TIDMDGE
RNS Number : 8380Y
Diageo PLC
30 January 2014
30 January 2014
Interim results, six months ended 31 December 2013
The strength of a diverse portfolio in a tougher environment
-- Net sales grew 1.8% in the first half, following growth of 2.2% in Q1*
- North America up 4.6%
- Western Europe down 1.0%, continuing the improving trend seen in Q1
- Emerging markets up 1.3%, impacted by weakness in baijiu in China and in Nigeria
-- Continued strong price/mix in both developed and emerging markets at 4ppts
-- Marketing investment up 2.7%, ahead of net sales growth, to 15.6% of net sales
-- Super and ultra premium brands grew strongly, with reserve brands up 18.5%
-- Beer was the only category to decline, down 2.6%, with weakness in Nigeria and Ireland
-- Operating profit grew 2.9% with 0.4ppts of operating margin improvement
-- Free cash flow was GBP326 million
-- eps pre-exceptional items 62.6 pence per share, up 4%
-- Interim dividend increased 9%
-- Detailed plans to be developed to de-layer the organisation
and deliver further operating efficiencies
-- Savings of GBP200 million a year by year ending 30 June 2017
will fund future change programmes, investment in growth and
improved margin
-- Restructuring costs, expected to be taken as an exceptional
charge, will be between GBP200 million and GBP250 million
*Q1 organic growth restated to $1 = VEF19 (Venezuelan Bolivars).
See explanatory note 2 on organic movements.
Ivan Menezes, Chief Executive, commenting on the six months ended 31
December 2013
"We have continued to demonstrate the strength of our broad
portfolio and diverse global business in a period which saw a more
challenging emerging market environment. Sustained performance in
the US and improved performance in Western Europe enabled Diageo to
absorb the current challenges in some of our emerging markets. We
reacted quickly to the changing emerging market environment,
reducing inventory levels in several key markets, which led to a
weaker Q2, and tightly managing our cost base to deliver improved
operating margins in line with our expectations. We continued to
invest in the business increasing marketing spend ahead of net
sales growth and keeping our strong focus on innovation and route
to consumer improvements.
In the first half the organisation has aligned behind the six
key performance drivers which I identified when I was appointed
CEO; premium core brands, reserve, innovation, route to consumer,
cost and talent. This clarity of focus at a market level enables me
to take the changes I have already made to the operating model to
the next level. Over the next two months we will set out detailed
plans to simplify our processes and de-layer our organisation. This
will create a more agile, accountable and effective organisation to
deliver our performance ambition. I expect this to deliver cost
savings of GBP200 million a year by the end of fiscal 2017.
We do expect some top line improvement in the second half and
our focus across the business on the six key performance drivers
means that even though some markets may remain challenging, this
business is in good shape for the medium and long term and we
remain committed to achieving our performance ambition."
Key financials:
Organic Reported
------------------------------------- -----------
2014 2013 growth growth
H1 H1
------------------------------------- ----------- ----- -----
% %
------------------------------------- ----------- ----- ----- ------- --------
Volume EUm 84.3 88.4 (3) (5)
Net sales GBPmillion 5,932 5,975 2 (1)
Marketing spend GBPmillion 903 918 3 (2)
Operating profit before exceptional
items GBPmillion 2,060 2,001 3 3
Operating profit GBPmillion 2,040 2,017 1
Profit attributable to parent
company's
equity shareholders GBPmillion 1,599 1,521 5
Free cash flow GBPmillion 326 708
Basic eps pence 63.8 60.8 5
eps pre-exceptional items pence 62.6 60.2 4
-------
Interim dividend pence 19.7 18.1 9
------------------------------------- ----------- ----- ----- ------- --------
Operating profit before exceptional items includes attributable
transaction and integration costs of GBP7 million (2012 - GBP29
million) in respect of business acquisitions.
The reported tax rate, which includes tax on exceptional items,
remained unchanged at 18.2% (2012 - 18.2%). The tax rate before
exceptional items for the six months ended 31 December 2013 was
19.4% compared with 18.3% in the six months ended 31 December 2012.
In the six months ended 31 December 2013 a higher level of profit
in the group's Venezuelan operations impacted the tax charges for
the period. Excluding the group's Venezuelan operation, the tax
rate before exceptional items was 17.9%.
Organic growth by region:
-------------------------------------------------------------------------------------
Volume % Net sales Marketing spend Operating profit
% % %
----------------------------- -------- --------- --------------- ----------------
North America (2) 5 5 8
----------------------------- -------- --------- --------------- ----------------
Western Europe (2) (1) (2) (3)
----------------------------- -------- --------- --------------- ----------------
Africa, Eastern Europe
and Turkey (4) 2 8 (4)
----------------------------- -------- --------- --------------- ----------------
Latin America and Caribbean (2) 8 8 10
----------------------------- -------- --------- --------------- ----------------
Asia Pacific (4) (6) (3) (4)
----------------------------- -------- --------- --------------- ----------------
Exchange rate movement
GBPmillion
------------------------------------- -----------
Net sales (86)
------------------------------------- -----------
Operating profit before exceptional
items (54)
------------------------------------- -----------
The exchange rate movement for net sales and operating profit
before exceptional items include the translation of prior year
reported results at current year exchange rates. A rate of $1 =
VEF9 has been used in respect of the translation of the current and
prior period's reported performance in Venezuela.
In the calculation of organic growth for the six months ended 31
December 2013, the group's Venezuelan operations have been
translated at a rate of $1 = VEF19 (GBP1 = VEF30.4) to ensure
currency controls do not materially distort the group's
performance. The rate of $1 = VEF19 is derived from the
consolidation rate of $1 = VEF9 adjusted by inflation. Applying
this method the exchange rate for the year ending 30 June 2014 is
expected to be approximately $1 = VEF26 (GBP1 = VEF42.4) and our
full year guidance, for reported results and for the organic growth
calculation is based on this rate.
Using the following rates (GBP1 = $1.65 ; GBP1 = EUR1.21 ; GBP1
= VEF42.4), exchange rate movements for the year ending 30 June
2014 are expected to adversely impact operating profit by GBP280
million and decrease finance charges by GBP10 million (excluding
IAS21 and IAS39).
Update on strategic transactions
On 26 November 2013, Diageo acquired an additional 1.35% equity
share (1.97 million shares) in United Spirits Limited (USL) through
an on-market purchase on the Bombay Stock Exchange. This purchase
brought the aggregate equity stake of USL held by Diageo to 26.37%
and followed the closing of the earlier USL transaction announced
on 9 November 2012 under which, as previously announced on 4 July
2013, Diageo acquired a shareholding of 25.02% of USL for a total
consideration of INR 52 billion (GBP592 million).
There are currently various proceedings pending in courts in
India in relation to the earlier USL transaction. More detailed
analysis of these proceedings appears in Note 13 to the Financial
Statements.
Definitions
Unless otherwise stated in this announcement:
-- volume is in millions of equivalent units (EUm)
-- net sales are sales after deducting excise duties
-- percentage movements are organic movements
-- commentary refers to organic movements
-- share refers to value share
See explanatory notes section for additional information for
shareholders and an explanation of non-GAAP measures.
BUSINESS REVIEW
For the six months ended 31 December 2013
North America
Larry Schwartz, President, Diageo North America, commenting on
the six months ended 31 December 2013, said:
"Our North American business has delivered a strong set of
results in a market where economic recovery has been uneven. Net
sales grew 5% with 7ppts of positive price/mix, driven by price
increases, favourable mix in US spirits and new innovation
launches. Our reserve brands grew 26%, driven by Cîroc, Bulleit,
Ketel One vodka and Johnnie Walker which gained a point of share
and consolidated its leadership position in the category.
Smirnoff's volume declined as it maintained its price position in
an increasingly competitive standard vodka category. Our leadership
in innovation continued to be a key driver of growth with a number
of current and prior year launches amongst the strongest performers
in innovation in the United States. Diageo Canada has been affected
by economic slowdown as well as a decline in ready to drink and
Baileys. While DGUSA net sales declined 10% as a result of
destocking in the pouch segment, Guinness was back in growth as our
new marketing campaign reinvigorated the brand. Marketing
investment was up 5% and focused on key brands such as Guinness and
Johnnie Walker and our reserve brands. We have continued to build
on our already strong route to market, covering more retail outlets
and increasing dedicated resources. Our strong price/mix drove
gross margin expansion and overheads were reduced, resulting in an
operating margin expansion of 1.3ppts."
Key financials GBPm:
Acquisitions
------------------------------------- ----- --- --------- ----- ---------
and
-------------------------------------
Reported
2013 Organic 2014 movement
H1 FX disposals movement H1 %
------------------------------------- ----- --- ------------ --------- ----- ---------
Net sales 1,942 (9) (111) 82 1,904 (2)
Marketing spend 299 (1) (18) 13 293 (2)
Operating profit before exceptional
items 822 - (31) 60 851 4
Exceptional items - (1)
Operating profit 822 850 3
------------------------------------- ----- --- ------------ --------- ----- ---------
Key markets and categories: The strategic brands**:
Organic Reported Organic Reported
Organic net net Organic net net
volume* sales sales volume* sales sales
% % % % % %
---------------- ------- ------- -------- --------------- ------- ------- --------
North America (2) 5 (2) Johnnie Walker 1 13 13
Crown Royal (3) 1 -
US Spirits
& Wines (1) 6 (1) Buchanan's 18 19 19
DGUSA (8) (10) (10) Smirnoff (7) (5) (5)
Ketel One
Canada (3) (1) (7) vodka 4 7 7
Cîroc 16 18 18
Spirits** (2) 5 (1) Captain Morgan 2 3 2
Beer (3) - (1) Baileys (1) 2 1
Wine (3) 5 5 Tanqueray (4) (3) (3)
Ready to drink (10) (17) (30) Guinness 1 4 3
---------------- ------- ------- -------- --------------- ------- ------- --------
* Organic equals reported movement for volume except for North
America (7)%, US Spirits & Wines (7)%, Canada (5)%, spirits
(7)% and ready to drink (17)%, reflecting the disposal of Nuvo and
the termination of the Jose Cuervo distribution agreement.
** Spirits brands excluding ready to drink.
-- In US Spirits & Wines, which grew net sales 6% with 7ppts
of positive price/mix, super and ultra premium segments and new
innovation launches fuelled growth. Weaker volume in Smirnoff was
the main driver of the 1% volume decline. Good performance from the
Smirnoff Sorbet line and the extension of the Confectionary line
was not enough to offset a decline in the Smirnoff core variant,
whose price premium in an increasingly price competitive segment
has impacted volume. Net sales of Johnnie Walker grew 16% on the
back of increased marketing investment and the successful launches
of new super premium variants such as Johnnie Walker Platinum Label
and Johnnie Walker Gold Label Reserve. Crown Royal and Bulleit
continued to perform well in the growing North American whiskey
category. Crown Royal grew net sales 1% after lapping last year's
launch of Crown Royal Maple Finished, Bulleit outperformed the
category and grew net sales 59%. Ketel One vodka and Cîroc grew
ahead of the vodka category with Ketel One vodka net sales up 7%
driven by the new 'Ketel One vodka of substance' campaign and Cîroc
up 16% following the successful launch of Cîroc Amaretto. Don Julio
continued to perform strongly as net sales grew 25%, and gained
share. Buchanan's volume and net sales grew double digit through
its continued focus on the Hispanic community. Net sales growth in
the second quarter benefitted from the shipment of Captain Morgan
white rum ahead of the launch in January.
-- In Canada, net sales were impacted by the weaker economy.
Guinness and Cîroc grew while weakness in ready to drink and
Baileys led to net sales decline of 1%.
-- In DGUSA net sales were down 10% driven by category decline
and destocking in the pouch segment, weakness in Smirnoff Ice,
which continued to face competition from innovation in beer, and in
Red Stripe. However, Guinness improved its performance and grew net
sales 2%, benefitting from increased marketing investment on a new
campaign.
-- Marketing investment was up 5%, largely driven by increases
in spend on premium core and reserve brands. Investment was focused
on Johnnie Walker's super and ultra premium variants with the 'Keep
walking' campaign aimed at maintaining the brand's relevance for a
new generation of consumers, and on Guinness largely driven by the
'Basketball' national television commercial which generated 18
million views on YouTube. We increased media spend on proven
campaigns such as the Crown Royal 'Reign on' campaign, 'Luck be a
lady' campaign for Cîroc and launched the first Hispanic marketing
programme for Captain Morgan, 'Noches del capitan', which
contributed to making the brand popular amongst Hispanic male
consumers. Marketing investment in our reserve portfolio grew 10%
driven by increased commercial activation in Don Julio and support
of the launch of Cîroc Amaretto.
Western Europe
John Kennedy, President, Diageo Western Europe, commenting on
the six months ended 31 December 2013, said:
"The improvement in performance we delivered in the first
quarter has continued through the half as a result of investment in
brands and markets and successful innovation. The net sales decline
of 1% was largely driven by the tough economic environment in
Southern Europe and Ireland, where the beer market continues to
decline. Great Britain and France both grew in this half and
Germany continues to perform well. We continue to pursue our
strategy to invest behind our premium core brands, our innovation
agenda and our reserve portfolio. Overall marketing investment
declined broadly in line with net sales, we have delivered greater
efficiency in marketing spend and increased our media spend
especially on Captain Morgan and Tanqueray which were the best
performing brands in the region. Our upweighted investment on
Cîroc, Johnnie Walker, Zacapa and Talisker has been an important
driver of the continued double digit growth of our reserve brands.
Innovation was a key contributor to Western Europe's improved
performance, as we invested behind recent multi-country launches
such as Baileys Chocolat Luxe and Parrot Bay Frozen Pouches, and
sustained prior year launches. These results show we have the
strategy to capture the growth opportunities in the region."
Key financials GBPm:
Acquisitions
------------------------------------- ----- --------- ----- ---------
and
-------------------------------------
Reported
2013 Organic 2014 movement
H1 FX disposals movement H1 %
------------------------------------- ----- ------------ --------- ----- ---------
Net sales 1,174 38 (21) (12) 1,179 -
Marketing spend 176 6 (2) (3) 177 1
Operating profit before exceptional
items 378 6 (2) (12) 370 (2)
Exceptional items 20 - -
Operating profit 398 370 (7)
------------------------------------- ----- ------------ --------- ----- ---------
Key market and categories: The strategic brands**:
Organic Reported Organic Reported
Organic net net Organic net net
volume* sales sales volume* sales sales
% % % % % %
---------------- ------- ------- -------- --------------- ------- ------- --------
Western Europe (2) (1) - Johnnie Walker (1) (2) 2
J B (11) (14) (9)
Spirits** (1) (1) 1 Smirnoff (2) (4) (2)
Beer (7) (4) - Captain Morgan 14 11 14
Wine (7) (1) (11) Baileys (5) (2) 1
Ready to drink (1) - 2 Guinness (6) (3) (1)
---------------- ------- ------- -------- --------------- ------- ------- --------
* Organic equals reported movement for volume except for Western
Europe (4)%, spirits (2)% and wine (15)%, reflecting the
termination of the Jose Cuervo and Pommery distribution
agreements.
** Spirits brands excluding ready to drink.
-- Volume in Southern Europe declined 7% and net sales 6% as the
weak economy continued to affect consumption. Scotch net sales
represents half of the business and declined double digit mainly
driven by J B, as promotional activity was reduced. In contrast,
Tanqueray grew double digit as the brand benefited from a new
communication platform in the more vibrant gin category.
