List
identifying information required to be furnished
by
Diageo plc pursuant to Rule 13a-16 or 15d-16 of
The
Securities Exchange Act 1934
26
August 2010
Information
|
Required
by/when
|
|
|
Public
Announcements/Press
|
The
Stock Exchange, London
|
Announcement
Preliminary
results for the year ended 30 June 2010.
(26
August 2010)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
6-K
SECURITIES
AND EXCHANGE COMMISSION
Report
of Foreign Issuer
Pursuant
to Rule 13a-16 or 15d-16 of
the
Securities Exchange Act of 1934
For
the month of:
|
August
2010
|
Commission
File Number:
|
001-10691
|
Diageo
plc
(Translation
of registrant's name into English)
Lakeside
Drive, Park Royal, London, NW10 7HQ
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual reports under
cover of Form 20-F or Form 40-F:
Form 20-F
x Form
40-F ¨
Indicate
by check mark whether the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): __________
Indicate
by check mark whether the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): __________
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorised.
Date:
26 August 2010
|
By:
|
/s/ C. Kynaston
|
|
Name:
|
Claire Kynaston
|
|
Title:
|
Assistant Company Secretary
|
|
Preliminary results for the
year ended 30 June 2010
|
Stronger
second half performance drives full year growth.
·
|
Strong second half performance;
net sales up 6% driving 2% organic net sales growth for the
year
|
·
|
Organic operating profit growth
for the year was 2%; cost reduction programmes offset a 14% organic
increase in marketing spend in the second
half
|
·
|
eps pre-exceptionals 72.0p, up
13%
|
·
|
£2 billion free cash flow;
tight working capital management was the biggest driver of the £820
million increase
|
·
|
Recommended 6% increase in
final dividend to 23.5 pence per
share
|
Results
at a glance
|
|
|
|
2010
|
|
|
|
20091 |
|
|
Organic
movement
|
|
|
Reported
movement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
in millions of equivalent units
|
|
|
|
|
143.4 |
|
|
|
140.8 |
|
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
£
million
|
|
|
9,780 |
|
|
|
9,311 |
|
|
|
2 |
% |
|
|
5 |
% |
Marketing
spend
|
|
£
million
|
|
|
1,419 |
|
|
|
1,327 |
|
|
|
3 |
% |
|
|
7 |
% |
Operating
profit before exceptional items
|
|
£
million
|
|
|
2,751 |
|
|
|
2,588 |
|
|
|
2 |
% |
|
|
6 |
% |
Operating
profit
|
|
£
million
|
|
|
2,574 |
|
|
|
2,418 |
|
|
|
|
|
|
|
6 |
% |
Profit attributable
to parent company’s equity shareholders2
|
|
£
million
|
|
|
1,629 |
|
|
|
1,605 |
|
|
|
|
|
|
|
1 |
% |
Free
cash flow
|
|
£
million
|
|
|
2,024 |
|
|
|
1,204 |
|
|
|
|
|
|
£ |
820 |
m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic eps2
|
|
pence
|
|
|
65.5 |
|
|
|
64.6 |
|
|
|
|
|
|
|
1 |
% |
eps
pre-exceptionals3
|
|
pence
|
|
|
72.0 |
|
|
|
63.6 |
|
|
|
|
|
|
|
13 |
% |
Recommended
full year dividend
|
|
pence
|
|
|
38.1 |
|
|
|
36.1 |
|
|
|
|
|
|
|
|
|
1
Restated – see Note 1 on page 32 and additional information on page
44
2
For year ended 30 June 2010 reported tax rate 21.3%. For year ended 30
June 2009 reported tax rate 14.4%
3
eps pre-exceptionals excludes exceptional items in discontinued
operations
Paul
Walsh, Chief Executive of Diageo, said:
“As
expected this has been a year of challenges and opportunities. Our performance
was much stronger in the second half than in the first: our performance in the
developing markets drove overall growth while markets in North America and
Europe remained weak. However, even though markets and categories have been
affected in different ways and to differing degrees, we have been consistent in
our focus to deliver growth and build a stronger business for the future. We
increased marketing in growing categories, delivering 5% organic net sales
growth in scotch and 5% organic net sales growth in beer, and in growing markets
with organic marketing spend up 13% in International, and behind our leading
brands especially Johnnie Walker, Smirnoff and Captain Morgan. As a result we
have outperformed and delivered share gains across most of our biggest markets.
We launched innovations to meet the opportunities which changing consumer and
customer trends offer. We have invested to strengthen our routes to market
especially in Asia and we are building industry leading customer marketing
skills in the on and off trade with our key customers. We have delivered very
strong cash flow and return on invested capital increased to 14.8%.
“The
impact of the global economic crisis varied by market and the strength of the
recovery appears to be equally variable. However, as we demonstrated this year,
the global diversity of our business, together with the strength and range of
our brands and the agility we have demonstrated gives us confidence that in
fiscal 2011 we will be able to improve on the organic operating profit growth we
have delivered this year. We are recommending a 6% increase in the final
dividend and expect to at least maintain this rate of dividend growth in fiscal
2011.”
Definitions
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. See page 41 for additional information for shareholders and an
explanation of non-GAAP measures including the reconciliation of basic eps to
eps pre-exceptionals and to underlying eps.
Regional
performance
North
America – Overhead savings and improved mix held operating profit flat while
marketing increased
Although
there were some signs of recovery in North America, the economy and consumer
confidence remained weak. Volume in North America was down 2% driven
mainly by lower volume in US spirits brands where shipments were down 3% and
depletion volume was down 1%. The difference in the year on year
movement on shipments and depletions reflects the increase in stock levels which
was reported in fiscal 2009. In fiscal 2010 shipments and depletions were in
line and stock levels were maintained year on year. Diageo estimates that sales
in the US spirits industry grew 1% and across NABCA and IRI combined Diageo
broadly held share of consumer purchases, growing share 5 basis points. Stronger
share gains by Diageo’s key brands, including Johnnie Walker, Crown Royal and
Captain Morgan drove the overall share performance. Reserve brands performed
strongly led by Cîroc and Ketel One vodka as innovation and an improvement in
the on trade delivered a return to growth in the super premium segment. Diageo’s
beer brands, especially Guinness, outperformed other imported beers and gained
10 basis points of share. The wine category was challenging and while
volume grew due to a strong performance from Sterling Vineyards, net sales
declined as a result of increased promotional activity and innovation was
focused on price points at $10 and below. The wine division was reorganised in
the second half to reduce the cost base and improve returns. Weakness
in ready to drink continued and constant innovation, such as Smirnoff mixed
drinks, is needed to maintain the segment. Marketing spend was significantly up
weighted in the second half, up 20% behind proven growth drivers on key brands
and innovation. Gross margins increased as a result of production savings and
lower raw material costs, which together with overhead savings led to higher
operating margins despite the significant increase in marketing
spend.
Europe
– Robust performance as the economic and consumer environment continued to be
challenging
·
|
Marketing
spend down 6%
|
·
|
Operating
profit down 1%
|
Europe
remained a challenging region, impacted by weak consumer confidence and economic
uncertainty. Within this difficult context, Diageo delivered a robust
performance led by the continued focus on customer relationships and innovation.
Strong results were delivered in Great Britain. Volume and net sales were up 9%
and 5% respectively and share gains were achieved across spirits in the off
trade, following successful implementation of a customer focused strategy.
Diageo also delivered a strong performance in Russia with double-digit growth in
both volume and net sales. This led to a significant increase in share in scotch
as Diageo extended its leadership position. Net sales declined 8% in Ireland but
Diageo gained share and the rate of decline in the beverage alcohol market
slowed. Trading in southern European markets remained particularly difficult.
The on trade continued to decline in Spain and increased excise taxes and
reduced consumer spending led to a sharp slowdown in Greece in the fourth
quarter. The trend towards at home consumption across many markets led to
increased promotional activity in the off trade and some mix dilution. The
weaker trade conditions in Southern Europe and Ireland impacted overall
marketing spend as campaigns were reduced in line with consumer trends.
Marketing spend was allocated to proven campaigns on key brands such as Captain
Morgan in Northern Europe and Smirnoff in Great Britain. A small reduction in
gross margin but lower marketing spend led to an operating profit decline of
1%.
International – Double-digit net sales growth and
positive price/mix in all three hubs
·
|
Operating
profit up 25%
|
The
growth trajectory of International continued to strengthen as recovery in Global
Travel and Middle East added to the overall strength of Diageo’s International
business. In Latin America and the Caribbean the growth of scotch, led by
Johnnie Walker, and the rum category, led by Cacique, resulted in 15% net sales
growth. In Africa net sales grew 10% driven by the strong performance of lager,
in particular Harp in Nigeria and Tusker in Kenya. Increased marketing spend and
the strong performance of premium and super premium brands led to net sales
growth of 19% in Global Travel and Middle East. Marketing spend in the region
grew in line with net sales and was focused behind Diageo’s major brands in
their largest markets: Johnnie Walker in GTME and Latin America, Guinness in
Nigeria and Buchanan’s in Latin America. Improved gross margins contributed to
operating profit growth of 25%.
Asia
Pacific – Asia Pacific returned to growth in the second half
Asia
Pacific returned to net sales growth in the second half, driven mainly by the
strong performance of Johnnie Walker but with improved performance across all
global priority brands. Double-digit growth in South East Asia and strong growth
in Taiwan and Thailand offset destocking in India, further weakness of the
premium spirits segment in Japan and a decline in scotch in Korea. In the second
half, performance improved in both India and China, whilst Australia weakened.
The increase in marketing spend was focused on: the Guinness “250th
Celebration”, and Guinness grew share in Indonesia; on Johnnie Walker Grand Prix
and “Keep Walking” campaigns which led to share gains in China, Australia, Korea
and Thailand; on Smirnoff in South East Asia with share gains in Thailand and
the Philippines; and on Windsor in Korea which also grew share. During the year
Diageo enhanced the route to market in both Japan, driving improved margin, and
in Vietnam, a key growth market. Gross margins improved and a reduction in
overheads offset an increase in marketing spend driving operating profit growth
of 6%.
Category
performance
|
|
Volume
movement*
%
|
|
|
Organic
net sales
movement
%
|
|
|
Reported
net sales
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
Spirits
|
|
|
2 |
|
|
|
1 |
|
|
|
5 |
|
Beer
|
|
|
3 |
|
|
|
5 |
|
|
|
5 |
|
Wine
|
|
|
8 |
|
|
|
3 |
|
|
|
6 |
|
Ready
to drink
|
|
|
(5 |
) |
|
|
(3 |
) |
|
|
4 |
|
Total
|
|
|
2 |
|
|
|
2 |
|
|
|
5 |
|
* Volume
movement is both reported and organic
Spirits:
Stronger performance in scotch in the second half, led by strong growth in
developing markets and by the recovery in Global Travel and Middle East,
resulted in full year net sales growth of 5%. Vodka remained a competitive
category and strong net sales growth of the higher priced Ketel One vodka and
Cîroc brands only partially offset the net sales decline on Smirnoff. Volume and
net sales of Diageo’s vodka brands declined 1%. Captain Morgan, Zacapa and other
Diageo rum brands continued to expand geographically and net sales growth
outside North America contributed significantly to overall rum category growth
of 3%. Positive category mix from the faster growth of scotch was offset by some
negative pricing and higher levels of promotional activity, in particular in the
vodka and liqueurs categories.
Beer: The
strong performance of Diageo’s beer brands continued in the second half and net
sales again grew 5%. The main contributors to this growth were the local lager
brands in Africa, in particular Harp in Nigeria and Tusker in East Africa.
Guinness net sales were flat. Although the brand grew share in its largest
markets of Ireland and Great Britain, net sales in Europe declined 2% as a
result of the weak beer market. In Nigeria, consumer weakness led to a 1% net
sales decline in Guinness. In contrast, Guinness grew net sales 13% in Asia
Pacific. Positive price/mix on beer came from price increases outweighing the
negative mix from faster growing, but lower margin, lager brands in
Africa.
Wine:
Nearly 85% of Diageo’s wine net sales are in North America and Great Britain.
The wine category in North America continued to be characterised by consumers
trading down and discounting leading to net sales decline of 6%. Diageo Chateau
& Estates held share by focusing on the $10 to $15 price range and
innovation priced at $10 and below. There was a very strong performance in Great
Britain where Diageo increased share and grew wine net sales 20% led by Blossom
Hill and innovation launches, particularly in the grocery channel.
Ready to
drink: In the two largest markets of North America and Australia, competition in
the segment intensified and net sales declined 7% and 5% respectively. However,
ready to drink grew in International and the developing markets of Asia where
these products offer consumers access to international spirits brands. This
trend has been evident especially in Brazil, Thailand and Nigeria where net
sales of ready to drink grew double-digits.
Key
brand performance
|
|
Volume
movement*
%
|
|
|
Organic
net sales
movement
%
|
|
|
Reported
net sales
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands
|
|
|
- |
|
|
|
(1 |
) |
|
|
3 |
|
Other
brands
|
|
|
4 |
|
|
|
5 |
|
|
|
8 |
|
Total
|
|
|
2 |
|
|
|
2 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands**
|
|
|
|
|
|
|
|
|
|
|
|
|
Johnnie
Walker
|
|
|
11 |
|
|
|
7 |
|
|
|
12 |
|
Smirnoff
|
|
|
(1 |
) |
|
|
(4 |
) |
|
|
- |
|
Baileys
|
|
|
(1 |
) |
|
|
(4 |
) |
|
|
- |
|
Captain
Morgan
|
|
|
3 |
|
|
|
2 |
|
|
|
6 |
|
Jose
Cuervo
|
|
|
(13 |
) |
|
|
(14 |
) |
|
|
(12 |
) |
JεB
|
|
|
(7 |
) |
|
|
(8 |
) |
|
|
(3 |
) |
Tanqueray
|
|
|
1 |
|
|
|
(1 |
) |
|
|
2 |
|
Guinness
|
|
|
(3 |
) |
|
|
- |
|
|
|
- |
|
*
Volume movement is both reported and organic
**
Spirits brands excluding ready to drink
Johnnie
Walker: Strong second half growth led by developing markets was the key driver
of the full year performance of the Johnnie Walker brand. Johnnie Walker Black
Label was the fastest growing variant with double-digit net sales growth driven
by GTME, Latin America and South East Asia. Marketing spend increased globally
behind the “Walk with Giants” campaign and visibility of the brand was increased
in GTME. Four percentage points of negative price/mix resulted from the slower
volume growth of super deluxe variants and an increase in price promotional
activity.
Smirnoff:
In developed markets, which account for over 80% of Smirnoff’s net sales, the
vodka category was intensely competitive. In North America, Smirnoff net sales
declined 7% mainly due to lapping the increase in stock levels of the prior
year. Effective marketing campaigns continued to build the brand’s equity and
strong consumer offers during key selling periods led to volume share gains in
the United States. There was a similar trend in promotional activity in Great
Britain where volume grew ahead of net sales. In the brand’s largest developing
markets of Brazil and South Africa, net sales grew solidly reflecting Diageo’s
confidence in the future growth of the vodka category in these key markets.
Globally, marketing spend was increased, accelerating in the second half behind
flavour launches and activation of the global marketing programme “Be
There”.
Baileys:
After a difficult first half, the brand grew volume and net sales in the second
half as markets increased visibility on shelf through the “Baileys Bows”
activation and flavours were launched into new markets. An increase in
promotional activity, particularly in Europe over the Christmas period, led to 3
percentage points of negative price/mix.
Captain
Morgan: Very strong growth of Captain Morgan in Europe and International offset
3% net sales decline in North America. In the United States, growth of the rum
category slowed during the year but Captain Morgan benefited from a range of
successful innovations and grew volume and value share. The brand grew strongly
in Canada with net sales up 7%. Marketing spend increased 25% in North America
and 36% globally. This spend was weighted to the second half and drove net sales
up 7% in that period.
Jose
Cuervo: The ongoing weakness of the North American on trade and aggressive
pricing from competitors led to a sharp decline in Jose Cuervo. The new variant,
Especial Silver continued to perform well and is now the fastest growing silver
tequila in the US off trade. However, Jose Cuervo’s super and ultra premium
variants, Tradicional and Platino, were significantly impacted as consumers
traded down to less expensive 100% agave tequilas.
JεB: The majority of
the brand’s net sales decline stemmed from Iberia as the spirits market in that
region continued to decline, particularly in the on trade. JεB grew share in
the on trade in Spain but lost share in the off trade as consumers traded down
to less expensive brands in that channel. There was improvement in the second
half led by growth in developing markets and a reduction in the rate of decline
in Spain.
Tanqueray:
Double-digit net sales growth in Spain and Great Britain only partially offset
4% net sales decline in North America. Weakness of the higher priced Rangpur and
Tanqueray 10 variants led to negative price/mix of 2 percentage
points.
Guinness:
Guinness, comprising a little over half of total beer net sales, posted flat net
sales with strong double-digit growth in South East Asia broadly offsetting a 2%
decline in Europe and flat net sales in Africa. In Great Britain and Ireland,
Guinness once again gained share but net sales declined as a result of the
continued decline of beer in those markets. In Africa, where the brand typically
sells at a significant price premium to local lagers, performance slowed as some
consumers chose to trade down to less expensive lagers. Performance by market,
however, was varied. Strong net sales growth in East Africa was offset by
declines in Ghana, due to utility shortages and higher taxes, and in Nigeria
where some consumers traded down to less expensive lager brands.
Marketing
spend
Marketing
spend was up 3% driven by major increases in proven campaigns behind Diageo’s
most important brands and categories in the second half. This resulted in
double-digit increases in full year spend behind the vodka and rum categories.
Spend on vodka was up 13% mainly behind Smirnoff in North America and
International. Marketing spend was also up on Cîroc in the United States and on
Ketel One vodka worldwide. Investment behind Captain Morgan grew 36% in the
year, up 25% in North America, up over 60% in International and almost doubled
in Europe. Marketing spend on scotch represents Diageo’s biggest category spend
and while the percentage increase was in single digits the absolute increase was
similar to that in vodka and rum. Over half of the increase in spend on scotch
was behind Johnnie Walker in International. Baileys marketing spend reduced in
absolute terms and as a percentage of net sales as the brand team reviewed the
marketing campaign. Reduction in marketing spend behind Guinness in Europe was
driven by media deflation and comparison against the prior year when spend was
up behind innovation. This was broadly offset by increased marketing spend in
beer in the other regions. Spend was down 2% on ready to drink and up 7% on
wine.
Customer
marketing
Diageo
continued to invest to enhance the capabilities of its customer marketing
function which now consists of about 500 people in over 30 countries covering
over 80% of Diageo’s net sales. This had a tangible impact, creating demand
for Diageo’s brands at the point of purchase, where on average 40% of final
purchase decisions are made. Diageo made it easier for shoppers to find, choose
and buy products in the spirits category forming partnerships with customers
which helped them offer the right range of products, the appropriate amount of
shelf space and providing enhanced navigation through signage. Diageo also
delivered a large number of cross brand and category focused campaigns such as
the “Summer Spirits” campaign in Great Britain, the multi-brand Christmas
campaign in Latin America and the “Whiskey Festival” which was executed in
multiple markets.
Corporate
revenue and costs
Net sales
were £70 million in the year ended 30 June 2010, down £5 million from £75
million in the prior year. Net operating costs before exceptional items,
increased by £14 million in the year ended 30 June 2010 to £225 million. Diageo
undertakes the majority of its currency transaction hedging centrally and
therefore £104 million of positive year on year transaction impact was taken to
corporate. In addition there was a negative year on year translation impact of
£2 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 an incremental £82 million
cost this year. There was a £34 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.
Exchange
rate movements and IAS 21 and IAS 39 impact
Foreign
exchange movements arising from the retranslation of prior year results
increased net sales by £267 million, increased operating profit by £170 million,
increased profit from associates by £4 million and reduced net finance charges
by £2 million. The impact of IAS 21 and 39 was to reduce operating profit by £44
million and reduce net finance charges by £54 million.
For the
year ending 30 June 2011, at current exchange rates (£1 = $1.56 : £1 =
€1.21), foreign exchange movements (excluding the impacts of IAS 21 and 39 and
excluding any impact in respect of currency movements of the Venezuelan bolivar
fuerte) are estimated to increase operating profit by £80 million and decrease
net finance charges by £5 million. The current situation in Venezuela with
respect to currency controls and the official exchange rate is uncertain. In the
year ended 30 June 2010 the Venezuelan denominated operating profit amounted to
VEF485 million which was translated at the official exchange rate, $1 =
VEF2.15 in the six months ended 31 December 2009 and $1 = VEF4.3 in the six
months ended 30 June 2010. If the translation exchange rate is changed in fiscal
2011 this would most likely give rise to an adverse currency
movement.
