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World: Diageo reiterates guidance for 8% organic operating profit growth for the year ending 30 June 2007
On June 28th, Diageo Plc announced 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.
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