-- In Ireland net sales were down 6% as the beer market
continued to decline across all channels. As a result Guinness net
sales declined 6% and the brand lost 0.5ppts of share mainly due to
the warm summer. Excise duty was increased for the second year and
contributed to the 16% net sales decline of the spirits
portfolio.
-- In Great Britain, net sales grew 1%. Reserve brands performed
strongly, up 24% driven by Cîroc and Talisker. Successful
innovations also drove growth including Cîroc Red Berry, Smirnoff
Gold and Baileys Chocolat Luxe. Pimm's net sales nearly trebled in
the good summer weather and Captain Morgan performed well driven by
increased media activity. Guinness performance was flat, however
price increases and competitors' pricing and promotional activity
impacted Smirnoff and net sales declined 2%. The decision to hold
price on Bell's impacted performance and net sales were down
21%.
-- Germany delivered net sales and volume growth of 6% and 3%
respectively. Baileys and Johnnie Walker Red Label were weak as a
result of price pressure. However the reserve portfolio performed
well and net sales were up 22% driven by a strong performance of
malts. Captain Morgan continued to perform strongly with net sales
up 20%, gaining 2.6ppts of share on the back of a new television
campaign.
-- In France net sales were up 2% with 1ppt of positive
price/mix, mainly driven by the solid performance of malts which
gained share.
-- Diageo Wines Europe net sales declined 1% as Justerini &
Brooks discontinued distribution of spirits to focus on the core
wine business, which was up 1% overall.
-- Marketing investment decreased 2% mainly driven by Guinness,
following last year's significantly increased investment. We
upweighted our investment in media, supporting Johnnie Walker's
'Where flavour is king' campaign, Captain Morgan's 'Live like the
captain' campaign in Germany which brings to life the legendary
tales of Captain Henry Morgan and Baileys' 'Christmas with spirit'
campaign featuring a modern telling of the Nutcracker.
-- Innovation has been a key contributor to Western Europe's
performance. Successful recent launches include Baileys Chocolat
Luxe, Parrot Bay frozen pouches, Cîroc Red Berry, Smirnoff Gold,
Talisker Storm and Pimm's Blackberry and Elderflower.
Africa, Eastern Europe and Turkey
Nick Blazquez, President, Diageo Africa, Eastern Europe and
Turkey commenting on the six months ended 31 December 2013,
said:
"Our regional performance has been impacted by two factors;
contraction of the beer market and the growth of value beers in
Nigeria, and a decline in Senator keg as excise duty was introduced
on the brand. This has led to a weaker top line performance and
negatively impacted our margin. That said, the region has also
achieved success in a number of areas; reserve brands grew
strongly, South Africa delivered a very good performance, and in
East Africa, net sales of Guinness and Tusker were up double digit.
Russia and Poland delivered robust results through focused efforts
on whiskey and Captain Morgan. Turkey delivered a solid performance
given the recent duty increases and legislative changes to the sale
and advertising of alcohol. We have continued to build our brands
with the region's emerging market consumers and marketing was up
8%, driven by the rollout of successful innovations, notably in
ready to drink in Africa and scotch in Russia and Eastern Europe.
We relaunched the Guinness brand in Nigeria and East Africa with a
step change in the quality of our packaging, new visibility
materials, and a full suite of advertising assets as part of the
new 'Made of more' global positioning. We continued to make good
progress in improving our route to consumer in Nigeria and Ghana
and we have driven out costs in East Africa by optimising our
supply chain. All of these initiatives further strengthen our
position to capture the growth opportunities in the region."
Key financials GBPm:
Acquisitions
------------------------------------- ----- ---- --------- ----- ---------
and
-------------------------------------
Reported
2013 Organic 2014 movement
H1 FX disposals movement H1 %
------------------------------------- ----- ---- ------------ --------- ----- ---------
Net sales 1,188 (50) (3) 20 1,155 (3)
Marketing spend 137 (11) (1) 10 135 (1)
Operating profit before exceptional
items 371 (33) 1 (12) 327 (12)
Exceptional items - (2)
Operating profit 371 325 (12)
------------------------------------- ----- ---- ------------ --------- ----- ---------
Key markets and categories: The strategic brands**:
Organic Reported Organic Reported
Organic net net Organic net net
volume* sales sales volume* sales sales
% % % % % %
------------------------- ------- ------- -------- --------------- ------- ------- --------
Africa, Eastern Europe
and Turkey (4) 2 (3) Johnnie Walker 4 2 (2)
J B (4) (3) (10)
Smirnoff (3) (4) (13)
Africa (6) 2 (2) Captain Morgan 21 17 9
Nigeria (13) (10) (10) Baileys (11) (5) (6)
East Africa (9) 4 3 Guinness (9) (2) (2)
Africa Regional Markets (8) 1 (2)
South Africa 7 20 1
Russia and Eastern
Europe 4 5 3
Turkey (5) (1) (10)
Spirits** 2 2 (6)
Beer (16) (4) (5)
Ready to drink 91 70 62
------------------------- ------- ------- -------- --------------- ------- ------- --------
* Organic equals reported movement for volume except for South
Africa 6%, Russia and Eastern Europe 3% and Spirits 1% reflecting
the termination of the Jose Cuervo distribution agreement.
** Spirits brands excluding ready to drink.
-- The beer market decline in Nigeria continued at a mid-single
digit rate, and consumers continued to be drawn to value offerings,
particularly in lager, as low government spending and high
inflation constrained disposable incomes and Harp and Guinness were
both impacted by this trading down and by the effect of price
increases. Dubic, which was launched in fiscal 2012, is still a
relatively small proportion of the business but grew strongly and
nearly doubled in size. In ready to drink, Snapp drove category net
sales growth of 10%. Spirits volume was up 22% and net sales grew
nearly 30% as a significant increase in marketing investment drove
39% growth on Johnnie Walker and reserve brands doubled.
-- In East Africa, Senator keg was originally developed to
replace illicit alcohol products and the government initially
reduced and then eliminated duty on the brand. In October the duty
remission was halved, leading to a 67% price increase. Following
the price rise, volume fell roughly significantly, and net sales
were down for the half year. The bottled beer market in Kenya
softened slightly following the introduction of the VAT act, but
the Tusker brand remained strong and it delivered double digit net
sales growth, maintained its leadership position and increased
price. Guinness net sales also grew double digit and price
increases were taken, supported by a significant increase in
marketing investment behind the brand. The success of recent
innovations, Jebel and Jebel Gold, a mid-proof spirit in a keg,
drove almost half of the spirits net sales growth.
-- Net sales in Africa Regional Markets grew 1%. While beer net
sales in Ghana and Cameroon were roughly flat, as Malta compensated
for softness in Guinness, Meta delivered a strong performance and
the 15% growth of the brand drove 21% growth in Ethiopia. In West
and Central Africa Johnnie Walker and Guinness net sales grew 35%
and 21% respectively, on the back of strong brand execution and
more consistent regional pricing. However, this was offset by the
destock of Johnnie Walker in Angola as a result of the change in
route to market which was introduced at the end of last year, and
while net sales declined 74% in spirits, depletions continued to be
strong.
-- In South Africa net sales grew 20%, despite softness in the
macroeconomic environment, on the success of recent innovations and
the strength of marketing execution. Spirits performance was led by
Johnnie Walker Red Label, with net sales growth of nearly 30%, as
the brand was supported by increased distribution and activations
in outlets. The growth of Johnnie Walker Red Label was offset in
part by a 9% net sales decline in Smirnoff 1818, which continued to
take share from competitor offerings but was lapping a strong
performance in the comparable period. Ready to drink performed very
well with the continued success of Smirnoff Ice Double Black &
Guarana.
-- Russia and Eastern Europe delivered 5% net sales growth
driven by whiskey and rum. In Russia, scotch volume was up 6%, with
strong depletions driven by significant share gains on Johnnie
Walker Red Label and Bell's, which was up 49%. Bushmills delivered
a particularly good performance with net sales up 33%. Rums also
performed well as Captain Morgan gained share against its main
competitor in Russia with net sales up 36% and Zacapa net sales
doubled. Vodka net sales declined slightly with a strong
performance of Smirnoff in Poland offset by weakness in Smirnov in
Russia where the mass vodka segment has been in double digit
decline following duty increases.
-- In Turkey, volume declined 5% and net sales were down 1%.
Raki volume declined 6% in line with the category and the Diageo
Raki portfolio maintained share. Scotch volume grew 2% but net
sales declined as strong domestic depletions were offset by volume
softness in duty free and North Cyprus, and recent price increases
did not fully cover excise duty increases. In vodka, net sales
declined 7%. Smirnoff domestic depletions were strong but price
increases did not fully cover excise duty increases and Istanblue
slowed in the increasingly price competitive value segment.
Latin America and Caribbean
Alberto Gavazzi, President, Diageo Latin America and Caribbean,
commenting on the six months ended 31 December 2013, said:
"Our performance in Latin America in the half has been solid
reflecting resilience in consumer demand, albeit growth is now at
more modest levels. This has resulted in the good performance of
our domestic businesses. However the fluctuating currency
environment has impacted trade in the free trade zone and border
channels. This together with our tight management on pricing has
led to destocking in West LAC. In Venezuela and Argentina the
trading environment continues to be challenging. In both markets we
are actively managing pricing and working to build our domestic
portfolio and the strength of our scotch brands delivered good
growth. In Brazil, performance improved, net sales were up
mid-single digit, despite a destock which halved the rate of net
sales growth. Our acquisition of Ypióca is now fully integrated and
all the synergies identified. Our strong scotch portfolio continued
to be a key driver of net sales growth, up 6% despite destocking
and we are diversifying into other categories, with rums up over
20% and cachaça growing nearly 30%. We're building the strength of
our brands with an 8% increase in marketing investment and we
actively managed our cost base, driving operating margin expansion
of 51 basis points, despite investment in route to consumer in
Brazil, Mexico and Colombia."
Key financials GBPm:
Acquisitions
------------------------------------- ---- --- --------- ---- ---------
and
-------------------------------------
disposals Reported
2013 Organic 2014 movement
H1 FX* movement H1 %
------------------------------------- ---- --- ------------ --------- ---- ---------
Net sales 794 53 (5) 58 900 13
Marketing spend 120 (4) (2) 9 123 3
Operating profit before exceptional
items 301 60 - 25 386 28
Exceptional items - (1)
Operating profit 301 385 28
------------------------------------- ---- --- ------------ --------- ---- ---------
* The net foreign exchange adjustment for net sales, marketing
spend and operating profit before exceptional items includes an
adjustment to the calculation of Venezuela's organic growth of
GBP83 million, GBP2 million and GBP73 million respectively, after
adjusting the current and prior period's performance at $1 = VEF19
(GBP1 = VEF30.4).
Key markets and categories: The strategic brands**:
Organic Reported Organic Reported
Organic net net Organic net net
volume* sales sales Volume* sales sales
% % % % % %
---------------- ------- ------- -------- --------------- ------- ------- --------
Latin America
and
Caribbean (2) 8 13 Johnnie Walker (4) 2 3
Buchanan's (28) 6 23
Smirnoff - (2) (9)
PUB 5 3 (6) Baileys 3 13 13
Andean (4) 83 92
Mexico 3 - -
West LAC (13) (14) (17)
Spirits** (2) 8 14
Beer 5 10 -
Wine (11) 9 (6)
Ready to drink 3 14 18
---------------- ------- ------- -------- --------------- ------- ------- --------
* Organic equals reported movement for volume except for: Andean
(6)%, Mexico 2%, West LAC (14)% and Spirits (3)% reflecting the
disposal of Nuvo and the termination of the distribution agreement
with Cuervo.
** Spirits brands excluding ready to drink.
-- Paraguay, Uruguay and Brazil (PUB) delivered 3% net sales
growth. Declines in Paraguay and Uruguay, resulted from currency
movements which drove significant destocking in the duty free
businesses in those countries. Net sales growth in Brazil was
strong, driven by scotch and cachaça. Within scotch, super premium
Johnnie Walker variants were up 29%, and Old Parr and White Horse
were particularly strong with net sales growth of 50% and 46%
respectively, reflecting the bifurcation of consumer spending
patterns. The Ypióca brand was re-launched with new packaging and a
media campaign featuring John Travolta. Ypióca has been fully
integrated into the portfolio and top line growth was 31%. Vodka
net sales declined 8% as softness in Smirnoff was only partially
offset by strong double digit growth of Cîroc. Smirnoff Ice
declined as lower priced regional players gained share in a
declining market.
-- The Andean business of Venezuela and Colombia continued to
grow. In Venezuela, price increases were taken on the scotch
portfolio to address inflation and this has now impacted total
volume which was down 5%. Net sales growth was driven by premium
scotch, notably Buchanan's, Old Parr and Johnnie Walker Black
Label. Net sales of rum more than doubled as price increases and on
and off trade activations built on the already strong Cacique brand
equity.
-- Net sales were flat in Mexico. The strong performances of
Johnnie Walker Black Label and Johnnie Walker super premium, which
both delivered double digit net sales growth and Black & White
which nearly trebled in size, were offset by weakness in Johnnie
Walker Red Label and J B in the increasingly competitive standard
segment, and Buchanan's 12 in the premium segment. Baileys
continued to lead the liqueur category and support behind the
'Baileys with coffee' platform helped drive 15% top line growth of
the brand.
-- Diageo's largest market in the region, West LAC, saw net
sales decline 14%. This was driven almost exclusively by wholesale
channels where there was significant destocking and Chile, where
price re-alignment led to significant destocking, impacting key
brands such as Buchanan's and Old Parr. In Argentina, Johnnie
Walker, Smirnoff and Navarro wines performed well after import
restrictions were eased. In Jamaica, new flavour innovations on
Smirnoff and Smirnoff Ice and net sales growth of 11% on beer drove
17% top line growth.
Asia Pacific
Gilbert Ghostine, President, Diageo Asia Pacific, commenting on
the six months ended 31 December 2013, said:
"The region faced some specific challenges. Chinese white
spirits declined significantly due to the anti-extravagance
measures and South East Asia was impacted by weakness in some
markets and channels, including Thailand. Aside from these
difficulties, however, we had a number of successes. In Greater
China, super and ultra premium scotch growth was fuelled by Johnnie
Walker innovations and Blue Label and The Singleton which grew 35%.
We had success in Korea, Windsor performance improved significantly
and this along with growth of J B resulted in net sales growth. We
saw strong growth in India and started to see benefits from the USL
sales promotion agreement that we have put in place. Across a
number of our markets we gained share in key categories including
vodka in Japan, ready to drink in Australia and Japan and volume
share gains in scotch in Korea, China and India. Organic operating
margin improved as we increased focus on driving cost efficiencies,
with a significant reduction in overheads."
