Aug 28 - Diageo reports another year of strong organic growth: net sales up 7%, operating profit up 9% and underlying eps up 11%2
• Marketing spend increased 5%. Excluding Korea, marketing spend on non ready to drink brands increased 8%
• Operating exceptional charge of £78 million in the year ended 30 June 2008 in respect of the restructuring of the Irish brewing operations
• Interest charge increased £90 million to £341 million
• eps before exceptional items 2 increased from 54.8 pence in 2007 to 60.6 pence in 2008, which excluding acquisitions, disposals and exchange is an 11% increase (underlying eps)
• Return on invested capital increased 50 basis points to 14.9%
• Free cash flow of £1,252 million
• Recommended full year dividend per share increase of 5% to 34.35 pence
• £1.9 billion returned to shareholders: £857 million in dividends and £1.0 billion of share buybacks
Unless otherwise stated in this announcement: net sales are sales after deducting excise duties; percentage movements are organic movements; commentary refers to organic movements and share refers to value share. See page 28 for additional information for shareholders and an explanation of non-GAAP measures including the reconciliation of basic eps to underlying eps.
Paul Walsh, Chief Executive of Diageo, commenting on year ended 30 June 2008 said:
"The combination of Diageo’s leading brands and our global reach has delivered another year of strong organic growth with net sales up 7% and operating profit up 9%.
The main drivers of top and bottom line growth were International, where scotch in Latin America and beer in Africa drove net sales growth of 16%, and North America, where growth in the priority brands drove a 5% increase in net sales. In Europe, we delivered better performance than last year, with net sales up 3% from growth in Eastern Europe, Russia and Great Britain. In Asia Pacific, even though overall performance was impacted by the loss of our Korean licence for part of the year, we grew the top line 2% as we gained share in China and expanded in India and the markets of South East Asia.
We have continued to invest behind great campaigns and this year has seen our global priority brands again extend their leadership positions. Smirnoff grew across all markets posting 8% volume and 10% net sales growth. Johnnie Walker grew net sales by 12% and now has annual net sales of over £1 billion. The return to growth of JεB in Europe together with its strong performance in International delivered 9% net sales growth. Guinness grew net sales 6% with over 50% of that growth coming from Africa, where the brand grew 13%. Our other beer brands in Africa grew net sales 25%.
Price rises and mix improvement covered increased input costs and gross margin has improved. We have benefited from marketing spend efficiencies and scale in our global brands and we have reduced marketing spend in ready to drink to maintain the profitability of that segment. Overall we have delivered a further 70 basis points organic improvement in operating margin.
During the year we added Ketel One vodka, Zacapa rum and Rosenblum Cellars wine to our brand range. These are already successful brands and we intend to build on that success.
Our financial results in recent years have mirrored the consistent improvement we have achieved in our business and we finish the year with a stronger business. We enter the new financial year facing slowing global GDP growth and more challenging global economic trends, but given the strength and diversity of Diageo’s business we believe we can deliver organic operating profit growth for the coming year within our range of 7% to 9%. Together with the expected positive impact of exchange rate movements on reported results and our share buyback programme this means we expect to deliver double-digit reported eps growth."
1 For year ended 30 June 2008 tax rate of 24.9%. For year ended 30 June 2007 tax rate of 32.4%. Discontinued operations gain after tax for the year ended 30 June 2008 of £26 million, for the year ended 30 June 2007 of £139 million.
2 Using an underlying effective tax rate of 24.5% in 2008 and 25.1% in 2007.