Final Results

Compass Group PLC 02 December 2003 COMPASS GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2003 2003 was an excellent year for Compass Group despite difficult economic conditions in many countries in which the Group operates. The Group achieved strong like for like turnover and profit growth and another year of significant increase in free cash flow generation. The Group is well placed to continue its organic growth and to deliver improved return on capital employed. The Group reported turnover of £11,286 million (2002 : £10,617 million), profit before tax of £358 million (2002 : £382 million), basic earnings per share of 8.3 pence (2002 : 10.0 pence) and free cash flow of £415 million (2002 : £368 million). During the year, the Group disposed of its Little Chef and Travelodge businesses which have accordingly been presented as discontinued activities. Excluding these discontinued activities, goodwill amortisation and exceptional items, the financial highlights from continuing activities are set out below. • Turnover of £11.2 billion, up 9%; 6% on a like for like basis. • Total operating profit of £781 million, up 11% with a 30 basis points improvement in like for like margin. • Profit before tax of £654 million, up 12%. • Earnings per share up 13% to 20.6 pence; up 15% on an underlying constant currency basis. • Free cash flow improved to £405 million, up 20%. • Final dividend of 5.7 pence per share, 8.4 pence per share for the full year, up 18%. • Return on capital employed increased by 40 basis points. • Share buy back: £235 million of the £300 million already completed. • New contract gains of £1.3 billion per annum signed in the year, and contract retention continues to be strong at 95%. • Already secured 80% of net growth needed to achieve at least 6% like for like turnover growth in 2004. Sir Francis Mackay - Chairman - said: 'I am delighted with the results for the year which are reflected in the Group's capacity to increase its dividend payout. The global economic environment has remained challenging this year. Despite this, the geographic and sector diversity of the Group, together with our unique business model and outstanding management team, has and will continue to enable us to deliver value for shareholders. We have firmly established ourselves as the global market leader in an industry where outsourcing continues to grow and where the major international foodservice companies still manage less than 15% of all revenues.' Michael J Bailey - Chief Executive - said: 'These results represent an excellent performance in a difficult year. We have delivered on our targets for 2003 with 6% like for like turnover growth, a 30 basis points improvement in like for like margin and free cash flow up by 20%. I look forward with confidence to 2004 as the Group continues to focus on organic growth and delivering at least 6% like for like turnover growth, a further 20-30 basis points improvement in like for like margin, strong free cash flow and improving return on capital employed.' Enquiries: 2 December 2003 Compass Group PLC 020 7404 5959 (thereafter 01932 573000) Michael J Bailey Chief Executive Andrew Lynch Finance Director Sarah Ellis Director of Investor Relations Brunswick Group Ltd 020 7404 5959 Timothy Grey/Pam Small Website www.compass-group.com Presentation and teleconference details are in the attached notes. TRADING REPORT 2003 was a challenging year. As the year progressed the macroeconomic backdrop continued to deteriorate in continental Europe, as the economies of France and Germany slowed further. The situation in France was further impacted by industrial action over the summer. However, with our geographic and sector diversity, the rapid and effective response of our management teams and our continued focus on client retention, we are pleased to report that we have delivered on our goals. Like for like turnover growth for the year was 6% and like for like margin growth was 30 basis points. Free cash flow from continuing activities improved by 20% to £405 million and return on capital employed from continuing activities rose by 40 basis points. Group Performance The Group reported turnover of £11,286 million (2002 : £10,617 million), profit before tax of £358 million (2002 : £382 million), basic earnings per share of 8.3 pence (2002 : 10.0 pence) and free cash flow of £415 million (2002 : £368 million). During the year, the Group disposed of its Little Chef and Travelodge businesses which have accordingly been presented as discontinued activities. Excluding these discontinued activities, goodwill amortisation and exceptional items, the statistics below demonstrate the successful financial performance in 2003 from continuing activities. 2003 2002 Increase Turnover £11,206m £10,249m 9% Total operating profit £781m £700m 11% Profit before tax £654m £585m 12% Basic earnings per share 20.6p 18.3p 13% Free cash flow £405m £337m 20% Return on capital employed 7.6% 7.2% 40bp Movements in the profit and loss account translation rates for the Group's principal currencies, against which the Group is economically protected, had a net adverse effect on the presentation of 2003's results. Restating 2002's results at 2003's average translation rates gives an underlying increase in basic earnings per share before goodwill amortisation and exceptional items of 15%. Turnover and total operating profit from continuing activities increased by 9% and 11% respectively, largely as a result of strong organic growth of 6% and 10% respectively. Movements in translation rates reduced the year on year growth in turnover by 4% and total operating profit by 3%. The initial contribution from 2003's acquisitions and the effect of a full year's benefit from 2002's acquisitions added 7% to turnover and 4% to total operating profit. Little Chef and Travelodge contributed £7 million to profit before tax in 2003 (2002 : £69 million). Profit before tax from continuing activities for 2003 was £654 million, giving a year on year increase of 12% compared to 2002 on the same basis. Free cash flow for 2003 includes £23 million absorbed by Little Chef and Travelodge up to their date of disposal (2002 full year generated £48 million) and benefits from an exceptional tax receipt of £33 million (2002 exceptional operating payments of £17 million). Excluding these items, free cash flow from continuing activities for 2003 was £405 million, a 20% increase over 2002 of £337 million. Return on capital employed on a reported basis decreased from 7.5% to 7.4%. Excluding the dilutive effect of the disposal of Little Chef and Travelodge, return on capital employed increased by 40 basis points to 7.6% as the Group continues to benefit from the organic growth in its businesses which require relatively little capital expenditure. Brands The Group's ability to develop and operate highly successful brands gives it a unique competitive advantage, both in securing new contracts with clients, and also in its ability to respond to the needs of an ever more demanding customer base. The Group has continued to develop its owned brands, which include Au Bon Pain, Upper Crust, Harry Ramsden's, amigo, Taste, Naples 45, Cucina & Co, and also to trade with third party brands including Burger King, Sbarro and Krispy Kreme doughnuts. Caffe Ritazza, the Group's coffee brand, is one of its most successful owned brands and is now trading in 30 countries. There is a broad range of Ritazza formats from full specification cafes to counter top units. Ritazza has been extremely well received within the travel concessions business, but is also increasingly demanded in the Business and Industry, Healthcare and Education sectors. There are now 3,350 Ritazza units in the Group's estate. Compass Group has continued the successful roll-out of Marks & Spencer Simply Food in the UK and now operates ten units in railway concourses and one pilot unit at Toddington motorway service area. Divisional Performance Constant Like Reported currency for like increase increase increase 2003 2002 % % % Turnover (£m) United Kingdom (continuing activities) 2,514 2,353 7 7 5 Continental Europe & rest of the world 4,634 3,751 24 18 6 North America 3,562 3,706 (4) 12 7 10,710 9,810 9 13 6 Fuel 496 439 13 13 6 Total - continuing activities 11,206 10,249 9 13 6 Discontinued activities (UK) 80 368 Total 11,286 10,617 Total operating profit (£m) United Kingdom (continuing activities) 360 316 14 14 13 Continental Europe & rest of the world 229 191 20 15 7 North America 177 181 (3) 14 10 766 688 11 14 11 Associates 15 12 25 33 - Total - continuing activities 781 700 11 14 10 Discontinued activities (UK) 16 105 Total 797 805 Operating margin (%) United Kingdom (continuing activities) 12.1 11.3 +80bp +80bp Continental Europe & rest of the world 4.9 5.1 -20bp +10bp North America 5.0 4.9 +10bp +10bp Total - continuing activities 6.8 6.7 +10bp +30bp Like for like growth is calculated by adjusting for acquisitions (excluding current year acquisitions and including a full year in respect of prior year acquisitions), disposals (excluded from both periods) and exchange rate movements and compares the results against 2002. Total operating profit is before goodwill amortisation and exceptional items of £276 million (2002 : £272 million). Fuel turnover comprises £466 million in the UK and £30 million in Continental Europe and the rest of the world (2002 : £439 million and £nil respectively). Operating