Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
30 January 2020
Commission File Number: 001-10691
DIAGEO plc
(Translation
of registrant’s name into English)
Lakeside Drive, Park Royal, London NW10 7HQ
(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):
|
Interim results, six months ended 31 December 2019
30 January 2020
|
Delivering consistent performance and broad based growth
|
●
Reported
net sales (£7.2 billion) increased 4.2% driven by organic
growth. Reported operating profit (£2.4 billion) increased
0.5%, driven by organic growth offset by unfavourable exchange,
exceptional operating items and acquisitions and
disposals
●
All
regions contributed to broad based organic net sales growth, up
4.2%, with organic volume up 0.2%
●
Organic
operating profit grew 4.6%, ahead of organic net sales, driven by
productivity benefits from everyday cost efficiencies and strong
price/mix, partially offset by cost inflation and upweighted
marketing investment
●
We
continue to deliver consistently solid cash flow with net cash from
operating activities at £1.3 billion, £0.3 billion lower
than prior period and free cash flow at £1.0 billion,
£0.4 billion lower than prior period largely due to one-off
tax impacts and timing of tax payments
●
Basic eps of 79.2 pence decreased by 2.1% due
to prior year exceptional gains. Pre-exceptional eps grew 4.2% to
80.2 pence, driven by higher
operating profit and the capital return
programme
●
Interim
dividend increased 5% to 27.41 pence per share
See
Explanatory Notes for explanation and reconciliation of non-GAAP
measures.
Ivan Menezes, Chief Executive, commenting on the results
said:
|
"Diageo
has delivered another good, consistent set of results in the first
half, with broad based organic net sales growth across regions and
categories. We have continued to increase investment behind
marketing and growth initiatives, while expanding organic operating
margins.
During
the half, we returned £1.1bn to shareholders via share
buybacks, as part of our plan to return up to £4.5 billion of
capital to shareholders for the period Fiscal 20 to Fiscal 22. We
have also delivered another half of solid free cash flow at almost
£1 billion.
These
results reflect the changes we are making in the business to drive
shifts in our culture. They are in line with our current mid-term
guidance and have been delivered in the face of increased levels of
volatility in India, Latin America and Caribbean and Travel
Retail.
For the
full year, we therefore expect organic net sales growth to be
towards the lower end of our 4 to 6% mid-term guidance range. We
continue to expect organic operating profit to grow roughly one
percentage point ahead of organic net sales.
There
is ongoing uncertainty in the global trade environment and we would
not be immune from further policy changes. We remain focused on
building the long-term health of our brands, supported by data-led
insights and a culture of everyday efficiency. With the consumer at
the heart of the business and with greater agility and discipline
in the execution of our strategy, we are growing Diageo in a
consistent, sustainable way."
Key financial information
Six
months ended 31 December 2019
Summary financial information
|
|
P6
|
F20 H1
|
F19 H1
|
Organicgrowth %
|
Reported growth%
|
Volume
|
EUm
|
130.5
|
|
130.5
|
|
0
|
|
0
|
|
Net
sales
|
£
million
|
7,200
|
|
6,908
|
|
4
|
|
4
|
|
Marketing
|
£
million
|
1,116
|
|
1,054
|
|
6
|
|
6
|
|
Operating
profit before exceptional items
|
£
million
|
2,501
|
|
2,451
|
|
5
|
|
2
|
|
Exceptional
operating charges(i)
|
£
million
|
(59
|
)
|
(21
|
)
|
|
|
Operating
profit
|
£
million
|
2,442
|
|
2,430
|
|
|
0
|
|
Share
of associate and joint venture profit after tax
|
£
million
|
176
|
|
179
|
|
|
(2
|
)
|
Non-operating
exceptional gain(i)
|
£
million
|
—
|
|
146
|
|
|
|
Net
finance charges
|
£
million
|
(154
|
)
|
(128
|
)
|
|
|
Exceptional
taxation (charge)/credit(i)
|
£
million
|
14
|
|
(30
|
)
|
|
|
Tax
rate including exceptional items
|
%
|
21.5
|
|
21.3
|
|
|
1
|
|
Tax
rate before exceptional items
|
%
|
21.6
|
|
21.2
|
|
|
2
|
|
Profit
attributable to parent company’s shareholders
|
£
million
|
1,865
|
|
1,976
|
|
|
(6
|
)
|
Basic
earnings per share
|
pence
|
79.2
|
|
80.9
|
|
|
(2
|
)
|
Earnings
per share before exceptional items
|
pence
|
80.2
|
|
77.0
|
|
|
4
|
|
Interim dividend
|
pence
|
27.41
|
|
26.1
|
|
|
5
|
|
(i)
For further details
of exceptional items see Summary Income Statement (c) Exceptional
items and Notes, Exceptional items.
Outlook for exchange
Using
exchange rates £1 = $1.31; £1 = €1.19, the exchange
rate movement for the year ending 30 June 2020 is estimated to
unfavourably impact net sales by approximately £110 million
and operating profit by approximately £40
million.
Outlook for tax
The tax
rate before exceptional items for the six months ended 31 December
2019 was 21.6% compared with 21.2% in the prior comparable period.
We continue to expect a tax rate before exceptional items for the
year ending 30 June 2020 to be in the range of 21% to 22%. For
further details on taxation see Summary Income Statement (e)
Taxation and Notes, Taxation.
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 1 July 2019 to 30 June 2022, utilising the most
appropriate mechanic of either share buybacks or special dividends
depending on market conditions.
On 1
August 2019, Diageo entered into a non-discretionary agreement with
a third party 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.
In the
six months to 31 December 2019, £1.1 billion has been spent to
repurchase 34.6 million shares and these shares have been
cancelled.
Acquisitions and disposals
The
impact of acquisitions and disposals on the reported figures was
largely attributable to the disposal of the portfolio of 19 brands
to Sazerac in the prior year.
For
further details on the impact of acquisitions and disposals see
Explanatory Notes, Acquisitions and disposals.
(i)
Reported net sales grew
4.2
%
Organic net sales grew 4.2%
(i
Net sales
|
£ million
|
F19 H1
|
6,908
|
|
Exchange(i)
|
52
|
|
Acquisitions and disposals
|
(46
|
)
|
Volume
|
11
|
|
Price/mix
|
275
|
|
F20 H1
|
7,200
|
|
(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.
Reported
net sales grew 4.2%, driven by organic growth and favourable
exchange which was partially offset by acquisitions and
disposals.
Organic
volume growth of 0.2% and 4.0% positive price/mix delivered 4.2%
organic net sales growth. All regions reported organic net sales
growth.
Operating profit (£ million)
|
Reported operating profit grew 0.5%
Organic operating profit grew 4.6%
Operating profit
|
£ million
|
F19 H1
|
2,430
|
|
Exceptional operating items
|
(38
|
)
|
Exchange
|
(15
|
)
|
Acquisitions and disposals
|
(45
|
)
|
Organic movement
|
110
|
|
F20 H1
|
2,442
|
|
Reported
operating profit was up 0.5% driven by organic growth, partially
offset by unfavourable exchange, the impact of acquisitions and
disposals and exceptional items.
Organic
operating profit grew ahead of net sales at 4.6%.
Reported operating margin declined 126bps
Organic operating margin increased 13bps
Operating margin
|
ppt
|
F19 H1
|
35.2
|
|
Exceptional operating items
|
(0.52
|
)
|
Exchange
|
(0.46
|
)
|
Acquisitions and disposals
|
(0.41
|
)
|
Gross
margin
|
(0.65
|
)
|
Marketing
|
(0.25
|
)
|
Other operating items
|
1.03
|
|
F20 H1
|
33.9
|
|
Reported
operating margin declined 126bps driven by exceptional items,
unfavourable exchange and the impact from acquisitions and
disposals, partially offset by organic operating margin
improvement.
Organic
operating margin improved 13bps driven by productivity benefits
from cost efficiencies and strong price/mix, partially offset by
cost inflation and higher marketing investment.
Basic earnings per share (pence)
|
Basic eps decreased 2.1% from 80.9 pence to 79.2 pence
Eps before exceptional items increased 4.2% from 77 pence to 80.2
pence
(
Basic earnings per share
|
pence
|
F19 H1
|
80.9
|
|
Exceptional items after tax
|
(4.9
|
)
|
Exchange on operating profit
|
(0.6
|
)
|
Acquisitions
and disposals(i)
|
(1.4
|
)
|
Organic operating profit growth
|
4.5
|
|
Associates and joint ventures
|
(0.1
|
)
|
Finance
charges(ii)
|
0.3
|
|
Tax(iii)
|
(1.3
|
)
|
Share
buyback(i)
|
1.7
|
|
Non-controlling interests
|
0.1
|
|
F20 H1
|
79.2
|
|
(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 buybacks.
Eps
before exceptional items increased 3.2 pence as organic operating
profit growth and the share buyback programme more than offset the
higher tax charge and impact from acquisitions and
disposals.
Basic
eps decreased 1.7 pence principally due to a prior year exceptional
gain.
Free cash flow (£ million)
|
Net cash from operating activities(i)(ii) was
£1,288 million
Free cash flow(ii) was 966
million
Free cash flow
|
£ million
|
F19 H1
|
1,346
|
|
Exchange(iii)
|
(15
|
)
|
Operating
profit(iv)
|
69
|
|
Working
capital(v)
|
(22
|
)
|
Capex
|
(64
|
)
|
Tax
|
(318
|
)
|
Interest
|
(48
|
)
|
Other(vi)
|
18
|
|
F20 H1
|
966
|
|
(i) Net cash
from operating activities excludes net capex and movements in loans
and other investments (F20 H1- £(322) million; F19
H1
£(258)
million).
(ii)
Net cash from
operating activities and free cash flow for the six months ended 31
December 2019 has benefited by £32 million as a result of the
adoption of IFRS 16 on 1 July 2019.
(iii)
Exchange on
operating profit before exceptional items.
(iv)
Operating profit
excludes exchange, depreciation and amortisation, post employment
charges and other non-cash items.
(v)
Working capital
movement includes maturing inventory.
(vi)
Other items include
post employment payments, dividends received from associates and
joint ventures, and movements in loans and other
investments.
Net
cash from operating activities was £1,288 million, a decrease
of £316 million compared to the prior period. Free cash flow
was £966, £380 million lower compared to prior period as
growth in operating profit was offset by higher tax payments,
increased capital expenditure and higher interest charges. Higher
tax payments were driven by changes in the timing of instalments
and one-off items, including the settlement made with French tax
authorities.
Return on average invested capital (%)(i)
|
ROIC decreased 33bps
Return on average invested capital
|
ppt
|
F19 H1
|
17.8
|
|
Exchange
|
0.09
|
|
Acquisitions and disposals
|
(0.34
|
)
|
Organic operating profit growth
|
0.97
|
|
Associates and joint ventures
|
(0.14
|
)
|
Tax
|
(0.29
|
)
|
Other
|
(0.62
|
)
|
F20 H1
|
17.5
|
|
(i)
ROIC calculation
excludes exceptional items and includes an adverse impact of 20bps
as a result of the adoption of IFRS 16 on 1 July 2019.
ROIC
decreased 33bps against the prior comparable period as organic
operating profit growth was offset by increased tax, the impact of
acquisitions and disposals and other movements, primarily net capex
investment.
Reported growth by region
|
|
Volume
|
Net sales
|
Marketing
|
Operating profit(i)
|
|
%
|
EUm
|
%
|
£
million
|
%
|
£
million
|
%
|
£
million
|
North
America
|
2
|
|
0.5
|
|
6
|
|
146
|
|
5
|
|
21
|
|
2
|
|
19
|
|
Europe
and Turkey
|
(1
|
)
|
(0.3
|
)
|
2
|
|
33
|
|
3
|
|
8
|
|
—
|
|
1
|
|
Africa
|
2
|
|
0.3
|
|
3
|
|
27
|
|
7
|
|
6
|
|
4
|
|
6
|
|
Latin
America and Caribbean
|
(1
|
)
|
(0.1
|
)
|
1
|
|
8
|
|
3
|
|
3
|
|
1
|
|
3
|
|
Asia
Pacific
|
(1
|
)
|
(0.4
|
)
|
6
|
|
79
|
|
12
|
|
24
|
|
6
|
|
23
|
|
Corporate
|
—
|
|
—
|
|
(4
|
)
|
(1
|
)
|
—
|
|
—
|
|
(3
|
)
|
(2
|
)
|
Diageo
|
—
|
|
—
|
|
4
|
|
292
|
|
6
|
|
62
|
|
2
|
|
50
|
|
|
Volume
|
Net sales
|
Marketing
|
Operating profit(i)
|
|
%
|
EUm
|
%
|
£
million
|
%
|
£
million
|
%
|
£
million
|
North America
|
3
|
|
0.7
|
|
6
|
|
129
|
|
6
|
|
22
|
|
5
|
|
56
|
|
Europe and Turkey
|
(1
|
)
|
(0.3
|
)
|
3
|
|
42
|
|
4
|
|
11
|
|
2
|
|
10
|
|
Africa
|
2
|
|
0.3
|
|
5
|
|
40
|
|
5
|
|
5
|
|
13
|
|
19
|
|
Latin America and Caribbean
|
(1
|
)
|
(0.1
|
)
|
2
|
|
14
|
|
2
|
|
2
|
|
3
|
|
7
|
|
Asia Pacific
|
(1
|
)
|
(0.4
|
)
|
4
|
|
62
|
|
11
|
|
22
|
|
6
|
|
23
|
|
Corporate
|
—
|
|
—
|
|
(4
|
)
|
(1
|
)
|
—
|
|
—
|
|
(6
|
)
|
(5
|
)
|
Diageo
|
—
|
|
0.2
|
|
4
|
|
286
|
|
6
|
|
62
|
|
5
|
|
110
|
|
(i)
Before operating exceptional items.
Notes to the business and financial review
|
Unless otherwise stated:
●
commentary below
refers to organic movements
●
volume is in
millions of equivalent units (EUm)
●
net sales are sales
after deducting excise duties
●
percentage
movements are organic movements
●
share refers to
value share
See
Explanatory Notes for explanation of the calculation and use of
non-GAAP measures.
BUSINESS REVIEW
Six
months ended 31 December 2019
North America delivered net sales growth of 6%, with growth across
all three key markets. In US Spirits, net sales increased 6%.
Tequila net sales grew strongly at 35%. Both Don Julio and
Casamigos delivered double digit growth and gained further share in
the category. Crown Royal net sales increased by 11% and the brand
continued to gain share driven by the sustained performance of
Crown Royal Regal Apple, as well as the limited time offer Crown
Royal Peach. Scotch net
sales grew by 4% driven by good performances from Buchanan's, Oban
and Lagavulin and slightly benefited from buy-in due to tariff
uncertainty. Johnnie Walker declined 3%, lapping last year's strong
performance of "White Walker by Johnnie Walker". Vodka net sales
were down 5%, with Smirnoff continuing to stabilise, supported by
the ongoing success of Smirnoff Zero Sugar Infusions but offset by
a decline in Cîroc and Ketel One. Captain Morgan net sales
grew 1% supported by increased marketing investment as well as
lapping a softer performance in prior year. Diageo Beer Company USA
grew net sales 11% with continued strong performance of ready to
drink driven by good growth across the Smirnoff RTD range. Beer net
sales grew by 4%, building momentum and gaining share. Net sales in
Canada increased 7% with strong broad based growth across
categories. North America
operating margin declined 16bps, mainly driven by market mix, with
Diageo Beer Company USA growing ahead of the rest of the
business.
Key financials £ million:
|
|
F19 H1
|
FX
|
Acquisitionsand disposals
|
Organic movement
|
Other (v)
|
F20 H1
|
Reported movement%
|
Net
sales
|
2,356
|
|
54
|
|
(37
|
)
|
129
|
|
—
|
|
2,502
|
|
6
|
|
Marketing
|
383
|
|
(2
|
)
|
1
|
|
22
|
|
—
|
|
404
|
|
5
|
|
Operating
profit
|
1,101
|
|
7
|
|
(40
|
)
|
56
|
|
(4
|
)
|
1,120
|
|
2
|
|
Markets:
|
|
|
|
|
|
Global giants, local stars and reserve(i):
|
|
Organic
volume movement
|
Reported volume
movement
|
Organicnet sales
movement
|
Reportednet sales
movement
|
|
|
Organic
volume movement(iii)
|
Organic
net sales movement
|
Reported net sales
movement
|
|
%
|
%
|
%
|
%
|
|
|
%
|
%
|
%
|
North
America
|
3
|
|
2
|
|
6
|
|
6
|
|
|
Crown
Royal
|
10
|
|
11
|
|
14
|
|
|
|
|
|
|
|
Smirnoff
|
(2
|
)
|
—
|
|
4
|
|
US
Spirits(ii)
|
2
|
|
(3
|
)
|
6
|
|
5
|
|
|
Captain
Morgan
|
1
|
|
1
|
|
4
|
|
DBC
USA
|
9
|
|
9
|
|
11
|
|
14
|
|
|
Johnnie
Walker
|
(4
|
)
|
(5
|
)
|
(3
|
)
|
Canada
|
4
|
|
1
|
|
7
|
|
7
|
|
|
Ketel
One(iv)
|
(1
|
)
|
(3
|
)
|
1
|
|
|
|
|
|
|
|
Cîroc
vodka
|
(11
|
)
|
(9
|
)
|
(7
|
)
|
Spirits
|
2
|
|
1
|
|
6
|
|
6
|
|
|
Baileys
|
4
|
|
7
|
|
9
|
|
Beer
|
—
|
|
—
|
|
4
|
|
6
|
|
|
Guinness
|
1
|
|
4
|
|
7
|
|
Ready to drink
|
16
|
|
18
|
|
19
|
|
22
|
|
|
Tanqueray
|
(1
|
)
|
2
|
|
4
|
|
|
|
|
|
|
|
Don
Julio
|
26
|
|
26
|
|
25
|
|
|
|
|
|
|
|
Bulleit
|
7
|
|
4
|
|
7
|
|
|
|
|
|
|
|
Buchanan’s
|
6
|
|
9
|
|
12
|
|
(i)
Spirits brands
excluding ready to drink.
(ii)
Reported US Spirits
volume, and net sales, growth include impacts from the disposal of
a portfolio of 19 brands to Sazerac.
(iii)
Organic equals
reported volume movement.
(iv) Ketel
One includes Ketel One vodka and Ketel One Botanical.
(v)
The adjustment to
other operating expenses is the elimination of fair value changes
to contingent consideration liabilities in respect of prior year
acquisitions.
●
Net sales in
US Spirits were up 6%,
broadly in line with depletions with a slight increase in scotch
stock levels driven by customer pull caused by tariff uncertainty
offset by other brands in the half. Crown Royal grew net sales by
11% gaining further category share, driven by the continued growth
of Crown Royal Regal Apple, and accelerated momentum behind the
limited time offer Crown Royal Peach. This momentum is supported by
continued marketing investment, which was up-weighted last year. In
scotch, Johnnie Walker net sales declined 3%. The Game of Thrones
inspired innovation, "Johnnie Walker Game of Thrones Limited
Editions A Song of Ice and a Song of Fire", has performed well, but
is lapping last year's highly successful "White Walker by Johnnie
Walker". Malts continued to perform well with strong growth from
Oban and Lagavulin. In vodka net sales were down 5%, driven mainly
by Cîroc. Smirnoff continued to stabilise, with strong
price/mix growth due to a reduction in promotional volume. Smirnoff
Zero Sugar Infusions innovation, launched in May 2019, continues to
gain momentum. Cîroc vodka continued to decline, albeit at a
slower rate. Cîroc Summer Watermelon limited time offer
performed well over the summer and Cîroc White Grape was
launched for the winter season. Ketel One declined, with strong
core Ketel One vodka performance more than offset by a decline in
Ketel One Botanical as it lapped last year's highly successful
launch. In tequila, Don Julio and Casamigos had strong double digit
growth and gained share in the rapidly growing tequila category.
Don Julio continued its media investment to drive awareness and
strengthen its authenticity positioning. Casamigos further
strengthened its distribution coverage and improved its rate of
sale. Captain Morgan net sales grew 1% as marketing investment
increased behind the brand and lapped softer performance last year.
Baileys net sales grew by 9%, benefiting from the launch of Baileys
Red Velvet Limited Edition. Bulleit net sales were up 4% with the
brand continuing to gain share.
●
Diageo Beer Company USA net sales
increased 11%, driven by ready to drink growth of 21% with
continued strong growth across the Smirnoff ready to drink range.
In beer, net sales were up 4%, with Guinness up 5% supported by an
increased focus on its brewing credentials. Visitor numbers to the
Guinness Open Gate Brewery and Barrel House continue to grow,
supporting the brand's performance.
●
Net sales in
Canada grew 7%, driven by
continued growth in spirits and ready to drink. Vodka grew 7% with
Smirnoff No.21 Red continuing to grow following the launch of the
new global campaign. Cîroc and Ketel One both grew double
digits. Crown Royal also grew double digit, gaining market share
and strengthening its leadership position in this growing Canadian
whiskey category. Performance was supported by the launch of a new
"generosity" campaign connecting the brand to its roots. Scotch
also grew double digit with Johnnie Walker Black Label becoming the
#1 selling scotch brand in Canada. Ready to drink also grew net
sales at double digit, with Smirnoff Ice retaining its #1 position
in the market.
●
Marketing grew 6% in line with net sales
growth, following last year's up-weighted investment. Marketing
effectiveness analytic tools continued to enhance our investment
decisions, strengthening brand equity and delivering sustainable
growth.
Europe and Turkey delivered organic net sales growth of 3%,
reflecting consistent performance in Europe and double digit growth
in Turkey. In Europe, growth was driven by Continental Europe and
Great Britain. Gin grew 1% driven by Tanqueray in Continental
Europe, partially offset by a decline in Gordon's in Great Britain
due to lapping strong prior period innovation performance. Beer net
sales growth was flat with growth in Guinness offset by a decline
in other lager brands in Ireland. Scotch was up 1% driven by scotch
malts but partially offset by Bell's in Great Britain and Haig in
Greece. Baileys was up 7% largely driven by Baileys Original in
Great Britain and Continental Europe. Smirnoff net sales grew 1%
driven by Great Britain. Captain Morgan grew double digit driven by
Great Britain, France and Continental Europe. Tequila grew double
digit with growth across all markets. Ready to drink grew 5% driven
by Smirnoff and Gordon's premix range. Reserve was up 11% largely
driven by scotch and tequila. In Turkey, net sales were up 13% due
to inflation and excise duty led price increases. Operating margin
declined 34bps as positive price/mix and productivity savings were
offset by up-weighted marketing investment, as well as inflationary
cost pressures in Turkey.
