FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

DIAGEO plc
(Exact name of Registrant as specified in its charter)

England
(Jurisdiction of incorporation)

8 Henrietta Place, London W1G 0NB
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

If ‘Yes’ is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b).

This report on Form 6-K shall be deemed to be filed and incorporated by reference in the registration statements on Form F-3 (File No. 333-110804) and registration statements on Form S-8 (File Nos. 333-08090, 333-08092, 333-08094, 333-08096, 333-08098, 333-08100, 333-08102, 333-08104, 333-08106, 333-09770, 333-11460, 333-11462) and to be a part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.

INDEX TO FORM 6-K

		Page
Introduction		2
Presentation of financial information		2
Cautionary statement concerning forward-looking statements		3
Trademarks, Trade Names and Market Data		4
Selected Consolidated Financial Data		5
Capitalisation and Indebtedness		10
Operating and Financial Review		11
Information presented		11
Operating results for the six months ended 31 December 2006 compared with the six months ended 31 December 2005		14
Liquidity and capital resources		27
New Accounting Standards		30
International Financial Reporting Standards		30
United States standards and other pronouncements		30
Recent Developments		32
Unaudited Financial Information for the Six Months Ended 31 December 2006 and 31 December 2005		F-1
Unaudited consolidated income statement		F-2
Unaudited consolidated statement of recognised income and expense		F-3
Unaudited consolidated balance sheet		F-4
Unaudited consolidated cash flow statement		F-5
Notes to the unaudited consolidated financial information		F-6
US GAAP unaudited consolidated financial information		F-13
Unaudited Computation of Ratio of Earnings to Fixed Charges		F-24
Signature

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INTRODUCTION

Diageo plc is a public limited company incorporated under the laws of England and Wales. As used herein, except as the context otherwise requires, the term “company” refers to Diageo plc and the terms “group” and “Diageo” refer to the company and its consolidated subsidiaries. References used herein to “shares” and “ordinary shares” are, except where otherwise specified, to Diageo plc’s ordinary shares.

Presentation of financial information

Diageo plc’s fiscal year ends on 30 June. The company publishes its consolidated financial statements in pounds sterling. In this document, references to “pounds sterling”, “sterling”, “£”, “pence” or “p” are to UK currency, references to “US dollars”, “US$”, “$” or “¢” are to US currency and references to the “euro” or “€” are to the euro currency. For the convenience of the reader, this document contains translations of certain pounds sterling amounts into US dollars at specified rates, or, if not so specified, the noon buying rate in New York City for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York (the “noon buying rate”) on 29 December 2006 of £1 = $1.96. No representation is made that the pounds sterling amounts have been, could have been or could be converted into US dollars at the rates indicated or at any other rates.

Diageo’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards as endorsed and adopted for use in the European Union (IFRS). This interim financial information complies with applicable IFRS and has been prepared in accordance with IAS 34—Interim Financial Reporting. There is no difference between IFRS as applied in this document by Diageo and applicable IFRS as issued by the International Accounting Standards Board (IASB).

The operating and financial review, IFRS selected consolidated financial data and IFRS financial information included in this document for the six month periods ended 31 December 2006 and 31 December 2005 have been derived from the published Diageo interim financial statements. In addition, this document contains separate financial information of the group under US GAAP and details of the principal differences between IFRS and US GAAP relevant to Diageo.

The principal executive office of the company is located at 8 Henrietta Place, London, W1G 0NB, England and its telephone number is +44 (0) 20 7927 5200.

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Cautionary statement concerning forward-looking statements

This document contains statements with respect to the financial condition, results of operations and business of Diageo and certain of the plans and objectives of Diageo with respect to these items. These forward-looking statements are made pursuant to the “Safe Harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. In particular, all statements that express forecasts, expectations and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of interest or exchange rates, the availability of financing to Diageo, anticipated cost savings or synergies and the completion of Diageo’s strategic transactions, are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including factors that are outside Diageo’s control.

These factors include, but are not limited to:

·  increased competitive product and pricing pressures and unanticipated actions by competitors that could impact Diageo’s market share, increase expenses and hinder growth potential;

·  the effects of business combinations, partnerships, acquisitions or disposals, existing or future, and the ability to realise expected synergies and/or cost savings;

·  Diageo’s ability to complete existing or future acquisitions and disposals;

·  legal and regulatory developments, including changes in regulations regarding consumption of, or advertising for, beverage alcohol, changes in tax law (including tax rates) or accounting standards, changes in taxation requirements, such as the impact of excise tax increases with respect to the business, and changes in environmental laws, health regulations and the laws governing pensions;

·  developments in the alcohol advertising class actions and any similar proceedings or other litigation directed at the drinks and spirits industry;

·  developments in the Colombian litigation and any similar proceedings;

·  changes in consumer preferences and tastes, demographic trends or perceptions about health related issues;

·  changes in the cost of raw materials and labour costs;

·  changes in economic conditions in countries in which Diageo operates, including changes in levels of consumer spending;

·  levels of marketing, promotional and innovation expenditure by Diageo and its competitors;

·  renewal of distribution rights on favourable terms when they expire;

·  termination of existing distribution rights on agency brands;

·  technological developments that may affect the distribution of products or impede Diageo’s ability to protect its intellectual property rights; and

·  changes in financial and equity markets, including significant interest rate and foreign currency exchange rate fluctuations, which may affect Diageo’s access to or increase the cost of financing or which may affect Diageo’s financial results.

All oral and written forward-looking statements made on or after the date of this document and attributable to Diageo are expressly qualified in their entirety by the above factors and the “risk factors” contained in the annual report on Form 20-F for the year ended 30 June 2006 filed with the

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US Securities and Exchange Commission (SEC). Any forward-looking statements made by or on behalf of Diageo speak only as of the date they are made. Diageo does not undertake to update forward-looking statements to reflect any changes in Diageo’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures that Diageo may make in documents it files with the SEC.

The information in this document does not constitute an offer to sell or an invitation to buy shares in Diageo plc or any other invitation or inducement to engage in investment activities.

This document includes information about Diageo’s debt rating. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organisation. Each rating should be evaluated independently of any other rating.

Past performance cannot be relied upon as a guide to future performance.

