Information  X 
Enter a valid email address

Diageo PLC (DGE)

  Print      Mail a friend       Annual reports

Thursday 28 January, 2021

Diageo PLC

Interim results, six months ended 31 December 2020

RNS Number : 1336N
Diageo PLC
28 January 2021
 

 

Interim results, six months ended 31 December 2020
28 January 2021

 

Encouraging return to growth, good cash generation and increased dividend

Financial highlights

Reported net sales (£6.9 billion) down 4.5%, as organic growth of 1.0% was more than offset by unfavourable exchange. Reported operating profit (£2.2 billion) declined 8.3%, driven by unfavourable exchange and a decline in organic operating profit.

Organic net sales up 1.0%, despite a significant impact from Travel Retail and on-trade restrictions. North America was up 12.3%, offsetting declines in other regions, except for Africa which was broadly flat.

North America growth was driven by resilient consumer demand, share growth of total beverage alcohol, positive category mix and the replenishment of stock levels by distributors and retailers

Organic operating profit down 3.4%, driven by channel and category mix. Productivity benefits from everyday cost efficiencies largely offset cost of goods sold inflation

Net cash from operating activities up £0.7 billion to £2.0 billion, and free cash flow up £0.8 billion to £1.8 billion. This primarily reflects a lower tax payment and working capital benefit driven by reduced creditor balances at the end of fiscal 20, as a result of reduced sales demand and cost control measures triggered in response to Covid-19.  Creditor balances have now recovered to more normalised levels.

Basic eps of 67.6 pence decreased 14.6%. Pre-exceptional eps declined 12.8% to 69.9 pence, driven primarily by unfavourable exchange and lower operating profit.

Interim dividend increased 2% to 27.96 pence per share.

Strong sequential performance improvement in all regions compared to the second half of fiscal 20. Expecting continued impact in the second half of fiscal 21 from on-trade restrictions and disruption to Travel Retail.

 

Strategic and operational highlights in F21 H1

Supported the recovery of the hospitality sector through 'Raising the Bar,' our $100 million global two-year programme, which has already reached around 30,000 outlets in seven countries

Rapidly responded to increased consumer demand in the off-trade channel, leading to market share gains.

Delivered broad-based growth across most categories, including tequila, gin, Canadian whisky, US whiskey, liqueurs and ready to drink.

Leveraged deep understanding of consumer behaviour, innovating across our brands to recruit new consumers and unlock new occasions in convenience and at-home.

Increased investment in digital capabilities, including e-commerce.

Continued capex investment in capacity, consumer experiences and sustainability.

Completed acquisition of Aviation American Gin and Davos Brands, further premiumising our portfolio. 

Leveraged our embedded culture of everyday efficiency to drive continued productivity savings.

Launched 'Society 2030: Spirit of Progress', our 10-year sustainability action plan, building on our strong track record in sustainability and responsibility.

 

See Explanatory Notes for explanation and reconciliation of non-GAAP measures.

 

Ivan Menezes, Chief Executive, said:

"We delivered a strong performance in a challenging operating environment, returning to top line organic sales growth during the half. We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities. This more than offset the impact of on-trade restrictions and the decline in Travel Retail.

 

North America, our largest market, performed particularly strongly and ahead of our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol. Across other regions we delivered strong sequential improvement compared to the second half of fiscal 20. This reflects improved market share performance through excellent execution in the off-trade channel, and the partial re-opening of the on-trade channel in certain markets.

 

Organic operating margin improved compared to the second half of fiscal 20 driven by increased operating leverage and tight control of discretionary expenditure. The decline compared to the first half of fiscal 20 reflected an adverse channel and portfolio mix. We expect margins to improve as the on-trade and Travel Retail recover and with the continued benefit of everyday efficiency.

 

Our proprietary tools and data-led insights are enabling us to invest smartly in effective marketing and innovation. We continue to strengthen brand equity, premiumise our portfolio and expand our digital capabilities.

 

I am proud of the creativity and adaptability of our people and their exemplary commitment to supporting our customers and communities. Our $100 million global commitment to support the recovery of the hospitality sector has already reached around 30,000 outlets in seven countries. We expect ongoing volatility and disruption in the second half of the year, particularly in the on-trade channel, which will make performance more challenging. The medium and long-term growth drivers and opportunities for our business remain intact and I am confident in our strategy, the resilience of our business and Diageo's ability to emerge stronger.

 

 

Key financial information

Six months ended 31 December 2020

Summary financial information

 

 

 

F21 H1

F20 H1

Organic
growth
%

Reported growth
%

Volume

EUm

128.3 

 

130.5 

 

 

(2)

 

Net sales

£ million

6,874 

 

7,200 

 

 

(5)

 

Marketing

£ million

1,085 

 

1,116 

 

 

(3)

 

Operating profit before exceptional items

£ million

2,256 

 

2,501 

 

(3)

 

(10)

 

Exceptional operating items (i)

£ million

(17)

 

(59)

 

 

 

Operating profit

£ million

2,239 

 

2,442 

 

 

(8)

 

Share of associate and joint venture profit after tax

£ million

154 

 

176 

 

 

(13)

 

Non-operating exceptional items (i)

£ million

 

 

 

 

Net finance charges

£ million

(200)

 

(154)

 

 

 

Exceptional taxation (charge)/credit (i)

£ million

(42)

 

14 

 

 

 

Tax rate including exceptional items

%

24.4 

 

21.5 

 

 

13 

 

Tax rate before exceptional items

%

22.4 

 

21.6 

 

 

 

Profit attributable to parent company's shareholders

£ million

1,580 

 

1,865 

 

 

(15)

 

Basic earnings per share

pence

67.6 

 

79.2 

 

 

(15)

 

Earnings per share before exceptional items

pence

69.9 

 

80.2 

 

 

(13)

 

Interim dividend

pence

27.96 

 

27.41 

 

 

 

(i)  For further details on exceptional items see Summary Income Statement (c) Exceptional items and Notes, Exceptional items.

 

Outlook for net sales  

We are not providing specific guidance due to the ongoing volatility. However, we will be lapping the second half of fiscal 20, which was significantly impacted by the onset of Covid-19 and therefore expect to see improvement over this weak comparator period across all regions. We expect to see continued momentum in North America, augmented by a lapping of inventory reductions by distributors. The pace of recovery in other regions will be more closely aligned with the gradual reopening of the on-trade and the degree to which restrictions continue to be in place. We expect Travel Retail to continue to be heavily impacted by the reduction in travellers.

 

Outlook for operating margin

We expect organic operating profit growth in the second half of fiscal 21 will be ahead of organic net sales growth in all regions due to the weak comparator period, except North America, where we experienced strong organic operating margin gains in the second half of fiscal 20. Organic operating margin in the second half of fiscal 21 will continue to be pressured from channel and product mix as Travel Retail will continue to be heavily impacted and restrictions on the on-trade continue. We expect to continue investing in advertising and promotion to emerge stronger from the crisis.

 

Outlook for working capital

We closed the first half with a negative net working capital position more like the level we typically see at fiscal year end. We expect some net working capital build in the second half as we move back to a more normalised profile reverting to pre Covid-19 levels at June 2021.

 

Outlook for exchange 

Given the continued uncertainty caused by the ongoing Covid-19 pandemic, we are not able to provide specific financial guidance and, therefore, the expected impact of exchange for the year ending 30 June 2021. 

 

Outlook for tax 

The tax rate before exceptional items for the six months ended 31 December 2020 was 22.4% compared with 21.6% for the six months ended 31 December 2019. We expect the tax rate before exceptional items for the year ending 30 June 2021 to be in the upper end of the 21-22% range. For further details on taxation see Summary Income Statement (e) Taxation and Notes, Taxation.

 

Return of capital 

On 25 July 2019, the Board approved plans for a further return of capital programme of up to £4.5 billion to shareholders over the three-year period to 30 June 2022.

 

On 1 August 2019, Diageo entered into a non-discretionary agreement with a third party bank to execute the first phase of this return of capital programme to enable the company to buy back shares up to a maximum of £1.25 billion by 31 January 2020. This agreement was executed in full with 38.7 million shares repurchased to a value of £1.25 billion. All shares purchased under the share buyback programme were cancelled. On 9 April 2020, Diageo announced that it had not initiated the next phase of the three-year programme. Given our elevated leverage ratio we have paused the programme until the leverage ratio is back within target range. 

 

At 31 December 2020, the leverage ratio, calculated as adjusted net debt to adjusted EBITDA, was 3.4x, in-line with the leverage ratio at 30 June 2020. Diageo anticipates leverage to be above the target range of 2.5-3.0x through the year ending 30 June 2021.

 

(i) See Explanatory Notes for explanation and reconciliation of non-GAAP measures.

 

Net sales (£ million)

Reported net sales declined 4.5% 

Organic net sales grew 1.0% 

(i

 

Net sales

£ million

F20 H1

7,200 

 

Exchange(i)

(328)

 

Acquisitions and disposals

(60)

 

Reclassification(ii)

(6)

 

Volume

(17)

 

Price/mix

85 

 

F21 H1

6,874 

 

 

(i)  Exchange rate movements reflect the adjustment to recalculate the reported results as if they had been generated at the prior period weighted average exchange rates. 

(ii) In the six months ended 31 December 2020, £6 million has been reclassified from marketing to sales.

 

Reported net sales declined 4.5%, as growth in organic net sales was impacted by unfavourable foreign exchange and to a lesser extent by the negative impact of acquisitions and disposals. 

 

Organic net sales grew 1.0% driven by 1.2% positive price/mix, partially offset by a 0.2% reduction in volume. Price/mix was positive in North America and Africa. Strong growth in North America was offset by declines in all other regions except for Africa, which was roughly flat. Net sales benefitted from the replenishment of stock levels by distributors and retailers in certain markets, mainly North America. This was partially offset by continued customer de-stocking in Travel Retail.

Operating profit (£ million)

Reported operating profit declined 8.3% 

Organic operating profit declined 3.4%

 

Operating profit

£ million

F20 H1

2,442 

 

Exceptional operating items(i)

42 

 

Exchange

(134)

 

Acquisitions and disposals

(18)

 

FVA(ii)

(8)

 

Organic movement

(85)

 

F21 H1

2,239 

 

(i)  For further details on exceptional items see Summary Income Statement (c) Exceptional Items.

(ii)  Fair value adjustments. For further details on fair value remeasurement see Summary Income Statement (d) Fair value remeasurement.

 

 

Reported operating profit was down 8.3% mainly driven by unfavourable exchange, decline in organic operating profit, the impact of acquisitions and disposals and fair value adjustments partially offset by lower exceptional operating items.

 

Organic operating profit declined 3.4%, with the impact of lower organic operating margin only partially offset by higher sales.

 

Operating margin (%)

Reported operating margin declined 134bps 

Organic operating margin declined 153bps

Operating margin

ppt

F20 H1

33.9 

 

Exceptional operating items

0.58 

 

Exchange

(0.36)

 

Acquisitions and disposals

0.05 

 

Other(i)

(0.08)

 

Gross margin

(1.74)

 

Marketing

0.04 

 

Other operating items

0.17 

 

F21 H1

32.6 

 

(i)  Fair value adjustments and reclassification. 

