Final Results - Part 1

Diageo PLC 7 September 2000 PART 1 7 September 2000 DIAGEO ANNOUNCES ORGANIC OPERATING PROFIT GROWTH OF 11% TO £1,980 MILLION AND EPS UP 8% TO 37.3 PENCE Diageo today announced its preliminary results for the year ended 30 June 2000.* Lord Blyth, Chairman of Diageo, said: 'The business and financial performance delivered in this financial year is in line with our goals and expectations for the year. On an organic basis turnover grew 4% to £11,870 million and operating profit grew 11% with particularly strong performances from Spirits and Wine, up 15% and Beer up 14%. Free cash flow was up nearly £500 million to £864 million. The new financial year has begun well. Our businesses continue to perform in line with our expectations and we look forward to the future with confidence.' Paul Walsh, Group Chief Executive of Diageo, said: 'Our performance in this financial year illustrates the rationale behind our recently announced decision to focus on our core beverage alcohol business. Diageo's combined Spirits, Wine and Beer business has achieved significantly higher top and bottom line growth in the year. Investment in our premium beverage alcohol brands, focus by individual market and innovation to find new ways of delivering our brands to consumers together with continued emphasis on the reduction of our cost base will continue to be the drivers of improved performance. We have made changes in marketing focus in Packaged Food during the year and our brands are now well positioned to benefit from the combination announced with General Mills. In Burger King, we believe we have the programmes which will deliver improved performance.' *Unless otherwise stated percentage movements given throughout this statement 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 year and are before goodwill amortisation and exceptional items. Comparisons are with the equivalent period last year. PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 30 JUNE 2000 FINANCIAL HIGHLIGHTS * Turnover up 4% to £11,870 million * Operating profit up 11% to £1,980 million * Spirits and Wine up 15% to £1,002 million * Beer up 14% to £284 million * Packaged Food up 1% to £492 million * Quick Service Restaurants up 6% to £202 million * Profit before goodwill amortisation, exceptional items and tax £1,815 million * £125 million underlying improvement in economic profit * Basic EPS excluding goodwill amortisation and exceptional items up 8% to 37.3 pence * Final dividend 12.6 pence per share. Full year dividend 21 pence per share, up 8% * Free cash flow up nearly £500 million to £864 million IN THE YEAR * Achieved turnover growth of 6% in the combined beverage alcohol businesses and operating profit growth of 15% * Continued to invest behind beverage alcohol brands with marketing spend up 10% * Improved overall operating margin by 1.0 percentage points driven by 1.4 percentage points growth in the operating margin in beverage alcohol * Volume of the global priority brands in Spirits and Wine grew 5% * 1,120 restaurants are committed to the transformation programme in Burger King SINCE THE END OF THE YEAR * The strategic decision to refocus as a leading global beverage alcohol business has been announced * The integration of Guinness and UDV has begun * The proposed combination of Pillsbury with General Mills, involving at least $4.5 billion in cash to be received by Diageo and the acquisition of an approximately 33% shareholding in the enlarged General Mills, was announced on 17 July 2000 GROUP CHIEF EXECUTIVE'S COMMENTS Paul Walsh, Group Chief Executive of Diageo, commenting on the year ended 30 June 2000 said: 'As we announced in July, the integration of Guinness and UDV has created a business with twelve of the world's leading beverage alcohol brands. Its goal will be to achieve a winning share of the global market for beverage alcohol which Diageo estimates to be worth £5 billion in operating economic profit. The new integrated business will focus by market. The four major markets, the United States, United Kingdom, Ireland and Spain, have delivered the highest levels of operating profit growth this year and our strategy to focus on these countries and generate high levels of profitable organic growth through investment in our priority brands there will continue to drive Diageo's overall performance. Accelerated growth from the Spirits and Wine global priority brands and local priority brands will be the key to improved performance in Diageo. This is evidenced by their performance this year when these brands have achieved a 12% increase in net sales in the year. These are all high margin brands in highly profitable categories and Diageo has the infrastructure necessary to continue