TRADEMARKS, TRADE NAMES AND MARKET DATA

This report on Form 6-K includes names of Diageo’s products which constitute trademarks or trade names which Diageo owns or which others own and license to Diageo for its use.

The market data contained in the document is taken from independent industry sources in the markets in which Diageo operates.

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SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set out below should be read in conjunction with, and are qualified in their entirety by reference to, the unaudited financial information and notes presented elsewhere in this document and to Diageo’s annual report on Form 20-F for the year ended 30 June 2006.

The following table presents selected IFRS and US GAAP consolidated financial data for Diageo: for the six month periods ended 31 December 2006 and 31 December 2005 and as at the respective period ends, derived from the unaudited interim consolidated financial information presented elsewhere in this document; and for the two years ended 30 June 2006 and as at the respective year ends, derived from Diageo’s consolidated financial statements audited by Diageo’s independent auditor. The unaudited interim consolidated financial information, in the opinion of Diageo management, includes all adjustments, consisting solely of normal, recurring adjustments, necessary to present fairly the information contained therein. The results of operations for the six month period ended 31 December 2006 are not necessarily indicative of the results for the year ending 30 June 2007.

		Six months ended 31 December														Year ended 30 June
Income statement data(1)(8)		2006		2006						2005						2006						2005
IFRS		$ million		£ million						£ million						£ million						£ million
Sales		10,502			5,358						5,359						9,704						8,968
Operating profit(2)		2,560			1,306						1,261						2,044						1,731
Sale of General Mills shares and other businesses		—			—						151						157						214
Profit for the period
Continuing operations(2)		1,827			932						1,205						1,965						1,326
Discontinued operations(3)		—			—						—						—						73
Total profit for the period		1,827			932						1,205						1,965						1,399
Per share data		$			pence						pence						pence						pence
Dividends per share(4)		0.25			12.55						11.95						31.10						29.55
Earnings per share
Basic
Continuing operations(2)		0.64			32.8						40.4						67.2						42.8
Discontinued operations(3)		—			—						—						—						2.4
Basic earnings per share		0.64			32.8						40.4						67.2						45.2
Diluted
Continuing operations(2)		0.64			32.6						40.4						66.9						42.8
Discontinued operations(3)		—			—						—						—						2.4
Diluted earnings per share		0.64			32.6						40.4						66.9						45.2
		million			million						million						million						million
Average number of ordinary shares(7)		2,725			2,725						2,886						2,841						2,972

 

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		Six months ended 31 December								Year ended 30 June
Income statement data(1)(8)		2006		2006			2005			2006		2005
US GAAP		$ million		£ million			£ million			£ million		£ million
Sales		10,886			5,554			5,486		10,031			9,170
Operating income		2,489			1,270			1,196		1,942			1,768
Net income		1,942			991			1,013		1,427			1,470
Per share data		$			pence			pence		pence			pence
Basic earnings per ordinary share before cumulative effect of accounting change		0.71			36.4			35.2		50.3			49.5
Cumulative effect of accounting change(5)		—			—			(0.1	)	(0.1	)		—
Basic earnings per ordinary share		0.71			36.4			35.1		50.2			49.5
Diluted earnings per ordinary share before cumulative effect of accounting change		0.71			36.1			35.2		50.1			49.4
Cumulative effect of accounting change(5)		—			—			(0.1	)	(0.1	)		—
Diluted earnings per ordinary share		0.71			36.1			35.1		50.0			49.4
Basic earnings per ADS		2.84			145.6			140.4		200.8			198.0
Diluted earnings per ADS		2.84			144.4			140.4		200.0			197.6
		million			million			million		million			million
Average number of ordinary shares(7)		2,725			2,725			2,886		2,841			2,972

 

		As at 31 December						As at 30 June
Balance sheet data(1)(8)		2006		2006		2005		2006		2005
IFRS		$ million		£ million		£ million		£ million		£ million
Total assets		28,236		14,406		14,692		13,927		13,921
Net borrowings(6)		8,926		4,554		3,911		4,082		3,706
Equity attributable to the parent company’s equity shareholders		8,038		4,101		4,592		4,502		4,459
Called up share capital(7)		1,701		868		883		883		883
US GAAP
Total assets		40,688		20,759		21,092		20,072		21,570
Long term obligations(6)		8,283		4,226		3,919		4,016		3,751
Shareholders’ equity		17,789		9,076		9,568		9,508		9,853

 

This information should be read in conjunction with the notes on pages 7 to 9.

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Notes to the selected consolidated financial data

1     IFRS accounting policies

The group adopted the provisions of IAS 39–Financial instruments recognition and measurement from 1 July 2005.  As permitted under IFRS 1–First-time adoption of International Financial Reporting Standards, financial instruments in the year ended 30 June 2005 remain recorded in accordance with previous UK GAAP accounting policies, and the adjustment to IAS 39 is reflected in the consolidated balance sheet at 1 July 2005.

2     Continuing operations

Under IFRS, operating profit for the year ended 30 June 2005 is stated after charging exceptional items of £29 million for Park Royal brewery accelerated depreciation, £30 million for Seagram integration costs and £149 million for payments to the Thalidomide Trust; and after recognising an exceptional credit of £7 million in respect of the disposal of properties. For the year ended 30 June 2006 other exceptional items comprised a gain on disposal of General Mills shares £151 million (year end 30 June 2005—£221 million; six months ended 31 December 2005—£151 million) and gains on the disposals and termination of businesses, £6 million (year ended 30 June 2005—£7 million loss; six months ended 31 December 2005—£nil). Profit for the period from continuing operations under IFRS for the year ended 30 June 2006 is stated after charging exceptional tax credits of £315 million (six months ended 31 December 2005—£117 million) including exceptional income of £313 million (six months ended 31 December 2005—£110 million) recognised following the agreement with fiscal authorities of the carrying values of certain brands. In the year ended 30 June 2005, exceptional tax credits of £78 million comprised £58 million of tax credits on exceptional operating items and £20 million of tax credits on prior year business disposals.

3     Discontinued operations

Discontinued operations in the year ended 30 June 2005 under IFRS are in respect of the quick service restaurants business (Burger King, sold 13 December 2002) and the packaged food business (Pillsbury, sold 31 October 2001).  These were not discontinued operations under US GAAP.

