TIDMDGE
RNS Number : 8949N
Diageo PLC
26 January 2023
Diageo delivers strong performance while investing in
sustainable long-term growth
Delivered strong net sales growth, with growth across all regions
* Reported net sales of GBP9.4 billion, increased 18.4%,
primarily reflecting strong organic net sales growth
as well as favourable impacts from foreign exchange,
mainly due to the strengthening of the US dollar.
* Organic net sales grew 9.4%, with growth in all
regions. Price/mix of 7.6 percentage points reflects
a high single-digit price contribution to net sales
growth, premiumisation and organic volume growth of
1.8%.
* Growth was enabled by our diversified footprint,
advantaged portfolio, strong brands and underpinned
by favourable industry trends of premiumisation.
----------------------------------------------------------------------
Resilient operating margin despite increased cost inflation
* Reported operating profit grew 15.2% to GBP3.2
billion. Reported operating margin declined by 92bps,
with organic margin expansion more than offset by
exceptional operating items and foreign exchange.
* Organic operating profit grew 9.7% and organic
operating margin expanded by 9bps, driven by leverage
on operating cost reflecting disciplined cost
management, despite inflation.
* Price increases and supply productivity savings more
than offset the impact of absolute cost inflation on
gross margin.
----------------------------------------------------------------------
Advantaged portfolio and premiumisation drove market share growth
* Growth was delivered across most categories,
primarily scotch, tequila and beer.
* Premium-plus brands contributed 57% of reported net
sales and drove 65% of organic net sales growth.
* Total trade market share grew or held in over 75%(1)
of total net sales value in measured markets.
----------------------------------------------------------------------
Continued optimisation of portfolio through acquisitions and disposals
* Acquired Mr Black, a leading Australian
premium-priced coffee liqueur, and Balcones
Distilling, a Texas craft distiller and one of the
leading producers of American single malt whisky.
* Announced an agreement to acquire Don Papa rum, a
super-premium, dark rum from the Philippines.
* Agreed to dispose of Guinness Cameroon S.A., disposed
of Archers and completed the disposal and franchising
of a portfolio of brands in India.
----------------------------------------------------------------------
Invested to sustain long-term growth
* Increased organic marketing investment by 6.8%,
reflecting strong, consistent investment in our
brands.
* Invested GBP0.4 billion of capex in supply capacity,
sustainability, digital capabilities and consumer
experiences.
----------------------------------------------------------------------
Cash flow generation
* Net cash flow from operating activities declined by
GBP0.7 million to GBP1.2 billion.
* Free cash flow of GBP0.8 billion, declined GBP0.8
billion. Operating profit and positive foreign
exchange impact were offset by higher year-on-year
working capital outflow primarily due to lapping a
larger increase in creditors, phasing of spend and
higher tax payments.
* Strong balance sheet, with leverage ratio(2) of 2.5x
as at 31 December 2022, at the lower end of our
target range, as a result of strong profit
performance.
----------------------------------------------------------------------
Continued progress in delivering Society 2030 ESG goals and doing
business the right way
* Launched 'Drops of Advice', a new global festive
responsible drinking campaign.
* Announced plans for a hydrogen powered furnace in the
UK to create the world's first net zero glass bottles
to be produced at scale.
* Diageo North America was named in the Top 10
Inclusive Companies for 2022.
* Included in Dow Jones World Sustainability Index for
the fifth consecutive year.
----------------------------------------------------------------------
Continued creation of long-term shareholder value
* Increased basic eps by 19.7% to 100.9 pence and
pre-exceptional eps by 15.2% to 98.6 pence.
* Increased declared interim dividend by 5% to 30.83
pence per share.
* Total shareholder return was 5%, in the top half of
our peer group.
* Expect to complete remaining GBP0.3 billion of
current programme to return up to GBP4.5 billion of
capital to shareholders in February 2023 and return
up to an additional GBP0.5 billion in fiscal 23.
See page 46 for explanation and reconciliation of non-GAAP
measures, including organic net sales, organic marketing
investment, organic operating profit, free cash flow, eps before
exceptionals, ROIC, adjusted net debt, adjusted EBITDA and tax rate
before exceptional items.
(1)Internal estimates incorporating Nielsen, Association of
Canadian Distillers, Dichter & Neira, Frontline, INTAGE, IRI,
ISCAM, NABCA, Scentia, State Monopolies, TRAC, IPSOS and other
third-party providers. All analysis of data has been applied with a
tolerance of +/- 3 bps. Percentages represent percent of markets by
total Diageo net sales contribution that have held or gained total
trade share fiscal year to date. Measured markets indicate a market
where we have purchased any market share data. Market share data
may include beer, wine, spirits or other elements. Measured market
net sales value sums to 86% of total Diageo net sales value in the
first half of fiscal 23.
(2)Ratio of adjusted net borrowings to adjusted EBITDA. For
further details see page 53.
Ivan Menezes, Chief Executive, said :
We have made a strong start to fiscal 23. Organic net sales grew
9%, with growth across all regions, organic volume grew 2%, and
organic operating profit grew 10%. In a challenging cost
environment, our organic operating margin increased 9 basis points
whilst we also continued to invest for the future. Today, Diageo is
36%(1) larger than it was prior to Covid-19, reflecting the
strength of our diversified footprint and advantaged portfolio. I
want to thank my nearly 28,000 colleagues for their tireless work,
focus and agility which has helped us to achieve these results.
Sales growth was supported by our continued focus on
premiumising our portfolio, bolstered by strong global
premiumisation trends, with our super-premium-plus brands growing
organic net sales 12%. As category growth trends continue to
normalise following Covid-19, winning quality market share remains
a key focus. I am pleased to say that we gained or held share in
75%(2) of total net sales value in our measured markets,
demonstrating our strong commercial execution.
We have delivered targeted price increases across all regions,
enabled by our expertise in revenue growth management and supported
by strong consumer demand for our brands. This, combined with our
culture of everyday efficiency, has allowed us to increase our
investments. We are investing in world-class brand building,
digital and data capabilities and our ambitious 2030 sustainability
plan to create a stronger and more resilient business for the
long-term.
As we look to the second half of fiscal 23, whilst the operating
environment remains challenging, I remain confident in the
resilience of our business and our ability to navigate volatility.
We believe we are well-positioned to deliver our medium-term
guidance of consistent organic net sales growth in the range of 5%
to 7% and sustainable organic operating profit growth in the range
of 6% to 9% for fiscal 23 to fiscal 25.
Financial performance
Volume (equivalent Earnings per share
units) Operating profit (eps)
EU136.8m GBP3,161m 100.9p
(F22 H1: EU 140.2
m) (F22 H1: GBP2,743m) (F22 H1: 84.3p)
Reported movement (2)% iReported movement 15% hReported movement 20% h
Eps before exceptional
Organic movement(3) 2% hOrganic movement(3) 10% h items(3) 15% h
-------------------- ---- ------------------- --- ---------------------- ---
Net sales Net cash from operating Interim dividend
activities per share
GBP9,420m GBP1,248m 30.83p
(F22 H1: GBP7,957m) (F22 H1: GBP1,947m) (F22 H1: 29.36p)
F23 H1 free cash
Reported movement 18% h flow(3) GBP817m Increase 5% h
Organic movement(3) 9% hF22 H1 free cash
flow(3) GBP1,575m
-------------------- ---- ------------------- --- ---------------------- ---
(1)Global H1 F23 net sales value 36% ahead of H1 F19 on a
constant basis, see page 47 for explanation.
(2)Internal estimates incorporating Nielsen, Association of
Canadian Distillers, Dichter & Neira, Frontline, INTAGE, IRI,
ISCAM, NABCA, Scentia, State Monopolies, TRAC, IPSOS and other
third-party providers. All analysis of data has been applied with a
tolerance of +/- 3 bps. Percentages represent percent of markets by
total Diageo net sales contribution that have held or gained total
trade share fiscal year to date. Measured markets indicate a market
where we have purchased any market share data. Market share data
may include beer, wine, spirits or other elements. Measured market
net sales value sums to 86% of total Diageo net sales value in the
first half of fiscal 23.
(3)See page 46 for explanation and reconciliation of non-GAAP
measures.
Key financial information
Six months ended 31 December 2022
Summary financial information
Organic Reported
growth growth
F23 H1 F22 H1 % %
---------------------------------------- ----------- ------ ------ ------- --------
Volume EUm 136.8 140.2 2 (2)
======================================== =========== ====== ====== ======= ========
Net sales GBP million 9,420 7,957 9 18
======================================== =========== ====== ====== ======= ========
Marketing GBP million 1,577 1,351 7 17
======================================== =========== ====== ====== ======= ========
Operating profit before exceptional
items GBP million 3,194 2,743 10 16
======================================== =========== ====== ====== ======= ========
Exceptional operating items(1) GBP million (33) -
======================================== =========== ====== ====== ======= ========
Operating profit GBP million 3,161 2,743 15
======================================== =========== ====== ====== ======= ========
Share of associate and joint venture
profit after tax GBP million 172 190 (9)
======================================== =========== ====== ====== ======= ========
Non-operating exceptional items(1) GBP million 16 (31)
======================================== =========== ====== ====== ======= ========
Net finance charges GBP million (292) (180)
======================================== =========== ====== ====== ======= ========
Exceptional taxation credit/(charge)(1) GBP million 70 -
======================================== =========== ====== ====== ======= ========
Tax rate including exceptional
items % 21.3 23.3 (9)
======================================== =========== ====== ====== ======= ========
Tax rate before exceptional items % 23.4 23.0 2
Profit attributable to parent company's
shareholders GBP million 2,295 1,965 17
======================================== =========== ====== ====== ======= ========
Basic earnings per share pence 100.9 84.3 20
======================================== =========== ====== ====== ======= ========
Basic earnings per share before
exceptional items pence 98.6 85.6 15
======================================== =========== ====== ====== ======= ========
Interim dividend pence 30.83 29.36 5
---------------------------------------- ----------- ------ ------ ------- --------
(1)For further details on exceptional items see pages 22 and
34.
Reported growth by region
Operating
profit before
exceptional Operating
Volume Net sales Marketing items profit
---------- ------------ ------------ ---------------- --------------
GBP GBP GBP GBP
% EUm % million % million % million % million
------------------ --- ----- -------- -------- ----- --------- ---- --------
North America (4) (1.0) 19 553 18 101 10 124 8 98
================== === ===== ======== ======== ===== ========= ==== ========
Europe (1) (0.2) 13 227 7 21 13 81 15 95
================== === ===== ======== ======== ===== ========= ==== ========
Asia Pacific (4) (2.0) 20 306 15 39 30 136 25 115
================== === ===== ======== ======== ===== ========= ==== ========
Latin America and
Caribbean 7 1.0 34 281 42 52 41 138 41 138
================== === ===== ======== ======== ===== ========= ==== ========
Africa (6) (1.2) 9 75 10 10 2 4 2 4
Corporate - - 91 21 50 3 (26) (32) (26) (32)
------------------ --- ----- -------- -------- ----- --------- ---- --------
Diageo (2) (3.4) 18 1,463 17 226 16 451 15 418
------------------ --- ----- -------- -------- ----- --------- ---- --------
Organic growth by region
Operating
profit before
exceptional
Volume Net sales Marketing items
---------- --------------- --------------- -----------------
% EUm % GBP million % GBP million % GBP million
---------------------------- --- ----- ----------- ----------- ---- -----------
North America (4) (1.1) 3 88 2 13 (2) (26)
============================ === ===== =========== =========== ==== ===========
Europe 0 (0.1) 10 164 3 9 19 106
============================ === ===== =========== =========== ==== ===========
Asia Pacific 10 3.6 17 250 9 24 27 119
============================ === ===== =========== =========== ==== ===========
Latin America and Caribbean 6 0.9 20 167 29 37 20 69
============================ === ===== =========== =========== ==== ===========
Africa (5) (1.0) 6 52 8 8 12 23
Corporate - - 91 21 33 2 (23) (30)
---------------------------- --- ----- ----------- ----------- ---- -----------
Diageo 2 2.3 9 742 7 93 10 261
---------------------------- --- ----- ----------- ----------- ---- -----------
First half of fiscal 19 to first half of fiscal 23 growth
------------------------------------------------------------------------------------
Net sales
Reported growth on Organic net
net sales a constant Organic volume sales CAGR
growth %(1) basis %(1) CAGR %(2) %(2)
---------------------------- ------------ ----------- -------------- -----------
North America 49 38 2 8
============================ ============ =========== ============== ===========
Europe 21 27 4 7
============================ ============ =========== ============== ===========
Asia Pacific 31 32 2 7
============================ ============ =========== ============== ===========
Latin America and Caribbean 64 64 6 15
============================ ============ =========== ============== ===========
Africa 15 32 3 8
Corporate 57 57 6 13
---------------------------- ------------ ----------- -------------- -----------
Diageo 36 36 3 8
---------------------------- ------------ ----------- -------------- -----------
(1)For further details on first half of fiscal 19 to first half
of fiscal 23 growth on a constant basis see pages 47-50.
(2)First half of fiscal 19 to first half of fiscal 23 CAGR
indicative, and the impact from disposals, acquisitions and
re-classifications may not be fully captured.
See page 46 for explanation and reconciliation of non-GAAP
measures.
Net sales (GBP million)
Reported net sales grew 18.4%
Organic net sales grew 9.4%
Reported net sales grew18.4%, driven by strong organic growth
and a positive favourable foreign exchange impact.
Organic net sales growth of 9.4% reflects organic volume growth
of 1.8% and 7.6 percentage points of positive price/mix. All
regions delivered growth, despite lapping strong double-digit
growth. Price/mix was primarily driven by price increases across
all regions.
Net sales GBP million
--------------------------- -----------
F22 H1 7,957
=========================== ===========
Exchange(1) 669
=========================== ===========
Acquisitions and disposals (33)
=========================== ===========
Hyperinflation(2) 85
=========================== ===========
Volume 142
=========================== ===========
Price/mix 600
--------------------------- -----------
F23 H1 9,420
--------------------------- -----------
(1)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.
(2)See pages 35 and 47-50 for details of hyperinflation
adjustment.
Operating profit (GBP million)
Reported operating profit grew 15.2%
Organic operating profit grew 9.7%
Reported operating profit grew 15.2%, mainly driven by growth in
organic operating profit and positive impact from exchange rate
movements. This was partially offset by the negative impact of
exceptional operating items, primarily driven by the supply chain
agility programme and the negative impact of acquisitions and
disposals.
Organic operating profit grew 9.7% , ahead of organic net sales
growth, driven by growth across all regions except North
America.
Operating profit GBP million
------------------------------- -----------
F22 H1 2,743
=============================== ===========
Exceptional operating items(1) (33)
=============================== ===========
Exchange 201
=============================== ===========
Acquisitions and disposals (19)
=============================== ===========
FVR(2) (12)
=============================== ===========
Hyperinflation(3) 20
=============================== ===========
Organic movement 261
------------------------------- -----------
F23 H1 3,161
------------------------------- -----------
(1)For further details on exceptional operating items see pages
22 and 34.
(2)Fair value remeasurements. For further details see page 22
.
(3)See pages 35 and 47-50 for details of hyperinflation
adjustment.
Operating margin (%)
Reported operating margin declined by 92bps
Organic operating margin expanded by 9bps
Reported operating margin declined b y 92bps, with organic
operating margin expansion more than offset by exceptional
operating items, negative impact of foreign exchange, acquisitions
and disposals and other items.
Organic operating margin expanded by 9bps, reflecting
disciplined cost management despite inflation. Strong operating
margin expansion in Asia Pacific and Europe was partially offset by
a decline in North America.
Organic gross margin declined by 79bps, primarily driven by cost
pressure. Price increases and supply productivity savings more than
offset the absolute impact of cost inflation.
Operating margin ppt
------------------------------- ------
F22 H1 34.5
=============================== ======
Exceptional operating items(1) (0.35)
=============================== ======
Exchange (0.31)
=============================== ======
Acquisitions and disposals (0.08)
=============================== ======
Other(2) (0.27)
=============================== ======
Gross margin (0.79)
=============================== ======
Marketing 0.41
=============================== ======
Other operating items 0.47
------------------------------- ------
F23 H1 33.6
------------------------------- ------
(1)For further details on exceptional operating items see pages
22 and 34.
(2)Fair value remeasurements and hyperinflation adjustment. For
further details on fair value remeasurements see page 22. See pages
35 and 47-50 for details of hyperinflation adjustment.
Basic earnings per share (pence)
Basic eps increased 19.7% from 84.3 pence to 100.9 pence
Basic eps before exceptional items(1) increased 15.2% from 85.6
pence to 98.6 pence
Basic eps increased 16.6 pence, mainly driven by organic
operating profit growth and favourable foreign exchange impact,
partially offset by higher tax and increased finance charges.
Basic eps before exceptional items increased 13 pence.
Basic earnings per share pence
===================================== =====
F22 H1 84.3
===================================== =====
Exceptional items after tax(2) 3.6
===================================== =====
Exchange on operating profit 8.6
===================================== =====
Acquisitions and disposals(3) (0.8)
===================================== =====
Organic operating profit 11.1
===================================== =====
Associates and joint ventures (0.8)
===================================== =====
Finance charges(4) (3.5)
===================================== =====
Tax(5) (4.0)
===================================== =====
Share buyback 1.5
===================================== =====
Non-controlling interests 0.5
===================================== =====
FVR(6) (0.5)
===================================== =====
Hyperinflation (operating profit)(7) 0.9
------------------------------------- -----
F23 H1 100.9
------------------------------------- -----
(1)See page 46 for explanation of the calculation and use of
non-GAAP measures.
(2)For further details on exceptional items see pages 22 and
34.
(3)Includes finance charges net of tax.
(4)Excludes finance charges related to acquisitions, disposals,
share buybacks and includes finance charges related to
hyperinflation adjustments (F23 H1 - GBP(6) million; F22 H1 - GBP1
million).
(5)Excludes tax related to acquisitions, disposals and share
buybacks.
(6)Fair value remeasurements. For further details see page
22.
(7)Operating profit hyperinflation adjustment movement was GBP20
million compared to the first half of fiscal 22 (F23 H1 - GBP20
million; F22 H1 - GBPnil).
Net cash from operating activities and free cash flow (GBP
million)
Generated GBP1,248 million net cash from operating activities(1)
and GBP817 million free cash flow
Net cash from operating activities was GBP1,248 million, a
decrease of GBP699 million compared to the first half of fiscal 22.
Free cash flow decreased by GBP758 million to GBP817 million.
Free cash flow decreased as strong growth in operating profit
and a favourable foreign exchange impact was more than offset by a
higher year-on-year working capital outflow, higher cash tax and
interest paid, and increased capital investment.
The higher year-on-year working capital outflow was due to the
normalisation of creditors relative to the first half of fiscal 22,
as our growth rate began to moderate in the first half of fiscal
23. Creditors increased significantly in the first half of fiscal
22 due to accelerated growth as markets recovered from the impact
of Covid-19. Working capital has also been impacted by the phasing
of spend in the half, and the increase was also driven by higher
investment in inventory, including maturing stock, to deliver
supply chain resilience and to support future growth of the
business. This higher investment was also impacted by
inflation.
The additional cash tax payments were the result of increased
profit impacting tax instalments, higher balancing payments and
adverse FX movements on our tax liabilities. Higher interest cost
reflects the higher interest rate environment globally.
Free cash flow GBP million
---------------------------------------------------------- -----------
F22 H1 Net cash from operating activities 1,947
========================================================== ===========
F22 H1 Capex and movements in loans and other investments (372)
========================================================== ===========
F22 H1 Free cash flow 1,575
========================================================== ===========
Exchange(2) 201
========================================================== ===========
Operating profit(3) 238
========================================================== ===========
Working capital(4) (855)
========================================================== ===========
Capex (54)
========================================================== ===========
Tax (258)
========================================================== ===========
Interest (38)
========================================================== ===========
Other(5) 8
========================================================== ===========
F23 H1 Free cash flow 817
========================================================== ===========
F23 H1 Capex and movements in loans and other investments 431
---------------------------------------------------------- -----------
F23 H1 Net cash from operating activities 1,248
---------------------------------------------------------- -----------
(1)Net cash from operating activities excludes net capex (F23 H1
- GBP(429) million; F22 H1 - GBP(375) million) and movements in
loans and other investments.
(2)Exchange on operating profit before exceptional items.
(3)Operating profit excludes exchange, depreciation and
amortisation, post employment charges of GBP(9) million and other
non-cash items.
(4)Working capital movement includes maturing inventory.
(5)Other items include dividends received from associates and
joint ventures, movements in loans and other investments and post
employment payments.
Return on average invested capital (%)(1)
ROIC increased 37bps
ROIC increased 37bps , mainly driven by organic operating profit
growth, partially offset by higher tax, increased capex and
maturing stock investment.
Return on average invested capital ppt
----------------------------------- ------
F22 H1 19.3
=================================== ======
Exchange 0.51
=================================== ======
Acquisitions and disposals (0.31)
=================================== ======
Organic operating profit 2.17
=================================== ======
Associates and joint ventures (0.35)
=================================== ======
Tax (0.94)
=================================== ======
Other (0.71)
----------------------------------- ------
F23 H1 19.7
----------------------------------- ------
(1)ROIC calculation excludes exceptional operating items from
operating profit. For further details on ROIC see page 52.
Fiscal 23 outlook
Organic net sales
The strong organic net sales growth delivered in the first half
of fiscal 23 moderated compared to double-digit fiscal 22 levels,
as expected. While we expect the operating environment to continue
to be challenging, we are confident in the resilience of our
business and our ability to navigate continued cost inflation and
global geopolitical and macroeconomic uncertainty.
In North America, organic net sales grew 3% in the first half of
fiscal 23. We expect organic net sales growth to continue to
normalise through the second half of fiscal 23, compared to the
double-digit growth in the prior period. In Europe, we expect
organic net sales growth to moderate in the second half of fiscal
23 as we lap on-trade re-opening recovery. In Asia Pacific, Latin
America and Caribbean and Africa, we expect continued growth
through the second half of fiscal 23, albeit at a moderated pace
relative to the strong growth in fiscal 22.
