TIDMDGE
RNS Number : 6444G
Diageo PLC
25 July 2019
Preliminary results, year ended 30 June 2019
25 July 2019
Delivering our strategy through strong consistent performance
-- Reported net sales (GBP12.9 billion) increased 5.8% with organic
growth partially offset by acquisitions
and disposals. Reported operating profit (GBP4.0 billion) increased
9.5%, driven by organic growth
-- All regions contributed to broad based organic net sales growth,
up 6.1%, with organic volume up
2.3%
-- Organic operating profit grew 9.0%, ahead of top line organic growth,
driven by improved price/mix
and productivity benefits from everyday cost efficiencies, partially
offset by cost inflation and higher
marketing investment
-- Cash flow continued to be strong, with net cash from operating
activities at GBP3.2 billion, up GBP164
million and free cash flow at GBP2.6 billion, up GBP85 million
-- Basic eps of 130.7 pence increased by 7.4%. Pre-exceptional eps
grew 10.3% to 130.8 pence, driven
by higher operating profit and lower finance charges, which more
than offset an increased tax
charge as a result of higher profit
-- On 25 July the Board approved plans for a further return of capital
up to GBP4.5 billion to shareholders
for the period F20 to F22.
-- The final dividend increased 5% bringing the full year dividend
to 68.57 pence per share
See Explanatory notes for explanation and reconciliation of
non-GAAP measures.
Ivan Menezes, Chief Executive, commenting on the results said:
"Diageo has delivered another year of strong performance.
Organic volume and net sales growth was broad based across regions
and categories, with new product innovation being a strong
contributor. We expanded organic operating margin ahead of our
guidance and increased investment behind our brands ahead of
organic net sales growth.
Fiscal 19 has been another year of strong free cash flow
delivery at GBP2.6 billion and we have returned GBP2.8 billion to
shareholders via share buybacks. The Board has approved plans for
an additional return to shareholders of up to GBP4.5 billion over
Fiscal 20 to Fiscal 22.
Our focus on quality sustainable growth is backed by a culture
of everyday efficiency that enables us to invest smartly in
marketing and growth initiatives while expanding margins.
These results reflect the steady progress we are making and as
we look ahead we see attractive opportunities to deliver consistent
growth and create shareholder value. In the medium term I expect
Diageo to maintain organic net sales growth in the mid-single digit
range and to grow organic operating profit ahead of net sales in
the range of 5%-7%."
Key financial information
For the year ended 30 June 2019
Summary financial information
Organic Reported
growth growth
2019 2018 % %
----------------------------------------- ----------- ------- ------- ------- ----------
Volume EUm 245.9 240.4 2 2
----------------------------------------- ----------- ------ ------ -------
Net sales GBP million 12,867 12,163 6 6
----------------------------------------- ----------- ------ ------ -------
Marketing GBP million 2,042 1,882 8 9
----------------------------------------- ----------- ------ ------ -------
Operating profit before exceptional
items GBP million 4,116 3,819 9 8
----------------------------------------- ----------- ------ ------ -------
Exceptional operating items(i) GBP million (74) (128)
----------------------------------------- ----------- ------ ------ -------
Operating profit GBP million 4,042 3,691 10
----------------------------------------- ----------- ------ ------ -------
Share of associate and joint venture
profit after tax GBP million 312 309 1
----------------------------------------- ----------- ------ ------ -------
Non-operating exceptional gain(i) GBP million 144 -
----------------------------------------- ----------- ------ ------ -------
Net finance charges GBP million (263) (260)
----------------------------------------- ----------- ------ ------ -------
Exceptional taxation (charge)/credit(i) GBP million (39) 203
----------------------------------------- ----------- ------ ------ -------
Tax rate including exceptional items % 21.2 15.9 33
----------------------------------------- ----------- ------ ------ -------
Tax rate before exceptional items % 20.6 20.7 -
----------------------------------------- ----------- ------ ------ -------
Profit attributable to parent company's
shareholders GBP million 3,160 3,022 5
----------------------------------------- ----------- ------ ------ -------
Basic earnings per share pence 130.7 121.7 7
----------------------------------------- ----------- ------ ------ -------
Earnings per share before exceptional
items pence 130.8 118.6 10
----------------------------------------- ----------- ------ ------ -------
Recommended full year dividend pence 68.6 65.3 5
----------------------------------------- ----------- ------ ------ ------- --------
(i) For further details of exceptional items see Additional
financial information, (c) exceptional items and Notes, 3.
Exceptional items
Outlook for exchange
Using exchange rates GBP1 = $1.25; GBP1 = EUR1.11, the exchange
rate movement for the year ending 30 June 2020 is estimated to
favourably impact net sales by approximately GBP375 million and
operating profit by approximately GBP135 million.
Outlook for tax
The tax rate before exceptional items for the year ended 30 June
2019 was 20.6% compared with 20.7% in the prior year. The year
ended 30 June 2019 benefitted from one-off items which are not
expected to repeat. This combined with our changing business mix is
expected to result in a tax rate before exceptional items for the
year ending 30 June 2020 to be in the range of 21% to 22%. For
further details on taxation see Additional Financial Information
(d) Taxation.
Share buyback programme
On 26 July 2018 a share buyback programme was approved to return
up to GBP2.0 billion to shareholders during the year ended 30 June
2019. On 20 December 2018 Diageo completed the sale of a portfolio
of 19 brands to Sazerac. The net proceeds of approximately GBP340
million, after corporate tax and transaction costs, were approved
to be returned to shareholders through an increase to the share
buyback programme. On 30 January 2019 the board approved a further
incremental share buyback programme of GBP660 million, bringing the
total programme to up to GBP3.0 billion for the year ended 30 June
2019.
In the year ended 30 June 2019, 94.7 million shares were
repurchased for an aggregate consideration of GBP2.8 billion.
After the year end a further 0.3 million shares were purchased
for an aggregate consideration of GBP26 million, including
settlement payments for the full tranche, which were recognised as
a financial liability at 30 June 2019. The shares purchased under
the share buyback programmes were cancelled.
On 25 July 2019, the Board approved plans for a further return
of capital up to GBP4.5 billion to shareholders for the period F20
to F22.
Acquisitions and disposals
The impact of acquisitions and disposals on the reported figures
was primarily attributable to the disposal of a portfolio of 19
brands to Sazerac which was completed on 20 December 2018 and to
the prior year acquisition of the Casamigos brand.
For further details on the impact of acquisitions and disposals
see Explanatory notes.
Net sales (GBP million)
Reported net sales grew 5.8%
Organic net sales grew 6.1%
(i
Net sales GBP million
---------------------------- -------------
2018 12,163
----------
Exchange(i) 24
Acquisitions and disposals (57)
Volume 280
Price/mix 457
2019 12,867
---------------------------- ----------
(i) Exchange rate movements reflect the translation of prior
year reported results at current year exchange rates.
Reported net sales grew 5.8%, driven by organic growth and
favourable exchange which was partially offset by acquisitions and
disposals.
Organic volume growth of 2.3% and 3.8% positive price/mix
delivered 6.1% organic net sales growth. All regions reported
organic net sales growth.
Operating profit (GBP million)
Reported operating profit grew 9.5%
Organic operating profit grew 9.0%
Operating profit GBP million
----------------------------- -------------
2018 3,691
----------------------------- ----------
Exceptional operating items 54
Exchange 25
----------------------------- ----------
Acquisitions and disposals (64)
Organic movement 336
----------------------------- ----------
2019 4,042
----------------------------- ----------
Reported operating profit was up 9.5% driven by organic growth,
lower exceptional operating charges, and favourable exchange,
partially offset by acquisitions and disposals.
Organic operating profit grew ahead of net sales at 9.0%.
Operating margin (%)
Reported operating margin increased 107bps
Organic operating margin increased 83 bps
Operating margin ppt
----------------------------- --------
2018 30.3
Exceptional operating items 0.47
-----------------------------
Exchange 0.14
-----
Acquisitions and disposals (0.37)
Gross margin 0.38
Marketing (0.22)
Other operating expenses 0.67
2019 31.4
----------------------------- -----
Reported operating margin increased 107bps driven by organic
operating margin improvement, lower exceptional operating charges
and favourable exchange partially offset by the impact from
acquisitions and disposals.
Organic operating margin improved 83bps driven by improved
price/mix and productivity benefits from everyday cost
efficiencies, partially offset by cost inflation and higher
marketing investment.
Basic earnings per share (pence)
Basic eps increased 7.4% from 121.7 pence to 130.7 pence
Eps before exceptional items increased 10.3% from 118.6 pence to
130.8 pence
(
Basic earnings per share pence
------------------------------------ --------
2018 121.7
------------------------------------ -----
Exceptional items after tax (3.2)
------------------------------------ -----
Exchange on operating profit 1.0
------------------------------------ -----
Acquisitions and disposals (2.0)
------------------------------------ -----
Organic operating profit growth(i) 13.5
------------------------------------ -----
Associates and joint ventures 0.1
-----
Net finance charges(ii) 2.5
------------------------------------ -----
Tax (3.3)
-----
Share buyback 1.6
-----
Non-controlling interests (1.2)
------------------------------------ -----
2019 130.7
------------------------------------ -----
(i) Excluding exchange
(ii) Net finance charges in relation to share buyback and
acquisitions and disposals are reflected in the respective
categories.
Eps before exceptional items increased 12.2 pence as organic
operating profit growth and lower finance charges more than offset
the higher tax charge and impact from acquisitions and
disposals.
Basic eps increased 9.0 pence impacted by an increase in net
exceptional charges.
Free cash flow (GBP million)
Net cash from operating activities(i) was GBP3,248 million
Free cash flow was GBP2,608 million
Free cash flow GBP million
----------------------- -------------
2018 2,523
----------------------- ----------
Exchange(ii) 25
----------------------- ----------
Operating profit(iii) 248
Working capital(iv) (63)
----------
Capex (95)
----------------------- ----------
Tax (54)
----------------------- ----------
Interest (1)
----------------------- ----------
Other(v) 25
----------------------- ----------
2019 2,608
----------------------- ----------
(i) Net cash from operating activities excludes net capex and
movements in loans and other investments (2019 - GBP(640) million;
2018 - GBP(561) million).
(ii) Exchange on operating profit before exceptional items.
(iii) Operating profit excludes exchange, depreciation and
amortisation, post employment charges and non-cash items.
(iv) Working capital movement includes maturing stock.
(v) Other items include post employment payments, dividends
received from associates and joint ventures, and movements in loans
and other investments.
Net cash from operating activities was GBP3.2 billion, an
increase of GBP164 million compared to last year. Free cash flow
continued to be strong at GBP2.6 billion, an increase of GBP85
million. This was largely driven by operating profit growth and
favourable exchange movement which more than offset the reduced
working capital gains and increased investment in maturing stock,
increased capex and higher tax payments.
Return on average invested capital (%)(i)
ROIC improved 80bps
Return on average invested capital ppt
------------------------------------ --------
2018 14.3
Exchange 0.17
Acquisitions and disposals (0.31)
-----
Organic operating profit growth 1.51
Associates and joint ventures (0.09)
------------------------------------ -----
Tax (0.15)
------------------------------------ -----
Other (0.33)
2019 15.1
------------------------------------ -----
(i) ROIC calculation excludes exceptional income statement items.
ROIC increased 80bps largely driven by organic operating profit
growth which was partially offset by the impact of acquisitions and
disposals, higher tax charges and other movements, primarily net
capex and maturing stock.
Reported growth by region
Volume Net sales Marketing Operating profit(i)
% EUm % GBP million % GBP million % GBP million
------------------------- --- ----- ---- ----------- -------- ------------- ------------ -------------
North America 2 1.2 8 344 15 100 4 66
------------------------- ---- ---- ----------- ---- --------- -------- ---------
Europe and Turkey (2) (0.9) - 7 3 16 (1) (14)
------------------------- ---- ---- ----------- ---- --------- -------- ---------
Africa 1 0.4 7 106 10 16 44 84
------------------------- ---- ---- ----------- ---- --------- -------- ---------
Latin America and
Caribbean 1 0.2 6 61 3 5 19 57
------------------------- ---- ---- ----------- ---- --------- -------- ---------
Asia Pacific 5 4.6 7 185 6 24 24 135
------------------------- ---- ---- ----------- ---- --------- -------- ---------
Corporate(ii) - - 2 1 (25) (1) (20) (31)
------------------------- ---- ---- ----------- ---- --------- -------- ---------
Diageo 2 5.5 6 704 9 160 8 297
------------------------- ---- ---- ----------- ---- --------- -------- ---------
Organic growth by region
Volume Net sales Marketing Operating profit(i)
% EUm % GBP million % GBP million % GBP million
------------------------ --- ----- ---- ----------- -------- ------------- ------------- -------------
North America 2 1.1 5 216 11 75 3 52
------------------------ ---- ---- ----------- ---- --------- -------- --- ---------
Europe and Turkey (2) (0.9) 4 104 6 26 2 22
------------------------ ---- ---- ----------- ---- --------- -------- --- ---------
Africa 1 0.4 7 100 3 5 50 91
------------------------ ---- ---- ----------- ---- --------- -------- --- ---------
Latin America and
Caribbean 1 0.2 9 90 6 12 19 59
------------------------ ---- ---- ----------- ---- --------- -------- --- ---------
Asia Pacific 5 4.7 9 226 7 27 26 143
------------------------ ---- ---- ----------- ---- --------- -------- --- ---------
Corporate(ii) - - 2 1 (25) (1) (20) (31)
------------------------ ---- ---- ----------- ---- --------- -------- ---------
Diageo 2 5.5 6 737 8 144 9 336
------------------------ ---- ---- ----------- ---- --------- -------- --- ---------
(i) Before operating exceptional items.
(ii) Increase in Corporate driven by productivity associated
charges.
Notes to the business and financial review
Unless otherwise stated:
-- commentary below refers to organic movements
-- volume is in millions of equivalent units (EUm)
-- net sales are sales after deducting excise duties
-- percentage movements are organic movements
-- share refers to value share
See Explanatory notes for explanation of the calculation and use
of non-GAAP measures.
BUSINESS REVIEW
For the year ended 30 June 2019
North America
North America delivered net sales growth of 5%, with growth
across all three key markets. The disposal of a portfolio of 19
brands to Sazerac resulted in an estimated 40bps improvement in
organic net sales growth. In US Spirits, net sales increased 5%.
Crown Royal net sales increased by 6% and the brand gained share,
driven by strengthened marketing investment fuelling the growth of
Crown Royal Regal Apple and by the Crown Royal Peach limited time
offer. Bulleit net sales were up 8% and it continued to gain share
in US whiskey. Scotch grew net sales by 7% and gained share with
strong innovation performance recruiting new consumers into scotch.
Vodka net sales were flat, an improvement over the prior year,
reflecting growth in Ketel One and Smirnoff and decline in Cîroc.
Ketel One net sales grew by 10% and gained share in the category,
driven by Ketel One Botanical with improvement in core Ketel One
vodka performance. Smirnoff net sales grew by 2% due to
stabilisation of the base business and the launch of Smirnoff Zero
Sugar Infusions. Captain Morgan net sales declined 5%. In tequila,
both Don Julio and Casamigos delivered strong double digit growth
and gained share in the category. Diageo Beer Company USA net sales
grew 10%, largely driven by growth in ready to drink as a result of
successful prior year innovation launches. Beer net sales grew by
2%, improving over prior year and gaining share. Net sales in
Canada increased 5% with broad based growth, including strong ready
to drink performance. North America operating margin declined
103bps, mainly driven by up-weighted marketing investment behind US
Spirits, with some impact from market mix shift and higher
commodity and logistics costs partially offset by overhead
efficiencies.
Key financials GBP million:
Acquisitions Reported
and Organic movement
2018 FX disposals movement 2019 %
------------------ ----- --- -------------- --------- ----- -----------
Net sales 4,116 176 (48) 216 4,460 8
------------------ ----- --- --------- --------- ----- ---------
Marketing 662 24 1 75 762 15
------------------ ----- --- --------- --- --------- ----- ---------
Operating profit 1,882 74 (60) 52 1,948 4
------------------ ----- --- --------- --------- ----- ---------
Markets: Global giants, local stars and
reserve(i) :
Organic Reported
Organic Reported net net Organic Organic Reported
volume volume sales sales volume net sales net sales
movement movement movement movement movement(iii) movement movement
% % % % % % %
------------- ----------- ----------- -------- -------- ----------- --------------- ------------ ------------
North Crown
America 2 2 5 8 Royal 6 6 10
------------- ------ --- ------ --- -------- -------- ----------- --------- ---- -------- ------- ---
Smirnoff 2 3 7
------------- ----------- ----------- -------- -------- ----------- --------- ---- -------- ------- ---
US Captain
Spirits(ii) 2 (2) 5 8 Morgan (3) (4) -
------------- ------ --- ------ -------- -------- ----------- --------- --- -------- ------- ---
Johnnie
DBC USA 8 8 10 15 Walker 1 5 9
------------- ------ --- ------ --- -------- -------- ----------- --------- ---- -------- ------- ---
Ketel
Canada 3 3 5 4 One(iv) 10 10 15
------------- ------ --- ------ --- -------- -------- ----------- --------- ---- -------- ------- ---
Cîroc
vodka (10) (10) (6)
------------- ----------- ----------- -------- -------- ----------- --------- --- -------- -------
Spirits 2 2 5 8 Baileys - 2 6
------------- ------ --- ------ --- -------- -------- ----------- --------- ---- -------- ------- ---
Beer (4) (4) 1 5 Guinness (3) 2 6
------------- ------ ------ -------- -------- ----------- --------- --- -------- ------- ---
Ready to
drink 18 17 18 21 Tanqueray 2 1 5
------------- ------ --- ------ --- -------- -------- ----------- --------- ---- -------- ------- ---
Don Julio 20 26 32
------------- ----------- ----------- -------- -------- ----------- --------- ---- -------- ------- ---
Bulleit 11 8 13
------------- ----------- ----------- -------- -------- ----------- --------- ---- -------- ------- ---
Buchanan's 8 4 9
------------- ----------- ----------- -------- -------- ----------- --------- ---- -------- ------- ---
(i) Spirits brands excluding ready to drink.
(ii) Reported US Spirits volume growth was impacted by acquisitions and disposals.
(iii) Organic equals reported volume movement.
(iv) Ketel One includes Ketel One vodka and Ketel One
Botanical.
-- Net sales in US Spirits were up 5%, broadly in line with
depletions. Crown Royal grew net sales by 6% and gained share in
its category, driven by continued growth of Crown Royal Regal Apple
and Crown Royal Vanilla underpinned by strong marketing investment
and the Crown Royal Peach and Crown Royal Salted Caramel limited
time offers. In scotch, Johnnie Walker and Buchanan's gained share.
Johnnie Walker net sales increased 6% with the successful launch of
"White Walker by Johnnie Walker" inspired by the TV series Game of
Thrones, which recruited new consumers into scotch. In vodka, net
sales were flat, an improvement on the prior year's decline of 3%,
despite continued weakness in Cîroc. Ketel One net sales were up
10%, benefitting from the success of Ketel One Botanical. Smirnoff
returned to growth, up 2%, with strong marketing support reflected
in the stabilisation of the base business and strengthened brand
equity and with growth fuelled by the launch of Smirnoff Zero Sugar
Infusions in May. Captain Morgan net sales declined by 5% in a
category that is also in decline. Baileys net sales grew by 3% and
gained category share as it continued its year-round focus on
Baileys as an everyday treat. In tequila, Don Julio and Casamigos
had strong double digit growth and gained share in the tequila
category with Don Julio significantly up-weighting media investment
to drive awareness and Casamigos focusing on public relations,
social media and targeted events.
-- DBC USA net sales increased 10%, driven by ready to drink
growth of 18% as Smirnoff Spiked Seltzer and Smirnoff Ice Smash
success continued. In beer, net sales were up 2% with Guinness up
3%. The opening of the Guinness Open Gate Brewery and Barrel House
in Maryland and expanding at-home consumption occasions supported
Guinness growth.
-- Net sales in Canada grew 5%, driven by growth in spirits and
ready to drink. Spirits net sales were up 3% with broad based
growth across all categories, including a strong performance from
"White Walker by Johnnie Walker". Ready to drink benefitted from
innovation, particularly the Smirnoff Ice Berry Blast ready to
drink.
-- Marketing grew 11%. Up-weighted investment coupled with the
use of marketing effectiveness analytic tools to help make better
investment decisions continued to strengthen brand equity and
deliver sustainable growth.
