Interim Results
Diageo PLC
15 February 2007
Interim results for the six months ended 31 December 2006
Diageo reports strong first half performance and increases guidance for full
year organic operating profit growth to 8%
Paul Walsh, Chief Executive of Diageo, commenting on the six months ended 31
December 2006 said:
'Diageo has made a strong start to the year. Excellent performances in North
America and International and unchanged profits in Europe delivered double digit
underlying earnings growth. Our spirits brands, especially Scotch where net
sales grew 11%, did particularly well, benefiting from increased investment in
marketing. As a result of this strong start we are increasing our guidance for
organic operating profit growth to 8% for the full year. We still expect to
return a total of £1.4 billion to shareholders through share buybacks this year
and to continue our progressive dividend policy.
'In North America our continued outperformance in the US spirits market was the
key driver of the 11% organic operating profit growth we delivered. Operating
leverage from price and mix improvements in beer, wine and ready to drink also
contributed to the margin expansion we achieved.
'In International, we again grew marketing spend faster than net sales. This
investment delivered stronger top line growth, share gains in markets from China
to Mexico, organic operating margin expansion and organic operating profit grew
17%.
'In Europe, growth in our Continental Europe hub and in Russia was offset by
weaker top line performance in Great Britain, Ireland and Spain and total net
sales declined. However, as in North America, price and mix improvement led to
organic operating margin expansion and on an organic basis operating profit was
maintained.
'We believe that a capital structure broadly consistent with a single A credit
rating gives Diageo the appropriate level of flexibility and given our strong
free cash flow this capital structure would allow us to fund a £1 billion share
buyback programme in fiscal 2008.'
Key highlights of the six months ended 31 December 2006
• 8% net sales growth in spirits is the key driver of overall performance
• Marketing spend increased by a further 6% with spend focused on growth
brands and markets
• Operating margin improved by 90 basis points
• Using an effective tax rate of 25% eps before exceptional items rose from
31.1 pence in first half F'06 to 34.4 pence in first half F'07, which
adjusted for exchange is a 14% increase
• Return on invested capital increased 90 basis points to 17.7%
• Strong free cash flow of £672 million
• High payout ratio maintained as interim dividend per share is increased by
5% to 12.55 pence
• £1.22 billion returned to shareholders through £524 million in dividends
and £700 million of share buybacks
Results at a glance
First half First half Reported Organic
F'07 F'06 movement movement
Volume in millions of equivalent units 75.7 72.6 4% 4%
Net sales £ million 4,022 3,960 2% 6%
Operating profit £ million 1,306 1,261 4% 8%
Profit attributable to parent company's
equity shareholders £ million 895 1,166 (23)%
Basic eps Pence 32.8* 40.4* (19)% 14%
* For six months ended 31 December 2006 tax rate 28.3%. For six months ended 31
December 2005 tax rate 14.0%.
Net sales in this document are sales after deducting excise duties. Percentage
movements in this document are organic movements unless otherwise stated.
Commentary, unless otherwise stated, refers to organic movements. Share, unless
otherwise stated, refers to volume share. See page 27 for additional
information for shareholders and an explanation of non-GAAP measures including
the reconciliation of basic eps as reported to underlying basic eps.
Regional Summary
North America - focus on priority brands delivered share gains in spirits
• Volume up 3%
• Net sales up 7%
• Marketing spend up 6%
• Operating profit up 11%
In North America, net sales grew 8% for spirits, 9% for wine and 5% for beer,
while ready to drink declined 1%. The outperformance of Diageo's spirits brands
was the key driver of overall top line growth and operating margin expansion.
Spirits grew volume by 4%, ahead of overall market growth of approximately 2%,
as Diageo continued to gain both value and volume share, up 0.7 percentage
points and 1.2 percentage points respectively. The priority brands drove volume
growth and mix improvement with strong consumer demand for Johnnie Walker,
Smirnoff vodka, Baileys, Captain Morgan and Jose Cuervo.
Europe - strong growth in the Continental Europe hub was offset by weakness in
other markets
• Volume down 5%
• Net sales down 2%
• Marketing spend reduced by 7%
• Operating profit unchanged
In Europe, strong growth in the Continental Europe hub, led by Johnnie Walker,
Smirnoff and Baileys, was offset by weaker volume performance mainly in Great
Britain but also in Ireland and Spain. In Great Britain, promotional activity
was reduced in the off trade, and while net sales per case improved and brand
equity was maintained, volume declined. A reduction in marketing spend behind
ready to drink in Great Britain and France was the main driver of the reduction
in total marketing spend. However, investment was increased behind spirits
brands in the Continental Europe hub.
International - top and bottom line growth improved
• Volume up 14%
• Net sales up 16%
• Marketing spend up 22%
• Operating profit up 17%
Growth in Diageo's International business was driven by a focus on key brands in
growth markets, innovation, additional high levels of marketing spend and
improved sales execution with customers. The strong performance of Diageo's
Scotch brands was the key driver of top line mix improvement. In the deluxe
Scotch segment, brands such as Windsor in Korea and Buchanan's in Latin America
continued to gain share. In Africa, beer grew strongly as did spirits and ready
to drink in South Africa. Investment in marketing spend again grew ahead of net
sales growth particularly in fast growing markets such as India and Mexico. In
China marketing spend was up 70% resulting in strong net sales growth and share
gains.
Financial
• The deficit in respect of post employment plans reduced by £42 million
from £801 million at 30 June 2006 to £759 million at 31 December 2006
• In the six months ended 31 December 2006, exchange rate movements
reduced operating profit by £53 million and the interest charge by
£7 million
• At current exchange rates, exchange rate movements are estimated to
reduce operating profit by £90 million and the interest charge by
approximately £10 million (excluding the exchange impact of
re-translating trading and short term inter-company loans under
IAS 21) for the full year ending 30 June 2007
Brand performance summary
Reported Organic Reported Organic
volume volume net sales net sales
movement movement movement movement
% % % %
Global priority brands 5 5 1 6
Local priority brands (1) (1) (2) 2
Category brands 7 6 5 10
Total 4 4 2 6
Key brands:
Smirnoff vodka 6 6 2 7
Smirnoff ready to drink (6) (6) (12) (6)
Johnnie Walker 10 10 8 13
Guinness - - (1) 2
Baileys 3 3 3 6
Captain Morgan (excl. ready to drink) 5 5 2 9
J&B (1) (1) (4) (1)
Crown Royal 4 4 (1) 8
Jose Cuervo (excl. ready to drink) 7 7 1 8
Tanqueray 4 4 (1) 6
Buchanan's - Venezuela 65 65 88 71
Windsor - Korea 13 13 15 13
The global priority brands grew volume by 5% as growth in Johnnie Walker,
Smirnoff and Baileys offset a decline in Smirnoff ready to drink and J&B.
Strong growth of Guinness in International, where volume grew 8%, was offset
by the performance in Europe and therefore volume was flat. Net sales of global
priority brands grew 6% as a result of price increases in some markets and mix
improvement throughout the world.
Local priority brands volume declined 1% as strong growth of Buchanan's and
Windsor was offset by declines in Bell's and Gordon's. Mix improved and as a
result, net sales were up by 2%.
Category brands grew volume by 6% and net sales were up 10% as mix improved due
to the strong growth of Scotch brands such as Old Parr and Black & White.
OPERATING AND FINANCIAL REVIEW
For the six months ended 31 December 2006
OPERATING REVIEW
Analysis by region
North America
Summary:
• Continued share growth in spirits: value and volume share up 0.7 and
1.2 percentage points respectively
• Volume growth of priority brands and price increases drove 7% growth
in net sales
Key measures: First half First half F'06 Reported Organic
F'07 movement movement
£ million £ million % %
Volume 3 3
Net sales 1,313 1,329 (1) 7
Marketing spend 206 209 (1) 6
Operating profit 486 476 2 11
Reported performance:
Net sales were £1,313 million in the six months ended 31 December 2006 down by
£16 million from £1,329 million in the comparable period. Operating profit
increased by £10 million to £486 million in the period ended 31 December 2006.
Organic performance:
The weighted average exchange rate used to translate US dollar sales and profit
moved from £1 = $1.76 in the six months ended 31 December 2005 to £1 = $1.91 in
the six months ended 31 December 2006. Net sales decreased by £99 million as a
result of the weakening US dollar. Acquisitions increased net sales by £1
million and there was an organic increase in net sales of £82 million.
Operating profit decreased by £38 million as a result of exchange rate
movements. Acquisitions had no impact on operating profit. There was an
organic increase in operating profit of £48 million.
Organic brand performance: Reported Organic Organic
volume volume Reported net net sales
movement movement sales movement movement
% % % %
Global priority brands 6 6 - 8
Local priority brands 1 1 (5) 3
Category brands (2) (2) 1 8
Total 3 3 (1) 7
Key brands:
Smirnoff vodka 8 8 4 12
Smirnoff ready to drink (20) (20) (22) (16)
Captain Morgan (excl. ready to drink) 5 5 1 9
Crown Royal 4 4 (1) 8
Jose Cuervo (excl. ready to drink) 5 5 (2) 7
Baileys 22 22 16 25
Johnnie Walker 2 2 (2) 6
Tanqueray 3 3 (4) 4
Guinness 2 2 (3) 5
Beaulieu Vineyard (8) (8) (14) (6)
Sterling Vineyards 8 8 (9) (1)
Smirnoff vodka grew volume 8%, outpacing category growth of 3%. A price
increase in many states led to 12% growth in net sales. Smirnoff vodka grew
value and volume share 0.2 and 0.8 percentage points respectively.