Taxation
For the
year ended 30 June 2009 the reported tax rate was 14.4% and the underlying tax
rate was 22.1%. For the year ended 30 June 2010 the reported tax rate was 21.3%
and the underlying tax rate was 21.6%. For the year ending 30 June 2011 the
underlying tax rate is expected to remain at approximately 22%.
The
ongoing underlying cash tax rate is approximately 20%.
Exceptional
operating costs
Exceptional
operating costs before tax of £177 million for the year ended 30 June 2010 (2009
- £170 million) comprised:
|
·
|
£85
million charge in respect of the global restructuring programme (2009 -
£166 million)
|
|
·
|
£93
million charge in respect of the restructuring of Global Supply operations
(2009 - £nil)
|
|
·
|
£12
million charge in respect of the restructuring of the Irish brewing
operations (2009 - £4 million)
|
|
·
|
£48
million net credit in respect of the restructuring of US wines operations
(2009 - £nil)
|
|
·
|
£35
million charge in respect of impairment of the Ursus brand (2009 -
£nil)
|
Post
employment liabilities
The
deficit before taxation in respect of post employment plans decreased by £178
million from £1,383 million at 30 June 2009 to £1,205 million at 30 June 2010.
The reduction in the deficit included £147 million transferred into the UK
Diageo Pension Scheme (the UK Scheme) from escrow being cash paid by the company
in prior years under the deficit funding arrangements. Deficit funding
contributions to the group’s UK and Irish pension schemes in the year ended 30
June 2010, other than the transfer to the UK Scheme of amounts paid into escrow
in prior years, were £55 million and are expected to be approximately £50
million for the year ending 30 June 2011.
Management
reports
The Annual Report for the year ended 30
June 2010 will be published on 14 September 2010. Diageo will issue the first
interim management statement for the year ending 30 June 2011 at the time of the
Annual General Meeting on 14 October 2010.
BUSINESS
REVIEW
For
the year ended 30 June 2010
OPERATING
REVIEW
Comparative
financial information for the year ended 30 June 2009 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 32 and additional information on page
44). The following table summarises the impact of the restatement on marketing
spend and operating profit before exceptional items by region for the year ended
30 June 2009.
|
|
Marketing
spend
|
|
|
Operating
profit
|
|
|
|
As previously
reported
|
|
|
Restated
|
|
|
As previously
reported
|
|
|
Restated
|
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
429 |
|
|
|
431 |
|
|
|
1,156 |
|
|
|
1,138 |
|
Europe
|
|
|
419 |
|
|
|
429 |
|
|
|
856 |
|
|
|
853 |
|
International
|
|
|
256 |
|
|
|
259 |
|
|
|
645 |
|
|
|
649 |
|
Asia
Pacific
|
|
|
208 |
|
|
|
208 |
|
|
|
164 |
|
|
|
159 |
|
Corporate
|
|
|
- |
|
|
|
- |
|
|
|
(208 |
) |
|
|
(211 |
) |
|
|
|
1,312 |
|
|
|
1,327 |
|
|
|
2,613 |
|
|
|
2,588 |
|
North
America
Summary:
·
|
Diageo’s
key spirits brands gained share, outperforming most major
competitors
|
·
|
Shipments
and depletions were in line and therefore comparison against fiscal 2009,
when shipments exceeded depletions, contributed to the volume decline
against the prior year
|
·
|
Strong
performance by reserve brands improved mix in the second half as the super
premium segment returned to growth
|
·
|
Diageo’s
brands continued to sell at a price
premium
|
·
|
Diageo’s
beer brands outperformed other imported beers and gained
share
|
·
|
Innovation
in the year added significantly to net sales as Diageo addressed changing
consumer trends
|
·
|
Ready
to drink declined overall but innovation in the year improved the
performance of Smirnoff ready to drink in the United
States
|
·
|
Marketing
spend increased by 20% in the second half with investment behind
innovation launches and key
brands
|
·
|
Margins
benefited from production and overhead cost savings and lower raw material
costs
|
Key measures:
|
|
2010
|
|
|
2009
|
|
|
Organic
|
|
|
Reported
|
|
|
|
|
|
|
(restated) |
|
|
movement |
|
|
movement
|
|
|
|
£
million
|
|
|
£
million
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
(millions of equivalent units)
|
|
|
51.8 |
|
|
|
53.0 |
|
|
|
(2 |
) |
|
|
(2 |
) |
Net
sales
|
|
|
3,306 |
|
|
|
3,290 |
|
|
|
(3 |
) |
|
|
- |
|
Marketing
spend
|
|
|
472 |
|
|
|
431 |
|
|
|
6 |
|
|
|
10 |
|
Operating
profit before exceptional items
|
|
|
1,170 |
|
|
|
1,138 |
|
|
|
- |
|
|
|
3 |
|
Operating
profit
|
|
|
1,132 |
|
|
|
1,115 |
|
|
|
|
|
|
|
2 |
|
Reported
performance:
Net sales
increased by £16 million in the year ended 30 June 2010 to £3,306 million, from
£3,290 million in the prior year. Reported operating profit before exceptional
items increased by £32 million in the year ended 30 June 2010 to £1,170 million,
from £1,138 million in the prior year.
Organic
performance:
The
weighted average exchange rate used to translate US dollar sales and profit
moved from £1 = $1.60 in the year ended 30 June 2009 to £1 = $1.57 in the year
ended 30 June 2010. Exchange rate impacts increased net sales by £91 million,
acquisitions and disposals increased net sales by £15 million and there was an
organic decrease in net sales of £90 million. Exchange rate impacts increased
operating profit before exceptional items by £26 million, acquisitions and
disposals increased operating profit before exceptional items by £3 million and
there was an organic increase in operating profit before exceptional items of £3
million.
Brand performance:
|
|
Volume
movement*
|
|
|
Organic
net sales
movement
|
|
|
Reported
net sales
movement
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
(2 |
) |
Other
brands
|
|
|
(1 |
) |
|
|
- |
|
|
|
4 |
|
Total
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
spirits brands:**
|
|
|
|
|
|
|
|
|
|
|
|
|
Johnnie
Walker
|
|
|
5 |
|
|
|
4 |
|
|
|
6 |
|
Smirnoff
|
|
|
(3 |
) |
|
|
(7 |
) |
|
|
(4 |
) |
Baileys
|
|
|
(7 |
) |
|
|
(7 |
) |
|
|
(4 |
) |
Captain
Morgan
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
- |
|
Jose
Cuervo
|
|
|
(15 |
) |
|
|
(16 |
) |
|
|
(14 |
) |
Tanqueray
|
|
|
(2 |
) |
|
|
(4 |
) |
|
|
(1 |
) |
Crown
Royal
|
|
|
- |
|
|
|
(1 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guinness
|
|
|
5 |
|
|
|
4 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready
to drink
|
|
|
(5 |
) |
|
|
(7 |
) |
|
|
(2 |
) |
*
Volume movement is both reported and organic
**
Spirits brands excluding ready to drink
United
States – Share gains by key brands and marketing spend up-weighted in the second
half
Johnnie
Walker continued to outperform a difficult scotch category. Net sales grew 5%
and share grew 1.1 percentage points led by Johnnie Walker Red, Black and Gold
Labels. Discounting in the first half and slower net sales growth of some of the
higher priced variants led to negative price/mix. Marketing spend increased 23%
in the second half focused on the House of Walker mentoring programme,
multicultural programmes and Father’s Day media.
The
premium vodka segment in the United States continued to be highly competitive.
Comparison against the prior fiscal year when stock levels rose, led to volume
decline of Smirnoff. Smirnoff maintained its position as the leading vodka
gaining 0.4 percentage points of volume share while value share declined 0.1
percentage points as a result of consumer promotions. Marketing spend behind the
brand increased 24% behind the “Be There” campaign and launch of the new “I
Choose” platform using television, digital, social networking and experiential
programming.
Despite
continued consumer sentiment that liqueurs are luxury products, Baileys’
performance markedly improved in the second half, driven by a reduction in the
price gap against its leading competitor and targeted promotions. Baileys gained
0.4 percentage points of volume share and maintained its value share. Marketing
spend reduced as focus was limited to the holiday season and a reduction in
non-working dollars, which increased efficiency of the total marketing
spend.
Captain
Morgan volume declined as stock levels were maintained against an increase in
fiscal 2009 and a slowdown of growth in the rum category. Captain Morgan
Original Spiced Rum posted strong share gains of 0.6 percentage points despite
decline in net sales and volume. This was partially offset by the introduction
of Captain Morgan Lime Bite. Increased discounting to meet consumer demand for
lower priced alternatives contributed to the decline in net sales. Marketing
spend increased dramatically behind the “Calling All Captains” campaign,
“Captain and Cola” programming and the launch of Captain Morgan Lime
Bite.
Jose
Cuervo continued to be impacted as the competitive tequila category and heavy
discounting from the leading competitor drove the reduction in volume and net
sales. This was partially offset by the strong performance of Especial Silver,
which has become the fastest growing silver tequila in the US off trade.
Although Jose Cuervo lost share overall in the United States, down 1.7
percentage points, Especial, its leading variant, extended its position and
gained 0.8 percentage points of share.
Tanqueray
net sales declined 3% as the gin category continued to decline with domestic
brands taking share from imports. There was some negative mix caused by the weak
performance of Tanqueray 10. Marketing spend increased and brand image
improved.
Crown
Royal net sales were flat for the full year, but the brand grew strongly in the
second half driven by innovation and growth of some of the higher priced
variants. Crown Royal Black quickly became the number 1 new product in IRI’s new
product tracker. Price/mix was flat as price reductions on Crown Royal Extra
Rare and Crown Royal Cask 16 offset mix improvement from Crown Royal Black.
Crown Royal outperformed the category and gained 0.3 percentage points of share.
Marketing on the brand increased behind the NASCAR sponsorship, multicultural
marketing programmes and the launch of Crown Royal Black.
Guinness
volume growth was driven by the performance of Guinness Draft in Can, Guinness
Extra Stout and Guinness Kegs, as it lapped the planned destock of the prior
year. Although imported beers declined, Guinness grew share by 0.1 percentage
points. Marketing spend increased behind the “250th
Celebration”, Arthur’s Day and the integrated campaign “Fortune Favors the
Bold”.
An
increase in marketing behind Bushmills led to volume growth while net sales
decreased as a result of discounting in the off trade. The strong performance of
Nuvo led Diageo to increase its stake in the joint venture above 70%. In the
popular and value segments, Gordon’s, Popov, Seagram’s 7 Crown and Seagram’s VO
lost volume and net sales.
The
reserve brands performed strongly with volume up 7% and net sales up 9% as the
super premium segment returned to growth. Net sales growth was driven
predominantly by Ketel One vodka up 4% and Cîroc up 48%, each supported by
strong marketing campaigns. Bulleit Bourbon performed well especially in the on
trade with net sales up 23%. Buchanan’s Special Reserve and Red Seal grew net
sales 44% and 32% respectively and became the fastest growing blended scotch
brand in the United States. Buchanan’s is the clear leader in the US Hispanic
market.
Following
the planned destock of the prior year, Diageo’s beer brands grew volume 4% and
net sales 4% driven predominantly by Guinness. Harp and Smithwicks also grew
volume and net sales, albeit off a small base. The introduction of Red Stripe
Light helped grow net sales of Red Stripe 3%.
Diageo’s
wine business gained 0.1 percentage points of volume share and held value share.
Volume growth in Sterling Vineyards, San Telmo and Stellani di Notte were offset
by declines in Beaulieu Vineyard, Chalone Vineyard and Barton & Guestier.
Net sales declined as consumers continued to trade down to lower price points.
Diageo introduced 9 new wine brands or varietals aimed at addressing the
consumer demand for quality wines at value price points and the appeal for
blends. In March 2010, Diageo announced the restructuring of the North American
wine division (which included a sale and leaseback transaction and the intended
sale of non-strategic brands) to reduce the cost base and improve
returns.
Ready to
drink remains challenging for Diageo. Net sales were down 5% and Diageo lost
share. Smirnoff malt-based products grew net sales 6% as the strong performance
of Smirnoff Ice Mango, Smirnoff Ice Multipack and the introduction of Smirnoff
Mixed Drinks, offset the decline of established products. Similarly in the ready
to serve segment innovation offset a decline in existing products. In the second
half innovation behind Jose Cuervo Margaritas drove improved performance with
the introduction of pomegranate and mango flavored margaritas but the segment
remains highly competitive.
Diageo
launched over 30 innovations during the year spanning spirits, beer, wine and
ready to drink and through the fiscal year averaged 5 of the top 10 new items in
IRI. Innovation included extensions which enhanced core brands, such as Captain
Morgan Lime Bite, Smirnoff Dark Roasted Espresso, Cîroc Coconut and Ketel One
Oranje, as well as new brands such as Wily Jack wine and Moon Mountain vodka.
Performance of innovation was led by Crown Royal Black, Cîroc Red Berry and
Smirnoff mixed drinks.
Marketing
spend increased by 7%. In the second half spend was up 23%, focused behind
innovation and up-weighted investment on key spirits brands, such as Captain
Morgan, Johnnie Walker, Smirnoff, Crown Royal and Cîroc.
Diageo
has worked with key accounts at national, regional and local levels to bring
shopper and category insights to optimise sales of beverage alcohol in their
stores. In addition, Diageo has developed and rolled out shopper-insight driven
programmes behind Diageo’s brands. These programmes capture the shoppers’
attention in off trade stores and on trade restaurants, bars and clubs, meeting
shoppers’ needs at the point of purchase. Focus on the customer marketing
agenda resulted in improved visibility for Diageo’s brands in thousands of on
and off trade accounts.
Canada
– Net sales decline but share gains in a difficult market
Performance
in Canada declined with volume down 1% and net sales down 4%. Spirits volume was
impacted by destocking in the first half but Captain Morgan and JεB grew in the full
year. Net sales declined as consumers continued to trade down and there was a
shift from spirits to beer and ready to drink. Beer volume increased 17% and net
sales grew 15%. Wine grew volume 27% and net sales 31% on the strong growth of
Sterling Vineyards. Ready to drink volume declined 15% and net sales declined
18% due to competition in the ready to serve segment.
Europe
Summary:
·
|
Volume
increase was led by the strong performance in Great Britain, up 9%, where
successful customer focus increased visibility of Diageo’s brands in the
off trade during key selling
periods
|
·
|
Continued
consumer weakness in Spain and Ireland led to a decline in net sales in
those markets
|
·
|
Russia
delivered a very strong performance with significant share gains and
double-digit growth following the launch of new brands to capture
opportunities in the scotch category as consumers traded
down
|
·
|
Marketing
spend reduced in line with consumer trends in difficult markets and was
focused behind key brands, Smirnoff and Captain Morgan, and
innovation
|
·
|
Guinness
grew share in Great Britain and Ireland but volume was down in a tough
beer market
|
Key measures:
|
|
2010
|
|
|
2009
|
|
|
Organic
|
|
|
Reported
|
|
|
|
|
|
|
(restated) |
|
|
movement
|
|
|
movement
|
|
|
|
£
million
|
|
|
£
million
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
(millions of equivalent units)
|
|
|
39.2 |
|
|
|
39.0 |
|
|
|
1 |
|
|
|
1 |
|
Net
sales
|
|
|
2,759 |
|
|
|
2,750 |
|
|
|
(2 |
) |
|
|
- |
|
Marketing
spend
|
|
|
412 |
|
|
|
429 |
|
|
|
(6 |
) |
|
|
(4 |
) |
Operating
profit before exceptional items
|
|
|
859 |
|
|
|
853 |
|
|
|
(1 |
) |
|
|
1 |
|
Operating
profit
|
|
|
806 |
|
|
|
801 |
|
|
|
|
|
|
|
1 |
|
Reported
performance:
Net sales
increased by £9 million in the year ended 30 June 2010 to £2,759 million, from
£2,750 million in the prior year. Reported operating profit before exceptional
items increased by £6 million in the year ended 30 June 2010 to £859 million,
from £853 million in the prior year.
Organic
performance:
The
weighted average exchange rate used to translate euro net sales and profit moved
from £1 = €1.17 in the year ended 30 June 2009 to £1 = €1.13 in the year ended
30 June 2010. Exchange rate impacts increased net sales by £53 million,
acquisitions and disposals increased net sales by £10 million and there was an
organic decrease in net sales of £54 million. Exchange rate impacts increased
operating profit before exceptional items by £11 million, acquisitions and
disposals increased operating profit before exceptional items by £1 million and
there was an organic decrease in operating profit before exceptional items of £6
million.
Brand performance:
|
|
Volume
movement*
|
|
|
Organic
net sales
movement
|
|
|
Reported
net sales
movement
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands
|
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
Other
brands
|
|
|
5 |
|
|
|
- |
|
|
|
3 |
|
Total
|
|
|
1 |
|
|
|
(2 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
spirits brands:**
|
|
|
|
|
|
|
|
|
|
|
|
|
Johnnie
Walker
|
|
|
(6 |
) |
|
|
(4 |
) |
|
|
(2 |
) |
Smirnoff
|
|
|
- |
|
|
|
(6 |
) |
|
|
(5 |
) |
Baileys
|
|
|
3 |
|
|
|
(3 |
) |
|
|
(1 |
) |
JεB
|
|
|
(8 |
) |
|
|
(10 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guinness
|
|
|
(4 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready
to drink
|
|
|
(6 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
*
Volume movement is both reported and organic
**
Spirits brands excluding ready to drink
Great
Britain – Growth in volume and net sales, strong spirits performance in the off
trade
A strong
performance was delivered in Great Britain with volume up 9% and net sales up
5%, driven by double-digit volume growth from spirits and wine. Solid share
gains were achieved in spirits in the key off trade channel through a continued
promotional strategy although key Diageo brands continued to sell at a price
premium relative to their category. The on trade, in contrast, continued to
decline in the low single-digits although the rate of pub closures slowed. In
this context, Guinness outperformed the beer category with broadly flat net
sales through the success of the “Bring It to Life” and “250th
Celebration” campaigns. Baileys and Pimm’s both performed well with good
volume, net sales and share growth driven by the continued strength of Baileys
Flavours and distribution gains of Pimm’s supported by a national television
campaign. Smirnoff Flavours continued to grow strongly and have been
particularly successful in the off trade, where it is now the best selling
flavoured vodka range. The negative price/mix of 4 percentage points in Great
Britain was driven by the faster growth of the grocery channel with its
competitive promotional environment.
Ireland
– Diageo grew share in a declining market although rate of decline
slowed
Diageo’s
volume and net sales declined 6% and 8% respectively in Ireland, primarily
driven by the
weakness of the key on trade channel, but with share gains in beer and spirits.
Guinness net sales decreased 5% but grew share, especially in the key Republic
of Ireland on trade channel, where it has shown over 30 months of consecutive
share growth, driven partly by the success of the “250th
Celebration” campaign. Harp and Smithwicks also grew share following the
successful launch of Harp Ice Cold and the repositioning of Smithwicks brand.
Carlsberg performed broadly in line with the market while Budweiser lost
share.
Iberia
– While the market rate of decline slowed, consumers traded down and on trade
weakness continued
Difficult
economic conditions continued to impact Iberia, with consumer driven sectors
still experiencing weakness. The rate of decline of spirits slowed but the
category remained adversely affected by consumers trading down to less expensive
brands and categories and the shift towards at home consumption. The off trade
continued to grow and is now approaching 40% of the total market, although the
majority of this growth is being driven by own label brands at lower price
points. Diageo’s volume and net sales were down 5% and 7% respectively.
Aggressive pricing and on trade decline led to negative price/mix. JεB was impacted by
the fall in scotch consumption in the on trade channel in Spain and volume
decreased 12%. In contrast, Johnnie Walker continued to capitalise on its great
brand momentum and increased volume, net sales and share. Similarly,
cocktail innovation including Cacique Mojito performed well in the off
trade.
Eastern
Europe – Russia returned to growth in the second half
Double-digit
volume and net sales growth were delivered in Russia, reflecting the successful
introduction of lower priced scotch brands into the market to appeal to value
conscious consumers and maintain category participation. White Horse and Bell’s
captured this momentum, delivering strong volume and net sales growth. Captain
Morgan also achieved good growth following the introduction of smaller sized
bottles. In Eastern Europe, net sales declined as distributors and wholesalers
continued to reduce their inventories and consumer demand remained weak.
