A significant year for Diageo

Our global priority brands continued to meet consumer demand around the world while local priority brands
supplemented these offerings

Diageo has again delivered consistent organic growth with volume up 5%, net sales up 7% and operating profit up nearly 9%. With improved performance against all our measurement criteria, we have reinvested in the business with marketing up 8%, grown our organic operating margin by 40 basis points and free cash flow to £1,365 million. We have achieved this while delivering cash to shareholders and our share price hit a new high this year.

We retained our clear position as the world’s leading premium drinks business. Our global priority brands continued to meet consumer demand around the world while local priority brands supplemented these offerings and innovations led our industry in terms of developing new drinks for the future.

While there were many achievements by our brands this year, strong performance by our scotch whiskies continued to define our business. One of our major successes was Johnnie Walker, which was ranked by Impact Databank as the world’s most valuable premium spirit. The brand also reached sales of over 15 million cases this year, one of only three brands to do so. We are fortunate enough to own a second brand in that elite trio, Smirnoff, which is the best selling premium spirit in the world. And while consumers in existing markets continued to call for brands like these time and again, we also saw opportunity in developing markets such as Brazil, Russia, India, China and Mexico.

This year produced exciting innovations for our business. Some highlights included the introduction of the ultimate Johnnie Walker Blue Label variant, King George V. Selling at an average price of $400, this luxury drink offered consumers a new way to celebrate a special occasion. Baileys flavours found more consumers in more markets with their mint chocolate and caramel offerings while Smirnoff introduced a pre-made cocktail to the United States market allowing consumers to easily enjoy our Grand Cosmopolitan at home whenever they want.

In terms of our business operations, North America delivered strong top and bottom line growth, International delivered double-digit operating profit growth while Europe improved top line growth in the second half. In addition, we created a fourth region, Asia Pacific, which allowed us to give additional focus to this growing area. In doing this, we also added a regional president to our Executive Committee, John Pollaers. We welcomed John to this position in February and look forward to his contribution to our business in his new role.

We announced an investment of £100 million in our scotch whisky business with a new malt distillery, expanded grain distilling capacity and increased packaging and warehousing in Scotland. This planning for the future will meet the growing consumer demand for scotch whisky. Our outstanding collection of whiskies also delivered a significant portion of our profit. We are a business with great offerings for today’s and tomorrow’s consumer.

We look forward to the future and hope that you will continue to support our business and share in its successes.

Paul Walsh
Chief executive