Improvement in the second quarter resulted in organic net sales of -2% and organic operating profit of -3% for the half. Close management of working capital drove a substantial increase in free cash flow to £0.9 billion for the half. Guidance maintained for low single digit organic operating profit growth for the full year.
Paul Walsh, Chief Executive of Diageo, commenting on the six months ended 31 December 2009 said:
"As we had anticipated this was a challenging six months. The economic and consumer environment remained weak in many markets and we faced a difficult comparison against Q1 last year yet the second quarter did show a return to growth. In addition we reduced stock levels in all regions. While this had a negative impact on volume growth in the half, it positions us appropriately for the future. While pricing opportunities have been limited and the performance of our standard priced brands has been stronger than that of our premium priced brands, our diversity, through category and brand range and our wide geographic reach, means that overall price/mix has been maintained.
"Our category leading brands, the consistency and scale of our marketing investment, successful innovation and our industry leading sales capabilities have led to share gains for Diageo’s priority brands in key markets.
"We are in the early stages of recovery with more encouraging signs in the emerging and developing markets. However, in a difficult environment this half we have continued to improve the efficiency of our functions, reduced our cost base, strengthened our relationships with our customers and generated significant free cash flow which has again enhanced our financial strength. Focused marketing spend by category and geography continues to build our brand equities.
"We are maintaining our guidance for low single digit organic operating profit growth for the full year. At a time when future economic and consumer trends continue to be difficult to forecast, the steps we have taken have created a stronger business which will position the company well."
Financial highlights
- Marketing investment reduced 5% primarily as a result of the reduction in spend in Europe
- Associate income was £94 million, down £26 million from the prior period
- Exceptional operating costs were £95 million
- Finance charges were £237 million. Net interest was £197 million. Net other finance charges were £40 million including £25 million in respect of post employment plans
- Interim dividend per share increased by 5% to 14.60 pence