TIDMDGE
RNS Number : 7750Z
Diageo PLC
27 January 2022
Interim results, six months ended 31 December 2021
27 January 2022
Diageo delivers strong net sales growth and margin expansion
Delivered strong net sales growth across all regions
- Reported net sales of GBP8.0 billion increased 15.8%, with
strong organic growth, partially offset by an adverse foreign
exchange impact.
- Organic net sales grew 20.0%, driven by strong double-digit
growth across all regions, supported by effective marketing and
excellent commercial execution.
- Growth reflects continued recovery in the on-trade, resilient
consumer demand in the off-trade and market share gains, and was
underpinned by favourable industry trends of spirits taking share
of total beverage alcohol and premiumisation(i) .
Expanded operating margin while increasing marketing
investment
- Reported operating profit of GBP2.7 billion increased 22.5%,
and reported operating margin increased 190bps, primarily due to
growth in organic operating profit.
- Organic operating profit grew 24.7%, with growth across all regions.
- Organic operating margin increased 131bps, primarily driven by
a strong recovery in gross margin and leverage on operating costs,
while increasing marketing investment.
- Supply productivity savings and price increases more than offset the impact of cost inflation.
Delivered broad-based category growth and gained market
share
- Broad-based growth across most categories, with particularly
strong performance in scotch, tequila and beer.
- Premium plus brands contributed 56% of reported net sales and
drove 74% of organic net sales growth.
- Grew or held off-trade market share in over 85%(ii) of total
net sales value in measured markets.
Invested to sustain long-term growth
- Organic growth in marketing investment of 27.0%, ahead of organic net sales growth.
- Continued capex investment in production capacity, digital
capabilities and consumer experiences.
Delivered strong cash generation
- Net cash flow from operating activities decreased GBP0.1
billion to GBP1.9 billion, and free cash flow decreased GBP0.2
billion to GBP1.6 billion, primarily due to lapping an
exceptionally strong working capital benefit in the first half of
fiscal 21.
- Strong balance sheet, with leverage ratio(iii) of 2.5x at 31
December 2021, at the low end of our target range.
Continued progress in delivering Society 2030 goals
- Opened our first carbon-neutral whiskey distillery in North
America and broke ground on a carbon-neutral distillery in
China.
- Responsible drinking campaigns: launched 'Wrong Side of the
Road' and continued roll out of 'Know When to Stop'.
- Included in Dow Jones World Sustainability Index for fourth consecutive year.
- Retained 'double A' status for both climate change and water security on CDP's lists.
Created long-term shareholder value
- Increased basic eps by 24.7% to 84.3 pence and pre-exceptional eps by 22.5% to 85.6 pence.
- Increased interim dividend by 5% to 29.36 pence per share.
- Completed GBP0.5 billion of share buybacks as part of return
of capital programme of up to GBP4.5 billion.
- Accelerating timeline to complete return of capital programme during fiscal 23.
See Explanatory notes for explanation and reconciliation of
non-GAAP measures, including organic net sales, organic operating
profit, free cash flow, eps before exceptionals, ROIC, adjusted net
debt, adjusted EBITDA and tax rate before exceptional items.
(i) IWSR, 2021 (20 TBA markets, approximately 75% of industry TBA volume).
(ii) Internal estimates incorporating AC Nielsen, Association of
Canadian Distillers, Dichter & Neira, Frontline, Intage, IRI,
ISCAM, NABCA, Scentia, State Monopolies, TRAC, IPSOS and other
third-party providers. All analysis of data has been applied with a
tolerance of +/- 3 bps. Percentages represent percent of markets by
total Diageo net sales contribution that have held or gained
off-trade share. India, Nigeria and Canada share data represents
total trade. Measured markets indicate a market where we have
purchased any market share data. Market share data may include
beer, wine, spirits or other elements. Measured market net sales
value sums to 87% of total Diageo net sales value in first half of
fiscal 22.
(iii) Ratio of adjusted net borrowings to adjusted EBITDA.
Ivan Menezes, Chief Executive, said:
I am very pleased with our financial results, which build on our
growth momentum in fiscal 21. We delivered strong organic net sales
growth across all regions and operating margin expansion. This
performance demonstrates our world-class brand building capability,
supply chain excellence and agile culture, and reflects the
strength of our portfolio across geographies, categories and price
tiers.
In the off-trade channel, where consumer demand has remained
resilient, we have gained or held market share across the majority
of our measured markets. We also benefitted from the continued
recovery of the on-trade channel, particularly in Europe and North
America.
Strong sales volume growth and continued premiumisation drove an
improvement in organic operating margin during the half. This was
achieved while increasing our investment in marketing to gain share
and support innovation, particularly in North America and Greater
China. In addition, our focus on revenue growth management and
productivity savings are helping to mitigate the impact of cost
inflation.
Strong cash flow generation is enabling re-investment in
sustainable long-term growth. We are expanding our production
capacity, enhancing our digital capabilities, investing in talent
and progressing with our ambitious 10-year sustainability plan.
During the half, we also returned GBP0.5 billion to shareholders
via share buybacks and we are accelerating the timeline of our
return of capital programme of up to GBP4.5 billion to now be
completed during fiscal 23.
We have made a strong start to fiscal 22. While we expect
near-term volatility to remain, including potential impacts from
Covid-19, global supply chain constraints and rising cost
inflation, I am confident in our ability to successfully navigate
these disruptions through the remainder of the year. Over the
medium-term, from fiscal 23 to fiscal 25, we continue to expect
organic net sales to consistently grow within a range of 5% to 7%
and organic operating profit to grow sustainably within a range of
6% to 9%.
Financial performance
Volume (equivalent units) Operating profit Earnings per share (eps)
EU140.2m GBP2,743m 84.3p
(F21 H1: EU
128.3 m) (F21 H1: GBP2,239m) (F21 H1: 67.6p)
23 25
Reported movement 9 % hReported movement % hReported movement % h
25 Eps before exceptional 22
Organic movement(i) 9 % hOrganic movement(i) % h items(i) % h
-------------------- ------- ------------------- ----- ---------------------- -----
Net sales Net cash from operating Interim dividend
activities per share
GBP7,957m GBP1,947m 29.36p
(F21 H1: GBP6,874m) (F21 H1: GBP1,998m) (F21 H1: 27.96p)
F22 H1 free cash 5
Reported movement 16 % h flow(i) GBP1,575m Increase % h
Organic movement(i) 20 % hF21 H1 free cash
flow(i) GBP1,753m
-------------------- ------- ------------------- ----- ---------------------- -----
(i) See Explanatory notes for explanation and reconciliation of non-GAAP measures.
Key financial information
Six months ended 31 December 2021
Summary financial information
Organic Reported
growth growth
F22 H1 F21 H1 % %
------------------------------- ----------- -------------------- --------------------- ======= ==================
Volume EUm 140.2 128.3 9 9
=============================== =========== ==================== ===================== ======= ==================
Net sales GBP million 7,957 6,874 20 16
=============================== =========== ==================== ===================== ======= ==================
Marketing GBP million 1,351 1,085 27 25
=============================== =========== ==================== ===================== ======= ==================
Operating profit before
exceptional
items GBP million 2,743 2,256 25 22
=============================== =========== ==================== ===================== ======= ==================
Exceptional operating items(i) GBP million - (17)
=============================== =========== ==================== ===================== ======= ==================
Operating profit GBP million 2,743 2,239 23
=============================== =========== ==================== ===================== ======= ==================
Share of associate and joint
venture
profit after tax GBP million 190 154 23
=============================== =========== ==================== ===================== ======= ==================
Non-operating exceptional
items(i) GBP million (31) 5
=============================== =========== ==================== ===================== ======= ==================
Net finance charges GBP million (180) (200)
=============================== =========== ==================== ===================== ======= ==================
Exceptional taxation
(charge)/credit(i) GBP million - (42)
=============================== =========== ==================== ===================== ======= ==================
Tax rate including exceptional
items % 23.3 24.4 (5)
=============================== =========== ==================== ===================== ======= ==================
Tax rate before exceptional
items % 23.0 22.4 3
=============================== =========== ======= ==================
Profit attributable to parent
company's
shareholders GBP million 1,965 1,580 24
=============================== =========== ==================== ===================== ======= ==================
Basic earnings per share pence 84.3 67.6 25
=============================== =========== ==================== ===================== ======= ==================
Basic earnings per share before
exceptional items pence 85.6 69.9 22
=============================== =========== ==================== ===================== ======= ==================
Interim dividend pence 29.36 27.96 5
------------------------------- ----------- -------------------- --------------------- ------- ------------------
(i) For further details on exceptional items see Summary income
statement, (c) Exceptional items and Notes, 3. Exceptional
items.
Reported growth by region
Operating
profit before
exceptional Operating
Volume Net sales Marketing items profit
--------------
GBP GBP GBP GBP
% EUm % million % million % million % million
---------- ------ ------------- -------- ------------- -------- ------------- -------- ------------- ---- --------
North
America 1 0.3 10 263 24 105 6 69 6 69
========== ====== ============= ======== ============= ======== ============= ======== ============= ==== ========
Europe 23 5.4 21 309 22 55 37 167 43 184
========== ====== ============= ======== ============= ======== ============= ======== ============= ==== ========
Asia
Pacific 4 1.7 10 136 16 36 17 65 17 65
========== ====== ============= ======== ============= ======== ============= ======== ============= ==== ========
Africa 15 2.5 17 123 21 18 85 81 85 81
========== ====== ============= ======== ============= ======== ============= ======== ============= ==== ========
Latin
America
and
Caribbean 16 2.0 41 240 60 47 69 136 69 136
========== ====== ============= ======== ============= ======== ============= ============= ==== ========
Corporate - - 109 12 500 5 (33) (31) (33) (31)
---------- ------ ------------- -------- ------------- -------- ------------- -------- ------------- ---- --------
Diageo 9 11.9 16 1,083 25 266 22 487 23 504
---------- ------ ------------- -------- ------------- -------- ------------- -------- ------------- ---- --------
Organic growth by region
Operating profit
before exceptional
Volume Net sales Marketing items
% EUm % GBP million % GBP million % GBP million
---------- ------ ---------------- -------- --------------- -------- ---------------- -------- ----------------
North
America 1 0.2 13 338 24 105 7 89
========== ====== ================ ======== =============== ======== ================ ======== ================
Europe 23 5.4 27 389 26 65 42 184
========== ====== ================ ======== =============== ======== ================ ======== ================
Asia
Pacific 4 1.7 13 181 18 41 19 72
========== ====== ================ ======== =============== ======== ================ ======== ================
Africa 16 2.6 23 166 28 23 85 88
========== ====== ================ ======== =============== ======== ================ ======== ================
Latin
America
and
Caribbean 16 2.0 45 258 65 50 80 152
========== ====== ================ ======== =============== ======== ================ ======== ================
Corporate - - 109 12 133 4 (36) (35)
---------- ------ ---------------- -------- --------------- -------- ---------------- -------- ----------------
Diageo 9 11.9 20 1,344 27 288 25 550
---------- ------ ---------------- -------- --------------- -------- ---------------- -------- ----------------
First half of fiscal 19 to first half of fiscal 22 growth on a
constant basis(i)
First half of First half of
fiscal 19 to first fiscal 19 to first
half of fiscal half of fiscal
22 22
Reported growth Growth on a constant
%(i) basis %(i)
---------------------------- ------------------- ---------------------
Net sales
---------------------------- ------------------- ---------------------
North America 26 34
============================ =================== =====================
Europe 7 17
============================ =================== =====================
Asia Pacific 10 14
============================ =================== =====================
Africa 6 26
============================ =================== =====================
Latin America and Caribbean 22 39
============================ =================== =====================
Corporate (18) (18)
---------------------------- ------------------- ---------------------
Diageo 15 25
---------------------------- ------------------- ---------------------
(i) For further details on first half of fiscal 19 to first half
of fiscal 22 growth on a constant basis see Explanatory notes,
Growth on a constant basis.
See Explanatory notes for explanation and reconciliation of
non-GAAP measures.
Net sales (GBP million)
Reported net sales grew 15.8%
Organic net sales grew 20.0%
(i
Reported net sales grew 15.8%, driven by strong organic growth,
partially offset by unfavourable foreign exchange.
Organic net sales growth of 20.0% reflects organic volume growth
of 9.3% and positive price/mix of 10.7%. All regions grew organic
net sales, driven by the recovery of the on-trade channel,
resilient consumer demand in the off-trade channel and market share
gains. Growth was supported by favourable industry trends of
spirits taking share of total beverage alcohol and
premiumisation(i) .
The positive price/mix benefit was primarily driven by mix,
reflecting the strong growth of premium plus brands, particularly
in scotch, tequila and Chinese white spirits, as well as the
continued recovery of the on-trade channel in Europe and North
America and the partial recovery of Travel Retail. There was also a
price benefit, primarily from price increases in Latin America and
Caribbean, Africa and North America.
Net sales GBP million
--------------------------- ---------------------
F21 H1 6,874
=========================== =====================
Exchange(ii) (271)
=========================== =====================
Acquisitions and disposals 17
=========================== =====================
Reclassification(iii) (7)
=========================== =====================
Volume 624
=========================== =====================
Price/mix 720
--------------------------- ---------------------
F22 H1 7,957
--------------------------- ---------------------
(i) IWSR, 2021 (20 TBA markets, approximately 75% of industry TBA volume).
(ii) Exchange rate movements reflect the adjustment to
recalculate the reported results as if they had been generated at
the prior period weighted average exchange rates.
(iii) For the six months ended 31 December 2021, GBP7 million
has been reclassified from cost of sales to excise duties.
Operating profit (GBP million)
Reported operating profit grew 22.5%
Organic operating profit grew 24.7%
Reported operating profit increased 22.5%, primarily due to
growth in organic operating profit. This was partially offset by
the negative impact of adverse exchange rate movements.
Organic operating profit grew 24.7%, ahead of organic net sales
growth, driven by growth across all regions.
Operating profit GBP million
------------------------------- --------------------
F21 H1 2,239
=============================== ====================
Exceptional operating items(i) 17
=============================== ====================
Exchange (87)
=============================== ====================
Acquisitions and disposals (10)
=============================== ====================
FVR(ii) 34
=============================== ====================
Organic movement 550
------------------------------- --------------------
F22 H1 2,743
------------------------------- --------------------
(i) For further details on exceptional operating items see
Summary income statement, (c) Exceptional items and Notes, 3.
Exceptional items.
(ii) Fair value remeasurements. For further details see Summary
income statement, (d) Fair value remeasurement.
Operating margin (%)
Reported operating margin increased 190bps
Organic operating margin increased 131bps
Reported operating margin increased 190bps, primarily driven by
an increase in organic operating margin.
Organic operating margin increased 131bpsdriven by a strong
recovery in gross margin and leverage on operating costs, while
increasing marketing investment. Latin America and Caribbean,
Europe and Africa largely drove the operating margin improvement,
partially offset by a decline in North America.
Gross margin increased 147bps, primarily driven by positive mix
and improved fixed cost absorption from volume growth. Supply
productivity savings and price increases more than offset the
impact of cost inflation.
Operating margin ppt
------------------------------- --------------------
F21 H1 32.6
=============================== ====================
Exceptional operating items(i) 0.25
=============================== ====================
Exchange 0.05
=============================== ====================
Acquisitions and disposals (0.17)
=============================== ====================
Other(ii) 0.46
=============================== ====================
Gross margin 1.47
=============================== ====================
Marketing (0.92)
=============================== ====================
Other operating items 0.76
------------------------------- --------------------
F22 H1 34.5
------------------------------- --------------------
(i) For further details on exceptional operating items see
Summary income statement, (c) Exceptional items and Notes, 3.
Exceptional items.
(ii) Fair value remeasurements and reclassification . For the
six months ended 31 December 2021, GBP7 million has been
reclassified from cost of sales to excise duties.
Basic earnings per share (pence)
Basic eps increased 24.7% from 67.6 pence to 84.3 pence
Basic eps before exceptional items(i) increased 22.5% from 69.9
pence to 85.6 pence
Basic eps increased 16.7 pence primarily driven by organic
operating profit growth, partially offset by higher tax, and an
unfavourable foreign exchange impact.
Basic eps before exceptional items increased 15.7 pence.
(
Basic earnings per share pence
================================ =====================
F21 H1 67.6
================================ =====================
Exceptional items after tax(ii) 1.0
================================ =====================
Exchange on operating profit (3.7)
================================ =====================
Acquisitions and disposals(iii) (0.5)
================================ =====================
Organic operating profit 23.5
================================ =====================
Associates and joint ventures 1.5
================================ =====================
Finance charges(iv) 1.0
================================ =====================
Tax(v) (5.9)
================================ =====================
Share buyback 0.2
================================ =====================
Non-controlling interests (1.8)
================================ =====================
FVR(vi) 1.4
-------------------------------- ---------------------
F22 H1 84.3
-------------------------------- ---------------------
(i) See Explanatory notes for explanation of the calculation and use of non-GAAP measures.
(ii) For further details on exceptional items see Summary income
statement, (c) Exceptional items and Notes, 3. Exceptional
items.
(iii) Includes finance charges net of tax.
(iv) Excludes finance charges related to acquisitions and disposals.
(v) Excludes tax related to acquisitions and disposals.
(vi) Fair value remeasurements. For further details see Summary income statement, (d) Fair value remeasurement.
Net cash from operating activities and free cash flow (GBP
million)
Generated GBP1,947 million million net cash from operating
activities(i) and GBP1,575 million free cash flow.
Net cash from operating activities was GBP1,947 million, a
decrease of GBP51 million compared to the first half of fiscal 21.
Free cash flow decreased by GBP178 million to GBP1,575 million.
Free cash flow was lower than in the first half of fiscal 21, as
strong growth in operating profit was more than offset by the
impact of lapping an exceptionally strong working capital benefit
in the first half of fiscal 21, increased capex, a negative foreign
exchange impact and higher cash tax paid.
The working capital benefit in the first half of fiscal 21 was
due to a large increase in creditors as operating performance
recovered during the half, following reduced volumes and cost
control measures in the second half of fiscal 20.
The negative cash flow impact from 'other' items was due to
lapping a payment of GBP82 million from Moët Hennessy, which was
received in the first half of fiscal 21 but related to the
financial year ended December 2019.
Free cash flow GBP million
---------------------------------------------------------- ---------------------
F21 H1 Net cash from operating activities 1,998
========================================================== =====================
F21 H1 Capex and movements in loans and other investments (245)
========================================================== =====================
F21 H1 Free cash flow 1,753
========================================================== =====================
Exchange(ii) (87)
========================================================== =====================
Operating profit(iii) 621
========================================================== =====================
Working capital(iv) (481)
========================================================== =====================
Capex (133)
========================================================== =====================
Tax (62)
========================================================== =====================
Interest 38
========================================================== =====================
Other(v) (74)
========================================================== =====================
F22 H1 Free cash flow 1,575
========================================================== =====================
F22 H1 Capex and movements in loans and other investments 372
---------------------------------------------------------- ---------------------
F22 H1 Net cash from operating activities 1,947
---------------------------------------------------------- ---------------------
(i) Net cash from operating activities excludes net capex (F22
H1 - GBP(375) million; F21 H1 - GBP(242) million) and movements in
loans and other investments. Net capex movement was GBP(133)
million compared to the first half of fiscal 21.
(ii) Exchange on operating profit before exceptional items.
(iii) Operating profit excludes exchange, depreciation and
amortisation, post-employment charges of GBP(10) million and other
non-cash items.
(iv) Working capital movement includes maturing inventory.
(v) Other items include dividends received from associates and
joint ventures, post-employment payments and movements in loans and
other investments.
Return on average invested capital (%)(i)
ROIC increased 352bps
ROIC increased 352bps, driven mainly by organic operating profit
growth, partially offset by increased tax.
Return on average invested capital ppt
----------------------------------- --------------------
F21 H1 15.8
=================================== ====================
Exchange 0.27
=================================== ====================
Acquisitions and disposals (0.40)
=================================== ====================
Organic operating profit 5.01
=================================== ====================
Associates and joint ventures 0.24
=================================== ====================
Tax (1.51)
=================================== ====================
Other (0.11)
----------------------------------- --------------------
F22 H1 19.3
----------------------------------- --------------------
(i) ROIC calculation excludes exceptional operating items from operating profit.
Fiscal 22 outlook
Net sales
We expect organic net sales momentum to continue through the
second half of fiscal 22, albeit we are lapping a tougher
comparator. We believe we are well positioned to benefit from
resilience in the off-trade and continued recovery in the on-trade.
However, we expect near-term volatility to remain, including
potential impacts from Covid-19 and global supply chain
constraints, and for disruption in Travel Retail to continue.
In North America, we expect consumer demand to remain resilient,
albeit we are lapping a tougher comparator. We will continue to
invest ahead of net sales growth in marketing and innovation to
underpin growth in our well-positioned portfolio.
In Europe, we expect to benefit from continued recovery in the
on-trade to the extent that restrictions ease. We expect the
off-trade channel to remain resilient.
In Asia Pacific, Africa and Latin America and Caribbean, we will
continue to build on the momentum in the first half, recognising
that disruption related to Covid-19 will likely persist in these
markets.
Operating margin
During the second half of fiscal 22, we expect organic operating
profit to grow ahead of organic net sales. We expect organic
operating margin to benefit from growth in sales volumes,
favourable channel mix and premiumisation trends. We expect our
focus on everyday efficiency and revenue growth management to help
mitigate the impact of cost inflation. We will continue to invest
in marketing and commercial capabilities, particularly in North
America and China.
Exchange
We are not able to provide specific guidance for foreign
exchange in relation to fiscal 22. If we applied exchange rates of
GBP1=$1.36 and GBP1=EUR1.20, we would expect a negative impact on
net sales and operating profit in the second half of fiscal 22.
However, we would expect the impact to be significantly lower than
in the first half of fiscal 22.
Taxation
We expect the tax rate before exceptional items to be in the
range of 22.0% to 24.0% in fiscal 22. For further details on
taxation see Summary income statement, (e) Taxation and Notes, 5.
Taxation.
Effective interest rate
We expect the effective interest rate to be in the range of 2.7%
to 3.0% in fiscal 22.
Capital expenditure
We expect capital expenditure to be in the range of GBP950
million to GBP1 billion in fiscal 22 as we invest behind our
strategic priorities, including projects that were delayed in
fiscal 21 due to Covid-19.
Notes to the business and financial review
Unless otherwise stated:
- movements in results are for the six months ended 31 December
2021 compared to the six months ended 31 December 2020
- commentary below refers to organic movements unless stated as reported
- volume is in millions of equivalent units (EUm)
- net sales are sales after deducting excise duties
- percentage movements are organic movements unless stated as reported
- share refers to value share
See Explanatory notes for explanation of the calculation and use
of non-GAAP measures.
Business review
North America
- Reported net sales grew 10%, primarily reflecting strong
organic growth. Net sales were unfavourably impacted by foreign
exchange, mainly due to weakening of the US dollar.
- Organic net sales increased 13%, building on strong growth in
the first half of fiscal 21, largely driven by US Spirits.
- US Spirits grew 15%, reflecting the recovery of the on-trade
channel, resilient consumer demand in the off-trade channel and
market share gains. Growth was underpinned by favourable industry
trends of premiumisation and spirits taking share of total beverage
alcohol.
- US Spirits price/mix benefit of 12% reflects strong growth in
super-premium plus products, positive channel mix from recovery of
the on-trade and price increases.
- US spirits growth was primarily driven by tequila, up 61%, as
well as strong growth in Canadian whisky, scotch and vodka, which
more than offset declines in rum, US whiskey and Baileys.
- Beer grew 1%, reflecting the recovery of Guinness in the
on-trade, offset by a decline in flavoured malt beverages.
- Organic operating margin decreased by 224bps, primarily
reflecting upweighted investment in marketing, as well as lapping
lower discretionary expenditure. Benefits from pricing,
productivity savings and other items mostly offset cost inflation
and an adverse category mix.