Key financials GBPm:
Acquisitions
------------------------------------- ---- ---- --------- ---- ---------
and
-------------------------------------
Reported
2013 Organic 2014 movement
H1 FX disposals movement H1 %
------------------------------------- ---- ---- ------------ --------- ---- ---------
Net sales 835 (36) (3) (44) 752 (10)
Marketing spend 182 (7) - (5) 170 (7)
Operating profit before exceptional
items 201 (15) 16 (9) 193 (4)
Exceptional items - - -
Operating profit 201 193 (4)
------------------------------------- ---- ---- ------------ --------- ---- ---------
Key markets and categories: The strategic brands**:
Organic Reported Organic Reported
Organic net net Organic net net
volume* sales sales volume* sales sales
% % % % % %
---------------- ------- ------- -------- --------------- ------- ------- --------
Asia Pacific (4) (6) (10) Johnnie Walker (10) (10) (11)
Windsor (7) (1) 1
South East
Asia (15) (11) (13) Smirnoff 3 4 (4)
Greater China (7) (23) (22) Baileys 4 5 -
India 27 35 19 Guinness 1 - (7)
GTME 4 1 -
Australia
hub 1 (1) (13)
North Asia (3) 4 (2)
Spirits** (4) (8) (10)
Beer 1 - (6)
Ready to drink 1 (1) (12)
---------------- ------- ------- -------- --------------- ------- ------- --------
* Organic equals reported movement for volume except for Greater
China (8)% and Australia (1)% reflecting the termination of the
distribution contract for Jose Cuervo.
** Spirits brands excluding ready to drink.
-- In South East Asia net sales declined 11%. In Thailand,
political unrest, a weaker market environment and double digit
price increases due to tax rises significantly impacted
performance. Elsewhere in South East Asia, it has been a mixed
picture. In some markets and channels, sales were impacted by lower
shipments as economic softness and currency weakness affected trade
confidence, while in Indonesia and Vietnam net sales have grown
double digit. Guinness net sales growth in Indonesia slowed to 5%,
impacted by tightening of government regulations which has reduced
the number of outlets stocking beer.
-- Greater China performance largely reflects the impact of the
government's anti-extravagance measures. The Shui Jing Fang
business was most affected, with significant price discounting by
competitors in the baijiu category driving a 66% decline in net
sales. Johnnie Walker Black Label net sales declined, with
shipments impacted by management of trade stock levels, however,
depletions increased slightly compared to last year and the brand
grew volume share. Super and ultra premium scotch performed
strongly and also gained volume share driven by Johnnie Walker Blue
Label in China and Johnnie Walker Gold Label XR and The Singleton
in Taiwan. Increased investment behind media, sampling and gifting
resulted in continued growth of Baileys, with 37% net sales
growth.
-- India delivered strong double digit net sales growth driven
by volume share gains and initial distribution gains resulting from
our sales promotion agreement with USL, lower stock in trade at the
start of the financial year and a soft comparison against the prior
period. Momentum continued on scotch as Johnnie Walker net sales
grew 87% and delivered almost half of India's growth. Smirnoff net
sales returned to growth, growing double digit due to increased
focus on flavours through upweighted on trade activation,
experiential events and a new global brand campaign 'Smirnoff
experience'.
-- Global Travel Asia & Middle East (GTME) reflected the
strong performance in the Middle East, largely offset by the Asia
duty free business. In the Middle East, net sales grew double digit
driven by improvement in our route to consumer and on trade growth
partly due to increased tourism in the Gulf region. Innovation also
played a key role in driving growth, particularly super and ultra
premium variants in the Middle East travel retail channel. The Asia
duty free business net sales declined significantly as a result of
destocking by key customers.
-- In Australia, growth in spirits was offset by the continued
decline of ready to drink. Spirits net sales grew 5% driven by the
launch of Smirnoff Double Black and the significant growth of Ketel
One vodka, Tanqueray and Don Julio. Captain Morgan also contributed
with rapid growth of the spiced rum segment resulting in 81% net
sales growth. In the declining ready to drink category, net sales
declined 6%. Within the segment, innovation, increased shopper
activities and marketing campaigns resulted in share gains,
particularly for vodka, gin and rum brands. Marketing investment
declined 2% reflecting reduced spend behind ready to drink brands
partly offset by increased focus on innovation and super premium
brands.
-- North Asia returned to growth with net sales increasing 4%,
through the recovery of scotch volume share in Korea and continued
growth of Smirnoff Ice in Japan. In Korea, the whisky market
continues to contract, but now that competitors have taken price
increases, Diageo has regained and extended its volume share.
Windsor net sales are in line with last year, supported by the
launch of Windsor 17 Black. In Japan, Smirnoff Ice net sales grew
double digit and gained share, with growth from Smirnoff Ice Red
and incremental net sales from the launch of Smirnoff Ice Green
Apple Bite. Net sales of Guinness in Japan declined, due to lower
foot traffic in the on premise and loss of share as a result of
significant investment by Japanese beers to capture growth in the
craft beer segment.
-- Marketing investment declined 3% largely driven by Korea in
response to the contracting whisky market and in Thailand in
response to market softness. Investment increased behind Baileys to
support growth, particularly in Vietnam and China. Investment also
increased behind Bundaberg rum in Australia to support the launch
of Bundaberg 125(th) Anniversary in the ultra premium rum segment.
Marketing spend on Shui Jing Fang increased to support the brand in
the competitive environment and behind innovation.
Corporate revenue and costs
Net sales were GBP42 million in the period ended 31 December
2013, flat relative to the comparable prior period. Net operating
charges were GBP67 million in the period ended 31 December 2013
(2012 - GBP72 million). The reduction comprised, a GBP6 million
decrease in corporate costs, less a GBP1 million adverse exchange
rate movement.
CATEGORY REVIEW
For the six months ended 31 December 2013
Key financials category performance:
Organic Reported Organic Reported
Organic net net Organic net net
volume* sales sales volume* sales sales
% % % % % %
---------------- ------- ------- -------- -------------- ------- ------- --------
Spirits** (1) 2 - Rum: 9 9 10
Beer (12) (3) (3) Captain Morgan 6 6 5
Wine (6) 3 (2)
Ready to drink 12 5 (6) Liqueurs: (3) - (3)
Total (3) 2 (1) Baileys (3) 1 1
Strategic brand performance** Tequila: 29 26 (67)
Whisk(e)y: (3) 2 4 Gin: (1) - 1
Johnnie Walker (3) (1) (1) Tanqueray 2 2 2
Crown Royal (3) 1 -
J B (9) (9) (9) Beer: (12) (3) (3)
Buchanan's (20) 9 23 Guinness (5) (1) (1)
Windsor (7) (1) 1
Bushmills 17 13 14
Vodka: (3) 3 2
Smirnoff (4) (3) (5)
Ketel One vodka 6 9 8
Cîroc 20 22 22
---------------- ------- ------- -------- -------------- ------- ------- --------
* Organic equals reported movement for volume except for total
(5)%, spirits (4)%, wine (11)%, ready to drink 6%, liqueurs (5)%,
and tequila (80)%, largely reflecting the disposal of Nuvo and the
termination of the distribution agreement of Pommery and Jose
Cuervo.
** Spirits brands excluding ready to drink.
Category percentages of net sales are for the year ended 30 June
2013.
Spirits represents 69% of Diageo net sales and grew 2% and
delivered 3ppts of positive price/mix. The growth was driven by
North America, whereas volatility in emerging markets resulted in
flat net sales. Super and ultra premium spirits led the growth and
contributed to positive price/mix.
Whisk(e)y represents 36% of Diageo net sales and contributed
over half of total net sales growth, driven by North America and
Latin America and Caribbean. Scotch performance was in line with
total whiskey, with net sales growth of 2% and volume decline of
4%.
-- Johnnie Walker net sales declined slightly. The decline was
driven by Johnnie Walker Red Label and Black Label performance
which was impacted by market weakness in Thailand and destocking
across a number of markets including South East Asia, Asia duty
free, West LAC and PUB. Performance was also impacted by the
comparison against the prior period in North America when Johnnie
Walker Double Black was launched. Super and ultra premium variants
grew double digit, largely driven by North America which along with
pricing in Venezuela drove positive price mix. In North America as
a result of the successful launches of new super premium and above
variants and marketing activity aimed at recruiting the new
generation of whisky drinkers, net sales grew 13%.
-- Net sales of Crown Royal in North America grew, driven by the
launch of Crown Royal XO, a super premium variant. This growth was
partly offset by the comparison against the prior period when Crown
Royal Maple Finished was launched. Marketing investment was focused
on the 'Reign on' marketing campaign. With strong brand equity in
place, price was increased and delivered 4ppts of positive
price/mix.
-- J B net sales declined 9%, primarily driven by continued
contraction in Spain and weakness in emerging markets also having
an impact. This was partly offset by growth in South Africa, the
brand's third largest market and growth in Korea where the brand
more than doubled net sales.
-- Buchanan's net sales increased despite volume decline. In
Latin America and Caribbean, volume performance was significantly
impacted by destocking in wholesale channels and a slow down in
Mexico, offset by Venezuela, where price increases delivered
significant net sales growth but volume declined. Net sales grew
double digit in North America where the brand continued to target
Latin American consumers and marketing investment increased to
support the 'A lo Grande' campaign, sponsorships and trade
activation.
-- Windsor performance improved and net sales were broadly in
line with last year. In the brand's primary market, Korea, the
brand has regained and extended its volume share position and a new
super premium variant, Windsor 17 Black was launched to drive
incremental growth in the on trade.
-- Bushmills again performed strongly with particularly strong
performance in Russia and Eastern Europe and in Germany and Austria
where net sales for the brand more than doubled. Growth was driven
by 'Bushmills live' marketing events, collaborations with Elijah
Wood and Aaron Paul and the expansion of the Bushmills Honey
innovation in Western and Eastern Europe.
-- Malts continue to perform well with net sales growth of 22%.
The recently launched Talisker Storm and the Talisker Whisky
Atlantic Challenge drove net sales growth for the brand of 44%. The
Singleton and Lagavulin also contributed with net sales growth of
28% and 22% respectively.
Vodka represents 12% of Diageo net sales. Net sales grew 3%,
with growth of super and ultra premium variants driving 6ppts of
positive price/mix. North America contributed over 60% of vodka net
sales and 90% of the net sales growth for the category.
-- Smirnoff net sales declined in North America, its largest
market, where the brand lost share in an increasingly price
sensitive segment. However, innovations performed well, as the
Smirnoff Light Sorbet line and the launch of new Smirnoff Wild
Honey and Cinna-Sugar Twist flavoured vodka positively impacted
performance. Net sales in Western Europe also declined, primarily
driven by competitive pricing in the on trade in Great Britain and
difficult market conditions in Ireland. This was largely offset by
the launch of the new signature serve Smirnoff Apple Bite in both
countries and Smirnoff Gold in Great Britain, with both innovations
supported by strong marketing campaigns. In Australia, net sales
grew 4% driven by the launch of Smirnoff Double Black, with a
national campaign.
-- Ketel One vodka grew both net sales and volume. In North
America, net sales growth was driven by the launch of the 'Vodka of
substance' campaign and brand ambassador and mentoring programmes.
Outside of North America, net sales grew by almost 50%, led by net
sales in Australia more than doubling.
-- Cîroc again performed strongly, with net sales growth of 22%.
In North America, growth was driven by price increases and the
launch of Cîroc Amaretto, supported by increased marketing
investment behind the 'Luck be a lady' campaign. Net sales doubled
outside of the United States, with all markets performing well, in
particular, Canada and Great Britain.
Rum represents 6% of Diageo net sales. Net sales of rum grew 9%
driven by Captain Morgan, Cacique and Zacapa. Cacique net sales
increased 38% driven by both volume growth and price increases in
Venezuela.
-- Captain Morgan net sales grew 6% fuelled by growth in Germany
and Austria, Great Britain and Russia and Eastern Europe through
success of the 'Keys to adventure' experiential events and the new
'Live like the captain' campaign. In North America, which
contributes over 70% of net sales for the brand, net sales grew 3%.
The sell in of Captain Morgan white rum ahead of a planned launch
early in the second half and the Captain Morgan Sherry Oak limited
edition offer offset the impact on performance of increased
competition from flavoured whiskies and other spiced rums.
-- Zacapa performed strongly with double digit net sales growth,
driven by 28% growth in its largest region, Western Europe.
Investment focused on trade persuasion, mentoring and sampling. The
successful Zacapa Rooms, a luxury temporary lounge dedicated to
tasting events for key influencers, media and consumers, continued
to be rolled out across Western Europe.
Liqueurs represents 5% of Diageo total net sales. Performance
was driven by Baileys, which represents over 85% of the
category.
-- Baileys net sales grew 1% with mixed performance across
markets. The brand continued to grow net sales in North America
driven by the success of the Baileys Vanilla Cinnamon launch with
the campaign 'The most stylish shot of the night'. In Greater
China, building on the success achieved in Shanghai, Baileys was
launched in Beijing, growing net sales 37%. Baileys also grew in
Latin America and Caribbean following the roll out of the global
campaign 'Cream with spirit' and activation in Mexico focused on
'Baileys and coffee'. In Western Europe, net sales declined
slightly. Performance was impacted by price increases in Germany
and Benelux and high stock in trade levels at the start of the
financial year in Great Britain, however, this was partly offset by
the successful launch of Baileys Chocolat Luxe. Marketing
investment increased slightly behind the global marketing campaign
and local campaigns such as 'Christmas with spirit', the first
Christmas television commercial in Great Britain for five
years.
Tequila net sales grew 26% driven by strong performance of Don
Julio. In its primary market, North America, net sales grew 25% and
share increased. This was driven by a significant increase in
marketing investment to support new brand positioning and
commercial activation around the summer programme, 'Elevate your
summer'. Don Julio continued to perform strongly outside of the
United States, growing net sales 33%.
Gin represents 3% of Diageo net sales and net sales were flat.
Growth in Africa was offset by a 4% net sales decline of Gordons
across all regions except Latin America and Caribbean.
-- Tanqueray net sales grew 2% largely driven by a strong
performance in Western Europe. The launch of new print and online
communications is helping to drive significant net sales growth
across the region. In North America, depletions performed well and
Diageo grew share but shipments were impacted by higher stock
levels at the start of the financial year.
Beer, which represents 21% of Diageo net sales, declined 3%
driven by Nigeria, where in a weak market consumers are trading
down to value beer and by challenges in the beer market in
Ireland.
-- Guinness net sales declined 1%, delivering 4ppts of positive
price/mix from price increases. Guinness performed well in East
Africa, North America and South East Asia. In East Africa, a price
increase drove net sales growth of 23%, and this was supported by a
significant increase in marketing investment. In North America, the
United States grew slightly and Canada grew net sales 15% supported
by the 'Basketball' advertising. Offsetting this growth was a
decline in Nigeria and Ireland due to difficult market conditions
and in Japan due to on premise decline and a significant increase
in competitor investment in craft beer.
-- Performance of local African beers was negatively impacted by
the decline of mainstream beer and increased pricing pressure in
Nigeria, with the Harp brand most affected. The excise duty impact
on Senator in Kenya also resulted in net sales decline. These
challenges were in part offset by growth of other local beer brands
including Tusker which grew double digit driven by price increases
and strong football related marketing programmes.
Wine represents 4% of Diageo net sales and grew 3%. Growth was
largely driven by North America, as a result of price increases and
innovation.
Ready to drink represents 6% of Diageo's net sales and grew 5%
driven by South Africa, Venezuela and Japan, partly offset by a
decline in North America and Australia. In South Africa, the growth
was driven by the successful launch of Smirnoff Ice Double Black
& Guarana. In Japan, net sales grew 32% driven by both Smirnoff
Ice core variants and the launch of Smirnoff Ice Green Apple Bite
as a permanent variant. Destocking of pouches largely drove the net
sales decline in North America, and in Australia, category decline
continued to impact performance.