margin is based on turnover including fuel. Like for like turnover growth was achieved as a result of new contract gains of 12% offset by contract losses of 5% and changes in throughput of negative 1%. Throughput represents the movement in turnover in the existing estate, influenced by headcount changes, participation rates and average spend per head. This strong performance was driven by new business across all sectors, with the continued trend to outsourcing in Healthcare and Education delivering a strong boost to this growth. In addition to this, the high level of military activity around the globe this year generated incremental turnover in Defence, Offshore and Remote Site. New contract gains recently awarded are attached (appendix 1) and a summary of 2003's previously announced contract gains and contracts retained is also attached (appendix 2). In addition to securing strong new business, the Group has remained focused on client retention, which remained strong at 95%. This was achieved as a result of continued investment in client account management. The current economic weakness across most countries and its consequential effect on employment levels resulted in negative throughput. However, throughput varies by sector with Education and Healthcare much less affected by the economic cycle, achieving positive throughput of 4% and 2% respectively in 2003. Business and Industry had negative throughput of 2% with Vending at negative 3%. In better economic times these latter two sectors would expect to achieve improved throughput performance. UK The UK grew its turnover on a like for like basis by 5% comprising Contract and Vending growth of 4% and Concessions growth of 6%. Contract and Vending benefited from excellent performances in the Defence, Offshore and Remote Site sector together with Education where there remains good potential from local authority contracts. Total operating profit (excluding associates) on continuing activities increased by 13% with the like for like operating margin increasing by 80 basis points. Margins within the UK business continue to benefit from the on-going Granada merger synergies. Continental Europe & rest of the world Achieving overall like for like turnover growth of 6% in Continental Europe and the rest of the world was particularly pleasing given the weakness in the French and German economies compounded by strikes in France in the second half of the financial year. The resultant weaker growth rates in France and Germany were offset by very strong growth in Spain and Portugal, together with an excellent performance in the Defence, Offshore and Remote Site sector. In Contract and Vending, like for like turnover grew by 7%, with Concessions adding 1%. Concessions turnover grew by 4% excluding Japan where the management team terminated loss making contracts during the year. Total operating profit (excluding associates) increased by 7% on a like for like basis. In Italy, the integration of Onama has progressed well and a steady flow of new contract gains is being seen. Furthermore, Onama strengthened its infrastructure which will enable it to increase the pace of new business wins and extract cost savings. Japan made significant progress this year, the primary focus being the elimination of loss making retail contracts. The Group is now seeing the first benefits from its investment in the sales and purchasing function. The combination of strong top line growth in contract foodservice together with purchasing synergies will deliver significant improvement in profit and margins. North America North America achieved a 7% like for like increase in turnover as a result of strong like for like turnover growth in Education and Healthcare of 12% and 10% respectively, with Business and Industry growing by 8% and Vending flat. Overall, Contract and Vending grew by 8% and Concessions by 7%. Against a difficult economic backdrop, the very good performance in Business and Industry was achieved by the powerful combination of a highly effective sector focused sales force and a relentless focus on client retention. In addition, the Group is seeing an increasing trend towards international contracts often including vending. Similarly, in Education and Healthcare, the Group has capitalised on the increasing trend to outsourcing. The Concessions business also had a very good year, driven by new business wins, particularly in the Sport and Events sector. Total operating profit (excluding associates) increased by 10% on a like for like basis. The division has invested in replicating the UK purchasing and supply chain model and the benefits of this investment are beginning to accrue. Associates Associates contributed £15 million in 2003, principally from the Group's interest in Yoshinoya D&C in Japan. The Group reduced its interest in Yoshinoya D&C from 20.2% at the start of the year to 12.7% on 19 August 2003. This disposal generated proceeds of £57 million. Profit before taxation Profit before taxation, goodwill amortisation and exceptional items increased by 1% from £654 million to £661 million. Little Chef and Travelodge contributed £16 million to total operating profit (2002 : £105 million) and interest attributable to these businesses, based on the proceeds received at the Group's average interest rate, was £9 million (2002 : £36 million). Accordingly, these discontinued activities contributed £7 million to profit before tax in 2003 (2002 : £69 million). Adjusting for this, profit before tax on continuing activities increased by 12% from £585 million to £654 million. Taxation The overall Group tax charge was £143 million comprising a £169 million charge relating to ordinary activities and a £26 million exceptional credit. The overall tax rate on ordinary activities was 25.6% of profit before goodwill amortisation and exceptional items. A tax reconciliation of the current rate for the year is included in note 4 to the attached financial information. This reconciliation summarises the reasons why the Group's current tax rate of 21%, excluding deferred tax, was below the UK corporate tax rate of 30%. The main reasons were the utilisation of tax losses brought forward, 6%; the tax deductibility of part of the Group's goodwill, 2%; tax credits, 2%; and capital allowances in excess of depreciation, 2%; offset by higher overseas tax rates, 3%. The exceptional tax credit of £26 million consists of a charge of £7 million arising on the disposal of the Little Chef and Travelodge businesses and a prior year credit of £33 million that relates to the recovery of tax not previously recognised in respect of acquired businesses where the hindsight period for adjustment to goodwill has passed. Goodwill amortisation and exceptional items The goodwill amortisation charge for the year was £276 million (2002: £257 million). The net exceptional item for the year was a loss of £1 million comprising the loss on disposal of Little Chef and Travelodge of £27 million, associated tax of £7 million and an exceptional tax receipt of £33 million. Earnings per share Basic earnings per share on a reported basis, after goodwill amortisation and exceptional items, was 8.3 pence (2002: 10.0 pence). Diluted earnings per share was 8.3 pence (2002 : 9.9 pence). Basic earnings per share before goodwill amortisation and exceptional items for the year was 20.8 pence (2002 : 20.5 pence). Underlying basic earnings per share, adjusting for discontinued activities and currency translation, is up by 15% year on year at 20.6 pence per share. Attributable profit and basic earnings per share are reconciled below. Attributable profit Basic earnings per share Growth 2003 2002 2003 2002 £m £m pence pence Reported 184 222 8.3 10.0 (17)% Goodwill amortisation 276 257 Exceptional items 1 (22) ______ _______ Before goodwill amortisation and 461 457 20.8 20.5 1% exceptional items Discontinued activities (5) (48) ______ _______ Continuing activities 456 409 20.6 18.3 13% Currency translation - (9) ______ _______ Underlying 456 400 20.6 17.9 15% ====== ====== Discontinued activities have been taxed at the UK rate of 30%. The effect of currency translation is calculated by applying 2003's translation rates to 2002's attributable profit. Dividends The recommended final dividend is 5.7 pence per share resulting in a total dividend for the year of 8.4 pence per share, an increase of 18%. This reflects the excellent performance in 2003 and the Group's confidence in its ability to continue to generate strong free cash flow. Dividend cover for 2003 was 2.5 times profit for the financial year before goodwill amortisation and exceptional items. The Group has also brought forward the timing of its dividend payments such that the final dividend will be paid in March (previously April) and the interim dividend paid in August (previously October). Acquisitions The Group's strategic focus during 2003 was on the organic development of its core foodservice and vending businesses complemented by acquisitions either to strengthen the Group's geographic coverage or to reinforce its segmental presence. The Group spent £175 million on new acquisitions in the 2003 financial year (including £87 million acquiring a 60% stake in Onama S.p.A. in Italy) and £45 million purchasing further shares in the Seiyo Foods group. In aggregate, the net assets acquired had a provisional fair value of £17 million, resulting in goodwill of £203 million. Details of the acquisitions are given