Interim Results - 6 Months to 31 Dec 1999, Part 2

Diageo PLC 24 February 2000 PART 2 DIAGEO CONSOLIDATED PROFIT AND LOSS ACCOUNT Six months ended Six months ended 31 December 1999 31 December 1998 Before Before Good- goodwill Goodwill goodwill will and and ex- and and ex- except- cept- except- cept- ional ional ional ional items items Total items items Total £ £ £ £ £ £ million million million million million million Turnover 6,596 - 6,596 6,267 - 6,267 Operating costs (5,445) (86) (5,531) (5,168) (198) (5,366) Operating profit 1,151 (86) 1,065 1,099 (198) 901 Share of profits of 121 - 121 111 - 111 associates Trading profit 1,272 (86) 1,186 1,210 (198) 1,012 Disposal of fixed - (2) (2) - (8) (8) assets Sale of businesses - (244) (244) - 127 127 Interest payable (185) - (185) (159) - (159) (net) Profit before 1,087 (332) 755 1,051 (79) 972 taxation Taxation (285) 6 (279) (275) 6 (269) Profit after taxation 802 (326) 476 776 (73) 703 Minority interests Equity (18) - (18) (25) - (25) Non-equity (18) - (18) (18) - (18) Profit for the period 766 (326) 440 733 (73) 660 Interim dividend (285) - (285) (276) - (276) Transferred to 481 (326) 155 457 (73) 384 reserves Pence per share Basic earnings 22.6p (9.6)p 13.0p 20.5p (2.0)p 18.5p Diluted earnings 22.5p (9.6)p 12.9p 20.4p (2.0)p 18.4p Interim dividend 8.4p - 8.4p 7.8p - 7.8p Average shares 3,394m 3,577m DIAGEO CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months ended Six months ended 31 December 1999 31 December 1998 £ million £ million Profit for the period - group 370 593 - associates 70 67 440 660 Exchange adjustments (21) 85 Tax (charge)/relief on (4) 10 exchange in reserves Total recognised gains and 415 755 losses DIAGEO CONSOLIDATED BALANCE SHEET 31 December 1999 30 June 1999 31 December 1998 £ £ £ £ £ £ million million million million million million Fixed assets Intangible assets 4,975 5,188 4,852 Tangible assets 3,100 3,178 3,058 Investments 1,442 1,354 1,390 9,517 9,720 9,300 Current assets Stocks 2,153 2,202 2,298 Debtors 3,732 3,259 3,613 Investments - - 167 Cash at bank and in 1,732 1,097 1,385 hand 7,617 6,558 7,463 Creditors - due within one year Borrowings (4,095) (3,905) (3,909) Other creditors (3,758) (3,532) (3,362) (7,853) (7,437) (7,271) Net current (236) (879) 192 (liabilities)/assets Total assets less current 9,281 8,841 9,492 liabilities Creditors - due after one year Borrowings (3,553) (3,395) (2,850) Other creditors (150) (100) (245) (3,703) (3,495) (3,095) Provisions for liabilities and (695) (753) (747) charges 4,883 4,593 5,650 Capital and reserves Called up share capital 989 992 1,036 Reserves 3,341 3,034 4,066 Shareholders' funds 4,330 4,026 5,102 Minority interests Equity 175 179 180 Non-equity 378 388 368 553 567 548 4,883 4,593 5,650 DIAGEO CONSOLIDATED CASH FLOW STATEMENT Six months ended Six months ended 31 December 1999 31 December 1998 £ £ £ £ million million million million Net cash inflow from operating activities 929 753 Dividends received from associates 40 5 Interest paid (net) (182) (239) Dividends paid to equity minority (16) (13) interests Returns on investments and servicing of (198) (252) finance Taxation (78) (361) Purchase of tangible fixed assets (252) (214) Purchase of own shares (net) (40) (54) Sale of fixed assets 15 50 Capital expenditure and financial (277) (218) investment Free cash flow 416 (73) Purchase of subsidiaries (56) (117) Sale of subsidiaries and associates 240 137 Acquisitions and disposals 184 20 Equity dividends paid (398) (388) Cash flow before liquid resources and 202 (441) financing Management of liquid resources (244) 1,481 Issue of share capital 6 26 Own shares purchased for cancellation (54) (74) Increase/(decrease) in loans 333 (1,081) Financing 285 (1,129) Increase/(decrease) in cash in the period 243 (89) MOVEMENTS IN NET BORROWINGS Six months ended Six months ended 31 December 1999 31 December 1998 £ million £ million Increase/decrease) in cash in the 243 (89) period Cash flow from change in loans (333) 1,081 Change in liquid resources 244 (1,481) Change in net borrowings from cash 154 (489) flows Exchange adjustments 175 (95) Non-cash items (14) (5) Decrease/(increase) in net borrowings 315 (589) Net borrowings at beginning of the (6,056) (4,508) period Net borrowings at end of the period (5,741) (5,097) NOTES 1. Segmental analysis Six months ended Six months ended 31 December 1999 31 December 1998 Operating Operating Turnover profit Turnover profit £ million £ million £ million £ million Class of business: Spirits and Wine 2,877 614 2,732 589 Packaged Food 2,056 271 1,926 263 Beer 1,195 161 1,166 149 Quick Service Restaurants 468 105 443 98 6,596 1,151 6,267 1,099 Geographical area by destination: Europe 2,533 385 2,343 371 North America 3,000 539 2,873 515 Asia Pacific 449 80 407 74 Latin America 381 89 427 90 Rest of World 233 58 217 49 6,596 1,151 6,267 1,099 31 December 1999 31 December 1998 £ million £ million Net assets: Spirits and Wine 4,311 4,827 Packaged Food 3,415 3,031 Beer 874 935 Quick Service Restaurants 1,194 1,171 9,794 9,964 Investments in associates 1,170 1,200 Tax, dividends and other (340) (417) corporate items Net borrowings (5,741) (5,097) 4,883 5,650 Europe 3,753 4,370 North America 5,301 4,839 Asia Pacific 283 325 Latin America 285 249 Rest of World 172 181 9,794 9,964 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. Weighted average exchange rates used in the translation of profit and loss accounts were: US dollar - £1 = $1.62 (1998 - £1 = $1.66) and euro - £1 = 1.55 (1998 - £1 = 1.46). Exchange rates used to translate assets and liabilities at the balance sheet date were: US dollar - £1 = $1.62 (1998 - £1 = $1.66) and euro - £1 = 1.60 (1998 - £1 = 1.42). 2. Goodwill and exceptional items Six months ended Six months ended 31 December 1999 31 December 1998 Charged to: £ £ £ £ million million million million Operating costs Goodwill amortisation (7) - Merger integration (45) (156) Burger King Australian litigation (34) - Haagen-Dazs plant closure - (35) Foodservice integration - (7) (86) (198) Disposal of fixed assets Loss on sales (2) (8) Sale of businesses Spirits and Wine brands (244) (18) Cantrell & Cochrane - 142 Other - 3 (244) 127 Total (332) (79) 3. Taxation The £279 million total taxation charge for the six months ended 31 December 1999 comprises UK tax of £33 million, foreign tax of £197 million and tax on associates of £49 million. 4. Note of consolidated historical cost profits and losses There is no material difference between the reported profit shown in the consolidated profit and loss account and the profit restated on an historical cost basis. 5. Movements in consolidated shareholders' funds Six months ended Six months ended 31 December 1999 31 December 1998 £ million £ million Profit for the period 440 660 Dividends (285) (276) 155 384 Exchange adjustments (21) 85 Tax (charge)/relief on exchange in reserves (4) 10 New share capital issued 6 28 Provision for share issues - 6 Purchase of own shares for (54) (74) cancellation Goodwill on disposals of businesses 222 34 Net movement in shareholders' funds 304 473 Shareholders' funds at beginning of 4,026 4,629 the period Shareholders' funds at end of the 4,330 5,102 period 6. Net borrowings 31 December 30 June 31 December 1999 1999 1998 £ million £ million £ million Debt due within one year and (4,095) (3,905) (3,909) overdrafts Debt due after one year (3,553) (3,395) (2,850) Net obligations under finance leases (36) (38) (43) (7,684) (7,338) (6,802) Less: Cash at bank and in hand 1,732 1,097 1,385 Current asset investments - - 167 Interest rate and foreign currency 211 185 153 swaps Net borrowings (5,741) (6,056) (5,097) 7. Net cash inflow from operating activities Six months ended Six months ended 31 December 1999 31 December 1998 £ million £ million Operating profit 1,065 901 Exceptional operating costs 79 198 Restructuring and integration payments (91) (117) Depreciation and amortisation charge 177 159 Increase in working capital (319) (393) Other items 18 5 Net cash inflow from operating 929 753 activities 8. Basis of preparation The interim financial information has been prepared on the basis of accounting policies consistent with those applied in the 1999 financial statements, except for the accounting policy changes set out in the note below. The information is unaudited but has been reviewed by the auditor, 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 1999 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. 9. Accounting policy changes The interim financial information complies, where appropriate, with the following Financial Reporting Standards issued by the UK Accounting Standards Board. FRS 15 - Tangible Fixed Assets. This standard addresses the measurement, valuation and depreciation of tangible fixed assets. The group has adopted the transitional arrangements of the standard and has retained the book amounts of certain tangible assets which were previously revalued. It is expected that no further valuations will be carried out. FRS 16 - Current Tax. This standard was issued in December 1999. It specifies how current tax, in particular withholding tax and tax credits, should be reflected in financial statements. Compliance with this standard has not given rise to any restatement of figures reported for prior periods. INDEPENDENT REVIEW REPORT TO DIAGEO plc Introduction We have been instructed by the company to review the interim financial information set out on pages 15 to 20 and 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. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The Listing Rules of the London Stock Exchange 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 1999. KPMG Audit Plc Chartered Accountants London, 23 February 2000

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