FINANCIAL REVIEW
Summary consolidated income statement
Six months ended Six months ended
31 December 2013 31 December 2012
(restated)
GBP million GBP million
Sales 8,014 8,131
Excise duties (2,082) (2,156)
---------------- ----------------
Net sales 5,932 5,975
Operating costs before exceptional
items (3,872) (3,974)
---------------- ----------------
Operating profit before exceptional
items 2,060 2,001
Exceptional operating items (20) 16
---------------- ----------------
Operating profit 2,040 2,017
Non-operating items 138 -
Net finance charges (225) (229)
Share of associates' profits after
tax 181 140
---------------- ----------------
Profit before taxation 2,134 1,928
Taxation (388) (351)
---------------- ----------------
Profit from continuing operations 1,746 1,577
Discontinued operations (92) -
---------------- ----------------
Profit for the period 1,654 1,577
================ ================
Attributable to:
Equity shareholders of the parent
company 1,599 1,521
Non-controlling interests 55 56
---------------- ----------------
1,654 1,577
================ ================
Sales and net sales
On a reported basis, sales decreased by GBP117 million from
GBP8,131 million in the six months ended 31 December 2012 to
GBP8,014 million in the six months ended 31 December 2013 and net
sales decreased by GBP43 million from GBP5,975 million in the six
months ended 31 December 2012 to GBP5,932 million in the six months
ended 31 December 2013. Exchange rate movements decreased reported
sales by GBP143 million and reported net sales by GBP86 million.
Disposals decreased reported sales by GBP179 million and reported
net sales by GBP143 million.
Operating costs before exceptional items
On a reported basis, operating costs before exceptional items
decreased by GBP102 million from GBP3,974 million in the six months
ended 31 December 2012 to GBP3,872 million in the six months ended
31 December 2013 due to a decrease in cost of sales of GBP64
million from GBP2,248 million to GBP2,184 million, a decrease in
marketing spend of GBP15 million from GBP918 million to
GBP903million, and a decrease in other operating expenses before
exceptional costs of GBP23 million, from GBP808 million to GBP785
million. Exchange rate movements benefited total operating costs
before exceptional items by GBP32 million.
Exceptional operating items
Exceptional operating charges of GBP20 million in the six months
ended 31 December 2013 comprised GBP3 million (2012 - GBPnil) in
respect of the Supply excellence restructuring programme and GBP17
million (2012 - GBP4 million) for the restructuring of the group's
supply operations in Ireland.
In the six months ended 31 December 2012 exceptional operating
items also included a gain of GBP20 million in respect of changes
to future pension increases for the Diageo Guinness Ireland Group
Pension Scheme.
In the six months ended 31 December 2013 total restructuring
cash expenditure was GBP41 million (2012 - GBP34 million). An
exceptional charge of approximately GBP70 million is expected to be
incurred in the year ending 30 June 2014 in respect of the Supply
excellence review and the restructuring of the group's supply
operations in Ireland, and the cash expenditure in respect of these
programmes is expected to be approximately GBP75 million.
Operating profit
Reported operating profit for the six months ended 31 December
2013 increased by GBP23 million to GBP2,040 million from GBP2,017
million in the comparable prior period. Before exceptional
operating items, operating profit for the six months ended 31
December 2013 increased by GBP59 million to GBP2,060 million from
GBP2,001 million in the comparable prior period. Exchange rate
movements decreased both operating profit and operating profit
before exceptional items for the six months ended 31 December 2013
by GBP54 million. Acquisitions increased reported operating profit
by GBP22 million and disposals decreased reported operating profit
by GBP38 million.
Non-operating items
In the six months ended 31 December 2013 non-operating items of
GBP138 million included a gain of GBP140 million following the
acquisition of additional equity shares in United Spirits Limited
(USL) which increased the group's equity interest in USL from
10.04% to 25.02% and triggered a change in accounting from
available-for-sale investments to associates. As a result, the
accumulated fair value movements, in respect of the 10.04% holding
in USL, previously reported in other comprehensive income were
recycled to the income statement.
Net finance charges
Net finance charges amounted to GBP225 million in the six months
ended 31 December 2013 (2012 - GBP229 million).
Net interest charge decreased by GBP13 million from GBP201
million in the comparable prior period to GBP188 million in the six
months ended 31 December 2013. The effective interest rate was 4.1%
(2012 - 4.9%) in the six months ended 31 December 2013 and average
net borrowings increased by GBP1,016 million compared to the
comparable prior period. For the calculation of effective interest
rate, the net interest charge excludes fair value adjustments to
derivative financial instruments and borrowings and average monthly
net borrowings include the impact of interest rate swaps that are
no longer in a hedge relationship but exclude the market value
adjustment for cross currency interest rate swaps.
Net other finance charges for the six months ended 31 December
2013 were GBP37 million (2012 - GBP28 million). There was a
decrease of GBP15 million in finance charges in respect of post
employment plans from GBP22 million in the six months ended 31
December 2012 to GBP7 million in the six months ended 31 December
2013. Other finance charges also included GBP3 million (2012 - GBP6
million) in respect of the unwinding of discounts on liabilities
and a hyperinflation adjustment of GBP27 million (2012 - GBP2
million) in respect of the group's Venezuela operations.
Associates
The group's share of associates' profits after interest and tax
was GBP181 million for the six months ended 31 December 2013
compared to GBP140 million in the comparable prior period. Diageo's
34% equity interest in Moët Hennessy contributed GBP164 million
(2012 - GBP132 million) to share of associates' profits after
interest and tax.
Profit before taxation
Profit before taxation increased by GBP206 million from GBP1,928
million in the comparable prior period to GBP2,134 million in the
six months ended 31 December 2013.
Taxation
The reported tax rate remained unchanged at 18.2% in the six
months ended 31 December 2013 compared to the comparable prior
period. The tax rate before exceptional items for the six months
ended 31 December 2013 was 19.4% compared with 18.3% in the six
months ended 31 December 2012. In the six months ended 31 December
2013 an increase in the hyperinflation charge for Venezuela which
is not tax deductible, and an increase in the proportional share of
profit from Venezuela impacted the tax charge for the period.
Excluding the group's Venezuelan operation, the tax rate before
exceptional items was 17.9%, and it is expected that it will remain
at approximately 18%.
Discontinued operations
Discontinued operations in the six months ended 31 December 2013
represented a charge after taxation of GBP92 million (2012 -
GBPnil) in respect of the settlement of the litigation in Australia
and New Zealand (GBP51 million) and anticipated future payments to
thalidomide injured individuals and thalidomide organisations
(GBP41 million). It is anticipated that approximately GBP65 million
will be paid in the year ending 30 June 2014.
Exchange rate and other movements
Exchange rate movements are calculated by retranslating the
prior period results as if they had been generated at the current
period exchange rates. The difference is excluded from organic
growth. The estimated effect of exchange rate and other movements
on profit before exceptional items and taxation for the six months
ended 31 December 2013 is set out in the table below.
Gains/(losses)
GBP million
Operating profit before exceptional items
Translation impact (9)
Transaction impact (45)
Total exchange effect on operating profit before
exceptional items (54)
Interest and other finance charges
Net finance charges - translation
impact 1
Mark to market impact of IAS 39 on interest
expense 1
Impact of IAS 21 and IAS 39 on other finance
charges (1)
Associates - translation impact 9
----------------
Total effect on profit before exceptional items
and taxation (44)
================
Six months ended Six months ended
31 December 2013 31 December 2012
Exchange rates
Translation GBP1 = $1.60 $1.60
Transaction GBP1 = $1.58 $1.59
Translation GBP1 = EUR1.18 EUR1.25
Transaction GBP1 = EUR1.23 EUR1.21
The results for the six months ended 31 December 2013 include
net sales and operating profit attributable to Venezuela of GBP294
million (2012 - GBP126 million) and GBP204 million (2012 - GBP68
million), respectively. Cash and cash equivalents include GBP291
million denominated in Venezuelan bolivar as at 31 December 2013. A
change in the exchange rate from $1 = VEF9 (GBP1 = VEF14.9) to $1 =
VEF19 (GBP1 = VEF30.4) would, for the six months ended 31 December
2013, reduce net sales by GBP149 million (2012 - GBP66 million),
operating profit by GBP108 million (2012 - GBP35 million) and cash
and cash equivalents by GBP148 million.
Dividend
An interim dividend of 19.7 pence per share will be paid to
holders of ordinary shares and ADRs on the register as of 28
February 2014. This represents an increase of 9% on last year's
interim dividend. The interim dividend will be paid to shareholders
on 7 April 2014. Payment to US ADR holders will be made on 10 April
2014. A dividend reinvestment plan is available in respect of the
interim dividend and the plan notice date is 14 March 2014.
Cash flow Six months ended Six months ended
31 December 2013 31 December 2012
(restated)
GBP million GBP million
Cash generated from operations before
exceptional costs 1,210 1,467
Exceptional operating costs paid (41) (34)
---------------- ----------------
Cash generated from operations 1,169 1,433
Interest paid (net) (275) (262)
Taxation paid (288) (176)
Net capital expenditure (279) (264)
Movements in loans and other investments (1) (23)
---------------- ----------------
Free cash flow 326 708
================ ================
Free cash flow decreased by GBP382 million to GBP326 million in
the six months ended 31 December 2013. Cash generated from
operations decreased from GBP1,433 million to GBP1,169 million
primarily driven by lower creditors across the regions as the
result of larger proportion of marketing activities being incurred
in the first quarter in the current period coupled with a one off
EUR100 million (GBP85 million) payment into the Irish pension plans
and the dividend from Moët Hennessy being received earlier in the
comparable prior period. Higher tax payments are principally the
result of increased taxable profits and tax audit payments. See
explanatory note 3 for the definition of free cash flow.
Balance sheet
At 31 December 2013 total equity was GBP8,038 million compared
with GBP8,088 million at 30 June 2013. The decrease was mainly due
to the dividend paid out of shareholders' equity of GBP735 million,
adverse exchange movements of GBP770 million, a net remeasurement
of the post employment liability of GBP89 million and fair value
movements on available-for-sale investments of GBP90 million. These
decreases were partially offset by the profit for the period of
GBP1,654 million.
The deficit in respect of post employment plans before taxation
decreased by GBP54 million from GBP541 million at 30 June 2013 to
GBP487 million at 31 December 2013 primarily as a result of a one
off EUR100 million (GBP85 million) cash contribution into the Irish
pension plans. Cash contributions to the group's post employment
plans in the six months ended 31 December 2013 were GBP182 million
(2012 - GBP98 million) and are expected to be approximately GBP290
million for the year ending 30 June 2014.
Net borrowings were GBP9,096 million at 31 December 2013, an
increase of GBP693 million from GBP8,403 million at 30 June 2013.
The principal components of this increase were GBP735 million (2012
- GBP673 million) equity dividends paid, and GBP420 million (2012 -
GBP301 million) paid for the acquisition of businesses, primarily
in respect of United Spirits Limited, which were partially offset
by favourable exchange movements of GBP337 million (2012 - GBP111
million) andfree cash flow of GBP326 million (2012 - GBP708
million).
Diageo manages its capital structure to achieve capital
efficiency, maximise flexibility and give the appropriate level of
access to debt markets at attractive cost levels in order to
enhance long term shareholder value. To achieve this, Diageo
targets a range of ratios which are currently broadly consistent
with an A band credit rating. Diageo would consider modifying these
ratios in order to effect strategic initiatives within its stated
goals, which could have an impact on its rating. If Diageo's
ratings were to be negatively impacted by the financing of an
acquisition, it would seek over time to return to such ratios that
are consistent with an A band credit rating.
To ensure that intangibles with indefinite useful lives are not
carried above their recoverable amount an impairment triggering
event review was carried out in the six months ended 31 December
2013 for all material intangibles and recent acquisitions. As a
result of the weak performance in China, in particular in respect
of the Shui Jing Fang brand, due to a downturn in the baijiu
category, an impairment test was carried out to support the book
value of the Shui Jing Fang brand and the Greater China cash
generating unit. This resulted in no impairment charge for the six
months ended 31 December 2013. As announced by Sichuan Shuijingfang
Co., Ltd (Shuijingfang), a new strategy is currently being
developed, based on which the impairment test will be updated in
the second half of the financial year. At 31 December 2013, the
book value of the Greater China cash generating unit was GBP660
million of which GBP499 million is in respect of the Shui Jing Fang
brand. The non-controlling interest in respect of Shuijingfang
amounted to GBP317 million.
Economic profit
Economic profit decreased by GBP4 million from GBP1,001 million
in the six months ended 31 December 2012 to GBP997 million in the
six months ended 31 December 2013. See explanatoru note 5 for the
calculation and definition of economic profit.
DIAGEO CONDENSED CONSOLIDATED INCOME STATEMENT
Six months ended Six months ended
31 December 2013 31 December 2012
(restated)
Notes GBP million GBP million
Sales 2 8,014 8,131
Excise duties (2,082) (2,156)
---------------- ----------------
Net sales 2 5,932 5,975
Cost of sales (2,200) (2,251)
---------------- ----------------
Gross profit 3,732 3,724
Marketing (903) (918)
Other operating expenses (789) (789)
---------------- ----------------
Operating profit 2 2,040 2,017
Non-operating items 3 138 -
Net interest payable 4 (188) (201)
Net other finance charges 4 (37) (28)
Share of associates' profits after
tax 181 140
---------------- ----------------
Profit before taxation 2,134 1,928
Taxation 5 (388) (351)
---------------- ----------------
Profit from continuing operations 1,746 1,577
Discontinued operations 3 (92) -
---------------- ----------------
Profit for the period 1,654 1,577
================ ================
Attributable to:
Equity shareholders of the parent
company 1,599 1,521
Non-controlling interests 55 56
---------------- ----------------
1,654 1,577
================ ================
Basic earnings per share
Continuing operations 67.5p 60.8p
Discontinued operations (3.7)p -
---------------- ----------------
63.8p 60.8p
================ ================
Diluted earnings per share
Continuing operations 67.2p 60.4p
Discontinued operations (3.7)p -
---------------- ----------------
63.5p 60.4p
================ ================
Average shares (in million) 2,507 2,501
Figures for the six months ended 31 December 2012 have been restated
following the adoption of IFRS 11 and the amendment to IAS 19. See Note
1 and 15 to the financial information.
DIAGEO CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Six months ended
31 December 2013 31 December
2012
(restated)
GBP million GBP million
Other comprehensive income
Items that will not be recycled subsequently
to the income
statement
Net remeasurement of post employment plans
- group (90) (80)
- associates 1 -
Tax credit on post employment plans 11 7
---------------- ----------------
(78) (73)
---------------- ----------------
Items that may be recycled subsequently
to the income
statement
Exchange differences on translation of
foreign operations
excluding borrowings
- group (862) (206)
- non-controlling interests (82) (31)
- associates (191) 9
Exchange differences on borrowings and
derivative net investment
hedges 365 103
Tax on exchange differences on borrowings
and derivative net
investment hedges (7) 2
Effective portion of changes in fair value
of cash flow hedges
- gains/(losses) taken to other comprehensive
income 30 (14)
- recycled to income statement 49 11
Tax on effective portion of changes in
fair value of cash flow
hedges 2 9
Fair value movements on available-for-sale
investments
- gains taken to other comprehensive income 56 -
- recycled to income statement (146) -
Hyperinflation adjustment 51 2
Tax on hyperinflation adjustment (11) -
---------------- ----------------
(746) (115)
---------------- ----------------
Other comprehensive loss, net of tax, for
the period (824) (188)
Profit for the period 1,654 1,577
---------------- ----------------
Total comprehensive income for the period 830 1,389
================ ================
Attributable to:
Equity shareholders of the parent company 859 1,365
Non-controlling interests (29) 24
---------------- ----------------
Total comprehensive income for the period 830 1,389
================ ================
Figures for the six months ended 31 December 2012 have been restated
following the adoption of IFRS 11 and the amendment to IAS 19. See Note
1 and 15 to the financial information.
