Diageo, the international food and drinks company, today announced its interim results for the six months ended 31 December 1999.
|
|
6 months to
Dec 99 |
6 months to
Dec 98 |
|
Turnover |
£6,596 million |
£6,267 million |
|
Operating profit* |
£1,151 million |
£1,099 million |
|
EPS* |
22.6 pence |
20.5 pence |
|
*pre exceptional items and goodwill amortisation |
|
| |
OPERATING HIGHLIGHTS
for the six months ended 31 December 1999
Percentage movements given below and in the Group CEO´s comments for turnover, operating profit and marketing expenditure are organic movements (at level exchange and after adjusting for acquisitions and disposals). They include merger cost savings achieved in the period and are before goodwill amortisation and exceptional items. Comparisons are with the equivalent period last year.
Diageo
- Turnover up 7%
- Marketing spend up 13%
- Operating profit growth 10%
- Operating margin up 0.3 percentage points to 17.4%
- Additional merger cost savings of £40 million
- Profit before goodwill amortisation, exceptional items and tax £1,087 million
- £68 million underlying improvement in economic profit
- Basic EPS excluding goodwill amortisation and exceptional items up 10% to 22.6 pence
- Interim dividend 8.4 pence per share, up 8%
- Free cash flow £416 million after merger integration spend of £53 million
Spirits and Wine
- Volume up 6%
- Volume of nine global priority brands up 9%
- Turnover up 11%
- Marketing expenditure up 14%
- Marketing expenditure up 22% on the nine global priority brands
- Operating profit growth 14% to £614 million, Europe up 15%, North America up 12%, Asia Pacific up 31%, Latin America down 4% and Rest of World up 36%
- Operating margin up 0.5 percentage points to 21.3%
Note: Volume includes Ready-to-Drink brands at equivalent units (one-tenth of case volume). Volume of the global priority brands excludes Ready-to-Drink.
Packaged Food
- Volume up 4%
- Turnover up 5%
- Marketing expenditure up 15%
- Operating profit level at £271 million
- Operating margin down 0.6 percentage points to 13.2
Beer
- Total volume up 1%, with Guinness volume up 2%
- Turnover up 1%
- Marketing expenditure up 11%
- Operating profit growth 14% to £161 million
- Operating margin up 1.3 percentage points to 13.5%
- Quick Service Restaurants
Quick service Restaurants
- Dollar system sales up 6%
- Total restaurants up 6% compared with 31 December 1998 to 10,850 units
- Worldwide comparable restaurant sales up 0.4%
- Operating profit growth 5% to £105 million
- Operating margin up 0.3 percentage points to 22.4%
GROUP CHIEF EXECUTIVE´S COMMENTS
John McGrath, Group Chief Executive of Diageo, commenting on the six months ended 31 December 1999 said:
"In September 1999, I said that profitable top line growth would be the key contributor to delivering our shareholder value objective and we have achieved profitable top line growth in this period. Turnover is up 7% and operating profit is up 10% overall. To continue this momentum, we have increased the marketing spend behind Diageo´s brands by 13% in the period which will further strengthen their leadership positions and drive shareholder value.
In our Spirits and Wine business, we have created a new model for the industry. We are focused on those markets with the greatest potential for economic profit improvement. We have created for each of these markets a brand portfolio which will ensure that we capture the largest share of that potential. These results demonstrate that our strategy is being well executed and will drive substantial value in the future. The Spirits and Wine business has delivered on all fronts: top line growth of 11% driven by an overall volume increase of 6%; margin improvement of 0.5 percentage points; operating profit improvement of 14%. Our major markets of North America and Europe generated considerable operating profit growth and accounted for 70% of operating profit improvement. Similarly our strongest brands, the nine global priority brands, grew substantially and contributed over half of the overall improvement. However, growth is now being achieved more consistently throughout the spirits portfolio and in more markets throughout the world. We are confident that the strength of our Spirits and Wine business, with its leadership positions in all major markets and with its pre-eminent brand portfolio, will continue to deliver growth and generate high levels of cash going forward.
In Packaged Food, top line growth of 5% was achieved in the period. However, marketing spend was increased by 15% and therefore operating profit was flat. Performance has been mixed between categories. Foodservice continues to perform strongly. The acquisitions we made last year have been successfully integrated, operating margins have improved and strong organic growth has again been achieved in the period. In Refrigerated Baked Goods, mix improvement continued but market share has fallen as low value products such as Regular Biscuits declined further and turnover was flat. In the Ready-to-Serve Soup and Pizza and Hot Snacks categories our Progresso and Totino´s brands continue to grow strongly at both the top and the bottom line. In other categories significant incremental marketing spend has driven volume growth for the Green Giant and Pillsbury brands. However, the amount of incremental volume achieved was below our expectations and operating margins fell. In the second half, we are reducing promotional spend in lower value product categories which will impact volume growth in the second half for Pillsbury North America.
In Beer, this has been another period of strong operating profit growth, amounting to 14%. The Guinness brand continues to deliver volume growth with a 2% increase despite a slow start in Ireland. Our decision to reduce stock levels in the United States as part of a programme of supply chain improvements in Beer, also had an adverse impact on shipments while depletions were up 10%. In Great Britain, the Guinness brand has achieved further market share gains and volume growth was driven by excellent marketing campaigns particularly around the Rugby World Cup. We continue to invest in the brand throughout the world and marketing spend increased further as a percentage of sales to 10.4%. Overheads have been reduced and operating margin has risen by 1.3 percentage points. The strength of the Guinness brand together with the opportunity which exists to reduce the cost structure of our Beer operations, will result in margin improvement and enable strong operating profit growth to be delivered.
Quick Service Restaurants system sales increased as the number of restaurants increased by 324 in the period. Despite a slow start to the year with negative comparable restaurant sales (comps) in the United States in the first quarter, momentum began to build in the second quarter when comps were up 4%. For the six months, worldwide comps were up 0.4%. Operating profit growth was 5% despite an expansion of the organisation in Europe which increased overheads. This expansion will provide the base for further growth of the system in Europe. In the United States, the new restaurant transformation programme continues to produce sales growth in the test restaurants which exceed our expectations. These new ways of delivering the Burger King brand to consumers will be the key to the future growth of our Quick Service Restaurant business. These new formats will build on an already strong consumer franchise as the Burger King brand remains the consumers´ favourite choice for hamburgers in the United States. Further improvement in the United States and continued profitable expansion of the system outside the United States will be key to profitable growth of our QSR operations.
Commenting on the outlook for the full year John McGrath said:
"In Spirits and Wine, there will be further price increases in the second half, particularly on selected global priority brands and this is expected to have some impact on volume. However, this more favourable price impact, together with further strong mix improvement, mean that we will continue to deliver strong turnover and operating profit growth. In Packaged Food, the tough competitive environment we face in the United States will continue to impact performance in Pillsbury North America in the second half, although we expect strong growth in our Foodservice business and improved performance in International to result in modest total operating profit growth for the full year. In Beer, growth of the Guinness brand and margin improvement will continue. In Quick Service Restaurants, we believe that international growth and further improved performance in the United States will deliver a stronger second half performance."
Sir Anthony Greener, Chairman, commented:
"In this period we have built upon the achievements of the second half of last year and these results demonstrate a high level of overall performance. The merger that we completed two years ago was designed to create a major new force in branded food and drink, operating on a truly international scale and achieving significantly higher rates of topline growth than its two predecessor companies. This we are now achieving. These results show the value creating power of Diageo and going forward we are confident that Diageo can continue to deliver overall levels of topline and operating performance similar to our achievements in the first six months."