to grow these brands in the future. Marketing investment behind these important brands has been increased consistently over the last three years and will be maintained at current levels as a percentage of sales as we go forward. In Beer, focus on the Guinness brand has generated 14% organic operating profit growth despite consumer changes in the beer market in Ireland which have affected volume growth of Guinness there. Diageo will continue to generate operating profit growth through volume growth of the Guinness brand as one of its global priority brands and by achieving further cost efficiencies in beer production. The integration of Guinness and UDV into one beverage alcohol business is progressing well. We have already announced the new management structure for Diageo. Changes to the membership of the Diageo Executive Committee were announced on 24 July 2000 and became effective on 1 September 2000. They reflect the fact that our beverage alcohol business is now at the core of Diageo. Our experience in merging UD and IDV has given us considerable ability to implement this integration while continuing to drive improved trading performance. In Packaged Food, performance was in line with last year in overall terms despite stronger competitor activity in some key categories such as refrigerated cookies and frozen breakfast. A restructuring was put in place in the year to reduce costs and achieve more focus by customer. This will benefit sales and operating profit in the next financial year. The combination with General Mills which was announced on 17 July 2000 is expected to be completed around the end of this calendar year. In Quick Service Restaurants, operating profit growth of 6% was generated from a net increase of 635 restaurants in the year and comparable restaurant sales at the same level as last year. In the coming year it is expected that implementation of the restaurant transformation programme and a higher level of targeted promotional activity can improve comparable restaurant sales.' Commenting on current trading, Paul Walsh said: 'The new financial year has begun well. In Guinness UDV, the performance of our global priority brands in the major markets continued to drive overall performance of the business. Investment in effective marketing behind our brands and innovation are the key drivers of growth in this business. New advertising campaigns introduced over the last twelve months such as those behind the Johnnie Walker brand are delivering net sales growth. Similarly, new products are continuing to attract consumers and are being rolled out to new markets, for example, Smirnoff Ice which is now in fourteen markets around the world. In Pillsbury, new products and a more focused sales organisation have led to improved sales and operating profit growth since the beginning of the financial year. Although comparable restaurant sales declined in July in Burger King, we believe that we have the programmes which can deliver an improvement in operating performance. Diageo is now focused around beverage alcohol, driving growth through innovation around our unrivalled portfolio of brands and providing an improved base for sustained profitable top line growth.' The detailed preliminary statement follows. DIAGEO PLC OPERATING AND FINANCIAL REVIEW for the year ended 30 June 2000 SPIRITS AND WINE * Volume up 2% * Volume of the global priority brands up 5% * Turnover up 8% * Marketing expenditure up 12% * Marketing expenditure up 19% on global priority brands * Operating profit growth 15% to £1,002 million * Operating margin up 1.4 percentage points at 20.2% Organic volume growth was 2%. Organic volume growth was 2% driven by growth in the spirits portfolio of brands owned at the year end of 4%. Wine volume was down 7%. Volume growth Share of total volume % % Global priority brands excluding 5 51 ready to drink Local priority brand market units 9 15 Category management and other (2) 20 spirits brands Total spirits (continuing brands) 4 86 Wine (7) 11 Disposal brands (10) 3 Total Spirits and Wine volume 2 100 Turnover increased 8% on an organic basis. Reported turnover was £4,971 million (1999 - £4,929 million), an increase of 1%. Organic growth of 8% offset a £276 million reduction due to brand disposals made since the beginning of the prior year. Mix and price improvements have contributed 6 percentage points of the organic growth in turnover. In a very competitive and sophisticated market place, the incremental investment in marketing made behind individual brands has led to further selective price increases during the year and strong volume growth of the global priority brands across the majority of regions. The successful launch of new products such as Smirnoff