DIAGEO CONDENSED CONSOLIDATED BALANCE SHEET
31 December 2013 30 June 2013 31 December 2012
(restated) (restated)
Notes GBP million GBP million GBP million GBP million GBP million GBP million
Non-current assets
Intangible assets 8,324 9,013 8,877
Property, plant and equipment 3,393 3,425 3,083
Biological assets 34 36 34
Investments in associates 3,329 2,521 2,407
Other investments 68 412 98
Other receivables 110 127 115
Other financial assets 9 276 393 449
Deferred tax assets 229 242 326
Post employment benefit
assets 177 312 18
----------- ----------- -----------
15,940 16,481 15,407
Current assets
Inventories 6 4,320 4,207 4,165
Trade and other receivables 2,957 2,437 2,849
Assets held for sale 8 51 76
Other financial assets 9 129 65 57
Cash and cash equivalents 7 891 1,750 686
----------- ----------- -----------
8,305 8,510 7,833
----------- ----------- -----------
Total assets 24,245 24,991 23,240
----------- ----------- -----------
Current liabilities
Borrowings and bank overdrafts 7 (3,007) (1,852) (2,205)
Other financial liabilities 9 (153) (122) (123)
Trade and other payables (3,040) (3,212) (3,220)
Corporate tax payable (276) (224) (416)
Provisions (90) (109) (99)
----------- ----------- -----------
(6,566) (5,519) (6,063)
Non-current liabilities
Borrowings 7 (6,716) (8,217) (6,220)
Other financial liabilities 9 (453) (473) (506)
Other payables (103) (118) (96)
Provisions (268) (256) (273)
Deferred tax liabilities (1,437) (1,467) (1,519)
Post employment benefit
liabilities (664) (853) (1,132)
----------- ----------- -----------
(9,641) (11,384) (9,746)
----------- ----------- -----------
Total liabilities (16,207) (16,903) (15,809)
----------- ----------- -----------
Net assets 8,038 8,088 7,431
=========== =========== ===========
Equity
Share capital 797 797 797
Share premium 1,344 1,344 1,344
Other reserves 2,540 3,154 3,127
Retained earnings 2,405 1,741 1,059
----------- ----------- -----------
Equity attributable to
equity
shareholders of the parent
company 7,086 7,036 6,327
Non-controlling interests 952 1,052 1,104
----------- ----------- -----------
Total equity 8,038 8,088 7,431
=========== =========== ===========
Figures as at 31 December 2012 and as at 30 June 2013 have been restated
following the adoption of IFRS 11. See Note 1 and 15 to the financial
information.
DIAGEO CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Retained earnings/(deficit)
----------------------------
Equity
attributable
Other to parent
Share Share Other Own retained company Non-controlling Total
capital premium reserves shares earnings Total share-holders interests equity
GBP GBP GBP GBP GBP GBP GBP
million million million million million million GBP million GBP million million
At 30 June 2013
as previously
reported 797 1,344 3,154 (2,232) 3,973 1,741 7,036 1,071 8,107
Prior year
adjustments
(see note 1)
- Adoption of
IFRS 11 - - - - - - - (19) (19)
-------- -------- -------- -------- -------- -------- ------------- --------------- --------
At 30 June 2013
as restated 797 1,344 3,154 (2,232) 3,973 1,741 7,036 1,052 8,088
Total
comprehensive
income - - (614) - 1,473 1,473 859 (29) 830
Employee share
schemes - - - (9) (51) (60) (60) - (60)
Share-based
incentive
plans - - - - 19 19 19 - 19
Share-based
incentive
plans in respect
of associates - - - - 1 1 1 - 1
Tax on
share-based
incentive
plans - - - - (13) (13) (13) - (13)
Acquisition of
businesses - - - - - - - 8 8
Change in fair
value
of put options - - - - (4) (4) (4) - (4)
Purchase of
non-controlling
interests - - - - (17) (17) (17) (18) (35)
Dividends paid - - - - (735) (735) (735) (61) (796)
At 31 December
2013 797 1,344 2,540 (2,241) 4,646 2,405 7,086 952 8,038
======== ======== ======== ======== ======== ======== ============= =============== ========
At 30 June 2012
as previously
reported 797 1,344 3,213 (2,257) 2,491 234 5,588 1,223 6,811
Prior year
adjustments
(see note 1)
- Adoption of
IFRS 11 - - - - - - - (19) (19)
-------- -------- -------- -------- -------- -------- ------------- --------------- --------
At 30 June 2012
as restated 797 1,344 3,213 (2,257) 2,491 234 5,588 1,204 6,792
Total
comprehensive
income - - (86) - 1,451 1,451 1,365 24 1,389
Employee share
schemes - - - (19) (25) (44) (44) - (44)
Share-based
incentive
plans - - - - 21 21 21 - 21
Share-based
incentive
plans in respect
of associates - - - - 1 1 1 - 1
Tax on
share-based
incentive
plans - - - - 7 7 7 - 7
Change in fair
value
of put options - - - - (3) (3) (3) - (3)
Dividends paid - - - - (673) (673) (673) (59) (732)
Transfers - - - - 65 65 65 (65) -
At 31 December
2012
-------- -------- -------- -------- -------- -------- ------------- --------------- --------
as restated 797 1,344 3,127 (2,276) 3,335 1,059 6,327 1,104 7,431
======== ======== ======== ======== ======== ======== ============= =============== ========
Figures for the six months ended 31 December 2012 have been restated following
the adoption of IFRS 11. See Note 1 and 15 to the financial information.
DIAGEO CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended Six months ended
31 December 2013 31 December 2012
(restated)
GBP million GBP million GBP million GBP million
Cash flows from operating activities
Cash generated from operations (see note 11) 1,169 1,433
Interest received 71 64
Interest paid (346) (326)
Taxation paid (288) (176)
-------- --------
Net cash from operating activities 606 995
Cash flows from investing activities
Disposal of property, plant and equipment and
computer software 64 3
Purchase of property, plant and equipment and
computer software (343) (267)
Movements in loans and other investments (1) (23)
Acquisition of businesses (420) (301)
-------- --------
Net cash outflow from investing activities (700) (588)
Cash flows from financing activities
Net purchase of own shares for share schemes (61) (56)
Dividends paid to equity non-controlling
interests (61) (59)
Purchase of shares of non-controlling (35) -
interests
Net increase in loans 139 14
Equity dividends paid (735) (673)
-------- --------
Net cash outflow from financing activities (753) (774)
--------- ----------
Net decrease in net cash and cash equivalents (847) (367)
Exchange differences (41) -
Net cash and cash equivalents at beginning of
the period 1,645 1,015
--------- ----------
Net cash and cash equivalents at end of the
period 757 648
========= ==========
Net cash and cash equivalents consist
of:
Cash and cash equivalents 891 686
Bank overdrafts (134) (38)
--------- ----------
757 648
========= ==========
Figures for the six months ended 31 December 2012 have been restated following the adoption
of IFRS 11. See Note 1 and 15 to the financial information.
NOTES
1. Basis of preparation
The financial information included within this report has been
prepared using accounting policies in accordance with International
Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB) and adopted for use in the
European Union (EU), and in accordance with the Disclosure and
Transparency Rules (DTR) of the Financial Conduct Authority. The
condensed consolidated financial statements have been prepared in
accordance with IAS 34 - Interim Financial Reporting. This interim
condensed consolidated financial information is unaudited and has
been prepared on the basis of accounting policies consistent with
those applied in the consolidated financial statements for the year
ended 30 June 2013 except for the impact of adoption of new
accounting standards 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.
The directors have a reasonable expectation that the group has
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the condensed consolidated financial
statements.
Adopted by the group
The following accounting standards and amendments, issued by the
International Accounting Standards Board (IASB), are effective for
the first time in the current financial year and have been adopted
by the group:
IFRS 10 - Consolidated financial statementsreplaces the guidance
of control and consolidation in IAS 27 and SIC-12 - Consolidation -
special purpose entities. The core principle that a consolidated
entity presents a parent and its subsidiaries as if they were a
single entity remains unchanged, as do the mechanics of
consolidation. Application of IFRS 10 has not affected the scope of
the consolidation.
IFRS 11 - Joint arrangements requires joint arrangements to be
accounted for as a joint operation or as a joint venture depending
on the rights and obligations of each party to the arrangement.
This means that for certain entities the group's share of their
sales and other financial items is no longer consolidated on a line
by line basis but the group's net share of their net income is
included in the line 'Share of profits of associates after tax'.
Following the adoption of IFRS 11, the group has restated its
financial information.
IFRS 12 - Disclosure of interests in other entities requires
enhanced disclosures of the nature, risks and financial effects
associated with the group's interests in subsidiaries, associates,
joint arrangements and unconsolidated structured entities.
IFRS 13 - Fair value measurement explains how to measure fair
value and aims to enhance fair value disclosures. The standard does
not materially change the measurement of fair values but codifies
it in one place.
Amendments to IAS 19 - Employee benefits changes a number of
disclosure requirements for post employment arrangements and
restricts the options currently available on how to account for
defined benefit pension plans. The most significant change that
impacts the group is that the amendment requires the expected
returns on pension plan assets, previously calculated based on
management's estimate of expected returns, to be replaced by a
credit on the pension plan assets calculated at the liability
discount rate.
As a consequence of the above changes, comparative prior period
figures have been restated. The impact on the group's consolidated
statement of comprehensive income, net assets and net cash flow are
provided in Note 15 to the financial information. Restated
segmental information for the six months ended 31 December 2012 is
provided the explanatory notes section.
The following accounting standards and amendments, issued by the
IASB, have been adopted by the group from 1 July 2013 with no
significant impact on its consolidated results or financial
position:
Amendment to IAS 1 - Clarification of the requirements for
comparative information
Limited scope amendment to IAS 12 - Income taxes
Amendment to IAS 16 - Classification of servicing equipment
IAS 27 (Revised) - Separate financial statements
IAS 28 (Revised) - Investments in associates and joint
ventures
Amendment to IAS 32 - Tax effect of distribution to holders of
equity instruments
Amendment to IAS 34 - Interim financial reporting
Amendment to IFRS 7 - Disclosures - Offsetting financial assets
and financial liabilities
The comparative figures for the financial year ended 30 June
2013 are not the company's statutory accounts for that financial
year. Those accounts have been reported on by the company's auditor
and delivered to the registrar of companies. The report of the
auditor was (i) 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
Diageo presents segmental information for the manufacture,
distribution and selling of premium drinks in operating segments
based on the geographical location of third party customers. The
information presented is consistent with management reporting
provided to the chief operating decision maker, which has been
identified as the executive committee.
The executive committee considers the business principally from
a geographical perspective 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
Global Supply, which manufactures products for other group
companies and includes the production sites in the United Kingdom,
Ireland and Italy. Continuing operations also include the Corporate
function. In view of the focus on the geographical segments in
explaining the group's performance in the Business review, the
results of the Global Supply segment have been allocated to the
geographical segments. Corporate revenues and costs are in respect
of central costs, including finance, corporate relations, human
resources and legal, as well as certain information systems,
facilities and employee costs that do not relate to the
geographical segments or to Global Supply and hence are not
allocated. They also include rents receivable in respect of
properties not used by the group in the manufacture, sale or
distribution of premium drinks and the results of Gleneagles
Hotel.
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 period'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 period's
budgeted exchange rates but is presented at the budgeted rates for
the year ended 30 June 2013.
In addition, for management reporting purposes Diageo excludes
the impact of acquisitions and disposals completed in the current
and prior period from the results of the geographical segments in
order to provide comparable results. 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 Africa,
ended Eastern Latin Eliminate
31 December Europe America inter- Total
2013 North Western and and Asia Global segment operating Corporate
America Europe Turkey Caribbean Pacific Supply sales segments and other Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
million million million million million million million million million million
Sales 2,149 1,970 1,739 1,102 1,012 821 (821) 7,972 42 8,014
======== ======== ======== ========= ======== ======== ========= ========= ========= ========
Net sales
At budgeted
exchange
rates* 1,934 1,134 1,191 741 792 864 (821) 5,835 42 5,877
Acquisitions
and
disposals 20 2 1 - - - - 23 - 23
Global Supply
allocation 6 23 6 4 4 (43) - - - -
Retranslation
to actual
exchange
rates (56) 20 (43) 155 (44) - - 32 - 32
-------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Net sales 1,904 1,179 1,155 900 752 821 (821) 5,890 42 5,932
======== ======== ======== ========= ======== ======== ========= ========= ========= ========
Operating
profit/(loss)
At budgeted
exchange
rates* 866 338 351 263 217 56 - 2,091 (69) 2,022
Acquisitions
and
disposals (4) 2 (1) - (7) - - (10) - (10)
Global Supply
allocation 8 29 8 6 5 (56) - - - -
Retranslation
to actual
exchange
rates (19) 1 (31) 117 (22) - - 46 2 48
-------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Operating
profit/(loss)
before
exceptional
items 851 370 327 386 193 - - 2,127 (67) 2,060
Exceptional
items (1) - (2) (1) - (16) - (20) - (20)
-------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Operating
profit/(loss) 850 370 325 385 193 (16) - 2,107 (67) 2,040
======== ======== ======== ========= ======== ======== ========= ========= =========
Non-operating
items 138
Net finance
charges (225)
Share of
associates'
profits
after tax
- Moët
Hennessy 164
- Other
associates 17
--------
Profit before
taxation 2,134
========
Six months Africa,
ended Eastern Latin Eliminate
31 December Europe America inter- Total
2012 North Western and and Asia Global segment operating Corporate
(restated) America Europe Turkey Caribbean Pacific Supply sales segments and other Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
million million million million million million million million million million
Sales 2,218 1,977 1,791 965 1,138 1,396 (1,396) 8,089 42 8,131
======== ======== ======== ========= ======== ======== ========= ========= ========= ========
Net sales
At budgeted
exchange
rates* 1,980 1,190 1,156 793 805 1,473 (1,425) 5,972 43 6,015
Acquisitions
and
disposals - 1 62 30 51 - - 144 - 144
Global Supply
allocation 7 23 6 7 5 (48) - - - -
Retranslation
to actual
exchange
rates (45) (40) (36) (36) (26) (29) 29 (183) (1) (184)
-------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Net sales 1,942 1,174 1,188 794 835 1,396 (1,396) 5,933 42 5,975
======== ======== ======== ========= ======== ======== ========= ========= ========= ========
Operating
profit/(loss)
At budgeted
exchange
rates* 819 371 364 308 221 63 - 2,146 (75) 2,071
Acquisitions
and
disposals - - 18 3 (17) - - 4 - 4
Global Supply
allocation 27 21 6 4 5 (63) - - - -
Retranslation
to actual
exchange
rates (24) (14) (17) (14) (8) - - (77) 3 (74)
-------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Operating
profit/(loss)
before
exceptional
items 822 378 371 301 201 - - 2,073 (72) 2,001
Exceptional
items - 20 - - - (4) - 16 - 16
-------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Operating
profit/(loss) 822 398 371 301 201 (4) - 2,089 (72) 2,017
======== ======== ======== ========= ======== ======== ========= ========= =========
Net finance
charges (229)
Share of
associates'
profits
after tax
- Moët
Hennessy 132
- Other
associates 8
--------
Profit before
taxation 1,928
========
* These items represent the IFRS 8 performance measures for the geographical
and Global Supply segments.