We believe in the fundamental strength of our business and
expect our advantaged portfolio to benefit from spirits continuing
to gain share of total beverage alcohol (TBA), premiumisation,
strategic pricing actions and continued strong investment in
marketing and innovation. Our portfolio is well-positioned across
geographies, categories and price points. We will use our deep
understanding of consumers to quickly adapt to changes in trends
and behaviours, while investing strongly in marketing and
innovation, and leveraging our revenue growth management
capabilities, including strategic pricing actions.
Organic operating margin
In a challenging inflationary environment, we will continue to
focus on revenue growth management, including strategic pricing
actions. For the second half of fiscal 23, we expect marketing
investment to grow ahead of sales growth. We continue to expect
organic operating margin to benefit from premiumisation trends, our
culture of everyday efficiency and operating leverage, while we
continue to invest strongly in marketing.
Exchange
We are not providing specific guidance in relation to foreign
exchange for fiscal 23. However, using spot exchange rates of
GBP1=$1.20 and GBP1=EUR1.13 as at 31 December 2022, where sterling
has depreciated compared to the actual exchange rates experienced
in fiscal 22, and applying them to last year's P&L profile for
net sales and operating profit, we would see positive exchange
impacts of approximately GBP950 million and GBP300 million
respectively.
Taxation
We expect the tax rate before exceptional items to continue to
be in the range of 22.0% to 24.0% in fiscal 23.
Effective interest rate
We expect the effective interest rate to be around 4% in fiscal
23.
Capital expenditure and free cash flow
In fiscal 23, we continue to expect capex for the full year to
be in the range of GBP1.0-1.2 billion. In the second half of fiscal
23, we expect to deliver stronger free cash flow than the first
half, as we lap more normalised working capital movements in the
second half of fiscal 22.
Medium-term guidance, fiscal 23 to fiscal 25
Organic net sales and organic operating profit
We continue to expect to deliver our medium-term guidance of
consistent organic net sales growth in the range of 5% to 7% and
sustainable organic operating profit growth in the range of 6% to
9% for fiscal 23 to fiscal 25.
Notes to the business and financial review
Unless otherwise stated:
- movements in results are for the six months ended 31 December
2022 compared to the six months ended 31 December 2021;
- commentary below refers to organic movements unless stated as reported;
- volume is in millions of equivalent units (EUm);
- net sales are sales after deducting excise duties;
- percentage movements are organic movements unless stated as reported;
- growth is organic net sales value movement unless states otherwise; and
- share refers to value share, except for India which is volume share.
See page 46 for explanation of the calculation and use of
non-GAAP measures.
Business review
North America
-- Reported net sales grew 19%, primarily driven by a favourable impact
from foreign exchange, mainly due to the strengthening of the US dollar,
and organic growth.
-- Organic net sales grew 3%, lapping strong double-digit growth in
the first half of fiscal 22, reflecting growth in all markets and holding
share of TBA. Strong price/mix growth more than offset an organic volume
decline.
-- Growth was primarily driven by tequila, which grew 24%, as well
as double-digit growth in US whiskey and spirit-based ready to drink.
This more than offset the declines in vodka, Canadian whisky, and scotch.
-- US Spirits net sales grew 2%, lapping strong double-digit growth
in the first half of fiscal 22. Depletions value growth was ahead of
shipments by approximately one percentage point with some variations
across certain brands.
-- Diageo Beer Company USA (DBC USA) net sales grew 3%, reflecting
14% growth in Guinness, partially offset by a decline in flavoured malt
beverages.
-- Organic operating margin declined by 206bps, primarily driven by
cost inflation and an adverse category mix. Strategic price increases,
productivity savings and lower discretionary expenditures more than
offset the absolute impact of cost inflation, and mostly offset the
adverse impact on gross margin.
-- Marketing investment grew 2% ahead of prior year as we continue
to support growth across key categories, primarily tequila and Canadian
whisky.
Key financials (GBP million):
------------------------------------------------------------------------------------------------
Acquisitions Reported
and Organic movement
F22 H1 Exchange disposals movement Other(1) F23 H1 %
------------------------ ------ -------- ------------ --------- -------- ------ ---------
Net sales 2,964 452 13 88 - 3,517 19
======================== ====== ======== ============ ========= ======== ====== =========
Marketing 548 80 7 13 1 649 18
======================== ====== ======== ============ ========= ======== ====== =========
Operating profit before
exceptional items 1,295 146 (6) (26) 10 1,419 10
======================== ====== ======== ============ ========= ======== ====== =========
Exceptional operating
items(2) - (26)
======================== ====== ======== ============ ========= ======== ====== =========
Operating profit 1,295 1,393 8
------------------------ ------ -------- ------------ --------- -------- ------ ---------
Markets and categories: Global giants, local stars and
reserve(5) :
-------------------------- --------- ---------- ---------- -----------------------------------------------------
Organic Reported Organic Reported Organic Organic Reported
volume volume net sales net sales volume net sales net sales
movement movement movement movement movement(6) movement movement
% % % % % % %
--------------- --------- --------- ---------- ---------- --------------- ------------ ---------- ----------
North America (4) (4) 3 19 Crown Royal (10) (8) 6
=============== ========= ========= ========== ========== =============== ============ ========== ==========
Don Julio 5 20 38
=============== ========= ========= ========== ========== =============== ============ ========== ==========
US Spirits(3) (6) (5) 2 18 Casamigos 16 27 46
=============== ========= ========= ========== ========== =============== ============ ========== ==========
DBC USA(4) (1) (1) 3 19 Johnnie Walker (12) (7) 6
=============== ========= ========= ========== ========== =============== ============ ========== ==========
Canada (1) - 7 17 Smirnoff 1 6 21
=============== ========= ========= ========== ========== =============== ============ ========== ==========
Captain Morgan (3) 1 15
=============== ========= ========= ========== ========== =============== ============ ========== ==========
Spirits (4) (4) 2 17 Baileys (10) (5) 9
=============== ========= ========= ========== ========== =============== ============ ========== ==========
Beer (1) (1) 3 18 Ketel One(7) (12) (14) (1)
=============== ========= ========= ========== ========== =============== ============ ========== ==========
Ready to
drink 10 10 18 34 Guinness 9 15 31
--------------- --------- --------- ---------- ---------- =============== ============ ========== ==========
Bulleit
whiskey(8) 12 19 37
=============== ============ ========== ==========
Buchanan's (20) (12) 1
--------------- ------------ ---------- ----------
(1)Fair value remeasurements. For further details see page
22.
(2)For further details on exceptional operating items see pages
22 and 34.
(3)Reported volume movement has been impacted by acquisitions
and / or disposals. For further details see pages 48-51.
(4)Certain spirits-based ready to drink products in certain
states are distributed through DBC USA and those net sales are
captured within DBC USA.
(5)Spirits brands excluding ready to drink and non-alcoholic
variants.
(6)Organic equals reported volume movement.
(7)Ketel One includes Ketel One vodka and Ketel One
Botanical.
(8)Bulleit whiskey excludes Bulleit Crafted Cocktails.
North America contributed North America organic net sales grew
37% of Diageo reported net sales
in first half of fiscal 23 3% in first half of fiscal 23
Market highlights - US Spirits
-- In the first half of fiscal 22, the recovery in the on-trade
channel, resilient consumer demand in the off-trade channel and the
partial easing of supply chain constraints on certain products,
resulted in the replenishment of stock levels by distributors and
retailers towards normalised levels on several brands. The impact
of lapping this replenishment resulted in depletions being
significantly ahead of shipments across some brands in the first
half of fiscal 23.
-- Tequila net sales grew 24%, gaining share of the spirits
market and the tequila category. Casamigos and Don Julio net sales
grew 28% and 20% respectively, with shipments growing ahead of
depletions, reflecting strong volume growth, as well as a benefit
from price increases.
-- Crown Royal net sales declined 9% while depletions value
growth was positive, supported by our NFL partnership, the
permanent launch of Crown Royal Peach and the return of Crown Royal
Salted Caramel. Market share trajectory continues to improve as the
brand recovers from supply constraints on flavoured variants in the
first half of fiscal 22.
-- Vodka net sales declined 15%. Smirnoff grew 7%, largely
driven by growth of the core variant and flavoured variants,
primarily Smirnoff Spicy Tamarind, which are recruiting younger and
more diverse consumers. Ketel One net sales declined 14% primarily
due to Ketel One Botanical. The Ketel One super-premium core
variant held share of the vodka category and depletions value
growth was positive. Cîroc net sales declined 46% as distributors
adjusted inventory levels in response to lower demand as
multicultural consumers were recruited into other spirits
categories.
-- Scotch net sales declined 5%. Johnnie Walker net sales
declined 10%, however gained share of the scotch category driven by
premium-plus variants Johnnie Walker Black Label and Johnnie Walker
Blue Label, despite price increases and supply constraints on
certain pack sizes. Buchanan's net sales declined 12%, however
depletions value growth was positive and the brand gained category
share driven by consistent consumer penetration growth among
multicultural consumers, underpinned by increased marketing
investment. Single malts net sales grew 61%, primarily driven by
Lagavulin.
-- Captain Morgan net sales were flat, driven by growth in
Captain Morgan Original Spiced, supported by successful sports
platforms such as the NFL, which was offset by declines in other
variants.
-- Baileys net sales declined 4%, reflecting a decline in
Baileys Original. Depletions value growth was ahead of net sales
driven by increased media investment and successful holiday
innovation.
-- Bulleit whiskey net sales grew 19%, reflecting strong volume
growth as the brand lapped glass supply constraints in the first
half of fiscal 22, as well as a benefit from price increases.
Bulleit whiskey gained share of both the spirits market and the US
whiskey category, reflecting strong consumer demand and brand
equity.
-- Spirit-based ready to drink(1) net sales grew 12%, driven by
the launch of Cîroc Vodka Spritz.
(1)Certain spirits-based ready to drink products in certain
states are distributed through DBC USA and those net sales are
captured within DBC USA.
Europe
* Reported net sales grew 13%, driven by organic growth
and the hyperinflation adjustment(1) related to
Turkey, partially offset by an unfavourable impact
from foreign exchange.
* Organic net sales grew 10%, with growth across all
markets except Eastern Europe, which was impacted by
the winding down of our operations in Russia.
* Growth was mainly driven by price increases and
continued premiumisation, while holding volume. The
on-trade benefitted from continued recovery,
particularly in Southern Europe which was supported
by stronger tourism.
* Spirits net sales grew 9%, with growth across key
categories, in particular scotch and vodka.
* Beer net sales grew 18%. Guinness volume grew 6%, and
net sales increased 19% driven by price increases and
further recovery in the on-trade in Ireland and Great
Britain.
* Organic operating margin expanded by 286bps, driven
by price increases, premiumisation and productivity
savings. These benefits more than offset cost
inflation.
* Marketing investment grew 3%, focused on key spirits
brands.
Key financials (GBP million):
-------------------------------------------------------------------------------------------------------------------
Acquisitions Reported
and Organic movement
F22 H1 Exchange disposals movement Other(2) Hyperinflation(1) F23 H1 %
------------------------ ------ -------- ------------ --------- -------- ----------------- ------ ---------
Net sales 1,752 (13) (9) 164 - 85 1,979 13
======================== ====== ======== ============ ========= ======== ================= ====== =========
Marketing 307 3 - 9 - 9 328 7
======================== ====== ======== ============ ========= ======== ================= ====== =========
Operating profit before
exceptional items 613 (15) (8) 106 (22) 20 694 13
======================== ====== ======== ============ ========= ======== ================= ====== =========
Exceptional operating
items(3) - 14
======================== ------ ======== ============ ========= ======== ================= ====== =========
Operating profit 613 708 15
------------------------ ------ -------- ------------ --------- -------- ----------------- ------ ---------
Markets and categories: Global giants and local stars(5)
:
------------------------------ --------- ---------- ---------- -----------------------------------------------
Organic Reported Organic Reported Organic Organic Reported
volume volume net sales net sales volume net sales net sales
movement movement movement movement movement(6) movement movement
% % % % % % %
------------------- ========= ========= ========== ========== --------- ------------ ---------- ----------
Europe(4) - (1) 10 13 Guinness 6 19 19
=================== ========= ========= ========== ========== ========= ============ ========== ==========
Johnnie
Walker 12 23 26
=================== ========= ========= ========== ========== ========= ============ ========== ==========
Great Britain(4) (9) (8) 1 1 Baileys 1 3 4
=================== ========= ========= ========== ========== ========= ============ ========== ==========
Northern Europe 8 8 10 11 Smirnoff 2 16 18
=================== ========= ========= ========== ========== ========= ============ ========== ==========
Captain
Southern Europe(4) 7 2 14 13 Morgan (3) 4 6
=================== ========= ========= ========== ========== ========= ============ ========== ==========
Ireland(4) 5 6 20 21 Tanqueray (1) 3 4
=================== ========= ========= ========== ========== ========= ============ ========== ==========
Yenì
Eastern Europe(4) (18) (17) (3) 6 Raki (4) 6 36
=================== ========= ========= ========== ========== ========= ============ ========== ==========
Turkey 4 4 31 48 J B (4) 1 3
=================== ========= ========= ========== ========== --------- ------------ ---------- ----------
Spirits (1) (1) 9 13
=================== ========= ========= ========== ==========
Beer 5 5 18 19
=================== ========= ========= ========== ==========
Ready to drink 3 3 11 14
------------------- --------- --------- ---------- ----------
(1)See pages 35 and 47-50 for details of hyperinflation
adjustment.
(2)Fair value remeasurements. For further details see page 2
2.
(3)Exceptional items are in respect of Diageo's decision,
announced on 28 June 2022, to wind down its operations in Russia
over the following six months. For further details on exceptional
operating items see pages 22 and 34.
(4)Reported volume movement has been impacted by acquisitions
and / or disposals. For further details see pages 48-51 .
(5)Spirits brands excluding ready to drink and non-alcoholic
variants.
(6)Organic equals reported volume movement, except for Smirnoff
which had reported volume movement of 3%, Captain Morgan of (2)%
and Tanqueray which was flat.
Europe contributed Europe organic net sales grew
21% of Diageo reported net sales
in first half of fiscal 23 10% in first half of fiscal 23
Market highlights
-- Great Britain net sales grew 1%, mostly driven by strong
performance in Guinness, supported by price increases and further
recovery of the on-trade. Spirits net sales declined, while gaining
share, lapping strong double-digit growth in the first half of
fiscal 22. Growth in vodka was more than offset by a decline in
gin.
-- Northern Europe net sales grew 10%. Growth was broad-based,
led by scotch with strong market share growth.
-- Southern Europe net sales grew 14%, reflecting continued
recovery in the on-trade and tourism. Growth was mainly driven by
strong performance in scotch followed by gin, vodka and rum.
-- Ireland net sales grew 20%, reflecting continued recovery in
the on-trade. Growth was mostly driven by price increases and
volume growth in Guinness.
-- Eastern Europe net sales declined 3%, due to the suspension
of exports to and sales in Russia as announced in March 2022. In
the rest of the market, spirits grew double-digit primarily driven
by Johnnie Walker premium variants.
-- Turkey net sales grew 31%, with volume growth of 4%. Net
sales growth was driven by price increases in response to inflation
and increased excise duties. Growth was driven by scotch, raki and
vodka.
Asia Pacific
* Reported net sales grew 20%, primarily reflecting
strong organic growth and a favourable impact from
foreign exchange.
* Organic net sales grew 17%, with strong growth in
most markets, notably South East Asia, Travel Retail
Asia and Middle East and India.
-- Spirits grew 20%, primarily driven by double-digit growth in scotch
and IMFL whisky(1) .
* Organic operating margin expanded by 258bps as the
benefits from the continued recovery of Travel Retail,
price increases, and marketing and operational
efficiencies more than offset cost inflation.
-- Marketing investment grew 9%, with focused investment in scotch
in South East Asia, Greater China and India.
Key financials (GBP million):
---------------------------------------------------------------------------------------------
Acquisitions Reported
and Organic movement
F22 H1 Exchange disposals movement F23 H1 %
------------------------------- ------ -------- ------------ --------- ------ ---------
Net sales 1,531 89 (33) 250 1,837 20
=============================== ====== ======== ============ ========= ====== =========
Marketing 263 15 - 24 302 15
=============================== ====== ======== ============ ========= ====== =========
Operating profit before
exceptional items 451 26 (9) 119 587 30
=============================== ====== ======== ============ ========= ====== =========
Exceptional operating items(2) - (21)
=============================== ====== ======== ============ ========= ====== =========
Operating profit 451 566 25
------------------------------- ------ -------- ------------ --------- ------ ---------
Markets and categories: Global giants, local stars
and reserve(4) :
---------------------------- --------- ---------- ---------- ---------------------------------------------------
Organic Reported Organic Reported Organic Organic Reported
volume volume net sales net sales volume net sales net sales
movement movement movement movement movement(5) movement movement
% % % % % % %
----------------- --------- --------- ---------- ---------- ------------- ------------ ---------- ----------
Johnnie
Asia Pacific(3) 10 (4) 17 20 Walker 27 42 46
================= ========= ========= ========== ========== ============= ============ ========== ==========
Shui Jing
Fang(6) (5) (7) -
================= ========= ========= ========== ========== ============= ============ ========== ==========
India(3) 7 (9) 11 10 McDowell's - 2 9
================= ========= ========= ========== ========== ============= ============ ========== ==========
Greater China 2 2 2 9 The Singleton 40 37 46
================= ========= ========= ========== ========== ============= ============ ========== ==========
Australia (5) (5) 3 9 Guinness 13 22 27
================= ========= ========= ========== ========== ============= ============ ========== ==========
South East
Asia 44 44 51 56 Smirnoff 18 21 30
================= ========= ========= ========== ========== ============= ============ ========== ==========
North Asia 31 31 29 26 Windsor 56 55 56
================= ========= ========= ========== ========== ============= ============ ========== ==========
Travel Retail
Asia and Middle
East 88 88 126 124 Baileys 7 13 25
================= ========= ========= ========== ========== ------------- ------------ ---------- ----------
Spirits(3) 9 (5) 20 22
================= ========= ========= ========== ==========
Beer 15 15 21 27
================= ========= ========= ========== ==========
Ready to drink (1) (1) 5 10
----------------- --------- --------- ---------- ----------
(1)Indian-Made Foreign Liquor (IMFL) whisky.
(2)For further details on exceptional operating items see pages
22 and 34.
(3)Reported volume movement has been impacted by acquisitions
and / or disposals. For further details see pages 48-51.
(4)Spirits brands excluding ready to drink and non-alcoholic
variants.
(5)Organic equals reported volume movement.
(6)Growth figures represent total Chinese white spirits of which
Shui Jing Fang is the principal brand.
Asia Pacific contributed Asia Pacific organic net sales grew
20% of Diageo reported net sales
in first half of fiscal 23 17% in first half of fiscal 23
Market highlights
-- India net sales grew 11%, with volume growth of 7%, driven by
strong consumer demand and continued premiumisation. IMFL whisky
grew 13% and scotch grew double-digit, driven by Johnnie Walker and
Black Dog.
-- Greater China net sales grew 2%, driven by scotch, mostly
offset by a decline in Chinese white spirits which continued to be
impacted by on-trade restrictions. Scotch grew 20%, driven by
strength in Taiwan and mainland China, with strong performance in
the super-premium-plus segment.
-- Australia net sales grew 3%, primarily driven by price
increases. Growth was led by beer and ready to drink.
-- South East Asia net sales grew 51%, benefitting from a strong
return in the on-trade and tourism, following the easing of
Covid-19 restrictions. Scotch grew 49%, mostly driven by Johnnie
Walker premium variants and scotch malts.
-- North Asia (Korea and Japan) net sales grew 29%, benefitting
from the recovery of the on-trade. Growth was primarily driven by
double-digit growth in Johnnie Walker premium-plus variants and
Windsor.
-- Travel Retail Asia and Middle East net sales grew
triple-digit primarily driven by Johnnie Walker premium-plus
variants.
Latin America and Caribbean
* Reported net sales grew 34%, primarily reflecting
strong organic growth. Net sales were favourably
impacted by foreign exchange, mainly due to a
strengthening of the Mexican peso and Brazilian real.
* Organic net sales grew 20%, with 6% volume growth.
Strong double-digit growth, particularly in Brazil,
Central America and Caribbean (CCA) and Mexico,
primarily driven by price increases and
premiumisation.
* Spirits net sales grew 22%, primarily driven by
strong double-digit growth in scotch, tequila and
vodka.
* Organic operating margin expanded by 1bp. Prices
increases, premiumisation and leverage on operating
costs offset increases in marketing investment, cost
inflation and negative market mix.
* Marketing investment grew 29%, ahead of organic net
sales growth with investment in key markets and
brands.
Key financials (GBP million):
-------------------------------------------------------------------------------
Acquisitions Reported
and Organic movement
F22 H1 Exchange disposals movement F23 H1 %
----------------- ------ -------- ------------ --------- ------ ---------
Net sales 819 111 3 167 1,100 34
================= ====== ======== ============ ========= ====== =========
Marketing 125 14 1 37 177 42
================= ====== ======== ============ ========= ====== =========
Operating profit 333 69 - 69 471 41
----------------- ------ -------- ------------ --------- ------ ---------
Markets and categories: Global giants, local stars and
reserve(3) :
--------------------------- --------- ---------- ---------- ----------------------------------------------------
Organic Reported Organic Reported Organic Organic Reported
volume volume net sales net sales volume net sales net sales
movement movement movement movement movement(4) movement movement
% % % % % % %
---------------- --------- --------- ---------- ---------- -------------- ------------ ---------- ----------
Latin America
and
Caribbean(1) Johnnie Walker 12 24 37
================ ============== ============ ========== ==========
6 7 20 34 Buchanan's 4 16 25
================ ========= ========= ========== ========== ============== ============ ========== ==========
Don Julio 31 58 86
================ ========= ========= ========== ========== ============== ============ ========== ==========
Brazil(1)(2) 13 17 33 68 Old Parr 25 39 50
================ ========= ========= ========== ========== ============== ============ ========== ==========
Mexico(1) (4) (3) 16 40 Smirnoff 17 19 34
================ ========= ========= ========== ========== ============== ============ ========== ==========
CCA 7 7 22 31 Black & White 7 30 48
================ ========= ========= ========== ========== ============== ============ ========== ==========
South LAC(1)(2) 8 - 15 6 Baileys (17) (6) 4
================ ========= ========= ========== ========== ============== ============ ========== ==========
Andean(1) (12) (11) 8 6 Tanqueray (6) (3) 10
================ ========= ========= ========== ========== -------------- ------------ ---------- ----------
Spirits(1) 6 7 22 36
================ ========= ========= ========== ==========
Beer 1 1 14 24
================ ========= ========= ========== ==========
Ready to
drink 1 1 6 20
---------------- --------- --------- ---------- ----------
(1)Reported volume movement has been impacted by acquisitions
and / or disposals. For further details see pages 48-51.
