and promotion 12%
- Trading profit 11%
Our premium wine brands have continued to deliver good profit growth with
trading profit up 11% to GBP52m. Volumes declined 3% but net turnover increased
4% reflecting a strong price/mix improvement of 7% in line with our strategy to
drive improving returns through better mix. As a result, we are on track to meet
our return on investment targets. This performance is against a challenging wine
market in many regions and demonstrates the strength of our wine brands and the
benefits of our geographic diversity which provides a natural hedge against
variations in wine cycles. Advertising and promotion increased 12% primarily
behind our champagne brands.
Our premium priced wines (GBP5 or US$7 retail price and above) represent 55% of
the portfolio by volume but 85% of the portfolio by value. Our strategy is to
shift the mix of our wine portfolio towards these more premium categories away
from the value category. During the period, the volumes of the value category
wines declined by 7% while net turnover grew 5%. The premium categories
delivered flat volumes but increased net turnover by 7% as mix improved
significantly towards the top end of the portfolio driven by 20% volume growth
in our core US consumer market.
The primary driver of our success in the US is our largest brand, Clos du Bois,
which grew volumes 18%. Mumm Cuvee Napa also experienced strong growth with
volumes up 16%. We continued to implement our strategy to internationalise the
wine portfolio with good increases in our imports in the US market. The New
Zealand wines that we market under the Brancott brand in the US delivered volume
growth of 36% and our champagne volumes into the US increased by 15%. These
brands continue to benefit from the strength of our distribution and marketing
capabilities in the US market. The innovation programme also contributed to
growth with the successful launch of the Jerry Garcia label and the launch of
Mumm 'M'.
The UK wine business delivered strong growth with volumes up 15%. This was
driven by a broad range of brands from all our production areas. The Montana
portfolio performed very strongly with good growth across all price categories
with volumes up 31%. Our leading Rioja, Campo Viejo, is now benefiting from
access to our distribution and marketing capabilities in the UK with volumes up
by 50%. The champagnes have also continued to deliver good growth with volumes
up 25%. Graffigna, our largest Argentine wine brand, has also had a good start
to the year.
Trading conditions in Australia and New Zealand continue to be challenging. We
have experienced volume declines in the domestic sales of the Montana portfolio
in New Zealand which primarily reflect the grape supply shortage caused by last
year's frost damage. Consolidation among the retailers has also put pressure on
sales and Montana's strategy to hold pricing has resulted in some volume
declines. The Montana portfolio grew strongly in Australia with volumes up 14%
as we continue to benefit from extending our distribution presence.
In Spain, overall volumes have declined by 17% as we have continued to shift the
mix of our wine revenues from the higher volume, lower priced wines to more
premium categories. Our wines in the super premium and ultra premium categories
have grown well, offset by volume declines in the lower priced categories.
Duty Free
Our Duty Free operations have delivered good growth within a challenging
environment. We have seen good performances in the Americas and Europe and the
effect of the SARS virus on the Asia Pacific region has receded. The core
spirits brands are the main growth driver with volumes up 5% driven primarily by
Malibu, Sauza and Beefeater. Ballantine's Aged Scotch continues to be a good
value driver with the premium qualities displaying the best growth rates. The
premium wines have also performed well with robust growth across the portfolio
in the duty free channel with particularly good progress in airport shop
distribution.
QUICK SERVICE RESTAURANTS
- Distribution points up 8%
- Number of combination stores up 33%
- System-wide sales growth of 8%
- Net turnover down by 11% to GBP104m
- Trading profit up GBP11m to GBP34m
Quick Service Restaurants has delivered very strong growth with profits up
GBP11m 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 8% since last year as we significantly
increased the pace of store openings in both the US and internationally. Overall
turnover has fallen by 11% (GBP13m) to GBP104m which reflects the final
transition of Baskin-Robbins moving 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 margin
increased by 6% to GBP95m.
Dunkin' Donuts delivered an 11% growth in global system-wide sales driven by a
5.2% increase in US same store sales and a 7% increase in global distribution
points. The strong growth in same store sales which continues to outpace
the overall QSR industry has been driven by product innovation and effective
marketing. The innovation programme has successfully launched a new range of
coffee offerings, which include latte, cappuccino and espresso products, in
1,800 stores in the New England and Mid Atlantic areas. The launch has been
supported by the introduction of new high speed coffee machines which maintains
Dunkin' Donuts reputation for speed, quality and value for money. Our
marketing campaigns have focused around the new coffee offerings and a highly
successful regional programme with Curt Schilling, the Boston Red Sox baseball
player.