However, growth was achieved in certain countries on key brands, such as the
double-digit net sales increase on Johnnie Walker Red Label in Poland and
Bushmills in Bulgaria.
Other
European markets – Difficult macro economic conditions in Greece had limited
impact on full year performance
In
Greece, net sales declined 4% for the year. Growth in the first half and the
resilience of Diageo’s scotch brands partly offset the decline in the second
half as the government introduced tough austerity measures and excise taxes on
alcohol were increased 87%. In Northern Europe, net sales and volume declined
1%, driven by the competitive pricing environment in Germany. Captain Morgan
grew volume and net sales strongly following the recent focus on the
brand.
Brands
and activities
Johnnie
Walker volume and net sales declined 6% and 4% respectively, driven by a weak
performance in the first half in Eastern Europe and Russia. Price increases in
Greece and the growth of Johnnie Walker Black Label in Spain, Greece and Turkey,
led to 2 percentage points of positive price/mix. Similarly, Johnnie Walker Red
Label showed a very strong performance in Spain and in Poland, gaining share and
significantly growing volume and net sales.
Smirnoff
volume was flat and net sales were down 6%. This performance was driven by the
sharp decline of the vodka category in Ireland and heightened competition in
Poland, where local vodka brands returned to popularity during the economic
downturn. Despite the difficult context, Smirnoff grew share in Ireland, driven
by the on trade and extending its market leading position. In Great Britain,
Smirnoff’s largest European market, the brand lost share in the on trade but
remained the best selling vodka and made strong share gains in the growing off
trade.
Baileys
increased volume 3% with net sales down 3%. A strong performance in Great
Britain, its largest European market, with volume and net sales up 17% and 5%
respectively, was driven by the double-digit growth in the off trade and the
rapid growth of Baileys Flavours. The marketing strategy focused on in-store
activity to improve visibility during key selling periods, such as the joint
display of Baileys Original and Baileys Flavours. This performance was offset by
weak results in Germany and the decline of the liqueurs category in Eastern
Europe.
JεB remained in
decline with volume and net sales down 8% and 10% respectively, following the
continued weakness of the scotch category in Spain and the increased competition
by local and own label whisky brands in this market.
Guinness
volume and net sales declined across the region by 4% and 2% respectively,
mainly caused by the decline of the on trade. In Great Britain, Guinness
outperformed the beer category with broadly flat net sales and achieved its
highest ever share of the on trade at 8% through the success of the “Bring it to
Life” and “250th
Celebration” campaigns. Share gains were also
achieved in Ireland, led by the performance in the key Republic of Ireland on
trade channel. Price/mix was positive mainly because of a price increase on
Guinness Draught in Great Britain.
The ready
to drink segment remained weak with volume and net sales down 6% and 2%
respectively, reflecting the continued decline of the segment across the region
and more particularly in the on trade. Smirnoff Ice remained in decline in
larger markets, where investment in the brand was focused on improving
visibility in the off trade.
Premix
cans delivered strong growth in Great Britain with volume and net sales up 23%
and 28% respectively, making spirits more accessible to the at home consumer.
The successful launch of Smirnoff & Cola in February 2010, supported by
television and in-store activity, expanded the range of premix variants to
eight. Cacique Mojito in Spain had a strong start and the introduction of
Smirnoff Cocktails in Great Britain strengthened Diageo’s offering in the
growing ready to serve segment.
As
consumer behaviours evolved in Europe, innovation remained a crucial performance
driver with particular success in Great Britain, Spain and Russia. In Great
Britain performance was driven by a full rollout on Baileys with a hint of
Coffee, premix cans and Smirnoff flavoured vodka. The launch of Cacique Mojito
ready to serve cocktails in Spain addressed the at home consumption trend. In
Russia the launch of Bell’s in the scotch value segment provided a lower priced
alternative as consumers traded down from higher priced scotch
brands.
The
reserve brands grew in Europe focused on Diageo’s single malt scotch brands and
good growth was achieved on the Classic Malts range in France, Italy and Great
Britain. Talisker and The Singleton of Dufftown also performed well, however
Cardhu was impacted by the decline of the brand’s principal on trade channel in
Spain. Zacapa benefited from distribution gains across the region and grew net
sales 19%.
Marketing
spend was down 6% in response to the challenging trading conditions across the
region and more particularly in Ireland, Iberia and Eastern Europe. It was
increased selectively behind proven campaigns on key brands such as Captain
Morgan in Northern Europe, the launch of new flavours of Smirnoff in Great
Britain and Johnnie Walker in Russia. Media rate deflation in the largest
markets led to the realisation of savings on Guinness and Baileys.
Customer
marketing initiatives were designed to ensure the right products are supplied,
available and merchandised in the most effective manner in order to win at the
point of purchase. The successful collaboration with key grocery
customers continued, with seasonal campaigns to increase sales at these key
occasions.
International
·
|
Latin
America and the Caribbean delivered 15% net sales growth, driven by scotch
brands Johnnie Walker, Buchanan’s and Old
Parr
|
·
|
Growth
of lager brands led to 10% net sales growth in
Africa
|
·
|
Global
Travel and Middle East returned to growth, led by the strong growth of
premium and super premium brands
|
·
|
Marketing
spend increased ahead of net sales behind the key categories of scotch,
beer and vodka
|
Key
measures:
|
|
2010
|
|
|
2009
(restated)
|
|
|
Organic
movement
|
|
|
Reported
movement
|
|
|
|
£
million
|
|
|
£
million
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
(millions of equivalent units)
|
|
|
40.3 |
|
|
|
37.0 |
|
|
|
8 |
|
|
|
9 |
|
Net
sales
|
|
|
2,627 |
|
|
|
2,286 |
|
|
|
13 |
|
|
|
15 |
|
Marketing
spend
|
|
|
302 |
|
|
|
259 |
|
|
|
13 |
|
|
|
17 |
|
Operating
profit before exceptional items
|
|
|
771 |
|
|
|
649 |
|
|
|
25 |
|
|
|
19 |
|
Operating
profit
|
|
|
766 |
|
|
|
627 |
|
|
|
|
|
|
|
22 |
|
Reported
performance:
Net sales
increased by £341 million in the year ended 30 June 2010 to £2,627 million, from
£2,286 million in the prior year. Reported operating profit before
exceptional items increased by £122 million in the year ended 30 June 2010 to
£771 million, from £649 million in the prior year.
Organic
performance:
Exchange
rate impacts increased net sales by £21 million, acquisitions and disposals
increased net sales by £9 million and there was an organic increase in net sales
of £311 million. Exchange rate impacts decreased operating profit before
exceptional items by £27 million, acquisitions and disposals decreased operating
profit before exceptional items by £6 million and there was an organic increase
in operating profit before exceptional items of £155 million.
Brand performance:
|
|
Organic
Volume
movement*
|
|
|
Organic
net sales
movement
|
|
|
Reported
net sales
movement
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands
|
|
|
7 |
|
|
|
9 |
|
|
|
11 |
|
Other
brands
|
|
|
9 |
|
|
|
19 |
|
|
|
19 |
|
Total
|
|
|
8 |
|
|
|
13 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
spirits brands:**
|
|
|
|
|
|
|
|
|
|
|
|
|
Johnnie
Walker
|
|
|
22 |
|
|
|
17 |
|
|
|
26 |
|
Smirnoff
|
|
|
7 |
|
|
|
7 |
|
|
|
18 |
|
Baileys
|
|
|
1 |
|
|
|
2 |
|
|
|
8 |
|
Buchanan’s
|
|
|
11 |
|
|
|
15 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guinness
|
|
|
(6 |
) |
|
|
(1 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready
to drink
|
|
|
(7 |
) |
|
|
7 |
|
|
|
10 |
|
*
|
Reported
volume movements for Other brands and Total were 10% and 9% respectively,
primarily due to Windhoek
|
**
|
Spirits
brands excluding ready to drink
|
Latin
America and the Caribbean – Volume growth in Mexico and Brazil together with
price increases in Venezuela drove performance
Net sales
grew 17% in Venezuela driven by price increases taken to reflect inflation and
the weaker Bolivar/US dollar exchange rate. However, volume decreased 4% as the
slowdown of the economy resulted in category declines within international
spirits. This was especially true of the higher priced scotch segments where
many consumers either switched into lower priced categories such as rum or
locally produced vodka, or traded down within the category to standard variants.
Within this environment, Diageo maintained its clear leadership position of both
the scotch and rum categories.
Volume
grew 22% and net sales 15% in the Brazil hub, led by Johnnie Walker and Smirnoff
which both grew share and extended their category leadership positions. Negative
price/mix was a result of price reductions made in the second half of fiscal
2009. Marketing spend increased behind global brand campaigns such as Johnnie
Walker “Walk with Giants”, category marketing programmes such as the Whiskey
Festival and activation behind Smirnoff, Cîroc and Ketel One vodka during the
2010 football World Cup.
In
Mexico, the strong performance of Johnnie Walker Red Label and Buchanan’s Deluxe
extended Diageo’s position as the clear leader in scotch and led to volume
growth of 25% and net sales growth of 31%. Price increases across the scotch
range and the faster growth of deluxe variants resulted in 6 percentage points
of positive price/mix. Marketing spend was significantly increased behind
Johnnie Walker “Keep Walking” and the “Buchanan’s Forever”
platform.
Africa
– Beer net sales grew strongly led by lager brands. Strong share gains in the
largest markets
Despite a
challenging economic environment in South Africa, volume and net sales grew 1%.
The scotch category was most affected by the reduction in consumer confidence,
however Bell’s remained the best selling scotch in the market and Diageo’s
scotch brands grew share. Smirnoff delivered a strong performance, with net
sales up 8%. Trading has generally improved in the second half, with signs of
trading up starting to appear, particularly in scotch. Sales of beer through the
brandhouse joint venture performed very well and grew share.
The
strong performance in Nigeria continued with net sales up 23% and Diageo gained
share of the beer category. Harp, in particular, performed strongly as
distribution gains and increased media activity led to excellent net sales
growth for the brand. Guinness net sales declined 1% as a weaker economy led
many consumers to trade down to lower priced beers. Marketing activity on
Guinness was stepped up significantly, primarily behind television advertising
of “The Scout” and activation around the sponsorship of the Nigerian football
team, the “Super Eagles”, during the 2010 football World Cup.
In the
East Africa hub, comprising Kenya, Uganda and Tanzania, trading conditions
significantly improved in the second half as the domestic economies showed signs
of recovery. Diageo’s performance steadily improved and the hub delivered flat
volume and net sales growth of 10% for the full year. The positive price/mix was
due to price increases coupled with the faster growth of the higher margin
Guinness brand, which grew net sales 21%. Tusker in Kenya was another highlight,
growing net sales 26%.
Elsewhere
in Africa, net sales grew 1% in both Cameroon and Ghana. In Cameroon, growth of
Malta Guinness and the introduction of Pilsner lager in November 2009 drove
performance. Ghana faced a difficult year as water shortages and power outages
reduced production volume while a significant increase in excise duties in
January negatively impacted consumer demand. Marketing spend behind Guinness in
both Cameroon and Ghana increased significantly.
Global
Travel and Middle East – Net sales recovered after a difficult fiscal 2009 led
by premium and super premium brands
GTME
recovered well from the travel reduction in 2009, with volume growth of 15% and
net sales growth of 19%. Marketing spend was increased significantly reflecting
the important role of GTME as a brand and category building channel. A greater
focus on priority customers, increased resources behind shopper understanding
and a step-up in programmes to encourage consumers into stores all contributed
to the success. The stand out brand performance was from Johnnie Walker,
particularly Black Label where net sales grew 38%. The largest non-scotch
brands, Baileys, Smirnoff, Captain Morgan and Tanqueray, also grew net sales.
Innovation played a significant role in driving growth, especially the launch of
Johnnie Walker Double Black and the sustained momentum of Johnnie Walker King
George V and The Singleton single malt scotch.
Brands
and activities
Johnnie
Walker volume grew 22% and net sales 17% with the rebound in performance from
last year evident across Red, Black and Blue Labels. Negative price/mix
reflected the re-instatement of promotional activity on scotch in Global Travel
and price reductions on Johnnie Walker Red Label in Brazil. Johnnie Walker Red
Label responded well to the “Adventure in a Glass” global marketing programme
activated across Latin America while improved trading with customers supplying
the duty free outlets on the United States/Mexico border also contributed to the
improved growth levels. The majority of growth of Johnnie Walker Black and Blue
Labels was driven by GTME where the “Walking with Giants” campaign was activated
in 30 airports in the second half.
Volume
and net sales of Smirnoff grew 7%, with the three largest markets of Brazil,
South Africa and GTME all posting single-digit increases. In Brazil, a price
increase partially offset the reduction taken in fiscal 2009, while strong
marketing spend behind the Smirnoff “Be There” campaign contributed to the brand
returning to growth.
Baileys
net sales were up 2% across the region as good growth in the largest markets of
GTME and Mexico of 7% and 10% respectively were partly offset by a slowdown in
the Caribbean and Central America and an initial adverse impact due to a change
of route to market for spirits in Nigeria.
Buchanan’s
volume and net sales grew 11% and 15% respectively and marketing spend was
increased ahead of net sales supporting the “Buchanan’s Forever” programme,
which, in its third year, featured sold out concerts in Caracas, Bogota and
Mexico City. Father’s Day and Whiskey Festival promotions across Latin America
contributed to improved net sales momentum in the second half.
Guinness
volume declined 6% and net sales 1% as some consumers in Africa traded down to
lower priced beers. In the largest markets of Nigeria, Cameroon and Ghana, the
brand commands a price premium of upwards of 75% compared to mainstream lager
brands. To support brand equity and this strong pricing position, marketing
spend was significantly increased behind the “250th
Celebration” in the first half and in strengthening the brand’s association with
football in the second half.
Ready to
drink net sales grew 7% led by the strong performance of Smirnoff Ice in Nigeria
and Brazil. In South Africa, Smirnoff ready to drink volume declined as
consumers traded into less expensive mainstream beer but the launch of premix
versions of Captain Morgan and JεB helped grow
ready to drink net sales 8% in that market.
Marketing
spend increased in line with net sales at 13% and was focused behind the largest
categories and proven campaigns. By category, the majority of the additional
spend was behind scotch as the “Walk with Giants” marketing programme on Johnnie
Walker was activated at scale in both Latin America and GTME. Guinness also
received significantly more support in fiscal 2010. Marketing spend increased
between 30% and 70% in the largest markets of Nigeria, Cameroon and East
Africa.
International
was the largest contributor to Diageo’s innovation net sales growth mainly due
to new beer formats in Nigeria and Kenya and the introduction of super deluxe
variants of scotch brands in the domestic markets of Latin America. The launch
of premix cans in South Africa and Johnnie Walker Double Black in GTME both
showed encouraging early results.
Reserve
brands recovered from a difficult year in fiscal 2009 to deliver 9% net sales
growth. GTME performed strongly as increased visibility of Johnnie Walker Blue
Label, especially in Asian airports, led to strong growth. Higher up the price
range, successful launch events for The John Walker gave the brand visibility in
some of the most sought after top tier outlets across the region and most
importantly attracted high net worth consumers to the brand. In Mexico, a
focused strategy of expanding reserve brand distribution into high-end bars and
increasing distribution in department stores led to a 44% increase in net
sales.
Reflecting
the region’s focus on improving customer collaboration and shopper
understanding, a dedicated customer marketing function was established in all
three hubs. In Latin America and the Caribbean, the “Ease of Shop” programme was
rolled out across 3,500 stores. The Whiskey Festival, activated in many markets
across the region, was a great example of activating a category platform at
scale. In South Africa, strategic partnerships were developed with key customers
and Diageo now holds category captaincy positions in its top ten national
accounts. Elsewhere in Africa the sales focus was on developing the capabilities
of distributor partners. In Global Travel, Diageo has shown leadership in
bringing together suppliers, airport authorities and retailers to deliver
exciting category events to consumers, both in and out of
store.
Asia
Pacific
Summary:
|
·
|
Double-digit
growth in South East Asia was driven by strong growth in Johnnie Walker
and Guinness
|
|
·
|
Australia
volume and net sales declined slightly driven by weakness of Bundaberg
ready to drink in an increasingly competitive
segment
|
|
·
|
Good
depletions of Johnnie Walker and Windsor drove share growth in China as the
scotch category returned to growth, although overall performance was held
back by destock of Dimple
|
|
·
|
The
scotch category was weak in Korea, however share gains extended Diageo’s
leadership position
|
|
·
|
A
strong performance from The Singleton led to 10% net sales growth in
Taiwan
|
|
·
|
India
was impacted by a destock in the first half but the business performed
more strongly in the second half
|
|
·
|
Marketing
spend increased 3% with focused investment on Windsor, Guinness, Johnnie
Walker and Smirnoff
|
Key
measures:
|
|
2010
|
|
|
2009
(restated)
|
|
|
Organic
movement
|
|
|
Reported
movement
|
|
|
|
£
million
|
|
|
£
million
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
(millions of equivalent units)
|
|
|
12.1 |
|
|
|
11.8 |
|
|
|
2 |
|
|
|
2 |
|
Net
sales
|
|
|
1,018 |
|
|
|
910 |
|
|
|
1 |
|
|
|
12 |
|
Marketing
spend
|
|
|
233 |
|
|
|
208 |
|
|
|
3 |
|
|
|
12 |
|
Operating
profit before exceptional items
|
|
|
176 |
|
|
|
159 |
|
|
|
6 |
|
|
|
11 |
|
Operating
profit
|
|
|
146 |
|
|
|
124 |
|
|
|
|
|
|
|
18 |
|
Reported
performance:
Net sales
increased by £108 million in the year ended 30 June 2010 to £1,018 million, from
£910 million in the prior year. Reported operating profit before
exceptional items increased by £17 million in the year ended 30 June 2010 to
£176 million, from £159 million in the prior year.
Organic
performance:
Exchange
rate impacts increased net sales by £101 million and there was an organic
increase in net sales of £7 million. Exchange rate impacts increased
operating profit before exceptional items by £14 million, acquisitions and
disposals decreased operating profit before exceptional items by £7 million and
there was an organic increase in operating profit before exceptional items of
£10 million.
Brand performance:
|
|
Volume
movement*
|
|
|
Organic
net sales
movement
|
|
|
Reported
net sales
movement
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Global
priority brands
|
|
|
5 |
|
|
|
3 |
|
|
|
14 |
|
Other
brands
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
10 |
|
Total
|
|
|
2 |
|
|
|
1 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
spirits brands:**
|
|
|
|
|
|
|
|
|
|
|
|
|
Johnnie
Walker
|
|
|
14 |
|
|
|
2 |
|
|
|
10 |
|
Smirnoff
|
|
|
(5 |
) |
|
|
(1 |
) |
|
|
11 |
|
Bundaberg
|
|
|
(8 |
) |
|
|
- |
|
|
|
22 |
|
Windsor
|
|
|
- |
|
|
|
- |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guinness
|
|
|
2 |
|
|
|
13 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ready
to drink
|
|
|
- |
|
|
|
(4 |
) |
|
|
15 |
|
*
|
Volume
movement is both reported and
organic
|
**
|
Spirits
brands excluding ready to drink
|
Australia
- Net sales growth on spirits but increased competition in ready to
drink
In
Australia net sales declined 1% as a result of a 5% decline in ready to drink
net sales. In spirits the performance was stronger. The “Strides”
marketing campaign drove share gains and the strong performance of Johnnie
Walker Red Label, with net sales growth of 19%, offset weakness in Baileys which
was impacted by imports of the brand from outside Australia. Smirnoff
volume was down 4%, however moderate price increases delivered flat net sales in
a category that has seen increased competition from own label. Bundaberg volume
declined 8% as growth slowed in dark spirits and a price increase held net sales
flat. Marketing spend increased 2% and investment focused on the
Smirnoff range.
Korea
- Increased investment on Windsor and good share gains in scotch
The
contraction of scotch in Korea during the global economic downturn combined with
consumers trading down, led to a decline in volume and net sales of 8% and 3%
respectively. A double-digit increase in marketing spend was focused on Windsor
and Johnnie Walker Black Label and delivered 4 percentage points of volume share
gain in the scotch category. Price increases on both Windsor 12 year
old and Windsor 17 year old delivered price/mix improvement.
