Newstream Photo

Diageo is now a focused premium drinks business and this is the first year in which premium drinks is the sole driver of Diageo's operating performance. The results reflect the strength of the performance platform Diageo has created in premium drinks, based on brand range, advantaged route to market, and global reach. Further, they demonstrate Diageo's ability to deliver value for shareholders. Diageo's leadership position has again improved with share gains in the four major markets. Diageo's operating margin is 23.3% and return on invested capital is 17.6%.

Volume growth of 3% was driven by strong growth of global priority brands, up 5%, and improved performance on category brands, volume up 2%. However, ready to drink slowed, with volume down 4%, as volume declined in Great Britain and the roll-out to new markets was completed. Net sales (after deducting excise duties) grew by 6%, driven by the strong mix improvement in North America and key markets. Exchange rate movements reduced operating profit before exceptional items by £20 million. Operating profit grew by 6%, in a period when marketing investment increased a further 8% and Diageo incurred restructuring costs of £19 million which were taken to operating profit in the period.

Paul Walsh, Chief Executive of Diageo, commenting on the six months ended 31 December 2003 said:

"Diageo, focused as it is now on premium drinks, continues to deliver growth with improvement in key measures of performance in this first half. Further mix improvement combined with good volume growth has led to a 6% organic increase in both net sales (after deducting excise duties) and operating profit at a time when investment in marketing has again increased ahead of net sales growth and we have absorbed restructuring costs. Looking forward the trends that we have seen in the first half are expected to continue despite the uneven recovery in Europe, although the current exchange rate volatility will impact reported results.

"These results also reflect our financial strength; return on invested capital is up 3 percentage points to 17.6%, free cash flow is up £257 million in the period, the interim dividend is up 7% and we have returned a further £256 million to shareholders.

"Diageo is committed to creating shareholder value even in uncertain times. These results demonstrate our ability to do so."

Diageo has an outstanding collection of premium beverage alcohol brands.