(2)From 1 July 2022 Uruguay and Paraguay domestic channels moved
on a management basis from PUB (Paraguay, Uruguay and Brazil) to
PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile) and the new
cluster has been called South LAC. This reflects how management
reviews performance.
(3)Spirits brands excluding ready to drink and non-alcoholic
variants.
(4)Organic equals reported volume movement.
Latin America and Caribbean organic
Latin America and Caribbean contributed net sales grew
12% of Diageo reported net sales
in first half of fiscal 23 20% in first half of fiscal 23
Market highlights
-- Brazil net sales grew 33%, with strong volume growth,
primarily driven by continued momentum leading to market share
gains. Growth in scotch was driven by double-digit growth in
Johnnie Walker and triple-digit growth in Old Parr, underpinned by
increased marketing investment. Strong double-digit growth in vodka
was driven by Smirnoff and Cîroc.
-- Mexico net sales grew 16%, mainly driven by tequila and
scotch. Tequila grew strongly, largely driven by price increases,
lapping of aged liquid supply constraints in the first half of
fiscal 22 and supported by increased marketing investment. In
scotch, growth was primarily driven by Johnnie Walker.
-- CCA (Central America and Caribbean) net sales grew 22%, with
volume growth of 7%. Growth was driven by price increases and
premiumisation, continuing momentum in the on-trade and further
tourism recovery in the Caribbean. Scotch net sales grew
double-digit, driven by Johnnie Walker and Old Parr.
-- Andean (Colombia and Venezuela) net sales grew 8%, primarily
driven by Buchanan's, supported by price increases.
-- South LAC (Argentina, Bolivia, Chile, Ecuador, Paraguay, Peru
and Uruguay) net sales grew 15%, with volume growth of 8%,
primarily driven by double-digit growth in Argentina and Ecuador,
with strong performance in premium-plus scotch.
Africa
* Reported net sales grew 9%, primarily driven by
organic growth and a favourable impact from foreign
exchange.
* Organic net sales grew 6%, with growth across all
markets supported by price increases, partially
offset by an organic volume decline.
* Spirits net sales grew 15%, driven by double-digit
growth in both mainstream and international spirits,
particularly scotch.
* Beer net sales grew 2%, primarily driven by Guinness
and Malta Guinness which grew 7% and 5% respectively.
This growth was offset by a slow down in Kenya
following price and duty increases.
* Organic operating margin expanded by 126bps,
primarily driven by price increases, productivity
savings, positive mix and lapping one-off costs,
partially offset by cost inflation and increased
marketing investment.
* Marketing investment grew 8%, to support
premiumisation, key categories and route to consumer
opportunities.
Key financials (GBP million):
-------------------------------------------------------------------------------
Acquisitions Reported
and Organic movement
F22 H1 Exchange disposals movement F23 H1 %
----------------- ------ -------- ------------ --------- ------ ---------
Net sales 868 30 (7) 52 943 9
================= ====== ======== ============ ========= ====== =========
Marketing 102 3 (1) 8 112 10
================= ====== ======== ============ ========= ====== =========
Operating profit 176 (23) 4 23 180 2
----------------- ------ -------- ------------ --------- ------ ---------
Markets and categories: Global giants and local stars(2)
:
--------------------------- --------- ---------- ---------- ----------------------------------------------------
Organic Reported Organic Reported Organic Organic Reported
volume volume net sales net sales volume net sales net sales
movement movement movement movement movement(3) movement movement
% % % % % % %
---------------- --------- --------- ---------- ---------- -------------- ------------ ---------- ----------
Africa(1) (5) (6) 6 9 Guinness (5) 7 10
================ ========= ========= ========== ========== ============== ============ ========== ==========
Johnnie
Walker 22 22 23
================ ========= ========= ========== ========== ============== ============ ========== ==========
East Africa (4) (4) 2 10 Smirnoff (19) 7 10
================ ========= ========= ========== ========== -------------- ------------ ---------- ----------
Africa Regional
Markets(1) (1) (6) 8 (5)
================ ========= ========= ========== ==========
Nigeria (6) (6) 8 19 Other beer:
================ ========= ========= ========== ==========
South Africa (16) (16) 10 12
================ ========= ========= ========== ========== -------------- ------------ ---------- ----------
Malta Guinness (15) 5 (5)
================ ========= ========= ========== ========== ============== ============ ========== ==========
Spirits(1) - 1 15 19 Senator (15) (4) 2
================ ========= ========= ========== ========== ============== ============ ========== ==========
Beer(1) (11) (13) 2 3 Tusker 2 6 14
================ ========= ========= ========== ========== ============== ============ ========== ==========
Ready to drink (6) (6) 3 9 Serengeti 7 9 26
---------------- --------- --------- ---------- ---------- -------------- ------------ ---------- ----------
(1)Reported volume movement has been impacted by acquisitions
and / or disposals. For further details see pages 48-51.
(2)Spirits brands excluding ready to drink and non-alcoholic
variants.
(3)Organic equals reported volume movement, except for Malta
Guinness, which had reported volume movement of (17)%.
Africa contributed Africa organic net sales grew
10% of Diageo reported net sales
in first half of fiscal 23 6% in first half of fiscal 23
Market highlights
-- East Africa net sales grew 2%, driven by growth in spirits,
partially offset by a decline in beer following price and duty
increases. Spirits growth was primarily driven by scotch,
particularly Johnnie Walker.
-- Africa Regional Markets net sales grew 8%. Spirits growth was
primarily driven by strong growth in Johnnie Walker premium
variants. Growth in beer was primarily driven by Malta Guinness
supported by price increases.
-- Nigeria net sales grew 8%. Spirits growth was driven by
Orijin, which benefitted from improved route to consumer and
marketing investment. Beer growth was led by Guinness, primarily
driven by price increases.
-- South Africa net sales grew 10%, driven by Johnnie Walker
premium variants and Smirnoff, partially offset by a decline in
gin.
Category and brand review
* Spirits net sales grew 10%, with 3% volume growth.
Growth was across most categories, including
double-digit performance in scotch, tequila and IMFL
whisky.
* Scotch net sales grew 19%, with 7% volume growth.
Growth was led by Johnnie Walker, with strong growth
of 21% and single malts also grew strongly at 28%.
* Tequila net sales grew 28%, with 15% volume growth,
with Don Julio and Casamigos growing strongly in
North America.
-- Vodka net sales declined 2% overall, with flat volume. A decline
in North America was partially offset by growth across all other regions,
including double-digit growth in Europe, Latin America and Caribbean
and Asia Pacific.
* Rum net sales grew 5%, driven by Captain Morgan
growth across all regions.
-- Beer net sales grew 9%, with growth in all regions and double-digit
growth of Guinness in Ireland, Great Britain and North America.
* Ready to drink net sales grew 8%, with growth in all
regions, including double-digit growth in North
America and Europe.
Key categories
Organic Organic Reported
volume net sales net sales
movement(1) movement movement
% % %
---------------------- ------------- ----------- -----------
Spirits(2) 3 10 20
====================== ============= =========== ===========
Scotch 7 19 27
====================== ============= =========== ===========
Tequila 15 28 48
====================== ============= =========== ===========
Vodka(3)(4) - (2) 8
====================== ============= =========== ===========
Canadian whisky (6) (8) 6
====================== ============= =========== ===========
Rum(3) (1) 5 13
====================== ============= =========== ===========
Liqueurs (3) (1) 5
====================== ============= =========== ===========
Gin(3) - 3 9
====================== ============= =========== ===========
IFML whisky 7 13 8
====================== ============= =========== ===========
Chinese white spirits (5) (7) -
====================== ============= =========== ===========
US whiskey 1 12 29
====================== ============= =========== ===========
Beer (6) 9 13
---------------------- ------------- ----------- -----------
Ready to drink - 8 16
---------------------- ------------- ----------- -----------
(1)Organic equals reported volume movement except for spirits
(2)%, tequila 17%, vodka (1)%, liqueurs (1)%, IMFL whisky (12)%,
beer (7)%.
(2)Spirits brands excluding ready to drink and non-alcoholic
variants.
(3)Vodka, rum and gin include IMFL variants.
(4)Vodka includes Ketel One Botanical.
Scotch
27% of Diageo's reported net sales and grew 19%
-- Double-digit growth across all regions, except for a marginal
decline in North America. Particularly strong performance in Asia
Pacific and Latin America and Caribbean, driven by Johnnie Walker.
Growth also reflects continued recovery of Travel Retail with
triple-digit growth in Asia Pacific.
-- Johnnie Walker net sales grew 21%, with strong double-digit
growth in all regions except North America.
- Johnnie Walker Black Label grew 26%, with particularly strong
growth in Asia Pacific, which grew 52%.
- Johnnie Walker Blue Label grew 11%, supported by the return of Travel Retail.
- Johnnie Walker Red Label grew 17%, with strong double-digit
growth in Latin America and Caribbean and Asia Pacific.
-- Scotch malts grew 28%, primarily driven by strong
double-digit growth in Asia Pacific and North America.
-- Primary scotch brands grew 14%, primarily driven by
double-digit growth of Black & White and Black Dog in
India.
Tequila
11% of Diageo's reported net sales and grew 28%
-- Growth reflects the strong performance of Don Julio and
Casamigos which grew 26% and 29% respectively, driven by North
America.
Vodka
9% of Diageo's reported net sales and declined 2%
-- Growth across most regions, and strong market share gains in
Europe were offset by a decline in North America.
-- Smirnoff net sales grew 11%, with resilient growth in all
regions, particularly Europe and North America.
-- Ketel One net sales declined 11%, driven by North America.
-- Cîroc net sales declined 34%, driven by North America.
Canadian whisky
6% of Diageo's reported net sales and declined 8%
-- Decline was driven by Crown Royal in North America
Rum
5% of Diageo's reported net sales and grew 5%
-- Captain Morgan grew 5% with growth across all regions.
-- Zacapa grew 11% with growth across all regions.
Liqueurs
5% of Diageo's reported net sales and declined 1%
-- Decline was driven by Godiva.
-- Baileys was flat in the period, with growth in Europe offset by a decline in North America.
Gin
5% of Diageo's reported net sales and grew 3%
-- Growth across all regions except North America.
-- Tanqueray net sales declined, with growth in Europe and Asia
Pacific offset by declines in other regions.
-- Gordon's grew in all regions, except for Europe where net sales were flat.
IMFL whisky
4% of Diageo's reported net sales and grew 13%
-- Growth was mainly driven by Royal Challenge, Signature and McDowell's No.1.
Chinese white spirits
3% of Diageo's reported net sales and declined 7%
-- Decline in Chinese white spirits due to continued impact from Covid-19 on-trade restrictions.
US whiskey
2% of Diageo's reported net sales and grew 12%
-- Double-digit growth in Bulleit whiskey, driven by North
America and positive market share momentum across the category.
-- Performance is lapping a decline in the first half of fiscal
2022 when performance was impacted by glass supply constraints.
Beer
14% of Diageo's reported net sales and grew 9%
-- Growth was primarily driven by Guinness growth of 17% net
sales and volume growth of 2%, particularly in Europe, our Brand
Homes and North America.
-- Beer in Africa grew 2%, driven by Guinness, which grew 7%.
-- Net sales of Smirnoff flavoured malt beverages declined in North America.
Ready to drink
4% of Diageo's reported net sales and grew 8%
-- Growth in all regions, double-digit growth across North America and Europe.
-- Growth was primarily driven by double-digit growth in
Smirnoff Ice, Bundaberg and Captain Morgan Spiced ready to
drink.
Global giants, local stars and reserve(1) :
Organic Organic Reported
volume net sales net sales
movement(2) movement movement
% % %
------------------- ------------- ---------- ----------
Global giants
=================== ============= ========== ==========
Johnnie Walker 14 21 29
=================== ============= ========== ==========
Guinness 2 17 22
=================== ============= ========== ==========
Smirnoff 2 11 21
=================== ============= ========== ==========
Baileys (3) - 7
=================== ============= ========== ==========
Captain Morgan (1) 5 14
=================== ============= ========== ==========
Tanqueray (6) (2) 6
------------------- ------------- ---------- ----------
Local stars
=================== ============= ========== ==========
Crown Royal (10) (8) 6
=================== ============= ========== ==========
Shui Jing Fang(3) (5) (7) -
=================== ============= ========== ==========
Buchanan's (3) 6 16
=================== ============= ========== ==========
McDowell's - 2 9
=================== ============= ========== ==========
Old Parr 23 34 44
=================== ============= ========== ==========
Black & White 11 28 42
=================== ============= ========== ==========
J B (5) 1 4
=================== ============= ========== ==========
Yenì Raki (4) 6 36
=================== ============= ========== ==========
Windsor 56 55 56
=================== ============= ========== ==========
Bundaberg (1) 6 12
=================== ============= ========== ==========
Ypióca (8) 7 28
------------------- ------------- ---------- ----------
Reserve
=================== ============= ========== ==========
Don Julio 12 26 45
=================== ============= ========== ==========
Casamigos 17 28 48
=================== ============= ========== ==========
Scotch malts 11 28 34
=================== ============= ========== ==========
Ketel One(4) (10) (11) 2
=================== ============= ========== ==========
Bulleit whiskey(5) 9 17 33
=================== ============= ========== ==========
Cîroc vodka (30) (34) (27)
------------------- ------------- ---------- ----------
(1)Brands excluding ready to drink, non-alcoholic variants and
beer except Guinness.
(2)Organic equals reported volume movement.
(3)Growth figures represent total Chinese white spirits of which
Shui Jing Fang is the principal brand.
(4)Ketel One includes Ketel One vodka and Ketel One
Botanical.
(5)Bulleit whiskey excludes Bulleit Crafted Cocktails.
Global giants
40% of Diageo's reported net sales and grew 13%.
Local stars
19% of Diageo's reported net sales and grew 1%.
Reserve
28% of Diageo's reported net sales and grew 12%.
Additional financial information
Six months ended 31 December 2022
Summary income statement
Fair
Acquisitions value
31 December Exchange and disposals Organic remeasurement 31 December
2021 (a) (b) movement(1) (d) Hyperinflation(1) 2022
GBP million GBP million GBP million GBP million GBP million GBP million GBP million
-------------- ----------- ----------- -------------- ------------ -------------- ----------------- -----------
Sales 11,753 737 (214) 830 - 113 13,219
============== =========== =========== ============== ============ ============== ================= ===========
Excise duties (3,796) (68) 181 (88) - (28) (3,799)
-------------- ----------- ----------- -------------- ------------ -------------- ----------------- -----------
Net sales 7,957 669 (33) 742 - 85 9,420
============== =========== =========== ============== ============ ============== ================= ===========
Cost of sales (2,955) (273) 23 (341) (3) (49) (3,598)
-------------- ----------- ----------- -------------- ------------ -------------- ----------------- -----------
Gross profit 5,002 396 (10) 401 (3) 36 5,822
============== =========== =========== ============== ============ ============== ================= ===========
Marketing (1,351) (116) (7) (93) (1) (9) (1,577)
============== =========== =========== ============== ============ ============== ================= ===========
Other
operating
items (908) (79) (2) (47) (8) (7) (1,051)
-------------- ----------- ----------- -------------- ------------ -------------- ----------------- -----------
Operating
profit
before
exceptional
items 2,743 201 (19) 261 (12) 20 3,194
============== =========== =========== ============== ============ ============== ================= ===========
Exceptional
operating
items (c) - (33)
-------------- ----------- ----------- -------------- ------------ -------------- ----------------- -----------
Operating
profit 2,743 3,161
============== =========== =========== ============== ============ ============== ================= ===========
Non-operating
items
(c) (31) 16
============== =========== =========== ============== ============ ============== ================= ===========
Net finance
charges (180) (292)
============== =========== =========== ============== ============ ============== ================= ===========
Share of after
tax
results of
associates
and joint
ventures 190 172
-------------- ----------- ----------- -------------- ------------ -------------- ----------------- -----------
Profit before
taxation 2,722 3,057
============== =========== =========== ============== ============ ============== ================= ===========
Taxation (e) (634) (650)
Profit for the
period 2,088 2,407
-------------- ----------- ----------- -------------- ------------ -------------- ----------------- -----------
(1) For the definition of organic movement and hyperinflation
see page s 46-47.
(a) Exchange
The impact of movements in exchange rates on reported figures
for net sales and operating profit was principally in respect of
the translation exchange impact of the weakening of sterling
against the US dollar, Brazilian real and the Mexican peso,
partially offset by strengthening of sterling against the Turkish
lira.
The effect of movements in exchange rates and other movements on
profit before exceptional items and taxation for the six months
ended 31 December 2022 is set out in the table below.
Gains/(losses)
GBP million
--------------------------------------------- --------------
Translation impact 201
============================================= ==============
Transaction impact -
--------------------------------------------- --------------
Operating profit before exceptional items 201
============================================= ==============
Net finance charges - translation impact (13)
============================================= ==============
Net finance charges - transaction impact 1
--------------------------------------------- --------------
Net finance charges (12)
--------------------------------------------- --------------
Associates - translation impact 1
--------------------------------------------- --------------
Profit before exceptional items and taxation 190
--------------------------------------------- --------------
Six months Six months
ended 31 ended
December 31 December
2022 2021
--------------------- ---------- ------------
Exchange rates
===================== ========== ============
Translation GBP1 = $1.18 $1.36
===================== ========== ============
Transaction GBP1 = $1.29 $1.30
===================== ========== ============
Translation GBP1 = EUR1.16 EUR1.17
===================== ========== ============
Transaction GBP1 = EUR1.15 EUR1.15
--------------------- ---------- ------------
(b) Acquisitions and disposals
The acquisitions and disposals movement was primarily
attributable to the disposal of the USL Popular brands in the six
months ended 31 December 2022.
See pages 24, 38-39 and 48-51 for further details.
(c) Exceptional items
Exceptional operating items in the six months ended 31 December
2022 were GBP33 million loss (2021 - GBPnil).
In the six months ended 31 December 2022, an exceptional charge
of GBP47 million was accounted for in respect of the supply chain
agility programme announced in July 2022. With this five-year
spanning programme, Diageo expects to strengthen its supply chain,
improve its resilience and agility, drive efficiencies, deliver
additional productivity savings and make its supply operations more
sustainable. Total implementation cost of the programme is expected
to be up to GBP500 million over the five-year period, which will
comprise non--cash items and one--off expenses, the majority of
which are expected to be recognised as exceptional operating items.
No restructuring cash expenditure was incurred in the period.
In the six months ended 31 December 2022, Diageo released
unutilised provisions of GBP14 million from the GBP50 million
exceptional charge taken in the year ended 30 June 2022 in respect
of winding down its operations in Russia.
Non-operating items in the six months ended 31 December 2022
were GBP16 million gain (2021 - GBP31 million loss).
On 8 September 2022, Diageo announced the sale of its Archers
brand. The transaction resulted in an exceptional gain of GBP20
million.
On 30 September 2022, Diageo announced the completion of the
sale of the Popular brands of its USL business. The aggregate
consideration for the disposal was GBP87 million, the disposed net
asset included GBP31 million net working capital and GBP22 million
brand, and GBP16 million goodwill was derecognised. The transaction
resulted in an exceptional gain of GBP4 million and the respective
share of non-controlling interest amounted to GBP9 million. Popular
brands contributed GBP225 million to sales and GBP5 million to
operating profit including transaction costs of GBP4 million in the
six months ended 31 December 2022.
In the six months ended 31 December 2022, ZAR 46 million (GBP2
million) of deferred consideration was paid to Diageo in respect of
the sale of United National Breweries, the full amount of which
represented a non-operating gain (2021 - a gain of GBP2 million
).
On 14 July 2022, Diageo announced the agreement to sell Guinness
Cameroon S.A., its brewery in Cameroon, to Castel Group. As
regulatory clearance has been received, completion of the sale is
highly probable and is expected in the second half of fiscal 23. As
a result, the assets and liabilities of the brewing business of
Guinness Cameroon S.A. were classified as held for sale. In the six
months ended 31 December 2022, transaction costs relating to the
prospective sale amounted to GBP2 million.
On 29 September 2022, the group acquired the part of the entire
issued share capital of Mr Black Spirits Pty Ltd, owner of the Mr
Black Australian premium cold brew coffee liqueur, that it did not
already own. As a result of Mr Black becoming a subsidiary of the
group, in the six months ended 31 December 2022, a loss of GBP8
million arose, being the difference between the book value of the
associate prior to the transaction and its fair value plus
transaction costs.
In the six months ended 31 December 2021, a loss of ETB 2,254
million (GBP33 million) was recognised as a non-operating item
attributable to the sale of Meta Abo Brewery Share Company in
Ethiopia.
Exceptional tax credits of GBP70 million (2021 - GBPnil) in the
six months ended 31 December 2022 include tax credits of GBP57
million in respect of the deductibility of fees paid to Diageo plc
for guaranteeing externally issued debt of US group entities.
See page 46 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 GBPnil for the six months ended 31 December 2022 and GBP3
million gain for the six months ended 31 December 2021. The
adjustments to marketing and other operating expenses were the
elimination of fair value changes to contingent consideration
liabilities and earn out arrangements in respect of prior year
acquisitions of GBP13 million gain for the six months ended 31
December 2022 and GBP22 million gain for the six months ended 31
December 2021.
