Interim Results
Diageo PLC
20 February 2003
20 February 2003 (7.00 am)
Diageo announces its interim results for the six months ended 31 December 2002.
KEY FIGURES (Reported)
• Turnover £5,428 million (2001 - £6,478 million, including £1,455 million
from Pillsbury)
• Operating profit* £1,243 million (2001 - £1,236 million)
• Premium drinks turnover up 11% to £4,949 million (2001 - £4,458 million)
• Premium drinks operating profit* up 23% to £1,188 million (2001 - £967
million)
• Profit before tax* £1,295 million (2001 - £1,228 million)
• EPS* up 13% to 29.5 pence (2001 - 26.2 pence)
• Interim dividend up 6.5% to 9.9 pence per share
PREMIUM DRINKS HIGHLIGHTS
• Premium drinks organic growth:
- Volume up 1%
- Net sales up 4%
- Marketing up 13%
- Operating profit* up 6%
• Driven by organic growth in the global priority brands:
- Volume up 4%
- Net sales up 7%
• The ex-Seagram brands contributed:
- Volume of 9.4 million equivalent cases
- Net sales of £518 million
- Attributable operating profit* of £211 million
• Reported operating margin improved by 2.3 percentage points to 24.0%
OTHER KEY FINANCIALS
• £34 million improvement in economic profit to £440 million
• Free cash flow of £301 million
• £552 million returned to shareholders via share buy-back programme
• Burger King disposal completed 13 December 2002 for a loss before taxation
of £1,395 million including goodwill previously written off of £673 million
• Exceptional integration costs before taxation £104 million
• Result after exceptional items, before tax and minority interests, loss of
£208 million
* Figures stated before goodwill amortisation and exceptional items. Refer to
consolidated profit & loss account.
Unless stated, percentage movements represent organic movements (at level
exchange rates after adjusting for acquisitions and disposals) and are before
goodwill amortisation and exceptional items.
Paul Walsh, Chief Executive of Diageo, commenting on the six months ended 31
December 2002 said:
'When we announced our preliminary results in September and again in our AGM
trading update, we anticipated that we would face more challenging market
conditions in many markets. That caution proved correct and this has been a
tough six months. Top and bottom line growth has been constrained by economic
weakness particularly in Latin America and parts of Europe. However, we have
delivered strong performances in North America, in Great Britain, in many of our
key markets especially in Africa and across our venture markets.
'Our scale, our diverse geographic reach and our unrivalled range of brands has
enabled us to increase market share and deliver organic operating profit growth
even in difficult times. This has been achieved as we continue to invest for the
future growth of the business, for example by changing our distribution
arrangements in South Korea and increasing marketing investment.
'In premium drinks, 6% organic operating profit growth coupled with the strength
of the acquired Seagram brands, which are performing ahead of our expectations,
resulted in reported operating profit growth of 23%. Together with our share
buy-back programme, this has driven EPS growth of 13%.
'Diageo is benefiting from its position as the world's leading premium drinks
business and is well placed to deliver superior levels of growth.'
Commenting on current trading, Paul Walsh said:
'Diageo has the scale, geographic reach and brands to face the current
challenging environment with confidence. We acknowledge that these are without
doubt uncertain times. However, in the absence of any significant change to
market trends we expect Diageo's organic growth performance in the second half
to improve against the first half. In that period we will compare against a
lower second half growth rate in 2002 and benefit from the inclusion of the
Seagram brands, which continue to perform ahead of our expectations.'
Explanatory notes
Unless otherwise stated, percentage movements given throughout this statement
for volume, turnover, net sales, marketing investment, contribution after
marketing and operating profit are organic movements (at level exchange rates
and after adjusting for acquisitions and disposals) for continuing operations.
They are before goodwill amortisation and exceptional items. Comparisons are
with the equivalent period last year.
Volume has been measured on an equivalent servings basis to nine litre cases of
spirits. Equivalent cases are calculated as follows: beer in hectolitres is
divided by 0.9, wine in nine litre cases is divided by 5, ready to drink (RTD)
in nine litre cases is divided by 10. An equivalent case represents
approximately 272 servings. A serving comprises 35ml of spirits; 165ml of wine;
or 330ml of RTD or beer.
Net sales are turnover less excise duty.
The market data contained in this results announcement is taken from independent
industry sources in the markets in which Diageo operates.
This document contains forward-looking statements that involve risk and
uncertainty. There are a number of factors that could cause actual results and
developments to differ materially from those expressed or implied by these
forward-looking statements, including factors beyond Diageo's control. Please
refer to 'Cautionary statement concerning forward-looking statements' at the end
of this announcement for more details.
This announcement includes names of Diageo's products which constitute
trademarks or trade names which Diageo owns or which others own and licence to
Diageo for its use.
For further information
Diageo's interim results presentation to analysts and investors will be
broadcast at 9.30 am (GMT) on Thursday 20 February 2003 on Diageo's internet
home page at the address: www.diageo.com. Prior to the live link, the
presentation slides will also be available to download from Diageo's home page.
You will be able to listen to a live broadcast of the presentation and to the
questions and answers session. The number to call is:
From: UK/Europe: +44 (0) 20 8515 2306
Back up no: +44 (0) 20 8515 2313
An instant replay facility will be available from 1.00 pm (GMT) to call in and
listen to the morning session. The facility will be available until 6 March 2003
and the number to call is:
From: UK/Europe: +44 (0) 20 8797 2499 Access code: 860198#
US/Canada: +1 303 590 3060 Access code: 233771#
A press conference will take place beginning at 12.30 pm (GMT) on Thursday 20
February and will be broadcast live from a link on www.diageo.com.
The results presentation, webcast to analysts and investors and the press
conference webcast will be available on the Diageo website until mid-March 2003.
Diageo management will host a teleconference to US and European analysts and
investors at 3.00 pm (GMT) on Thursday 20 February. Call this number to listen
or ask a question:
From: UK/Europe: +44 (0) 20 8400 6354
US/Canada: +1 613 287 8027
The teleconference will be available on instant replay from 5.00 pm (GMT) and
will be available until 6 March 2003. The number to call is:
From: UK/Europe : +44 (0) 20 8797 2499 Access code: 860201#
US/Canada : +1 303 590 3060 Access code: 233770#
An interview with Paul Walsh is available in video, audio and text from 7.00 am
(GMT) on Thursday 20 February on www.diageo.com and www.cantos.com.