Baskin-Robbins grew global system-wide sales by 4% driven primarily by new store
openings, up 10%. Same store sales in the US increased by 0.2% reflecting poor
weather in the US and difficult economic conditions in California. We will begin
a trial of a new store concept in selected stores in California and New York to
revitalise the stores and the consumer offering. Baskin-Robbins has also rolled
out its seasonal ice cream flavours for the winter menus and we have also
focused on marketing the successful ice cream cakes which included the Snowman
Ice Cream Cake in December.
The poor economic conditions in California have also affected sales of Togo's
resulting in a 10% decline in system-wide sales. We have begun a store
refurbishment programme which is designed to refresh the brand's appeal to the
consumer. About 100 stores have been refurbished with encouraging early results.
In addition, the "half & half" menu concept where consumers can choose any two
from sandwich, soup or salad combinations is proving popular.
Our strategy of multi-branded stores which combine Dunkin' Donuts and
Baskin-Robbins continues to be a key driver of growth in new store openings,
with a 33% increase in the number of combination stores to almost 1,200 stores.
This strategy is supported by our brands' complementary day-part offering and
brings significant benefits to our franchisees through improved scale and
operating efficiencies, along with increased choice for consumers.
During 2003, we restructured the QSR business to optimise focus on each of the
three brands and to improve operational systems and standards, menu and product
development and the expansion of the international business. The reorganisation
has resulted in a leaner and more focused organisation providing operational
synergies. This resulted in an exceptional charge of GBP9m in the last financial
year which has generated cost savings of GBP3m in the period.
BRITANNIA SOFT DRINKS
The Group's share of Britannia's profits for the period was GBP7m (2003: GBP5m).
The 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 anticipated tax charge for the year is maintained at 24% reflecting the
on-going management of our tax liabilities.
GOODWILL AND EXCEPTIONAL ITEMS
Goodwill amortisation totalled GBP20m (2003: GBP20m). The exceptional item of
GBP12m, of which GBP10m has been spent, reflects a restructuring programme in
the Spirits & Wine business that has delivered organisational efficiencies in
the period of GBP3m. This is the first part of a programme to reduce overlap
between central, regional and market-focused functions which will allow us to be
leaner and more responsive in order to speed up decision making and reinforce
accountability throughout the business.
CASH FLOW
Net cash flow from operating activities was GBP244m (2003: GBP342m) and free
cash flow was GBP38m (2003: GBP114m). In the same period last year, cash flow
benefited from the Mexican excise rebate (GBP23m), lower tax payments and the
timing of certain excise duty payments. This year we have absorbed a number of
additional cash outlays including increased pension contributions and
restructuring costs. In addition, adverse foreign exchange translation has
affected reported cash flows. We have continued to focus on working capital
management, particularly improvements in trade debtors.
Net debt decreased by GBP296m during the period from GBP2,412m to GBP2,116m
which includes a favourable currency translation impact on our borrowings of
GBP251m largely as a result of the weakening US dollar. Net debt reduction from
cash flows was GBP45m.
At 29 February 2004, EV gearing (net debt as a percentage of market
capitalisation plus net debt) was 30% (2003: 44%). Interest cover based on
EBITDA was 6.1 times and cover based on EBIT was 5.2 times.
FOREIGN EXCHANGE
Translation: It is our policy not to hedge the impact of foreign exchange
movements on the translation of our overseas earnings. As a result, our prior
year trading profit at current exchange rates is reduced by GBP13m, primarily as
a result of the weakening US dollar and Mexican peso, partly compensated by
appreciation of the Euro. We anticipate, based on estimated rates of 1.80 for
the US dollar, 20.3 for the Mexican Peso and 1.50 for the Euro, that the full
year restatement will be approximately GBP35m.
Transaction hedging: Business trading flows are netted by currency and hedged
forward for up to 18 months using a combination of forward exchange contracts
and purchased foreign exchange options: the first 12 months being
non-discretionary. Unhedged transactions for 2004 have resulted in a GBP4m loss
in the six months to 29 February 2004.
NEW ACCOUNTING STANDARDS
We have adopted 'FRS 17 - Retirement benefits' from 1 September 2003 which has
led to a restatement of the figures for the six months to 28 February 2003 with
a GBP4m increase in trading profit, a GBP10m 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
(GBP43m) and advertising and promotion (GBP12m) to be treated as discounts,
reducing turnover by GBP55m for the six months to 28 February 2003. Trading
profit was not affected.
The impact of these accounting standards on the profit and loss account for the
six months to 28 February 2003 is summarised below.