Europe and Turkey
Europe and Turkey delivered 4% net sales growth, reflecting
another year of consistent performance in Europe where net sales
were up 3% with double digit growth in Turkey. Europe growth was
driven by Continental Europe, Great Britain and Ireland. Strong
growth in gin continued with Tanqueray and Gordon's growing double
digit. Western Europe continued to gain market share in gin. Both
Gordon's and Tanqueray benefitted from strong growth across their
core and innovation variants. Beer was up 1%. Lager net sales grew
5% driven by Rockshore in Ireland, while Guinness Draught grew 1%.
Scotch net sales were flat as growth in Johnnie Walker and scotch
malts was largely offset by the weaker performance of J B. Baileys
was up 2% largely driven by the launch of Baileys Strawberries
& Cream in Continental Europe. Smirnoff net sales declined 2%
driven by Great Britain and Continental Europe, partially offset by
growth in Ireland. Tequila grew double digit with growth across all
markets. Ready to drink grew 17% driven by the Gordon's premix
range. In Turkey, net sales were up 11% due to inflation and excise
duty led price increases. Operating margin declined 49bps as
positive price/mix and productivity savings were offset by
up-weighted marketing investment, as well as inflationary cost
pressure, particularly in Turkey.
Key financials GBP million
Acquisitions Reported
and Organic movement
2018 FX disposals movement 2019 %
------------------------------------- ----- ---- -------------- --------- ------ -----------
Net sales 2,932 (95) (2) 104 2,939 -
------------------------------------- ----- --- -------- --- --------- ----- ------ ---
Marketing 474 (10) - 26 490 3
------------------------------------- ----- --- -------- ---- --------- ----- ------ ---
Operating profit before exceptional
items 1,028 (35) (1) 22 1,014 (1)
------------------------------------- ----- --- -------- --- --------- ----- ------
Exceptional operating items(i) - (18)
------------------------------------- ----- ---- -------------- --------- ----- -----------
Operating profit 1,028 996 (3)
------------------------------------- ----- ---- -------------- --------- ----- ------
(i) For further details on exceptional operating items see
Additional Financial Information, Exceptional items and Notes, 3.
Exceptional items.
Markets: Global giants and local stars(i)
:
Organic
Organic Reported net Reported Organic Organic Reported
volume volume sales net sales volume net sales net sales
movement movement movement movement movement(ii) movement movement
% % % % % % %
---------- ----------- ----------- -------- ------------ ---------- -------------- ------------ ------------
Europe
and
Turkey Guinness 1 1 1
---------- ---------- -------- ---- ------- --- --------
Johnnie
(2) (2) 4 - Walker (2) 3 1
---------- ------- -------- -------- ---------- -------- --- ------- --- --------
Smirnoff (4) (1) (1)
---------- ----------- ----------- -------- ------------ ---------- -------- --- ------- --------
Europe - - 3 2 Baileys (2) 3 3
---------- ------- ------- -------- -------- ---------- -------- --- ------- --- --------
Yenì
Turkey (13) (13) 11 (20) Raki (19) 6 (24)
---------- ------- ------- -------- -------- ---------- -------- --- ------- --- --------
Captain
Morgan 1 - (2)
---------- ----------- ----------- -------- ------------ ---------- -------- ---- ------- --- --------
Spirits (2) (2) 3 (1) J B (8) (8) (10)
---------- ------- ------- -------- -------- ---------- -------- --- ------- --------
Beer 1 1 1 - Tanqueray 14 21 21
---------- ------- ------- -------- -------- ---------- -------- ---- ------- --- --------
Ready to
drink 13 13 16 15
---------- ------- ------- -------- -------- ---------- -------------- ------------ ------------
(i) Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement.
-- In Europe, net sales were up 3%:
-- In Great Britain, net sales grew 4%, with Diageo gaining
share across beer and spirits. Gordon's and Tanqueray both
delivered strong double digit growth, both benefitting from strong
growth of their innovation variants. Ready to drink grew 17% driven
by the Gordon's premix range. Guinness net sales grew 4%, driven by
a strong performance for Guinness Draught and the continued growth
of Hop House 13 Lager. Across Baileys, Smirnoff and Captain Morgan
supply chain actions as well as commercial negotiations following
recent pricing decisions have resulted in net sales decline.
-- Ireland grew net sales 3%. Beer net sales were flat. Lager
net sales grew 4% driven by strong growth in Rockshore. Guinness
net sales declined 2% impacted by difficult competitive conditions.
In spirits, net sales grew double digit largely driven by Smirnoff,
Baileys and Gordon's.
-- In Continental Europe, net sales were up 3%:
-- Iberia net sales grew 1%. Growth was driven by strong
performance in Baileys and gin with growth across both Tanqueray
and Gordon's. Scotch declined 3% as growth in Cardhu and Johnnie
Walker was offset by declines in J B. In Spain, market share in
scotch was broadly flat, as the category continued to decline.
-- In Central Europe, net sales grew 4% driven by the launch of
Baileys Strawberries & Cream and double digit growth in gin
which more than offset the impact of pricing actions in
Germany.
-- In Northern Europe net sales were up 9% driven by growth
across both Benelux and the Nordics partially driven by net revenue
management initiatives.
-- In the Mediterranean Hub, net sales were down by 6% driven by
lapping strong comparable performance in Italy in the prior year
and a continuing tough economic environment in Greece.
-- Europe Partner Markets grew net sales 6% driven by strong
scotch performance and continued growth in Guinness and gin.
-- Russia net sales declined 3% driven by a volatile external
environment and lapping strong comparables in the prior year.
-- France net sales grew 1%. Double digit net sales growth in
Captain Morgan was partially offset by a decline in J B.
-- In Turkey, net sales grew 11% despite volume decline of 13%,
reflecting the impact of price increases, which were taken in
response to increases in excise duties and inflation. Growth was
largely driven by Yenì Raki which grew net sales by 7%, wine and
scotch which grew double digit, led by strong growth in Johnnie
Walker.
-- Marketing investment increased 6%, ahead of net sales,
largely driven by increased investment in beer and gin. Beer
marketing investment growth was primarily driven by the Six Nations
rugby sponsorship agreement supporting the Guinness brand.
Up-weighted investment in gin was across both Gordon's and
Tanqueray.
Africa
Africa delivered 7% net sales growth, with growth across East
Africa, Africa Regional Markets and South Africa partially offset
by a decline in Nigeria. In East Africa and Africa Regional Markets
net sales grew 13% and 8%, respectively, driven by growth across
both beer and spirits. East Africa partially benefitted from
lapping prior year weakness in the first half. Net sales grew 6% in
South Africa driven by growth in spirits. Nigeria net sales
declined by 7% driven by the continued tough economic and
competitive environment in the lager segment. Across Africa, beer
net sales were up 5% driven by double digit growth in Senator Keg,
Serengeti Lite, and Malta Guinness, partially offset by declines in
Satzenbrau. Spirits delivered strong net sales growth driven by
mainstream spirits and scotch across all key markets as well as
strong growth of Tanqueray in South Africa. Scotch net sales were
up 8% driven by Johnnie Walker, up 10%, partially as a result of a
strong launch of "White Walker by Johnnie Walker" in South Africa.
Operating margin improved by 494bps driven by improved price/mix
and the continued benefit from productivity initiatives more than
offsetting cost inflation.
Key financials GBP million:
Acquisitions Reported
and Organic movement
2018 FX Reclassifi-cation(i) disposals movement 2019 %
-------------------------- ------ --- -------------------- -------------- --------- ----- -----------
Net sales 1,491 8 - (2) 100 1,597 7
-------------------------- ----- -------------------- -------- --- --------- ----- ---------
Marketing 158 1 10 - 5 174 10
-------------------------- ----- -------------------- -------- ---- --------- ----- ---------
Operating profit before
exceptional items 191 (6) - (1) 91 275 44
-------------------------- ----- -------------------- -------- --- --------- ----- ---------
Exceptional operating
items(ii) (128) -
-------------------------- ----- --- -------------------- -------------- --------- ----- -----------
Operating profit 63 275 337
-------------------------- ----- --- -------------------- -------------- --------- ----- -----------
(i) Reclassification comprises a reallocation of costs from overheads to marketing.
(ii) For further details on exceptional operating items see
Additional financial information, Exceptional items and Notes, 3.
Exceptional items.
Markets: Global giants and local stars(i)
:
Organic
Organic Reported Organic Reported Organic net Reported
volume volume net sales net sales volume sales net sales
movement movement movement movement movement(iii) movement movement
% % % % % % %
------------- ----------- ----------- ------------ ------------ ---------- --------------- -------- ----------
Africa 1 1 7 7 Guinness (1) 2 3
------------- ------- ------- ------- --- ------- --- ---------- -------- ---- -------- --------
Johnnie
Walker 4 10 9
------------- ----------- ----------- ------------ ------------ ---------- -------- ----- -------- --------
East Africa 12 11 13 18 Smirnoff - 12 9
------------- ------- ------- ------- --- ------- --- ---------- -------- ----- -------- --------
Africa
Regional
Markets(ii) (3) 3 8 9
------------- ------- ------- ------- --- ------- ---
Nigeria (10) (10) (7) (3) Other beer:
------------- ------- ------- ------- -------
South
Africa(ii) (2) (10) 6 (6)
------------- ------- ------- ------- --- ------- ---------- --------------- -------- ----------
Malta
Guinness 8 15 13
------------- ----------- ----------- ------------ ------------ ---------- -------- ----- -------- --------
Spirits 5 5 13 10 Tusker (5) 1 6
------------- ------- ------- ------- --- ------- --- ---------- -------- ---- -------- --------
Beer 1 1 5 8 Senator 21 22 28
------------- ------- ------- ------- --- ------- --- ---------- -------- ----- -------- --------
Ready to
drink (3) (3) 4 2 Serengeti 40 46 49
------------- ------- ------- ------- --- ------- --- ---------- -------- ----- -------- --------
(i) Spirits brands excluding ready to drink.
(ii) In the year ended 30 June 2019 the following countries,
Mozambique, Zambia, Zimbabwe, St Helena and Malawi, moved on a
management basis from South Africa to Africa Regional Markets. This
reallocation has been reflected in the organic reporting.
(iii) Organic equals reported volume movement.
-- In East Africa, net sales grew by 13%. Kenya continued to
grow strongly driven by double digit growth in beer and mainstream
spirits as well as partially benefitting from lapping prior year
weakness in the first half as a result of the 2017 presidential
election. Tanzania continued to grow double digit. Beer net sales
grew 13% led by continued strong growth in Serengeti Lite in
Tanzania and double digit growth of Senator Keg in Kenya. Guinness
net sales grew by 4%.
-- In Africa Regional Markets, net sales increased by 8% with
double digit growth in Ghana and Angola and a return to growth in
Cameroon as it lapped prior year challenges in the distributor
network. Beer grew 6% driven by strong performance in Malta
Guinness. Scotch also returned to growth driven by net revenue
management actions.
-- South Africa net sales returned to growth of 6% driven by
strong spirits performance in Tanqueray, double digit growth in
Smirnoff 1818 and Captain Morgan and the launch of "White Walker by
Johnnie Walker".
-- In Nigeria, net sales declined by 7% driven by Satzenbrau, as
a result of a tough economic and competitive environment impacting
the lager segment. Net sales grew in Malta Guinness, Guinness and
spirits.
-- Marketing investment increased by 3% largely driven by
up-weighted investment in Tusker marketing activities and media
campaigns, the relaunch of Guinness Foreign Extra Stout, an
evolution of Guinness's successful football campaign across Africa,
led by Guinness brand ambassador Rio Ferdinand, and the
continuation of Serengeti's sponsorship of the Tanzanian national
football team.
Latin America and Caribbean
Latin America and Caribbean delivered 9% growth in net sales
with strong performance in Brazil, Mexico, Colombia and CCA. Net
sales in Brazil grew 11% largely driven by gin, and partially
benefitting from a one-off incentive related credit. Mexico grew 8%
led by double digit growth in tequila. Colombia grew 19% largely
driven by scotch. CCA benefitted from lapping the impact of last
year's hurricanes. Growth in the region was broad based across key
categories. Scotch grew 7% with continued solid performance of
Johnnie Walker and primary scotch growing 5% and 14% respectively.
Buchanan's was up 8% and Old Parr returned to growth as both brands
benefitted from lapping last year's tax changes in Colombia. Don
Julio delivered double digit growth led by Mexico. Gin grew double
digit driven by the strong growth of Tanqueray in Brazil. Operating
margin for the region increased 288bps benefitting from improved
price/mix, productivity led efficiencies and a one-off tax benefit
in other income in Brazil.
Key financials GBP million:
Acquisitions Reported
and Organic movement
2018 FX disposals movement 2019 %
------------------ ----- ---- ------------ --------- ----- -----------
Net sales 1,069 (29) - 90 1,130 6
------------------ ----- --- ------------ --------- ----- ---------
Marketing 196 (7) - 12 201 3
------------------ ----- --- ------------ --------- ----- ---------
Operating profit 308 (2) - 59 365 19
------------------ ----- --- ------------ --------- ----- ---------
Markets: Global giants and local stars(i)
:
Organic Reported Organic Reported Organic Organic Reported
volume volume net sales net sales volume net sales net sales
movement movement movement movement movement(ii) movement movement
% % % % % % %
----------- ---------- ---------- ------------ ------------ ------------ -------------- ---------- ----------
Latin
America
and Johnnie
Caribbean Walker 3 5 3
----------- ------------ ------- ----- ------ ------
1 1 9 6 Buchanan's 5 8 7
----------- ------ ------- --- ------- --- ------------ ------- ----- ------ ------
Smirnoff 11 19 10
----------- ---------- ---------- ------------ ------------ ------------ ------- ----- ------ ------
PUB (1) (1) 6 (3) Old Parr 5 3 1
----------- ------ ------ ------- --- ------- ------------ ------- ----- ------ ------
Mexico 4 4 8 8 Baileys 3 17 13
----------- ------ ------ ------- --- ------- --- ------------ ------- ----- ------ ------
CCA 5 5 13 14 Ypióca (7) (1) (11)
----------- ------ ------ ------- --- ------- --- ------------ ------- ---- ------ ------
Black &
Andean (16) (15) 19 14 White 8 5 -
----------- ------ ------ ------- --- ------- --- ------------ ------- ----- ------ ------
PEBAC 13 13 6 3
----------- ------ ------ ------- --- ------- --- ------------ -------------- ---------- ----------
Spirits 1 1 9 6
----------- ------ ------ ------- --- ------- --- ------------ -------------- ---------- ----------
Beer 2 2 (4) (7)
----------- ------ ------ ------- ------- ------------ -------------- ---------- ----------
Ready to
drink (4) (4) 8 4
----------- ------ ------ ------- --- ------- --- ------------ -------------- ---------- ----------
(i) Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement.
-- In PUB (Paraguay, Uruguay and Brazil), net sales grew 6%.
Brazil delivered 11% growth driven by strong growth in gin, and
partially benefitting from a one-off incentive related credit.
Tanqueray drove the growth in gin supported by scaled up commercial
activations in conjunction with media support. Scotch net sales
grew 6% led by White Horse. Black & White declined as it was
impacted by a state tax change in Brazil.
-- In Mexico, net sales increased 8%. Growth was broad based but
led by Don Julio which continued to gain share in the tequila
category, reflecting strong brand momentum and well-executed
marketing campaigns and commercial platforms. Scotch grew 4% with
Johnnie Walker up 7% and Black & White up 4% supported by an
increased focus on brand availability through trade activations.
Baileys grew strong double digit driven by distribution expansion,
new brand communication focusing on Baileys' indulgent treat
positioning and the launch of new flavours.
-- In CCA (Caribbean and Central America), net sales increased
13% as it benefitted from lapping the impact of the hurricanes in
the prior year. Growth was broad based but led by Johnnie Walker
Black Label which grew double digit as it benefitted from greater
visibility with the "Keep Walking" campaign. Smirnoff ready to
drink grew 19% driven by innovations with Guarana and Green Apple
flavours.
-- Andean (Colombia and Venezuela) net sales increased 19%
driven by Colombia, which partially benefitted from lapping the
impact of tax changes last year. Scotch delivered double digit net
sales growth. Buchanan's strong performance was supported by
occasion driven consumer activations with local media campaigns.
Black & White benefitted from route to consumer expansion and
recruiting new consumers from local spirits and beer. Johnnie
Walker grew double digit partially driven by the "White Walker by
Johnnie Walker" innovation. Venezuela volume remained in decline as
economic conditions continued to deteriorate.
-- PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile) delivered
6% net sales growth, driven by Ecuador and Chile partially offset
by Bolivia and Peru, which were impacted by tax changes. Growth was
driven by scotch with a strong contribution from Johnnie Walker Red
Label and "White Walker by Johnnie Walker".
-- Marketing investment increased 6% driven by the key campaigns
including Johnnie Walker "We are all Human", Buchanan's "Vivamos
Grandes Momentos", Old Parr "Cambia el Guión" and Tanqueray
"Tanqueray Mixed Gin Bar".
Asia Pacific
Asia Pacific delivered 9% growth in net sales with strong growth
across the region except North Asia. Greater China grew 19% driven
by strong performance in both Chinese white spirits and scotch. Net
sales in India grew 8% driven by IMFL whisky and scotch. Travel
Retail Asia and Middle East grew 13% mostly from Johnnie Walker.
South East Asia grew 8% driven by Johnnie Walker and Guinness.
Scotch net sales were up 9% across the region led by strong
performance in Johnnie Walker, which benefitted from the successful
launch of the "White Walker by Johnnie Walker" innovation and
scotch malts, which more than offset the net sales decline of
Windsor in Korea. Gin grew double digit largely driven by strong
growth in Australia. Net sales of Reserve brands were up 19%
largely driven by Chinese white spirits and Johnnie Walker super
deluxe variants. Operating margin increased 341bps driven by
positive price/mix and productivity led savings.
Key financials GBP million:
Acquisitions Reported
and Organic movement
2018 FX disposals movement 2019 %
------------------------------------- ----- ---- ------------ --------- ----- -----------
Net sales 2,503 (36) (5) 226 2,688 7
------------------------------------- ----- ---- ------------ --------- ----- ---------
Marketing 388 (3) - 27 412 6
------------------------------------- ----- ---- ------------ --------- ----- ---------
Operating profit before exceptional
items 568 (6) (2) 143 703 24
------------------------------------- ----- ---- ------------ --------- ----- ---------
Exceptional operating items(i) - (35)
------------------------------------- ----- ---- ------------ --------- ----- -----------
Operating profit 568 668 18
------------------------------------- ----- ---- ------------ --------- ----- ---------
(i) For further details on exceptional operating items see
Additional financial information, Exceptional items and Notes, 3.
Exceptional items.
Markets: Global giants and local stars(i)
:
Organic Reported Organic Reported Organic Organic Reported
volume volume net sales net sales volume net sales net sales
movement(i) movement movement movement movement(ii) movement movement
% % % % % % %
----------- ----------- -------- ------------ ------------ ----------- -------------- ----------- -----------
Asia Johnnie
Pacific 5 5 9 7 Walker 6 11 13
----------- ----------- -------- ------- --- ------- --- ----------- ------- ----- ------- -------
McDowell's 7 9 5
----------- ----------- -------- ------------ ------------ ----------- ------- ----- ------- -------
India 5 5 8 4 Windsor (1) (16) (15)
----------- ----------- -------- ------- --- ------- --- ----------- ------- ---- ------- -------
Greater
China 11 11 19 19 Smirnoff (4) 2 1
----------- ----------- -------- ------- --- ------- --- ----------- ------- ---- ------- -------
Australia 3 3 6 2 Guinness 1 5 (1)
----------- ----------- -------- ------- --- ------- --- ----------- ------- ----- ------- -------
South East
Asia 2 2 8 9 Bundaberg (4) (1) (5)
----------- ----------- -------- ------- --- ------- --- ----------- ------- ---- ------- -------
Shui Jing
North Asia 12 11 (2) - Fang(iii) 16 23 22
----------- ----------- -------- ------- ------- --- ----------- ------- ----- ------- -------
Travel
Retail
Asia and
Middle
East 4 9 13 15
----------- -------------- ----------- -----------
Spirits 5 5 10 8
----------- ----------- -------- ------- --- ------- --- ----------- -------------- ----------- -----------
Beer 1 1 5 (2)
----------- ----------- -------- ------- --- ------- ----------- -------------- ----------- -----------
Ready to
drink 3 3 6 6
----------- ----------- -------- ------- --- ------- --- ----------- -------------- ----------- -----------
(i) Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement except for Johnnie
Walker 7% largely due to the reallocation of the results of Travel
Retail.