Ice has also led to improved mix. Marketing spend increased 12% on an organic basis. Reported investment in marketing was up 7% to £679 million (1999 - £633 million). Organic growth of 12% was offset by a reduction of £20 million in respect of disposals made since the beginning of the prior year. Marketing spend on the global priority brands was up 19% and now represents 69% of total UDV spend, up 4 percentage points over the prior year. Marketing spend on other spirits brands was up 2%. The performance of the global priority brands continues to improve strongly to over 50 million cases. The performance of the global priority brands (GPBs) has strengthened further in the year on all measures including volume up 5% excluding ready to drink (RTD) formats and up 6% including RTD at equivalent units. This improvement in performance was most marked in the United States, United Kingdom and Spain where volume of the global priority brands increased by 7%. Net sales (i.e. sales excluding excise duty) was up 9% and contribution after marketing grew 6% on the GPBs. Further price increases were achieved in the year and these, together with the benefits of price increases implemented in the prior year, have led to significant growth in net sales as the chart below shows. Cases million* Volume growth* Net sales growth* % % Johnnie Walker 3.4 7 9 Black and Deluxe Labels Johnnie Walker Red 6.9 5 5 Label Smirnoff 15.9 4 11 J&B Rare 6.0 1 4 Baileys 4.7 8 14 Cuervo 4.3 13 19 Tanqueray 1.8 2 6 Malibu 2.0 12 15 Gordon's 5.2 4 4 * Excluding RTD Local priority brands also continued to improve with net sales up 21%. Local priority BMU's have again performed very strongly with volume up 9% and net sales up 21%, supported by incremental marketing spend which was up 21%. The key drivers include Dimple in Korea, which has continued to grow strongly, Stolichnaya in the United States which grew volume by 22% and net sales by 26% and Smirnoff Ice in the United Kingdom. Operating profit increased 15% on an organic basis. Operating profit Organic growth £ million % Europe 379 12 North America 318 13 Asia/Pacific 124 41 Latin America 126 9 Rest of World 55 25 1,002 15 Reported operating profit was £1,002 million (1999 - £967 million), an increase of 4%. Organic growth of 15% was partly offset by a £69 million reduction in operating profit due to brand disposals made since the beginning of the prior year. In Europe, volume grew 4% and net sales were up 12%. Total volume in Europe grew 4%, driven by global priority brands up 6% and the successful launch of new ready to drink products such as Gordon's Space and Smirnoff Ice. Price harmonisation across the region was supported by focused marketing investment. The one-off uplift due to the millennium, which was estimated to have benefited operating profit by £10 million was offset by the abolition of intra-EU duty free allowances from 1 July 1999. UK performance was driven by 17% volume growth led by key brands and the successful launch of Smirnoff Ice. All the global priority brands performed well in the UK in the year. The UK spirits market grew in the year and was particularly strong in the categories in which UDV leads. The vodka category grew over 10%, the liqueur category grew more than 15% and speciality drinks grew over 5%. This category growth was driven by UDV brands. Smirnoff volume was up 13% and its market share of branded vodka grew 8 percentage points to 68%. While about a quarter of this growth was attributable to the one-off increase in demand around the millennium the majority of this growth was due to distribution gains and marketing spend including the new 'No imperfections' campaign. Baileys volume grew 21% as the brand is being successfully repositioned away from its traditional seasonal bias. With only about one-third of this growth due to the millennium the further sustained growth of the brand was driven by successful advertising around 'The Thief' campaign and extensive sampling. Volume growth* Net sales growth* % % Johnnie Walker Black and Deluxe 35 32 Labels Johnnie Walker Red Label n/a n/a Smirnoff 13 14 J&B Rare 30 32 Baileys 21 20 Cuervo 23 24 Tanqueray 44 44 Malibu 3 3 Gordon's 9 8 * Excluding RTD In its first year, Smirnoff Ice has sold 124 million bottles and, including ready to drink volume at equivalent units, total Smirnoff volume in the United Kingdom improved by 33%. In Spain, strong growth in the global priority brands has also delivered continued improved performance. Total volume growth in Spain was 12% led by 12% volume growth of the global priority brands as shown in the table below: Volume growth* Net sales growth* % % Johnnie Walker Black and Deluxe 71 68 Labels Johnnie Walker Red Label 8 11 Smirnoff 15 31 