Price increases on Captain Morgan Original Spiced Rum and Parrot Bay flavoured
rum in most states drove growth of net sales of 9% on a 5% increase in volume.
Jose Cuervo, excluding ready to drink, grew volume 5%, driven by growth of Jose
Cuervo Flavored Tequilas. Strong performance of super premium variants improved
mix and net sales grew 7%. The successful launch of Jose Cuervo Black Medallion
in February 2006 and the continued growth of Jose Cuervo Tradicional have almost
doubled Cuervo's participation in the super premium and ultra premium tequila
segments.
Baileys showed particularly strong growth with volume up 22% and net sales up
25% following the national launch of Baileys flavours and the continued strong
performance of Baileys Original Irish Cream.
Johnnie Walker outpaced the category and increased share by 1.6 percentage
points with growth across all variants. Volume grew 2% reflecting further
reductions in stock levels. Mix improvement toward Johnnie Walker Black Label
and the super deluxe variants drove 6% growth in net sales.
Tanqueray grew volume 3%, share increased by 0.9 percentage points and net sales
rose 4%.
Guinness Draught in Bottle grew volume 13% while Guinness Draught increased
volume by 4%. Changes in shipment phasing benefited the prior period performance
and therefore Guinness Extra Stout volume declined. As a result, total Guinness
volume grew 2%. A national price increase on Guinness Draught and select market
increases on other packs drove mix improvement and as a consequence, net sales
were up 5%.
Volume on the local priority brands grew 1%, as strong performances by Crown
Royal, Buchanan's and Sterling Vineyards were partly offset by declines in
Gordon's gin, Seagram's VO and Beaulieu Vineyard. Net sales of local priority
brands rose 3% following the positive mix shift towards Crown Royal and
Buchanan's. Crown Royal volume grew 4% and net sales were up 8% following a
price increase in selected states and the introduction of the super premium
variant Crown Royal Extra Rare. In wines, mix of Beaulieu Vineyard improved due
to lower sales of the mid-priced variant Century Cellars, while Sterling
Vineyards mix was diluted as a result of lower sales of the Reserve wines
following the warehouse fire in October 2005.
Category brands' volume declined 2%. Lower value brands such as Popov and
Gordon's vodka declined but more premium spirits brands such as Ciroc, Don Julio
and Bushmills, premium beer brands like Red Stripe and wine brands such as
Chalone Vineyards increased. As a result of this mix improvement, net sales grew
8%.
Ready to drink volume was down 6% as continued growth of Jose Cuervo ready to
drink and the launch of Parrot Bay was more than offset by a decline in Smirnoff
Ice and Twisted V. However, prices increased, mix improved and as a result, net
sales were down only 1%.
Europe
Summary:
• Net sales down 2% due to weakness in Great Britain, Ireland and Spain
• Strong growth in Continental Europe hub led by Johnnie Walker,
Smirnoff vodka and Baileys
• Marketing spend declined 7% due to reduced spend on ready to drink in
Great Britain and France, and lower investment in Spain following a
significant increase in the prior period
Key measures: First half First half Reported Organic movement
F'07 F'06 movement
£ million £ million % %
Volume (4) (5)
Net sales 1,357 1,408 (4) (2)
Marketing spend 208 225 (8) (7)
Operating profit 484 494 (2) -
Reported performance:
Reported net sales in Europe in the period ended 31 December 2006 were down £51
million from £1,408 in the comparable period, to £1,357 million. Reported
operating profit decreased by 2% from £494 million to £484 million.
Organic performance:
Net sales decreased by £9 million as a result of the impact of exchange rate
movements. Acquisitions increased net sales by £4 million, disposals decreased
net sales by £14 million and there was an organic decrease in net sales of £32
million. The exchange impact resulted primarily from a weakening of the euro.
Operating profit decreased by £2 million as a result of exchange rate movements.
Acquisitions increased operating profit by £2 million and disposals decreased
operating profit by £2 million compared to the comparable six month period ended
31 December 2005. Additional costs of £7 million were transferred to the
region. There was an organic decrease in operating profit of £1 million.
Organic brand performance: Reported Organic Organic
volume volume Reported net net sales
movement movement sales movement movement
% % % %
Global priority brands (4) (4) (3) (3)
Local priority brands (11) (11) (7) (6)
Category brands (1) (2) (2) 1
Total (4) (5) (4) (2)
Key brands:
Smirnoff vodka - - (1) 1
Smirnoff ready to drink (17) (17) (15) (14)
Johnnie Walker (1) (1) 4 4
Baileys (8) (8) (6) (5)
J&B (4) (4) (3) (3)
Guinness (7) (7) (5) (4)
Smirnoff vodka volume was flat as a decline in volume in Great Britain was
offset by growth in Germany, Belgium and Greece. Net sales grew 1% benefiting
from stronger pricing in Greece and Germany. Smirnoff ready to drink volume was
down 17%, as the segment continued to decline in Great Britain. Net sales were
down 14% as promotions were moderated.
Johnnie Walker volume was down 1% due to a decline in Johnnie Walker Red Label
volume in Spain, where the standard Scotch segment has contracted, and in
Greece, where there was a shortage of product following a strike at the port of
Piraeus. Volume of Johnnie Walker Black Label and Johnnie Walker super deluxe
increased in Greece and Eastern Europe as marketing continued to trade consumers
up from standard variants. This, together with mix improvement in Russia on
Johnnie Walker Red Label, improved overall mix and as a result, net sales grew
4%.
Baileys volume declined by 8% and net sales were down 5%. In Great Britain,
funding of promotions was limited, which maintained brand equity but negatively
impacted Baileys volume. Excluding Great Britain, volume grew 6% driven by
strong growth in Belgium and France and the successful launch of Baileys
flavours throughout the region.
J&B volume was down 4% as the continued decline in standard Scotch in
Spain was only partially offset by good performance in France where volume grew
4% and in Central and Eastern Europe where volume was up 19%.
Guinness volume declined 7% due to the continued consumer shift from the on
trade to the off trade and exceptionally warm weather in both Great Britain and
Ireland. Net sales decline was restricted to 4% as a result of price increases
in both markets.
Total local priority brands' performance was negatively impacted by the decline
of Bell's and Gordon's in Great Britain and the decline of lagers in Ireland.
Category brands' volume declined 2% and net sales increased 1% as growth of
Bushmills, Pampero and the Classic Malts offset declines in Piat D'Or and VAT
69.
In Great Britain, a shift from the on trade to the off trade, a reduction in
retailer funded promotions and a smoking ban introduced in Scotland in March
2006 have resulted in a volume decline of 1% in the beverage alcohol market. In
addition, there has been a consumer trend to value brands and a reduction in
customer stock levels ahead of the introduction of strip stamps. Diageo
increased prices in July 2006 and moderated its Christmas promotions to protect
brand equity and increase net sales per case. This provided a challenging
background for Diageo's performance and as a result, volume declined 12% and net
sales were down 9%.
In Ireland, on trade beer volume continued to decline, while off trade beer and
overall wine and spirits consumption increased. Consumers are widening their
repertoire and becoming more value conscious particularly in the off trade.
These trends affected Diageo's performance in Ireland with beer net sales down
3%, while spirits and wine net sales were both up 5%. Total volume and net
sales declined 3% and 2% respectively.
The trend to lower on trade consumption led to a 3% decline in the Spanish
spirits market. The standard Scotch category lost share to rum and was down 6%.
Diageo's volume in Iberia was down 6%, although net sales were only down 3%
due to stronger pricing in Portugal.
In the Continental Europe hub, volume grew 4% driven by growth in Central and
Eastern Europe, Benelux and Italy. Consumers continued to trade up to deluxe
and super deluxe variants of Johnnie Walker throughout the hub. This mix
improvement was offset by the continued decline of ready to drink in France and
Germany and as a result, net sales were up 4%.
The introduction of excise duty strip stamps severely disrupted the Russian
market. As a result, Diageo volume was down 12%. However, termination of the
previous distribution contract and the formation of a 75% owned company for the
distribution, sale and marketing of spirits brands, led to higher net sales per
case and as a result, net sales were up by 8%.
International
Summary:
• Continued strong growth in Latin America, Asia and Africa
• Further investment with marketing spend up 22%
• Strong performance in Global Travel despite disruptions due to increased
airport security
• Strong growth and share gains in the Scotch category, especially in Latin
America and China
• Strong Guinness performance particularly in Nigeria and East Africa
First half First half Reported Organic movement
Key measures: F'07 F'06 movement
£ million £ million % %
Volume 14 14
Net sales 1,314 1,183 11 16
Marketing spend 212 184 15 22
Operating profit 413 371 11 17
Reported performance:
Reported net sales in the period ended 31 December 2006 were £1,314 million, up
£131 million from £1,183 million in the comparable prior period. Reported
operating profit was up 11% to £413 million for the six months ended 31 December
2006.
Organic performance:
Net sales decreased by £50 million as a result of exchange rate impacts. There
was an organic increase in net sales of £181 million. Operating profit
decreased by £15 million as a result of exchange rate movements and additional
costs transferred to the region decreased operating profit by £4 million. There
was an organic increase in operating profit of £61 million. Acquisitions and
disposals had no impact on net sales or operating profit for the period.
