RNS No 5133t
DIAGEO PLC
17th March 1998
PART 1
THIS RESULTS ANNOUNCEMENT CONTAINS THE FOLLOWING:
Financial highlights for the 6 and 12 months ended 31 December 1997.
Operational highlights for the 6 months ended 31 December 1997.
Chairmen's comments.
Trading review for the 6 months ended 31 December 1997.
Financial statements for the 6 and 12 months ended 31 December 1997.
Supplementary information including schedules to assist in understanding
the changes in financial period; memorandum accounts for the 12 months
ended 30 June 1997; and accounting policies.
INTERIM STATEMENT
FOR THE PERIOD ENDED 31 DECEMBER 1997
FINANCIAL HIGHLIGHTS
FOR THE 6 MONTHS ENDED 31 DECEMBER 1997
Operating profit from continuing operations increased to #1,186 million up
8% at level exchange
Organic operating profit growth at level exchange in all businesses:
3% at UDV; 14% at Pillsbury; 8% at Guinness; 19% at Burger King
Profit before exceptionals and tax (PBET) #1,201 million up 10% at level
exchange
Adverse currency movements impacted PBET by #97 million
Profit before tax after exceptionals #716 million
EPS excluding exceptionals up 2% to 20.6p
FOR THE 12 MONTHS ENDED 31 DECEMBER 1997
Operating profit from continuing operations increased to #1,983 million up
8% at level exchange
Organic operating profit growth at level exchange in all businesses:
4% at UDV; 14% at Pillsbury; 9% at Guinness; 14% at Burger King
PBET #1,950 million up 9% at level exchange
Adverse currency movements impacted PBET by #138 million
Profit before tax after exceptionals #1,401 million
EPS excluding exceptionals up 3% to 33.3p
DIVIDENDS
Interim dividend of 7.2 pence plus one-off additional amount of 5.3 pence,
paid as a Foreign Income Dividend
DIAGEO plc
OPERATIONAL HIGHLIGHTS FOR THE 6 MONTHS
TO 31 DECEMBER 1997
Percentage movements for sales, operating profit and marketing
expenditure are organic increases (at level exchange).
DIAGEO
Sales from continuing businesses up 3%
Operating profit growth 8%
UDV
Sales up 2%
Operating profit growth 3%
- operating profit up 8% excluding Asia Pacific
Volumes in line with prior year at 75 million cases
Marketing investment up 5%
Pillsbury
Sales up 3%
Operating profit growth 14%
- including benefits from lower raw material costs and phasing
Margins up 1.5 percentage points
Guinness
Sales up 4%
Operating profit growth 8%
- in line with expectations
Volumes up 4% with Guinness brand volumes up 5%
Burger King
Sales up 1%
Operating profit growth 19%
- due mainly to turnaround in European operations
Worldwide comparable store sales down 1.5% with Europe up 6.5%
Total units worldwide up 5% to 9,599 units
DIAGEO plc
CHAIRMEN'S COMMENTS
Tony Greener and Sir George Bull, Joint Chairmen of Diageo, commenting on the
6 months ended 31 December 1997 said:
"Each of our businesses has continued to achieve good organic growth and the
results for the 6 months to December 1997 are in line with expectations.
These results show that during the period leading up to the merger none of our
businesses lost their focus on generating organic growth. Underlying cash
flow remains strong supporting our decision to return #2.9 billion to
shareholders in February.
The successful formation of Diageo, through a no-premium merger, was the first
part of our strategy to produce superior shareholder returns. The integration
of the Head Office functions is complete and UDV's integration is underway.
The work which has been carried out will deliver a transformation within UDV,
opening up new opportunities to create value from our drinks brands. We are
encouraged by the progress of the merger and the way the management teams are
working together to a common purpose to raise substantially the rate of growth
in shareholder value for the whole group. We remain confident that the
annualised cost savings, as previously estimated, will be achieved.
We are now moving into the next stage to generate sustainable incremental
value from our portfolio of leading food and drink brands by applying our
managing for value disciplines throughout the group. We understand the way in
which our brands, with their inherent competitive advantage, create value and
we will deliver this incremental value through making our great brands
greater."
Commenting on the disposal of Dewar's Scotch whisky and Bombay Sapphire gin to
comply with regulatory requirements they said:
"The auction process is proceeding satisfactorily and to timetable. No
announcements are due to be made in the immediate future."
