28th Jun 2007 07:03
Diageo PLC28 June 2007 28 June 2007 Diageo reiterates guidance for 8% organic operating profit growth for the yearending 30 June 2007 Summary • Further outperfomance in North America and double-digit top line growth in International and Asia Pacific • In Europe, top line growth improved in the second half • Marketing spend up in Europe in the second half and further increased in Asia Pacific • Reiterating guidance for 8% organic operating profit growth for the full year • £2.3 billion returned to shareholders in the financial year through dividends and the share buy back programme Paul Walsh, CEO of Diageo, said: 'The strength of our brands and our broad based geographic exposure continue todrive the consistent top and bottom line organic growth and strong cashgeneration which are the recurring themes of Diageo's performance. 'The strong performance, which was delivered in North America and Internationalin the first half, has continued for the full year. In Europe and in AsiaPacific, top line performance has improved against the first half as marketinginvestment was increased in the second half behind our growth brands andmarkets. Therefore while Diageo's total organic net sales growth in the fullyear is expected to be higher than in the first half, operating profit growthwill be in line with the first half performance of 8%. 'This strong trading performance continues to be matched by Diageo's financialstrength. The consistency of our cash flow has allowed us to return a further£2.3 billion to shareholders this financial year in dividends and share buybacks. ' Trading Update Strong growth of the global spirits brands, and in particular the growth ofDiageo's Scotch brands across the world, remains the key driver of top lineperformance. Growth has been delivered in beer through the continued success ofGuinness and the lager brands in Africa. In ready to drink, growth in Brazil andSouth Africa has offset further decline of the segment in Europe. In wine,strong growth was achieved in Sterling Vineyards and French agency wine brandsin the United States. In North America, Diageo has performed strongly and outperformed the marketthroughout the year. While the rate of growth of the US spirits market hasslowed in recent months, the consumer trend is still to premium brands.Diageo's focus on premium brands therefore continues to generate top line growthand support the implementation of further price increases. In Europe, investment behind the growth opportunities, which have beenidentified in continental and Eastern Europe, together with strong growth inRussia, has led to an improvement on top line performance in the second half.Marketing investment has been increased in the second half behind proven growthdrivers. In International, Latin America and Africa have both continued to deliver verystrong growth. In Latin America this has been led by the growth in Scotch andready to drink and in Africa by the growth in beer and also by the growth inready to drink. In Asia Pacific net sales growth was stronger in the second half than in thefirst half of the year as marketing spend was further increased in keymarkets. Interest Diageo's average net debt for the year ending 30 June 2007 will be approximately£4.6 billion and it is estimated that closing debt will be approximately £5.1billion. The effective interest rate for the year ending 30 June 2007 isexpected to be approximately 5.5%. As a result of the increase in interest ratesthe effective interest rate for the year ending 30 June 2008 is currentlyexpected to increase by approximately 0.4 percentage points year on year. Exchange rate movements The impact of exchange rate movements on reported profit before exceptionalitems and tax is still expected to be about £80 million for the year ending 30June 2007. Operating profit is estimated to be negatively impacted by £90million and interest to be positively impacted by approximately £10 million. For the year ending 30 June 2008 the impact of exchange rate movements, based oncurrent exchange rates, is estimated to have an adverse impact of £40 million onoperating profit and a small positive impact of less than £5 million oninterest. Return of capital to shareholders Consistent with previous guidance Diageo has returned a further £1.4 billion toshareholders in the financial year through the repurchase of 141 million shares.The number of shares in issue at the year-end will be 2,618 million, excluding313 million shares, held by the company as treasury shares or in trust to hedgeemployee share option programmes. The weighted average number of shares, whichwill be used to calculate eps for the year ending 30 June 2007, will be 2,688million shares. As announced on 18 June 2007 Diageo has put in place an irrevocable non-discretionary programme to buy back shares