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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
2 February 2021
Commission File Number 1-10691
DIAGEO plc
(Translation of registrant’s name into English)
Lakeside Drive, Park Royal, London NW10 7HQ, England
(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.
Form 20-F x          Form 40-F ¨
Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
This report on Form 6-K shall be deemed to be filed and incorporated by reference in the registration statement on Form F-3 (File No. 333-242234) and registration statements on Form S-8 (File Nos. 333-223071, 333-206290, 333-169934, 333-162490, 333-153481, 333-154338 and 333-182315) and to be a part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.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
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F- 2
F- 3
F- 4
F- 5
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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 31 December 2020 of £1 = $1.37. 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 condensed consolidated financial information has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted for use in the European Union (EU) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. The differences have no impact on the group’s consolidated financial statements for the years presented. Unless otherwise indicated, all financial information contained in this document has been prepared in accordance with IFRS. This interim condensed consolidated financial information is unaudited and has been prepared on the basis of accounting policies consistent with those applied in the consolidated financial statements for the year ended 30 June 2020 except for changes on the adoption of new accounting standards and amendments as disclosed in note 1 to the unaudited condensed consolidated financial information.
The business review and financial information included in this document for the six months ended 31 December 2020 and 31 December 2019 have been derived from the published Diageo interim condensed consolidated financial information.
The principal executive office of the company is located at Lakeside Drive, Park Royal, London NW10 7HQ, England and its telephone number is +44 (0)20 8978 6000.
MARKET DATA
The market data and competitive set classifications are taken from independent industry sources in the markets in which Diageo operates.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This document contains ‘forward-looking’ statements. These statements can be identified by the fact that they do not relate only to historical or current facts. In particular, forward-looking statements include all statements that express forecasts, expectations, plans, outlook, objectives and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of changes in interest or exchange rates, the availability or cost of financing to Diageo, anticipated cost savings or synergies, expected investments, the completion of any strategic transactions or restructuring programmes, anticipated tax rates, changes in the international tax environment, expected cash payments, outcomes of litigation or regulatory enquiries, anticipated changes in the value of assets and liabilities related to pension schemes and general economic conditions. 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.
Factors that could cause actual results and developments to differ materially from those expressed or implied by forward-looking statements include, but are not limited to:
economic, political, social or other developments in countries and markets in which Diageo operates (including as a result of the ongoing Covid-19 pandemic and the recent departure of the United Kingdom from the European Union), which may contribute to a reduction in demand for Diageo’s products, adverse impacts on Diageo’s customer, supplier and/or financial counterparties, or the imposition of import, investment or currency restrictions (including the potential impact of any global, regional or local trade disputes, including but not limited to any such dispute between the United States and the European Union and/or the United Kingdom) or any tariffs, duties or other restrictions or barriers imposed on the import or export of goods between territories;
the impact of the Covid-19 pandemic, or other epidemics or pandemics, on Diageo’s business, financial condition, cash flows and results of operation;
changes in consumer preferences and tastes, including as a result of changes in demographics, evolving social trends (including any shifts in consumer tastes towards small-batch craft alcohol, lower or no alcohol, or other alternative products), changes in travel, holiday or leisure activity patterns, weather conditions, health concerns, pandemics and/or a downturn in economic conditions;
changes in the domestic and international tax environment, including as a result of the OECD Base Erosion and Profit Shifting Initiative and EU anti-tax abuse measures, leading to uncertainty around the application of existing and new tax laws and unexpected tax exposures;
the effects of climate change, or legal, regulatory or market measures intended to address climate change, on Diageo’s business or operations, including on the cost and supply of water;
changes in the cost of production, including as a result of increases in the cost of commodities, labour and/or energy or as a result of inflation;
any litigation or other similar proceedings (including with tax, customs, competition, environmental, anti-corruption or other regulatory authorities), including litigation directed at the beverage alcohol industry generally or at Diageo in particular;
legal and regulatory developments, including changes in regulations relating to production, distribution, importation, marketing, advertising, sales, pricing, labelling, packaging, product liability, antitrust, labour, compliance and control systems, environmental issues and/or data privacy;
the consequences of any failure by Diageo or its associates to comply with anti-corruption, sanctions, trade restrictions or similar laws and regulations, or any failure of Diageo’s related internal policies and procedures to comply with applicable law or regulation;
the consequences of any failure of internal controls, including those affecting compliance with existing or new accounting and/or disclosure requirements;
Diageo’s ability to maintain its brand image and corporate reputation or to adapt to a changing media environment;
contamination, counterfeiting or other circumstances which could harm the level of customer support for Diageo’s brands and adversely impact its sales;
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increased competitive product and pricing pressures, including as a result of actions by increasingly consolidated competitors or increased competition from regional and local companies, that could negatively impact Diageo’s market share, distribution network, costs and/or pricing;
any disruption to production facilities, business service centres or information systems, including as a result of cyber-attacks;
Diageo’s ability to derive the expected benefits from its business strategies, including in relation to expansion in emerging markets, acquisitions and/or disposals, cost savings and productivity initiatives or inventory forecasting;
increased costs for, or shortages of, talent, as well as labour strikes or disputes;
fluctuations in exchange rates and/or interest rates, which may impact the value of transactions and assets denominated in other currencies, increase Diageo’s cost of financing or otherwise adversely affect Diageo’s financial results;
movements in the value of the assets and liabilities related to Diageo’s pension plans;
Diageo’s ability to renew supply, distribution, manufacturing or licence agreements (or related rights) and licences on favourable terms, or at all, when they expire; or
any failure by Diageo to protect its intellectual property rights.
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 cautionary factors, by the ‘Risk Factors’ section immediately preceding those and by the ‘Risk Factors’ included in Diageo’s Annual Report on Form 20-F for the year ended 30 June 2020 filed with the 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 any documents which it publishes and/or files with the SEC. All readers, wherever located, should take note of these disclosures.
This document includes names of Diageo's products, which constitute trademarks or trade names which Diageo owns, or which others own and license to Diageo for use. All rights reserved. © Diageo plc 2021.
The information in this document does not constitute an offer to sell or an invitation to buy shares in Diageo plc or an invitation or inducement to engage in any other investment activities.
This document may include information about Diageo’s target 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.

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CAPITALISATION AND INDEBTEDNESS
The following table sets out on an IFRS basis the unaudited capitalisation and indebtedness of Diageo as at 31 December 2020.
31 December 2020
£ million
Indebtedness
Short-term borrowings and bank overdrafts (including current portion of long-term borrowings)1,214 
Long-term borrowings14,063 
Lease liabilities410 
Total indebtedness15,687 
Capitalisation
Share capital742 
Share premium1,351 
Capital redemption reserve3,201 
Fair value, hedging and exchange reserve(1,366)
Own shares(1,895)
Other retained earnings4,785 
Equity attributable to the equity shareholders of the parent company6,818 
Non-controlling interests1,560 
Total equity8,378 
Total capitalisation and indebtedness24,065 
Cash and cash equivalents2,763 

Notes
(1)At 31 December 2020, 2,562 million ordinary shares of 28101/108 pence each were issued, all of which were fully paid, including shares issued, shares issued and held in employee share trusts and those held as treasury shares.
(2)There have been no material changes to performance guarantees or indemnities in respect of liabilities of third parties from those reported in Diageo’s Annual Report on Form 20-F for the year ended 30 June 2020.
(3)At 31 December 2020, none of the group’s net borrowings were secured on assets of the group.
(4)Other than those disclosed above, there has been no material change since 31 December 2020 in the group’s net borrowings, performance guarantees, indemnities and capitalisation.

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BUSINESS REVIEW
INFORMATION PRESENTED
Diageo is one of the world’s leading premium drinks businesses and operates on an international scale selling all types of beverage alcohol. It is one of a small number of premium drinks companies that operate globally across spirits and beer.
The following discussion is based on Diageo’s results for the six months ended 31 December 2020 compared with the six months ended 31 December 2019.
Organic movements and organic operating profit presented in this section are before exceptional items. Share, unless otherwise stated, refers to value share. See ‘Definitions and reconciliations of non-GAAP measures to GAAP measures’ for an explanation of organic movements on pages 43 to 44.
RECENT TRENDS
Ivan Menezes, Chief Executive of Diageo, commenting on the six months ended 31 December 2020 said:

"We delivered a strong performance in a challenging operating environment, returning to top line organic sales growth during the half. We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities. This more than offset the impact of on-trade restrictions and the decline in Travel Retail.

North America, our largest market, performed particularly strongly and ahead of our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol. Across other regions we delivered strong sequential improvement compared to the second half of fiscal 20. This reflects improved market share performance through excellent execution in the off-trade channel, and the partial re-opening of the on-trade channel in certain markets.

Organic operating margin improved compared to the second half of fiscal 20 driven by increased operating leverage and tight control of discretionary expenditure. The decline compared to the first half of fiscal 20 reflected an adverse channel and portfolio mix. We expect margins to improve as the on-trade and Travel Retail recover and with the continued benefit of everyday efficiency.

Our proprietary tools and data-led insights are enabling us to invest smartly in effective marketing and innovation. We continue to strengthen brand equity, premiumise our portfolio and expand our digital capabilities.

I am proud of the creativity and adaptability of our people and their exemplary commitment to supporting our customers and communities. Our $100 million global commitment to support the recovery of the hospitality sector has already reached around 30,000 outlets in seven countries. We expect ongoing volatility and disruption in the second half of the year, particularly in the on-trade channel, which will make performance more challenging. The medium and long-term growth drivers and opportunities for our business remain intact and I am confident in our strategy, the resilience of our business and Diageo’s ability to emerge stronger."

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OPERATING RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2020 COMPARED WITH THE SIX MONTHS ENDED 31 DECEMBER 2019
Financial highlights
•    Reported net sales (£6.9 billion) down 4.5%, as organic growth of 1.0% was more than offset by unfavourable exchange. Reported operating profit (£2.2 billion) declined 8.3%, driven by unfavourable exchange and a decline in organic operating profit.
•    Organic net sales up 1.0%, despite a significant impact from Travel Retail and on-trade restrictions. North America was up 12.3%, offsetting declines in other regions, except for Africa which was broadly flat.
•    North America growth was driven by resilient consumer demand, share growth of total beverage alcohol, positive category mix and the replenishment of stock levels by distributors and retailers.
Organic operating profit down 3.4%, driven by channel and category mix. Productivity benefits from everyday cost efficiencies largely offset cost of goods sold inflation.
•    Net cash from operating activities up £0.7 billion to £2.0 billion, and free cash flow up £0.8 billion to £1.8billion. This primarily reflects a lower tax payment and working capital benefit driven by reduced creditor balances at the end of fiscal 20, as a result of reduced sales demand and cost control measures triggered in response to Covid-19. Creditor balances have now recovered to more normalised levels.
    Basic eps of 67.6 pence decreased 14.6%. Pre-exceptional eps declined 12.8% to 69.9 pence, driven primarily by unfavourable exchange and lower operating profit.
•    Interim dividend increased 2% to 27.96 pence per share.
Strong sequential performance improvement in all regions compared to the second half of fiscal 20. Expecting continued impact in the second half of fiscal 21 from on-trade restrictions and disruption to Travel Retail.