South
East Asia – Double-digit growth on Johnnie Walker and Guinness
South
East Asia, which includes Vietnam, Malaysia and Indonesia, performed well,
delivering double-digit volume and net sales growth. Negative price/mix was
driven by the increase in the level of business done through third party
distributors, which led to a reduction in net sales per case and some destocking
of super deluxe brands. Johnnie Walker performed well as a result of
a 15% increase in marketing spend which focused on the “Keep Walking” campaign
and Grand Prix sponsorship, and drove both share gains and increased brand
equity. Guinness posted strong performance and the brand’s price premium drove
strong price/mix backed by a significant increase in marketing spend behind the
“250th
Celebration” and sponsorship of World Series Pool in Indonesia.
Thailand
- Net sales growth but adverse mix as consumers traded down
In
Thailand volume grew 9% as Johnnie Walker Black Label and Smirnoff both
delivered good growth. However, the key growth driver in the market was Benmore,
which delivered double-digit volume and net sales growth, and as a result of
improved brand health grew share in a declining category as the uncertain
political and economic environment led to trading down. The strong growth of
Benmore at a lower price point to Johnnie Walker drove negative price/mix and
net sales grew 4% in Thailand.
China
- Strong second half growth and share gains on Johnnie Walker
The
second half performance in China was very strong although the destocking of
Dimple in the first half of the year impacted overall performance, with volume
down 1% and net sales down 2% for the full year. Global priority brands grew in
China and the strong performance of Johnnie Walker Black Label, delivered over 2
percentage points of share in a scotch category which had returned to growth.
Smirnoff and Baileys also performed well, albeit from a smaller base, as brand
equity improved. Both brands increased share in their respective categories and
trade investment efficiencies delivered positive price/mix. Increased focus
behind Windsor delivered strong growth in volume and net sales. A
double-digit increase in marketing spend focused on Johnnie Walker and Windsor
increased Diageo’s share of voice in the scotch category by 4 percentage
points.
India
- Full year net sales decline but performance improved in the second
half
The
business in India was impacted by destocking in the first half following
inappropriate shipments in the prior year. As a result both volume and net sales
were down. Marketing spend as a percentage of net sales was also below last year
as the business was rebased. Marketing spend was focused behind
Johnnie Walker, Smirnoff and Vat 69 and investment behind sales capabilities
accelerated. Price increases on Smirnoff and Vat 69 in the second
half delivered price/mix improvement.
Rest
of Asia
Elsewhere
in Asia there was strong growth of The Singleton of Glen Ord in
Taiwan. In Japan net sales were down, however margins improved as the
distribution of premium brands moved to the joint venture with
Kirin.
Brands
and activities
Johnnie
Walker volume grew 14%. Negative price/mix was a result of an
increase of competitively priced promotions at Easter in Australia and increased
sales through third party distributors in South East Asia and therefore net
sales grew 2%. Marketing spend increased behind “Keep Walking”, Grand Prix
sponsorship and gifting occasions in China and South East Asia and a major
television campaign to drive the quality perception of the brand in
Taiwan.
Smirnoff
volume declined 5% driven by destocking in India and an increase in the
competitive landscape in Australia. A price increase in Australia
combined with a strong performance in Thailand and China broadly offset the
volume decline with net sales down 1%. Marketing spend was directed towards the
“Be There” campaign and innovation. However total spend was down 9%
as increased investment in South East Asia and Australia was offset by spend
efficiencies in China and a reduction in line with the destock in
India.
Bundaberg
rum volume was down 8% due to a slowdown in the growth in dark spirits in the
second half of the year, which led to more intense competition. A price increase
held net sales for the year flat. Growth of Bundaberg Red mitigated some volume
decline on the core brand.
Windsor
volume and net sales were flat as increased distribution in China offset the
decline caused by scotch contraction in Korea. The brand maintained category
leadership in Korea, supported by increased investment in the new “Diamond
Jubilee Club” campaign, and grew volume share in China, as new packaging of
Windsor XR combined with focused brand building activity increased brand equity,
supporting further distribution expansion.
Guinness
performed well and volume increased 2%. Price/mix improvement was driven by its
premium price positioning in South East Asia and net sales grew
13%. Marketing spend increased by over a third to support the brand’s
“250th
Celebration” activity, the new “Rise Together” campaign and sponsorship of World
Series Pool in South East Asia.
Ready to
drink volume was broadly flat as the performance of Smirnoff Cocktails and
Johnnie Walker ready to drink offset a 3% decline in Bundaberg ready to drink in
Australia. Price competition intensified between beer and ready to
drink in Australia and net sales declined 4% in the region.
Marketing
spend grew 3%, primarily driven by increases in Korea, South East Asia and
China. Investment increased behind the Johnnie Walker Grand Prix
sponsorship and “Keep Walking” campaigns and the Windsor “Diamond Jubilee Club”
programme, driving share gains in those markets. Marketing spend also increased
behind Guinness, including the “250th
Celebration”, delivering a strong performance and share gains in Indonesia. In
addition, investment increased behind Smirnoff innovation in South East Asia and
Australia, whilst Baileys and JεB spend declined
in the region.
Innovation
was focused on increasing the accessibility of spirits with Smirnoff Cocktails
in Australia and Johnnie Walker gift packs in key scotch
markets. Bundaberg Red continued to perform well in Australia, a year
after launch.
The
performance of reserve brands in the region was mixed. The Singleton of Glen Ord
in Taiwan delivered double-digit growth supported by television advertising, but
this was more than offset by the destocking of super deluxe scotch in South East
Asia and India.
Fiscal
2010 was the inaugural year for customer marketing in Asia Pacific and a
dedicated team was established across the region. The strong on trade bias in
the region was the focus of this customer marketing activity with investments
behind bar staff training across the region, an on trade solutions website in
Australia which was used by about 75% of Diageo’s on trade accounts, and a
Smirnoff versatility tool, “Smirnoff Tower” in China and India. In
the Thai off trade, “Ease of Shop” was introduced and delivered increased spend
per basket for customers and brand uplift for Diageo in the accounts where the
programme was implemented.
2. FINANCIAL
REVIEW
Summary consolidated income statement
|
|
Year ended
30 June 2010
|
|
|
Year ended
30 June 2009
|
|
|
|
£ million
|
|
|
(restated)
£ million
|
|
|
|
|
|
|
|
|
Sales
|
|
|
12,958 |
|
|
|
12,283 |
|
Excise
duties
|
|
|
(3,178 |
) |
|
|
(2,972 |
) |
Net
sales
|
|
|
9,780 |
|
|
|
9,311 |
|
Operating
costs before exceptional items
|
|
|
(7,029 |
) |
|
|
(6,723 |
) |
Operating
profit before exceptional items
|
|
|
2,751 |
|
|
|
2,588 |
|
Exceptional
operating items
|
|
|
(177 |
) |
|
|
(170 |
) |
Operating
profit
|
|
|
2,574 |
|
|
|
2,418 |
|
Sale
of businesses
|
|
|
(15 |
) |
|
|
- |
|
Net
finance charges
|
|
|
(462 |
) |
|
|
(592 |
) |
Share
of associates’ profits after tax
|
|
|
142 |
|
|
|
164 |
|
Profit
before taxation
|
|
|
2,239 |
|
|
|
1,990 |
|
Taxation
|
|
|
(477 |
) |
|
|
(286 |
) |
Profit
from continuing operations
|
|
|
1,762 |
|
|
|
1,704 |
|
Discontinued
operations
|
|
|
(19 |
) |
|
|
2 |
|
Profit
for the year
|
|
|
1,743 |
|
|
|
1,706 |
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
|
|
|
|
Equity
shareholders of the parent company
|
|
|
1,629 |
|
|
|
1,605 |
|
Non-controlling
interests
|
|
|
114 |
|
|
|
101 |
|
|
|
|
1,743 |
|
|
|
1,706 |
|
Sales
and net sales
On a
reported basis, sales increased by £675 million from £12,283 million in the year
ended 30 June 2009 to £12,958 million in the year ended 30 June 2010. On a
reported basis net sales increased by £469 million from £9,311 million in the
year ended 30 June 2009 to £9,780 million in the year ended 30 June 2010.
Exchange rate movements increased reported sales by £346 million and reported
net sales by £267 million.
Operating
costs before exceptional items
On a
reported basis, operating costs before exceptional items increased by £306
million in the year ended 30 June 2010 due to an increase in cost of sales of
£175 million, from £3,878 million to £4,053 million, an increase in marketing
expenses of £92 million from £1,327 million to £1,419 million, and an increase
in other operating expenses before exceptional costs of £39 million, from £1,518
million to £1,557 million. The impact of exchange rate movements increased total
operating costs before exceptional items by £141 million.
Exceptional
operating items
Exceptional
operating costs of £177 million for the year ended 30 June 2010 (2009 - £170
million) comprised a net charge of £142 million (2009 - £170 million) in respect
of restructuring programmes and an impairment charge of £35 million (2009 -
£nil) in respect of the Ursus brand reflecting the impact of the significant
downturn in the economy in one of its principal markets, Greece. Restructuring
programmes comprise £85 million (2009 - £166 million) for the global
restructuring programme announced in February 2009 primarily in respect of
employee and contract termination charges, £93 million (2009 - £nil) for the
restructuring of Global Supply operations announced in July 2009 principally in
Scotland, £12 million (2009 - £4 million) for the restructuring of brewing
operations in Ireland announced in 2008 in respect of accelerated depreciation,
and a £48 million net credit (2009 - £nil) for the restructuring of the wines
business in the United States comprising an £89 million gain on the sale and
leaseback of land, a £17 million charge for the write down of inventories and
other charges of £24 million.
The total
restructuring cash expenditure in the year ended 30 June 2010 is £145 million
(2009 - £53 million) of which £122 million relates to the global restructuring
programme. A charge of approximately £30 million is expected to be incurred in
the year ending 30 June 2011 primarily in respect of the restructuring of Global
Supply operations, while cash expenditure is expected to be approximately £150
million.
Post
employment plans
Post
employment net costs for the year ended 30 June 2010 were a charge of £133
million (2009 - £63 million) comprising £92 million (2009 - £98 million)
included in operating costs before exceptional items, pension curtailment gains
of £6 million (2009 - £33 million) in exceptional operating items and a charge
of £47 million (2009 - gain of £2 million) in net finance charges. In the year
ending 30 June 2011, the finance charge under IAS 19 is expected to be £5
million.
The
deficit before taxation in respect of post employment plans decreased by £178
million from £1,383 million at 30 June 2009 to £1,205 million at 30 June 2010.
The reduction in the deficit included £147 million transferred into the UK
Diageo Pension Scheme (the UK Scheme) from escrow under the deficit funding
arrangements paid by the company in prior years. Deficit funding contributions
to the group’s UK and Irish pension schemes in the year ended 30 June 2010,
other than the transfer to the UK Scheme of amounts paid into escrow in prior
years, were £55 million and are expected to be approximately £50 million for the
year ending 30 June 2011.
Operating
profit
Reported
operating profit for the year ended 30 June 2010 increased by £156 million to
£2,574 million from £2,418 million in the prior year. Exchange rate movements
increased operating profit for the year ended 30 June 2010 by £122 million.
Before exceptional operating items, operating profit for year ended 30 June 2010
increased by £163 million to £2,751 million from £2,588 million in the prior
year. Exchange rate movements increased operating profit before exceptional
items for the year ended 30 June 2010 by £126 million.
Exceptional
non-operating items
A loss of
£15 million on sale of businesses comprises a charge of £26 million in respect
of the anticipated loss on the disposal of certain non-strategic wine brands in
the United States in the year ending 30 June 2011 and a gain of £11 million
arising on the revaluation of the current equity holding in the London Group,
the owner of the Nuvo brand, to revalue Diageo’s stake to fair value, following
the acquisition of a majority equity stake in the London Group.
Net
finance charges
Net
finance charges comprising net interest charge and net other finance charges
decreased from £592 million in the year ended 30 June 2009 to £462 million in
the year ended 30 June 2010.
The net
interest charge decreased by £141 million from £516 million in the prior year to
£375 million in the year ended 30 June 2010. The reduction in the interest
charge arose principally from a decrease in average floating interest rates
which resulted in a reduction in interest charges of £90 million, from a
decrease in average net borrowings in the year driven by strong cash flow
generation and from a positive movement on the revaluation to year end market
rates of interest swaps under IAS 39 of £20 million.
The
income statement interest cover was 7.7 times and cash interest cover was 10.3
times.
Net other
finance charges for the year ended 30 June 2010 were £87 million (2009 - £76
million). There was an increase of £49 million in finance charges in respect of
post employment plans from £2 million finance income in the year ended 30 June
2009 to a £47 million charge in the year ended 30 June 2010. Other finance
charges also include £18 million (2009 - £21 million) on unwinding of discounts
on liabilities, a hyperinflation adjustment of £16 million (2009 - £nil) in
respect of the Venezuela operations, £10 million (2009 - £33 million) in respect
of exchange rate translation differences on inter-company funding arrangements
where hedge accounting was not applicable and £4 million income (2009 - £13
million charge) in respect of other finance charges. In the year ended 30 June
2009 £11 million was recognised in respect of exchange movements on net
borrowings not in a hedge relationship.
Associates
The
group’s share of associates’ profits after interest and tax was £142 million for
the year ended 30 June 2010 compared to £164 million in the prior year. Diageo’s
34% equity interest in Moët Hennessy contributed £134 million (2009 - £151
million) to share of associates’ profits after interest and tax.
Profit
before taxation
Profit
before taxation increased by £249 million from £1,990 million in the prior year
to £2,239 million in the year ended 30 June 2010.
Taxation
The
reported tax rate for the year ended 30 June 2010 was 21.3% compared with 14.4%
for the year ended 30 June 2009. Factors that reduced the reported tax rate in
the prior year included settlements agreed with tax authorities that gave rise
to changes in the value of deferred tax assets and tax provisions. The
underlying tax rate for the year ended 30 June 2010 was 21.6% and for the year
ended 30 June 2009 was 22.1%. The underlying tax rate for the year ending 30
June 2011 is expected to remain at approximately 22%.
Discontinued
operations
Discontinued
operations in the year ended 30 June 2010 represent a charge after taxation of
£19 million in respect of anticipated future payments to new thalidomide
claimants. The credit of £2 million in the year ended 30 June 2009 relates to
the Pillsbury disposal.
Exchange
rate and other movements
Exchange
rate movements are calculated by retranslating the prior year results as if they
had been generated at the current year exchange rates. The difference is
excluded from organic growth.
The
estimated effect of exchange rate and other movements on profit before
exceptional items and taxation for the year ended 30 June 2010 was as
follows:
|
|
|
|
|
Gains/(losses)
£
million
|
|
Operating
profit before exceptional items
|
|
|
|
|
|
|
Translation
impact
|
|
|
|
|
|
37 |
|
Transaction
impact
|
|
|
|
|
|
133 |
|
Impact
of IAS 21 on operating profit
|
|
|
|
|
|
(44 |
) |
Total
exchange effect on operating profit before exceptional
items
|
|
|
|
|
|
126 |
|
Interest
and other finance charges
|
|
|
|
|
|
|
|
Net
finance charges – translation impact
|
|
|
|
|
|
2 |
|
Mark
to market impact of IAS 39 on interest expense
|
|
|
|
|
|
20 |
|
Impact
of IAS 21 and IAS 39 on other finance charges
|
|
|
|
|
|
34 |
|
Associates
– translation impact
|
|
|
|
|
|
4 |
|
Total
effect on profit before exceptional items and taxation
|
|
|
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
Year
ended
30
June 2010
|
|
|
Year
ended
30
June 2009
|
|
Exchange
rates
|
|
|
|
|
|
|
|
Translation
£1 =
|
|
$ |
1.57 |
|
|
$ |
1.60 |
|
Transaction
£1 =
|
|
$ |
1.67 |
|
|
$ |
2.29 |
|
Translation
£1 =
|
|
€ |
1.13 |
|
|
€ |
1.17 |
|
Transaction
£1 =
|
|
€ |
1.30 |
|
|
€ |
1.40 |
|
For the
year ending 30 June 2011, at current exchange rates (£1 = $1.56 : £1 =
€1.21), foreign exchange movements (excluding the impacts of IAS 21 and 39 and
excluding any impact in respect of currency movements of the Venezuelan bolivar
fuerte) are estimated to increase operating profit by £80 million and decrease
net finance charges by £5 million. The current situation in Venezuela with
respect to currency controls and the official exchange rate is uncertain. In the
year ended 30 June 2010 the Venezuelan denominated operating profit amounted to
VEF485 million which was translated at the official exchange rate, $1
= VEF2.15 in the six months ended 31 December 2009 and $1 = VEF4.3 in the
six months ended 30 June 2010. If the translation exchange rate is changed in
fiscal 2011 this would most likely give rise to an adverse currency
movement.
Dividend
The
directors recommend a final dividend of 23.50 pence per share, an increase of 6%
from the year ended 30 June 2009. The full dividend would
therefore be 38.10 pence per share, an increase of 5.5% from the year ended 30
June 2009. Subject to approval by shareholders, the final dividend will
be paid on 19 October 2010 to shareholders on the
register on 10 September 2010. Payment to US ADR holders will be made on 25
October 2010. A dividend reinvestment plan is available in respect of the
final dividend and the plan notice date is 27 September 2010.
Cash flow
|
|
Year ended
30 June 2010
|
|
|
Year ended
30 June 2009
|
|
|
|
£ million
|
|
|
(restated)
£ million
|
|
|
|
|
|
|
|
|
Cash
generated from operations before exceptional costs
|
|
|
3,329 |
|
|
|
2,707 |
|
Exceptional
restructuring costs paid
|
|
|
(145 |
) |
|
|
(53 |
) |
Cash
generated from operations
|
|
|
3,184 |
|
|
|
2,654 |
|
Interest
paid (net)
|
|
|
(305 |
) |
|
|
(415 |
) |
Dividends
paid to equity non-controlling interests
|
|
|
(107 |
) |
|
|
(98 |
) |
Taxation
paid
|
|
|
(474 |
) |
|
|
(522 |
) |
Net
capital expenditure excluding sale and leaseback of land
|
|
|
(365 |
) |
|
|
(341 |
) |
Sale
and leaseback of land
|
|
|
134 |
|
|
|
- |
|
Net
increase in other investments
|
|
|
(43 |
) |
|
|
(24 |
) |
Payment
into escrow in respect of UK pension fund
|
|
|
- |
|
|
(50
|
) |
Free
cash flow
|
|
|
2,024 |
|
|
|
1,204 |
|
Free cash
flow increased by £820 million to £2,024 million in the year ended 30 June 2010.
Cash generated from operations increased from £2,654 million to £3,184 million
principally as a result of improved working capital management. A reduction in
working capital increased cash generated from operations in the year ended 30
June 2010 by £334 million principally in respect of lower trade debtors and
higher trade payables (2009 – increase in working capital of £253 million). Net
capital expenditure on property, plant and equipment increased by £24 million to
£365 million. £134 million was received on the sale and leaseback of land in
Napa Valley, California. In the year ended 30 June 2010 £50 million paid to the
UK Scheme under the deficit funding arrangement is included in cash generated
from operations; in the year ended 30 June 2009 £50 million is disclosed
separately as the payment was initially made to an escrow account before being
transferred to the UK Scheme in the year ended 30 June 2010.
Balance
sheet
At 30
June 2010, total equity was £4,786 million compared with £3,874 million at 30
June 2009. This increase was mainly due to the profit for the year of £1,743
million, partly offset by the dividend paid out of shareholders’ equity of £914
million.
Net
borrowings were £6,954 million at 30 June 2010, a decrease of £465 million from
net borrowings at 30 June 2009 of £7,419 million. The principal components of
this decrease were £2,024 million (2009 - £1,204 million) free cash flow partly
offset by £914 million (2009 - £870 million) equity dividends paid, adverse
exchange rate movements of £429 million (2009 - £784 million) and £206 million
(2009 - £102 million) paid in respect of purchase of
businesses.
Diageo
manages its capital structure to achieve capital efficiency, maximise
flexibility and give the appropriate level of access to debt markets at
attractive cost levels in order to enhance long-term shareholder value. To
achieve this, 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 increased by £78 million from £812 million in the year ended 30 June 2009
to £890 million in the year ended 30 June 2010. See page 47 for the calculation
and definition of economic profit.