(e) Taxation
The reported tax rate for the six months ended 31 December 2022
was 21.3% compared with 23.3% for the six months ended 31 December
2021.
For the six months ended 31 December 2022, income tax expense
was 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.
Included in the tax charge of GBP650 million in the six months
ended 31 December 2022 is an exceptional tax credit of GBP70
million, which includes a tax credit of GBP57 million in respect of
the deductibility of fees paid to Diageo plc for guaranteeing
externally issued debt of US group entities. Following engagement
with the tax authorities, guarantee fees for the periods ended 30
June 2012 to 30 June 2022 will be fully deductible.
The tax rate before exceptional items for the six months ended
31 December 2022 was 23.4% compared with 23.0% for the six months
ended 31 December 2021.
We expect the tax rate before exceptional items for the year
ending 30 June 2023 to be in the range of 22%-24%.
(f) Dividend
The group aims to increase the dividend each year. The decision
in respect of the dividend is made with reference to the 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 2022, dividend cover was
2.0 times. The group will keep future returns of capital, including
dividends, under review through the year ending 30 June 2023 to
ensure Diageo's capital is allocated in the best way to maximise
value for the business and stakeholders.
An interim divi dend of 30.83 pence per share will be paid to
holders of ordinary shares and US ADRs on register as of 3 March
2023. The ex-dividend date is 2 March 2023. This represents an
increase of 5% on last year's interim dividend. The interim
dividend will be paid to holders of ordinary shares on 13 April
2023 and to holders of US ADRs on 18 April 2023. A dividend
reinvestment plan is available to holders of ordinary shares in
respect of the interim dividend and the plan notice date is 17
March 2023.
(g) Return of capital
Diageo's current return of capital programme, initially approved
by the Board on 25 July 2019, seeks to return up to GBP4.5 billion
to shareholders and is expected to be completed by 24 February
2023. Under the first three phases of the programme which ended on
31 January 2020, 11 February 2022 and 5 October 2022 respectively,
Diageo repurchased shares with an aggregate value of approximately
GBP3.86 billion. On 1 November 2022, the company announced the
fourth and final phase of the programme with a value of up to
GBP0.64 billion returned to shareholders, via share buybacks, to be
completed no later than 24 February 2023. At 31 December 2022,
GBP316 million had been completed as part of the fourth phase.
On 25 January 2023, Diageo received Board approval to undertake
an additional share buyback programme returning up to GBP0.5
billion to shareholders, to be completed before the end of the
financial year; precise timing is subject to future
announcement.
In the six months ended 31 December 2022, the company purchased
14.8 million ordinary shares at a cost of GBP554 million (including
transaction costs of GBP7 million) (2021 - GBP538 million including
transaction costs of GBP3 million). All shares purchased under the
share buyback programme were cancelled. A financial liability of
GBP215 million was established at 31 December 2022 (2021 - GBP184
million) representing the 5.9 million shares (2021 - 4.7 million
shares) that were expected to be purchased by 26 January 2023.
Movements in net borrowings and equity
Movements in net borrowings
2022 2021
GBP million GBP million
------------------------------------------------------- ----------- -----------
Net borrowings at 30 June (14,137) (12,109)
======================================================= =========== ===========
Free cash flow (a) 817 1,575
======================================================= =========== ===========
Acquisitions (b) (113) (110)
======================================================= =========== ===========
Investment in associates (b) (31) (24)
======================================================= =========== ===========
Sale of businesses and brands (c) 99 2
======================================================= =========== ===========
Share buyback programme (d) (554) (538)
Net sale of own shares for share schemes (e) 9 42
======================================================= =========== ===========
Purchase of treasury shares in respect of subsidiaries - (13)
======================================================= =========== ===========
Dividend paid to non-controlling interests (79) (51)
Net movements in bonds (f) 1,534 (769)
Net movements in other borrowings (g) (28) 38
======================================================= =========== ===========
Equity dividend paid (1,065) (1,040)
------------------------------------------------------- ----------- -----------
Net increase/(decrease) in cash and cash equivalents 589 (888)
======================================================= =========== ===========
Net (increase)/decrease in bonds and other borrowings (1,508) 729
======================================================= =========== ===========
Exchange differences (h) (50) (31)
======================================================= =========== ===========
Other non-cash items (i) (63) (32)
-----------
Net borrowings at 31 December (15,169) (12,331)
------------------------------------------------------- ----------- -----------
(a) See page 52 for the analysis of free cash flow.
(b) Diageo completed two acquisitions in the six months ended 31
December 2022: (i) on 29 September 2022, the acquisition of the
remaining issued share capital of Mr Black Spirits Pty Ltd, owner
of Mr Black, the Australian premium cold brew coffee liqueur, that
it did not already own; and (ii) on 2 November 2022, the
acquisition of the entire issued share capital of Balcones
Distilling, a Texas craft distiller and one of the leading
producers of American single malt whisky in the United States.
In the six months ended 31 December 2022, Diageo paid GBP18
million in respect of prior year acquisitions.
In the six months ended 31 December 2021, Diageo paid GBP110
million in relation to past acquisitions including the final
earn-out payment on 17 September 2021 in respect of the Casamigos
acquisition amounting to $113 million (GBP83 million).
(c) In the six months ended 31 December 2022, sale of businesses
and brands represents the disposal of the USL Popular brands and
the Archers brand net of transaction costs.
(d) See page 23 for details of Diageo's return of capital
programmes.
(e) Net sale of own shares comprised receipts from employees on
the exercise of share options of GBP28 million (2021 - GBP56
million) less purchase of own shares for the future settlement of
obligations under the employee share option schemes of GBP19
million (2021 - GBP14 million).
(f) In the six months ended 31 December 2022, the group issued
bonds of $2,000 million (GBP1,788 million - net of discount and
fee) and repaid bonds of $300 million (GBP254 million).
In the six months ended 31 December 2021, the group repaid bonds
of EUR900 million (GBP769 million).
(g) In the six months ended 31 December 2022, the net movements
in other borrowings principally arose from cash movement of foreign
currency swaps and forwards and repayment of lease liabilities
offset by the increase in bank loans.
In the six months ended 31 December 2021, the net movements in
other borrowings principally arose from cash movement of foreign
exchange swaps and forwards partially offset by the repayment of
lease liabilities.
(h) In the six months ended 31 December 2022, exchange losses
arising on net borrowings of GBP50 million were primarily driven by
adverse exchange movements on euro denominated borrowings and
unfavourable exchange movements on cash and cash equivalents
partially offset by favourable movements on foreign currency swaps
and forwards.
In the six months ended 31 December 2021, the exchange
differences arising on net borrowings of GBP31 million were
primarily in respect of adverse exchange movements on US dollar
denominated borrowings, partially offset by favourable movement on
euro denominated borrowings, cash and cash equivalents, foreign
currency swaps and forwards.
(i) In the six months ended 31 December 2022, other non-cash
items were principally in respect of the reclassification of cash
and cash equivalents in Guinness Cameroon S.A. to assets and
liabilities held for sale.
In the six months ended 31 December 2021, other non-cash items
are principally in respect of additional leases entered into during
the period.
Movements in equity
2022 2021
GBP million GBP million
Equity at 30 June 9,514 8,431
Profit for the period 2,407 2,088
======================================================== =========== ===========
Exchange adjustments (a) (92) 29
======================================================== =========== ===========
Remeasurement of post employment benefit plans net of
taxation (382) 453
Hyperinflation adjustments net of taxation (b) 86 -
Associates' transactions with non-controlling interests (12) -
======================================================== =========== ===========
Dividend to non-controlling interests (63) (26)
======================================================== =========== ===========
Equity dividend paid (1,066) (1,040)
======================================================== =========== ===========
Share buyback programme (c) (652) (631)
======================================================== =========== ===========
Other reserve movements 126 27
-------------------------------------------------------- ----------- -----------
Equity at 31 December 9,866 9,331
-------------------------------------------------------- ----------- -----------
(a) Exchange movements in the six months ended 31 December 2022
primarily arose from exchange loss driven by the euro, the US
dollar and the Mexican peso, partially offset by gains in Indian
rupee and Turkish lira. Exchange movements in the six months ended
31 December 2021 primarily arose from exchange gains driven by the
US dollar and the Indian rupee partially offset by losses in
Turkish lira.
(b) See page 35 for details of hyperinflation adjustments.
(c) See page 23 for details of Diageo's return of capital
programmes.
Post employment benefit plans
The net surplus of the group's post employment benefit plans
decreased by GBP472 million from GBP1,151 million at 30 June 2022
to GBP679 million at 31 December 2022. The decrease in net surplus
was predominantly attributable to the unfavourable actual change in
the market value of assets held by the post employment benefit
plans in the UK and Ireland, that was partially offset by the
favourable change in the discount rate assumptions in the UK and US
due to the increase in returns from 'AA' rated corporate bonds used
to calculate the discount rates on the liabilities of the post
employment benefit plans (UK from 3.8% to 4.8%; US from 4.4% to
4.9% ).
The net operating profit charge before exceptional items
decreased by GBP9 million from GBP49 million for the six months
ended 31 December 2021 to GBP40 million for the six months ended 31
December 2022.
Following a remeasurement of the Diageo Lifestyle Plan, Diageo
made a GBP16 million one-off deficit contribution to satisfy
minimum funding requirements.
Total cash contributions by the group to all post employment
benefit plans in the year ending 30 June 2023 are estimated to be
approximately GBP90 million.
Condensed consolidated income statement
Six months Six months
ended 31 ended
December 31 December
2022 2021
Notes GBP million GBP million
Sales 2 13,219 11,753
=================================================== ===== =========== ============
Excise duties (3,799) (3,796)
--------------------------------------------------- ----- ----------- ------------
Net sales 2 9,420 7,957
=================================================== ===== =========== ============
Cost of sales (3,624) (2,955)
--------------------------------------------------- ----- ----------- ------------
Gross profit 5,796 5,002
=================================================== ===== =========== ============
Marketing (1,577) (1,351)
=================================================== ===== =========== ============
Other operating items (1,058) (908)
--------------------------------------------------- ----- ----------- ------------
Operating profit 2 3,161 2,743
=================================================== ===== =========== ============
Non-operating items 3 16 (31)
=================================================== ===== =========== ============
Finance income 4 257 130
=================================================== ===== =========== ============
Finance charges 4 (549) (310)
=================================================== ===== =========== ============
Share of after tax results of associates and joint
ventures 172 190
--------------------------------------------------- ----- ----------- ------------
Profit before taxation 3,057 2,722
=================================================== ===== =========== ============
Taxation 5 (650) (634)
Profit for the period 2,407 2,088
--------------------------------------------------- ----- ----------- ------------
Attributable to :
=================================================== ===== =========== ============
Equity shareholders of the parent company 2,295 1,965
Non-controlling interests 112 123
--------------------------------------------------- ----- ----------- ------------
2,407 2,088
--------------------------------------------------- ----- ----------- ------------
Weighted average number of shares million million
--------------------------------------------------- ----- ----------- ------------
Shares in issue excluding own shares 2,274 2,331
=================================================== ===== =========== ============
Dilutive potential ordinary shares 7 8
--------------------------------------------------- ----- ----------- ------------
2,281 2,339
--------------------------------------------------- ----- ----------- ------------
pence pence
--------------------------------------------------- ----- ----------- ------------
Basic earnings per share 100.9 84.3
Diluted earnings per share 100.6 84.0
Condensed consolidated statement of comprehensive income
Six months Six months
ended 31 ended
December 31 December
2022 2021
GBP million GBP million
----------------------------------------------------------- ----------- ------------
Other comprehensive income
=========================================================== =========== ============
Items that will not be recycled subsequently to the
income statement
=========================================================== =========== ============
Net remeasurement of post employment benefit plans
=========================================================== =========== ============
Group (527) 585
=========================================================== =========== ============
Associates and joint ventures 10 4
Tax on post employment benefit plans 135 (136)
=========================================================== =========== ============
Changes in the fair value of equity investments at fair
value through other comprehensive income (3) 7
----------------------------------------------------------- ----------- ------------
(385) 460
=========================================================== =========== ============
Items that may be recycled subsequently to the income
statement
=========================================================== =========== ============
Exchange differences on translation of foreign operations
=========================================================== =========== ============
Group (126) 74
=========================================================== =========== ============
Associates and joint ventures 91 (45)
=========================================================== =========== ============
Non-controlling interests (39) 46
=========================================================== =========== ============
Net investment hedges (18) (46)
Tax on exchange differences - group (2) (5)
Effective portion of changes in fair value of cash flow
hedges
=========================================================== =========== ============
Hedge of foreign currency debt of the group 60 66
=========================================================== =========== ============
Transaction exposure hedging of the group 148 (87)
=========================================================== =========== ============
Commodity price risk hedging of the group (7) 12
=========================================================== =========== ============
Hedges by associates and joint ventures 14 (10)
=========================================================== =========== ============
Recycled to income statement - hedge of foreign currency
debt of the group (29) (53)
=========================================================== =========== ============
Recycled to income statement - transaction exposure
hedging of the group (64) 26
=========================================================== =========== ============
Recycled to income statement - commodity price risk
hedging of the group (35) (18)
=========================================================== =========== ============
Tax on effective portion of changes in fair value of
cash flow hedges (17) 12
=========================================================== =========== ============
Hyperinflation adjustments 108 (3)
=========================================================== =========== ============
Tax on hyperinflation adjustments (22) 1
----------------------------------------------------------- ----------- ------------
62 (30)
----------------------------------------------------------- ----------- ------------
Other comprehensive (loss)/income, net of tax, for
the period (323) 430
=========================================================== =========== ============
Profit for the period 2,407 2,088
----------------------------------------------------------- ----------- ------------
Total comprehensive income for the period 2,084 2,518
----------------------------------------------------------- ----------- ------------
Attributable to :
=========================================================== =========== ============
Equity shareholders of the parent company 2,011 2,349
Non-controlling interests 73 169
----------------------------------------------------------- ----------- ------------
Total comprehensive income for the period 2,084 2,518
----------------------------------------------------------- ----------- ------------
Condensed consolidated balance sheet
31 December 30 June 2022 31 December 2021
2022
------------------------ ------------------------ ------------------------
Notes GBP million GBP million GBP million GBP million GBP million GBP million
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Non-current assets
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Intangible assets 12,130 11,902 10,921
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Property, plant and
equipment 5,972 5,848 5,091
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Biological assets 119 94 75
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Investments in associates
and joint ventures 3,925 3,652 3,473
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Other investments 42 37 50
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Other receivables 28 37 28
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Other financial assets 399 345 319
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Deferred tax assets 106 114 83
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Post employment benefit
assets 1,060 1,553 1,544
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
23,781 23,582 21,584
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Current assets
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Inventories 6 7,552 7,094 6,235
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Trade and other receivables 3,874 2,933 3,328
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Assets held for sale 12 182 222 16
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Corporate tax receivables 5 166 149 151
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Other financial assets 398 251 66
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Cash and cash equivalents 7 2,766 2,285 1,780
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
14,938 12,934 11,576
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Total assets 38,719 36,516 33,160
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Current liabilities
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Borrowings and bank
overdrafts 7 (2,305) (1,522) (1,184)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Other financial liabilities (436) (444) (388)
---------------------------- ----- ----------- ----------- ----------- ----------- =========== -----------
Share buyback liability (215) (117) (184)
---------------------------- ----- ----------- ----------- ----------- ----------- =========== -----------
Trade and other payables (6,110) (5,887) (5,327)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Liabilities held for
sale 12 (76) (61) (30)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Corporate tax payables 5 (266) (252) (380)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Provisions (113) (159) (111)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
(9,521) (8,442) (7,604)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Non-current liabilities
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Borrowings 7 (15,304) (14,498) (12,693)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Other financial liabilities (771) (703) (378)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Other payables (353) (380) (278)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Provisions (266) (258) (278)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Deferred tax liabilities (2,257) (2,319) (2,112)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Post employment benefit
liabilities (381) (402) (486)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
(19,332) (18,560) (16,225)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities (28,853) (27,002) (23,829)
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Net assets 9,866 9,514 9,331
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Equity
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Share capital 719 723 737
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Share premium 1,351 1,351 1,351
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Other reserves 2,193 2,174 1,551
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Retained earnings 3,876 3,550 4,019
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Equity attributable
to equity shareholders
of the parent company 8,139 7,798 7,658
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Non-controlling interests 1,727 1,716 1,673
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Total equity 9,866 9,514 9,331
---------------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Condensed consolidated statement of changes in equity
Retained earnings/(deficit)
-----------------------------
Equity
attributable
Other to parent
Share Share Other Own retained company Non-controlling Total
capital premium reserves shares earnings Total shareholders interests equity
----------------
GBP GBP GBP GBP GBP GBP GBP million GBP GBP
million million million million million million million million
---------------- -------- -------- -------- --------- -------- -------- ------------ --------------- --------
At 30 June 2021 741 1,351 1,621 (1,877) 5,061 3,184 6,897 1,534 8,431
Profit for the
period - - - - 1,965 1,965 1,965 123 2,088
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Other
comprehensive
(loss)/income - - (74) - 458 458 384 46 430
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Total
comprehensive
(loss)/income
for the period - - (74) - 2,423 2,423 2,349 169 2,518
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Employee share
schemes - - - 30 36 66 66 - 66
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Share-based
incentive plans - - - - 30 30 30 - 30
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Share-based
incentive plans
in respect of
associates - - - - 2 2 2 - 2
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Share-based
payments and
purchase of own
shares
in respect of
subsidiaries - - - - (8) (8) (8) (5) (13)
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Associates'
transactions
with
non-controlling
interests - - - - 1 1 1 - 1
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Unclaimed
dividend - - - - 3 3 3 1 4
Change in fair
value of
put option - - - - (11) (11) (11) - (11)
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Share buyback
programme (4) - 4 - (631) (631) (631) - (631)
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Dividend
declared for
the
period - - - - (1,040) (1,040) (1,040) (26) (1,066)
---------------- -------- -------- -------- --------- -------- -------- ------------ --------------- --------
At 31 December
2021 737 1,351 1,551 (1,847) 5,866 4,019 7,658 1,673 9,331
---------------- -------- -------- -------- --------- -------- -------- ------------ --------------- --------
At 30 June 2022 723 1,351 2,174 (1,838) 5,388 3,550 7,798 1,716 9,514
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Profit for the
period - - - - 2,295 2,295 2,295 112 2,407
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Other
comprehensive
income/(loss) - - 15 - (299) (299) (284) (39) (323)
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Total
comprehensive
income
for the period - - 15 - 1,996 1,996 2,011 73 2,084
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Employee share
schemes - - - 17 15 32 32 - 32
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Share-based
incentive plans - - - - 27 27 27 - 27
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Share-based - - - - 3 3 3 - 3
incentive plans
in respect of
associates
Share-based - - - - 1 1 1 1 2
payments and
purchase of own
shares
in respect of
subsidiaries
Associates'
transactions
with
non-controlling
interests - - - - (12) (12) (12) - (12)
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Unclaimed - - - - 1 1 1 - 1
dividend
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Change in fair
value of
put option - - - - (4) (4) (4) - (4)
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Share buyback
programme (4) - 4 - (652) (652) (652) - (652)
================ ======== ======== ======== ========= ======== ======== ============ =============== ========
Dividend
declared for
the
period - - - - (1,066) (1,066) (1,066) (63) (1,129)
---------------- -------- -------- -------- --------- -------- -------- ------------ --------------- --------
At 31 December
2022 719 1,351 2,193 (1,821) 5,697 3,876 8,139 1,727 9,866
---------------- -------- -------- -------- --------- -------- -------- ------------ --------------- --------
Condensed consolidated statement of cash flows
Six months ended Six months ended
31 December 2022 31 December
2021
------------------------ ------------------------
GBP million GBP million GBP million GBP million
----------------------------------------------- ----------- ----------- ----------- -----------
Cash flows from operating activities
=============================================== =========== =========== =========== ===========
Profit for the period 2,407 2,088
Taxation 650 634
=============================================== =========== =========== =========== ===========
Share of after tax results of associates
and joint ventures (172) (190)
=============================================== =========== =========== =========== ===========
Net finance charges 292 180
=============================================== =========== =========== =========== ===========
Non-operating items (16) 31
----------------------------------------------- ----------- ----------- ----------- -----------
Operating profit 3,161 2,743
=============================================== =========== =========== =========== ===========
Increase in inventories (468) (187)
=============================================== =========== =========== =========== ===========
Increase in trade and other receivables (1,008) (976)
=============================================== =========== =========== =========== ===========
Increase in trade and other payables and
provisions 111 653
----------------------------------------------- ----------- ----------- ----------- -----------
Net increase in working capital (1,365) (510)
=============================================== =========== =========== =========== ===========
Depreciation, amortisation and impairment 281 224
=============================================== =========== =========== =========== ===========
Dividends received 5 1
=============================================== =========== =========== =========== ===========
Post employment payments less amounts included
in operating profit (23) (23)
=============================================== =========== =========== =========== ===========
Other items 7 34
----------------------------------------------- ----------- ----------- ----------- -----------
270 236
----------------------------------------------- ----------- ----------- ----------- -----------
Cash generated from operations 2,066 2,469
=============================================== =========== =========== =========== ===========
Interest received 66 41
=============================================== =========== =========== =========== ===========
Interest paid (248) (185)
=============================================== =========== =========== =========== ===========
Taxation paid (636) (378)
----------------------------------------------- ----------- ----------- ----------- -----------
(818) (522)
----------------------------------------------- ----------- ----------- ----------- -----------
Net cash inflow from operating activities 1,248 1,947
=============================================== =========== =========== =========== ===========
Cash flows from investing activities
=============================================== =========== =========== =========== ===========
Disposal of property, plant and equipment
and computer software 6 7
=============================================== =========== =========== =========== ===========
Purchase of property, plant and equipment
and computer software (435) (382)
=============================================== =========== =========== =========== ===========
Movements in loans and other investments (2) 3
=============================================== =========== =========== =========== ===========
Sale of businesses and brands 99 2
=============================================== =========== =========== =========== ===========
Acquisition of subsidiaries(1) (113) (110)
=============================================== =========== =========== =========== ===========
Investment in associates and joint ventures(1) (31) (24)
----------------------------------------------- ----------- ----------- ----------- -----------
Net cash outflow from investing activities (476) (504)
=============================================== =========== =========== =========== ===========
Cash flows from financing activities
=============================================== =========== =========== =========== ===========
Share buyback programme (554) (538)
Net sale of own shares for share schemes 9 42
=============================================== =========== =========== =========== ===========
Purchase of treasury shares in respect
of subsidiaries - (13)
=============================================== =========== =========== =========== ===========
Dividends paid to non-controlling interests (79) (51)
Proceeds from bonds 1,788 -
=============================================== =========== =========== =========== ===========
Repayment of bonds (254) (769)
Cash inflow from other borrowings 144 136
=============================================== =========== =========== =========== ===========
Cash outflow from other borrowings (172) (98)
=============================================== =========== =========== =========== ===========
Equity dividends paid (1,065) (1,040)
----------------------------------------------- ----------- ----------- ----------- -----------
Net cash outflow from financing activities (183) (2,331)
----------------------------------------------- ----------- ----------- ----------- -----------
Net increase/(decrease) in net cash and
cash equivalents 589 (888)
=============================================== =========== =========== =========== ===========
Exchange differences (63) 14
=============================================== =========== =========== =========== ===========
Reclassification to assets held for sale (47) -
=============================================== =========== =========== =========== ===========
Net cash and cash equivalents at beginning
of the period 2,211 2,637
----------------------------------------------- ----------- ----------- ----------- -----------
Net cash and cash equivalents at end of
the period 2,690 1,763
----------------------------------------------- ----------- ----------- ----------- -----------
Net cash and cash equivalents consist
of:
=============================================== =========== =========== =========== ===========
Cash and cash equivalents 2,766 1,780
=============================================== =========== =========== =========== ===========
Bank overdrafts (76) (17)
----------------------------------------------- ----------- ----------- ----------- -----------
2,690 1,763
----------------------------------------------- ----------- ----------- ----------- -----------
(1)For the six months ended 31 December 2022, the previously
reported line item of "Acquisition of businesses" has been replaced
with "Acquisition of subsidiaries" and "Investment in associates
and joint ventures" to show separately the amounts which had
previously been shown combined.