4     Dividends

The board expects that Diageo will pay an interim dividend in April and a final dividend in October of each year. Approximately 40% of the total dividend in respect of any financial year is expected to be paid as an interim dividend and approximately 60% as a final dividend. The payment of any future dividends, subject to shareholder approval, will depend upon Diageo’s earnings, financial condition and such other factors as the board deems relevant.

Proposed dividends are only considered to be a liability once they are approved by the board for the interim dividend and by the shareholders at the annual general meeting for the final dividend. The information provided below for the interim dividend for each six month period ended 31 December represents the dividend proposed by the directors but not approved by the board at the balance sheet date, and therefore is not reflected as a deduction from reserves at that date. Similarly, the information provided below for the final dividend for each year ended 30 June represents the dividend proposed by the directors but not approved by the shareholders at the balance sheet date, and therefore is not reflected as a deduction from reserves at that date.

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The table below sets out the amounts of interim, final and total cash dividends paid by the company on each ordinary share. The dividends are translated into US dollars per ADS (each ADS representing four ordinary shares) at the noon buying rate on each of the respective dividend payment dates.

			Six months ended 31 December				Year ended 30 June
			2006 pence		2005 pence		2006 pence		2005 pence
Per ordinary share	Interim		12.55		11.95		11.95		11.35
	Final		—		—		19.15		18.20
	Total		12.55		11.95		31.10		29.55
			$		$		$		$
Per ADS	Interim		0.98		0.88		0.88		0.81
	Final		—		—		1.42		1.30
	Total		0.98		0.88		2.30		2.11

 

Note: The interim dividend for the six months ended 31 December 2006 will be paid on 10 April 2007, and payment to US ADR holders will be made on 16 April 2007. In the table above, an exchange rate of £1 = $1.96 has been assumed for this dividend, but the exact amount of the payment to US ADR holders will be determined by the rate of exchange on 16 April 2007.

5     US GAAP accounting change

From 1 July 2005 Diageo adopted the provisions of SFAS No. 123(R)—Share-Based Payment for its US GAAP reporting. On adoption of SFAS 123(R),Diageo revalued unvested awards in its senior executive share option plan (SESOP) and recognised a cumulative effect of an accounting change of £2 million net of tax in its US GAAP financial information.

6     Definitions

Net borrowings are defined as total borrowings (short term borrowings and long term borrowings plus finance lease obligations) less cash and cash equivalents, interest rate fair value hedging instruments, cross currency interest rate swaps, foreign currency swaps and forwards and other liquid resources. Long term obligations are defined as long term borrowings which fall due after more than one year.

7     Share capital

The called up share capital represents the par value of ordinary shares of 28101/108 pence in issue. There were 2,999 million ordinary shares in issue and fully paid up at the balance sheet date (31 December 2005–3,051 million; 30 June 2006–3,051 million; 30 June 2005–3,050 million). Of these, 37 million (31 December 2005–47 million; 30 June 2006–42 million; 30 June 2005–43 million) were held in employee share trusts, 270 million (31 December 2005–170 million; 30 June 2006–250 million; 30 June 2005–86 million) were held as treasury shares, and 11 million were held as treasury shares for hedging share schemes (31 December 2005–nil; 30 June 2006–2 million; 30 June 2005–nil). These shares are deducted in arriving at equity attributable to the parent company’s equity shareholders.

During the six months ended 31 December 2006, the group repurchased 73 million ordinary shares for cancellation or to be held as treasury shares at a cost including fees and stamp duty of £704 million (six months ended 31 December 2005–84 million ordinary shares, cost of £704 million; year ended 30 June 2006–164 million ordinary shares, cost of £1,407 million; year ended 30 June 2005–94 million ordinary shares, cost of £710 million).

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In addition the group repurchased 8 million ordinary shares to be held as treasury shares for hedging employee share scheme grants provided to employees during the period at a cost of £80 million (six months ended 31 December 2005–nil, £nil; year ended 30 June 2006–2 million ordinary shares, cost of £21 million; year ended 30 June 2005–nil, £nil).

8     Exchange rates

A substantial portion of the group’s assets, liabilities, revenues and expenses is denominated in currencies other than pounds sterling, principally US dollars. For the convenience of the reader, selected financial information for the six months ended 31 December 2006 has been translated into US dollars at the noon buying rate on 29 December 2006 of £1 = $1.96.

The following table shows, for the periods indicated, information regarding the US dollar/pound sterling exchange rate, based on the noon buying rate, expressed in US dollars per £1.

		Six months ended 31 December				Year ended 30 June
		2006 $		2005 $		2006 $		2005 $
Period end		1.96		1.72		1.85		1.79
Average rate		1.91		1.76		1.78		1.86

 

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CAPITALISATION AND INDEBTEDNESS

The following table sets out on an IFRS basis the unaudited actual capitalisation of Diageo as at 31 December 2006:

		31 December 2006 £ million
Short term borrowings and bank overdrafts (including current portion of long term borrowings)			1,279
Long term borrowings
Due from one to five years			2,161
Due after five years			2,061
			4,222
Finance lease obligations			13
Equity minority interests			189
Equity attributable to equity shareholders of the parent company
Called up share capital			868
Share premium			1,340
Capital redemption reserve			3,075
Cash flow hedging reserve			53
Currency translation reserve			7
Own shares			(2,339	)
Retained earnings			1,097
			4,101
Total capitalisation			8,525

 

Notes

1.    At 31 December 2006, the group had cash and cash equivalents of £975 million.

2.    At 31 December 2006, £73 million of the group’s net borrowings due within one year and £55 million of the group’s net borrowings due after more than one year were secured.

3.    At 31 December 2006, the total authorised share capital of Diageo consisted of 5,329,052,500 ordinary shares of 28101¤108 pence each. At such date, 2,998,848,225 ordinary shares were issued and fully paid, including shares issued, shares issued and held in employee share trusts and those held as treasury shares.

4.    In connection with the disposal of Pillsbury, Diageo has guaranteed the debt of a third party to the amount of $200 million (£102 million) until November 2009. Including this guarantee, but net of the amount provided in the interim consolidated financial information, at 31 December 2006 the group has given performance guarantees and indemnities to third parties of £159 million. In February 2007, Diageo was released from certain guarantee obligations in the amount of $100 million (£51 million) arising from the acquisition of the Seagram businesses in 2001.  Save as disclosed above there has been no material change since 31 December 2006 in the group’s performance guarantees and indemnities.

