Grand Metropolitan Announces Continuing Progress in Trading Performance.

LONDON--(BUSINESS WIRE)--Sept. 22, 1997--Grand Metropolitan plc (NYSE: GRM), today released the following Autumn trading statement to ensure that the markets are informed of trends in current trading. The preliminary 1996/97 results are scheduled to be issued on December 4, 1997. Volume and sales information quoted in this trading statement are based on trading up to the end of August 1997.

Summary

Since GrandMet announced its half year results in May, trading conditions have remained broadly unchanged with improvements in the underlying performance of Pillsbury, IDV and Burger King.

This improved underlying trading performance, continued strong cashflow, and actions taken to release cash from areas of low return and limited growth, such as Burger King in France and IPCL, provide further progress on our strategy to increase the return on total invested capital.

Pillsbury has continued to trade well, growing sales in excess of category growth. Improved mix, selective price increases, and new products have had a positive impact on margins. IDV has made good progress in local currency terms. Performance in its biggest markets of Europe and North America is expected to be favorably impacted by volume increases in Europe and price increases in North America. In the Rest of the World, performance continues to be particularly strong in India and Thailand, but will be affected by one-off costs and increased operating losses in Russia. Burger King continues to grow worldwide system sales, having added nearly 800 stores. In the US comparable store sales are flat. However, in the rest of the world, particularly the UK, Spain and Latin America, comparable store sales growth is running above 5%. This has contributed to a turnaround in trading performance in Europe.

Exchange rate movements have continued to have a negative impact on our results. The translation effect of the strength of the sterling against the US dollar is mitigated by the impact of pounds / $ currency options cylinders, the benefits of which remain in line with expectations at the time of our Interim Results announcement. However, the sterling's strength against other currencies, which has most impact in IDV, is expected to produce a further adverse translation impact on operating profit of about 22 million pounds in addition to the 9 million pounds adverse impact arising for the first six months.

The disposal of the national European food businesses was completed in August 1997; total disposal proceeds amounted to 228 million pounds. In respect of these disposals an exceptional charge of 215 million pounds was made in fiscal 1996, of which 222 million pounds related to goodwill previously written off to reserves, and a further exceptional charge of 22 million pounds will be included in the second half of fiscal 1997.

Burger King is exiting its operations in France, and as a consequence, an exceptional loss of 20 million pounds will be charged in the second half.

An announcement has been made today on the disposal of the GrandMet investment in IPCL. The disposal gives rise to an exceptional charge of 54 million pounds, 37 million pounds of which is in respect of goodwill previously written off to reserves. GrandMet expects to receive proceeds of approximately 195 million pounds.

The GMG Brands merger remains on track and, as already announced, completion is targeted for January 1998, subject to regulatory and shareholder approvals. There is nothing to report at this stage regarding discussions with LVMH, nor on the regulatory reviews.

Trading Performance

Pillsbury

Pillsbury continues to grow volumes (currently up 2%) and sales. Marketing investment as a percentage of sales has been maintained, producing sales growth for Pillsbury in excess of category growth. Improved mix driven by a focus on higher margin value added products, selective price increases, and new product introductions have had a positive impact on margins.

Refrigerated Baked Goods continues to outperform the competition. As a result of the decision to improve profitability and increase available capacity by limiting the sales of low margin regular biscuits, overall volumes are down 4%. However, consequential growth in value added products has been 6%, driven by superior new products, increased consumer support, and expanded retail availability. Higher sales growth in the breakfast and pizza categories has improved overall mix. Volume in the Mexican category is down; however, in the higher margin Mexican meals category, sales have increased and Old El Paso has gained some market share. Progresso soup volumes have increased and a concentration on higher margin segments has improved profitability. Similarly at Green Giant growth is concentrated on the value added meal starters segment.

In Bakeries and Foodservice volume is up 6% year to date, and a focus on a lower number of stock keeping units and improved resource allocation has had a beneficial impact on margins. International continues to grow due to volume growth in Latin America and improved product mix. In Europe, focus on the four mega brands has produced volume growth of 7%. Actions such as the disposal of Aunt Nellie's and the sale of an Old El Paso production facility will improve return on total invested capital and drive shareholder value.

