RNS No 4066a
DIAGEO PLC
24th September 1998
PART 2
DIAGEO plc
MEMORANDUM CONSOLIDATED PROFIT AND LOSS ACCOUNT
unaudited
12 months ended 12 months ended
30 June 1998 30 June 1997
Before Before
excep- Excep- excep- Excep-
tional tional tional tional
items items Total items items Total
#m #m #m #m #m #m
Turnover
Continuing operations 12,026 12,026 12,585 12,585
Discontinued operations 3 3 400 400
Group turnover 12,029 12,029 12,985 12,985
Operating costs (10,087) (572) (10,659) (10,982) - (10,982)
Operating profit
Continuing operations 1,943 (572) 1,371 1,982 - 1,982
Discontinued operations (1) - (1) 21 - 21
Group operating profit 1,942 (572) 1,370 2,003 - 2,003
Share of profits of 210 (15) 195 196 (24) 172
associates
Trading profit 2,152 (587) 1,565 2,199 (24) 2,175
Disposal of fixed assets - 5 5 - (19) (19)
Sale of businesses - 558 558 - (599) (599)
Merger expenses - (85) (85) - - -
Interest payable (net) (302) (58) (360) (268) - (268)
Profit on ordinary
activities before 1,850 (167) 1,683 1,931 (642) 1,289
taxation
Taxation on profit on
ordinary activities (504) (217) (721) (526) (6) (532)
Profit on ordinary
activities 1,346 (384) 962 1,405 (648) 757
after taxation
Minority interests
Equity (47) - (47) (46) - (46)
Non-equity (36) - (36) (37) - (37)
Profit for the period 1,263 (384) 879 1,322 (648) 674
Dividends (835) - (835) (654) - (654)
Transferred to reserves 428 (384) 44 668 (648) 20
Earnings per share 33.0p (10.0)p 23.0p 32.9p (16.1)p 16.8p
CONSOLIDATED PROFIT AND LOSS ACCOUNT
18 months ended 12 months ended
30 June 1998 31 December 1996
Before Before
excep- Excep- excep- Excep-
tional tiona1 tional tional
items items Total items items Total
#m #m #m #m #m #m
Turnover
Continuing operations 17,592 17,592 12,753 12,753
Discontinued operations 106 106 687 687
Group turnover 17,698 17,698 13,440 13,440
Operating costs (14,958) (572)(15,530) (11,439) - (11,439)
Operating profit
Continuing operations 2,740 (572) 2,168 1,965 - 1,965
Discontinued operations - - - 36 - 36
Group operating profit 2,740 (572) 2,168 2,001 - 2,001
Share of profits of 287 (15) 272 205 (24) 181
associates
Trading profit 3,027 (587) 2,440 2,206 (24) 2,182
Disposal of fixed assets - (2) (2) - (13) (13)
Sale of businesses - 501 501 - (549) (549)
Merger expenses - (85) (85) - - -
Interest payable (net) (428) (58) (486) (288) - (288)
Profit on ordinary
activities before 2,599 (231) 2,368 1,918 (586) 1,332
taxation
Taxation on profit on
ordinary activities (710) (199) (909) (523) (23) (546)
Profit on ordinary
activities 1,889 (430) 1,459 1,395 (609) 786
after taxation
Minority interests
Equity (67) - (67) (44) - (44)
Non-equity (54) - (54) (38) - (38)
Profit for the period 1,768 (430) 1,338 1,313 (609) 704
Dividends (1,060) - (1,060) (629) - (629)
Transferred to reserves 708 (430) 278 684 (609) 75
Earnings per share 45.7p (11.2)p 34.5p 32.4p (15.0)p 17.4p
CONSOLIDATED BALANCE SHEET
30 June 1998 30 June 1997 31 December
(unaudited) 1996
#m #m #m #m #m #m
Fixed assets
Intangible assets 4,727 4,976 4,925
Tangible assets 3,006 3,127 3,264
Investments 1,244 1,522 1,598
8,977 9,625 9,787
Current assets
Stocks 2,236 2,374 2,349
Debtors 3,054 3,216 3,666
Investments 484 918 605
Cash at bank and in hand 2,503 1,255 1,448
8,277 7,763 8,068
Creditors - due within one
year
Borrowings (4,724) (2,293) (1,681)
Other creditors (3,524) (2,930) (3,388)
(8,248) (5,223) (5,069)
Net current assets 29 2,540 2,999
Total assets less current 9,006 12,165 12,786