 

Reported operating margin declined 134bps mainly driven by decline in organic operating margin and unfavourable exchange partially offset by lower exceptional operating items.

 

Organic operating margin declined 153bps driven by unfavourable channel and category mix, with productivity benefits from everyday cost efficiencies largely offsetting cost of goods sold inflation.

 

Basic earnings per share (pence)

Basic eps declined 14.6% from 79.2 pence to 67.6 pence

Eps before exceptional items declined 12.8% from 80.2 pence to 69.9 pence 

(

Basic earnings per share

pence

F20 H1

79.2 

 

Exceptional items after tax

(1.3)

 

Exchange on operating profit

(5.7)

 

Acquisitions and disposals(i)

(0.8)

 

Organic operating profit

(3.7)

 

Associates and joint ventures

(1.0)

 

Finance charges(ii)

(1.4)

 

Tax(iii)

1.8 

 

Share buyback(i)

0.4 

 

Non-controlling interests

0.4 

 

Other(iv)

(0.3)

 

F21 H1

67.6 

 

(i)  Includes finance charges net of tax. 

(ii)  Excludes finance charges related to acquisitions, disposals and share buyback. 

(iii)  Excludes tax related to acquisitions, disposals and share buyback.

(iv)  Fair value adjustments. 

 

 

Basic eps decreased 11.6 pence as unfavourable exchange, decline in organic operating profit, finance charges and exceptional items after tax more than offset the lower tax charge.

 

 

Eps before exceptional items declined 10.3 pence driven by unfavourable exchange, decline in organic operating profit, increased finance charges and a reduction in profit from associates and joint ventures. These were partially offset by tax, lower non-controlling interests and the impact of the share buyback programme in fiscal 20.

 

Free cash flow (£ million)

Generated £1,998 million from operating activities(i) and

   1,753 million free cash flow.

Free cash flow

£ million

F20 H1

966 

 

Exchange(ii)

(134)

 

Operating profit(iii)

(109)

 

Working capital(iv)

649 

 

Capex

80 

 

Tax

231 

 

Interest

(29)

 

Other(v)

99 

 

F21 H1

1,753 

 

 

(i)  Net cash from operating activities excludes net capex and movements in loans and other investments (F21 H1 - £(245) million; F20 H1 - £(322) million). 

(ii)  Exchange on operating profit before exceptional items.

(iii)  Operating profit excludes exchange, depreciation and amortisation, post employment charges and other non-cash items. 

(iv)  Working capital movement includes maturing inventory. 

(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 £1,998 million, an increase of £710 million compared to the prior period. Free cash flow was £1,753 million, £787 million higher compared to the prior period. This was primarily driven by working capital benefits as a result of a large increase in creditors relative to the end of June 2020, where we saw a particularly low creditor balance as a result of reduced sales and lower discretionary spend. We also saw benefits from lapping one-off tax payments, higher dividends from joint ventures and associates, and decreased capital expenditure. This increase was partially offset by an unfavourable movement in exchange and a decline in operating profit.

 

Return on average invested capital (%)(i)

ROIC decreased 175bps

 

Return on average invested capital

ppt

F20 H1

17.5 

 

Exchange

(0.84)

 

Acquisitions and disposals

(0.31)

 

Organic operating profit

(0.74)

 

Associates and joint ventures

(0.29)

 

Tax

(0.25)

 

Other

0.68 

 

F21 H1

15.8 

 

 

(i)  ROIC calculation excludes exceptional operating items from operating profit.

 

ROIC decreased 175bps against the prior comparable period driven mainly by unfavourable exchange and decline in organic operating profit. 

 

Reported growth by region

 

 

Volume

Net sales

Marketing

Operating profit(i)

 

%

EUm

%

£ million

%

£ million

%

£ million

North America

 

1.6 

 

 

199 

 

10 

 

39 

 

 

106 

 

Europe and Turkey

(6)

 

(1.4)

 

(13)

 

(223)

 

(6)

 

(16)

 

(27)

 

(169)

 

Africa

(8)

 

(1.5)

 

(12)

 

(103)

 

(13)

 

(13)

 

(40)

 

(64)

 

Latin America and Caribbean

 

0.5 

 

(15)

 

(101)

 

(31)

 

(35)

 

(23)

 

(60)

 

Asia Pacific

(3)

 

(1.4)

 

(6)

 

(82)

 

(2)

 

(5)

 

(11)

 

(46)

 

Corporate

 

 

(59)

 

(16)

 

(50)

 

(1)

 

(15)

 

(12)

 

Diageo

(2)

 

(2.2)

 

(5)

 

(326)

 

(3)

 

(31)

 

(10)

 

(245)

 

 

Organic growth by region

 

 

Volume

Net sales

Marketing

Operating profit(i)

 

%

EUm

%

£ million

%

£ million

%

£ million

North America

 

2.0 

 

12 

 

307 

 

10 

 

42 

 

14 

 

164 

 

Europe and Turkey

(5)

 

(1.2)

 

(10)

 

(163)

 

(4)

 

(10)

 

(23)

 

(139)

 

Africa

(1)

 

(0.2)

 

 

(3)

 

(6)

 

(6)

 

(22)

 

(35)

 

Latin America and Caribbean

 

0.5 

 

(1)

 

(9)

 

(15)

 

(15)

 

(5)

 

(12)

 

Asia Pacific

(3)

 

(1.4)

 

(3)

 

(48)

 

(1)

 

(3)

 

(11)

 

(48)

 

Corporate

 

 

(59)

 

(16)

 

 

 

(18)

 

(15)

 

Diageo

 

(0.3)

 

 

68 

 

 

 

(3)

 

(85)

 

(i) Before operating exceptional items.

 

 

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

Six months ended 31 December 2020

 

North America

 

North America delivered net sales growth of 12%, with growth across all three key markets. US Spirits net sales increased 15%, with growth across all categories, driven by resilient consumer demand, spirits continuing to take share of total beverage alcohol and positive category mix. It also reflects the  replenishment of stock levels by distributors and retailers. Tequila net sales grew 80% driven by strong growth of Don Julio and Casamigos. Net sales of Crown Royal increased 4%, primarily driven by the continued strong performance of innovation. Bulleit grew net sales 17%. Scotch grew 6% driven by good performances from Johnnie Walker and Buchanan's partially offset by a decline in malts. Vodka net sales grew 6% with Cîroc delivering net sales growth of 17% and Smirnoff net sales increasing 3%. Baileys net sales increased 12% driven by a combination of pricing, new innovation and a continued focus on Baileys' positioning as a year-round, indulgent treat. Captain Morgan net sales grew 9% driven by growth in Captain Morgan Spiced and innovations. Diageo Beer Company USA net sales grew 7%, with strong growth in Smirnoff flavoured malt beverages, partially offset by a decline in Guinness which continued to be impacted by on-trade channel restrictions due to Covid-19. Net sales in Canada increased 7% with broad-based growth in spirits and ready to drink more than offsetting a decline in beer due to its on-trade exposure. North America operating margin increased 80bps. This reflects strong operating leverage and lower discretionary expenditure, partially offset by dilutive category and channel mix.

Key financials £ million:

 

F20 H1

FX

Acquisitions
and
disposals

Organic movement

F21 H1

Reported movement%

Net sales

2,502 

 

(101)

 

(7)

 

307 

 

2,701 

 

 

Marketing

404 

 

(6)

 

 

42 

 

443 

 

10 

 

Operating profit

1,120 

 

(47)

 

(11)

 

164 

 

1,226 

 

 

 

Markets:

 

 

 

 

 

Global giants, local stars and reserve (i) :

 

Organic
volume
movement

Reported
volume
movement

Organic
net sales
movement

Reported
net sales
movement

 

 

Organic
volume
movement(ii)

Organic
net sales
movement

Reported
net sales
movement

 

%

%

%

%

 

 

%

%

%

North America(iii)

 

 

12 

 

 

 

Crown Royal

 

 

 

 

 

 

 

 

 

Smirnoff

 

 

(2)

 

US Spirits

10 

 

10 

 

15 

 

11 

 

 

Johnnie Walker

(1)

 

 

 

DBC USA

 

 

 

 

 

Captain Morgan

10 

 

 

 

Canada

 

 

 

 

 

Don Julio

52 

 

55 

 

54 

 

 

 

 

 

 

 

Ketel One(iv)

11 

 

 

(5)

 

Spirits

 

 

13 

 

 

 

Guinness

(18)

 

(16)

 

(19)

 

Beer(v)

 

 

 

 

 

Baileys

 

12 

 

 

Ready to drink(v)

25 

 

 

47 

 

26 

 

 

Bulleit

13 

 

16 

 

12 

 

 

 

 

 

 

 

Cîroc vodka

15 

 

16 

 

12 

 

 

 

 

 

 

 

Casamigos

112 

 

137 

 

128 

 

 

 

 

 

 

 

Tanqueray

 

 

 

(i)  Spirits brands excluding ready to drink and flavoured malt beverages.

(ii)  Organic equals reported volume movement.

(iii)  Reported volume and net sales growth include impacts from the disposal of a portfolio of 19 brands to Sazerac in the prior period and the acquisition of Aviation Gin LLC ('Aviation Gin') and Davos Brands LLC ('Davos Brands') in the six months ended 31 December 2020.

(iv)  Ketel One includes Ketel One vodka and Ketel One Botanical.

(v)  Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.

 

US Spirits net sales were up 15% with depletions behind shipments by approximately 3 percentage points, due to the replenishment of stock levels by distributors. Tequila sales increased 80% with Don Julio growing 56% and Casamigos growing 139% with both gaining spirits market and tequila category share. The acceleration of growth in our tequila portfolio reflects strong activations in the at-home occasion and some benefit from pricing taken on Casamigos. Crown Royal net sales were up 4% largely driven by continued momentum in Crown Royal Regal Apple, Crown Royal Peach and Crown Royal Vanilla growing strongly. Bulleit net sales grew 17% with upweighted marketing investment driving a strong performance in the off-trade channel . In scotch, Johnnie Walker grew net sales 11%, with strong growth across Johnnie Walker super deluxe, Johnnie Walker Red Label and Johnnie Walker Black Label. Buchanan's increased net sales 23% and grew category share. Our malt portfolio declined 33% due to its greater reliance on the on-trade channel. Vodka net sales grew 6%. Cîroc net sales increased 17% driven by growth in Cîroc core variant as well as key flavour variants resulting from refreshed activations to re-engage consumers. Smirnoff sales increased 3%. Ketel One performance was flat. Captain Morgan net sales increased 9%, largely driven by growth in Captain Morgan Spiced and a strong contribution from the launch of Captain Morgan Sliced Apple. Baileys net sales increased 12% due to pricing taken on Baileys Original and the successful launch of limited time offer Baileys Apple Pie.

Diageo Beer Company USA net sales grew 7%. Flavoured malt beverages net sales increased 26%. Beer net sales, excluding flavoured malt beverages, were down 15% as Guinness performance was impacted by on-trade restrictions due to Covid-19.  

Net sales in Canada grew 7% with broad-based growth in spirits, particularly Baileys, and continued growth of ready to drink. This more than offset the decline in beer due to its higher on-trade exposure.