Key financials GBP million:
----------------------------------------------------------------------------------------------------
Acquisitions Reported
and Organic movement
F21 H1 Exchange disposals movement Other(i) F22 H1 %
----------------- ------ -------- ------------ --------- ------------------- ------ ---------
Net sales 2,701 (93) 18 338 - 2,964 10
================= ====== ======== ============ ========= =================== ====== =========
Marketing 443 (14) 15 105 (1) 548 24
================= ====== ======== ============ ========= =================== ====== =========
Operating profit 1,226 (20) (9) 89 9 1,295 6
----------------- ------ -------- ------------ --------- ------------------- ------ ---------
Markets: Global giants, local stars and
reserve(iii) :
------------ ------------------ ------------------ ------------------ ------------------ -------------------------------------------------------------------------
Organic Reported Organic Reported Organic Organic Reported
volume volume net sales net sales volume net sales net sales
movement movement movement movement movement(iv) movement movement
% % % % % % %
------------ ------------------ ------------------ ------------------ ------------------ ---------- ------------------- ------------------- -------------------
North Crown
America(ii) 1 1 13 10 Royal 5 11 7
============ ================== ================== ================== ================== ========== =================== =================== ===================
Smirnoff (4) (5) (8)
============ ================== ================== ================== ================== ========== =================== =================== ===================
Johnnie
US Spirits 3 3 15 11 Walker 7 19 15
============ ================== ================== ================== ================== ========== =================== =================== ===================
Captain
DBC USA(ii) (2) 2 1 1 Morgan (11) (14) (17)
============ ================== ================== ================== ================== ========== =================== =================== ===================
Canada (6) (6) (2) (2) Don Julio 41 44 38
============ ================== ================== ================== ================== ========== =================== =================== ===================
Ketel
One(v) 10 21 16
============ ================== ================== ================== ================== ========== =================== =================== ===================
Spirits 1 1 14 11 Guinness 10 9 6
============ ================== ================== ================== ================== ========== =================== =================== ===================
Beer (2) (2) 1 (3) Baileys (10) (7) (10)
============ ================== ================== ================== ================== ========== =================== =================== ===================
Ready to
drink(ii) 4 45 9 47 Bulleit (17) (19) (22)
------------ ------------------ ------------------ ------------------ ------------------ ========== =================== =================== ===================
Cîroc
vodka 9 17 13
========== =================== =================== ===================
Casamigos 82 86 79
========== =================== =================== ===================
Tanqueray 4 10 7
---------- ------------------- ------------------- -------------------
(i) Fair value remeasurements. For further details see Summary
income statement, (d) Fair value remeasurement.
(ii) Reported volume movement impacted by acquisitions. For
further details see Explanatory notes, Organic growth excluding
Travel Retail and Guinness.
(iii) Spirits brands excluding ready to drink and non-alcoholic variants.
(iv) Organic equals reported volume movement.
(v) Ketel One includes Ketel One vodka and Ketel One Botanical.
North America contributed North America organic net sales grew
37% of Diageo reported net sales
in first half of fiscal 22 13% in first half of fiscal 22
Market highlights
US Spirits
Strong growth driven by on-trade recovery
Net sales increased 15%, reflecting recovery of the on-trade
channel, resilient consumer demand in the off-trade channel and
market share gains. Shipments were broadly in line with depletions,
with some variation on certain brands.
The tequila category benefitted from strong growth reflecting
its broad occasion appeal. Net sales increased 61%, with Casamigos
growing 87% and Don Julio growing 43%, with both brands gaining
share of the spirits market and tequila category. This reflects
strong volume growth and the benefit of price increases. This
strong performance was delivered despite constraints on the supply
of certain aged variants.
Crown Royal net sales increased 12%, with strong growth in the
core variant. Supply constraints of aged liquid led to slower
growth of flavour variants and a decline in Crown Royal's share of
the Canadian whisky category.
Scotch grew 11% and gained share of the spirits market and the
scotch category. Johnnie Walker net sales grew 16%, with
double-digit growth in Johnnie Walker Blue Label and Johnnie Walker
Black Label, as well as benefitting from the launch of Johnnie
Walker High Rye. Buchanan's net sales increased 8% and gained share
of both the spirits market and the scotch category. Scotch malts
declined 5%, primarily due to a decline in Lagavulin as a result of
liquid constraints.
Vodka net sales grew 8%. Ketel One net sales increased 21%,
primarily driven by strong growth in the core variant, as well as
continued growth of Ketel One Botanical. Cîroc net sales growth of
16% was largely driven by strong performance of the Cîroc
Pomegranate, Summer Watermelon and Summer Citrus flavour variants.
Smirnoff sales declined 5%, primarily due to lower sales of the
core variant, Smirnoff No.21 Red, which were only partially offset
by growth from recent innovations, including Smirnoff Pink
Lemonade.
Captain Morgan net sales declined 15% and the brand lost share
of the rum category, primarily driven by a decline in Captain
Morgan Spiced.
Bulleit net sales declined 19% and the brand lost share of the
US whiskey category due to glass supply constraints, which impacted
production volumes.
Baileys net sales declined 9%, primarily reflecting a decline of
Baileys Original, due to lapping strong growth in the first half of
fiscal 2021.
Spirits-based ready to drink net sales grew 50%, primarily
driven by strong performance of Crown Royal Cocktails.
Diageo Beer Company USA
Recovery in Guinness offset by decline in flavoured malt
beverages
Net sales grew 1%. Recovery of Guinness in the on-trade was
broadly offset by a decline in flavoured malt beverages. Growth in
Smirnoff Ice was more than offset by a decline in seltzers.
Canada
Slight decline in net sales
Canada net sales declined 2%, primarily reflecting declines in
ready to drink, rum and Canadian whisky, which were partially
offset by growth in tequila and scotch.
Marketing
Increased investment ahead of net sales growth
Marketing investment grew 24%, ahead of net sales, driven by
continued investment in growth opportunities across key brands,
informed by our marketing analytics tools.
Europe
- Reported net sales increased 21%, primarily driven by strong
organic growth. Net sales were unfavourably impacted by foreign
exchange, mainly due to the weakening of the Turkish lira and the
euro.
- Organic net sales increased 27%, lapping a decline in the
first half of fiscal 21, with strong double-digit growth in all
markets.
- Growth was driven by the recovery of the on-trade channel,
particularly in Great Britain, Southern Europe and Ireland, as well
as resilient consumer demand in the off-trade channel, where Diageo
continued to gain market share.
- Spirits net sales grew 24%, with broad-based growth across
scotch, vodka, Baileys, gin, rum and raki. Growth was underpinned
by the spirits category gaining share of total beverage alcohol and
premiumisation.
- Beer net sales grew 44%, driven by a strong increase in
Guinness as on-trade restrictions eased in Ireland and Great
Britain.
- Strong improvement in organic operating margin of 351bps
primarily reflects leverage on operating costs as organic net sales
recovered strongly. Benefits from positive channel mix,
productivity savings and improved fixed cost absorption more than
offset cost inflation
Key financials GBP million:
-----------------------------------------------------------------------------------------------------------------------------------------------
Acquisitions Reported
and Organic movement
F21 H1 Exchange disposals movement Other(i) F22 H1 %
------------ ------------------- ------------------- ------------------- ----------------- ----------------- ----------------- ---------
Net sales 1,443 (83) 3 389 - 1,752 21
============ =================== =================== =================== ================= ================= ================= =========
Marketing 252 (11) 1 65 - 307 22
============ =================== =================== =================== ================= ================= ================= =========
Operating
profit
before
exceptional
items 446 (44) (1) 184 28 613 37
============ =================== =================== =================== ================= ================= ================= =========
Exceptional
operating
items(ii) (17) -
============ ------------------- =================== =================== ================= ================= ================= =========
Operating
profit 429 613 43
------------ ------------------- ------------------- ------------------- ----------------- ----------------- ----------------- ---------
Markets: Global giants and local stars(iii)
:
------------ --------- --------- ---------- ---------- --------------------------------------------------------
Organic Reported Organic Reported Organic Organic Reported
volume volume net sales net sales volume net sales net sales
movement movement movement movement movement(iv) movement movement
% % % % % % %
============ ========= ========= ========== ========== --------- ------------ ---------- -------------------
Europe 23 23 27 21 Guinness 32 46 42
========= ========= ========== ========== ========= ============ ========== ===================
Johnnie
Walker 32 39 32
============ ========= ========= ========== ========== ========= ============ ========== ===================
Great
Britain 15 15 19 19 Baileys 22 19 16
============ ========= ========= ========== ========== ========= ============ ========== ===================
Northern
Europe 20 20 13 8 Smirnoff 31 29 26
============ ========= ========= ========== ========== ========= ============ ========== ===================
Southern Captain
Europe 32 32 32 25 Morgan 23 23 20
============ ========= ========= ========== ========== ========= ============ ========== ===================
Eastern Yenì
Europe 20 20 25 24 Raki 10 11 (14)
============ ========= ========= ========== ========== ========= ============ ========== ===================
Ireland 26 26 49 43 Tanqueray 44 41 36
============ ========= ========= ========== ========== ========= ============ ========== ===================
Turkey 24 24 43 9 J B 20 24 17
============ ========= ========= ========== ========== --------- ------------ ---------- -------------------
Spirits 22 22 24 17
============ ========= ========= ========== ==========
Beer 27 27 44 40
============ ========= ========= ========== ==========
Ready to
drink 30 30 28 25
------------ --------- --------- ---------- ----------
(i) Fair value remeasurements. For further details see Summary
income statement, (d) Fair value remeasurement.
(ii) For further details on exceptional operating items see
Summary income statement, (c) Exceptional items and Notes, 3.
Exceptional items.
(iii) Spirits brands excluding ready to drink and non-alcoholic variants.
(iv) Organic equals reported volume movement, except for
Smirnoff, which had reported volume movement of 32% due to a
reclassification.
Europe contributed Europe organic net sales grew
22% of Diageo reported net sales
in first half of fiscal 22 27% in first half of fiscal 22
Market highlights
Great Britain
Strong recovery of the on-trade and off-trade resilience
Net sales increased 19%, primarily driven by recovery in the
on-trade and resilient consumer demand in the off-trade. Spirits
grew 13%, with broad-based growth across vodka, Baileys and rum,
partially offset by a decline in gin. Vodka grew 21%, largely
driven by Smirnoff No.21 Red and the launch of Smirnoff Raspberry
Crush. Guinness grew strongly as the on-trade recovered, with net
sales growth of over 30%. Ready to drink grew 34%, reflecting
positive category momentum and innovation.
Northern Europe
Strong net sales growth across channels
Net sales increased 13%, reflecting continued strong performance
in the off-trade, recovery of the on-trade and market share gains.
Growth was broad-based across key categories.
Southern Europe
Strong recovery in the on-trade channel
Net sales increased 32%, lapping a decline in the first half of
fiscal 21. Growth reflects the easing of on-trade restrictions and
the gradual recovery of tourism. Scotch grew 20%, driven by Johnnie
Walker and J B. Gin, rum and Baileys delivered strong double-digit
growth.
Eastern Europe
Off-trade momentum and on-trade recovery
Net sales increased 25%, lapping a decline in the first half of
fiscal 2021, which reflects continued momentum in the off-trade and
recovery in the on-trade. Growth was predominantly driven by
Johnnie Walker, Captain Morgan and Baileys.
Ireland
Partial easing of on-trade restrictions drove strong growth
Net sales increased 49%, lapping a significant decline in the
first half of fiscal 21. Guinness net sales grew over 76%,
benefitting from the partial recovery of the on-trade.
Turkey
Strong growth in challenging economic environment
Net sales increased 43%, driven by price increases and strong
volume growth, as restrictions eased in the on-trade. Scotch grew
90%, driven by Johnnie Walker. Raki grew 20%, primarily driven by
our more premium variant Tekirda Raki.
Travel Retail Europe
Partial recovery as travel restrictions eased
Net sales partially recovered as travel restrictions eased
across Europe and duty-free sales between the UK and mainland
Europe were reinstated following Brexit.
Marketing
Increased investment broadly in line with net sales growth
Investment increased 26% as the on-trade recovered and to
support off-trade market share gains.
Asia Pacific
- Reported net sales grew 10%, primarily reflecting strong
organic growth. Net sales were unfavourably impacted by foreign
exchange, mainly due to the weakening of the Indian rupee.
- Organic net sales grew 13%, lapping a decline in the first
half of fiscal 21, driven by strong growth in Greater China and
India.
- Greater China net sales grew 18%, primarily driven by strong
momentum in both Chinese white spirits and super-premium plus
scotch.
- Net sales grew 12% in India, reflecting strong consumer demand
in the off-trade channel, recovery of the on-trade channel and
strong premiumisation.
- Net sales continued to recover in North Asia, South East Asia
and Travel Retail Asia and Middle East, however, performance
remained impacted by on-trade restrictions, international travel
restrictions and reduced tourism related to Covid-19.
- Australia net sales slightly declined, primarily due to
lapping strong growth in the first half of fiscal 2021 and on-going
Covid-19 restrictions.
- Spirits grew 15%, mainly driven by scotch, Chinese white spirits and IMFL whisky(i).
- Organic operating margin improved by 141bps, reflecting
positive category mix, primarily from strong growth in
super-premium plus scotch and Chinese white spirits and leverage on
operating costs. This was partially offset by cost inflation and
increased marketing investment.
Key financials GBP million:
----------------------------------------------------------------------------------------------------------------
Acquisitions Reported
and Organic movement
F21 H1 Exchange Reclassification(ii) disposals movement F22 H1 %
----------------- ----------------- -------- -------------------- ------------ --------- ------ ---------
Net sales 1,395 (38) (7) - 181 1,531 10
================= ================= ======== ==================== ============ ========= ====== =========
Marketing 227 (5) - - 41 263 16
================= ================= ======== ==================== ============ ========= ====== =========
Operating profit 386 (7) - - 72 451 17
----------------- ----------------- -------- -------------------- ------------ --------- ------ ---------
Markets: Global giants, local stars
and reserve(iii) :
---------- ------------------- ------------------- ------------------ ------------------ -----------------------------------------------------------------------
Organic Reported Organic Reported Organic Organic Reported
volume volume net sales net sales volume net sales net sales
movement movement movement movement movement(iv) movement movement
% % % % % % %
---------- ------------------- ------------------- ------------------ ------------------ ---------- ------------------ ------------------ -------------------
Asia Johnnie
Pacific 4 3 13 10 Walker 16 21 19
========== =================== =================== ================== ================== ========== ================== ================== ===================
McDowell's 3 5 -
========== =================== =================== ================== ================== ========== ================== ================== ===================
Shui Jing
India 4 4 12 7 Fang(v) 17 26 27
========== =================== =================== ================== ================== ========== ================== ================== ===================
Greater
China 7 7 18 18 Guinness 3 9 (8)
========== =================== =================== ================== ================== ========== ================== ================== ===================
The
Australia (2) (2) (2) (4) Singleton 2 9 8
========== =================== =================== ================== ================== ========== ================== ================== ===================
South East
Asia - - 13 6 Smirnoff 8 12 10
========== =================== =================== ================== ================== ========== ================== ================== ===================
North Asia (14) (14) 7 (1) Windsor (7) (5) (11)
========== =================== =================== ================== ================== ========== ================== ================== ===================
Travel
Retail
Asia and
Middle
East 135 122 167 168 Bundaberg - (1) (4)
========== =================== =================== ================== ================== ---------- ------------------ ------------------ -------------------
Spirits 4 4 15 13
========== =================== =================== ================== ==================
Beer - - 8 (9)
========== =================== =================== ================== ==================
Ready to
drink (1) (1) (2) (6)
---------- ------------------- ------------------- ------------------ ------------------
(i) Indian-Made Foreign Liquor (IMFL) whisky.
(ii) For the six months ended 31 December 2021, GBP7 million has
been reclassified from cost of sales to excise duties.
(iii) Spirits brands excluding ready to drink and non-alcoholic variants.
(iv) Organic equals reported volume movement, except for
Smirnoff, which had reported volume movement of 7% due to a
reclassification.
(v) Growth figures represent total Chinese white spirits of
which Shui Jing Fang is the principal brand.
Asia Pacific contributed Asia Pacific organic net sales grew
19% of Diageo reported net sales
in first half of fiscal 22 13% in first half of fiscal 22
Market highlights
India
Premiumisation drives strong growth, particularly in the
prestige and above segment
Net sales grew 12%, driven by strong consumer demand in the
off-trade channel, recovery of the on-trade channel and strong
premiumisation. Scotch and IMFL whisky grew 60% and 3%
respectively, driven by Johnnie Walker and McDowell's. The prestige
and above segment grew 19%, lapping a decline in the first half of
fiscal 21. Net sales in the popular segment were broadly flat.
Greater China
Continued strong growth in Chinese white spirits
Net sales increased 18%. Growth was partially offset by a
decline in Taiwan, which continued to be impacted by on-trade
restrictions. Growth was driven by Chinese white spirits, which
grew 25%. Scotch grew 6%, with strong double-digit growth in the
super-premium plus segment and in mainland China.
Australia
Slight decline in sales lapping a strong comparator period
Net sales declined 2%, due to lapping strong growth in the first
half of fiscal 2021, and the impact of continued on-trade
restrictions in key states. Growth in Smirnoff and Johnnie Walker
was more than offset by declines in ready to drink and Baileys.
South East Asia
Partial recovery as restrictions eased
Net sales grew 13%, lapping a decline in the first half of
fiscal 21. Growth continued to be impacted by on-trade restrictions
and reduced tourism. Scotch grew 10%, with double-digit growth in
Johnnie Walker super deluxe variants and scotch malts.
North Asia
Continued strong off-trade performance
Net sales grew 7%, lapping a decline in the first half of fiscal
21, primarily driven by premiumisation. Korea net sales grew 11%,
with double-digit growth in Johnnie Walker, partially offset by a
decline in Windsor, which continued to be impacted by on-trade
restrictions. Slower growth in Japan reflected the impact of
Covid-19 related restrictions.
Travel Retail Asia and Middle East
Partial recovery as restrictions eased
Net sales partially recovered, lapping a significant decline in
the first half of fiscal 21. Growth was primarily driven by the
strong performance of Johnnie Walker.
Marketing
Increased investment behind strategic growth priorities
Investment increased 18%, ahead of net sales, mainly in Greater
China, across Chinese white spirits and scotch. South East Asia and
North East Asia also invested ahead of net sales.
Africa
- Reported net sales grew 17%, primarily driven by strong
organic growth. Net sales were unfavourably impacted by foreign
exchange, mainly due to the weakening of the Nigerian naira and
Kenyan shilling.
- Organic net sales grew 23%, lapping flat sales in the first
half of fiscal 21, with growth across all markets.
- Strong growth in East Africa and Nigeria was driven by the
continued recovery of the on-trade channel, particularly in Kenya,
as well as price increases, positive mix and focused execution of
our total beverage alcohol strategy.
- Growth in Africa Regional Markets reflected a good performance
across all markets except Ethiopia, which continued to decline.
- Growth in South Africa was impacted by continued on-trade and
off-trade restrictions related to Covid-19, as well as economic and
social challenges.
- Beer net sales grew 24%, primarily driven by Malta Guinness and Guinness.
- Spirits net sales grew 18%, driven by double-digit growth in
both mainstream and international spirits, particularly scotch and
gin.
- Organic operating margin improved 723bps, primarily driven by
price increases and leverage on operating costs. The benefit from
price increases, higher fixed cost absorption and productivity
savings more than offset cost inflation.
Key financials GBP million:
------------------------------------------------------------------------------------------------------------------------
Acquisitions Reported
and Organic movement
F21 H1 Exchange disposals movement F22 H1 %
---------- ----------------- ------------------- ------------------- ----------------- ----------------- ---------
Net sales 745 (39) (4) 166 868 17
========== ================= =================== =================== ================= ================= =========
Marketing 84 (5) - 23 102 21
========== ================= =================== =================== ================= ================= =========
Operating
profit 95 (7) - 88 176 85
---------- ----------------- ------------------- ------------------- ----------------- ----------------- ---------
Markets: Global giants and local stars(ii)
:
----------- --------- --------- ---------- ---------- ---------------------------------------------------------
Organic Reported Organic Reported Organic Organic Reported
volume volume net sales net sales volume net sales net sales
movement movement movement movement movement(iii) movement movement
% % % % % % %
----------- --------- --------- ---------- ---------- ---------- ------------- ---------- ------------------
Africa 16 15 23 17 Guinness 8 19 11
=========== ========= ========= ========== ========== ========== ============= ========== ==================
Johnnie
Walker 12 19 18
=========== ========= ========= ========== ========== ========== ============= ========== ==================
East Africa 23 23 22 17 Smirnoff 11 15 15
=========== ========= ========= ========== ========== ---------- ------------- ---------- ------------------
Africa
Regional
Markets 8 8 12 7
=========== ========= ========= ========== ==========
Nigeria 13 13 51 36 Other beer:
=========== ========= ========= ========== ==========
South
Africa(i) 8 5 7 5
=========== ========= ========= ========== ========== ---------- ------------- ---------- ------------------
Malta
Guinness 55 69 54
=========== ========= ========= ========== ========== ========== ============= ========== ==================
Spirits 12 12 18 15 Senator 43 38 32
=========== ========= ========= ========== ========== ========== ============= ========== ==================
Beer 19 19 24 17 Tusker 7 14 10
=========== ========= ========= ========== ========== ========== ============= ========== ==================
Ready to
drink(i) 18 7 36 17 Serengeti 3 3 (1)
----------- --------- --------- ---------- ---------- ---------- ------------- ---------- ------------------
(i) Reported volume movement impacted by disposals. For further
details see Explanatory notes, Organic growth excluding Travel
Retail and Guinness.
(ii) Spirits brands excluding ready to drink and non-alcoholic variants.
(iii) Organic equals reported volume movement, except for
Johnnie Walker, which had reported volume movement of 11% due to a
reclassification.
Africa contributed Africa organic net sales grew
11% of Diageo reported net sales
in first half of fiscal 22 23% in first half of fiscal 22
Market highlights
East Africa
Strong growth lapping a decline in the first half of fiscal
2021
Net sales grew 22%, with all markets growing double-digit. Kenya
grew 27%, lapping a decline in the first half of fiscal 2021, with
strong growth in beer as the on-trade recovered, and spirits, with
particular strength in mainstream gin. Double-digit growth in
Uganda and Tanzania was primarily driven by strong performance in
beer, which benefitted from a partial recovery of the on-trade.
Africa Regional Markets
Growth driven primarily by strong beer performance
Net sales grew 12%, with growth in all markets except Ethiopia.
Double-digit growth in beer was led by Guinness and Malta Guinness,
which benefitted from the recovery of the on-trade channel and
price increases.
Nigeria
Strong growth across total beverage alcohol categories
Net sales grew 51%, benefitting from price increases, resilient
consumer demand and the benefit from improved route to consumer
across the business. Double-digit growth in beer, mainstream
spirits and international premium spirits reflects continued
recovery of the on-trade channel and momentum in the off-trade.
Growth in beer was primarily driven by Malta Guinness and Guinness.
Double-digit growth in ready to drink was primarily driven by
Smirnoff.
South Africa
Continued impact from economic and social challenges and
Covid-19 related restrictions
Net sales grew by 7%, lapping a decline in the first half of
fiscal 21. Growth was primarily driven by Johnnie Walker and
Smirnoff, partially offset by a decline in gin.
Marketing
Investing ahead of net sales as region recovers
Marketing investment increased 28%, ahead of net sales growth,
lapping a decline in the first half of fiscal 21. Investment
focused on key categories, as well as e-commerce and new route to
consumer opportunities.
Latin America and Caribbean
- Reported net sales grew 41%, primarily reflecting strong
organic growth. Net sales were unfavourably impacted by foreign
exchange, mainly due to weakening of the Colombian peso and the
Brazilian real.
- Organic net sales increased 45%, lapping a slight decline in
the first half of fiscal 21, driven by strong double-digit growth
in all markets.
- Growth was driven by the recovery in the on-trade channel and
resilient consumer demand in the off-trade channel, where Diageo
continued to gain market share. Growth also reflects positive mix
from strong growth of premium plus scotch and price increases
across key markets.
- Spirits net sales grew 46%, with growth across key categories, particularly scotch.
- Organic operating margin improved by 797bps driven by
premiumisation, price increases and leverage on operating costs.
This was partially offset by an increase in marketing investment
and cost inflation.
Key financials GBP million:
-----------------------------------------------------------------------------------------------------------------------------
Acquisitions Reported
and Organic movement
F21 H1 Exchange disposals movement Other(i) F22 H1 %
---------- --------------- ----------------- -------------- --------------- ----------------- -------------- ---------
Net sales 579 (18) - 258 - 819 41
========== =============== ================= ============== =============== ================= ============== =========
Marketing 78 (3) - 50 - 125 60
========== =============== ================= ============== =============== ================= ============== =========
Operating
profit 197 (13) - 152 (3) 333 69
---------- --------------- ----------------- -------------- --------------- ----------------- -------------- ---------
Markets: Global giants and local stars(ii)
:
---------- -------- -------- -------- -------- -----------------------------------------------------------------------
Organic Reported
Organic Reported net net Organic Organic Reported
volume volume sales sales volume net sales net sales
movement movement movement movement movement(iii) movement movement
% % % % % % %
---------- -------- -------- -------- -------- ---------- ------------------- ------------------ ------------------
Latin
America
and Johnnie
Caribbean Walker 43 63 60
========== ========== =================== ================== ==================
16 16 45 41 Buchanan's 58 72 67
========== ======== ======== ======== ======== ========== =================== ================== ==================
Old Parr 56 70 65
========== ======== ======== ======== ======== ========== =================== ================== ==================
PUB 4 4 30 25 Smirnoff 32 25 23
========== ======== ======== ======== ======== ========== =================== ================== ==================
Black &
Mexico - - 13 13 White (13) (1) (5)
========== ======== ======== ======== ======== ========== =================== ================== ==================
CCA 37 37 68 68 Tanqueray 45 40 36
========== ======== ======== ======== ======== ========== =================== ================== ==================
Andean 19 19 52 40 Baileys 34 45 41
========== ======== ======== ======== ======== ---------- ------------------- ------------------ ------------------
PEBAC 63 63 107 100
========== ======== ======== ======== ========
Spirits 15 15 46 42
========== ======== ======== ======== ========
Beer 19 19 12 7
========== ======== ======== ======== ========
Ready to
drink 38 38 55 48
---------- -------- -------- -------- --------
(i) Fair value remeasurements. For further details see Summary income statement, (d) Fair value remeasurement.