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 GBP133m at 28 February
2003. There were no changes to reported profits for the six months to 28
February 2003.
PENSIONS
As anticipated, the profit and loss charge under FRS 17 in the six months to 29
February 2004 is GBP26m (2003: GBP24m), with a GBP16m (2003: GBP14m) charge
within trading profit and a GBP10m (2003: GBP10m) impact within finance charges.
The expected impact for the full year is around GBP50m, being GBP30m within
trading profit and GBP20m within finance charges.
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 1,794 (55) (38) 1,701 1,704 -
-----------------------------------------------------------------------------------------------------------------
Trading profit 319 4 (13) 310 337 9
-----------------------------------------------------------------------------------------------------------------
Finance charges (63) (10) 1 (72) (71) (1)
-----------------------------------------------------------------------------------------------------------------
Profit before tax 256 (6) (12) 238 266 12
-----------------------------------------------------------------------------------------------------------------
Taxation (61) 1 3 (57) (64) 12
-----------------------------------------------------------------------------------------------------------------
Minority interests (8) - - (8) (8) -
-----------------------------------------------------------------------------------------------------------------
Earnings 187 (5) (9) 173 194 12
-----------------------------------------------------------------------------------------------------------------
Weighted average number of ordinary shares (millions) 1,076 1,076 1,075
-----------------------------------------------------------------------------------------------------------------
Normalised earnings per share (pence) 17.4 (0.5) (0.8) 16.1 18.0 12
-----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
2003 2004
---------------------------------------------------------------------------------------------------
FRS 5/ Growth
Reported FRS 17 Foreign At 2004 Reported at 2004
2003 restatement exchange exchange 2004 exchange
SPIRITS & WINE GBPm GBPm GBPm GBPm GBPm %
---------------------------------------------------------------------------------------------------
Turnover 1,667 (55) (28) 1,584 1,600 1
---------------------------------------------------------------------------------------------------
Duty (360) - 8 (352) (337) (4)
---------------------------------------------------------------------------------------------------
Net turnover 1,307 (55) (20) 1,232 1,263 3
---------------------------------------------------------------------------------------------------
Advertising & promotion (228) 12 2 (214) (225) 5
---------------------------------------------------------------------------------------------------
Trading profit 289 4 (11) 282 296 5
---------------------------------------------------------------------------------------------------
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 3 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 marketing regions. The profit
growth in "Others" principally reflects prior year losses from the commercial
partnership with Miller Brewing in the US which were not repeated in the current
year.
Geographical Analysis - Group net turnover
--------------------------------------------------------------
2003 2004
--------------------------------------------------------------
Growth
*Restated Foreign At 2004 at 2004
2003 exchange exchange 2004 exchange
GBPm GBPm GBPm GBPm %
--------------------------------------------------------------
North America 325 (22) 303 325 7
--------------------------------------------------------------
Europe 354 20 374 390 4
--------------------------------------------------------------
Latin America 178 (22) 156 150 (4)
--------------------------------------------------------------
Asia Pacific 131 (6) 125 115 (8)
--------------------------------------------------------------
Premium Wine 241 10 251 262 4
--------------------------------------------------------------
Others 23 - 23 21 (9)
--------------------------------------------------------------
Spirits & Wine 1,252 (20) 1,232 1,263 3
--------------------------------------------------------------
QSR 127 (10) 117 104 (11)
--------------------------------------------------------------
TOTAL 1,379 (30) 1,349 1,367 1
--------------------------------------------------------------
Geographical Analysis - Group trading profit
--------------------------------------------------------------
2003 2004
--------------------------------------------------------------
* Growth
Restated Foreign At 2004 at 2004
2003 exchange exchange 2004 exchange
GBPm GBPm GBPm GBPm %
--------------------------------------------------------------
North America 100 (10) 90 99 10
--------------------------------------------------------------
Europe 50 8 58 64 10
--------------------------------------------------------------
Latin America 46 (9) 37 33 (11)
--------------------------------------------------------------
Asia Pacific 42 (4) 38 33 (13)
--------------------------------------------------------------
Premium Wine 47 - 47 52 11
--------------------------------------------------------------
Others 8 4 12 15 25
--------------------------------------------------------------
Spirits & Wine 293 (11) 282 296 5
--------------------------------------------------------------
QSR 25 (2) 23 34 48
--------------------------------------------------------------
Britannia 5 - 5 7 40
--------------------------------------------------------------
TOTAL 323 (13) 310 337 9
--------------------------------------------------------------
*Figures for 2003 have been restated for 'FRS 17 - Retirement benefits' and 'FRS
5 - Reporting the substance of transactions'.