Notes
1. Basis of preparation
These unaudited condensed consolidated interim financial
statements have been prepared in accordance with UK adopted IAS 34
'Interim Financial Reporting', IAS 34 'Interim Financial Reporting'
as issued by the International Accounting Standards Board ('IASB'),
IAS 34 'Interim Financial Reporting' as adopted by the EU and The
Disclosure Guidance and Transparency Rules sourcebook of the UK's
Financial Conduct Authority. These financial statements should be
read in conjunction with the company's published consolidated
financial statements for the year ended 30 June 2022, which were
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and
International Financial Reporting Standards adopted by the UK,
IFRSs as adopted by the EU and IFRSs as issued by the IASB,
including interpretations issued by the IFRS Interpretations
Committee. IFRS as adopted by the UK and by the EU differs in
certain respects from IFRS as issued by the IASB, but the
differences have no impact on the group's consolidated financial
statements for the periods presented. The consolidated financial
statements are prepared on a going concern basis under the
historical cost convention, unless stated otherwise.
In preparing these condensed consolidated 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
2022, with the exception of changes in estimates disclosed in note
3 Exceptional items and note 13 Contingent liabilities and legal
proceedings. These condensed consolidated interim financial
statements were approved for issue on 25 January 2023.
The financial statements for Diageo plc for the year ending 30
June 2023 will be prepared in accordance with IFRS as adopted by
the UK, IFRSs as adopted by the EU and IFRSs, as issued by the
IASB, including interpretations issued by the IFRS Interpretations
Committee.
The comparative figures for the financial year ended 30 June
2022 are not the company's statutory accounts (within the meaning
of section 434 of the Companies Act 2006) for that financial year.
Those statutory 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.
Going concern
Management prepared cash flow forecasts which were also
sensitised to reflect severe but plausible downside scenarios
taking into consideration the group's principal risks. In the base
case scenario, management included assumptions for mid-single digit
net sales growth, operating margin improvement and global TBA
market share growth. In light of the ongoing geopolitical
volatility, the base case outlook and plausible downside scenarios
incorporated considerations for a prolonged global recession,
supply chain disruptions, higher inflation and further geopolitical
deterioration. Even under these scenarios, the group's cash
position is still expected to remain strong, as the group's
liquidity was protected by issuing $2,000 million of fixed rate
dollar denominated bonds in the six months ended 31 December 2022.
Mitigating actions, should they be required, are all within
management's control and could include reductions in discretionary
spending such as acquisitions and capital expenditure, as well as a
temporary suspension of the share buyback programme and dividend
payments in the next 12 months, or drawdowns on committed
facilities. Having considered the outcome of these assessments, the
Directors are comfortable that the company is a going concern for
at least 12 months from the date of signing the group's condensed
consolidated interim financial statements.
Weighted average exchange rates used in the translation of
income statements were US dollar - GBP1 = $1.18 (2021 - GBP1 =
$1.36) and euro - GBP1 = EUR1.16 (2021 - GBP1 = EUR1.17). Exchange
rates used to translate assets and liabilities at the balance sheet
date were US dollar - GBP1 = $1.2 (31 December 2021 - GBP1 = $1.35;
30 June 2022 - GBP1 = $1.21) and euro - GBP1 = EUR1.13 (31 December
2021 - GBP1 = EUR1.19; 30 June 2022 - GBP1 = EUR1.16). The group
uses foreign exchange transaction hedges to mitigate the effect of
exchange rate movements.
New accounting standards and interpretations
The following amendment to the accounting standards, issued by
the IASB and endorsed by the UK and EU, was adopted by the group
from 1 July 2022 with no impact on the group's consolidated
results, financial position or disclosures:
- Amendments to IFRS 3 Updating a Reference to the Conceptual Framework
- Amendments to IAS 16 Property, Plant and Equipment: Proceeds before Intended Use
- Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract
The following standard issued by the IASB has been endorsed by
the UK and EU and has not been adopted by the group:
- IFRS 17 - Insurance contracts (effective from the year ending
30 June 2024) is ultimately intended to replace IFRS 4. Based on a
preliminary assessment, the group believes that the adoption of
IFRS 17 will not have a significant impact on its consolidated
results or financial position.
There are a number of other amendments and clarifications to
IFRSs, effective in future years, which are not expected to
significantly impact the group's consolidated results or financial
position.
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 production sites in
the United Kingdom, Ireland, Italy, Guatemala and Mexico, and
comprises the global procurement function.
The group's operations also include the Corporate segment.
Corporate 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.
Diageo uses shared services operations to deliver transaction
processing activities for markets and operational entities. These
centres are located in India, Hungary, Colombia and the
Philippines. These captive business service centres 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.
For planning and management reporting purposes, Diageo uses
budgeted exchange rates that are set at the prior year's weighted
average exchange rate. In order to ensure a consistent basis on
which performance is measured through the year, prior period
results are also restated to the budgeted exchange rate. Segmental
information for net sales and operating profit before exceptional
items are reported on a consistent basis with 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
the result of acquisitions and disposals completed in the current
and prior year separately 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
Latin Eliminate
America inter- Total Corporate
North Asia and segment operating and
America Europe Pacific Caribbean Africa SC&P sales segments other Total
Six months
ended 31
December GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
2022 million million million million million million million million million million
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Sales 3,847 3,427 3,170 1,394 1,337 1,330 (1,330) 13,175 44 13,219
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Net sales
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
At budgeted
exchange
rates(1) 3,092 1,815 1,724 995 916 1,318 (1,289) 8,571 44 8,615
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Acquisitions
and disposals 13 7 35 3 - - - 58 - 58
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
SC&P allocation 4 18 3 3 1 (29) - - - -
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Retranslation
to actual
exchange rates 408 54 75 99 26 41 (41) 662 - 662
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Hyperinflation - 85 - - - - - 85 - 85
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Net sales 3,517 1,979 1,837 1,100 943 1,330 (1,330) 9,376 44 9,420
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Operating
profit/(loss)
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
At budgeted
exchange
rates(1) 1,260 630 557 407 212 39 - 3,105 (158) 2,947
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Acquisitions
and disposals (6) 2 5 - - - - 1 - 1
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
SC&P allocation 9 22 2 5 1 (39) - - - -
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Fair value
remeasurements 14 (1) - - - - - 13 - 13
Retranslation
to actual
exchange rates 142 21 23 59 (33) - - 212 1 213
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Hyperinflation - 20 - - - - - 20 - 20
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Operating
profit/(loss)
before
exceptional
items 1,419 694 587 471 180 - - 3,351 (157) 3,194
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Exceptional
operating
items (26) 14 (21) - - - - (33) - (33)
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Operating
profit/(loss) 1,393 708 566 471 180 - - 3,318 (157) 3,161
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Non-operating
items 16
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Net finance
charges (292)
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Share of after
tax results
of associates
and joint
ventures 172
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Profit before
taxation 3,057
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Latin Eliminate
America inter- Total Corporate
North Asia and segment operating and
America Europe Pacific Caribbean Africa SC&P sales segments other Total
Six months
ended 31
December GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
2021 million million million million million million million million million million
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Sales 3,257 3,178 2,999 1,052 1,244 972 (972) 11,730 23 11,753
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Net sales
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
At budgeted
exchange
rates(1) 2,959 1,782 1,544 822 888 1,027 (979) 8,043 23 8,066
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Acquisitions
and disposals 18 3 - - - - - 21 - 21
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
SC&P allocation 6 29 5 6 2 (48) - - - -
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Retranslation
to actual
exchange rates (19) (62) (18) (9) (22) (7) 7 (130) - (130)
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Net sales 2,964 1,752 1,531 819 868 972 (972) 7,934 23 7,957
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Operating
profit/(loss)
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
At budgeted
exchange
rates(1) 1,288 647 454 333 192 (8) - 2,906 (132) 2,774
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Acquisitions
and disposals (16) (1) - - - - - (17) - (17)
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
SC&P allocation 10 (23) (3) 9 (1) 8 - - - -
Fair value
remeasurements 5 21 - - - - - 26 - 26
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Retranslation
to actual
exchange rates 8 (31) - (9) (15) - - (47) 7 (40)
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Operating
profit/(loss)
before
exceptional
items 1,295 613 451 333 176 - - 2,868 (125) 2,743
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Exceptional
items - - - - - - - - - -
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Operating
profit/(loss) 1,295 613 451 333 176 - - 2,868 (125) 2,743
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Non-operating
items (31)
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Net finance
charges (180)
=============== ======= ======== ======== ========= ======== ======== ========= ========= ========= ========
Share of after
tax results
of associates
and joint
ventures 190
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
Profit before
taxation 2,722
--------------- ------- -------- -------- --------- -------- -------- --------- --------- --------- --------
(1)These items represent the IFRS 8 performance measures for the
geographical and SC&P segments.
(i)The net sales figures for SC&P reported to the Executive
Committee primarily comprise inter-segment sales and these are
eliminated in a separate column in the above segmental analysis.
Apart from sales by the SC&P segment to the geographical
segments, inter-segment sales are not material.
(ii)Approximately 42% of calendar year net sales occurred in the
last four months of calendar year 2022.
(b) Category and geographical analysis
Category analysis Geographical analysis
--------- -------------------------------------------------
Six
months Rest
ended Ready United Great of
31 Spirits Beer to drink Other Total States India Britain world
December GBP GBP GBP GBP GBP GBP GBP GBP GBP Total
2022 million million million million million million million million million GBP million
--------- -------- -------- -------- -------- --------- --------- --------- --------- --------- ------------
Sales(1) 10,925 1,702 478 114 13,219 3,617 1,599 1,163 6,840 13,219
--------- -------- -------- -------- -------- --------- --------- --------- --------- --------- ------------
Six
months
ended
31
December
2021
--------- -------- -------- -------- -------- --------- --------- --------- --------- --------- ------------
Sales(1) 9,680 1,520 418 135 11,753 3,072 1,704 1,204 5,773 11,753
--------- -------- -------- -------- -------- --------- --------- --------- --------- --------- ------------
(1)The geographical analysis of sales is based on the location
of third-party sales.
3. Exceptional items
Exceptional items are those that in management's judgement need
to be disclosed separately. See page 46 for the definition of
exceptional items and the criteria used to determine whether an
exceptional item is accounted for as operating or
non-operating.
Six months Six months
ended 31 ended
December 31 December
2022 2021
GBP million GBP million
------------------------------------------ ----------- ------------
Exceptional operating items
------------------------------------------ ----------- ------------
Supply chain agility programme (47) -
========================================== =========== ============
Winding down Russian operations 14 -
(33) -
========================================== =========== ============
Non-operating items
Sale of businesses and brands
========================================== =========== ============
Archers brand 20 -
========================================== =========== ============
USL Popular brands 4 -
========================================== =========== ============
United National Breweries 2 2
========================================== =========== ============
Guinness Cameroon S.A. (2) -
========================================== =========== ============
Meta Abo Brewery - (33)
========================================== =========== ============
Step acquisition - Mr Black (8) -
------------------------------------------ ----------- ------------
16 (31)
========================================== =========== ============
Exceptional items before taxation (17) (31)
========================================== =========== ============
Items included in taxation
========================================== =========== ============
Tax on exceptional operating items 12 -
========================================== =========== ============
Tax on exceptional non-operating items 1 -
========================================== =========== ============
Exceptional taxation 57 -
------------------------------------------ ----------- ------------
70 -
========================================== =========== ============
Total exceptional items 53 (31)
------------------------------------------ ----------- ------------
Attributable to:
========================================== =========== ============
Equity shareholders of the parent company 52 (31)
========================================== =========== ============
Non-controlling interests 1 -
------------------------------------------ ----------- ------------
Total exceptional items 53 (31)
------------------------------------------ ----------- ------------
See page 22 for detailed explanation on exceptional items.
4. Finance income and charges
Six months Six months
ended ended
31 December 31 December
2022 2021
GBP million GBP million
Interest income 86 61
========================================================== ============ ============
Fair value gain on financial instruments 142 58
---------------------------------------------------------- ------------ ------------
Total interest income 228 119
---------------------------------------------------------- ------------ ------------
Interest charge on bank loans, bonds and overdrafts (235) (181)
========================================================== ============ ============
Interest charge on leases (8) (5)
========================================================== ============ ============
Fair value loss on financial instruments (142) (59)
========================================================== ============ ============
Interest charge on other borrowings (125) (36)
---------------------------------------------------------- ------------ ------------
Total interest charges (510) (281)
---------------------------------------------------------- ------------ ------------
Net interest charges (282) (162)
---------------------------------------------------------- ------------ ------------
Net finance income in respect of post employment plans
in surplus 29 10
Hyperinflation adjustment in respect of Venezuela (a) - 1
Total other finance income 29 11
---------------------------------------------------------- ------------ ------------
Net finance charge in respect of post employment plans
in deficit (7) (5)
========================================================== ============ ============
Foreign exchange revaluation of monetary items in respect
of Lebanon (a) - (2)
========================================================== ============ ============
Unwinding of discounts (5) (6)
========================================================== ============ ============
Interest charge in respect of direct and indirect tax (17) (8)
========================================================== ============ ============
Change in financial liability (Level 3) - (7)
Hyperinflation adjustment in respect of Turkey (a) (6) -
========================================================== ============ ============
Guarantee fees (1) -
========================================================== ============ ============
Other finance charges (3) (1)
---------------------------------------------------------- ------------ ------------
Total other finance charges (39) (29)
---------------------------------------------------------- ------------ ------------
Net other finance charges (10) (18)
---------------------------------------------------------- ------------ ------------
(a) Hyperinflation adjustment
The group applied hyperinflationary accounting for its
operations in Turkey, Venezuela and Lebanon.
Turkey has been a hyperinflationary environment, the three-year
cumulative inflation for the period ended 31 December 2022 exceeded
100%. Consequently, since March 2022, the group applies
hyperinflationary accounting for its Turkish operation. The group's
consolidated financial statements for the six months ended 31
December 2022 include the results and financial position of its
Turkish operations restated to the measuring unit current at the
end of the period, with hyperinflationary gains and losses in
respect of monetary items being reported in finance charges. The
inflation rate used by the group is the official rate published by
the Turkish Statistical Institute, TurkStat. The movement in the
publicly available official price index for the six months ended 31
December 2022 was 15%.
Venezuela is a hyperinflationary economy where the government
maintains a regime of strict currency controls with multiple
foreign currency rate systems. The exchange rate used to translate
the results of the group's Venezuelan operations was VES/GBP 1,540
for the six months ended 31 December 2022 (2021 - VES/GBP 593).
These rates reflect management's estimate of the exchange rate
considering inflation and the most appropriate official exchange
rate. Movement in the price index for the six months ended 31
December 2022 was 105% (2021 - 158%). The inflation rate used by
the group is provided by an independent valuer because no reliable,
officially published rate is available for Venezuela.
The following table presents the contribution of the group's
Venezuelan operations to the consolidated income statement, cash
flow statement and net assets for the six months ended 31 December
2022 and 31 December 2021 and with the amounts that would have
resulted if the official reference exchange rate had been
applied:
Six months ended Six months ended
31 December 2022 31 December 2021
-------------------------
At official At official
At estimated reference At estimated reference
exchange exchange exchange exchange
rate rate rate rate
1,540
VES/GBP 21 VES/GBP 593 VES/GBP 6 VES/GBP
GBP million GBP million GBP million GBP million
------------------------------------------- ------------ ----------- ------------ -----------
Net sales - 7 - 8
=========================================== ============ =========== ============ ===========
Operating profit - 2 - 2
=========================================== ============ =========== ============ ===========
Other finance income - hyperinflation
adjustment - - 1 120
=========================================== ============ =========== ============ ===========
Net cash outflow from operating activities - (1) - (3)
=========================================== ============ =========== ============ ===========
Net assets 20 1,467 37 3,501
------------------------------------------- ------------ ----------- ------------ -----------
Sterling amounts presented at the official reference exchange
rate are results of simple mathematical conversion.
The impact of hyperinflationary accounting for Lebanon was
immaterial both in the current and comparative periods.
5. Taxation
For the six months ended 31 December 2022, the tax charge of
GBP650 million (2021 - GBP634 million) comprises a UK tax charge of
GBP122 million (2021 - GBP116 million) and a foreign tax charge of
GBP528 million (2021 - GBP518 million ).
For the six months ended 31 December 2022, income tax expense
was 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.
Included in the tax charge of GBP650 million in the six months
ended 31 December 2022 is an exceptional tax credit of GBP70
million , which includes a tax credit of GBP57 million in respect
of the deductibility of fees paid to Diageo plc for guaranteeing
externally issued debt of US group entities. Following engagement
with the tax authorities, guarantee fees for the periods ended 30
June 2012 to 30 June 2022 will be fully deductible.
The group has a number of ongoing tax audits worldwide for which
provisions are recognised in line with the relevant accounting
standard taking into account best estimates and management's
judgements concerning the ultimate outcome of the tax audit. For
the six months ended 31 December 2022, ongoing audits that are
provided for individually are not expected to result in a material
tax liability. The current tax asset of GBP166 million (30 June
2022 - GBP149 million) and tax liability of GBP266 million (30 June
2022 - GBP252 million) include GBP169 million (30 June 2022 -
GBP156 million) of provisions for tax uncertainties.
On 20 July 2022, HM Treasury released draft legislation to
introduce the OECD's Pillar Two Model Rules into UK law that would
commence for accounting periods starting on or after 31 December
2023 (i.e. year ending 30 June 2025 for Diageo). Diageo is
reviewing available legislation and monitoring the status of
implementation outside the UK to understand the potential impact on
the group.
The tax rate before exceptional items for the six months ended
31 December 2022 was 23.4% compared with 23.0% for the six months
ended 31 December 2021.
6. Inventories
31 December 30 June 31 December
2022 2022 2021
GBP million GBP million GBP million
Raw materials and consumables 598 489 401
==================================== =========== =========== ===========
Work in progress 166 86 68
==================================== =========== =========== ===========
Maturing inventories 5,477 5,229 4,801
==================================== =========== =========== ===========
Finished goods and goods for resale 1,311 1,290 965
------------------------------------ ----------- ----------- -----------
7,552 7,094 6,235
------------------------------------ ----------- ----------- -----------
7. Net borrowings
31 December 30 June 31 December
2022 2022 2021
GBP million GBP million GBP million
Borrowings due within one year and bank overdrafts (2,305) (1,522) (1,184)
=================================================== =========== =========== ===========
Borrowings due after one year (15,304) (14,498) (12,693)
=================================================== =========== =========== ===========
Fair value of foreign currency forwards and swaps 534 356 122
=================================================== =========== =========== ===========
Fair value of interest rate hedging instruments (422) (283) 4
=================================================== =========== =========== ===========
Lease liabilities (438) (475) (360)
--------------------------------------------------- ----------- ----------- -----------
(17,935) (16,422) (14,111)
=================================================== =========== =========== ===========
Cash and cash equivalents 2,766 2,285 1,780
--------------------------------------------------- ----------- ----------- -----------
(15,169) (14,137) (12,331)
--------------------------------------------------- ----------- ----------- -----------
8. Reconciliation of movement in net borrowings
Six months Six months
ended 31 ended
December 31 December
2022 2021
GBP million GBP million
Net increase/(decrease) in cash and cash equivalents
before exchange 589 (888)
--------------------------------------------------------- ----------- ------------
Net (increase)/decrease in bonds and other borrowings(1) (1,508) 729
--------------------------------------------------------- ----------- ------------
Net increase in net borrowings from cash flows (919) (159)
--------------------------------------------------------- ----------- ------------
Exchange differences on net borrowings (50) (31)
Other non-cash items(2) (63) (32)
Net borrowings at beginning of the period (14,137) (12,109)
--------------------------------------------------------- ----------- ------------
Net borrowings at end of the period (15,169) (12,331)
--------------------------------------------------------- ----------- ------------
(1)In the six months ended 31 December 2022, net increase in
bonds and other borrowings excludes GBP2 million cash outflow in
respect of derivatives designated in forward point hedges (2021 -
GBP2 million).