(iii) Organic growth figures represent total Chinese white
spirits of which Shui Jing Fang is the principal brand. Organic
growth adjusted to remove bulk sales reported in the prior
comparable period. Reported volume was up 17%.
-- In India net sales increased 8% with growth from the
"Prestige and Above" segment up 12%, led by double digit growth in
scotch, driven by Johnnie Walker and Black & White. This was
supported by solid performance from McDowell's No.1 enhanced by the
launch of its new Platinum range and good growth in Royal Challenge
and Signature. Vodka net sales were up 5%, supported by Smirnoff
consumer activation. Net sales in the popular brands segment
increased 1%.
-- In Greater China net sales increased 19%, with double digit
growth in both Chinese white spirits and scotch. Chinese white
spirits grew 23% partly driven by route to consumer expansion.
Scotch net sales increased 13% with continued growth in scotch
malts and Johnnie Walker super deluxe in mainland China and a
return to growth from Johnnie Walker in Taiwan.
-- Net sales in Australia grew 6%, driven by strong performance
in the ready to drink and gin portfolio. Ready to drink net sales
increased 7% fuelled by innovation geared towards more premium
products such as Gordon's Premium Pink Gin & Soda and Tanqueray
& Tonic. Gin grew double digit as the fastest growing spirit in
Australia supported by innovation from Gordon's Pink and House of
Tanqueray. Bundaberg net sales stabilised on the back of the
"Unmistakably Ours" campaign.
-- In South East Asia, net sales increased 8% driven by growth
across all key countries except Thailand. Scotch was the main
growth driver with net sales growth of 6%, led by "White Walker by
Johnnie Walker" and Johnnie Walker super deluxe. Guinness grew 11%
driven by solid performance in Indonesia supported by focus on
modern on-trade recruitment and by route to consumer expansion of
Guinness Draught in Singapore.
-- In North Asia, net sales declined 2% with growth in Japan
being offset by continued weakness in Korea. In Korea net sales
declined 9% due to a continued weak Windsor performance, as a
result of the contraction of the scotch category. Japan net sales
grew 10% driven by primary scotch, Johnnie Walker and the
successful relaunch of the Guinness Draught in Can.
-- Travel Retail Asia and Middle East net sales grew 13% driven
by successful launches within the Johnnie Walker portfolio,
including "White Walker by Johnnie Walker" and Johnnie Walker Blue
Label innovation.
-- Marketing investment increased 7% driven by increased
investment in Chinese white spirits, Johnnie Walker and scotch
malts in Greater China and a new culture leading campaign
"#ChallengeAccepted" for Royal Challenge in India.
CATEGORY AND BRAND REVIEW
For the year ended 30 June 2019
Key categories:
Organic Organic Reported
volume net sales net sales
movement(iii) movement movement
% % %
-------------------------------------------- ----------------- ------------- -------------
Spirits(i) 3 7 6
-------------------------------------------- ---------- ----- -------- --- -------- ---
Scotch 2 6 6
-------------------------------------------- ---------- ----- -------- --- -------- ---
Vodka(ii)(iv) 2 2 4
-------------------------------------------- ---------- ----- -------- --- -------- ---
US whiskey 2 4 9
-------------------------------------------- ---------- ----- -------- --- -------- ---
Canadian whisky 6 6 8
-------------------------------------------- ---------- ----- -------- --- -------- ---
Rum(ii) (3) (2) (3)
-------------------------------------------- ---------- ---- -------- --------
Indian-Made Foreign Liquor (IMFL) whisky 6 8 3
-------------------------------------------- ---------- ----- -------- --- -------- ---
Liqueurs 1 4 4
-------------------------------------------- ---------- ----- -------- --- -------- ---
Gin(ii) 17 22 23
-------------------------------------------- ---------- ----- -------- --- -------- ---
Tequila 19 29 37
-------------------------------------------- ---------- ----- -------- --- -------- ---
Beer 1 3 4
-------------------------------------------- ---------- ----- -------- --- -------- ---
Ready to drink 7 12 12
-------------------------------------------- ---------- ----- -------- --- -------- ---
(i) Spirits brands excluding ready to drink.
(ii) Vodka, rum, gin including IMFL brands.
(iii) Organic equals reported volume movement except for
Canadian whisky 5%, gin 16%, and tequila 21%, which were impacted
by acquisitions and disposals.
(iv) Vodka includes Ketel One Botanical.
-- Scotch represents 25% of Diageo's net sales and was up 6%
with broad based growth across all regions except Europe. Scotch
growth was driven by Johnnie Walker, which delivered a strong
performance with net sales up 7%, benefitting from the successful
launch of "White Walker by Johnnie Walker" inspired by the TV
series Game of Thrones. Primary scotch brands grew 9% largely
driven by Black & White in Asia Pacific and White Horse in
Latin America and Caribbean and Asia Pacific. Buchanan's grew 8% in
Latin America and Caribbean and 4% in North America. Scotch malts
were up 12% with growth coming from Asia Pacific, North America and
Europe benefitting from the launch of the "Game of Thrones Single
Malt Scotch Whisky Collection". Old Parr returned to growth this
year, as the brand lapped tax changes in Colombia. J B continued to
be under pressure in Europe led by the challenged scotch category
in Iberia. Scotch continued to decline in Korea driven by declines
in Windsor.
-- Vodka represents 11% of Diageo's net sales and returned to
growth with net sales up 2% and growth across all the regions
except Europe. Vodka growth was driven by Smirnoff and Ketel One
partially offset by a decline in Cîroc vodka. Overall, Smirnoff
grew 3%, with net sales up 2% in US Spirits and 4% outside of the
US, where performance was largely driven by double digit growth in
Brazil and South Africa. Ketel One grew net sales by 10%, with US
Spirits being the largest contributor to growth, benefitting from
the success of Ketel One Botanical. The decline in Cîroc vodka was
driven by US Spirits.
-- US whiskey represents 2% of Diageo's net sales and grew 4%.
Performance continued to be driven by good growth in Bulleit in US
Spirits.
-- Canadian whisky represents 7% of Diageo's net sales and grew
6%. Solid growth of Crown Royal in US Spirits was driven by
strengthened marketing investment fuelling the growth of Crown
Royal Regal Apple and by the Crown Royal Peach limited time offer.
The brand also grew share within its category.
-- Rum represents 6% of Diageo's net sales and declined 2%
largely driven by Captain Morgan decline in US Spirits, in a
category that is also in decline.
-- IMFL whisky represents 5% of Diageo's net sales and grew 8%
driven by the strong performance of the McDowell's trademark,
Signature and Royal Challenge.
-- Liqueurs represent 5% of Diageo's net sales and grew 4% with
growth in all regions. Baileys was up 4% led by Europe, US Spirits
and Mexico, with performance driven by continued focus on reminding
consumers of Baileys' indulgent treat year-round positioning.
-- Gin represents 4% of Diageo's net sales and grew 22% with
double digit growth across all regions except North America. Strong
growth in gin continued with Tanqueray and Gordon's growing double
digit with both Gordon's and Tanqueray benefitting from strong
growth across their core and innovation variants. We continued to
gain share in the gin category in Western Europe.
-- Tequila represents 4% of Diageo's net sales and grew 29%. The
performance was driven by strong double digit growth of Don Julio
in US Spirits and Latin America and Caribbean as well as Casamigos
in US Spirits.
-- Beer represents 16% of Diageo's net sales and grew 3%. In
Africa beer grew 5%, largely driven by Senator Keg in Kenya and
Serengeti Lite in Tanzania partially offset by decline in
Satzenbrau in Nigeria. Guinness grew 2% with growth largely driven
by Guinness Foreign Extra Stout, as well as Guinness Draught and
the continued growth of Hop House 13 Lager in Europe. In Ireland
lager net sales grew 4% driven by strong growth in Rockshore.
-- Ready to drink represents 6% of Diageo's net sales and grew
12% primarily driven by North America and Europe.
Global giants, local stars and reserve(i) :
Organic Organic Reported
volume net sales net sales
movement(ii) movement movement
% % %
------------------------------ ---------------- ------------- -------------
Global giants
------------------------------ ---------------- ------------- -------------
Johnnie Walker 2 7 7
------------------------------ ------------ --------- ---------
Smirnoff - 3 5
------------------------------ --------- ---------
Baileys - 4 5
------------------------------ ------------ --------- ---------
Captain Morgan (1) (2) 1
------------------------------ ------------ --------- ---------
Tanqueray 17 19 21
------------------------------ ------------ --------- ---------
Guinness - 2 2
------------------------------ ------------ --------- ---------
Local stars
------------------------------ ---------------- ------------- -------------
Crown Royal 6 6 10
------------------------------ ------------ --------- ---------
Yenì Raki (19) 6 (24)
------------------------------ ------------ --------- ---------
Buchanan's 6 6 8
------------------------------ ------------ --------- ---------
J B (10) (8) (9)
------------------------------ ------------ --------- ---------
Windsor (1) (16) (15)
------------------------------ ------------ --------- ---------
Old Parr 4 3 1
------------------------------ ------------ --------- ---------
Bundaberg (4) (1) (5)
------------------------------ ------------ --------- ---------
Black & White 10 14 9
------------------------------ ------------ --------- ---------
Ypióca (7) (1) (12)
------------------------------ ------------ --------- ---------
McDowell's 7 8 4
------------------------------ ------------ --------- ---------
Shui Jing Fang(iii) 16 22 22
------------------------------ ------------ --------- ---------
Reserve
------------------------------ ---------------- ------------- -------------
Scotch malts 7 12 12
------------------------------ ------------ --------- ---------
Cîroc vodka (8) (8) (5)
------------------------------ ------------ --------- ---------
Ketel One(iv) 9 10 15
------------------------------ ------------ --------- ---------
Don Julio 15 26 30
------------------------------ ------------ --------- ---------
Bulleit 9 7 12
------------------------------ ------------ --------- ---------
(i) Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement except for Johnnie
Walker 3%.
(iii) Organic growth figures represent total Chinese white
spirits of which Shui Jing Fang is the principal brand. Organic
growth adjusted to remove bulk sales reported in the comparable
period last year. Reported volume was up 17%.
(iv) Ketel One includes Ketel One vodka and Ketel One
Botanical.
-- Global giants represent 41% of Diageo's net sales and grew
5%. Growth was broad based across all brands with the exception of
Captain Morgan. Captain Morgan was down 2%, driven by a 5% decline
in US Spirits in a category that is also in decline.
-- Local stars represent 20% of Diageo's net sales and grew 6%,
largely driven by strong growth of Chinese white spirits, Crown
Royal in US Spirits, McDowell's No. 1 in India, Buchanan's in Latin
America and Caribbean and Black & White in Asia Pacific. This
was partially offset by declines of Windsor in Korea and J B in
Iberia.
-- Reserve brands represent 19% of Diageo's net sales and grew
11% largely driven by double digit growth of Don Julio in US
Spirits and Mexico, Chinese white spirits and Casamigos in US
Spirits partially offset by declines in Cîroc. Net sales of Johnnie
Walker reserve variants were up 7%.
ADDITIONAL FINANCIAL INFORMATION
Year ended 30 June 2019
SUMMARY INCOME STATEMENT
Acquisitions
Exchange and disposals Organic Reclassifi-
2018 (a) (b) movement(i) cation(ii) 2019
GBP million GBP million GBP million GBP million GBP million GBP million
------------------------ ----------- ------------- ---------------- -------------- ------------- -------------
Sales 18,432 (234) (61) 1,157 - 19,294
======================== ========== ========= =========== ========== ========= ==========
Excise duties (6,269) 258 4 (420) - (6,427)
------------------------ ---------- --------- ----------- --- ---------- --------- ----------
Net sales 12,163 24 (57) 737 - 12,867
======================== ========== ========= =========== ========== ========= ==========
Cost of sales (4,634) (9) 9 (232) - (4,866)
------------------------ ---------- --------- ----------- --- ---------- --------- ----------
Gross profit 7,529 15 (48) 505 - 8,001
======================== ========== ========= =========== ========== ========= ==========
Marketing (1,882) (5) (1) (144) (10) (2,042)
======================== ========== ========= =========== ========== ========= ==========
Other operating
expenses (1,828) 15 (15) (25) 10 (1,843)
------------------------ ---------- --------- ----------- ---------- --------- ----------
Operating profit before
exceptional items 3,819 25 (64) 336 - 4,116
------------------------ ---------- ========= =========== ========== --------- ----------
Exceptional operating
items (c) (128) (74)
------------------------ ---------- ----------
Operating profit 3,691 4,042
======================== ========== ==========
Non-operating items
(c) - 144
======================== ========== ==========
Net finance charges (260) (263)
======================== ========== ==========
Share of after tax
results
of associates and
joint
ventures 309 312
------------------------ ---------- ----------
Profit before taxation 3,740 4,235
======================== ========== ==========
Taxation (d) (596) (898)
------------------------ ---------- ----------
Profit for the year 3,144 3,337
------------------------ ---------- ----------
(i) For the definition of organic movement see Explanatory notes.
(ii) For the year ended 30 June 2018 marketing costs of GBP10
million in South Africa have been reclassified from overheads to
marketing.
(a) Exchange
The impact of movements in exchange rates on reported figures
for net sales and operating profit is principally in respect of the
weakening of sterling against the US dollar, the euro and the
Kenyan shilling, partially offset by strengthening of sterling
against the Turkish lira, the Indian rupee and the Australian
dollar.
The effect of movements in exchange rates and other movements on
profit before exceptional items and taxation for the year ended 30
June 2019 is set out in the table below.
Gains/(losses)
GBP million
---------------------------------------------- ----------------
Translation impact 15
---------------------------------------------- ----------------
Transaction impact 10
---------------------------------------------- ----------------
Operating profit before exceptional items 25
---------------------------------------------- ----------------
Net finance charges (9)
---------------------------------------------- ----------------
Associates - translation impact -
---------------------------------------------- --------------
Profit before exceptional items and taxation 16
---------------------------------------------- ----------------
Year ended Year ended
30 June 30 June
2019 2018
---------------------- ---------- ------------
Exchange rates
---------------------- ---------- ------------
Translation GBP1 = $1.29 $1.35
---------------------- ---------- ----------
Transaction GBP1 = $1.33 $1.36
---------------------- ---------- ----------
Translation GBP1 = EUR1.13 EUR1.13
---------------------- ---------- ----------
Transaction GBP1 = EUR1.13 EUR1.16
---------------------- ---------- ----------
(b) Acquisitions and disposals
The acquisitions and disposals movement was mainly attributable
to the disposal of a portfolio of 19 brands (see the list of brands
disposed of in Explanatory notes, Other definitions) to Sazerac
completed on 20 December 2018 and to the prior year acquisition of
the Casamigos brand.
See note 11 and note 12 for further details.
(c) Exceptional items
Exceptional operating charges in the year ended 30 June 2019
were GBP74 million before tax (2018 - GBP128 million).
On 26 October 2018, the High Court of Justice of England and
Wales issued a judgment in a claim between Lloyds Banking Group
Pension Trustees Limited (the claimant) and Lloyds Bank plc
(defendant) that UK pension schemes should equalise pension
benefits for men and women for the calculation of their guaranteed
minimum pension liability. The judgment concluded that the claimant
has a duty to amend their pension schemes to equalise benefits and
provided comments on the method to be adopted to equalise the
benefits. This court ruling impacts the majority of companies with
a UK defined benefit pension plan that was in existence prior to
1997. For the Diageo Pension Scheme (DPS) an estimate was made of
the impact of equalisation which increased the liabilities of the
DPS by GBP21 million with a corresponding charge to exceptional
operating items. Additional work will be carried out to finalise
the charge in the year ending 30 June 2020.
Following recent assessments of competitors' indirect tax in
respect of certain channel accounts and a recent regulatory change
in Korea, Diageo has made a provision, in the year ended 30 June
2019, of GBP35 million in respect of prior years.
In July 2019 Diageo reached agreement with the French tax
authorities resulting in penalty charges of GBP18 million (see
Taxation below).
In the year ended 30 June 2018, there was an impairment charge
of GBP128 million in respect of the Meta brand, Ethiopian tangible
fixed assets, associated spare parts reported in inventory and
goodwill allocated to the Africa Regional Markets cash-generating
unit.
Non-operating exceptional items in the year ended 30 June 2019
were GBP144 million income before tax (2018 - GBPnil).
Diageo completed the sale of a portfolio of 19 brands to Sazerac
on 20 December 2018 for an aggregate consideration of $550 million
(GBP435 million) resulting in a profit before taxation of $198
million (GBP155 million).
The disposal of United National Breweries (UNB), Diageo's wholly
owned sorghum business in South Africa, was agreed in December 2018
and is subject to regulatory approvals. The prospective sale has
resulted in an exceptional loss of approximately ZAR 156 million
(GBP9 million).
The disposal of the Indian wine business resulted in a loss of
GBP2 million.
See Explanatory notes, (c) Exceptional items for the definition
of exceptional items.
(d) Taxation
The reported tax rate for the year ended 30 June 2019 was 21.2%
compared with 15.9% for the year ended 30 June 2018. Included in
the tax charge of GBP898 million for the year ended 30 June 2019 is
a net exceptional tax charge of GBP39 million.
As disclosed in the interim announcement for the six month ended
31 December 2018, Diageo has been in discussions with the French
tax authorities over the deductibility of certain interest costs,
and assessments had been issued denying tax relief for interest
costs incurred in the periods ended 30 June 2011 to 30 June 2017
with a maximum potential liability of EUR241 million (GBP213
million). In July 2019 Diageo reached a resolution on the treatment
of interest costs for all open periods which resulted in a total
exceptional charge of EUR100 million (GBP88 million), comprising a
tax charge of EUR69 million (GBP61 million), penalties of EUR21
million (GBP18 million) and interest of EUR10 million (GBP9
million). This brings to a close all open issues with the French
tax authorities for periods up to and including 30 June 2017.
During the year ended 30 June 2019 the Dutch Senate agreed to a
phased reduction in the Dutch corporate tax rate which is effective
from 1 January 2020. An exceptional tax credit of GBP51 million
principally arose from remeasuring the deferred tax liabilities in
respect of the Ketel One vodka distribution rights from 25% to
20.5%.
In addition, in the year ended 30 June 2019 there was a GBP33
million exceptional charge in respect of the disposal of a
portfolio of 19 brands to Sazerac and an exceptional tax credit of
GBP4 million in respect of the equalisation of liabilities for
males and females in the Diageo Pension Scheme.
For the year ended 30 June 2018 there was an exceptional tax
credit of GBP203 million comprising the favourable impact of
applying the Tax Cuts and Jobs Act, enacted on 22 December 2017, in
the United States of GBP354 million, which was partially offset by
the additional exceptional tax charge in respect of the transfer
pricing agreement in the United Kingdom of GBP143 million and other
net exceptional charges of GBP8 million.
The tax rate before exceptional items for the year ended 30 June
2019 was 20.6% compared with 20.7% in the prior year. The year
ended 30 June 2019 benefitted from one-off items which are not
expected to repeat. This combined with our changing business mix is
expected to result in a tax rate before exceptional items for the
year ending 30 June 2020 to be in the range of 21% to 22%.
(e) Dividend
The group aims to increase the dividend each year and the
decision in respect of the dividend is made with reference to
dividend cover as well as current performance trends including
sales and profit after tax together with cash generation. Diageo
targets dividend cover (the ratio of basic earnings per share
before exceptional items to dividend per share) within the range of
1.8-2.2 times. For the year ended 30 June 2019 dividend cover is
1.9 times. The recommended final dividend for the year ended 30
June 2019 is 42.47 pence, an increase of 5% consistent with the
interim dividend increase. This brings the full year dividend to
68.57 pence per share. It is expected that a mid-single digit
increase in the dividend will be maintained until the cover is
operating comfortably in the policy range.
Subject to approval by shareholders, the final dividend will be
paid to holders of ordinary shares and US ADRs on the register as
of 9 August 2019. The ex-dividend date both for the holders of the
ordinary shares and for US ADR holders is 8 August 2019. The final
dividend will be paid to shareholders on 3 October 2019. Payment to
US ADR holders will be made on 8 October 2019. A dividend
reinvestment plan is available to holders of ordinary shares in
respect of the final dividend and the plan notice date is 12
September 2019.
(f) Share buyback
On 26 July 2018, a share buyback programme was approved to
return up to GBP2.0 billion to shareholders during the year ending
30 June 2019. On 20 December 2018 Diageo completed the sale of a
portfolio of 19 brands to Sazerac. The net proceeds of
approximately GBP340 million, after corporate tax and transaction
costs, were returned to shareholders through an increase to the
share buyback programme. On 30 January 2019 the Board approved an
incremental share buyback programme of GBP660 million, bringing the
total programme up to GBP3.0 billion for the year ending 30 June
2019.