in note 16 to the attached financial information. In addition to the purchase price in respect of 2003's acquisitions of £175 million, the businesses acquired had net debt of £40 million in their balance sheets at their respective dates of acquisition. £12 million of the aggregate purchase price is deferred consideration payable in the future. Disposals On 4 February 2003, the Group successfully completed the sale of Little Chef and Travelodge for a total consideration of £712 million. Net proceeds are being used to reduce borrowings and fund an on market share buy back programme of £300 million, which began on 4 February 2003. As of 30 September 2003, the Group had purchased 71,366,000 shares for £233 million, of which £211 million was paid in the year. Pensions In total, the Group charged £60 million to profit before tax in respect of its pension arrangements, of which £43 million (2002 : £40 million) relates to defined benefit schemes and £17 million (2002 : £10 million) relates to defined contribution schemes. Actuaries to the Group's defined benefit pension arrangements advise the Pension Trustees on the funding rates required by the Group. In total, the Group paid £64 million (2002 : £51 million) during the year to the pension providers in order to enable the pension funds to fulfil their obligations. Disclosure in accordance with FRS 17 (Retirement Benefits) in respect of defined benefit schemes is provided in note 17 to the attached financial information. This shows that, at 30 September 2003, there was an unprovided pension deficit, net of deferred tax, of £79 million (2002: £50 million). Had the Group adopted FRS 17, the charge to the profit and loss account, before tax, would have been £52 million, net of a one-off curtailment credit of £3 million (2002: £34 million, net of £9 million). Cash flow The Group has built on the strong free cash flow performance achieved in 2002 notwithstanding the loss of some £48 million of free cash flow generated by Little Chef and Travelodge. Free cash flow generation for the year increased to £415 million (2002 : £368 million). Adjusting for cash flows in respect of discontinued activities and exceptional items, as set out below, free cash flow from continuing activities for the year increased by 20% from £337 million to £405 million. 2003 2002 Increase Free cash flow £m £m Reported 415 368 13% Discontinued activities 23 (48) Exceptional items (33) 17 _______ ______ Continuing activities 405 337 20% ====== ====== Working capital from continuing activities absorbed £21 million (2002: £43 million) an improvement of £22 million. Working capital absorbed by Little Chef and Travelodge for the three months prior to their disposal was £17 million (2002 full year generated £15 million). Payments in respect of provisions for liabilities and charges absorbed £46 million (2002: £61 million), including £13 million on reducing liabilities in respect of insurance, pensions and other post employment benefits and £29 million settling onerous contracts. Interest payments absorbed a net £151 million compared with £161 million in 2002. Net tax payments absorbed £78 million (2002 : £42 million) before an exceptional tax receipt of £33 million. The net tax paid in 2003 of £78 million represents 12% of profit before tax, goodwill amortisation and exceptional items and is significantly less than the current tax charge for the year of £169 million. The main reasons for this difference are items allowable for tax but which are not charged to the profit and loss account, the fact that the Group continues to adopt a prudent policy on recognising tax planning benefits and the impact of timing differences in various jurisdictions. The Group anticipates that its current tax payments will increase to approximately 18% of profit before tax, goodwill amortisation and exceptional items in 2004. Net capital expenditure absorbed £312 million compared with £330 million in 2002 comprising £299 million on continuing activities and £13 million on discontinued activities. Including £11 million purchased under finance lease contracts, net capital expenditure on continuing activities represents 2.8% of continuing turnover. The Group has stringent controls on capital expenditure which are monitored centrally. There are fixed authority limits at each subsidiary company and internal rate of return criteria which each project must achieve to obtain approval. The majority of the capital expenditure is of a project nature and is therefore discretionary. Acquisition payments were £296 million, comprising £163 million of consideration paid and £10 million of overdrafts less cash acquired in respect of current year acquisitions (excluding £30 million of loans and finance lease obligations in the companies when acquired), £45 million purchasing further shares in the Seiyo Foods group and £78 million of deferred consideration paid, including £50 million in respect of Crothall in North America. In aggregate, deferred consideration payable at 30 September 2003 amounted to £44 million. Net proceeds from businesses held for resale generated £30 million in the year relating to the disposal of Forte Hotels in 2001. The sale of subsidiary companies and associated undertakings generated £720 million comprising £663 million on the disposal of Little Chef and Travelodge and £57 million on the reduction of the Group's interest in Yoshinoya D&C. The payment of dividends absorbed £159 million. The net cash inflow for the year was £710 million, before the sale of marketable securities for £3 million, £12 million of proceeds on the issue of ordinary shares, paying £211 million for shares repurchased, £30 million of debt acquired with subsidiaries, £11 million of new finance leases and a translation loss on net debt for the year of £79 million, principally as a result of the Euro moving from 1.59 to 1.43 over the year. Net debt as at 30 September 2003 was £2,308 million (2002 : £2,702 million). Return on capital employed The return on continuing activities achieved in 2003, on the average capital employed for 2003, was 7.6% after tax at the Group's effective tax rate of 25.6%, an increase of 40 basis points compared with 2002 calculated on a similar basis. The return is calculated using the Group's total operating profit from continuing activities, excluding goodwill amortisation and exceptional items. The capital employed in the business as at 30 September 2003 and 2002 is detailed in the table below. 2003 2002 £m £m Net assets 2,579 2,831 Net debt 2,308 2,702 Goodwill written off to reserves 2,132 2,132 Goodwill amortised through the profit and loss account 760 497 Discontinued activities - (674) ________ ________ Capital employed 7,779 7,488 ======= ======= Outlook The rate of new business wins continues to be strong and 80% of the additional turnover needed in 2004 to deliver at least 6% like for like turnover growth has already been secured. Furthermore, the pipeline remains very encouraging. The Group will continue to benefit from its investment to develop the infrastructure needed to extract cost savings from its businesses outside the UK. This, together with margin improvement in our newly acquired businesses, gives the Group confidence that it is on track to deliver a 20-30 basis points improvement in the like for like margin in 2004. The acquisition of Onama in December 2002 completed the Group's strategy to achieve a market leading position in the major economies around the world. Whilst the Group will continue to make small infill acquisitions, it is clearly focused on driving organic growth. This strategy is expected to continue to deliver substantial free cash flow growth and an increasing return on capital employed. Michael J Bailey Sir Francis H Mackay Chief Executive Chairman NOTES (a) The results for the year ended 30 September 2003 were approved by the Directors on 2 December 2003 and have been prepared on the basis disclosed in the 2002 Annual Report. The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 30 September 2003 or 30 September 2002 but is derived from those accounts. The auditors have reported on these accounts; their reports were unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The 2003 accounts will be delivered to the Registrar of Companies following the Company's Annual General Meeting. (b) The timetable for the proposed final dividend of 5.7p per share is as follows: Ex dividend date: 18 February 2004 Record date: 20 February 2004 Payment date: 15 March 2004 (c) Presentation and Teleconference • A presentation to investors and analysts will take place at 9.00am GMT on Tuesday 2nd December 2003 at: The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED. Those not able to attend in person can listen to the live presentation via telephone or internet webcast, starting at 9.00am GMT on Tuesday 2nd December 2003. To listen by telephone dial: +44 (0) 1452 561263 To access the webcast and presentation slides, use the following link: http://invite.Mshow.com/signon.asp?Cobrand=100&usertype=0&ShowNum=140506 Please note that remote participants will not be able to ask questions during the Q&A session. • A teleconference replay of the presentation will be available for 7 days after the event. To listen to the replay dial: +44 (0) 1452 550 000; PIN code 707235# • A teleconference replay of the presentation and Q&A session for North American-based investors and analysts will take place at 17:15 GMT / 12:15 New York time on Tuesday 2nd December 2003. To participate in the teleconference dial: +44 (0) 1452 561263 Synchronised slides can be accessed on the internet at: http://invite.Mshow.com/signon.asp?Cobrand=100&usertype=0&ShowNum=140506 • An interview with Michael J Bailey, Chief Executive, and Andrew Lynch, Finance Director in video/audio and text are available at http:// www.compass-group.com and http://www.cantos.com Enquiries: 2 December 2003 Compass Group PLC 020 7404 5959 (thereafter 01932 573000) Michael J Bailey Chief Executive Andrew Lynch Finance Director Sarah Ellis Director of Investor Relations Brunswick Group Ltd 020 7404 5959 Timothy Grey/Pam Small Compass Group is the world's largest foodservice company with annual revenues in excess of £11bn. Compass Group has over 400,000 employees working in more than 90 countries around the world. For more information, visit www.compass-group.com. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 September 2003 Before Before goodwill Goodwill goodwill Goodwill amortisation amortisation amortisation amortisation and and and and exceptional exceptional Total exceptional exceptional Total items items 2003 items items 2002 Notes £m £m £m £m £m £m ___________ ___________ _________ ___________ ___________ _________ Turnover Continuing operations 10,926 - 10,926 10,249 - 10,249 Acquisitions 280 - 280 - - - __________ ___________ ________ __________ ___________ ________ 11,206 - 11,206 10,249 - 10,249 Discontinued activities 80 - 80 368 - 368 __________ ___________ ________ __________ ___________ ________ Total turnover 1 11,286 - 11,286 10,617 10,617 Operating costs (10,504) (276) (10,780) (9,824) (272) (10,096) ___________ ___________ _________ ___________ ___________ _________ Operating profit Continuing operations 758 (269) 489 688 (272) 416 Acquisitions 8 (7) 1 - - - __________ ___________ ________ __________ ___________ ________ 766 (276) 490 688 (272) 416 Discontinued activities 16 - 16 105 - 105 __________ ___________ ________ __________ ___________ ________ 782 (276) 506 793 (272) 521 Share of profits of associated undertakings Continuing operations 1 15 - 15 12 - 12 __________ ___________ ________ __________ ___________ ________ Total operating profit: Group 1 797 (276) 521 805 (272) 533 and share of associated undertakings __________ ___________ ________ __________ ___________ ________ Loss on disposal of 2 - (27) (27) - - - businesses - discontinued activities __________ ___________ ________ __________ ___________ ________ Interest receivable and 16 - 16 18 - 18 similar income Interest payable and similar 3 (152) - (152) (169) - (169) charges ___________ ___________ _________ ___________ ___________ _________ Net interest (136) - (136) (151) - (151) ___________ ___________ _________ ___________ ___________ _________ Profit on ordinary activities 661 (303) 358 654 (272) 382 before taxation Tax on profit on ordinary 4 (169) 26 (143) (175) 37 (138) activities ___________ __________ _________ ___________ __________ _________ Profit on ordinary activities 492 (277) 215 479 (235) 244 after taxation Equity minority interests (31) - (31) (22) - (22) ___________ ___________ _________ ___________ ___________ _________ Profit for the financial year 461 (277) 184 457 (235) 222 Equity dividends 5 (183) - (183) (159) - (159) ___________ ___________ _________ ___________ ___________ _________ Profit for the year retained 15 278 (277) 1 298 (235) 63 ___________ ___________ _________ ___________ ___________ _________ Basic earnings per ordinary share 6 8.3p 10.0p ======= ======= Basic earnings per ordinary share - excluding goodwill amortisation and exceptional items 6 20.8p 20.5p ========= ========= Diluted earnings per ordinary 6 share 8.3p 9.9p ======== ======== Diluted earnings per ordinary share - excluding goodwill amortisation and exceptional items 6 20.7p 20.3p ========= ========= CONSOLIDATED BALANCE SHEET As at 30 September 2003 Notes 2003 2002 £m £m Fixed assets Intangible assets 7 4,436 4,522 Tangible assets 8 1,734 2,369 Investments 9 73 101 _________ _________ 6,243 6,992 _________ _________ Current assets Stocks 229 196 Debtors: amounts falling due within one year 10 1,530 1,258 amounts falling due after more than one year 10 309 293 Businesses held for resale 11 - 35 Investments - 3 Cash at bank and in hand 303 406 _________ _________ 2,371 2,191 Creditors: amounts falling due within one year 12 (3,093) (3,870) __________ __________ Net current liabilities (722) (1,679) __________ __________ Total assets less current liabilities 5,521 5,313 Creditors: amounts falling due after more than one year 13 (2,457) (1,954) Provisions for liabilities and charges 14 (429) (431) Equity minority interests (56) (97) __________ __________ Net assets 2,579 2,831 ======== ======== Capital and reserves Called up share capital 217 223 Shares to be issued - 5 Share premium account 15 84 68 Capital redemption reserve 15 7 - Merger reserve 15 4,170 4,170 Profit and loss account 15 (1,899) (1,635) __________ __________ Total equity shareholders' funds 2,579 2,831 ======== ======== CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 September 2003 2003 2002 £m £m £m £m Net cash inflow from operating activities before 933 925 exceptional items (note I) Exceptional reorganisation costs - (17) __________ ___________ Net cash inflow after exceptional items 933 908 Dividends from associated undertakings 5 2 Returns on investments and servicing of finance Interest received 15 17 Interest paid (163) (175) Interest element of finance lease rental payments (3) (3) Dividends paid to minority interests (15) (10) ___________ ___________ Net cash outflow from returns on investments and (166) (171) servicing of finance Taxation Tax received 41 31 Tax paid (86) (73) ___________ ___________ Net tax paid (45) (42) Capital expenditure and financial investment Purchase of tangible fixed assets (376) (384) Sale of tangible fixed assets 64 54 Sale of own shares, net - 1 __________ __________ Total capital expenditure and financial investment (312) (329) ___________ ___________ Free cash flow 415 368 __________ __________ Acquisitions and disposals (note IV) Purchase of subsidiary companies (296) (406) Net proceeds from businesses held for resale 30 22 Sale of minority interest - 7 Sale of subsidiary companies and associated undertakings 720 31 __________ __________ Total acquisitions and disposals 454 (346) Equity dividends paid (159) (126) ___________ ___________ Net cash inflow/(outflow) from investing activities 295 (472) __________ ___________ Net cash inflow/(outflow) before financing 710 (104) Management of liquid resources: Sale of marketable 3 62 securities Financing Issue of ordinary share capital 12 5 Repurchase of share capital (211) - Debt due within one year: Decrease in bank loans and loan notes (218) (505) Debt due after one year: (Decrease)/increase in bank loans and loan notes (464) 289 Capital element of finance lease rentals (16) (14) ___________ ___________ Net cash outflow from financing (897) (225) ___________ ___________ Decrease in cash in the year (184) (267) ========= ========= Reconciliation of net cash flow to movement in net debt (note II) Decrease in cash in the year (184) (267) Cash outflow from change in debt and lease finance 698 230 __________ __________ Change in net debt resulting from cash flows 514 (37) Changes in finance leases and loans acquired with (41) (281) subsidiaries Effect of foreign exchange rate changes (79) 6 ___________ __________ Movement in net debt in the year 394 (312) Opening net debt (2,702) (2,390) ___________ ___________ Closing net debt (2,308) (2,702) ========= ========= NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 September 2003 I Reconciliation of operating profit to net cash inflow from operating activities: 2003 2002 £m £m Operating profit before goodwill amortisation and exceptional items 797 805 Depreciation 243 230 __________ __________ EBITDA 1,040 1,035 Profit on disposal of fixed assets and businesses (8) (9) Share of profits of associated undertakings (15) (12) Expenditure in respect of provisions for liabilities and charges (46) (61) Increase in stocks (33) (4) Increase in debtors (64) (98) Increase in creditors 59 74 __________ __________ Net cash inflow from operating activities before exceptional items 933 925 ========= ========= II Analysis of net debt: Acquisitions (excluding 1 October Exchange cash and non-cash 30 September 2002 Cash flow movements overdrafts) changes 2003 £m £m £m £m £m £m Cash at bank and in hand 406 (118) 15 - - 303 Overdrafts (29) (66) (3) - - (98) _______ _________ ___________ ___________ ________ ____________ 377 (184) 12 - - 205 _______ _________ ___________ ___________ ________ ___________ Debt due within one year (1,217) 218 - (18) 906 (111) Debt due after one year (1,804) 464 (90) - (906) (2,336) Finance leases (58) 16 (1) (12) (11) (66) _______ _________ ___________ ____________ _________ ____________ (3,079) 698 (91) (30) (11) (2,513) _______ _________ ___________ ____________ _________ ____________ Total (2,702) 514 (79) (30) (11) (2,308) ====== ======== ========== ========== ======= ========== NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued) For the year ended 30 September 2003 III Purchase and disposal of subsidiary companies and investments in associated undertakings: 2003 2003 2002 £m £m £m Purchases Disposals Purchases Net assets acquired/(disposed of): Tangible