during the closed period which endsat the close of business on 30 August 2007. Preliminary Results Diageo will announce preliminary results for the year ending 30 June 2007 on 30August 2007. These preliminary results will be reported on the new basis of fourregions; North America, Europe, International and Asia Pacific, together withcorporate. To aid comparison prior period results on this basis are attached. Revised Segmental Information and Operating Review for prior periods Diageo announced the creation of Diageo Asia Pacific as its fourth geographicoperating unit in January 2007. Asia Pacific was previously part of the DiageoInternational operating unit. As a result of this change Diageo International now consists of the followingregions and countries: • Latin America and the Caribbean • Africa • Middle East • Global Travel Diageo Asia Pacific now consists of the following regions and countries: • India, the People's Republic of China, South Korea, Japan and other Asian Markets • Australia and New Zealand The composition and financial results of Diageo North America, Diageo Europe andCorporate have not been impacted by this change. Revised segmental information for the six month period ended 31 December 2006and for the years ended 30 June 2006 and 2005 are provided below, together withthe revised Operating Review for the six month period ended 31 December 2006 andthe year ended 30 June 2006. Individual market commentaries as previouslyreported in the Operating Review for these periods are unchanged. Segmental information for the six month period ended 31 December 2006 'New' Asia 'Old' International Pacific International £ million £ million £ million Sales 1,070 585 1,655Net sales 884 430 1,314Marketing 112 100 212Operating profit 298 115 413 Segmental information for the year ended 30 June 2006 'New' Asia 'Old' International Pacific International £ million £ million £ million Sales 1,784 1,042 2,826Net sales 1,456 763 2,219Marketing 183 171 354Operating profit* 445 199 644 * There were no exceptional items included in operating profit for the yearended 30 June 2006 Net sales are after deducting excise duties. Percentage movements in thisstatement are organic movements unless otherwise stated. Commentary, unlessotherwise stated, refers to organic movements. Share, unless otherwise stated,refers to volume share. See the Company's annual report on Form 20-F for theyear ended 30 June 2006 filed with the US Securities and Exchange Commission(SEC) for an explanation of organic movement calculations and furtherdefinitions, disclosures and information. Additional segmental information for the year ended 30 June 2006 'New' Asia 'Old' International Pacific International £ million £ million £ million Share of associates' profits after tax 4 - 4Profit before interest, net finance income and tax 449 199 648 Depreciation (48) (17) (65)Intangible asset amortisation (1) (3) (4)Capital expenditure on segment assets 61 17 78 Segment assets 770 350 1,120Investments in associates 19 - 19Total assets 789 350 1,139Total liabilities 218 118 336 Segmental information for the year ended 30 June 2005 'New' Asia 'Old' International Pacific International £ million £ million £ million Sales 1,552 872 2,424Net sales 1,258 664 1,922Marketing 143 126 269Operating profit before exceptional items 427 188 615Exceptional items credited to operating profit 4 - 4Operating profit 431 188 619Sale of investments and businesses - (1) (1)Share of associates' profits after tax 5 - 5Profit before interest, net finance income and tax 436 187 623 Depreciation (34) (15) (49)Intangible asset amortisation (3) (3) (6)Capital expenditure on segment assets 93 24 117 Segment assets 779 324 1,103Investments in associates 22 - 22Total assets 801 324 1,125Total liabilities 240 103 343 Operating review for the six month period ended 31 December 2006 International First half First half Reported Organic movement F'07 F'06 movementKey measures: £ million £ million % % Volume 16 16Net sales 884 773 14 20Marketing 112 95 18 27Operating profit 298 253 18 25 Reported performance: Reported net sales in the period ended 31 December 2006 were £884 million, up£111 million from £773 million in the comparable prior period. Reportedoperating profit increased by £45 million to £298 million for the six monthsended 31 December 2006. Organic performance: Net sales decreased by £33 million as a result of exchange rate impacts. Therewas an organic increase in net sales of £144 million. Operating profit decreasedby £14 million as a result of exchange rate movements and organic growth of £61million was achieved. Transfers between business segments reduced operatingprofit by £2 million. Organic brand performance: Reported Organic Reported net Organic volume volume sales movement net sales movement movement movement % % % % Global