Key financials £ million:
|
|
F19 H1
|
FX
|
Acquisitionsand disposals
|
Organic movement
|
F20 H1
|
Reported movement%
|
Net sales
|
1,633
|
|
(13
|
)
|
4
|
|
42
|
|
1,666
|
|
2
|
|
Marketing
|
260
|
|
(4
|
)
|
1
|
|
11
|
|
268
|
|
3
|
|
Operating profit
|
614
|
|
(6
|
)
|
(3
|
)
|
10
|
|
615
|
|
—
|
|
|
|
Markets:
|
|
|
|
|
|
Global
giants and local stars(i):
|
|
|
Organic
volume movement
|
Reported volume
movement
|
Organic
net sales movement
|
Reported net sales
movement
|
|
|
Organic
volume movement(ii)
|
Organic
net sales movement
|
Reported net sales
movement
|
|
|
%
|
%
|
%
|
%
|
|
|
%
|
%
|
%
|
|
|
Europe
and Turkey
|
|
|
|
|
|
Guinness
|
1
|
|
2
|
|
—
|
|
|
|
(1
|
)
|
(1
|
)
|
3
|
|
2
|
|
|
Johnnie
Walker
|
(1
|
)
|
(3
|
)
|
(3
|
)
|
|
|
|
|
|
|
|
|
Smirnoff
|
(4
|
)
|
1
|
|
(1
|
)
|
Europe
|
(1
|
)
|
(1
|
)
|
3
|
|
2
|
|
|
Baileys
|
10
|
|
7
|
|
7
|
|
|
|
Turkey
|
(5
|
)
|
(5
|
)
|
13
|
|
15
|
|
|
Yenì
Raki
|
(16
|
)
|
2
|
|
5
|
|
|
|
|
|
|
|
|
|
Captain
Morgan
|
7
|
|
12
|
|
12
|
|
|
|
Spirits
|
(1
|
)
|
(1
|
)
|
3
|
|
3
|
|
|
JƐB
|
(3
|
)
|
(1
|
)
|
(3
|
)
|
|
|
Beer
|
(1
|
)
|
(1
|
)
|
—
|
|
(2
|
)
|
|
Tanqueray
|
6
|
|
6
|
|
5
|
|
|
|
Ready
to drink
|
2
|
|
2
|
|
5
|
|
2
|
|
|
|
|
|
|
(i) Spirits
brands excluding ready to drink.
(ii)
Organic equals
reported volume movement.
●
In Europe, net sales were up 3%:
●
In Great Britain, net sales grew 2%.
Performance was mainly driven by Guinness, Baileys and Captain
Morgan, partly offset by a decline in Gordon's due to lapping a
strong prior year innovation, and the continued impact of
commercial negotiations following prior year pricing
decisions. Guinness performance benefited from growth of
Guinness Draught in the on-trade and key digital activations
targeting specific after-work occasions. Baileys' strong
performance was driven by focused promotional activity, while
Captain Morgan's growth was due to strong on-trade
performance.
●
Ireland net sales declined by 1%. Beer
was down 2% with Guinness flat and a decline in other lager brands
partially offset by the continued success of Rockshore Lager and
Rockshore Cider innovations. Spirits grew 1%, driven by vodka and
rum.
●
In Continental Europe, net sales were up 5%:
●
Iberia net sales grew 1%, driven by
positive price/mix and improvements in scotch and
tequila.
●
In Central Europe net sales grew 12%,
benefiting from lapping a soft prior year. Strong scotch
performance was due to effective Johnnie Walker activations and the
"Game of Thrones Single Malt Scotch Whisky Collection". Baileys
also contributed to the growth on the back of key outlet
activations.
●
In Northern Europe net sales were up 9%
driven by net revenue initiatives in scotch and optimised
promotions of Baileys.
●
In the Mediterranean Hub, net sales grew 1%.
Positive performance of gin in Italy was offset by weak scotch
performance in Greece.
●
In Europe Partner Markets, net sales were
flat as we drove commercial footprint efficiencies which led to
inventory reduction. Gin and rum growth was partly offset by a
decline in Guinness distribution sales.
●
Russia net sales were down 7%, due to
declines in scotch and rum.
●
France net sales grew 3%. Continued
double digit growth of Captain Morgan was driven by format
innovations, partially offset by soft scotch
performance.
●
In Turkey, net sales grew 13% despite a
decline of 5% in volume. This reflected the impact of price
increases taken in response to increases in excise duties and
inflation. Growth was largely driven by premium Raki, wine and
scotch, with strong growth in Johnnie Walker.
●
Marketing investment increased 4%,
marginally ahead of net sales. Increased investment was primarily
driven by rugby sponsorship and summer time campaigns.
Africa delivered organic net sales growth of 5%, with growth across
East Africa and Africa Regional Markets, Nigeria returning to
growth and a decline in South Africa. In East Africa and Africa
Regional Markets net sales grew 10% and 5%, respectively, driven by
strong growth in spirits in both markets and double digit growth in
beer in East Africa. Net sales in Nigeria grew 1%, with beer flat
and growth in mainstream spirits. In South Africa, net sales
declined 4% with double digit growth in gin offset by a decline in
scotch and vodka. Across Africa, beer net sales were up 5% driven
by strong growth in Senator Keg, Serengeti Lite and Malta,
partially offset by declines in Meta and Satzenbrau. Guinness net
sales were flat driven by strong growth in Nigeria offset by a
decline in Africa Regional Markets following one-off supply
challenges. Spirits delivered good net sales growth driven by
scotch in Africa Regional Markets and East Africa as well as strong
growth of Tanqueray, offset by a decline in vodka in South Africa.
Scotch net sales were up 9% driven by Johnnie Walker, up 13%, which
saw double digit growth in Johnnie Walker Black Label in Africa
Regional Markets and East Africa. Operating margin improved by
139bps driven by improved price/mix through premiumisation and the
continued benefit from productivity initiatives more than
offsetting cost inflation.
Key financials £ million:
|
|
F19 H1
|
FX
|
Acquisitions and disposals
|
Organic movement
|
F20 H1
|
Reported movement%
|
Net
sales
|
821
|
|
(1
|
)
|
(12
|
)
|
40
|
|
848
|
|
3
|
|
Marketing
|
91
|
|
1
|
|
—
|
|
5
|
|
97
|
|
7
|
|
Operating profit
|
153
|
|
(11
|
)
|
(2
|
)
|
19
|
|
159
|
|
4
|
|
|
Markets:
|
|
|
|
|
|
Global
giants and local stars(i):
|
|
Organic
volume movement(iii)
|
Reported volume
movement
|
Organicnet sales
movement
|
Reported net sales
movement
|
|
|
Organic
volume movement(ii)
|
Organicnet sales
movement
|
Reported net sales
movement
|
|
%
|
%
|
%
|
%
|
|
|
%
|
%
|
%
|
|
Africa
|
2
|
|
2
|
|
5
|
|
3
|
|
|
Guinness
|
(3
|
)
|
—
|
|
1
|
|
|
|
|
|
|
|
|
Johnnie
Walker
|
18
|
|
13
|
|
12
|
|
|
East
Africa
|
6
|
|
5
|
|
10
|
|
11
|
|
|
Smirnoff
|
(11
|
)
|
(9
|
)
|
(10
|
)
|
|
Africa Regional Markets
|
(4
|
)
|
(4
|
)
|
5
|
|
—
|
|
|
|
|
|
|
|
Nigeria
|
12
|
|
13
|
|
1
|
|
5
|
|
|
Other
beer:
|
|
South Africa
|
(8
|
)
|
(9
|
)
|
(4
|
)
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Malta
|
(8
|
)
|
5
|
|
1
|
|
|
Spirits
|
4
|
|
4
|
|
7
|
|
6
|
|
|
Tusker
|
(2
|
)
|
2
|
|
3
|
|
|
Beer
|
—
|
|
—
|
|
5
|
|
5
|
|
|
Senator
|
14
|
|
17
|
|
19
|
|
|
Ready to drink
|
7
|
|
—
|
|
6
|
|
(12
|
)
|
|
Serengeti
|
22
|
|
27
|
|
30
|
|
(i)
Spirits brands
excluding ready to drink.
(ii)
Organic equals
reported volume movement.
(iii)
Organic equals
reported volume movement, except for South Africa and East Africa
impacted by acquisitions and disposals.
●
In East Africa, net sales grew by 10%.
Kenya grew strongly driven by double digit growth across key
spirits categories in scotch, vodka and gin and Tanzania continued
to grow double digit. Beer net sales grew 10% led by strong growth
in Serengeti in Tanzania, Senator in Kenya, and the launch of
Guinness Smooth in Kenya.
●
In Africa Regional Markets, net sales
increased by 5% with double digit growth in Ghana driven by beer,
and scotch in Central and Southern Emerging Markets. These were
partially offset by a decline in Guinness across the region as a
result of one-off operational issues impacting supply in Cameroon.
Scotch continued to grow high double digit demonstrating the impact
of the refreshed Johnnie Walker campaign on the core brand
variants.
●
In Nigeria, net sales returned to growth at
1% driven by strong growth in mainstream spirits, Guinness and
ready to drink. These were partially offset by declines of Malta
and lager.
●
South Africa net sales declined by 4%
driven by scotch and vodka. The decline in scotch reflects a slow
down in the category due to the broader macroeconomic climate
principally in respect of JƐB and Black & White. Similarly,
the vodka category, and in particular Smirnoff, has been impacted
by the popularity of gin which has gained share with new entrants
at competitive price points. This decline was partially offset by
strong performance of Tanqueray, which was boosted by the launch of
Tanqueray Flor de Sevilla.
●
Marketing investment increased by 5% in
line with net sales, through the Johnnie Walker "Highball" campaign
and support of new product launches in South Africa and East
Africa.
Latin America and Caribbean
|
|
Latin America and Caribbean delivered 2% growth in net sales with
strong performance in Colombia, Brazil and CCA partially offset by
declines in Mexico and PEBAC. Net sales in Colombia grew 22%
largely driven by scotch. Brazil grew 7% on the back of a strong
gin performance. CCA was up 4% on broad based growth, particularly
in scotch. Gin grew double digit driven by the strong growth of
Tanqueray in Brazil. Tequila was up 18% across the region, largely
driven by Don Julio performance in Mexico. Scotch performance was
soft, declining 3%, driven largely by Johnnie Walker in PEBAC and
Mexico. This was partially offset by continued momentum in
Buchanan's, up 9%, and Old Parr which grew 6% both driven by CCA
and Colombia. Operating margin for the region increased
25bps benefiting from productivity led efficiencies
offset by adverse product mix impacts.
Key financials £ million:
|
|
F19 H1
|
FX
|
Acquisitionsand disposals
|
Organic movement
|
Other(iii)
|
F20 H1
|
Reported movement%
|
Net
sales
|
672
|
|
(5
|
)
|
(1
|
)
|
14
|
|
—
|
|
680
|
|
1
|
|
Marketing
|
110
|
|
1
|
|
—
|
|
2
|
|
—
|
|
113
|
|
3
|
|
Operating
profit
|
254
|
|
(8
|
)
|
—
|
|
7
|
|
4
|
|
257
|
|
1
|
|
|
Markets:
|
|
|
|
|
|
Global giants and local
stars(i):
|
|
Organic
volume movement
|
Reported
volume movement
|
Organicnet
sales movement
|
Reported
net sales movement
|
|
|
Organic
volume movement(ii)
|
Organicnet
sales movement
|
Reportednet
sales movement
|
|
|
%
|
%
|
%
|
%
|
|
|
%
|
%
|
%
|
|
Latin
America and Caribbean
|
|
|
|
|
|
Johnnie
Walker
|
(12
|
)
|
(12
|
)
|
(13
|
)
|
|
(1
|
)
|
(1
|
)
|
2
|
|
1
|
|
|
Buchanan’s
|
8
|
|
9
|
|
8
|
|
|
|
|
|
|
|
|
Smirnoff
|
9
|
|
16
|
|
17
|
|
|
PUB
|
—
|
|
—
|
|
7
|
|
5
|
|
|
Old
Parr
|
3
|
|
6
|
|
2
|
|
|
Mexico
|
(1
|
)
|
(1
|
)
|
(2
|
)
|
—
|
|
|
Baileys
|
(4
|
)
|
—
|
|
(5
|
)
|
|
CCA
|
(3
|
)
|
(3
|
)
|
4
|
|
1
|
|
|
Ypióca
|
(3
|
)
|
(1
|
)
|
(2
|
)
|
|
Andean
|
25
|
|
25
|
|
23
|
|
14
|
|
|
Black
& White
|
1
|
|
2
|
|
1
|
|
|
PEBAC
|
(21
|
)
|
(20
|
)
|
(30
|
)
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spirits
|
(1
|
)
|
(1
|
)
|
1
|
|
1
|
|
|
|
|
|
|
|
Beer
|
2
|
|
2
|
|
4
|
|
2
|
|
|
|
|
|
|
|
Ready
to drink
|
8
|
|
8
|
|
15
|
|
15
|
|
|
|
|
|
|
(i)
Spirits brands
excluding ready to drink.
(ii)
Organic equals
reported volume movement.
(iii)
The adjustment to
cost of sales reflects the elimination of the fair value changes
for biological assets in respect of growing agave
plants.
●
In PUB (Paraguay, Uruguay and Brazil), net
sales grew 7%. Brazil delivered 7% growth driven by strong growth
in gin and price/mix benefits as premiumisation trends continue
across categories. Tanqueray drove the growth in gin supported by
targeted commercial activations in growing third spaces and more
generally in early evening occasions. Scotch net sales grew 4% led
by continued White Horse momentum.
●
In Mexico, net sales declined 2%. Strong
growth in vodka and tequila was offset by soft scotch performance,
impacted by slowing macro-economic trends, challenging trading
conditions and lapping the successful "White Walker by Johnnie
Walker" innovation in the prior comparable period. Smirnoff grew
triple digit as a result of Smirnoff X1 which grew share and is now
the largest vodka brand by value sales in Mexico. Don Julio grew
double digit as "The Man Behind the Brand" campaign continues to
highlight brand history and drive improved relevance.
●
In CCA (Caribbean and Central America), net
sales increased 4% benefiting from strong performance across the
domestic markets. Growth was broad based led by Buchanan's and Old
Parr which both grew double digit driving share gains across key
markets. Tequila momentum continued, driven by Don Julio which was
supported by Cantina Don Julio activations as well as regional
trend influence from neighbouring Mexico and the United
States.
●
Andean (Colombia and Venezuela) net
sales increased 23% driven by Colombia. Growth was broad based
across all key categories led by scotch which delivered double
digit growth. Buchanan's continues to lead the premiumisation
movement of scotch in Colombia and benefited from expansion into
the casual and early evening consumer occasion. Old Parr continued
to grow as the brand builds on its strong local heritage. Johnnie
Walker grew double digit as increased investment behind visibility,
influencer endorsement and digital drove consumer engagement as
well as new consumption experiences.
●
PEBAC (Peru, Ecuador, Bolivia, Argentina
and Chile) performance was challenged. Net sales declined 30%
driven by social and political instability across key markets.
Despite overall industry pressure, driven by macroeconomic
conditions, share growth has continued in Peru and Chile.
Innovation continues to contribute to overall growth with new
launches such as Tanqueray Flor de Sevilla and Smirnoff Bitter
Citric.
●
Marketing investment increased 2%, in
line with sales growth driven by the key campaigns including
Johnnie Walker “A Highball in Every Hand", Buchanan's
“#gamechangers”, Old Parr “Life Well Lived”
and Tanqueray "Time to Begin".
Asia Pacific delivered 4% growth in net sales with strong growth in
Greater China and Australia, partially offset by declines in North
Asia, Travel Retail Asia and Middle East and a slowdown in growth
in India. Greater China grew 24% driven by strong performance in
both Chinese white spirits and scotch. Net sales in India grew 2%,
reflecting the economic downturn, with growth in IMFL whisky and
scotch. Australia net sales grew 13% with broad based growth across
categories. South East Asia performance was flat with growth in
spirits offset by a decline in Guinness. Travel Retail, Asia and
Middle East declined by 18% driven by challenging trading
conditions in the Middle East and Hong Kong. Scotch net sales were
up 1% across the region led by strong performance in Johnnie Walker
and scotch malts in China, Australia and South East Asia offset the
net sales decline of Windsor in Korea and Johnnie Walker in Travel
Retail and Middle East. Net sales of Reserve brands were up 22%
largely driven by Chinese white spirits and Johnnie Walker super
deluxe variants. Operating margin increased 33bps driven by
price/mix, with productivity led savings partially offset by
inflationary challenges in India.
Key financials £ million:
|
|
F19 H1
|
FX
|
Acquisitionsand disposals
|
Organic movement
|
F20 H1
|
Reported movement%
|
Net
sales
|
1,398
|
|
17
|
|
—
|
|
62
|
|
1,477
|
|
6
|
|
Marketing
|
208
|
|
2
|
|
—
|
|
22
|
|
232
|
|
12
|
|
Operating profit before exceptional items
|
409
|
|
—
|
|
—
|
|
23
|
|
432
|
|
6
|
|
Exceptional
operating items(i)
|
—
|
|
|
|
|
(59
|
)
|
|
Operating profit
|
409
|
|
|
|
|
373
|
|
(9
|
)
|
(i) For
further details on exceptional operating items see Summary Income
Statement, (c) Exceptional items.
|
|
Markets:
|
|
|
|
|
|
Global
giants and local stars(i):
|
|
|
Organic
volume movement(i)
|
Reported volume
movement
|
Organic
net sales movement
|
Reported net sales
movement
|
|
|
Organic
volume movement(ii)
|
Organicnet sales
movement
|
Reported net sales
movement
|
|
|
|
%
|
%
|
%
|
%
|
|
|
%
|
%
|
%
|
|
|
Asia
Pacific
|
(1
|
)
|
(1
|
)
|
4
|
|
6
|
|
|
Johnnie
Walker
|
(7
|
)
|
(1
|
)
|
1
|
|
|
|
|
|
|
|
|
|
McDowell's
|
—
|
|
3
|
|
6
|
|
|
|
India
|
—
|
|
—
|
|
2
|
|
5
|
|
|
Windsor
|
(26
|
)
|
(13
|
)
|
(16
|
)
|
|
|
Greater
China
|
21
|
|
21
|
|
24
|
|
24
|
|
|
Smirnoff
|
(2
|
)
|
4
|
|
2
|
|
|
|
Australia
|
10
|
|
10
|
|
13
|
|
9
|
|
|
Guinness
|
2
|
|
1
|
|
(4
|
)
|
|
|
South
East Asia
|
(4
|
)
|
(5
|
)
|
—
|
|
3
|
|
|
Bundaberg
|
4
|
|
4
|
|
1
|
|
|
|
North
Asia
|
(6
|
)
|
(4
|
)
|
(3
|
)
|
(3
|
)
|
|
Shui
Jing Fang(iii)
|
29
|
|
26
|
|
26
|
|
Travel
Retail Asia and Middle East
|
(29
|
)
|
(28
|
)
|
(18
|
)
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spirits
|
(1
|
)
|
(1
|
)
|
5
|
|
7
|
|
|
|
|
|
|
Beer
|
1
|
|
1
|
|
1
|
|
(4
|
)
|
|
|
|
|
|
|
|
Ready
to drink
|
7
|
|
7
|
|
6
|
|
5
|
|
|
|
|
|
|
(i)
Spirits brands
excluding ready to drink.
(ii)
Organic equals
reported volume movement.
(iii)
Organic growth
figures represent total Chinese white spirits of which Shui Jing
Fang is the principal brand.
●
In India net sales increased 2%, with
growth primarily impacted by a broad based consumption slowdown,
and partly hampered by both a temporary supply chain disruption in
the first quarter as well as liquidity challenges in certain key
markets for scotch. Despite these challenges, the main growth
driver was Prestige and Above brands which were up 5% driven by
Johnnie Walker and Black & White. This was supported by a solid
performance from McDowell’s No.1 enhanced by the continued
success of its Platinum range. Net sales in the popular brands
segment declined 4%.
●
In Greater China net sales increased 24%,
with double digit growth in both Chinese white spirits and scotch.
Chinese white spirits grew 25% as a result of continued route to
consumer expansion and increased marketing investment. Scotch net
sales increased 19% with continued double digit growth in scotch
malts and Johnnie Walker super deluxe in mainland China and
continued growth in Johnnie Walker and scotch malts in Taiwan. This
growth was supported by focused investment behind scotch category
development, and a continued expansion in the route to consumer
through the development of whisky boutiques and whisky reserve
shops.
●
Net sales in
Australia grew 13%, driven
by strong performance in the scotch, ready to drink, liqueur and
gin. Scotch net sales increased 10%, driven by Johnnie Walker Blue
Label and the new "Johnnie Walker Game of Thrones Limited Editions
A Song of Ice and A Song of Fire" innovation. Ready to drink net
sales increased 12% as Gordon's Premium Pink Gin & Soda and
Tanqueray & Tonic continued to grow, aided by new innovation
through Tanqueray Flor de Sevilla & Soda. Gin grew double digit
through Gordon's and Tanqueray whilst Baileys maintained strong
growth driven by both core brand and innovation. Bundaberg net
sales grew 5% as a result of growth from the core variant Bundaberg
UP.
●
In South East Asia, net sales were flat,
driven by growth across Vietnam and Indonesia offset by
declines in Key Accounts following recent customer price increases.
Scotch was the main growth driver with net sales growth of 3%, led
by the Game of Thrones inspired innovation "Johnnie Walker Game of
Thrones Limited Editions A Song of Ice and A Song of Fire", Johnnie
Walker Red Label and Johnnie Walker super deluxe. This was
partially offset by a decline in Guinness in Indonesia as a result
of a slowdown in the category growth.
●
In North Asia, net sales declined 3% with a
declines in Japan and Korea of 2% and 4%, respectively. In Japan,
Guinness and Smirnoff Ice grew as a result of the Rugby World Cup,
offset by the impact of a consumption tax increase in October 2019,
which resulted in declines across gin and the ready to drink
category. In Korea, the main driver of decline was Windsor as a
result of the continued contraction in the whisky category. This
was offset by double digit growth in Guinness following the launch
of Hop House 13 Lager.
●
Travel Retail Asia and Middle East, net
sales declined 18% due to challenging trading conditions in the
Middle East including some reduction of inventory levels and lower
passenger traffic including through Hong Kong.
●
Marketing investment increased 12%,
ahead of net sales growth, driven by increased investment in
Chinese white spirits and the launch of the new Johnnie Walker
"Highball" campaign across the region.
