Diageo reports strong first half performance and increases guidance for full year organic operating profit growth to 8%
Paul Walsh, Chief Executive of Diageo, commenting on the six months ended 31 December 2006 said:
"Diageo has made a strong start to the year. Excellent performances in North America and International and unchanged profits in Europe delivered double digit underlying earnings growth. Our spirits brands, especially Scotch where net sales grew 11%, did particularly well, benefiting from increased investment in marketing. As a result of this strong start we are increasing our guidance for organic operating profit growth to 8% for the full year. We still expect to return a total of £1.4 billion to shareholders through share buybacks this year and to continue our progressive dividend policy.
"In North America our continued outperformance in the US spirits market was the key driver of the 11% organic operating profit growth we delivered. Operating leverage from price and mix improvements in beer, wine and ready to drink also contributed to the margin expansion we achieved.
"In International, we again grew marketing spend faster than net sales. This investment delivered stronger top line growth, share gains in markets from China to Mexico, organic operating margin expansion and organic operating profit grew 17%.
"In Europe, growth in our Continental Europe hub and in Russia was offset by weaker top line performance in Great Britain, Ireland and Spain and total net sales declined. However, as in North America, price and mix improvement led to organic operating margin expansion and on an organic basis operating profit was maintained.
"We believe that a capital structure broadly consistent with a single A credit rating gives Diageo the appropriate level of flexibility and given our strong free cash flow this capital structure would allow us to fund a £1 billion share buyback programme in fiscal 2008.’
Key highlights of the six months ended 31 December 2006
- 8% net sales growth in spirits is the key driver of overall performance
- Marketing spend increased by a further 6% with spend focused on growth brands and markets
- Operating margin improved by 90 basis points
- Using an effective tax rate of 25% eps before exceptional items rose from 31.1 pence in first half F’06 to 34.4 pence in first half F’07, which adjusted for exchange is a 14% increase
- Return on invested capital increased 90 basis points to 17.7%
- Strong free cash flow of £672 million
- High payout ratio maintained as interim dividend per share is increased by 5% to 12.55 pence
- £1.22 billion returned to shareholders through £524 million in dividends and £700 million of share buybacks
Results at a glance
|
|
|
First half F'07 |
First half F'06 |
Reported movement |
Organic movement |
|
Volume in millions of equivalent units |
|
75.7 |
72.6 |
4% |
4% |
|
Net sales |
£ million |
4,022 |
3,960 |
2% |
6% |
|
Opertaing profit |
£ million |
1,306 |
1,261 |
4% |
8% |
|
Profit attributable to parent company's equity shareholders |
£ million |
895 |
1,166 |
(23)% |
|
|
Basic eps |
Pence |
32.8* |
40.4* |
(19)% |
14% |
* For six months ended 31 December 2006 tax rate 28.3%. For six months ended 31 December 2005 tax rate 14.0%.
Net sales in this document are sales after deducting excise duties. Percentage movements in this document are organic movements unless otherwise stated. Commentary, unless otherwise stated, refers to organic movements. Share, unless otherwise stated, refers to volume share. See page 27 for additional information for shareholders and an explanation of non-GAAP measures including the reconciliation of basic eps as reported to underlying basic eps.
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