fixed assets 32 (773) 88 Fixed asset investments - (38) 85 Businesses held for resale - - 28 Stocks 1 (4) 17 Debtors 119 (8) 165 Current asset investments - - 43 Cash 19 (1) 147 Bank overdrafts (29) - (4) Loans (18) - (258) Leases (12) - (9) Creditors (130) 21 (213) Provisions (45) - (67) Tax 29 63 27 Minority interests 60 - (46) _________ _______ ________ 26 (740) 3 Loss on disposal - 29 - Goodwill acquired/(disposed of) 195 (14) 610 _________ _______ ________ 221 (725) 613 ======== ======= ======= Satisfied by: Cash consideration payable/(receivable) 208 (721) 538 Shares - - 7 Deferred consideration receivable - (8) - Deferred consideration payable 13 4 68 _________ _______ ________ 221 (725) 613 ======== ======= ======= IV Analysis of net flow of cash in respect of the purchase and disposal of subsidiary companies and investments in associated undertakings: 2003 2003 2002 £m £m £m Purchases Disposals Purchases Cash consideration paid/(received net of liabilities settled) 208 (721) 538 Cash (acquired)/disposed of (19) 1 (147) Overdrafts acquired 29 - 4 ________ _______ _______ 218 (720) 395 Deferred consideration and costs relating to previous acquisitions 78 - 11 ________ ________ _______ 296 (720) 406 ======= ======= ====== NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2003 1. Turnover and operating profit Continuing operations Acquisitions Discontinued activities 2003 2002 £m £m £m £m £m Turnover Foodservice: Geographical analysis: - United Kingdom Continuing 2,966 14 - 2,980 2,792 Discontinued - - 80 80 368 _________ _________ __________ _____ ______ 2,966 14 80 3,060 3,160 - Continental Europe & 4,402 262 - 4,664 3,751 rest of the world - North America 3,558 4 - 3,562 3,706 _________ _________ __________ _____ ______ 10,926 280 80 11,286 10,617 ======== ======== ========= ===== ===== Operating profit Before goodwill amortisation and exceptional items Foodservice: - The Company and its subsidiary undertakings Continuing 758 8 - 766 688 Discontinued - - 16 16 105 - Associated undertakings 15 - - 15 12 _________ _________ __________ _____ ______ 773 8 16 797 805 ======= ======= ========= ===== ===== Geographical analysis: - United Kingdom The Company and its subsidiary undertakings Continuing 359 1 - 360 316 Discontinued - - 16 16 105 Associated undertakings 2 - - 2 1 - Continental Europe & rest of the world The Company and its 222 7 - 229 191 subsidiary undertakings Associated undertakings 12 - - 12 11 - North America The Company and its 177 - - 177 181 subsidiary undertakings Associated undertakings 1 - - 1 - _________ _________ __________ _____ ______ 773 8 16 797 805 _________ _________ __________ _____ ______ Amortisation of goodwill - continuing operations - United Kingdom (154) (1) - (155) (164) - Continental Europe & (64) (6) - (70) (39) rest of the world - North America (51) - - (51) (54) _________ _________ __________ _____ ______ (269) (7) - (276) (257) _________ _________ __________ _____ ______ Exceptional items - continuing operations - United Kingdom - - - - (12) - Continental Europe & rest - - - - (2) of the world - North America - - - - (1) _________ _________ __________ ______ _______ - - - - (15) _________ _________ __________ ______ _______ (269) (7) - (276) (272) _________ _________ __________ ______ _______ Total operating profit: Group 504 1 16 521 533 and share of associated undertakings ======= ======= ========= ===== ===== Total operating profit after goodwill amortisation and exceptional items for the year ended 30 September 2003 relates to foodservice analysed as UK £223 million, Continental Europe & rest of the world £171 million and North America £127 million (2002: £246 million, £161 million and £126 million respectively). NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 2. Exceptional items 2003 2002 £m £m Charged to operating profit - continuing activities Reorganisation costs - 5 Employee share schemes - 10 __________ __________ - 15 ========== ========== Loss on disposal of discontinued activities - Little Chef and Travelodge 27 - ========== ========== Little Chef and Travelodge were disposed of on 4 February 2003 for a total consideration of £712 million. The completion accounts for this transaction are in the process of finalisation. 3. Interest payable and similar charges 2003 2002 £m £m Bank loans and overdrafts 41 105 Other loans 111 64 __________ __________ 152 169 ========== ========== 4. Tax on profit on ordinary activities 2003 2002 £m £m UK corporation tax at 30% (2002: 30%) 41 45 Overseas tax payable 89 66 Overseas tax on share of profits of associated undertakings 6 5 _________ _________ Current tax charge on profit before goodwill, amortisation and exceptional items 136 116 UK deferred tax 11 51 Impact of discounting UK deferred tax 5 (9) Overseas deferred tax 54 37 Impact of discounting overseas deferred tax (12) (14) _________ _________ 194 181 Adjustments in respect of prior years: UK corporation tax (13) (60) Overseas tax payable (12) 2 UK deferred tax (16) 29 Overseas deferred tax 16 23 _________ _________ (25) (6) _________ _________ Total tax charge before exceptional items 169 175 _________ _________ Exceptional items: UK corporation tax 4 (5) Overseas tax payable 3 - Prior year UK corporation tax (33) (32) _________ _________ Total exceptional tax credit (26) (37) _________ _________ Tax on profit on ordinary activities after exceptional items 143 138 ========= ======== The 2003 exceptional UK corporation tax charge and the 2003 overseas tax charge relate to the disposal of the Little Chef and Travelodge businesses. The 2003 prior year exceptional UK corporation tax credit relates to the recovery of tax not previously recognised in respect of acquired businesses where the hindsight period for adjustments to goodwill has passed. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 4. Tax on profit on ordinary activities (continued) Factors affecting the future tax charge The main factors affecting the future tax charge are expected to include overseas tax rates, permanent differences and the reversal of unprovided deferred tax assets. 2003 2002 % % Reconciliation of the UK statutory tax rate to the effective current tax rate Tax charge on profit on ordinary activities before goodwill amortisation and exceptional items at the UK statutory rate of 30% 30 30 Increase/(decrease) resulting from: Permanent items 2 (2) Amortisation of goodwill (2) (2) Overseas taxes at higher rates 3 1 Losses bought forward (6) (6) Tax credits (2) (1) Capital allowances for the period in excess of depreciation charged (2) (2) Other timing differences (2) - _________ _________ Current tax charge on profit before goodwill amortisation and exceptional items 21 18 ========= ========= 5. Dividends Per 2003 Per 2002 share £m share £m Dividends on ordinary shares of 10p each: Interim 2.7p 60 2.1p 47 Proposed final 5.7p 123 5.0p 112 __________ __________ __________ __________ 8.4p 183 7.1p 159 ========== ========== =========== ========== NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 6. Earnings per share Before Including Before Including goodwill goodwill goodwill goodwill amortisation amortisation amortisation amortisation and and and and exceptional exceptional exceptional exceptional items items items items 2003 2003 2002 2002 £m £m £m £m Attributable profit for basic and diluted 461 184 457 222 earnings per share ======== ========= ========= ========== Millions Millions Millions Millions Average number of shares in issue 2,218 2,218 2,227 2,227 Shares to be issued - - 1 1 _________ __________ __________ ___________ Average number of shares for basic earnings 2,218 2,218 2,228 2,228 per share Dilutive share options 5 5 20 20 _________ __________ __________ ___________ Average number of shares for diluted 2,223 2,223 2,248 2,248 earnings per share _________ __________ __________ ___________ Basic earnings per share 20.8p 8.3p 20.5p 10.0p ========= ========= ========== =========== Diluted earnings per share 20.7p 8.3p 20.3p 9.9p ========= ========= ========== =========== Earnings per share excluding goodwill amortisation and exceptional items has been shown to disclose the impact of these on underlying earnings. 7. Intangible fixed assets Goodwill £m Cost At 1 October 2002 5,008 Additions arising from acquisitions 195 Disposal (15) Currency adjustment 8 _________ At 30 September 2003 5,196 _________ Amortisation At 1 October 2002 486 Charge for the year 276 Disposal (1) Currency adjustment (1) _________ At 30 September 2003 760 _________ Net book amount At 30 September 2003 4,436 ======== At 30 September 2002 4,522 ======== Additions to goodwill arising from acquisitions primarily relates to the acquisition of Onama in Italy. Further information on these acquisitions can be found in note 16. Goodwill on acquisitions is being amortised over periods of up to 20 years which are considered to be the estimated useful lives. The disposal relates to the goodwill attaching to 9.8% of Yoshinoya D&C held by Seiyo Foods disposed of on 19 August 2003. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 8. Tangible fixed assets Freehold Long Short Plant Fixtures land and leasehold leasehold and and buildings property property machinery fittings Total £m £m £m £m £m £m Cost At 1 October 2002 862 276 386 1,246 735 3,505 Currency adjustment 9 1 - 13 31 54 Additions 24 6 14 228 115 387 Businesses acquired 19 - 2 33 13 67 Disposals (17) (1) (37) (60) (75) (190) Businesses disposed of (411) (224) (38) (14) (158) (845) ________ ________ ________ ________ ________ ________ At 30 September 2003 486 58 327 1,446 661 2,978 ________ _______ ________ _______ _______ _______ Depreciation At 1 October 2002 78 10 61 660 327 1,136 Currency adjustment 4 - - 9 16 29 Charge for the year 13 2 12 148 68 243 Businesses acquired 11 - 3 16 5 35 Disposals (16) - (10) (64) (37) (127) Businesses disposed of (5) (8) (12) (6) (41) (72) ________ _______ _______ _______ _______ _______ At 30 September 2003 85 4 54 763 338 1,244 ________ _______ _______ _______ _______ _______ Net book amount At 30 September 2003 401 54 273 683 323 1,734 ======== ======= ======= ======= ======= ======= At 30 September 2002 784 266 325 586 408 2,369 ======== ======= ======= ======= ======= ======= The net book amount of the Group's tangible fixed assets includes, in respect of assets held under finance leases, freehold buildings and long and short leasehold property £11 million (2002: £12 million), plant and machinery £38 million (2002: £41 million) and fixtures and fittings £4 million (2002: £4 million). 9. Investments held as fixed assets Investment in associated undertakings £m Cost At 1 October 2002 101 Disposals (38) Share of retained profits less losses 9 Dividends received (5) Currency adjustments/other movements 6 _________ At 30 September 2003 73 ========= Investment in associated undertakings at 30 September 2003 includes £48 million being the Group's share of the net tangible assets of Yoshinoya D&C. During the year the Group disposed of 9.8% of Yoshinoya leaving a remaining investment of 12.7%. Following this disposal the Group retains the same level of influence over Yoshinoya, and therefore continues to equity account for this investment. Yoshinoya is incorporated in Japan, draws up its financial statements at the end of February each year and its main business is retail catering. The market value of the investment at 30 September 2003 was Y 13 billion (£68 million). NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 10. Debtors 2003 2002 £m £m Amounts falling due within one year Trade debtors 1,112 936 Amounts owed by associated undertakings 4 2 Overseas tax recoverable 15 12 Other debtors 184 107 Prepayments and accrued income 215 201 __________ __________ 1,530 1,258 ========== ========== Amounts falling due after more than one year Other debtors 177 208 Deferred tax 132 85 __________ __________ 309 293 ========== ========== 2003 2002 £m £m Deferred tax analysis UK capital allowances in excess of depreciation (8) (101) UK short term timing differences 100 96 Overseas deferred tax (26) 5 Discount on timing differences 66 85 __________ _________ 132 85 ========== ========= Overseas deferred tax and the discount on timing differences include an amount attributable to goodwill in the U.S.A. The effect of this was not analysed separately in 2002 and the comparatives have therefore been restated. Deferred tax does not include any potential tax liabilities which might arise in the event of the distribution of unappropriated profits or reserves of overseas subsidiary companies as there is no intention to distribute such profits or reserves. Deferred tax assets of £147 million (2002: £160 million) have not been recognised as recovery is likely to be after more than one year. £m The movements on deferred tax are as follows: At 1 October 2002 85 Arising from acquisitions 30 Arising from disposals 70 Charged to profit and loss account (58) Other movements 5 _______________ At 30 September 2003 132 =============== NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 11. Businesses held for resale 2003 £m At 1 October 2002 35 Reclassified from creditors (5) Net proceeds received (30) _______________ At 30 September 2003 - =============== 12. Creditors - amounts falling due within one year 2003 2002 £m £m Bonds 94 129 Loan notes 12 72 Bank loans 5 1,016 Bank overdrafts 98 29 Obligations under finance leases 19 14 Trade creditors 1,060 845 Amounts owed to associated undertakings 4 4 Corporation tax payable 146 138 Overseas tax 188 163 Other tax and social security costs 208 211 Other creditors 241 200 Deferred consideration 25 79 Accruals and deferred income 810 811 Proposed dividend 183 159 _________ _________ 3,093 3,870 ========= ========= NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 13. Creditors - amounts falling due after more than one year 2003 2002 £m £m Bonds 1,102 1,143 Loan notes 591 611 Bank loans 643 50 Obligations under finance leases 47 44 Other creditors 55 68 Deferred consideration 19 38 _________ _________ 2,457 1,954 ========= ========= All amounts due under bonds, loan notes and bank facilities are shown net of unamortised issue costs. Bonds are unsecured and consist of the following: Euro Eurobond with nominal value €600 million redeemable in 2009 and bearing interest at 6.0% per annum. Sterling Eurobond with nominal value £200 million redeemable in 2010 and bearing interest at 7.125% per annum. Sterling Eurobond with nominal value £200 million redeemable in 2012 and bearing interest at 6.375% per annum. Sterling Eurobond with nominal value £250 million redeemable in 2014 and bearing interest at 7.0% per annum. The bond redeemable in 2014 is recorded at its fair value to the Group on acquisition. The Group has fixed term, fixed interest private placements totalling US$949 million (£571 million) at interest rates between 6.0% and 8.015%. US$750 million (£452 million) is repayable in five to ten years. Maturity of financial liabilities and other creditors falling due after more than one year as at 30 September 2003 is as follows: 2003 2002 ______________________________________ ______________________________________ Bonds and Loans and Other Total Bonds and Loans and Other Total loan notes overdrafts £m £m loan notes overdrafts £m £m £m £m £m £m In more than one 30 45 70 145 105 2 77 184 year but not more than two years In more than two 130 598 36 764 125 48 52 225 years but not more than five years In more than five 1,533 - 15 1,548 1,524 - 21 1,545 years _________ _________ _________ _________ _________ _________ _________ _________ 1,693 643 121 2,457 1,754 50 150 1,954 In one year or 106 103 44 253 201 1,045 93 1,339 less, or on demand _________ _________ _________ _________ _________ _________ _________ _________ 1,799 746 165 2,710 1,955 1,095 243 3,293 ========= ========= ========= ========= ========= ========= ========= ========= NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 13. Creditors - amounts falling due after more than one year (continued) 2003 2002 £m £m Bank loans: Repayable otherwise than by instalments within five years 648 1,066 Less: amounts falling due within one year 5 1,016 __________ __________ Amounts falling due after more than one year 643 50 ========== ========== 14. Provisions for liabilities and charges Insurance, Onerous Legal and Environmental Total pensions and contracts other claims £m £m other post £m £m employment benefits £m At 1 October 2002 252 65 103 11 431 Arising from acquisitions 26 19 - - 45 Expenditure in the year (13) (29) (4) - (46) Charged to profit and loss 17 - - - 17 account Credited to profit and loss (1) (4) (1) - (6) account Reclassified (2) (4) (6) - (12) Currency adjustment - 1 (1) - - ____________ _________ ___________ ____________ ___________ At 30 September 2003 279 48 91 11 429 ============ ========= =========== ============ =========== Insurance, pensions and other post employment benefits relate to the costs of self funded pension and insurance schemes or statutory retirement benefits and are essentially long term in nature. Onerous contracts represent the liabilities in respect of leases on non-utilised properties and other contracts. The duration of these contracts ranges from 1 to 16 years. Legal and other claims relate principally to provisions for the cost of litigation and sundry other claims. The timing of the settlement of these claims is uncertain. Environmental provisions are in respect of liabilities relating to the Group's responsibility for maintaining its operating sites in accordance with statutory requirements and the Group's aim to have a low impact on the environment. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 15. Reserves Consolidated profit and loss account Before Share Capital goodwill Goodwill premium redemption Merger written written account reserve reserve off off Total £m £m £m £m £m £m At 1 October 2002 68 - 4,170 497 (2,132) (1,635) Foreign exchange reserve movements - - - (32) - (32) Premium on ordinary shares issued, 16 - - - - - net of expenses Repurchase and cancellation of - 7 - (233) - (233) shares Retained profit for the year - - - 1 - 1 _______ __________ _______ ________ _________ ______ At 30 September 2003 84 7 4,170 233 (2,132) (1,899) ======= ========== ====== ======= ======== ====== Goodwill written off represents the excess of the consideration for the operations acquired prior to 1 October 1998 over the fair value of the net assets acquired. The goodwill has been written off to profit and loss reserve on consolidation. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 16. Acquisitions Businesses acquired during the year are shown below. Consideration Net Fair value Accounting Fair value Goodwill and costs assets adjustments policy of assets acquired realignment acquired £m £m £m £m £m £m Onama 87 (4) (6) (10) (20) 107 Millies Cookies 24 2 (2) (2) (2) 26 Seiyo Foods (minority 45 35 - - 35 10 interests) Other 64 14 (10) - 4 60 ___________ _______ _________ ________ ________ _______ Total acquisitions in the 220 47 (18) (12) 17 203 year ___________ _______ _________ _________ ________ _______ Adjustments to prior periods: Deferred consideration 1 - - - - 1 payable Adjustments to net assets - 2 7 - 9 (9) acquired ___________ _______ _________ ________ ________ ________ 1 2 7 - 9 (8) ___________ _______ _________ ________ ________ ________ 221 49 (11) (12) 26 195 ========== ====== ======== ======== ======= ====== Accounting policy Net assets Fair value realignment Fair value to acquired adjustments the Group £m £m £m £m Intangible fixed assets 9 - (9) - Tangible fixed assets 32 - - 32 Stocks 7 (6) - 1 Debtors 136 (25) 8 119 Cash 19 - - 19 Loans and overdrafts (47) - - (47) Leases - - (12) (12) Creditors (125) (6) 1 (130) Provisions (23) (22) - (45) Tax (1) 30 - 29 Minority interests 42 18 - 60 ___________ ___________ ___________ ___________ 49 (11) (12) 26 ========= ========== ========== ========= All acquisitions were accounted for under the acquisitions method of accounting. Fair value adjustments principally relate to asset valuation adjustments, recognising pension commitments and other liabilities not previously recorded. Adjustments made to the fair value of assets of businesses acquired in 2003 are provisional owing to the short period of ownership. Adjustments to prior year acquisitions relate to the restatement of the values of assets and liabilities in the light of knowledge arising from a more extended period of ownership and additional consideration and costs, all in respect of acquisitions made during the year ended 30 September 2002. There was no material difference between operating profits arising from acquisitions and cash flows contributed by those acquisitions. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 17. Pensions The assets and liabilities of the major schemes operated by the Group and the effect that adoption of FRS 17 would have had on the Group's profit and loss reserves are shown below: UK schemes US schemes Other schemes Total schemes __________________ ________________ _________________ ___________________ 30 September 2003 Long Term £m Long Term £m Long Term £m Long Term £m expected rate expected rate expected expected rate of return of return rate of of return return Equities 6.5% 405 8.0% 38 7.2% 29 6.7% 472 Bonds 5.0% 198 5.7% 18 3.8% 38 4.9% 254 Other assets 0.0% 3 2.6% 1 2.4% 42 2.2% 46 ___________ ____ __________ ____ __________ ___ __________ ______ Market value 606 57 109 772 Liabilities (828) (130) (180) (1,138) ____________ _____ __________ _____ __________ ____ __________ _______ Deficit (222) (73) (71) (366) Deferred tax asset 67 26 26 119 ___________ ____ _________ ____ __________ ___ __________ ______ Net FRS 17 (155) (47) (45) (247) liability ========= ==== ========= ==== ========= === Reverse existing provisions/assets net of deferred tax 182 Reverse existing SSAP 24 prepayment for Group pension schemes (14) _____ Net adjustment which would result from the adoption (79) of FRS 17 Profit and loss reserve as reported (1,899) ______ Profit and loss reserve on a FRS 17 basis (1,978) ====== The FRS 17 liability has increased during the year ended 30 September 2003 as set out below: £m As at 1 October 2002 (288) Acquisitions (20) Current service costs (36) Curtailment credit 3 Contributions paid 46 Past service costs (1) Other financial costs (18) Actuarial losses (50) Exchange rate losses (2) _______ As at 30 September 2003 (366) ====== NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2003 18. Exchange rates Exchange rates for major currencies used during the period were: 2003 2002 2003 2002 Translation Translation Closing Closing Rate Rate Rate Rate Australian Dollar 2.63 2.63 2.45 2.89 Canadian Dollar 2.35 2.08 2.24 2.49 Danish Krone 11.01 12.16 10.59 11.82 Euro 1.48 1.63 1.43 1.59 Japanese Yen 191.06 184.56 185.60 191.45 Norwegian Krone 11.48 12.95 11.72 11.65 Swedish Krona 13.55 15.14 12.85 14.58 Swiss Franc 2.22 2.48 2.19 2.32 US Dollar 1.60 1.37 1.66 1.57 APPENDIX 1 New Contract Gains The rate of new contract wins has remained very strong throughout the year. We are pleased to announce today a selection of recently awarded contracts. UK Business & Industry • Woolworths' public in-store restaurants are set to be rebranded as part of a 10-year contract, with £29 million in annual turnover. Eurest will cater at 68 previously self-managed restaurants throughout the UK. • Eurest has won a 5-year contract with Equion plc with annual turnover of £1 million to provide catering services to four London police stations. • Other significant contract wins included Westminster City Council, the Youth Hostels Association, Thomas Cook, Scottish Courage, the National Assembly for Wales, the Thinktank in Birmingham, Somerfield/Kwiksave and global information solutions company Experian with combined annual turnover of £8 million. Retail & Travel • SSP has secured a new 10-year contract at Newcastle International Airport with annual turnover of £8 million to operate a selection of branded outlets landside and airside. Sports & Leisure • A 12-year joint venture with Surrey County Cricket Club, with incremental annual turnover of £2.5 million, to provide corporate hospitality marketing and sales at the Oval cricket ground. This is in addition to the existing contract. NORTH AMERICA Business & Industry • Restaurant Associates has won contracts to provide staff feeding to Citigroup, ABN AMRO, Revlon, AOL/Time Warner and Morgan Stanley (in Brooklyn and Westchester) with combined annual turnover of $20 million. Vending • Canteen has been awarded the contract in Accor's Motel 6 and Red Roof Inns hotels estate across the USA. Healthcare • Morrison has won the contract for Enloe Medical with $9 million turnover per annum and Baptist Memorial Healthcare, Tennessee ($1.8 million per annum). Education • Chartwells have won contracts with Spotsylvania school district, Farmington school district, Deer Park Union free school district, Arkansas Pine Bluff and Green Mountain College. Total annual turnover is $9 million. Sports & Leisure • Disneyland, Los Angeles has awarded Restaurant Associates a contract for their Disney Mexican Restaurant with annual turnover of $10 million. • Houston Stadium - Levy Restaurants won the contract for operations at the new Toyota Center, home of the Houston Rockets. CONTINENTAL EUROPE AND REST OF THE WORLD Business & Industry • China - a 3-year contract was entered into with Philips MDS (mobile display systems) in Pudong Industrial zone with annual turnover of £1.5 million. Also signed a new staff feeding contract with General Electric and Peugeot with combined annual turnover of £1 million. • Japan - contracts for staff feeding were won at Daihatsu Auto Body Co and Hakuhodo with combined annual turnover of £1 million. • France - Eurest has won a 5-year contract at The Atomic Energy Centre near Bordeaux with turnover of €2 million per annum. • Germany - Eurest has increased its catering with Deutsche Bank in 25 units throughout Germany. In addition, Selecta takes over the vending at 150 points of sale. Healthcare • Japan - a new contract at Aoi-kai Medical with annual turnover expected to be £1 million. • Italy - Campolongo & Palermo Hospitals with combined annual turnover expected to be £2 million. • France - The American Hospital, a very prestigious hospital in Paris with a contract with annual turnover of €2.5 million over 3 years. Education • Middle East - contracts for two prestigious universities, Misr University for Science and Technology in Egypt and the American University of Beirut in Lebanon, annual turnover from these contracts is expected to be $3 million. • France - Ville de Gravelines school with annual turnover of £1 million. Retail & Travel • SSP won its first contract in China at Meilan Airport, Hainan Island in the South China Sea. The airport currently has 6 million passengers a year and the authorities expect passenger growth to be 15% per year. Annual turnover is expected to be £3.5 million. • Italy - 4 additional units at Malpensa Airport in a 6-year contract with £1 million in annual turnover. Sports & Leisure • Germany - contract for Color Line Arena, a modern multi-function arena in Hamburg, with annual turnover of €6 million. Defence, Offshore & Remote Service • Global - ESS has been awarded a Global Preferred Supplier Agreement with De Beers. ESS currently provides integrated support services at four sites on behalf of De Beers. This new contract offers the potential to provide services to all 24,000 staff at all of their sites across the 19 countries within which they operate. The initial new contract value is for turnover of £10 million per annum and covers operations in South Africa. Additional expansion to Botswana, Namibia and Canada is expected in the short term, which will increase the contract value significantly to an estimated £50 million of annual turnover. • Guam - in the South Pacific, a 3-year contract with Raytheon for services to the US Navy with turnover of £10 million per annum. • Liberia - a 5-year contract to supply rations to the United Nations mission, with annual turnover of $12 million. • Chile - a new construction project with BHP Billiton Base Metals with turnover of $6 million per annum. • Gulf of Mexico - a 3-year contract with BP with turnover of £2 million per annum for two offshore