5.    In the period 1 January 2007 to 7 March 2007, the company acquired 25 million shares as part of the company’s share buyback programmes and subsequently cancelled them for a total consideration of £252 million including expenses. Other than as described above, there has been no material change in the capitalisation of the group since 31 December 2006.

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OPERATING AND FINANCIAL REVIEW

Information presented

Diageo is the world’s leading premium drinks business, with sales across premium beer, wine and spirits brands in over 180 markets around the world. Diageo’s brands have broad consumer appeal across geographies; during the period the business was organised under the regions of North America, Europe and International and the business analysis is presented on this basis. The following discussion is based on Diageo’s results for the six months ended 31 December 2006 compared with the six months ended 31 December 2005.

The unaudited financial information for the six months ended 31 December 2006 has been prepared in accordance with IFRS. There are a number of accounting differences between IFRS and US GAAP. A reconciliation of net income from IFRS to US GAAP and an explanation of the differences between IFRS and US GAAP are set out in the US GAAP unaudited consolidated financial information on pages F-13 to F-23 of this document.

Net sales are sales after deducting excise duties. In the discussion of the performance of the business, net sales are presented in addition to sales, since sales reflect significant components of excise duties which are set by external regulators and over which Diageo has no control. Diageo incurs excise duties throughout the world. In some countries, excise duties are based on sales and are separately identified on the face of the invoice to the external customer. In others, it is effectively a production tax, which is incurred when the spirit is removed from bonded warehouses. In these countries it is part of the invoiced cost and is not separately identified on the sales invoice. Changes in the level of excise duties can significantly affect the level of reported sales and costs, without directly reflecting changes in volume, mix or profitability that are the variables which impact on the element of sales retained by the group.

Presentation of information in relation to the business

In addition to describing the significant factors affecting the income statement compared to the prior period for the six months ended 31 December 2006, additional information is also presented on the operating performance and cash flows of the group.

There are several principal key performance indicators that the group’s management use to assess the performance of the group in addition to income statement measures of performance. These include volume, and non-GAAP measures of the organic movements in volume, sales, net sales and operating profit before exceptional items and free cash flow. Non-GAAP measures are those not specifically used in the consolidated financial statements themselves. These key performance indicators are described below:

Volume   has been measured on an equivalent units basis to nine litre cases of spirits. An equivalent unit represents one nine litre case of spirits, which is approximately 272 servings. A serving comprises 33ml of spirits, 165ml of wine, or 330ml of ready to drink or beer. Therefore, to convert volume of products, other than spirits, to equivalent units, the following guide has been used: beer in hectolitres divide by 0.9, wine in nine litre cases divide by five and ready to drink in nine litre cases divide by ten, with certain pre-mixed products that are classified as ready to drink divided by five.

Organic movements   in volume, sales, net sales and operating profit are measures not specifically used in the consolidated financial information itself (non-GAAP measures). The performance of the group is discussed using these measures.

In the discussion of the performance of the business, certain information is presented using pounds sterling amounts on a constant currency basis. This strips out the effect of exchange rate movements and enables an understanding of the underlying performance of the market that is most closely

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influenced by the actions of that market’s management. The risk from exchange rate movements is managed centrally and is not a factor over which local managers have any control.

Acquisitions and disposals and exceptional items also impact the reported performance and therefore the reported movement in any period in which they arise. Management adjusts for the impact of such transactions in assessing the performance of the underlying business.

The underlying performance on a constant currency basis and excluding the impact of acquisitions and disposals and exceptional items is referred to as ‘organic’ performance, and further information on the calculation of organic measures as used in the discussion of the business is included in the organic movements calculation and in the notes to that calculation.

Diageo’s strategic planning and budgeting process is based on organic movements in volume, sales, net sales, and operating profit, and these measures closely reflect the way in which operating targets are defined and performance is monitored by the group’s management.

These measures are chosen for planning, budgeting, reporting and incentive purposes since they represent those measures which local managers are most directly able to influence and they enable consideration of the underlying business performance without the distortion caused by fluctuating exchange rates, acquisitions and disposals.

The group’s management believes these measures provide valuable additional information for users of the financial information in understanding the group’s performance since they provide information on those elements of performance which local managers are most directly able to influence and they focus on that element of the core brand portfolio which is common to both periods. They should be viewed as complementary to, and not a replacement for, the comparable GAAP measures: sales, net sales and reported movements in individual income statement captions.

Free cash flow   is a non-GAAP measure that comprises net cash flow from operating activities as well as the net purchase and disposal of investments and property, plant and equipment that form part of net cash flow from investing activities. The group’s management believes the measure assists users of the financial information in understanding the group’s cash generating performance as it comprises items which arise from the running of the ongoing business. Free cash flow may not be comparable to similarly titled measures used by other companies.

The remaining components of net cash flow from investing activities that do not form part of free cash flow, as defined by the group’s management, relate to the purchase and disposal of subsidiaries, associates and businesses. The group’s management regards the purchase and disposal of property, plant and equipment as ultimately non-discretionary since ongoing investment in plant and machinery is required to support the day-to-day operations, whereas acquisitions and disposals of businesses are discretionary. However, free cash flow does not necessarily reflect all amounts which the group either has a constructive or legal obligation to incur. Where appropriate, separate discussion is given for the impacts of acquisitions and disposals of businesses, equity dividends paid and the purchase of own shares–each of which arises from decisions that are independent from the running of the ongoing underlying business.

The free cash flow measure is also used by management for its own planning, budgeting, reporting and incentive purposes since it provides information on those elements of performance which local managers are most directly able to influence.

Other definitions

Exceptional items are those that in management’s judgement need to be disclosed by virtue of their size or incidence in order for the user to obtain a proper understanding of the financial information.  Such items are included within the income statement caption to which they relate.

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Volume share is a brand’s volume when compared to the volume of all brands in its segment. Value share is a brand’s retail sales when compared to the retail sales of all brands in its segment. Unless otherwise stated, share refers to volume share. Share of voice is the media spend of a particular brand when compared to all brands in its segment. The share and share of voice data is taken from independent industry sources in the markets in which Diageo operates.