Commenting on trading since 31 December they said:
"At UDV, current trading is in line with expectations. The strong
performance in North America driven by Smirnoff and Jose Cuervo continues.
Spain and the United Kingdom are trading well, as is Australia where price
rises were implemented in February. Trading conditions for domestic
products in Brazil and Venezuela are difficult and will continue to impact
volume performance in these areas.
The situation in Asia remains in line with the comments made in our trading
statement in January. The economic situation there began to impact trading
performance on spirits from October 1997. The impact was immediate, and
local currency profits from that area fell as a consequence. The 6 months
to 30 June 1998 will be the first reporting period in which the situation
will be fully reflected in our financial performance. Also in the 6 months
to 30 June 1998, reported profits in Asia will be impacted by further
exchange rate movements as hedging arrangements, which in part mitigated the
effect on reported performance in the July to December 1997 period, fall
below their previous levels.
We are managing our businesses in Asia to ensure that our brands maintain
their premium market positions and will therefore be best placed to take
advantage of any recovery. As part of this strategy, price increases are
being progressively implemented on major brands across the region.
Pillsbury continues to generate strong growth in retail sales in
refrigerated baked goods, breakfast and the value added Green Giant
products, although shipments into retail were lower than consumer off-take
in the first two months. The Mexican category is still very competitive but
while this has lead to lower sales for Old El Paso it has not significantly
affected the sales from higher value added products in the Old El Paso
range.
At Burger King, the strong performance in Europe and Latin America continues
and in January and February US comparable store sales were up 5%.
Guinness continues to grow both in volume and profitability. Significant
investment in brand building activities is being supported across all of the
key markets which continue to demonstrate great potential for the future.
In Asia Pacific, volumes have recently been impacted by economic conditions,
but sales are down only slightly against the same period last year.
The strength of sterling and the economic situation in Asia will continue to
impact reported performance in the next 6 months. However, as a result of
the merger Diageo is now well positioned to achieve long term organic
growth."
The detailed interim statement follows:
DIAGEO plc
TRADING AND FINANCIAL REVIEW
for the 6 months ended 31 December 1997
United Distillers & Vintners
Operating profit for United Distillers & Vintners was #674 million, up 3% at
level exchange. The adverse impact of exchange movements was #48 million
and profits were down 4% from #703 million. Performance in North America
and Europe continued to improve with operating profit at level exchange up
8% and 6%, respectively. Excluding Asia Pacific, UDV operating profit grew
8%.
Marketing investment at level exchange was up 5% overall, with increases in
Europe and North America partly offset by reductions in Asia in response to
the trading situation there.
Combined spirits and wines volume at 75 million cases was in line with the
prior period. Most major brands achieved good volume growth: J&B was up
1%, Gordon's gin was up 2%, Smirnoff and Baileys were both up 5%, and the
Malts were up 14%. Jose Cuervo volumes were up in the United States and
continued to show strong growth. In Thailand, volumes were down 31%,
particularly impacting Johnnie Walker Black. Difficult economic conditions
in Brazil resulted in a decline of 0.8 million cases in Dreher volumes.
In North America, operating profit growth at level exchange was 8%. Spirits
volumes were maintained, although wine volumes were down 5%. The region
benefited from the effect of price increases implemented on Johnnie Walker
Red and Black, Dewar's and Tanqueray in the first 6 months of 1997.
In Europe, operating profit growth at level exchange was 6% and volumes were
up 2%. Spain, Portugal and the United Kingdom performed well. In Spain,
all key brands showed strong growth and in the United Kingdom, Baileys,
Malibu and Smirnoff achieved growth in excess of 5%.
Profits in Asia Pacific declined by #35 million due to lower volumes and
reduced margins, and to adverse exchange movements. Price increases were
taken in markets across the region but were more than offset by the impact
of currency devaluation.
In the Rest of the World, improved performance across a number of developing
markets has more than offset the poor performance of Dreher in Brazil.
Pillsbury
Organic profit growth at level exchange was 14%. Operating profit for
Pillsbury grew 11% from #247 million to #273 million. In important
categories such as refrigerated baked goods, breakfast and Green Giant
frozen, Pillsbury continued to outperform the market in terms of consumer
off-take and grew share. Margins increased 1.5 percentage points due to mix
improvements further enhanced by lower raw material costs and phasing
benefits. Sales of Old El Paso declined in the period due to lower sales of
low margin sauces. Price rises were achieved on Progresso soup and Green
Giant frozen vegetables in the period.