Strategic and operational highlights in F21 H1

Supported the recovery of the hospitality sector through ‘Raising the Bar,’ our $100 million global two-year programme, which has already reached around 30,000 outlets in seven countries.
Rapidly responded to increased consumer demand in the off-trade channel, leading to market share gains.
Delivered broad-based growth across most categories, including tequila, gin, Canadian whisky, US whiskey, liqueurs and ready to drink.
Leveraged deep understanding of consumer behaviour, innovating across our brands to recruit new consumers and unlock new occasions in convenience and at-home.
Increased investment in digital capabilities, including e-commerce.
Continued capex investment in capacity, consumer experiences and sustainability.
Completed acquisition of Aviation American Gin and Davos Brands, further premiumising our portfolio.
Leveraged our embedded culture of everyday efficiency to drive continued productivity savings.
Launched ‘Society 2030: Spirit of Progress’, our 10-year sustainability action plan, building on our strong track record in sustainability and responsibility.

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Summary financial information
F21 H1F20 H1
Organic
growth
%
Reported growth
%
Volume
EUm
128.3 130.5 — (2)
Net sales
£ million
6,874 7,200 (5)
Marketing
£ million
1,085 1,116 (3)
Operating profit before exceptional items
£ million
2,256 2,501 (3)(10)
Exceptional operating items(i)
£ million
(17)(59)
Operating profit
£ million
2,239 2,442 (8)
Share of associate and joint venture profit after tax
£ million
154 176 (13)
Non-operating exceptional items(i)
£ million
5 — 
Net finance charges
£ million
(200)(154)
Exceptional taxation (charge)/credit(i)
£ million
(42)14 
Tax rate including exceptional items
%
24.4 21.5 13 
Tax rate before exceptional items
%
22.4 21.6 
Profit attributable to parent company’s shareholders
£ million
1,580 1,865 (15)
Basic earnings per share
pence
67.6 79.2 (15)
Earnings per share before exceptional items
pence
69.9 80.2 (13)
Interim dividend
pence
27.96 27.41 
(i)    For further details of exceptional items see pages 17 to 18.

Outlook for net sales
We are not providing specific guidance due to the ongoing volatility. However, we will be lapping the second half of fiscal 20, which was significantly impacted by the onset of Covid-19 and therefore expect to see improvement over this weak comparator period across all regions. We expect to see continued momentum in North America, augmented by a lapping of inventory reductions by distributors. The pace of recovery in other regions will be more closely aligned with the gradual reopening of the on-trade and the degree to which restrictions continue to be in place. We expect Travel Retail to continue to be heavily impacted by the reduction in travellers.

Outlook for operating margin
We expect organic operating profit growth in the second half of fiscal 21 will be ahead of organic net sales growth in all regions due to the weak comparator period, except North America, where we experienced strong organic operating margin gains in the second half of fiscal 20. Organic operating margin in the second half of fiscal 21 will continue to be pressured from channel and product mix as Travel Retail will continue to be heavily impacted and restrictions on the on-trade continue. We expect to continue investing in advertising and promotion to emerge stronger from the crisis.

Outlook for working capital
We closed the first half with a negative net working capital position more like the level we typically see at fiscal year end. We expect some net working capital build in the second half as we move back to a more normalised profile reverting to pre Covid-19 levels at June 2021.
Outlook for exchange
Given the continued uncertainty caused by the ongoing Covid-19 pandemic, we are not able to provide specific financial guidance and, therefore, the expected impact of exchange for the year ending 30 June 2021
Outlook for tax
The tax rate before exceptional items for the six months ended 31 December 2020 was 22.4% compared with 21.6% for the six months ended 31 December 2019. We expect the tax rate before exceptional items for the year ending 30 June 2021 to be in the upper end of the 21-22% range. A reconciliation of the forward-looking non-GAAP financial measure ‘tax rate before exceptional items’ to its most directly comparable GAAP financial measure, ‘tax rate after exceptional items’, is not provided because it is not possible to predict, without unreasonable effort, with reasonable certainty, exceptional items which by their nature are material or not in the normal course of business. These exceptional items are uncertain, depend on various factors, and could be material to our consolidated results.
For further details on taxation see page 18.
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Return of capital
On 25 July 2019, the Board approved plans for a further return of capital programme of up to £4.5 billion to shareholders over the three-year period to 30 June 2022.
On 1 August 2019, Diageo entered into a non-discretionary agreement with a third party bank to execute the first phase of this return of capital programme to enable the company to buy back shares up to a maximum of £1.25 billion by 31 January 2020. This agreement was executed in full with 38.7 million shares repurchased to a value of £1.25 billion. All shares purchased under the share buyback programme were cancelled. On 9 April 2020, Diageo announced that it had not initiated the next phase of the three-year programme. Given our elevated leverage ratio we have paused the programme until the leverage ratio is back within target range.
At 31 December 2020, the leverage ratio, calculated as adjusted net debt to adjusted EBITDA, was 3.4x, in-line with the leverage ratio at 30 June 2020. Diageo anticipates leverage to be above the target range of 2.5-3.0x through the year ending 30 June 2021.

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Key performance indicators
Net sales (£ million)
Reported net sales declined 4.5%
Organic net sales grew 1.0%

deo-20201231_g1.jpg
deo-20201231_g2.jpg
(i)    Exchange rate movements reflect the adjustment to recalculate the reported results as if they had been generated at the prior period weighted average exchange rates.
(ii)    In the six months ended 31 December 2020, £6 million has been reclassified from marketing to sales.
Reported net sales declined 4.5%, as growth in organic net sales was impacted by unfavourable foreign exchange and to a lesser extent by the negative impact of acquisitions and disposals.
Organic net sales grew 1.0% driven by 1.2% positive price/mix, partially offset by a 0.2% reduction in volume. Price/mix was positive in North America and Africa. Strong growth in North America was offset by declines in all other regions except for Africa, which was roughly flat. Net sales benefitted from the replenishment of stock levels by distributors and retailers in certain markets, mainly North America. This was partially offset by continued customer de-stocking in Travel Retail.

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Operating profit (£ million)
Reported operating profit declined 8.3%
Organic operating profit declined 3.4%

deo-20201231_g3.jpg
(i)    For further details on exceptional items see pages 17 to 18.
(ii)    Fair value adjustments. For further details on fair value remeasurement see page 18.

Reported operating profit was down 8.3% mainly driven by unfavourable exchange, decline in organic operating profit, the impact of acquisitions and disposals and fair value adjustments partially offset by lower exceptional operating items.

Organic operating profit declined 3.4%, with the impact of lower organic operating margin only partially offset by higher sales.

Operating margin (%)

Reported operating margin declined 134bps
Organic operating margin declined 153bps
deo-20201231_g1.jpg
deo-20201231_g4.jpg
(i)    Fair value adjustments and reclassification.

Reported operating margin declined 134bps mainly driven by decline in organic operating margin and unfavourable exchange partially offset by lower exceptional operating items.
Organic operating margin declined 153bps driven by unfavourable channel and category mix, with productivity benefits from everyday cost efficiencies largely offsetting cost of goods sold inflation.
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Basic earnings per share (pence)
Basic eps declined 14.6% from 79.2 pence to 67.6 pence
Eps before exceptional items declined 12.8% from 80.2 pence to 69.9 pence
deo-20201231_g5.jpg
(i)    Includes finance charges net of tax.
(ii)    Excludes finance charges related to acquisitions, disposals and share buyback.
(iii)    Excludes tax related to acquisitions, disposals and share buyback.
(iv)    Fair value adjustments.

Basic eps decreased 11.6 pence as unfavourable exchange, decline in organic operating profit, finance charges and exceptional items after tax more than offset the lower tax charge.

Eps before exceptional items declined 10.3 pence driven by unfavourable exchange, decline in organic operating profit, increased finance charges and a reduction in profit from associates and joint ventures. These were partially offset by tax, lower non-controlling interests and the impact of the share buyback programme in fiscal 20.
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Net cash from operating activities and free cash flow (£ million)

Net cash from operating activities(i) was £1,998 million.
deo-20201231_g6.jpg
Net cash from operating activities was £1,998 million, an increase of £710 million compared to prior period driven by a one-off working capital benefit driven by reduced expenditure in the second half of fiscal 20 due to Covid-19, lapping one-off tax settlements and higher dividends from joint ventures and associates. This increase was partially offset by and unfavourable movement in exchange and a decline in operating profit.

Free cash flow was £1,753 million.

deo-20201231_g7.jpg
(i)    Net cash from operating activities excludes net capex and movements in loans and other investments (F21 H1 - £(245) million; F20 H1 - £(322) million).
(ii)    Exchange on operating profit before exceptional items.
(iii)    Operating profit excludes exchange, depreciation and amortisation, post employment charges and other non-cash items.
(iv)    Working capital movement includes maturing inventory.
(v)    Other items include post employment payments, dividends received from associates and joint ventures. In respect of free cash flow other items also include movements in loans and other investments.

Free cash flow was £1,753 million, £787 million higher compared to the prior period. This was primarily driven by working capital benefits as a result of a large increase in creditors relative to the end of June 2020, where we saw a particularly low creditor balance as a result of reduced sales and lower discretionary spend. We also saw benefits from lapping one-off tax payments, higher dividends from joint ventures and associates, and decreased capital expenditure. This increase was partially offset by an unfavourable movement in exchange and a decline in operating profit.
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Return on invested capital (%)
The return on closing invested capital of 19.8% for the six months ended 31 December 2020, calculated as profit for the year divided by net assets as of 31 December 2020, decreased by 113bps mainly driven by lower organic operating profit growth and decrease in net assets due to lower level of net borrowings.
Return on average invested capital (ROIC) (%)(i) decreased 175bps
deo-20201231_g8.jpg
(i)    ROIC calculation excludes exceptional operating items from operating profit.
ROIC decreased 175bps against the prior comparable period driven mainly by unfavourable exchange and decline in organic operating profit.

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Additional financial information
Summary income statement
31 December 2019
Exchange
(a)
Acquisitions and disposals
(b)
Organic movement(i)
Fair value remeasure-
ment
(d)
Reclassifi-
cation(ii)
31 December 2020
£ million
£ million
£ million
£ million
£ million
£ million
£ million
Sales
10,831 (601)(88)300  (6)10,436 
Excise duties(3,631)273 28 (232)  (3,562)
Net sales
7,200 (328)(60)68  (6)6,874 
Cost of sales(2,702)141 50 (149)(1) (2,661)
Gross profit
4,498 (187)(10)(81)(1)(6)4,213 
Marketing(1,116)35 (2)(8) 6 (1,085)
Other operating items(881)18 (6)4 (7) (872)
Operating profit before exceptional items
2,501 (134)(18)(85)(8) 2,256 
Exceptional operating items (c)(59)(17)
Operating profit
2,442 2,239 
Non-operating items (c)— 5 
Net finance charges(154)(200)
Share of after tax results of associates and joint ventures176 154 
Profit before taxation
2,464 2,198 
Taxation (e)(530)(537)
Profit for the period
1,934 1,661 

(i) For the definition of organic movement see pages 43 to 44.
(ii) In the six months ended 31 December 2020, £6 million has been reclassified from marketing to sales.