(i) The group's net finance charges are managed centrally and
are not attributable to individual operating segments.
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 - GBP1 = $1.60 (2012 - GBP1 =
$1.60) and euro - GBP1 = EUR1.18 (2012 - GBP1 = EUR1.25). Exchange
rates used to translate assets and liabilities at the balance sheet
date were US dollar - GBP1 = $1.66 (30 June 2013 - GBP1 = $1.52, 31
December 2012 - GBP1 = $1.63) and euro - GBP1 = EUR1.20 (30 June
2013 - GBP1 = EUR1.17, 31 December 2012 - GBP1 = EUR1.23). The
group uses foreign exchange transaction hedges to mitigate the
effect of exchange rate movements.
3. Exceptional items
Exceptional items are those which, in management's judgement,
need to be disclosed by virtue of their size or incidence in order
for the user to obtain a proper understanding of the financial
information.
Six months ended Six months ended
31 December 2013 31 December 2012
GBP million GBP million
Items included in operating profit
Supply excellence review (3) -
Restructuring of Irish brewing operations (17) (4)
---------------- ----------------
(20) (4)
Pension changes - past service credits - 20
---------------- ----------------
(20) 16
Non-operating items
Fair value gain on USL 140 -
Sale of business (2) -
---------------- ----------------
138 -
Exceptional items before taxation 118 16
Tax on exceptional operating items 3 (2)
Exceptional items in continuing operations 121 14
Discontinued operations net of taxation
Thalidomide (Australia and New Zealand) (51) -
Thalidomide (Other) (41) -
---------------- ----------------
(92) -
Total exceptional items 29 14
================ ================
Items included in operating profit are charged
to:
Cost of sales (16) (3)
Other operating expenses (4) 19
---------------- ----------------
(20) 16
================ ================
4. Net interest and other finance charges
Six months ended Six months ended
31 December 2013 31 December 2012
(restated)
GBP million GBP million
Interest payable (239) (250)
Interest receivable 52 51
Market value movements on interest rate instruments (1) (2)
---------------- ----------------
Net interest payable (188) (201)
================ ================
Net finance charges in respect of post employment
plans (7) (22)
Unwinding of discounts (3) (6)
Hyperinflation adjustment on Venezuela operations (27) (2)
(37) (30)
Net exchange movements on certain financial
instruments - 2
---------------- ----------------
Net other finance charges (37) (28)
================ ================
5. Taxation
For the six months ended 31 December 2013, the GBP388 million
taxation charge (2012 - GBP351 million) comprises a UK tax charge
of GBP37 million (2012 - GBP19 million) and a foreign tax charge of
GBP351 million (2012 - GBP332 million).
6. Inventories
31 December 30 June 31 December
2013 2013 2012
(restated) (restated)
GBP million GBP million GBP million
Raw materials and consumables 387 346 390
Work in progress 65 63 75
Maturing inventories 3,234 3,182 3,092
Finished goods and goods for resale 634 616 608
----------- ----------- -----------
4,320 4,207 4,165
=========== =========== ===========
7. Net borrowings
31 December 30 June 31 December
2013 2013 2012
(restated) (restated)
GBP million GBP million GBP million
Borrowings due within one year and
bank overdrafts (3,007) (1,852) (2,205)
Borrowings due after one year (6,716) (8,217) (6,220)
Fair value of foreign currency forwards
and swaps 35 205 106
Finance lease liabilities (299) (289) (258)
----------- ----------- -----------
(9,987) (10,153) (8,577)
Cash and cash equivalents 891 1,750 686
----------- ----------- -----------
(9,096) (8,403) (7,891)
=========== =========== ===========
8. Reconciliation of movement in net borrowings
Six months ended Six months ended
31 December 31 December 2012
2013
(restated)
GBP million GBP million
Net decrease in cash and cash equivalents before
exchange (847) (367)
Net increase in loans (139) (14)
---------------- ----------------
Increase in net borrowings from cash flows (986) (381)
Exchange differences on net borrowings 337 111
Other non-cash items (44) (48)
Net borrowings at beginning of the period (8,403) (7,573)
---------------- ----------------
Net borrowings at end of the period (9,096) (7,891)
================ ================
Other non-cash items primarily comprise fair value changes on
bonds, interest rate derivatives and new finance leases. On 1 July
2013 the group repaid bonds of EUR1,150 million (GBP983
million).
9. 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 levels can be broadly described as follows:
-- Level 1 - use of unadjusted quoted prices in active markets
for identical assets or liabilities;
-- Level 2 - use of observable inputs other than quoted prices
included within level 1, such as quoted prices for similar assets
or liabilities in active markets; and
-- Level 3 - use of inputs not based on observable market data
but reflecting management's own assumptions about pricing the asset
or liability.
There were no significant changes in the measurement and
valuation techniques, or significant transfers between levels of
the financial assets and liabilities in the six months ended 31
December 2013.
The group's financial assets and liabilities measured at fair
value are categorised as follows:
31 December 2013 30 June 2013 31 December 2012
------------------------------------ ---------------------------------- -----------------------------------
Level Level Level Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total 1 2 3 Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
million million million million million million million million million million million million
Assets
Derivative
assets - 405 - 405 - 458 - 458 - 506 - 506
Available-for-sale
investments - - - - 350 - - 350 - - - -
-------- ------- ------- -------- ------- ------- ------- ------- ------- ------- ------- --------
Total assets - 405 - 405 350 458 - 808 - 506 - 506
======== ======= ======= ======== ======= ======= ======= ======= ======= ======= ======= ========
Liabilities
Derivative
liabilities - (198) - (198) - (191) - (191) - (249) (4) (253)
Other financial
liabilities - - (109) (109) - - (115) (115) - - (118) (118)
-------- ------- ------- -------- ------- ------- ------- ------- ------- ------- ------- --------
Total liabilities - (198) (109) (307) - (191) (115) (306) - (249) (122) (371)
======== ======= ======= ======== ======= ======= ======= ======= ======= ======= ======= ========
Finance lease liabilities amounted to GBP299 million in the six
months ended 31 December 2013 (30 June 2013 - GBP289 million, 31
December 2012 - GBP258 million).
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 2013 the fair value of gross borrowings
was GBP9,992 million and the carrying value was GBP9,723 million
(30 June 2013 - GBP10,436 million and GBP10,069 million
respectively, 31 December 2012 - GBP9,196 million and GBP8,425
million respectively).
10. Dividends and other reserves
Six months ended Six months ended
31 December
31 December 2013 2012
GBP million GBP million
Amounts recognised as distributions to
equity
shareholders in the period
Final dividend paid for the year ended
30 June 2013 of
29.30 pence per share (2012 - 26.90 pence) 735 673
================ ================
An interim dividend of 19.7 pence per share (2012 - 18.10 pence)
was approved by the board on 29 January 2014. As the approval was
after the balance sheet date, it has not been included as a
liability.
Other reserves of GBP2,540 million at 31 December 2013 (2012 -
GBP3,127 million) includes a capital redemption reserve of GBP3,146
million credit (2012 - GBP3,146 million) and hedging and exchange
reserve of GBP606 million deficit (2012 - GBP19 million
deficit).
11. Cash generated from operations
Six months ended Six months ended
31 December 2013 31 December 2012
(restated)
GBP million GBP million GBP million GBP million
Profit for the period 1,654 1,577
Discontinued operations 92 -
Taxation 388 351
Share of associates' profits after tax (181) (140)
Net finance charges 225 229
Non-operating items (138) -
----------- -----------
Operating profit 2,040 2,017
Increase in inventories (213) (243)
Increase in trade and other receivables (693) (790)
(Decrease)/increase in trade and other payables
and provisions (7) 285
----------- -----------
Net increase in working capital (913) (748)
Depreciation, amortisation and impairment 186 160
Dividends received 8 58
Post employment payments less amounts included
in operating profit (122) (60)
Other items (30) 6
----------- -----------
Cash generated from operations 1,169 1,433
=========== ===========
Cash generated from operations is stated after GBP41 million
(2012 - GBP34 million) of cash outflows in respect of exceptional
operating items.
12. Acquisition of businesses
On 4 July 2013, Diageo purchased a further 14.98% equity share
(21.77 million shares) in United Spirits Limited (USL) at a cost of
INR 1440 per share totalling INR 31.3 billion (GBP342 million).
This took the group's equity interest in USL to 25.02% and changed
its accounting treatment from available-for-sale investments to
associates.
On 26 November 2013, Diageo acquired an additional 1.35% equity
share (1.97 million shares) in USL through an on-market purchase on
the Bombay Stock Exchange at a cost of INR 2400 per share totalling
INR 4.7 billion (GBP47 million). This brought the aggregate equity
stake held by Diageo to 26.37% of USL.
Diageo have accounted for USL as an associate in the six months
ended 31 December 2013. Diageo's share of USL's results was not
material.
On 2 August 2013, Diageo acquired the remaining 7% equity stake
in Sichuan Chengdu Shuijingfang Group Co., Ltd. (SJF Holdco) for a
cash consideration of RMB 326 million (GBP35 million). The
acquisition of the additional stake in SJF Holdco brought Diageo's
shareholding to 100% and increased its effective interest in
Shuijingfang from 36.9% to 39.7%.
13. Contingent liabilities and legal proceedings
(a) Guarantees
As of 31 December 2013 the group has no material guarantees or
indemnities to third parties with the exception of a conditional
back-stop guarantee issued by Diageo Holdings Netherlands B.V.
(DHN) to Standard Chartered Bank (Standard Chartered) in respect of
the liabilities of Watson Limited (Watson), a company affiliated
with Dr Vijay Mallya, under a $135 million (GBP81 million) facility
from Standard Chartered. The terms require that any right of
Standard Chartered to call on the guarantee from DHN will be
subject to Standard Chartered having first taken certain agreed
steps to recover from Watson, including defined steps towards
enforcement of its security package. In addition, DHN has, in
respect of its potential liability under this guarantee, the
benefit of counter-indemnities from Watson and Dr Vijay Mallya as
well as the security package put in place for the Standard
Chartered facility.
(b) Colombian litigation
An action was filed on 8 October 2004 in the United States
District Court for the Eastern District of New York by the Republic
of Colombia and a number of its local government entities against
Diageo and other spirits companies, alleging several causes of
action, including violations of the Federal RICO Act. This claim
was dismissed in November 2012. The dismissal was without prejudice
and as such, plaintiffs are not barred from bringing a similar
action in future. Diageo cannot meaningfully quantify the possible
loss or range of loss in the event of any future litigation. Diageo
remains committed to continued dialogue with the Colombian
governmental entities to address the underlying issues.
(c) Korean customs dispute
Litigation is ongoing in Korea in connection with the
application of the methodology used in transfer pricing on spirits
imports since 2004. In December 2009, Diageo Korea received a final
customs audit assessment notice from the Korean customs
authorities, covering the period from 1 February 2004 to 30 June
2007, for Korean won 194 billion or GBP112 million (including GBP14
million of value added tax), which was paid in full and appealed to
the Korean Tax Tribunal.
On 18 May 2011, the Tax Tribunal made a determination that the
statute of limitations had run for part of the assessment period,
ordered a partial penalty refund and instructed the Korean customs
authorities to reinvestigate the remaining assessments.
Accordingly, a refund of Korean won 43 billion or GBP25 million
(including GBP2 million of value added tax) was made to Diageo
Korea in the year ended 30 June 2012.
However, post the completion of the reinvestigation, the Korean
customs authorities have concluded that they will continue to
pursue the application of the same methodology and on 18 October
2011 a further final imposition notice was issued for Korean won
217 billion or GBP125 million (including GBP14 million of value
added tax) in respect of the period from 29 February 2008 to 31
October 2010.
In response Diageo Korea filed a claim with the Seoul
Administrative Court (Court) along with a petition for preliminary
injunction to stay the final imposition notice. The Court granted
Diageo Korea's request for a preliminary injunction and has stayed
the final imposition until the decision of the Court on the
underlying matter. On 31 October 2012, the Court instructed the
Korean customs authorities to reinvestigate the second imposition
notice per the instructions of the Tax Tribunal and stayed the
Court hearings until the completion of the re-audit. The re-audit
was completed in February 2013 and the Court hearings continue.
The underlying matter remains in progress with the Court and
Diageo Korea is unable to quantify meaningfully the possible loss
or range of loss to which these claims may give rise. Diageo Korea
continues to defend its position vigorously.
(d) Thalidomide litigation
In Australia, class action claims alleging product liability and
negligence for injuries arising from the consumption of the drug
thalidomide were filed in the Supreme Court of Victoria against
Distillers Company (Biochemicals) Limited, its parent Diageo
Scotland Limited (formerly Distillers Company Limited), as well as
against Gr nenthal GmbH, the developer of the drug (not a member of
the group). On 18 July 2012 Diageo settled the claim of the lead
claimant Lynette Rowe and agreed a process to consider the
remaining claimants. As a result of that process, agreement has
been reached between Diageo and the claimants, without admission of
liability by Diageo, to settle the class action claims for the sum
of AU$89 million and AU$6.5 million in costs, subject to the
approval of the Supreme Court of Victoria. Gr nenthal GmbH is not a
party to the settlement. The application for approval will be heard
by the Supreme Court of Victoria on 7 February 2014. If the
settlement is approved the class action claims will be dismissed. A
liability for GBP51 million has been charged to discontinued
operations in the income statement in the six months ended 31
December 2013.
In the United Kingdom, proceedings have twice been commenced but
lapsed for lack of service. Distillers Company (Biochemicals)
Limited distributed the drug in Australia and the United Kingdom
for a period in the late 1950s and early 1960s. Diageo is unable to
quantify meaningfully the possible loss or range of loss to which
any lawsuit may give rise. The group has worked voluntarily for
many years with various thalidomide organisations and has provided
significant financial support.
(e) 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 a further 21,767,749 shares
(14.98%) in USL for a total consideration of INR 31.3 billion
(GBP342 million), including 10,141,437 shares (6.98%) from UBHL.
This followed a preferential allotment of 14,532,775 shares (10%)
in USL for a total consideration of INR 20.9 billion (GBP249
million) and the acquisition of 58,668 additional shares through a
mandatory tender offer for a total consideration of INR 85,778,082
(GBP1 million). By these transactions Diageo became the major
shareholder in USL with a shareholding of 25.02% acquired for total
consideration of INR 52 billion (GBP592 million). In the period
since completion of these transactions, Diageo has acquired further
USL shares, increasing its shareholding in USL to 26.37%.
At the time of the acquisition from UBHL on 4 July 2013, the
High Court of Karnataka (the High Court) had granted leave under
sections 536 and 537 of the Indian Companies Act to enable the sale
by UBHL to Diageo to take place (the UBHL Share Sale)
notwithstanding the continued existence of five winding-up
petitions (the Original 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 granted by the High Court (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.