Group profit and loss account
Six months to 29 February 2004
Six months to 29 February 2004
------------------------------
Year to Before Six months
31 August goodwill Goodwill to 28
2003 and and February 2003
Total exceptional exceptional Total
(Restated) items items Total (Restated)
GBPm Note GBPm GBPm GBPm GBPm
------------------------------------------------------------------------------------------------------------------------
3,317 Turnover 3 1,704 - 1,704 1,739
------------------------------------------------------------------------------------------------------------------------
(40) Operating costs - goodwill amortisation - (20) (20) (20)
38 - Mexican excise rebate - - - 28
(2,714) - other (1,377) (12) (1,389) (1,417)
------------------------------------------------------------------------------------------------------------------------
601 Operating profit from continuing activities 327 (32) 295 330
24 Share of operating profits of associated undertakings 10 - 10 5
------------------------------------------------------------------------------------------------------------------------
625 Trading profit 3 337 (32) 305 335
(126) Interest payable (61) - (61) (63)
(20) Other finance charges (10) - (10) (10)
------------------------------------------------------------------------------------------------------------------------
479* Profit on ordinary activities before taxation 266 (32) 234 262*
(126) Taxation 6 (64) 5 (59) (70)
------------------------------------------------------------------------------------------------------------------------
353 Profit on ordinary activities after taxation 202 (27) 175 192
(16) Minority interests - equity and non-equity (8) - (8) (8)
------------------------------------------------------------------------------------------------------------------------
337 Profit earned for Ordinary Shareholders for the period 5 194 (27) 167 184
(150) Ordinary dividends 7 (63) (57)
------------------------------------------------------------------------------------------------------------------------
187 Retained profit 104 127
------------------------------------------------------------------------------------------------------------------------
Earnings per Ordinary Share:
31.3p - basic 5 15.5p 17.1p
31.3p - diluted 5 15.5p 17.1p
33.2p - normalised 5 18.0p 16.9p
The above figures comprise the unaudited results for the six months to 29
February 2004 and 28 February 2003 and the audited results for the year to 31
August 2003 all of which relate to continuing operations. The figures for the
year to 31 August 2003 and the six months to 28 February 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".
* For the year to 31 August 2003 and the six months to 28 February 2003, profit
on ordinary activities before taxation, excluding goodwill and exceptional
items, was GBP491m and GBP250m respectively.
Group balance sheet
At 29 February 2004
31 August 28 February
2003 29 February 2003
(Restated) 2004 (Restated)
GBPm Note GBPm GBPm
----------------------------------------------------------------------------------------------------
Fixed assets
1,273 Intangible assets 1,251 1,296
966 Tangible assets 893 919
31 Investments and loans 22 30
85 Investments in associates 79 69
---------------------------------------------------------------------------------------------------
2,355 Total fixed assets 2,245 2,314
---------------------------------------------------------------------------------------------------
Current assets
1,407 Stocks 1,341 1,388
701 Debtors 618 762
175 Cash at bank and in hand 11 140 161
-----------------------------------------------------------------------------------------------------
2,283 Total current assets 2,099 2,311
-----------------------------------------------------------------------------------------------------
Creditors (due within one year)
(772) Short-term borrowings 11 (599) (988)
(93) Dividends (63) (57)
(1,068) Other creditors (900) (1,009)
------------------------------------------------------------------------------------------------------
(1,933) Total current liabilities (1,562) (2,054)
------------------------------------------------------------------------------------------------------
350 Net current assets 537 257
------------------------------------------------------------------------------------------------------
2,705 Total assets less current liabilities 2,782 2,571
Creditors (due after more than one year)
(1,815) Loan capital 11 (1,657) (1,738)
(46) Other creditors (46) (48)
------------------------------------------------------------------------------------------------------
(1,861) Total creditors due after more than one year (1,703) (1,786)
------------------------------------------------------------------------------------------------------
(126) Provisions for liabilities and charges (168) (155)
------------------------------------------------------------------------------------------------------
718 Net assets excluding pension and post retirement liabilities 911 630
------------------------------------------------------------------------------------------------------
(405) Pension and post retirement liabilities (net of deferred taxation) (392) (545)
------------------------------------------------------------------------------------------------------
313 Net assets including pension and post retirement liabilities 519 85
------------------------------------------------------------------------------------------------------
Capital and reserves
277 Called up share capital 277 277
165 Share premium account 165 165
(129) Shares held in employee trusts (122) (133)
(823) Merger reserve (823) (823)
747 Profit and loss account 946 531
------------------------------------------------------------------------------------------------------
237 Shareholders'funds - equity 8 443 17
76 Minority interests - equity and non-equity 76 68
------------------------------------------------------------------------------------------------------
313 519 85
-----------------------------------------------------------------------------------------------------
Group cash flow information
Six months to 29 February 2004
Year to Six months to
31 August 28 February
2003 Six months to 2003
(Restated) Reconciliation of operating profit to net cash inflow from 29 February 2004 (Restated)
GBPm operating activities Note GBPm GBPm
-----------------------------------------------------------------------------------------------------------------------
601 Operating profit 295 330
40 Goodwill amortisation 20 20
4 Exceptional operating costs 2 3
75 Depreciation 38 38
(72) Increase in stocks (23) (62)
58 Decrease in debtors 20 19
65 (Decrease)/increase in creditors (80) 16
(29) Expenditure against provisions for reorganisation and restructuring costs (18) (12)
6 Other items (10) (10)
-----------------------------------------------------------------------------------------------------------------------
748 * Net cash inflow from operating activities 244 * 342 *
-----------------------------------------------------------------------------------------------------------------------
* Net cash inflow from operating activities above includes the benefit of the
Mexican excise rebate which for the six months to 29 February 2004 is nil (2003:
GBP24m).