In the year ended 30 June 2019, 94.7 million shares were
repurchased for an aggregate consideration of GBP2.8 billion. After
the year end a further 0.3 million shares were purchased for an
aggregate consideration of GBP26 million, including settlement
payments for the full tranche, which were recognised as a financial
liability at 30 June 2019. The shares purchased under the share
buyback programmes were cancelled.
On 25 July 2019, the Board approved plans for a further return
of capital up to GBP4.5 billion to shareholders for the period F20
to F22.
MOVEMENT IN NET BORROWINGS AND EQUITY
Movement in net borrowings
2019 2018
GBP million GBP million
------------------------------------------------------ ----------- -------------
Net borrowings at the beginning of the year (9,091) (7,892)
------------------------------------------------------ ---------- ----------
Free cash flow (a) 2,608 2,523
------------------------------------------------------ ---------- ----------
Acquisitions (b) (56) (594)
------------------------------------------------------ ---------- ----------
Sale of businesses and brands (c) 426 4
------------------------------------------------------ ---------- ----------
Share buyback programme (2,775) (1,507)
------------------------------------------------------ ---------- ----------
Proceeds from issue of share capital 1 1
------------------------------------------------------ ---------- ----------
Net sale/(purchase) of own shares for share schemes
(d) 50 8
------------------------------------------------------ ---------- ----------
Dividends paid to non-controlling interests (112) (80)
------------------------------------------------------ ---------- ----------
Rights issue proceeds from non-controlling interests
of subsidiary company - 26
------------------------------------------------------ ---------- ----------
Net movements in bonds (e) 1,598 1,041
------------------------------------------------------ ---------- ----------
Purchase of shares of non-controlling interests (f) (784) -
------------------------------------------------------ ---------- ----------
Net movements in other borrowings (g) 721 (26)
------------------------------------------------------ ---------- ----------
Equity dividends paid (1,623) (1,581)
------------------------------------------------------ ---------- ----------
Net increase/(decrease) in cash and cash equivalents 54 (185)
------------------------------------------------------ ---------- ----------
Net increase in bonds and other borrowings (2,331) (1,015)
------------------------------------------------------ ---------- ----------
Exchange differences (h) (22) 80
------------------------------------------------------ ---------- ----------
Other non-cash items 113 (79)
------------------------------------------------------ ---------- ----------
Net borrowings at the end of the year (11,277) (9,091)
------------------------------------------------------ ---------- ----------
(a) See Key financial information, Free cash flow for the
analysis of free cash flow.
(b) In the year ended 30 June 2019 Diageo has made a number of
small acquisitions of brands, distribution rights and equity
interests in various drinks businesses.
In the year ended 30 June 2018 acquisitions included $706
million (GBP549 million) in respect of the completion of the
acquisition of Casamigos. See note 11 for further details.
(c) In the year ended 30 June 2019, sale of businesses and
brands represents the cash received on the disposal of a portfolio
of 19 brands sold to Sazerac net of transaction costs.
(d) Net sale/purchase of own shares comprised purchase of
treasury shares for the future settlement of obligations under the
employee share option schemes of GBP16 million (2018 - GBP68
million) less receipts from employees on the exercise of share
options of GBP66 million (2018 - GBP76 million).
(e) In the year ended 30 June 2019, the group issued bonds of
EUR2,600 million (GBP2,270 million) and GBP496 million (including
GBP4 million discount and fee) and repaid bonds of EUR1,350 million
(GBP1,168 million). In the comparable period the group issued bonds
of EUR1,275 million (GBP1,136 million) and $2,000 million (GBP1,476
million) and repaid bonds of $2,100 million (GBP1,571 million).
(f) In the year ended 30 June 2019 purchase of shares of
non-controlling interests comprised RMB 6,774 million (GBP775
million) and transaction costs of GBP9 million in respect of the
acquisition of 23.43% of the share capital of Sichuan Shuijingfang
Company Limited (SJF) in two separate transactions. This took
Diageo's shareholding in SJF from 39.71% to 63.14%. SJF is a
manufacturer and distributor of Chinese white spirits located in
Sichuan province in China and was controlled and therefore
consolidated prior to the transactions in the year.
(g) In the year ended 30 June 2019 the net movement in other
borrowings principally arose from the issue of commercial
paper.
(h) The exchange arising on net borrowings of GBP22 million is
primarily driven by unfavourable exchange movements on US dollar
and euro denominated borrowings partially offset by a favourable
movement on foreign exchange swaps and forwards.
Movement in equity
2019 2018
GBP million GBP million
-------------------------------------------------------- ----------- -------------
Equity at the beginning of the year 11,713 12,028
-------------------------------------------------------- ---------- ----------
Profit for the year 3,337 3,144
-------------------------------------------------------- ---------- ----------
Exchange adjustments (a) 255 (609)
-------------------------------------------------------- ---------- ----------
Remeasurement of post employment plans net of taxation 36 368
-------------------------------------------------------- ---------- ----------
Purchase of shares of non-controlling interests (b) (784) -
-------------------------------------------------------- ---------- ----------
Rights issue proceeds from non-controlling interests
of subsidiary company (c) - 26
-------------------------------------------------------- ---------- ----------
Dividends to non-controlling interests (114) (101)
-------------------------------------------------------- ---------- ----------
Equity dividends paid (1,623) (1,581)
-------------------------------------------------------- ---------- ----------
Share buyback programme (2,801) (1,507)
-------------------------------------------------------- ---------- ----------
Other reserve movements 137 (55)
-------------------------------------------------------- ---------- ----------
Equity at the end of the year 10,156 11,713
-------------------------------------------------------- ---------- ----------
(a) Exchange movement in the year ended 30 June 2019 primarily
arose from exchange gains in respect of the US dollar and the
Indian rupee partially offset by exchange losses on the Turkish
lira.
(b) In the year ended 30 June 2019 Diageo acquired an additional
23.43% of the share capital of SJF which was already controlled and
therefore consolidated prior to the transaction. This took Diageo's
shareholding in SJF from 39.71% to 63.14%.
(c) In the year ended 30 June 2018 a rights issue was completed
by Guinness Nigeria (GN) where Diageo's controlling equity share in
GN increased from 54.32% to 58.02%. The transaction resulted in a
credit of GBP31 million to non-controlling interests and a charge
of GBP5 million to reserves.
Post employment plans
The net surplus of the group's post employment benefit plans
increased by GBP151 million from GBP63 million at 30 June 2018 to
GBP214 million at 30 June 2019. The increase primarily arose due to
an increase in the market value of the assets held by the post
employment schemes and the cash contributions paid into the post
employment plans being in excess of the impact of the changes in
financial assumptions and income statement charge.
The operating profit charge before exceptional items decreased
by GBP34 million from GBP84 million for the year ended 30 June 2018
to GBP50 million for the year ended 30 June 2019 primarily due to
changes made to future pension increases for members of the UK
scheme (including a Pension Increase Exchange (PIE) option offered
to current pensioners) and changes to the principal Irish scheme
which resulted in an aggregate past service credit of GBP54 million
(2018 - GBP21 million in respect of changes to future pension
increases in the principal Irish scheme).
Total cash contributions by the group to all post employment
plans in the year ending 30 June 2020 are estimated to be
approximately GBP170 million.
DIAGEO CONDENSED CONSOLIDATED INCOME STATEMENT
Year ended Year ended
30 June 2019 30 June 2018
Notes GBP million GBP million
Sales 2 19,294 18,432
Excise duties (6,427) (6,269)
------------ ------------
Net sales 2 12,867 12,163
Cost of sales (4,866) (4,634)
------------ ------------
Gross profit 8,001 7,529
Marketing (2,042) (1,882)
Other operating expenses (1,917) (1,956)
------------ ------------
Operating profit 2 4,042 3,691
Non-operating items 3 144 -
Finance income 4 442 243
Finance charges 4 (705) (503)
Share of after tax results of associates
and joint ventures 312 309
------------ ------------
Profit before taxation 4,235 3,740
Taxation 5 (898) (596)
------------ ------------
Profit for the year 3,337 3,144
============ ============
Attributable to:
Equity shareholders of the parent company 3,160 3,022
Non-controlling interests 177 122
------------ ------------
3,337 3,144
============ ============
Weighted average number of shares million million
Shares in issue excluding own shares 2,418 2,484
Dilutive potential ordinary shares 10 11
------------ ------------
2,428 2,495
============ ============
pence pence
Basic earnings per share 130.7 121.7
============ ============
Diluted earnings per share 130.1 121.1
============ ============
DIAGEO CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
Year ended Year ended
30 June 30 June
2019 2018
GBP million GBP million
Other comprehensive income
Items that will not be recycled subsequently to
the income statement
Net remeasurement of post employment plans
- group 33 456
- associates and joint ventures 2 2
- non-controlling interests - 1
Tax on post employment plans 1 (91)
---------- ----------
36 368
Items that may be recycled subsequently to the
income statement
Exchange differences on translation of foreign
operations
- group 274 (631)
- associates and joint ventures 19 3
- non-controlling interests 55 (72)
Net investment hedges (93) 91
Tax on exchange differences - group (19) 7
Tax on exchange differences - non-controlling interests - 2
Effective portion of changes in fair value of cash
flow hedges
- hedge of foreign currency debt of the group 180 (64)
- transaction exposure hedging of the group (86) 22
- hedges by associates and joint ventures (6) (15)
- commodity price risk of the group (9) -
- recycled to income statement - hedge of foreign
currency debt of the group (82) 6
- recycled to income statement - transaction exposure
hedging of the group 45 (7)
Tax on effective portion of changes in fair value
of cash flow hedges (11) 14
Hyperinflation adjustment (22) 11
Tax on hyperinflation adjustment 6 (11)
---------- ----------
251 (644)
---------- ----------
Other comprehensive profit/(loss), net of tax, for
the year 287 (276)
Profit for the year 3,337 3,144
---------- ----------
Total comprehensive income for the year 3,624 2,868
========== ==========
Attributable to:
Equity shareholders of the parent company 3,392 2,815
Non-controlling interests 232 53
---------- ----------
Total comprehensive income for the year 3,624 2,868
========== ==========
DIAGEO CONDENSED CONSOLIDATED BALANCE SHEET
30 June 2019 30 June 2018
Notes GBP million GBP million GBP million GBP million
Non-current assets
Intangible assets 12,557 12,572
Property, plant and equipment 4,455 4,089
Biological assets 34 23
Investments in associates and joint
ventures 3,173 3,009
Other investments 49 46
Other receivables 53 46
Other financial assets 404 182
Deferred tax assets 138 122
Post employment benefit assets 1,060 935
---------- ----------
21,923 21,024
Current assets
Inventories 6 5,472 5,015
Trade and other receivables 2,694 2,678
Assets held for sale 65 24
Corporate tax receivables 83 65
Other financial assets 127 35
Cash and cash equivalents 7 932 874
---------- ----------
9,373 8,691
---------- ----------
Total assets 31,296 29,715
---------- ----------
Current liabilities
Borrowings and bank overdrafts 7 (1,959) (1,828)
Other financial liabilities (333) (230)
Trade and other payables (4,202) (3,950)
Liabilities held for sale (32) -
Corporate tax payables (378) (243)
Provisions (99) (109)
---------- ----------
(7,003) (6,360)
Non-current liabilities
Borrowings 7 (10,596) (8,074)
Other financial liabilities (124) (212)
Other payables (222) (209)
Provisions (317) (288)
Deferred tax liabilities (2,032) (1,987)
Post employment benefit liabilities (846) (872)
---------- ----------
(14,137) (11,642)
---------- ----------
Total liabilities (21,140) (18,002)
----------
Net assets 10,156 11,713
========== ==========
Equity
Share capital 753 780
Share premium 1,350 1,349
Other reserves 2,372 2,133
Retained earnings 3,886 5,686
---------- ----------
Equity attributable to equity
shareholders of the parent company 8,361 9,948
Non-controlling interests 1,795 1,765
----------
Total equity 10,156 11,713
========== ==========
DIAGEO CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Retained earnings/(deficit)
Equity
attributable
Other to parent
Share Share Other Own retained company Non-controlling Total
capital premium reserves shares earnings Total shareholders interests equity
GBP GBP GBP GBP GBP GBP GBP million GBP GBP
million million million million million million million million
At 30 June 2017 797 1,348 2,693 (2,176) 7,651 5,475 10,313 1,715 12,028
Adoption of IFRS
15 - - - - (89) (89) (89) (2) (91)
Adoption of IFRS
9
by associate - - (3) - 3 3 - - -
Profit for the
year - - - - 3,022 3,022 3,022 122 3,144
Other
comprehensive
(loss)/income - - (574) - 367 367 (207) (69) (276)
Employee share
schemes - - - 32 (7) 25 25 - 25
Share-based
incentive
plans - - - - 39 39 39 - 39
Share-based
incentive
plans in
respect of
associates - - - - 4 4 4 - 4
Tax on
share-based
incentive plans - - - - (2) (2) (2) - (2)
Shares issued - 1 - - - - 1 - 1
Disposal of
non-controlling
interests - - - - - - - (1) (1)
Purchase of
non-controlling
interests - - - - (72) (72) (72) 70 (2)
Purchase of
rights
issue of
non-controlling
interests - - - - (5) (5) (5) 31 26
Change in fair
value
of put option - - - - 7 7 7 - 7
Share buyback
programme (17) - 17 - (1,507) (1,507) (1,507) - (1,507)
Dividends paid - - - - (1,581) (1,581) (1,581) (101) (1,682)
----- ------- ---------
At 30 June 2018 780 1,349 2,133 (2,144) 7,830 5,686 9,948 1,765 11,713
Profit for the
year - - - - 3,160 3,160 3,160 177 3,337
Other
comprehensive
income - - 212 - 20 20 232 55 287
Employee share
schemes - - - 118 (49) 69 69 - 69
Share-based
incentive
plans - - - - 49 49 49 - 49
Share-based
incentive
plans in
respect of
associates - - - - 3 3 3 - 3
Tax on
share-based
incentive plans - - - - 20 20 20 - 20
Shares issued - 1 - - - - 1 - 1
Purchase of
non-controlling
interests - - - - (694) (694) (694) (90) (784)
Non-controlling
interest
in respect of
new subsidiary - - - - - - - 2 2
Change in fair
value
of put option - - - - (3) (3) (3) - (3)
Share buyback
programme (27) - 27 - (2,801) (2,801) (2,801) - (2,801)
Dividends
declared - - - - (1,623) (1,623) (1,623) (114) (1,737)
---------
At 30 June 2019 753 1,350 2,372 (2,026) 5,912 3,886 8,361 1,795 10,156
===== ======= ======= ====== ======= ====== ========= === =========== ==== ======
DIAGEO CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
30 June 2019 30 June 2018
GBP million GBP million GBP million GBP million
Cash flows from operating activities
Profit for the year 3,337 3,144
Taxation 898 596
Share of after tax results of associates
and joint ventures (312) (309)
Net finance charges 263 260
Non-operating items (144) -
----------
Operating profit 4,042 3,691
Increase in inventories (434) (271)
Decrease/(increase) in trade and other receivables 11 (202)
Increase in trade and other payables and
provisions 201 314
---------- ----------
Net increase in working capital (222) (159)
Depreciation, amortisation and impairment 374 493
Dividends received 168 159
Post employment payments less amounts included
in operating profit (121) (108)
Other items 64 10
----------
485 554
---------- ----------
Cash generated from operations 4,305 4,086
Interest received 216 167
Interest paid (468) (418)
Taxation paid (805) (751)
---------- ----------
(1,057) (1,002)
---------- ----------
Net cash inflow from operating activities 3,248 3,084
Cash flows from investing activities
Disposal of property, plant and equipment
and computer software 32 40
Purchase of property, plant and equipment
and computer software (671) (584)
Movements in loans and other investments (1) (17)
Sale of businesses and brands 426 4
Acquisition of businesses (56) (594)
---------- ----------
Net cash outflow from investing activities (270) (1,151)
Cash flows from financing activities
Share buyback programme (2,775) (1,507)
Proceeds from issue of share capital 1 1
Net sale of own shares for share schemes 50 8
Dividends paid to non-controlling interests (112) (80)
Rights issue proceeds from non-controlling
interests - 26
Proceeds from bonds 2,766 2,612
Repayment of bonds (1,168) (1,571)
Purchase of shares of non-controlling interests (784) -
Net movements in other borrowings 721 (26)
Equity dividends paid (1,623) (1,581)
---------- ----------
Net cash outflow from financing activities (2,924) (2,118)
---------- ----------
Net increase/(decrease) in net cash and cash
equivalents 54 (185)
Exchange differences (26) (39)
Net cash and cash equivalents at beginning
of the year 693 917
---------- ----------
Net cash and cash equivalents at end of the
year 721 693
========== ==========
Net cash and cash equivalents consist of:
Cash and cash equivalents 932 874
Bank overdrafts (211) (181)
---------- ----------
721 693
========== ==========
NOTES
1. Basis of preparation
This condensed set of financial statements has been prepared in
accordance with International Financial Reporting Standards (IFRSs)
as issued by the International Accounting Standards Board (IASB)
and as adopted by the EU. International Financial Reporting
Standards (IFRSs) as adopted by the EU differs in certain respects
from IFRS as issued by the IASB. The differences have no impact on
the group's condensed consolidated financial statements for the
years presented.
The annual financial statements of the group are prepared in
accordance with IFRS as issued by the IASB and as adopted by the
EU. As required by the Disclosure Guidance and Transparency Rules
of the Financial Conduct Authority, the condensed set of financial
statements has been prepared applying the accounting policies and
presentation that were applied in the preparation of the company's
published consolidated financial statements for the year ended 30
June 2018 except for the impact of the adoption of new accounting
standards and amendments explained below. IFRS is subject to
ongoing review and endorsement by the EU or possible amendment by
interpretative guidance and the issuance of new standards by the
IASB. In preparing these condensed financial statements, the
significant judgements made by management when applying the group's
accounting policies and the significant areas where estimates were
required were the same as those that applied to the consolidated
financial statements for the year ended 30 June 2018, with the
exception of changes in estimates disclosed in note 13 - Contingent
liabilities and legal proceedings.
Having reassessed the principal risks the directors considered
it appropriate to adopt the going concern basis of accounting in
preparing the condensed consolidated financial statements.
New accounting standards and interpretations
The following amendments to the accounting standards, issued by
the IASB or International Financial Reporting Interpretations
Committee (IFRIC) and endorsed by the EU, have been adopted by the
group from 1 July 2018 with no impact on the group's consolidated
results, financial position or disclosures:
-- Amendments to IAS 40 - Transfers of investment property
-- Amendments to IFRS 2 - Classification and measurement of share-based payment transactions
-- Amendments to IFRS 4 - Applying IFRS 9 with IFRS 4 insurance contracts
-- Improvements to IFRS 1 - First-time adoption of International
Financial Reporting Standards: Deletion of short-term exemptions
for first-time adopters
-- Improvements to IAS 28 - Investments in associates and joint
ventures: Measuring investees at fair value through profit or loss:
an investment-by-investment choice or a consistent policy
choice
-- IFRIC 23 - Uncertainty over income tax treatments
IFRS 15 - Revenue from contracts with customers. The group
implemented IFRS 15 from 1 July 2017. IFRS 15 provides enhanced
detail on the principle of recognising revenue to reflect the
concept that revenue should be recognised when the control of goods
or services is transferred to the customer at a value that the
company is expected to receive. It replaces the separate models for
goods, services and construction contracts under previous IFRS (IAS
11, IAS 18 and related interpretations) which was based on the
concept of the transfer of risks and rewards. It also provides
further guidance on the initial measurement of sales on contracts
which have discounts, rebates and consignment inventories by
identifying separate performance obligations that may apply.
The following standard issued by the IASB and endorsed by the
EU, has not yet been adopted by the group:
IFRS 16 - Leases (effective in the year ending 30 June 2020)
sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both the lessee and the
lessor. It eliminates the classification of leases as either
operating leases or finance leases currently required under IAS 17
and introduces a single lessee accounting model where the lessee is
required to recognise assets and liabilities for all leases. All
leases will be recognised on the balance sheet as right of use
assets and depreciated on a straight-line basis. The liability,
recognised as part of net borrowings, will be measured at a
discounted value and any interest will be charged to finance
charges in the income statement. Therefore, the charge to the
income statement for the operating lease payment will be replaced
with depreciation on the right of use asset and the interest charge
inherent in the lease.
