RNS No 9061f
DIAGEO PLC
11th March 1999
PART 2
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year
Six months ended Six months ended ended
31 December 1998 31 December 1997 30 June
1998
Before Before
excep- Excep- excep- Excep-
tional tional tional tional
items items Total items items Total Total
#m #m #m #m #m #m #m
Turnover 6,267 6,267 6,717 6,717 12,029
Operating costs (5,168) (198) (5,366) (5,532) (294) (5,826) (10,659)
Operating profit 1,099 (198) 901 1,185 (294) 891 1,370
Share of profits of 111 - 111 131 (17) 114 195
associates
Trading profit 1,210 (198) 1,012 1,316 (311) 1,005 1,565
Disposal of fixed - (8) (8) - 12 12 5
assets
Sale of businesses - 127 127 - (101) (101) 558
Merger expenses - - - - (85) (85) (85)
Interest payable (159) - (159 (115) - (115) (360)
(net)
Profit before 1,051 (79) 972 1,201 (485) 716 1,683
taxation
Taxation (275) 6 (269) (327) 11 (316) (721)
Profit after 776 (73) 703 874 (474) 400 962
taxation
Minority interests
Equity (25) - (25) (30) - (30) (47)
Non-equity (18) - (18) (18) - (18) (36)
Profit for the 733 (73) 660 826 (474) 352 879
period
Dividends (276) - (276) (446) - (446) (835)
Transferred to 457 (73) 384 380 (474) (94) 44
reserves
Earnings per share
Basic 20.5p (2.0)p 18.5p 20.6p (11.8)p 8.8p 23.0p
Diluted 20.4p (2.0)p 18.4p 20.3p (11.5)p 8.8p 22.8p
Number of shares 3,577m 4,005m 3,823m
(basic)
CONSOLIDATED STATEMENT OF
TOTAL RECOGNISED GAINS AND LOSSES
Year
Six months Six months ended ended
ended 31 December 1997 30 June
31 December 1998
1998
#m #m #m
Profit for the period
Group 593 274 775
Associates 67 78 104
660 352 879
Exchange adjustments 95 (56) (140)
Total recognised gains 755 296 739
and losses
CONSOLIDATED BALANCE SHEET
31 December 30 June 1998 31 December
1998 1997
#m #m #m #m #m #m
Fixed assets
Intangible assets 4,852 4,727 4,995
Tangible assets 3,058 3,006 3,118
Investments 1,390 1,244 1,508
9,300 8,977 9,621
Current assets
Stocks 2,298 2,236 2,349
Debtors 3,613 3,054 3,709
Investments 167 484 647
Cash at bank and in hand 1,385 2,503 1,593
7,463 8,277 8,298
Creditors - due within one
year
Borrowings (3,909) (4,724) (3,060)
Other creditors (3,362) (3,524) (3,626)
(7,271) (8,248) (6,686)
Net current assets
192 29 1,612
Total assets less current 9,492 9,006 11,233
liabilities
Creditors - due after one
year
Borrowings (2,850) (2,894) (2,989)
Other creditors (245) (243) (287)
(3,095) (3,137) (3,276)
Provisions (747) (705) (661)
5,650 5,164 7,296
Shareholders' funds
Equity share capital 1,036 1,034 1,007
Non-equity share capital
- 105 -
Called up share capital 1,036 1,139 1,007
Reserves 4,066 3,490 5,742
5,102 4,629 6,749
Minority interests
Equity 180 169 178
Non-equity 368 366 369
548 535 547
5,650 5,164 7,296
CONSOLIDATED CASH FLOW STATEMENT
Six months Six months
ended ended
31 December 31 December
1998 1997
#m #m #m #m
Net cash inflow from operating 753 716
activities
Dividends received from associates 5 22
Interest paid (net) (239) (97)
Dividends paid to equity minority (13) (10)
interests
Returns on investments and servicing of (252) (107)
finance
Taxation (361) (354)
Purchase of fixed assets (270) (232)
Sale of tangible fixed assets 52 69
Capital expenditure and financial (218) (163)
investment
Free cash flow (73) 114
Purchase of subsidiaries (117) (31)
Sale of subsidiaries and associates 137 88
Acquisitions and disposals 20 57
Equity dividends paid (388) (225)
Cash outflow before management of
liquid resources and financing (441) (54)
Management of liquid resources 1,481 (53)
Issue of share capital 26 40
Repurchase of shares (74) -
(Decrease)/increase in loans (1,081) 74
Financing (1,129) 114
(Decrease)/increase in cash (89) 7
MOVEMENTS IN NET BORROWINGS
Six months Six months
ended ended
31 December 31 December
1998 1997
#m #m
(Decrease)/increase in cash (89) 7
Cash flow from decrease/(increase) in 1,081 (74)
loans
Change in liquid resources (1,481) 53
Change in net borrowings from cash flows (489) (14)
Exchange adjustments (95)
23
Non-cash items (5) 39
(Increase)/decrease in net borrowings (589) 48
Net borrowings at beginning of the (4,508) (3,770)
period
Net borrowings at end of the period (5,097) (3,722)
NOTES
1 Segmental analysis
Six months ended Six months ended
