At Diageo’s annual general meeting this afternoon, Paul Walsh, chief executive Diageo plc, will make the following comments:
‘Trading in the first three months of the new financial year has been in line with our expectations. We therefore confirm the guidance we gave in July in our trading update and at the time of our results announcement in early September 2004.
Four years ago Diageo embarked on an exit strategy from food to build the world’s leading premium drinks company. To this end, on 4 October 2004 Diageo sold 49.9 million shares of common stock of General Mills, and today our exit from food is now almost complete. This focus on premium drinks created a business that is capable of delivering top and bottom line growth with high and improving operating margins, high and improving return on invested capital and strong cash flow.
It has been our policy that the appropriate capital structure for Diageo is one which achieves capital efficiency, maximises flexibility and gives Diageo the appropriate level of access to debt markets at attractive cost levels. We believe that this can be achieved by targeting a range of ratios which are currently broadly consistent with a single A credit rating.
Today that policy is unchanged. Accordingly, £600 million of the net proceeds received from the sale of common stock in General Mills will be used by Diageo to repay debt. The balance of £600 million of the net proceeds received will be returned to shareholders as part of a larger on-market share buyback programme in our current financial year – the year ending 30 June 2005.
Diageo expects to continue to return to shareholders the surplus capital which arises from free cash flow and other opportunities which may improve financial ratios on an on-going basis. We intend to do so at a rate, which is consistent with our view of capital structure, and of course subject to market conditions. We believe that the most appropriate mechanism by which to return surplus capital is through a combination of an on-market share buyback programme and dividend payments.
From the beginning of Diageo’s 2006 financial year, in July 2005, Diageo intends to rebalance the return to shareholders of surplus capital arising from free cash flow between buybacks and dividends and to gradually build dividend cover over time from the current level.
While final decisions on annual dividends will continue to be taken in the light of earnings performance, inflation and other external factors, the Diageo Board would expect, from February 2006, to hold the company’s dividend increase to shareholders to around 5% annually until dividend cover moves towards 2.0 times.’
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Notes to Editor:
Diageo is the world’s leading premium drinks business. With its global vision, and local marketing focus, Diageo brings to consumers an outstanding collection of beverage alcohol brands across the spirits, wine and beer categories including Smirnoff, Guinness, Johnnie Walker, Baileys, J&B, Jose Cuervo, Captain Morgan, Tanqueray and Crown Royal, and Beaulieu Vineyard and Sterling Vineyards wines. Diageo trades in some 180 markets around the world and is listed on both the New York Stock Exchange (DEO) and the London Stock Exchange (DGE). For more information about Diageo, its people, brands and performance, visit us at www.diageo.com