References to ready to drink products include flavored malt beverages. Ready to drink products are sold throughout the world, but flavored malt beverages are currently only sold in the United States and certain markets supplied by the United States. References to Smirnoff ready to drink include Smirnoff Ice, Smirnoff Black Ice, Smirnoff Twisted V, Smirnoff Mule, Smirnoff Spin, Smirnoff Storm, Smirnoff Caesar, Smirnoff Fire, Smirnoff Raw Tea, Smirnoff Caipiroska, Smirnoff Signatures and Smirnoff Source.  References to Smirnoff Black Ice include Smirnoff Ice Triple Black in the United States.

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Operating results for the six months ended 31 December 2006 compared with the six months ended 31 December 2005

Condensed consolidated income statement

		Six months ended 31 December 2006 £ million			Six months ended 31 December 2005 £ million
Sales			5,358			5,359
Excise duties			(1,336	)		(1,399	)
Net sales			4,022			3,960
Operating costs			(2,716	)		(2,699	)
Operating profit			1,306			1,261
Disposal of investments			—			151
Net finance charges			(98	)		(88	)
Associates’ profits			91			77
Profit before taxation			1,299			1,401
Taxation			(367	)		(196	)
Profit for the period			932			1,205
Attributable to:
Equity shareholders			895			1,166
Minority interests			37			39
			932			1,205

 

Sales and net sales

On a reported basis, sales decreased by £1 million from £5,359 million in the six months ended 31 December 2005 to £5,358 million in the six months ended 31 December 2006. On a reported basis net sales increased by £62 million from £3,960 million in the six months ended 31 December 2005 to £4,022 million in the six months ended 31 December 2006. Acquisitions and disposals contributed a net decrease to both reported sales and net sales of £9 million in the period and exchange rate movements also decreased reported sales by £199 million and reported net sales by £158 million, principally arising from the weakening of the US dollar.

Operating costs

On a reported basis operating costs increased by £17 million in the six months ended 31 December 2006 due to an increase in marketing costs of £8 million, from £618 million to £626 million, an increase in cost of sales of £23 million, from £1,511 million to £1,534 million, offset by a decrease in other operating costs of £14 million, from £570 million to £556 million. The impact of exchange rate movements decreased total operating costs by £105 million.

Post employment plans

Post employment costs for the six months ended 31 December 2006 of £28 million (2005—£44 million) included amounts charged to operating profit of £52 million (2005—£54 million) and finance income of £24 million (2005—£10 million).  At 31 December 2006, Diageo’s deficit before taxation for all post employment plans was £759 million (30 June 2006—£801 million).

Operating profit

Operating profit for the six months ended 31 December 2006 increased by £45 million to £1,306 million from £1,261 million in the comparable prior period.

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Exchange rate movements reduced operating profit for the six months ended 31 December 2006 by £53 million.

Disposal of investments

In the six months ended 31 December 2005 disposal of investments represented the gain of £151 million on the sale of all of the group’s remaining 25 million shares of common stock of General Mills.

Net finance charges

Net finance charges increased by £10 million from £88 million in the six months ended 31 December 2005 to £98 million in the six months ended 31 December 2006.

The net interest charge increased by £28 million from £92 million in the comparable prior period to £120 million in the six months ended 31 December 2006.  This increase principally resulted from the increase in net borrowings in the period and the increase in floating US dollar interest rates. Exchange rate movements reduced interest by £7 million.

Other net finance income of £22 million (2005—£4 million) included income of £24 million (2005—£10 million) in respect of the group’s post employment plans.  This movement in income related to the post employment plans principally reflects the increase in the value of the assets held between 1 July 2005 and 30 June 2006.  Other finance income in the six months to 31 December 2005 also included £5 million dividend income in respect of the group’s interest in General Mills.  Other finance charges for the six months ended 31 December 2006 include income of £4 million (2005—charge of £4 million) in respect of exchange rate translation differences on inter-company funding arrangements that do not meet the accounting criteria for recognition in equity.

Associates

The group’s share of profits of associates after interest and tax was £91 million for the six months ended 31 December 2006 compared to £77 million in the comparable period last year.  Diageo’s 34% equity interest in Moët Hennessy contributed £84 million to share of profits of associates after interest and tax (2005—£71 million).

Profit before taxation

Profit before tax decreased by £102 million from £1,401 million to £1,299 million in the six months ended 31 December 2006, primarily as a result of the £151 million gain on disposal of General Mills shares in the six months ended 31 December 2005.

Taxation

The tax charge is based upon the estimate of the tax rate expected for the full financial year.

The reported tax rate for the six months ended 31 December 2006 is 28.3% compared with 14.0% for the six months ended 31 December 2005.  Factors increasing the reported tax rate for the six months ended 31 December 2006 are a provision for the settlement of tax liabilities relating to the Guinness/GrandMet merger and a reduction in the carrying value of deferred tax assets.

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Exchange rates

Effect of exchange rate movements on the results for the six months ended 31 December 2006 as compared with the results for the six months ended 31 December 2005.

		Gains/(losses) £ million
Operating profit
Translation impact			(46	)
Transaction impact			(7	)
Interest and other finance charges
Translation impact			7
Net exchange movements on short term inter-company loans			8
Total exchange effect on profit before taxation			(38	)

 

		Six months ended 31 December 2006			Six months ended 31 December 2005
Exchange rates
Translation US$/£ rate			1.91			1.76
Translation €/£ rate			1.48			1.47
Transaction US$/£ rate			1.87			1.81
Transaction €/£ rate			1.44			1.46

 

The weakening of the US dollar had adverse translation and transaction effects on operating profit and a favourable impact on US dollar denominated interest charges.

Outlook for the impact of exchange rate movements

It is estimated that in the year ending 30 June 2007 there will be an adverse impact from exchange rate movements of £90 million on operating profit and a positive impact of approximately £10 million on interest (excluding the exchange impact of retranslating trading and short term loan inter-company balances under IAS 21—The effects of changes in foreign exchange rates).