DIAGEO
CONDENSED CONSOLIDATED INCOME STATEMENT
|
|
|
|
|
Year ended
30 June 2010
|
|
|
Year ended
30 June 2009
|
|
|
|
Notes
|
|
|
£ million
|
|
|
(restated)
£ million
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
2 |
|
|
|
12,958 |
|
|
|
12,283 |
|
Excise
duties
|
|
|
|
|
|
|
(3,178 |
) |
|
|
(2,972 |
) |
Net
sales
|
|
|
2 |
|
|
|
9,780 |
|
|
|
9,311 |
|
Cost
of sales
|
|
|
|
|
|
|
(4,099 |
) |
|
|
(3,893 |
) |
Gross
profit
|
|
|
|
|
|
|
5,681 |
|
|
|
5,418 |
|
Marketing
expenses
|
|
|
|
|
|
|
(1,419 |
) |
|
|
(1,327 |
) |
Other
operating expenses
|
|
|
|
|
|
|
(1,688 |
) |
|
|
(1,673 |
) |
Operating
profit
|
|
|
2 |
|
|
|
2,574 |
|
|
|
2,418 |
|
Sale
of businesses
|
|
|
3 |
|
|
|
(15 |
) |
|
|
- |
|
Net
interest payable
|
|
|
4 |
|
|
|
(375 |
) |
|
|
(516 |
) |
Net
other finance charges
|
|
|
4 |
|
|
|
(87 |
) |
|
|
(76 |
) |
Share
of associates' profits after tax
|
|
|
|
|
|
|
142 |
|
|
|
164 |
|
Profit
before taxation
|
|
|
|
|
|
|
2,239 |
|
|
|
1,990 |
|
Taxation
|
|
|
5 |
|
|
|
(477 |
) |
|
|
(286 |
) |
Profit
from continuing operations
|
|
|
|
|
|
|
1,762 |
|
|
|
1,704 |
|
Discontinued
operations
|
|
|
6 |
|
|
|
(19 |
) |
|
|
2 |
|
Profit
for the year
|
|
|
|
|
|
|
1,743 |
|
|
|
1,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
shareholders of the parent company
|
|
|
|
|
|
|
1,629 |
|
|
|
1,605 |
|
Non-controlling
interests
|
|
|
|
|
|
|
114 |
|
|
|
101 |
|
|
|
|
|
|
|
|
1,743 |
|
|
|
1,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pence
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
66.3 |
p |
|
|
64.5 |
p |
Discontinued
operations
|
|
|
|
|
|
|
(0.8 |
)p |
|
|
0.1 |
p |
Basic
earnings
|
|
|
|
|
|
|
65.5 |
p |
|
|
64.6 |
p |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
66.2 |
p |
|
|
64.3 |
p |
Discontinued
operations
|
|
|
|
|
|
|
(0.8 |
)p |
|
|
0.1 |
p |
Diluted
earnings
|
|
|
|
|
|
|
65.4 |
p |
|
|
64.4 |
p |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares
|
|
|
|
|
|
|
2,486 |
m |
|
|
2,485 |
m |
DIAGEO
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
|
Year ended
30 June 2010
|
|
|
Year ended
30 June 2009
|
|
|
|
£ million
|
|
|
(restated)
£ million
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
Exchange
differences on translation of foreign operations excluding
borrowings
|
|
|
531 |
|
|
|
930 |
|
Exchange
differences on borrowings and derivative net investment
hedges
|
|
|
(429 |
) |
|
|
(773 |
) |
Effective
portion of changes in fair value of cash flow hedges
|
|
|
|
|
|
|
|
|
-
net (losses)/gains taken to other comprehensive
income
|
|
|
(27 |
) |
|
|
90 |
|
-
transferred to income statement
|
|
|
(26 |
) |
|
|
(71 |
) |
Fair
value movement on available-for-sale investments
|
|
|
- |
|
|
|
4 |
|
Hyperinflation
adjustment
|
|
|
25 |
|
|
|
- |
|
Net
actuarial gain/(loss) on post employment plans
|
|
|
8 |
|
|
|
(1,007 |
) |
Tax
on other comprehensive income
|
|
|
(16 |
) |
|
|
254 |
|
Other
comprehensive income for the year, net of income tax
|
|
|
66 |
|
|
|
(573 |
) |
Profit
for the year
|
|
|
1,743 |
|
|
|
1,706 |
|
Total
comprehensive income for the year
|
|
|
1,809 |
|
|
|
1,133 |
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
|
|
|
|
Equity
shareholders of the parent company
|
|
|
1,628 |
|
|
|
940 |
|
Non-controlling
interests
|
|
|
181 |
|
|
|
193 |
|
|
|
|
1,809 |
|
|
|
1,133 |
|
DIAGEO
CONDENSED CONSOLIDATED BALANCE SHEET
|
|
|
|
|
30 June 2010
|
|
|
30 June 2009
(restated)
|
|
|
|
Notes
|
|
|
£ million
|
|
|
£ million
|
|
|
£ million
|
|
|
£ million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
|
|
|
|
6,726 |
|
|
|
|
|
|
6,215 |
|
|
|
|
Property,
plant and equipment
|
|
|
|
|
|
2,404 |
|
|
|
|
|
|
2,326 |
|
|
|
|
Biological
assets
|
|
|
|
|
|
30 |
|
|
|
|
|
|
37 |
|
|
|
|
Investments
in associates
|
|
|
|
|
|
2,060 |
|
|
|
|
|
|
2,041 |
|
|
|
|
Other
investments
|
|
|
|
|
|
117 |
|
|
|
|
|
|
231 |
|
|
|
|
Other
receivables
|
|
|
|
|
|
115 |
|
|
|
|
|
|
18 |
|
|
|
|
Other
financial assets
|
|
|
|
|
|
472 |
|
|
|
|
|
|
364 |
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
529 |
|
|
|
|
|
|
678 |
|
|
|
|
Post
employment benefit assets
|
|
|
|
|
|
49 |
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,502 |
|
|
|
|
|
|
|
11,951 |
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
7 |
|
|
|
3,281 |
|
|
|
|
|
|
|
3,078 |
|
|
|
|
|
Trade
and other receivables
|
|
|
|
|
|
|
2,008 |
|
|
|
|
|
|
|
1,977 |
|
|
|
|
|
Assets
held for sale
|
|
|
10 |
|
|
|
112 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Other
financial assets
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
98 |
|
|
|
|
|
Cash
and cash equivalents
|
|
|
8 |
|
|
|
1,453 |
|
|
|
|
|
|
|
914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,952 |
|
|
|
|
|
|
|
6,067 |
|
Total
assets
|
|
|
|
|
|
|
|
|
|
|
19,454 |
|
|
|
|
|
|
|
18,018 |
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
and bank overdrafts
|
|
|
8 |
|
|
|
(587 |
) |
|
|
|
|
|
|
(890 |
) |
|
|
|
|
Other
financial liabilities
|
|
|
|
|
|
|
(186 |
) |
|
|
|
|
|
|
(220 |
) |
|
|
|
|
Trade
and other payables
|
|
|
|
|
|
|
(2,615 |
) |
|
|
|
|
|
|
(2,172 |
) |
|
|
|
|
Liabilities
held for sale
|
|
|
10 |
|
|
|
(10 |
) |
|
|
|
|
|
|
- |
|
|
|
|
|
Corporate
tax payable
|
|
|
|
|
|
|
(391 |
) |
|
|
|
|
|
|
(532 |
) |
|
|
|
|
Provisions
|
|
|
|
|
|
|
(155 |
) |
|
|
|
|
|
|
(172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,944 |
) |
|
|
|
|
|
|
(3,986 |
) |
Non-current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
8 |
|
|
|
(8,177 |
) |
|
|
|
|
|
|
(7,685 |
) |
|
|
|
|
Other
financial liabilities
|
|
|
|
|
|
|
(155 |
) |
|
|
|
|
|
|
(99 |
) |
|
|
|
|
Other
payables
|
|
|
|
|
|
|
(76 |
) |
|
|
|
|
|
|
(30 |
) |
|
|
|
|
Provisions
|
|
|
|
|
|
|
(318 |
) |
|
|
|
|
|
|
(314 |
) |
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
(744 |
) |
|
|
|
|
|
|
(606 |
) |
|
|
|
|
Post
employment benefit liabilities
|
|
|
|
|
|
|
(1,254 |
) |
|
|
|
|
|
|
(1,424 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,724 |
) |
|
|
|
|
|
|
(10,158 |
) |
Total
liabilities
|
|
|
|
|
|
|
|
|
|
|
(14,668 |
) |
|
|
|
|
|
|
(14,144 |
) |
Net
assets
|
|
|
|
|
|
|
|
|
|
|
4,786 |
|
|
|
|
|
|
|
3,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Called
up share capital
|
|
|
|
|
|
|
797 |
|
|
|
|
|
|
|
797 |
|
|
|
|
|
Share
premium
|
|
|
|
|
|
|
1,342 |
|
|
|
|
|
|
|
1,342 |
|
|
|
|
|
Other
reserves
|
|
|
|
|
|
|
3,245 |
|
|
|
|
|
|
|
3,279 |
|
|
|
|
|
Retained
deficit
|
|
|
|
|
|
|
(1,377 |
) |
|
|
|
|
|
|
(2,249 |
) |
|
|
|
|
Equity
attributable to equity shareholders of the parent company
|
|
|
|
|
|
|
|
|
|
|
4,007 |
|
|
|
|
|
|
|
3,169 |
|
Non-controlling
interests
|
|
|
|
|
|
|
|
|
|
|
779 |
|
|
|
|
|
|
|
705 |
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
4,786 |
|
|
|
|
|
|
|
3,874 |
|
DIAGEO
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
Retained earnings/(deficit)
|
|
|
Equity
attributable
to parent
|
|
|
|
|
|
|
|
|
|
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 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
|
|
|
- |
|
|
|
- |
|
|
|
99 |
|
|
|
- |
|
|
|
841 |
|
|
|
841 |
|
|
|
940 |
|
|
|
193 |
|
|
|
1,133 |
|
Employee
share schemes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
33 |
|
|
|
(8 |
) |
|
|
25 |
|
|
|
25 |
|
|
|
- |
|
|
|
25 |
|
Share-based incentive
plans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
34 |
|
|
|
34 |
|
|
|
34 |
|
|
|
- |
|
|
|
34 |
|
Tax
on share-based incentive plans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
- |
|
|
|
(6 |
) |
Own
shares repurchased
|
|
|
(19 |
) |
|
|
- |
|
|
|
19 |
|
|
|
184 |
|
|
|
(601 |
) |
|
|
(417 |
) |
|
|
(417 |
) |
|
|
- |
|
|
|
(417 |
) |
Dividends
paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(870 |
) |
|
|
(870 |
) |
|
|
(870 |
) |
|
|
(98 |
) |
|
|
(968 |
) |
Acquisitions
and acquisition adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(60 |
) |
|
|
(60 |
) |
At
30 June 2009
|
|
|
797 |
|
|
|
1,342 |
|
|
|
3,279 |
|
|
|
(2,342 |
) |
|
|
93 |
|
|
|
(2,249 |
) |
|
|
3,169 |
|
|
|
705 |
|
|
|
3,874 |
|
Total
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
(34 |
) |
|
|
- |
|
|
|
1,662 |
|
|
|
1,662 |
|
|
|
1,628 |
|
|
|
181 |
|
|
|
1,809 |
|
Employee
share schemes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
89 |
|
|
|
(3 |
) |
|
|
86 |
|
|
|
86 |
|
|
|
- |
|
|
|
86 |
|
Share-based incentive
plans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
34 |
|
|
|
34 |
|
|
|
34 |
|
|
|
- |
|
|
|
34 |
|
Tax
on share-based incentive plans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
- |
|
|
|
4 |
|
Dividends
paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(914 |
) |
|
|
(914 |
) |
|
|
(914 |
) |
|
|
(107 |
) |
|
|
(1,021 |
) |
At
30 June 2010
|
|
|
797 |
|
|
|
1,342 |
|
|
|
3,245 |
|
|
|
(2,253 |
) |
|
|
876 |
|
|
|
(1,377 |
) |
|
|
4,007 |
|
|
|
779 |
|
|
|
4,786 |
|
DIAGEO
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
Year ended
30 June 2010
|
|
|
Year ended
30 June 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(restated)
|
|
|
|
£ million
|
|
|
£ million
|
|
|
£ million
|
|
|
£ million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
generated from operations (see note 12)
|
|
|
3,184 |
|
|
|
|
|
|
2,654 |
|
|
|
|
Interest
received
|
|
|
307 |
|
|
|
|
|
|
63 |
|
|
|
|
Interest
paid
|
|
|
(612 |
) |
|
|
|
|
|
(478 |
) |
|
|
|
Dividends
paid to equity non-controlling interests
|
|
|
(107 |
) |
|
|
|
|
|
(98 |
) |
|
|
|
Taxation
paid
|
|
|
(474 |
) |
|
|
|
|
|
(522 |
) |
|
|
|
Net
cash from operating activities
|
|
|
|
|
|
|
2,298 |
|
|
|
|
|
|
|
1,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal
of property, plant and equipment and computer software
|
|
|
143 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
Purchase
of property, plant and equipment and computer software
|
|
|
(374 |
) |
|
|
|
|
|
|
(355 |
) |
|
|
|
|
Net
increase in other investments
|
|
|
(43 |
) |
|
|
|
|
|
|
(24 |
) |
|
|
|
|
Payment
into escrow in respect of the UK Pension Scheme
|
|
|
- |
|
|
|
|
|
|
|
(50 |
) |
|
|
|
|
Disposal
of businesses
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Purchase
of businesses
|
|
|
(206 |
) |
|
|
|
|
|
|
(102 |
) |
|
|
|
|
Net
cash outflow from investing activities
|
|
|
|
|
|
|
(479 |
) |
|
|
|
|
|
|
(516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sale/(purchase) of own shares for share schemes
|
|
|
85 |
|
|
|
|
|
|
|
(38 |
) |
|
|
|
|
Own
shares repurchased
|
|
|
- |
|
|
|
|
|
|
|
(354 |
) |
|
|
|
|
Net
(decrease)/increase in loans
|
|
|
(422 |
) |
|
|
|
|
|
|
256 |
|
|
|
|
|
Equity
dividends paid
|
|
|
(914 |
) |
|
|
|
|
|
|
(870 |
) |
|
|
|
|
Net
cash outflow from financing activities
|
|
|
|
|
|
|
(1,251 |
) |
|
|
|
|
|
|
(1,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in net cash and cash equivalents
|
|
|
|
|
|
|
568 |
|
|
|
|
|
|
|
97 |
|
Exchange
differences
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
66 |
|
Net
cash and cash equivalents at beginning of the year
|
|
|
|
|
|
|
846 |
|
|
|
|
|
|
|
683 |
|
Net
cash and cash equivalents at end of the year
|
|
|
|
|
|
|
1,398 |
|
|
|
|
|
|
|
846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash and cash equivalents consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
1,453 |
|
|
|
|
|
|
|
914 |
|
Bank
overdrafts
|
|
|
|
|
|
|
(55 |
) |
|
|
|
|
|
|
(68 |
) |
|
|
|
|
|
|
|
1,398 |
|
|
|
|
|
|
|
846 |
|
NOTES
The
condensed consolidated financial information has been extracted from the
consolidated financial statements of Diageo plc for the year ended 30 June 2010.
These consolidated financial statements were prepared in accordance 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 (EU). This consolidated financial information 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 is subject to ongoing review and endorsement by the EU or
possible amendment by interpretative guidance from the IASB.
(a) Adopted by the group The
following accounting standards and interpretations, issued by the International
Accounting Standards Board (IASB) or International Financial Reporting
Interpretations Committee (IFRIC), are effective for the first time in the
current financial year and have been adopted by the group:
Amendment to IFRS 7 - Improving
disclosures about financial instruments. This amendment resulted in enhanced
disclosures about fair value measurements of financial instruments by using a
three-level fair value hierarchy that prioritises the valuation techniques used
in fair value calculations. The amended standard also extended disclosures in
respect of liquidity risk.
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 the group’s consolidated results or financial
position.
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 for the
year ended 30 June 2009 reduced operating profit by £15 million, reduced the
taxation charge by £3 million and reduced basic and diluted earnings per share
by 0.5 pence. In addition, the adoption of the amendment decreased inventories
by £3 million, decreased trade and other receivables included in current assets
by £54 million, increased deferred tax assets by £6 million, reduced investment
in associates by £4 million and reduced deferred tax liabilities by £9 million
at 30 June 2009.
IFRS 3 (Revised) - Business
combinations. The group has adopted IFRS 3 (Revised) for acquisitions
completed after 1 July 2009. The revised standard has resulted in a number of
changes, notably that directly attributable acquisition costs are to be expensed
rather than included as part of the purchase price, contingent consideration is
to be accounted for at fair value at the acquisition date with subsequent
changes in the fair value being recognised in the income statement. In addition,
where a group gains control of a subsidiary undertaking through a step
acquisition, the standard requires the existing interest owned to be remeasured
at fair value with the difference between fair value and book value being
recognised in the income statement. During the year ended 30 June 2010, Diageo
incurred directly attributable transaction costs of £12 million which have been
included in other external charges and made a gain of £11 million, included in
sale of businesses, when an associate became a subsidiary undertaking following
the purchase of additional equity.
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 a number of returnable bottles and crates were
held within inventories and written down on purchase to their net realisable
value. The impact of the adoption of this accounting policy for the year ended
30 June 2009 has reduced operating profit by £10 million, reduced the taxation
charge by £3 million and reduced basic and diluted earnings per share by 0.1
pence. Of the charge for the year ended 30 June 2009, £3 million was in respect
of non-controlling interests. On the consolidated balance sheet at 30 June 2009
inventories reduced by £81 million, property plant and equipment has increased
by £58 million, trade and other payables reduced by £1 million, deferred tax
liabilities reduced by £6 million and non-controlling interests reduced by £10
million.
Where
appropriate, 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 with no significant impact on its consolidated results or
financial position:
IFRIC
13 - Customer loyalty programmes
IFRIC
15 - Agreements for the construction of real estate
IFRIC
16 - Hedges of a net investment in a foreign operation
IFRIC
17 - Distribution of non-cash assets to owners
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 38 – Intangible assets, fair value of intangible asset acquired in a
business combination
Amendment
to IAS 39 – Financial instruments: recognition and measurement - Eligible hedged
items
Amendment
to IFRS 2 – Share-based payment: vesting conditions and
cancellations
Amendment
to IFRIC 9 – Reassessment of embedded derivatives
(b) Not adopted by the group
The following standards and amendments, issued by the IASB or IFRIC, and
endorsed by the EU, unless otherwise stated, have not yet been adopted by the
group. The group does not currently believe the adoption of these standards or
interpretations would have a material impact on the consolidated results or
financial position of the group.
Amendment to IFRS 5 – Noncurrent
assets held for sale and discontinued operations (effective for annual
periods beginning on or after 1 January 2010)
IFRS 9 – Financial instruments
(effective for annual periods beginning on or after 1 January 2013, not
yet endorsed by the EU)
Amendment to IAS 7 – Classification
of expenditures on unrecognised assets (effective for annual periods
beginning on or after 1 January 2010)
Amendment to IAS 17 – Classification
of leases of land and buildings (effective for annual periods beginning
on or after 1 January 2010)
The
information in this preliminary announcement does not constitute the statutory
accounts of the group within the meaning of Section 434 of the Companies Act
2006. The statutory accounts of Diageo plc for the year ended 30 June 2009 have
been delivered to the registrar of companies. KPMG Audit Plc has reported on
those accounts and on the statutory accounts for the year ended 30 June 2010.
Both audit reports were (i) unqualified, (ii) did not include a reference to any
matters to which the auditors 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
geographical 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 geographical 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 geographical 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 geographical
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.
The
segmental information for net sales and operating profit is reported at budgeted
exchange rates in line with internal reporting. For management reporting
purposes Diageo measures the current year at, and restates the prior year net
sales and operating profit to, the current year’s budgeted exchange rates. These
exchange rates are set prior to the financial year as part of the financial
planning process and provide a consistent exchange rate to measure the
performance of the business throughout the year. 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
segmental information, prior to re-translation, has not been restated at the
current year’s budgeted exchange rates but is presented at the budgeted rates
for the year ended 30 June 2009.