The group will implement IFRS 16 from 1 July 2019 by applying
the modified retrospective method, meaning that the figures for the
year ended 30 June 2019 and 30 June 2018 in the financial
statements for the year ending 30 June 2020 will not be restated to
reflect the impact of IFRS 16. The operating leases which will be
recorded on the balance sheet following implementation of IFRS 16
are principally in respect of warehouses, office buildings, plant
and machinery, cars and distribution vehicles. The group has
decided to reduce the complexity of implementation to take
advantage of a number of practical expedients on transition on 1
July 2019 namely:
(i) to measure the right of use asset at the same value as the
lease liability
(ii) to apply the short-term and low value exemptions
(iii) to account for, wherever possible, services provided
associated with a lease as an income statement item and only
capitalise in the right of use asset the lease costs that are in
respect of the asset.
The group has designed a new lease accounting process and has
implemented a new lease accounting software solution to run the
IFRS 16 lease calculations and provide monthly IFRS 16 lease
accounting journals. Based on the information currently available,
the group estimates that under IFRS 16, as at 1 July 2019 it will
recognise additional lease liabilities of approximately GBP0.3
billion and right of use assets of a similar amount. IFRS 16 will
have no impact on the group's net cash flows but the lease capital
repayment outflows will be disclosed as financing cash outflow,
instead of operating cash outflow. There will be an immaterial
benefit to operating profit and an immaterial increase in finance
charges. Profit before tax and earnings per share will not be
significantly impacted.
The following standard, issued by the IASB has not been endorsed
by the EU and has not been adopted by the group:
IFRS 17 - Insurance contracts (effective in the year ending 30
June 2022) is ultimately intended to replace IFRS 4. Based on a
preliminary assessment the group believes that the adoption of IFRS
17 will not have a significant impact on its consolidated results
or financial position.
There are a number of other amendments and clarifications to
IFRS, effective in future years, which are not expected to
significantly impact the group's consolidated results or financial
position.
The comparative figures for the financial year ended 30 June
2018 are not the company's statutory accounts for that financial
year. Those accounts have been reported on by the company's
auditor, PricewaterhouseCoopers LLP, and delivered to the Registrar
of Companies. The report of the auditor (i) was unqualified, (ii)
did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under section 498 (2) or (3)
of the Companies Act 2006.
2. Segmental information
The segmental information presented is consistent with
management reporting provided to the Executive Committee (the chief
operating decision maker).
The Executive Committee considers the business principally from
a geographical perspective based on the location of third party
sales and the business analysis is presented by geographical
segment. In addition to these geographical selling segments, a
further segment reviewed by the Executive Committee is the
International Supply Centre (ISC), which manufactures products for
other group companies and includes the production sites in the
United Kingdom, Ireland, Italy, Guatemala and Mexico.
Continuing operations also include the Corporate function.
Corporate revenues and costs are in respect of central costs,
including finance, marketing, corporate relations, human resources
and legal, as well as certain information systems, facilities and
employee costs that are not allocable to the geographical segments
or to the ISC. They also include rents receivable and payable in
respect of properties not used by the group in the manufacture,
sale or distribution of premium drinks.
Diageo uses shared services operations to deliver transaction
processing activities for markets and operational entities. These
centres are located in Hungary, Kenya, Colombia, the Philippines
and India. The captive business service centre in Budapest also
performs certain central finance activities, including elements of
financial planning and reporting and treasury. The results of
shared services operations are recharged to the regions.
The segmental information for net sales and operating profit
before exceptional items is reported at budgeted exchange rates in
line with management reporting. For management reporting purposes
the group 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 the group's reported results are shown in the tables below. The
comparative segmental information, prior to retranslation, has not
been restated at the current year's budgeted exchange rates but is
presented at the budgeted rates for the year ended 30 June
2018.
In addition, for management reporting purposes Diageo presents
separately the result of acquisitions and disposals completed in
the current and prior year from the results of the geographical
segments. The impact of acquisitions and disposals on net sales and
operating profit is disclosed under the appropriate geographical
segments in the tables below at budgeted exchange rates.
Latin Eliminate
Europe America inter- Total Corporate
North and and Asia segment operating and
Year ended America Turkey Africa Caribbean Pacific ISC sales segments other Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP
30 June 2019 million million million million million million million million GBP million million
Sales 5,074 5,132 2,235 1,444 5,356 1,739 (1,739) 19,241 53 19,294
======= ====== ======= ========= ====== ====== ======= ======= ====== === ======
Net sales
At budgeted
exchange
rates(i) 4,034 2,951 1,529 1,095 2,656 1,843 (1,738) 12,370 54 12,424
Acquisitions
and disposals 88 1 1 1 1 - - 92 - 92
ISC allocation 11 63 5 15 11 (105) - - - -
Retranslation
to actual
exchange
rates 327 (76) 62 19 20 1 (1) 352 (1) 351
------- ------ ------- --------- ------ ------ ------- ------- ------ ------
Net sales 4,460 2,939 1,597 1,130 2,688 1,739 (1,739) 12,814 53 12,867
======= ====== ======= ========= ====== ====== ======= ======= ====== === ======
Operating
profit/(loss)
At budgeted
exchange
rates(i) 1,755 972 257 312 671 139 - 4,106 (186) 3,920
Acquisitions
and disposals 29 (1) - - - - - 28 - 28
ISC allocation 13 72 6 32 16 (139) - - - -
Retranslation
to actual
exchange
rates 151 (29) 12 21 16 - - 171 (3) 168
------- ------ ------- --------- ------ ------- ------- ------ ------
Operating
profit/(loss)
before
exceptional
items 1,948 1,014 275 365 703 - - 4,305 (189) 4,116
Exceptional
items - (18) - - (35) - - (53) (21) (74)
------ ------- --------- ------ ------ ------- ------- ------ ------
Operating
profit/(loss) 1,948 996 275 365 668 - - 4,252 (210) 4,042
======= ====== ======= ========= ====== ====== ======= ======= ======
Non-operating
items 144
Net finance
charges (263)
Share of after
tax
results of
associates
and joint
ventures 312
------
Profit before
taxation 4,235
======
Latin Eliminate
Europe America inter- Total Corporate
North and and Asia segment operating and
Year ended America Turkey Africa Caribbean Pacific ISC sales segments other Total
GBP GBP GBP GBP GBP GBP GBP GBP
30 June 2018 million million million GBP million million million million million GBP million million
Sales 4,671 5,232 2,083 1,352 5,042 1,457 (1,457) 18,380 52 18,432
====== ======= ====== ====== === ====== ====== ======= ======= ===== ==== ======
Net sales
At budgeted
exchange
rates(i) 4,138 2,821 1,467 1,064 2,555 1,512 (1,425) 12,132 48 12,180
Acquisitions
and disposals 50 - - - - - - 50 - 50
ISC allocation 11 53 4 11 8 (87) - - - -
Retranslation
to actual
exchange
rates (83) 58 20 (6) (60) 32 (32) (71) 4 (67)
------ ------- ------ ------ ------ ------ ------- ------- ----- ---- ------
Net sales 4,116 2,932 1,491 1,069 2,503 1,457 (1,457) 12,111 52 12,163
====== ======= ====== ====== === ====== ====== ======= ======= ===== ==== ======
Operating
profit/(loss)
At budgeted
exchange
rates(i) 1,925 941 180 298 588 112 - 4,044 (160) 3,884
Acquisitions
and disposals 4 - - - - - - 4 - 4
ISC allocation 14 67 5 14 12 (112) - - - -
Retranslation
to actual
exchange
rates (61) 20 6 (4) (32) - - (71) 2 (69)
------ ------- ------ ------ ------ ------- ------- ----- ---- ------
Operating
profit/(loss)
before
exceptional
items 1,882 1,028 191 308 568 - - 3,977 (158) 3,819
Exceptional
items - - (128) - - - - (128) - (128)
------ ------- ------ ------ --- ------ ------ ------- ------- ----- ---- ------
Operating
profit/(loss) 1,882 1,028 63 308 568 - - 3,849 (158) 3,691
====== ======= ====== ====== === ====== ====== ======= ======= ===== ===
Non-operating
items -
Net finance
charges (260)
Share of after
tax
results of
associates
and joint
ventures 309
------
Profit before
taxation 3,740
======
(i) These items represent the IFRS 8 performance measures for
the geographical and ISC segments.
(1) The net sales figures for ISC reported to the Executive
Committee primarily comprise inter-segmental sales and these are
eliminated in a separate column in the above segmental analysis.
Apart from sales by the ISC segment to the other operating
segments, inter-segmental sales are not material.
(2) The group's net finance charges are managed centrally and
are not attributable to individual operating segments.
(3) 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 - GBP1 = $1.29 (2018 - GBP1 =
$1.35) and euro - GBP1 = EUR1.13 (2018 - GBP1 = EUR1.13). Exchange
rates used to translate assets and liabilities at the balance sheet
date were US dollar - GBP1 = $1.27 (30 June 2018 - GBP1 = $1.32)
and euro - GBP1 = EUR1.12 (30 June 2018 - GBP1 = EUR1.13). The
group uses foreign exchange transaction hedges to mitigate the
effect of exchange rate movements.
3. Exceptional items
Exceptional items are those that in management's judgement need
to be disclosed separately by virtue of their size and/or nature in
order for the user to obtain a proper understanding of the
financial information. See Explanatory Notes, (c) Exceptional items
for the definition of exceptional items and the criteria used to
determine whether an exceptional item is accounted for as operating
or non-operating.
Year ended Year ended
30 June 30 June
2019 2018
GBP million GBP million
Items included in operating profit
Indirect tax in Korea (35) -
Guaranteed minimum pension equalisation (21) -
French tax audit penalty (18) -
Brand, goodwill, tangible and other assets impairment - (128)
--------- ---------
(74) (128)
Non-operating items
Sale of businesses
Portfolio of 19 brands 155 -
USL wine business (2) -
United National Breweries (9) -
--------- ---------
144 -
French tax audit interest (9) -
--------- ---------
Exceptional items before taxation 61 (128)
Items included in taxation
Tax on exceptional operating items 4 13
Tax on exceptional non-operating items (33) -
Exceptional taxation (10) 190
--------- ---------
(39) 203
Total exceptional items 22 75
========= =========
Attributable to:
Equity shareholders of the parent company (4) 75
Non-controlling interests 26 -
--------- ---------
Total exceptional items 22 75
========= =========
Exceptional items included in operating profit are charged to
other operating expenses.
4. Finance income and charges
Year ended Year ended
30 June 30 June
2019 2018
GBP million GBP million
Interest income 232 155
Fair value gain on financial instruments 155 61
--------- ---------
Total interest income 387 216
Interest charges (478) (395)
Fair value loss on financial instruments (157) (62)
--------- ---------
Total interest charges (635) (457)
--------- ---------
Net interest charges (248) (241)
========= =========
Net finance income in respect of post employment
plans in surplus 29 9
Hyperinflation adjustment in respect of Venezuela
(a) 10 18
Interest income in respect of direct and indirect
tax 16 -
--------- ---------
Total other finance income 55 27
Net finance charge in respect of post employment
plans in deficit (22) (20)
Unwinding of discounts (17) (14)
Interest charge in respect of direct and indirect
tax (11) (10)
Change in financial liability (Level 3) (8) -
Other finance charges (exceptional)* (9) -
Other finance charges (3) (2)
--------- ---------
Total other finance charges (70) (46)
--------- ---------
Net other finance charges (15) (19)
========= =========
* For more details please Additional financial information, (d)
Taxation.
(a) Hyperinflation adjustment in respect of Venezuela
Venezuela is a hyper-inflationary economy where the government
maintains a regime of strict currency controls with multiple
foreign currency rate systems. Access to US dollars on these
exchange systems is very limited. In March 2018 Venezuela's
President ordered a re-denomination of the ailing bolivar currency.
The "Bolívar Soberano" (Sovereign Bolivar) was introduced from 20
August 2018 when 100,000 "Bolívar Fuerte" (VEF) were redenominated
as one Sovereign Bolivar. The foreign currency denominated
transactions and balances of the group's Venezuelan operations are
translated into the local functional currency (VES) at the rate
they are expected to be settled, applying the most appropriate
official exchange rate. For consolidation purposes, the group
converts its Venezuelan operations using management's estimate of
the exchange rate considering the inflation forecast and the most
appropriate official exchange rate (DICOM). The exchange rate used
to translate the results of the group's Venezuelan operations was
VES/GBP 403,700 for the year ended 30 June 2019 (2018 - VEF/GBP
3,858,826 - VES/GBP 38.59).
The following table presents the contribution of the group's
Venezuelan operations to the consolidated income statement, cash
flow statement and net assets for the year ended 30 June 2019 and
30 June 2018 and with the amounts that would have resulted if the
DICOM exchange rate had been applied for consolidation.
Year ended 30 June 2019 Year ended 30 June 2018
At estimated At DICOM exchange At estimated At DICOM
exchange rate rate exchange rate exchange rate
403,700 VES/GBP 8,553 VES/GBP 3,858,826 VEF/GBP 151,800 VEF/GBP
GBP million GBP million GBP million GBP million
Net sales - 3 1 27
Operating profit - 2 - 16
Other finance income
- hyperinflation
adjustment 10 455 18 458
Net cash inflow
from operating activities - 5 1 12
Net assets 56 2,643 69 1,744
5. Taxation
For the year ended 30 June 2019, the GBP898 million taxation
charge (2018 - GBP596 million) comprises a UK tax charge of GBP179
million (2018 - GBP326 million) and a foreign tax charge of GBP719
million (2018 - GBP270 million).
6. Inventories
30 June 2019 30 June 2018
GBP million GBP million
Raw materials and consumables 338 321
Work in progress 46 44
Maturing inventories 4,334 4,028
Finished goods and goods for resale 754 622
------------ ------------
5,472 5,015
============ ============
7. Net borrowings
30 June 2019 30 June 2018
GBP million GBP million
Borrowings due within one year and bank overdrafts (1,959) (1,828)
Borrowings due after one year (10,596) (8,074)
Fair value of foreign currency forwards and swaps 370 107
Fair value of interest rate hedging instruments 104 (15)
Finance lease liabilities (128) (155)
----------- -----------
(12,209) (9,965)
Cash and cash equivalents 932 874
----------- -----------
(11,277) (9,091)
=========== ===========
8. Reconciliation of movement in net borrowings
Year ended Year ended
30 June 30 June
2019 2018
GBP million GBP million
Net increase/(decrease) in cash and cash equivalents
before exchange 54 (185)
Net increase in bonds and other borrowings(i) (2,331) (1,015)
---------- ----------
Net increase in net borrowings from cash flows (2,277) (1,200)
Exchange differences on net borrowings (22) 80
Other non-cash items(ii) 113 (79)
Net borrowings at beginning of the year (9,091) (7,892)
---------- ----------
Net borrowings at end of the year (11,277) (9,091)
========== ==========
(i) In the year ended 30 June 2019, net increase in bonds and
other borrowings excludes GBP12 million cash outflow in respect of
derivatives designated in forward point hedges (2018 - GBPnil).
(ii) In the years ended 30 June 2019 and 30 June 2018 other
non-cash items are principally in respect of changes in the fair
value of borrowings.
In the year ended 30 June 2019, the group issued bonds of
EUR2,600 million (GBP2,270 million) and GBP496 million (including
GBP4 million discount and fee) under its European Debt Issuance
Programme and repaid bonds of EUR1,350 million (GBP1,168 million).
In the year ended 30 June 2018 the group issued bonds of EUR1,275
million (GBP1,136 million) and $2,000 million (GBP1,476 million)
and repaid bonds of $2,100 million (GBP1,571 million).
All bonds and commercial paper issued by Diageo plc's 100% owned
subsidiaries are fully and unconditionally guaranteed by Diageo
plc.
9. Financial instruments
Fair value measurements of financial instruments are presented
through the use of a three-level fair value hierarchy that
prioritises the valuation techniques used in fair value
calculations.
The group maintains policies and procedures to value instruments
using the most relevant data available. If multiple inputs that
fall into different levels of the hierarchy are used in the
valuation of an instrument, the instrument is categorised on the
basis of the most subjective input.
Foreign currency forwards and swaps, cross currency swaps and
interest rate swaps are valued using discounted cash flow
techniques. These techniques incorporate inputs at levels 1 and 2,
such as foreign exchange rates and interest rates. These market
inputs are used in the discounted cash flow calculation
incorporating the instrument's term, notional amount and discount
rate, and taking credit risk into account. As significant inputs to
the valuation are observable in active markets, these instruments
are categorised as level 2 in the hierarchy.
Other financial liabilities include a put option, which does not
have an expiry date, held by Industrias Licoreras de Guatemala
(ILG) to sell the remaining 50% equity stake in Rum Creations &
Products Inc, the owner of the Zacapa rum brand, to Diageo. The
liability is fair valued and as at 30 June 2019 an amount of GBP174
million (30 June 2018 - GBP164 million) is recognised as a
liability with changes in fair value included in retained earnings.
As the valuation of this option uses assumptions not observable in
the market, it is categorised as level 3 in the hierarchy. As at 30
June 2019 because it is unknown when or if ILG will exercise the
option the liability is measured as if the exercise date is on the
last day of the next financial year considering forecast future
performance.
The option is sensitive to reasonably possible changes in
assumptions. If the option were to be exercised as at 30 June 2021,
the fair value of the liability would increase by approximately
GBP17 million.
There were no significant changes in the measurement and
valuation techniques, or significant transfers between the levels
of the financial assets and liabilities in the year ended 30 June
2019.
The group's financial assets and liabilities measured at fair
value are categorised as follows:
30 June 2019 30 June 2018
GBP million GBP million
(restated(i)
)
Derivative assets 531 217
Derivative liabilities (129) (123)
---------- ----------
Valuation techniques based on observable market
input (Level 2) 402 94
========== ==========
Financial assets - other 86 89
Financial liabilities - other (401) (352)
---------- ----------
Valuation techniques based on unobservable market
input (Level 3) (315) (263)
========== ==========
(i) Restated to include contingent consideration of GBP188
million recognised on acquisitions of businesses.
Finance lease liabilities were GBP128 million at 30 June 2019
(30 June 2018 - GBP155 million).
The carrying amount of the group's financial assets and
liabilities are generally the same as their fair value apart from
borrowings. At 30 June 2019 the fair value of gross borrowings
(excluding finance lease liabilities and the fair value of
derivative instruments) was GBP13,240 million and the carrying
value was GBP12,555 million (30 June 2018 - GBP10,304 million and
GBP9,902 million, respectively).
10. Dividends and other reserves
Year ended Year ended
30 June 30 June
2019 2018
GBP million GBP million
Amounts recognised as distributions to equity
shareholders in the year
Final dividend for the year ended 30 June 2018 of
40.4 pence per share (2017 - 38.5 pence) 993 968
Interim dividend for the year ended 30 June 2019
of
26.1 per share (2018 - 24.9 pence) 630 613
-----------
1,623 1,581
=========== ===========
A final dividend of 42.47 pence per share was recommended by the
Board of Directors on 25 July 2019 for approval by shareholders at
the Annual General Meeting to be held on 19 September 2019 bringing
the full year dividend to 68.57 pence per share for the year ended
30 June 2019. As the approval was after the balance sheet date, the
final dividend has not been included as a liability.
Other reserves of GBP2,372 million at 30 June 2019 (2018 -
GBP2,133 million) include a capital redemption reserve of GBP3,190
million (2018 - GBP3,163 million), a hedging reserve of GBP37
million deficit (2018 - GBP68 million deficit) and an exchange
reserve of GBP781 million deficit (2018 - GBP962 million deficit
).
11. Acquisition of businesses and purchase of non-controlling
interests
On 17 August 2018 Diageo completed the purchase of 20.29% of the
share capital of Sichuan Shuijingfang Company Limited (SJF) for RMB
6,084 million (GBP696 million) and transaction costs of GBP7
million. This took Diageo's shareholding in SJF from 39.71% to 60%.
SJF was already controlled and therefore consolidated prior to the
transaction.
On 9 April 2019 Diageo completed the purchase of a further 3.14%
of the share capital of SJF for RMB 690 million (GBP79 million) and
transaction costs of GBP2 million, which took Diageo's shareholding
in SJF from 60% to 63.14%.
On 28 September 2018 Diageo acquired the remaining 70% of Copper
Dog Whisky Limited (CDWL) that it did not already own for an
upfront valuation of GBP6.5 million and further earn-out payments
based on CDWL achieving performance targets. The discounted current
estimate for the earn-out payments is GBP10 million.
In addition, Diageo has made a number of smaller acquisitions of
brands, distribution rights and equity interests in various drinks
businesses.