Investor enquiries to: Catherine James +44 (0) 20 7927 5272
Investor.rel@diageo.com
Media enquiries to: Kathryn Partridge +44 (0) 20 7927 5225
Media@diageo.com
DIAGEO PLC
OVERVIEW
As indicated at the time of the AGM trading update, trading conditions worsened
in the six months ended 31 December 2002. However, despite facing more
challenging conditions Diageo has delivered organic operating profit growth in
premium drinks of 6%. With the inclusion of the Seagram acquisition, which
continues to exceed original expectations, reported operating profit growth in
premium drinks was 23%. In North America and Great Britain, volume and net sales
growth were driven by the growth of global priority brands. In Ireland and
Spain, trading conditions in beverage alcohol reflected weakening consumer
confidence in these economies, and Diageo's trading performance in those
countries has been adversely affected. Key markets operating profit is up 5%
despite a decline in reported operating profit in Venezuela of £20 million. In
addition, the decision to transfer distribution of Dimple in South Korea reduced
key market operating profit by £13 million. Venture markets continued to deliver
strong growth in global priority brands and operating profit was up 15%.
Marketing investment grew ahead of net sales growth as Diageo continued to build
the brand franchise of the priority brands and invest behind new product
launches.
The brands acquired from Seagram are now integrated. With attributable operating
profit of £211 million in the period, the original targets set for the
acquisition have now been exceeded. The management structure with Pernod Ricard,
established at the time of the acquisition to manage certain businesses, has
ended. Those brands designated for disposal have been sold and proceeds in
excess of £250 million were in line with expectations.
Diageo continued to deliver on its strategic focus on premium drinks in the
period. The sale of Burger King was completed on 13 December 2002. The
consideration of $1.5 billion comprised a cash element of $1.2 billion, $86
million in assumed debt and the balance by means of subordinated debt to be held
by Diageo with a principal amount of $212 million. Diageo has guaranteed up to
$850 million (£528 million) of external borrowings of Burger King. These loans
have a term of 5 years although Diageo and Burger King agreed to structure their
arrangements to encourage refinancing by Burger King on a non-guaranteed basis
prior to the end of 5 years.
OPERATING AND FINANCIAL REVIEW
for the six months ended 31 December 2002
OPERATING REVIEW
DIAGEO
On a reported basis, turnover decreased by £1,050 million (16%) from £6,478
million in the six months ended 31 December 2001 to £5,428 million in the six
months ended 31 December 2002, following the disposals of Pillsbury in October
2001 and Burger King in December 2002. For continuing operations, turnover
increased by £491 million (11%) from £4,458 million in the six months ended 31
December 2001 to £4,949 million in the six months ended 31 December 2002. On an
organic basis, turnover grew 4%. The Seagram spirits and wine businesses, which
were acquired on 21 December 2001, contributed £650 million to turnover during
the period.
Reported operating profit before goodwill amortisation and exceptional items
increased £7 million from £1,236 million to £1,243 million. Reported operating
profit before goodwill amortisation and exceptional items, for continuing
operations, increased by £221 million (23%) from £967 million to £1,188 million.
On an organic basis, operating profit before goodwill amortisation and
exceptional items for continuing operations increased 6%. The Seagram spirits
and wine businesses contributed £211 million to operating profit before goodwill
amortisation and exceptional items.
On a reported basis, marketing investment for continuing operations increased
21% from £554 million to £668 million. Organically, marketing investment
increased 13%.
Reported profit before goodwill amortisation, exceptional items, taxation and
minority interests increased by £67 million (5%) from £1,228 million in the six
months ended 31 December 2001 to £1,295 million in the six months ended 31
December 2002. In local currency terms this was an increase of 5%. The net
interest charge increased by £44 million (26%) from £170 million in the prior
period to £214 million in the six months ended 31 December 2002.
Exceptional items before taxation were a charge of £1,500 million in the six
months ended 31 December 2002. After goodwill amortisation and exceptional
items, the result before taxation and minority interests decreased by £1,483
million from a profit of £1,275 million to a loss of £208 million in the six
months ended 31 December 2002. The result for the period decreased by £1,269
million from a £810 million profit to a loss of £459 million.
PREMIUM DRINKS
Reported turnover increased by £491 million (11%) from £4,458 million in the six
months ended 31 December 2001 to £4,949 million in the six months ended 31
December 2002. Reported operating profit before goodwill amortisation and
exceptional items increased by £221 million (23%) from £967 million to £1,188
million. On an organic basis, turnover increased 4% and operating profit
increased 6%.
Reported volume increased 13% as a result of the addition of 9.4 million
equivalent cases from the Seagram acquisition and organic volume growth of 1%.
Organic volume growth in global priority brands was 4%, local priority brands
declined 3% and category management brands (all brands other than global
priority brands and local priority brands) declined 4%. Volume growth of the
global priority brands excluding RTD was 3%, compared to 4% in the six months
ended 31 December 2001. Overall, global priority brand volume performance
reflects a more consistent performance across the brands than in prior periods.
Johnnie Walker Black Label and Red Label both grew volume, up 6% and 5%
respectively, and J&B was the only brand on which volume declined. Local
priority brand volume was down 3%, reflecting a 341,000 equivalent case
reduction of Dimple in South Korea and the reduction in volume of Buchanan's in
Venezuela as a result of economic conditions. Excluding the impact of these,
overall performance was in line with the same period last year. Category
management brands remained in decline due to weaker volume of low value vodkas
in North America, Spey Royal in Thailand and Gilbey's Gin in the Philippines.
Reported net sales increased 11% from £3,341 million to £3,723 million, driven
by £518 million of net sales from the Seagram acquisition, a 1% organic increase
in volume and a 3% improvement in price and mix. On a reported basis, RTD net
sales increased 9% from £382 million to £416 million. Net sales of the global
priority brands excluding RTD increased 5%, in line with last year.
Reported marketing investment increased 21% to £668 million and organic growth
was 13%. Marketing investment in the global priority brands grew 15% to £421
million, particularly behind Smirnoff Ice, Tanqueray and Guinness. In many
markets, particularly in North America, Great Britain and Ireland, share of
voice in marketing spend increased as Diageo continued to invest, even in
difficult times, behind the drivers of future growth, including new product
launches.
The acquisition of certain Seagram businesses, which include the brands Captain
Morgan, Crown Royal, Seagram's 7, Seagram's VO, Cacique, Windsor Premier,
Myers's Rum and Sterling Vineyards, completed on 21 December 2001. During the
six months ended 31 December 2002, volume of these brands was 9.4 million
equivalent cases, net sales were £518 million and attributable operating profit
was £211 million after a charge of approximately £18 million in respect of the
cost of discontinuing Captain Morgan Gold which was launched in May 2002.