(ii) Spirits brands excluding ready to drink and non-alcoholic variants.
(iii) Organic equals reported volume movement.
Latin America and Caribbean organic
Latin America and Caribbean contributed net sales grew
11% of Diageo reported net sales
in first half of fiscal 22 45% in first half of fiscal 22
Market highlights
PUB (Paraguay, Uruguay and Brazil)
Strong broad-based growth in several key categories
Net sales increased 30%, primarily driven by scotch. Growth in
ready to drink, gin, and vodka was partially offset by a decline in
cachaça. Scotch net sales increased 35%, with double-digit growth
in Johnnie Walker, Buchanan's, White Horse and Old Parr. Brazil net
sales grew 27%, reflecting continued momentum in the off-trade
channel, price increases and recovery in the on-trade channel.
Mexico
Partial recovery as restrictions ease
Net sales increased 13%, lapping a decline in the first half of
fiscal 21. Scotch net sales grew 24%, driven by Johnnie Walker and
Buchanan's, which both benefitted from price increases. Tequila
declined 5% due to constraints on the supply of certain aged
variants.
CCA (Central America and Caribbean)
Resilient domestic consumption and partial recovery of the
on-trade
Net sales grew 68%, lapping a decline in the first half of
fiscal 21. Growth was driven by resilient domestic consumption and
partial recovery of the on-trade. Scotch net sales increased 74%,
driven by strong growth in Johnnie Walker, Buchanan's and Old
Parr.
Andean (Colombia and Venezuela)
Growth driven by strong scotch performance in Colombia
Net sales increased 52%, driven by Colombia. Growth was
primarily driven by scotch, which grew 45% due to double-digit
growth in Buchanan's, Old Parr and Johnnie Walker.
PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile)
Partial easing of restrictions drives strong growth across all
markets
Net sales increased 107%, benefitting from strong performance of
the off-trade, price increases, favourable category mix and
recovery in the on-trade channel. Scotch delivered strong
double-digit net sales growth, primarily driven by Johnnie
Walker.
Travel Retail Latin America and Caribbean
Recovery as travel restrictions eased
Net sales recovered ahead of pre-Covid-19 levels due to the
reopening of international travel.
Marketing
Investing ahead of net sales as region recovers
Marketing investment increased 65%, ahead of net sales, lapping
a decline in the first half of fiscal 21. Investment focussed on
strategic growth priorities.
Category and brand review
- Spirits grew 20%, with growth across most categories, with
particularly strong performance in scotch, tequila, vodka and gin.
US whiskey declined due to glass supply constraints which impacted
production volumes of Bulleit.
- Scotch grew 27%, with Johnnie Walker growing 31%; both grew double-digits across all regions.
- Tequila grew 56%, with Don Julio and Casamigos continuing to
gain share of the fast-growing tequila category in US Spirits.
- Vodka grew 14%, with growth across all regions, particularly
in Europe and North America. Smirnoff, Ketel One and Cîroc grew
strongly.
- Gin grew across all regions with strong double-digit growth in
Europe, Africa and Latin America and Caribbean.
- Beer grew 22%, primarily driven by strong growth of Guinness
in Ireland, Great Britain and Africa.
- Ready to drink grew 17%, with growth in all regions except Asia Pacific.
Key categories:
--------------------------------------------------------------------------------
Organic Organic Reported
volume net sales net sales
movement(i) movement movement
% % %
----------------------------------------- ------------- ---------- ----------
Spirits(ii) 8 20 16
========================================= ============= ========== ==========
Scotch 18 27 23
========================================= ============= ========== ==========
Vodka(iii)(iv) 13 14 10
========================================= ============= ========== ==========
Canadian whisky 2 10 7
========================================= ============= ========== ==========
Rum(iii) 2 2 (2)
========================================= ============= ========== ==========
Liqueurs 13 11 7
========================================= ============= ========== ==========
Indian-Made Foreign Liquor (IMFL) whisky 2 3 (2)
========================================= ============= ========== ==========
Tequila 49 56 51
========================================= ============= ========== ==========
Gin(iii) 19 21 19
========================================= ============= ========== ==========
US whiskey (10) (8) (11)
========================================= ============= ========== ==========
Beer 16 22 16
========================================= ============= ========== ==========
Ready to drink 15 17 17
----------------------------------------- ------------- ---------- ----------
(i) Organic equals reported volume movement.
(ii) Spirits brands excluding ready to drink and non-alcoholic variants.
(iii) Vodka, rum, gin, including IMFL brands.
(iv) Vodka includes Ketel One Botanical.
Scotch
26% of Diageo's reported net sales and grew 27%, following a
decline in the first half of fiscal 2021
Growth in all regions, particularly Latin America and Caribbean,
Asia Pacific and Europe.
- Johnnie Walker net sales increased 31%, with double-digit growth in all regions.
- Johnnie Walker Black Label grew 33%, with growth across all regions.
- Johnnie Walker Blue Label grew 65%, with growth in all
regions, particularly North America and Asia Pacific.
- Johnnie Walker Red Label grew 20% with double-digit growth in
Europe, Latin America and Caribbean, and Asia Pacific.
- Primary scotch brands grew 13%, primarily driven by
double-digit growth of Black Dog and Black & White in
India.
- Scotch malts grew 12%, primarily driven by strong growth in Asia Pacific.
- B uchanan's and Old Parr net sales grew 42% and 64%
respectively, primarily driven by strong growth in Latin America
and Caribbean.
Vodka
10% of Diageo's reported net sales and grew 14%
Growth in all regions, with particularly strong performance in
Europe and North America.
- Smirnoff net sales increased 8%, with double-digit growth in
all regions except North America, where net sales declined.
- Cîroc grew 22%, primarily driven by strong growth in North America and Europe.
- Ketel One grew 24%, primarily driven by North America, with
strong growth in the core variant and Ketel One Botanical.
Tequila
9% of Diageo's reported net sales and grew 56%
Growth was mainly driven by the strong performance of Casamigos
and Don Julio within the fast-growing tequila category in US
Spirits, which benefitted from its broad occasion appeal.
Canadian whisky
7% of Diageo's reported net sales and grew 10%
Growth of Crown Royal in North America was primarily driven by
continued momentum in the core variant. Supply constraints of aged
liquid led to slower growth of flavour variants and a decline in
Crown Royal's share of the Canadian whisky category.
Rum
5% of Diageo's reported net sales and grew 2%
Growth in Europe and Latin America and Caribbean was partially
offset by a decline in North America. The decline of Captain Morgan
in North America was partially offset by double-digit growth in
Europe. Zacapa performed strongly, with double-digit growth in
Europe, Latin American and Caribbean and North America.
Liqueurs
6% of Diageo's reported net sales and grew 11%
Growth was driven by Baileys Original in Europe and Latin
America and Caribbean, partially offset by a decline in North
America due to lapping strong growth in the first half of fiscal
2021.
Gin
5% of Diageo's reported net sales and grew 21%
Growth across all regions with strong double-digit growth in
Europe, Africa and Latin America and Caribbean.
- Strong growth in Europe was largely driven by Tanqueray and Gordon's in Southern Europe.
- Strong growth in Africa was mainly driven by Gilbey's in Kenya.
- Strong growth in Latin America and Caribbean was driven by
double-digit growth of Tanqueray and Gordon's.
IMFL whisky
4% of Diageo's reported net sales and grew 3%, following a
decline in the first half of fiscal 2021
Growth was primarily driven by McDowell's.
US whiskey
2% of Diageo's reported net sales and declined 8%
The decline was primarily driven by Bulleit, which was affected
by glass supply constraints that impacted production volumes.
Beer
15% of Diageo's reported net sales and grew 22%
- Guinness grew 27%, with strong growth in Europe and Africa,
driven by the recovery of the on-trade.
- Strong double-digit growth in Malta Guinness, which benefitted
from the continued recovery of the on-trade and price increases in
some markets.
- Beer in Africa grew 24%, following a decline in the first half
of fiscal 2021, driven by Malta Guinness and Guinness as the
on-trade continued to recover and restrictions eased.
- Smirnoff flavoured malt beverages declined, with growth in
Smirnoff Ice more than offset by a decline in seltzers.
Ready to drink
4% of Diageo's reported net sales and grew 17%
Growth across all regions except Asia Pacific. Performance in
Asia Pacific was impacted by the slight decline of Bundaberg in
Australia due to lapping a strong performance in the first half of
fiscal 2021.
Global giants, local stars and reserve(i) :
-------------------------------------------------------------------------------------
Organic Organic Reported
volume net sales net sales
movement(ii) movement movement
% % %
---------------------- ------------------- ------------------- -------------------
Global giants
====================== =================== =================== ===================
Johnnie Walker 25 31 28
====================== =================== =================== ===================
Smirnoff 12 8 6
====================== =================== =================== ===================
Baileys 13 10 6
====================== =================== =================== ===================
Captain Morgan 2 (2) (5)
====================== =================== =================== ===================
Tanqueray 24 25 21
====================== =================== =================== ===================
Guinness 16 27 20
====================== =================== =================== ===================
Local stars
====================== =================== =================== ===================
Crown Royal 4 11 7
====================== =================== =================== ===================
Yenì Raki 10 11 (14)
====================== =================== =================== ===================
Buchanan's 39 42 37
====================== =================== =================== ===================
J B 18 20 15
====================== =================== =================== ===================
Windsor (7) (5) (11)
====================== =================== =================== ===================
Old Parr 53 64 59
====================== =================== =================== ===================
Bundaberg - (1) (3)
====================== =================== =================== ===================
Black & White (1) 13 9
====================== =================== =================== ===================
Ypióca (24) (11) (15)
====================== =================== =================== ===================
McDowell's 2 4 (1)
====================== =================== =================== ===================
Shui Jing Fang(iii) 17 26 27
====================== =================== =================== ===================
Reserve
====================== =================== =================== ===================
Scotch malts 11 12 9
====================== =================== =================== ===================
Cîroc vodka 15 22 18
====================== =================== =================== ===================
Ketel One(iv) 15 24 19
====================== =================== =================== ===================
Don Julio 25 38 34
====================== =================== =================== ===================
Bulleit (14) (16) (20)
====================== =================== =================== ===================
Casamigos 84 88 81
---------------------- ------------------- ------------------- -------------------
(i) Spirits brands excluding ready to drink and non-alcoholic variants.
(ii) Organic equals reported volume movement.
(iii) Growth figures represent total Chinese white spirits of
which Shui Jing Fang is the principal brand.
(iv) Ketel One includes Ketel One vodka and Ketel One Botanical.
Global giants
39% of Diageo's reported net sales and grew by 20%, following a
decline in the first half of fiscal 2021
All brands grew net sales, except for Captain Morgan, which
declined in North America. Johnnie Walker grew across all regions.
Double-digit growth in Guinness was driven by strong performance in
Europe and Africa.
Local stars
20% of Diageo's reported net sales and grew 17%
Growth was largely driven by double-digit growth in Buchanan's
in Latin America and Caribbean and North America, Chinese white
spirits in Greater China, Crown Royal in North America and Old Parr
in Latin America and Caribbean.
Reserve
27% of Diageo's reported net sales and grew 31%
Growth was largely driven by the strong performance of Casamigos
and Don Julio in US Spirits, Johnnie Walker Reserve variants in all
regions and Chinese white spirits in Greater China. Bulleit net
sales declined 16% and the brand lost share of the US whiskey
category due to glass supply constraints which impacted production
volumes.
Additional financial information
Six months ended 31 December 2021
Summary income statement
.
Acquisitions
and Fair value
31 December Exchange disposals Organic remeasurement 31 December
2020 (a) (b) movement(i) (d) Reclassification(ii) 2021
GBP million GBP million GBP million GBP million GBP million GBP million GBP million
-------------- ---------------------- ------------------- ------------ ------------------- ------------- --------------------- --------------------
Sales 10,436 (491) 15 1,793 - - 11,753
============== ====================== =================== ============ =================== ============= ===================== ====================
Excise duties (3,562) 220 2 (449) - (7) (3,796)
-------------- ---------------------- ------------------- ------------ ------------------- ------------- --------------------- --------------------
Net sales 6,874 (271) 17 1,344 - (7) 7,957
============== ====================== =================== ============ =================== ============= ===================== ====================
Cost of sales (2,661) 112 (13) (400) - 7 (2,955)
-------------- ---------------------- ------------------- ------------ ------------------- ------------- --------------------- --------------------
Gross profit 4,213 (159) 4 944 - - 5,002
============== ====================== =================== ============ =================== ============= ===================== ====================
Marketing (1,085) 37 (16) (288) 1 - (1,351)
============== ====================== =================== ============ =================== ============= ===================== ====================
Other
operating
items (872) 35 2 (106) 33 - (908)
-------------- ---------------------- ------------------- ------------ ------------------- ------------- --------------------- --------------------
Operating
profit
before
exceptional
items 2,256 (87) (10) 550 34 - 2,743
============== ====================== =================== ============ =================== ============= ===================== ====================
Exceptional
operating
items (c) (17) -
-------------- ---------------------- ------------------- ------------ ------------------- ------------- --------------------- --------------------
Operating
profit 2,239 2,743
============== ====================== =================== ============ =================== ============= ===================== ====================
Non-operating
items
(c) 5 (31)
============== ====================== =================== ============ =================== ============= ===================== ====================
Net finance
charges (200) (180)
============== ====================== =================== ============ =================== ============= ===================== ====================
Share of after
tax
results of
associates
and joint
ventures 154 190
-------------- ---------------------- ------------------- ------------ ------------------- ------------- --------------------- --------------------
Profit before
taxation 2,198 2,722
============== ====================== =================== ============ =================== ============= ===================== ====================
Taxation (e) (537) (634)
Profit for the
period 1,661 2,088
-------------- ---------------------- ------------------- ------------ ------------------- ------------- --------------------- --------------------
(i) For the definition of organic movement see Explanatory notes.
(ii) For the six months ended 30 December 2021, GBP7 million has
been reclassified from cost of good sold to excise duties.
(a) Exchange
The impact of movements in exchange rates on reported figures
for net sales and operating profit is principally in respect of the
translation exchange impact of the strengthening of sterling
against the US dollar, the euro, the Indian rupee and the Turkish
lira.
The effect of movements in exchange rates and other movements on
profit before exceptional items and taxation for the six months
ended 31 December 2021 is set out in the table below.
Gains/(losses)
GBP million
--------------------------------------------- ---------------------
Translation impact (101)
============================================= =====================
Transaction impact 14
--------------------------------------------- ---------------------
Operating profit before exceptional items (87)
============================================= =====================
Net finance charges - translation impact 7
============================================= =====================
Net finance charges - transaction impact (2)
--------------------------------------------- ---------------------
Net finance charges 5
--------------------------------------------- ---------------------
Associates - translation impact (9)
--------------------------------------------- ---------------------
Profit before exceptional items and taxation (91)
--------------------------------------------- ---------------------
Six months Six months
ended ended
31 December 31 December
2021 2020
--------------------- -------------------- ---------------------
Exchange rates
===================== ==================== =====================
Translation GBP1 = $1.36 $1.31
===================== ==================== =====================
Transaction GBP1 = $1.30 $1.34
===================== ==================== =====================
Translation GBP1 = EUR1.17 EUR1.11
===================== ==================== =====================
Transaction GBP1 = EUR1.15 EUR1.11
--------------------- -------------------- ---------------------
(b) Acquisitions and disposals
The acquisitions and disposals movement was primarily
attributable to prior years' acquisitions in the six months ended
31 December 2021 partially offset by the impact of prior years'
disposal.
See Movements in net borrowings and equity; Notes, 11.
Acquisition of businesses; and Explanatory notes, Organic growth
excluding Travel Retail and Guinness for further details.
(c) Exceptional items
Exceptional operating items in the six months ended 31 December
2021 were GBPnil before tax (2020 - GBP17 million loss).
In the six months ended 31 December 2020, an additional
provision of TRY 152 million (GBP15 million) was recorded as an
exceptional item in respect of the ongoing litigation in
Turkey.
On 20 November 2020, the High Court of Justice of England and
Wales issued a ruling that requires schemes to equalise pension
benefits for men and women for the calculation of their guaranteed
minimum pension liability (GMP) on historic transfers out, which
resulted in an additional liability of GBP5 million. The
corresponding expense was recognised as an exceptional operating
item in the six months ended 31 December 2020, consistent with the
charge in relation to the initial GMP ruling in the year ended 30
June 2019.
In the six months ended 31 December 2020, an inventory provision
of GBP3 million was released in respect of inventories that had
earlier been expected to be returned and destroyed as a consequence
of the Covid-19 pandemic, resulting in an exceptional gain.
Non-operating items in the six months ended 31 December 2021
were GBP31 million loss (2020 - GBP5 million gain).
On 21 January 2022, Diageo agreed the sale of its Ethiopian
subsidiary, Meta Abo Brewery Share Company (Meta). At 31 December
2021, the assets and liabilities of Meta were classified as held
for sale and were measured at their fair value less costs to
dispose. In the six months ended 31 December 2021, a loss of ETB
2,254 million (GBP33 million) was recognised as a non-operating
item attributable to the prospective sale of Meta. At the
completion of the transaction, the cumulative translation losses
will be recycled to the income statement. At 31 December 2021,
cumulative translation losses recognised in exchange reserves were
GBP65 million.
In the six months ended 31 December 2021, ZAR 43 million (GBP2
million) (2020 - GBP5 million) of deferred consideration was paid
to Diageo in respect of the sale of United National Breweries,
resulting in a non-operating gain, which has been classified as
exceptional item consistent with the original charge.
Exceptional tax charges in the six months ended 31 December 2021
were GBPnil (2020 - GBP42 million, attributable to a change in the
applicable corporate tax rate in the Netherlands).
See Explanatory notes, (c) Exceptional items for the definition
of exceptional items.
(d) Fair value remeasurement
The adjustment to cost of sales reflects the elimination of fair
value changes for biological assets in respect of growing agave
plants of GBP3 million gain for the six months ended 31 December
2021 and GBP3 million gain for the six months ended 31 December
2020. The adjustments to marketing and other operating expenses are
the elimination of fair value changes to contingent consideration
liabilities and earn out arrangements in respect of prior year
acquisitions of GBP23 million gain for the six months ended 31
December 2021 and GBP11 million loss for the six months ended 31
December 2020.
(e) Taxation
The reported tax rate for the six months ended 31 December 2021
was 23.3% compared with 24.4% for the six months ended 31 December
2020.
For the six months ended 31 December 2021, income tax expense
has been recognised based on management's best estimate of the
weighted average annual income tax rate expected for the full
financial year applied to the pre-tax income of the interim period
in line with the relevant accounting standard.
On 15 December 2020, legislation was substantively enacted in
the Netherlands to maintain the headline corporate tax rate at 25%,
reversing a previously enacted reduction in the corporate tax rate
to 21.7% from 2021. As a result of the change, an exceptional tax
charge of GBP42 million was recognised for the six months ended 31
December 2020 in relation to the remeasurement of deferred tax
liabilities.
The tax rate before exceptional items for the six months ended
31 December 2021 was 23.0% compared with 22.4% for the six months
ended 31 December 2020.
We expect the tax rate before exceptional items for the year
ending 30 June 2022 to be in the range of 22% - 24%.
(f) Dividend
The group aims to increase the dividend each year and the
decision in respect of the dividend is made with reference to
dividend cover as well as current performance trends including
sales and profit after tax together with cash generation. Diageo
targets dividend cover (the ratio of basic earnings per share
before exceptional items to dividend per share) within the range of
1.8-2.2 times. For the year ended 30 June 2021 dividend cover was
1.6 times. It is expected that dividend increases will be
maintained at roughly a mid-single digit rate as we look to build
dividend cover and operate comfortably within the policy range.
An interim divi dend of 29.36 pence per share will be paid to
holders of ordinary shares and ADRs on the register as of 25
February 2022. The ex-dividend date is 24 February 2022. This
represents an increase of 5% on last year's interim dividend. The
interim dividend will be paid to ordinary shareholders on 7 April
2022. Payment to ADR holders will be made on 12 April 2022. A
dividend reinvestment plan is available to holders of ordinary
shares in respect of the interim dividend and the plan notice date
is 11 March 2022.
(g) Return of capital
On 25 July 2019, the Board approved a return of capital
programme to return up to GBP4.5 billion to shareholders over the
three-year period from 1 July 2019 to 30 June 2022. Under the first
phase of the programme, which ended on 31 January 2020, the company
returned GBP1.25 billion to shareholders via share buybacks. Due to
the impact of Covid-19, the original completion date for the
programme has been extended by two years to 30 June 2024. The
second phase of the programme of up to GBP1 billion to shareholders
via share buybacks was initiated on 12 May 2021 and is expected to
be completed no later than 4 March 2022.
Diageo will accelerate the return of capital programme to return
up to GBP4.5 billion to shareholders, which we now expect to
complete during the year ending 30 June 2023. The Board expects to
consider the next phase of the programme in due course.
In the six months ended 31 December 2021, the company purchased
14.6 million ordinary shares at a cost of GBP538 million (including
GBP3 million of transaction costs) (2020 - GBPnil). All shares
purchased under the share buyback programme were cancelled. A
financial liability of GBP184 million was established at 31
December 2021 representing the shares that were expected to be
purchased by 27 January 2022.
Movements in net borrowings and equity
Movements in net borrowings
2021 2020
GBP million GBP million
------------------------------------------------------- -------------------- ---------------------
Net borrowings at 30 June (12,109) (13,246)
======================================================= ==================== =====================
Free cash flow (a) 1,575 1,753
======================================================= ==================== =====================
Acquisitions (b) (134) (364)
======================================================= ==================== =====================
Sale of businesses and brands 2 5
======================================================= ==================== =====================
Share buyback programme (538) -
======================================================= ==================== =====================
Net sale of own shares for share schemes (c) 42 9
======================================================= ==================== =====================
Purchase of treasury shares in respect of subsidiaries (13) -
======================================================= ==================== =====================
Dividends paid to non-controlling interests (51) (53)
======================================================= ==================== =====================
Net movements in bonds (d) (769) (216)
======================================================= ==================== =====================
Purchase of shares of non-controlling interests (e) - (34)
======================================================= ==================== =====================
Net movements in other borrowings (f) 38 (345)
======================================================= ==================== =====================
Equity dividends paid (1,040) (992)
------------------------------------------------------- -------------------- ---------------------
Net decrease in cash and cash equivalents (888) (237)
======================================================= ==================== =====================
Net decrease in bonds and other borrowings 729 561
======================================================= ==================== =====================
Exchange differences (g) (31) 420
Other non-cash items (h) (32) (159)
======================================================= ==================== =====================
Net borrowings at 31 December (12,331) (12,661)
------------------------------------------------------- -------------------- ---------------------
(a) See Explanatory Notes, Free cash flow for the analysis of
free cash flow.
(b) In the six months ended 31 December 2021, Diageo paid GBP110
million in relation to past acquisitions.
In the six months ended 31 December 2020, Diageo completed the
acquisition of Aviation Gin and Davos Brands for a total
consideration of $337 million (GBP263 million) in cash and
contingent consideration of up to $275 million (GBP214 million)
over a ten-year period linked to performance targets.
In both periods acquisitions also include additional investments
as part of the Distill Ventures programme as well as deferred and
contingent consideration paid in respect of previous
acquisitions.
(c) Net sale of own shares comprised receipts from employees on
the exercise of share options of GBP56 million (2020 - GBP10
million) less purchase of treasury shares for the future settlement
of obligations under the employee share option schemes of GBP14
million (2020 - GBP1 million).
(d) In the six months ended 31 December 2021 , the group repaid
bonds of EUR900 million (GBP769 million).
In the six months ended 31 December 2020, the group issued bonds
of EUR700 million (GBP636 million - net of discount and fee) and
GBP395 million (including GBP5 million discount and fee) and repaid
bonds of $696 million (GBP551 million) and EUR775 million (GBP696
million).
(e) In the six months ended 31 December 2020 , East African
Breweries Limited, a subsidiary of Diageo, completed the purchase
of 30% of the share capital of Serengeti Breweries Limited for $55
million (GBP42 million).
(f) In the six months ended 31 December 2021, the net movements
in other borrowings principally arose from cash movement of foreign
exchange swaps and forwards partially offset by the repayment of
lease liabilities.
In the six months ended 31 December 2020, the net movements in
other borrowings principally arose from cash movement of foreign
exchange swaps and forwards.
(g) In the six months ended 31 December 2021, the exchange
differences arising on net borrowings of GBP31 million is primarily
driven by adverse exchange movements on US dollar denominated
borrowings, partially offset by beneficial movement on euro
denominated borrowings, cash and cash equivalents, foreign exchange
swaps and forwards.