liabilities
Creditors - due after one
year
Borrowings (2,894) (3,845) (4,578)
Other creditors (243) (345) (304)
(3,137) (4,190) (4,882)
Provisions for liabilities
and charges (705) (674) (747)
5,164 7,301 7,157
Shareholders' funds
Equity share capital 1,034 1,001 1,021
Non-equity share capital 105 - -
Called up share capital 1,139 1,001 1,021
Reserves attributable to
equity shareholders 3,490 5,770 5,634
4,629 6,771 6,655
Minority interests
Equity 169 163 142
Non-equity 366 367 360
535 530 502
5,164 7,301 7,157
CONSOLIDATED CASH FLOW STATEMENT
12 18 months 12 months
months ended 30 ended 31
ended 30 June 1998 December
June 1996
1998 #m #m
(unaudited)
#m
Net cash inflow from operating 1,866 3,069 2,215
activities
Dividends received from associates 120 162 50
Interest paid (net) (258) (435) (330)
Dividends paid to equity minority (24) (41) (40)
interests
Returns on investments and (282) (476) (370)
servicing of finance
Taxation (603) (834) (606)
Purchase of tangible fixed assets (473) (634) (454)
Sale of tangible fixed assets 107 128 59
Capital expenditure and financial (366) (506) (395)
investment
Free cash flow 735 1,415 894
Purchase of subsidiaries (58) (66) (232)
Sale of subsidiaries and businesses 1,186 1,231 346
Sale of associates 240 240 -
Acquisitions and disposals 1,368 1,405 114
Equity dividends paid (671) (1,088) (599)
Cash inflow before management
of liquid resources and financing 1,432 1,732 409
Management of liquid resources (600) (709) (444)
Issue of share capital 109 155 42
Repurchase of shares (2,775) (2,970) (466)
Increase in borrowings excluding 2,097 2,094 282
overdrafts
Other financing inflow - 75 -
Financing (569) (646) (142)
Increase/(decrease) in cash in the 263 377 (177)
period
MOVEMENTS IN NET BORROWINGS
Increase/(decrease) in cash in the 263 377 (177)
period
Cash inflow from borrowings (2,097) (2,094) (282)
excluding overdrafts
Cash outflow from liquid resources 600 709 444
Change in net borrowings from cash (1,234) (1,008) (15)
flows
Exchange adjustments 106 166 422
Loan note conversion and other non- 390 383 (18)
cash items
(Increase)/decrease in net (738) (459) 389
borrowings
Net borrowings at beginning of (3,770) (4,049) (4,438)
period
Net borrowings at end of period (4,508) (4,508) (4,049)
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the 18 months ended 30 June 1998
18 12
months months
ended ended 31
30 June December
1998 1996
#m #m
Profit for the period 1,338 704
Exchange adjustments (151) (363)
Total recognised gains and losses for the period 1,187 341
NOTE OF CONSOLIDATED HISTORICAL COST PROFITS AND LOSSES
for the 18 months ended 30 June 1998
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 18 months ended 30 June 1998
18 12
months months
ended ended 31
30 June December
1998 1996
#m #m
Profit for the period 1,338 704
Dividends (1,060) (629)
278 75
Exchange adjustments (151) (363)
New share capital issued 608 43
Capital repayment (2,775) -
Other repurchase of shares (195) (466)
Adjustment in respect of share dividend 12 16
Goodwill written off on acquisitions (29) (147)
Goodwill in respect of disposals of businesses 226 497
Net movement in shareholders' funds (2,026) (345)
Shareholders' funds at beginning of the period 6,655 7,000
Shareholders' funds at end of the period 4,629 6,655
NOTES
1. Segmental analysis
(i) 12 months ended 30 June 1998 (unaudited)
12 months ended 12 months ended
30 June 1998 30 June 1997
Operating Operating