CATEGORY AND BRAND REVIEW
Six
months ended 31 December 2019
Key categories:
|
|
Organic
volume movement(iii) %
|
Organicnet
sales movement %
|
Reportednet
sales movement %
|
Spirits(i)
|
—
|
|
4
|
|
5
|
|
Scotch
|
(3
|
)
|
—
|
|
1
|
|
Vodka(ii)(iv)
|
(1
|
)
|
(1
|
)
|
—
|
|
Canadian
whisky
|
10
|
|
11
|
|
10
|
|
Rum(ii)
|
(2
|
)
|
2
|
|
1
|
|
Liqueurs
|
7
|
|
7
|
|
6
|
|
Indian-Made
Foreign Liquor (IMFL) whisky
|
1
|
|
3
|
|
6
|
|
Gin(ii)
|
(2
|
)
|
7
|
|
7
|
|
Tequila
|
25
|
|
31
|
|
32
|
|
US
whiskey
|
2
|
|
6
|
|
8
|
|
Beer
|
—
|
|
2
|
|
2
|
|
Ready to drink
|
10
|
|
11
|
|
8
|
|
(i)
Spirits brands
excluding ready to drink.
(ii)
Vodka, rum, gin
including IMFL brands.
(iii)
Organic equals
reported volume movement except for vodka (2)%, ready to drink 8%
and Canadian whisky 9%, which were impacted by acquisitions and
disposals.
(iv)
Vodka includes
Ketel One Botanical.
●
Scotch represents 26% of Diageo's net
sales with global performance softening to flat. The Single Malts
portfolio, Buchanan's and Johnnie Walker reserve grew in the period
but was offset by Johnnie Walker Black Label and Johnnie Walker Red
Label which softened globally. This was driven by challenging
trading conditions in Mexico; volatility in travel retail and the
Middle East; and political and economic disruptions in Peru
and Chile. Innovation related to the HBO Game of Thrones
partnership maintained its value contribution compared to the prior
period due to "Johnnie Walker Game of Thrones Limited Editions A
Song of Ice and A Song of Fire" and the "Game of Thrones Single
Malt Scotch Whisky Collection". Buchanan's grew 9% in both North
America and Latin America and Caribbean. Scotch malts were up 17%
with broad based double digit growth across all regions driven by
core variants, Game of Thrones Six Kingdoms, Prestige Scotch in
China and Singleton innovation in Taiwan. Old Parr remained in
growth driven by focused activations in Colombia, whilst
JƐB slowed its declines
in Iberia. Primary scotch brands remained flat largely as growth of
Black & White and VAT 69, was offset by declines of Haig in
Greece and Bell's in Great Britain. Scotch continued to decline in
Korea, driven by Windsor.
●
Vodka represents 11% of Diageo’s
net sales and declined by 1% overall, driven by a decline in North
America partially offset by growth across all other regions. Vodka
performance was driven by Smirnoff growth, offset by a softening of
Ketel One and continued declines in Cîroc vodka. Overall,
Smirnoff grew 1% with a decline in US Spirits more than offset by
growth in rest of the world, led by strong growth in Mexico and
Australia. Ketel One was
down 1% due to a 4% decline in US Spirits. This was partially
offset by growth across other markets. Ketel One core brand growth
of 4% was offset by a decline in Ketel One Botanical, a result of
lapping last year's success. The decline in Cîroc vodka was
driven by US Spirits.
●
Canadian whisky represents 7% of
Diageo’s net sales and grew 11%. Strong growth of Crown Royal
in US Spirits was driven by Crown Royal innovations such as Crown
Royal Regal Apple, Crown Royal Vanilla and the Crown Royal Peach
limited time offer. As a result, the brand continues to grow share
within its category.
●
Rum represents 6% of Diageo’s net
sales and grew 2% largely driven by Captain Morgan growth in Europe
and US Spirits.
●
Liqueurs represent 6% of Diageo’s
net sales and grew 7% with growth in all regions, except Latin
America and Caribbean. Baileys grew 8%, with broad based
regional growth, apart from Latin America and Caribbean where it
was flat. Performance was driven by a good start on Baileys Red
Velvet innovation, and a continued focus on reminding consumers
that Baileys is an indulgent treat year-round.
●
IMFL whisky represents 5% of
Diageo’s net sales and grew 3% driven by the growth of
McDowell’s No. 1, Bagpiper, Director's Special Black and
Royal Challenge.
●
Gin represents 4% of Diageo’s net
sales and grew 7% with double digit growth in Latin America and
Caribbean and Africa. Europe and Turkey, North America and Asia
Pacific all grew single digit. Strong growth in gin continued, with
double digit growth in Tanqueray and Gordon's growing 2%. Both
Tanqueray and Gordon's grew across their core brand and innovation
variants, despite lapping a strong prior year.
●
Tequila represents 4% of Diageo’s
net sales and grew 31%. The performance was driven by strong double
digit growth of Don Julio and Casamigos in US Spirits and Don Julio
in Latin America and Caribbean.
●
US whiskey represents 2% of
Diageo’s net sales and grew 6%. Performance continued to be driven by
good growth in Bulleit in US Spirits.
●
Beer represents 15% of Diageo’s
net sales and grew 2%. In Africa beer grew 5%, largely driven by
Senator Keg in Kenya and Serengeti in Tanzania which were partially
offset by declines in Malta and Guinness in Cameroon, Malta in
Nigeria and local brands in Ethiopia. Globally, Guinness grew 1.5%,
with growth largely driven by Guinness Draught in Great Britain,
Guinness Foreign Extra Stout in Nigeria and Guinness Extra in North
America. These were partially offset by declines in Cameroon,
Kenya, Ghana and Hop House 13 Lager in Great Britain. In Ireland,
Rockshore continued double digit growth.
●
Ready to drink represents 6% of
Diageo’s net sales and grew 11% driven by broad based growth
across all regions.
Global giants, local stars and reserve(i):
|
|
Organic
volume movement(ii) %
|
Organicnet
sales movement %
|
Reportednet
sales movement %
|
Global giants
|
|
|
|
Johnnie
Walker
|
(5
|
)
|
(4
|
)
|
(3
|
)
|
Smirnoff
|
(2
|
)
|
1
|
|
2
|
|
Baileys
|
8
|
|
8
|
|
8
|
|
Captain
Morgan
|
4
|
|
5
|
|
6
|
|
Tanqueray
|
9
|
|
13
|
|
13
|
|
Guinness
|
—
|
|
1
|
|
1
|
|
Local stars
|
|
|
|
Crown
Royal
|
10
|
|
11
|
|
13
|
|
Yenì
Raki
|
(16
|
)
|
3
|
|
5
|
|
Buchanan’s
|
8
|
|
9
|
|
10
|
|
JƐB
|
(3
|
)
|
(3
|
)
|
(4
|
)
|
Windsor
|
(26
|
)
|
(13
|
)
|
(16
|
)
|
Old
Parr
|
2
|
|
5
|
|
2
|
|
Bundaberg
|
4
|
|
4
|
|
1
|
|
Black
& White
|
4
|
|
5
|
|
6
|
|
Ypióca
|
(3
|
)
|
(1
|
)
|
(2
|
)
|
McDowell's
|
—
|
|
3
|
|
6
|
|
Shui
Jing Fang(iii)
|
29
|
|
26
|
|
26
|
|
Reserve
|
|
|
|
Scotch
malts
|
11
|
|
17
|
|
18
|
|
Cîroc
vodka
|
(10
|
)
|
(9
|
)
|
(7
|
)
|
Ketel
One(iv)
|
1
|
|
(1
|
)
|
2
|
|
Don
Julio
|
13
|
|
25
|
|
24
|
|
Bulleit
|
6
|
|
4
|
|
7
|
|
(i)
Spirits
brands excluding ready to drink.
(ii)
Organic equals
reported volume movement.
(iii)
Organic 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.
●
Global giants represent 41% of
Diageo’s net sales and grew 1%. Growth was broad based with
all brands in growth except for Johnnie Walker. Johnnie Walker was
down 4%, driven by declines across all regions, except Africa,
which was up double digits. Weak performance on Johnnie Walker in
Latin America and Caribbean was driven by political and economic
issues and challenging trading conditions in Asia Pacific and the
Middle East, and US Spirits was lapping strong "White Walker by
Johnnie Walker" innovation.
●
Local stars represent 20% of
Diageo’s net sales and grew 8%, largely driven by strong
growth of Crown Royal in US Spirits, Chinese white spirits in Asia
Pacific, Buchanan's in Latin America and Caribbean,
McDowell’s No. 1 in India, and Old Parr in Latin America and
Caribbean. This was partially offset by declines of Windsor in
Korea and a slowing decline of JƐB in Iberia.
●
Reserve brands represent 21% of
Diageo’s net sales and grew 11% largely driven by double
digit growth of Don Julio in US Spirits and Mexico, Chinese white
spirits, and Casamigos in US Spirits partially offset by declines
in Cîroc. Net sales
of Johnnie Walker reserve variants were up 6%.
ADDITIONAL FINANCIAL INFORMATION
Six
months ended 31 December 2019
|
31
December 2018
|
Exchange(a)
|
Acquisitions
and disposals(b)
|
Organic
movement(i)
|
Fair
value remeasure-ment(d)
|
31 December 2019
|
|
£
million
|
£
million
|
£
million
|
£
million
|
£
million
|
£ million
|
Sales
|
10,363
|
|
85
|
|
(58
|
)
|
441
|
|
—
|
|
10,831
|
|
Excise
duties
|
(3,455
|
)
|
(33
|
)
|
12
|
|
(155
|
)
|
—
|
|
(3,631
|
)
|
Net
sales
|
6,908
|
|
52
|
|
(46
|
)
|
286
|
|
—
|
|
7,200
|
|
Cost of
sales
|
(2,508
|
)
|
(57
|
)
|
7
|
|
(148
|
)
|
4
|
|
(2,702
|
)
|
Gross
profit
|
4,400
|
|
(5
|
)
|
(39
|
)
|
138
|
|
4
|
|
4,498
|
|
Marketing
|
(1,054
|
)
|
2
|
|
(2
|
)
|
(62
|
)
|
—
|
|
(1,116
|
)
|
Other
operating items
|
(895
|
)
|
(12
|
)
|
(4
|
)
|
34
|
|
(4
|
)
|
(881
|
)
|
Operating
profit before exceptional items
|
2,451
|
|
(15
|
)
|
(45
|
)
|
110
|
|
—
|
|
2,501
|
|
Exceptional
operating items (c)
|
(21
|
)
|
|
|
|
|
(59
|
)
|
Operating
profit
|
2,430
|
|
|
|
|
|
2,442
|
|
Non-operating
items (c)
|
146
|
|
|
|
|
|
—
|
|
Net
finance charges
|
(128
|
)
|
|
|
|
|
(154
|
)
|
Share
of after tax results of associates and joint ventures
|
179
|
|
|
|
|
|
176
|
|
Profit
before taxation
|
2,627
|
|
|
|
|
|
2,464
|
|
Taxation
(e)
|
(560
|
)
|
|
|
|
|
(530
|
)
|
Profit
for the period
|
2,067
|
|
|
|
|
|
1,934
|
|
(i)
For the definition
of organic movement see Explanatory Notes, Organic
movements.
(a) Exchange
The
impact of movements in exchange rates on reported figures for sales
and net sales is principally in respect of the translation exchange
impact of the weakening of sterling against the US dollar, the
Indian rupee and the Mexican peso, partially offset by
strengthening of sterling against the euro. The impact of movements
in exchange rates on reported figures for operating profit is
principally in respect of the transactional exchange impact of the
strengthening of sterling against the US dollar.
The
effect of movements in exchange rates and other movements on profit
before exceptional items and taxation for the six months ended 31
December 2019 is set out in the table below.
|
Gains/(losses)
|
|
£ million
|
Translation
impact
|
33
|
Transaction
impact
|
(48)
|
Operating profit before exceptional items
|
(15)
|
Net
finance charges – translation impact
|
(1)
|
Net
finance charges – transaction impact
|
(2)
|
Net
finance charges
|
(3)
|
Associates
– translation impact
|
(3)
|
Profit before exceptional items and taxation
|
(21)
|
|
Six months ended 31 December 2019
|
Six months ended 31 December 2018
|
Exchange
rates
|
|
|
Translation £1
=
|
$1.26
|
|
$1.29
|
|
Transaction £1
=
|
$1.36
|
|
$1.31
|
|
Translation £1
=
|
€1.14
|
|
€1.12
|
|
Transaction £1
=
|
€1.13
|
|
€1.13
|
|
(b) Acquisitions and disposals
The
acquisitions and disposals movement was mainly attributable to the
acquisition of Seedlip Ltd and Anna Seed 83 Ltd and the prior year
disposal of a portfolio of 19 brands to Sazerac completed on 20
December 2018.
See
Notes, Acquisition of businesses and purchase of non-controlling
interests for further details.
(c) Exceptional items
Exceptional operating charges in the six months ended 31
December 2019 were £59 million before tax (2018 - £21
million).
In the
six months ended 31 December 2019, an impairment charge of £59
million in respect of the Old Tavern brand in India has been
recognised in exceptional operating items. For further details see
Notes, Intangible assets.
On 26
October 2018, the High Court of Justice of England and Wales issued
a judgment in a claim between Lloyds Banking Group Pension Trustees
Limited (the claimant) and Lloyds Bank plc (defendant) that UK
pension schemes should equalise pension benefits for men and women
for the calculation of their guaranteed minimum pension liability.
The judgment concluded that the claimant has a duty to amend their
pension schemes to equalise benefits and provided comments on the
method to be adopted to equalise the benefits. This court ruling
impacts the majority of companies with a UK defined benefit pension
plan that was in existence prior to 1997. For the Diageo Pension
Scheme (DPS) an estimate was made of the impact of equalisation
which increased the liabilities of the DPS by £21 million,
with a corresponding charge to exceptional operating
items.
Non-operating items
in the six months ended 31 December 2019 were £nil (2018 -
£146 million income).
Diageo
completed the acquisition of Seedlip Ltd and Anna Seed 83 Ltd and
certain other smaller businesses resulting in an exceptional step
up gain of £8 million.
The
completion of the disposal of United National Breweries (UNB),
Diageo’s wholly owned sorghum business in South Africa is
expected to close in the second half of the financial year. The
group has recognised an incremental loss on the sale in the period
of £7 million.
The
disposal of an associate, Equal Parts, LLC resulted in an
exceptional loss of £1 million.
Non-operating
items of £146 million in the six months ended 31 December 2018
comprised:
●
a gain of £154
million in respect of the sale of a portfolio of 19 brands on 20
December 2018 to Sazerac for an aggregate consideration of $550
million (£435 million).
●
a loss of £8
million in respect of the prospective sale of UNB.
See
Explanatory Notes, (c) Exceptional items, for the definition of
exceptional items.
(d) Fair value remeasurement
The
adjustment to cost of sales reflects the elimination of the fair
value changes for biological assets in respect of growing agave
plants. The adjustment to other operating expenses is the
elimination of fair value changes to contingent consideration
liabilities in respect of prior year acquisitions.
(e) Taxation
The
reported tax rate for the six months ended 31 December 2019 was
21.5% compared with 21.3% for the six months ended 31 December
2018.
The 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 charge for the six months ended 31
December 2018 included exceptional tax charges of £34 million
in respect of the disposal of a portfolio of 19 brands to Sazerac
and an exceptional tax credit of £4 million in respect of the
equalisation of liabilities for males and females in the Diageo
Pension Scheme.
The tax
rate before exceptional items for the six months ended 31 December
2019 was 21.6% compared with 21.2% in the six months ended 31
December 2018.
It is
expected that the tax rate before exceptional items for the year
ended 30 June 2020 will be in the range of 21%-22%.
(f) Dividend
The
group aims to increase the dividend each half-year and the decision
as to the rate of dividend increase 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 2019 dividend cover was
1.9 times. It is expected that a mid-single digit increase in the
dividend will be maintained until the cover is operating
comfortably in the policy range.
An
interim dividend of 27.41 pence per share will be paid to holders
of ordinary shares and ADRs on the register as of 28 February 2020.
The ex-dividend date is 27 February 2020. This represents an
increase of 5% on last year’s interim dividend. The interim
dividend will be paid to ordinary shareholders on 9 April 2020.
Payment to US ADR holders will be made on 14 April 2020. A dividend
reinvestment plan is available to holders of ordinary shares in
respect of the interim dividend and the plan notice date is 19
March 2020.
(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 to 30 June 2022.
During
the six months ended 31 December 2019 the group had purchased 34.6
million ordinary shares at a cost of £1,129 million (including
£6 million of transaction costs) and has funded the purchases
through a combination of operating cash inflows and incremental
borrowings. A financial liability of £71 million has been
established at 31 December 2019 (30 June 2019 - £26 million;
31 December 2018 - £80 million) representing an additional 2.2
million shares that are expected to be purchased by 29 January
2020.
MOVEMENT IN NET BORROWINGS AND EQUITY
|
Movement in net borrowings
|
2019
|
2018
|
|
£
million
|
£
million
|
Net borrowings at 30 June
|
(11,277
|
)
|
(9,091
|
)
|
Free
cash flow (a)
|
966
|
|
1,346
|
|
Acquisitions
(b)
|
(106
|
)
|
(32
|
)
|
Sale
of businesses and brands (c)
|
—
|
|
419
|
|
Share
buyback programme
|
(1,155
|
)
|
(1,275
|
)
|
Proceeds from issue
of share capital
|
1
|
|
1
|
|
Net
sale/(purchase) of own shares for share schemes (d)
|
33
|
|
25
|
|
Dividends paid to
non-controlling interests
|
(76
|
)
|
(76
|
)
|
Net
movements in bonds (e)
|
1,289
|
|
1,754
|
|
Purchase of shares
of non-controlling interests (f)
|
(25
|
)
|
(697
|
)
|
Net
movements in other borrowings (g)
|
209
|
|
220
|
|
Equity
dividends paid
|
(1,006
|
)
|
(993
|
)
|
Net
increase in cash and cash equivalents
|
130
|
|
692
|
|
Net
increase in bonds and other borrowings
|
(1,503
|
)
|
(1,974
|
)
|
Exchange
differences (h)
|
209
|
|
(32
|
)
|
Other
non-cash items (i)
|
(439
|
)
|
53
|
|
Net borrowings at 31 December
|
(12,880
|
)
|
(10,352
|
)
|
(a) See
Key Financial Information, Free cash flow for the analysis of free
cash flow.
(b) In
the six months ended 31 December 2019 Diageo acquired the remaining
share capital of Seedlip Ltd and Anna Seed 83 Ltd (the brand owner
of Aecorn) which it did not already own as well as a number of
smaller transactions and additional investments in the Distill
Ventures programme. Additionally, acquisitions include deferred and
contingent consideration paid in respect of previous
acquisitions.
In the
six months ended 31 December 2018 Diageo acquired the remaining 70%
of Copper Dog Whisky Limited that it did not already own, made
additional investments in a number of Distill Venture associates
and made contingent consideration payments in respect of previous
acquisitions.
(c) In
the six months ended 31 December 2018 sale of businesses and brands
represented the cash received on the disposal of a portfolio of 19
brands sold to Sazerac net of transaction costs.
(d) Net
sale/purchase of own shares comprised purchase of treasury shares
for the future settlement of obligations under the employee share
option schemes of £1 million (2018 - £1 million) less
receipts from employees on the exercise of share options of
£34 million (2018 - £26 million).
(e) In
the six months ended 31 December 2019, the group issued bonds of
$1,600 million (£1,289 million). In the comparable period the
group issued bonds of €2,000 million (£1,754
million).
(f) 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 INR1,960 million (£23 million) and
completed the purchase of 4% of the share capital of Serengeti
Breweries Limited for $3 million (£2 million).
In the
six months ended 31 December 2018 purchase of shares of
non-controlling interests comprised RMB 6,084 million (£696
million) and transaction costs of £1 million in respect of the
acquisition of 20.29% of the share capital of Sichuan Shuijingfang
Company Limited (SJF). This took Diageo’s shareholding in SJF
from 39.71% to 60%.
(g) In
the six months ended 31 December 2019 the net movement in other
borrowings principally arose from the issue of commercial papers
partially offset by cash movements on foreign exchange swaps and
forwards. In the comparable period movements were driven by the
cash movements of foreign exchange swaps and forwards.
(h) The
exchange arising on net borrowings of £209 million is
primarily driven by favourable exchange movements on US dollar and
euro denominated borrowings partially offset by an unfavourable
movement on foreign exchange swaps and forwards.
(i)
Other non-cash items are principally in respect of the adoption of
IFRS 16 on 1 July 2019 and additional leases entered into in the
six months ended 31 December 2019. In the six months ended 31
December 2018 other non-cash items are principally in respect of
changes in the fair value of borrowings.
Movement in equity
|
2019
|
2018
|
|
£
million
|
£
million
|
Equity at 30 June
|
10,156
|
|
11,713
|
|
Profit
for the period
|
1,934
|
|
2,067
|
|
Exchange
adjustments (a)
|
(623
|
)
|
251
|
|
Remeasurement of
post employment plans net of taxation
|
(82
|
)
|
150
|
|
Purchase of shares
of non-controlling interests (b)
|
(25
|
)
|
(703
|
)
|
Dividends to
non-controlling interests
|
(52
|
)
|
(55
|
)
|
Equity
dividends paid
|
(1,006
|
)
|
(993
|
)
|
Share
buyback programme
|
(1,200
|
)
|
(1,355
|
)
|
Other
reserve movements
|
128
|
|
58
|
|
Equity at 31 December
|
9,230
|
|
11,133
|
|
(a)
Exchange movement in the six months ended 31 December 2019
primarily arose from exchange losses in respect of the Indian
rupee, the euro and the US dollar.
(b) In
the six months ended 31 December 2019 Diageo acquired an additional
3,310,515 shares of United Spirits Limited for INR1,960 million
(£23 million) and completed the purchase of 4% of the share
capital of Serengeti Breweries Limited for $3 million (£2
million).
In
the six months ended 31 December 2018 Diageo acquired 20.29% of the
share capital of Sichuan Shuijingfang Company Limited (SJF) which
was already controlled and therefore consolidated prior to the
transaction. This took Diageo’s shareholding in SJF from
39.71% to 60%.
Post employment plans
The net
surplus of the group’s post employment benefit plans
decreased by £12 million from £214 million at 30 June
2019 to £202 million at 31 December 2019. The decrease in net
surplus is primarily attributable to the changes in assumptions 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
(from 2.3% to 2.0%), partially offset by an increase in the market
value of the assets held by the post employment schemes and the
cash contribution paid into the plans in excess of income statement
charge.