Organic brand performance: Reported Organic Organic
volume volume Reported net net sales
movement movement sales movement movement
% % % %
Global priority brands 14 14 10 16
Local priority brands 7 7 8 11
Category brands 16 16 16 20
Total 14 14 11 16
Key brands:
Smirnoff vodka 12 12 3 13
Smirnoff ready to drink 31 31 14 26
Johnnie Walker 17 17 13 18
Baileys 13 13 9 13
Guinness 8 8 7 11
Buchanan's - Venezuela 65 65 88 71
Windsor - Korea 13 13 15 13
Smirnoff vodka grew volume 12% and net sales by 13% driven by increased
distribution and successful advertising throughout Latin America, Africa and
Asia. Smirnoff ready to drink volume grew 31% due to continued growth in
Brazil, the successful launch of Smirnoff Storm in South Africa and the relaunch
of Smirnoff Ice in Japan.
Johnnie Walker continued to benefit from increased investment throughout Asia
and Latin America and continued activation of its grand prix team sponsorship.
As a result, the brand grew volume 17% and net sales were up 18%.
Baileys grew volume 13% reflecting the successful launch of Baileys flavours in
Global Travel, Latin America and Australia, as well as 5% volume growth of
Baileys Original Irish Cream. Net sales grew by 13%.
Guinness volume grew 8% driven by strong performances in Nigeria and East Africa
due to increased marketing spend, renewed customer focus and economic growth.
Net sales were up 11% mainly due to stronger pricing in Nigeria.
Local priority brands' performance was driven by growth of Buchanan's in
Venezuela and Windsor in Korea.
The Scotch category drove very strong growth in category brands resulting in a
16% increase in volume and a 20% increase in net sales. Old Parr, Buchanan's
(excluding Venezuela where it is a local priority brand) and Black & White were
all up, particularly in Latin America and Benmore continued to perform strongly
in Thailand.
Asia Pacific
In Asia Pacific, share gains in fast growing markets such as India and China, as
well as in more established markets, such as Thailand and Korea, resulted in
volume growth of 7%. Net sales increased by 9%, driven by strong growth of
Johnnie Walker Black Label, particularly in China.
In Australia, spirits brands drove volume growth of 7%. Johnnie Walker volume
was up 13% reflecting increases in both Johnnie Walker Red Label and Johnnie
Walker Black Label. The launch of Baileys flavours resulted in a 10% increase
in Baileys volume. Total net sales were up 3%, as ready to drink volume
increased 1%.
In Korea, the whisky market grew marginally, and therefore, performance was
driven by share gains. Overall share increased by 1.5 percentage points as
Diageo further established its leadership position in the Scotch category. The
successful renovation of the Windsor brand continued to resonate with consumers
as the brand increased share by 3.0 percentage points and as a result, volume
and net sales both grew 13%.
In Japan, volume declined 1% while net sales grew 11%. Mix improved as a result
of the relaunch of Smirnoff Ice. Consumers moved away from the larger standard
Scotch segment to more premium Scotch segments. Reflecting this trend, Johnnie
Walker super deluxe volume grew 13% but Johnnie Walker Red Label volume declined
20%.
In Thailand, volume grew 5% and net sales grew 18%. Mix improved due to a 68%
increase in Johnnie Walker Red Label volume led by a 23% increase in marketing
spend. Benmore continued to build its appeal to consumers and grew net sales by
56%, more than offsetting declines in Spey Royal and Golden Knight as these
brands have been de-emphasised.
In Taiwan, volume declined 1% and net sales were flat. Johnnie Walker Green
Label grew volume 15% offsetting a decline in Johnnie Walker Red Label and
Johnnie Walker Black Label as consumers migrated from standard and deluxe
blended Scotch to malts.
In China, volume grew 43% and net sales were up 73%. Johnnie Walker Black Label
was key to this performance as volume grew 92% and net sales doubled, driven by
marketing spend which was up more than 70%. Share was estimated to be up 8
percentage points. Johnnie Walker super deluxe volume and net sales also
doubled from a small base.
In India, volume grew 26% and net sales were up 24%. Johnnie Walker Black Label
and Smirnoff vodka grew strongly with volume up 46% and 28% respectively, due to
continued category growth and successful marketing. Haig Gold Label Scotch and
Shark Tooth vodka were launched to broaden consumer appeal in the premium value
segment.
Africa
Africa grew volume 15% and net sales increased 16% due to strong growth
throughout the region.
In Nigeria, volume grew 11% and net sales were up 8%. A price increase on
Guinness led net sales to increase by 12% on 8% volume growth. However, improved
performance of Malta Guinness and the continued growth of Harp had an overall
negative impact on mix. Harp volume was up 12% as the brand benefited from its
first national marketing programme.
In East Africa, volume grew 22% and net sales were up 23%. East Africa has
traditionally been a lager market, however, increased marketing spend on
Guinness led volume to grow 23% and net sales to increase 30%. The continued
decline of Pilsner in Kenya was offset by strong growth of Pilsner and Tusker in
Uganda and continued success of Senator in Kenya.
Trading in Cameroon improved due to increased promotions and a more stable
market place. As a result, Guinness returned to growth with volume up 26% and
net sales up 33%.
In Ghana, volume grew 3% and net sales were up 16%. Malta Guinness drove
performance with volume up 9% and net sales grew 26% following a price increase
in November 2006 and 2005.
In South Africa, volume grew 14% and net sales were up 23%. Mix improved due to
continued strong growth of Smirnoff ready to drink, which grew volume 54%.
Diageo's Scotch brands grew as a result of the increased consumer interest in
the category. Johnnie Walker grew volume 46%, Bell's grew volume by 17% and J&B
grew volume by 9%. Share grew in vodka, standard Scotch, deluxe Scotch, ready
to drink and cream liqueurs.
Latin America and Caribbean
Increased share gains in Scotch and overall growth in the Scotch category were
the key factors driving Diageo's performance in Latin America. Total volume
grew 21% and net sales were up 26%.
In Mexico, volume grew 17% driven by growth across Diageo's Scotch brands
resulting in a 3.4 percentage point increase in share. Buchanan's volume was up
14% and Johnnie Walker was up 26%, driven by Johnnie Walker Black Label volume
growth of 41%.
In Venezuela, the trend towards premium products continued as consumers traded
up from value Scotch. As a result of this trend, Diageo's total share in Scotch
increased by 6.2 percentage points.
In Paraguay, Uruguay and Brazil, total volume grew 11% and net sales were up
21%. Positive mix was driven by strong growth in Johnnie Walker and Smirnoff
ready to drink. Johnnie Walker Red Label grew volume 13%, net sales were up 18%
and share increased 1.7 percentage points. Johnnie Walker Black Label grew
volume 12% and net sales were up 16%. Smirnoff ready to drink grew volume 26%
and net sales were up by 53% as the brand continued to gain traction with
consumers.
Global Travel and Middle East
Despite the disruption caused by the conflict in Lebanon, reduced tourism
following the military coup in Thailand and issues around airport security,
Global Travel and Middle East volume grew 9% and net sales were up 11%. Johnnie
Walker grew volume 7%, driven by 10% growth in Johnnie Walker Red Label as
continued promotions leveraged Johnnie Walker's ongoing grand prix team
sponsorship. Johnnie Walker Black Label declined 1% mainly due to the conflict
in the Middle East. Johnnie Walker super deluxe grew volume 29%, with strong
growth in Asia due to the continued focus on gift packs and the launch of
Johnnie Walker Blue Label King George V, a new super deluxe variant.
Performance also benefited from the global roll out of Baileys flavours and as a
result, Baileys volume increased by 15%. Continued growth in Scotch in Latin
America resulted in strong performances of Buchanan's and Old Parr, which grew
volume 179% and 129% respectively.
Corporate revenue and costs
Net sales were £38 million in the six months ended 31 December 2006, down by £2
million from £40 million in the prior period. Net reported operating costs
decreased by £3 million to £77 million in the six months ended 31 December 2006.
Net operating costs decreased by £11 million as a result of additional costs
being transferred to the regions and there was a net decrease of £2 million in
respect of exchange rate movements that included a charge of £5 million for
exchange adjustments on inter-company short term balances under IAS 21 - The
effects of changes in foreign exchange rates.
Diageo will report preliminary results for the year ending 30 June 2007 on the
new basis of four regions: North America, Europe, International and Asia
Pacific, together with Corporate. The results for the year ended 30 June 2006
and for the six months ended 31 December 2006, restated for the new four
regions, will be issued at the time of the year end trading statement.
FINANCIAL REVIEW
Condensed consolidated income statement
Six months ended 31 Six months ended 31
December 2006 December 2005
£ million £ million
Sales 5,358 5,359
Excise duties (1,336) (1,399)
Net sales 4,022 3,960
Operating costs (2,716) (2,699)
Operating profit 1,306 1,261
Disposal of investments - 151
Net finance charges (98) (88)
Associates' profits 91 77
Profit before taxation 1,299 1,401
Taxation (367) (196)
Profit for the period 932 1,205
Attributable to:
Equity shareholders 895 1,166
Minority interests 37 39
932 1,205
Sales and net sales
On a reported basis, sales decreased by £1 million from £5,359 million in the
six months ended 31 December 2005 to £5,358 million in the six months ended 31
December 2006. On a reported basis net sales increased by £62 million from
£3,960 million in the six months ended 31 December 2005 to £4,022 million in the
six months ended 31 December 2006. Acquisitions and disposals contributed a net
decrease to both reported sales and net sales of £9 million in the period and
exchange rate movements also decreased reported sales by £199 million and
reported net sales by £158 million, principally arising from the weakening of
the US dollar.
Operating costs
On a reported basis operating costs increased by £17 million in the six months
ended 31 December 2006 due to an increase in marketing costs of £8 million, from
£618 million to £626 million, an increase in cost of sales of £23 million, from
£1,511 million to £1,534 million, offset by a decrease in other operating costs
of £14 million, from £570 million to £556 million. The impact of exchange rate
movements decreased total operating costs by £105 million.