(2)In the six months ended 31 December 2022, other non-cash
items were principally in respect of the reclassification of cash
and cash equivalents in Guinness Cameroon S.A. to assets and
liabilities held for sale . In the six months ended 31 December
2021, other non-cash items were principally in respect of
additional leases entered into during the period.
In the six months ended 31 December 2022, the group issued bonds
of $2,000 million (GBP1,788 million - net of discount and fee)
consisting of $500 million 5.2% fixed rate notes due 2025, $750
million 5.3% fixed rate notes due 2027 and $750 million 5.5% fixed
rate notes due 2033, and repaid bonds of $300 million (GBP254
million). In the six months ended 31 December 2021, the group
repaid bonds of EUR900 million (GBP769 million).
All bonds and commercial papers issued by Diageo plc's 100%
owned subsidiaries are fully and unconditionally guaranteed by
Diageo plc.
9. Financial instruments
Fair value measurements of financial instruments are presented
through the use of a three-level fair value hierarchy that
prioritises the valuation techniques used in fair value
calculations.
The group maintains policies and procedures to value instruments
using the most relevant data available. If multiple inputs that
fall into different levels of the hierarchy are used in the
valuation of an instrument, the instrument is categorised on the
basis of the most subjective input.
Foreign currency forwards and swaps, cross currency swaps and
interest rate swaps are valued using discounted cash flow
techniques. These techniques incorporate inputs at levels 1 and 2,
such as foreign exchange rates and interest rates. These market
inputs are used in the discounted cash flow calculation
incorporating the instrument's term, notional amount and discount
rate, and taking credit risk into account. As significant inputs to
the valuation are observable in active markets, these instruments
are categorised as level 2 in the hierarchy.
Other financial liabilities include a put option, which does not
have an expiry date, held by Industrias Licoreras de Guatemala
(ILG) to sell the remaining 50% equity stake in Rum Creation &
Products Inc., the owner of the Zacapa rum brand, to Diageo. The
liability is fair valued and as at 31 December 2022, an amount of
GBP217 million (30 June 2022 - GBP216 million) is recognised as a
liability with changes in the fair value of the put option included
in retained earnings. As the valuation of this option uses
assumptions not observable in the market, it is categorised as
level 3 in the hierarchy. As at 31 December 2022, because it is
unknown when or if ILG will exercise the option, the liability is
measured as if the exercise date is on the last day of the current
financial year considering forecast future performance. The option
is sensitive to reasonably possible changes in assumptions. If the
option were to be exercised as at 30 June 2024, the fair value of
the liability would increase by approximately GBP47 million.
Included in other financial liabilities, the contingent
consideration on acquisition of businesses represents the present
value of payments up to GBP406 million linked to certain
performance targets which are expected to be paid over the next
eight years.
There were no significant changes in the measurement and
valuation techniques, or significant transfers between the levels
of the financial assets and liabilities in the six months ended 31
December 2022.
The group's financial assets and liabilities measured at fair
value are categorised as follows:
31 December 30 June 31 December
2022 2022 2021
GBP million GBP million GBP million
-------------------------------------------------- ----------- ----------- -----------
Derivative assets 682 480 381
-------------------------------------------------- ----------- ----------- -----------
Derivative liabilities (552) (456) (237)
-------------------------------------------------- ----------- ----------- -----------
Valuation techniques based on observable market
input (Level 2) 130 24 144
-------------------------------------------------- ----------- ----------- -----------
Financial assets - other 172 184 167
-------------------------------------------------- ----------- ----------- -----------
Financial liabilities - other (575) (587) (483)
-------------------------------------------------- ----------- ----------- -----------
Valuation techniques based on unobservable market
input (Level 3) (403) (403) (316)
-------------------------------------------------- ----------- ----------- -----------
In the six months ended 31 December 2022 and 31 December 2021,
the decrease in financial assets - other of GBP12 million (2021 -
GBP29 million) is principally in respect of the conversion of
preference shares to equity in Mr Black.
The movements in level 3 instruments, measured on a recurring
basis, are as follows:
Contingent Contingent
consideration consideration
Zacapa recognised Zacapa recognised
financial on acquisition financial on acquisition
liability of businesses(1) liability of businesses(1)
Six months Six months Six months Six months
ended ended ended ended
31 December 31 December 31 December 31 December
2022 2022 2021 2021
GBP million GBP million GBP million GBP million
------------------------------------------ ------------ ----------------- ------------ -----------------
At the beginning of the period (216) (371) (149) (429)
========================================== ============ ================= ============ =================
Net gains/(losses) included in the income
statement - 12 (7) 18
========================================== ============ ================= ============ =================
Net (losses)/gains included in exchange
in other comprehensive income (2) (2) (4) (9)
========================================== ============ ================= ============ =================
Net losses included in retained earnings (4) - (12) -
========================================== ============ ================= ============ =================
Acquisitions - (5) - -
========================================== ============ ================= ============ =================
Settlement of liabilities 5 8 3 106
------------------------------------------ ------------ ----------------- ------------ -----------------
At the end of the period (217) (358) (169) (314)
------------------------------------------ ------------ ----------------- ------------ -----------------
(1)Included in the balance at 31 December 2022 is GBP145 million
in respect of the acquisition of Aviation Gin and Davos Brands
(2021 - GBP163 million), GBP60 million in respect of the
acquisition of 21Seeds (2021 - GBPnil), and GBP57 million in
respect of the acquisition of Lone River Ranch Water (2021 - GBP51
million).
The carrying amount of the group's financial assets and
liabilities is generally the same as their fair value apart from
borrowings. At 31 December 2022, the fair value of gross borrowings
(excluding lease liabilities and the fair value of derivative
instruments) was GBP16,716 million, and the carrying value was
GBP17,609 million (30 June 2022 - GBP15,628 million and GBP16,020
million, respectively).
10. Dividends and other reserves
Six months Six months
ended ended
31 December 31 December
2022 2021
GBP million GBP million
----------------------------------------------------------- ------------ ------------
Amounts recognised as distributions to equity shareholders
----------------------------------------------------------- ------------ ------------
Final dividend for the year ended 30 June 2022 of 46.82
pence per share (2021 - 44.59 pence) 1,066 1,040
----------------------------------------------------------- ------------ ------------
An interim dividend of 30.83 pence per share (2021 - 29.36
pence) was approved by the Board of Directors on 25 January 2023 .
As the approval was after the balance sheet date, it was not
included as a liability.
Other reserves of GBP2,193 million at 31 December 2022 (2021 -
GBP1,551 million) include a capital redemption reserve of GBP3,224
million (2021 - GBP3,206 million), a hedging reserve surplus of
GBP96 million (2021 - GBP61 million surplus) and an exchange
reserve deficit of GBP1,127 million (2021 - GBP1,716 million
deficit). Currency basis spreads included in the hedging reserve
represent the cost of hedging arising as a result of imperfections
of foreign exchange markets. Exclusion of currency basis spreads
would result in a GBP22 million (2021 - GBP22 million) credit to
hedging reserve.
11. Acquisition of businesses
Fair value of assets and liabilities acquired and cash
consideration paid in respect of acquisition of subsidiaries in the
six months ended 31 December 2022 were as follows:
Acquisitions
GBP million
------------------------------------- ------------
Brands 45
===================================== ============
Property, plant and equipment 24
===================================== ============
Inventories 24
===================================== ============
Other working capital 1
===================================== ============
Deferred tax (3)
Cash 1
------------------------------------- ------------
Fair value of assets and liabilities 92
===================================== ============
Goodwill arising on acquisition 22
===================================== ============
Step acquisition (10)
------------------------------------- ------------
Consideration payable 104
------------------------------------- ------------
Satisfied by:
===================================== ============
Cash consideration paid (96)
===================================== ============
Contingent consideration payable (5)
===================================== ============
Deferred consideration payable (3)
------------------------------------- ------------
(104)
------------------------------------- ------------
Diageo completed two acquisitions in the six months ended 31
December 2022: (i) on 29 September 2022, the acquisition of that
part of the entire issued share capital of Mr Black Spirits Pty
Ltd, owner of the Mr Black Australian premium cold brew coffee
liqueur, that it did not already own; and (ii) on 2 November 2022,
the acquisition of the entire issued share capital of Balcones
Distilling, a Texas craft distiller and one of the leading
producers of American single malt whisky in the United States. The
fair values of assets and liabilities acquired in respect of the
two acquisitions are provisional and will be finalised in the year
ending 30 June 2023.
Cash consideration paid in respect of the acquisition of
businesses in the six months ended 31 December 2022 were as
follows:
Consideration
GBP million
---------------------------------------------- -------------
Acquisitions in the year
---------------------------------------------- =============
Subsidiaries
---------------------------------------------- =============
Cash consideration paid (96)
=============
Cash acquired 1
---------------------------------------------- =============
Investments in associates
---------------------------------------------- =============
Cash consideration paid (3)
---------------------------------------------- =============
Prior year acquisitions
---------------------------------------------- =============
Subsidiaries
---------------------------------------------- =============
Contingent consideration paid (8)
---------------------------------------------- =============
Other consideration (10)
---------------------------------------------- =============
Investments in associates
---------------------------------------------- =============
Capital injection (28)
---------------------------------------------- -------------
Net cash outflow on acquisition of businesses (144)
---------------------------------------------- =============
12. Assets and liabilities held for sale
31 December 30 June
2022 2022
GBP million GBP million
------------------------------------ ----------- -----------
Intangible assets - 165
------------------------------------ =========== ===========
Property, plant and equipment 103 12
------------------------------------ =========== ===========
Other investments - 1
------------------------------------ =========== ===========
Inventories 19 21
------------------------------------ =========== ===========
Trade and other receivables 13 23
------------------------------------ =========== ===========
Cash 47 -
Assets held for sale 182 222
------------------------------------ ----------- -----------
Trade and other payables (61) (18)
------------------------------------ =========== ===========
Corporation tax (2) (6)
------------------------------------ =========== ===========
Deferred tax (5) (35)
------------------------------------ =========== ===========
Provisions (2) -
------------------------------------ =========== ===========
Leases (2) (2)
------------------------------------ =========== ===========
Post employment benefit liabilities (4) -
------------------------------------ ----------- -----------
Liabilities held for sale (76) (61)
------------------------------------ ----------- -----------
Total 106 161
------------------------------------ ----------- -----------
Assets and liabilities held for sale at 31 December 2022
consisted of Guinness Cameroon S.A., and as at 30 June 2022 assets
and liabilities held for sale consisted of the Windsor business in
Korea and USL's Popular brands. As at 31 December 2021 there were
no assets and liabilities classified as held for sale.
On 14 July 2022, Diageo announced the agreement to sell Guinness
Cameroon S.A., its brewery in Cameroon, to Castel Group for GBP389
million. On completion, Castel will take over the production and
nationwide distribution of Guinness in Cameroon under a licence and
royalty agreement. The sale is considered to be highly probable as
at 31 December 2022 and it is expected to be completed in the year
ending 30 June 2023. Consequently, the impacted assets and
liabilities were classified as held for sale at 31 December 2022
and measured at cost as the lower of cost and fair value less cost
of disposal.
On 27 September 2022, Diageo announced the termination of the
conditional agreement to sell its Windsor business in Korea.
Consequently, the recoverable assets and liabilities attributable
to the business were reclassified out of held for sale.
On 30 September 2022, Diageo announced the completion of the
sale of the Popular brands of its USL business. The assets and
liabilities attributable to the business were disposed from held
for sale. The aggregate consideration for the disposal was GBP87
million, resulting in an exceptional gain of GBP4 million.
13. Contingent liabilities and legal proceedings
(a) Guarantees and related matters
As of 31 December 2022, the group has no material unprovided
guarantees or indemnities in respect of liabilities of third
parties.
(b) Acquisition of USL shares from UBHL and related proceedings
in relation to the USL transaction
On 4 July 2013, Diageo completed its acquisition, under a share
purchase agreement with United Breweries (Holdings) Limited (UBHL)
and various other sellers (the SPA), of shares representing 14.98%
in USL, including shares representing 6.98% from UBHL. The SPA was
signed on 9 November 2012 as part of the transaction announced by
Diageo in relation to USL on that day (the Original USL
Transaction). Following a series of further transactions, as of 31
December 2022, Diageo has a 55.94% investment in USL (excluding
2.38% owned by the USL Benefit Trust).
Prior to the acquisition from UBHL on 4 July 2013, the High
Court of Karnataka (High Court) had granted leave to UBHL under the
Indian Companies Act 1956 (the Leave Order) to enable the sale by
UBHL to Diageo to take place (the UBHL Share Sale) notwithstanding
the continued existence of certain winding-up petitions that were
pending against UBHL on the date of the SPA. At the time of the
completion of the UBHL Share Sale, the Leave Order remained subject
to review on appeal. However, as stated by Diageo at the time of
closing, it was considered unlikely that any appeal process in
respect of the Leave Order would definitively conclude on a timely
basis and, accordingly, Diageo waived the conditionality under the
SPA relating to the absence of insolvency proceedings in relation
to UBHL and acquired the 6.98% stake in USL from UBHL at that
time.
Following appeal and counter-appeal in respect of the Leave
Order, this matter is now before the Supreme Court of India which
has issued an order that the status quo be maintained with regard
to the UBHL Share Sale pending a hearing on the matter before it.
Following a number of adjournments, the next date for a substantive
hearing is yet to be fixed.
In separate proceedings, the High Court passed a winding-up
order against UBHL on 7 February 2017, and appeals filed by UBHL
against that order have since been dismissed, initially by a
division bench of the High Court and subsequently by the Supreme
Court of India.
Diageo continues to believe that the acquisition price of INR
1,440 per share paid to UBHL for the USL shares is fair and
reasonable as regards UBHL, UBHL's shareholders and UBHL's secured
and unsecured creditors. However, adverse results for Diageo in the
proceedings referred to above could, absent leave or relief in
other proceedings, ultimately result in Diageo losing title to the
6.98% stake in USL acquired from UBHL. Diageo believes , including
by reason of its rights under USL's articles of association to
nominate USL's CEO and CFO and the right to appoint, through USL, a
majority of the directors on the boards of USL's subsidiaries as
well as its ability as promoter to nominate for appointment up to
two-thirds of USL's directors for so long as the chairperson of USL
is an independent director , that it would remain in control of USL
and would continue to be able to consolidate USL as a subsidiary
for accounting purposes regardless of the outcome of this
litigation.
There can be no certainty as to the outcome of the existing or
any further related legal proceedings or the time frame within
which they would be concluded.
(c) Continuing matters relating to Dr Vijay Mallya and
affiliates
On 25 February 2016, Diageo and USL each announced that they had
entered into arrangements with Dr Mallya under which he had agreed
to resign from his position as a director and as chairman of USL
and from his positions in USL's subsidiaries.
Diageo's agreement with Dr Mallya (the February 2016 Agreement)
provided for a payment of $75 million (GBP63 million) to Dr Mallya
over a five-year period of which $40 million (GBP33 million) was
paid on signing of the February 2016 Agreement with the balance
being payable in equal instalments of $7 million (GBP6 million) a
year over five years (2017-2021). All payments were subject to and
conditional on Dr Mallya's compliance with the agreement. The
February 2016 Agreement also provided for the release of Dr
Mallya's personal obligations to indemnify Diageo Holdings
Netherlands B.V. (DHN) in respect of its earlier liability ($141
million (GBP118 million)) under a backstop guarantee of certain
borrowings of Watson Limited (Watson) (a company affiliated with Dr
Mallya).
On account of various breaches and other provisions of
agreements between Dr Mallya and persons connected with him and
Diageo and/or USL, Diageo did not make the five instalment payments
due during the five-year period between 2017 and 2021. In addition,
Diageo has also demanded that Dr Mallya repay the $40 million
(GBP33 million) paid by Diageo in February 2016 and sought
compensation for various losses incurred by the relevant members of
the Diageo group.
On 16 November 2017, Diageo and other relevant members of the
Diageo group commenced claims in the High Court of Justice in
England and Wales (the English High Court) against Dr Mallya in
relation to these matters. At the same time DHN also commenced
claims in the English High Court against Dr Mallya, his son
Sidhartha Mallya, Watson and Continental Administration Services
Limited (CASL) (a company affiliated with Dr Mallya and understood
to hold assets on trust for him and certain persons affiliated with
him) for in excess of $142 million (GBP118 million) (plus interest)
in relation to Watson's liability to DHN in respect of its
borrowings referred to above and the breach of associated security
documents. Dr Mallya, Sidhartha Mallya and the relevant affiliated
companies filed a defence to these claims, and Dr Mallya also filed
a counterclaim for payment of the two instalment payments that had
by that time been withheld as described above.
Diageo continues to prosecute its claims and to defend the
counterclaim. As part of these proceedings, Diageo and the other
relevant members of its group filed an application for strike out
and/or summary judgement in respect of certain aspects of the
defence filed by Dr Mallya and the other defendants, including
their defence in relation to Watson and CASL's liability to repay
DHN. The application was successful resulting in Watson being
ordered to pay approximately $135 million (GBP113 million) plus
various amounts in respect of interest to DHN, with CASL being held
liable as co-surety for 50% of any such amount unpaid by Watson.
These amounts were, contrary to the relevant orders, not paid by
the relevant deadlines and Watson and CASL's remaining defences in
the proceedings were struck out. Diageo and DHN have accordingly
sought asset disclosure and are considering further enforcement
steps against Watson and CASL, both in the United Kingdom and in
other jurisdictions where they are present or hold assets.
A trial of the remaining elements of these claims was due to
commence on 21 November 2022. However, on 26 July 2021 Dr Mallya
was declared bankrupt by the English High Court pursuant to a
bankruptcy petition presented by a consortium of Indian banks.
Diageo and the relevant members of its group have informed the
Trustee in Bankruptcy of their position as creditors in the
bankruptcy and have engaged with the Trustee regarding their claims
and the status of the current proceedings. An appeal by Dr Mallya
against his bankruptcy (and an appeal by the bank consortium
against orders made in the course of the bankruptcy proceedings)
are pending. In light of the uncertainty posed by the ongoing
bankruptcy proceedings, the trial of Diageo's claim has been
relisted to take place in February 2024.
At this stage, it is not possible to assess the extent to which
the various ongoing proceedings related to the bankruptcy will
affect the remaining elements of the claims by Diageo and the
relevant members of its group.
Upon completion of an initial inquiry in April 2015 into past
improper transactions which identified references to certain
additional parties and matters, USL carried out an additional
inquiry into these transactions (Additional Inquiry) which was
completed in July 2016. The Additional Inquiry, prima facie,
identified transactions indicating actual and potential diversion
of funds from USL and its Indian and overseas subsidiaries to, in
most cases, entities that appeared to be affiliated or associated
with Dr Mallya. All amounts identified in the Additional Inquiry
have been provided for or expensed in the financial statements of
USL or its subsidiaries in the respective prior periods. USL has
filed recovery suits against relevant parities identified pursuant
to the Additional Inquiry. Further, at this stage, it is not
possible for the management of USL to estimate the financial impact
on USL, if any, arising out of potential non-compliance with
applicable laws in relation to such fund diversions.
(d) Other matters in relation to USL
In respect of the Watson backstop guarantee arrangements, the
Securities and Exchange Board of India (SEBI) issued a notice to
Diageo on 16 June 2016 that if there is any net liability incurred
by Diageo (after any recovery under relevant security or other
arrangements, which matters remain pending) on account of the
Watson backstop guarantee, such liability, if any, would be
considered to be part of the price paid for the acquisition of USL
shares under the SPA which formed part of the Original USL
Transaction and that, in that case, additional equivalent payments
would be required to be made to those shareholders (representing
0.04% of the shares in USL) who tendered in the open offer made as
part of the Original USL Transaction. Diageo believes that the
Watson backstop guarantee arrangements were not part of the price
paid or agreed to be paid for any USL shares under the Original USL
Transaction and that therefore SEBI's decision was not consistent
with applicable law, and Diageo appealed against it before the
Securities Appellate Tribunal, Mumbai (SAT). On 1 November 2017,
SAT issued an order in respect of Diageo's appeal in which, amongst
other things, it observed that the relevant officer at SEBI had
neither considered Diageo's earlier reply nor provided Diageo with
an opportunity to be heard, and accordingly directed SEBI to pass a
fresh order after giving Diageo an opportunity to be heard.
Following SAT's order, Diageo made its further submissions in the
matter, including at a personal hearing before a Deputy General
Manager of SEBI. On 26 June 2019, SEBI issued an order reiterating
the directions contained in its previous notice dated 16 June 2016.
As with the previous SEBI notice, Diageo believes that SEBI's
latest order is not consistent with applicable law and has filed
another appeal before the SAT against the order. Diageo's appeal is
currently pending. Diageo is unable to assess if the notices or
enquiries referred to above will result in enforcement action or,
if this were to transpire, to quantify meaningfully the possible
range of loss, if any, to which any such action might give rise to
if determined against Diageo or USL.
(e) USL's dispute with IDBI Bank Limited
Prior to the acquisition by Diageo of a controlling interest in
USL, USL had prepaid a term loan of INR 6,280 million (GBP63
million) taken through IDBI Bank Limited (IDBI), an Indian bank,
which was secured on certain fixed assets and brands of USL, as
well as by a pledge of certain shares in USL held by the USL
Benefit Trust (of which USL is the sole beneficiary). The maturity
date of the loan was 31 March 2015. IDBI disputed the prepayment,
following which USL filed a writ petition in November 2013 before
the High Court of Karnataka (the High Court) challenging the bank's
actions.
