|
Half year results, six months
ended 31 December 2009
|
Improvement
in the second quarter resulted in organic net sales of -2% and organic operating
profit of -3% for the half. Close management of working capital drove
a substantial increase in free cash flow to £0.9 billion for the
half. Guidance maintained for low single digit organic operating
profit growth for the full year.
Results at a
glance
|
|
|
First
half
F’10
|
|
|
First
half1
F’09
|
|
|
Organic
movement
|
|
|
Reported
movement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
in millions of equivalent units
|
|
|
|
76.8 |
|
|
|
78.2 |
|
|
|
(2 |
%) |
|
|
(2 |
%) |
Net
sales
|
£
million
|
|
|
5,207 |
|
|
|
5,068 |
|
|
|
(2 |
%) |
|
|
3 |
% |
Operating
profit before exceptional items
Operating
profit
|
£
million
£
million
|
|
|
1,631
1,536 |
|
|
|
1,643
1,630 |
|
|
|
(3 |
%) |
|
|
(1%)
(6 |
%) |
Profit
attributable to parent company’s
equity
shareholders 2
|
£
million
|
|
|
1,016 |
|
|
|
1,133 |
|
|
|
|
|
|
|
(10 |
%) |
Basic eps 2
Eps
pre exceptionals and discontinued
operations
|
pence
pence
|
|
|
40.9
44.2 |
|
|
|
45.5
41.9 |
|
|
|
|
|
|
|
(10%)
5 |
% |
Free
cash flow
|
£
million
|
|
|
904 |
|
|
|
387 |
|
|
|
|
|
|
|
|
|
1 Restated
– see Note 1 on page 26 and additional information on page 38
2 For
six months ended 31 December 2009 reported tax rate 22.3% (six months ended 31
December 2008 14.9% and year ended
30
June 2009 14.4%. Restated – see Note 1 on page 26 and additional
information on page 38). Includes exceptional items.
Paul Walsh, Chief Executive
of Diageo, commenting on the six months ended 31 December 2009
said:
"As we
had anticipated this was a challenging six months. The economic and consumer
environment remained weak in many markets and we faced a difficult comparison
against Q1 last year yet the second quarter did show a return to growth. In
addition we reduced stock levels in all regions. While this had a
negative impact on volume growth in the half, it positions us appropriately for
the future. While pricing opportunities have been limited and the performance of
our standard priced brands has been stronger than that of our premium priced
brands, our diversity, through category and brand range and our wide geographic
reach, means that overall price/mix has been maintained.
“Our
category leading brands, the consistency and scale of our marketing investment,
successful innovation and our industry leading sales capabilities have led to
share gains for Diageo’s priority brands in key markets.
“We are
in the early stages of recovery with more encouraging signs in the emerging and
developing markets. However, in a difficult environment this half we
have continued to improve the efficiency of our functions, reduced our cost
base, strengthened our relationships with our customers and generated
significant free cash flow which has again enhanced our financial
strength. Focused marketing spend by category and geography continues
to build our brand equities.
“We are
maintaining our guidance for low single digit organic operating profit growth
for the full year. At a time when future economic and consumer trends
continue to be difficult to forecast, the steps we have taken have created a
stronger business which will position the company well.”
Financial
highlights
·
|
Marketing
investment reduced 5% primarily as a result of the reduction in spend in
Europe
|
·
|
Associate
income was £94 million, down £26 million from the prior
period
|
·
|
Exceptional
operating costs were £95 million
|
·
|
Finance
charges were £237 million. Net interest was £197 million. Net other
finance charges were £40 million including £25 million in respect of post
employment plans
|
·
|
Interim
dividend per share increased by 5% to 14.60
pence
|
Unless
otherwise stated in this announcement: volume is in millions of equivalent
units; net sales are sales after deducting excise duties; percentage movements
are organic movements; commentary refers to organic movements and share refers
to value share. The classification of brands as ‘local priority
brands’ and ‘category brands’ has been discontinued for reporting purposes. Data
relating to the performance of these brands in the six months ended 31 December
2009 is given as an appendix to the interim results presentation. For
subsequent reporting periods no performance data using this classification will
be provided in interim or preliminary results announcements. See page 35 for
additional information for shareholders and an explanation of non-GAAP measures
including the reconciliation of basic eps to eps pre-exceptionals and
discontinued operations and to underlying eps.
Regional
summary
North
America – Lower shipment levels in US spirits impacted overall performance in
the half
·
|
Marketing
spend down 5%
|
·
|
Operating
profit down 2%
|
The
economic environment and consumer confidence in North America remained
weak. Growth of the beverage alcohol market has slowed with volume
growth estimated to be no greater than 1% and value flat in the half. Results
were mixed regionally and there was a continued decline in the
on-trade. Diageo spirits brands faced a difficult comparison against
the comparable period when stock levels increased. However, Diageo
gained volume share and although value share was down overall, it was maintained
on the priority brands and Diageo continued to outperform most of its major
competitors. Facing softer comparisons due to the planned de-stock
which was undertaken in fiscal 2009, Diageo’s beer brands grew volume and net
sales and gained 0.2 percentage points of share. Wine volume grew due
to a strong performance from Sterling Vineyards but net sales declined due to
increased promotional activity and innovations focused on price points at $10
and below.
Europe
– Performance reflected difficult economic conditions in key
markets
·
|
Marketing
spend down 14%
|
·
|
Operating
profit down 3%
|
Performance
in Europe varied by market. There are, as yet, no signs of an overall
improvement in economic conditions but Diageo’s performance did improve in
December in some markets as a result of share gains. Volume and net sales grew
in Great Britain as a result of strong sales execution, particularly during the
Christmas campaign in the off-trade. Volume and net sales also grew in Southern
Europe led by Greece and Turkey, and volume grew in Russia, where focus was
increased on those Diageo brands and formats most relevant for the
value-conscious consumer. Net sales declined in Spain and Ireland, reflecting
the continued slowdown of the industry, particularly in the on-trade. Guinness
remained resilient and delivered share gains in both Great Britain and Ireland.
Overall price/mix was negative due to increased promotional activity on spirits
in the off-trade channel and as consumers traded down from super premium and
premium into lower priced segments. The continued consumer shift from on-trade
to off-trade accelerated in many markets during the period. Marketing spend was
reduced as investment was focused behind fewer brands and campaigns. Media rate
deflation and procurement efficiencies continued through the
period.
International
– Region once again delivered good top and bottom line growth
·
|
Operating
profit up 16%
|
Volume
and net sales increased in International as a result of strong performances in
both the beer and scotch categories. In Africa beer net sales grew
strongly. Guinness net sales were up in all key markets across Africa
with the exception of Cameroon. Harp net sales doubled in
Nigeria and Tusker continued to grow very strongly in East
Africa. Scotch net sales grew as a result of growth in net sales of
Johnnie Walker and Old Parr in Latin America and the return to growth of Johnnie
Walker in Global Travel and Middle East. Marketing spend increased 9% focusing
on core brand and market opportunities, in particular the “250th
Celebration” of Guinness in Africa, and on Johnnie Walker in Global Travel and
Middle East.
Asia
Pacific - Improving consumer trends as regional economies recovered although
some de-stocking continued to impact performance
·
|
Marketing
spend down 2%
|
Performance
in Asia Pacific showed an improving trend but was impacted by the comparison to
inappropriately high shipments in India in the prior year and by pockets of
continued de-stocking in China and Korea. Australia, the largest market in the
region, returned to net sales growth. South East Asia also delivered a very
strong performance led by Johnnie Walker and Guinness. Increased investment
behind the “250th
Celebration” campaign together with price increases led to double-digit net
sales growth of Guinness. Marketing spend as a percentage of net sales remained
in line with the same period last year. Spend was reduced in India
and also in China where the later timing this year of the Shanghai Grand Prix
and Chinese New Year means that marketing activities for these two key events
will be in the second half. Investment was stepped up behind key brands in
Australia, Korea and South East Asia.
Key brand
performance
|
|
Volume
movement*
%
|
|
|
Organic
net
sales
movement
%
|
|
|
Reported
net
sales
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
(1 |
) |
Other
brands
|
|
|
- |
|
|
|
2 |
|
|
|
7 |
|
Total
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands**:
|
|
|
|
|
|
|
|
|
|
|
|
|
Smirnoff
|
|
|
(5 |
) |
|
|
(8 |
) |
|
|
(4 |
) |
Johnnie
Walker
|
|
|
3 |
|
|
|
(3 |
) |
|
|
4 |
|
Captain
Morgan
|
|
|
- |
|
|
|
(2 |
) |
|
|
1 |
|
Baileys
|
|
|
(8 |
) |
|
|
(11 |
) |
|
|
(7 |
) |
JεB
|
|
|
(12 |
) |
|
|
(14 |
) |
|
|
(7 |
) |
Jose
Cuervo
|
|
|
(11 |
) |
|
|
(14 |
) |
|
|
(12 |
) |
Tanqueray
|
|
|
(3 |
) |
|
|
(5 |
) |
|
|
(2 |
) |
Guinness
|
|
|
(2 |
) |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Reported
and organic volume movements were the same for all brands in all
regions
** Spirits
brands excluding ready to drink
Smirnoff:
Negative price/mix resulted from discounting in the vodka category in key
markets as competition in the premium vodka segment increased and Smirnoff
responded to increase share and display. Stock reductions in the United States
drove overall volume decline. Outside the United States, underlying
trends improved with volume growth in Great Britain and in smaller Asian and
European markets.
Johnnie
Walker: A return to volume growth of 3% was driven by economic improvement and
share gains in some Latin American and Asian markets. Increased marketing
investment led to net sales growth and share gains in many established markets
such as Greece, Global Travel and Mexico. Negative price/mix of 6 percentage
points resulted from consumers trading down from super deluxe variants together
with an increase in price promotional activity, in particular in Global Travel
and key standard scotch markets such as Brazil and South East Asia.
Captain
Morgan: Predominantly a North American brand, volume and net sales declined in
North America by 4% and 5% respectively as a result of lower shipments and
increased discounting in the category. Outside of the United States the brand’s
development continued, growing net sales 17% led by Northern Europe, Ireland,
Great Britain and Global Travel.
Baileys:
The global economic recession continued to impact the brand significantly as
consumers viewed liqueurs as a luxury purchase. By market, the primary drivers
of the net sales decline were North America, where the category has been one of
the most impacted, Eastern Europe and Russia.
JεB: In Spain JεB gained 0.4
percentage points of share in the on-trade and lost share in the off-trade
mainly to lower priced value brands and own label. The weakness of
the scotch category in Spain was the main cause of the decline in JεB.
Jose
Cuervo: Predominantly a North American brand, volume was affected by aggressive
pricing by competitors and softness in the on-trade which also led to negative
price mix. Innovation, in particular Especial Silver, which was introduced in
February 2009, continued to perform well.
Tanqueray:
Volume and net sales growth in Great Britain offset declines in International,
but performance was driven by decline in North America. Mix shift
from super premium Tanqueray Ten and increased competition in the premium
segment drove the negative price/mix.
Guinness:
The brand remained resilient with net sales growth and positive price/mix. Share
and brand equity improvements in Great Britain and Ireland were particular
highlights as was the 21% net sales growth in South East Asia. Africa continued
to grow net sales, up 3% in the period.
Category
summary
|
|
Volume
movement
%
|
|
|
Organic
net
sales
movement
%
|
|
|
Reported
net
sales
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
Spirits
|
|
|
(3 |
) |
|
|
(4 |
) |
|
|
2 |
|
Beer
|
|
|
2 |
|
|
|
5 |
|
|
|
4 |
|
Wine
|
|
|
11 |
|
|
|
3 |
|
|
|
7 |
|
Ready
to drink
|
|
|
(5 |
) |
|
|
- |
|
|
|
8 |
|
Total
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spirits:
Vodka net sales declined 7% due to increased discounting and lower volume in
North America. Total volume of scotch remained flat versus prior year while 1
percentage point of negative price/mix was driven by consumer down-trading and
increased price promotions on standard scotch. Rum, with net sales up 2%, was
the strongest category in spirits in the first half driven by Cacique in
Venezuela and Zacapa.
Beer: The
strong performance of Diageo's beer brands in Africa was the key driver of the
overall performance with Harp in Nigeria and Tusker in Kenya being particular
highlights. There was continued growth in Asia Pacific, net sales up 7%, and
growth returned to North America, net sales up 6%, following the planned
de-stock last year. In Europe, beer net sales declined by 4%
primarily due to a slowdown of the category in Ireland. Guinness grew share in
both Ireland and Great Britain.
Wine:
Growth of lower price points in North America led to volume growth of 6% but net
sales decline of 3%. Great Britain again performed strongly with
volume up 22% and net sales up 26% driven by strong sales in the off-trade
channel.
Ready to
drink: Weakness in the segment continued in North America and Europe, while
International showed strong growth with net sales up 10%. Asia
Pacific has returned to growth with net sales up 3%, led by the segment
stabilising in Australia.
Exchange rate movements for
year ending 30 June 2010
For the
year ending 30 June 2010 applying current exchange rates for the balance of the
year (US$/£1.64, €/£1.13), foreign exchange movements (excluding the exchange
impacts of IAS 21 and IAS 39) are estimated to increase operating profit by £75
million and decrease the net interest charge by £5 million.
Management
reports
The
interim report for the six months ended 31 December 2009 comprises the
Half-Yearly Financial Report that Diageo is required to publish under the
Disclosure and Transparency Rules of the UK’s Financial Services Authority.
Diageo will issue its next interim management statement on 6 May 2010. The year
end preliminary results announcement will be issued on 26 August
2010.
BUSINESS
REVIEW
For
the six months ended 31 December 2009
1. OPERATING
REVIEW
Comparative
financial information for the six months ended 31 December 2008 has been
restated as a result of changes in accounting standards and a change in the
group’s accounting policy for returnables (see Note 1 on page 26 and additional
information on page 38). The following table summarises the impact of
the restatement on marketing spend and operating profit before exceptional items
by region for the six months ended 31 December 2008:
|
|
Marketing
spend |
|
|
Operating
profit |
|
|
|
As
previously
reported
|
|
|
Restated
|
|
|
As
previously
reported
|
|
|
Restated
|
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
237 |
|
|
|
235 |
|
|
|
682 |
|
|
|
670 |
|
Europe
|
|
|
248 |
|
|
|
256 |
|
|
|
547 |
|
|
|
529 |
|
International
|
|
|
135 |
|
|
|
135 |
|
|
|
420 |
|
|
|
412 |
|
Asia
Pacific |
|
|
112 |
|
|
|
109 |
|
|
|
93 |
|
|
|
91 |
|
Corporate
|
|
|
- |
|
|
|
- |
|
|
|
(93 |
) |
|
|
(59 |
) |
|
|
|
732 |
|
|
|
735 |
|
|
|
1,649 |
|
|
|
1,643 |
|
North
America
Summary:
·
|
The
decision to reduce US spirits shipments strengthened the long term
business outlook but negatively impacted performance in the
half
|
·
|
Focus
remained on priority brands in US spirits and Diageo was the only one of
the full line spirits companies to grow retail sales in the
period
|
·
|
Diageo’s
beer brands outpaced the imported beer segment and gained 0.2 percentage
points of share
|
·
|
Innovation
and growth in Sterling Vineyards at the $7+ per bottle wine range drove
0.2 percentage points of share gain
|
·
|
Canada
net sales declined 7% impacted by economic softness, de-stocking and
consumer down-trading
|
·
|
Continued
media deflation and realised efficiencies reduced marketing spend but
focus was maintained on priority
brands
|
Key
measures:
|
|
First
half
F’10
|
|
|
First
half
F’09
|
|
|
Organic
movement
|
|
|
Reported
movement
|
|
|
|
£
million
|
|
|
£
million
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
27.6 |
|
|
|
28.9 |
|
|
|
(4 |
) |
|
|
(4 |
) |
Net
sales
|
|
|
1,695 |
|
|
|
1,755 |
|
|
|
(6 |
) |
|
|
(3 |
) |
Marketing
spend
|
|
|
228 |
|
|
|
235 |
|
|
|
(5 |
) |
|
|
(3 |
) |
Operating
profit before exceptional items
|
|
|
667 |
|
|
|
670 |
|
|
|
(2 |
) |
|
|
- |
|
Operating
profit
|
|
|
661 |
|
|
|
670 |
|
|
|
(2 |
) |
|
|
(1 |
) |
Reported
performance:
Net sales
decreased by £60 million in the six months ended 31 December 2009 to £1,695
million, from £1,755 million in the comparable prior period. Reported operating
profit before exceptional items decreased by £3 million in the six months ended
31 December 2009 to £667 million, from £670 million in the comparable prior
period.
Organic
performance:
Exchange
rate impacts increased net sales by £34 million, acquisitions and disposals
increased net sales by £9 million and there was an organic decrease in net sales
of £103 million. Exchange rate impacts increased operating profit by £13
million, acquisitions and disposals reduced operating profit by £5 million and
there was an organic decrease in operating profit of £11 million.
Brand
performance:
|
|
Volume
movement
|
|
|
Organic
net
sales
movement
|
|
|
Reported
net
sales
movement
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands
|
|
|
(6 |
) |
|
|
(8 |
) |
|
|
(6 |
) |
Other
brands
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
Total
|
|
|
(4 |
) |
|
|
(6 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
spirits brands*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Smirnoff
|
|
|
(5 |
) |
|
|
(10 |
) |
|
|
(8 |
) |
Johnnie
Walker
|
|
|
- |
|
|
|
(2 |
) |
|
|
- |
|
Captain
Morgan
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
(3 |
) |
Baileys
|
|
|
(15 |
) |
|
|
(18 |
) |
|
|
(15 |
) |
Jose
Cuervo
|
|
|
(13 |
) |
|
|
(16 |
) |
|
|
(15 |
) |
Tanqueray
|
|
|
(5 |
) |
|
|
(8 |
) |
|
|
(7 |
) |
Crown
Royal
|
|
|
(7 |
) |
|
|
(8 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guinness
|
|
|
4 |
|
|
|
5 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready
to drink
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
- |
|
* Spirits
brands excluding ready to drink
Diageo
North America faced a difficult comparison in the period against the increase in
stock levels in the first half of fiscal 2009. A generally weak
consumer trading environment in the first quarter, followed by a disappointing
Thanksgiving, led to a reduction of planned shipments in
December. However, consumer off-take over the Christmas period proved
to be stronger than anticipated and therefore stocks held at distributors ended
the half below last year’s levels. In spirits, consumers continued to trade down
from the super and ultra premium segments to lower price segments; however the
premium segment, where Diageo is best represented, has proved the most resilient
and gained share of the overall spirits category. There has also been
a shift in purchasing patterns to large-package and discount retail stores as
consumers seek more value for their money. Despite increased levels
of discounted sales in the market, Diageo’s brands continued to sell at a price
premium.