Post employment plans
Post employment costs for the six months ended 31 December 2006 of £28 million
(2005 - £44 million) included amounts charged to operating profit of £52 million
(2005 - £54 million) and finance income of £24 million (2005 - £10 million). At
31 December 2006, Diageo's deficit before taxation for all post employment plans
was £759 million (30 June 2006 - £801 million).
Operating profit
Operating profit for the six months ended 31 December 2006 increased by £45
million to £1,306 million from £1,261 million in the comparable prior period.
Exchange rate movements reduced operating profit for the six months ended 31
December 2006 by £53 million.
Disposal of investments
In the six months ended 31 December 2005 disposal of investments represented the
gain of £151 million on the sale of all of the group's remaining 25 million
shares of common stock of General Mills.
Net finance charges
Net finance charges increased by £10 million from £88 million in the six months
ended 31 December 2005 to £98 million in the six months ended 31 December 2006.
The net interest charge increased by £28 million from £92 million in the
comparable prior period to £120 million in the six months ended 31 December
2006. This increase principally resulted from the increase in net borrowings in
the period and the increase in floating US Dollar interest rates. Exchange rate
movements reduced interest by £7 million.
Other net finance income of £22 million (2005 - £4 million) included income of
£24 million (2005 - £10 million) in respect of the group's post employment
plans. This movement in income related to the post employment plans principally
reflects the increase in the value of the assets held between 1 July 2005 and 30
June 2006. Other finance income in the six months to 31 December 2005 also
included £5 million dividend income in respect of the group's interest in
General Mills. Other finance charges for the six months ended 31 December 2006
include income of £4 million (2005 - charge of £4 million) in respect of
exchange rate translation differences on inter-company funding arrangements that
do not meet the accounting criteria for recognition in equity.
Associates
The group's share of profits of associates after interest and tax was £91
million for the six months ended 31 December 2006 compared to £77 million in the
comparable period last year. Diageo's 34% equity interest in Moet Hennessy
contributed £84 million to share of profits of associates after interest and tax
(2005 - £71 million).
Profit before taxation
Profit before tax decreased by £102 million from £1,401 million to £1,299
million in the six months ended 31 December 2006, primarily as a result of the
£151 million gain on disposal of General Mills shares in the six months ended 31
December 2005.
Taxation
The tax charge is based upon the estimate of the tax rate expected for the full
financial year.
The reported tax rate for the six months ended 31 December 2006 is 28.3%
compared with 14.0% for the six months ended 31 December 2005. Factors
increasing the reported tax rate for the six months ended 31 December 2006 are a
provision for the settlement of tax liabilities relating to the Guinness/
GrandMet merger and a reduction in the carrying value of deferred tax assets.
Exchange rates
Effect of exchange rate movements on the results for the six months ended 31
December 2006 as compared with the results for the six months ended 31 December
2005.
Gains/(losses)
£ million
Operating profit
Translation impact (46)
Transaction impact (7)
Interest and other finance charges
Translation impact 7
Net exchange movements on short term inter-company loans 8
Total FX effect on profit before taxation (38)
Six months ended 31 Six months ended 31
December 2006 December 2005
Exchange rates
Translation US$/£ rate 1.91 1.76
Translation €/£ rate 1.48 1.47
Transaction US$/£ rate 1.87 1.81
Transaction €/£ rate 1.44 1.46
The weakening of the US dollar had adverse translation and transaction effects
on operating profit and a favourable impact on US dollar denominated interest
charges.
Outlook for the impact of exchange rate movements
For the year ending 30 June 2007 the impact of exchange rate movements based on
current exchange rates is estimated to have an adverse impact of £90 million on
operating profit and a positive impact of approximately £10 million on interest
(excluding the exchange impact of retranslating trading and short term loan
inter-company balances under International Accounting Standards 21 - The effects
of changes in foreign exchange rates).
Dividend
An interim dividend of 12.55 pence per share will be paid to holders of ordinary
shares and ADRs on the register on 9 March 2007. This represents an increase of
5% on last year's interim dividend. The interim dividend will be paid to
shareholders on 10 April 2007. Payment to US ADR holders will be made on 16
April 2007. A dividend reinvestment plan is available in respect of the interim
dividend and the plan notice date is 19 March 2007.
Cash flow
Extract from the consolidated cash flow statement Six months ended Six months ended
31 December 2006 31 December 2005
£ million £ million
Cash generated from operations 914 957
Interest paid (net) (104) (61)
Dividends paid to equity minority interests (22) (20)
Taxation (72) (118)
Net sale/(purchase) of investments 1 (1)
Net capital expenditure (45) (106)
Free cash flow 672 651
Cash generated from operations decreased from £957 million to £914 million in
the six months ended 31 December 2006 principally as a result of cash outflows
in relation to working capital which were greater by £52 million than in the
prior period mainly because of higher sales. Interest payments increased by £43
million largely as a result of the loss of Burger King subordinated debt
interest income received in the six month period ended 31 December 2005,
increased net borrowings during the period and higher US Dollar interest rates.
The decrease in cash generated from operations and increased interest payments
were principally offset by reduced taxation payments (down £46 million to £72
million) and reduced net capital expenditure (down £61 million to £45 million)
and as a result free cash flow increased £21 million to £672 million from £651
million in the prior period.
In the six months ended 31 December 2006, Diageo invested £20 million in
business acquisitions and purchased 72.8 million shares as part of the share
buyback programme (2005 - 84.4 million shares) at a cost including fees of £704
million (2005 - £704 million). Net payments to acquire shares for employee share
schemes totalled £48 million (2005 - £42 million).
Diageo continues to target a range of ratios which are currently broadly
consistent with an A band credit rating. In 2008, assuming similar levels of
free cash flow and acquisition activity to those that arose in 2006 and are
expected to arise in 2007, Diageo would expect, under this capital structure, to
have the financial capacity to fund a share buyback programme of approximately
£1 billion.
Balance sheet
At 31 December 2006, total equity was £4,290 million compared with £4,681
million at 30 June 2006. This decrease was mainly due to the profit for the
period of £932 million offset by the dividend paid out of shareholders' equity
of £524 million and the shares repurchased of £704 million.
Net borrowings were £4,554 million at 31 December 2006, an increase of £472
million from net borrowings at 30 June 2006 of £4,082 million. The principal
components of this increase were the free cash inflow of £672 million offset by
payments of £704 million to repurchase shares and a £524 million equity dividend
paid.
Economic profit
Economic profit increased by £47 million from £468 million in the six months
ended 31 December 2005 to £515 million in the six months ended 31 December 2006.
See page 34 for the calculation and definition of economic profit.