Dividend

An interim dividend of 12.55 pence per share will be paid to holders of ordinary shares and ADRs on the register on 9 March 2007.  This represents an increase of 5% on last year’s interim dividend. The interim dividend will be paid to shareholders on 10 April 2007. Payment to US ADR holders will be made on 16 April 2007. A dividend reinvestment plan is available in respect of the interim dividend and the plan notice date is 19 March 2007.

Trading performance

The following discussion provides additional commentary on the trading performance of the business compared with the equivalent period in the prior year. In the discussion, movements are described as “reported” or “organic” performance. “Reported” means that the measure reflects movement in the number disclosed in the financial information. “Organic” means the movement excluding the impact of exchange, acquisitions and disposals and exceptional items. In the discussion under “organic brand performance” for each market, movements given for sales, net sales, marketing expenditure and operating profit are organic movements. Comparisons are with the equivalent period in the last financial year.

The following comparison of the six months ended 31 December 2006 with the six months ended 31 December 2005 includes tables which present the exchange, acquisitions and disposals, and

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organic components of the period on period movement for each of volume, sales, net sales and operating profit.

Organic movements in the tables below are calculated as follows:

The organic movement percentage is the amount in the column headed “Organic movement” expressed as a percentage of the aggregate of the columns headed 2005 Reported, Transfers, Exchange and the amounts in respect of disposals (see note 3 to the tables below) included in the column headed Acquisitions and disposals. The inclusion of the column headed Exchange in the organic movement calculation reflects the adjustment to exclude the effect of exchange rate movements by recalculating the prior period results as if they had been generated at the current period’s exchange rates. Organic movement percentages are calculated as the organic movement amount in £ million, expressed as a percentage of the prior period results at current period exchange rates and after adjusting for disposals. The basis of calculation means that the results used to measure organic movement for a given period will be adjusted when used to measure organic movement in the subsequent period.

Where a business, brand, brand distribution right or agency agreement was disposed of, or terminated, in the current period, the group, in organic movement calculations, adjusts the results for the comparable prior period to exclude the amount the group earned in that period that it could not have earned in the current period (i.e. the period between the date in the prior period, equivalent to the date of the disposal in the current period, and the end of the prior period). As a result, the organic movement numbers reflect only comparable performance. Similarly, if a business was disposed of part way through the equivalent prior period, then its contribution would be completely excluded from that prior period’s performance in the organic movement calculation, since the group recognised no contribution from that business in the current period. In the calculation of operating profit, the overheads included in disposals are only those directly attributable to the businesses disposed of, and do not result from subjective judgements of management. For acquisitions, a similar adjustment is made in the organic movement calculations. For acquisitions subsequent to the end of the equivalent prior period, the post acquisition results in the current period are excluded from the organic movement calculations. For acquisitions in the prior period, post acquisition results are included in full in the prior period but are only included from the anniversary of the acquisition date in the current period.

The organic movement calculations for volume, sales, net sales and operating profit for the six months ended 31 December 2006 were as follows:

		2005 units* million			Acquisitions and disposals units million			Organic movement units million			2006 units million			Organic movement %
Volume
North America			25.6			0.1			0.8			26.5			3
Europe			24.0			0.1			(1.1	)		23.0			(5	)
International			23.1			(0.1	)		3.2			26.2			14
Total			72.7			0.1			2.9			75.7			4

*                    Adjusted for equivalent units of mid strength brands

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		2005 Reported £ million			Exchange(2) £ million			Acquisitions and disposals(3) £ million			Organic movement £ million			2006 Reported £ million			Organic movement %
Sales
North America			1,565			(116	)		1			93			1,543			6
Europe			2,221			(12	)		(10	)		(77	)		2,122			(4	)
International			1,533			(71	)		—			193			1,655			13
Corporate and other			40			—			—			(2	)		38			(6	)
Total			5,359			(199	)		(9	)		207			5,358			4

 

		2005 Reported £ million			Exchange(2) £ million			Acquisitions and disposals(3) £ million			Organic movement £ million			2006 Reported £ million			Organic movement %
Net sales
North America			1,329			(99	)		1			82			1,313			7
Europe			1,408			(9	)		(10	)		(32	)		1,357			(2	)
International			1,183			(50	)		—			181			1,314			16
Corporate and other			40			—			—			(2	)		38			(6	)
Total net sales			3,960			(158	)		(9	)		229			4,022			6
Excise duties			1,399												1,336
Total sales			5,359												5,358

 

		2005 Reported £ million		Transfers(1) £ million		Exchange(2) £ million		Acquisitions and disposals(3) £ million		Organic movement £ million		2006 Reported £ million		Organic movement %
Operating profit
North America		476		—		(38	)	—		48		486		11
Europe		494		(7	)	(2	)	—		(1	)	484		—
International		371		(4	)	(15	)	—		61		413		17
Corporate and other		(80	)	11		2		—		(10	)	(77	)	(15	)
Total		1,261		—		(53	)	—		98		1,306		8

Notes

(1)            Transfers represent the movement between operating units of certain activities, the most significant of which were the reallocation of supply related overheads from corporate to the regions and the reallocation of prior period transaction exchange differences into corporate.

(2)            The exchange adjustments for sales, net sales and operating profit are principally in respect of the US dollar.

(3)            The only acquisition in the six months ended 31 December 2006 was the acquisition of the Smirnov brand in Russia. The other acquisition impacting the calculation of organic growth in the period was the acquisition of The “Old Bushmills” Distillery Company Limited in August 2005. Disposals affecting the period were the disposal of United Beverages Limited and Three Barrels (both Europe) and contributed sales, net sales and operating profit of £16 million, £14 million and £2 million, respectively, in the six months ended 31 December 2005 and had no impact on volume.