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(a) Exchange
The impact of movements in exchange rates on reported figures for net sales and operating profit are principally in respect of the translation exchange impact of the strengthening of sterling against the US dollar, the Brazilian real and the Turkish lira, partially offset by weakening of sterling against the euro.

The effect of movements in exchange rates and other movements on profit before exceptional items and taxation for the six months ended 31 December 2020 is set out in the table below.
Gains/(losses)
£ million
Translation impact
(94)
Transaction impact
(40)
Operating profit before exceptional items
(134)
Net finance charges – translation impact
4 
Net finance charges – transaction impact1 
Net finance charges
5 
Associates – translation impact
3 
Profit before exceptional items and taxation
(126)
Six months ended 31 December 2020Six months ended 31 December 2019
Exchange rates
Translation £1 =
$1.31 $1.26 
Transaction £1 =
$1.34 $1.36 
Translation £1 =
€1.11 €1.14 
Transaction £1 =
€1.11 €1.13 

(b) Acquisitions and disposals
The acquisitions and disposals movement includes the impact of the acquisition of Aviation Gin LLC (‘Aviation Gin’) and Davos Brands LLC (‘Davos Brands’) in the six months ended 31 December 2020, as well as the impact of disposals.

See page 44 and Note 11 for further details.

(c) Exceptional items
Exceptional operating items in the six months ended 31 December 2020 were £17 million before tax (2019 - £59 million).

In the six months ended 31 December 2020, based on recent developments, an additional provision of TRY 152 million (£15 million) was recorded as an exceptional item in respect of ongoing litigation in Turkey, bringing the provision’s balance at 31 December 2020 to TRY 283 million (£28 million).

On 20 November 2020, the High Court of Justice of England and Wales issued a ruling that requires schemes to equalise pension benefits for men and women for the calculation of their guaranteed minimum pension liability (GMP) on historic transfers out, which has resulted in an additional liability of £5 million. The corresponding expense has been recognised as an exceptional operating item, consistent with the charge in relation to the initial GMP ruling in the year ended 30 June 2019.

In the six months ended 31 December 2020, an inventory provision of £3 million (2019 - £nil) has been released in respect of inventories that had earlier been expected to be returned and destroyed as a consequence of the Covid-19 pandemic, resulting in an exceptional gain.

In the six months ended 31 December 2019, an impairment charge of £59 million in respect of the Old Tavern brand in India was recognised in exceptional operating items.

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Non-operating items in the six months ended 31 December 2020 were £5 million (2019 - £nil).

In the six months ended 31 December 2020, ZAR 100 million (£5 million) of deferred consideration was paid to Diageo in respect of the sale of United National Breweries, resulting in a non-operating gain.

Non-operating items in the six months ended 31 December 2019 comprised:
£8 million step up gain as a result of the acquisition of Seedlip Limited, Anna Seed 83 Limited and certain smaller businesses;
£7 million incremental loss on the disposal of United National Breweries;
£1 million loss on the disposal of an associate, Equal Parts, LLC.

Exceptional tax charges in the six months ended 31 December 2020 were £42 million (2019 - £nil), driven by a change in the applicable corporate tax rate in the Netherlands.

See page 44 for the definition of exceptional items.

(d) Fair value remeasurement
The adjustment to cost of sales reflects the elimination of fair value changes for biological assets in respect of growing agave plants of a £3 million gain for the six months ended 31 December 2020 and a £4 million gain for the six months ended 31 December 2019. The adjustment to other operating expenses is the elimination of fair value changes to contingent consideration liabilities in respect of prior year acquisitions of £11 million loss for the six months ended 31 December 2020 and £4 million loss for the six months ended 31 December 2019.

(e) Taxation
The reported tax rate for the six months ended 31 December 2020 was 24.4% compared with 21.5% for the six months ended 31 December 2019.
For the six months ended 31 December 2020, income tax expense is recognised based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period in line with the relevant accounting standard.

On 15 December 2020, legislation was substantively enacted in the Netherlands to maintain the headline corporate tax rate at 25%, reversing a previously enacted reduction in the corporate tax rate to 21.7% in 2021. As a result of the change, an exceptional tax charge of £42 million was recognised for the six months ended 31 December 2020 in relation to the remeasurement of deferred tax liabilities. The reported tax charge for the six months ended 31 December 2019 included a tax credit of £14 million in respect of the Old Tavern brand impairment charge.
The tax rate before exceptional items for the six months ended 31 December 2020 was 22.4% compared with 21.6% for the six months ended 31 December 2019.
We expect the tax rate before exceptional items for the year ending 30 June 2021 to be in the upper end of the 21%-22% range. A reconciliation of the forward-looking non-GAAP financial measure ‘tax rate before exceptional items’ to its most directly comparable GAAP financial measure, ‘tax rate after exceptional items’, is not provided because it is not possible to predict, without unreasonable effort, with reasonable certainty, exceptional items which by their nature are material or not in the normal course of business. These exceptional items are uncertain, depend on various factors, and could be material to our consolidated results.

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(f) Dividend

The group aims to increase the dividend each year and the decision in respect of the dividend is made with reference to dividend cover as well as current performance trends including sales and profit after tax together with cash generation. Diageo targets dividend cover (the ratio of basic earnings per share before exceptional items to dividend per share) within the range of 1.8-2.2 times. For the year ended 30 June 2020 dividend cover was 1.6 times.

An interim dividend of 27.96 pence per share will be paid to holders of ordinary shares and ADRs on the register as of 26 February 2021. The ex-dividend date is 25 February 2021. This represents an increase of 2% on last year’s interim dividend. The interim dividend will be paid to ordinary shareholders on 8 April 2021. Payment to US ADR holders will be made on 13 April 2021. A dividend reinvestment plan is available to holders of ordinary shares in respect of the interim dividend and the plan notice date is 12 March 2021.

(g) Share buyback
On 25 July 2019, the Board approved a return of capital programme to return up to £4.5 billion to shareholders over the three-year period from 1 July 2019 to 30 June 2022, utilising the most appropriate mechanic of either share buybacks or special dividends depending on market conditions.
During the six months ended 31 December 2019, the group purchased 34.6 million ordinary shares at a cost of £1,129 million (including £6 million of transaction costs). In the second half of the year the group purchased 4.1 million ordinary shares at a cost of £127 million (including £1 million of transaction costs), taking the total number of ordinary shares purchased under the programme to 38.7 million at a cost of £1,256 million (including £7 million of transaction costs). All shares purchased under the share buyback programmes were cancelled. On 9 April 2020, the group announced that it had not initiated the next phase of the three-year programme. Given our elevated leverage ratio we have paused the programme until the leverage ratio is back within target range.

At 31 December 2020 the leverage ratio, calculated as adjusted net debt to adjusted EBITDA, was 3.4x, in-line with the leverage ratio at 30 June 2020. The group anticipates leverage to be above the target range of 2.5-3.0x through the year ending 30 June 2021.

See page 43 for explanation of the calculation and use of non-GAAP measures.
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Movement in net borrowings
20202019
£ million
£ million
Net borrowings at 30 June(13,246)(11,277)
Free cash flow (a)
1,753 966 
Acquisitions (b)
(364)(106)
Sale of businesses and brands5 — 
Share buyback programme
 (1,155)
Proceeds from issue of share capital
 
Net sale of own shares for share schemes (c)9 33 
Dividends paid to non-controlling interests
(53)(76)
Net movements in bonds (d)
(216)1,289 
Purchase of shares of non-controlling interests (e)
(34)(25)
Net movements in other borrowings (f)
(345)209 
Equity dividends paid
(992)(1,006)
Net (decrease)/increase in cash and cash equivalents(237)130 
Net decrease/(increase) in bonds and other borrowings561 (1,503)
Exchange differences (g)
420 209 
Other non-cash items (h)(159)(188)
Adoption of IFRS 16 (251)
Net borrowings at 31 December(12,661)(12,880)

(a) See page 14 for the analysis of free cash flow.
(b) In the six months ended 31 December 2020, Diageo completed the acquisition of Aviation Gin and Davos Brands for a total consideration of $337 million (£263 million) in cash and contingent consideration of up to $275 million (£214 million) over a ten-year period linked to performance targets.
In the six months ended 31 December 2019, Diageo acquired the remaining share capital of Seedlip Limited and Anna Seed 83 Limited (the brand owner of Aecorn) which it did not already own, as well as a number of smaller transactions.

Acquisitions also include additional investments as part of the Distill Ventures programme, as well as deferred and contingent consideration paid in respect of previous acquisitions.

(c) Net sale of own shares comprised purchase of treasury shares for the future settlement of obligations under the employee share option schemes of £1 million (2019 - £1 million) less receipts from employees on the exercise of share options of £10 million (2019 - £34 million).
(d) In the six months ended 31 December 2020, the group issued bonds of €700 million (£636 million - net of discount and fee) and £395 million (including £5 million discount and fee) and repaid bonds of $696 million (£551 million) and €775 million (£696 million). In the six months ended 31 December 2019, the group issued bonds of $1,600 million (£1,289 million).
(e) In the six months ended 31 December 2020, East African Breweries Limited (EABL), a subsidiary of Diageo, completed the purchase of 30% of the share capital of Serengeti Breweries Limited for $55 million (£42 million) out of which $12 million (£8 million) was still payable at 31 December 2020.
In the six months ended 31 December 2019, Diageo acquired an additional 3,310,515 shares (representing 0.46% of total shares) of United Spirits Limited for INR 1,960 million (£23 million) and completed the purchase of 4% of the share capital of Serengeti Breweries Limited for $3 million (£2 million).
(f) In the six months ended 31 December 2020, the net movement in other borrowings principally arose from cash movement of foreign exchange swaps and forwards. In the six months ended 31 December 2019, movements were driven by the issue of commercial paper, partially offset by cash movements on foreign exchange swaps and forwards.
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(g) The exchange arising on net borrowings of £420 million is primarily driven by favourable exchange movements on US dollar and euro denominated borrowings, moderately offset by an unfavourable movement on cash and cash equivalents, foreign exchange swaps and forwards.
In the six months ended 31 December 2019, exchange differences were principally driven by beneficial exchange movements on US dollar and euro denominated borrowings partially offset by an adverse movement on foreign exchange swaps and forwards.
(h) In the six months ended 31 December 2020, other non-cash items are principally in respect of fair value changes of cross currency interest rate swaps. In the six months ended 31 December 2019, other non-cash items are principally in respect of additional leases entered into during the six months ended 31 December 2019.