The
premium vodka segment in the United States is one of the most competitive and
has seen a number of low volume fast growing entrants in the past
year. Despite performing well in consumer off take, Smirnoff volume
decreased due to the reduction of shipments against the prior
period. Smirnoff remained the leading vodka in the premium segment
and the launch of the new advertising campaign “BE THERE” is driving awareness
among consumers. Price reductions and discounting increased during
the period in response to changing consumer trends and the number of new
entrants into the segment. Innovation with new flavours, pear and
pineapple following pomegranate and melon, revitalised the Flavours line, which
performed ahead of Smirnoff Red.
Increased
brand awareness activity, including advertising, PR and digital marketing in
core markets maintained Johnnie Walker volume in a declining scotch
category. Net sales decreased as Johnnie Walker Red Label grew faster
than the higher priced variants. Targeted marketing around the holidays and the
100th
anniversary of Johnnie Walker Black Label helped Johnnie Walker outperform the
competition and it gained 1.3 percentage points of share.
Overall
Captain Morgan volume declined due to lower shipment levels against the prior
period. Although net sales declined, Captain Morgan Original Spiced
Rum grew 0.8 percentage points of share. In comparison, Captain
Morgan grew net sales in Canada and gained 1.4 percentage points of
share. It has become the third fastest growing spirit in
Canada.
The
liqueurs category has been one of the hardest hit in the current economic
recession, down in both value and volume due to the consumer perception that it
is a luxury purchase. As the top brand in the category, Baileys’
performance was also impacted by consumers trading down to value brands, an
increase in the price differential between Baileys and its nearest competitors
and high stock levels due to the launch of Baileys with a hint of coffee in
September 2008.
The
tequila category has become even more competitive in the economic
downturn. Jose Cuervo volume and net sales declined with pricing
pressure from 100% agave entrants in the less than $20 per bottle price range
and heavy discounting from its leading competitor. Although Jose
Cuervo lost share overall in the United States, Especial, its leading variant,
gained 1.6 percentage points of share. Jose Cuervo remains the
leading tequila brand in North America.
Although
the overall gin segment grew, the imported gin segment continued to decline
giving way to domestic gins and new entrants. Tanqueray lost volume and net
sales as consumers shifted to lower priced domestic alternatives.
Lower net
sales of Crown Royal resulted from lower shipments and segment weakness as
consumers traded down to lower priced alternatives. Crown Royal
gained 0.5 percentage points of share and outperformed all its major competitors
in the period. The more premium variants of the brand, Crown Royal Extra Rare
and Crown Royal Cask 16, gained volume, albeit off a small base, as prices were
reduced to align them more closely to their competitive set.
Guinness
was a stand out amongst Diageo’s beer brands and the imported beer segment,
which continued to decline. Guinness volume increased driven by
incremental volume from the new 250th
Anniversary Stout, good performance from Guinness Extra Stout and Guinness Kegs
and lapping the planned de-stock from the prior year. Net sales
increased ahead of volume due to favourable mix and carryover pricing from the
prior year.
In other
brand performance, Ketel One vodka volume declined 10% as it lapped a
significant increase in shipments in the prior year when Diageo became the
brand’s exclusive distributor in the United States and inventory levels
increased to meet the Diageo distribution footprint. Ketel One vodka
net sales decreased by 6% as price increases were taken in the
period. Ketel One vodka outperformed the number one and number two
super premium vodkas in the United States. Cîroc grew volume 10% and net sales
12% in a declining ultra premium vodka segment as a result of continued
investment in the brand together with innovation. Bulleit Bourbon has
also performed well albeit from a small base growing volume 34% and net sales
36%.
Although
the beer category has declined in both volume and value, Diageo gained 0.2
percentage points of share in the imported beer segment. Following the planned
de-stock of the prior year, Diageo’s beer brands grew both volume and net sales
6%.
Diageo’s
wine performance outpaced the industry gaining 0.2 percentage points of
share. Diageo wines grew volume 6% due to the strong performance of
Sterling Vintner’s Collection and new entrants focused on price points at $10
per bottle and below. The strength of these brands along with the
continued trading down by the consumer led to a 3% net sales
decline. Within Diageo’s many wine brands, a consumer shift toward
white wines rather than higher margin red varietals added to this adverse
price/mix.
The ready
to drink segment continued to decline and net sales of Diageo's ready to drink
brands were down 5%. Spirits-based ready to serve variants declined
due to de-stocking and increased competition in the margarita segment.
Malt-based ready to drink variants experienced a slight lift due to lapping the
prior year de-stock.
Marketing
spend year on year declined as media deflation together with efficiencies came
through. Diageo has maintained focus on its priority brands and
marketing campaigns continued to improve key brand equities. In US
spirits, share of voice increased 1 percentage point.
Volume
performance in Canada, down 3%, was impacted by economic softness particularly
in Ontario and Alberta, consumer down-trading and the Liquor Control Board's
de-stocking. Net sales declined 7% due to unfavourable mix as volume
shifted from spirits to beer and wine. Beer and wine grew due to the
strong performance of Red Stripe, Harp, Beaulieu Vineyards and Sterling
Vineyards. Ready to drink declined due to softness in the
spirits-based ready to serve segment.
Europe
Summary:
·
|
Share
gains in key markets and on key brands were not enough to offset continued
industry declines in Ireland, Spain and Eastern Europe and net sales
declined 5%
|
·
|
Strong
performance in Great Britain, volume up 6% and net sales up 5%. Increased
share across total spirits, beer and
wine
|
·
|
Guinness
again grew share of beer in Ireland and Great
Britain
|
·
|
In
Spain, overall industry decline and a consumer shift from the on-trade to
the off-trade led to a net sales decline of
11%
|
·
|
Brand
range was expanded and smaller bottle sizes introduced in Russia to
capture new volume growth opportunities as consumers traded down to lower
price points
|
·
|
The
economic environment in Eastern Europe continued to be very challenging
leading to consumer down-trading and further stock reductions with
customers
|
·
|
Southern
Europe delivered net sales growth in the first half, led by Greece and
Turkey
|
Key
measures:
|
|
First
half
F’10
|
|
|
First
half
F’09
|
|
|
Organic
movement
|
|
|
Reported
movement
|
|
|
|
£
million
|
|
|
£
million
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
22.0 |
|
|
|
22.5 |
|
|
|
(2 |
) |
|
|
(2 |
) |
Net
sales
|
|
|
1,547 |
|
|
|
1,560 |
|
|
|
(5 |
) |
|
|
(1 |
) |
Marketing
spend
|
|
|
229 |
|
|
|
256 |
|
|
|
(14 |
) |
|
|
(11 |
) |
Operating
profit before exceptional items
|
|
|
528 |
|
|
|
529 |
|
|
|
(3 |
) |
|
|
- |
|
Operating
profit
|
|
|
522 |
|
|
|
529 |
|
|
|
(3 |
) |
|
|
(1 |
) |
Reported
performance:
Net sales
decreased by £13 million in the six months ended 31 December 2009 to £1,547
million, from £1,560 million in the comparable prior period. Reported operating
profit before exceptional items decreased by £1 million in the six months ended
31 December 2009 to £528 million, from £529 million in the comparable prior
period.
Organic
performance:
Exchange
rate impacts increased net sales by £61 million, acquisitions increased net
sales by £5 million and there was an organic decrease in net sales of £79
million. Exchange rate impacts increased operating profit by £17 million and
there was an organic decrease in operating profit of £18
million.
Brand
performance:
|
|
Volume
movement
|
|
|
Organic
net
sales
movement
|
|
|
Reported
net
sales
movement
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands
|
|
|
(5 |
) |
|
|
(7 |
) |
|
|
(4 |
) |
Other
brands
|
|
|
4 |
|
|
|
(1 |
) |
|
|
4 |
|
Total
|
|
|
(2 |
) |
|
|
(5 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
spirits brands*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Smirnoff
|
|
|
(5 |
) |
|
|
(9 |
) |
|
|
(7 |
) |
Johnnie
Walker
|
|
|
(10 |
) |
|
|
(12 |
) |
|
|
(10 |
) |
Baileys
|
|
|
(2 |
) |
|
|
(7 |
) |
|
|
(4 |
) |
JεB
|
|
|
(12 |
) |
|
|
(14 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guinness
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready
to drink
|
|
|
(12 |
) |
|
|
(6 |
) |
|
|
(4 |
) |
* Spirits
brands excluding ready to drink
In Great
Britain volume grew 6%, net sales grew 5% and share gains were delivered across
spirits, beer and wine. This was a result of a successful Christmas campaign on
spirits and strong performances from Guinness and wine, particularly Blossom
Hill. Price/mix was negative, reflecting a higher proportion of spirits sold on
promotion in the off-trade, partly offset by the positive impact of price
increases on Guinness and Blossom Hill. Marketing spend was focused behind key
programmes and brands, in particular the “BE THERE” campaign on Smirnoff and the
“250th
Celebration” campaign on Guinness.
The
economic weakness in Ireland and a reduction in customer spending continued to
impact the alcohol industry with sales down 10%. The key Republic of Ireland
on-trade channel declined at the higher rate of 14%. Diageo volume and net sales
declined 9% but share increased in the on-trade in both beer and spirits. The
successful “250th
Celebration” campaign on Guinness, culminating in “Arthur’s Day” on 24
September, led to significant brand equity improvements and share gains
in both the on-trade and the off-trade for the brand. The agency lager brands,
Budweiser and Carlsberg, declined broadly in line with the total market while
both Smithwick’s and Harp grew share due to a successful new brand positioning
strategy for Smithwick’s and the launch of Harp Ice Cold.
The
challenging macro-economic environment continued to shape Diageo’s performance
in Iberia with reduced on-trade consumption and down-trading to value brands in
the off-trade. In Spain this resulted in an overall 6% decline in the
spirits industry, a decline of 11% in the on-trade and a tough pricing
environment. Diageo volume declined 11% and net sales 12% reflecting
the market decline in Spain and a planned trade de-stock in
Portugal. The launch of a range of ready to serve cocktails, in
particular the Cacique Mojito, into the Spanish off-trade has proved very
successful in enabling consumers to replicate an on-trade cocktail experience at
home.
Developing
markets in Europe continued to experience very difficult trading conditions. In
Russia, although Diageo increased its share of whisky, overall net sales
declined 11% as consumers traded down from higher priced products such as
Johnnie Walker into value and standard brands such as Smirnov vodka, Bell’s and
White Horse. In Eastern Europe, shipments lagged behind depletions as
wholesalers and distributors continued to reduce their inventories and net sales
declined 32%, as consumer confidence remained very weak. The exception to this
was Poland, Diageo’s largest market within Eastern Europe, where double-digit
depletions growth of Johnnie Walker led to strong share gains within the growing
whisky category, although net sales declined in the period due to
de-stocking.
Smirnoff
volume declined 5% and net sales 9% due to market weakness in Ireland and Iberia
and distributor de-stocking in Eastern Europe. The vodka category remained
fiercely competitive, particularly in the off-trade. Negative price/mix on the
brand reflected a larger proportion of volume being sold on promotion and
negative variant mix as Smirnoff Black declined at a higher rate than Smirnoff
Red. In Great Britain, the brand’s largest market in Europe, Smirnoff Red grew
share. Brand equity scores were boosted further by the heavy media investment
behind the “BE THERE” campaign including a new television commercial over the
Christmas period.
Johnnie
Walker volume declined 10% and net sales 12%, driven by trading down and
de-stocking in Russia and Eastern Europe. In Greece and Spain, the two largest
and most established Johnnie Walker markets in Europe, the launch of new
television and Grand Prix campaigns drove net sales growth of 12% and 1%
respectively.
Baileys
volume declined 2% and net sales 7%, mainly driven by Russia and Eastern Europe
where consumers perceived the liqueur category as a luxury purchase. The
Christmas marketing on the brand comprised two separate activities: the launch
of a new flavour, Baileys with a hint of coffee, and the “Baileys Bows” campaign
where a presentation bow was added to bottles of Baileys across the region
turning the brand into an instant gift and generating higher visibility in
store. Baileys grew share in the off-trade during this key selling period in its
two largest markets of Great Britain and Spain.
JεB
volume declined 12% and net sales 14% reflecting mainly the on-trade channel
decline in Spain and further de-stocking in Portugal and Romania.
Guinness
volume across the region declined 3% and net sales 1%, a good performance in a
tough trading environment. In the largest markets of Ireland and Great Britain,
the brand increased share in the on-trade and off-trade and brand equity scores
were significantly increased as a result of the marketing campaigns “Bring it to
Life” and “250th
Celebration”. In Great Britain, Guinness grew net sales 3% and achieved its
highest ever share of beer in the on-trade at 7.6%. Packaged Guinness grew
particularly strongly following the development of new packaging and the launch
of promotional packs around key events.
Ready to
drink volume declined 12% and net sales 6%. The 6 percentage points of positive
price/mix was mainly due to an ABV reduction on Smirnoff Ice in Great Britain
from 4.5% to 4.0% in February 2009. In Great Britain, while the on-trade
remained in decline, the off-trade showed some growth due in part to the smaller
pre-mix and ready to serve cocktail segments where Diageo is well placed to
capture growth through Smirnoff and Schweppes Tonic and Morgan’s Spiced and
Cola.
Marketing
spend was reduced by 14%, reflecting the adverse trading environment in Iberia,
Ireland and Eastern Europe. In Ireland and Iberia, spend was focused behind
fewer brands while in Eastern Europe there was a reduction and re-prioritisation
of spend from above the line media activity to in-store commercial
drivers.
International
Summary:
·
|
Strong
performance of beer brands in Africa and scotch in Latin America and
Global Travel and Middle East
|
·
|
Guinness,
Malta Guinness, Harp and Tusker drove net sales growth in
Africa
|
·
|
An
increase in promotional activity and selective price reductions delivered
strong net sales growth of Johnnie Walker in Latin America and Global
Travel and Middle East
|
·
|
Increased
marketing spend on beer in Africa and rum in Latin America led to a 9%
increase across the region
|
Key
measures:
|
|
First
half
F’10
£
million
|
|
|
First
half
F’09
£
million
|
|
|
Organic
movement
%
|
|
|
Reported
movement
%
|
|
Volume
|
|
|
20.8 |
|
|
|
20.3 |
|
|
|
2 |
|
|
|
2 |
|
Net
sales
|
|
|
1,402 |
|
|
|
1,237 |
|
|
|
8 |
|
|
|
13 |
|
Marketing
spend
|
|
|
150 |
|
|
|
135 |
|
|
|
9 |
|
|
|
11 |
|
Operating
profit before exceptional items
|
|
|
460
|
|
|
|
412
|
|
|
|
16
|
|
|
|
12
|
|
Operating
profit
|
|
|
457
|
|
|
|
412
|
|
|
|
16
|
|
|
|
11
|
|
Reported
performance:
Net sales
increased by £165 million in the six months ended 31 December 2009 to £1,402
million, from £1,237 million in the comparable prior period. Reported operating
profit before exceptional items increased by £48 million in the six months ended
31 December 2009 to £460 million, from £412 million in the comparable prior
period.
Organic
performance:
Exchange
rate impacts increased net sales by £58 million and there was an organic
increase in net sales of £107 million. Exchange rate impacts decreased operating
profit by £15 million and there was an organic increase in operating profit of
£63 million.
Brand
performance:
|
|
Volume
movement
|
|
|
Organic
net
sales
movement
|
|
|
Reported
net
sales
movement
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands
|
|
|
1 |
|
|
|
3 |
|
|
|
7 |
|
Other
brands
|
|
|
2 |
|
|
|
14 |
|
|
|
20 |
|
Total
|
|
|
2 |
|
|
|
8 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
spirits brands*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Johnnie
Walker
|
|
|
12 |
|
|
|
6 |
|
|
|
18 |
|
Smirnoff
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
11 |
|
Baileys
|
|
|
(10 |
) |
|
|
(9 |
) |
|
|
(2 |
) |
Buchanan’s
|
|
|
(9 |
) |
|
|
- |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guinness
|
|
|
(3 |
) |
|
|
2 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready
to drink
|
|
|
(7 |
) |
|
|
10 |
|
|
|
17 |
|
* Spirits
brands excluding ready to drink
With the
exception of South Africa, the relatively low inter-dependence of many African
markets with western economies insulated the continent somewhat from the global
downturn. However, the continent faces specific challenges, for
example the East African economy was severely impacted by drought in the half.
Volume was down 2% in Africa as a result of a decline in Senator and low value
local spirits. Net sales grew 8% driven by Harp and Malta Guinness in
Nigeria, Guinness and Tusker in East Africa and Guinness, Alvaro and Malta
Guinness in Ghana.
Net sales
in Nigeria grew 21% with very strong growth of Harp and Malta
Guinness. Focus on improved visibility, reduced stock outs and
increased distribution led to significant growth of Harp and net sales doubled.
Malta Guinness grew net sales 42% following the re-launch last
year. A price increase on Guinness last year reduced volume 6% but
drove positive price/mix of 7%. Smirnoff Ice also performed well increasing net
sales by over 70% albeit from a moderate base.
The
severe drought impacted the performance of East Africa and volume declined 11%.
As incomes fell, consumers traded out into illicit brews and this impacted
Senator volume which declined 13%. Duty increases on local spirits significantly
impacted volume of value spirits in the half. Net sales grew 4% as double-digit
growth of both Guinness and Tusker more than offset the volume decline of value
spirits.