priority brands 16 16 12 18Local priority brands 9 9 12 17Category brands 20 19 19 23Total 16 16 14 20 Key brands: Smirnoff vodka 10 10 (1) 9Smirnoff ready to drink 36 36 19 33Johnnie Walker 18 18 18 21 Guinness 10 10 7 13Baileys 23 23 20 22Buchanan's - Venezuela 65 65 88 71 Smirnoff vodka grew volume 10% and net sales by 9% driven by increaseddistribution and successful advertising throughout Latin America and in Africa.Smirnoff ready to drink volume grew 36% due to continued growth in Brazil andthe successful launch of Smirnoff Storm in South Africa. Johnnie Walker continued to benefit from increased investment in Latin America.As a result, the brand grew volume 18% and net sales 21%. Guinness volume grew 10% driven by strong performances in Nigeria and EastAfrica due to increased marketing spend, renewed customer focus and economicgrowth. Net sales grew by 13% as stronger pricing in Nigeria delivered price miximprovement. Baileys grew volume 23% reflecting the successful launch of Baileys flavours inGlobal Travel and Latin America. Net sales grew by 22%. Local priority brand performance was driven in particular by the growth ofBuchanan's in Venezuela. The Scotch category drove very strong growth in category brands resulting in a19% increase in volume and a 23% increase in net sales. Old Parr, Buchanan's(excluding Venezuela where it is a local priority brand) and Black & White wereall up, particularly in Latin America. Asia Pacific First half First half Reported Organic movement F'07 F'06 movementKey measures: £ million £ million % % Volume 7 7Net sales 430 410 5 9Marketing 100 89 12 16Operating profit 115 118 (3) - Reported performance: Reported net sales in the period ended 31 December 2006 were £430 million, up£20 million from £410 million in the comparable prior period. Reported operatingprofit decreased by £3 million to £115 million for the six months ended 31December 2006. Organic performance: Net sales decreased by £17 million as a result of exchange rate impacts. Therewas an organic increase in net sales of £37 million. Operating profit decreasedby £1 million as a result of exchange rate movements and transfers betweenbusiness segments reduced operating profit by £2 million. Organic brand performance: Reported Organic Reported net Organic volume volume sales movement net sales movement movement movement % % % % Global priority brands 11 11 6 12Local priority brands 4 4 4 5Category brands 1 1 5 9Total 7 7 5 9 Key brands: Smirnoff vodka 17 17 14 24Smirnoff ready to drink 14 14 5 12Johnnie Walker 15 15 7 14 Guinness (4) (4) 7 6Windsor - Korea 13 13 15 13 Good growth of Smirnoff vodka in India and Australia led volume up 17%. Netsales increased by 24% partly driven by a price increase in India. Smirnoffready to drink volume grew 14% due to the re-launch of Smirnoff Ice in Japan. Johnnie Walker continued to benefit from increased investment throughout Asiaand continued activation of its grand prix team sponsorship. As a result, thebrand grew volume 15% and net sales were up 14%. Guinness volume declined by 4% whilst growth in Japan and price increases drovenet sales up 6%. Local priority brand performance was driven by growth of Windsor in Korea whichcontinued to benefit from successful renovation and increased share by a further3.0 percentage points. In category brands, Dimple outside of Korea and Benmore in Thailand performedstrongly and category brand volume grew 1% with net sales up 9%. Operating review for the year ended 30 June 2006 International Reported Organic movement movementKey measures: 2006 2005 £ million £ million % % Volume 14 13Net sales 1,456 1,258 16 14Marketing 183 143 28 25Operating profit before exceptional items 445 427 4 11 Reported performance: Reported net sales in the year ended 30 June 2006 were £1,456 million, up £198million from £1,258 million in the prior year. Reported operating profit beforeexceptional items increased by £18 million to £445 million in the year ended 30June 2006. Organic performance: Net sales increased by £6 million as a result of exchange rate impacts.Acquisitions added net sales of £9 million and there was an organic increase innet sales of £179 million. Transfers between business segments increased prioryear net sales by £4 million. Operating profit before exceptional itemsdecreased by £26 million as a result of exchange rate movements. Acquisitionsincreased operating profit before exceptional items by £1 million and organicgrowth of £44 million was achieved. Transfers between business segments reducedprior year operating profit before exceptional items by £1 million. Organic brand performance: Reported Organic Reported net Organic volume volume sales movement net sales movement movement movement % % % % Global priority brands 8 8 12 12Local priority brands 4 4 10 5Category brands 26 24 24 23Total 14 