The
operating profit charge before exceptional items increased by
£4 million from £32 million for the six months ended 31
December 2018 to £36 million for the six months ended 31
December 2019. 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 (2018 - £22 million credit in respect
of changes to future pension increases for the members of the UK
Diageo Pension Scheme).
Total
cash contributions by the group to all post employment plans in the
year ending 30 June 2020 are estimated to be approximately
£160 million.
DIAGEO CONDENSED CONSOLIDATED INCOME STATEMENT
|
|
|
Six months ended 31 December 2019
|
|
Six
months ended 31 December 2018
|
|
Notes
|
£
million
|
|
£
million
|
|
|
|
|
|
|
Sales
|
2
|
10,831
|
|
|
10,363
|
|
|
Excise
duties
|
|
(3,631
|
)
|
|
(3,455
|
)
|
|
Net
sales
|
2
|
7,200
|
|
|
6,908
|
|
|
Cost of
sales
|
|
(2,702
|
)
|
|
(2,508
|
)
|
|
Gross
profit
|
|
4,498
|
|
|
4,400
|
|
|
Marketing
|
|
(1,116
|
)
|
|
(1,054
|
)
|
|
Other
operating items
|
|
(940
|
)
|
|
(916
|
)
|
|
Operating
profit
|
2
|
2,442
|
|
|
2,430
|
|
|
Non-operating
items
|
3
|
—
|
|
|
146
|
|
|
Finance
income
|
4
|
163
|
|
|
181
|
|
|
Finance
charges
|
4
|
(317
|
)
|
|
(309
|
)
|
|
Share
of after tax results of associates and joint ventures
|
|
176
|
|
|
179
|
|
|
Profit
before taxation
|
|
2,464
|
|
|
2,627
|
|
|
Taxation
|
5
|
(530
|
)
|
|
(560
|
)
|
|
Profit for the period
|
|
1,934
|
|
|
2,067
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
|
Equity
shareholders of the parent company
|
|
1,865
|
|
|
1,976
|
|
|
Non-controlling
interests
|
|
69
|
|
|
91
|
|
|
|
|
1,934
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
million
|
|
million
|
|
Weighted
average number of shares
|
|
|
|
|
|
Shares
in issue excluding own shares
|
|
2,356
|
|
|
2,442
|
|
|
Dilutive potential
ordinary shares
|
|
10
|
|
|
10
|
|
|
|
|
2,366
|
|
|
2,452
|
|
|
|
|
|
|
|
|
|
|
pence
|
|
pence
|
|
Basic
earnings per share
|
|
79.2
|
|
|
80.9
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
78.8
|
|
|
80.6
|
|
|
|
|
|
|
|
DIAGEO CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
|
Six months ended 31 December 2019
|
|
Six
months ended 31 December 2018
|
|
£ million
|
|
£
million
|
Other comprehensive income
|
|
|
|
Items that will not be recycled subsequently to the
income statement
|
|
|
|
Net
remeasurement of post employment plans
|
|
|
|
-
group
|
(101
|
)
|
|
183
|
|
-
associates and joint ventures
|
(1
|
)
|
|
1
|
|
Tax on
post employment plans
|
20
|
|
|
(34
|
)
|
|
(82
|
)
|
|
150
|
|
Items that may be recycled subsequently to the income
statement
|
|
|
|
Exchange
differences on translation of foreign operations
|
|
|
|
-
group
|
(585
|
)
|
|
265
|
|
-
associates and joint ventures
|
(161
|
)
|
|
43
|
|
-
non-controlling interests
|
(100
|
)
|
|
42
|
|
Net
investment hedges
|
223
|
|
|
(99
|
)
|
Tax on
exchange differences - group
|
(7
|
)
|
|
1
|
|
Effective portion
of changes in fair value of cash flow hedges
|
|
|
|
- hedge
of foreign currency debt of the group
|
(60
|
)
|
|
115
|
|
-
transaction exposure hedging of the group
|
63
|
|
|
(66
|
)
|
-
commodity price risk of the group
|
5
|
|
|
(6
|
)
|
-
hedges by associates and joint ventures
|
3
|
|
|
(5
|
)
|
-
recycled to income statement - hedge of foreign currency debt of
the group
|
50
|
|
|
(71
|
)
|
-
recycled to income statement - transaction exposure hedging of the
group
|
12
|
|
|
20
|
|
Tax on
effective portion of changes in fair value of cash flow
hedges
|
5
|
|
|
(2
|
)
|
Hyperinflation
adjustment
|
(15
|
)
|
|
(4
|
)
|
Tax on
hyperinflation adjustment
|
4
|
|
|
2
|
|
|
(563
|
)
|
|
235
|
|
Other comprehensive (loss)/profit, net of tax, for the
period
|
(645
|
)
|
|
385
|
|
Profit
for the period
|
1,934
|
|
|
2,067
|
|
Total comprehensive income for the period
|
1,289
|
|
|
2,452
|
|
|
|
|
|
Attributable to:
|
|
|
|
Equity
shareholders of the parent company
|
1,320
|
|
|
2,319
|
|
Non-controlling
interests
|
(31
|
)
|
|
133
|
|
Total comprehensive income for the period
|
1,289
|
|
|
2,452
|
|
DIAGEO CONDENSED CONSOLIDATED BALANCE SHEET
|
|
31 December 2019
|
|
30 June 2019
|
|
31 December 2018
|
|
Notes
|
£ million
|
|
£ million
|
|
£
million
|
|
£
million
|
|
£
million
|
|
£
million
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
6
|
12,035
|
|
|
|
|
12,557
|
|
|
|
|
12,555
|
|
|
|
Property,
plant and equipment
|
|
4,834
|
|
|
|
|
4,455
|
|
|
|
|
4,238
|
|
|
|
Biological
assets
|
|
42
|
|
|
|
|
34
|
|
|
|
|
26
|
|
|
|
Investments
in associates and joint ventures
|
|
3,202
|
|
|
|
|
3,173
|
|
|
|
|
3,230
|
|
|
|
Other
investments
|
|
51
|
|
|
|
|
49
|
|
|
|
|
48
|
|
|
|
Other
receivables
|
|
48
|
|
|
|
|
53
|
|
|
|
|
59
|
|
|
|
Other
financial assets
|
|
338
|
|
|
|
|
404
|
|
|
|
|
281
|
|
|
|
Deferred
tax assets
|
|
71
|
|
|
|
|
138
|
|
|
|
|
106
|
|
|
|
Post
employment benefit assets
|
|
955
|
|
|
|
|
1,060
|
|
|
|
|
1,036
|
|
|
|
|
|
|
|
21,576
|
|
|
|
|
21,923
|
|
|
|
|
21,579
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
7
|
5,459
|
|
|
|
|
5,472
|
|
|
|
|
5,276
|
|
|
|
Trade
and other receivables
|
|
3,587
|
|
|
|
|
2,694
|
|
|
|
|
3,541
|
|
|
|
Assets
held for sale
|
|
51
|
|
|
|
|
65
|
|
|
|
|
83
|
|
|
|
Corporate tax receivables
|
|
68
|
|
|
|
|
83
|
|
|
|
|
12
|
|
|
|
Other
financial assets
|
|
42
|
|
|
|
|
127
|
|
|
|
|
12
|
|
|
|
Cash
and cash equivalents
|
8
|
950
|
|
|
|
|
932
|
|
|
|
|
1,591
|
|
|
|
|
|
|
|
10,157
|
|
|
|
|
9,373
|
|
|
|
|
10,515
|
|
Total assets
|
|
|
|
31,733
|
|
|
|
|
31,296
|
|
|
|
|
32,094
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
and bank overdrafts
|
8
|
(3,381
|
)
|
|
|
|
(1,959
|
)
|
|
|
|
(1,742
|
)
|
|
|
Other
financial liabilities
|
|
(474
|
)
|
|
|
|
(307
|
)
|
|
|
|
(306
|
)
|
|
|
Share buyback liability
|
|
(71
|
)
|
|
|
|
(26
|
)
|
|
|
|
(80
|
)
|
|
|
Trade
and other payables
|
|
(4,474
|
)
|
|
|
|
(4,202
|
)
|
|
|
|
(4,415
|
)
|
|
|
Liabilities
held for sale
|
|
(27
|
)
|
|
|
|
(32
|
)
|
|
|
|
(32
|
)
|
|
|
Corporate tax payables
|
|
(336
|
)
|
|
|
|
(378
|
)
|
|
|
|
(446
|
)
|
|
|
Provisions
|
|
(90
|
)
|
|
|
|
(99
|
)
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
(8,853
|
)
|
|
|
|
(7,003
|
)
|
|
|
|
(7,128
|
)
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
8
|
(10,091
|
)
|
|
|
|
(10,596
|
)
|
|
|
|
(10,272
|
)
|
|
|
Other
financial liabilities
|
|
(405
|
)
|
|
|
|
(124
|
)
|
|
|
|
(154
|
)
|
|
|
Other
payables
|
|
(185
|
)
|
|
|
|
(222
|
)
|
|
|
|
(250
|
)
|
|
|
Provisions
|
|
(320
|
)
|
|
|
|
(317
|
)
|
|
|
|
(295
|
)
|
|
|
Deferred
tax liabilities
|
|
(1,896
|
)
|
|
|
|
(2,032
|
)
|
|
|
|
(2,123
|
)
|
|
|
Post
employment benefit liabilities
|
|
(753
|
)
|
|
|
|
(846
|
)
|
|
|
|
(739
|
)
|
|
|
|
|
|
|
(13,650
|
)
|
|
|
|
(14,137
|
)
|
|
|
|
(13,833
|
)
|
Total liabilities
|
|
|
|
(22,503
|
)
|
|
|
|
(21,140
|
)
|
|
|
|
(20,961
|
)
|
Net assets
|
|
|
|
9,230
|
|
|
|
|
10,156
|
|
|
|
|
11,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
743
|
|
|
|
|
753
|
|
|
|
|
767
|
|
|
|
Share
premium
|
|
1,351
|
|
|
|
|
1,350
|
|
|
|
|
1,350
|
|
|
|
Other
reserves
|
|
1,930
|
|
|
|
|
2,372
|
|
|
|
|
2,341
|
|
|
|
Retained
earnings
|
|
3,499
|
|
|
|
|
3,886
|
|
|
|
|
4,908
|
|
|
|
Equity attributable to equity shareholders of the parent
company
|
|
|
|
7,523
|
|
|
|
|
8,361
|
|
|
|
|
9,366
|
|
Non-controlling interests
|
|
|
|
1,707
|
|
|
|
|
1,795
|
|
|
|
|
1,767
|
|
Total equity
|
|
|
|
9,230
|
|
|
|
|
10,156
|
|
|
|
|
11,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIAGEO CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
|
|
|
|
|
|
|
|
Retained earnings/(deficit)
|
|
|
|
|
|
|
|
|
Sharecapital
|
|
Sharepremium
|
|
Other
reserves
|
|
Own
shares
|
|
Other
retained earnings
|
|
Total
|
|
Equity
attributable to parent company shareholders
|
|
Non-controlling
interests
|
|
Total
equity
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
At 30 June 2018
|
780
|
|
|
1,349
|
|
|
2,133
|
|
|
(2,144
|
)
|
|
7,830
|
|
|
5,686
|
|
|
9,948
|
|
|
1,765
|
|
|
11,713
|
|
|
Profit
for the period
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,976
|
|
|
1,976
|
|
|
1,976
|
|
|
91
|
|
|
2,067
|
|
|
Other
comprehensive income
|
—
|
|
|
—
|
|
|
195
|
|
|
—
|
|
|
148
|
|
|
148
|
|
|
343
|
|
|
42
|
|
|
385
|
|
|
Employee
share schemes
|
—
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|
(26
|
)
|
|
47
|
|
|
47
|
|
|
—
|
|
|
47
|
|
|
Share-based
incentive plans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25
|
|
|
25
|
|
|
25
|
|
|
—
|
|
|
25
|
|
|
Share-based
incentive plans in respect of associates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
Shares
issued
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Purchase
of non-controllinginterests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(627
|
)
|
|
(627
|
)
|
|
(627
|
)
|
|
(76
|
)
|
|
(703
|
)
|
|
Change
in fair value of put option
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
Share
buyback programme
|
(13
|
)
|
|
—
|
|
|
13
|
|
|
—
|
|
|
(1,355
|
)
|
|
(1,355
|
)
|
|
(1,355
|
)
|
|
—
|
|
|
(1,355
|
)
|
|
Dividends
paid
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(993
|
)
|
|
(993
|
)
|
|
(993
|
)
|
|
(55
|
)
|
|
(1,048
|
)
|
|
At 31 December 2018
|
767
|
|
|
1,350
|
|
|
2,341
|
|
|
(2,071
|
)
|
|
6,979
|
|
|
4,908
|
|
|
9,366
|
|
|
1,767
|
|
|
11,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 30 June 2019
|
753
|
|
|
1,350
|
|
|
2,372
|
|
|
(2,026
|
)
|
|
5,912
|
|
|
3,886
|
|
|
8,361
|
|
|
1,795
|
|
|
10,156
|
|
|
Profit
for the period
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,865
|
|
|
1,865
|
|
|
1,865
|
|
|
69
|
|
|
1,934
|
|
|
Other
comprehensive income
|
—
|
|
|
—
|
|
|
(452
|
)
|
|
—
|
|
|
(93
|
)
|
|
(93
|
)
|
|
(545
|
)
|
|
(100
|
)
|
|
(645
|
)
|
|
Employee
share schemes
|
—
|
|
|
—
|
|
|
—
|
|
|
74
|
|
|
(35
|
)
|
|
39
|
|
|
39
|
|
|
—
|
|
|
39
|
|
|
Share-based
incentive plans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
23
|
|
|
23
|
|
|
—
|
|
|
23
|
|
|
Share-based
incentive plans in respect of associates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Shares
issued
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Purchase
of non-controllinginterests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
(15
|
)
|
|
(15
|
)
|
|
(10
|
)
|
|
(25
|
)
|
|
Non-controlling
interest in respect of new subsidiary
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|
Change
in fair value of put option
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
Share
buyback programme
|
(10
|
)
|
|
—
|
|
|
10
|
|
|
—
|
|
|
(1,200
|
)
|
|
(1,200
|
)
|
|
(1,200
|
)
|
|
—
|
|
|
(1,200
|
)
|
|
Dividends
paid
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,006
|
)
|
|
(1,006
|
)
|
|
(1,006
|
)
|
|
(52
|
)
|
|
(1,058
|
)
|
|
At 31 December 2019
|
743
|
|
|
1,351
|
|
|
1,930
|
|
|
(1,952
|
)
|
|
5,451
|
|
|
3,499
|
|
|
7,523
|
|
|
1,707
|
|
|
9,230
|
|
DIAGEO CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
|
Six months ended 31 December 2019
|
|
Six
months ended 31 December 2018
|
|
£
million
|
|
£
million
|
|
£
million
|
|
£
million
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Profit
for the period
|
1,934
|
|
|
|
|
2,067
|
|
|
|
Taxation
|
530
|
|
|
|
|
560
|
|
|
|
Share
of after tax results of associates and joint ventures
|
(176
|
)
|
|
|
|
(179
|
)
|
|
|
Net
finance charges
|
154
|
|
|
|
|
128
|
|
|
|
Non-operating
items
|
—
|
|
|
|
|
(146
|
)
|
|
|
Operating
profit
|
|
|
2,442
|
|
|
|
|
2,430
|
|
Increase in
inventories
|
(85
|
)
|
|
|
|
(245
|
)
|
|
|
Increase
in trade and other receivables
|
(1,016
|
)
|
|
|
|
(829
|
)
|
|
|
Increase
in trade and other payables and provisions
|
423
|
|
|
|
|
418
|
|
|
|
Net
increase in working capital
|
|
|
(678
|
)
|
|
|
|
(656
|
)
|
Depreciation,
amortisation and impairment
|
286
|
|
|
|
|
185
|
|
|
|
Dividends
received
|
3
|
|
|
|
|
3
|
|
|
|
Post
employment payments less amounts included in operating
profit
|
(60
|
)
|
|
|
|
(61
|
)
|
|
|
Other
items
|
(5
|
)
|
|
|
|
37
|
|
|
|
|
|
|
224
|
|
|
|
|
164
|
|
Cash
generated from operations
|
|
|
1,988
|
|
|
|
|
1,938
|
|
Interest
received
|
86
|
|
|
|
|
101
|
|
|
|
Interest
paid
|
(239
|
)
|
|
|
|
(206
|
)
|
|
|
Taxation
paid
|
(547
|
)
|
|
|
|
(229
|
)
|
|
|
|
|
|
(700
|
)
|
|
|
|
(334
|
)
|
Net
cash inflow from operating activities
|
|
|
1,288
|
|
|
|
|
1,604
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Disposal of
property, plant and equipment and computer software
|
8
|
|
|
|
|
13
|
|
|
|
Purchase of
property, plant and equipment and computer software
|
(330
|
)
|
|
|
|
(271
|
)
|
|
|
Sale of
businesses and brands
|
—
|
|
|
|
|
419
|
|
|
|
Acquisition of
businesses
|
(106
|
)
|
|
|
|
(32
|
)
|
|
|
Net
cash (outflow)/inflow from investing activities
|
|
|
(428
|
)
|
|
|
|
129
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Share
buyback programme
|
(1,155
|
)
|
|
|
|
(1,275
|
)
|
|
|
Proceeds from issue
of share capital
|
1
|
|
|
|
|
1
|
|
|
|
Net
sale of own shares for share schemes
|
33
|
|
|
|
|
25
|
|
|
|
Dividends paid to
non-controlling interests
|
(76
|
)
|
|
|
|
(76
|
)
|
|
|
Proceeds from
bonds
|
1,289
|
|
|
|
|
1,754
|
|
|
|
Purchase of shares
of non-controlling interests
|
(25
|
)
|
|
|
|
(697
|
)
|
|
|
Net
movements in other borrowings
|
209
|
|
|
|
|
220
|
|
|
|
Equity
dividends paid
|
(1,006
|
)
|
|
|
|
(993
|
)
|
|
|
Net
cash outflow from financing activities
|
|
|
(730
|
)
|
|
|
|
(1,041
|
)
|
|
|
|
|
|
|
|
|
Net
increase in net cash and cash equivalents
|
|
|
130
|
|
|
|
|
692
|
|
Exchange
differences
|
|
|
(32
|
)
|
|
|
|
14
|
|
Net
cash and cash equivalents at beginning of the period
|
|
|
721
|
|
|
|
|
693
|
|
Net
cash and cash equivalents at end of the period
|
|
|
819
|
|
|
|
|
1,399
|
|
|
|
|
|
|
|
|
|
Net
cash and cash equivalents consist of:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
950
|
|
|
|
|
1,591
|
|
Bank
overdrafts
|
|
|
(131
|
)
|
|
|
|
(192
|
)
|
|
|
|
819
|
|
|
|
|
1,399
|
|
NOTES
1. Basis of preparation
This
condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as issued by the
International Accounting Standards Board (IASB) and as adopted by
the EU. 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 condensed consolidated financial statements for the
periods presented.
The annual financial statements of the group are
prepared in accordance with International Financial Reporting
Standards (IFRSs) as issued by the IASB and as adopted by the EU.
As required by the Disclosure and Transparency Rules of the
Financial Conduct Authority, the condensed set of financial
statements has been prepared applying the accounting policies and
presentation that were applied in the preparation of the company's
published consolidated financial statements for the year
ended 30 June 2019 except for changes on the adoption of new
accounting standards and amendments explained below. IFRS is
subject to ongoing review and endorsement by the EU or possible
amendment by interpretative guidance and the issuance of new
standards by the IASB. In preparing these condensed interim
financial statements, the significant judgements made by management
when applying the group's accounting policies and the significant
areas where estimates were required were the same as those that
applied to the consolidated financial statements for the year
ended30 June 2019, with the exception of changes in
estimates disclosed in note 15 - Contingent liabilities and legal
proceedings.
Having
reassessed the principal risks the directors considered it
appropriate to adopt the going concern basis of accounting in
preparing the condensed consolidated financial statements.
New accounting standards and interpretations
The
following amendments to the accounting standards, issued by the
IASB or International Financial Reporting Interpretations Committee
(IFRIC) and endorsed by the EU, have been adopted by the group from
1 July 2019 with no impact on the group’s consolidated
results, financial position or disclosures:
●
Amendments to IAS
28 - Long-term Interests in Associates and Joint
Ventures
●
Amendments to IFRS
9 - Prepayment Features with Negative Compensation
●
Improvements to
IFRS 3 and IFRS 11 - Business combinations and Joint arrangements -
Accounting for previously held interests
●
Improvements to IAS
12 - Income taxes - Accounting for income tax consequences of
payments on financial instruments that are classified as
equity
●
Improvements to IAS
23 - Borrowing costs on completed qualifying assets
●
Amendments to IAS
19 - Plan Amendment, Curtailment or Settlement
The
following standard issued by the IASB and endorsed by the EU, has
been adopted by the group:
IFRS 16
- Leases. IFRS 16 replaced existing lease guidance including IAS 17
- Leases, IFRIC 4, SIC 15 and SIC 27. The group adopted IFRS 16
with effect from 1 July 2019 by applying the modified retrospective
method, meaning that the figures, as at, and for the six months
ended 31 December 2018 and the year ended 30 June 2019 have not
been restated.
Information
in respect of the adoption of IFRS 16 is included in Note
14.
The
following standard, issued by the IASB has not been endorsed by the
EU and has not been adopted by the group:
IFRS 17
- Insurance contracts (effective in the year ending 30 June 2022)
is ultimately intended to replace IFRS 4. Based on a preliminary
assessment the group believes that the adoption of IFRS 17 will not
have a significant impact on its consolidated results or financial
position.
There
are a number of other amendments and clarifications to IFRS,
effective in future years, which are not expected to significantly
impact the group’s consolidated results or financial
position.
The
comparative figures for the financial year ended 30 June 2019 are
not the company’s statutory accounts for that financial year.
Those accounts have been reported on by the company’s
auditor, PricewaterhouseCoopers LLP, and delivered to the Registrar
of Companies. The report of the auditor (i) was unqualified, (ii)
did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under section 498 (2) or (3)
of the Companies Act 2006.
2. Segmental information
The segmental information presented is consistent with management
reporting provided to the Executive Committee (the chief operating
decision maker).