Guinness
Organic operating profit rose by 8% at level exchange. Operating profit for
Guinness was #140 million, a reduction from the comparable period due to
adverse currency movements of #17 million.
Marketing investment behind the brands increased by 9% at level exchange.
Productivity continued to improve with output per employee increasing by 12%
helped by significant improvement in Jamaica, Ireland and Spain.
Total volumes increased by 4% with Guinness brand volumes up 5%. Volumes in
Ireland increased by 2% and in Great Britain, Draught Guinness shipments
were 3% ahead of 1996. In the United States, Guinness brand depletions were
up 25%.
In Continental Europe, Guinness brand volumes increased by 9% above last
year driven by continued Irish pub expansion and distribution gains. In
Spain, Cruzcampo achieved strong profit growth reflecting higher net prices
and the impact of further cost reductions.
Total volumes in Asia Pacific increased by 12% with significant growth in
Malaysia, Australia and Indonesia. In Africa, total volumes were 7% above
1996, despite overall beer market declines.
Burger King
Operating profit for Burger King was #99 million, up 19% on an organic basis
at level exchange. European operations were profitable in the period, a
significant turnaround against the same period last year. Burger King
opened 482 stores in the period, an increase of 5%. 76 new stores were
opened in Europe, 38 in Latin America and 46 in Asia Pacific.
Comparable store sales growth was 6.5% in Europe, driven by 9% growth in the
United Kingdom due to improved management focus and against the comparable
period which had been adversely affected by concerns about BSE. In Latin
America, comparable store sales grew by 6%. In the United States,
aggressive competitor discounting continues. Burger King was also affected
in the period by the voluntary recall of product by a supplier in August
1997. Worldwide comparable sales were down 1.5% due to a 3% decline in
comparable store sales in the United States. Performance in Asia Pacific
continued to improve with good performance in Australia more than offsetting
lower comparable store sales in Korea.
Burger King has introduced two major new products in the United States in
the period - the Big King sandwich and the new French fries. Both have been
very successful with the percentage of customers ordering French fries
rising.
Moet Hennessy (MH)
The group's share of the operating profit before exceptionals of MH for the
six month period was #74 million, down from #76 million. At level exchange,
this was an increase of 21%.
Associates
Income from associates, other than Moet Hennessy, for the period was #57
million against #43 million in the same period last year. This was due to
increased income from Jose Cuervo, Cantrell and Cochrane and Haagen-Dazs in
Japan.
Discontinued operations
Discontinued operations comprise Pearle, which was sold in November 1996, and
the national food businesses in Europe, which were disposed of by August 1997.
Exchange rates
Exchange rate movements during the 6 month period adversely impacted profit
before exceptionals and tax by #97 million primarily from the adverse
translation impact on overseas operating profit of #70 million. The adverse
impact of exchange rate movements on transactions in the period was #7
million, giving a total exchange impact on operating profit of #77 million.
Share of profits of associates was adversely impacted by #18 million and
interest benefited by #8 million. There was a #2 million gain on translation
hedging operations, against a gain of #12 million in the same period last
year.
The group's expected transaction exposure is over 95% hedged forward for the
6 months ending 30 June 1998.
US dollar net assets excluding cash and borrowings were on average 50% hedged
by US dollar denominated borrowings and currency swaps. During 1998 this
hedge has been increased to 75%.
Exceptional items
Exceptional charges in the period amounted to #485 million. The main items
were merger related costs including transaction expenses of #85 million,
integration costs of #44 million and costs of #250 million relating to the
agreement reached with LVMH. In addition, there is a charge in respect of
the sale of the investment in Gonzalez Byass of #23 million. Other major
charges include #54 million relating to the sale of IPCL and #22 million for
the national food businesses in Europe, both of which were reported in the
GrandMet results for the year ended 30 September 1997.
Interest
The interest charge in the period fell to #115 million from #142 million in
the comparable period. The conversion of the 6.5% convertible loan notes
accounted for #12 million of this reduction. The interest charge also
benefited by #8 million from exchange rate movements and by #4 million from
lower interest rates. The interest charge now includes #4 million relating
to associates and joint arrangements for the six months and #6 million for
the comparable period.
Taxation
The effective rate of taxation on profit before exceptional items for the
period was 27.2%, compared with 27.1% for the 6 months ended 31 December
1996.