VOLUME AND NET SALES GROWTH BY BRAND CLASSIFICATION
Equivalent Volume Net sales
cases growth growth
(millions) % %
Johnnie Walker 6.3 5 5
Guinness 5.7 - 6
Smirnoff 12.6 6 13
J&B 3.5 (8) (7)
Baileys 4.0 12 14
Cuervo 2.0 - (1)
Tanqueray 1.0 2 5
____ __ ___
Total global priority brands 35.1 4 7
Local priority brands 7.2 (3) (5)
Category management brands 14.2 (4) -
____ __ ___
56.5 1 4
__ ___
Acquisitions
Seagram brands 9.4
____
Total 65.9
____
MARKET REVIEW Global priority Local priority Category
brands brands management
brands Total
% % % %
Volume growth
Major markets
North America 4 (4) (5) 1
Great Britain 10 1 4 7
Ireland (1) (5) 9 (2)
Spain (13) (2) (1) (11)
____ ___ ____ ____
2 (2) (3) 1
Key markets 1 (6) (4) (2)
Venture markets 12 5 (4) 6
____ ___ ____ ____
Total 4 (3) (4) 1
____ ___ ____ ____
Net sales growth
Major markets
North America 5 (6) (8) 1
Great Britain 9 (4) 11 6
Ireland 3 - 4 2
Spain (11) (3) 17 (7)
____ ___ ____ ____
4 (3) 1 2
Key markets 5 (10) (2) -
Venture markets 23 6 1 15
____ ___ ____ ____
Total 7 (5) - 4
REVIEW BY MARKET
North America
Volume up 1%
Turnover up 1%
Net sales up 1%
Marketing up 8%
Operating profit up 5%
Key drivers:
• Volume of global priority brands up 4%
• Disappointing category management and local priority brand performance
• RTD category under pressure
• Market share of spirits brands increased by 0.5 percentage points
Reported turnover was up 29% from £1,147 million to £1,476 million in the six
months ended 31 December 2002. On an organic basis, this represented growth of
1%. Volume was up 1% and net sales also grew 1%. During the period, organic
operating profit growth was 5% and the Seagram spirits and wine businesses
contributed £154 million to the total reported operating profit of £413 million.
Diageo North America continued to make good progress on a number of strategic
initiatives. The ex-Seagram brands were successfully integrated into the
business, providing Diageo with the critical mass necessary to execute the Next
Generation Growth initiative. Diageo has now appointed new distribution partners
committed to providing a sales force dedicated to Diageo brands in 24 states.
This represents over 70% of Diageo's volume in the United States.
The global priority brands continued to perform well, and volume grew 4% over
the comparable period with strong performances from Smirnoff, up 4%, Johnnie
Walker Black Label, up 9%, and Baileys, up 12%. Cuervo and Tanqueray also showed
volume improvements versus the comparable period with volume up 4% and 1%,
respectively. The local priority brands declined 4%, with Beaulieu Vineyard down
18%, and Gordon's Gin down 6%, offset by good volume growth in other local
priority brands. Volume of category management brands declined due to intense
price competition at the lower price points of some categories. Diageo chose not
to pursue volume at the expense of value.
Marketing investment increased 8% over the same period last year, driven by
investment behind Smirnoff Ice, Cuervo and Tanqueray. In addition to the
increased investment in marketing, Diageo North America was able to generate
efficiencies from the move to a single media buyer and the increased market
presence provided by the addition of the Seagram brands.
Smirnoff volume was up 4%. Excluding RTD, volume was up 8%, driven by continued
strong growth of the Smirnoff flavoured vodka range. Smirnoff Red grew its share
of the domestic vodka segment. Smirnoff Ice volume and net sales declined 8% and
5%, respectively. This was due to increasing competition in the RTD category
following the entry of a number of new branded RTDs, partially offset by
increases in on-premise distribution through the introduction of new packaging
formats. While the RTD category has continued to grow and now represents nearly
5% of the sales value of the beer category, Smirnoff Ice's share has declined in
the period. Approximately 60,000 equivalent cases of Smirnoff Ice Triple Black
were shipped in the period prior to its launch in January 2003.
Johnnie Walker volume increased 1% and net sales grew 7% during the period. This
favourable mix was caused by volume growth of 9% in Johnnie Walker Black Label
and volume decline of 5% in Johnnie Walker Red Label. However, Johnnie Walker
Red Label increased its share of the premium scotch category and Johnnie Walker
Black Label grew its share of the deluxe scotch category.
Baileys volume grew 12% during the period with net sales up 16%. Marketing
investment was down 12%, although media impact doubled as more effective media
planning led to a shift from local to national programming.
While J&B volume declined 1% in the period, net sales were level and
contribution from the brand increased 20% as marketing investment was reduced
42%.
Tanqueray volume increased 1% and net sales grew 5%. Price increases were
achieved in key states and marketing investment grew 29% following the launch of
the 'Distinctive Since' campaign.
Cuervo volume grew 4%, whilst net sales grew 2% reflecting the price decrease as
the agave shortage started to alleviate. Marketing investment grew 14% focused
behind brand building initiatives.
Volume of Captain Morgan was up 21% and Crown Royal was up 19% against the six
months ended 31 December 2001 when, under the previous owners, trade stocks were
reduced. For both brands, depletions in the United States were still strong, up
10% and 11% respectively. Captain Morgan and Crown Royal have grown share of the
rum and Canadian whiskey categories, respectively.
The performance of the wine brands was mixed in a difficult market. Beaulieu
Vineyard volume declined 18% due to temporary disruption caused mainly by
changes in the distributor networks and an increasingly price competitive
market. In contrast, however, volume of Sterling Vineyards was up 28% as it
faced the competitive market with a stronger brand profile. The brand benefited
from the increased distribution which has resulted from its integration into the
Diageo portfolio and increased marketing investment.
Great Britain
Volume up 7%
Turnover up 10%
Net sales up 6%
Marketing up 19%
Operating profit up 12%
Key drivers:
• Volume growth achieved across the business
• Global priority brand volume up 10%
• RTD profitability adversely affected by duty increase in April 2002
Volume growth was achieved across Diageo's business in Great Britain. Global
priority brands were up 10%, local priority brands were up 1% and category
management brands were up 4%. Similarly, spirits volume was up 8%, Guinness was
up 1% and wine was up 16%. This strong performance was the result of the
comprehensive restructuring of the field sales force carried out in the last
year and through continued investment behind proven marketing campaigns.
Diageo's sales team now visit 34,000 outlets, up from 23,000, and, as a result,
on-trade distribution gains were evident for many priority brands. Marketing
investment grew 19%, including £9 million spent behind new brand launches, and
operating profit was up 12% to £144 million.
Volume growth in the RTD category has been adversely impacted by the increase in
excise duty in April 2002. Diageo's RTD volume in Great Britain grew 4%. Volume
of Smirnoff Ice grew 7% and it has continued to outperform the category with
market share now 26%. This performance has been driven by successful renovation
through Smirnoff Black Ice. However, volume of Archers Aqua fell 19% in the
period. Operating margins on RTD were adversely impacted by the absorption of
the excise duty increase through price discounting and by increased competition.