The
Executive Committee considers the business principally from a
geographical perspective based on the location of third party sales
and the business analysis is presented by geographical segment. In
addition to these geographical selling segments, a further segment
reviewed by the Executive Committee is the International Supply
Centre (ISC), which manufactures products for other group companies
and includes the production sites in the United Kingdom, Ireland,
Italy, Guatemala and Mexico.
Continuing
operations also include the Corporate function. Corporate revenues
and costs are in respect of 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 ISC. They
also include rents receivable and payable in respect of properties
not used by the group in the manufacture, sale or distribution of
premium drinks.
Diageo
uses shared services operations to deliver transaction processing
activities for markets and operational entities. These centres are
located in Hungary, Kenya, Colombia, the Philippines and India. The
captive business service centre in Budapest also performs certain
central finance activities, including elements of financial
planning and reporting, treasury and HR services. The costs of
shared services operations are recharged to the
regions.
The
segmental information for net sales and operating profit before
exceptional items is reported at budgeted exchange rates in line
with management reporting. For management reporting purposes the
group measures the current period at, and restates the prior period
net sales and operating profit to, the current year’s
budgeted exchange rates. These exchange rates are set prior to the
financial year as part of the financial planning process and
provide a consistent exchange rate to measure the performance of
the business throughout the year. The adjustments required to
retranslate the segmental information to actual exchange rates and
to reconcile it to the group’s reported results are shown in
the tables below. The comparative segmental information, prior to
retranslation, has not been restated at the current year’s
budgeted exchange rates but is presented at the budgeted rates for
the year ended 30 June 2019.
In
addition, for management reporting purposes Diageo presents
separately the result of acquisitions and disposals completed in
the current and prior year from the results of the geographical
segments. The impact of acquisitions and disposals on net sales and
operating profit is disclosed under the appropriate geographical
segments in the tables below at budgeted exchange
rates.
Six months ended
|
North America
|
Europeand Turkey
|
Africa
|
Latin America and Caribbean
|
AsiaPacific
|
ISC
|
Eliminateinter- segment sales
|
Totaloperating segments
|
Corporateand other
|
Total
|
31 December 2019
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
Sales
|
2,830
|
|
2,971
|
|
1,212
|
|
893
|
|
2,898
|
|
811
|
|
(811
|
)
|
10,804
|
|
27
|
|
10,831
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates(i)
|
2,395
|
|
1,617
|
|
825
|
|
679
|
|
1,455
|
|
874
|
|
(811
|
)
|
7,034
|
|
27
|
|
7,061
|
|
Acquisitions
and disposals
|
25
|
|
5
|
|
17
|
|
—
|
|
1
|
|
—
|
|
—
|
|
48
|
|
—
|
|
48
|
|
ISC
allocation
|
8
|
|
37
|
|
3
|
|
8
|
|
7
|
|
(63
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
Retranslation
to actual exchange rates
|
74
|
|
7
|
|
3
|
|
(7
|
)
|
14
|
|
—
|
|
—
|
|
91
|
|
—
|
|
91
|
|
Net sales
|
2,502
|
|
1,666
|
|
848
|
|
680
|
|
1,477
|
|
811
|
|
(811
|
)
|
7,173
|
|
27
|
|
7,200
|
|
Operating profit/(loss)
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates(i)
|
1,098
|
|
573
|
|
164
|
|
250
|
|
424
|
|
73
|
|
—
|
|
2,582
|
|
(84
|
)
|
2,498
|
|
Acquisitions
and disposals
|
1
|
|
(2
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1
|
)
|
—
|
|
(1
|
)
|
ISC
allocation
|
11
|
|
37
|
|
3
|
|
12
|
|
10
|
|
(73
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
Fair
value remeasurement of contingent consideration
|
(4
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(4
|
)
|
—
|
|
(4
|
)
|
Fair
value remeasurement of biological assets
|
—
|
|
—
|
|
—
|
|
4
|
|
—
|
|
—
|
|
—
|
|
4
|
|
—
|
|
4
|
|
Retranslation
to actual exchange rates
|
14
|
|
7
|
|
(8
|
)
|
(9
|
)
|
(2
|
)
|
—
|
|
—
|
|
2
|
|
2
|
|
4
|
|
Operating profit/(loss) before exceptional items
|
1,120
|
|
615
|
|
159
|
|
257
|
|
432
|
|
—
|
|
—
|
|
2,583
|
|
(82
|
)
|
2,501
|
|
Exceptional
items
|
—
|
|
—
|
|
—
|
|
—
|
|
(59
|
)
|
—
|
|
—
|
|
(59
|
)
|
—
|
|
(59
|
)
|
Operating profit/(loss)
|
1,120
|
|
615
|
|
159
|
|
257
|
|
373
|
|
—
|
|
—
|
|
2,524
|
|
(82
|
)
|
2,442
|
|
Non-operating
items
|
|
|
|
|
|
|
|
|
|
—
|
|
Net
finance charges
|
|
|
|
|
|
|
|
|
|
(154
|
)
|
Share
of after tax results of associates and joint ventures
|
|
|
|
|
|
|
|
|
|
176
|
|
Profit before taxation
|
|
|
|
|
|
|
|
|
|
2,464
|
|
Six months ended
|
North America
|
Europeand Turkey
|
Africa
|
Latin America and Caribbean
|
AsiaPacific
|
ISC
|
Eliminateinter- segment sales
|
Totaloperating segments
|
Corporateand other
|
Total
|
31 December 2018
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
£ million
|
Sales
|
2,667
|
|
2,879
|
|
1,160
|
|
864
|
|
2,765
|
|
923
|
|
(923
|
)
|
10,335
|
|
28
|
|
10,363
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates(i)
|
2,108
|
|
1,629
|
|
784
|
|
648
|
|
1,379
|
|
980
|
|
(920
|
)
|
6,608
|
|
29
|
|
6,637
|
|
Acquisitions
and disposals
|
68
|
|
1
|
|
1
|
|
—
|
|
1
|
|
—
|
|
—
|
|
71
|
|
—
|
|
71
|
|
ISC
allocation
|
7
|
|
35
|
|
3
|
|
8
|
|
7
|
|
(60
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
Retranslation
to actual exchange rates
|
173
|
|
(32
|
)
|
33
|
|
16
|
|
11
|
|
3
|
|
(3
|
)
|
201
|
|
(1
|
)
|
200
|
|
Net sales
|
2,356
|
|
1,633
|
|
821
|
|
672
|
|
1,398
|
|
923
|
|
(923
|
)
|
6,880
|
|
28
|
|
6,908
|
|
Operating profit/(loss)
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates(i)
|
953
|
|
581
|
|
143
|
|
221
|
|
385
|
|
88
|
|
—
|
|
2,371
|
|
(77
|
)
|
2,294
|
|
Acquisitions
and disposals
|
40
|
|
1
|
|
1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
42
|
|
—
|
|
42
|
|
ISC
allocation
|
10
|
|
46
|
|
4
|
|
19
|
|
9
|
|
(88
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
Retranslation
to actual exchange rates
|
98
|
|
(14
|
)
|
5
|
|
14
|
|
15
|
|
—
|
|
—
|
|
118
|
|
(3
|
)
|
115
|
|
Operating profit/(loss) before exceptional items
|
1,101
|
|
614
|
|
153
|
|
254
|
|
409
|
|
—
|
|
—
|
|
2,531
|
|
(80
|
)
|
2,451
|
|
Exceptional
items
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(21
|
)
|
(21
|
)
|
Operating profit/(loss)
|
1,101
|
|
614
|
|
153
|
|
254
|
|
409
|
|
—
|
|
—
|
|
2,531
|
|
(101
|
)
|
2,430
|
|
Non-operating
items
|
|
|
|
|
|
|
|
|
|
146
|
|
Net
finance charges
|
|
|
|
|
|
|
|
|
|
(128
|
)
|
Share
of after tax results of associates and joint ventures
|
|
|
|
|
|
|
|
|
|
179
|
|
Profit before taxation
|
|
|
|
|
|
|
|
|
|
2,627
|
|
(i)
These items represent the IFRS 8 performance measures for the
geographical and ISC segments.
(1)
The net sales
figures for ISC reported to the Executive Committee primarily
comprise inter-segmental sales and these are eliminated in a
separate column in the above segmental analysis. Apart from sales
by the ISC segment to the other operating segments, inter-segmental
sales are not material.
(2)
The group’s
net finance charges are managed centrally and are not attributable
to individual operating segments.
(3)
Approximately 40%
of annual net sales occur in the last four months of each calendar
year.
Weighted
average exchange rates used in the translation of income statements
were US dollar – £1 = $1.26 (2018 – £1 =
$1.29) and euro – £1 = €1.14 (2018 – £1
= €1.12). Exchange rates used to translate assets and
liabilities at the balance sheet date were US dollar –
£1 = $1.32 (31 December 2018 – £1 = $1.27, 30 June
2019 – £1 = $1.27) and euro – £1 =
€1.18 (31 December 2018 – £1 = €1.11, 30
June 2019 – £1 = €1.12). The group uses foreign
exchange transaction hedges to mitigate the effect of exchange rate
movements.
3. Exceptional items
Exceptional
items are those that in management’s judgement need to be
disclosed separately. See Explanatory Notes (c) Exceptional items
for the definition of exceptional items and the criteria used to
determine whether an exceptional item is accounted for as operating
or non-operating.
|
Six months ended 31 December 2019
|
|
Six months ended 31 December 2018
|
|
£ million
|
|
£ million
|
|
|
|
|
Items included in operating profit
|
|
|
|
Impairment of Old Tavern brand
|
(59
|
)
|
|
—
|
|
Guaranteed minimum pension equalisation
|
—
|
|
|
(21
|
)
|
|
(59
|
)
|
|
(21
|
)
|
Non-operating items
|
|
|
|
Acquisition/sale of businesses
|
|
|
|
Step up acquisitions
|
8
|
|
|
—
|
|
Loss on the expected sale of United National Breweries
|
(7
|
)
|
|
(8
|
)
|
Loss on disposal of associate
|
(1
|
)
|
|
—
|
|
Portfolio of 19 brands
|
—
|
|
|
154
|
|
|
—
|
|
|
146
|
|
|
|
|
|
Exceptional items before taxation
|
(59
|
)
|
|
125
|
|
|
|
|
|
Items included in taxation
|
|
|
|
Tax on
exceptional operating items
|
14
|
|
|
4
|
|
Tax on
exceptional non-operating items
|
—
|
|
|
(34
|
)
|
|
14
|
|
|
(30
|
)
|
|
|
|
|
Total exceptional items
|
(45
|
)
|
|
95
|
|
|
|
|
|
Attributable to:
|
|
|
|
Equity
shareholders of the parent company
|
(25
|
)
|
|
95
|
|
Non-controlling
interests
|
(20
|
)
|
|
—
|
|
Total exceptional items
|
(45
|
)
|
|
95
|
|
Exceptional
items included in operating profit are charged to other operating
expenses.
4. Finance income and charges
|
Six months ended 31 December 2019
|
|
Six
months ended 31 December 2018
|
|
£
million
|
|
£
million
|
|
|
|
|
Interest
income
|
122
|
|
|
102
|
|
Fair
value gain on financial instruments
|
24
|
|
|
59
|
|
Total
interest income
|
146
|
|
|
161
|
|
Interest
charges
|
(271
|
)
|
|
(224
|
)
|
Fair
value loss on financial instruments
|
(23
|
)
|
|
(57
|
)
|
Total
interest charges
|
(294
|
)
|
|
(281
|
)
|
Net
interest charges
|
(148
|
)
|
|
(120
|
)
|
|
|
|
|
Net
finance income in respect of post employment plans in
surplus
|
13
|
|
|
14
|
|
Hyperinflation
adjustment in respect of Venezuela (a)
|
3
|
|
|
6
|
|
Other
finance income
|
1
|
|
|
—
|
|
Total
other finance income
|
17
|
|
|
20
|
|
Net
finance charge in respect of post employment plans in
deficit
|
(9
|
)
|
|
(12
|
)
|
Unwinding of
discounts
|
(7
|
)
|
|
(8
|
)
|
Interest
charge in respect of direct and indirect tax
|
(5
|
)
|
|
(5
|
)
|
Change
in financial liability (Level 3)
|
(1
|
)
|
|
(2
|
)
|
Other
finance charges
|
(1
|
)
|
|
(1
|
)
|
Total
other finance charges
|
(23
|
)
|
|
(28
|
)
|
Net
other finance charges
|
(6
|
)
|
|
(8
|
)
|
Included
in interest charges was interest in respect of leases of £7
million for the six months ended 31 December 2019 (2018 - £4
million), including interest expense of £4 million as a result
of the adoption of IFRS 16.
(a) Hyperinflation adjustment in respect of Venezuela
Venezuela
is a hyper-inflationary economy where the government maintains a
regime of strict currency controls with multiple foreign currency
rate systems. Access to US dollars on these exchange systems is
very limited. The foreign currency denominated transactions and
balances of the group’s Venezuelan operations are translated
into the local functional currency (VES) at the rate they are
expected to be settled, applying the most appropriate official
exchange rate. For consolidation purposes, the group converts its
Venezuelan operations using management’s estimate of the
exchange rate considering the inflation forecast and the most
appropriate official exchange rate (DICOM). The exchange rate used
to translate the results of the group’s Venezuelan operations
was VES/£ 2,525,956 for the six months ended 31 December 2019
(2018 - VES/£ 10,466).
The
following table presents the contribution of the group’s
Venezuelan operations to the consolidated income statement, cash
flow statement and net assets for the six months ended 31 December
2019 and 31 December 2018 and the impact that would have resulted
if the DICOM exchange rate had been applied for
consolidation.
|
6 months to 31 December 2019
|
|
6 months to 31 December 2018
|
|
At
estimated exchange rate
|
At
DICOM exchange rate
|
|
At
estimated
exchange
rate
|
At
DICOM
exchange
rate
|
|
2,525,956 VES/£
|
61,213 VES/£
|
|
10,466
VES/£
|
809
VES/£
|
|
£
million
|
£
million
|
|
£
million
|
£
million
|
Net
sales
|
—
|
|
4
|
|
|
—
|
|
1
|
|
Operating
profit
|
—
|
|
11
|
|
|
—
|
|
—
|
|
Other
finance income - hyperinflation adjustment
|
3
|
|
132
|
|
|
6
|
|
72
|
|
Net
cash inflow from operating activities
|
—
|
|
7
|
|
|
—
|
|
1
|
|
Net
assets
|
48
|
|
2,000
|
|
|
65
|
|
843
|
|
5. Taxation
For the six months ended 31 December 2019, the
£530 million taxation charge (2018 -£560 million) comprises a UK tax charge of £133 million (2018 - £134 million) and a
foreign tax charge of £397 million (2018 - £426
million).
6. Intangible assets
In the
six months ended 31 December 2019, an impairment charge of £59
million in respect of the Old Tavern brand in India has been
recognised in other operating expenses. Forecast cash flow
assumptions were reduced principally due to the general economic
downturn in India. A pre-tax discount rate of 13% (2019 - 14%) for
India has been used to calculate the net present value of the
future cash flows expected to be generated by Old Tavern
brand.
Sensitivity to change in key assumptions
Impairment
testing for the six months ended 31 December 2019 identified
cash-generating units (CGUs) as being sensitive to reasonably
possible changes in assumptions.
The
table below shows the headroom at 31 December 2019 and the
impairment charge that would be required if the assumptions in the
calculation of their value in use were changed:
|
Carrying value of CGU £ million
|
Headroom £ million
|
1ppt increase indiscount rate £ million
|
2ppt decrease in annual growth rate£ million
|
5ppt decrease in annual growth rateforecast period 2020-2029 £
million
|
India(i)
|
4,501
|
|
592
|
|
(59
|
)
|
—
|
|
(978
|
)
|
Antiquity
brand(ii)
|
198
|
|
36
|
|
—
|
|
—
|
|
(19
|
)
|
Windsor
Premier brand(iii)
|
607
|
|
6
|
|
(75
|
)
|
(167
|
)
|
—
|
|
(i)
As India is a
developing market, where maturity is not expected for a number of
years, a management forecast growth projection was used until 2029.
Reasonably possible changes in the key assumptions that would
result in an impairment of the cash-generating unit is considered
to be 5ppt decrease in the annual growth rates throughout the
forecast period or a 1ppt increase in discount rate. The cumulative
effect of such a change is disclosed in the table
above.
(ii)
Antiquity brand is
disclosed as sensitive as forecast cash flow assumptions were
reduced principally due to the general economic downturn in India.
The only change in the key assumptions considered reasonably
possible that would result in an impairment of the brand would be a
5ppt decrease in the annual growth rates throughout the forecast
period. The cumulative effect of such a change is disclosed in the
table above.
(iii)
The Windsor Premier
brand is disclosed as sensitive due to the challenging whisky
market in Korea. Reasonably possible changes in the key assumptions
that would result in an impairment of the brand would be a 2ppt
decrease in the annual growth rate in perpetuity or a 1ppt increase
in discount rate. The cumulative effect of such changes is
disclosed in the table above.
It
remains possible that changes in assumptions could arise other than
those indicated in the table above.
For all
intangibles with an indefinite life, other than those disclosed in
the table above, management has concluded that no reasonable
possible change in the key assumptions on which it has determined
the recoverable amounts would cause their carrying values to
materially exceed their recoverable amounts.
7. Inventories
|
31 December 2019
|
|
30
June 2019
|
|
31
December 2018
|
|
£
million
|
|
£
million
|
|
£
million
|
|
|
|
|
|
|
Raw
materials and consumables
|
322
|
|
|
338
|
|
|
327
|
|
Work in
progress
|
59
|
|
|
46
|
|
|
51
|
|
Maturing
inventories
|
4,358
|
|
|
4,334
|
|
|
4,201
|
|
Finished goods and
goods for resale
|
720
|
|
|
754
|
|
|
697
|
|
|
5,459
|
|
|
5,472
|
|
|
5,276
|
|
8. Net borrowings
|
31 December 2019
|
|
30 June 2019
|
|
31 December 2018
|
|
£ million
|
|
£
million
|
|
£
million
|
|
|
|
|
|
|
Borrowings
due within one year and bank overdrafts
|
(3,381
|
)
|
|
(1,959
|
)
|
|
(1,742
|
)
|
Borrowings
due after one year
|
(10,091
|
)
|
|
(10,596
|
)
|
|
(10,272
|
)
|
Fair
value of foreign currency forwards and swaps
|
39
|
|
|
370
|
|
|
195
|
|
Fair
value of interest rate hedging instruments
|
89
|
|
|
104
|
|
|
20
|
|
Lease liabilities
|
(486
|
)
|
|
(128
|
)
|
|
(144
|
)
|
|
(13,830
|
)
|
|
(12,209
|
)
|
|
(11,943
|
)
|
Cash
and cash equivalents
|
950
|
|
|
932
|
|
|
1,591
|
|
|
(12,880
|
)
|
|
(11,277
|
)
|
|
(10,352
|
)
|
Lease
liabilities at 31 December 2019 include £376 million in
respect of leases that would have been accounted for as operating
leases prior to the adoption of IFRS 16. Comparative information
has not been restated.
9. Reconciliation of movement in net borrowings
|
Six months ended 31 December 2019
|
|
Six months ended 31 December 2018
|
|
£ million
|
|
£
million
|
|
|
|
|
Net increase in cash and cash equivalents before
exchange
|
130
|
|
|
692
|
|
Net
increase in bonds and other borrowings(i)
|
(1,503
|
)
|
|
(1,974
|
)
|
Net increase in net borrowings from cash flows
|
(1,373
|
)
|
|
(1,282
|
)
|
Exchange
differences on net borrowings
|
209
|
|
|
(32
|
)
|
Other
non-cash items(ii)
|
(188
|
)
|
|
53
|
|
Net borrowings at beginning of the period
|
(11,277
|
)
|
|
(9,091
|
)
|
Adoption of IFRS 16
|
(251
|
)
|
|
—
|
|
Net borrowings at end of the period
|
(12,880
|
)
|
|
(10,352
|
)
|
(i)
In the six months
ended 31 December 2019, net increase in bonds and other borrowings
excludes £5 million cash outflow in respect of derivatives
designated in forward point hedges (2018 - nil).
(ii)
In the six months
ended 31 December 2019 other non-cash items are principally in
respect of leases of £169 million entered into in the period.
In the six months ended 31 December 2018 other non-cash items are
principally in respect of changes in the fair value of
borrowings.
In the
six months ended 31 December 2019, the group issued bonds of $1,600
million (£1,289 million) and in the comparable period the
group issued bonds of €2,000 million (£1,754
million).
All
bonds and commercial papers issued by Diageo plc's 100% owned
subsidiaries are fully and unconditionally guaranteed by Diageo
plc.
10. Financial instruments
Fair
value measurements of financial instruments are presented through
the use of a three-level fair value hierarchy that prioritises the
valuation techniques used in fair value calculations.
The
group maintains policies and procedures to value instruments using
the most relevant data available. If multiple inputs that fall into
different levels of the hierarchy are used in the valuation of an
instrument, the instrument is categorised on the basis of the most
subjective input.
Foreign
currency forwards and swaps, cross currency swaps and interest rate
swaps are valued using discounted cash flow techniques. These
techniques incorporate inputs at levels 1 and 2, such as foreign
exchange rates and interest rates. These market inputs are used in
the discounted cash flow calculation incorporating the
instrument’s term, notional amount and discount rate, and
taking credit risk into account. As significant inputs to the
valuation are observable in active markets, these instruments are
categorised as level 2 in the hierarchy.
Other
financial liabilities include a put option, which does not have an
expiry date, held by Industrias Licoreras de Guatemala (ILG) to
sell the remaining 50% equity stake in Rum Creations & Products
Inc., the owner of the Zacapa rum brand, to Diageo. The liability
is fair valued and as at 31 December 2019 £165 million (30
June 2019 - £174 million) is recognised as a liability with
changes in fair value included in retained earnings. As the
valuation of this option uses assumptions not observable in the
market, it is categorised as level 3 in the hierarchy. As at 31
December 2019 because it is unknown when or if ILG will exercise
the option the liability is measured as if the exercise date is on
the last day of the current financial year considering forecast
future performance.
The
option is sensitive to reasonably possible changes in assumptions.
If the option were to be exercised as at 30 June 2021, the fair
value of the liability would increase by approximately £15
million.
There
were no significant changes in the measurement and valuation
techniques, or significant transfers between the levels of the
financial assets and liabilities in the six month ended 31 December
2019.
