Diageo first-half sales decrease by 5% to £5,060m as operating profits rise

DIAGEO, owners of Guinness and Baileys, struggled in the first half of its financial year.

Weaker markets pushed volume sales of key brands down over the six months ended December 31, 2003.

First-half figures show sales fell 5% to £5,060 million while operating profits rose marginally from £1,100 million to £1,160 million.

Exchange rate movements were another factor impacting on the figures, especially dollar weakness. That created a currency translation loss at the operating level of £38m on the dollar operations and a euro gain of £28m, which was an added £10m that impacted further on the figures.

Pre-tax profit, however, was significantly healthier due to a substantial above-the-line adjustments for restructuring that hit the company for £1,300m this time last year.

As a result, profits before tax at £1,259m compare favourably with a loss of £208m in the six months to December 31, 2002. Overall volume sales increases were in low single digit increases across the key brands.

They include Johnnie Walker (9%), Guinness (3%), Baileys 9% J&B (-1%) and José Cuervo (2%). Overall volume growth of the group's global priority brands amounted to 5%.

However, when all brands are included, the total volume increase in the period was a more modest 2% from 65.8m units to 66.9m.

Chief executive Paul Walsh expressed satisfaction with the results.

By getting back to being a focused drinks business, the group is demonstrating its ability to add volume in a competitive market.

He said the trends seen in the first half should continue for the rest of the year. While the weakness of the eurozone is a fact, Mr Walsh said the group would continue to boost sales for the rest of the year.

But currency issues will continue to impact on the year's outcome, as exchange rate volatility is likely to be a factor over the rest of the group's financial year.

Mr Walsh said the results reflected the financial strength of the business. Return on capital was up 3% for the period to 17.6% and the group generated free cash flow of £257m while the interim dividend was raised 7%.