Turnover profit Turnover profit
Class of business: #m #m #m #m
Spirits and Wine 5,327 1,070 5,692 1,135
Packaged Food 3,654 447 3,755 423
Beer 2,176 247 2,259 264
Fast Food 869 179 879 160
Continuing operations 12,026 1,943 12,585 1,982
Discontinued operations 3 (1) 400 21
12,029 1,942 12,985 2,003
Geographical area:
Europe 4,262 534 4,443 552
North America 5,619 938 5,718 901
Asia Pacific 915 174 1,226 261
Rest of World 1,230 297 1,198 268
Continuing operations 12,026 1,943 12,585 1,982
(ii) 18 months ended 30 June 1998
18 months ended 12 months ended
30 June 1998 31 December 1996
Operating Operating
Turnover profit Turnover profit
Class of business: #m #m #m #m
Spirits and Wine 7,662 1,502 5,830 1,138
Packaged Food 5,414 623 3,784 412
Beer 3,222 361 2,262 254
Fast Food 1,294 254 877 161
Continuing operations 17,592 2,740 12,753 1,965
Discontinued operations 106 - 687 36
17,698 2,740 13,440 2,001
Geographical area:
Europe 6,102 741 4,556 543
North America 8,256 1,320 5,790 913
Asia Pacific 1,473 280 1,260 251
Rest of World 1,761 399 1,147 258
Continuing operations 17,592 2,740 12,753 1,965
(iii) Net assets at 30 June 1998
30 June 31 December
1998 1996
#m #m
Spirits and Wine 4,560 5,494
Packaged Food 2,927 2,943
Beer 935 1,002
Fast Food 1,120 1,150
9,542 10,589
Investments in associates 1,092 1,451
Tax, dividends and other (962) (834)
corporate items
Net borrowings (4,508) (4,049)
5,164 7,157
Europe 3,943 4,660
North America 4,887 5,145
Asia Pacific 243 369
Rest of World 469 415
9,542 10,589
(iv) Notes on the above analyses
Discontinued operations comprise Pearle, which was sold in
November 1996, and the national food businesses in Europe, which
were sold by August 1997. The above analysis of operating profit
is before exceptional items. The geographical analysis is based
on the location of the third party customers.
The weighted average exchange rate used in translation of US
dollar profit and loss accounts was #1 = $1.64 for the 12 months
ended 30 June 1998 and #1 = $1.64 for the 18 months ended 30 June
1998 (12 months ended 30 June 1997 - #1 = $1.61; 12 months ended
31 December 1996 - #1 = $1.56). The exchange rate used to
translate US dollar assets and liabilities at the balance sheet
date was #1 = $1.67 (30 June 1997 - #1 = $1.66 and 31 December
1996 - #1 = $1.69).
2. Share of profits of associates
The group's profit and loss accounts for the 12 months and 18
months ended 30 June 1998 include its share of Moet Hennessy's
operating profit of #114 million (12 months to 30 June 1997 -
#112 million) and #150 million (12 months to 31 December 1996 -
#119 million), respectively.
3. Exceptional items
The exceptional items of #167 million before tax in the 12 months
ended 30 June 1998 comprise:
#m #m
Merger related
costs
charged to - Agreement with LVMH (250)
operating profit - Merger integration (302)
costs
- Employee incentive (20)
scheme costs
(572)
Charged to - Share of MH (15)
associates reorganisation costs
Disposal of fixed - Gain on sales 5
assets - Dewar's and Bombay 668
Sale of businesses brands
- Inntrepreneur Pub (54)
Company Ltd
- National food (22)
businesses in Europe
- Gonzalez Byass (23)
- Masterbrands (10)
- Other (1)
558
Merger expenses - Transaction costs (85)
Charged to interest - Interest rate policy (58)
change
(167)
Exceptional items of #231 million before tax for the 18 months
ended 30 June 1998 comprise the above, plus 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).