South
Africa was impacted by the economic downturn and net sales declined
2%. The scotch category was most affected as consumers switched from
Johnnie Walker and Bell’s into secondary scotch brands Black and White and White
Horse. In spite of the net sales decline Diageo scotch brands gained 0.9
percentage points of volume share in the half. The decline in scotch was only
partially offset by Smirnoff which outperformed white spirits trends to grow net
sales 15% supported by a combination of strong consumer marketing and trade
support.
Volume in
Ghana declined 5%, however price increases taken in April and November 2009
drove net sales growth of 16%. The brands driving this performance
were Guinness up 19% and strong double-digit net sales growth of non-alcoholic
beverage brands Malta Guinness and Alvaro.
The
impact of the global recession on Latin America was muted and volume and net
sales grew 4% and 10% respectively with share gains in Brazil and
Mexico. Much of the price/mix improvement was delivered by price
increases in Venezuela, strong volume growth and price increases in Mexico and
strong volume growth in Brazil, following a price realignment.
In
Venezuela the economic downturn, lower oil revenues and inflation reduced
disposable income and volume declined 3%. Price increases were
implemented following increases in cost of goods. Net sales grew
17% with double-digit growth in scotch, rum and ready to drink. Scotch
volume declined 11% but positive price/mix on Old Parr, Buchanan's and
Chequers delivered net sales growth of 12%. Cacique volume grew 11% as
consumers switched into the more affordable local rum category and positive
price/mix on the brand was achieved through inflation driven price increases,
share gains and trade-up within the category to increase net sales by
half. Locally produced Smirnoff Ice volume declined by 11% due to
interruptions in material supply however inflation driven price
increases, supported by trade visibility and event
sponsorship, delivered net sales growth of 28%.
In a very
competitive Mexican market, net sales grew over 30%. Increased
Johnnie Walker advertising behind the “Strides” campaign and “Join the Pact”
delivered the highest brand awareness scores ever recorded for the brand in
Mexico. Johnnie Walker Black Label and Johnnie Walker Red Label each posted
double-digit net sales increases and volume share gains of 1.8 percentage points
and 1 percentage point respectively. Volume growth and the impact of
price increases last year fuelled the Buchanan’s net sales increase of 30% in
spite of increased discounts during the festive season in the face of aggressive
competitor activity.
In
Brazil, the spirits category declined. Following a price
repositioning for key brands, volume grew 14% and net sales grew 5% and the
price reduction drove 8 percentage points of volume share gain in
scotch. Johnnie Walker grew net sales 6%, whilst Johnnie Walker super
deluxe volume was down. Old Parr and Black and White also delivered strong net
sales growth in the market. Smirnoff vodka volume was flat and net sales were
down 13% following a price reduction. Net sales of Smirnoff ready to drink grew
15% following price increases in fiscal 2009.
In Global
Travel and Middle East, volume increased 8% and net sales 4% against a backdrop
of continued slowdown in the global economy. In the last quarter of calendar
2009, passenger numbers began to turn around, but the travel retail environment
remained fiercely competitive. Johnnie Walker delivered the strongest
performance with 10% net sales growth after strong centenary promotional
activity for Johnnie Walker Black Label. This offset declines in
Smirnoff and Baileys. Zacapa rum was also a very strong performer
within travel retail following increased listings, improved visibility and
consumer sampling.
Johnnie
Walker grew net sales 6% in International with Latin America up 8% following
strong marketing campaigns and 10% growth in Global Travel and Middle East as a
result of successful Johnnie Walker Black Label promotions. Following active
participation in more promotional programmes across the region and a price
reduction in Brazil there was negative price/mix.
The key
vodka markets in the region were impacted by the economic downturn. Total
Smirnoff volume declined 2% and net sales 1%. The brand grew volume 2% in South
Africa and a price increase in February 2009 delivered 13 percentage points of
positive price/mix. A price reduction in Brazil increased volume
share but reduced net sales. Smirnoff net sales declined 8% in Global Travel and
Middle East as promotional intensity increased.
Volume
and net sales of Baileys were down 10% and 9% respectively. In Latin
America net sales growth in Venezuela and Mexico was offset by declines
elsewhere in Latin America whilst volume and net sales declined in Global Travel
and Middle East. The positive price/mix was driven by Africa and Latin
America. There was negative price/mix in Global Travel in a very
competitive landscape.
Net sales
of Buchanan’s were flat in the region. Significant net sales growth in both
Mexico and Venezuela was offset by a decline elsewhere in Latin America due to
trading difficulties with a key customer.
Guinness
net sales grew 2%. Net sales in the brand’s largest market of Nigeria
increased 1% and grew double-digit in East Africa and Ghana.
Ready to
drink net sales, led by Smirnoff Ice, grew 10% despite weakness in South Africa.
Smirnoff ready to drink grew in Cameroon, Nigeria, Brazil and
Venezuela.
Marketing
spend increased 9%, focused on beer, scotch and rum. In Africa,
marketing investment focused on the Guinness “250th
Celebration” and Harp in Nigeria. In Latin America spend increased
behind the growing rum category while an increase in activity behind Johnnie
Walker led to a 28% increase in marketing spend in Global Travel and Middle
East.
Asia
Pacific
Summary:
·
|
Australia
returned to net sales growth due to stabilisation of the ready to drink
segment, growth on core spirits and a strong contribution from
innovation
|
·
|
Windsor
net sales grew in Korea but the overall market declined due to de-stocking
on other brands
|
·
|
Double-digit
net sales growth in South East Asia with strong performances from Guinness
and Johnnie Walker
|
·
|
Significant
volume and net sales declines in India arising from inappropriately high
shipments in the comparable period
|
·
|
Diageo’s
scotch brands gained share in China although overall performance was
impacted by de-stocking
|
·
|
Marketing
spend remained constant as a percentage of net sales. Reductions in India
and China were offset by significant increases in Korea, Australia and
South East Asia
|
·
|
Operating
profit growth due to gross margin improvement, marketing reductions and
overhead cost savings
|
Key
measures:
|
|
First
half
F’10
|
|
|
First
half
F’09
|
|
|
Organic
movement
|
|
|
Reported
movement
|
|
|
|
£
million
|
|
|
£
million
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
6.4 |
|
|
|
6.5 |
|
|
|
(1 |
) |
|
|
(1 |
) |
Net
sales
|
|
|
523 |
|
|
|
477 |
|
|
|
(1 |
) |
|
|
10 |
|
Marketing
spend
|
|
|
118 |
|
|
|
109 |
|
|
|
(2 |
) |
|
|
8 |
|
Operating
profit before exceptional items
|
|
|
103 |
|
|
|
91 |
|
|
|
5 |
|
|
|
13 |
|
Operating
profit
|
|
|
98 |
|
|
|
91 |
|
|
|
5 |
|
|
|
8 |
|
Reported
performance:
Net sales
increased by £46 million in the six months ended 31 December 2009 to £523
million, from £477 million in the comparable prior period. Reported operating
profit before exceptional items increased by £12 million in the six months ended
31 December 2009 to £103 million, from £91 million in the comparable prior
period.
Organic
performance:
Exchange
rate impacts increased net sales by £53 million and there was an organic
decrease in net sales of £7 million. Exchange rate impacts increased operating
profit by £7 million and there was an organic increase in operating profit of £5
million.
Brand
performance:
|
|
Volume
movement
|
|
|
Organic
net
sales
movement
|
|
|
Reported
net
sales
movement
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
8 |
|
Other
brands
|
|
|
- |
|
|
|
1 |
|
|
|
12 |
|
Total
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
spirits brands*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Smirnoff
|
|
|
(10 |
) |
|
|
(2 |
) |
|
|
11 |
|
Johnnie
Walker
|
|
|
4 |
|
|
|
(7 |
) |
|
|
1 |
|
Bundaberg
|
|
|
(2 |
) |
|
|
11 |
|
|
|
11 |
|
Windsor
|
|
|
4 |
|
|
|
4 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guinness
|
|
|
1 |
|
|
|
12 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready
to drink
|
|
|
2 |
|
|
|
3 |
|
|
|
24 |
|
* Spirits
brands excluding ready to drink
Performance
in Australia improved compared to the prior period as net sales grew 3%. Ready
to drink grew 1% driven by a mixture of innovation and a return to growth of the
segment. The largest spirits brands of Bundaberg, Johnnie Walker and Smirnoff
all grew and spirits in total grew net sales 5%. Diageo maintained its share of
spirits at 30%. Price increases were taken on core spirits and there was a 25%
increase in marketing spend, primarily behind innovations Bundaberg Red, Baileys
with a hint of coffee and Smirnoff Cocktails.
Net sales
in Korea declined 3%, the key driver being the de-stocking of JεB and Dimple
which are sold through a third party. Windsor grew net sales 2% and remained the
leading scotch brand in the market. Price increases were taken in the period
offsetting some negative variant mix from super deluxe to deluxe. Marketing
spend increased behind Windsor 17 year old in order to re-invigorate the super
premium scotch segment.
In India,
volume declined 42% and net sales 44% due to lapping inappropriately high
shipment levels in the same period last year, affecting both the Bottled in
India and Bottled in Origin brands. The declines were also related to
prior period organisational issues and subsequently changes have been made to
the local management team.
In China,
volume declined 15% and net sales 24% reflecting distributor stock level
reductions of Dimple, social unrest in Xinjiang, the key Johnnie Walker Red
region, and some de-stocking of Johnnie Walker Black Label. Trade investment on
Johnnie Walker and Windsor increased as distribution was expanded to new cities
and led to negative price/mix. Depletions growth on Johnnie Walker led to share
gains in scotch while Smirnoff, Baileys and Windsor all grew net sales.
Marketing as a percentage of net sales was broadly maintained as investment was
focused behind Johnnie Walker and growing Windsor to be a significant scotch
brand in the market.
South
East Asia experienced a strong first half with net sales up 12% despite an
uncertain economic environment. Beer grew strongly especially in the largest
market of Indonesia. The investments made in Vietnam have resulted in Johnnie
Walker growing strongly in that market and South East Asia as a
whole.
Thailand
delivered a strong performance with net sales up 8% and share gains on Johnnie
Walker and Benmore in scotch.
Smirnoff
net sales declined 2% as the lower shipments in India offset growth in all other
markets. In Australia, the brand benefited from a 38% increase in marketing
spend behind the “BE THERE” campaign and recorded net sales growth. Thailand was
an especially strong market for Smirnoff where the brand’s continued
distribution expansion led to very strong net sales growth and share
gains.
Johnnie
Walker volume increased 4% driven primarily by Red Label. Black Label volume was
flat as the underlying depletion momentum was offset by de-stocking. This
negative mix, together with an increase in price promotion, resulted in a net
sales decline of 7% for the brand. In South East Asia, volume of both Red Label
and Black Label grew strongly although the brand recorded negative price/mix as
consumers continued to trade down from super deluxe variants. In Australia,
Johnnie Walker net sales grew 8% as a result of price increases on Black Label
and increased investment behind the “Strides” campaign on television and in the
press. Black Label recorded strong depletions growth in India and China in the
period.
Bundaberg
rum grew net sales 11% and enjoyed strong share growth in both volume and value
despite lapping a period of strong growth last year following the ready to drink
tax increase. Bundaberg Red continued to perform well.
Windsor
grew volume and net sales 4%. Korea experienced some negative variant mix as
consumers traded down from the super deluxe to the deluxe segment but this was
offset by price increases and the brand grew net sales 2%. The roll
out of Windsor Reserve in China continued with distribution gains ahead of
expectations, almost doubling in the past six months.
Guinness
continued to perform well, growing net sales 12%. In South East Asia, net sales
grew 21% and share of beer increased in Indonesia and Malaysia. Activation
behind the “250th
Celebration” campaign was the key reason for growth in Indonesia, Malaysia and
Singapore. In Japan, the premium beer segment remained very challenging as
consumers traded down. Guinness has a 60% price premium within the premium beer
segment in that market and therefore the brand underperformed the segment
despite increased investment.
Net sales
of ready to drink grew 3% following a return to growth in Australia and strong
performances in South East Asia and Thailand.
Marketing
investment in Asia Pacific declined by 2% although spend as a percentage of net
sales remained constant compared to the same period last year. The
key drivers of this reduction were decreases in India and phasing of spend to
the second half in China. Offsetting these
reductions were double-digit marketing spend increases in Korea, focused on
building the equity of Windsor 17 year old, in Australia behind Smirnoff and
innovation launches, and in South East Asia supporting the Guinness “250th
Celebration” campaign. The development and activation of pan-regional campaigns,
especially on Johnnie Walker and Smirnoff, continued to drive efficiencies in
spend.
Corporate
revenue and costs
Net sales
were £40 million in the six months ended 31 December 2009, up £1 million from
£39 million in the comparable prior period. Net operating costs rose from £59
million to £127 million in the six months ended 31 December 2009. Diageo
undertakes the majority of its currency transaction hedging centrally and
therefore £22 million of positive year on year transaction impact was taken to
corporate. In addition there was a negative year on year translation
impact of £1 million in corporate. The geographical regions are
reported using forecast transaction exchange rates with the difference between
forecast and achieved rates being included in corporate. This
amounted to a cost of £40 million in the period. There was a £49
million increase in underlying corporate net costs mainly due to higher systems
investment and business development charges together with the legal and
accounting costs associated with ongoing regulatory matters.
2. FINANCIAL
REVIEW
Summary
consolidated income statement
|
|
Six
months ended
31
December 2009
|
|
|
Six
months ended
31
December 2008
|
|
|
|
£
million
|
|
|
(restated)
£
million
|
|
|
|
|
|
|
|
|
Sales
|
|
|
6,928 |
|
|
|
6,691 |
|
Excise
duties
|
|
|
(1,721 |
) |
|
|
(1,623 |
) |
Net
sales
|
|
|
5,207 |
|
|
|
5,068 |
|
Operating
costs before exceptional items
|
|
|
(3,576 |
) |
|
|
(3,425 |
) |
Operating
profit before exceptional items
|
|
|
1,631 |
|
|
|
1,643 |
|
Exceptional
operating items
|
|
|
(95 |
) |
|
|
(13 |
) |
Operating
profit
|
|
|
1,536 |
|
|
|
1,630 |
|
Net
finance charges
|
|
|
(237 |
) |
|
|
(344 |
) |
Share
of associates’ profits after tax
|
|
|
94 |
|
|
|
120 |
|
Profit
before taxation
|
|
|
1,393 |
|
|
|
1,406 |
|
Taxation
|
|
|
(310 |
) |
|
|
(210 |
) |
Profit
from continuing operations
|
|
|
1,083 |
|
|
|
1,196 |
|
Discontinued
operations
|
|
|
(10 |
) |
|
|
- |
|
Profit
for the period
|
|
|
1,073 |
|
|
|
1,196 |
|
Attributable
to:
|
|
|
|
|
|
|
|
|
Equity
shareholders of the parent company
|
|
|
1,016 |
|
|
|
1,133 |
|
Non-controlling
interests
|
|
|
57 |
|
|
|
63 |
|
|
|
|
1,073 |
|
|
|
1,196 |
|
Sales
and net sales
On a
reported basis, sales increased by £237 million from £6,691 million in the six
months ended 31 December 2008 to £6,928 million in the six months ended 31
December 2009. On a reported basis net sales increased by £139 million from
£5,068 million in the six months ended 31 December 2008 to £5,207 million in the
six months ended 31 December 2009. Exchange rate movements increased reported
sales by £263 million and reported net sales by £207 million.
Operating
costs before exceptional items
On a
reported basis, operating costs before exceptional items increased by £151
million in the six months ended 31 December 2009 due to an increase in cost of
sales of £105 million, from £1,996 million to £2,101 million, a decrease in
marketing expenses of £10 million from £735 million to £725 million, and an
increase in other operating expenses before exceptional costs of £56 million,
from £694 million to £750 million. The impact of exchange rate movements
increased total operating costs before exceptional items by £164
million.
Exceptional
operating items
Exceptional
operating costs of £95 million for the six months ended 31 December 2009
comprised £21 million in respect of the global restructuring programme (2008 -
£nil), £69 million in respect of the restructuring of global supply operations
(2008 - £nil) and £5 million in respect of the restructuring of the Irish
brewing operations (2008 - £13 million).
Post
employment plans
Post
employment net costs for the six months ended 31 December 2009 were a charge of
£58 million (2008 - £50 million) comprising £39 million (2008 - £50 million)
included in operating costs before exceptional items, pension curtailment gains
of £6 million (2008 - £nil) in exceptional operating items and a charge of £25
million (2008 - £nil) in net finance charges.
The
deficit before taxation in respect of post employment plans decreased by £328
million from £1,383 million at 30 June 2009 to £1,055 million at 31 December
2009. The reduction in the deficit includes £147 million transferred into the UK
pension scheme from the escrow arrangements funded by the company in previous
years. The company is in discussion with the pension schemes’ trustees as to
future funding plans, however, annual cash contributions are not expected to
increase significantly.
Operating
profit
Reported
operating profit for the six months ended 31 December 2009 decreased by £94
million to £1,536 million from £1,630 million in the comparable prior period.
Exchange rate movements increased operating profit for the six months ended 31
December 2009 by £42 million. Before exceptional operating items, operating
profit for the six months ended 31 December 2009 decreased by £12 million to
£1,631 million from £1,643 million in the comparable prior period. Exchange rate
movements increased operating profit before exceptional items for the six months
ended 31 December 2009 by £43 million.
Net
finance charges
Net
finance charges decreased from £344 million in the six months ended 31 December
2008 to £237 million in the six months ended 31 December 2009.
The net
interest charge decreased by £100 million from £297 million in the comparable
prior period to £197 million in the six months ended 31 December 2009. The
reduction in the interest charge resulted principally from the significant
decrease in floating rate interest charges of £52 million, a positive movement
from the revaluation to period end market rates of interest swaps under IAS 39
of £28 million and favourable exchange rate movements of £8
million.