Dividends
As previously announced, Diageo will pay an interim dividend of 12.5 pence
payable to holders of the ordinary shares on 24 April 1998. Payment to US
ADR holders will be made on 7 May 1998. This dividend will consist of an
amount of 7.2 pence paid as a normal interim dividend, and an additional
payment of 5.3 pence, a one-off amount to reflect the change in year end and
consequent change in dividend payment patterns. The record date for this
dividend will be 3 April 1998. This dividend will be paid as a Foreign
Income Dividend (FID).
Cash flow
Free cash flow generated in the period was #114 million. Cash flow from
operating activities excluding merger related costs was #1,040 million
against operating profit of #1,185 million. Merger related payments in the
period were #324 million including costs of #250 million relating to the
agreement reached with LVMH. Capital expenditure in the period was #232
million and tax payments amounted to #354 million.
Accounting policy changes and alignments
Adjustments have been made to comply with the new accounting standard on
associates and joint ventures and to achieve uniformity of accounting
policies. The principal accounting policy alignment is in respect of stock
which now does not include the financing costs on maturing whisky and other
spirits stocks. This has resulted in a reduction of #563 million in the
combined stock figure at 31 December 1997. These changes have no effect on
profit and details are set out in the appendices.
Copies of the group's results presentation to be made to analysts and
investors are available upon request.
Enquiries to: Catherine James Investor enquiries
0171 927 5272
Murray Loake Media enquiries 0171 927 5967
DIAGEO plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the 6 months ended 31 December 1997
Before Before
excep- Excep- excep- Excep-
tional tional 1997 tional tional 1996
items items Total items items Total
#m #m #m #m #m #m
Turnover
Continuing operations 6,714 6,714 7,019 7,019
Discontinued operations 3 3 297 297
Group turnover 6,717 6,717 7,316 7,316
Operating costs (5,532) (294) (5,826) (6,111) - (6,111)
Operating profit
Continuing operations 1,186 (294) 892 1,185 - 1,185
Discontinued operations (1) - (1) 20 - 20
Group operating profit 1,185 (294) 891 1,205 - 1,205
Share of profits of 131 (17) 114 119 (24) 95
associates
Group trading profit 1,316 (311) 1,005 1,324 (24) 1,300
Disposal of fixed assets - 12 12 - (12) (12)
Sale of businesses - (101) (101) - (542) (542)
Merger expenses - (85) (85) - - -
Interest payable (net) (115) - (115) (142) - (142)
Profit before taxation 1,201 (485) 716 1,182 (578) 604
Taxation (327) 11 (316) (320) (24) (344)
Profit after taxation 874 (474) 400 862 (602) 260
Minority interests
Equity (30) - (30) (26) - (26)
Non-equity (18) - (18) (19) - (19)
Profit for the period 826 (474) 352 817 (602) 215
Ordinary dividends (446) - (446) (429) - (429)
Transferred to reserves 380 (474) (94) 388 (602) (214)
Earnings per share 20.6p (11.8)p 8.8p 20.2p (14.9)p 5.3p
Average number of shares 4,007m 4,035m
DIAGEO plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the 12 months ended 31 December 1997
Before Before
excep- Excep- excep- Excep-
tional tional 1997 tional tional 1996
items items Total items items Total
#m #m #m #m #m #m
Turnover
Continuing operations 12,280 12,280 12,753 12,753
Discontinued operations 106 106 687 687
Group turnover 12,386 12,386 13,440 13,440
Operating costs (10,403) (294) (10,697) (11,439) - (11,439)
Operating profit
Continuing operations 1,983 (294) 1,689 1,965 - 1,965
Discontinued operations - - - 36 - 36
Group operating profit 1,983 (294) 1,689 2,001 - 2,001
Share of profits of 208 (17) 191 205 (24) 181
associates
Group trading profit 2,191 (311) 1,880 2,206 (24) 2,182
Disposal of fixed assets - 5 5 - (13) (13)