Since closing of the UBHL Share Sale, appeals have been filed by
various petitioners in respect of the Leave Order. The Appellate
Division of the High Court of Karnataka (the Appeal Court)
announced its decision in respect of those appeals on 20 December
2013 in which it set aside the Leave Order.
Diageo is seeking leave to appeal this decision of the Appeal
Court to the Supreme Court of India and the hearing of that leave
application is currently adjourned to 31 January 2014.
In separate proceedings, the various winding-up petitions
against UBHL have been progressing through the High Court since
closing of the USL transaction. A ruling was issued by the High
Court on 22 November 2013 to admit one of the winding-up petitions
against UBHL and directing that a general advertisement be made to
creditors of UBHL after a period of 4 weeks from the date of the
ruling. This ruling is the subject of an application for appeal by
UBHL.
Diageo continues to believe that the acquisition price of INR
1440 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. 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.
Separately, Diageo continues to pursue completion of the
acquisition of an additional 3,459,090 USL shares (representing
approximately 2.38% of the share capital of USL) under the SPA from
the USL Benefit Trust. Currently certain lenders to USL are
refusing to release security that they hold over those shares
notwithstanding that they have been repaid in full. USL is taking
steps including proceedings before the High Court to expedite the
release of the security. As previously disclosed, if it is not
ultimately possible to complete the acquisition in relation to
these shares, they would instead continue to be held by the USL
Benefit Trust subject to an undertaking that the trustees would
only vote the shares at the direction of USL.
(f) Other
The group has extensive international operations and is
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 the
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.
14. Related party transactions
The group's significant related parties are its associates,
joint ventures, key management personnel and pension plans, as
disclosed in the annual report for the year ended 30 June 2013.
There have been no transactions with these related parties during
the six months ended 31 December 2013 on terms other than those
that prevail in arm's length transactions.
15. Impact of new accounting standards
As reported in Note 1, the group has adopted IFRS 11 and the
amendment to IAS 19. As a consequence, comparative prior period
figures have been restated. Restated consolidated statement of
comprehensive income for the six months ended 31 December 2012 is
set out below:
Consolidated statement of comprehensive
income
for the six months ended 31 December
2012
As reported IFRS 11 IAS 19 Restated
GBP million GBP million GBP million GBP million
Sales 8,235 (104) - 8,131
Excise duties (2,196) 40 - (2,156)
----------- ----------- ----------- -----------
Net sales 6,039 (64) - 5,975
Operating costs before exceptional items (4,010) 41 (5) (3,974)
----------- ----------- ----------- -----------
Operating profit before exceptional
items 2,029 (23) (5) 2,001
Exceptional operating items 16 - - 16
----------- ----------- ----------- -----------
Operating profit 2,045 (23) (5) 2,017
Net finance charges (212) - (17) (229)
Share of associates' profits after tax 128 12 - 140
----------- ----------- ----------- -----------
Profit before taxation 1,961 (11) (22) 1,928
Taxation (360) 4 5 (351)
----------- ----------- ----------- -----------
Profit for the period 1,601 (7) (17) 1,577
Other comprehensive loss (205) - 17 (188)
----------- ----------- ----------- -----------
Total comprehensive income for the period 1,396 (7) - 1,389
=========== =========== =========== ===========
Profit for the period attributable to:
Equity shareholders 1,538 - (17) 1,521
Non-controlling interests 63 (7) - 56
----------- ----------- ----------- -----------
1,601 (7) (17) 1,577
=========== =========== =========== ===========
Total comprehensive income for the period
attributable to:
Equity shareholders 1,365 - - 1,365
Non-controlling interests 31 (7) - 24
----------- ----------- ----------- -----------
1,396 (7) - 1,389
=========== =========== =========== ===========
pence pence pence pence
Basic earnings per share 61.5 - (0.7) 60.8
=========== =========== =========== ===========
Diluted earnings per share 61.1 - (0.7) 60.4
=========== =========== =========== ===========
The adoption of IFRS 11 reduced the group's net assets by GBP19
million and GBP17 million at 30 June 2013 and at 31 December 2012,
respectively and reduced the group's net cash outflow by GBP10
million for the six months ended 31 December 2012. The amendment to
IAS 19 has neither affected the group's net assets nor the group's
net cash outflow.
INDEPENDENT REVIEW REPORT TO DIAGEO PLC
Introduction
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 December 2013 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows and the related
explanatory notes. We have read the other information contained in
the half-yearly financial report and considered whether it contains
any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the Disclosure and Transparency Rules ('the DTR')
of the UK's Financial Conduct Authority ('the UK FCA'). Our review
has been undertaken so that we might state to the company those
matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company
for our review work, for this report, or for the conclusions we
have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the EU.
The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
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
UK. 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 Ireland) 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.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
December 2013 is not prepared, in all material respects, in
accordance with IAS 34 as adopted by the EU and the DTR of the UK
FCA.
Paul Korolkiewicz
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London, E14 5GL, UK
29 January2014
ADDITIONAL INFORMATION FOR SHAREHOLDERS
EXPLANATORY NOTES
Comparisons are to the six months ended 31 December 2012 (2012)
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 prior period reported numbers
at current period exchange rates and after adjusting for the effect
of 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 the risk factors section - '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 reconciliations of non-GAAP measures to GAAP
measures
1. 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 five.
2. Organic movements
Diageo's strategic planning process is based on organic
movements in volume, sales, net sales, marketing spend, operating
profit and operating margin, a ratio calculated by dividing organic
operating profit by organic net sales and expressed as a
percentage. These non-GAAP measures are chosen for planning,
reporting and incentive purposes since they represent those
measures which local managers are most directly able to influence
and they enable consideration of the underlying business
performance without the distortion caused by fluctuating exchange
rates, exceptional items and acquisitions and disposals. The
group's management believes these measures provide valuable
additional information for users of the financial statements in
understanding the group's performance since they focus on that
element of the core brand portfolio which is common to both years.
They should be viewed as complementary to, and not replacements
for, the comparable GAAP measures and reported movements
therein.
In the discussion of the performance of the business, organic
information is presented using pounds sterling amounts on a
constant currency basis. This retranslates prior period reported
numbers at current period exchange rates and enables an
understanding of the underlying performance of the market that is
most closely influenced by the actions of that market's management.
Exchange impacts in respect of the external hedging of inter group
sales of products and the inter group recharging of third party
services are allocated to the geographical segment to which they
relate. Residual exchange impacts are reported in Corporate. In the
six months ended 31 December 2013, an adjustment was made to the
organic calculation of the group's Venezuelan operations to ensure
currency controls do not materially distort the group's
performance. A rate of $1 = VEF19 (GBP1 = VEF30.4) is used to
adjust both the current and the prior period's performance which is
derived from the consolidation rate adjusted by inflation. Applying
this methodology, the exchange rate for the year ending 30 June
2014 is expected to be approximately $1 = VEF26 (GBP1 =
VEF42.4).
Acquisitions, disposals and exceptional items also impact the
reported performance and therefore the reported movement in any
period in which they arise. Management adjusts for the impact of
such transactions in assessing the performance of the underlying
business.
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 column 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 assessment are expected to
complete.
Where a business, brand, brand distribution right or agency
agreement was disposed of, or terminated, in the current or prior
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. Exceptional items are those which, in management's
judgement, need to be disclosed by virtue of their size or
incidence in order for the user to obtain a proper understanding of
the financial information. Such items are included within the
income statement caption to which they relate.
The underlying performance on a constant currency basis and
excluding the impact of exceptional items, acquisitions and
disposals is referred to as 'organic' performance. Organic movement
calculations enable the reader to focus on the performance of the
business which is common to both periods.
The organic movement percentage is the amount in the column
headed 'Organic movement' in the tables below expressed as a
percentage of the aggregate of the amount in the first column of
the table, the amount in the column headed 'Exchange', the amounts
included in the columns headed 'Adjustment to Venezuela organic
growth' and Acquisitions and disposals' that have impacted the
comparable prior period. The inclusion of the column headed
'Exchange' in the organic movement calculation reflects the
adjustment to recalculate the prior period results as if they had
been generated at the current period's exchange rates.
The organic movement calculations for volume, sales, net sales,
marketing spend and operating profit for the six months ended 31
December 2013 were as follows:
2012
Reported Acquisitions
(restated) and Organic 2013 Organic
units disposals*** movement Reported movement
Volume million units million units million units million %
North America 28.5 (1.5) (0.5) 26.5 (2)
Western Europe 18.3 (0.2) (0.4) 17.7 (2)
Africa, Eastern
Europe and
Turkey 20.3 (0.1) (0.8) 19.4 (4)
Latin America and
Caribbean 12.8 (0.1) (0.2) 12.5 (2)
Asia Pacific 8.5 - (0.3) 8.2 (4)
---------- ------- -------- --------
Total volume 88.4 (1.9) (2.2) 84.3 (3)
========== ======= ======== ========
Adjustment
2012 to Venezuela Acquisitions Organic
Reported organic and movement 2013 Organic
(restated) Exchange* growth** disposals*** GBP Reported movement
Sales GBP million GBP million GBP million GBP million million GBP million %
North America 2,218 (9) - (135) 75 2,149 4
Western Europe 1,977 52 - (28) (31) 1,970 (2)
Africa, Eastern
Europe and
Turkey 1,791 (95) - (3) 46 1,739 3
Latin America and
Caribbean 965 (36) 96 (7) 84 1,102 10
Asia Pacific 1,138 (56) - (6) (64) 1,012 (6)
Corporate 42 1 - - (1) 42 (2)
---------- ------- -------- -------- -------- --------
Total sales 8,131 (143) 96 (179) 109 8,014 1
========== ======= ======== ======== ======== ========
Adjustment
2012 to Venezuela Acquisitions Organic
Reported organic and movement 2013 Organic
(restated) Exchange* growth** disposals*** GBP Reported movement
Net sales GBP million GBP million GBP million GBP million million GBP million %
North America 1,942 (9) - (111) 82 1,904 5
Western Europe 1,174 38 - (21) (12) 1,179 (1)
Africa, Eastern
Europe and
Turkey 1,188 (50) - (3) 20 1,155 2
Latin America and
Caribbean 794 (30) 83 (5) 58 900 8
Asia Pacific 835 (36) - (3) (44) 752 (6)
Corporate 42 1 - - (1) 42 (2)
---------- ------- -------- -------- -------- --------
Total net sales 5,975 (86) 83 (143) 103 5,932 2
========== ======= ======== ======== ======== ========
Adjustment
2012 to Venezuela Acquisitions Organic
Reported organic and movement 2013 Organic
(restated) Exchange* growth** disposals*** GBP Reported movement
Marketing spend GBP million GBP million GBP million GBP million million GBP million %
North America 299 (1) - (18) 13 293 5
Western Europe 176 6 - (2) (3) 177 (2)
Africa, Eastern
Europe and
Turkey 137 (11) - (1) 10 135 8
Latin America and
Caribbean 120 (6) 2 (2) 9 123 8
Asia Pacific 182 (7) - - (5) 170 (3)
Corporate 4 - - 1 - 5 -
---------- ------- -------- -------- -------- --------
Total marketing
spend 918 (19) 2 (22) 24 903 3
========== ======= ======== ======== ======== ========
Adjustment
2012 to Venezuela Acquisitions Organic
Reported organic and movement 2013 Organic
(restated) Exchange* growth** disposals*** GBP Reported movement
Operating profit GBP million GBP million GBP million GBP million million GBP million %
North America 822 - - (31) 60 851 8
Western Europe 378 6 - (2) (12) 370 (3)
Africa, Eastern
Europe and
Turkey 371 (33) - 1 (12) 327 (4)
Latin America and
Caribbean 301 (13) 73 - 25 386 10
Asia Pacific 201 (15) - 16 (9) 193 (4)
Corporate (72) 1 - - 4 (67) 6
---------- ------- -------- -------- -------- --------
Operating profit
before
exceptional
items 2,001 (54) 73 (16) 56 2,060 3
======= ======== ======== ========
Exceptional
items(****) 16 (20)
---------- --------
Total operating
profit 2,017 2,040
========== ========
Notes: Information relating to the organic movement
calculations
* The exchange adjustments for sales, net sales, marketing spend
and operating profit are principally in respect of the euro, the
South African rand, the Australian dollar, the Turkish lira and the
Brazilian real.
** A change in the exchange rate for Venezuela from $1 = VEF9
(GBP1 = VEF14.9) to $1 = VEF19 (GBP1 = VEF30.4) resulted in an
adjustment to organic sales, net sales, marketing spend and
operating profit for the six months ended 31 December 2013 of
GBP173 million (2012 - GBP77 million), GBP149 million (2012 - GBP66
million), GBP5 million (2012 - GBP3 million) and GBP108 million
(2012 - GBP35 million), respectively. The adjustment included in
the organic movement tables comprises the difference between the
amounts for the six months ended 31 December 2013 and 31 December
2012.
*** The impacts of acquisitions and disposals are excluded from
the organic movement. In the six months ended 31 December 2013 the
acquisitions and disposals that affected volume, sales, net sales,
marketing spend and operating profit were as follows:
Marketing Operating
Six months ended 31 December
2013 Volume Sales Net sales spend profit
units million GBP million GBP million GBP million GBP million
Acquisitions - 2013 - - - - (7)
------------- ----------- ----------- ----------- -----------
Acquisitions - 2012 - - - - 29
------------- ----------- ----------- ----------- -----------
Jose Cuervo 0.4 26 20 - (3)
Other disposals - 2 2 - -
------------- ----------- ----------- ----------- -----------
Disposals - 2013 0.4 28 22 - (3)
------------- ----------- ----------- ----------- -----------
Jose Cuervo (2.0) (175) (135) (19) (29)
Nuvo (0.1) (12) (11) (3) (2)
Other disposals (0.2) (20) (19) - (4)
------------- ----------- ----------- ----------- -----------
Disposals - 2012 (2.3) (207) (165) (22) (35)
------------- ----------- ----------- ----------- -----------
(1.9) (179) (143) (22) (16)
============= =========== =========== =========== ===========
Includes transaction costs in respect of acquisitions not yet completed.
Represents transaction and integration costs incurred in respect
of acquisitions.