Movement in equity
20202019
£ million
£ million
Equity at 30 June8,440 10,156 
Profit for the period1,661 1,934 
Exchange adjustments (a)
(590)(623)
Remeasurement of post employment plans net of taxation
(115)(82)
Purchase of shares of non-controlling interests (b)
(42)(25)
Dividends declared to non-controlling interests
(24)(52)
Equity dividends paid
(992)(1,006)
Share buyback programme
 (1,200)
Other reserve movements
40 128 
Equity at 31 December8,378 9,230 
(a) Exchange movement in the six months ended 31 December 2020 primarily arose from exchange losses driven by the US dollar, Indian rupee and the Turkish lira.
(b) In the six months ended 31 December 2020, East African Breweries Limited completed the purchase of 30% of the share capital of Serengeti Breweries Limited for $55 million (£42 million).
In the six months ended 31 December 2019, Diageo acquired an additional 3,310,515 shares of United Spirits Limited for INR 1,960 million (£23 million) and completed the purchase of 4% of the share capital of Serengeti Breweries Limited for $3 million (£2 million).

Post employment plans
The net surplus of the group’s post employment benefit plans have decreased by £94 million from £362 million at 30 June 2020 to £268 million at 31 December 2020. The decrease in net surplus is primarily attributable to the change in discount rates in Ireland and in the United Kingdom due to the decrease in returns from AA-rated corporate bonds used to calculate the discount rates on the liabilities of the post employment plans (Ireland from 1.2% to 0.7%; UK from 1.5% to 1.4%), partially offset by an increase in the market value of assets held by the post employment schemes.
The operating profit charge before exceptional items increased by £18 million from £36 million for the six months ended 31 December 2019 to £54 million for the six months ended 31 December 2020. Operating profit for the six months ended 31 December 2019 includes a past service gain of £19 million following a communication to the deferred members of the Guinness Ireland Group Pension Scheme in respect of changing their expectation of a full pension prior to reaching the age of 65.
Total cash contributions by the group to all post employment plans in the year ending 30 June 2021 are estimated to be approximately £120 million.

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Table of Contents
Analysis by reporting segments
The reported and organic movements for volume, sales, net sales, marketing spend, operating profit and operating profit before exceptional items by reporting segments for the six months ended 31 December 2020 were as follows:
Volume
Sales
Net sales
Marketing
Operating profitOperating
profit before
exceptional items
Reported growth by region
%
EUm
%£ million
%
£ million
%
£ million
%£ million
%
£ million
North America
1.6 192 199 10 39 106 106 
Europe and Turkey
(6)(1.4)(8)(244)(13)(223)(6)(16)(30)(186)(27)(169)
Africa
(8)(1.5)(12)(148)(12)(103)(13)(13)(40)(64)(40)(64)
Latin America and Caribbean
0.5 (13)(118)(15)(101)(31)(35)(23)(60)(23)(60)
Asia Pacific
(3)(1.4)(2)(61)(6)(82)(2)(5)13 (11)(46)
Corporate
— — (59)(16)(59)(16)(50)(1)(15)(12)(15)(12)
Diageo
(2)(2.2)(4)(395)(5)(326)(3)(31)(8)(203)(10)(245)

Volume
Sales
Net sales
Marketing
Operating profit(i)
Organic growth by region
%
EUm
%£ million
%
£ million
%
£ million
%
£ million
North America
2.0 11 320 12 307 10 42 14 164 
Europe and Turkey
(5)(1.2)(2)(63)(10)(163)(4)(10)(23)(139)
Africa
(1)(0.2)(1)(9)— (3)(6)(6)(22)(35)
Latin America and Caribbean
0.5 (1)(9)(15)(15)(5)(12)
Asia Pacific
(3)(1.4)63 (3)(48)(1)(3)(11)(48)
Corporate
— — (59)(16)(59)(16)— — (18)(15)
Diageo
 (0.3)3 300 1 68 1 8 (3)(85)

(i) Before operating exceptional items.

22

Table of Contents
North America
Sales and net sales
Sales increased by £192 million, or 7% to £3,022 million in the six months ended 31 December 2020 from £2,830 in the six months ended 31 December 2019. Excise duties were £321 million in the six months ended 31 December 2020 and £328 million in the six months ended 31 December 2019, a decrease of £7 million.
Net sales (sales less excise duties) were £2,701 million in the six months ended 31 December 2020, an increase of £199 million, or 8%, compared to net sales of £2,502 million in the six months ended 31 December 2019. Net sales were favourably impacted by organic growth of £307 million (see further performance analysis below), and by £7 million in respect of acquisitions. This increase was partially offset by unfavourable exchange rate movements of £101 million primarily due to the weakening of the US dollar and by £14 million in respect of disposals.
Operating profit
Operating profit was £1,226 million in the six months ended 31 December 2020, an increase of £106 million compared to operating profit of £1,120 million in the six months ended 31 December 2019. Operating profit increased by £164 million due to organic growth. This increase was partially offset by £47 million as a result of exchange rate movements (£27 million arose on translation and £20 million on transactions) due to the weakening of the US dollar, by £9 million in respect of acquisitions, and by £2 million in respect of disposals.

Further performance analysis
Unless otherwise stated percentage movements refer to organic movements in the following analysis.
North America delivered net sales growth of 12%, with growth across all three key markets. US Spirits net sales increased 15%, with growth across all categories, driven by resilient consumer demand, spirits continuing to take share of total beverage alcohol and positive category mix. It also reflects the replenishment of stock levels by distributors and retailers. Tequila net sales grew 80% driven by strong growth of Don Julio and Casamigos. Net sales of Crown Royal increased 4%, primarily driven by the continued strong performance of innovation. Bulleit grew net sales 17%. Scotch grew 6% driven by good performances from Johnnie Walker and Buchanan’s partially offset by a decline in malts. Vodka net sales grew 6% with Cîroc delivering net sales growth of 17% and Smirnoff net sales increasing 3%. Baileys net sales increased 12% driven by a combination of pricing, new innovation and a continued focus on Baileys' positioning as a year-round, indulgent treat. Captain Morgan net sales grew 9% driven by growth in Captain Morgan Spiced and innovations. Diageo Beer Company USA net sales grew 7%, with strong growth in Smirnoff flavoured malt beverages, partially offset by a decline in Guinness which continued to be impacted by on-trade channel restrictions due to Covid-19. Net sales in Canada increased 7% with broad-based growth in spirits and ready to drink more than offsetting a decline in beer due to its on-trade exposure. North America operating margin increased 80bps. This reflects strong operating leverage and lower discretionary expenditure, partially offset by dilutive category and channel mix.
F20 H1
Exchange
Acquisitions
and
disposals
Organic movement
F21 H1Reported movement
Key financials
£ million
£ million
£ million
£ million
£ million
%
Net sales
2,502 (101)(7)307 2,701 
Marketing
404 (6)42 443 10 
Operating profit1,120 (47)(11)164 1,226 

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Table of Contents
Markets:
Organic
volume
movement
Reported
volume
movement
Organic
net sales
movement
Reported
net sales
movement
Markets:
%
%
%
%
North America(iii)
12 
US Spirits10 10 15 11 
DBC USA
Canada
Spirits
13 
Beer(v)
Ready to drink(v)
25 47 26 
Organic
volume
movement(ii)
Organic
net sales
movement
Reported
net sales
movement
Global giants, local stars and reserve(i):
%
%
%
Crown Royal
— 
Smirnoff(2)
Johnnie Walker(1)
Captain Morgan10 
Don Julio52 55 54 
Ketel One(iv)
11 — (5)
Guinness(18)(16)(19)
Baileys12 
Bulleit13 16 12 
Cîroc vodka15 16 12 
Casamigos112 137 128 
Tanqueray
(i)    Spirits brands excluding ready to drink and flavoured malt beverages.
(ii)    Organic equals reported volume movement.
(iii)    Reported volume and net sales growth include impacts from the disposal of a portfolio of 19 brands to Sazerac in the prior period and the acquisition of Aviation Gin LLC (‘Aviation Gin’) and Davos Brands LLC (‘Davos Brands’) in the six months ended 31 December 2020.
(iv)    Ketel One includes Ketel One vodka and Ketel One Botanical.
(v)    Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.

24

Table of Contents
US Spirits net sales were up 15% with depletions behind shipments by approximately 3 percentage points, due to the replenishment of stock levels by distributors. Tequila sales increased 80% with Don Julio growing 56% and Casamigos growing 139% with both gaining spirits market and tequila category share. The acceleration of growth in our tequila portfolio reflects strong activations in the at-home occasion and some benefit from pricing taken on Casamigos. Crown Royal net sales were up 4% largely driven by continued momentum in Crown Royal Regal Apple, Crown Royal Peach and Crown Royal Vanilla growing strongly. Bulleit net sales grew 17% with upweighted marketing investment driving a strong performance in the off-trade channel. In scotch, Johnnie Walker grew net sales 11%, with strong growth across Johnnie Walker super deluxe, Johnnie Walker Red Label and Johnnie Walker Black Label. Buchanan’s increased net sales 23% and grew category share. Our malt portfolio declined 33% due to its greater reliance on the on-trade channel. Vodka net sales grew 6%. Cîroc net sales increased 17% driven by growth in Cîroc core variant as well as key flavour variants resulting from refreshed activations to re-engage consumers. Smirnoff sales increased 3%. Ketel One performance was flat. Captain Morgan net sales increased 9%, largely driven by growth in Captain Morgan Spiced and a strong contribution from the launch of Captain Morgan Sliced Apple. Baileys net sales increased 12% due to pricing taken on Baileys Original and the successful launch of limited time offer Baileys Apple Pie.
Diageo Beer Company USA net sales grew 7%. Flavoured malt beverages net sales increased 26%. Beer net sales, excluding flavoured malt beverages, were down 15% as Guinness performance was impacted by on-trade restrictions due to Covid-19.
Net sales in Canada grew 7% with broad-based growth in spirits, particularly Baileys, and continued growth of ready to drink. This more than offset the decline in beer due to its higher on-trade exposure.
Marketing investment grew 10% driven by upweighted investment in at-home consumption opportunities to gain quality market share growth and redeployed investment to align with the shift in consumer behaviour, aided by the use of marketing analytics tools to maximise effectiveness.
25

Table of Contents
Europe and Turkey
Sales and net sales
Sales decreased by £244 million, or 8% to £2,727 million in the six months ended 31 December 2020 from £2,971 in the six months ended 31 December 2019. Excise duties were £1,284 million in the six months ended 31 December 2020 and £1,305 million in the six months ended 31 December 2019, a decrease of £21 million.
Net sales (sales less excise duties) were £1,443 million for the six months ended 31 December 2020, a decrease of £223 million, or 13%, compared to net sales of £1,666 million in the six months ended 31 December 2019. Net sales were unfavourably impacted by organic decrease of £163 million (see further performance analysis below), by unfavourable exchange rate movements of £40 million primarily due to the weakening of the Turkish lira and by £20 million in respect of disposals.
Operating profit
Operating profit was £429 million in the six months ended 31 December 2020, a decrease of £186 million, compared to operating profit of £615 million in the six months ended 31 December 2019. Operating profit decreased by £139 million due to organic decline, by £17 million from exceptional items, by £16 million from translation exchange rate movements mainly due to the weakening of the Turkish lira, by £7 million from fair value changes to contingent consideration liabilities in respect of prior year acquisitions and a £7 million loss in respect of disposals.
Further performance analysis
Unless otherwise stated percentage movements refer to organic movements in the following analysis.

