Delivered strong net sales growth, with growth across all regions
 

• Reported net sales of GBP 9.4 billion, increased 18.4%, primarily reflecting strong organic net sales growth as well as favourable impacts from foreign exchange, mainly due to the strengthening of the US dollar.
• Organic net sales grew 9.4%, with growth in all regions. Price/mix of 7.6 percentage points reflects a high single-digit price contribution to net sales growth, premiumisation and organic volume growth of 1.8%.
• Growth was enabled by our diversified footprint, advantaged portfolio, strong brands and underpinned by favourable industry trends of premiumisation.

Resilient operating margin despite increased cost inflation
 

• Reported operating profit grew 15.2% to GBP 3.2 billion. Reported operating margin declined by 92bps, with organic margin expansion more than offset by exceptional operating items and foreign exchange.
• Organic operating profit grew 9.7% and organic operating margin expanded by 9bps, driven by leverage on operating cost reflecting disciplined cost management, despite inflation.
• Price increases and supply productivity savings more than offset the impact of absolute cost inflation on gross margin.

Advantaged portfolio and premiumisation drove market share growth
 

• Growth was delivered across most categories, primarily scotch, tequila and beer.
• Premium-plus brands contributed 57% of reported net sales and drove 65% of organic net sales growth.
• Total trade market share grew or held in over 75%(1) of total net sales value in measured markets. Continued optimisation of portfolio through acquisitions and disposals
• Acquired Mr Black, a leading Australian premium-priced coffee liqueur, and Balcones Distilling, a Texas craft distiller and one of the leading producers of American single malt whisky.
• Announced an agreement to acquire Don Papa rum, a super-premium, dark rum from the Philippines.
• Agreed to dispose of Guinness Cameroon S.A., disposed of Archers and completed the disposal and

franchising of a portfolio of brands in India.

Invested to sustain long-term growth
 

• Increased organic marketing investment by 6.8%, reflecting strong, consistent investment in our brands.
• Invested GBP 0.4 billion of capex in supply capacity, sustainability, digital capabilities and consumer

experiences.

Cash flow generation
 

• Net cash flow from operating activities declined by GBP 0.7 million to GBP 1.2 billion.
• Free cash flow of GBP 0.8 billion, declined GBP 0.8 billion. Operating profit and positive foreign exchange impact were offset by higher year-on-year working capital outflow primarily due to lapping a larger increase in creditors, phasing of spend and higher tax payments.
• Strong balance sheet, with leverage ratio(2) of 2.5x as at 31 December 2022, at the lower end of our target range, as a result of strong profit performance.

Continued progress in delivering Society 2030 ESG goals and doing business the right way
 

• Launched 'Drops of Advice', a new global festive responsible drinking campaign.
• Announced plans for a hydrogen powered furnace in the UK to create the world's first net zero glass

bottles to be produced at scale.
 

• Diageo North America was named in the Top 10 Inclusive Companies for 2022.
• Included in Dow Jones World Sustainability Index for the fifth consecutive year.

Continued creation of long-term shareholder value
 

• Increased basic eps by 19.7% to 100.9 pence and pre-exceptional eps by 15.2% to 98.6 pence.
• Increased declared interim dividend by 5% to 30.83 pence per share.
• Total shareholder return was 5%, in the top half of our peer group.
• Expect to complete remaining GBP 0.3 billion of current programme to return up to GBP 4.5 billion of capital to shareholders in February 2023 and return up to an additional GBP 0.5 billion in fiscal 23.

Ivan Menezes, Chief Executive, said:

We have made a strong start to fiscal 23. Organic net sales grew 9%, with growth across all regions, organic volume grew 2%, and organic operating profit grew 10%. In a challenging cost environment, our organic operating margin increased 9 basis points whilst we also continued to invest for the future. Today, Diageo is 36%(3) larger than it was prior to Covid-19, reflecting the strength of our diversified footprint and advantaged portfolio. I want to thank my nearly 28,000 colleagues for their tireless work, focus and agility which has helped us to achieve these results.

Sales growth was supported by our continued focus on premiumising our portfolio, bolstered by strong global premiumisation trends, with our super-premium-plus brands growing organic net sales 12%. As category growth trends continue to normalise following Covid-19, winning quality market share remains a key focus. I am pleased to say that we gained or held share in 75%(4) of total net sales value in our measured markets, demonstrating our strong commercial execution.

We have delivered targeted price increases across all regions, enabled by our expertise in revenue growth management and supported by strong consumer demand for our brands. This, combined with our culture of everyday efficiency, has allowed us to increase our investments. We are investing in world-class brand building, digital and data capabilities and our ambitious 2030 sustainability plan to create a stronger and more resilient business for the long-term.

As we look to the second half of fiscal 23, whilst the operating environment remains challenging, I remain confident in the resilience of our business and our ability to navigate volatility. We believe we are well-positioned to deliver our medium-term guidance of consistent organic net sales growth in the range of 5% to 7% and sustainable organic operating profit growth in the range of 6% to 9% for fiscal 23 to fiscal 25.

Net cash from operating activities and free cash flow (GBP million)

Generated GBP 1,248 million net cash from operating activities(1) and GBP 817 million free cash flow
Net cash from operating activities was GBP 1,248 million, a decrease of GBP 699 million compared to the first half of fiscal 22. Free cash flow decreased by GBP 758 million to GBP 817 million.

Free cash flow decreased as strong growth in operating profit and a favourable foreign exchange impact was more than offset by a higher year-on-year working capital outflow, higher cash tax and interest paid, and increased capital investment.

The additional cash tax payments were the result of increased profit impacting tax instalments, higher balancing payments and adverse FX movements on our tax liabilities. Higher interest cost reflects the higher interest rate environment globally.

The higher year-on-year working capital outflow was due to the normalisation of creditors relative to the first half of fiscal 22, as our growth rate began to moderate in the first half of fiscal 23. Creditors increased significantly in the first half of fiscal 22 due to accelerated growth as markets recovered from the impact of Covid-19. Working capital has also been impacted by the phasing of spend in the half, and the increase was also driven by higher investment in inventory, including maturing stock, to deliver supply chain resilience and to support future growth of the business. This higher investment was also impacted by inflation.
 

• (1) Internal estimates incorporating Nielsen, Association of Canadian Distillers, Dichter & Neira, Frontline, INTAGE, IRI, ISCAM, NABCA, Scentia, State Monopolies, TRAC, IPSOS and other third-party providers. All analysis of data has been applied with a tolerance of +/- 3 bps. Percentages represent percent of markets by total Diageo net sales contribution that have held or gained total trade share fiscal year to date. Measured markets indicate a market where we have purchased any market share data. Market share data may include beer, wine, spirits or other elements. Measured market net sales value sums to 86% of total Diageo net sales value in the first half of fiscal 23.

 

• (2) Ratio of adjusted net borrowings to adjusted EBITDA. For further details see page 53.

 

• (3) Global H1 F23 net sales value 36% ahead of H1 F19 on a constant basis, see page 47 for explanation.

 

• (4) Internal estimates incorporating Nielsen, Association of Canadian Distillers, Dichter & Neira, Frontline, INTAGE, IRI, ISCAM, NABCA, Scentia, State Monopolies, TRAC, IPSOS and other

third-party providers. All analysis of data has been applied with a tolerance of +/- 3 bps. Percentages represent percent of markets by total Diageo net sales contribution that have held or gained total trade share fiscal year to date. Measured markets indicate a market where we have purchased any market share data. Market share data may include beer, wine, spirits or other elements. Measured market net sales value sums to 86% of total Diageo net sales value in the first half of fiscal 23.