Marketing investment grew 10% driven by upweighted investment in at-home consumption opportunities to gain quality market share growth and redeployed investment to align with the shift in consumer behaviour, aided by the use of marketing analytics tools to maximise effectiveness. 

 

Europe and Turkey

 

Europe and Turkey net sales declined 10%. The business achieved good net sales growth in Turkey, Northern Europe and Great Britain, reflecting strong momentum in off-trade channels. Ireland, Southern Europe and Eastern Europe were significantly impacted due to their high exposure to the on-trade channel. Recovery of the on-trade in the first quarter was not enough to offset the impact of severe restrictions in the second quarter. Reduced levels of international travel continued to severely impact Travel Retail Europe, which declined 72%. Beer net sales in Europe and Turkey declined 34%, driven primarily by Guinness, which was impacted by on-trade restrictions and closures particularly in Ireland and Great Britain. Scotch declined 10%. Growth of scotch in Turkey, Great Britain and Northern Europe was not enough to offset declines in Southern Europe, Travel Retail Europe and Eastern Europe. This was mainly driven by Johnnie Walker due to on-trade restrictions and closures as well as significant reduction in international tourism. Baileys and ready to drink grew 8% and 4% respectively driven by Great Britain, Northern Europe and Ireland. Gin declined 2%. Double digit growth in Gordon's in GB and Tanqueray in Northern Europe was not enough to offset declines in Southern Europe and Travel Retail Europe, where Covid-19 restrictions significantly impacted travel and tourism. Captain Morgan grew 7% driven by Great Britain and Southern Europe. Vodka declined 11% driven by Smirnoff in Southern Europe, Northern Europe, Travel Retail Europe and Eastern Europe. Total operating margin declined 539bps driven by adverse mix impact from on-trade closures and marketing investment ahead of net sales.

Key financials £ million:

 

F20 H1

FX

Acquisitions
and
disposals

Organic movement

Other(iii)

F21 H1

Reported movement
%

Net sales

1,666 

 

(40)

 

(20)

 

(163)

 

 

1,443 

 

(13)

 

Marketing

268 

 

(5)

 

(1)

 

(10)

 

 

252 

 

(6)

 

Operating profit before exceptional items

615 

 

(16)

 

(7)

 

(139)

 

(7)

 

446 

 

(27)

 

Exceptional operating items(iv)

 

 

 

 

 

(17)

 

 

Operating profit

615 

 

 

 

 

 

429 

 

(30)

 

Markets:

 

 

 

 

 

Global giants and local stars(i):

 

Organic
volume
movement

Reported
volume
movement

Organic
net sales
movement

Reported
net sales
movement

 

 

Organic
volume
movement
(ii)

Organic
net sales
movement

Reported
net sales
movement

 

%

%

%

%

 

 

%

%

%

Europe and Turkey(vi)

 

 

 

 

 

Guinness

(26)

 

(33)

 

(32)

 

(5)

 

(6)

 

(10)

 

(13)

 

 

Johnnie Walker

(11)

 

(16)

 

(19)

 

 

 

 

 

 

 

Baileys

 

 

 

Great Britain

10 

 

10 

 

 

 

 

Smirnoff

(14)

 

(12)

 

(13)

 

Ireland

(17)

 

(23)

 

(37)

 

(40)

 

 

Captain Morgan

 

 

 

Northern Europe

 

 

 

10 

 

 

Yenì Raki

 

(4)

 

(26)

 

Southern Europe

(18)

 

(18)

 

(21)

 

(17)

 

 

Tanqueray

(9)

 

(8)

 

(7)

 

Eastern Europe

(6)

 

(7)

 

(13)

 

(21)

 

 

J Ɛ B

(13)

 

(16)

 

(16)

 

Turkey(vii)

12 

 

12 

 

18 

 

(11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Spirits

(2)

 

(2)

 

(4)

 

(7)

 

 

 

 

 

 

Beer(v)

(24)

 

(29)

 

(34)

 

(37)

 

 

 

 

 

 

Ready to drink(v)

 

 

 

 

 

 

 

 

 

(i)  Spirits brands excluding ready to drink and flavoured malt beverages.

(ii) Organic equals reported volume movement. 

(iii) The adjustment to other operating expenses is the elimination of fair value changes to contingent consideration liabilities in respect of prior year acquisitions. 

(iv) For further details on exceptional operating items see Summary Income Statement (c) Exceptional items and Notes, Exceptional items.

(v) Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.  

(vi) From 1 July 2020, Europe and Turkey are managed as six individual markets: Great Britain, Ireland, Northern Europe, Southern Europe, Eastern Europe and Turkey, each with end-to-end accountability. This reflects how management reviews performance.

(vii)Variances between organic net sales movement and reported net sales movement are primarily a result of foreign exchange.

 

.

In Great Britain , net sales increased 2%. Strong momentum in the off-trade more than offset declines due to on-trade restrictions and closures. Spirits growth of 15%, driven by a strong market and market share gains across all categories in the off-trade. Beer declined in the on-trade. Despite this we saw beer on-trade share gains when restrictions were eased.

Ireland net sales declined 37%. Beer net sales were down 44% driven by on-trade restrictions and closures particularly impacting Guinness keg. Total spirits grew 4%, driven by Baileys, Gordon's and Captain Morgan. Both spirits and beer gained market share in the off-trade.

Northern Europe net sales increased 7%, reflecting strong off-trade growth primarily driven by liqueurs and scotch. Baileys grew 18%, benefitting from the successful launch of the Baileys Apple Pie limited time offer and Baileys Salted Caramel. Scotch sales were up 9% driven by scotch malts and Johnnie Walker. Gin sales increased 12% driven by Tanqueray and Gordon's. Vodka declined 24% driven by Smirnoff primarily as a result of exposure to the on-trade.

Southern Europe net sales were down 21% driven by reduced tourism and ongoing on-trade restrictions. Scotch declined 20% driven by Johnnie Walker and JεB.

In Eastern Europe net sales were down 13%. Scotch declined 18% driven by Johnnie Walker as a result of on-trade impacts and instability in Lebanon.

In Turkey, net sales were up 18% benefitting from strong off-trade momentum, particularly in scotch and raki. Growth in raki was driven by Tekirdağ raki.

Travel Retail Europe net sales declined 72% due to continued international travel restrictions.

Marketing investment declined 4%. A proportion of on-trade investment was redeployed into off-trade, e-commerce and gifting.

 

Africa

 

Africa net sales were flat. Growth in Nigeria and Africa Regional Markets was not enough to offset declines in East Africa and South Africa. East Africa declined 5% driven by Kenya, which was significantly impacted by on-trade restrictions, partly offset by growth in Tanzania and Uganda. Net sales in Nigeria grew 10%, driven by double digit growth of mainstream spirits and Malta Guinness, as well as strong growth in Guinness. In South Africa, net sales declined 10%, as a result of periodic bans on alcohol sales and other severe Covid-19 related restrictions impacting sales across all categories. Africa Regional Markets grew 7% driven by double digit growth of beer in Ghana and Cameroon. Total Beer declined 1% driven by Senator Keg and Tusker due to on-trade restrictions in Kenya, partly offset by growth in Guinness, Malta Guinness and Serengeti. Spirits performance was flat. Strong performance of mainstream spirits offset declines in scotch. Operating margin declined 434bps, driven by lower fixed cost absorption, one-off charges and input cost inflation partially offset by productivity initiatives.

Key financials £ million:

 

F20 H1

FX

Acquisitions
and
disposals

Organic movement

F21 H1

Reported movement 
%

Net sales

848 

 

(68)

 

(32)

 

(3)

 

745 

 

(12)

 

Marketing

97 

 

(7)

 

 

(6)

 

84 

 

(13)

 

Operating profit

159 

 

(29)

 

 

(35)

 

95 

 

(40)

 

 

Markets:

 

 

 

 

 

Global giants and local stars(i):

 

Organic
volume
movement

Reported
volume
movement

Organic
net sales
movement

Reported
net sales
movement

 

 

Organic
volume
movement(ii)

Organic
net sales
movement

Reported
net sales
movement

 

%

%

%

%

 

 

%

%

%

Africa (iii)

(1)

 

(8)

 

 

(12)

 

 

Guinness

 

 

 

 

 

 

 

 

 

Johnnie Walker

(18)

 

(18)

 

(22)

 

East Africa

(5)

 

(5)

 

(5)

 

(12)

 

 

Smirnoff

 

(4)

 

(15)

 

Africa Regional Markets (iii)

 

(24)

 

 

(10)

 

 

 

 

 

 

Nigeria

10 

 

10 

 

10 

 

 

 

Other beer:

South Africa (iii)

(7)

 

(12)

 

(10)

 

(28)

 

 

 

 

 

 

 

 

 

 

 

 

Malta

12 

 

13 

 

 

Spirits

 

 

 

(9)

 

 

Senator

(28)

 

(25)

 

(31)

 

Beer (iv)

(6)

 

(6)

 

(1)

 

(8)

 

 

Tusker

(12)

 

(14)

 

(20)

 

Ready to drink (iii)(iv)

14 

 

(12)

 

10 

 

(21)

 

 

Serengeti

 

11 

 

 

(i)  Spirits brands excluding ready to drink and flavoured malt beverages.

(ii)  Organic equals reported volume movement. 

(iii)  Africa, Africa Regional Markets, South Africa and ready to drink reported volume movement impacted by acquisitions and disposals.

(iv)  Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.

 

 

 

East Africa net sales declined 5%. Kenya declined 10%, driven by severe on-trade restrictions primarily impacting Senator Keg and Tusker sales. Tanzania grew 11% as it was minimally impacted by limited Covid-19 related lockdowns, and benefited from the ongoing successes of Serengeti Lager and Serengeti Lite.

In Africa Regional Markets, net sales grew 7%. Double digit growth in Malta Guinness and Guinness in Ghana, and Guinness in Cameroon, partly offset by double digit beer declines in Ethiopia due to civil unrest.

In Nigeria, net sales grew 10% due to the strong double digit growth of mainstream spirits, primarily driven by Orijin which benefitted from a refreshed marketing campaign and the development of a small formats strategy.

 

Beer grew 3% driven by Malta Guinness and Guinness despite the disruption in October due to the civil protests.

South Africa net sales declined 10%. Economic and social challenges were further exacerbated by the banning of alcohol sales across all channels for six weeks through July and August and starting again 28 December 2020. Scotch net sales declined 6% driven by Johnnie Walker partially offset by modest growth of Bell's and VAT69.

Marketing investment declined 6% due to on-trade savings. Overall spend was shifted to support new route to consumer programmes, off-trade and e-commerce.

 

Latin America and Caribbean

 

Latin America and Caribbean net sales declined 1%. Declines in CCA, Travel Retail Latin America and Caribbean and Mexico were partially offset by growth in PUB, PEBAC and Colombia. In CCA, significantly reduced tourism resulted in a 21% net sales decline. Travel Retail Latin America and Caribbean net sales declined 100% due to continued international travel restrictions. Mexico net sales decreased 1% as growth in tequila and vodka was offset by declines in scotch. PUB net sales increased 21% primarily driven by double-digit growth in scotch and gin, aided by replenishment of stock levels by distributors and retailers. PEBAC net sales grew 16% supported by strong growth in scotch and liqueurs. Colombia net sales increased 7% driven by liqueurs, vodka and ready to drink. Scotch net sales across the region declined 5% as strong growth in White Horse and Black & White was more than offset by declines in Johnnie Walker, Buchanan's and Old Parr. Gin net sales grew 24% mainly due to strong momentum in Brazil. Tequila net sales grew 6% driven by growth of Don Julio in Mexico. Operating margin declined 133 bps as adverse product mix within scotch and market mix in the region more than offset reduced marketing investment and some pricing benefit.