Europe and Turkey net sales declined 10%. The business achieved good net sales growth in Turkey, Northern Europe and Great Britain, reflecting strong momentum in off-trade channels. Ireland, Southern Europe and Eastern Europe were significantly impacted due to their high exposure to the on-trade channel. Recovery of the on-trade in the first quarter was not enough to offset the impact of severe restrictions in the second quarter. Reduced levels of international travel continued to severely impact Travel Retail Europe, which declined 72%. Beer net sales in Europe and Turkey declined 34%, driven primarily by Guinness, which was impacted by on-trade restrictions and closures particularly in Ireland and Great Britain. Scotch declined 10%. Growth of scotch in Turkey, Great Britain and Northern Europe was not enough to offset declines in Southern Europe, Travel Retail Europe and Eastern Europe. This was mainly driven by Johnnie Walker due to on-trade restrictions and closures as well as significant reduction in international tourism. Baileys and ready to drink grew 8% and 4% respectively driven by Great Britain, Northern Europe and Ireland. Gin declined 2%. Double digit growth in Gordon's in GB and Tanqueray in Northern Europe was not enough to offset declines in Southern Europe and Travel Retail Europe, where Covid-19 restrictions significantly impacted travel and tourism. Captain Morgan grew 7% driven by Great Britain and Southern Europe. Vodka declined 11% driven by Smirnoff in Southern Europe, Northern Europe, Travel Retail Europe and Eastern Europe. Total operating margin declined 539bps driven by adverse mix impact from on-trade closures and marketing investment ahead of net sales.
F20 H1
Exchange
Acquisitions
and
disposals
Organic movement
Other(iii)
F21 H1Reported movement
Key financials
£ million
£ million
£ million
£ million
£ million
£ million
%
Net sales
1,666 (40)(20)(163)— 1,443 (13)
Marketing
268 (5)(1)(10)— 252 (6)
Operating profit before exceptional items615 (16)(7)(139)(7)446 (27)
Exceptional operating items(iv)
— (17)
Operating profit615 429 (30)


26


Table of Contents
Markets:
Organic
volume
movement
Reported
volume
movement
Organic
net sales
movement
Reported
net sales
movement
Markets:
%
%
%
%
Europe and Turkey(vi)
(5)(6)(10)(13)
Great Britain10 10 
Ireland(17)(23)(37)(40)
Northern Europe— — 10 
Southern Europe(18)(18)(21)(17)
Eastern Europe (6)(7)(13)(21)
Turkey(vii)
12 12 18 (11)
Spirits(2)(2)(4)(7)
Beer(v)
(24)(29)(34)(37)
Ready to drink(v)
Organic
volume
movement(ii)
Organic
net sales
movement
Reported
net sales
movement
Global giants and local stars(i):
%
%
%
Guinness
(26)(33)(32)
Johnnie Walker
(11)(16)(19)
Baileys
Smirnoff(14)(12)(13)
Captain Morgan
Yenì Raki— (4)(26)
Tanqueray(9)(8)(7)
JƐB
(13)(16)(16)
(i)    Spirits brands excluding ready to drink and flavoured malt beverages.
(ii)    Organic equals reported volume movement.
(iii)    The adjustment to other operating expenses is the elimination of fair value changes to contingent consideration liabilities in respect of prior year acquisitions.
(iv)    For further details on exceptional operating items see page 17 and Note 3.
(v)    Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.
(vi)    From 1 July 2020, Europe and Turkey are managed as six individual markets: Great Britain, Ireland, Northern Europe, Southern Europe, Eastern Europe and Turkey, each with end-to-end accountability. This reflects how management reviews performance.
(vii)Variances between organic net sales movement and reported net sales movement are primarily a result of foreign exchange.
27


Table of Contents
.
In Great Britain, net sales increased 2%. Strong momentum in the off-trade more than offset declines due to on-trade restrictions and closures. Spirits growth of 15%, driven by a strong market and market share gains across all categories in the off-trade. Beer declined in the on-trade. Despite this we saw beer on-trade share gains when restrictions were eased.
Ireland net sales declined 37%. Beer net sales were down 44% driven by on-trade restrictions and closures particularly impacting Guinness keg. Total spirits grew 4%, driven by Baileys, Gordon's and Captain Morgan. Both spirits and beer gained market share in the off-trade.
Northern Europe net sales increased 7%, reflecting strong off-trade growth primarily driven by liqueurs and scotch. Baileys grew 18%, benefitting from the successful launch of the Baileys Apple Pie limited time offer and Baileys Salted Caramel. Scotch sales were up 9% driven by scotch malts and Johnnie Walker. Gin sales increased 12% driven by Tanqueray and Gordon's. Vodka declined 24% driven by Smirnoff primarily as a result of exposure to the on-trade.
Southern Europe net sales were down 21% driven by reduced tourism and ongoing on-trade restrictions. Scotch declined 20% driven by Johnnie Walker and JεB.
In Eastern Europe net sales were down 13%. Scotch declined 18% driven by Johnnie Walker as a result of on-trade impacts and instability in Lebanon.
In Turkey, net sales were up 18% benefitting from strong off-trade momentum, particularly in scotch and raki. Growth in raki was driven by Tekirdağ raki.
Travel Retail Europe net sales declined 72% due to continued international travel restrictions.
Marketing investment declined 4%. A proportion of on-trade investment was redeployed into off-trade, e-commerce and gifting.

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Table of Contents
Africa
Sales and net sales
Sales decreased by £148 million, or 12% to £1,064 million in the six months ended 31 December 2020 from £1,212 in the six months ended 31 December 2019. Excise duties were £319 million in the six months ended 31 December 2020 and £364 million in the six months ended 31 December 2019, a decrease of £45 million.
Net sales (sales less excise duties) were £745 million in the six months ended 31 December 2020, a decrease of £103 million, or 12%, compared to net sales of £848 million in the six months ended 31 December 2019. Net sales were unfavourably impacted by £68 million from exchange rate movements due to the weakening of the Kenyan shilling, the South African rand, the Nigerian naira and the Ghanaian cedi, and by £32 million due to disposed businesses, and by organic decline of £3 million (see further performance analysis below).
Operating profit
Operating profit was £95 million in the six months ended 31 December 2020, a decrease of £64 million compared to operating profit of £159 million in the six months ended 31 December 2019. Operating profit decreased by £35 million due to organic decline (see further performance analysis below), and by £29 million from exchange rate movements (£15 million arose on translational and £14 million on transactional exchange impact) due to the weakening of the Kenyan shilling and South African rand.
Further performance analysis
Unless otherwise stated percentage movements refer to organic movements in the following analysis.
Africa net sales were flat. Growth in Nigeria and Africa Regional Markets was not enough to offset declines in East Africa and South Africa. East Africa declined 5% driven by Kenya, which was significantly impacted by on-trade restrictions, partly offset by growth in Tanzania and Uganda. Net sales in Nigeria grew 10%, driven by double digit growth of mainstream spirits and Malta Guinness, as well as strong growth in Guinness. In South Africa, net sales declined 10%, as a result of periodic bans on alcohol sales and other severe Covid-19 related restrictions impacting sales across all categories. Africa Regional Markets grew 7% driven by double digit growth of beer in Ghana and Cameroon. Total Beer declined 1% driven by Senator Keg and Tusker due to on-trade restrictions in Kenya, partly offset by growth in Guinness, Malta Guinness and Serengeti. Spirits performance was flat. Strong performance of mainstream spirits offset declines in scotch. Operating margin declined 434bps, driven by lower fixed cost absorption, one-off charges and input cost inflation partially offset by productivity initiatives.
F20 H1
Exchange
Acquisitions
and
disposals
Organic movement
F21 H1Reported movement
Key financials
£ million
£ million
£ million
£ million
£ million
%
Net sales
848 (68)(32)(3)745 (12)
Marketing
97 (7)— (6)84 (13)
Operating profit159 (29)— (35)95 (40)

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Table of Contents
Markets:
Organic
volume
movement
Reported
volume
movement
Organic
net sales
movement
Reported
net sales
movement
Markets:
%
%
%
%
Africa(iii)
(1)(8)— (12)
East Africa
(5)(5)(5)(12)
Africa Regional Markets(iii)
(24)(10)
Nigeria
10 10 10 — 
South Africa(iii)
(7)(12)(10)(28)
Spirits
— (9)
Beer(iv)
(6)(6)(1)(8)
Ready to drink(iii)(iv)
14 (12)10 (21)
Organic
volume
movement(ii)
Organic
net sales
movement
Reported
net sales
movement
Global giants and local stars(i):
%
%
%
Guinness
Johnnie Walker
(18)(18)(22)
Smirnoff
(4)(15)
Other beer:
Malta12 13 
Senator(28)(25)(31)
Tusker(12)(14)(20)
Serengeti
11 
(i)    Spirits brands excluding ready to drink and flavoured malt beverages.
(ii)    Organic equals reported volume movement.
(iii)    Africa, Africa Regional Markets, South Africa and ready to drink reported volume movement impacted by acquisitions and disposals.
(iv)    Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.

East Africa net sales declined 5%. Kenya declined 10%, driven by severe on-trade restrictions primarily impacting Senator Keg and Tusker sales. Tanzania grew 11% as it was minimally impacted by limited Covid-19 related lockdowns, and benefited from the ongoing successes of Serengeti Lager and Serengeti Lite.
In Africa Regional Markets, net sales grew 7%. Double digit growth in Malta Guinness and Guinness in Ghana, and Guinness in Cameroon, partly offset by double digit beer declines in Ethiopia due to civil unrest.
In Nigeria, net sales grew 10% due to the strong double digit growth of mainstream spirits, primarily driven by Orijin which benefitted from a refreshed marketing campaign and the development of a small formats strategy.
Beer grew 3% driven by Malta Guinness and Guinness despite the disruption in October due to the civil protests.
South Africa net sales declined 10%. Economic and social challenges were further exacerbated by the banning of alcohol sales across all channels for six weeks through July and August and starting again 28 December 2020. Scotch net sales declined 6% driven by Johnnie Walker partially offset by modest growth of Bell's and VAT69
Marketing investment declined 6% due to on-trade savings. Overall spend was shifted to support new route to consumer programmes, off-trade and e-commerce.