DIAGEO CONSOLIDATED INCOME STATEMENT
Six months ended 31 Six months ended 31
December 2006 December 2005
Notes £ million £ million
Sales 2 5,358 5,359
Excise duties (1,336) (1,399)
Net sales 4,022 3,960
Cost of sales (1,534) (1,511)
Gross profit 2,488 2,449
Marketing spend (626) (618)
Other operating expenses (556) (570)
Operating profit 2 1,306 1,261
Sale of General Mills shares 3 - 151
Net interest payable 4 (120) (92)
Net other finance income 4 22 4
Share of associates' profits after tax 91 77
Profit before taxation 1,299 1,401
Taxation 5 (367) (196)
Profit for the period 932 1,205
Attributable to:
Equity shareholders of the parent company 895 1,166
Minority interests 37 39
932 1,205
Pence per share
Basic earnings 32.8p 40.4p
Diluted earnings 32.6p 40.4p
Average shares 2,725m 2,886m
DIAGEO CONSOLIDATED STATEMENT OF
RECOGNISED INCOME AND EXPENSE
Six months ended Six months ended
31 December 2006 31 December 2005
£ million £ million £ million £ million
Exchange differences on translation of foreign operations
- group (230) 164
- associates (24) 18
Exchange differences on hedges of net investment in foreign
operations 159 (90)
Effective portion of changes in fair value of net investment
hedges 12 (41)
Effective portion of changes in fair value of cash flow hedges
- gains taken to equity 15 (24)
- transferred to profit for the period 25 7
Fair value movement on available for sale securities
- unrealised gains arising during the period - 33
- realised gains reclassified to profit for the period - (181)
Actuarial gains on post employment plans 13 236
Tax on items taken directly to equity (17) (50)
Net (charges)/income recognised directly in equity (47) 72
Profit for the period
- group 841 1,128
- associates 91 77
Profit for the period 932 1,205
Total recognised income and expense for the period 885 1,277
Impact of IAS 39 adoption on 1 July 2005 (net of tax)
- group 170
- associates (6)
Impact of adoption of IAS 39 164
1,441
Attributable to:
- equity shareholders of the parent company 856 1,229
- minority interests 29 48
Total recognised income and expense for the period 885 1,277
DIAGEO CONSOLIDATED BALANCE SHEET
31 December 2006 30 June 2006 31 December 2005
Notes £ million £ million £ million £ million £ million £ million
Non-current assets
Intangible assets 4,399 4,534 4,723
Property, plant and equipment 1,889 1,952 1,987
Biological assets 3 13 5
Investments in associates 1,405 1,341 1,347
Other investments 72 69 66
Other receivables 14 12 40
Other financial assets 51 42 96
Deferred tax assets 837 1,113 705
Post employment benefit assets 17 14 11
8,687 9,090 8,980
Current assets
Inventories 6 2,474 2,386 2,488
Trade and other receivables 2,183 1,681 2,185
Other financial assets 87 71 -
Cash and cash equivalents 7 975 699 1,039
5,719 4,837 5,712
Total assets 14,406 13,927 14,692
Current liabilities
Borrowings and bank overdrafts 7 (1,279) (759) (1,047)
Other financial liabilities (24) (36) -
Trade and other payables (2,021) (1,803) (1,984)
Corporate tax payable (788) (681) (806)
Provisions (66) (56) (101)
(4,178) (3,335) (3,938)
Non-current liabilities
Borrowings 7 (4,222) (4,001) (3,907)
Other financial liabilities (82) (78) (149)
Other payables (11) (37) (107)
Provisions (287) (306) (286)
Deferred tax liabilities (560) (674) (406)
Post employment benefit
liabilities (776) (815) (1,110)
(5,938) (5,911) (5,965)
Total liabilities (10,116) (9,246) (9,903)
Net assets 4,290 4,681 4,789
Equity
Called up share capital 868 883 883
Share premium 1,340 1,340 1,339
Other reserves 3,135 3,168 3,187
Retained deficit (1,242) (889) (817)
Equity attributable to equity
shareholders of the parent
company 4,101 4,502 4,592
Minority interests 189 179 197
Total equity 9 4,290 4,681 4,789
DIAGEO CONSOLIDATED CASH FLOW STATEMENT
Six months ended Six months ended
31 December 2006 31 December 2005
£ million £ million £ million £ million
Cash flows from operating activities
Profit for the period 932 1,205
Taxation 367 196
Share of associates' profits after taxation (91) (77)
Net interest and other finance income 98 88
Gains on disposal of shares in General Mills - (151)
Depreciation and amortisation 104 105
Movements in working capital (515) (463)
Dividend income 7 14
Other items 12 40
Cash generated from operations 914 957
Interest received 21 37
Interest paid (125) (98)
Dividends paid to equity minority interests (22) (20)
Taxation paid (72) (118)
Net cash from operating activities 716 758
Cash flows from investing activities
Net purchase/(sale) of investments 1 (1)
Disposal of property, plant and equipment 39 2
Purchase of property, plant and equipment (84) (108)
Disposal of shares in General Mills - 651
Disposal of businesses - 122
Purchase of subsidiaries (20) (207)
Net cash (outflow)/inflow from investing activities (64) 459
Cash flows from financing activities
Proceeds from issue of share capital - 2
Net purchase of own shares for share schemes (48) (42)
Own shares repurchased for cancellation or holding
as treasury shares (704) (704)
Net increase in loans 900 296
Equity dividends paid (524) (529)
Net cash used in financing activities (376) (977)
Net increase in net cash and cash equivalents 276 240
Exchange differences (28) 12
Net cash and cash equivalents at beginning of the period - -
651 729
Net cash and cash equivalents at end of the period 899 981
Net cash and cash equivalents consist of:
Cash and cash equivalents 975 1,039
Bank overdrafts (76) (58)
899 981
NOTES
1. Basis of preparation
The consolidated financial statements are prepared in accordance with
International Financial Reporting Standards as endorsed and adopted for use in
the European Union (IFRS). This interim consolidated financial information is
unaudited and has been prepared on the basis of accounting policies consistent
with those applied in the consolidated financial statements for the year ended
30 June 2006. IFRS is subject to ongoing review and endorsement by the EU or
possible amendment by interpretative guidance from the International Accounting
Standards Board (IASB).
The following interpretations, issued by the International Financial Reporting
Interpretations Committee (IFRIC), are effective for the first time in the
current financial year and have been adopted by the group with no significant
impact on its consolidated results or financial position:
IFRIC 4 - Determining whether an arrangement contains a lease (effective for
annual periods beginning on or after 1 January 2006).
IFRIC 5 - Rights to interests arising from decommissioning, restoration
and environmental rehabilitation funds (effective for annual periods beginning
on or after 1 January 2006).
IFRIC 6 - Liabilities arising from participating in a specific market:
waste electrical and electronic equipment (effective for annual periods
beginning on or after 1 December 2005).
IFRIC 7 - Applying the restatement approach under IAS 29 - Financial reporting
in hyperinflationary economies (effective for annual periods beginning on or
after 1 March 2006).
IFRIC 8 - Scope of IFRS 2 - Accounting for share based payments (effective for
annual periods beginning on or after 1 May 2006).
IFRIC 9 - Reassessment of embedded derivatives (effective for annual periods
beginning on or after 1 June 2006).
The following standards and interpretations, issued by the IASB or IFRIC, have
not been adopted by the group:
IFRS 8 - Operating segments (effective for annual periods beginning on or after
1 January 2009)
IFRIC 10 - Interim financial reporting and impairment (effective for annual
periods beginning on or after 1 November 2006).
IFRIC 11 - Group and treasury share transactions (effective for annual periods
beginning on or after 1 March 2007).
IFRIC 12 - Service concession arrangements (effective for annual periods
beginning on or after 1 January 2008).
IFRS 8 contains requirements for the disclosure of information about an entity's
operating segments and also about the entity's products and services, the
geographical areas in which it operates, and its major customers. The standard
is concerned only with disclosure and replaces IAS 14 - Segment reporting. The
group is currently assessing the impact this standard will have on the
presentation of its consolidated results.
The group does not currently believe the adoption of the interpretations will
have a material impact on the consolidated results or financial position of the
group.
The comparative figures for the financial year ended 30 June 2006 are not the
company's statutory accounts for that financial year. Those accounts have been
reported on by the company's auditors and delivered to the registrar of
companies. The report of the auditor was (i) unqualified, (ii) did not include
a reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a statement
under section 237(2) or (3) of the Companies Act 1985.
2. Business and geographical analyses
Business analysis is presented under the categories of Diageo North America,
Diageo Europe, Diageo International and Corporate, reflecting the group's
management and internal reporting structure.
Business analysis:
Six months ended Six months ended
31 December 2006 31 December 2005
Operating profit/ Operating
Sales (loss) Sales profit/(loss)
£ million £ million £ million £ million
North America 1,543 486 1,565 476
Europe 2,122 484 2,221 494
International 1,655 413 1,533 371
5,320 1,383 5,319 1,341
Corporate 38 (77) 40 (80)
5,358 1,306 5,359 1,261
Net corporate operating costs and trading losses decreased from £80 million to
£77 million in the six months ended 31 December 2006. Corporate revenues and
costs are in respect of central costs including finance, human resources and
legal as well as certain information system, service centre, facilities and
employee costs that are not directly allocated to the geographical operating
units. They also include the revenues and costs related to rents receivable in
respect of properties not used by Diageo in the manufacture, sale or
distribution of premium drinks, exchange movements on short term inter-company
trading balances and the results of Gleneagles Hotel.
Geographical analysis of sales and operating profit by destination:
Six months ended Six months ended
31 December 2006 31 December 2005
Operating profit Operating
Sales Sales profit
£ million £ million £ million £ million
North America 1,564 498 1,581 485
Europe 2,197 417 2,292 426
Asia Pacific 609 129 561 122
Latin America 459 141 402 106
Rest of World 529 121 523 122
5,358 1,306 5,359 1,261
Sales and operating profit by geographical destination have been stated
according to the location of the third party customers.
Certain businesses within Diageo International for internal management purposes
have been reported within the appropriate market in the geographical analysis
above. Corporate sales and operating loss (principally central costs) are
incurred in Europe.
Diageo will report preliminary results for the year ending 30 June 2007 on the
new basis of four regions: North America, Europe, International and Asia
Pacific, together with Corporate. The results for the year ended 30 June 2006
and for the six months ended 31 December 2006, restated for the new four
regions, will be issued at the time of the year end trading statement.
31 December 30 June 31 December
2006 2006 2005
Analysis of total assets: £ million £ million £ million
North America 898 872 994
Europe 1,300 1,190 1,563
International 1,244 1,139 1,278
Moet Hennessy 1,364 1,303 1,304
Corporate and other 9,600 9,423 9,553
14,406 13,927 14,692
Corporate and other total assets consist primarily of brands that are
capitalised in the balance sheet, property, plant and equipment, maturing whisky
inventories and other assets that are not readily allocable to the group's
operating segments.
Weighted average exchange rates used in the translation of profit and loss
accounts were US dollar - £1 = $1.91 (2005 - £1 = $1.76) and euro - £1 = €1.48
(2005 - £1 = €1.47). Exchange rates used to translate assets and liabilities at
the balance sheet date were US dollar - £1 = $1.96 (31 December 2005 - £1 =
$1.72) and euro - £1 = €1.48 (31 December 2005 - £1 = €1.46). The group uses
exchange rate transaction hedges to mitigate the effect of exchange rate
movements.
The festive holiday season provides the peak period for sales. Approximately
30% of annual sales volume arises in the last three months of each calendar
year.
3. Exceptional items
The group identifies separately certain items as 'exceptional'. These are items
which, in management's judgement, need to be disclosed by virtue of their size
or incidence in order for the user to obtain a proper understanding of the
financial information.
Exceptional items in the six months ended 31 December 2006 were £nil. In the
six months ended 31 December 2005 the gain on sale of shares in General Mills of
£151 million was identified as an exceptional item.
4. Net interest and other finance charges
Six months ended Six months ended
31 December 2006 31 December 2005
£ million £ million
Interest payable (145) (107)
Interest receivable 26 15
Market value movements on interest rate instruments (1) -
Net interest payable (120) (92)
Net finance income in respect of post employment plans 24 10
Investment income - dividends receivable from General Mills - 5
Unwinding of discounts on provisions and receivables (6) (7)
Other finance income 18 8
Net exchange movements on certain financial instruments 4 (4)
Net other finance income 22 4
5. Income taxes
The £367 million taxation charge for the six months ended 31 December 2006
comprises a UK tax charge of £55 million and a foreign tax charge of £312
million.
