26 January 2017

DIAGEO interim results, six months ended 31 December 2016

Stronger performance reflects continued effective execution against our strategy

Reported net sales (£6,421 million) and operating profit (£2,065 million) were up 14.5% and 28.0% respectively, reflecting accelerated organic growth and favourable exchange

• Organic growth, across all regions, with 1.8% volume growth and 4.4% net sales growth

• Organic operating profit grew 4.4%, in line with top line growth, driven by gross margin improvement, good progress on productivity offset by implementation costs and the profit on sale of the UB shares in the prior period

• Free cash flow continued to be strong at £1,084 million, increasing by £245 million compared to the prior period with net cash from operating activities up £230 million to £1,267 million

• Basic eps of 60.3 pence. Pre–exceptional eps was 62.0 pence, up 21%, as higher operating profit and associate income along with favourable exchange more than offset the impact of disposals and a higher tax rate

• Interim dividend up 5% at 23.7 pence per share

Ivan Menezes, Chief Executive, commenting on the results said:

“We have delivered a strong set of results with broad based improvement in both organic volume and top line growth and this positive momentum demonstrates continued effective execution of our strategy. Highlights this half include improved performance in our US Spirits business and across our scotch portfolio, driven by our focus on marketing with impact, innovating at scale, expanding our route to consumer, and winning in reserve. Progress on productivity supports growth, margin improvement and consistent strong cash flow generation as well as improving our agility.

Diageo is building a stronger, more consistent, better performing company. We are identifying consumer trends faster, expanding the reach of our products across markets and developing trade channels to capture these growth opportunities. Our productivity work is on track, driving efficiency and effectiveness across the business. Our work on trade and marketing spend gives us better data enabling smarter, quicker decisions that generate higher returns.

Our expectations of delivering stronger financial performance this year are unchanged. We are confident of achieving our medium term objective of consistent mid–single digit top line growth and 100bps of organic operating margin improvement in the three years ending 30 June 2019.”