The
income statement interest cover was 9 times and cash interest cover was 8
times.
Net other
finance charges for the six months ended 31 December 2009 were £40 million (2008
- £47 million). There was an increase of £25 million in finance charges in
respect of post employment plans from £nil in the six months ended 31 December
2008 to £25 million in the six months ended 31 December 2009. Other finance
charges also include £11 million (2008 - £15 million) in respect of exchange
rate translation differences on inter-company funding arrangements where hedge
accounting was not applicable, £nil (2008 - £4 million) in respect of exchange
movements on net borrowings not in a hedge relationship and therefore recognised
in the income statement, £7 million (2008 - £11 million) on unwinding of
discounts on liabilities and £3 million income (2008 - £17 million charge) in
respect of other finance charges.
Associates
The
group’s share of associates’ profits after interest and tax was £94 million for
the six months ended 31 December 2009 compared to £120 million in the comparable
prior period. Diageo’s 34% equity interest in Moët Hennessy contributed £90
million (2008 - £112 million) to share of associates’ profits after interest and
tax.
Profit
before taxation
Profit
before taxation decreased by £13 million from £1,406 million in the comparable
prior period to £1,393 million in the six months ended 31 December
2009.
Taxation
The tax
charge is based upon the estimate of the tax rate expected for the full
year.
The
reported tax rate for the six months ended 31 December 2009 was 22.3% compared
with 14.9% for the six months ended 31 December 2008. Factors that reduced the
reported tax rate in the comparable prior period included settlements agreed
with tax authorities that gave rise to changes in the value of deferred tax
assets and tax provisions. For the year ending 30 June 2010 the reported tax
rate is expected to be 22%. The underlying tax rate for continuing operations
for the six months ended 31 December 2009 was 22.4% and for the six months ended
31 December 2008 22.1%. The underlying tax rate for the year ending 30 June 2010
is expected to be 22%.
Discontinued
operations
Discontinued
operations represent a provision of £10 million in respect of future payments to
new thalidomide claimants.
Exchange
rate movements
Exchange
rate movements are calculated by retranslating the prior period results as if
they had been generated at the current period exchange rates and are excluded
from organic growth.
The
estimated effect of exchange rate movements on profit before exceptional items
and taxation for the six months ended 31 December 2009 was as
follows:
|
|
Gains/(losses)
£
million
|
|
|
|
|
Operating
profit before exceptional items
|
|
|
|
|
|
|
Translation
impact
|
|
|
35 |
|
|
|
|
Transaction
impact
|
|
|
53 |
|
|
|
|
Impact
of IAS 21 on operating profit
|
|
|
(45 |
) |
|
|
|
Total
exchange effect on operating profit
|
|
|
43 |
|
|
|
|
Interest
and other finance charges
|
|
|
|
|
|
|
|
Net
finance charges – translation impact
|
|
|
13 |
|
|
|
|
Exchange
– in respect of IAS 21 and IAS 39
|
|
|
8 |
|
|
|
|
Mark
to market impact of IAS 39 on interest expense
|
|
|
28 |
|
|
|
|
Associates
– translation impact
|
|
|
8 |
|
|
|
|
Total
exchange effect on PBET
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended 31 December 2009
|
|
|
Six
months ended 31 December 2008
|
|
Exchange
rates
|
|
|
|
|
|
|
|
Translation
US$/£ rate
|
|
|
1.64 |
|
|
|
1.66 |
|
Transaction
US$/£ rate
|
|
|
1.74 |
|
|
|
2.25 |
|
Translation
€/£ rate
|
|
|
1.12 |
|
|
|
1.21 |
|
Transaction
€/£ rate
|
|
|
1.30 |
|
|
|
1.36 |
|
Outlook
for the impact of exchange rate movements:
For the
year ending 30 June 2010 applying current exchange rates for the balance of the
year (US$/£1.64, €/£1.13), foreign exchange movements (excluding the exchange
impacts of IAS 21 and IAS 39) are estimated to increase operating profit by £75
million and decrease the net interest charge by £5 million.
Dividend
An
interim dividend of 14.60 pence per share will be paid to holders of ordinary
shares and ADRs on the register on 5 March 2010. This represents an increase of
5% on last year’s interim dividend. The interim dividend will be paid to
shareholders on 6 April 2010. Payment to US ADR holders will be made on 12 April
2010. A dividend reinvestment plan is available in respect of the interim
dividend and the plan notice date is 12 March 2010.
Cash
flow
|
|
Six
months ended
31
December 2009
|
|
|
Six
months ended
31
December 2008
|
|
|
|
£
million
|
|
|
(restated)
£
million
|
|
|
|
|
|
|
|
|
Cash
generated from operations before exceptional costs
|
|
|
1,645 |
|
|
|
986 |
|
Exceptional
restructuring costs paid
|
|
|
(76 |
) |
|
|
(2 |
) |
Cash
generated from operations
|
|
|
1,569 |
|
|
|
984 |
|
Interest
paid (net)
|
|
|
(217 |
) |
|
|
(199 |
) |
Dividends
paid to equity minority interests
|
|
|
(55 |
) |
|
|
(69 |
) |
Taxation
paid
|
|
|
(198 |
) |
|
|
(137 |
) |
Net
capital expenditure
|
|
|
(150 |
) |
|
|
(181 |
) |
Net
increase in other investments
|
|
|
(45 |
) |
|
|
(11 |
) |
Free
cash flow
|
|
|
904 |
|
|
|
387 |
|
Free cash
flow increased by £517 million to £904 million in the six months ended 31
December 2009. Cash generated from operations increased from £984 million to
£1,569 million principally as a result of improved working capital management.
Net capital expenditure on property, plant and equipment decreased by £31
million to £150 million in the period, being decreased capital expenditure of
£29 million and higher disposal proceeds of £2 million.
Balance
sheet
At 31
December 2009, total equity was £4,591 million compared with £3,874 million at
30 June 2009. This increase was mainly due to the profit for the period of
£1,073 million, partly offset by the dividend paid out of shareholders’ equity
of £551 million.
Net
borrowings were £7,304 million at 31 December 2009, a decrease of £115 million
from net borrowings at 30 June 2009 of £7,419 million. The principal
components of this decrease were: £904 million (2008 - £387 million) free cash
flow partly offset by £551 million (2008 – £527 million) equity dividends paid
and adverse exchange rate movements of £201 million (2008 - £1,470
million).
The share
buyback programme has not been activated since 31 December 2008 and it is not
envisaged that the buyback programme will be reopened in current market
conditions. Diageo targets a range of ratios which are currently broadly
consistent with an A band credit rating. Diageo would consider modifying these
ratios in order to effect strategic initiatives within its stated goals, which
could have an impact on its rating.
Economic
profit
Economic
profit decreased by £59 million from £712 million in the six months ended 31
December 2008 to £653 million in the six months ended 31 December 2009. See page
42 for the calculation and definition of economic profit.
DIAGEO
CONDENSED CONSOLIDATED INCOME STATEMENT
|
|
|
|
|
Six
months ended
31
December 2009
|
|
|
Six
months ended
31
December 2008
|
|
|
|
Notes
|
|
|
£ million
|
|
|
(restated)
£
million
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
2 |
|
|
|
6,928 |
|
|
|
6,691 |
|
Excise
duties
|
|
|
|
|
|
|
(1,721 |
) |
|
|
(1,623 |
) |
Net
sales
|
|
|
2 |
|
|
|
5,207 |
|
|
|
5,068 |
|
Cost
of sales
|
|
|
|
|
|
|
(2,123 |
) |
|
|
(2,009 |
) |
Gross
profit
|
|
|
|
|
|
|
3,084 |
|
|
|
3,059 |
|
Marketing
expenses
|
|
|
|
|
|
|
(725 |
) |
|
|
(735 |
) |
Other
operating expenses
|
|
|
|
|
|
|
(823 |
) |
|
|
(694 |
) |
Operating
profit
|
|
|
2,
3 |
|
|
|
1,536 |
|
|
|
1,630 |
|
Net
interest payable
|
|
|
4 |
|
|
|
(197 |
) |
|
|
(297 |
) |
Net
other finance charges
|
|
|
4 |
|
|
|
(40 |
) |
|
|
(47 |
) |
Share
of associates' profits after tax
|
|
|
|
|
|
|
94 |
|
|
|
120 |
|
Profit
before taxation
|
|
|
|
|
|
|
1,393 |
|
|
|
1,406 |
|
Taxation
|
|
|
5 |
|
|
|
(310 |
) |
|
|
(210 |
) |
Profit
from continuing operations
|
|
|
|
|
|
|
1,083 |
|
|
|
1,196 |
|
Discontinued
operations
|
|
|
6 |
|
|
|
(10 |
) |
|
|
- |
|
Profit
for the period
|
|
|
|
|
|
|
1,073 |
|
|
|
1,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
shareholders of the parent company
|
|
|
|
|
|
|
1,016 |
|
|
|
1,133 |
|
Non-controlling
interests
|
|
|
|
|
|
|
57 |
|
|
|
63 |
|
|
|
|
|
|
|
|
1,073 |
|
|
|
1,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pence
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings
|
|
|
|
|
|
|
40.9 |
p |
|
|
45.5 |
p |
Diluted
earnings
|
|
|
|
|
|
|
40.8 |
p |
|
|
45.4 |
p |
Average
shares
|
|
|
|
|
|
|
2,482 |
m |
|
|
2,492 |
m |
DIAGEO
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
|
Six
months ended
31
December 2009
|
|
|
Six
months ended
31
December 2008
|
|
|
|
£
million
|
|
|
(restated)
£million
|
|
|
|
|
|
|
|
|
Exchange
differences on translation of foreign operations
excluding
borrowings
|
|
|
302 |
|
|
|
1,900 |
|
Exchange
differences on borrowings and derivative net
investment
hedges
|
|
|
(201 |
) |
|
|
(1,466 |
) |
Effective
portion of changes in fair value of cash flow
hedges
|
|
|
|
|
|
|
|
|
- Net
losses taken to equity
|
|
|
(69 |
) |
|
|
(92 |
) |
- Transferred
to income statement
|
|
|
36 |
|
|
|
(158 |
) |
Fair
value movement on available-for-sale investments
|
|
|
- |
|
|
|
5 |
|
Net
actuarial gain on post employment plans
|
|
|
176 |
|
|
|
15 |
|
Tax
on items taken directly to equity
|
|
|
(56 |
) |
|
|
13 |
|
Other
comprehensive income for the period
|
|
|
188 |
|
|
|
217 |
|
Profit
for the period
|
|
|
1,073 |
|
|
|
1,196 |
|
Total
comprehensive income for the period
|
|
|
1,261 |
|
|
|
1,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
|
|
|
|
Equity
shareholders of the parent company
|
|
|
1,187 |
|
|
|
1,149 |
|
Non-controlling
interests
|
|
|
74 |
|
|
|
264 |
|
|
|
|
1,261 |
|
|
|
1,413 |
|
DIAGEO
CONDENSED CONSOLIDATED BALANCE SHEET
|
|
|
|
|
31
December 2009
|
|
|
30
June 2009
(restated)
|
|
|
31
December 2008
(restated)
|
|
Notes
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
|
|
|
|
6,355 |
|
|
|
|
|
|
6,215 |
|
|
|
|
|
|
6,878 |
|
|
|
|
Property,
plant and equipment
|
|
|
|
|
|
2,390 |
|
|
|
|
|
|
2,326 |
|
|
|
|
|
|
2,496 |
|
|
|
|
Biological
assets
|
|
|
|
|
|
38 |
|
|
|
|
|
|
37 |
|
|
|
|
|
|
29 |
|
|
|
|
Investments
in associates
|
|
|
|
|
|
2,226 |
|
|
|
|
|
|
2,041 |
|
|
|
|
|
|
2,334 |
|
|
|
|
Other
investments
|
|
|
|
|
|
130 |
|
|
|
|
|
|
231 |
|
|
|
|
|
|
166 |
|
|
|
|
Other
receivables
|
|
|
|
|
|
18 |
|
|
|
|
|
|
18 |
|
|
|
|
|
|
15 |
|
|
|
|
Other
financial assets
|
|
|
|
|
|
261 |
|
|
|
|
|
|
364 |
|
|
|
|
|
|
622 |
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
594 |
|
|
|
|
|
|
678 |
|
|
|
|
|
|
593 |
|
|
|
|
Post
employment benefit
assets
|
|
|
|
|
|
45 |
|
|
|
|
|
|
41 |
|
|
|
|
|
|
258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,057 |
|
|
|
|
|
|
|
11,951 |
|
|
|
|
|
|
|
13,391 |
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
Inventories
|
|
|
7 |
|
|
|
3,279 |
|
|
|
|
|
|
|
3,078 |
|
|
|
|
|
|
|
3,264 |
|
|
|
|
|
Trade
and other receivables
|
|
|
|
|
|
|
2,596 |
|
|
|
|
|
|
|
1,977 |
|
|
|
|
|
|
|
2,947 |
|
|
|
|
|
Other
financial assets
|
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
277 |
|
|
|
|
|
Cash
and cash equivalents
|
|
|
8 |
|
|
|
1,589 |
|
|
|
|
|
|
|
914 |
|
|
|
|
|
|
|
2,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,569 |
|
|
|
|
|
|
|
6,067 |
|
|
|
|
|
|
|
8,584 |
|
Total
assets
|
|
|
|
|
|
|
|
|
|
|
19,626 |
|
|
|
|
|
|
|
18,018 |
|
|
|
|
|
|
|
21,975 |
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
and bank
overdrafts
|
|
|
8 |
|
|
|
(891 |
) |
|
|
|
|
|
|
(890 |
) |
|
|
|
|
|
|
(1,892 |
) |
|
|
|
|
Other
financial liabilities
|
|
|
|
|
|
|
(154 |
) |
|
|
|
|
|
|
(220 |
) |
|
|
|
|
|
|
(547 |
) |
|
|
|
|
Trade
and other payables
|
|
|
|
|
|
|
(2,738 |
) |
|
|
|
|
|
|
(2,172 |
) |
|
|
|
|
|
|
(2,564 |
) |
|
|
|
|
Corporate
tax payable
|
|
|
|
|
|
|
(604 |
) |
|
|
|
|
|
|
(532 |
) |
|
|
|
|
|
|
(750 |
) |
|
|
|
|
Provisions
|
|
|
|
|
|
|
(196 |
) |
|
|
|
|
|
|
(172 |
) |
|
|
|
|
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,583 |
) |
|
|
|
|
|
|
(3,986 |
) |
|
|
|
|
|
|
(5,835 |
) |
Non-current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
8 |
|
|
|
(8,202 |
) |
|
|
|
|
|
|
(7,685 |
) |
|
|
|
|
|
|
(9,223 |
) |
|
|
|
|
Other
financial liabilities
|
|
|
|
|
|
|
(97 |
) |
|
|
|
|
|
|
(99 |
) |
|
|
|
|
|
|
(260 |
) |
|
|
|
|
Other
payables
|
|
|
|
|
|
|
(26 |
) |
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
(31 |
) |
|
|
|
|
Provisions
|
|
|
|
|
|
|
(355 |
) |
|
|
|
|
|
|
(314 |
) |
|
|
|
|
|
|
(380 |
) |
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
(672 |
) |
|
|
|
|
|
|
(606 |
) |
|
|
|
|
|
|
(948 |
) |
|
|
|
|
Post
employment benefit
liabilities
|
|
|
|
|
|
|
(1,100 |
) |
|
|
|
|
|
|
(1,424 |
) |
|
|
|
|
|
|
(735 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,452 |
) |
|
|
|
|
|
|
(10,158 |
) |
|
|
|
|
|
|
(11,577 |
) |
Total
liabilities
|
|
|
|
|
|
|
|
|
|
|
(15,035 |
) |
|
|
|
|
|
|
(14,144 |
) |
|
|
|
|
|
|
(17,412 |
) |
Net
assets
|
|
|
|
|
|
|
|
|
|
|
4,591 |
|
|
|
|
|
|
|
3,874 |
|
|
|
|
|
|
|
4,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Called
up share capital
|
|
|
|
|
|
|
797 |
|
|
|
|
|
|
|
797 |
|
|
|
|
|
|
|
797 |
|
|
|
|
|
Share
premium
|
|
|
|
|
|
|
1,342 |
|
|
|
|
|
|
|
1,342 |
|
|
|
|
|
|
|
1,342 |
|
|
|
|
|
Other
reserves
|
|
|
|
|
|
|
3,331 |
|
|
|
|
|
|
|
3,279 |
|
|
|
|
|
|
|
3,221 |
|
|
|
|
|
Retained
deficit
|
|
|
|
|
|
|
(1,603 |
) |
|
|
|
|
|
|
(2,249 |
) |
|
|
|
|
|
|
(1,662 |
) |
|
|
|
|
Equity
attributable to equity
shareholders
of the parent
company
|
|
|
|
|
|
|
|
|
|
|
3,867 |
|
|
|
|
|
|
|
3,169 |
|
|
|
|
|
|
|
3,698 |
|
Non-controlling
interests
|
|
|
|
|
|
|
|
|
|
|
724 |
|
|
|
|
|
|
|
705 |
|
|
|
|
|
|
|
865 |
|
Total
equity
|
|
|
10 |
|
|
|
|
|
|
|
4,591 |
|
|
|
|
|
|
|
3,874 |
|
|
|
|
|
|
|
4,563 |
|
DIAGEO
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings/(deficit)
|
|
|
Equity
attributable
|
|
|
|
|
|
|
|
|
|
Share
capital
£
million
|
|
|
Share
premium
£
million
|
|
|
Other
reserves
£
million
|
|
|
Own
shares
£
million
|
|
|
Other
retained
earnings
£
million
|
|
|
Total
£
million
|
|
|
company
share-holders
£
million
|
|
|
Non-
controlling
interests
£
million
|
|
|
Total
equity
£
million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
30 June 2009
as
previously reported
|
|
|
797 |
|
|
|
1,342 |
|
|
|
3,282 |
|
|
|
(2,342 |
) |
|
|
142 |
|
|
|
(2,200 |
) |
|
|
3,221 |
|
|
|
715 |
|
|
|
3,936 |
|
Prior
year adjustments
(see
note 1)
- Adoption
of amendment
to
IAS 38
|
|
|
- |
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
(42 |
) |
|
|
(42 |
) |
|
|
(46 |
) |
|
|
- |
|
|
|
(46 |
) |
- Returnables
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
_____-
|
|
|
____(7)
|
|
|
____(7)
|
|
|
_____(6)
|
|
|
____(10)
|
|
|
_ (16)
|
|
At
30 June 2009
as
restated
|
|
|
797 |
|
|
|
1,342 |
|
|
|
3,279 |
|
|
|
(2,342 |
) |
|
|
93 |
|
|
|
(2,249 |
) |
|
|
3,169 |
|
|
|
705 |
|
|
|
3,874 |
|
Total
comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
52 |
|
|
|
- |
|
|
|
1,135 |
|
|
|
1,135 |
|
|
|
1,187 |
|
|
|
74 |
|
|
|
1,261 |
|
Share
trust arrangements
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
|
|
(1 |
) |
|
|
43 |
|
|
|
43 |
|
|
|
- |
|
|
|
43 |
|
Share-based
incentive
plans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16 |
|
|
|
16 |
|
|
|
16 |
|
|
|
- |
|
|
|
16 |
|
Tax
on share-based
incentive
plans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
|
|
- |
|
|
|
3 |
|
Dividends
paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(551 |
) |
|
|
(551 |
) |
|
|
(551 |
) |
|
|
(55 |
) |
|
|
(606 |
) |
At
31 December 2009
|
|
|
797 |
|
|
|
1,342 |
|
|
|
3,331 |
|
|
|
(2,298 |
) |
|
|
695 |
|
|
|
(1,603 |
) |
|
|
3,867 |
|
|
|
724 |
|
|
|
4,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
30 June 2008
as
previously reported
|
|
|
816 |
|
|
|
1,342 |
|
|
|
3,163 |
|
|
|
(2,559 |
) |
|
|
736 |
|
|
|
(1,823 |
) |
|
|
3,498 |
|
|
|
677 |
|
|
|
4,175 |
|
Prior
year adjustments
(see
note 1)
- Adoption
of amendment
to
IAS 38
|
|
|
- |
|
|
|
- |
|
|
|
(2 |
) |
|
|
- |
|
|
|
(30 |
) |
|
|
(30 |
) |
|
|
(32 |
) |
|
|
- |
|
|
|
(32 |
) |
- Returnables
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
____(7)
|
|
|
__(10)
|
|
At
30 June 2008
as
restated
|
|
|
816 |
|
|
|
1,342 |
|
|
|
3,161 |
|
|
|
(2,559 |
) |
|
|
703 |
|
|
|
(1,856 |
) |
|
|
3,463 |
|
|
|
670 |
|
|
|
4,133 |
|
Total
comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
41 |
|
|
|
- |
|
|
|
1,108 |
|
|
|
1,108 |
|
|
|
1,149 |
|
|
|
264 |
|
|
|
1,413 |
|
Share
trust arrangements
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(42 |
) |
|
|
(2 |
) |
|
|
(44 |
) |
|
|
(44 |
) |
|
|
- |
|
|
|
(44 |
) |
Share-based
incentive
plans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14 |
|
|
|
14 |
|
|
|
14 |
|
|
|
- |
|
|
|
14 |
|
Tax
on share-based
incentive
plans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
- |
|
|
|
(3 |
) |
Own
shares repurchased
|
|
|
(19 |
) |
|
|
- |
|
|
|
19 |
|
|
|
- |
|
|
|
(354 |
) |
|
|
(354 |
) |
|
|
(354 |
) |
|
|
- |
|
|
|
(354 |
) |
Own
shares cancelled