6. Inventories
31 December 30 June 31 December
2006 2006 2005
£ million £ million £ million
Raw materials and consumables 249 236 273
Work in progress 16 17 22
Maturing inventories 1,741 1,644 1,610
Finished goods and goods for resale 468 489 583
2,474 2,386 2,488
7. Net borrowings
31 December 30 June 31 December
2006 2006 2005
£ million £ million £ million
Borrowings due within one year and bank overdrafts (1,279) (759) (1,047)
Borrowings due after one year (4,222) (4,001) (3,907)
Interest rate fair value hedging instruments (16) (44) 9
Cross currency interest rate swaps (19) - -
Foreign currency swaps and forwards (5) (17) (9)
Finance lease obligations (13) (9) (10)
Gross borrowings (5,554) (4,830) (4,964)
Less:
Cash and cash equivalents 975 699 1,039
Other liquid resources 25 49 14
Net borrowings (4,554) (4,082) (3,911)
In the period ended 31 December 2006, the group issued a US $600 million global
bond repayable in January 2012 with a coupon of 5.125%, a US $600 million global
bond repayable in September 2016 with a coupon of 5.5%, a US $600 million global
bond repayable in 2036 with a coupon of 5.875%. A US $500 million bond and a
€300 million medium term note matured and were repaid in the period.
8. Reconciliation of movement in net borrowings
Six months ended Six months ended
31 December 2006 31 December 2005
£ million £ million
Net borrowings at beginning of the period (4,082) (3,706)
Adoption of IAS 39 on 1 July 2005 3
Restated net borrowings at beginning of the period (3,703)
Increase in net cash and cash equivalents before exchange 276 240
Cash flow from change in loans (900) (296)
Change in net borrowings from cash flows (624) (56)
Exchange differences on net borrowings 159 (150)
Other non-cash items (7) (2)
Net borrowings at end of the period (4,554) (3,911)
9. Total equity - movements in capital and reserves
Six months ended Six months ended
31 December 2006 31 December 2005
£ million £ million
Total equity at beginning of the period 4,681 4,626
Adoption of IAS 39 on 1 July 2005 164
Restated total equity at beginning of the period 4,790
Total recognised income and expense for the period 885 1,277
Share trust arrangements 32 (39)
Share-based incentive plans 14 12
Tax on share-based incentive plans 5 -
Shares issued - 2
Purchase of own shares for cancellation or holding as treasury
shares (704) (704)
Purchase of own shares for holding as treasury shares for share
scheme hedging (80) -
Acquisition of minority interest 3 -
Dividends paid to equity shareholders (524) (529)
Dividends paid to minority interests (22) (20)
Net movement in total equity (391) (1)
Total equity at end of the period 4,290 4,789
Total equity at the end of the period includes gains of £7 million in respect of
cumulative translation differences (30 June 2006 - £107 million) and £2,339
million in respect of own shares held as treasury shares (30 June 2006 - £2,070
million).
10. Dividends
Six months ended Six months ended
31 December 2006 31 December 2005
£ million £ million
Amounts recognised as distributions to equity holders in the period
Final dividend paid for the year ended 30 June 2006 of 19.15p (2005 -
18.2p) per share 524 529
An interim dividend of 12.55 pence per share for the six months ended 31
December 2006 (2005 - 11.95 pence per share) was approved by the Board on 14
February 2007. As this was after the balance sheet date, this dividend has not
been included as a liability in the balance sheet at 31 December 2006.
11. Contingent liabilities and legal proceedings
(i) Guarantees In connection with the disposal of Pillsbury, Diageo has
guaranteed the debt of a third party to the amount of $200 million (£102
million) until November 2009. Including this guarantee, but net of the amount
provided in the consolidated financial information, at 31 December 2006 the
group has given performance guarantees and indemnities to third parties of £159
million.
In February 2007, Diageo was released from certain guarantee obligations in the
amount of £51 million arising from the acquisition of the Seagram's business.
Save as disclosed above, there has been no material change since 31 December
2006 in the group's performance guarantees and indemnities.
(ii) Colombian litigation An action was filed on 8 October 2004 in the United
States District Court for the Eastern District of New York by the Republic of
Colombia and a number of its local government entities against Diageo and other
spirits companies. The complaint alleges several causes of action. Included
among the causes of action is a claim that the defendants allegedly violated the
Federal RICO Act by facilitating money laundering in Colombia through their
supposed involvement in the contraband trade to the detriment of government
owned spirits production and distribution businesses. Diageo intends to defend
itself vigorously against this lawsuit.
(iii) Alcohol advertising litigation A number of similar putative class actions
are pending in state and federal courts in the United States against Diageo plc,
Diageo North America Inc and other Diageo entities, along with a large group of
other beverage alcohol manufacturers, brewers and importers. All have been
brought by the same national counsel. In each action, the plaintiffs seek to
pursue their claims on behalf of parents and guardians of people under the legal
drinking age who illegally bought alcohol beverages during the period from 1982
to the present. Plaintiffs allege several causes of action, principally for
negligence, unjust enrichment and violation of state consumer fraud statutes.
Some complaints include additional claims based on conspiracy, nuisance and
other legal theories. Diageo intends to defend itself vigorously against these
claims.
(iv) Turkish customs litigation In common with other beverage alcohol importers,
litigation is ongoing against Diageo's Turkish subsidiary in the Turkish Civil
Courts in connection with the methodology used by the Turkish customs
authorities in assessing the importation value of and duty payable on the
beverage alcohol products sold in the domestic channel in Turkey. The matter
involves multiple cases against Diageo's Turkish subsidiary at various stages of
litigation including a group of cases under correction appeal following an
adverse finding at the Turkish Supreme Court. Diageo's Turkish subsidiary
intends to defend its position vigorously.
(v) Other The group has extensive international operations and is defendant in a
number of legal proceedings incidental to these operations. There are a number
of legal claims against the group, the outcome of which cannot at present be
foreseen.
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.
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 2006 which comprises the consolidated income
statement, the consolidated statement of recognised income and expense, the
consolidated balance sheet and the consolidated cash flow statement and the
related notes. 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 the preceding annual accounts except where any
changes, and the reasons for them, are 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 for use in the UK. 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 excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Standards on Auditing (UK and Ireland) 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 2006.
KPMG Audit Plc
Chartered Accountants
London, England
14 February 2007
ADDITIONAL INFORMATION FOR SHAREHOLDERS
EXPLANATORY NOTES
Definitions
Unless otherwise stated, percentage movements given throughout this announcement
for volume, sales, net sales, marketing spend and operating profit are organic
movements (at level exchange rates and after adjusting for exceptional items,
acquisitions and disposals) for continuing operations. Comparisons are with the
equivalent period in the last financial year. For an explanation of organic
movements please refer to 'Reconciliation to GAAP measures' in this
announcement.
Volume has been 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 and ready
to drink in nine litre cases divide by 10, with certain pre-mixed products that
are classified as ready to drink divided by 5.
Net sales are sales after deducting excise duties.
Exceptional items are those that in management's judgement need to be disclosed
by virtue of their size or incidence in order for the user to obtain a proper
understanding of the financial information. Such items are included within the
income statement caption to which they relate.
References to ready to drink include flavoured malt beverages in the United
States. References to Smirnoff ready to drink include Smirnoff Ice, Smirnoff
Black Ice, Smirnoff Twisted V, Smirnoff Mule, Smirnoff Spin, Smirnoff Storm,
Smirnoff Caesar, Smirnoff Fire, Smirnoff Raw Tea, Smirnoff Caipiroska, Smirnoff
Signatures and Smirnoff Source. References to Smirnoff Black Ice include
Smirnoff Ice Triple Black in the United States.
Volume share is a brand's volume when compared to the volume of all brands in
its segment. Value share is a brand's retail sales when compared to the retail
sales of all brands in its segment. Unless otherwise stated, share refers to
volume share. Share of voice is the media spend on a particular brand when
compared to all brands in its segment. The share and share of voice data
contained in this announcement is taken from independent industry sources in the
markets in which Diageo operates.
This announcement contains forward-looking statements that involve risk and
uncertainty. There are a number of factors that could cause actual results and
developments to differ materially from those expressed or implied by these
forward-looking statements, including factors beyond Diageo's control. Please
refer to page 35 - 'Cautionary statement concerning forward-looking statements'
for more details.
This announcement includes names of Diageo's products which constitute
trademarks or trade names which Diageo owns or which others own and license to
Diageo for its use.
Reconciliation to GAAP measures
(i) Organic movement
Organic movement in volume, sales, net sales, operating profit and basic
earnings per share are measures not specifically used in the consolidated
financial statements themselves (non-GAAP measures). The performance of the
group is discussed using these measures.
In the discussion of the performance of the business, certain information is
presented using sterling amounts on a constant currency basis. This strips out
the effect of exchange rate movements and enables an understanding of the
underlying performance of the market that is most closely influenced by the
actions of that market's management. The risk from exchange rate movement is
managed centrally and is not a factor over which local managers have any
control.
Acquisitions and disposals and exceptional items also impact the reported
performance and therefore the reported movement in any period in which they
arise. Management adjusts for the impact of such transactions in assessing the
performance of the underlying business.