Key financials £ million:

 

F20 H1

FX

Reclassifi-cation(i)

Acquisitions
and
disposals

Organic movement

Other(ii)

F21 H1

Reported movement 
%

Net sales

680 

 

(86)

 

(6)

 

 

(9)

 

 

579 

 

(15)

 

Marketing

113 

 

(14)

 

(6)

 

 

(15)

 

 

78 

 

(31)

 

Operating profit

257 

 

(47)

 

 

 

(12)

 

(1)

 

197 

 

(23)

 

 

Markets:

 

 

 

 

 

Global giants and local stars (iii) :

 

Organic
volume
movement

Reported
volume
movement

Organic
net sales
movement

Reported
net sales
movement

 

 

Organic
volume
movement(iv)

Organic
net sales
movement

Reported
net sales
movement

 

%

%

%

%

 

 

%

%

%

Latin America and Caribbean

 

 

 

 

 

Johnnie Walker

(6)

 

(11)

 

(21)

 

 

 

(1)

 

(15)

 

 

Buchanan's

(16)

 

(16)

 

(25)

 

 

 

 

 

 

 

Old Parr

(18)

 

(21)

 

(31)

 

PUB(vi)

12 

 

12 

 

21 

 

(8)

 

 

Smirnoff

(13)

 

(1)

 

(18)

 

Mexico(vi)

(4)

 

(5)

 

(1)

 

(15)

 

 

Black & White

31 

 

41 

 

14 

 

CCA

(10)

 

(10)

 

(21)

 

(23)

 

 

Tanqueray

 

18 

 

(8)

 

Andean(vi)

14 

 

15 

 

 

(4)

 

 

Baileys

11 

 

12 

 

 

PEBAC(vi)

13 

 

12 

 

16 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Spirits

 

 

(2)

 

(16)

 

 

 

 

 

 

Beer(v)

(7)

 

(7)

 

11 

 

13 

 

 

 

 

 

 

Ready to drink(v)

 

 

 

(10)

 

 

 

 

 

 

(i)  In the six months ended 31 December 2020, £6 million has been reclassified from marketing to sales. 

(ii) The adjustment to cost of sales reflects the fair value remeasurement of biological assets in respect of growing agave plants.

(iii)  Spirits brands excluding ready to drink and flavoured malt beverages.

(iv)  Organic equals reported volume movement.

(v) Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.

(vi) Variances between organic net sales movement and reported net sales movement are primarily a result of foreign exchange.

 

PUB (Paraguay, Uruguay and Brazil) net sales increased 21%. Scotch net sales increased 25% driven by triple-digit growth in White Horse and growth in Johnnie Walker driven by Johnnie Walker Red Label, Johnnie Walker Black Label and Johnnie Walker super deluxe variants. Brazil delivered 33% growth. Strong consumption recovery in Brazil's domestic market, replenishment of stock levels by distributors and retailers, as well as some pricing benefit, more than offset net sales decline in border stores and the duty free channel. Momentum in gin continued with strong double-digit growth in Tanqueray and triple-digit growth in Gordon's.

Mexico net sales declined 1% impacted by continued economic slowdown as well as on-trade closures. Scotch declined 8% as double-digit growth of Black & White was offset by declines in Johnnie Walker and Buchanan's. Tequila grew 10% driven by Don Julio, supported by the local "Antes Que Don" campaign, limited editions and a strong activation plan, resulting in share gains in the off-trade. Vodka increased 9% primarily due to Smirnoff's X1 Spicy Tamarind innovation, which continued to perform strongly.

CCA (Caribbean and Central America) net sales declined 21% primarily as a result of reduced levels of international tourism and on-trade restrictions, which drove declines across all spirits categories. Scotch net sales decreased 24% as declines in Buchanan's, Johnnie Walker and Old Parr more than offset double-digit growth in Black & White.

Andean (Colombia and Venezuela) net sales increased 7% driven by Colombia. Growth in Colombia was primarily driven by strong double-digit growth of Baileys building on the brand's globally proven indulgent treat communication and occasions strategy. Vodka net sales grew strong double-digit due to the Smirnoff X1 Lulo innovation endorsed by a local trend-setting celebrity. Scotch net sales increased 1% driven by triple-digit growth in Black & White and double-digit growth in Johnnie Walker, partially offset by double-digit declines in Old Parr due to its high reliance on the on-trade.

PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile) net sales increased 16% driven by lapping social and political instability across key markets, as well as strong execution through new distribution partnerships. Scotch delivered double-digit net sales growth driven by Johnnie Walker, White Horse and Buchanan's.

Travel Retail Latin America and Caribbean net sales decreased 100% due to continued international travel restrictions.

Marketing investment was down 15%. On-trade marketing spend was reduced, and partially redeployed to the off-trade and e-commerce given at-home consumption trends.

 

Asia Pacific

 

Asia Pacific net sales decreased 3%. Strong growth in Greater China and Australia in the first half was offset by declines in Travel Retail Asia and Middle East, South East Asia and North Asia. The region was in growth excluding Travel Retail Asia and Middle East. Greater China net sales increased 15%, driven by Chinese white spirits and scotch. Australia net sales increased 23%, with growth across key categories. India net sales grew 1%. Spirits sales declined due to the continued economic slowdown and on-trade closures. This was more than offset by revenue from the United Spirits Limited owned cricket team due to the postponement of the Indian Premier League from March 2020 to October 2020. South East Asia net sales decreased 17% with declines across all key categories primarily driven by local market restrictions and the reduced levels of international travel. Travel Retail Asia and Middle East declined 81% due to the continued impact of Covid-19 on international travel. Operating margin decreased 237 bps driven by adverse market and category mix partially offset by overhead efficiencies.

Key financials £ million:

 

F20 H1

FX

Acquisitions
and
disposals

Organic movement

F21 H1

Reported movement 
%

Net sales

1,477 

 

(33)

 

(1)

 

(48)

 

1,395 

 

(6)

 

Marketing

232 

 

(2)

 

 

(3)

 

227 

 

(2)

 

Operating profit before exceptional items

432 

 

 

 

(48)

 

386 

 

(11)

 

Exceptional operating items(i)

(59)

 

 

 

 

 

 

Operating profit

373 

 

 

 

 

386 

 

3

 

Markets:

 

 

 

 

 

Global giants and local stars(ii):

 

Organic
volume
movement

Reported
volume
movement

Organic
net sales
movement

Reported
net sales
movement

 

 

Organic
volume
movement(iii)

Organic
net sales
movement

Reported
net sales
movement

 

%

%

%

%

 

 

%

%

%

Asia Pacific

(3)

 

(3)

 

(3)

 

(6)

 

 

Johnnie Walker

(14)

 

(21)

 

(21)

 

 

 

 

 

 

 

McDowell's

(3)

 

(3)

 

(11)

 

India(vi)

(2)

 

(2)

 

 

(7)

 

 

Shui Jing Fang (iv)

17 

 

18 

 

18 

 

Greater China

 

 

15 

 

15 

 

 

Guinness

(9)

 

(11)

 

(13)

 

Australia

25 

 

26 

 

23 

 

26 

 

 

The Singleton

(3)

 

(3)

 

(2)

 

South East Asia

(15)

 

(15)

 

(17)

 

(21)

 

 

Royal Challenge

(11)

 

(11)

 

(17)

 

North Asia

 

 

(6)

 

(8)

 

 

Windsor

(35)

 

(27)

 

(28)

 

Travel Retail Asia and Middle East

(76)

 

(76)

 

(81)

 

(81)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Spirits

(3)

 

(3)

 

(6)

 

(8)

 

 

 

 

 

 

 Beer (v)

(7)

 

(7)

 

(10)

 

(13)

 

 

 

 

 

 

Ready to drink (v)

 

 

14 

 

17 

 

 

 

 

 

 

(i)  For further details on exceptional operating items see Summary Income Statement, (c) Exceptional items and Notes, Exceptional items. 

(ii)  Spirits brands excluding ready to drink and flavoured malt beverages. 

(iii) Organic equals reported volume movement.

(iv) Growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand.

(v)  Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.

(vi) Variances between organic net sales movement and reported net sales movement are primarily a result of foreign exchange.

 

 

 

In India, net sales grew 1%. Spirits declined due to the continued economic slowdown and on-trade closures. This was more than offset by revenue from the United Spirits Limited owned cricket team, Royal Challengers Bangalore, as the start of the Indian Premier League was rescheduled from March 2020 to October 2020. Net sales in the popular brands segment declined 10%. Prestige and Above segment net sales decreased 2% primarily driven by declines in vodka and IMFL whisky. Scotch net sales grew 1% driven by Johnnie Walker Red Label.

In Greater China, net sales increased 15% driven primarily by Chinese white spirits and scotch. Chinese white spirits grew 20% partly driven by route to consumer expansion. Scotch net sales increased 9% with double-digit growth in scotch malts and Johnnie Walker super deluxe.

In Australia, net sales increased 23% due to growth across all key categories driven by strong off-trade momentum. Ready to drink net sales grew 30% driven primarily by Bundaberg as well as strong growth in Smirnoff and Gordon's due to the Smirnoff Spiked Seltzers and Gordon's Pink Gin Premix innovations. Scotch net sales increased 17% driven by Johnnie Walker super deluxe. Gin net sales grew 48% due to continued momentum in Gordon's, Gordon's Premium Pink Distilled Gin and Gordon's Sicilian Lemon as well as Tanqueray. Baileys net sales increased 29% driven by strong growth in Baileys Original and Baileys Red Velvet innovation. Rum net sales delivered 20% growth driven by Bundaberg and Captain Morgan. Vodka net sales grew 23% due to Smirnoff.

In South East Asia, net sales decreased 17% with declines across all key categories primarily driven by local market restrictions and the reduced levels of international travel. Scotch net sales were down 8% as strong double-digit growth in scotch malts was more than offset by declines in Johnnie Walker.

In North Asia, net sales decreased 6%, with Japan and Korea each declining 6%. Performance in Japan was primarily driven by the decline of ready to drink. In Korea the main driver of decline was Windsor, partially offset by double-digit growth in Johnnie Walker.

Travel Retail Asia and Middle East net sales decreased 81% across the portfolio due to continued international travel restrictions.

Marketing investment declined 1% as a proportion of on-trade investment was redeployed into off-trade and e-commerce to focus on the at-home consumption occasion.