The
group’s financial assets and liabilities measured at fair
value are categorised as follows:
|
31 December 2019
|
|
30
June 2019
|
|
31
December 2018
|
|
|
|
|
|
(restated(i))
|
|
£
million
|
|
£
million
|
|
£
million
|
Derivative
assets
|
379
|
|
|
531
|
|
|
293
|
|
Derivative
liabilities
|
(228
|
)
|
|
(129
|
)
|
|
(145
|
)
|
Valuation
techniques based on observable market input (Level 2)
|
151
|
|
|
402
|
|
|
148
|
|
Financial
assets - other
|
96
|
|
|
86
|
|
|
91
|
|
Financial
liabilities - other
|
(386
|
)
|
|
(401
|
)
|
|
(377
|
)
|
Valuation
techniques based on unobservable market input (Level
3)
|
(290
|
)
|
|
(315
|
)
|
|
(286
|
)
|
(i)
Restated to include
contingent consideration of £206 million recognised on
acquisitions of businesses in financial liabilities -
other.
Lease
liabilities were £486 million at 31 December 2019 (30 June
2019 – £128 million prior to the adoption of IFRS
16).
The
carrying amount of the group’s financial assets and
liabilities are generally the same as their fair value apart from
borrowings. At 31 December 2019 the fair value of gross borrowings
(excluding finance lease liabilities and the fair value of
derivative instruments) was £14,288 million and the carrying
value was £13,472 million (30 June 2019 – £13,240
million and £12,555 million, respectively).
11. Dividends and other reserves
|
Six months ended 31 December 2019
|
|
Six months ended 31 December 2018
|
|
£ million
|
|
£
million
|
Amounts recognised as distributions to equity shareholders in the
period
|
|
|
|
Final dividend for the year ended 30 June 2019 of 42.47 pence per
share (2018 - 40.40 pence)
|
1,006
|
|
|
993
|
|
An
interim dividend of 27.41 pence per share (2018 - 26.10 pence) was
approved by the Board of Directors on 29 January 2020. As the
approval was after the balance sheet date, it has not been included
as a liability.
Other
reserves of £1,930 million at 31 December 2019 (2018 –
£2,341 million) include a capital redemption reserve of
£3,200 million (2018 – £3,176 million), a hedging
reserve of £41 million surplus (2018 – £83 million
deficit) and an exchange reserve of £1,311 million deficit
(2018 – £752 million deficit).
12. Acquisition of businesses and purchase of non-controlling
interests
(i)
Acquisition of businesses
In the
six months ended 31 December 2019 Diageo completed a number of
small acquisitions. The largest of which were Seedlip Ltd and Anna
Seed 83 Ltd (the brand owner of Aecorn), makers of distilled
non-alcoholic spirits and aperitifs. Both acquisitions were
completed on 6 August 2019.
Provisional
fair value of assets and liabilities acquired and cash
consideration paid in respect of acquisition of businesses in the
six months ended 31 December 2019 were as follows:
|
£ million
|
Brands
|
102
|
|
Working capital
|
(1
|
)
|
Cash
|
2
|
|
Deferred tax liability
|
(19
|
)
|
Fair value of assets and liabilities
|
84
|
|
Goodwill arising on acquisition
|
8
|
|
Step acquisition
|
(23
|
)
|
Consideration payable
|
69
|
|
Satisfied by:
|
|
Cash consideration paid
|
27
|
|
Contingent consideration payable
|
42
|
|
|
69
|
|
|
|
Cash consideration paid for subsidiaries
|
(27
|
)
|
Cash consideration paid for investments in associates
|
(4
|
)
|
Cash acquired
|
2
|
|
Capital injection to associates
|
(23
|
)
|
Cash consideration paid in respect of prior year
acquisitions
|
(54
|
)
|
Net cash outflow on acquisition of business
|
(106
|
)
|
The
contingent consideration payable represents the present value of
payments up to £60 million linked to certain performance
targets and are expected to be paid over the next 6
years.
(ii)
Purchase of shares of non-controlling interests
On 29
July 2019 East African Breweries Limited completed a purchase of 4%
of the share capital of Serengeti Breweries Limited for $3 million
(£2 million). This increased Diageo’s effective
shareholding from 39.2% to 40.2%.
On 20
August 2019 Diageo acquired 3,310,515 shares of United Spirits
Limited (USL) for INR1,960 million (£23 million) which
increased Diageo’s percentage of shares owned in USL from
54.78% to 55.24% (excluding 2.38% owned by the USL Benefit
Trust).
13. Sale of businesses
In the
six months ended 31 December 2018 Diageo completed the sale of a
portfolio of 19 brands to Sazerac for an aggregate consideration of
$550 million (£435 million).
14. Adoption of IFRS 16 Leases
The
group adopted IFRS 16 with effect from 1 July 2019 by applying the
modified retrospective method, meaning that the figures, as at, and
for the six months ended 31 December 2018 and the year ended 30
June 2019 have not been restated. Under the new standard,
outstanding lease liabilities have been recognised at 1 July 2019,
for leases previously classified as operating leases, at the
present value of the future lease payments over their reasonably
certain lease term. Right-of-use assets have been recognised equal
to the net present value of the lease liabilities, adjusted for the
amount of any prepaid or accrued lease payment, lease incentives
and provisions for onerous leases. There was no impact on retained
earnings as at 1 July 2019. The interest rate used to discount the
future payments in the calculation of the lease liability is the
incremental borrowing rate at 1 July 2019 taking into account the
currency and duration of the lease. The weighted average
incremental borrowing rate applied across all operating leases
capitalised on 1 July 2019 was 3.2%.
The
group has decided to reduce the complexity of implementation by
taking advantage of a number of practical expedients on transition
on 1 July 2019 namely:
(i)
to not capitalise
leases which expire within a year of 1 July 2019;
(ii)
to apply a single
discount rate to portfolios of leases with similar characteristics;
and
(iii)
to adjust the
right-of-use asset by the amount of any provision for onerous
leases recognised immediately before the date of initial
application.
The
group has not capitalised leases on transition where the value of
the asset when it is new is lower than $5,000 (low value
assets).
The
group has recognised services associated with a lease as other
operating expenses. Payments associated with leases of low value
assets and leases with a lease term of twelve months or less are
recognised as other operating expenses.
A
judgement in calculating the initial impact on adoption includes
determining the lease term where extension or termination options
exist. In such instances any economic incentive to retain or end a
lease have been considered and extension periods only included when
it is considered reasonably certain that an option to extend a
lease will be exercised.
The
leases (previously classified as operating leases) which have been
recorded on the balance sheet following implementation of IFRS 16
are principally in respect of warehouses, office buildings, plant
and machinery, cars and distribution vehicles.
A
reconciliation of differences between the operating lease
commitments disclosed under IAS 17 and disclosed in note 19(b) of
Diageo’s 2019 Annual Report and the lease liabilities under
IFRS 16, at 1 July 2019, is as follows:
|
£ million
|
Operating lease commitments at 30 June 2019
|
(321
|
)
|
Leases expiring within a year of 1 July 2019
|
19
|
|
Low value assets
|
11
|
|
Impact of discounting
|
40
|
|
Total additional lease liabilities recognised on adoption of IFRS
16
|
(251
|
)
|
Finance lease liabilities at 30 June 2019
|
(128
|
)
|
Total lease liabilities at 1 July 2019
|
(379
|
)
|
Total lease liabilities at 1 July 2019 - current
|
(107
|
)
|
Total lease liabilities at 1 July 2019 - non-current
|
(272
|
)
|
The
impact of the adoption of IFRS 16 on affected lines of the
consolidated balance sheet at 1 July 2019 is as
follows:
|
30 June 2019
|
|
IFRS 16 impact
|
|
1 July 2019
|
|
£ million
|
|
£ million
|
|
£ million
|
Non-current assets
|
|
|
|
|
|
Property, plant and equipment
|
4,455
|
|
|
236
|
|
|
4,691
|
|
Other financial assets
|
404
|
|
|
1
|
|
|
405
|
|
Current assets
|
|
|
|
|
|
Trade and other receivables
|
2,694
|
|
|
(2
|
)
|
|
2,692
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Other financial liabilities
|
(307
|
)
|
|
(64
|
)
|
|
(371
|
)
|
Trade and other payables
|
(4,202
|
)
|
|
13
|
|
|
(4,189
|
)
|
Non-current liabilities
|
|
|
|
|
|
Other
financial liabilities
|
(124
|
)
|
|
(187
|
)
|
|
(311
|
)
|
Provisions
|
(317
|
)
|
|
3
|
|
|
(314
|
)
|
As a
result of the adoption of IFRS 16 the total assets increased by
£235 million from £31,296 million to £31,531 million
and the total liabilities increased by £235 million from
£21,140 million to £21,375 million on 1 July
2019.
There
is no impact on deferred tax balances. With effect from 1 July
2019, the consolidated income statement includes the depreciation
of the right-of-use asset in operating profit and the unwind of the
discount on the lease liability in finance charges. Under IAS 17 in
the six months ended 31 December 2018 the operating lease payments
were included in operating profit in the income statement. For the
six months ended 31 December 2019 depreciation of right-of-use
assets was £39 million and the finance charge in respect of
the group’s lease liabilities was £7
million.
The
adoption of IFRS 16 resulted in an immaterial benefit to operating
profit and an immaterial increase in finance charges. Profit before
tax, taxation and earnings per share have not been significantly
impacted. The adoption of IFRS 16 has had no impact on the
group’s net cash flows although a presentation change has
been reflected whereby the principal element of the lease payments
(for leases formerly classified as operating leases under IAS 17)
of £32 million in the six months ended 31 December 2019, are
disclosed as part of cash flow from financing activities and the
interest element is included in cash flow from operating
activities. Under IAS 17 both the principal and interest cash flows
from operating leases would have been disclosed as part of cash
flows from operating activities.
15. Contingent liabilities and legal proceedings
(a) Guarantees and related matters
As of
31 December 2019, the group has no material unprovided
guarantees or indemnities in respect of liabilities of third
parties.
(b) Acquisition of USL shares from UBHL, winding-up petitions
against UBHL and other proceedings in relation to the USL
transaction
On
4 July 2013, Diageo completed its acquisition, under a
share purchase agreement with United Breweries (Holdings) Limited
(UBHL) and various other sellers (the SPA), of 21,767,749 shares
(14.98%) in United Spirits Limited (USL) for a total consideration
of INR 31.3 billion (£349 million), including 10,141,437
shares (6.98%) from UBHL. The SPA was signed on
9 November 2012 and was part of the transaction announced
by Diageo in relation to USL on that day (the Original USL
Transaction). Following a series of further transactions, as of
31 December 2019, Diageo has a 55.24% investment in USL
(excluding 2.38% owned by the USL Benefit Trust).
Prior
to the acquisition from UBHL on 4 July 2013, the High
Court of Karnataka (High Court) had granted leave to UBHL under
sections 536 and 537 of the Indian Companies Act 1956 (the Leave
Order) to enable the sale by UBHL to Diageo to take place (the UBHL
Share Sale) notwithstanding the continued existence of five
winding-up petitions that were pending against UBHL on
9 November 2012, being the date of the SPA. Additional
winding-up petitions have been brought against UBHL since
9 November 2012, and the Leave Order did not extend to
them. At the time of the completion of the UBHL Share Sale, the
Leave Order remained subject to review on appeal. However, as
stated by Diageo at the time of closing on 4 July 2013,
it was considered unlikely that any appeal process in respect of
the Leave Order would definitively conclude on a timely basis and,
accordingly, Diageo waived the conditionality under the SPA
relating to the absence of insolvency proceedings in relation to
UBHL and acquired the 10,141,437 USL shares from UBHL at that
time.
Following closing
of the UBHL Share Sale, appeals were filed by various petitioners
in respect of the Leave Order. On 20 December 2013, the
division bench of the High Court set aside the Leave Order (the
December 2013 Order). Following the December 2013 Order, Diageo
filed special leave petitions (SLPs) in the Supreme Court of India
against the December 2013 Order.
On
10 February 2014, the Supreme Court of India issued an
order giving notice in respect of the SLPs and ordering that the
status quo be maintained with regard to the UBHL Share Sale pending
a hearing on the matter in the Supreme Court. Following a number of
adjournments, the next date for a substantive hearing of the SLPs
(in respect of which leave has since been granted and which have
been converted to civil appeals) is yet to be fixed.
In
separate proceedings, the High Court passed a winding-up order
against UBHL on 7 February 2017. On
4 March 2017, UBHL appealed against this order before a
division bench of the High Court. This appeal is currently pending.
On 10 January 2020, the Supreme Court directed the High Court to
decide the UBHL appeal within three months.
Diageo
continues to believe that the acquisition price of INR 1,440 per
share paid to UBHL for the USL shares is fair and reasonable as
regards UBHL, UBHL’s shareholders and UBHL’s secured
and unsecured creditors. However, adverse results for Diageo in the
proceedings referred to above could, absent leave or relief in
other proceedings, ultimately result in Diageo losing title to the
10,141,437 USL shares acquired from UBHL. Diageo believes it would
remain in control of USL and be able to consolidate USL as a
subsidiary regardless of the outcome of this litigation. There can
be no certainty as to the outcome of the existing or any further
related legal proceedings or the timeframe within which they would
be concluded.
Diageo
also has the benefit of certain contractual undertakings and
commitments from the relevant sellers in relation to potential
challenges to its unencumbered title to the USL shares acquired on
4 July 2013, including relating to the winding-up
petitions described above and/or certain losses and costs that may
be incurred in the event of third party actions relating to the
acquisition of the USL shares.
(c) Continuing matters relating to the resignation of Dr Vijay
Mallya from USL and USL internal inquiries
On
25 February 2016, Diageo and USL each announced that they
had entered into arrangements with Dr Mallya under which he had
agreed to resign from his position as a director and as chairman of
USL and from his positions in USL’s subsidiaries. As
specified by Diageo in its announcement at that time, these
arrangements ended its prior agreement with Dr Mallya regarding his
position at USL, therefore bringing to an end the uncertainty
relating to the governance of USL, and put in place a five-year
global non-compete (excluding the United Kingdom),
non-interference, non-solicitation and standstill arrangement with
Dr Mallya. As part of those arrangements, USL, Diageo and Dr Mallya
agreed a mutual release in relation to matters arising out of an
inquiry into certain matters referred to in USL’s financial
statements and the qualified auditor’s report for the year
ended 31 March 2014 (the Initial Inquiry) which had
revealed, among other things, certain diversions of USL funds. Dr
Mallya also agreed not to pursue any claims against Diageo, USL and
their affiliates (including under the prior agreement with Diageo).
In evaluating entering into such arrangements, Diageo considered
the impact of the arrangements on USL and all of USL’s
shareholders, and came to the view that the arrangements were in
the best interests of USL and its shareholders.
Diageo’s
agreement with Dr Mallya (the February 2016 Agreement) provided for
a payment of $75 million (£53 million) to Dr Mallya over a
five year period in consideration for the five-year global
non-compete, non-interference, non-solicitation and standstill
commitments referred to above, his resignation from USL and the
termination of his USL-related appointment and governance rights,
the relinquishing of rights and benefits attached to his position
at USL, and his agreement not to pursue claims against Diageo and
USL. The February 2016 Agreement also provided for the release of
Dr Mallya’s personal obligations to indemnify (i) Diageo
Holdings Netherlands B.V. (DHN) in respect of its earlier liability
($141 million (£96 million)) under a backstop guarantee of
certain borrowings of Watson Limited (Watson) (a company affiliated
with Dr Mallya), and (ii) Diageo Finance plc in respect of its
earlier liability (£30 million) under a guarantee of certain
borrowings of United Breweries Overseas Limited, a subsidiary of
UBHL. $40 million (£28 million) of the $75 million (£53
million) amount was paid on signing of the February 2016 Agreement
with the balance being payable in equal instalments of $7 million
(£5 million) a year over five years, subject to and
conditional on Dr Mallya’s compliance with certain terms of
the agreement.
While
the first three instalments of $7 million (£5 million) each
would have become due on 25 February 2017,
25 February 2018 and 25 February 2019,
respectively, owing to various reasons (including breaches
committed by Dr Mallya and certain persons connected with him of
several provisions of the February 2016 Agreement and agreements of
the same date between Dr Mallya and USL), Diageo believes that it
was not liable to pay such amounts and did not do so. Diageo
further believes that it is very unlikely to become liable to pay
any future instalments, to Dr Mallya. By notice to Dr Mallya and
certain persons connected with him on 24 February 2017,
3 November 2017, 23 February 2018,
22 August 2018 and 22 February 2019, Diageo and
other group companies have demanded from Dr Mallya the repayment of
$40 million (£28 million) which was paid by Diageo on
25 February 2016, and also sought compensation from him
for various losses incurred by the relevant members of the Diageo
group on account of the breaches committed by him and certain
persons connected with him. On 16 November 2017, Diageo
and other relevant members of the Diageo group commenced claims in
the High Court of Justice in England and Wales (the English High
Court) against Dr Mallya in relation to certain of the matters
specified in those notices. At the same time DHN also commenced
claims in the English High Court against Dr Mallya, his son
Sidhartha Mallya, Watson (a company affiliated with Dr Mallya)
Continental Administration Services Limited (CASL) (a company which
holds assets on trust for and is affiliated with Dr Mallya) for in
excess of $142 million (£105 million) (plus interest) in
relation to Watson’s liability to DHN in respect of its
borrowings referred to above and the breach of associated security
documents. These additional claims are described in paragraph (d)
below.
Dr
Mallya, Sidhartha Mallya and the relevant affiliated companies
filed a defence to such claims and the additional claims on
12 March 2018, and Dr Mallya also filed a counterclaim
for payment of the two $7 million (£5 million) instalment
payments withheld by Diageo as described above. Diageo and the
other relevant members of its group filed a reply to that defence
and a defence to the counter-claim on
5 September 2018.
Diageo
continues to prosecute its claims and to defend the counterclaim.
As part of this, on 18 December 2018, Diageo and the
other relevant members of its group filed an application for strike
out and/or summary judgement in respect of certain aspects of the
defence filed by Dr Mallya and the other defendants, including
their defence in relation to Watson and CASL’s liability to
repay DHN. That application was made by DHN on the basis that the
defence filed by Dr Mallya and his co-defendants in relation to
those matters had no real prospect of success.
DHN’s summary
judgement and strike out application was heard by the English High
Court on 24 May 2019. The court decided in favour of DHN
that (i) Watson is liable to pay, and has no defence against
paying, $135 million (£102 million ) plus interest of $11
million (£8 million) to DHN, and (ii) CASL is liable, as
co-surety, to pay, and has no defence against paying, 50% of any
such amount unpaid by Watson, i.e. up to $67.5 million (£51
million) plus interest of $5.5 million (£4 million) to DHN.
Watson and CASL were ordered to pay such sums, as well as certain
amounts in respect of DHN and Diageo’s costs, to DHN by
21 June 2019. Such amounts were not paid on that date by
either Watson or CASL. Accordingly, Diageo and DHN have sought
asset disclosure and are considering further enforcement steps
against those companies, both in the United Kingdom and in other
jurisdictions where they are present or hold assets.
The
remaining elements of the claims originally commenced on
16 November 2017 by Diageo and the relevant members of
its group are now proceeding to trial and following a case
management conference on 6 December 2019, that trial is scheduled
to take place from 11 October 2021 through 21 October
2021.
As
previously announced by USL, the Initial Inquiry identified certain
additional parties and matters indicating the possible existence of
other improper transactions. These transactions could not be fully
analysed during the Initial Inquiry and, accordingly, USL, as
previously announced, mandated that its Managing Director and Chief
Executive Officer conduct a further inquiry into the transactions
involving the additional parties and the additional matters to
determine whether they also suffered from improprieties (the
Additional Inquiry). USL announced the results of the Additional
Inquiry in a notice to the Indian Stock Exchange dated
9 July 2016. The mutual release in relation to the
Initial Inquiry agreed by Diageo and USL with Dr Mallya announced
on 25 February 2016 does not extend to matters arising
out of the Additional Inquiry.
As
stated in USL’s previous announcement, the Additional Inquiry
revealed further instances of actual or potential fund diversions
from USL and its Indian and overseas subsidiaries to, in most
cases, Indian and overseas entities in which Dr Mallya appears to
have a material direct or indirect interest, as well as other
potentially improper transactions involving USL and its Indian and
overseas subsidiaries.
In
connection with the matters identified by the Additional Inquiry,
USL has, pursuant to a detailed review of each case of such fund
diversion and after obtaining expert legal advice, where
appropriate, filed civil suits for recovery of funds from certain
parties, including Dr Mallya, before the relevant courts in
India.
The
amounts identified in the Additional Inquiry have been previously
provided for or expensed in the financial statements of USL or its
subsidiaries for prior periods. Further, at this stage, it is not
possible for the management of USL to estimate the financial impact
on USL, if any, arising out of potential non-compliance with
applicable laws in relation to such fund diversions.
(d) Other continuing matters relating to Dr Mallya and
affiliates
DHN
issued a conditional backstop guarantee on 2 August 2013
to Standard Chartered Bank (Standard Chartered) pursuant to a
guarantee commitment agreement (the Guarantee Agreement). The
guarantee was in respect of the liabilities of Watson, a company
affiliated with Dr Mallya, under a $135 million (£92 million)
facility from Standard Chartered (the Facility Agreement). The
Guarantee Agreement was entered into as part of the arrangements
put in place and announced at the closing of the USL transaction on
4 July 2013.
DHN’s
provision of the Guarantee Agreement enabled the refinancing of
certain existing borrowings of Watson from a third party bank and
facilitated the release by that bank of rights over certain USL
shares that were to be acquired by Diageo as part of the USL
transaction. The facility matured and entered into default in May
2015. In aggregate DHN paid Standard Chartered $141 million
(£96 million) under this guarantee, i.e. including payments of
default interest and various fees and expenses.
Watson
remains liable for all amounts paid by DHN under the guarantee.
Under the guarantee documentation with Standard Chartered, DHN is
entitled to the benefit of the underlying security package for the
loan, including: (a) certain shares in United Breweries Limited
(UBL) held solely by Dr Mallya and certain other shares in UBL held
by Dr Mallya jointly with his son Sidhartha Mallya, and (b) the
shareholding in Watson.
Aspects
of the security package are the subject of various proceedings in
India in which third parties are alleging and asserting prior
rights to certain assets comprised in the security package or
otherwise seeking to restrain enforcement against certain assets by
Standard Chartered and/or DHN. These proceedings are ongoing and
DHN will continue to vigorously pursue these matters as part of its
efforts for enforcement of the underlying security and recovery of
outstanding amounts. Diageo believes that the existence of any
prior rights or dispute in relation to the security would be in
breach of representations and warranties given by Dr Mallya and
others to Standard Chartered at the time the security was granted
and further believes that certain actions taken by Dr Mallya in
relation to the proceedings described above also breached his
obligations to Standard Chartered. In addition to these third party
proceedings, Dr Mallya is also subject to proceedings in India
under the Prevention of Money Laundering Act and the Fugitive
Economic Offenders Act in which the relevant Indian authority, the
Directorate of Enforcement, is seeking confiscation of the UBL
shares which were provided as security for Watson’s
liabilities. DHN is participating in these proceedings in order to
protect its security interest in respect of the UBL
shares.