 

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Brand performance for the six months ended 31 December 2006

Organic brand performance				Reported volume movement %			Organic volume movement %			Reported net sales movement %			Organic net sales movement %
Global priority brands					5			5			1			6
Local priority brands					(1	)		(1	)		(2	)		2
Category brands					7			6			5			10
Total					4			4			2			6
Key brands
Smirnoff vodka					6			6			2			7
Smirnoff ready to drink					(6	)		(6	)		(12	)		(6	)
Johnnie Walker					10			10			8			13
Guinness					—			—			(1	)		2
Baileys					3			3			3			6
Captain Morgan (excluding ready to drink)					5			5			2			9
JeB					(1	)		(1	)		(4	)		(1	)
Crown Royal					4			4			(1	)		8
Jose Cuervo (excluding ready to drink)					7			7			1			8
Tanqueray					4			4			(1	)		6
Buchanan’s—Venezuela					65			65			88			71
Windsor—Korea					13			13			15			13

 

The global priority brands grew volume by 5% as growth in Johnnie Walker, Smirnoff and Baileys offset a decline in Smirnoff ready to drink and JeB.  Strong growth of Guinness in International, where volume grew 8%, was offset by the performance in Europe and therefore volume was flat. Net sales of global priority brands grew 6% as a result of price increases in some markets and mix improvement throughout the world.

Local priority brands volume declined 1% as strong growth of Buchanan’s and Windsor was offset by declines in Bell’s and Gordon’s.  Mix improved and as a result, net sales were up by 2%.

Category brands grew volume by 6% and net sales were up 10% as mix improved due to the strong growth of Scotch brands such as Old Parr and Black & White.

Analysis by region

North America

Summary:

· Continued share growth in spirits: value and volume share up 0.7 and 1.2 percentage points respectively

·       Volume growth of priority brands and price increases drove 7% growth in net sales

Key measures				Six months  ended 31 December 2006 £ million			Six months ended 31 December 2005 £ million			Reported  movement %			Organic movement %
Volume											3			3
Net sales					1,313			1,329			(1	)		7
Marketing					206			209			(1	)		6
Operating profit					486			476			2			11

 

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Reported performance

Net sales were £1,313 million in the six months ended 31 December 2006 down by £16 million from £1,329 million in the comparable period.  Operating profit increased by £10 million to £486 million in the period ended 31 December 2006.

Organic performance

The weighted average exchange rate used to translate US dollar sales and profit moved from £1 = $1.76 in the six months ended 31 December 2005 to £1 = $1.91 in the six months ended 31 December 2006.  Net sales decreased by £99 million as a result of the weakening US dollar.  Acquisitions increased net sales by £1 million and there was an organic increase in net sales of £82 million.  Operating profit decreased by £38 million as a result of exchange rate movements.  Acquisitions had no impact on operating profit.  There was an organic increase in operating profit of £48 million.

Organic brand performance				Reported volume movement %			Organic volume movement %			Reported net sales movement %			Organic net sales movement %
Global priority brands					6			6			—			8
Local priority brands					1			1			(5	)		3
Category brands					(2	)		(2	)		1			8
Total					3			3			(1	)		7
Key brands
Smirnoff vodka					8			8			4			12
Smirnoff ready to drink					(20	)		(20	)		(22	)		(16	)
Captain Morgan (excluding ready to drink)					5			5			1			9
Crown Royal					4			4			(1	)		8
Jose Cuervo (excluding ready to drink)					5			5			(2	)		7
Baileys					22			22			16			25
Johnnie Walker					2			2			(2	)		6
Tanqueray					3			3			(4	)		4
Guinness					2			2			(3	)		5
Beaulieu Vineyard					(8	)		(8	)		(14	)		(6	)
Sterling Vineyards					8			8			(9	)		(1	)

 

Smirnoff vodka grew volume 8%, outpacing category growth of 3%.  A price increase in many states led to 12% growth in net sales.  Smirnoff vodka grew value and volume share 0.2 and 0.8 percentage points respectively.

Price increases on Captain Morgan Original Spiced Rum and Parrot Bay flavoured rum in most states drove growth of net sales of 9% on a 5% increase in volume.

Jose Cuervo, excluding ready to drink, grew volume 5%, driven by growth of Jose Cuervo Flavored Tequilas.  Strong performance of super premium variants improved mix and net sales grew 7%. The successful launch of Jose Cuervo Black Medallion in February 2006 and the continued growth of Jose Cuervo Tradicional have almost doubled Cuervo’s participation in the super premium and ultra premium tequila segments.

Baileys showed particularly strong growth with volume up 22% and net sales up 25% following the national launch of Baileys flavours and the continued strong performance of Baileys Original Irish Cream.

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Johnnie Walker outpaced the category and increased share by 1.6 percentage points with growth across all variants. Volume grew 2% reflecting further reductions in stock levels. Mix improvement toward Johnnie Walker Black Label and the super deluxe variants drove 6% growth in net sales.

Tanqueray grew volume 3%, share increased by 0.9 percentage points and net sales rose 4%.

Guinness Draught in Bottle grew volume 13% while Guinness Draught increased volume by 4%. Changes in shipment phasing benefited the prior period performance and therefore Guinness Extra Stout volume declined.  As a result, total Guinness volume grew 2%. A national price increase on Guinness Draught and select market increases on other packs drove mix improvement and as a consequence, net sales were up 5%.

Volume on the local priority brands grew 1%, as strong performances by Crown Royal, Buchanan’s and Sterling Vineyards were partly offset by declines in Gordon’s gin, Seagram’s VO and Beaulieu Vineyard. Net sales of local priority brands rose 3% following the positive mix shift towards Crown Royal and Buchanan’s. Crown Royal volume grew 4% and net sales were up 8% following a price increase in selected states and the introduction of the super premium variant Crown Royal Extra Rare.  In wines, mix of Beaulieu Vineyard improved due to lower sales of the mid-priced variant Century Cellars, while Sterling Vineyards mix was diluted as a result of lower sales of the Reserve wines following the warehouse fire in October 2005.

Category brands’ volume declined 2%.  Lower value brands such as Popov and Gordon’s vodka declined but more premium spirits brands such as Cîroc, Don Julio and Bushmills, premium beer brands like Red Stripe and wine brands such as Chalone Vineyards increased. As a result of this mix improvement, net sales grew 8%.

Ready to drink volume was down 6% as continued growth of Jose Cuervo ready to drink and the launch of Parrot Bay was more than offset by a decline in Smirnoff Ice and Twisted V.  However, prices increased, mix improved and as a result, net sales were down only 1%.