 

 

CATEGORY AND BRAND REVIEW

Six months ended 31 December 2020

Key categories:

 

Organic

volume

movement (iii)

%

Organic

net sales

movement

%

Reported

net sales

movement

%

Spirits(i)

 

 

(2)

 

Scotch

(3)

 

(8)

 

(13)

 

Vodka (ii)(iv)

(2)

 

 

(6)

 

Canadian whisky

 

 

(1)

 

Rum (ii)

(6)

 

 

(3)

 

Liqueurs

 

 

 

Indian-Made Foreign Liquor (IMFL) whisky

 

(1)

 

(8)

 

Tequila

42 

 

61 

 

56 

 

Gin (ii)

 

 

 

US whiskey

 

 

 

Beer (v)

(9)

 

(11)

 

(16)

 

Ready to drink (v)

10 

 

13 

 

 

(i)  Spirits brands excluding ready to drink and flavoured malt beverages.

(ii)  Vodka, rum, gin including IMFL brands.

(iii) Organic equals reported volume movement except for spirits 0%, vodka (3)%, rum (7)%, liqueurs 2%, gin 7%, beer (10)% and ready to drink (1)%, which were impacted by acquisitions and disposals.

(iv) Vodka includes Ketel One Botanical.

(v) Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reflects the nature of these products and how management reviews performance. Movements reported in the table above are on a like for like basis.

 

Scotch represents 24% of Diageo's net sales and declined 8%. Growth in North America of 2% was offset by declines in all other regions. Scotch performance was severely affected by the impact of Covid-19 on international travel, particularly in Asia Pacific. Excluding Travel Retail, scotch was broadly flat with growth in North America and Asia Pacific offset by declines in all other regions. Johnnie Walker net sales were down 12%, and scotch malts down 7%, driven by the impact of Covid-19 on Travel Retail sales and lapping Game of Thrones innovations. Primary scotch brands grew 16% driven by the growth of White Horse and Black & White in Latin America and Caribbean and Bell's in Europe and Turkey. Old Parr declined 19% driven by international tourism restrictions in Caribbean and Central America and restrictions on the on-trade channel in Colombia. Buchanan's net sales were down 2% with decline in Latin America and Caribbean partially offset by strong growth in North America driven by its strong presence in the off-trade channel. J Ɛ B continued to decline with net sales down 12% driven by the impact of on-trade restrictions in Southern Europe. 

Vodka represents 10% of Diageo's net sales and was broadly flat with growth in North America and Africa offset with decline in all other regions. Cîroc grew 11% driven mainly by US Spirits on the back of refreshed activations to engage with Cîroc's consumer base.  Smirnoff net sales were down 3% driven by declines in Europe and Turkey and Asia Pacific partially offset by growth in North America.  Ketel One net sales decreased 4% with North America performance flat and a decline in Europe and Turkey. 

Canadian whisky represents 8% of Diageo's net sales and grew 3%. Growth of Crown Royal in North America was largely driven by continued momentum on flavours with Crown Royal Regal Apple, Crown Royal Vanilla and Crown Royal Peach all growing strongly.

Rum represents 6% of Diageo's net sales and grew 1% primarily driven by Captain Morgan in North America and Great Britain partially offset by a decline in McDowell's No.1 in India. 

Liqueurs represent 7% of Diageo's net sales and grew 8% driven by Baileys. Baileys growth was broad based across regions, apart from Asia Pacific which declined 2%.  Performance was driven by Baileys Original, the successful launch of limited time offer Baileys Apple Pie, and continued focus on Baileys' positioning as a year-round indulgent treat. 

IMFL whisky represents 5% of Diageo's net sales and declined 1% driven by the economic slowdown, and the impact of Covid-19 shutdowns, in India.  

Tequila represents 7% of Diageo's net sales and grew 61% driven by strong performance of Don Julio and Casamigos in North America. 

Gin represents 5% of Diageo's net sales and grew 6% with growth across all regions except Europe and Turkey. Gin growth was driven by strong double-digit growth in Africa and Latin America and Caribbean. Growth in Africa was mainly driven by Gilbey's in Kenya and broad-based growth of Gordon's across the region. Growth in Latin America and Caribbean was mainly driven by growth of Tanqueray and Gordon's in Brazil. The decline in Europe and Turkey was mainly due to the impact of on-trade closures and reduced tourism in Southern Europe and the impact of Covid-19 on Travel Retail Europe. Gin net sales grew 12% in both Northern Europe and Great Britain driven by Tanqueray and Gordon's, respectively. In Great Britain Gordon's performance was primarily driven by the successful launch of Gordon's Sicilian Lemon.

US whiskey represents 2% of Diageo's net sales and grew 8%. Performance continued to be driven by strong growth in Bulleit.  

Beer represents 15% of Diageo's net sales and declined 11% with declines in all regions except North America and Latin America and Caribbean. Guinness declined 18% due to the impact of Covid-19 on the on-trade, particularly in Ireland and Great Britain. Smirnoff flavoured malt beverages in Diageo Beer Company USA grew 26% driven by innovation launches as well as increased consumption in the off-trade channel. 

Ready to drink represents 4% of Diageo's net sales and grew 13% with broad-based growth across all regions, particularly North America and Australia. Australia performance was driven by Bundaberg, Smirnoff and Gordon's.

      .

       

Global giants, local stars and reserve(i):

 

Organic

volume

movement(ii)

%

Organic

net sales

movement

%

Reported

net sales

movement

%

Global giants

 

 

 

Johnnie Walker

(10)

 

(12)

 

(16)

 

Smirnoff

(4)

 

(3)

 

(8)

 

Baileys

 

10 

 

 

Captain Morgan

 

 

 

Tanqueray

(1)

 

 

(5)

 

Guinness

(11)

 

(18)

 

(20)

 

Local stars

 

 

 

Crown Royal

 

 

(1)

 

Yenì Raki

(1)

 

(4)

 

(26)

 

Buchanan's

(5)

 

(2)

 

(9)

 

J Ɛ B

(12)

 

(12)

 

(14)

 

Windsor

(35)

 

(27)

 

(28)

 

Old Parr

(17)

 

(19)

 

(27)

 

Bundaberg

13 

 

 

11 

 

Black & White

19 

 

20 

 

 

Ypióca

18 

 

12 

 

(19)

 

McDowell's

(3)

 

(3)

 

(10)

 

Shui Jing Fang(iii)

17 

 

18 

 

18 

 

Reserve

 

 

 

Scotch malts

(6)

 

(7)

 

(7)

 

Cîroc vodka

 

11 

 

 

Ketel One(iv)

 

(4)

 

(9)

 

Don Julio

19 

 

39 

 

35 

 

Bulleit

11 

 

15 

 

10 

 

Casamigos

111 

 

135 

 

126 

 

(i)  Spirits brands excluding ready to drink and flavoured malt beverages. 

(ii) Organic equals reported volume movement.

(iii)  Growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand.

(iv)  Ketel One includes Ketel One vodka and Ketel One Botanical.

 

 

Global giants represent 39% of Diageo's net sales and declined by 7%. Johnnie Walker decline was due to the impact of Covid-19 on Travel Retail, and Guinness declined due to restrictions on the on-trade channel, particularly in Great Britain and Ireland. These declines were partially offset by growth in Baileys in North America and Europe and Turkey and Captain Morgan in North America.     

Local stars represent 20% of Diageo's net sales and grew 1%, largely driven by growth in Chinese white spirits in Asia Pacific, Crown Royal in North America and Black & White in Colombia and Mexico. These gains were partially offset by declines in Old Parr in the Caribbean and Central America and Colombia, Windsor in South Korea, J Ɛ B in Southern Europe and McDowell's No.1 in India.    

Reserve brands represent 24% of Diageo's net sales and grew 15% largely driven by the strong growth of Casamigos and Don Julio in US Spirits and Chinese white spirits partially offset by declines in scotch malts mainly in US Spirits and Johnnie Walker Reserve variants mainly in Travel Retail Asia and Middle East. 

 

 

ADDITIONAL FINANCIAL INFORMATION

Six months ended 31 December 2020

SUMMARY INCOME STATEMENT

 

 

31 December 2019

Exchange
(a)

Acquisitions and disposals
(b)

Organic movement(i)

Fair value remeasure-
ment
(d)

Reclassifi-
cation(ii)

31 December 2020

 

£ million

£ million

£ million

£ million

£ million

£ million

£ million

Sales

10,831 

 

(601)

 

(88)

 

300 

 

 

(6)

 

10,436 

 

Excise duties

(3,631)

 

273 

 

28 

 

(232)

 

 

 

(3,562)

 

Net sales

7,200 

 

(328)

 

(60)

 

68 

 

 

(6)

 

6,874 

 

Cost of sales

(2,702)

 

141 

 

50 

 

(149)

 

(1)

 

 

(2,661)

 

Gross profit

4,498 

 

(187)

 

(10)

 

(81)

 

(1)

 

(6)

 

4,213 

 

Marketing

(1,116)

 

35 

 

(2)

 

(8)

 

 

 

(1,085)

 

Other operating items

(881)

 

18 

 

(6)

 

 

(7)

 

 

(872)

 

Operating profit before exceptional items

2,501 

 

(134)

 

(18)

 

(85)

 

(8)

 

 

2,256 

 

Exceptional operating items (c)

(59)

 

 

 

 

 

 

(17)

 

Operating profit

2,442 

 

 

 

 

 

 

2,239 

 

Non-operating items (c)

 

 

 

 

 

 

 

Net finance charges

(154)

 

 

 

 

 

 

(200)

 

Share of after tax results of associates and joint ventures

176 

 

 

 

 

 

 

154 

 

Profit before taxation

2,464 

 

 

 

 

 

 

2,198 

 

Taxation (e)

(530)

 

 

 

 

 

 

(537)

 

Profit for the period

1,934 

 

 

 

 

 

 

1,661 

 

(i)  For the definition of organic movement see Explanatory notes, Organic movements.

(ii)  In the six months ended 31 December 2020, £6 million has been reclassified from marketing to sales.

 

(a) Exchange

The impact of movements in exchange rates on reported figures for net sales and operating profit are principally in respect of the translation exchange impact of the strengthening of sterling against the US dollar, the Brazilian real and the Turkish lira, partially offset by weakening of sterling against the euro.

The effect of movements in exchange rates and other movements on profit before exceptional items and taxation for the six months ended 31 December 2020 is set out in the table below.

 

Gains/(losses)

 

£ million

Translation impact

(94)

Transaction impact

(40)

 

Operating profit before exceptional items

(134)

 

Net finance charges - translation impact

 

Net finance charges - transaction impact

 

Net finance charges

 

Associates - translation impact

 

Profit before exceptional items and taxation

(126)

 

 

 

Six months ended 31 December 2020

Six months ended 31 December 2019

Exchange rates

 

 

Translation  £1 =

$1.31 

 

$1.26 

 

Transaction £1 =

$1.34 

 

$1.36 

 

Translation  £1 =

€1.11 

 

€1.14 

 

Transaction £1 =

€1.11 

 

€1.13 

 

(b) Acquisitions and disposals

The acquisitions and disposals movement includes the impact of the acquisition of Aviation Gin LLC ('Aviation Gin') and Davos Brands LLC ('Davos Brands') in the six months ended 31 December 2020, as well as the impact of disposals.

 

See Notes, Acquisition of businesses and purchase of non-controlling interests and Explanatory Notes for further details.

 

(c) Exceptional items

Exceptional operating items in the six months ended 31 December 2020 were £17 million before tax (2019 - £59 million).