In the six months ended 31 December 2020, the exchange
differences arising on net borrowings of GBP420 million was
primarily driven by favourable exchange movements on US dollar and
euro denominated borrowings, moderately offset by an unfavourable
movement on cash and cash equivalents, foreign exchange swaps and
forwards.
(h) In the six months ended 31 December 2021, other non-cash
items are principally in respect of additional leases entered into
during the period.
In the six months ended 31 December 2020, other non-cash items
are principally in respect of fair value changes of cross currency
interest rate swaps.
Movements in equity
2021 2020
GBP million GBP million
------------------------------------------------------- -------------------- ---------------------
Equity at 30 June 8,431 8,440
======================================================= ==================== =====================
Profit for the period 2,088 1,661
======================================================= ==================== =====================
Exchange adjustments (a) 29 (590)
======================================================= ==================== =====================
Remeasurement of post employment plans net of taxation 453 (115)
======================================================= ==================== =====================
Purchase of shares of non-controlling interests (b) - (42)
Dividends to non-controlling interests (26) (24)
======================================================= ==================== =====================
Equity dividends paid (1,040) (992)
======================================================= ==================== =====================
Share buyback programme (c) (631) -
======================================================= ==================== =====================
Other reserve movements 27 40
------------------------------------------------------- -------------------- ---------------------
Equity at 31 December 9,331 8,378
------------------------------------------------------- -------------------- ---------------------
(a) Exchange movements in the six months ended 31 December 2021
primarily arose from exchange gains driven by the US dollar and the
Indian rupee partially offset by the Turkish lira. Exchange
movements in the six months ended 31 December 2020 primary arose
from exchange losses driven by the US dollar, Indian rupee and the
Turkish lira.
(b) In the six months ended 31 December 2020, East African
Breweries Limited completed the purchase of 30% of the share
capital of Serengeti Breweries Limited for $55 million (GBP42
million).
(c) See Summary income statement, (g) Return of capital for
details of Diageo's return of capital programmes.
Post employment plans
The net surplus of the group's post employment benefit plans has
increased by GBP614 million from GBP444 million at 30 June 2021 to
GBP1,058 million at 31 December 2021. The increase in net surplus
is predominantly attributable to the favourable change in the
market value of assets held by the post employment schemes in the
United Kingdom and Ireland.
The operating profit charge before exceptional items has
decreased by GBP5 million from GBP54 million for the six months
ended 31 December 2020 to GBP49 million for the six months ended 31
December 2021. The operating profit charge for the six months ended
31 December 2021 includes curtailment gains of GBP5 million in
respect of redundancies in Diageo Pension Scheme and Guinness
Ireland Group Pension Scheme.
Total cash contributions by the group to all post employment
plans in the year ending 30 June 2022 are estimated to be
approximately GBP120 million.
Diageo condensed consolidated income statement
Six months Six months
ended 31 ended
December 31 December
2021 2020
Notes GBP million GBP million
Sales 2 11,753 10,436
============================================= ===== =========== ============
Excise duties (3,796) (3,562)
--------------------------------------------- ----- ----------- ------------
Net sales 2 7,957 6,874
============================================= ===== =========== ============
Cost of sales (2,955) (2,661)
--------------------------------------------- ----- ----------- ------------
Gross profit 5,002 4,213
============================================= ===== =========== ============
Marketing (1,351) (1,085)
============================================= ===== =========== ============
Other operating items (908) (889)
--------------------------------------------- ----- ----------- ------------
Operating profit 2 2,743 2,239
============================================= ===== =========== ============
Non-operating items 3 (31) 5
============================================= ===== =========== ============
Finance income 4 130 127
============================================= ===== =========== ============
Finance charges 4 (310) (327)
============================================= ===== =========== ============
Share of after tax results of associates and
joint ventures 190 154
--------------------------------------------- ----- ----------- ------------
Profit before taxation 2,722 2,198
============================================= ===== =========== ============
Taxation 5 (634) (537)
Profit for the period 2,088 1,661
--------------------------------------------- ----- ----------- ------------
Attributable to:
============================================= ===== =========== ============
Equity shareholders of the parent company 1,965 1,580
============
Non-controlling interests 123 81
--------------------------------------------- ----- ----------- ------------
2,088 1,661
--------------------------------------------- ----- ----------- ------------
Weighted average number of shares million million
--------------------------------------------- ----- ----------- ------------
Shares in issue excluding own shares 2,331 2,336
============================================= ===== =========== ============
Dilutive potential ordinary shares 8 7
--------------------------------------------- ----- ----------- ------------
2,339 2,343
--------------------------------------------- ----- ----------- ------------
pence Pence
--------------------------------------------- ----- ----------- ------------
Basic earnings per share 84.3 67.6
--------------------------------------------- ----- ----------- ------------
Diluted earnings per share 84.0 67.4
Diageo condensed consolidated statement of comprehensive
income
Six months Six months
ended ended
31 December 31 December
2021 2020
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 585 (128)
============================================================== ===================== =====================
Associates and joint ventures 4 (1)
============================================================== ===================== =====================
Tax on post employment plans (136) 14
============================================================== ===================== =====================
Changes in the fair value of equity investments at fair
value through other comprehensive income 7 -
-------------------------------------------------------------- --------------------- ---------------------
460 (115)
============================================================== ===================== =====================
Items that may be recycled subsequently to the income
statement
============================================================== ===================== =====================
Exchange differences on translation of foreign operations
============================================================== ===================== =====================
Group 74 (887)
============================================================== ===================== =====================
Associates and joint ventures (45) (78)
============================================================== ===================== =====================
Non-controlling interests 46 (138)
============================================================== ===================== =====================
Net investment hedges (46) 513
=====================
Tax on exchange differences (5) (3)
============================================================== ===================== =====================
Effective portion of changes in fair value of cash flow
hedges
============================================================== ===================== =====================
Hedge of foreign currency debt of the group 66 (280)
============================================================== ===================== =====================
Transaction exposure hedging of the group (87) 138
============================================================== ===================== =====================
Commodity price risk hedging of the group 12 14
============================================================== ===================== =====================
Hedges by associates and joint ventures (10) 13
============================================================== ===================== =====================
Recycled to income statement - hedge of foreign currency
debt of the group (53) 150
============================================================== ===================== =====================
Recycled to income statement - transaction exposure hedging
of the group 26 (18)
============================================================== ===================== =====================
Recycled to income statement - commodity price risk hedging
of the group (18) 5
============================================================== ===================== =====================
Tax on effective portion of changes in fair value of
cash flow hedges 12 (4)
============================================================== ===================== =====================
Hyperinflation adjustment (3) (16)
============================================================== ===================== =====================
Tax on hyperinflation adjustment 1 5
-------------------------------------------------------------- --------------------- ---------------------
(30) (586)
-------------------------------------------------------------- --------------------- ---------------------
Other comprehensive income/(loss), net of tax, for the
period 430 (701)
============================================================== ===================== =====================
Profit for the period 2,088 1,661
-------------------------------------------------------------- --------------------- ---------------------
Total comprehensive income for the period 2,518 960
-------------------------------------------------------------- --------------------- ---------------------
Attributable to:
============================================================== ===================== =====================
Equity shareholders of the parent company 2,349 1,017
============================================================== ===================== =====================
Non-controlling interests 169 (57)
-------------------------------------------------------------- --------------------- ---------------------
Total comprehensive income for the period 2,518 960
-------------------------------------------------------------- --------------------- ---------------------
Diageo condensed consolidated balance sheet
31 December 2021 30 June 2021 31 December 2020
Notes GBP million GBP million GBP million GBP million GBP million GBP million
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Non-current
assets
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Intangible
assets 10,921 10,764 10,877
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Property, plant
and
equipment 5,091 4,849 4,757
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Biological
assets 75 66 63
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Investments in
associates
and joint
ventures 3,473 3,308 3,578
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Other
investments 50 40 36
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Other
receivables 28 36 41
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Other financial
assets 319 327 410
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Deferred tax
assets 83 100 114
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Post employment
benefit
assets 1,544 1,018 1,083
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
21,584 20,508 20,959
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Current assets
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Inventories 6 6,235 6,045 5,750
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Trade and other
receivables 3,328 2,385 3,075
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Assets held for
sale 16 - -
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Corporate tax
receivables 5 151 145 173
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Other financial
assets 66 121 84
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Cash and cash
equivalents 7 1,780 2,749 2,763
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
11,576 11,445 11,845
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Total assets 33,160 31,953 32,804
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Current
liabilities
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Borrowings and
bank
overdrafts 7 (1,184) (1,862) (1,214)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Other financial
liabilities (388) (257) (332)
---------------- ----- ------------------- ----------------- -------------------- ------------------ =================== ------------------
Share buyback
liability (184) (91) -
---------------- ----- ------------------- ----------------- -------------------- ------------------ =================== ------------------
Trade and other
payables (5,327) (4,648) (4,624)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Liabilities held
for
sale (30) - -
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Corporate tax
payables 5 (380) (146) (364)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Provisions (111) (138) (176)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
(7,604) (7,142) (6,710)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Non-current
liabilities
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Borrowings 7 (12,693) (12,865) (14,063)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Other financial
liabilities (378) (384) (376)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Other payables (278) (338) (267)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Provisions (278) (274) (295)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Deferred tax
liabilities (2,112) (1,945) (1,900)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Post employment
benefit
liabilities (486) (574) (815)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
(16,225) (16,380) (17,716)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Total
liabilities (23,829) (23,522) (24,426)
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Net assets 9,331 8,431 8,378
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Equity
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Share capital 737 741 742
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Share premium 1,351 1,351 1,351
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Other reserves 1,551 1,621 1,835
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Retained
earnings 4,019 3,184 2,890
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Equity
attributable
to equity
shareholders
of the parent
company 7,658 6,897 6,818
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Non-controlling
interests 1,673 1,534 1,560
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
Total equity 9,331 8,431 8,378
---------------- ----- ------------------- ----------------- -------------------- ------------------ ------------------- ------------------
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 shareholders interests equity
GBP GBP GBP GBP GBP GBP GBP million GBP GBP
million million million million million million million million
------------ ---------- ----------- ----------- ------------ ------------ ------------------ --------------- ------------
At 30 June 2020 742 1,351 2,272 (1,936) 4,343 2,407 6,772 1,668 8,440
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Profit for the
period - - - - 1,580 1,580 1,580 81 1,661
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Other
comprehensive
loss - - (437) - (126) (126) (563) (138) (701)
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Total
comprehensive
(loss)/income - - (437) - 1,454 1,454 1,017 (57) 960
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Employee share
schemes - - - 41 (20) 21 21 - 21
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Share-based
incentive plans - - - - 17 17 17 - 17
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Share-based
incentive plans
in respect of
associates - - - - (1) (1) (1) - (1)
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Purchase of
non-controlling
interests - - - - (15) (15) (15) (27) (42)
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Change in fair
value of
put option - - - - (1) (1) (1) - (1)
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Dividends paid - - - - (992) (992) (992) (24) (1,016)
---------------- ------------ ---------- ----------- ----------- ------------ ------------ ------------------ --------------- ------------
At 31 December
2020 742 1,351 1,835 (1,895) 4,785 2,890 6,818 1,560 8,378
---------------- ------------ ---------- ----------- ----------- ------------ ------------ ------------------ --------------- ------------
At 30 June 2021 741 1,351 1,621 (1,877) 5,061 3,184 6,897 1,534 8,431
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Profit for the
period - - - - 1,965 1,965 1,965 123 2,088
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Other
comprehensive
(loss)/income - - (74) - 458 458 384 46 430
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Total
comprehensive
(loss)/income - - (74) - 2,423 2,423 2,349 169 2,518
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Employee share
schemes - - - 30 36 66 66 - 66
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Share-based
incentive plans - - - - 30 30 30 - 30
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Share-based
incentive plans
in respect of
associates - - - - 2 2 2 - 2
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Purchase of
treasury shares
in respect of
subsidiaries - - - - (8) (8) (8) (5) (13)
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Associates'
transactions
with
non-controlling
interests - - - - 1 1 1 - 1
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Unclaimed
dividends - - - - 3 3 3 1 4
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Change in fair
value of
put option - - - - (11) (11) (11) - (11)
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Share buyback
programme (4) - 4 - (631) (631) (631) - (631)
================ ============ ========== =========== =========== ============ ============ ================== =============== ============
Dividends paid - - - - (1,040) (1,040) (1,040) (26) (1,066)
---------------- ------------ ---------- ----------- ----------- ------------ ------------ ------------------ --------------- ------------
At 31 December
2021 737 1,351 1,551 (1,847) 5,866 4,019 7,658 1,673 9,331
---------------- ------------ ---------- ----------- ----------- ------------ ------------ ------------------ --------------- ------------
Diageo condensed consolidated statement of cash flows
Six months ended Six months ended
31 December 31 December
2021 2020
GBP million GBP million GBP million GBP million
----------------------------------- ------------------ ------------------ -------------------- -------------------
Cash flows from operating
activities
=================================== ================== ================== ==================== ===================
Profit for the period 2,088 1,661
=================================== ================== ================== ==================== ===================
Taxation 634 537
=================================== ================== ================== ==================== ===================
Share of after tax results of
associates
and joint ventures (190) (154)
=================================== ================== ================== ==================== ===================
Net finance charges 180 200
=================================== ================== ================== ==================== ===================
Non-operating items 31 (5)
----------------------------------- ------------------ ------------------ -------------------- -------------------
Operating profit 2,743 2,239
=================================== ================== ================== ==================== ===================
Increase in inventories (187) (112)
=================================== ================== ================== ==================== ===================
Increase in trade and other
receivables (976) (1,078)
=================================== ================== ================== ==================== ===================
Increase in trade and other
payables and
provisions 653 1,161
----------------------------------- ------------------ ------------------ -------------------- -------------------
Net increase in working capital (510) (29)
=================================== ================== ================== ==================== ===================
Depreciation, amortisation and
impairment 224 219
=================================== ================== ================== ==================== ===================
Dividends received 1 82
=================================== ================== ================== ==================== ===================
Post employment payments less
amounts included
in operating profit (23) (14)
=================================== ================== ================== ==================== ===================
Other items 34 (1)
----------------------------------- ------------------ ------------------ -------------------- -------------------
236 286
----------------------------------- ------------------ ------------------ -------------------- -------------------
Cash generated from operations 2,469 2,496
=================================== ================== ================== ==================== ===================
Interest received 41 84
=================================== ================== ================== ==================== ===================
Interest paid (185) (266)
=================================== ================== ================== ==================== ===================
Taxation paid (378) (316)
----------------------------------- ------------------ ------------------ -------------------- -------------------
(522) (498)
----------------------------------- ------------------ ------------------ -------------------- -------------------
Net cash inflow from operating
activities 1,947 1,998
=================================== ================== ================== ==================== ===================
Cash flows from investing
activities
=================================== ================== ================== ==================== ===================
Disposal of property, plant and
equipment
and computer software 7 8
=================================== ================== ================== ==================== ===================
Purchase of property, plant and
equipment
and computer software (382) (250)
=================================== ================== ================== ==================== ===================
Movements in loans and other
investments 3 (3)
=================================== ================== ================== ==================== ===================
Sale of businesses and brands 2 5
=================================== ================== ================== ==================== ===================
Acquisition of businesses (134) (364)
----------------------------------- ------------------ ------------------ -------------------- -------------------
Net cash outflow from investing
activities (504) (604)
=================================== ================== ================== ==================== ===================
Cash flows from financing
activities
=================================== ================== ================== ==================== ===================
Share buyback programme (538) -
=================================== ================== ================== ==================== ===================
Net sale of own shares for share
schemes 42 9
=================================== ================== ================== ==================== ===================
Purchase of treasury shares in
respect of
subsidiaries (13) -
=================================== ================== ================== ==================== ===================
Dividends paid to non-controlling
interests (51) (53)
===================================
Proceeds from bonds - 1,031
=================================== ================== ================== ==================== ===================
Repayment of bonds (769) (1,247)
=================================== ================== ================== ==================== ===================
Purchase of shares of
non-controlling interests - (34)
=================================== ================== ================== ==================== ===================
Cash inflow from other borrowings 136 -
=================================== ================== ================== ==================== ===================
Cash outflow from other borrowings (98) (345)
=================================== ================== ================== ==================== ===================
Equity dividends paid (1,040) (992)
----------------------------------- ------------------ ------------------ -------------------- -------------------
Net cash outflow from financing
activities (2,331) (1,631)
----------------------------------- ------------------ ------------------ -------------------- -------------------
Net decrease in net cash and cash
equivalents (888) (237)
=================================== ================== ================== ==================== ===================
Exchange differences 14 (236)
=================================== ================== ================== ==================== ===================
Net cash and cash equivalents at
beginning
of the period 2,637 3,153
----------------------------------- ------------------ ------------------ -------------------- -------------------
Net cash and cash equivalents at
end of
the period 1,763 2,680
----------------------------------- ------------------ ------------------ -------------------- -------------------
Net cash and cash equivalents
consist of:
=================================== ================== ================== ==================== ===================
Cash and cash equivalents 1,780 2,763
=================================== ================== ================== ==================== ===================
Bank overdrafts (17) (83)
----------------------------------- ------------------ ------------------ -------------------- -------------------
1,763 2,680
----------------------------------- ------------------ ------------------ -------------------- -------------------
Notes
1. Basis of preparation
On 31 December 2020, International Financial Reporting Standards
(IFRSs) as adopted by the European Union (EU) at that date were
brought into UK law and became UK-adopted International Accounting
Standards, with future changes being subject to endorsement by the
UK Endorsement Board. Diageo plc transitioned to UK-adopted
International Accounting Standards in its consolidated financial
statements on 1 July 2021. This change constitutes a change in
accounting framework. However, there is no impact on recognition,
measurement or disclosure in the period reported as a result of the
change in framework.
These unaudited condensed consolidated financial statements have
been prepared in accordance with UK adopted IAS 34 'Interim
Financial Reporting', IAS 34 'Interim Financial Reporting' as
issued by the International Accounting Standards Board ('IASB'),
IAS 34 'Interim Financial Reporting' as adopted by the EU and The
Disclosure Guidance and Transparency Rules sourcebook of the UK's
Financial Conduct Authority. These financial statements should be
read in conjunction with the company's published consolidated
financial statements for the year ended 30 June 2021, which were
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the EU, and
International Financial Reporting Standards as issued by the IASB,
including interpretations issued by the IFRS Interpretations
Committee.
At 31 December 2021, there were no unendorsed standards
effective for the six months ended 31 December 2021 affecting these
financial statements, and there was no difference between IFRSs
adopted by the UK, IFRSs as adopted by the EU and IFRSs issued by
the IASB in terms of their application to the group.
In preparing these condensed consolidated financial statements,
the significant judgements made by management when applying the
group's accounting policies and the significant areas where
estimates were required were the same as those that applied to the
consolidated financial statements for the year ended 30 June 2021,
with the exception of changes in estimates disclosed in note 12 -
Contingent liabilities and legal proceedings.
The financial statements for Diageo plc for the year ended 30
June 2022 will be prepared in accordance with IFRS as adopted by
the UK, IFRSs as adopted by the EU and IFRSs, as issued by the
IASB, including interpretations issued by the IFRS Interpretations
Committee.
Management has prepared cash flow forecasts which have also been
sensitised to reflect severe but plausible downside scenarios
taking into consideration the group's principal risks. In the base
case scenario, net sales momentum is expected to continue, however,
near-term volatility is also expected to remain. The potential
financial impact of a slower Covid-19 pandemic recovery has been
modelled in the plausible downside scenarios. Even with these
negative sensitivities for each region taken into account, the
group's cash position is still considered to remain strong, as the
group's liquidity has been protected by launching and pricing
EUR700 million of fixed rate Euro and GBP400 million of fixed rate
sterling denominated bonds under Diageo's European Debt Issuance
Programme in the year ended 30 June 2021. Mitigating actions,
should they be required, are all within management's control and
could include reductions in discretionary spending as acquisitions
and capital expenditure, as well as a temporary suspension of the
share buyback programme and dividend payments in the next 12 months
or drawdowns on committed facilities. Having considered the outcome
of these assessments, the Directors are comfortable that the
company is a going concern for at least 12 months from the date of
signing the company's condensed consolidated financial
statements.
Weighted average exchange rates used in the translation of
income statements were US dollar - GBP1 = $1.36 (2020 - GBP1 =
$1.31) and euro - GBP1 = EUR1.17 (2020 - GBP1 = EUR1.11). Exchange
rates used to translate assets and liabilities at the balance sheet
date were US dollar - GBP1 = $1.35 (31 December 2020 - GBP1 =
$1.36) and euro - GBP1 = EUR1.19 (31 December 2020 - GBP1 =
EUR1.11). The group uses foreign exchange transaction hedges to
mitigate the effect of exchange rate movements.
New accounting standards and interpretations
The following amendment to the accounting standards, issued by
the IASB and endorsed by the UK and EU, have been adopted by the
group from 1 July 2021 with no impact on the group's consolidated
results, financial position or disclosures:
- Amendments to IFRS 16 - Covid-19 - related rent concessions beyond 30 June 2021
The following amendment issued by the IASB and endorsed by the
UK and EU, has been adopted by the group:
- Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate
benchmark reform (phase 2). The amendment to IFRS 9 provides relief
from applying specific hedge accounting and financial instrument
derecognition requirements directly affected by interbank offered
rate (IBOR) reform. By applying the practical expedient, Diageo
will not be required to discontinue its hedging relationships as a
result of changes in reference rates due to IBOR reform. The
amendment to IFRS 7 will require additional disclosure explaining
the nature and extent of risk related to the reform and the
progress of the transition.
The following standard issued by the IASB has been endorsed by
the EU, but has not yet been endorsed by the UK, and has not been
adopted by the group:
- IFRS 17 - Insurance contracts (effective in the year ending 30
June 2024) is ultimately intended to replace IFRS 4. Based on a
preliminary assessment the group believes that the adoption of IFRS
17 will not have a significant impact on its consolidated results
or financial position.
There are a number of other amendments and clarifications to
IFRSs, effective in future years, which are not expected to
significantly impact the group's consolidated results or financial
position.
The comparative figures for the financial year ended 30 June
2021 are not the company's statutory accounts for that financial
year. Those accounts have been reported on by the company's
auditor, PricewaterhouseCoopers LLP, and delivered to the Registrar
of Companies. The report of the auditor (i) was unqualified, (ii)
did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under section 498 (2) or (3)
of the Companies Act 2006.
2. Segmental information
The segmental information presented is consistent with
management reporting provided to the Executive Committee (the chief
operating decision maker).
The Executive Committee considers the business principally from
a geographical perspective based on the location of third-party
sales and the business analysis is presented by geographical
segment. In addition to these geographical selling segments, a
further segment reviewed by the Executive Committee is the Supply
Chain and Procurement (SC&P) segment, which manufactures
products for other group companies and includes production sites in
the United Kingdom, Ireland, Italy, Guatemala and Mexico, as well
as comprises the global procurement function.
The group's operations also include the Corporate function.
Corporate revenues and costs are in respect of central costs,
including finance, marketing, corporate relations, human resources
and legal, as well as certain information systems, facilities and
employee costs that are not allocable to the geographical segments
or to the SC&P. They also include rents receivable and payable
in respect of properties not used by the group in the manufacture,
sale or distribution of premium drinks.
Diageo uses shared services operations to deliver transaction
processing activities for markets and operational entities. These
centres are located in India, Hungary, Colombia and the
Philippines. These captive business service centres also perform
certain central finance activities, including elements of financial
planning and reporting, treasury and HR services. The costs of
shared services operations are recharged to the regions.
For planning and management reporting purposes, Diageo uses
budgeted exchange rates that are set at the prior year's weighted
average exchange rate. In order to ensure a consistent basis on
which performance is measured through the year, prior period
results are also restated to the budgeted exchange rate. Segmental
information for net sales and operating profit before exceptional
items are reported on a consistent basis with management reporting.
The adjustments required to retranslate the segmental information
to actual exchange rates and to reconcile it to the group's
reported results are shown in the tables below. The comparative
segmental information, prior to retranslation, has not been
restated at the current year's budgeted exchange rates but is
presented at the budgeted rates for the respective year.
In addition, for management reporting purposes, Diageo presents
the result of acquisitions and disposals completed in the current
and prior year separately from the results of the geographical
segments. The impact of acquisitions and disposals on net sales and
operating profit is disclosed under the appropriate geographical
segments in the tables below at budgeted exchange rates.
