UK – Drinks group Diageo says the FRS17 pension accounting standard has led to an 88 million-pound (132 million-euro) lower operating profit.

“The adoption of FRS17 has decreased the reported operating profit for the year ended 30 June 2003 by 88 million pounds,” Diageo said in a trading statement.

“This charge has been offset by a decrease in exceptional charges of 14 million pounds and an increase in other finance income of 36 million pounds, giving a net decrease in the profit for the year of 38 million pounds.”

It also said: “In addition, the adoption of the standard has reduced shareholders' funds at 30 June 2003 by 1,865 million pounds.”

Diageo adopted the market-based FRS17 in its primary financial statements from July 1 2003.

“In order to cope with the volatility inherent in this measurement basis, the standard requires that the profit and loss account shows the relatively stable ongoing service cost, finance charge and expected return on assets.

“Differences between expected and actual returns, and changes in actuarial assumptions, are reflected in the statement of total recognised gains and losses.”

Diageo will announce preliminary results for the year ended June 30 on September 2.