In
addition, for management reporting purposes Diageo excludes the impact on net
sales and operating profit of acquisitions and disposals completed in the
current and prior year from the results of the geographical segments in order to
provide comparable results. The impact of acquisitions and disposals has been
allocated to the appropriate geographical segments in the tables below. These
acquisitions and disposals are the same as those disclosed in the organic growth
reconciliations but for management reporting purposes they are excluded from the
current year altogether and are disclosed here at budgeted exchange
rates.
|
|
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
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
3,853 |
|
|
|
4,371 |
|
|
|
3,222 |
|
|
|
1,442 |
|
|
|
2,627 |
|
|
|
(2,627 |
) |
|
|
12,888 |
|
|
|
70 |
|
|
|
12,958 |
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates*
|
|
|
2,980 |
|
|
|
2,510 |
|
|
|
2,551 |
|
|
|
923 |
|
|
|
2,561 |
|
|
|
(2,460 |
) |
|
|
9,065 |
|
|
|
68 |
|
|
|
9,133 |
|
Acquisitions
and disposals
|
|
|
47 |
|
|
|
9 |
|
|
|
7 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
63 |
|
|
|
- |
|
|
|
63 |
|
Global
Supply allocation
|
|
|
18 |
|
|
|
55 |
|
|
|
16 |
|
|
|
12 |
|
|
|
(101 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Retranslation
to actual exchange rates
|
|
|
261 |
|
|
|
185 |
|
|
|
53 |
|
|
|
83 |
|
|
|
167 |
|
|
|
(167 |
) |
|
|
582 |
|
|
|
2 |
|
|
|
584 |
|
Net
sales
|
|
|
3,306 |
|
|
|
2,759 |
|
|
|
2,627 |
|
|
|
1,018 |
|
|
|
2,627 |
|
|
|
(2,627 |
) |
|
|
9,710 |
|
|
|
70 |
|
|
|
9,780 |
|
Operating
profit/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates*
|
|
|
1,039 |
|
|
|
756 |
|
|
|
800 |
|
|
|
170 |
|
|
|
114 |
|
|
|
- |
|
|
|
2,879 |
|
|
|
(180 |
) |
|
|
2,699 |
|
Acquisitions
and disposals
|
|
|
(3 |
) |
|
|
1 |
|
|
|
(5 |
) |
|
|
(7 |
) |
|
|
- |
|
|
|
- |
|
|
|
(14 |
) |
|
|
- |
|
|
|
(14 |
) |
Global
Supply allocation
|
|
|
56 |
|
|
|
55 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
(114 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Retranslation
to actual exchange rates
|
|
|
78 |
|
|
|
47 |
|
|
|
(29 |
) |
|
|
15 |
|
|
|
- |
|
|
|
- |
|
|
|
111 |
|
|
|
(45 |
) |
|
|
66 |
|
Operating
profit/(loss) before exceptional items
|
|
|
1,170 |
|
|
|
859 |
|
|
|
771 |
|
|
|
176 |
|
|
|
- |
|
|
|
- |
|
|
|
2,976 |
|
|
|
(225 |
) |
|
|
2,751 |
|
Exceptional
items
|
|
|
(38 |
) |
|
|
(53 |
) |
|
|
(5 |
) |
|
|
(30 |
) |
|
|
(39 |
) |
|
|
- |
|
|
|
(165 |
) |
|
|
(12 |
) |
|
|
(177 |
) |
Operating
profit/(loss)
|
|
|
1,132 |
|
|
|
806 |
|
|
|
766 |
|
|
|
146 |
|
|
|
(39 |
) |
|
|
- |
|
|
|
2,811 |
|
|
|
(237 |
) |
|
|
2,574 |
|
Sale
of businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
Net
finance charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(462 |
) |
Share
of associates’ profits after tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Moët Hennessy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134 |
|
-
Other associates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Profit
before taxation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,239 |
|
* These
items represent the IFRS 8 performance measures for the geographical and Global
Supply segments.
|
|
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
|
|
2009
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
3,858 |
|
|
|
4,279 |
|
|
|
2,803 |
|
|
|
1,268 |
|
|
|
2,353 |
|
|
|
(2,353 |
) |
|
|
12,208 |
|
|
|
75 |
|
|
|
12,283 |
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates*
|
|
|
2,535 |
|
|
|
2,406 |
|
|
|
1,964 |
|
|
|
821 |
|
|
|
2,175 |
|
|
|
(2,067 |
) |
|
|
7,834 |
|
|
|
72 |
|
|
|
7,906 |
|
Acquisitions
and disposals
|
|
|
129 |
|
|
|
5 |
|
|
|
3 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
138 |
|
|
|
- |
|
|
|
138 |
|
Global
Supply allocation
|
|
|
22 |
|
|
|
57 |
|
|
|
15 |
|
|
|
14 |
|
|
|
(108 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Retranslation
to actual exchange rates
|
|
|
604 |
|
|
|
282 |
|
|
|
304 |
|
|
|
74 |
|
|
|
286 |
|
|
|
(286 |
) |
|
|
1,264 |
|
|
|
3 |
|
|
|
1,267 |
|
Net
sales
|
|
|
3,290 |
|
|
|
2,750 |
|
|
|
2,286 |
|
|
|
910 |
|
|
|
2,353 |
|
|
|
(2,353 |
) |
|
|
9,236 |
|
|
|
75 |
|
|
|
9,311 |
|
Operating
profit/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
budgeted exchange rates*
|
|
|
885 |
|
|
|
780 |
|
|
|
598 |
|
|
|
170 |
|
|
|
13 |
|
|
|
- |
|
|
|
2,446 |
|
|
|
(139 |
) |
|
|
2,307 |
|
Acquisitions
and disposals
|
|
|
46 |
|
|
|
(2 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
|
|
(2 |
) |
|
|
42 |
|
Global
Supply allocation
|
|
|
22 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
(9 |
) |
|
|
(13 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Retranslation
to actual exchange rates
|
|
|
185 |
|
|
|
72 |
|
|
|
54 |
|
|
|
(2 |
) |
|
|
- |
|
|
|
- |
|
|
|
309 |
|
|
|
(70 |
) |
|
|
239 |
|
Operating
profit/(loss)before exceptional items
|
|
|
1,138 |
|
|
|
853 |
|
|
|
649 |
|
|
|
159 |
|
|
|
- |
|
|
|
- |
|
|
|
2,799 |
|
|
|
(211 |
) |
|
|
2,588 |
|
Exceptional
items
|
|
|
(23 |
) |
|
|
(52 |
) |
|
|
(22 |
) |
|
|
(35 |
) |
|
|
(17 |
) |
|
|
- |
|
|
|
(149 |
) |
|
|
(21 |
) |
|
|
(170 |
) |
Operating
profit/(loss)
|
|
|
1,115 |
|
|
|
801 |
|
|
|
627 |
|
|
|
124 |
|
|
|
(17 |
) |
|
|
- |
|
|
|
2,650 |
|
|
|
(232 |
) |
|
|
2,418 |
|
Net
finance charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(592 |
) |
Share
of associates’ profits after tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Moët Hennessy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151 |
|
-
Other associates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
Profit
before taxation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,990 |
|
* These
items represent the IFRS 8 performance measures for the geographical and Global
Supply segments.
The
group’s net finance charges are managed centrally and are not attributable to
individual operating segments.
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 = $1.57 (2009 - £1 = $1.60) and euro - £1 = €1.13 (2009 - £1 =
€1.17). Exchange rates used to translate assets and liabilities at the balance
sheet date were US dollar - £1 = $1.50 (2009 - £1 = $1.65) and euro - £1 = €1.22
(2009 - £1 = €1.17). 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.
|
|
Year ended
30 June 2010
|
|
|
Year ended
30 June 2009
|
|
|
|
£
million
|
|
|
£
million
|
|
|
|
|
|
|
|
|
Items
included in operating profit
|
|
|
|
|
|
|
Global
restructuring programme
|
|
|
(85 |
) |
|
|
(166 |
) |
Restructuring
of Global Supply operations
|
|
|
(93 |
) |
|
|
- |
|
Restructuring
of US wines operations
|
|
|
48 |
|
|
|
- |
|
Restructuring
of Irish brewing operations
|
|
|
(12 |
) |
|
|
(4 |
) |
|
|
|
(142 |
) |
|
|
(170 |
) |
Ursus
brand impairment
|
|
|
(35 |
) |
|
|
- |
|
|
|
|
(177 |
) |
|
|
(170 |
) |
Sale
of businesses
|
|
|
|
|
|
|
|
|
US
wines operations
|
|
|
(26 |
) |
|
|
- |
|
Step
acquisition of Nuvo
|
|
|
11 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Exceptional
items before taxation
|
|
|
(192 |
) |
|
|
(170 |
) |
|
|
|
|
|
|
|
|
|
Items
included in taxation
|
|
|
|
|
|
|
|
|
Tax
on exceptional operating items
|
|
|
39 |
|
|
|
37 |
|
Tax
on sale of businesses
|
|
|
10 |
|
|
|
- |
|
Settlements
with tax authorities
|
|
|
- |
|
|
|
155 |
|
Total
taxation
|
|
|
49 |
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
Exceptional
items in continuing operations
|
|
|
(143 |
) |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
Discontinued
operations net of taxation
|
|
|
(19 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Total
exceptional items
|
|
|
(162 |
) |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
Items
included in operating profit are charged to:
|
|
|
(46 |
) |
|
|
(15 |
) |
Cost
of sales
|
|
|
(131 |
) |
|
|
(155 |
) |
Other
operating expenses
|
|
|
(177 |
) |
|
|
(170 |
) |
4.
|
Net
interest and other finance charges
|
|
|
Year ended
30 June 2010
|
|
|
Year ended
30 June 2009
|
|
|
|
£ million
|
|
|
£ million
|
|
|
|
|
|
|
|
|
Interest
payable
|
|
|
(569 |
) |
|
|
(604 |
) |
Interest
receivable
|
|
|
188 |
|
|
|
102 |
|
Market
value movements on interest rate instruments
|
|
|
6 |
|
|
|
(14 |
) |
Net
interest payable
|
|
|
(375 |
) |
|
|
(516 |
) |
|
|
|
|
|
|
|
|
|
Net
finance (charges)/income in respect of post employment
plans
|
|
|
(47 |
) |
|
|
2 |
|
Unwinding
of discounts
|
|
|
(18 |
) |
|
|
(21 |
) |
Hyperinflation
adjustment on Venezuela operations
|
|
|
(16 |
) |
|
|
- |
|
Other
finance income/(charges)
|
|
|
4 |
|
|
|
(13 |
) |
|
|
|
(77 |
) |
|
|
(32 |
) |
Net
exchange movements on certain financial instruments
|
|
|
(10 |
) |
|
|
(44 |
) |
Net
other finance charges
|
|
|
(87 |
) |
|
|
(76 |
) |
For the
year ended 30 June 2010, the £477 million taxation charge (2009 - £286 million)
comprises a UK tax credit of £28 million (2009 - £145 million) and a foreign tax
charge of £505 million (2009 - £431 million). Included within the tax charge is
a credit of £49 million (2009 - £192 million) in respect of the exceptional
items identified in note 3.
6.
|
Discontinued
operations
|
Discontinued
operations in the year ended 30 June 2010 represent a charge after taxation of
£19 million in respect of anticipated future payments to new thalidomide
claimants. The credit of £2 million in the year ended 30 June 2009 relates to
the Pillsbury disposal.
|
|
30 June 2010
|
|
|
30 June 2009
(restated)
|
|
|
|
£ million
|
|
|
£ million
|
|
|
|
|
|
|
|
|
Raw
materials and consumables
|
|
|
297 |
|
|
|
270 |
|
Work
in progress
|
|
|
21 |
|
|
|
25 |
|
Maturing
inventories
|
|
|
2,506 |
|
|
|
2,274 |
|
Finished
goods and goods for resale
|
|
|
457 |
|
|
|
509 |
|
|
|
|
3,281 |
|
|
|
3,078 |
|
|
|
30 June 2010
|
|
|
30 June 2009
|
|
|
|
£ million
|
|
|
£ million
|
|
|
|
|
|
|
|
|
Borrowings
due within one year and bank overdrafts
|
|
|
(587 |
) |
|
|
(890 |
) |
Borrowings
due after one year
|
|
|
(8,177 |
) |
|
|
(7,685 |
) |
Fair
value of interest rate hedging instruments
|
|
|
191 |
|
|
|
93 |
|
Fair
value of foreign currency swaps and forwards
|
|
|
227 |
|
|
|
170 |
|
Finance
lease liabilities
|
|
|
(61 |
) |
|
|
(21 |
) |
|
|
|
(8,407 |
) |
|
|
(8,333 |
) |
Cash
and cash equivalents
|
|
|
1,453 |
|
|
|
914 |
|
|
|
|
(6,954 |
) |
|
|
(7,419 |
) |
In the
year ended 30 June 2010, the group issued a $500 million (£305 million) global
bond repayable in January 2015 with a coupon of 3.25%. A $300 million (£184
million) medium term note and a $750 million (£493 million) global bond were
repaid. In addition, $696 million (£466 million) of the outstanding 7.375% notes
due in January 2014 were exchanged in May 2010 for $696 million (£466 million)
of 4.828% notes due in July 2020 plus an aggregate cash payment to holders of
$125 million (£84 million), pursuant to the terms of an exchange offer announced
in April 2010.
9.
|
Reconciliation
of movement in net borrowings
|
|
|
Year ended
30 June 2010
|
|
|
Year ended
30 June 2009
|
|
|
|
£ million
|
|
|
£ million
|
|
|
|
|
|
|
|
|
Increase
in net cash and cash equivalents before exchange
|
|
|
568 |
|
|
|
97 |
|
Decrease/(increase)
in loans
|
|
|
422 |
|
|
|
(256 |
) |
Decrease/(increase)
in net borrowings from cash flows
|
|
|
990 |
|
|
|
(159 |
) |
Exchange
differences
|
|
|
(429 |
) |
|
|
(784 |
) |
Other
non-cash items
|
|
|
(96 |
) |
|
|
(29 |
) |
Net
borrowings at beginning of the year
|
|
|
(7,419 |
) |
|
|
(6,447 |
) |
Net
borrowings at end of the year
|
|
|
(6,954 |
) |
|
|
(7,419 |
) |
10.
|
Assets
and disposal groups held for sale
|
|
|
30 June 2010
|
|
|
|
£ million
|
|
|
|
|
|
Current
assets
|
|
|
48 |
|
Non-current
assets
|
|
|
64 |
|
|
|
|
112 |
|
|
|
|
|
|
Current
liabilities
|
|
|
(6 |
) |
Non-current
liabilities
|
|
|
(4 |
) |
|
|
|
(10 |
) |
The
assets and disposal groups held for sale comprise a number of non-strategic wine
businesses in California, France and Ireland and the group’s investment in
Tanzania Breweries Limited. No assets and disposal groups were classified as
held for sale at 30 June 2009.
|
|
Year ended
30 June 2010
£ million
|
|
|
Year ended
30 June 2009
£ million
|
|
Amounts
recognised as distributions to equity shareholders in the
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final
dividend paid for the year ended 30 June 2009 of 22.20 pence per share
(2008 - 21.15 pence)
|
|
|
551 |
|
|
|
527 |
|
Interim
dividend paid for the year ended 30 June 2010 of 14.60 pence per share
(2009 - 13.90 pence)
|
|
|
363 |
|
|
|
345 |
|
|
|
|
914 |
|
|
|
872 |
|
Less:
Adjustments in respect of prior year dividends
|
|
|
- |
|
|
|
(2 |
) |
|
|
|
914 |
|
|
|
870 |
|
A final dividend of 23.50
pence per share for the year ended 30 June 2010 was recommended by the Board on
25 August 2010 for approval by shareholders at the Annual General Meeting
to be held on 14 October 2010. As the approval
will be after the balance sheet date it has not been included as a
liability.
12.
|
Cash
generated from operations
|
|
|
Year ended
30 June 2010
|
|
|
Year ended
30 June 2009
(restated)
|
|
|
|
£ million
|
|
|
£ million
|
|
|
£ million
|
|
|
£ million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
|
1,743 |
|
|
|
|
|
|
1,706 |
|
|
|
|
Discontinued
operations
|
|
|
19 |
|
|
|
|
|
|
(2 |
) |
|
|
|
Taxation
|
|
|
477 |
|
|
|
|
|
|
286 |
|
|
|
|
Share
of associates’ profits after tax
|
|
|
(142 |
) |
|
|
|
|
|
(164 |
) |
|
|
|
Net
interest and net other finance charges
|
|
|
462 |
|
|
|
|
|
|
592 |
|
|
|
|
Sale
of businesses
|
|
|
15 |
|
|
|
|
|
|
- |
|
|
|
|
Operating
profit
|
|
|
|
|
|
|
2,574 |
|
|
|
|
|
|
|
2,418 |
|
Increase
in inventories
|
|
|
(104 |
) |
|
|
|
|
|
|
(236 |
) |
|
|
|
|
Decrease
in trade and other receivables
|
|
|
69 |
|
|
|
|
|
|
|
193 |
|
|
|
|
|
Increase/(decrease)
in trade and other payables and provisions
|
|
|
369 |
|
|
|
|
|
|
|
(210 |
) |
|
|
|
|
Net
movement in working capital
|
|
|
|
|
|
|
334 |
|
|
|
|
|
|
|
(253 |
) |
Depreciation
and amortisation
|
|
|
|
|
|
|
372 |
|
|
|
|
|
|
|
300 |
|
Dividend
income
|
|
|
|
|
|
|
111 |
|
|
|
|
|
|
|
179 |
|
Other
items
|
|
|
|
|
|
|
(207 |
) |
|
|
|
|
|
|
10 |
|
Cash
generated from operations
|
|
|
|
|
|
|
3,184 |
|
|
|
|
|
|
|
2,654 |
|
In the
consolidated statement of cash flows, cash generated from operations is stated
after £145 million (2009 - £53 million) of cash outflows in respect of
exceptional operating items.
In the
calculation of cash generated from operations, other items include £114 million
of cash contributions to post employment schemes in excess of the income
statement charge (2009 - £68 million) and gains on sale of property of £89
million (2009 - £6 million) partly offset by the fair value charge in respect of
share-based incentive plans of £31 million (2009 - £31 million).
13.
|
Contingent
liabilities and legal proceedings
|
(a) Guarantees As of 30 June 2010
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
earns operating profit of less than £10 million a year. In this context, Diageo
believes that any eventual liability is unlikely to be material to the Diageo
group as a whole. Diageo recognises that, in absence of settlement, the ongoing
situation creates potential uncertainty regarding Diageo Turkey’s continuing
operations in Turkey. 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 and other matters, and
Diageo is in the process of responding to the regulators’ enquiries regarding
activities in Korea, Thailand, India and elsewhere. Diageo’s own internal
investigation in Korea, Thailand, India and elsewhere remains 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 Korean won 194 billion or approximately
£105 million (including £13 million of value added tax). 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, £57 million in the year ended 30 June 2010, and
expects to pay an additional £44 million in the year ending 30 June 2011, 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. No
assessments have been received for any period subsequent to 30 June 2007. Diageo
Korea is unable to quantify meaningfully the possible loss or range of loss to
which these claims may give rise. Diageo Korea intends to defend its position
vigorously.
(f) Potential Chinese
acquisition On 1 March 2010, Diageo entered into an equity transfer
agreement to acquire an additional 4% equity stake in Sichuan Chengdu Quanxing
Group Company Ltd. (Quanxing) from Chengdu Yingsheng Investment Holding Co.,
Ltd. The consideration for the additional 4% equity stake is RMB 140 million
(£14 million). The acquisition of the 4% equity stake, which is subject to a
number of regulatory approvals, would bring Diageo’s shareholding in Quanxing to
53%. Quanxing is a holding company controlling a 39.7% stake in Sichuan
ShuiJingFang Co., Ltd. (ShuiJingFang), a super premium Chinese white spirits
company listed on the Shanghai Stock Exchange. If the acquisition of the 4%
equity stake is approved, Diageo would become the indirect controlling
shareholder of ShuiJingFang and, in accordance with Chinese takeover
regulations, would be required to make a mandatory tender offer to all the other
shareholders of ShuiJingFang. Were all other ShuiJingFang shareholders to accept
the tender offer, the amount payable would be RMB 6.3 billion (approximately
£615 million). As required by Chinese law, 20% of the maximum consideration
payable under the tender offer (£123 million) was deposited with China’s
securities depositary and clearing agency, Shanghai branch.
(g) 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.
14.
|
Related
party transactions
|
The
group’s significant related parties are its associates, joint ventures, key
management personnel and pension plans, as will be disclosed in the Annual
Report for the year ended 30 June 2010. There have been no transactions with
these related parties during the year ended 30 June 2010 that have materially
affected the financial position or performance of the group during this
period.
15.
|
Post
balance sheet events
|
On 1 July
2010, Diageo announced that agreement has been reached with the trustee of the
UK Diageo Pension Scheme (the UK Scheme) with respect to a 10 year funding plan.
A pension funding partnership has been formed (the PFP), which as at 31 July
2010 held £487 million of maturing whisky spirit assets, and provides the
trustee with collateral against Diageo’s funding obligations to the UK Scheme.