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
247 |
|
|
|
(247 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Dividends
paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(527 |
) |
|
|
(527 |
) |
|
|
(527 |
) |
|
|
(69 |
) |
|
|
(596 |
) |
At
31 December 2008
|
|
|
797 |
|
|
|
1,342 |
|
|
|
3,221 |
|
|
|
(2,354 |
) |
|
|
692 |
|
|
|
(1,662 |
) |
|
|
3,698 |
|
|
|
865 |
|
|
|
4,563 |
|
DIAGEO
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
Six
months ended
31
December 2009
|
|
|
Six
months ended
31
December 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(restated)
|
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
generated from operations (see note 11)
|
|
|
1,569 |
|
|
|
|
|
|
984 |
|
|
|
|
Interest
received
|
|
|
156 |
|
|
|
|
|
|
26 |
|
|
|
|
Interest
paid
|
|
|
(373 |
) |
|
|
|
|
|
(225 |
) |
|
|
|
Dividends
paid to equity non-controlling interests
|
|
|
(55 |
) |
|
|
|
|
|
(69 |
) |
|
|
|
Taxation
paid
|
|
|
(198 |
) |
|
|
|
|
|
(137 |
) |
|
|
|
Net
cash inflow from operating activities
|
|
|
|
|
|
|
1,099 |
|
|
|
|
|
|
|
579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal
of property, plant and equipment and computer software
|
|
|
3 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Purchase
of property, plant and equipment and computer software
|
|
|
(153 |
) |
|
|
|
|
|
|
(182 |
) |
|
|
|
|
Net
increase in other investments
|
|
|
(45 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
Disposal
of businesses
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Purchase
of businesses
|
|
|
(12 |
) |
|
|
|
|
|
|
(64 |
) |
|
|
|
|
Net
cash outflow from investing activities
|
|
|
|
|
|
|
(206 |
) |
|
|
|
|
|
|
(255 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sale/(purchase) of own shares for share schemes
|
|
|
41 |
|
|
|
|
|
|
|
(46 |
) |
|
|
|
|
Own
shares repurchased
|
|
|
- |
|
|
|
|
|
|
|
(354 |
) |
|
|
|
|
Net
increase in loans
|
|
|
299 |
|
|
|
|
|
|
|
1,802 |
|
|
|
|
|
Equity
dividends paid
|
|
|
(551 |
) |
|
|
|
|
|
|
(527 |
) |
|
|
|
|
Net
cash inflow/(outflow) from financing activities
|
|
|
|
|
|
|
(211 |
) |
|
|
|
|
|
|
875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in net cash and cash equivalents
|
|
|
|
|
|
|
682 |
|
|
|
|
|
|
|
1,199 |
|
Exchange
differences
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
81 |
|
Net
cash and cash equivalents at beginning of the period
|
|
|
|
|
|
|
846 |
|
|
|
|
|
|
|
683 |
|
Net
cash and cash equivalents at end of the period
|
|
|
|
|
|
|
1,527 |
|
|
|
|
|
|
|
1,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash and cash equivalents consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
1,589 |
|
|
|
|
|
|
|
2,088 |
|
Bank
overdrafts
|
|
|
|
|
|
|
(62 |
) |
|
|
|
|
|
|
(125 |
) |
|
|
|
|
|
|
|
1,527 |
|
|
|
|
|
|
|
1,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
1.
Basis of preparation
The
financial information included within this report has been prepared using
accounting policies consistent with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB) and as
endorsed and adopted for use in the European Union, and in accordance with the
Disclosure and Transparency Rules (DTR) of the Financial Services Authority. The
condensed consolidated financial statements have been prepared in accordance
with IAS 34 - Interim Financial Reporting.
This interim condensed consolidated financial information is unaudited and has
been prepared on the basis of accounting policies consistent with those applied
in the consolidated financial statements for the year ended 30 June 2009 except
as noted below.
IFRS 8 - Operating segments.
IFRS 8 requires that an entity's operating segments are reported on the same
basis as the internally reported information that is provided to the chief
operating decision maker. The chief operating decision maker has been identified
as the executive committee. Following the adoption of IFRS 8, the group has
revised its reported operating segments and provided further information in
respect of these segments as well as additional disclosures. Details are
provided in note 2 to this financial information.
IAS 1 (Revised) - Presentation of
financial statements. IAS 1 (Revised) has resulted in the group
presenting both a consolidated statement of comprehensive income and a
consolidated statement of changes in equity as primary statements. The group has
chosen to disclose other comprehensive income as a separate statement from the
income statement. The application of this standard has not affected the
measurement of reported profit or equity.
Amendment to IFRS 2 - Share-based
payment: vesting conditions and cancellations. This interpretation
clarifies that only service and performance conditions are vesting conditions. A
share option award must be accounted for as a cancellation when the award does
not vest as a result of a failure to meet a non-vesting condition that is within
the control of the group. Cancellations are accounted for as accelerated
vestings. The application of this interpretation is not material to the group's
net income or equity.
Amendment to IAS 38 - Intangible
assets. This amendment to IAS 38 clarifies the accounting for advertising
expenditure. The group charges advertising expenditure to the income statement
when it has a right of access to the goods or services acquired, as opposed to
charging such costs to the income statement when the advertisement is first
shown to the public. Advertisements, non-depreciable point of sale material,
costs in respect of events and some sponsorship payments previously recorded in
the income statement when delivered to the final customer are now expensed when
delivered to the company. The impact of this change in accounting policy reduced
operating profit for the year ended 30 June 2009 by £15 million (six months
ended 31 December 2008 - £3 million), reduced the taxation charge for the year
ended 30 June 2009 by £3 million (six months ended 31 December 2008 - £nil) and
reduced basic earnings per share for the year ended 30 June 2009 by 0.5 pence
(six months ended 31 December 2008 – 0.1 pence). In addition, the adoption of
the amendment decreased inventories at 30 June 2009 by £3 million (31 December
2008 - £2 million), decreased trade and other receivables included in current
assets at 30 June 2009 by £54 million (31 December 2008 - £45 million),
increased deferred tax assets at 30 June 2009 by £6 million (31 December 2008 -
£3 million), reduced investment in associates at 30 June 2009 by £4 million (31
December 2008 - £5 million) and reduced deferred tax liabilities at 30 June 2009
by £9 million (31 December 2008 - £9 million).
In
addition, the group has changed its accounting policy in respect of returnable
bottles and crates (‘returnables’) as the change more appropriately reflects the
usage of these assets. These are now held within property, plant and equipment
and depreciated on a straight-line basis to estimated residual values over their
expected useful lives. Formerly they were held within inventories and written
down on purchase to their net realisable value. The impact of the adoption of
this accounting policy has reduced operating profit for the year ended 30 June
2009 by £10 million (six months ended 31 December 2008 - £3 million), reduced
the taxation charge for the year ended 30 June 2009 by £3 million (six months
ended 31 December 2008 - £1 million) and reduced basic earnings per share for
the year ended 30 June 2009 by 0.1 pence (six months ended 31 December 2008 –
£nil). £3 million of the charge for the year ended 30 June 2009 is in respect of
non controlling interests (six months ended 31 December 2008 - £1
million). On the consolidated balance sheet at 30 June 2009
inventories have reduced by £81 million (31 December 2008 - £87 million),
property plant and equipment has increased by £58 million (31 December 2008 -
£68 million), trade and other payables have reduced by £1 million (31 December
2008 - £1 million), deferred tax liabilities have reduced by £6 million (31
December 2008 - £5 million) and non-controlling interests have reduced by £10
million (31 December 2008 - £9 million).
All
comparatives in the financial information have been restated in accordance with
the above changes in accounting policies.
The
following accounting standards and interpretations, issued by the IASB or
International Financial Reporting Interpretations Committee (IFRIC), have been
adopted by the group from 1 July 2009 with no significant impact on its
consolidated results or financial position:
IFRS
3 (Revised) - Business combinations
IFRIC
13 - Customer loyalty programmes
IFRIC
15 - Arrangements for the construction of real estate
IFRIC
16 - Hedges of a net investment in a foreign operation
IFRIC
18 - Transfers of assets from customers
Amendment
to IAS 27 - Consolidated and separate financial statements
Amendment
to IAS 32 - Financial instruments
Amendment
to IAS 39 - Financial instruments: recognition and measurement - Eligible hedge
items
Amendment
to IFRS 7 - Improving disclosures about financial instruments
Amendment
to IFRIC 9 - Reassessment of embedded derivatives
Improvements
to International Financial Reporting Standards 2009
The
comparative figures for the financial year ended 30 June 2009 are not the
company’s statutory accounts for that financial year. Those accounts have been
reported on by the company’s auditor and delivered to the registrar of
companies. The report of the auditor was (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a statement under
section 498(2) or (3) of the Companies Act 2006.
The
executive committee considers the business principally from a geographical
perspective and the business analysis is presented under the operating segments
of North America, Europe, International and Asia Pacific. In addition to these
geographic selling segments, a further segment reviewed by the executive
committee is global supply which manufactures and distributes premium drinks
within the group. Continuing operations also include the corporate function. In
view of the focus on the geographic segments in explaining the group’s
performance in the business review, the results of the global supply segment
have, in order to provide additional reconciling information, been allocated to
the geographic segments. This gives an additional basis of presenting the
group’s performance and results on the basis of the location of third party
customers. Corporate revenues and costs are in respect of central costs,
including finance, human resources and legal, as well as certain information
systems, facilities and employee costs that do not relate to the geographic
segments or to global supply and hence are not allocated. They also include
rents receivable in respect of properties not used by Diageo in the manufacture,
sale or distribution of premium drinks and the results of Gleneagles Hotel. The
group also owns a 34% interest in Moët Hennessy which is based in France and
accounted for as an associate.
For
management reporting purposes Diageo measures the current period at, and
restates the prior period net sales and operating profit to, the current year’s
budgeted foreign exchange rates. These exchange rates are set prior to the
reporting period as part of the financial planning process and provide a
consistent exchange rate to measure the performance of the business throughout a
reporting period. The segmental information for net sales and operating profit
is therefore reported at budgeted exchange rates in line with internal
reporting. The adjustments required to retranslate the segmental information to
actual exchange rates and to reconcile it to Diageo’s reported results are shown
in the tables below. The comparative information, prior to re-translation, has
not been restated at the current year’s budgeted exchange rates but is reported
at the budgeted rates for the year ended 30 June 2009.
Segmental
analysis (continued)
|
|
North
America
£million
|
|
|
Europe
£million
|
|
|
Inter-
national
£million
|
|
|
Asia
Pacific
£million
|
|
|
Global
Supply
£million
|
|
|
Eliminate
inter-
segment
sales
£million
|
|
|
Total
operating
segments
£million
|
|
|
Corporate
and
other
£million
|
|
|
Total
£million
|
|
Six
months ended
31
December 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
1,969 |
|
|
|
2,456 |
|
|
|
1,726 |
|
|
|
737 |
|
|
|
1,391 |
|
|
|
(1,391 |
) |
|
|
6,888 |
|
|
|
40 |
|
|
|
6,928 |
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates*
|
|
|
1,622 |
|
|
|
1,409 |
|
|
|
1,327 |
|
|
|
490 |
|
|
|
1,375 |
|
|
|
(1,319 |
) |
|
|
4,904 |
|
|
|
38 |
|
|
|
4,942 |
|
Retranslation
to actual
exchange
rates
|
|
|
64 |
|
|
|
107 |
|
|
|
66 |
|
|
|
26 |
|
|
|
72 |
|
|
|
(72 |
) |
|
|
263 |
|
|
|
2 |
|
|
|
265 |
|
Global
supply allocation
|
|
|
9 |
|
|
|
31 |
|
|
|
9 |
|
|
|
7 |
|
|
|
(56 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
sales
|
|
|
1,695 |
|
|
|
1,547 |
|
|
|
1,402 |
|
|
|
523 |
|
|
|
1,391 |
|
|
|
(1,391 |
) |
|
|
5,167 |
|
|
|
40 |
|
|
|
5,207 |
|
Operating
profit/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates*
|
|
|
613 |
|
|
|
471 |
|
|
|
458 |
|
|
|
95 |
|
|
|
65 |
|
|
|
- |
|
|
|
1,702 |
|
|
|
(95 |
) |
|
|
1,607 |
|
Retranslation
to actual
exchange
rates
|
|
|
24 |
|
|
|
24 |
|
|
|
(4 |
) |
|
|
7 |
|
|
|
5 |
|
|
|
- |
|
|
|
56 |
|
|
|
(32 |
) |
|
|
24 |
|
At actual exchange
rates
|
|
|
637 |
|
|
|
495 |
|
|
|
454 |
|
|
|
102 |
|
|
|
70 |
|
|
|
- |
|
|
|
1,758 |
|
|
|
(127 |
) |
|
|
1,631 |
|
Global
supply allocation
|
|
|
30 |
|
|
|
33 |
|
|
|
6 |
|
|
|
1 |
|
|
|
(70 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Operating
profit/(loss)
before
exceptional items
|
|
|
667 |
|
|
|
528 |
|
|
|
460 |
|
|
|
103 |
|
|
|
- |
|
|
|
- |
|
|
|
1,758 |
|
|
|
(127 |
) |
|
|
1,631 |
|
Exceptional
restructuring
costs
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(3 |
) |
|
|
(5 |
) |
|
|
(74 |
) |
|
|
- |
|
|
|
(94 |
) |
|
|
(1 |
) |
|
|
(95 |
) |
Operating
profit/(loss)
|
|
|
661 |
|
|
|
522 |
|
|
|
457 |
|
|
|
98 |
|
|
|
(74 |
) |
|
|
- |
|
|
|
1,664 |
|
|
|
(128 |
) |
|
|
1,536 |
|
Net
finance charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(237 |
) |
Share
of associates’ profits
after
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Moët Hennessy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 |
|
-
Other associates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Profit
before taxation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,393 |
|
|
|
North
America
£million
|
|
|
Europe
£million
|
|
|
Inter-
national
£million
|
|
|
Asia
Pacific
£million
|
|
|
Global
Supply
£million
|
|
|
Eliminate
inter-
segment
sales
£million
|
|
|
Total
operating
segments
£million
|
|
|
Corporate
and
other
£million
|
|
|
Total
£million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended
31
December 2008 (restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
2,043 |
|
|
|
2,431 |
|
|
|
1,517 |
|
|
|
661 |
|
|
|
1,235 |
|
|
|
(1,235 |
) |
|
|
6,652 |
|
|
|
39 |
|
|
|
6,691 |
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates*
|
|
|
1,474 |
|
|
|
1,394 |
|
|
|
1,082 |
|
|
|
447 |
|
|
|
1,189 |
|
|
|
(1,134 |
) |
|
|
4,452 |
|
|
|
37 |
|
|
|
4,489 |
|
Retranslation
to actual
exchange
rates
|
|
|
270 |
|
|
|
137 |
|
|
|
146 |
|
|
|
23 |
|
|
|
102 |
|
|
|
(101 |
) |
|
|
577 |
|
|
|
2 |
|
|
|
579 |
|
Global
supply allocation
|
|
|
11 |
|
|
|
29 |
|
|
|
9 |
|
|
|
7 |
|
|
|
(56 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
sales
|
|
|
1,755 |
|
|
|
1,560 |
|
|
|
1,237 |
|
|
|
477 |
|
|
|
1,235 |
|
|
|
(1,235 |
) |
|
|
5,029 |
|
|
|
39 |
|
|
|
5,068 |
|
Operating
profit/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates*
|
|
|
563 |
|
|
|
476 |
|
|
|
377 |
|
|
|
93 |
|
|
|
39 |
|
|
|
- |
|
|
|
1,548 |
|
|
|
(44 |
) |
|
|
1,504 |
|
Retranslation
to actual
exchange
rates
|
|
|
88 |
|
|
|
34 |
|
|
|
30 |
|
|
|
(2 |
) |
|
|
4 |
|
|
|
- |
|
|
|
154 |
|
|
|
(15 |
) |
|
|
139 |
|
At actual exchange
rates
|
|
|
651 |
|
|
|
510 |
|
|
|
407 |
|
|
|
91 |
|
|
|
43 |
|
|
|
- |
|
|
|
1,702 |
|
|
|
(59 |
) |
|
|
1,643 |
|
Global
supply allocation
|
|
|
19 |
|
|
|
19 |
|
|
|
5 |
|
|
|
- |
|
|
|
(43 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Operating
profit/(loss)
before
exceptional items
|
|
|
670 |
|
|
|
529 |
|
|
|
412 |
|
|
|
91 |
|
|
|
- |
|
|
|
- |
|
|
|
1,702 |
|
|
|
(59 |
) |
|
|
1,643 |
|
Exceptional
restructuring
costs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13 |
) |
|
|
- |
|
|
|
(13 |
) |
|
|
- |
|
|
|
(13 |
) |
Operating
profit/(loss)
|
|
|
670 |
|
|
|
529 |
|
|
|
412 |
|
|
|
91 |
|
|
|
(13 |
) |
|
|
- |
|
|
|
1,689 |
|
|
|
(59 |
) |
|
|
1,630 |
|
Net
finance charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(344 |
) |
Share
of associates’ profits
after
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Moët Hennessy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112 |
|
-
Other associates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Profit
before taxation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,406 |
|
* These
items represent the IFRS 8 performance measures for the geographic and global
supply segments.
