The half year on which I am reporting shows slightly lower profit and earnings. At constant exchange profit before tax is 7% lower and earnings per share are 2% down in the six months to end February 1999. This fall, caused principally by the lower profits from managed pubs which I foreshadowed in my AGM statement, should be seen in the context both of strong growth achieved in the last two years and of continued success for most of our major consumer brands.

An interim dividend has already been paid, 4 months earlier than usual and at the higher level of 15p per share, enabling the group to improve the rate at which it recovers surplus advance corporation tax.

In Spirits & Wine we have continued to concentrate our resources behind our core brands and have been rewarded with further volume growth and increased profit in our mainstream European and North American businesses. We expect further benefits from this strategy. Reorganisation of our US spirits operations will increase brand focus in our largest market.

In Retailing the US foodservice brands have again made good progress but UK retailing profits have fallen, principally in managed pubs. Despite this fall our pubs have in the main competed effectively. Actions are being taken - through promotional campaigns, changes to brand offerings and more targeted capital spending - to address the short term decline in pub performance and, while retailing profits are expected to be lower for the year as a whole, we are confident both of improving performance next year and of the underlying strengths of the brands and business.

The disposal in January of Cantrell & Cochrane, principally a cider and soft drinks company, represents another step in sharpening our business focus, a process which we see as vital to long term value generation. The conditional sale of our interest in Panrico, agreed in principle last month, has a similar logic. Your board will continue to seek appropriate opportunities - large or small - to increase focus for the benefit of shareholders. At the same time we are maintaining the pressure to enhance operating standards and to develop our key brands. These policies are driving real progress in our mainstream operations and we are confident that they will continue to improve the underlying value of the business.

Sir Christopher Hogg

29 April 1999