13 15 14 Smirnoff vodka 6 6 10 10Smirnoff ready to drink 50 50 60 59Johnnie Walker 12 12 9 13 Guinness (3) (3) 5 1Baileys 8 8 7 6Buchanan's 34 34 47 40 Good economic conditions in many markets, further investment in the brands and afocus on market place execution have resulted in the International businessgrowing strongly in all regions. Smirnoff vodka grew net sales by 10% led by strong growth in Brazil. Guinness volume declined 3% whilst net sales were up 1%. Performance was heldback as a result of a decline in Cameroon, although this was partly offset bystrong performances in Nigeria and Ghana where price increases accelerated thegrowth of net sales ahead of volume. Baileys grew volume by 8% driven by growth in Global Travel. Promotionalactivity in Global Travel has, however, resulted in net sales growing by 6%. Local priority brand performance was led by the growth of Buchanan's inVenezuela. Growth of Bell's in South Africa was offset by declines in Tusker andPilsner in Kenya. The performance of category brands has been driven by the growth of Scotch inLatin America and our beer brands in Africa. Investment behind Diageo's Scotchbrands has enabled the International region to capitalise on marketopportunities. Amongst the successes was Old Parr, which grew significantlyacross Latin America with volume and net sales up nearly 60%. In beer, thesuccessful re-launch of Harp in Nigeria also contributed to the overall growthin category brands. Ready to drink grew volume by 39% and net sales by 47%. Smirnoff ready to drinkvolume grew by 50%, as a result of strengthened distribution and sales executionand advertising campaigns on Smirnoff Ice in Brazil, as well as the launch ofSmirnoff Ice in Venezuela and Smirnoff Storm in South Africa. Asia Pacific Reported Organic movement movementKey measures: 2006 2005 £ million £ million % % Volume 15 15Net sales 763 664 15 11Marketing 171 126 36 30Operating profit 199 188 6 5 Reported performance: Reported net sales in the year ended 30 June 2006 were £763 million, up £99million from £664 million in the prior year. Reported operating profit increasedby £11 million to £199 million in the year ended 30 June 2006. Organic performance: Net sales increased by £25 million as a result of exchange rate impacts. Therewas an organic increase in net sales of £73 million. Transfers between businesssegments increased prior year net sales by £1 million. Operating profitincreased £3 million as a result of exchange rate movements and organic growthof £10 million was achieved. Transfers between business segments reduced prioryear operating profit by £2 million. Organic brand performance: Reported Organic Reported net Organic volume volume sales movement net sales movement movement movement % % % % Global priority brands 19 19 18 16Local priority brands 5 5 14 5Category brands 15 14 9 5Total 15 15 15 11 Smirnoff vodka 22 22 24 20Smirnoff ready to drink 16 16 27 22Johnnie Walker 23 23 19 19 Guinness 6 6 13 9Windsor - Korea 11 11 22 9 Increased marketing investment, growing markets in India and China, share gainsin Korea and Thailand and continued growth in ready to drink in Australia led tovolume up 15% and net sales up 11% in Asia Pacific. Smirnoff vodka increased net sales by 20% with particularly strong growth inIndia and continued growth in Australia. Johnnie Walker experienced strong growth on the back of upweighted investment,which has been focused around its grand prix team sponsorship. This has beenparticularly successful in driving growth of Johnnie Walker Black Label andSuper Deluxe variants, where net sales were up 22%. The sponsorship has alsoprovided a strong platform for Diageo's responsible drinking programmes. Guinness volume grew by 6% whilst net sales were up 9% with both South East Asiaand Japan experiencing good growth. Local priority brand performance was led by the return to growth of Windsor inKorea, driven in particular by new packaging on the 12 and 17 year-old variants.This more than offset the decline of Dimple in Korea. Bundaberg continued togrow in Australia. Growth in category brands was driven by the newly launched whisky brands inThailand. Ready to drink volume increased by 10% and net sales by 9%. This was led byAustralia where the Smirnoff, Bundaberg and Johnnie Walker ready to drink brandsall grew volume and net sales in the year. Cautionary statement concerning forward-looking statements This document contains "forward looking statements" within the meaning of the "Safe Harbor" provisions of the United Sates Private Securities Litigation ReformAct of 1995 with respect to the financial condition, results of operations andbusiness of Diageo and certain of the plans and objectives of Diageo withrespect to these items. In particular, all statements that express forecasts,expectations and projections with