The PFP will be consolidated by Diageo and therefore the creation of the
structure will not impact the group’s consolidated balance sheet. The structure
is expected to generate annual income, commencing in the year ending 30 June
2011, to the UK Scheme of approximately £25 million over the term of the PFP.
The PFP is expected to be in place for 15 years after which time the trustee
will be able to sell its PFP interests to Diageo for an amount expected to be no
greater than the deficit on the UK Scheme at that time, up to a maximum of £430
million.
Diageo
has also agreed to underwrite the reduction of the UK Scheme deficit through an
agreement to make conditional cash contributions into an escrow account of up to
£338 million if an equivalent reduction in the deficit is not achieved over a
period of 10 years. If asset performance targets are not achieved contributions
to an escrow account would commence, following the finalisation of the actuarial
valuation of the UK Scheme at 31 March 2012, and payments from the escrow to the
UK Scheme could commence in the year ending 30 June 2015.
In
addition, on 1 July 2010, Diageo announced that it had provisionally agreed a
deficit funding arrangement with the trustee in respect of the Guinness Ireland
Group Pension Scheme (the Irish Scheme). This deficit funding arrangement is
expected to result in additional annual contributions to the Irish Scheme of
approximately €21 million (£17 million) over a period of 18 years, provision for
additional cash contributions if the anticipated reduction in the deficit is not
achieved and the Irish Scheme having access to a contingent asset.
ADDITIONAL
INFORMATION FOR SHAREHOLDERS
EXPLANATORY
NOTES
Definitions
Comparisons
are to the year ended 30 June 2009 (2009) 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 year reported numbers at current year
exchange rates and after adjusting for the effect of exceptional items and
acquisitions and disposals. 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.
References
to ready to drink include progressive adult beverages in the United States and
certain markets supplied by the United States. References to beer include
Guinness Malta, a non alcoholic malt based product.
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, Buchanan’s Special Reserve, Buchanan’s Red Seal, Dimple 18 Year Old,
Bulleit Bourbon, Tanqueray Ten, Cîroc, Ketel One vodka, Don Julio, Zacapa and
Godiva.
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 data, competitive set classifications and
share of voice data contained in this announcement are taken from independent
industry sources in the markets in which Diageo operates. IRI refers to
Information Resources, Inc. NABCA refers to the US National Alcohol Beverage
Control Association.
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 54 – ‘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 and operating profit 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 year reported numbers at current year 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 year 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 years.
Organic movements in volume,
sales, net sales, marketing spend and operating profit
Diageo’s
strategic planning and budgeting process is based on organic movements in
volume, sales, net sales, marketing spend 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 years. 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, marketing spend and
operating profit before exceptional items for the year ended 30 June 2010 were
as follows:
Volume
|
|
2009
Reported
units million
|
|
|
Acquisitions and
disposals(2)
units
million
|
|
|
Organic
movement
units
million
|
|
|
2010
Reported
units
million
|
|
|
Organic
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
53.0 |
|
|
|
0.1 |
|
|
|
(1.3 |
) |
|
|
51.8 |
|
|
|
(2 |
) |
Europe
|
|
|
39.0 |
|
|
|
(0.1 |
) |
|
|
0.3 |
|
|
|
39.2 |
|
|
|
1 |
|
International
|
|
|
37.0 |
* |
|
|
0.3 |
|
|
|
3.0 |
|
|
|
40.3 |
|
|
|
8 |
|
Asia
Pacific
|
|
|
11.8 |
|
|
|
-
|
|
|
|
0.3 |
|
|
|
12.1 |
|
|
|
2 |
|
Total
volume
|
|
|
140.8 |
* |
|
|
0.3 |
|
|
|
2.3 |
|
|
|
143.4 |
|
|
|
2 |
|
*Decreased
by 0.5 million equivalent units from the figures reported for the year ended 30
June 2009.
Sales
|
|
2009
Reported
£ million
|
|
|
Exchange(1)
£ million
|
|
|
Acquisitions
and
disposals(2)
£ million
|
|
|
Organic
movement
£ million
|
|
|
2010
Reported
£ million
|
|
|
Organic
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
3,858 |
|
|
|
103 |
|
|
|
15 |
|
|
|
(123 |
) |
|
|
3,853 |
|
|
|
(3 |
) |
Europe
|
|
|
4,279 |
|
|
|
78 |
|
|
|
13 |
|
|
|
1 |
|
|
|
4,371 |
|
|
|
0 |
|
International
|
|
|
2,803 |
|
|
|
18 |
|
|
|
10 |
|
|
|
391 |
|
|
|
3,222 |
|
|
|
14 |
|
Asia
Pacific
|
|
|
1,268 |
|
|
|
146 |
|
|
|
- |
|
|
|
28 |
|
|
|
1,442 |
|
|
|
2 |
|
Corporate
|
|
|
75 |
|
|
|
1 |
|
|
|
- |
|
|
|
(6 |
) |
|
|
70 |
|
|
|
|
|
Total
sales
|
|
|
12,283 |
|
|
|
346 |
|
|
|
38 |
|
|
|
291 |
|
|
|
12,958 |
|
|
|
2 |
|
Net sales
|
|
2009
Reported
£ million
|
|
|
Exchange(1)
£ million
|
|
|
Acquisitions
and
disposals(2)
£ million
|
|
|
Organic
movement
£ million
|
|
|
2010
Reported
£ million
|
|
|
Organic
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
3,290 |
|
|
|
91 |
|
|
|
15 |
|
|
|
(90 |
) |
|
|
3,306 |
|
|
|
(3 |
) |
Europe
|
|
|
2,750 |
|
|
|
53 |
|
|
|
10 |
|
|
|
(54 |
) |
|
|
2,759 |
|
|
|
(2 |
) |
International
|
|
|
2,286 |
|
|
|
21 |
|
|
|
9 |
|
|
|
311 |
|
|
|
2,627 |
|
|
|
13 |
|
Asia
Pacific
|
|
|
910 |
|
|
|
101 |
|
|
|
- |
|
|
|
7 |
|
|
|
1,018 |
|
|
|
1 |
|
Corporate
|
|
|
75 |
|
|
|
1 |
|
|
|
- |
|
|
|
(6 |
) |
|
|
70 |
|
|
|
|
|
Total
net sales
|
|
|
9,311 |
|
|
|
267 |
|
|
|
34 |
|
|
|
168 |
|
|
|
9,780 |
|
|
|
2 |
|
Excise
duties
|
|
|
2,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,178 |
|
|
|
|
|
Total
sales
|
|
|
12,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,958 |
|
|
|
|
|
Marketing spend
|
|
2009
Reported*
£ million
|
|
|
Exchange(1)
£ million
|
|
|
Acquisitions
and
disposals(2)
£ million
|
|
|
Organic
movement
£ million
|
|
|
2010
Reported
£ million
|
|
|
Organic
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
431 |
|
|
|
12 |
|
|
|
1 |
|
|
|
28 |
|
|
|
472 |
|
|
|
6 |
|
Europe
|
|
|
429 |
|
|
|
9 |
|
|
|
- |
|
|
|
(26 |
) |
|
|
412 |
|
|
|
(6 |
) |
International
|
|
|
259 |
|
|
|
7 |
|
|
|
1 |
|
|
|
35 |
|
|
|
302 |
|
|
|
13 |
|
Asia
Pacific
|
|
|
208 |
|
|
|
18 |
|
|
|
- |
|
|
|
7 |
|
|
|
233 |
|
|
|
3 |
|
Total
marketing spend
|
|
|
1,327 |
|
|
|
46 |
|
|
|
2 |
|
|
|
44 |
|
|
|
1,419 |
|
|
|
3 |
|
Operating profit
|
|
2009
Reported*
£ million
|
|
|
Exchange(1)
£ million
|
|
|
Acquisitions
and
disposals(2)
£ million
|
|
|
Organic
movement
£ million
|
|
|
2010
Reported
£ million
|
|
|
Organic
movement
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
1,138 |
|
|
|
26 |
|
|
|
3 |
|
|
|
3 |
|
|
|
1,170 |
|
|
|
0 |
|
Europe
|
|
|
853 |
|
|
|
11 |
|
|
|
1 |
|
|
|
(6 |
) |
|
|
859 |
|
|
|
(1 |
) |
International
|
|
|
649 |
|
|
|
(27 |
) |
|
|
(6 |
) |
|
|
155 |
|
|
|
771 |
|
|
|
25 |
|
Asia
Pacific
|
|
|
159 |
|
|
|
14 |
|
|
|
(7 |
) |
|
|
10 |
|
|
|
176 |
|
|
|
6 |
|
Corporate
|
|
|
(211 |
) |
|
|
102 |
|
|
|
- |
|
|
|
(116 |
) |
|
|
(225 |
) |
|
|
|
|
Total
operating profit before exceptional items
|
|
|
2,588 |
|
|
|
126 |
|
|
|
(9 |
) |
|
|
46 |
|
|
|
2,751 |
|
|
|
2 |
|
Exceptional
items(3)
|
|
|
(170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177 |
) |
|
|
|
|
Total
operating profit
|
|
|
2,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,574 |
|
|
|
|
|
*
|
The
figures for the year ended 30 June 2009 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 44 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 year reported results at current year
exchange rates and are principally in respect of the strengthening of the
euro and the US dollar partially offset by the weakening of the Nigerian
naira.
|
(2)
|
The
impacts of acquisitions and disposals are excluded from the organic
movement percentages. In the year ended 30 June 2010 there were no
acquisitions or disposals impacting organic growth 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. Adjustment is also made to exclude directly
attributable transaction costs incurred in the year ended 30 June 2010 of
£12 million primarily in respect of the potential acquisitions of an
additional equity stake in Quanxing and of Serengeti
Breweries.
|
(3)
|
Analysis
by operating segment of exceptional items is disclosed in note 2 on page
33.
|
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 2009 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 year results as if they had been
generated at the current year’s exchange
rates.
|
b)
|
Where
a business, brand, brand distribution right or agency agreement was
disposed of, or terminated, in the current year, the group, in organic
movement calculations, adjusts the results for the comparable prior year
to exclude the amount the group earned in that year that it could not have
earned in the current year (i.e. the period between the date in the prior
year, equivalent to the date of the announcement of the disposal in the
current year, and the end of the prior year). As a result, the organic
movement numbers reflect only comparable performance. Similarly, if a
business was disposed of part way through the prior year then its
contribution would be completely excluded from that prior year’s
performance in the organic movement calculation, since the group
recognised no contribution from that business in the current year. 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 prior year, the post acquisition
results in the current year are excluded from the organic movement
calculations. For acquisitions in the prior year, post acquisition results
are included in full in the prior year but are only included from the
anniversary of the acquisition date in the current year. The acquisition
adjustment also eliminates the impact of transaction costs directly
attributable to acquisitions that have been publicly announced and charged
to operating profit in either year.
|
Restatement
of prior year operating profit
As reported in note 1 on page 32,
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 have been restated as
follows:
|
|
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 |
|
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 underlying movement in
earnings per share
The
group’s management believes movement in earnings per share before exceptional
items and 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 year reported results at current year exchange rates, the
impact of exceptional items, acquisitions and disposals, the impacts of IAS 19,
21 and 39 on net finance charges and the application of an underlying tax rate
for each year. 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 year ended 30 June 2010
was as follows:
|
|
Year ended
|
|
|
Year ended
|
|
|
|
|
|
|
30 June 2010
|
|
|
30 June 2009
|
|
|
|
|
|
|
|
|
|
(restated)
|
|
|
Growth
|
|
|
|
Pence per share(7)
|
|
|
Pence per share(7)
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Basic
eps
|
|
|
65.5 |
|
|
|
64.6 |
|
|
|
1 |
|
Exceptional
items(1)
|
|
|
6.5 |
|
|
|
(1.0 |
) |
|
|
|
|
Eps
before exceptional items
|
|
|
72.0 |
|
|
|
63.6 |
|
|
|
13 |
|
Tax
equalisation(2)
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Exchange(3)
|
|
|
- |
|
|
|
4.3 |
|
|
|
|
|
IAS
19(4)
|
|
|
1.6 |
|
|
|
(0.1 |
) |
|
|
|
|
IAS
21 and IAS 39(5)
|
|
|
0.1 |
|
|
|
1.8 |
|
|
|
|
|
Acquisitions
and disposals(6)
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
|
|
Adjusted
basic eps – underlying
|
|
|
74.2 |
|
|
|
69.7 |
|
|
|
6 |
|
Notes:
Information relating to the current year
1)
|
In
the year ended 30 June 2010, there were exceptional charges after tax of
£112 million (2009 - £133 million) for restructuring, £26 million for the
impairment of the Ursus brand (2009 - £nil), £5 million on sales of
businesses (2009 - £nil) and a £19 million charge for discontinued
operations (2009 - a credit of £2 million). In the year ended 30 June
2009, there was an exceptional tax credit of £155
million.
|
2)
|
Tax
equalisation - the impact of adjusting the reported tax rate for each year
to the underlying tax rate for each year (see 5 - Underlying tax rate). No
adjustment from the reported tax rate to the underlying tax rate is
required in respect of the years ended 30 June 2010 and 2009 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 strengthening of the euro and the US
dollar partially offset by the weakening of the Nigerian naira and the
Venezuelan bolivar fuerte. Exchange adjustments are taxed at the
underlying tax rate for the
year.
|
4)
|
Amounts
under IAS 19 reported in net finance charges after tax at the underlying
tax rate for each year are excluded from adjusted basic earnings per
share.
|
5)
|
Amounts
under IAS 21 and IAS 39 reported in net finance charges after tax at the
underlying tax rate for each year are excluded from adjusted basic
earnings per share.
|
6)
|
In
the year ended 30 June 2010 there were no acquisitions or disposals
impacting the calculation of underlying eps 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. Adjustment is also made to exclude directly
attributable transaction costs incurred in the year ended 30 June 2010 of
£12 million primarily in respect of the potential acquisitions of an
additional equity stake in Quanxing and of Serengeti
Breweries.
|
7)
|
All
amounts are derived from amounts in £ million divided by the weighted
average number of shares in issue for the year ended 30 June 2010 of 2,486
million (2009 - 2,485
million).
|
Notes:
Underlying movement calculations methodology
a)
|
Where
a business, brand, brand distribution right, agency agreement or
investment was disposed of, or terminated, in the current year, the group,
in the underlying movement calculations, adjusts the profit for the year
attributable to equity shareholders for the comparable prior year to
exclude the following: (i) the amount the group earned in that year that
it could not have earned in the current year (i.e. the period between the
date in the prior year, equivalent to the date of the announcement of the
disposal in the current year, and the end of the prior year); (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 prior year, then its
impact on the profit for the year 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 year’s performance in the underlying
movement calculation, since the group recognised no contribution from that
business in the current year.
|
b)
|
Where
a business, brand, brand distribution right or agency agreement or
investment was acquired subsequent to the end of the prior year, the
group, in the underlying movement calculations, adjusts the profit for the
current year attributable to equity shareholders to exclude the following:
(i) the amount the group earned in the current year that it could not have
earned in the prior year; (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 prior year, then its impact on the profit for the year 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 year’s performance in the underlying movement
calculation.
|
c)
|
The
effects of IAS 19 in respect of post employment plans, 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 year
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 year results at current year exchange rates, and after making an
adjustment in each year for exceptional items, the impacts of IAS 19, IAS
21 and IAS 39 on net finance charges, tax equalisation and acquisitions
and disposals.
|
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 year stated before exceptional items and interest. Average total
invested capital is calculated using the average derived from the consolidated
balance sheets at the beginning, middle and end of the year. Capital employed
comprises net assets, 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 years ended 30 June
2010 and 30 June 2009 were as follows:
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(restated)
|
|
|
|
£ million
|
|
|
£ million
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
2,574 |
|
|
|
2,418 |
|
Exceptional
items
|
|
|
177 |
|
|
|
170 |
|
Associates’
profits after interest and tax
|
|
|
142 |
|
|
|
164 |
|
Tax
at the underlying tax rate of 21.6% (2009 - 22.1%)
|
|
|
(625 |
) |
|
|
(608 |
) |
|
|
|
2,268 |
|
|
|
2,144 |
|
|
|
|
|
|
|
|
|
|
Average
net assets (excluding net post employment liabilities)
|
|
|
5,329 |
|
|
|
4,758 |
|
Average
net borrowings
|
|
|
7,226 |
|
|
|
7,427 |
|
Average
integration and restructuring costs (net of tax)
|
|
|
1,195 |
|
|
|
1,049 |
|
Goodwill
at 1 July 2004
|
|
|
1,562 |
|
|
|
1,562 |
|
Average
total invested capital
|
|
|
15,312 |
|
|
|
14,796 |
|
|
|
|
|
|
|
|
|
|
Annualised
return on average total invested capital
|
|
|
14.8 |
% |
|
|
14.5 |
% |
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 years ended 30 June 2010 and 2009 were as
follows:
|
|
2010
|
|
|
2009
(restated)
|
|
|
|
£ million
|
|
|
£ million
|
|
|
|
|
|
|
|
|
Average
total invested capital (see 3 above)
|
|
|
15,312 |
|
|
|
14,796 |
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
2,574 |
|
|
|
2,418 |
|
Exceptional
items
|
|
|
177 |
|
|
|
170 |
|
Associates’
profit after interest and tax
|
|
|
142 |
|
|
|
164 |
|
Tax
at the underlying tax rate of 21.6% (2009 - 22.1%)
|
|
|
(625 |
) |
|
|
(608 |
) |
|
|
|
2,268 |
|
|
|
2,144 |
|
Capital
charge at 9% of average total invested capital
|
|
|
(1,378 |
) |
|
|
(1,332 |
) |
Economic
profit
|
|
|
890 |
|
|
|
812 |
|
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 and any other tax
charge or credit that arises from intra group reorganisations.
In
the year ended 30 June 2010 the reported tax rate was 21.3% and the underlying
tax rate was 21.6%. In the year ended 30 June 2009 the reported tax rate was
14.4% and the underlying tax rate was 22.1%. The items decreasing the reported
rate in the year ended 30 June 2009 related principally 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.
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.
RISK
FACTORS
Diageo
believes the following to be the principal risks and uncertainties facing the
group. If any of these risks occur, Diageo’s business, financial condition and
results of operations could suffer and the trading price and liquidity of
securities could decline.
In
the on-going uncertain economic environment, certain risks may gain more
prominence either individually or when taken together. The following are
examples of ways that any of the risks below may become exacerbated. Demand for
beverage alcohol products, in particular luxury or super premium products, may
decrease with a reduction in consumer spending levels. Costs of operations may
increase if inflation were to become prevalent in the economic environment, or
upon an increase in the costs of raw materials. These factors may also lead to
intensified competition for market share, with consequential potential adverse
effects on volumes and prices. The financial and economic situation may have a
negative impact on third parties with whom Diageo does, or may do, business. Any
of these factors may affect the group’s results of operations, financial
condition and liquidity. Diageo has taken steps to manage its business through
this challenging economic environment and position its business to benefit from
economic recovery as and when it may occur in the various markets in which
Diageo operates, but there can be no assurance that the steps taken will have
the intended results.
If
there is an extended period of constraint in the capital markets, with debt
markets in particular experiencing a lack of liquidity, at a time when cash
flows from Diageo’s business may be under pressure, this may have an impact on
Diageo’s ability to maintain current long term strategies, with a consequent
effect on the group’s growth rate. Such developments may adversely affect
shareholder returns or share price. Additionally, continued volatility in
exchange rates used to translate foreign currencies into pounds sterling may
have a significant impact on Diageo’s reported results. Decreases in the
trustees’ valuations of Diageo’s pension plans may also increase pension funding
requirements.
Diageo faces competition that may
reduce its market share and margins Diageo faces substantial competition
from several international companies as well as local and regional companies in
the countries in which it operates. Diageo competes with drinks companies across
a wide range of consumer drinking occasions. Within a number of categories,
consolidation or realignment is still possible. Consolidation is also taking
place amongst Diageo’s customers in many countries. Increased competition and
unanticipated actions by competitors or customers could lead to downward
pressure on prices and/or a decline in Diageo’s market share in any of these
categories, which would adversely affect Diageo’s results and hinder its growth
potential.
Diageo may not be able to derive the
expected benefits from its strategy to focus on premium drinks or its
cost-saving and restructuring programmes designed to enhance earnings
Diageo’s strategy is to focus on premium drinks to grow its business
through organic sales, operating profit growth and the acquisition of premium
drinks brands that add value for shareholders. There can be no assurance that
Diageo’s strategic focus on premium drinks will result in opportunities for
growth and improved margins.