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Table of Contents
Latin America and Caribbean
Sales and net sales
Sales decreased by £118 million, or 13%, to £775 million in the six months ended 31 December 2020 from £893 million in the six months ended 31 December 2019. Excise duties were £196 million in the six months ended 31 December 2020 and £213 million in the six months ended 31 December 2019, a decrease of £17 million.
Net sales (sales less excise duties) were £579 million in the six months ended 31 December 2020, a decrease of £101 million, or 15%, compared to net sales of £680 million in the six months ended 31 December 2019. Net sales were unfavourably impacted by exchange of £86 million due to the weakening of the Brazilian real and Mexican peso, organic decrease of £9 million (see further performance analysis below), and by trade investment reclassification of £6 million.
Operating profit
Operating profit was £197 million in the six months ended 31 December 2020, a decrease of £60 million compared to operating profit of £257 million in the six months ended 31 December 2019. Operating profit decreased by £47 million of exchange rate movements (unfavourable £36 million translational and £11 million transactional exchange impact) due to the weakening of the Mexican peso, the Brazilian real and the Colombian peso, by £12 million due to organic decline, and £1 million decrease due to the fair value remeasurement of biological assets of agave plants.
Performance analysis
Unless otherwise stated percentage movements refer to organic movements in the following analysis.
Latin America and Caribbean net sales declined 1%. Declines in CCA, Travel Retail Latin America and Caribbean and Mexico were partially offset by growth in PUB, PEBAC and Colombia. In CCA, significantly reduced tourism resulted in a 21% net sales decline. Travel Retail Latin America and Caribbean net sales declined 100% due to continued international travel restrictions. Mexico net sales decreased 1% as growth in tequila and vodka was offset by declines in scotch. PUB net sales increased 21% primarily driven by double-digit growth in scotch and gin, aided by replenishment of stock levels by distributors and retailers. PEBAC net sales grew 16% supported by strong growth in scotch and liqueurs. Colombia net sales increased 7% driven by liqueurs, vodka and ready to drink. Scotch net sales across the region declined 5% as strong growth in White Horse and Black & White was more than offset by declines in Johnnie Walker, Buchanan’s and Old Parr. Gin net sales grew 24% mainly due to strong momentum in Brazil. Tequila net sales grew 6% driven by growth of Don Julio in Mexico. Operating margin declined 133 bps as adverse product mix within scotch and market mix in the region more than offset reduced marketing investment and some pricing benefit.
F20 H1
Exchange
Reclassifi-cation(i)
Acquisitions
and
disposals
Organic movement
Other(ii)
F21 H1Reported movement
Key financials
£ million
£ million
£ million
£ million
£ million
£ million
£ million
%
Net sales
680 (86)(6)— (9)— 579 (15)
Marketing
113 (14)(6)— (15)— 78 (31)
Operating profit257 (47)— — (12)(1)197 (23)
Organic
volume
movement
Reported
volume
movement
Organic
net sales
movement
Reported
net sales
movement
Markets:
%
%
%
%
Latin America and Caribbean
(1)(15)
PUB(vi)
12 12 21 (8)
Mexico(vi)
(4)(5)(1)(15)
CCA
(10)(10)(21)(23)
Andean(vi)
14 15 (4)
PEBAC(vi)
13 12 16 
Spirits
(2)(16)
Beer(v)
(7)(7)11 13 
Ready to drink(v)
(10)
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Table of Contents
Organic
volume
movement(iv)
Organic
net sales
movement
Reported
net sales
movement
Global giants and local stars(iii):
%
%
%
Johnnie Walker
(6)(11)(21)
Buchanan’s
(16)(16)(25)
Old Parr(18)(21)(31)
Smirnoff(13)(1)(18)
Black & White31 41 14 
Tanqueray18 (8)
Baileys11 12 

(i)    In the six months ended 31 December 2020, £6 million has been reclassified from marketing to sales.
(ii)    The adjustment to cost of sales reflects the fair value remeasurement of biological assets in respect of growing agave plants.
(iii)    Spirits brands excluding ready to drink and flavoured malt beverages.
(iv)    Organic equals reported volume movement.
(v)    Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.
(vi)    Variances between organic net sales movement and reported net sales movement are primarily a result of foreign exchange.

PUB (Paraguay, Uruguay and Brazil) net sales increased 21%. Scotch net sales increased 25% driven by triple-digit growth in White Horse and growth in Johnnie Walker driven by Johnnie Walker Red Label, Johnnie Walker Black Label and Johnnie Walker super deluxe variants. Brazil delivered 33% growth. Strong consumption recovery in Brazil’s domestic market, replenishment of stock levels by distributors and retailers, as well as some pricing benefit, more than offset net sales decline in border stores and the duty free channel. Momentum in gin continued with strong double-digit growth in Tanqueray and triple-digit growth in Gordon’s.
Mexico net sales declined 1% impacted by continued economic slowdown as well as on-trade closures. Scotch declined 8% as double-digit growth of Black & White was offset by declines in Johnnie Walker and Buchanan’s. Tequila grew 10% driven by Don Julio, supported by the local “Antes Que Don” campaign, limited editions and a strong activation plan, resulting in share gains in the off-trade. Vodka increased 9% primarily due to Smirnoff’s X1 Spicy Tamarind innovation, which continued to perform strongly.
CCA (Caribbean and Central America) net sales declined 21% primarily as a result of reduced levels of international tourism and on-trade restrictions, which drove declines across all spirits categories. Scotch net sales decreased 24% as declines in Buchanan’s, Johnnie Walker and Old Parr more than offset double-digit growth in Black & White.
Andean (Colombia and Venezuela) net sales increased 7% driven by Colombia. Growth in Colombia was primarily driven by strong double-digit growth of Baileys building on the brand’s globally proven indulgent treat communication and occasions strategy. Vodka net sales grew strong double-digit due to the Smirnoff X1 Lulo innovation endorsed by a local trend-setting celebrity. Scotch net sales increased 1% driven by triple-digit growth in Black & White and double-digit growth in Johnnie Walker, partially offset by double-digit declines in Old Parr due to its high reliance on the on-trade.
PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile) net sales increased 16% driven by lapping social and political instability across key markets, as well as strong execution through new distribution partnerships. Scotch delivered double-digit net sales growth driven by Johnnie Walker, White Horse and Buchanan’s.
Travel Retail Latin America and Caribbean net sales decreased 100% due to continued international travel restrictions.
Marketing investment was down 15%. On-trade marketing spend was reduced, and partially redeployed to the off-trade and e-commerce given at-home consumption trends.
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Table of Contents
Asia Pacific
Sales and net sales
Sales decreased by £61 million, or 2% to £2,837 million in the six months ended 31 December 2020 from £2,898 million in the six months ended 31 December 2019. Excise duties were £1,442 million in the six months ended 31 December 2020 and £1,421 million in the six months ended 31 December 2019, an increase of £21 million.
Net sales (sales less excise duties) were £1,395 million in the six months ended 31 December 2020, a decrease of £82 million, or 6%, compared to net sales of £1,477 million in the six months ended 31 December 2019. Net sales were unfavourably impacted by organic decline of £48 million (see further performance analysis below), and by £33 million of unfavourable exchange rate movements principally due to the weakening of the Indian rupee, and by £1 million due to disposed businesses.
Operating profit
Operating profit was £386 million in the six months ended 31 December 2020 an increase of £13 million compared to operating profit of £373 million in the six months ended 31 December 2019. Operating profit increased by £59 million following the lapping of prior year impairment of the Old Tavern brand, and by £2 million of favourable exchange rate movements (£7 million arose on transactional exchange impact partially offset by £5 million translational exchange) principally due to the strengthening of the Australian dollar and the Chinese yuan, partially offset by the weakening of the Indian rupee. Further change by £48 million due to organic decline (see further performance analysis below).
Further performance analysis
Unless otherwise stated percentage movements refer to organic movements in the following analysis.
Asia Pacific net sales decreased 3%. Strong growth in Greater China and Australia in the first half was offset by declines in Travel Retail Asia and Middle East, South East Asia and North Asia. The region was in growth excluding Travel Retail Asia and Middle East. Greater China net sales increased 15%, driven by Chinese white spirits and scotch. Australia net sales increased 23%, with growth across key categories. India net sales grew 1%. Spirits sales declined due to the continued economic slowdown and on-trade closures. This was more than offset by revenue from the United Spirits Limited owned cricket team due to the postponement of the Indian Premier League from March 2020 to October 2020. South East Asia net sales decreased 17% with declines across all key categories primarily driven by local market restrictions and the reduced levels of international travel. Travel Retail Asia and Middle East declined 81% due to the continued impact of Covid-19 on international travel. Operating margin decreased 237 bps driven by adverse market and category mix partially offset by overhead efficiencies.
F20 H1
Exchange
Acquisitions
and
disposals
Organic movement
F21 H1Reported movement
Key financials
£ million
£ million
£ million
£ million
£ million
%
Net sales
1,477 (33)(1)(48)1,395 (6)
Marketing
232 (2)— (3)227 (2)
Operating profit before exceptional items432 — (48)386 (11)
Exceptional operating items(i)
(59)— 
Operating profit373 386 


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Organic
volume
movement
Reported
volume
movement
Organic
net sales
movement
Reported
net sales
movement
Markets:
%
%
%
%
Asia Pacific
(3)(3)(3)(6)
India(vi)
(2)(2)(7)
Greater China
15 15 
Australia
25 26 23 26 
South East Asia
(15)(15)(17)(21)
North Asia(6)(8)
Travel Retail Asia and Middle East(76)(76)(81)(81)
Spirits
(3)(3)(6)(8)
 Beer(v)
(7)(7)(10)(13)
Ready to drink(v)
14 17 
Organic
volume
movement(iii)
Organic
net sales
movement
Reported
net sales
movement
Global giants and local stars(ii):
%
%
%
Johnnie Walker
(14)(21)(21)
McDowell's
(3)(3)(11)
Shui Jing Fang(iv)
17 18 18 
Guinness(9)(11)(13)
The Singleton(3)(3)(2)
Royal Challenge(11)(11)(17)
Windsor(35)(27)(28)

(i)    For further details on exceptional operating items see page 17 and Note 3.
(ii)    Spirits brands excluding ready to drink and flavoured malt beverages.
(iii)    Organic equals reported volume movement.
(iv)    Growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand.
(v)    Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.
(vi)    Variances between organic net sales movement and reported net sales movement are primarily a result of foreign exchange.