(a) Segmental information for the consolidated income
statement
Latin Eliminate
America inter- Total Corporate
North Asia and segment operating and
America Europe Pacific Africa Caribbean SC&P sales segments other Total
Six months ended
31 December GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
2021 million million million million million million million million million million
---------------- ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
Sales 3,257 3,178 2,999 1,244 1,052 972 (972) 11,730 23 11,753
---------------- ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
Net sales
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
At budgeted
exchange
rates(i) 2,959 1,782 1,544 888 822 1,027 (979) 8,043 23 8,066
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
Acquisitions and
disposals 18 3 - - - - - 21 - 21
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
SC&P allocation 6 29 5 2 6 (48) - - - -
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
Retranslation to
actual
exchange rates (19) (62) (18) (22) (9) (7) 7 (130) - (130)
---------------- ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
Net sales 2,964 1,752 1,531 868 819 972 (972) 7,934 23 7,957
---------------- ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
Operating
profit/(loss)
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
At budgeted
exchange
rates(i) 1,288 647 454 192 333 (8) - 2,906 (132) 2,774
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
Acquisitions and
disposals (16) (1) - - - - - (17) - (17)
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
SC&P allocation 10 (23) (3) (1) 9 8 - - - -
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
Fair value
remeasurement
of contingent
considerations,
equity option
and earn
out
arrangements 5 21 - - (3) - - 23 - 23
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
Fair value
remeasurement
of biological
assets - - - - 3 - - 3 - 3
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
Retranslation to
actual
exchange rates 8 (31) - (15) (9) - - (47) 7 (40)
Operating
profit/(loss) 1,295 613 451 176 333 - - 2,868 (125) 2,743
---------------- ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
Non-operating
items (31)
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
Net finance
charges (180)
================ =========== ============ ============ ============ ============ ============ =========== =========== =========== ===========
Share of after
tax results
of associates
and joint
ventures 190
---------------- ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
Profit before
taxation 2,722
---------------- ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
Latin Eliminate
America inter- Total Corporate
North Asia and segment operating and
America Europe Pacific Africa Caribbean SC&P sales segments other Total
Six months
ended 31
December GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
2020 million million million million million million million million million million
--------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------ -------------
Sales 3,022 2,727 2,837 1,064 775 785 (785) 10,425 11 10,436
--------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------ -------------
Net sales
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
At budgeted
exchange
rates(i) 2,790 1,442 1,418 790 641 824 (786) 7,119 11 7,130
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
Acquisitions
and disposals 7 - - 5 - - - 12 - 12
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
SC&P allocation 5 21 4 2 6 (38) - - - -
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
Retranslation
to actual
exchange rates (101) (20) (27) (52) (68) (1) 1 (268) - (268)
--------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------ -------------
Net sales 2,701 1,443 1,395 745 579 785 (785) 6,863 11 6,874
--------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------ -------------
Operating
profit/(loss)
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
At budgeted
exchange
rates(i) 1,325 461 391 124 246 (23) - 2,524 (98) 2,426
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
Acquisitions
and disposals (9) - - - - - - (9) - (9)
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
SC&P allocation (13) - - - (10) 23 - - - -
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
Fair value
remeasurement
of contingent
considerations (4) (7) - - - - - (11) - (11)
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
Fair value
remeasurement
of biological
assets - - - - 3 - - 3 - 3
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
Retranslation
to actual
exchange rates (73) (8) (5) (29) (42) - - (157) 4 (153)
--------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------ -------------
Operating
profit/(loss)
before
exceptional
items 1,226 446 386 95 197 - - 2,350 (94) 2,256
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
Exceptional
items - (17) - - - - - (17) - (17)
--------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------ -------------
Operating
profit/(loss) 1,226 429 386 95 197 - - 2,333 (94) 2,239
--------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------ -------------
Non-operating
items 5
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
Net finance
charges (200)
=============== ============= ============= ============= ============ ============ ============= ============ ============= ============ =============
Share of after
tax results
of associates
and joint
ventures 154
--------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------ -------------
Profit before
taxation 2,198
--------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------ -------------
(i) These items represent the IFRS 8 performance measures for
the geographical and SC&P segments.
(1) The net sales figures for SC&P reported to the Executive
Committee primarily comprise inter-segment sales and these are
eliminated in a separate column in the above segmental analysis.
Apart from sales by the SC&P segment to the other operating
segments, inter-segment sales are not material.
(2) The group's net finance charges are managed centrally and
are not attributable to individual operating segments.
(3) Approximately 44% of calendar year net sales occurred in the last four months of 2021.
(b) Category and geographical analysis
Category analysis Geographical analysis
-------------
Rest
Six months Ready Great United of
ended Spirits Beer to drink Other Total Britain States India world Total
31 December GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
2021 million million million million million million million million million million
------------- ------------ -------- --------- -------- -------- -------- -------- -------- -------- --------
Sales(i) 9,680 1,520 418 135 11,753 1,204 3,072 1,704 5,773 11,753
------------- ------------ -------- --------- -------- -------- -------- -------- -------- -------- --------
Six months
ended
31 December
2020
------------- ------------ -------- --------- -------- -------- -------- -------- -------- -------- --------
Sales(i) 8,648 1,310 363 115 10,436 1,044 2,817 1,650 4,925 10,436
------------- ------------ -------- --------- -------- -------- -------- -------- -------- -------- --------
(i) The geographical analysis of sales is based on the location of third-party sales.
3. Exceptional items
Exceptional items are those that in management's judgement need
to be disclosed separately. See Explanatory notes, (c) Exceptional
items for the definition of exceptional items and the criteria used
to determine whether an exceptional item is accounted for as
operating or non-operating.
Six months Six months
ended ended
31 December 31 December
2021 2020
GBP million GBP million
----------------------------------------------- -------------------- ---------------------
Exceptional operating items
=============================================== ==================== =====================
Ongoing litigation in Turkey - (15)
=============================================== ==================== =====================
Guaranteed minimum pension equalisation - (5)
=============================================== ==================== =====================
Reversal of provision for obsolete inventories - 3
- (17)
=============================================== ==================== =====================
Non-operating items
Sale of businesses and brands
=============================================== ==================== =====================
Loss on the prospective sale of Meta (33) -
=============================================== ==================== =====================
United National Breweries 2 5
(31) 5
Exceptional items before taxation (31) (12)
=============================================== ==================== =====================
Items included in taxation
Exceptional taxation - (42)
----------------------------------------------- -------------------- ---------------------
- (42)
=============================================== ==================== =====================
Total exceptional items (31) (54)
=============================================== ==================== =====================
Attributable to:
=============================================== ==================== =====================
Equity shareholders of the parent company (31) (54)
=============================================== ==================== =====================
Non-controlling interests - -
----------------------------------------------- -------------------- ---------------------
Total exceptional items (31) (54)
----------------------------------------------- -------------------- ---------------------
Exceptional operating items are charged to other operating
expenses.
See Summary income statement, (c) Exceptional items for detailed
explanation on exceptional items.
4. Finance income and charges
Six months Six months
ended ended
31 December 31 December
2021 2020
GBP million GBP million
Interest income 61 58
========================================================== ===================== =====================
Fair value gain on financial instruments 58 56
---------------------------------------------------------- --------------------- ---------------------
Total interest income 119 114
---------------------------------------------------------- --------------------- ---------------------
Interest charge on bank loans, bonds and overdrafts (181) (203)
========================================================== ===================== =====================
Interest charge on leases (5) (7)
========================================================== ===================== =====================
Fair value loss on financial instruments (59) (55)
========================================================== ===================== =====================
Interest charge on other borrowings (36) (35)
---------------------------------------------------------- --------------------- ---------------------
Total interest charges (281) (300)
---------------------------------------------------------- --------------------- ---------------------
Net interest charges (162) (186)
---------------------------------------------------------- --------------------- ---------------------
Net finance income in respect of post employment plans
in surplus 10 9
========================================================== ===================== =====================
Hyperinflation adjustment in respect of Venezuela (a) 1 2
========================================================== ===================== =====================
Change in financial liability (Level 3) - 2
========================================================== ===================== =====================
Total other finance income 11 13
---------------------------------------------------------- --------------------- ---------------------
Net finance charge in respect of post employment plans
in deficit (5) (7)
========================================================== ===================== =====================
Foreign exchange revaluation of monetary items in respect
of Lebanon (a) (2) (8)
========================================================== ===================== =====================
Unwinding of discounts (6) (8)
========================================================== ===================== =====================
Interest charge in respect of direct and indirect tax (8) (2)
========================================================== ===================== =====================
Change in financial liability (Level 3) (7) -
===================== =====================
Other finance charges (1) (2)
---------------------------------------------------------- --------------------- ---------------------
Total other finance charges (29) (27)
---------------------------------------------------------- --------------------- ---------------------
Net other finance charges (18) (14)
---------------------------------------------------------- --------------------- ---------------------
(a) Hyperinflation adjustment
Venezuela is a hyperinflationary economy where the government
maintains a regime of strict currency controls with multiple
foreign currency rate systems. Access to US dollars on these
exchange systems is very limited. The foreign currency denominated
transactions and balances of the group's Venezuelan operations are
translated into the local functional currency (Venezuelan bolivar)
at the rate they are expected to be settled, applying the most
appropriate official exchange rate (DICOM). For consolidation
purposes, the group converts its Venezuelan operations using
management's estimate of the exchange rate considering forecast
inflation and the most appropriate official exchange rate. The
exchange rate used to translate the results of the group's
Venezuelan operations was VES/GBP 593 for the six months ended 31
December 2021 (2020 - VES/GBP 64). Movement in the price index for
the six months ended 31 December 2021 was 158% (2020 - 479%). The
inflation rate used by the group is provided by an independent
valuer, because no reliable, official published rate is available
that is representative of the situation in Venezuela.
The following table presents the contribution of the group's
Venezuelan operations to the consolidated income statement, cash
flow statement and net assets for the six months ended 31 December
2021 and 31 December 2020 and with the amounts that would have
resulted if the official DICOM exchange rate had been applied:
Six months ended Six months ended
31 December 2021 31 December 2020
------------------------------------------- ------------------------------------------
At estimated At DICOM At estimated At DICOM
exchange exchange exchange exchange
rate rate rate(i) rate(i)
593 VES/GBP 6 VES/GBP 64 VES/GBP 2 VES/GBP
GBP million GBP million GBP million GBP million
----------------------------- -------------------- --------------------- -------------------- --------------------
Net sales - 8 - 4
============================= ==================== ===================== ==================== ====================
Operating profit - 2 - 11
============================= ==================== ===================== ==================== ====================
Other finance income -
hyperinflation
adjustment 1 120 2 100
============================= ==================== ===================== ==================== ====================
Net cash (outflow)/inflow
from operating
activities - (3) - 9
============================= ==================== ===================== ==================== ====================
Net assets 37 3,501 39 1,656
----------------------------- -------------------- --------------------- -------------------- --------------------
(i) Prior year rates have been restated to reflect the Central
Bank of Venezuela's decision to cut six zeros from the bolivar
currency from 1 October 2021.
Lebanon is considered as a hyperinflationary economy, hence for
the group's operations in Lebanon the hyperinflationary gains and
foreign exchange losses associated with monetary items are reported
in finance charges. The impact of hyperinflationary accounting was
immaterial both in the current and comparative period.
5. Taxation
For the six months ended 31 December 2021, the GBP634 million
tax charge (2020 - GBP537 million) comprises a UK tax charge of
GBP116 million (2020 - GBP89 million) and a foreign tax charge of
GBP518 million (2020 - GBP448 million).
For the six months ended 31 December 2021, income tax expense
has been recognised based on management's best estimate of the
weighted average annual income tax rate expected for the full
financial year applied to the pre-tax income of the interim period
in line with the relevant accounting standard.
The group has a number of ongoing tax audits worldwide for which
provisions are recognised in line with the relevant accounting
standard taking into account best estimates and management's
judgements concerning the ultimate outcome of the tax audit. For
the six months ended 31 December 2021, the ongoing audits that are
provided for individually are not expected to result in a material
tax liability. The current tax asset of GBP151 million (30 June
2021 - GBP145 million) and tax liability of GBP380 million (30 June
2021 - GBP146 million) includes GBP122 million (30 June 2021 -
GBP129 million) of provisions for tax uncertainties.
The tax rate before exceptional items for the six months ended
31 December 2021 was 23.0% compared with 22.4% for the six months
ended 31 December 2020.
6. Inventories
31 December 30 June 31 December
2021 2021 2020
GBP million GBP million GBP million
Raw materials and consumables 401 348 332
==================================== =================== =================== ===================
Work in progress 68 60 53
==================================== =================== =================== ===================
Maturing inventories 4,801 4,668 4,562
==================================== =================== =================== ===================
Finished goods and goods for resale 965 969 803
------------------------------------ ------------------- ------------------- -------------------
6,235 6,045 5,750
------------------------------------ ------------------- ------------------- -------------------
7. Net borrowings
31 December 30 June 31 December
2021 2021 2020
GBP million GBP million GBP million
Borrowings due within one year and bank overdrafts (1,184) (1,862) (1,214)
=================================================== ==================== ==================== ====================
Borrowings due after one year (12,693) (12,865) (14,063)
=================================================== ==================== ==================== ====================
Fair value of foreign currency forwards and swaps 122 169 117
=================================================== ==================== ==================== ====================
Fair value of interest rate hedging instruments 4 63 146
=================================================== ==================== ==================== ====================
Lease liabilities (360) (363) (410)
--------------------------------------------------- -------------------- -------------------- --------------------
(14,111) (14,858) (15,424)
=================================================== ==================== ==================== ====================
Cash and cash equivalents 1,780 2,749 2,763
--------------------------------------------------- -------------------- -------------------- --------------------
(12,331) (12,109) (12,661)
--------------------------------------------------- -------------------- -------------------- --------------------
8. Reconciliation of movement in net borrowings
Six months Six months
ended ended
31 December 31 December
2021 2020
GBP million GBP million
Net decrease in cash and cash equivalents before exchange (888) (237)
---------------------------------------------------------- -------------------- --------------------
Net decrease in bonds and other borrowings(i) 729 561
---------------------------------------------------------- -------------------- --------------------
Net (increase)/decrease in net borrowings from cash flows (159) 324
---------------------------------------------------------- -------------------- --------------------
Exchange differences on net borrowings (31) 420
Other non-cash items(ii) (32) (159)
Net borrowings at beginning of the period (12,109) (13,246)
---------------------------------------------------------- -------------------- --------------------
Net borrowings at end of the period (12,331) (12,661)
---------------------------------------------------------- -------------------- --------------------
(i) In the six months ended 31 December 2021, net decrease in
bonds and other borrowings excludes GBP2 million cash outflow in
respect of derivatives designated in forward point hedges (2020 -
GBPnil).
(ii) In the six months ended 31 December 2021, other non-cash
items are principally in respect of additional leases entered into
during the period. In the six months ended 31 December 2020, other
non-cash items are principally in respect of fair value changes of
cross currency interest rate swaps.
In the six months ended 31 December 2021, the group repaid bonds
of EUR900 million (GBP769 million). In the six months ended 31
December 2020, the group issued bonds of EUR700 million (GBP636
million - net of discount and fee) and GBP395 million (including
GBP5 million discount and fee) and repaid bonds of $696 million
(GBP551 million) and EUR775 million (GBP696 million).
All bonds and commercial papers issued by Diageo plc's 100%
owned subsidiaries are fully and unconditionally guaranteed by
Diageo plc.
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 group maintains policies and procedures to value instruments
using the most relevant data available. If multiple inputs that
fall into different levels of the hierarchy are used in the
valuation of an instrument, the instrument is categorised on the
basis of the most subjective input.
Foreign currency forwards and swaps, cross currency swaps and
interest rate swaps are valued using discounted cash flow
techniques. These techniques incorporate inputs at levels 1 and 2,
such as foreign exchange rates and interest rates. These market
inputs are used in the discounted cash flow calculation
incorporating the instrument's term, notional amount and discount
rate, and taking credit risk into account. As significant inputs to
the valuation are observable in active markets, these instruments
are categorised as level 2 in the hierarchy.
Other financial liabilities include a put option, which does not
have an expiry date, held by Industrias Licoreras de Guatemala
(ILG) to sell the remaining 50% equity stake in Rum Creation &
Products Inc., the owner of the Zacapa rum brand, to Diageo. The
liability is fair valued and as at 31 December 2021 an amount of
GBP169 million (30 June 2021 - GBP149 million) is recognised as a
liability with changes in the fair value of the put option included
in retained earnings. As the valuation of this option uses
assumptions not observable in the market, it is categorised as
level 3 in the hierarchy. As at 31 December 2021, because it is
unknown when or if ILG will exercise the option, the liability is
measured as if the exercise date is on the last day of the current
financial year considering forecast future performance. The option
is sensitive to reasonably possible changes in assumptions. If the
option were to be exercised as at 30 June 2023, the fair value of
the liability would increase by approximately GBP41 million.
Included in other financial liabilities, the contingent
consideration on acquisition of businesses represents the present
value of payments up to GBP361 million linked to certain
performance targets which are expected to be paid over the next 9
years.
There were no significant changes in the measurement and
valuation techniques, or significant transfers between the levels
of the financial assets and liabilities in the six months ended 31
December 2021.
The group's financial assets and liabilities measured at fair
value are categorised as follows:
31 December 30 June 31 December
2021 2021 2020
GBP million GBP million GBP million
-------------------------------------------------- ------------------- --------------------- --------------------
Derivative assets 381 443 489
-------------------------------------------------- ------------------- --------------------- --------------------
Derivative liabilities (237) (129) (150)
-------------------------------------------------- ------------------- --------------------- --------------------
Valuation techniques based on observable market
input (Level 2) 144 314 339
-------------------------------------------------- ------------------- --------------------- --------------------
Financial assets - other 167 138 122
-------------------------------------------------- ------------------- --------------------- --------------------
Financial liabilities - other (483) (578) (481)
-------------------------------------------------- ------------------- --------------------- --------------------
Valuation techniques based on unobservable market
input (Level 3) (316) (440) (359)
-------------------------------------------------- ------------------- --------------------- --------------------
In the six months ended 31 December 2021 and 31 December 2020,
the increase in financial assets - other of GBP29 million (2020 -
GBP6 million) is principally due to acquisitions.
The movements in level 3 instruments, measured on a recurring
basis, are as follows:
Contingent Contingent
consideration consideration
Zacapa recognised Zacapa recognised
financial on acquisition financial on acquisition
liability of businesses(i) liability of businesses
Six months Six months Six months Six months
ended ended ended ended
31 December 31 December 31 December 31 December
2021 2021 2020 2020
GBP million GBP million GBP million GBP million
----------------------------------- --------------------- ------------------- -------------------- ---------------
At the beginning of the period (149) (429) (167) (249)
=================================== ===================== =================== ==================== ===============
Net (losses)/gains included in the
income
statement (7) 18 2 (17)
=================================== ===================== =================== ==================== ===============
Net (losses)/gains included in
exchange
in other comprehensive income (4) (9) 15 27
=================================== ===================== =================== ==================== ===============
Net (losses)/gains included in
retained
earnings (12) - 1 -
=================================== ===================== =================== ==================== ===============
Acquisitions - - - (181)
=================================== ===================== =================== ==================== ===============
Settlement of liabilities 3 106 1 87
----------------------------------- --------------------- ------------------- -------------------- ---------------
At the end of the period (169) (314) (148) (333)
----------------------------------- --------------------- ------------------- -------------------- ---------------
(i) Included in the balance at 31 December 2021 is GBPnil in
respect of the acquisition of Casamigos as it was fully repaid on
17 September 2021 (2020 - GBP80 million), GBP163 million in respect
of the acquisition of Aviation Gin and Davos Brands (2020 - GBP172
million), and GBP51 million in respect of the acquistion of Far
West Spirits LLC, owner of the Lone River Ranch Water brand (2020 -
GBPnil).
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 2021, the fair value of gross borrowings
(excluding lease liabilities and the fair value of derivative
instruments) was GBP21,428 million, and the carrying value was
GBP13,877 million (30 June 2021 - GBP15,895 million and GBP14,727
million, respectively).
10. Dividends and other reserves
Six months Six months
ended ended
31 December 31 December
2021 2020
GBP million GBP million
----------------------------------------------------------- ----------------- -----------------
Amounts recognised as distributions to equity shareholders
----------------------------------------------------------- ----------------- -----------------
Final dividend for the year ended 30 June 2021 of 44.59
pence per share (2020 - 42.47 pence) 1,040 992
----------------------------------------------------------- ----------------- -----------------
An interim dividend of 29.36 pence per share (2020 - 27.96
pence) was approved by the Board of Directors on 26 January 2022.
As the approval was after the balance sheet date, it has not been
included as a liability.
Other reserves of GBP1,551 million at 31 December 2021 (2020 -
GBP1,835 million) include a capital redemption reserve of GBP3,206
million (2020 - GBP3,201 million), a hedging reserve surplus of
GBP61 million (2020 - GBP111 million surplus) and an exchange
reserve deficit of GBP1,716 million (2020 - GBP1,477 million
deficit). Currency basis spreads included in the hedging reserve
represent the cost of hedging arising as a result of imperfections
of foreign exchange markets. Exclusion of currency basis spreads
would result in a surplus GBP22 million (2020 - GBP30 million
surplus) in the hedging reserve.
11. Acquisition of businesses
Cash consideration paid in respect of the acquisition of
businesses in the six months ended 31 December 2021 were as
follows:
Consideration
GBP million
Cash consideration paid for Casamigos (83)
==================================================================== =====================
Cash consideration paid in respect of other prior year acquisitions (27)
==================================================================== =====================
Cash consideration paid for investments in associates (3)
==================================================================== =====================
Capital injection in associates (21)
Net cash outflow on acquisition of businesses (134)
-------------------------------------------------------------------- ---------------------
The final earn-out payment of Casamigos amounting to $113
million (GBP83 million) was made on 17 September 2021. There is no
remaining balance on contingent consideration liability.
Cash consideration paid in respect of other prior year
acquisitions is primarily attributable to Aviation Gin and Davos
Brands.
12. Contingent liabilities and legal proceedings
(a) Guarantees and related matters
As of 31 December 2021, the group has no material unprovided
guarantees or indemnities in respect of liabilities of third
parties.
(b) Acquisition of USL shares from UBHL, winding-up petitions
against UBHL and other proceedings in relation to the USL
transaction
On 4 July 2013, Diageo completed its acquisition, under a share
purchase agreement with United Breweries (Holdings) Limited (UBHL)
and various other sellers (the SPA), of 21,767,749 shares (14.98%)
in United Spirits Limited (USL) for a total consideration of INR
31.3 billion (GBP349 million), including 10,141,437 shares (6.98%)
from UBHL. The SPA was signed on 9 November 2012 and was part of
the transaction announced by Diageo in relation to USL on that day
(the Original USL Transaction). Following a series of further
transactions, as of 31 December 2021, Diageo has a 55.94%
investment in USL (excluding 2.38% owned by the USL Benefit
Trust).
Prior to the acquisition from UBHL on 4 July 2013, the High
Court of Karnataka (High Court) had granted leave to UBHL under
sections 536 and 537 of the Indian Companies Act 1956 (the Leave
Order) to enable the sale by UBHL to Diageo to take place (the UBHL
Share Sale) notwithstanding the continued existence of five
winding-up petitions that were pending against UBHL on 9 November
2012, being the date of the SPA. Additional winding-up petitions
have been brought against UBHL since 9 November 2012, and the Leave
Order did not extend to them. At the time of the completion of the
UBHL Share Sale, the Leave Order remained subject to review on
appeal. However, as stated by Diageo at the time of closing on 4
July 2013, it was considered unlikely that any appeal process in
respect of the Leave Order would definitively conclude on a timely
basis and, accordingly, Diageo waived the conditionality under the
SPA relating to the absence of insolvency proceedings in relation
to UBHL and acquired the 10,141,437 USL shares from UBHL at that
time.
Following closing of the UBHL Share Sale, appeals were filed by
various petitioners in respect of the Leave Order. On 20 December
2013, the division bench of the High Court set aside the Leave
Order (the December 2013 Order). Following the December 2013 Order,
Diageo filed special leave petitions (SLPs) in the Supreme Court of
India against the December 2013 Order.
On 10 February 2014, the Supreme Court of India issued an order
giving notice in respect of the SLPs and ordering that the status
quo be maintained with regard to the UBHL Share Sale pending a
hearing on the matter in the Supreme Court. Following a number of
adjournments, the next date for a substantive hearing of the SLPs
(in respect of which leave has since been granted and which have
been converted to civil appeals) is yet to be fixed.
In separate proceedings, the High Court passed a winding-up
order against UBHL on 7 February 2017. On 4 March 2017, UBHL
appealed against this order before a division bench of the High
Court. On 6 March 2020, the division bench of the High Court
confirmed the winding-up order dated 7 February 2017, and dismissed
the appeal filed by UBHL. On 30 June 2020, UBHL filed a special
leave petition in the Supreme Court of India against the order of
the division bench of the High Court. On 26 October 2020, the
Supreme Court of India dismissed the petition filed by UBHL.
