Trading Statement
Diageo PLC
28 June 2007
28 June 2007
Diageo reiterates guidance for 8% organic operating profit growth for the year
ending 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 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.
Revised Segmental Information and Operating Review for prior periods
Diageo announced the creation of Diageo Asia Pacific as its fourth geographic
operating unit in January 2007. Asia Pacific was previously part of the Diageo
International operating unit.
As a result of this change Diageo International now consists of the following
regions 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 and
Corporate have not been impacted by this change.
Revised segmental information for the six month period ended 31 December 2006
and for the years ended 30 June 2006 and 2005 are provided below, together with
the revised Operating Review for the six month period ended 31 December 2006 and
the year ended 30 June 2006. Individual market commentaries as previously
reported 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 1,655
Net sales 884 430 1,314
Marketing 112 100 212
Operating 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 2,826
Net sales 1,456 763 2,219
Marketing 183 171 354
Operating profit* 445 199 644
* There were no exceptional items included in operating profit for the year
ended 30 June 2006
Net sales are after deducting excise duties. Percentage movements in this
statement are organic movements unless otherwise stated. Commentary, unless
otherwise stated, refers to organic movements. Share, unless otherwise stated,
refers to volume share. See the Company's annual report on Form 20-F for the
year ended 30 June 2006 filed with the US Securities and Exchange Commission
(SEC) for an explanation of organic movement calculations and further
definitions, 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 - 4
Profit 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 1,120
Investments in associates 19 - 19
Total assets 789 350 1,139
Total 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 2,424
Net sales 1,258 664 1,922
Marketing 143 126 269
Operating profit before exceptional items 427 188 615
Exceptional items credited to operating profit 4 - 4
Operating profit 431 188 619
Sale of investments and businesses - (1) (1)
Share of associates' profits after tax 5 - 5
Profit 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 1,103
Investments in associates 22 - 22
Total assets 801 324 1,125
Total 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 movement
Key measures: £ million £ million % %
Volume 16 16
Net sales 884 773 14 20
Marketing 112 95 18 27
Operating 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. Reported
operating profit increased by £45 million to £298 million for the six months
ended 31 December 2006.
Organic performance:
Net sales decreased by £33 million as a result of exchange rate impacts. There
was an organic increase in net sales of £144 million. Operating profit decreased
by £14 million as a result of exchange rate movements and organic growth of £61
million was achieved. Transfers between business 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 16 16 12 18
Local priority brands 9 9 12 17
Category brands 20 19 19 23
Total 16 16 14 20
Key brands:
Smirnoff vodka 10 10 (1) 9
Smirnoff ready to drink 36 36 19 33
Johnnie Walker 18 18 18 21
Guinness 10 10 7 13
Baileys 23 23 20 22
Buchanan's - Venezuela 65 65 88 71
Smirnoff vodka grew volume 10% and net sales by 9% driven by increased
distribution and successful advertising throughout Latin America and in Africa.
Smirnoff ready to drink volume grew 36% due to continued growth in Brazil and
the 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 East
Africa due to increased marketing spend, renewed customer focus and economic
growth. Net sales grew by 13% as stronger pricing in Nigeria delivered price mix
improvement.
Baileys grew volume 23% reflecting the successful launch of Baileys flavours in
Global Travel and Latin America. Net sales grew by 22%.
Local priority brand performance was driven in particular by the growth of
Buchanan's in Venezuela.
The Scotch category drove very strong growth in category brands resulting in a
19% 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 were
all up, particularly in Latin America.
Asia Pacific
First half First half Reported Organic movement
F'07 F'06 movement
Key measures: £ million £ million % %
Volume 7 7
Net sales 430 410 5 9
Marketing 100 89 12 16
Operating 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 operating
profit decreased by £3 million to £115 million for the six months ended 31
December 2006.
Organic performance:
Net sales decreased by £17 million as a result of exchange rate impacts. There
was an organic increase in net sales of £37 million. Operating profit decreased
by £1 million as a result of exchange rate movements and transfers between
business 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 12
Local priority brands 4 4 4 5
Category brands 1 1 5 9
Total 7 7 5 9
Key brands:
Smirnoff vodka 17 17 14 24
Smirnoff ready to drink 14 14 5 12
Johnnie Walker 15 15 7 14
Guinness (4) (4) 7 6
Windsor - Korea 13 13 15 13
Good growth of Smirnoff vodka in India and Australia led volume up 17%. Net
sales increased by 24% partly driven by a price increase in India. Smirnoff
ready to drink volume grew 14% due to the re-launch of Smirnoff Ice in Japan.
Johnnie Walker continued to benefit from increased investment throughout Asia
and continued activation of its grand prix team sponsorship. As a result, the
brand grew volume 15% and net sales were up 14%.
Guinness volume declined by 4% whilst growth in Japan and price increases drove
net sales up 6%.
Local priority brand performance was driven by growth of Windsor in Korea which
continued to benefit from successful renovation and increased share by a further
3.0 percentage points.