Following the original maturity date of the loan, USL received
notices from IDBI seeking to recall the loan, demanding a further
sum of INR 459 million (GBP5 million) on account of the outstanding
principal, accrued interest and other amounts, and also threatening
to enforce the security in the event that USL did not make these
further payments. Pursuant to an application filed by USL before
the High Court in the writ proceedings, the High Court directed
that, subject to USL depositing such further amount with the bank
(which amount was duly deposited by USL), the bank should hold the
amount in a suspense account and not deal with any of the secured
assets including the shares until disposal of the original writ
petition filed by USL before the High Court.
On 27 June 2019, a single judge bench of the High Court issued
an order dismissing the writ petition filed by USL, amongst other
things, on the basis that the matter involved an issue of breach of
contract by USL and was therefore not maintainable in exercise of
the court's writ jurisdiction. USL filed an appeal against this
order before a division bench of the High Court, which on 30 July
2019 issued an interim order directing the bank to not deal with
any of the secured assets until the next date of hearing. On 13
January 2020, the division bench of the High Court admitted the
writ appeal and extended the interim stay. This appeal is currently
pending. Based on the assessment of USL's management supported by
external legal opinions, USL continues to believe that it has a
strong case on the merits and therefore continues to believe that
the secured assets will be released to USL and the aforesaid amount
of INR 459 million (GBP5 million) remains recoverable from
IDBI.
(f) Tax
The international tax environment has seen increased scrutiny
and rapid change over recent years bringing with it greater
uncertainty for multinationals. Against this backdrop, Diageo has
been monitoring developments and continues to engage transparently
with the tax authorities in the countries where Diageo operates to
ensure that the group manages its arrangements on a sustainable
basis.
The group operates in a large number of markets with complex tax
and legislative regimes that are open to subjective interpretation.
In the context of these operations, it is possible that tax
exposures which have not yet materialised (including those which
could arise as a result of tax assessments) may result in losses to
the group. In the circumstances where tax authorities have raised
assessments, challenging interpretations which may lead to a
possible material outflow, these have been included as contingent
liabilities. Where the potential tax exposures are known to us and
have not been assessed, the group considers disclosure of such
matters taking into account their size and nature, relevant
regulatory requirements and potential prejudice of the future
resolution or assessment thereof.
Diageo has a large number of ongoing tax cases in Brazil and
India. Since assessing an accurate value of contingent liabilities
in these markets requires a high degree of judgement, contingent
liabilities are disclosed on the basis of the current known
possible exposure from tax assessment values. While not all of
these cases are individually significant, the current aggregate
known possible exposure from tax assessment values is up to
approximately GBP568 million for Brazil and up to approximately
GBP131 million for India. The group believes that the likelihood
that the tax authorities will ultimately prevail is lower than
probable but higher than remote. Due to the fiscal environment in
Brazil and in India, the possibility of further tax assessments
related to the same matters cannot be ruled out and the judicial
processes may take extended periods to conclude. Based on its
current assessment, Diageo believes that no provision is required
in respect of these issues.
Payments were made under protest in India in respect of the
periods 1 April 2006 to 31 March 2019 in relation to tax
assessments where the risk is considered to be remote or possible.
These payments have to be made in order to be able to challenge the
assessments and as such have been recognised as a receivable in the
group's balance sheet. The total amount of payments under protest
recognised as a receivable as at 31 December 2022 is GBP117 million
(corporate tax payments of GBP105 million and indirect tax payments
of GBP12 million).
(g) Information request
In 2021, Diageo received an information request from the US
Securities and Exchange Commission relating to Diageo's business
operations in certain markets and to its policies, procedures and
compliance environment. Diageo is responding to this information
request but is currently unable to assess whether the inquiry will
evolve into any enforcement action or, if this were to transpire,
to quantify meaningfully the possible loss or range of loss, if
any, to which any such action might give rise.
(h) Other
The group has extensive international operations and routinely
makes judgements on a range of legal, customs and tax matters which
are incidental to the group's operations. Some of these judgements
are or may become the subject of challenges and involve
proceedings, the outcome of which cannot be foreseen. In
particular, the group is currently a defendant in various customs
proceedings that challenge the declared customs value of products
imported by certain Diageo companies. Diageo continues to defend
its position vigorously in these proceedings.
Save as disclosed above, neither Diageo, nor any member of the
Diageo group, is or has been engaged in, nor (so far as Diageo is
aware) is there pending or threatened by or against it, any legal
or arbitration proceedings which may have a significant effect on
the financial position of the Diageo group.
14. Related party transactions
The group's significant related parties are its associates,
joint ventures, key management personnel and post employment
benefit plans. In October 2022 Diageo plc provided an interim
credit facility of GBP1.0 billion to Diageo Pension Trust Limited,
split into two separate agreements of GBP150 million for the Diageo
Lifestyle Plan and GBP850 million for the Diageo Pension Scheme, to
support temporary liquidity challenges until 29 December 2022.
Subsequently, the Diageo Pension Scheme agreement was extended to
29 June 2023. At 31 December 2022, the outstanding balance due from
the scheme under the credit facility was GBPnil. The movements in
the credit facility are included in movements in loans and other
investments on the consolidated statement of cash flows.
There were no transactions with related parties during the six
months ended 31 December 2022 on terms other than those that
prevail in arm's length transactions.
15. Post balance sheet events
On 17 January 2023, Diageo announced that it had reached an
agreement to acquire Don Papa Rum, a super-premium dark rum from
the Philippines. The upfront consideration is EUR260 million
(GBP231 million) with further potential consideration of up to
EUR178 million (GBP158 million) through to 2028 subject to
performance, reflecting the brand's expected growth potential.
Independent review report to Diageo plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Diageo plc's condensed consolidated interim
financial statements (the "interim financial statements") in the
interim results of Diageo plc for the six months ended 31 December
2022 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34 'Interim Financial Reporting',
IAS 34 'Interim Financial Reporting' as issued by the International
Accounting Standards Board ('IASB'), IAS 34 'Interim Financial
Reporting' as adopted by the EU and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
The interim financial statements comprise:
-- the condensed consolidated balance sheet as at 31 December 2022;
-- the condensed consolidated income statement and condensed
consolidated statement of comprehensive income for the period then
ended;
-- the condensed consolidated statement of cash flows for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results
of Diageo plc have been prepared in accordance with UK adopted IAS
34 'Interim Financial Reporting', IAS 34 'Interim Financial
Reporting' as issued by the International Accounting Standards
Board ('IASB'), IAS 34 'Interim Financial Reporting' as adopted by
the EU and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom ("ISRE (UK) 2410"). A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with ISRE (UK) 2410.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim results, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the interim results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. In
preparing the interim results, including the interim financial
statements, the directors are responsible for assessing the group's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the interim results based on our review.
Our conclusion, including our Conclusions relating to going
concern, is based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion paragraph of
this report. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
25 January 2023
a. The maintenance and integrity of the Diageo plc website is
the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the interim financial statements since
they were initially presented on the website.
b. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Additional information
Explanatory notes
Comparisons are to the six months ended 31 December 2021 (2021)
unless otherwise stated. Unless otherwise stated, percentage
movements given throughout this document for volume, sales, net
sales, marketing spend, operating profit and operating margin are
organic movements after retranslating current period reported
numbers at prior period exchange rates and after adjusting for the
effect of exceptional operating items and acquisitions and
disposals, excluding fair value remeasurements.
This document includes names of Diageo's products which
constitute trademarks or trade names which Diageo owns or which
others own and license to Diageo for use.
Definitions and reconciliation of non-GAAP measures to GAAP
measures
Diageo's strategic planning process is based on certain non-GAAP
measures, including organic movements. These non-GAAP measures are
chosen for planning and reporting, and some of them are used for
incentive purposes. The group's management believes that these
measures provide valuable additional information for users of the
financial statements in understanding the group's performance.
These non-GAAP measures should be viewed as complementary to, and
not replacements for, the comparable GAAP measures and reported
movements therein.
It is not possible to reconcile the forecast tax rate before
exceptional items, forecast organic net sales growth and forecast
organic operating profit growth to the most comparable GAAP measure
as it is not possible to predict, without unreasonable effort, with
reasonable certainty, the future impact of changes in exchange
rates, acquisitions and disposals and potential exceptional
items.
Volume
Volume is a performance indicator that is measured on an
equivalent units basis to nine-litre cases of spirits. An
equivalent unit represents one nine-litre case of spirits, which is
approximately 272 servings. A serving comprises 33ml of spirits,
165ml of wine, or 330ml of ready to drink or beer. Therefore, to
convert volume of products other than spirits to equivalent units,
the following guide has been used: beer in hectolitres, divide by
0.9; wine in nine-litre cases, divide by five; ready to drink and
certain pre-mixed products that are classified as ready to drink in
nine-litre cases, divide by ten.
Organic movements
Organic information is presented using sterling amounts on a
constant currency basis excluding the impact of exceptional items,
certain fair value remeasurement, hyperinflation and acquisitions
and disposals. Organic measures enable users to focus on the
performance of the business which is common to both years and which
represents those measures that local managers are most directly
able to influence.
Calculation of organic movements
The organic movement percentage is the amount in the row titled
'Organic movement' in the tables below, expressed as a percentage
of the relevant absolute amount in the row titled ' Six months
ended 31 December 2021 adjusted'. Organic operating margin is
calculated by dividing operating profit before exceptional items by
net sales after excluding the impact of exchange rate movements,
certain fair value remeasurements, hyperinflation and acquisitions
and disposals.
(a) Exchange rates
Exchange in the organic movement calculation reflects the
adjustment to recalculate the reported results as if they had been
generated at the prior period weighted average exchange rates.
Exchange impacts in respect of the external hedging of
intergroup sales by the markets in a currency other than their
functional currency and the intergroup recharging of services are
also translated at prior period weighted average exchange rates and
are allocated to the geographical segment to which they relate.
Residual exchange impacts are reported as part of the Corporate
segment. Results from hyperinflationary economies are translated at
forward-looking rates.
(b) Acquisitions and disposals
For acquisitions in the current period, the post-acquisition
results are excluded from the organic movement calculations. For
acquisitions in the prior period, post-acquisition results are
included in full in the prior period but are included in the
organic movement calculation from the anniversary of the
acquisition date in the current period. The acquisition row also
eliminates the impact of transaction costs that have been charged
to operating profit in the current or prior period in respect of
acquisitions that, in management's judgement, are expected to be
completed.
Where a business, brand, brand distribution right or agency
agreement was disposed of or terminated in the reporting period,
the group, in the organic movement calculations, excludes the
results for that business from the current and prior period. In the
calculation of operating profit, the overheads included in
disposals are only those directly attributable to the businesses
disposed of, and do not result from subjective judgements of
management.
(c) Exceptional items
Exceptional items are those that in management's judgement need
to be disclosed separately. Such items are included within the
income statement caption to which they relate, and are excluded
from the organic movement calculatio ns. Management believes that
that separate disclosure of exceptional items and the
classification between operating and non-operating items further
helps investors to understand the performance of the group. Changes
in estimates and reversals in relation to items previously
recognised as exceptional are presented consistently as exceptional
in the current year.
Exceptional operating items are those that are considered to be
material and unusual or non-recurring in nature and are part of the
operating activities of the group, such as one-off global
restructuring programmes which can be multi-year, impairment of
intangible assets and fixed assets, indirect tax settlements,
property disposals and changes in post employment plans.
Gains and losses on the sale or directly attributable to a
prospective sale of businesses, brands or distribution rights, step
up gains and losses that arise when an investment becomes an
associate or an associate becomes a subsidiary and other material,
unusual non-recurring items that are not in respect of the
production, marketing and distribution of premium drinks, are
disclosed as exceptional non-operating items below operating profit
in the income statement.
Exceptional current and deferred tax items comprise material and
unusual or non-recurring items that impact taxation. Examples
include direct tax provisions and settlements in respect of prior
years and the remeasurement of deferred tax assets and liabilities
following tax rate changes.
(d) Fair value remeasurement
Fair value remeasurement in the organic movement calculation
reflects an adjustment to eliminate the impact of fair value
changes in biological assets, earn-out arrangements that are
accounted for as remuneration and fair value changes relating to
contingent consideration liabilities and equity options that arose
on acquisitions recognised in the income statement.
Growth on a constant basis
Growth on a constant basis is a measure used by the group to
understand the trends of the business and its recovery towards
pre-Covid-19 performance.
2018 (i.e. six months ended 31 December 2018) to 2022 (i.e. six
months ended 31 December 2022) growth on a constant basis for
volume, sales, net sales and operating profit before exceptional
items is calculated by adding up the respective periods' organic
movement in the row titled 'Organic movement' in the tables below,
expressed as a percentage of the relevant absolute amount in the
row titled 'Six months ended 31 December 2018 adjusted'. The most
comparable GAAP financial measure is 'Six months ended 31 December
2018 to six months ended 31 December 2022 reported movement %' in
the tables below which is calculated by combining the reported
movements for the respective periods, expressed as a percentage of
the Six months ended 31 December 2018 reported amount.
Adjustment in respect of hyperinflation
The group's experience is that hyperinflationary conditions
result in price increases that include both normal pricing actions
reflecting changes in demand, commodity and other input costs or
considerations to drive commercial competitiveness, as well as
hyperinflationary elements and that for the calculation of organic
movements, the distortion from hyperinflationary elements should be
excluded.
Cumulative inflation over 100% (2% per month compounded) over
three years is one of the key indicators within IAS 29 to assess
whether an economy is deemed to be hyperinflationary. As a result,
the definition of 'Organic movements' includes price growth in
markets deemed to be hyperinflationary economies, up to a maximum
of 2% per month while also being on a constant currency basis.
Corresponding adjustments have been made to all income statement
related lines in the organic movement calculations.
In the tables presenting the calculation of organic movements,
'hyperinflation' is included as a reconciling item between reported
and organic movements and that also includes the relevant IAS 29
adjustments.
Organic movement calculations for the six months ended 31
December 2022 were as follows:
Latin
America
North Asia and
America Europe Pacific Caribbean Africa Corporate Total
million million million million million million million
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Volume (equivalent units)
================================= ======== ======== ======== ========== ======== ========= ========
Six months ended 31 December
2018 reported 25.6 25.7 49.2 12.4 17.6 - 130.5
Disposals (1.3) - - - (0.3) - (1.6)
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2018 adjusted 24.3 25.7 49.2 12.4 17.3 - 128.9
Organic movement (2019) 0.7 (0.3) (0.4) (0.1) 0.3 - 0.2
Organic movement (2020) 2.0 (1.2) (1.4) 0.5 (0.2) - (0.3)
Organic movement (2021) 0.2 5.4 1.7 2.0 2.6 - 11.9
Six months ended 31 December
2019, six months ended 31
December 2020 and six months
ended 31 December 2021 movement
on a constant basis 2.9 3.9 (0.1) 2.4 2.7 - 11.8
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Volume (equivalent units)
================================= ======== ======== ======== ========== ======== ========= ========
Six months ended 31 December
2021 reported 28.0 29.4 49.1 14.8 18.9 - 140.2
================================= ======== ======== ======== ========== ======== ========= ========
Disposals(2) - (0.5) (11.6) - (0.2) - (12.3)
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2021 adjusted 28.0 28.9 37.5 14.8 18.7 - 127.9
Organic movement (1.1) (0.1) 3.6 0.9 (1.0) - 2.3
Acquisitions and disposals(2) 0.1 0.4 6.0 0.1 - - 6.6
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2022 reported 27.0 29.2 47.1 15.8 17.7 - 136.8
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Organic movement % (4) - 10 6 (5) - 2
Six months ended 31 December
2018 to six months ended 31
December 2022 reported growth
% 5 14 (4) 27 1 - 5
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2018 to six months ended 31
December 2022 growth on a
constant basis % 7 15 7 27 10 - 11
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Latin
America
North Asia and
America Europe Pacific Caribbean Africa Corporate Total
GBP GBP GBP GBP GBP GBP GBP
million million million million million million million
------------------------------ -------- -------- -------- ---------- -------- --------- --------
Sales
============================== ======== ======== ======== ========== ======== ========= ========
Six months ended 31 December
2021 reported 3,257 3,178 2,999 1,052 1,244 23 11,753
============================== ======== ======== ======== ========== ======== ========= ========
Exchange 48 (221) 33 17 6 - (117)
Disposals(2) - (20) (440) - (9) - (469)
------------------------------ -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2021 adjusted 3,305 2,937 2,592 1,069 1,241 23 11,167
Organic movement 80 269 213 189 58 21 830
Acquisitions and disposals(2) 14 10 225 6 - - 255
============================== ======== ======== ======== ========== ======== ========= ========
Exchange 448 98 140 130 38 - 854
============================== ======== ======== ======== ========== ======== ========= ========
Hyperinflation - 113 - - - - 113
Six months ended 31 December
2022 reported 3,847 3,427 3,170 1,394 1,337 44 13,219
------------------------------ -------- -------- -------- ---------- -------- --------- --------
Organic movement % 2 9 8 18 5 91 7
------------------------------ -------- -------- -------- ---------- -------- --------- --------
Latin
America
North Asia and
America Europe Pacific Caribbean Africa Corporate Total
GBP GBP GBP GBP GBP GBP GBP
million million million million million million million
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Net sales
================================= ======== ======== ======== ========== ======== ========= ========
Six months ended 31 December
2018 reported 2,356 1,633 1,398 672 821 28 6,908
================================= ======== ======== ======== ========== ======== ========= ========
Exchange (20) (20) 3 2 (4) - (39)
Disposals (62) (1) (1) (1) (29) - (94)
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2018 adjusted 2,274 1,612 1,400 673 788 28 6,775
Organic movement (2019) 129 42 62 14 40 (1) 286
Organic movement (2020) 307 (163) (48) (9) (3) (16) 68
Organic movement (2021) 338 389 181 258 166 12 1,344
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2019, six months ended 31
December 2020 and six months
ended 31 December 2021 movement
on a constant basis 774 268 195 263 203 (5) 1,698
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Net sales
================================= ======== ======== ======== ========== ======== ========= ========
Six months ended 31 December
2021 reported 2,964 1,752 1,531 819 868 23 7,957
================================= ======== ======== ======== ========== ======== ========= ========
Exchange(1) 44 (67) 14 12 4 - 7
Disposals(2) - (16) (68) - (7) - (91)
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2021 adjusted 3,008 1,669 1,477 831 865 23 7,873
Organic movement 88 164 250 167 52 21 742
Acquisitions and disposals(2) 13 7 35 3 - - 58
================================= ======== ======== ======== ========== ======== ========= ========
Exchange(1) 408 54 75 99 26 - 662
================================= ======== ======== ======== ========== ======== ========= ========
Hyperinflation - 85 - - - - 85
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2022 reported 3,517 1,979 1,837 1,100 943 44 9,420
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Organic movement % 3 10 17 20 6 91 9
Six months ended 31 December
2018 to six months ended 31
December 2022 reported growth
% 49 21 31 64 15 57 36
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2018 to six months ended 31
December 2022 growth on a
constant basis % 38 27 32 64 32 57 36
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Latin
America
North Asia and
America Europe Pacific Caribbean Africa Corporate Total
GBP GBP GBP GBP GBP GBP GBP
million million million million million million million
------------------------------- -------- -------- -------- ---------- -------- --------- --------
Marketing
------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2021 reported 548 307 263 125 102 6 1,351
=============================== ======== ======== ======== ========== ======== ========= ========
Exchange 6 (2) 3 1 - - 8
Fair value remeasurement
of contingent considerations,
equity option and earn out
arrangements 1 - - - - - 1
=============================== ======== ======== ======== ========== ======== ========= ========
Disposals(2) - - - - (1) - (1)
------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2021 adjusted 555 305 266 126 101 6 1,359
Organic movement 13 9 24 37 8 2 93
Acquisitions and disposals(2) 7 - - 1 - - 8
Exchange 74 5 12 13 3 1 108
------------------------------- ======== ======== ======== ========== ======== ========= ========
Hyperinflation - 9 - - - - 9
------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2022 reported 649 328 302 177 112 9 1,577
------------------------------- -------- -------- -------- ---------- -------- --------- --------
Organic movement % 2 3 9 29 8 33 7
------------------------------- -------- -------- -------- ---------- -------- --------- --------
Latin
America
North Asia and
America Europe Pacific Caribbean Africa Corporate Total
GBP GBP GBP GBP GBP GBP GBP
million million million million million million million
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Operating profit before
exceptional items
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2018 reported 2,451
--------------------------------- -------- -------- -------- ---------- -------- --------- ========
Exchange (19)
--------------------------------- -------- -------- -------- ---------- -------- --------- ========
Disposal (44)
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2018 adjusted 2,388
Organic movement (2019) 110
Organic movement (2020) (85)
Organic movement (2021) 550
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2019, six months ended 31
December 2020 and six months
ended 31 December 2021 movement
on a constant basis 575
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Operating profit before
exceptional items
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2021 reported 1,295 613 451 333 176 (125) 2,743
--------------------------------- ======== ======== ======== ========== ======== ========= ========
Exchange(1) 4 (36) 3 10 10 (3) (12)
Fair value remeasurement
of contingent considerations
and equity option (4) (21) - - - - (25)
Acquisitions and disposals(2) - (10) -14 - 4 - (20)
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2021 adjusted 1,295 546 440 343 190 (128) 2,686
Organic movement (26) 106 119 69 23 (30) 261
Acquisitions and disposals(2) (6) 2 5 - - - 1
================================= ======== ======== ======== ========== ======== ========= ========
Fair value remeasurement
of contingent considerations,
equity option and earn out
arrangements 14 (1) - - - - 13
Exchange(1) 142 21 23 59 (33) 1 213
================================= ======== ======== ======== ========== ======== ========= ========
Hyperinflation - 20 - - - - 20
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2022 reported 1,419 694 587 471 180 (157) 3,194
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Organic movement % (2) 19 27 20 12 (23) 10
Organic operating margin
% (3)
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2022 41.0 35.6 32.4 41.3 23.2 n/a 34.2
--------------------------------- ======== ======== ======== ========== ======== ========= ========
Six months ended 31 December
2021 43.1 32.7 29.8 41.3 22.0 n/a 34.1
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Organic operating margin
movement (bps) (206) 286 258 1 126 n/a 9
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2018 to six months ended
31 December 2022 reported
growth % 30
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
Six months ended 31 December
2018 to six months ended
31 December 2022 growth on
a constant basis % 35
--------------------------------- -------- -------- -------- ---------- -------- --------- --------
(i)For the reconciliation of sales to net sales, see page
21.