In the six months ended 31 December 2020, based on recent developments, an additional provision of TRY 152 million (£15 million) was recorded as an exceptional item in respect of ongoing litigation in Turkey, bringing the provision's balance at 31 December 2020 to TRY 283 million (£28 million).

On 20 November 2020, the High Court of Justice of England and Wales issued a ruling that requires schemes to equalise pension benefits for men and women for the calculation of their guaranteed minimum pension liability (GMP) on historic transfers out, which has resulted in an additional liability of £5 million. The corresponding expense has been recognised as an exceptional operating item, consistent with the charge in relation to the initial GMP ruling in the year ended 30 June 2019.

In the six months ended 31 December 2020, an inventory provision of £3 million (2019 - £nil) has been released in respect of inventories that had earlier been expected to be returned and destroyed as a consequence of the Covid-19 pandemic, resulting in an exceptional gain.

In the six months ended 31 December 2019, an impairment charge of £59 million in respect of the Old Tavern brand in India was recognised in exceptional operating items.

 

Non-operating items in the six months ended 31 December 2020 were £5 million (2019 - £nil).

In the six months ended 31 December 2020, ZAR 100 million (£5 million) of deferred consideration was paid to Diageo in respect of the sale of United National Breweries, resulting in a non-operating gain.

Non-operating items in the six months ended 31 December 2019 comprised:

£8 million step up gain as a result of the acquisition of Seedlip Limited, Anna Seed 83 Limited and certain smaller businesses;

£7 million incremental loss on the disposal of United National Breweries;

£1 million loss on the disposal of an associate, Equal Parts, LLC.

 

Exceptional tax charges in the six months ended 31 December 2020 were £42 million (2019 - £nil), driven by a change in the applicable corporate tax rate in the Netherlands.

 

See Explanatory Notes, (c) Exceptional items for the definition of exceptional items.

 

(d) Fair value remeasurement

The adjustment to cost of sales reflects the elimination of fair value changes for biological assets in respect of growing agave plants of a £3 million gain for the six months ended 31 December 2020 and a £4 million gain for the six months ended 31 December 2019. The adjustment to other operating expenses is the elimination of fair value changes to contingent consideration liabilities in respect of prior year acquisitions of £11 million loss for the six months ended 31 December 2020 and £4 million loss for the six months ended 31 December 2019.

 

(e) Taxation

The reported tax rate for the six months ended 31 December 2020 was 24.4% compared with 21.5% for the six months ended 31 December 2019.

For the six months ended 31 December 2020, income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period in line with the relevant accounting standard.

On 15 December 2020, legislation was substantively enacted in the Netherlands to maintain the headline corporate tax rate at 25%, reversing a previously enacted reduction in the corporate tax rate to 21.7% in 2021. As a result of the change, an exceptional tax charge of £42 million was recognised for the six months ended 31 December 2020 in relation to the remeasurement of deferred tax liabilities.

The reported tax charge for the six months ended 31 December 2019 included a tax credit of £14 million in respect of the Old Tavern brand impairment charge.

The tax rate before exceptional items for the six months ended 31 December 2020 was 22.4% compared with 21.6% for the six months ended 31 December 2019.

We expect the tax rate before exceptional items for the year ending 30 June 2021 to be in the upper end of the 21%-22% range.

 

(f) Dividend 

The group aims to increase the dividend each year and the decision in respect of the dividend is made with reference to dividend cover as well as current performance trends including sales and profit after tax together with cash generation. Diageo targets dividend cover (the ratio of basic earnings per share before exceptional items to dividend per share) within the range of 1.8-2.2 times. For the year ended  30 June 2020 dividend cover was 1.6 times. 

An interim dividend of 27.96 pence per share will be paid to holders of ordinary shares and ADRs on the register as of 26 February 2021. The ex-dividend date is 25 February 2021. This represents an increase of 2% on last year's interim dividend. The interim dividend will be paid to ordinary shareholders on 8 April 2021. Payment to US ADR holders will be made on 13 April 2021. A dividend reinvestment plan is available to holders of ordinary shares in respect of the interim dividend and the plan notice date is 12 March 2021.

 

(g) Share buyback 

On 25 July 2019, the Board approved a return of capital programme to return up to £4.5 billion to shareholders over the three-year period from 1 July 2019 to 30 June 2022, utilising the most appropriate mechanic of either share buybacks or special dividends depending on market conditions.

During the six months ended 31 December 2019, the group purchased 34.6 million ordinary shares at a cost of £1,129 million (including £6 million of transaction costs). In the second half of the year the group purchased 4.1 million ordinary shares at a cost of £127 million (including £1 million of transaction costs), taking the total number of ordinary shares purchased under the programme to 38.7 million at a cost of £1,256 million (including £7 million of transaction costs). All shares purchased under the share buyback programmes were cancelled. On 9 April 2020, the group announced that it had not initiated the next phase of the three-year programme. Given our elevated leverage ratio we have paused the programme until the leverage ratio is back within target range.

 At 31 December 2020 the leverage ratio, calculated as adjusted net debt to adjusted EBITDA, was 3.4x, in-line with the leverage ratio at 30 June 2020. The group anticipates leverage to be above the target range of 2.5-3.0x through the year ending 30 June 2021.

See Explanatory Notes for explanation of the calculation and use of non-GAAP measures.

 

MOVEMENT IN NET BORROWINGS AND EQUITY

 

Movement in net borrowings

 

2020

2019

 

£ million

£ million

Net borrowings at 30 June

(13,246)

 

(11,277)

 

Free cash flow (a)

1,753 

 

966 

 

Acquisitions (b)

(364)

 

(106)

 

Sale of businesses and brands

 

 

Share buyback programme

 

(1,155)

 

Proceeds from issue of share capital

 

 

Net sale of own shares for share schemes (c)

 

33 

 

Dividends paid to non-controlling interests

(53)

 

(76)

 

Net movements in bonds (d)

(216)

 

1,289 

 

Purchase of shares of non-controlling interests (e)

(34)

 

(25)

 

Net movements in other borrowings (f)

(345)

 

209 

 

Equity dividends paid

(992)

 

(1,006)

 

Net (decrease)/increase in cash and cash equivalents

(237)

 

130 

 

Net decrease/(increase) in bonds and other borrowings

561 

 

(1,503)

 

Exchange differences (g)

420 

 

209 

 

Other non-cash items (h)

(159)

 

(188)

 

Adoption of IFRS 16

 

(251)

 

Net borrowings at 31 December

(12,661)

 

(12,880)

 

 

(a) See Explanatory Notes, Free cash flow for the analysis of free cash flow.

 

(b) In the six months ended 31 December 2020, Diageo completed the acquisition of Aviation Gin and Davos Brands for a total consideration of $337 million (£263 million) in cash and contingent consideration of up to $275 million (£214 million) over a ten-year period linked to performance targets.

In the six months ended 31 December 2019, Diageo acquired the remaining share capital of Seedlip Limited and Anna Seed 83 Limited (the brand owner of Aecorn) which it did not already own, as well as a number of smaller transactions.

Acquisitions also include additional investments as part of the Distill Ventures programme, as well as deferred and contingent consideration paid in respect of previous acquisitions.

 

(c) Net sale of own shares comprised purchase of treasury shares for the future settlement of obligations under the employee share option schemes of £1 million (2019 - £1 million) less receipts from employees on the exercise of share options of £10 million (2019 - £34 million). 

 

(d) In the six months ended 31 December 2020, the group issued bonds of €700 million (£636 million - net of discount and fee) and £395 million (including £5 million discount and fee) and repaid bonds of $696 million (£551 million) and €775 million (£696 million). In the six months ended 31 December 2019, the group issued bonds of $1,600 million (£1,289 million).

 

(e) In the six months ended 31 December 2020, East African Breweries Limited (EABL), a subsidiary of Diageo, completed the purchase of 30% of the share capital of Serengeti Breweries Limited for $55 million (£42 million) out of which $12 million (£8 million) was still payable at 31 December 2020.

In the six months ended 31 December 2019,  Diageo acquired an additional 3,310,515 shares (representing 0.46% of total shares) of United Spirits Limited for INR 1,960 million (£23 million) and completed the purchase of 4% of the share capital of Serengeti Breweries Limited for $3 million (£2 million).

 

(f) In the six months ended 31 December 2020, the net movement in other borrowings principally arose from cash movement of foreign exchange swaps and forwards. In the six months ended 31 December 2019, movements were driven by the issue of commercial paper, partially offset by cash movements on foreign exchange swaps and forwards.

 

(g) The exchange arising on net borrowings of £420 million is primarily driven by favourable exchange movements on US dollar and euro denominated borrowings, moderately offset by an unfavourable movement on cash and cash equivalents, foreign exchange swaps and forwards.

In the six months ended 31 December 2019, exchange differences were principally driven by beneficial exchange movements on US dollar and euro denominated borrowings partially offset by an adverse movement on foreign exchange swaps and forwards.

 

(h) In the six months ended 31 December 2020, other non-cash items are principally in respect of fair value changes of cross currency interest rate swaps. In the six months ended 31 December 2019, other non-cash items are principally in respect of additional leases entered into during the six months ended 31 December 2019.

 

Movement in equity

 

2020

2019

 

£ million

£ million

Equity at 30 June

8,440 

 

10,156 

 

Profit for the period

1,661 

 

1,934 

 

Exchange adjustments (a)

(590)

 

(623)

 

Remeasurement of post employment plans net of taxation

(115)

 

(82)

 

Purchase of shares of non-controlling interests (b)

(42)

 

(25)

 

Dividends declared to non-controlling interests

(24)

 

(52)

 

Equity dividends paid

(992)

 

(1,006)

 

Share buyback programme

 

(1,200)

 

Other reserve movements

40 

 

128 

 

Equity at 31 December

8,378 

 

9,230 

 

 

(a) Exchange movement in the six months ended 31 December 2020 primarily arose from exchange losses driven by the US dollar, Indian rupee and the Turkish lira. 

 

(b) In the six months ended 31 December 2020, East African Breweries Limited completed the purchase of 30% of the share capital of Serengeti Breweries Limited for $55 million (£42 million). 

  In the six months ended 31 December 2019, Diageo acquired an additional 3,310,515 shares of United Spirits Limited for INR 1,960 million (£23 million) and completed the purchase of 4% of the share capital of Serengeti Breweries Limited for $3 million (£2 million).

 

Post employment plans 

The net surplus of the group's post employment benefit plans have decreased by £94 million from £362 million at 30 June 2020 to £268 million at 31 December 2020. The decrease in net surplus is primarily attributable to the change in discount rates in Ireland and in the United Kingdom due to the decrease in returns from AA-rated corporate bonds used to calculate the discount rates on the liabilities of the post employment plans (Ireland from 1.2% to 0.7%; UK from 1.5% to 1.4%), partially offset by an increase in the market value of assets held by the post employment schemes.

  The operating profit charge before exceptional items increased by £18 million from £36 million for the six months ended 31 December 2019 to £54 million for the six months ended 31 December 2020. Operating profit for the six months ended 31 December 2019 includes a past service gain of £19 million following a communication to the deferred members of the Guinness Ireland Group Pension Scheme in respect of changing their expectation of a full pension prior to reaching the age of 65.

