Strong brand growth driving Diageo

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Strong performances from the premium drinks business gave Diageo
hope for improvement in the second half after dropping into the red
in H1.

The sale of the Burger King fast food restaurant chain has impacted first half results at the UK's Diageo group, but the core drinks business on which the group is now focused continued to show excellent growth during the half.

Pre-tax profits reached £1.3 billion, up from £1.2 billion a year earlier, but net results slipped £459 million into the red, due mainly to losses of £1.39 billion on the sale of Burger King to a consortium of investors. The 2001 net results were also boosted by a one-off gain of £360 million from disposals.

Total sales at Diageo in the six months to 31 December 2002 were £5.4 billion, down from £6.5 billion a year earlier, but within that figure there was an 11 per cent increase in sales for the premium drinks business to £4.9 billion.

Group operating profit reached £1.24 billion, virtually unchanged from the previous year, but once again, the premium drinks business showed a much better performance, lifting operating profits by 23 per cent to $1.2 billion.

The strong performance from the drinks arm came as a result of the addition of various Seagram brands and from organic growth. Organic volume sales were up 1 per cent, rising by 4 per cent in value terms, and operating profit from existing brands was ahead 6 per cent.

Within this, the company's global priority brands - such as Smirnoff, Tanqueray, José Cuervo and Johnnie Walker - lifted volume sales by 4 per cent and value sales by 7 per cent. The Seagram brands, such as Captain Morgan, contributed volume sales of 9.4 million cases and £518 million.

Paul Walsh, chief executive of Diageo, said that the first half had been challenging, with economic weakness in Latin America and parts of Europe only partially offset by strong performances in North America, the UK, several African countries and numerous emerging markets.

"Diageo has the scale, geographic reach and brands to face the current challenging environment with confidence,"​ Walsh said. "We acknowledge that these are without doubt uncertain times. However, in the absence of any significant change to market trends, we expect Diageo's organic growth performance in the second half to improve against the first half. In that period we will compare against a lower second half growth rate in 2002 and benefit from the inclusion of the Seagram brands, which continue to perform ahead of our expectations."

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