Group cash flow statement
-----------------------------------------------------------------------------------------------------------------------
748 Net cash inflow from operating activities 244 342
13 Dividends received from associated undertakings 9 7
(148) Returns on investments and servicing of finance 9 (53) (74)
(65) Taxation paid 9 (44) (21)
(120) Capital expenditure and financial investment 9 (25) (50)
(144) Equity dividends paid (93) (87)
-----------------------------------------------------------------------------------------------------------------------
284 Cash inflow before use of liquid resources and financing 38 117
50 Management of liquid resources (22) 27
(200) Financing 9 4 (58)
-----------------------------------------------------------------------------------------------------------------------
134 Increase in cash in the period 11 20 86
-----------------------------------------------------------------------------------------------------------------------
Reconciliation of net cash flow to movement in net debt
-----------------------------------------------------------------------------------------------------------------------
134 Increase in cash in the period 20 86
(50) Increase/(decrease) in liquid resources 22 (27)
164 Decrease in loan capital 3 18
-----------------------------------------------------------------------------------------------------------------------
248 Movement in net debt resulting from cash flows 45 77
(82) Exchange adjustments 251 (64)
-----------------------------------------------------------------------------------------------------------------------
166 Movement in net debt during the period 296 13
(2,578) Opening net debt (2,412) (2,578)
-----------------------------------------------------------------------------------------------------------------------
(2,412) Closing net debt 11 (2,116) (2,565)
-----------------------------------------------------------------------------------------------------------------------
Notes to the accounts
1. Basis of preparation
These interim statements, which are unaudited, comply with relevant accounting
standards. The accounting policies have been applied on a basis consistent with
those applied in the 2003 Annual Report and Accounts except for the accounting
policy changes set out in note 2 below. The 2003 Annual Report and Accounts were
prepared in accordance with accounting principles generally accepted in the
United Kingdom (UK GAAP).
The periods to 29 February 2004 and 28 February 2003 are regarded as distinct
financial periods for accounting purposes with the exception of taxation where
the periods are allocated an appropriate proportion of the expected total annual
charge.
The figures for the year to 31 August 2003 are extracted from the Group's full
statutory financial statements which have been reported on by the Group's
auditor and filed with the Registrar of Companies. The report of the auditor was
unqualified and did not contain a statement under section 237 (2) or (3) of the
Companies Act 1985.
These interim financial statements were approved by the Board on 21 April 2004.
2. Changes in accounting policies
a) 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 adoption of FRS 17 has led to an increase in
the reported trading profit of GBP4m for the six months to 28 February 2003 and
GBP16m for the year to 31 August 2003. In addition there was an increase in
finance charges of GBP10m for the six months to 28 February 2003 and GBP20m for
the year to 31 August 2003. The tax impact of these changes was a decrease of
GBP1m for both the six months to 28 February 2003 and the year to 31 August
2003. The overall effect of adopting FRS 17 was a decrease in retained profits
of GBP5m and GBP3m for the six months to 28 February 2003 and the year to 31
August 2003 respectively. The adoption of this standard has resulted in a
reduction of GBP691m in net assets at 28 February 2003 and GBP552m at 31 August
2003.