**** See financial review section for an explanation of
exceptional operating items
In the year ended 30 June 2013, Diageo changed its internal
reporting structure to reflect changes made to management
responsibilities. As a result of this change, Diageo reports the
following geographical segments both for management reporting
purposes and in the external financial statements: North America;
Western Europe; Africa, Eastern Europe and Turkey; Latin America
and Caribbean; Asia Pacific and Corporate. In addition, as reported
in Note 1 and 15, the group has adopted IFRS 11 and the amendment
to IAS 19. As a result of these changes, the segmental information
for volume, sales, net sales, marketing spend and operating profit
before exceptional items for the six months ended 31 December 2012
have been restated as follows:
Segmental information
for the six months ended 31 December
2012
Africa, Latin
Eastern America
North Western Europe and Asia
America Europe Europe Africa and Turkey Caribbean Pacific Corporate Total
units units units units units units units units units
Volume million million million million million million million million million
As reported 28.6 24.9 - 13.7 - 12.8 8.8 - 88.8
Analysis of
Eastern
Europe
and Turkey - (24.9) 18.3 (13.7) 20.3 - - - -
Adoption of
IFRS
11 (0.1) - - - - - (0.3) - (0.4)
--------- ----------- --------- ---------- ---------- --------- ---------- ---------- ----------
Restated 28.5 - 18.3 - 20.3 12.8 8.5 - 88.4
========= =========== ========= ========== ========== ========= ========== ========== ==========
Africa, Latin
Eastern America
North Western Europe and Asia
America Europe Europe Africa and Turkey Caribbean Pacific Corporate Total
GBP GBP GBP GBP GBP GBP GBP GBP
Sales million GBP million million million million million million million million
As reported 2,223 2,735 - 1,043 - 967 1,225 42 8,235
Analysis of
Eastern
Europe
and Turkey - (2,735) 1,985 (1,043) 1,793 - - - -
Adoption of
IFRS
11 (5) - (8) - (2) (2) (87) - (104)
--------- ----------- --------- ---------- ---------- --------- ---------- ---------- ----------
Restated 2,218 - 1,977 - 1,791 965 1,138 42 8,131
========= =========== ========= ========== ========== ========= ========== ========== ==========
Net sales
As reported 1,947 1,577 - 795 - 796 882 42 6,039
Analysis of
Eastern
Europe
and Turkey - (1,577) 1,182 (795) 1,190 - - - -
Adoption of
IFRS
11 (5) - (8) - (2) (2) (47) - (64)
--------- ----------- --------- ---------- ---------- --------- ---------- ---------- ----------
Restated 1,942 - 1,174 - 1,188 794 835 42 5,975
========= =========== ========= ========== ========== ========= ========== ========== ==========
Marketing
spend
As reported 301 234 - 79 - 120 188 4 926
Analysis of
Eastern
Europe
and Turkey - (234) 176 (79) 137 - - - -
Adoption of
IFRS
11 (2) - - - - - (6) - (8)
--------- ----------- --------- ---------- ---------- --------- ---------- ---------- ----------
Restated 299 - 176 - 137 120 182 4 918
========= =========== ========= ========== ========== ========= ========== ========== ==========
Operating
profit
before
exceptional
items
As reported 825 528 - 225 - 302 220 (71) 2,029
Analysis of
Eastern
Europe
and Turkey - (528) 381 (225) 372 - - - -
Adoption of
IAS 19
amendment (1) - (2) - (1) - - (1) (5)
Adoption of
IFRS
11 (2) - (1) - - (1) (19) - (23)
--------- ----------- --------- ---------- ---------- --------- ---------- ---------- ----------
Restated 822 - 378 - 371 301 201 (72) 2,001
========= =========== ========= ========== ========== ========= ========== ========== ==========
3. Free cash flow
Free cash flow is a non-GAAP measure that comprises the net cash
flow from operating activities aggregated with the net movements in
loans and other investments and with the net purchase of property,
plant and equipment and computer software that form part of net
cash flow from investing activities. The group's management
believes the measure assists users of the financial statements in
understanding the group's cash generating performance as it
comprises items which arise from the running of the ongoing
business.
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. 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 discussion is 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.
The free cash flow measure is used by management for their own
planning, reporting and incentive purposes since it provides
information on those elements of performance which local managers
are most directly able to influence.
For the reconciliation of free cash flow see financial review -
cash flow section.
4. Return on average total invested capital
Return on average total invested capital is a non-GAAP measure
that 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 total invested
capital reflects the operating performance of the business stated
before exceptional items and finance charges 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 for the
period, excluding post employment benefit net 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 2013 and 31 December 2012 were
as follows:
2013 2012
(restated)
GBP million GBP million
Operating profit 2,040 2,017
Exceptional operating items 20 (16)
Share of associates' profits after tax 181 140
Tax at the tax rate before exceptional items
of 19.4% (2012 - 18.3%) (435) (392)
------------ ------------
1,806 1,749
============ ============
Average net assets (excluding net post employment
liabilities) 8,468 8,014
Average net borrowings 8,750 7,732
Average integration and restructuring costs
(net of tax) 1,457 1,396
Goodwill at 1 July 2004 1,562 1,562
------------ ------------
Average total invested capital 20,237 18,704
============ ============
Return on average total invested capital 17.8% 18.7%
============ ============
5. Economic profit
Economic profit is a non-GAAP measure that is used by management
to assess the group's return from its asset base compared to a
standard cost of capital charge and is calculated to aid evaluation
of the performance of the business.
The profit used in assessing the return from the group's asset
base and the asset base itself are the same as those used in the
calculation for the return on average total invested capital (see
above). The standard capital charge applied to the average total
invested capital is currently 8%, being management's assessment of
a constant minimum level of return that the group expects to
generate from its asset base. Economic profit is calculated as the
difference between the standard capital charge on the average
invested assets and the actual return achieved by the group on
those assets.
Calculations for economic profit for the six months ended 31
December 2013 and 31 December 2012 were as follows:
2013 2012
(restated)
GBP million GBP million
Average total invested capital (see 4 above) 20,237 18,704
Operating profit 2,040 2,017
Exceptional operating items 20 (16)
Share of associates' profits after tax 181 140
Tax at the tax rate before exceptional items
of 19.4% (2012 - 18.3%) (435) (392)
----------- -----------
1,806 1,749
Capital charge at 8% of average total invested
capital (809) (748)
----------- -----------
Economic profit 997 1,001
=========== ===========
6. Tax rate before exceptional items
Tax rate before exceptional items is a non-GAAP measure that is
calculated by dividing the total tax charge on continuing
operations before tax charges and credits classified as or 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 continuing operations before exceptional and
after exceptional items for the six months ended 31 December 2013
and 31 December 2012 were calculated as follows:
2013 2012
(restated)
GBP million GBP million
Tax before exceptional items (a) 391 349
Tax in respect of exceptional items (3) 2
Taxation on profit from continuing operations (b) 388 351
============ =============
Profit from continuing operations before taxation
and exceptional items (c) 2,016 1,912
Non-operating items 138 -
Exceptional operating items (20) 16
------------ -------------
Profit before taxation (d) 2,134 1,928
============ =============
Tax rate before exceptional items (a/c) 19.4% 18.3%
Tax rate from continuing operation after exceptional
items (b/d) 18.2% 18.2%
7. Other definitions
Volume share is a brand's volume when compared to the volume of
all brands in its segment. Value share is a brand's retail sales
when compared to the retail sales of all brands in its segment.
Unless otherwise stated, share refers to value share. Share of
voice is the media spend on a particular brand when compared to all
brands in its segment. The share data, competitive set
classifications and share of voice data contained in this document
are taken from independent industry sources in the markets in which
Diageo operates.
Net sales are sales after deducting excise duties. Diageo incurs
excise duties throughout the world. In some countries excise duties
are based on sales and are separately identified on the face of the
invoice to the external customer. In others it is effectively a
production tax which is incurred when the spirit is removed from
bonded warehouses. In these countries excise duties are part of the
cost of goods sold and are not separately identified on the sales
invoice. Changes in the level of excise duties can significantly
affect the level of reported sales and cost of sales without
directly reflecting changes in volume, mix or profitability, which
are the variables that have an impact on the element of sales
retained by the group.
Price/mix is the number of percentage points by which the
organic movement in net sales exceeds the organic movement in
volume. The difference arises because of changes in the composition
of sales between higher and lower priced variants or as price
changes are implemented.
References to emerging markets include Russia and Eastern
Europe, Turkey, Africa, Latin America and Caribbean and Asia
Pacific excluding Australia, Korea and Japan.
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 non-alcoholic malt based products
such as Guinness Malta.
References to reserve brands include Johnnie Walker Blue Label,
Johnnie Walker Green Label, Johnnie Walker Gold Label 18 year old,
Johnnie Walker Gold Label Reserve, Johnnie Walker Platinum Label 18
year old, John Walker & Sons Collection, Johnnie Walker The
Gold Route, Johnnie Walker The Royal Route, and other Johnnie
Walker super premium brands, 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, Cîroc, Ketel One vodka, Don Julio, Zacapa
and Bundaberg SDlx.
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. The key risks and uncertainties facing the
group in the second half of the current financial year are
described in the 'Business description' section of the annual
report for the year ended 30 June 2013, some or all of which have
the potential to impact the results or financial position during
the second half of the current financial year.
These key risks and uncertainties are (in summary): unfavourable
economic conditions or political or other developments and risks in
the countries in which Diageo operates; changes in consumer
preferences and tastes and adverse impacts of a declining economy,
among many factors, may adversely affect demand; litigation
directed at the beverage alcohol industry and other litigation;
climate change, or legal, regulatory or market measures to address
climate change; water scarcity or poor quality; increased costs of
raw materials or energy; regulatory decisions and changes in the
legal and regulatory environment could increase Diageo's costs and
liabilities or limit its business activities; increasing costs of
monitoring and maintaining compliance with anti-corruption laws;
failure to maintain Diageo's brand image and corporate reputation;
competition may reduce Diageo's market share and margins; expected
benefits may not be derived from Diageo's strategy focused on
premium drinks or from its acquisitions or its cost-saving and
restructuring programmes designed to enhance earnings;
contamination, counterfeiting or other events could harm integrity
of customer support for Diageo's brands and adversely affect the
sales of those brands; increased costs or shortages of talent;
disruption to production facilities, business service centres or
information systems and change programs may not deliver the
benefits intended; movements in the value of Diageo's pension
funds, fluctuations in exchange rates and interest rates; failure
to maintain or renegotiate distribution, supply, manufacturing and
licence agreements on favourable terms; inability to protect
Diageo's intellectual property rights; and difficulty in effecting
service of US process and enforcing US legal process against the
directors of Diageo.
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 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 Diageo's strategic transactions and restructuring
programmes, anticipated tax rates, expected cash payments, outcomes
of litigation, anticipated deficit reductions in relation 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. These
factors include, but are not limited to:
-- changes in political or economic conditions in countries and
markets in which Diageo operates, including changes in levels of
consumer spending, failure of customer, supplier and financial
counterparties or imposition of import, investment or currency
restrictions;
-- changes in consumer preferences and tastes, demographic
trends or perceptions about health related issues, or
contamination, counterfeiting or other circumstances which could
harm the integrity or sales of Diageo's brands;
-- developments in any litigation or other similar proceedings
(including with tax, customs and other regulatory authorities)
directed at the drinks and spirits industry generally or at Diageo
in particular, or the impact of a product recall or product
liability claim on Diageo's profitability or reputation;
-- the effects of climate change and regulations and other
measures to address climate change including any resulting impact
on the cost and supply of water;
-- changes in the cost or supply of raw materials, labour and/or energy;
-- legal and regulatory developments, including changes in
regulations regarding production, product liability, distribution,
importation, labelling, packaging, consumption or advertising;
-- changes in tax law, rates or requirements (including with
respect to the impact of excise tax increases) or accounting
standards; and changes in environmental laws, health regulations
and the laws governing labour and pensions;
-- the costs associated with monitoring and maintaining
compliance with anti-corruption and other laws and regulations, and
the costs associated with investigating alleged breaches of
internal policies, laws or regulations, whether initiated
internally or by external regulators, and any penalties or fines
imposed as a result of any breaches;
-- ability to maintain Diageo's brand image and corporate
reputation, and exposure to adverse publicity, whether or not
justified, and any resulting impacts on Diageo's reputation and the
likelihood that consumers choose products offered by Diageo's
competitors;
-- increased competitive product and pricing pressures and
unanticipated actions by competitors that could impact Diageo's
market share, increase expenses and hinder growth potential; the
effects of Diageo's strategic focus on premium drinks, the effects
of business combinations, partnerships, acquisitions or disposals,
existing or future, and the ability to realise expected synergies
and/or costs savings;
-- Diageo's ability to complete existing or future business
combinations, restructuring programmes, acquisitions and
disposals;
-- contamination, counterfeiting or other events that could
adversely affect the perception of Diageo's brands;
-- increased costs or shortages of talent;
-- disruption to production facilities or business service
centres, and systems change programmes, existing or future, and the
ability to derive expected benefits from such programmes;
-- changes in financial and equity markets, including
significant interest rate and foreign currency exchange rate
fluctuations and changes in the cost of capital, which may reduce
or eliminate Diageo's access to or increase the cost of financing
or which may affect Diageo's financial results and movements to the
value of Diageo's pension funds;
-- renewal of supply, distribution, manufacturing or licence
agreements (or related rights) and licences on favourable terms
when they expire;
-- technological developments that may affect the distribution
of products or impede Diageo's ability 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 factors and the 'Risk
factors' contained in the annual report on Form 20-F for the year
ended 30 June 2013 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. (c)
Diageo plc 2014.
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 includes 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;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, 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 and Transparency Rules, 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: Dr Franz Humer
(Chairman), Ivan Menezes (Chief Executive), Deirdre Mahlan (Chief
Financial Officer), Lord Davies of Abersoch (Senior Non-Executive
Director and Chairman of the Remuneration Committee), Philip Scott
(Non-Executive Director and Chairman of the Audit Committee) and
Non-Executive Directors: Peggy Bruzelius, Laurence Danon, Betsy
Holden, Ho KwonPing.
Diageo plc will release its Interim Results for the six months
ended 31 December 2013 on Thursday 30 January at approximately
07.00 (UK time).
Webcast, Presentation Slides and Transcript
At 08.00 (UK time) on Thursday 30 January, Ivan Menezes, Chief
Executive Officer and Deirdre Mahlan, 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
transcript will also be available to download from www.Diageo.com
at 08.00 (UK time).
Webcast via Conference Call Facility
If you wish to listen to the presentation via the conference
call facility rather than view it, then please use the live Q&A
session dial-in details below at 08.00 (UK time).
Live Q&A Session
At 09.30 (UK time), Ivan and Deirdre will be joined by Larry
Schwartz, President, North America; John Kennedy, President,
Western Europe; Nick Blazquez, President, Africa, Eastern Europe
and Turkey; Andy Fennell, President and Chief Operating Officer,
Africa; Alberto Gavazzi, President, Latin America and Caribbean,
David Gosnell, President, Global Supply and Procurement, and
Gilbert Ghostine, President, Asia Pacific for a live Q&A
session.
To participate, please use the following dial-in numbers:
UK and International Toll - +44 (0)20 3139 4830
UK Toll Free - 0808 237 0030
USA Toll - +1 718 873 9077
USA Toll Free - +1 866 928 7517
Germany Toll - +49 (0)30 221 510 067
Singapore Toll - +65 630 77610
Please quote confirmation code: 12415915#
Please allow sufficient time to register with the operator
before the start of both the webcast via conference call and the
live Q&A sessions.
A transcript of the Q&A session will be available for
download on 31 January at www.Diageo.com.
Conference Call Session Replay
The Q&A session will also be available on instant replay
shortly after the call and will run until midnight on 13 February.
Please use the following dial-in numbers:
UK and International Toll - +44 (0)20 3426 2807
UK Toll Free - 0808 237 0026
USA Toll Free - +1 866 535 8030
Germany Toll - +49 (0)692 222 33985
Singapore Toll - +65 642 98334
Please quote confirmation code:645121#
Investor enquiries to: Catherine James +44 (0) 20 8978 2272
Pier Falcione +44 (0) 20 8978 4838
Angela Ryker Gallagher +44 (0) 20 8978 4911
Colette Wright +44 (0) 20 8978 1380
investor.relations@diageo.com
Media enquiries to: Rowan Pearman +44 (0) 20 8978 4751
Kirsty King +44 (0) 20 8978 6855
Victoria Ward +44 (0) 20 8978 4353
press.office@diageo.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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