Under
the terms of the guarantee and as a matter of law, there are
arrangements to pass on to DHN the benefit of the security package
upon payment by DHN under the guarantee of all amounts owed to
Standard Chartered. Payment under the guarantee has now occurred as
described above. To the extent possible in the context of the
proceedings described above, DHN continues to work towards
enforcement of the security package, including, when appropriate,
in conjunction with Standard Chartered. DHN’s ability to
assume or enforce security over some elements of the security
package is also subject to regulatory consent. It is not at this
stage possible to determine whether such consent would be
forthcoming.
In
addition to the Indian proceedings just described, certain of the
assets comprised in the security package may also be affected by a
worldwide freezing order of the English High Court granted on
24 November 2017 and continued on
8 December 2017 and 8 May 2018 in respect of
the assets of Dr Mallya.
The
agreement with Dr Mallya referenced in paragraph (c) above does not
impact the security package. Watson remains liable for all amounts
paid pursuant to the guarantee and DHN has the benefit of a
counter-indemnity from Watson in respect of payments in connection
with the guarantee, as well as a claim against CASL as a co-surety
with DHN of Watson's obligations. The various security providers,
including Dr Mallya and Watson, acknowledged in the February 2016
Agreement referred to in paragraph (c) above that DHN is entitled
to the benefit of the security package underlying the Standard
Chartered facility and have also undertaken to take all necessary
actions in that regard. Further, Diageo believes that the existence
of any prior rights or disputes in relation to the security package
would be in breach of certain confirmations given to Diageo and DHN
pursuant to that agreement by Dr Mallya, Watson and certain
connected persons.
On
16 November 2017, DHN commenced various claims in the
English High Court for, in aggregate, in excess of $142 million
(£105 million) (plus interest) in relation to these matters,
including the following: (i) a claim against Watson for $141
million (£96 million) (plus interest) under Watson’s
counter-indemnity to DHN in respect of payments made by DHN to
Standard Chartered under the guarantee referred to above; (ii) a
claim against Dr Mallya and Sidhartha Mallya under various
agreements creating or relating to the security package referred to
above for (a) the costs incurred to date in the various Indian
proceedings referred to above (plus interest), and (b) damages of
$141 million (£96 million), being DHN’s loss as a result
of those Indian proceedings which currently prevent enforcement of
the security over shares in UBL (plus interest); and (iii) a claim
against CASL, as a co-surety with DHN of Watson’s obligations
under the Facility Agreement, for 50% of the difference between the
amount claimed under (i) above and the amount (if any) that DHN is
in fact able to recover from Watson, Dr Mallya and/or Sidhartha
Mallya.
As
noted in paragraph (c), Dr Mallya, Sidhartha Mallya and the
relevant affiliated companies filed a defence to these claims on
12 March 2018. Diageo and the other relevant members of
its group filed a reply to that defence on
5 September 2018.
DHN and
Diageo continue to prosecute these claims. As part of that, on
18 December 2018, Diageo and the other relevant members
of its group filed an application for strike out and/or summary
judgment in respect of certain aspects of the defence filed by Dr
Mallya, Sidhartha Mallya and the relevant affiliated companies,
including in respect of Watson and CASL’s liability to repay
DHN. The successful outcome of that application and the current
status of other aspects of the claims are described in paragraph
(c) above.
(e) Other matters in relation to USL
Following
USL’s earlier updates concerning the Initial Inquiry as well
as in relation to the arrangements with Dr Mallya that were the
subject of the 25 February 2016 announcement, USL and
Diageo have received various notices from Indian regulatory
authorities, including the Ministry of Corporate Affairs,
Enforcement Directorate and Securities and Exchange Board of India
(SEBI).
Diageo
and USL are co-operating fully with the authorities in relation to
these matters. Diageo and USL have also received notices from SEBI
requesting information in relation to, and explanation of the
reasons for, the arrangements with Dr Mallya that were the subject
of the 25 February 2016 announcement as well as, in the
case of USL, in relation to the Initial Inquiry and the Additional
Inquiry, and, in the case of Diageo, whether such arrangements with
Dr Mallya or the Watson backstop guarantee arrangements referred to
in paragraphs (c) and (d) above were part of agreements previously
made with Dr Mallya at the time of the Original USL Transaction
announced on 9 November 2012 and the open offer made as
part of the Original USL Transaction. Diageo and USL have complied
with such information requests and Diageo has confirmed that,
consistent with prior disclosures, the Watson backstop guarantee
arrangements and the matters described in the
25 February 2016 announcement were not the subject of any
earlier agreement with Dr Mallya. In respect of the Watson backstop
guarantee arrangements, SEBI issued a further notice to Diageo on
16 June 2016 that if there is any net liability incurred
by Diageo (after any recovery under relevant security or other
arrangements, which matters remain pending) on account of the
Watson backstop guarantee, such liability, if any, would be
considered to be part of the price paid for the acquisition of USL
shares under the SPA which formed part of the Original USL
Transaction and that, in that case, additional equivalent payments
would be required to be made to those shareholders (representing
0.04% of the shares in USL) who tendered in the open offer made as
part of the Original USL Transaction. Diageo is clear that the
Watson backstop guarantee arrangements were not part of the price
paid or agreed to be paid for any USL shares under the Original USL
Transaction and therefore believes the decision in the SEBI notice
to be misconceived and wrong in law and appealed against it before
the Securities Appellate Tribunal, Mumbai (SAT). On
1 November 2017, SAT issued an order in respect of
Diageo’s appeal in which, amongst other things, it observed
that the relevant officer at SEBI had neither considered
Diageo’s earlier reply nor provided Diageo with an
opportunity to be heard, and accordingly directed SEBI to pass a
fresh order after giving Diageo an opportunity to be heard.
Following SAT’s order, Diageo made its further submissions in
the matter, including at a personal hearing before a Deputy General
Manager of SEBI. On 26 June 2019, SEBI issued an order
reiterating the directions contained in its previous notice dated
16 June 2016. As with the previous notice, Diageo
believes SEBI's latest order to be misconceived and wrong in law
and has filed an appeal before SAT against the order. This appeal
is currently pending. Diageo is unable to assess if the notices or
enquiries referred to above will result in enforcement action or,
if this were to transpire, to quantify meaningfully the possible
range of loss, if any, to which any such action might give rise to
if determined against Diageo or USL.
In
relation to the matters described in the 25 February 2016
announcement, Diageo had also responded to a show cause notice
dated 12 May 2017 from SEBI arising out of the previous
correspondence in this regard and made its further submissions in
the matter, including at a personal hearing before a Whole Time
Member of SEBI. On 6 September 2018, SEBI issued an order
holding that Diageo had acquired sole control of USL following its
earlier open offers, and that no fresh open offer was triggered by
Diageo.
(f) USL’s dispute with IDBI Bank Limited
Prior
to the acquisition by Diageo of a controlling interest in USL, USL
had prepaid a term loan of £72 million (INR 6,280 million)
taken through IDBI Bank Limited (IDBI), an Indian bank, which was
secured on certain fixed assets and brands of USL, as well as by a
pledge of certain shares in USL held by the USL Benefit Trust (of
which USL is the sole beneficiary). The maturity date of the loan
was 31 March 2015. IDBI disputed the prepayment,
following which USL filed a writ petition in November 2013 before
the High Court of Karnataka (the High Court) challenging the
bank’s actions.
Following the
original maturity date of the loan, USL received notices from IDBI
seeking to recall the loan, demanding a further sum of £5
million (INR 459 million) on account of the outstanding principal,
accrued interest and other amounts, and also threatening to enforce
the security in the event that USL did not make these further
payments. Pursuant to an application filed by USL before the High
Court in the writ proceedings, the High Court directed that,
subject to USL depositing such further amount with the bank (which
amount was duly deposited by USL), the bank should hold the amount
in a suspense account and not deal with any of the secured assets
including the shares until disposal of the original writ petition
filed by USL before the High Court.
On
27 June 2019, a single judge bench of the High Court
issued an order dismissing the writ petition filed by USL, amongst
other things, on the basis that the matter involved an issue of
breach of contract by USL and was therefore not maintainable in
exercise of the court’s writ jurisdiction. USL has since
filed an appeal against this order before a division bench of the
High Court, which on 30 July 2019 has issued an interim
order directing the bank to not deal with any of the secured assets
until the next date of hearing. On 13 January 2020, the division
bench of the High Court admitted the writ appeal and extended the
interim stay. This appeal is currently pending.
(g) SEC Inquiry
Diageo
has received requests for information from the US Securities and
Exchange Commission (SEC) regarding its distribution in and public
disclosures regarding the United States and its distribution in
certain other Diageo markets as well as additional context about
the Diageo group globally. Diageo expects this matter to reach a
conclusion in fiscal 2020, and it believes the outcome will have an
immaterial effect on its financial results in the
period.
(h) Tax
The
international tax environment has seen increased scrutiny and rapid
change over recent years bringing with it greater uncertainty for
multinationals. Against this backdrop, Diageo has been monitoring
developments and continues to engage transparently with the tax
authorities in the countries where Diageo operates to ensure that
the group manages its arrangements on a sustainable
basis.
In
April 2019, the European Commission issued its decision in a state
aid investigation into the Group Financing Exemption in the UK
controlled foreign company rules. The European Commission found
that part of the Group Financing Exemption constitutes state aid.
The Group Financing Exemption was introduced in legislation by the
UK government in 2013. In common with other UK-based international
companies whose arrangements are in line with current UK CFC
legislation Diageo may be affected by the ultimate outcome of this
investigation. The UK government and other UK-based international
companies, including Diageo, have appealed to the General Court of
the European Union against the decision. The UK government is
required to commence collection proceedings and therefore it is
expected that Diageo will have to make a payment in the year ending
30 June 2020 in respect of this case. At present it is
not possible to determine the amount that the UK government will
seek to collect. If the decision of the European Commission is
upheld, Diageo calculates its maximum potential liability to be
approximately £275 million. Based on its current assessment,
Diageo believes that no provision is required in respect of this
issue.
The
group operates in a large number of markets with complex tax and
legislative regimes that are open to subjective interpretation. As
assessing an accurate value of contingent liabilities in these
markets requires a high level of judgement, contingent liabilities
are disclosed on the basis of the current known possible exposure
from tax assessment values.
Diageo
has reviewed its disclosures in relation to Brazil and India, where
Diageo has a large number of ongoing tax cases. While these cases
are not individually significant, the current assessment of the
aggregate possible exposures is up to approximately £350
million for Brazil and up to approximately £170 million for
India. The group believes that the likelihood that the tax
authorities will ultimately prevail is lower than probable but
higher than remote. Due to the fiscal environment in Brazil and in
India the possibility of further tax assessments related to the
same matters cannot be ruled out. Based on its current assessment,
Diageo believes that no provision is required in respect of these
issues.
In addition
to the risks highlighted above, payments were made under protest in
India in respect of the periods 1 July 2009 to
30 June 2015 in relation to tax assessments where the
risk is considered to be remote. These payments have to be made in
order to challenge the assessments and as such have been recognised
as a receivable on the consolidated balance sheet. The total amount
of protest payments recognised as a receivable as at
31 December 2019 is £101 million (corporate tax
payments of £91 million and indirect tax payments of £10
million).
(i) Other
The
group has extensive international operations and is a defendant in
a number of legal, customs and tax proceedings incidental to these
operations, the outcome of which cannot at present be foreseen. In
particular, the group is currently a defendant in various customs
proceedings that challenge the declared customs value of products
imported by certain Diageo companies. Diageo continues to defend
its position vigorously in these proceedings.
Save as
disclosed above, neither Diageo, nor any member of the Diageo
group, is or has been engaged in, nor (so far as Diageo is aware)
is there pending or threatened by or against it, any legal or
arbitration proceedings which may have a significant effect on the
financial position of the Diageo group.
16. Related party transactions
The
group’s significant related parties are its associates, joint
ventures, key management personnel and pension plans. There have
been no transactions with these related parties during the six
months ended 31 December 2019 on terms other than those that
prevail in arm’s length transactions.
INDEPENDENT REVIEW REPORT TO DIAGEO PLC
Report on the condensed set of financial statements
Our conclusion
We have
reviewed Diageo plc's condensed set of financial statements (the
"interim financial statements") in the interim results of Diageo
plc for the six month period ended 31 December 2019. Based on our
review, nothing has come to our attention that causes us to believe
that the interim financial statements are not prepared, in all
material respects, in accordance with International Accounting
Standard 34, ‘Interim Financial Reporting’, as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom’s Financial Conduct
Authority.
What we have reviewed
The
interim financial statements comprise:
●
the condensed
consolidated balance sheet as at 31 December 2019;
●
the condensed
consolidated income statement and condensed consolidated statement
of comprehensive income for the period then ended;
●
the condensed
consolidated statement of cash flows for the period then
ended;
●
the condensed
consolidated statement of changes in equity for the period then
ended; and
●
the explanatory
notes to the interim financial statements.
The
interim financial statements included in the interim results have
been prepared in accordance with International Accounting Standard
34, ‘Interim Financial Reporting’, as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom’s Financial Conduct
Authority.
As
disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as issued by the International Accounting Standards Board
(IASB) and as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The
interim results, including the interim financial statements, is the
responsibility of, and has been approved by, the directors. The
directors are responsible for preparing the interim results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom’s Financial Conduct
Authority.
Our
responsibility is to express a conclusion on the interim financial
statements in the interim results based on our review. This report,
including the conclusion, has been prepared for and only for the
company for the purpose of complying with the Disclosure Guidance
and Transparency Rules sourcebook of the United Kingdom’s
Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our
prior consent in writing.
What a review of interim financial statements involves
We
conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410, ‘Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity’ issued by the Auditing Practices Board for use in the
United Kingdom. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures.
A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit
opinion.
We have
read the other information contained in the interim results and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim
financial statements.
PricewaterhouseCoopers
LLP
Chartered
Accountants
London
29
January 2020
a)
The maintenance and
integrity of the Diageo plc website is the responsibility of the
directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to
the interim financial statements since they were initially
presented on the website.
b)
Legislation in the
United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
ADDITIONAL INFORMATION FOR SHAREHOLDERS
EXPLANATORY NOTES
Comparisons
are to the six months ended 31 December 2018 (2018) unless
otherwise stated. Unless otherwise stated, percentage movements
given throughout this announcement for volume, sales, net sales,
marketing spend, operating profit and operating margin are organic
movements after retranslating current period reported numbers at
prior period exchange rates and after adjusting for the effect of
operating exceptional items and acquisitions and
disposals.
This
announcement contains forward-looking statements that involve risk
and uncertainty. 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 beyond Diageo’s control. Please refer to Explanatory
Notes, Risk factors – ‘Cautionary statement concerning
forward-looking statements’ for more details.
This
announcement 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.
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 and forecast organic operating profit increases to the most
comparable GAAP measures 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 non-GAAP measure 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 ‘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.
(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 impairments of 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, 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.
Organic
movement calculations for the six months ended 31 December 2019
were as follows:
|
|
North Americamillion
|
|
Europeand Turkey million
|
|
Africamillion
|
|
Latin Americaand Caribbean million
|
|
AsiaPacific million
|
|
Corporatemillion
|
|
Totalmillion
|
Volume (equivalent units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 reported
|
|
25.6
|
|
|
25.7
|
|
|
17.6
|
|
|
12.4
|
|
|
49.2
|
|
|
—
|
|
|
130.5
|
|
Disposals(iii)
|
|
(1.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.6
|
)
|
2018 adjusted
|
|
24.3
|
|
|
25.7
|
|
|
17.3
|
|
|
12.4
|
|
|
49.2
|
|
|
—
|
|
|
128.9
|
|
Organic movement
|
|
0.7
|
|
|
(0.3
|
)
|
|
0.3
|
|
|
(0.1
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
0.2
|
|
Disposals(iii)
|
|
1.1
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
2019 reported
|
|
26.1
|
|
|
25.4
|
|
|
17.9
|
|
|
12.3
|
|
|
48.8
|
|
|
—
|
|
|
130.5
|
|
Organic movement %
|
|
3
|
|
|
(1
|
)
|
|
2
|
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America£ million
|
|
Europeand Turkey £ million
|
|
Africa£ million
|
|
Latin Americaand Caribbean £ million
|
|
AsiaPacific £ million
|
|
Corporate£ million
|
|
Total£ million
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 reported
|
|
2,667
|
|
|
2,879
|
|
|
1,160
|
|
|
864
|
|
|
2,765
|
|
|
28
|
|
|
10,363
|
|
Exchange(i)
|
|
(24
|
)
|
|
(28
|
)
|
|
(4
|
)
|
|
1
|
|
|
5
|
|
|
—
|
|
|
(50
|
)
|
Disposals(iii)
|
|
(81
|
)
|
|
(3
|
)
|
|
(42
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
(128
|
)
|
2018 adjusted
|
|
2,562
|
|
|
2,848
|
|
|
1,114
|
|
|
864
|
|
|
2,769
|
|
|
28
|
|
|
10,185
|
|
Organic movement
|
|
150
|
|
|
107
|
|
|
64
|
|
|
36
|
|
|
85
|
|
|
(1
|
)
|
|
441
|
|
Acquisitions and disposals(iii)
|
|
34
|
|
|
5
|
|
|
30
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
70
|
|
Exchange(i)
|
|
84
|
|
|
11
|
|
|
4
|
|
|
(7
|
)
|
|
43
|
|
|
—
|
|
|
135
|
|
2019 reported
|
|
2,830
|
|
|
2,971
|
|
|
1,212
|
|
|
893
|
|
|
2,898
|
|
|
27
|
|
|
10,831
|
|
Organic movement %
|
|
6
|
|
|
4
|
|
|
6
|
|
|
4
|
|
|
3
|
|
|
(4
|
)
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America£ million
|
|
Europeand Turkey £ million
|
|
Africa£ million
|
|
Latin Americaand Caribbean £ million
|
|
AsiaPacific £ million
|
|
Corporate£ million
|
|
Total£ million
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 reported
|
|
2,356
|
|
|
1,633
|
|
|
821
|
|
|
672
|
|
|
1,398
|
|
|
28
|
|
|
6,908
|
|
Exchange(i)
|
|
(20
|
)
|
|
(20
|
)
|
|
(4
|
)
|
|
2
|
|
|
3
|
|
|
—
|
|
|
(39
|
)
|
Disposals(iii)
|
|
(62
|
)
|
|
(1
|
)
|
|
(29
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
(94
|
)
|
2018 adjusted
|
|
2,274
|
|
|
1,612
|
|
|
788
|
|
|
673
|
|
|
1,400
|
|
|
28
|
|
|
6,775
|
|
Organic movement
|
|
129
|
|
|
42
|
|
|
40
|
|
|
14
|
|
|
62
|
|
|
(1
|
)
|
|
286
|
|
Acquisitions and disposals(iii)
|
|
25
|
|
|
5
|
|
|
17
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
48
|
|
Exchange(i)
|
|
74
|
|
|
7
|
|
|
3
|
|
|
(7
|
)
|
|
14
|
|
|
—
|
|
|
91
|
|
2019 reported
|
|
2,502
|
|
|
1,666
|
|
|
848
|
|
|
680
|
|
|
1,477
|
|
|
27
|
|
|
7,200
|
|
Organic movement %
|
|
6
|
|
|
3
|
|
|
5
|
|
|
2
|
|
|
4
|
|
|
(4
|
)
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 reported
|
|
383
|
|
|
260
|
|
|
91
|
|
|
110
|
|
|
208
|
|
|
2
|
|
|
1,054
|
|
Exchange
|
|
(2
|
)
|
|
(7
|
)
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
2018 adjusted
|
|
381
|
|
|
253
|
|
|
91
|
|
|
111
|
|
|
208
|
|
|
2
|
|
|
1,046
|
|
Organic movement
|
|
22
|
|
|
11
|
|
|
5
|
|
|
2
|
|
|
22
|
|
|
—
|
|
|
62
|
|
Acquisitions(iii)
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Exchange
|
|
—
|
|
|
3
|
|
|
1
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
6
|
|
2019 reported
|
|
404
|
|
|
268
|
|
|
97
|
|
|
113
|
|
|
232
|
|
|
2
|
|
|
1,116
|
|
Organic movement %
|
|
6
|
|
|
4
|
|
|
5
|
|
|
2
|
|
|
11
|
|
|
—
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 reported
|
|
1,101
|
|
|
614
|
|
|
153
|
|
|
254
|
|
|
409
|
|
|
(80
|
)
|
|
2,451
|
|
Exchange(ii)
|
|
(7
|
)
|
|
(13
|
)
|
|
(3
|
)
|
|
1
|
|
|
2
|
|
|
1
|
|
|
(19
|
)
|
Disposals(iii)
|
|
(41
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44
|
)
|
2018 adjusted
|
|
1,053
|
|
|
600
|
|
|
148
|
|
|
255
|
|
|
411
|
|
|
(79
|
)
|
|
2,388
|
|
Organic movement
|
|
56
|
|
|
10
|
|
|
19
|
|
|
7
|
|
|
23
|
|
|
(5
|
)
|
|
110
|
|
Acquisitions and disposals(iii)
|
|
1
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Fair value remeasurement of contingent considerations and equity
option
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Fair value remeasurement of biological assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Exchange(ii)
|
|
14
|
|
|
7
|
|
|
(8
|
)
|
|
(9
|
)
|
|
(2
|
)
|
|
2
|
|
|
4
|
|
2019 reported
|
|
1,120
|
|
|
615
|
|
|
159
|
|
|
257
|
|
|
432
|
|
|
(82
|
)
|
|
2,501
|
|
Organic movement %
|
|
5
|
|
|
2
|
|
|
13
|
|
|
3
|
|
|
6
|
|
|
(6
|
)
|
|
5
|
|
Organic operating margin %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
46.2
|
%
|
|
36.9
|
%
|
|
20.2
|
%
|
|
38.1
|
%
|
|
29.7
|
%
|
|
n/a
|
|
35.4
|
%
|
2018
|
|
46.3
|
%
|
|
37.2
|
%
|
|
18.8
|
%
|
|
37.9
|
%
|
|
29.4
|
%
|
|
n/a
|
|
35.2
|
%
|
Margin improvement / (decline) (bps)
|
|
(16
|
)
|
|
(34
|
)
|
|
139
|
|
|
25
|
|
|
33
|
|
|
n/a
|
|
13
|
|
(1)
For the
reconciliation of sales to net sales see Summary Income
Statement.
