Diageo reiterates guidance for 8% organic operating
profit growth for the year ending 30 June 2007
28 June 2007
Summary
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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 to drive the
consistent top and bottom line organic growth and strong cash generation which are the
recurring themes of Diageo’s performance.
‘The strong performance, which was delivered in North America and International in the first
half, has continued for the full year. In Europe and in Asia Pacific, top line performance has
improved against the first half as marketing investment was increased in the second half
behind our growth brands and markets. Therefore while Diageo’s total organic net sales
growth in the full year is expected to be higher than in the first half, operating profit growth
will be in line with the first half performance of 8%.
‘This strong trading performance continues to be matched by Diageo’s financial strength. 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 buy backs. ’
Trading Update
Strong growth of the global spirits brands, and in particular the growth of Diageo’s Scotch
brands across the world, remains the key driver of top line performance. Growth has been
delivered in beer through the continued success of Guinness and the lager brands in Africa. In
ready to drink, growth in Brazil and South Africa has offset further decline of the segment in
Europe. In wine, strong growth was achieved in Sterling Vineyards and French agency wine
brands in the United States.
In North America, Diageo has performed strongly and outperformed the market throughout
the year. While the rate of growth of the US spirits market has slowed in recent months, the
consumer trend is still to premium brands. Diageo’s focus on premium brands therefore
continues to generate top line growth and support the implementation of further price
increases.
In Europe, investment behind the growth opportunities, which have been identified in
continental and Eastern Europe, together with strong growth in Russia, has led to an
improvement on top line performance in the second half. Marketing investment has been
increased in the second half behind proven growth drivers.
In International, Latin America and Africa have both continued to deliver very strong growth.
In Latin America this has been led by the growth in Scotch and ready to drink and in Africa
by the growth in beer and also by the growth in ready to drink.
In Asia Pacific net sales growth was stronger in the second half than in the first half of the
year as marketing spend was further increased in key markets.
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 £5.1 billion. The effective
interest rate for the year ending 30 June 2007 is expected to be approximately 5.5%. As a
result of the increase in interest rates the effective interest rate for the year ending 30 June
2008 is currently expected to increase by approximately 0.4 percentage points year on year.
Exchange rate movements
The impact of exchange rate movements on reported profit before exceptional items and tax
is still expected to be about £80 million for the year ending 30 June 2007. Operating profit is
estimated to be negatively impacted by £90 million and interest to be positively impacted by
approximately £10 million.
For the year ending 30 June 2008 the impact of exchange rate movements, based on current
exchange rates, is estimated to have an adverse impact of £40 million on operating profit and
a small positive impact of less than £5 million on interest.
Return of capital to shareholders
Consistent with previous guidance Diageo has returned a further £1.4 billion to shareholders
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, excluding 313 million shares, held by the
company as treasury shares or in trust to hedge employee share option programmes. The
weighted average number of shares, which will be used to calculate eps for the year ending
30 June 2007, will be 2,688 million 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 ends at the close of business
on 30 August 2007.
Preliminary Results
Diageo will announce preliminary results for the year ending 30 June 2007 on 30 August
2007. These preliminary results will be reported on the new basis of four regions; North
America, Europe, International and Asia Pacific, together with corporate. To aid comparison
prior period results on this basis are attached.
Download revised segment information and operating review for prior periods
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 Reform Act of 1995 with
respect to the financial condition, results of operations and business of Diageo and certain of
the plans and objectives of Diageo with respect to these items. In particular, all statements
that express forecasts, expectations and projections with respect to future matters, including
trends in results of operations, margins, growth rates, overall market trends, the return of
capital, the impact of interest or exchange rates, the availability of financing to Diageo,
anticipated cost savings or synergies and the completion of Diageo’s strategic transactions,
are forward-looking statements. By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on circumstances that will occur in the
future. There are a number of factors that could cause actual results and developments to
differ materially from those expressed or implied by these forward-looking statements,
including factors that are outside Diageo’s control.
These factors include, but are not limited to:
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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
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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 of this
announcement and attributable to Diageo are expressly qualified in their entirety by the
above factors and the ‘risk factors’ contained in the annual report on Form 20-F for the year
ended 30 June 2006 filed with the US Securities and Exchange Commission (SEC). Any
forward-looking statements made by or on behalf of Diageo speak only as of the date they are
made. Diageo does not undertake to update forward-looking statements to reflect any
changes in Diageo's expectations with regard thereto or any changes in events, conditions or
circumstances on which any such statement is based. The reader should, however, consult
any additional disclosures that Diageo may make in documents it files with the SEC. All
readers, wherever based, should take note of these disclosures.
The information in this announcement does not constitute an offer to sell or an invitation to
buy shares in Diageo plc or any other invitation or inducement to engage in investment
activities.
Past performance cannot be relied upon as a guide to future performance.
-ENDS-
Contacts
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Catherine James and Darren Jones
+ 44 (0) 20 7927 4267
investor.rel@diageo.com
Kelly Padgett
+ 1 202 715 1110
Media Relations enquiries to:
Isabelle Thomas
+ 44 (0) 20 7927 5967
media@diageo.com