Sale of businesses - (158) (158) - (549) (549)
Merger expenses - (85) (85) - - -
Interest payable (net) (241) - (241) (288) - (288)
Profit before taxation 1,950 (549) 1,401 1,918 (586) 1,332
Taxation (533) 29 (504) (523) (23) (546)
Profit after taxation 1,417 (520) 897 1,395 (609) 786
Minority interests
Equity (50) - (50) (44) - (44)
Non-equity (36) - (36) (38) - (38)
Profit for the period 1,331 (520) 811 1,313 (609) 704
Ordinary dividends (671) - (671) (629) - (629)
Transferred to reserves 660 (520) 140 684 (609) 75
Earnings per share 33.3p (13.0)p 20.3p 32.4p (15.0)p 17.4p
Average number of shares 4,002m 4,052m
DIAGEO plc
CONSOLIDATED BALANCE SHEET
at 31 December 1997
1997 1996
#m #m #m #m
Fixed assets
Intangible assets 4,995 4,925
Tangible assets 3,118 3,264
Investments 1,508 1,598
9,621 9,787
Current assets
Stocks 2,349 2,349
Debtors - due within one year 2,674 2,746
Debtors - due after more than one 1,035 920
year
Investments 647 605
Cash at bank and in hand 1,593 1,448
8,298 8,068
Creditors - due within one year
Borrowings (including convertible (3,060) (1,681)
debt)
Other creditors (3,626) (3,388)
(6,686) (5,069)
Net current assets 1,612 2,999
Total assets less current 11,233 12,786
liabilities
Creditors - due after more than
one year
Borrowings (2,989) (4,578)
Other creditors (287) (304)
(3,276) (4,882)
Provisions for liabilities and (661) (747)
charges
7,296 7,157
Shareholders' funds
Called up share capital 1,007 1,021
Reserves 5,742 5,634
6,749 6,655
Minority interests
Equity 178 142
Non-equity 369 360
7,296 7,157
DIAGEO plc
CONSOLIDATED CASH FLOW STATEMENT
for the periods ended 31 December
6 months 12 months 12 months
ended 31 ended 31 ended 31
December December December
1997 1997 1996
#m #m #m
Net cash inflow from operating activities 716 1,919 2,215
Dividends received from associates 22 64 50
Interest paid (net) (97) (274) (330)
Dividends paid to equity minority interests (10) (27) (40)
Returns on investments and servicing of (107) (301) (370)
finance
Taxation (354) (585) (606)
Purchase of tangible fixed assets (232) (393) (454)
Sale of tangible fixed assets 69 90 59
Capital expenditure and financial investment (163) (303) (395)
114 794 894
Purchase of subsidiaries (31) (39) (226)
Purchase of long term investments - - (6)
Sale of subsidiaries 14 59 346
Sale of long term investments 74 74 -
Acquisitions and disposals 57 94 114
Equity dividends paid (225) (642) (599)
Cash (outflow)/inflow before management of
liquid resources and financing (54) 246 409
Management of liquid resources (53) (162) (444)
Issue of share capital 40 86 42
Repurchase of shares - (195) (466)
Increase in borrowings excluding overdrafts 74 71 282
Other financing inflows - 75 -
Financing 114 37 (142)
Increase/(decrease) in cash in the period 7 121 (177)
Free cash flow 114 794 972
MOVEMENTS IN NET BORROWINGS
Increase/(decrease) in cash in the period 7 121 (177)
Cash inflow from borrowings excluding (74) (71) (282)
overdrafts 53 162 444
Cash outflow from liquid resources
Change in net borrowings from cash flows (14) 212 (15)
Non-cash items 39 32 (18)
Exchange adjustments 23 83 422
Decrease in net borrowings 48 327 389
Net borrowings at beginning of period (3,770) (4,049) (4,438)
Net borrowings at end of period (3,722) (3,722) (4,049)
DIAGEO plc
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the 12 months ended 31 December 1997
1997 1996
#m #m
Profit for the period 811 704
Exchange adjustments (67) (363)
Total recognised gains and losses for the period 744 341
NOTE OF CONSOLIDATED HISTORICAL COST PROFITS AND LOSSES
for the 12 months ended 31 December 1997
There is no material difference between the reported profit shown in the
consolidated profit and loss account and the profit for the relevant periods
restated on an historical cost basis.
MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS
for the 12 months ended 31 December 1997
1997 1996
#m #m
Profit for the period 811 704
Ordinary dividends (671) (629)
140 75
Exchange adjustments (67) (363)
New share capital issued 132 43
Repurchase of shares (195) (466)
Adjustment in respect of share dividend 12 16
Goodwill written off (8) (147)
Goodwill transferred to the profit and loss account
in respect of disposals of businesses 80 497
Net movement in shareholders' funds 94 (345)
Shareholders' funds at beginning of the period 6,655 7,000
Shareholders' funds at end of the period 6,749 6,655
DIAGEO plc
NOTES
1. Segmental analysis of turnover and operating profit
6 months ended 6 months ended
31 December 1997 31 December 1996
Operating Operating
Turnover profit Turnover profit
#m #m #m #m
Spirits & wines - UD 1,367 406 1,538 420
- IDV 1,782 268 1,819 283
3,149 674 3,357 703
Food - Pillsbury 1,963 273 1,995 247
Brewing - Guinness 1,166 140 1,213 150
Food - Burger King 436 99 454 85
Continuing operations 6,714 1,186 7,019 1,185
Discontinued operations 3 (1) 297 20
6,717 1,185 7,316 1,205
12 months ended 12 months ended
31 December 1997 31 December 1996
Operating Operating
Turnover profit Turnover profit
#m #m #m #m
Spirits & wines - UD 2,394 662 2,598 673
- IDV 3,090 444 3,232 465
5,484 1,106 5,830 1,138
Food - Pillsbury 3,723 449 3,784 412
Brewing - Guinness 2,212 254 2,262 254
Food - Burger King 861 174 877 161
Continuing operations 12,280 1,983 12,753 1,965
Discontinued operations 106 - 687 36
12,386 1,983 13,440 2,001
Discontinued operations comprise Pearle and the national food businesses in
Europe. Operating profit is before exceptional items.
2. Geographical analysis of turnover and operating profit
6 months ended 6 months ended
31 December 1997 31 December 1996
Operating Operating
Turnover profit Turnover profit
#m #m #m #m
Europe 2,459 336 2,603 345
North America 3,011 551 3,081 519
Asia Pacific 547 121 668 155
Rest of World 697 178 667 166
Continuing operations 6,714 1,186 7,019 1,185
12 months ended 12 months ended
31 December 1997 31 December 1996
Operating Operating
Turnover profit Turnover profit
#m #m #m #m
Europe 4,299 543 4,556 543
North America 5,648 933 5,790 913
Asia Pacific 1,105 227 1,260 251
Rest of World 1,228 280 1,147 258
Continuing operations 12,280 1,983 12,753 1,965
The above analysis is based on the location of the third party customers.
Operating profit is before exceptional items.
3. Share of profits of associates
The group's profit and loss accounts for the 6 months and 12 months ended 31
December 1997 include its share of Moet Hennessy's operating profit of #74
million (1996 - #76 million) and #110 million (1996 - #119 million),
respectively. The #17 million associate exceptional charge in 1997 relates
to reorganisation costs at MH.
4. Exceptional items
The exceptional items of #485 million before tax in the 6 months ended 31
December 1997 comprise:
#m #m
Charged to operating - Agreement with LVMH 250
profit
- Merger integration costs 44
294
Charged to associates - Share of MH reorganisation 17
costs
Disposal of fixed assets - Gain on sales (12)
Sale of businesses - Inntrepreneur Pub Company 54
- National food businesses in 22
Europe
- Gonzalez Byass 23
- Other 2
101
Merger expenses - Transaction costs 85
485
Exceptional items of #64 million before tax in the 6 months ended 30 June
1997 comprised a loss of #7 million on the disposal of fixed assets and a
charge of #57 million on the sale of businesses (Pillsbury's Aunt Nellie's
Farm Kitchens - #39 million; Burger King's operations in France - #20
million; and other - credit #2 million).
5. Taxation
The total taxation charge for the year ended 31 December 1997 of #504 million
comprises UK taxation of #169 million, overseas taxation of #266 million, and
tax on associates of #69 million.