It
is possible that the pursuit of this strategic focus on premium drinks could
give rise to further business combinations, acquisitions, disposals, joint
ventures and/or partnerships (including any associated financing or the
assumption of actual or potential liabilities, depending on the transaction
contemplated). There can be no assurance that any transaction will be completed.
The success of any transaction will depend in part on Diageo’s ability to
successfully integrate new businesses with Diageo’s existing operations and
realise the anticipated benefits, cost savings or synergies. There can be no
guarantee that any such business combination, acquisition, disposal, joint
venture or partnership would deliver the benefits, cost savings or synergies
anticipated, if any.
Similarly,
there can be no assurance that the cost-saving or restructuring programmes
implemented by Diageo in order to improve efficiencies and deliver cost-savings
will deliver the expected benefits.
Regulatory decisions and changes in
the legal and regulatory environment could increase Diageo’s costs and
liabilities or limit its business activities Diageo’s operations are
subject to extensive regulatory requirements which include those in respect of
production, product liability, distribution, importation, marketing, promotion,
labelling, advertising, labour, pensions, compliance and control systems, and
environmental issues. Changes in laws, regulations or governmental or regulatory
policies and/or practices could cause Diageo to incur material additional costs
or liabilities that could adversely affect its business. In particular,
governmental bodies in countries where Diageo operates may impose new labelling,
product or production requirements, limitations on the advertising and/or
promotion activities used to market beverage alcohol, restrictions on retail
outlets, other restrictions on marketing, promotion and distribution or other
restrictions on the locations or occasions where beverage alcohol is sold which
directly or indirectly limit the sales of Diageo products. Regulatory
authorities under whose laws Diageo operates may also have enforcement power
that can subject the group to actions such as product recall, seizure of
products or other sanctions, which could have an adverse effect on its sales or
damage its reputation. An increase in the stringency of the regulatory
environment could cause Diageo to incur material additional costs or liabilities
that could adversely affect its business.
In
addition, beverage alcohol products are the subject of national excise and other
duties in most countries around the world. An increase in excise or other duties
could have a significant adverse effect on Diageo’s sales revenue or margin,
both through reducing overall consumption and by encouraging consumers to switch
to lower-taxed categories of beverage alcohol.
Diageo’s
reported after tax income is calculated based on extensive tax and accounting
requirements in each of its relevant jurisdictions of operation. Changes in tax
law (including tax rates), accounting policies and accounting standards could
materially reduce Diageo’s reported after tax income.
Diageo is subject to litigation
directed at the beverage alcohol industry and other litigation Companies
in the beverage alcohol industry are, from time to time, exposed to class action
or other litigation relating to alcohol advertising, product liability, alcohol
abuse problems or health consequences from the misuse of alcohol, Diageo may be
subject to litigation with tax, customs and other regulatory authorities,
including with respect to the methodology for assessing importation value,
transfer pricing and compliance matters, and Diageo is routinely subject to
litigation in the ordinary course of its operations. Such litigation may result
in damages, penalties or fines as well as reputational damage to Diageo or its
brands, and as a result, Diageo’s business could be materially adversely
affected. For additional information with respect to legal proceedings, see note
13 ‘Contingent liabilities and legal proceedings’.
Contamination, counterfeiting or
other circumstances could harm the integrity of customer support for Diageo’s
brands and adversely affect the sales of those brands The success of
Diageo’s brands depends upon the positive image that consumers have of those
brands, and contamination, whether arising accidentally, or through deliberate
third-party action, or other events that harm the integrity or consumer support
for those brands, could adversely affect their sales. Diageo purchases most of
the raw materials for the production and packaging of its products from
third-party producers or on the open market. Diageo may be subject to liability
if contaminants in those raw materials or defects in the distillation,
fermentation or bottling process lead to low beverage quality or illness among,
or injury to, Diageo’s consumers. In addition, Diageo may voluntarily recall
products in the event of contamination or damage. A significant product
liability judgement or a widespread product recall may negatively impact on
sales and profitability of the affected brand or all Diageo brands for a period
of time depending on product availability, competitive reaction and consumer
attitudes. Even if a product liability claim is unsuccessful or is not fully
pursued, resulting negative publicity could adversely affect Diageo’s reputation
with existing and potential customers and its corporate and brand
image.
In
addition, to the extent that third parties sell products which are either
counterfeit versions of Diageo brands or inferior brands that look like Diageo
brands, consumers of Diageo brands could confuse Diageo products with them. This
could cause them to refrain from purchasing Diageo brands in the future and in
turn could impair brand equity and adversely affect Diageo’s
business.
Demand for Diageo’s products may be
adversely affected by many factors, including changes in consumer preferences
and tastes and adverse impacts of a declining economy Diageo’s collection
of brands includes some of the world’s leading beverage alcohol brands as well
as brands of local prominence. Maintaining Diageo’s competitive position depends
on its continued ability to offer products that have a strong appeal to
consumers. Consumer preferences may shift due to a variety of factors including
changes in demographic and social trends, public health regulations, changes in
travel, vacation or leisure activity patterns, weather effects and a downturn in
economic conditions, which may reduce consumers’ willingness to purchase premium
branded products. In addition, concerns about health effects due to negative
publicity regarding alcohol consumption, negative dietary effects, regulatory
action or any litigation or customer complaints against companies in the
industry may have an adverse effect on Diageo’s profitability.
The
competitive position of Diageo’s brands could also be affected adversely by any
failure to achieve consistent, reliable quality in the product or service levels
to customers.
In
addition, both the launch and ongoing success of new products is inherently
uncertain especially as to their appeal to consumers. The failure to launch a
new product successfully can give rise to inventory write offs and other costs
and can affect consumer perception of an existing brand. Growth in Diageo’s
business has been based on both the launch of new products and the growth of
existing products. Product innovation remains a significant aspect of Diageo’s
plans for growth. There can be no assurance as to Diageo’s continuing ability to
develop and launch successful new products or variants of existing products or
as to the profitable lifespan of newly or recently developed
products.
Any
significant changes in consumer preferences and failure to anticipate and react
to such changes could result in reduced demand for Diageo’s products and erosion
of its competitive and financial position. Continued economic pressures could
lead to consumer selection of products at lower price points, whether Diageo’s
or those of competitors, which may have an adverse effect on Diageo’s
profitability.
If the social acceptability of
Diageo’s products declines, Diageo’s sales volume could decrease and the
business could be materially adversely affected In recent years, there
has been increased social and political attention directed to the beverage
alcohol industry. Diageo believes that this attention is the result of public
concern over problems related to alcohol abuse, including drink driving,
underage drinking and health consequences from the misuse of alcohol. If, as a
result, the general social acceptability of beverage alcohol were to decline
significantly, sales of Diageo’s products could materially
decrease.
Diageo’s business may be adversely
impacted by unfavourable economic conditions or political or other developments
and risks in the countries in which it operates Diageo may be adversely
affected by political and economic developments or industrial action in any of
the countries where Diageo has distribution networks, production facilities or
marketing companies. Diageo’s business is dependent on general economic
conditions in the United States, Great Britain and other important markets. A
significant deterioration in these conditions, including a reduction in consumer
spending levels, customer destocking, the failure of customer, supplier or
financial counterparties or a reduction in the availability of, or an increase
in the cost of financing to, Diageo, could have a material adverse effect on
Diageo’s business and results of operations. Moreover, a substantial portion of
Diageo’s operations, representing approximately one third of Diageo’s net sales
for the year ended 30 June 2010, are carried out in developing markets,
including Brazil, Venezuela, Mexico, Russia and developing markets in Africa and
Asia.
Diageo’s
operations are also subject to a variety of other risks and uncertainties
related to trading in numerous foreign countries, including political or
economic upheaval and the imposition of any import, investment or currency
restrictions, including tariffs and import quotas or any restrictions on the
repatriation of earnings and capital. Political and/or social unrest, potential
health issues (including pandemic issues) and terrorist threats and/or acts may
also occur in various places around the world, which will have an impact on
trade, tourism and travel. Many of these risks are heightened, or occur more
frequently, in developing markets. These disruptions can affect Diageo’s ability
to import or export products and to repatriate funds, as well as affecting the
levels of consumer demand (for example in duty free outlets at airports or in on
trade premises in affected regions) and therefore Diageo’s levels of sales or
profitability. Developing markets are also generally exposed to relatively
higher risk of liquidity, inflation, devaluation, price volatility, currency
convertibility and country default. Due to Diageo’s specific exposures, any or
all of the foregoing factors may affect Diageo disproportionately or in a
different manner as compared to its competitors.
Part
of Diageo’s growth strategy includes expanding its business in certain countries
where consumer spending in general, and spending on Diageo’s products in
particular, has not historically been as great but where there are prospects for
growth. There is no guarantee that this strategy will be successful and some of
the markets represent a higher risk in terms of their changing regulatory
environments and higher degree of uncertainty over levels of consumer
spending.
Diageo’s operating results may be
adversely affected by increased costs or shortages of labour Diageo’s
operating results could be adversely affected by labour or skill shortages or
increased labour costs due to increased competition for employees, higher
employee turnover or increased employee benefit costs. Diageo’s success is
dependent on the capability of its employees. There is no guarantee that Diageo
will continue to be able to recruit, retain and develop the capabilities that it
requires to deliver its strategy, for example in relation to sales, marketing
and innovation capability within markets or in its senior management. The loss
of senior management or other key personnel or the inability to identify,
attract and retain qualified personnel in the future could make it difficult to
manage the business and could adversely affect operations and financial
results.
An increase in the cost of raw
materials or energy could affect Diageo’s profitability The components
that Diageo uses for the production of its beverage products are largely
commodities that are subject to price volatility caused by changes in global
supply and demand, weather conditions, agricultural uncertainty and/or
governmental controls. Commodity price changes may result in unexpected
increases in the cost of raw materials, glass bottles and other packaging
materials and Diageo’s beverage products. Diageo may also be adversely affected
by shortages of raw materials or packaging materials. In addition, energy cost
increases result in higher transportation, freight and other operating costs.
Diageo may not be able to increase its prices to offset these increased costs
without suffering reduced volume, sales and operating profit. Diageo may
experience significant increases in commodity costs and energy
costs.
Diageo’s operating results may be
adversely affected by disruption to production facilities or business service
centres Diageo would be affected if there were a catastrophic failure of
its major production facilities or business service centres. Diageo operates
production facilities around the world. If there were a technical integrity
failure, fire or explosion at one of Diageo’s production facilities, it could
result in damage to the facilities, plant or equipment, their surroundings or
the environment, could lead to a loss in production capacity, or could result in
regulatory action, legal liability or damage to Diageo’s reputation. In
addition, the maintenance and development of information systems may result in
systems failures which may adversely affect business operations.
Diageo
has a substantial inventory of aged product categories, principally scotch
whisky and Canadian whisky, which may mature over periods of up to 30 years or
more. The maturing inventory is stored primarily in Scotland, and the loss
through contamination, fire or other natural disaster of all or a portion of the
stock of any one of those aged product categories could result in a significant
reduction in supply of those products, and consequently, Diageo would not be
able to meet consumer demand for those products as it arises. There can be no
assurance that insurance proceeds would cover the replacement value of Diageo’s
maturing inventory or other assets, were such assets to be lost due to
contamination, fire or natural disasters or destruction resulting from
negligence or the acts of third parties. In addition, there is an inherent risk
of forecasting error in determining the quantity of maturing stock to lay down
in a given year for future consumption. This could lead to an inability to
supply future demand or lead to a future surplus of inventory and consequent
write down in value of maturing stocks.
Systems failures could lead to
business disruption and systems change programmes may not deliver the benefits
intended Any failure of information systems could adversely impact
Diageo’s ability to operate. As with all large systems, Diageo’s information
systems could be penetrated by outside parties intent on extracting information,
corrupting information or disrupting business processes. Such unauthorised
access could disrupt Diageo’s business and/or lead to loss of assets. The
concentration of processes in business service centres also means that any
disruption arising from system failure or physical plant issues could impact a
large portion of Diageo’s global business. Certain change programmes designed to
improve the effectiveness and efficiency of end-to-end operating, administrative
and financial systems and processes continue to be undertaken. This includes
moving transaction processing from a number of markets to business service
centres. There can be no certainty that these programmes will deliver the
expected operational benefits. There may be disruption caused to production
processes and possibly to administrative and financial systems as further
changes to such processes are effected. They could also lead to adverse customer
or consumer reaction.
Climate change, or legal, regulatory
or market measures to address climate change, may negatively affect Diageo’s
business or operations, and water scarcity or poor quality could negatively
impact Diageo’s production costs and capacity There is a growing concern
that carbon dioxide and other greenhouse gases in the atmosphere may have an
adverse impact on global temperatures, weather patterns and the frequency and
severity of extreme weather and natural disasters. In the event that such
climate change has a negative effect on agricultural productivity, Diageo may be
subject to decreased availability or less favourable pricing for certain raw
materials that are necessary for Diageo’s products, such as sugar, cereals,
hops, agave and grapes. Water is the main ingredient in substantially all of
Diageo’s products. It is also a limited resource in many parts of the world,
facing unprecedented challenges from climate change, overexploitation,
increasing pollution, and poor management. As demand for water continues to
increase around the world, and as water becomes scarcer and the quality of
available water deteriorates, Diageo may be affected by increasing production
costs or capacity constraints, which could adversely affect Diageo’s results of
operations and profitability.
Diageo’s operations and financial
results may be adversely affected by movements in the value of its pension
funds, fluctuations in exchange rates and fluctuations in interest rates
Diageo has significant pension funds. These funds may be affected by,
among other things, the performance of assets owned by these plans, the
underlying actuarial assumptions used to calculate the surplus or deficit in the
plans, in particular the discount rate and long term inflation rates used to
calculate the liabilities of the pension funds, and any changes in applicable
laws and regulations. If there are significant declines in financial markets
and/or a deterioration in the value of fund assets or changes in discount rates
or inflation rates, Diageo may need to make significant contributions to the
pension funds in the future. Furthermore, if the market values of the assets
held by Diageo’s pension funds decline, or if the valuations of those assets by
the pension trustees decline, pension expenses may increase and, as a result,
could materially adversely affect Diageo’s financial position. There is no
assurance that interest rates or inflation rates will remain constant or that
pension fund assets can earn the assumed rate of return annually, and Diageo’s
actual experience may be significantly more negative. Diageo may be adversely
affected by fluctuations in exchange rates. The results of operations of Diageo
are accounted for in pounds sterling. Approximately 36% of net sales in the year
ended 30 June 2010 were in US dollars, approximately 17% were in euros and
approximately 12% were in sterling. Movements in exchange rates used to
translate foreign currencies into pounds sterling may have a significant impact
on Diageo’s reported results of operations from year to year.
Diageo
may also be adversely impacted by fluctuations in interest rates, mainly through
an increased interest expense. To partly delay any adverse impact from interest
rate movements, the group’s policy is to maintain fixed rate borrowings within a
band of 40% to 60% of projected net borrowings, and the overall net borrowings
portfolio is managed according to a duration measure.
Diageo’s operations may be adversely
affected by failure to maintain or renegotiate distribution, supply,
manufacturing or licence agreements on favourable terms Diageo’s business
has a number of distribution, supply, manufacturing and licence agreements for
brands owned by it or by other companies. These agreements vary depending on the
particular brand, but tend to be for a fixed number of years. There can be no
assurance that Diageo will be able to renegotiate its rights on favourable terms
when they expire or that agreements will not be terminated. Failure to renew
these agreements on favourable terms could have an adverse impact on Diageo’s
sales and operating profit. In addition, Diageo’s sales and operating profit may
be adversely affected by any disputes with distributors of its products or with
suppliers of raw materials, or a failure to renew distribution, supply,
manufacturing or licence agreements on favourable terms.
Diageo may not be able to protect its
intellectual property rights Given the importance of brand recognition to
its business, Diageo has invested considerable effort in protecting its
intellectual property rights, including trademark registration and domain names.
Diageo’s patents cover some of its process technology, including some aspects of
its bottle marking technology. Diageo also uses security measures and agreements
to protect its confidential information and trade secrets. However, Diageo
cannot be certain that the steps it has taken will be sufficient or that third
parties will not infringe on or misappropriate its intellectual property rights
in its brands or products. Moreover, some of the countries in which Diageo
operates offer less intellectual property protection than Europe or North
America. Given the attractiveness of Diageo’s brands to consumers, it is not
uncommon for counterfeit products to be manufactured. Diageo cannot be certain
that the steps it takes to assist the authorities to prevent, detect and
eliminate counterfeit products will be effective in preventing material loss of
profits or erosion of brand equity resulting from lower quality or even
dangerous counterfeit product reaching the market. If Diageo is unable to
protect its intellectual property rights against infringement or
misappropriation, this could materially harm its future financial results and
ability to develop its business.
It may be difficult to effect service
of US process and enforce US legal process against the directors of Diageo
Diageo is a public limited company incorporated under the laws of England
and Wales. The majority of Diageo’s directors and officers, and some of the
experts named in this document, reside outside of the United States, principally
in the United Kingdom. A substantial portion of Diageo’s assets, and the assets
of such persons, are located outside of the United States. Therefore, it may not
be possible to effect service of process within the United States upon Diageo or
these persons in order to enforce judgements of US courts against Diageo or
these persons based on the civil liability provisions of the US federal
securities laws. There is doubt as to the enforceability in England and Wales,
in original actions or in actions for enforcement of judgements of US courts, of
civil liabilities solely based on the US federal securities laws.
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 restructuring
programmes, anticipated tax rates, expected cash payments, outcomes of
litigation 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 Diageo’s
strategic focus on premium drinks, the effects of business combinations,
partnerships, joint ventures, 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 business combinations, restructuring programmes,
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
labour and 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, Turkish customs litigation, SEC investigation, Korean customs
litigation or any similar
proceedings;
|
·
|
changes in consumer
preferences and tastes, demographic trends or perceptions about health
related issues; or contamination, counterfeiting or other circumstances
which could harm the integrity of sales of Diageo’s
brands;
|
·
|
changes in the cost or supply
of raw materials, labour and/or
energy;
|
·
|
changes in political or
economic conditions in countries and markets in which Diageo operates,
including changes in levels of consumer spending, failure of customer,
supplier and financial counterparties or imposition of import, investment
or currency restrictions;
|
·
|
levels of marketing,
promotional and innovation expenditure by Diageo and its
competitors;
|
·
|
renewal of supply,
distribution, manufacturing or licence agreements and distribution or
licence manufacturing rights on favourable terms when they
expire;
|
·
|
termination of existing
distribution or licence manufacturing rights on its brands and agency
brands;
|
·
|
disruption to production
facilities or business service centres, and systems change programmes,
existing or future, and the ability to derive expected benefits from such
programmes;
|
·
|
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 those listed under ‘Risk factors’ above. 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 US Securities and Exchange Commission. 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 or 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.
Responsibility
statements
The
responsibility statement set out below has been prepared in connection with (and
will be set out in) the Annual Report for the year ended 30 June 2010, which
will be published on 14 September 2010 (and which can be found thereafter at
www.diageo.com).
“To
the best of the knowledge of each of the directors of Diageo plc:
the
consolidated financial statements contained in the Annual Report for the year
ended 30 June 2010, which have been prepared in accordance with IFRS as issued
by the IASB and endorsed and adopted for use in the EU, give a true and fair
view of the assets, liabilities, financial position and profit of the group;
and
the
management report represented by the directors’ report contained in the Annual
Report for the year ended 30 June 2010 includes a fair review of the development
and performance of the business and the position of the group, together with a
description of the principal risks and uncertainties that the group
faces.”
For
further information
Preliminary Results
Webcast
At 09.30
(UK time) on Thursday 26 August, Paul Walsh, CEO and Nick Rose, CFO will present
Diageo’s preliminary 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 770 155
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 3140 0866
Please quote confirmation
code: 7412409
A
transcript of the Q&A session will be available for download at
www.diageo.com on Tuesday 31 August.
Results Conference
Call
Nick
Rose, CFO and Deirdre Mahlan, CFO designate will host a conference call for US
analysts and investors at 15.00 (UK time) on Thursday 26 August. 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 770 152
Germany
Toll free – 0800 673 8354
Ireland
Toll free – 1800 944 322
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 0828
Please
quote confirmation code: 6724492
A
transcript of the Conference Call will be available for download at
www.diageo.com on Tuesday 31 August.
Conference Call
Replay
The
conference call will also be available on instant replay from 17.00 (UK time)
and will be available until Thursday 9 September 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: 6724492#
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
|
|
|
|