12. Sale of businesses
Cash consideration received and net assets disposed of in
respect of sale of businesses in the year ended 30 June 2019:
Portfolio USL wine Total
of 19 brands business
GBP million GBP million GBP million
Sale consideration
Cash received in year 435 3 438
Transaction costs paid (12) - (12)
----------- -------- --- ---------
Net cash received 423 3 426
Transaction costs payable (4) - (4)
419 3 422
=========== ======== === =========
Net assets disposed of
Brands (230) - (230)
Goodwill (12) - (12)
Property, plant and equipment (2) (4) (6)
Investment in associates (3) - (3)
Inventories (17) (1) (18)
(264) (5) (269)
----------- -------- ---------
Gain/(loss) on disposal before taxation 155 (2) 153
Taxation (33) - (33)
----------- -------- --- ---------
Gain/(loss) on disposal after taxation 122 (2) 120
=========== ======== =========
Diageo completed the sale of a portfolio of 19 brands (see the
list of brands disposed of in Explanatory notes, Other definitions)
to Sazerac on 20 December 2018 for an aggregate consideration of
$550 million (GBP435 million). Diageo will continue to provide
manufacturing services for all disposed brands until December 2019
and for five brands up to December 2028.
In the year ended 30 June 2019, up until the date of sale, these
brands contributed net sales of GBP67 million (2018 - GBP153
million; 2017 - GBP167 million), operating profit of GBP43 million
(2018 - GBP99 million; 2017 - GBP107 million) and profit after
taxation of GBP34 million (2018 - GBP79 million; 2017 - GBP85
million).
13. Contingent liabilities and legal proceedings
(a) Guarantees and related matters
As of 30 June 2019, the group has no material unprovided
guarantees or indemnities in respect of liabilities of third
parties.
(b) Acquisition of USL shares from UBHL, winding-up petitions
against UBHL and other proceedings in relation to the USL
transaction
On 4 July 2013, Diageo completed its acquisition, under a share
purchase agreement with United Breweries (Holdings) Limited (UBHL)
and various other sellers (the SPA), of 21,767,749 shares (14.98%)
in United Spirits Limited (USL) for a total consideration of INR
31.3 billion (GBP349 million), including 10,141,437 shares (6.98%)
from UBHL. The SPA was signed on 9 November 2012 and was part of
the transaction announced by Diageo in relation to USL on that day
(the Original USL Transaction). Through a series of further
transactions, as of 2 July 2014, Diageo had a 54.78% investment in
USL (excluding 2.38% owned by the USL Benefit Trust).
Prior to the acquisition from UBHL on 4 July 2013, the High
Court of Karnataka (High Court) had granted leave to UBHL under
sections 536 and 537 of the Indian Companies Act 1956 (the Leave
Order) to enable the sale by UBHL to Diageo to take place (the UBHL
Share Sale) notwithstanding the continued existence of five
winding-up petitions that were pending against UBHL on 9 November
2012, being the date of the SPA. Additional winding-up petitions
have been brought against UBHL since 9 November 2012, and the Leave
Order did not extend to them. At the time of the completion of the
UBHL Share Sale, the Leave Order remained subject to review on
appeal. However, as stated by Diageo at the time of closing on 4
July 2013, it was considered unlikely that any appeal process in
respect of the Leave Order would definitively conclude on a timely
basis and, accordingly, Diageo waived the conditionality under the
SPA relating to the absence of insolvency proceedings in relation
to UBHL and acquired the 10,141,437 USL shares from UBHL at that
time.
Following closing of the UBHL Share Sale, appeals were filed by
various petitioners in respect of the Leave Order. On 20 December
2013, the division bench of the High Court set aside the Leave
Order (the December 2013 Order). Following the December 2013 Order,
Diageo filed special leave petitions (SLPs) in the Supreme Court of
India against the December 2013 Order.
On 10 February 2014, the Supreme Court of India issued an order
giving notice in respect of the SLPs and ordering that the status
quo be maintained with regard to the UBHL Share Sale pending a
hearing on the matter in the Supreme Court. Following a number of
adjournments, the next date for a substantive hearing of the SLPs
(in respect of which leave has since been granted and which have
been converted to civil appeals) is yet to be fixed.
In separate proceedings, the High Court passed a winding-up
order against UBHL on 7 February 2017. On 4 March 2017, UBHL
appealed against this order before a division bench of the High
Court. This appeal is currently pending.
Diageo continues to believe that the acquisition price of
INR1,440 per share paid to UBHL for the USL shares is fair and
reasonable as regards UBHL, UBHL's shareholders and UBHL's secured
and unsecured creditors. However, adverse results for Diageo in the
proceedings referred to above could, absent leave or relief in
other proceedings, ultimately result in Diageo losing title to the
10,141,437 USL shares acquired from UBHL. Diageo believes it would
remain in control of USL and be able to consolidate USL as a
subsidiary regardless of the outcome of this litigation. There can
be no certainty as to the outcome of the existing or any further
related legal proceedings or the timeframe within which they would
be concluded.
Diageo also has the benefit of certain contractual undertakings
and commitments from the relevant sellers in relation to potential
challenges to its unencumbered title to the USL shares acquired on
4 July 2013, including relating to the winding-up petitions
described above and/or certain losses and costs that may be
incurred in the event of third party actions relating to the
acquisition of the USL shares.
(c) Continuing matters relating to the resignation of Dr Vijay
Mallya from USL and USL internal inquiries
On 25 February 2016, Diageo and USL each announced that they had
entered into arrangements with Dr Mallya under which he had agreed
to resign from his position as a director and as chairman of USL
and from his positions in USL's subsidiaries. As specified by
Diageo in its announcement at that time, these arrangements ended
its prior agreement with Dr Mallya regarding his position at USL,
therefore bringing to an end the uncertainty relating to the
governance of USL, and put in place a five-year global non-compete
(excluding the United Kingdom), non-interference, non-solicitation
and standstill arrangement with Dr Mallya. As part of those
arrangements, USL, Diageo and Dr Mallya agreed a mutual release in
relation to matters arising out of an inquiry into certain matters
referred to in USL's financial statements and the qualified
auditor's report for the year ended 31 March 2014 (the Initial
Inquiry) which had revealed, among other things, certain diversions
of USL funds. Dr Mallya also agreed not to pursue any claims
against Diageo, USL and their affiliates (including under the prior
agreement with Diageo). In evaluating entering into such
arrangements, Diageo considered the impact of the arrangements on
USL and all of USL's shareholders, and came to the view that the
arrangements were in the best interests of USL and its
shareholders.
Diageo's agreement with Dr Mallya (the February 2016 Agreement)
provided for a payment of $75 million (GBP53 million) to Dr Mallya
over a five year period in consideration for the five-year global
non-compete, non-interference, non-solicitation and standstill
commitments referred to above, his resignation from USL and the
termination of his USL-related appointment and governance rights,
the relinquishing of rights and benefits attached to his position
at USL, and his agreement not to pursue claims against Diageo and
USL. The February 2016 Agreement also provided for the release of
Dr Mallya's personal obligations to indemnify (i) Diageo Holdings
Netherlands B.V. (DHN) in respect of its earlier liability ($141
million (GBP96 million)) under a backstop guarantee of certain
borrowings of Watson Limited (Watson) (a company affiliated with Dr
Mallya), and (ii) Diageo Finance plc in respect of its earlier
liability (GBP30 million) under a guarantee of certain borrowings
of United Breweries Overseas Limited, a subsidiary of UBHL. $40
million (GBP28 million) of the $75 million (GBP53 million) amount
was paid on signing of the February 2016 Agreement with the balance
being payable in equal instalments of $7 million (GBP5 million) a
year over five years, subject to and conditional on Dr Mallya's
compliance with certain terms of the agreement.
While the first three instalments of $7 million (GBP5 million)
each would have become due on 25 February 2017, 25 February 2018
and 25 February 2019, respectively, owing to various reasons
(including breaches committed by Dr Mallya and certain persons
connected with him of several provisions of the February 2016
Agreement and agreements of the same date between Dr Mallya and
USL), Diageo believes that it was not liable to pay such amounts
and did not do so. Diageo further believes that it is very unlikely
to become liable to pay any future instalments, to Dr Mallya. By
notice to Dr Mallya and certain persons connected with him on 24
February 2017, 3 November 2017, 23 February 2018, 22 August 2018
and 22 February 2019, Diageo and other group companies have
demanded from Dr Mallya the repayment of $40 million (GBP28
million) which was paid by Diageo on 25 February 2016, and also
sought compensation from him for various losses incurred by the
relevant members of the Diageo group on account of the breaches
committed by him and certain persons connected with him. On 16
November 2017, Diageo and other relevant members of the Diageo
group commenced claims in the High Court of Justice in England and
Wales (the English High Court) against Dr Mallya in relation to
certain of the matters specified in those notices. At the same time
DHN also commenced claims in the English High Court against Dr
Mallya, his son Sidhartha Mallya, Watson (a company affiliated with
Dr Mallya) Continental Administration Services Limited (CASL) (a
company which holds assets on trust for and is affiliated with Dr
Mallya) for in excess of $142 million (GBP105 million) (plus
interest) in relation to Watson's liability to DHN in respect of
its borrowings referred to above and the breach of associated
security documents. These additional claims are described in
paragraph (d) below.
Dr Mallya, Sidhartha Mallya and the relevant affiliated
companies filed a defence to such claims and the additional claims
on 12 March 2018, and Dr Mallya also filed a counterclaim for
payment of the two $7 million (GBP5 million) instalment payments
withheld by Diageo as described above. Diageo and the other
relevant members of its group filed a reply to that defence and a
defence to the counter-claim on 5 September 2018.
Diageo continues to prosecute its claims and to defend the
counterclaims. As part of this, on 18 December 2018, Diageo and the
other relevant members of its group filed an application for strike
out and/or summary judgement in respect of certain aspects of the
defence filed by Dr Mallya and the other defendants, including
their defence in relation to Watson and CASL's liability to repay
DHN. That application was made by DHN on the basis that the defence
filed by Dr Mallya and his co-defendants in relation to those
matters had no real prospect of success.
DHN's summary judgement and strike out application was heard by
the English High Court on 23 May 2019. The court decided in favour
of DHN that (i) Watson is liable to pay, and has no defence against
paying, $135 million (GBP105 million) plus interest of $11 million
(GBP9 million) to DHN, and (ii) CASL is liable, as co-surety, to
pay, and has no defence against paying, 50% of any such amount
unpaid by Watson, i.e. up to $67.5 million (GBP52 million) plus
interest of $5.5 million (GBP4 million) to DHN. Watson and CASL
were ordered to pay such sums, as well as certain amounts in
respect of DHN and Diageo's costs, to DHN by 21 June 2019. Such
amounts were not paid on that date by either Watson or CASL.
Accordingly, Diageo and DHN are considering further enforcement
steps against those companies, both in the United Kingdom and in
other jurisdictions where they are present or hold assets.
The remaining elements of the claims originally commenced on 16
November 2017 by Diageo and the relevant members of its group are
now expected to proceed to trial with a case management conference
to take place on a date yet to be fixed.
As previously announced by USL, the Initial Inquiry identified
certain additional parties and matters indicating the possible
existence of other improper transactions. These transactions could
not be fully analysed during the Initial Inquiry and, accordingly,
USL, as previously announced, mandated that its Managing Director
and Chief Executive Officer conduct a further inquiry into the
transactions involving the additional parties and the additional
matters to determine whether they also suffered from improprieties
(the Additional Inquiry). USL announced the results of the
Additional Inquiry in a notice to the Indian Stock Exchange dated 9
July 2016. The mutual release in relation to the Initial Inquiry
agreed by Diageo and USL with Dr Mallya announced on 25 February
2016 does not extend to matters arising out of the Additional
Inquiry.
As stated in USL's previous announcement, the Additional Inquiry
revealed further instances of actual or potential fund diversions
from USL and its Indian and overseas subsidiaries to, in most
cases, Indian and overseas entities in which Dr Mallya appears to
have a material direct or indirect interest, as well as other
potentially improper transactions involving USL and its Indian and
overseas subsidiaries.
In connection with the matters identified by the Additional
Inquiry, USL has, pursuant to a detailed review of each case of
such fund diversion and after obtaining expert legal advice, where
appropriate, filed civil suits for recovery of funds from certain
parties, including Dr Mallya, before the relevant courts in
India.
The amounts identified in the Additional Inquiry have been
previously provided for or expensed in the financial statements of
USL or its subsidiaries for prior periods. Further, at this stage,
it is not possible for the management of USL to estimate the
financial impact on USL, if any, arising out of potential
non-compliance with applicable laws in relation to such fund
diversions.
(d) Other continuing matters relating to Dr Mallya and
affiliates
DHN issued a conditional backstop guarantee on 2 August 2013 to
Standard Chartered Bank (Standard Chartered) pursuant to a
guarantee commitment agreement (the Guarantee Agreement). The
guarantee was in respect of the liabilities of Watson, a company
affiliated with Dr Mallya, under a $135 million (GBP92 million)
facility from Standard Chartered (the Facility Agreement). The
Guarantee Agreement was entered into as part of the arrangements
put in place and announced at the closing of the USL transaction on
4 July 2013.
DHN's provision of the Guarantee Agreement enabled the
refinancing of certain existing borrowings of Watson from a third
party bank and facilitated the release by that bank of rights over
certain USL shares that were to be acquired by Diageo as part of
the USL transaction. The facility matured and entered into default
in May 2015. In aggregate DHN paid Standard Chartered $141 million
(GBP96 million) under this guarantee, i.e. including payments of
default interest and various fees and expenses.
Watson remains liable for all amounts paid by DHN under the
guarantee. Under the guarantee documentation with Standard
Chartered, DHN is entitled to the benefit of the underlying
security package for the loan, including: (a) certain shares in
United Breweries Limited (UBL) held solely by Dr Mallya and certain
other shares in UBL held by Dr Mallya jointly with his son
Sidhartha Mallya, and (b) the shareholding in Watson.
Aspects of the security package are the subject of various
proceedings in India in which third parties are alleging and
asserting prior rights to certain assets comprised in the security
package or otherwise seeking to restrain enforcement against
certain assets by Standard Chartered and/or DHN. These proceedings
are ongoing and DHN will continue to vigorously pursue these
matters as part of its efforts for enforcement of the underlying
security and recovery of outstanding amounts. Diageo believes that
the existence of any prior rights or dispute in relation to the
security would be in breach of representations and warranties given
by Dr Mallya and others to Standard Chartered at the time the
security was granted and further believes that certain actions
taken by Dr Mallya in relation to the proceedings described above
also breached his obligations to Standard Chartered. In addition to
these third party proceedings, Dr Mallya is also subject to
proceedings in India under the Prevention of Money Laundering Act
and the Fugitive Economic Offenders Act in which the relevant
Indian authority, the Directorate of Enforcement, is seeking
confiscation of the UBL shares which were provided as security for
Watson's liabilities. DHN is participating in these proceedings in
order to protect its security interest in respect of the UBL
shares.
Under the terms of the guarantee and as a matter of law, there
are arrangements to pass on to DHN the benefit of the security
package upon payment by DHN under the guarantee of all amounts owed
to Standard Chartered. Payment under the guarantee has now occurred
as described above. To the extent possible in the context of the
proceedings described above, DHN continues to work towards
enforcement of the security package, including, when appropriate,
in conjunction with Standard Chartered. DHN's ability to assume or
enforce security over some elements of the security package is also
subject to regulatory consent. It is not at this stage possible to
determine whether such consent would be forthcoming.
In addition to the Indian proceedings just described, certain of
the assets comprised in the security package may also be affected
by a worldwide freezing order of the English High Court granted on
24 November 2017 and continued on 8 December 2017 and 8 May 2018 in
respect of the assets of Dr Mallya.
The agreement with Dr Mallya referenced in paragraph (c) above
does not impact the security package. Watson remains liable for all
amounts paid pursuant to the guarantee and DHN has the benefit of a
counter-indemnity from Watson in respect of payments in connection
with the guarantee, as well as a claim against CASL as a co-surety
with DHN of Watson's obligations. The various security providers,
including Dr Mallya and Watson, acknowledged in the February 2016
Agreement referred to in paragraph (c) above that DHN is entitled
to the benefit of the security package underlying the Standard
Chartered facility and have also undertaken to take all necessary
actions in that regard. Further, Diageo believes that the existence
of any prior rights or disputes in relation to the security package
would be in breach of certain confirmations given to Diageo and DHN
pursuant to that agreement by Dr Mallya, Watson and certain
connected persons.
On 16 November 2017, DHN commenced various claims in the English
High Court for, in aggregate, in excess of $142 million (GBP105
million) (plus interest) in relation to these matters, including
the following: (i) a claim against Watson for $141 million (GBP96
million) (plus interest) under Watson's counter-indemnity to DHN in
respect of payments made by DHN to Standard Chartered under the
guarantee referred to above; (ii) a claim against Dr Mallya and
Sidhartha Mallya under various agreements creating or relating to
the security package referred to above for (a) the costs incurred
to date in the various Indian proceedings referred to above (plus
interest), and (b) damages of $141 million (GBP96 million), being
DHN's loss as a result of those Indian proceedings which currently
prevent enforcement of the security over shares in UBL (plus
interest); and (iii) a claim against CASL, as a co-surety with DHN
of Watson's obligations under the Facility Agreement, for 50% of
the difference between the amount claimed under (i) above and the
amount (if any) that DHN is in fact able to recover from Watson, Dr
Mallya and/or Sidhartha Mallya.
As noted in paragraph (c), Dr Mallya, Sidhartha Mallya and the
relevant affiliated companies filed a defence to these claims on 12
March 2018. Diageo and the other relevant members of its group
filed a reply to that defence on 5 September 2018.
DHN and Diageo continue to prosecute these claims. As part of
that, on 18 December 2018, Diageo and the other relevant members of
its group filed an application for strike out and/or summary
judgment in respect of certain aspects of the defence filed by Dr
Mallya, Sidhartha Mallya and the relevant affiliated companies,
including in respect of Watson and CASL's liability to repay DHN.
The successful outcome of that application is described in
paragraph (c) above.
(e) Other matters in relation to USL
Following USL's earlier updates concerning the Initial Inquiry
as well as in relation to the arrangements with Dr Mallya that were
the subject of the 25 February 2016 announcement, USL and Diageo
have received various notices from Indian regulatory authorities,
including the Ministry of Corporate Affairs, Enforcement
Directorate and Securities and Exchange Board of India (SEBI).
Diageo and USL are cooperating fully with the authorities in
relation to these matters. Diageo and USL have also received
notices from SEBI requesting information in relation to, and
explanation of the reasons for, the arrangements with Dr Mallya
that were the subject of the 25 February 2016 announcement as well
as, in the case of USL, in relation to the Initial Inquiry and the
Additional Inquiry, and, in the case of Diageo, whether such
arrangements with Dr Mallya or the Watson backstop guarantee
arrangements referred to in paragraphs (c) and (d) above were part
of agreements previously made with Dr Mallya at the time of the
Original USL Transaction announced on 9 November 2012 and the open
offer made as part of the Original USL Transaction. Diageo and USL
have complied with such information requests and Diageo has
confirmed that, consistent with prior disclosures, the Watson
backstop guarantee arrangements and the matters described in the 25
February 2016 announcement were not the subject of any earlier
agreement with Dr Mallya. In respect of the Watson backstop
guarantee arrangements, SEBI issued a further notice to Diageo on
16 June 2016 that if there is any net liability incurred by Diageo
(after any recovery under relevant security or other arrangements,
which matters remain pending) on account of the Watson backstop
guarantee, such liability, if any, would be considered to be part
of the price paid for the acquisition of USL shares under the SPA
which formed part of the Original USL Transaction and that, in that
case, additional equivalent payments would be required to be made
to those shareholders (representing 0.04% of the shares in USL) who
tendered in the open offer made as part of the Original USL
Transaction. Diageo is clear that the Watson backstop guarantee
arrangements were not part of the price paid or agreed to be paid
for any USL shares under the Original USL Transaction and therefore
believes the decision in the SEBI notice to be misconceived and
wrong in law and appealed against it before the Securities
Appellate Tribunal, Mumbai (SAT). On 1 November 2017, SAT issued an
order in respect of Diageo's appeal in which, amongst other things,
it observed that the relevant officer at SEBI had neither
considered Diageo's earlier reply nor provided Diageo with an
opportunity to be heard, and accordingly directed SEBI to pass a
fresh order after giving Diageo an opportunity to be heard.
Following SAT's order, Diageo made its further submissions in the
matter, including at a personal hearing before a Deputy General
Manager of SEBI. On 26 June 2019, SEBI issued an order reiterating
the directions contained in its previous notice dated 16 June 2016.