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In India, net sales grew 1%. Spirits declined due to the continued economic slowdown and on-trade closures. This was more than offset by revenue from the United Spirits Limited owned cricket team, Royal Challengers Bangalore, as the start of the Indian Premier League was rescheduled from March 2020 to October 2020. Net sales in the popular brands segment declined 10%. Prestige and Above segment net sales decreased 2% primarily driven by declines in vodka and IMFL whisky. Scotch net sales grew 1% driven by Johnnie Walker Red Label.
In Greater China, net sales increased 15% driven primarily by Chinese white spirits and scotch. Chinese white spirits grew 20% partly driven by route to consumer expansion. Scotch net sales increased 9% with double-digit growth in scotch malts and Johnnie Walker super deluxe.
In Australia, net sales increased 23% due to growth across all key categories driven by strong off-trade momentum. Ready to drink net sales grew 30% driven primarily by Bundaberg as well as strong growth in Smirnoff and Gordon's due to the Smirnoff Spiked Seltzers and Gordon’s Pink Gin Premix innovations. Scotch net sales increased 17% driven by Johnnie Walker super deluxe. Gin net sales grew 48% due to continued momentum in Gordon's, Gordon's Premium Pink Distilled Gin and Gordon’s Sicilian Lemon as well as Tanqueray. Baileys net sales increased 29% driven by strong growth in Baileys Original and Baileys Red Velvet innovation. Rum net sales delivered 20% growth driven by Bundaberg and Captain Morgan. Vodka net sales grew 23% due to Smirnoff.
In South East Asia, net sales decreased 17% with declines across all key categories primarily driven by local market restrictions and the reduced levels of international travel. Scotch net sales were down 8% as strong double-digit growth in scotch malts was more than offset by declines in Johnnie Walker.
In North Asia, net sales decreased 6%, with Japan and Korea each declining 6%. Performance in Japan was primarily driven by the decline of ready to drink. In Korea the main driver of decline was Windsor, partially offset by double-digit growth in Johnnie Walker.
Travel Retail Asia and Middle East net sales decreased 81% across the portfolio due to continued international travel restrictions.
Marketing investment declined 1% as a proportion of on-trade investment was redeployed into off-trade and e-commerce to focus on the at-home consumption occasion.
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Corporate
Sales and net sales
Corporate sales principally arise in the Guinness visitor centre in Dublin, Ireland and the income from the global licencing of Diageo brands and trademarks. Corporate sales and net sales were £11 million in the six months ended 31 December 2020, a decrease of £16 million, or 59% compared to net sales of £27 million in the six months ended 31 December 2019. Net sales were unfavourably impacted by an organic decrease of £16 million million as a result of lower visitor numbers due to Covid-19 pandemic related implications.
Operating profit
Corporate operating costs comprise central costs, including finance, marketing, corporate relations, human resources and legal, as well as certain information systems, facilities and employee costs that are not allocable to the geographical segments or to the Supply Chain and Procurement. Operating costs were £94 million in the six months ended 31 December 2020, an increase of £12 million compared to operating costs of £82 million in the six months ended 31 December 2019. Operating costs were £15 million higher principally because of lapping lower net post employment charges due to one-off pension credit in the six months ended 31 December 2019, partially offset by favourable exchange rate movements of £3 million (£5 million arose on translation less £2 million on transaction) due to the weakening of the US dollar.
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Category and brand review
deo-20201231_g9.jpgdeo-20201231_g10.jpgdeo-20201231_g11.jpg
n
Scotch
n
Vodka
n
US whiskey
n
Canadian whisky
n
Rum
n
IMFL whisky
n
Liqueurs
n
Gin
n
Tequila
n
Beer(v)
n
Ready to drink(v)
n
Other
Net sales by category and region
deo-20201231_g12.jpgdeo-20201231_g13.jpgdeo-20201231_g14.jpg

deo-20201231_g15.jpgdeo-20201231_g16.jpgdeo-20201231_g17.jpg

(i)    Flavoured malt beverages have been reclassified from Ready to drink to Beer from 1 July 2020. This reflects the nature of these products and how management reviews performance.
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Key categories:
Organic
volume
movement(iii)
%
Organic
net sales
movement
%
Reported
net sales
movement
%
Spirits(i)
1 3 (2)
Scotch
(3)(8)(13)
Vodka(ii)(iv)
(2)— (6)
Canadian whisky
(1)
Rum(ii)
(6)(3)
Liqueurs
Indian-Made Foreign Liquor (IMFL) whisky
(1)(8)
Tequila
42 61 56 
Gin(ii)
US whiskey
Beer(v)
(9)(11)(16)
Ready to drink(v)
10 13 4 

(i)    Spirits brands excluding ready to drink and flavoured malt beverages.
(ii)    Vodka, rum, gin including IMFL brands.
(iii)    Organic equals reported volume movement except for spirits 0%, vodka (3)%, rum (7)%, liqueurs 2%, gin 7%, beer (10)% and ready to drink (1)%, which were impacted by acquisitions and disposals.
(iv)    Vodka includes Ketel One Botanical.
(v)    Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.

Unless otherwise stated percentage movements refer to organic movements in the following analysis.

Scotch represents 24% of Diageo’s net sales and declined 8%. Growth in North America of 2% was offset by declines in all other regions. Scotch performance was severely affected by the impact of Covid-19 on international travel, particularly in Asia Pacific. Excluding Travel Retail, scotch was broadly flat with growth in North America and Asia Pacific offset by declines in all other regions. Johnnie Walker net sales were down 12%, and scotch malts down 7%, driven by the impact of Covid-19 on Travel Retail sales and lapping Game of Thrones innovations. Primary scotch brands grew 16% driven by the growth of White Horse and Black & White in Latin America and Caribbean and Bell's in Europe and Turkey. Old Parr declined 19% driven by international tourism restrictions in Caribbean and Central America and restrictions on the on-trade channel in Colombia. Buchanan’s net sales were down 2% with decline in Latin America and Caribbean partially offset by strong growth in North America driven by its strong presence in the off-trade channel. JƐB continued to decline with net sales down 12% driven by the impact of on-trade restrictions in Southern Europe.
Vodka represents 10% of Diageo’s net sales and was broadly flat with growth in North America and Africa offset with decline in all other regions. Cîroc grew 11% driven mainly by US Spirits on the back of refreshed activations to engage with Cîroc's consumer base. Smirnoff net sales were down 3% driven by declines in Europe and Turkey and Asia Pacific partially offset by growth in North America. Ketel One net sales decreased 4% with North America performance flat and a decline in Europe and Turkey.
Canadian whisky represents 8% of Diageo’s net sales and grew 3%. Growth of Crown Royal in North America was largely driven by continued momentum on flavours with Crown Royal Regal Apple, Crown Royal Vanilla and Crown Royal Peach all growing strongly.
Rum represents 6% of Diageo’s net sales and grew 1% primarily driven by Captain Morgan in North America and Great Britain partially offset by a decline in McDowell's No.1 in India.
Liqueurs represent 7% of Diageo’s net sales and grew 8% driven by Baileys. Baileys growth was broad based across regions, apart from Asia Pacific which declined 2%. Performance was driven by Baileys Original, the successful launch of limited time offer Baileys Apple Pie, and continued focus on Baileys' positioning as a year-round indulgent treat.
IMFL whisky represents 5% of Diageo’s net sales and declined 1% driven by the economic slowdown, and the impact of Covid-19 shutdowns, in India.
Tequila represents 7% of Diageo’s net sales and grew 61% driven by strong performance of Don Julio and Casamigos in North America.
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Gin represents 5% of Diageo’s net sales and grew 6% with growth across all regions except Europe and Turkey. Gin growth was driven by strong double-digit growth in Africa and Latin America and Caribbean. Growth in Africa was mainly driven by Gilbey’s in Kenya and broad-based growth of Gordon’s across the region. Growth in Latin America and Caribbean was mainly driven by growth of Tanqueray and Gordon’s in Brazil. The decline in Europe and Turkey was mainly due to the impact of on-trade closures and reduced tourism in Southern Europe and the impact of Covid-19 on Travel Retail Europe. Gin net sales grew 12% in both Northern Europe and Great Britain driven by Tanqueray and Gordon's, respectively. In Great Britain Gordon's performance was primarily driven by the successful launch of Gordon's Sicilian Lemon.
US whiskey represents 2% of Diageo’s net sales and grew 8%. Performance continued to be driven by strong growth in Bulleit.
Beer represents 15% of Diageo’s net sales and declined 11% with declines in all regions except North America and Latin America and Caribbean. Guinness declined 18% due to the impact of Covid-19 on the on-trade, particularly in Ireland and Great Britain. Smirnoff flavoured malt beverages in Diageo Beer Company USA grew 26% driven by innovation launches as well as increased consumption in the off-trade channel.
Ready to drink represents 4% of Diageo’s net sales and grew 13% with broad-based growth across all regions, particularly North America and Australia. Australia performance was driven by Bundaberg, Smirnoff and Gordon's.
Global giants, local stars and reserve(i):
Organic
volume
movement(ii)
%
Organic
net sales
movement
%
Reported
net sales
movement
%
Global giants
Johnnie Walker
(10)(12)(16)
Smirnoff
(4)(3)(8)
Baileys
10 
Captain Morgan
Tanqueray
(1)(5)
Guinness
(11)(18)(20)
Local stars
Crown Royal
(1)
Yenì Raki
(1)(4)(26)
Buchanan’s
(5)(2)(9)
JƐB
(12)(12)(14)
Windsor
(35)(27)(28)
Old Parr
(17)(19)(27)
Bundaberg
13 11 
Black & White
19 20 
Ypióca
18 12 (19)
McDowell's
(3)(3)(10)
Shui Jing Fang(iii)
17 18 18 
Reserve
Scotch malts(6)(7)(7)
Cîroc vodka11 
Ketel One(iv)
(4)(9)
Don Julio19 39 35 
Bulleit11 15 10 
Casamigos111 135 126 