Diageo continues to believe that the acquisition price of INR
1,440 per share paid to UBHL for the USL shares is fair and
reasonable as regards UBHL, UBHL's shareholders and UBHL's secured
and unsecured creditors. However, adverse results for Diageo in the
proceedings referred to above could, absent leave or relief in
other proceedings, ultimately result in Diageo losing title to the
6.98% stake acquired from UBHL (now represented by 50,707,185 USL
shares following a share split). Diageo believes, including by
reason of its rights under USL's articles of association to
nominate USL's CEO and CFO and the right to appoint, through USL, a
majority of the directors on the boards of USL's subsidiaries as
well as its ability as promoter to nominate for appointment up to
two-thirds of USL's directors for so long as the chairperson of USL
is an independent director, that it would remain in control of USL
and be able to consolidate USL as a subsidiary regardless of the
outcome of this litigation.
There can be no certainty as to the outcome of the existing or
any further related legal proceedings or the timeframe within which
they would be concluded.
Diageo also has the benefit of certain contractual undertakings
and commitments from the relevant sellers in relation to potential
challenges to its unencumbered title to the USL shares acquired on
4 July 2013, including relating to the winding-up petitions
described above and/or certain losses and costs that may be
incurred in the event of third-party actions relating to the
acquisition of the USL shares.
(c) Continuing matters relating to the resignation of Dr Vijay
Mallya from USL and USL internal inquiries
On 25 February 2016, Diageo and USL each announced that they had
entered into arrangements with Dr Mallya under which he had agreed
to resign from his position as a director and as chairman of USL
and from his positions in USL's subsidiaries. As specified by
Diageo in its announcement at that time, these arrangements ended
its prior agreement with Dr Mallya regarding his position at USL,
therefore bringing to an end the uncertainty relating to the
governance of USL, and put in place a five-year global non-compete
(excluding the United Kingdom), non-interference, non-solicitation
and standstill arrangement with Dr Mallya. As part of those
arrangements, USL, Diageo and Dr Mallya agreed a mutual release in
relation to matters arising out of an inquiry into certain matters
referred to in USL's financial statements and the qualified
auditor's report for the year ended 31 March 2014 (the Initial
Inquiry) which had revealed, among other things, certain diversions
of USL funds. Dr Mallya also agreed not to pursue any claims
against Diageo, USL and their affiliates (including under the prior
agreement with Diageo). In evaluating entering into such
arrangements, Diageo considered the impact of the arrangements on
USL and all of USL's shareholders, and came to the view that the
arrangements were in the best interests of USL and its
shareholders.
Diageo's agreement with Dr Mallya (the February 2016 Agreement)
provided for a payment of $75 million (GBP53 million) to Dr Mallya
over a five-year period in consideration for the five-year global
non-compete, non-interference, non-solicitation and standstill
commitments referred to above, his resignation from USL and the
termination of his USL-related appointment and governance rights,
the relinquishing of rights and benefits attached to his position
at USL, and his agreement not to pursue claims against Diageo and
USL. The February 2016 Agreement also provided for the release of
Dr Mallya's personal obligations to indemnify (i) Diageo Holdings
Netherlands B.V. (DHN) in respect of its earlier liability ($141
million (GBP96 million)) under a backstop guarantee of certain
borrowings of Watson Limited (Watson) (a company affiliated with Dr
Mallya), and (ii) Diageo Finance plc in respect of its earlier
liability (GBP30 million) under a guarantee of certain borrowings
of United Breweries Overseas Limited, a subsidiary of UBHL. $40
million (GBP28 million) of the $75 million (GBP53 million) amount
was paid on signing of the February 2016 Agreement with the balance
being payable in equal instalments of $7 million (GBP5 million) a
year over five years, subject to and conditional on Dr Mallya's
compliance with certain terms of the agreement.
While the five instalment payments of $7 million (GBP5 million)
would have become due on 25 February 2017, 25 February 2018, 25
February 2019, 25 February 2020 and 25 February 2021, respectively,
owing to various reasons (including breaches committed by Dr Mallya
and certain persons connected with him of several provisions of the
February 2016 Agreement and agreements of the same date between Dr
Mallya and USL), Diageo believes that it was not liable to pay such
amounts and did not do so. By notice to Dr Mallya and certain
persons connected with him on 24 February 2017, 3 November 2017, 23
February 2018, 22 August 2018, 22 February 2019, 24 February 2020
and 22 February 2021, Diageo and other group companies have
demanded from Dr Mallya the repayment of $40 million (GBP28
million) which was paid by Diageo on 25 February 2016, and also
sought compensation from him for various losses incurred by the
relevant members of the Diageo group on account of the breaches
committed by him and certain persons connected with him. On 16
November 2017, Diageo and other relevant members of the Diageo
group commenced claims in the High Court of Justice in England and
Wales (the English High Court) against Dr Mallya in relation to
certain of the matters specified in those notices. At the same time
DHN also commenced claims in the English High Court against Dr
Mallya, his son Sidhartha Mallya, Watson and Continental
Administration Services Limited (CASL) (a company affiliated with
Dr Mallya and understood to hold assets on trust for him and
certain persons affiliated with him) for in excess of $142 million
(GBP105 million) (plus interest) in relation to Watson's liability
to DHN in respect of its borrowings referred to above and the
breach of associated security documents. These additional claims
are described in paragraph (d) below.
Dr Mallya, Sidhartha Mallya and the relevant affiliated
companies filed a defence to such claims and the additional claims
on 12 March 2018, and Dr Mallya also filed a counterclaim for
payment of the two $7 million (GBP5 million) instalment payments
that had then been withheld by Diageo as described above. Diageo
and the other relevant members of its group filed a reply to that
defence and a defence to the counterclaim on 5 September 2018.
Diageo continues to prosecute its claims and to defend the
counterclaim. As part of this, on 18 December 2018, Diageo and the
other relevant members of its group filed an application for strike
out and/or summary judgment in respect of certain aspects of the
defence filed by Dr Mallya and the other defendants, including
their defence in relation to Watson and CASL's liability to repay
DHN. That application was made by DHN on the basis that the defence
filed by Dr Mallya and his co-defendants in relation to those
matters had no real prospect of success.
As described in paragraph (d) below, this application was
successful in relation to the predominant part of Watson and CASL's
liability to repay DHN and, since that application, Watson and
CASL's defence in relation to the remaining part of this liability
has also been struck out. Accordingly, Diageo and DHN have sought
asset disclosure and are considering further enforcement steps
against Watson and CASL, both in the United Kingdom and in other
jurisdictions where they are present or hold assets.
The remaining elements of the claims originally commenced on 16
November 2017 by Diageo and the relevant members of its group are
proceeding to a trial, which is currently scheduled to take place
from 21 November 2022 through 5 December 2022.
On 26 July 2021 Dr Mallya was declared bankrupt by the English
High Court pursuant to a bankruptcy petition presented by a
consortium of Indian banks which are creditors of Dr Mallya. The UK
Official Receiver was initially appointed as Dr Mallya's Trustee in
Bankruptcy but has now been replaced by an insolvency practitioner,
Teneo Restructuring Limited, as Trustee. Diageo and the relevant
members of its group have informed the Official Receiver of their
position as creditors in the bankruptcy and they will engage with
Teneo Restructuring Limited regarding their claims and the status
of the current proceedings. Dr Mallya has applied for permission to
appeal the bankruptcy order and a prior order of the English High
Court related to the bankruptcy. The consortium of Indian banks has
also applied for permission to appeal a prior order of the English
High Court related to the bankruptcy. The bankruptcy proceedings
are ongoing. At this stage, it is not possible to assess the extent
to which the various proceedings related to these bankruptcy
matters will affect the remaining elements of the claims by Diageo
and the relevant members of its group.
As previously announced by USL, the Initial Inquiry identified
certain additional parties and matters indicating the possible
existence of other improper transactions. These transactions could
not be fully analysed during the Initial Inquiry and, accordingly,
USL, as previously announced, mandated that its Managing Director
and Chief Executive Officer conduct a further inquiry into the
transactions involving the additional parties and the additional
matters to determine whether they also suffered from improprieties
(the Additional Inquiry). USL announced the results of the
Additional Inquiry in a notice to the Indian Stock Exchange dated 9
July 2016. The mutual release in relation to the Initial Inquiry
agreed by Diageo and USL with Dr Mallya announced on 25 February
2016 does not extend to matters arising out of the Additional
Inquiry.
As stated in USL's previous announcement, the Additional Inquiry
revealed further instances of actual or potential fund diversions
from USL and its Indian and overseas subsidiaries to, in most
cases, Indian and overseas entities in which Dr Mallya appears to
have a material direct or indirect interest, as well as other
potentially improper transactions involving USL and its Indian and
overseas subsidiaries.
In connection with the matters identified by the Additional
Inquiry, USL has, pursuant to a detailed review of each case of
such fund diversion and after obtaining expert legal advice, where
appropriate, filed civil suits for recovery of funds from certain
parties, including Dr Mallya, before the relevant courts in
India.
The amounts identified in the Additional Inquiry have been
previously provided for or expensed in the financial statements of
USL or its subsidiaries for prior periods. Further, at this stage,
it is not possible for the management of USL to estimate the
financial impact on USL, if any, arising out of potential
non-compliance with applicable laws in relation to such fund
diversions.
(d) Other continuing matters relating to Dr Mallya and
affiliates
DHN issued a conditional backstop guarantee on 2 August 2013 to
Standard Chartered Bank (Standard Chartered) pursuant to a
guarantee commitment agreement (the Guarantee Agreement). The
guarantee was in respect of the liabilities of Watson, a company
affiliated with Dr Mallya, under a $135 million (GBP100 million)
facility from Standard Chartered (the Facility Agreement). The
Guarantee Agreement was entered into as part of the arrangements
put in place and announced at the closing of the USL transaction on
4 July 2013.
DHN's provision of the Guarantee Agreement enabled the
refinancing of certain existing borrowings of Watson from a
third-party bank and facilitated the release by that bank of rights
over certain USL shares that were to be acquired by Diageo as part
of the USL transaction. The facility matured and entered into
default in May 2015. In aggregate, DHN paid Standard Chartered $141
million (GBP101 million) under this guarantee, including payments
of default interest and various fees and expenses.
Watson remains liable for all amounts paid by DHN under the
guarantee. Under the guarantee documentation with Standard
Chartered, DHN is entitled to the benefit of the underlying
security package for the loan, including: (a) certain shares in
United Breweries Limited (UBL) held solely by Dr Mallya and certain
other shares in UBL held by Dr Mallya jointly with his son
Sidhartha Mallya, and (b) the shareholding in Watson.
Aspects of the security package are the subject of various
proceedings in India in which third parties are alleging and
asserting prior rights to certain assets comprised in the security
package or otherwise seeking to restrain enforcement against
certain assets by Standard Chartered and/or DHN. These proceedings
are ongoing and DHN will continue to vigorously pursue these
matters as part of its efforts for enforcement of the underlying
security and recovery of outstanding amounts. Diageo believes that
the existence of any prior rights or dispute in relation to the
security would be a breach of representations and warranties given
by Dr Mallya and others to Standard Chartered at the time the
security was granted and further believes that certain actions
taken by Dr Mallya in relation to the proceedings described above
also breached his obligations to Standard Chartered. In addition to
these third-party proceedings, Dr Mallya is also subject to
proceedings in India under the Prevention of Money Laundering Act
and the Fugitive Economic Offenders Act in which the relevant
Indian authority, the Directorate of Enforcement, is seeking
confiscation of the UBL shares which were provided as security for
Watson's liabilities. DHN is participating in these proceedings in
order to protect its security interest in respect of the UBL
shares. Under the proceedings under the Prevention of Money
Laundering Act, the Special Court passed an order on 24 May 2021
directing, among other things, the release of certain assets of Dr
Mallya including the UBL shares in favour of third-party banks. DHN
has subsequently filed a writ petition before the Bombay High Court
challenging this order of the Special Court insofar as it relates
to its security interest in respect of the UBL shares.
Under the terms of the guarantee and as a matter of law, there
are arrangements to pass on to DHN the benefit of the security
package upon payment by DHN under the guarantee of all amounts owed
to Standard Chartered. Payment under the guarantee has now occurred
as described above. To the extent possible in the context of the
proceedings described above, DHN continues to work towards
enforcement of the security package, including, when appropriate,
in conjunction with Standard Chartered. DHN's ability to assume or
enforce security over some elements of the security package is also
subject to regulatory consent. It is not at this stage possible to
determine whether such consent would be forthcoming.
In addition to the Indian proceedings just described, certain of
the assets comprised in the security package may also be affected
by a worldwide freezing order of the English High Court granted on
24 November 2017 and continued on 8 December 2017 and 8 May 2018 in
respect of the assets of Dr Mallya and the bankruptcy order made
against Dr Mallya on 26 July 2021.
The agreement with Dr Mallya referenced in paragraph (c) above
does not impact the security package. Watson remains liable for all
amounts paid pursuant to the guarantee and DHN has the benefit of a
counter-indemnity from Watson in respect of payments in connection
with the guarantee, as well as a claim against CASL as a co-surety
with DHN of Watson's obligations. The various security providers,
including Dr Mallya and Watson, acknowledged in the February 2016
Agreement referred to in paragraph (c) above that DHN is entitled
to the benefit of the security package underlying the Standard
Chartered facility and have also undertaken to take all necessary
actions in that regard. Further, Diageo believes that the existence
of any prior rights or disputes in relation to the security package
would be in breach of certain confirmations given to Diageo and DHN
pursuant to that agreement by Dr Mallya, Watson and certain
connected persons.
On 16 November 2017, DHN commenced various claims in the English
High Court for, in aggregate, in excess of $142 million (GBP105
million) (plus interest) in relation to these matters, including
the following: (i) a claim against Watson for $141 million (GBP104
million) (plus interest) under Watson's counter-indemnity to DHN in
respect of payments made by DHN to Standard Chartered under the
guarantee referred to above; (ii) a claim against Dr Mallya and
Sidhartha Mallya under various agreements creating or relating to
the security package referred to above for (a) the costs incurred
to date in the various Indian proceedings referred to above (plus
interest), and (b) damages of $141 million (GBP101 million), being
DHN's loss as a result of those Indian proceedings which currently
prevent enforcement of the security over shares in UBL (plus
interest); and (iii) a claim against CASL, as a co-surety with DHN
of Watson's obligations under the Facility Agreement, for 50% of
the difference between the amount claimed under (i) above and the
amount (if any) that DHN is in fact able to recover from Watson, Dr
Mallya and/or Sidhartha Mallya.
As noted in paragraph (c), Dr Mallya, Sidhartha Mallya and the
relevant affiliated companies filed a defence to these claims on 12
March 2018. Diageo and the other relevant members of its group
filed a reply to that defence on 5 September 2018.
DHN and Diageo continue to prosecute these claims. As part of
that, on 18 December 2018, Diageo and the other relevant members of
its group filed an application for strike out and/or summary
judgment in respect of certain aspects of the defence filed by Dr
Mallya, Sidhartha Mallya and the relevant affiliated companies,
including in respect of Watson and CASL's liability to repay
DHN.
This summary judgment and strike out application was heard by
the English High Court on 24 May 2019. The court decided in favour
of DHN that (i) Watson is liable to pay, and has no defence against
paying, $135 million (GBP100 million) plus interest of $11 million
(GBP8 million) to DHN, and (ii) CASL is liable, as co-surety, to
pay, and has no defence against paying, 50% of any such amount
unpaid by Watson, i.e. up to $67.5 million (GBP50 million) plus
interest of $5.5 million (GBP4 million) to DHN. Watson and CASL
were ordered to pay such sums, as well as certain amounts in
respect of DHN and Diageo's costs, to DHN by 21 June 2019. Such
amounts were not paid on that date by either Watson or CASL. As
noted at paragraph (c) above. Diageo and DHN have sought asset
disclosure and are considering further enforcement steps against
Watson and CASL, both in the United Kingdom and in other
jurisdictions where they are present or hold assets.
On 15 October 2020, as a result of applications made by DHN to
recover certain outstanding costs owed by Watson and CASL (being
approximately GBP260,000 plus interest, which remained unpaid), Dr
Mallya and Sidhartha Mallya were ordered to pay those amounts by 27
November 2020. As Dr Mallya and Sidhartha Mallya, in default of the
Court order, failed to make the required payments to DHN: (i)
Watson and CASL's defence to DHN's remaining claim for payment of
approximately $6 million (GBP4 million) (plus interest) has been
struck out, with further judgment in DHN's favour being entered
which will be pursued along with the original judgment as set out
above, and (ii) DHN is pursuing enforcement against Dr Mallya and
Sidhartha Mallya for the judgment debt of approximately GBP260,000
plus interest. As noted at paragraph (c) above, Dr Mallya was
declared bankrupt by the English High Court on 26 July 2021. The UK
Official Receiver was initially appointed as Dr Mallya's Trustee in
Bankruptcy but has now been replaced by an insolvency practitioner,
Teneo Restructuring Limited, as Trustee. DHN has informed the
Official Receiver of its position as creditor and will engage with
Teneo Restructuring Limited to pursue recovery of these costs as
part of the bankruptcy process.
(e) Other matters in relation to USL
Following USL's earlier updates concerning the Initial Inquiry
as well as in relation to the arrangements with Dr Mallya that were
the subject of the 25 February 2016 announcement, USL and Diageo
have received various notices from Indian regulatory authorities,
including the Ministry of Corporate Affairs, Enforcement
Directorate and Securities and Exchange Board of India (SEBI).
Diageo and USL are co-operating fully with the authorities in
relation to these matters. Diageo and USL have also received
notices from SEBI requesting information in relation to, and
explanation of the reasons for, the arrangements with Dr Mallya
that were the subject of the 25 February 2016 announcement as well
as, in the case of USL, in relation to the Initial Inquiry and the
Additional Inquiry, and, in the case of Diageo, whether such
arrangements with Dr Mallya or the Watson backstop guarantee
arrangements referred to in paragraphs (c) and (d) above were part
of agreements previously made with Dr Mallya at the time of the
Original USL Transaction announced on 9 November 2012 and the open
offer made as part of the Original USL Transaction. Diageo and USL
have complied with such information requests and Diageo has
confirmed that, consistent with prior disclosures, the Watson
backstop guarantee arrangements and the matters described in the 25
February 2016 announcement were not the subject of any earlier
agreement with Dr Mallya. In respect of the Watson backstop
guarantee arrangements, SEBI issued a further notice to Diageo on
16 June 2016 that if there is any net liability incurred by Diageo
(after any recovery under relevant security or other arrangements,
which matters remain pending) on account of the Watson backstop
guarantee, such liability, if any, would be considered to be part
of the price paid for the acquisition of USL shares under the SPA
which formed part of the Original USL Transaction and that, in that
case, additional equivalent payments would be required to be made
to those shareholders (representing 0.04% of the shares in USL) who
tendered in the open offer made as part of the Original USL
Transaction. Diageo is clear that the Watson backstop guarantee
arrangements were not part of the price paid or agreed to be paid
for any USL shares under the Original USL Transaction and
therefore believes the decision in the SEBI notice to be
misconceived and wrong in law and appealed against it before the
Securities Appellate Tribunal, Mumbai (SAT). On 1 November 2017,
SAT issued an order in respect of Diageo's appeal in which, amongst
other things, it observed that the relevant officer at SEBI had
neither considered Diageo's earlier reply nor provided Diageo with
an opportunity to be heard, and accordingly directed SEBI to pass a
fresh order after giving Diageo an opportunity to be heard.
Following SAT's order, Diageo made its further submissions in the
matter, including at a personal hearing before a Deputy General
Manager of SEBI. On 26 June 2019, SEBI issued an order reiterating
the directions contained in its previous notice dated 16 June 2016.
As with the previous notice, Diageo believes SEBI's latest order to
be misconceived and wrong in law and has filed an appeal before SAT
against the order. This appeal is currently pending. Diageo is
unable to assess if the notices or enquiries referred to above will
result in enforcement action or, if this were to transpire, to
quantify meaningfully the possible range of loss, if any, to which
any such action might give rise to if determined against Diageo or
USL.
In relation to the matters described in the 25 February 2016
announcement, Diageo had also responded to a show cause notice
dated 12 May 2017 from SEBI arising out of the previous
correspondence in this regard and made its further submissions in
the matter, including at a personal hearing before a Whole Time
Member of SEBI. On 6 September 2018, SEBI issued an order holding
that Diageo had acquired sole control of USL following its earlier
open offers, and that no fresh open offer was triggered by
Diageo.
(f) USL's dispute with IDBI Bank Limited
Prior to the acquisition by Diageo of a controlling interest in
USL, USL had prepaid a term loan of INR 6,280 million (GBP61
million) taken through IDBI Bank Limited (IDBI), an Indian bank,
which was secured on certain fixed assets and brands of USL, as
well as by a pledge of certain shares in USL held by the USL
Benefit Trust (of which USL is the sole beneficiary). The maturity
date of the loan was 31 March 2015. IDBI disputed the prepayment,
following which USL filed a writ petition in November 2013 before
the High Court of Karnataka (the High Court) challenging the bank's
actions.
Following the original maturity date of the loan, USL received
notices from IDBI seeking to recall the loan, demanding a further
sum of INR 459 million (GBP5 million) on account of the outstanding
principal, accrued interest and other amounts, and also threatening
to enforce the security in the event that USL did not make these
further payments. Pursuant to an application filed by USL before
the High Court in the writ proceedings, the High Court directed
that, subject to USL depositing such further amount with the bank
(which amount was duly deposited by USL), the bank should hold the
amount in a suspense account and not deal with any of the secured
assets including the shares until disposal of the original writ
petition filed by USL before the High Court.
On 27 June 2019, a single judge bench of the High Court issued
an order dismissing the writ petition filed by USL, amongst other
things, on the basis that the matter involved an issue of breach of
contract by USL and was therefore not maintainable in exercise of
the court's writ jurisdiction. USL has since filed an appeal
against this order before a division bench of the High Court, which
on 30 July 2019 has issued an interim order directing the bank to
not deal with any of the secured assets until the next date of
hearing. On 13 January 2020, the division bench of the High Court
admitted the writ appeal and extended the interim stay. This appeal
is currently pending. Based on the assessment of USL's management
supported by external legal opinions, USL continues to believe that
it has a strong case on the merits and therefore continues to
believe that the aforesaid amount of INR 459 million (GBP5 million)
remains recoverable from IDBI.
(g) Tax
The international tax environment has seen increased scrutiny
and rapid change over recent years bringing with it greater
uncertainty for multinationals. Against this backdrop, Diageo has
been monitoring developments and continues to engage transparently
with the tax authorities in the countries where Diageo operates to
ensure that the group manages its arrangements on a sustainable
basis.
The group operates in a large number of markets with complex tax
and legislative regimes that are open to subjective interpretation.
In the context of these operations, it is possible that tax
exposures which have not yet materialised (including those which
could arise as a result of tax assessments) may result in losses to
the group. In the circumstances where tax authorities have raised
assessments, challenging interpretations which may lead to a
possible material outflow, these have been included as contingent
liabilities.
Diageo has a large number of ongoing tax cases in Brazil and
India. Since assessing an accurate value of contingent liabilities
in these markets requires a high degree of judgement, contingent
liabilities are disclosed on the basis of the current known
possible exposure from tax assessment values. While not all of
these cases are individually significant, the current aggregate
known possible exposure from tax assessment values is up to
approximately GBP439 million for Brazil and up to approximately
GBP124 million for India. The group believes that the likelihood
that the tax authorities will ultimately prevail is lower than
probable but higher than remote. Due to the fiscal environment in
Brazil and in India, the possibility of further tax assessments
related to the same matters cannot be ruled out and the judicial
processes may take extended periods to conclude. Based on its
current assessment, Diageo believes that no provision is required
in respect of these issues.
Payments were made under protest in India in respect of the
periods 1 April 2006 to 31 March 2017 in relation to tax
assessments where the risk is considered to be remote or possible.
These payments have to be made in order to be able to challenge the
assessments and as such have been recognised as a receivable in the
group's balance sheet. The total amount of payments under protest
recognised as a receivable as at 31 December 2021 is GBP102 million
(corporate tax payments of GBP92 million and indirect tax payments
of GBP10 million).
In the United States, a lawsuit was filed on 15 April 2019 by
the National Association of Manufacturers (NAM) against the United
States Department of the Treasury (US Treasury) and the United
States Customs and Border Protection (CBP) on behalf of its
affected industry members, including Diageo, to invalidate
regulations published in February 2019 and to ensure that
substitution drawback is permitted in accordance with 19 USC --
1313(j)(2) as amended by the Trade Facilitation and Trade
Enforcement Act of 2015, which was enacted on 24 February 2016
(TFTEA). Substitution drawback permits the refund, including of
excise taxes, paid on imported merchandise when sufficiently
similar substitute merchandise is exported. The United States
Congress passed the TFTEA to, among other things, clarify and
broaden the standard for what constitutes substitute merchandise.
This change should entitle Diageo to obtain substitution drawback
in respect of certain eligible product categories. Despite this
change in the law, the US Treasury and CBP issued final regulations
in 2019 declaring that substitution drawback is not available for
imports when substituted with an export on which no tax was paid.