The
group’s net finance charges are managed centrally and are not attributable to
individual activities.
Apart
from sales by the global supply segment, inter-segmental sales are not
material.
The
festive holiday season provides the peak period for sales. Approximately 40% of
annual net sales occur in the last four months of each calendar
year.
Weighted
average exchange rates used in the translation of income statements were US
dollar - £1 = $1.64 (2008 - £1 = $1.66) and euro - £1 = €1.12 (2008 - £1 =
€1.21). Exchange rates used to translate assets and liabilities at the balance
sheet date were US dollar - £1 = $1.62 (30 June 2009 - £1 = $1.65; 31 December
2008 - £1 = $1.46) and euro - £1 = €1.13 (30 June 2009 - £1 = €1.17; 31 December
2008 - £1 = €1.05). The group uses foreign exchange transaction hedges to
mitigate the effect of exchange rate movements.
Exceptional
items are those which, in management’s judgement, need to be disclosed by virtue
of their size or incidence in order for the user to obtain a proper
understanding of the financial information.
|
|
Six
months ended
31
December 2009
|
|
|
Six
months ended
31
December 2008
|
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
Global
restructuring programme
|
|
|
(21 |
) |
|
|
- |
|
Restructuring
of global supply operations
|
|
|
(69 |
) |
|
|
- |
|
Restructuring
of Irish brewing operations
|
|
|
(5 |
) |
|
|
(13 |
) |
|
|
|
(95 |
) |
|
|
(13 |
) |
Charged
to:
|
|
|
22 |
|
|
|
13 |
|
Cost
of sales |
|
|
73 |
|
|
|
- |
|
Other
operating expenses |
|
|
95 |
|
|
|
13 |
|
Exceptional
items relating to tax are identified in note 5.
4.
|
Net
interest and other finance charges
|
|
|
Six
months ended
31
December 2009
|
|
|
Six
months ended
31
December 2008
|
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
Interest
payable
|
|
|
(284 |
) |
|
|
(311 |
) |
Interest
receivable
|
|
|
139 |
|
|
|
45 |
|
Market
value movements on interest rate instruments
|
|
|
(52 |
) |
|
|
(31 |
) |
Net
interest payable
|
|
|
(197 |
) |
|
|
(297 |
) |
|
|
|
|
|
|
|
|
|
Net
finance charge in respect of post employment plans
|
|
|
(25 |
) |
|
|
- |
|
Unwinding
of discounts
|
|
|
(7 |
) |
|
|
(11 |
) |
Other
finance income/(charges)
|
|
|
3 |
|
|
|
(17 |
) |
|
|
|
(29 |
) |
|
|
(28 |
) |
Net
exchange movements on certain financial instruments
|
|
|
(11 |
) |
|
|
(19 |
) |
Net
other finance charges
|
|
|
(40 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
For the
six months ended 31 December 2009, the £310 million taxation charge (2008 - £210
million) comprises a UK tax credit of £47 million (2008 - £77 million) and a
foreign tax charge of £357 million (2008 - £287 million). A tax
credit of £24 million on exceptional operating items (2008 - £2 million) is
included in the tax charge. The tax charge for the six months ended
31 December 2008 also included an exceptional tax credit of £101 million arising
as a result of settlements agreed with tax authorities.
6.
|
Discontinued
operations
|
Discontinued
operations represent a provision of £10 million in respect of future payments to
new thalidomide claimants. It is expected that the annual payment
will be approximately £2 million per annum payable until
2030. Provision has been made for the discounted value of these
payments.
|
|
31
December 2009
|
|
|
30
June
2009
(restated)
|
|
|
31
December
2008
(restated)
|
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials and consumables
|
|
|
311 |
|
|
|
270 |
|
|
|
312 |
|
Work
in progress
|
|
|
25 |
|
|
|
25 |
|
|
|
25 |
|
Maturing
inventories
|
|
|
2,413 |
|
|
|
2,274 |
|
|
|
2,240 |
|
Finished
goods and goods for resale
|
|
|
530 |
|
|
|
509 |
|
|
|
687 |
|
|
|
|
3,279 |
|
|
|
3,078 |
|
|
|
3,264 |
|
|
|
31
December 2009
|
|
|
30
June
2009
|
|
|
31
December
2008
|
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
due within one year and bank overdrafts
|
|
|
(891 |
) |
|
|
(890 |
) |
|
|
(1,892 |
) |
Borrowings
due after one year
|
|
|
(8,202 |
) |
|
|
(7,685 |
) |
|
|
(9,223 |
) |
Fair
value of interest rate hedging instruments
|
|
|
64 |
|
|
|
93 |
|
|
|
172 |
|
Fair
value of foreign currency swaps and forwards
|
|
|
154 |
|
|
|
170 |
|
|
|
448 |
|
Finance
lease liabilities
|
|
|
(18 |
) |
|
|
(21 |
) |
|
|
(9 |
) |
|
|
|
(8,893 |
) |
|
|
(8,333 |
) |
|
|
(10,504 |
) |
Cash
and cash equivalents
|
|
|
1,589 |
|
|
|
914 |
|
|
|
2,088 |
|
|
|
|
(7,304 |
) |
|
|
(7,419 |
) |
|
|
(8,416 |
) |
In the
six months ended 31 December 2009, the group issued a $500 million (£305
million) global bond repayable in January 2015 with a coupon of 3.25%. A $300
million (£182 million) medium term note was repaid.
9.
|
Reconciliation
of movement in net borrowings
|
|
|
Six
months ended
31
December 2009
|
|
|
Six
months ended
31
December 2008
|
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
Increase
in net cash and cash equivalents before exchange
|
|
|
682 |
|
|
|
1,199 |
|
Cash
flow from change in loans
|
|
|
(299 |
) |
|
|
(1,802 |
) |
Change
in net borrowings from cash flows
|
|
|
383 |
|
|
|
(603 |
) |
Exchange
differences
|
|
|
(201 |
) |
|
|
(1,470 |
) |
Other
non-cash items
|
|
|
(67 |
) |
|
|
104 |
|
Net
borrowings at beginning of the period
|
|
|
(7,419 |
) |
|
|
(6,447 |
) |
Net
borrowings at end of the period
|
|
|
(7,304 |
) |
|
|
(8,416 |
) |
|
|
Six
months ended
31
December 2009
£
million
|
|
|
Six
months ended
31
December 2008
£
million
|
|
Amounts
recognised as distributions to equity
shareholders
in the period
|
|
|
|
|
|
|
Final
dividend paid for the year ended 30 June 2009 of
22.20
pence per share (2008 - 21.15 pence)
|
|
|
551 |
|
|
|
527 |
|
For the
six months ended 31 December 2009, an interim dividend of 14.60 pence per share
(2008 - 13.90 pence) was approved by the Board on 10 February 2010. As this was
after the balance sheet date, this dividend has not been included as a liability
in the balance sheet at 31 December 2009.
11.
|
Cash
generated from operations
|
|
|
Six
months ended
31
December 2009
|
|
|
Six
months ended
31
December 2008
(restated)
|
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the period
|
|
|
1,073 |
|
|
|
|
|
|
1,196 |
|
|
|
|
Discontinued
operations
|
|
|
10 |
|
|
|
|
|
|
- |
|
|
|
|
Taxation
|
|
|
310 |
|
|
|
|
|
|
210 |
|
|
|
|
Share
of associates’ profits after tax
|
|
|
(94 |
) |
|
|
|
|
|
(120 |
) |
|
|
|
Net
interest and net other finance charges
|
|
|
237 |
|
|
|
|
|
|
344 |
|
|
|
|
Operating
profit
|
|
|
|
|
|
|
1,536 |
|
|
|
|
|
|
|
1,630 |
|
Increase
in inventories
|
|
|
(128 |
) |
|
|
|
|
|
|
(264 |
) |
|
|
|
|
Increase
in trade and other receivables
|
|
|
(488 |
) |
|
|
|
|
|
|
(583 |
) |
|
|
|
|
Increase
in trade and other payables
|
|
|
544 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
Net
movement in working capital
|
|
|
|
|
|
|
(72 |
) |
|
|
|
|
|
|
(841 |
) |
Depreciation
and amortisation
|
|
|
|
|
|
|
159 |
|
|
|
|
|
|
|
144 |
|
Dividend
income
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
9 |
|
Other
items
|
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
42 |
|
Cash
generated from operations
|
|
|
|
|
|
|
1,569 |
|
|
|
|
|
|
|
984 |
|
In the
consolidated statement of cash flows, cash generated from operations is stated
after £76 million (2008 - £2 million) of cash outflows in respect of exceptional
operating items.
12.
|
Contingent
liabilities and legal proceedings
|
(a) Guarantees As of 31
December 2009 the group has no material performance guarantees or indemnities to
third parties.
(b) Colombian
litigation An action was filed on 8 October 2004 in the United
States District Court for the Eastern District of New York by the Republic of
Colombia and a number of its local government entities against Diageo and other
spirits companies. The complaint alleges several causes of action. Included
among the causes of action is a claim that the defendants allegedly violated the
Federal RICO Act by facilitating money laundering in Colombia through their
supposed involvement in the contraband trade to the detriment of government
owned spirits production and distribution businesses. Diageo is unable to
quantify meaningfully the possible loss or range of loss to which the lawsuit
may give rise. Diageo intends to defend itself vigorously against this
lawsuit.
(c) Turkish customs
litigation In common with other beverage alcohol importers,
litigation is ongoing against Diageo’s Turkish subsidiary (Diageo Turkey) in the
Turkish Civil Courts in connection with the methodology used by the Turkish
customs authorities in assessing the importation value of and ad valorem import
duty payable on the beverage alcohol products sold in the domestic channel in
Turkey between 2001 and April 2009. The matter involves multiple cases
against Diageo Turkey at various stages of litigation, including a group of
cases under correction appeal following an adverse finding at the Turkish
Supreme Court, and a group of cases decided on corrections appeal against Diageo
Turkey that are now under further appeal. Diageo Turkey is unable to quantify
meaningfully the possible loss or range of loss to which these cases may give
rise. If all of these cases were finally to be decided against Diageo Turkey,
the aggregate theoretical loss could exceed £100 million. Diageo Turkey has been
using available opportunities to indicate to the Turkish authorities that, if
suitable enabling legislation were in place, Diageo Turkey would be amenable to
agreeing a settlement at a level that is proportionate to the scale of Diageo
Turkey’s business, which on an annualised basis earns operating profit of less
than £10 million. In this context, Diageo believes that any eventual liability
is unlikely to be material to the Diageo group as a whole. Diageo Turkey intends
to defend its position vigorously.
(d) SEC investigation As
previously reported, Diageo Korea and several of its current and former
employees have been subject to investigations by Korean authorities regarding
various regulatory and control matters. Convictions for improper payments to a
Korean customs official have been handed down against two former Diageo Korea
employees, and a former and two current Diageo Korea employees have been
convicted on various counts of tax evasion. Diageo had previously voluntarily
reported the allegations relating to the convictions for improper payments to
the US Department of Justice and the US Securities and Exchange Commission
(SEC). The SEC has commenced an investigation into these matters, and Diageo is
in the process of responding to the regulators’ enquiries. Diageo’s own internal
investigation in Korea and elsewhere is ongoing. The US Foreign Corrupt
Practices Act (FCPA) and related statutes and regulations provide for potential
monetary penalties, criminal sanctions and may result in some cases in debarment
from doing business with governmental entities in connection with FCPA
violations. Diageo is unable to quantify meaningfully the possible loss or range
of loss to which these matters may give rise.
(e) Korean customs
litigation Litigation is ongoing at the Korean National Tax Tribunal in
connection with the application of the methodology used in transfer pricing on
spirits imports since 2004. On 24 December 2009, Diageo Korea
received a final customs audit assessment notice from the Korean customs
authorities, covering the period from 1 February 2004 to 30 June 2007, for
approximately £94 million. In order to preserve its right to appeal,
Diageo Korea is required to pay the full amount of the
assessment. Diageo Korea paid £4 million to the Korean customs
authorities in the year ended 30 June 2009, £18 million in the six months ended
31 December 2009, and expects to pay an additional £72 million by 5 July 2010,
in respect of the period prior to 30 June 2007. On 22 January 2010,
Diageo Korea appealed this customs audit assessment to the Korean National Tax
Tribunal. Diageo Korea intends to defend its position vigorously.
(f) Other The group has
extensive international operations and is defendant in a number of legal
proceedings incidental to these operations. There are a number of legal claims
against the group, the outcome of which cannot at present be
foreseen.
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, as disclosed in the Annual Report for
the year ended 30 June 2009. There have been no transactions with these related
parties during the six months ended 31 December 2009 that have materially
affected the financial position or performance of the group during this
period.
RESPONSIBILITY
STATEMENT
N.C.
Rose, Chief Financial Officer, confirmed on behalf of the board that, to the
best of his knowledge:
|
·
|
the
condensed set of financial statements has been prepared in accordance with
IAS 34 Interim Financial
Reporting as issued by the IASB and endorsed and adopted by the
EU;
|
|
·
|
the
interim management report includes a fair review of the information
required by:
|
|
(a)
|
DTR
4.2.7R of the Disclosure
and Transparency Rules of the UK’s Financial Services Authority,
being an indication of important events that have occurred during the
first six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year;
and
|
|
(b)
|
DTR
4.2.8R of the Disclosure
and Transparency Rules of the UK’s Financial Services 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 2009 Annual
Report that could have a material effect on the financial position or
performance of the group in the first six months of the current financial
year.
|
INDEPENDENT
REVIEW REPORT TO DIAGEO PLC
Introduction
We have
been engaged by the company to review the condensed set of financial statements
in the half-yearly financial report for the six months ended 31 December 2009
which comprises the condensed consolidated income statement, the condensed
consolidated statement of comprehensive income, the condensed consolidated
balance sheet, the condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows and the related explanatory
notes. We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This
report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Disclosure
and Transparency Rules (‘the DTR’) of the UK's Financial Services Authority
(‘the UK FSA’). Our review has been undertaken so that we might state to the
company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company for our review work, for
this report, or for the conclusions we have reached.
Directors'
responsibilities
The
half-yearly financial report is the responsibility of, and has been approved by,
the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the DTR of the UK FSA.
As
disclosed in note 1, the annual financial statements of the group are prepared
in accordance with IFRSs as endorsed and adopted by the EU. The condensed set of
financial statements included in this half-yearly financial report has been
prepared in accordance with IAS 34 Interim Financial Reporting
as endorsed and adopted by the EU.
Our
responsibility
Our
responsibility is to express to the company a conclusion on the condensed set of
financial statements in the half-yearly financial report based on our
review.
Scope
of review
We
conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity issued by
the Auditing Practices Board for use in the UK. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on
our review, nothing has come to our attention that causes us to believe that the
condensed set of financial statements in the half-yearly financial report for
the six months ended 31 December 2009 is not prepared, in all material respects,
in accordance with IAS 34 as endorsed and adopted by the EU and the DTR of the
UK FSA.