Smirnoff Red volume was up 11% with net sales up 19% as a result of a 6% price
increase implemented in September 2002. Smirnoff Red held market share at 33%
despite increased price competition in the vodka category.
Baileys continued to deliver impressive volume growth, up 35%. Brand building
activity was focused on driving more regular usage. The launch of Baileys Minis
continued this focus. Baileys, which is the clear leader in the cream liqueur
category, increased its share of the total spirits market.
Guinness volume was up 1% despite a 1% decline in the overall beer category. The
brand has reversed the 1% volume decline seen in the six months ended 31
December 2001.
Volume of Gordon's Gin was up 6%, benefiting from the new advertising campaign
and packaging. However, the performance of Gordon's Edge, which has sold about
20,000 equivalent cases since its launch in May 2002, has been disappointing.
Bell's volume grew 2%, supported by the Jools Holland advertising campaign and
strong promotional activity.
Diageo's wine brands grew strongly in the period driven mainly by the
performance of Blossom Hill, where volume grew 10%. Blossom Hill Red is now the
best selling wine in the off trade in Great Britain.
Ireland
Volume down 2%
Turnover level
Net sales up 2%
Marketing up 12%
Operating profit level
Key drivers:
• Beverage alcohol market impacted by slowing economy
• Guinness volume down 3%
• Baileys volume up 11%
• RTD volume up 23%
In Ireland, turnover was slightly increased on a reported basis, from £518
million in the six months ended 31 December 2001 to £522 million in the six
months ended 31 December 2002. Operating profit was up from £86 million to £89
million. On an organic basis, both turnover and operating profit were level.
Continued economic weakness in Ireland has led to a significant slowdown in
consumer spending. As a result, the long alcoholic drinks sector declined 3%
after a number of years of modest growth. Over 75% of Diageo's business in
Ireland is in this sector and hence the overall volume decline of 2% reflects
these trends. Strong volume performance in Baileys, up 11%, Smirnoff, up 3%,
including Smirnoff Ice, up 12%, was offset by a 5% decline in the volume of beer
brands. Guinness volume declined 3% but it held market share, stabilising its
position after a number of years of market share declines. Despite the volume
decline, operating profit was level as a result of price increases broadly in
line with inflation. Marketing investment grew 12%, driven by increased spend on
Guinness and the renovation of the RTD portfolio with the launch of Smirnoff
Black Ice. Smirnoff Black Ice and Smirnoff Ice on Draught together now represent
25% of Smirnoff Ice volume in Ireland.
Spain
Volume down 11%
Turnover down 6%
Net sales down 7%
Marketing up 10%
Operating profit down 15%
Key drivers:
• Spirits market impacted by slowing economy
• Market share gains in scotch, premium scotch, cream liqueur and dark rum
Spain reported turnover of £244 million in the six months ended 31 December
2002, up 9% versus the £224 million reported in the prior period. On an organic
basis, volume, turnover and net sales declined 11%, 6% and 7%, respectively. The
comparison against the same period last year was impacted by the buy-in which
occurred last year ahead of the duty increase in January 2002; this was
estimated to be worth 5 percentage points of volume growth in that period.
Reported operating profit was up £1 million as a result of the inclusion of
Cacique, an ex-Seagram brand, but operating profit was down 15% on an organic
basis. Organic operating profit growth was constrained by increased investment
in marketing, up 10%, including the launch costs of J&B Twist.
The pace of growth in the premium drinks business in Spain has been adversely
impacted by the slowing economy and increasing inflation, particularly in the
on-trade. The introduction of an 8% increase in excise duty on spirits in
January 2002 also negatively impacted the growth of the spirits industry. Within
this overall environment, Diageo has made clear market share gains in the
scotch, premium scotch, cream liqueur, and dark rum categories.
The economic environment has particularly affected the standard scotch whisky
category, which accounts for 30% of the total spirits market in Spain and which
declined in the period. However, although volume of J&B has been affected by
this trend and declined 11%, its market share grew. In addition, the premium and
malt whisky category continues to grow and Diageo's market share is now over
50%.
Dark rum is the fastest growing category in Spain, and Diageo, with
approximately a 45% share of this increasingly important category, is well
placed to maximise this opportunity. Cacique and Pampero have both achieved
volume growth, up 47% and 5%, respectively, and Diageo gained share in the dark
rum category.
Key markets
Volume down 2%
Turnover level
Net sales level
Marketing up 5%
Operating profit up 5%
Key drivers:
• Global priority brand volume up 1%
• Impact of difficult economic situation in Latin America
• Strong volume and profit growth in Africa and Global Duty Free
Reported turnover in the six months ended 31 December 2002 was £1,163 million,
up 6% on the prior period figure of £1,097 million. On an organic basis,
turnover was level. Overall growth in key markets, with operating profit up 5%
to £317 million, was constrained by the economic situation in Latin America and
the decision to change distributors in South Korea. However, several markets
performed strongly including Africa and Global Duty Free. During the period, the
Seagram brands acquired by Diageo, including Windsor Premier in South Korea and
Cacique in Venezuela, contributed £141 million to turnover and £39 million to
operating profit.
Volume was down 2%, whilst net sales were level versus the same period last year
with price increases achieved in Africa, principally Nigeria, and in Thailand on
Johnnie Walker. Marketing investment grew 5%, driven by increased spend behind
Guinness in Africa and Johnnie Walker in France, South Korea and Thailand.
Global priority brands achieved volume growth of 1% and net sales growth of 5%
during the period. Volume of Guinness was up 7%, reflecting the continued growth
in Africa. Volume of Johnnie Walker Red Label increased 7% due to strong
performance in Australia and a weak comparative period in Brazil, when
distributor de-stocking took place. Volume of Johnnie Walker Black Label was
level, with growth in Taiwan offset by the decline in Venezuela. J&B volume
declined 9%, mainly due to the Portuguese market where, consistent with Diageo's
strategy of maintaining value, it was decided not to follow the large price
reductions taken by competitors.
RTD volume was up 22%. New RTDs launched in the period included Archers Aqua and
Smirnoff Ice in Australia, Johnnie Walker ONE in Brazil, and Smirnoff Ice in
Taiwan.
Local priority brand volume fell 6%, impacted by the change of distribution for
Dimple in South Korea described below and a 46% decline in volume of Buchanan's
in Venezuela. Category management brands fell 4%, mainly driven by declines in
VAT 69 in Venezuela and Spey Royal in Thailand.
Africa, representing nearly 40% of the key markets' volume, grew 5% in volume
terms and 15% in net sales terms over the prior period. Guinness, which accounts
for approximately 24% of African volume, continued to perform well with volume
up 7% and net sales up 29%. The continued success of the Michael Power campaign
resulted in double-digit volume growth in Ghana, Kenya, Uganda and Cameroon.