respect to future matters, including trends inresults of operations, margins, growth rates, overall market trends, the returnof capital, the impact of interest or exchange rates, the availability offinancing to Diageo, anticipated cost savings or synergies and the completion ofDiageo's strategic transactions, are forward-looking statements. By theirnature, forward-looking statements involve risk and uncertainty because theyrelate to events and depend on circumstances that will occur in the future.There are a number of factors that could cause actual results and developmentsto differ materially from those expressed or implied by these forward-lookingstatements, including factors that are outside Diageo's control. These factors include, but are not limited to: • increased competitive product and pricing pressures and unanticipated actions by competitors that could impact Diageo's market share, increase expenses and hinder growth potential; • the effects of future business combinations, partnerships, acquisitions or disposals, existing or future, and the ability to realise expected synergies and/or costs savings; • Diageo's ability to complete existing or future acquisitions and disposals; • legal and regulatory developments, including changes in regulations regarding consumption of, or advertising for, beverage alcohol, changes in tax law ( including tax rates ) or accounting standards, changes in taxation requirements, such as the impact of excise tax increases with respect to the business and changes in environmental laws, health regulations and the laws governing pensions; • developments in the alcohol advertising class actions and any similar proceedings or other litigation directed at the drinks and spirits industry; • developments in the Colombian litigation and any similar proceedings; • changes in consumer preferences and tastes, demographic trends or perception about health related issues; • changes in the cost of raw materials and labour costs; • changes in economic conditions in countries in which Diageo operates, including changes in levels of consumer spending; • levels of marketing, promotional and innovation expenditure by Diageo and its competitors; • renewal of distribution or licence manufacturing rights on favourable terms when they expire; • termination of existing distribution or licence manufacturing rights on agency brands; • technological developments that may affect the distribution of products or impede Diageo's ability to protect its intellectual property rights; and • changes in financial and equity markets, including significant interest rate and foreign currency exchange rate fluctuations, which may affect Diageo's access to, or increase the cost of, financing or which may affect Diageo's financial results. All oral and written forward-looking statements made on or after the date ofthis announcement and attributable to Diageo are expressly qualified in theirentirety by the above factors and the 'risk factors' contained in the annualreport on Form 20-F for the year ended 30 June 2006 filed with the US Securitiesand Exchange Commission (SEC). Any forward-looking statements made by or onbehalf of Diageo speak only as of the date they are made. Diageo does notundertake to update forward-looking statements to reflect any changes inDiageo's expectations with regard thereto or any changes in events, conditionsor circumstances on which any such statement is based. The reader should,however, consult any additional disclosures that Diageo may make in documents itfiles with the SEC. All readers, wherever based, should take note of thesedisclosures. The information in this announcement does not constitute an offer to sell or aninvitation to buy shares in Diageo plc or any other invitation or inducement toengage in investment activities. Past performance cannot be relied upon as a guide to future performance. -ENDS- Contacts: Investors Relations Catherine James and Darren Jones + 44 (0) 20 7927 4267 [email protected] Kelly Padgett + 1 202 715 1110 Media Relations Isabelle Thomas + 44 (0) 20 7927 5967 [email protected] Notes to Editor Diageo is the world's leading premium drinks business. With its global vision,and local marketing focus, Diageo brings to consumers an outstanding collectionof beverage alcohol brands across the spirits, wine and beer categoriesincluding Smirnoff, Guinness, Johnnie Walker, Baileys, J&B, Jose Cuervo,Captain Morgan and Tanqueray, and Beaulieu Vineyard and Sterling Vineyardswines. Diageo trades in some 180 countries around the world and is listed onboth the New York Stock Exchange (DEO) and the London Stock Exchange (DGE). Formore information about Diageo, its people, brands and performance, visit us atwww.diageo.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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