b) 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 reducing net assets by GBP133m at 28 February
2003 and GBP129m at 31 August 2003. There were no changes to the reported
profits for the six months to 28 February 2003 or the year to 31 August 2003. In
addition the 2003 net cash outflow arising from the purchase and disposal of
shares by the trusts has been reclassified from 'Capital expenditure and
financial investment' to 'Financing'.
c) 'FRS 5 - Reporting the substance of transactions'. This standard has been
amended by the addition of a new Application Note G on revenue recognition. A
number of items previously classified as operating costs are now treated as
discounts, reducing turnover by GBP55m for the six months to 28 February 2003
and GBP93m for the year to 31 August 2003. The items reclassified are price
support, listing allowances, redemptions and advertising contributions. There
were no changes to the reported profits for the six months to 28 February 2003
or the year to 31 August 2003.
3. Activity analysis
Year to 31 August 2003 Six months to 29 February 2004 Six months to 28 February 2003
(Restated) (Restated)
Trading Trading Trading
Turnover profit * Turnover profit * Turnover profit *
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------------------------------------------------
3,058 538 Spirits & Wine 1,600 296 1,612 293
259 79 QSR 104 34 127 25
- 20 Britannia - 7 - 5
---------------------------------------------------------------------------------------------------
3,317 637 1,704 337 1,739 323
---------------------------------------------------------------------------------------------------
* Trading profit above is before goodwill and exceptional items. Goodwill and
exceptional items for the six months to 29 February 2004 is a loss of GBP32m
(2003: profit - GBP12m) and relates wholly to Spirits & Wine activities for both
periods.
Notes to the accounts
4. Geographical analysis
Year to 31 August 2003 Six months to 28 February 2003
(Restated) Six months to 29 February 2004 (Restated)
Trading Trading Trading
Turnover profit * Turnover profit * Turnover profit *
GBPm GBPm By country of destination GBPm GBPm GBPm GBPm
----------------------------------------------------------------------------------------------------------------------
1,326 204 Europe 735 109 676 89
1,478 330 Americas 719 175 784 180
513 103 Rest of World 250 53 279 54
----------------------------------------------------------------------------------------------------------------------
3,317 637 1,704 337 1,739 323
----------------------------------------------------------------------------------------------------------------------
* Trading profit above is before goodwill and exceptional items. Goodwill and
exceptional items for the six months to 29 February 2004 relate to Europe (loss
- GBP19m) (2003: loss - GBP6m), Americas (loss - GBP3m) (2003: profit - GBP27m)
and Rest of World (loss - GBP10m) (2003:loss - GBP9m).
Year to 31 August 2003 Six months to 28 February 2003
(Restated) Six months to 29 February 2004 (Restated)
Trading Trading Trading
Turnover profit * Turnover profit * Turnover profit *
GBPm GBPm By country of operation GBPm GBPm GBPm GBPm
-----------------------------------------------------------------------------------------------------------------------
2,029 246 Europe 1,141 133 1,070 132
1,804 326 Americas 861 173 939 157
411 65 Rest of World 193 31 219 34
-----------------------------------------------------------------------------------------------------------------------
4,244 637 2,195 337 2,228 323
(927) - Turnover with Group companies (491) - (489) -
-----------------------------------------------------------------------------------------------------------------------
3,317 637 1,704 337 1,739 323
-----------------------------------------------------------------------------------------------------------------------
* Trading profit above is before goodwill and exceptional items. Goodwill and
exceptional items for the six months to 29 February 2004 relate to Europe (loss
- GBP19m) (2003: loss - GBP6m), Americas (loss - GBP3m) (2003: profit - GBP27m)
and Rest of World (loss - GBP10m) (2003:loss - GBP9m).
5. Reconciliation to normalised earnings
Year to
31 August Six months to
2003 Six months to 28 February 2003
(Restated) 29 February 2004 (Restated)
GBPm GBPm GBPm
-----------------------------------------------------------------------------------------------------------------------
337 Earnings as reported 167 184
(18) Adjustments for exceptional items net of tax 9 (21)
38 Adjustments for goodwill amortisation net of tax 18 19
-----------------------------------------------------------------------------------------------------------------------
357 Normalised earnings 194 182
-----------------------------------------------------------------------------------------------------------------------
Millions Millions Millions
1,107 Weighted average Ordinary Shares in issue during the period 1,107 1,107
(32) Weighted average Ordinary Shares owned by the Allied Domecq employee trusts* (32) (31)
-----------------------------------------------------------------------------------------------------------------------
1,075 Weighted average Ordinary Shares used in earnings per share calculation 1,075 1,076
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
33.5p Normalised earnings per Ordinary Share 18.0p 16.9p
-----------------------------------------------------------------------------------------------------------------------
* Includes American Depositary Shares representing underlying Ordinary Shares.