31 December 1998 31 December 1997
Operating Operating
Turnover profit Turnover profit
#m #m #m #m
Class of business:
Spirits and Wine 2,732 589 3,149 674
Packaged Food 1,926 263 1,963 273
Beer 1,166 149 1,166 140
Quick Service Restaurants 443 98 436
99
Continuing operations 6,267 1,099 6,714 1,186
Discontinued operations - 3 (1)
6,267 1,099 6,717 1,185
Geographical area by
destination:
Europe 2,343 371 2,459 336
North America 2,873 515 3,011 551
Asia Pacific 407 74 547 121
Rest of World 644 139 697 178
Continuing operations 6,267 1,099 6,714 1,186
31 December 1998 31 December 1997
#m #m
Net assets:
Spirits and Wine 4,827 5,373
Packaged Food 3,031 2,979
Beer 935 982
Quick Service Restaurants 1,171 1,181
9,964 10,515
Investments in associates 1,200 1,357
Tax, dividends and other (417) (854)
corporate items
Net borrowings (5,097) (3,722)
5,650 7,296
The above analysis of operating profit is before exceptional
items. The geographical analysis is based on the location of the
third party customers.
The weighted average exchange rate used in translation of US
dollar profit and loss accounts was #1 = $1.66 (six months ended
31 December 1997 - #1 = $1.64). The exchange rate used to
translate US dollar assets and liabilities at the balance sheet
date was #1 = $1.66 (31 December 1997 - #1 = $1.65).
2 Exceptional items
Six months Six months
ended 31 ended 31
December December
1998 1997
#m #m #m #m
Charged to:
Operating profit Merger integration (156) (44)
costs
Haagen-Dazs plant (35)
closure -
Foodservice integration (7)
costs -
Agreement with LVMH (250)
-
(198) (294)
Associates Share of MH (17)
reorganisation costs -
Disposal of (Loss)/gain on sales (8) 12
fixed assets
Sale of Cantrell & Cochrane 142 -
businesses
Laurent Perrier (18) -
Inntrepreneur Pub - (54)
Company
European national food - (22)
businesses
Gonzalez Byass - (23)
Other 3 (2)
3
127 (101)
Merger expenses Transaction costs - (85)
(79) (485)
3 Taxation
The total taxation charge for the six months ended 31 December
1998 of #269 million comprises UK taxation of #59 million,
overseas taxation of #167 million, and tax on associates of #43
million.
4 Note of consolidated historical cost profits and losses
There is no material difference between the reported profit shown
in the consolidated profit and loss account and the profit
restated on an historical cost basis.
5 Movements in consolidated shareholders' funds
Six months Six months
ended 31 ended 31
December December
1998 1997
#m #m
Profit for the period 660 352
Dividends (276) (446)
Exchange adjustments 95 (56)
New share capital issued 28 82
Provision for share issues 6 -
Repurchase of shares (74) -
Goodwill written off on acquisitions - (6)
Goodwill on disposals of businesses 34 52
Net movement in shareholders' funds 473 (22)
Shareholders' funds at beginning of the 4,629 6,771
period
Shareholders' funds at end of the period 5,102 6,749
6 Net borrowings
31 30 June 31
December 1998 December
1998 #m 1997
#m #m
Overdrafts and debt due within (3,909) (4,724) (3,060)
one year
Debt due after one year (2,850) (2,894) (2,989)
Net obligations under finance (43) (41) (33)
leases
(6,802) (7,659) (6,082)
Less: Cash at bank and in hand 1,385 2,503 1,593
Current asset 167 484 647
investments
Interest rate and 153 164 120
foreign currency swaps
Net borrowings (5,097) (4,508) (3,722)
7 Net cash inflow from operating activities
Six months Six
ended 31 months
December ended 31
1998 December
#m 1997
#m
Operating profit 901 891
Exceptional operating costs 198 294
Operating profit before exceptional items 1,099 1,185
Integration and restructuring payments (117) (61)
Agreement with LVMH - (250)
Merger transaction costs - (68)
Depreciation charge 159 162
Increase in working capital (393) (238)
Other items 5 (14)
Net cash inflow from operating activities 753 716
8 Repurchase of shares
In July 1998, 3 million B shares were redeemed at a cost of #15
million. On 1 August 1998, the company converted the remaining B
shares into 12 million ordinary shares at a price of 725 pence
per share. In October 1998, the company purchased, and
subsequently cancelled, 10.5 million ordinary shares at an
average price of 555 pence per share for an aggregate
consideration of #59 million.