In category brands, Dimple outside of Korea and Benmore in Thailand performed
strongly and category brand volume grew 1% with net sales up 9%.
Operating review for the year ended 30 June 2006
International
Reported Organic movement
movement
Key measures: 2006 2005
£ million £ million % %
Volume 14 13
Net sales 1,456 1,258 16 14
Marketing 183 143 28 25
Operating 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 £198
million from £1,258 million in the prior year. Reported operating profit before
exceptional items increased by £18 million to £445 million in the year ended 30
June 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 in
net sales of £179 million. Transfers between business segments increased prior
year net sales by £4 million. Operating profit before exceptional items
decreased by £26 million as a result of exchange rate movements. Acquisitions
increased operating profit before exceptional items by £1 million and organic
growth of £44 million was achieved. Transfers between business segments reduced
prior 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 12
Local priority brands 4 4 10 5
Category brands 26 24 24 23
Total 14 13 15 14
Smirnoff vodka 6 6 10 10
Smirnoff ready to drink 50 50 60 59
Johnnie Walker 12 12 9 13
Guinness (3) (3) 5 1
Baileys 8 8 7 6
Buchanan's 34 34 47 40
Good economic conditions in many markets, further investment in the brands and a
focus on market place execution have resulted in the International business
growing 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 held
back as a result of a decline in Cameroon, although this was partly offset by
strong performances in Nigeria and Ghana where price increases accelerated the
growth of net sales ahead of volume.
Baileys grew volume by 8% driven by growth in Global Travel. Promotional
activity in Global Travel has, however, resulted in net sales growing by 6%.
Local priority brand performance was led by the growth of Buchanan's in
Venezuela. Growth of Bell's in South Africa was offset by declines in Tusker and
Pilsner in Kenya.
The performance of category brands has been driven by the growth of Scotch in
Latin America and our beer brands in Africa. Investment behind Diageo's Scotch
brands has enabled the International region to capitalise on market
opportunities. Amongst the successes was Old Parr, which grew significantly
across Latin America with volume and net sales up nearly 60%. In beer, the
successful re-launch of Harp in Nigeria also contributed to the overall growth
in category brands.
Ready to drink grew volume by 39% and net sales by 47%. Smirnoff ready to drink
volume grew by 50%, as a result of strengthened distribution and sales execution
and advertising campaigns on Smirnoff Ice in Brazil, as well as the launch of
Smirnoff Ice in Venezuela and Smirnoff Storm in South Africa.
Asia Pacific
Reported Organic movement
movement
Key measures: 2006 2005
£ million £ million % %
Volume 15 15
Net sales 763 664 15 11
Marketing 171 126 36 30
Operating profit 199 188 6 5
Reported performance:
Reported net sales in the year ended 30 June 2006 were £763 million, up £99
million from £664 million in the prior year. Reported operating profit increased
by £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. There
was an organic increase in net sales of £73 million. Transfers between business
segments increased prior year net sales by £1 million. Operating profit
increased £3 million as a result of exchange rate movements and organic growth
of £10 million was achieved. Transfers between business segments reduced prior
year 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 16
Local priority brands 5 5 14 5
Category brands 15 14 9 5
Total 15 15 15 11
Smirnoff vodka 22 22 24 20
Smirnoff ready to drink 16 16 27 22
Johnnie Walker 23 23 19 19
Guinness 6 6 13 9
Windsor - Korea 11 11 22 9
Increased marketing investment, growing markets in India and China, share gains
in Korea and Thailand and continued growth in ready to drink in Australia led to
volume up 15% and net sales up 11% in Asia Pacific.
Smirnoff vodka increased net sales by 20% with particularly strong growth in
India 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 been
particularly successful in driving growth of Johnnie Walker Black Label and
Super Deluxe variants, where net sales were up 22%. The sponsorship has also
provided a strong platform for Diageo's responsible drinking programmes.
Guinness volume grew by 6% whilst net sales were up 9% with both South East Asia
and Japan experiencing good growth.
Local priority brand performance was led by the return to growth of Windsor in
Korea, 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 to
grow in Australia.
Growth in category brands was driven by the newly launched whisky brands in
Thailand.
Ready to drink volume increased by 10% and net sales by 9%. This was led by
Australia where the Smirnoff, Bundaberg and Johnnie Walker ready to drink brands
all 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 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:
• 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 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:
Investors Relations Catherine James and Darren Jones + 44 (0) 20 7927 4267 investor.rel@diageo.com
Kelly Padgett + 1 202 715 1110
Media Relations Isabelle Thomas + 44 (0) 20 7927 5967 media@diageo.com
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 collection
of beverage alcohol brands across the spirits, wine and beer categories
including Smirnoff, Guinness, Johnnie Walker, Baileys, J&B, Jose Cuervo,
Captain Morgan and Tanqueray, and Beaulieu Vineyard and Sterling Vineyards
wines. Diageo trades in some 180 countries around the world and is listed on
both the New York Stock Exchange (DEO) and the London Stock Exchange (DGE). For
more information about Diageo, its people, brands and performance, visit us at
www.diageo.com
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