The Court of International Trade issued a judgment in favour of NAM
on 18 February 2020, denying the request by the US Treasury and CBP
for a stay of payment on 15 May 2020, and on 26 May 2020, ordered
the immediate processing of claims. The US Treasury and CBP
subsequently appealed the judgment from the Court of International
Trade to the US Court of Appeals for the Federal Circuit. In August
2021, the US Court of Appeals affirmed the decision of the Court of
International Trade. The deadline for the US Treasury and CBP to
appeal the decision of the Court of Appeals to the US Supreme Court
has passed.
(h) Information request
Diageo has received an inquiry from the US Securities and
Exchange Commission requesting information relating to Diageo's
business operations in certain markets and to its policies,
procedures and compliance environment. Diageo is responding to this
information request but is currently unable to assess whether the
inquiry will evolve into any enforcement action or, if this were to
transpire, to quantify meaningfully the possible loss or range of
loss, if any, to which any such action might give rise.
(i) Other
The group has extensive international operations and routinely
makes judgements on a range of legal, customs and tax matters which
are incidental to the group's operations. Some of these judgements
are or may become the subject of challenges and involve
proceedings, the outcome of which cannot be foreseen. In
particular, the group is currently a defendant in various customs
proceedings that challenge the declared customs value of products
imported by certain Diageo companies. Diageo continues to defend
its position vigorously in these proceedings.
Save as disclosed above, neither Diageo, nor any member of the
Diageo group, is or has been engaged in, nor (so far as Diageo is
aware) is there pending or threatened by or against it, any legal
or arbitration proceedings which may have a significant effect on
the financial position of the Diageo group.
13. Related party transactions
The group's significant related parties are its associates,
joint ventures, key management personnel and pension plans.
There have been no transactions with these related parties
during the six months ended 31 December 2021 on terms other than
those that prevail in arm's length transactions.
Independent review report to Diageo plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Diageo plc's condensed consolidated interim
financial statements (the "interim financial statements") in the
interim results of Diageo plc for the 6 month period ended 31
December 2021 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
IAS 34 'Interim Financial Reporting', IAS 34 'Interim Financial
Reporting' as issued by the International Accounting Standards
Board ('IASB'), IAS 34 'Interim Financial Reporting' as adopted by
the EU and The Disclosure Guidance and Transparency Rules
sourcebook of the UK's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated balance sheet as at 31 December 2021;
-- the condensed consolidated income statement and condensed
consolidated statement of comprehensive income for the period then
ended;
-- the condensed consolidated statement of cash flows for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results
of Diageo plc have been prepared in accordance with UK adopted IAS
34 'Interim Financial Reporting', IAS 34 'Interim Financial
Reporting' as issued by the IASB, IAS 34 'Interim Financial
Reporting' as adopted by the EU and The Disclosure Guidance and
Transparency Rules sourcebook of the UK's Financial Conduct
Authority.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim results, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the interim results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim results based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
26 January 2022
a. The maintenance and integrity of the Diageo plc website is
the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the interim financial statements since
they were initially presented on the website.
b. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Additional information for shareholders
Explanatory notes
Comparisons are to the six months ended 31 December 2020 (2020)
unless otherwise stated. Unless otherwise stated, percentage
movements given throughout this announcement for volume, sales, net
sales, marketing spend, operating profit and operating margin are
organic movements after retranslating current period reported
numbers at prior period exchange rates and after adjusting for the
effect of exceptional operating 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 'Cautionary statement concerning forward-looking statements' for
more details.
This announcement includes names of Diageo's products which
constitute trademarks or trade names which Diageo owns or which
others own and license to Diageo for use.
Definitions and reconciliation of non-GAAP measures to GAAP
measures
Diageo's strategic planning process is based on certain non-GAAP
measures, including organic movements. These non-GAAP measures are
chosen for planning and reporting, and some of them are used for
incentive purposes. The group's management believes that these
measures provide valuable additional information for users of the
financial statements in understanding the group's performance.
These non-GAAP measures should be viewed as complementary to, and
not replacements for, the comparable GAAP measures and reported
movements therein.
It is not possible to reconcile the forecast tax rate before
exceptional items, forecast organic net sales growth and forecast
organic operating profit increase to the most comparable GAAP
measure as it is not possible to predict, without unreasonable
effort, with reasonable certainty, the future impact of changes in
exchange rates, acquisitions and disposals and potential
exceptional items.
Volume
Volume is a performance indicator that is measured on an
equivalent units basis to nine-litre cases of spirits. An
equivalent unit represents one nine-litre case of spirits, which is
approximately 272 servings. A serving comprises 33ml of spirits,
165ml of wine, or 330ml of ready to drink or beer. Therefore, to
convert volume of products other than spirits to equivalent units,
the following guide has been used: beer in hectolitres, divide by
0.9; wine in nine-litre cases, divide by five; ready to drink in
nine-litre cases, divide by 10; and certain pre-mixed products that
are classified as ready to drink in nine-litre cases, divide by
ten.
Organic movements
Organic information is presented using sterling amounts on a
constant currency basis excluding the impact of exceptional items,
certain fair value remeasurement and acquisitions and disposals.
Organic measures enable users to focus on the performance of the
business which is common to both years and which represents those
measures that local managers are most directly able to
influence.
Calculation of organic movements
The organic movement percentage is the amount in the row titled
'Organic movement' in the tables below, expressed as a percentage
of the relevant absolute amount in the row titled 'Six months ended
31 December 2020 adjusted'. Organic operating margin is calculated
by dividing operating profit before exceptional items by net sales
after excluding the impact of exchange rate movements, certain fair
value remeasurements and acquisitions and disposals.
(a) Exchange rates
'Exchange' in the organic movement calculation reflects the
adjustment to recalculate the reported results as if they had been
generated at the prior period weighted average exchange rates.
Exchange impacts in respect of the external hedging of
intergroup sales by the markets in a currency other than their
functional currency and the intergroup recharging of services are
also translated at prior period weighted average exchange rates and
are allocated to the geographical segment to which they relate.
Residual exchange impacts are reported as part of the Corporate
segment. Results from hyperinflationary economies are translated at
respective years' actual rates.
(b) Acquisitions and disposals
For acquisitions in the current period, the post acquisition
results are excluded from the organic movement calculations. For
acquisitions in the prior period, post acquisition results are
included in full in the prior period but are included in the
organic movement calculation from the anniversary of the
acquisition date in the current period. The acquisition row also
eliminates the impact of transaction costs that have been charged
to operating profit in the current or prior period in respect of
acquisitions that, in management's judgement, are expected to be
completed.
Where a business, brand, brand distribution right or agency
agreement was disposed of or terminated in the reporting period,
the group, in the organic movement calculations, excludes the
results for that business from the current and prior period. In the
calculation of operating profit, the overheads included in
disposals are only those directly attributable to the businesses
disposed of, and do not result from subjective judgements of
management.
(c) Exceptional items
Exceptional items are those that in management's judgement need
to be disclosed separately. Such items are included within the
income statement caption to which they relate, and are excluded
from the organic movement calculations. It is believed that
separate disclosure of exceptional items and the classification
between operating and non-operating items further helps investors
to understand the performance of the group. Changes in estimates
and reversals in relation to items previously recognised as
exceptional are presented consistently as exceptional in the
current year.
Exceptional operating items are those that are considered to be
material and unusual or non-recurring in nature and are part of the
operating activities of the group such as impairment of intangible
assets and fixed assets, indirect tax settlements, property
disposals and changes in post employment plans.
Gains and losses on the sale of businesses, brands or
distribution rights, step up gains and losses that arise when an
investment becomes an associate or an associate becomes a
subsidiary and other material, unusual non-recurring items, that
are not in respect of the production, marketing and distribution of
premium drinks, are disclosed as exceptional non-operating items
below operating profit in the consolidated income statement.
Exceptional current and deferred tax items comprise material,
unusual non-recurring items that impact taxation. Examples include
direct tax provisions and settlements in respect of prior years and
the remeasurement of deferred tax assets and liabilities following
tax rate changes.
(d) Fair value remeasurement
Fair value remeasurement in the organic movement calculation
reflects an adjustment to eliminate the impact of fair value
changes in biological assets, earn-out arrangements that are
accounted for as remuneration and fair value changes relating to
contingent consideration liabilities and equity options that arose
on acquisitions recognised in the income statement.
Growth on a constant basis
Growth on a constant basis is a measure used by the group to
understand the trends of the business and its recovery towards
pre-Covid-19 performance.
The 2018 adjusted base (i.e. the six months ended 31 December
2018) is an appropriate comparator for fiscal 19 to fiscal 22
growth calculation on a constant basis, as the rates used for
constant currency calculations in fiscal 20 were not materially
different from those used constant currency calculations, in fiscal
21 and fiscal 22 there were no material acquisition or disposal
related adjustments or accounting treatment changes in the
period.
2018 (i.e. the six months ended 31 December 2018) to 2021 (i.e.
the six months ended 31 December 2021) growth on a constant basis
is calculated as adding up the respective periods' organic movement
in the row titled 'Organic movement' in the tables below, expressed
as a percentage of the relevant absolute amount in the row titled
'Six months ended 31 December 2018 adjusted'. The most comparable
GAAP financial measure is six months ended 31 December 2018 to six
months ended 31 December 2021 reported movement % below, which is
calculated by combining the reported movements for the respective
periods, expressed as a percentage of the six months ended 31
December 2018 reported amount.
Organic growth excluding Travel Retail and Guinness
The performance of the Travel Retail channel is dependent on the
level of international travel and the performance of Guinness is
highly dependent on the availability of the on-trade channel
(particularly in Europe). Due to ongoing travel restrictions and
market variability of on-trade recovery conditions brought about by
the Covid-19 pandemic, slower growth had been experienced in Travel
Retail and Guinness performance.
Additional information on the performance of the business
excluding Travel Retail and Guinness has therefore been provided.
Management used this information to assess business performance,
and similarly believed that such information will be useful to
readers of this document.
In the first half of fiscal 22, the recovery of the on-trade,
particularly in Europe, and the partial recovery of Travel Retail
has driven a significant improvement in volumes for Travel Retail
and Guinness. As a result, the performance of Travel Retail and
Guinness has not had a significant impact on the performance of the
group.
The measures noted are calculated by excluding the performance
of Travel Retail and Guinness from 'Six months ended 31 December
2018/ six months ended 31 December 2020 adjusted' and 'Organic
movement', respectively, on memo lines, and 'Movement excluding
Travel Retail and Guinness' is expressed as a percentage of the
relevant absolute amount in the rows titled 'Six months ended 31
December 2018/ six months ended 31 December 2020 adjusted excluding
Travel Retail and Guinness'.
Organic movement calculations for the six months ended 31
December 2021 were as follows:
Latin
North Asia America
America Europe Pacific Africa and Caribbean Corporate Total
million million million million million million million
------------------- ------------------ ----------------- ------------------ ------------------ ------------------ --------------- ------------------
Volume (equivalent
units)
=================== ================== ================= ================== ================== ================== =============== ==================
Six months ended 31
December
2018 reported 25.6 25.7 49.2 17.6 12.4 - 130.5
=================== ================== ================= ================== ================== ================== =============== ==================
Disposals (1.3) - - (0.3) - - (1.6)
------------------- ------------------ ----------------- ------------------ ------------------ ------------------ --------------- ------------------
Six months ended 31
December
2018 adjusted 24.3 25.7 49.2 17.3 12.4 - 128.9
=================== ================== ================= ================== ================== ================== =============== ==================
memo: Six months
ended
31 December 2018
Travel
Retail and
Guinness 1.1 3.4 2.2 2.0 0.4 - 9.1
=================== ================== ================= ================== ================== ================== =============== ==================
memo: Six months
ended
31 December 2018
adjusted
excluding Travel
Retail
and Guinness 23.2 22.3 47.0 15.3 12.0 - 119.8
=================== ================== ================= ================== ================== ================== =============== ==================
Organic movement
(2019) 0.7 (0.3) (0.4) 0.3 (0.1) - 0.2
=================== ================== ================= ================== ================== ================== =============== ==================
memo: Six months
ended
31 December 2019
Travel
Retail and
Guinness
movement (0.1) (0.1) (0.4) (0.1) - - (0.7)
=================== ================== ================= ================== ================== ================== =============== ==================
memo: Six months
ended
31 December 2019
Movement
excluding Travel
Retail
and Guinness 0.8 (0.2) - 0.4 (0.1) - 0.9
=================== ================== ================= ================== ================== ================== =============== ==================
Organic movement
(2020) 2.0 (1.2) (1.4) (0.2) 0.5 - (0.3)
=================== ================== ================= ================== ================== ================== =============== ==================
memo: Six months
ended
31 December 2020
Travel
Retail and
Guinness
movement (0.4) (1.5) (1.0) 0.2 (0.2) - (2.9)
=================== ================== ================= ================== ================== ================== =============== ==================
memo: Six months
ended
31 December 2020
Movement
excluding Travel
Retail
and Guinness 2.4 0.3 (0.4) (0.4) 0.7 - 2.6
------------------- ------------------ ----------------- ------------------ ------------------ ------------------ --------------- ------------------
Six months ended 31
December
2019 and six month
ended
31 December 2020
movement
on a constant
basis 2.7 (1.5) (1.8) 0.1 0.4 - (0.1)
Volume (equivalent
units)
=================== ================== ================= ================== ================== ================== =============== ==================
Six months ended 31
December
2020 reported 27.7 24.0 47.4 16.4 12.8 - 128.3
=================== ================== ================= ================== ================== ================== =============== ==================
Disposals(v) - - - (0.1) - - (0.1)
------------------- ------------------ ----------------- ------------------ ------------------ ------------------ --------------- ------------------
Six months ended 31
December
2020 adjusted 27.7 24.0 47.4 16.3 12.8 - 128.2
=================== ================== ================= ================== ================== ================== =============== ==================
memo: Six months
ended
31 December 2020
Travel
Retail and
Guinness 0.6 1.8 0.8 2.1 0.2 - 5.5
=================== ================== ================= ================== ================== ================== =============== ==================
memo: Six months
ended
31 December 2020
adjusted
excluding Travel
Retail
and Guinness 27.1 22.2 46.6 14.2 12.6 - 122.7
=================== ================== ================= ================== ================== ================== =============== ==================
Organic movement 0.2 5.4 1.7 2.6 2.0 - 11.9
=================== ================== ================= ================== ================== ================== =============== ==================
memo: Six months
ended
31 December 2021
Travel
Retail and
Guinness
movement 0.1 1.1 0.4 0.1 0.2 - 1.9
=================== ================== ================= ================== ================== ================== =============== ==================
memo: Six months
ended
31 December 2021
Movement
excluding Travel
Retail
and Guinness 0.1 4.3 1.3 2.5 1.8 - 10.0
=================== ================== ================= ================== ================== ================== =============== ==================
Acquisitions(v) 0.1 - - - - - 0.1
------------------- ------------------ ----------------- ------------------ ------------------ ------------------ --------------- ------------------
Six months ended 31
December
2021 reported 28.0 29.4 49.1 18.9 14.8 - 140.2
------------------- ------------------ ----------------- ------------------ ------------------ ------------------ --------------- ------------------
Organic movement % 1 23 4 16 16 - 9
------------------- ------------------ ----------------- ------------------ ------------------ ------------------ --------------- ------------------
memo: Organic
movement
% excluding
Travel Retail
and Guinness - 19 3 18 14 - 8
------------------- ------------------ ----------------- ------------------ ------------------ ------------------ --------------- ------------------
Six months ended 31
December
2018 to six month
ended
31 December 2021
reported
growth % 9 14 - 7 19 - 7
------------------- ------------------ ----------------- ------------------ ------------------ ------------------ --------------- ------------------
Six months ended 31
December
2018 to six month
ended
31 December 2021
growth
on a constant
basis % 12 15 - 16 19 - 9
------------------- ------------------ ----------------- ------------------ ------------------ ------------------ --------------- ------------------
Latin
North Asia America
America Europe Pacific Africa and Caribbean Corporate Total
GBP million GBP million GBP million GBP million GBP million GBP million GBP million
---------------- ----------------- ----------------- ----------------- ------------------ ----------------- ----------------- ------------------
Sales
================ ================= ================= ================= ================== ================= ================= ==================
Six months ended
31 December
2020 reported 3,022 2,727 2,837 1,064 775 11 10,436
================ ================= ================= ================= ================== ================= ================= ==================
Exchange (84) (40) (49) (20) (10) - (203)
Disposals(v) - - - (8) - - (8)
---------------- ----------------- ----------------- ----------------- ------------------ ----------------- ----------------- ------------------
Six months ended
31 December
2020 adjusted 2,938 2,687 2,788 1,036 765 11 10,225
================ ================= ================= ================= ================== ================= ================= ==================
memo: Six
months ended
31 December
2020 Travel
Retail and
Guinness 101 282 86 192 9 3 673
================ ================= ================= ================= ================== ================= ================= ==================
memo: Six
months ended
31 December
2020 adjusted
excluding
Travel Retail
and Guinness 2,837 2,405 2,702 844 756 8 9,552
================ ================= ================= ================= ================== ================= ================= ==================
Organic movement 321 659 264 236 301 12 1,793
================ ================= ================= ================= ================== ================= ================= ==================
memo: Six
months ended
31 December
2021 Travel
Retail and
Guinness
movement 23 132 41 32 25 6 259
================ ================= ================= ================= ================== ================= ================= ==================
memo: Six
months ended
31 December
2021 Movement
excluding
Travel Retail
and Guinness 298 527 223 204 276 6 1,534
================ ================= ================= ================= ================== ================= ================= ==================
Acquisitions(v) 19 4 - - - - 23
================ ================= ================= ================= ================== ================= ================= ==================
Exchange (21) (172) (53) (28) (14) - (288)
---------------- ----------------- ----------------- ----------------- ------------------ ----------------- ----------------- ------------------
Six months ended
31 December
2021 reported 3,257 3,178 2,999 1,244 1,052 23 11,753
---------------- ----------------- ----------------- ----------------- ------------------ ----------------- ----------------- ------------------
Organic movement
% 11 25 9 23 39 109 18
---------------- ----------------- ----------------- ----------------- ------------------ ----------------- ----------------- ------------------
memo: Organic
movement
% excluding
Travel Retail
and Guinness 11 22 8 24 37 75 16
---------------- ----------------- ----------------- ----------------- ------------------ ----------------- ----------------- ------------------
Latin
North Asia America
America Europe Pacific Africa and Caribbean Corporate Total
GBP million GBP million GBP million GBP million GBP million GBP million GBP million
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
Net sales
===================== ================= ================= ================= ================= ================= =================== =================
Six months ended 31
December
2018 reported 2,356 1,633 1,398 821 672 28 6,908
===================== ================= ================= ================= ================= ================= =================== =================
Exchange(i) (20) (20) 3 (4) 2 - (39)
===================== ================= ================= ================= ================= ================= =================== =================
Disposals (62) (1) (1) (29) (1) - (94)
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
Six months ended 31
December
2018 adjusted 2,274 1,612 1,400 788 673 28 6,775
===================== ================= ================= ================= ================= ================= =================== =================
memo: Six months
ended
31 December 2018
Travel
Retail and
Guinness 148 325 213 150 26 22 884
===================== ================= ================= ================= ================= ================= =================== =================
memo: Six months
ended
31 December 2018
adjusted
excluding Travel
Retail
and Guinness 2,126 1,287 1,187 638 647 6 5,891
===================== ================= ================= ================= ================= ================= =================== =================
Organic movement
(2019) 129 42 62 40 14 (1) 286
===================== ================= ================= ================= ================= ================= =================== =================
memo: Six months
ended
31 December 2019
Travel
Retail and
Guinness movement (5) (6) (26) - 3 (1) (35)
===================== ================= ================= ================= ================= ================= =================== =================
memo: Six months
ended
31 December 2019
Movement
excluding Travel
Retail
and Guinness 134 48 88 40 11 - 321
===================== ================= ================= ================= ================= ================= =================== =================
Organic movement
(2020) 307 (163) (48) (3) (9) (16) 68
===================== ================= ================= ================= ================= ================= =================== =================
memo: Six months
ended
31 December 2020
Travel
Retail and
Guinness movement (46) (128) (108) 8 (21) (19) (314)
===================== ================= ================= ================= ================= ================= =================== =================
memo: Six months
ended
31 December 2020
Movement
excluding Travel
Retail
and Guinness 353 (35) 60 (11) 12 3 382
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
Six months ended 31
December
2019 and six months
ended
31 December 2020
movement
on a constant basis 436 (121) 14 37 5 (17) 354
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
Net sales
===================== ================= ================= ================= ================= ================= =================== =================
Six months ended 31
December
2020 reported 2,701 1,443 1,395 745 579 11 6,874
===================== ================= ================= ================= ================= ================= =================== =================
Exchange(iii) (74) (21) (20) (17) (9) - (141)
===================== ================= ================= ================= ================= ================= =================== =================
Reclassification(iv) - - (7) - - - (7)
===================== ================= ================= ================= ================= ================= =================== =================
Disposals(v) - - - (4) - - (4)
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
Six months ended 31
December
2020 adjusted 2,627 1,422 1,368 724 570 11 6,722
===================== ================= ================= ================= ================= ================= =================== =================
memo: Six months
ended
31 December 2020
Travel
Retail and
Guinness 95 189 73 147 9 3 516
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
memo: Six months
ended
31 December 2020
adjusted
excluding Travel
Retail
and Guinness 2,532 1,233 1,295 577 561 8 6,206
===================== ================= ================= ================= ================= ================= =================== =================
Organic movement 338 389 181 166 258 12 1,344
===================== ================= ================= ================= ================= ================= =================== =================
memo: Six months
ended
31 December 2021
Travel
Retail and
Guinness movement 23 103 39 29 25 6 225
===================== ================= ================= ================= ================= ================= =================== =================
memo: Six months
ended
31 December 2021
Movement
excluding Travel
Retail
and Guinness 315 286 142 137 233 6 1,119
===================== ================= ================= ================= ================= ================= =================== =================
Acquisitions(v) 18 3 - - - - 21
===================== ================= ================= ================= ================= ================= =================== =================
Exchange(iii) (19) (62) (18) (22) (9) - (130)
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
Six months ended 31
December
2021 reported 2,964 1,752 1,531 868 819 23 7,957
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
Organic movement % 13 27 13 23 45 109 20
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
memo: Organic
movement
% excluding Travel
Retail
and Guinness 12 23 11 24 42 75 18
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
Six months ended 31
December
2018 to six month
ended
31 December 2021
reported
growth % 26 7 10 6 22 (18) 15
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
Six months ended 31
December
2018 to six month
ended
31 December 2021
growth
on a constant basis
% 34 17 14 26 39 (18) 25
--------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------- -----------------
Latin
North Asia America
America Europe Pacific Africa and Caribbean Corporate Total
GBP million GBP million GBP million GBP million GBP million GBP million GBP million
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
Marketing
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
Six months ended
31 December
2020 reported 443 252 227 84 78 1 1,085
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
Exchange (12) (2) (3) (3) (1) 2 (19)
Six months ended
31 December
2020 adjusted 431 250 224 81 77 3 1,066
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
memo: Six
months ended
31
December 2020
Travel Retail
and Guinness 28 34 7 20 1 - 90
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
memo: Six
months ended
31
December 2020
adjusted
excluding
Travel Retail
and Guinness 403 216 217 61 76 3 976
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
Organic movement 105 65 41 23 50 4 288
================ ================= ================= ================= ================= ================= ------------------ -----------------
memo: Six
months ended
31
December 2021
Travel Retail
and Guinness
movement 6 10 7 1 2 - 26
================ ================= ================= ================= ================= ================= ================== =================
memo: Six
months ended
31
December 2021
Movement
excluding
Travel Retail
and Guinness 99 55 34 22 48 4 262
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ =================
Acquisitions(v) 15 1 - - - - 16
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
Fair value
remeasurement
of contingent
considerations,
equity option
and earn out
arrangements (1) - - - - - (1)
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
Exchange (2) (9) (2) (2) (2) (1) (18)
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
Six months ended
31 December
2021 reported 548 307 263 102 125 6 1,351
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
Organic movement
% 24 26 18 28 65 133 27
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
memo: Organic
movement %
excluding
Travel Retail
and
Guinness 25 25 16 36 63 133 27
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ -----------------
Latin
North Asia America
America Europe Pacific Africa and Caribbean Corporate Total
GBP million GBP million GBP million GBP million GBP million GBP million GBP million
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Operating profit
before
exceptional
items
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Six months ended
31 December
2018 reported 2,451
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Exchange(ii) (19)
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Disposal (44)
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Six months ended
31 December
2018 adjusted 2,388
================ ================ ================= ================= ================ ================= =================== =================
memo: Six
months ended
31
December 2018
Travel Retail
and Guinness 424
================ ================ ================= ================= ================ ================= =================== =================
memo: Six
months ended
31
December 2018
adjusted
excluding
Travel Retail
and Guinness 1,964
================ ================ ================= ================= ================ ================= =================== =================
Organic movement
(2019) 110
================ ================ ================= ================= ================ ================= =================== =================
memo: Six
months ended
31
December 2019
Travel Retail
and Guinness
movement (31)
================ ================ ================= ================= ================ ================= =================== =================
memo: Six
months ended
31
December 2019
Movement
excluding
Travel Retail
and Guinness 141
================ ================ ================= ================= ================ ================= =================== =================
Organic movement
(2020) (85)
================ ================ ================= ================= ================ ================= =================== =================
memo: Six
months ended
31
December 2020
Travel Retail
and Guinness
movement (225)
================ ================ ================= ================= ================ ================= =================== =================
memo: Six
months ended
31
December 2020
Movement
excluding
Travel Retail
and Guinness 140
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Six months ended
31 December
2019 and six
months ended
31 December
2020 movement
on a constant
basis 25
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Operating profit
before
exceptional
items
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Six months ended
31 December
2020 reported 1,226 446 386 95 197 (94) 2,256
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Exchange(iii) (28) (13) (7) 8 (4) (3) (47)
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Fair value
remeasurement
of contingent
considerations
and equity
option 4 7 - - - - 11
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Fair value
remeasurement
of biological
assets - - - - (3) - (3)
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Acquisitions(v) 7 - - - - - 7
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Six months ended
31 December
2020 adjusted 1,209 440 379 103 190 (97) 2,224
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
memo: Six
months ended
31
December 2020
Travel Retail
and Guinness 16 67 30 39 5 6 163
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
memo: Six
months ended
31
December 2020
adjusted
excluding
Travel Retail
and Guinness 1,193 373 349 64 185 (103) 2,061
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Organic movement 89 184 72 88 152 (35) 550
================ ================ ================= ================= ================ ================= =================== =================
memo: Six
months ended
31
December 2021
Travel Retail
and Guinness
movement 12 65 27 12 17 2 135
================ ================ ================= ================= ================ ================= =================== =================
memo: Six
months ended
31
December 2021
Movement
excluding
Travel Retail
and Guinness 77 119 45 76 135 (37) 415
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- =================
Acquisitions(v) (16) (1) - - - - (17)
================ ================ ================= ================= ================ ================= =================== =================
Fair value
remeasurement
of contingent
considerations,
equity option
and earn out
arrangements 5 21 - - (3) - 23
================ ================ ================= ================= ================ ================= =================== =================
Fair value
remeasurement
of biological
assets - - - - 3 - 3
================ ================ ================= ================= ================ ================= =================== =================
Exchange(iii) 8 (31) - (15) (9) 7 (40)
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Six months ended
31 December
2021 reported 1,295 613 451 176 333 (125) 2,743
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Organic movement
% 7 42 19 85 80 (36) 25
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
memo: Organic
movement %
excluding
Travel Retail
and
Guinness 6 32 13 119 73 (36) 20
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Organic
operating margin
%
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Six months ended
31 December
2021 44 34 29 21 41 n/a 34
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Six month ended
31 December
2020 46 31 28 14 33 n/a 33
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Margin movement
(bps) (224) 351 141 723 797 n/a 131
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Six months ended
31 December
2018 to six
month ended 31
December 2021
reported growth
% 12
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
Six months ended
31 December
2018 to six
month ended 31
December 2021
growth on a
constant basis
% 24
---------------- ---------------- ----------------- ----------------- ---------------- ----------------- ------------------- -----------------
(1) For the reconciliation of sales to net sales, see Summary income statement.