9 Basis of preparation
The interim financial information has been prepared on the basis
of accounting policies consistent with those applied in the 1998
financial statements, except for the accounting policy changes
set out in the note below. The information is unaudited but has
been reviewed by the auditor, KPMG Audit Plc, and the review
report is set out below. The information does not comprise the
statutory accounts of the group. The statutory accounts of
Diageo plc for the 18 months ended 30 June 1998 have been filed
with the registrar of companies. KPMG Audit Plc and
PricewaterhouseCoopers, the previous joint auditors, have
reported on these accounts; their report was unqualified and did
not contain any statement under section 237 of the Companies Act
1985.
10 Accounting policy changes
The group has revised its accounting policies, where necessary,
to comply with the following Financial Reporting Standards issued
by the Accounting Standards Board.
FRS 10 - Goodwill and Intangible Assets and FRS 11 - Impairment
of Fixed Assets and Goodwill. FRS 10 requires that purchased
goodwill and intangible assets should be capitalised as assets on
the balance sheet. Where goodwill and intangible assets are
regarded as having limited useful economic lives, they should be
amortised over those lives. In other cases, they should not be
amortised but an annual impairment test, under the rules set out
in FRS 11, is required to demonstrate that the current market
value of the goodwill or intangible is not below its carrying
value. The standard does not require reinstatement of goodwill
previously eliminated against reserves and Diageo has not
reinstated such goodwill. Diageo's brands are regarded as having
indefinite useful economic lives and will be reviewed for
impairment at the end of each reporting period. Intangible
assets capitalised in the six month period amounted to #84
million.
FRS 12 - Provisions, Contingent Liabilities and Contingent
Assets. This standard requires that a provision should only be
recognised when there is a legal or constructive obligation
arising from past events, that it is probable that there will be
an outflow of benefits and that the amount can be reliably
estimated. A constructive obligation arises where other parties
have a valid expectation that an action will be carried out
because of past practice or sufficiently detailed public
statements. In addition, obligations should not be recognised
unless they exist independently of the entity's future actions.
FRS 12 also mandates that, where material, provisions should be
discounted to net present value and should not be net of any
anticipated recoveries or expected gains on asset sales.
Compliance with FRS 12 has not given rise to any restatement of
Diageo's consolidated balance sheets at 30 June 1998 or 31
December 1996.
FRS 14 - Earnings per Share. This requires entities to present
both basic and diluted earnings per share with equal prominence
on the face of the profit and loss account and also introduces
certain changes to the method by which earnings per share is
calculated. Compliance with FRS 14 has not changed the published
basic earnings per share figures for the six months ended 31
December 1997, the year ended 30 June 1998, or the 18 months
ended 30 June 1998.
REVIEW REPORT TO DIAGEO plc
We have reviewed the interim financial information for the six
months ended 31 December 1998 set out on pages 12 to 18 of this
interim statement which is the responsibility of, and has been
approved by, the directors. Our responsibility is to report on
the results of our review.
Our review was carried out having regard to the bulletin Review
of Interim Financial Information issued by the Auditing Practices
Board. The review consisted principally of applying analytical
procedures to the underlying financial data, assessing whether
accounting policies have been consistently applied, and making
enquiries of management responsible for financial and accounting
matters. The review was substantially less in scope than an
audit performed in accordance with Auditing Standards and
accordingly we do not express an audit opinion on the interim
financial information.
On the basis of our review:
* in our opinion the interim financial information has been
prepared using the accounting policies consistent with those
adopted by Diageo plc in its financial statements for the 18
months ended 30 June 1998, except as set out in note 10; and
* we are not aware of any material modifications that should be
made to the interim financial information as presented.
KPMG Audit Plc
Chartered Accountants
London, 10 March 1999
END
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