6. Segmental analysis of net assets
31 December 31 December
1997 1996
#m #m
Spirits & wines - UD 3,570 3,586
- IDV 1,978 2,097
5,548 5,683
Food - Pillsbury 3,008 2,979
Brewing - Guinness 1,100 1,117
Food - Burger King 1,181 1,150
10,837 10,929
Tax, dividends and other 181 277
corporate items
Net borrowings (3,722) (4,049)
7,296 7,157
7. Net borrowings 31 December 31 December
1997 1996
#m #m
Borrowings: Due within one year (3,060) (1,681)
Due after more than one year (2,989) (4,578)
Net obligations under (33) (37)
finance leases (6,082) (6,296)
Less: Cash at bank and in hand 1,593 1,448
Current asset investments 647 605
Interest/foreign exchange rate
swaps 120 194
Net borrowings (3,722) (4,049)
8. Cash flow statement
Reconciliation of operating profit to net cash inflow from operating
activities:
6 months 12 months 12 months
ended 31 ended 31 ended 31
December December December
1997 1997 1996
#m #m #m
Operating profit before exceptional 1,185 1,983 2,001
items
Restructuring and integration payments (33) (59) (139)
Agreement with LVMH (250) (250) -
Merger expenses (68) (68) -
Acquisition and disposal provision (28) (59) (25)
payments
Depreciation charge 162 323 342
Working capital (238) 76 74
Other items (14) (27) (38)
Net cash inflow from operating 716 1,919 2,215
activities
Free cash flow does not include the capital gains tax paid on major business
disposals (#78 million in the 12 months ended 31 December 1996 in respect of
Alpo, included in taxation).
9. Repurchase of shares
Guinness PLC purchased, and subsequently cancelled, 44 million ordinary
shares on 17 January 1997 at a price of 414 pence per share and 100 million
ordinary shares on 22 March 1996 at a price of 463 pence per share. The
repurchase on 17 January 1997 arose following the sale by LVMH of
approximately 135 million ordinary shares of the company.
10. Capital repayment
On 28 January 1998, the shareholders approved a capital repayment to
shareholders equivalent to 70 pence per share, which took the form of the
issue of redeemable B shares and the consolidation of existing ordinary
shares. On 30 January 1998, for every 1,000 existing ordinary shares
shareholders received 864 consolidated ordinary shares and 136 B shares, the
redemption value of the 136 B shares being #700. At 9 March 1998, 525
million B shares had been redeemed at a cost of #2.7 billion and 35 million
were still outstanding.
11. Basis of preparation
The interim financial statements have been prepared under merger accounting
principles and using the accounting policies set out in Appendix 9. Under
merger accounting, the results and cash flows of Grand Metropolitan Public
Limited Company and Guinness PLC are combined from the beginning of the
financial period in which the merger occurred. Profit and loss account and
balance sheet comparatives are restated on the combined basis and adjustments
are made to achieve uniformity of accounting policies. As Guinness PLC is
the new parent company, its financial periods are initially the relevant ones
for Diageo.
The statements are unaudited but have been reviewed by the auditors and their
report is set out below. The statements do not comprise the statutory
accounts of the group. The statutory accounts of Guinness PLC for the year
ended 31 December 1996 and of Grand Metropolitan Public Limited Company for
the year ended 30 September 1997 have been filed with the registrar of
companies. Price Waterhouse and KPMG Audit Plc, the respective auditors,
have reported on these accounts; their reports were unqualified and did not
contain any statement under section 237 of the Companies Act 1985.
12. Accounting policy change
These interim financial statements reflect compliance with the new accounting
standard FRS 9 - Associates and joint ventures. This standard requires that
the share of associate and joint venture operating profit be shown after the
group's operating profit and the share of their interest aggregated with
group interest. The standard also creates a new category of joint
arrangement where each party has its own separate interest in particular
risks and rewards; for these each party should account for its own share of
the assets, liabilities and cash flows of the joint arrangement, measured
according to the terms of that arrangement. Previously, such joint
arrangements were accounted for using equity accounting principles. The
adjustments required to comply with this new standard are detailed in the
appendices. The application of the new standard has had no impact on the
group's profit before taxation.
13. Accounting policy alignment
The adjustments made to achieve uniformity of accounting policies are as
follows:
Tangible assets: Computer software costs on major projects complying with
specific criteria are capitalised and amortised over a maximum of 3 years.
This has resulted in a reduction in combined tangible fixed assets at 31
December 1997 of #12 million.
Stocks: The cost of stocks on the balance sheet no longer includes financing
costs on maturing whisky and other spirits stocks. This has resulted in a
reduction of #563 million in the combined stock at 31 December 1997.
Provisions: The policies of the two groups in respect of provisions for
vacant properties have been aligned to provide for the estimated exposure on
a discounted basis. This has resulted in additional provisions of #31
million.
Profit and loss account: The only impact from the alignment of accounting
policies on the profit and loss accounts is in respect of the definition of
turnover in UDV, particularly the treatment of discounts. These changes,
which are detailed in Appendices 1 and 3, have no impact on profit before
tax.
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