This has been another year of significant progress for Diageo. Our focus on delivering consistent and sustainable organic growth has resulted in a strong performance across the business, despite increasingly challenging trading conditions. We have delivered 9% operating profit growth together with a volume increase of 3% and a 7% increase in net sales, on an organic basis. In addition we continued to return cash to shareholders and maintained an efficient group capital structure appropriate for current credit conditions.

Our brands continue to benefit from marketing spend efficiencies and our global scale, as we build upon our position as the world’s leading premium drinks business. Diageo’s range includes 8 out of the top 20 premium spirits brands (source: Impact Databank). In the year just completed we successfully delivered a solid performance across our global and local priority brands.

Within our brands, both J&B and Johnnie Walker delivered growth by building presence in emerging markets where we are seeing increased demand for scotch. Smirnoff, the world’s number one premium spirit, benefited from new advertising campaigns and the introduction of Smirnoff Black in a number of markets. Captain Morgan continued its strong performance, especially in North America. Great advertising campaigns and pricing fuelled the strong growth of Guinness as it outperformed the beer category in Great Britain and Ireland. Importantly in current market conditions,we managed to successfully increase prices across our markets and improve operating margin despite the tight cost environment.

During the year we added three outstanding premium labels to our collection of brands. Our newly formed company with the Nolet Group gives us the opportunity to market and distribute Ketel One vodka worldwide. This agreement extends our platform in the fast-growing super premium vodka segment in North America and beyond. Our agreement to market and distribute Zacapa, widely regarded as the one of the finest rums in the world, and our acquisition of Rosenblum Cellars, a premium Californian winemaker, provide us with a broader offering in growth categories. Organic growth remains a primary focus. We continue to look at selective acquisitions and partnerships with brands and companies that can benefit from Diageo’s global scale and consistent track record in brand stewardship.

Under the direction of strong regional and in-market management teams, our business operations have been agile in changing local market conditions and consumer trends. In North America our premium brand positioning helped drive volume and net sales growth. This was supported by our broad exposure to categories and price points. Diageo Europe delivered an improvement in overall growth driven by Eastern Europe and Russia and the outperformance of Guinness in Great Britain and Ireland. Our relatively new reporting region Asia Pacific performed well despite the impact of the loss of our licence to trade in Korea for part of the year and investment in our regional business infrastructure. Diageo International had another very strong year as our businesses have capitalised on consumers in both Latin America and Africa trending to more premium and international products. The strong performance of our beer brands in Africa drove growth, while Latin America benefited from strong marketing campaigns, which supported price increases, particularly in Brazil, Mexico and Central America.

Sustainability of supply was a key focus as we continued to invest in the business ahead of growing emerging market demand, in particular for our scotch brands. In Scotland, our grain distillery at Cameronbridge and our packaging hall at Shieldhall have seen the start of expansion initiatives, including the commissioning of a biomass facility at Cameronbridge. We have also made progress in the construction of our high capacity malt distillery at Roseisle. During the last 12 months we have undertaken a comprehensive assessment of our brewing operations. This has allowed us to develop our strategy to support the growth and development of our global beer business. This development underpins the €650 million capital investment in a new world-class brewing centre of excellence in Ireland, which we announced in May 2008. The proposal, which is expected to be self-financing, would see the upgrade and consolidation of the St James’s Gate brewery and the commission of a new state-of-the-art brewing facility. Anticipated to be completed in 2013, it will be Diageo’s biggest brewery and the largest in Ireland.

As we look forward we recognise the significant challenges of the year to come. However, the breadth and diversity of our total beverage alcohol business, our geographical spread, and the strength of our outstanding brands, gives us confidence that we can remain resilient against the outlook of a challenging global economy.

Paul S Walsh,
Chief executive