(i)    Spirits brands excluding ready to drink and flavoured malt beverages.
(ii)    Organic equals reported volume movement.
(iii)    Growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand.
(iv)    Ketel One includes Ketel One vodka and Ketel One Botanical.
Unless otherwise stated percentage movements refer to organic movements in the following analysis.
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Global giants represent 39% of Diageo’s net sales and declined by 7%. Johnnie Walker decline was due to the impact of Covid-19 on Travel Retail, and Guinness declined due to restrictions on the on-trade channel, particularly in Great Britain and Ireland. These declines were partially offset by growth in Baileys in North America and Europe and Turkey and Captain Morgan in North America.
Local stars represent 20% of Diageo’s net sales and grew 1%, largely driven by growth in Chinese white spirits in Asia Pacific, Crown Royal in North America and Black & White in Colombia and Mexico. These gains were partially offset by declines in Old Parr in the Caribbean and Central America and Colombia, Windsor in South Korea, JƐB in Southern Europe and McDowell's No.1 in India.
Reserve brands represent 24% of Diageo’s net sales and grew 15% largely driven by the strong growth of Casamigos and Don Julio in US Spirits and Chinese white spirits partially offset by declines in scotch malts mainly in US Spirits and Johnnie Walker Reserve variants mainly in Travel Retail Asia and Middle East.
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LIQUIDITY AND CAPITAL RESOURCES
The primary source of the group’s liquidity has been cash generated from operations. These funds have generally been used to pay interest, taxes and dividends, and to fund capital expenditure and acquisitions.
Analysis of cash flow, movement in net borrowings and equity
For an analysis of movement in net borrowings, movement in equity and post employment deficit please refer to pages 20 to 21. For an analysis of free cash flow please refer to page 14.
Analysis of borrowings
The group policy with regard to the expected maturity profile of borrowings of group finance companies is to limit the proportion of such borrowings maturing within 12 months to 50% of gross borrowings less money market demand deposits, and the level of commercial paper to 30% of gross borrowings less money market demand deposits. In addition, it is group policy to maintain backstop facility terms from relationship banks to support commercial paper obligations.
The group’s net borrowings and gross borrowings in the tables below are measured at amortised cost with the exception of borrowings designated in fair value hedge relationships, interest rate hedging instruments and foreign currency swaps and forwards. For borrowings designated in fair value hedge relationships, Diageo recognises a fair value adjustment for the risk being hedged in the balance sheet, whereas interest rate hedging instruments and foreign currency swaps and forwards are measured at fair value. Net borrowings, reported on this basis, comprise the following: 
31 December 202030 June 2020
£ million£ million
Overdrafts(83)(170)
Other borrowings due within one year(1,131)(1,825)
Borrowings due within one year(1,214)(1,995)
Borrowings due between one and three years(2,977)(3,013)
Borrowings due between three and five years(2,604)(3,134)
Borrowings due after five years(8,482)(8,643)
Fair value of foreign currency forwards and swaps117 497 
Fair value of interest rate hedging instruments146 189 
Lease liabilities(410)(470)
Gross borrowings(15,424)(16,569)
Offset by:
Cash and cash equivalents2,763 3,323 
Net borrowings(12,661)(13,246)

The percentage of the group’s gross borrowings and cash and cash equivalents at 31 December 2020 denominated in the following currencies were as follows:
Total
£ million
US
dollar
%
Sterling
%
Euro
%
Indian
rupee
%
Chinese yuan
%
South African rand
%
Nigerian naira
%
Other(i)(iii)
%
Gross borrowings(ii)
(15,424)29 48 19 — — — 
Cash and cash equivalents2,763 68 15 

(i)No currency included within the other category exceeds 10% of the total cash and cash equivalents balance.
(ii)Including foreign exchange forwards and swaps.
(iii)As at 31 December 2020 includes £43 million (Turkish lira) cash and cash equivalents in cash-pooling arrangements.
Based on average monthly net borrowings and net interest charge, the effective interest rate for the six months ended 31 December 2020 was 2.8%. For this calculation, net interest charge excludes fair value adjustments to derivative financial instruments and borrowings and average monthly net borrowings include the impact of interest rate swaps that are no longer in a hedge relationship but exclude the market value adjustment for cross currency interest rate swaps.
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In the six months ended 31 December 2020, the group issued bonds of €700 million (£636 million) and £395 million (including £5 million discount and fee) and repaid bonds of $696 million (£551 million) and €775 million (£696 million). In the six months ended 31 December 2019, the group issued bonds of $1,600 million (£1,289 million).
The principal components of the £585 million decrease in net borrowings from 30 June 2020 to 31 December 2020 were mainly the £1,753 million of free cash flow and £420 million of exchange differences, partially offset by £992 million equity dividends, £364 million in respect of the acquisitions and £216 million net movements in bonds.
The group issues short-term commercial paper regularly in order to finance its day-to-day operations.
The group had available undrawn committed bank facilities as follows:
31 December 2020
£ million
Expiring within one year 
Expiring between one and two years551 
Expiring after two years2,023 
2,574 
These facilities can be used for general corporate purposes and, together with cash and cash equivalents, support the group’s commercial paper programmes.
There are no financial covenants on the group’s material short and long-term borrowings. Certain of these borrowings contain cross default provisions and negative pledges.
The committed bank facilities are subject to a single financial covenant, being minimum interest cover ratio of two times (defined as the ratio of operating profit before exceptional items, aggregated with share of after tax results of associates and joint ventures, to net interest). They are also subject to pari passu ranking and negative pledge covenants.

Any non-compliance with covenants underlying Diageo’s financing arrangements could, if not waived, constitute an event of default with respect to any such arrangements, and any non-compliance with covenants may, in particular circumstances, lead to an acceleration of maturity on certain borrowings and the inability to access committed facilities. Diageo was in full compliance with its financial and other covenants throughout each of the periods presented.
Capital management
The group’s management is committed to enhancing shareholder value in the long-term, both by investing in the business and brands so as to deliver continued improvement in the return from those investments and by managing the capital structure. Diageo manages its capital structure to achieve capital efficiency, provide flexibility to invest through the economic cycle and give efficient access to debt markets at attractive cost levels. This is achieved by targeting an adjusted net borrowings (net borrowings aggregated with post employment benefit liabilities) to adjusted EBITDA leverage of 2.5 – 3.0 times, this range for Diageo being currently broadly consistent with an A band credit rating. Diageo would consider operating outside of this range in order to effect strategic initiatives within its stated goals, which could have an impact on its rating. If Diageo’s leverage was to be negatively impacted by the financing of an acquisition, it would seek over time to return to the range of 2.5 – 3.0 times. The group regularly assesses its debt and equity capital levels against its stated policy for capital structure. As at 31 December 2020 the adjusted net borrowings (£13,476 million) to adjusted EBITDA (£3,995 million) ratio was 3.4 times. For this calculation net borrowings are adjusted by post employment benefit liabilities before tax (£815 million) whilst adjusted EBITDA comprises operating profit excluding exceptional operating items and depreciation, amortisation and impairment and includes share of after tax results of associates and joint ventures. See page 50 for the reconciliation and calculation of the adjusted net borrowing to adjusted EBITDA ratio.
Capital repayments
Authorisation was given by shareholders on 28 September 2020 to purchase a maximum of 232,820,888 ordinary shares at a minimum price of 28 101/108 pence and a maximum price of the higher of (a) 105% of the average of the middle market quotations for an ordinary share for the five preceding business days and (b) the higher of the price of the last independent trade and the highest current independent bid on the trading venue at the time the purchase is carried out. The programme expires at the conclusion of the next Annual General Meeting or on 27 December 2021, if earlier.
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OFF-BALANCE SHEET ARRANGEMENTS
Neither Diageo plc nor any member of the Diageo group has any off-balance sheet financing arrangements that currently have or are reasonably likely to have a material future effect on the group’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditure or capital resources.
DEFINITIONS AND RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES
Diageo’s strategic planning process is based on certain non-GAAP measures, including organic movements. These non-GAAP measures are chosen for planning and reporting, and some of them are used for incentive purposes. The group’s management believes these measures provide valuable additional information for users of the financial statements in understanding the group’s performance. These non-GAAP measures should be viewed as complementary to, and not replacements for, the comparable GAAP measures and reported movements therein.

It is not possible to reconcile the forecast tax rate before exceptional items to the most comparable GAAP measure as it is not possible to predict, without unreasonable effort, with reasonable certainty, the future impact of changes in exchange rates, acquisitions and disposals and potential exceptional items.

Volume

Volume is a performance indicator that is 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; ready to drink in nine-litre cases, divide by 10; and certain pre-mixed products that are classified as ready to drink in nine-litre cases, divide by ten.

Organic movements

Organic information is presented using pounds sterling amounts on a constant currency basis excluding the impact of exceptional items, certain fair value remeasurement and acquisitions and disposals. Organic measures enable users to focus on the performance of the business which is common to both years and which represents those measures that local managers are most directly able to influence.

Calculation of organic movements

The organic movement percentage is the amount in the row titled ‘Organic movement’ in the tables below, expressed as a percentage of the absolute amount in the associated relevant row titled ‘2019 adjusted’. Organic operating margin is calculated by dividing operating profit before exceptional items by net sales after excluding the impact of exchange rate movements, certain fair value remeasurement and acquisitions and disposals.

(a) Exchange rates

'Exchange' in the organic movement calculation reflects the adjustment to recalculate the reported results as if they had been generated at the prior period weighted average exchange rates.

Exchange impacts in respect of the external hedging of intergroup sales by the markets in a currency other than their functional currency and the intergroup recharging of services are also translated at prior period weighted average exchange rates and are allocated to the geographical segment to which they relate. Residual exchange impacts are reported as part of the Corporate segment.

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(b) Acquisitions and disposals

For acquisitions in the current period, the post acquisition results 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 included in the organic movement calculation from the anniversary of the acquisition date in the current period. The acquisition row also eliminates the impact of transaction costs that have been charged to operating profit in the current or prior period in respect of acquisitions that, in management’s judgement, are expected to be completed.

Where a business, brand, brand distribution right or agency agreement was disposed of, or terminated, in the reporting period, the group, in the organic movement calculations, excludes the results for that business from the current and prior 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.

(c) Exceptional items

Exceptional items are those that in management’s judgement need to be disclosed separately. Such items are included within the income statement caption to which they relate, and are excluded from the organic movement calculations. It is believed that separate disclosure of exceptional items and the classification between operating and non-operating further helps investors to understand the performance of the group.

Exceptional operating items are those that are considered to be material and unusual or non-recurring in nature and are part of the operating activities of the group such as impairment of intangible assets and fixed assets, indirect tax settlements, property disposals and changes in post employment plans.

Gains and losses on the sale of businesses, brands or distribution rights, step up gains and losses that arise when an investment becomes an associate or an associate becomes a subsidiary and other material, unusual non-recurring items, that are not in respect of the production, marketing and distribution of premium drinks, are disclosed as non-operating exceptional items below operating profit in the consolidated income statement.

Exceptional current and deferred tax items, comprising material unusual non-recurring items that impact taxation. Examples include direct tax provisions and settlements in respect of prior years and the remeasurement of deferred tax assets and liabilities following tax rate changes.

(d) Fair value remeasurement

Fair value remeasurement in the organic movement calculation reflects an adjustment to eliminate the impact of fair value changes in biological assets and fair value changes relating to contingent consideration liabilities and equity options that arose on acquisitions recognised in the income statement.

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Organic movement calculations for the six months ended 31 December 2020 were as follows:
North America
million
Europe
and
Turkey
million
Africa
million
Latin America
and Caribbean
million
Asia
Pacific
million
Corporate
million
Total
million
Volume (equivalent units)
2019 reported26.1 25.4 17.9 12.3 48.8 — 130.5 
Disposals(iv)
(0.5)(0.2)(1.4)— — — (2.1)
2019 adjusted25.6 25.2 16.5 12.3 48.8 — 128.4 
Organic movement2.0 (1.2)(0.2)0.5 (1.4) (0.3)
Acquisitions and disposals(iv)
0.1 ̵