Europe

Summary:

·       Net sales down 2% due to weakness in Great Britain, Ireland and Spain

·       Strong growth in Continental Europe hub led by Johnnie Walker, Smirnoff vodka and Baileys

·       Marketing spend declined 7% due to reduced spend on ready to drink in Great Britain and France, and lower investment in Spain following a significant increase in the prior period

Key measures				Six months ended 31 December 2006 £ million			Six months ended 31 December 2005 £ million			Reported movement %			Organic movement %
Volume											(4	)		(5	)
Net sales					1,357			1,408			(4	)		(2	)
Marketing					208			225			(8	)		(7	)
Operating profit					484			494			(2	)		—

 

Reported performance

Reported net sales in Europe in the period ended 31 December 2006 were down £51 million from £1,408 in the comparable period, to £1,357 million.  Reported operating profit decreased by 2% from £494 million to £484 million.

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Organic performance

Net sales decreased by £9 million as a result of the impact of exchange rate movements.  Acquisitions increased net sales by £4 million, disposals decreased net sales by £14 million and there was an organic decrease in net sales of £32 million.  The exchange impact resulted primarily from a weakening of the euro.  Operating profit decreased by £2 million as a result of exchange rate movements.  Acquisitions increased operating profit by £2 million and disposals decreased operating profit by £2 million compared to the comparable six month period ended 31 December 2005.  Additional costs of £7 million were transferred to the region.  There was an organic decrease in operating profit of £1 million.

Organic brand performance				Reported volume movement %			Organic volume movement %			Reported net sales movement %			Organic net sales movement %
Global priority brands					(4	)		(4	)		(3	)		(3	)
Local priority brands					(11	)		(11	)		(7	)		(6	)
Category brands					(1	)		(2	)		(2	)		1
Total					(4	)		(5	)		(4	)		(2	)
Key brands
Smirnoff vodka					—			—			(1	)		1
Smirnoff ready to drink					(17	)		(17	)		(15	)		(14	)
Johnnie Walker					(1	)		(1	)		4			4
Baileys					(8	)		(8	)		(6	)		(5	)
JeB					(4	)		(4	)		(3	)		(3	)
Guinness					(7	)		(7	)		(5	)		(4	)

 

Smirnoff vodka volume was flat as a decline in volume in Great Britain was offset by growth in Germany, Belgium and Greece. Net sales grew 1% benefiting from stronger pricing in Greece and Germany. Smirnoff ready to drink volume was down 17%, as the segment continued to decline in Great Britain. Net sales were down 14% as promotions were moderated.

Johnnie Walker volume was down 1% due to a decline in Johnnie Walker Red Label volume in Spain, where the standard Scotch segment has contracted, and in Greece, where there was a shortage of product following a strike at the port of Piraeus. Volume of Johnnie Walker Black Label and Johnnie Walker super deluxe increased in Greece and Eastern Europe as marketing continued to trade consumers up from standard variants.  This, together with mix improvement in Russia on Johnnie Walker Red Label, improved overall mix and as a result, net sales grew 4%.

Baileys volume declined by 8% and net sales were down 5%.  In Great Britain, funding of promotions was limited, which maintained brand equity but negatively impacted Baileys volume.  Excluding Great Britain, volume grew 6% driven by strong growth in Belgium and France and the successful launch of Baileys flavours throughout the region.

JeB volume was down 4% as the continued decline in standard Scotch in Spain was only partially offset by good performance in France where volume grew 4% and in Central and Eastern Europe where volume was up 19%.

Guinness volume declined 7% due to the continued consumer shift from the on trade to the off trade and exceptionally warm weather in both Great Britain and Ireland.  Net sales decline was restricted to 4% as a result of price increases in both markets.

Total local priority brands’ performance was negatively impacted by the decline of Bell’s and Gordon’s in Great Britain and the decline of lagers in Ireland.

Category brands’ volume declined 2% and net sales increased 1% as growth of Bushmills, Pampero and the Classic Malts offset declines in Piat D’Or and VAT 69.

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In Great Britain, a shift from the on trade to the off trade, a reduction in retailer funded promotions and a smoking ban introduced in Scotland in March 2006 have resulted in a volume decline of 1% in the beverage alcohol market.  In addition, there has been a consumer trend to value brands and a reduction in customer stock levels ahead of the introduction of strip stamps.  Diageo increased prices in July 2006 and moderated its Christmas promotions to protect brand equity and increase net sales per case.  This provided a challenging background for Diageo’s performance and as a result, volume declined 12% and net sales were down 9%.

In Ireland, on trade beer volume continued to decline, while off trade beer and overall wine and spirits consumption increased.  Consumers are widening their repertoire and becoming more value conscious particularly in the off trade.  These trends affected Diageo’s performance in Ireland with beer net sales down 3%, while spirits and wine net sales were both up 5%.  Total volume and net sales declined 3% and 2% respectively.

The trend to lower on trade consumption led to a 3% decline in the Spanish spirits market.  The standard Scotch category lost share to rum and was down 6%.  Diageo’s volume in Iberia was down 6%, although net sales were only down 3% due to stronger pricing in Portugal.

In the Continental Europe hub, volume grew 4% driven by growth in Central and Eastern Europe, Benelux and Italy.  Consumers continued to trade up to deluxe and super deluxe variants of Johnnie Walker throughout the hub.  This mix improvement was offset by the continued decline of ready to drink in France and Germany and as a result, net sales were up 4%.

The introduction of excise duty strip stamps severely disrupted the Russian market.  As a result, Diageo volume was down 12%.  However, termination of the previous distribution contract and the formation of a 75% owned company for the distribution, sale and marketing of spirits brands, led to higher net sales per case and as a result, net sales were up by 8%.

International

Summary:

·       Continued strong growth in Latin America, Asia and Africa

·       Further investment with marketing spend up 22%

·       Strong performance in Global Travel despite disruptions due to increased airport security

·       Strong growth and share gains in the Scotch category, especially in Latin America and China

·       Strong Guinness performance particularly in Nigeria and East Africa

Key measures				Six months  ended 31 December 2006 £ million			Six months  ended 31 December 2005 £ million			Reported movement %			Organic movement %
Volume											14			14
Net sales					1,314			1,183			11			16
Marketing					212			184			15			22
Operating profit					413			371			11			17

 

Reported performance

Reported net sales in the period ended 31 December 2006 were £1,314 million, up £131 million from £1,183 million in the comparable prior period.  Reported operating profit was up 11% to £413 million for the six months ended 31 December 2006.

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