IDV

As reported at the Interim Results, IDV continues to perform well in the important markets of North America and Europe. Volumes of higher margin spirits brands are anticipated to be up 1% on a comparable basis. Overall volumes are expected to be below last year, due to volume declines in lower margin products such as cider in South Africa and Dreher Brandy in Brazil. Volumes have increased in Europe and Asia Pacific. IDV continues to increase net prices at an annual rate of 2% and therefore sales have benefited. Reported results will be affected both by the impact of exchange rates, and in Russia, operating losses and one-off costs.

In North America, IDV's business continued to benefit from pricing and mix improvements. Price increases were achieved on Baileys in May and on Malibu in March this year.

In Europe, operating profits will be impacted by volume improvements principally in Spain and Smirnoff Mule in the UK. Over the last five months price increases were achieved on Baileys in Spain and the UK and Smirnoff in the UK.

Developing markets now account for over a quarter of IDV's volume. In India, volumes have grown 45% driven by Gilbeys, and in Thailand Spey Royal is up over 200%. As a result of recent changes made to our organization in Russia, our business there has improved and is now trading in line with expectations.

Marketing investment as a proportion of sales has been maintained at a level considered appropriate to the business and the proportion spent on advertising has again increased in a number of key brand market units, e.g. Smirnoff in the US and UK and Baileys in the UK, helping to strengthen brand performance through a combination of volume and price increases.

Burger King

Burger King continues to grow system sales as a result of adding nearly 800 units worldwide and achieving positive comparable store sales growth of 1% worldwide.

In the US, 500 new stores have currently been added. Comparable store sales growth has slowed through the year due to competitive activity. More recently, comparable store sales growth and profits suffered due to a voluntary recall of beef products by a Burger King supplier. As a result, approximately 2,000 restaurants were left without beef and the recall, which received national press coverage, affected all Burger King restaurants in North America and Puerto Rico. Burger King has responded to the impact of the recall through a number of initiatives which, combined with the launch of the new Big King sandwich at 99 cents , have resulted in recent comparable store sales improving.

Significant progress has been made in Burger King in Europe and positive comparable store sales growth is currently running at 4%. With the revival of the UK business, the exit from France, and the action taken to close loss-making stores in Germany, Burger King in Europe is now operating profitably. Burger King continues to make progress in Latin America where comparable stores sales growth is up strongly year to date, at 7%. Burger King has also made progress on further international expansion opportunities, particularly in Japan and Australia.

Interest

The interest charge for the year has been adversely affected by increased rates and the repayment of certain previously tax efficient borrowings following changes made in the Budget in July.

Cash Flow and Borrowings

Cash flow from operations remains strong, and as previously indicated the Group's free cash flow is expected to be above last year's level due to lower spend on restructuring and integration provisions. Net cash flow will be below last year's due to lower disposal proceeds. Year end net borrowings are expected to be under 2.5 billion pounds.

Dividend

As stated at the time of the announcement of the proposed merger of GrandMet and Guinness, GrandMet does not currently plan to pay a final dividend and it is expected that GMG Brands will pay its first interim dividend in April 1998.

Commenting on this trading statement George Bull, GrandMet's Chairman said:

"GrandMet remains committed to the achievement of organic profit growth, through improved sales mix resulting from superior marketing execution and new brand development, focused capital expenditure and continued expansion into emerging markets, where acceptable long term returns are achievable.

Pillsbury, IDV and Burger King are all improving underlying performance and their position in the market place. They are in excellent shape to enter the next stage of their development as part of GMG Brands."

The contents of this press announcement, for which the directors of Grand Metropolitan PLC are responsible, have been approved for the purposes of Section 57 of the Financial Services Act 1986 by SBC Warburg Dillon Read, a division of Swiss Bank Corporation, which is regulated in the United Kingdom by The Securities and Futures Authority Limited.

GrandMet's ADR, equivalent to four ordinary shares, trades on the New York Stock Exchange under the symbol GRM. GrandMet's ordinary shares trade on the London Stock Exchange and prices may be accessed on Bloomberg under the symbol GMET LN, on the Reuter Equities 2000 Service under GMET.L and on Quotron under GEMTU.EU.

CONTACT: Grand Metropolitan plc

Catherine James

011-44-171-518-5272

or

Taylor Rafferty Associates

Mikhal Stein

212/889-4350