Volume in Nigeria, however, was level following a price increase taken in July
2002 and a tightening of economic conditions.
Diageo confirmed its position as the leading premium drinks business in
Australia as market share grew to 35% in the spirits category and 33% in the RTD
category. Overall, volume growth was 20% and net sales increased 15%. There was
25% volume growth in priority brands, excluding RTDs, with Baileys volume up
11%, Smirnoff up 29% and Johnnie Walker up 32%. All priority spirits brands
gained market share, and Diageo's RTD products grew strongly with volume up 35%.
Margins in RTD declined as a result of the costs associated with new product
launches and the decision to reposition prices to a maximum 30% premium to
standard beer.
In South Korea, Windsor Premier continued to perform strongly in a growing
category and volume grew 25%. Windsor 17 leads the super premium category, and
the Windsor Premier brand holds around 25% of the total scotch category. The
transfer of the distribution of the Dimple brand to Diageo Korea was
successfully completed on 31 December 2002. As anticipated, this change to the
new route to market necessitated the run down of stock held by the previous
distributor. As a consequence, Diageo recorded no sales of Dimple in the period,
a decline of 341,000 equivalent cases against the prior period, and market share
fell from 23% to 10%. It is expected that market share will be rebuilt now that
the brand has moved to Diageo Korea; in the same way as the performance of
Johnnie Walker, Baileys and Smirnoff, which were transferred from the previous
distributor in April 2002, have improved in the period, albeit from a smaller
base.
In Taiwan, the continued strong growth of Johnnie Walker Black Label in the
premium sector, with volume up 17%, was the key driver of overall volume growth
of 9%. As part of Diageo's strategy to build improved route to market the sales
force in Taiwan was reorganised by region and style of outlet. The
reorganisation included the creation of a dedicated RTD sales team and Smirnoff
Ice was launched in December 2002. The outlook for Taiwan is uncertain following
negative publicity there for an advertisement produced in Great Britain for the
Smirnoff Ice Christmas campaign. Diageo is working with the Taiwanese
authorities to resolve this.
In Thailand, Johnnie Walker Black Label, which accounts for nearly 60% of net
sales, grew both volume and market share as a result of continued successful
advertising and stock building in the trade ahead of a duty increase. Net sales
grew 21% despite a 1% fall in volume as a result of volume decline in Spey
Royal.
The trading performance in Latin America reflects the current economic
environment. Overall volume and operating profit declined 17%, driven primarily
by the £11 million decline in Venezuela. Diageo's policy of actively destocking
to reduce credit risk has also negatively impacted volume growth in the period,
while substantially mitigating exposure to risk. Diageo is the leading premium
drinks business in the region and the strategy in the current environment is to
continue to make market share gains.
The worsening economic and political conditions in Venezuela, as evidenced by
industrial action and the currency devaluation, which led to price increases on
some Diageo brands of over 40%, have resulted in volume down 46%, net sales down
42% and operating profit down approximately 50%. However, Diageo continues to
lead the premium drinks market there and market share has increased in both the
off- and on-trade in a number of important categories such as standard and
secondary scotch.
Global Duty Free volume increased 11% against the comparable period last year
which included the impact of September 11. World events continue to negatively
impact the overall level of travel and the duty free market remains very
competitive, particularly in Europe. However, mix improved and net sales grew
faster than volume as a result of the strong performance of the global priority
brands, which grew volume 14%.
Venture markets
Volume up 6%
Turnover up 11%
Net sales up 15%
Marketing up 28%
Operating profit up 15%
Key drivers:
• Continued strong volume performance of global priority brands, up 12%
• Strong performance of spirits brands in the Caribbean, parts of Europe and
Asia
• Smirnoff Ice launched in Germany, the Nordics and in several Caribbean
markets
Reported turnover was £683 million in the six months ended 31 December 2002, up
9% from £627 million in the prior period. Organic operating profit increased
15%, led by top line growth in the Caribbean, parts of Europe and growth of the
spirits brands in Asia.
Volume increased 6% during the period, reflecting strong volume growth in
priority brands as a result of well executed Christmas campaigns together with
the impact of the recent launch of Smirnoff Ice in Germany and the Nordics. In
addition, volume benefited modestly from some forward buying in the Netherlands
ahead of duty increases and in the Middle East in response to the threat of war
in the region. These two factors are estimated to have improved volume growth by
1 percentage point.
Net sales increased 15%, due predominantly to the favourable mix impact.
Marketing investment grew 28%, mainly due to increased spend in brand building
activities on Johnnie Walker Black Label and Baileys and investment behind the
Smirnoff Ice launches.
Global priority brands, which account for more than half of the total volume,
performed well, with volume growth of 12% and net sales growth of 23%. The mix
improvement was driven by the growth of RTD formats, primarily Smirnoff Ice.
Volume growth of Johnnie Walker Black & Deluxe Labels, up 18%, with strong
performances across a number of markets, also improved mix. Baileys continued
its growth, with volume up 11% and net sales up 10%, again across the majority
of markets. Guinness volume declined 6%. Consumers in Indonesia and Singapore
continued to move away from stout to lager. Volume of Red Stripe in Jamaica, the
venture markets' only local priority brand, grew 5% and net sales grew 6% as a
result of increased brand building investment.
European markets had strong performances in Belgium, the Nordics and Germany. In
Germany, volume of Johnnie Walker Black and Red Labels continued to be impacted
by consumer reaction to the inflationary impact of the Euro introduction.
Smirnoff Ice has sold 226,000 equivalent cases in the period, following its
launch in February 2002. It is now the leading RTD product in Germany.
Performance in Norway during the six months licence suspension was in line with
expectations and has benefited from the overall market uplift following the
alcohol tax reduction of 15%, implemented on 1 January 2002. Overall, the
Nordics delivered a good performance, with strong growth in Baileys and the
successful launch of Smirnoff Ice.
Markets in the Caribbean and the Middle East performed strongly as a result of
improved sales execution and strong brand equity, particularly in the Johnnie
Walker portfolio, Smirnoff and Baileys.
In Asia, continued growth of the spirits brands, particularly Johnnie Walker
Black and Deluxe Labels, generated mix improvement. However, Guinness in Asia
continued to prove challenging with volume down 13%.
FINANCIAL REVIEW
Exchange rates
Exchange rate movements during the six month period, including the effect of the
currency option cylinders, beneficially impacted profit before exceptional items
and taxation by £1 million. The adverse impact on group trading profit was £7
million (operating profit £6 million and share of profits of associates £1
million), offset by a beneficial impact on the interest charge of £8 million.
Based on current exchange rates, it is expected that the full year impact of
exchange rate movements on profit before exceptional items and taxation will not
be material. Similarly, based on current exchange rates, the full year impact of
adverse exchange rate movements on profit before exceptional items and taxation
for the financial year ending 30 June 2004 is estimated to be £40 million.