J&B Rare 10 12 Baileys 9 16 Cuervo 28 31 Tanqueray 14 18 Malibu 45 52 Gordon's 7 15 * Excluding RTD Price increases were implemented on most brands at between 3% and 7% of net sales. This had an impact on volume growth in the second half, however continued focussed advertising mainly behind the priority brands ensured that net sales continued to grow strongly. The withdrawal of intra-EU duty free reduced total Spirits and Wine volume by 2%. The withdrawal of intra-EU duty free in July 1999 is estimated to have resulted in a net reduction of 1.4 million cases, of which 900,000 cases related to the global priority brands, and a £14 million reduction in contribution after marketing. In North America, strong sales growth in the global priority brands has continued to drive operating profit growth up 13% in the year. Reported operating profit was flat year on year at £318 million. On an organic basis volume was flat with spirits up 4% and wine down 15%. Volume growth of 4% and price increases of 4% on the global priority brands, which represent about 60% of total net sales, contributed to strong sales growth, up 6% on an organic basis. On a reported basis, sales were down 2% to £1,488 million (1999 - £1,512 million) due mainly to disposals. Marketing spend increased 6% on an organic basis and marketing investment behind the global priority brands grew 17%. Growth of the global priority brands in North America is shown below: Volume growth* Net sales growth* % % Johnnie Walker Black and Deluxe 14 17 Labels Johnnie Walker Red Label (1) (1) Smirnoff - 11 J&B Rare (15) (10) Baileys 10 9 Cuervo 14 20 Tanqueray 3 7 Malibu 22 26 Gordon's (7) (1) * Excluding RTD As the table shows the Johnnie Walker brands in total continued to perform strongly on the back of further significant incremental marketing investment, up 7% this year following a 8% increase in the previous year. Marketing investment has been focused on the Black and Deluxe Labels of the Johnnie Walker brand in the United States with spend there up 25%. Therefore, despite a small decline in volume and net sales of Johnnie Walker Red Label, net sales on the Johnnie Walker brand has increased 9% year on year and contribution after advertising and promotion has increased over 13%. Volume performance in Smirnoff exceeded expectations as despite a 12% price increase in the second half, as part of a process to reposition the brand, volume was flat with an 11% increase in net sales. Volume of J&B Rare continued to decline overall although marketing spend has increased by over 50% in the year behind the new marketing campaign. This campaign, targeted towards 24-28 year old males, is driving incremental volume up 12% in those test markets against a year ago and up 18% in the on trade in these markets. Baileys volume improved 10% as the brand was repositioned away from a special occasion image. In some markets the price was reduced to reflect this. The new market positioning has been successful and contribution after marketing increased about 20%. Volume and net sales of Cuervo grew, despite competition from lower priced competitors, as a result of strong performance from Cuervo 1800 and price increases of 2%. The agave shortage, which did not impact Cuervo in the year, is being closely managed. Volume of Tanqueray was up, despite a reduction in stock levels, and net sales increased due to price increases and the successful launch of Tanqueray Ten in the year. Economic recovery in Asia Pacific has led to recovery in the premium Spirits market. Operating profit was up over 40% in Asia Pacific to £124 million. This has been driven by strong volume recovery in premium brands. In Thailand, Johnnie Walker continues to lead the premium and standard Scotch categories with volume of Johnnie Walker Red Label up 16% and Black and Deluxe Labels up 11%. In the secondary Scotch category, Spey Royal volume increased by 50% and net sales increased 60%. In Korea, Dimple grew market share in the premium category by 4 percentage points to 29% with volume up over 80%. In Taiwan, the Johnnie Walker Deluxe Labels all grew market share. Sales of Johnnie Walker Black and Deluxe Labels continued to improve throughout the year and volume was up 21% year on year. In Japan, the market has continued to move away from premium products and volume of Old Parr and Johnnie Walker Black Label has continued to decline in line with the market. In Australia, Bundaberg, Baileys and Johnnie Walker continued to perform well. The spirits based ready to drink category remains an important part of the total beverage alcohol market, representing nearly half of total spirits economic profit in Australia. A decline in the volume of Stoli Lemon Ruski against the previous year