The underlying performance on a constant currency basis and excluding the impact
of acquisitions and disposals and exceptional items is referred to as 'organic'
performance. Organic movement calculations enable the reader to focus on the
performance of the business which is common to both periods.
Organic movement in volume, sales, net sales and operating profit
Diageo's strategic planning and budgeting process is based on organic movement
in volume, sales, net sales and operating profit, and these measures closely
reflect the way in which operating targets are defined and performance is
monitored by the group's management. Therefore organic movement measures most
closely reflect the way in which the business is managed.
These measures are chosen for planning, budgeting, reporting and incentive
purposes since they represent those measures which local managers are most
directly able to influence and they enable consideration of the underlying
business performance without the distortion caused by fluctuating exchange
rates, acquisitions and disposals.
The group's management believes these measures provide valuable additional
information for users of the financial statements in understanding the group's
performance since they provide information on those elements of performance
which local managers are most directly able to influence and focus on that
element of the core brand portfolio which is common to both periods. They
should be viewed as complementary to, and not a replacement for, the comparable
GAAP measures: sales, net sales, operating profit and reported movements in
individual income statement captions. These GAAP measures reflect all of the
factors which impact on the business.
The organic movement calculations for volume, sales, net sales and operating
profit for the six months ended 31 December 2006 were as follows:
1. Volume (1)(a)(b)
Acquisitions
and disposals Organic movement
2005 units million units million 2006 Organic
units* units million movement %
million
North America 25.6 0.1 0.8 26.5 3
Europe 24.0 0.1 (1.1) 23.0 (5)
International 23.1 (0.1) 3.2 26.2 14
Total 72.7 0.1 2.9 75.7 4
2. Sales (a)(b)
2005 Acquisitions Organic 2006 Organic
Reported Exchange(3) and disposals(4) movement Reported movement
£ million £ million £ million £ million £ million %
North America 1,565 (116) 1 93 1,543 6
Europe 2,221 (12) (10) (77) 2,122 (4)
International 1,533 (71) - 193 1,655 13
Corporate 40 - - (2) 38 (6)
Total sales 5,359 (199) (9) 207 5,358 4
3. Net sales (a)(b)
2005 Acquisitions Organic 2006 Organic
Reported Exchange(3) and disposals(4) movement Reported movement
£ million £ million £ million £ million £ million %
North America 1,329 (99) 1 82 1,313 7
Europe 1,408 (9) (10) (32) 1,357 (2)
International 1,183 (50) - 181 1,314 16
Corporate 40 - - (2) 38 (6)
Total net sales 3,960 (158) (9) 229 4,022 6
Excise duties 1,399 1,336
Total sales 5,359 5,358
4. Operating profit (a)(b)
2005 Acquisitions Organic 2006 Organic
Reported Transfers(2) Exchange(3) and disposals(4) movement Reported movement
£ million £ million £ million £ million £ million £ million %
North America 476 - (38) - 48 486 11
Europe 494 (7) (2) - (1) 484 -
International 371 (4) (15) - 61 413 17
Corporate (80) 11 2 - (10) (77) (15)
Total 1,261 - (53) - 98 1,306 8
* Adjusted for equivalent units of mid strength brands
Notes - Information relating to the current period
(1) Differences between the reported volume movements and organic volume
movements are due to acquisitions and disposals.
(2) Transfers represent the movement between operating units of certain
activities, the most significant of which were the reallocation of supply
related overheads from corporate to the regions and the reallocation of prior
year transaction exchange differences into corporate.
(3) The exchange adjustments for sales, net sales and operating profit are
principally in respect of the US dollar.
(4) The only acquisition in the six months ended 31 December 2006 was the
acquisition of the Smirnov brand in Russia. The other acquisition impacting the
calculation of organic growth in the period was the acquisition of The 'Old
Bushmills' Distillery Company Limited in August 2005. Disposals affecting the
period were the disposal of United Beverages Limited and Three Barrels (both
Europe) and contributed sales, net sales and operating profit of £16 million,
£14 million and £2 million, respectively, in the six months ended 31 December
2005 and had no impact on volume.
Notes - Information relating to the organic movement calculations
a) The organic movement percentage is the amount in the column
headed 'Organic movement' in the tables above expressed as a percentage of the
aggregate of the columns headed 2005 Reported, Transfers, Exchange and the
amounts in respect of disposals (see note 4 above) included in the column headed
Acquisitions and disposals. The inclusion of the column headed Exchange in the
organic movement calculation reflects the adjustment to exclude the effect of
exchange rate movements by recalculating the prior period results as if they had
been generated at the current period's exchange rates. Organic movement
percentages are calculated as the organic movement amount in £ million,
expressed as the percentage of the prior period results at current year exchange
rates and after adjusting for disposals. The basis of calculation means that the
results used to measure organic movement for a given period will be adjusted
when used to measure organic movement in the subsequent period.
b) Where a business, brand, brand distribution right or agency agreement
was disposed of, or terminated, in the current period, the group, in organic
movement calculations, adjusts the results for the comparable prior period to
exclude the amount the group earned in that period that it could not have earned
in the current period (i.e. the period between the date in the prior period,
equivalent to the date of the disposal in the current period, and the end of the
prior period). As a result, the organic movement numbers reflect only comparable
performance. Similarly, if a business was disposed of part way through the
equivalent prior period then its contribution would be completely excluded from
that prior period's performance in the organic movement calculation, since the
group recognised no contribution from that business in the current period. In
the calculation of operating profit the overheads included in disposals were
only those directly attributable to the businesses disposed, and do not result
from subjective judgements of management. For acquisitions, a similar adjustment
is made in the organic movement calculations. For acquisitions subsequent to the
end of the equivalent prior period, the post acquisition results in the current
period 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 only included from the anniversary of the acquisition date in the
current period.
Underlying movement in earnings per share
The group's management believes basic earnings per share on an underlying
movement basis provides valuable additional information for users of the
financial statements in understanding the group's overall performance. The
group's management believes that the comparison of movements on both a reported
and underlying basis provides information as to the individual components of the
movement in basic earnings per share being: the impact of exceptional items,
fluctuating exchange rates, acquisitions and disposals arising in the period and
the application of an underlying effective rate of tax. These measures should
be viewed as complementary to, and not a replacement for, the comparable GAAP
measures such as basic and diluted earnings per share and reported movements
therein. These GAAP measures reflect all of the factors which impact on the
business.
The underlying movement calculation in earnings per share for the six months
ended 31 December 2006 was as follows:
Pence per share
(5)
Reported basic eps for six months ended 31 December 2005 40.4
Exceptional items (1) (9.3)
Tax equalisation (4) -
Basic eps before exceptional items and after tax equalisation for six months ended 31 December
2005 31.1
Disposals (2) (a) 0.1
Exchange (3) (d) (1.0)
Adjusted basic eps for six months ended 31 December 2005 30.2
Reported basic eps for six months ended 31 December 2006 32.8
Exceptional items (1) -
Tax equalisation (4) 1.6
Basic eps before exceptional items and after tax equalisation for six months ended 31 December
2006 34.4
Exchange (3) (d) (0.1)
Acquisitions (2) (b) -
Adjusted basic eps six months ended 31 December 2006 34.3
Reported basic eps movement amount (7.6)
Basic eps before exceptional items and after tax equalisation movement amount 3.3
Underlying movement amount (after impact of acquisitions and exchange) (c) 4.1
Reported basic eps growth (19%)
Basic eps before exceptional items growth and after tax equalisation 11%
Underlying growth (c) 14%
Notes - Information relating to the current period
1) The exceptional items in the six months ended 31 December 2006
were £nil. The exceptional items (after tax and attributable to equity
shareholders) reported by the group for the six months ended 31 December 2005
was a gain of £151 million relating to the gain on disposal of General Mills
shares, and taxation credits reported as exceptional items of £117 million,
primarily related to the increase in the group's deferred tax balances.
2) Acquisitions in the six months ended 31 December 2006 are in
respect of the acquisition of the Smirnov brand in Russia. Acquisitions
impacting the calculation of organic growth in the period were in respect of the
acquisition of The 'Old Bushmills' Distillery Company Limited in August 2005.
Disposals affecting the period are the disposal of United Beverages Limited and
Three Barrels and the impact of the disposal of General Mills shares.
3) Exchange - the exchange adjustments for operating profit, net
finance charges and taxation are principally in respect of the US dollar.
Transaction exchange adjustments are taxed at the effective tax rate for the
period.
4) Tax equalisation - the impact of adjusting the rate of tax on
profit before exceptional items and taxation from the reported rate to the
underlying effective rate of tax for the group. The group's underlying effective
rate of tax for the year ending 30 June 2007 is expected to be 25.0% (2006 -
24.9%). The reported rate of tax for the six months ended 31 December 2006 is
28.3% (2005 - 14.0%). Factors increasing the reported tax rate are the provision
for the settlement of tax liabilities relating to the Guinness/GrandMet merger
and a reduction in the carrying value of deferred tax assets. Adjusting for
these items the group has an underlying effective tax rate of 25% in the six
months ended 31 December 2006.
5) All amounts are derived from amounts in £ million divided by the
weighted average number of shares in issue for the period ended 31 December 2006
of 2,725 million (2005 - 2,886 million).