Post employment plans for year ending 30 June 2003
Diageo continues to comply with the current UK accounting standard on pensions,
SSAP 24, in its primary financial statements. The charge at operating profit
level in respect of defined benefit schemes in the current year is expected to
be approximately £4 million (2002 - a credit of £27 million for continuing
operations).
FRS 17
Under FRS 17, Diageo's net deficit before taxation, applying current equity
market values (for example FTSE 100 at 3,700) and discounting liabilities at
bond rates as at 7 February 2003, for all significant defined benefit plans
(United Kingdom, Ireland and United States), would be approximately £1,400
million. The adoption of the accounting provisions of FRS 17 for the year ending
30 June 2004, would result in a net charge to profit before exceptional items
and taxation of approximately £120 million, compared with a restated £40 million
net charge for the year ending 30 June 2003.
Associates
The group's share of profits of associates before exceptional items was £266
million for the period compared with £162 million for the same period last year.
The 21.4% equity interest in General Mills contributed £157 million (2001 - £46
million for the two months ended 31 December 2001).
Goodwill
Goodwill amortisation in the period was £3 million (2001 - £10 million) of which
£2 million (2001 - £8 million) was in respect of discontinued operations.
Exceptional items
Exceptional items in the six month period amounted to a net charge before
taxation of £1,500 million comprising integration and restructuring costs of
£104 million, a share of associates exceptional charges of £15 million, losses
on disposals of fixed assets of £3 million and a loss on the sale of businesses
of £1,378 million.
In the six month period, £89 million was incurred in respect of the integration
of the Seagram spirits and wine businesses, acquired in December 2001 (year
ended 30 June 2002 - £164 million). Approximately £26 million of these costs
were employee related, £11 million were in respect of writedowns of fixed
assets, £23 million was incurred on the Next Generation Growth programme which
includes distributor terminations in the United States, and the balance included
consultancy and systems costs. The majority of these costs were incurred in
North America and the United Kingdom. It is expected that the total cost of
restructuring and integrating the business will be approximately $700 million
(£460 million) of which $590 million (£390 million) is expected to be cash. The
majority of the balance of the cost will be incurred in the eighteen months
ending 30 June 2004.
£15 million was incurred in respect of the restructuring of the UDV (spirits and
wine) and the Guinness (beer) businesses. It is expected that the total costs of
this integration will be approximately £170 million and it is anticipated that
the remaining £33 million will be charged in the six months ending 30 June 2003.
Exceptional items for associates comprise £10 million for Diageo's share of
General Mills' exceptional costs incurred on its restructuring of the acquired
Pillsbury business, and £5 million in respect of the restructuring of Moet
Hennessy.
Burger King was sold on 13 December 2002 for $1.5 billion (£0.9 billion). This
sale generated a loss before taxes of £1,395 million, after writing back
goodwill previously written off to reserves of £673 million. Following the
disposal, Diageo retains $212 million (£132 million) of subordinated debt, with
a ten year maturity, from the entity owning Burger King. In addition, Diageo has
guaranteed up to $850 million (£528 million) of borrowings of the Burger King
company. These loans have a term of 5 years although Diageo and Burger King
agreed to structure their arrangements to encourage refinancing by Burger King
on a non-guaranteed basis prior to the end of 5 years.
Interest
The interest charge in the period was £214 million, compared with £170 million
for the comparable period last year. The benefits of £65 million arising from
the disposal of businesses and £8 million from the effect of exchange rate
movements were offset by other factors. These factors include the effect of the
Seagram acquisition of £57 million, the share of General Mills' interest charge,
which has increased £24 million compared with the six months ended 31 December
2001, and the funding of the share repurchases of £31 million.
Taxation
The effective rate of taxation on profit before goodwill amortisation and
exceptional items for the period was 25%, the same as for the six months ended
31 December 2001. The charge is based on an estimate of the effective tax rate
for the financial year as a whole.
Dividend
Diageo will pay an interim dividend of 9.9 pence per share on 7 April 2003, an
increase of 6.5% on last year's interim dividend. Payment to US ADR holders will
be made on 11 April 2003. The record date for this dividend will be 7 March
2003. A dividend reinvestment plan is available in respect of this dividend and
the plan notice date will be 17 March 2003.
Cash flow
Free cash inflow was £301 million, compared with £288 million in the six months
ended 31 December 2001. Cash inflow from operating activities was £754 million
compared with £821 million in the comparable period. Discontinued operations
contributed £60 million to operating cash flow (2001 - £226 million). Cash flow
from operating activities was after £99 million of restructuring and integration
costs and a £540 million increase in working capital mainly due to seasonal
factors.
Net interest payments were £200 million against £184 million in the comparable
period. Purchases of tangible fixed assets in the period amounted to £199
million, a decrease of £13 million. Tax payments were £15 million compared with
£115 million in the six months ended 31 December 2001.
Sales of businesses generated £803 million, arising principally from the
disposal of Burger King and from the receipt of $89 million (£58 million) from
the sale of options to General Mills over 29 million ordinary shares of Diageo's
holding in that company.
Diageo remains on track to deliver £1 billion of free cash flow in the full
year.
Balance sheet
At 31 December 2002, total shareholders' funds were £5,222 million compared with
£6,001 million at 30 June 2002. The decrease was mainly due to the £763 million
retained deficit for the period, and £552 million costs of the repurchase and
cancellation of own shares, offset by the release of £675 million of goodwill
previously written off to reserves.
Net borrowings were £5,259 million, a decrease of £237 million from 30 June
2002. This decrease includes the net cash inflow of £694 million on the
purchases and sales of businesses and free cash flow of £301 million, less £552
million on the repurchase of shares and £459 million equity dividend payment.
Diageo's share repurchase programme has been driven by a view of an efficient
capital structure for Diageo and a belief that the repurchase of shares
represents intrinsic value for shareholders. Diageo has a target range for
interest cover of 5 to 8 times. Under the current economic environment it is now
appropriate for Diageo to move towards the higher end of that range and the pace
of the share repurchase programme will be varied having regard to this policy
and other factors.
