Reporting a robust set of interim results for the six months ended 31 December 2005, Diageo said it was confident of achieved its full-year target of 7% organic growth across the business. The group raised its interim dividend by 5% to 11.95p, on the back of operating profit before exceptionals of £1.26bn, up from £1.19bn in 2004. The best performance came from the North American business, where Diageo has continued to make inroads into the market share. A 0.2 percentage point gain in spirits share helped volumes grow 4%, led by the higher value reserve brands. Net sales, after excise duties, rose 7%, and operating profits were 5% higher.
Although the US market saw a decline in RTD sales (-2%), strong growth in sales of Guinness, Red Stripe and Smithwicks helped net sales to an 18% rise. Wine sales rose 6%. However, Diageo said that rising oil prices and the adverse effect of the hurricane season had somewhat curtailed growth in the North American market. European trading conditions were described as more difficult. Volumes were flat, and net sales declined 1%, although a 7% reduction in marketing spend helped boost operating profits by the same margin. Diageo stated: ìAlthough the continued decline in the (European) drink segment has negatively impacted top line growth, operating profit is up and margins have expanded.î Spirits led the way in Europe, with continued strong growth from Smirnoff (up 9% in volumes) and Johnnie Walker (up 2%). In the international division, volumes rose 11%, and net sales after excise rose 12%, buoyed by a 24% rise in marketing spend. Overall, operating profits for the division were 12% up on the 2004 total, led by Johnnie Walker and Smirnoff, the groupís ëpriorityí brands, which saw volume gains of 12% and 13% respectively. Diageo also noted that category brand growth of 19% in the international arm was driven by successful innovations in Asia and Africa, and said it had seen improvements in performance across Korea, Taiwan and Nigeria. Latin America also performed well, a key area for investors. Volume for the region as a whole was up 14%, and net sales after deducting excise duties rose 22%, aided by strong economic conditions in Brazil, Paraguay and Uruguay. Paul Walsh, chief executive, said it had been a ìstrong first half performanceî. He added: ìWe have again achieved our financial objectives delivering top and bottom line organic growth, organic operating margin improvement and an increase on our return on invested capital. ìStrong cash flow and the liquidation of our remaining interest in Burger King and General Mills have enabled us to double our share buyback programme, returning a further £700m to investors in the period.î