platforms. • Australia - ESS has secured a contract with Western Mining Corporation Resources Ltd to provide all catering and support services, annual turnover is expected to be £10 million. • Turkey - a contract with the Turkish Navy at Golcuk with annual turnover of £3 million. • Russia - a 3-year contract for the Shell-led Sakhalin Energy Investment Consortium with annual turnover of £1 million. • Germany - won a 10-year contract with the US Army Europe MWR (Morale, Welfare & Recreation) in Heidelberg for £1 million of annual turnover. APPENDIX 2 Significant contract gains and contracts retained during the year included: UK Business and Industry • BT - a 7-year contract renewal with £25 million in annual turnover. • Orange - a 3-year deal with an annual turnover of £4.5 million providing catering for 10,000 employees across 11 sites. • Computer Associates - a 5-year foodservice contract covering the company's Slough-based European headquarters plus 14 other sites across Europe. • BAA - Eurest has been awarded a 5-year contract with £4 million in annual turnover to provide foodservice for 5,000 construction workers at Heathrow's Terminal 5. • Restaurant Associates has renewed a 10-year contract with Tower 42, with annual turnover of £3.5 million. In collaboration with Restaurant Associates, Gary Rhodes has launched his new restaurant Rhodes Twenty Four within the building. Healthcare • Southern Derbyshire Acute Hospitals NHS Trust - a 6-year contract with £10 million in annual turnover, to provide catering and hotel services to Derbyshire Royal Infirmary and Derby City General Hospital. • Royal National Orthopaedic Hospital NHS Trust - Medirest has retained the contract to provide catering, housekeeping, portering and security for a further 5 years with an annual turnover of £2.5 million. Education • De Montfort University, Leicester - a 10-year contract with £2 million per year. • Nottingham University - a 5-year contract with £1 million per annum. • Medway Council - a 5-year contract for 84 schools in the Medway area and London Borough of Camden, a 3-year contract for 55 schools, with combined annual turnover of £5 million. • London Borough of Richmond upon Thames - a 5-year extension to its contract providing meals to 40 primary and three special schools with £1 million in annual turnover. Richmond's school catering service was praised as a key strength in an Ofsted report on the Local Education Authority released in January. Retail & Travel • Bournemouth Airport - SSP has won a 10-year contract with £2 million in annual turnover. • Derry Airport - a 7-year contract with £0.5 million in annual turnover. • Mersey Ferries - a 5-year contract with annual turnover of £0.5 million. Sports & Leisure • Scottish Exhibition & Conference Centre - a 5-year contract with a £3 million annual turnover. • Reading Football Club - a 7-year contract with £4 million in annual turnover. • BALTIC, the centre for contemporary art in Gateshead - a contract with £1.5 million in annual turnover. • Imperial War Museum & Old Royal Naval College, Greenwich - two 5-year contracts with a combined annual turnover of £2 million. • The Sanctuary - a 3-year contract to manage the catering services for the relaxation spa, The Sanctuary, in London's Covent Garden with annual turnover of £1 million. Defence, Offshore & Remote Service • Army Training Estate - a 10-year contract with turnover of £11 million per annum. NORTH AMERICA Business & Industry • eBay - a 2-year contract with the California-based company with turnover of $3.5 million per annum. • The Kellogg Conference Center, Washington D.C. - Flik was awarded a 5-year contract with turnover of $3 million per annum. • Met Life - a 6-year contract with $10 million in annual turnover to cater for 13,500 employees across 20 locations. • ExxonMobil, Pfizer and Suncor have renewed contracts with $28 million in annual turnover. • Best Buy - a 10-year contract for the corporate headquarters of this electrical retailer with annual turnover of $4 million. Healthcare • Fraser Healthcare in Vancouver - an 8 hospital, 14 outlet retail offering with $6 million in annual turnover. • Alta Bates Medical Center in Berkeley, California - a 10-year contract with turnover of $2 million per annum. • The Children's Hospital in Oakland, California - a 5-year contract with turnover of $2 million per annum. • The Healthcare Infrastructure Company of Canada - a contract for the new William Osler Health Centre in Brampton, Ontario with $20 million in annual turnover. • Morrison has been awarded a 10-year contract with the Children's Hospital, Washington D.C. with $5 million in annual turnover. • Simpson House in Philadelphia and Simpson Meadows in Downington - a 3-year contract with $3 million in annual turnover. Education • Gallaudet University in Washington DC - a 5-year contract with $3 million in annual turnover was secured by Bon Appetit. • University of North Carolina, Charlotte - a 10-year contract with $10 million in annual turnover. • University of San Francisco, University of Texas, Tennessee Tech and Ottawa University with combined annual turnover of $18 million. • Morgan House at Baylor University has awarded Chartwells a 5-year contract with $10 million in annual turnover. • University of Nevada and the University of Wisconsin with combined annual turnover of $12 million. Retail & Travel • Canada - awarded a 10-year contract in the new Terminal 1 at Toronto Lester B Pearson International Airport with CAD20 million in annual turnover. Sports & Leisure • Art Institute of Chicago - a 5-year contract with $8 million in annual turnover. CONTINENTAL EUROPE AND REST OF THE WORLD Business & Industry • Japan - won contracts at Nippon Life Insurance Company and at the Tokyo branches of HSBC, Citigroup, GlaxoSmithKline and Sony with combined annual turnover of £8 million. • Italy - ENI has renewed a contract for 5-years with £6 million in annual turnover and Banca d'Italia has signed a new contract with £5 million in annual turnover. • Germany - Eurest has been awarded a contract with Wincor Nixdorf with €4 million in annual turnover. SAP, Dresdner Bank, and Commerzleasing und Immobilien renewed contracts with Eurest with a combined annual turnover of €6 million. Eurest has also won contracts with Deutsche Telekom/T-Systems, Philip Morris and four previously self-operated restaurants with DZ Bank with combined annual turnover of €6 million. • France - Eurest has won 3 additional contracts with telecoms company Cegetel/Vivendi with €3 million in annual turnover. • Denmark - TDC Tele Danmark has signed a 4-year contract for 11 restaurants with annual turnover of £3 million. • Sweden - Salen Conference Stockholm has renewed its contract for a further 8 years with annual turnover of £1 million. Eurest has been awarded a 3-year contract with the Forsmark Nuclear Power Plant with £0.5 million in annual turnover. • Norway - Eurest has been awarded a 5-year contract with Spare Banken 1 Group with £1 million in annual turnover. Healthcare • Portugal - won a contract with Portuguese State Hospitals with annual turnover of €12 million. • France - Medirest has won a previously self-operated contract with Medica France, with €5 million in annual turnover. Education • France - Scolarest has been awarded contracts with the cities of Sevran and Toulon with combined annual turnover of €4 million. • Netherlands - Selecta has signed a 5-year contract with ROC, Amsterdam, the biggest schools' association in Europe, with annual turnover of €2 million. Selecta will serve 40,000 students with coffee, cold drinks and snacks following the installation of 400 machines. Retail & Travel • Hong Kong - SSP has expanded its operations at Hong Kong Airport (annual passenger volume is 33 million) from 5 units to 13 units, bringing its share of the food and beverage business there to just below 50%. Annual incremental turnover is expected to be £10 million. • Switzerland - SSP won 10 new units in the Zurich Airport's new Airside Centre. This 9-year contract has £16 million of annual turnover. • Spain - Rail Gourmet has renewed the important AVE/Renfe contract for a further 18 months with annual turnover of €30 million. • France - won a 6-year contract extension for the Charles de Gaulle Airport with annual turnover of €15 million per annum. Defence, Offshore & Remote Service • Global - A significant 10-year agreement was awarded to ESS to provide services to Schlumberger sites across the world. The contract has annual turnover of $26 million in the first year of operation with a potential total annual value of around $60 million. • New Zealand - a 3-year contract with annual turnover of £1.5 million was signed with Royal New Zealand Air Force. • Australia - a renewal extending the scope of service for Newcrest Mining resulting in annual turnover of £5 million. • Kazakhstan - Karachaganak International Oil Company has signed a 3-year contract with annual turnover of £4 million. • Venezuela - ESS has renewed existing contracts with Conoco/Phillips and ExxonMobil with combined annual turnover of €4 million. • South Africa - ESS has been awarded a 5-year contract with £4 million in annual turnover to provide full village management and services to over 2,000 workers for the Coega Development Corporation. This information is provided by RNS The company news service from the London Stock Exchange

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