DIAGEO CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months ended Six months ended
31 December 2002 31 December 2001
Before Before
goodwill Goodwill and goodwill and Goodwill and
and exceptional exceptional exceptional exceptional
items items Total items items Total
£ million £ million £ million £ million £ million £ million
Turnover
Continuing operations 4,949 - 4,949 4,458 - 4,458
Discontinued operations 479 - 479 2,020 - 2,020
_____ ____ _____ _____ _____ _____
5,428 - 5,428 6,478 - 6,478
Operating costs (4,185) (107) (4,292) (5,242) (291) (5,533)
Operating profit
Continuing operations 1,188 (105) 1,083 967 (283) 684
Discontinued operations 55 (2) 53 269 (8) 261
1,243 (107) 1,136 1,236 (291) 945
Share of associates' profits 266 (15) 251 162 (17) 145
_____ ____ _____ _____ _____ _____
Trading profit 1,509 (122) 1,387 1,398 (308) 1,090
Disposal of fixed assets (3) (3) (5) (5)
Sale of businesses (1,378) (1,378) 360 360
Interest payable (net) (214) - (214) (170) - (170)
_____ ____ _____ _____ _____ _____
Profit/(loss) before taxation 1,295 (1,503) (208) 1,228 47 1,275
Taxation (324) 118 (206) (307) (116) (423)
_____ ____ _____ _____ _____ _____
Profit/(loss) after taxation 971 (1,385) (414) 921 (69) 852
Minority interests
Equity (28) - (28) (24) - (24)
Non-equity (17) - (17) (18) - (18)
_____ ____ _____ _____ _____ _____
Profit/(loss) for the period 926 (1,385) (459) 879 (69) 810
Interim dividend (304) - (304) (309) - (309)
_____ ____ _____ _____ _____ _____
Transferred (from)/to reserves 622 (1,385) (763) 570 (69) 501
_____ ____ _____ _____ _____ _____
Pence per share
Basic earnings 29.5p (44.1)p (14.6)p 26.2p (2.1)p 24.1p
Diluted earnings 29.5p (44.1)p (14.6)p 26.1p (2.0)p 24.1p
Interim dividend 9.9p - 9.9p 9.3p - 9.3p
Average shares 3,143m 3,358m
DIAGEO CONSOLIDATED STATEMENT OF
TOTAL RECOGNISED GAINS AND LOSSES
Six months ended Six months ended
31 December 2002 31 December 2001
£ million £ million
(Loss)/profit for the period - group (588) 731
- associates 129 79
____ ____
(459) 810
Exchange adjustments (140) (83)
Tax on exchange in reserves - 6
____ ____
Total recognised gains and losses (599) 733
____ ____
DIAGEO CONSOLIDATED BALANCE SHEET
31 December 2002 30 June 2002 31 December 2001
£ million £ million £ million £ million £ million £ million
Fixed assets
Intangible assets 4,496 5,434 5,589
Tangible assets 1,916 2,545 2,360
Investments 3,340 3,183 3,225
_____ ______ ______
9,752 11,162 11,174
Current assets
Stocks 2,239 2,316 2,271
Debtors 3,717 3,419 3,817
Cash at bank and liquid resources 1,360 1,596 2,286
_____ ______ ______
7,316 7,331 8,374
_____ ______ ______
Creditors - due within one year
Borrowings (3,521) (3,718) (3,446)
Other creditors (3,461) (3,645) (3,877)
_____ ______ ______
(6,982) (7,363) (7,323)
Net current assets/(liabilities) 334 (32) 1,051
_____ ______ ______
Total assets less current 10,086 11,130 12,225
liabilities
Creditors - due after one year
Borrowings (3,463) (3,711) (4,132)
Other creditors (62) (49) (62)
_____ ______ ______
(3,525) (3,760) (4,194)
Provisions for liabilities and charges (804) (814) (488)
_____ ______ ______
5,757 6,556 7,543
_____ ______ ______
Capital and reserves
Called up share capital 910 930 976
Reserves 4,312 5,071 5,993
_____ ______ ______
Shareholders' funds 5,222 6,001 6,969
Minority interests
Equity 185 184 189
Non-equity 350 371 385
_____ ______ ______
535 555 574
_____ ______ ______
5,757 6,556 7,543
_____ ______ ______
DIAGEO CONSOLIDATED CASH FLOW STATEMENT
Six months ended 31 Six months ended
December 2002 31 December 2001
£ million £ million £ million £ million
Net cash inflow from operating activities 754 821
Dividends received from associates 30 48
Returns on investments and servicing of finance
Interest paid (net) (200) (184)
Dividends paid to equity minority interests (12) (21)
______ ______
(212) (205)
Taxation (15) (115)
Capital expenditure and financial investment
Purchase of tangible fixed assets (199) (212)
Net purchase of own shares and investments (78) (70)
Sale of fixed assets 21 21
______ ______
(256) (261)
______ ______
Free cash flow 301 288
Acquisitions and disposals
Purchase of subsidiaries (109) (3,502)
Sale of subsidiaries 803 4,294
______ ______
694 792
Equity dividends paid (459) (452)
______ ______
Cash flow before liquid resources and financing 536 628
Management of liquid resources 237 (226)
Financing
Issue of share capital 1 4
Own shares purchased for cancellation (552) (279)
(Decrease)/increase in loans (93) 11
______ ______
(644) (264)
______ ______
Increase in cash in the period 129 138
______ ______
MOVEMENTS IN NET BORROWINGS
Six months ended 31 Six months ended 31
December 2002 December 2001
£ million £ million
Increase in cash in the period 129 138
Cash flow from change in loans 93 (11)
Change in liquid resources (237) 226
______ ______
Change in net borrowings from cash flows (15) 353
Exchange adjustments 241 176
Non-cash items 11 (44)
______ ______
Decrease in net borrowings 237 485
Net borrowings at beginning of the period (5,496) (5,479)
______ ______
Net borrowings at end of the period (5,259) (4,994)
______ ______
NOTES
1. Segmental analysis
2002 2001
Operating Operating
Turnover profit Turnover profit
£ million £ million £ million £ million
Class of business:
Major markets
North America 1,476 413 1,147 253
Great Britain 861 144 845 136
Ireland 522 89 518 86
Spain 244 61 224 60
______ _____ ______ _____
3,103 707 2,734 535
Key markets 1,163 317 1,097 287
Venture markets 683 164 627 145
______ _____ ______ _____
Premium drinks 4,949 1,188 4,458 967
Discontinued operations 479 55 2,020 269
______ _____ ______ _____
5,428 1,243 6,478 1,236
______ _____ ______ _____
Geographical area by destination:
Europe 2,365 439 2,428 433
North America 1,825 464 2,790 501
Asia Pacific 544 130 504 119
Latin America 313 113 403 120
Rest of World 381 97 353 63
______ _____ ______ _____
5,428 1,243 6,478 1,236
______ _____ ______ _____
The above analysis of operating profit is before goodwill amortisation and
exceptional items. The geographical analysis is based on the location of the
third party customers. The discontinued operations comprise quick service
restaurants (Burger King) and the packaged food businesses (Pillsbury).