Ian
Starkey
for
and on behalf of KPMG Audit Plc
Chartered
Accountants
8
Salisbury Square
London,
EC4Y 8BB, UK
10
February 2010
ADDITIONAL
INFORMATION FOR SHAREHOLDERS
EXPLANATORY
NOTES
Definitions
Comparisons
are to the six months ended 31 December 2008 (2008) unless otherwise stated.
Unless otherwise stated, percentage movements given throughout this announcement
for volume, sales, net sales, marketing spend and operating profit are organic
movements after retranslating prior period reported numbers at current period
exchange rates and after adjusting for the effect of exceptional items,
acquisitions and disposals and the adoption of new accounting policies. For an
explanation of organic movements please refer to ‘Reconciliation to GAAP
measures’ in this announcement.
Volume
has been measured on an equivalent units basis to nine litre cases of spirits.
An equivalent unit represents one nine litre case of spirits, which is
approximately 272 servings. A serving comprises 33ml of spirits, 165ml of wine,
or 330ml of ready to drink or beer. Therefore, to convert volume of products,
other than spirits, to equivalent units, the following guide has been used: beer
in hectolitres divide by 0.9, wine in nine litre cases divide by five, ready to
drink in nine litre cases divide by 10 and certain pre-mixed products that are
classified as ready to drink in nine litre cases divide by five.
Net
sales are sales after deducting excise duties.
Price/mix
is the number of percentage points by which the movement in net sales exceeds
the movement in volume. The difference arises because of changes in
the composition of sales between higher and lower priced variants or as price
changes are implemented.
Exceptional
items are those which, in management’s judgement, need to be disclosed by virtue
of their size or incidence in order for the user to obtain a proper
understanding of the financial information. Such items are included within the
income statement caption to which they relate.
The
classification of brands as ‘local priority brands’ and ‘category brands’ has
been discontinued for reporting purposes because management no longer uses those
measures to analyse the performance of the business.
References
to ready to drink include progressive adult beverages in the United States and
certain markets supplied by the United States. References to Smirnoff ready to
drink include Smirnoff Ice, Smirnoff Black Ice, Smirnoff Twisted V, Smirnoff
Mule, Smirnoff Spin, Smirnoff Storm, Smirnoff Caipiroska, Smirnoff Signatures
and Smirnoff Cocktails. References to Smirnoff Black Ice include Smirnoff Ice
Triple Black in the United States and Smirnoff Ice Double Black in
Australia.
References
to reserve brands include Johnnie Walker Green Label, Johnnie Walker Gold Label,
Johnnie Walker Blue Label, Johnnie Walker Blue Label King George V, Classic
Malts, The Singleton of Glen Ord, The Singleton of Glendullan, The Singleton of
Dufftown, Tanqueray Ten, Cîroc, Don Julio, Ketel One and Zacapa.
Volume
share is a brand’s volume when compared to the volume of all brands in its
segment. Value share is a brand’s retail sales when compared to the retail sales
of all brands in its segment. Unless otherwise stated, share refers to value
share. Share of voice is the media spend on a particular brand when compared to
all brands in its segment. The share and share of voice data contained in this
announcement is taken from independent industry sources in the markets in which
Diageo operates.
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 page X – ‘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.
Reconciliation
to GAAP measures
Organic
movements in volume, sales, net sales, marketing spend, operating profit and
operating margin are measures not specifically used in the consolidated
financial statements themselves (non-GAAP measures). The performance of the
group is discussed using these measures.
In
the discussion of the performance of the business, organic information is
presented using pounds sterling amounts on a constant currency basis. This
retranslates prior period reported numbers at current period exchange rates and
enables an understanding of the underlying performance of the market that is
most closely influenced by the actions of that market’s
management. The risk from exchange rate movements is managed
centrally and is not a factor over which local managers have any
control. Residual exchange impacts are reported within
corporate.
Acquisitions,
disposals and exceptional items also impact on the reported performance and
therefore the reported movement in any period in which they arise. Management
adjusts for the impact of such transactions in assessing the performance of the
underlying business.
The
underlying performance on a constant currency basis and excluding the impact of
exceptional items, acquisitions and disposals is referred to as ‘organic’
performance. Organic movement calculations enable the reader to focus on the
performance of the business which is common to both periods.
Organic movements in volume,
sales, net sales and operating profit
Diageo’s
strategic planning and budgeting process is based on organic movements in
volume, sales, net sales and operating profit, and these measures closely
reflect the way in which operating targets are defined and performance is
monitored by the group’s management.
These
measures are chosen for planning, budgeting, reporting and incentive purposes
since they represent those measures which local managers are most directly able
to influence and they enable consideration of the underlying business
performance without the distortion caused by fluctuating exchange rates,
exceptional items and acquisitions and disposals.
The
group’s management believes these measures provide valuable additional
information for users of the financial statements in understanding the group’s
performance since they provide information on those elements of performance
which local managers are most directly able to influence and they focus on that
element of the core brand portfolio which is common to both periods. They should
be viewed as complementary to, and not replacements for, the comparable GAAP
measures and reported movements therein.
The
organic movement calculations for volume, sales, net sales and operating profit
before exceptional items for the six months ended 31 December 2009 were as
follows:
Volume
|
|
2008
Reported
units
million
|
|
|
Acquisitions
and disposals(2)
units
million
|
|
|
Organic
movement
units
million
|
|
|
2009
Reported
units
million
|
|
|
Organic
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
28.9 |
|
|
|
- |
|
|
|
(1.3 |
) |
|
|
27.6 |
|
|
|
(4 |
) |
Europe
|
|
|
22.5 |
|
|
|
- |
|
|
|
(0.5 |
) |
|
|
22.0 |
|
|
|
(2 |
) |
International
|
|
|
20.3 |
* |
|
|
- |
|
|
|
0.5 |
|
|
|
20.8 |
|
|
|
2 |
|
Asia
Pacific
|
|
|
6.5 |
|
|
|
- |
|
|
|
(0.1 |
) |
|
|
6.4 |
|
|
|
(1 |
) |
Total
volume
|
|
|
78.2 |
* |
|
|
- |
|
|
|
(1.4 |
) |
|
|
76.8 |
|
|
|
(2 |
) |
*Decreased
by 0.3 million equivalent units from the figures reported for the six
months ended 31 December 2008.
|
|
Sales
|
|
2008
Reported
£
million
|
|
|
Exchange(1)
£
million
|
|
|
Acquisitions
and
disposals(2)
£
million
|
|
|
Organic
movement
£
million
|
|
|
2009
Reported
£
million
|
|
|
Organic
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
2,043 |
|
|
|
37 |
|
|
|
9 |
|
|
|
(120 |
) |
|
|
1,969 |
|
|
|
(6 |
) |
Europe
|
|
|
2,431 |
|
|
|
84 |
|
|
|
6 |
|
|
|
(65 |
) |
|
|
2,456 |
|
|
|
(3 |
) |
International
|
|
|
1,517 |
|
|
|
64 |
|
|
|
- |
|
|
|
145 |
|
|
|
1,726 |
|
|
|
9 |
|
Asia
Pacific
|
|
|
661 |
|
|
|
77 |
|
|
|
- |
|
|
|
(1 |
) |
|
|
737 |
|
|
|
- |
|
Corporate
|
|
|
39 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
40 |
|
|
|
|
|
Total
sales
|
|
|
6,691 |
|
|
|
263 |
|
|
|
15 |
|
|
|
(41 |
) |
|
|
6,928 |
|
|
|
(1 |
) |
Net
sales
|
|
2008
Reported
£
million
|
|
|
Exchange(1)
£
million
|
|
|
Acquisitions
and
disposals(2)
£
million
|
|
|
Organic
movement
£
million
|
|
|
2009
Reported
£
million
|
|
|
Organic
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
1,755 |
|
|
|
34 |
|
|
|
9 |
|
|
|
(103 |
) |
|
|
1,695 |
|
|
|
(6 |
) |
Europe
|
|
|
1,560 |
|
|
|
61 |
|
|
|
5 |
|
|
|
(79 |
) |
|
|
1,547 |
|
|
|
(5 |
) |
International
|
|
|
1,237 |
|
|
|
58 |
|
|
|
- |
|
|
|
107 |
|
|
|
1,402 |
|
|
|
8 |
|
Asia
Pacific
|
|
|
477 |
|
|
|
53 |
|
|
|
- |
|
|
|
(7 |
) |
|
|
523 |
|
|
|
(1 |
) |
Corporate
|
|
|
39 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
40 |
|
|
|
|
|
Total
net sales
|
|
|
5,068 |
|
|
|
207 |
|
|
|
14 |
|
|
|
(82 |
) |
|
|
5,207 |
|
|
|
(2 |
) |
Excise
duties
|
|
|
1,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,721 |
|
|
|
|
|
Total
sales
|
|
|
6,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,928 |
|
|
|
|
|
Operating
profit
|
|
2008
Reported*
£million
|
|
|
Exchange(1)
£
million
|
|
|
Acquisitions
and
disposals(2)
£
million
|
|
|
Organic
movement
£
million
|
|
|
2009
Reported
£
million
|
|
|
Organic
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
670 |
|
|
|
13 |
|
|
|
(5 |
) |
|
|
(11 |
) |
|
|
667 |
|
|
|
(2 |
) |
Europe
|
|
|
529 |
|
|
|
17 |
|
|
|
- |
|
|
|
(18 |
) |
|
|
528 |
|
|
|
(3 |
) |
International
|
|
|
412 |
|
|
|
(15 |
) |
|
|
- |
|
|
|
63 |
|
|
|
460 |
|
|
|
16 |
|
Asia
Pacific
|
|
|
91 |
|
|
|
7 |
|
|
|
- |
|
|
|
5 |
|
|
|
103 |
|
|
|
5 |
|
Corporate
|
|
|
(59 |
) |
|
|
21 |
|
|
|
- |
|
|
|
(89 |
) |
|
|
(127 |
) |
|
|
|
|
Total
operating profit
before
exceptional items
|
|
|
1,643 |
|
|
|
43 |
|
|
|
(5 |
) |
|
|
(50 |
) |
|
|
1,631 |
|
|
|
(3 |
) |
Exceptional
items(3)
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95 |
) |
|
|
|
|
Total
operating profit
|
|
|
1,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,536 |
|
|
|
|
|
*
The figures for the six months ended 31 December 2008 have been restated
following the adoption of the amendment to IAS 38
– Intangible assets and IFRS 8 – Operating segments
and the change to the accounting treatment of returnables. See Note 1
to the financial information and page 38 for an
explanation of the effect of the restatements.
Notes: Information
relating to the organic movement calculations
(1)
|
The
exchange adjustments for sales, net sales and operating profit are
primarily the retranslation of prior period reported results at current
period exchange rates and are principally in respect of the euro, the US
dollar and the Australian dollar.
|
(2)
|
The
impacts of acquisitions and disposals are excluded from the organic
movement percentages. In the six months ended 31 December 2009 there were
no acquisitions or disposals but adjustment is made to exclude the impact
of the disposal of the Bordeaux wine agency business in the United States
and the acquisitions of Stirrings LLC and the distribution rights of Grand
Marnier and Windhoek completed in the year ended 30 June
2009.
|
(3)
|
Operating
exceptional items in the six months ended 31 December 2009 comprised
charges of £21 million (2008 - £nil) in respect of the global
restructuring programme, £69 million (2008 - £nil) in respect of the
restructuring of global supply operations and £5 million (2008 - £13
million) in respect of the restructuring of Irish brewing
operations.
|
Notes:
Organic movement calculations methodology
a)
|
The
organic movement percentage is the amount in the column headed Organic
movement in the tables above expressed as a percentage of the aggregate of
the amount in the column headed 2008 Reported, the amount in the column
headed Exchange and the amount, if any, in respect of disposals included
in the column headed Acquisitions and disposals. The inclusion of the
column headed Exchange in the organic movement calculation reflects the
adjustment to recalculate the prior period results as if they had been
generated at the current period’s exchange
rates.
|
b)
|
Where
a business, brand, brand distribution right or agency agreement was
disposed of, or terminated, in the current period, the group, in organic
movement calculations, adjusts the results for the comparable prior period
to exclude the amount the group earned in that period that it could not
have earned in the current period (i.e. the period between the date in the
prior period, equivalent to the date of the disposal in the current
period, and the end of the prior period). As a result, the organic
movement numbers reflect only comparable performance. Similarly, if a
business was disposed of part way through the equivalent prior period then
its contribution would be completely excluded from that prior period’s
performance in the organic movement calculation, since the group
recognised no contribution from that business in the current 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. For acquisitions, a
similar adjustment is made in the organic movement calculations. For
acquisitions subsequent to the end of the equivalent prior period, the
post acquisition results in the current period 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 only
included from the anniversary of the acquisition date in the current
period. The acquistion adjustment also includes transaction costs on
acquisitions incurred in the appropriate
period.
|
Restatement
of prior period operating profit
As
reported in Note 1 on page 26, Diageo adopted the amendment to IAS 38 – Intangible assets
and IFRS 8 – Operating segments from 1
July 2009. In addition, Diageo changed its accounting policy in
respect of the accounting for returnables from 1 July 2009. The
segmental figures for operating profit before exceptional items for the year
ended 30 June 2009 and the six months ended 31 December 2008 have been restated
as follows:
Year
ended 30 June 2009
|
|
As
previously
reported
£
million
|
|
|
Amendment
to
IAS 38
£
million
|
|
|
IFRS
8
£
million
|
|
|
Returnables
£
million
|
|
|
Restated
£
million
|
|
|
Restated
organic
growth
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
1,156 |
|
|
|
(2 |
) |
|
|
(16 |
) |
|
|
- |
|
|
|
1,138 |
|
|
|
(1 |
) |
Europe
|
|
|
856 |
|
|
|
(10 |
) |
|
|
7 |
|
|
|
- |
|
|
|
853 |
|
|
|
(1 |
) |
International
|
|
|
645 |
|
|
|
(3 |
) |
|
|
17 |
|
|
|
(10 |
) |
|
|
649 |
|
|
|
11 |
|
Asia
Pacific
|
|
|
164 |
|
|
|
- |
|
|
|
(5 |
) |
|
|
- |
|
|
|
159 |
|
|
|
3 |
|
Corporate
|
|
|
(208 |
) |
|
_ _-
|
|
|
_(3)
|
|
|
|
- |
|
|
|
(211 |
) |
|
|
|
|
|
|
|
2,613 |
|
|
|
(15 |
) |
|
|
- |
|
|
|
(10 |
) |
|
|
2,588 |
|
|
|
4 |
|
Six
months ended 31 December 2008
|
|
As
previously
reported
£
million
|
|
|
Amendment
to
IAS 38
£
million
|
|
|
IFRS
8
£
million
|
|
|
Returnables
£
million
|
|
|
Restated
£
million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
682 |
|
|
|
2 |
|
|
|
(14 |
) |
|
|
- |
|
|
|
670 |
|
Europe
|
|
|
547 |
|
|
|
(8 |
) |
|
|
(10 |
) |
|
|
- |
|
|
|
529 |
|
International
|
|
|
420 |
|
|
|
- |
|
|
|
(5 |
) |
|
|
(3 |
) |
|
|
412 |
|
Asia
Pacific
|
|
|
93 |
|
|
|
3 |
|
|
|
(5 |
) |
|
|
- |
|
|
|
91 |
|
Corporate
|
|
_(93)
|
|
|
|
- |
|
|
_34
|
|
|
|
- |
|
|
|
(59 |
) |
|
|
|
1,649 |
|
|
|
(3 |
) |
|
|
- |
|
|
|
(3 |
) |
|
|
1,643 |
|
For
further information and the impact on the consolidated balance sheet see Note 1
to the financial information. All amounts shown in the tables above under
‘Amendment to IAS 38’ are in respect of marketing spend on which the other
restatements have no impact.
Movement in earnings per share before exceptional items
and discontinued operations and underlying movement in earnings per
share
The
group’s management believes movement in earnings per share before exceptional
items and discontinued operations as well as earnings per share on an underlying
movement basis provides valuable additional information for users of the
financial statements in understanding the group’s overall performance. The
group’s management believes that the comparison of movements on these bases
provides information as to the individual components of the movement in basic
earnings per share, being the impact of retranslating prior period reported
results at current period exchange rates and the impact of exceptional items,
acquisitions, disposals and discontinued operations the application of an
underlying tax rate for each period. These measures should be viewed as
complementary to, and not a replacement for, the comparable GAAP measures such
as basic earnings per share and reported movements therein.