(2)
Percentages and
margin improvement are calculated on rounded figures.
Notes:
Information in respect of the organic movement
calculations
(i) The
impact of movements in exchange rates on reported figures for sales
and net sales is principally in respect of the translation exchange
impact of the weakening of sterling against the US dollar, the
Indian rupee and the Mexican peso, partially offset by
strengthening of sterling against the euro.
(ii)
The impact of movements in exchange rates on reported figures for
operating profit is principally in respect of the transactional
exchange impact of the strengthening of sterling against the US
dollar.
(iii)
In the six months
ended 31 December 2019 the acquisitions and disposals that affected
volume, sales, net sales, marketing and operating profit were as
follows:
|
Volume
|
|
Sales
|
|
Net sales
|
|
Marketing
|
|
Operatingprofit
|
|
equ. units million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
Six months ended 31 December 2018
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
Portfolio of 19
brands
|
(1.3
|
)
|
|
(88
|
)
|
|
(67
|
)
|
|
—
|
|
|
(42
|
)
|
South
African ready to drink
|
(0.3
|
)
|
|
(38
|
)
|
|
(25
|
)
|
|
—
|
|
|
—
|
|
South
African cider
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
(1.6
|
)
|
|
(128
|
)
|
|
(94
|
)
|
|
—
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
Six months ended 31 December 2019
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
|
|
|
|
|
|
|
Seedlip
and Aecorn
|
—
|
|
|
5
|
|
|
5
|
|
|
2
|
|
|
(3
|
)
|
|
—
|
|
|
5
|
|
|
5
|
|
|
2
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
Supply
contracts in respect of the 19 brands sold to Sazerac
|
1.1
|
|
|
35
|
|
|
26
|
|
|
—
|
|
|
2
|
|
South
African ready to drink
|
0.3
|
|
|
30
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
|
65
|
|
|
43
|
|
|
—
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions and disposals
|
1.4
|
|
|
70
|
|
|
48
|
|
|
2
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings per share before exceptional items
Earnings
per share before exceptional items is calculated by dividing profit
attributable to equity shareholders of the parent company before
exceptional items by the weighted average number of shares in
issue.
Earnings per share
before exceptional items for the six months ended 31 December 2019
and 31 December 2018 are set out in the table below.
|
|
|
2019
|
|
2018
|
|
|
|
£ million
|
|
£ million
|
|
|
|
|
|
|
Profit
attributable to equity shareholders of the parent
company
|
|
|
1,865
|
|
|
1,976
|
|
Exceptional
operating and non-operating items attributable to equity
shareholders of the parent company
|
|
|
33
|
|
|
(125
|
)
|
Tax in
respect of exceptional operating and non-operating items
attributable to equity shareholders of the parent
company
|
|
|
(8
|
)
|
|
30
|
|
|
|
|
1,890
|
|
|
1,881
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
million
|
|
million
|
Shares
in issue excluding own shares
|
|
|
2,356
|
|
|
2,442
|
|
Dilutive
potential ordinary shares
|
|
|
10
|
|
|
10
|
|
|
|
|
2,366
|
|
|
2,452
|
|
|
|
|
|
|
|
|
|
|
pence
|
|
pence
|
Basic earnings per share before exceptional items
|
|
|
80.2
|
|
|
77.0
|
|
|
|
|
|
|
|
Diluted earnings per share before exceptional items
|
|
|
79.9
|
|
|
76.7
|
|
(1) The
impact of the adoption of IFRS 16 on 1 July 2019 on earnings per
share before exceptional items for the six months ended 31 December
2019 is immaterial.
Free cash flow
Free
cash flow comprises the net cash flow from operating activities
aggregated with the net cash received/paid for working capital
loans receivable, cash paid or received for investments and the net
cash cost paid for property, plant and equipment and computer
software that are included in net cash flow from investing
activities.
The
remaining components of net cash flow from investing activities
that do not form part of free cash flow, as defined by the
group’s management, are in respect of the acquisition and
sale of businesses and non-working capital loans to and from
associates.
The
group’s management regards the purchase and disposal of
property, plant and equipment and computer software as ultimately
non-discretionary since ongoing investment in plant, machinery and
technology is required to support the day-to-day operations,
whereas acquisitions and sales of businesses are
discretionary.
Where
appropriate, separate explanations are given for the impacts of
acquisitions and sale of businesses, dividends paid and the
purchase of own shares, each of which arises from decisions that
are independent from the running of the ongoing underlying
business.
Free
cash flow reconciliations for the six months ended 31 December 2019
and 31 December 2018 are set out in the table below:
|
2019
|
|
2018
|
|
£
million
|
|
£
million
|
|
|
|
|
Net cash inflow from operating activities
|
1,288
|
|
|
1,604
|
|
Disposal
of property, plant and equipment and computer software
|
8
|
|
|
13
|
|
Purchase
of property, plant and equipment and computer software
|
(330
|
)
|
|
(271
|
)
|
Free cash flow
|
966
|
|
|
1,346
|
|
(1)
Free cash flow for the six months ended 31 December 2019 has
benefited by £32 million as a result of the adoption of IFRS
16 on 1 July 2019.
Return on average total invested capital
Return
on average total invested capital is used by management to assess
the return obtained from the group’s asset base and is
calculated to aid evaluation of the performance of the
business.
The
profit used in assessing the return on average total invested
capital reflects operating profit before exceptional items
attributable to the equity shareholders of the parent company plus
share of after tax results of associates and joint ventures after
applying the tax rate before exceptional items for the period.
Average total invested capital is calculated using the average
derived from the consolidated balance sheets at the beginning and
end of the period. Average capital employed comprises average net
assets attributable to equity shareholders of the parent company
for the period, excluding post employment benefit net
assets/liabilities (net of deferred tax) and average net
borrowings. This average capital employed is then aggregated with
the average restructuring and integration costs net of tax, and
goodwill written off to reserves at 1 July 2004, the date
of transition to IFRS, to obtain the average total invested
capital.
Calculations for
the return on average total invested capital for the six months
ended 31 December 2019 and 31 December 2018 are set out in the
table below.
|
2019
|
|
2018
|
|
£
million
|
|
£
million
|
|
|
|
|
Operating
profit
|
2,442
|
|
|
2,430
|
|
Exceptional
operating items
|
59
|
|
|
21
|
|
Profit
before exceptional operating items attributable to non-controlling
interests
|
(89
|
)
|
|
(91
|
)
|
Share
of after tax results of associates and joint ventures
|
176
|
|
|
179
|
|
Tax
at the tax rate before exceptional items of 21.6% (2018 –
21.2%)
|
(559
|
)
|
|
(538
|
)
|
|
2,029
|
|
|
2,001
|
|
|
|
|
|
Average
net assets (excluding net post employment
assets/liabilities)
|
9,520
|
|
|
11,279
|
|
Average
non-controlling interests
|
(1,751
|
)
|
|
(1,766
|
)
|
Average
net borrowings
|
12,204
|
|
|
9,722
|
|
Average
integration and restructuring costs (net of tax)
|
1,639
|
|
|
1,639
|
|
Goodwill at 1 July
2004
|
1,562
|
|
|
1,562
|
|
Average
total invested capital
|
23,174
|
|
|
22,436
|
|
|
|
|
|
Return
on average total invested capital
|
17.5
|
%
|
|
17.8
|
%
|
(1)
Calculation of average net borrowings includes £251million in
respect of IFRS 16 adoption for 1st July 2019.
(2) The
return on average total invested capital for the six months ended
31 December 2019 was adversely impacted by 20bps as a result of the
adoption of IFRS 16 on 1 July 2019.
Net borrowings to earnings before exceptional operating items,
interest, tax, depreciation, amortisation and impairment (adjusted
EBITDA)
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. The
group regularly assesses its debt and equity capital levels to
enhance its capital structure by reviewing the ratio of adjusted
net borrowings to adjusted EBITDA.
Calculations for
the ratio of adjusted net borrowings to adjusted EBITDA at 31
December 2019 and 31 December 2018 are set out in the table
below.
|
2019
|
|
2018
|
|
£
million
|
|
£
million
|
|
|
|
|
Borrowings due within one year
|
3,381
|
|
|
1,742
|
|
Borrowings due after one year
|
10,091
|
|
|
10,272
|
|
Fair value of foreign currency derivatives and interest rate
hedging instruments
|
(128
|
)
|
|
(215
|
)
|
Lease liabilities
|
486
|
|
|
144
|
|
Less: Cash and cash equivalents
|
(950
|
)
|
|
(1,591
|
)
|
Net borrowings
|
12,880
|
|
|
10,352
|
|
Post employment benefit liabilities before tax
|
753
|
|
|
739
|
|
Adjusted net borrowings
|
13,633
|
|
|
11,091
|
|
|
|
|
|
|
|
|
|
Operating profit
|
4,054
|
|
|
3,931
|
|
Depreciation, amortisation and impairment (excluding exceptional
items)
|
416
|
|
|
366
|
|
Share of after tax results of associates and joint
ventures
|
309
|
|
|
320
|
|
Exceptional impairment
|
59
|
|
|
128
|
|
Non-operating items
|
(2
|
)
|
|
146
|
|
EBITDA
|
4,836
|
|
|
4,891
|
|
Exceptional operating items (excluding impairment)
|
53
|
|
|
21
|
|
Non-operating items
|
2
|
|
|
(146
|
)
|
Adjusted EBITDA
|
4,891
|
|
|
4,766
|
|
|
|
|
|
|
|
|
|
Adjusted net borrowings to adjusted EBITDA
|
2.8
|
|
|
2.3
|
|
(1)
EBITDA and adjusted EBITDA is calculated based on last 12
months.
(2) The
ratio of adjusted net borrowings to adjusted EBITDA at 31
December 2019 increased by 0.1 times as a result of the adoption of
IFRS 16 on 1 July 2019.
Tax rate before exceptional items
Tax
rate before exceptional items is calculated by dividing the total
tax charge on continuing operations before tax charges and credits
in respect of exceptional items, by profit before taxation adjusted
to exclude the impact of exceptional operating and non-operating
items, expressed as a percentage. The measure is used by management
to assess the rate of tax applied to the group’s continuing
operations before tax on exceptional items.
The tax
rates from operations before exceptional and after exceptional
items for the six months ended 31 December 2019 and six months
ended 31 December 2018 are set out in the table below:
|
2019
|
|
2018
|
|
£
million
|
|
£
million
|
|
|
|
|
Tax
before exceptional items (a)
|
544
|
|
|
530
|
|
Tax in
respect of exceptional items
|
(14
|
)
|
|
30
|
|
Taxation
on profit (b)
|
530
|
|
|
560
|
|
|
|
|
|
Profit
from operations before taxation and exceptional items
(c)
|
2,523
|
|
|
2,502
|
|
Non-operating
items
|
—
|
|
|
146
|
|
Exceptional operating items
|
(59
|
)
|
|
(21
|
)
|
Profit
before taxation (d)
|
2,464
|
|
|
2,627
|
|
|
|
|
|
Tax rate before exceptional items (a/c)
|
21.6
|
%
|
|
21.2
|
%
|
Tax
rate from operations after exceptional items (b/d)
|
21.5
|
%
|
|
21.3
|
%
|
(1) The
tax rate before exceptional items is not materially affected by the
adoption of IFRS 16 on 1 July 2019.
Other definitions
Volume
share is a brand’s retail volume expressed as a percentage of
the retail volume of all brands in its segment. Value share is a
brand’s retail sales value expressed as a percentage of the
retail sales value of all brands in its segment. Unless otherwise
stated, share refers to value share.
Price/mix is the
number of percentage points by which the organic movement in net
sales differs to the organic movement in volume. The difference
arises because of changes in the composition of sales between
higher and lower priced variants/markets or as price changes are
implemented.
Shipments comprise
the volume of products made to Diageo’s immediate (first
tier) customers. Depletions are the estimated volume of the onward
sales made by Diageo's immediate customers. Both shipments and
depletions are measured on an equivalent units basis.
References to
emerging markets include Russia, Eastern Europe, Turkey, Africa,
Latin America and Caribbean, and Asia Pacific (excluding Australia,
Korea and Japan).
References to
reserve brands include, but are not limited to, Johnnie Walker Blue
Label, Johnnie Walker Green Label, Johnnie Walker Gold Label
Reserve, Johnnie Walker Aged 18 Years, John Walker & Sons
Collection and other Johnnie Walker super premium brands; Roe &
Co; The Singleton, Cardhu, Talisker, Lagavulin and other malt
brands; Buchanan’s Special Reserve, Buchanan’s Red
Seal; Bulleit Bourbon, Bulleit Rye; Tanqueray No. TEN, Tanqueray
Malacca Gin; Cîroc, Ketel One vodka, Ketel One Botanicals; Don
Julio, Casamigos, Zacapa, Bundaberg SDlx, Shui Jing Fang, Jinzu
gin, Haig Club whisky, Orphan Barrel whiskey and DeLeón
Tequila; Villa Ascenti, Copper Dog whisky, Belsazar.
References to
global giants include the following brand families: Johnnie Walker,
Smirnoff, Captain Morgan, Baileys, Tanqueray and Guinness. Local
stars spirits include Buchanan’s, Bundaberg, Crown Royal,
J&B, McDowell’s, Old Parr, Yenì Raki, Black &
White, Shui Jing Fang, Windsor and Ypióca. Global giants and
local stars exclude ready to drink and beer except Guinness.
References to Shui Jing Fang represent total Chinese white spirits
of which Shui Jing Fang is the predominant brand.
References to ready
to drink also include ready to serve products, such as pre-mix cans
in some markets, and progressive adult beverages in the United
States and certain markets supplied by the United
States.
References to beer
include cider and some non-alcoholic products such as Malta
Guinness.
The
results of Hop House 13 Lager are included in the Guinness
figures.
References to the
disposal of a portfolio of 19 brands comprise the following brands
that were primarily sold in the United States: Seagram’s VO,
Seagram’s 83, Seagram’s Five Star, Popov,
Myers’s, Parrot Bay, Yukon Jack, Romana Sambuca, Scoresby,
Goldschlager, Relska, Stirrings, The Club, Booth’s, Black
Haus, Peligroso, Grind, Piehole and John Begg.
References to the
group include Diageo plc and its consolidated
subsidiaries.
RISK FACTORS
Diageo’s
products are sold in over 180 countries worldwide, which subjects
Diageo to risks and uncertainties in multiple jurisdictions across
developed and developing markets. The group’s aim is to
manage risk and control its business and financial activities
cost-effectively and in a manner that enables it to: exploit
profitable business opportunities in a disciplined way; avoid or
reduce risks that can cause loss, reputational damage or business
failure; manage and mitigate historic risks and exposures of the
group; support operational effectiveness; and enhance resilience to
external events. To achieve this, an ongoing process has been
established for identifying, evaluating and managing risks faced by
the group. A detailed description of the key risks and
uncertainties facing the group are described in the
’Strategic report’ section of the Annual Report for the
year ended 30 June 2019 and under ‘Risk Factors’ in the
Annual Report on Form 20-F for the year ended 30 June
2019.
These
key risks and uncertainties include: unfavourable economic,
political, social or other developments and risks in the countries
in which Diageo operates, including in relation to 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) and the process
surrounding the exit of the United Kingdom from the European Union;
changes in consumer preferences and tastes and adverse impacts of a
downturn in economic conditions, among other factors, which could
adversely affect demand; litigation or similar proceedings
specifically directed at the beverage alcohol industry, as well as
other litigation or proceedings more generally; changes in the
international tax environment resulting in unexpected tax
exposures; the impact of climate change, or legal, regulatory or
market measures intended to address climate change, including on
the cost and supply of water; changes in the cost of production;
other legal and regulatory developments impacting the production,
distribution and marketing of Diageo’s products and its
business more generally; the consequences of any failure to comply
with anti-corruption, sanctions or similar laws and regulations;
any failure of internal controls, including those affecting
compliance with accounting and/or disclosure requirements; the
impact of any contamination, counterfeiting or other events on
support for and sales of Diageo’s brands; any failure by
Diageo to maintain its brand image and corporate reputation;
competitive pressures, which could reduce Diageo’s market
share and margins; any disruption to production facilities,
business service centres or information systems (including as a
result of cyber-attacks); any disruption to the business caused by
health concerns or pandemics; failures to derive the expected
benefits from Diageo’s business strategies, acquisitions
and/or any cost-saving and restructuring programmes; increased
costs for, or shortages of, talent; fluctuations in exchange and/or
interest rates; movements in the value of Diageo’s pension
funds; any failure to maintain or renegotiate distribution, supply,
manufacturing and licence agreements on favourable terms; any
inability by Diageo to protect its intellectual property rights;
and difficulty in effecting service of US process and enforcing US
legal process against Diageo and its directors.
Brexit and related risks
The
process surrounding the United Kingdom’s future trading
relationship with the European Union continues. We remain of the
view that, in the event of either a future free trade agreement
(FTA) or a ‘no FTA’ outcome at the end of the
implementation period between the UK and the EU, the direct
financial impact to Diageo will not be material. In the EU, we
expect that the vast majority of our finished case goods will
continue to trade tariff free, with no change to existing tariffs
in either scenario. There has been progress made in relation to the
future trading arrangements of the UK with a number of third party
countries agreeing to trade on the terms of existing EU FTAs, once
the UK leaves the EU. If the UK Government is unable to renew all
of the existing FTAs on which we rely, trading could revert to WTO
rules. We have mitigation plans in place to minimise any short term
disruption that could arise from such a scenario.
We have
further considered the principal impact to our supply chain of a no
FTA scenario which we have assessed as limited and believe that we
have appropriate plans in place to mitigate this risk. The full
implications of Brexit will not be understood until future trade,
regulatory and tax arrangements to be entered into by the United
Kingdom are established. Furthermore, we could experience changes
to laws and regulations post Brexit, in areas such as intellectual
property rights, employment, environment, supply chain logistics,
data protection, and health and safety.
A
cross-functional working group is in place that meets on a regular
basis to identify and assess the consequences of Brexit, with all
major functions within our business represented. We continue to
monitor this risk area very closely, as well as the broader
environment risks, including a continuing focus on identifying
critical decision points to ensure potential disruption is
minimised, and take prudent actions to mitigate these risks
wherever practical.
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, 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 process
surrounding the United Kingdom’s exit from the European
Union, which could lead to a sustained period of economic and
political uncertainty and complexity whilst any successor trading
arrangements with other countries are negotiated, finalised and
implemented, potentially adversely impacting economic conditions in
the United Kingdom and Europe more generally as well as Diageo's
business operations and financial performance (see more detailed
status on Brexit above);
●
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, low or no
alcohol, or other alternative products), changes in travel,
vacation or leisure activity patterns, weather conditions, health
concerns, pandemics and/or a downturn in economic
conditions;
●
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;
●
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;
●
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;
●
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;
●
increased costs
for, or shortages of, talent, as well as labour strikes or
disputes;
●
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;
●
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 2019 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 2020.
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.
Statement of directors’ responsibilities
Each of
the directors of Diageo plc confirms, to the best of his or her
knowledge, that:
●
the condensed set
of financial statements has been prepared in accordance with IAS 34
Interim Financial Reporting as issued by the IASB and endorsed and
adopted by the EU and give a true and fair view of the assets,
liabilities, financial position and profit and loss of the
group;
●
the interim
management report includes a fair review of the information
required by:
(a)
DTR 4.2.7R of the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom’s Financial Conduct Authority, being an indication of
important events that have occurred during the first six months of
the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year;
and
(b)
DTR 4.2.8R of the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom’s Financial Conduct Authority, being related party
transactions that have taken place in the first six months of the
current financial year and that have materially affected the
financial position or performance of the group during that period;
and any changes in the related party transactions described in the
last annual report that could do so.
The
directors of Diageo plc are as follows: Javier Ferrán
(Chairman), Ivan Menezes (Chief Executive), Kathryn Mikells (Chief
Financial Officer), Susan Kilsby (Senior Independent Director and
Chairman of the Remuneration Committee), Alan Stewart
(Non-Executive Director and Chairman of the Audit Committee) and
Non-Executive Directors: Debra Crew, Lord Davies of Abersoch, Ho
KwonPing and Nicola Mendelsohn.
Webcast, presentation slides and transcript
At
07.15 (UK time) on Thursday 30 January 2020, Ivan Menezes, Chief
Executive and Kathryn Mikells, Chief Financial Officer will present
Diageo’s interim results as a webcast. This will be available
to view at www.diageo.com. The
presentation slides and script will also be available to download
at this time.
Live Q&A conference call and replay
Ivan
Menezes, Chief Executive and Kathryn Mikells, Chief Financial
Officer will be hosting a Q&A conference call on Thursday 30
January at 09:30 (UK time). If you would like to listen to the call
or ask a question, please use the dial in details
below.
From the UK:
|
+44 (0)330 027 1446
|
From the UK (free call):
|
0800
756 3333
|
From the USA:
|
+1 334 777 6978
|
From the USA (free call):
|
800 367
2403
|
The
conference call is for analysts and investors only. To join the
call please use the password already sent to you or email
suzanne.austin@diageo.com.
A
transcript of the Q&A session will be available for download on
31 January 2020 at www.diageo.com.
To hear
a replay of the call, please use the telephone numbers
below:
From the UK:
|
+44 (0) 20 7660 0134
|
From the UK (free call):
|
0808
101 1153
|
From the USA:
|
+1 719 457 0820
|
From the USA (free call):
|
888 203
1112
|
Investor enquiries to:
|
Andy Ryan
|
+44 (0) 20 8978 6504
|
|
Luke McFarland
|
+44 (0) 20 8978 6019
|
|
Vinod Rao
|
+44 (0) 20 8978 2402
|
|
|
investor.relations@diageo.com
|
|
|
|
Media enquiries to:
|
Jessica Rouleau
|
+44 (0) 7925 642 561
|
|
Rebecca Perry
|
+44 (0) 7590 809 101
|
|
Dominic Redfearn
|
+44 (0) 7971 977 759
|
|
Greg Dawson
|
+44 (0) 7568 131 101
|
|
|
press@diageo.com
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
Diageo plc
|
|
(Registrant)
|
|
|
Date:
30 January 2020
|
|
|
|
|
By:___/s/
James Edmunds
|
|
|
|
James Edmunds
|
|
Deputy Company Secretary
|