(ii)Percentages and margin movements are calculated on rounded
figures.
Notes: Information in respect of the organic movement
calculations
(1) The impact of movements in exchange rates on reported
figures for net sales and operating profit was principally in
respect of the translation exchange impact of the weakening of
sterling against the US dollar, Brazilian real and the Mexican
peso, partially offset by strengthening of sterling against the
Turkish lira.
(2)Acquisitions and disposals that had an effect on volume,
sales, net sales, marketing and operating profit in the six months
ended 31 December 2022, are detailed on page 51.
(3)Organic operating margin calculated by dividing Operating
profit before exceptional items by net sales.
In the six months ended 31 December 2022, the acquisitions and
disposals that affected volume, sales, net sales, marketing and
operating profit were as follows, as per footnote (2) on the
previous page:
Operating
Volume Sales Net sales Marketing profit
EUm GBP million GBP million GBP million GBP million
---------------------------------- ------ ----------- ----------- ----------- -----------
Six months ended 31 December 2021
Disposals
USL Popular brands (11.6) (440) (68) - (14)
================================== ====== =========== =========== =========== ===========
Archers brand (0.1) (9) (6) - (4)
================================== ====== =========== =========== =========== ===========
Meta Abo Brewery (0.2) (9) (7) (1) 4
================================== ====== =========== =========== =========== ===========
Picon (0.4) (11) (10) - (6)
---------------------------------- ------ ----------- ----------- ----------- -----------
(12.3) (469) (91) (1) (20)
Six months ended 31 December 2022
================================== ====== =========== =========== =========== ===========
Acquisitions
Mr Black - 3 3 1 (1)
================================== ====== =========== =========== =========== ===========
Balcones - 3 3 1 (2)
Mezcal Unión 0.1 6 3 1 -
================================== ====== =========== =========== =========== ===========
21Seeds 0.1 8 7 5 (3)
---------------------------------- ------ ----------- ----------- ----------- -----------
0.2 20 16 8 (6)
---------------------------------- ------ ----------- ----------- ----------- -----------
Disposals
================================== ====== =========== =========== =========== ===========
USL Popular brands 6.0 225 35 - 5
================================== ====== =========== =========== =========== ===========
Archers brand 0.4 10 7 - 2
6.4 235 42 - 7
---------------------------------- ------ ----------- ----------- ----------- -----------
Acquisitions and disposals 6.6 255 58 8 1
---------------------------------- ------ ----------- ----------- ----------- -----------
Earnings per share before exceptional items
Earnings per share before exceptional items is calculated by
dividing profit attributable to equity shareholders of the parent
company before exceptional items by the weighted average number of
shares in issue.
Earnings per share before exceptional items for the six months
ended 31 December 2022 and 31 December 2021 are set out in the
table below:
2022 2021
GBP million GBP million
Profit attributable to equity shareholders of the parent
company 2,295 1,965
============================================================ =========== ===========
Exceptional operating and non-operating items 17 31
Exceptional tax items and tax in respect of exceptional
operating and non-operating items (70) -
Exceptional items attributable to non-controlling interests 1 -
------------------------------------------------------------ ----------- -----------
Profit attributable to equity shareholders of the parent
company before exceptional items 2,243 1,996
------------------------------------------------------------ ----------- -----------
Weighted average number of shares million million
------------------------------------------------------------ ----------- -----------
Shares in issue excluding own shares 2,274 2,331
============================================================ =========== ===========
Dilutive potential ordinary shares 7 8
------------------------------------------------------------ ----------- -----------
Diluted shares in issue excluding own shares 2,281 2,339
------------------------------------------------------------ ----------- -----------
pence pence
------------------------------------------------------------ ----------- -----------
Basic earnings per share before exceptional items 98.6 85.6
============================================================ =========== ===========
Diluted earnings per share before exceptional items 98.3 85.4
------------------------------------------------------------ ----------- -----------
Free cash flow
Free cash flow comprises the net cash flow from operating
activities aggregated with the net cash received/paid for working
capital loans receivable, cash paid or received for investments and
the net cash expenditure paid for property, plant and equipment and
computer software that are included in net cash flow from investing
activities.
The remaining components of net cash flow from investing
activities that do not form part of free cash flow, as defined by
the group's management, are in respect of the acquisition and sale
of businesses and non-working capital loans to and from
associates.
The group's management regards a portion of the purchase and
disposal of property, plant and equipment and computer software as
ultimately non-discretionary since ongoing investment in plant,
machinery and technology is required to support the day-to-day
operations, whereas acquisition and sale of businesses are
discretionary.
Where appropriate, separate explanations are given for the
impacts of acquisition and sale of businesses, dividends paid and
the purchase of own shares, each of which arises from decisions
that are independent from the running of the ongoing underlying
business.
Free cash flow reconciliations for the six months ended 31
December 2022 and 31 December 2021 are set out in the table
below:
2022 2021
GBP million GBP million
Net cash inflow from operating activities 1,248 1,947
======================================================= =========== ===========
Disposal of property, plant and equipment and computer
software 6 7
======================================================= =========== ===========
Purchase of property, plant and equipment and computer
software (435) (382)
======================================================= =========== ===========
Movements in loans and other investments (2) 3
------------------------------------------------------- ----------- -----------
Free cash flow 817 1,575
------------------------------------------------------- ----------- -----------
Return on average invested capital
Return on average invested capital is used by management to
assess the return obtained from the group's asset base and is
calculated to aid evaluation of the performance of the
business.
The profit used in assessing the return on average invested
capital reflects operating profit before exceptional items
attributable to equity shareholders of the parent company plus
share of after tax results of associates and joint ventures after
applying the tax rate before exceptional items for the period.
Average invested capital is calculated using the average derived
from the consolidated balance sheets at the beginning and end of
the period. Average capital employed comprises average net assets
attributable to equity shareholders of the parent company for the
period, excluding net post employment benefit assets/liabilities
(net of deferred tax) and average net borrowings. This average
capital employed is then aggregated with the average restructuring
and integration costs net of tax, and goodwill written off to
reserves at 1 July 2004, the date of transition to IFRS, to obtain
the average total invested capital.
Calculations for the return on average invested capital for the
six months ended 31 December 2022 and 31 December 2021 are set out
in the table below:
2022 2021
GBP million GBP million
------------------------------------------------------------ ----------- -----------
Operating profit 3,161 2,743
============================================================ =========== ===========
Exceptional operating items 33 -
============================================================ =========== ===========
Profit before exceptional operating items attributable
to non-controlling interests (111) (123)
============================================================ =========== ===========
Share of after tax results of associates and joint ventures 172 190
============================================================ =========== ===========
Tax at the tax rate before exceptional items of 23.4%
(2021 - 23.0%) (788) (675)
------------------------------------------------------------ ----------- -----------
2,467 2,135
------------------------------------------------------------ ----------- -----------
Average net assets (excluding net post employment benefit
assets/liabilities) 8,977 8,331
============================================================ =========== ===========
Average non-controlling interests (1,722) (1,604)
============================================================ =========== ===========
Average net borrowings 14,653 12,220
============================================================ =========== ===========
Average integration and restructuring costs (net of tax) 1,639 1,639
============================================================ =========== ===========
Goodwill at 1 July 2004 1,562 1,562
------------------------------------------------------------ ----------- -----------
Average invested capital 25,109 22,148
------------------------------------------------------------ ----------- -----------
Return on average invested capital 19.7% 19.3%
------------------------------------------------------------ ----------- -----------
Adjusted net borrowings to adjusted EBITDA
Diageo manages its capital structure with the aim of achieving
capital efficiency, providing flexibility to invest through the
economic cycle and giving efficient access to debt markets at
attractive cost levels. The group regularly assesses its debt and
equity capital levels to enhance its capital structure by reviewing
the ratio of adjusted net borrowings to adjusted EBITDA (earnings
before exceptional operating items, interest, tax, depreciation,
amortisation and impairment).
Calculations for the ratio of adjusted net borrowings to
adjusted EBITDA at 31 December 2022 and 31 December 2021 are set
out in the table below:
2022 2021
GBP million GBP million
Borrowings due within one year 2,305 1,184
======================================================== =========== ===========
Borrowings due after one year 15,304 12,693
======================================================== =========== ===========
Fair value of foreign currency derivatives and interest
rate hedging instruments (112) (126)
======================================================== =========== ===========
Lease liabilities 438 360
======================================================== =========== ===========
Less: Cash and cash equivalents (2,766) (1,780)
-------------------------------------------------------- ----------- -----------
Net borrowings 15,169 12,331
======================================================== =========== ===========
Post employment benefit liabilities before tax 381 486
-------------------------------------------------------- ----------- -----------
Adjusted net borrowings 15,550 12,817
-------------------------------------------------------- ----------- -----------
Profit for the year 3,657 3,226
======================================================== =========== ===========
Taxation 1,065 1,004
======================================================== =========== ===========
Net finance charges 534 353
======================================================== =========== ===========
Depreciation, amortisation and impairment (excluding
exceptional intangible impairment) 506 452
======================================================== =========== ===========
Exceptional intangible impairment 336 -
-------------------------------------------------------- ----------- -----------
EBITDA 6,098 5,035
-------------------------------------------------------- ----------- -----------
Exceptional operating items (excluding impairment) 85 (2)
======================================================== =========== ===========
Non-operating items (30) 22
-------------------------------------------------------- ----------- -----------
Adjusted EBITDA 6,153 5,055
-------------------------------------------------------- ----------- -----------
Adjusted net borrowings to adjusted EBITDA 2.5 2.5
-------------------------------------------------------- ----------- -----------
(1) EBITDA and adjusted EBITDA are calculated based on the last
12 months.
Tax rate before exceptional items
Tax rate before exceptional items is calculated by dividing the
total tax charge before tax charges and credits in respect of
exceptional items, by profit before taxation adjusted to exclude
the impact of exceptional operating and non-operating items,
expressed as a percentage. The measure is used by management to
assess the rate of tax applied to the group's operations before tax
on exceptional items.
The tax rates from operations before exceptional and after
exceptional items for the six months ended 31 December 2022 and six
months ended 31 December 2021 are set out in the table below:
2022 2021
GBP million GBP million
Tax before exceptional items (a) 720 634
================================================= =========== ===========
Tax in respect of exceptional items (13) -
================================================= =========== ===========
Exceptional tax credit (57) -
------------------------------------------------- ----------- -----------
Taxation on profit (b) 650 634
------------------------------------------------- ----------- -----------
Profit before taxation and exceptional items (c) 3,074 2,753
================================================= =========== ===========
Non-operating items 16 (31)
Exceptional operating items (33) -
Profit before taxation (d) 3,057 2,722
------------------------------------------------- ----------- -----------
Tax rate before exceptional items (a/c) 23.4% 23.0%
================================================= =========== ===========
Tax rate after exceptional items (b/d) 21.3% 23.3%
------------------------------------------------- ----------- -----------
Other definitions
Volume share is a brand's retail volume expressed as a
percentage of the retail volume of all brands in its segment. Value
share is a brand's retail sales value expressed as a percentage of
the retail sales value of all brands in its segment. Unless
otherwise stated, share refers to value share.
Net sales are sales less excise duties. Diageo incurs excise
duties throughout the world. In the majority of countries, excise
duties are effectively a production tax which becomes payable when
the product is removed from bonded premises and is not directly
related to the value of sales. It is generally not included as a
separate item on external invoices; increases in excise duties are
not always passed on to the customer and where a customer fails to
pay for a product received, the group cannot reclaim the excise
duty. The group therefore recognises excise duty as a cost to the
group.
Price/mix is the number of percentage points difference between
the organic movement in net sales and the organic movement in
volume. The difference arises because of changes in the composition
of sales between higher and lower priced variants/markets or as
price changes are implemented.
Shipments comprise the volume of products sold to Diageo's
immediate (first tier) customers. Depletions are the estimated
volume of the onward sales made by Diageo's immediate customers.
Both shipments and depletions are measured on an equivalent units
basis.
References to emerging markets include Poland, Eastern Europe,
Turkey, Africa, Latin America and Caribbean, and Asia Pacific
(excluding Australia, Korea and Japan).
References to reserve brands include, but are not limited to,
Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie
Walker Gold Label Reserve, Johnnie Walker Aged 18 Years, John
Walker & Sons Collection and other Johnnie Walker super and
ultra-premium brands; The Singleton, Cardhu, Talisker, Lagavulin,
Oban and other malt brands; Buchanan's Special Reserve, Buchanan's
Red Seal; Haig Club whisky; Copper Dog whisky; Roe & Co;
Bulleit Bourbon, Bulleit Rye; Orphan Barrel whiskey; Tanqueray No.
TEN and Tanqueray Malacca gin; Aviation, Chase, Jinzu and Villa
Ascenti gin; Cîroc, Ketel One vodka, Ketel One Botanical; Don
Julio, Casamigos, DeLeón and 21Seeds tequila; Mezcal Unión mezcal;
Zacapa, Bundaberg Master Distillers' Collection and Pampero
Aniversario rum; Shui Jing Fang, Seedlip, Belsazar and Pierde
Almas.
References to global giants include the following brand
families: Johnnie Walker, Smirnoff, Captain Morgan, Baileys,
Tanqueray and Guinness. Local stars include Buchanan's, Bundaberg,
Crown Royal, J B, McDowell's, Old Parr, Yenì Raki, Black &
White, Shui Jing Fang, Windsor and Ypióca. Global giants and local
stars exclude ready to drink, non-alcoholic variants and beer
except Guinness. References to Shui Jing Fang represent total
Chinese white spirits of which Shui Jing Fang is the predominant
brand.
References to ready to drink also include ready to serve
products, such as pre-mixed cans in some markets.
References to beer include cider, flavoured malt beverages and
some non-alcoholic products such as Malta Guinness.
The results of Hop House 13 Lager are included in the Guinness
figures.
There is no industry-agreed definition for price tiers and for
data providers such as IWSR, definitions can vary by market. Diageo
bases internal price tier definitions on a segmentation most
consistent with IWSR as the IWSR taxonomy is widely accepted and
provides the industry with a common point of reference.
References to the disposal of the USL Popular brands includes
non-exhaustively the Haywards, Old Tavern, White Mischief, Honey
Bee, Green Label and Romanov brands.
References to the group include Diageo plc and its consolidated
subsidiaries.
Risk factors
The principal risks and uncertainties facing Diageo are set out
on pages 42 to 46 of the Annual Report for the year ended 30 June
2022 and pages 82 to 92 of Diageo's Annual Report on Form 20-F for
the year ended 30 June 2022. These principal risks and
uncertainties include: climate change & sustainability;
regulation, trade barriers and indirect tax; pandemic and business
interruption; geopolitical and macroeconomic volatility;
international direct tax; supply chain disruption; cyber and IT
resilience; business ethics and integrity; consumer disruption; and
product quality and counterfeit.
The nature and potential impact of the principal risks and
uncertainties facing Diageo did not change in the six months ended
31 December 2022, and are not expected to change in respect of the
second six months of the financial year.
Cautionary statement concerning forward-looking statements
This document contains 'forward-looking' statements. These
statements can be identified by the fact that they do not relate
only to historical or current facts. In particular, forward-looking
statements include all statements that express forecasts,
expectations, plans, outlook, objectives and projections with
respect to future matters, including the statements set forth in
the 'Fiscal 23 Outlook' section and any other statements with
respect to trends in results of operations, margins, growth rates,
overall market trends, the impact of changes in interest or
exchange rates, the availability or cost of financing to Diageo,
anticipated cost savings or synergies, expected investments, the
completion of any strategic transactions or restructuring
programmes, anticipated tax rates, changes in the international tax
environment, expected cash payments, outcomes of litigation or
regulatory enquiries, anticipated changes in the value of assets
and liabilities related to pension schemes and general economic
conditions. By their nature, forward-looking statements involve
risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. There are a number of
factors that could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking
statements, including factors that are outside Diageo's
control.
These factors include, but are not limited to:
- economic, political, social or other developments in countries
and markets in which Diageo operates, including macroeconomic
events that may affect Diageo's customers, suppliers and/or
financial counterparties;
- the impact of the Covid-19 pandemic, or any other global or
regional public health threats, on Diageo's business, financial
condition, cash flows and results of operation;
- the elevated geopolitical instability as a result of Russia's invasion of Ukraine;
- the effects of climate change, or legal, regulatory or market
measures intended to address climate change;
- changes in consumer preferences and tastes, including as a
result of disruptive market forces, changes in demographics and
evolving social trends (including any shifts in consumer tastes
towards at-home occasions, premiumisation, small-batch craft
alcohol, or lower or no alcohol products and/or developments in
e-commerce);
- changes in the domestic and international tax environment that
could lead to uncertainty around the application of existing and
new tax laws and unexpected tax exposures;
- changes in the cost of production, including as a result of
increases in the cost of commodities, labour and/or energy due to
inflation and/or supply chain disruptions;
- any litigation or other similar proceedings (including with
tax, customs, competition, environmental, anti-corruption or other
regulatory authorities);
- legal and regulatory developments, including changes in
regulations relating to environmental issues and/or e-commerce;
- the consequences of any failure of internal controls;
- the consequences of any failure by Diageo or its associates to
comply with anti-corruption, sanctions, trade restrictions or
similar laws and regulations, or any failure of Diageo's related
internal policies and procedures to comply with applicable law or
regulation;
- cyber-attacks or any other disruptions to core business operations;
- contamination, counterfeiting or other circumstances which
could harm the level of customer support for Diageo's brands and
adversely impact its sales;
- Diageo's ability to maintain its brand image and corporate
reputation or to adapt to a changing media environment;
- increased competitive product and pricing pressures, including
as a result of introductions of new products or categories that are
competitive with Diageo's products and consolidations by
competitors and retailers;
- increased costs for, or shortages of, talent, as well as labour strikes or disputes;
- Diageo's ability to derive the expected benefits from its
business strategies, including Diageo's investments in e-commerce
and its luxury portfolio;
- fluctuations in exchange rates and/or interest rates;
- a tightening of global financial conditions, including an
extended period of constraint in the capital markets which Diageo
may access;
- movements in the value of the assets and liabilities related to Diageo's pension plans;
- Diageo's ability to renew supply, distribution, manufacturing
or licence agreements (or related rights) and licences on
favourable terms, or at all, when they expire; or
- any failure by Diageo to protect its intellectual property rights.
All oral and written forward-looking statements made on or after
the date of this document and attributable to Diageo are expressly
qualified in their entirety by the above cautionary factors, by the
'Risk Factors' section immediately preceding those and by the 'Risk
Factors' included in Diageo's Annual Report on Form 20-F for the
year ended 30 June 2022 filed with the US Securities and Exchange
Commission. Any forward-looking statements made by or on behalf of
Diageo speak only as of the date they are made. Diageo does not
undertake to update forward-looking statements to reflect any
changes in Diageo's expectations with regard thereto or any changes
in events, conditions or circumstances on which any such statement
is based.
This document includes names of Diageo's products, which
constitute trademarks or trade names which Diageo owns, or which
others own and license to Diageo for use. All rights reserved. (c)
Diageo plc 2023.
Statement of directors' responsibilities
Each of the Directors of Diageo plc confirms that, to the best
of his or her knowledge:
- the condensed interim financial statements have been prepared
in accordance with UK adopted IAS 34, 'Interim Financial
Reporting', IAS 34 'Interim Financial Reporting' as issued by the
International Accounting Standards Board ('IASB'), IAS 34 'Interim
Financial Reporting' as adopted by the EU and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority;
- the interim management report includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the last annual report.
The Directors of Diageo plc are as follows: Javier Ferrán
(Chairman), Sir Ivan Menezes (Chief Executive), Lavanya
Chandrashekar (Chief Financial Officer), Susan Kilsby (Senior
Independent Director and Chairman of the Remuneration Committee),
Alan Stewart (Non-Executive Director and Chairman of the Audit
Committee) and Non-Executive Directors: Melissa Bethell, Karen
Blackett, Valérie Chapoulaud-Floquet, Sir John Manzoni, Lady
Mendelsohn and Ireena Vittal.
Webcast and presentation slides
At 07:15 (UK time) on Thursday 26 January 2023, Ivan Menezes,
Chief Executive and Lavanya Chandrashekar, Chief Financial Officer
will present Diageo's interim results as a webcast. This will be
available to view at www.diageo.com. The presentation slides and
script will also be available to download at this time.
Live Q&A conference call
Ivan Menezes and Lavanya Chandrashekar will be hosting a Q&A
conference call on Thursday 26 January 2023 at 09:30 (UK time). If
you would like to listen to the call or ask a question, please use
the dial in details below.
From the UK: +44 (0) 20 3936 2999
From the UK (free
call): 0800 640 6441
From the USA: +1 646 664 1960
From the USA (free
call): +1 855 9796 654
The conference call is for analysts and investors only. To join
the call please use the conference ID code already sent to you or
email investor.relations@diageo.com .
Transcript
Following the Q&A conference call, a transcript will be
available. You can access the transcript below:
https://www.diageo.com/en/investors/results-reports-and-presentations
Investor enquiries
to: Durga Doraisamy +44 (0) 7902 126906
Andy Ryan +44 (0) 7803 854842
investor.relations@diageo.com
Media enquiries
to: Dominic Redfearn +44 (0) 7971 977759
Rebecca Perry +44 (0) 7590 809101
Isabel Batchelor +44 (0) 7731 988857
press@diageo.com
Diageo plc LEI: 213800ZVIELEA55JMJ32
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR DGGDBSBDDGXU
(END) Dow Jones Newswires
January 26, 2023 02:00 ET (07:00 GMT)
Diageo (LSE:DGE)
Historical Stock Chart
From Apr 2024 to May 2024
Diageo (LSE:DGE)
Historical Stock Chart
From May 2023 to May 2024