As with the previous notice, Diageo believes SEBI's latest order to
be misconceived and wrong in law and is taking steps to file an
appeal before SAT against the order. Diageo is unable to assess if
the notices or enquiries referred to above will result in
enforcement action or, if this were to transpire, to quantify
meaningfully the possible range of loss, if any, to which any such
action might give rise to if determined against Diageo or USL.
In relation to the matters described in the 25 February 2016
announcement, Diageo had also responded to a show cause notice
dated 12 May 2017 from SEBI arising out of the previous
correspondence in this regard and made its further submissions in
the matter, including at a personal hearing before a Whole Time
Member of SEBI. On 6 September 2018, SEBI issued an order holding
that Diageo had acquired sole control of USL following its earlier
open offers, and that no fresh open offer was triggered by
Diageo.
(f) USL's dispute with IDBI Bank Limited
Prior to the acquisition by Diageo of a controlling interest in
USL, USL had prepaid a term loan of GBP72 million (INR6,280
million) taken through IDBI Bank Limited (IDBI), an Indian bank,
which was secured on certain fixed assets and brands of USL, as
well as by a pledge of certain shares in USL held by the USL
Benefit Trust (of which USL is the sole beneficiary). The maturity
date of the loan was 31 March 2015. IDBI disputed the prepayment,
following which USL filed a writ petition in November 2013 before
the High Court of Karnataka (the High Court) challenging the bank's
actions.
Following the original maturity date of the loan, USL received
notices from IDBI seeking to recall the loan, demanding a further
sum of GBP5 million (INR459 million) on account of the outstanding
principal, accrued interest and other amounts, and also threatening
to enforce the security in the event that USL did not make these
further payments. Pursuant to an application filed by USL before
the High Court in the writ proceedings, the High Court directed
that, subject to USL depositing such further amount with the bank
(which amount was duly deposited by USL), the bank should hold the
amount in a suspense account and not deal with any of the secured
assets including the shares until disposal of the original writ
petition filed by USL before the High Court.
On 27 June 2019, a single judge bench of the High Court issued
an order dismissing the writ petition filed by USL, amongst other
things, on the basis that the matter involved an issue of breach of
contract by USL and was therefore not maintainable in exercise of
the court's writ jurisdiction. USL has since filed an appeal
against this order before a division bench of the High Court.
(g) SEC Inquiry
Diageo has received requests for information from the US
Securities and Exchange Commission (SEC) regarding its distribution
in and public disclosures regarding the United States and its
distribution in certain other Diageo markets as well as additional
context about the Diageo group globally. Diageo is currently
responding to the SEC's requests for information in this matter.
Diageo is unable to assess if the inquiry will evolve into further
information requests or an enforcement action or, if this were to
transpire, to quantify meaningfully the possible loss or range of
loss, if any, to which any such action might give rise.
(h) Tax
The international tax environment has received increased
attention and seen rapid change over recent years, both at a US and
European level, and by international bodies such as the
Organisation for Economic Cooperation and Development. Against this
backdrop, Diageo has been monitoring developments and continues to
engage transparently with the tax authorities in the countries
where Diageo operates to ensure that the group manages its
arrangements on a sustainable basis.
In April 2019, the European Commission issued its decision in a
state aid investigation into the Group Financing Exemption in the
UK controlled foreign company rules. The European Commission found
that part of the Group Financing Exemption constitutes state aid.
The Group Financing Exemption was introduced in legislation by the
UK government in 2013. In common with other UK-based international
companies whose arrangements are in line with current UK CFC
legislation Diageo may be affected by the ultimate outcome of this
investigation. In June 2019 the UK government and other UK-based
international companies, including Diageo, appealed to the General
Court of the European Union against the decision. In the meantime,
the UK Government is required to commence collection proceedings
and therefore it is expected that Diageo will have to make a
payment in the year ending 30 June 2020 in respect of this case. At
present it is not possible to determine the amount that the UK
government will seek to collect. If the decision of the European
Commission is upheld, Diageo calculates its maximum potential
liability to be approximately GBP275 million. Based on its current
assessment, Diageo believes that no provision is required in
respect of this issue.
In July 2019 Diageo reached agreement with the French tax
authorities over the deductibility of certain interest costs. See
Additional financial information, (d) Taxation for further
information.
The group operates in a large number of markets with complex tax
and legislative regimes that are open to subjective interpretation.
As assessing an accurate value of contingent liabilities in these
markets requires a high level of judgement, contingent liabilities
are disclosed on the basis of the current known possible exposure
from tax assessment values.
Diageo has reviewed its disclosures in relation to Brazil and
India, where Diageo has a large number of ongoing tax cases. While
these cases are not individually significant, the current
assessment of the aggregate possible exposures is up to
approximately GBP313 million for Brazil and up to approximately
GBP180 million for India. The group believes that the likelihood
that the tax authorities will ultimately prevail is lower than
probable but higher than remote. Due to the fiscal environment in
Brazil and in India the possibility of further tax assessments
related to the same matters cannot be ruled out. Based on its
current assessment, Diageo believes that no provision is required
in respect of these issues.
In addition to the risks highlighted above, payments were made
under protest in India in respect of the periods 1 July 2009 to 30
June 2015 in relation to tax assessments where the risk is
considered to be remote. These payments have to be made in order to
challenge the assessments and as such have been recognised as a
receivable on the consolidated balance sheet. The total amount of
protest payments recognised as a receivable as at 30 June 2019 is
GBP104 million (corporate tax payments of GBP94 million and
indirect tax payments of GBP10 million), from which the payments
made in the year ended 30 June 2019 amount to GBP51 million.
(i) Other
The group has extensive international operations and is a
defendant in a number of legal, customs and tax proceedings
incidental to these operations, the outcome of which cannot at
present be foreseen. In particular, the group is currently a
defendant in various customs proceedings that challenge the
declared customs value of products imported by certain Diageo
companies. Diageo continues to defend its position vigorously in
these proceedings.
Save as disclosed above, neither Diageo, nor any member of the
Diageo group, is or has been engaged in, nor (so far as Diageo is
aware) is there pending or threatened by or against it, any legal
or arbitration proceedings which may have a significant effect on
the financial position of the Diageo group.
14. Related party transactions
The group's significant related parties are its associates,
joint ventures, key management personnel and pension plans. There
have been no transactions with these related parties during the
year ended 30 June 2019 on terms other than those that prevail in
arm's length transactions.
15. Post balance sheet events
On 25 July 2019, the Board approved plans for a further return
of capital up to GBP4.5 billion to shareholders for the period F20
to F22.
ADDITIONAL INFORMATION FOR SHAREHOLDERS
EXPLANATORY NOTES
Comparisons are to the year ended 30 June 2018 (2018) unless
otherwise stated. Unless otherwise stated, percentage movements
given throughout this announcement for volume, sales, net sales,
marketing spend, operating profit and operating margin are organic
movements after retranslating prior year reported numbers at
current year exchange rates and after adjusting for the effect of
operating exceptional items and acquisitions and disposals.
This announcement contains forward-looking statements that
involve risk and uncertainty. There are a number of factors that
could cause actual results and developments to differ materially
from those expressed or implied by these forward-looking
statements, including factors beyond Diageo's control. Please refer
to Explanatory notes, Risk factors - 'Cautionary statement
concerning forward-looking statements' for more details.
This announcement includes names of Diageo's products which
constitute trademarks or trade names which Diageo owns or which
others own and license to Diageo for use.
Definitions and reconciliation of non-GAAP measures to GAAP
measures
Diageo's strategic planning process is based on the following
non-GAAP measures. They are chosen for planning and reporting, and
some of them are used for incentive purposes. The group's
management believes these measures provide valuable additional
information for users of the financial statements in understanding
the group's performance. These non-GAAP measures should be viewed
as complementary to, and not replacements for, the comparable GAAP
measures and reported movements therein.
It is not possible to reconcile the forecast tax rate before
exceptional items and forecast organic operating profit increases
to the most comparable GAAP measures as it is not possible to
predict, with reasonable certainty, the future impact of changes in
exchange rates, acquisitions and disposals and potential
exceptional items.
Volume
Volume is a non-GAAP measure that is measured on an equivalent
units basis to nine-litre cases of spirits. An equivalent unit
represents one nine-litre case of spirits, which is approximately
272 servings. A serving comprises 33ml of spirits, 165ml of wine,
or 330ml of ready to drink or beer. Therefore, to convert volume of
products other than spirits to equivalent units, the following
guide has been used: beer in hectolitres, divide by 0.9; wine in
nine-litre cases, divide by five; ready to drink in nine-litre
cases, divide by 10; and certain pre-mixed products that are
classified as ready to drink in nine-litre cases, divide by
ten.
Organic movements
In the discussion of the performance of the business, 'organic'
information is presented using pounds sterling amounts on a
constant currency basis excluding the impact of exceptional items
and acquisitions and disposals. Organic measures enable users to
focus on the performance of the business which is common to both
years and which represents those measures that local managers are
most directly able to influence.
Calculation of organic movements
The organic movement percentage is the amount in the row titled
'Organic movement' in the tables below, expressed as a percentage
of the amount in the row titled '2018 adjusted'. Organic operating
margin is calculated by dividing operating profit before
exceptional items by net sales after excluding the impact of
exchange rate movements and acquisitions and disposals.
(a) Exchange rates
'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 exchange rates.
Exchange impacts in respect of the external hedging of
intergroup sales of products and the intergroup recharging of third
party services are allocated to the geographical segment to which
they relate. Residual exchange impacts are reported in
Corporate.
(b) Acquisitions and disposals
For acquisitions in the current year, the post acquisition
results 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 included in the organic
movement calculation from the anniversary of the acquisition date
in the current year. The acquisition row also eliminates the impact
of transaction costs that have been charged to operating profit in
the current or prior year in respect of acquisitions that, in
management's judgement, are expected to be completed.
Where a business, brand, brand distribution right or agency
agreement was disposed of, or terminated, in the period up to the
date of the external results announcement, the group, in the
organic movement calculations, excludes the results for that
business from the current and prior 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.
In addition, as part of acquisitions and disposals in the
reconciliation for operating profit before exceptional items in the
year ended 30 June 2019, there is a charge of GBP15 million in
respect of an increase in the contingent consideration payable to
the former owners of the Casamigos brand which was acquired in
August 2017.
(c) Exceptional items
Exceptional items are those that in management's judgement need
to be disclosed by virtue of their size and/or nature. Such items
are included within the income statement caption to which they
relate, and are separately disclosed in the notes to the
consolidated financial statements, and are excluded from the
organic movement calculations.
Exceptional operating items are those that are considered to be
material and/or unusual or non recurring in nature and are part of
the operating activities of the group such as impairments of fixed
assets, indirect tax settlements, property disposals and changes in
post employment plans.
Gains and losses on the sale of businesses, brands or
distribution rights, step up gains and losses that arise when an
investment becomes an associate or an associate becomes a
subsidiary and other material, unusual non-recurring items, that
are not in respect of the production, marketing and distribution of
premium drinks, are disclosed as non-operating exceptional items
below operating profit in the consolidated income statement.
Exceptional current and deferred tax items comprising material
unusual non recurring items that impact taxation, such as direct
tax provisions and settlements in respect of prior years and the
remeasurement of deferred tax assets and liabilities following tax
rate changes.
It is believed that separate disclosure of exceptional items and
the classification between operating and non-operating further
helps investors to understand the performance of the group.
Organic movement calculations for the year ended 30 June 2019
were as follows:
Latin
Europe America
North and and Asia
America Turkey Africa Caribbean Pacific Corporate Total
million million million million million million million
Volume
(equivalent
units)
2018 reported 48.2 46.3 33.2 22.2 90.5 - 240.4
Disposals(iv) (2.7) (0.1) - - (0.1) - (2.9)
------- ------- -------- ----------- ------- --------- -------
2018 adjusted 45.5 46.2 33.2 22.2 90.4 - 237.5
Disposals(iv) 2.8 0.1 - - - - 2.9
Organic
movement 1.1 (0.9) 0.4 0.2 4.7 - 5.5
------- ------- -------- ----------- ------- --------- -------
2019 reported 49.4 45.4 33.6 22.4 95.1 - 245.9
======= ======= ======== =========== ======= ========= =======
Organic
movement
% 2 (2) 1 1 5 - 2
======= ======= ======== =========== ======= ========= =======
Latin
Europe America
North and and Asia Corporate Total
America Turkey Africa Caribbean Pacific GBP GBP
GBP million GBP million GBP million GBP million GBP million million million
Sales
2018 reported 4,671 5,232 2,083 1,352 5,042 52 18,432
Exchange(i) 200 (291) 12 (35) (120) - (234)
Disposals(iv) (185) (7) (4) (1) (10) - (207)
------- ------- ------- ------- ------- --------- -------
2018 adjusted 4,686 4,934 2,091 1,316 4,912 52 17,991
Acquisitions
and
disposals(iv) 139 3 2 1 1 - 146
Organic
movement 249 195 142 127 443 1 1,157
------- ------- ------- ------- ------- --------- -------
2019 reported 5,074 5,132 2,235 1,444 5,356 53 19,294
======= ======= ======= ======= ======= ========= =======
Organic
movement
% 5 4 7 10 9 2 6
======= ======= ======= ======= ======= ========= =======
Europe Latin
North and America Asia
America Turkey Africa and Pacific
GBP GBP GBP Caribbean GBP Corporate Total
million million million GBP million million GBP million GBP million
Net sales
2018 reported 4,116 2,932 1,491 1,069 2,503 52 12,163
Exchange(ii) 176 (95) 8 (29) (36) - 24
Disposals(iv) (143) (3) (3) (1) (6) - (156)
----- ----- ----- ----- --- ----- ----- ---- ------
2018 adjusted 4,149 2,834 1,496 1,039 2,461 52 12,031
Acquisitions and
disposals(iv) 95 1 1 1 1 - 99
Organic movement 216 104 100 90 226 1 737
----- --- ----- --- ----- --- ----- ---- ----- --- ----- ---- ------ ---
2019 reported 4,460 2,939 1,597 1,130 2,688 53 12,867
===== === ===== === ===== === ===== ==== ===== === ===== ==== ====== ===
Organic movement
% 5 4 7 9 9 2 6
===== === ===== === ===== === ===== ==== ===== === ===== ==== ====== ===
Marketing
2018 reported 662 474 158 196 388 4 1,882
Exchange 24 (10) 1 (7) (3) - 5
Reclassification(iii) - - 10 - - - 10
Disposals(iv) (1) - - - - - (1)
----- ----- --- ----- --- ----- ---- ----- --- ----- ---- ------
2018 adjusted 685 464 169 189 385 4 1,896
Acquisitions and
disposals(iv) 2 - - - - - 2
Organic movement 75 26 5 12 27 (1) 144
----- --- ----- --- ----- --- ----- ---- ----- --- ----- --- ------ ---
2019 reported 762 490 174 201 412 3 2,042
===== === ===== === ===== === ===== ==== ===== === ===== ==== ====== ===
Organic movement
% 11 6 3 6 7 (25) 8
===== === ===== === ===== === ===== ==== ===== === ===== === ====== ===
Operating profit
2018 reported 1,882 1,028 191 308 568 (158) 3,819
Exchange(ii) 74 (35) (6) (2) (6) - 25
Acquisitions and
disposals(iv) (90) (2) (2) - (2) - (96)
----- ----- ----- ----- ---- ----- ----- ---- ------
2018 adjusted 1,866 991 183 306 560 (158) 3,748
Acquisitions and
disposals(iv) 30 1 1 - - - 32
Organic movement 52 22 91 59 143 (31) 336
----- --- ----- --- ----- --- ----- ---- ----- --- ----- --- ------ ---
2019 reported 1,948 1,014 275 365 703 (189) 4,116
===== === ===== === ===== === ===== ==== ===== === ===== === ====== ===
Organic movement
% 3 2 50 19 26 (20) 9
===== === ===== === ===== === ===== ==== ===== === ===== === ====== ===
Organic operating
margin %
2019 43.9% 34.5% 17.2% 32.3% 26.2% n/a 32.0%
2018 45.0% 35.0% 12.2% 29.5% 22.8% n/a 31.2%
Margin improvement
/ (decline) (bps) (103) (49) 494 288 341 n/a 83
(1) For the reconciliation of sales to net sales see Additional financial information.
(2) Percentages and margin improvement are calculated on rounded figures.
Notes: Information in respect of the organic movement
calculations
(i) The exchange adjustments for sales are principally in
respect of the strengthening of sterling against the Turkish lira,
Indian rupee and the Australian dollar, partially offset by the
weakening of sterling against the US dollar, the euro and the
Kenyan shilling.
(ii) The exchange adjustments for net sales and operating profit
are principally in respect of the weakening of sterling against the
US dollar, the euro and the Kenyan shilling, partially offset by
strengthening of sterling against the Turkish lira, Indian rupee
and the Australian dollar.
(iii) For the year ended 30 June 2018 marketing costs of GBP10
million in South Africa have been reclassified from overheads to
marketing.
(iv) In the year ended 30 June 2019 the acquisitions and
disposals that affected volume, sales, net sales, marketing and
operating profit were as follows:
Operating
Volume Sales Net sales Marketing profit
equ. units GBP million GBP million GBP million GBP million
million
Year ended 30 June 2018
Acquisitions
Transaction costs - - - - 4
-------- --------- --------- -------- --- ---------
- - - - 4
-------- --------- --------- -------- --- ---------
Disposals
Portfolio of 19 brands (2.8) (199) (153) (1) (99)
Nepal (0.1) (8) (3) - (1)
-------- --------- --------- -------- --- ---------
(2.9) (207) (156) (1) (100)
-------- --------- --------- -------- ---------
Acquisitions and disposals (2.9) (207) (156) (1) (96)
======== ========= ========= ======== =========
Year ended 30 June 2019
Acquisitions
Casamigos - 11 10 1 3
Change in contingent consideration - - - - (15)
-------- --------- --------- -------- --- ---------
- 11 10 1 (12)
-------- --------- --------- -------- --- ---------
Disposals
Portfolio of 19 brands 2.9 135 89 1 44
-------- --------- --------- -------- --- ---------
2.9 135 89 1 44
-------- --------- --------- -------- --- ---------
Acquisitions and disposals 2.9 146 99 2 32
======== ========= ========= ======== === =========
The group will change its method of calculating the exchange
impact used to calculate organic growth in its results for the year
ending 30 June 2020. The exchange row will represent the impact of
restating the current year at prior year exchange rates rather than
the method used presently of restating the prior year results to
current year exchange rates. The change will simplify our processes
aligning management and organic reporting and will be more
consistent with how Diageo's peer group report. The change is not
expected to materially impact reported organic percentage
movements. A restatement of prior year results under the new
methodology will be published later in the calendar year.
Earnings per share before exceptional items
Earnings per share before exceptional items is calculated by
dividing profit attributable to equity shareholders of the parent
company before exceptional items by the weighted average number of
shares in issue.
Earnings per share before exceptional items for the year ended
30 June 2019 and 30 June 2018 are set out in the table below.
2019 2018
GBP million GBP million
Profit attributable to equity shareholders
of the parent company 3,160 3,022
Exceptional operating and non-operating items
attributable to equity shareholders of the
parent company (61) 128
Exceptional taxation charges / (benefits)
attributable to equity shareholders of the
parent company 36 (190)
Tax in respect of exceptional operating and
non-operating items attributable to equity
shareholders of the parent company 29 (13)
3,164 2,947
Weighted average number of shares million million
Shares in issue excluding own shares 2,418 2,484
Dilutive potential ordinary shares 10 11
2,428 2,495
pence pence
Basic earnings per share before exceptional
items 130.8 118.6
Diluted earnings per share before exceptional
items 130.3 118.1
Free cash flow
Free cash flow comprises the net cash flow from operating
activities aggregated with the net cash received/paid for working
capital loans receivable, cash paid or received for investments and
the net cash cost paid for property, plant and equipment and
computer software that are included in net cash flow from investing
activities.
The remaining components of net cash flow from investing
activities that do not form part of free cash flow, as defined by
the group's management, are in respect of the acquisition and sale
of businesses and non-working capital loans to and from
associates.
The group's management regards the purchase and disposal of
property, plant and equipment and computer software as ultimately
non-discretionary since ongoing investment in plant, machinery and
technology is required to support the day-to-day operations,
whereas acquisitions and sales of businesses are discretionary.
Where appropriate, separate explanations are given for the
impacts of acquisitions and sale of businesses, dividends paid and
the purchase of own shares, each of which arises from decisions
that are independent from the running of the ongoing underlying
business.