  Total cash contributions by the group to all post employment plans in the year ending 30 June 2021 are estimated to be approximately £120 million.

 

 

DIAGEO CONDENSED CONSOLIDATED INCOME STATEMENT

 

 

Six months ended 31 December 2020

 

Six months ended 31 December 2019

 

Notes

£ million

 

£ million

 

 

 

 

 

Sales

2

10,436 

 

 

10,831 

 

Excise duties

 

(3,562)

 

 

(3,631)

 

Net sales

2

6,874 

 

 

7,200 

 

Cost of sales

 

(2,661)

 

 

(2,702)

 

Gross profit

 

4,213 

 

 

4,498 

 

Marketing

 

(1,085)

 

 

(1,116)

 

Other operating items

 

(889)

 

 

(940)

 

Operating profit

2

2,239 

 

 

2,442 

 

Non-operating items

3

 

 

 

Finance income

4

127 

 

 

163 

 

Finance charges

4

(327)

 

 

(317)

 

Share of after tax results of associates and joint ventures

 

154 

 

 

176 

 

Profit before taxation

 

2,198 

 

 

2,464 

 

Taxation

5

(537)

 

 

(530)

 

Profit for the period

 

1,661 

 

 

1,934 

 

 

 

 

 

 

Attributable to:

 

 

 

 

Equity shareholders of the parent company

 

1,580 

 

 

1,865 

 

Non-controlling interests

 

81 

 

 

69 

 

 

 

1,661 

 

 

1,934 

 

 

 

 

 

 

 

 

million

 

million

Weighted average number of shares

 

 

 

 

Shares in issue excluding own shares

 

2,336 

 

 

2,356 

 

Dilutive potential ordinary shares

 

 

 

10 

 

 

 

2,343 

 

 

2,366 

 

 

 

 

 

 

 

 

pence

 

pence

Basic earnings per share

 

67.6 

 

 

79.2 

 

 

 

 

 

 

Diluted earnings per share

 

67.4 

 

 

78.8 

 

 

 

 

 

 

DIAGEO CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

Six months ended 31 December 2020

 

Six months ended 31 December 2019

 

£ million

 

£ million

Other comprehensive income

 

 

 

  Items that will not be recycled subsequently to the income statement

 

 

 

Net remeasurement of post employment plans

 

 

 

-  group

(128)

 

 

(101)

 

-  associates and joint ventures

(1)

 

 

(1)

 

Tax on post employment plans

14 

 

 

20 

 

 

(115)

 

 

(82)

 

  Items that may be recycled subsequently to the income statement

 

 

 

Exchange differences on translation of foreign operations

 

 

 

-  group

(887)

 

 

(585)

 

-  associates and joint ventures

(78)

 

 

(161)

 

-  non-controlling interests

(138)

 

 

(100)

 

Net investment hedges

513 

 

 

223 

 

Tax on exchange differences

(3)

 

 

(7)

 

Effective portion of changes in fair value of cash flow hedges

 

 

 

-  hedge of foreign currency debt of the group

(280)

 

 

(60)

 

-  transaction exposure hedging of the group

138 

 

 

63 

 

-  commodity price risk hedging of the group

14 

 

 

 

-  hedges by associates and joint ventures

13 

 

 

 

-  recycled to income statement - hedge of foreign currency debt of the group

150 

 

 

50 

 

-  recycled to income statement - transaction exposure hedging of the group

(18)

 

 

12 

 

-  recycled to income statement - commodity price risk hedging of the group

 

 

 

Tax on effective portion of changes in fair value of cash flow hedges

(4)

 

 

 

Hyperinflation adjustment

(16)

 

 

(15)

 

Tax on hyperinflation adjustment

 

 

 

 

(586)

 

 

(563)

 

Other comprehensive loss, net of tax, for the period

(701)

 

 

(645)

 

Profit for the period

1,661 

 

 

1,934 

 

Total comprehensive income for the period

960 

 

 

1,289 

 

 

 

 

 

Attributable to:

 

 

 

Equity shareholders of the parent company

1,017 

 

 

1,320 

 

Non-controlling interests

(57)

 

 

(31)

 

Total comprehensive income for the period

960 

 

 

1,289 

 

DIAGEO CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

31 December 2020

 

30 June 2020

 

31 December 2019

 

Notes

£ million

 

£ million

 

£ million

 

£ million

 

£ million

 

£ million

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

10,877 

 

 

 

 

11,300 

 

 

 

 

12,035 

 

 

 

Property, plant and equipment

 

4,757 

 

 

 

 

4,926 

 

 

 

 

4,834 

 

 

 

Biological assets

 

63 

 

 

 

 

51 

 

 

 

 

42 

 

 

 

Investments in associates and joint ventures

 

3,578 

 

 

 

 

3,557 

 

 

 

 

3,202 

 

 

 

Other investments

 

36 

 

 

 

 

41 

 

 

 

 

51 

 

 

 

Other receivables

 

41 

 

 

 

 

46 

 

 

 

 

48 

 

 

 

Other financial assets

 

410 

 

 

 

 

686 

 

 

 

 

338 

 

 

 

Deferred tax assets

 

114 

 

 

 

 

119 

 

 

 

 

71 

 

 

 

Post employment benefit assets

 

1,083 

 

 

 

 

1,111 

 

 

 

 

955 

 

 

 

 

 

 

 

20,959 

 

 

 

 

21,837 

 

 

 

 

21,576 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

Inventories

6

5,750 

 

 

 

 

5,772 

 

 

 

 

5,459 

 

 

 

Trade and other receivables

 

3,075 

 

 

 

 

2,111 

 

 

 

 

3,587 

 

 

 

Assets held for sale

 

 

 

 

 

 

 

 

 

51 

 

 

 

Corporate tax receivables

5

173 

 

 

 

 

190 

 

 

 

 

68 

 

 

 

Other financial assets

 

84 

 

 

 

 

75 

 

 

 

 

42 

 

 

 

Cash and cash equivalents

7

2,763 

 

 

 

 

3,323 

 

 

 

 

950 

 

 

 

 

 

 

 

11,845 

 

 

 

 

11,471 

 

 

 

 

10,157 

 

Total assets

 

 

 

32,804 

 

 

 

 

33,308 

 

 

 

 

31,733 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings and bank overdrafts

7

(1,214)

 

 

 

 

(1,995)

 

 

 

 

(3,381)

 

 

 

Other financial liabilities

 

(332)

 

 

 

 

(389)

 

 

 

 

(474)

 

 

 

Share buyback liability

 

 

 

 

 

 

 

 

 

(71)

 

 

 

Trade and other payables

 

(4,624)

 

 

 

 

(3,683)

 

 

 

 

(4,474)

 

 

 

Liabilities held for sale

 

 

 

 

 

 

 

 

 

(27)

 

 

 

Corporate tax payables

5

(364)

 

 

 

 

(246)

 

 

 

 

(336)

 

 

 

Provisions

 

(176)

 

 

 

 

(183)

 

 

 

 

(90)

 

 

 

 

 

 

 

(6,710)

 

 

 

 

(6,496)

 

 

 

 

(8,853)

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings

7

(14,063)

 

 

 

 

(14,790)

 

 

 

 

(10,091)

 

 

 

Other financial liabilities

 

(376)

 

 

 

 

(393)

 

 

 

 

(405)

 

 

 

Other payables

 

(267)

 

 

 

 

(175)

 

 

 

 

(185)

 

 

 

Provisions

 

(295)

 

 

 

 

(293)

 

 

 

 

(320)

 

 

 

Deferred tax liabilities

 

(1,900)

 

 

 

 

(1,972)

 

 

 

 

(1,896)

 

 

 

Post employment benefit liabilities

 

(815)

 

 

 

 

(749)

 

 

 

 

(753)

 

 

 

 

 

 

 

(17,716)

 

 

 

 

(18,372)

 

 

 

 

(13,650)

 

Total liabilities

 

 

 

(24,426)

 

 

 

 

(24,868)

 

 

 

 

(22,503)

 

Net assets

 

 

 

8,378 

 

 

 

 

8,440 

 

 

 

 

9,230 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Share capital

 

742 

 

 

 

 

742 

 

 

 

 

743 

 

 

 

Share premium

 

1,351 

 

 

 

 

1,351 

 

 

 

 

1,351 

 

 

 

Other reserves

 

1,835 

 

 

 

 

2,272 

 

 

 

 

1,930 

 

 

 

Retained earnings

 

2,890 

 

 

 

 

2,407 

 

 

 

 

3,499 

 

 

 

Equity attributable to equity shareholders of the parent company

 

 

 

6,818 

 

 

 

 

6,772 

 

 

 

 

7,523 

 

Non-controlling interests

 

 

 

1,560 

 

 

 

 

1,668 

 

 

 

 

1,707 

 

Total equity

 

 

 

8,378 

 

 

 

 

8,440 

 

 

 

 

9,230 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIAGEO CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

 

 

 

 

 

 

Retained earnings/(deficit)

 

 

 

 

 

 

 

Share
capital

 

Share
premium

 

Other reserves

 

Own shares

 

Other retained earnings

 

Total

 

Equity attributable to parent company shareholders

 

Non-controlling interests

 

Total equity

£ million

 

£ million

 

£ million

 

£ million

 

£ million

 

£ million

 

£ million

 

£ million

 

£ million

At 30 June 2019

753 

 

 

1,350 

 

 

2,372 

 

 

(2,026)

 

 

5,912 

 

 

3,886 

 

 

8,361 

 

 

1,795 

 

 

10,156 

 

Profit for the period

 

 

 

 

 

 

 

 

1,865 

 

 

1,865 

 

 

1,865 

 

 

69 

 

 

1,934 

 

Other comprehensive loss

 

 

 

 

(452)

 

 

 

 

(93)

 

 

(93)

 

 

(545)

 

 

(100)

 

 

(645)

 

Total comprehensive (loss)/income

 

 

 

 

(452)

 

 

 

 

1,772 

 

 

1,772 

 

 

1,320 

 

 

(31)

 

 

1,289 

 

Employee share schemes

 

 

 

 

 

 

74 

 

 

(35)

 

 

39 

 

 

39 

 

 

 

 

39 

 

Share-based incentive plans

 

 

 

 

 

 

 

 

23 

 

 

23 

 

 

23 

 

 

 

 

23 

 

Share-based incentive plans in respect of associates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of non-controlling interests

 

 

 

 

 

 

 

 

(15)

 

 

(15)

 

 

(15)

 

 

(10)

 

 

(25)

 

Non-controlling interest in respect of new subsidiary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of put option

 

 

 

 

 

 

 

 

(1)

 

 

(1)

 

 

(1)

 

 

 

 

(1)

 

Share buyback programme

(10)

 

 

 

 

10 

 

 

 

 

(1,200)

 

 

(1,200)

 

 

(1,200)

 

 

 

 

(1,200)

 

Dividends paid

 

 

 

 

 

 

 

 

(1,006)

 

 

(1,006)

 

 

(1,006)

 

 

(52)

 

 

(1,058)

 

At 31 December 2019

743 

 

 

1,351 

 

 

1,930 

 

 

(1,952)

 

 

5,451 

 

 

3,499 

 

 

7,523 

 

 

1,707 

 

 