Notes - Information relating to the organic movement calculations
a) Where a business, brand, brand distribution right or agency
agreement or investment was disposed of, or terminated, in the current period,
the group, in underlying movement calculations, adjusts the profit for the
period attributable to equity shareholders for the comparable prior period to
exclude the following: i) the amount the group earned in that period that it
could not have earned in the current period (i.e. the period between the date in
the prior period, equivalent to the date of the disposal in the current period,
and the end of the prior period), ii) a capital return in respect of the
reduction in interest charge had the disposal proceeds been used entirely to
reduce borrowings, and iii) taxation at the rate applying in the jurisdiction in
which the asset or business disposed was domiciled. As a result, the underlying
movement numbers reflect only comparable performance. Similarly, if a business
or investment asset was disposed of part-way through the equivalent prior period
then its impact on the profit for the year attributable to equity shareholders
(i.e. after adjustment for a capital return from use of the proceeds of the
disposal to reduce borrowings and tax at the rate applying in the jurisdiction
in which the asset or business disposed was taxed) would be completely excluded
from that prior period's performance in the underlying movement calculation,
since the group recognised no contribution from that business in the current
period.
b) Where a business, brand, brand distribution right or agency agreement or
investment is acquired subsequent to the end of the equivalent prior period, in
underlying movement calculations the group adjusts the profit for the current
period attributable to equity shareholders to exclude the following: i) the
amount the group earned in the current period that it could not have earned in
the prior period, ii) a capital charge in respect of the increase in interest
charge had the acquisition been funded entirely by an increase in borrowings,
and iii) taxation at the rate applying in the jurisdiction in which the business
acquired is domiciled. As a result, the underlying movement numbers reflect
only comparable performance. Similarly, if a business or investment asset was
acquired part way through the equivalent prior period then its impact on the
profit for the year attributable to equity shareholders (i.e. after adjustment
for a capital charge for the funding of the acquisition and tax at the rate
applying in the jurisdiction in which the acquired business is taxed) would be
adjusted only to include the results from the anniversary of the acquisition in
the current period's performance in the underlying movement calculation, since
the group recognised a full period's contribution from that business in the
current period.
c) Organic movement percentages for basic earnings per share are calculated
as the underlying movement amount in pence (p), expressed as the percentage of
the prior period results at current year exchange rates, and after adjusting for
exceptional items, tax equalisation and acquisitions and disposals. The basis of
calculation means that the results used to measure underlying movement for a
given period will be adjusted when used to measure underlying movement in the
subsequent period.
d) The exchange effects of IAS 21 in respect of short term inter-company
funding balances as recognised in other finance charges / income are removed
from both the current and prior period as part of the underlying movement
calculation.
(ii) Free cash flow
Free cash flow is a non-GAAP measure that comprises net cash from operating
activities as well as the net purchase and disposal of investments and property,
plant and equipment that form part of net cash from investing activities. The
group's management believe the measure assists users of the financial statements
in understanding the group's cash generating performance as it comprises items
that arise from the running of the ongoing business.
The remaining components of net cash from investing activities that do not form
part of free cash flow, as defined by the group's management, relate to the
purchase and disposal of subsidiaries, associates and businesses. The group's
management regards the purchase and disposal of property, plant and equipment as
ultimately non-discretionary since ongoing investment in plant and machinery is
required to support the day-to-day operations, whereas purchases and disposals
of businesses are discretionary. However, free cash flow does not necessarily
reflect all amounts that the group either has a constructive or legal obligation
to incur. Where appropriate, separate discussion is given for the impacts of
acquisitions and disposals of businesses, equity dividends and purchase of own
shares - each of which arises from decisions that are independent from the
running of the ongoing underlying business.
The free cash flow measure is also used by management for their own planning,
budgeting, reporting and incentive purposes since it provides information on
those elements of performance which local managers are most directly able to
influence.
(iii) Return on average total invested capital
Return on average total invested capital is a non-GAAP measure that is used by
management to assess the return obtained from the group's asset base. This
measure is not specifically used in the consolidated financial statements, but
is calculated to aid comparison of the performance of the business.
The profit used in assessing the return on total invested capital reflects the
operating performance of the business after the effective tax rate for the
period stated before exceptional items and interest. Average total invested
capital is calculated using the average derived from the consolidated balance
sheets at the beginning and the end of the period. Capital employed comprises
net assets for the period, excluding post employment benefit liabilities (net of
deferred tax) and net borrowings. This average capital employed is then
aggregated with the average restructuring and integration costs net of tax,
which have been charged to exceptional items, and goodwill written off to
reserves at 1 July 2004, the date of transition to IFRS, to obtain the average
total invested capital.
Calculations for the return on average total invested capital for the six months
ended 31 December 2006 and 31 December 2005 were as follows:
2006 2005
£ million £ million
Operating profit 1,306 1,261
Associates after interest and taxation 91 77
Dividends receivable from investments - 5
Effective tax rate at 25% (349) (336)
1,048 1,007
Average net assets (excluding net post employment liabilities) 5,033 5,671
Average net borrowings 4,318 3,807
Average integration costs (net of tax) 931 931
Average goodwill 1,562 1,562
Average total invested capital 11,844 11,971
Return on average total invested capital 17.7% 16.8%
(iv) Economic profit
Economic profit is a non-GAAP measure that is used by management to assess the
group's return from its asset base compared to a standard cost of capital
charge. The measure is not specifically used in the consolidated financial
statements, but is calculated to aid comparison of the performance of the
business.
The profit used in assessing the return from the group's asset base and the
asset base itself are the same as those used in the calculation for the return
on average total invested capital (see (iii) above). The standard capital charge
applied to the average total invested capital is currently 9%, being
management's assessment of a constant minimum level of return that the group
expects to generate from its asset base. Economic profit is calculated as the
difference between the standard capital charge on the average invested assets
and the actual return achieved by the group on those assets.
Calculations for economic profit for the six months ended 31 December 2006 and
31 December 2005 were as follows:
2006 2005
£ million £ million
Average total invested capital (see (iii) above) 11,844 11,971
Operating profit 1,306 1,261
Associates after interest and taxation 91 77
Dividends receivable from investments - 5
Effective tax rate at 25% (349) (336)
1,048 1,007
Capital charge at 9% of average total invested capital (50% half year) (533) (539)
Economic profit 515 468
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 United
States 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, anticipated cost savings or synergies 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, partnerships,
acquisitions or disposals, existing or future, and the ability to realise
expected synergies and/or costs savings;
• Diageo's ability to complete existing or future acquisitions and
disposals;
• legal and regulatory developments, including changes in regulations
regarding consumption of, or advertising for, beverage alcohol, changes in tax
law (including tax rates) or accounting standards, changes in taxation
requirements, such as the impact of excise tax increases with respect to the
business, and changes in environmental laws, health regulations and the laws
governing pensions;
• developments in the alcohol advertising class actions and any similar
proceedings or other litigation directed at the drinks and spirits industry;
• developments in the Colombian litigation and any similar proceedings;
• 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 spend, promotional and innovation 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 exchange rate fluctuations, which may affect
Diageo's access to or increase the cost of financing or which may affect
Diageo's financial results.
All oral and written forward-looking statements made on or after the date of
this announcement and attributable to Diageo are expressly qualified in their
entirety by the above factors and the 'risk factors' contained in the Annual
Report on Form 20-F for the year ended 30 June 2006 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. The reader should, however,
consult any additional disclosures that Diageo may make in documents it files
with the US Securities and Exchange Commission.
The information in this announcement does not constitute an offer to sell or an
invitation to buy shares in Diageo plc or any other invitation or inducement to
engage in investment activities.
This document includes disclosure about Diageo's debt rating. A security rating
is not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning rating organisation. Each
rating should be evaluated independently of any other rating.
Past performance cannot be relied upon as a guide to future performance.
For further information
Diageo's interim results presentation to analysts and investors will be
broadcast at 09.30 (UK time) on Thursday 15 February 2007. The presentation
will be available on the Diageo website www.diageo.com and also at
www.cantos.com. Prior to the event 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
question and answer session.
The number to call is:
France + 33 1 70 75 00 04
Germany + 49 69 2222 52104
Ireland + 353 1 246 0036
Netherlands + 31 20 710 9321
Spain + 34 91 414 1544
UK + 44 20 7019 0812
USA (toll free) + 877 818 6787
Passcode: Diageo results
After the presentation the slides and accompanying text will be available to
download from Diageo's homepage.
You will be able to view a recording of the presentation and question and answer
session on the Diageo website from 14.00 (UK time) on the day. This facility
will be available until 30 March 2007.
A press conference will take place beginning at 12.30 (UK time) on 15 February
2007 and will be broadcast live from a link on www.diageo.com.
Diageo management will host a conference call for analysts and investors at
15.00 (UK time) on Thursday 15 February 2007. Call this number to participate:
France + 33 1 70 75 00 04
Germany + 49 69 2222 52104
Ireland + 353 1 246 0036
Netherlands + 31 20 710 9321
Spain + 34 91 414 1544
UK + 44 20 7019 0812
USA (toll free) + 877 818 6787
Passcode: Diageo results
The teleconference will be available on instant replay from 17.00 (UK time) and
will be available until 30 March 2007. The number to call is:
UK/Europe +44 20 7970 8412
USA/Canada +1 203 369 4860
Investor enquiries to: Darren Jones +44 (0) 20 7927 4223
Sandra Moura +44 (0) 20 7927 4326
Investor.relations@diageo.com
Media enquiries to: Isabelle Thomas +44 (0) 20 7927 5967
Jennifer Crowl +44 (0) 20 7927 5749
Media@diageo.com
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 22nd November 2024
COMPANIES COVERED:
Latest directors dealings
- 1 day ago Cerillion
- 1 day ago Associated British Foods
- 1 day ago B&M European Value Retail S.A. (DI)
- 1 day ago B&M European Value Retail S.A. (DI)
- 1 day ago Haleon