Basic earnings per share of 15.5p (2003: 17.1p) has been calculated on earnings
of GBP167m (2003: GBP184m) divided by the average number of shares of 1,075m
(2003: 1,076m).
Diluted earnings per share of 15.5p (2003: 17.1p) has been calculated on
earnings of GBP167m (2003: GBP184m) and, after including the effect of all
dilutive potential Ordinary Shares, the average number of shares of 1,079m
(2003: 1,077m).
6. Taxation
The GBP59m (2003: GBP70m) total taxation charge for the six months to 29
February 2004 comprises UK taxation of GBP7m (2003: GBP4m), overseas taxation of
GBP49m (2003: GBP64m) and taxation on the profits of associated undertakings of
GBP3m (2003: GBP2m).
Deferred tax assets of GBP42m at 31 August 2003 have not been recognised due to
the degree of uncertainty over the utilisation of the underlying tax losses and
deductions in certain tax jurisdictions.
7. Ordinary dividends
The Board has declared an interim dividend of 5.83p per Ordinary Share (2003:
5.30p) payable on 30 July 2004. Dividends on American Depositary Shares are
payable on 6 August 2004.
8. Reconciliation of movements in Shareholders' funds
Year to Six months to
31 August Six months to 28 February
2003 29 February 2003
(Restated) 2004 (Restated)
GBPm GBPm GBPm
----------------------------------------------------------------------------------------------------------------
337 Profit earned for Ordinary Shareholders in the period 167 184
4 Currency translation differences on foreign currency net investments 126 (2)
19 Taxation on translation differences (32) 5
(65) Actuarial gains/(losses) on net pension liabilities 1 (201)
-----------------------------------------------------------------------------------------------------------------
295 Total recognised gains and losses relating to the period 262 (14)
(36) Movement on shares in employee trusts 7 (40)
(150) Ordinary dividends (63) (57)
-----------------------------------------------------------------------------------------------------------------
109 Net movement in Shareholders' funds 206 (111)
128 Shareholders' funds at the beginning of the period * 237 128
----------------------------------------------------------------------------------------------------------------
237 Shareholders' funds at the end of the period 443 17
----------------------------------------------------------------------------------------------------------------
* Opening Shareholders' funds for the year to 31 August 2003 and the six months
to 28 February 2003 as previously reported were GBP706m.
9. Detailed analysis of gross cash flows
Year to Six months to
31 August Six months to 28 February
2003 29 February 2003
(Restated) 2004 (Restated)
GBPm GBPm GBPm
--------------------------------------------------------------------------------------------------
Returns on investments and servicing of finance
22 Interest received 4 7
(149) Interest paid (54) (62)
(21) Dividends paid to minority shareholders (3) (19)
--------------------------------------------------------------------------------------------------
(148) (53) (74)
--------------------------------------------------------------------------------------------------
Taxation paid
- UK taxation 1 -
(65) Overseas taxation (45) (21)
--------------------------------------------------------------------------------------------------
(65) (44) (21)
--------------------------------------------------------------------------------------------------
Capital expenditure and financial investment
(144) Purchase of tangible fixed assets (37) (58)
21 Sale of tangible fixed assets 12 5
- Purchase of intangible fixed assets (8) -
(3) Purchase of trade investments - (2)
6 Disposal of trade investments 8 5
--------------------------------------------------------------------------------------------------
(120) (25) (50)
--------------------------------------------------------------------------------------------------
Financing
Net disposal/(purchase) of Ordinary Share capital for employee
(36) trusts* 7 (40)
(175) Redemption of debt - -
11 (Decrease)/increase in other borrowings (3) (18)
--------------------------------------------------------------------------------------------------
(200) 4 (58)
--------------------------------------------------------------------------------------------------
* Includes American Depositary Shares representing underlying Ordinary Shares.
10. Reconciliation of net cash inflow from operating activities to free cash
flow
Year to Six months to
31 August Six months to 28 February
2003 29 February 2003
(Restated) 2004 (Restated)
GBPm GBPm GBPm
-----------------------------------------------------------------------------------------------------------------
748 Net cash inflow from operating activities 244 342
(123) Capital expenditure net of sale of tangible assets (25) (53)
13 Dividends received from associated undertakings 9 7
-----------------------------------------------------------------------------------------------------------------
638 Operating cash net of fixed assets 228 296
(65) Taxation paid (44) (21)
(127) Net interest paid (50) (55)
(144) Dividends paid - Ordinary Shareholders (93) (87)
(21) - minorities (3) (19)
------------------------------------------------------------------------------------------------------------------
281 * Free cash flow 38 * 114 *
------------------------------------------------------------------------------------------------------------------
* Free cash flow above includes the post tax benefit of the Mexican excise
rebate which for the six months to 29 February 2004 is nil (2003: GBP23m).