adversely affected market share in this category, however, Bundaberg Gold and Cola and UDL grew volume by 21% and 5% respectively. This category will benefit in the coming year from duty changes, resulting in parity with beer, and further new brand introductions. In Latin America, reduced overheads led to a 9% increase in organic operating profit despite a 7% decline in sales. The economic situation in Latin America remained difficult throughout the year, however, there are signs of some improvement, particularly in the two largest economies Brazil and Mexico. Brazil is recovering well following the devaluation of January 1999 and Mexico is benefiting from continued growth in the US economy. Colombia and Venezuela, however, have continued in recession. Overall, volume in priority brands fell year on year, though market share gains were achieved across most brands and markets. In Brazil, the priority brands all performed well with Johnnie Walker Red Label up 6%, Smirnoff up 7% and Baileys grew 29%. In Venezuela, the local priority brands, Buchanans and Old Parr, showed strong growth, as did Johnnie Walker and Baileys in Mexico and Baileys and Johnnie Walker Red Label in Colombia. In Rest of World, operating profit increased by 25% due to continued margin improvement and strategic restructuring. In Rest of World, turnover grew by 6% and operating profit grew by 25%. Increased focus on higher margin brands in many markets improved overall mix. In addition, the restructuring of operations in Russia resulted in increased volume of imported brands and delivered significant overhead savings. Premium wines continue to perform well but weakness in low margin categories led to a decline in total wine volumes. Full year volume for wine brands declined by 7%. The Beaulieu Vineyards brand continued to gain distribution in the United States and benefited from price rises. However, Glen Ellen and Blossom Hill in the United States face increased competition at the lower end of the market and volume has declined and marketing spend was reduced. Increased advertising and promotion for Blossom Hill in the United Kingdom and Ireland has been successful in increasing distribution and volume. BEER * Total volume up 1%, with Guinness volume up 2% * Turnover up 3% * Marketing expenditure up 5% * Operating profit growth 14% to £284 million * Operating margin up 1.2 percentage points at 13.2% Turnover increased 3% on an organic basis. Reported turnover was £2,146 million (1999 - £2,234 million) down 4%. The disposal of Cruzcampo in January 2000 reduced turnover by £118 million and adverse exchange rate movements, in particular the euro, reduced turnover by over £100 million. Turnover benefited by £63 million over last year following the acquisition of United Beverages Holdings in March 1999. Guinness brand volume up 2%. Comparable total volume was up 1% in the year. Guinness volume continued to grow, although the reported increase for the year slowed due to the decline in volume in Ireland and the decision to reduce stock levels in the United States as we introduced a new logistics network. Organic volume growth by region was as follows: Total volume Guinness % % Ireland (1) (4) Great Britain 2 3 Africa 4 7 United States 4 (1) Asia Pacific (3) 2 Other (including discontinued) 1 2 Total 1 2 Organic operating profit growth was 14%. Operating profit grew to £284 million (1999 - £273 million) as continued operating profit growth in Europe offset the impact of the disposal of Cruzcampo during the year. In Ireland, operating profit grew as a result of overhead reductions despite a 1% decline in volume. In Ireland, total volume was down 1% and Guinness volume was down 4% reflecting the changes in the beverage alcohol market in both the Republic of Ireland and in Northern Ireland. In Northern Ireland, total volume was down 8% and Guinness volume was down 10% due to a shift out of beer to spirits based options. In the Republic of Ireland, total volume grew 1% which was broadly in line with the overall beer market. However there has been a marked decline over the last 18 months in the draught beer market where Guinness is strongest as a result of a considerable reduction in the level of pub visits by consumers. This change is being addressed and Guinness marketing investment is now being spent on a programme to make the brand increasingly relevant to a younger customer - 18-34 year old men and women. The 'Live Life to the Power of Guinness' campaign, which began in July 1999, achieved significant changes in brand perception and has made the brand more youthful and approachable. In June 2000, a unique recruitment initiative 'Witnness' was introduced targeted at this younger consumer creating experiences