Consistent volume growth and mix improvement delivers 7% organic operating profit growth and strong free cash flow
Summary Financials
| |
|
|
2004
£ million |
2003
£ million |
Reported movement
% |
Organic movement
% |
|
Premium drinks |
8,891 |
8,802 |
1 |
6 |
|
Burger King |
- |
479 |
|
|
|
Turnover |
8,891 |
9,281 |
|
|
|
Premium drinks |
1,911 |
1,902 |
- |
7 |
|
Burger King |
- |
53 |
|
|
|
Operating profit before exceptional items |
1,911 |
1,955 |
|
|
Organic Growth
-
Volume up 4%
-
Net sales (after deducting excise duties) up 6%
-
Marketing investment including certain promotional expenditure* up 7%
-
Operating profit up 7%
-
Operating margin up 0.3 percentage points
Organic growth is before exceptional items
* Marketing investment increased 6% with a further 1% growth in promotional spend reclassified against turnover under the amendment to FRS 5
Other Financial Highlights
Free cash flow rose £241 million to £1,450 million.
| |
|
|
2004 |
2003 |
|
Operating profit after exceptional items |
£1,871m |
£1,787m |
|
Basic eps before exceptional items |
48.2p |
47.7p |
|
Profit for the year |
£1,392m |
£50m |
|
Basic eps |
45.9p |
1.6p |
|
Return on invested capital |
14.5% |
13.1% |
Recommended final dividend 17.0 pence per share, up 8.3%, making 27.6 pence for the full year, an increase of 7.8%
Figures for the year ended 30 June 2003 have been restated following the adoption of FRS 17 – Retirement benefits, UITF 38 - Accounting for ESOP trusts and the amendment to FRS 5 – Reporting the substance of transactions. See page 29 for explanatory notes
Paul Walsh, Chief Executive of Diageo, commenting on the year ended 30 June 2004 said:
“Diageo has again demonstrated with these results that its outstanding collection of brands and its geographic diversity is delivering improvement in the important measures of trading and financial performance. The global priority brands have been the key driver of the improvement we have achieved in volume growth, up from 1% last year to 4% this year.
Continued growth in North America and in other large markets such as Africa, has delivered improved sales mix and further organic operating margin expansion, building return on invested capital to 14.5%. While the strength of sterling against many currencies has cost 5 percentage points of eps growth before exceptional items, the overall quality of our trading performance is reflected in the level of free cash flow we have generated, up £241 million this year to £1.5 billion.
As we begin the new financial year we reiterate the guidance we gave at the time of the July trading statement as we do not see any major changes in the trading environment we face. Europe remains our key business challenge and North America continues to provide our biggest opportunity. We will continue to invest in our brands and markets to capture the highest value growth opportunities for our shareholders.”
Key highlights
-
Having achieved focus on premium drinks, Diageo’s scale, geographic diversity and outstanding collection of brands are now driving consistent performance.
-
Organic operating profit grew by 7%, in a year when Diageo incurred restructuring costs of £50 million, which were taken to operating profit.
-
Diageo’s operating margin was 21.5% and return on invested capital was 14.5%.
-
Organic volume growth improved to 4%, driven by continued strong performance by the global priority brands, volume up 5%, and improved performance on category brands, volume up 3%. Local priority brands were flat. Ready to drink improved, with organic volume growth of 7% as a result of the successful launch in North America of Smirnoff Twisted V.
-
Organic net sales (after deducting excise duties) grew by 6%, driven by the further mix improvement in North America and in venture markets.
-
Marketing investment increased 6%, with a further 1% growth in promotional spend reclassified against turnover under application note (G) to FRS 5. This reflected a 10% increase in spend behind brands excluding ready to drink and lower spend behind ready to drink products.
-
The overall strength of the trading performance is reflected in the increase in free cash flow of £241 million to £1.45 billion.
-
Exchange rate movements reduced profit before exceptional items and tax by £97 million and after tax reduced reported eps by 2.4 pence per share.
-
Basic eps before exceptional items of 48.2p will be negatively impacted in the year ending 30 June 2005 by 2.5p in respect of currency movements and 3.0p in respect of the change in treatment for the investment held in General Mills from equity to investment accounting. This gives a rebased eps figure for the year ended 30 June 2004 of 42.7p.
% movements are organic movements. These movements and operating margins are before exceptional items. See page 36 for explanatory notes.
For further information
Diageo’s preliminary results presentation to analysts and investors will be broadcast at 09.30 (UK time) on Thursday 2 September 2004 on Diageo's internet home page at the address: www.diageo.com. Prior to the live link, the presentation slides will also be available to download from Diageo's home page.
You will be able to listen to a live broadcast of the presentation and to the question and answer session.
The number to call is:
France +33 1 70 75 00 02
Germany +49 69 2222 52100
Ireland +353 1 246 0034
Netherlands +31 20 710 0075
Spain +34 91 414 15 45
UK +44 20 7019 0810
USA (toll free) 1 877 951 7311
Passcode: Diageo results
After the presentation the slides and accompanying text will be available to download from Diageo’s home page.
You will be able to view a recording of the presentation and question and answer session on the Diageo website from 14.00 (UK time) on the day. This facility will be available until 30 September 2004.
A press conference will take place beginning at 12.30 (UK time) on Thursday 2 September and will be broadcast live from a link on www.diageo.com.
Diageo management will host a conference call for analysts and investors at 15.00 (UK time) on Thursday 2 September. Call this number to participate:
France +33 1 70 75 00 02
Germany +49 69 2222 52100
Ireland +353 1 246 0034
Netherlands +31 20 710 0075
Spain +34 91 414 1545
UK +44 20 7019 0810
USA (toll free) 1 877 951 7311
Passcode: Diageo results
The teleconference will be available on instant replay from 17.00 (UK time) and will be available until 30 September 2004. The number to call is:
UK/Europe +44 20 7970 8252
USA/Canada (toll free) 1 877 267 9698
The full text of this announcement is available to download in pdf format here.