(2) Percentages and margin movement are calculated on rounded figures.
Notes: Information in respect of the organic movement
calculations
(i) The impact of movements in exchange rates on reported
figures for sales and net sales is principally in respect of the
translation exchange impact of the weakening of sterling against
the US dollar, the Indian rupee and the Mexican peso, partially
offset by strengthening of sterling against the euro.
(ii) The impact of movements in exchange rates on reported
figures for operating profit is principally in respect of the
transactional exchange impact of the strengthening of sterling
against the US dollar.
(iii) The impact of movements in exchange rates on reported
figures for net sales and operating profit is principally in
respect of the translation exchange impact of the strengthening of
sterling against the US dollar, the euro, the Indian rupee and the
Turkish lira.
(iv) In the six months ended 31 December 2021, GBP7 million has
been reclassified from cost of sales to excise duties.
(v) In the six months ended 31 December 2021, the acquisitions
and disposals that affected volume, sales, net sales, marketing and
operating profit were as follows:
Operating
Volume Sales Net sales Marketing profit
equ. units GBP million GBP million GBP million GBP million
million
------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Six months
ended 31
December 2020
Acquisitions
============= ===================== ===================== ===================== ===================== =====================
Aviation
Gin and
Davos
Brands - - - - 7
------------- --------------------- --------------------- --------------------- --------------------- ---------------------
- - - - 7
------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Disposals
============= ===================== ===================== ===================== ===================== =====================
South
African
ready to
drink (0.1) (8) (4) - -
------------- --------------------- --------------------- --------------------- --------------------- ---------------------
(0.1) (8) (4) - -
------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Acquisitions
and
disposals (0.1) (8) (4) - 7
Six months
ended 31
December 2021
============= ===================== ===================== ===================== ===================== =====================
Acquisitions
============= ===================== ===================== ===================== ===================== =====================
Aviation
Gin and
Davos
Brands - 6 5 (4) (5)
============= ===================== ===================== ===================== ===================== =====================
Chase
Distillery - 4 3 (1) (1)
============= ===================== ===================== ===================== ===================== =====================
Lone River 0.1 11 11 (8) (8)
============= ===================== ===================== ===================== ===================== =====================
Loyal 9
Cocktails - 2 2 (3) (3)
------------- --------------------- --------------------- --------------------- --------------------- ---------------------
0.1 23 21 (16) (17)
------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Earnings per share before exceptional items
Earnings per share before exceptional items is calculated by
dividing profit attributable to equity shareholders of the parent
company before exceptional items by the weighted average number of
shares in issue.
Earnings per share before exceptional items for the six months
ended 31 December 2021 and 31 December 2020 are set out in the
table below:
2021 2020
GBP million GBP million
Profit attributable to equity shareholders of the parent
company 1,965 1,580
========================================================= ==================== ====================
Exceptional operating and non-operating items 31 12
========================================================= ==================== ====================
Exceptional tax charges/(benefits) - 42
1,996 1,634
--------------------------------------------------------- -------------------- --------------------
Weighted average number of shares million Million
--------------------------------------------------------- -------------------- --------------------
Shares in issue excluding own shares 2,331 2,336
========================================================= ==================== ====================
Dilutive potential ordinary shares 8 7
--------------------------------------------------------- -------------------- --------------------
2,339 2,343
--------------------------------------------------------- -------------------- --------------------
Pence Pence
--------------------------------------------------------- -------------------- --------------------
Basic earnings per share before exceptional items 85.6 69.9
========================================================= ==================== ====================
Diluted earnings per share before exceptional items 85.4 69.7
--------------------------------------------------------- -------------------- --------------------
Free cash flow
Free cash flow comprises the net cash flow from operating
activities aggregated with the net cash received/paid for working
capital loans receivable, cash paid or received for investments and
the net cash expenditure paid for property, plant and equipment and
computer software that are included in net cash flow from investing
activities.
The remaining components of net cash flow from investing
activities that do not form part of free cash flow, as defined by
the group's management, are in respect of the acquisition and sale
of businesses and non-working capital loans to and from
associates.
The group's management regards the purchase and disposal of
property, plant and equipment and computer software as ultimately
non-discretionary since ongoing investment in plant, machinery and
technology is required to support the day-to-day operations,
whereas acquisition and sale of businesses are discretionary.
Where appropriate, separate explanations are given for the
impacts of acquisition and sale of businesses, dividends paid and
the purchase of own shares, each of which arises from decisions
that are independent from the running of the ongoing underlying
business.
Free cash flow reconciliations for the six months ended 31
December 2021 and 31 December 2020 are set out in the table
below:
2021 2020
GBP million GBP million
Net cash inflow from operating activities 1,947 1,998
======================================================= =========== ===========
Disposal of property, plant and equipment and computer
software 7 8
======================================================= =========== ===========
Purchase of property, plant and equipment and computer
software (382) (250)
======================================================= =========== ===========
Movements in loans and other investments 3 (3)
------------------------------------------------------- ----------- -----------
Free cash flow 1,575 1,753
------------------------------------------------------- ----------- -----------
Return on average invested capital
Return on average invested capital is used by management to
assess the return obtained from the group's asset base and is
calculated to aid evaluation of the performance of the
business.
The profit used in assessing the return on average invested
capital reflects operating profit before exceptional items
attributable to the equity shareholders of the parent company plus
share of after tax results of associates and joint ventures after
applying the tax rate before exceptional items for the period.
Average invested capital is calculated using the average derived
from the consolidated balance sheets at the beginning and end of
the period. Average capital employed comprises average net assets
attributable to equity shareholders of the parent company for the
year, excluding net post employment benefit assets/liabilities (net
of deferred tax) and average net borrowings. This average capital
employed is then aggregated with the average restructuring and
integration costs net of tax, and goodwill written off to reserves
at 1 July 2004, the date of transition to IFRS, to obtain the
average total invested capital.
Calculations for the return on average invested capital for the
six months ended 31 December 2021 and 31 December 2020 are set out
in the table below:
2021 2020
GBP million GBP million
------------------------------------------------------------ ------------------- ---------------------
Operating profit 2,743 2,239
============================================================ =================== =====================
Exceptional operating items - 17
============================================================ =================== =====================
Profit before exceptional operating items attributable
to non-controlling interests (123) (81)
============================================================ =================== =====================
Share of after tax results of associates and joint ventures 190 154
============================================================ =================== =====================
Tax at the tax rate before exceptional items of 23.0%
(2020 - 22.4%) (675) (540)
------------------------------------------------------------ ------------------- ---------------------
2,135 1,789
------------------------------------------------------------ ------------------- ---------------------
Average net assets (excluding net post employment benefit
assets/liabilities) 8,331 8,162
============================================================ =================== =====================
Average non-controlling interests (1,604) (1,614)
============================================================ =================== =====================
Average net borrowings 12,220 12,953
============================================================ =================== =====================
Average integration and restructuring costs (net of tax) 1,639 1,639
============================================================ =================== =====================
Goodwill at 1 July 2004 1,562 1,562
------------------------------------------------------------ ------------------- ---------------------
Average invested capital 22,148 22,702
------------------------------------------------------------ ------------------- ---------------------
Return on average invested capital 19.3 % 15.8 %
------------------------------------------------------------ ------------------- ---------------------
Adjusted net borrowings to adjusted EBITDA
Diageo manages its capital structure with the aim of achieving
capital efficiency, providing flexibility to invest through the
economic cycle and giving efficient access to debt markets at
attractive cost levels. The group regularly assesses its debt and
equity capital levels to enhance its capital structure by reviewing
the ratio of adjusted net borrowings to adjusted EBITDA (earnings
before exceptional operating items, interest, tax, depreciation,
amortisation and impairment).
Calculations for the ratio of adjusted net borrowings to
adjusted EBITDA at 31 December 2021 and 31 December 2020 are set
out in the table below:
2021 2020
GBP million GBP million
Borrowings due within one year 1,184 1,214
======================================================== ===================== ====================
Borrowings due after one year 12,693 14,063
======================================================== ===================== ====================
Fair value of foreign currency derivatives and interest
rate hedging instruments (126) (263)
======================================================== ===================== ====================
Lease liabilities 360 410
======================================================== ===================== ====================
Less: Cash and cash equivalents (1,780) (2,763)
-------------------------------------------------------- --------------------- --------------------
Net borrowings 12,331 12,661
======================================================== ===================== ====================
Post employment benefit liabilities before tax 486 815
-------------------------------------------------------- --------------------- --------------------
Adjusted net borrowings 12,817 13,476
-------------------------------------------------------- --------------------- --------------------
Profit for the year 3,226 1,181
======================================================== ===================== ====================
Taxation 1,004 596
======================================================== ===================== ====================
Net finance charges 353 399
======================================================== ===================== ====================
Depreciation, amortisation and impairment (excluding
exceptional items) 452 486
======================================================== ===================== ====================
Exceptional impairment - 1,286
-------------------------------------------------------- --------------------- --------------------
EBITDA 5,035 3,948
======================================================== ===================== ====================
Exceptional operating items (excluding impairment) (2) 29
======================================================== ===================== ====================
Non-operating items 22 18
-------------------------------------------------------- --------------------- --------------------
Adjusted EBITDA 5,055 3,995
-------------------------------------------------------- --------------------- --------------------
Adjusted net borrowings to adjusted EBITDA 2.5 3.4
-------------------------------------------------------- --------------------- --------------------
(1) EBITDA and adjusted EBITDA are calculated based on the last
12 months.
Tax rate before exceptional items
Tax rate before exceptional items is calculated by dividing the
total tax charge before tax charges and credits in respect of
exceptional items, by profit before taxation adjusted to exclude
the impact of exceptional operating and non-operating items,
expressed as a percentage. The measure is used by management to
assess the rate of tax applied to the group's operations before tax
on exceptional items.
The tax rates from operations before exceptional and after
exceptional items for the six months ended 31 December 2021 and six
months ended 31 December 2020 are set out in the table below:
2021 2020
GBP million GBP million
Tax before exceptional items (a) 634 495
Exceptional tax charge - 42
------------------------------------------------- -------------------- ---------------------
Taxation on profit (b) 634 537
------------------------------------------------- -------------------- ---------------------
Profit before taxation and exceptional items (c) 2,753 2,210
================================================= ==================== =====================
Non-operating items (31) 5
================================================= ==================== =====================
Exceptional operating items - (17)
Profit before taxation (d) 2,722 2,198
------------------------------------------------- -------------------- ---------------------
Tax rate before exceptional items (a/c) 23.0 % 22.4 %
================================================= ==================== =====================
Tax rate after exceptional items (b/d) 23.3 % 24.4 %
------------------------------------------------- -------------------- ---------------------
Other definitions
Volume share is a brand's retail volume expressed as a
percentage of the retail volume of all brands in its segment. Value
share is a brand's retail sales value expressed as a percentage of
the retail sales value of all brands in its segment. Unless
otherwise stated, share refers to value share.
Net sales are sales less excise duties. Diageo incurs excise
duties throughout the world. In the majority of countries excise
duties are effectively a production tax which becomes payable when
the product is removed from bonded premises and is not directly
related to the value of sales. It is generally not included as a
separate item on external invoices; increases in excise duties are
not always passed on to the customer and where a customer fails to
pay for a product received the group cannot reclaim the excise
duty. The group therefore recognises excise duty as a cost to the
group.
Price/mix is the number of percentage points difference between
the organic movement in net sales and the organic movement in
volume. The difference arises because of changes in the composition
of sales between higher and lower priced variants/markets or as
price changes are implemented.
Shipments comprise the volume of products sold to Diageo's
immediate (first tier) customers. Depletions are the estimated
volume of the onward sales made by Diageo's immediate customers.
Both shipments and depletions are measured on an equivalent units
basis.
References to emerging markets include Poland, Eastern Europe,
Turkey, Africa, Latin America and Caribbean, and Asia Pacific
(excluding Australia, Korea and Japan).
References to reserve brands include, but are not limited to,
Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie
Walker Gold Label Reserve, Johnnie Walker Aged 18 Years, John
Walker & Sons Collection and other Johnnie Walker super premium
brands; The Singleton, Cardhu, Talisker, Lagavulin, Oban and other
malt brands; Buchanan's Special Reserve, Buchanan's Red Seal; Haig
Club whisky; Copper Dog whisky; Roe & Co; Bulleit Bourbon,
Bulleit Rye; Orphan Barrel whiskey; Tanqueray No. TEN, Tanqueray
ready to drink, Tanqueray Malacca Gin; Aviation, Jinzu and Villa
Ascenti gin; Cîroc, Ketel One vodka, Ketel One Botanical; Don
Julio, Casamigos and DeLeón tequila; Zacapa, Bundaberg Master
Distillers' Collection and Pampero Aniversario rum; Shui Jing Fang,
Seedlip, Belsazar and Pierde Almas.
References to global giants include the following brand
families: Johnnie Walker, Smirnoff, Captain Morgan, Baileys,
Tanqueray and Guinness. Local stars include Buchanan's, Bundaberg,
Crown Royal, J B, McDowell's, Old Parr, Yenì Raki, Black &
White, Shui Jing Fang, Windsor and Ypióca. Global giants and local
stars exclude ready to drink and beer except Guinness. References
to Shui Jing Fang represent total Chinese white spirits of which
Shui Jing Fang is the predominant brand.
References to ready to drink also include ready to serve
products, such as pre-mixed cans in some markets.
References to beer include cider, flavoured malt beverages and
some non-alcoholic products such as Malta Guinness.
The results of Hop House 13 Lager are included in the Guinness
figures.
References to the group include Diageo plc and its consolidated
subsidiaries.
Risk factors
The principal risks and uncertainties facing Diageo are set out
on pages 45 to 49 of the Annual Report for the year ended 30 June
2021 and pages 72 to 82 of Diageo's Annual Report on Form 20-F for
the year ended 30 June 2021. These principal risks and
uncertainties include: cyber threats; climate change,
sustainability & responsibility; pandemics; global economic
volatility; consumer disruption; geopolitical & natural hazards
risk; counterfeit; business integrity, compliance & controls;
data privacy; product quality; regulation, indirect tax & trade
barriers; and international direct tax.
The nature and potential impact of the principal risks and
uncertainties facing Diageo did not change in the six months to 31
December 2021, and are not expected to change in respect of the
second six months of the financial year.
Cautionary statement concerning forward-looking statements
This document contains 'forward-looking' statements. These
statements can be identified by the fact that they do not relate
only to historical or current facts. In particular, forward-looking
statements include all statements that express forecasts,
expectations, plans, outlook, objectives and projections with
respect to future matters, including the statements set forth in
the 'Fiscal 22 Outlook' section and any other statements with
respect to trends in results of operations, margins, growth rates,
overall market trends, the impact of changes in interest or
exchange rates, the availability or cost of financing to Diageo,
anticipated cost savings or synergies, expected investments, the
completion of any strategic transactions or restructuring
programmes, anticipated tax rates, changes in the international tax
environment, expected cash payments, outcomes of litigation or
regulatory enquiries, anticipated changes in the value of assets
and liabilities related to pension schemes and general economic
conditions. By their nature, forward-looking statements involve
risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. There are a number of
factors that could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking
statements, including factors that are outside Diageo's
control.
Factors that could cause actual results and developments to
differ materially from those expressed or implied by
forward-looking statements include, but are not limited to:
- economic, political, social or other developments in countries
and markets in which Diageo operates (including as a result of the
Covid-19 pandemic), which may contribute to a reduction in demand
for Diageo's products, adverse impacts on Diageo's customer,
supplier and/or financial counterparties, or the imposition of
import, investment or currency restrictions (including the
potential impact of any global, regional or local trade wars or any
tariffs, duties or other restrictions or barriers imposed on the
import or export of goods between territories; including but not
limited to, imports into and exports from the United States and the
European Union and/or the United Kingdom, as well as the United
Kingdom's recent departure from the European Union);
- the impact of the Covid-19 pandemic, or any other global or
regional public health threats, on Diageo's business, financial
condition, cash flows and results of operation;
- the effects of climate change, or legal, regulatory or market
measures intended to address climate change, on Diageo's business
or operations, including on the cost and supply of water;
- changes in consumer preferences and tastes, including as a
result of disruptive market forces, changes in demographics,
evolving social trends (including any shifts in consumer tastes
towards at-home occasions, premiumisation, small-batch craft
alcohol, lower or no alcohol, or other alternative products),
changes in travel, holiday or leisure activity patterns, weather
conditions, health concerns, pandemics and/or a downturn in
economic conditions;
- changes in the domestic and international tax environment,
including as a result of the OECD Base Erosion and Profit Shifting
Initiative and EU anti-tax abuse measures, leading to uncertainty
around the application of existing and new tax laws and unexpected
tax exposures;
- changes in the cost of production, including as a result of
increases in the cost of commodities, labour and/or energy, supply
chain disruptions and/or inflation;
- any litigation or other similar proceedings (including with
tax, customs, competition, environmental, anti-corruption or other
regulatory authorities), including litigation directed at the
beverage alcohol industry generally or at Diageo in particular;
- legal and regulatory developments, including changes in
regulations relating to production, distribution, importation,
marketing, advertising, sales, pricing, labelling, packaging,
product liability, antitrust, labour, compliance and control
systems, environmental issues and/or data privacy;
- the consequences of any failure of internal controls,
including those affecting compliance with existing or new
accounting and/or disclosure requirements;
- the consequences of any failure by Diageo or its associates to
comply with anti-corruption, sanctions, trade restrictions or
similar laws and regulations, or any failure of Diageo's related
internal policies and procedures to comply with applicable law or
regulation;
- cyber-attacks or any other disruptions to core business
operations including manufacturing and supply, business service
centres and/or information systems;
- contamination, counterfeiting or other circumstances which
could harm the level of customer support for Diageo's brands and
adversely impact its sales;
- Diageo's ability to maintain its brand image and corporate
reputation or to adapt to a changing media environment;
- increased competitive product and pricing pressures, including
as a result of actions by increasingly consolidated competitors or
increased competition from regional and local companies, that could
negatively impact Diageo's market share, distribution network,
costs and/or pricing;
- increased costs for, or shortages of, talent, as well as labour strikes or disputes;
- Diageo's ability to derive the expected benefits from its
business strategies, including in relation to expansion in emerging
markets, acquisitions and/or disposals, cost savings and
productivity initiatives or inventory forecasting;
- fluctuations in exchange rates and/or interest rates, which
may impact the value of transactions and assets denominated in
other currencies, increase Diageo's financing costs or otherwise
adversely affect Diageo's financial results;
- movements in the value of the assets and liabilities related to Diageo's pension plans;
- Diageo's ability to renew supply, distribution, manufacturing
or licence agreements (or related rights) and licences on
favourable terms, or at all, when they expire; or
- any failure by Diageo to protect its intellectual property rights.
All oral and written forward-looking statements made on or after
the date of this document and attributable to Diageo are expressly
qualified in their entirety by the above cautionary factors, by the
'Risk Factors' section immediately preceding those and by the 'Risk
Factors' included in Diageo's Annual Report on Form 20-F for the
year ended 30 June 2021 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 2022.
The information in this document does not constitute an offer to
sell or an invitation to buy shares in Diageo plc or an invitation
or inducement to engage in any other investment activities.
This document may include information about Diageo's target debt
rating. A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any
time by the assigning rating organisation. Each rating should be
evaluated independently of any other rating.
Past performance cannot be relied upon as a guide to future
performance.
Statement of directors' responsibilities
Each of the Directors of Diageo plc confirms that, to the best
of his or her knowledge:
- the condensed consolidated financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting as
issued by the IASB and endorsed and adopted by the UK Endorsement
Board and give a true and fair view of the assets, liabilities,
financial position and profit and loss of the group;
- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority,
being an indication of important events that have occurred during
the first six months of the current financial year and their impact
on the condensed consolidated financial statements, and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the group during
that period, and any changes in the related party transactions
described in the last annual report that could do so.
The Directors of Diageo plc are as follows: Javier Ferrán
(Chairman), Ivan Menezes (Chief Executive), Lavanya Chandrashekar
(Chief Financial Officer), Susan Kilsby (Senior Independent
Director and Chairman of the Remuneration Committee), Alan Stewart
(Non-Executive Director and Chairman of the Audit Committee) and
Non-Executive Directors: Melissa Bethell, Valérie
Chapoulaud-Floquet, Sir John Manzoni, Lady Mendelsohn and Ireena
Vittal.
Webcast, presentation slides and transcript
At 07.15 (UK time) on Thursday 27 January 2022, Ivan Menezes,
Chief Executive and Lavanya Chandrashekar, Chief Financial Officer
will present Diageo's interim results as a webcast. This will be
available to view at www.diageo.com. The presentation slides and
script will also be available to download at this time.
Live Q&A conference call and replay
Ivan Menezes and Lavanya Chandrashekar will be hosting a Q&A
conference call on Thursday 27 January at 09:30 (UK time). If you
would like to listen to the call or ask a question, please use the
dial in details below.
From the UK: +44 (0)330 336 9601
From the UK (free
call): 0800 279 6877
From the USA: +1 323 701 0160
From the USA (free
call): 800 289 0720
The conference call is for analysts and investors only. To join
the call please use the password already sent to you or email
investor.relations@diageo.com.
To hear a replay of the call, please use the telephone numbers
below:
From the UK: +44 (0)20 3859 5407
From the UK (free
call): 0808 101 1153
From the USA: +1 719 457 0820
From the USA (free
call): 888 203 1112
Investor enquiries
to: Durga Doraisamy +44 (0) 7902 126906
Lucinda Baker +44 (0) 7974 375550
Belinda Brown +44 (0) 7590 810246
investor.relations@diageo.com
Media enquiries
to: Jessica Rouleau +44 (0) 7925 642 561
Dominic Redfearn +44 (0) 7971 977 759
Francesca Olivieri +44 (0) 7523 930 130
press@diageo.com
Diageo plc LEI: 213800ZVIELEA55JMJ32
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END
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