with which to drive adoption of the Guinness brand. Price increases had a favourable impact on profit in the year. Marketing spend was increased but cost reductions have led to margin improvement and operating profit was up. In Great Britain, Guinness volume growth of 3% continues to drive profitable growth. Guinness Great Britain performed strongly with total volume for the year up 2% and Guinness up 3%. While the on trade beer market declined 5% Guinness Draught performed well and volume was up 1% and market share increased. In the off trade, Guinness volume growth was in line with the market and market share was maintained. Volume growth, reflecting the success of the Rugby World Cup sponsorship, improved sales mix with the focus on Guinness and price increases in May 1999 and April 2000 led to significant operating profit growth. Marketing investment on the Guinness brand has increased although overall spend declined following the licensing of Harp. Savings in overheads further contributed to profit growth. In Africa, operating profit increased due to continued volume growth despite worsening economic conditions. In Africa, total volume was up 4% due mainly to growth in Nigeria and Ghana where total volume for each market was up 8%. Guinness volume grew 7% for the year reflecting strong performances across all subsidiaries. Operating profit again grew significantly despite worsening economic situations in a number of markets. In Nigeria, Guinness volume was up 12% despite the re-introduction of excise duty in January 2000. In Ghana, Guinness volume grew 2% despite significant price increases taken following the rapid devaluation of the local currency. In the United States, Guinness continues to increase market share. In the United States depletions were up 10% with Draught Guinness up 12% for the year. Shipments are up 4% in total and down 1% for Guinness as a result of changes introduced in the first half to the logistics network to reduce stock levels at wholesalers. This decision, which led to improved product quality, resulted in inventory reduction of almost 20% overall and of nearly 30% on Guinness. A decision has been made to move forward with the rollout of warehouses nationwide by the end of 2000. This is not expected to have a significant impact on shipment volume next year given that much of the change in stock levels has already been effected at the wholesaler level. Operating profit growth of 20% has been achieved as a result of volume growth and cost savings. Marketing investment was down 8% on the prior year due to purchasing efficiencies and a decision to defer funds to invest behind new promotional opportunities taking place next year. In the coming year, Harp and bottled Guinness Extra will be brewed under contract in Canada for the North American market and this will further improve the profitability of those brands and hence the North American business. In Asia Pacific, operating profit has declined as a result of lower volume. Total volume for the year was down 3% with Guinness volume up 2%. Strong growth in Indonesia partially offset the impact of overall market decline in Malaysia and Singapore. In Malaysia, declining retail consumption together with a reduction of wholesaler stock levels resulted in overall volume down 6%. Guinness however performed well and volume was up 1% despite increased competition. In Singapore, total volume was down 10% and Guinness volume was down 9% against a market decline of 3%. Indonesia has delivered strong volume growth in a difficult economic environment and Guinness volume was up 5% in the year. PACKAGED FOOD * Volume down 1% * Turnover level at £3,812 million * Marketing expenditure up 4% * Operating profit up 1% to £492 million * Operating margin up 0.2 percentage points at 12.9% Turnover was in line with prior year on an organic basis. Turnover was £3,812 million (1999 - £3,757 million). The disposal of non-core brands in the last financial year and the formation in October 1999 of Ice Cream Partners, the joint venture with Nestle for Haagen-Dazs in the United States, resulted in a decline in turnover of £219 million while the Foodservice and other acquisitions increased turnover in the year by £207 million. Volume declined 1% on an organic basis. In Pillsbury North America, volume and sales declined 2% reflecting the strong competitive environment. Operating profit was up 1% on an organic basis and marketing spend increased by 4%. Reported operating profit was £492 million (1999 - £478 million) an increase of 3%. On an organic basis operating profit was up 1% and marketing spend increased by 4% to £774 million (1999 - £740 million). Marketing as a percentage of sales increased 0.8 percentage points