Exceptional items of #586 million before tax for the 12 months to
31 December 1996 include losses of #291 million on the sale of
Pearle and #215 million on the sale of the national food
businesses in Europe.
4. Taxation
The total taxation charge for the 18 months to 30 June 1998 of
#909 million comprises UK taxation of #374 million, overseas
taxation of #428 million, and tax on associates of #107 million.
5. Net borrowings 30 June 30 June 31 December
1998 1997 1996
#m #m #m
Borrowings: Due within one year (4,724) (2,293) (1,681)
Due after more than one year (2,894) (3,845) (4,578)
Net obligations under finance leases (41) (33) (37)
(7,659) (6,171) (6,296)
Less: Cash at bank and in hand 2,503 1,255 1,448
Current asset investments 484 918 605
Interest/foreign exchange rate swaps 164 228 194
Net borrowings (4,508) (3,770) (4,049)
6. Cash flow statement
Reconciliation of operating profit to net cash inflow from
operating activities:
12 18 12
months months months
ended 30 ended ended
June 30 31
1998 June December
#m 1998 1996
#m #m
Operating profit 1,370 2,168 2,001
Exceptional operating costs 572 572 -
Restructuring and integration (204) (230) (139)
payments
Agreement with LVMH (250) (250) -
Merger transaction costs (85) (85) -
Acquisition and disposal provision (46) (77) (25)
payments
Depreciation charge 323 484 342
Working capital 187 501 74
Other items (1) (14) (38)
Net cash inflow from operating 1,866 3,069 2,215
activities
Free cash flow is now defined as cash from operating activities
plus dividends from associates, less net interest, taxation and
net capital expenditure.
7. 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 560 million redeemable B shares and the
consolidation of existing ordinary shares from 4,117 million to
3,557 million. 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 30 June 1998, 540 million B shares had been
redeemed at a cost of #2,775 million and 20 million shares with a
nominal value of #105 million were still outstanding.
On 1 August 1998, subsequent to the period end, the company
converted the 18 million then remaining B shares into 12 million
ordinary shares at a price of 725 pence per share.
8. Merger accounting
The financial statements have been prepared under merger
accounting principles in relation to the merger of GrandMet and
Guinness. Under merger accounting, the results and cash flows of
GrandMet and Guinness 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 consistency of
accounting policies.
GrandMet's financial years ended on 30 September and Guinness'
financial years ended on 31 December. Diageo's financial period
ends on 30 June and, as Guinness PLC is the new parent company
and the merger occurred on 17 December 1997, Diageo's first
financial period started on 1 January 1997. These statutory
accounts are therefore for the 18 months ended 30 June 1998, with
comparative figures for the 12 months ended 31 December 1996.
Additional unaudited results information is included in the
financial statements in respect of the 12 month periods ended 30
June 1998 and 30 June 1997.
9. Accounting policies
The financial statements have been prepared on the basis of the
accounting policies published with the interim results. The
adjustments made to the financial statements of GrandMet and
Guinness to achieve uniformity of accounting policies were as
follows:
Tangible assets: Computer software costs on major projects
complying with specific criteria are capitalised and amortised
over a maximum of three years. This 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 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 resulted in
additional provisions of #31 million at 31 December 1997.
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 Spirits and Wine, particularly
the treatment of discounts. These changes have no impact on
profit before tax.
10. Adoption of new accounting standards
The financial statements comply with the new accounting standard
issued by the Accounting Standards Board: 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
presented 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 group has accounted for its joint arrangements in
accordance with FRS 9; it has no material joint ventures. The
application of the new standard has had no impact on the group's
profit before taxation.
11. Statutory accounts
The financial statements of Diageo plc for the 18 months ended 30
June 1998 and this preliminary statement were approved by a duly
appointed and authorised committee of the board of directors on
23 September 1998. This statement does not comprise the
statutory accounts of the group but is derived from those
accounts.
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 those accounts and, as
joint auditors, KPMG Audit Plc and PricewaterhouseCoopers have
reported on the Diageo plc statutory accounts for the 18 months
ended 30 June 1998. All the audit reports were unqualified and
did not contain any statement under section 237 of the Companies
Act 1985.
END
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