Free cash flow reconciliations for the years ended 30 June 2019
and 30 June 2018 are set out in the table below:
2019 2018
GBP million GBP million
Net cash inflow from operating activities 3,248 3,084
Disposal of property, plant and equipment and computer
software 32 40
Purchase of property, plant and equipment and computer
software (671) (584)
Movements in loans and other investments (1) (17)
Free cash flow 2,608 2,523
Return on average total invested capital
Return on average total invested capital is used by management
to assess the return obtained from the group's asset base and is
calculated to aid evaluation of the performance of the
business.
The profit used in assessing the return on average total
invested capital reflects operating profit before exceptional items
attributable to the equity shareholders of the parent company plus
share of after tax results of associates and joint ventures after
applying the tax rate before exceptional items for the year.
Average total invested capital is calculated using the average
derived from the consolidated balance sheets at the beginning,
middle and end of the year. Average capital employed comprises
average net assets attributable to equity shareholders of the
parent company for the year, excluding post employment benefit net
assets/liabilities (net of deferred tax) and average net
borrowings. This average capital employed is then aggregated with
the average restructuring and integration costs net of tax, and
goodwill written off to reserves at 1 July 2004, the date of
transition to IFRS, to obtain the average total invested
capital.
Calculations for the return on average total invested capital
for the year ended 30 June 2019 and 30 June 2018 are set out in the
table below.
2019 2018
GBP million GBP million
Operating profit 4,042 3,691
Exceptional operating items 74 128
Profit before exceptional operating items attributable
to non-controlling interests (151) (122)
Share of after tax results of associates and joint ventures 312 309
Tax at the tax rate before exceptional items of 20.6%
(2018 - 20.7%) (881) (829)
3,396 3,177
Average net assets (excluding net post employment assets/liabilities) 10,847 12,067
Average non-controlling interests (1,776) (1,749)
Average net borrowings 10,240 8,727
Average integration and restructuring costs (net of tax) 1,639 1,639
Goodwill at 1 July 2004 1,562 1,562
Average total invested capital 22,512 22,246
Return on average total invested capital 15.1% 14.3%
Net borrowings to earnings before exceptional operating items,
interest, tax, depreciation, amortisation and impairment (adjusted
EBITDA)
Diageo manages its capital structure to achieve capital
efficiency, provide flexibility to invest through the economic
cycle and give efficient access to debt markets at attractive cost
levels. The group regularly assesses its debt and equity capital
levels to enhance its capital structure by reviewing the ratio of
adjusted net borrowings to adjusted EBITDA.
Calculations for the ratio of adjusted net borrowings to
adjusted EBITDA for the year ended 30 June 2019 and 30 June 2018
are set out in the table below.
2019 2018
GBP million GBP million
Borrowings due within one year 1,959 1,828
Borrowings due after one year 10,596 8,074
Fair value of foreign currency derivatives and interest
rate hedging instruments (474) (92)
Finance lease liabilities 128 155
Less: Cash and cash equivalents (932) (874)
Net borrowings 11,277 9,091
Post employment benefit liabilities before tax 846 872
Adjusted net borrowings 12,123 9,963
Operating profit 4,042 3,691
Exceptional operating items 74 128
Depreciation, amortisation and impairment (excluding
exceptional items) 374 368
Share of after tax results of associates and joint ventures 312 309
Adjusted EBITDA 4,802 4,496
Adjusted net borrowings to adjusted EBITDA (x) 2.5 2.2
Tax rate before exceptional items
Tax rate before exceptional items is calculated by dividing the
total tax charge on continuing operations before tax charges and
credits in respect of exceptional items, by profit before taxation
adjusted to exclude the impact of exceptional operating and
non-operating items, expressed as a percentage. The measure is used
by management to assess the rate of tax applied to the group's
continuing operations before tax on exceptional items.
The tax rates from operations before exceptional and after
exceptional items for the year ended 30 June 2019 and year ended 30
June 2018 are set out in the table below:
2019 2018
GBP million GBP million
Tax before exceptional items (a) 859 799
Tax in respect of exceptional items 29 (13)
Exceptional tax charge/(credit) 10 (190)
Taxation on profit (b) 898 596
Profit from operations before taxation and exceptional
items (c) 4,174 3,868
Non-operating items 144 -
Exceptional finance charges (9) -
Exceptional operating items (74) (128)
Profit before taxation (d) 4,235 3,740
Tax rate before exceptional items (a/c) 20.6% 20.7%
Tax rate from operations after exceptional items
(b/d) 21.2% 15.9%
Other definitions
Volume share is a brand's retail volume expressed as a
percentage of the retail volume of all brands in its segment. Value
share is a brand's retail sales value expressed as a percentage of
the retail sales value of all brands in its segment. Unless
otherwise stated, share refers to value share.
Price/mix is the number of percentage points by which the
organic movement in net sales differs to the organic movement in
volume. The difference arises because of changes in the composition
of sales between higher and lower priced variants/markets or as
price changes are implemented.
Shipments comprise the volume of products made to Diageo's
immediate (first tier) customers. Depletions are the estimated
volume of the onward sales made by our immediate customers. Both
shipments and depletions are measured on an equivalent units
basis.
References to emerging markets include Russia, Eastern Europe,
Turkey, Africa, Latin America and Caribbean, and Asia Pacific
(excluding Australia, Korea and Japan).
References to reserve brands include, but are not limited to,
Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie
Walker Gold Label Reserve, Johnnie Walker Aged 18 Years, John
Walker & Sons Collection, Johnnie Walker The Gold Route,
Johnnie Walker The Royal Route and other Johnnie Walker super
premium brands; Roe & Co; The Singleton, Cardhu, Talisker,
Lagavulin and other malt brands; Buchanan's Special Reserve,
Buchanan's Red Seal; Bulleit Bourbon, Bulleit Rye; Tanqueray No.
TEN, Tanqueray Malacca Gin; Cîroc, Ketel One vodka; Don Julio,
Casamigos, Zacapa, Bundaberg SDlx, Shui Jing Fang, Jinzu gin, Haig
Club whisky, Orphan Barrel whiskey and DeLeón Tequila.
References to global giants include the following brand
families: Johnnie Walker, Smirnoff, Captain Morgan, Baileys,
Tanqueray and Guinness. Local stars spirits include Buchanan's,
Bundaberg, Crown Royal, J B, McDowell's, Old Parr, Yenì Raki, Black
& White, Shui Jing Fang, Windsor and Ypióca. Global giants and
local stars exclude ready to drink and beer except Guinness.
References to Shui Jing Fang represent total Chinese white spirits
of which Shui Jing Fang is the predominant brand.
References to ready to drink also include ready to serve
products, such as pre-mix cans in some markets, and progressive
adult beverages in the United States and certain markets supplied
by the United States.
References to beer include cider and some non-alcoholic products
such as Malta Guinness.
The results of Hop House 13 Lager are included in the Guinness
figures.
References to the disposal of a portfolio of 19 brands comprise
the following brands that were primarily sold in the United States:
Seagram's VO, Seagram's 83, Seagram's Five Star, Popov, Myers's,
Parrot Bay, Yukon Jack, Romana Sambuca, Scoresby, Goldschlager,
Relska, Stirrings, The Club, Booth's, Black Haus, Peligroso, Grind,
Piehole and John Begg.
References to the group include Diageo plc and its consolidated
subsidiaries.
RISK FACTORS
Diageo's products are sold in over 180 countries worldwide,
which subjects Diageo to risks and uncertainties in multiple
jurisdictions across developed and developing markets. The group's
aim is to manage risk and control its business and financial
activities cost-effectively and in a manner that enables it to:
exploit profitable business opportunities in a disciplined way;
avoid or reduce risks that can cause loss, reputational damage or
business failure; manage and mitigate historic risks and exposures
of the group; support operational effectiveness; and enhance
resilience to external events. To achieve this, an ongoing process
has been established for identifying, evaluating and managing risks
faced by the group. A detailed description of the key risks and
uncertainties facing the group are described in the 'Strategic
report' section of the Annual Report for the year ended 30 June
2018 and under 'Risk Factors' in the Annual Report on Form 20-F for
the year ended 30 June 2018.
These key risks and uncertainties include: unfavourable
economic, political, social or other developments and risks in the
countries in which Diageo operates, including in relation to the
potential impact of any global, regional or local trade wars and
the negotiating process surrounding, together with the eventual
terms of, the exit of the United Kingdom from the European Union;
changes in consumer preferences and tastes and adverse impacts of a
downturn in economic conditions, among other factors, which could
adversely affect demand; litigation or similar proceedings
specifically directed at the beverage alcohol industry, as well as
other litigation or proceedings more generally; changes in the
international tax environment resulting in unexpected tax
exposures; the impact of climate change, or legal, regulatory or
market measures intended to address climate change, including on
the cost and supply of water; changes in the cost of production;
other legal and regulatory developments impacting the production,
distribution and marketing of Diageo's products and its business
more generally; the consequences of any failure to comply with
anti-corruption, sanctions or similar laws and regulations; any
failure of internal controls, including those affecting compliance
with accounting and/or disclosure requirements; the impact of any
contamination, counterfeiting or other events on support for and
sales of Diageo's brands; any failure by Diageo to maintain its
brand image and corporate reputation; competitive pressures, which
could reduce Diageo's market share and margins; any disruption to
production facilities, business service centres or information
systems (including as a result of cyber-attacks); failures to
derive the expected benefits from Diageo's business strategies,
acquisitions and/or any cost-saving and restructuring programmes;
increased costs for, or shortages of, talent; fluctuations in
exchange and/or interest rates; movements in the value of Diageo's
pension funds; any failure to maintain or renegotiate distribution,
supply, manufacturing and licence agreements on favourable terms;
any inability by Diageo to protect its intellectual property
rights; and difficulty in effecting service of US process and
enforcing US legal process against Diageo and its directors.
Brexit and related risks
There continues to be uncertainty with respect to the process
surrounding the United Kingdom's proposed exit from the European
Union, and in relation to the political environment more generally
in the United Kingdom. We continue to believe that, in the event of
either a negotiated exit or no-deal scenario, the direct financial
impact to Diageo will not be material. In the EU, we expect that
the vast majority of our finished case goods will continue to trade
tariff free, with no change to existing tariffs in either scenario.
There remains uncertainty in relation to future trading
arrangements between the UK and the rest of the world where today
we rely on a number of existing EU Free Trade Agreements (FTAs)
with third party countries. However, more recently, a number of
countries have agreed with the UK to continue to trade on these
terms in the event of a 'no deal' outcome. If the UK Government is
unable to renew all of the existing FTAs on which we rely, trading
could revert to WTO rules. We have mitigation plans in place to
minimise any short term disruption that could arise from a no-deal
scenario.
We have further considered the principal impact to our supply
chain of a no-deal scenario which we have assessed as limited and
believe that we have appropriate stock levels in place to mitigate
this risk. The full implications of Brexit will not be understood
until future tariffs, trade, regulatory, tax, and other free trade
agreements to be entered into by the United Kingdom are
established. Furthermore, we could experience changes to laws and
regulations post Brexit, in areas such as intellectual property
rights, employment, environment, supply chain logistics, data
protection, and health and safety.
A cross-functional working group is in place that meets on a
regular basis to identify and assess the consequences of Brexit,
with all major functions within our business represented. We
continue to monitor this risk area very closely, as well as the
broader environment risks, including a continuing focus on
identifying critical decision points to ensure potential disruption
is minimised, and take prudent actions to mitigate these risks
wherever practical.
Cautionary statement concerning forward-looking statements
This document contains 'forward-looking' statements. These
statements can be identified by the fact that they do not relate
only to historical or current facts. In particular, forward-looking
statements include all statements that express forecasts,
expectations, plans, outlook, objectives and projections with
respect to future matters, including trends in results of
operations, margins, growth rates, overall market trends, the
impact of changes in interest or exchange rates, the availability
or cost of financing to Diageo, anticipated cost savings or
synergies, expected investments, the completion of any strategic
transactions or restructuring programmes, anticipated tax rates,
changes in the international tax environment, expected cash
payments, outcomes of litigation, anticipated changes in the value
of assets and liabilities related to pension schemes and general
economic conditions. By their nature, forward-looking statements
involve risk and uncertainty because they relate to events and
depend on circumstances that will occur in the future. There are a
number of factors that could cause actual results and developments
to differ materially from those expressed or implied by these
forward-looking statements, including factors that are outside
Diageo's control.
Factors that could cause actual results and developments to
differ materially from those expressed or implied by
forward-looking statements include, but are not limited to:
-- economic, political, social or other developments in
countries and markets in which Diageo operates, which may
contribute to a reduction in demand for Diageo's products, adverse
impacts on Diageo's customer, supplier and/or financial
counterparties, or the imposition of import, investment or currency
restrictions (including the potential impact of any global,
regional or local trade wars or any tariffs, duties or other
restrictions or barriers imposed on the import or export of goods
between territories, including but not limited to, imports into and
exports from the United States, Canada, Mexico, the United Kingdom
and/or the European Union);
-- the negotiating process surrounding, as well as the final
terms of, the United Kingdom's exit from the European Union, which
could lead to a sustained period of economic and political
uncertainty and complexity whilst detailed withdrawal terms and any
successor trading arrangements with other countries are negotiated,
finalised and implemented, potentially adversely impacting economic
conditions in the United Kingdom and Europe more generally as well
as Diageo's business operations and financial performance (see more
detailed status on Brexit above);
-- changes in consumer preferences and tastes, including as a
result of changes in demographics, evolving social trends
(including any shifts in consumer tastes towards small-batch craft
alcohol, low or no alcohol, or other alternative products), changes
in travel, vacation or leisure activity patterns, weather
conditions, health concerns and/or a downturn in economic
conditions;
-- any litigation or other similar proceedings (including with
tax, customs, competition, environmental, anti-corruption or other
regulatory authorities), including litigation directed at the
beverage alcohol industry generally or at Diageo in particular;
-- changes in the domestic and international tax environment,
including as a result of the OECD Base Erosion and Profit Shifting
Initiative and EU anti-tax abuse measures, leading to uncertainty
around the application of existing and new tax laws and unexpected
tax exposures;
-- the effects of climate change, or legal, regulatory or market
measures intended to address climate change, on Diageo's business
or operations, including on the cost and supply of water;
-- changes in the cost of production, including as a result of
increases in the cost of commodities, labour and/or energy or as a
result of inflation;
-- legal and regulatory developments, including changes in
regulations relating to production, distribution, importation,
marketing, advertising, sales, pricing, labelling, packaging,
product liability, antitrust, labour, compliance and control
systems, environmental issues and/or data privacy;
-- the consequences of any failure by Diageo or its associates
to comply with anti-corruption, sanctions, trade restrictions or
similar laws and regulations, or any failure of Diageo's related
internal policies and procedures to comply with applicable law or
regulation;
-- the consequences of any failure of internal controls,
including those affecting compliance with existing or new
accounting and/or disclosure requirements;
-- Diageo's ability to maintain its brand image and corporate
reputation or to adapt to a changing media environment;
-- contamination, counterfeiting or other circumstances which
could harm the level of customer support for Diageo's brands and
adversely impact its sales;
-- increased competitive product and pricing pressures,
including as a result of actions by increasingly consolidated
competitors or increased competition from regional and local
companies, that could negatively impact Diageo's market share,
distribution network, costs and/or pricing;
-- any disruption to production facilities, business service
centres or information systems, including as a result of cyber
attacks;
-- increased costs for, or shortages of, talent, as well as labour strikes or disputes;
-- Diageo's ability to derive the expected benefits from its
business strategies, including in relation to expansion in emerging
markets, acquisitions and/or disposals, cost savings and
productivity initiatives or inventory forecasting;
-- fluctuations in exchange rates and/or interest rates, which
may impact the value of transactions and assets denominated in
other currencies, increase Diageo's cost of financing or otherwise
adversely affect Diageo's financial results;
-- movements in the value of the assets and liabilities related to Diageo's pension plans;
-- Diageo's ability to renew supply, distribution, manufacturing
or licence agreements (or related rights) and licences on
favourable terms, or at all, when they expire; or
-- any failure by Diageo to protect its intellectual property rights.
All oral and written forward-looking statements made on or after
the date of this document and attributable to Diageo are expressly
qualified in their entirety by the above cautionary factors, by the
'Risk Factors' section immediately preceding those and by the 'Risk
Factors' included in Diageo's Annual Report on Form 20-F for the
year ended 30 June 2018 filed with the US Securities and Exchange
Commission (SEC). Any forward-looking statements made by or on
behalf of Diageo speak only as of the date they are made. Diageo
does not undertake to update forward-looking statements to reflect
any changes in Diageo's expectations with regard thereto or any
changes in events, conditions or circumstances on which any such
statement is based. The reader should, however, consult any
additional disclosures that Diageo may make in any documents which
it publishes and/or files with the SEC. All readers, wherever
located, should take note of these disclosures.
This document includes names of Diageo's products, which
constitute trademarks or trade names which Diageo owns, or which
others own and license to Diageo for use. All rights reserved. (c)
Diageo plc 2019.
The information in this document does not constitute an offer to
sell or an invitation to buy shares in Diageo plc or an invitation
or inducement to engage in any other investment activities.
This document may include information about Diageo's target debt
rating. A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any
time by the assigning rating organisation. Each rating should be
evaluated independently of any other rating.
Past performance cannot be relied upon as a guide to future
performance.
Statement of directors' responsibilities
The responsibility statement set out below has been prepared in
connection with (and will be set out in) the annual report and
accounts for the year ended 30 June 2019, which will be published
on 5 August 2019 (and which can be found thereafter at
www.diageo.com).
The directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the group and
company's position and performance, business model and
strategy.
Each of the directors of Diageo plc confirms that, to the best
of his or her knowledge:
-- the group financial statements contained in the annual report
and accounts for the year ended 30 June 2019, which have been
prepared in accordance with IFRS as issued by the IASB and as
adopted for use in the European Union, give a true and fair view of
the assets, liabilities, financial position and profit of the
group; and
-- the Directors' Report contained in the annual report and
accounts for the year ended 30 June 2019 includes a fair review of
the development and performance of the business and the position of
the group and company, together with a description of the principal
risks and uncertainties that they face.
The directors of Diageo plc are as follows: Javier Ferrán
(Chairman), Ivan Menezes (Chief Executive), Kathryn Mikells (Chief
Financial Officer), Lord Davies of Abersoch (Senior Non-Executive
Director), Susan Kilsby (Non-Executive Director and Chairman of the
Remuneration Committee), Alan JH Stewart (Non-Executive Director
and Chairman of the Audit Committee) and Non-Executive Directors:
Debra Crew, Ho KwonPing and Nicola S Mendelsohn.
Webcast, presentation slides and transcript
At 07.15 (UK time) on Thursday 25 July 2019, Ivan Menezes, Chief
Executive and Kathryn Mikells, Chief Financial Officer will present
Diageo's preliminary results as a webcast. This will be available
to view at www.diageo.com.
The presentation slides and script will also be available to
download from www.diageo.com at 07.15 (UK time).
A transcript of the Q&A session will be available for
download on 26 July 2019 at www.diageo.com.
Live Q&A conference call and replay
Ivan Menezes, Chief Executive and Kathryn Mikells, Chief
Financial Officer will be hosting a Q&A conference call on
Thursday 25 July 2019 at 09:30 (UK time). If you would like to
listen to the call or ask a question, please use the dial in
details below.
From the UK : +44 (0)330
336 9105
From the UK (free call):
0800 358 6377
From the USA : +1 323 794
2093
From the USA (free call):
866 548 4713
The conference call is for analysts and investors only. To join
the call please use the password already sent to you or email
suzanne.austin@diageo.com.
To hear a replay of the call, please use the telephone numbers
below:
From the UK : +44 (0) 20
7660 0134
From the UK (free call):
0808 101 1153
From the USA: +1 719 457
0820
From the USA (free call):
888 203 1112
Investor enquiries to: Andy Ryan +44 (0) 20 8978 6504
Hattie Radcliffe +44 (0) 20 8978 4429
Vinod Rao +44 (0) 20 8978 2402
investor.relations@diageo.com
Media enquiries to: Jessica Rouleau +44 (0) 7925 642 561
Clemmie Raynsford +44 (0) 7590 810 800
Dominic Redfearn +44 (0) 7971 977 759
Greg Dawson +44 (0) 7568 131 101
press@diageo.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LFFFLDTISFIA
(END) Dow Jones Newswires
July 25, 2019 02:02 ET (06:02 GMT)
Diageo (LSE:DGE)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Diageo (LSE:DGE)
Historical Stock Chart
Von Jul 2023 bis Jul 2024