9,230 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

742 

 

 

1,351 

 

 

2,272 

 

 

(1,936)

 

 

4,343 

 

 

2,407 

 

 

6,772 

 

 

1,668 

 

 

8,440 

 

Profit for the period

 

 

 

 

 

 

 

 

1,580 

 

 

1,580 

 

 

1,580 

 

 

81 

 

 

1,661 

 

Other comprehensive loss

 

 

 

 

(437)

 

 

 

 

(126)

 

 

(126)

 

 

(563)

 

 

(138)

 

 

(701)

 

Total comprehensive (loss)/income

 

 

 

 

(437)

 

 

 

 

1,454 

 

 

1,454 

 

 

1,017 

 

 

(57)

 

 

960 

 

Employee share schemes

 

 

 

 

 

 

41 

 

 

(20)

 

 

21 

 

 

21 

 

 

 

 

21 

 

Share-based incentive plans

 

 

 

 

 

 

 

 

17 

 

 

17 

 

 

17 

 

 

 

 

17 

 

Share-based incentive plans in respect of associates

 

 

 

 

 

 

 

 

(1)

 

 

(1)

 

 

(1)

 

 

 

 

(1)

 

Purchase of non-controlling interests

 

 

 

 

 

 

 

 

(15)

 

 

(15)

 

 

(15)

 

 

(27)

 

 

(42)

 

Change in fair value of put option

 

 

 

 

 

 

 

 

(1)

 

 

(1)

 

 

(1)

 

 

 

 

(1)

 

Dividends declared

 

 

 

 

 

 

 

 

(992)

 

 

(992)

 

 

(992)

 

 

(24)

 

 

(1,016)

 

At 31 December 2020

742 

 

 

1,351 

 

 

1,835 

 

 

(1,895)

 

 

4,785 

 

 

2,890 

 

 

6,818 

 

 

1,560 

 

 

8,378 

 

DIAGEO CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

Six months ended

31 December 2020

 

Six months ended

31 December 2019

 

£ million

 

£ million

 

£ million

 

£ million

Cash flows from operating activities

 

 

 

 

 

 

 

Profit for the period

1,661 

 

 

 

 

1,934 

 

 

 

Taxation

537 

 

 

 

 

530 

 

 

 

Share of after tax results of associates and joint ventures

(154)

 

 

 

 

(176)

 

 

 

Net finance charges

200 

 

 

 

 

154 

 

 

 

Non-operating items

(5)

 

 

 

 

 

 

 

Operating profit

 

 

2,239 

 

 

 

 

2,442 

 

Increase in inventories

(112)

 

 

 

 

(85)

 

 

 

Increase in trade and other receivables

(1,078)

 

 

 

 

(1,016)

 

 

 

Increase in trade and other payables and provisions

1,161 

 

 

 

 

423 

 

 

 

Net increase in working capital

 

 

(29)

 

 

 

 

(678)

 

Depreciation, amortisation and impairment

219 

 

 

 

 

286 

 

 

 

Dividends received

82 

 

 

 

 

 

 

 

Post employment payments less amounts included in operating profit

(14)

 

 

 

 

(60)

 

 

 

Other items

(1)

 

 

 

 

(5)

 

 

 

 

 

 

286 

 

 

 

 

224 

 

Cash generated from operations

 

 

2,496 

 

 

 

 

1,988 

 

Interest received

84 

 

 

 

 

86 

 

 

 

Interest paid

(266)

 

 

 

 

(239)

 

 

 

Taxation paid

(316)

 

 

 

 

(547)

 

 

 

 

 

 

(498)

 

 

 

 

(700)

 

Net cash inflow from operating activities

 

 

1,998 

 

 

 

 

1,288 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Disposal of property, plant and equipment and computer software

 

 

 

 

 

 

 

Purchase of property, plant and equipment and computer software

(250)

 

 

 

 

(330)

 

 

 

Movements in loans and other investments

(3)

 

 

 

 

 

 

 

Sale of businesses and brands

 

 

 

 

 

 

 

Acquisition of businesses

(364)

 

 

 

 

(106)

 

 

 

Net cash outflow from investing activities

 

 

(604)

 

 

 

 

(428)

 

Cash flows from financing activities

 

 

 

 

 

 

 

Share buyback programme

 

 

 

 

(1,155)

 

 

 

Proceeds from issue of share capital

 

 

 

 

 

 

 

Net sale of own shares for share schemes

 

 

 

 

33 

 

 

 

Dividends paid to non-controlling interests

(53)

 

 

 

 

(76)

 

 

 

Proceeds from bonds

1,031 

 

 

 

 

1,289 

 

 

 

Repayment of bonds

(1,247)

 

 

 

 

 

 

 

Purchase of shares of non-controlling interests

(34)

 

 

 

 

(25)

 

 

 

Net movements in other borrowings

(345)

 

 

 

 

209 

 

 

 

Equity dividends paid

(992)

 

 

 

 

(1,006)

 

 

 

Net cash outflow from financing activities

 

 

(1,631)

 

 

 

 

(730)

 

 

 

 

 

 

 

 

 

Net (decrease)/increase in net cash and cash equivalents

 

 

(237)

 

 

 

 

130 

 

Exchange differences

 

 

(236)

 

 

 

 

(32)

 

Net cash and cash equivalents at beginning of the period

 

 

3,153 

 

 

 

 

721 

 

Net cash and cash equivalents at end of the period

 

 

2,680 

 

 

 

 

819 

 

 

 

 

 

 

 

 

 

Net cash and cash equivalents consist of:

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

2,763 

 

 

 

 

950 

 

Bank overdrafts

 

 

(83)

 

 

 

 

(131)

 

 

 

 

2,680 

 

 

 

 

819 

 

NOTES

1. Basis of preparation  

 

These unaudited condensed set of financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU). International Financial Reporting Standards (IFRS) 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 periods presented.

The annual financial statements of the group are prepared in accordance with IFRSs as issued by the IASB and as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements have 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 2020 except for changes on 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 interim 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 2020, with the exception of changes in estimates disclosed in note 12 - Contingent liabilities and legal proceedings.

The potential financial impact of the Covid-19 pandemic has been modelled in our cash flow projections and stress tested by including several severe but plausible downside scenarios which are linked to our principal risks. In our downside Covid-19 scenario, we have considered the key impacts of the pandemic for each region including the potential restrictions on the sale of our products in both on-trade and off-trade channels. We have then considered the expected duration of those restrictions, as well as a forecast for the length of time to recovery (a return to 2019 volumes), based on industry projections. As a result of these factors, in our severe but plausible scenarios, we do not anticipate that the on-trade business recovers to volumes experienced in the year ending 30 June 2019 within the next 18-month period. Even with these negative sensitivities for each region taken into account, the group's cash position is still considered to remain strong, as we have protected our liquidity by launching and pricing €700 million of fixed rate Euro and £400 million of fixed rate Sterling denominated bonds under Diageo's European Debt Issuance Programme. Mitigating actions, should they be required, are all within management's control and could include reduced advertising and promotion spend, dividend cash payments, non-essential overheads and non-committed capital expenditure in the next 12 months. Having considered the outcome of these assessments, it is deemed appropriate to prepare the condensed consolidated financial statements on a going concern basis.

 

Weighted average exchange rates used in the translation of income statements were US dollar - £1 = $1.31 (2019 - £1 = $1.26) and euro - £1 = €1.11 (2019 - £1 = €1.14). Exchange rates used to translate assets and liabilities at the balance sheet date were US dollar - £1 = $1.36 (31 December 2019 - £1 = $1.32; 30 June 2020 - £1 = $1.23) and euro - £1 = €1.11 (31 December 2019 - £1 = €1.18; 30 June 2020 - £1 = €1.09). The group uses foreign exchange transaction hedges to mitigate the effect of exchange rate movements. 

 

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 2020 with no  impact on the group's consolidated results, financial position or disclosures: 

 

Amendments to References to the Conceptual Framework in IFRS 

Amendments to IFRS 3 - Definition of a Business

Amendments to IAS 1 and IAS 8 - Definition of Material

Amendments to IFRS 16 - Covid-19 - Related Rent Concessions

 

The following amendment issued by the IASB and endorsed by the EU, has been adopted by the group: 

 

Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform (phase 1). The amendment provides temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected by interbank offered rate (IBOR) reform. The reliefs have the effect that IBOR reform should not generally cause hedge accounting to terminate.

 

The following standard and amendment, 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 2023) 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. 

 

Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform (phase 2). The amendment to IFRS 9 provides relief from applying specific hedge accounting and financial instrument derecognition requirements directly affected by interbank offered rate (IBOR) reform. By applying the practical expedient, Diageo will not be required to discontinue its hedging relationships as a result of changes in reference rates due to the IBOR reform. The amendment to IFRS 7 will require additional disclosure explaining the nature and extent of risk related to the reform and the progress of the transition.

 

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 2020 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditor, PricewaterhouseCoopers LLP, and delivered to the Registrar of Companies. The report of the auditor (i) was unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. 

 

2. Segmental information

 

The segmental information presented is consistent with management reporting provided to the Executive Committee (the chief operating decision maker). 

The Executive Committee considers the business principally from a geographical perspective based on the location of third party sales and the business analysis is presented by geographical segment. In addition to these geographical selling segments, a further segment reviewed by the Executive Committee is the Supply Chain and Procurement (SC&P) segment, which manufactures products for other group companies and includes the production sites in the United Kingdom, Ireland, Italy, Guatemala and Mexico, as well as comprises the global procurement management functions. 

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 SC&P. They also include rents receivable and payable in respect of properties not used by the group in the manufacture, sale or distribution of premium drinks. 

Diageo uses shared services operations to deliver transaction processing activities for markets and operational entities. These centers are located in Hungary, Colombia, the Philippines and India. The captive business service centers in Budapest and Bangalore also perform certain central finance activities, including elements of financial planning and reporting, treasury and HR services. The costs of shared services operations are recharged to the regions. 

As part of the annual planning process a budget exchange rate is set each year equal to the prior year's weighted average rate. This rate is used for management reporting purposes and, in order to ensure a consistent basis on which performance is measured through the year, the prior period results are restated to the budget rate as well. Segmental information for net sales and operating profit before exceptionals are reported on a consistent basis with our management reporting. The adjustments required to retranslate the segmental information to actual exchange rates and to reconcile it to the group's reported results are shown in the tables below. The comparative segmental information, prior to retranslation, has not been restated at the current year's budgeted exchange rates but is presented at the budgeted rates for the respective year. 

In addition, for management reporting purposes Diageo presents 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.

 

(a) Segmental information for the consolidated income statement

Six months ended

North America

Europe
and
Turkey

Africa

Latin America and Caribbean

Asia
Pacific

SC&P

Eliminate
inter-
segment
sales

Total
operating
segments

Corporate
and other

Total

31 December 2020

£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million

Sales

3,022 

 

2,727 

 

 

775 

 

2,837 

 

785 

 

(785)

 

10,425 

 

11 

 

10,436 

 

Net sales

 

 

 

 

 

 

 

 

 

 

At budgeted exchange rates(i)

2,790 

 

1,442 

 

790 

 

641 

 

1,418 

 

824 

 

(786)

 

7,119 

 

11