2002 2001
£ million £ million
Net assets by class of business:
Premium drinks 8,501 8,772
Discontinued operations - 1,482
______ ______
8,501 10,254
Investments in associates 2,885 2,927
Tax, dividends and other (370) (644)
Net borrowings (5,259) (4,994)
______ ______
5,757 7,543
______ ______
Net assets by geographical area:
Europe 4,046 4,090
North America 3,260 5,450
Asia Pacific 816 286
Latin America 173 247
Rest of World 206 181
______ ______
8,501 10,254
______ ______
Weighted average exchange rates used in the translation of profit and loss
accounts were US dollar - £1 = $1.55 (2001 - £1 = $1.44) and euro - £1 = €1.57
(2001 - £1 = €1.61). Exchange rates used to translate assets and liabilities at
the balance sheet date were US dollar - £1 = $1.61 (2001 - £1 = $1.46) and euro
- £1 = €1.53 (2001 - £1 = €1.63). The group uses option cylinders and foreign
exchange transaction hedges to mitigate the effect of exchange rate movements.
2. Goodwill and exceptional items
2002 2001
£ million £ million £ million £ million
Operating costs
Continuing operations
Goodwill amortisation (1) (2)
Seagram integration (89) (40)
Guinness UDV integration (15) (21)
Jose Cuervo settlement - (220)
_____ _____
(105) (283)
Discontinued operations
Goodwill amortisation (2) (8)
_____ _____
(107) (291)
Associates (15) (17)
Disposal of fixed assets (3) (5)
Sale of businesses
Continuing operations
Premium drinks brands 16 (1)
Guinness World Records - 35
_____ _____
16 34
Discontinued operations
Burger King (1,395) -
The Pillsbury Company 1 326
(1,394) 326
_____ _____
(1,503) 47
_____ _____
3. Taxation
The £206 million total taxation charge for the six months ended 31 December 2002
comprises a UK tax credit of £43 million, a foreign tax charge of £167 million
and tax on associates of £82 million. Included in the total UK credit is current
tax payable for the six months ended 31 December 2002 amounting to £6 million.
4. Note of consolidated historical cost profits and losses
There is no material difference between the reported loss shown in the
consolidated profit and loss account and the loss restated on an historical cost
basis.
5. Movements in consolidated shareholders' funds
2002 2001
£ million £ million
(Loss)/profit for the period (459) 810
Dividends (304) (309)
_____ _____
(763) 501
Exchange adjustments (140) (83)
Tax on exchange in reserves - 6
New share capital issued 1 4
Purchase of own shares for cancellation (552) (279)
Goodwill on disposals of businesses 675 1,697
_____ _____
Net movement in shareholders' funds (779) 1,846
Shareholders' funds at beginning of the period 6,001 5,123
_____ _____
Shareholders' funds at end of the period 5,222 6,969
_____ _____
6. Net borrowings
31 December 2002 30 June 2002 31 December 2001
£ million £ million £ million
Debt due within one year and overdrafts (3,521) (3,718) (3,446)
Debt due after one year (3,463) (3,711) (4,132)
Net obligations under finance leases - (28) (35)
_______ _______ _______
(6,984) (7,457) (7,613)
Less: Cash at bank and liquid resources 1,360 1,596 2,286
Interest rate and foreign currency swaps 365 365 333
_______ _______ _______
Net borrowings (5,259) (5,496) (4,994)
_______ _______ _______
7. Net cash inflow from operating activities
2002 2001
£ million £ million
Operating profit 1,136 945
Exceptional operating costs 104 281
Restructuring and integration payments (99) (70)
Depreciation and amortisation charge 147 166
Increase in working capital (540) (457)
Other items 6 (44)
____ ____
Net cash inflow from operating activities 754 821
____ ____
8. Basis of preparation
The interim financial information has been prepared on the basis of accounting
policies consistent with those applied in the accounts for the year ended 30
June 2002. The information is unaudited but has been reviewed by the auditors,
KPMG Audit Plc, and their report is reproduced after these notes. The
information does not comprise the statutory accounts of the group. The statutory
accounts of Diageo plc for the year ended 30 June 2002 have been filed with the
registrar of companies. KPMG Audit Plc have reported on these accounts; their
report was unqualified and did not contain any statement under section 237 of
the Companies Act 1985.
INDEPENDENT REVIEW REPORT TO DIAGEO PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 December 2002 set out in the consolidated profit & loss
account, the consolidated balance sheet, the consolidated cashflow and the notes
appended thereto. We have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the company for
our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing annual accounts except where they are to be
changed in the next annual accounts in which case any changes, and the reasons
for them, are to be disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/
4: Review of Interim Financial Information issued by the Auditing Practices
Board. A review consists principally of making enquiries of group management and
applying analytical procedures to the financial information and underlying
financial data and, based thereon, assessing whether the accounting policies and
presentation have been consistently applied unless otherwise disclosed. A review
is substantially less in scope than an audit performed in accordance with
Auditing Standards and therefore provides a lower level of assurance than an
audit. Accordingly, we do not express an audit opinion on the financial
information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 December 2002.
KPMG Audit Plc
Chartered Accountants
London, 19 February 2003
Cautionary statement concerning forward-looking statements
This document contains statements with respect to the financial condition,
results of operations and business of Diageo and certain of the plans and
objectives of Diageo with respect to these items. These forward-looking
statements are made pursuant to the 'Safe Harbor' provisions of the US Private
Securities Litigation Reform Act of 1995. In particular, all statements that
express forecasts, expectations and projections with respect to future matters,
including trends in results of operations, margins, growth rates, overall market
trends, the impact of interest or exchange rates, the availability of financing
to Diageo and parties or consortia who have purchased Diageo's assets, actions
of parties or consortia who have purchased Diageo's assets, anticipated cost
savings or synergy and the completion of Diageo's strategic transactions, are
forward-looking statements. 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:
• Increased competitive product and pricing pressures and unanticipated
actions by competitors that could impact Diageo's market share, increase
expenses and hinder growth potential;
• The effects of future business combinations, acquisitions or disposals and
the ability to realise expected synergy and/or costs savings;
• Diageo's ability to complete future acquisitions and disposals;
• Legal and regulatory developments, including changes in regulations
regarding consumption of, or advertising for, beverage alcohol, changes in
accounting standards, taxation requirements, such as the impact of excise
tax increases with respect to the premium drinks business, and environmental
laws;
• Changes in consumer preferences and tastes, demographic trends or
perception about health related issues;
• Changes in the cost of raw materials and labour costs;
• Changes in economic conditions in countries in which Diageo operates,
including changes in levels of consumer spending;
• Levels of marketing and promotional expenditure by Diageo and its
competitors;
• Renewal of distribution rights on favourable terms when they expire;
• Termination of existing distribution rights on agency brands;
• Technological developments that may affect the distribution of products or
impede Diageo's ability to protect its intellectual property rights; and
• Changes in financial and equity markets, including significant interest
rate and foreign currency rate fluctuations which may affect Diageo's access
to or increase the cost of financing.
Past performance cannot be relied upon as a guide to future performance.
This information is provided by RNS
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