The
calculation of movements in earnings per share for the six months ended 31
December 2009 was as follows:
|
|
Six
months ended
|
|
|
Six
months ended
|
|
|
|
|
|
|
31
December 2009
|
|
|
31
December 2008
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
Growth
|
|
|
|
Pence
per share (6)
|
|
|
Pence
per share (6)
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Basic
eps
|
|
|
40.9 |
|
|
|
45.5 |
|
|
|
(10 |
) |
Exceptional
items (1)
|
|
|
3.3 |
|
|
|
(3.6 |
) |
|
|
|
|
Eps
before exceptional items
|
|
|
|
|
|
|
|
|
|
|
|
|
and
discontinued operations
|
|
|
44.2 |
|
|
|
41.9 |
|
|
|
5 |
|
Tax
equalisation (2)
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Exchange
(3)
|
|
|
0.4 |
|
|
|
2.1 |
|
|
|
|
|
IAS
21 and IAS 39 (4)
|
|
|
0.1 |
|
|
|
1.6 |
|
|
|
|
|
Disposals
(5)
|
|
|
- |
|
|
|
(0.1 |
) |
|
|
|
|
Adjusted
basic eps – underlying
|
|
|
|
|
|
|
|
|
|
|
|
|
growth
|
|
|
44.7 |
|
|
|
45.5 |
|
|
|
(2 |
) |
Notes: Information
relating to the current period
(1)
|
In
the six months ended 31 December 2009, there were exceptional charges
after tax of £71 million (2008 - £11 million) for
restructuring. In the six months ended 31 December 2008, there
was an exceptional tax credit of £101 million. Discontinued operations in
the six months ended 31 December 2009 amounted to £10 million (2008 -
£nil).
|
|
(2)
|
Tax
equalisation - the impact of adjusting the reported tax rate for each
period to the underlying tax rate for each period (see 5. Underlying tax
rate). No adjustment from the reported tax rate to the underlying tax rate
is required in respect of the six month periods ended 31 December 2009 and
31 December 2008 other than the adjustments made in respect of exceptional
items.
|
|
(3)
|
Exchange
- the exchange adjustments for operating profit and net finance charges
are principally in respect of the euro and the US dollar. Exchange
adjustments are taxed at the underlying tax rate for the
period.
|
|
(4)
|
Amounts
under IAS 21 and IAS 39 reported in net finance charges, excluding
transactions with offsetting impact in net interest payable, after tax at
the underlying tax rate for each period are excluded from adjusted basic
earnings per share.
|
|
(5)
|
In
the six months ended 31 December 2009 there were no acquisitions or
disposals but adjustment is made to exclude the impact of the disposal of
the Bordeaux wine agency business in the United States and the
acquisitions of Stirrings LLC and the distribution rights of Grand Marnier
and Windhoek completed in the year ended 30 June
2009.
|
|
(6)
|
All
amounts are derived from amounts in £ million divided by the weighted
average number of shares in issue for the six months ended 31 December
2009 of 2,482 million (2008 - 2,492
million).
|
Notes:
Underlying movement calculations methodology
|
a)
|
Where
a business, brand, brand distribution right or agency agreement or
investment was disposed of, or terminated, in the current period, the
group, in the underlying movement calculations, adjusts the profit for the
period attributable to equity shareholders for the comparable prior period
to exclude the following: (i) the amount the group earned in that period
that it could not have earned in the current period (i.e. the period
between the date in the prior period, equivalent to the date of the
disposal in the current period, and the end of the prior period); (ii) a
capital return in respect of the reduction in interest charge had the
disposal proceeds been used entirely to reduce borrowings; and (iii)
taxation at the underlying tax rate. As a result, the underlying movement
numbers reflect only comparable performance. Similarly, if a business or
investment asset was disposed of part way through the equivalent prior
period, then its impact on the profit for the period attributable to
equity shareholders (i.e. after adjustment for a capital return from use
of the proceeds of the disposal to reduce borrowings and tax at the
underlying tax rate) would be excluded from that prior period’s
performance in the underlying movement calculation, since the group
recognised no contribution from that business in the current
period.
|
b)
|
Where
a business, brand, brand distribution right, agency agreement or
investment was acquired subsequent to the end of the equivalent prior
period, the group, in the underlying movement calculations, adjusts the
profit for the current period attributable to equity shareholders to
exclude the following: (i) the amount the group earned in the current
period that it could not have earned in the prior period; (ii) a capital
charge in respect of the increase in interest charge had the acquisition
been funded entirely by an increase in borrowings; and (iii) taxation at
the underlying tax rate. As a result, the underlying movement numbers
reflect only comparable performance. Similarly, if a business or
investment asset was acquired part way through the equivalent prior
period, then its impact on the profit for the period attributable to
equity shareholders (i.e. after adjustment for a capital charge for the
funding of the acquisition and tax at the underlying tax rate) would be
adjusted only to include the results from the anniversary of the
acquisition in the current period’s performance in the underlying movement
calculation.
|
c)
|
The
exchange effects of IAS 21 in respect of short term inter-company funding
balances and IAS 39 in respect of market value movements as recognised in
net finance charges, net of tax at the underlying tax rate, are removed
from both the current and prior period as part of the underlying movement
calculation.
|
d)
|
Underlying
movement percentages for basic earnings per share are calculated as the
underlying movement amount in pence, expressed as the percentage of the
prior period results at current period exchange rates, and after making an
adjustment in each period for exceptional items, tax equalisation, the
impacts of IAS 21 and IAS 39 on net finance charges, and acquisitions,
disposals and discontinued
operations.
|
Free
cash flow is a non-GAAP measure that comprises the net cash flow from operating
activities as well as the net purchase and disposal of investments, property,
plant and equipment and computer software that form part of net cash flow from
investing activities. The group’s management believes the measure assists users
of the financial statements in understanding the group’s cash generating
performance as it comprises items which arise from the running of the ongoing
business.
The remaining components of net cash
flow from investing activities that do not form part of free cash flow, as
defined by the group’s management, are in respect of the purchase and disposal
of subsidiaries, associates and businesses. The group’s management regards the
purchase and disposal of property, plant and equipment and computer software as
ultimately non-discretionary since ongoing investment in plant, machinery and
technology is required to support the day-to-day operations, whereas
acquisitions and disposals of businesses are discretionary. However, free cash
flow does not necessarily reflect all amounts which the group has either a
constructive or legal obligation to incur. Where appropriate, separate
discussion is given for the impacts of acquisitions and disposals of
businesses, equity dividends paid and the purchase of own shares, each of which
arises from decisions that are independent from the running of the ongoing
underlying business.
The
free cash flow measure is also used by management for their own planning,
budgeting, reporting and incentive purposes since it provides information on
those elements of performance which local managers are most directly able to
influence.
3.
|
Return
on average total invested capital
|
Return
on average total invested capital is a non-GAAP measure that is used by
management to assess the return obtained from the group’s asset base. This
measure is not specifically used in the consolidated financial statements, but
is calculated to aid comparison of the performance of the business.
The
profit used in assessing the return on total invested capital reflects the
operating performance of the business after applying the underlying tax rate for
the period stated before exceptional items and interest. Average total
invested capital is calculated using the average derived from the consolidated
balance sheets at the beginning and end of the period. Capital employed
comprises net assets for the period, excluding post employment benefit net
liabilities (net of deferred tax) and net borrowings. This average capital
employed is then aggregated with the average restructuring and integration costs
net of tax, and goodwill written off to reserves at 1 July 2004, the date of
transition to IFRS, to obtain the average total invested capital.
Calculations
for the return on average total invested capital for the six months ended 31
December 2009 and 31 December 2008 were as follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
1,536 |
|
|
|
1,630 |
|
Exceptional
items
|
|
|
95 |
|
|
|
13 |
|
Associates’
profits after interest and tax
|
|
|
94 |
|
|
|
120 |
|
Tax
at the underlying tax rate of 22.4% (2008 – 22.1%)
|
|
|
(386 |
) |
|
|
(390 |
) |
|
|
|
1,339 |
|
|
|
1,373 |
|
|
|
|
|
|
|
|
|
|
Average
net assets (excluding net post employment liabilities)
|
|
|
5,150 |
|
|
|
4,682 |
|
Average
net borrowings
|
|
|
7,362 |
|
|
|
7,432 |
|
Average
integration and restructuring costs (net of tax)
|
|
|
1,170 |
|
|
|
1,006 |
|
Goodwill
at 1 July 2004
|
|
|
1,562 |
|
|
|
1,562 |
|
Average
total invested capital
|
|
|
15,244 |
|
|
|
14,682 |
|
|
|
|
|
|
|
|
|
|
Annualised
return on average total invested capital
|
|
|
17.6 |
% |
|
|
18.7 |
% |
Economic
profit is a non-GAAP measure that is used by management to assess the group’s
return from its asset base compared to a standard cost of capital charge. The
measure is not specifically used in the consolidated financial statements, but
is calculated to aid comparison of the performance of the business.
The
profit used in assessing the return from the group’s asset base and the asset
base itself are the same as those used in the calculation for the return on
average total invested capital (see 3 above). The standard capital charge
applied to the average total invested capital is currently 9%, being
management’s assessment of a constant minimum level of return that the group
expects to generate from its asset base. Economic profit is calculated as the
difference between the standard capital charge on the average invested assets
and the actual return achieved by the group on those assets.
Calculations
for economic profit for the six months ended 31 December 2009 and 31 December
2008 were as follows:
|
|
2009
|
|
|
2008
(restated)
|
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
Average
total invested capital (see 3 above)
|
|
|
15,244 |
|
|
|
14,682 |
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
1,536 |
|
|
|
1,630 |
|
Exceptional
items
|
|
|
95 |
|
|
|
13 |
|
Associates’
profit after interest and tax
|
|
|
94 |
|
|
|
120 |
|
Tax
at the underlying tax rate of 22.4% (2008 – 22.1%)
|
|
|
(386 |
) |
|
|
(390 |
) |
|
|
|
1,339 |
|
|
|
1,373 |
|
Capital
charge at 9% of average total invested capital
|
|
|
(686 |
) |
|
|
(661 |
) |
Economic
profit
|
|
|
653 |
|
|
|
712 |
|
The
underlying tax rate is a non-GAAP measure that reflects the adjusted tax charge
on profit from continuing businesses before exceptional items as a percentage of
profit from continuing businesses before exceptional items. The underlying tax
rate is also used by management for their own planning, budgeting, reporting and
incentive purposes since it provides information on those elements of
performance which management is most directly able to influence.
The
group's management believe the measure assists users of the financial statements
in understanding the group's effective tax rate as it reflects the tax arising
on the profits from the ongoing business.
The
components of the reported tax charge which do not form part of the adjusted tax
charge, as defined by the group's management, relate to: exceptional tax items;
movements on deferred tax assets arising from intra group reorganisations which
are due to changes in estimates of expected future utilisation; any other tax
charge or credit that arises from intra group reorganisations; and items which
are offset by credits or debits in discontinued operations.
In
the six months ended 31 December 2009 both the reported and underlying tax rate
were 22%. In the six months ended 31 December 2008 the reported tax rate was 15%
and the underlying rate was 22%. The items decreasing the reported rate in the
six months ended 31 December 2008 related to settlements agreed with tax
authorities in respect of intra group reorganisations which gave rise to changes
in the value of deferred tax assets and tax provisions.
6. Interest
cover
The
income statement interest cover is defined as the number of times that the sum
of operating profit before exceptional items and share of associates’ profits
after tax exceeds net interest payable.
Cash
interest cover is defined as the number of times that the sum of operating
profit before exceptional items, depreciation and amortisation and dividends
from associates exceeds the net interest cash flow.
The
group’s management believe that these measures assist users of the financial
statements in understanding the liquidity position of the ongoing
business.
Principal
risks
Diageo’s
products are sold in over 180 markets worldwide, which subjects Diageo to risks
and uncertainties in multiple jurisdictions across mature, developing and
emerging markets. The group’s aim is to manage risk and control its business and
financial activities cost-effectively and in a manner that enables it to:
exploit profitable business opportunities in a disciplined way; avoid or reduce
risks that can cause loss, reputational damage or business failure; manage and
mitigate historic risks and exposures of the group; support operational
effectiveness; and enhance resilience to external events. To achieve this, an
ongoing process has been established for identifying, evaluating and managing
risks faced by the group. The key risks and uncertainties facing the group in
the second half of the current financial year are described in the “Business
Description” section of the 2009 Annual Report, some or all of which have the
potential to impact the results or financial position during the second half of
the current financial year.
These
key risks and uncertainties are (in summary): competition may reduce Diageo’s
market share and margins; expected benefits may not be derived from Diageo’s
strategy or its cost-saving and restructuring programmes; systems change
programmes may not deliver intended benefits; systems failures; regulatory
decisions and changes in the legal and regulatory environment could increase
Diageo’s costs and liabilities or limit its business activities; litigation;
contamination, counterfeiting or other circumstances could harm customer support
for Diageo’s brands; changes in consumer preferences and tastes and adverse
impacts of a declining economy; decline in social acceptability of Diageo’s
products; increased costs or shortages of labour; disruption to production
facilities or business service centres; increased costs of raw materials or
energy; unfavourable economic conditions or political or other developments and
risks in the countries in which Diageo operates; failure to maintain or
renegotiate distribution, supply and manufacturing agreements on favourable
terms; inability to protect Diageo’s intellectual property rights; and
difficulty in effecting service of US process and enforcing US legal process
against Diageo’s directors.
Cautionary statement concerning
forward-looking statements
This
announcement contains ‘forward-looking statements’. These statements can be
identified by the fact that they do not relate only to historical or current
facts. In particular, forward looking statements include all statements that
express forecasts, expectations, plans, outlook and projections with respect to
future matters, including trends in results of operations, margins, growth
rates, overall market trends, the impact of interest or exchange rates, the
availability or cost of financing to Diageo, anticipated cost savings or
synergies, the completion of Diageo’s strategic transactions and general
economic conditions. By their nature, forward-looking statements involve risk
and uncertainty because they relate to events and depend on circumstances that
will occur in the future. There are a number of factors that could cause actual
results and developments to differ materially from those expressed or implied by
these forward-looking statements, including factors that are outside Diageo’s
control.
These
factors include, but are not limited to:
·
|
global and regional economic
downturns;
|
·
|
increased competitive product
and pricing pressures and unanticipated actions by competitors that could
impact on Diageo’s market share, increase expenses and hinder growth
potential;
|
·
|
the effects of business
combinations, partnerships, acquisitions or disposals, existing or future,
and the ability to realise expected synergies and/or cost
savings;
|
·
|
Diageo’s ability to complete
existing or future acquisitions and
disposals;
|
·
|
legal and regulatory
developments, including changes in regulations regarding consumption of,
or advertising for, beverage alcohol, changes in tax law (including tax
rates) or accounting standards, changes in taxation requirements, such as
the impact of excise tax increases with respect to the business, and
changes in environmental laws, health regulations and laws governing
pensions;
|
·
|
developments in any litigation
or other similar proceedings directed at the drinks and spirits industry
generally or at Diageo in particular, or the impact of a product recall or
product liability claim on Diageo’s profitability or
reputation;
|
·
|
developments in the Colombian
litigation and Turkish customs litigation or any similar
proceedings;
|
·
|
changes in consumer
preferences and tastes, demographic trends or perception about health
related issues, or contamination, counterfeiting or other circumstances
which could harm the integrity or sales of Diageo’s
brands;
|
·
|
changes in the cost of raw
materials, labour and/or
energy;
|
·
|
changes in economic conditions
in countries and markets in which Diageo operates, including changes in
levels of consumer spending and failure of customer, supplier and
financial counterparties;
|
·
|
levels of marketing,
promotional and innovation expenditure by Diageo and its
competitors;
|
·
|
renewal of distribution or
licence manufacturing rights on favourable terms when they
expire;
|
·
|
termination of existing
distribution or licence manufacturing rights on agency
brands;
|
·
|
systems change programmes,
existing or future, and the ability to derive expected benefits from such
programmes, and systems failure that could lead to business
disruption;
|
·
|
technological developments
that may affect the distribution of products or impede Diageo’s ability to
protect its intellectual property rights;
and
|
·
|
changes in financial and
equity markets, including significant interest rate and foreign currency
exchange rate fluctuations and changes in the cost of capital, which may
reduce or eliminate Diageo’s access to or increase the cost of financing
or which may affect Diageo’s financial
results.
|
All
oral and written forward-looking statements made on or after the date of this
announcement and attributable to Diageo are expressly qualified in their
entirety by the above factors and the ‘Risk factors’ contained in the annual
report on Form 20-F for the year ended 30 June 2009 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.
The
content of the company’s website (www.diageo.com)
should not be considered to form a part of or be incorporated into this
announcement.
The
information in this announcement does not constitute an offer to sell or an
invitation to buy shares in Diageo plc nor an invitation or inducement to engage
in any other investment activities.
This
announcement includes information about Diageo’s 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.
For
further information
Half Year Results
Webcast
At 09.30
(UK time) on Thursday 11 February, Paul Walsh, CEO and Nick Rose, CFO will
present Diageo’s Half Year Results as a webcast. This will be
available to view at www.diageo.com. The
presentation slides will be available from 08.45 (UK time). The
transcript will be available after 11.00 (UK time) and both will be available
for download at www.diageo.com. An
archived video and podcast of the presentation and Q&A session will also be
made available later that day.
If you
would like to ask a question during the live Q&A session, please use the
following dial-in numbers:
UK Toll
free – 0800 279 9640
North
America Toll free – 1866 850 2201
France
Toll free – 0805 770 152
Germany
Toll free – 0800 673 8355
Ireland
Toll free – 1800 944 322
Italy
Toll free – 800 976 303
Netherlands
Toll free – 0800 265 9174
Spain
Toll free – 800 099 797
Switzerland
Toll free – 0800 000 287
International –
+44 (0)20 7138 0828
Please quote confirmation
code: 8053049
A
transcript of the Q&A session will be available for download at www.diageo.com on 15
February.
US Analysts Conference
Call
Paul
Walsh, CEO and Nick Rose, CFO will host a conference call for US analysts and
investors at 15.00 (UK time) on Thursday 11 February. To participate,
please use the following dial-in numbers:
UK Toll
free – 0800 279 9640
North
America Toll free – 1866 850 2201
France
Toll free – 0805 770 155
Germany
Toll free – 0800 673 8354
Ireland
Toll free – 1800 992 779
Italy
Toll free – 800 088 737
Netherlands
Toll free – 0800 265 9175
Spain
Toll free – 800 099 797
Switzerland
Toll free – 0800 000 287
International –
+44 (0)20 7138 0829
Please
quote confirmation code: 6419896
A
transcript of the Conference Call will be available for download at www.diageo.com on 15
February.
Conference Call
Replay
The
conference call will also be available on instant replay from 17.00 (UK time)
and will be available until 25 February 2010. Please use the
following dial-in numbers:
UK Toll
free – 0800 358 7735
North
America Toll free – 1866 932 5017
France
Toll free – 0800 989 597
Germany
Toll free – 0800 673 8348
Ireland
Toll free – 1800 932 637
Italy
Toll free – 800 088 741
Netherlands
Toll free – 0800 265 9180
Switzerland
Toll free – 0800 650 003
International –
+44 (0)20 7111 1244
Please quote confirmation
code: 6419896
Investor
enquiries to:
|
Nick
Temperley
|
+44
(0) 20 8978 4223
|
|
Sarah
Paul
|
+44
(0) 20 8978 4326
|
|
Kelly
Padgett
|
+1
202 715 1110
|
|
|
|
|
|
|
Media
enquiries to:
|
James
Crampton
|
+44
(0) 20 8978 4613
|
|
Cecilia
Coonan
|
+44
(0) 20 8978 2749
|
|
|
Media@diageo.com
|