29th Jun 2006 07:02
Diageo PLC29 June 2006 Embargoed until 7.00am 29th June 2006 Diageo reports strong sales momentum Diageo will announce preliminary results for the year ending 30 June 2006 on 31August 2006 and has today issued the following statement. Summary • Organic net sales growth expected to be 6% for the year to June 2006 • Guidance for full year organic operating profit growth maintained at 7% • Free cash flow forecast to be in line with that achieved in prior year • £1.4 billion returned to shareholders in the financial year • Dividend payments of £864 million in the year The second half of the financial year has seen continued strong growth by theglobal priority brands, in particular Johnnie Walker and Smirnoff. Consistentdelivery by these key growth drivers together with stronger performance inInternational, partly driven by innovation successes, has resulted in furtherimprovement in the rate of organic top line growth. For the full year organicnet sales growth is expected to be 6%. This strong top line growth has enabled marketing investment to be increasedahead of net sales growth and increased input costs to be absorbed, whiledelivering organic operating profit growth in line with the previous guidance of7% reiterated at the time of the interim financial results. Diageo has continued to generate strong cash flow in the year. The actual levelof tax payments in the second half has been below that which was planned and asa result free cash flow for the year is likely to be broadly in line with thatachieved in the prior year; this is ahead of previous guidance. Paul Walsh, CEO of Diageo, said: 'As the year closes we have successfully delivered on our objectives. We arebuilding a superior position in North America, investing strongly behind ourbrands in International and continuing to reduce costs in Europe. As ourexcellent top line growth shows, we are gaining share in many markets. The strength of our brands and our broad based geographic exposure continue toprovide us with opportunities. We expect that relentless focus on proven brandand market building strategies will ensure that this level of top and bottomline organic growth together with continued strong cash generation remain theconsistent themes of Diageo's performance. Therefore, looking ahead to the year ending 30 June 2007, we expect that organicnet sales growth will be in line with that achieved in the current year. We willcontinue to grow investment in marketing at a rate above that of net salesgrowth. Even with this rate of investment, and with continued pressure on inputcosts we expect to deliver organic operating profit growth at least equal tothat achieved in the year ending 30 June 2006. As previously announced, we have doubled our share buyback programme year onyear, returning a further £1.4 billion to shareholders this year, and we plan toreturn a further £1.4 billion to shareholders in the new financial year.' Net sales Spirits growth has been broadly based with continued, strong growth of: theglobal priority brands; the local priority Scotch whisky brands and very stronggrowth of the Reserve brands. The overall growth of Diageo's beer brands hasbeen constrained by the weakness of the Irish beer market. Diageo's wine brandscontinue to grow despite an increasingly competitive environment. Theperformance of the ready to drink brands is a mix of continued decline inEuropean markets partially offset by strong growth in International. In North America, the priority brands continue to grow strongly and outperformthe market. Diageo continues to benefit from the consumer trend towards premiumbrands across all beverage alcohol categories. Strong growth across Diageo'spriority spirits brands remains the key driver of the performance in NorthAmerica. Diageo's beer brands, which are positioned in the premium importsegment, have delivered good growth and in wine, Beaulieu Vineyard and SterlingWines continue to perform well. Price increases have been successfullyimplemented on a number of brands as effective marketing campaigns have steadilybuilt the position of the brands with consumers. In Europe, the consumer environment remains subdued which together withincreased regulation continues to have a negative impact on beverage alcoholsales. Top line growth is in line with that achieved in the first half. Whileimproved sales execution and successful marketing campaigns have deliveredbetter top line performance and share gains, for example on Guinness in GreatBritain and on J& B in France, these improvements have been offset by thedecline in the Scotch whisky market in Spain and by the disruption in thespirits market in Russia caused by the introduction of new excise duty stripstamps. In International, strong top line performance continues to be led by the growthof the priority spirit brands, ready to drink and new product innovations. Whileeach of the major hubs, Latin America, Africa and Asia, are deliveringdouble-digit top line growth, it is Latin America which is the key driver of thevery strong overall performance in International. Interest It is estimated that in the year ending 30 June 2006 Diageo's average net andclosing debt will be approximately £4.0 billion. The effective interest rate forthe year ending 30 June 2006 is expected to be approximately 4.9%. As a resultof the increase in interest rates which has occurred during the year, theeffective interest rate for the year ending 30 June 2007 is currently expectedto increase by 0.6 percentage points year on year. Exchange rate movements The impact of exchange rate movements on reported profit before exceptionalitems and tax is expected to be about £30 million for the year ending 30 June2006. Operating profit is expected to be negatively impacted by £25 million andinterest to be negatively impacted by approximately £5 million. For the year ending 30 June 2007 the impact of exchange rate movements, based oncurrent exchange rates, is estimated to have an adverse impact of £35 million onoperating profit and a positive impact of £5 million on interest. For the fullyear, each one cent movement from current rates for either the US dollar or theEuro impacts profit before exceptionals and tax by approximately £3 millionrespectively. Return of capital to shareholders Consistent with previous guidance Diageo has returned a further £1,400 millionto shareholders in the financial year through the repurchase of 164 millionshares. The number of shares in issue at the year end will be 2,757 million,excluding 294 million shares, mainly treasury shares. The weighted averagenumber of shares which will be used to calculate eps for the year ending 30 June2006 will be 2,841 million shares. As announced on 15 June 2006 Diageo has put in place an irrevocable non-discretionary programme to buy back shares during the closed period which endson 1 September 2006. Cautionary statement concerning forward-looking statement This document contains statements with respect to the financial condition,results of operations and business of Diageo and certain of the plans andobjectives of Diageo with respect to these items. These forward-lookingstatements are made pursuant to the 'Safe Harbor' provisions of the UnitedStates Private Securities Litigation Reform Act of 1995. In particular, allstatements that express forecasts, expectations and projections with respect tofuture matters, including trends in results of operations, margins, growthrates, overall market trends, the return of capital, the impact of interest orexchange rates, the availability of financing to Diageo, anticipated costsavings or synergies and the completion of Diageo's strategic transactions, areforward-looking statements. By their nature, forward-looking statements involverisk and uncertainty because they relate to events and depend on circumstancesthat will occur in the future. There are a number of factors that could causeactual results and developments to differ materially from those expressed orimplied by these forward-looking statements, including factors that are outsideDiageo's control. These factors include, but are not limited to: increased competitive product and pricing pressures and unanticipated actions bycompetitors that could impact Diageo's market share, increase expenses andhinder growth potential; the effects of future business combinations, partnerships, acquisitions ordisposals, 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 regardingconsumption of, or advertising for, beverage alcohol, changes in accountingstandards, taxation requirements, such as the impact of excise tax increaseswith respect to the business, environmental laws and the laws governingpensions; developments in the alcohol advertising class actions and any similarproceedings 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 perceptionabout health related issues; changes in the cost of raw materials and labour costs; changes in economic conditions in countries in which Diageo operates, includingchanges in levels of consumer spending; levels of marketing, promotional and innovation expenditure by Diageo and itscompetitors; renewal of distribution rights on favourable terms when they expire; termination of existing distribution rights on agency brands; technological developments that may affect the distribution of products orimpede Diageo's ability to protect its intellectual property rights; and changes in financial and equity markets, including significant interest rate andforeign currency exchange rate fluctuations, which may affect Diageo's accessto, or increase the cost of, financing or which may affect Diageo's financialresults. 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 2005 filed with the US Securitiesand Exchange Commission. Any forward-looking statements made by or on behalf ofDiageo speak only as of the date they are made. Diageo does not undertake toupdate forward-looking statements to reflect any changes in Diageo'sexpectations with regard thereto or any changes in events, conditions orcircumstances on which any such statement is based. The reader should, however,consult any additional disclosures that Diageo may make in documents it fileswith the US Securities and Exchange Commission. 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 + 44 (0) 20 7927 5272 [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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