11. Net debt
Other
Cash at borrowings Other loans Loan capital Six months to
bank and due within due within due after 29 February 28 February
in hand one year one year one year 2004 2003
GBPm GBPm GBPm GBPm GBPm GBPm
At the beginning of the period 175 (770) (2) (1,815) (2,412) (2,578)
(Decrease)/increase in cash (42) 62 - - 20 86
Increase/(decrease) in liquid resources 22 - - - 22 (27)
Decrease in loan capital and other loans - - 2 1 3 18
Exchange adjustments (15) 109 - 157 251 (64)
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At the end of the period 140 (599) - (1,657) (2,116) (2,565)
-----------------------------------------------------------------------------------------------------------------------
12. Financial calendar
Ex dividend date for interim dividend 30 June 2004
Record date for interim dividend 2 July 2004
Interim dividend payable - Ordinary Shares 30 July 2004
Interim dividend payable - American Depositary Shares 6 August 2004
Final results announced 21 October 2004
Report and Accounts issued November 2004
Independent review report by KPMG Audit Plc to Allied Domecq PLC
Introduction
We have been engaged by the Company to review the financial information set out
on pages 18 to 25 for the six months ended 29 February 2004 and we have read the
other information contained in the Interim Report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the Company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company for
our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The Interim Report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the Interim Report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual accounts except where they are to be changed in the next annual
accounts in which case any changes, and the reasons for them, are to be
disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/
4: Review of interim financial information issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 29 February 2004.
KPMG Audit Plc
Chartered Accountants
London
21 April 2004
US GAAP reconciliation
The following statements provide a reconciliation between profit earned for
Ordinary Shareholders under UK GAAP and net income under US GAAP and a
reconciliation between shareholders' equity under UK GAAP and shareholders'
equity under US GAAP.
Year to Six months to
31 August Six months to 28 February
2003 29 February 2003
(Restated) 2004 (Restated)
GBPm GBPm GBPm
-------------------------------------------------------------------------------------------------------------
337 Profit earned for Ordinary Shareholders in accordance with UK GAAP 167 184
Adjustments to conform with US GAAP:
- Brands - -
42 Goodwill 21 21
(3) Other intangible assets (1) (2)
(22) Stock (7) (11)
(7) Restructuring costs (1) (7)
24 Pension costs and other post retirement benefits (5) 14
5 Share compensation (12) 8
(61) Derivative instruments 264 (27)
(40) Mexican excise rebate - (30)
(10) Franchise income (4) (4)
(3) Other 1 (2)
18 Deferred taxation (66) 15
- Minority share of above adjustments - -
------------------------------------------------------------------------------------------------------------
280 Net income in accordance with US GAAP 357 159
-------------------------------------------------------------------------------------------------------------
Earnings per Ordinary Share:
26.0p Basic 33.2p 14.8p
26.0p Diluted 33.1p 14.8p
-------------------------------------------------------------------------------------------------------------
Year to Six months to
31 August Six months to 28 February
2003 29 February 2003
(Restated) 2004 (Restated)
GBPm GBPm GBPm
-------------------------------------------------------------------------------------------------------------
237 Shareholders' funds as reported in the Group balance sheet 443 17
Adjustments to conform with US GAAP:
1,408 Brands 1,397 1,408
227 Goodwill 241 206
21 Other intangible assets 16 22
57 Associated undertakings 57 57
23 Stock 16 34
1 Restructuring costs - 1
185 Pension and other post retirement benefits 161 204
6 Share compensation (6) 9
93 Proposed dividends 63 57
(18) Derivative instruments 8 (3)
- Mexican excise rebate - 10
(42) Liabilities (37) (42)
(19) Franchise income (20) (13)
8 Other 10 10
(530) Deferred taxation (516) (530)
- Minority share of above adjustments - -
-------------------------------------------------------------------------------------------------------------
1,657 Shareholders' equity in accordance with US GAAP 1,833 1,447
-------------------------------------------------------------------------------------------------------------
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.
22 April, 2004
ALLIED DOMECQ PLC
By: /s/ Charles Brown
---------------------------
--------------------------
Name: Charles Brown
Title: Director of Secretariat & Deputy
Company Secretary