against last year. Sales and consumer takeaway trends for Pillsbury North America. Pillsbury NA Pillsbury NA consumer sales growth Category growth takeaway growth % % % Dough products (1) 4 - Non-dough (4) - (2) products Total Pillsbury (2) 1 (2) North America* *Excludes Ice Cream. Source: AC Nielsen. Consumer takeaway (US dollar retail sales) in the 52 weeks ended 1 July 2000. Consumer takeaway for Ice Cream Partners increased 6% against category growth of 3%. Foodservice continued to perform strongly and reported volume increased 35%. Pillsbury Bakeries and Foodservice continued to expand profitably due principally to growth in frozen dough and margins improved over 2 percentage points. Reported volume was up 35% reflecting the benefit of acquisitions and 5% organic volume growth. Turnover on an organic basis grew 6% and operating profit grew significantly. Turnover in International grew 4% and margins improved. In International, on an organic basis, volume grew 1% and turnover grew 4%. Strong growth was achieved in Europe and Asia Pacific while organic volume declined in Latin America due to difficult economic conditions in Argentina and Brazil. Marketing investment was up 14%. QUICK SERVICE RESTAURANTS * Dollar system sales up 5% to $11,417 million * Total restaurants up 6% compared with 30 June 1999 to 11,161 units * Worldwide comparable restaurant sales up 0.1% * Turnover was up 5% from £875 million to £941 million * Operating profit growth 6% to £202 million * Operating margin up 0.3 percentage points at 21.5% 6% growth in restaurant numbers and comparable restaurant sales in line with the prior year have delivered growth in worldwide system sales. At 30 June 2000, there were 11,161 restaurants, a net increase of 635 in the year. Organic growth in operating profit was 6%. Operating profit was £202 million (1999 - £185 million). Operating margin rose 0.3 percentage points due to margin improvement in the United States partially offset by one-off costs in Europe relating to legal costs associated with litigation in Israel and Portugal, and charges relating to the bank default of the franchisee in Poland. In North America, operating performance improved during the year. Turnover grew 2% on an organic basis in North America. Comparable restaurant sales were slightly negative and the system expanded by 309 new restaurants in the year. Despite disruption to the system caused by the transition away from AmeriServe to a new regional distribution system, the North American business delivered 8% operating profit growth in the year. The United Kingdom, Germany and Spain continue to deliver strong sales growth. In each of the key markets, the United Kingdom, Spain and Germany, system sales were up over 10%. Comparable restaurant sales grew 2% in the United Kingdom and 8% in Spain. The strongest performance continued to be in Germany where market share increased as system sales grew 23% due to over 50 new restaurants and comps up 2%. In addition, company restaurants continued to perform strongly and operating profit grew. Latin America delivered positive comparable restaurant sales and strong operating profit growth. Comparable restaurant sales grew 4% in Latin America. In addition, restaurant numbers grew 12% and there was strong operating profit growth. FINANCIAL REVIEW Exchange rates Exchange rate movements during the year adversely impacted profit before exceptional items and tax by £41 million. The adverse impact of exchange rate movements on the translation of overseas operating profit was £14 million and on transactions in the year was £17 million, giving a total impact on operating profit of £31 million. Exchange rate movements also adversely affected the share of profits of associates by £9 million and the interest charge by £1 million. Based on current exchange rates it is estimated that there will be no impact from exchange rate movements on profit before exceptionals and tax for the year ending 30 June 2001. Associates The group's share of profits of associates before interest and exceptional items was £198 million for the year compared with £188 million for last year, an organic growth of 10%. Goodwill Goodwill amortisation in the year was £17 million (1999 - £4 million), mainly in respect of the Packaged Food acquisitions last year. Exceptional items In addition to the final merger integration costs of £83 million, operating cost net exceptional items included £43 million integration and restructuring costs incurred by Pillsbury in the year. These costs related to organisational changes announced in March 2000, which are resulting in the elimination of approximately 400 positions, and to the integration of the recent acquisitions into its Bakeries and Foodservice operations. Exceptional items also included three exceptional items relating to Burger King. Litigation damages of £34 million were awarded by an Australian court in a legal dispute with Burger King's Australian franchisee, Hungry Jack's Pty Ltd. In addition, £38 million was incurred to minimise the interruption of product supply to its entire system and to ensure a smooth transition to Burger King's new US regional distributors following AmeriServe's bankruptcy filing in January 2000. These costs have been partly offset by exceptional income of £17 million. Burger King, as part of its transformation programme, has incentivised franchisees with phased royalty changes for a specified time if they agree to a new franchise agreement and to upgrade and migrate their existing restaurants to the current image requirements within 18 months for the financial year 2000 programme and 12 months for the financial year 2001 programme. The successor franchise agreement involves the receipt of franchise renewal fees which are being reported as exceptional income in 2000 and 2001. The disposals of drinks brands, principally in Europe, resulted in a charge of £247 million, of which £214 million was in respect of goodwill previously written off. The sale of Grupo Cruzcampo SA to Heineken NV resulted in an exceptional gain of £82 million, after charging £224 million in respect of goodwill. Interest The interest charge in the year increased to £363 million from £324 million in the comparable period. Funding the various share repurchases cost £60 million, partly offset by a £41 million benefit in respect of the disposal of businesses. Taxation The effective rate of taxation on profit before goodwill amortisation and exceptional items for the year was 26.2%, the same as the rate for the year ended 30 June 1999. Dividend The directors recommend a final dividend of 12.6 pence per share to be paid on 15 November 2000 to shareholders on the register on 13 October 2000. Dividends for the year will total 21.0 pence per share, an increase of 8% on last year's dividends. A dividend reinvestment plan is available in respect of this dividend and the plan notice date is 25 October 2000. Cash flow Free cash inflow was £864 million, compared with £373 million in the prior year. Cash inflow from operating activities was £2,043 million compared with £1,966 million. This inflow was after £128 million of merger integration costs and a £62 million increase in working capital. Net interest payments were £405 million against £432 million in the comparable year (which included the cost of closing out certain long dated financial instruments in August 1998). Purchases of tangible fixed assets in the year amounted to £547 million, an increase of £13 million. Tax payments were £285 million compared with £566 million, the reduction being due to the receipt of advance corporation tax paid in previous years and lower capital gains payments on disposals. Sale of businesses generated £638 million, which was partly offset by acquisitions costing £151 million. 9.5 million ordinary shares were purchased for cancellation in the year at a cost of £54 million, compared with the cancellation of 175 million ordinary and B shares at a cost of £1,211 million last year. Balance sheet Total shareholders' funds were £4,711 million at 30 June 2000 compared with £4,026 million at 30 June 1999. The principal reasons for the increase were the £263 million retained income for the year and the reversal of the £446 million goodwill charged to the profit and loss account on disposals. Net borrowings were £5,545 million, a decrease of £511 million from 30 June 1999. This decrease reflects the free cash inflow of £864 million noted above and net receipts from sales/purchases of businesses of £487 million, partly offset by dividends paid of £683 million and increases due to exchange movements of £119 million. The group has authority to repurchase up to 10% of its shares and will continue to review its capital structure in the light of market conditions. Annual report and AGM Diageo's annual report will be sent to shareholders by the end of September 2000. The Annual General Meeting will be held at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE at 2.30pm on 9 November 2000. Copies of the group's results presentation to be made to analysts and investors are available upon request. The announcement and the presentation will be on the Diageo website www.diageo.com from 9.30am on 7 September 2000. Investor enquiries to: Catherine James 020 7927 5272 Investor.rel@diageo.com Media enquiries to: Kathryn Partridge 020 7927 5225 Media@diageo.com MORE TO FOLLOW

Companies

Diageo (DGE)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today